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Item 7. Management’s Discussion and Analysis

2023-03-30 compared with 2022-03-31 · 269 added, 149 removed, 25 unchanged (94% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

The following section of this Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contains statements that are not statements of historical fact and are forward-looking statements within the meaning of federal securities laws.

These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties.

In some cases, you can identify forward-looking statements by terms such as “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “could,” “would,” “target,” “seek,” “aim,” “believe,” “predicts,” “think,” “objectives,” “optimistic,” “new,” “goal,” “strategy,” “potential,” “is likely,” “will,” “expect,” “plan” “project,” “permit” and similar expressions intended to identify forward-looking statements.

These statements reflect our current views with respect to future events, are based on

assumptions and are subject to risks and uncertainties.

Forward-Looking

following section of this Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition

and Results of Operations” contains statements that are not statements of historical fact and are forward-looking statements within

the meaning of federal securities laws.

These statements involve known and unknown risks, uncertainties and other factors that may cause

our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed

or implied by the forward-looking statements.

These statements reflect our current views with respect to future events and are based

on assumptions and subject to risks and uncertainties.

some cases, you can identify forward-looking statements by terms such as “believe,” “may,” “estimate,”

“continue,” “anticipate,” “intend,” “should,” “could,” “would,”

“target,” “seek,” “aim,” “believe,” “predicts,” “think,” “objectives,”

“optimistic,” “new,” “goal,” “strategy,” “potential,” “is likely,”

“will,” “expect,” “plan” “project,” “permit” and similar expressions intended

to identify forward-looking statements.

These statements reflect our current views with respect to future events, are based on assumptions

and are subject to risks and uncertainties.

Given these uncertainties, you should not place undue reliance on these forward-looking statements.

We discuss many of these risks in greater detail in Item 1A.”Risk Factors” of this Annual Report on Form 10-K.

You should carefully review all of these factors, as well as the comprehensive discussion of forward-looking statements on page 1 of this Annual Report on Form 10-K.

We are a biotechnology company with a mission to cure patients of cancers, injuries, and birth defects of the gastro-intestinal tract and the airways.

We are a clinical-stage biotechnology that intends to use cell therapy to treat cancer, injuries, and birth defects in the esophagus.

We believe our technology is likely to be used to treat esophageal cancer, esophageal injuries, and birth defects in the esophagus.

Additional product candidates in our pipeline may treat bronchial cancer, intestinal cancer and colon cancer.

Our first esophageal product candidate, the Biostage Esophageal Implant, or BEI, was used in the first successful regeneration of the esophagus in a patient with esophageal cancer.

This successful first-in-human experience, plus the research we have performed on 45 pigs, led the FDA to approve our 10-patient combined phase 1 and phase 2 clinical trial.

This combination trial will measure both safety and efficacy in the patient population.

We were incorporated and commenced operations on November 1, 2013 as a result of a spin-off from Harvard Bioscience, Inc., or Harvard Bioscience.

carefully review all of these factors, as well as the comprehensive discussion of forward-looking statements on page ii of this Annual

Report on Form 10-K.

are a clinical-stage biotechnology company that intends to use cell therapy to treat cancer, injuries, and birth defects in the

believe our technology is likely to be used to treat esophageal cancer, esophageal injuries, and birth defects in the esophagus.

product candidates in our pipeline may treat bronchial cancer, intestinal cancer and colon cancer.

first esophageal product candidate, our esophageal implant was used in the first successful regeneration of the esophagus

in a patient with esophageal cancer.

This successful first-in-human experience, plus the research we have performed on over 50 pigs,

led the FDA to approve our 10-patient combined phase 1 and phase 2 clinical trial.

This combination trial will measure both safety and

efficacy in the patient population.

were incorporated and commenced operations on November 1, 2013 as a result of a spin-off from Harvard Bioscience, Inc., or Harvard Bioscience.

On that date, we became an independent company that operates the regenerative medicine business previously owned by Harvard Bioscience.

The spin-off was completed through the distribution of all the shares of common stock of Biostage to Harvard Bioscience stockholders.

We have also formed a subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, as we continue to assess the market and regulatory approval pathway in China as to our implant products.

We are not certain at this time as to which market, including U.S.

or China for example, may provide the most viable initial pathway for regulatory approval to a commercial product.

This will depend on a number of factors, including the approval and development processes, related costs, ability to raise capital and the terms and conditions thereof, as well as the ongoing impact of the COVID-19 pandemic, among other factors.

Any development and capital raising efforts in China may include a joint venture in relation to our Hong Kong subsidiary, and would also involve a number of commercial variables, including rights and obligations pertaining to licensing, development and financing, among others.

Our failure to receive or obtain such clearances or approvals on a timely basis or at all, whether that be in the U.S., China or otherwise, would have an adverse effect on our results of operations.

Since our incorporation, we have devoted substantially all of our resources to developing our programs, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations.

To date, we have financed our operations with proceeds from the sales of common stock and preferred stock.

In December 2017, we sold the inventory and rights to manufacture and sell research-only versions of our bioreactors to Harvard Bioscience.

We did not recognize any revenues during the years ended December 31, 2021 and December 31, 2020.

Our product candidates are currently in development and have not yet received regulatory approval for sale anywhere in the world.

We have incurred substantial operating losses since our inception, and as of December 31, 2021 had an accumulated deficit of approximately $76.9 million and will require additional financing to fund future operations.

We expect that our operating cash on-hand as of December 31, 2021 of approximately $1.2 million will enable us to fund our operating expenses and capital expenditure requirements into early third quarter of 2022.

have also formed a subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, as we continue to assess the market and

regulatory approval pathway in China as to our implant products.

Any development and capital raising efforts in China may include a joint

venture in relation to our Hong Kong subsidiary, and would also involve a number of commercial variables, including rights and obligations

pertaining to licensing, development and financing, among others.

Our failure to receive or obtain such clearances or approvals on a

timely basis or at all, whether that be in the U.S., China or otherwise, would have an adverse effect on our results of operations.

our incorporation, we have devoted substantially all of our resources to developing our programs, building our intellectual property

portfolio, business planning, raising capital and providing general and administrative support for these operations.

To date, we have

financed our operations with proceeds from the sales of common stock and preferred stock.

In December 2017, we sold the inventory and

rights to manufacture and sell research-only versions of our bioreactors to Harvard Bioscience.

We did not recognize any revenues during

the years ended December 31, 2022 and December 31, 2021.

product candidates are currently in development and have not yet received regulatory approval for sale anywhere in the world.

have incurred substantial operating losses since our inception, and as of December 31, 2022 had an accumulated deficit of approximately

$83.0 million and will require additional financing to fund future operations.

We expect that our operating cash on-hand as of December

31, 2022 of approximately $1.2 million will enable us to fund our operating expenses and capital expenditure requirements into the second

quarter of 2023.

We expect to continue to incur operating losses and negative cash flows from operations for 2022 and in future years.

Therefore, as disclosed in Note 1 to our Consolidated Financial Statements, these conditions raise substantial doubt about our ability to continue as a going concern.

We will need to raise additional funds to fund our operations.

In the event we do not raise additional capital from outside sources in the third quarter of 2022, we may be forced to curtail or cease our operations.

Cash requirements and cash resource needs will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing development, pre-clinical and clinical testing of product candidates, as well as regulatory efforts and collaborative arrangements necessary for our products that are currently under development.

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, research grants, or strategic collaborations and licensing arrangements.

We may not be able to obtain additional financing on favorable terms, if at all.

Our operations will be adversely affected if we are unable to raise or obtain needed funding and may materially affect our ability to continue as a going concern.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern and therefore, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

Therefore, as disclosed in Note 1 to our Consolidated Financial Statements, these conditions raise substantial doubt about our ability

to continue as a going concern.

will need to raise additional funds to fund our operations.

In the event we do not raise additional capital from outside sources before

or during the second quarter of 2023, we may be forced to curtail or cease our operations.

Cash requirements and cash resource needs

will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing

development, pre-clinical and clinical testing of product candidates, as well as regulatory efforts and collaborative arrangements necessary

for our products that are currently under development.

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, research grants, or strategic collaborations and licensing arrangements.

We may not be able to obtain additional

financing on favorable terms, if at all.

operations will be adversely affected if we are unable to raise or obtain needed funding and may materially affect our ability to continue

as a going concern.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern and therefore,

the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and

classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

Financing Activities

During the year ended December 31, 2022, we completed the following financing activities:

● On May 4, 2020, we obtained a loan from Bank of America in the aggregate amount of approximately $0.4 million, pursuant to the Paycheck Protection Program, established as part of the CARES Act.

Such loan was evidenced by a promissory note dated May 4, 2020 issued by us whereas certain amounts of the loan where eligible for forgiveness if used for qualifying expenses.

On December 18, 2020, we submitted the loan forgiveness application for the entire borrowings of approximately $0.4 million to the lender and were notified on January 7, 2021 that the application was submitted to the Small Business Administration, or SBA, for review.

On May 23, 2021, we were notified by the lender that the SBA determined that the application for our loan forgiveness was approved, and the SBA remitted the forgiven amount to the lender.

We have accounted for this loan forgiveness as a gain on extinguishment of approximately $0.4 million (See Note 3 in the Consolidated Financial Statements included in Item 15 of this report for further discussion).

● During the year ended December 31, 2021, we issued a total of 1,300,000 shares of our common stock at a purchase price of $2.00 per share and warrants to purchase 650,000 shares of common stock at an exercise price of $2.00 per share to a group of investors for aggregate gross and net proceeds of approximately $2.6 million.

● During the year ended December 31, 2021, we issued 72,464 shares of our common stock to our Interim Chief Executive Officer at a purchase price of $3.45 per share and warrants to purchase 36,232 shares of common stock at an exercise price of $3.45 per share for aggregate gross and net proceeds of approximately $250 thousand.

May 2022, we sold 854,771 shares of common stock and warrants to purchase 427,390 shares of common stock for the aggregate purchase

price of approximately $5.1 million and a purchase price per unit of $5.92.

Each unit consisted of one share of common stock and

a warrant to purchase one half of one share of common stock, subject to adjustment as provided in the warrants.

The warrants have

an exercise price of $8.88 per share, subject to adjustments as provided under the terms thereof, and were immediately exercisable.

The warrants are exercisable until five years (5) from the warrant issuance date.

In May 2022, we also issued options to acquire

38,564 shares of common stock to satisfy sales commissions in the approximate amount of $155,660 incurred in relation to this private

June 2022, the Company issued 4,000 shares of Series E Convertible Preferred Stock at a price of $1,000 per share to satisfy certain

indemnification obligations in the amount of $4.0 million, in lieu of paying cash.

The Company issued an aggregate of 180 shares of Series E Convertible Preferred Stock relating

to accrued dividends during the year ended December 31, 2022.

Financing Activities

During the year ended December 31, 2020, we completed the following financing activities:

● On May 4, 2020, we were granted the loan described above from Bank of America in the aggregate amount of approximately $0.4 million (See Note 3 in the Consolidated Financial Statements included in Item 15 of this report for further discussion).

● During the year ended December 31, 2020, we issued a total of 151,027 and 125,000 shares, respectively, of our common stock at a purchase price of $3.70 and $4.00 per share, respectively, and issued warrants to purchase 151,027 shares of common stock at an exercise price of $3.70 per share to a group of investors for aggregate gross and net proceeds of approximately $1.1 million.

● During the year ended December 31, 2020, we issued 414,000 shares of our common stock to a group of investors in connection with the exercise of 414,000 previously issued warrants at $2.00 per share for aggregate gross and net proceeds of approximately $0.8 million.

● During the year ended December 31, 2020, we issued 516,877 shares of our common stock to a group of investors in connection with the exercise of 516,877 previously issued warrants at $3.70 per share for aggregate gross and net proceeds of approximately $1.9 million.

● During the year ended December 31, 2020, we issued a total of 25,948 shares of our common stock to the former chief executive officer and an employee due to the vesting of restricted stock units and issuance of a common stock award.

Small Business Innovation Research Grant

On March 28, 2018, we were awarded a Fast-Track Small Business Innovation Research, or SBIR, grant by the Eunice Kennedy National Institute of Child Health and Human Development, or NICHD, to support testing of pediatric Biostage Esophageal Implant.

The award for Phase I provided for the reimbursement of approximately $0.2 million of qualified research and development costs which was received and recognized as grant income during 2018.

On October 26, 2018, we were awarded the Phase II Fast-Track SBIR grant from the Eunice Kennedy NICHD grant aggregating $1.1 million to support development, testing, and translation to the clinic through September 2019 and represented years one and two of the Phase II portion of the award.

On August 3, 2020, we were awarded a third year of the Phase II grant totaling $0.5 million for support of development, testing, and translation to the clinic covering qualified expenses incurred from October 1, 2019 through September 30, 2020.

In September of 2020, we filed and were granted a one year, no-cost extension for the Phase II grant period extending through September 30, 2021.

For the years ended December 31, 2021 and 2020, we recognized approximately $165,000 and approximately $447,000 of grant income, respectively, from Phase II of the SBIR grant.

The aggregate SBIR grant to date provided a total award of $1.8 million, of which, approximately $1.5 million has been recognized through December 31, 2021.

The Phase II portion of the award expired effective September 30, 2021

Effective as of November 26, 2021, we appointed David Green as Interim Chief Executive Officer.

Green, age 57, is the founder and CEO of Zero Carbon LLC, a company that offers green-tech consulting services.

Green is also the founder and former Chairman and CEO of Biostage, Inc., as well as co-founder and former director, President and CEO of Harvard Bioscience, Inc.

On April 8, 2021, we appointed Peter A.

Pellegrino Jr.

as Interim Vice President of Finance.

the year ended December 31, 2021, we completed the following financing activities:

On May 4, 2020, we obtained

a loan from Bank of America in the aggregate amount of approximately $0.4 million, pursuant to the Paycheck Protection Program, established

as part of the CARES Act.

Such loan was evidenced by a promissory note dated May 4, 2020 issued by us whereas certain amounts of

the loan where eligible for forgiveness if used for qualifying expenses.

On December 18, 2020, we submitted the loan forgiveness

application for the entire borrowings of approximately $0.4 million to the lender and were notified on January 7, 2021 that the application

was submitted to the Small Business Administration, or SBA, for review.

On May 23, 2021, we were notified by the lender that the

SBA determined that the application for our loan forgiveness was approved, and the SBA remitted the forgiven amount to the lender.

We have accounted for this loan forgiveness as a gain on extinguishment of approximately $0.4 million (See Note 3 in the Consolidated

Financial Statements included in Item 15 of this Annual Report on Form 10-K for further discussion).

During the year ended December

31, 2021, we issued a total of 1,300,000 shares of our common stock at a purchase price of $2.00 per share and warrants to purchase

650,000 shares of common stock at an exercise price of $2.00 per share to a group of investors for aggregate gross and net proceeds

of approximately $2.6 million.

During the year ended December

31, 2021, we issued 72,464 shares of our common stock to our Chief Executive Officer at a purchase price of $3.45 per share and warrants

to purchase 36,232 shares of common stock at an exercise price of $3.45 per share for aggregate gross and net proceeds of approximately

$250 thousand.

Business Innovation Research Grant

March 28, 2018, we were awarded a Fast-Track Small Business Innovation Research, or SBIR, grant by the Eunice Kennedy National

Institute of Child Health and Human Development, or NICHD, to support testing of a pediatric esophageal implant.

for Phase I provided for the reimbursement of approximately $0.2 million of qualified research and development costs which was

received and recognized as grant income during 2018.

October 26, 2018, we were awarded the Phase II Fast-Track SBIR grant from the Eunice Kennedy NICHD grant aggregating $1.1 million to

support development, testing, and translation to the clinic through September 2019 and represented years one and two of the Phase II

portion of the award.

On August 3, 2020, we were awarded a third year of the Phase II grant totaling $0.5 million for support of development,

testing, and translation to the clinic covering qualified expenses incurred from October 1, 2019 through September 30, 2020.

of 2020, we filed and were granted a one year, no-cost extension for the Phase II grant period extending through September 30, 2021.

the years ended December 31, 2022 and 2021, we recognized approximately $0 and $0.2 million of grant income, respectively,

from Phase II of the SBIR grant.

The aggregate SBIR grant to date provided a total award of $1.8 million, of which approximately $1.5

million has been recognized through December 31, 2022.

Phase II portion of the award expired effective September 30, 2021.

Effective as of November 26, 2021, we appointed David Green as Chief Executive

Effective as of March 1, 2023, we transitioned the role of Chief Executive Officer to Junli (Jerry) He, our existing director,

Green remains on our Board of Directors.

August 8, 2022, we appointed Joseph Damasio Jr.

as Chief Financial Officer.

In such role, Mr.

Pellegrino serves as the Company’s principal accounting officer and principal financial officer.

As of December 31, 2021, we had 7 employees, 6 of whom were full-time and one part-time.

Components of Operating Loss

Research and Development Expense .

Research and development expense consists of salaries and related expenses, including share-based compensation, for personnel and contracted consultants and various materials and other costs to develop our new products, primarily:

synthetic scaffolds, including investigation and development of materials and investigation and optimization of cellularization, autoseeders, and 3D bioreactors, as well as studies of cells and cell behavior.

Other research and development expenses include the costs of outside service providers and material costs for prototype and test units and outside laboratories and testing facilities performing cell growth and materials experiments, as well as the costs of all other preclinical research and testing including animal studies and expenses related to potential patents.

Damasio serves as the Company’s principal

accounting officer and principal financial officer.

of December 31, 2022, we had 8 employees, 7 of whom were full-time and one part-time.

of Operating Loss

and Development Expense .

Research and development expense consists of salaries and related expenses, including share-based compensation,

for personnel and contracted consultants and various materials and other costs to develop our new products, primarily:

synthetic scaffolds,

including investigation and development of materials and investigation and optimization of cellularization, autoseeders, and 3-D bioreactors,

as well as studies of cells and cell behavior.

Other research and development expenses include the costs of outside service providers

and material costs for prototype and test units and outside laboratories and testing facilities performing cell growth and materials

experiments, as well as the costs of all other preclinical research and testing including animal studies and expenses related to potential

We expense research and development costs as incurred.

General and Administrative Expense .

General and administrative expense consists primarily of salaries and other related expenses, including share-based compensation, for personnel in executive, accounting, information technology and human resources roles.

Other costs include professional fees for legal and accounting services, insurance, investor relations and facility costs.

Forgiveness of Notes Payable.

On May 23, 2021, we were notified by our lender that provided our related Loan that the SBA determined that our application for loan forgiveness was approved, and the SBA remitted the forgiveness amount to our lender.

We have accounted for this loan forgiveness as an extinguishment.

Grant Income.

and Administrative Expense .

General and administrative expense consists primarily of salaries and other related expenses, including

share-based compensation, for personnel in executive, accounting, information technology and human resources roles.

Other costs include

professional fees for legal and accounting services, insurance, investor relations and facility costs.

of Notes Payable.

On May 23, 2021, we were notified by our lender that provided our related Loan that the SBA determined that our

application for loan forgiveness was approved, and the SBA remitted the forgiveness amount to our lender.

We have accounted for this

loan forgiveness as an extinguishment.

Grant income reflects income earned under the SBIR grant.

Grant income is recognized based on timing of when qualified research and development costs are incurred.

Changes in Fair Value of Warrant Liability.

Changes in fair value of warrant liability represent the change in the fair value of outstanding common stock warrants classified as liability awards during the years ended December 31, 2021 and 2020.

We use the Black-Scholes pricing model to value the related warrant liability.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles in the United States (U.S.

The preparation of these consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenues, expenses and related disclosures.

We believe the following policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Share-based Compensation

We account for our share-based compensation in accordance with the fair value recognition provisions of current authoritative guidance.

Share-based awards, including stock options, are measured at fair value as of the grant date and recognized as expense over the requisite vesting period (generally the service period), which we recognize on a straight-line basis.

Expense on share-based awards for which vesting is performance or milestone based is recognized on a straight-line basis from the date when we determine the achievement of the milestone is probable to the vesting/milestone achievement date.

We estimate the fair value of options granted using the Black-Scholes option valuation model.

Grant income is recognized based on timing of when qualified research

and development costs are incurred.

in Fair Value of Warrant Liability.

Changes in fair value of warrant liability represent the change in the fair value of

outstanding common stock warrants that were classified as liability awards during the years ended December 31, 2022 and 2021.

the Black-Scholes pricing model to value the related warrant liability.

Accounting Estimates

discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which

have been prepared in accordance with Generally Accepted Accounting Principles in the United States (U.S.

The preparation of these

consolidated financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenues,

expenses and related disclosures.

We believe the following policies to be critical to the judgments and estimates used in the preparation

of our financial statements.

account for our share-based compensation in accordance with the fair value recognition provisions of current authoritative guidance.

Share-based awards, including stock options, are measured at fair value as of the grant date and recognized as expense over the requisite

vesting period (generally the service period), which we recognize on a straight-line basis.

Expense on share-based awards for which vesting

is performance or milestone based is recognized on a straight-line basis from the date when we determine the achievement of the milestone

is probable to the vesting/milestone achievement date.

We estimate the fair value of options granted using the Black-Scholes option valuation

Significant judgment is required in determining the proper assumptions used in these models.

The assumptions used include the risk-free interest rate, expected term, expected volatility and expected dividend yield.

We base our assumptions on historical data when available or, when not available, on a peer group of companies.

However, these assumptions consist of estimates of future market conditions, which are inherently uncertain and subject to our judgment, and therefore any changes in assumptions could significantly impact the future grant date fair value of share-based awards.

Total share-based compensation expense for the years ended December 31, 2021 and 2020 was approximately $1.0 million and $1.1 million, respectively.

Share-based compensation is further described in Note 15 to our Consolidated Financial Statements included in Item 15 of this report.

Warrant Liability

Most of the warrants to purchase shares of our common stock have been classified on our consolidated balance sheets as equity.

We classify warrants as a liability in our consolidated balance sheets if the warrant is a free-standing financial instrument that may require us to transfer cash consideration upon exercise and that cash transfer event would be out of our control.

Such a “liability warrant” is initially recorded at fair value on the date of grant using the Black-Scholes model, net of issuance costs, and it is subsequently re-measured to fair value at each subsequent balance sheet date.

Changes in fair value of the warrant are recognized as a component of other income (expense) in the consolidated statements of operations.

We will continue to adjust the liability for changes in fair value until the earlier of the exercise or expiration of the warrant.

Results of Operations

The following table summarizes the results of our operations for the years ended December 31, 2021 and 2020 ($ in thousands):

For the Year Ended

Change 2021 vs.

The assumptions used include the

risk-free interest rate, expected term, expected volatility and expected dividend yield.

We base our assumptions on historical data when

available or, when not available, on a peer group of companies.

However, these assumptions consist of estimates of future market conditions,

which are inherently uncertain and subject to our judgment, and therefore any changes in assumptions could significantly impact the future

grant date fair value of share-based awards.

share-based compensation expense for each of the years ended December 31, 2022 and 2021 was approximately $1.0

Share-based compensation is further described in Note 15 to our Consolidated Financial Statements included in

Item 15 of this Annual Report on Form 10-K.

of the warrants to purchase shares of our common stock have been classified on our consolidated balance sheets as equity.

warrants as a liability in our consolidated balance sheets if the warrant is a free-standing financial instrument that may require us

to transfer cash consideration upon exercise and that cash transfer event would be out of our control.

Such a “liability warrant”

is initially recorded at fair value on the date of grant using the Black-Scholes model, net of issuance costs, and it is subsequently

re-measured to fair value at each subsequent balance sheet date.

Changes in fair value of the warrant are recognized as a component of

other income (expense) in the consolidated statements of operations.

We continued to adjust the liability for changes in fair value

until the expiration of the warrant liability in February 2022.

of Operations

following table summarizes the results of our operations for the years ended December 31, 2022 and 2021 ($ in thousands):

the Year Ended

Operating expenses

4 unchanged sentences

Forgiveness of notes payable

Sublease income

Change in fair value of warrant liability

Other income (expense),

other income (expense), net

Total other income (expense), net

nm = not meaningful

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Research and Development Expense

Research and development expense decreased approximately $0.5 million, or 23%, to approxime$1.6 million for the year ended December 31, 2021 as compared to approximately $2.1 million for the year ended December 31, 2020.

This was due primarily to lower headcount resulting in approximately $0.5 million of lower employee compensation expenses.

General and Administrative Expense

General and administrative expense increased approximately $3.8 million, or 116%, to approximately $7.0 million for the year ended December 31, 2021 as compared to approximately $3.3 million for the year ended December 31, 2020.

This increase was due primarily to a charge of approximately $3.3 million relating to the contingency matter for our ongoing litigation for a wrongful death complaint and related matters more fully described in Note 9 to our consolidated financial statements and an increase in legal costs of approximately $1.3 million for fees for filing claims against our insurance carrier to seek continuance of insurance coverage for the same litigation.

These increases are offset, in part, by approximately $0.8 million of lower employee and share-based expenses due to the separations of our former chief executive and chief financial officers during 2020.

Forgiveness of notes payable

As a result, we recorded a gain from forgiveness of our notes payable of approximately $0.4 million for the year ended December 31, 2021.

For the year ended December 31, 2021, we recorded grant income of approximately $165,000 for qualified expenditures under the SBIR grant as the Phase II portion of the award expired effective September 30, 2021 For the year ended December 31, 2020, we recorded grant income of approximately $447,000 for qualified expenditures under the SBIR grant.

Change in Fair Value of Warrant Liability

For the year ended December 31, 2021, the change in fair value of our warrant liability resulted in other income of approximately $15,000 due primarily to a reduction in the expected term of the outstanding warrants.

This compared to other income of approximately $16,000 for the year ended December 31, 2020, which was due primarily to a lower stock price of the underlying common shares.

Ended December 31, 2022 Compared to Year Ended December 31, 2021

and Development Expense

and development expense increased approximately $0.2 million, or 9%, to approximately $1.7 million for the year ended December 31, 2022

as compared to approximately $1.6 million for the year ended December 31, 2021.

This was due primarily to higher headcount and preclinical

trial activities.

and Administrative Expense

and administrative expense decreased approximately $2.6 million, or 37%, to approximately $4.4 million for the year ended December 31,

2022 as compared to approximately $7.0 million for the year ended December 31, 2021.

This decrease was due primarily to a charge in the

prior year of approximately $3.3 million relating to the contingency matter for our litigation for a wrongful death complaint and related

matters more fully described in Note 9 to our consolidated financial statements.

The decrease is offset, in part, by approximately $0.4

million of higher employee and share-based expenses and approximately $0.2 million for increased costs for supporting our ongoing public

company requirements.

of notes payable

May 23, 2021, we were notified by our lender that provided our related Loan that the SBA determined that our application for loan forgiveness

was approved, and the SBA remitted the forgiven amount to our lender.

As a result, we recorded a gain from forgiveness of our notes payable

of approximately $0.4 million for the year ended December 31, 2021 compared to none for 2022.

On January 5, 2022, the Company executed a four-month sublease agreement for certain laboratory and office space at its

Holliston, Massachusetts facility.

The Company further extended the sublease agreement to a month-to-month basis until August 31, 2022,

when the other party vacated the premises.

For the year ended December 31, 2022, the Company recorded sublease income of approximately

$87,000 relating to this agreement.

the year ended December 31, 2022, we recorded grant income of approximately $0 for qualified expenditures under the SBIR grant as the

Phase II portion of the award expired effective September 30, 2021.

For the year ended December 31, 2021, we recorded grant income of

approximately $165,000 for qualified expenditures under the SBIR grant.

in Fair Value of Warrant Liability

the year ended December 31, 2022, the change in fair value of our warrant liability resulted in other income of approximately $2,000.

This compared to other income of approximately $15,000 for the year ended December 31, 2021, which was due primarily to a reduction in

the expected term of the outstanding warrants.

These warrants expired unexercised in February of 2022.

Other income (expense), net

In June of 2021, we received a refund payment of approximately $71,000 for certain withholding taxes paid in previous years to the German tax authorities which were remitted to us on behalf of Harvard Apparatus Regenerative Technology GmbH, our German subsidiary.

Liquidity and Capital Resources

Sources of Liquidity.

We have incurred operating losses since inception, and as of December 31, 2021 we had an accumulated deficit of approximately $76.9 million.

We are currently investing significant resources in the development and commercialization of our product candidates for use by clinicians and researchers in the field of regenerative medicine.

As a result, we expect to incur operating losses and negative operating cash flows for the foreseeable future.

Operating Activities.

Net cash used in operating activities of approximately $2.6 million for the year ended December 31, 2021 was primarily a result of our net loss of approximately $8.0 million, offset by approximately $0.7 million of non-cash items related to the forgiveness of our notes payable, share-based compensation and depreciation, and an increase of approximately $4.7 million of cash provided from working capital due to the timing of prepaid expenses, accounts payable, accrued expenses and contingency accrual more fully described in Note 9 to our consolidated financial statements.

Net cash used in operating activities of approximately $4.0 million for the year ended December 31, 2020 was primarily a result of our net loss of approximately $4.9 million, offset by approximately $1.3 million of non-cash expenses related to share-based compensation and depreciation, and increased by approximately $0.4 million of cash provided from working capital due to the timing of prepaid expenses and accounts payable.

Investing Activities.

Net cash used in investing activities for the years ended December 31, 2021 and 2020 totaled zero and approximately $7,000, respectively, and represented purchases of property, plant and equipment.

Financing Activities.

Net cash generated from financing activities was approximately $2.8 million during the year ended December 31, 2021 and consisted of net proceeds received from private placement transactions for the issuance of common stock and warrants to purchase common stock.

Net cash generated from financing activities was approximately $4.2 million during the year ended December 31, 2020 and consisted of approximately $1.1 million of net proceeds received from private placement transactions that resulted in the issuance of 276,027 shares of our common stock and warrants to purchase 151,027 shares of common stock to a group of investors at exercise prices of $3.70 and $4.00 per share, respectively, approximately $2.7 million received from the issuance of 930,877 shares of our common stock to a group of investors in connection with previously issued warrants, and approximately $0.4 million received under the paycheck protection program loan.

We continue to pursue our esophageal program, including advancing to operate as a clinical stage company.

Given our current limited cash resources, we intend to closely monitor our cash expenses as such cash resources are expected to only allow us to meet our operating needs into early third quarter of 2022.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable Securities and Exchange Commission rules.

income (expense), net

During the year ended December 31, 2022, we recorded interest expense of approximately $9,000 on insurance installment

June 2021, we received a refund payment of approximately $71,000 for certain withholding taxes paid in previous years to the German

tax authorities which were remitted to us on behalf of Harvard Apparatus Regenerative Technology GmbH, our German subsidiary.

and Capital Resources

of Liquidity.

We have incurred operating losses since inception and as of December 31, 2022, we had an accumulated deficit of approximately

$83.0 million.

We are currently investing significant resources in the development and commercialization of our product candidates for

use by clinicians and researchers in the field of regenerative medicine.

As a result, we expect to incur operating losses and negative

operating cash flows for the foreseeable future.

Net cash used in operating activities of approximately $5.1 million for the year ended December 31, 2022 was primarily

a result of our net loss of approximately $6.1 million and $0.6 million for deferred financing costs, offset by approximately $1.1 million

of non-cash items related to share-based compensation and depreciation, and an increase of approximately $0.5 million of cash provided

from working capital due to the timing of prepaid expenses, accounts payable, and accrued and other current liabilities.

cash used in operating activities of approximately $2.6 million for the year ended December 31, 2021 was primarily a result of our net

loss of approximately $8.0 million, offset by approximately $0.7 million of non-cash items related to the forgiveness of our notes payable,

share-based compensation and depreciation, and an increase of approximately $4.7 million of cash provided from working capital due to

the timing of prepaid expenses, accounts payable, accrued and other current liabilities and contingency accrual more fully described in Note 9 to our consolidated

financial statements.

Net cash used in investing activities for the years ended December 31, 2022 and 2021 totaled $5,000 and $0, respectively,

and represented purchases of property, plant and equipment.

Net cash generated from financing activities was approximately $5.1 million during the year ended December 31, 2022

and consisted of net proceeds received from private placement transactions for the issuance of common stock and warrants to purchase

common stock.

Net cash generated from financing activities was approximately $2.8 million during the year ended December 31,

2021 and consisted of net proceeds received from private placement transactions for the issuance of common stock and warrants to

purchase common stock.

continue to pursue our esophageal program, including advancing to operate as a clinical stage company.

Given our current limited cash

resources, we intend to closely monitor our cash expenses as such cash resources are expected to only allow us to meet our operating

needs into the second quarter of 2023.

Issued Accounting Pronouncements

description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations

is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

Sheet Arrangements

did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable

Securities and Exchange Commission rules.

Quantitative and Qualitative Disclosures about Market Risk.

Not Applicable.

Financial Statements and Supplementary Data.

The information required by this item is contained in the consolidated financial statements filed as part of this Annual Report on Form 10-K listed under Item 15 of Part IV below.

information required by this item is contained in the consolidated financial statements filed as part of this Annual Report on Form 10-K

listed under Item 15 of Part IV below.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 7. Management’s Discussion and Analysis