BONE BIOLOGICS CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-K)
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 the
UCLA Technology Development Groupon 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 Californiaprofessors in collaboration with an Osaka Universityprofessor and a University of Southern Californiasurgeon 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 a development stage entity. The production and marketing of our products and 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 us 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 we will not encounter problems in clinical trials that will cause us or the FDA to delay or suspend the clinical trials. 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 Statesand 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.
Since our inception, we have devoted nearly all of our efforts and funding to developing the NELL-1 protein and raising capital. We have not yet generated revenue from our planned operations.
46 Year ended Year ended December 31, 2021 December 31, 2020 % Change Operating expenses Research and development $ 82,044 $ 340,672 (75.92 )% General and administrative 1,019,432 484,342 110.48 % Total operating expenses 1,101,476 825,014 33.51 % Loss from operations (1,101,476 ) (825,014 ) 33.51 % Interest expense (805,109 ) (998,076 ) (19.33 )% Gain on forgiveness of deferred compensation 297,500 - 100.00 % Loss before provision for income taxes (1,609,085 )
Provision for income taxes 1,600
1,600 - % Net loss
$ (1,610,685 ) $ (1,824,690 )(11.73 )%
Research and development
Our research and development decreased from
$340,672during the year ended December 31, 2020to $82,044during the year ended December 31, 2021. The $258,628decrease was due to curtailing of operations due to lack of necessary funds. The lack of capital occurring simultaneously during the COVID-19 pandemic caused a delay in R&D activities, and a scale back in all operations other than fund raising. As a result starting in 2020, the company engaged in cost-cutting measures in an attempt to extend our cash resources as long as possible. As a result, of the October 2021Primary Offering we have resumed our research and development activities. We will continue to incur significant expenses for development activities for NELL-1 in the future.
General and administrative
Our general and administrative expenses increased from
$484,342during the year ended December 31, 2020to $1,019,432during the year ended December 31, 2021. The $535,090increase was primarily due to resuming operations and bringing the Company's filings current. The increase also includes the fair value, $207,035, of options granted to our new Directors consistent with our Director's Compensation Policy.
Our interest expense decreased from
$998,076for the year ended December 31, 2020to $805,109during the year ended December 31, 2021. The decrease of $192,967resulted from the conversation of the outstanding debt in conjunction with the October 2021Primary Offering.
Cash and capital resources
Going concern and liquidity
The Company has no significant operating history and since inception to
December 31, 2021has incurred accumulated losses of approximately $70.5 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 $6.5 million. The accompanying consolidated financial statements for the period ended December 31, 2021have been prepared assuming the Company will continue as a going concern. As reflected in the financial statements, the Company incurred a net loss of $1,610,685, and used net cash in operating activities of $1,228,586during the year ended December 31, 2021. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. 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, 2021, expressed substantial doubt about our ability to continue as a going concern. The 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. 47
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. We note that there is significant uncertainty from the affect that the novel coronavirus may have on the availability, cost and type of financing. On
October 15, 2021, the Company completed a public offering (the " October 2021Primary Offering") of 1,510,455 units (the "Units"). Each Unit consists of one share of common stock of the Company, par value $0.001per share (the "Common Stock"), and one warrant (a "Public Warrant") to purchase one share of Common Stock for $6.30per share. The Units were sold at a price of $5.25per Unit, generating net proceeds to the Company of $6,858,843. The Company granted to WallachBeth Capital LLC, the underwriter in the Offering a 45-day option to purchase up to 226,568 additional shares of Common Stock and/or 226,568 Public Warrants to cover over-allotments, if any. The underwriter has exercised its option with respect to the Warrants. WallachBeth also received 90,627 warrants as part of the October 2021Primary Offering at an exercise price of $6.30per common share representing 6% of the raise. For the past several years, we have depended on our relationship with Hankey Capitalfor working capital to fund our operations, which has been raised in the form of both debt and equity capital. Hankey Capital, directly and indirectly, controls approximately 70% of our issued and outstanding shares of common stock. In connection with the October 2021Primary Offering, Hankey Capitalconverted the outstanding convertible notes ( $12,767,894in principal amount and $2,054,041of accrued interest) into 5,928,774 shares of our common stock and call collateral shares were cancelled. Representatives of Hankey Capitalalso currently serve as directors of the Company. 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.
Here is a summary of our cash flows from operating, investing and financing activities for the years ended
During the year ended
December 31, 2021and 2020, cash used in operating activities was $1,228,586and $426,933respectively. Cash expenditures for the year ended December 31, 2021increased primarily due to resuming operations, bringing the Company's filings current and costs associated with the October 2021Primary Offering. Financing activities During the year ended December 31, 2021, cash provided by financing activities of $7,903,951resulted primarily from draws on our second and third credit facilities with Hankey Capitaland the October 2021Primary Offering which provided proceeds from sale of common stock units in public offering, net of offering costs of $6,858,843. During the year ended December 31, 2020, cash provided by financing activities of $402,788primarily resulted from draws on our second credit facilities with Hankey Capital. 48
Application of critical accounting policies
We believe that our significant accounting policies are as follows:
? Research and Development Costs; ? Stock Based Compensation; ? Fair Value of Financial Instruments; 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 valuation of stock options and 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, 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.
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 performance commitment date or performance completion date.
Fair value measurements
We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, from time to time, we may be required to record certain assets at fair value on a non-recurring basis, such as certain impaired loans held for investment and securities held to maturity that are other-than-temporarily impaired. These non-recurring fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting. We have established and documented a process for determining fair value. We maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management's judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements. For detailed information on our use of fair value measurements and our related valuation methodologies, see Note 2 to the Consolidated Financial Statements of this
Recently issued accounting standards
See discussion in Note 2 to the consolidated financial statements.
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.
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