Xtant Medical Holdings
Annual Report 2014

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549 FORM 10-K (Mark One) xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2014 or ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 001-34951 Bacterin International Holdings, Inc. (Exact Name of Registrant as Specified in Its Charter) Delaware 20-5313323(State or other jurisdiction ofincorporation or organization) (IRS Employer Identification No.) 664 Cruiser LaneBelgrade, Montana 59714(Address of Principal Executive Offices) (Zip Code) (406) 388-0480(Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon stock, par value $.000001 per share NYSE MKT LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No þ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No þ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes þ No ¨ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required tobe submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required tosubmit and post such files). Yes þ No ¨ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form10-K. ¨ 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 thedefinitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer¨Accelerated filer¨Non-accelerated filer¨Smaller reporting companyþ(Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ The aggregate market value of the common stock held by non-affiliates as of June 30, 2014 was $31,947,107 (based on the closing price of the Company’scommon stock on the last business day of the Company’s most recently completed second fiscal quarter, as reported on the NYSE MKT). The number of shares of the Company’s common stock, $0.000001 par value, outstanding as of March 10, 2015 was 6,683,056. DOCUMENTS INCORPORATED BY REFERENCE None  TABLE OF CONTENTS PART I ITEM 1.Business 3ITEM 1A.Risk Factors 7ITEM 1B.Unresolved Staff Comments 18ITEM 2.Properties18ITEM 3.Legal Proceedings 18ITEM 4.Mine Safety Disclosures 18 PART II ITEM 5.Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 19ITEM 6.Selected Financial Data 20ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operation20ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk 23ITEM 8.Financial Statements and Supplementary Data 23ITEM 9.Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 46ITEM 9A.Controls and Procedures 46ITEM 9B.Other Information 46 PART III ITEM 10.Directors, Executive Officers and Corporate Governance 47ITEM 11.Executive Compensation 51ITEM 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 55ITEM 13.Certain Relationships and Related Transactions, and Director Independence 57ITEM 14.Principal Accounting Fees and Services 57 PART IV ITEM 15.Exhibits, Financial Statements Schedules 58 SIGNATURES 59 Exhibit Index 60 1 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS The statements contained in this Form 10-K that are not purely historical are forward-looking statements within the meaning of applicable securitieslaws. 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 Form 10-K mayinclude, for example, statements about: •our ability to remain listed on the NYSE MKT; •our ability to obtain financing on reasonable terms; •our ability to increase revenue; •our ability to comply with the covenants in our credit facility; •our ability to maintain sufficient liquidity to fund our operations; •the ability of our sales force to achieve expected results; •our ability to remain competitive; •government regulations; •our ability to expand our production capacity; •our ability to innovate and develop new products; •our ability to obtain donor cadavers for our products; •our ability to engage and retain qualified technical personnel and members of our management team; •government and third-party coverage and reimbursement for our products; •our ability to obtain regulatory approvals; •our ability to successfully integrate future business combinations or acquisitions; •product liability claims and other litigation to which we may be subjected; •product recalls and defects; •timing and results of clinical studies; •our ability to obtain and protect our intellectual property and proprietary rights; •infringement and ownership of intellectual property; •influence by our management; and •our ability to issue preferred stock. The forward-looking statements contained in this Form 10-K are based on our current expectations and beliefs concerning future developments andtheir potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-lookingstatements involve a number of risks, uncertainties, or assumptions, many of which are beyond our control, which may cause actual results or performance tobe 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 in the “Risk Factors” section of our Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of ourassumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake noobligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be requiredunder applicable securities laws. 2 PART I Item 1.Business Overview of Our Business We develop, manufacture and market biologics products to domestic and international markets. Our bone graft products are used in a variety ofapplications including enhancing fusion in spine surgery, relief of back pain through facet joint stabilization, promotion of bone growth in foot and anklesurgery, promotion of skull healing following neurosurgery and subchondral bone repair in knee and other joint surgeries. Our acellular dermis scaffolds areutilized in wound care and plastic and reconstructive procedures. We also develop custom surgical instruments for use with our allografts, and we produceand distribute OsteoSelect® DBM putty, an osteoinductive product used by surgeons as a bone void filler in the extremities and pelvis. DBM putty isconsidered a combination product by regulatory agencies - both a tissue and a medical device. Our Offices 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 own a facility located at 664 Cruiser Lane, Belgrade, Montana 59714, and lease space at 732Cruiser Lane, Belgrade, Montana 59714, 8310 S. Valley Highway, Englewood, Colorado 80112 and 10955 Westmoor Drive, Westminster, CO 80021. Our History We began operations in 1998 as a spinout of the Center for Biofilm Engineering at Montana State University, or the CBE, and we eventuallyincorporated as “Bacterin, Inc.” in the state of Montana in January 2000. In March 2004, Bacterin, Inc.’s stockholders entered into a share exchangeagreement 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., the Montana corporation, becamestockholders of Bacterin International, Inc., the Nevada corporation, and Bacterin, Inc., the Montana corporation, became a wholly owned subsidiary ofBacterin International, Inc., the Nevada corporation. At the end of 2004, management concluded that this transaction was problematic and did not deliver theexpected result. Based on this determination, we entered into an agreement in 2005 to amend the terms of the exchange transaction with the former majoritystockholder of OGS. In May 2005, we merged Bacterin, Inc., the Montana corporation, up and into Bacterin International, Inc., the Nevada corporation. We began as a biomaterials testing laboratory and have systematically expanded our strategic vision towards the development of Bacterin-labeledproducts. Our revenues were initially derived from testing services and milestone payments from collaborative product development agreements with variousmedical manufacturers. Today we generate most of our revenue from biologics products we manufacture. On June 30, 2010, Bacterin International, Inc. merged with and into a wholly-owned Nevada subsidiary of Bacterin International Holdings, Inc. f/k/aK-Kitz Incorporated, a Delaware corporation, and as a result, Bacterin International, Inc. became a wholly owned subsidiary of Bacterin InternationalHoldings, Inc. Before the reverse merger described above, Bacterin International Holdings, Inc. was known as K-Kitz, Incorporated, with a trading symbol ofKKTZ.OB. On June 29, 2010, K-Kitz Incorporated changed its corporate name to “Bacterin International Holdings, Inc.” which name change becameeffective for trading purposes on July 1, 2010, following the reverse merger transaction. Effective July 21, 2010, our trading symbol was changed fromKKTZ.OB to BIHI.OB. On March 7, 2011, our common stock began trading on the NYSE Amex under the ticker symbol “BONE.” Industry and Market Overview The orthopedic biomaterials market consists of materials that are organic, inorganic or synthetic in nature. These materials are implanted or appliedin or near the indicated bone to facilitate healing, encourage bone tissue augmentation, compensate in areas where bone tissue is depleted and restorestructure to allow for repair. Orthopedic biomaterials are capable of producing specific biological action or regenerative responses that are beyond what isobserved 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 orrepair the wounded or unhealthy site. Bone is a biologically active tissue and may or may not regenerate depending on the condition of the patient. Thedamage may be significant enough that a scaffold may be necessary to help regenerate the surgical site. Products and Services Our products include OsteoSponge®, OsteoSponge®SC, OsteoSelect® DBM putty, OsteoWrap®, OsteoLock®, BacFast® HD, OsteoSTX®,hMatrix® and our new line of 3DeminTM products, as well as other allograft products described below: 3 ¨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. Themalleable properties of OsteoSponge® enable it to conform to, and fill, most defects. Upon compressing the allograft, OsteoSponge® springsback to completely fill the void. Its unique mechanical and biological properties make OsteoSponge® an ideal bone graft for use in variousorthopedic practices including spine, neurology, cranial/maxillofacial, trauma, plastic/reconstruction and general procedures where new bonegrowth is needed. ¨OsteoSponge®SC is a form of OsteoSponge® designed to fill bony defects in the subchondral region of joints. We have received permissionfrom the FDA to market this product as a subchondral bone void filler and are currently marketing it as such. ¨OsteoSelect® DBM putty is engineered with the surgeon in mind. With outstanding handling characteristics, OsteoSelect® can be easilymolded into any shape and compressed into bony voids. Bacterin has validated a low-dose, low-temperature gamma sterilization process toprovide maximum osteoinductive potential while still affording device level sterility. Every production batch of OsteoSelect® is tested forosteoinductive bone growth characteristics allowing us to make that unique marketing claim. ¨OsteoWrap® is 100% human cortical bone demineralized through a proprietary process to make the graft flexible while maintaining allograftintegrity. 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 ahardware plate system. Additionally, this product provides the surgeon with superior handling characteristics as the allograft can be easilysized using surgical scissors or a scalpel, and will withhold sutures or staples for fixation. ¨OsteoLock® and BacFast® HD are facet stabilization dowels made from human bone. The shape of our facet stabilization dowel isengineered 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 technologyincreases the surface area of the outer collagen matrix of the graft while exposing native bone morphogenic proteins (BMPs) and growthfactors. Because of the hyper-demineralization technology, BacFast® HD has osteoinductive properties, as well as being osteoconductive. OsteoLock® and BacFast® HD can be used to augment spinal procedures, or as a stand-alone procedure for mild spinal conditions. ¨OsteoSTX® are demineralized cortical sticks processed from human allograft bone. Utilizing our patented demineralization technology, thegrafts are flexible and feature osteoinductive properties. The nature of demineralized cortical bone provides all the necessary elements forbone regeneration. OsteoSTX® are designed for posterolateral spine surgery applications ranging from one-level to multi-level fusions,including scoliosis procedures. This is a new addition to Bacterin’s biologic products portfolio launched in March 2014. ¨hMatrix® dermal scaffold is an extension of Bacterin's core biologics technology. hMatrix® is an acellular matrix made from donated humandermal tissue that is used to replace a patient's damaged tissue. hMatrix® provides a natural collagen tissue scaffold that promotes cellularingrowth, tissue vascularization and regeneration. The hMatrix® scaffold tissue reabsorbs into the patient's dermal tissue for abiocompatible, natural repair. ¨Our new line of 3DeminTM products consists of 3DeminTM Cortical Fibers, 3DeminTM Boats and 3DeminTM Strips. These 3Demin productsare made from cortical bone and primarily used in spine procedures. All of the Company’s biologics are terminally sterilized and packaged to enhance the safety of our grafts for our physician customers and theirpatients. We also process and sell (i) sports allografts which are processed specifically for anterior and posterior cruciate ligament repairs, anterior cruciateligament reconstruction and meniscal repair, (ii) milled spinal allografts which are comprised of cortical bone milled to desired shapes and dimensions, and(iii) traditional allografts for multi-disciplinary applications including orthopedics, neurology, podiatry, oral/maxillofacial, genitourinary andplastic/reconstructive. We also develop custom surgical instruments for use with our allografts. The Company’s products are described in multiple physician-initiated studies that continue to prove expanded indications for our products. At the end of 2014, the Company made the strategic decision to exit the craniomaxillofacial and medical device coatings businesses. Technology and Intellectual Property Patents, trademarks and other proprietary rights are very important to our business. We also rely upon trade secrets, manufacturing know-how,continuing technological innovations and licensing opportunities to maintain and improve our competitive position. We review third-party proprietaryrights, including patents and patent applications, as available, in an effort to develop an effective intellectual property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities and monitor the intellectual property owned by others. 4 Patents On November 5, 2013, the United States Patent and Trademark Office issued US Patent No. 8,574,825 entitled “Process for Demineralization of BoneMatrix with Preservation of Natural Growth Factors.” The issued claims in the patent are for a method to produce a demineralized cancellous bone matrix,such as Bacterin’s OsteoSponge® product line. Bacterin has a pending divisional application in the United States to pursue protection of other aspects of itsbone demineralization technology and is pursuing related applications in Canada, Europe and Korea. We have other provisional applications pending in theUnited States and other countries that relate to aspects of the technology used in many of our products. Our policy is to file patent applications in the UnitedStates and other countries when we believe it is commercially advantageous to do so. We do not consider our business to be materially dependent upon anyindividual patent. Our patent efforts are focused on the development of innovative and novel, engineered tissue implants or constructs which employ acellular tissueand processes, and enhanced demineralized bone matrix products. We also hold patents related to our medical device coatings business. At the end of 2014,the Company made the strategic decision to exit the medical device coatings business. We believe our patent filings and patent position will facilitate growth and enhance our proprietary core competencies. We expect that additionalpatent applications will be filed and prosecuted as inventions are discovered, technological improvements and processes are developed and specificapplications are identified. 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 of the names of our products inorder to drive consumer awareness and loyalty to the brand. To protect this investment, we have registered, and continue to seek registration, of thesetrademarks and continuously monitor and aggressively pursue users of names and marks that potentially infringe upon our registered trademarks. Wecurrently own the following registered trademarks: OsteoSponge®, OsteoWrap®, OsteoLock®, BacFast®, OsteoSelect®, Elutia®, OsteoSTX®, hMatrix®,BACTERINSE® and Circle of Life®. Trade Secrets To safeguard our proprietary knowledge and technology, we rely upon trade secret protection and non-disclosure/confidentiality agreements withemployees, consultants and third party collaboration partners with access to our confidential information. There can be no assurance, however, that thesemeasures will adequately protect against the unauthorized disclosure or use of confidential information, or that third parties will not be able to independentlydevelop 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 rapidtechnological changes in the medical industry, we also believe that proprietary protection is of less significance than factors such as the intrinsic knowledgeand experience of our management, advisory board, consultants and personnel and their ability to identify unmet market needs and to create, invent, developand market innovative and differentiated products. Donor Procurement We have agreements with multiple recovery agencies and we continue to expand our network for donor tissue in anticipation of increasedproduction. We expect to be able to continue to build our network for donor tissue as our production capabilities and sales increase. Sales and Marketing We sell our product in the United States through a hybrid distribution network including direct employees and independent distributors. As ofFebruary 2015, we have one President, one Vice President of Sales and one Vice President of Marketing to lead this effort, and we have two marketdevelopment managers, ten regional managers, three national account managers, eleven sales representatives, one distribution manager and sixteen associatesales representatives in the field. Growth Strategy In an effort to capitalize on our core markets, as well as new market opportunities, we have diversified our supply of donor tissue, expanded ourproduction capabilities, developed our hybrid sales force and refined the message to our market. We are pursuing a high-level, national effort to present our products as a value proposition to hospital chains and other purchasing organizations. To this end, we have entered into agreements with Banner Hospitals, Dignity Health, Franciscan Health System, the Hospital for Special Surgery, WilliamBeaumont Hospital, Catholic Healthcare West, Franciscan Alliance, McLaren Healthcare, Pinnacle Health Systems, Proliance Surgeons, Baptist Health SouthFlorida, MedAssets, Novation, Premier, ROi, Health Trust Purchasing Group, Scripps and Bon Secour among others. These agreements are paving the way forour sales representatives to call on additional physicians, as the hospital process has already been approved. 5 Competition The orthopedic biomaterials market is comprised of a great number of players, each offering a multitude of products, and it is expected that severalnew products will emerge over the coming years. Competitors in the orthopedic biomaterials markets include: Medtronic, DePuy/Synthes, Arthrex, Smith &Nephew, Nuvasive, OrthoFix, Biomet, MTF, Stryker, RTI Surgical, AlloSource, Lifenet Health, Integra, ConMed/Linvatec, Wright Medical, Exactech, KCI,Baxter and Alphatec. Government Regulation We are registered with the FDA as a manufacturer of human cellular and tissue products (HCT/Ps) as well as medical devices, and we are anaccredited member of the American Association of Tissue Banks in good standing. We meet all licensing requirements for the distribution of HCT/Ps instates with licensing requirements, including Florida, California, Louisiana, Maryland and New York. Our industry is highly regulated and we cannot predictthe impact of future regulations on either us or our customers. Human Tissue Human tissue products have been regulated by the FDA since 1993. In May 2005, three new comprehensive regulations went into effect that addressmanufacturing activities associated with HCT/Ps. The first requires that companies that produce and distribute HCT/Ps register with the FDA. The secondprovides 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 theprocessing and distribution of the tissues and is often referred to as the “Current Good Tissue Practices” rule. Together, they are designed to ensure thatsound, high quality practices are followed to reduce the risk of tissue contamination and communicable disease transmission to recipients. Several of ourproducts including OsteoSponge® and OsteoWrap® are regulated as HCT/Ps as determined by the Tissue Reference Group and regulated under Section 361of the Public Health Service Act and 21 CFR Part 1271. Medical Devices Our medical devices require the clearance of the FDA prior to sale within the United States. The FDA process requires a pre-market notification, or a510(k) submission, to the FDA to demonstrate that the medical device is safe and effective and is substantially equivalent to a legally marketed device that isnot 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 asthe “predicate device”), and make and support a claim of substantial equivalency to such predicate device. Support for such claims must include descriptivedata 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 mustthen issue an order finding substantial equivalency before the devices may be commercially distributed in the U.S. The Center for Devices and RadiologicalHealth regulates medical devices, including our OsteoSelect® DBM putty. ISO Certification In March 2010, we announced that we received certification from the International Organization for Standardization, or ISO, for fulfilling therequirements of ISO 13485:2003, and in February 2013 we announced that we also received ISO certification for our biologics division. ISO 13485:2003specifies requirements for a quality management system. To obtain ISO 13485:2003 certification, an organization must demonstrate its ability to providemedical devices that consistently meet applicable customer and regulatory requirements. The primary objective of ISO 13485:2003 is to facilitateharmonized medical device regulatory requirements for quality management systems. All requirements of ISO 13485:2003 are specific to organizationsproviding medical devices, regardless of the type or size of the organization. The certification assures our customers and partners of our commitment toquality, and in the quality of our innovative products and processes. Additionally, we believe that our ISO 13485:2003 certification offers new markets andbusiness opportunities for our products in the global marketplace. Employees As of February, 2015, we had 148 full-time employees and 150 total employees, of whom 52 were in operations, 42 were in sales, 5 werein marketing, 8 were in R&D, 14 were in QA/QC, and 29 were in administrative functions. In addition, we make use of a varying number of outsourcedservices to manage normal business cycles. None of our employees are covered by a collective bargaining agreement and management considers relationswith employees and service partners to be good. Facilities We lease approximately 17,700 square feet in a building located at 600 Cruiser Lane, Belgrade, Montana 59714. This space includes six Class 100(ISO 5) clean rooms, a fully equipped diagnostics laboratory, microbiology laboratory and testing laboratory. We lease the building under a ten-yearoperating lease which runs through August 2023 and has a monthly lease payment of $13,000. 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 registeredfacility with a Class 10,000 (ISO 7) environmentally controlled area. The validated manufacturing areas and laboratory facilities located in this facilityprovide processing and testing space to manufacture medical devices pursuant to FDA, GMP regulations, and ISO 13485:2003. The facility is registered withthe FDA for device design, device manufacture, and contract manufacture, as well as for screening, testing, storing, and distributing biological tissues. We also lease a 21,000 square foot facility at 732 Cruiser Lane, Belgrade, Montana 59714, where one Class 1,000 (ISO 6) clean room is located, andwe lease office space in Englewood, Colorado and Westminster, Colorado, where certain of our administrative functions are housed. 6 ITEM 1A.RISK FACTORS Our business and an investment in our securities are subject to a variety of risks. The following risk factors describe some of the most significantevents, facts or circumstances that could have a material adverse effect upon our business, financial condition, results of operations, ability to implementour business plan and the market price for our securities. Many of these events are outside of our control. If any of these risks actually occurs, our business,financial condition or results of operations may be materially adversely affected. In such case, the trading price of our common stock could decline andinvestors in our common stock could lose all or part of their investment. Our Common Stock may be delisted from the NYSE MKT, and we may move to the OTCQX marketplace. On May 13, 2013, we received a deficiency notice from the NYSE MKT notifying us that we are not in compliance with Section 1003(a)(iii) of theCompany Guide with stockholders’ equity of less than $6,000,000 and net losses in five of our most recent fiscal years and Section 1003(a)(ii) withstockholders’ equity of less than $4,000,000 and net losses in three of our four most recent fiscal years. On June 12, 2013 we submitted a plan to regaincompliance with the continued listing requirements, and on June 21, 2013 the NYSE MKT informed us of the acceptance of our plan and gave us anextension until November 13, 2014 to regain compliance with the continued listing standards. On November 19, 2013, we received another letter from theNYSE MKT notifying us that we are not in compliance with Section 1003(a)(i) of the Company Guide with stockholders’ equity of less than $2,000,000 as ofSeptember 30, 2013 and net losses in two of three of our most recent fiscal years, and we submitted an amended plan to regain compliance. On November 14,2014, we received a letter notifying us that the staff of NYSE Regulation, Inc. (the “Staff”) determined to commence proceedings to delist our common stockfrom the NYSE MKT because we did not cure our non-compliance with Sections 1003(a)(i), (ii) and (iii) of the NYSE MKT Company Guide by the end of themaximum 18 month compliance period, which expired on November 13, 2014. We appealed the Staff’s delisting determination and attended a hearing onJanuary 21, 2015. On January 26, 2015, following our January 21, 2015 hearing with a Listing Qualifications Panel (the “Panel”) of the NYSE MKT LLC’sCommittee on Securities (the “Committee”), we received a letter notifying us that the Panel affirmed the determination of the Staff to delist our commonstock. We have subsequently requested a full Committee review of the Panel’s decision. If we are delisted from the NYSE MKT, we anticipate that our common stock will trade on the OTCQX marketplace. If our common stock is delistedfrom the NYSE MKT, our stock price and liquidity may be negatively affected, some shareholders may sell their shares, and we may not be able to attractinstitutional investors in future financing transactions. In addition, under current SEC rules, our common stock must be listed on a national securitiesexchange in order to utilize a Form S-3 registration statement (i) for a primary offering, if our public float is not at least $75.0 million as of a date within 60days prior to the date of filing the Form S-3, or a re-evaluation date, whichever is later, and (ii) to register the resale of our securities by persons other than us(i.e., a resale offering). If we were unable to utilize a Form S-3 registration statement for primary and secondary offerings of our common stock, we would berequired to file a Form S-1 registration statement, which could delay our ability to raise funds in the future, may limit the type of offerings of common stockwe could undertake, and could increase the expenses of any offering, as, among other things, registration statements on Form S-1 are subject to SEC reviewand comments whereas take downs pursuant to a previously effective Form S-3 are not. There can be no assurance that our common stock will remain listedon the NYSE MKT. If our Common Stock were delisted from the NYSE MKT, we would no longer be subject to the NYSE MKT rules, including rules limiting thenumber of shares we may issue without shareholder approval and certain corporate governance standards. Our ability to issue common stock is currently limited by the NYSE MKT’s shareholder approval requirements. For example, the NYSE MKTrequires that we obtain shareholder approval before issuing 20% or more of our common stock in an acquisition. We must also generally seek shareholderapproval before issuing 20% or more of our common stock in a financing transaction, unless the transaction satisfies certain pricing requirements or isconsidered a “public offering” by the NYSE MKT staff. If our common stock is delisted from the NYSE MKT, we would no longer be subject to suchshareholder approval requirements, and we could issue shares in excess of 20% of our outstanding shares in acquisitions or financing transactions withoutshareholder approval. Any such issuance would dilute the ownership of our current stockholders. In addition, following a delisting of our common stock, wewould no longer be subject to the NYSE MKT rules requiring us to meet certain corporate governance standards, which could decrease investor interest in ourcommon stock. We may not be able to meet financial or other covenant requirements in our current credit facility, and we may not be able to successfullynegotiate waivers or a new credit agreement to cure any covenant violations. Our debt agreements with ROS Acquisition Offshore LP (“ROS”) contain representations, warranties, fees, affirmative and negative covenants,including a minimum cash balance and minimum revenue amounts by quarter, and default provisions, which include departures in key management, if notremedied within 90 days. A breach of any of these covenants could result in a default under these agreements. Upon the occurrence of an event of defaultunder our debt agreements, our lender could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments toextend further credit. If our lender accelerates the repayment of borrowings, we may not have sufficient assets to repay our indebtedness. Also, should there bean event of default, or should we need to obtain waivers following an event of default, we may be subject to higher borrowing costs and/or more restrictivecovenants in future periods. In addition, to secure the performance of our obligations under the ROS facility, we pledged substantially all of our assets,including our intellectual property, to ROS. Our failure to comply with the covenants under the ROS credit facility could result in an event of default, theacceleration of our debt and the loss of our assets. We may need to split the proceeds from future offerings with ROS Acquisition Offshore LP Our credit agreement with ROS includes an obligation on our part to split the net proceeds from equity offerings evenly with ROS above $15 millionin the aggregate. So far we have not exceeded the $15 million threshold; however, future offerings may, when combined with previous offerings, take usabove the $15 million threshold in the aggregate, at which point we would be obligated to split the net proceeds of any such future offering evenly with ROS.This would reduce the net proceeds to us, which may affect our ability to raise capital in the future. We are not currently profitable and we will need to raise additional funds in the future; however, additional funds may not be available onacceptable terms, or at all. We have substantial operating expenses associated with the sales and marketing of our products. The sales and marketing expenses are anticipatedto be funded from operating cash flow. There can be no assurance that we will have sufficient access to liquidity or cash flow to meet our operating expensesand other obligations. If we do not increase our revenue or reduce our expenses, we will need to raise additional capital, which would result in dilution to ourstockholders, or seek additional loans. The incurrence of indebtedness would result in increased debt service obligations and could require us to agree tooperating and financial covenants that would restrict our operations. Financing may not be available in amounts or on terms acceptable to us, if at all. Anyfailure by us to raise additional funds on terms favorable to us, or at all, could result in our inability to pay our expenses as they come due, limit our ability toexpand our business operations, and harm our overall business prospects. 7 We may not be able to raise capital or, if we can, it may not be on favorable terms. We may seek to raise additional capital through public or privateequity financings, partnerships, joint ventures, disposition of assets, debt financings or restructuring, bank borrowing or other sources. To obtain additionalfunding, we may need to enter into arrangements that require us to relinquish rights to certain technologies, products and/or potential markets. If adequatefunds are not otherwise available, we would be forced to curtail operations significantly, including reducing our sales and marketing expenses which couldnegatively impact product sales and we could even be forced to cease operations, liquidate our assets and possibly even seek bankruptcy protection. The impact of United States healthcare reform legislation remains uncertain. In 2010 federal legislation, the Patient Protection and Affordable Care Act (PPACA), to reform the United States healthcare system was enacted intolaw. The law was upheld by a Supreme Court decision announced in June 2012. The legislation is far-reaching and is intended to expand access to healthinsurance coverage, improve quality and reduce costs over time. Among other things, the PPACA imposes a 2.3 percent excise tax on medical devices, whichapplies to United States sales of our medical device products, including our OsteoSelect® DBM putty. Due to multi-year pricing agreements and competitivepricing pressure in our industry, there can be no assurance that we will be able to pass the cost of the device tax on to our customers. Other provisions of thislegislation, including Medicare provisions aimed at improving quality and decreasing costs, comparative effectiveness research, an independent paymentadvisory board, and pilot programs to evaluate alternative payment methodologies, could meaningfully change the way healthcare is developed anddelivered. We cannot predict the impact of this legislation or other healthcare programs and regulations that may ultimately be implemented at the federal orstate level, the effect of any future legislation or regulation in the United States or internationally or whether any changes will have the effect of loweringprices for our products or reducing medical procedure volumes. We face risks and uncertainties relating to an OIG subpoena. In February 2013, we received a subpoena from the Office of the Inspector General of the U.S. Department of Health and Human Services (“OIG”)seeking documents in connection with an investigation into possible false or otherwise improper claims submitted to Medicare. The subpoena requesteddocuments related to physician referral programs operated by the Company, which we believe refers to the Company’s prior practice of compensatingphysicians for performing certain educational and promotional services on behalf of the Company. This program was discontinued in 2010. We provided aninitial response to the OIG subpoena and have not received any further correspondence or requests from the OIG. Although it does not appear that the OIG isactively pursuing the investigation at the present time, we cannot assure you that the OIG will not resume the investigation in the future. Any furtherinvestigation by the OIG could divert management’s attention from business demands and subject us to significant legal expenses. Pricing pressure and cost containment measures could have a negative impact on our future operating results. Pricing pressure has increased in our industry due to continued consolidation among healthcare providers, trends toward managed care, the shifttowards government becoming the primary payer of healthcare expenses, and government laws and regulations relating to reimbursement and pricinggenerally. Pricing pressure, reductions in reimbursement levels or coverage or other cost containment measures could unfavorably affect our future operatingresults and financial condition. Many competitive products exist and more will be developed, and we may not be able to successfully compete because we are smaller and havefewer 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 areexpected to continue to occur. Other companies already have competing products available or may develop products to compete with ours. Many of theseproducts have short regulatory timeframes and our competitors, many with more substantial development resources, may be able to develop competingproducts that are equal to or better than ours. This may make our products obsolete or undesirable by comparison and reduce our revenue. Our success willdepend, in large part, on our ability to maintain a competitive position concerning our intellectual property, and to develop new technologies and newapplications for our technologies. Many of our competitors have substantially greater financial and technical resources, as well as greater production andmarketing capabilities, and our ability to compete remains uncertain. The medical community and the general public may perceive synthetic materials and growth factors as safer, which could have a material adverseeffect on our business. Members of the medical community and the general public may perceive synthetic materials and growth factors as safer than our allograft-basedbone tissue products. Our products may be incapable of competing successfully with synthetic bone graft substitutes and growth factors developed andcommercialized by others, which could have a material adverse effect on our business, financial condition and results of operations. 8 Negative publicity concerning methods of human tissue recovery and screening of donor tissue in the industry in which we operate may reducedemand 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 donatedtissue may limit widespread acceptance of our allografts. Unfavorable reports of improper or illegal tissue recovery practices, both in the United States andinternationally, as well as incidents of improperly processed tissue leading to transmission of disease, may broadly affect the rate of future tissue donationand market acceptance of allograft technologies. Potential patients may not be able to distinguish our allografts, technologies and the tissue recovery and theprocessing procedures from those of our competitors or others engaged in tissue recovery. In addition, families of potential donors may become reluctant toagree to donate tissue to for-profit tissue processors. We are highly dependent on the availability of human donors; any disruptions could cause our customers to seek alternative providers ortechnologies. We are highly dependent on our ability to obtain donor cadavers as the raw material for many of our products. The availability of acceptable donorsis relatively limited and we compete with many other companies for this limited availability. The availability of donors is also impacted by regulatorychanges, general public opinion of the donor process and our reputation for our handling of the donor process. In addition, due to seasonal changes in themortality rates, some scarce tissues are at times in short supply. Any disruption in the supply of this crucial raw material could have significant consequencesfor our revenue, operating results and continued operations. 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 requireadditional capital. If additional capital is not available, we may be forced to curtail development activities. In addition, any failure on our behalf to react tochanging 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, productimplementation, low-scale production and technical support. The demand for such personnel is high and the supply of qualified technical personnel islimited. A significant increase in the wages paid by competing employers could result in a reduction of our technical work force and increases in the wagerates 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 key members of our management team, and the loss of any of their services could have an adverse effecton our future operations. We do not currently maintain key-man life insurance policies insuring the life of any 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 oftime. Any failure in the physical infrastructure of our facilities or services could lead to significant costs and disruptions that could reduce our revenuesand harm our business reputation and financial results. We are highly reliant on our Belgrade, Montana facilities. Any natural or man-made event thatimpacts our ability to utilize these facilities could have a significant impact on our operating results, reputation and ability to continue operations. Theregulatory process for approval of facilities is time-consuming and our ability to rebuild facilities would take a considerable amount of time and expense andcause a significant disruption in service to our customers. Further, the FDA or some other regulatory agency could identify deficiencies in future inspectionsof our facilities or our supplies that could disrupt our business, reducing profitability. Future revenue will depend on our ability to increase sales. We currently sell our products through direct sales by our employees and indirectly through distributor relationships. We incurred increased salesand marketing expenses in building and expanding our direct sales force, and there can be no assurance that we will generate increased sales as a result of thiseffort. 9 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 timingof new product or service announcements, releases by us and our competitors in the marketplace of new products or services, seasonality and generaleconomic conditions. There can be no assurance that the level of revenues achieved by us in any particular fiscal period will not be significantly lower thanin 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 belowexpectations, net income or loss may be disproportionately affected by a reduction in revenues, as any corresponding reduction in expenses may not beproportionate to the reduction in revenues. We may be dependent on the ability of our licensees and development partners for obtaining regulatory approvals and market acceptance of theirproducts, for which we may have no control. Our success may depend on our ability, or that of our licensees, to obtain timely regulatory approval for products employing our technology.Moreover, our success may 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 ofhospitals to pay fees for allograft bone tissue products depends in part on the extent to which reimbursement for the costs of such materials and relatedtreatments will continue to be available from governmental health administration authorities, private health coverage insurers and other organizations. Wemay have difficulty gaining market acceptance for our products if government and third-party payors do not provide adequate coverage and reimbursementto 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 orthe elimination of reimbursement. Further, Medicare, Medicaid and private healthcare insurer cutbacks could create downward price pressure on our products. 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 andoperating margins, or revenue and margin growth, may be less than expected. If we are unable to scale our production capabilities efficiently, we may fail toachieve expected operating margins, which would have a material and adverse effect on our operating results. Growth may also stress our ability toadequately manage our operations, quality of products, safety and regulatory compliance. In order to grow, we may be required to obtain additionalfinancing, which may increase our indebtedness or result in dilution to our stockholders. Further, there can be no assurance that we would be able to obtainany 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 ortechnologies. There can be no assurance that such acquisitions will be available at all, or on terms acceptable to us. These transactions may require additionalfinancing which may increase our indebtedness or outstanding shares, resulting in dilution to stockholders. The inability to obtain such future financing mayinhibit our growth and operating results. Integration of acquisitions or additional products can be time consuming, difficult and expensive and maysignificantly 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 mayinhibit our ability to generate positive operating results going forward. We may be subject to future product liability litigation that could be expensive and our insurance coverage may not be adequate in a catastrophicsituation. Although we are not currently subject to any product liability proceedings, we have no reserves for product liability disbursements, and we mayincur material liabilities relating to product liability claims in the future, including product liability claims arising out of the use of our products. Wecurrently carry product liability insurance, however, our insurance coverage and any reserves we may maintain in the future for product related liabilities maynot be adequate and our business could suffer material adverse consequences. 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 TransplantAct, 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 bonetissue 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 usfrom paying tissue banks or certain of our clients for the services they render for us, our business could be materially and adversely affected. 10 We are engaged through our marketing employees, independent sales agents and sales representatives in ongoing efforts designed to educate themedical community as to the benefits of our products, and we intend to continue our educational activities. Although we believe that NOTA permitspayments in connection with these educational efforts as reasonable payments associated with the processing, transportation and implantation of ourproducts, payments in connection with such education efforts are not exempt from NOTA’s restrictions and our inability to make such payments inconnection with our education efforts may prevent us from paying our sales representatives for their education efforts and could adversely affect our businessand prospects. No federal agency or court has determined whether NOTA is, or will be, applicable to every allograft bone tissue-based material which ourprocessing technologies may generate. Assuming that NOTA applies to our processing of allograft bone tissue, we believe that we comply with NOTA, butthere can be no assurance that more restrictive interpretations of, or amendments to, NOTA will not be adopted in the future which would call into questionone or more aspects of our method of operations. If we fail to maintain regulatory approvals and clearances, or are unable to obtain, or experience significant delays in obtaining, FDA clearancesor approvals for our future products or product enhancements, our ability to commercially distribute and market these products could suffer. Our products are subject to rigorous regulation by the FDA and numerous other federal, state and foreign governmental authorities. The process ofobtaining regulatory clearances or approvals to market a medical device can be costly and time consuming, and we may not be able to obtain theseclearances or approvals on a timely basis, if at all. In particular, the FDA permits commercial distribution of a new medical device only after the device hasreceived clearance under Section 510(k) of the Federal Food, Drug and Cosmetic Act, or is the subject of an approved premarket approval application, orPMA unless the device is specifically exempt from those requirements. The FDA will clear marketing of a lower risk medical device through the 510(k) process if the manufacturer demonstrates that the new product issubstantially equivalent to other 510(k)-cleared products. High risk devices deemed to pose the greatest risk, such as life-sustaining, life-supporting, orimplantable devices, or devices not deemed substantially equivalent to a previously cleared device, require the approval of a PMA. The PMA process is morecostly, lengthy and uncertain than the 510(k) clearance process. A PMA application must be supported by extensive data, including, but not limited to,technical, preclinical, clinical trial, manufacturing and labeling data, to demonstrate to the FDA’s satisfaction the safety and efficacy of the device for itsintended use. Our failure to comply with U.S. federal, state and foreign governmental regulations could lead to the issuance of warning letters or untitled letters,the imposition of injunctions, suspensions or loss of regulatory clearance or approvals, product recalls, termination of distribution, product seizures or civilpenalties. In the most extreme cases, criminal sanctions or closure of our manufacturing facility are possible. Modifications to our products may require new regulatory clearances or approvals or may require us to recall or cease marketing our productsuntil clearances or approvals are obtained. Modifications to our products may require new regulatory approvals or clearances, including 510(k) clearances, premarket approvals, or require us torecall or cease marketing the modified devices until these clearances or approvals are obtained. The FDA requires device manufacturers to initially make anddocument a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine that amodification could not significantly affect safety or efficacy and does not represent a major change in its intended use, so that no new 510(k) clearance isnecessary. However, the FDA can review a manufacturer’s decision and may disagree. The FDA may also on its own initiative determine that a new clearanceor approval is required. We have made modifications to our products in the past and may make additional modifications in the future that we believe do notor will not require additional clearances or approvals. If the FDA disagrees and requires new clearances or approvals for the modifications, we may be requiredto recall and to stop marketing our products as modified, which could require us to redesign our products and harm our operating results. In thesecircumstances, we may be subject to significant enforcement actions. If a manufacturer determines that a modification to an FDA-cleared device could significantly affect its safety or efficacy, or would constitute amajor change in its intended use, then the manufacturer must file for a new 510(k) clearance or possibly a premarket approval application. Where wedetermine that modifications to our products require a new 510(k) clearance or premarket approval, we may not be able to obtain those additional clearancesor approvals for the modifications or additional indications in a timely manner, or at all. Obtaining clearances and approvals can be a time consumingprocess, and delays in obtaining required future clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timelymanner, which in turn would harm our future growth. There is no guarantee that the FDA will grant 510(k) clearance or PMA approval of our future products and failure to obtain necessaryclearances or approvals for our future products would adversely affect our ability to grow our business. Future products may require FDA clearance of a 510(k) or approval of a PMA. In addition, future products may require clinical trials to supportregulatory approval and we may not successfully complete these clinical trials. The FDA may not approve or clear these products for the indications that arenecessary or desirable for successful commercialization. Indeed, the FDA may refuse our requests for 510(k) clearance or premarket approval of new products.Failure to receive clearance or approval for our new products would have an adverse effect on our ability to expand our business. 11 Clinical trials can be long, expensive and ultimately uncertain which could jeopardize our ability to obtain regulatory approval and market ourproducts. Clinical trials are generally required to support a PMA application and are sometimes required for 510(k) clearance. Such trials generally require aninvestigational device exemption application, or IDE, approved in advance by the FDA for a specified number of patients and study sites, unless the productis deemed a nonsignificant risk device eligible for more abbreviated IDE requirements. Clinical trials are subject to extensive monitoring, recordkeeping andreporting requirements. Clinical trials must be conducted under the oversight of an institutional review board, or IRB, for the relevant clinical trial sites andmust comply with FDA regulations, including but not limited to those relating to good clinical practices. To conduct a clinical trial, we also are required toobtain the patients’ informed consent in form and substance that complies with both FDA requirements and state and federal privacy and human subjectprotection regulations. We, the FDA or the IRB could suspend a clinical trial at any time for various reasons, including a belief that the risks to study subjectsoutweigh the anticipated benefits. In addition, the commencement or completion of any clinical trial may be delayed or halted for numerous reasons,including, but not limited to patients not enrolling in clinical trials at the rate we expect, patients experiencing adverse side effects, third party contractorsfailing to perform in accordance with our anticipated schedule or consistent with good clinical practices, inclusive or negative interim trial results or ourinability to obtain sufficient quantities of raw materials to produce our products. Clinical trials often take several years to execute. The outcome of any trial isuncertain and may have a significant impact on the success of our current and future products and future profits. Our development costs may increase if wehave material delays in clinical trials or if we need to perform more or larger clinical trials than planned. If this occurs, our financial results and thecommercial prospects for our products may be harmed. Even if a trial is completed, the results of clinical testing may not adequately demonstrate the safetyand efficacy of the device or may otherwise not be sufficient to obtain FDA approval to market the product in the United States. Even if our products are approved by regulatory authorities, if we or our suppliers fail to comply with ongoing FDA or other foreign regulatoryauthority requirements, or if we experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal fromthe market. Any product for which we obtain clearance or approval, and the manufacturing processes, reporting requirements, post-approval clinical data andpromotional activities for such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domesticand foreign regulatory bodies. In particular, we and our suppliers are required to comply with FDA’s Quality System Regulations, or QSR, and InternationalStandards Organization, or ISO, regulations for the manufacture of our products and other regulations which cover the methods and documentation of thedesign, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain clearance or approval.Regulatory bodies, such as the FDA, enforce the QSR and other regulations through periodic inspections. The failure by us or one of our suppliers to complywith applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverseinspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions: untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties; unanticipated expenditures to address or defend such actions; customer notifications for repair, replacement, refunds; recall, detention or seizure of our products; operating restrictions or partial suspension or total shutdown of production; refusing or delaying our requests for 510(k) clearance or premarket approval of new products or modified products; operating restrictions; withdrawing 510(k) clearances or PMA approvals that have already been granted; refusal to grant export approval for our products; or criminal prosecution. If any of these actions were to occur it would harm our reputation and cause our product sales and profitability to suffer and may prevent us fromgenerating revenue. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with all applicable regulatoryrequirements which could result in our failure to produce our products on a timely basis and in the required quantities, if at all. Even if regulatory clearance or approval of a product is granted, such clearance or approval may be subject to limitations on the intended uses forwhich the product may be marketed and reduce our potential to successfully commercialize the product and generate revenue from the product. If the FDAdetermines that our promotional materials, labeling, training or other marketing or educational activities constitute promotion of an unapproved use, it couldrequest that we cease or modify our training or promotional materials or subject us to regulatory enforcement actions. It is also possible that other federal,state or foreign enforcement authorities might take action if they consider our training or other promotional materials to constitute promotion of anunapproved use, which could result in significant fines or penalties under other statutory authorities, such as laws prohibiting false claims for reimbursement. 12 In addition, we may be required to conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products, and wemust comply with medical device reporting requirements, including the reporting of adverse events and malfunctions related to our products. Later discoveryof previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency,manufacturing problems, or failure to comply with regulatory requirements such as QSR, may result in changes to labeling, restrictions on such products ormanufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of anymedical device we manufacture or distribute, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminalpenalties which would adversely affect our business, operating results and prospects. We face risks and uncertainties relating to an ongoing inspection and Warning Letter. We received a Warning Letter from the FDA on January 28, 2013 concerning the facility located at 600 Cruiser Lane, Belgrade, MT (Site 600). TheWarning Letter addressed issues regarding aspects of Bacterin’s quality system with a focus on OsteoSelect DBM Putty which is both a tissue and a device.We responded to the Warning Letter on February 2, 2013, and provided periodic response updates on March 20, 2013, April 15, 2013 and May 20, 2013. Wedeveloped and implemented a corrective action strategy that we believed addressed all of FDA’s concerns. While we have implemented a corrective actionstrategy that we believe addresses all of FDA’s concerns, there is a chance that FDA will not agree with our proposed corrective actions. If FDA does not agreewith our proposed actions, they could issue another Warning Letter, request that we take additional actions, or take additional enforcement actions. FDAconducted a re-inspection of Site 600 from July 8, 2013 to July 12, 2013, which evaluated the completion of the corrective actions and resulted in theissuance of an unrelated FDA-Form 483 on July 12, 2013. We responded to the FDA-Form 483 on August 1, 2013, and provided periodic response updates onAugust 13, 2013, September 26, 2013, October 31, 2013 and December 4, 2013. On October 29, 2013, we received an Establishment Inspection Report (EIR)for this re-inspection. At this time, we do not know whether or when FDA will conduct an additional follow up inspection. In addition, from July 22, 2013 toAugust 2, 2013, FDA conducted a tissue-focused inspection of Site 600 which resulted in an FDA-Form 483. We responded to the FDA-Form 483 onAugust 22, 2013. At this time, we do not know whether this inspection will lead to an enforcement action or when FDA will close out this inspection. If our products cause or contribute to a death or a serious injury, or malfunction in certain ways, we will be subject to medical device reportingregulations, which can result in voluntary corrective actions or agency enforcement actions. Under the FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device has ormay have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to death or serious injury ifthe malfunction of the device or one of our similar devices were to recur. Under FDA HCT/P reporting regulations, we are required to report all adversereactions involving a communicable disease if it is fatal, life threatening, or results in permanent impairment of a body function or permanent damage tobody structure. If we fail to report these events to the FDA within the required timeframes, or at all, FDA could take enforcement action against us. Any suchadverse event involving our products also could result in future voluntary corrective actions, such as recalls or customer notifications, or agency action, suchas inspection or enforcement action. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, would require thededication of our time and capital, distract management from operating our business, and may harm our reputation and financial results. We may implement a product recall or voluntary market withdrawal due to product defects or product enhancements and modifications, whichwould significantly increase our costs. The FDA and similar foreign governmental authorities have the authority to require the recall of commercialized products in the event of materialdeficiencies or defects in design or manufacture. In the case of the FDA, the authority to require a recall must be based on an FDA finding that there is areasonable probability that the device would cause serious injury or death. In addition, foreign governmental bodies have the authority to require the recallof our products in the event of material deficiencies or defects in design or manufacture. Manufacturers may, under their own initiative, recall a product if anymaterial deficiency in a device is found. A government-mandated or voluntary recall by us or one of our distributors could occur as a result of componentfailures, manufacturing errors, design or labeling defects or other deficiencies and issues. Recalls of any of our products would divert managerial andfinancial resources and have an adverse effect on our financial condition and results of operations. The FDA requires that certain classifications of recalls bereported to FDA within 10 working days after the recall is initiated. Companies are required to maintain certain records of recalls, even if they are notreportable to the FDA. We may initiate voluntary recalls involving our products in the future that we determine do not require notification of the FDA. If theFDA disagrees with our determinations, they could require us to report those actions as recalls. A future recall announcement could harm our reputation withcustomers and negatively affect our sales. In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted. We may be subject to fines, penalties or injunctions if we are determined to be promoting the use of our products for unapproved or “off-label”uses. Our promotional materials and training methods for physicians must comply with FDA and other applicable laws and regulations. We believe thatthe specific surgical procedures for which our products are marketed fall within the scope of the surgical applications that have been cleared by the FDA.However, the FDA could disagree and require us to stop promoting our products for those specific procedures until we obtain FDA clearance or approval forthem. In addition, if the FDA determines that our promotional materials or training constitutes promotion of an unapproved use, it could request that wemodify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance of an untitled letter, a warning letter,injunction, seizure, civil fine and criminal penalties. It is also possible that other federal, state or foreign enforcement authorities might take action if theyconsider our promotional or training materials to constitute promotion of an unapproved use, which could result in significant fines or penalties under otherstatutory authorities, such as laws prohibiting false claims for reimbursement. In that event, our reputation could be damaged and adoption of the productswould be impaired. 13 If we or our suppliers fail to comply with ongoing FDA or other regulatory authority requirements pertaining to Human Tissue Products, theseproducts could be subject to restrictions or withdrawal from the market. Human tissues intended for transplantation have been regulated by the FDA since 1993. Over the course of several years, the FDA issuedcomprehensive regulations that address manufacturer activities associated with human cells, tissues and cellular and tissue-based products, or HCT/Ps. Thefirst requires that companies that produce and distribute HCT/Ps register with the FDA. This set of regulations also includes the criteria that must be met inorder for the HCT/P to be eligible for marketing solely under Section 361 of the PHS Act and the regulations in 21 CFR Part 1271, rather than under the drugor device provisions of the FD&C Act or the biological product licensing provisions of the PHS Act. The second set of regulations provides criteria that mustbe 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 ofthe tissues and is often referred to as the “Current Good Tissue Practices” rule. The “Current Good Tissue Practices” rule covers all stages of allograftprocessing, from procurement of tissue to distribution of final allografts. Together these regulations are designed to ensure that sound, high quality practicesare 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 led to increased enforcement action which affectsthe conduct of our business. In addition, these regulations can increase the cost of tissue recovery activities. The FDA periodically inspects tissue processorsto determine compliance with these requirements. Violations of applicable regulations noted by the FDA during facility inspections could adversely affectthe continued marketing of our products. We believe we comply with all aspects of the Current Good Tissue Practices, although there can be no assurancethat we will comply, or will comply on a timely basis, in the future. Entities that provide us with allograft bone tissue are responsible for performing donorrecovery, donor screening and donor testing and our compliance with those aspects of the Current Good Tissue Practices regulations that regulate thosefunctions are dependent upon the actions of these independent entities. If our suppliers fail to comply with applicable requirements, our products and ourbusiness could be negatively affected. If the FDA determines that we have failed to comply with applicable regulatory requirements, it can impose a varietyof enforcement actions from public warning letters, fines, injunctions, consent decrees and civil penalties to suspension or delayed issuance of approvals,seizure of our products, total or partial shutdown of our production, withdrawal of approvals, and criminal prosecutions. If any of these events were to occur,it could materially adversely affect us. In addition, the FDA could disagree with our conclusion that some of our HCT/Ps meet the criteria for marketing solely under Section 361 of thePHS Act, and therefore do not require approval or clearance of a marketing application. For our HCT/Ps that are not combined with another article, the FDAcould conclude that the tissue is more than minimally manipulated, that the product is intended for a non-homologous use, or that the product has a systemiceffect or is dependent on the metabolic activity of living cells for its effect. If the FDA were to draw these conclusions, it would likely require the submissionand approval or clearance of a marketing application in order for us to continue to market the product. Such an action by the FDA could cause negativepublicity, decreased or discontinued product sales, and significant expense in obtaining required marketing approval or clearance. Other regulatory entities include state agencies with statutes covering tissue banking. Regulations issued by Florida, New York, California andMaryland will be particularly relevant to our business. Most states do not currently have tissue banking regulations. It is possible that others may makeallegations against us or against donor recovery groups or tissue banks about non-compliance with applicable FDA regulations or other relevant statutes orregulations. Allegations like these could cause regulators or other authorities to take investigative or other action, or could cause negative publicity for ourbusiness 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 therapymedicinal 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. Federal regulatory reforms may adversely affect our ability to sell our products profitably. From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing theregulatory approval, manufacture and marketing of regulated products or the reimbursement thereof. In addition, FDA regulations and guidance are oftenrevised or reinterpreted by the FDA in ways that may significantly affect our business and our products. Any new regulations or revisions or reinterpretationsof existing regulations may impose additional costs or lengthen review times of future products. In addition, FDA regulations and guidance are often revisedor reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes willbe enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be. 14 For example, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations, or take otheractions which may prevent or delay approval or clearance of our products under development or impact our ability to modify our currently cleared productson a timely basis. For example, in 2011, the FDA initiated a review of the premarket clearance process in response to internal and external concerns regardingthe 510(k) program, announcing 25 action items designed to make the process more rigorous and transparent. In addition, as part of the Food and DrugAdministration Safety and Innovation Act of 2012, or the FDASIA, Congress enacted several reforms entitled the Medical Device Regulatory Improvementsand additional miscellaneous provisions which will further affect medical device regulation both pre- and post-approval. The FDA has implemented, andcontinues to implement, these reforms, which could impose additional regulatory requirements upon us and delay our ability to obtain new510(k) clearances, increase the costs of compliance or restrict our ability to maintain our current clearances. For example, the FDA recently issued guidancedocuments intended to explain the procedures and criteria the FDA will use in assessing whether a 510(k) submission meets a minimum threshold ofacceptability and should be accepted for review. Under the “Refuse to Accept” guidance, the FDA conducts an early review against specific acceptancecriteria to inform 510(k) submitters if the submission is administratively complete, or if not, to identify the missing element(s). Submitters are given theopportunity to provide the FDA with the identified information, but if the information is not provided within a defined time, the submission will not beaccepted for FDA review. Any change in the laws or regulations that govern the clearance and approval processes relating to our current and future productscould make it more difficult and costly to obtain clearance or approval for new products, or to produce, market and distribute existing products. Significantdelays in receiving clearance or approval, or the failure to receive clearance or approval for our new products would have an adverse effect on our ability toexpand our business. 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 effortsof governmental and other third-party payors to contain or reduce the cost of healthcare through various means may adversely affect our ability tosuccessfully commercialize our products. In most foreign markets, the pricing and/or profitability of certain diagnostics and prescription pharmaceuticals aresubject to governmental control. In the United States, we expect that there will continue to be federal and state proposals to implement similar governmentalcontrol though it is unclear which proposals will ultimately become law, if any. Changes in prices, including any mandated pricing, could impact ourrevenue and financial performance. Failure to protect our intellectual property rights could result in costly and time consuming litigation and our loss of any potential competitiveadvantage. Our success will depend, to a large extent, on our ability to successfully obtain and maintain patents, prevent misappropriation or infringement ofintellectual property, maintain trade secret protection, and conduct operations without violating or infringing on the intellectual property rights of thirdparties. There can be no assurance that our patented and patent-pending technologies will provide us with a competitive advantage, that we will be able todevelop 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 willprovide the intended protection. Intellectual property litigation is extremely expensive and time-consuming, and it is often difficult, if not impossible, topredict the outcome of such litigation. A failure by us to protect our intellectual property could have a materially adverse effect on our business andoperating results and our ability to successfully compete in this industry. 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 productsor product candidates. Our commercial success will depend in part on obtaining and maintaining patent protection on our products and successfullydefending these patents against third-party challenges. Our ability to commercialize our products will also depend in part on the patent positions of thirdparties, including those of our competitors. The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involvecomplex legal and factual questions. Accordingly, we cannot predict with certainty the scope and breadth of patent claims that may be afforded to othercompanies’ patents. We could incur substantial costs in litigation if we are required to defend against patent suits brought by third parties, or if we initiatesuits 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. Any infringementcould 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: we were the first to make the inventions covered by each of our patent applications; we were the first to file patent applications for these inventions; others will not independently develop similar or alternative technologies or duplicate any of our technologies; 15 any of our pending patent applications will result in issued patents; any of our issued patents or those of our licensors will be valid and enforceable; any patents issued to us or our collaborators will provide a basis for commercially viable products or will provide us with any competitiveadvantages or will not be challenged by third parties; we will develop additional proprietary technologies that are patentable; the patents of others will not have a material adverse effect on our business rights; or the measures we rely on to protect the intellectual property underlying our products will be adequate to prevent third parties from using ourtechnology, all of which could harm our ability to compete in the market. Our success depends on our ability to avoid infringing on the intellectual property rights of third parties which could expose us to litigation orcommercially 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 thirdparties. Third parties may accuse us or our collaborators of employing their proprietary technology in our products, or in the materials or processes used toresearch or develop our products, without authorization. Any legal action against our collaborators or us claiming damages and/or seeking to stop ourcommercial activities relating to the affected products, materials and processes could, in addition to subjecting us to potential liability for damages, requireour collaborators or us to obtain a license to continue to utilize the affected materials or processes or to manufacture or market the affected products. Wecannot predict whether we or our collaborators would prevail in any of these actions or whether any license required under any of these patents would bemade 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 toutilize 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/orother 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 valueof the affected product or products and impair our prospects for profitability. Accordingly, we cannot predict whether or to what extent the commercial valueof 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’sattention from our core business. We may be unable to obtain and enforce intellectual property rights to adequately protect our products and relatedintellectual property. Others may claim an ownership interest in our intellectual property which could expose us to litigation and have a significant adverse effect onour prospects. A third-party may claim an ownership interest in our intellectual property. While we believe we own 100% of the right, title and interest in thepatents 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. A successful challenge or claim by a third party to ourpatents or intellectual property could have a significant adverse effect on our prospects. Litigation may result in financial loss and/or impact our ability to sell our products going forward. We intend to vigorously defend any future intellectual property litigation that may arise but there can be no assurance that we will prevail in thesematters. An unfavorable judgment may result in a financial burden on us. An unfavorable judgment may also result in restrictions on our ability to sell certainproducts and therefore may impact future operating results. The market price of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value ofyour investment to sudden decreases. The market price for securities of biotechnology companies, including ours, historically has been highly volatile, and the market from time to timehas experienced significant price and volume fluctuations that are unrelated to the operating performance of such companies. Fluctuations in the tradingprice or liquidity of our common stock may harm the value of your investment in our securities. Factors that may have a significant impact on the market price and marketability of our securities include: announcements of technological innovations or new commercial products by us, our collaborative partners or our present or potentialcompetitors; our issuance of debt, equity or other securities, which we need to pursue to generate additional funds to cover our operating expenses; our quarterly operating results; developments or disputes concerning patent or other proprietary rights; 16 developments in our relationships with employees, suppliers or collaborative partners; acquisitions or divestitures; litigation and government proceedings; adverse legislation, including changes in governmental regulation; third-party reimbursement policies; changes in securities analysts’ recommendations; short selling; changes in health care policies and practices; halting, suspension of trading or delisting of our common stock by the NYSE MKT; economic and other external factors; and general market conditions. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted.These lawsuits often seek unspecified damages, and as with any litigation proceeding, one cannot predict with certainty the eventual outcome of pendinglitigation. Furthermore, we may have to incur substantial expenses in connection with any such lawsuits and our management’s attention and resources couldbe diverted from operating our business as we respond to any such litigation. We maintain insurance to cover these risks for us and our directors and officers,but our insurance is subject to high deductibles to reduce premium expense, and there is no guarantee that the insurance will cover any specific claim that wecurrently face or may face in the future, or that it will be adequate to cover all potential liabilities and damages. Because we became public through a reverse merger, we may not be able to attract the attention of major brokerage firms or certain investors. There are coverage risks associated with our becoming public through a reverse merger, including, among other things, security analysts of majorbrokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our common stock. In addition,we may not attract the attention of major brokerage firms and certain investors due to our low stock price. We cannot assure you that brokerage firms wouldwant to conduct any public offerings on our behalf in the future. If securities or industry analysts publish inaccurate or unfavorable research or reports about our business, our stock price and trading volumecould decline. The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or ourbusiness. We do not have any control over these analysts. If one or more of the analysts who covers us downgrades our common stock, changes their opinionof our shares or publishes inaccurate or unfavorable research about our business, our stock price would likely decline. If one or more of these analysts ceasescoverage of us or fails to publish reports on us regularly, demand for our common stock could decrease and we could lose visibility in the financial markets,which could cause our stock price and trading volume to decline. Shares of common stock are equity securities and are subordinate to any indebtedness. Shares of our common stock are common equity interests. This means that our common stock will rank junior to any outstanding shares of ourpreferred stock that we may issue in the future or to our current credit agreement and any future indebtedness we may incur and to all creditor claims andother non-equity claims against us and our assets available to satisfy claims on us, including claims in a bankruptcy or similar proceeding. Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of our common stock,(i) dividends are payable only when and if declared by our board of directors or a duly authorized committee of our board of directors, and (ii) as acorporation, we are restricted to making dividend payments and redemption payments out of legally available assets. We have never paid a dividend on ourcommon stock and have no current intention to pay dividends in the future. Furthermore, our common stock places no restrictions on our business oroperations or on our ability to incur indebtedness or engage in any transactions, subject only to the voting rights available to shareholders generally. 17 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, if any, to support operations and to finance expansion and, therefore, we do not anticipate payingany cash dividends on our common stock in the foreseeable future. We could issue “blank check” preferred stock without stockholder approval with the effect of diluting then current stockholder interests andimpairing their voting rights, and provisions in our charter documents and under Delaware law could discourage a takeover that stockholders mayconsider 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 thevoting power of, our common stockholders. The issuance of a series of preferred stock could be used as a method of discouraging, delaying or preventing achange 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 couldimpede the success of any attempt to change control of our company. In addition, we have a staggered board of directors and advanced notice is requiredprior to stockholder proposals, which might further delay a change of control. Item 1B.Unresolved Staff Comments Not applicable. Item 2.Properties We lease approximately 17,700 square feet in a building located at 600 Cruiser Lane, Belgrade, Montana 59714. This space includes six Class 100(ISO 5) clean rooms, a fully equipped diagnostics laboratory, microbiology laboratory and testing laboratory. We lease the building under a ten-yearoperating lease which runs through August 2023 and has a monthly lease payment of $13,000. 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 registeredfacility with a Class 10,000 (ISO 7) environmentally controlled area. We also lease space approximately 21,000 square feet in a building located at 732 Cruiser Lane, Belgrade, Montana 59714, where one Class 1,000(ISO 6) clean room is located, and we lease office space in Englewood and Westminster, Colorado, where certain of our administrative functions are housed. Item 3.Legal Proceedings On March 17, 2014, a complaint was served on the Company in the following state court action in the District Court for the County of Arapahoe,State of Colorado: Robert Taggart v. Guy Cook, Bacterin International, Inc., a Nevada Corporation and Bacterin International Holdings, Inc., a Delawarecorporation, Civil Action No. 14CV30401. The complaint involves claims under an employment agreement between plaintiff and the Company seekingcommissions on Company sales, a commission on funds obtained by the Company as a result of a reverse merger and vesting of certain stock options.Plaintiff seeks damages in excess of $5 million. The Company believes this case lacks legal merit and has filed counterclaims for plaintiff’s breach of hisemployment agreement and breach of his duty of loyalty to the Company, asserting the right to recover all compensation paid to Plaintiff during hisemployment as well as other damages. On July 9, 2014, a complaint was served on the Company in the following action in the United States District Court, District of New Jersey:Middlebury Securities, LLC v. Bacterin International, Inc., Case Number 2:14-CV-03905-WJM-MF. The complaint alleges that Bacterin owes Middlebury an$80,000 fee, along with $80,000 in warrants, in connection with the March 6, 2014 extension of credit by ROS Acquisition Offshore LP, a Cayman IslandsExempted Limited Partnership. Bacterin believes this case lacks merit because there is no agreement between the parties regarding the transaction inquestion. On July 14, 2014, a complaint was served on the Company in the following action in the United States Bankruptcy Court, Southern District of NewYork, In re: Rodman & Renshaw, LLC, Debtor, Case No. 13-10087 (REG): YANN GERON, Chapter 7 Trustee of the Estate of Rodman & Renshaw, LLC,Plaintiff, against Bacterin International Holdings, Inc. The complaint alleges that Bacterin owes a $150,000 investment banking fee in connection withBacterin’s April 2012 accounts receivable credit facility with MidCap Financial LLC. Bacterin believes this case lack merit because the accounts receivablecredit facility was not a debt or equity security covered by the engagement letter. Item 4.Mine Safety Disclosures Not Applicable. 18 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the NYSE MKT under the symbol BONE. The following table sets forth the range of the high and low prices for ourcommon stock for each quarter, as reported by the NYSE MKT from January 1, 2013 through December 31, 2014. Prices have been adjusted to reflect theCompany’s July 25, 2014 1:10 reverse stock split. High Low First Quarter 2013 (January 1, 2013 – March 31, 2013) $14.80 $8.10 Second Quarter 2013 (April 1, 2013 – June 30, 2013) $9.80 $4.50 Third Quarter 2013 (July 1, 2013 – September 30, 2013) $8.00 $4.70 Fourth Quarter 2013 (October 1, 2013 – December 31, 2013) $8.20 $3.70 First Quarter 2014 (January 1, 2014 – March 31, 2014) $14.10 $4.80 Second Quarter 2014 (April 1, 2014 – June 30, 2014) $8.50 $6.30 Third Quarter 2014 (July 1, 2014 – September 30, 2014) $7.40 $4.07 Fourth Quarter 2014 (October 1, 2014 – December 31, 2014) $4.75 $2.19 Holders of Record As of February 5, 2015, we had 219 holders of record. Dividends We have not paid any cash dividends and do not expect to do so in the foreseeable future. In addition, our Credit Agreement with ROS AcquisitionOffshore LP precludes us from paying dividends. 19 Recent Sales of Unregistered (and Registered) Securities Not applicable. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Not applicable. Item 6.Selected Financial Data Not required. Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operation Safe Harbor Declaration The comments made throughout this Annual Report on Form 10-K should be read in conjunction with our Financial Statements and the Notesthereto, and other financial information appearing elsewhere in this document. In addition to historical information, the following discussion and otherparts of this document contain certain forward-looking information. When used in this discussion, the words “believes,” “anticipates,” “expects,” “plan,”“possible,” “should,” “might,” “may” and similar expressions are intended to identify forward-looking statements. Such statements are subject to certainrisks and uncertainties, which could cause actual results to differ materially from projected results, due to a number of factors beyond our control. We donot undertake to publicly update or revise any of our forward-looking statements, even if experience or future changes show that the indicated results orevents will not be realized. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.See “Cautionary Note Regarding Forward Looking Statements.” Readers are also urged to carefully review and consider our discussions regarding thevarious factors that affect our business, which are described in the section entitled “Risk Factors” in Item 1A. of this Form 10-K. Comparison of Year Ended December 31, 2014 and December 31, 2013 Year Ended December 31, 2014 2013 % of % of Amount Revenue Amount Revenue Revenue Tissue sales $34,569,160 97.84% $32,563,933 98.46%Royalties and other 762,652 2.16% 509,481 1.54%Total Revenue 35,331,812 100.00% 33,073,414 100.00% Cost of sales 13,034,314 36.89% 14,185,719 42.89% Gross Profit 22,297,498 63.11% 18,887,695 57.11% Operating Expenses General and administrative 8,886,972 25.15% 10,204,659 30.85%Sales and marketing 16,912,865 47.87% 16,017,229 48.43%Research and development 1,443,018 4.08% 572,361 1.73%Depreciation and amortization 271,748 0.77% 377,524 1.14%Non-cash consulting expense 135,075 0.38% (5,117) -0.02%Total Operating Expenses 27,649,678 78.26% 27,166,656 82.14% Loss from Operations before Impairment (5,352,180) -15.15% (8,278,961) -25.03% Impairment of Assets 912,549 2.58% 728,618 2.21% Loss from Operations (6,264,729) -17.73% (9,007,579) -27.24% Other Income (Expense) Interest expense (5,660,357) -16.02% (4,653,232) -14.07%Change in warrant derivative liability 1,736,053 4.91% 875,041 2.65%Other income (expense) (318,836) -0.90% 92,645 0.28% Total Other Income (Expense) (4,243,140) -12.01% (3,685,546) -11.14% Net Loss from Operations Before (Provision) Benefit forIncome Taxes (10,507,869) -29.74% (12,693,125) -38.38% Benefit (Provision) for Income Taxes Current - 0.00% - 0.00%Deferred - 0.00% - 0.00% Net Loss $(10,507,869) -29.74% $(12,693,125) -38.38% 20 Revenue Total revenue for the year ended December 31, 2014 increased approximately 6.8% to $35,331,812 compared to $33,073,414 in the prior year. The increaseof $2,258,398 is due to improved sales force productivity realized from increased sales headcount and manufacturer representatives as part of a restructuringof the sales function. Cost of tissue sales Costs of tissue sales consist primarily of tissue and device manufacturing costs. Costs of tissue sales decreased by 8.1% or $1,151,405 to $13,034,314 for theyear ended December 31, 2014 from $14,185,719 for the year ended December 31, 2013. As a percentage of tissue sales, cost of tissue sales was 36.9% ofrevenues for 2014 compared to 42.9% in 2013. The fiscal year 2013 amount included a one time adjustments for aged and expiring inventory. Operating Expenses Operating expenses include general and administrative expenses, selling and marketing expenses, depreciation, research and development expenses, andcompensation costs, including incentive compensation. Operating expenses increased 1.8%, or $483,022 for the year ended December 31, 2014 compared tothe year ended December 31, 2013, primarily due to the reasons set forth below. General and Administrative General and administrative expenses consist principally of corporate personnel cash based and stock option compensation related costs and corporateexpenses for legal, accounting and other professional fees as well as occupancy costs. General and administrative expenses decreased 12.9%, or $1,317,687,to $8,886,972, for the year ended December 31, 2014 compared to 2013 due to cost reduction measures implemented during the year. Selling and Marketing Selling and marketing expenses primarily consist of costs for sales and marketing personnel, sales commissions, costs for trade shows, sales conventions andmeetings, travel expenses, advertising and other sales and marketing related costs. In addition, stock option compensation expense associated with our salesforce is also included in sales and marketing expenses. Selling and marketing expenses increased 5.6%, or $895,636, to $16,912,865 for the twelve monthsended December 31, 2014 from $16,017,229 for the prior year as a result of increased revenues between the two periods. As a percentage of revenue, sellingand marketing expenses decreased to 47.9% in 2014 from 48.4% in the prior year. 21 Research and Development Research and development expenses consist primarily of internal costs for the development of new technologies and processes for tissue and coatings. Research and development expenses increased $870,657 or 152% from $572,361 for the twelve months ended December 31, 2013 to $1,443,018 for the sameperiod of 2014. The increase is due to increased spending on research and development projects and the transfer of research and development personnelexpenses from General and Administrative to Research and Development. Impairment of Assets In 2013, management engaged an independent third party to review the asset for impairment in accordance with and pursuant to ASC 350 “Intangibles -Goodwill and Other” and ASC 360-10 “Impairment and Disposal of Long-Lived Assets”. The independent third party concluded that the goodwill associatedwith an acquisition the Company made in 2011 was impaired and should be written down fully to $0 resulting in a charge of $728,618. During the fourth quarter of 2014, management made a strategic decision to dispose of product lines that were not components of the Company’s corestrategy. The component groups are the inventory and fixed assets associated with the Device Coatings and Cranial Maxillofacial Fixation (CMF) lines ofbusiness. Sales for these product lines represented 1.2% of total revenue in 2013 and 1.4% of total revenue in 2014. Gross profit associated with these product lineswere less than 1% of total gross profit for both the years 2013 and 2014. Management has committed to a plan to sell the component assets and the assets are available for immediate sale in their present condition. As of February2015, management has identified a potential buyer for the device coatings product line and has entered into an agreement with another buyer for theinventory of the CMF product line. Total assets associated with the two lines includes $80,042 of related fixed assets, net of depreciation, and related inventory of $832,507 for a total value of$912,549. These assets were transferred to Assets held for Sale and are classified on the balance sheet as part of “Prepaid and other current assets”. After theimpairment provision, the net balance of the Assets held for Sale is $0. Depreciation Depreciation expense consists of depreciation of long-lived property and equipment. Depreciation expense decreased 28% to $271,748 for the year endedDecember 31, 2014 from $377,524 in 2013. Non-cash Consulting Expense Non-cash consulting expense consists of non-cash expense associated with granting restricted stock and stock to consultants and directors. Non-cashconsulting expense increased $140,191 to $135,074 for the year ended December 31, 2014 from a negative $5,117 in the prior year. Interest Expense Interest expense is from our promissory notes and debt instruments. Interest expense for 2014 increased $1,007,125 to $5,660,357 as compared to $4,653,232in 2013. The increase was the result of a $431,000 increase in loan interest expense and a $576,000 increase in non-cash debt issuance expense. Change in Warrant Derivative Liability For 2014, the Company recorded a gain from a decrease in its non-cash warrant derivative liability of $1,736,053 which was primarily driven by the decreasein the closing price of the Company’s common stock at December 31, 2014 compared to December 31, 2013 which was partially offset by the issuance ofadditional derivative warrants in 2014. The liability is associated with the issuance of warrants as part of the Company’s prior convertible debt financing, theCompany’s 2010 financing and the Company’s 2014 equity financing which contain certain provisions requiring the Company to record a change in thewarrant derivative liability from period to period. Other Expense/Income Other Expense for 2014 was $318,836 as compared to income of $92,645 in 2013. The increase is related to payments made in connection with a legalsettlement. See note 15, “Related Party Transactions” below for further discussion. 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 andconvertible debt, an equity credit facility and other debt transactions. In March 2014, we received an additional $4 million in term loan debt from ROSAcquisition Offshore LP. In June 2014, the Company closed on a $5.9 million equity financing with existing and new investors. At December 31, 2014, wehad $8,895,289 of cash and cash equivalents and accounts receivables. See note 16, Subsequent Event, describing an additional $10 million Common StockPurchase Agreement with Aspire Capital Fund, LLC which will provide additional liquidity over the next 24 months. Net cash used in operating activities for 2014 was $7,324,059, primarily related to funds required to finance the Company’s operations. For 2013, net cashused in operating activities was $4,892,306. The increase in net cash used in operations between 2014 and 2013 is primarily the result of decreases in theCompany’s Accrued Liabilities. Net cash used by investment activities for 2014 was $298,352 due to the sale/retirement of property and equipment offset by increases in intangible assets. Net cash provided by financing activities was $9,044,279 for 2014 primarily due to proceeds from the sale of equity securities and the issuance of additionaldebt (net of financing fees and warrants) which is partially offset by payments and debt and capital 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 infinancial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that are material to an investor in ourshares. Cash Requirements We believe that our December 31, 2014 cash on hand and accounts receivable balance of $8,895,289 along with anticipated cash receipts from salesexpected from operations will be sufficient to meet our anticipated cash requirements through March 31, 2016. We incurred approximately $17 million insales and marketing expenses in 2014 and expect to incur $19 million in 2015 based upon our current sales estimates. The sales and marketing expenses arelargely variable expenses and are anticipated to be funded from operating cash flow. An increase of these expenses may impact our operating results and therecan 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, whichcould result in dilution to our stockholders, or seek additional loans. The incurrence of indebtedness would result in increased debt service obligations andcould require us to agree to operating and financial covenants that would restrict our operations. Financing may not be available in amounts or on termsacceptable 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 businessoperations and could harm our overall business prospects. 22 Item 7A.Quantitative and Qualitative Disclosures About Market Risk Not required. Item 8.Financial Statements and Supplementary Data 23 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and StockholdersBacterin International Holdings, Inc.Belgrade, Montana We have audited the accompanying consolidated balance sheets of Bacterin International Holdings, Inc. and subsidiary (the “Company”) as of December 31,2014 and 2013, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. Theseconsolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financialstatements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. TheCompany is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included considerationof internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Bacterin InternationalHoldings, Inc. and subsidiary as of December 31, 2014 and 2013, and the results of their operations and their cash flows for the years then ended inconformity with accounting principles generally accepted in the United States of America. /s/ EKS&H LLLP March 18, 2015Denver, Colorado 24 BACTERIN INTERNATIONAL HOLDINGS, INC.CONSOLIDATED BALANCE SHEETS As of As of December 31, December 31, 2014 2013 ASSETS Current Assets: Cash and cash equivalents $4,468,208 $3,046,340 Trade accounts receivable, net of allowance for doubtful accounts of $1,392,989 and $1,309,859, respectively 4,427,081 4,793,834 Inventories, net 9,558,648 10,753,600 Prepaid and other current assets 654,140 574,910 Total current assets 19,108,077 19,168,684 Non-current inventories 1,934,258 2,119,952 Property and equipment, net 4,654,527 5,180,556 Intangible assets, net 655,490 586,965 Other assets 1,598,539 1,821,471 Total Assets $27,950,891 $28,877,628 LIABILITIES & STOCKHOLDERS' (DEFICIT) EQUITY Current Liabilities: Accounts payable $3,876,760 $2,767,639 Accounts payable - related party 250,629 647,844 Accrued liabilities 1,921,301 3,585,037 Warrant derivative liability 1,320,371 1,594,628 Current portion of capital lease obligations 61,970 171,926 Current portion of royalty liability 1,000,750 836,750 Current portion of long-term debt 50,671 47,727 Total current liabilities 8,482,452 9,651,551 Long-term Liabilities: Capital lease obligation, less current portion 11,808 73,777 Long-term royalty liability, less current portion 6,361,216 6,609,232 Long-term debt, less current portion 20,870,330 16,385,245 Total Liabilities 35,725,806 32,719,805 Commitments and Contingencies Stockholders' (Deficit) Equity Preferred stock, $0.000001 par value; 5,000,000 shares authorized; no shares issued and Outstanding - - Common stock, $0.000001 par value; 95,000,000 shares authorized; 6,679,646 shares issued and outstanding as ofDecember 31, 2014 and 5,343,282 shares issued and outstanding as of December 31, 2013 7 5 Additional paid-in capital 63,091,620 56,516,491 Accumulated deficit (70,866,542) (60,358,673)Total Stockholders’ Deficit (7,774,915) (3,842,177) Total Liabilities & Stockholders’ Deficit $27,950,891 $28,877,628 See notes to audited consolidated financial statements. 25 BACTERIN INTERNATIONAL HOLDINGS, INC.Consolidated Statements of Operations Year Ended December 31, 2014 2013 Revenue Tissue sales $34,569,160 $32,563,933 Royalties and other 762,652 509,481 Total Revenue 35,331,812 33,073,414 Cost of sales 13,034,314 14,185,719 Gross Profit 22,297,498 18,887,695 Operating Expenses General and administrative 8,886,972 10,204,659 Sales and marketing 16,912,865 16,017,229 Research and development 1,443,018 572,361 Depreciation and amortization 271,748 377,524 Impairment of assets 912,549 728,618 Non-cash consulting expense 135,075 (5,117)Total Operating Expenses 28,562,227 27,895,274 Loss from Operations (6,264,729) (9,007,579) Other Income (Expense) Interest expense (5,660,357) (4,653,232)Change in warrant derivative liability 1,736,053 875,041 Other (expense) (318,836) 92,645 Total Other Income (Expense) (4,243,140) (3,685,546) Net Loss from Operations Before (Provision) Benefit for Income Taxes (10,507,869) (12,693,125) (Provision) Benefit for Income Taxes Current - - Deferred - - Net Loss $(10,507,869) $(12,693,125) Net loss per share: Basic $(1.76) $(2.80)Dilutive $(1.76) $(2.80) Shares used in the computation: Basic 5,954,195 4,530,072 Dilutive 5,954,195 4,530,072 See notes to audited consolidated financial statements. 26 BACTERIN INTERNATIONAL HOLDINGS, INC.Consolidated Statements of Changes in Stockholders’ Equity (Deficit) Total Common Stock Additional Retained Shareholders' Shares Amount Paid-In-Capital Deficit Equity (deficit) Balance at December 31, 2012 4,287,777 $3 $51,897,930 $(47,665,548) $4,232,385 Stock-based compensation 31,628 - 996,307 - 996,307 Exercise of options 23,000 - 27,575 - 27,575 Net proceeds from the issuance of stock 850,877 1 4,449,993 4,449,994 Issuance of warrants in conjunction with the issuance of stock - - (1,485,313) - (1,485,313)Issuance of stock to ROS in exchange for debt waiver 150,000 1 629,999 - 630,000 Net loss - - - (12,693,125) (12,693,125) Balance at December 31, 2013 5,348,282 $5 $56,516,491 $(60,358,673) $(3,842,177) Stock-based compensation 38,364 - 935,316 - 935,316 Net proceeds from the issuance of stock 1,143,000 2 5,869,633 - 5,869,635 Issuance of restricted stock to employees - - 136,977 - 136,977 Issuance of warrants in conjunction with the issuance of stock - - (1,461,796) - (1,461,796)Issuance of stock to ROS to amend Credit Agreement to borrowadditional $4 million 150,000 - 1,094,999 - 1,094,999 Net loss - - - (10,507,869) (10,507,869)Balance at December 31, 2014 6,679,646 $7 $63,091,620 $(70,866,542) $(7,774,915) See notes to audited consolidated financial statements. 27 BACTERIN INTERNATIONAL HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2014 2013 Operating activities: Net loss $(10,507,869) $(12,693,125)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 952,320 753,522 Non-cash interest 814,374 633,398 Impairment of Assets 912,549 728,618 Loss (Gain) on sale of fixed assets 25,269 (500)Amortization of debt discount 1,632,245 1,251,125 Non-cash consulting expense/stock option expense 935,316 838,847 Provision for losses on accounts receivable and inventory 647,765 2,320,955 Gain in derivative warrant liability (1,736,053) (875,041)Decrease of contingent liability - (91,740)Changes in operating assets and liabilities: Accounts receivable 283,624 797,680 Inventories (17,392) 747,691 Prepaid and other assets (455,048) 263,352 Accounts payable 715,706 (1,001,228)Accrued liabilities (1,526,865) 1,434,140 Net cash used in operating activities (7,324,059) (4,892,306) Investing activities: Purchases of property and equipment and intangible assets (299,978) (623,045) Proceeds from sale of fixed assets 1,626 (70,255)Net cash used in investing activities (298,352) (693,300) Financing activities: Proceeds from issuance of debt 4,000,000 - Payments on long-term debt (653,397) (621,967)Payments on capital leases (171,957) (149,729)Proceeds from exercise of options - 27,575 Net proceeds from issuance of stock 5,869,633 4,450,001 Net cash provided by financing activities 9,044,279 3,705,880 Net change in cash and cash equivalents 1,421,868 (1,879,726) Cash and cash equivalents at beginning of period 3,046,340 4,926,066 Cash and cash equivalents at end of period $4,468,208 $3,046,340 See notes to condensed consolidated financial statements. 28 Notes to Condensed Consolidated Financial Statements (1) Business Description and Summary of Significant Accounting Policies Business Description The accompanying consolidated financial statements include the accounts of Bacterin International Holdings, Inc., a Delaware corporation, and its whollyowned subsidiary, Bacterin International, Inc., a Nevada corporation, (collectively, the “Company” or “Bacterin”). All intercompany balances andtransactions have been eliminated in consolidation. Bacterin develops, manufactures and markets biologics products to domestic and internationalmarkets. Bacterin’s proprietary methods are used in human allografts to create scaffolds and promote bone and other tissue growth. These products are usedin a variety of applications including enhancing fusion in spine surgery, relief of back pain with a facet joint stabilization, promotion of bone growth in footand ankle surgery, promotion of skull healing following neurosurgery and regeneration in knee and other joint surgeries. Bacterin also develops and licenses coatings for various medical device applications. As of December 31, 2014, Bacterin made a strategic decision todiscontinue the medical device coatings business which resulted in an impairment of related assets. See Note 4, “Impairment of Assets”. An operating segment is a component of an enterprise whose operating results are regularly reviewed by the enterprise’s chief operating decision maker tomake decisions about resources to be allocated to the segment and assess its performance. The primary performance measure used by management is netincome or loss. Up until December 31, 2014, the Company operated two distinct lines of business consisting of the biologics and the device divisions. Withthe strategic exit from the devices business as of December 31, 2014, the Company will be operating as a single business segment in 2015. The Company's revenue is derived principally from the sale of its biologics products. The markets in which the Company competes are highly competitiveand rapidly changing. Significant technological advances, changes in customer requirements, or the emergence of competitive products with new capabilitiesor 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 pricesof, its products or as a result of, among other factors, any change in pricing or distribution model, increased price competition, changes in governmentregulations or a failure by the Company to keep up with technological change. Further, a decline in available tissue donors could have an adverse impact onour business. Reverse Stock Split The Company completed a 1:10 reverse split of its common stock, effective at the close of business on Friday, July 25, 2014 and in effect for trading purposeson Monday, July 28, 2014. The reverse stock split was approved by the Company's shareholders at the 2014 Annual Meeting of Shareholders on June 11,2014. All references to common shares, stock option, restricted stock units, warrants, and per share amounts have been retroactively adjusted to reflect thereverse stock split for all periods presented. Public Offering In August 2014, the Company offered 1,143,000 shares of its common stock at $5.70 per share and warrants to purchase 571,500 shares of its common stockat an exercise price of $7.12 per share to the public. Gross proceeds of the offering were approximately $6.5 million. Net proceeds from the offering wereapproximately $5.9 million and will be used for working capital and general corporate purposes, including the continued expansion of the company's salesforce and increasing inventory levels to support anticipated future growth. The offering closed on August 6, 2014. The warrants have a five year term and expire on August 6, 2019. The Company utilizes a lattice model to determine the fair market value and accounts forthese warrants as a derivative liability (see "Derivative Instruments" below). Also, see Note 10, "Warrants" below. Concentrations and Credit Risk The Company’s accounts receivable are due from a variety of health care organizations and distributors throughout the world. Approximately 98% of saleswere in the United States for 2014 and 2013. No single customer accounted for more than 10% of revenue or accounts receivable for 2014 and 2013. TheCompany provides for uncollectible amounts when specific credit issues arise. Management’s estimates for uncollectible amounts have been adequate duringprior periods, and management believes that all significant credit risks have been identified at December 31, 2014. 29 Revenue by geographical region is as follows: Year endedDecember 31, 2014 2013 United States $34,643,571 $32,458,822 Rest of World 688,241 584,592 $35,331,812 $33,073,414 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 reportedamount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the period. Significant estimates include the carrying amount of property and equipment and intangible assets; valuationallowances for trade receivables and deferred income tax assets; valuation of the warrant derivative liability; inventory reserve; royalty liability; andestimates for the fair value of stock options grants and other equity awards upon which the Company determines stock-based compensation expense. Actualresults could differ from those estimates. Reclassifications Certain comparative balances for year ended December 31, 2013 have been reclassified to make them consistent with the current year presentation. Thereclassifications had no effect on the net income for 2013. 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. Cashequivalents are recorded at cost, which approximates market value. At times the Company maintains deposits in financial institutions in excess of federallyinsured limits. Accounts Receivable Accounts receivable represents amounts due from customers for which revenue has been recognized. Normal terms on trade accounts receivable are net 30days and some customers are offered discounts for early pay. The Company performs credit evaluations when considered necessary, but generally does notrequire 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. TheCompany determines the allowance based on factors such as historical collection experience, customer's current creditworthiness, customer concentration,age of accounts receivable balance, general economic conditions that may affect a customer's ability to pay and management judgment. Actual customercollections could differ from estimates. Account balances are charged to the allowance after all means of collection have been exhausted and the potential forrecovery is considered remote. Provisions to the allowance for doubtful accounts are charged to expense. The Company does not have any off-balance sheetcredit 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.The Company calculates an inventory reserve for estimated obsolescence or excess inventory based on historical usage and sales, as well as assumptionsabout future demand for its products. These estimates for excess and obsolete inventory are reviewed and updated on a quarterly basis. Increases in theinventory reserves result in a corresponding expense, which is recorded to cost of tissue and medical devices sales. Inventories where the sales cycle isestimated to be beyond twelve months are classified as Non-current inventories. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated usefullives of the assets, generally three to seven years for computers and equipment, and 30 years for buildings. Leasehold improvements are depreciated over theshorter of their estimated useful life or the remaining term of the lease. Repairs and maintenance are expensed as incurred. 30 Goodwill Goodwill represents the excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase businesscombination and determined to have indefinite useful lives are not amortized, instead are tested for impairment at least annually and whenever events orcircumstances indicate the carrying amount of the asset may not be recoverable. The Company conducts its annual impairment test on December 31 of eachyear. In its evaluation of goodwill in 2013, the Company performed an assessment of qualitative factors to determine if it is more-likely-than-not thatgoodwill might be impaired and whether it is necessary to perform the two-step goodwill impairment. See Note 4, “Impairment of Assets”. Derivative Instruments The Company accounts for its derivative instruments in accordance with Financial Accounting Standards Board (“FASB”) Accounting StandardsCodification (“ASC”) 815 “Accounting for Derivative Instruments and Hedging Activities”. The only derivative instruments presented in the accompanyingconsolidated financial statements relate to warrants issued in connection with certain debt and equity financings. The Company has not designated itswarrant derivative liability as a hedging instrument as described in ASC 815 and any change in the fair market value of the warrant derivative liability isrecognized in the consolidated statement of operations during the period of change. See Note 10, “Warrants” below. Intangible Assets Intangible assets with estimable useful lives must be amortized over their respective estimated useful lives to their estimated residual values, and reviewed forimpairment whenever events or circumstances indicate their carrying amount may not be recoverable. Intangible assets include trademarks and patents andinclude costs to acquire and protect Company patents. Intangible assets are carried at cost less accumulated amortization. The Company amortizes theseassets on a straight-line basis over their estimated useful lives of fifteen years. Other Assets Other Assets consist of the short-term and the long-term portion of prepaid expenses, security deposits, the capitalized portion of debt related issuance costsand kits that are used in the implantation of certain biologic products. The items are stated at cost and in the case of debt related issuance costs and kits areamortized on a straight line basis over their estimated useful lives. Accounts Payable - Related Party Accounts payable to a related party includes amounts due to American Donor Services and West Coast Tissue Services, as suppliers of donors to theCompany for 2014 and 2013. See Note 15, “Related Party Transactions” below. 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) theproducts or services have been delivered; c) the Company's fee for providing the products and services is fixed or determinable; and d) collection of theCompany’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 tocancel, revenue is recognized when acceptance is received or the right to cancel has expired. The Company ships to certain customers under consignment arrangements whereby the Company’s product is stored by the customer. The customer isrequired to report the use to the Company and upon such notice, the Company invoices the customer and revenue is recognized when above criteria havebeen met. The Company also receives royalty revenue from third parties related to licensing agreements. The Company has royalty agreements with RyMed and BardAccess Systems. Revenue under these agreements represented less than 0.5% of total revenue for the years ended December 31, 2014 and 2013. Non-Cash Consulting Expense From time to time, the Company issues restricted stock awards to consultants and advisors to the Company. These awards are measured at fair value at eachreporting date, recognized ratably over the vesting period and are recorded in non-cash consulting expense. 31 Advertising Costs The Company expenses advertising costs as incurred. The Company had advertising expense of $34,970 and $47,000 for the years ended December 31, 2014and 2013, respectively. Research and Development Research and development costs, which are principally related to internal costs for the development of new technologies and processes for tissue andcoatings, are expensed as incurred. Income Taxes The Company accounts for income taxes under the asset and liability method of accounting for deferred taxes as prescribed under FASB ASC 740,"Accounting for Income Taxes". Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between thefinancial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured usingenacted 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 ondeferred 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 valuationallowance 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 willnot be realized. ASC 740 also requires reporting of taxes based on tax positions that meet a more-likely-than-not standard and that are measured at theamount that is more-likely-than-not to be realized. Differences between financial and tax reporting which do not meet this threshold are required to berecorded as unrecognized tax benefits. ASC 740 also provides guidance on the presentation of tax matters and the recognition of potential IRS interest andpenalties. The Company classifies penalty and interest expense related to income tax liabilities as an income tax expense. There are no significant interestand penalties recognized in the statement of operations or accrued on the balance sheet. See Note 12, “Income Taxes” below. Long-Lived Assets Long-lived assets, including intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount ofan 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 netcash 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 bywhich the carrying amount of the assets exceeds the estimated fair value of the assets. See Note 4, “Impairment of Assets”. Net Loss Per Share Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Shares issuedduring the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted net income (loss) pershare is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive common shares outstandingduring the period, which include the assumed exercise of stock options and warrants using the treasury stock method. Diluted net loss per share was the sameas basic net loss per share for the years ended December 31, 2014 and 2013, as shares issuable upon the exercise of stock options and warrants were anti-dilutive as a result of the net losses incurred for those periods. Dilutive earnings per share are not reported as their effects of including 2,350,656 and1,846,148 outstanding stock options and warrants for the years ended December 31, 2014 and 2013, respectively, are anti-dilutive. Stock-Based Compensation The Company records stock-compensation expense according to the provisions of FASB ASC 718 “Compensation – Stock Compensation”. 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 grantdate fair values using the Black-Scholes-Merton option pricing model, which requires assumptions of the life of the award and the stock price volatility overthe term of the award. The Company records Compensation cost of stock-based awards using the straight line method, which is recorded into earnings overthe vesting period of the award. Fair Value of Financial Instruments The carrying values of financial instruments, including trade accounts receivable, accounts payable, other accrued expenses and long-term debt, approximatetheir fair values based on terms and related interest rates. 32 The Company follows a framework for measuring fair value. The framework provides a fair value hierarchy that prioritizes the inputs to valuation techniquesused to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1)and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for theasset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Duringthe years ended December 31, 2014 and 2013, there was no reclassification in financial assets or liabilities between Level 1, 2 or 3 categories. The following tables set forth by level, within the fair value hierarchy, our assets and liabilities as of the years ended December 31, 2014 and December 31,2013, respectively, that are measured at fair value on a recurring basis: Accrued stock compensation As ofDecember 31,2014 As ofDecember 31,2013 Level 1 $- $211,212 Level 2 - - Level 3 - - The valuation technique used to measure fair value of the accrued stock compensation is based on quoted stock market prices. Warrant derivative liability As ofDecember 31,2014 As ofDecember 31,2013 Level 1 - - Level 2 - - Level 3 $1,320,371 $1,594,628 The valuation technique used to measure fair value of the warrant liability is based on a lattice model and significant assumptions and inputs determined byus. Level 3 Changes The following is a reconciliation of the beginning and ending balances for liabilities measured at fair value on a recurring basis using significantunobservable inputs (Level 3) during the year ending December 31, 2014: Warrant derivative liability Balance at January 1, 2014 $1,594,628 Warrants issued with stock offering 1,461,796 Gain recognized in earnings (1,736,053)Balance at December 31, 2014 $1,320,371 33 During the year ended December 31, 2014, the Company did not change any of the valuation techniques used to measure its liabilities at fair value. Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09supersedes the revenue recognition guidance in Topic 605, Revenue Recognition. The core principle of the guidance is that an entity should recognizerevenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to beentitled in the exchange for those goods or services. This standard is effective for annual reporting periods beginning after December 15, 2016. ASU 2014-09is not expected to have a material impact on our consolidated financial position, results of operations, or cash flows. In August 2014, FASB issued ASU No. 2014-15, Preparation of Financial Statements - Going Concern (Subtopic 205-40), Disclosure of Uncertainties aboutan Entity's Ability to Continue as a Going Concern. Under GAAP, continuation of a reporting entity as a going concern is presumed as the basis forpreparing financial statements unless and until the entity's liquidation becomes imminent. Preparation of financial statements under this presumption iscommonly referred to as the going concern basis of accounting. If and when an entity's liquidation becomes imminent, financial statements should beprepared under the liquidation basis of accounting in accordance with Subtopic 205-30, Presentation of Financial Statements-Liquidation Basis ofAccounting. Even when an entity's liquidation is not imminent, there may be conditions or events that raise substantial doubt about the entity's ability tocontinue as a going concern. In those situations, financial statements should continue to be prepared under the going basis of accounting, but theamendments in this Update should be followed to determine whether to disclose information about the relevant conditions and events. The amendments inthis Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application ispermitted. The Company will evaluate the going concern considerations in this ASU, but has not elected early application. In November 2014, FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 201) and Property, Plant and Equipment (Topic 360) -Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this Update are effective for the annualperiod ending after December 15, 2014, and interim periods within those years. Early adoption is permitted only for disposals (or classifications as held forsale) that have not been reported in financial statements previously issued or available for issuance. ASU 2014-08 is not expected to have a material impacton our consolidated financial position, results of operations, or cash flows. (2) Equity On June 10, 2013, the Company issued approximately 851,000 shares of common stock to new and existing investors at a price per share of $5.70, whichrepresented a 10% discount to the closing price on June 4, 2013. For each common share purchased in the offering, investors received a warrant providing theright to purchase 0.5 shares of Bacterin common stock at an exercise price of $7.20, a 15% premium to the June 4, 2013 closing price. The warrants will beexercisable for seven years beginning 6 months from the date of issuance. The transaction resulted in net proceeds to the Company of approximately $4.45million, after deducting approximately $400,000 for placement agent’s fees and offering expenses. Proceeds from the transaction were used to fund theCompany's operations and working capital requirements. On November 14, 2013, the Company received a waiver from ROS Acquisition Offshore LP (“ROS”) for failure to achieve $10.5 million of revenue in thethird quarter of 2013. In exchange for the waiver and reduction of future quarterly minimum revenue thresholds, the Company issued 150,000 shares ofrestricted stock to an affiliate of ROS on November 25, 2013. During the first quarter of 2014, the Company issued 150,000 shares of common stock to an affiliate of ROS pursuant to a Sixth Amendment to our CreditAgreement with ROS whereby we borrowed an additional $4 million under our Credit Agreement. This issuance has been accounted for as a debt discountand will be amortized over the life of the loan. See Note 8, “Long-Term Debt” below. 34 In August 2014, the Company offered 1,143,000 shares of its common stock at $5.70 per share and warrants to purchase 571,500 shares of its common stockat an exercise price of $7.12 per share to the public. Gross proceeds of the offering were approximately $6.5 million. Net proceeds from the offering wereapproximately $5.9 million and are expected to be used for working capital and general corporate purposes including the continued expansion of thecompany's sales force and increasing inventory levels to support anticipated future growth. The offering closed on August 6, 2014. The warrants have a five year term and expire on August 6, 2019. The Company utilizes a valuation model to determine the fair market value and accountsfor these warrants as a derivative liability (See Note 1, Derivative Instruments" above). Also, see Note 10, "Warrants" below. (3) Inventories Inventories consist of the following: December 31, December 31, 2014 2013 Current inventories Raw materials $3,836,635 $2,710,091 Work in process 2,484,635 3,333,672 Finished goods 5,163,458 5,775,813 11,484,728 11,819,576 Reserve for obsolescence (1,926,080) (1,065,976)Current inventories, total 9,558,648 10,753,600 Non-current inventories Finished goods 2,860,248 3,341,411 Reserve for obsolescence (925,990) (1,221,459)Non-current inventories, total 1,934,258 2,119,952 Total inventories $11,492,906 $12,873,552 (4) Impairment of Assets In 2013, after reviewing the full year product line sales associated with the goodwill asset and the fact that the sales were not meeting original projections,management engaged an independent third party to review the asset for impairment in accordance with and pursuant to ASC 350 and ASC 360-10. Theimplied fair value of the goodwill was determined in the same manner as the amount of goodwill recognized in a business combination, as determined underASC 805. In 2013, the management concluded that the goodwill asset was in fact impaired and should be written down fully to $0 indicating a goodwillimpairment amount of $728,618. During the fourth quarter of 2014, management decided to dispose of a group of components because of a shift in strategy for the Company. The componentgroups are the inventory and fixed assets associated with the Device Coatings and Cranial Maxillofacial Fixation (CMF) lines of business. Sales for these product lines represented 1.2% of total revenue in 2013 and 1.4% of total revenue in 2014. Gross profit associated with these product lineswere less than 1% of total gross profit for both the years 2013 and 2014. Management has committed to a plan to sell the component assets and the assets are available for immediate sale in their present condition. As of February2015, management has identified a potential buyer for the device coatings product line and has entered into an agreement with another party for theinventory of the CMF product line. Total assets associated with the two lines includes $80,042 of related fixed assets, net of depreciation, and related inventory of $832,507 for a total value of$912,549. These assets were transferred to Assets held for Sale and are classified on the balance sheet as part of “Prepaid and other current assets”. After theimpairment provision, the net balance of the Assets held for Sale is $0. 35 Because the device coatings agreement is in the early stage of negotiations and the sale of the CMF inventory did not result in any tangible compensation,management has decided to reserve for the entire amount and has recorded a loss from impairment of assets of $912,549 on the 2014 Consolidated Statementof Operations. (5) Property and Equipment, Net Property and equipment, net are as follows: December 31, December 31, 2014 2013 Buildings $1,657,579 $1,653,263 Equipment 4,724,608 5,768,478 Computer equipment 225,009 312,650 Computer software 345,039 395,146 Furniture and fixtures 153,834 170,118 Leasehold improvements 2,380,617 1,808,461 Vehicles 41,099 41,099 Total cost 9,527,785 10,149,215 Less: accumulated depreciation (4,873,258) (4,968,659) $4,654,527 $5,180,556 The Company leases certain equipment under capital leases. For financial reporting purposes, minimum lease payments relating to the assets have beencapitalized. As of December 31, 2014, the Company has recorded $443,060 gross assets in Equipment, and $191,174 of accumulated depreciation relating toassets under capital leases. As of December 31, 2013, the Company had recorded $549,604 gross assets in Equipment, and $159,722 of accumulateddepreciation relating to assets under capital leases. Maintenance and repairs expense for the years ended 2014 and 2013 was $293,707 and $244,398, respectively. Depreciation expense related to property andequipment, including property under capital lease for the years ended 2014 and 2013 was $570,726 and $677,856, respectively. (6) Intangible Assets Bacterin has applied for various patents with regards to processes for its products. The following table sets forth information regarding intangible assets: December 31, 2014 December 31, 2013 Intellectual Property Gross carrying value $1,036,580 $891,034 Accumulated amortization (381,090) (304,069)Net carrying value $655,490 $586,965 Aggregate amortization expense for the years ended December 31, 2014 and 2013, respectively: $77,022 $75,668 36 The following is a summary of estimated future amortization expense for intangible assets as of December 31, 2014: 2015 $90,055 2016 58,639 2017 58,639 2018 58,639 2019 55,105 Thereafter 334,413 Total $655,490 (7) Accrued Liabilities Accrued liabilities consist of the following: December 31, December 31, 2014 2013 Accrued stock compensation $- $211,212 Wages/commissions payable 1,434,743 1,728,576 Other accrued expenses 486,558 1,645,249 $1,921,301 $3,585,037 (8) Long-term Debt On August 24, 2012, the Company entered into a Credit Agreement with ROS, which provided for an initial $20 million term loan. The Credit Agreementalso provided for an additional $5 million upon achievement prior to December 31, 2013 of certain revenue objectives, which were not achieved. TheCompany received net proceeds from ROS of approximately $10 million following repayment of the existing term loan and accounts receivable creditfacility with MidCap Financial, including prepayment penalties. The Company used the net proceeds for working capital and general corporate purposes.The loan carries an interest rate of LIBOR plus 12.13%, subject to a LIBOR floor rate of 1.0%. Bacterin also agreed to pay a royalty of 1.75% on the first$45,000,000 of net sales, plus 1.0% of net sales in excess of $45,000,000 for ten years. Upon the occurrence of a defined event of default, ROS has the optionto require the Company to purchase from ROS all of its rights to the remaining royalty payments that will become due in accordance with the royaltyagreement (the “ROS Put Option”). The ROS Put Option meets the definition of an embedded derivative and we concluded it had an immaterial value atDecember 31, 2014 and 2013. As such, the Company has not recorded a derivative liability related to the ROS Put Option and has not recognized any changein the fair value of this derivative liability in the consolidated financial statements because the impact is immaterial. Management will reassess the fair valueof the embedded derivative instrument at each reporting period and record if and when it becomes material to the consolidated financial statements. Bacterin has the right to repurchase the loan and royalty interest at amounts to be determined based on the date of repurchase, less the amount of priorprincipal, interest and royalty payments. We will also have to pay fees, currently in the amount of 3.5% of the aggregate principal amount of the loan, as aresult of waivers and modifications we have received in connection with the financial covenants in the Credit Agreement. The loan is secured bysubstantially all of our assets. The estimate of the royalty component of the facility over the life of the agreement resulted in a debt discount and a royaltyliability of $7,361,966. The debt discount will be amortized to interest expense over the seven year term of the loan using the effective interest method. Theroyalty liability will be accreted to $12.3 million through interest expense over the ten year term of the royalty agreement using the effective interest method. The repurchase price, per the table below, following the additional $4 million we borrowed on March 6, 2014 and before deducting the amount of priorprincipal, interest and royalty payments, is as follows: (a) $40,000,000 if we exercise the repurchase option between August 24, 2014 and August 24, 2015;(b) $45,000,000 if we exercise the purchase option between August 24, 2015 and August 24, 2016; (c) $52,500,000 if we exercise the repurchase optionbetween August 24, 2016 and August 24, 2017; and (d) $56,250,000 if we exercise the repurchase option after August 24, 2017. The following table providesan approximation of the repurchase price based on revenue equal to the minimum revenue required pursuant to the financial covenants in our CreditAgreement and four years of interest only payments with principal and interest amortized over years five through seven. Any modification in the paymentschedule or in actual revenue achieved would change the Net Buyout Amount in the table below. The estimated amounts in the table below do not includefees payable on the aggregate principal amount of the loan pursuant to waivers and modifications to the Credit Agreement. The table below is for illustrationpurposes only and there can be no assurance that we will achieve the minimum revenue required by the financial covenants or that we will make all requiredpayments on a timely basis. 37 Calculation of ROS Buyout RepurchasePrice Interest/PrincipalPayments EstimatedRoyalty onMinimumrevenue EstimatedTotalCumulativePayments NetBuyoutAmount Between August 24, 2014 and August 24, 2015 $40,000,000 $3,151,200 $638,750 $10,508,117 $29,491,883 Between August 24, 2015 and August 24, 2016 $45,000,000 $3,151,200 $665,000 $14,324,317 $30,675,683 Between August 24, 2016 and August 24, 2017 $52,500,000 $9,721,896 $665,000 $24,711,213 $27,788,787 After August 24, 2017 $56,250,000 $9,721,896 $665,000 $35,098,109 $21,151,891 In 2013, we entered into a number of waivers and amendments to our credit facility with ROS, including amendments that increased the amount payable toROS. These waivers and amendments are summarized below. On May 16, 2013, we entered into an amendment to our Credit Agreement with ROS, whereby ROS agreed to reduce our minimum liquidity requirement from$1,500,000 to $750,000 until September 30, 2013. In exchange, we agreed to pay a fee in the amount of 1.5% of the aggregate amount of any principalpayment, prepayment or repayment. On August 12, 2013, we entered into a Waiver and Second Amendment to our Credit Agreement with ROS whereby we granted ROS Board observer rights inexchange for a waiver of our failure to replace our former Chief Executive Officer within 90 days of his resignation. On August 12, 2013, we also entered into a Waiver and Third Amendment to our Credit Agreement with ROS whereby we agreed to pay an additional fee inthe amount of 2% (in addition to our prior fee of 1.5%, for a total of 3.5%) of the aggregate amount of any principal payment, prepayment or repayment inexchange for a waiver of our failure to achieve the minimum revenue required in the second quarter of 2013. On August 30, 2013, we entered into a Fourth Amendment to our Credit Agreement with ROS to revise the Board observer rights we granted to ROS. On November 14, 2013, we entered into a Waiver and Fifth Amendment to our Credit Agreement with ROS whereby we agreed to issue 150,000 shares ofcommon stock to an affiliate of ROS in exchange for a waiver of our failure to achieve the minimum required revenue for the third quarter of 2013 and areduction of future quarterly minimum revenue thresholds. On March 6, 2014, we entered into a Sixth Amendment to our Credit Agreement with ROS whereby we borrowed an additional $4 million under our CreditAgreement with ROS and agreed to issue 150,000 shares to an affiliate of ROS. We plan to use the proceeds for working capital and general corporatepurposes. Long-term debt consists of the following: December 31,2014 December 31,2013 Loan payable to ROS Acquisition Offshore, LIBOR plus 12.13% maturing August 2019 $24,000,000 $20,000,000 Adjustment fee payable to ROS Acquisition Offshore, due in August 2019 700,000 700,000 6.00% loan payable to Valley Bank of Belgrade, $10,746 monthly payments including interest, maturingDecember 24, 2030; secured by building 1,325,814 1,375,030 26,025,814 22,075,030 Less: current portion (50,671) (47,727)Debt discount (5,104,813) (5,642,058)Long-term debt $20,870,330 $16,385,245 The following is a summary of maturities due on the debt as of December 31, 2014: 2015 $50,609 2016 2,112,064 2017 8,290,378 2018 8,293,897 2019 6,239,295 2020 and thereafter 1,039,571 Total $26,025,814 The following is a summary of estimated future royalty payments as of December 31, 2014: 2015 $1,000,750 2016 1,229,250 2017 1,360,250 2018 1,462,750 2019 1,575,250 Thereafter 5,626,325 Total $12,254,575 38 (9) Stock-Based Compensation Our Equity Incentive Plan ("The 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 Plan is to enable us to attract, retain and motivate key employees, directors and, onoccasion, independent consultants, by providing them with stock options and restricted stock grants. Stock options granted under the Plan may be eitherincentive stock options to employees, as defined in Section 422A of the Internal Revenue Code of 1986, or non-qualified stock options. The Plan isadministered by the compensation committee of our Board of Directors. The administrator of the Plan has the power to determine the terms of any stockoptions granted under the Plan, including the exercise price, the number of shares subject to the stock option and conditions of exercise. Stock optionsgranted under the Plan are generally not transferable, vest in installments over the requisite service period and are exercisable during the stated contractualterm of the option only by such optionee. The exercise price of all incentive stock options granted under the Plan must be at least equal to the fair marketvalue of the shares of common stock on the date of the grant. 900,000 shares are authorized under the Plan and at December 31, 2014, we had approximately107,700 shares available for issuance. Shares issued under the Plan may be authorized, but unissued or reacquired shares. Stock compensation expense recognized in the statement of operations for the year ended December 31, 2014 and 2013 is based on awards ultimatelyexpected 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, ifnecessary, 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. The Company utilizeshistorical employee termination behavior to determine the estimated forfeiture rates. If the actual forfeitures differ from those estimated by management,adjustments to compensation expense will be made in future periods. An assumed forfeiture rate of 20% was used for the year ended 2014. The estimated fair value of stock options granted is done using the Black-Sholes-Merton method applied to individual grants. Key assumptions used toestimate 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 expectedterm of the award. We used a weighted-average rate of 1.92% and 1.16% for years ended December 31, 2014 and December 31, 2013, respectively. ¨Expected Term: We do not have adequate history to estimate an expected term of stock-based awards, and accordingly, we use the simplified method asprescribed by Staff Accounting Bulletin 107 to determine an expected term. We used a weighted-average expected term of 5.4 and 6.2 years for the yearsended December 31, 2014 and December 31, 2013, respectively. ¨Volatility: We estimate expected volatility based on peer-companies as prescribed by ASC 718. We used a weighted-average volatility rate of 57% and66% for the years ended December 31, 2014 and December 31, 2013, respectively. ¨Dividend Yield: The dividend yield assumption is based on our history and expectation of dividend payouts and was 0% as of December 31, 2014 and2013. In August 2013, the Company granted our Chief Executive Officer an option to purchase 200,000 shares of our common stock outside of the Plan, and in July2014, the Company granted our President an option to purchase 55,000 shares of our common stock outside of the Plan (collectively the “Non-Plan Grants”). Stock option activity under the Plan, plus the Non-Plan Grants, was as follows: 2014 2013 Weighted Weighted Weighted Weighted Average Average Fair Average Average Fair Exercise Value at Grant Exercise Value at Grant Shares Price Date Shares Price Date Outstanding at January 1 758,328 $14.90 $8.60 526,653 $20.20 $10.30 Granted 169,300 5.78 2.65 333,125 6.30 5.30 Exercised (6,666) 10.00 0.04 (23,000) 1.00 0.60 Cancelled or expired (225,626) 11.38 6.07 (78,450) 17.60 8.90 Outstanding at December 31 695,336 $11.09 $5.35 758,328 $14.90 $8.60 Exercisable at December 31 311,080 $15.25 $7.35 264,272 $20.10 $10.30 The aggregate intrinsic value of options outstanding as of December 31, 2014 is approximately $23,345. The aggregate intrinsic value of exercisable optionsas of December 31, 2014 is approximately $23,345. As of December 31, 2014, there were 384,256 unvested options with a weighted average fair value at thegrant date of $12.54 per option. As of December 31, 2014, there is approximately $795,221 of compensation expense related to unvested awards not yetrecognized. On May 24, 2013, the Company issued 33,500 restricted stock awards to certain employees. These restricted shares vested after one year and were issuedwhen the stock price was $6.80 per share. The total expense of $227,800 was recognized ratably over the vesting period in General and Administrative andSales and Marketing Expenses. 39 From time to time we may grant stock options and restricted stock grants to consultants. We account for consultant stock options in accordance with ASC505-50. Consulting expense for the grant of stock options to consultants is determined based on the estimated fair value of the stock options at themeasurement date as defined in ASC 505-50 and is recognized over the vesting period. The Company recognized non-cash consulting expense for the years ended 2014 and 2013 as $135,075 and a negative $5,117, respectively. Total share based compensation recognized for employees and consultants were $935,316 and $975,905 for the years ended December 31, 2014 and 2013,respectively. The following table summarizes restricted stock award activity during the year ended December 31, 2014: Shares Outstanding at January 1, 2013 73,390 Cancelled (27,868)Vested (14,672)Outstanding at January 1, 2014 30,850 Awarded 39,312 Cancelled (30,850)Vested -Outstanding at December 31, 2014 39,312 On November 10, 2014, the company issued 39,312 shares of restricted stock to the independent Directors of the Company. These restricted shares vest onJuly 1, 2015 and were issued when the stock price was $4.07 per share. The total expense of $160,000 was recognized ratably over the period to General andAdministrative expense. (10) Warrants The following table summarizes our warrant activities for the period ended December 31, 2014: Weighted Average Exercise Shares Price Outstanding as of January 1, 2013 732,167 $22.00 Issued 435,222 7.20 Expired (79,569) 20.00 Outstanding at January 1, 2014 1,087,820 $16.20 Issued 571,500 7.12 Expired (4,000) 20.00 Outstanding at December 31, 2014 1,655,320 13.06 We utilize a lattice model to determine the fair market value of the warrants accounted for as liabilities. The valuation model accommodates the probabilityof exercise price adjustment features as outlined in the warrant agreements. We recorded an unrealized gain of $1,736,053 resulting from the change in thefair value of the warrant derivative liability for 2014. Under the terms of the warrant agreement, at any time while the warrant is outstanding, the exerciseprice per share can be reduced to the price per share of future subsequent equity sales of our common stock or a common stock equivalent that is lower thanthe exercise price per share as stated in the warrant agreement. The estimated fair value was derived using the lattice model with the following weighted-average assumptions: Year ended December 31, 2014 2013 Value of underlying common stock (per share) $3.03 $5.00 Risk free interest rate 0.80% 0.89%Expected term 5.00 years 5.56 years Dividend yield 0 0 Volatility 75% 65% 40 The following table summarizes our activities related to warrants accounted for as a derivative liability for the year ended December 31, 2014 and 2013: 2014 2013 Balance at January 1, 2014 600,192 164,971 Derivative warrants issued 571,500 435,221 Derivative warrants exercised - - Balance at December 31, 2014 1,171,692 600,192 (11) Commitments and Contingencies Operating Leases We lease two office facilities under non-cancelable operating lease agreements with expiration dates in 2019 and 2023. We have the option to extend boththe leases for another ten year term and for one facility, we have the right of first refusal on any sale. We lease an additional office facility under a month-to-month arrangement. Future minimum payments for the next five years and thereafter as of December 31, 2014, under these leases, are as follows: 2015 $334,317 2016 269,400 2017 269,400 2018 269,400 2019 269,400 Thereafter 559,000 Total $1,970,917 Rent expense was $365,000 and $283,000 for the years ended December 31, 2014 and 2013, respectively. Rent expense is determined using the straight-linemethod of the minimum expected rent paid over the term of the agreement. We have no contingent rent agreements. Indemnifications Our arrangements generally include limited warranties and certain provisions for indemnifying customers against liabilities if our products or servicesinfringe a third-party's intellectual property rights. To date, we have not incurred any material costs as a result of such warranties or indemnifications andhave not accrued any liabilities related to such obligations in the accompanying financial statements. We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines and settlement amountsincurred 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'sservice as a director or officer, including any action by us, arising out of that person's services as our director or officer or that person's services provided toany other company or enterprise at our request. 41 Pending and Threatened Litigation On March 17, 2014, a complaint was served on the Company in the following state court action in the District Court for the County of Arapahoe, State ofColorado: Robert Taggart v. Guy Cook, Bacterin International, Inc., a Nevada Corporation and Bacterin International Holdings, Inc., a Delaware corporation,Civil Action No. 14CV30401. The complaint involves claims under an employment agreement between plaintiff and the Company seeking commissions onCompany sales, a commission on funds obtained by the Company as a result of a reverse merger and vesting of certain stock options. Plaintiff seeks damagesin excess of $5 million. The Company believes this case lacks legal merit and has filed counterclaims for plaintiff’s breach of his employment agreement andbreach of his duty of loyalty to the Company, asserting the right to recover all compensation paid to Plaintiff during his employment as well as otherdamages. On July 9, 2014, a complaint was served on the Company in the following action in the United States District Court, District of New Jersey: MiddleburySecurities, LLC v. Bacterin International, Inc., Case Number 2:14-CV-03905-WJM-MF. The complaint alleges that Bacterin owes Middlebury an $80,000fee, along with $80,000 in warrants, in connection with the March 6, 2014 extension of credit by ROS. Bacterin believes this case lacks merit because thereis no agreement between the parties regarding the transaction in question. On July 14, 2014, a complaint was served on the Company in the following action in the United States Bankruptcy Court, Southern District of New York, Inre: Rodman & Renshaw, LLC, Debtor, Case No. 13-10087 (REG): YANN GERON, Chapter 7 Trustee of the Estate of Rodman & Renshaw, LLC, Plaintiff,against Bacterin International Holdings, Inc. The complaint alleges that Bacterin owes a $150,000 investment banking fee in connection with Bacterin’sApril 2012 accounts receivable credit facility with MidCap Financial LLC. Bacterin believes this case lack merit because the accounts receivable creditfacility was not a debt or equity security covered by the engagement letter. NYSE MKT Deficiency Notice On May 13, 2013, we received a deficiency notice from the NYSE MKT notifying us that we are not in compliance with Section 1003(a)(iii) of the CompanyGuide with stockholders’ equity of less than $6,000,000 and net losses in five of our most recent fiscal years and Section 1003(a)(ii) with stockholders’equity of less than $4,000,000 and net losses in three of our four most recent fiscal years. On June 12, 2013 we submitted a plan to regain compliance with thecontinued listing requirements, and on June 21, 2013 the NYSE MKT informed us of the acceptance of our plan and gave us an extension until November 13,2014 to regain compliance with the continued listing standards. On November 19, 2013, we received another letter from the NYSE MKT notifying us that weare not in compliance with Section 1003(a)(i) of the Company Guide with stockholders’ equity of less than $2,000,000 as of September 30, 2013 and netlosses in two of three of our most recent fiscal years, and we submitted an amended plan to regain compliance. On November 14, 2014, we received a letternotifying us that the staff of NYSE Regulation, Inc. (the “Staff”) determined to commence proceedings to delist our common stock from the NYSE MKTbecause we did not cure our non-compliance with Sections 1003(a)(i), (ii) and (iii) of the NYSE MKT Company Guide by the end of the maximum 18 monthcompliance period, which expired on November 13, 2014. We appealed the Staff’s delisting determination and attended a hearing on January 21, 2015. OnJanuary 26, 2015, following our January 21, 2015 hearing with a Listing Qualifications Panel (the “Panel”) of the NYSE MKT LLC’s Committee onSecurities (the “Committee”), we received a letter notifying us that the Panel affirmed the determination of the Staff to delist our common stock. We haverequested a full Committee review of the Panel’s decision. If our common stock is delisted from the NYSE MKT, our stock price might be negatively affected,some shareholders may sell their shares, and we may not be able to attract institutional investors in future financing transactions. There can be no assurancethat our common stock will remain listed on the NYSE MKT, (12) Income Taxes The Company’s provision for income taxes differs from applying the statutory U.S. federal income tax rate to income before taxes. The primary differenceresults from providing for state income taxes and from deducting certain expenses for financial statement purposes but not for federal income tax purposes. The components of income (loss) before provision for income taxes consist of the following: Year Ended December 31, 2014 2013 United States $(10,507,869) $(12,693,125) $(10,507,869) $(12,693,125) The components of the income tax provision are as follows: Year Ended December 31, 2014 2013 Current: Federal $- $- State - - Total current - - Deferred: Federal - - State - - Total deferred - - $- $- 42 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 asfollows: Year Ended December 31, 2014 2013 Statutory Federal tax rate $(3,677,754) $(4,442,594)Valuation allowance 4,909,776 4,112,338 State income taxes, net of Federal benefit (368,826) (528,034)Change in state income tax rate 277,076 574,964 Provision to return adjustment (505,423) - Change in Warrant Derivative Liability (668,554) (342,666)Stock issued in exchange for debt waiver - 581,649 Nondeductible meals, entertainment and other expense 33,705 44,343 $- $- Deferred tax assets and liabilities are as follows: At December 31, 2014 2013 Deferred tax assets: Current deferred tax assets Accrued liability for vacation $102,643 $85,599 Bad debt reserve 536,440 512,941 Charitable contributions carryforward 33,124 19,746 Inventory reserve 1,098,333 895,760 Reserve – assets held for sale 351,423 - Restricted stock compensation - 82,640 Total current deferred tax assets 2,121,963 1,596,686 Valuation Allowance (2,121,963) (1,596,686) Net current deferred tax assets - - Noncurrent deferred tax assets Net operating loss carryovers 18,200,823 14,863,919 Stock warrants 131,891 134,117 Stock option compensation 1,594,460 1,307,998 Goodwill amortization 82,212 90,868 Debt discount and waiver amortization 1,076,926 455,916 Depreciation 244,004 97,492 Amortization 30,290 25,797 Total noncurrent deferred tax assets 21,360,606 16,976,107 Valuation allowance (21,360,606) (16,976,107) Net noncurrent deferred tax assets - - Net deferred tax assets $- $- 43 The ultimate realization of deferred tax assets is dependent upon the existence, or generation, of taxable income in the periods when those temporarydifferences and net operating loss carryovers are deductible. Management considers the scheduled reversal of deferred tax liabilities, taxes paid in carryoveryears, 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 avaluation allowance equal to the net realizable deferred tax assets. The valuation allowance increased by $4,909,776 and $4,112,338 in 2014 and 2013,respectively. At December 31, 2014 and 2013, the Company had total domestic Federal and state net operating loss carryovers of approximately $47,262,588 and$37,976,891, respectively. Federal net operating loss carryovers expire at various dates between 2025 and 2034, while state net operating loss carryoversexpire between 2025 and 2034. 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 beimpaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any oneyear 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 believethat such an ownership change has occurred in 2014 or 2013. The 2011 through 2014 tax years remain open to examination by the Internal Revenue Service and the 2009 to 2014 tax years remain open to the MontanaDepartment of Revenue and various other state tax agencies. These taxing authorities have the authority to examine those tax years until the applicablestatute of limitations expire. The Company did not recognize any interest or penalties related to income taxes for the years ended December 31, 2014 and 2013. (13) Employee Benefit Plans The Company has a 401(k) retirement plan. Qualified employees may defer their salary and the deferrals are matched up to 2%. The plan coverssubstantially all full-time employees. Under the terms of the plan, participants may contribute up to the lower of $17,500 of their salary or the statutorilyprescribed limit to the plan. Employees are eligible after six months of employment and may enroll twice a year in January and July. (14) Supplemental Disclosure of Cash Flow Information Supplemental cash flow information is as follows: Twelve Months Ended December 31, 2014 2013 Supplemental disclosure of cash flow information Cash paid during the period for: Interest $3,192,854 $2,681,459 Non-cash activities: Settlement of SeaArk accounts receivable $- $1,829,647 Inventory received in SeaArk settlement $- $409,838 Write-off of SeaArk allowance for doubtful accounts $- $1,419,809 Issuance of Warrants related to stock issuance $1,461,796 $1,485,313 Increase in long-term debt, ROS adjustment fee $- $700,000 Issuance of shares, ROS adjustment fee $- $630,000 Issuance of shares related to debt issuance $1,094,999 $- Issuance of restricted stock to employees $136,977 $- 44 (15) Related Party Transactions Guy Cook was our President, Chief Executive Officer and Chairman of our Board of Directors until April 5, 2013, when he resigned. Mr. Cook has advised usthat he is currently an owner and executive officer of Lattice Biologics, Inc., a competitor of ours that was formerly known as International Biologics, LLC.International Biologics, LLC was a former customer of Bacterin and was indebted to us in the amount of approximately $33,468, which was paid. Mr. Cook assisted unrelated parties in the initial capitalization of Holgan, LLC, a former stocking distributor that purchased a bulk shipment of products fromBacterin at a discount in 2012 (“Holgan”). Holgan subsequently obtained financing from Lacuna Hedge Fund LLLP (“Lacuna”), formerly a significantBacterin shareholder. Holgan failed to fully pay for the products it acquired from Bacterin and defaulted under its credit agreement with Lacuna. We reacheda settlement with Lacuna whereby we paid Lacuna $350,000 in exchange for a release of all claims Lacuna may have against Bacterin and its current andformer directors and officers, and we understand that Mr. Cook’s new company, Lattice, purchased substantially all of the Bacterin products held by Holgan,with the proceeds to be paid to Lacuna. Mr. Cook’s spouse was employed by Bacterin as the Director of Human Resources until April 9, 2013. Mr. Cook, together with his adult children, owned andoperated Silver Forest Fund, LP (“Silver Forest”), a former distributor of Bacterin products. We terminated the contractual relationship with Silver Forest onOctober 24, 2013. In 2012, Silver Forest purchased Bacterin products from an unaffiliated former distributor and subsequently exchanged some of thoseproducts for different Bacterin products of equivalent value. Other than product exchanges and payment of amounts owed by the non-affiliated distributor,we are not aware of any other direct transactions between Bacterin and Silver Forest. Mr. Cook also formerly served as a board member of West Coast Tissue Services (“WCTS”) and American Donor Services (“ADS”). Mr. Cook did not receiveany compensation for his board service from either entity. Darrel Holmes, our Chief Operating Officer, and Mitchell Godfrey, a former director, also serve onthe board of ADS, and Mr. Godfrey also serves as secretary and treasurer for ADS. Mssrs. Godfrey and Holmes receive $5,000 per year for their service to ADS.ADS and WCTS recover tissue from donors. We reimburse them for their recovery fees, which are comprised primarily of labor costs. The approximateaggregate amount of all transactions with WCTS for the years ended December 31, 2014 and 2013 was $98,600 and $840,100, respectively, and theapproximate aggregate amount of all transactions with ADS for the years ended December 31, 2014 and 2013 was $2,406,926 and $2,055,523, respectively.These relationships have benefited us, as these entities provide us with donors, thus insuring that we have a pipeline of current and future donors, which isnecessary to our success. Unless delegated to the Compensation Committee by the Board of Directors, the Audit Committee or the disinterested members of the full Board of Directorsreviews and approves all related party transactions. (16) Subsequent Event On March 16, 2015, we entered into a Common Stock Purchase Agreement (the “Purchase Agreement”) with Aspire Capital Fund, LLC, an Illinois limitedliability company (“Aspire Capital”) which provides that, upon the terms and subject to the conditions and limitations set forth therein, Aspire Capital iscommitted to purchase up to an aggregate of $10.0 million of shares of our common stock over the 24-month term after a registration statement is declaredeffective by the U.S. Securities and Exchange Commission (“SEC”) relating to the transaction. The stock purchase transactions are at the Company’s option.Concurrently with entering into the Purchase Agreement, we also entered into a Registration Rights agreement with Aspire Capital (the “Registration RightsAgreement”), in which we agreed to file one or more registration statements to register under the Securities Act of 1933, as amended (the “Securities Act”), thesale of the shares of our common stock that may be issued to Aspire Capital under the Purchase Agreement. Under the Purchase agreement, within fivebusiness days after approval of the transaction by the NYSE MKT, we also agreed to sell, and Aspire Capital agreed to buy, 207,182 shares of our commonstock (the "Initial Purchase Shares") for $750,000 in aggregate proceeds. We also agreed at such time to issue to Aspire Capital 154,189 shares of our commonstock as a commitment fee (the "Commitment Shares"). After a registration statement is declared effective by the SEC relating to the transaction, we have the right to sell up to an additional $9,250,000 of ourcommon stock in the aggregate to Aspire Capital over a 24-month period. More specifically, we have the right, in our sole discretion, to present AspireCapital with purchase notices (each, a “Purchase Notice”), directing Aspire Capital (as principal) to purchase up to 50,000 shares of our common stock, pertrading day, provided that the aggregate price of each such purchase shall not exceed $500,000 per trading day at a per share price (the “Purchase Price”)equal to the lesser of:• the lowest sale price of our common stock on the purchase date; or• the arithmetic average of the three lowest closing sale prices for our common stock during the ten consecutive trading days ending on the trading dayimmediately preceding the purchase date. In addition, we also have the right to present Aspire Capital with volume-weighted average price purchase notices directing Aspire Capital to purchase anamount of stock equal to up to 30% of the aggregate shares of our common stock traded on the NYSE MTK on the next trading day subject to the terms,conditions and limitations in the Purchase Agreement. The Purchase Agreement may be terminated by us at any time, at our discretion, without any penalty or cost to us. The Purchase Agreement also provides forcustomary events of default, upon the occurrence of which Aspire Capital may terminate the Purchase Agreement. Aspire Capital has agreed that neither it norany of its agents, representatives and affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior tothe termination of the Purchase Agreement. Any proceeds we receive under the Purchase Agreement are expected to be used for general working capital. 45 Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures Our management with the participation of our chief executive officer and chief financial officer evaluated the effectiveness of our disclosure controls andprocedures (as defined in Rule 13a–15(e) under the Exchange Act) as of December 31, 2014. Based upon that evaluation, our chief executive officer andchief financial officer concluded that as of December 31, 2014, our disclosure controls and procedures were effective. Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in rule 13a-15 (f) underthe Securities and Exchange Act of 1934 as amended. Under the supervision and with the participation of senior and executive management, we conductedan evaluation of our internal controls over financial reporting based upon the framework Internal Control – Integrated Framework (2013) as outlined byCOSO, the Committee of Sponsoring Organizations of the Treadway Commission. Our internal control over financial reporting is a process designed toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordancewith accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reportingmay not prevent or detect misstatements. Also, projections of an evaluation of effectiveness to future periods are subject to the risk that controls may becomeinadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Based on our evaluation under the framework Internal Control – Integrated Framework (2013), management concluded that our internal control overfinancial reporting was effective as of December 31, 2014. This report does not include an attestation report of the Company’s independent public accounting firm regarding internal control over financial reporting.Management’s report was not subject to attestation by the Company’s independent public accounting firm pursuant to rules of the Securities and ExchangeCommission that permit the Company to provide only management’s report in this annual report. Changes in Internal Control over Financial Reporting There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2014 that have materially affected,or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B.Other Information None. 46 PART III Item 10.Directors and Executive Officers of the Registrant Executive Officers and Directors The names, ages and positions of our executive officers and directors are as follows: Name Age Position Daniel Goldberger 56 Director, Chief Executive Officer Kent Swanson 70 Chairman of the Board Michael Lopach 66 Director Jon Wickwire 71 Director John Deedrick 52 Director David Goodman, MD 59 Director John Gandolfo 54 Chief Financial Officer Robert Di Silvio 61 President Darrel Holmes 61 Chief Operating Officer Gregory Juda 39 Chief Scientific Officer 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. Daniel Goldberger, Director, Chief Executive Officer, has more than 25 years of experience as a leader of both publicly traded and privately heldmedical technology companies, with a proven track record of building revenue and profits through the introduction of market changing product innovations.He was most recently CEO and a director of Sound Surgical Technologies from April 2007 through its merger with Solta Medical (Nasdaq SLTM) in February2013. Previously, he was President/CEO and a director of Xcorporeal (Amex XCR) an innovator in portable dialysis and Glucon (private) a developer ofglucose measurement technology and several other successful enterprises. Mr. Goldberger is a named inventor on more than 60 US patents. He holds a BS inMechanical Engineering from the Massachusetts Institute of Technology and an MS in Mechanical Engineering from Stanford University. Mr. Goldbergercontributes medical industry and management experience to the Board of Directors. Kent Swanson, Chairman of the Board, was with Accenture for over 32 years, retiring from the firm in 2001 as a Senior Partner. He held globalleadership and management positions in a wide range of industries and geographies. From 2001 to 2008, he was the Board Chair of ALN MedicalManagement; providing outsourced services for clinic-based physician practices. Also from 2001 to 2008, he was Board Chair for Boys Hope Girls Hope ofColorado, a charitable organization providing a home and scholarship education for disadvantaged children with significant capabilities and promise. From2002 to 2009, he was a Board member, Audit Committee member and Compensation Committee Chair for MPC Computers. Mr. Swanson graduated withdistinction from the University of Minnesota earning an M.S. in Business and received an M.B.A. from the University of Chicago in 1969. Mr. Swansoncontributes significant management experience to the Board of Directors. Michael Lopach, Director, is a certified public accountant with over 40 years of accounting experience. Mr. Lopach spent 27 years of his careerwith Galusha, Higgins, Galusha & Co., the largest privately held accounting firm in Montana and northern Idaho, where he served as president and CEO. In1999, Mr. Lopach founded Lopach & Carparelli PC, an accounting firm that focuses on medical practitioners. Mr. Lopach received his MBA from theUniversity of Notre Dame. Mr. Lopach serves as chairman of the Audit Committee. Mr. Lopach contributes significant accounting experience to the Board ofDirectors. Jon Wickwire, Director, is an attorney and founding shareholder of Wickwire Gavin, P.C., a national construction law firm which merged withAkerman Senterfitt, one of the top 100 law firms in the United States. Mr. Wickwire served as lead counsel on major infrastructure litigation and alternativedispute resolutions, both domestically and internationally, throughout his 35 year career, and was the founding fellow of the American College ofConstruction Lawyers. Mr. Wickwire also served as the founding chairman of the College of Scheduling, an organization dedicated to advancing thetechniques, practice and profession of project scheduling, and has authored several books and articles on construction and public contract law, includingConstruction Management: Law and Practice and The Construction Subcontracting Manual: Practice Guide with Forms . Mr. Wickwire currently serveson the advisory board for Crunchies Food Company. Mr. Wickwire is a graduate of the University of Maryland and Georgetown University Law Center. Mr.Wickwire serves as chairman of the Nominations and Corporate Governance Committee. Mr. Wickwire contributes legal experience to the Board of Directors. 47 John Deedrick, Director, is an experienced senior executive with 30 years experience in healthcare, defense, and business consulting. He was a co-founder and managing director for Accuitive Medical Ventures and a corporate venture capitalist for Mayo Clinic. Mr. Deedrick currently serves as Presidentand CEO of CHIP Solutions and is Founder and Chairman of GreatDeeds, a Minnesota non-profit organization. Mr. Deedrick has served on the board ofnumerous early, mid and growth stage healthcare companies over the last 17 years, including GreatDeeds and Ironwood Springs Ranch. Mr. Deedrickreceived his undergraduate degree from the University of Northwestern St. Paul (Roseville, MN) and his MBA from St. Thomas University (St. Paul, MN). Mr.Deedrick contributes significant financial, management and industry experience to the Board of Directors. David Goodman, MD, Director, has devoted his career to improving health through the development and integration of innovative technologiesinto clinical practice. Dr. Goodman currently serves as Co-Founder and Chief Medical Officer of FirstVitals Health & Wellness, a technology-enabled servicecompany focused on preventing complications such as foot ulcers and lower extremity amputations in people with diabetes. Dr. Goodman also serves on theboard of directors of NEUROMetrix (Nasdaq: NURO), a neurotechnology company focused on the early detection of diabetic peripheral neuropathy (DPN)and treatment of painful diabetic neuropathy (PDN). In addition, Dr. Goodman served as a director of Sound Surgical Technologies LLC, a privatemanufacturer of aesthetic surgical tools until its successful acquisition by Solta Medical (Nasdaq:SLTM) in 2013. Dr. Goodman has a long track record ofaccomplishment in executive management as well as through his own entrepreneurial efforts. As an executive, Dr. Goodman served as CEO of SEDLine, anEEG-based brain monitoring company as well as the EVP of Business Development for Masimo (Nasdaq:MASI), a leading company in non-invasive patientmonitoring. As an entrepreneur, Dr. Goodman was the founding CEO of LifeMasters Supported SelfCare, a pioneering disease management company, andAradigm, a developer of electronic aerosol drug delivery systems. Dr. Goodman began his career as the first engineer at Nellcor, the company that developedmodern pulse oximetry. He holds a B.A.S. in applied science and bioengineering and a M.S.E. in bioengineering from the University of Pennsylvania. Dr.Goodman also received an M.D. cum laude from Harvard Medical School and the Harvard-M.I.T. Division of Health Sciences and Technology. Dr. Goodmancompleted his internship at the University of California, San Francisco (UCSF) in the Department of Medicine. He holds 18 issued and 4 pending US patentsand maintains clinical practices in California and Hawaii. Dr. Goodman contributes medical and industry experience to the Board of Directors. John Gandolfo, Chief Financial Officer, joined Bacterin as its interim Chief Financial Officer on a part-time basis, effective June 4, 2010, and filledthis position full time commencing on July 6, 2010. Mr. Gandolfo also served as Interim Co-Chief Executive Officer from April 5, 2013 to August 14, 2013,and as a Director from July 9, 2013 to August 14, 2013. Mr. Gandolfo has 25 years of experience as chief financial officer of rapidly growing private andpublicly held companies with a primary focus in the life sciences, healthcare and medical device areas. Mr. Gandolfo has had direct responsibility overcapital raising, including four public offerings, financial management, mergers and acquisition transactions and SEC reporting throughout his professionalcareer. Prior to joining Bacterin, Mr. Gandolfo served as the Chief Financial Officer for Progenitor Cell Therapy LLC, a leading manufacturer of stem celltherapies. Prior to joining Progenitor, Mr. Gandolfo served as the Chief Financial Officer for Power Medical Interventions, Inc., a publicly held developer andmanufacturer of computerized surgical stapling and cutter systems, from January 2007 to January 2009. Prior to joining PMI, Mr. Gandolfo was the ChiefFinancial Officer of Bioject Medical Technologies, Inc., a publicly held supplier of needle-free drug delivery systems to the pharmaceutical andbiotechnology industries, from September 2001 to May 2006, and served on the Bioject’s Board of Directors from September 2006 through May 2007. Priorto joining Bioject, Mr. Gandolfo was the Chief Financial Officer of Capital Access Network, Inc., a privately held specialty finance company, from 2000through September 2001, and Xceed, Inc., a publicly held Internet consulting firm, from 1999 to 2000. From 1994 to 1999, Mr. Gandolfo was Chief FinancialOfficer and Chief Operating Officer of Impath, Inc., a publicly held, cancer-focused healthcare information company. From 1987 through 1994, he was ChiefFinancial Officer of Medical Resources, Inc., a publicly held manager of diagnostic imaging centers throughout the United States. A graduate of RutgersUniversity, Mr. Gandolfo is a certified public accountant (inactive status) who began his professional career at Price Waterhouse. Robert Di Silvio, President, has over 30 years of experience serving in executive management positions in the medical industry, overseeing salesand marketing efforts in the management of medical sales operations. Prior to joining Bacterin as a consultant in January of 2014, Mr. Di Silvio served asSenior Vice President and General Manager of the Americas region for Lumenis since January 2012, and prior to that role, beginning in October 2010, asSenior Vice President and General Manager, Lumenis North America Region. Mr. Di Silvio previously served as President and Chief Executive Officer ofPyng Medical Inc. from February 2009 to September 2010; as Vice President Global Sales and Marketing of Safe Life from May 2007 to September 2008; asVice President of US Field Operations Physio-Control Division of Medtronic, Inc. from May 2002 to April 2007; and as Vice President, US Field Operationsof Coherent Medical Group (“CMG”) from February 1999 to January 2002. Mr. Di Silvio currently serves as a member of the board of directors of PyngMedical Corp. He holds a bachelor’s degree in economics and organic chemistry and a master’s degree in biochemistry from the University of Connecticut,and he also completed three years at the University of Rome School of Medicine in Italy. Darrel Holmes, Chief Operating Officer, Mr. Holmes has over 25 years of experience in the medical device, biologics, and diagnostic industries.He previously served as Operations Executive for American Qualex, HYCOR Biomedical and Stratagene, and as Executive Vice President and COO of BigSpring Water Company. Since joining Bacterin International, Inc. in 2003, Mr. Holmes has assumed responsibilities for all aspects of medical device andbiologic product design and development, process scale-up, and production, and Mr. Holmes also served as Interim Co-Chief Executive Officer from April 5,2013 to August 14, 2013. Mr. Holmes has worked with numerous regulatory agencies at the federal, state, and local level and coordinates Bacterin’s ISO13485 compliance and environmental health and safety programs. He oversees Bacterin’s operations and production, facility management, engineering andinformation technology (IT) to produce Bacterin’s medical devices and biologic products, and to accommodate business growth. He directs the design,purchase, validation and implementation of capital assets and facility expansions for the company, and is responsible for strategic planning as well as thedevelopment and administration of division-level budgets. Currently, Mr. Holmes serves as the Tissue Bank Director and on Bacterin’s Medical AdvisoryCommittee, as a member of Montana State University’s Employer Advisory Board, as a Scientific Advisory Board Member for Montana Molecular inBozeman, Montana, and as member of the Board of Directors of American Donor Services. Mr. Holmes graduated from California State University at LongBeach with a degree in Biological Science. 48 Gregory Juda, Chief Scientific Officer, joined Bacterin in 2005 and has played an integral role in the growth of Bacterin’s orthobiologicsbusiness. During his time with the company, Dr. Juda has been responsible for guiding the development, commercialization, and marketing of fourrevolutionary, life-enhancing allograft products; Bacterin's OsteoSponge® allograft family, OsteoSelect® Demineralized Bone Matrix Putty, hMatrix®Acellular Dermal Matrix and Bacterin’s new line of 3Demin products. Dr. Juda is an expert in the design, manufacturing, regulation, and marketing ofbiologics and biologic based medical devices. He was responsible for directing equipment, facility, and process validation efforts for Bacterin’s state-of-the-art allograft tissue processing facility. These efforts included the design and validation of programs for tissue processing and decontamination, facilitycleaning and monitoring, and sterilization of finished product. Currently, Dr. Juda directs research and development efforts for Bacterin’s orthobiologicproduct lines and serves as the primary source of technical expertise for Bacterin’s direct and indirect sales initiatives. Dr. Juda received a Bachelor ofScience in Biochemistry from Virginia Polytechnic Institute and State University and a Doctorate of Philosophy in Biochemistry from Montana StateUniversity-Bozeman. Board Composition and Terms of Office The composition of our board of directors, audit committee, compensation committee, and nominations and governance committee, is subject to thecorporate governance provisions of the NYSE MKT, including rules relating to the independence of directors. A majority of our board members and all ofour board committee members are independent directors. All directors hold office for staggered three year terms and until the election and qualification oftheir successors. Officers are elected by, and serve at the discretion of, the board of directors. Board Committees We have established an audit committee, compensation committee and nominations and corporate governance committee, in compliance withapplicable corporate governance requirements, and the Board also formed a Business Development Committee in 2014. The charters of our audit committee,compensation committee and nominations and corporate governance committee have been posted on our website at www.bacterin.com. The contents of ourwebsite are not incorporated by reference into this annual report on Form 10-K. Audit Committee The purpose of the Audit Committee is to assist the oversight of our Board of Directors with the integrity of our financial statements, our compliancewith legal and regulatory matters, our internal audit function, and our independent auditor’s qualifications, independence, and performance. The primaryresponsibilities of the Audit Committee are set forth in its charter and include various matters with respect to the oversight of our accounting and financialreporting process and audits of our financial statements. The Audit Committee also selects the independent auditor, reviews the proposed scope of the audit,reviews our accounting and financial controls with the independent auditor and financial accounting staff, and reviews and approves transactions between usand our directors, officers, and their affiliates. The Audit Committee currently consists of Messrs. Lopach, Swanson and Wickwire, each an independent director under NYSE MKT listingstandards 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 committeefinancial expert” in accordance with applicable rules and regulations of the SEC. Compensation Committee The primary purposes of the Compensation Committee are to determine or recommend the compensation of our CEO and other executive officers,and to oversee our Equity Incentive Plan. Our Compensation Committee currently consists of John Deedrick, Michael Lopach and David Goodman, each ofwhom is an independent director. Mr. Deedrick serves as the Chairman of the Compensation Committee. Nominations and Corporate Governance Committee The purposes of the Nominations and Corporate Governance Committee include the selection or recommendation to our Board of Directors ofnominees to stand for election as directors, the oversight of the selection and composition of the committees of our Board of Directors, the oversight of theevaluations of our Board of Directors and management, and the development and recommendation to our Board of Directors of a set of corporate governanceprinciples applicable to our company. The Nominations and Corporate Governance Committee currently consists of Messrs. Wickwire, Deedrick andGoodman, each of whom is an independent director of our company under NYSE MKT listing standards as well as under rules adopted by the SEC pursuantto Sarbanes-Oxley. Mr. Wickwire serves as the Chairman of the Nominations and Corporate Governance Committee. Business Development Committee In September 2014, the Board formed a Business Development Committee to advise the Board on strategic direction and growth strategies. TheBusiness Development Committee currently consists of Messrs. Deedrick (Chair) and Swanson. 49 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 consideredbased upon various criteria, such as their broad-based business and professional skills and experiences, a global business and social perspective, concern forthe long-term interests of the stockholders, diversity, 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. Family Relationships There are no family relationships among our directors and executive officers. Compliance with Section 16(a) of the Exchange Act Section 16(a) requires directors, executive officers and holders of more than 10% of an equity security registered pursuant to Section 12 of theExchange Act of 1934 to file various reports with the SEC. To the Company’s knowledge, based solely on our review of the Section 16 reports furnished to us with respect to 2014, we believe all reportsrequired pursuant to Section 16(a) were filed on a timely basis except for the following: Darrel Holmes filed one Form 4 late due to a delay in receipt oftransaction information from his broker. Code of Ethics We have adopted a Code of Conduct and a Code of Ethics for our CEO and Senior Financial Officers, both of which are posted on our website atwww.bacterin.com. We intend to disclose any changes in, or waivers from, these codes by posting such information on the same website or by filing a Form8-K. The contents of our website are not incorporated by reference into this annual report on Form 10-K. Procedures for Shareholder Recommendation of Nominees to the Board of Directors The procedures by which shareholders may recommend nominees to the Board of Directors are contained in our Bylaws. 50 Item 11. Executive Compensation The table below summarizes the compensation earned for services rendered to the Company for the fiscal years indicated, by our Chief ExecutiveOfficer and two most highly-compensated named executive officers other than our Chief Executive Officer. Change in Pension Value and Non-Equity Nonqualified Incentive Deferred Stock Option Plan Compensation All Other Name and Principal Position Year Salary Bonus Awards (1) Awards (1) Compensation Earnings Compensation Total Daniel Goldberger 2014 400,000 100,154 - - - 143,422(2) 643,576 Chief Executive Officer 2013 143,077 - - 1,098,055 - - - 1,241,132 From August 14, 2013 topresent John Gandolfo 2014 330,000 20,000 - 90,841 - - - 440,841 Chief Financial Officer 2013 321,462 100,800 68,340 34,745 - - - 525,347 Interim Co-Chief ExecutiveOfficer from April 5 2013 toAugust 14, 2013 Robert Di Silvio 2014 153,750 - - 150,090 - - 129,300(3) 433,140 President From July 1, 2014 to present (1)Key assumptions used to estimate the grant date fair value of restricted stock and option awards are contained in Note 9 to the financial statements inItem 8. of this Annual Report on Form 10-K. (2)Relocation reimbursement. (3)Consulting fees paid to Mr. Di Silvio for services provided prior to his employment. Employment Agreements Employment agreements for our current executive officers are set forth as exhibits to this Form 10-K. The employment agreements require each ofthe executives to perform such duties as are customarily performed by one holding their positions and provide for a fixed annual base salary. In addition,each executive is entitled to receive certain cash bonuses and grants under our equity incentive plan as may be determined by the compensation committeeof our board of directors. The employment agreements contain covenants (a) restricting the executives from engaging in any activity competitive with our business, (b)prohibiting the executive from disclosing confidential information regarding our company, and (c) requiring that all intellectual property developed by theexecutive and relating to our business constitutes our sole and exclusive property. The employment agreements also contain severance provisions in theevent of termination without cause, resignation for good reason, or termination in connection with a change of control. Bacterin International Equity Incentive Plan and Inducement Grants The following is a summary of the material terms of the Bacterin International Equity Incentive Plan (the “Plan”): The purpose of the Plan is to enable us to attract, retain and motivate key employees, directors and independent consultants, by providing them withstock options and restricted stock grants. Stock options granted under the Plan may be either incentive stock options to employees, as defined in Section422A of the Internal Revenue Code of 1986, or non-qualified stock options. The Plan is administered by the Compensation Committee of the Board ofDirectors. The administrator of the Plan has the power to determine the terms of any stock options granted under the Plan, including the exercise price, thenumber of shares subject to the stock option and conditions of exercise. Stock options granted under the Plan are generally not transferable, vest ininstallments and are exercisable during the lifetime of the optionee only by such optionee. The exercise price of all incentive stock options granted underthe Plan must be at least equal to the fair market value of the shares of common stock on the date of the grant. There are 900,000 shares of our common stock authorized to be issued under the Plan. As of December 31, 2014, we had outstanding options topurchase 440,336 shares and 39,312 shares of restricted stock issued, to directors, executives, employees and consultants, leaving approximately 107,700shares available for issuance thereunder. 51 We also granted stock options to our Chief Executive Officer and President outside of our Plan as inducements material to entering into employmentwith the company pursuant to Section 711(a) of the NYSE MKT Company Guide. The inducement grants to our Chief Executive Officer and President wereapproved by the Compensation Committee of our Board of Directors. The inducement grant to our Chief Executive Officer consists of a stock option topurchase up to 200,000 shares of our common stock, with a per share exercise price of $6.00, which was the adjusted closing price of the Company’s commonstock on the August 14, 2013 grant date. Our Chief Executive Officer’s inducement grant stock option vests over five years, with 20% of the underlyingshares vesting after one year and the remaining 80% vesting in forty-seven (47) equal monthly installments as to 3,333 underlying shares, beginningSeptember 15, 2014, and one final installment as to 3,330 underlying shares. The inducement grant to our President consists of a stock option to purchase upto 55,000 shares of our common stock, with a per share exercise price of $6.80, which was the adjusted closing price of our common stock on the July 1, 2014grant date. Our President’s inducement grant stock option vests over five years, with 20% of the underlying shares vesting after one year and the remaining80% vesting in forty-seven (47) equal monthly installments as to 917 underlying shares, beginning on August 1, 2015, and one final installment as to 901underlying shares. Except for the Equity Incentive Plan and the inducement grants to our Chief Executive Officer and President discussed above, we do not have anyother stock option plans or other similar incentive compensation plans for officers, directors and employees. 52 Outstanding Equity Awards at Fiscal Year-End (December 31, 2014) Option Awards Stock Awards Number of Securities UnderlyingUnexercised Options Equity IncentivePlan Awards:Number ofSecuritiesUnderlyingUnexercisedUnearned OptionExercise OptionExpiration Number ofshares orunitsof stockthathave not Marketvalue ofshares orunits ofstock thathave Name Exercisable Options Price Date vested not vested Daniel Goldberger 59,998 140,002 $6.00 8/14/23 - - John Gandolfo - 30,000 5.01 9/4/24 - - 7,000 - 6.80 5/24/23 - - Robert Di Silvio - 55,000 6.80 7/1/24 - - Potential Payments Upon Termination or Change-in-Control All of our named executive officers have employment agreements that provide for severance payments for termination in connection with a change incontrol. Mr. Goldberger’s employment agreement provides for an annual base salary of $400,000, along with other incentive compensation as determined by theBoard of Directors, with a bonus target of 50%-70% of Mr. Goldberger’s annual base salary. Mr. Goldberger’s employment agreement contains customaryintellectual property provisions and restrictive covenants and provides for six (6) months severance for termination without cause or resignation with goodreason and twelve (12) months of severance for termination in connection with a change in control. Mr. Gandolfo’s employment agreement provides for an annual base salary of $330,000, along with other incentive compensation as determined by theCompensation Committee of the Board of Directors, with a bonus target of 30% of Mr. Gandolfo’s annual base salary. Mr. Gandolfo’s employment agreementcontains customary intellectual property provisions and restrictive covenants and provides for twelve (12) months severance for termination without cause,resignation with good reason, or termination in connection with a change in control. Mr. Di Silvio’s employment agreement provides for an annual base salary of $325,000, along with other incentive compensation as determined by theCompensation Committee of the Board of Directors, with a bonus target of 50% of Mr. Di Silvio’s annual base salary. Mr. Di Silvio’s employment agreementcontains customary intellectual property provisions and restrictive covenants and provides for six (6) months severance for termination without cause orresignation with good reason and twelve (12) months of severance for termination in connection with a change in control. Retirement Plans The Company has a 401(k) plan available to all full-time employees following a six month probationary period. The Company matches up to 2% ofemployee contributions at the end of the year. 53 Director Compensation Name Fees Earnedor Paid inCash (1) StockAwards(2) OptionAwards(2) Non-EquityIncentive PlanCompensation Change inPension ValueandNonqualifiedDeferredCompensationEarnings All OtherCompensation Total Kent Swanson $81,250 $40,000 $- $- $- $- $121,250 Michael Lopach $51,625 $40,000 $- $- $- $- $91,625 Jon Wickwire $51,250 $40,000 $- $- $- $- $91,250 John Deedrick $111,000 $40,000 $- $- $- $- $151,000 David Goodman $22,000 $ $13,779 $- $- $- $35,779 (1)Effective September 4, 2014, compensation for our independent Board members was revised as follows: independent directors receive an annual retainerof $40,000 per year, the independent Chairman of our Board receives an additional $20,000 per year, the Audit Committee Chair receives $12,500 peryear, other Committee Chairs receive $10,000 per year, Audit Committee members receive $5,000 per year, other Committee members receive $4,000per year and all independent directors receive an annual equity grant valued at $40,000. In addition, the Chair of our newly formed BusinessDevelopment Committee earned $60,000 in 2014 and the other member of the Business Development Committee earned $20,000 in 2014. Prior to September 4, 2014, our independent Board members received an annual retainer of $40,000 per year, our Committee Chairs received anadditional $10,000 per year, new independent directors received an option to purchase 5,000 shares of our common stock and continuing directorsreceived an annual grant of options to purchase 3,000 shares of our common stock. Beginning in 2014, our independent Board Chair also received anadditional $20,000 per year. (2)Key assumptions used to estimate the grant date fair value of stock and option awards are contained in Note 9 to the financial statements in this AnnualReport on Form 10-K. 54 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, norhas any interlocking relationship existed in the past. Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth information regarding the beneficial ownership of our common stock as of December 31, 2014, by (a) each of ourdirectors and named executive officers, (b) all of our current directors and named executive officers as a group, and (c) each person who is known by us tobeneficially own 5% or more of our common stock. Name and Address of Beneficial Owner Number ofSharesBeneficiallyOwned (2) Percentage ofShares BeneficiallyOwned (3) Directors and Named Executive Officers (1) : Daniel Goldberger 72,508(4) 1.1%Kent Swanson 71,000(5) 1.1%Michael Lopach 23,115(6) * Jon Wickwire 55,373(7) *John Deedrick 10,000(8) * David Goodman, MD - * John P. Gandolfo 14,787(9) * Robert Di Silvio 1,198(10) * All executive officers and directors as a group (10 persons) 270,496 4.0% Five Percent Shareholders: OrbiMed Advisors LLC 563,158(11) 8.4%601 Lexington Ave., 54th Floor New York, NY 10022 Perkins Capital Management, Inc. 539,734(12) 8.1%730 East Lake Street Wayzata, MN 55391 Guy S. Cook 411,482 (13) 6.2 %246 Painted Hills Rd. Bozeman, MT 59714 *Less than 1% of outstanding shares of common stock. (1) The address for directors and named executive officers is c/o Bacterin International, Inc., 664 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 orcontrolled by the named person. Also includes shares if the named person has the right to acquire those shares within 60 days after December 31, 2014,by the exercise or conversion of any warrant, stock option or convertible preferred stock. Unless otherwise noted, shares are owned of record andbeneficially by the named person. (3)The calculation in this column is based upon 6,679,646 shares of common stock outstanding on December 31, 2014. The shares of common stockunderlying warrants and stock options are deemed outstanding for purposes of computing the percentage of the person holding them, but are not deemedoutstanding for the purpose of computing the percentage of any other person. (4)Includes (a) 12,510 shares of our common stock, and (b) vested options to purchase 59,998 shares of our common stock. (5)Includes (a) 35,000 shares of our common stock held directly, (b) 20,000 shares held by a family limited partnership, (c) warrants to purchase 5,000shares of our common stock, and (d) options to purchase 11,000 shares of our common stock. (6)Includes (a) 1,694 shares of our common stock held directly, (b) 3,389 shares held by a 401(k) plan, (c) warrants to purchase 2,032 shares, and (d) optionsto purchase 16,000 shares. 55 (7)Includes (a) 10,550 shares of our common stock, (b) 25,762 shares of common stock held by trusts, (c) warrants to purchase 3,061 shares of commonstock, and (d) options to purchase 16,000 shares of our common stock. (8)Includes vested options to purchase 10,000 shares of our common stock. (9)Includes (a) 6,396 shares of our common stock, (b) 994 shares of our common stock held by an IRA, (b) warrants to purchase 397 shares of our commonstock, and (c) vested options to purchase 7,000 shares of our common stock. (10)Includes 1,198 shares of our common stock. (11)Based on Schedule 13G filed with the SEC on February 17, 2015. Includes 475,439 shares of our common stock and warrants to purchase 87,719shares of our common stock held by an entity managed by OrbiMed Advisors LLC. (12)Based on Schedule 13G/A filed with the SEC on January 28, 2015. Includes 459,646 shares of our common stock and warrants to purchase 80,088shares of our common stock. (13)Based on Amendment No. 6 to Schedule 13D filed with the SEC on February 25, 2015. Includes (a) 31,482 shares of our common stock held directly,and (b) 380,000 shares of our common stock held by trusts for the benefit of Mr. Cook’s children. Economic Ownership; Stock Ownership Guidelines Because the table above is limited to shares that are owned or which the person has the right to acquire within 60 days, it does not present a completeview of the economic exposure our directors and executive officers have to our common stock. Excluded from the table above are unvested stock options andunvested warrants which will become vested more than 60 days from December 31, 2014. Securities authorized for issuance under equity compensation plans Plan category Number ofsecurities tobe issuedupon exerciseof outstandingoptions,warrants andrights Weighted-averageexercise priceof outstandingoptions,warrants andrights Number ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplans(excludingsecuritiesreflected incolumn (a)) Equity compensation plans approved by security holders 440,336 $14.19 107,700(1)Equity compensation plans not approved by security holders(2) 255,000 $6.17 N/A Total 695,336 $11.25 107,700 (1) In addition to options outstanding, the Company also has 39,312 shares of restricted stock outstanding that have been issued under the Plan.(2) For a description of certain inducement grants not approved by security holders, see “Bacterin International Equity Incentive Plan and InducementGrants” under Item II above. Bacterin International Equity Incentive Plan and Two Inducement Grants We have granted stock options, shares of common stock and restricted stock units under our Amended and Restated Bacterin International EquityIncentive Plan (the “Plan”), as well as two inducement grants consisting of (i) an option to purchase 200,000 shares of our common stock to our ChiefExecutive Officer, and (ii) an option to purchase 55,000 shares of our common stock to our President, both granted outside of our Plan. The following is asummary of the material terms of our Plan and the two inducement grants. The purpose of the Bacterin International Equity Incentive Plan is to enable us to attract, retain and motivate key employees, directors andindependent consultants, by providing them with stock options and restricted stock grants. Stock options granted under the Plan may be either incentivestock options to employees, as defined in Section 422A of the Internal Revenue Code of 1986, or non-qualified stock options. The Plan is administered bythe compensation committee of our board of directors. The administrator of the Plan has the power to determine the terms of any stock options granted underthe incentive plan, including the exercise price, the number of shares subject to the stock option and conditions of exercise. Stock options granted under thePlan are generally not transferable, vest in installments and are exercisable during the lifetime of the optionee only by such optionee. The exercise price ofall 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 thegrant. The specific terms of each stock option grant are reflected in a written stock option agreement. There are 900,000 shares of our common stock authorized to be issued under the Plan. As of December 31, 2014, we had outstanding options topurchase 440,336 shares and 39,312 shares of restricted stock issued, to directors, executives, employees and consultants, leaving approximately 107,700shares available for issuance thereunder. The inducement grants to our Chief Executive Officer and President were approved by the Compensation Committee of our Board of Directors andgranted outside of the Plan as an inducement material to entering into employment with the Company pursuant to Section 711(a) of the NYSE MKTCompany Guide. The inducement grant to our Chief Executive Officer consists of a stock option to purchase up to 200,000 shares of our common stock, witha per share exercise price of $6.00, which was the adjusted closing price of our common stock on the August 14, 2013 grant date. Our Chief ExecutiveOfficer’s inducement grant stock option vests over five years, with 20% of the underlying shares vesting after one year and the remaining 80% vesting inforty-seven (47) equal monthly installments as to 3,333 underlying shares, beginning September 15, 2014, and one final installment as to 3,330 underlyingshares. The inducement grant to our President consists of a stock option to purchase up to 55,000 shares of our common stock, with a per share exercise priceof $6.80, which was the adjusted closing price of our common stock on the July 1, 2014 grant date. Our President’s inducement grant stock option vests overfive years, with 20% of the underlying shares vesting after one year and the remaining 80% vesting in forty-seven (47) equal monthly installments as to 917underlying shares, beginning on August 1, 2015, and one final installment as to 901 underlying shares. 56 Item 13.Certain Relationships and Related Transactions, and Director Independence Transactions with Related Persons, Promoters and Certain Control Persons Guy Cook was our President, Chief Executive Officer and Chairman of our Board of Directors until April 5, 2013, when he resigned. Mr. Cook hasadvised us that he is currently an owner and executive officer of Lattice Biologics, Inc. (“Lattice”), a competitor of ours formerly known as InternationalBiologics, LLC, a former Bacterin customer. Mr. Cook assisted unrelated parties in the initial capitalization of Holgan, LLC, a former stocking distributor that purchased a bulk shipment ofproducts from Bacterin at a discount in 2012 (“Holgan”). Holgan subsequently obtained financing from Lacuna Hedge Fund LLLP (“Lacuna”), a formerBacterin shareholder. Holgan failed to fully pay for the products it acquired from Bacterin and defaulted under its credit agreement with Lacuna. We reacheda settlement with Lacuna in April 2014 whereby we paid Lacuna $350,000 in exchange for a release of all claims Lacuna may have against Bacterin and itscurrent and former directors and officers, and we understand that Mr. Cook’s new company Lattice purchased substantially all of the Bacterin products heldby Holgan, with the proceeds paid to Lacuna. Mr. Cook’s spouse was employed by Bacterin as the Director of Human Resources until April 9, 2013. Mr. Cook, together with his adult children,owned and operated Silver Forest Fund, LP (“Silver Forest”), a former distributor of Bacterin products. We terminated the contractual relationship with SilverForest on October 24, 2013. In 2012, Silver Forest purchased Bacterin products from an unaffiliated former distributor and subsequently exchanged some ofthose products for different Bacterin products of equivalent value. Other than product exchanges and payment of amounts owed by the non-affiliateddistributor, we are not aware of any other direct transactions between Bacterin and Silver Forest. Mr. Cook also formerly served as a board member of West Coast Tissue Services (“WCTS”) and American Donor Services (“ADS”). Mr. Cook did notreceive any compensation for his board service from either entity. Darrel Holmes, our Chief Operating Officer, and Mitchell Godfrey, a former director, alsoserve on the board of ADS, and Mr. Godfrey also serves as secretary and treasurer for ADS. Messrs. Holmes and Godfrey receive $5,000 per year for theirservice to ADS. ADS and WCTS recover tissue from donors. We reimburse them for their recovery fees, which are comprised primarily of labor costs. Theapproximate aggregate amount of all transactions with WCTS was $98,600 for 2014 and $840,100 for 2013, and the approximate aggregate amount of alltransactions with ADS was $2,406,926 for 2014 and $2,055,523 for 2013. These relationships have benefited us, as these entities provide us with donors, thusinsuring that we have a pipeline of current and future donors, which is necessary to our success. We no longer obtain donors from WCTS. Unless delegated to the Compensation Committee by the Board of Directors, the Audit Committee or the disinterested members of the full Board ofDirectors reviews and approves all related party transactions. Director Independence The following board members are independent directors, as defined under the independence standards of the NYSE MKT LLC: Kent Swanson, MichaelLopach, Jon Wickwire, John Deedrick and David Goodman. All of our board committees are comprised solely of independent directors, and the compositionof our board committees is described in Item 10 of this Form 10-K. Item 14. Principal Accountant Fees and Services EKS&H LLLP (“EKS&H”) served as the independent registered public accounting firm to audit our books and accounts for the fiscal years ending December31, 2014 and December 31, 2013. The following table presents the aggregate fees billed for professional services rendered by EKS&H for the years endedDecember 31, 2014 and December 31, 2013. 2014 2013 Audit fees $157,500 $138,500 Audit-related fees $49,546 $11,073 Tax fees $- $- All other fees $- $- In the above table, “audit fees” are fees billed for services provided related to the audit of our annual financial statements, quarterly reviews of our interimfinancial statements and services normally provided by the independent accountant in connection with statutory and regulatory filings or engagements forthose fiscal periods. “Audit-related fees” are fees not included in audit fees that are billed by the independent accountant for assurance and related servicesthat are reasonably related to the performance of the audit or review of our financial statements. “Tax fees” are fees billed by the independent accountant forprofessional services rendered for tax compliance, tax advice and tax planning. “All other fees” are fees billed by the independent accountant for productsand services not included in the foregoing categories. 57 Audit Committee’s Pre-Approval Policy It is the Audit Committee’s policy to approve in advance the types and amounts of audit, audit-related, tax and any other services to be provided by ourindependent accountants. In situations where it is not possible to obtain full Audit Committee approval, the Audit Committee has delegated authority to theChairman of the Audit Committee to grant pre-approval of auditing, audit-related, tax and all other services. Any pre-approved decisions by the Chairman arerequired to be reviewed with the Audit Committee at its next scheduled meeting. The Audit Committee approved 100% of the services provided by EKS&H. PART IV Item 15. Exhibits and Financial Statement Schedules The following documents are filed as part of or are included in this Annual Report on Form 10-K: 1.Financial statements included in Item 8 of this Annual Report; and 2.Exhibits listed in the Exhibit Index filed as part of this Annual Report. 58 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized. BACTERIN INTERNATIONAL HOLDINGS, INC . By: /s/ John Gandolfo Name:John Gandolfo Title:Chief Financial Officer Date:March 18, 2015 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities indicated on March 18, 2015. Signature Title /s/ Daniel Goldberger Chief Executive Officer and Director (Principal Executive Officer)Daniel Goldberger /s/ John Gandolfo Chief Financial Officer (Principal Financial Officer and PrincipalAccounting Officer)John Gandolfo /s/ Kent Swanson DirectorKent Swanson /s/ Michael Lopach DirectorMichael Lopach /s/ Jon Wickwire DirectorJon Wickwire /s/ John Deedrick DirectorJohn Deedrick /s/ David Goodman DirectorDavid Goodman 59 Exhibit Index Exhibit No. Description2.1 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 Amendment of Restated Certificate of Incorporation(4); Restated Certificate of Incorporation (5)3.2 Amended and Restated Bylaws (3)4.1 Form of Warrant to Purchase Common Stock (1)(13)(6)4.2* Form of Common Stock Certificate4.3 Registration Rights Agreement dated March 16, 2015 between Bacterin and Aspine Capital Fund, LLC(19)10.1* Form of Indemnification Agreement for officers and directors10.2 Amended and Restated Bacterin International Equity Incentive Plan (7)10.3 Form of Stock Option Agreement (14) •10.4* Form of Restricted Stock Agreement10.5 Daniel Goldberger Employment Agreement (8) •10.6 Daniel Goldberger Stock Option Agreement (9 ) •10.7 Daniel Goldberger Indemnification Agreement (10 )10.8 John Gandolfo Employment Agreement (11) •10.9* Robert Di Silvio Employment Agreement •10.10* Robert Di Silvio Stock Option Agreement •10.11 Darrel Holmes Employment Agreement (11) •10.12 Greg Juda Employment Agreement (11) •10.13 Credit Agreement dated August 24, 2012 by and between Bacterin and ROS Acquisition Offshore LP (12)10.14 First Amendment to Credit Agreement dated May 16, 2013 by and between Bacterin and ROS Acquisition Offshore LP (15)10.15 Waiver and Second Amendment to Credit Agreement dated August 12, 2013 by and between Bacterin and ROS Acquisition OffshoreLP (16)10.16 Waiver and Third Amendment to Credit Agreement dated August 12, 2013 by and between Bacterin and ROS Acquisition Offshore LP(16)10.17 Fourth Amendment to Credit Agreement dated August 30, 2013 by and between Bacterin and ROS Acquisition Offshore LP (17)10.18 Waiver and Fifth Amendment to Credit Agreement dated November 14, 2013 by and between Bacterin and ROS Acquisition OffshoreLP (10)10.19 Sixth Amendment to Credit Agreement dated March 6, 2014 by and between Bacterin and ROS Acquisition Offshore LP (18)10.20 Royalty Agreement dated August 24, 2012 by and between Bacterin and ROS Acquisition Offshore LP (12)10.21 First Amendment to Royalty Agreement dated August 12, 2013 by and between Bacterin and ROS Acquisition Offshore LP (16)10.22 Common Stock Purchase Agreement dated March 16, 2015 between Bacterin and Aspine Capital Fund, LLC(19)21.1 Subsidiaries of the Registrant (2)23.1* Consent of Independent Accounting Firm, EKS&H LLLP31.1* Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer31.2* Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer32.1** Section 1350 Certification of Chief Executive Officer32.2** Section 1350 Certification of Chief Financial Officer101.INS* XBRL INSTANCE DOCUMENT101.SCH* XBRL TAXONOMY EXTENSION SCHEMA101.CAL* XBRL TAXONOMY EXTENSION CALCULATION LINKBASE101.DEF* XBRL TAXONOMY EXTENSION DEFINITION LINKBASE101.LAB* XBRL TAXONOMY EXTENSION LABEL LINKBASE101.PRE* XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE •Compensation Agreement*Filed herewith**Furnished herewith 60 (1)Incorporated herein by reference to the Registrant’s Form 8-K filed with the SEC on June 30, 2010. (2)Incorporated herein by reference to the Registrant’s Form 8-K filed with the SEC on July 7, 2010. (3)Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on July 11, 2013. (4)Incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the SEC on July 25, 2014. (5)Incorporated by reference to the Registrant’s Form 10-Q filed with the SEC on November 14, 2011. (6)Incorporated by reference to Exhibit 4.1 to Registrant’s Form 8-K filed with the SEC on July 31, 2014. (7)Incorporated by reference to Appendix B of the Registrant’s Proxy Statement filed with the SEC on June 8, 2011. (8)Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on August 15, 2013. (9)Incorporated by reference to the Registrant’s Registration Statement on Form S-8 filed with the SEC on September 19, 2013. (10)Incorporated by reference to the Registrant’s Form 10-Q filed with the SEC on November 14, 2013. (11)Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on July 29, 2014. (12)Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on August 28, 2012. (13)Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on June 5, 2013. (14)Incorporated by reference to the Registrant’s Form 10-Q filed with the SEC on May 4, 2012. (15)Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on May 22, 2013. (16)Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on August 13, 2013. (17)Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on September 4, 2013. (18)Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on March 10, 2014. (19)Incorporated by reference to the Registrant’s Form 8-K filed with the SEC on March 17, 2015 61  Exhibit 4.2  BACTERIN INTERNATIONAL HOLDINGS, INC.CORPORATE STOCK TRANSFER, INC.TRANSFER FEE: AS REQUIRED The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in fullaccording to applicable laws or regulations: TEN COM -as tenants in common TEN ENT -as tenants by the entireties UNIF GIFT MIN ACT -CustodianJT TEN -as joint tenants with right (Cust) (Minor) of survivorship and not as under Uniform Gifts to Minors tenants in common Act (State)Additional abbreviations may also be used though not in the above list. PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE FOR VALUE RECEIVED,____________________________________________hereby sell, assign and transfer unto PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE _________________________________________________________________________________________Sharesof the Common Stock represented by the within Certificate and do hereby irrevocably constitute and appoint ______________________________________________________________________________________Attorney to transfer the said stock on thebooks of the within-named Corporation, with full power of substitution in the premises. Dated:_____________________20_________, Signature: X Signature(s) Guaranteed: Signature: X THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE INEVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. THE SIGNATURE(S) SHOULD BEGUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks, Stockbrokers, Savings and Loan Associations and Credit Unions) WITHMEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.  Exhibit 10.1 INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made as of _________, by and between Bacterin International Holdings, Inc., a Delawarecorporation (the "Company"), and ______________________ ("Indemnitee"). This Agreement supersedes and replaces any and all previous Agreementsbetween the Company and Indemnitee covering the subject matter of this Agreement. RECITALS WHEREAS, highly competent persons have become more reluctant to serve publicly-held corporations as directors and officers unless they areprovided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out oftheir service to and activities on behalf of the corporation; WHEREAS, the Board of Directors of the Company (the "Board") has determined that, in order to attract and retain qualified individuals, theCompany will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiariesfrom certain liabilities. Although the furnishing of such insurance has been a customary and widespread practice among United States-based corporations andother business enterprises, the Company believes that, given current market conditions and trends, such insurance may be available to it in the future only athigher premiums and with more exclusions. At the same time, directors, officers, and other persons in service to corporations or business enterprises are beingincreasingly subjected to expensive and time-consuming litigation relating to, among other things, matters that traditionally would have been brought onlyagainst the Company or business enterprise itself. The By-laws of the Company (the "By-laws") require indemnification of the officers and directors of theCompany. Indemnitee may also be entitled to indemnification pursuant to the General Corporation Law of the State of Delaware (the "DGCL"). The By-lawsand the DGCL expressly provide that the indemnification provisions set forth therein are not exclusive, and thereby contemplate that contracts may beentered into between the Company and members of the board of directors, officers and other persons with respect to indemnification; WHEREAS, the uncertainties relating to such insurance and to indemnification have increased the difficulty of attracting and retaining suchpersons; WHEREAS, the Board has determined that the increased difficulty in attracting and retaining such persons is detrimental to the best interests of theCompany and its stockholders and that the Company should act to assure such persons that there will be increased certainty of such protection in the future; WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses onbehalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern thatthey will not be so indemnified;  WHEREAS, this Agreement is a supplement to and in furtherance of the By-laws, and shall not be deemed a substitute therefor, nor to diminish orabrogate any rights of Indemnitee thereunder; WHEREAS, Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition thathe or she be so indemnified; and NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant andagree as follows: Section 1. Survival. This Agreement shall continue in force after Indemnitee has ceased to serve as an officer or director of the Company, asprovided in Section 16 hereof. Section 2. Definitions. As used in this Agreement: (a) References to "agent" shall mean any person who is or was a director, officer, or employee of the Company or a subsidiary of theCompany or other person authorized by the Company to act for the Company, to include such person serving in such capacity as a director, officer,employee, fiduciary or other official of another corporation, partnership, limited liability company, joint venture, trust or other enterprise at the request of, forthe convenience of, or to represent the interests of the Company or a subsidiary of the Company. (b) A "Change in Control" shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the followingevents: i. Acquisition of Stock by Third Party. Any Person (as defined below) is or becomes the Beneficial Owner (as defined below),directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company's then outstandingsecurities unless the change in relative Beneficial Ownership of the Company's securities by any Person results solely from a reduction in the aggregatenumber of outstanding shares of securities entitled to vote generally in the election of directors; ii. Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to theexecution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated bya person who has entered into an agreement with the Company to effect a transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b)(iv)) whose election by theBoard or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who eitherwere directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute atleast a majority of the members of the Board; -2- iii. Corporate Transactions. The effective date of a merger or consolidation of the Company with any other entity, other than amerger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidationcontinuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 51% of thecombined voting power of the voting securities of the surviving entity outstanding immediately after such merger or consolidation and with the power toelect at least a majority of the board of directors or other governing body of such surviving entity; iv. Liquidation. The approval by the stockholders of the Company of a complete liquidation of the Company or an agreementfor the sale or disposition by the Company of all or substantially all of the Company's assets; and v. Other Events. There occurs any other event of a nature that would be required to be reported in response to Item 6(e) ofSchedule 14A of Regulation 14A (or a response to any similar item on any similar schedule or form) promulgated under the Exchange Act (as defined below),whether or not the Company is then subject to such reporting requirement. For purposes of this Section 2(b), the following terms shall have the following meanings: (A) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended from time to time. (B) "Person" shall have the meaning as set forth in Sections 13(d) and 14(d) of the Exchange Act; provided, however, thatPerson shall exclude (i) the Company, (ii) any trustee or other fiduciary holding securities under an employee benefit plan of the Company,and (iii) any corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as theirownership of stock of the Company. (C) "Beneficial Owner" shall have the meaning given to such term in Rule 13d-3 under the Exchange Act; provided, however,that Beneficial Owner shall exclude any Person otherwise becoming a Beneficial Owner by reason of the stockholders of the Companyapproving a merger of the Company with another entity. (c) "Corporate Status" describes the status of a person who is or was a director, officer, employee or agent of the Company or of anyother corporation, limited liability company, partnership or joint venture, trust or other enterprise which such person is or was serving at the request of theCompany. (d) "Disinterested Director" shall mean a director of the Company who is not and was not a party to the Proceeding in respect of whichindemnification is sought by Indemnitee. -3- (e) "Enterprise" shall mean the Company and any other corporation, limited liability company, partnership, joint venture, trust or otherenterprise of which Indemnitee is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, employee, agent orfiduciary. (f) "Expenses" shall include all reasonable attorneys' fees, retainers, court costs, transcript costs, fees of experts and other professionals,witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, any federal, state, local orforeign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties, andall other disbursements or expenses of the types customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend,investigating, being or preparing to be a witness in, or otherwise participating in, a Proceeding. Expenses also shall include (i) Expenses incurred inconnection with any appeal resulting from any Proceeding, including without limitation the premium, security for, and other costs relating to any cost bond,supersede as bond, or other appeal bond or its equivalent, and (ii) for purposes of Section 14(d) only, Expenses incurred by Indemnitee in connection with theinterpretation, enforcement or defense of Indemnitee's rights under this Agreement, by litigation or otherwise. The parties agree that for the purposes of anyadvancement of Expenses for which Indemnitee has made written demand to the Company in accordance with this Agreement, all Expenses included in suchdemand that are certified by affidavit of Indemnitee's counsel as being reasonable shall be presumed conclusively to be reasonable. Expenses, however, shallnot include amounts paid in settlement by Indemnitee or the amount of judgments or fines against Indemnitee. (g) "Independent Counsel" shall mean a law firm, or a member of a law firm, that is experienced in matters of corporation law andneither presently is, nor in the past five years has been, retained to represent: (i) the Company or Indemnitee in any matter material to either such party (otherthan with respect to matters concerning the Indemnitee under this Agreement, or of other indemnitees under similar indemnification agreements), or (ii) anyother party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall notinclude any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either theCompany or Indemnitee in an action to determine Indemnitee's rights under this Agreement. The Company agrees to pay the reasonable fees and expenses ofthe Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of orrelating to this Agreement or its engagement pursuant hereto. -4- (h) The term "Proceeding" shall include any threatened, pending or completed action, suit, claim, counterclaim, cross claim,arbitration, mediation, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completedproceeding, whether brought in the right of the Company or otherwise and whether of a civil, criminal, administrative, legislative, or investigative (formal orinformal) nature, including any appeal therefrom, in which Indemnitee was, is or will be involved as a party, potential party, non-party witness or otherwiseby reason of the fact that Indemnitee is or was a director or officer of the Company, by reason of any action taken by Indemnitee (or a failure to take action byIndemnitee) or of any action (or failure to act) while acting pursuant to Indemnitee’s Corporate Status, in each case whether or not serving in such capacity atthe time any liability or Expense is incurred for which indemnification, reimbursement, or advancement of Expenses can be provided under this Agreement. Ifthe Indemnitee believes in good faith that a given situation may lead to or culminate in the institution of a Proceeding, this shall be considered a Proceedingunder this paragraph. (i) Reference to "other enterprise" shall include employee benefit plans; references to "fines" shall include any excise tax assessed withrespect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agentof the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, itsparticipants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the best interests of the participants andbeneficiaries of an employee benefit plan shall be deemed to have acted in manner "not opposed to the best interests of the Company" as referred to in thisAgreement. Section 3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this Section3 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding, other than a Proceeding by or in the right of the Company toprocure a judgment in its favor. Pursuant to this Section 3, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against allExpenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection with or inrespect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred by Indemnitee or on his behalf in connectionwith such Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner reasonably believed to be in or not opposed tothe best interests of the Company and, in the case of a criminal Proceeding had no reasonable cause to believe that his or her conduct was unlawful. Theparties hereto intend that this Agreement shall provide to the fullest extent permitted by law for indemnification in excess of that expressly permitted bystatute, including, without limitation, any indemnification provided by the Certificate of Incorporation, the By-laws, vote of its stockholders or disinteresteddirectors or applicable law. Section 4. Indemnity in Proceedings by or in the Right of the Company. The Company shall indemnify Indemnitee in accordance with theprovisions of this Section 4 if Indemnitee is, or is threatened to be made, a party to or a participant in any Proceeding by or in the right of the Company toprocure a judgment in its favor. Pursuant to this Section 4, Indemnitee shall be indemnified to the fullest extent permitted by applicable law against allExpenses actually and reasonably incurred by him or on his behalf in connection with such Proceeding or any claim, issue or matter therein, if Indemniteeacted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company. No indemnification for Expensesshall be made under this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudged by a court to be liable tothe Company, unless and only to the extent that the Delaware Court (as hereinafter defined) or any court in which the Proceeding was brought shall determineupon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled toindemnification. -5- Section 5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful. Notwithstanding any other provisions of thisAgreement, to the fullest extent permitted by applicable law and to the extent that Indemnitee is a party to (or a participant in) and is successful, on the meritsor otherwise, in any Proceeding or in defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify Indemnitee against allExpenses actually and reasonably incurred by him in connection therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, onthe merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee against allExpenses actually and reasonably incurred by him or on his behalf in connection with or related to each successfully resolved claim, issue or matter to thefullest extent permitted by law. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding bydismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Section 6. Indemnification For Expenses of a Witness. Notwithstanding any other provision of this Agreement, to the fullest extent permittedby applicable law and to the extent that Indemnitee is, by reason of his Corporate Status, a witness or otherwise asked to participate in any Proceeding towhich Indemnitee is not a party, Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’sbehalf in connection therewith. Section 7. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company forsome or a portion of Expenses, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion thereof towhich Indemnitee is entitled. Section 8. Additional Indemnification. (a) Notwithstanding any limitation in Sections 3, 4, or 5, the Company shall indemnify Indemnitee to the fullest extent permitted byapplicable law if Indemnitee is a party to or threatened to be made a party to any Proceeding (including a Proceeding by or in the right of the Company toprocure a judgment in its favor) against all Expenses, judgments, fines and amounts paid in settlement (including all interest, assessments and other chargespaid or payable in connection with or in respect of such Expenses, judgments, fines and amounts paid in settlement) actually and reasonably incurred byIndemnitee in connection with the Proceeding. (b) For purposes of Section 8(a), the meaning of the phrase "to the fullest extent permitted by applicable law" shall include, but not belimited to: i. to the fullest extent permitted by the provision of the DGCL that authorizes or contemplates additional indemnification byagreement, or the corresponding provision of any amendment to or replacement of the DGCL, and -6- ii. to the fullest extent authorized or permitted by any amendments to or replacements of the DGCL adopted after the date ofthis Agreement that increase the extent to which a corporation may indemnify its officers and directors. Section 9. Exclusions. Notwithstanding any provision in this Agreement, the Company shall not be obligated under this Agreement to makeany indemnification payment in connection with any claim made against Indemnitee: (a) for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision,except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision; or (b) for (i) an accounting of profits made from the purchase and sale (or sale and purchase) by Indemnitee of securities of the Companywithin the meaning of Section 16(b) of the Exchange Act (as defined in Section 2(b) hereof) or similar provisions of state statutory law or common law, or (ii)any reimbursement of the Company by the Indemnitee of any bonus or other incentive-based or equity-based compensation or of any profits realized by theIndemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements that arise froman accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), or the payment to theCompany of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act); or (c) except as provided in Section 14(d) of this Agreement, in connection with any Proceeding (or any part of any Proceeding) initiatedby Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees orother indemnitees, unless (i) the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation or (ii) the Company provides theindemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law. Section 10. Advances of Expenses. Notwithstanding any provision of this Agreement to the contrary (other than Section 14(d)), the Companyshall advance, to the extent not prohibited by law, the Expenses incurred by Indemnitee in connection with any Proceeding (or any part of any Proceeding)not initiated by Indemnitee, and such advancement shall be made within thirty (30) days after the receipt by the Company of a statement or statementsrequesting such advances from time to time, whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and interest free.Advances shall be made without regard to Indemnitee's ability to repay the Expenses and without regard to Indemnitee's ultimate entitlement toindemnification under the other provisions of this Agreement. In accordance with Section 14(d), advances shall include any and all reasonable Expensesincurred pursuing an action to enforce this right of advancement, including Expenses incurred preparing and forwarding statements to the Company tosupport the advances claimed. The Indemnitee shall qualify for advances upon the execution and delivery to the Company of this Agreement, which shallconstitute an undertaking providing that the Indemnitee undertakes to repay the amounts advanced (without interest) to the extent that it is ultimatelydetermined that Indemnitee is not entitled to be indemnified by the Company. No other form of undertaking shall be required other than the execution of thisAgreement. This Section 10 shall not apply to any claim made by Indemnitee for which indemnity is excluded pursuant to Section 9. -7- Section 11. Procedure for Notification and Defense of Claim. (a) Indemnitee shall notify the Company in writing of any matter with respect to which Indemnitee intends to seek indemnification oradvancement of Expenses hereunder as soon as reasonably practicable following the receipt by Indemnitee of written notice thereof. The written notificationto the Company shall include a description of the nature of the Proceeding and the facts underlying the Proceeding. To obtain indemnification under thisAgreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonablyavailable to Indemnitee and is reasonably necessary to determine whether and to what extent Indemnitee is entitled to indemnification following the finaldisposition of such Proceeding. The omission by Indemnitee to notify the Company hereunder will not relieve the Company from any liability which it mayhave to Indemnitee hereunder or otherwise than under this Agreement, and any delay in so notifying the Company shall not constitute a waiver byIndemnitee of any rights under this Agreement. The Secretary of the Company shall, promptly upon receipt of such a request for indemnification, advise theBoard in writing that Indemnitee has requested indemnification. (b) The Company will be entitled to participate in the Proceeding at its own expense. Section 12. Procedure Upon Application for Indemnification. (a) Upon written request by Indemnitee for indemnification pursuant to Section 11(a), a determination, if required by applicable law,with respect to Indemnitee's entitlement thereto shall be made in the specific case: (i) if a Change in Control shall have occurred, by Independent Counsel ina written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change in Control shall not have occurred, (A) by a majority voteof the Disinterested Directors, even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote ofthe Disinterested Directors, even though less than a quorum of the Board, (C) if there are no such Disinterested Directors or, if such Disinterested Directors sodirect, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee or (D) if so directed by the Board, by thestockholders of the Company; and, if it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10)days after such determination. Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee'sentitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or informationwhich is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to suchdetermination. Any costs or Expenses (including attorneys' fees and disbursements) incurred by Indemnitee in so cooperating with the person, persons orentity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee's entitlement to indemnification) andthe Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom. The Company promptly will advise Indemnitee in writing with respectto any determination that Indemnitee is or is not entitled to indemnification, including a description of any reason or basis for which indemnification hasbeen denied. -8- (b) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a)hereof, the Independent Counsel shall be selected as provided in this Section 12(b). If a Change in Control shall not have occurred, the Independent Counselshall be selected by the Board, and the Company shall give written notice to Indemnitee advising him of the identity of the Independent Counsel so selected.If a Change in Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless Indemnitee shall request that such selection bemade by the Board, in which event the preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising it of the identityof the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice ofselection shall have been given, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, thatsuch objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of "Independent Counsel" asdefined in Section 2 of this Agreement, and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timelyobjection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel soselected may not serve as Independent Counsel unless and until such objection is withdrawn or the Delaware Court has determined that such objection iswithout merit. If, within twenty (20) days after the later of submission by Indemnitee of a written request for indemnification pursuant to Section 11(a) hereofand the final disposition of the Proceeding, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee maypetition the Delaware Court for resolution of any objection which shall have been made by the Company or Indemnitee to the other's selection ofIndependent Counsel and/or for the appointment as Independent Counsel of a person selected by such court or by such other person as such court shalldesignate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel underSection 12(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 14(a) of this Agreement, IndependentCounsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct thenprevailing). Section 13. Presumptions and Effect of Certain Proceedings. (a) In making a determination with respect to entitlement to indemnification hereunder, the person or persons or entity making suchdetermination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemniteehas submitted a request for indemnification in accordance with Section 11(a) of this Agreement, and the Company shall, to the fullest extent not prohibitedby law, have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contraryto that presumption. Neither the failure of the Company (including by its directors or Independent Counsel) to have made a determination prior to thecommencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicablestandard of conduct, nor an actual determination by the Company (including by its directors or Independent Counsel) that Indemnitee has not met suchapplicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. -9- (b) Subject to Section 14(e), if the person, persons or entity empowered or selected under Section 12 of this Agreement to determinewhether Indemnitee is entitled to indemnification shall not have made a determination within sixty (60) days after receipt by the Company of the requesttherefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made andIndemnitee shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary tomake Indemnitee's statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnificationunder applicable law; provided, however, that such 60-day period may be extended for a reasonable time, not to exceed an additional thirty (30) days, if theperson, persons or entity making the determination with respect to entitlement to indemnification in good faith requires such additional time for theobtaining or evaluating of documentation and/or information relating thereto; and provided, further, that the foregoing provisions of this Section 13(b) shallnot apply (i) if the determination of entitlement to indemnification is to be made by the stockholders pursuant to Section 12(a) of this Agreement and if (A)within fifteen (15) days after receipt by the Company of the request for such determination the Board has resolved to submit such determination to thestockholders for their consideration at an annual meeting thereof to be held within seventy-five (75) days after such receipt and such determination is madethereat, or (B) a special meeting of stockholders is called within fifteen (15) days after such receipt for the purpose of making such determination, suchmeeting is held for such purpose within sixty (60) days after having been so called and such determination is made thereat, or (ii) if the determination ofentitlement to indemnification is to be made by Independent Counsel pursuant to Section 12(a) of this Agreement. (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon aplea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right ofIndemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he reasonably believed to be in or notopposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or herconduct was unlawful. (d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith if Indemnitee's action isbased on the records or books of account of the Enterprise, including financial statements, or on information supplied to Indemnitee by the directors orofficers of the Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or on information or records given or reports made tothe Enterprise by an independent certified public accountant or by an appraiser or other expert selected with the reasonable care by the Enterprise. Theprovisions of this Section 13(d) shall not be deemed to be exclusive or to limit in any way the other circumstances in which the Indemnitee may be deemed tohave met the applicable standard of conduct set forth in this Agreement. -10- (e) The knowledge and/or actions, or failure to act, of any director, officer, trustee, partner, managing member, fiduciary, agent oremployee of the Enterprise shall not be imputed to Indemnitee for purposes of determining the right to indemnification under this Agreement. Section 14. Remedies of Indemnitee. (a) Subject to Section 14(e), in the event that (i) a determination is made pursuant to Section 12 of this Agreement that Indemnitee isnot entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 10 of this Agreement, (iii) nodetermination of entitlement to indemnification shall have been made pursuant to Section 12(a) of this Agreement within ninety (90) days after receipt by theCompany of the request for indemnification, (iv) payment of indemnification is not made pursuant to Section 5, 6 or 7 or the last sentence of Section 12(a) ofthis Agreement within ten (10) days after receipt by the Company of a written request therefor, (v) payment of indemnification pursuant to Section 3, 4 or 8 ofthis Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, or (vi) in the event thatthe Company or any other person takes or threatens to take any action to declare this Agreement void or unenforceable, or institutes any litigation or otheraction or Proceeding designed to deny, or to recover from, the Indemnitee the benefits provided or intended to be provided to the Indemnitee hereunder,Indemnitee shall be entitled to an adjudication by a court of his entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee,at his option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the AmericanArbitration Association. Indemnitee shall commence such proceeding seeking an adjudication or an award in arbitration within 180 days following the dateon which Indemnitee first has the right to commence such proceeding pursuant to this Section 14(a); provided, however, that the foregoing clause shall notapply in respect of a proceeding brought by Indemnitee to enforce his rights under Section 5 of this Agreement. The Company shall not oppose Indemnitee'sright to seek any such adjudication or award in arbitration. (b) In the event that a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is not entitledto indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 14 shall be conducted in all respects as a de novo trial, orarbitration, on the merits and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitrationcommenced pursuant to this Section 14 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement ofExpenses, as the case may be. -11- (c) If a determination shall have been made pursuant to Section 12(a) of this Agreement that Indemnitee is entitled to indemnification,the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 14, absent (i) amisstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee's statement not materially misleading, inconnection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law. (d) The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding orarbitration commenced pursuant to this Section 14 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shallstipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement. It is the intent of the Companythat, to the fullest extent permitted by law, the Indemnitee not be required to incur legal fees or other Expenses associated with the interpretation,enforcement or defense of Indemnitee's rights under this Agreement by litigation or otherwise because the cost and expense thereof would substantiallydetract from the benefits intended to be extended to the Indemnitee hereunder. The Company shall, to the fullest extent permitted by law, indemnifyIndemnitee against any and all Expenses and, if requested by Indemnitee, shall (within ten (10) days after receipt by the Company of a written requesttherefor) advance, to the extent not prohibited by law, such Expenses to Indemnitee, which are incurred by Indemnitee in connection with any action broughtby Indemnitee for indemnification or advance of Expenses from the Company under this Agreement or under any directors' and officers' liability insurancepolicies maintained by the Company if, in the case of indemnification, Indemnitee is wholly successful on the underlying claims; if Indemnitee is not whollysuccessful on the underlying claims, then such indemnification shall be only to the extent Indemnitee is successful on such underlying claims or otherwise aspermitted by law, whichever is greater. (e) Notwithstanding anything in this Agreement to the contrary, no determination as to entitlement of Indemnitee to indemnificationunder this Agreement shall be required to be made prior to the final disposition of the Proceeding. Section 15. Non-exclusivity; Survival of Rights; Insurance; Subrogation. (a) The rights of indemnification and to receive advancement of Expenses as provided by this Agreement shall not be deemedexclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the Certificate of Incorporation, the By-laws, anyagreement, a vote of stockholders or a resolution of directors, or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereofshall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in his Corporate Status priorto such amendment, alteration or repeal. To the extent that a change in Delaware law, whether by statute or judicial decision, permits greater indemnificationor advancement of Expenses than would be afforded currently under the By-laws and this Agreement, it is the intent of the parties hereto that Indemniteeshall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any otherright or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafterexisting at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrentassertion or employment of any other right or remedy. -12- (b) To the extent that the Company maintains an insurance policy or policies providing liability insurance for directors, officers,employees, or agents of the Enterprise, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent ofthe coverage available for any such director, officer, employee or agent under such policy or policies. If, at the time of the receipt of a notice of a claimpursuant to the terms hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such claim or of thecommencement of a Proceeding, as the case may be, to the insurers in accordance with the procedures set forth in the respective policies. The Company shallthereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Proceedingin accordance with the terms of such policies. (c) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of therights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of suchdocuments as are necessary to enable the Company to bring suit to enforce such rights. (d) The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for whichadvancement is provided hereunder) hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy,contract, agreement or otherwise. (e) The Company's obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of theCompany as a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, limited liability company,partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount Indemnitee has actually received asindemnification or advancement of Expenses from such other corporation, limited liability company, partnership, joint venture, trust or other enterprise. Section 16. Duration of Agreement. This Agreement shall continue until and terminate upon the later of: (a) ten (10) years after the date thatIndemnitee shall have ceased to serve as a director, officer, employee or agent of the Company or (b) one (1) year after the final termination of any Proceedingthen pending in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commencedby Indemnitee pursuant to Section 14 of this Agreement relating thereto. The indemnification and advancement of expenses rights provided by or grantedpursuant to this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct orindirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to anIndemnitee who has ceased to be a director, officer, employee or agent of the Company or of any other Enterprise, and shall inure to the benefit of Indemniteeand his or her spouse, assigns, heirs, devisees, executors and administrators and other legal representatives. -13- Section 17. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reasonwhatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including without limitation, each portion of anySection of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shallnot in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall bedeemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullestextent possible, the provisions of this Agreement (including, without limitation, each portion of any Section of this Agreement containing any suchprovision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intentmanifested thereby. Section 18. Enforcement. (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on ithereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon thisAgreement in serving as a director or officer of the Company. (b) This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedesall prior agreements and understandings, oral, written and implied, between the parties hereto with respect to the subject matter hereof; provided, however,that this Agreement is a supplement to and in furtherance of the Certificate of Incorporation, the By-laws and applicable law, and shall not be deemed asubstitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder. Section 19. Modification and Waiver. No supplement, modification or amendment of this Agreement shall be binding unless executed inwriting by the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions of thisAgreement nor shall any waiver constitute a continuing waiver. Section 20. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in writing upon being served with any summons,citation, subpoena, complaint, indictment, information or other document relating to any Proceeding or matter which may be subject to indemnification oradvancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company shall not relieve the Company of any obligation which itmay have to the Indemnitee under this Agreement or otherwise. -14- Section 21. Notices. All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed tohave been duly given if (a) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, (b) mailedby certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed, (c) mailed by reputable overnight courierand receipted for by the party to whom said notice or other communication shall have been directed or (d) sent by facsimile transmission, with receipt of oralconfirmation that such transmission has been received: (a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or such other address as Indemnitee shall provideto the Company. (b) If to the Company to Bacterin International Holdings, Inc.664 Cruiser LaneBelgrade, MT 59714Attn: General Counsel or to any other address as may have been furnished to Indemnitee by the Company. Section 22. Contribution. To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement isunavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred byIndemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claimrelating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of suchProceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause tosuch Proceeding; and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with suchevent(s) and/or transaction(s). Section 23. Applicable Law and Consent to Jurisdiction. This Agreement and the legal relations among the parties shall be governed by, andconstrued and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. Except with respect to anyarbitration commenced by Indemnitee pursuant to Section 14(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i)agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Chancery Court of the State of Delaware(the "Delaware Court"), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit tothe exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, tothe extent such party is not otherwise subject to service of process in the State of Delaware, irrevocably RL&F Service Corp., 920 North King Street, 2ndFloor, Wilmington, New Castle County, Delaware 19801 as its agent in the State of Delaware as such party's agent for acceptance of legal process inconnection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within theState of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not toplead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum. -15- Section 24. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes bedeemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whomenforceability is sought needs to be produced to evidence the existence of this Agreement. Section 25. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of the feminine pronoun where appropriate. Theheadings of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the constructionthereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as of the day and year first above written. Bacterin International Holdings, Inc. INDEMNITEE By: Name: Name: Office: Address: -16-  Exhibit 10.4 BACTERIN INTERNATIONAL EQUITY INCENTIVE PLAN RESTRICTED STOCK AGREEMENT This Agreement between Bacterin International Holdings, Inc. (the “Company”) and ________________ (the “Participant”) shall be effective as ofthe date of grant. The Company and Participant agree as follows: 1.Grant of Restricted Stock. Participant is hereby granted Restricted Stock of the Company pursuant to the Amended and Restated BacterinInternational Equity Incentive Plan (the "Plan"). This Agreement is subject to and shall be construed in accordance with the terms and conditions ofthe Plan, as now or hereinafter in effect. Any terms which are used in this Agreement without being defined and which are defined in the Plan shallhave the meaning specified in the Plan. 2.Date of Grant. The date of the grant of the Restricted Stock is ______________. 3.Number and Price of Shares. The number of Shares of Restricted Stock granted is _________. The Fair Market Value per Share on date of grant is$____. 4.Vesting. The Restricted Stock granted hereby shall become fully vested on ___________. In order to be vested in Shares of Restricted Stock in accordance with the schedule, the Participant must have been continuously serving as_____________ from the Date of Grant until the vesting date. Acceleration of Exercisability. Upon a Change in Control of the Company, all Restricted Shares under this Agreement shall immediately be 100%vested without regard to the vesting restrictions contained in this Restricted Stock Agreement. 5.Legends. Certificates representing vested Shares may contain such legends and transfer restrictions as the Company shall deem reasonably necessaryor desirable, including, without limitation, legends restricting transfer of the Stock until there has been compliance with federal and state securitieslaws. 6.Receipt of Plan. By entering into this Agreement, Participant acknowledges (i) that he or she has received and read a copy of the Plan and (ii) thatthis Agreement is subject to and shall be construed in accordance with the terms and conditions of the Plan, as now or hereinafter in effect. Byentering into this Agreement, Participant further acknowledges that all grants under the Plan are determined by the Committee in its sole discretionand that nothing contained in the Plan or in any grant under the Plan shall confer a right or entitlement to receive any further grants in the future. Restricted Stock Agreement with _____1 IN WITNESS WHEREOF, the Company, by a duly authorized officer of the Company, and Participant have executed this Agreement, effective as ofthe date of grant. BACTERIN INTERNATIONAL HOLDINGS, INC. By: Title: Date: PARTICIPANT By: Date: Address: Restricted Stock Agreement with _____2  Exhibit 10.9 EMPLOYMENT AGREEMENT This Employment Agreement (“Agreement”) is effective as of July 1, 2014 (“Effective Date”), by and between Bacterin International, Inc., a Nevadacorporation (the “Company”), and Robert Di Silvio, an individual (“Employee”). In consideration of the mutual promises, covenants and agreements contained in this Agreement, and other good and valuable consideration, the receipt andsufficiency of which is hereby acknowledged, the Parties agree as follows: 1. EMPLOYMENT AND DUTIES. A. Job Title and Responsibilities. The Company hereby employs Employee, and Employee hereby agrees to be employed, as Presidentreporting to the Chief Executive Officer. Employee’s title and responsibilities may change during the course of Employee’s employment with Employer, butthe terms of this Agreement shall remain in full force and effect regardless of any change in Employee’s title or responsibilities. B. Full-Time Best Efforts. Employee agrees to devote Employee’s full professional time and attention to the business of the Company (andits subsidiaries, affiliates, or related entities) and the performance of Employee’s obligations under this Agreement, and will at all times faithfully,industriously and to the best of Employee’s ability, experience and talent, perform all of Employee’s obligations hereunder. Employee shall not, at any timeduring Employee’s employment by the Company, directly or indirectly, act as a partner, officer, director, consultant, employee, or provide services in anyother capacity to any other business enterprise that conflicts with the Company’s business or Employee’s duty of loyalty to the Company. Without limitingthe generality of the foregoing, Employee has disclosed that he currently serves on the board of directors of two companies. Employee shall seek the writtenconsent of the Company prior to accepting any further outside board positions or prior to materially expanding his role on the current boards on which heserves. C. Duty of Loyalty. Employee acknowledges that during Employee’s employment with the Company, Employee has participated in and willparticipate in relationships with existing and prospective clients, customers, partners, suppliers, service providers and vendors of the Company that areessential elements of the Company’s goodwill. The parties acknowledge that Employee owes the Company a fiduciary duty to conduct all affairs of theCompany in accordance with all applicable laws and the highest standards of good faith, trust, confidence and candor, and to endeavor, to the best ofEmployee’s ability, to promote the best interests of the Company. D. Conflict of Interest. Employee agrees that while employed by the Company, and except with the advance written consent of a dulyauthorized officer of the Company, Employee will not enter into, on behalf of the Company, or cause the Company or any of its affiliates to enter into,directly or indirectly, any transactions with any business organization in which Employee or any member of Employee’s immediate family may be interestedas a shareholder, partner, member, trustee, director, officer, employee, consultant, lender or guarantor or otherwise; provided, however, that nothing in thisAgreement shall restrict transactions between the Company and any company whose stock is listed on a national securities exchange or actively traded in theover-the-counter market and over which Employee does not have the ability to control or significantly influence policy decisions. Confidential: Employment Agreement: Robert Di SilvioPlease initial each page: Page 1 2. COMPENSATION. A. Base Pay. The Company agrees to pay Employee gross annual compensation of $325,000, less usual and customary withholdings, whichshall be payable in arrears in accordance with the Company’s customary payroll practices. B. Bonus and Incentive Compensation. Employee shall also be eligible for bonus and incentive based compensation approved by theCompensation Committee of the Board of Directors from time to time. The target bonus compensation will be 50% of base pay. Such bonus and incentivecompensation shall be paid in accordance with the bonus and incentive compensation plan documents adopted by the Company, or in the absence of suchplan documents, no later than 2-1/2 months following the year in which the bonus or incentive compensation vests. C. Stock Option. Subject to the approval of the Compensation Committee of the Company’s Board of Directors, the Company will causeBacterin International Holdings, Inc. (“BONE”) to grant Employee an option to purchase 550,000 shares of BONE common stock at an exercise price equalto the closing price of BONE common stock on the second trading day following the Company’s second quarter earnings release (the “Option”). The Optionwill vest as follows: (i) twenty percent (20%), or 110,000 underlying shares, will vest on the first anniversary of the date of grant, and (ii) the remainingeighty percent (80%) will vest in forty- seven (47) equal monthly installments as to 9,170 underlying shares, beginning one month after the first anniversaryof the date of grant, and one final installment as to 9,010 underlying shares. Employee must remain employed by the Company for vesting to occur. Upon aChange in Control as defined in the Company’s Amended and Restated Equity Incentive Plan, the entire Option shall immediately be 100% vested withoutregard to the schedule contained in the Option agreement and the entire Option shall become immediately exercisable in full during its remaining term. D. Benefits. During Employee’s employment, Employee will be eligible to participate in the Company’s benefit programs, as summarizedand as governed by any plan documents concerning such benefits. Employee will be eligible for three weeks of paid vacation per year, subject to theCompany’s carryover policy. 3. PROPRIETARY INFORMATION. A. Employee understands that during Employee’s employment relationship with the Company, the Company intends to provide Employeewith information, including Proprietary Information (as defined herein), without which Employee would not be able to perform Employee’s duties to theCompany. Employee agrees, at all times during the term of Employee’s employment relationship and thereafter, to hold in strictest confidence, and not to useor disclose, except for the benefit of the Company to the extent necessary to perform Employee’s obligations to the Company, any Proprietary Informationthat Employee obtains, accesses or creates during the term of the relationship, whether or not during working hours, until such Proprietary Informationbecomes publicly and widely known and made generally available through no wrongful act of Employee or of others under confidentiality obligations as tothe information involved. Employee understands that “Proprietary Information” means information and physical material not generally known or availableoutside the Company and information and physical material entrusted to the Company by third parties under an obligation of non-disclosure or non-use orboth. “Proprietary Information” includes, without limitation, inventions, technical data, trade secrets, marketing ideas or plans, research, product or serviceideas or plans, business strategies, investments, investment opportunities, potential investments, market studies, industry studies, historical financial data,financial information and results, budgets, identity of customers, forecasts (financial or otherwise), possible or pending transactions, customer lists anddomain names, price lists, and pricing methodologies. Confidential: Employment Agreement: Robert DiSilvioPlease initial each page: Page 2 B. At all times, both during Employee’s employment and after its termination, Employee will keep and hold all such Proprietary Information instrict confidence and trust. Employee will not use or disclose any Proprietary Information without the prior written consent of the Company, except as may benecessary to perform Employee’s duties as an employee of the Company for the benefit of the Company. Employee may disclose information that Employeeis required to disclose by valid order of a government agency or court of competent jurisdiction, provided that Employee will: (i)notify the Company in writing immediately upon learning that such an order may be sought or issued, (ii)cooperate with the Company as reasonably requested if the Company seeks to contest such order or to place protective restrictions on thedisclosure pursuant to such order, and (iii)comply with any protective restrictions in such order, and disclose only the information specified in the order. C. Upon termination of employment with the Company, Employee will promptly deliver to the Company all documents and materials of anynature pertaining to Employee’s work with the Company. D. Employee agrees not to infringe the copyright of the Company, its customers or third parties (including, without limitation, Employee’sprevious employer, customers, etc.) by unauthorized or unlawful copying, modifying or distributing of copyrighted material, including plans, drawings,reports, financial analyses, market studies, computer software and the like. 4. COVENANT NOT TO COMPETE. A. Noncompetition Covenant. Employee agrees that during the Restricted Period (as defined below), without the prior written consent of theCompany, Employee shall not, directly or indirectly within the Territory (as defined below): (i) personally, by agency, as an employee, independentcontractor, consultant, officer, director, manager, agent, associate, investor (other than as a passive investor holding less than five percent of the outstandingequity of an entity), or by any other artifice or device, engage in any Competitive Business (as defined below), (ii) assist others, including but not limited toemployees of the Company, to engage in any Competitive Business, or (iii) own, purchase, finance, organize or take preparatory steps to own, purchase,finance, or organize a Competitive Business. B. Definitions. 1. “Competitive Business” means (i) any person, entity or organization which is engaged in or about to become engaged in researchon, consulting regarding, or development, production, marketing or selling of any product, process, technology, device, invention or service whichresembles, competes with or is intended to resemble or compete with a product, process, technology, device, invention or service of the Company; or (ii) anyother line of business that was conducted by the Company or that Employee knows or reasonably should know the Company or any affiliate, successor orrelated entity, at any time during the term of Employee’s employment with the Company, is actively preparing to pursue. Confidential: Employment Agreement: Robert DiSilvioPlease initial each page: Page 3 2. “Territory” means the United States of America. 3. “Restricted Period” means the period of Employee’s employment with the Company and for a period of six (6) months followingthe termination of Employee’s employment; provided that if such termination is of a type that results in severance under Paragraph 12B (or would result inseverance if Employee had been employed for twelve (12) full months), the Restricted Period after termination shall be the period of severance, if any,following such termination. 5. NON-SOLICITATION AND NON-INTERFERENCE COVENANTS. A. Nonsolicitation of Employees and Others. During the Restricted Period, (a) Employee shall not, directly or indirectly, solicit, recruit, orinduce, or attempt to solicit, recruit or induce any employee, consultant, independent contractor, vendor, supplier, or agent to terminate or otherwiseadversely affect his or her employment or other business relationship (or prospective employment or business relationship) with the Company, and (b)Employee shall not, directly or indirectly, solicit, recruit, or induce, or attempt to solicit, recruit or induce any employee to work for Employee or any otherperson or entity, other than the Company or its affiliates or related entities. B. Nonsolicitation of Customers. During the Restricted Period, Employee shall not, directly or indirectly, solicit, recruit, or induce anyCustomer (as defined below) for the purpose of (i) providing any goods or services related to a Competitive Business, or (ii) interfering with or otherwiseadversely affecting the contracts or relationships, or prospective contracts or relationships, between the Company (including any related or affiliated entities)and such Customers. “Customer” means a person or entity with which Employee had contact or about whom Employee gained information while anEmployee of the Company, and to which the Company was selling or providing products or services, was in active negotiations for the sale of its products orservices, or was otherwise doing business as of the date of the cessation of Employee’s employment with the Company or for whom the Company hadotherwise done business within the twelve (12) month period immediately preceding the cessation of Employee’s employment with the Company. 6. ACKNOWLEDGEMENTS. Employee acknowledges and agrees that; A. The geographic and duration restrictions contained in Paragraphs 4 and 5 of this Agreement are fair, reasonable, and necessary to protectthe Company’s legitimate business interests and trade secrets, given the geographic scope of the Company’s business operations, the competitive nature ofthe Company’s business, and the nature of Employee’s position with the Company; B. Employee’s employment creates a relationship of confidence and trust between Employee and the Company with respect to theProprietary Information, and Employee will have access to Proprietary Information (including but not limited to trade secrets) that would be valuable oruseful to the Company’s competitors; Confidential: Employment Agreement: Robert DiSilvioPlease initial each page: Page 4 C. The Company’s Proprietary Information is a valuable asset of the Company, and any violation of the restrictions set forth in thisAgreement would cause substantial injury to the Company; D. The restrictions contained in this Agreement will not unreasonably impair or infringe upon Employee’s right to work or earn a living afterEmployee’s employment with the Company ends; and E. This Agreement is a contract for the protection of trade secrets under applicable law and is intended to protect the Proprietary Information(including trade secrets)identified above. 7. “BLUE PENCIL” AND SEVERABILITY PROVISION. If a court of competent jurisdiction declares any provision of this Agreement invalid,void, voidable, or unenforceable, the court shall reform such provision(s) to render the provision(s) enforceable, but only to the extent absolutely necessaryto render the provision(s) enforceable and only in view of the Parties’ express desire that the Company be protected to the greatest possible extent underapplicable law from improper competition and the misuse or disclosure of trade secrets and Proprietary Information. To the extent such a provision (orportion thereof) may not be reformed so as to make it enforceable, it may be severed and the remaining provisions shall remain fully enforceable. 8. INVENTIONS. A. Inventions Retained and Licensed. Attached as Exhibit A is a list describing all inventions and information created, discovered ordeveloped by Employee, whether or not patentable or registrable under patent, copyright or similar statutes, made or conceived or reduced to practice orlearned by Employee, either alone or with others before Employee’s employment with the Company (“Prior Inventions”), which belong in whole or in part toEmployee, and which are not being assigned by Employee to the Company. Employee represents that Exhibit A is complete and contains no confidential orproprietary information belonging to a person or entity other than Employee. Employee acknowledges and agrees that Employee has no rights in anyInventions (as that term is defined below) other than the Prior Inventions listed on Exhibit A. If there is nothing identified on Exhibit A, Employee representsthat there are no Prior Inventions as of the time of signing this Agreement. Employee shall not incorporate, or permit to be incorporated, any Prior Inventionowned by Employee or in which he/she has an interest in a Company product, process or machine without the Company’s prior written consent.Notwithstanding the foregoing, if, in the course of Employee’s employment with the Company, Employee directly or indirectly incorporates into a Companyproduct, process or machine a Prior Invention owned by Employee or in which Employee has an interest, the Company is hereby granted and shall have anon-exclusive, royalty-free, irrevocable, perpetual, world-wide license to make, have made, modify, use, create derivative works from and sell such PriorInvention as part of or in connection with such product, process or machine. Confidential: Employment Agreement: Robert DiSilvioPlease initial each page: Page 5 B. Assignment Of Inventions. Employee shall promptly make full, written disclosure to the Company, will hold in trust for the sole right andbenefit of the Company, and hereby irrevocably transfers and assigns, and agrees to transfer and assign, to the Company, or its designee, all his/her right, titleand interest in and to any and all inventions, original works of authorship, developments, concepts, improvements, designs, discoveries, ideas, trademarks(and all associated goodwill), mask works, or trade secrets, whether or not they may be patented or registered under copyright or similar laws, whichEmployee may solely or jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, during Employee’semployment by the Company (the “Inventions”). Employee further acknowledges that all original works of authorship which are made by Employee (solelyor jointly with others) within the scope of and during the period of his/her employment with the Company and which may be protected by copyright are“Works Made For Hire” as that term is defined by the United States Copyright Act. Employee understands and agrees that the decision whether tocommercialize or market any Invention developed by Employee solely or jointly with others is within the Company’s sole discretion and the Company’ssole benefit and that no royalty will be due to Employee as a result of the Company’s efforts to commercialize or market any such invention. Employee recognizes that Inventions relating to his or her activities while working for the Company and conceived or made by Employee,whether alone or with others, within one (1) year after cessation of Employee’s employment, may have been conceived in significant part while employed bythe Company. Accordingly, Employee acknowledges and agrees that such Inventions shall be presumed to have been conceived during Employee’semployment with the Company and are to be, and hereby are, assigned to the Company unless and until Employee has established the contrary. C. Maintenance of Records. Employee agrees to keep and maintain adequate and current written records of all Inventions made by Employee(solely or jointly with others) during his/her employment with the Company. The records will be in the form of notes, sketches, drawings and any otherformat that may be specified by the Company. The records will be available to and remain the sole property of the Company at all times. D. Patent, Trademark and Copyright Registrations. Employee agrees to assist the Company, or its designee, at the Company’s expense, inevery proper way to secure the Company’s rights in the Inventions and any copyrights, patents, trademarks, service marks, mask works, or any otherintellectual property rights in any and all countries relating thereto, including, but not limited to, the disclosure to the Company of all pertinent informationand data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments the Company reasonably deemsnecessary in order to apply for and obtain such rights and in order to assign and convey to the Company, its successors, assigns, and nominees the sole andexclusive rights, title, and interest in and to such inventions, and any copyrights, patents, trademarks, service marks, mask works, or any other intellectualproperty rights relating thereto. Employee further agrees that his/her obligation to execute or cause to be executed, when it is in his/her power to do so, anysuch instrument or paper shall continue after termination or expiration of this Agreement or the cessation of his/her employment with the Company. If theCompany is unable because of Employee’s mental or physical incapacity or for any other reason, after reasonably diligent efforts, to secure Employee’ssignature to apply for or to pursue any application for any United States or foreign patents, trademarks or copyright registrations covering inventions ororiginal works of authorship assigned to the Company as above, then Employee hereby irrevocably designates and appoints the Company and its dulyauthorized officers and agents as Employee’s agent and attorney-in-fact to act for and in his/her behalf and stead to execute and file any such applicationsand to do all other lawfully permitted acts to further the prosecution and issuance of letters patent, trademarks or copyright registrations thereon with thesame legal force and effect as if executed by Employee; this power of attorney shall be a durable power of attorney which shall come into existence uponEmployee’s mental or physical incapacity. Confidential: Employment Agreement: Robert DiSilvioPlease initial each page: Page 6 9. SURVIVAL AND REMEDIES. Employee’s obligations of nondisclosure, nonsolicitation, noninterference, and noncompetition under thisAgreement shall survive the cessation of Employee’s employment with the Company and shall remain enforceable. In addition, Employee acknowledges thatupon a breach or threatened breach of any obligation of nondisclosure, nonsolicitation, noninterference, or noncompetition of this Agreement, the Companymay suffer irreparable harm and damage for which money alone cannot fully compensate the Company. Employee therefore agrees that upon such breach orthreat of imminent breach of any such obligation, the Company shall be entitled to seek a temporary restraining order, preliminary injunction, permanentinjunction or other injunctive relief, without posting any bond or other security, barring Employee from violating any such provision. This Paragraph shallnot be construed as an election of any remedy, or as a waiver of any right available to the Company under this Agreement or the law, including the right toseek damages from Employee for a breach of any provision of this Agreement and the right to require Employee to account for and pay over to the Companyall profits or other benefits derived or received by Employee as the result of such a breach, nor shall this Paragraph be construed to limit the rights or remediesavailable under state law for any violation of any provision of this Agreement. 10. RETURN OF COMPANY PROPERTY. All devices, records, reports, data, notes, compilations, lists, proposals, correspondence, specifications,equipment, drawings, blueprints, manuals, DayTimers, planners, calendars, schedules, discs, data tapes, financial plans and information, or other recordedmatter, whether in hard copy, magnetic media or otherwise (including all copies or reproductions made or maintained, whether on the Company’s premises orotherwise), pertaining to Employee’s work for the Company, or relating to the Company or the Company’s Proprietary Information, whether created ordeveloped by Employee alone or jointly during his/her employment with the Company, are the exclusive property of the Company. Employee shallsurrender the same (as well as any other property of the Company) to the Company upon its request or promptly upon the cessation of employment. Uponcessation of Employee’s employment, Employee agrees to sign and deliver the “Termination Certificate” attached as Exhibit B, which shall detail allCompany property that is surrendered upon cessation of employment 11. NO CONFLICTING AGREEMENTS OR IMPROPER USE OF THIRD-PARTY INFORMATION. During her/his employment with theCompany, Employee shall not improperly use or disclose any proprietary information or trade secrets of any former employer or other person or entity, andEmployee shall not bring on to the premises of the Company any unpublished document or proprietary information belonging to any such former employer,person or entity, unless consented to in writing by the former employer, person or entity. Employee represents that he/she has not improperly used ordisclosed any proprietary information or trade secrets of any other person or entity during the application process or while employed or affiliated with theCompany. Employee also acknowledges and agrees that he/she is not subject to any contract, agreement, or understanding that would prevent Employeefrom performing his/her duties for the Company or otherwise complying with this Agreement. To the extent Employee violates this provision, or his/heremployment with the Company constitutes a breach or threatened breach of any contract, agreement, or obligation to any third party, Employee shallindemnify and hold the Company harmless from all damages, expenses, costs (including reasonable attorneys’ fees) and liabilities incurred in connectionwith, or resulting from, any such violation or threatened violation. Confidential: Employment Agreement: Robert DiSilvioPlease initial each page: Page 7 12. TERMINATION. A. By Either Party. Either Party may terminate this Agreement at any time with or without notice, and with or without cause. Except asprovided in this Paragraph 12, upon termination of employment, Employee shall only be entitled to Employee’s accrued but unpaid base salary and otherbenefits earned under any Company-provided plans, policies and arrangements for the period preceding the effective date of the termination of employment. B. Termination Without Cause or Resignation for Good Reason. If the Company terminates Employee’s employment without Cause (definedbelow) or Employee resigns for Good Reason (defined below), Employee shall be entitled to receive continuing bi-weekly payments of severance pay at arate equal to Employee’s Base Salary, as then in effect, for six (6) months from the date of termination of employment, less all required tax withholdings andother applicable deductions, payable in accordance with the Company’s standard payroll procedures, commencing on the effective date of a separationagreement with a complete release of claims against the Company; provided that (1) the first payment shall include any amounts that would have been paidto Employee if payment had commenced on the date of separation from service; (2) Employee shall not be required to execute a release of any claims arisingfrom the Company’s failure to comply with its obligations under Paragraph 12A above; and (3) notwithstanding the preceding provisions of this Paragraph12B, no severance shall be due or payable unless and until Employee has been employed with the Company for at least twelve (12) full months.Notwithstanding the foregoing, any payments due under this Paragraph 12B shall commence within sixty (60) days of Employee’s termination ofemployment, provided that if such sixty (60)-day period spans two calendar years, payments shall commence in the latter calendar year. C. Termination Upon a Change of Control. If the Company or any successor in interest to the Company terminates Employees employmentin connection with or within twelve (12) months after a Change of Control (defined below), Employee shall be entitled to receive continuing bi-weeklypayments of severance pay at a rate equal to Employee’s Base Salary, as then in effect, for six (6) months from the date of termination of employment, less allrequired tax withholdings and other applicable deductions, payable in accordance with the Company’s standard payroll procedures, commencing on theeffective date of a separation agreement with a complete release of claims against the Company; provided that the first payment shall include any amountsthat would have been paid to Employee if payment had commenced on the date of separation from service; and further provided that Employee shall not berequired to execute a release of any claims arising from the Company’s failure to comply with its obligations under Paragraph 12A above. The paymentsdescribed in this Paragraph 12C are in lieu of, and not in addition to, the payments described in paragraph 12B, it being understood by Employee that heshall be paid only one severance. Notwithstanding the previous provisions of this Paragraph 12C, any payments due under this Paragraph 12C shallcommence within sixty (60) days of Employee’s termination of employment, provided that if such sixty (60)-day period spans two calendar years, paymentsshall commence in the latter calendar year. D. Termination for Cause, Death or Disability, or Resignation Without Good Reason. If Employee’s employment with the Companyterminates voluntarily by Employee without Good Reason, for Cause by the Company or due to Employee’s death or disability, then payments ofcompensation by the Company to Employee hereunder will terminate immediately (except as to amounts already earned). Confidential: Employment Agreement: Robert DiSilvioPlease initial each page: Page 8 F. Definitions. (1) “Cause.” For all purposes under this Agreement, “Cause” is defined as (i) gross negligence or willful misconduct in the performanceof Employee’s duties and responsibilities to the Company; (ii) commission of any act of fraud, theft, embezzlement, financial dishonesty or any other willfulmisconduct that has caused or is reasonably expected to result in injury to the Company; (iii) conviction of, or pleading guilty or nolo contendere to, anyfelony or a lesser crime involving dishonesty or moral turpitude; or (iv) material breach by Employee of any of obligations under any written agreement orcovenant with the Company, including the policies adopted from time to time by the Company applicable to all employees. (2) “Good Reason.” For all purposes under this Agreement, “Good Reason” is defined as Employee’s resignation within thirty (30)days following the expiration of any Company cure period (discussed below) following the occurrence of one or more of the following, without Employee’sexpress written consent (i) a material reduction of Employee’s duties, authority or responsibilities, relative to Employee’s duties, authority or responsibilitiesin effect immediately prior to such reduction; (ii) a material reduction in Employee’s base compensation; or (iii) a material breach by the Company under anywritten agreement or covenant with Employee. Employee will not resign for Good Reason without first providing the Company with written notice withinthirty (30) days of the event that Employee believes constitutes “Good Reason” specifically identifying the acts or omissions constituting the grounds forGood Reason and a reasonable cure period of not less than thirty (30) days following the date of such notice during which such condition shall not have beencured. (3) “Change of Control.” For all purposes under this Agreement, “Change of Control” of the Company is defined as: (a) a sale, transfer or disposition of all or substantially all of the Company’s assets other than to (i) a corporation or other entityof which at least a majority of its combined voting power is owned directly or indirectly by the Company, (ii) a corporation or other entity owned directly orindirectly by the holders of capital stock of the Company in substantially the same proportions as their ownership of Company common stock, or (iii) anExcluded Entity (as defined below); or (b) any merger, consolidation or other business combination transaction of the Company with or into another corporation,entity or person, other than a transaction with or into an Excluded Entity, being another corporation, entity or person in which the holders of at least amajority of the shares of voting capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by such sharesremaining outstanding in the continuing entity or by their being converted into shares of voting capital stock of the surviving entity) a majority of the totalvoting power represented by the shares of voting capital stock of the Company (or the surviving entity) outstanding immediately after such transaction; or (c) any acquisition of at least a majority of the shares of voting capital stock of the Company by any corporation, entity orperson or group of corporations, entities or persons acting in concert, other than an Excluded Entity. For the avoidance of doubt, a liquidation, dissolution or winding up of the Company or change in the state of the Company’sincorporation shall not constitute a Change of Control event for purposes of this Agreement. Confidential: Employment Agreement: Robert DiSilvioPleaseinitial each page: Page 9 F. Exclusive Remedy. In the event of a termination of Employee’s employment with the Company, the provisions of this Paragraph 12 areintended to be and are exclusive and in lieu of any other rights or remedies to which Employee or the Company may otherwise be entitled. 13. GENERAL PROVISIONS. A. Governing Law; Consent To Personal Jurisdiction. The laws of the State of Colorado govern this Agreement without regard to conflict oflaws principles. Employee and the Company each hereby consents to the personal jurisdiction of the state courts located in the City and County of Denver,State of Colorado, and the federal district court sitting in the City and County of Denver, State of Colorado, if that court otherwise possesses jurisdiction overthe matter, for any legal proceeding concerning Employee’s employment or termination of employment, or arising from or related to this Agreement or anyother agreement executed between Employee and the Company. Should an action be brought to enforce the terms of this Agreement, the prevailing partyshall be entitled to recover reasonable attorneys’ fees and costs incurred in prosecuting the action. B. Entire Agreement. This Agreement sets forth this entire Agreement between the Company (and any of its related or affiliated entities,officers, agents, owners or representatives) and Employee relating to the subject matter herein, and supersedes any and all prior discussions and agreements,whether written or oral, on the subject matter hereof. To the extent that this Agreement may conflict with the terms of another written agreement betweenEmployee and the Company, the terms of this Agreement will control. C. Modification. No modification of or amendment to this Agreement will be effective unless in writing and signed by Employee and anauthorized representative of the Company. D. Waiver. The Company’s failure to enforce any provision of this Agreement shall not act as a waiver of its ability to enforce that provisionor any other provision. The Company’s failure to enforce any breach of this Agreement shall not act as a waiver of that breach or any future breach. No waiverof any of the Company’s rights under this Agreement will be effective unless in writing. Any such written waiver shall not be deemed a continuing waiverunless specifically stated, and shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for thefuture or as to any act other than that specifically waived. E. Successors and Assigns. This Agreement shall be assignable to, and shall inure to the benefit of, the Company’s successors and assigns.Employee shall not have the right to assign his/her rights or obligations under this Agreement. F. Construction. The language used in this Agreement will be deemed to be language chosen by Employee and the Company to express theirmutual intent, and no rules of strict construction will be applied against either party. G. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable, and all of whichtogether shall constitute one agreement. Signatures of the Parties that are transmitted in person or by facsimile or e-mail shall be accepted as originals. Confidential: Employment Agreement: Robert DiSilvioPlease initial eachpage: Page 10 H. Further Assurances. Employee agrees to execute any proper oath or verify any document required to carry out the terms of this Agreement. I. Title and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded ininterpreting or construing this Agreement. J. Notices. All notices and communications that are required or permitted to be given under this Agreement shall be in writing and shall besufficient in all respects if given and delivered in person, by electronic mail, by facsimile, by overnight courier, or by certified mail, postage prepaid, returnreceipt requested, to the receiving party at such party’s address shown in the signature blocks below or to such other address as such party may have given tothe other by notice pursuant to this Paragraph. Notice shall be deemed given (i) on the date of delivery in the case of personal delivery, electronic mail orfacsimile, or (ii) on the delivery or refusal date as specified on the return receipt in the case of certified mail or on the tracking report in the case of overnightcourier. K. 409A. The amounts payable under this Agreement are intended to be exempt from the requirements of Section 409A of the InternalRevenue Code of 1986, as amended (“Section 409A”). To the extent that any such payments are determined to be subject to Section 409A, (i) the terms ofthis Agreement shall be interpreted to avoid incurring any penalties under Section 409A, (ii) any payments due upon a termination of employment shall onlybe payable if the termination constitutes a “separation from service” within the meaning of Section 409A, (iii) any right to a series of installment payments isto be treated as a right to a series of separate payments, and (iv) any payments due to a “specified employee” of a publicly- traded company upon a separationfrom service shall be delayed until the first day of the seventh month following such separation from service. Notwithstanding the foregoing, in no eventshall the Company be responsible for any taxes or penalties due under Section 409A. 14. EMPLOYEE’S ACKNOWLEDGMENTS. Employee acknowledges that he/she is executing this Agreement voluntarily and without duress orundue influence by the Company or anyone else and that Employee has carefully read this Agreement and fully understands the terms, consequences, andbinding effect of this Agreement. IN WITNESS WHEREOF, and intending to be legally bound, the parties have executed this Employment Agreement as of the date first writtenabove. EMPLOYEE BACTERIN INTERNATIONAL, INC. Print Name:Robert DiSilvio Print Name:Daniel Goldberger Signature:/s/ Robert DiSilvio Signature:/s/ Daniel Goldberger Date:5 June 2014 Title:CEO Address:7306 NE 120th PL Kirkland WA Date:6/5/14 Phone:425-823-4654 Email:bob@disilvio.com Confidential: Employment Agreement: Robert DiSilvioPlease initial each page: Page 11 EXHIBIT A LIST OF PRIOR INVENTIONS AND ORIGINAL WORKS OF AUTHORSHIP IS A LIST ATTACHED? (PLEASE CHECK): ¨YES x NO NOTE: The following is a list of all Prior Inventions made, conceived, developed or reduced to practice by Employee prior to his/her employment with theCompany. IF NO SUCH LIST IS ATTACHED, THAT MEANS EMPLOYEE IS NOT ASSERTING THE EXISTENCE OF ANY PRIOR INVENTIONS. Confidential: Employment Agreement: Robert DiSilvioPlease initial each page: Page 12 EXHIBIT B TERMINATION CERTIFICATE I hereby represent and certify that I have in all material respects complied with my obligations to the Company under the Employment Agreement betweenthe Company and me to which the form of this Certificate is attached as Exhibit B. I also represent that on or before my last day, I have specifically returned the following items: ¨Computer/laptop ¨Keys/access cards ¨Company credit card ¨Other equipment (please list) Confidential: Employment Agreement: Robert DiSilvioPlease initial each page: Page 13 Exhibit 10.10 BACTERIN INTERNATIONAL HOLDINGS, INC. NON-PLAN INDUCEMENT STOCK OPTION GRANT This Agreement between Bacterin International Holdings, Inc. (the “Company”) and Robert Di Silvio (the “Option Holder”) is effective as of theGrant Date. 1. Grant of Option. The Company hereby grants the Option Holder a Non Qualified Stock Option to purchase 550,000 shares of common stock,$0.000001 par value per share, of the Company under the terms of this Agreement (the “Option”) as an inducement grant made pursuant to Section711(a) of the NYSE MKT Company Guide. This Option satisfies the requirements of Section 2.C of the Employment Agreement between theCompany and the Option Holder dated July 1, 2014. For avoidance of doubt, this Option is not issued under the Company’s Amended and RestatedEquity Incentive Plan (the “Plan”) and does not reduce the shares available under the Plan. The Option is not intended to qualify as an IncentiveStock Option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. 2. Date of Grant. The date of the grant of the Option is July 1, 2014 (the “Grant Date”). 3. Number and Price of Shares. The number of shares of the Company’s common stock as to which the Option is granted is five hundred fifty thousand(550,000) shares (the “Shares”). The purchase price per Share is $0.68, which was the closing price of the Company’s common stock listed on theNYSE MKT on the trading day immediately preceding the Grant Date. 4. Vesting. The Option granted hereby shall become vested in and exercisable by Option Holder as set forth in the following schedule:Stock Option Agreement: Robert Di SilvioDATE: July 1, 2014 1 Number of Shares Date Which Become Exercisable July 1,2015 110,000 August 1, 2015 9,170 September 1, 2015 9,170 October 1, 2015 9,170 November 1, 2015 9,170 December 1, 2015 9,170 January 1, 2016 9,170 February 1, 2016 9,170 March 1,2016 9,170 April 1,2016 9,170 May 1, 2016 9,170 June 1, 2016 9,170 July 1,2016 9,170 August 1, 2016 9,170 September 1, 2016 9,170 October 1, 2016 9,170 November 1, 2016 9,170 December 1, 2016 9,170 January 1, 2017 9,170 February 1,2017 9,170 March 1, 2017 9,170 April 1,2017 9,170 May 1, 2017 9,170 June 1, 2017 9,170 July 1,2017 9,170 August 1, 2017 9,170 September 1, 2017 9,170 October 1, 2017 9,170 November 1, 2017 9,170 December 1, 2017 9,170 January 1, 2018 9,170 February 1, 2018 9,170 March 1, 2018 9,170 April 1,2018 9,170 May 1,2018 9,170 June 1, 2018 9,170 July 1,2018 9,170 August 1, 2018 9,170 September 1, 2018 9,170 October 1, 2018 9,170 November 1, 2018 9,170 December 1, 2018 9,170 January 1, 2019 9,170 February 1,2019 9,170 March 1,2019 9,170 April I, 2019 9,170 May 1, 2019 9,170 June 1, 2019 9,170 July 1,2019 9,010 In order to be eligible to exercise the Option in accordance with the vesting schedule, the Option Holder must have been continuously employed bythe Company from the Grant Date of the Option until the date specified in the vesting schedule. Acceleration of Exercisability. Upon a Change in Control (defined below) of the Company, then (i) the entire Option shall immediately be 100%vested without regard to the schedule contained in this Option Agreement and (ii) the entire Option shall become immediately exercisable in fullduring its remaining term. The Option Holder may exercise the Option at any time immediately after or concurrently with a Change in Controlregardless of whether all conditions of exercise have been satisfied. 5. Manner of Exercise. The vested portion of the Option may be exercised by delivery to the Company of (i) a written notice of exercise, specifyingthe number of Shares with respect to which such Option is exercised, and (ii) payment in full of the exercise price and any liability the Companymay have for withholding of federal, state or local income or other taxes incurred by reason of the exercise of the Option. Stock Option Agreement: Robert Di SilvioDATE: July 1, 2014 2 6. Legends. Certificates representing shares of common stock of the Company acquired upon exercise of this Option may contain a legend restrictingtransfer of the stock until there has been compliance with applicable federal and state securities laws. 7. Term. Unless terminated earlier pursuant to Section 8 below, the Option will expire ten (10) years from the Grant Date on July 1,2024. 8. Effect of Termination of Employment. The Option shall not be transferable by the Option Holder except by will or pursuant to the laws of descentand distribution. The Option is exercisable during the Option Holder’s lifetime only by the Option Holder, or in the event of disability or incapacity,by his guardian or legal representative. In the event of termination of the Option Holder’s employment other than for Cause (including, withoutlimitation, by reason of the Option Holder’s death or disability, which results in the Option Holder’s inability to perform substantially all of theduties of his position for more than 120 consecutive days) or resignation of the Option Holder for Good Reason (as those terms are defined below)the Option will expire ninety (90) days after the effective date of cessation of the Option Holder’s employment. In the event of termination of theOption Holder’s employment for Cause or the Option Holder’s resignation for other than Good Reason, the Option will expire at the effective dateand time of cessation of the Option Holder’s employment. 9. Definitions. “Cause.” For all purposes under this Agreement, “Cause” is defined as (i) gross negligence or willful misconduct in the performance of the OptionHolder’s duties and responsibilities to the Company; (ii) commission of any act of fraud, theft, embezzlement, financial dishonesty or any otherwillful misconduct that has caused or is reasonably expected to result in injury to the Company; (iii) conviction of, or pleading guilty or nolocontendere to, any felony or a lesser crime involving dishonesty or moral turpitude; or (iv) material breach by the Option Holder of any obligationsunder any written agreement or covenant with the Company. “Good Reason.” For all purposes under this Agreement, “Good Reason” is defined as the Option Holder’s resignation within thirty (30) daysfollowing the expiration of any Company cure period (discussed below) following the occurrence of one or more of the following, without theOption Holder’s express written consent: (i) a material reduction of the Option Holder’s duties, authority or responsibilities, relative to the OptionHolder’s duties, authority or responsibilities in effect immediately prior to such reduction; (ii) a material reduction in the Option Holder’s basecompensation; or (iii) a material breach by the Company under any written agreement or covenant with the Option Holder; provided, however thatthe Option Holder does not resign for Good Reason without first providing the Company with written notice within thirty (30) days of the event thatthe Option Holder believes constitutes “Good Reason” specifically identifying the acts or omissions constituting the grounds for Good Reason anda reasonable cure period of not less than thirty (30) days following the date of such notice during which such condition shall not have been cured. Stock Option Agreement: Robert Di SilvioDATE: July 1, 2014 3 “Change of Control.” For all purposes under this Agreement, “Change of Control” of the Company is defined as: (a) a sale, transfer or disposition of all or substantially all of the Company’s assets other than to (A) a corporation or other entity ofwhich at least a majority of its combined voting power is owned directly or indirectly by the Company, (B) a corporation or other entity owneddirectly or indirectly by the holders of capital stock of the Company in substantially the same proportions as their ownership of Company commonstock, or (C) an Excluded Entity (as defined below); or (b) any merger, consolidation or other business combination transaction of the Company with or into another corporation, entity orperson, other than a transaction with or into an Excluded Entity, being another corporation, entity or person in which the holders of at least amajority of the shares of voting capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by suchshares remaining outstanding in the continuing entity or by their being converted into shares of voting capital stock of the surviving entity) amajority of the total voting power represented by the shares of voting capital stock of the Company (or the surviving entity) outstandingimmediately after such transaction; or (c) any acquisition of at least a majority of the shares of voting capital stock of the Company by any corporation, entity or person orgroup of corporations, entities or persons acting in concert, other than an Excluded Entity, For the avoidance of doubt, a liquidation, dissolution or winding up of the Company or change in the state of the Company’s incorporation shall notconstitute a Change of Control event for purposes of this Agreement. 10, Adjustments for Stock Splits and Dividends. If the Company shall at any time increase or decrease the number of its outstanding shares of commonstock or change in any way the rights and privileges of such shares by means of the payment of a stock dividend or any other distribution upon suchshares payable in stock, or through a stock split, subdivision, consolidation, combination, reclassification or recapitalization involving the stock,then in relation to the stock that is affected by one or more of the above events, the numbers, rights and privileges of the shares underlying thisOption shall be increased, decreased or changed in like manner (in accordance with the rules governing modifications, extensions, substitutions andassumptions of stock rights described in Treas. Reg. § 1.409A-l(b)(5)(v)(D)) as if they had been issued and outstanding, fully paid and nonassessableat the time of such occurrence; provided, however, that no adjustment shall require the Company to issue a fractional share under any circumstance,and the total adjustment shall be limited by deleting any fractional share. Stock Option Agreement: Robert Di SilvioDATE: July 1, 2014 4 IN WITNESS WHEREOF, this Agreement is effective as of the Grant Date. BACTERIN INTERNATIONAL HOLDINGS, INC. By/s/ Daniel Goldberger Name:Daniel Goldberger Title:CEO OPTION HOLDER /s/ Robert Di Silvio Robert Di Silvio Stock Option Agreement: Robert Di SilvioDATE: July 1, 2014 5 Exhibit 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in Registration Statements on Form S-3 (No. 333-194944, No. 333-189830 and No. 333-175469) and onForm S-8 (No. 333-172891, No. 333-187563, and No. 333-191248) of Bacterin International Holdings, Inc. (the “Company”) of our report dated March 18,2015 relating to the Company’s consolidated financial statements as of and for the year ended December 31, 2014, which report appears in Item 8 of thisForm 10-K. /s/ EKS&H LLLP March 18, 2015Denver, Colorado  Exhibit 31.1 Certification of Chief Executive Officer I, Daniel Goldberger, certify that: 1. I have reviewed this Annual Report on Form 10-K of Bacterin International Holdings, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 18, 2015By:/s/ Daniel Goldberger Daniel Goldberger Chief Executive Officer  Exhibit 31.2 Certification of Chief Financial Officer I, John P. Gandolfo, certify that: 1. I have reviewed this Annual Report on Form 10-K of Bacterin International Holdings, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary tomake the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materiallyaffect, the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internalcontrol over financial reporting. Date: March 18, 2015By:/s/ John P. Gandolfo John P. Gandolfo Chief Financial Officer  Exhibit 32.1 Section 1350 Certification of Chief Executive Officer In connection with the Annual Report on Form 10-K of Bacterin International Holdings, Inc. (the "Company") for the annual period ended December 31,2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Daniel Goldberger, Chief Executive Officer of the Company,certify, to the best of my knowledge and belief, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Daniel Goldberger Daniel Goldberger Chief Executive Officer March 18, 2015  Exhibit 32.2 Section 1350 Certification of Chief Financial Officer In connection with the Annual Report on Form 10-K of Bacterin International Holdings, Inc. (the "Company") for the annual period ended December 31,2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, John P. Gandolfo, Chief Financial Officer of the Company,certify, to the best of my knowledge and belief, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: (1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)); and (2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ John P. Gandolfo John P. Gandolfo Chief Financial Officer March 18, 2015 

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