As
filed with the Securities and Exchange Commission on January 7,
2010
File No.
333-169620
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
Amendment
No.2
to
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
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BACTERIN
INTERNATIONAL HOLDINGS, INC.
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(Exact
name of registrant as specified in its
charter)
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Delaware
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3841
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20-5313323
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(State
or other jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer
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incorporation
or organization)
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Classification
Code Number)
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Identification
Number)
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600
Cruiser Lane
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Belgrade,
Montana 59714
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(406)
388-0480
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(Address,
including zip code, and telephone number, including area code, of
registrant’s principal executive
offices)
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John
P. Gandolfo
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Chief
Financial Officer
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600
Cruiser Lane
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Belgrade,
Montana 59714
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(406)
388-0480
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(Name,
address, including zip code, and telephone number, including area code, of
agent for service)
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Copies
to:
Jill
Gilpin
Exemplar Law
LLC
115 Broad
Street, 5th
Floor
Boston, MA
02110
(617)
542-7400
_________________________
Approximate date of commencement of
proposed sale to the public: From time to time after the effective date
of this registration statement.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. þ
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. £
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. £
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. £
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act. (Check one):
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Large
accelerated filer
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£
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Accelerated
filer
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£
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Non-accelerated
filer
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£
(Do not check if a smaller reporting company)
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Smaller
reporting company
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þ
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CALCULATION
OF REGISTRATION FEE
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Title of Each Class of Securities to be
Registered
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Amount to be
Registered (1)(2)
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Proposed
Maximum
Offering Price Per
Share (3)
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Proposed Maximum
Aggregate Offering
Price
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Amount of
Registration Fee
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Common
Stock, $0.000001 par value per share
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11,296,112 | $ | 8.725 | $ | 98,558,577.20 | $ | 11,442.65 | (4) | ||||||||
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(1)
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Pursuant
to Rule 416 under the Securities Act, this registration statement also
covers an indeterminate number of additional shares as may be issued as a
result of adjustments by reason of any stock split, stock dividend, or
similar transaction.
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(2)
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Such
shares are being registered for resale from time to time by certain
selling stockholders and include 4,135,733 shares issuable upon the
exercise of warrants.
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(3)
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Estimated
pursuant to Rule 457(c) solely for the purpose of calculating the amount
of the registration fee based upon the average of the bid and asked prices
of the registrant’s common stock on January 4, 2010 as reported on the
OTCBB and OTCQB Marketplace.
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(4)
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$6,273.10
previously paid
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________________
The
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The
information in this prospectus is not complete and may be changed. The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective.
This prospectus is not an offer to sell these securities and is not soliciting
an offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED JANUARY 7, 2010
PROSPECTUS
11,296,112
Shares
Common
Stock
_______________________
The
stockholders of Bacterin International Holdings, Inc. listed in this prospectus
are offering for sale up to 11,296,112 shares of common stock, which includes up
to 4,135,733 shares of common stock issuable upon the exercise of
warrants.
We expect
that sales made pursuant to this prospectus will be made
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·
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in
broker’s transactions;
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·
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in
block trades on the OTCBB and OTCQB
Marketplace;
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·
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in
transactions directly with market makers;
or
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·
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in
privately negotiated sales or
otherwise.
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We will
not receive any of the proceeds of sales by the selling stockholders. We will
pay the expenses incurred to register the shares for resale, but the selling
stockholders will pay any underwriting discounts, concessions, or brokerage
commissions associated with the sale of their shares of common
stock.
The
selling stockholders will determine when they will sell their shares, and in all
cases they will sell their shares at the current market price or at negotiated
prices at the time of the sale. Securities laws and SEC regulations may require
the selling stockholders to deliver this prospectus to purchasers when they
resell their shares of common stock.
Our
common stock is listed on the OTCBB and OTCQB Marketplace under the symbol
“BIHI.OB.” On January 4, 2010, the last reported asked price of our common stock
on the OTCBB and OTCQB Marketplace was $8.60 per share.
_______________________
Investing
in our common stock involves a high degree of risk. See “Risk Factors”
beginning on page 4 of this prospectus for a discussion of information that
should be considered in connection with an investment in our common
stock.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
_______________________
The date
of this prospectus is
, 2010
TABLE
OF CONTENTS
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Page
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Prospectus
Summary
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1
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Risk
Factors
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4
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Cautionary
Note Regarding Forward-Looking Statements
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14
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Use
of Proceeds
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15
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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16
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Business
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23
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Management
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34
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Executive
Compensation
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38
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Security
Ownership of Certain Beneficial Owners and Management
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43
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Transactions
with Related Persons, Promoters and Certain Control
Persons
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44
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Selling
Stockholders
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45
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Determination
of Offering Price
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53
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Plan
of Distribution
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53
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Description
of Securities
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55
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Legal
Matters
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58
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Experts
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58
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Where
You Can Find Additional Information
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58
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Index
to Financial Statements
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F-1
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_______________________
You
should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. The selling stockholders are offering to
sell, and seeking offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or of any sale of our common
stock.
i
PROSPECTUS
SUMMARY
This
summary highlights certain information appearing elsewhere in this
prospectus. For a more complete understanding of this offering, you should
carefully read the entire prospectus and the registration statement of which
this prospectus is a part, including the risk factors and the financial
statements. Unless the context otherwise requires, “we,” “our,” “us,” “our
company” and similar expressions used in this prospectus refer to Bacterin
International, Inc., a Nevada corporation, or Bacterin, prior to the closing of
the Reverse Merger, as defined below, on June 30, 2010, and Bacterin
International Holdings, Inc., f/k/a K-Kitz, Inc., a Delaware corporation, or the
Company, as successor to the business of Bacterin, following the closing of the
Reverse Merger transaction.
Bacterin
International Holdings, Inc.
We
develop, manufacture and market biologics products to domestic and international
markets through our biologics division. Our products are used in a variety of
applications including enhancing fusion in spine surgery, relief of back pain
with a facet joint stabilization, promotion of bone growth in foot and ankle
surgery, promotion of skull healing following neurosurgery and subcondral bone
defect repair in knee and other joint surgeries.
Our
medical devices division develops medical devices intended for use in several
diverse clinical areas including orthopedic, plastic, and cardiovascular
surgery. Our background and expertise is in the research, testing, and
development of coatings for medical devices, particularly antimicrobial-based
coatings.
The
manufacturing and operations of the biologics and device divisions are organized
separately while products from both are marketed through several channels
including independent distributors, joint development projects and our direct
sales network which we began to implement in the last half of 2009. To
date, we have established 13 regions with a regional vice-president in charge of
all activities within the region and have hired and trained 52 sales
representatives. Our customers are located worldwide, with approximately
97% of our third quarter 2010 sales being derived from customers located in
the United States. Our headquarters, laboratory and manufacturing
facilities are located in Belgrade, Montana.
Recent
Developments
On June
30, 2010, we completed a reverse merger transaction, or the Reverse Merger, in
which we caused Bacterin to be merged with and into a wholly-owned Nevada
subsidiary created for purposes of effecting the Reverse Merger, and the
stockholders of Bacterin obtained control of the Company. The Reverse
Merger was consummated under Nevada corporate law pursuant to an Agreement and
Plan of Merger, dated as of June 30, 2010. As a result of the Reverse
Merger, Bacterin became our wholly owned subsidiary and we are now engaged,
through Bacterin, in the business of biomaterials research, development, and
commercialization.
Pursuant
to the terms of the Reverse Merger, the stockholders of Bacterin immediately
preceding the Reverse Merger received one share of the Company’s common stock
for each two shares of Bacterin common stock such stockholder held prior to the
Reverse Merger with the aggregate number of the Company’s shares of common stock
so issued to the Bacterin stockholders, being 28,257,133 shares (after rounding
down fractional shares), representing approximately 96% of our outstanding
common stock as of the closing of the Reverse Merger on June 30, 2010, prior to
taking into account the issuance of any shares of our common stock pursuant to
the private placement described below. The remaining 4% of our common stock, or
1,180,596 shares, remained with the predecessor company’s shareholders, and
the holders of 180,596 of those shares are included as selling stockholders in
this registration statement.
Before
the Reverse Merger, our corporate name was K-Kitz, Inc., and our trading symbol
was KKTZ.OB. On June 29, 2010, we changed our corporate name to “Bacterin
International Holdings, Inc.” which name change became effective for trading
purposes on July 1, 2010. Effective July 21, 2010, our trading symbol was
changed from KKTZ.OB to BIHI.OB.
1
Concurrently
with the closing of the Reverse Merger, we completed an initial closing of a
private placement to selected qualified investors of shares of our common stock
at a purchase price of $1.60 per share and detachable warrants to purchase
one-quarter share of our common stock for each share of our common stock
purchased in the private placement (at an exercise price of $2.50 per
share). In total, we sold 4,934,533 shares of our common stock and
warrants to purchase 1,233,646 shares of common stock as part of this initial
closing. We received gross proceeds of $7,508,329 in consideration for the
sale of the shares of common stock and warrants, which consisted of (i)
$4,026,000 in cash from investors in the private placement and (ii) $3,482,329
from note holders in two earlier Bacterin bridge financings (conducted to fund
working capital and capital expenditures during the months prior to the Reverse
Merger) who converted their outstanding principal and interest into the private
placement at a 10% discount to the purchase price, being $1.44 per share, and
received identical warrant coverage as the cash investors except that the
exercise price of the converting note holders’ warrants is $2.25 per share, a
10% discount to the exercise price of the warrants received by the cash
investors. The note holders in the bridge financings also received warrants to
purchase 1,482,256 shares of our common stock and our placement agent received
warrants to purchase 328,125 shares of our common stock as part of our bridge
financing.
In the
second and final closing of this private placement on July 30, 2010, we sold a
total of 1,102,500 additional shares of our common stock together with
additional warrants to purchase an aggregate of 275,625 shares of our common
stock for total gross cash proceeds of $1,764,000.
Our
placement agents received an aggregate of $463,200 in cash fees in connection
with the private placement ($322,080 from the initial closing and $141,120 from
the second and final closing) and were reimbursed for their
out-of-pocket-expenses. In addition, the placement agents received an
aggregate of 106,217 shares of our common stock (84,167 shares from the initial
closing and 22,050 shares from the second and final closing) and warrants to
purchase 361,875 shares of our common stock (251,625 shares from the initial
closing and 110,250 shares from the second and final closing) at an exercise
price of $1.60 per share.
Following
the private placement transaction, the Company has permitted an additional
$450,000 in principal amount outstanding from the Bacterin bridge financings to
convert into 316,823 shares of the Company’s common stock and warrants to
purchase 79,206 shares of the Company’s common stock on the same terms as
if such debt had actually converted in the private placement
transaction. All other outstanding debt from those bridge financings that
did not convert has been repaid.
In
connection with the closing of the Reverse Merger, the Company repurchased
4,319,404 shares of its common stock from one of its stockholders for aggregate
consideration of $100, as well as certain other good and valuable consideration,
and Bacterin repurchased 77,029 shares of its common stock from certain of its
stockholders for aggregate consideration of $123,245. Immediately after
these repurchases, all of these shares were cancelled.
On August
6, 2010, we paid certain of Bacterin’s former stockholders, who held
approximately 743,940 shares of Bacterin common stock in the aggregate (or the
equivalent of 371,970 shares of our common stock post-Reverse Merger), the fair
value for such shares in connection with the exercise of their dissenters’
rights. As a result, and pursuant to the terms of the agreement
governing the Reverse Merger, the former Bacterin stockholders (excluding the
dissenting shareholders) are entitled to be issued 371,970 shares of our common
stock (i.e., the same
number of shares that the dissenting stockholders would have received had they
not exercised their dissenters rights) in proportion to such stockholders’
pre-Reverse Merger share holding percentages in Bacterin.
On
November 19, 2010, the Company entered into financing arrangement with two
subsidiaries of Western Technology Investment (“WTI”), whereby WTI, through its
subsidiaries, agreed to provide a credit facility which allows the Company to
draw down $2.5 million initially, and gives the Company the ability to draw down
an additional $2.5 million through April 30, 2011 provided the Company has
achieved 90% of performance based milestones for the next two
quarters. In addition, upon the mutual agreement of Bacterin and WTI,
WTI has agreed to an additional commitment through December 31, 2011 of up to
25% of the next new round of equity financing or up to $3.0
million. The credit facility is secured by the Company’s personal
property and carries an all-in interest rate of 12.5%. Repayment of
the initial $2.5 million will be interest only for the first six months, with
principal and interest for the subsequent 30 months. The WTI facility
also allows the company to obtain separate accounts receivable
financing. In connection with the financing, WTI also received
warrants to purchase up to
375,000 shares of the Company’s common stock. The warrants have an
exercise price of the lower of $4.00 per share or the price at which shares of
the Company’s stock are sold in the next qualified financing, if applicable
prior to the date of exercise. The WTI warrants expire on April 30,
2018. WTI also has the right to receive additional warrants to
purchase 125,000 shares of the Company’s common stock at the same exercise price
if the Company draws down the second $2.5 million tranche of the
facility.
The
Company also issued warrants to purchase a total of 489,710 shares of the
Company’s common stock to a limited group of existing investors who exercised
existing warrants. The new warrants have an exercise price of $4.00
per share and expire on the fifth anniversary of the date of
issuance. The Company received a total of $1,111,374 from the cash
payments of the exercise price of the existing warrants.
The
Company also issued 30,000 shares to a former executive in connection with a
settlement agreement and converted the former executive’s stock options to
an equivalent number of warrants.
Our Offices
Our
executive offices are located at 600 Cruiser Lane, Belgrade, Montana 59714 and
our telephone number is (406) 388-0480. Our website is located at www.bacterin.com. The
information contained on our website does not constitute part of this
prospectus.
Through
our website, we make available free of charge our annual reports on Form 10-K,
our quarterly reports on Form 10-Q, our current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Securities Exchange Act of 1934. These reports are available
as soon as reasonably practicable after we electronically file those materials
with the Securities and Exchange Commission, or SEC. When available, we
also expect to post on our website investor presentations and webcast earnings
calls and transcripts, in addition to the charters of our committees of our
Board of Directors; our Corporate Governance Guidelines, our Code of Ethics, and
any amendments or waivers thereto; and any other corporate governance materials
contemplated by SEC regulations. The documents are available in print by
contacting our corporate secretary at our executive offices.
2
The
Offering
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Common
stock offered by the selling
stockholders
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11,296,112
shares, which includes up to 4,135,733 shares of common stock issuable
upon the exercise of warrants.
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Use
of proceeds
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We
will not receive any of the proceeds of sales of common stock by the
selling stockholders. To the extent we receive any proceeds from the
exercise of warrants by the selling stockholders, we expect to use such
proceeds for working capital and other general corporate purposes.
However, such warrants contain a “cashless” exercise provision, so there
can be no assurance that we will receive any proceeds upon the exercise of
warrants.
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Risk
factors
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See
“Risk Factors” and other information included in this prospectus for a
discussion of factors that you should consider before deciding to invest
in shares of our common stock.
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OTCBB
and OTCQB Marketplace Symbol
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BIHI.OB
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3
RISK
FACTORS
Before
you invest in our common stock, you should be aware that there are risks,
including those set forth below. You should carefully consider these risk
factors, together with all the other information included in this prospectus,
before you decide to purchase shares of our common stock.
Risks
Related to Our Business and Our Industry
Our
products are relatively new and long-term results are incomplete, thus, the
future of our business still remains uncertain.
Many of
our current products are relatively new and have been in use for a relatively
short period of time. See “Business - Products and Services.” The
results of the use of these products will be monitored for many years.
While preliminary results have been good, there can be no assurance that any or
all of these products will perform well over longer periods of time.
Future product issues may expose us to legal actions, removal of regulatory
approvals or products being pulled from use. If we become subject to
product or general liability or errors and omissions claims, they could be
time-consuming and costly. The U.S. Food and Drug Administration, or the FDA,
and foreign regulatory authorities may impose significant restrictions on the
use or marketing of our products or impose additional requirements. Later
discovery of previously unknown problems with any of these products or their
manufacture may result in further restrictions, including withdrawal of the
product from the market. Any such restrictions or withdrawals could
materially affect our ability to execute our business plan. In addition,
governmental authorities could seize our inventory of products, or force us to
recall any product already in the market if we fail to comply with FDA or other
governmental regulations.
Many
competitive products exist and more will be developed, and we may not be able to
successfully compete because we are smaller and have fewer financial
resources.
Our
business is in a very competitive and evolving field. Rapid new
developments in this field have occurred over the past few years, and are
expected to continue to occur. Other companies already have competing
products available or about to be available or may develop products to compete
with ours.
Many of
these products may have short regulatory timeframes and our competitors, many
with more substantial development resources, may be able to develop competing
products that are equal to or better than ours. This may make our products
obsolete or undesirable by comparison and reduce our revenue. Our success
will depend, in large part, on our ability to maintain a competitive position
concerning our intellectual property, and to develop new technologies and new
applications for our technologies. Many of our competitors have
substantially greater financial and technical resources, as well as greater
production and marketing capabilities, than us.
The
medical community and the general public may perceive synthetic materials and
growth factors as safer, which could have a material adverse effect on our
business.
Members
of the medical community and the general public may perceive synthetic materials
and growth factors as safer than our allograft-based bone tissue
products.
Our
products may be incapable of competing successfully with synthetic bone graft
substitutes and growth factors developed and commercialized by others, which
could have a material adverse effect on our business, financial condition and
results of operations.
Negative
publicity concerning methods of human tissue recovery and screening of donor
tissue in the industry in which we operate may reduce demand for our allografts
and impact the supply of available donor tissue.
Media
reports or other negative publicity concerning both improper methods of tissue
recovery from donors and disease transmission from donated tissue may limit
widespread acceptance of our allografts. Unfavorable reports of improper
or illegal tissue recovery practices, both in the United States and
internationally, as well as incidents of improperly processed tissue leading to
transmission of disease, may broadly affect the rate of future tissue donation
and market acceptance of allograft technologies. Potential patients may
not be able to distinguish our allografts, technologies and the tissue recovery
and the processing procedures from those of our competitors or others engaged in
tissue recovery. In addition, families of potential donors may become
reluctant to agree to donate tissue to for-profit tissue
processors.
4
We
are highly dependent on the availability of human donors; any disruptions could
cause our customers to seek alternative providers or technologies.
We are
highly dependent on our ability to obtain donor cadavers as the raw material for
many of our products. The availability of acceptable donors is relatively
limited and we compete with many other companies for this limited
availability. The availability of donors is also impacted by regulatory
changes, general public opinion of the donor process and our reputation for our
handling of the donor process. In addition, due to seasonal changes in the
mortality rates, some scarce tissues are at times in short supply. Any
disruption in the supply of this crucial raw material could have significant
consequences for our revenue, operating results and continued operations.
See “Business - Donor Procurement.”
We
will need to continue to innovate and develop new products to be desirable to
our customers.
The
markets for our products and services are characterized by rapid technological
change, frequent new introductions, changes in customers’ demands and evolving
industry standards. Accordingly, we will need to continue to innovate and
develop additional products. These efforts can be costly, subject to long
development and regulatory delays and may not result in products approved for
sale. These costs may hurt operating results and may require additional
capital. If additional capital is not available, we may be forced to
curtail development activities. In addition, any failure on our behalf to
react to changing market conditions could create an opportunity for other market
participants to capture a critical share of the market within a short period of
time.
Our
success will depend on our ability to engage and retain qualified technical
personnel who are difficult to attract.
Our
success will depend on our ability to attract and retain qualified technical
personnel to assist in research and development, testing, product
implementation, low-scale production and technical support. Competition
for qualified technical personnel is intense, and we may encounter difficulty in
engaging and retaining qualified personnel needed to implement our growth plan.
The demand for such personnel is high and the supply of qualified technical
personnel is limited. A significant increase in the wages paid by
competing employers could result in a reduction of our technical work force and
increases in the wage rates that we must pay or both. If either of these
events were to occur, our cost structure could increase and our growth potential
could be impaired.
Loss
of key members of our management who we need to succeed could adversely affect
our business.
We are
highly dependent on the services of Guy Cook, our President and Chief Executive
Officer, and other key members of our management team and the loss of his or any
of their services could have an adverse effect on our future operations.
See “Management.” We do not currently maintain a key-man life insurance
policy insuring the life of Mr. Cook or any other member of our management
team.
We
are highly dependent on the continued availability of our facilities and would
be harmed if they were unavailable for any prolonged period of
time.
Any
failure in the physical infrastructure of our facilities or services could lead
to significant costs and disruptions that could reduce our revenues and harm our
business reputation and financial results. We are highly reliant on our
Belgrade, Montana facilities. See “Business - Facilities.” Any
natural or man-made event that impacts our ability to utilize these facilities
could have a significant impact on our operating results, reputation and ability
to continue operations. The regulatory process for approval of facilities
is time-consuming and our ability to rebuild facilities would take a
considerable amount of time and expense and cause a significant disruption in
service to our customers. Further, the FDA or some other regulatory agency
could identify deficiencies in future inspections of our facilities or our
supplies that could disrupt our business, reducing profitability. We carry
business interruption insurance of up to $1 million per location to help in
these instances, but it may not cover all costs or our standing in the
market.
5
We
will be required to invest in facilities and equipment on a continuing basis,
which will put pressure on us to finance these investments.
We
have invested, and intend to continue to invest, in facilities and
state-of-the-art equipment in order to increase, expand or update our
capabilities and facilities. See “Business - Facilities.” Changes in
technology or sales growth beyond currently established production capabilities,
which we anticipate, will require further investment. We
currently anticipate that we will need to spend between $4 and $5 million over
the next five years in order to increase, expand or update our existing
facilities to meet our expected growth over that period. However, there
can be no assurance that we will generate sufficient funds from operations to
maintain our existing facilities and equipment or to finance any required
capital investments or that other sources of funding will be available.
Additionally, there can be no guarantee that any future expansion will not
negatively affect earnings.
Future
revenue will depend on our ability to develop new sales channels and there can
be no assurance that these efforts will result in significant
sales.
We are
in the process of developing sales channels for our products but there can be no
assurance that these channels can be developed or that we will be successful in
selling our products. We currently sell our products through direct sales
by our employees and indirectly through distributor relationships.
We recently engaged in a major initiative to build and further
expand our direct sales force. See “Business - Sales and
Marketing.” In 2010,
we incurred sales and marketing expenses of approximately $8 million and
expect this amount to be approximately $20 million in 2011. The increased
sales and marketing expenses are anticipated to be funded from operating cash
flow. The incurrance of these additional expenses may impact our
operating results and there can be no assurance of their effectiveness.
Many of our competitors have well-developed sales channels and it may be
difficult for us to break through these competitors to take market share.
If we are unable to develop these sales channels, we may not be able to grow
revenue or maintain our current level of revenue generation.
There
may be fluctuations in our operating results, which will impact our stock
price.
Significant
annual and quarterly fluctuations in our results of operations may be caused by,
among other factors, our volume of revenues, the timing of new product or
service announcements, releases by us and our competitors in the marketplace of
new products or services, and general economic conditions. There can be no
assurance that the level of revenues and profits, if any, achieved by us in any
particular fiscal period will not be significantly lower than in other
comparable fiscal periods. Our expense levels are based, in part, on our
expectations as to future revenues. As a result, if future revenues are
below expectations, net income or loss may be disproportionately affected by a
reduction in revenues, as any corresponding reduction in expenses may not be
proportionate to the reduction in revenues.
We
are dependent on the ability of our licensees and development partners for
obtaining regulatory approvals and market acceptance of their products, for
which we may have no control.
A large
part of our success will depend on our ability, or that of our licensees, to
obtain timely regulatory approval for products employing our technology.
Moreover, our success will also depend on whether, and how quickly, our
licensees gain market acceptance of products incorporating our technology,
compared to competitors using competing technologies.
Our
revenues will depend upon prompt and adequate reimbursement from public and
private insurers and national health systems.
Political,
economic and regulatory influences are subjecting the healthcare industry in the
United States to fundamental change. The ability of hospitals to pay fees
for allograft bone tissue products depends in part on the extent to which
reimbursement for the costs of such materials and related treatments will
continue to be available from governmental health administration authorities,
private health coverage insurers and other organizations. We may have
difficulty gaining market acceptance for our products if government and
third-party payors do not provide adequate coverage and reimbursement to
hospitals. Major third-party payors of hospital services and hospital
outpatient services, including Medicare, Medicaid and private healthcare
insurers, annually revise their payment methodologies, which can result in
stricter standards for reimbursement of hospital charges for certain medical
procedures or the elimination of reimbursement. Further, Medicare,
Medicaid and private healthcare insurer cutbacks could create downward price
pressure on our products.
6
Our
operating results will be harmed if we are unable to effectively manage and
sustain our future growth.
We might
not be able to manage our future growth efficiently or profitably. Our
business is unproven on a large scale and actual revenue and operating margins,
or revenue and margin growth, may be less than expected. If we are unable
to scale our production capabilities efficiently, we may fail to achieve
expected operating margins, which would have a material and adverse effect on
our operating results. Growth may also stress our ability to adequately
manage our operations, quality of products, safety and regulatory
compliance. If growth significantly decreases our reserves, we may be
required to obtain additional financing, which may increase our indebtedness or
result in dilution to our stockholders. Further, there can be no assurance
that we would be able to obtain any additional financing.
Future
business combinations or acquisitions may be difficult to integrate and cause
our attention to be diverted.
We may
pursue various business combinations with other companies or strategic
acquisitions of complementary businesses, product lines or technologies.
There can be no assurance that such acquisitions will be available at all, or on
terms acceptable to us. These transactions may require additional
financing which may increase our indebtedness or outstanding shares, resulting
in dilution to stockholders. The inability to obtain such future financing
may inhibit our growth and operating results. Integration of acquisitions or
additional products can be time consuming, difficult and expensive and may
significantly impact operating results. Furthermore, the integration of
any acquisition may divert management’s time and resources from our core
business. We may sell some or all of our product lines to other companies
or may agree to combine with another company. Selling some of our product
lines may inhibit our ability to generate positive operating results going
forward. While we, from time to time, evaluate potential acquisitions of
businesses, products and technologies, and anticipate continuing to make these
evaluations, we have no present understandings, commitments or agreements with
respect to any acquisitions.
We
may be subject to future product liability litigation that could be expensive
and our insurance coverage may not be adequate in a catastrophic
situation.
Although
we are not currently subject to any product liability proceedings, and we have
no reserves for product liability disbursements, we may incur material
liabilities relating to product liability claims in the future, including
product liability claims arising out of the usage of our products. We
currently carry product liability insurance of up to $10 million at an annual
premium cost of approximately $140,000, however, our insurance coverage
and any reserves we may maintain in the future for product related liabilities
may not be adequate and our business could suffer material adverse
consequences.
We
may implement a product recall or voluntary market withdrawal due to product
defects or product enhancements and modifications, which would significantly
increase our costs.
The
manufacturing and marketing of our biologic products, medical devices and
coating technologies involves an inherent risk that our products may prove to be
defective. In that event, we may voluntarily implement a recall or market
withdrawal or may be required to do so by a regulatory authority. A recall
of one of our products, or a similar product manufactured by another
manufacturer, could impair sales of the products we market as a result of
confusion concerning the scope of the recall or as a result of the damage to our
reputation for quality and safety.
Risks
Related to the Regulatory Environment in which We Operate
U.S.
governmental regulation could restrict the use of our products or our
procurement of tissue.
In the
United States, the procurement and transplantation of allograft bone tissue is
subject to federal law pursuant to the National Organ Transplant Act, or NOTA, a
criminal statute which prohibits the purchase and sale of human organs used in
human transplantation, including bone and related tissue, for “valuable
consideration.” NOTA permits reasonable payments associated with the removal,
transportation, processing, preservation, quality control, implantation and
storage of human bone tissue. We provide services in all of these areas in the
United States, with the exception of removal and implantation, and receive
payments for all such services. We make payments to certain of our clients and
tissue banks for their services related to recovering allograft bone tissue on
our behalf. If NOTA is interpreted or enforced in a manner which prevents us
from receiving payment for services we render or which prevents us from paying
tissue banks or certain of our clients for the services they render for us, our
business could be materially and adversely affected.
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We are
engaged through our marketing employees, independent sales agents and sales
representatives in ongoing efforts designed to educate the medical community as
to the benefits of our products, and we intend to continue our educational
activities. Although we believe that NOTA permits payments in connection with
these educational efforts as reasonable payments associated with the processing,
transportation and implantation of our products, payments in connection with
such education efforts are not exempt from NOTA’s restrictions and our inability
to make such payments in connection with our education efforts may prevent us
from paying our sales representatives for their education efforts and could
adversely affect our business and prospects. No federal agency or court has
determined whether NOTA is, or will be, applicable to every allograft bone
tissue-based material which our processing technologies may generate. Assuming
that NOTA applies to our processing of allograft bone tissue, we believe that we
comply with NOTA, but there can be no assurance that more restrictive
interpretations of, or amendments to, NOTA will not be adopted in the future
which would call into question one or more aspects of our method of
operations.
Our
business is subject to continuing regulatory compliance by the FDA and other
authorities which is costly and could result in delays in the commercialization
of our products.
As a
manufacturer and marketer of medical devices, we are subject to extensive
regulation by the FDA and the Center for Medicare Services of the U.S.
Department of Health and Human Services and other federal governmental agencies
and, in some jurisdictions, by state and foreign governmental authorities. These
regulations govern the introduction of new medical devices, the observance of
certain standards with respect to the design, manufacture, testing, labeling,
promotion and sales of the devices, the maintenance of certain records, the
ability to track devices, the reporting of potential product defects, the import
and export of devices and other matters. We are facing an increasing
amount of scrutiny and compliance costs as more states are implementing
regulations governing medical devices, pharmaceuticals and/or biologics which
affect many of our products.
Medical
devices that incorporate coatings technology are subject to FDA regulation and
compliance. Generally, any medical device manufacturer that wishes to
incorporate our coatings technology into its products will be responsible for
obtaining FDA approval for the medical devices it intends to market though we
will assist in the 510(k) filing submitted by licensees. The FDA process
can take several months to several years in the United States. The time
required to obtain approval for international sales may be longer or shorter,
depending on the laws of the particular country. There can be no assurance
that our licensees will be able to obtain FDA or international approval on a
timely basis. The FDA may also require the more extensive Premarket
Approval Application, or PMA, process for certain products, which results, in
effect, in a private license being granted to the applicant for marketing a
particular medical device and requires an additional level of FDA scientific
review to ensure the safety and effectiveness of such devices. Approval or
clearance may place substantial restrictions on the indications for which the
product may be marketed or to whom it may be marketed, warnings that may be
required to accompany the product or additional restrictions placed on the sale
and/or use of the product. Changes in regulations or adoption of new
regulations could also cause delays in obtaining product approval. In
addition, regulatory approval is subject to continuing compliance with
regulatory standards, and product approval is subject to withdrawal if a
licensee fails to comply with standards, or if an unforeseen event should occur
concerning a product. Significant delays in obtaining product approval
could have a significantly detrimental impact on our business. See “Business -
Government Regulation.”
Human
tissues intended for transplantation have been regulated by the FDA since 1993.
In May 2005, three new comprehensive regulations went into effect that address
manufacturing activities associated with human cells, tissues and cellular and
tissue-based products, or HCT/Ps. The first requires that companies that produce
and distribute HCT/Ps register with the FDA. The second provides criteria that
must be met for donors to be eligible to donate tissues and is referred to as
the “Donor Eligibility” rule. The third rule governs the processing and
distribution of the tissues and is often referred to as the “Current Good Tissue
Practices” rule. The “Current Good Tissue Practices” rule covers all
stages of allograft processing, from procurement of tissue to distribution of
final allografts. Together they are designed to ensure that sound, high
quality practices are followed to reduce the risk of tissue contamination and of
communicable disease transmission to recipients. These regulations
increased regulatory scrutiny within the industry in which we operate and have
lead to increased enforcement action which affects the conduct of our business.
In addition, these regulations can increase the cost of tissue recovery
activities. See “Business - Government Regulation.”
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Other
regulatory entities include state agencies with statutes covering tissue
banking. Regulations issued by Florida, New York, California and Maryland
will be particularly relevant to our business. Most states do not
currently have tissue banking regulations. However, recent incidents of
allograft related infections in the industry may stimulate the development of
regulation in other states. It is possible that others may make
allegations against us or against donor recovery groups or tissue banks about
non-compliance with applicable FDA regulations or other relevant statutes or
regulations. Allegations like these could cause regulators or other
authorities to take investigative or other action, or could cause negative
publicity for our business and the industry in which we operate.
Our
products may be subject to regulation in the EU as well should we enter that
market. In the European Union, or EU, regulations, if applicable, differ
from one EU member state to the next. Because of the absence of a
harmonized regulatory framework and the proposed regulation for advanced therapy
medicinal products in the EU, as well as for other countries, the approval
process for human derived cell or tissue based medical products may be
extensive, lengthy, expensive and unpredictable. Some of our products may
be subject to European Union member states’ regulations that govern the
donation, procurement, testing, coding, traceability, processing, preservation,
storage, and distribution of human tissues and cells and cellular or
tissue-based products. Some EU member states have their own tissue banking
regulations.
Clinical
trials can be long, expensive and ultimately uncertain which could jeopardize
our ability to obtain regulatory approval and market our products.
Clinical
trials are required to develop products, gain market acceptance and obtain
510(k) certifications from the FDA. We have several clinical trials
planned and will likely undertake future trials. These trials often take
two years to execute and are subject to factors within and outside of our
control. The outcome of these trials is uncertain and may have a significant
impact on the success of our current and future products and future
profits.
The
commencement or completion of any of our clinical trials may be delayed or
halted for numerous reasons, including, but not limited to, a regulatory body
placing clinical trials on hold, patients not enrolling in clinical trials at
the rate we expect, patients experiencing adverse side effects, third party
contractors failing to perform in accordance with our anticipated schedule or
consistent with good clinical practices, inclusive or negative interim trial
results or our inability to obtain sufficient quantities of raw materials to
produce our products. Our development costs will increase if we have
material delays in our clinical trials or if we need to perform more or larger
clinical trials than planned. If this occurs, our financial results and
the commercial prospects for our products will be harmed and our prospects for
profitability will be harmed.
Product
pricing (and, therefore, profitability) is subject to regulatory control which
could impact our revenue and financial performance.
The
pricing and profitability of our products may become subject to control by the
government and other third-party payors. The continuing efforts of
governmental and other third-party payors to contain or reduce the cost of
healthcare through various means may adversely affect our ability to
successfully commercialize our products. In most foreign markets, the
pricing and/or profitability of certain diagnostics and prescription
pharmaceuticals are subject to governmental control. In the United States,
we expect that there will continue to be federal and state proposals to
implement similar governmental control though it is unclear which proposals will
ultimately become law, if any. Changes in prices, including any mandated
pricing, could impact our revenue and financial performance. See “Business
- - Government Regulation.”
Risks
Related to Our Intellectual Property
Failure
to protect our intellectual property rights could result in costly and time
consuming litigation and our loss of any potential competitive
advantage.
Our
success will depend, to a large extent, on our ability to successfully obtain
and maintain patents, prevent misappropriation or infringement of intellectual
property, maintain trade secret protection, and conduct operations without
violating or infringing on the intellectual property rights of third
parties. See “Business - Technology and Intellectual Property.” There can
be no assurance that our patented and patent-pending technologies will provide
us with a competitive advantage, that we will be able to develop or acquire
additional technology that is patentable, or that third parties will not develop
and offer technologies which are similar to ours. Moreover, we can provide
no assurance that confidentiality agreements, trade secrecy agreements or
similar agreements intended to protect unpatented technology will provide the
intended protection. Intellectual property litigation is extremely
expensive and time-consuming, and it is often difficult, if not impossible, to
predict the outcome of such litigation. A failure by us to protect our
intellectual property could have a materially adverse effect on our business and
operating results and our ability to successfully compete in this
industry.
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We
may not be able to obtain or protect our proprietary rights relating to our
products without resorting to costly and time consuming litigation.
We may
not be able to obtain, maintain and protect certain proprietary rights necessary
for the development and commercialization of our products or product candidates.
Our commercial success will depend in part on obtaining and maintaining patent
protection on our products and successfully defending these patents against
third-party challenges. Our ability to commercialize our products will
also depend in part on the patent positions of third parties, including those of
our competitors. The patent positions of pharmaceutical and biotechnology
companies can be highly uncertain and involve complex legal and factual
questions. Accordingly, we cannot predict with certainty the scope and
breadth of patent claims that may be afforded to other companies’ patents.
We could incur substantial costs in litigation if we are required to defend
against patent suits brought by third parties, or if we initiate suits to
protect our patent rights.
In
addition to the risks involved with patent protection, we also face the risk
that our competitors will infringe on our trademarks. We are
currently pursuing claims against two of our competitors who we believe have
infringed on our trademarks.
In the
first case, Bacterin International, Inc. v. Allosource, we claim that Allosource
has infringed on our OSTEOSPONGE trademark through the use of the name
ALLOSPONGE. We believe that ALLOSPONGE is deceptively similar to our OSTEOSPONGE
mark, and that there would be a likelihood of confusion in the market place,
which could result in lost sales for Bacterin, if Allosource continues to use
the ALLOSOURCE name. We are seeking an injunction against the use of ALLOSPONGE,
as well as commercial monetary damages.
In the
second instance, we filed a complaint and sent a demand letter to
Advanced Biologics, Inc. and Advanced Biologics, LLC, demanding that Advanced
Biologics cease and desist any and all use of its “OsteoAMP Sponge” mark or any
other “OSTEO” and/or “SPONGE” formative mark in connection with human allograft
tissue, demineralized bone matrix, and cancellous bone products. We are
currently negotiating with Advanced Biologics in an effort to resolve this
matter. We believe that continued infringement would lead to a likelihood of
confusion and could result in lost sales.
There
can be no assurance that we will prevail in any claims we make to protect our
intellectual property.
Future
protection for our proprietary rights is uncertain which may impact our ability
to successfully compete in our industry.
The
degree of future protection for our proprietary rights is uncertain. We cannot
ensure that:
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we
were the first to make the inventions covered by each of our patent
applications;
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we
were the first to file patent applications for these
inventions;
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others
will not independently develop similar or alternative technologies or
duplicate any of our technologies;
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any
of our pending patent applications will result in issued
patents;
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any
of our issued patents or those of our licensors will be valid and
enforceable;
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any
patents issued to us or our collaborators will provide a basis for
commercially viable products or will provide us with any competitive
advantages or will not be challenged by third
parties;
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we
will develop additional proprietary technologies that are
patentable;
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the
patents of others will not have a material adverse effect on our business
rights; or
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the
measures we rely on to protect the intellectual property underlying our
products may not be adequate to prevent third parties from using our
technology, all of which could harm our ability to compete in the
market.
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Our
success depends on our ability to avoid infringing on the intellectual property
rights of third parties which could expose us to litigation or commercially
unfavorable licensing arrangements.
Our
commercial success depends in part on our ability and the ability of our
collaborators to avoid infringing patents and proprietary rights of third
parties. Third parties may accuse us or our collaborators of employing
their proprietary technology in our products, or in the materials or processes
used to research or develop our products, without authorization. Any legal
action against our collaborators or us claiming damages and/or seeking to stop
our commercial activities relating to the affected products, materials and
processes could, in addition to subjecting us to potential liability for
damages, require our collaborators or us to obtain a license to continue to
utilize the affected materials or processes or to manufacture or market the
affected products. We cannot predict whether we or our collaborators would
prevail in any of these actions or whether any license required under any of
these patents would be made available on commercially reasonable terms, if at
all. If we are unable to obtain such a license, we or our collaborators
may be unable to continue to utilize the affected materials or processes or
manufacture or market the affected products or we may be obligated by a court to
pay substantial royalties and/or other damages to the patent holder. Even
if we are able to obtain such a license, the terms of such a license could
substantially reduce the commercial value of the affected product or products
and impair our prospects for profitability. Accordingly, we cannot predict
whether or to what extent the commercial value of the affected product or
products or our prospects for profitability may be harmed as a result of any of
the liabilities discussed above. Furthermore, infringement and other
intellectual property claims, with or without merit, can be expensive and
time-consuming to litigate and can divert management’s attention from our core
business. We may be unable to obtain and enforce intellectual property
rights to adequately protect our products and related intellectual
property.
10
Others
may claim an ownership interest in our intellectual property which could expose
us to litigation and have a significant adverse effect on our
prospects.
A
third-party may claim an ownership interest in one or more of our patents or
intellectual property. While we believe we own 100% of the right, title
and interest in the patents for which we have applied and our other intellectual
property, including that which we license from third parties, we cannot
guarantee that a third-party will not, at some time, assert a claim or an
interest in any of such patents or intellectual property. We are presently
unaware of any claims or assertions by third-parties with respect to its patents
or intellectual property, except that, (1) as a defense to a lawsuit we brought
against Allosource for infringement of our OsteoSponge® trademark, Allosource
has counterclaimed in an attempt to invalidate such mark; and (2) we, along with
many companies in our industry, have been served a complaint filed by miniSURG
International, Inc. alleging patent infringement. See “Business -
Legal Proceedings.” A successful challenge or claim by a third party to
our patents or intellectual property could have a significant adverse effect on
our prospects.
The
result of litigation may result in financial loss and/or impact our ability to
sell our products going forward.
We will
vigorously defend any future intellectual property litigation that may arise but
there can be no assurance that we will prevail in these matters. An
unfavorable judgment may result in a financial burden on us. An
unfavorable judgment may also result in restrictions on our ability to sell
certain products and therefore may impact future operating results.
Risks
Related to Our Common Stock
Because
we became public through a reverse merger, we may not be able to attract the
attention of major brokerage firms.
There are
coverage risks associated with our becoming public through a reverse merger,
including, among other things, security analysts of major brokerage firms may
not provide coverage of us since there is no incentive to brokerage firms to
recommend the purchase of our common stock. We cannot assure you that
brokerage firms will want to conduct any public offerings on our behalf in the
future.
If
we do not timely file and have declared effective the registration statement
required pursuant to our private placement, we will be required to pay
liquidated damages.
As
part of our private placement, we entered into a registration rights
agreement. See “Description of Securities - Registration Rights.”
Under this agreement, we are obligated to file a registration statement
providing for the resale of the shares of common stock acquired in the private
placement and underlying the warrants by September 28, 2010. Pursuant to the
agreement, we agreed to file and have declared effective this registration
statement by December 27, 2010. If we do not meet this timeline, we must
pay liquidated damages in the amount equal to 1% of the aggregate investment
amount per month, subject to a maximum limit of 12% of the aggregate investment
amount.
If
and when our registration statement becomes effective, a significant number of
shares of common stock will be eligible for sale, which could depress the market
price of our common stock.
Following
the effective date of the registration statement, a significant number of our
shares of common stock will become eligible for sale in the public market, which
could harm the market price of the stock. Further, shares may be offered
from time to time in the open market pursuant to Rule 144, and these sales may
have a depressive effect as well.
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There
has been no active public trading market for our common stock.
Although
our common stock is traded in very limited volumes on the OTCBB and OTCQB
Marketplace, there is currently no active public market for our common
stock. An active trading market may not develop or, if developed, may not
be sustained. The lack of an active market may impair your ability to sell
your shares of common stock at the time you wish to sell them or at a price that
you consider reasonable. The lack of an active market may also reduce the
market value and increase the volatility of your shares of common stock.
An inactive market may also impair our ability to raise capital by selling
shares of common stock and may impair our ability to acquire other companies or
assets by using shares of our common stock as consideration.
The
market price of our common stock may be volatile and may decline in
value.
The
market price of our common stock has been and will likely continue to be highly
volatile, as is the stock market in general, and the market for OTCBB and OTCQB
Marketplace quoted stocks, in particular. Some of the factors that may
materially affect the market price of our common stock are beyond our control,
such as changes in financial estimates by industry and securities analysts,
conditions or trends in the industry in which we operate or sales of our common
stock. These factors may materially adversely affect the market price of
our common stock, regardless of our performance. In addition, the public stock
markets have experienced extreme price and trading volume volatility. This
volatility has significantly affected the market prices of securities of many
companies for reasons frequently unrelated to the operating performance of the
specific companies. These broad market fluctuations may adversely affect
the market price of our common stock.
Our
stockholders may experience significant dilution if future equity offerings are
used to fund operations or acquire complementary businesses.
If our
future operations or acquisitions are financed through the issuance of equity
securities, our stockholders could experience significant dilution. In addition,
securities issued in connection with future financing activities or potential
acquisitions may have rights and preferences senior to the rights and
preferences of our common stock. We also have established an equity incentive
plan for our management and employees. We expect to grant options to purchase
shares of our common stock to our directors, employees and consultants and we
will grant additional options in the future. The issuance of shares of our
common stock upon the exercise of these options may result in dilution to our
stockholders.
Our
current management can exert significant influence over us and make decisions
that are not in the best interests of all stockholders.
Our
executive officers and directors beneficially own as a group approximately 39%
of our outstanding shares of common stock. As a result, these stockholders
will be able to assert significant influence over all matters requiring
stockholder approval, including the election and removal of directors and any
change in control. In particular, this concentration of ownership of our
outstanding shares of common stock could have the effect of delaying or
preventing a change in control, or otherwise discouraging or preventing a
potential acquirer from attempting to obtain control. This, in turn, could
have a negative effect on the market price of our common stock. It could
also prevent our stockholders from realizing a premium over the market prices
for their shares of common stock. Moreover, the interests of the owners of
this concentration of ownership may not always coincide with our interests or
the interests of other stockholders and, accordingly, could cause us to enter
into transactions or agreements that we would not otherwise
consider.
Our
common stock is considered “penny stock” and may be difficult to
sell.
The SEC
has adopted Rule 3a51-1, which establishes the definition of a “penny stock” for
the purposes relevant to us, as any equity security that has a market price of
less than $5.00 per share or with an exercise price of less than $5.00 per share
and trades on a national market system with certain initial quantitative listing
standards, subject to certain exceptions. The market price of our common
stock currently is traded near $5.00 per share, and our stock is currently
listed on the OTCBB and OTCQB Marketplace, which do not have such quantitative
listing standards and therefore may be designated as a “penny stock” according
to SEC rules. For any transaction involving a penny stock, unless exempt,
Rule 15g-9 requires:
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that
a broker or dealer approve a person’s account for transactions in penny
stocks; and
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that
the broker or dealer receives from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
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In order
to approve a person’s account for transactions in penny stocks, the broker or
dealer must:
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obtain
financial information and investment experience objectives of the person;
and
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make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the SEC relating to the penny stock market,
which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stocks.
Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for investors to
dispose of our common stock and cause a decline in the market value of our
stock. In addition, since the common stock is currently traded on the
OTCBB and OTCQB Marketplace, investors may find it difficult to obtain accurate
quotations of the common stock and may experience a lack of buyers to purchase
such stock or a lack of market makers to support the stock price.
We
do not anticipate paying dividends in the foreseeable future; you should not buy
our stock if you expect dividends.
We
currently intend to retain our future earnings to support operations and to
finance expansion and, therefore, we do not anticipate paying any cash dividends
on our common stock in the foreseeable future.
Although
we have applied for trading our common stock on Nasdaq, we may not satisfy
its eligibility criteria for listing and may never be listed on
Nasdaq.
We have
applied to list our common stock for trading on the Nasdaq Capital Market.
Notwithstanding such application, no assurance can be given that we will satisfy
the eligibility criteria or other initial listing requirements, or that our
shares of common stock will ever be listed on Nasdaq or another national
securities exchange.
We
could issue “blank check” preferred stock without stockholder approval with the
effect of diluting then current stockholder interests and impairing their voting
rights, and provisions in our charter documents and under Delaware law could
discourage a takeover that stockholders may consider favorable.
Our
certificate of incorporation provides for the authorization to issue up to
5,000,000 shares of “blank check” preferred stock with designations, rights and
preferences as may be determined from time to time by our board of
directors. Our board of directors is empowered, without stockholder
approval, to issue one or more series of preferred stock with dividend,
liquidation, conversion, voting or other rights which could dilute the interest
of, or impair the voting power of, our common stockholders. The issuance
of a series of preferred stock could be used as a method of discouraging,
delaying or preventing a change in control. For example, it would be
possible for our board of directors to issue preferred stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of our company. In addition, advanced notice is required
prior to stockholder proposals.
13
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
The
statements contained in this prospectus that are not purely historical are
forward-looking statements within the meaning of applicable securities
laws. Our forward-looking statements include, but are not limited to,
statements regarding our “expectations,” “hopes,” “beliefs,” “intentions,” or
“strategies” regarding the future. In addition, any statements that refer
to projections, forecasts, or other characterizations of future events or
circumstances, including any underlying assumptions, are forward-looking
statements. The words “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,”
“predict,” “project,” “should” and “would,” as well as similar expressions, may
identify forward-looking statements, but the absence of these words does not
mean that a statement is not forward looking. Forward-looking statements
in this prospectus may include, for example, statements about:
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·
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the
future performance and market acceptance of our
products;
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·
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our
ability to maintain our competitive
position;
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·
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negative
media publicity;
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·
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our
ability to obtain donor cadavers for our
products;
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·
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our
efforts to innovate and develop new
products;
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·
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our
ability to engage and retain qualified technical personnel and members of
our management team;
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·
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our
reliance on our current facilities;
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·
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our
ability to generate funds or raise capital to finance our
growth;
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·
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our
efforts to expand our sales force;
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·
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government
regulations;
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·
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fluctuations
in our operating results;
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·
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government
and third-party coverage and reimbursement for our
products;
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·
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our
ability to manage our growth;
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·
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our
ability to successfully integrate future business combinations or
acquisitions;
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·
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product
liability claims and other litigation to which we may be
subjected;
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·
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product
recalls and defects;
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·
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timing
and results of clinical trials;
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·
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our
ability to obtain and protect our intellectual property and proprietary
rights;
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·
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infringement
and ownership of intellectual
property;
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·
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our
ability to attract broker coverage;
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·
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the
trading market, market prices, dilution, and dividends of our common
stock;
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·
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influence
by our management;
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·
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our
application for listing on Nasdaq;
and
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·
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our
ability to issue preferred stock.
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The
forward-looking statements contained in this prospectus are based on our current
expectations and beliefs concerning future developments and their potential
effects on us. There can be no assurance that future developments
affecting us will be those that we have anticipated. These forward-looking
statements involve a number of risks, uncertainties, or assumptions, many of
which are beyond our control, which may cause actual results or performance to
be materially different from those expressed or implied by these forward-looking
statements. These risks and uncertainties include, but are not limited to,
those factors described under the heading “Risk Factors” in this
prospectus. Should one or more of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, actual results
may vary in material respects from those projected in these forward-looking
statements. We undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events, or otherwise, except as may be required under applicable securities
laws.
14
USE
OF PROCEEDS
We will
not receive any of the proceeds from sales of shares of our common stock by the
selling stockholders. To the extent we receive any proceeds from the
exercise of warrants by the selling stockholders, we expect to use such proceeds
for working capital and other general corporate purposes. However, such
warrants contain a “cashless” exercise provision, so there can be no assurance
that we will receive any proceeds upon the exercise of warrants. See also
“Plan of Distribution” below.
15
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You
should read the following discussion of our financial condition and results of
operations in conjunction with our financial statements and related notes set
forth in this prospectus. Unless the context otherwise requires, “we,”
“our,” “us” and similar expressions used in this Management’s Discussion and
Analysis of Financial Condition and Results of Operation section refer to
Bacterin prior to the closing of the Reverse Merger on June 30, 2010, and
Bacterin International Holdings, Inc., f/k/a K-Kitz, Inc., as successor to the
business of Bacterin, following the closing of the Reverse Merger
transaction.
Overview
We
develop, manufacture and market biologics products to domestic and international
markets through our biologics division. Our products are used
in a variety of applications including enhancing fusion in spine surgery, relief
of back pain with a facet joint stabilization, promotion of bone growth in foot
and ankle surgery, promotion of skull healing following neurosurgery and
cartilage regeneration in knee and other joint surgeries.
Our
medical devices division develops medical devices intended for use in several
diverse clinical areas including orthopedic, plastic, and cardiovascular
surgery. Our background and expertise is in the research, testing, and
development of coatings for medical devices, particularly antimicrobial-based
coatings.
The
manufacturing and operations of the biologics and device divisions are organized
separately while products from both are marketed through several channels
including private label arrangements, independent distributors, joint
development projects and our direct sales network which we began to implement in
the last half of 2009. To date, we have established 13 regions with a
regional vice-president in charge of all activities within the region and have
hired and trained 52 sales representatives. Our customers are located
worldwide, with approximately 97% of our third quarter 2010 sales being derived
from customers located in the United States. Our headquarters,
laboratory and manufacturing facilities are located in Belgrade,
Montana.
Revenue
Model
We
generate revenue from sales from products developed and manufactured by us under
our own label; products manufactured by us under private labels for other device
distributing companies; and contract revenue from analytical testing and
development services provided to medical device manufacturer clients, which
tailor our coating process to the client’s specific product/medical
application. In order for us to recognize revenue from these sources,
the following criteria generally must be met:
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·
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we
have entered into a legally binding agreement with the customer for the
product or services;
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·
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the
products or services have been delivered by
us;
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·
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our
fee for providing the products or services is fixed and determinable;
and
|
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·
|
our
fee is actually collectible.
|
We
record revenue net of any applicable sales, use, or excise taxes. If
our arrangement with the customer includes a right of acceptance or a right to
cancel, revenue is recognized when our products or services are accepted or when
the right to cancel has expired. We sell to certain customers
under consignment arrangements. Under these arrangements, revenue is
recorded on the date of sale. Revenue for research and development
services provided by us is recognized based upon our meeting certain performance
standards, such as incurring qualifying costs, as set forth in the specific
arrangement governing the provision of such services.
16
Results
of Operations
Comparison
of Nine Months Ended September 30, 2010 and September 30, 2009
The
following table sets forth key components of our results of operations during
the nine months ended September 30, 2010 and 2009. The
acquisition of Bacterin International Holdings, Inc. f/k/a K-Kitz, Inc. by
Bacterin through the Reverse Merger was completed June 30, 2010. The
combined presentation below refers to that of Bacterin International Holdings,
Inc. f/k/a K-Kitz, Inc. and Bacterin.
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Nine
|
||||||||||||
|
Months
Ended September 30,
|
Increase/
|
|||||||||||
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2010
|
2009
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(Decrease)
|
||||||||||
|
Revenue
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||||||||||||
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Tissue
sales
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$ | 9,936,095 | $ | 4,995,682 | $ | 4,940,413 | ||||||
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Royalties
and other
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193,424 | 207,554 | (14,130 | ) | ||||||||
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Total
Revenue
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10,129,519 | 5,203,236 | 4,926,283 | |||||||||
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Cost
of tissue sales (excluding depreciation expense presented
below)
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1,832,967 | 1,631,555 | 201,412 | |||||||||
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Gross
Profit
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8,296,552 | 3,571,681 | 4,724,871 | |||||||||
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Operating
Expenses
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||||||||||||
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General
and administrative
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5,741,315 | 3,705,892 | 2,035,423 | |||||||||
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Sales
and marketing
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5,465,431 | 1,120,996 | 4,344,435 | |||||||||
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Depreciation
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457,156 | 495,218 | (38,062 | ) | ||||||||
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Stock
Options/Restricted stock Compensation expense (excluded from general and
administrative expense)
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1,227,871 | 446,960 | 780,911 | |||||||||
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Total
Operating Expenses
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12,891,773 | 5,769,066 | 7,122,707 | |||||||||
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Loss
from Operations
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(4,595,221 | ) | (2,197,385 | ) | (2,397,836 | ) | ||||||
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Other
Income (Expense)
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||||||||||||
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Interest
income (expense)
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(680,418 | ) | (337,303 | ) | (343,115 | ) | ||||||
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Change
in warrant derivative liability
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(6,826,533 | ) | - | (6,826,533 | ) | |||||||
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Other
income/expense
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(633,176 | ) | 11,298 | (644,474 | ) | |||||||
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Total
Other Income (Expense)
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(8,140,127 | ) | (326,005 | ) | (7,814,122 | ) | ||||||
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Net
Loss Before Benefit (Provision) for Income Taxes
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(12,735,348 | ) | (2,523,390 | ) | (10,211,958 | ) | ||||||
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Benefit
(Provision) for Income Taxes
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||||||||||||
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Current
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- | - | - | |||||||||
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Deferred
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- | - | - | |||||||||
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Net
Loss
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$ | (12,735,348 | ) | $ | (2,523,390 | ) | $ | (10,211,958 | ) | |||
Revenue
Total
revenue for the nine months ended September 30, 2010 increased 95% to
$10,129,519 compared to $5,203,236 in the comparable prior year period. The
increase of $4,926,283 was largely the result of
transitioning the sales model in the second half of 2009 from a distributor
based model with a limited direct sales force to a direct sales force
model.
17
Cost
of tissue sales
Costs
of tissue sales consist primarily of tissue and device manufacturing
costs. Costs of tissue sales increased by 12% or $201,412
to $1,832,967 from $1,631,555 for the nine months ended September 30,
2009. The increase was the result of increased costs associated with
our higher sales as well as our 2009 write off of expired inventory of $669,000
which resulted in higher cost of sales as a percentage of revenue in the third
quarter of 2009. Our gross profit margin for the nine months ended September 30,
2010 was 82% compared to 69% for the comparable prior year period. Excluding the
Company’s above noted write off of expired inventory adjustment, the Company’s
gross margin was 81.5% for the nine months ended September 30,
2009.
Operating
Expenses
Operating
expenses include general and administrative expenses, selling and marketing
expenses, depreciation, research and development expenses, and compensation
costs, including incentive compensation. Operating expenses increased
124%, or $7,122,707, for the nine months ended September 30, 2010 compared to
the nine months ended September 30, 2009, primarily due to the reasons set forth
below.
General
and Administrative
General
and administrative expenses consist principally of corporate personnel
compensation related costs and corporate expenses for legal, accounting and
other professional fees as well as occupancy costs. General and administrative
expenses increased 55%, or $2,035,423, to $5,741,315, for the nine
months ended September 30, 2010 compared to 2009. The increase is largely
associated with increased personnel costs as well as legal and
professional fees incurred between the two periods.
Selling
and Marketing
Selling
and marketing expenses include sales based compensation expense and primarily
consist of costs for trade shows, sales conventions and meetings, travel
expenses, advertising and other sales and marketing related costs. Selling and
marketing expenses increased 388%, or $4,344,435, to $5,465,431 for the nine
months ended September 30, 2010 from $1,120,996 for the comparable prior year
period. As a percentage of revenue, selling and marketing expenses increased to
54% in 2010 from 22% in the prior year. The increases were primarily
the result of increased commissions and travel costs associated with the larger
sales force as well as a substantial increase in marketing and advertising
activities in 2010 as part of our switch to a direct sales force model from a
distributor based model.
Depreciation
Depreciation
expense consists of depreciation of long-lived property and equipment.
Depreciation expense remained relatively unchanged, decreasing to $457,156 for
the nine months ended September 30, 2010 from $495,218 in
the comparable prior year period..
Stock
Options/Restricted Stock Compensation Expense
Stock
options compensation expense consists of non-cash based stock compensation
expense and non-cash expense associated with granting restricted stock to
consultants. Stock options/restricted stock compensation expense
increased $780,911 to $1,227,871 for the nine months ended September
30, 2010 from $446,960 in the comparable year period. As a percentage
of revenues, stock options compensation expense for the nine months ended
September 30, 2010 was 12%, compared to 9% in the prior
year due to the granting of restricted shares to consultants during the third
quarter of 2010.
Interest
Expense
Interest
expense is from our promissory notes and convertible debt
instruments. Interest expense for the nine months ended September 30, 2010
increased 102%, to $680,418, as compared to the nine months
ended September 30, 2009. The increase was the result of interest
expense associated with the incurrence of convertible debt during the last half
of 2009 and first half of 2010.
Change in
Warrant Derivitive Liability
For the nine months ended September 30, 2010, the
Company recorded a non-cash charge of $6,826,533 associated with the issuance of
warrants as part of its convertible debt financing, based upon the closing price
of the Company's common stock on September 30, 2010. The increase is
primarily due to the increase in the Company's stock price from the date of
the issuance of the warrants to the closing price on September 30,
2010.
Liquidity
and Capital Resources
Since
our inception, we have historically financed our operations through operating
cash flows, as well as the private placement of equity securities and debt, and
other debt transactions. Most recently, on June 30 and July 30, 2010, we raised
approximately $9,272,000 through a private placement of equity securities and
conversion of a portion of a bridge loan financing. At
September 30, 2010, we had approximately $3,133,000 of cash and cash
equivalents and accounts receivables. In addition, we have access to
credit lines secured by certain of our accounts receivable
balances. At September 30, 2010, we had convertible notes payable of
approximately $400,000. In addition, the Company allowed $50,000 of previously
paid convertible notes to convert to common stock on the same terms as the other
note conversions.
Net cash
used in operating activities for the nine months ended September 30, 2010 was
$5,889,896 This was primarily related to cash used to fund our
operations as well as an increase of accounts receivable of approximately
$1,287,420 and an increase in our inventory balance of approximately
$1,981,835 For the nine months ended September 30, 2009, net cash
used in operating activities was $2,083,645 due to a lower net loss compared to
2010 resulting from our decision to go to a direct sales effort in the second
half of 2009.
Net cash
provided by financing activities was $6,839,940 and $1,922,508 for the nine
months ended September, 2010 and 2009, respectively. The net cash provided from
financing activities during 2010 was primarily the result of the sale of
approximately $4,700,000 in convertible debt instruments and the issuance of
$5,095,934 of common stock, net of issuance costs, in connection with the above
referenced Reverse Merger and related financing transactions. These
amounts were partially offset by principal payments on outstanding loan and
lease obligations.
Off
Balance Sheet Arrangements
We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that are material to an investor in our
shares.
Cash
Requirements
We
believe that our cash on hand of approximately $1 million from recent private
placement of equity securities, proceeds from the WTI financing and the
exercise of warrants, as well as cash receipts from sales of approximately $7
million expected from operations will be sufficient to meet our anticipated
cash requirements of $7 million through September 30, 2011. We
incurred approximately $8 million in sales and marketing expenses in 2010 and
expect to incur $20 million in 2011. The increased sales and marketing
expenses are anticipated to be funded from operating cash flow. The
incurrance of these additional expenses may impact our operating results and
there can be no assurance of their effectiveness. If we do not meet our
revenue objectives over that period, we may need to sell additional equity
securities, which could result in dilution to our stockholders, or seek
additional loans. The incurrence of indebtedness would result in
increased debt service obligations and could require us to agree to operating
and financial covenants that would restrict our operations. Financing may not be
available in amounts or on terms acceptable to us, if at all. Any
failure by us to raise additional funds on terms favorable to us, or at all,
could limit our ability to expand our business operations and could harm our
overall business prospects.
In addition, we currently anticipate that we will need to spend
between $4 and $5 million over the next 5 years in order to increase, expand or
update our existing facilities to meet our expected growth over that
period.
Comparison
of Twelve Months Ended December 31, 2009 and December 31, 2008
The
following table sets forth key components of our results of operations during
the twelve months ended December 31, 2009 and 2008, both in actual dollars and
as a percentage of our revenue. The acquisition of Bacterin International
Holdings, Inc. f/k/a K-Kitz, Inc. by Bacterin through the Reverse Merger
occurred after March 31, 2010. The combined presentation below refers to
that of Bacterin International Holdings, Inc. f/k/a K-Kitz, Inc. and
Bacterin.
18
|
Twelve Months Ended December 31,
|
||||||||||||||||
|
2009
|
2008
|
|||||||||||||||
|
Amount
|
% of Revenue
|
Amount
|
% of Revenue
|
|||||||||||||
|
Revenues
|
||||||||||||||||
|
Tissue
sales
|
$ | 7,101,357 | 96.05 | % | $ | 8,031,611 | 97.80 | % | ||||||||
|
Royalties
and other
|
292,136 | 3.95 | % | 180,848 | 2.20 | % | ||||||||||
|
Total
Revenue
|
7,393,493 | 100.00 | % | 8,212,459 | 100.00 | % | ||||||||||
|
Cost
of tissue sales (excluding depreciation expense presented
below)
|
2,318,142 | 31.35 | % | 1,522,658 | 18.54 | % | ||||||||||
|
Gross
Profit
|
5,075,351 | 68.65 | % | 6,689,801 | 81.46 | % | ||||||||||
|
Operating
Expenses
|
||||||||||||||||
|
General
and administrative
|
5,916,776 | 80.02 | % | 3,750,273 | 45.66 | % | ||||||||||
|
Selling
and marketing
|
1,281,932 | 17.34 | % | 429,170 | 5.23 | % | ||||||||||
|
Depreciation
|
661,847 | 8.95 | % | 646,846 | 7.88 | % | ||||||||||
|
Research
and development
|
- | 0.00 | % | 288,091 | 3.51 | % | ||||||||||
|
Stock
Options / Restricted Stock Compensation expense (excluded from general and administrative
expense)
|
837,350 | 11.33 | % | 460,974 | 5.61 | % | ||||||||||
|
Total
Operating Expenses
|
8,697,905 | 117.64 | % | 5,575,354 | 67.89 | % | ||||||||||
|
Income
(Loss) from Operations
|
(3,622,554 | ) | -49.00 | % | 1,114,447 | 13.57 | % | |||||||||
|
Other
Income (Expense)
|
||||||||||||||||
|
Interest
income (expense)
|
(513,934 | ) | -6.95 | % | (1,374,360 | ) | -16.74 | % | ||||||||
|
Other
income / expense
|
10,746 | 0.15 | % | 20,601 | 0.25 | % | ||||||||||
|
Total
Other Income (Expense)
|
(503,188 | ) | -6.81 | % | (1,353,759 | ) | -16.48 | % | ||||||||
|
Net
Income Before Benefit (Provision) for Income
Taxes
|
(4,125,742 | ) | -55.80 | % | (239,312 | ) | -2.91 | % | ||||||||
|
Benefit
(Provision) for Income Taxes
|
||||||||||||||||
|
Current
|
- | 0.00 | % | - | 0.00 | % | ||||||||||
|
Deferred
|
- | 0.00 | % | - | 0.00 | % | ||||||||||
|
Net
Loss
|
$ | (4,125,742 | ) | -55.80 | % | $ | (239,312 | ) | -2.91 | % | ||||||
Revenue
Revenue
in 2009 and 2008 was comprised primarily of tissue and device sales as well as
royalty payments. Total revenue decreased by 10.0% year-over-year at
$7,393,493 in 2009, compared to $8,212,459 in 2008. The decrease was largely the
result of transitioning the sales model from a distributor based model with a
limited direct sales force to a direct sales force model. In addition,
during 2009, we terminated an agreement with a distributor with annual sales of
approximately $3,000,000 as part of our transition to a direct sales force
model.
Our
largest single customers, Seaspine and Nufix, accounted for 12% and 37% of
total consolidated revenues for the years ended 2009 and 2008,
respectively. Our relationship with these customers was governed by a
contract which identified prices for the services to be rendered and
payments to be made by the customers to us. These contracts were terminated in
the third quarter of 2009 when the Company migrated to a direct sales model from
a distributor based model.
19
Costs
of tissue sales
Costs
of tissue sales consist primarily of tissue and device manufacturing
costs. Costs of tissue sales increased by 52.2%, or $795,484, to
$2,318,142 for the year ended December 31, 2009, from $1,522,658 for the year
ended December 31, 2008. The increase was the result of increased costs
associated with our sales and a product mix shift which resulted in higher sales
of products with higher costs. In addition, during 2009, the Company wrote
off approximately $669,000 of expired inventory which resulted in an increase in
cost of tissue sales for the twelve months ended December 31,
2009.
Operating
Expenses
Operating
expenses include general and administrative expenses, selling and marketing
expenses, depreciation, research and development expenses, and compensation
costs, including incentive compensation. Operating expenses increased
56.0%, or $3,122,551 for the year ended December 31, 2009 compared to the year
ended December 31, 2008.
General
and Administrative
General
and administrative expenses consist principally of employee related costs and
corporate expenses for legal, accounting and other professional fees as
well as occupancy costs. General and administrative expenses increased
58%, or $2,166,503 to $5,916,776, for the twelve months ended December 31, 2009
compared to 2008. The increase is largely associated with increased legal
and professional fees incurred between the two periods. As a percentage of
revenues, general and administrative expenses were 80.0% in 2009 compared to 46%
in 2008.
Selling
and Marketing
Selling
and marketing expenses exclude sales based compensation expense and primarily
consist of costs for trade shows, sales conventions and meetings, travel
expenses, advertising and other sales and marketing related costs. Selling and
marketing expenses increased 198.7%, or $852,762, to $1,281,932 for the twelve
months ended December 31, 2009 from $429,170 for 2008. As a percentage of
revenue, selling and marketing expenses increased to 17.34% in 2009 from 5.23%
in the prior year. The increases were primarily the result of increased
travel costs associated with the larger sales force and a substantial increase
in marketing and advertising activities in 2009 as part of our switch to a
direct sales force model from a distributor based model.
Depreciation
Depreciation
expense consists of depreciation of long-lived property and equipment.
Depreciation expense remained relatively unchanged increasing to $661,847 in
2009 from $646,846 in 2008.
Research
and Development
Research
and development expenses consist primarily of costs for product research and
development and department related expenses. Research and development
expenses were $288,091 in 2008. In 2009, we did not incur any research and
development expenses as we focused our efforts on the implementation of our
direct sales force model.
Stock
Options/Restricted Stock Compensation Expense
Stock
Options/Restricted Stock Compensation Expense expense
consists of non-cash stock compensation expense. Stock
Options/Restricted Stock Compensation Expense increased 81.6% or $376,376,
to $837,350 for 2009 from $460,974 in the comparable year period for 2008.
This increase was primarily due to our implementation of a direct sales effort
in 2009 which substantially increased the sales force headcount. In addition, we
granted more stock options to employees in 2009 than in the prior year. As
a percentage of revenues, compensation expense in 2009 was 11.33% compared to
5.61% in the prior year.
Interest
Expense
Interest
expense is from our promissory notes and convertible debt
instruments. Interest expense for the year ended December 31, 2009
decreased 62.61%, or $860,426, as compared to the year ended December 31,
2008. This decrease was a result of lower debt balances during the year
and non-cash charges related to warrants issued with certain debt
instruments.
20
Liquidity
and Capital Resources
Since our
inception, we have historically financed our operations through operating cash
flows, as well as the private placement of equity securities and debt, and other
debt transactions. Most recently, on June 30 and July 30, 2010, we raised
approximately $9,272,000 through a private placement of equity securities and
conversion of all of one earlier bridge financing and a substantial portion of
another. At June 30, 2010, we had approximately $5,075,700 of cash and
cash equivalents and accounts receivables. In addition, we have access to
credit lines secured by certain of our accounts receivable balances. At
June 30, 2010, we had convertible notes payable of approximately $1,850,000 in
outstanding principal, of which $1,450,000 has been repaid and $400,000 has
converted into shares of our common stock and warrants on the same terms as such
debt would have converted in our recent private placement transaction if it had
been converted therein.
Net cash
used in operating activities for the six months ended June 30, 2010 was
$4,018,463. This was primarily related to cash used to fund our operations
as well as an increase of accounts receivable of approximately $675,099 and an
increase in our inventory balance of approximately $916,633. For the six
months ended June 30, 2009, net cash used in operating activities was $1,886,606
due to a lower net loss compared to 2010 resulting from our decision to go to a
direct sales effort in the second half of 2009. Net cash used in operating
activities for the year ended December 31, 2009 was $3,671,596. This was
primarily related to cash used to fund the Company’s operating losses as well as
an increase of accounts receivable of approximately $739,000 and an increase in
our inventory balance of approximately $851,000. For the twelve months
ended December 31, 2008, net cash provided by operating activities was $502,008
due to a lower net loss compared to 2009.
Net cash
provided by financing activities was $7,237,471 and $1,167,266 for the six
months ended June 30, 2010 and 2009, respectively. The net cash provided
from financing activities during 2010 was primarily the result of the sale of
approximately $4,700,000 in convertible debt instruments and the issuance of
$3,522,348 of common stock, net of issuance costs, in connection with the
above referenced Reverse Merger and related financing transactions. These
amounts were partially offset by principal payments on outstanding loan and
lease obligations. Net cash provided by financing activities was
$3,436,991 and $545,169 for the years ended December 31, 2009 and 2008,
respectively. The net cash provided from financing activities during 2009
was $1,950,000 from the sale and issuance of common stock and $1,000,000 from
releases on certain restrictions on cash. Net cash provided from financing
in 2008 included $1,000,000 in proceeds from notes payable, $2,340,000 from
issuance of convertible notes payable and $1,278,514 from the sale and issuance
of common stock. The cash inflows were partially offset by the payments of
$3,073,345 for long-term debt, stockholder notes and capital
leases.
Off
Balance Sheet Arrangements
We do not
have any off balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity or capital
expenditures or capital resources that are material to an investor in our
shares.
Cash
Requirements
We
believe that our cash on hand from our recent private placement of equity
securities, proceeds from the WTI financing and the exercise of warrants, as
well as cash flow expected from operations will be sufficient to meet our
anticipated cash requirements through September 30, 2011. If we do not
meet our revenue objectives over that period, we may need to sell additional
equity securities, which could result in dilution to our stockholders, or seek
additional loans. The incurrence of indebtedness would result in increased
debt service obligations and could require us to agree to operating and
financial covenants that would restrict our operations. Financing may not
be available in amounts or on terms acceptable to us, if at all. Any
failure by us to raise additional funds on terms favorable to us, or at all,
could limit our ability to expand our business operations and could harm our
overall business prospects.
In addition, we currently anticipate that we will need to spend
between $4 and $5 million over the next 5 years in order to increase, expand or
update our existing facilities to meet our expected growth over that
period.
21
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
As
previously disclosed on a Current Report on Form 8-K filed with the SEC on
September 24, 2010, W.T. Uniack & Co., CPA’s P.C. was dismissed as our
independent accountant. On September 24, 2010, we engaged Child, Van
Wagoner & Bradshaw as our new independent registered public accounting
firm. In connection with this change in accountants, there were no
disagreements (as that term is used in Item 304(a)(1)(iv) of Regulation S-K) or
reportable events (as described in Item 304(a)(1)(v) of Regulation
S-K).
22
BUSINESS
Unless
the context otherwise requires, “we,” “our,” “us” and similar expressions used
in this Business section refer to Bacterin prior to the closing of the Reverse
Merger on June 30, 2010, and Bacterin International Holdings, Inc., f/k/a
K-Kitz, Inc., as successor to the business of Bacterin, following the closing of
the Reverse Merger transaction.
Overview
of Our Business
We
develop, manufacture and market biologics products to domestic and international
markets through our biologics division. Our products are used in a variety of
applications including enhancing fusion in spine surgery, relief of back pain
with a facet joint stabilization, promotion of bone growth in foot and ankle
surgery, promotion of skull healing following neurosurgery and subcondral bone
defect repair in knee and other joint surgeries.
Our
medical devices division develops medical devices intended for use in several
diverse clinical areas including orthopedic, plastic, and cardiovascular
surgery. Our background and expertise is in the research, testing, and
development of coatings for medical devices, particularly antimicrobial-based
coatings.
In
addition to the manufacture and sales of coated medical devices, the medical
devices division works with our biologics division to produce and distribute
OsteoSelect® DBM putty, an osteoinductive product used by surgeons as a bone
void filler in the extremities and pelvis. DBM putty is considered a
combination product by regulatory agencies - both a tissue and a medical
device.
The
medical devices division also develops custom surgical instrument kits for use
with allografts processed by our biologics division. These kits offer
state-of-the-art instrumentation that is designed based upon the needs and
inputs of surgeons who desire to use the most minimally invasive techniques. The
instrumentation is intended to be an optimal delivery system for the proper
placement of our proprietary allografts. Objectives of allograft use include
pain relief, aid in the regeneration of tissue, and to provide a scaffold for
bone fusion in spinal and sports medicine procedures.
The
medical devices division actively develops intellectual property associated with
our devices and coating platforms, for the purposes of protecting our
Bacterin-branded devices and for use in alliance projects.
The
manufacturing and operations of the biologics and medical devices divisions are
organized separately while products from both are marketed through several
channels including independent distributors, joint development projects and our
direct sales network, which we began to implement in the last half of
2009. In 2010, we incurred approximately $8 million of sales and marketing
expenses and expect this amount to increase to approximately $20 million in
2011. We anticipate the increased sales and marketing expenses to be
funded from operating cash flow. In addition, we
currently anticipate that we will need to spend between $4 and $5 million over
the next five years in order to increase, expand or update our existing
facilities to meet our expected growth over that period. The focus
of our efforts and the use of the proceeds from the recent bridge
financings and the private placement have been used, and will continue to be
used, to, expand our direct sales network. To date, we have reached our
goal and established 13 regions with a regional vice-president in charge of all
activities within the region and have hired and trained 52 sales
representatives.
Our
headquarters, laboratory and manufacturing facilities are located at 600 Cruiser
Lane, Belgrade, Montana 59714. Our telephone number is (406) 388-0480 and
our fax number is (406) 388-0422. We also maintain an office at 8310 S.
Valley Highway, No. 300, Englewood, Colorado 80112, and have sales employees
located across the United States.
23
We
began operations in 1998 as a sole proprietorship founded by Guy Cook, our
President and Chief Executive Officer, as a spinout of the Center for Biofilm
Engineering at Montana State University, or the CBE. Mr. Cook is an expert
in microbial testing methods and has been recognized by the U.S. Food and Drug
Administration, or the FDA, industry, and academia for his contributions to the
development of bioactive coatings. This sole proprietorship was eventually
incorporated as “Bacterin, Inc.” in the state of Montana in January 2000 to
further Mr. Cook’s work. In March 2004, Bacterin, Inc.’s stockholders
completed the terms of a share exchange agreement with a company called Oil
& Gas Seekers, Inc., a Nevada corporation, or OGS, which subsequently
changed its name to “Bacterin International, Inc.”, to effectively become a
publicly-traded corporation. As a result of this transaction, the
stockholders of Bacterin, Inc., became stockholders of us, and Bacterin, Inc.,
became our wholly owned subsidiary. At the end of 2004, management concluded
that this transaction was problematic and did not deliver the expected result.
Based on this determination, we entered into an agreement in 2005 to amend the
terms of the exchange transaction with the former majority stockholder of OGS.
In May 2005, we merged Bacterin, Inc., up and into us.
Leveraging
off the “state of the art” research and development activities ongoing at the
CBE in biofilm technology, we began as a biomaterials testing laboratory and
have systematically expanded our strategic vision towards the development of
Bacterin-labeled medical devices. Our revenues were historically derived
from testing services and milestone payments from collaborative product
development agreements with various “blue chip” medical manufacturers.
Today, however, we generate revenue from a number of revenue sources including
the following: sales from products developed and manufactured by us under our
own label; and contract revenue from analytical testing and development services
provided to medical device manufacturer clients, which tailor our coating
process to the client’s specific product/medical application.
During
2008, we reached an important transition point in our history. Most of our
business endeavors prior to that time had been devoted to developing our
products with revenue generated from a variety of limited sources, including
testing, government grants and unsubstantial product sales. In 2008,
however, revenue from product sales either under our name or “private label”
became our primary source of revenue though we no longer generate revenue from
any private label arrangements.
Industry
and Market Overview
The
orthopedic biomaterials market consists of materials that are organic, inorganic
or synthetic in nature. These materials are implanted or applied in or near the
indicated bone to facilitate healing, encourage bone tissue augmentation,
compensate in areas where bone tissue is depleted and restore structure to allow
for repair. Orthopedic biomaterials are capable of producing specific biological
action or regenerative responses that are beyond what is observed in normal
healing. These materials are often used as substitutes to autograft materials,
which are taken from a harvest site in the patient to patch or repair the
wounded or unhealthy site.
Bone is a
biologically active tissue and may or may not regenerate depending on the
condition of the patient. The damage may be significant enough that a
scaffold to help regenerate the surgical site may be necessary. In 2009,
the orthopedic biomaterials market was valued at almost $3.5 billion. This
market is expected to grow at a CAGR of 8.9% by 2016. (Idata Research Inc.
2010, U.S. Market for Orthopedic Biomaterials).
Products
and Services
We have
developed and currently manufacture and sell several human tissue-based
products, primarily allografts, into the medical marketplace through our
biologics division. In addition, we also manufacture and sell, directly
under our own name and indirectly through distributors, various coating and
surgical drain products through our medical devices division.
Biologics
Division
Our
biologics products include OsteoSponge®, OsteoSponge® SC, OsteoWrap®, OsteoLock®
and BacFast®, as well as certain other allograft products which are briefly
described below:
|
|
·
|
OsteoSponge®
is a form of demineralized bone matrix made from 100% human bone. Derived
from trabecular (cancellous) bone, OsteoSponge® provides a natural
scaffold for cellular in-growth and exposes bone-forming proteins to the
healing environment. The malleable properties of OsteoSponge® enable
it to conform to, and fill, most defects. Upon compressing the
allograft, OsteoSponge® springs back to completely fill the void.
Its unique mechanical and biological properties make OsteoSponge® an ideal
bone graft for use in various orthopedic practices including spine,
neurology, cranial/maxillofacial, trauma, plastic/reconstruction and
general procedures where new bone growth is
needed.
|
24
|
|
·
|
OsteoSponge®
SC is a form of OsteoSponge® designed to be used in joint surgery.
Bacterin has shown, in goat studies, the ability to re-generate cartilage
in joint repair and believes that this product has the potential to
significantly change the standard of care in human joint surgery. We
have received permission from the FDA to market this product as a
subchondral bone void filler and are currently marketing it as such.
In
order to market OsteoSponge SC as a
cartilage re-generation scaffold, we will need to obtain FDA approved to
begin marketing for that indication. Surgeons are using the product
and we are beginning trials to establish the ability to market it as a
cartilage re-generation scaffold. These trials are likely to take
two years and we will likely publish preliminary results of the study at
six months and one year. There can be no assurance that these trials
will be successful or lead to any FDA action. We
have allocated approximately $750,000 to fund this clinical
trial.
|
|
|
·
|
OsteoWrap®
is 100% human cortical bone demineralized through a proprietary process to
make the graft flexible while maintaining allograft integrity. This
product has various applications in orthopedic, neurological, trauma,
oral/maxillofacial and reconstructive procedures. OsteoWrap® can
wrap around non-union fractures to assist with fusion, can act as a
biologic plate or can be used in conjunction with a hardware plate
system. Additionally, this product provides the surgeon with
superior handling characteristics as the allograft can be easily sized
using surgical scissors or a scalpel, and will withhold sutures or staples
for fixation.
|
|
·
|
OsteoLock®
and BacFast® are facet stabilization dowels made from human bone.
The shape of our facet stabilization dowel is engineered to maximize
osteoconductivity and surface area contact, as well as provide stability
to prevent migration from the surgical site. BacFast® HD, having the
same design as OsteoLock®, is optimized through our proprietary
demineralization technology. This technology increases the surface
area of the outer collagen matrix of the graft while exposing native bone
morphogenic proteins (BMPs) and growth factors. Because of the
hyper-demineralization technology, BacFast® HD has osteoinductive
properties, as well as being osteoconductive. OsteoLock® and
BacFast® can be used to augment spinal procedures, or as a stand-alone
procedure for mild spinal conditions. While this product is
currently in production and use, Bacterin is initiating clinical studies
to further support its effectiveness and we
have allocated approximately $100,000 to fund these clinical
trials. There can be no assurance of the success of these
trials.
|
|
|
·
|
hMatrix™
dermal scaffold is an extension of
Bacterin's core biologics technology and our third human acellular
biological scaffold. hMatrix™ is an acellular matrix made from
donated human dermal tissue that is used to replace a patient's damaged
tissue. hMatrix™ provides a natural collagen tissue scaffold that
promotes cellular ingrowth, tissue vascularization and regeneration.
The hMatrix™ scaffold tissue reabsorbs into the patient's dermal
tissue for a biocompatible, natural repair. We are planning
commercial release of hMatrix™ during first quarter of
2011.
|
In
addition, we make and sell (i) sports allografts which are processed
specifically for anterior and posterior cruciate ligament repairs, anterior
cruciate ligament reconstruction and meniscal repair, (ii) milled allografts
which are comprised of cortical bone milled to desired shapes and dimensions,
also called milled spinal allografts, and (iii) traditional allografts for
multi-disciplinary applications including orthopedics, neurology, podiatry,
oral/maxillofacial, genitourinary and plastic/reconstructive.
We are
hoping to be able to expand our product definition for OsteoSponge
SC to claim cartilage regeneration capability. Over the past
few months, approximately 15 patients thus far have undergone knee, foot or
ankle surgery for the purposes of the trial to make such claims. We plan
to have 200 patients in the trial by year end. Thus far, the first
patients were operated on in early 2010 and, in all cases, no adverse events
were reported. We are 5 to 7 months away from reaching an anecdotal
threshold at which point we hope that our findings can be presented to the
sports medicine and orthopedic repair community.
25
Medical
Device Products
Our
medical devices division researches, tests and develops coatings for medical
devices, particularly antimicrobial-based coatings. This division
produces and distributes OsteoSelect® DBM putty, an osteoinductive product used
by surgeons as a bone void filler in the extremities and
pelvis.
OsteoSelect®
DBM putty is engineered with the surgeon in mind. With outstanding
handling characteristics, OsteoSelect® can be easily molded into any shape and
compressed into bony voids. Taking the design a step further, Bacterin has
validated a low-dose, low-temperature gamma sterilization process to provide
maximum osteoinductive potential while still affording device level sterility.
Every production batch of OsteoSelect® is tested for its bone growth
characteristics allowing us to make that unique marketing
claim.
Our
medical devices division also develops custom surgical instrument kits for use
with allografts processed by our biologics division. These kits offer
state-of-the-art instrumentation that is designed based upon the needs and
inputs of surgeons who desire to use the most minimally invasive techniques. The
instrumentation is intended to be an optimal delivery system for the proper
placement of our proprietary allografts. Objectives of allograft use include
pain relief, aid in the regeneration of tissue, and to provide a scaffold for
bone fusion in spinal and sports medicine procedures. We currently sell a
surgical drain series called ViaTM, which is used to drain exudate from a
surgical site. Building upon the ViaTM platform, Bacterin plans on
releasing a second generation product called the Elutia® surgical drains which
will be performance enhanced via an antimicrobial coating to help reduce the
incidence of surgical site infection.
Our
wound drain product is gaining attention at the VA Hospitals. During
August 2010, we received notice that the Brook Army Medical Hospital in Texas, a
level 1 trauma facility, will begin using our wound drain product system wide.
This hospital currently reports that over fifty percent (50%) of post operative
infections occur due to an uncoated wound drain that it is currently
using. We are hopeful that over the next several months, our wound drain
product will be distributed throughout the VA Hospital system. Our wound
drain products sell into hospitals for $40 and cost us approximately $6 to
produce.
On
August 10, 2010, we announced that the FDA has cleared RyMed Technologies,
Inc.’s InVision-Plus® CS™ needleless IV connector for commercialization.
In a joint development project between RyMed and our company, the InVision-Plus
CS™ is treated with our patented antimicrobial technology. The InVision-Plus CS™
is the only needleless IV connector to offer the combined antibacterial
protection of chlorhexidine and silver. The device is designed to reduce
potentially deadly, catheter-related bloodstream infections. We have not
generated any revenues through the collaboration through September 30, 2010 but
have received an initial order for the InVision-Plus CS™. We anticipate
full production to begin during the fourth quarter of 2010. We
will receive a fixed price for each InVision-Plus CM unit sold by RyMed on
all devices treated for RyMed.
Technology
and Intellectual Property
Patents
Our
patent efforts have been, and will continue to be, primarily focused in two key
areas:
|
|
·
|
The
delivery of bioactive agents impregnated into or onto metals, polymers or
tissues which, when activated by bodily fluids, release the agent into the
surrounding environment; and
|
|
|
·
|
The
development of innovative and novel, engineered tissue implants or
constructs which employ acellular tissue and processes, and enhanced
demineralized bone matrix products.
|
26
The
following table summarizes our current patent portfolio, including patents
covering technology licensed by us for use or inclusion in certain of our
products:
|
|
First
|
Serial
or
|
Date
Filed
|
|
||||||
|
Title
|
Business
Purpose
|
Inventor
|
Patent
Number
|
or
Granted
|
Status | |||||
|
1.
Pending U.S. Applications
|
||||||||||
|
MEDICAL
DEVICE INCLUDING A BIOACTIVE IN A NON-IONIC AND AN IONIC FORM AND METHODS
OF PREPARATION THEREOF
|
This
application arose out of a now defunct project. We retained rights as the
technology may prove useful in the future. The patent describes the
modification of elution profiles via active agent equilibration; it is
potentially applicable to many coated products.
|
Mike
Johnson
|
11/864,360
|
9/28/2007
|
Undergoing
further examination
|
|||||
|
ANTIMICROBIAL
COATING FOR INHIBITION OF BACTERIAL ADHESION AND BIOFILM FORMATION
®
|
This
application relates to the coating used for the Elutia® wound drain and
for the Bard BioBloc coating on their HemoStar hemodialysis catheter. The
efficacy period can be varied according to the desired outcome; the
coating has shown in vitro efficacy for between 7 and 21
days.
|
Guy
Cook
|
10/891,885
|
7/15/2004
|
Non-final
Office Action mailed 9/15/09; response submitted
12/15/09
|
|||||
|
PROCESS
FOR DEMINERALIZATION OF BONE MATRIX WITH PRESERVATION OF NATURAL GROWTH
FACTORS
|
This
application is intended to protect OsteoSponge®, a core product produced
by our Biologics division. OsteoSponge® is a novel form of
demineralized bone matrix which provides a natural scaffold for cellular
growth and exposes bone growth inducing proteins to the healing
environment.
|
Nancy
J. Shelby
|
12/130,384
|
5/30/2008
|
First
examination: November 2010 (estimated)
|
|||||
|
2.
Pending Foreign Applications
|
||||||||||
|
MEDICAL
DEVICE INCLUDING A BIOACTIVE IN A NON-IONIC AND AN IONIC FORM AND
METHODS OF PREPARATION THEREOF
|
This
application arose out of a now defunct project. We retained rights as the
technology may prove useful in the future. The patent describes the
modification of elution profiles via active agent equilibration and is
potentially applicable to many coated products.
|
Mike
Johnson
|
PCT/US2007/
079924
|
9/28/2007
|
Preliminary
Report on Patentability generated 3/13/09
|
|||||
|
ANTIMICROBIAL
COATING FOR INHIBITION OF BACTERIAL ADHESION AND BIOFILM
FORMATION
|
|
This
application relates to the coating used for the Elutia® wound drain and
for the Bard BioBloc coating on their HemoStar hemodialysis catheter. The
efficacy period can be varied according to the desired outcome; the
coating has shown in vitro efficacy for between 7 and 21
days.
|
|
Guy
Cook
|
|
PCT/US2005/
015162
|
|
4/28/2005
|
|
Entered
National Phase in: Europe, Australia, Canada,
Japan
|
27
|
PROCESS
FOR DEMINERALIZATION OF BONE MATRIX WITH PRESERVATION OF NATURAL GROWTH
FACTORS
|
This
application is intended to protect OsteoSponge®, a core product produced
by our Biologics division. OsteoSponge® is a novel form of
demineralized bone matrix which provides a natural scaffold for cellular
growth and exposes bone growth inducing proteins to the healing
environment.
|
Nancy
J. Shelby
|
PCT/US2008/
006942
|
6/2/2008
|
Entered
national Phase in: Europe, Canada, Mexico, Korea
|
|||||
|
AN
ELASTOMERIC ARTICLE INCORPORATED WITH A BROAD SPECTRUM
ANTIMICROBIAL
|
|
This
application was generated as a means of protecting the technology used for
a forthcoming product. We have observed long term (over 30 days) in vitro
efficacy with this technology.
|
|
Benjamin
P. Luchsinger
|
|
PCT/US2009/
005103
|
|
9/11/2009
|
|
Awaiting
International Search Report (this application will enter the US through
PCT)
|
|
3.
In-Licensed Intellectual Property
|
||||||||||
|
SWOLLEN
DEMINERALIZED BONE PARTICLES, FLOWABLE OSTEOGENIC COMPOSITION CONTAINING
SAME AND USE OF THE COMPOSITION IN THE REPAIR OF OSSEOUS
DEFECTS
|
This
patent protects OsteoSelect®, Bacterin’s DBM putty. OsteoSelect® has
exceptional handling characteristics and can easily be molded into any
shape and compressed into bony voids. Bacterin employs a low-dose,
low-temperature sterilization process to provide maximum osteoinductive
potential while maintaining device-level sterility.
|
Simon
Bogdansky
|
5,284,655
|
2/8/1994
|
Granted
- US Expires April 2011
|
|||||
|
FLOWABLE
DEMINERALIZED BONE POWDER COMPOSITION AND ITS USE IN BONE
REPAIR
|
|
This
patent protects OsteoSelect®, Bacterin’s DBM putty. OsteoSelect® has
exceptional handling characteristics and can easily be molded into
any shape and compressed into bony voids. Bacterin employs a
low-dose, low-temperature sterilization process to provide maximum
osteoinductive potential while maintaining device-level
sterility.
|
|
Robert
K. O’Leary
|
|
5,290,558
|
|
3/1/1994
|
|
Granted
- US Expires April
2011
|
28
We
believe our patent filings and patent position will facilitate growth and
enhance our proprietary core competencies, enabling us to protect and expand
revenue growth and stockholder value in the future. We expect that
additional patent applications will be filed and prosecuted as inventions are
discovered, technological improvements and processes are developed and specific
applications are identified. The status of individual patents and patent
jurisdiction is maintained in our internal records. We anticipate,
however, that there may be instances in which we enter into collaborative
research and development agreements with medical device companies under such
terms that the medical device company may or will retain a right to make future
patent filings arising from such cooperative development agreement. In such
instances, we will attempt to protect our overall patent use rights by
agreements which limit the right of the collaborative party to an exclusive
right only as it pertains to the field of use, as defined by the applicable
project’s scope of work. In this manner, we anticipate that we will receive
future benefit and use of such intellectual property outside the field of use,
as defined by any given scope of work. There can be no assurance that we
will be able to obtain final approval of any patents.
Trademarks
We
believe in the superiority of our technology and products. As a result, we
have invested in the development and protection of the names of our products in
order to drive consumer awareness and loyalty to the brand. To protect
this investment, we have registered, and continue to seek registration, of these
trademarks and continuously monitor and aggressively pursue users of names and
marks that potentially infringe upon our registered trademarks. We
currently own registered trademarks to the following brand names of certain of
our products: OsteoSponge®, OsteoWrap®, OsteoLock®, BacFast®,
OsteoSelect®, and Elutia® and have recently applied to register hMatrix™.
We recently sued Allosource for infringing our OsteoSponge® trademark by
marketing their competitive allograft product under the name “AlloSponge.”
See “Business - Legal Proceedings.”
Trade
Secrets
To
safeguard our proprietary knowledge and technology, we rely heavily upon trade
secret protection and non-disclosure/confidentiality agreements with employees,
consultants and third party collaboration partners with access to our
confidential information. There can be no assurance, however, that these
measures will adequately protect against the unauthorized disclosure or use of
confidential information, or that third parties will not be able to
independently develop similar technology. Additionally, there can be no
assurance that any agreements concerning confidentiality and non-disclosure will
not be breached, or if breached, that we will have an adequate remedy to protect
us against losses. Although we believe our proprietary technology has value,
because of rapid technological changes in the medical industry, we also believe
that proprietary protection is of less significance than factors such as the
intrinsic knowledge and experience of our management, advisory board,
consultants and personnel and their ability to identify unmet market needs and
to create, invent, develop and market innovative and differentiated new medical
devices.
Donor
Procurement
We
implemented our biologics division, among other reasons, to secure and process
our own tissue, which posed initial challenges and associated operational
disadvantages. At the time we embarked on this plan, we lacked donor
sources, manufacturing capabilities, and distribution channels. We also
lacked the vertical integration of an in-house tissue processing laboratory and
were thus constrained by sub-contracting tissue processing to outside
processors. These same sub-contractors are essentially suppliers of their own
tissue to the marketplace and are hence ultimately our competitors. We
have since successfully secured rights of first refusal of human tissue with
multiple recovery agencies. Concurrent with this initiative, we also sought to
secure future allograft production capability by constructing our own tissue
processing facility. We have now begun efforts to expand our network for
donor tissue in anticipation of increased production and believe that this
effort, along with our current network of procurement agencies, will be
sufficient to supply enough donors to meet our forecasted revenue volume through
2011 and beyond. We expect to be able to continue to build the network for
donor tissue as the needs arise.
29
Sales
and Marketing
We are
committed to building our direct sales channel into the primary method of
distributing our products. We have promoted three regional vice presidents to
the role of executive vice-president to lead the North, South and West thirds of
the United States and established 13 regions with a regional vice
president in charge of all activities within the region. We have hired and
trained 52 sales representatives toward a near term goal of establishing four to
five sales representatives in each region. While we expect that the cost of this
initiative will likely result in a net loss from operations in 2010, it is our
expectation that this investment in the direct sales network will lead to higher
revenue in 2010 and beyond, as well as profitability in 2011 and beyond.
No assurance can be given that these efforts will be
successful.
After 7
months of testing by Broadlane, Inc., the largest operator of healthcare supply
chains in the United States, and its clients, we were accepted in May 2010 as an
authorized vendor in its group purchasing program, which enables Broadlane’s
customers to purchase products from us. Our
contract with Broadlane has a three year term and may be terminated by either
party for breach of contract and Broadlane may terminate the agreement if
Bacterin or any of Bacterin’s key personnel is convicted of an offense related
to health care or listed by a federal agency as being debarred, excluded, or
otherwise in eligible for federal program participation. Broadlane
manages approximately $10 billion in contract volume with over 6,000 medical
facilities and 33,000 physician practices in its network. In June 2010,
Broadlane issued a newsletter to its entire network showcasing and introducing
Bacterin to all of its hospitals, independent delivery networks, ambulatory care
and surgery centers. As a result of this contract, our sales force can now
proceed to sell our products to this expansive network of doctors. We have
already received our first order from Tenet Hospitals, which runs over 40
hospitals, and Advocates in Illinois, which manages approximately 25
hospitals.
We also
market our products through independent distributors who receive a discount off
of our list price and then sell to their customer base. Because we have
experienced a decline in revenue from this sales channel, we expect it will
continue to represent a smaller portion of our overall revenue as our direct
distribution channel grows.
Within
the medical devices division, our marketing strategy is to develop product
development alliances with multinational medical device companies at the same
time as we develop our own new products in fields or applications outside of the
rights of our collaborative partners. We have implemented this strategy
and are pursuing contract opportunities with other medical device
companies.
Although
we are in the process of discontinuing it, we also have a physician compensation
program that compensates physicians as employees for referring our products to
other surgeons and medical care providers with whom they do not have a
disqualifying “financial relationship” under applicable laws. Physician
employees, at our direction, refer us to other physicians and are paid a
commission on all revenue generated by the referred physicians’ use of our
products. We have established procedures that are designed to prevent
abuses involving these physician employees and others with whom they have
financial relationships and been advised by counsel that this program complies
with the Stark laws and applicable anti-kickback regulations.
Growth
Strategy
After
multiple years of product development, we believe that our technology has been
largely market tested, and since 2009, we have been transitioning our focus to
appropriately market and distribute our products. We have spent months
preparing the business to capitalize on our core markets, as well as new market
opportunities. In particular, we have diversified our supply of donor
tissue, expanded our production capabilities, developed the infrastructure of
what we believe will grow into a formidable sales force, refined the message to
our market and started gathering proof points on how to scale our revenue in
these markets.
We
began implementing a direct sales network in July 2009. As of December 31,
2009, we had 7 regional vice presidents and 21 sales representatives. Currently,
we have one national sales manager, 3 executive vice presidents, 12 regional
vice presidents, and 28 sales representatives. We have met our goal of
growing this sales force to 3 executive vice presidents, 13-15 regional vice
presidents, and 52 sales representatives. We strive to hire sales
representatives with deep industry experience and pre-existing contacts.
In addition, we plan to utilize small independent sales representatives with
entrenched physician relationships. We expect revenue to move towards 50%
by employed sales representatives and 50% by independent sales
representatives.
We are
working on developing and implementing a high-level, national effort to present
our products as a value proposition to hospital chains, insurers and other
purchasing organizations. To this end, we have already entered into
agreements with Banner Hospitals, the Hospital for Special Surgery, Broadlane (a
purchasing organization for 1,200 hospitals and other medical facilities), and
Access Mediquip (a national purchasing organization for ambulatory surgery
centers). These agreements are paving the way for our sales
representatives to call on physicians, as the hospital process has already been
approved.
30
Competition
Because
the orthopedic biomaterials market overlaps with a number of medical fields -
spine, trauma, joint reconstruction, sports medicine, pharmaceuticals and
biotechnology - fragmentation is to be expected. However, there is one clear
leader in the market: Medtronic held 27.1% of the market in 2009.
Medtronic’s lead is based on the strength of their Infuse® growth factor
product. However, the growth potential of this product has been affected by some
negative media attention regarding off-label usage and adverse events with
specific indications.
Beyond
Medtronic, the orthopedic biomaterials market is comprised of a great number of
players, each offering a multitude of products. It is expected that several new
products will emerge over the coming years. These assumptions are based on the
advance of technology and the clinical promise of regenerative therapies such as
stem cells and bone marrow concentration.
Specific
competitors in the orthopedic biomaterials markets are: Medtronic , DePuy,
Synthes, Arthrex, Smith & Nephew, Nuvasive, OrthoFix, Biomet,
Osteotech, Orthovita, MTF, Stryker, RTI, AlloSource, Lifenet Health, Integra,
ConMed/Linvatec, Wright, Exactech, ArthroCare, Harvest, and Arteriocyte. (Idata
Research Inc. 2010, U.S. Market for Orthopedic Biomaterials).
Government
Regulation
We
produce human allografts that are regulated and comply with all the criteria
under both Sections 361 and 351 of the Public Health Service Act.
Compliance is determined by the FDA during the inspection of our production
facility. To date, we have successfully completed all of our FDA
inspections. We are registered with the FDA as a manufacturer of human
cellular and tissue products (HCT/Ps) as well as medical devices. We are
an accredited member of the American Association of Tissue Banks in good
standing. We meet all licensing requirements for the distribution of
HCT/Ps in the States of Florida, California, Maryland and New York. We
cannot predict the impact of future regulations on either us or our
customers.
Human
Tissue
Our human
tissue products, which are sold through our biologics division, have been
regulated by the FDA since 1993. In May 2005, three new, comprehensive
regulations went into effect that address manufacturing activities associated
with HCT/Ps. The first requires that companies that produce and distribute
HCT/Ps register with the FDA. The second provides criteria that must be met for
donors to be eligible to donate tissues and is referred to as the “Donor
Eligibility” rule. The third rule governs the processing and distribution of the
tissues and is often referred to as the “Current Good Tissue Practices” rule.
Together, they are designed to ensure that sound, high quality practices are
followed to reduce the risk of tissue contamination and of communicable disease
transmission to recipients. Our HCT/P products such as OsteoSponge® are
regulated by the Center for Biologics Evaluation and Research. Our
OsteoSponge® and OsteoWrap® products are regulated as a HCT/P as determined by
the Tissue Reference Group and regulated solely under Section 361 of the Public
Health Service Act and 21 CFR Part 1271.
Medical
Devices
Because
our medical devices incorporate coating technologies, they are subject to
regulation by the FDA. These medical devices require the approval of the
FDA prior to sale within the United States. The manufacturers and
licensees who use our coating technology in their medical devices will have the
burden of demonstrating the safety and efficacy of the medical devices, a burden
which we will assist such manufacturers and licensees in demonstrating to the
extent our coating technologies are at issue. Sales of medical devices
using our coating technology in the European Union will require the CE Mark
certification and sales of such medical devices in Canada will require approval
from the Medical Device Bureau of Canada.
Within
the United States, the FDA process requires that a pre-market notification, or a
510(k) Submission, be made to the FDA to demonstrate that the medical device is
safe and effective and is substantially equivalent to a legally marketed device
that is not subject to pre-market approval. Applicants must compare the
device to one or more similar devices that are commercially available in the
U.S. (known as the “predicate device”), and make and support a claim of
substantial equivalency to such predicate device. Support for such claims
must include descriptive data and, when necessary, performance data. In
some cases, data from clinical trials must also be submitted in support of a
510(k) Submission. The FDA must then issue an order finding substantial
equivalency before the devices may be commercially distributed in the U.S.
This process can take anywhere from three months to two or three years, and can
be extremely expensive. The Center for Devices and Radiological Health
regulates medical devices, including our OsteoSelect® DBM putty.
31
ISO
Certification
In March
2010, we announced that we had received certification from the International
Organization for Standardization, or ISO, for fulfilling the requirements of ISO
13485:2003. The Geneva based International Organization for
Standardization is the world’s largest developer and publisher of International
Standards. ISO 13485:2003 specifies requirements for a quality management
system. To obtain ISO 13485:2003 certification, an organization must demonstrate
its ability to provide medical devices that consistently meet applicable
customer and regulatory requirements. The primary objective of ISO 13485:2003 is
to facilitate harmonized medical device regulatory requirements for quality
management systems. All requirements of ISO 13485:2003 are specific to
organizations providing medical devices, regardless of the type or size of the
organization. The certification assures our customers and partners of our
commitment to quality, and in the quality of our innovative products and
processes. Additionally, we believe that the ISO 13485:2003 certification
offers new markets and business opportunities for our products in the global
marketplace.
Employees
As of
November 23, 2010, we had 115 full-time employees, of whom 36 were in
product development, 67 in sales and marketing, and 12 in
administrative. In addition, we make use of a varying number of temporary
employees and outsourced services to manage normal business cycles. None
of these employees is covered by a collective bargaining agreement and our
management considers relations with employees and services partners to be
good.
Facilities
We lease
approximately 16,000 square feet in a building located at 600 Cruiser Lane,
Belgrade, Montana 59714. In addition to our corporate headquarters, this
space also includes a clean room, fully equipped diagnostics laboratory,
microbiology laboratory and testing laboratory. We lease the building
under a ten-year operating lease which runs through October 2013 and has a
monthly lease payment of $10,000. The lease also has a ten-year renewal
option.
In
November 2007, we purchased a 14,000 square foot facility at 664 Cruiser Lane,
Belgrade, Montana 59714. This building is an FDA registered facility with
5 “Class 1,000” clean rooms and currently houses our medical device coatings
operations. The validated manufacturing areas and laboratory facilities
located in this facility provide processing and testing space to manufacture
medical devices pursuant to FDA, GMP regulations, and ISO 13485:2003. We
expect this facility to meet all of our regulatory requirements for the
manufacture of future Bacterin-label products, including our surgical drains
(ViaTM and Elutia®), as well as production requirements for coated medical
devices from our medical device partners. The facility is registered with
the FDA for device design, device manufacture, and contract manufacture, as well
as for screening, testing, storing, and distributing biological
tissues.
We also
lease office space in Englewood, Colorado, where certain of our administrative
and sales functions are housed.
Legal
Proceedings
In
November 2009, we were served a complaint in connection with the following court
action filed in Utah state court: Yanaki and Activatek v. Cook and
Bacterin International, Inc., case number 090912772. This action involves
the plaintiff’s attempt to sell shares of our common stock to a third party in a
private sale and claims, as its primary allegation, tortuous interference with
the sales contract. Plaintiff
seeks $300,000, 358,904 shares of our common stock, attorneys fees and
costs. We
believe this lawsuit is without merit and we are conducting a vigorous
defense.
32
We
initiated an arbitration proceeding in Bozeman, Montana to collect a large
account receivable from OrthoPro, LLC under a Private Label Distribution
Agreement. OrthoPro has made a counterclaim in that arbitration which, in
our judgment, is without merit. We plan to vigorously pursue the recovery
of all amounts owed and to defend against the counterclaim.
As a
result of our policy to aggressively defend our intellectual property rights, we
recently filed and served a complaint in a lawsuit styled Bacterin
International, Inc. v. Allosource in the Federal District Court for the District
of Colorado. Our complaint is based on Allosource’s infringement of our
OsteoSponge® trademark through Allosource’s use of the name “AlloSponge.”
We are
seeking an injunction against the continuing use of the ALLOSPONGE mark, plus
unspecified commercial monetary damages. Allosource
has generally denied all allegations and has filed a counterclaim to cancel the
federal registration for OsteoSponge®. We believe the counterclaim has no
merit and we intend to aggressively pursue our infringement
claims.
We have
been served a complaint in connection with Civil Action No.
8:10-cv-01589-VMC-EAJ filed by minSURG International, Inc., or minSURG, in the
United States District Court in the Middle District of Florida. In this
action, minSURG alleges infringement of U.S. Patent No. 7,708,761, entitled
“Spinal Plug for a Minimally Invasive Facet Joint Fusion System” by many
companies in our industry. minSURG
seeks an injunction against alleged patent infringement plus unspecified
commercial monetary damages. We have
entered into a joint defense agreement with many of the other defendants in this
action and plan a vigorous defense. Regardless of the outcome of this
case, we do not anticipate this notice to have a material impact on our overall
sales or operating results.
On
September 20, 2010, we filed a complaint in the United States District Court for
the District of Colorado (Civil Action No. 10-CV-02294-RPM-KMT) against Advanced
Biologics, Inc. and Advanced Biologics, LLC, or Advanced, alleging infringing
use of the Company’s “OsteoSponge” trademark and sent a demand letter to
Advanced, demanding Advanced cease any and all use of its "OsteoAMP Sponge"
trademark or any other "OSTEO" and/or "SPONGE" formative mark in connection with
human allograft tissue, demineralized bone matrix, and cancellous bone
products. We are currently negotiating with Advanced and expect to reach
an amicable resolution without resorting to litigation.
33
MANAGEMENT
Executive
Officers and Directors
The
names, ages and positions of our executive officers and directors are as
follows:
|
Name
|
Age
|
Position
|
||
|
Guy
Cook
|
46
|
Chairman
of the Board, Chief Executive Officer, President and Chief Scientific
Officer
|
||
|
Mitchell
T. Godfrey
|
65
|
Director
|
||
|
Kent
Swanson
|
66
|
Director
|
||
|
Michael
Lopach
|
62
|
Director
|
||
|
Jon
Wickwire
|
66
|
Director
|
||
|
John
P. Gandolfo
|
50
|
Chief
Financial Officer
|
||
|
Jesus
Hernandez
|
54
|
Vice
President of Biologics
|
||
|
Darrel
Holmes
|
|
57
|
|
Vice
President of Medical
Devices
|
The
principal occupations for the past five years (and, in some instances, for prior
years) of each of our executive officers and directors are as
follows.
Guy Cook, Chairman of the Board,
Chief Executive Officer, President and Chief Scientific Officer, is
considered an international expert in biofilm science and its application. He is
widely published and has been invited to speak at many prominent biofilm
conferences, including the “Anti-Infective Materials” Seminar in Tokyo and the
FDA-CDRH Antimicrobial Device Efficacy Testing Seminar. Mr. Cook started his
career as a product specialist in the Image Analysis Department for Laboratory
Equipment Company in Chicago. He later became President of Delta Resources in
Crystal Lake, Illinois, which specialized in developing customized image
analysis solutions for the academic community. In 1996, he moved to Montana and
worked as a Confocal Microscopist for the Center for Biofilm Engineering at the
Montana State University where he developed several proprietary testing models
for the medical device industry. Mr. Cook attended the University of Indiana and
received Bachelor of Science degrees in Finance and Economics.
Mitchell T. Godfrey,
Director, has been involved over the past 25 years in a number of
private enterprises, including consulting for and participation in firms in the
manufacturing, medical devices, nuclear, service and animal health
industries. Mr. Godfrey graduated from the University of Utah in 1968 with
Bachelor of Science degrees in psychology and mathematics. He served as a
Lieutenant in the U.S. Navy for a period of four years in the 1960s. Upon
his return from overseas duty, he served as a director of the Utah Vietnam Agent
Orange Program. He currently is the Chairman of the Montana based Crow Creek
Falls Conservation Group and has been actively involved in many other
organizations. Mr. Godfrey joined us in October 2003 as our Chief
Financial Officer until December 2007, when his primary responsibility was
changed to investor relations. Mr. Godfrey currently serves as a
consultant.
Kent Swanson, Director, was
with Accenture for over 32 years, retiring from the firm in 2001 as a Senior
Partner. He held global leadership and management positions in a wide
range of industries and geographies. From 2001 to 2008, he was the Board
Chair of ALN Medical Management; providing outsourced services for clinic-based
physician practices. Also from 2001 to 2008, he was Board Chair for Boys
Hope Girls Hope of Colorado, a charitable organization providing a home and
scholarship education for disadvantaged children with significant capabilities
and promise. From 2002 to 2009, he was a Board member, Audit Committee
member and Compensation Committee Chair for MPC Computers. Mr. Swanson
graduated with distinction from the University of Minnesota earning an M.S. in
Business and received an M.B.A. from the University of Chicago in
1969.
Michael Lopach, Director, is a
certified public accountant with over 30 years of accounting
experience. Mr. Lopach spent 27 years of his career with Galusha,
Higgens, Galusha & Co., the largest privately held accounting firm in
Montana and northern Idaho, where he served as president and CEO. In
1999, Mr. Lopach founded Lopach & Carparelli PC, an accounting firm that
focuses on medical practitioners. Mr. Lopach received his MBA from
the University of Notre Dame. Mr. Lopach will serve as chairman of
the Board’s Audit Committee.
34
Jon Wickwire, Director, is an
attorney and founding shareholder of Wickwire Gavin, P.C., a national
construction law firm which merged with Akerman Senterfitt, one of the top 100
law firms in the United States. Mr. Wickwire served as lead counsel
on major infrastructure litigation and alternative dispute resolutions, both
domestically and internationally, throughout his 35 year career, and was the
founding fellow of the American College of Construction Lawyers. Mr.
Wickwire also served as the founding chairman of the College of Scheduling, an
organization dedicated to advancing the techniques, practice and profession of
project scheduling, and has authored several books and articles on construction
and public contract law, including Construction
Management: Law and Practice and The Construction Subcontracting
Manual: Practice Guide with Forms. Mr. Wickwire is
a graduate of the University of Maryland and Georgetown University Law
Center. Mr. Wickwire has been a shareholder of the Company for
approximately 5 years and has participated is several rounds of
financing. Mr. Wickwire will serve as chairman of the Corporate
Governance and Nominating Committees.
John P. Gandolfo, Chief Financial
Officer, joined Bacterin as its interim Chief Financial Officer on a
part-time basis, effective June 4, 2010, and filled this position full time
commencing on July 6, 2010. Mr. Gandolfo has 25 years of experience as
chief financial officer of rapidly growing private and publicly held companies
with a primary focus in the life sciences, healthcare and medical device
areas. Mr. Gandolfo has had direct responsibility over capital raising,
including four public offerings, financial management, mergers and acquisition
transactions and SEC reporting throughout his professional career. Prior
to joining Bacterin, Mr. Gandolfo served as the Chief Financial Officer for
Progenitor Cell Therapy LLC, a leading manufacturer of stem cell therapies.
Prior to joining Progenitor, Mr. Gandolfo served as the Chief Financial Officer
for Power Medical Interventions, Inc., a publicly held developer and
manufacturer of computerized surgical stapling and cutter systems, from January
2007 to January 2009. Prior to joining PMI, Mr. Gandolfo was the Chief
Financial Officer of Bioject Medical Technologies, Inc., a publicly held
supplier of needle-free drug delivery systems to the pharmaceutical and
biotechnology industries, from September 2001 to May 2006, and served on the
Bioject’s Board of Directors from September 2006 through May 2007. Prior to
joining Bioject, Mr. Gandolfo was the Chief Financial Officer of Capital Access
Network, Inc., a privately held specialty finance company, from 2000 through
September 2001, and Xceed, Inc., a publicly held Internet consulting firm, from
1999 to 2000. From 1994 to 1999, Mr. Gandolfo was Chief Financial Officer and
Chief Operating Officer of Impath, Inc., a publicly held, cancer-focused
healthcare information company. From 1987 through 1994, he was Chief Financial
Officer of Medical Resources, Inc., a publicly held manager of diagnostic
imaging centers throughout the United States. A graduate of Rutgers
University, Mr. Gandolfo is a certified public accountant (inactive status) who
began his professional career at Price Waterhouse.
Jesus Hernandez, Vice President of
Biologics, began his career as the Director of the Organ and Tissue Bank
at University of California, Irvine Medical Center. He has over 20 years of
organ and tissue banking experience, including having served as Chief Operating
Officer and Chief Executive Officer for two national tissue banks. Mr.
Hernandez served as the Chief Operating Officer of Bone Bank Allografts from
November 1997 to April 2005. He has been an advisor for various committees
including the United Network for Organ Sharing, Association of Organ Procurement
Organizations, North American Transplant Coordinators Organization, American
Association of Tissue Banks and served as a board member of the World Children’s
Transplant Fund. Mr. Hernandez graduated from the University of California,
Irvine. Mr. Hernandez has served in his current position since April
2005.
Darrel Holmes, Vice President of
Medical Devices, joined Bacterin in 2003 as Director of Operations. Mr.
Holmes started his career as chemist and later Director of Operations for ICL
Scientific. He later worked for Hycor Medical as the Director of Manufacturing,
and then as Director of Operations at Stratagene Cloning Systems. Mr. Holmes
moved to Montana and became the President of Big Spring Water in Bozeman. He
holds several certificates including Environmental Inspector with the
Environmental Assessment Association and is a Hazardous Materials Specialist.
Mr. Holmes attended California State University at Long Beach and graduated with
a Bachelor’s Degree in Biology. He has over 25 years of Technical Operations
experience in the medical device and diagnostics industries.
35
Scientific
Advisory Board
Our
Scientific Advisory Board assists us with issues relating to the clinical
development and exploitation of our coating and biologic technologies. As
our needs evolve, members with required areas of interest and expertise are
added. The members of our Scientific Advisory Board are compensated with stock
options and shares of common stock under our equity incentive plan.
Steven Scott MD, is currently
the Chairman of our Scientific Advisory Board and a member of the American
Academy of Orthopaedic Surgeons, the Musculoskeletal Tumor Society and the
Pediatric Society Orthopaedic of North America. Dr. Scott maintains an
active orthopaedic practice in Salt Lake City and has special expertise in the
use of Ilizarov External Fixation, pediatric orthopaedics, bone graft
technology, and orthopedic oncology. Dr. Scott has authored many
scientific publications, has presented at numerous national conferences and has
a patent pending. He received his BA from Linfield College summa cum laude
and attended medical school at the University of Colorado. He completed
his orthopaedic training at the University of Utah and the Mayo Clinic; he holds
a clinical appointment within the Department of Orthopaedics at University of
Utah and received an M.B.A. through the University of Utah.
Board
Composition and Terms of Office
The
composition of our board of directors, and any future audit committee,
compensation committee, and nominations and governance committee, will be
subject to the corporate governance provisions of our primary trading market,
including rules relating to the independence of directors. All directors
hold office until the next annual meeting of stockholders and the election and
qualification of their successors. Officers are elected annually by the
board of directors and serve at the discretion of the board.
Board
Committees
Subsequent
to the consummation of the Reverse Merger, we recently established an audit
committee, compensation committee and nominations and governance committee, in
compliance with established corporate governance requirements.
Audit Committee.
The
purpose of the Audit Committee is to assist the oversight of our Board of
Directors of the integrity of the financial statements of our company, our
company’s compliance with legal and regulatory matters, the independent
auditor’s qualifications and independence, and the performance of our company’s
independent auditor and internal audit function. The primary responsibilities of
the Audit Committee are set forth in its charter and include various matters
with respect to the oversight of our company’s accounting and financial
reporting process and audits of the financial statements of our company. The
Audit Committee also selects the independent auditor to conduct the annual audit
of the financial statements of our company; reviews the proposed scope of such
audit; reviews accounting and financial controls of our company with the
independent auditor and our financial accounting staff; and reviews and approves
transactions between us and our directors, officers, and their
affiliates.
The
Audit Committee currently consists of Messrs. Lopach, Swanson and Wickwire,
each an independent director of our company under Nasdaq listing standards as
well as under rules adopted by the SEC pursuant to the Sarbanes-Oxley Act of
2002. Mr. Lopach serves as the Chairman of the Audit Committee. The Board
of Directors has determined that Messrs. Lopach and Swanson (whose
backgrounds are detailed above) each qualify as an “audit committee financial
expert” in accordance with applicable rules and regulations of the
SEC.
36
Compensation
Committee.
Although
the Company formed a compensation committee subsequent to the consummation of
the Reverse Merger, due to the resignation of two of the directors who formerly
served on the compensation committee, there is only one remaining member. The
Company anticipates that it will re-establish the compensation committee at some
point in the near future, but at the present time, the duties of the
compensation committee are being carried out by the independent directors on our
board of directors.
Nominations and Governance
Committee.
The
purposes of the Nominations and Governance Committee include the selection or
recommendation to our Board of Directors of nominees to stand for election as
directors at each election of directors, the oversight of the selection and
composition of committees of our Board of Directors, the oversight of the
evaluations of our Board of Directors and management, and the development and
recommendation to our Board of Directors of a set of corporate governance
principles applicable to our company. The Nominations and Governance Committee
currently consists of Messrs. Wickwire and Swanson, each of whom is an
independent director of our company under Nasdaq listing standards as well as
under rules adopted by the SEC pursuant to Sarbanes-Oxley. Mr. Wickwire
serves as the Chairman of the Nominations and Governance
Committee.
Nominations
to the Board of Directors
Our
directors take a critical role in guiding our strategic direction and overseeing
the management of our company. Board candidates are considered based upon
various criteria, such as their broad-based business and professional skills and
experiences, a global business and social perspective, concern for the long-term
interests of the stockholders, diversity, and personal integrity and
judgment.
In
addition, directors must have time available to devote to board activities and
to enhance their knowledge in the growing business. Accordingly, we seek
to attract and retain highly qualified directors who have sufficient time to
attend to their substantial duties and responsibilities.
Indebtedness
of Directors and Executive Officers
We have a
note receivable from Guy Cook, our Chairman, Chief Executive Officer and
President, in the principal amount of $72,178, which bears interest at the prime
rate of interest and is secured by certain shares of our common stock owned by
Mr. Cook. This note relates to a transaction involving our wholly-owned
subsidiary, Bacterin, prior to the Reverse Merger.
Family
Relationships
There are
no family relationships among our new directors and executive officers and any
former or proposed directors or executive officers.
Legal
Proceedings
As of the
date of this prospectus, there are no material proceedings pending or threatened
to which any of our directors, executive officers, affiliates or stockholders is
or would be a party adverse to us.
37
EXECUTIVE
COMPENSATION
The table
below summarizes the compensation earned for services rendered to Bacterin
International Holdings, Inc. f/ka/ K-Kitz, Inc. and Bacterin International, Inc.
in all capacities, for the fiscal years indicated, by its Chief Executive
Officer and two most highly-compensated officers other than the Chief Executive
Officer.
|
Name and Principal Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive
Plan
Compensation
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
|
All Other
Compensation
|
Total
|
|||||||||||||||||||||||||
|
Guy S. Cook(1)
|
2009
|
$ | 230,750 | $ | 40,000 |
(2)
|
$ | - | $ | - | $ | - | $ | - | $ | 34,897 |
(2)
|
$ | 305,647 | |||||||||||||||
|
Chairman
of the Board
|
2008
|
249,210 | - | - | - | - | 23,783 | 272,993 | ||||||||||||||||||||||||||
|
and
Chief Executive Officer
|
||||||||||||||||||||||||||||||||||
|
Jesus Hernandez(1)
|
2009
|
236,153 | - | - | - | - | - | 12,743 | 248,896 | |||||||||||||||||||||||||
|
VP -
Biologics
|
2008
|
197,308 | 27,500 | 66,983 | 236,791 | |||||||||||||||||||||||||||||
|
Darrel Holmes(1)
|
2009
|
100,000 | - | - | - | - | - | 15,744 | 115,744 | |||||||||||||||||||||||||
|
VP -
Medical Devices
|
2008
|
57,115 | - | - | - | - | - | 9,040 | 66,155 | |||||||||||||||||||||||||
|
Jennifer
Jarvis
|
2009
|
- | - | - | - | - | - | - | - | |||||||||||||||||||||||||
|
Former Director, Chief
Executive Officer, President and Chief Financial Officer(3)
|
2008
|
45,000 | - | - | - | - | - | - | 45,000 | |||||||||||||||||||||||||
_______________________
|
(1)
|
Each
of Mr. Cook, Mr. Hernandez and Mr. Holmes received this
compensation in connection with their service to Bacterin, our
wholly-owned subsidiary through which we now operate our
business.
|
|
(2)
|
Mr. Cook
received 50,000 shares of Bacterin common stock (or 25,000 shares or our
common stock as adjusted to reflect the ratio used to determine the number
of our shares issued to Bacterin stockholders in connection with the
Reverse Merger) and is entitled to $10,000, each as of December 31, 2009,
for his service on Bacterin’s board of directors for fiscal year 2009,
though payment of the $10,000 has been deferred indefinitely.
Although this consideration reflects Bacterin’s past board compensation
policy, it does not reflect our current board compensation policy, which
is discussed below.
|
|
(3)
|
Ms. Jarvis
resigned from her position as a director and our Chief Executive Officer,
President and Chief Financial Officer, effective June 30,
2010.
|
The
aggregate amount of benefits in each of the years indicated did not exceed the
lesser of $50,000 or 10% of the compensation of any named officer.
Employment
Agreements
We
intend to keep the current employment agreements between Bacterin, our wholly
owned subsidiary through which we now conduct our business, and Guy Cook, John
P. Gandolfo, Jesus Hernandez and Darrel Holmes. The employment agreements
are set forth as exhibits to the registration statement, of which this
prospectus is a part. The employment agreements require each of the
executives to perform such duties as are customarily performed by one holding
their positions, which are President and Chief Executive Officer, Chief
Financial Officer, Vice President - Biologics Division and Vice President -
Medical Devices Division, respectively. The employment agreements for each
of the above officers are for an indefinite term and provide that each of
Messrs. Cook, Gandolfo, Hernandez and Holmes receive a fixed annual base salary
during the term of the employment agreement. In addition, each executive
is entitled to (a) receive certain cash bonuses as set forth in their respective
employment agreements or as may be determined in the future by our compensation
committee of our board of directors (or the entire board until such committee
has been established) and (b) participate in our equity incentive
plan.
38
The
employment agreements are essentially terminable at will by reference to the
termination procedures set forth in Bacterin’s employee handbook but also
provide for termination of an executive’s employment without any further
obligation of our company upon the disability of the executive for a period of
30 days or more during any calendar year.
The
employment agreements also contain covenants (a) restricting the executive from
engaging in any activity competitive with our business during the term of the
employment agreement, (b) prohibiting the executive from disclosing confidential
information regarding our company, and (c) requiring that all intellectual
property developed by the executive and relating to our business constitutes our
sole and exclusive property.
The
officers also entered into lock-up agreements restricting the sale of their
shares of our common stock until July 7, 2011.
Bacterin
International Equity Incentive Plan
Prior to
the consummation of the Reverse Merger, we adopted and ratified the Bacterin
International Equity Incentive Plan. The following is a summary of the
material terms of that plan.
The
purpose of the incentive compensation plan is to enable us to attract, retain
and motivate key employees, directors and, on occasion, independent consultants,
by providing them with stock options and restricted stock grants. Stock options
granted under the incentive compensation plan may be either incentive stock
options to employees, as defined in Section 422A of the Internal Revenue Code of
1986, or non-qualified stock options. The plan is currently administered
by our board of directors until we re-establish our compensation
committee. The administrator of the plan has the power to determine the
terms of any stock options granted under the incentive plan, including the
exercise price, the number of shares subject to the stock option and conditions
of exercise. Stock options granted under the incentive plan are generally
not transferable, vest in installments and are exercisable during the lifetime
of the optionee only by such optionee. The exercise price of all incentive
stock options granted under the incentive plan must be at least equal to the
fair market value of the shares of common stock on the date of the grant.
The specific terms of each stock option grant will be reflected in a written
stock option agreement.
Also, in
connection with the Reverse Merger, we are substituting each equity award
granted under the Bacterin International, Inc. 2004 Stock Incentive Plan, as
most recently amended effective April 1, 2009, with a substantially similar
equity award granted under our new plan; provided, that the number of shares
which may be purchased under such substitute options and the exercise prices
therefor reflect proportional adjustments required to be made to account for the
ratio used in determining the number of shares issuable to Bacterin stockholders
in connection with the Reverse Merger.
There
are 6,000,000 shares of our common stock authorized to be issued under the plan,
representing approximately 16.5% of our outstanding common stock or 12.5% on a
fully-diluted basis. As of September 30, 2010, we had outstanding options
to purchase 3,912,743 shares (at exercise prices ranging from $0.10 to $2.50 per
share) granted, and 980,000 shares of restricted stock issued, to directors,
executives, employees and consultants, leaving an additional 1,107,257 available
for issuance thereunder. The vast majority of the outstanding options
reflect substitute options to be granted to former holders of Bacterin options
issued under its 2004 Stock Incentive Plan, as amended.
Except
for the Equity Incentive Plan discussed above, we have not had a stock option
plan or other similar incentive compensation plan for officers, directors and
employees, and no stock options, restricted stock or stock appreciation rights
grants were granted or were outstanding at any time prior to the Reverse
Merger.
39
Outstanding
Equity Awards at Fiscal Year-End (December 31, 2009)
|
Option Awards
|
||||||||||||
|
Number of Securities Underlying
Unexercised Options
|
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned
|
Option
Exercise
|
Option
Expiration
|
|||||||||
|
Name
|
Exercisable
|
Unexercisable
|
Options
|
Price
|
Date
|
|||||||
|
Guy
Cook
|
-
|
-
|
-
|
-
|
-
|
|||||||
|
Jesus
Hernandez
|
500,000 |
-
|
-
|
$ | 1.34 |
10/10/16
|
||||||
|
Jesus
Hernandez
|
58,000 |
-
|
-
|
$ | 1.60 |
5/19/15
|
||||||
|
Darrrel
Holmes
|
45,000 |
-
|
-
|
$ | 0.10 |
10/9/13
|
||||||
|
Darrrel
Holmes
|
30,000 |
-
|
-
|
$ | 1.34 |
10/9/16
|
||||||
|
Darrrel
Holmes(1)
|
18,288 |
-
|
56,713
|
$ | 1.50 |
12/29/18
|
||||||
________________________
|
(1)
|
11,713
of Mr. Holmes’ unvested options vest on December 29, 2010; 15,000 vest on
December 29, 2011; 15,000 vest on December 29, 2012; and 15,000 vest on
December 29, 2013.
|
Potential
Payments Upon Termination or Change-in-Control
SEC
regulations state that we must disclose information regarding agreements, plans
or arrangements that provide for payments or benefits to our named executive
officers in connection with any termination of employment or change in control
of the company. Except for Mr. Gandolfo’s employment agreement described
below, we currently have no employment agreements with any of our named
executive officers which
have payments upon termination or change in control, nor any compensatory
plans or arrangements that provide for any payments or benefits upon the
resignation, retirement or any other termination of any of our named executive
officers, as the result of a change in control, or from a change in any named
executive officer’s responsibilities following a change in
control.
Pursuant
to the terms of Mr. Gandolfo’s employment agreement, if Mr. Gandolfo’s
employment with our company is terminated by us in connection with a “Change of
“Control” (as defined therein), Mr. Gandolfo shall be eligible to receive 12
months’ salary as severance, if he has delivered to us a complete release of any
claims against us in form and substance reasonably satisfactory to us and if Mr.
Gandolfo has not breached any section of his employment agreement. Mr.
Gandolfo’s current salary under the employment agreement is $290,000 per
year. The severance payments payable to Mr. Gandolfo will be paid biweekly
through automatic deposits; provided that the initial payment of any severance
hereunder shall begin on the eighth day after Mr. Gandolfo has signed the
aforementioned release. A “Change of Control” is defined in Mr. Gandolfo’s
employment agreement to consist of either Guy Cook no longer serving as the
Chief Executive Officer or a sale of all or substantially all of the assets of
the Company.
Director
Compensation
|
Name
|
Fees Earned
or Paid in
Cash(1)
|
Stock
Awards(2)
|
Option
Awards
|
Non-Equity
Incentive Plan
Compensation
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
|
All Other
Compensation
|
Total
|
||||||||||||
|
Mitch
Godfrey
|
$ | 10,000 | $ | 40,000 |
-
|
-
|
-
|
-
|
$ | 50,000 | |||||||||
|
Kent
Swanson
|
$ | 10,000 | $ | 40,000 |
-
|
-
|
-
|
-
|
$ | 50,000 | |||||||||
|
Steve
Warnecke(3)
|
$ | 10,000 | $ | 40,000 |
-
|
-
|
-
|
-
|
$ | 50,000 | |||||||||
___________________
|
(1)
|
Each
of Bacterin’s directors, regardless of management affiliation, earned
$10,000 for their service on Bacterin’s board of directors during 2009
although payment of such amount has been indefinitely
deferred.
|
40
|
(2)
|
Each
of Bacterin’s directors, regardless of management affiliation, received
50,000 shares of Bacterin common stock (or 25,000 shares of our common
stock as adjusted to reflect the ratio used to determine the number of our
shares issued to Bacterin stockholders in connection with the Reverse
Merger) as of December 31, 2009, for their service on Bacterin’s board of
directors during 2009.
|
|
(3)
|
Mr.
Warnecke resigned as a director effective May 22,
2010.
|
We are
currently re-evaluating our director compensation policies and intend to adopt
new ones shortly. We expect that such new policies may, among other
things, entitle each non-management director to receive participation fees for
attendance at regular and special meetings of our board of directors and stock
options granted under our Bacterin International Equity Incentive Plan, to
purchase shares of our common stock with an exercise price equal to the fair
market value of such stock on the date of grant. Our board of directors will
review director compensation annually and adjust it according to prevailing
market conditions and good business practices. Notwithstanding the
foregoing, we are considering a proposal that would, if adopted, grant
100,000 shares of restricted common stock to each member of the Board of
Directors upon their joining the Board of Directors. Under this proposal,
all of the shares of restricted stock held by a director would be forfeited
if the director is not still serving as a member of our Board of Directors on
the first anniversary of the date he or she joined, 50,000 shares of restricted
stock would be forfeited if the director is not still serving as a member
of our Board of Directors on the second anniversary of the date he or she
joined, and 25,000 shares of restricted stock would be forfeited if the
director is not still serving as a member of our Board of Directors on
the third anniversary of the date he or she joined.
Compensation
Committee Interlocks and Insider Participation
No
interlocking relationship exists between our board of directors and the board of
directors or compensation committee of any other company, nor has any
interlocking relationship existed in the past.
Director
Independence
During
the year ended December 31, 2009, Kent Swanson was the only
independent director on our board. We evaluate independence by the
standards for director independence established by applicable laws, rules, and
listing standards including, without limitation, the standards for independent
directors established by the Nasdaq stock market.
Subject
to some exceptions, these standards generally provide that a director will not
be independent if:
|
|
·
|
the
director is, or in the past three years has been, an employee of
ours;
|
|
|
·
|
a
member of the director’s immediate family is, or in the past three years
has been, an executive officer of
ours;
|
|
|
·
|
the
director or a member of the director’s immediate family has received more
than $120,000 per year in direct compensation from us other than for
service as a director (or for a family member, as a non-executive
employee);
|
|
|
·
|
the
director or a member of the director’s immediate family is, or in the past
three years has been, employed in a professional capacity by our
independent public accountants, or has worked for such firm in any
capacity on our audit;
|
|
|
·
|
the
director or a member of the director’s immediate family is, or in the past
three years has been, employed as an executive officer of a company where
one of our executive officers serves on the compensation committee;
or
|
|
|
·
|
the
director or a member of the director’s immediate family is an executive
officer of a company that makes payments to, or receives payments from, us
in an amount which, in any twelve-month period during the past three
years, exceeds the greater of $1,000,000 or two percent of that other
company’s consolidated gross
revenues.
|
41
Indemnification
of Directors and Officers
Our
certificate of incorporation provides that no director of the company will be
personally liable to the company or our stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director’s duty of loyalty to the company or our stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for the improper declaration of
dividends or redemption of shares of capital stock in violation of Delaware law,
or (iv) for any transaction from which the director derived an improper personal
benefit.
We have
entered into indemnification agreements with each of our executive officers and
directors in which we have agreed to indemnify such officers and directors
against expenses and liabilities in connection with any proceeding associated
with such person’s service as an officer or director of the Company to the
fullest extent permitted by applicable law.
Further,
Section 145 of the Delaware General Corporation Law, or DGCL, permits, in
general, a Delaware corporation to indemnify any person who was or is a party to
any proceeding (other than an action by, or in the right of, the corporation) by
reason of the fact that he or she is or was a director or officer of the
corporation, or served another entity in any capacity at the request of the
corporation, against liability incurred in connection with such proceeding,
including the estimated expenses of litigating the proceeding to conclusion and
the expenses actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof, if such person
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation and, in criminal actions
or proceedings, additionally had no reasonable cause to believe that his or her
conduct was unlawful. Section 145(e) of the DGCL permits the corporation to pay
such costs or expenses in advance of a final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if he or she is ultimately found not to be entitled
to indemnification under the DGCL. Section 145(f) of the DGCL provides that the
indemnification and advancement of expense provisions contained in the DGCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expenses may be entitled.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted for directors, officers, or controlling persons pursuant to the
foregoing provisions, we have been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
42
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth information regarding the beneficial ownership of our
common stock as of September 28, 2010, by,
(a)
each of our directors and executive officers,
(b)
all of our directors and executive officers as a group, and
(c)
each person who is known by us to beneficially own 5% or more of
our common stock.
|
Name
(1)
|
Number
of
Shares
Beneficially
Owned
(2)
|
Percentage
of
Shares
Beneficially
Owned
(3)
|
||||||
|
Executive
Officers and Directors:
|
||||||||
|
Guy
S. Cook
|
13,265,970 |
(4)
|
36.02 | % | ||||
|
Mitchell
Godfrey
|
975,133 |
(5)
|
2.65 | % | ||||
|
Kent
Swanson
|
441,066 |
(6)
|
1.2 | % | ||||
|
Michael
Lopach
|
100,000 |
(7)
|
* | |||||
|
Jon
Wickwire
|
679,053 |
(8)
|
1.84 | % | ||||
|
John
P. Gandolfo
|
- | - | ||||||
|
Jesus
Hernandez
|
558,000 |
(9)
|
1.51 | % | ||||
|
Darrel
Holmes
|
138,886 |
(10)
|
* | |||||
|
All
executive officers and directors as a group (8
persons)
|
16,158,108 | 43.86 | % | |||||
________________________
|
*
|
Less
than 1% of outstanding shares of common
stock.
|
|
(1)
|
The
address of each person is c/o Bacterin International, Inc., 600 Cruiser
Lane, Belgrade Montana 59714.
|
|
(2)
|
Unless
otherwise indicated, includes shares owned by a spouse, minor children and
relatives sharing the same home, as well as entities owned or controlled
by the named person. Also includes shares if the named person has the
right to acquire those shares within 60 days after September 28, 2010, by
the exercise or conversion of any warrant, stock option or convertible
preferred stock. Unless otherwise noted, shares are owned of record and
beneficially by the named person.
|
|
(3)
|
The
calculation in this column is based upon 36,841,386 shares of common stock
outstanding on September 28, 2010. The shares of common stock underlying
warrants and stock options are deemed outstanding for purposes of
computing the percentage of the person holding them, but are not deemed
outstanding for the purpose of computing the percentage of any other
person.
|
|
(4)
|
Includes
(a) 20,000 shares of our common stock issuable to Sue Cook, Mr. Cook’s
spouse and our head of human resources, upon the exercise of stock options
previously granted by Bacterin under its 2004 Stock Incentive Plan, (b)
484,375 shares of common stock acquired in the private placement that
occurred concurrently with the Reverse Merger, and (c) warrants to
purchase 104,594 shares of our common stock which were also acquired
in such private placement.
|
|
(5)
|
Includes (a)
50,666 shares of common stock owned by Mr. Godfrey’s spouse, and
(b) 300,000 shares of our common stock issuable to Mr. Godfrey upon
the exercise of stock options previously granted by Bacterin under its
2004 Stock Incentive Plan.
|
|
(6)
|
Includes
69,843 shares of our common stock issuable upon the exercise of warrants
previously issued in connection with the conversion of certain
debt.
|
|
(7)
|
Includes a
proposed grant of restricted stock to new board members which has not yet
been formally adopted (if adopted, this grant would likely be subject to
vesting as described in Executive Compensation -- Director
Compensation).
|
|
(8)
|
Includes (a) a
proposed grant of restricted stock to new board members which has not yet
been formally adopted (if adopted, this grant would likely be subject to
vesting as described in Executive Compensation -- Director Compensation),
(b) 429,161 shares of common stock held by family trusts and family
members, and (c) warrants to purchase 51,458 shares of common stock held
by family trusts.
|
43
|
(9)
|
Represents
shares of our common stock issuable to Mr. Hernandez upon the exercise of
stock options previously granted by Bacterin under its 2004 Stock
Incentive Plan.
|
|
(10)
|
Includes
(a) 35,466 shares of our common stock owned by an LLC Mr. Holmes controls,
and (b) 93,287 shares of our common stock issuable to Mr. Holmes upon the
exercise of stock options previously granted by Bacterin under its 2004
Stock Incentive Plan.
|
TRANSACTIONS
WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS
Guy Cook,
our President and Chief Executive Officer, serves as a board member of West
Coast Tissue Services and American Donor Services. Both of these entities
recover tissue from donors. We reimburse them for their recovery fees,
which are comprised primarily of labor costs. The aggregate amount of all
payments we and our subsidiaries made to these entities since January 1, 2008 is
$575,297 to West Coast Tissue Services, and $1,654,352 to American Donor
Services. This relationship benefits us, and thus Mr. Cook, as these entities
provide us with donors, thus insuring that we have a pipeline of current and
future donors, which is necessary to our success. Mr. Cook’s wife performs
the bookkeeping and accounting for American Donor Services. She was paid
$60,126 in 2009 for her services, but received no compensation in 2006-2008 or
2010 for her services.
Concurrently
with the closing of the Reverse Merger and the private placement, we repurchased
and cancelled, 4,319,404 shares of our common stock from Jennifer Jarvis, our
former director, chief executive officer and chief financial officer, for
aggregate consideration of $100 and certain other good and valuable
consideration.
Convertible
Capital, a firm where one of our former directors, Ken Calligar, is a
principal, arranged for Mr.
Calligar’s two daughters and two other individuals to purchase
approximately $225,000 of bridge financing indebtedness which did not convert in
our recently concluded private placement. The debt was purchased from five
holders of such debt based on the understanding that the purchasers would
thereafter be permitted to convert such indebtedness on the same terms as if
they had converted the debt in such private placement transaction.
Convertible Capital is entitled to all of the warrants associated with the
conversions by the purchasers.
Unless
delegated to the Compensation Committee by the Board of Directors, the Audit
Committee reviews and approves all related party transactions and reviews and
makes recommendations to the full Board of Directors, or approves, any contracts
or other transactions with current or former executive officers of our company,
including consulting arrangements, employment agreements, change-in-control
agreements, termination arrangements, and loans to employees made or guaranteed
by our company.
44
SELLING
STOCKHOLDERS
The
following table sets forth:
|
|
(a)
|
the
name of each of the selling
stockholders,
|
|
|
(b)
|
the
number of shares of common stock beneficially owned by each such selling
stockholder that may be offered for the account of such selling
stockholder under this prospectus,
and
|
|
|
(c)
|
the
number of shares of common stock beneficially owned by each such selling
stockholder upon completion of this
offering.
|
Such
information was obtained from the selling stockholders but has not been
independently verified by us. The term “selling stockholder” includes the
entities listed below and their respective transferees, pledgees, donees, or
other successors.
|
Shares
Beneficially
Owned
Prior to
Offering
(2)
|
Shares Being
Registered
|
Shares
Beneficially
Owned
After
Offering
(2)(3)
|
||||||||||||||||||
|
Name
of Selling Stockholder (1)
|
Number
|
Percent
|
for
Sale (3)
|
Number
|
Percent
|
|||||||||||||||
|
Alan
B. Miller(4)
|
72,918 | * | 72,918 | - | - | |||||||||||||||
|
Alan
R. Davidson TTEE of the Alan R. Davidson Revocable Trust DTD
8/14/2007(5)
|
821,605 | 2.10 | % | 821,605 | - | - | ||||||||||||||
|
Barry
J. Goldstein(6)
|
19,531 | * | 19,531 | - | - | |||||||||||||||
|
Beneficial
Capital Corp(7)
|
69,444 | * | 69,444 | - | - | |||||||||||||||
|
Benjamin
M. Frank TR Benjamin M Frank Revocable Living Trust DTD 2/02/1986(8)
|
7,813 | * | 7,813 | - | - | |||||||||||||||
|
Benjamin
M. Frank Revocable Living Trust DTD 2/7/1986(9)
|
19,531 | * | 19,531 | - | - | |||||||||||||||
|
Brian
Abdoo(10)
|
6,944 | * | 6,944 | - | - | |||||||||||||||
|
Calvin
Leroy Schenk & Frances Eileen Schenk JT WROS(11)
|
50,781 | * | 50,781 | - | - | |||||||||||||||
|
Carlisle
Capital, LLC(12)
|
39,063 | * | 39,063 | - | - | |||||||||||||||
| Convertible Capital(13) | 39,063 | * | 39,063 | - | - | |||||||||||||||
|
Cougar
Valley LLC(14)
|
365,589 | 1.00 | % | 365,589 | - | - | ||||||||||||||
|
Curtis
F. Brockelman, Jr.(15)
|
36,460 | * | 36,460 | - | - | |||||||||||||||
|
Daniel
Foley(16)
|
191,227 | * | 191,227 | - | - | |||||||||||||||
|
Daniel
R. Frank(17)
|
117,188 | * | 117,188 | - | - | |||||||||||||||
|
David
A. Fiore(18)
|
6,944 | * | 6,944 | - | - | |||||||||||||||
|
David
H. Clarke(19)
|
74,164 | * | 74,164 | - | - | |||||||||||||||
|
David
Sabath(20)
|
36,460 | * | 36,460 | - | - | |||||||||||||||
| David Stefansky(21) | 294,299 | * | 45,149 | 249,150 | * | |||||||||||||||
|
David
Telesco(22)
|
72,918 | * | 72,918 | - | - | |||||||||||||||
|
David
W. Raisbeck(23)
|
55,556 | * | 55,556 | - | - | |||||||||||||||
|
Douglas
Gauld(24)
|
54,688 | * | 54,688 | - | - | |||||||||||||||
|
Equity
Trust Company d/b/a Sterling Trust Custodian, FBO Leonid Frenkel IRA(25)
|
97,176 | * | 97,176 | - | - | |||||||||||||||
|
Gary
L. Nolt(26)
|
19,531 | * | 19,531 | - | - | |||||||||||||||
|
Genesis
Asset Opportunity Fund LP(27)
|
138,889 | * | 138,889 | - | - | |||||||||||||||
|
Greg
A. Baker and Louise D. Baker JT WROS(28)
|
72,918 | * | 72,918 | - | - | |||||||||||||||
|
Guy
S. Cook(29)
|
13,348,467 | 36.54 | % | 605,469 | 12,742,998 | 35.02 | % | |||||||||||||
|
Harborview
Master Fund LP(30)
|
278,137 | * | 259,437 | 18,700 | * | |||||||||||||||
|
Harborview
Value Master Fund LP(31)
|
535,960 | 1.45 | % | 313,615 | 222,345 | * | ||||||||||||||
|
Harry
Mittelman & Brenda Mittelman JT WROS(32)
|
78,125 | * | 78,125 | - | - | |||||||||||||||
45
|
Harry
Mittelman Revocable Living Trust(33)
|
118,059 | * | 118,059 | - | - | |||||||||||||||
|
Herbert
A. Hardt(34)
|
39,063 | * | 39,063 | - | - | |||||||||||||||
|
Howard
Rubin(35)
|
100,000 | * | 100,000 | - | - | |||||||||||||||
|
Ian
J. Cassel(36)
|
489,000 | 1.28 | % | 489,000 | - | - | ||||||||||||||
|
Jeffrey
L. Krushinski(37)
|
19,531 | * | 19,531 | - | - | |||||||||||||||
|
John
Michael Andrews(38)
|
118,059 | * | 118,059 | - | - | |||||||||||||||
|
John
P. Davy(39)
|
62,500 | * | 62,500 | - | - | |||||||||||||||
|
Judy
E. Grossman(40)
|
39,063 | * | 39,063 | - | - | |||||||||||||||
|
Julie
R. Frank Revocable Trust DTD 8/13/2001(41)
|
31,250 | * | 31,250 | - | - | |||||||||||||||
|
Kenneth
S. Miller(42)
|
6,944 | * | 6,944 | - | - | |||||||||||||||
|
Leon
Frenkel(43)
|
429,688 | 1.18 | % | 429,688 | - | - | ||||||||||||||
|
Lionel
N. Sterling Revocable Trust DTD 5/19/1997(44)
|
101,563 | * | 101,563 | - | - | |||||||||||||||
|
Lisa
M. Gallo Trust(45)
|
43,404 | * | 43,404 | - | - | |||||||||||||||
|
Mack
Rossoff(46)
|
34,722 | * | 34,722 | - | - | |||||||||||||||
|
Martin
W. Korman(47)
|
118,059 | * | 118,059 | - | - | |||||||||||||||
|
Matthew
J. Cacciato(48)
|
36,460 | * | 36,460 | - | - | |||||||||||||||
|
Maurice
Werdegar(49)
|
177,089 | * | 177,089 | - | - | |||||||||||||||
|
Merrill
Lynch FBO: Jon M Wickwire IRA(50)
|
137,526 | * | 78,125 | 59,401 | * | |||||||||||||||
|
Michael
H. Weiss(51)
|
140,626 | * | 140,626 | - | - | |||||||||||||||
|
Michael
P. Kimball(52)
|
39,063 | * | 39,063 | - | - | |||||||||||||||
|
Michel
C Finzi or Melissa A. Finzi JT WROS(53)
|
58,113 | * | 58,113 | - | - | |||||||||||||||
|
Middlebury
Securities, LLC(54)
|
796,217 | 2.19 | % | 796,217 | - | - | ||||||||||||||
|
MKM
Opportunity Master Fund, Ltd.(55)
|
295,147 | * | 295,147 | - | - | |||||||||||||||
|
Monarch
Capital Fund Ltd(56)
|
59,404 | * | 59,404 | - | - | |||||||||||||||
|
Morris
Smith and Devora Smith JT WROS(57)
|
187,502 | * | 187,502 | - | - | |||||||||||||||
|
NFS
FBO John A. Swallow Roth IRA(58)
|
150,000 | * | 150,000 | - | - | |||||||||||||||
|
Paragon
Capital LP(59)
|
816,314 | 1.61 | % | 816,314 | - | - | ||||||||||||||
|
Periscope
Partners L.P.(60)
|
137,154 | * | 137,154 | - | - | |||||||||||||||
|
Raymond
Minella(61)
|
86,806 | * | 86,806 | - | - | |||||||||||||||
|
RCII
Ltd.(62)
|
235,125 | * | 235,125 | - | - | |||||||||||||||
|
Richard
M. O'Leary(63)
|
31,250 | * | 31,250 | - | - | |||||||||||||||
|
Rita
Blitt(64)
|
72,918 | * | 72,918 | - | - | |||||||||||||||
|
Sarah
W. Palmer(65)
|
75,000 | * | 75,000 | - | - | |||||||||||||||
| Sixty-Five Roses Ranch(66) | 130,000 | * | 30,000 | 100,000 | * | |||||||||||||||
|
Spencer
M. Calligar(67)
|
17,361 | * | 17,361 | - | - | |||||||||||||||
|
Standard
Pacific Capital Holdings, LLLP(68)
|
562,500 | 1.55 | % | 562,500 | - | - | ||||||||||||||
|
Star
Acquisition LLC(69)
|
78,125 | * | 78,125 | - | - | |||||||||||||||
|
Stifel
Nicolaus & Co. Custodian for Richard R. Palmer Roth IRA(70)
|
69,376 | * | 69,376 | - | - | |||||||||||||||
|
Stifel
Nicolaus & Co. Custodian for Sarah W. Palmer Beneficiary IRA(71)
|
75,000 | * | 75,000 | - | - | |||||||||||||||
|
Stuart
G. Gauld IRA Rollover JPMCC Cust.(72)
|
41,063 | * | 39,063 | 2,000 | * | |||||||||||||||
|
Suzanne
Veilleux(73)
|
40,063 | * | 39,063 | 1,000 | * | |||||||||||||||
|
Swallow
Family LLC(74)
|
134,364 | * | 134,364 | - | - | |||||||||||||||
|
T.M.
Lane(75)
|
41,667 | * | 41,667 | - | - | |||||||||||||||
|
Taylor
B. Calligar(76)
|
17,361 | * | 17,361 | - | - | |||||||||||||||
|
The
Corbran LLC(77)
|
294,299 | * | 45,149 | 249,150 | * | |||||||||||||||
|
Thomas
F. Plaut(78)
|
36,460 | * | 36,460 | - | - | |||||||||||||||
|
Tom
Colicchio(79)
|
72,918 | * | 72,918 | - | - | |||||||||||||||
|
Triage
Capital Management, L.P.(80)
|
78,125 | * | 78,125 | - | - |
46
|
UVE
Partners LLC(81)
|
195,313 | * | 195,313 | - | - | |||||||||||||||
|
Warberg
Opportunistic Trading Fund LP(82)
|
19,531 | * | 19,531 | - | - | |||||||||||||||
| Western Technology Investment(83) | 375,000 | * | 375,000 | - | - | |||||||||||||||
|
William
H. White Jr. Family Trust U/A DTD 8/1/94(84)
|
75,001 | * | 75,001 | - | - | |||||||||||||||
|
William
Silver(85)
|
19,531 | * | 19,531 | - | - |
____________________________
|
*
|
Less
than 1% of the outstanding shares of common
stock
|
|
(1)
|
Except
as otherwise indicated, each selling stockholder named in the table has
sole voting and investment power with respect to all common stock
beneficially owned by such
stockholder.
|
|
(2)
|
The
numbers and percentages shown include (a) the number of shares of
common stock actually owned as of September 28, 2010, and (b) the
shares of common stock that the identified person had the right to acquire
within 60 days of September 28, 2010. In calculating the percentage
of ownership, all shares of common stock which the identified person has
the right to acquire within 60 days of September 28, 2010 are deemed
to be outstanding for the purpose of computing the percentage of shares of
common stock owned by such person, but are not deemed to be outstanding
for the purpose of computing the percentage of shares of common stock
owned by any other person.
|
|
(3)
|
We
have no assurance that the selling stockholders will sell any of the
common stock being registered for sale. For purposes of this table,
we have assumed that the selling stockholders will have sold all of the
shares covered by this prospectus upon completion of the offering,
including such shares issuable upon the exercise of
warrants.
|
|
(4)
|
Includes
37,143 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 15303 Pembroke
Pt., Naples, FL 34110.
|
|
(5)
|
Includes
246,958 shares of common stock issuable upon the exercise of
warrants. Alan
R. Davidson is trustee of this selling stockholder and as such, has voting
and dispositive power over the shares of common stock held by this selling
stockholder. The address of this selling stockholder is 36
Candlewyck Dr., Henderson, NV
89052.
|
|
(6)
|
Includes
3,906 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 1014 East Hyman Ave., Aspen, CO
81611.
|
|
(7)
|
Includes
69,444 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is P.O. Box 40A,
Villanova, PA.
|
|
(8)
|
Includes
1,563 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 106 Breckenwood Way,
Sacramento, CA 95864.
|
|
(9)
|
Includes
3,906 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 106 Breckenwood Way,
Sacramento, CA 95864.
|
|
(10)
|
Includes
6,944 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 308 West Ridgewood Ave.
Ridgewood, NJ 07450.
|
|
(11)
|
Includes
10,156 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is PO Box 782,
Thayne, WY 83127.
|
|
(12)
|
Includes
7,813 shares of common stock issuable upon the exercise of warrants.
Walter
S. Grossman is the general partner of this selling stockholder and as
such, has voting and dispositive power over the shares of common stock
held by this selling stockholder. The address of this selling
stockholder is Carlisle Capital, c/o Brookehill Capital, 276 Post Road,
West Port, CT 06880, ATTN: Walt
Grossman.
|
47
|
(13)
|
Includes
39,063 shares issuable upon the exercise of warrants. Ken
Calligar, a former director, is a principal of this selling stockholder
and as such, has voting and dispositive power over the shares of common
stock held by this selling stockholder. The address of this
selling stockholder is c/o Bacterin International Holdings, Inc. 600
Cruiser Lane, Belgrade, MT
59714.
|
|
(14)
|
Includes
109,172 shares of common stock issuable upon the exercise of
warrants. John
A. Swallow is the manager of this selling stockholder and as such, has
voting and dispositive power over the shares of common stock held by this
selling stockholder. The address of this selling stockholder
is 905 S. Jarvis Rd., Coeur d'Alene, ID
83814.
|
|
(15)
|
Includes
18,572 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 530 Lake Avenue
Greenwich, CT 06830.
|
|
(16)
|
Includes
60,081 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 27 North Bayard
Lane Mahwah, NJ 07430.
|
|
(17)
|
Daniel
Frank is a former director of the Company. Includes 23,438 shares of
common stock issuable upon the exercise of warrants. The address of
this selling stockholder is 19 Whaling Road, Darien, CT
06820.
|
|
(18)
|
Includes
6,944 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 868 Southampton Dr. Palo Alto,
CA 94303.
|
|
(19)
|
Includes
29,216 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is P.O. Box 1090
Loxahatchee, FL 33470.
|
|
(20)
|
Includes
18,572 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 224 Sunset Ave
Ridgewood, NJ 07450.
|
|
(21)
|
David Stefansky
is affiliated with Harborview Advisors LLC, an entity that
provided consulting services in connection with our Reverse Merger.
The address of this selling stockholder is 850 Third Avenue, Suite 1801
New York, NY 10022.
|
|
(22)
|
Includes
37,143 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 241 Mountain
Ave Ridgewood, NJ 07450.
|
|
(23)
|
Includes
55,556 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 26640 Edgewood
Shorewood, MN 55331.
|
|
(24)
|
Includes
10,938 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 32 Mora Ct.
Manhasset, NY 11030.
|
|
(25)
|
Includes
30,706 shares of common stock issuable upon the exercise of
warrants. Leon Frenkel is trustee of this selling stockholder and as
such, has voting and dispositive power over the shares of common stock
held by this selling stockholder. The address of this selling
stockholder is 1600 Flat Rock Rd. Penn Valley, PA
19072.
|
|
(26)
|
Includes
3,906 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 208 W. Newport Road, Lititz, PA
17543.
|
|
(27)
|
Includes
138,889 shares of common stock issuable upon the exercise of
warrants. Genesis Capital GP LLC is the general partner of this
selling stockholder. Ethan Benovitz, Jaime Hardman, and Daniel Saks,
as managers of the general partner, share voting and dispositive power
over the shares of common stock held by this selling stockholder.
The address of this selling stockholder is 61 Paine Ave New Rochelle, NY
10804.
|
|
(28)
|
Includes
37,143 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 23615 Oak
Valley Rd. Cupertino, CA 95014.
|
|
(29)
|
Guy
Cook is our Chief Executive Officer, President, Chief Scientific Officer
and Chairman of our board of Directors. Includes 121,094 shares of common
stock issuable upon the exercise of warrants. The address of this
selling stockholder is 246 Painted Hills Road, Bozeman, MT
59715.
|
|
(30)
|
Harborview
Master Fund LP is
affiliated with Harborview Advisors LLC, an entity that
provided consulting services in connection with our Reverse Merger.
Includes
131,895 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 850 Third
Avenue, Suite 1801 New York, NY
10022.
|
48
|
(31)
|
Harborview
Value Master Fund LP is affiliated with Harborview Advisors, LLC, an
entity that provided consulting services in connection with our
Reverse Merger. Includes 131,895 shares of common stock issuable upon the
exercise of warrants. The address of this selling stockholder is 850
Third Avenue, Suite 1801 New York, NY
10022.
|
|
(32)
|
Includes
15,625 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 12100 Kate
Drive Los Altos Hills, CA 94022.
|
|
(33)
|
Includes
46,508 shares of common stock issuable upon the exercise of
warrants. Harry
Mittelman is trustee of this selling stockholder and as such, has voting
and dispositive power over the shares of common stock held by this selling
stockholder. The address of this selling stockholder is 12100
Kate Drive Los Altos Hills, CA
94022.
|
|
(34)
|
Includes
7,813 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 5 Bluewater Hill, Westport, CT
06880.
|
|
(35)
|
Includes
20,000 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 1270 Broadway,
Suite 909, New York, NY 10001.
|
|
(36)
|
Includes
163,659 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 952 Disston
View Drive, Lititz, PA 17543.
|
|
(37)
|
Includes
3,906 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 120 Saybrooke Drive, Lititz, PA
17543.
|
|
(38)
|
Includes
46,508 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 552 Upper
Ridgewood, NJ 07450.
|
|
(39)
|
Includes
12,500 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 14008 175th
Place NE, Redmond, WA 98052.
|
|
(40)
|
Includes
7,813 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 277 North Avenue, Westport, CT
06880.
|
|
(41)
|
Includes
6,250 shares of common stock issuable upon the exercise of warrants.
Julie
Rae Frank is trustee of this selling stockholder and as such, has voting
and dispositive power over the shares of common stock held by this selling
stockholder. The address of this selling stockholder is 11529
Conway Road, St. Louis, MO 63131.
|
|
(42)
|
Includes
6,944 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 7196 Havenwood Dr. Castle Rock,
CO 80108.
|
|
(43)
|
Includes
85,938 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 1600 Flat Rock
Road, Penn Valley, PA 19072.
|
|
(44)
|
Includes
20,313 shares of common stock issuable upon the exercise of
warrants. Lionel N. Sterling is trustee of this selling stockholder
and as such, has voting and dispositive power over the shares of common
stock held by this selling stockholder. The address of this selling
stockholder is c/o Equity Resources Inc., 5 Greenwich Office Park,
Greenwich, CT 06831.
|
|
(45)
|
Includes
25,516 shares of common stock issuable upon the exercise of
warrants. Lisa M. Gallo is trustee of this selling stockholder and
as such, has voting and dispositive power over the shares of common stock
held by this selling stockholder. The address of this selling
stockholder is 265 West End Ave. Ridgewood, NJ
07450.
|
|
(46)
|
The
address of this selling stockholder is c/o Bacterin International
Holdings, Inc., 600 Cruiser Lane, Belgrade, MT
59714.
|
49
|
(47)
|
Includes
46,508 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 650 Page Mill
Road Palo Alto, CA 94304.
|
|
(48)
|
Includes
18,572 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 3691 Gale Rd.
Granville, OH 43023.
|
|
(49)
|
Includes
69,763 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 35 Corto Ln.
Woodside, CA 94062.
|
|
(50)
|
Includes
15,625 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 917 Leigh Mill,
Great Falls, VA 22066.
|
|
(51)
|
Includes
23,438 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 25 Briarwood
Lane Lawrence, NY 11559.
|
|
(52)
|
Includes
7,813 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 3272 Lower Ridge Road, San
Diego, CA 92130.
|
|
(53)
|
Includes
22,893 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 2540 Redding
Rd. Fairfield, CT 06824.
|
|
(54)
|
Middlebury
Securities, LLC served as placement agent in the private placement
transactions described in this prospectus. The number of shares
being registered for sale includes 690,000 shares of common stock issuable
upon the exercise of warrants received as compensation for placement agent
services. The address of this selling stockholder is 1043 Sheep Farm
Road, Weybridge, VT 05753.
|
|
(55)
|
Includes
116,270 shares of common stock issuable upon the exercise of
warrants. MKM Capital Advisors, LLC is the controlling entity of
this selling stockholder and is controlled by David Skrilloff, who
exercises voting and dispositive power over the shares of common stock
held by this selling stockholder. The address of this selling
stockholder is c/o MKM Capital Advisors 1515 Broadway, 11th Floor New
York, NY 10036.
|
|
(56)
|
Includes
22,992 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 2nd Fl.,
Harbour House, Waterfront Drive, P.O. Box 972, Road Town, Tortola, British
Virgin Islands VG1110.
|
|
(57)
|
Includes
31,251 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 195 Wildacre
Ave. Lawrence, NY 11559.
|
|
(58)
|
Includes
30,000 shares of common stock issuable upon the exercise of
warrants. John
A. Swallow has voting and dispositive power over the shares of common
stock held by this selling stockholder. The address of this
selling stockholder is 905 S. Jarvis Rd. Coeur d'Alene, ID
83814.
|
|
(59)
|
Includes
230,698 shares of common stock issuable upon the exercise of
warrants. Paragon Capital Advisors LLC is the general partner of
this selling stockholder. Alan P. Donefeld is the manager of
Paragon Capital Advisors LLC and as such, has voting and dispositive power
over shares of common stock held by this selling stockholder. The
address of this selling stockholder is 110 East 59th Street, 29th Floor,
New York, NY 10022.
|
|
(60)
|
Includes
38,879 shares of common stock issuable upon the exercise of
warrants. Leon Frenkel, as general partner of this selling
stockholder, has voting and dispositive power over shares of common stock
held by this selling stockholder. The address of this selling
stockholder is 1600 Flat Rock Road, Penn Valley, PA
19072.
|
|
(61)
|
The
address of this selling stockholder is c/o Bacterin International
Holdings, Inc., 600 Cruiser Lane, Belgrade, MT
59714.
|
50
|
(62)
|
Includes
92,625 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 1 Hastings
Road, St Helier, Jersey JE14HE, United
Kingdom.
|
|
(63)
|
Includes
6,250 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 2819 4th St, Boulder, CO
80304.
|
|
(64)
|
Includes
37,143 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 11111 W 95
Overland Park, KS 66214.
|
|
(65)
|
Includes
12,500 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is c/o Bacterin
International Holdings, Inc., 600 Cruiser Lane, Belgrade, MT
59714.
|
|
(66)
|
Sixty
Five Roses Ranch used to provide accounting and financial services to the
Company and is controlled by our former Chief Financial Officer. The
address of the selling stockholder is 1026 Anaconda Drive. Castle Rock, CO
80108
|
|
(67)
|
The
address of this selling stockholder is 12 Valley Road, Locust Valley,
NY 11560.
|
|
(68)
|
Includes
112,500 shares of common stock issuable upon the exercise of
warrants. Andrew R. Midler is the general partner of this
selling stockholder and as such, has voting and dispositive power over the
shares of common stock held by this selling stockholder. The address
of this selling stockholder is 6501 Redhook Plaza, Suite 201,
St. Thomas, U.S. Virgin Islands
00802.
|
|
(69)
|
Includes
15,625 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 18 White Drive
Cedarhurst, NY 11516.
|
|
(70)
|
Includes
11,563 shares of common stock issuable upon the exercise of
warrants. Richard
R. Palmer has voting and dispositive power over the shares of common stock
held by this selling stockholder. The address of this selling
stockholder is 125 Fox Hollow Rd. Pinehurst, NC
28374.
|
|
(71)
|
Includes
12,500 shares of common stock issuable upon the exercise of
warrants. Sarah
W. Palmer has voting and dispositive power over the shares of common stock
held by this selling stockholder. The address of this selling
stockholder is 1125 East Mass. Ave. Southern Pines, NC
28387.
|
|
(72)
|
Includes
7,813 shares of common stock issuable upon the exercise of warrants.
Stuart
G. Gauld has voting and dispositive power over the shares of common stock
held by this selling stockholder. The address of this selling
stockholder is c/o Bacterin International Holdings, Inc., 600 Cruiser
Lane, Belgrade, MT 59714.
|
|
(73)
|
Includes
7,813 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 5 Basswood Court Bluffton, SC
29910-4455.
|
|
(74)
|
Includes
45,967 shares of common stock issuable upon the exercise of
warrants. John
A. Swallow is the manager of this selling stockholder and as such, has
voting and dispositive power over the shares of common stock held by this
selling stockholder. The address of this selling stockholder
is 905 S. Jarvis Rd. Coeur d'Alene, ID
83814.
|
|
(75)
|
Includes
41,667 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 322 Harbour
Dr., #204-D Naples, FL 34103.
|
|
(76)
|
The
address of this selling stockholder is 12 Valley Road, Locust Valley
NY 11560.
|
|
(77)
|
The
Corbran LLC is affiliated with Harborview Advisors, LLC, an entity that
provided consulting services in connection with our Reverse merger.
The address of this selling stockholder is 850 Third Avenue, Suite 1801
New York, NY 10022.
|
|
(78)
|
Includes
18,572 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 23 Elden Drive
Saddle River, NJ 07458.
|
|
(79)
|
Includes
37,143 shares of common stock issuable upon the exercise of
warrants. The address of this selling stockholder is 95 Horatio
Street New York, NY 10014.
|
51
|
(80)
|
Includes
15,625 shares of common stock issuable upon the exercise of
warrants. Triage Management L.P. is the general partner of this
selling stockholder. Triage Capital LF Group, LLC is the general
partner of Triage Management L.P. and is controlled by Leon Frenkel, who
has voting and dispositive power over shares of common stock held by this
selling stockholder. The address of this selling stockholder is 401
City Avenue, Suite 528, Bala Cynwyd, PA
19004.
|
|
(81)
|
Includes
39,063 shares of common stock issuable upon the exercise of
warrants. Gary
M. Simon, as the managing member of this selling stockholder, has voting
and dispositive power over the shares of common stock held by this selling
stockholder. The address of this selling stockholder is 1120
Avenue of the Americas, Suite 4015, NY, NY
10036.
|
|
(82)
|
Includes
3,906 shares of common stock issuable upon the exercise of warrants.
Warberg Asset Management LLC is the general partner of this selling
stockholder. Daniel Warsh and Jonathan Blumberg, as managers of the
general partner, share voting and dispositive power over the shares of
common stock held by this selling stockholder. The address of this
selling stockholder is 716 Oak Street, Winnetka, IL
60093.
|
|
(83)
|
The
Company entered into a financing transaction with two subsidiaries of
Western Technology Investment as described in the Recent Developments
section of the prospectus summary. Includes 375,000 shares of common stock
issuable upon the exercise of warrants. The address of the
selling stockholder is 2010 North First St., Suite 310, San Jose, CA
95131.
|
|
(84)
|
Includes
12,501 shares of common stock issuable upon the exercise of
warrants. Faye
M. White is trustee of this selling stockholder and as such, has voting
and dispositive power over the shares of common stock held by this selling
stockholder. The address of this selling stockholder is 1125
East Mass. Ave., Southern Pines, NC
28387.
|
|
(85)
|
Includes
3,906 shares of common stock issuable upon the exercise of warrants.
The address of this selling stockholder is 830 Park Ave., Apt. 4A, New
York, NY 10021.
|
52
DETERMINATION
OF OFFERING PRICE
All
shares of our common stock being offered will be sold by the selling
stockholders without our involvement; consequently the actual price of the stock
will be determined by prevailing market prices at the time of sale or by private
transactions negotiated by the selling stockholders. The offering price will
thus be determined by market factors and the independent decisions of the
selling stockholders.
PLAN
OF DISTRIBUTION
We are
registering the shares of common stock to permit the resale of these shares of
common stock by the selling stockholders from time to time after the date of
this prospectus. We will not receive any of the proceeds from the sale by
the selling stockholders of the shares of common stock. We will bear all
fees and expenses incident to our obligation to register the shares of common
stock.
The
selling stockholders may sell all or a portion of the shares of common stock
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers, or agents. If the shares
of common stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent’s commissions. The shares of common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated
prices. These sales may be effected in transactions, which may involve
crosses or block transactions, through
|
|
·
|
any
national securities exchange or quotation service on which the shares may
be listed or quoted at the time of
sale;
|
|
|
·
|
in
the over-the-counter market;
|
|
|
·
|
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
|
|
|
·
|
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for its
account;
|
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
·
|
privately
negotiated transactions;
|
|
|
·
|
short
sales;
|
|
|
·
|
sales
pursuant to Rule 144;
|
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number of such
shares at a stipulated price per
share;
|
|
|
·
|
a
combination of any such methods of sale;
and
|
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
If the
selling stockholders effect such transactions by selling common stock to or
through underwriters, broker-dealers, or agents, such underwriters,
broker-dealers, or agents may receive commissions in the form of discounts,
concessions, or commissions from the selling stockholders or commissions from
purchasers of the shares of common stock for
whom they may act as agent or to whom they may sell as principal (which
discounts, concessions, or commissions as to particular underwriters,
broker-dealers, or agents may be in excess of those customary in the types of
transactions involved). In connection with sales of the shares of common
stock or otherwise, the selling stockholders may enter into hedging transactions
with broker-dealers, which may in turn engage in short sales of the shares of
common stock in the course of hedging in positions they assume. The
selling stockholders may also sell shares of common stock short and deliver
shares of common stock covered by this prospectus to close out short positions
and to return borrowed shares in connection with such short sales. The
selling stockholders may also loan or pledge the shares of common stock to
broker-dealers that in turn may sell such shares.
53
The
selling stockholders may pledge or grant a security interest in some or all of
the shares of common stock owned by them and, if they default in the performance
of their secured obligations, the pledgees or secured parties may offer and sell
the shares of common stock from time to time pursuant to this prospectus or any
amendment to this prospectus under Rule 424(b)(3) or other applicable provision
of the Securities Act of 1933, as amended, amending, if necessary, the list of
selling stockholders to include the pledgee, transferee, or other successors in
interest as selling stockholders under this prospectus. The selling
stockholders also may transfer and donate the shares of common stock in other
circumstances in which case the transferees, donees, pledgees, or other
successors in interest will be the selling beneficial owners for purposes of
this prospectus.
The
selling stockholders and any broker-dealer participating in the distribution of
the shares of common stock may be deemed to be “underwriters” within the meaning
of the Securities Act, and any commission paid, or any discounts or concessions
allowed to, any such broker-dealer may be deemed to be underwriting commissions
or discounts under the Securities Act. At the time a particular offering
of the shares of common stock is made, a prospectus supplement, if required,
will be distributed which will set forth the aggregate amount of shares of
common stock being offered and the terms of the offering, including the name or
names of any broker-dealers or agents, any discounts, commissions, and other
terms constituting compensation from the selling stockholders and any discounts,
commissions, or concessions allowed or reallowed or paid to
broker-dealers.
Under the
securities laws of some states, the shares of common stock may be sold in such
states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied
with.
There can
be no assurance that any selling stockholder will sell any or all of the shares
of common stock registered pursuant to the registration statement, of which this
prospectus forms a part.
The
selling stockholders and any other person participating in such distribution
will be subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including, without limitation, Regulation M of the
Exchange Act, which may limit the timing of purchases and sales of any of the
shares of common stock by the selling stockholders and any other participating
person. Regulation M may also restrict the ability of any person engaged
in the distribution of the shares of common stock to engage in market-making
activities with respect to the shares of common stock. All of the
foregoing may affect the marketability of the shares of common stock and the
ability of any person or entity to engage in market-making activities with
respect to the shares of common stock.
We
will pay all expenses of the registration of the shares of common stock pursuant
to the registration agreement, estimated to be $661,396.55 in total, including,
without limitation, Securities and Exchange Commission filing fees and expenses
of compliance with state securities or “blue sky” laws; provided, however, that
a selling stockholder will pay all underwriting discounts and selling
commissions, if any. We will indemnify the selling stockholders against
liabilities, including some liabilities under the Securities Act, in accordance
with the registration agreement or the selling stockholders will be entitled to
contribution. We may be indemnified by the selling stockholders against
civil liabilities, including liabilities under the Securities Act, that may
arise from any written information furnished to us by the selling stockholder
specifically for use in this prospectus, in accordance with the registration
agreement, or we may be entitled to contribution.
Once sold
under the registration statement, of which this prospectus forms a part, the
shares of common stock will be freely tradable in the hands of persons other
than our affiliates.
54
DESCRIPTION
OF SECURITIES
Common
Stock
The
holders of our common stock are entitled to one vote per share. Our
certificate of incorporation does not provide for cumulative voting. The
holders of our common stock are entitled to receive ratably such dividends, if
any, as may be declared by our board of directors out of legally available
funds. However, the current policy of our board of directors is to retain
earnings, if any, for our operation and expansion. Upon our liquidation,
dissolution or winding-up, the holders of our common stock are entitled to share
ratably in all of our assets which are legally available for distribution, after
payment of or provision for all liabilities and the preferences of any then
outstanding shares of preferred stock. The holders of our common stock
have no preemptive, subscription, redemption or conversion rights. All
issued and outstanding shares of our common stock are, and the common stock
reserved for issuance upon exercise of the warrants will be, when issued,
fully-paid and non-assessable.
Preferred
Stock
Our
certificate of incorporation authorizes the issuance of up to 5,000,000 shares
of “blank check” preferred stock with designations, rights and preferences as
may be determined from time to time by our board of directors. We have not
designated or issued any shares of our preferred stock to date.
Warrants
We
issued warrants to purchase 1,509,271 shares of our common stock in our private
placement with closings on each of June 30, 2010 and July 30, 2010, including
warrants to purchase 361,875 shares of our common stock that were issued to the
placement agents. Each warrant acquired in the private placement entitles
the holder thereof to purchase shares of our common stock at an exercise price
of $2.50 per share from the date of issuance until the fifth anniversary
thereof; provided, that note holders who converted debt in the private
placement, received warrants with an exercise price of $2.25 per share and the
placement agents received warrants with an exercise price of $1.60 per
share. We also issued additional warrants to purchase 79,206 shares of our
common stock in connection with subsequent conversions of $450,000 in
bridge financing indebtedness, also with exercise prices of $2.25 per
share.
The note holders in the bridge financings also received warrants
to purchase 1,482,256 shares of our common stock and our placement agent
received warrants to purchase 328,125 shares of our common stock as part of our
bridge financing.
We
also issued warrants to purchase 375,000 shares of our common stock to Western
Technology Investment in connection with a financing and warrants to purchase
489,710 shares to a limited group of existing investors who exercised existing
shares.
In
addition, subject to adjustment for the ratio used to determine the number of
shares issuable to Bacterin stockholders in connection with the Reverse Merger,
we have assumed Bacterin’s obligations under its outstanding warrants
immediately prior to the Reverse Merger. As a result of such assumption,
we also have warrants outstanding to purchase 3,441,732 shares of our common
stock. The exercise prices of these warrants range from $2.00 to $2.50 and
commence expiring in March 2014 through December 2019.
Transfer, Exchange and
Exercise.
The
warrants may be exercised upon surrender of the certificate therefor on or prior
to the expiration date (as explained below) at our offices with the form of
exercise notice attached as an exhibit thereto filled out and executed as
indicated, accompanied by payment (in the form of certified or cashier’s check
payable to the order of our company) of the full exercise price for the number
of warrants being exercised.
Adjustments.
All of
our outstanding warrants contain provisions that protect the holders thereof
against dilution by adjustment of the number of shares for which the warrants
are exercisable as well as the exercise price to purchase such shares in certain
events, such as stock dividends, stock splits, mergers and other similar
events.
55
In
addition, the warrants that were issued in connection with our recent bridge
financings provide that, in the event that we issue any shares of our common
stock (or securities convertible into or exercisable or exchangeable for shares
of common stock) for an effective price of less than $1.60 per share of common
stock, except (i) securities which are issued pursuant to the bridge financings,
(ii) shares of our common stock or options to purchase such shares issued to
employees, consultants, officers or directors in accordance with stock plans
approved by the board of directors, and shares of common stock issuable under
options or warrants that are outstanding as of the date of the closing of the
bridge financings or issued in the future pursuant to the our equity incentive
plan up to a total of 6,000,000 shares, and (iii) shares of our common stock
issued pursuant to a stock dividend, split or other similar transaction, the
exercise price of each warrant shall be adjusted downward on a “full-ratchet”
basis, i.e., to the lowest price per share at which our stock was issued or
deemed issued, regardless of how many shares were issued at such price.
The holder of a Warrant will not possess any rights as a stockholder of our
company unless and until he exercises the Warrant.
Cashless
Exercise.
The
warrants issued in connection with our recent bridge financings and the private
placement contain “cashless” exercise provisions which are available under
certain circumstances. In a “cashless” exercise, a warrant is exchanged
for a lesser number of shares because a portion of the shares is used to pay the
exercise price.
Stockholder
Rights.
The
warrants do not confer upon holders any voting or any other rights as a
stockholder of our company.
The
foregoing discussion of our warrants, to the extent it relates to the warrants
issued in the private placement, is qualified entirely by reference to the
composite form of the warrant used in such private placement and included as an
exhibit to the registration statement of which this prospectus is a
part.
Registration
Rights
We
have agreed to use our best efforts to file this registration statement on Form
S-1 with the SEC covering the resale of all shares of common stock and all
shares of common stock underlying the warrants issued in connection
with our recently concluded private placement (as well as up to 1,177,196
shares of our common stock held by certain of our stockholders at the time of
the closing of the Reverse Merger and the shares underlying the placement
agents’ warrants) on or before September 28, 2010 and use our best
efforts to have such shelf registration statement declared effective by the SEC
as soon as practicable thereafter, but in any event not later than December 27,
2010. We are also obligated to respond to any SEC comments within a
stipulated period of time after receiving any such comments and to maintain the
effectiveness of the shelf registration statement from the effective date
through the earlier of (a) the date on which all the investors in the private
placement have completed the sales or distribution described in the registration
statement relating thereto or, if earlier until all securities covered by the
registration rights agreement may be sold by the investors in the private
placement under Rule 144(b)(1) and (b) the date that is eighteen (18) months
anniversary of the sale of the securities. In the event the shelf
registration statement is not filed with, or declared effective by, the SEC on
or prior to the dates set forth above, or we fail to timely satisfy our
reporting requirements, each investor in the private placement will receive cash
liquidated damages equal to 1% of the purchase price for the shares of common
stock and warrants acquired in the private placement for each month (or portion
thereof) that the registration statement is not so filed or effective, or has
failed to timely file required reports, provided that the aggregate payment as a
result of the registration default will in no event exceed 12% of the purchase
price for the shares of common stock and warrants. We will bear the
expenses in connection with the registration of these shares (exclusive of any
underwriting discounts and commissions, if any).
If, at
any time or from time to time after the date of the effectiveness of the
registration statement, we determine in good faith, following consultation with
legal counsel, that (i) it would be detrimental to us and our stockholders for
resales of the registered securities to be made pursuant to a registration
statement due to the existence of a material development or potential material
development involving us that we would be obligated to disclose in a
registration statement, which disclosure would be premature or otherwise
inadvisable at such time or would have a material adverse effect upon us and our
stockholders, or (ii) such material development or potential material
development involving us would adversely affect or require premature disclosure
of the filing of a registration by us of any class of our equity securities,
then we have the right to suspend offers and sales of the registered securities
pursuant to a registration statement for a period of not more than 30 calendar
days in any 12 month period, but only if we reasonably conclude, after
consultation with outside legal counsel, that the failure to suspend the use of
the registration statement would create a material liability or violation under
applicable securities laws or regulations.
In
addition, we have assumed the obligation of our wholly-owned subsidiary,
Bacterin, to provide “piggy back” registration
rights to the holders of warrants acquired in Bacterin’s two bridge financings
which it conducted prior to the Reverse Merger.
56
Lock-Up
Agreements
All
shares of common stock issued in the Reverse Merger to the former holders of
shares in Bacterin will be considered “restricted securities” under U.S. federal
securities laws and may not be resold pursuant to Rule 144 for a period of one
year after July 7, 2010, the date of the filing our Current Report on Form 8-K
disclosing the closing of he Reverse Merger. Each of the former Bacterin
stockholders who served as directors or executive officers of Bacterin as of the
closing of the Reverse Merger or who have joined as members of our Board of
Directors concurrently with the consummation of the Reverse Merger, or
collectively, Management, have executed one-year a lock-up agreement with us
which provide that their shares, including any shares that are now owned or are
subsequently acquired by them, will not be, directly or indirectly, publicly
sold, subject to a contract for sale or otherwise transferred for a period of 12
months following the Reverse Merger and the private placement; provided,
however, that (a) the restrictions set forth in such lock-up agreement will not
apply to any securities acquired by Management in the private placement and (b)
Guy Cook is permitted to hypothecate, pledge and grant a security interest in up
to 5,000,000 of his existing shares received from us in connection with the
Reverse Merger as collateral for borrowed funds used to acquire securities in
the private placement and, if such collateral is executed against, shall be
permitted to assign and transfer such shares to the secured party free of any
restrictions set forth therein.
Other
Rights To Acquire Our Common Stock
We are
contractually obligated to issue shares of our common stock to Harborview
Advisors, LLC as follows:
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|
·
|
if,
after seven months from the closing of the Reverse Merger and the private
placement, our common stock is publicly trading at an average daily
closing price of $3.20 per share for the 30 days immediately preceding the
last day of such seven month period, we must issue to such stockholder
187,500 shares of our common stock;
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|
|
·
|
if,
after 13 months from the closing of the Reverse Merger and the private
placement, our common stock is publicly trading at an average daily
closing price of $3.20 per share for the 30 days immediately preceding the
last day of such thirteen month period, we must issue to such stockholder
187,500 additional shares of our common stock;
and
|
|
|
·
|
if,
after 13 months from the closing of the Reverse Merger and the private
placement, our common stock is publicly trading at an average daily
closing price of $4.80 per share for the 30 days immediately preceding the
last day of such thirteen month period, we must issue to such stockholder
187,500 additional shares of our common stock (which shares, for the sake
of clarification, shall be in addition to the shares to be issued pursuant
to the second bullet point above).
|
Market
Price and Dividends on Common Equity and Related Stockholder Matters Trading
Information
Our
common stock trades in the over-the-counter market and is quoted on the OTCBB
and OTCQB Marketplace under the trading symbol BIHI.OB. The trading market
for our common stock has been extremely limited and sporadic.
Although
we have applied to list our common stock for trading on the Nasdaq Global
Market. no assurance can be given that we will satisfy the initial listing
requirements, or that our shares of common stock will ever be listed on the
Nasdaq Global Market or another national securities exchange.
The
warrants will not be registered or listed for trading.
Transfer
Agent
Our
current transfer agent and registrar for our common stock is Corporate Stock
Transfer, Denver, Colorado. We serve as warrant agent for the
warrants.
57
Holders
of Record
As of
September 28, 2010, there were approximately 358 holders of record of our common
stock.
Dividends
We have
not paid any dividends on our common stock and we do not intend to pay any
dividends on our common stock in the foreseeable future.
LEGAL
MATTERS
The
validity of the securities in this offering will be passed upon for us by
Exemplar Law, LLC.
EXPERTS
The
financial statements appearing in this prospectus and registration statement on
Form S−1 have been audited by Child, Van Wagoner & Bradshaw, PLLC,
independent certified public accountants, as set forth in their report thereon
appearing elsewhere in this prospectus and in the registration statement on Form
S−1, and such report is included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
WHERE
YOU CAN FIND ADDITIONAL INFORMATION
We have
filed a registration statement on Form S-1 with the Securities and Exchange
Commission relating to the common stock offered by this prospectus. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance we
refer you to the copy of the contract or other document filed as an exhibit to
the registration statement, each such statement being qualified in all respects
by such reference. For further information with respect to our company and
the common stock offered by this prospectus, we refer you to the registration
statement, exhibits, and schedules.
We file
annual, quarterly, and current reports and other information with the SEC.
Anyone may read and copy these materials, including the registration statement,
without charge at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. The public may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains a website at www.sec.gov that contains
reports, proxy and information statements, and other information regarding
registrants that file electronically with the SEC.
Our
website is located at www.bacterin.com. The
information contained on our website does not constitute part of this
prospectus. Through our website, we make available free of charge our
annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, or the
Exchange Act. These reports are available as soon as reasonably
practicable after we electronically file those materials with the Securities and
Exchange Commission.
58
INDEX TO
FINANCIAL STATEMENTS
|
Page
|
|
|
Condensed
Consolidated Balance Sheets - September 30, 2010 (unaudited)
and
|
|
|
December
31, 2009
|
F-2
|
|
Condensed
Consolidated Statements of Operations - For the Three
Months
|
|
|
and
Nine Months Ended September 30, 2010 and 2009
(unaudited)
|
F-3
|
|
Condensed
Consolidated Statements of Cash Flows - For the Nine
Months
|
|
|
Ended
September 30, 2010 and 2009 (unaudited)
|
F-4
|
|
Notes
to Unaudited Condensed Consolidated Financial
Statements
|
F-5
|
|
Report
of Independent Registered Public Accounting Firm
|
F-16
|
|
Balance
Sheets - December 31, 2009 and 2008
|
F-17
|
|
Statements
of Operations - For the Years Ended December 31, 2009 and
2008
|
F-18
|
|
Statements
of Changes in Stockholders’ Equity - For the Years
Ended
|
|
|
December
31, 2009 and 2008
|
F-19
|
|
Statements
of Cash Flows - For the Years Ended December 31, 2009 and
2008
|
F-20
|
|
Notes
to Financial Statements
|
F-21
|
F-1
BACTERIN
INTERNATIONAL HOLDINGS, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
September
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
(unaudited)
|
||||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash and cash
equivalents
|
$ | 571,844 | $ | 54,155 | ||||
|
Accounts receivable, net of
allowance of $ 122,949 and $81,803,
respectively
|
2,560,692 | 1,314,418 | ||||||
|
Notes receivable -
trade
|
518,905 | 270,565 | ||||||
|
Inventories,
net
|
6,971,792 | 5,000,713 | ||||||
|
Prepaid and other current
assets
|
221,567 | 30,000 | ||||||
| 10,844,800 | 6,669,851 | |||||||
|
Property and equipment,
net
|
3,117,439 | 3,248,096 | ||||||
|
Intangible assets,
net
|
541,417 | 554,268 | ||||||
|
Notes receivable - related
party
|
82,255 | - | ||||||
|
Other
assets
|
15,585 | 13,675 | ||||||
|
Total
Assets
|
$ | 14,601,496 | $ | 10,485,890 | ||||
|
LIABILITIES & STOCKHOLDERS'
EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 1,749,938 | $ | 1,403,950 | ||||
|
Accrued
liabilities
|
1,052,972 | 463,630 | ||||||
|
Other current
liabilities
|
315,000 | - | ||||||
|
Warrant derivative
liability
|
7,429,968 | 75,231 | ||||||
|
Notes
payable
|
956,978 | 1,126,693 | ||||||
|
Notes payable to
stockholders
|
162,397 | 183,461 | ||||||
|
Current portion of capital
lease obligations
|
35,780 | 85,071 | ||||||
|
Convertible notes payable, net
of debt discount
|
393,834 | 820,787 | ||||||
|
Current portion of long-term
debt
|
1,097,525 | 1,202,574 | ||||||
| Total current liabilities | 13,194,392 | 5,361,397 | ||||||
|
Long-term
Liabilities:
|
||||||||
|
Capital lease obligation, less
current portion
|
- | 27,074 | ||||||
|
Long-term debt, less current
portion
|
292,800 | 412,545 | ||||||
|
Total
Liabilities
|
13,487,192 | 5,801,016 | ||||||
|
Stockholders'
Equity
|
||||||||
|
Preferred stock, $.000001 par
value; 15,000,000 shares authorized; no shares issued and
outstanding
|
- | - | ||||||
|
Common stock, $.000001 par
value; 135,000,000 shares authorized; 35,903,864 issued shares and
35,900,160 outstanding shares on September 30, 2010 and 28,211,562 issued
shares and 28,152,665 outstanding shares on December 31,
2009
|
36 | 28 | ||||||
|
Additional
paid-in capital
|
31,329,914 | 22,238,747 | ||||||
|
Treasury
stock, 58,897 shares on December 31, 2009 and 3,704 shares on September
30, 2010
|
(2,963 | ) | (76,566 | ) | ||||
|
Retained
deficit
|
(30,212,683 | ) | (17,477,335 | ) | ||||
|
Total Stockholders’
Equity
|
1,114,304 | 4,684,874 | ||||||
|
Total Liabilities &
Stockholders’ Equity
|
$ | 14,601,496 | $ | 10,485,890 | ||||
See
notes to unaudited condensed consolidated financial
statements.
F-2
BACTERIN
INTERNATIONAL HOLDINGS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
Three Months
Ended
September
30,
|
Nine Months
Ended
September
30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
Revenue
|
||||||||||||||||
|
Tissue
sales
|
$ | 4,045,347 | $ | 1,356,842 | $ | 9,936,095 | $ | 4,995,682 | ||||||||
|
Royalties and
other
|
146,639 | 25,975 | 193,424 | 207,554 | ||||||||||||
|
Total
Revenue
|
4,191,986 | 1,382,817 | 10,129,519 | 5,203,236 | ||||||||||||
|
Cost of tissue sales (excluding
depreciation expense presented below)
|
711,173 | 973,436 | 1,832,967 | 1,631,555 | ||||||||||||
|
Gross
Profit
|
3,480,813 | 409,381 | 8,296,552 | 3,571,681 | ||||||||||||
|
Operating
Expenses
|
||||||||||||||||
|
General and
administrative
|
2,141,028 | 1,468,936 | 5,741,315 | 3,705,892 | ||||||||||||
|
Sales and
marketing
|
2,320,446 | 366,827 | 5,465,431 | 1,120,996 | ||||||||||||
|
Depreciation
|
152,994 | 166,964 | 457,156 | 495,218 | ||||||||||||
|
Stock Options/Restricted stock
Compensation expense (excluded from general and administrative
expense)
|
951,442 | 143,121 | 1,227,871 | 446,960 | ||||||||||||
|
Total Operating
Expenses
|
5,565,910 | 2,145,848 | 12,891,773 | 5,769,066 | ||||||||||||
|
Loss from
Operations
|
(2,085,097 | ) | (1,736,467 | ) | (4,595,221 | ) | (2,197,385 | ) | ||||||||
|
Other Income
(Expense)
|
||||||||||||||||
|
Interest
expense
|
(160,289 | ) | (135,715 | ) | (680,418 | ) | (337,303 | ) | ||||||||
|
Change in warrant derivative
liability
|
(6,731,857 | ) | - | (6,826,533 | ) | - | ||||||||||
|
Other
income/expense
|
(65,984 | ) | - | (633,176 | ) | 11,298 | ||||||||||
|
Total Other Income
(Expense)
|
(6,958,130 | ) | (135,715 | ) | (8,140,127 | ) | (326,005 | ) | ||||||||
|
Net Loss Before Benefit
(Provision) for Income Taxes
|
(9,043,227 | ) | (1,872,182 | ) | (12,735,348 | ) | (2,523,390 | ) | ||||||||
|
Benefit (Provision) for Income
Taxes
|
||||||||||||||||
|
Current
|
- | - | - | - | ||||||||||||
|
Deferred
|
- | - | - | - | ||||||||||||
|
Net
Loss
|
$ | (9,043,227 | ) | $ | (1,872,182 | ) | $ | (12,735,348 | ) | $ | (2,523,390 | ) | ||||
|
Net loss per
share:
|
||||||||||||||||
|
Basic
|
$ | (0.26 | ) | $ | (0.09 | ) | $ | (0.42 | ) | $ | (0.10 | ) | ||||
|
Shares used in the
computation:
|
||||||||||||||||
|
Basic
|
35,398,628 | 21,868,980 | 30,658,229 | 26,247,360 | ||||||||||||
See
notes to unaudited condensed consolidated financial statements.
F-3
BACTERIN INTERNATIONAL HOLDINGS,
INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(Unaudited)
|
Nine Months Ended September
30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Operating
activities:
|
||||||||
|
Net
loss
|
$ | (12,735,348 | ) | $ | (2,523,390 | ) | ||
|
Noncash
adjustments:
|
||||||||
|
Depreciation and
amortization
|
493,608 | 529,941 | ||||||
|
Stock/option awards for
services
|
427,197 | 686,955 | ||||||
|
Provision for losses on
accounts receivable and inventory
|
51,902 | 5,473 | ||||||
|
Warrants issued for
services
|
- | 13,603 | ||||||
|
Restricted stock compensation
expense
|
800,674 | - | ||||||
|
Non-cash interest
expense
|
703,942 | - | ||||||
|
Change in derivative warrant
liability
|
6,826,533 | - | ||||||
|
Changes in operating assets and
liabilities:
|
||||||||
|
Accounts
receivable
|
(1,287,420 | ) | (193,383 | ) | ||||
|
Notes
receivable
|
(248,340 | ) | - | |||||
|
Inventories
|
(1,981,835 | ) | (570,335 | ) | ||||
|
Accrued
interest
|
- | 11,138 | ||||||
|
Prepaid and other current
assets
|
(191,567 | ) | (61,361 | ) | ||||
|
Other assets and
liabilities
|
313,090 | - | ||||||
|
Accounts
payable
|
345,988 | (163,414 | ) | |||||
|
Accrued
liabilities
|
591,680 | 181,128 | ||||||
|
Net cash (used in) operating
activities
|
(5,889,896 | ) | (2,083,645 | ) | ||||
|
Investing
activities:
|
||||||||
|
Purchases of property and
equipment
|
(326,499 | ) | (61,484 | ) | ||||
|
Gain on disposal of
assets
|
- | 116,437 | ||||||
|
Notes receivable from
stockholder
|
(82,255 | ) | (74,702 | ) | ||||
|
Intangible asset
additions
|
(23,601 | ) | (55,259 | ) | ||||
|
Net cash (used in) investing
activities
|
(432,355 | ) | (75,008 | ) | ||||
|
Financing
activities:
|
||||||||
|
Payments on long-term
debt
|
(224,794 | ) | (172,105 | ) | ||||
|
Restricted
Cash
|
- | 1,000,000 | ||||||
|
Proceeds from issuance of
convertible debt
|
4,700,000 | - | ||||||
|
Payments on convertible
debt
|
(1,790,000 | ) | - | |||||
|
Proceeds from NP
shareholders
|
- | 76,566 | ||||||
|
Proceeds from notes
payable
|
- | 57,876 | ||||||
|
Proceeds from capital
leases
|
- | 65,715 | ||||||
|
Payments on notes
payable
|
(117,511 | ) | (500,000 | ) | ||||
|
Payments on related party
notes
|
(23,402 | ) | (34,769 | ) | ||||
|
Payments on capital
leases
|
(76,365 | ) | (169,209 | ) | ||||
|
Proceeds from issuance of
common stock
|
5,095,934 | 1,675,000 | ||||||
|
Purchase of treasury
stock
|
(730,622 | ) | (76,566 | ) | ||||
|
Proceeds from the exercise
of stock options
|
6,700 | - | ||||||
|
Net cash provided by financing
activities
|
6,839,940 | 1,922,508 | ||||||
|
Net change in cash and cash
equivalents
|
517,689 | (236,145 | ) | |||||
|
Cash and cash equivalents at
beginning of period
|
54,155 | 238,895 | ||||||
|
Cash and cash equivalents at
end of period
|
$ | 571,844 | $ | 2,750 | ||||
See notes to unaudited
condensed consolidated financial statements.
F-4
Bacterin
International Holdings, Inc.
Notes
to Unaudited Condensed Consolidated Financial Statements
(1) Business
Description and Summary of Significant Accounting Policies
Business
Description
Bacterin
International Holdings, Inc. (“the “Company” or “Bacterin”) develops,
manufactures and markets biologics products to domestic and international
markets. These products are used in a variety of applications
including enhancing fusion in spine surgery, relief of back pain with a facet
joint stabilization, promotion of bone growth in foot and ankle surgery,
promotion of skull healing following neurosurgery and cartilage regeneration in
knee and other joint surgeries.
Bacterin’s
device division develops anti-microbial coatings to inhibit infection based upon
proprietary knowledge of the phenotypical changes made by microbes as they sense
and adapt to changes in their environment. Bacterin develops bioactive coatings
for various medical device applications. Bacterin’s strategic coating
initiatives include the inhibition of biofilm formation, local (as opposed to
systemic) drug delivery, local (as opposed to systemic) pain management, and
anti-thrombotic factors for medical device applications.
Certain
Risks and Concentrations
The
Company's revenue is derived principally from the sale of its medical products,
coatings and device implants. The markets in which the Company competes are
highly competitive and rapidly changing. Significant technological advances,
changes in customer requirements, or the emergence of competitive products with
new capabilities or technologies could adversely affect the Company's operating
results. The Company's business could be harmed by a decline in demand for, or
in the prices of, its products or as a result of, among other factors, any
change in pricing or distribution model, increased price competition, changes in
government regulations or a failure by the Company to keep up with technological
change. Further, a decline in available tissue donors could have an
adverse impact on the business.
Financial
instruments subjecting the Company to concentrations of credit risk are accounts
and notes receivable. The Company maintains cash, cash equivalents, and
short-term investments with various domestic financial institutions. From time
to time, the Company's cash balances with its financial institutions may exceed
federal deposit insurance limits.
The
Company's customers are worldwide with approximately 97% of sales in the United
States for the nine months ended September 30, 2010. One customer accounted for
approximately 9% and 14% of the Company’s revenue for the nine months ended
September 30, 2010 and 2009, respectively. One customer represented
9% and 12% of accounts receivable at September 30, 2010 and 2009,
respectively.
Revenue
by geographical region is as follows:
|
For
the nine months ended
September
30,
|
||||||||
|
2010
|
2009
|
|||||||
|
United
States
|
$
|
9,814,424
|
$
|
4,703,646
|
||||
|
Rest
of World
|
315,095
|
499,590
|
||||||
|
$
|
10,129,519
|
$
|
5,203,236
|
|||||
Use
of Estimates
The
preparation of the financial statements requires management of the Company to
make a number of estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the period; the carrying amount of property and equipment and
intangible assets; valuation allowances for receivables and deferred income tax
assets; and estimates of expected term and volatility in determining stock-based
compensation expense. Actual results could differ from those
estimates.
F-5
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity date of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates market
value.
Accounts
Receivable and Notes Receivable - Trade
Accounts
receivable represents amounts due from customers for which revenue has been
recognized. Normal terms on trade accounts receivable are net 30 days and some
customers are offered discounts for quick pay. Notes receivable
include amounts due from West Coast Tissue Service, a supplier of donors to the
Company. The Company performs credit evaluations when considered necessary, but
generally does not require collateral to extend credit.
The
allowance for doubtful accounts is the Company's best estimate of the amount of
probable credit losses in the Company's existing receivables. The Company
determines the allowance based on factors such as historical collection
experience, customer's current creditworthiness, customer concentration, age of
accounts receivable balance and general economic conditions that may affect a
customer's ability to pay. Actual customer collections could differ from
estimates. Account balances are charged to the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote. Provisions to the allowance for doubtful accounts are charged to
expense. The Company does not have any off-balance sheet credit exposure related
to its customers.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using
the specific identification method and includes materials, labor and
overhead.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets, generally three to seven years for
computers and equipment, and 30 years for buildings. Repairs and maintenance are
expensed as incurred.
Intangible
Assets
Intangible
assets include costs to acquire and protect Company patents and are carried at
cost less accumulated amortization. The Company amortizes these assets on a
straight-line basis over their estimated useful lives of 15
years.
Grants
As
part of the Company’s efforts to build the development of new technologies,
tissue donation and expansion of tissue supply, the Company, may, from
time-to-time either provide or receive grants. These grant receipts
are used for research and development efforts. No revenues or expenses for
grants were earned or incurred for the nine months ended September 30, 2010 or
2009.
Revenue
Recognition
Revenue
is recognized when all of the following criteria are met: a) the Company has
entered into a legally binding agreement with the customer; b) the products or
services have been delivered; c) the Company's fee for providing the products
and services is fixed and determinable; and d) collection of the Company’s fee
is probable.
The
Company’s policy is to record revenue net of any applicable sales, use, or
excise taxes. If an arrangement includes a right of acceptance or a
right to cancel, revenue is recognized when acceptance is received or the right
to cancel has expired.
The
Company sells to certain customers under consignment arrangements whereby the
Company ships product to be stored by the customer. The customer is
required to report the use to the Company and upon such notice, the Company
invoices the customer.
Research
and development services revenue is recognized as performed, based on the
incurrence of qualifying costs or achievement of milestones as prescribed in the
arrangement.
F-6
Research
and Development
Research
and development costs, which are principally related to internal costs for the
development of new technologies and processes for tissue and coatings, are
expensed as incurred.
Income
Taxes
The
Company records income taxes under the asset and liability method as prescribed
under FASB Accounting Standards Codification (“ASC”) 740, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. When applicable, a
valuation allowance is established to reduce any deferred tax asset when it is
determined that it is more likely than not that some portion of the deferred tax
asset will not be realized.
Impairment
of Long-Lived Assets
Long-lived
assets, including intangible assets, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. No impairments of long-lived assets
have been identified in any of the periods presented.
Net
Income (Loss) Per Share
A
reconciliation of the denominator used in the calculation of basic and diluted
net (loss) per share is as follows:
|
Three
Months Ended
|
||||||||
|
Net
(Loss) Per Share:
|
September
30,
|
|||||||
|
2010
|
2009
|
|||||||
|
Net
(Loss)
|
$
|
(9,043,227
|
)
|
$
|
(1,872,182
|
)
|
||
|
Basic
net loss per share
|
$
|
(0.26
|
)
|
$
|
(0.09
|
)
|
||
|
Weighted
average common shares outstanding for basic net (loss) per
share
|
35,398,628
|
21,868,980
|
||||||
Dilutive
earnings per share are not reported as the effect of including 11,106,105 and
6,567,391 outstanding stock options and warrants for the nine months ended
September 30, 2009 and 2008, respectively, would be anti dilutive resulting in a
lower net loss per share.
Reverse
Merger Transaction
On
June 30, 2010, the Company completed a reverse merger transaction (the “Reverse
Merger”), in which we caused Bacterin International, Inc., a Nevada corporation
(“Bacterin”), to be merged with and into a wholly-owned Nevada subsidiary
created for purposes of effecting the Reverse Merger, and the stockholders of
Bacterin obtained control of the Company. The Reverse Merger was consummated
under Nevada corporate law pursuant to an Agreement and Plan of Merger, dated as
of June 30, 2010. As a result of the Reverse Merger, Bacterin became
our wholly-owned subsidiary and we are now engaged, through Bacterin, in the
business of biomaterials research, development, and commercialization. K-Kitz
ceased operations on June 30, 2010 in connection with the Reverse Merger
transaction.
Pursuant
to the terms of the Reverse Merger, the stockholders of Bacterin immediately
preceding the Reverse Merger received one share of the Company’s common stock
for each two shares of Bacterin common stock such stockholder held prior to the
Reverse Merger (effectively resulting in a de facto one-for-two reverse stock
split of the then outstanding Bacterin shares). The aggregate number of the
Company’s shares of common stock so issued to the Bacterin stockholders, being
28,257,133 shares, represented approximately 96% of our outstanding common stock
as of the closing of the Reverse Merger on June 30, 2010, prior to taking into
account the issuance of any shares of our common stock pursuant to the private
placement described below.
All
share amounts, including those for which any securities are exercisable or
convertible, have been adjusted to reflect the conversion ratio used in the
Reverse Merger. In addition, stockholders equity and earnings per
share have been retroactively restated to reflect the number of shares of
Company common stock received by Bacterin stockholders in the Reverse Merger or
the number of shares of Company common stock receivable by former Bacterin
stockholders upon exercise or conversion of other securities held by them, as
applicable.
F-7
Bacterin
was deemed to be the acquiring company for accounting purposes and, accordingly,
the Reverse Merger has been accounted for as a recapitalization. The
consolidated financial statements of the Company after the Reverse Merger
reflect the historical financial results of Bacterin before the consummation of
the Reverse Merger and do not include the historical financial results of the
Company before the consummation of the Reverse Merger.
Private
Placement
Concurrently
with the closing of the Reverse Merger on June 30, 2010, we also completed an
initial closing of a private placement to selected qualified investors of shares
of our common stock at a purchase price of $1.60 per share and detachable
warrants to purchase one-quarter share of our common stock (at an exercise price
of $2.50 per share) for each share of common stock purchased in the private
placement.
In the
initial closing on June 30,2010, , we sold 4,934,533 shares of our common stock
and warrants to purchase 1,233,646 shares of common stock as part of this
initial closing. We received gross proceeds of $7,508,329 in consideration for
the sale of the shares of common stock and warrants, which consisted of (i)
$4,026,000 in net cash from investors in the private placement and (ii)
$3,482,329 from note holders in two earlier Bacterin bridge financings
(conducted to fund working capital and capital expenditures during the months
prior to the Reverse Merger) who converted their outstanding principal and
interest into the private placement at a 10% discount to the purchase price,
being $1.44 per share, and received identical warrant coverage as the cash
investors except that the exercise price of the converting note holders’
warrants is $2.25 per share, a 10% discount to the exercise price of the
warrants received by the cash investors. The note holders in the bridge
financings also received warrants to purchase 1,482,256 shares of our common
stock and our placement agent received warrants to purchase 328,125 shares of
our common stock as part of the bridge financings.
In the
second and final closing of this private placement on July 30, 2010, we sold a
total of 1,102,500 additional shares of our common stock together with
additional warrants to purchase an aggregate of 275,625 shares of our common
stock for total gross cash proceeds of $1,764,000.
Our
placement agents received an aggregate of $463,200 in cash fees in connection
with the private placement ($322,080 from the initial closing and $141,120 from
the second and final closing) and were reimbursed for their
out-of-pocket-expenses. In addition, the placement agents received an
aggregate of 106,217 shares of our common stock (84,167 shares from
the initial closing and 22,050 shares from the second and final closing) and
warrants to purchase 361,875 shares of our common stock (251,625 shares from the
initial closing and 110,250 shares from the second and final closing) at an
exercise price of $1.60 per share.
Following
the private placement transaction, the Company has permitted an additional
$450,000 in principal amount outstanding under the bridge financing to convert
into 316,823 shares of the Company’s common stock and warrants to purchase
79,206 shares of the Company’s common stock on the same terms as if such debt
had actually converted in the private placement transaction.
On
August 6, 2010, we paid certain of Bacterin’s former stockholders, who held
approximately 743,940 shares of Bacterin common stock in the aggregate (or the
equivalent of 371,970 shares of our common stock post-Reverse Merger), the fair
value for such shares in connection with the exercise of their dissenters’
rights. As a result, and pursuant to the terms of the agreement
governing the Reverse Merger, the former Bacterin stockholders (excluding the
dissenting shareholders) are entitled to be issued 371,970 shares of our common
stock (i.e., the same
number of shares that the dissenting stockholders would have received had they
not exercised their dissenters rights) in proportion to such stockholders’
pre-Reverse Merger share holding percentages in Bacterin.
On
November 19, 2010, the Company entered into financing arrangement with two
subsidiaries of Western Technology Investment (“WTI”), whereby WTI, through its
subsidiaries, agreed to provide a credit facility which allows the Company to
draw down $2.5 million initially, and gives the Company the ability to draw down
an additional $2.5 million through April 30, 2011 provided the Company has
achieved 90% of performance based milestones for the next two
quarters. In addition, upon the mutual agreement of Bacterin and WTI,
WTI has agreed to an additional commitment through December 31, 2011 of up to
25% of the next new round of equity financing or up to $3.0
million. The credit facility is secured by the Company’s personal
property and carries an all-in interest rate of 12.5%. Repayment of
the initial $2.5 million will be interest only for the first six months, with
principal and interest for the subsequent 30 months. The WTI facility
also allows the company to obtain separate accounts receivable
financing. In connection with the financing, WTI also received
warrants to purchase up to
375,000 shares of the Company’s common stock. The warrants have an
exercise price of the lower of $4.00 per share or the price at which shares of
the Company’s stock are sold in the next qualified financing, if applicable
prior to the date of exercise. The WTI warrants expire on April 30,
2018. WTI also has the right to receive additional warrants to
purchase 125,000 shares of the Company’s common stock at the same exercise price
if the Company draws down the second $2.5 million tranche of the
facility.
The
Company also issued warrants to purchase a total of 489,710 shares of the
Company’s common stock to a limited group of existing investors who exercised
existing warrants. The new warrants have an exercise price of $4.00
per share and expire on the fifth anniversary of the date of
issuance. The Company received a total of $1,111,374 from the cash
payments of the exercise price of the existing warrants.
The
Company also issued 30,000 shares to a former executive in connection with a
settlement agreement and converted the former executive’s stock options to an
equivalent number of warrants.
Stock-Based
Compensation
On
January 1, 2006, the Company adopted the provisions of ASC 718 for its
stock-based compensation plans. Under ASC 718, stock-based
compensation costs are recognized based on the estimated fair value at the grant
date for all stock-based awards. The Company estimates grant date
fair values using the Black-Scholes-Merton option pricing model, which requires
assumptions of the life of the award and the stock price volatility over the
term of the award. The Company records compensation cost of
stock-based awards using the straight line method, which is recorded into
earnings over the vesting period of the award. Pursuant to the income
tax provisions included in ASC 718-740, the Company has elected the “short cut
method” of computing its hypothetical pool of additional paid-in capital that is
available to absorb future tax benefit shortfalls.
Comprehensive
Income (Loss)
Comprehensive
loss includes net income or loss, as well as other changes in stockholders'
equity that result from transactions and economic events other than those with
stockholders. The Company currently does not have any transactions that qualify
for accounting and inclusion as other comprehensive income
(loss).
Fair
Value of Financial Instruments
The
carrying values of financial instruments, including accounts receivable, notes
receivable, accounts payable and other accrued expenses, approximate their fair
values .
F-8
(2) Notes
Receivable - Trade
Notes
receivable - trade consist of the following:
|
September
30,
2010
|
December
31,
2009
|
|||||||
|
West
Coast Tissue Service, Inc.
|
$
|
518,905
|
$
|
270,565
|
||||
West
Coast Tissue Service, Inc. is a non-profit corporation organized under Section
501(c)(3) of the Internal Revenue Code. The Company has contracted
with West Coast Tissue Service to acquire its donor tissue for use in the
Company’s production. If the Company were unable to continue to
receive donor tissue, it may have a material effect on its financial statements
and results of operations. The notes are non-interest
bearing.
(3) Inventories
Inventories
consist of the following:
|
September
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Raw
materials
|
$
|
281,673
|
$
|
1,279,006
|
||||
|
Work
in process
|
1,802,197
|
1,282,080
|
||||||
|
Finished
goods
|
4,958,678
|
2,499,627
|
||||||
|
7,042,548
|
5,060,713
|
|||||||
|
Reserve
|
(70,756
|
)
|
(60,000
|
)
|
||||
|
$
|
6,971,792
|
$
|
5,000,713
|
|||||
(4) Property
and Equipment, Net
Property
and equipment, net are as follows:
|
September
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Buildings
|
$
|
1,613,628
|
$
|
1,613,628
|
||||
|
Equipment
|
2,897,381
|
2,575,659
|
||||||
|
Computer
equipment
|
238,243
|
235,566
|
||||||
|
Computer
software
|
140,071
|
140,071
|
||||||
|
Furniture
and fixtures
|
75,007
|
75,007
|
||||||
|
Leasehold
improvements
|
900,348
|
898,248
|
||||||
|
Vehicles
|
68,306
|
68,306
|
||||||
|
Total
cost
|
5,932,984
|
5,606,485
|
||||||
|
Less:
accumulated depreciation
|
(2,815,545
|
)
|
(2,358,389
|
)
|
||||
|
$
|
3,117,439
|
$
|
3,248,096
|
|||||
Maintenance
and repairs expense for the nine months ended September 30, 2010 and December
31, 2009, was $49,759 and $43,328, respectively. Depreciation expense
related to property, plant and equipment, including property under capital
lease, for the nine months ended September 30, 2010 and 2009 was $457,156 and
$495,218, respectively.
(5) Intangible
Assets
Bacterin
has been issued various patents with regards to processes for its
products.
The
following table sets forth information regarding intangible
assets:
|
Intellectual
Property
|
September
30,
2010
|
December
31,
2009
|
||||||
|
Gross
carrying value
|
$
|
734,072
|
$
|
710,471
|
||||
|
Accumulated
amortization
|
$
|
(192,655
|
)
|
$
|
(156,203
|
)
|
||
|
Net
carrying value
|
$
|
541,417
|
$
|
554,268
|
||||
|
Aggregate
amortization expense:
|
$
|
34,724
|
$
|
46,080
|
||||
|
Estimated
amortization expense:
|
||||||||
|
2010
|
$
|
47,364
|
||||||
|
2011
|
$
|
47,364
|
||||||
|
2012
|
$
|
47,364
|
||||||
|
2013
|
$
|
47,364
|
||||||
|
2014
|
$
|
47,364
|
||||||
F-9
(6) Accrued
Liabilities
Accrued
liabilities consist of the following:
|
September
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Credit
cards
|
$
|
-
|
$
|
10,764
|
||||
|
Accrued
interest payable
|
12,267
|
75,382
|
||||||
|
Wages
payable
|
884,040
|
377,484
|
||||||
|
Other
accrued expenses
|
156,665
|
-
|
||||||
|
$
|
1,052,972
|
$
|
463,630
|
|||||
(7) Notes
Payable
Notes
payable consist of the following:
|
September
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Note
payable Kevin Daly
|
$
|
-
|
$
|
200,000
|
||||
|
Note
payable Hamilton Group
|
459,661
|
426,693
|
||||||
|
Notes
payable Flathead Bank
|
497,317
|
500,000
|
||||||
|
$
|
956,978
|
$
|
1,126,693
|
|||||
The
note payable to Kevin Daly was a 30-day note payable bearing interest at 15% and
was repaid in January 2010. The Hamilton Group notes were repaid with
the proceeds of the WTI financing on November 19, 2010. The notes payable to
Flathead Bank are 6.5% short-term notes with monthly payments of $3,728 and
maturing on June 25, 2010. The maturity date of this note has since been
extended.
(8) Convertible
Notes Payable
|
September
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
12%
convertible note payable.
|
$
|
400,000
|
$
|
890,000
|
||||
|
Less:
debt discount
|
(6,165
|
)
|
(69,213
|
)
|
||||
|
$
|
393,834
|
$
|
820,787
|
|||||
The
12% convertible notes payable, as of September 30, 2010, mature in September,
2010, are secured by the Company’s intellectual property and raw material
inventory, and are convertible any time into common stock at $1.44 per share.
The Company was in compliance with the restrictive covenants of these notes as
of September 30, 2010 and December 31, 2009. These notes were repaid during
November 2010.
F-10
(9) Long-Term
Debt
Long-term
debt consists of the following:
|
September
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
6.5%
loan payable to Flathead Bank, $7,278 monthly payments including interest,
note has been extended, secured by building
|
$
|
963,154
|
$
|
976,218
|
||||
|
8.50%
loan payable to Flathead Bank, $9,329 monthly payments, including
interest, maturing in 2012, secured by equipment
|
224,774
|
293,052
|
||||||
|
5.00%
loan payable to the City of Belgrade, $3,653 monthly payments, including
interest, maturing in 2012, secured by equipment
|
102,927
|
141,215
|
||||||
|
5.00%
loan payable to the City of Belgrade, $6,982 monthly payments, including
interest, maturing in 2010, secured by equipment
|
-
|
39,044
|
||||||
|
5.00%
loan payable to Valley Bank of Belgrade, $4,140 monthly payments including
interest, maturing September 1, 2011; secured by
building
|
99,470
|
165,590
|
||||||
|
1,390,325
|
1,615,119
|
|||||||
|
Less:
Current portion
|
(1,097,525
|
)
|
(1,202,574
|
)
|
||||
|
$
|
292,800
|
$
|
412,545
|
|||||
The
following is a summary of maturities due on the long-term debt as of September
30, 2010:
|
2010
|
$
|
963,154
|
||
|
2011
|
99,470
|
|||
|
2012
|
327,701
|
|||
|
2013
|
-
|
|||
|
Thereafter
|
-
|
|||
|
Total
|
$
|
1,390,325
|
With
the exception of the 6.5% loan payable to Flathead Bank, the other notes were
all repaid with the proceeds of the WTI financing on November 19,
2010.
(10) Capital
Leasing Transactions
Future
minimum capital and operating lease payments are as follows:
|
2010
|
$
|
10,411
|
||
|
2011
|
25,369
|
|||
|
2012
|
-
|
|||
|
Thereafter
|
-
|
(11) Notes
Payable to Stockholders
Notes
payable to stockholders consist of the following:
|
September
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Notes
payable to Guy Cook
|
$
|
76,969
|
$
|
76,969
|
||||
|
Note
payable to Mitch Godfrey
|
85,428
|
106,492
|
||||||
|
$
|
162,397
|
$
|
183,461
|
|||||
The
notes payable to Guy Cook and Mitch Godfrey do not have specified payment terms
and bear 6% interest per annum. These notes were repaid with the proceeds of the
WTI financing on November 19, 2010.
(12) Stock-Based
Compensation
The
Company’s Equity Incentive Plan provides for stock awards, including options and
performance stock awards, to be granted to employees, consultants, independent
contractors, officers and directors. The purpose of the incentive
compensation plan is to enable us to attract, retain and motivate key employees,
directors and, on occasion, independent consultants, by providing them with
stock options and restricted stock grants. Stock options granted
under the incentive compensation plan may be either incentive stock options to
employees, as defined in Section 422A of the Internal Revenue Code of 1986, or
non-qualified stock options. The plan is currently administered by
our board of directors but will be administered by our compensation committee
once such committee has been established. The administrator of the
plan has the power to determine the terms of any stock options granted under the
incentive plan, including the exercise price, the number of shares subject to
the stock option and conditions of exercise. Stock options granted
under the incentive plan are generally not transferable, vest in installments
and are exercisable during the lifetime of the optionee only by such
optionee. The exercise price of all incentive stock options granted
under the incentive plan must be at least equal to the fair market value of the
shares of common stock on the date of the grant. The specific terms
of each stock option grant will be reflected in a written stock option
agreement. At September 30, 2010, the Company had approximately 6
million shares available for issuance under the equity plan.
F-11
Compensation
expense recognized in the statement of operations for the nine months ended
September 30, 2010 and 2009 is based on awards ultimately expected to vest and
reflects an estimate of awards that will be forfeited. ASC 718
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates.
The
estimated fair value of stock options granted is done using the
Black-Sholes-Merton method applied to individual grants. Key
assumptions used to estimate the fair value of stock awards are as
follows:
|
|
·
|
Risk-Free
Rate: The risk-free rate is determined by reference to U.S. Treasury
yields at or near the time of grant for time periods similar to the
expected term of the award.
|
|
|
·
|
Expected
Term: The Company does not have adequate history to estimate an expected
term of stock-based awards, and accordingly, uses the short-cut method as
prescribed by Staff Accounting Bulletin 107 to determine an expected
term.
|
|
|
·
|
Volatility:
The Company estimates expected volatility based on peer-companies as
prescribed by ASC 718.
|
|
|
·
|
Dividend
Yield: The dividend yield assumption is based on the Company’s history and
expectation of dividend payouts and was 0% as of September 30, 2010 and
2009.
|
Activity
under the Company’s stock option plans was as follows:
|
Nine
months ended
September
30, 2010
|
Nine
months ended
September
30, 2009
|
|||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||
|
Average
|
Average
|
|||||||||||||||
|
Exercise
|
Exercise
|
|||||||||||||||
|
Shares
|
Price
|
Shares
|
Price
|
|||||||||||||
|
Outstanding
at Jan. 1,
|
3,353,493
|
$
|
1.33
|
1,999,160
|
$
|
1.23
|
||||||||||
|
Granted
|
1,220,500
|
1.60
|
1,440,000
|
1.56
|
||||||||||||
|
Exercised
|
5,000
|
1.34
|
-
|
-
|
||||||||||||
|
Cancelled
or expired
|
(656,250
|
)
|
1.51
|
(115,667
|
)
|
0.88
|
||||||||||
|
Outstanding
at September 30,
|
3,912,743
|
$
|
1.38
|
3,323,493
|
$
|
1.33
|
||||||||||
|
Exercisable
at September 30,
|
1,536,198
|
$
|
1.13
|
1,033,411
|
$
|
0.96
|
||||||||||
The
following table summarizes information concerning non-vested option transactions
for the year ended December 31, 2009:
|
Nonvested
Options
|
Shares
|
Weighted
Average
Grant
Date
Fair
Value
Per
Share
|
||||||
|
Nonvested
at January 1, 2009
|
1,776,044
|
$
|
0.90
|
|||||
|
Granted
|
69,600
|
1.00
|
||||||
|
Vested
|
(55,400
|
)
|
0.83
|
|||||
|
Forfeited
|
(68,400
|
)
|
0.90
|
|||||
|
Nonvested
at December 31, 2009
|
1,721,844
|
$
|
0.90
|
|||||
From
time to time the Company may grant stock options to consultants. The
Company accounts for consultant stock options in accordance with ASC
505-50. Compensation expense for the grant of stock options to
consultants is determined based on the estimated fair value of the stock options
at the measurement date as defined in ASC 505-50 and is recognized over the
vesting period.
F-12
In
connection with private placements of convertible debt, short-term debt, and
common stock, the Company issued warrants to purchase shares of common stock at
an exercise price of between $1.16 and $2.50 per share. During 2009, 38,400
warrants were issued with private placements of common stock, 86,400 warrants
were issued with the placement of short-term debt and 105,600 warrants were
issued with the placement of convertible notes. Warrants issued
with common stock were recorded as additional paid in capital at the estimated
fair market value of $13,601 in 2009. The warrants issued with
convertible debt and short-term loans were recorded as interest expense at the
estimated fair value of $137,415 in 2009 using the following
assumptions:
|
September
30,
2010
|
December
31,
2009
|
|||||||
|
Value
of underlying common stock (per share)
|
$
|
1.60
|
$
|
1.60
|
||||
|
Risk
free rate
|
Varied
|
2.20
|
%
|
|||||
|
Expected
term
|
2.5
years
|
2.5-5
years
|
||||||
|
Dividend
yield
|
0
|
%
|
0
|
%
|
||||
|
Volatility
|
55
|
%
|
44-61
|
%
|
||||
From
January 1, 2010, through September 30, 2010, we issued warrants to purchase
1,482,256 shares of our common stock at an exercise price between $2.16 and
$2.50 per share in connection with Bacterin’s two prior bridge financings and
warrants to purchase 1,579,374 shares of our common stock in connection with the
closing of our private placement on June 30, 2010 and July 30, 2010 described
above. Warrants to purchase 904,688 shares of our common stock which
were issued to investors who purchased shares for cash in the private placement
have an exercise price of $2.50 per share and warrants to purchase 674,686
shares of our common stock which were issued to note holders who converted debt
they acquired in Bacterin’s two prior bridge financings into the private
placement have an exercise price of $2.25 per share, a 10% discount to the
exercise price of the investors for cash.
Additionally,
we issued warrants to our placement agents to purchase 328,125 shares of our
common stock at an exercise price of $1.66 per share in connection with
Bacterin’s two prior bridge financings and 361,875 shares of our
common stock at an exercise price of $1.60 per share in connection with the
private placements which closed on June 30, 2010 and July
30,2010.
The Company utilizes the Black Scholes method to determine the
fair market value of the warrants. The warrants issued in connection with
the bridge financings were accounted for as a derivative in connection with the
price protection provisions of ASC 815.
The
following table summarizes our warrant activities for the nine months ended
September 30, 2010:
|
Shares
|
Weighted
Average Exercise Price
|
|||||||
|
Outstanding
at January 1, 2010
|
3,483,898
|
$
|
1.52
|
|||||
|
Issued:
|
|
|
||||||
| Warrants in connection with bridge financings |
1,482,256
|
$ |
2.24
|
|||||
| Warrants in connection with private placement |
1,579,374
|
$ |
2.39
|
|||||
| Warrants to placement agents - bridge financings |
328,125
|
$ |
1.66
|
|||||
| Warrants to placement agents - private placement |
361,875
|
$ |
1.60
|
|||||
|
Total
Issued
|
3,751,630
|
$ |
2.19
|
|||||
|
Exercised
|
-
|
-
|
||||||
|
Cancelled
or expired
|
-
|
-
|
||||||
|
Outstanding
at September 30, 2010
|
7,235,528
|
1.87
|
||||||
(13) Commitments
and Contingencies
Operating
Leases
The
Company leases office facilities under a non-cancelable operating lease
agreement with an expiration date in 2013. The Company has the option to extend
the lease for another ten year term and has right of first refusal on any
sale. The Company leases additional office facilities under
month-to-month arrangements. Future minimum payments for the next
five years and thereafter as of September 30, 2010, under these leases, are as
follows:
|
2010
|
$
|
120,000
|
||
|
2011
|
$
|
120,000
|
||
|
2012
|
$
|
120,000
|
||
|
2013
|
$
|
72,258
|
||
|
Thereafter
|
$
|
-
|
F-13
Rent
expense was $109,944 and $126,716 for the nine months ended September 30, 2010
and 2009, respectively. Rent expense is determined using the
straight-line method of the minimum expected rent paid over the term of the
agreement. The Company has no contingent rent
agreements.
(14) Income
Taxes
The
components of income (loss) before provision for income taxes consist of the
following:
|
Nine
Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2010
|
2009
|
|||||||
|
United
States
|
$
|
(12,735,348
|
)
|
$
|
(2,523,390
|
)
|
||
|
$
|
(12,735,348
|
)
|
$
|
(2,523,390
|
)
|
|||
The
reconciliation of income tax attributable to operations computed at the U.S.
Federal statutory income tax rate of 35% to income tax expense is as
follows:
|
Nine
Months Ended
September 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Statutory
Federal tax rate
|
$
|
(4,457,371
|
)
|
$
|
(883,361
|
)
|
||
|
Valuation
allowance
|
(5,289,594
|
) |
1,049,069
|
|||||
|
State
income taxes, net of Federal benefit
|
(878,739
|
)
|
(174,148
|
)
|
||||
|
Nondeductible
meals & entertainment expense
|
46,516
|
8,440
|
||||||
|
$
|
-
|
$
|
-
|
|||||
(14) Income
Taxes (continued)
Deferred
tax components are as follows:
|
September
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Accrued
liability for vacation
|
$
|
121,008
|
$
|
85,734
|
||||
|
Accrued
commission expense
|
249,405
|
48,318
|
||||||
|
Bad
debt reserve
|
51,516
|
34,275
|
||||||
|
Inventory
reserve
|
29,647
|
25,140
|
||||||
|
Net
operating loss carryovers
|
4,757,892
|
3,654,421
|
||||||
|
Restricted
stock compensation expense
|
335,482
|
-
|
||||||
|
Non-Cash
warrant/interest expense
|
3,949,109
|
843,321
|
||||||
|
Debt
issuance expense
|
1,047,030
|
846,341
|
||||||
|
Stock
compensation
|
840,281
|
661,296
|
||||||
|
Total
deferred tax assets
|
11,381,370
|
6,198,846
|
||||||
|
Valuation
allowance
|
(11,317,738
|
)
|
(6,057,142
|
)
|
||||
|
Net
deferred tax assets
|
63,632
|
141,704
|
||||||
|
Deferred
tax liabilities:
|
||||||||
|
Depreciation
|
(101,691
|
)
|
(179,774
|
)
|
||||
|
Amortization
|
38,059
|
38,070
|
||||||
|
Total
deferred tax liabilities
|
(63,632
|
)
|
(141,704
|
)
|
||||
|
Net
deferred tax assets
|
$
|
-
|
$
|
-
|
||||
F-14
The
ultimate realization of deferred tax assets is dependent upon the existence or
generation of taxable income in the periods when those temporary differences and
net operating loss carryovers are deductible. Management considers the scheduled
reversal of deferred tax liabilities, taxes paid in carryover years, projected
future taxable income, available tax planning strategies, and other factors in
making this assessment. Based on available evidence, management does not believe
it is more likely than not that all of the deferred tax assets will be realized.
Accordingly, the Company has established a valuation allowance equal to the net
realizable deferred tax assets. The valuation allowance increased by $5,260,596
and $1,704,002 for the nine months ended September 30, 2010 and year ended
December 31, 2009, respectively.
At
September 30, 2010 and December 31, 2009, the Company had total domestic Federal
and state net operating loss carryovers of approximately $11,355,350 and
$8,652,555, respectively. Federal net operating loss carryovers expire at
various dates between 2027 and 2029, while state net operating loss carryovers
expire between 2024 and 2029.
Under
the Tax Reform Act of 1986, as amended, the amounts of and benefits from net
operating loss carryovers and research and development credits may be impaired
or limited in certain circumstances. Events which cause limitations in the
amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than 50%,
as defined, over a three year period. The Company does not believe that such an
ownership change has occurred in 2010 or 2009.
The
2007 through 2009 tax years remain open to examination by the Internal Revenue
Service and the 2005 to 2009 tax years remain open to the Montana Department of
Revenue. These taxing authorities have the authority to examine those tax years
until the applicable statute of limitations expire.
(15) Employee
Benefit Plans
The
Company has a SIMPLE IRA retirement plan established for qualified
employees. Qualified employees may defer their salary and the
deferrals are matched up to 2% for September 30, 2010 and 3% for 2009 of
eligible compensation by the Company. The plan covers substantially
all full-time employees. Under the terms of the plan, participants may
contribute up to the lower of $10,500 of their salary or the statutorily
prescribed limit to the plan. Employees are eligible the first January after
their hire date. The Company made matching contributions during
the nine months ended September 30, 2010 and 2009 of $30,953 and $38,953,
respectively.
(16) Supplemental
Disclosure of Cash Flow Information
Supplemental
cash flow information is as follows:
|
Nine
Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2010
|
2009
|
|||||||
|
Supplemental
disclosure of cash flow information
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$
|
364,890
|
$
|
199,959
|
||||
|
Income
taxes
|
6,686
|
-
|
||||||
|
Non-cash
investing and financing activities:
|
||||||||
|
Acquisition
of treasury stock using notes payable
|
$
|
-
|
$
|
76,566
|
||||
|
Conversion
of convertible notes payable into common stock
|
$
|
3,482,324
|
$
|
614,992
|
||||
(17) Subsequent
Events
On
November 19, 2010, the Company entered into financing arrangement with two
subsidiaries of Western Technology Investment (“WTI”), whereby WTI, through its
subsidiaries, agreed to provide a credit facility which allows the Company to
draw down $2.5 million initially, and gives the Company the ability to draw down
an additional $2.5 million through April 30, 2011 provided the Company has
achieved 90% of performance based milestones for the next two
quarters. In addition, upon the mutual agreement of Bacterin and WTI,
WTI has agreed to an additional commitment through December 31, 2011 of up to
25% of the next new round of equity financing or up to $3.0
million. The credit facility is secured by the Company’s personal
property and carries an all-in interest rate of 12.5%. Repayment of
the initial $2.5 million will be interest only for the first six months, with
principal and interest for the subsequent 30 months. The WTI facility
also allows the company to obtain separate accounts receivable
financing. In connection with the financing, WTI also received
warrants to purchase up to
375,000 shares of the Company’s common stock. The warrants have an
exercise price of the lower of $4.00 per share or the price at which shares of
the Company’s stock are sold in the next qualified financing, if applicable
prior to the date of exercise. The WTI warrants expire on April 30,
2018. WTI also has the right to receive additional warrants to
purchase 125,000 shares of the Company’s common stock at the same exercise price
if the Company draws down the second $2.5 million tranche of the
facility.
The
Company also issued warrants to purchase a total of 489,710 shares of the
Company’s common stock to a limited group of existing investors who exercised
existing warrants. The new warrants have an exercise price of $4.00
per share and expire on the fifth anniversary of the date of
issuance. The Company received a total of $1,111,374 from the cash
payments of the exercise price of the existing warrants.
The
Company also issued 30,000 shares to a former executive in connection with a
settlement agreement and converted the former executive’s stock options to an
equivalent number of warrants.
The
Company has evaluated subsequent events from the balance sheet date through the
date of this filing, and determined there are no additional events that require
disclosure.
F-15
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
The Board of Directors and Stockholders of
Bacterin
International, Inc.
600
Cruiser Lane
Belgrade,
MT 59714
We
have audited the accompanying balance sheets of Bacterin International,
Inc. (the Company) as of December 31, 2009 and 2008, and the related
statements of operations, changes in stockholders’ equity and cash flows
for the years ended December 31, 2009 and 2008. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States of America). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. The company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our
audit included consideration of internal control over financial reporting
as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the company's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bacterin International,
Inc. as of December 31, 2009 and 2008, and the results of its operations
and its cash flows for the years ended December 31, 2009 and 2008, in
conformity with accounting principles generally accepted in the United
States of America.
Child,
Van Wagoner & Bradshaw, PLLC
Salt
Lake City, Utah
June
18, 2010
|
F-16
BACTERIN
INTERNATIONAL, INC.
Balance
Sheets
As
of December 31, 2009 and 2008
|
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
and cash equivalents
|
$ | 54,155 | $ | 238,895 | ||||
|
Restricted
cash and cash equivalents
|
- | 1,000,000 | ||||||
|
Accounts
receivable, net of allowance of $81,803 and $92,881,
respectively
|
1,314,418 | 564,134 | ||||||
|
Notes
receivable-trade
|
270,565 | 189,387 | ||||||
|
Notes
receivable from stockholder
|
- | 138,280 | ||||||
|
Inventories,
net
|
5,000,713 | 4,158,690 | ||||||
|
Prepaid
and other current assets
|
30,000 | 61,267 | ||||||
|
|
6,669,851 | 6,350,653 | ||||||
|
Property
& equipment, net
|
3,248,096 | 3,802,139 | ||||||
|
Intangible
assets, net
|
554,268 | 548,772 | ||||||
|
Other
assets
|
13,675 | 26,490 | ||||||
| $ | 10,485,890 | $ | 10,728,054 | |||||
|
LIABILITIES
& STOCKHOLDERS' EQUITY
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 1,403,950 | $ | 1,253,601 | ||||
|
Accrued
liabilities
|
463,633 | 253,538 | ||||||
|
Warrants
derivative liability
|
75,231 | - | ||||||
|
Notes
payable
|
1,126,690 | 1,000,000 | ||||||
|
Notes
payable to stockholders
|
183,461 | 154,032 | ||||||
|
Current
portion of capital lease obligations
|
85,071 | 190,989 | ||||||
|
Current
portion of convertible notes payable ($890,000 net of debt discount of
$69,213)
|
820,787 | - | ||||||
|
Current
portion of long-term debt
|
1,202,574 | 1,286,571 | ||||||
|
|
5,361,397 | 4,138,731 | ||||||
|
Capital
lease obligation, less current portion
|
27,074 | 62,673 | ||||||
|
Convertible
notes payable, less current portion
|
- | 2,340,000 | ||||||
|
Long-term
debt, less current portion
|
412,545 | 563,878 | ||||||
|
|
5,801,016 | 7,105,282 | ||||||
|
Stockholders'
Equity
|
||||||||
|
Preferred
stock, $.000001 par value; 15,000,000 shares authorized; No shares issued
and outstanding
|
- | - | ||||||
|
Common
stock, $.000001 par value; 85,000,000 shares authorized; 28,270,459 shares
issued and 28,211,562 shares outstanding in 2009 and 25,359,067 shares
issued and outstanding in 2008
|
28 | 25 | ||||||
|
Additional
paid-in capital
|
22,238,747 | 16,974,340 | ||||||
|
Treasury
stock, 58,897 shares
|
(76,566 | ) | - | |||||
|
Retained
deficit
|
(17,477,335 | ) | (13,351,593 | ) | ||||
|
|
4,684,874 | 3,622,772 | ||||||
| $ | 10,485,890 | $ | 10,728,054 | |||||
See
Accompanying Notes to Financial Statements.
F-17
BACTERIN
INTERNATIONAL, INC.
Statements
of Operations
For
the Years Ended December 31, 2009 and 2008
|
Twelve Months Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Revenues
|
||||||||
|
Tissue
sales
|
$ | 7,101,357 | $ | 8,031,611 | ||||
|
Royalties
and other
|
292,136 | 180,848 | ||||||
|
Total
Revenue
|
7,393,493 | 8,212,459 | ||||||
|
Cost
of tissue sales (excluding depreciation expense presented
below)
|
2,318,142 | 1,522,658 | ||||||
|
Gross
Profit
|
5,075,351 | 6,689,801 | ||||||
|
Operating
Expenses
|
||||||||
|
General
and administrative
|
5,916,776 | 3,750,273 | ||||||
|
Selling
and marketing
|
1,281,932 | 429,170 | ||||||
|
Depreciation
|
661,847 | 646,846 | ||||||
|
Research
and development
|
- | 288,091 | ||||||
|
Stock
Options / Restricted Stock Compensation expense (excluded from general and administrative
expense)
|
837,350 | 460,974 | ||||||
|
Total
Operating Expenses
|
8,697,905 | 5,575,354 | ||||||
|
Income
(Loss) from Operations
|
(3,622,554 | ) | 1,114,447 | |||||
|
Other
Income (Expense)
|
||||||||
|
Interest
income (expense)
|
(513,934 | ) | (1,374,360 | ) | ||||
|
Other
income / expense
|
10,746 | 20,601 | ||||||
|
Total
Other Income (Expense)
|
(503,188 | ) | (1,353,759 | ) | ||||
|
Net
Income Before Benefit (Provision) for Income
Taxes
|
(4,125,742 | ) | (239,312 | ) | ||||
|
Benefit
(Provision) for Income Taxes
|
||||||||
|
Current
|
- | - | ||||||
|
Deferred
|
- | - | ||||||
|
Net
Loss
|
$ | (4,125,742 | ) | $ | (239,312 | ) | ||
|
Net
income (loss) per share:
|
||||||||
|
Basic
|
$ | (.16 | ) | $ | (.01 | ) | ||
|
Shares
used in the computation:
|
||||||||
|
Basic
|
26,455,505 | 24,714,196 | ||||||
See
Accompanying Notes to Financial Statements.
F-18
BACTERIN
INTERNATIONAL, INC.
Statements
of Changes in Stockholders’ Equity
For
the Years Ended December 31, 2009 and 2008
|
Total
|
||||||||||||||||||||||||||||
|
Common
Stock
|
APIC
Options/
|
Additional
|
Retained
|
Treasury
|
stockholders'
|
|||||||||||||||||||||||
|
Shares
|
Amount
|
Warrants
|
paid-in
capital
|
Deficit
|
Stock
|
equity
|
||||||||||||||||||||||
|
Balance
at December 31, 2007
|
24,077,350 | $ | 24 | $ | 2,220,747 | $ | 12,074,561 | $ | (13,112,281 | ) | $ | - | $ | 1,183,051 | ||||||||||||||
|
Issuance
of common stock, options and warrants:
|
||||||||||||||||||||||||||||
|
Private
placement
|
1,141,717 | 1 | 348,117 | 930,396 | - | - | 1,278,514 | |||||||||||||||||||||
|
Warrants
issued on convertible debt
|
- | - | 368,787 | - | - | - | 368,787 | |||||||||||||||||||||
|
Stock
based compensation
|
150,000 | 0 | 235,974 | 225,000 | - | - | 460,974 | |||||||||||||||||||||
|
Warrants
for debt/equity issuance
|
- | - | 279,198 | - | - | - | 279,198 | |||||||||||||||||||||
|
Warrants
for short-term note guarantee
|
- | - | 291,560 | - | - | - | 291,560 | |||||||||||||||||||||
|
Net
income
|
- | - | - | - | (239,312 | ) | - | (239,312 | ) | |||||||||||||||||||
|
Balance
at December 31, 2008
|
25,369,067 | 25 | 3,744,383 | 13,229,957 | (13,351,593 | ) | - | 3,622,772 | ||||||||||||||||||||
|
Issuance
of common stock, options and warrants:
|
||||||||||||||||||||||||||||
|
Private
placement
|
1,218,750 | 1 | 13,601 | 1,936,398 | - | - | 1,950,000 | |||||||||||||||||||||
|
Conversion
of notes to common stock
|
1,510,143 | 2 | - | 2,414,875 | - | - | 2,414,877 | |||||||||||||||||||||
|
Purchase
of treasury stock
|
(58,897 | ) | - | - | - | - | (76,566 | ) | (76,566 | ) | ||||||||||||||||||
|
Warrants
for debt issuance
|
- | - | 62,183 | - | - | - | 62,183 | |||||||||||||||||||||
|
Stock-based
compensation
|
172,500 | 0 | 561,355 | 275,995 | - | - | 837,350 | |||||||||||||||||||||
|
Net
loss
|
- | - | - | - | (4,125,742 | ) | - | (4,125,742 | ) | |||||||||||||||||||
|
Balance
at December 31, 2009
|
28,211,563 | $ | 28 | $ | 4,381,522 | $ | 17,857,225 | $ | (17,477,335 | ) | $ | (76,566 | ) | $ | 4,684,874 | |||||||||||||
See Accompanying Notes to Financial
Statements.
F-19
BACTERIN
INTERNATIONAL, INC.
Statements
of Cash Flows
For
the Years Ended December 31, 2009 and 2008
|
Year Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Operating
activities:
|
||||||||
|
Net
income (loss)
|
$ | (4,125,742 | ) | $ | (239,312 | ) | ||
|
Noncash
adjustments:
|
||||||||
|
Depreciation
and amortization
|
707,926 | 685,715 | ||||||
|
Stock/option
awards for services
|
837,350 | 460,974 | ||||||
|
Provision
for losses on accounts receivable and inventory
|
(2,078 | ) | 94,171 | |||||
|
Non-cash
interest expense
|
183,078 | 939,545 | ||||||
|
(Gain)
Loss on disposal of assets
|
(5,250 | ) | 1,051 | |||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(739,206 | ) | 346,984 | |||||
|
Notes
receivable-trade
|
(81,178 | ) | (68,344 | ) | ||||
|
Inventories
|
(851,023 | ) | (2,259,125 | ) | ||||
|
Prepaid
and other current assets
|
44,082 | (1,385 | ) | |||||
|
Accounts
payable
|
150,349 | 582,756 | ||||||
|
Accrued
liabilities
|
210,096 | (41,022 | ) | |||||
|
Net
cash provided by (used in) operating activities
|
(3,671,596 | ) | 502,008 | |||||
|
Investing
activities:
|
||||||||
|
Purchases
of property and equipment
|
(42,089 | ) | (649,507 | ) | ||||
|
Note
receivable from stockholder
|
138,280 | (138,280 | ) | |||||
|
Intangible
asset additions
|
(51,576 | ) | (167,905 | ) | ||||
|
Proceeds
on sale of fixed assets
|
5,250 | 2,400 | ||||||
|
Acquisition
of entity under common control
|
- | 1,158 | ||||||
|
Net
cash used by investing activities
|
49,865 | (952,134 | ) | |||||
|
Financing
activities:
|
||||||||
|
Restricted
cash
|
- | (1,000,000 | ) | |||||
|
Release
of restriction on cash
|
1,000,000 | - | ||||||
|
(Payments
on) long-term debt
|
(235,330 | ) | (2,018,536 | ) | ||||
|
Proceeds
from issuance of convertible debt
|
550,000 | 2,340,000 | ||||||
|
(Payments
on) notes payable
|
(500,000 | ) | - | |||||
|
Proceeds
from notes payable
|
926,690 | 1,000,000 | ||||||
|
(Payments
on) capital leases
|
(207,232 | ) | (216,092 | ) | ||||
|
Proceeds
from issuance of common stock
|
1,950,000 | 1,278,514 | ||||||
|
Payments
on notes payable to shareholders
|
(47,137 | ) | (838,717 | ) | ||||
|
Net
cash provided by financing activities
|
3,436,991 | 545,169 | ||||||
|
Increase
(decrease) in cash
|
(184,740 | ) | 95,043 | |||||
|
Cash
and cash equivalents at beginning of period
|
238,895 | 143,852 | ||||||
|
Cash
and cash equivalents at end of period
|
$ | 54,155 | $ | 238,895 | ||||
|
Supplemental
disclosure of cash flow information (see note 19)
|
||||||||
See
Accompanying Notes to Financial Statements.
F-20
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements
Years
ended December 31, 2009 and 2008
|
(1)
|
Business
Description and Summary of Significant Accounting
Policies
|
Business
Description
Bacterin
International, Inc. (“the “Company” or
“Bacterin”) develops, manufactures
and markets biologics products to domestic and international markets.
These products are used in a variety of applications including enhancing fusion
in spine surgery, relief of back pain with a facet joint stabilization,
promotion of bone growth in foot and ankle surgery, promotion of skull healing
following neurosurgery and cartilage regeneration in knee and other joint
surgeries.
Bacterin’s
device division develops anti-microbial coatings to inhibit infection based upon
proprietary knowledge of the phenotypical changes made by microbes as they sense
and adapt to changes in their environment. Bacterin develops, employs, and
licenses bioactive coatings for various medical device applications.
Bacterin’s strategic coating initiatives include the inhibition of biofilm
formation, local (as opposed to systemic) drug delivery, local (as opposed to
systemic) pain management, and anti-thrombotic factors for medical device
applications.
Certain
Risks and Concentrations
The
Company's revenue is derived principally from the sale of its medical
products, coatings and device implants. The markets in which the Company
competes are highly competitive and rapidly changing. Significant technological
advances, changes in customer requirements, or the emergence of competitive
products with new capabilities or technologies could adversely affect the
Company's operating results. The Company's business could be harmed by a decline
in demand for, or in the prices of, its products or as a result of, among other
factors, any change in pricing or distribution model, increased price
competition, changes in government regulations or a failure by the Company to
keep up with technological change. Further, a decline in available tissue
donors could have an adverse impact on the business.
Financial
instruments subjecting the Company to concentrations of credit risk are accounts
and notes receivable. The Company maintains cash, cash equivalents, and
short-term investments with various domestic financial institutions. From time
to time, the Company's cash balances with its financial institutions may exceed
insurance limits.
The
Company's customers are worldwide with approximately 91% of sales in the United
States in 2009 and 2008. One customer accounted for 12% of revenue in
2009. One customer accounted for 37% and another customer accounted for
10.2% of the Company's revenue in 2008. No single customer represented
more than 10% of accounts receivable at December 31, 2009 and one customer
represented 10.4% of accounts receivable at December 31, 2008.
Revenue
by geographical region is as follows:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
United
States
|
$ | 6,708,027 | $ | 7,485,988 | ||||
|
Rest
of World
|
685,466 | 726,471 | ||||||
| $ | 7,393,493 | $ | 8,212,459 | |||||
Use
of Estimates
The
preparation of the financial statements requires management of the Company to
make a number of estimates and assumptions relating to the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the period; the carrying amount of property and equipment and
intangible assets; valuation allowances for receivables and deferred income tax
assets; and estimates of expected term and volatility in determining stock-based
compensation expense. Actual results could differ from those
estimates.
F-21
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(1)
|
Business
Description and Summary of Significant Accounting Policies
(Continued)
|
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original
maturity date of three months or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates market value. As of
December 31, 2008, a $1,000,000 certificate of deposit was pledged as collateral
for the two $500,000 notes payable to Flathead Bank. The certificate of
deposit was released as collateral during 2009.
Accounts
Receivable and Notes Receivable
Accounts
receivable represents amounts due from customers for which revenue has been
recognized. Normal terms on trade accounts receivable are net 30 days and some
customers are offered discounts for quick pay. Notes receivable include
amounts due from West Coast Tissue Service, a supplier of donors to the Company.
The Company performs credit evaluations when considered necessary, but generally
does not require collateral to extend credit.
The
allowance for doubtful accounts is the Company's best estimate of the amount of
probable credit losses in the Company's existing receivables. The Company
determines the allowance based on factors such as historical collection
experience, customer's current creditworthiness, customer concentration, age of
accounts receivable balance and general economic conditions that may affect a
customer's ability to pay. Actual customer collections could differ from
estimates. Account balances are charged to the allowance after all means of
collection have been exhausted and the potential for recovery is considered
remote. Provisions to the allowance for doubtful accounts are charged to
expense. The Company does not have any off-balance sheet credit exposure related
to its customers.
Inventories
Inventories
are stated at the lower of cost or market. Cost is determined using the
specific identification method and includes materials, labor and
overhead.
Property
and Equipment
Property
and equipment are stated at cost less accumulated depreciation and amortization.
Depreciation and amortization is computed using the straight-line method over
the estimated useful lives of the assets, generally three to seven years for
computers and equipment, and 30 years for buildings. Repairs and maintenance are
expensed as incurred.
Intangible
Assets
Intangible
assets include costs to acquire and protect Company patents and are carried at
cost less accumulated amortization. The Company amortizes these assets on a
straight-line basis over their estimated useful lives of 15 years.
Grants
As
part of the Company’s efforts to build the development of new technologies,
tissue donation and expansion of tissue supply, the Company, may, from
time-to-time either provide or receive grants. These grants receipts are
used for research and development efforts. No revenues or expenses for
grants were earned or incurred for the twelve months ended December 31, 2009 or
2008.
F-22
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(1)
|
Business
Description and Summary of Significant Accounting Policies
(Continued)
|
Revenue
Recognition
Revenue
is recognized when all of the following criteria are met: a) the Company
has entered into a legally binding agreement with the customer; b) the
products or services have been delivered; c) the Company's fee for
providing the products and services is fixed and determinable; and
d) collection of the Company’s fee is probable.
The
Company’s policy is to record revenue net of any applicable sales, use, or
excise taxes. If an arrangement includes a right of acceptance or a right
to cancel, revenue is recognized when acceptance is received or the right to
cancel has expired.
The
Company sells to certain customers under consignment arrangements whereby the
Company ships product to be stored by the customer. The customer is
required to report the use to the Company and upon such notice the Company
invoices the customer.
Research
and development services revenue is recognized as performed, based on the
incurrence of qualifying costs or achievement of milestones as prescribed in the
arrangement.
Research
and Development
Research
and development costs, which are principally related to internal costs for the
development of new technologies and processes for tissue and coatings, are
expensed as incurred.
Income
Taxes
The
Company records income taxes under the asset and liability method as prescribed
under FASB Accounting Standards Codification ASC 740, Accounting for Income
Taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. When applicable, a
valuation allowance is established to reduce any deferred tax asset when it is
determined that it is more likely than not that some portion of the deferred tax
asset will not be realized.
Impairment
of Long-Lived Assets
Long-lived
assets, including intangible assets, are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used is measured by
a comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the
carrying amount of the assets exceeds the estimated fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell. No impairments of long-lived assets have
been identified in any of the periods presented.
Net
Income (Loss) Per Share
A
reconciliation of the denominator used in the calculation of basic and diluted
net income (loss) per share is as follows:
|
Net
Income (Loss) Per Share:
|
Year
Ended December 31,
|
|||||||
|
2009
|
2008
|
|||||||
|
Net
Income (Loss)
|
(4,125,742 | ) | $ | (239,312 | ) | |||
|
Weighted
average common shares outstanding for basic net income (loss) per
share
|
26,455,505 | 24,714,196 | ||||||
The
weighted average shares and all share amounts have been retroactively adjusted
to reflect the Company’s 1 for 2 reverse stock split on June 30, 2010. Dilutive
earnings per share are not reported as the effect of including 2,418,283 shares
through the conversion of notes as well as 6,837,391 and 5,243,058 outstanding
stock options and warrants in 2009 and 2008, respectively, would be anti
dilutive resulting in a lower net loss per share.
F-23
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(1)
|
Business
Description and Summary of Significant Accounting Policies
(Continued)
|
Stock-Based
Compensation
On
January 1, 2006, the Company adopted the provisions of ASC 718-40, for its
stock-based compensation plans. Under ASC 718, stock-based compensation
costs are recognized based on the estimated fair value at the grant date for all
stock-based awards. The Company estimates grant date fair values using the
Black-Scholes-Merton option pricing model, which requires assumptions of the
life of the award and the stock price volatility over the term of the
award. The Company records compensation cost of stock-based awards using
the straight line method, which is recorded into earnings over the vesting
period of the award. Pursuant to the income tax provisions included in ASC
718-740, the Company has elected the “short cut method” of computing its
hypothetical pool of additional paid-in capital that is available to absorb
future tax benefit shortfalls.
Comprehensive
Income (Loss)
Comprehensive
loss includes net income or loss, as well as other changes in stockholders'
equity that result from transactions and economic events other than those with
stockholders. The Company currently does not have any transactions that qualify
for accounting and inclusion as other comprehensive income (loss).
Fair
Value of Financial Instruments
The
carrying values of financial instruments, including accounts receivable, notes
receivable, accounts payable and other accrued expenses, approximate their fair
values.
|
(2)
|
Notes
Receivable
|
Notes
receivable consist of the following:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
West
Coast Tissue Service, Inc.
|
$ | 270,565 | $ | 189,387 | ||||
West
Coast Tissue Service, Inc. is a non-profit corporation organized under Section
501(c)(3) of the Internal Revenue Code. The Company has contracted with
West Coast Tissue Service to acquire their donor tissue for use in the Company’s
production. If the Company were unable to continue to receive donor
tissue, it may have a material effect on Bacterin’s financial statements and
results of operations. The notes are non-interest bearing and are expected
to be repaid during 2010.
|
(3)
|
Inventories
|
Inventories
consist of the following:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Raw
materials
|
$ | 178,754 | $ | 145,186 | ||||
|
Raw
materials
|
1,100,252 | 1,291,179 | ||||||
|
Work
in process
|
1,282,080 | 735,916 | ||||||
|
Finished
goods
|
2,499,627 | 2,037,409 | ||||||
| 5,060,713 | 4,209,690 | |||||||
|
Reserve
|
60,000 | 51,000 | ||||||
| $ | 5,000,713 | $ | 4,158,690 | |||||
F-24
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(4)
|
Property
and Equipment, Net
|
Property
and equipment, net are as follows:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Buildings
|
$ | 1,613,628 | $ | 1,590,475 | ||||
|
Equipment
|
2,542,855 | 2,553,053 | ||||||
|
Computer
equipment
|
235,566 | 202,035 | ||||||
|
Computer
software
|
140,071 | 127,867 | ||||||
|
Furniture
and fixtures
|
75,007 | 75,007 | ||||||
|
Leasehold
improvements
|
898,248 | 881,938 | ||||||
|
Vehicles
|
101,110 | 101,110 | ||||||
|
Total
cost
|
5,606,485 | 5,551,485 | ||||||
|
Less:
accumulated depreciation
|
(2,358,389 | ) | (1,729,346 | ) | ||||
| $ | 3,248,096 | $ | 3,802,139 | |||||
Maintenance
and repairs expense for the years ended December 31, 2009 and 2008, was $43,328
and $67,863, respectively. Depreciation expense related to property, plant
and equipment, including property under capital lease, for the years ended
December 31, 2009 and 2008 was $661,847 and $508,392, respectively.
Depreciation included in inventory and cost of goods sold for the years ended
December 31, 2009 and 2008 was $192,500 and $251,076, respectively.
|
(5)
|
Intangible
assets
|
Bacterin
has been issued various patents with regards to processes for their
products.
The
following table sets forth information regarding intangible assets:
|
Intellectual
|
||||
|
Property
|
||||
|
As
of December 31, 2008:
|
||||
|
Gross
carrying value
|
$ | 658,895 | ||
|
Accumulated
amortization
|
(110,123 | ) | ||
|
Net
carrying value
|
$ | 548,772 | ||
|
As
of December 31, 2009:
|
||||
|
Gross
carrying value
|
$ | 710,471 | ||
|
Accumulated
amortization
|
(156,203 | ) | ||
|
Net
carrying value
|
$ | 554,268 | ||
|
Aggregate
amortization expense:
|
||||
|
2008
|
$ | 38,889 | ||
|
2009
|
$ | 46,080 | ||
|
Estimated
amortization expense:
|
||||
|
2010
|
$ | 47,364 | ||
|
2011
|
$ | 47,364 | ||
|
2012
|
$ | 47,364 | ||
|
2013
|
$ | 47,364 | ||
|
2014
|
$ | 47,364 | ||
F-25
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(6)
|
Accrued
Liabilities
|
Accrued
liabilities consist of the following:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Credit
cards
|
$ | 10,764 | $ | 16,182 | ||||
|
Accrued
interest payable
|
45,382 | 112,536 | ||||||
|
Wages
payable
|
377,484 | 40,439 | ||||||
|
Other
accrued expenses
|
- | 84,381 | ||||||
| $ | 463,630 | $ | 253,538 | |||||
|
(7)
|
Notes
Payable
|
Notes
payable consist of the following:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Note
payable Kevin Daly
|
$ | 200,000 | $ | - | ||||
|
Note
payable Hamilton Group
|
426,693 | - | ||||||
|
Notes
payable Flathead Bank
|
500,000 | 1,000,000 | ||||||
| $ | 1,126,693 | $ | 1,000,000 | |||||
The note
payable to Kevin Daly was a 30-day note payable bearing interest at 15% and was
repaid in January 2009. The notes payable Flathead Bank are 6.5% short-term
notes with monthly payments of $3,728 and maturing on June 25, 2010. The
notes payable Hamilton Group is a note due under a factoring contract, secured
by accounts receivable.
|
(8)
|
Convertible
Notes Payable
|
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
12%
convertible note payable, maturing in 2010, extendable by the Company for
two additional three month terms, secured by intellectual property and the
raw material inventory, convertible into the securities offered in a
future qualified offering, defined as the sale of debt or equity
securities generating aggregate gross proceeds of at least
$7,000,000, equal to the lower of $0.80 per share or ninety percent
(90%) of the per share price of the securities sold to investors in
the Qualified Financing if one occurs or convertible anytime into common
stock at $1.00 per share, restrictive covenants were in compliance as of
December 31, 2009 (net of debt discount). The debt discount
is the value of the warrants that were issued.
|
$ | 480,787 | $ | - | ||||
|
10%
convertible notes payable, maturing in 2010, secured by all assets after
subordination to other creditors with pre-existing rights to those assets,
convertible into shares of common stock – notes were repaid in January and
February 2010
|
340,000 | 2,340,000 | ||||||
| $ | 820,787 | $ | 2,340,000 | |||||
F-26
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(9)
|
Long-Term
Debt
|
Long-term
debt consists of the following:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
6.5%
loan payable to Flathead Bank, $7,278 monthly payments including interest,
maturing June 25, 2010, secured by building
|
$ | 976,218 | $ | 993,996 | ||||
|
8.50%
loan payable to Flathead Bank, $9,329 monthly payments, including
interest, maturing in 2012, secured by equipment
|
293,052 | 367,376 | ||||||
|
5.00%
loan payable to the City of Belgrade, $3,653 monthly payments, including
interest, maturing in 2012, secured by equipment
|
141,215 | 149,158 | ||||||
|
5.00%
loan payable to the City of Belgrade, $6,982 monthly payments, including
interest, maturing in 2010, secured by equipment
|
39,044 | 118,557 | ||||||
|
5.00%
loan payable to Valley Bank of Belgrade, $4,140 monthly payments including
interest, secured by building
|
165,590 | 187,303 | ||||||
|
8.00%
loan payable to Valley Bank of Belgrade, $4,140 monthly payments including
interest, secured by building
|
- | 34,059 | ||||||
| 1,615,119 | 1,850,449 | |||||||
|
Less:
Current portion
|
(1,202,574 | ) | (1,286,571 | ) | ||||
| $ | 412,545 | $ | 563,878 | |||||
The
following is a summary of maturities due on the long-term debt as of December
31, 2009:
|
2010
|
$ | 1,202,574 | ||
|
2011
|
190,238 | |||
|
2012
|
180,029 | |||
|
2013
|
42,278 | |||
|
Thereafter
|
- | |||
|
Total
|
$ | 1,615,119 |
F-27
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(10)
|
Capital
Leasing Transactions
|
Future
minimum capital and operating lease payments are as follows:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
2009
|
$ | - | $ | 212,019 | ||||
|
2010
|
93,752 | 39,519 | ||||||
|
2011
|
28,920 | 30,055 | ||||||
|
2012
|
- | - | ||||||
|
Thereafter
|
- | - | ||||||
|
Total
minimum lease payments
|
122,672 | 281,593 | ||||||
|
Less
interest portion of payments
|
(10,527 | ) | (27,931 | ) | ||||
|
Present
value of future minimum lease payments
|
112,145 | 253,662 | ||||||
|
Less
current maturities of capital lease obligation
|
(85,071 | ) | (190,989 | ) | ||||
|
Capital
lease obligation
|
$ | 27,074 | $ | 62,673 | ||||
|
(11)
|
Notes
Payable to Shareholders
|
Notes
payable to shareholders consist of the following:
|
December
31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Note
payable shareholders
|
$ | 76,969 | $ | - | ||||
|
Note
payable Mitch Godfrey
|
106,492 | 154,032 | ||||||
| $ | 183,461 | $ | 154,032 | |||||
During
2009, the Company repurchased stock from two shareholders pursuant to a tender
process. These notes were given in payment for the stock and accrued interest at
six percent during the initial term with a maturity of September 29, 2009. When
the notes were not paid on the initial maturity date, they were automatically
extended for an additional four months with a new interest rate of eight
percent. If not paid at the second maturity date, these notes will automatically
extend for an additional four months at an interest rate of ten percent. The
note payable to Mitch Godfrey does not have specified payment terms and bears 6%
interest per annum.
|
(12)
|
Related
Party Transaction – ReGenCell, Inc.
|
ReGenCell,
Inc. is a Montana corporation owned 100% by Guy Cook. On January 1, 2008,
Bacterin International, Inc. acquired all of the assets of ReGenCell,
Inc.:
| $ | 1,158 | |||
|
Employee
receivable – Guy Cook
|
32,700 | |||
|
Employee
receivable – Mitchell Godfrey
|
17,763 | |||
|
Employee
receivable – other
|
31,267 | |||
|
Fixed
assets (at cost)
|
88,975 | |||
|
Accounts
receivable – Bacterin International, Inc.
|
30,000 | |||
|
Notes
receivable – Bacterin International, Inc.
|
59,055 | |||
|
Total
assets purchased
|
$ | 260,918 | ||
|
Bacterin
assumed Valley Bank note payable
|
(327,466 | ) | ||
|
Bacterin
assumed miscellaneous payables
|
(2,200 | ) | ||
| 68,748 | ||||
| $ | 0 |
Guy Cook
agreed to reduce his note receivable from Bacterin by the difference between the
liabilities assumed and the assets purchased ($68,748). Upon acquisition
of the employee receivables, Bacterin reduced its notes payable to Guy Cook and
Mitchell Godfrey by $32,700 and $17,763, respectively.
F-28
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(13)
|
Stock-Based
Compensation
|
The
Company’s 2004 Stock Incentive Plan provides for stock awards, including options
and performance stock awards, to be granted to employees, consultants,
independent contractors, officers and directors. Awards are granted at the
discretion of the Company’s board of directors, at an exercise price and term
determined by the board. However, exercise prices are not less than the
fair market value at the date of grant, and the term of the options is not
greater than ten years. Options generally vest annually over a period of
five years. At December 31, 2009, the Company had approximately 6
million shares available for issuance under the equity plan.
Compensation
expense recognized in the statement of operations for the year ended December
31, 2009 and 2008 is based on awards ultimately expected to vest and reflects an
estimate of awards that will be forfeited. ASC 718 requires forfeitures to
be estimated at the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates.
Compensation
expense recognized and capitalized for the years ended December 31, 2009 and
2008 was $597,355 and $235,974 respectively.
The
estimated fair value of stock options granted is done using the Black-Sholes
method applied to individual grants. Key assumptions used to estimate the
fair value of stock awards are as follows:
Risk Free Rate: The risk-free
rate is determined by reference to U.S. Treasury yields at or near the time of
grant for time periods similar to the expected term of the award.
Expected Term: The Company
does not have adequate history to estimate an expected term of stock-based
awards, and accordingly, uses the short-cut method as prescribed by Staff
Accounting Bulletin 107 to determine an expected term.
Volatility: Since the
Company’s stock is not publicly-traded, the Company estimates expected
volatility based on peer-companies as prescribed by ASC 718.
Dividend Yield: The dividend
yield assumption is based on the Company’s history and expectation of dividend
payouts and was 0% as of December 31, 2009 and 2008.
Activity
under the Company’s stock option plans was as follows:
|
2009
|
2008
|
|||||||||||||||
|
Weighted
|
Weighted
|
|||||||||||||||
|
Average
|
Average
|
|||||||||||||||
|
Exercise
|
Exercise
|
|||||||||||||||
|
Shares
|
Price
|
Shares
|
Price
|
|||||||||||||
|
Outstanding
at Jan. 1,
|
1,999,163 | $ | 1.18 | 1,707,372 | $ | 1.10 | ||||||||||
|
Granted
|
1,497,500 | 1.52 | 692,042 | $ | 1.50 | |||||||||||
|
Exercised
|
.10 | |||||||||||||||
|
Cancelled
or expired
|
(143,167 | ) | 1.18 | (400,251 | ) | 1.74 | ||||||||||
|
Outstanding
at December 31,
|
3,353,496 | $ | 1.34 | 1,999,163 | $ | 1.18 | ||||||||||
|
Exercisable
at December 31,
|
1,503,451 | $ | 1.12 | 969,956 | $ | .88 | ||||||||||
F-29
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(14)
|
Stock-Based
Compensation (continued)
|
The
following table summarizes information concerning non-vested option transactions
for the year ended December 31, 2009:
|
Weighted
|
||||||||
|
Average
|
||||||||
|
Grant
Date
|
||||||||
|
|
Fair
Value
|
|||||||
|
Nonvested
Options
|
Shares
|
Per
Share
|
||||||
|
Nonvested
at January 1, 2009
|
1,029,208 | $ | 1.22 | |||||
|
Granted
|
1,497,500 | 1.52 | ||||||
|
Vested
|
(586,069 | ) | 1.46 | |||||
|
Forfeited
|
(90,593 | ) | 1.54 | |||||
|
Nonvested
at December 31, 2009
|
1,850,046 | $ | 1.50 | |||||
From time
to time the Company may grant stock options to consultants. The Company
accounts for consultant stock options in accordance with ASC 505-50.
Compensation expense for the grant of stock options to consultants is determined
based on the estimated fair value of the warrants at the measurement date as
defined in ASC 505-50 and is recognized over the vesting period.
In
connection with private placements of convertible debt, short-term debt, and
common stock, the Company issued warrants to purchase shares of common stock at
an exercise price of between $1.113 and $2.50 per share. During 2009, 40,000
warrants were issued with private placements of common stock, 90,000 warrants
were issued with the placement of short-term debt and 110,000 warrants were
issued with the placement of convertible notes. In 2008, 695,304, 50,000
and 488,144 warrants were issued in connection with convertible debt, short-term
debt and common stock, respectively. The warrants were exercisable five to
seven years from the date of grant. Warrants issued with common stock were
recorded as additional paid in capital at the estimated fair market value of
$13,601 in 2009 and $348,117 in 2008. The warrants issued with convertible
debt and short-term loans were recorded as interest expense over the term of the
debt at the estimated fair value of $62,183 in 2009 and $939,545 in 2008 using
the following assumptions:
|
2009
|
2008
|
|||||||
|
Value
of underlying common stock (per share)
|
$ | 1.60 | $ | 1.50 | ||||
|
Risk
free rate
|
2.20 | % | 1.87 | % | ||||
|
Expected
term
|
2.5-5
years
|
5-7
years
|
||||||
|
Dividend
yield
|
0 | % | 0 | % | ||||
|
Volatility
|
44-61 | % | 86 | % | ||||
F-30
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(15)
|
Commitments
and Contingencies
|
Operating
Leases
The
Company leases office facilities under a non-cancelable operating lease
agreement with an expiration date in 2013. The Company has the option to extend
the lease for another ten year term and has right of first refusal on any
sale. The Company leases additional office facilities under month-to-month
arrangements. Future minimum payments for the next five years and
thereafter as of December 31, 2009, under these leases, are as
follows:
|
2010
|
$ | 120,000 | ||
|
2011
|
$ | 120,000 | ||
|
2012
|
$ | 120,000 | ||
|
2013
|
$ | 72,258 | ||
|
Thereafter
|
$ | - |
Rent
expense was $162,766 and $124,200 in 2009 and 2008, respectively. Rent
expense is determined using the straight-line method of the minimum expected
rent paid over the term of the agreement. The Company has no contingent
rent agreements.
Warranties
and Indemnification
The
Company's arrangements generally include certain provisions for indemnifying
customers against liabilities if its products or services infringe a
third-party's intellectual property rights. To date, the Company has not
incurred any material costs as a result of such indemnifications and has not
accrued any liabilities related to such obligations in the accompanying
financial statements.
The
Company has also agreed to indemnify its directors and executive officers for
costs associated with any fees, expenses, judgments, fines and settlement
amounts incurred by any of these persons in any action or proceeding to which
any of those persons is, or is threatened to be, made a party by reason of the
person's service as a director or officer, including any action by the Company,
arising out of that person's services as the Company's director or officer or
that person's services provided to any other company or enterprise at the
Company's request.
Litigation
From time
to time, the Company is involved in legal proceedings arising in the ordinary
course of business. The Company believes that the resolution of these matters
will not have a material effect on the Company's financial position, results of
operations or liquidity. Legal fees are charged to expense as incurred,
unless the probability of incurring a loss is high and the amount can be
reasonably estimated, in which case the estimated loss is
accrued.
F-31
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(16)
|
Income
Taxes
|
The
components of income (loss) before provision for income taxes consist of the
following:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
United
States
|
$ | (4,125,742 | ) | $ | (239,312 | ) | ||
| $ | (4,125,742 | ) | $ | (239,312 | ) | |||
The
components of the income tax provision are as follows:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Current:
|
||||||||
|
Federal
|
$ | - | $ | - | ||||
|
State
|
- | - | ||||||
|
Total
current
|
- | - | ||||||
|
Deferred:
|
||||||||
|
Federal
|
- | - | ||||||
|
State
|
- | - | ||||||
|
Total
deferred
|
- | - | ||||||
| $ | - | $ | - | |||||
The
reconciliation of income tax attributable to operations computed at the U.S.
Federal statutory income tax rate of 35% to income tax expense is as
follows:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Statutory
Federal tax rate
|
$ | (1,444,010 | ) | $ | (83,759 | ) | ||
|
Valuation
allowance
|
1,733,385 | 94,532 | ||||||
|
State
income taxes, net of Federal benefit
|
(289,452 | ) | (16,513 | ) | ||||
|
Nondeductible
meals & entertainment expense
|
24,301 | 5,740 | ||||||
|
Other
|
- | - | ||||||
| $ | - | $ | - | |||||
F-32
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(17)
|
Income
Taxes (continued)
|
Deferred
tax components are as follows:
|
At
December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Accrued
liability for vacation
|
$ | 85,734 | $ | 35,355 | ||||
|
Accrued
commission expense
|
48,318 | - | ||||||
|
Bad
debt reserve
|
34,275 | 38,917 | ||||||
|
Inventory
reserve
|
25,140 | 21,369 | ||||||
|
Net
operating loss carryovers
|
3,654,421 | 2,401,066 | ||||||
|
Stock
warrant expense
|
843,321 | 843,321 | ||||||
|
Debt
issuance expense
|
817,461 | 766,977 | ||||||
|
Stock
compensation
|
661,296 | 411,005 | ||||||
|
Total
deferred tax assets
|
6,169,966 | 4,518,010 | ||||||
|
Valuation
allowance
|
(6,028,262 | ) | (4,324,140 | ) | ||||
|
Net
deferred tax assets
|
141,704 | 193,870 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Depreciation
|
(179,774 | ) | (232,478 | ) | ||||
|
Amortization
|
38,070 | 38,608 | ||||||
|
Total
deferred tax liabilities
|
(141,704 | ) | (193,870 | ) | ||||
|
Net
deferred tax assets
|
$ | - | $ | - | ||||
The
ultimate realization of deferred tax assets is dependent upon the existence, or
generation, of taxable income in the periods when those temporary differences
and net operating loss carryovers are deductible. Management considers the
scheduled reversal of deferred tax liabilities, taxes paid in carryover years,
projected future taxable income, available tax planning strategies, and other
factors in making this assessment. Based on available evidence, management
does not believe it is more likely than not that all of the deferred tax assets
will be realized. Accordingly, the Company has established a valuation allowance
equal to the net realizable deferred tax assets. The valuation allowance
increased by $1,704,122 and $93,399 in 2009 and 2008, respectively.
At
December 31, 2009 and 2008, the Company had total domestic Federal and state net
operating loss carryovers of approximately $8,652,555 and $5,758,769,
respectively. Federal net operating loss carryovers expire at various dates
between 2027 and 2029, while state net operating loss carryovers expire between
2024 and 2029.
Under the
Tax Reform Act of 1986, as amended, the amounts of and benefits from net
operating loss carryovers and research and development credits may be impaired
or limited in certain circumstances. Events which cause limitations in the
amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than 50%,
as defined, over a three year period. The Company does not believe that such an
ownership change has occurred in 2009 or 2008.
The 2006
through 2008 tax years remain open to examination by the Internal Revenue
Service and the 2004 to 2008 tax years remain open to the Montana Department of
Revenue. These taxing authorities have the authority to examine those tax years
until the applicable statute of limitations expire.
F-33
BACTERIN
INTERNATIONAL, INC.
Notes
to Financial Statements (continued)
Years
ended December 31, 2009 and 2008
|
(18)
|
Employee
Benefit Plans
|
The
Company has a SIMPLE IRA retirement plan established for qualified
employees. Qualified employees may defer their salary and the deferrals
are matched up to 3% of eligible compensation by the Company. The plan
covers substantially all full-time employees. Under the terms of the plan,
participants may contribute up to the lower of $10,500 of their salary or the
statutorily prescribed limit to the plan. Employees are eligible the first
January after their hire date. The Company made matching
contributions during 2009 and 2008 of $131,709 and $46,993,
respectively.
|
(19)
|
Supplemental
Disclosure of Cash Flow Information
|
Supplemental
cash flow information is as follows:
|
Year
Ended December 31,
|
||||||||
|
2009
|
2008
|
|||||||
|
Supplemental
disclosure of cash flow information
|
||||||||
|
Cash
paid during the period for:
|
||||||||
|
Interest
|
$ | 276,074 | $ | 308,881 | ||||
|
Income
taxes
|
- | - | ||||||
|
Non-cash
investing and financing activities:
|
||||||||
|
Acquisition
of receivables/equipment with assumed debt (see note 12)
|
$ | - | $ | 259,760 | ||||
|
Acquisition
of property and equipment under capital lease
|
$ | 65,715 | $ | - | ||||
|
Acquisition
of treasury stock using notes payable
|
$ | 76,566 | $ | - | ||||
|
Conversion
of convertible notes payable into common stock
|
$ | 2,000,000 | $ | - | ||||
|
(20)
|
Subsequent
Events
|
In
January and February 2010, the Company issued an additional $2,450,000 of
convertible notes on the same terms as the $550,000 of convertible notes issued
in December 2009. The Company also renegotiated the convertible note
agreements issued in December 2009 to include additional warrants as incentives
for entering into these agreements so that all note agreements issued have the
same terms and incentives.
In
January and February 2010, the Company repaid all $340,000 of the 2008
convertible notes payable that were outstanding as of December 31,
2009.
F-34
11,296,112
Shares
Common
Stock
_______________
PROSPECTUS
_______________
, 2010
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and
Distribution.
The
following table sets forth the expenses payable by us in connection with the
offering. All such expenses are estimates except for the SEC registration
fee.
|
SEC
registration fee
|
$ | 11,396.55 | ||
|
Accounting
fees and expenses
|
80,000 | |||
|
Printing
and engraving expenses
|
20,000 | |||
|
Legal
fees
|
500,000 | |||
|
Miscellaneous
expenses
|
50,000 | |||
|
Total
|
$ | 661,396.55 | ||
Item
14. Indemnification of Directors and
Officers.
Section
145 of the Delaware General Corporation Law, or DGCL, permits, in general, a
Delaware corporation to indemnify any person who was or is a party to any
proceeding (other than an action by, or in the right of, the corporation) by
reason of the fact that he or she is or was a director or officer of the
corporation, or served another entity in any capacity at the request of the
corporation, against liability incurred in connection with such proceeding,
including the estimated expenses of litigating the proceeding to conclusion and
the expenses actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof, if such person
acted in good faith and in a manner he or she reasonably believed to be in, or
not opposed to, the best interests of the corporation and, in criminal actions
or proceedings, additionally had no reasonable cause to believe that his or her
conduct was unlawful. Section 145(e) of the DGCL permits the corporation to pay
such costs or expenses in advance of a final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if he or she is ultimately found not to be entitled
to indemnification under the DGCL. Section 145(f) of the DGCL provides that the
indemnification and advancement of expense provisions contained in the DGCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expenses may be entitled.
Our
certificate of incorporation provides that no director of the company will be
personally liable to the company or our stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any breach
of the director’s duty of loyalty to the company or our stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for the improper declaration of dividends or
redemption of shares of capital stock in violation of Delaware law, or (iv) for
any transaction from which the director derived an improper personal
benefit.
The above
discussion of our certificate of incorporation, bylaws, and Section 145 of the
DGCL is only a summary and is qualified in its entirety by the full text of each
of the foregoing.
We
have been advised that it is the position of the SEC that insofar as the
foregoing provisions may be invoked to disclaim liability for damages arising
under the Securities Act of 1933, as amended, that such provisions are against
public policy as expressed in the Securities Act and are therefore
unenforceable.
Item
15. Recent Sales of Unregistered
Securities.
On
June 30, 2010, at the closing of the Reverse Merger, we issued an aggregate of
28,257,133 shares of our common stock to the former stockholders of Bacterin.
The shares of our common stock issued to former holders of Bacterin’s common
stock in connection with the exchange transaction were exempt from registration
under Section 4(2) of the Securities Act of 1933 as a sale by an issuer not
involving a public offering and under Regulation D promulgated pursuant to the
Securities Act of 1933. These shares of common stock were not registered under
the Securities Act, or the securities laws of any state, and were offered and
sold in reliance on the exemption from registration afforded by Section 4(2) and
Regulation D (Rule 506) under the Securities Act and corresponding provisions of
state securities laws, which exempts transactions by an issuer not involving any
public offering. Such securities may not be offered or sold in the United
States absent registration or an applicable exemption from the registration
requirements and certificates evidencing such shares contain or, upon issuance
will contain, a legend stating the same.
II-1
Private
Placement.
Concurrently
with the closing of the Reverse Merger, we completed an initial closing of a
private placement to selected qualified investors of shares of our common stock
at a purchase price of $1.60 per share and detachable warrants to purchase
one-quarter share of our common stock for each share of our common stock
purchased in the private placement (at an exercise price of $2.50 per
share). In total, we sold 4,934,533 shares of our common stock and
warrants to purchase 1,233,646 shares of common stock as part of this initial
closing. We received gross proceeds of $7,508,329 in consideration for the
sale of the shares of common stock and warrants, which consisted of (i)
$4,026,000 in cash from investors in the private placement and (ii) $3,482,329
from note holders in two earlier Bacterin bridge financings (conducted to fund
working capital and capital expenditures during the months prior to the Reverse
Merger) who converted their outstanding principal and interest into the private
placement at a 10% discount to the purchase price, being $1.44 per share, and
received identical warrant coverage as the cash investors except that the
exercise price of the converting note holders’ warrants is $2.25 per share, a
10% discount to the exercise price of the warrants received by the cash
investors. The note holders in the bridge financings also received warrants to
purchase 1,482,256 shares of our common stock and our placement agent received
warrants to purchase 328,125 shares of our common stock as part of our bridge
financing.
In the
second and final closing of this private placement on July 30, 2010, we sold a
total of 1,102,500 additional shares of our common stock together with
additional warrants to purchase an aggregate of 275,625 shares of our common
stock for total gross cash proceeds of $1,764,000.
Our
placement agents received an aggregate of $463,200 in cash fees in connection
with the private placement ($322,080 from the initial closing and $141,120 from
the second and final closing) and were reimbursed for their
out-of-pocket-expenses. In addition, the placement agents received an
aggregate of 106,217 shares of our common stock (84,167 shares from the initial
closing and 22,050 shares from the second and final closing) and warrants to
purchase 361,875 shares of our common stock (251,625 shares from the initial
closing and 110,250 shares from the second and final closing) at an exercise
price of $1.60 per share.
Following
the private placement transaction, the Company has permitted an additional
$450,000 in principal amount outstanding from the Bacterin bridge financings to
convert into 316,823 shares of the Company’s common stock and warrants to
purchase 79,206 shares of the Company’s common stock on the same terms as
if such debt had actually converted in the private placement
transaction. All other outstanding debt from those bridge financings that
did not convert has been repaid.
In
connection with the closing of the Reverse Merger, the Company repurchased
4,319,404 shares of its common stock from one of its stockholders for aggregate
consideration of $100, as well as certain other good and valuable consideration,
and Bacterin repurchased 77,029 shares of its common stock from certain of its
stockholders for aggregate consideration of $123,245. Immediately after
these repurchases, all of these shares were cancelled.
On
August 6, 2010, we paid certain of Bacterin’s former stockholders, who held
approximately 743,940 shares of Bacterin common stock in the aggregate (or the
equivalent of 371,970 shares of our common stock post-Reverse Merger), the fair
value for such shares in connection with the exercise of their dissenters’
rights. As a result, and pursuant to the terms of the agreement
governing the Reverse Merger, the former Bacterin stockholders (excluding the
dissenting shareholders) are entitled to be issued 371,970 shares of our common
stock (i.e., the same
number of shares that the dissenting stockholders would have received had they
not exercised their dissenters rights) in proportion to such stockholders’
pre-Reverse Merger share holding percentages in Bacterin.
On
November 19, 2010, the Company entered into financing arrangement with two
subsidiaries of Western Technology Investment (“WTI”), whereby WTI, through its
subsidiaries, agreed to provide a credit facility which allows the Company to
draw down $2.5 million initially, and gives the Company the ability to draw down
an additional $2.5 million through April 30, 2011 provided the Company has
achieved 90% of performance based milestones for the next two
quarters. In addition, upon the mutual agreement of Bacterin and WTI,
WTI has agreed to an additional commitment through December 31, 2011 of up to
25% of the next new round of equity financing or up to $3.0
million. The credit facility is secured by the Company’s personal
property and carries an all-in interest rate of 12.5%. Repayment of
the initial $2.5 million will be interest only for the first six months, with
principal and interest for the subsequent 30 months. The WTI facility
also allows the company to obtain separate accounts receivable
financing. In connection with the financing, WTI also received
warrants to purchase up to
375,000 shares of the Company’s common stock. The warrants have an
exercise price of the lower of $4.00 per share or the price at which shares of
the Company’s stock are sold in the next qualified financing, if applicable
prior to the date of exercise. The WTI warrants expire on April 30,
2018. WTI also has the right to receive additional warrants to
purchase 125,000 shares of the Company’s common stock at the same exercise price
if the Company draws down the second $2.5 million tranche of the
facility.
The
Company also issued warrants to purchase a total of 489,710 shares of the
Company’s common stock to a limited group of existing investors who exercised
existing warrants. The new warrants have an exercise price of $4.00
per share and expire on the fifth anniversary of the date of
issuance. The Company received a total of $1,111,374 from the cash
payments of the exercise price of the existing warrants.
The
Company also issued 30,000 shares to a former executive in connection with a
settlement agreement and converted the former executive’s stock options to an
equivalent number of warrants.
Transaction Fees and Use of
Proceeds.
We have
assumed Bacterin’s agreement to pay the lead placement agent, Middlebury
Securities, LLC, and any sub-placement agents, in total, (i) a cash fee equal to
8% of the aggregate gross cash proceeds received in the private placement, (ii)
warrants to purchase that number of shares of our common stock equal to 10% of
the shares of common stock purchased in the private placement, at an exercise
price of $1.60 per share, and (iii) shares of our common stock equal to 2% of
the shares of common stock purchased in the private placement for cash (less
cash invested by Guy Cook, a director and our President and Chief Financial
Officer) and acquired through the conversion of $3,482,329 in convertible debt
(principal and accrued and unpaid interest). Middlebury Securities, LLC,
and any sub-placement agents, received an aggregate of $463,200 in cash fees in
connection with the private placement ($322,080 from the initial closing and
$141,120 from the second and final closing) and were reimbursed for their
out-of-pocket-expenses. In addition, the placement agents received an
aggregate of 106,217 shares of our common stock (84,167 shares from the initial
closing and 22,050 shares from the second and final closing) and warrants to
purchase 361,875 shares of our common stock (251,625 shares from the initial
closing and 110,250 shares from the second and final closing) at an exercise
price of $1.60 per share.
Except as
set forth above, no commission was paid to the placement agents for sales of
shares of our common stock or warrants upon the conversion of the debt held by
note holders from Bacterin’s bridge financings. Additionally, we paid
auditing fees of approximately $86,000, and legal fees for us, Bacterin and the
investors in the Reverse Merger and private placement of approximately
$340,000.
II-2
The net
proceeds will be used to pay certain of our debts and provide additional working
capital for us. Specifically, the net proceeds of the private placement
will be used by us to support sales and marketing, purchase bio-materials and
other product components, fund research and development, reduce existing trade
payables and other liabilities, repay notes payable, pay the costs associated
with the Reverse Merger and the private placement (including the future costs of
registering the Company’s common shares under the Securities Act and on-going
public company costs) and for working capital and general corporate
purposes.
The
amount of our actual expenditures will depend upon numerous factors, including
the pace with which we can commercially deploy our products. Actual
expenditures may vary substantially and we may find it necessary or advisable to
reallocate the net proceeds for other purposes. Pending application of the
net proceeds as described above, we intend to invest the net proceeds from the
private placement in short-term, interest-bearing securities.
II-3
Item
16. Exhibits.
(a)
Exhibits
|
Exhibit
No.
|
Description
|
|
|
2.1
|
Agreement and Plan of Merger, dated
as of June 30, 2010, by and among K-Kitz, Inc., KB Merger Sub, Inc. and
Bacterin International, Inc.(1)
|
|
|
3.1
|
Certificate of Incorporation,
including all amendments to date(1)
|
|
|
3.2
|
Amended and Restated Bylaws, dated
September 24, 2010(2)
|
|
|
4.1
|
Form of Warrant to Purchase Common
Stock(1)
|
|
|
5.1
|
Opinion
of Exemplar Law LLC(4)
|
|
|
10.1
|
Form of Private Placement
Subscription Agreement to purchase Shares and Warrants(1)
|
|
|
10.2
|
Form of Registration Rights
Agreement(3)
|
|
|
10.3
|
Form of Management Lock-Up Agreement
for the officers and directors of Bacterin International Holdings, Inc.
and Bacterin International, Inc.(3)
|
|
|
10.4
|
Form of Indemnification Agreement for
the officers and directors of Bacterin International Holdings, Inc. and
Bacterin International, Inc.(3)
|
|
|
10.5
|
Bacterin International Equity
Incentive Plan(3)
|
|
|
10.6
|
Guy
Cook Employment Agreement(3)
•
|
|
|
10.8
|
John
Gandolfo Employment Agreement(3)
•
|
|
|
10.9
|
Jesus
Hernandez Employment Agreement(3)
•
|
|
|
10.10
|
Darrel
Holmes Employment Agreement(3)
•
|
|
| 10.11 | Loan and Security Agreement dated as of November 17, 2010 between Bacterin International Holdings, Inc. and Bacterin International, Inc. and Venture Lending & Leasing V, Inc. and Venture Lending & Leasing VI Inc.(4) | |
| 10.12 | Supplement to the Loan and Security Agreement dated as of November 17, 2010 among Bacterin International Holdings, Inc. and Bacterin International, Inc. and Venture Lending & Leasing V, Inc. and Venture Lending & Leasing VI, Inc.(4) | |
| 10.13 | Agreement for Bone Allograft, DBM, and Bone Graft Substitute Products between Broadlane, Inc. and Bacterin International, Inc.(4) | |
|
16.1
|
Letter from W.T. Uniack & Co.,
CPA’s P.C., dated September 24, 2010(2)
|
|
|
21.1
|
Subsidiaries of the Registrant(3)
|
|
|
23.1*
|
Consent
of Child, Van Wagoner & Bradshaw, PLLC
|
|
|
23.2
|
Consent
of Exemplar Law LLC (included in Exhibit 5.1)
|
|
|
24.1*
|
|
Power
of Attorney (included on the Signature Page of the Registration
Statement)
|
_____________________________
|
•
|
Compensation
Agreement
|
|
*
|
Filed
herewith
|
|
(1)
|
Incorporated
herein by reference to the Registrant’s Form 8-K dated June 30, 2010,
filed with the SEC on June 30,
2010.
|
|
(2)
|
Incorporated
herein by reference to the Registrant’s Form 8-K dated September 24, 2010,
filed with the SEC on September 24,
2010.
|
|
(3)
|
Incorporated
herein by reference to the Registrant’s Form 8-K dated June 30, 2010,
filed with the SEC on July 7, 2010.
|
|
(4)
|
Incorporated
by reference to the Registrant’s Amendment No. 1 to Form S-1 Registration
Statement filed with the SEC on December 7,
2010.
|
(b)
Financial Statement Schedules
No financial statement schedules are
required to be filed with this registration statement.
II-4
Item
17. Undertakings.
(A)
The undersigned registrant hereby
undertakes:
(1)
To file, during any period in which offers or sales
are being made, a post-effective amendment to this registration
statement:
(i)
To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the “Calculation of
Registration Fee” table in the effective registration statement;
and
(iii)
To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2)
That, for the purpose of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
herein, and the offering of such securities at that time shall be deemed to be
the initial bona fide
offering thereof.
(3)
To remove from registration by means of a
post−effective amendment any of the securities being registered which remain
unsold at the termination of the offering.
(4)
That, for the purpose of determining liability under
the Securities Act of 1933 to any purchaser:
(i)
If the registrant is relying on Rule
430B:
(A)
Each prospectus filed by the registrant
pursuant to Rule 424(b)(3) shall be deemed to be part of the registration
statement as of the date the filed prospectus was deemed part of and included in
the registration statement; and
(B)
Each prospectus required to be filed pursuant
to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in
reliance on Rule 430B relating to an offering made pursuant to Rule
415(a)(1)(i), (vii), or (x) for the purpose of providing the information
required by Section 10(a) of the Securities Act of 1933 shall be deemed to be
part of and included in the registration statement as of the earlier of the date
such form of prospectus is first used after effectiveness or the date of the
first contract of sale of securities in the offering described in the
prospectus. As provided in Rule 430B, for liability purposes of the issuer and
any person that is at that date an underwriter, such date shall be deemed to be
a new effective date of the registration statement relating to the securities in
the registration statement to which that prospectus relates, and the offering of
such securities at that time shall be deemed to be the initial bona fide offering thereof.
Provided, however, that
no statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such effective date, supersede or modify any statement that was made in
the registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such effective date;
or
II-5
(ii)
If the registrant is subject to Rule 430C,
each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first
use.
(B)
Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(C)
The undersigned registrant hereby undertakes
that:
(1)
For purposes of determining any liability
under the Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b) (1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2)
For the purpose of determining any liability
under the Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering
thereof.
II-6
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant and has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Belgrade, State of
Montana, on January 7, 2010.
|
BACTERIN
INTERNATIONAL HOLDINGS, INC.
|
|
|
By:
|
/s/ Guy Cook
|
|
Name:
|
Guy
Cook
|
|
Title:
|
Chairman
of the Board, Chief Executive Officer, President and Chief Scientific
Officer
|
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that the persons whose signature appears below
constitute and appoint jointly and severally, Guy Cook and John P. Gandolfo and
each one of them, as his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place, and
stead, in any and all capacities, to sign any and all amendments (including
pre-effective and post-effective amendments) to this registration statement and
to sign any registration statement and amendments thereto for the same offering
filed pursuant to Rule 462(b) under the Securities Act of 1933, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all which said attorneys-in-fact
and agents, or any of them, or their or his substitute or substitutes, may
lawfully do, or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the dates
indicated.
|
Signature
|
Capacity
|
Date
|
||
|
/s/
Guy Cook
|
Chairman
of the Board, Chief Executive Officer,
|
January
7, 2010
|
||
|
Guy
Cook
|
President
and Chief Scientific Officer
|
|||
| (Principal Executive Officer) | ||||
|
/s/
John P. Gandolfo
|
Chief
Financial Officer
|
January
7, 2010
|
||
|
John
P. Gandolfo
|
(Principal
Financial Officer and Principal Accounting Officer)
|
|||
|
/s/
Mitchell T. Godfrey
|
Director
|
January
7, 2010
|
||
|
Mitchell
T. Godfrey
|
||||
|
/s/
Kent Swanson
|
Director
|
January
7, 2010
|
||
|
Kent
Swanson
|
||||
|
/s/ Michael
Lopach
|
Director
|
January
7, 2010
|
||
|
Michael
Lopach
|
||||
|
/s/ Jon
Wickwire
|
Director
|
January
7, 2010
|
||
|
Jon
Wickwire
|
||||
II-7
Exhibit
Index
|
Exhibit
No.
|
Description
|
|
|
2.1
|
Agreement and Plan of Merger, dated
as of June 30, 2010, by and among K-Kitz, Inc., KB Merger Sub, Inc. and
Bacterin International, Inc.(1)
|
|
|
3.1
|
Certificate of Incorporation,
including all amendments to date(1)
|
|
|
3.2
|
Amended and Restated Bylaws, dated
September 24, 2010(2)
|
|
|
4.1
|
Form of Warrant to Purchase Common
Stock(1)
|
|
|
5.1
|
Opinion
of Exemplar Law, LLC(4)
|
|
|
10.1
|
Form of Private Placement
Subscription Agreement to purchase Shares and Warrants(1)
|
|
|
10.2
|
Form of Registration Rights
Agreement(3)
|
|
|
10.3
|
Form of Management Lock-Up Agreement
for the officers and directors of Bacterin International Holdings, Inc.
and Bacterin International, Inc.(3)
|
|
|
10.4
|
Form of Indemnification Agreement for
the officers and directors of Bacterin International Holdings, Inc. and
Bacterin International, Inc.(3)
|
|
|
10.5
|
Bacterin International Equity
Incentive Plan(3)
|
|
|
10.6
|
Guy
Cook Employment Agreement(3)
•
|
|
|
10.8
|
John
Gandolfo Employment Agreement(3)
•
|
|
|
10.9
|
Jesus
Hernandez Employment Agreement(3)
•
|
|
|
10.10
|
Darrel
Holmes Employment Agreement(3)
•
|
| 10.11 | Loan and Security Agreement dated as of November 17, 2010 between Bacterin International Holdings, Inc. and Bacterin International, Inc. and Venture Lending & Leasing V, Inc. and Venture Lending & Leasing VI Inc.(4) | |
| 10.12 | Supplement to the Loan and Security Agreement dated as of November 17, 2010 among Bacterin International Holdings, Inc. and Bacterin International, Inc. and Venture Lending & Leasing V, Inc. and Venture Lending & Leasing VI, Inc.(4) | |
| 10.13 | Agreement for Bone Allograft, DBM, and Bone Graft Substitute Products between Broadlane, Inc. and Bacterin International, Inc.(4) |
|
16.1
|
Letter from W.T. Uniack & Co.,
CPA’s P.C., dated September 24,
2010(2)
|
|
|
21.1
|
Subsidiaries of the Registrant(3)
|
|
|
23.1*
|
Consent
of Child, Van Wagoner & Bradshaw, PLLC
|
|
|
23.2
|
Consent
of Exemplar Law, LLC (included in Exhibit
5.1)
|
|
|
24.1*
|
Power
of Attorney (included on the Signature Page of the Registration
Statement)
|
_____________________________
|
•
|
Compensation
Agreement
|
|
*
|
Filed
herewith
|
|
(1)
|
Incorporated
herein by reference to the Registrant’s Form 8-K dated June 30, 2010,
filed with the SEC on June 30,
2010.
|
|
(2)
|
Incorporated
herein by reference to the Registrant’s Form 8-K dated September 24, 2010,
filed with the SEC on September 24,
2010.
|
|
(3)
|
Incorporated
herein by reference to the Registrant’s Form 8-K dated June 30, 2010,
filed with the SEC on July 7, 2010.
|
|
(4)
|
Incorporated
by reference to the Registrant’s Amendment No. 1 to Form S-1 Registration
Statement filed with the SEC on December 7,
2010.
|
 |
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
Bacterin
International Holdings, Inc.
We
hereby consent to the use of our report dated June 18, 2010, with respect
to the
financial
statements of Bacterin International, Inc. in the Registration Statement
on
Form
S-1/A to be filed on or about January 5, 2011. We also consent to the use
of
our
name and the reference to us in the Experts section of the
Registration
Statement.
 Child,
Van Wagoner & Bradshaw, PLLC
Salt
Lake City, Utah
January
5, 2011
|