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Item 1A. Risk Factors

2021-04-13 compared with 2020-03-27 · 1041 added, 962 removed, 126 unchanged (94% of the section changed)

Risk Factors.

Summary of Risk Factors

Below is a summary of the principal factors

that make an investment in our common stock speculative or risky.

This summary does not address all of the risks that we face.

discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk

Factors”

and should be carefully considered, together with other information in this Annual Report on Form 10-K and our other filings

with the SEC before making an investment decision regarding our common stock.

Our audited financial statements for the year ended December 31, 2020 contain a going concern qualification.

Our financial status

creates doubt whether we will continue as a going concern.

We will need additional funds in the near future and our operations will be

adversely affected if we are unable to obtain needed funding.

We have generated insignificant revenue to date and have an accumulated deficit.

We anticipate that we will incur losses for the foreseeable

We may never achieve or sustain profitability.

We have identified a material weakness in our internal control over financial reporting.

Our ability to remediate this, our discovery of additional weaknesses, and our inability to achieve and maintain effective internal control over financial reporting,

could adversely affect our results of operations, our stock price and investor confidence in our company.

The COVID-19 pandemic could continue to adversely impact our business, including clinical trials.

Our products are in an early stage of development.

If we are unable to develop or market any of our products, our financial condition

will be negatively affected, and we may have to curtail or cease our operations.

Our products will subject us to liability exposure.

The results of our clinical trials or pre-clinical development efforts may not support our product claims

or may result in the discovery of adverse side effects.

If we fail to obtain, or experience significant delays in obtaining, regulatory approvals in the U.S.,

China or the E.U.

for our products, including those for the esophagus and airways, or are unable to maintain such clearances or approvals

for our products, our ability to commercially distribute and market these products would be adversely impacted.

Even if our products are cleared or approved by regulatory authorities, if we or our suppliers fail to comply with ongoing FDA or

other foreign regulatory authority requirements, or if we experience unanticipated problems with our products, these products could be

subject to restrictions or withdrawal from the market.

Our principal stockholders hold a majority of voting power and will be able to exert significant control over us.

We do not intend to pay cash dividends on our common stock.

The following factors should be reviewed carefully, in conjunction

with the other information contained in this Annual Report on Form 10-K.

As previously discussed, our actual results could differ

materially from our forward-looking statements.

As previously discussed, our actual results could differ materially

from our forward-looking statements.

Our business faces a variety of risks.

We describe below what we believe are currently

the material risks and uncertainties we face, but they are not the only risks and uncertainties we face.

Additional risks and uncertainties

of which we are unaware, or that we currently believe are not material, may also become important factors that adversely affect

our business.

In addition, past financial performance may not be a reliable indicator of future performance and historical trends

should not be used to anticipate results or trends in future periods.

If any of the following risks and uncertainties develops

into actual events, these events could have a material adverse effect on our business, financial condition or results of operations.

In such case, the trading price of our common stock could decline, and you may lose all or part of your investment in our securities.

The risk factors generally have been separated into three groups:

(i) risks relating to our business, (ii) risks relating to the

Separation and (iii) risks relating to our common stock.

These risk factors should be read in conjunction with the other information

in this Annual Report on Form 10-K.

Risks Relating To Our Business

Position, Need for Capital and Operating Risks

We describe below what we believe are currently the material

risks and uncertainties we face, but they are not the only risks and uncertainties we face.

Additional risks and uncertainties of which

we are unaware, or that we currently believe are not material, may also become important factors that adversely affect our business.

addition, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to

anticipate results or trends in future periods.

If any of the following risks and uncertainties develops into actual events, these events

could have a material adverse effect on our business, financial condition or results of operations.

In such case, the trading price of

our common stock could decline, and you may lose all or part of your investment in our securities.

The risk factors generally have been

separated into three groups:

(i) risks relating to our business, (ii) risks relating to the Separation and (iii) risks relating to our

common stock.

These risk factors should be read in conjunction with the other information in this Annual Report on Form 10-K.

Risks Relating to Our Financial Position,

Need for Capital and Operating Risks

Our audited financial statements for the year ended December 31,

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Our financial status creates doubt whether we will continue as a going concern.

We will need additional funds in the near future and our operations will be adversely affected if we are unable to obtain needed

We ended December 31, 2019 with approximately $0.9 million of

operating cash on-hand and will need to raise additional capital in the second quarter to fund operations.

We believe that our

existing cash resources, along with net proceeds of approximately $1.0 million during the first quarter of 2020 from the issuance

of 151,027 shares of our common stock at a purchase price of $3.70 per share and warrants to purchase 151,027 shares of common

stock at an exercise price of $3.70 per share, and the issuance of 214,000 shares of our common stock from the exercise of 214,000

previously issued warrants at $2.00 per share, will be sufficient to fund our planned operations through the second quarter of

If we do not raise additional capital from outside sources in the very near future, we may be forced to curtail or cease

our operations.

Based on these circumstances, our ability to continue as a going concern is at risk and our independent registered

public accounting firm included a “going concern”

qualification as to our ability to continue as a going concern in

their audit report dated March 27, 2020, included in this Form 10-K.

Our cash requirements and cash resources will vary significantly

depending upon the timing, financial and other resources that will be required to complete ongoing development and pre-clinical

and clinical testing of our products as well as regulatory efforts and collaborative arrangements necessary for our products that

are currently under development.

In addition to development and other costs, we expect to incur capital expenditures from time

These capital expenditures will be influenced by our regulatory compliance efforts, our success, if any, at developing

collaborative arrangements with strategic partners, our needs for additional facilities and capital equipment and the growth, if

any, of our business in general.

We will require additional funding to continue our anticipated operations and support our capital

and operating needs.

We are currently seeking and will continue to seek financings from other existing and/or new investors to

raise necessary funds through a combination of public or private equity offerings.

We may also pursue debt financings, other financing

mechanisms, strategic collaborations and licensing arrangements.

We may not be able to obtain additional financing on terms favorable

to us, if at all.

In addition, general market conditions, including the effect of the coronavirus pandemic on financial markets,

as well as the effects of laws and regulations on foreign investment in the United States under the jurisdiction of the Committee

on Foreign Investment in the United States (CFIUS), and other agencies and related regulations, including the Foreign Investment

Risk Review Modernization Act (FIRRMA), adopted in August 2018, may make it difficult for us to seek financing from the capital

Any additional equity financings could result in significant

dilution to our stockholders and possible restrictions on subsequent financings.

Debt financing, if available, could result in

agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt,

making capital expenditures or paying dividends.

Other financing mechanisms may involve selling intellectual property rights, payment

of royalties or participation in our revenue or cash flow.

In addition, in order to raise additional funds through strategic collaborations

or licensing arrangements, we may be required to relinquish certain rights to some or all of our technologies or products.

cannot raise funds or engage strategic partners on acceptable terms when needed, we may not be able to continue our research and

development activities, develop or enhance our products, take advantage of future opportunities, grow our business, respond to

competitive pressures or unanticipated requirements, or at worst may be forced to curtail or cease our operations.

The coronavirus pandemic could adversely impact our business,

including clinical trials.

In December 2019, a novel strain of coronavirus, COVID-19, was

reported to have surfaced in Wuhan, China.

Since then, the COVID-19 coronavirus has spread to multiple countries, including in

Europe and the U.S.

As the COVID-19 coronavirus continues to spread around the globe, we will likely experience disruptions that

could severely impact our business and planned clinical trials, including:

delays or difficulties in enrolling patients in our planned

clinical trials;

delays or difficulties in clinical site initiation, including

difficulties in recruiting clinical site investigators and clinical site staff;

diversion of healthcare resources away from the conduct

of clinical trials, including the diversion of hospitals serving as clinical trial sites and hospital staff supporting the conduct

of clinical trials;

interruption of key clinical trial activities, such as

clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers

limitations in employee resources that would otherwise

be focused on the conduct of clinical trials, including because of sickness of employees or their families or the desire of employees

to avoid contact with large groups of people;

delays in receiving approval from local regulatory authorities

to initiate our planned clinical trials

delays in clinical sites receiving the supplies and materials

needed to conduct our clinical trials;

interruption in global manufacturing and shipping that

may affect the transport of clinical trial materials and materials, including testing equipment and personal protective equipment,

used at our facilities;

changes in local regulations as part of a response to

the COVID-19 coronavirus outbreak which may require us to change the ways in which clinical trials are conducted, which may result

in unexpected costs;

delays in necessary interactions with local regulators,

ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of

government employees;

delay in the timing of interactions with the FDA due

to absenteeism by federal employees or by the diversion of their efforts and attention to approval of other therapeutics or other

activities related to COVID-19.

In addition, the outbreak of COVID-19 could disrupt our operations

due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other

employees who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to quarantines.

COVID-19 illness could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or

committees of directors, and making it more difficult to convene the quorums of the full Board of Directors or its committees needed

to conduct meetings for the management of our affairs.

The global outbreak of the COVID-19 coronavirus continues to

rapidly evolve.

The extent to which the COVID-19 coronavirus may impact our business and clinical trials will depend on future

developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the

disease, the duration of the outbreak, travel restrictions and social distancing in the U.S.

and other countries, business closures

or business disruptions and the effectiveness of actions taken in the U.S.

and other countries to contain and treat the disease.

We are subject to new U.S.

foreign investment regulations,

which may impose additional burdens on or may limit certain investors’

ability to purchase our common stock, potentially

making our common stock less attractive to investors, and may also impact our ability to generate revenues outside of the U.S.

In October 2018, the U.S.

Department of Treasury announced a

pilot program to implement part of the FIRRMA, effective November 10, 2018.

The pilot program expands the jurisdiction of

CFIUS to include certain direct or indirect foreign investments in a defined category of U.S.

companies, which may include companies

such as Biostage in the biotechnology industry.

Among other things, FIRRMA empowers CFIUS to require certain foreign investors

to make mandatory filings and permits CFIUS to charge filing fees related to such filings.

Such filings are subject to review

Any such restrictions on the ability to purchase shares of our common stock may have the effect of delaying or deterring

any particular investment and could also affect the price that some investors are willing to pay for our common stock.

such restrictions could also limit the opportunity for our stockholders to receive a premium for their shares of our common stock

in relation to any potential change in control.

We intend to generate significant revenues outside the U.S.,

including in China.

Restrictions, such as those related to CFIUS, not only affect foreign ownership and investments, but also the

transfer or licensing of technology from the U.S.

into certain foreign markets, including China.

Such restrictions, including to

the extent they block strategic transactions that might otherwise be in shareholders’

interests, may materially and adversely

affect our ability to generate revenues in those foreign markets and the results of our operations.

We have generated insignificant revenue to date and have

an accumulated deficit.

additional funds in the near future and our operations will be adversely affected if we are unable to obtain needed funding.

We ended December 31, 2020 with approximately $1.0 million of operating

cash on-hand and will need to raise additional capital in the second quarter and beyond to fund operations.

If we do not raise additional

capital from outside sources before or during early June 2021, we will be forced to further curtail or cease our operations.

these circumstances, our ability to continue as a going concern is at risk and our independent registered public accounting firm included

a “going concern”

qualification as to our ability to continue as a going concern in their audit report dated April 13, 2021,

included in this Form 10-K.

Our cash requirements and cash resources will vary significantly depending upon the timing, and the financial

and other resources that will be required to complete ongoing development and pre-clinical and clinical testing of our products as well

as regulatory efforts and collaborative arrangements necessary for our products that are currently under development.

In addition to development

and other costs, we expect to incur capital expenditures from time to time.

These capital expenditures will be influenced by our regulatory

compliance efforts, our success, if any, at developing collaborative arrangements with strategic partners, our needs for additional facilities

and capital equipment and the growth, if any, of our business in general.

We will require additional funding to continue our anticipated

operations and support our capital and operating needs.

We are currently seeking and will continue to seek financings from other existing

and/or new investors to raise necessary funds through a combination of public or private equity offerings.

We may also pursue debt financings,

other financing mechanisms, strategic collaborations and licensing arrangements.

We may not be able to obtain additional financing on

terms favorable to us, if at all.

In addition, general market conditions, including the effect of the COVID-19 pandemic on financial markets,

as well as the effects of laws and regulations on foreign investment in the United States under the jurisdiction of the Committee on Foreign

Investment in the United States (CFIUS), and other agencies and related regulations, including the Foreign Investment Risk Review Modernization

Act (FIRRMA), adopted in August 2018, may make it difficult for us to seek financing from the capital markets.

Any additional equity financings could result in significant dilution

to our stockholders and possible restrictions on subsequent financings.

Debt financing, if available, could result in agreements that

include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures

or paying dividends.

Other financing mechanisms may involve selling intellectual property rights, payment of royalties or participation

in our revenue or cash flow.

In addition, in order to raise additional funds through strategic collaborations or licensing arrangements,

we may be required to relinquish certain rights to some or all of our technologies or products.

If we cannot raise funds or engage strategic

partners on acceptable terms when needed, we may not be able to continue our research and development activities, develop or enhance our

products, take advantage of future opportunities, grow our business, respond to competitive pressures or unanticipated requirements, or

at worst may be forced to curtail or cease our operations.

We have generated insignificant revenue to date and have an accumulated

We anticipate that we will incur losses for the foreseeable future.

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$69.0 million.

We expect to continue to experience losses in the foreseeable future due to our limited anticipated revenues and

significant anticipated expenses.

We expect to continue to experience losses in the foreseeable future due to our limited anticipated revenues and significant

anticipated expenses.

We do not anticipate that we will achieve meaningful revenues for the foreseeable future.

addition, we expect that we will continue to incur significant operating expenses as we continue to focus on additional research

and development, preclinical testing, clinical testing and regulatory review and/or approvals of our products and technologies.

As a result, we cannot predict when, if ever, we might achieve profitability and cannot be certain that we will be able to sustain

profitability, if achieved.

In addition, we expect

that we will continue to incur significant operating expenses as we continue to focus on additional research and development, preclinical

testing, clinical testing and regulatory review and/or approvals of our products and technologies.

As a result, we cannot predict when,

if ever, we might achieve profitability and cannot be certain that we will be able to sustain profitability, if achieved.

Our products are in an early stage of development.

are unable to develop or market any of our products, our financial condition will be negatively affected, and we may have to curtail

or cease our operations.

If we are unable

to develop or market any of our products, our financial condition will be negatively affected, and we may have to curtail or cease our

We are in the early stage of product development.

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us in light of the uncertainties and complexities affecting an early-stage biotechnology company.

Our products require additional

research and development, preclinical testing, clinical testing and regulatory review and/or approvals or clearances before marketing.

In addition, we may not succeed in developing new products as an alternative to our existing portfolio of products.

to successfully develop and commercialize our products, including our esophageal or airway products, our financial condition may

be negatively affected, and we may have to curtail or cease our operations.

We have a limited operating history and it is difficult to

predict our future growth and operating results.

We have a limited operating history and limited operations and

Accordingly, one should consider our prospects in light of the costs, uncertainties, delays and difficulties encountered

by companies in the early stage of development, particularly companies in new and evolving markets, such as bioengineered organ

implants, and regenerative medicine.

These risks include, but are not limited to, unforeseen capital requirements, delays in obtaining

regulatory approvals, failure to gain market acceptance and competition from foreseen and unforeseen sources.

As such, our development

timelines have been and may continue to be subject to delay that could negatively affect our cash flow and our ability to develop

or bring products to market, if at all.

Our estimates of patient population are based on published data and analysis of external

databases by third parties and are subject to uncertainty and possible future revision as they often require inference or extrapolations

from one country to another or one patient condition to another.

If we fail to retain key personnel and/or attract satisfactory

replacements, we may not be able to compete effectively, which would have an adverse effect on our operations.

Our success is highly dependent on the continued services of

key management, technical and scientific personnel and collaborators.

Our management and other employees may voluntarily terminate

their employment at any time upon short notice.

In February 2020 our Chief Executive Officer, James McGorry, and in July 2019 our

Chief Financial Officer, Thomas McNaughton, resigned from Biostage.

The loss of the services of any member of our senior management

team, including our President, Hong Yu, our Chief Scientific Officer, Dr.

William Fodor, our Vice President of Finance, Peter Chakoutis,

and our other key scientific, technical and management personnel, may significantly delay or prevent the achievement of product

development and other business objectives.

We can give no assurance that we could find satisfactory replacements for our current

and future key scientific and management employees, including recently terminated executives, on terms that would not be unduly

expensive or burdensome to us.

Our products require additional research

and development, preclinical testing, clinical testing and regulatory review and/or approvals or clearances before marketing.

we may not succeed in developing new products as an alternative to our existing portfolio of products.

If we fail to successfully develop

and commercialize our products, including our esophageal or airway products, our financial condition may be negatively affected, and we

may have to curtail or cease our operations.

We have a limited operating history and it is difficult to predict

our future growth and operating results.

We have a limited operating history and limited operations and assets.

Accordingly, one should consider our prospects in light of the costs, uncertainties, delays and difficulties encountered by companies

in the early stage of development, particularly companies in new and evolving markets, such as bioengineered organ implants, and regenerative

These risks include, but are not limited to, unforeseen capital requirements, delays in obtaining regulatory approvals, failure

to gain market acceptance and competition from foreseen and unforeseen sources.

As such, our development timelines have been and may continue

to be subject to delay that could negatively affect our cash flow and our ability to develop or bring products to market, if at all.

estimates of patient population are based on published data and analysis of external databases by third parties and are subject to uncertainty

and possible future revision as they often require inference or extrapolations from one country to another or one patient condition to

If we fail to retain key personnel and/or attract satisfactory replacements,

we may not be able to compete effectively, which would have an adverse effect on our operations.

Our success is highly dependent on the continued services of key management,

technical and scientific personnel and collaborators.

Our management and other employees may voluntarily terminate their employment at

any time upon short notice.

In February 2020 our Chief Executive Officer, James McGorry resigned;

and in July 2019 our Chief Financial

Officer, Thomas McNaughton, resigned;

and in October 2020, we determined that Peter Chakoutis, our former Vice President of Finance, who

had been on a temporary leave of absence for personal reasons, would not be returning to us.

The loss of the services of any member of

our senior management team, including our President, Hong Yu, our Chief Scientific Officer, Dr.

William Fodor, our interim Vice President

of Finance, Peter Pellegrino, and our other key scientific, technical and management personnel, may significantly delay or prevent the

achievement of product development and other business objectives.

We can give no assurance that we could find satisfactory replacements

for our current and future key scientific and management employees, including recently terminated executives, on terms that would not

be unduly expensive or burdensome to us.

If our collaborators do not devote sufficient time and resources

to successfully carry out their duties or meet expected deadlines, we may not be able to advance our products in a timely manner

We are currently collaborating with multiple academic researchers

and clinicians at a variety of research and clinical institutions.

to successfully carry out their duties or meet expected deadlines, we may not be able to advance our products in a timely manner or at

We are currently collaborating with multiple academic researchers and

clinicians at a variety of research and clinical institutions.

Our success depends in part on the performance of our collaborators.

Some collaborators may not be successful in their research and clinical trials or may not perform their obligations in a timely

fashion or in a manner satisfactory to us.

Typically, we have limited ability to control the amount of resources or time our collaborators

may devote to our programs or potential products that may be developed in collaboration with us.

Our collaborators frequently depend

on outside sources of funding to conduct or complete research and development, such as grants or other awards.

In addition, our

academic collaborators may depend on graduate students, medical students, or research assistants to conduct certain work, and such

individuals may not be fully trained or experienced in certain areas, or they may elect to discontinue their participation in a

particular research program, creating an inability to complete ongoing research in a timely and efficient manner.

As a result of

these uncertainties, we are unable to control the precise timing and execution of any experiments that may be conducted.

Although we have co-development collaboration arrangements with

Mayo Clinic and Connecticut Children’s Medical Center, we do not have formal agreements in place with other collaborators,

and most of our collaborators retain the ability to pursue other research, product development or commercial opportunities that

may be directly competitive with our programs.

If any of our collaborators elect to prioritize or pursue other programs in lieu

of ours, we may not be able to advance product development programs in an efficient or effective manner, if at all.

If a collaborator

is pursuing a competitive program and encounters unexpected financial or capability limitations, they may be motivated to reduce

the priority placed on our programs or delay certain activities related to our programs.

Any of these developments could harm or

slow our product and technology development efforts.

Public perception of ethical and social issues surrounding

the use of cell technology may limit or discourage the use of our technologies, which may reduce the demand for our products and

technologies and reduce our revenues.

collaborators may not be successful in their research and clinical trials or may not perform their obligations in a timely fashion or

in a manner satisfactory to us.

Typically, we have limited ability to control the amount of resources or time our collaborators may devote

to our programs or potential products that may be developed in collaboration with us.

Our collaborators frequently depend on outside sources

of funding to conduct or complete research and development, such as grants or other awards.

In addition, our academic collaborators may

depend on graduate students, medical students, or research assistants to conduct certain work, and such individuals may not be fully trained

or experienced in certain areas, or they may elect to discontinue their participation in a particular research program, creating an inability

to complete ongoing research in a timely and efficient manner.

As a result of these uncertainties, we are unable to control the precise

timing and execution of any experiments that may be conducted.

Although we have co-development collaboration arrangements with Mayo

Clinic and Connecticut Children’s Medical Center, we do not have formal agreements in place with other collaborators, and most of

our collaborators retain the ability to pursue other research, product development or commercial opportunities that may be directly competitive

with our programs.

If any of our collaborators elect to prioritize or pursue other programs in lieu of ours, we may not be able to advance

product development programs in an efficient or effective manner, if at all.

If a collaborator is pursuing a competitive program and encounters

unexpected financial or capability limitations, they may be motivated to reduce the priority placed on our programs or delay certain activities

related to our programs.

Any of these developments could harm or slow our product and technology development efforts.

We have identified a material weakness in our

internal control over financial reporting.

Our ability to remediate this, our discovery of additional weaknesses, and our inability to

achieve and maintain effective internal control over financial reporting, could adversely affect our results of operations, our stock

price and investor confidence in our company.

404 of the Sarbanes-Oxley Act of 2002 requires that companies evaluate and report on their systems of internal control over financial

As disclosed in more detail under "Controls and Procedures"

in Part II, Item 9A of this Report, we have identified

a material weakness as of December 31, 2020 in our internal control over financial reporting resulting from our failure to design

or maintain effective internal controls over the timely identification and recording of financial statement adjustments.

Specifically,

we did not identify, analyze, record, and disclose certain non-routine accounting matters, such as a lease extension and a grant contract,

timely and accurately.

Our management has taken immediate action to begin

remediating this material weakness.

Additional details regarding the initial remediation efforts are disclosed in more detail under "Controls

and Procedures"

in Part II, Item 9A of this Report.

In addition, we may in the future identify additional internal control deficiencies

that could rise to the level of a material weakness or uncover errors in financial reporting.

During the course of our evaluation, we

may identify areas requiring improvement and may be required to design additional enhanced processes and controls to address issues identified

through this review.

In addition, there can be no assurance that such remediation efforts will be successful, that our internal control

over financial reporting will be effective as a result of these efforts or that any such future deficiencies identified may not be material

weaknesses that would be required to be reported in future periods.

If, as a result of deficiencies in our internal

control over financial reporting we cannot provide reliable financial statements, our business decision processes may be adversely affected,

our business and results of operations could be harmed, investors could lose confidence in our reported financial information and our

ability to obtain additional financing, or additional financing on favorable terms, could be adversely affected.

In addition, if we fail

to remediate this material weakness and maintain an effective system of internal control over financial reporting, we may not be able

to rely on the integrity of our financial results, which could result in inaccurate or late reporting of our financial results, as well

as delays or the inability to meet our reporting obligations or to comply with SEC rules and regulations.

Any of these could result in

delisting actions, result in investigation and sanctions by regulatory authorities, impair our ability to produce accurate financial

statements on a timely basis, lead to a restatement of our financial statements and adversely affect our business and the trading price

of our common stock.

Public perception of ethical and social issues surrounding the use

of cell technology may limit or discourage the use of our technologies, which may reduce the demand for our products and technologies

and reduce our revenues.

Our success will depend in part upon our collaborators’

ability to develop therapeutic approaches incorporating, or discovered through, the use of cells.

If either bioengineered organ

implant technology is perceived negatively by the public for social, ethical, medical or other reasons, governmental authorities

and other countries may call for prohibition of, or limits on, cell-based technologies and other approaches to bioengineering

and tissue engineering.

Although the surgeons using our products have not, to date, used the more controversial stem cells derived

from human embryos or fetuses in the human transplant surgeries using our products, claims that human-derived stem cell technologies

are ineffective or unethical may influence public attitudes.

The subject of cell and stem cell technologies in general has at times

received negative publicity and aroused public debate in the U.S.

to develop therapeutic approaches incorporating, or discovered through, the use of cells.

If either bioengineered organ implant technology

is perceived negatively by the public for social, ethical, medical or other reasons, governmental authorities in the U.S.

and other countries

may call for prohibition of, or limits on, cell-based technologies and other approaches to bioengineering and tissue engineering.

the surgeons using our products have not, to date, used the more controversial stem cells derived from human embryos or fetuses in the

human transplant surgeries using our products, claims that human-derived stem cell technologies are ineffective or unethical may influence

public attitudes.

The subject of cell and stem cell technologies in general has at times received negative publicity and aroused public

debate in the U.S.

and some other countries.

Ethical and other concerns about such

cells could materially harm the market acceptance of our products.

Ethical and other concerns about such cells could materially harm the market acceptance of

our products.

Our products will subject us to liability exposure.

We face an inherent risk of product liability claims, especially

with respect to our products that will be used within the human body, including the scaffolds we manufacture.

Product liability

coverage is expensive and sometimes difficult to obtain.

We face an inherent risk of product liability claims, especially with

respect to our products that will be used within the human body, including the scaffolds we manufacture.

Product liability coverage is

expensive and sometimes difficult to obtain.

We may not be able to obtain or maintain insurance at a reasonable cost.

We may be subject to claims for liabilities for unsuccessful outcomes of surgeries involving our products, which may include claims

relating to patient death.

We may also be subject to claims for liabilities relating to patients that suffer serious complications

or death during or following implantations involving our products, including the patients who had surgeries utilizing our first-generation

scaffold device or our bioreactor technology or our esophageal implant, or patients that may have surgeries utilizing any of our

products in the future.

Our current product liability coverage is $10 million per occurrence and in the aggregate.

to increase our insurance coverage if and when we begin commercializing any of our products.

There can be no assurance that existing

insurance coverage will extend to other products in the future.

Any product liability insurance coverage may not be sufficient

to satisfy all liabilities resulting from product liability claims.

A successful claim may prevent us from obtaining adequate product

liability insurance in the future on commercially desirable items, if at all.

If claims against us substantially exceed our coverage,

then our business could be adversely impacted.

Regardless of whether we are ultimately successful in any product liability litigation,

such litigation could consume substantial amounts of our financial and managerial resources and could result in, among others:

We may be subject

to claims for liabilities for unsuccessful outcomes of surgeries involving our products, which may include claims relating to patient

We may also be subject to claims for liabilities relating to patients that suffer serious complications or death during or following

implantations involving our products, including the patients who had surgeries utilizing our first-generation scaffold device or our bioreactor

technology or our esophageal implant, or patients that may have surgeries utilizing any of our products in the future.

Our current product

liability coverage is $10 million per occurrence and in the aggregate.

We will need to increase our insurance coverage if and when we

begin commercializing any of our products.

There can be no assurance that existing insurance coverage will extend to other products in

Any product liability insurance coverage may not be sufficient to satisfy all liabilities resulting from product liability

A successful claim may prevent us from obtaining adequate product liability insurance in the future on commercially desirable

items, if at all.

If claims against us substantially exceed our coverage, then our business could be adversely impacted.

Regardless of

whether we are ultimately successful in any product liability litigation, such litigation could consume substantial amounts of our financial

and managerial resources and could result in, among others:

significant awards or judgments against us;

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Any of these results would substantially harm our business.

If restrictions on reimbursements or other conditions imposed

by payers limit our customers’

actual or potential financial returns on our products, our customers may not purchase our

products or may reduce their purchases.

If restrictions on reimbursements or other conditions imposed by

payers limit our customers’

actual or potential financial returns on our products, our customers may not purchase our products or

may reduce their purchases.

Our customers’

willingness to use our products will depend

in part on the extent to which coverage for these products is available from government payers, private health insurers and other

third-party payers.

willingness to use our products will depend in

part on the extent to which coverage for these products is available from government payers, private health insurers and other third-party

These payers are increasingly challenging the price of medical products and services.

Significant uncertainty

exists as to the reimbursement status of newly approved treatments and products in the fields of biotechnology and regenerative

medicine, and coverage and adequate payments may not be available for these treatments and products.

In addition, third-party payers

may require additional clinical trial data to establish or continue reimbursement coverage.

These clinical trials, if required,

could take years to complete and could be expensive.

There can be no assurance that the payers will agree to continue reimbursement

or provide additional coverage based upon these clinical trials.

Failure to obtain adequate reimbursement would result in reduced

sales of our products.

We depend upon a single-source suppliers for the hardware

used for our proprietary automatic cell seeder, bioreactor control and acquisition system.

The loss of a single source supplier,

or future single-source suppliers we may rely on, or their failure to provide us with an adequate supply of their products or services

on a timely basis, could adversely affect our business.

We currently have single suppliers for certain components that

we use for our proprietary automatic cell seeder, bioreactor control and acquisition systems as well as materials used in scaffolds.

Significant uncertainty exists as to the

reimbursement status of newly approved treatments and products in the fields of biotechnology and regenerative medicine, and coverage

and adequate payments may not be available for these treatments and products.

In addition, third-party payers may require additional clinical

trial data to establish or continue reimbursement coverage.

These clinical trials, if required, could take years to complete and could

be expensive.

There can be no assurance that the payers will agree to continue reimbursement or provide additional coverage based upon

these clinical trials.

Failure to obtain adequate reimbursement would result in reduced sales of our products.

We depend upon single-source suppliers for the hardware used for

our proprietary automatic cell seeder, bioreactor control and acquisition system.

The loss of a single source supplier, or future single-source

suppliers we may rely on, or their failure to provide us with an adequate supply of their products or services on a timely basis, could

adversely affect our business.

We currently have single-source suppliers for

certain components that we use for our proprietary automatic cell seeder, bioreactor control and acquisition systems as well as materials

used in scaffolds.

We may also rely on other single-source suppliers for critical components of our products in the future.

If we were unable to acquire

hardware or other products or services from applicable single-source suppliers, we could experience a delay in developing and manufacturing

our products.

If we incur higher costs as a result of trade policies, treaties,

government regulations or tariffs, it could have a materially adverse effect on our business, financial condition or results of

There is currently significant uncertainty about the future

relationship between the United States and China, including with respect to trade policies, treaties, government regulations and

The current U.S.

administration has called for substantial changes to U.S.

foreign trade policy including greater restrictions

on international trade and significant increases in tariffs on goods imported into the U.S.

Under the current status, we do not

expect that this tariff will significantly impact any Biostage products and thus the tariff should not have a materially adverse

effect on our business, financial condition or results of operations.

We are unable to predict whether or when additional tariffs

will be imposed or the impact of any such future tariff increases.

We use and generate hazardous materials in our business and

must comply with environmental laws and regulations, which can be expensive.

unable to acquire hardware or other products or services from applicable single-source suppliers, we could experience a delay in developing

and manufacturing our products.

We use and generate hazardous materials in our business and must

comply with environmental laws and regulations, which can be expensive.

Our research, development and manufacturing involve the controlled

use of hazardous chemicals, and we may incur significant costs as a result of the need to comply with numerous laws and regulations.

For example, certain volatile organic laboratory chemicals we use, such as fluorinated hydrocarbons, must be disposed of as hazardous

We are subject to laws and regulations enforced by the FDA, foreign health authorities and other regulatory requirements,

including the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource

Conservation and Recovery Act, and other current and potential federal, state, local and foreign laws and regulations governing

the use, manufacturing, storage, handling and disposal of our products, materials used to develop and manufacture our products,

and resulting waste products.

Although we believe that our safety procedures for handling and disposing of such materials comply

with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials

cannot be completely eliminated.

In the event of such an accident, our operations could be interrupted.

Further, we could be held

liable for any damages that result and any such liability could exceed our resources.

example, certain volatile organic laboratory chemicals we use, such as fluorinated hydrocarbons, must be disposed of as hazardous waste.

We are subject to laws and regulations enforced by the FDA, foreign health authorities and other regulatory requirements, including the

Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act, the Resource Conservation and

Recovery Act, and other current and potential federal, state, local and foreign laws and regulations governing the use, manufacturing,

storage, handling and disposal of our products, materials used to develop and manufacture our products, and resulting waste products.

Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by state

and federal regulations, the risk of accidental contamination or injury from these materials cannot be completely eliminated.

of such an accident, our operations could be interrupted.

Further, we could be held liable for any damages that result and any such liability

could exceed our resources.

Our products are novel and will require market acceptance.

Even if we receive regulatory approvals for the commercial use

of our products, their commercial success will depend upon acceptance by physicians, patients, third party payers such as health

insurance companies and other members of the medical community.

Market acceptance of our products is also dependent upon our ability

to provide acceptable evidence and the perception of the positive characteristics of our products relative to existing or future

treatment methods, including their safety, efficacy and/or other positive advantages.

If our products fail to gain market acceptance,

we may be unable to earn sufficient revenue to continue our business.

Market acceptance of, and demand for, any product that we

may develop and commercialize will depend on many factors, both within and outside of our control.

If our products receive only

limited market acceptance, our business, financial condition and results of operations would be materially and adversely affected.

Even if we receive regulatory approvals for the commercial use of our

products, their commercial success will depend upon acceptance by physicians, patients, third party payers such as health insurance companies

and other members of the medical community.

Market acceptance of our products is also dependent upon our ability to provide acceptable

evidence and the perception of the positive characteristics of our products relative to existing or future treatment methods, including

their safety, efficacy and/or other positive advantages.

If our products fail to gain market acceptance, we may be unable to earn sufficient

revenue to continue our business.

Market acceptance of, and demand for, any product that we may develop and commercialize will depend

on many factors, both within and outside of our control.

If our products receive only limited market acceptance, our business, financial

condition and results of operations would be materially and adversely affected.

Our long-term growth depends on our ability to develop products

for other organs.

Our growth strategy includes expanding the use of our products

in treatments pertaining to organs other than the esophagus and airways, such as the lungs, GI tract, among others.

organs are more complex than the esophagus and airways.

There is no assurance that we will be able to successfully apply our technologies

to these other more complex organs, which might limit our expected growth.

Our success will depend partly on our ability to operate

without infringing on, or misappropriating, the intellectual property or confidentiality rights of others.

We may be sued for infringing on the intellectual property or

confidentiality rights of others, including the patent rights, trademarks and trade names and confidential information of third

To the extent that any of such claims are valid, if we had utilized, or were to utilize, such patent applications or patents

without an agreement from the owner thereof, it could result in infringement of the intellectual property rights of the respective

Intellectual property and related litigation is costly and the outcome is uncertain.

If we do not prevail in any such intellectual

property or related litigation, in addition to any damages we might have to pay, we could be required to stop the infringing activity,

or obtain a license to or design around the intellectual property or confidential information in question.

If we are unable to

obtain a required license on acceptable terms or are unable to design around any third-party patent, we may be unable to sell some

of our products and services, which could result in reduced revenue.

We may be involved in lawsuits to protect or enforce our

patents that would be expensive and time consuming.

In order to protect or enforce our patent rights, we may initiate

patent litigation against third parties.

We may also become subject to interference proceedings conducted in the patent and trademark

offices of various countries to determine the priority of inventions.

The defense and prosecution, if necessary, of intellectual

property suits, interference proceedings and related legal and administrative proceedings would be costly, and may divert our technical

and management personnel from their normal responsibilities.

Our growth strategy includes expanding the use of our products in treatments

pertaining to organs other than the esophagus and airways, such as the lungs, GI tract, among others.

These other organs are more complex

than the esophagus and airways.

There is no assurance that we will be able to successfully apply our technologies to these other more

complex organs, which might limit our expected growth.

Our success will depend partly on our ability to operate without

infringing on, or misappropriating, the intellectual property or confidentiality rights of others.

We may be sued for infringing on the intellectual property or confidentiality

rights of others, including the patent rights, trademarks and trade names and confidential information of third parties.

To the extent

that any of such claims are valid, if we had utilized, or were to utilize, such patent applications or patents without an agreement from

the owner thereof, it could result in infringement of the intellectual property rights of the respective owner.

Intellectual property

and related litigation is costly and the outcome is uncertain.

If we do not prevail in any such intellectual property or related litigation,

in addition to any damages we might have to pay, we could be required to stop the infringing activity, or obtain a license to or design

around the intellectual property or confidential information in question.

If we are unable to obtain a required license on acceptable

terms or are unable to design around any third-party patent, we may be unable to sell some of our products and services, which could result

in reduced revenue.

We may be involved in lawsuits to protect or enforce our patents

that would be expensive and time consuming.

In order to protect or enforce our patent rights, we may initiate patent

litigation against third parties.

We may also become subject to interference proceedings conducted in the patent and trademark offices

of various countries to determine the priority of inventions.

The defense and prosecution, if necessary, of intellectual property suits,

interference proceedings and related legal and administrative proceedings would be costly and may divert our technical and management

personnel from their normal responsibilities.

We may not prevail in any of these suits should they occur.

determination of any litigation or defense proceedings could put our patents at risk of being invalidated or interpreted narrowly

and could put our patent applications at risk of being rejected and patents not being issued.

Furthermore, because of the substantial amount of discovery

required in connection with intellectual property litigation, there is a risk that some of our confidential information could be

compromised by disclosure during this type of litigation.

For example, during the course of this kind of litigation, there could

be public announcements of the results of hearings, motions or other interim proceedings or developments in the litigation.

analysts or investors may perceive these announcements to be negative, which could cause the market price of our stock to decline.

If we are unable to effectively protect our intellectual

property, third parties may use our technology, which would impair our ability to compete in our markets.

Our continued success will depend significantly on our ability

to obtain and maintain meaningful patent protection for certain of our products throughout the world.

Patent law relating to the

scope of claims in the biotechnology, regenerative medicine, and medical device fields in which we operate is still evolving.

degree of future protection for our proprietary rights is uncertain.

We may rely on patents to protect a significant part of our

intellectual property and to enhance our competitive position.

However, our presently pending or future patent applications may

not be accepted and patents might not be issued, and any patent previously issued to us may be challenged, invalidated, held unenforceable

or circumvented.

Furthermore, the claims in patents which have been issued or which may be issued to us in the future may not be

sufficiently broad to prevent third parties from producing competing products similar to our products.

We may also operate in countries

where we do not have patent rights and in those countries we would not have patent protection.

We also rely on trademarks and trade

names in our business.

The laws of various foreign countries in which we compete may not protect our intellectual property to the

same extent as do the laws of the U.S.

If we fail to obtain adequate patent protection for our proprietary technology, our ability

to be commercially competitive could be materially impaired.

It is also possible that our intellectual property may be stolen via

cyber-attacks or similar methods.

In addition to patent protection, we also rely on protection

of trade secrets, know-how and confidential and proprietary information.

To maintain the confidentiality of trade-secrets and proprietary

information, we generally seek to enter into confidentiality agreements with our employees, consultants and strategic partners

upon the commencement of a relationship.

However, we may not be able to obtain these agreements in all circumstances in part due

to local regulations.

In the event of unauthorized use or disclosure of this information, these agreements, even if obtained, may

not provide meaningful protection for our trade-secrets or other confidential information.

In addition, adequate remedies may not

exist in the event of unauthorized use or disclosure of this information.

The loss or exposure of our trade secrets and other proprietary

information would impair our competitive advantages and could have a materially adverse effect on our operating results, financial

condition and future growth prospects.

Our competitors and potential competitors may have greater

resources than we have and may develop products and technologies that are more effective or commercially attractive than our products

and technologies or may develop competing relationships with our key collaborators.

We expect to compete with multiple pharmaceutical, biotechnology,

medical device and scientific research product companies.

In addition, there are many academic and clinical centers that are developing

bioengineered or regenerative organ technologies that may one day become competitors for us.

Many of our competitors and potential

competitors have substantially greater financial, technological, research and development, marketing, and personnel resources than

We cannot, with any accuracy, forecast when or if these companies are likely to bring bioengineered organ or regenerative

medicine products to market for indications that we are also pursuing.

Many of these potential competitors may be further along

in the process of product development and also operate large, company-funded research and development programs.

We expect that other products will compete with our current

and future products based on efficacy, safety, cost, and intellectual property positions.

While we believe that these will be the

primary competitive factors, other factors include obtaining marketing exclusivity under certain regulations, availability of supply,

manufacturing, marketing and sales expertise and capability, and reimbursement coverage.

Our competitors may develop or market

products that are more effective or commercially attractive than our current or future products and may also develop competing

relationships with our key collaborators.

An adverse determination of

any litigation or defense proceedings could put our patents at risk of being invalidated or interpreted narrowly and could put our patent

applications at risk of being rejected and patents not being issued.

Furthermore, because of the substantial amount of discovery required

in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by

disclosure during this type of litigation.

For example, during the course of this kind of litigation, there could be public announcements

of the results of hearings, motions or other interim proceedings or developments in the litigation.

Securities analysts or investors may

perceive these announcements to be negative, which could cause the market price of our stock to decline.

If we are unable to effectively protect our intellectual property,

third parties may use our technology, which would impair our ability to compete in our markets.

Our continued success will depend significantly on our ability to obtain

and maintain meaningful patent protection for certain of our products throughout the world.

Patent law relating to the scope of claims

in the biotechnology, regenerative medicine, and medical device fields in which we operate is still evolving.

The degree of future protection

for our proprietary rights is uncertain.

We may rely on patents to protect a significant part of our intellectual property and to enhance

our competitive position.

However, our presently pending or future patent applications may not be accepted and patents might not be issued,

and any patent previously issued to us may be challenged, invalidated, held unenforceable or circumvented.

Furthermore, the claims in

patents which have been issued or which may be issued to us in the future may not be sufficiently broad to prevent third parties from

producing competing products similar to our products.

We may also operate in countries where we do not have patent rights and in those

countries we would not have patent protection.

We also rely on trademarks and trade names in our business.

The laws of various foreign

countries in which we compete may not protect our intellectual property to the same extent as do the laws of the U.S.

If we fail to obtain

adequate patent protection for our proprietary technology, our ability to be commercially competitive could be materially impaired.

is also possible that our intellectual property may be stolen via cyber-attacks or similar methods.

In addition to patent protection, we also rely on protection of trade

secrets, know-how and confidential and proprietary information.

To maintain the confidentiality of trade-secrets and proprietary information,

we generally seek to enter into confidentiality agreements with our employees, consultants and strategic partners upon the commencement

of a relationship.

However, we may not be able to obtain these agreements in all circumstances in part due to local regulations.

event of unauthorized use or disclosure of this information, these agreements, even if obtained, may not provide meaningful protection

for our trade-secrets or other confidential information.

In addition, adequate remedies may not exist in the event of unauthorized use

or disclosure of this information.

The loss or exposure of our trade secrets and other proprietary information would impair our competitive

advantages and could have a materially adverse effect on our operating results, financial condition and future growth prospects.

Our competitors and potential competitors may have greater resources

than we have and may develop products and technologies that are more effective or commercially attractive than our products and technologies

or may develop competing relationships with our key collaborators.

We expect to compete with multiple pharmaceutical, biotechnology, medical

device and scientific research product companies.

In addition, there are many academic and clinical centers that are developing bioengineered

or regenerative organ technologies that may one day become competitors for us.

Many of our competitors and potential competitors have

substantially greater financial, technological, research and development, marketing, and personnel resources than we do.

We cannot, with

any accuracy, forecast when or if these companies are likely to bring bioengineered organ or regenerative medicine products to market

for indications that we are also pursuing.

Many of these potential competitors may be further along in the process of product development

and also operate large, company-funded research and development programs.

We expect that other products will compete with our current and future

products based on efficacy, safety, cost, and intellectual property positions.

While we believe that these will be the primary competitive

factors, other factors include obtaining marketing exclusivity under certain regulations, availability of supply, manufacturing, marketing

and sales expertise and capability, and reimbursement coverage.

Our competitors may develop or market products that are more effective

or commercially attractive than our current or future products and may also develop competing relationships with our key collaborators.

In addition, we may face competition from new entrants into the field.

We may not have

the financial resources, technical expertise or marketing, distribution or support capabilities to compete successfully in the

The effects of any such actions of our competitors may have a materially adverse effect on our business, operating results

and financial condition.

If we do not successfully manage our growth, our business

goals may not be achieved.

To manage growth, we will be required to continue to improve

existing, and implement additional, operational and financial systems, procedures and controls, and hire, train and manage additional

Our current and planned personnel, systems, procedures and controls may not be adequate to support our anticipated growth

and we may not be able to hire, train, retain, motivate and manage required personnel.

Competition for qualified personnel in the

biotechnology and regenerative medicine area is intense, and we operate or plan to operate in geographic locations where labor

markets are particularly competitive, including Boston, Massachusetts, where demand for personnel with these skills is extremely

high and is likely to remain high.

As a result, competition for qualified personnel is intense and the process of hiring suitably

qualified personnel is often lengthy and expensive, and may become more expensive in the future.

If we are unable to hire and retain

a sufficient number of qualified employees or otherwise manage our growth effectively, our ability to conduct and expand our business

could be seriously reduced.

We are exposed to a variety of risks relating to our international

sales and operations, including fluctuations in exchange rates, local economic conditions and delays in collection of accounts

We intend to generate significant revenues outside the U.S.

in multiple foreign currencies including Chinese Renminbi, Euros, British pounds, and in U.S.

dollar-denominated transactions conducted

with customers who generate revenue in currencies other than the U.S.

For those foreign customers who purchase our products

dollars, currency fluctuations between the U.S.

dollar and the currencies in which those customers do business may have

a negative impact on the demand for our products in foreign countries where the U.S.

dollar has increased in value compared to

the local currency.

Since we may have vendors and customers outside the U.S.

we may generate revenues and incur operating expenses in multiple foreign currencies, we will experience currency exchange risk

with respect to any foreign currency-denominated revenues and expenses.

We cannot predict the consolidated effects of exchange

rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposure

and the potential volatility of currency exchange rates.

Our international activities subject us to laws regarding sanctioned countries,

entities and persons, customs, import-export, laws regarding transactions in foreign countries, the U.S.

Foreign Corrupt Practices

Act and local anti-bribery and other laws regarding interactions with healthcare professionals.

Among other things, these laws

restrict, and in some cases prohibit, U.S.

companies from directly or indirectly selling goods, technology or services to people

or entities in certain countries.

In addition, these laws require that we exercise care in structuring our sales and marketing

practices in foreign countries.

Local economic conditions, legal, regulatory or political considerations,

disruptions from strikes, the effectiveness of our sales representatives and distributors, local competition and changes in local

medical practice could also affect our sales to foreign markets.

Relationships with customers and effective terms of sale frequently

vary by country, often with longer-term receivables than are typical in the U.S.

Comprehensive tax reform legislation could adversely affect

our business and financial condition.

In December 2017, the U.S.

government enacted the Tax Cuts and

Jobs Act of 2017 (TCJA), which significantly reforms the Internal Revenue Code of 1986, as amended.

The TCJA, among other things,

contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35%

to a flat rate of 21%, effective January 1, 2018;

limitation of the tax deduction for interest expense;

limitation of the deduction

for net operating losses and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning

after December 31, 2017 (though any such tax losses may be carried forward indefinitely);

and modifying or repealing many business

deductions and credits, including reducing the business tax credit for certain clinical testing expenses incurred in the testing

of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”.

The tax rate change resulted

in (i) a reduction in the gross amount of our deferred tax assets recorded as of December 31, 2017, without an impact on the net

amount of our deferred tax assets, which are recorded with a full valuation allowance.

We continue to examine the impact this tax

reform legislation may have on our business.

However, the effect of the TCJA on us and our affiliates, whether adverse or favorable,

is uncertain and may not become evident for some period of time.

We urge investors to consult with their legal and tax advisers

regarding the implications of the TCJA on an investment in our common stock.

Changes in the European regulatory environment regarding

privacy and data protection regulations could have a materially adverse impact on our results of operations.

The European Union (E.U.) has adopted a comprehensive overhaul

of its data protection regime in the form of the General Data Protection Regulation (GDPR), which came into effect in May 2018.

GDPR extends the scope of the existing E.U.

data protection law to foreign companies processing personal data of E.U.

The regulation imposes a strict data protection compliance regime with severe penalties of 4% of worldwide turnover or €20

million, whichever is greater, and includes new rights such as the right of erasure of personal data.

Although the GDPR will apply

across the E.U., as has been the case under the current data protection regime, E.U.

Member States have some national derogations

and local data protection authorities that will still have the ability to interpret the GDPR, which has the potential to create

inconsistencies on a country-by-country basis.

Implementation of, and compliance with the GDPR could increase our cost of doing

business and/or force us to change our business practices in a manner adverse to our business.

In addition, violations of the GDPR

may result in significant fines, penalties and damage to our brand and business which could, individually or in the aggregate,

materially harm our business and reputation.

We may not have the financial resources, technical expertise or

marketing, distribution or support capabilities to compete successfully in the future.

The effects of any such actions of our competitors

may have a materially adverse effect on our business, operating results and financial condition.

If we do not successfully manage our growth, our business goals

may not be achieved.

To manage growth, we will be required to continue to improve existing,

and implement additional, operational and financial systems, procedures and controls, and hire, train and manage additional employees.

Our current and planned personnel, systems, procedures and controls may not be adequate to support our anticipated growth and we may not

be able to hire, train, retain, motivate and manage required personnel.

Competition for qualified personnel in the biotechnology and regenerative

medicine area is intense, and we operate or plan to operate in geographic locations where labor markets are particularly competitive,

including Boston, Massachusetts, where demand for personnel with these skills is extremely high and is likely to remain high.

competition for qualified personnel is intense and the process of hiring suitably qualified personnel is often lengthy and expensive,

and may become more expensive in the future.

If we are unable to hire and retain a sufficient number of qualified employees or otherwise

manage our growth effectively, our ability to conduct and expand our business could be seriously reduced.

All or a portion of the PPP Loan may not be forgivable and our application

for the PPP Loan could in the future be determined to have been impermissible which could adversely impact our business and reputation.

On May 4, 2020, we obtained a loan (the “Loan”) from the

Bank of America (the “Lender”) in the aggregate amount of $404,221, pursuant to the Paycheck Protection Program (the “PPP”),

established as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

Our application for the

PPP Loan could in the future be determined to have been impermissible which could adversely impact our business and reputation.

the CARES Act, we may be eligible to apply for forgiveness of all loan proceeds used to pay payroll costs, rent, utilities and other qualifying

expenses, provided that we retain a certain number of employees and maintain compensation within certain regulatory parameters of the

However, we cannot provide any assurance that we will be eligible for loan forgiveness or that any amount of the PPP Loan will ultimately

In applying for the PPP Loan, we were required to certify, among other

things, that the then current economic uncertainty made the PPP Loan necessary to support our ongoing operations.

We made these certifications

in good faith after analyzing, among other things, the requirements of the PPP loan, our current business activity and our ability to

access other sources of liquidity sufficient to support our ongoing operations in a manner that would not be significantly detrimental

to our business.

We believe that we satisfied all eligibility criteria for the PPP Loan, and that our receipt of the PPP Loan was consistent

with the broad objectives of the PPP of the CARES Act.

The certification regarding necessity described above did not at the time contain

any objective criteria and continues to be subject to interpretation.

If, despite our good-faith belief that we satisfied all eligibility

requirements for the PPP Loan, we are later determined to have violated any of the laws or governmental regulations that apply to us in

connection with the PPP Loan, or it is otherwise determined that we were ineligible to receive the PPP Loan, we may be subject to civil,

criminal and administrative penalties.

Any violations or alleged violations may result in adverse publicity and damage to our reputation,

a review or audit by the SBA or other government entity or claims under the False Claims Act.

These events could consume significant financial

and management resources and could have a material adverse effect on our business, results of operations and financial condition.

Risks Associated with Clinical Trials and Pre-Clinical Development

The results of our clinical trials or

pre-clinical development efforts may not support our product claims or may result in the discovery of adverse side effects.

The results of our clinical trials or pre-clinical

development efforts may not support our product claims or may result in the discovery of adverse side effects.

Even if our pre-clinical development efforts or clinical trials

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Administration (FDA), foreign regulatory authorities or notified bodies will agree with our conclusions regarding them.

we have obtained some positive results from the use of our scaffolds and bioreactors for esophageal and trachea implants performed

to date, we also discovered that our first-generation trachea product design encountered certain body response issues that we have

have obtained some positive results from the use of our scaffolds and bioreactors for esophageal and trachea implants performed to

date, we also discovered that our first-generation trachea product design encountered certain body response issues that we have

sought to resolve with our ongoing development of our Cellframe implant design.

6 unchanged sentences

trials will be successful, and we cannot be sure that the later trials will replicate the results of prior trials and pre-clinical

Our pre-clinical development efforts and any clinical trial process may fail to demonstrate that our products are safe

and effective for the proposed indicated uses, which could cause us to abandon a product and may delay development of others.

Our pre-clinical development efforts and any clinical trial process may fail to demonstrate that our products are safe and

effective for the proposed indicated uses, which could cause us to abandon a product and may delay development of others.

patients receiving surgeries using our products under compassionate use or in clinical trials may experience significant adverse

events following the surgeries, including serious health complications or death, which may or may not be related to materials provided

In 2017, our Cellspan Esophageal Implant (CEI) product candidate was used in a human surgery at Mayo Clinic via an FDA-approved

single-use expanded access application.

In 2013 and 2014 we had provided a previous generation trachea scaffold device that was

used in implants in human patients under compassionate use.

To date, we believe that at least four of the six patients who received

those tracheal implants have died.

While we believe that none of those patients died because of a failure of the applicable device,

these and any other such adverse events have and may cause or contribute to the delay or termination of our clinical trials or

pre-clinical development efforts.

events following the surgeries, including serious health complications or death, which may or may not be related to materials

provided by us.

In 2017, our Cellspan Esophageal Implant (CEI) product candidate was used in a human surgery at Mayo Clinic via an

FDA-approved single-use expanded access application.

In 2013 and 2014 we had provided a previous generation trachea scaffold device

that was used in implants in human patients under compassionate use.

To date, we believe that at least four of the six patients who

received those tracheal implants have died.

While we believe that none of those patients died because of a failure of the applicable

device, these and any other such adverse events have and may cause or contribute to the delay or termination of our clinical trials

or pre-clinical development efforts.

Any delay or termination of our pre-clinical development efforts or clinical trials will delay

the filing of our product submissions and, ultimately, our ability to commercialize our products and generate revenues.

possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the product’s

Clinical trials necessary to support

a biological product license or other marketing authorization for our products will be expensive and will require the enrollment

of sufficient patients to adequately demonstrate safety and efficacy for the product’s target populations.

Suitable patients

may be difficult to identify and recruit.

Delays or failures in our clinical trials will prevent us from commercializing any products

and will adversely affect our business, operating results and prospects.

In the U.S., initiating and completing clinical trials necessary

to support Biological License Applications (BLAs), will be time consuming, expensive and the outcome uncertain.

Moreover, the FDA

may not agree that clinical trial results support an application for the indications sought in the application for the product.

In other jurisdictions such as the E.U., the conduct of extensive and expensive clinical trials may also be required in order to

demonstrate the quality, safety and efficacy of our products, depending on each specific product, the claims being studied, and

the target condition or disease.

The outcome of these clinical trials, which can be expensive and are heavily regulated, will also

be uncertain.

Moreover, the results of early clinical trials are not necessarily predictive of future results, and any product

we advance into clinical trials following initial positive results in early clinical trials may not have favorable results in later

clinical trials.

Conducting successful clinical trials will require the enrollment

of a sufficient number of patients to support each trial’s claims, and suitable patients may be difficult to identify and

Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including

the size of the patient population, the nature of the trial protocol, the attractiveness of, or the discomfort and risks associated

with, the treatments received by enrolled subjects, the availability of appropriate clinical trial investigators, support staff,

and proximity of patients to clinical sites and ability to comply with the eligibility and exclusion criteria for participation

in the clinical trial and patient compliance.

For example, patients may be discouraged from enrolling in our clinical trials if

the trial protocol requires them to undergo extensive post-treatment procedures or follow-up to assess the safety and effectiveness

of our products, or if they determine that the treatments received under the trial protocols are not attractive or involve unacceptable

risks or discomfort.

Also, patients may not participate in our clinical trials if they choose to participate in contemporaneous

clinical trials of competitive products.

In addition, patients participating in clinical trials may die before completion of the

trial or suffer adverse medical events unrelated to investigational products.

Development of sufficient and appropriate clinical protocols

to demonstrate safety and efficacy are required and we may not adequately develop such protocols to support clearance and approval.

Further, the FDA and foreign regulatory authorities may require us to submit data on a greater number of patients than we originally

anticipated and/or for a longer follow-up period or change the data collection requirements or data analysis applicable to our

clinical trials.

Delays in patient enrollment or failure of patients to continue to participate in a clinical trial may cause an

increase in costs and delays in the approval and attempted commercialization of our products or result in the failure of the clinical

In addition, despite considerable time and expense invested in our clinical trials, the FDA and foreign regulatory authorities

may not consider our data adequate to demonstrate safety and efficacy.

Although FDA regulations allow submission of data from clinical

trials outside the U.S., there can be no assurance that such data will be accepted or that the FDA will not apply closer scrutiny

to such data.

Increased costs and delays necessary to generate appropriate data, or failures in clinical trials could adversely

affect our business, operating results and prospects.

In the U.S., clinical studies for our products will be reviewed through the

Investigational New Drug (IND), pathway for biologics or combination products.

If the third parties on which we rely

to conduct our clinical trials and to assist us with pre-clinical development do not perform as contractually-required or expected,

we may not be able to obtain regulatory approval for or commercialize our products.

possible that patients enrolled in clinical trials will experience adverse side effects that are not currently part of the

product’s profile.

Clinical trials necessary to support a biological

product license or other marketing authorization for our products will be expensive and will require the enrollment of sufficient patients

to adequately demonstrate safety and efficacy for the product’s target populations.

Suitable patients may be difficult to identify

Delays or failures in our clinical trials will prevent us from commercializing any products and will adversely affect our

business, operating results and prospects.

In the U.S., initiating and completing clinical trials necessary to

support Biological License Applications (BLAs), will be time consuming, expensive and the outcome uncertain.

Moreover, the FDA may not

agree that clinical trial results support an application for the indications sought in the application for the product.

In other jurisdictions

such as the E.U., the conduct of extensive and expensive clinical trials may also be required in order to demonstrate the quality, safety

and efficacy of our products, depending on each specific product, the claims being studied, and the target condition or disease.

of these clinical trials, which can be expensive and are heavily regulated, will also be uncertain.

Moreover, the results of early clinical

trials are not necessarily predictive of future results, and any product we advance into clinical trials following initial positive results

in early clinical trials may not have favorable results in later clinical trials.

Conducting successful clinical trials will require the enrollment of

a sufficient number of patients to support each trial’s claims, and suitable patients may be difficult to identify and recruit.

Patient enrollment in clinical trials and completion of patient participation and follow-up depends on many factors, including the size

of the patient population, the nature of the trial protocol, the attractiveness of, or the discomfort and risks associated with, the treatments

received by enrolled subjects, the availability of appropriate clinical trial investigators, support staff, and proximity of patients

to clinical sites and ability to comply with the eligibility and exclusion criteria for participation in the clinical trial and patient

For example, patients may be discouraged from enrolling in our clinical trials if the trial protocol requires them to undergo

extensive post-treatment procedures or follow-up to assess the safety and effectiveness of our products, or if they determine that the

treatments received under the trial protocols are not attractive or involve unacceptable risks or discomfort.

Also, patients may not participate

in our clinical trials if they choose to participate in contemporaneous clinical trials of competitive products.

In addition, patients

participating in clinical trials may die before completion of the trial or suffer adverse medical events unrelated to investigational

Development of sufficient and appropriate clinical protocols to demonstrate

safety and efficacy are required and we may not adequately develop such protocols to support clearance and approval.

Further, the FDA

and foreign regulatory authorities may require us to submit data on a greater number of patients than we originally anticipated and/or

for a longer follow-up period or change the data collection requirements or data analysis applicable to our clinical trials.

patient enrollment or failure of patients to continue to participate in a clinical trial may cause an increase in costs and delays in

the approval and attempted commercialization of our products or result in the failure of the clinical trial.

In addition, despite considerable

time and expense invested in our clinical trials, the FDA and foreign regulatory authorities may not consider our data adequate to demonstrate

safety and efficacy.

Although FDA regulations allow submission of data from clinical trials outside the U.S., there can be no assurance

that such data will be accepted or that the FDA will not apply closer scrutiny to such data.

Increased costs and delays necessary to generate

appropriate data, or failures in clinical trials could adversely affect our business, operating results and prospects.

In the U.S., clinical

studies for our products will be reviewed through the Investigational New Drug (IND), pathway for biologics or combination products.

If the third parties on which we rely to conduct

our clinical trials and to assist us with pre-clinical development do not perform as contractually-required or expected, we may not be

able to obtain regulatory approval for or commercialize our products.

We do not have the ability to independently conduct our pre-clinical

and clinical trials for our products and we must rely on third parties, such as contract research organizations, medical institutions,

clinical investigators and contract laboratories to conduct, or assist us in conducting, such trials, including data collection

and analysis.

clinical investigators and contract laboratories to conduct, or assist us in conducting, such trials, including data collection and analysis.

We do not have direct control over such third parties’

personnel or operations.

If these third parties do not

successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need

to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical

protocols or any regulatory requirements, or for other reasons, our pre-clinical development activities or clinical trials may

be extended, delayed, suspended or terminated, and we may not be able to seek or obtain regulatory approval for, or successfully

commercialize, our products on a timely basis, if at all.

If these third parties do not successfully carry

out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the

quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or any regulatory requirements,

or for other reasons, our pre-clinical development activities or clinical trials may be extended, delayed, suspended or terminated, and

we may not be able to seek or obtain regulatory approval for, or successfully commercialize, our products on a timely basis, if at all.

Our business, operating results and prospects may also be adversely affected.

Furthermore, any third-party clinical trial investigators pertaining to our products may be delayed in conducting our clinical

trials for reasons outside of their control.

Furthermore, any third-party clinical trial investigators

pertaining to our products may be delayed in conducting our clinical trials for reasons outside of their control.

Risks Associated with Regulatory Approvals

If we fail to obtain, or experience

significant delays in obtaining, regulatory approvals in the U.S., China or the E.U.

for our products, including those for the

esophagus and airways, or are unable to maintain such clearances or approvals for our products, our ability to commercially distribute

and market these products would be adversely impacted.

We currently do not have regulatory approval to market any of

our implant products, including those for the esophagus and airways (trachea and bronchus).

Our products are subject to rigorous

regulation by the FDA, and numerous other federal and state governmental authorities in the U.S., as well as foreign governmental

In the U.S., the FDA permits commercial distribution of new medical products only after approval of a Premarket Approval

(PMA), New Drug Application (NDA) or BLA, unless the product is specifically exempt from those requirements.

A PMA, NDA or BLA

must be supported by extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing and

labeling data, to demonstrate to the FDA’s satisfaction the safety and efficacy of the product for its intended use.

are similar approval processes in China, the E.U.

and other foreign jurisdictions.

Our failure to receive or obtain such clearances

or approvals on a timely basis or at all would have an adverse effect on our results of operations.

If we fail to obtain, or experience significant

delays in obtaining, regulatory approvals in the U.S., China or the E.U.

for our products, including those for the esophagus and airways,

or are unable to maintain such clearances or approvals for our products, our ability to commercially distribute and market these products

would be adversely impacted.

We currently do not have regulatory approval to market any of our implant

products, including those for the esophagus and airways (trachea and bronchus).

Our products are subject to rigorous regulation by the

FDA, and numerous other federal and state governmental authorities in the U.S., as well as foreign governmental authorities.

the FDA permits commercial distribution of new medical products only after approval of a Premarket Approval (PMA), New Drug Application

(NDA) or BLA, unless the product is specifically exempt from those requirements.

A PMA, NDA or BLA must be supported by extensive data,

including, but not limited to, technical, pre-clinical, clinical trial, manufacturing and labeling data, to demonstrate to the FDA’s

satisfaction the safety and efficacy of the product for its intended use.

There are similar approval processes in China, the E.U.

other foreign jurisdictions.

Our failure to receive or obtain such clearances or approvals on a timely basis or at all would have an adverse

effect on our results of operations.

The first bioengineered trachea implant approved in the U.S.

using our first-generation trachea scaffold in an implant was approved under the IND pathway through the FDA’s Center for

Biologics Evaluation and Research (CBER) for a single compassionate use.

our first-generation trachea scaffold in an implant was approved under the IND pathway through the FDA’s Center for Biologics Evaluation

and Research (CBER) for a single compassionate use.

Such initial U.S.

surgery was led by Professor Paolo Macchiarini,

M.D., a surgeon pioneering tracheal replacement techniques.

Macchiarini was not employed or affiliated with our company, and

we did not pay him any compensation or consulting fees.

In June 2014, shortly after our Chief Medical Officer joined our company,

we ceased support of any human surgeries with Dr.

surgery was led by Professor Paolo Macchiarini, M.D., a surgeon

pioneering tracheal replacement techniques.

Macchiarini was not employed or affiliated with our company, and we did not pay him any

compensation or consulting fees.

In June 2014, shortly after our Chief Medical Officer joined our company, we ceased support of any human

surgeries with Dr.

Since the time we withdrew from involvement with Dr.

allegations that Dr.

Macchiarini had failed to obtain informed consent and accurately report patient conditions, among other things,

for surgeries performed at the Karolinska Institutet in Stockholm, Sweden, were made public.

Macchiarini, allegations that Dr.

Macchiarini had

failed to obtain informed consent and accurately report patient conditions, among other things, for surgeries performed at the Karolinska

Institutet in Stockholm, Sweden, were made public.

The Karolinska Institutet investigated the allegations and concluded

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to this investigation, further negative publicity and claims continued to be released questioning the conduct of Dr.

the Karolinska Institutet, the Krasnodar Regional Hospital in Krasnodar, Russia as well as our company relating to surgeries performed

Macchiarini, the

Karolinska Institutet, the Krasnodar Regional Hospital in Krasnodar, Russia as well as our company relating to surgeries performed by

Macchiarini and other surgeons at such facilities.

In February 2015, the Karolinska Institutet announced that it would conduct

an additional investigation into the allegations made about Dr.

Macchiarini and the Karolinska Institutet’s response and

actions in the earlier investigation.

In February 2015, the Karolinska Institutet announced that it would conduct an

additional investigation into the allegations made about Dr.

Macchiarini and the Karolinska Institutet’s response and actions in

the earlier investigation.

In March 2015, the Karolinska Institutet announced that it was terminating Dr.

Macchiarini’s

employment, and in December 2016 the Karolinska Institutet found Dr.

Macchiarini, along with three co-authors, guilty of scientific

These allegations, the results of the investigation and any further actions that may be taken in connection with these

matters, have and may continue to harm the perception of our product candidates or company and make it difficult to recruit patients

for any clinical trials.

The FDA has informed us that our CEI would be viewed by

the FDA as a combination product comprised of a biologic (cells) and a medical device component.

Nevertheless, we cannot be certain

how the FDA will regulate our products.

Macchiarini’s employment,

and in December 2016 the Karolinska Institutet found Dr.

Macchiarini, along with three co-authors, guilty of scientific misconduct.

allegations, the results of the investigation and any further actions that may be taken in connection with these matters, have and may

continue to harm the perception of our product candidates or company and make it difficult to recruit patients for any clinical trials.

The FDA has informed us that our CEI would be viewed by the FDA

as a combination product comprised of a biologic (cells) and a medical device component.

Nevertheless, we cannot be certain how the FDA

will regulate our products.

The FDA may require us to obtain marketing clearance and approval from multiple FDA centers.

The review of combination products is often more complex and more time consuming than the review of products under the jurisdiction

of only one center within the FDA.

While the FDA has informed us that our CEI would be regulated

by the FDA as a combination product, we cannot be certain that any of our other products would also be regulated by the FDA as

a combination product.

For a combination product, the Office of Combination Products (OCP) within FDA can determine which center

or centers within the FDA will review the product and under what legal authority the product will be reviewed.

Generally, the center

within the FDA that has the primary role in regulating a combination product is determined based on the primary mode of action

of the product.

Generally, if the primary mode of action is as a device, the FDA’s Center for Devices and Radiological Health

(CDRH) takes the lead.

Alternatively, if the primary mode of action is cellular, then the CBER takes the lead.

On October 18, 2016,

we also received written confirmation from the CBER that the FDA intends to regulate our CEI as a combination product under the

primary jurisdiction of CBER.

We further understand that CBER may choose to consult or collaborate with CDRH with respect to the

characteristics of the synthetic scaffold component of our product based on CBER’s determination of need for such assistance.

The process of obtaining FDA marketing approval is lengthy,

expensive, and uncertain, and we cannot be certain that our products, including products pertaining to the esophagus, airways,

or otherwise, will be cleared or approved in a timely fashion, or at all.

In addition, the review of combination products is often

more complex and can be more time consuming than the review of a product under the jurisdiction of only one center within the FDA.

We cannot be certain that the FDA will not elect to have our

combination products reviewed and regulated by only one FDA center and/or different legal authority, in which case the path to

regulatory approval would be different and could be more lengthy and costly.

If the FDA does not approve or clear our products in a timely

fashion, or at all, our business and financial condition will be adversely affected.

In the E.U., our esophagus product will likely be regulated

as a combined advanced therapy medicinal product and our other products, including for the trachea or bronchus, may also be viewed

as advanced therapy medicinal products, which could delay approvals and clearances and increase costs of obtaining such approvals

and clearances.

On May 28, 2014, we received notice from the European Medicines

Agency (EMA) that our first-generation trachea product would be regulated as a combined advanced therapy medicinal product.

we have not had any formal interaction with the EMA with respect to our Cellframe implant technology, including pertaining to the

esophagus, we believe that such implant technology would likely be regulated as a combined advanced therapy medicinal product.

In the event of such classification, it would be necessary to seek a marketing authorization for these products granted by the

European Commission before being marketed in the E.U.

Other products we may develop, including any products pertaining

to the airways or otherwise, may similarly be regulated as advanced therapy medicinal products or combined advanced therapy medicinal

The regulatory procedures leading to marketing approval of our products vary among jurisdictions and can involve substantial

additional testing.

Compliance with the FDA requirements does not ensure clearance or approval in other jurisdictions, and the

ability to legally market our products in any one foreign country does not ensure clearance, or approval by regulatory authorities

in other foreign jurisdictions.

The foreign regulatory process leading to the marketing of the products may include all of the

risks associated with obtaining FDA approval in addition to other risks.

In addition, the time required to comply with foreign

regulations and market products may differ from that required to obtain FDA approval, and we may not obtain foreign approval or

clearance on a timely basis, if at all.

The review of

combination products is often more complex and more time consuming than the review of products under the jurisdiction of only one center

within the FDA.

While the FDA has informed us that our CEI would be regulated by the

FDA as a combination product, we cannot be certain that any of our other products would also be regulated by the FDA as a combination

For a combination product, the Office of Combination Products (OCP) within FDA can determine which center or centers within the

FDA will review the product and under what legal authority the product will be reviewed.

Generally, the center within the FDA that has

the primary role in regulating a combination product is determined based on the primary mode of action of the product.

Generally, if the

primary mode of action is as a device, the FDA’s Center for Devices and Radiological Health (CDRH) takes the lead.

Alternatively,

if the primary mode of action is cellular, then the CBER takes the lead.

On October 18, 2016, we also received written confirmation from

the CBER that the FDA intends to regulate our CEI as a combination product under the primary jurisdiction of CBER.

We further understand

that CBER may choose to consult or collaborate with CDRH with respect to the characteristics of the synthetic scaffold component of our

product based on CBER’s determination of need for such assistance.

The process of obtaining FDA marketing approval is lengthy, expensive,

and uncertain, and we cannot be certain that our products, including products pertaining to the esophagus, airways, or otherwise, will

be cleared or approved in a timely fashion, or at all.

In addition, the review of combination products is often more complex and can be

more time consuming than the review of a product under the jurisdiction of only one center within the FDA.

We cannot be certain that the FDA will not elect to have our combination

products reviewed and regulated by only one FDA center and/or different legal authority, in which case the path to regulatory approval

would be different and could be more lengthy and costly.

If the FDA does not approve or clear our products in a timely fashion,

or at all, our business and financial condition will be adversely affected.

In the E.U., our esophagus product will likely be regulated as a

combined advanced therapy medicinal product and our other products, including for the trachea or bronchus, may also be viewed as advanced

therapy medicinal products, which could delay approvals and clearances and increase costs of obtaining such approvals and clearances.

On May 28, 2014, we received notice from the European Medicines Agency

(EMA) that our first-generation trachea product would be regulated as a combined advanced therapy medicinal product.

While we have not

had any formal interaction with the EMA with respect to our Cellframe implant technology, including pertaining to the esophagus, we believe

that such implant technology would likely be regulated as a combined advanced therapy medicinal product.

In the event of such classification,

it would be necessary to seek a marketing authorization for these products granted by the European Commission before being marketed in

Other products we may develop, including any products pertaining to

the airways or otherwise, may similarly be regulated as advanced therapy medicinal products or combined advanced therapy medicinal products.

The regulatory procedures leading to marketing approval of our products vary among jurisdictions and can involve substantial additional

Compliance with the FDA requirements does not ensure clearance or approval in other jurisdictions, and the ability to legally

market our products in any one foreign country does not ensure clearance, or approval by regulatory authorities in other foreign jurisdictions.

The foreign regulatory process leading to the marketing of the products may include all of the risks associated with obtaining FDA approval

in addition to other risks.

In addition, the time required to comply with foreign regulations and market products may differ from that

required to obtain FDA approval, and we may not obtain foreign approval or clearance on a timely basis, if at all.

Risk Associated with Product Marketing

Even if our products are cleared or approved by regulatory

authorities, if we or our suppliers fail to comply with ongoing FDA or other foreign regulatory authority requirements, or if we

experience unanticipated problems with our products, these products could be subject to restrictions or withdrawal from the market.

Any product for which we obtain clearance or approval in the

U.S., China, or Europe, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities

for such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic

and foreign regulatory authorities or notified bodies.

In particular, we and our suppliers are required to comply with the FDA’s

Quality System Regulations (QSR), and current Good Manufacturing Practices (cGMP), for our medical products, and International

Standards Organization (ISO), regulations for the manufacture of our products and other regulations which cover the methods and

documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of any

product for which we obtain clearance or approval.

Manufacturing may also be subject to controls by the FDA for parts of the system

or combination products that the FDA may find are controlled by the biologics regulations.

Equivalent regulatory obligations apply

in foreign jurisdictions.

Regulatory authorities, such as the FDA, China’s National Medical Products Administration, the

competent authorities of the E.U.

Member States, the EMA and notified bodies, enforce the QSR, cGMP and other applicable regulations

and in foreign jurisdictions through periodic inspections.

The failure by us or one of our suppliers to comply with

applicable statutes and regulations administered by the FDA and other regulatory authorities or notified bodies in the U.S.

in foreign jurisdictions, or the failure to timely and adequately respond to any adverse inspectional observations or product safety

issues, could result in, among other things, any of the following enforcement actions:

Even if our products are cleared or approved by regulatory authorities,

if we or our suppliers fail to comply with ongoing FDA or other foreign regulatory authority requirements, or if we experience unanticipated

problems with our products, these products could be subject to restrictions or withdrawal from the market.

Any product for which we obtain clearance or approval in the U.S.,

China, or Europe, and the manufacturing processes, reporting requirements, post-approval clinical data and promotional activities for

such product, will be subject to continued regulatory review, oversight and periodic inspections by the FDA and other domestic and foreign

regulatory authorities or notified bodies.

In particular, we and our suppliers are required to comply with the FDA’s Quality System

Regulations (QSR), and current Good Manufacturing Practices (cGMP), for our medical products, and International Standards Organization

(ISO), regulations for the manufacture of our products and other regulations which cover the methods and documentation of the design,

testing, production, control, quality assurance, labeling, packaging, storage and shipping of any product for which we obtain clearance

Manufacturing may also be subject to controls by the FDA for parts of the system or combination products that the FDA may

find are controlled by the biologics regulations.

Equivalent regulatory obligations apply in foreign jurisdictions.

Regulatory authorities,

such as the FDA, China’s National Medical Products Administration, the competent authorities of the E.U.

Member States, the EMA

and notified bodies, enforce the QSR, cGMP and other applicable regulations in the U.S.

and in foreign jurisdictions through periodic

The failure by us or one of our suppliers to comply with applicable statutes and regulations administered by the FDA and

other regulatory authorities or notified bodies in the U.S.

or in foreign jurisdictions, or the failure to timely and adequately respond

to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement

untitled letters, warning letters, fines, injunctions, consent decrees and civil penalties;

8 unchanged sentences

criminal prosecution.

Post-market enforcement actions can

generate adverse commercial consequences.

Post-market enforcement actions can generate

adverse commercial consequences.

Even if regulatory approval of a product is granted, such clearance

or approval may be subject to limitations on the intended uses for which the product may be marketed and reduce our potential to

successfully commercialize the product and generate revenue from the product.

If the FDA or a foreign regulatory authority determines

that our promotional materials, labeling, training or other marketing or educational activities constitute promotion of an unapproved

use, it could request 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 an unapproved use, which could result in significant fines or penalties

under other statutory authorities, such as laws prohibiting false claims for reimbursement.

In addition, we may be required to

conduct costly post-market testing and surveillance to monitor the safety or effectiveness of our products, and we must comply

with medical products reporting requirements, including the reporting of adverse events and malfunctions related to our products.

Later discovery of 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 or manufacturing processes, withdrawal of the products from the market, voluntary or

mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines,

suspension of regulatory approvals, product seizures, injunctions or the imposition of civil or criminal penalties which would

adversely affect our business, operating results and prospects.

Healthcare legislative reform measures

may have a materially adverse effect on our business and results of operations.

In the United States, there have been and continue to be a number

of legislative initiatives to contain healthcare costs.

For example, in March 2010, the Affordable Care Act (ACA) was passed, which

substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S.

pharmaceutical industry.

The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars,

addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs

that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under

the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations,

establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage

gap discount program, in which manufacturers must agree to offer 50% (70% commencing January 1, 2019) point-of-sale discounts off

negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the

manufacturer’s outpatient drugs to be covered under Medicare Part D.

Some of the provisions of the ACA have yet to be fully

implemented, while certain provisions have been subject to Judicial and Congressional challenges, as well as efforts by the Trump

administration to repeal or replace certain aspects of the ACA.

Since January 2017, President Trump has signed two Executive Orders

designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the requirements for health

insurance mandated by the ACA.

Concurrently,

Congress has considered legislation that would repeal or repeal and replace all or part of the ACA.

While Congress has not passed

comprehensive repeal legislation, two bills affecting the implementation of certain taxes under the ACA have been signed into law.

The TCJA includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the

ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred

to as the “individual mandate.”

Additionally, on January 22, 2018, President Trump signed a continuing resolution on

appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated fees, including the so-called “Cadillac”

tax, an annual fee on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance

providers based on market share, and the Medical Device Excise Tax (MDET) on non-exempt medical devices.

Since then, The Further

Consolidated Appropriations Act, 2020 H.R.

1865, signed into law on December 20, 2019, repealed the MDET.

Further, the Bipartisan

Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to reduce the coverage gap in most

Medicare drug plans, commonly referred to as the “donut hole.”

The effect that the ACA and its possible repeal and

replacement may have on our business remains unclear.

Other legislative changes have been proposed and adopted in

the United States since the ACA was enacted.

On August 2, 2011, the Budget Control Act of 2011, among other things, created measures

for spending reductions by Congress.

A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit

reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the

legislation’s automatic reduction to several government programs.

This includes aggregate reductions of Medicare payments

to providers of 2% per fiscal year.

These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments

to the statute, will remain in effect through 2027 unless additional congressional action is taken.

On January 2, 2013, the American

Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types

of providers.

Moreover, payment methodologies may be subject to changes in

healthcare legislation and regulatory initiatives.

For example, the Middle Class Tax Relief and Job Creation Act of 2012 required

that the Centers for Medicare & Medicaid Services (CMS), the agency responsible for administering the Medicare program, reduce

the Medicare clinical laboratory fee schedule by 2% in 2013, which served as a base for 2014 and subsequent years.

effective January 1, 2014, CMS also began bundling the Medicare payments for certain laboratory tests ordered while a patient received

services in a hospital outpatient setting.

We expect that additional state and federal healthcare reform measures will be adopted

in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services,

which could result in reduced demand for any product candidate we develop or complementary diagnostics or companion diagnostics

or additional pricing pressures.

Additionally, there has been increasing legislative and enforcement

interest in the United States with respect to specialty drug pricing practices.

Specifically, there have been several recent U.S.

Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency

to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer

patient programs, and reform government program reimbursement methodologies for drugs.

Any of these regulatory changes and events could limit our ability

to form collaborations and our ability to commercialize our products, and if we fail to comply with any such new or modified regulations

and requirements it could adversely affect our business, operating results and prospects.

If we fail to complete the required

IRS forms for exemptions, make timely semi-monthly payments of collected excise taxes, or submit quarterly reports as required

by the MDET, we may be subject to penalties, such as Section 6656 penalties for any failure to make timely deposits.

Section 4191 of the Internal Revenue Code, enacted by Section

1405 of the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat.

1029 (2010)), in conjunction with

the Patient Protection and the ACA, Public Law 111-148 (124 Stat.

119 (2010)), imposed as of January 1, 2013, an excise tax on

the sale of certain medical devices.

The MDET imposed by Section 4191 is 2.3% of the price for which a taxable medical device is

sold within the U.S.

or approval may be subject to limitations on the intended uses for which the product may be marketed and reduce our potential to successfully

commercialize the product and generate revenue from the product.

If the FDA or a foreign regulatory authority determines that our promotional

materials, labeling, training or other marketing or educational activities constitute promotion of an unapproved use, it could request

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 an unapproved use, which could result in significant fines or penalties under other statutory authorities,

such as laws prohibiting false claims for reimbursement.

In addition, we may be required to conduct costly post-market testing and surveillance

to monitor the safety or effectiveness of our products, and we must comply with medical products reporting requirements, including the

reporting of adverse events and malfunctions related to our products.

Later discovery of 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 or manufacturing processes,

withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any

medical device we manufacture or distribute, fines, suspension of regulatory approvals, product seizures, injunctions or the imposition

of civil or criminal penalties which would adversely affect our business, operating results and prospects.

Risks Related to Our Separation from Harvard Bioscience

We may have received better terms from unaffiliated third

parties than the terms we received in our agreements with Harvard Bioscience.

We may have received better terms from unaffiliated third parties

than the terms we received in our agreements with Harvard Bioscience.

The agreements related to the Separation, including the separation

and distribution agreement, tax sharing agreement, transition services agreement and the other agreements, were negotiated in the

context of the Separation while we were still part of Harvard Bioscience and, accordingly, may not reflect terms that would have

resulted from arm’s-length negotiations among unaffiliated third parties.

The terms of the agreements we negotiated in the

context of the Separation related to, among other things, allocation of assets, liabilities, rights, indemnifications and other

obligations among Harvard Bioscience and us.

We may have received better terms from third parties because third parties may have

competed with each other to win our business.

Third parties may seek to hold us responsible for liabilities

of Harvard Bioscience that we did not assume in our agreements.

and distribution agreement, tax sharing agreement, transition services agreement and the other agreements, were negotiated in the context

of the Separation while we were still part of Harvard Bioscience and, accordingly, may not reflect terms that would have resulted from

arm’s-length negotiations among unaffiliated third parties.

The terms of the agreements we negotiated in the context of the Separation

related to, among other things, allocation of assets, liabilities, rights, indemnifications and other obligations among Harvard Bioscience

We may have received better terms from third parties because third parties may have competed with each other to win our business.

Third parties may seek to hold us responsible for liabilities of

Harvard Bioscience that we did not assume in our agreements.

In connection with the Separation, Harvard Bioscience has generally

agreed to retain all liabilities that did not historically arise from our business.

Third parties may seek to hold us responsible

for Harvard Bioscience’s retained liabilities.

Under our agreements with Harvard Bioscience, Harvard Bioscience has agreed

to indemnify us for claims and losses relating to these retained liabilities.

However, if those liabilities are significant and

we are ultimately liable for them, we cannot assure you that we will be able to recover the full amount of our losses from Harvard

Any disputes that arise between us and Harvard Bioscience

with respect to our past and ongoing relationships could harm our business operations.

Disputes may arise between Harvard Bioscience and us in a number

of areas relating to our past and ongoing relationships, including:

Third parties may seek to hold us responsible for

Harvard Bioscience’s retained liabilities.

Under our agreements with Harvard Bioscience, Harvard Bioscience has agreed to indemnify

us for claims and losses relating to these retained liabilities.

However, if those liabilities are significant and we are ultimately liable

for them, we cannot assure you that we will be able to recover the full amount of our losses from Harvard Bioscience.

Any disputes that arise between us and Harvard Bioscience with respect

to our past and ongoing relationships could harm our business operations.

Disputes may arise between Harvard Bioscience and us in a number of

areas relating to our past and ongoing relationships, including:

intellectual property, technology and business matters, including failure to make required technology transfers and failure to comply with non-compete provisions applicable to Harvard Bioscience and us;

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business opportunities that may be attractive to both Harvard Bioscience and us.

We may not be able to resolve any potential conflicts, and even

if we do, the resolution may be less favorable than if we were dealing with a different party.

We may not be able to resolve any potential conflicts, and even if

we do, the resolution may be less favorable than if we were dealing with a different party.

Risks Relating to Our Common Stock

Our principal stockholders hold a majority of voting power

and will be able to exert significant control over us.

stockholders who purchased shares of our common stock and related warrants pursuant to a Securities Purchase Agreement dated December

27, 2017 collectively hold shares of common stock that represent approximately 37% of all outstanding voting power, and as such

may significantly influence the results of matters voted on by our shareholders.

The interests of these stockholders may conflict

with your interests.

These stockholders have the right to nominate a majority of our Board of Directors and, therefore, effectively

could control many other major decisions regarding our operations.

This significant concentration of share ownership may

adversely affect the trading price for our common stock because

investors may perceive disadvantages in owning stock in companies with controlling stockholders.

Substantial sales of common stock have and may continue to

occur, or may be anticipated, which have and could continue to cause our stock price to decline.

We expect that we will seek to raise additional capital from

time to time in the future, which may involve the issuance of additional shares of common stock, or securities convertible or exercisable

into common stock.

The purchasers of the shares of common stock and warrants to purchase shares of common stock from our public

offerings and private placements may sell significant quantities of our common stock in the market, which may cause a decline

in the price of our common stock.

Further, we cannot predict the effect, if any, that any additional market sales of common stock,

or anticipation of such sales, or the availability of those shares of common stock for sale will have on the market price of our

common stock.

Any future sales of significant amounts of our common stock, or the perception in the market that this will occur,

may result in a decline in the price of our common stock.

A trading market that will provide you with adequate liquidity

may not develop for our common stock.

Our principal stockholders hold a majority of voting power and will

be able to exert significant control over us.

The stockholders

who purchased shares of our common stock and related warrants pursuant to a Securities Purchase Agreement dated December 27, 2017 collectively

hold shares of common stock that represent approximately 37% of all outstanding voting power, and as such may significantly influence

the results of matters voted on by our shareholders.

The interests of these stockholders may conflict with your interests.

These stockholders

have the right to nominate a majority of our Board of Directors and, therefore, effectively could control many other major decisions regarding

our operations.

This significant concentration of share ownership may adversely affect the trading price for our common

stock because investors may perceive disadvantages in owning stock in companies with controlling stockholders.

A trading market that will provide you with adequate liquidity may

not develop for our common stock.

The current public market for our common stock has limited trading

volume and liquidity.

We cannot predict the extent to which investor interest in our company will lead to the development of a

more active trading market in our common stock, or how liquid that market might be.

Our revenues, operating results and cash flows may fluctuate

in future periods and we may fail to meet investor expectations, which may cause the price of our common stock to decline.

Variations in our quarterly and year-end operating results are

difficult to predict and may fluctuate significantly from period to period.

If our revenues or operating results fall below the

expectations of investors or securities analysts, the price of our common stock could decline substantially.

In addition to the

other factors discussed under these “Risk Factors,”

specific factors that may cause fluctuations in our operating results

We cannot predict the extent to which investor interest in our company will lead to the development of a more active

trading market in our common stock, or how liquid that market might be.

Our revenues, operating results and cash flows may fluctuate in

future periods and we may fail to meet investor expectations, which may cause the price of our common stock to decline.

Variations in our quarterly and year-end operating results are difficult

to predict and may fluctuate significantly from period to period.

If our revenues or operating results fall below the expectations of

investors or securities analysts, the price of our common stock could decline substantially.

In addition to the other factors discussed

under these “Risk Factors,”

specific factors that may cause fluctuations in our operating results include:

demand and pricing for our products;

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timing and size of any new product or technology acquisitions we may complete.

Any issuance of preferred stock in the future may dilute the rights

of our common stockholders.

Our Board of Directors has the authority to issue up to 2,000,000 shares

of preferred stock and to determine the price, privileges and other terms of these shares.

Our Board of Directors is empowered to exercise

this authority without any further approval of stockholders.

The rights of the holders of common stock may be adversely affected by the

rights of future holders of preferred stock.

We have in the past issued, and we may at any time in the future issue,

additional shares of authorized preferred stock.

For example, in our December 2017 private placement transaction, we authorized 12,000

shares of Series D convertible preferred stock, of which we issued 3,108 shares, all of which have been converted into shares of common

We do not intend to pay cash dividends on our common stock.

Currently, we do not anticipate paying any cash dividends to holders

of our common stock.

As a result, capital appreciation, if any, of our common stock will be a stockholder’s sole source of gain.

Our common stock has been delisted on the NASDAQ Capital Market,

which may negatively impact the trading price of our common stock and the levels of liquidity available to our stockholders.

Our common stock was suspended from trading on the NASDAQ Capital Market,

prior to the opening of the market on October 6, 2017 and began quotation on the OTCQB Venture Market on that date, retaining the symbol

“BSTG”.

On December 7, 2017, the NASDAQ Capital Market filed a Form 25-NSE with the SEC to complete the delisting process.

The trading of our common stock on the OTCQB Venture Market rather than The NASDAQ Capital Market may negatively impact the trading price

of our common stock and the levels of liquidity available to our stockholders.

Upon such delisting, our common stock became subject to the regulations

of the SEC relating to the market for penny stocks.

A penny stock is any equity security not traded on a national securities exchange

that has a market price of less than $5.00 per share.

The regulations applicable to penny stocks may severely affect the market liquidity

for our common stock and could limit the ability of shareholders to sell securities in the secondary market.

Accordingly, investors in

our common stock may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock, and

there can be no assurance that our common stock will continue to be eligible for trading or quotation on the OTCQB Venture Market or any

other alternative exchanges or markets.

The delisting of our common stock from the NASDAQ Capital Market may

adversely affect our ability to raise additional financing through public or private sales of equity securities, may significantly affect

the ability of investors to trade our securities, and may negatively affect the value and liquidity of our common stock.

Such delisting

may also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest

and fewer business development opportunities.

Furthermore, because of the limited market and low volume of trading in our common stock

that could occur, the share price of our common stock could more likely be affected by broad market fluctuations, general market conditions,

fluctuations in our operating results, changes in the market’s perception of our business, and announcements made by us, our competitors,

parties with whom we have business relationships or third parties.

General Risk Factors

The ongoing COVID-19 pandemic has and may continue to affect our

ability to initiate, resume and complete current or future preclinical studies or clinical trials, disrupt regulatory activities or have

other adverse effects on our business and operations.

In addition, this pandemic may continue to adversely impact economies worldwide,

which could result in adverse effects on our business and operations.

The ongoing COVID-19 pandemic has caused many governments to implement

measures to slow the spread of the outbreak through quarantines, travel restrictions, heightened border scrutiny, and other measures.

The outbreak and government measures taken in response have also had a significant impact, both direct and indirect, on businesses and

commerce, as worker shortages have occurred;

supply chains have been disrupted;

facilities and production have been suspended;

for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as

travel, has fallen.

The future progression of the outbreak and its effects on our business and operations are uncertain.

We and our third-party manufacturers and prospective contract research

organizations, or CROs, may face disruptions that may affect our ability to initiate, resume and complete preclinical studies or clinical

trials, including disruptions in procuring items that are essential for our research and development activities, including, for example,

raw materials used in the manufacturing of our product candidates, and laboratory supplies for our current and future preclinical studies

and clinical trials, in each case, for which there may be shortages because of ongoing efforts to address the outbreak.

We and our third-party

manufacturers and prospective CROs, may face disruptions or future clinical trials arising from delays in IND-enabling studies, manufacturing

disruptions, and the ability to obtain necessary institutional review board or other necessary site approvals, as well as other delays

at clinical trial sites.

We may also face difficulties recruiting or enrolling patients for

future clinical trials if patients are affected by the COVID-19 virus or are fearful of visiting or traveling to clinical trial sites

because of the outbreak.

The response to the COVID-19 pandemic may redirect resources with respect

to regulatory and intellectual property matters in a way that would adversely impact our ability to progress regulatory approvals and

protect our intellectual property.

For example, the FDA has announced that in order to bring new therapies to patients sick with COVID-19

as quickly as possible, it has redeployed medical and regulatory staff from other areas to work on COVID-19 therapies.

In addition, we

may face impediments to regulatory meetings and approvals due to measures intended to limit in-person interactions.

We have modified our business practices, including implementing a work

from home policy for all employees who are able to perform their duties remotely and restricting all nonessential travel, and we expect

to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of

our employees, and other business partners in light of COVID-19.

In the event of a continuation of shelter-in-place orders and/or other

mandated local travel restrictions, our employees conducting research and development activities may not be able to access our research

space, and our core activities may be significant limited or curtailed, possibly for an extended period of time.

The pandemic has already caused significant disruptions in the financial

markets, and may continue to cause such disruptions, which could impact our ability to raise additional funds through public offerings

and may also impact the volatility of our stock price and trading in our stock.

Moreover, it is possible the pandemic will significantly

impact economies worldwide, which could result in adverse effects on our business and operations.

We cannot be certain what the overall

impact of the COVID-19 pandemic will be on our business and it has the potential to adversely affect our business, financial condition,

results of operations and prospects.

We are subject to new U.S.

foreign investment regulations, which

may impose additional burdens on or may limit certain investors’

ability to purchase our common stock, potentially making our common

stock less attractive to investors, and may also impact our ability to generate revenues outside of the U.S.

In October 2018, the U.S.

Department of Treasury

announced a pilot program to implement part of the FIRRMA, effective November 10, 2018.

The pilot program expands the jurisdiction

of CFIUS to include certain direct or indirect foreign investments in a defined category of U.S.

companies, which may include companies

such as Biostage in the biotechnology industry.

Among other things, FIRRMA empowers CFIUS to require certain foreign investors to

make mandatory filings and permits CFIUS to charge filing fees related to such filings.

Such filings are subject to review by CFIUS.

such restrictions on the ability to purchase shares of our common stock may have the effect of delaying or deterring any particular investment

and could also affect the price that some investors are willing to pay for our common stock.

In addition, such restrictions could also

limit the opportunity for our stockholders to receive a premium for their shares of our common stock in relation to any potential change

We intend to generate significant revenues outside

the U.S., including in China.

Restrictions, such as those related to CFIUS, not only affect foreign ownership and investments, but also

the transfer or licensing of technology from the U.S.

into certain foreign markets, including China.

Such restrictions, including to the

extent they block strategic transactions that might otherwise be in shareholders’

interests, may materially and adversely affect

our ability to generate revenues in those foreign markets and the results of our operations.

If we incur higher costs as a result of trade policies, treaties,

government regulations or tariffs, it could have a materially adverse effect on our business, financial condition or results of operations.

There is currently significant uncertainty about the future relationship

between the United States and China, including with respect to trade policies, treaties, government regulations and tariffs.

administration has called for substantial changes to U.S.

foreign trade policy including greater restrictions on international trade

and significant increases in tariffs on goods imported into the U.S.

Under the current status, we do not expect that this tariff will

significantly impact any Biostage products and thus the tariff should not have a materially adverse effect on our business, financial

condition or results of operations.

We are unable to predict whether or when additional tariffs will be imposed or the impact of any such

future tariff increases.

We are exposed to a variety of risks relating to our international

sales and operations, including fluctuations in exchange rates, local economic conditions and delays in collection of accounts receivable.

We intend to generate significant revenues outside the U.S.

foreign currencies including Chinese Renminbi, Euros, British pounds, and in U.S.

dollar-denominated transactions conducted with customers

who generate revenue in currencies other than the U.S.

For those foreign customers who purchase our products in U.S.

currency fluctuations between the U.S.

dollar and the currencies in which those customers do business may have a negative impact on the

demand for our products in foreign countries where the U.S.

dollar has increased in value compared to the local currency.

Since we may have vendors and customers outside the U.S.

generate revenues and incur operating expenses in multiple foreign currencies, we will experience currency exchange risk with respect

to any foreign currency-denominated revenues and expenses.

We cannot predict the consolidated effects of exchange rate fluctuations upon

our future operating results because of the number of currencies involved, the variability of currency exposure and the potential volatility

of currency exchange rates.

Our international activities subject us to laws regarding sanctioned countries, entities and persons, customs,

import-export, laws regarding transactions in foreign countries, the U.S.

Foreign Corrupt Practices Act and local anti-bribery and other

laws regarding interactions with healthcare professionals.

Among other things, these laws restrict, and in some cases prohibit, U.S.

from directly or indirectly selling goods, technology or services to people or entities in certain countries.

In addition, these laws

require that we exercise care in structuring our sales and marketing practices in foreign countries.

Local economic conditions, legal, regulatory or political considerations,

disruptions from strikes, the effectiveness of our sales representatives and distributors, local competition and changes in local medical

practice could also affect our sales to foreign markets.

Relationships with customers and effective terms of sale frequently vary by country,

often with longer-term receivables than are typical in the U.S.

Comprehensive tax reform legislation could adversely affect our

business and financial condition.

In December 2017, the U.S.

government enacted the Tax Cuts and Jobs

Act of 2017 (TCJA), which significantly reforms the Internal Revenue Code of 1986, as amended.

The TCJA, among other things, contains

significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate

of 21%, effective January 1, 2018;

limitation of the tax deduction for interest expense;

limitation of the deduction for net operating

losses and elimination of net operating loss carrybacks, in each case, for losses arising in taxable years beginning after December 31,

2017 (though any such tax losses may be carried forward indefinitely);

and modifying or repealing many business deductions and credits,

including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases

or conditions generally referred to as “orphan drugs”.

The tax rate change resulted in (i) a reduction in the gross amount

of our deferred tax assets recorded as of December 31, 2017, without an impact on the net amount of our deferred tax assets, which are

recorded with a full valuation allowance.

We continue to examine the impact this tax reform legislation may have on our business.

the effect of the TCJA on us and our affiliates, whether adverse or favorable, is uncertain and may not become evident for some period

We urge investors to consult with their legal and tax advisers regarding the implications of the TCJA on an investment in our

common stock.

Changes in the European regulatory environment regarding privacy

and data protection regulations could have a materially adverse impact on our results of operations.

The European Union (E.U.) has adopted a comprehensive overhaul of its

data protection regime in the form of the General Data Protection Regulation (GDPR), which came into effect in May 2018.

the scope of the existing E.U.

data protection law to foreign companies processing personal data of E.U.

The regulation imposes

a strict data protection compliance regime with severe penalties of 4% of worldwide turnover or €20 million, whichever is greater,

and includes new rights such as the right of erasure of personal data.

Although the GDPR will apply across the E.U., as has been the case

under the current data protection regime, E.U.

Member States have some national derogations and local data protection authorities that

will still have the ability to interpret the GDPR, which has the potential to create inconsistencies on a country-by-country basis.

Implementation

of, and compliance with the GDPR could increase our cost of doing business and/or force us to change our business practices in a manner

adverse to our business.

In addition, violations of the GDPR may result in significant fines, penalties and damage to our brand and business

which could, individually or in the aggregate, materially harm our business and reputation.

Healthcare legislative reform measures may

have a materially adverse effect on our business and results of operations.

In the United States, there have been and continue to be a number of

legislative initiatives to contain healthcare costs.

For example, in March 2010, the Affordable Care Act (ACA) was passed, which substantially

changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S.

pharmaceutical industry.

The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology

by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled,

implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends

the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers

of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree

to offer 50% (70% commencing January 1, 2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries

during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D.

of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to Judicial and Congressional

challenges, as well as efforts by the Trump administration to repeal or replace certain aspects of the ACA.

Since January 2017, President

Trump has signed two Executive Orders designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some

of the requirements for health insurance mandated by the ACA.

Concurrently, Congress has considered legislation that would repeal

or repeal and replace all or part of the ACA.

While Congress has not passed comprehensive repeal legislation, two bills affecting the

implementation of certain taxes under the ACA have been signed into law.

The TCJA includes a provision repealing, effective January 1,

2019, the tax-based shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage

for all or part of a year that is commonly referred to as the “individual mandate.”

Additionally, on January 22, 2018, former

President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain ACA-mandated

fees, including the so-called “Cadillac”

tax, an annual fee on certain high-cost employer-sponsored insurance plans, the annual

fee imposed on certain health insurance providers based on market share, and the Medical Device Excise Tax (MDET) on non-exempt medical

Since then, The Further Consolidated Appropriations Act, 2020 H.R.

1865, signed into law on December 20, 2019, repealed the MDET.

Further, the Bipartisan Budget Act of 2018, or the BBA, among other things, amends the ACA, effective January 1, 2019, to reduce the coverage

gap in most Medicare drug plans, commonly referred to as the “donut hole.”

The effect that the ACA and its possible repeal

and replacement may have on our business remains unclear.

Other legislative changes have been proposed and adopted in the United

States since the ACA was enacted.

On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending

reductions by Congress.

A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least

$1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic

reduction to several government programs.

This includes aggregate reductions of Medicare payments to providers of 2% per fiscal year.

These reductions went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect

through 2027 unless additional congressional action is taken.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed

into law, which, among other things, further reduced Medicare payments to several types of providers.

Moreover, payment methodologies may be subject to changes in healthcare

legislation and regulatory initiatives.

For example, the Middle Class Tax Relief and Job Creation Act of 2012 required that the Centers

for Medicare & Medicaid Services (CMS), the agency responsible for administering the Medicare program, reduce the Medicare clinical

laboratory fee schedule by 2% in 2013, which served as a base for 2014 and subsequent years.

In addition, effective January 1, 2014, CMS

also began bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a hospital outpatient

We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit

the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for

any product candidate we develop or complementary diagnostics or companion diagnostics or additional pricing pressures.

Additionally, there has been increasing legislative and enforcement

interest in the United States with respect to specialty drug pricing practices.

Specifically, there have been several recent U.S.

Congressional

inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug pricing,

reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs, and reform

government program reimbursement methodologies for drugs.

Any of these regulatory changes and events could limit our ability

to form collaborations and our ability to commercialize our products, and if we fail to comply with any such new or modified regulations

and requirements it could adversely affect our business, operating results and prospects.

If we fail to complete the required IRS forms

for exemptions, make timely semi-monthly payments of collected excise taxes, or submit quarterly reports as required by the MDET, we may

be subject to penalties, such as Section 6656 penalties for any failure to make timely deposits.

Section 4191 of the Internal Revenue Code, enacted by Section 1405

of the Health Care and Education Reconciliation Act of 2010, Public Law 111-152 (124 Stat.

1029 (2010)), in conjunction with the Patient

Protection and the ACA, Public Law 111-148 (124 Stat.

119 (2010)), imposed as of January 1, 2013, an excise tax on the sale of certain

medical devices.

The MDET imposed by Section 4191 is 2.3% of the price for which a taxable medical device is sold within the U.S.

Substantial sales of common stock have and may continue to occur,

or may be anticipated, which have and could continue to cause our stock price to decline.

We expect that we will seek to raise additional capital from time to

time in the future, which may involve the issuance of additional shares of common stock, or securities convertible or exercisable into

common stock.

The purchasers of the shares of common stock and warrants to purchase shares of common stock from our public offerings and

private placements= may sell significant quantities of our common stock in the market, which may cause a decline in the price of our common

Further, we cannot predict the effect, if any, that any additional market sales of common stock, or anticipation of such sales,

or the availability of those shares of common stock for sale will have on the market price of our common stock.

Any future sales of significant

amounts of our common stock, or the perception in the market that this will occur, may result in a decline in the price of our common

The market price of our shares may fluctuate widely.

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general macroeconomic conditions.

Stock markets in general have experienced volatility that has

often been unrelated to the operating performance of a particular company.

These broad market fluctuations may adversely affect

the trading price of our common stock.

Stock markets in general have experienced volatility that has often

been unrelated to the operating performance of a particular company.

These broad market fluctuations may adversely affect the trading

price of our common stock.

Your percentage ownership will be diluted in the future.

Your percentage ownership will be diluted in the future because

of equity awards that we expect will be granted to our directors, officers and employees, as well as shares of common stock, or

securities convertible into common stock, we issue in connection with future capital raising or strategic transactions.

Equity Incentive Plan provides for the grant of equity-based awards, including restricted stock, restricted stock units, stock

options, stock appreciation rights and other equity-based awards to our directors, officers and other employees, advisors and consultants.

The issuance of any shares of our stock would dilute the proportionate ownership and voting power of existing security holders.

Your percentage ownership will be diluted in the future because of

equity awards that we expect will be granted to our directors, officers and employees, as well as shares of common stock, or securities

convertible into common stock, we issue in connection with future capital raising or strategic transactions.

Our Amended and Restated

Equity Incentive Plan provides for the grant of equity-based awards, including restricted stock, restricted stock units, stock options,

stock appreciation rights and other equity-based awards to our directors, officers and other employees, advisors and consultants.

issuance of any shares of our stock would dilute the proportionate ownership and voting power of existing security holders.

Provisions of Delaware law, of our amended and restated charter

1 unchanged sentence

Provisions in our amended and restated certificate of incorporation

and amended and restated bylaws and in the Delaware corporate law may make it difficult and expensive for a third party to pursue

a tender offer, change in control or takeover attempt, which is opposed by management and the Board of Directors.

Public stockholders

who might desire to participate in such a transaction may not have an opportunity to do so.

We have a staggered Board of Directors

that makes it difficult for stockholders to change the composition of the Board of Directors in any one year.

Any removal of directors

will require a super-majority vote of the holders of at least 75% of the outstanding shares entitled to be cast on the election

of directors which may discourage a third party from making a tender offer or otherwise attempting to obtain control of us.

anti-takeover provisions could substantially impede the ability of public stockholders to change our management and Board of Directors.

Such provisions may also limit the price that investors might be willing to pay for shares of our common stock in the future.

Any issuance of preferred stock in the future may dilute

the rights of our common stockholders.

Our Board of Directors has the authority to issue up to 2,000,000

shares of preferred stock and to determine the price, privileges and other terms of these shares.

Our Board of Directors is empowered

to exercise this authority without any further approval of stockholders.

The rights of the holders of common stock may be adversely

affected by the rights of future holders of preferred stock.

We have in the past issued, and we may at any time in the future

issue, additional shares of authorized preferred stock.

For example, in our December 2017 private placement transaction, we authorized

12,000 shares of Series D convertible preferred stock, of which we issued 3,108 shares, all of which have been converted into shares

of common stock.

We do not intend to pay cash dividends on our common stock.

Currently, we do not anticipate paying any cash dividends to

holders of our common stock.

As a result, capital appreciation, if any, of our common stock will be a stockholder’s sole

source of gain

The JOBS Act allows us to postpone the date by which we must

comply with certain laws and regulations and to reduce the amount of information provided in reports filed with the SEC.

be certain if the reduced disclosure requirements applicable to emerging growth companies will make our common stock less attractive

to investors.

We are and we will remain an “emerging growth company”

until the earliest to occur of (i) the last day of the fiscal year during which our total annual revenues equal or exceed $1 billion

(subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of the date of our

first sale of common equity securities pursuant to an effective registration statement, which will be December 31, 2020, (iii)

the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt, or (iv)

the date on which we are deemed a “large accelerated filer”

under the Securities and Exchange Act of 1934, as amended,

or the Exchange Act.

For so long as we remain an “emerging growth company”

as defined in the JOBS Act, we may take

advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not

“emerging growth companies”

including, but not limited to, not being required to comply with the auditor attestation

requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic

reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation

and stockholder approval of any golden parachute payments not previously approved.

We cannot predict if investors will find our

common stock less attractive because we will rely on some or all of these exemptions.

If some investors find our common stock less

attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

If we avail ourselves of certain exemptions from various reporting requirements, our reduced disclosure may make it more difficult

for investors and securities analysts to evaluate us to a level acceptable by them and may result in less investor confidence.

Our common stock has been delisted on the NASDAQ Capital

Market, which may negatively impact the trading price of our common stock and the levels of liquidity available to our stockholders.

Our common stock was suspended from trading on the NASDAQ Capital

Market, prior to the opening of the market on October 6, 2017 and began quotation on the OTCQB Venture Market on that date, retaining

the symbol “BSTG”.

On December 7, 2017, the NASDAQ Capital Market filed a Form 25-NSE with the SEC to complete the

delisting process.

The trading of our common stock on the OTCQB Venture Market rather than The NASDAQ Capital Market may negatively

impact the trading price of our common stock and the levels of liquidity available to our stockholders.

Upon such delisting, our common stock became subject to the

regulations of the SEC relating to the market for penny stocks.

A penny stock is any equity security not traded on a national securities

exchange that has a market price of less than $5.00 per share.

The regulations applicable to penny stocks may severely affect the

market liquidity for our common stock and could limit the ability of shareholders to sell securities in the secondary market.

investors in our common stock may find it more difficult to dispose of or obtain accurate quotations as to the market value of

our common stock, and there can be no assurance that our common stock will continue to be eligible for trading or quotation on

the OTCQB Venture Market or any other alternative exchanges or markets.

The delisting of our common stock from the NASDAQ Capital Market

may adversely affect our ability to raise additional financing through public or private sales of equity securities, may significantly

affect the ability of investors to trade our securities, and may negatively affect the value and liquidity of our common stock.

Such delisting may also have other negative results, including the potential loss of confidence by employees, the loss of institutional

investor interest and fewer business development opportunities.

Furthermore, because of the limited market and low volume of trading

in our common stock that could occur, the share price of our common stock could more likely be affected by broad market fluctuations,

general market conditions, fluctuations in our operating results, changes in the market’s perception of our business, and

announcements made by us, our competitors, parties with whom we have business relationships or third parties.

and amended and restated bylaws and in the Delaware corporate law may make it difficult and expensive for a third party to pursue a tender

offer, change in control or takeover attempt, which is opposed by management and the Board of Directors.

Public stockholders who might

desire to participate in such a transaction may not have an opportunity to do so.

We have a staggered Board of Directors that makes it

difficult for stockholders to change the composition of the Board of Directors in any one year.

Any removal of directors will require

a super-majority vote of the holders of at least 75% of the outstanding shares entitled to be cast on the election of directors which

may discourage a third party from making a tender offer or otherwise attempting to obtain control of us.

These anti-takeover provisions

could substantially impede the ability of public stockholders to change our management and Board of Directors.

Such provisions may also

limit the price that investors might be willing to pay for shares of our common stock in the future.

We are a smaller reporting company and the

reduced disclosure requirements applicable to smaller reporting companies may make our common stock less attractive to investors.

We are a smaller reporting company (“SRC”) and a non-accelerated

filer, which allows us to take advantage of exemptions from various reporting requirements that are applicable to other public companies

that are not SRCs or non-accelerated filers, including not being required to comply with the auditor attestation requirements of Section

404 of the Sarbanes-Oxley Act of 2002, as amended, reduced disclosure obligations, including disclosures regarding executive compensation,

in our Annual Report and our periodic reports and proxy statements and providing only two years of audited financial statements in our

Annual Report and our periodic reports.

We will remain an SRC until (a) the aggregate market value of our outstanding common stock held

by non-affiliates as of the last business day our most recently completed second fiscal quarter exceeds $250 million or (b) in the event

we have over $100 million in annual revenues, the aggregate market value of our outstanding common stock held by non-affiliates as of

the last business day our most recently completed second fiscal quarter exceeds $700 million.

We cannot predict whether investors will

find our common stock less attractive if we rely on certain or all of these exemptions.

If some investors find our common stock less attractive

as a result, there may be a less active trading market for our common stock and our stock price may be more volatile and may decline.

We incur increased costs as a result of operating

as a public company, and our management is required to devote substantial time to new compliance initiatives and corporate governance

As a public company, we incur significant legal,

accounting, and other expenses that we did not incur as a private company.

The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and

Consumer Protection Act, FINRA rules and other applicable securities rules and regulations impose various requirements on public companies,

including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.

Our management

and other personnel need to devote a substantial amount of time to these compliance initiatives.

Moreover, these rules and regulations

increase our legal and financial compliance costs and make some activities more time-consuming and costly.

We continue to evaluate these rules and regulations

and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

These rules and regulations are

often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice

may evolve over time as new guidance is provided by regulatory and governing bodies.

This could result in continuing uncertainty regarding

compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Unresolved Staff Comments.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors