Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and audited consolidated financial statements for the years ended December 31, 2024 and 2023 and the related notes included in our Annual Report on Form 10-K filed for the fiscal year ended December 31, 2024, with the SEC on February 26, 2025. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See "Note On Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors.

Company Overview

We are a medical device company that is currently focused on bone regeneration in spinal fusion using the recombinant human protein known as NELL-1. NELL-1 in combination with DBM, demineralized bone matrix, is an osteopromotive recombinant protein that provides target specific control over bone regeneration. The NELL-1 technology platform has been licensed exclusively for worldwide applications to us through a technology transfer from UCLA TDG. UCLA TDG and the Company received guidance from the FDA that NELL-1/DBM will be classified as a device/drug combination product that will require an FDA-approved PMA before it can be commercialized in the United States.

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

We are a clinical-stage entity. The production and marketing of our products and ongoing research and development activities are subject to extensive regulation by numerous governmental authorities in the United States. Prior to marketing in the United States, any combination product developed by us must undergo rigorous preclinical (animal) and clinical (human) testing and an extensive regulatory approval process implemented by the FDA under the Federal Food, Drug, and Cosmetic Act. There can be no assurance that we will not encounter problems in clinical trials that will cause us or the FDA to delay or suspend clinical trials.

Our success will depend in part on our ability to obtain and retain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. In the second quarter of 2025, we submitted a patent application with the United States Patent and Trademark Office ("USPTO") regarding proprietary compositions of rhNELL-1 polypeptide for treating bone conditions There can be no assurance that the USPTO will approve our patent application or that the patents issued to or licensed by us will not be challenged, invalidated, rendered unenforceable, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to us.

During 2024, we announced the treatment of the first patients in the multicenter, prospective, randomized pilot clinical study of our NB1 bone graft device. NB1 is NELL-1 protein combined with demineralized bone matrix (DBM) to provide rapid, specific and guided control over bone regeneration.

The pilot clinical study will evaluate the safety and effectiveness, fusion success, pain, function improvement and adverse events of NB1 in up to 30 adult subjects who undergo transforaminal lumbar interbody fusion to treat degenerative disc disease (DDD). To be enrolled in the study, patients must have DDD at one level from L2-S1 and may also have up to Grade 1 spondylolisthesis or Grade 1 retrolisthesis at the involved level. The study is being conducted in Australia. The study design was previously reviewed and agreed upon by the FDA's Division of Orthopedic Devices in a Pre-submission to support progression to a pivotal clinical trial in the United States.

Results of Operations

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

On June 5, 2025, we filed an amendment to our amended and restated certificate of incorporation, as amended, with the Secretary of State of the State of Delaware to effect a 1-for-6 reverse stock split of our outstanding common stock and warrants. The amendment was authorized by our stockholders on May 30, 2025, and was effective on June 10, 2025.

All share and per share amounts have been retro-actively restated as if the reverse splits occurred at the beginning of the earliest period presented.

Three months ended September 30, 2025 compared to the Three months ended September 30, 2024

		Three-months ended September 30, 2025				Three-months ended September 30, 2024				% Change
Operating expenses
Research and development		$	187,808			$	429,747				(56.30	)%
General and administrative			527,466				521,274				1.19	%
Total operating expenses			715,274				951,021				(24.79	)%
Loss from operations			(715,274	)			(951,021	)			(24.79	)%
Change in fair value of warrant liability			1,212				(9,974	)			112.15	%
Interest income			47,325				19,993				136.71	%
Net loss		$	(666,737	)		$	(941,002	)			(29.15	)%

Research and Development

Our research and development expenditures decreased from $429,747 for the three months ending September 30, 2024, to $187,808 for the same period in 2025, marking a decrease of $241,939. The decrease in costs can be attributed to timing of our clinical trial. We anticipate continued substantial investment in development activities for NELL-1 as we prepare for our pivotal clinical study in the future.

General and Administrative

Our general and administrative expenses increased by $6,192, rising from $521,274 for the three months ended September 30, 2024, to $527,466 for the same period in 2025.

Change in fair value of warrant liability

In October 2022, we completed a public equity offering, which included the issuance of 9,029 warrants to purchase shares of common stock that expire in October 2027. The warrants provide for a Black Scholes value calculation in the event of certain fundamental transactions, which includes a floor on volatility utilized in the value calculation at 100% or greater. We have determined that this provision introduces leverage to the holders of the warrants that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company's own equity shares. Accordingly, pursuant to ASC 815, we have classified the fair value of the warrants as a liability to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The change in fair value of warrant liability represents the re-measurement of the outstanding warrants at September 30, 2025.

Nine months ended September 30, 2025 compared to the Nine months ended September 30, 2024

		Nine-months ended September 30, 2025				Nine-months ended September 30, 2024				% Change
Operating expenses
Research and development		$	802,994			$	1,025,814				(21.72	)%
General and administrative			1,698,843				1,638,409				3.69	%
Total operating expenses			2,501,837				2,664,223				(6.10	)%
Loss from operations			(2,501,837	)			(2,664,223	)			(6.10	)%
Change in fair value of warrant liability			3,469				38,122				(90.90	)%
Interest income			74,020				35,396				109.12	%
Net loss		$	(2,424,348	)		$	(2,590,705	)			(6.42	)%

Research and Development

Our research and development expenditures decreased from $1,025,814 for the nine months ending September 30, 2024, to $802,994 for the same period in 2025, marking a decrease of $222,820. The decrease in costs can be attributed to timing of our clinical trial. We anticipate continued substantial investment in development activities for NELL-1 as we prepare for our pivotal clinical study in the future.

General and Administrative

General and administrative costs increased by $60,434, from $1,638,409 for the nine months ending September 30, 2024, to $1,698,843 for the same period in 2025, mainly due to higher fair value of directors' stock option compensation, partially offset by lower legal and consultant expenses.

Change in fair value of warrant liability

In October 2022, we completed a public equity offering, which included the issuance of 9,029 warrants to purchase shares of common stock that expire in October 2027. The warrants provide for a Black Scholes value calculation in the event of certain fundamental transactions, which includes a floor on volatility utilized in the value calculation at 100% or greater. We have determined that this provision introduces leverage to the holders of the warrants that could result in a value that would be greater than the settlement amount of a fixed-for-fixed option on the Company's own equity shares. Accordingly, pursuant to ASC 815, we have classified the fair value of the warrants as a liability to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

The change in fair value of warrant liability represents the re-measurement of the outstanding warrants at September 30, 2025.

Liquidity and Capital Resources

Going Concern and Liquidity

We have no significant operating history and since inception to September 30, 2025 have incurred accumulated losses of approximately $87.4 million. We will continue to incur significant expenses for development activities for our lead product NELL-1/DBM. Operating expenditures for the next twelve months are estimated at $6.9 million. The accompanying consolidated financial statements for the nine months ended September 30, 2025 have been prepared assuming we will continue as a going concern. As reflected in the financial statements, we incurred a net loss of $2.4 million and used net cash in operating activities of $2.0 million during the nine months ended September 30, 2025. These factors raise substantial doubt about our ability to continue as a going concern within a reasonable period of time, which is considered to be one year after the date that the financial statements are issued. In addition, our independent registered public accounting firm, in their report on the Company's audited financial statements for the year ended December 31, 2024, expressed substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

On June 27, 2025, we issued investors 793,750 shares of common stock and pre-funded warrants to purchase 456,250 shares of common stock for $4.00 per share (the shares of common stock had a public offering price of $4.00 per share. The pre-funded warrants had a public offering price of $3.999 per share, and we also received at closing the pre-funded warrants exercise price of $0.001 per share). In addition, we issued investors Series D warrants to purchase 1,250,000 shares of common stock (exercise price of $4.00 per share), expiring on June 30, 2030, and Series E warrants to purchase 1,250,000 shares of common stock (exercise price of $4.00 per share), expiring on November 30, 2027. The net proceeds received from the sale of common stock, pre-funded warrants and warrants, net of cash costs of $647,208, was $4,352,792 (the "June Offering").

On June 27, 2025, 266,250 shares of common stock were issued upon the exercise of 266,250 pre-funded warrants. On June 30, 2025, another 80,000 shares of common stock were issued upon the exercise of 80,000 pre-funded warrants.

On July 1, 2025, 95,000 shares of common stock were issued upon the exercise of 95,000 pre-funded warrants and on July 2, 2025, 15,000 shares of common stock were issued upon the exercise of 15,000 pre-funded warrants.

During the nine months ended September 30, 2025, we sold 52,843 shares of common stock through the ATM Facility for net proceeds of $347,549, after deducting $13,029 in offering costs.

We will continue to attempt to raise additional debt and/or equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be consummated or obtained in sufficient amounts necessary to meet our needs. If cash resources are insufficient to satisfy our on-going cash requirements, we will be required to scale back or discontinue our product development programs, or obtain funds if available (although there can be no certainties) through strategic alliances that may require us to relinquish rights to our technology or substantially reduce or discontinue our operations entirely. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to us. Even if we are able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing, or cause substantial dilution for our stockholders, in the case of equity financing.

At September 30, 2025 and December 31, 2024, we had cash of $6,049,084 and $3,325,131, respectively.

We expect our available cash to fund our operations into the fourth quarter of 2026.

Cash Flows

Operating activities

For the nine months ended September 30, 2025 and 2024, cash used in operating activities amounted to $1,976,388 and $2,771,438, respectively. The decrease in cash expenditures for the period ending September 30, 2025 is attributable to the absence of a legal settlement payment, which was made in January 2024, as well as lower research and development expenses related to preparing for our pilot clinical study.

Financing activities

During the nine months ended September 30, 2025, cash provided by financing activities was $4,700,341 compared to $3,311,295 during the nine months ended September 30, 2024. The increase in cash provided by financing activities is primarily attributed to the net proceeds of the ATM Facility, the net proceeds of the June Offering and the exercise of pre-funded warrants.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Use of Estimates

See our most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2024 for a discussion of our critical accounting policies and use of estimates. There have been no material changes to our critical accounting policies and use of estimates discussed in such report.