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Document and Entity Information

v2.4.0.8
Document and Entity Information
6 Months Ended
Jun. 30, 2014
Document And Entity Information  
Entity Registrant Name Bone Biologics, Corp.
Entity Central Index Key 0001419554
Document Type 8-K
Amendment Flag false
Document Period End Date Jun. 30, 2014
Entity Filer Category Smaller Reporting Company

Balance Sheets (Unaudited)

v2.4.0.8
Balance Sheets (Unaudited) (USD $)
Jun. 30, 2014
Jun. 30, 2014
Pro Forma [Member]
Series A Convertible Preferred Stock [Member]
Jun. 30, 2014
Pro Forma [Member]
Series B Convertible Preferred Stock [Member]
Jun. 30, 2014
Pro Forma [Member]
Subtotal [Member]
Jun. 30, 2014
Pro Forma [Member]
Subtotal [Member]
Series A Convertible Preferred Stock [Member]
Jun. 30, 2014
Pro Forma [Member]
Subtotal [Member]
Series B Convertible Preferred Stock [Member]
Jun. 30, 2014
Pro Forma [Member]
Bone Biologics, Inc [Member]
Jun. 30, 2014
Pro Forma [Member]
Bone Biologics, Corp [Member]
Jun. 30, 2014
Pro Forma [Member]
Bone Biologics, Corp [Member]
Series A Convertible Preferred Stock [Member]
Jun. 30, 2014
Pro Forma [Member]
Bone Biologics, Corp [Member]
Series B Convertible Preferred Stock [Member]
Apr. 30, 2014
Pro Forma [Member]
AFH Acquisition X, Inc.[Member]
Jun. 30, 2014
Pro Forma Adjustments [Member]
Jun. 30, 2014
Pro Forma Adjustments [Member]
Series A Convertible Preferred Stock [Member]
Jun. 30, 2014
Pro Forma Adjustments [Member]
Series B Convertible Preferred Stock [Member]
Jun. 30, 2014
Pro Forma Adjustments One [Member]
Jun. 30, 2014
Pro Forma Adjustments Two [Member]
Jun. 30, 2014
Pro Forma Adjustments Three [Member]
Jun. 30, 2014
Pro Forma Adjustments Four [Member]
Jun. 30, 2014
Pro Forma Adjustments Five [Member]
Jun. 30, 2014
Pro Forma Adjustments Six [Member]
Jun. 30, 2014
Pro Forma Adjustments Seven [Member]
Jun. 30, 2014
Pro Forma Adjustments Eight [Member]
Jun. 30, 2014
Pro Forma Adjustments Nine [Member]
Jun. 30, 2014
Pro Forma Adjustments Ten [Member]
Jun. 30, 2014
Pro Forma Adjustments Eleven [Member]
Jun. 30, 2014
Pro Forma Adjustments Twelve [Member]
Jun. 30, 2014
Pro Forma Adjustments Thirteen [Member]
Jun. 30, 2014
Pro Forma Adjustments Fourteen [Member]
Jun. 30, 2014
Pro Forma Adjustments Fifteen [Member]
Jun. 30, 2014
Pro Forma Adjustments Sixteen [Member]
Jun. 30, 2014
Pro Forma Adjustments Seventeen [Member]
Dec. 31, 2013
Audited [Member]
Dec. 31, 2012
Audited [Member]
Dec. 31, 2013
Audited [Member]
Series A Preferred Stock [Member]
Dec. 31, 2012
Audited [Member]
Series A Preferred Stock [Member]
Dec. 31, 2013
Audited [Member]
Series B Preferred Stock [Member]
Dec. 31, 2012
Audited [Member]
Series B Preferred Stock [Member]
Current assets                                                                          
Cash $ 163     $ 221     $ 163 $ 715,221     $ 58 $ 250,000 [1]     $ 500,000 [2] $ (35,000) [3]                               $ 1,538 $ 2,370        
Prepaid expenses and other current assets 9,000     9,000     9,000 9,000                                               10,767           
Deferred transaction costs 100,335     100,335     100,335 461,831       366,496 [3]     (5,000) [3]                                 75,000           
Deferred financing fees 16,581     16,581     16,581 16,581       13,105 [3]     (13,105) [3]                                              
Total current assets 126,079     126,137     126,079 1,202,633     58                                         87,305 2,370        
Total assets 126,079     126,137     126,079 1,202,633     58                                         87,305 2,370        
Current liabilities                                                                          
Accounts payable                                                               41,300           
Accrued liabilities 1,829,927     1,834,381     1,829,927 2,167,294     4,454 590,000 [3]     200,000 [3] (410,726) [4] (44,683) [5] (1,678) [6]                           1,525,604 991,403        
Advances due to related party 130,674     130,674     130,674 130,674                                                            
Due to parent       39,173              39,173 (39,173) [7]                                                  
Convertible notes payable                        (111,893) [1]     250,000 [5] 111,893 [1] (250,000) [1]                                        
Notes payable, net 277,066     277,066     277,066          (250,000) [5]     15,879 [5] (50,000) [5] 7,055 [5]                             180,690           
Notes payable to related parties, net 4,106,972     4,106,972     4,106,972 2,754,770       (1,107,000) [4]     (100,000) [5] 104,798 [6] (250,000) [6]                             3,947,817 3,687,237        
Total current liabilities 6,344,639     6,388,266     6,344,639 5,052,738     43,627                                         5,695,411 4,678,640        
Total liabilities 6,344,639     6,388,266     6,344,639 5,052,738     43,627                                         5,695,411 4,678,640        
Commitments and Contingencies                                                                             
Stockholders' deficit                                                                          
Preferred stock value   49 534   49 534               (49) [8] (534) [8]                                       49 49 534 534
Common stock, value 510     5,510     510 17,913     5,000 50 [2],[6]     5 [5] (5,000) [7] 152 [4] 583 [8] 114 [5] 276 [5] 16,157 [9] 67 [6]                   510 510        
Additional paid-in capital 2,145,066     2,165,066     2,145,066 5,894,641     20,000 499,950 [2]     111,893 [1] (20,000) [7] (43,569) [7] 1,517,574 [4] 114,205 [5] 275,417 [5] (13,557) [3] 393,158 [3] 501,611 [6] 54,665 [5] (2,500) [3] 26,200 [3] (15,720) [3] (23,333) [3] (16,157) [9] 39,173 [7] 330,564 [10] 2,004,305 1,853,938        
Accumulated deficit (8,364,719)     (8,433,288)     (8,364,719) (9,762,660)     (68,569) 68,569 [7]     (590,000) [3] (200,000) [3] (7,055) [5] (15,879) [5] (10,480) [3] (11,667) [3] (13,105) [3] (216,691) [6] (2,500) [3] (330,564) [10]               (7,613,504) (6,531,301)        
Total stockholders' deficit (6,218,560)     (6,262,129)     (6,218,560) (3,850,105)     (43,569)                                         (5,608,106) (4,676,270)        
Total liabilities and stockholders' deficit $ 126,079     $ 126,137     $ 126,079 $ 1,202,633     $ 58                                         $ 87,305 $ 2,370        
[1] Reflect the issuance of $250,000 Subsequent Orthofix Convertible Notes, which are convertible into 333,333 shares at $0.75 per share, and the issuance of Subsequent Orthofix Warrants to purchase 166,667 shares of the Company’s common stock at $1.50 per share. The fair value of the Subsequent Orthofix Warrants was $111,893 and was calculated using the Black-Scholes option pricing model with a risk-free rate of 0.88%, volatility of 109% and a 4 year term.
[2] e)Impact of Subsequent Orthofix Financing; reflect the aggregate of 500,000 subscription receipts issued at $1.00 per subscription to Orthofix for gross proceeds of $500,000 and recorded in Common Stock and additional paid-in capital.
[3] Offering costs incurred in connection with the Private Placement; allocated to additional paid in capital as issuance costs and deferred financing fees for debt placement.Reflect costs incurred in connection with the Merger. - Promissory note due AFH Advisory of $590,000, which reflects a shell fee of $500,000 and legal expenses of $90,000 and expensed as a cost of the merger. Bone Biologics paid $250,000 as of July 3, 2014. In July 2014, Bone issued a secured promissory note for $340,000 and MTF granted AFH Advisory a standby letter of credit in the amount of $340,000 for the remaining amount due under the Note. - At the closing of the Private Placement, AFH Advisory is entitled to receive warrants ("Extra Warrants") to purchase up to 500,000 shares of Common Stock at the closing of the Private Placement at the price per share offered in the Private Placement or $1.00 per share with a 5 year term. The warrants have an estimated fair value of $393,159 calculated using the Black-Scholes Option Pricing Model with a risk-free rate of 1.62% and volatility of 109%. The fair value of the warrants was allocated and charged (i) $13,105 to deferred financing fees related to the Subsequent Orthofix Notes, (ii) $13,557 to Subsequent Orthofix Subscription and offset against the related proceeds and (iii) $366,496 charged to Deferred Transaction Costs for allocation to PPM and PIPE. Allocations are based on corresponding amounts of debt raised to date and total estimated equity associated with the Subsequent Orthofix Raise, PPM and PIPE financing. - Forefront as Placement Agent was issued a warrant (the "Agent Warrant") to purchase 46,667 shares of Common Stock at $1.00 per share upon completion of the Orthofix Subsequent Financing. The Agent Warrant is equal to 4% of the Common Stock underlying the securities issued in the Orthofix Subsequent Financing. The warrant has a 5 year term and total estimated fair value of $34,381, of which 33,334 additional shares were recorded in connection with the financing for an estimated fair value of $26,200, calculated using Black-Scholes Option Pricing Model with a risk-free rate of 1.56% and volatility of 109%. - In addition, the Company agreed to pay Forefront a cash fee equal to 4% of gross proceeds received from the Orthofix Subsequent Financing or $30,000 and an estimated $5,000 in expenses, for an aggregate of $35,000. Both the fair value of the Agent Warrant and the cash fee were allocated to debt (and written-off as the Subsequent Orthofix Notes were converted to equity) and additional paid-in capital (which offset the proceeds received from the Subsequent Orthofix Subscription), based on the corresponding amounts of debt and equity raised in the Subsequent Orthofix Financing. - Previously deferred transaction costs of $5,000 were allocated to the Subsequent Orthofix Financing (which includes the assigned MTF 2014 Note) and charged 50% against the proceeds from the Orthofix Subsequent Financing within additional paid-in capital and 50% to interest expense (accumulated deficit) for Orthofix Subsequent Notes which were converted to equity. - AFH Advisory and MTF will each receive restricted stock awards contingent upon completion of milestone targets equal to 2.5% of the fully diluted shares of the Company at the time of completion of all such targets. Compensation expense associated with the restricted shares will be recognized when probable over the performance period of 2 years. There was no impact to the Pro forma financial statements.
[4] Record the conversion of Bone Biologics MTF Convertible Notes related party debt and accrued interest into Common Stock on a 1 for 1 basis. Convertible debt of $1,517,726, including accrued interest of $410,726 through 6/30/2014, converts into 1,517,726 shares of Series B Preferred stock at $1.00 per share and subsequently into Common Stock on a 1 for 1 basis.
[5] Record the conversion of Bone Biologics 2013 Bridge Notes and accrued interest into Common Stock on a 1 for 1 basis. Bridge Notes of $444,683 including interest of $44,683 converts into 444,683 shares of Common Stock at $1.00 per share. The remaining debt discount of $22,935 is charged to interest expense (accumulated deficit).
[6] Reflect the conversion of the Subsequent Orthofix Bridge Notes of $500,000 plus accrued interest of $1,678 into 668,904 shares of Common Stock and expensing of related debt discount of $216,691. Included in these amounts are the debt discount of $104,798 and interest of $1,678 associated with the $250,000 May 2014 MTF Note which was assigned to Orthofix.
[7] Reflect the exchange of AFH Acquisition X shares for shares of the Company. - Record the transfer of the value of AFH Acquisition X common shares of $5,000 to additional paid-in capital. - Record the transfer of the value of AFH Acquisition X additional paid-in capital of $20,000 to Bone Biologics additional paid-in capital. - Record the elimination of AFH Acquisition X deficit of $68,569. - Net amount of ($43,569), which represents the fair value of net assets of AFH Acquisition X and charged to additional paid-in capital as a cost of the listing. - Record the reclass of amount due to parent of $39,173 to equity - additional paid-in capital.
[8] Record the conversion of Bone Biologics Series A and Series B Preferred into Common Stock on a 1 for 1 basis. At the time of the Reverse Merger, MTF agreed to convert its entire outstanding holdings of Bone Biologics Preferred Stock into shares of Common Stock, which consist of 493,339 shares of Series A Preferred and 5,336,099 shares of Series B Preferred for an aggregate of 5,829,438 shares.
[9] Adjust the PAR value of Bone Biologics Common Stock PAR value was adjusted from $0.0001 per share to $0.001 per share of Bone Biologics, Corp. Common stock for a total of 17,913,012 issued and outstanding shares, and a reclass of $16,157 from APIC to Common Stock for a total value of $17,913.
[10] Record stock-based compensation associated with the issuance of new management and consultant stock options, for an aggregate total of $330,564. Reflect stock-based compensation of $162,103 related to the issuance of 583,059 options to purchase shares of Common Stock issued to management of Bone Biologics, Corp., of which 198,202 vest immediately upon issuance. Reflect stock-based compensation of $168,461 related to the issuance of warrants to purchase 699,671 shares of Bone Biologics, Corp. Common Stock issued to a consultant outside of the 2014 Equity Incentive Plan, of which 230,915 vest immediately upon issuance.

Balance Sheets (Unaudited) (Parenthetical)

v2.4.0.8
Balance Sheets (Unaudited) (Parenthetical) (USD $)
Jun. 30, 2014
Jun. 30, 2014
Series A Preferred Stock [Member]
Jun. 30, 2014
Series B Preferred Stock [Member]
Dec. 31, 2013
Audited [Member]
Dec. 31, 2012
Audited [Member]
Dec. 31, 2013
Audited [Member]
Series A Preferred Stock [Member]
Dec. 31, 2012
Audited [Member]
Series A Preferred Stock [Member]
Dec. 31, 2013
Audited [Member]
Series B Preferred Stock [Member]
Dec. 31, 2012
Audited [Member]
Series B Preferred Stock [Member]
Preferred stock, par value   $ 0.0001 $ 0.0001     $ 0.0001 $ 0.0001 $ 0.0001 $ 0.0001
Preferred stock, shares authorized   493,339 10,000,000     493,339 493,339 10,000,000 10,000,000
Preferred stock, shares issued   493,339 5,336,099     493,339 493,339 5,336,099 5,336,099
Preferred stock, shares outstanding   493,339 5,336,099     493,339 493,339 5,336,099 5,336,099
Preferred stock, liquidation preference   $ 881,103 $ 23,585,557     $ 881,103 $ 881,103 $ 23,585,557 $ 23,585,557
Common stock, par value $ 0.0001     $ 0.0001 $ 0.0001        
Common stock, shares authorized 20,000,000     20,000,000 20,000,000        
Common stock, shares issued 5,098,661     5,098,661 5,098,661        
Common stock, shares outstanding 5,098,661     5,098,661 5,098,661        

Statement of Operations (Unaudited)

v2.4.0.8
Statement of Operations (Unaudited) (USD $)
3 Months Ended 6 Months Ended 12 Months Ended 6 Months Ended 12 Months Ended 6 Months Ended 12 Months Ended 6 Months Ended 12 Months Ended 118 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Jun. 30, 2014
Jun. 30, 2013
Dec. 31, 2013
Bone Biologics, Inc [Member]
Dec. 31, 2013
Bone Biologics, Corp [Member]
Jun. 30, 2014
Pro Forma [Member]
Subtotal [Member]
Dec. 31, 2013
Pro Forma [Member]
Subtotal [Member]
Jun. 30, 2014
Pro Forma [Member]
Bone Biologics, Inc [Member]
Jun. 30, 2014
Pro Forma [Member]
Bone Biologics, Corp [Member]
Apr. 30, 2014
Pro Forma [Member]
AFH Acquisition X, Inc.[Member]
Oct. 31, 2013
Pro Forma [Member]
AFH Acquisition X, Inc.[Member]
Jun. 30, 2014
Pro Forma Adjustments [Member]
Dec. 31, 2013
Pro Forma Adjustments [Member]
Dec. 31, 2013
Pro Forma Adjustments One [Member]
Dec. 31, 2013
Audited [Member]
Dec. 31, 2012
Audited [Member]
Dec. 31, 2013
Audited [Member]
Revenues                                                   
Cost of revenues                                                   
Gross profit                                                   
Operating expenses                                    
Research and development 155,257 56,619 183,111 96,213 188,236 188,236 183,111 188,236 183,111 183,111             188,236 255,575 5,089,482
General and administrative 183,036 154,756 307,948 215,937 483,749 1,730,288 311,312 488,555 307,948 475,529 3,364 4,806 164,217 [1] (50,000) [2] 1,291,733 [3] 483,749 180,089 1,238,419
Total operating expenses 338,293 211,375 491,059 312,150 671,985 1,918,524 494,423 676,791 491,059 658,640 3,364 4,806       671,985 435,664 6,327,901
Loss from operations (338,293) (211,375) (491,059) (312,150) (671,985) (1,918,524) (494,423) (676,791) (491,059) (658,640) (3,364) (4,806)       (671,985) (435,664) (6,327,901)
Other Income (expense)                                    
Other expense (9,623)   (9,623)         (9,623)    (9,623) (9,623)                 
Interest expense, net (116,294) (94,277) (250,533) (172,524) (409,419) (259,048) (250,533) (409,419) (250,533) (96,972)       (153,561) [4],[5] (150,371) [6],[7]   (409,419) (279,101) (1,277,603)
Total other income (expense) (125,917) (94,277) (260,156) (172,524)       (260,156)    (260,156) (106,595)             (409,419) (279,101) (1,277,603)
Loss before provision for income taxes (464,210) (305,652) (751,215) (484,674) (1,081,404) (2,177,572) (754,579) (1,086,210) (751,215) (765,235) (3,364) (4,806)       (1,081,404) (714,765) (7,605,504)
Provision for income taxes    800    800 800 1,200 400 1,200    400 400 400       800 800 8,000
Net loss and comprehensive loss $ (464,210) $ (306,452) $ (751,215) $ (485,474) $ (1,082,204) $ (2,178,772) $ (754,979) $ (1,087,410) $ (751,215) $ (765,635) $ (3,764) $ (5,206)       $ (1,082,204) $ (715,565) $ (7,613,504)
[1] Estimated stock-based compensation expense of $164,185, which is related to the management and consultant stock option grants.
[2] Reversal of one-time legal fees of $50,000 associated with the LOI transactions including the PPM and Merger Agreement.
[3] Estimated stock-based compensation expense of $1,291,733 related to the management and consultant stock option grants, board and CEO stock option grants and restricted stock awards.
[4] Reversal of $62,450 of interest expense, of which $34,927 is related to the 30% conversion of MTF Notes, $25,845 is related to the 2013 Bridge Notes and $1,678 is related to the May 2014 MTF Note.
[5] Reversal of amortization of debt discount of $91,111, of which $20,959 is related to the 2013 MTF Bridge Notes and 2014 MTF Note, $53,430 is related to the Orthofix 2013 Bridge Notes and $16,721 is related to the AFH 2013 Bridge Note.
[6] Reversal of $83,267 of interest expense, of which $64,178 is related to the 30% conversion of MTF Notes and $19,088 related to the 2013 Bridge Notes.
[7] Reversal of amortization of debt discount related to the 2013 Bridge Notes of $67,104.

Statements of Stockholders' Deficit

v2.4.0.8
Statements of Stockholders' Deficit (USD $)
Series A Preferred Stock [Member]
Series B Preferred Stock [Member]
Common Stock [Member]
Additional Paid-In Capital [Member]
Accumulated Deficit During Development Stage [Member]
Total
Balance at Mar. 08, 2004                $ 0
Balance, shares at Mar. 08, 2004               
Capital contribution       35,000   35,000
Net loss         (32,327) (32,327)
Balance at Dec. 31, 2004          35,000 (32,327) 2,673
Capital contribution       (18,000)   (18,000)
Issuance of common stock     513 34,012   34,525
Issuance of common stock, shares     5,125,500      
Net loss         (50,762) (50,762)
Balance at Dec. 31, 2005       513 51,012 (83,089) (31,564)
Balance, shares at Dec. 31, 2005     5,125,500      
Issuance of common stock     47 (47)   0
Issuance of common stock, shares     473,161      
Sale and issuance of preferred stock for cash 8     149,993   150,001
Sale and issuance of preferred stock for cash, shares 83,987          
Issuance of Series A Preferred Stock in conjunction with the conversion of notes payable in July 2006 41     731,062   731,103
Issuance of Series A Preferred Stock in conjunction with the conversion of notes payable in July 2006, shares 409,352          
Issuance of warrants in connection with Bridge Notes       10,356   10,356
Net loss         (476,474) (476,474)
Balance at Dec. 31, 2006 49    560 942,376 (559,563) 383,422
Balance, shares at Dec. 31, 2006 493,339    5,598,661      
Sale and issuance of preferred stock for cash   15   653,467   653,482
Sale and issuance of preferred stock for cash, shares   147,846        
Repurchase common stock     (50) (34,650)   (34,700)
Repurchase common stock, shares     (500,000)      
Net loss         (1,218,678) (1,218,678)
Balance at Dec. 31, 2007 49 15 510 1,561,193 (1,778,241) (216,474)
Balance, shares at Dec. 31, 2007 493,339 147,846 5,098,661      
Net loss         (1,001,573) (1,001,573)
Balance at Dec. 31, 2008 49 15 510 1,561,193 (2,779,814) (1,218,047)
Balance, shares at Dec. 31, 2008 493,339 147,846 5,098,661      
Issuance of warrants in connection with March 2009 note       47,970   47,970
Net loss         (1,200,579) (1,200,579)
Balance at Dec. 31, 2009 49 15 510 1,609,163 (3,980,393) (2,370,656)
Balance, shares at Dec. 31, 2009 493,339 147,846 5,098,661      
Issuance of Series B Preferred Stock in conjunction with the conversion of September 2009 Convertible Note in February 2010   519   141,448   141,967
Issuance of Series B Preferred Stock in conjunction with the conversion of September 2009 Convertible Note in February 2010, shares   5,188,253        
Issuance of warrants in connection with Bridge Notes       103,327   103,327
Net loss         (897,713) (897,713)
Balance at Dec. 31, 2010 49 534 510 1,853,938 (4,878,106) (3,023,075)
Balance, shares at Dec. 31, 2010 493,339 5,336,099 5,098,661      
Net loss         (937,630) (937,630)
Balance at Dec. 31, 2011 49 534 510 1,853,938 (5,815,736) (3,960,705)
Balance, shares at Dec. 31, 2011 493,339 5,336,099 5,098,661      
Net loss         (715,565) (715,565)
Balance at Dec. 31, 2012 49 534 510 1,853,938 (6,531,301) (4,676,270)
Balance, shares at Dec. 31, 2012 493,339 5,336,099 5,098,661      
Issuance of warrants in connection with Bridge Notes       150,367   150,367
Net loss         (1,082,203) (1,082,203)
Balance at Dec. 31, 2013 $ 49 $ 534 $ 510 $ 2,004,305 $ (7,613,504) $ (5,608,106)
Balance, shares at Dec. 31, 2013 493,339 5,336,099 5,098,661      

Statements of Stockholders' Deficit (Parenthetical)

v2.4.0.8
Statements of Stockholders' Deficit (Parenthetical) (USD $)
Dec. 31, 2006
Series A Preferred Stock [Member]
Dec. 31, 2007
Series B Preferred Stock [Member]
Issuance of share price per share $ 1.786 $ 4.42

Condensed Statements of Cash Flows (Unaudited)

v2.4.0.8
Condensed Statements of Cash Flows (Unaudited) (USD $)
6 Months Ended 12 Months Ended 118 Months Ended
Jun. 30, 2014
Jun. 30, 2013
Dec. 31, 2013
Audited [Member]
Dec. 31, 2012
Audited [Member]
Dec. 31, 2013
Audited [Member]
Cash flows from operating activities          
Net loss $ (751,215) $ (485,474) $ (1,082,204) $ (715,565) $ (7,613,504)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:          
Accrued interest expense 162,493 161,616 340,268 279,104 1,180,488
Debt discount amortization 91,111 10,447 67,104    67,104
Loss on sale of marketable securities 9,623         
Warrants issued in connection with deferred fees           161,613
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets 1,767 (17,708) (10,767)    (10,767)
Advances due to related party 89,374         
Deferred transaction costs     4,717    4,717
Accounts payable     41,300 (29,657) 41,300
Accrued expenses 108,095 (7,892) 114,215 18,632 287,422
Net cash provided by (used in) operating activities (288,752) (339,011) (525,365) (447,486) (5,881,628)
Cash flows from investing activities          
Proceeds from sale of marketable securities 37,377         
Net cash provided by investing activities 37,377         
Cash flows from financing activities          
Capital contributions, net           17,000
Proceeds from issuance of notes payable 250,000 374,533 524,533 448,609 5,062,858
Proceeds from issuance of common stock           34,525
Repurchase of common stock           (34,700)
Proceeds from sale of Series A preferred stock           150,000
Proceeds from sale of Series B preferred stock           653,482
Net cash provided by financing activities 250,000 374,533 524,533 448,609 5,883,165
Net increase (decrease) in Cash (1,375) 35,522 (832) 1,123 1,538
Cash, beginning of period 1,538 2,370 2,370 1,247  
Cash, end of period 163 37,892 1,538 2,370 1,538
Supplemental non-cash information          
Issuance of warrants in connection with Notes Payable, net of amortization included above 104,798 75,292         
Issuance of warrants in payment of financing fees 8,180            
Conversion of notes payable and Accrued interest to preferred stock             873,070
Accrued transaction fees       129,717      
Interest paid       2,047    2,047
Taxes paid    800 800 800 8,000
Warrants issued in connection with notes payable       $ 150,367      

Basis of Presentation

v2.4.0.8
Basis of Presentation (Pro Forma [Member])
6 Months Ended
Jun. 30, 2014
Pro Forma [Member]
 
Basis of Presentation

1. Basis of presentation

 

On September 19, AFH Acquisition X, Inc. (“AFH”) and its wholly-owned subsidiary, Merger Sub, entered into the Merger Agreement between AFH, Merger Sub, and Bone Biologics, Inc. Pursuant to the Merger Agreement, Merger Sub merged with and into Bone Biologics with Bone Biologics remaining as the surviving corporation in the Merger. Upon the consummation of the Merger, the separate existence of Merger Sub ceased, on September 22, 2014 AFH officially changed its name to “Bone Biologics, Corp.” to more accurately reflect the nature of its business, and Bone Biologics became a wholly-owned subsidiary of the Company.

 

As used in this Current Report, the terms “we,” “us,”, “our” and “the Company” refer to AFH, after giving effect to the Merger or Bone Biologics, Corp., unless otherwise stated or the context clearly indicates otherwise. The term “AFH” refers to the Company, as it was named “AFH Acquisition X, Inc.” before giving effect to the Merger.

 

These pro forma consolidated financial statements have been prepared from, and should be read in conjunction with the audited financial statements as at October 31, 2013 and 2012 and for each of the years in the two years ended October 31, 2013; and the unaudited financial statements as at April 30, 2014 and for the six month periods ended April 30, 2014 and 2013 of Acquisition X, Inc. In addition, these pro forma consolidated financial statements have been prepared from, and should be read in conjunction with the audited financial statements as at December 31, 2013 and 2012 and for the two years then ended; and the unaudited financial statements as at June 30, 2014 and for the six month periods ended June 30, 2014 and 2013 of Bone Biologics. These financial statements are included elsewhere in this Filing Statement.

 

The Merger will be treated as a recapitalization of the Company for financial accounting purposes and is being accounted for as a “reverse merger,” and although the Company is the legal acquirer, Bone Biologics, Inc. is deemed to be the acquirer for accounting purposes in the reverse merger. Consequently, the assets and liabilities and the historical operations that will be reflected in the financial statements prior to the Merger will be those of Bone, and the consolidated financial statements after completion of the Merger will include the assets and liabilities of Bone, historical operations of Bone and operations of Bone from the Closing Date of the Merger and in all future filings with the Securities and Exchange Commission (the “SEC”).

 

The pro forma consolidated statement of financial position gives effect to the transactions described in Note 6 below as if they had occurred on June 30, 2014. The pro forma consolidated statement of financial position and results of operations are not necessarily indicative of the results that would have actually occurred if the transactions had been consummated on this date, nor is it necessarily indicative of the future financial position of the Company.

The Company

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The Company
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Company    
The Company

1. The Company

 

Bone Biologics, Inc. (“Bone” or the “Company”) was incorporated in California on March 9, 2004. Bone is a privately-held biotechnology company that is currently focused on bone regeneration in spinal fusion using the recombinant human protein, known as UCB-1 (or “Nell-1”). The Nell-1 protein is an osteoinductive recombinant protein that provides target specific control over bone regeneration. The protein has been licensed exclusively for worldwide applications to Bone Biologics through a technology transfer from the University of California, Los Angeles (“UCLA”). Bone Biologics recently received guidance from the United States Food and Drug Administration (“FDA”) that Nell-1 will be classified as a combination product with a device lead.

 

The production and marketing of the Company’s products and its ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any drug developed by the Company must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the FDA under the Food, Drug and Cosmetic Act. The Company has limited experience in conducting and managing the preclinical and clinical testing necessary to obtain regulatory approval. There can be no assurance that the Company will not encounter problems in preclinical and clinical trials that will cause the Company or the FDA to delay or suspend clinical trials.

 

The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.

 

In August 2012, the Company, along with its majority owner and debt holder, Musculoskeletal Transplant Foundation, Inc. (“MTF”) and AFH Holding & Advisory, LLC (“AFH”) entered into a Letter of Intent (“LOI”), as amended on August 19, 2013 and subsequently on May 7, 2014, to consummate a business combination through a share exchange, reverse merger, or other similar transactions resulting in the Company becoming a public entity (“The Transaction”) and the contemplated subsequent financings (see Note 4).

 

Going Concern and Liquidity

 

The Company has no significant operating history and, from March 9, 2004 (inception) to June 30, 2014, has generated a net loss of approximately $8.4 million. The Company will continue to incur significant expenses for development activities for their lead product Nell-1. The accompanying condensed financial statements for the three and six months ended June 30, 2014, have been prepared assuming the Company will continue as a going concern. In connection with the LOI, management intends to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet the Company’s needs.

 

The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

1. The Company

 

Bone Biologics, Inc. (“Bone” or the “Company”) was incorporated in California on March 9, 2004. Bone is a privately-held biotechnology company that is currently focused on bone regeneration in spinal fusion using the recombinant human protein, known as UCB-1 (or “Nell-1”). The UCB-1 protein is an osteoinductive recombinant protein that provides target specific control over bone regeneration. The protein has been licensed exclusively for worldwide applications to Bone Biologics through a technology transfer from the University of California, Los Angeles (“UCLA”). Bone Biologics recently received guidance from the United States Food and Drug Administration (“FDA”) that UCB-1 will be classified as a combination product with a device lead.

 

The Company is a development stage entity. The production and marketing of the Company’s products and its ongoing research and development activities will be subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any drug developed by the Company must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the FDA under the Food, Drug and Cosmetic Act. The Company has limited experience in conducting and managing the preclinical and clinical testing necessary to obtain regulatory approval. There can be no assurance that the Company will not encounter problems in clinical trials that will cause the Company or the FDA to delay or suspend clinical trials.

 

The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.

 

In August 2012, the Company, along with its majority owner and debt holder, Musculoskeletal Transplant Foundation, Inc. (“MTF”) and AFH Holding & Advisory, LLC (“AFH”) entered into a Letter of Intent (“LOI”), as amended on August 19, 2013, to consummate a business combination through a share exchange, reverse merger, or other similar transactions resulting in the Company becoming a public entity (“The Transaction”) and the contemplated subsequent financings (see Note 4).

 

Going Concern and Liquidity

 

The Company has no significant operating history and, from March 9, 2004 (inception) to December 31, 2013, has generated an accumulated deficit of approximately $7.6 million. The Company will continue to incur significant expenses for development activities for their lead product Nell-1. The accompanying financial statements for the year ended December 31, 2013, have been prepared assuming the Company will continue as a going concern. In connection with the LOI, management intends to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts and on acceptable terms necessary to meet the Company’s needs.

 

The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

Summary of Significant Accounting Policies

v2.4.0.8
Summary of Significant Accounting Policies
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

 

The unaudited interim condensed financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and notes for the year ended December 31, 2013. The results of the three and six-month periods ended June 30, 2014 are not necessarily indicative of the results to be expected for the full year ending December 31, 2014.

 

Basis of Presentation

 

The accompanying condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

Use of Estimates

 

The preparation of the accompanying condensed financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Significant estimates include warrants and income tax valuation allowances. Actual results could differ from those estimates.

 

Research and Development Costs

 

Research and development costs include, but are not limited to, patents and license expenses, payroll and other personnel expenses, consultants, expenses incurred under agreements with contract research and manufacturing organizations and animal clinical investigative sites and the cost to manufacture clinical trial materials. Costs related to research, design and development of products are charged to research and development expense as incurred.

 

Patents and Licenses

 

In March 2006, the Company entered into an exclusive license agreement (“Exclusive License Agreement”), with UCLA for the worldwide application of the UCB-1 protein through a technology transfer. See Note 4 for commitments related to the Exclusive License Agreement. Patent expenses include costs to acquire the license of UCB-1, which was de minimus, and costs to file patent applications related to UCB-1.

 

Bone Biologics expenses the costs incurred to file patent applications, all costs related to abandoned patent applications and maintenance costs, and these costs are included in research and development expenses. Costs associated with licenses acquired to be able to use products from third parties prior to receipt of regulatory approval to market the related products are also expensed. The Company’s licensed technologies may have alternative future uses in that they are enabling (or platform) technologies that can be the basis for multiple products that would each target a specific indication. Costs of acquisition of licenses are expensed.

 

Deferred Financing and Transaction Costs

 

Deferred financing costs represent costs incurred in connection with the issuance of the convertible notes payable and private equity financing. Deferred financing costs related to the issuance of debt are being amortized over the term of the financing instrument using the effective interest method, while deferred transaction costs from equity financings are netted against the gross proceeds received from the equity financings.

 

During the three and six month periods ended June 30, 2014, the Company capitalized deferred financing costs of $18,180 in connection with the 2014 Note that closed in May (See Note 5). During the three and six months ended June 30, 2014, the Company incurred $25,335 of offering costs in connection with the future financings discussed in Note 4. As of June 30, 2014, all offering costs were included in accounts payable and accrued expenses in the accompanying financial statements. There were no deferred financing or transaction costs during the three and six months ended June 30, 2013.

 

Concentration of Credit Risk and Other Risks and Uncertainties

 

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. All of the non-interest bearing cash balances were fully insured at June 30, 2014. As of January 1, 2013, federal insurance coverage is $250,000 per depositor at each financial institution. The Company’s non-interest bearing cash balances may from time to time exceed federally insured limits. There were no interest-bearing amounts on deposit in excess of federally insured limits at June 30, 2014 and December 31, 2013.

 

Income Taxes

 

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due and deferred taxes resulting from timing differences in recording of transactions for tax purposes and financial reporting purposes.

 

The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are received or settled. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized.

 

The accounting provisions related to uncertain income tax positions require the Company to determine whether any tax position in all open years meets a more likely than not threshold of being sustained upon examination by the applicable taxing authority. The Company did not have any changes to its liability for uncertain tax positions as at June 30, 2014 and December 31, 2013.

 

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. No such amounts are accrued as of June 30, 2014 and December 31, 2013.

 

New Accounting Standards

 

The Company has reviewed all recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements will have a significant effect on its condensed consolidated financial statements.

 

In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders’ equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted. The Company adopted ASU 2014-10 during the quarter ended June 30, 2014, thereby no longer presenting or disclosing any information required by Topic 915.

  2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

Use of Estimates

 

The preparation of the accompanying financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Significant estimates include warrants and income tax valuation allowances. Actual results could differ from those estimates.

 

Research and Development Costs

 

Research and development costs include, but are not limited to, patents and license expenses, payroll and other personnel expenses, consultants, expenses incurred under agreements with contract research and manufacturing organizations and animal clinical investigative sites and the cost to manufacture clinical trial materials. Costs related to research, design and development of products are charged to research and development expense as incurred.

 

Patents and Licenses

 

In March 2006, the Company entered into an exclusive license agreement (“Exclusive License Agreement”) with UCLA for the worldwide application of the UCB-1 protein through a technology transfer. See Note 4 for commitments related to the Exclusive License Agreement. Patent expenses include costs to acquire the license of UCB-1, which were de minimus, and costs to file patent applications related to UCB-1.

 

Bone Biologics expenses the costs incurred to file patent applications, all costs related to abandoned patent applications and maintenance costs, and these costs are included in research and development expenses. Costs associated with licenses acquired to be able to use products from third parties prior to receipt of regulatory approval to market the related products are also expensed. The Company’s licensed technologies may have alternative future uses in that they are enabling (or platform) technologies that can be the basis for multiple products that would each target a specific indication. Costs of acquisition of licenses are expensed.

 

Concentration of Credit Risk and Other Risks and Uncertainties

 

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. All of the non-interest bearing cash balances were fully insured at December 31, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning January 1, 2013, insurance coverage reverted to $250,000 per depositor at each financial institution, and the Company’s non-interest bearing cash balances may again exceed federally insured limits. There were no interest-bearing amounts on deposit in excess of federally insured limits at December 31, 2013 and December 31, 2012.

 

Income Taxes

 

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due and deferred taxes resulting from timing differences in recording of transactions for tax purposes and financial reporting purposes.

 

The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are received or settled. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to be realized.

 

The accounting provisions related to uncertain income tax positions require the Company to determine whether any tax position in all open years meets a more likely than not threshold of being sustained upon examination by the applicable taxing authority. The Company did not have any changes to its liability for uncertain tax positions for the years ended December 31, 2013 and 2012.

 

The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. No such amounts are accrued as of December 31, 2013 and 2012.

Pro Forma [Member]
   
Summary of Significant Accounting Policies

2. Summary of significant accounting policies

 

The accounting policies adopted by the Company are those of Bone Biologics, Inc. since it is the accounting acquirer. The unaudited pro forma consolidated financial information has been prepared based on the historical financial information of Bone Biologics, Inc. and AFH Acquisition X, Inc. giving effect to the transaction between Bone Biologics with AFH Acquisition X and related adjustments described in these notes.

 

Accrued Expenses

v2.4.0.8
Accrued Expenses
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Payables and Accruals [Abstract]    
Accrued Expenses

3. Accrued Expenses

 

Accrued expenses consist of the following:

 

    June 30, 2014     December 31, 2013  
             
Interest expense   $ 1,311,618     $ 1,158,465  
Professional services     239,153       114,849  
Patents     110,245       85,412  
Deferred compensation     90,199       90,199  
Transaction costs     75,000       75,000  
Payroll liabilities     3,712       1,679  
    $ 1,829,927     $ 1,525,604  

3. Accrued Expenses

 

Accrued expenses consist of the following:

 

    December 31, 2013     December 31, 2012  
             
Interest expense   $ 1,158,465     $ 818,195  
Professional services     152,492       161,700  
Transaction costs     137,585       -  
Patents     75,383       10,031  
Payroll taxes     1,679       1,477  
                 
    $ 1,525,604     $ 991,403  

Commitments and Contingencies

v2.4.0.8
Commitments and Contingencies
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]    
Commitments and Contingencies

4. Commitments and Contingencies

 

Letter of Intent

 

In August of 2012, the Company, along with its majority owner and debt holder, MTF, entered into a Letter of Intent (“LOI”) with AFH to consummate a business combination through a share exchange, reverse merger, or other similar transactions resulting in the Company becoming a public entity (“The Transaction”). In August, 2013, the LOI was amended and restated, and on May 7, 2014, the LOI was again amended and restated. The Amended and Restated Letter of Intent dated May 7, 2014 (the “Amended LOI”) contemplates and defines the following events:

 

Consummation of Bridge Financings (“Closing I”)

 

In April 2013 and September 2013, the Company’s Board approved the Company to borrow up to an aggregate principal amount of $300,000 (April Bridge Financing) and $250,000 (September Bridge Financing) pursuant to the sale and issuance of convertible promissory notes and warrants to purchase common stock of the Company (collectively, the “Bridge Financings”). The note accrues interest at a rate of 12% per year and payable per quarter. A warrant to purchase the Company’s common stock equal to 50% of the original principal amount at $1.00 per share will be issued to each Bridge Financing participant. Principal and unpaid accrued interest may be converted into equity securities issued in the Company’s next equity financing in an aggregate amount of at least $2.5 million at a price equal to the price paid by investors in the next equity financing. On April 29, 2013 and on June 5, 2013, the Company borrowed $100,000 from MTF and $100,000 from Orthofix, Inc., respectively, under the April Bridge Financing. In September 2013, AFH purchased $50,000 of the April Bridge Financing. In October 2013, the Company borrowed an additional $150,000 from Orthofix under the September Bridge Financing.

 

Consummation of Business Combination (“Closing II”)

 

Under the amended LOI, it is contemplated that the Company and its equity holders will consummate a share exchange, reverse merger, or other business combination, with a Delaware corporation publicly reporting pursuant to United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), or a private Delaware corporation (“Acquisition Co.”), either directly or indirectly through an affiliate. If the post-business combination entity is not already a corporation publicly reporting pursuant to the Exchange Act, AFH will assist the post business combination entity with the filing of an appropriate registration statement resulting in the Company becoming a public company (“PubCo”).

 

Consummation of the Private Placement (“Closing III”)

 

Subsequent to Closing II, AFH will use its best efforts to assist PubCo in procuring one or more investors for a private financing, whether debt or equity, of a minimum of $2.5 million up to a maximum of $5.0 million. Such transaction is to include an over-allotment option of 15% at AFH’s discretion (the “Private Placement”).

 

Consummation of the PIPE Transaction (“Closing IV”)

 

Subsequent to Closing III, AFH Advisory will use its best efforts to assist PubCo in procuring an investment bank (the “Bank”) to facilitate a private investment in public equity transaction in an amount between $8.0 million and $10.0 million through the sale of securities of PubCo (the “PIPE”). Such transaction will include a 15% over allotment at AFH and/or the Bank’s discretion. Such transaction is contingent upon the appointment of a Bank and filing appropriate forms with the Financial Industry Regulatory Authority, Inc. (“FINRA”).

 

Consummation of Initial Public Offering (“Closing V”)

 

Subsequent to Closing IV, AFH will assist PubCo in procuring a Bank to act as underwriter for an initial public offering in an amount of up to $40.0 million (the “Initial Public Offering”). The Initial Public Offering shall include a 15% over allotment option at AFH and/or the Bank’s discretion. Such a transaction is contingent upon the appointment of the Bank.

 

At or prior to consummation of the Business Combination, MTF agrees to convert all of its outstanding shares of Series A preferred stock and Series B preferred stock of the Company into share of Common Stock.

 

In addition, MTF agrees to convert 30%, 35%, and 35% of all outstanding convertible promissory notes and promissory notes converting as amended (principal and accrued interest) at each of the consummation of Closing II, Closing IV, and Closing V, respectively.

 

Upon (i) the consummation of the Business Combination, (ii) after giving effect to the issuance of any securities by Acquisition Co. in connection with the Business Combination (the “Business Combination Shares”), (iii) the completion of the Private Placement and (iv) after giving effect to the PIPE, the existing stockholders of Acquisition Co., and its owners, relatives, assignees and affiliates (collectively, the “AFH Group”), will own an aggregate of ten percent of the issued and outstanding common shares (the “Advisor Shares”) of PubCo.

 

At the consummation of Closing III, AFH Group shall be entitled to receive warrants to purchase up to 500,000 share of common stock of PubCo at the per share price of the shares offered in the Private Placement with a 5 year term and a cashless exercise provision (the “Extra Warrants”).

 

In addition to the Advisor Shares and Extra Warrants, AFH Group shall be entitled to receive warrants to purchase shares of common stock of PubCo (“Advisor Warrants”) in the amount necessary to cause AFH Group, when combined with the Advisor Shares, to have ownership equal to 10% of the fully diluted outstanding Common Stock, options and warrants at Closing III.

 

AFH will also be entitled to a reimbursement of $590,000 in connection with the Business Combination, which shall be payable directly from the net proceeds of the Private Placement (Closing III) to AFH at closing. Each party will bear all of its own costs and expenses in connection with each Closing.

 

In conjunction with the Amended LOI, the Company has agreed to covenants for the period of time between signing of the Amended LOI and the consummation of the Business Combination (Closing II) or upon termination of the agreement. Such covenants include restrictions and limitations on additional indebtedness, liquidation, selling of equity securities, amending organizational document and certain other normal and customary covenants. The Amended LOI will expire on August 31, 2014 if Closing II has not occurred. On August 28, 2014 the Amended LOI expiration date was extended to September 30, 2014.

 

License Commitment

 

In connection with the Exclusive License Agreement, the Company is required to pay a royalty fee beginning in the first year of commercial sale of the licensed product equal to 3% of net sales on a quarterly basis with an annual minimum royalty of $25,000 for the life of the patent rights. In addition to the royalty fees, the Company is also required to pay UCLA a $10,000 annual maintenance fee, $50,000 upon FDA marketing approval, and $25,000 upon first commercial sale.

 

On October 22, 2013, the Exclusive License Agreement was amended. The following additional fees will be due to UCLA i) 2% of the amount raised in the Private Placement. If the Private Placement did not close or was less than $2.5 million then a fee of $100,000 was due and payable by June 1, 2014, ii) $25,000 due upon closing of Phase 1 clinical trial and iii) $50,000 due upon dosing of Phase 3 clinical trial. The Company paid the fee of $100,000 in June 2014.

 

Contingencies

 

The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the

Company’s business, financial condition, results of operations or cash flows.

 

Indemnification

 

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

 

In accordance with its amended and restated certificate of incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date and the Company has a director and officer insurance policy that enables it to recover a portion of any amounts paid for future potential claims.

  4. Commitments and Contingencies

 

Letter of Intent

 

In August of 2012, the Company, along with its majority owner and debt holder, MTF, entered into a Letter of Intent (“LOI”) with AFH to consummate a business combination through a share exchange, reverse merger, or other similar transactions resulting in the Company becoming a public entity (“The Transaction”). In August, 2013, the LOI was amended and restated, and on May 7, 2014, the LOI was again amended and restated. The Amended and Restated Letter of Intent dated May 7, 2014 (the “Amended LOI”) contemplates and defines the following events:

 

Consummation of Bridge Financings (“Closing I”)

 

In April 2013 and September 2013, the Company’s Board approved the Company to borrow up to an aggregate principal amount of $300,000 (April Bridge Financing) and $250,000 (September Bridge Financing) pursuant to the sale and issuance of convertible promissory notes and warrants to purchase common stock of the Company (collectively, the “Bridge Financings”). The note accrues interest at a rate of 12% per year and payable per quarter. A warrant to purchase the Company’s common stock equal to 50% of the original principal amount at $1.00 per share will be issued to each Bridge Financing participant. Principal and unpaid accrued interest may be converted into equity securities issued in the Company’s next equity financing in an aggregate amount of at least $2.5 million at a price equal to the price paid by investors in the next equity financing. On April 29, 2013 and on June 5, 2013, the Company borrowed $100,000 from MTF and $100,000 from Orthofix, Inc., respectively, under the April Bridge Financing. In August 2013, in conjunction with the Amended LOI, AFH agreed to purchase $50,000 of the April Bridge Financing prior to Closing II. In October 2013, the Company borrowed an additional $150,000 from Orthofix under the September Bridge Financing.

 

Consummation of Business Combination (“Closing II”)

 

Under the amended LOI, it is contemplated that the Company and its equity holders will consummate a share exchange, reverse merger, or other business combination, with a Delaware corporation publicly reporting pursuant to United States Securities Exchange Act of 1934, as amended (the “Exchange Act”), or a private Delaware corporation (“Acquisition Co.”), either directly or indirectly through an affiliate. If the post-business combination entity is not already a corporation publicly reporting pursuant to the Exchange Act, AFH will assist the post business combination entity with the filing of an appropriate registration statement resulting in the Company becoming a public company (“PubCo”).

 

Consummation of the Private Placement (“Closing III”)

 

Subsequent to Closing II, AFH will use its best efforts to assist PubCo in procuring one or more investors for a private financing, whether debt or equity, of a minimum of $2.5 million up to a maximum of $5.0 million. Such transaction is to include an over-allotment option of 15% at AFH’s discretion (the “Private Placement”).

 

Consummation of the PIPE Transaction (“Closing IV”)

 

Subsequent to Closing III, AFH Advisory will use its best efforts to assist PubCo in procuring an investment bank (the “Bank”) to facilitate a private investment in public equity transaction in an amount between $8.0 million and $10.0 million through the sale of securities of PubCo (the “PIPE”). Such transaction will include a 15% over allotment at AFH and/or the Bank’s discretion. Such transaction is contingent upon the appointment of a Bank and filing appropriate forms with the Financial Industry Regulatory Authority, Inc. (“FINRA”).

 

Consummation of Initial Public Offering (“Closing V”)

 

Subsequent to Closing IV, AFH will assist PubCo in procuring a Bank to act as underwriter for an initial public offering in an amount of up to $40.0 million (the “Initial Public Offering”). The Initial Public Offering shall include a 15% over allotment option at AFH and/or the Bank’s discretion. Such a transaction is contingent upon the appointment of the Bank.

 

At or prior to consummation of the Business Combination, MTF agrees to convert all of its outstanding shares of Series A preferred stock and Series B preferred stock of the Company into share of Common Stock.

 

In addition, MTF agrees to convert 30%, 35%, and 35% of all outstanding convertible promissory notes and promissory notes converting as amended (principal and accrued interest) at each of the consummation of Closing II, Closing IV, and Closing V, respectively.

 

Upon (i) the consummation of the Business Combination, (ii) after giving effect to the issuance of any securities by Acquisition Co. in connection with the Business Combination (the “Business Combination Shares”), (iii) the completion of the Private Placement and (iv) after giving effect to the PIPE, the existing stockholders of Acquisition Co., and its owners, relatives, assignees and affiliates (collectively, the “AFH Group”), will own an aggregate of ten percent of the issued and outstanding common shares (the “Advisor Shares”) of PubCo.

 

At the consummation of Closing III, AFH Group shall be entitled to receive warrants to purchase up to 500,000 share of common stock of PubCo at the per share price of the shares offered in the Private Placement with a 5 year term and a cashless exercise provision (the “Extra Warrants”).

 

In addition to the Advisor Shares and Extra Warrants, AFH Group shall be entitled to receive warrants to purchase shares of common stock of PubCo (“Advisor Warrants”) in the amount necessary to cause AFH Group, when combined with the Advisor Shares, to have ownership equal to 10% of the fully diluted outstanding Common Stock, options and warrants at Closing III.

 

AFH will also be entitled to a reimbursement of $590,000 in connection with the Business Combination, which shall be payable directly from the net proceeds of the Private Placement (Closing III) to AFH at closing. Each party will bear all of its own costs and expenses in connection with each Closing.

 

In conjunction with the Amended LOI, the Company has agreed to covenants for the period of time between signing of the Amended LOI and the consummation of the Business Combination (Closing II) or upon termination of the agreement. Such covenants include restrictions and limitations on additional indebtedness, liquidation, selling of equity securities, amending organizational document and certain other normal and customary covenants. The Amended LOI will expire on August 31, 2014 if Closing II has not occurred.

 

License Commitment

 

In connection with the Exclusive License Agreement, the Company is required to pay a royalty fee beginning in the first year of commercial sale of the licensed product equal to 3% of net sales on a quarterly basis with an annual minimum royalty of $25,000 for the life of the patent rights. In addition to the royalty fees, the Company is also required to pay UCLA a $10,000 annual maintenance fee, $50,000 upon FDA marketing approval, and $25,000 upon first commercial sale.

 

On October 22, 2013, the Exclusive License Agreement was amended. The following additional fees will be due to UCLA i) 2% of the amount raised in the Private Placement. If the Private Placement does not close or is less than $2.5 million then a fee of $100,000 will be due and payable by June 1, 2014, ii) $25,000 due upon dosing of Phase 1 clinical trial and iii) $50,000 due upon closing of Phase 3 clinical trial.

 

Contingencies

 

The Company is subject to claims and assessments from time to time in the ordinary course of business. The Company’s management does not believe that any such matters, individually or in the aggregate, will have a material adverse effect on the Company’s business, financial condition, results of operations or cash flows.

 

Indemnification

 

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future, but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

 

In accordance with its amended and restated certificate of incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date and the Company has a director and officer insurance policy that enables it to recover a portion of any amounts paid for future potential claims.

Notes Payable to Related Party

v2.4.0.8
Notes Payable to Related Party
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Debt Disclosure [Abstract]    
Notes Payable to Related Party

5. Notes Payable to Related Party

 

As of June 30, 2014 and December 31, 2013, the Company had a total of $5,486,133 and $5,095,427, respectively, of notes outstanding (principal and interest) including unamortized discount, with MTF a related party, which consisted of the following:

 

Note Type   Issue Date     Maturity
Date(1)
    Interest Rate     June 30, 2014     December 31, 2013  
                               
Convertible Promissory Note     1/18/08       3/31/15       PRIME + 1 ½%     $ 1,517,726     $ 1,479,654  
Promissory Note     11/04/08       3/31/15       PRIME + 3%       352,615       343,429  
Promissory Note     3/17/09       3/31/15       PRIME + 8%       612,346       584,745  
Promissory Note     8/24/09       3/31/15       LIBOR + 8%       24,271       23,193  
Tranched Promissory Note     9/30/09       3/31/15       LIBOR + 8%       2,616,376       2,570,126  
Bridge Note, net of discount     4/29/13       10/14/14       12%       114,320       94,280  
Convertible Promissory Note, net of
discount
    5/27/14       6/30/15       7%       146,880       -  
                                         
                              5,384,533       5,095,427  
Less: Accrued interest expense                             1,277,561       1,147,610  
Notes payable to related party, net of debt discount                           $ 4,106,972     $ 3,947,817  

  

 

  (1) As amended.

 

Accrued interest on the notes payable to related party of $1,277,561 (2013 - $1,147,610) is recorded in accrued expenses at June 30, 2014 and December 31, 2013.

 

Convertible Promissory Notes

 

The convertible promissory notes are considered hybrid instruments, which consist of a debt host instrument together with a conversion feature, thus giving the holder of a convertible note an option to convert into an equity instrument providing the holder a residual interest in the Company. The holder of a convertible promissory note also has the option to present its convertible promissory note to the Company and demand payment under the terms of the note after the maturity date or upon the occurrence of certain events such as the failure of the Company to make a payment on the note when due, bankruptcy or certain other liquidation events. The Company concluded that the convertible promissory notes would be accounted for as a typical debt instrument with related interest expense recorded in the Company’s statements of operations. The company concluded that there is no beneficial conversion feature as of the date of issuance of the convertible notes. However, the note contains a contingent feature whereby the conversion rate may be lowered if a financing occurs at a lower rate than the note’s conversion rate. If the contingency is met and the conversion feature is determined to be “beneficial” in a future accounting period, an additional financing cost would be recorded for the beneficial conversion feature in the Company’s statements of operations at that time.

 

In April 2005, the Company issued a $100,000 convertible promissory note (the “2005 Convertible Note”) to MTF in accordance with the Convertible Note Purchase Agreement and Convertible Promissory Note dated April 6, 2005. In April 2006 the Company issued an additional $612,000 convertible promissory note (the “2006 Convertible Note”) to MTF in accordance with the Convertible Note Purchase Agreement and Convertible Promissory Note dated April 7, 2006.

 

The 2005 Convertible Note and the 2006 Convertible Note bore interest at a fixed rate of 6% per annum and prime plus one and one-half percent per annum, respectively, and matured on September 30, 2008 and September 30, 2009, respectively. In July 2006, the 2005 Note and 2006 Note, respectively, and accrued interest thereon for a total of $731,103, were converted into an aggregate of 409,352 shares of Series A preferred stock which was based on the conversion price of $1.786 per share (see Note 6). The conversion of the notes did not trigger a contingency and no additional financing charge was recognized.

 

In January 2008, the Company issued a $1,107,000 convertible promissory note (“January 2008 Note”) to MTF in accordance with the Convertible Promissory Note dated January 18, 2008, as amended. The January 2008 Note bears interest at prime plus one and one-half percent per annum. MTF has the right to convert the entire outstanding balance (principal plus accrued interest) into shares of Series B Preferred Stock at the initial conversion price of $4.42 per share (“Initial Conversion Price”). Such Initial Conversion Price shall be subject to adjustments including but not limited to stock splits, issuance of securities and next equity financing.

 

The Company issued promissory notes to MTF in November 2008 of $250,000 (“November 2008 Note”), in March 2009 of $400,000 (“March 2009 Note) and in August 2009 of $16,400 (August 2009 Note”). The November 2008 and the March 2009 Note bear interest at prime plus three percent per annum. The August 2009 Note bears interest at LIBOR plus eight percent per annum.

 

In connection with the March 2009 Note, the Company entered into a Security Agreement (the “Security Agreement”) which grants MTF a security interest in all of the Company’s right, title and interest, whether presently existing or hereafter acquired, in, to all intellectual property and all other collateral. In connection with the Security Agreement, the Company issued a warrant to purchase 118,383 shares of common stock at an exercise price of $0.44 (See Note 6).

 

In September 2009, the Company issued a $139,047 promissory note (the “2009 Convertible Note”) to MTF in accordance with the Convertible Note Purchase Agreement and Convertible Promissory Note dated September 30, 2009. The 2009 Convertible Note bears interest at the rate of LIBOR plus 8% per annum and matured on October 30, 2009, but could have extended to November 30, 2009 or December 31, 2009. If the note was not repaid by the maturity date, MTF was entitled to (i) convert the amount due on the 2009 Convertible Note into shares of Series B Preferred stock sufficient to increase MTF’s ownership in the Company to 51% of the fully-diluted capitalization, and (ii) receive the right to designate up to three additional members of the Company’s Board of Directors.

 

Since the 2009 Convertible Note was not repaid by the maturity date, on February 4, 2010, the 2009 Convertible Note was converted into 5,188,253 shares of Series B Preferred stock, which increased MTF’s ownership in the Company to 51% of the fully-diluted capitalization.

 

In September 2009, the Company entered into a tranched promissory note with MTF (“Tranched Note”), allowing the Company to initially borrow up to $445,000 in a series of one or more tranches. The Tranched Note was subsequently amended which, among other things, increased the maximum advance amount to $2,090,000. The Company borrowed a total of $2,088,350 under the Tranched Note through 2013.

 

In July 2013, all notes held by MTF were amended to extend the maturity date to March 31, 2014 and amended again on April 1, 2014 to extend the maturity date to March 31, 2015.

 

In May, 2014, the Company entered into a convertible promissory note with MTF (the “2014 Note”) for $250,000 with interest at 7% per annum compounded annually and a maturity date of June 15, 2015. In the event of a financing of not less than $1 million, the 2014 Note automatically converts into Equity Securities, as defined in the 2014 Note, at a 25% discount to the price paid per share in such financing. In connection with the 2014 Note, the Company issued a warrant to purchase 166,667 shares of the Company’s common stock at an exercise price of $1.50 per share and 4 year term (See Note 6). The warrants had a fair value of $111,804, calculated using the Black-Scholes option pricing model with a volatility of 109%, a risk free rate of 0.79%. The Company accrued placement agent fees of $10,000 or 4% of the funds raised in connection with the financing and is obligated to issue a warrant for the purchase of 13,333 shares of common stock, which represents 4% of the common shares underlying the 2014 Note, with an exercise price of $1.00, a 5 year term and fair value of $8,181, calculated using the Black-Scholes model with a volatility of 109% and a risk free rate of 0.39%.

 

In July 2014, the 2014 Note and related warrants were assigned to Orthofix (see Note 9).

 

Bridge Notes

 

In April 2013 and June 2013, the Company borrowed $100,000 from MTF and $100,000 from Orthofix, Inc. under the April Bridge Financing, and in September 2013 and October 2013 the Company borrowed $50,000 from AFH and an additional $150,000 from Orthofix, Inc. under the September Bridge Financing (See Note 5). The convertible promissory note accrues interest at a rate of 12% per year and payable per quarter. A warrant to purchase the Company’s common stock equal to 50% of the original principal amount divided by $1.00 was issued to the Bridge Financing participant. Principal and unpaid accrued interest may be converted into equity securities issued in the Company’s next equity financing in an aggregate amount of at least $2.5 million at a price equal to the price paid by investors in the next equity financing. As of June 30, 2014 the total outstanding balance under the Bridge Financings was $377,066 (net of debt discount of $22,934) of which $100,000 is included in Notes Payable to Related Party and $277,066 is reported as Notes Payable, net of discount.

 

In June 2014, the note held by MTF under the April Bridge Financing was amended to extend the maturity date to October 14, 2014.

  5. Notes Payable to Related Party

 

As of December 31, 2013 and December 31, 2012, the Company had a total of $5,095,427 and $4,505,432, respectively, of notes outstanding (principal and interest) with MTF, a related party, which consist of the following:

 

Note Type   Issue Date     Maturity Date     Interest Rate     December 31, 2013     December 31, 2012  
                                         
Convertible Promissory Note     1/18/08       3/31/14       PRIME + 1 ½%     $ 1,479,654     $ 1,415,475  
Promissory Note     11/4/08       3/31/14       PRIME + 3%       343,429       322,963  
Promissory Note     3/17/09       3/31/14       PRIME + 8%       584,745       543,128  
Promissory Note     8/24/09       3/31/14       LIBOR + 8%       23,193       21,110  
Tranched Promissory Note     9/30/09       3/31/14       LIBOR + 8%       2,570,126       2,202,756  
Bridge Note, net of discount     4/29/13       4/29/14       12 %     94,280       -  
                                         
                            $ 5,095,427     $ 4,505,432  

 

Accrued interest on the notes payable to related party of $1,158,465 (2012 - $818,195) is recorded in accrued expenses at December 31, 2013 and 2012.

 

Convertible Promissory Notes

 

The convertible promissory notes are considered hybrid instruments, which consist of a debt host instrument together with a conversion feature, thus giving the holder of a convertible note an option to convert into an equity instrument providing the holder a residual interest in the Company. The holder of a convertible promissory note also has the option to present its convertible promissory note to the Company and demand payment under the terms of the note after the maturity date or upon the occurrence of certain events such as the failure of the Company to make a payment on the note when due, bankruptcy or certain other liquidation events. The Company concluded that the convertible promissory notes would be accounted for as a typical debt instrument with related interest expense recorded in the Company’s statements of operations. The company concluded that there is no beneficial conversion feature as of the date of issuance of the convertible notes. However, the note contains a contingent feature whereby the conversion rate may be lowered if a financing occurs at a lower rate than the note’s conversion rate. If the contingency is met and the conversion feature is determined to be “beneficial” in a future accounting period, an additional financing cost would be recorded for the beneficial conversion feature in the Company’s statements of operations at that time.

 

In April 2005, the Company issued a $100,000 convertible promissory note (the “2005 Convertible Note”) to MTF in accordance with the Convertible Note Purchase Agreement and Convertible Promissory Note dated April 6, 2005. In April 2006 the Company issued an additional $612,000 convertible promissory note (the “2006 Convertible Note”) to MTF in accordance with the Convertible Note Purchase Agreement and Convertible Promissory Note dated April 7, 2006.

 

The 2005 Convertible Note and the 2006 Convertible Note bore interest at a fixed rate of 6% per annum and prime plus one and one-half percent per annum, respectively, and matured on
September 30, 2008 and September 30, 2009, respectively. In July 2006, the 2005 Note and 2006 Note, respectively, and accrued interest thereon for a total of $731,103, were converted into an aggregate of 409,352 shares of Series A preferred stock which was based on the conversion price of $1.786 per share (see Note 6). The conversion of the notes did not trigger a contingency and no additional financing charge was recognized.

 

In January 2008, the Company issued a $1,107,000 convertible promissory note (“January 2008 Note”) to MTF in accordance with the Convertible Promissory Note dated January 18, 2008, as amended. The January 2008 Note bears interest at prime plus one and one-half percent per annum. MTF has the right to convert the entire outstanding balance (principal plus accrued interest) into shares of Series B Preferred Stock at the initial conversion price of $4.42 per share (“Initial Conversion Price”). Such Initial Conversion Price shall be subject to adjustments including but not limited to stock splits, issuance of securities and next equity financing.

 

The Company issued promissory notes to MTF in November 2008 of $250,000 (“November 2008 Note”), in March 2009 of $400,000 (“March 2009 Note) and in August 2009 of $16,400 (August 2009 Note”). The November 2008 and the March 2009 Note bear interest at prime plus three percent per annum. The August 2009 Note bears interest at LIBOR plus eight percent per annum.

 

In connection with the March 2009 Note, the Company entered into a Security Agreement (the “Security Agreement”) which grants MTF a security interest in all of the Company’s right, title and interest, whether presently existing or hereafter acquired, in, to all intellectual property and all other collateral. In connection with the Security Agreement, the Company issued a warrant to purchase 118,383 shares of common stock at an exercise price of $0.44 (See Note 6).

 

In September 2009, the Company issued a $139,047 promissory note (the “2009 Convertible Note”) to MTF in accordance with the Convertible Note Purchase Agreement and Convertible Promissory Note dated September 30, 2009. The 2009 Convertible Note bears interest at the rate of LIBOR plus 8% per annum and matured on October 30, 2009, but could have extended to November 30, 2009 or December 31, 2009. If the note is was not repaid by the maturity date, MFT was entitled to (i) convert the amount due on the 2009 Convertible Note into shares of Series B Preferred stock sufficient to increase MTF’s ownership in the Company to 51% of the fully-diluted capitalization, and (ii) receive the right to designate up to three additional members of the Company’s Board of Directors.

 

Since the 2009 Convertible Note was not repaid by the maturity date, on February 4, 2010, the 2009 Convertible Note was converted into 5,188,253 shares of Series B Preferred stock, which increased MTF’s ownership in the Company to 51% of the fully-diluted capitalization.

 

In September 2009, the Company entered into a tranched promissory note with MTF (“Tranched Note”), allowing the Company to initially borrow up to $445,000 in a series of one or more tranches. The Tranched Note was subsequently amended which, among other things, increased the maximum advance amount to $2,190,000.

 

In July 2013, all notes held by MTF were amended to extend the maturity date to March 31, 2014, and amended again on April 1, 2014 to extend the maturity date to March 31, 2015.

 

Bridge Note

 

In April 2013 and June 2013, the Company borrowed $100,000 from MTF and $100,000 from Orthofix, Inc. under the April Bridge Financing, and in October the Company borrowed an additional $150,000 from Orthofix, Inc. under the September Bridge Financing (See Note 5). The convertible promissory note accrues interest at a rate of 12% per year and payable per quarter. A warrant to purchase the Company’s common stock equal to 50% of the original principal amount divided by $1.00 was issued to the Bridge Financing participant. Principal and unpaid accrued interest may be converted into equity securities issued in the Company’s next equity financing in an aggregate amount of at least $2.5 million at a price equal to the price paid by investors in the next equity financing. As of December 31, 2013 the total outstanding balance under the Bridge Financings was $266,737 (net of debt discount of $83,263) of which $94,280 is included in Notes Payable to Related Party and $180,690 is reported as Notes Payable, net of discount.

Stockholders' Equity

v2.4.0.8
Stockholders' Equity
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Stockholders' Equity

6. Stockholders’ Equity

 

Preferred Stock

 

The Company’s amended second amended and restated certificate of incorporation authorizes the Company to issue a total of 10,493,339 shares of preferred stock. The Company has reserved sufficient shares of common stock for issuance upon conversion of the preferred stock. As of June 30, 2014, the Company has the following outstanding shares of preferred stock as shown in the table below.

 

Series   Date Issued   Issue Price     Shares
Outstanding
    Carrying
Amount
    Liquidation
Preference
    Dividend
Rate
 
                                             
A   July 2007   $ 1.786       493,339     $ 881,103     $ 881,103     $ 0.09  
B   August 2007     4.420       147,846       653,479       653,479       0.09  
B   February 2010     0.027       5,188,253       141,967       22,932,078       0.09  
                                             
                  5,829,438     $ 1,676,549     $ 24,466,660          

 

Dividends - The holders of Series A and B preferred stock are entitled to receive noncumulative dividends prior to and in preference to any declaration of payment of any dividends on the common stock of the Company, at the rate of $0.09 per share per annum. Such dividends are payable only when, and if declared by the Board of Directors. No dividends on preferred stock were declared by the Board from inception through June 30, 2014.

 

Liquidation Preference - In the event of liquidation, dissolution, or winding up of the Company, the holders of the Series A and B preferred stock are entitled to receive an amount per share equal to $1.786 and $4.42, respectively, for each outstanding share of Series A & B preferred stock (as adjusted for stock splits, stock dividends, combinations or other recapitalizations), plus all declared and unpaid dividends on such shares. Thereafter, if assets or surplus funds remained in the Company, the holders of common stock are entitled to receive all of the remaining assets of the Company.

 

Deemed Liquidation - Any merger or consolidation which would result in the Company’s stockholders immediately prior to such transaction not holding at least 50% of the voting power of the surviving, continuing or purchasing entity, or the sale or lease of all or substantially all of the assets of the Company, was deemed to be a liquidation, dissolution or winding up. Upon this event, holders of all shares of Series A and Series B preferred stock, as well as holders of the Company’s common stock would have receive their liquidation preference, including any declared and unpaid dividends as of the liquidation date. As in an ordinary liquidation, no class or series of the Company’s equity securities has a right to receive a particular form of consideration (e.g., cash or shares) upon a deemed liquidation event. Accordingly, because the holders of the Company’s preferred stock did not have a right to receive cash redemption of their shares, the Preferred stock is classified as permanent equity.

 

Conversion Rights - The holder of each share of Series A and B preferred stock have the option to convert each share into such number of fully paid and non-assessable shares of the Company’s common stock as is determined by dividing $1.786 (Series A Conversion Price) and $4.42 (Series B Conversion Price).

 

If the value of the adjusted number of shares of common stock into which the convertible preferred stock was convertible, based on the market price of the common stock on the date the convertible preferred stock was issued, was greater than the value of the number of shares of common stock into which the convertible preferred stock was convertible prior to such adjustment, based on the market price of the common stock on the date the convertible preferred stock was issued, the Company will recognize a beneficial conversion feature associated with the preferred stock. Because the beneficial conversion feature meets the requirements for equity classification (i.e., is not required to be accounted for as a liability), such future beneficial conversion feature charge will be recorded as a preferred stock dividend and the amount will be presented in a reconciliation of “net loss” to arrive at “net loss attributable to common shareholders” on the face of the Company’s statements of operations.

 

Each share of Series A and Series B preferred is subject to automatic conversion into common stock upon the earlier of (i) the Company’s sales of its common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended or (ii) the date specified by written consent of holders of a majority of the then outstanding shares of Series A and Series B preferred stock, voting together as a single class on an as-converted basis.

 

Redemption - The preferred stock is not redeemable.

 

Voting Rights - The holders of preferred stock has the same voting rights as the holders of common stock. The holders of each share of convertible preferred stock are entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock could be converted.

 

Common Stock

 

The Company’s amendment to the second amended and restated certificate of incorporation authorizes the Company to issue a total of 20,000,000 shares of common stock. As of June 30, 2014, the Company had an aggregate of 5,098,661 shares of common stock outstanding of which 4,000,000 shares of the outstanding common stock were issued to the founders of the Company in exchange for technology know how and services.

 

Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No dividends have been declared by the Board from inception through June 30, 2014.

 

In the event of a liquidation dissolution, or winding up of the Company, after distribution to the holders of the Series A and B convertible preferred stock, all remaining assets or surplus funds of the Company shall be distributed on a pro-rata basis among the holders of the outstanding common stock and convertible preferred stock assuming full conversion of the convertible preferred stock.

 

Common Stock Warrants

 

As of June 30, 2014, the Company had an aggregate of 800,967 outstanding unexercised common stock warrants as follows:

 

Date Issued   Exercise Price     Number of Shares  
                 
2006   $ 0.17       60,920  
2009   $ 0.44       118,383  
2010   $ 0.44       254,997  
2013   $ 1.00       200,000  
2014   $ 1.50       166,667  
Total Shares at June 30, 2014             800,967  

 

In November 2006 and February 2010, the Company issued warrants to purchase 60,920 shares of common stock at an exercise price of $0.17 per share and 254,997 shares of common stock at an exercise price of $0.44 per share, respectively. The warrants were issued to one of the co-founders of the Company and to certain consultants who previously rendered services to the Company for which they agreed to defer payment for their services. The warrants expire in ten years from issuance date and may be exercised for cash or, if the current market price of the Company’s common stock is greater than the per share exercise price, by surrender of a portion of the warrant in a cashless exercise. The initial fair value of the warrants was estimated at an aggregate value of $113,683, using the Black-Scholes option pricing model with the following assumptions at the date of issuance: expected volatility of 105.6%, risk-free interest rate of between 3.62% and 4.62%, contractual term of 10 years and dividend yield of 0%. The warrants are classified as permanent equity. As of June 30, 2014 and December 31, 2013, the unpaid deferred payment balance was $90,199 (see Note 3).

 

In March 2009, the Company entered a Credit Agreement with MTF, a related party, for which the Company may borrow up to $400,000 (see Note 5). In connection with this transaction, the Company entered into a Warrant Agreement whereby it issued to MTF a warrant to purchase 118,383 shares of the Company’s common stock (“Note Warrant”) at an exercise price of $0.44 which allowed the Company to extend the maturity dates of the notes dated January 18, 2008 and November 4, 2008 to December 31, 2009. The fair value of the warrants was recorded as a debt issuance cost and was being amortized to interest expense over the term of the loan. The initial fair value of the Note Warrant at the grant date was estimated at an aggregate value of $47,970, using the Black-Scholes option pricing model. The warrant was classified as permanent equity at June 30, 2014.

 

In the connection with the Bridge Financings (see Note 4), warrants were issued to purchase 200,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants expire in seven years from issuance date and may be exercised for cash or, if the current market price of the Company’s common stock is greater than the per share exercise price, by surrender of a portion of the warrant in a cashless exercise. The initial fair value of the warrant was estimated at an aggregate value of $171,143 using the Black-Scholes option pricing model. The fair value on the warrants was recorded as a debt issuance cost and is being amortized to interest expense over the term of the note. For the six months ended June 30, 2014 and the year ended December 31, 2013, $83,625 and $67,104 of the debt issuance costs was amortized to interest expense, respectively.

 

In connection with the 2014 Note, the Company issued a warrant to purchase 166,667 shares of the Company’s common stock at an exercise price of $1.50 per share and 4 year term (See Note 5).

6. Stockholders’ Equity

 

Preferred Stock

 

The Company’s amended second amended and restated certificate of incorporation authorizes the Company to issue a total of 10,493,339 shares of preferred stock (Series A and B Combined). The Company has reserved sufficient shares of common stock for issuance upon conversion of the preferred stock. As of December 31, 2013, the Company has the following outstanding shares of preferred stock as shown in the table below.

 

Series   Date Issued   Issue Price     Shares
Outstanding
    Carrying Amount     Liquidation Preference     Dividend Rate  
                                             
A   July 2007   $ 1.786       493,339     $ 881,103     $ 881,103     $ 0.09  
B   August 2007     4.420       147,846       653,479       653,479       0.09  
B   February 2010     0.027       5,188,253       141,967       22,932,078       0.09  
                                             
                  5,829,438     $ 1,676,549     $ 24,466,660          

 

Dividends - The holders of Series A and B preferred stock are entitled to receive noncumulative dividends prior to and in preference to any declaration of payment of any dividends on the common stock of the Company, at the rate of $0.09 per share per annum. Such dividends are payable only when, and if declared by the Board of Directors. No dividends on preferred stock were declared by the Board from inception through December 31, 2013.

 

Liquidation Preference - In the event of liquidation, dissolution, or winding up of the Company, the holders of the Series A and B preferred stock are entitled to receive an amount per share equal to $1.786 and $4.42, respectively, for each outstanding share of Series A & B preferred stock (as adjusted for stock splits, stock dividends, combinations or other recapitalizations), plus all declared and unpaid dividends on such shares. Thereafter, if assets or surplus funds remained in the Company, the holders of common stock are entitled to receive all of the remaining assets of the Company.

 

Deemed Liquidation - Any merger or consolidation which would result in the Company’s stockholders immediately prior to such transaction not holding at least 50% of the voting power of the surviving, continuing or purchasing entity, or the sale or lease of all or substantially all of the assets of the Company, was deemed to be a liquidation, dissolution or winding up. Upon this event, holders of all shares of Series A and Series B preferred stock, as well as holders of the Company’s common stock would have receive their liquidation preference, including any declared and unpaid dividends as of the liquidation date. As in an ordinary liquidation, no class or series of the Company’s equity securities has a right to receive a particular form of consideration (e.g., cash or shares) upon a deemed liquidation event. Accordingly, because the holders of the Company’s preferred stock did not have a right to receive cash redemption of their shares, the Preferred stock are classified as permanent equity.

 

Conversion Rights - The holder of each share of Series A and B preferred stock have the option to convert each share into such number of fully paid and non-assessable shares of the Company’s common stock as is determined by dividing $1.786 (Series A Conversion Price) and $4.42 (Series B Conversion Price).

 

If the value of the adjusted number of shares of common stock into which the convertible preferred stock was convertible, based on the market price of the common stock on the date the convertible preferred stock was issued, was greater than the value of the number of shares of common stock into which the convertible preferred stock was convertible prior to such adjustment, based on the market price of the common stock on the date the convertible preferred stock was issued, the Company will recognize a beneficial conversion feature associated with the preferred stock. Because the beneficial conversion feature meets the requirements for equity classification (i.e., is not required to be accounted for as a liability), such future beneficial conversion feature charge will be recorded as a preferred stock dividend and the amount will be presented in a reconciliation of “net loss” to arrive at “net loss attributable to common shareholders” on the face of the Company’s statements of operations.

 

Each share of Series A and Series B preferred is subject to automatic conversion into common stock upon the earlier of (i) the Company’s sales of its common stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended or (ii) the date specified by written consent of holders of a majority of the then outstanding shares of Series A and Series B preferred stock, voting together as a single class on an as-converted basis.

 

Redemption - The preferred stock is not redeemable.

 

Voting Rights - The holders of preferred stock has the same voting rights as the holders of common stock. The holders of each share of convertible preferred stock are entitled to the number of votes equal to the number of shares of common stock into which such shares of convertible preferred stock could be converted.

 

Common Stock

 

The Company’s amendment to the second amended and restated certificate of incorporation authorizes the Company to issue a total of 20,000,000 shares of common stock. As of
December 31, 2013, the Company had an aggregate of 5,098,661 shares of common stock outstanding of which 4,000,000 shares of the outstanding common stock were issued to the founders of the Company in exchange for technology know how and services.

 

Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No dividends have been declared by the Board from inception through December 31, 2013.

 

In the event of a liquidation dissolution, or winding up of the Company, after distribution to the holders of the Series A and B convertible preferred stock, all remaining assets or surplus funds of the Company shall be distributed on a pro-rata basis among the holders of the outstanding common stock and convertible preferred stock assuming full conversion of the convertible preferred stock.

 

Common Stock Warrants

 

As of December 31, 2013, the Company had an aggregate of 609,300 outstanding unexercised common stock warrants as follows:

 

Date Issued   Exercise Price     Number of Shares  
                 
2006   $ 0.17       60,920  
2009   $ 0.44       118,383  
2010   $ 0.44       254,997  
2013   $ 1.00       175,000  
                 
Total Shares at December 31, 2013             609,300  

 

In November 2006 and February 2010, the Company issued warrants to purchase 60,920 shares of common stock at an exercise price of $0.17 per share and 254,997 shares of common stock at an exercise price of $0.44 per share, respectively. The warrants were issued to one of the co-founders of the Company and to certain consultants who previously rendered services to the Company for which they agreed to defer payment for their services. The warrants expire in ten years from issuance date and may be exercised for cash or, if the current market price of the Company’s common stock is greater than the per share exercise price, by surrender of a portion of the warrant in a cashless exercise. The initial fair value of the warrants was estimated at an aggregate value of $113,683, using the Black-Scholes option pricing model with the following assumptions at the date of issuance: expected volatility of 105.6%, risk-free interest rate of between 3.62% and 4.62%, contractual term of 10 years and dividend yield of 0%. The warrants are classified as permanent equity. As of December 31, 2013 and December 31, 2012, the unpaid deferred payment balance was $90,199 and is included in accrued professional services (see Note 3).

 

In March 2009, the Company entered a Credit Agreement with MTF, a related party, for which the Company may borrow up to $400,000 (see Note 5). In connection with this transaction, the Company entered into a Warrant Agreement whereby it issued to MTF a warrant to purchase 118,383 shares of the Company’s common stock (“Note Warrant”) at an exercise price of $0.44 which allowed the Company to extend the maturity dates of the notes dated January 18, 2008 and November 4, 2008 to December 31, 2009. The fair value of the warrants was recorded as a debt issuance cost and was being amortized to interest expense over the term of the loan. The initial fair value of the Note Warrant at the grant date was estimated at an aggregate value of $47,970, using the Black-Scholes option pricing model. The warrant was classified as permanent equity at December 31, 2013.

 

In the connection with the Bridge Financings (see Note 4), warrants were issued to purchase 125,000 shares of the Company’s common stock at an exercise price of $1.00 per share. The warrants expire in seven years from issuance date and may be exercised for cash or, if the current market price of the Company’s common stock is greater than the per share exercise price, by surrender of a portion of the warrant in a cashless exercise. The initial fair value of the warrant was estimated at an aggregate value of $150,367 using the Black-Scholes option pricing model. The fair value on the warrants was recorded as a debt issuance cost and is being amortized to interest expense over the term of the note. For the year ended December 31, 2013, $67,104 of the debt issuance costs was amortized to interest expense.

Pro Forma [Member]
   
Stockholders' Equity

7. Share capital

 

Common shares

 

The following table summarizes the changes in share capital that will occur pursuant to the aforementioned transactions as of June 30, 2014:

 

Common shares of AFH Acquisition X, Inc. issued and outstanding as at June 30, 2014(1)     5,000,000     $ (43,569 )     Note 6(a)  
                         
Consolidation of AFH Acquisition X, Inc. shares(1)     (1,146,400 )             Note 6(a)  
Shares issued in exchange for Bone Biologics shares to effect reverse merger (2)(3)     14,059,412       (3,806,536 )     Note
6(a)(b)(c)
 
                         
Common shares of Bone Biologics, Corp. issued and outstanding, at June 30, 2014 after giving effect to Pro-forma adjustments     17,913,012     $ (3,850,105 )        

 

 

(1) Reflects consolidation of the 5,000,000 outstanding shares of Common Stock of AFH Acquisition X, Inc. prior to the Merger into 3,853,600 shares of Bone Biologics, Corp. Common Stock and the remaining shares were cancelled.

 

(2) Assumes the following:

 

  a) Outstanding 5,098,661 shares of Common Stock of Bone Biologics converted on a 1:1 basis;
     
  b) Conversion of 30% MTF convertible debt principal and accrued interest (through 6/30/2014) of $1,517,726 into Common Stock at a price of $1.00 per share or 1,517,726 shares;
     
  c) Conversion of $444,683 principal and accrued interest (through 6/30/2014) of 2013 Bridge Notes into Common Stock at a price of $1.00 per share or 444,683shares;
     
  d) Conversion of all outstanding Bone Biologics Series A and B Preferred shares into Common Stock on a 1:1 basis, or 5,829,438 shares; and
     
  e) Subsequent Orthofix Financing of 1,168,904 shares of Common Stock which includes the conversion of $500,000 Convertible Notes and $1,678 accrued interest at $0.75 per share (inclusive of the shares from conversion of the May 2014 MTF Note and related accrued interest which was assigned to Orthofix).

 

(3) Does not include:

 

  e) Conversion of remaining principal and interest (through 6/30/2014) of MTF Notes of $3,605,607;
     
  f) The exercise of outstanding warrants and options to purchase shares of the Company’s Common stock as follows:

 

  i. Warrants issued to consultants for the purchase of 1,146,596 shares of Common Stock at prices per share ranging from $0.00 to $1.00.
     
  ii. Warrants issued to 2013 Bridge Note holders for the purchase of 200,000 shares of Common Stock;
     
  iii. Orthofix Subsequent Warrants for the purchase of 333,334 shares of Common Stock at $1.00 per share (including the 166,667 assigned to Orthofix from the May 2014 MTF Note);
     
  iv. Extra Warrants issued to AFH as advisor for the purchase of 500,000 shares of Common Stock at a price per share of $1.50.
     
  v. Advisor Warrants issued to Forefront as placement agent on Orthofix Subsequent Financing of 46,667 shares at $1.00 per share.
     
  vi. Stock options issued to Bone Biologics, Corp. management for the purchase of 583,059 shares of Common Stock at $1.00 per share.
     
  vii. Issuance of equity awards to Board members and CEO for an aggregate of 350,000 options with an exercise price of $1.00 and 350,000 restricted stock grants. The stock options vest after one year and the restricted stock grants are issued quarterly over one year.
     
  viii. Shares reserved for the 2014 Equity Incentive Plan of 2,642,898, of which 1,359,839 shares are available for future issuance (after adjustment for the grants in vi and vii above).
     
  ix. Warrants to purchase 625,000 shares of Common Stock at a price per share of $1.62 issued pursuant to the 8.5% MTF Omnibus Note of $500,000 entered into September 2014 and maturing on December 31, 2014.
     
  x. The issuance of performance-based restricted stock awards granted to AFH and MTF, contingent and issuable upon completion of all milestone targets at 2.5% of fully diluted shares calculated at completion.

 

Income Taxes

v2.4.0.8
Income Taxes
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Income Tax Disclosure [Abstract]    
Income Taxes

7. Income Taxes

 

The Company’s effective tax rate is 0% for income tax for the six months ended June 30, 2014 and the Company expects that its effective tax rate for the full year 2014 will be 0%. Based on the weight of available evidence, including cumulative losses since inception and expected future losses, the Company has determined that it is more likely than not that the deferred tax asset amount will not be realized and therefore a valuation allowance has been provided on net deferred tax assets.

 

The Company files tax returns for U.S. Federal and State of California. The Company is not currently subject to any income tax examinations. Since the Company’s inception, the Company had incurred losses from operations, which generally allows all tax years to remain open.

 

Uncertain Tax Positions

 

The Company recognizes the financial statement effects of a tax position when it becomes more likely than not, based upon the technical merits, that the position will be sustained upon examination.

 

The Company recognizes interest and/or penalties related to uncertain tax positions. To the extent accrued interest and penalties do not ultimately become payable, amounts accrued will be reduced and reflected in the period that such determination is made. The interest and penalties are recognized as other expense and not tax expense. The Company currently has no interest and penalties related to uncertain tax positions.

7. Income Taxes

 

The provision for income taxes consists of the following:

 

    Year Ended
December 31, 2013
    Year Ended December 31, 2012     Period from
March 9, 2004 (inception) to December 31, 2013
 
                   
Current:                        
Federal   $ -     $ -     $ -  
State     800       800       8,000  
                         
Total current     800       800       8,000  
                         
Deferred:                        
Federal     -       -       -  
State     -       -       -  
                         
Total deferred     -       -       -  
                         
Provision for income taxes   $ 800     $ 800     $ 8,000  

 

The components of deferred tax assets and liabilities consist of the following:

 

December 31,   2013     2012  
             
Deferred tax assets                
Net operating losses   $ 1,866,000     $ 1,610,000  
Patents     560,000       520,000  
Accrued expenses     550,000       390,000  
R&D credits     57,000       45,000  
Warrants     45,000       45,000  
                 
Total     3,078,000       2,610,000  
                 
Less: Valuation allowance     (3,078,000 )     (2,610,000 )
                 
    $ -     $ -  

 

The Company’s federal and state net operating loss carryfowards at December 31, 2013 were approximately $4,681,000 and $4,713,000, respectively, and will begin to expire in 2019 if not utilized.

 

The Company reviews its deferred tax assets for realization based upon historical taxable income, prudent and feasible tax planning strategies, the expected timing of the reversals of existing temporary differences and expected future taxable income. The Company has concluded that it is more likely than not that the deferred tax assets will not be realized. Accordingly, the Company has recorded a valuation allowance against the net deferred tax assets in the amount of $3,078,000 at December 31, 2013. The net change in the valuation allowance for the year ended December 31, 2013 was $468,000.

 

The effective tax rate differs from the statutory tax rate principally due to the change in valuation allowance, nondeductible permanent differences, credits, and state income taxes.

Related Party Transactions

v2.4.0.8
Related Party Transactions
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Related Party Transactions [Abstract]    
Related Party Transactions

8. Related Party Transactions

 

In September 2006, the Company entered into a consulting agreement with one of its stockholders whom previously served as chairman, president and CEO of the Company. The Company paid $70,000 and $60,000, respectively, for the six months ended June 30, 2014 and 2013 in consulting fees to this related party.

 

In addition, one of the Company’s co-founders had previously provided research and development consulting services to the Company and earned an aggregate of $320,000 of fees from inception to January 2010. Of the $320,000, $52,500 has been deferred for payment until the Company’s next equity financing. As of June 30, 2014 and December 31, 2013, the $52,500 deferred payment was included in the accrued expenses.

 

See Note 5 for related party notes payable to MTF.

8. Related Party Transactions

 

In September 2006, the Company entered into a consulting agreement with one of its stockholders whom previously served as chairman, president and CEO of the Company. The Company paid $120,000 for each year ended December 31, 2013 and 2012, in consulting fees to this related party.

 

In addition, one of the Company’s co-founders had previously provided research and development consulting services to the Company and earned an aggregate of $320,000 of fees from inception to January 2010. Of the $320,000, $52,500 has been deferred for payment until the Company’s next equity financing. As of December 31, 2013 and December 31, 2012, the $52,500 deferred payment was included in the accrued expenses.

 

During the year ended December 31, 2013 a related party, MTF, advanced $41,300 (2012 - $0) to the Company.

 

See Note 5 for related party notes payable to MTF.

Subsequent Events

v2.4.0.8
Subsequent Events
6 Months Ended
Jun. 30, 2014
Subsequent Events [Abstract]  
Subsequent Events

9. Subsequent Events

 

Orthofix Subsequent Financing

 

On July 1, 2014, (i) Orthofix purchased $500,000 worth of Bone Biologics Common Stock or the Subsequent Orthofix Shares; (ii) was issued the Subsequent Orthofix Convertible Promissory Notes in the principal amount of $500,000 (which includes the assignment of the $250,000 2014 Note from MTF) and convertible into 666,666 worth of the Company’s Common Stock at $0.75 per share; and (iii) was issued the Subsequent Orthofix Warrants (including the assignment of warrants by MTF issued in connection with the 2014 Note) which were exercisable for 333,334 shares of Bone Biologics Common Stock at an exercise price per share of $1.50 (the “Orthofix Subsequent Financing”). Upon subscribing for the Subsequent Orthofix Shares, the Subsequent Orthofix Convertible Promissory Notes and accrued interest converted into a combined total of 668,904 shares of Bone Biologics Common Stock in accordance with the terms of the Subsequent Orthofix Convertible Promissory Notes. The Subsequent Orthofix Warrants converted into warrants of the Company with substantially identical terms upon consummation of the Merger.

 

At the closing of the Subsequent Orthofix Shares and Notes, AFH Advisory was entitled to receive warrants to purchase up to 500,000 shares of Common Stock of the Company at the per share price of the shares offered or $1.00 per share, with a 5 year term and a cashless exercise provision (the “Extra Warrants”). AFH Advisory has normal and customary piggyback registration rights with respect to the shares of Common Stock issuable upon exercise of the Extra Warrants.

 

Forefront or its designees will receive a warrant to purchase shares of Common Stock (the “Agent Warrant”) equal to 8% of the Common Stock underlying the securities issued in the Private Placement (4% if investors are introduced by Bone Biologics, AFH Holdings & Advisory, LLC or their respective officers and directors). Such Agent Warrant will be issued at the closing of the Private Placement and shall provide, among other things, that the Agent Warrant shall: (i) be exercisable at the price of the securities (or the exercise price of the securities) issued to the investors in the offering, (ii) expire five (5) years from the date of issuance, (iii) include customary registration rights, including the registration rights provided to the Investors, (iv) contain provisions for cashless exercise and (v) include such other terms that are normal and customary for warrants of this type. In addition, Forefront or its designees will receive and Advisory Warrant equal to 2.0% of the Company’s post-merger and financing fully diluted shares outstanding upon the closing of $2.5 million of investors on which Forefront is eligible to receive compensation. Forefront was issued warrants to purchase 46,667 shares of Common Stock at $1.00 per share upon completion of the Orthofix Subsequent Financing (which includes 13,333 warrants in connection with the 2014 Note with MTF).

Transaction

v2.4.0.8
Transaction (Pro Forma [Member])
6 Months Ended
Jun. 30, 2014
Pro Forma [Member]
 
Transaction

3. Transaction

 

The pro forma adjustments to the pro forma consolidated statement of financial position have been prepared to reflect the following transactions:

 

  (a) In connection with the Merger, all of the issued and outstanding shares of Bone Biologics Inc.’s $0.0001 par value common stock (“Bone Biologics Common Stock”) converted into 19,237,857 shares of the Company’s Common Stock (including 1,526,926 shares issuable upon the exercise of outstanding warrants and 5,568,016 shares issuable upon the conversion of debt including accrued interest through 6/30/2014) (the “Company Merger Consideration”). In exchange, Bone Biologics agreed to pay AFH Holding & Advisory, LLC (“AFH Advisory”) the principal sum of $590,000. On July 3, 2014, Bone Biologics paid AFH Advisory $250,000 of such amount and on July 31, 2014, Bone Biologics issued that certain Promissory Note, dated July 31, 2014 (the “Note”), pursuant to which the Bone Biologics promised to pay AFH Advisory the principal sum of $340,000. MTF has granted AFH Advisory a standby letter of credit in the amount of $340,000 for the remaining amount due under the Note. On September 19, 2014, the Note was assigned to the Company.
     
    The 5,000,000 outstanding shares of Common Stock of AFH Acquisition X, Inc. prior to the Merger were consolidated into 3,853,600 shares of Bone Biologics, Corp. Common Stock and the remaining shares were cancelled.
     
  (b) In addition, upon consummation of the Merger, MTF agreed to convert 30% or $1,517,726 of the outstanding convertible promissory notes (including accrued interest through 6/30/2014) entered into between the Company and MTF (the “MTF Notes”) into Series B Preferred Stock of the Company at $ 1.00, then to Common Stock of the Company at 1:1 basis.
     
    Upon consummation of the Merger, the 2013 Bridge Note holders agreed to convert all outstanding principal and accrued interest (through 6/30/2014) of $444,683 at $1.00 per share into 444,683 shares of Common Stock on a 1:1 basis.
     
    Upon consummation of the Merger, the holders of the Subsequent Orthofix Notes converted $500,000 into Common Stock at $0.75 per share for a total of 668,904 shares of Common Stock (which includes the $250,000 May 2014 MTF Note, and related accrued interest, assigned to Orthofix).

 

  (c) Upon consummation of the Merger, MTF agreed to (i) convert its entire outstanding shares of Series A preferred stock and Series B preferred stock of the Company held into shares of Common Stock on a 1:1 basis.
     
  (d) A reserve was established for the 2014 Equity Incentive Plan of 2,642,898 shares of Common Stock, of which 583,059 options to purchase shares of Common Stock were issued to management of Bone Biologics, Corp. The stock options vest as to one third immediately upon issuance and the remainder vest 50% at the end of each of the next 2 years. An aggregate of 350,000 stock options and 350,000 restricted shares were granted to the board members and CEO of Bone Biologics, Corp. The stock options vest upon completion of 1 year of service and the restricted stock vests at the end of each quarter over 1 year. The estimated fair value of the 583,059 stock options, 350,000 board and CEO options and 350,000 restricted shares was $476,866, $282,799 and $350,000, respectively, and will be recognized over respective vesting periods. The stock options were valued using the Black-Scholes Option Pricing Model with an exercise price of $1.00, estimated volatility of 109%, a risk-free rate of 1.62% and expected life of 5.5-5.75 years.
     
    In addition, warrants to purchase 699,671 shares of Bone Biologics, Corp. Common Stock were issued to a consultant outside of the 2014 Equity Incentive Plan. The warrants vest as to one third immediately upon issuance with the remainder vesting 50% at the end of each of the next 2 years and were valued at $510,437 using the Black-Scholes Option Pricing Model with an exercise price of $1.00, volatility of 109%, risk free rate of 0.88% and have a 4 year term.

Proforma Adjustments - Consolidated Statement of Financial Position

v2.4.0.8
Proforma Adjustments - Consolidated Statement of Financial Position (Pro Forma [Member])
6 Months Ended
Jun. 30, 2014
Pro Forma [Member]
 
Pro forma adjustments - Consolidated Statement of Financial Position

4. Pro forma adjustments – Consolidated Statement of Financial Position

 

  (e) Impact of Subsequent Orthofix Financing
     
    Reflect the aggregate of 500,000 subscription receipts issued at $1.00 per subscription to Orthofix for gross proceeds of $500,000 and recorded in Common Stock and additional paid-in capital.
     
  (f) Reflect the issuance of $250,000 Subsequent Orthofix Convertible Notes, which are convertible into 333,333 shares at $0.75 per share, and the issuance of Subsequent Orthofix Warrants to purchase 166,667 shares of the Company’s common stock at $1.50 per share. The fair value of the Subsequent Orthofix Warrants was $111,893 and was calculated using the Black-Scholes option pricing model with a risk-free rate of 0.88%, volatility of 109% and a 4 year term.
     
  (g) Reflect the conversion of the Subsequent Orthofix Bridge Notes of $500,000 plus accrued interest of $1,678 into 668,904 shares of Common Stock and expensing of related debt discount of $216,691. Included in these amounts are the debt discount of $104,798 and interest of $1,678 associated with the $250,000 May 2014 MTF Note which was assigned to Orthofix.
     
  (h) Offering costs incurred in connection with the Private Placement; allocated to additional paid in capital as issuance costs and deferred financing fees for debt placement. Reflect costs incurred in connection with the Merger.

 

  Promissory note due AFH Advisory of $590,000, which reflects a shell fee of $500,000 and legal expenses of $90,000 and expensed as a cost of the merger. Bone Biologics paid $250,000 as of July 3, 2014. In July 2014, Bone issued a secured promissory note for $340,000 and MTF granted AFH Advisory a standby letter of credit in the amount of $340,000 for the remaining amount due under the Note.
     
  At the closing of the Private Placement, AFH Advisory is entitled to receive warrants (“Extra Warrants”) to purchase up to 500,000 shares of Common Stock at the closing of the Private Placement at the price per share offered in the Private Placement or $1.00 per share with a 5 year term. The warrants have an estimated fair value of $393,159 calculated using the Black-Scholes Option Pricing Model with a risk-free rate of 1.62% and volatility of 109%. The fair value of the warrants was allocated and charged (i) $13,105 to deferred financing fees related to the Subsequent Orthofix Notes, (ii) $13,557 to Subsequent Orthofix Subscription and offset against the related proceeds and (iii) $366,496 charged to Deferred Transaction Costs for allocation to PPM and PIPE. Allocations are based on corresponding amounts of debt raised to date and total estimated equity associated with the Subsequent Orthofix Raise, PPM and PIPE financing.
     
  Legal expenses incurred in connection with the Merger of $200,000.
     
  Forefront as Placement Agent was issued a warrant (the “Agent Warrant”) to purchase 46,667 shares of Common Stock at $1.00 per share upon completion of the Orthofix Subsequent Financing. The Agent Warrant is equal to 4% of the Common Stock underlying the securities issued in the Orthofix Subsequent Financing. The warrant has a 5 year term and total estimated fair value of $34,381 calculated using the Black-Scholes Option Pricing Model with a risk-free rate of 1.56% and volatility of 109%. An additional 33,334 shares were recorded in connection with the financing for an estimated fair value of $26,200.
     
  The Company agreed to pay Forefront a cash fee equal to 4% of gross proceeds received from the Orthofix Subsequent Financing or an additional $30,000 and an estimated $5,000 in expenses, for an aggregate of $35,000 (in addition to $10,000 accrued at June 30, 2014 in connection with the May 2014 MTF Note assigned to Orthofix). Both the fair value of the Agent Warrant and the cash fee were allocated to debt (and written-off as the Subsequent Orthofix Notes were converted to equity) and additional paid-in capital (which offset the proceeds received from the Subsequent Orthofix Subscription), based on the corresponding amounts of debt and equity raised in the Subsequent Orthofix Financing.
     
  Previously deferred transaction costs of $5,000 were allocated to the Subsequent Orthofix Financing (which includes the assigned MTF 2014 Note) and charged 50% against the proceeds from the Orthofix Subsequent Financing within additional paid-in capital and 50% to interest expense (accumulated deficit) for Orthofix Subsequent Notes which were converted to equity.
     
  AFH Advisory and MTF will each receive restricted stock awards contingent upon completion of milestone targets equal to 2.5% of the fully diluted shares of the Company at the time of completion of all such targets. Compensation expense associated with the restricted shares will be recognized when probable over the performance period of 2 years. There was no impact to the Pro forma financial statements.

 

  (i) Reflect the exchange of AFH Acquisition X shares for shares of the Company.

 

  Record the transfer of the value of AFH Acquisition X common shares of $5,000 to additional paid-in capital.
     
  Record the transfer of the value of AFH Acquisition X additional paid-in capital of $20,000 to Bone Biologics additional paid-in capital.
     
  Record the elimination of AFH Acquisition X deficit of $68,569.
     
  Net amount of ($43,569), which represents the fair value of net assets of AFH Acquisition X and charged to additional paid-in capital as a cost of the listing.
     
  Record the reclass of amount due to parent of $39,173 to equity – additional paid-in capital.

 

  (j) Record the conversion of Bone Biologics MTF Convertible Notes related party debt and accrued interest into Common Stock on a 1 for 1 basis.
     
    Convertible debt of $1,517,726, including accrued interest of $410,726 through 6/30/2014, converts into 1,517,726 shares of Series B Preferred stock at $1.00 per share and subsequently into Common Stock on a 1 for 1 basis.
     
  (k) Record the conversion of Bone Biologics 2013 Bridge Notes and accrued interest into Common Stock on a 1 for 1 basis.
     
    Bridge Notes of $444,683 including interest of $44,683 converts into 444,683 shares of Common Stock at $1.00 per share. The remaining debt discount of $22,935 is charged to interest expense (accumulated deficit).
     
  (l) Record the conversion of Bone Biologics Series A and Series B Preferred into Common Stock on a 1 for 1 basis.
     
    At the time of the Reverse Merger, MTF agreed to convert its entire outstanding holdings of Bone Biologics Preferred Stock into shares of Common Stock, which consist of 493,339 shares of Series A Preferred and 5,336,099 shares of Series B Preferred for an aggregate of 5,829,438 shares.
     
    Since the value of the adjusted number of shares of common stock into which the convertible preferred stock was convertible was not greater than the value of the number of shares of common stock into which the convertible preferred stock was convertible prior to such adjustment, based on the market price of the common stock on the date the convertible preferred stock was issued, the Company did not recognize a beneficial conversion feature associated with the preferred stock.
     
  (m) Record the exchange of Bone Biologics outstanding warrants for warrants of the Company.
     
    As a result of the transaction, Bone Biologics warrants to purchase 1,526,926 shares of common stock were exchanged for warrants of Bone Biologics, Corp on a 1:1 basis. There was no impact to the Pro forma financial statements at June 30, 2014.
     
  (n) Record stock-based compensation associated with the issuance of new management and consultant stock options, for an aggregate total of $330,564.
    Reflect stock-based compensation of $162,103 related to the issuance of 583,059 options to purchase shares of Common Stock issued to management of Bone Biologics, Corp., of which 198,202 vest immediately upon issuance.
     
    Reflect stock-based compensation of $168,461 related to the issuance of warrants to purchase 699,671 shares of Bone Biologics, Corp. Common Stock issued to a consultant outside of the 2014 Equity Incentive Plan, of which 230,915 vest immediately upon issuance.
     
  (o) Adjust the PAR value of Bone Biologics Common Stock
     
    PAR value was adjusted from $0.0001 per share to $0.001 per share of Bone Biologics, Corp. Common stock for a total of 17,913,012 issued and outstanding shares, and a reclass of $16,157 from APIC to Common Stock for a total value of $17,913.
     
  (p) Tax Impact
     
    Although the Company will be subject to applicable US and California income tax and other tax obligations, we do not expect that an income tax will be payable by the Company in the foreseeable future. The US statutory corporate tax rate on the operating entity of the Company is currently 35%. However, Bone Biologics has significant net operating loss carryovers and deferred tax assets that are fully reserved, which brings Bone Biologic’s effective tax rate down to 0%. As a result, there is no income tax impact reflected in the Pro forma financial statements.

Proforma Adjustment - Statement of Operations

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Proforma Adjustment - Statement of Operations (Pro Forma [Member])
6 Months Ended 12 Months Ended
Jun. 30, 2014
Dec. 31, 2013
Pro Forma [Member]
   
Pro forma adjustment - Statement of Operations

6. Pro forma adjustments –Statement of Operations for the six months ended June 30, 2014

 

The pro forma adjustments to the pro forma statement of operations for the three months ended March 31, 2014 have been prepared to reflect the following transactions:

 

  (u) Reversal of $62,450 of interest expense, of which $34,927 is related to the 30% conversion of MTF Notes, $25,845 is related to the 2013 Bridge Notes and $1,678 is related to the May 2014 MTF Note.
     
  (v) Reversal of amortization of debt discount of $91,111, of which $20,959 is related to the 2013 MTF Bridge Notes and 2014 MTF Note, $53,430 is related to the Orthofix 2013 Bridge Notes and $16,721 is related to the AFH 2013 Bridge Note.
     
  (w) Estimated stock-based compensation expense of $164,185, which is related to the management and consultant stock option grants.

5. Pro forma adjustment –Statement of Operations for the year ended December 31, 2013

 

The pro forma adjustments to the pro forma statement of operations for the year ended December 31, 2013 have been prepared to reflect the following transactions:

 

  (q) Reversal of one-time legal fees of $50,000 associated with the LOI transactions including the PPM and Merger Agreement.
     
  (r) Reversal of $83,267 of interest expense, of which $64,178 is related to the 30% conversion of MTF Notes and $19,088 related to the 2013 Bridge Notes.
     
  (s) Reversal of amortization of debt discount related to the 2013 Bridge Notes of $67,104.
     
  (t) Estimated stock-based compensation expense of $1,291,733 related to the management and consultant stock option grants, board and CEO stock option grants and restricted stock awards.