10-Q 1 form10-q.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2018

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to _________

 

Commission File No. 000-53078

 

Bone Biologics Corporation

(Exact name of registrant as specified in its charter)

 

Delaware   42-1743430

(State or other jurisdiction of

incorporation or formation)

  

(I.R.S. employer

identification number)

 

2 Burlington Woods Drive, Ste 100, Burlington, MA 01803

(Address of principal executive offices and Zip Code)

 

(781) 552-4452

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

[X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] Yes [  ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in rule 12b-2 of the Exchange Act.

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [  ]   Smaller reporting company [X]
Emerging growth company [X]      

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[  ] Yes [X] No

 

As of May 1, 2018, there were 43,929,330 shares of the issuer’s common stock, $0.001 par value, outstanding.

 

 

 

 
 

 

Bone Biologics Corporation

- INDEX -

 

  Page
PART I – FINANCIAL INFORMATION:  
   
Item 1. F-1
   
Unaudited Condensed Consolidated Financial Statements  
   
Unaudited Condensed Consolidated Balance Sheets F-1
   
Unaudited Condensed Consolidated Statements of Operations F-2
   

Consolidated Statement of Stockholders’ Deficit

 F-3
   
Unaudited Condensed Consolidated Statements of Cash Flows F-4
   
Notes to Unaudited Condensed Consolidated Financial Statements F-5
   
Item 2. Management’s Discussion and Analysis or Plan of Operation 4
   
Item 3. Quantitative and Qualitative Disclosures about Market Risk 7
   
Item 4. Controls and Procedures 7
   
PART II – OTHER INFORMATION:  
   
Item 1. Legal Proceedings 8
   
Item 1A. Risk Factors 8
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 8
   
Item 3. Defaults Upon Senior Securities 8
   
Item 4. Mine Safety Disclosures 8
   
Item 5. Other Information 8
   
Item 6. Exhibits 9
   
Signatures 10

 

2
 

 

NOTE ON FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. For a more detailed listing of some of the risks and uncertainties facing the Company, please see our Current Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the Securities and Exchange Commission (“SEC”) on April 2, 2018.

 

All statements other than historical facts contained in this report, including statements regarding our future financial position, capital expenditures, cash flows, business strategy and plans and objectives of management for future operations are forward-looking statements. The words “anticipated,” “believe,” “expect,” “plan,” “intend,” “seek,” “estimate,” “project,” “could,” “may,” and similar expressions are intended to identify forward-looking statements. These statements include, among others, information regarding future operations, future capital expenditures, and future net cash flow. Such statements reflect our management’s current views with respect to future events and financial performance and involve risks and uncertainties, including, without limitation, our ability to raise additional capital to fund our operations, obtaining Food and Drug Administration (“FDA”) and other regulatory authorization to market our drug and biological products, successful completion of our clinical trials, our ability to achieve regulatory authorization to market our lead product NELL-1, our reliance on third party manufacturers for our drug products, market acceptance of our products, our dependence on licenses for certain of our products, our reliance on the expected growth in demand for our products, exposure to product liability and defect claims, development of a public trading market for our securities, and various other matters, many of which are beyond our control.

 

Should one or more of these risks or uncertainties occur, or should underlying assumptions prove to be incorrect, actual results may vary materially and adversely from those anticipated, believed, estimated or otherwise indicated. Consequently, all of the forward-looking statements made in this Annual Report are qualified by these cautionary statements and accordingly there can be no assurances made with respect to the actual results or developments. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

 

Unless expressly indicated or the context requires otherwise, the terms “Company,” “we,” “us,” and “our” in this document refer to Bone Biologics Corporation, a Delaware corporation, and, its wholly owned subsidiary as defined under the heading “Management’s Discussion and Analysis” in this Form 10-Q.

 

3
 

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

Bone Biologics Corporation

 

Condensed Consolidated Balance Sheets

 

   March 31,
2018		   December 31,
2017		 
   (unaudited)     
Assets          
           
Current assets          
Cash  $371,404   $690,279 
Prepaid expenses   98,969    105,234 
           
Total current assets   470,373    795,513 
           
Property and equipment, net   122    146 
           
Total assets  $470,495   $795,659 
           
Liabilities and Stockholders’ Deficit          
           
Current liabilities          
Accounts payable and accrued expenses  $316,752   $720,128 
Deferred compensation   291,667    241,667 
           
Total current liabilities   608,419    961,795 
           
Note payable – related party, net of debt discount of $603,646 and $770,313, respectively   8,396,354    8,229,687 
           
Total liabilities   9,004,773    9,191,482 
           
Commitments and Contingencies          
           
Stockholders’ deficit          
Preferred Stock, $0.001 par value per share; 20,000,000 shares authorized; none issued or outstanding at March 31, 2018 and December 31, 2017   -    - 
Common stock, $0.001 par value per share; 100,000,000 shares authorized; 43,929,330 and 43,280,795 shares issued and outstanding at March 31, 2018 and December 31, 2017   43,928    43,280 
Additional paid-in capital   50,238,380    48,922,842 
Common stock to be issued to related parties; 1,153,846 shares at March 31, 2018 and December 31, 2017   1,823,077    1,823,077 
Accumulated deficit   (60,639,663)   (59,185,022)
           
Total stockholders’ deficit   (8,534,278)   (8,395,823)
           
Total liabilities and stockholders’ deficit  $470,495   $795,659 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

F-1

 

 

Bone Biologics Corporation

 

Condensed Consolidated Statements of Operations

 

    Three
Months
Ended
March 31,
2018		     Three
Months
Ended
March 31,
2017		  
    (unaudited)     (unaudited)  
Revenues   $ -     $ -  
                 
Cost of revenues     -       -  
                 
Gross profit     -       -  
                 
Operating expenses                
Research and development                
Trade     401,863       406,887  
Related party (includes Founders stock-based compensation
of -0- and $784,525 for the three months ended March 31,
2018 and 2017, respectively)		     -       784,525  
General and administrative     694,861       968,762  
                 
Total operating expenses     1,096,724       2,160,174  
                 
Loss from operations     (1,096,724 )     (2,160,174 )
                 
Other expenses                
Interest expense, net – related party     (357,917 )     (762,352 )
                 
Net Loss   $ (1,454,641 )   $ (2,922,526 )
                 
Weighted average shares outstanding – basic and diluted     43,470,026       38,828,607  
                 
Net Loss per share – basic and diluted   $ (0.03 )   $ (0.08 )

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

F-2

 

 

Bone Biologics Corporation

 

Consolidated Statement of Stockholders’ Deficit

 

   Common Stock   Additional Paid-in   Common Stock to be   Accumulated   Total Stockholders’ 
   Shares   Amount   Capital   Issued   Deficit   Deficit 
Balance at December 31, 2017   43,280,795   $43,280   $48,922,842   $1,823,077   $(59,185,022)  $(8,395,823)
                               
Fair value of vested stock options issued to employees   -    -    367,686    -    -    367,686 
                               
Shares issued for cash   250,000    250    492,250    -    -    492,500 
                               
Fair value of shares issued in settlement of bonus Payable   231,472    231    455,769    -    -    456,000 
                               
Shares issued to related party upon net settlement of warrants   167,063    167    (167)   -    -    - 
                               
Net Loss   -    -    -    -    (1,454,641)   (1,454,641)
                               
Balance at March 31, 2018   43,929,330   $43,928   $50,238,380   $1,823,077   $(60,639,663)  $(8,534,278)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

F-3

 

 

Bone Biologics Corporation

 

Condensed Consolidated Statements of Cash Flows

 

  

Three Months
Ended

March 31,
2018

   Three Months
Ended
March 31,
2017		 
   (unaudited)   (unaudited) 
Cash flows from operating activities          
Net loss  $(1,454,641)  $(2,922,526)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   24    24 
Debt discount amortization   156,873    520,508 
Debt issuance costs amortization   9,794    9,794 
Stock-based compensation   195,795    507,768 
Options issued to consultants   171,891    930,250 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   (1,235)   (2,804)
Accounts payable and accrued expenses   52,624    (101,053)
Deferred compensation   50,000    50,000 
           
Net cash used in operating activities   (818,875)   (1,008,039)
           
Cash flows from financing activities          
Proceeds from issuance of common stock   500,000    - 
Proceeds from issuance of notes payable   -    2,000,000 
Net cash provided by financing activities   500,000    2,000,000 
           
Net increase (decrease) in cash   (318,875)   991,961 
           
Cash, beginning of period   690,279    620,375 
Cash, end of period  $371,404   $1,612,336 
           
Supplemental non-cash information          
Interest paid  $191,250   $191,250 
Taxes paid  $-   $- 
Supplemental non-cash investing and finance activities:          
Beneficial conversion feature of notes payable  $-  

$

2,000,000

 

Prepaid offering costs netted against proceeds from issuance of common stock

  $

7,500

   $- 
Shares issued in settlement of bonus payable  $456,000   $- 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

F-4

 

 

Bone Biologics Corporation

Notes to Unaudited Condensed Consolidated Financial Statements

 

1. The Company

 

Bone Biologics Corporation (the “Company”) was incorporated under the laws of the State of Delaware on October 18, 2007 as AFH Acquisition X, Inc. Pursuant to a Merger Agreement, dated September 19, 2014, by and among the Company, its wholly-owned subsidiary, Bone Biologics Acquisition Corp., a Delaware corporation (“Merger Sub”), and Bone Biologics, Inc. Merger Sub merged with and into Bone Biologics Inc., with Bone Biologics Inc. 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, the Company officially changed its name to “Bone Biologics Corporation” to more accurately reflect the nature of its business and Bone Biologics, Inc. became a wholly owned subsidiary of the Company. Bone Biologics, Inc. was incorporated in California on June 9, 2004.

 

We are a medical device company that is currently focused on bone regeneration in spinal fusion using the recombinant human protein, known as NELL-1/DBX®. The NELL-1/DBX® combination product is an osteostimulative recombinant protein that provides target specific control over bone regeneration. The protein, as part of the UCB-1 technology platform has been licensed exclusively for worldwide applications to us through a technology transfer from UCLA Technology Development Group on behalf of UC Regents (“UCLA TDG”). UCLA TDG and the Company received guidance from the FDA that NELL-1/DBX® will be classified as a combination product with a device lead.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year; or (iii) the date on which we have, during the previous three-year period, issued more than $1.07 billion in non-convertible debt securities. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. We have elected to take advantage of these reduced disclosure obligations, and may elect to take advantage of other reduced reporting obligations in the future.

 

The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to irrevocably “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.

 

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 combination product 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. 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.

 

F-5

 

 

Going Concern and Liquidity

 

The Company has no significant operating history and since inception to March 31, 2018 has generated a net loss of approximately $60.6 million. The Company will continue to incur significant expenses for development activities for their lead product NELL-1/DBX®. Operating expenditures for the next twelve months are estimated at $7.2 million. The accompanying condensed consolidated financial statements for the period ended March 31, 2018 have been prepared assuming the Company will continue as a going concern. As reflected in the condensed consolidated financial statements, the Company had a stockholders’ deficit of $8,534,278 at March 31, 2018, and incurred a net loss of $1,454,641, and used net cash in operating activities of $818,875 during the three-month period ended March 31, 2018. The Company closed on $500,000 of equity financing in March 2018. As of March 31, 2018, the Company had a working capital deficit of $137,924 and cash of $371,429. As of May 1, 2018, the Company had cash of $191,771. On May 1, 2018, Hankey Capital agreed to extend the May 1st interest payment on their outstanding notes to be payable upon the earlier of (i) a receipt of equity capital, in an amount not less than the interest payment or (ii) June 1, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern. In addition, our independent accounting firm, in its audit report to the financial statements included in our Annual Report for the year ended December 31, 2017, expressed substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company will continue to attempt 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. If cash resources are insufficient to satisfy the Company’s on-going cash requirements, the Company will be required to scale back or discontinue its product development programs, or obtain funds if available (although there can be no certainties) through strategic alliances that may require the Company to relinquish rights to its technology, substantially reduce or discontinue its operations entirely. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

 

Pursuant to our October 2016 and February 2017 Note Purchase Agreements (“Convertible Notes”), which per the terms of the Convertible Notes were converted into shares of common stock on December 31, 2017, the Company may only use the proceeds from the issuance of the Convertible Notes to focus on prioritizing operations on essential research and development activities. Also pursuant to the October 2016 Note Purchase Agreement, the Company’s management has agreed to defer 20% of earned compensation and the Board of Directors has authorized a change in director compensation to defer 50% of the directors’ cash compensation until at least $5,000,000 has been received in cumulative funding from non-current stockholders.

 

2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The interim condensed consolidated financial statements included herein reflect all material adjustments (consisting of normal recurring adjustments and reclassifications and non-recurring adjustments) which, in the opinion of management, are ordinary and necessary for a fair presentation of results for the interim periods. Certain information and footnote disclosures required under the accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). The Company believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated balance sheet information as of December 31, 2017 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K filed with the SEC on April 2, 2018 (the “2017 Annual Report”). These condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2017 and notes thereto included in the 2017 Annual Report.

 

As disclosed in the Annual Report on Form 10-K for the year ended December 31, 2017, certain amounts previously reported in the Form 10-Q for the period ended March 31, 2017 have been restated to correct for certain accounting errors.

 

The results of operations for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the entire fiscal year ended December 31, 2018 or for any other period.

 

F-6

 

 

Use of Estimates

 

The preparation of the accompanying consolidated 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 consolidated financial statements and reported amounts of expenses during the reporting period. Significant estimates include the assumptions used in the accrual for potential liabilities, the valuation of stock options and warrants issued for services, and deferred tax valuation allowances. Actual results could differ from those estimates.

 

Stock Based Compensation

 

ASC 718, Compensation – Stock Compensation, prescribes accounting and reporting standards for all share-based payment transactions in which employee services are acquired. Transactions include incurring liabilities, or issuing or offering to issue shares, options, and other equity instruments such as employee stock ownership plans and stock appreciation rights. Share-based payments to employees, including grants of employee stock options, are recognized as compensation expense in the consolidated financial statements based on their fair values. That expense is recognized over the period during which an employee is required to provide services in exchange for the award, known as the requisite service period (usually the vesting period).

 

The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50, Equity – based Payments to Non-Employees . Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of the performance commitment date or the performance completion date.

 

In light of the very limited trading of our common stock, the fair value of the shares was determined based on the then most recent price per share at which we sold common stock to unrelated parties in a private placement during the periods then ended. Pursuant to ASU No. 2016-09 – Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, the Company accounts for forfeitures when they occur.

 

F-7

 

 

Loss per Common Share

 

The Company utilizes FASB ASC Topic No. 260, Earnings per Share. Basic loss per share is computed by dividing loss available to common shareholders by the weighted-average number of common shares outstanding. Diluted loss per share is computed similar to basic loss per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted loss per common share reflects the potential dilution that could occur if convertible debentures, options and warrants were to be exercised or converted or otherwise resulted in the issuance of common stock that then shared in the earnings of the entity.

 

Since the effects of outstanding options, warrants, and the conversion of convertible debt are anti-dilutive in during the periods ended March 31, 2018 and 2017, shares of common stock underlying these instruments have been excluded from the computation of loss per common share.

 

The following sets forth the number of shares of common stock underlying outstanding options, warrants, and convertible debt as of March 31, 2018 and 2017:

 

   March 31, 
   2018   2017 
Warrants   9,242,308    10,390,820 
Stock options   8,449,434    12,736,408 
Convertible promissory notes   5,696,203    8,896,203 
    23,387,945    32,023,431 

 

New Accounting Standards

 

In February 2016, the FASB issued Accounting Standards Update No. 2016-02 (ASU 2016-02), Leases (Topic 842). ASU 2016-02 requires a lessee to record a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, on the balance sheet for all leases with terms longer than 12 months, as well as the disclosure of key information about leasing arrangements. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. ASU 2016-02 requires classification of all cash payments within operating activities in the statement of cash flows. Disclosures are required to provide the amount, timing and uncertainty of cash flows arising from leases. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company has not yet evaluated the impact of the adoption of ASU 2016-02 on the Company’s financial statement presentation or disclosures.

 

In July 2017, the FASB issued ASU No. 2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features; (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (“ASU 2017-11”). ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered, and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common stockholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The guidance in ASU 2017-11 can be applied using a full or modified retrospective approach. The Company is currently evaluating the impact of the adoption of ASU 2017-11 on the Company’s financial statement presentation or disclosures.

 

F-8

 

 

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

 

3. Accounts Payable and Accrued Expenses

 

Accounts payable and accrued expenses consist of the following:

 

   March 31, 2018   December 31, 2017 
Accounts payable  $262,027   $216,903 
Accrued bonus   -    456,000 
Deferred Directors’ fees   54,725    47,225 
   $316,752   $720,128 

 

4. Commitments and Contingencies

 

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.

 

5. Notes Payable - Related Parties

 

Note Type  Issue Date  Maturity Date  Interest Rate   March 31, 2018   December 31, 2017 
                   
(A) First Secured Convertible Note  10/24/14  12/31/19   8.75%  $5,000,000   $5,000,000 
                      
(A) Second Secured Convertible Note  5/4/15  12/31/19   8.75%   2,000,000    2,000,000 
                      
(B) Third Secured Convertible Note  2/24/16  2/23/19   8.75%   2,000,000    2,000,000 
               9,000,000    9,000,000 
Less: Debt discount              567,733    724,606 
Less: Debt issuance costs              35,913    45,707 
Net Notes payable             $8,396,354   $8,229,687 

 

First and Second Secured Convertible Notes and Warrants

 

(A) On October 24, 2014 and May 4, 2015, the Company issued two convertible promissory notes in the aggregate amount of $7,000,000 to Hankey Capital, LLC (“Hankey Capital”). The president of Hankey Capital is a non-independent board member. The Convertible Notes mature on December 31, 2019 and bear interest at an annual rate of interest of the “prime rate” plus 4.0%, with a minimum rate of 8.5% per annum until maturity, with interest payable monthly in arrears. Prior to the Maturity Date, Hankey Capital has a right, in its sole discretion, to convert the Convertible Notes into shares of the Company’s Common Stock, at a conversion rate equal to the greater of (i) $1.58 per share or (ii) 70% of the average daily price for the Common Stock as measured over the course of the 60 day period prior to the conversion. The Company also issued warrants to Hankey Capital for 5,854,431 shares of Common Stock at an exercise price per share of $1.58 that expire three years from the date of issuance. In connection with the Convertible Notes, the Company issued 8,860,760 common shares as collateral shares and paid commitment fees in the amount of 3.0% of the original principal amount of the loans ($210,000) to Hankey Capital and other aggregate offering costs of $594,550. The relative fair value of the 5,854,431 warrants issued to Hankey was determined to be $2,086,859 using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 0.82% - 0.96%; dividend yield of 0%; volatility rate of 96.77% - 96.83%; and an expected life of three years (statutory term). As of October 24, 2014 and May 4, 2015, the effective conversion price was greater than the market price of shares of the Company’s common stock; therefore, a beneficial conversion feature was not recognized. The aggregate value of the warrants and offering costs totaling $2,891,409 was considered to be a debt discount upon issuance of the notes and was amortized as interest over the terms of the notes or in full upon the conversion of the notes.

 

F-9

 

 

  The Convertible Notes are secured by 5,854,431collateral shares of Common Stock issued by the Company in the name of Hankey Capital, in such amount so as to maintain a loan to value ratio of no greater than 50% (the “Collateral”). The number of shares in the Collateral shall be adjusted on a yearly basis. The Convertible Notes are further secured by collateral assignments of all the Company’s license agreements. The principal amount of the loan is pre-payable in whole or in part at any time, without premium or penalty. Upon any voluntary partial prepayment of outstanding principal, Hankey Capital will return Collateral shares to the Company in the amount necessary, if any, to maintain the loan to value ratio at no less than 50%. Upon a full payment of the outstanding principal, all Collateral shares shall be returned return and cancelled. Hankey Capital will also return Collateral shares under the same terms in case of partial or full conversion of the Convertible Notes. The Notes and Warrants contain provisions limiting the exercise/conversion thereof.
   
  On February 24, 2016, the First and Second Secured Convertible Notes were modified to extend the maturity date to December 31, 2019 and fix the conversion price at $1.58 and the warrants were amended to extend their expiration date by two years. The Company determined that the extension of the convertible notes’ maturity dates and the warrants’ expiration dates resulted in a debt extinguishment for accounting purposes since the change in fair value of the warrants as a result of the extension of their expiration dates was more than 10% of the original value of the convertible notes. As such, the Company recorded the notes at their aggregate fair value of $7,000,000. The Company recorded a loss on extinguishment of debt totaling $2,842,580 of which $1,005,646 represented the increased fair value of the warrants and $1,836,934 related to write off the remaining valuation discount on that date.

 

Third Secured Convertible Term Note and Warrants

 

(B) On February 24, 2016, the Company issued a convertible promissory note in the amount of $2,000,000 to Hankey Capital. The Third Convertible Note matures on February 23, 2019 (the “Maturity Date”) and bears interest at an annual rate of interest at the “prime rate” (as quoted in the “Money Rates” section of The Wall Street Journal) plus 4.0%, with a minimum rate of 8.5% per annum until maturity, with interest payable monthly in arrears. Prior to the Maturity Date, Hankey Capital has a right, in its sole discretion, to convert the Convertible Note into shares of the Company’s common stock (the “Conversion Shares”), at a conversion rate equal to $1.58 per share and issued a warrant to Hankey Capital for 1,463,415 shares of Common Stock at an exercise price per share of $2.05. The Warrant will expire on February 23, 2021. The Note and Warrant contain provisions limiting the exercise/conversion thereof. The Convertible Note is secured by 1,463,415 collateral shares of Common Stock issued by the Company in the name of Hankey Capital, in such amount so as to maintain a loan to value ratio of no greater than 50%. The number of Collateral Shares will be adjusted on a yearly basis. The Convertible Note is further secured by all of the Company’s personal property, including collateral assignments of all the Company’s license agreements and the MTF Sygnal Option Agreement. The principal amount of the loan is prepayable in whole or in part at any time, without premium or penalty. Upon any voluntary partial prepayment of outstanding principal, Hankey Capital will return Collateral Shares to the Company in the amount necessary, if any, to maintain the loan to value ratio at no less than 50%. Upon a full payment of the outstanding principal, all Collateral Shares will be returned and cancelled. Hankey Capital will also return Collateral Shares under the same terms in case of partial or full conversion of the Convertible Note. In connection with the Convertible Note, on February 24, 2016 the Company issued 2,531,646 common shares as collateral and paid a commitment fee in the amount of $40,000 (2% of the original principal amount of the Loan) and other offering costs totaling $77,532. The relative fair value of the 1,463,415 warrants issued to Hankey was determined to be $1,103,817 using the Black-Scholes option pricing model with the following assumptions: risk-free interest rate of 0.90%; dividend yield of 0%; volatility rate of 119%; and an expected life of five years (statutory term). As of February 24, 2017, the effective conversion price was less than the market price of shares of the Company’s common stock. As such, the Company recognized a beneficial conversion feature of $778,651. The aggregate value of the warrants, beneficial conversion feature and offering costs of $2,000,000 was considered to be a debt discount upon issuance of the note and will be amortized as interest over the term of the note or in full upon the conversion of the note.

 

F-10

 

 

  In connection with the Third Convertible Note with Hankey Capital, during 2016 Hankey Capital exercised warrants to purchase an aggregate of 791,139 shares resulting in gross proceeds to the Company of $1,250,000, and the parties agreed to extend the maturity date of the first two convertible secured notes to December 31, 2019 and fix the conversion rate at $1.58. The Company also agreed to extend the term of the warrants issued with the first two convertible notes to five years from issuance.

 

The total debt discount amortization related to our outstanding debt for the periods ended March 31, 2018 and 2017, was $156,873 and $520,508, respectively. The unamortized debt discount at March 31, 2018 was $567,733. The discount is expected to be recognized over a period of 1.56 years. The unamortized debt discount at December 31, 2017 was $724,606.

 

The total debt issuance amortization related to our outstanding debt for the periods ended March 31, 2018 and 2017, was $9,794 and $9,794, respectively. The unamortized debt issuance costs at March 31, 2018 was $35,913. The cost is expected to be recognized over a period of 1.56 years. The unamortized debt issuance costs at December 31, 2017 was $45,707.

 

6. Stockholders’ Deficit

 

Preferred Stock

 

The Company’s amended and restated certificate of incorporation authorizes the Company to issue a total of 20,000,000 shares of preferred stock. No shares have been issued.

 

Common Stock

 

The Company’s amended and restated certificate of incorporation authorizes the Company to issue a total of 100,000,000 shares of common stock. As of March 31, 2018 and December 31, 2017, the Company had an aggregate of 43,929,330 and 43,280,795 shares of common stock outstanding, respectively.

 

In February 2018, 322,893 warrants were net exercised resulting in the issuance of 167,063 shares of common stock.

 

In February 2018, management was issued 231,472 shares of restricted common stock with a fair value of $456,000 in settlement of bonuses payable.

 

On March 26, 2018, the Company entered into a share purchase agreement pursuant to which an aggregate of 250,000 shares of common stock of the Company at a price per share equal to $2.00 for total proceeds of $500,000.

 

F-11

 

 

Common Stock Warrants

 

A summary of warrant activity for the period ended March 31, 2018 is presented below:

 

   Number of   Weighted
Average
Exercise		   Weighted
Average		 
Subject to Exercise  Warrants   Price   Life (Years) 
Outstanding as of December 31, 2017   10,264,238   $1.52    2.23 
Granted – 2018   -    -    - 
Forfeited/Expired – 2018   (699,037)   -    - 
Exercised – 2018   (322,893)   0.95    3.33 
Outstanding as of March 31, 2018   9,242,308   $1.53    2.10 

 

As of March 31, 2018, the Company had outstanding vested and unexercised Common Stock Warrants as follows:

 

Date Issued  Exercise Price   Number of Warrants   Expiration date
2009  $0.44    118,383   March 16, 2019
2010  $0.44    226,588   February 4, 2020
April 2013  $1.00    50,000   April 28, 2020
September 2013  $1.00    50,000   September 4, 2020
September 2013  $1.00    25,000   September 20, 2020
November 2013  $1.00    75,000   November 14, 2020
July 2014  $1.50    166,667   May 30, 2018
July 2014  $1.50    166,667   September 30, 2018
July 2014  $1.00    500,000   September 30, 2018
July 2014  $1.00    46,667   July 2, 2018
July 2014  $0.00    12,625   July 10, 2018
September 2014  $1.62    625,000   August 31, 2021
September 2014  $1.00    405,187   September 18, 2021
September 2014  $1.00    89,588   September 29, 2021
October 2014  $1.58    3,164,558   October 23, 2019
May 2015  $1.58    1,898,734   May 4, 2020
October 2015  $1.58    158,229   October 27, 2018
February 2016  $2.05    1,463,415   February 23, 2021
              
Total outstanding warrants at March 31, 2018        9,242,308    

 

An aggregate of 322,893 common stock warrants were exercised on a non-cash basis and 699,037 warrants expired during the period ended March 31, 2018. The intrinsic value of the outstanding warrants on March 31, 2018 is $4,402,055.

 

7. Stock-based Compensation

 

2015 Equity Incentive Plan

 

The Company has 14,000,000 shares of Common Stock authorized and reserved for issuance under our 2015 Equity Incentive Plan for option awards. This reserve may be increased by the Board each year by up to the number of shares of stock equal to 5% of the number of shares of stock issued and outstanding on the immediately preceding December 31. Appropriate adjustments will be made in the number of authorized shares and other numerical limits in our 2015 Equity Incentive Plan and in outstanding awards to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in our capital structure. Shares subject to awards granted under our 2015 Equity Incentive Plan which expire, are repurchased or are cancelled or forfeited will again become available for issuance under our 2015 Equity Incentive Plan. The shares available will not be reduced by awards settled in cash. Shares withheld to satisfy tax withholding obligations will not again become available for grant. The gross number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under our 2015 Equity Incentive Plan.

 

F-12

 

 

Awards may be granted under our 2015 Equity Incentive Plan to our employees, including officers, director or consultants, and our present or future affiliated entities. While we may grant incentive stock options only to employees, we may grant non-statutory stock options, stock appreciation rights, restricted stock purchase rights or bonuses, restricted stock units, performance shares, performance units and cash-based awards or other stock based awards to any eligible participant.

 

The 2015 Equity Incentive Plan will be administered by our compensation committee. Subject to the provisions of our 2015 Equity Incentive Plan, the compensation committee determines, in its discretion, the persons to whom, and the times at which, awards are granted, as well as the size, terms and conditions of each award. All awards are evidenced by a written agreement between us and the holder of the award. The compensation committee has the authority to construe and interpret the terms of our 2015 Equity Incentive Plan and awards granted under our 2015 Equity Incentive Plan.

 

A summary of stock option activity for the period ended March 31, 2018, is presented below:

 

   Number of   Weighted
Average
Exercise		   Weighted
Average		   Aggregate
Intrinsic		 
Subject to Exercise  Options   Price   Life (Years)   Value 
Outstanding as of December 31, 2017   8,397,216   $1.64    7.55   $4,373,120 
Granted – 2018   52,218    1.97    10.00    - 
Forfeited – 2018   -    -    -    - 
Exercised – 2018   -    -    -    - 
Outstanding as of March 31, 2018   8,449,434   $1.64    7.32   $4,718,367 

 

As of March 31, 2018, the Company had outstanding stock options as follows:

 

Date Issued  Exercise Price   Number of Options   Expiration date
September 2014  $1.59    583,059   December 27, 2025
November 2014  $1.59    174,918   December 27, 2025
August 2015  $1.59    3,121,787   December 27, 2025
September 2015  $1.59    200,000   December 27, 2025
November 2015  $1.59    1,224,640   December 27, 2025
December 2015  $1.59    802,716   December 27, 2025
January 2016  $1.59    1,275,786   January 9, 2026
March 2016  $2.05    54,000   February 24, 2021
May 2016  $2.05    807,434   May 26, 2026
June 2016  $2.05    99,315   May 31, 2026
January 2017  $2.05    53,561   January 1, 2027
January 2018  $1.97    52,218   January 1, 2028
              
Total outstanding options at March 31, 2018        8,449,434    

 

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value ( i.e. , the difference between our closing stock price on the respective date and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their options. No options were exercised or cancelled during the period ended March 31, 2018.

 

There were 52,218 options granted with a fair value of $100,000 during the period ended March 31, 2018. Vesting of options differs based on the terms of each option. The Company has valued the options at their date of grant utilizing the Black-Scholes option pricing model. As of the issuance of these condensed consolidated financial statements, there was no active public market for the Company’s shares. Accordingly, the fair value of the options was determined based on the historical volatility data of similar companies, considering the industry, products and market capitalization of such other entities. The risk-free interest rate used in the calculations is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options as calculated using the simplified method. The expected life of the options used was based on the contractual life of the option granted. Stock-based compensation is a non-cash expense because we settle these obligations by issuing shares of our common stock from our authorized shares instead of settling such obligations with cash payments.

 

During the periods ended March 31, 2018 and 2017, the Company had stock-based compensation expense of $367,686 and $1,438,018, respectively, related to the vesting of stock options granted to the Company’s employees, directors, and consultants included in our reported net loss.

 

F-13

 

 

The Company utilized the Black-Scholes option pricing model. The assumptions used for the periods ended March 31, 2018 and 2017 are as follows:

 

   March 31, 2018   March 31, 2017 
Risk free interest rate   2.302%-2.659%   1.99%-2.306%
Expected life (in years)   6.24-7.75    5.5-9.0 
Expected Volatility   

169.33%-179.79

%   135.94%-142.69%
Expected dividend yield   0%   0%

 

A summary of the changes in the Company’s non-vested options during the period ended March 31, 2018, is as follows:

 

   Number of
Non-vested
Options		   Weighted
Average
Fair Value at
Grant Date		 
Non-vested at January 1, 2018   2,653,039   $1.46 
Granted in 2018   52,218   $1.92 
Forfeited – 2018   -   $- 
Vested in 2018   (26,444)  $1.89 
Non-vested at March 31, 2018   2,678,813   $1.51 
Exercisable at March 31, 2018   5,770,621   $1.44 
Outstanding at March 31, 2018   8,449,434   $1.46 

 

As of March 31, 2018, total unrecognized compensation cost related to unvested stock options was $1,288,772. The cost is expected to be recognized over a weighted average period of 1.19 years.

 

8. Related Party Transactions

 

Hankey Capital LLC (Hankey Capital)

 

Hankey Capital holds certain convertible notes of the Company as discussed in Note 5. The President of Hankey Capital is a non-independent board member and a significant shareholder.

 

Founders

 

The Company entered into a Letter Agreement effective October 2, 2015, with each of Dr. Chia Soo, Dr. Eric Kang Ting and Dr. Ben Wu (collectively, the “Founders”). The Founders were three of the original shareholders of the Company. Pursuant to the Letter Agreement, the Founders agrees to deliver to the Company all past work product and past data related to NELL-1 (the “Data”) for use by the Company in its sole discretion, within the applicable licensing rights granted under the UCLA license and in exchange the Company agreed to the future issuance of an aggregate of 1,153,846 shares of the Company’s common stock. The Shares are to be equally distributed between the Founders upon the earlier of (i) the third anniversary of the Agreement and (ii) the occurrence of a Liquidity Event (as defined in the Letter Agreement) and are currently reported as Shares to be Issued.

 

9. Subsequent Events

 

On May 1, 2018, Hankey Capital agreed to extend the May 1st interest payment on their outstanding notes to be payable upon the earlier of (i) a receipt of equity capital, in an amount not less than the interest payment or (ii) June 1, 2018.

 

On May 14, 2018, pursuant to a Note Purchase Agreement, the Company issued to Hankey Capital a secured promissory note in the amount of $600,000 (the “Note”). The Note matures on December 31, 2018 and bears interest at an annual rate of interest of 8.5% per annum until maturity. Upon the closing of a convertible note offering which results in gross proceeds to the Company in the aggregate amount of at least two million dollars ($2,000,000) (inclusive of the amounts under this Note) (a “Qualified Note Financing”), the outstanding Principal Amount of this Note together with any accrued but unpaid interest shall be converted into the Convertible Notes being issued and sold in the Qualified Note Financing. The obligations under the Note are secured by a first priority security interest on all of the assets of the Company.

 

F-14

 

 

Item 2. Management’s Discussion and Analysis.

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and audited consolidated financial statements for the years ended December 31, 2017 and 2016 and the related notes included in our Annual Report on Form 10-K filed for the fiscal year ended December 31, 2017, with the SEC on April 2, 2018. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Note Regarding Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors.

 

Overview

 

We are a medical device company that is currently focused on bone regeneration in spinal fusion using the recombinant human protein, known as NELL-1/DBX®. The NELL-1/DBX® combination product is an osteostimulative recombinant protein that provides target specific control over bone regeneration. The protein, as part of the UCB-1 technology platform has been licensed exclusively for worldwide applications to us through a technology transfer from UCLA Technology Development Group on behalf of UC Regents (“UCLA TDG”). UCLA TDG and the Company received guidance from the FDA that NELL-1/DBX® will be classified as a combination product with a device lead.

 

The Company was founded by University of California professors in collaboration with an Osaka University professor and a University of Southern California surgeon in 2004 as a privately-held company with proprietary, patented technology that has been validated in sheep and non-human primate models to facilitate bone growth. Our platform technology has application in delivering improved outcomes in the surgical specialties of spinal, orthopedic, general orthopedic, plastic reconstruction, neurosurgery, interventional radiology, and sports medicine. Lead product development and clinical studies are targeted on spinal fusion surgery, one of the larger segments in the orthopedic market.

 

We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, which we refer to as the JOBS Act. We would cease to be an emerging growth company upon the earliest of: (i) the last day of the first fiscal year in which our annual gross revenues are $1.07 billion or more; (ii) the end of any fiscal year in which the market value of our common stock held by non-affiliates exceeded $700.0 million as of the end of the second quarter of that fiscal year; or (iii) the date on which we have, during the previous three-year period, issued more than $1.07 billion in non-convertible debt securities. An emerging growth company may take advantage of specified reduced reporting and other burdens that are otherwise applicable generally to public companies. We have elected to take advantage of these reduced disclosure obligations, and may elect to take advantage of other reduced reporting obligations in the future.

 

The JOBS Act permits an emerging growth company like us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to irrevocably “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted.

 

Our success will depend in part on our 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 us will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to us.

 

4
 

 

UCLA TDG Exclusive License Agreement

 

Effective August 18, 2017, the Company entered into an Amended and Restated Exclusive License Agreement (the “Restated License Agreement”) with the UCLA Technology Development Group on behalf of UC Regents (“UCLA TDG”). The Restated License Agreement amends and restates the Exclusive License Agreement, effective March 15, 2006, between the Company and UCLA TDG, as amended by ten amendments. Under the terms of the Restated License Agreement, the Regents have continued to grant the Company exclusive rights to develop and commercialize NELL-1 (the “Licensed Product”) for spinal fusion applications. The Licensed Product is a recombinant human protein growth factor that is essential for normal bone development.

 

Following the completion of several key milestones, Bone Biologics has expanded its Field of Use definition beyond spine fusion within the NELL-1 license agreement with UCLA TDG. Consistent with that expansion, Bone Biologics has entered into an exclusive license agreement with UCLA TDG for the worldwide application of the NELL-1 protein for both osteoporosis and trauma through a technology transfer.

 

We have agreed to pay an annual maintenance fee to UCLA TDG of $10,000 as well as to pay certain royalties to UCLA TDG under the Restated License Agreement at the rate of 3.0% of net sales of licensed products. We must pay the royalties to UCLA TDG on a quarterly basis. Upon a first commercial sale, we also must pay between $50,000 and $250,000, depending on the calendar year which is after the first commercial sale. If we are required to pay any third party any royalties as a result of us making use of UCLA TDG patents, then we may reduce the royalty owed to UCLA TDG by 0.333% for every percentage point paid to a third party. If we grant sublicense rights to a third party to use the UCLA TDG patent, then we will pay to UCLA TDG10% to 20% of the sublicensing income we receive from such sublicense.

 

We are obligated to make the following milestone payments to UCLA TDG for each Licensed Product or Licensed Method:

 

  ● $100,000 upon enrollment of the first subject in a Feasibility Study;
     
  ● $250,000 upon enrollment of the first subject in a Pivotal Study:
     
  ● $500,000 upon Pre-Market Approval of a Licensed Product or Licensed Method; and
     
  ● $1,000,000 upon the First Commercial Sale of a Licensed Product or Licensed Method.

 

We are also obligated to pay UCLA TDG a cash milestone payment within thirty (30) days of a Liquidity Event (including a Change of Control Transaction and a payment election by UCLA TDG exercisable after December 22, 2017, such payment to equal the greater of:

 

  ● $500,000; or
     
  ● 2% of all proceeds in connection with a Change of Control Transaction.

 

We are obligated to diligently proceed with developing and commercializing licensed products under UCLA patents set forth in the Restated License Agreement. UCLA TDG has the right to either terminate the license or reduce the license to a non-exclusive license if we do not meet certain diligence milestone deadlines set forth in the Restated License Agreement.

 

We must reimburse or pre-pay UCLA TDG for patent prosecution and maintenance costs incurred during the term of the Restated License Agreement. We have the right to bring infringement actions against third party infringers of the Restated License Agreement, UCLA TDG may join voluntarily, at its own expense, or, at our expense, be joined involuntarily to the action. We are required to indemnify UCLA TDG against any third party claims arising out of our exercise of the rights under the Restated License Agreement or any sublicense.

 

Results of Operations

 

Since our inception, we devoted substantially all of our efforts and funding to the development of the NELL-1 protein and raising capital. We have not yet generated revenues from our planned operations.

 

5
 

 

Three Months ended March 31, 2018 compared to the Three Months ended March 31, 2017

 

    Three Months
ended
March 31, 2018		     Three Months
ended
March 31, 2017		     % Change  
Operating expenses                        
Research and development                        
Trade   $ 401,863     $ 406,887       (1.23 )%
Related party     -       784,525       (100.00 )%
General and administrative     694,861       968,762       (28.27 )%
                         
Total operating expenses     1,096,724       2,160,174       (49.23 )%
                         
Net Loss from operations     (1,096,724 )     (2,160,174 )     (49.23 )%
                         
Interest expense, net     (357,917 )     (762,352 )     53.05 %
                         
Net Loss   $ (1,454,641 )   $ (2,922,526 )     (50.23 )%

 

Research and Development

 

Our research and development related party expenses decreased from $784,525 during the three months ended March 31, 2017 to $-0- during the three months ended March 31, 2018. The $784,525 decrease was due to the options forfeited with the termination of the Professional Services Agreements with each of the Founders in April 2017. Our trade research and development remained consistent between March 31, 2018 and 2017. We will continue to incur significant expenses for development activities for NELL-1.

 

General and Administrative

 

Our general and administrative expenses decreased from $968,762 during the three months ended March 31, 2017 to $694,861 during the three months ended March 31, 2018. The $273,901 decrease was primarily due to a decrease in the required amortization of the fair value of management options.

 

Interest Expense

 

Our net interest expense decreased from $762,352 for the three months ended March 31, 2017 to $357,917 during the three months ended March 31, 2018. The decrease in interest of $404,435 resulted from the conversion of $3,900,000 of notes at December 31, 2017.

 

Liquidity and Capital Resources

 

We have no significant operating history and, from our inception to March 31, 2018, we have generated a net loss of approximately $60.6 million. The financial statements for the three months ended March 31, 2018 and 2017 were prepared assuming we will continue as a going concern. Operating expenditures for the next twelve months are estimated at $7.2 million. The Company has no required principal payment for the next 12 months and monthly interest payments of approximately $65,875.

 

6
 

 

The accompanying condensed consolidated financial statements for the period ended March 31, 2018 have been prepared assuming the Company will continue as a going concern. As reflected in the condensed consolidated financial statements, the Company had a stockholders’ deficit of $8,534,278 at March 31, 2018, and incurred a net loss of $1,454,641, and used net cash in operating activities of $818,875 during the three-month period ended March 31, 2018. The Company closed on $500,000 of equity financing in March 2018. As of March 31, 2018, the Company had a working capital deficit of $137,924 and cash of $371,429. As of May 1, 2018, the Company had cash of $191,771. On May 1, 2018, Hankey Capital agreed to extend the May 1st interest payment on their outstanding notes to be payable upon the earlier of (i) a receipt of equity capital, in an amount not less than the interest payment or (ii) June 1, 2018. These factors raise substantial doubt about the Company’s ability to continue as a going concern. In addition, our independent accounting firm, in its audit report to the financial statements included in our Annual Report for the year ended December 31, 2017, expressed substantial doubt about our ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

The Company will continue to attempt 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. If cash resources are insufficient to satisfy the Company’s on-going cash requirements, the Company will be required to scale back or discontinue its product development programs, or obtain funds if available (although there can be no certainties) through strategic alliances that may require the Company to relinquish rights to its technology, substantially reduce or discontinue its operations entirely. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

 

As of March 31, 2018 and December 31, 2017, we had cash of $371,404 and $690,279, respectively.

 

Cash Flows

 

Operating activities

 

During the three months ended March 31, 2018 and 2017, cash used in operating activities was $818,875 and $1,008,039 respectively. Cash expenditures the three months ended March 31, 2018 decreased primarily due to the timing of our development activities with our Contracted Manufacturing Organization (“CMO”) and management’s cash conservation efforts including a 20% deferral of wages and the Board’s 50% deferral of cash compensation.

 

Financing activities

 

During the three months ended March 31, 2018, cash provided by financing activities of $500,000 resulted from the March 2018 issuance of common stock. Cash provided during the three months ended March 31, 2017, of $2,000,000 resulted from the February 2017 convertible notes.

 

Off-Balance Sheet Arrangements

 

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Financial Officer and Chief Executive Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)) as of March 31, 2018. Based upon that evaluation, our Chief Financial Officer and Chief Executive Officer concluded that as of March 31, 2018, our disclosure controls and procedures were not effective.

 

Changes in Internal Controls

 

Management has been actively engaged in developing remediation plans to address the material weakness disclosed on our Form 10K for the year ended December 31, 2017. The remediation efforts in process or expected to be implemented include the implementation of procedures requiring a third-party review of all non-routine transactions.

 

We believe that the controls that we are implementing will improve the effectiveness of our internal control over financial reporting. As we continue to evaluate and work to improve our internal control over financial reporting, we may determine to take additional measures to address the material weakness or determine to supplement or modify certain of the remediation measures described above.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

In the normal course of our business, we may periodically become subject to various lawsuits. However, there are currently no legal actions pending against us or, to our knowledge, are any such proceedings contemplated.

 

Item 1A. Risk Factors.

 

Not applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None

 

Item 3. Defaults Upon Senior Securities.

 

None

 

Item 4. Mine Safety Disclosures.

 

Not Applicable

 

Item 5. Other Information.

 

None

 

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Item 6. Exhibits.

 

(a) Exhibits required by Item 601 of Regulation S-K.

 

Exhibit   Description
     
31.1   Certification of the Company’s Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Report on Form 10-Q for the quarter ended March 31, 2018.*
     
31.2   Certification of the Company’s Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the registrant’s Report on Form 10-Q for the quarter ended March 31, 2018.*
     
32.1   Certification of the Company’s Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     
32.2   Certification of the Company’s Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     
101.INS   XBRL Instance Document*
101.SCH   XBRL Taxonomy Extension Schema Document*
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB   XBRL Taxonomy Extension Label Linkbase Document*
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document*

 

* Filed Herewith

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  BONE BIOLOGICS CORPORATION
     
Dated: May 14, 2018 By: /s/ Stephen R. LaNeve
  Name: Stephen R. LaNeve
  Title: Chief Executive Officer

 

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