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Item 9A. Controls and Procedures

2023-03-30 compared with 2022-03-31 · 1815 added, 649 removed, 190 unchanged (93% of the section changed)

Controls and Procedures.

This Report includes the certifications of our principal executive officer and principal financial officer required by Rule 13a-14 of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Annual Report on Form 10-K includes the certifications of our principal executive officer and principal financial officer required by Rule 13a-14 of the

Securities Exchange Act of 1934, as amended, or the Exchange Act.

See Exhibits 31.1 and 31.2.

This Item 9A includes information concerning the controls and control evaluations referred to in those certifications.

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to management, including our Interim Chief Executive Officer, who is our acting principal executive officer, and our Interim Vice President of Finance, who is our acting principal financial officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this Annual Report on Form 10-K, our management, under the supervision and with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2021.

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and our management necessarily was required to apply its judgment in evaluating and implementing our disclosure controls and procedures.

Based upon the evaluation described above, our principal executive officer and principal financial officer have concluded that they believe that our disclosure controls and procedures were effective, as of the end of the period covered by this report, in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b) Management’s Annual Report on Internal Control Over Financial Reporting

Our management, under the supervision of the principal executive officer and the principal financial officer, is responsible for establishing and maintaining an adequate system of internal control over financial reporting.

Internal control over financial reporting (as defined in Rules 13a-15(f) and 15d(f) under the Exchange Act) is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

A company’s internal control over financial reporting includes those policies and procedures that:

(a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S.

(c) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization of management and the Board of Directors;

and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.

Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of this report, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2021 based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.

As a result of that evaluation, management has concluded that our internal control over financial reporting was effective as of December 31, 2021.

As a smaller reporting company, we are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

As a result, Wei, Wei & Company LLP, our independent registered public accounting firm, has not audited or issued an attestation report with respect to the effectiveness of our internal control over financial reporting as of December 31, 2021.

During 2020, we identified control deficiencies related to 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.

We developed a remediation plan at the time and designed and implemented certain new internal controls in an effort to remediate the material weakness.

During the fourth quarter of fiscal 2021, we successfully completed the testing necessary to conclude that the material weakness had been remediated.

Our management, with the participation of the principal executive officer and the principal financial officer, has evaluated whether any change in our internal control over financial reporting occurred during the fourth quarter ended December 31, 2021.

Except as noted above, management concluded that there were no changes in our internal controls over financial reporting during the quarter ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

(d) Inherent Limitations on Effectiveness of Controls

The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may not deteriorate.

Because of their inherent limitations, systems of control may not prevent or detect all misstatements.

Accordingly, even effective systems of control can provide only reasonable assurance of achieving their control objectives.

This Item 9A includes information concerning

the controls and control evaluations referred to in those certifications.

Evaluation of Disclosure Controls and Procedures

controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information

required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported

within the time periods specified in Securities and Exchange Commission’s rules and forms and that such information is

accumulated and communicated to management, including our principal executive officer and principal financial officer, to allow

timely decisions regarding required disclosures.

Based on the evaluation, our principal executive and principal financial officers concluded that, as of December 31, 2022, our disclosure

controls and procedures were effective.

connection with the preparation of this Annual Report on Form 10-K, our management, under the supervision and with the participation

of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of the design and operation

of our disclosure controls and procedures as of December 31, 2022.

Our disclosure controls and procedures are designed to provide reasonable

assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed,

summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and our

management necessarily was required to apply its judgment in evaluating and implementing our disclosure controls and procedures.

upon the evaluation described above, our principal executive officer and principal financial officer have concluded that they believe

that our disclosure controls and procedures were effective, as of the end of the period covered by this report, in providing reasonable

assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated

and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions

regarding required disclosures, and is recorded, processed, summarized and reported within the time periods specified in the Securities

and Exchange Commission’s rules and forms.

Management’s Annual Report on Internal Control Over Financial Reporting

management, under the supervision of the principal executive officer and the principal financial officer, is responsible for establishing

and maintaining an adequate system of internal control over financial reporting.

Internal control over financial reporting (as defined

in Rules 13a-15(f) and 15d(f) under the Exchange Act) is a process designed to provide reasonable assurance regarding the reliability

of financial reporting and the preparation of financial statements for external purposes in accordance with U.S.

company’s internal control over financial reporting includes those policies and procedures that:

(a) pertain to the maintenance

of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

(b) provide reasonable

assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with U.S.

(c) provide reasonable assurance that receipts and expenditures are being made only in accordance with appropriate authorization

of management and the Board of Directors;

and (d) provide reasonable assurance regarding prevention or timely detection of unauthorized

acquisition, use, or disposition of our assets that could have a material effect on the consolidated financial statements.

to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of

any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions,

or that the degree of compliance with the policies or procedures may deteriorate.

connection with the preparation of this Annual Report on Form 10-K, our management conducted an evaluation of the effectiveness of our internal control over

financial reporting as of December 31, 2022 based on the criteria established in Internal Control - Integrated Framework (2013)

issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO.

As a result of that evaluation, management has

concluded that our internal control over financial reporting was effective as of December 31, 2022.

a smaller reporting company, we are exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002.

As a result, Marcum LLP, our independent registered public accounting firm, has not audited or issued an attestation

report with respect to the effectiveness of our internal control over financial reporting as of December 31, 2022.

Changes in Internal Controls Over Financial Reporting

management, with the participation of the principal executive officer and the principal financial officer, has evaluated whether any

change in our internal control over financial reporting occurred during the fourth quarter ended December 31, 2022.

Except as noted above,

management concluded that there were no changes in our internal controls over financial reporting during the quarter ended December 31,

2022 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Inherent Limitations on Effectiveness of Controls

design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance

that any design will succeed in achieving its stated objectives under all future events, no matter how remote, that controls may become

inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may not deteriorate.

of their inherent limitations, systems of control may not prevent or detect all misstatements.

Accordingly, even effective systems of

control can provide only reasonable assurance of achieving their control objectives.

Other Information.

Directors, Executive Officers and Corporate Governance.

Incorporated by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act, in connection with our 2022 Annual Meeting of Stockholders.

Information concerning executive officers of our company is included in Part I of this Annual Report on Form 10-K as Item 1.

Business - Information about our Executive Officers and incorporated herein by reference.

concerning executive officers of our company is included in Part I of this Annual Report on Form 10-K as Item 1.

Business - Information

about our Executive Officers and incorporated herein by reference.

of Biostage, Inc.

following information is current as of March 6, 2023, based on information furnished to the Company by each Director:

with the Company

Class I Directors

Shmerling, DHA, FACHE (1)(2)

Junli (Jerry)

Class II Directors

Class III Directors

Jing Chen (2)(3)

Vice Chairman

Sanchez (1)(3)

of the Audit Committee

of the Compensation Committee

of the Governance Committee

Shmerling, DHA, FACHE — Director

Shmerling has served as a member of our Board of Directors since March

29, 2018 and is the Chairman of the Audit Committee and Compensation Committee.

Shmerling has served as the President and Chief Executive

Officer of Connecticut Children’s Medical Center since October 2015.

Shmerling is a seasoned executive who has worked in leadership

roles at several pediatric hospitals around the United States during his career.

For over three decades, he has served in management roles

at children’s hospitals across the country and is nationally recognized as a leader in issues concerning children’s health

and wellness.

Prior to joining Connecticut Children’s, Dr.

Shmerling spent eight years as the Chief Executive Officer of Children’s

Hospital Colorado.

Before that, he was the Executive Director and Chief Executive Officer of the Monroe Carell Jr.

Children’s Hospital

at Vanderbilt from 2002 to 2007.

Shmerling is a Fellow in the American College of Health Care Executives (ACHE).

He is an adjunct

faculty member in the Hospital Administration programs, University of Alabama at Birmingham.

Shmerling received a B.S.

in Health Education

from the University of Tennessee, an M.S.

in Hospital and Health Administration from the University of Alabama in Birmingham, an M.B.A.

from Samford University and a Doctorate of Health Administration from the Medical University of South Carolina.

We believe Dr.

qualifications to sit on our Board of Directors include his extensive leadership experience at children’s hospitals and his status

as a leader in issues concerning children’s health and wellness.

Junli (Jerry)

He – Chairman and Chief Executive Officer

He has served as a member of our Board of Directors since September 1,

2021 and has served as Chairman since March 1, 2023.

He’s biographical information is provided under the caption “Information

about our Executive Officers” above on page 22.

We believe Mr.

He’s qualifications to sit on our Board of Directors include

his extensive leadership and CFO experience, in particular in relation to finance, accounting and operations, as well as his public company

Li — Director

Li has served as a member of our Board of Directors since November 6, 2018.

Li is also a member of the Compensation Committee.

Li brings over 20 years of investment banking experience, building relationships between customers and enterprises.

currently a managing partner at Donghai Securities Co., Ltd, a top asset management company in China, and also serves as the Vice

President of the Jilin Enterprise Chamber of Commerce and advisor of the School of Continuing Education of Tsinghua University.

Li holds a bachelor’s degree in accounting from China’s Changchun Taxation College in Changchun, Jilin Province, and a

master’s degree in software engineering from Jilin University, also in Changchun.

We believe Ms.

Li’s qualifications to

sit on our Board of Directors include her extensive education and investment banking experience.

Green — Director

Green has served as a member of our Board of Directors since November

Green served as President and a member of the Board of Directors of Harvard Bioscience, Inc.

from March 1996 until the spin-off

of Biostage on November 1, 2013, as Interim CEO of Harvard Bioscience, Inc.

from May 2013 and August 2013, and remained a Director of

Harvard Bioscience, Inc.

from the spin-off until 2017.

Green served on the Board of Directors of Biostage until May 2016 and was the

founder and a former Chairman, President, and Chief Executive Officer of Biostage, Inc.

Prior to joining Harvard Bioscience, Inc, Mr.

Green was a strategy consultant with Monitor Company, a strategy consulting company, in Cambridge, Massachusetts and Johannesburg, South

Africa from June 1991 until September 1995 and a brand manager for household products with Unilever PLC, a packaged consumer goods company,

in London from September 1985 to February 1989.

Green was president and a director of the Harvard Business School Healthcare Alumni

Green graduated from Oxford University with a B.A.

Honors degree in physics and holds a M.B.A.

degree with distinction

from Harvard Business School.

The Board of Directors selected Mr.

Green as a director because of his

twenty-years experience as president or Chief Executive Officer, and director, of NASDAQ-listed public companies as well as his founding

of Biostage and previous roles as CEO and Chairman of the Board of Biostage.

We believe Mr.

Green’s qualifications to sit

on our Board of Directors include his executive leadership experience, his experience founding our regenerative medicine business, his significant operating and management expertise and the knowledge and understanding of our company

that he acquired throughout his service to our company following the spin-off

from Harvard Bioscience as well as his extensive years of service prior thereto as the President and director of Harvard Bioscience.

III Directors

Jing Chen — Vice Chairman

Chen has served as a member of our Board of Directors since February 6, 2018.

Chen is our Vice Chairman as well as a member of the Compensation Committee

and Chairman of the Governance Committee.

Chen has served as Senior Vice President of Business

Development of Digitone Group, and Chief Executive Officer of its subsidiary DST Robotics Co Ltd.

since October 2014.

Prior to joining

Digitone, Mr.

Chen worked for Formica, as the General Manager of its Greater China business, from December 2010 to October 2014.

Chen served as Vice President for Barco Great China and General Manager for the Security & Monitoring Division — China for

Barco, Inc., a global company that develops networked solutions for the entertainment, enterprise and healthcare markets, from March

2008 to November 2009.

Prior to joining Barco, Mr.

Chen was the General Manger of the China and Hong Kong region for Waters Corporation

from January 2005 to March 2008 where, among other managerial responsibilities, he was responsible for developing and implementing marketing

strategies to grow the Chinese market.

Prior to his time at Waters Corporation, Mr.

Chen held various managerial roles of increasing

importance at Hilti China.

Chen began his career as an electrical engineer at Capital Iron & Steel Co.

Chen received his

MBA from Brigham Young University and has a B.S.

in Electrical Engineering from the North China University of Technology, Beijing, China.

We believe Mr.

Chen’s qualifications to sit on our Board of Directors include his broad expertise and leadership experience in

global commerce.

Sanchez has served as a member of our Board of Directors since January 19, 2021 and is a member of the Audit Committee and Governance Committee.

has been working in the life sciences industry for over 20 years in various positions including designing and running randomized

trial research, optimizing of clinical administration of health services, and working as a strategic consultant to the life sciences

He is currently a Senior Partner helping run Trinity Life Sciences’ strategy consulting business.

Sanchez joined

Trinity over a decade ago and has worked closely with clients to support strategic decision making across the product lifecycle.

his work consulting for pharmaceutical/biotech and medical device companies he has covered several diseases/therapeutic areas

including oncology, rare and ultra-rare diseases, cell therapies, cardiovascular, diabetes, alcohol abuse/dependence, neurological,

orthopedic, and renal diseases.

Sanchez has been published in peer-reviewed publications on various topics including renal

disease, patient epidemiology, medication adherence, suicidal ideation, minority patient recruiting, alcohol use/abuse and

depression/anxiety treatment.

Sanchez, prior to working in the life sciences industry, earned an MBA from the Tuck School of

Business at Dartmouth College and an AB in Psychology from Harvard University.

We believe that Mr.

Sanchez’s qualifications to

sit on our Board of Directors include his broad expertise and leadership experience in the life sciences industry, specifically in

relation to trial research, clinical matters and product strategy.

REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES

the year ended December 31, 2022, our Board of Directors held 26 meetings.

Each of the Directors attended at least

75% of the total number of meetings of the Board of Directors and of the committees of which they were a member.

The Board of Directors

encourages Directors to attend in person, or virtually if being conducted only virtually, the Annual Meeting of Stockholders of the Company,

or Special Meeting in lieu thereof, or, if unable to attend in person, to participate by other means, if practicable.

In recognition

of this policy, the Board of Directors typically schedules a regular meeting of the Board of Directors to be held on the date of, and

immediately following, the Annual Meeting of Stockholders.

All of the Directors in office at the time attended (virtually or telephonically)

the 2022 Annual Meeting of Stockholders held on June 22, 2022.

The non-employee Directors meet regularly in executive sessions outside

the presence of management.

Green served as the Chairman of the Board as well as our Chief Executive

Officer until February 28, 2023.

Jason Jing Chen serves as the Vice Chairman of the Board.

Among other things, each of the Chairman and

Vice Chairman provides feedback to the Officers on executive sessions and facilitates discussion among the independent directors outside

of meetings of the Board of Directors.

Our Chief Executive Officer is responsible for the day-to-day management of our Company and the

development and implementation of our Company’s strategy.

While our Board of Directors currently believes that separating the roles

of Chief Executive Officer and Chairman contributes to an efficient and effective board, such Chairman and Chief Executive Officer roles

will be combined until the Board of Directors determines otherwise.

Our Board of Directors does not have a current requirement that the

roles of Chief Executive Officer and Chairman of the Board be either combined or separated, because the Board currently believes it is

in the best interests of our Company to make this determination based on the position and direction of our Company and the constitution

of the Board and management team.

From time to time, the Board will evaluate whether the roles of Chief Executive Officer and Chairman

of the Board should be combined or separated, including following any hiring of a Chief Executive Officer following the interim nature

Green’s role in such position.

Board of Directors has established an Audit Committee, a Compensation Committee and a Governance Committee.

Board of Directors continuously evaluates the membership and role of each of the committees of the Board of Directors, as well as the

charters governing the same.

Audit Committee currently consists of Dr.

Shmerling and Mr.

Shmerling serves as the Chairman.

The Audit Committee is comprised entirely of independent Directors and it operates under a Board-approved

charter that sets forth its duties and responsibilities.

The Audit Committee met four times during 2022.

its charter, the Audit Committee is responsible for, among other things:

with the independent registered public accounting firm and management the adequacy and effectiveness of internal controls over financial

reporting and related matters;

and consulting with management and the independent registered public accounting firm on matters related to the annual audit, the

annual and quarterly financial statements and related disclosures, earnings releases and related accounting principles, policies,

practices and judgments;

a recommendation to the Board as to whether our audited financial statements should be included in our Annual Report on Form 10-K;

retaining and terminating, and determining compensation of, the Company’s independent auditors;

of the regular rotation of audit partners, including any lead and concurring partners, in accordance with applicable laws and regulations;

of the Audit Committee report required to be included in our annual proxy statement;

matters that arise relating to quality or integrity of our financial statements, legal compliance, performance of the independent

auditors and other matters, to the Board and reviewing such matters with the Board;

oversight of the Company’s independent auditors and the evaluation of the independent auditors’ qualifications, performance

and independence, including performance of the lead audit partner, and reporting of such evaluation to the Board.

Audit Committee is responsible for reviewing and discussing with management our policies with respect to risk assessment and risk management.

The Board and the Audit Committee discuss matters relating to risks that arise or may arise.

Audit Committee is also responsible for, and has established policies and procedures with respect to, the pre-approval of all services

provided by the independent auditors.

When assessing the independence of our auditors, the Audit Committee considers the independent

registered public accounting firm’s provision of non-audit services to the Company.

Audit Committee has also established procedures for the receipt, retention and treatment, on a confidential basis, of complaints received

by the Company.

The Board of Directors and the Audit Committee adopted a Code of Business Conduct and Ethics, a current copy of which

is available on the Corporate Governance page in the Investor section of our website at www.biostage.com .

respect to the Company’s independent registered public accounting firm, in accordance with SEC rules, audit partners are subject

to rotation requirements to limit the number of consecutive years an individual partner may provide service to our Company.

and concurring audit partners, the maximum number of consecutive years of service in that capacity is five years.

Our Audit Committee

is involved in the selection of the lead audit partner.

The process for selection of our lead audit partner pursuant to this rotation

policy involves a meeting between the Chairman of the Audit Committee and the candidate for the role, as well as discussion by the full

Audit Committee and with management.

Board of Directors has determined that all members of the Audit Committee are “independent” as such term is currently

defined by NASDAQ rules (although we are not listed on the NASDAQ), meet the criteria for independence set forth under the rules of

the SEC, and are able to read and understand fundamental financial statements.

The Board of Directors has also determined that Mr.

Shmerling each qualifies as an “audit committee financial expert” under the rules of the SEC.

Audit Committee Charter is available on the Corporate Governance page in the Investors section of our website at www.biostage.com .

Please note that the information contained on the Company website is not incorporated by reference in, or considered to be a part of,

this Annual Report on Form 10-K.

Compensation Committee currently consists of Ms.

Shmerling, who serves as the Chairman.

Compensation Committee is comprised entirely of independent Directors and it operates under a Board-approved charter that sets forth

its duties and responsibilities.

In light of the authority of the Board of Directors as to compensation matters that existed during periods of 2022, the Compensation

Committee did not hold a formal meeting in 2022.

Compensation Committee assists the Board with determining and overseeing the execution of our compensation philosophy and overseeing

the administration of our executive compensation programs.

Its responsibilities also include assisting the Board with oversight as to

the Company’s compensation and benefit plans and policies, retaining or terminating committee advisors, independence evaluation

of compensation advisors, administering its stock plans (including reviewing and approving equity grants) and reviewing and approving

annually all compensation decisions for the Company’s executive officers, including our Chief Executive Officer.

we are not listed on the NASDAQ, the Board of Directors has determined that all members of the Compensation Committee are “independent”

as such term is currently defined by NASDAQ rules.

Compensation Committee Charter is available on the Corporate Governance page in the Investors section of our website at www.biostage.com .

Please note that the information contained on the website is not incorporated by reference in, or considered to be a part of, this Annual Report on Form 10-K.

current members of the Governance Committee are Mr.

Sanchez and Mr.

Chen, who serves as the Chairman.

The Governance

Committee is comprised entirely of independent directors and it operates under a Board-approved charter that sets forth its duties

and responsibilities.

In light of the authority of the Board of Directors as to governance matters that existed during periods of 2022, the Governance Committee did

not hold a formal meeting in 2022.

the terms of its charter, the Governance Committee is responsible for identifying individuals qualified to become Board members, consistent

with criteria recommended by the Governance Committee and approved by the Board of Directors, and recommending that the Board of Directors

select the director nominees for election at each annual meeting of stockholders.

Its responsibilities also include recommending to the

Board of Directors the criteria for membership on Board Committees.

The Governance Committee is also responsible for reviewing all stockholder

nominations and proposals submitted to the Company, determining whether such nominations or proposals were timely submitted and assisting

the Board of Directors with such corporate governance matters as the Board of Directors may request.

identifying and evaluating nominees for the Board of Directors, the Governance Committee may solicit recommendations from any or all

of the following sources:

non-management Directors, including our Chairman, the Chief Executive Officer, other executive officers, third-party

search firms or any other source it deems appropriate.

In addition, the Governance Committee has established a policy that it will review

and consider any Director candidates who have been recommended by securityholders in compliance with certain procedures established by

the Governance Committee.

The procedures to be followed by securityholders in submitting such recommendations are described in the section

entitled “Submission of Securityholder Recommendations for Director Candidates” included in the Company’s Definitive Proxy Statement on Schedule 14A, filed on

The Governance

Committee will review and evaluate the qualifications of any such proposed Director candidate and conduct inquiries it deems appropriate.

Governance Committee will evaluate all such proposed Director candidates, including those recommended by securityholders in compliance

with the procedures established by the Governance Committee, in the same manner, with no regard to the source of the initial recommendation

of such proposed Director candidate.

When considering a potential candidate for membership on the Board of Directors, the Governance

Committee may consider, in addition to the minimum qualifications and other criteria for Board membership approved by the Board of Directors,

all facts and circumstances that the Governance Committee deems appropriate or advisable, including, among other things, the skills of

the proposed Director candidate, his or her availability, depth and breadth of business experience or other background characteristics,

his or her independence and the needs of the Board of Directors.

At a minimum, each nominee must have high personal and professional

integrity, have demonstrated ability and judgment, and be effective, in conjunction with the other Directors and nominees, in collectively

serving the long-term interests of the stockholders.

Although there is no specific policy regarding the consideration of diversity in

identifying director nominees, the Governance Committee may consider whether the nominee, if elected, assists in achieving a mix of Board

members that represents a diversity of background and experience.

The Governance Committee also may consider whether the nominee has

direct experience in the biotechnology, pharmaceutical and/or life sciences industries or in the markets in which the Company operates.

we are not listed on the NASDAQ, the Board of Directors has determined that all members of the Governance Committee are “independent”

as such term is currently defined by NASDAQ rules.

Governance Committee Charter is available on the Corporate Governance page in the Investor section of our website at www.biostage.com .

Please note that the information contained on the website is not incorporated by reference in, or considered to be a part of, this Annual Report on Form 10-K.

Board’s Role in Risk Oversight

to the Company are discussed by the Board of Directors during the year.

Management is responsible for the day-to-day management of risks

we face, while the Board, as a whole and through its Committees, oversees risk management.

The Audit Committee is responsible for reviewing

and discussing with management our policies with respect to risk assessment and risk management.

The Board of Directors and the Audit

Committee review and discuss, including with management, risks that arise or may arise, including in relation to legal, compliance and

cyber-security.

For example, the Audit Committee discusses financial risk, including with respect to financial reporting and internal

controls, with management and our independent registered public accounting firm and the steps management has taken to minimize those

Our Board of Directors also administers its risk oversight function through the required approval by the Board (or a Committee

of the Board) of significant transactions and other material decisions.

OF BUSINESS CONDUCT AND ETHICS

Board of Directors has adopted a Code of Business Conduct and Ethics, which applies to all Directors, officers and employees of our Company

and its subsidiaries including, without limitation, the Chairman of the Board, Interim Chief Executive Officer, the President, Interim

Vice President of Finance, Chief Scientific Officer, as well as any Chief Financial Officer.

The Code of Business Conduct and Ethics

is available on the Corporate Governance page in the Investor section of our website at www.biostage.com .

We intend to post any

amendments to or waivers from this Code of Business Conduct and Ethics at this location on our website.

Please note, however, that the information

contained on the website is not incorporated by reference in, or considered a part of, this Annual Report on Form 10-K.

SECTION 16(a) REPORTS

executive officers, Directors and beneficial owners of more than 10% of our Common Stock are required under Section 16(a) of the Securities

Exchange Act of 1934 to file reports of ownership and changes in ownership with the Securities and Exchange Commission.

Copies of those

reports must also be furnished to us.

Based solely on a review of the

copies of the reports furnished to us, and written representations from certain reporting persons that no other reports were required,

we believe that during the year ended December 31, 2022, the reporting persons complied on a timely basis with all Section 16(a) filing

requirements applicable to them, except for (i) William Fodor and Hong Yu, whose Form 4 filings, reporting stock option grants in December

2021, were late, (ii) James Shmerling, David Green and DST Capital LLC, whose Form 4 filings, reporting securities acquired in a private

placement in May 2022, were late, and (iii) Junli (Jerry) He, whose Form 4 filing, reporting a sale of stock in December 2022, was late.

OF THE AUDIT COMMITTEE

Notwithstanding

anything to the contrary set forth in any of the Company’s previous or future filings under the Securities Act of 1933, as amended,

or the Securities Exchange Act of 1934, as amended, that might incorporate this Annual Report on Form 10-K or any future filing with

the Securities and Exchange Commission, in whole or in part, the following report shall not be deemed incorporated by reference into

any such filing.

undersigned members of the Audit Committee of the Board of Directors of the Company submit this report in connection with the committee’s

review of the financial reports of the Company for the fiscal year ended December 31, 2022 as follows:

The Audit Committee

has reviewed and discussed with management the audited financial statements of the Company for the fiscal year ended December 31,

The Audit Committee has

discussed with representatives of Marcum LLP the matters required to be discussed with them by applicable requirements of Public

Company Accounting Oversight Board Auditing Standard No.

The Audit Committee has

received the written disclosures and the letter from the independent accountant required by the Public Company Accounting Oversight

Board regarding the independent accountant’s communications with the Audit Committee concerning independence and has discussed

with the independent accountant the independent accountant’s independence.

on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial

statements be included in this Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for filing with the Securities

and Exchange Commission.

by the Audit Committee:

Shmerling, DHA, FACHE, Chairman of the Audit Committee

Executive Compensation.

Incorporated by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our 2022 Annual Meeting of Stockholders.

We are smaller reporting company and as a result, we have elected to comply

with the reduced disclosure requirements applicable to smaller reporting companies in accordance with SEC rules.

At the end of fiscal

year 2022, we had three named executive officers, being David Green, our then Interim Chief Executive Officer, Director, and Chairman,

Hong Yu, our President, and William Fodor, Ph.D., our Chief Scientific Officer.

On August 8, 2022, the Company appointed Mr.

the Chief Financial Officer, but in accordance with such reduced disclosure requirements, at the end of fiscal year 2022 Mr.

not one of the two most highly compensated officers for fiscal year 2022.

As such, disclosure of Mr.

Damasio’s compensation is not

included below.

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.

COMPENSATION TABLE

table below summarizes the total compensation paid or earned by each of the named executive officers listed below for services rendered

in all capacities during the fiscal years ended December 31, 2022 and December 31, 2021.

Principal Position

Other Compensation

Executive Officer

William Fodor, PhD

Scientific Officer

on the aggregate grant date fair value computed in accordance with the provisions of FASB ASC 718, “Compensation — Stock

Compensation”, excluding the impact of estimated forfeitures.

Assumptions used in the calculation of this amount are set forth

under Share-Based Compensation in Note 15 to our audited financial statements included elsewhere in this Annual Report on Form 10-K.

Amounts shown for

Green do not include values attributable to performance-based options that have been not been earned due to the achievement of

certain milestones.

Assuming all of the milestones of such performance based options were achieved, the grant date fair value excluding

the impact of estimated forfeitures of the related award would be $557,426.

In May 2022, we also issued options Mr.

Yu to acquire 22,089 shares of

common stock to satisfy sales commissions in the amount of $89,160 incurred in relation to this private placement.

represents $1,505 for matching contributions made by the Company to Mr.

Green’s tax-qualified 401(k) Savings Plan account and

premiums in the amount of $79 for a life insurance policy.

represents $7,500 for matching contributions made by the Company to Mr.

Yu’s tax-qualified

401(k) Savings Plan account and premiums in the amount of $557 for a life insurance policy.

represents $7,500 for matching contributions made by the Company to Mr.

Yu’s tax-qualified 401(k) Savings Plan account and

premiums in the amount of $450 for a life insurance policy.

represents $9,824 for matching contributions made by the Company to Dr.

Fodor’s tax-qualified 401(k) Savings Plan account and

premiums in the amount of $1,535 for a life insurance policy.

represents $8,651 for matching contributions made by the Company to Dr.

Fodor’s tax-qualified 401(k) Savings Plan account and

premiums in the amount of $1,901 for a life insurance policy.

of Summary Compensation Table and Related Matters

Executive Compensation

2022, the Board of Directors reviewed the overall executive compensation of the Company’s named executive officers.

variety of factors, with respect to the named executive officers, the Board of Directors elected to restore a portion of Dr.

Fodor’s salary that was reduced in 2021.

Effective May 15, 2022, Dr.

Fodor’s base salary increased to $228,750.

February 15, 2021, to support short term initiatives regarding management of expenses, we and Dr.

Fodor mutually agreed to a

temporary reduction of Dr.

Fodor’s base salary by fifty percent (50%) to $152,500.

Company entered into an employment agreement with Mr.

Green dated as of November 26, 2021 and effective as of November 26, 2021.

Green’s employment agreement provided for an initial annual base salary of the minimum required by applicable law, being

$35,568, and is subject to annual review, provided that such base salary shall not be decreased without Mr.

Green’s consent.

Such employment agreement has been amended and restated as discussed below.

Equity Incentive Compensation

In 2022, the Board of Directors did not make any grants of long-term equity incentive awards in the form of stock options to its named executive officers as part of its annual compensation assessment.

As described above, Mr.

Yu was awarded a fully vested stock option in May 2022 in relation to our private placement that closed in May 2022.

2021, the Board of Directors approved grants of long-term equity incentive awards in the form of stock options to executives as part

of our total compensation package.

These awards included grants to Mr.

Green in connection with his hiring as Interim Chief Executive

Officer, as well as Mr.

The long-term equity incentive awards were granted in an effort to achieve certain key objectives,

including (i) to attract and retain high performing and experienced executives, (ii) motivate and reward executives whose knowledge,

skills and performance are critical to our success, and (iii) to align the interests of our executives and our stockholders by providing

our executives with strong incentives to increase stockholder value and a significant reward for doing so.

Our decisions regarding the

amount and type of long-term equity incentive compensation and relative weighting of these awards among total executive compensation

have also been based on our understanding of market practices of our peers and take into account additional factors such as level of

individual responsibility, experience and performance.

The long-term incentive grants made to our named executive officers during the

fiscal year ended December 31, 2021 are described in the table below.

Principal Position

Option Awards

Chief Executive Officer

William Fodor, PhD

Chief Scientific Officer

to continued employment or service through the applicable vesting dates, (i) commencing on December 26, 2021, up to 106,884 of these

options vest monthly in twelve consecutive equal monthly installments on the 26 th day of each month through November 26,

2022, and (ii) up to 267,210 shall vest in three increments, two for 80,163 shares each and the third for 106,884 shares, each such

vesting subject to certain performance milestones set by our Board of Directors.

to continued employment or service through the applicable vesting dates, these options vest in four equal amounts on each of December 29, 2021, 2022, 2023 and 2024.

Historically,

when granted, the long-term equity incentive awards are granted in an effort to achieve certain key objectives, including (i) to attract

and retain high performing and experienced executives, (ii) motivate and reward executives whose knowledge, skills and performance are

critical to our success, and (iii) to align the interests of our executives and our stockholders by providing our executives with strong

incentives to increase stockholder value and a significant reward for doing so.

Our decisions regarding the amount and type of long-term

equity incentive compensation and relative weighting of awards among total executive compensation are also historically based on our

understanding of market practices of our peers and take into account additional factors such as level of individual responsibility, experience

and performance.

and Other Benefits

have established a 401(k) tax-deferred savings plan, which permits participants, including our named executive officers, to make

contributions by salary deduction pursuant to Section 401(k) of the Internal Revenue Code of 1986, as amended.

We are responsible for administrative

costs of the 401(k) plan.

We may, in our discretion, make matching contributions to the 401(k) plan.

In addition, all full-time

employees, including our named executive officers, may participate in our health and welfare benefit programs, including medical

coverage, vision coverage, dental coverage, disability insurance, and life insurance.

Green, our Director and former Chief Executive Officer and Chairman

Company entered into an amended and restated employment agreement with Mr.

Green dated as of January 11, 2023, which amended and

restated his employment agreement with the Company dated November 26, 2021.

Green’s employment agreement was effective

until terminated by the Company or the Mr.

Green upon written notice.

Following an amendment to such amended and restated employment

agreement effective as of January 25, 2023, Mr.

Green’s initial annual base salary of $300,000 was reduced to the minimum

required by applicable law, being $35,568, and is subject to annual review, provided that such base salary shall not be decreased

Green’s consent.

In lieu of such cash reduction for such next year, Mr.

Green was granted a nonqualified stock option to purchase a share amount determined based on Black-Scholes value of the salary

difference, being $264,432, which subject to continued employment, would vest monthly on each monthly

anniversary of January 25, 2023 for twelve months following the Grant Date.

to and in connection with such amended and restated employment agreement,

in addition and in lieu of additional cash salary, on February 28, 2023 (the Grant Date), Mr.

Green received a nonqualified stock option

to purchase a share amount determined based on Black-Scholes value of $200,000 as of the Grant Date, which subject to continued employment,

would vest monthly on each monthly anniversary of the Grant Date for twelve months following the Grant Date, with the first vesting to

be in an amount equal to 1/4 of the aggregate share amount and then the remaining amount to vest in eleven substantially equal amounts

Green was also eligible to receive cash incentive compensation on an annual basis of up to a one hundred percent (100%) of his base salary

upon meeting objectives as determined by the Board of Directors of the Company or the Compensation Committee thereof.

addition, on the Grant Date, Mr.

Green received the following:

(I) as additional

compensation in recognition of past performance, a nonqualified stock option to purchase a share amount determined based on Black-Scholes

value of $200,000 as of the Grant Date, which such option was fully vested as of the Grant Date, and (II) as a long term incentive grant,

a nonqualified stock option to purchase shares of Common Stock (the LTI Grant) in a share amount equal to six percent (6%) of the then

outstanding shares of Common Stock of the Company as of the Grant Date, which subject to continued employment, would vest monthly in thirty-six

substantially equal monthly installments on each monthly anniversary of the Grant Date.

Green was also eligible to receive incentive compensation and employee benefit plans, including without limitation stock option

plans, stock purchase plans and other employee benefit plans, as determined by the Board of Directors or the Compensation

As discussed below under “ Potential Payments upon Termination

and Change in Control Benefits, ” effective as of March 1, 2023, we transitioned the role of Chief Executive Officer to Junli

(Jerry) He, our existing director, and Mr.

Green remains on our Board of Directors.

Fodor, Ph.D., our Chief Scientific Officer

July 2, 2018, William Fodor, Ph.D., our Chief Scientific Officer became an employee of the Company.

The employment commenced in

accordance with an offer letter executed as of June 4, 2018.

Fodor is an at-will employee and his offer letter provides for an

annual base salary in the amount of three hundred five thousand dollars ($305,000), which effective February 15, 2021, to support

short term initiatives regarding management of expenses, was temporarily reduced by fifty percent (50%) to $152,500.

Effective May 15,

Fodor’s base salary increased to $228,750.

Fodor is eligible to participate in all of our employee benefit

plans, including without limitation, our Amended and Restated Equity Incentive Plan, retirement plans, stock purchase plans and

medical insurance plans.

Yu, our President

as of May 29, 2018, the Board of Directors of the Company appointed Hong Yu as President of the Company.

Prior to being elected President

of the Company, Mr.

Yu assisted the Company with strategic activities, including capital raising, and also assisted the Company’s

lead investor, DST Capital, LLC, with respect to board, management and governance matters pertaining to the Company.

Yu’s employment

commenced in accordance with an offer letter executed as of May 16, 2018.

Yu is an at-will employee and his offer letter provides

for an annual base salary in the amount of one hundred and fifty thousand dollars ($150,000).

Yu is eligible to participate in all

of our employee benefit plans, including without limitation, our Amended and Restated Equity Incentive Plan, retirement plans, stock

purchase plans and medical insurance plans.

Payments upon Termination and Change in Control Benefits

accordance with our Amended and Restated Equity Incentive Plan, or the Plan, the outstanding options thereunder, including those held

by our Named Executive Officers, upon the consummation of a Sale Event or Change of Control, which are defined in the Plan, all such

options shall then become fully vested and exercisable.

Effective as of March 1, 2023, we transitioned the role of Chief Executive

Officer to Junli (Jerry) He, our existing director, and Mr.

Green remains on our Board of Directors.

Such transition was treated as a

termination without cause in connection with the hiring of a replacement Chief Executive Officer under Mr.

Green’s amended and restated

employment agreement.

In connection with such transition, Mr.

Green received accrued and unpaid base salary through the date of his termination,

and following his execution of the required release, the remaining unvested portion of the LTI Grant that would have vested within the

twelve (12) months following the Grant Date accelerated and become fully vested.

The unvested portions of his other stock option grants

described above were forfeited as of such transition.

OF THE COMPENSATION COMMITTEE

rules of the Securities and Exchange Commission, as a Smaller Reporting Company, we are not required to provide a report of the Compensation

use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board of

In setting director compensation, the Board of Directors and the Compensation Committee consider the significant amount of

time that directors expend in fulfilling their duties to the Company as well as the skill-level required by the Company of members of

the Board of Directors.

who are also employees of the Company receive no additional compensation for service as a director.

Board of Directors has approved the following compensation arrangements for our non-employee directors:

grant of stock options with a value of $25,000 at the grant date to vest in full in equity quarterly increments over a period of

one year from the grant date.

compensation to consist of a grant of stock options, in lieu of cash fees,

with a value of $20,000 at the date of grant, with all such awards to vest in full in quarterly increments over a period of one year following

the grant date and a grant of stock options with a value of $25,000 at the grant date, where the grant date shall be the fifth business

day following the Corporation’s annual stockholders meeting, with all such awards to vest in full in quarterly increments over a

period of one year from the grant date.

addition, all non-employee directors shall be reimbursed for their expenses incurred in connection with attending Board and Committee

COMPENSATION TABLE

following table presents the compensation provided by us to the non-employee directors who served during the fiscal year ended December

Junli (Jerry) He

Herman Sanchez

James Shmerling, DHA, FACHE

on the aggregate grant date fair value computed in accordance with the provisions of FASB ASC 718, “Compensation — Stock

Compensation”.

Assumptions used in the calculation of this amount are included under Share-Based Compensation in Note 15 to

our audited financial statements for the fiscal year ended December 31, 2022, included elsewhere in this Annual Report on Form 10-K.

aggregate number of option awards outstanding and held by each non-employee director at our fiscal year ended December 31, 2022 were

110,535 for Mr.

Chen, 37,692 for Mr.

He, 104,251 for Ms.

Li, 102,981 for Dr.

Shmerling, and 68,205 for Mr.

EQUITY AWARDS AT FISCAL YEAR-END — 2022

following table sets forth information concerning the number and value of exercisable and unexercisable options to purchase Common Stock,

and the number of restricted stock units held by our named executive officers as of December 31, 2022.

Option Awards

Unexercisable

William Fodor, Ph.D

option was granted on November 26, 2021 and is fully vested, as it vested twelve consecutive equal monthly installments on the 26 th

day of each month through November 26, 2022.

option was granted on November 26, 2021 and, assuming continued employment or service with our Company, the unvested shares shall

vest and become exercisable in three increments, two for 80,163 shares each and the third for 106,884 shares, based to the achievement

of certain milestone targets determined by our Board of Directors.

options are fully vested according to a separation agreement in 2015.

The options that were already vested prior to such resignation

would be exercisable until the respective scheduled expiration date of such options.

option was granted on December 29, 2021 and, assuming continued employment with our Company, the unvested shares become exercisable

in equal installments on December 29 th of each of 2021, 2022, 2023 and 2024.

option was granted on May 29, 2018 and, assuming continued employment with our Company, the unvested shares became exercisable in

equal installments on December 31 st of each of 2018, 2019, 2020 and 2021.

option was granted on May 29, 2018 and, assuming continued employment with our Company, the unvested shares become exercisable based

to the achievement of certain milestone targets determined by our Board of Directors.

The options are fully vested in satisfaction of sales commissions incurred in relation to the May 2022 private placement.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Incorporated by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our 2022 Annual Meeting of Stockholders.

OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Common Stock is currently our only class of voting securities issued and outstanding.

The following table sets forth information

regarding the beneficial ownership of all classes of our voting securities as of March 6, 2023 by:

(i) all persons known by us to

own beneficially more than 5% of our voting securities;

(ii) each of our directors and nominee for Director;

(iii) each of our named

executive officers;

and (iv) all of our current directors and executive officers as a group.

number of shares beneficially owned by each stockholder is determined under rules issued by the SEC and includes voting or

investment power with respect to securities.

Under these rules, beneficial ownership includes any shares as to which the individual

or entity has sole or shared voting power or investment power and includes any shares as to which the individual or entity has the

right to acquire beneficial ownership within 60 days after March 6, 2023 through the exercise of any warrant, stock option or other

The inclusion of such shares, however, does not constitute an admission that the named stockholder is a direct or indirect

beneficial owner of such shares.

Common stock subject to options currently exercisable, or exercisable within 60 days after March

6, 2023, are deemed outstanding for the purpose of computing the percentage ownership of the person holding those options, but are

not deemed outstanding for computing the percentage ownership of any other person.

otherwise indicated below, to our knowledge, all persons named in the table have sole voting and investment power with respect to their

shares of Common Stock, except to the extent spouses share authority under community property laws.

Beneficially Owned

Name and Address of Beneficial Owner (1)

Greater than 5% Holder

DST Capital LLC

Harvard Bioscience

Named Executive Officers

Junli (Jerry) He (current CEO)

David Green (former CEO, current director)

William Fodor, Ph.D

Non-employee Directors

Jason Jing Chen

Herman Sanchez

James Shmerling, DHA FACHE

All current executive officers and directors, as a group (8 persons)

less than 1% of all of the outstanding shares of Common Stock (as calculated in accordance with footnote (2) below).

otherwise indicated, the address for all persons shown is c/o Biostage, Inc., 84 October Hill Road, Suite 11, Holliston, Massachusetts

on 12,206,400 shares of Common Stock outstanding on March 6, 2023, together with the applicable options and warrants held by the

respective stockholder in the table above that become exercisable within 60 days.

information is based in part upon a Schedule 13D (Amendment No.

9) filed jointly by DST Capital LLC (“DST Capital”),

and Bin Zhao reporting beneficial ownership as of September 1, 2021.

Consists of 3,694,047 shares of Common Stock.

information is based upon a Schedule 13G/A filed by An Zhang on February 16, 2023 reporting beneficial ownership as of December 31,

information is based upon a Schedule 13D filed by Du Xiaoyu reporting beneficial ownership as of May 29, 2018.

information is based in part upon a Schedule 13G filed by Harvard Bioscience, Inc.

reporting beneficial ownership as of June 21,

2022 and 180 shares of Series E convertible preferred stock issued as dividends through December 31, 2022.

The shares included assume

an optional conversion in accordance with the applicable terms of the certificate of designation of the Series E Preferred Stock

held by Harvard Bioscience, Inc.

as of March 6, 2023.

235,135 shares of Common Stock and options to acquire 36,132 shares of Common Stock exercisable within 60 days of March 6, 2023.

175,329 shares of Common Stock, warrants to purchase up to 67,905 shares of Common Stock, as well as options to acquire 415,612 shares

of Common Stock that are exercisable within 60 days of March 6, 2023.

266,979 shares of Common Stock as well as options to acquire 204,219 shares of Common Stock that are exercisable within 60 days of

March 6, 2023.

options to acquire 223,624 shares of Common Stock that are exercisable within 60 days of March 6, 2023.

161,468 shares of Common Stock, and options to acquire 108,975 shares of Common Stock that are exercisable within 60 days of March

options to acquire 102,691 shares of Common Stock that are exercisable within 60 days of March 6, 2023.

options to acquire 66,645 shares of Common Stock that are exercisable within 60 days of March 6, 2023.

16,892 shares of Common Stock, warrants to purchase up to 8,446 shares of Common Stock, as well as options to acquire 101,421 shares

of Common Stock that are exercisable within 60 days of March 6, 2023.

855,803 shares of Common Stock, warrants to purchase up to 76,351 shares of Common Stock, as well as options to acquire 1,259,319

shares of Common Stock that are exercisable within 60 days of March 6, 2023.

COMPENSATION PLAN INFORMATION

following table sets forth information as of December 31, 2022 concerning the number of shares of Common Stock issuable under our existing

equity compensation plans.

of Securities to be Issued Upon Exercise of Outstanding Options, Restricted Stock Units, Warrants and Rights

Average Exercise Price of Outstanding Options, Warrants, and Rights

of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))

Equity compensation

plans approved by security holders (1)

Equity compensation plans not approved by security

of our Amended and Restated Equity Incentive Plan and our Employee Stock Purchase Plan.

2,560,389 shares available for future issuance under our Amended and Restated Equity Incentive Plan and 2,966 shares available for

future issuance under our Employee Stock Purchase Plan.

Certain Relationships and Related Transactions, and Director Independence.

Incorporated by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our 2022 Annual Meeting of Stockholders.

Audit Committee charter sets forth the standards, policies and procedures that we follow for the review, approval or ratification of

any related person transaction that we are required to report pursuant to Item 404(a) of Regulation S-K promulgated by the Securities

and Exchange Commission.

Under the Audit Committee charter, which is in writing, the Audit Committee must conduct an appropriate review

of these related person transactions on an ongoing basis, and the approval of the Audit Committee is required for all such transactions.

The Audit Committee relies on management to identify related person transactions and bring them to the attention of the Audit Committee.

the 2022 and 2021 fiscal years, we were not a participant in any related person transactions that required disclosure under this heading.

Principal Accounting Fees and Services.

Our independent public accounting firm is Wei, Wei & Co., LLP, Flushing, New York, PCAOB Auditor ID 2388 .

Our predecessor independent public accounting firm was RSM US LLP, Boston, Massachusetts, PCAOB Auditor ID 49.

Incorporated by reference to our definitive Proxy Statement to be filed pursuant to Regulation 14A under the Exchange Act in connection with our 2022 Annual Meeting of Stockholders.

independent public accounting firm is Marcum LLP, Boston, Massachusetts, PCAOB Auditor ID 688 .

Our predecessor independent public accounting

firm was Wei, Wei & Co., LLP, Flushing, New York, PCAOB Auditor ID 2388 .

following table provides a summary of fees for professional services provided by Marcum LLP, our current independent registered

public accounting firm, Wei, Wei & Co., and RSM US, LLP, our former

independent registered public accounting firms, during the fiscal years ended December 31, 2022 and 2021, in each of the following

categories as set forth in the table below.

Audit-related Fees (2)

Fees for both 2022 and 2021 included fees associated with the annual audit of our consolidated financial statements and the reviews

of our Quarterly Report on Form 10-Q.

Audit-related Fees for RSM, Wei, Wei & Co., LLP and Marcum LLP for 2022 included fees relating to the filing of a Registration Statement on

Form S-1 and auditor transition.

Tax Fees included domestic and international tax compliance, tax advice and tax planning.

All Other Fees

of the services performed in the years ended December 31, 2022 and December 31, 2021 were pre-approved by the Audit Committee.

the Audit Committee’s policy to pre-approve all audit and permitted non-audit services to be provided to us by the independent

registered public accounting firm.

The Audit Committee’s authority to pre-approve non-audit services may be delegated to one or

more members of the Audit Committee, who shall present all decisions to pre-approve an activity to the full Audit Committee at its first

meeting following such decision.

The Audit Committee has delegated this pre-approval authority to its Chairman for non-audit services

with aggregate fees of $10,000 or less.

In addition, the Audit Committee has considered whether the provision of the non-audit services

above is compatible with maintaining the independent registered public accounting firm’s independence.

Exhibits, Financial Statement Schedules.

(a) Documents Filed.

The following documents are filed as part of this Annual Report on Form 10-K:

2 unchanged sentences

and its subsidiaries filed under this Item 15:

Index to Consolidated Financial Statements

Reports of Independent Registered Public Accounting Firm s

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the years ended December 31, 2021 and 2020

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

to Consolidated Financial Statements

of Independent Registered Public Accounting Firms

Balance Sheets as of December 31, 2022 and 2021

Statements of Operations for the years ended December 31, 2022 and 2021

Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2022 and 2021

Statements of Cash Flows for the years ended December 31, 2022 and 2021

to Consolidated Financial Statements

Financial Statement Schedules:

Financial statement schedules have been omitted since the required information is included in our consolidated financial statements contained elsewhere in this Annual Report on Form 10-K.

(3) Exhibits.

Financial statement schedules have been omitted since the required information is included in our

consolidated financial statements contained elsewhere in this Annual Report on Form 10-K.

The exhibits listed in the accompanying Exhibit Index are filed as a part of this Annual Report on Form 10-K.

(b) Exhibits:

The exhibits listed in the accompanying Exhibit Index are filed as a part of this Annual Report on Form 10-K.

Financial statement schedules have been omitted since the required information is included in our consolidated financial statements contained elsewhere in this Annual Report on Form 10-K.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

BIOSTAGE, INC.

Reports of Independent Registered Public Accounting Firms

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the years ended December 31, 2021 and 2020

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021 and 2020

Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020

Notes to Consolidated Financial Statements

Financial Statements and Schedules:

Financial statement schedules have been omitted since the required information is included

in our consolidated financial statements contained elsewhere in this Annual Report on Form 10-K.

TO CONSOLIDATED FINANCIAL STATEMENTS

of Independent Registered Public Accounting Firms

Balance Sheets as of December 31, 2022 and 2021

Statements of Operations for the years ended December 31, 2022 and 2021

Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2022 and 2021

Statements of Cash Flows for the years ended December 31, 2022 and 2021

to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

Biostage, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Biostage, Inc.

and subsidiaries (the Company) as of December 31, 2021, the related consolidated statements of operations, changes in stockholders’ equity and cash flow for the year then ended, and the related notes to the consolidated financial statements (collectively, the consolidated financial statements).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flow for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Emphasis of Matter Regarding Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has an accumulated deficit, uses cash flows in its operations, and will require additional financing to continue to fund its operations.

This raises substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters also are described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

the Shareholders and Board of Directors of

on the Financial Statements

have audited the accompanying consolidated balance sheet of Biostage, Inc.

and subsidiaries (the “Company”) as of

December 31, 2022, the related consolidated statements of operations, changes in stockholders’ deficit and cash flows

for the year then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion,

the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022,

and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles

generally accepted in the United States of America.

Paragraph – Going Concern

accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

fully described in Note 1, the Company has suffered recurring losses from operations, has an accumulated deficit, uses cash flows in

its operations, and will require additional financing to continue to fund its operations.

These conditions raise substantial doubt about

the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s

financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board

(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit

we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion

on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Share-based Compensation – Performance-Based Awards

As described in Note 15 to the consolidated financial statements, the Company has 510,742 unvested performance-based options outstanding for which there is unrecognized compensation expense of approximately $1.3 million at December 31, 2021.

No expense has been recognized for these unvested awards as of December 31, 2021 given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes.

As described in Note 2 to the consolidated financial statements, the Company measures all stock options and restricted stock awards granted to employees, directors and non-employees based on the fair value on the date of the grant and recognizes compensation expense of those awards, net of estimated forfeitures, over the requisite vesting period.

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

We identified the Company’s expense recognition for share-based awards that contain performance-based vesting provisions as a critical audit matter.

The principal considerations for our determination that the expense recognition for share-based awards that contain performance-based vesting provision awards is a critical audit matter are the assumptions and risk of bias related to the conclusion of the probability of achievement of the performance conditions impacting vesting of the awards, or more specifically, the achievement of the business milestones, as defined in the grant agreements.

Auditing management’s assumptions regarding the probability of achievement of the business milestones defined in the grant agreements was complex and required a high degree of auditor judgment and increased audit effort.

Our audit procedures related to the expense recognition of share-based awards that contain performance-based vesting provisions included the following, among others:

● We obtained and read the grant agreements for all outstanding share-based awards with performance-based vesting provisions,

● We recalculated the total outstanding share-based awards with performance-based vesting provisions at year-end based upon cumulative grants, net of cumulative forfeitures, and

● We discussed with management and evaluated their conclusions ed on the probability of achievement of the business milestones within the performance-based awards by assessing the Company’s liquidity requirements needed to fund the achievement of the milestones outlined in the grant agreements and reviewed the Company’s public press releases through the issuance date below.

/s/ Wei, Wei & Co., LLP

We have served as the Company’s auditor since 2021.

Flushing, New York

March 31, 2022

Report of Independent Registered Public Accounting Firm

Shareholders and the Board of Directors of

Biostage, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Biostage, Inc.

and its subsidiaries (the Company) as of December 31, 2020, the related consolidated statements of operations, stockholders’ equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Emphasis of Matter Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has an accumulated deficit, uses cash flows in operations, and will require additional financing to continue to fund operations.

This raises substantial doubt about the Company's ability to continue as a going concern.

Management's plans in regard to these matters also are described in Note 1.

The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or

fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding

the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant

estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides

a reasonable basis for our opinion.

critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated

or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial

statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter

does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit

matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Compensation – Performance-Based Awards

of the Matter

described in Note 15 to the consolidated financial statements, the Company has 510,742 unvested performance-based options outstanding

for which there is unrecognized compensation expense of approximately $1.3 million at December 31, 2022.

No expense has been recognized

for these unvested awards as of December 31, 2022 given that the milestone achievements for these awards have not yet been deemed probable

for accounting purposes.

As described in Note 2 to the consolidated financial statements, the Company measures all stock options and

restricted stock awards granted to employees, directors and non-employees based on the fair value on the date of the grant and recognizes

compensation expense of those awards, net of estimated forfeitures, over the requisite vesting period.

Expense on share-based awards

for which vesting is performance or milestone based is recognized on a straight-line basis from the date when it is determined that the

achievement of the milestone is probable to the vesting/milestone achievement date.

identified the Company’s expense recognition for share-based awards that contain performance-based vesting provisions as a critical

audit matter.

The principal considerations for our determination that the expense recognition for share-based awards that contain performance-based

vesting provision awards is a critical audit matter are the assumptions and risk of bias related to the conclusion of the probability

of achievement of the performance conditions impacting vesting of the awards, or more specifically, the achievement of the business milestones,

as defined in the grant agreements.

Auditing management’s assumptions regarding the probability of achievement of the business

milestones defined in the grant agreements was complex and required a high degree of auditor judgment and increased audit effort.

We Addressed the Matter in Our Audit

identified the Company’s expense recognition for share-based awards that contain performance-based vesting provisions as a critical

audit matter.

The principal considerations for our determination that the expense recognition for share-based awards that contain performance-based

vesting provision awards is a critical audit matter are the assumptions and risk of bias related to the conclusion of the probability

of achievement of the performance conditions impacting vesting of the awards, or more specifically, the achievement of the business milestones,

as defined in the grant agreements.

Auditing management’s assumptions regarding the probability of achievement of the business

milestones defined in the grant agreements was complex and required a high degree of auditor judgment and increased audit effort.

audit procedures related to the expense recognition of share-based awards that contain performance-based vesting provisions included

the following, among others, (i) obtaining and analyzing the grant agreements for outstanding share-based awards with performance-based

vesting provisions, (ii) recalculated the total outstanding share-based awards with performance-based vesting provisions at year-end

based upon cumulative grants, net of cumulative forfeitures, and (iii) discussed with management and evaluated their conclusions reached

on the probability of achievement of the business milestones within the performance based awards by assessing the Company’s liquidity

requirements needed to fund the achievement of the milestones outlined in the grant agreements and reviewed the Company’s public

press releases through the issuance date of these financials.

have served as the Company’s auditor since 2022.

(PCAOB ID # 688)

of Independent Registered Public Accounting Firm

and the Board of Directors of

on the Consolidated Financial Statements

have audited the accompanying consolidated balance sheet of Biostage, Inc.

and subsidiaries (the Company) as of December 31, 2021, the

related consolidated statements of operations, changes in stockholders’ deficit and cash flow for the year then ended, and the

related notes to the consolidated financial statements (collectively, the consolidated financial statements).

In our opinion, the consolidated

financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the

results of its operations and its cash flow for the year ended December 31, 2021, in conformity with accounting principles generally

accepted in the United States of America.

of Matter Regarding Going Concern

accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, has an accumulated deficit,

uses cash flows in its operations, and will require additional financing to continue to fund its operations.

This raises substantial

doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters also are

described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this

consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion

on the Company’s consolidated financial statements based on our audit.

We are a public accounting firm registered with the Public

Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain

reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing

an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due

to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence

regarding the amounts and disclosures in the consolidated financial statements.

Our audit also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ RSM US LLP

We served as the Company's auditor from 2018 to 2021.

Boston, Massachusetts

April 13, 2021

BIOSTAGE, INC.

critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that

was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material

to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication

of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are

not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or

disclosures to which it relates.

Compensation – Performance-Based Awards

described in Note 15 to the consolidated financial statements, the Company has 510,742 unvested performance-based options outstanding

for which there is unrecognized compensation expense of approximately $1.3 million at December 31, 2021.

No expense has been recognized

for these unvested awards as of December 31, 2021 given that the milestone achievements for these awards have not yet been deemed probable

for accounting purposes.

As described in Note 2 to the consolidated financial statements, the Company measures all stock options and

restricted stock awards granted to employees, directors and non-employees based on the fair value on the date of the grant and recognizes

compensation expense of those awards, net of estimated forfeitures, over the requisite vesting period.

Expense on share-based awards

for which vesting is performance or milestone based is recognized on a straight-line basis from the date when it is determined that the

achievement of the milestone is probable to the vesting/milestone achievement date.

identified the Company’s expense recognition for share-based awards that contain performance-based vesting provisions as a critical

audit matter.

The principal considerations for our determination that the expense recognition for share-based awards that contain performance-based

vesting provision awards is a critical audit matter are the assumptions and risk of bias related to the conclusion of the probability

of achievement of the performance conditions impacting vesting of the awards, or more specifically, the achievement of the business milestones,

as defined in the grant agreements.

Auditing management’s assumptions regarding the probability of achievement of the business

milestones defined in the grant agreements was complex and required a high degree of auditor judgment and increased audit effort.

audit procedures related to the expense recognition of share-based awards that contain performance-based vesting provisions included

the following, among others:

obtained and read the grant agreements for all outstanding share-based awards with performance-based vesting provisions,

recalculated the total outstanding share-based awards with performance-based vesting provisions at year-end based upon cumulative

grants, net of cumulative forfeitures, and

discussed with management and evaluated their conclusions ed on the probability of achievement of the business milestones within

the performance-based awards by assessing the Company’s liquidity requirements needed to fund the achievement of the milestones

outlined in the grant agreements and reviewed the Company’s public press releases through the issuance date below.

Wei, Wei & Co., LLP

served as the Company’s auditor during 2021.

AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

( In thousands, except share and par value data )

BALANCE SHEETS

thousands, except share and par value data )

Current assets:

Restricted cash

Grant receivable

Prepaid expenses and other current assets

Prepaid research and development

expenses and other current assets

Total current assets

Property, plant and equipment, net

Property, plant and equipment,

Right-of-use assets, net

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

financing costs

LIABILITIES AND STOCKHOLDERS’

Current liabilities:

Accounts payable

Accrued and other current liabilities

Accrual for contingency matter

Current portion of notes payable

Accrued and other current

Accrual for contingency

Warrant liability

Current portion of operating lease liability

portion of operating lease liability

Total current liabilities

Notes payable, net of current portion

Operating lease liability, net of current portion

lease liability, net of current portion

Total liabilities

Commitments and contingencies (Note 9)

Stockholders’ (deficit) equity:

Preferred stock, $ 0.01 par value;

2,000,000 shares authorized and none issued and outstanding

Common stock, par value $ 0.01 per share, 60,000,000 shares authorized;

Series E convertible preferred stock, $ 0.01

par value per share, 5,000 shares authorized, 4,180 shares issued and outstanding

Stockholders’ deficit:

Common stock, par value

$ 0.01 per share, 60,000,000 shares authorized;

12,174,467 and 10,760,871 issued and outstanding at December 31, 2022 and 2021, respectively

Additional paid-in capital

Accumulated deficit

Total stockholders’ (deficit) equity

Total liabilities and stockholders’ (deficit) equity

See accompanying notes to consolidated financial statements.

BIOSTAGE, INC.

Total stockholders’

Total liabilities and

stockholders’ deficit

accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share data)

Year Ended December 31,

STATEMENTS OF OPERATIONS

thousands, except share and per share data)

Ended December 31,

Operating expenses:

Research and development

General and administrative

and administrative

Total operating expenses

Operating loss

Other income (expense), net:

Other income, net:

Forgiveness of notes payable

Change in fair value of warrant liability

Other income (expense), net

Total other income, net

Basic and diluted net loss per share

Weighted average common shares, basic and diluted

See accompanying notes to consolidated financial statements.

BIOSTAGE, INC.

Sublease income

Change in fair value of

warrant liability

(expense) income, net

Total other income,

preferred stock

Net loss attributable

to common stockholders

Basic and diluted net

loss per share

Weighted average common shares, basic

accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS CHANGES IN STOCKHOLDERS' EQUITY

(In thousands, except share data)

(Deficit) Equity

Balance at December 31, 2019

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

thousands, except share data)

E Convertible Preferred Stock

of Common Shares Outstanding

Paid-in Capital

Stockholders Equity (Deficit)

Balance at January 1, 2021

Share-based compensation

Common stock withheld for taxes

Issuance of common stock and warrants to purchase common stock

Issuance of common stock from exercise of warrants

Issuance of common stock

and warrants to purchase common stock

Balance at December 31, 2021

Share-based compensation

Issuance of common stock and warrants to purchase common stock

Issuance of series E convertible preferred

Preferred stock dividends

Issuance of common stock and warrants to purchase

Issuance of common stock

from exercise of warrants

Balance at December

See accompanying notes to consolidated financial statements.

BIOSTAGE, INC.

accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year ended December 31,

STATEMENTS OF CASH FLOWS

ended December 31,

OPERATING ACTIVITIES

Adjustments to reconcile net loss to net cash used in operating activities:

Adjustments to reconcile net loss to net cash

used in operating activities:

Forgiveness of notes payable

Share-based compensation expense

Change in fair value of warrant liability

Changes in operating assets and liabilities:

Share-based compensation

Change in fair value of

warrant liability

Deferred financing costs

Changes in operating assets

and liabilities:

Grant receivable

Prepaid expenses and other current assets

Prepaid research and development

Prepaid expenses and other

current assets

Accounts payable

Accrued and other current liabilities

Accrual for contingency matter

Net cash used in operating activities

Accrued and other current

for contingency matter

Net cash used in operating

INVESTING ACTIVITIES

Purchases of property, plant and equipment

Net cash used in investing activities

Purchases of property,

plant and equipment

Net cash used in investing

FINANCING ACTIVITIES

Proceeds from issuance of common stock and warrants

Proceeds from exercise of warrants

Proceeds from notes payable

Acquisition of common stock for tax withholding obligations

Net cash provided by financing activities

Net increase in cash and restricted cash

Cash and restricted cash at the beginning of the year

Cash and restricted cash at the end of the year

Supplemental disclosure of non-cash investing and financing activities:

Issuance of vested common stock

Supplemental disclosure of non-cash operating activities:

Increase of right-of-use asset and liability due to lease extension

See accompanying notes to consolidated financial statements.

BIOSTAGE, INC.

Proceeds from issuance

of common stock and warrants

Net cash provided by

financing activities

Net (decrease) increase in cash and restricted

Cash and restricted

cash at the beginning of the year

Cash and restricted

cash at the end of the year

Supplemental disclosure of non-cash activities:

of contingency matter

of due to Harvard Bioscience included in accrued and other current liabilities

Issuance of Series E

convertible preferred stock

stock dividends

of right-of-use asset and liability due to lease extension

accompanying notes to consolidated financial statements.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended December 31, 2021 and 2020

Biostage, Inc.

(Biostage or the Company) is a biotechnology company with a mission to cure patients of cancers, injuries, and birth defects of the gastro-intestinal tract and the airways.

The Company believes its technology is likely to be used to treat esophageal cancer, esophageal injuries, and birth defects in the esophagus.

The Company believes additional product candidates in its pipeline may treat bronchial cancer, intestinal cancer, and colon cancer.

Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and acquiring operating assets.

On October 31, 2013, Harvard Bioscience, Inc., or Harvard Bioscience, contributed its regenerative medicine business assets, plus $ 15 million of cash, into Biostage, or the Separation.

TO CONSOLIDATED FINANCIAL STATEMENTS

Ended December 31, 2022 and 2021

(Biostage or the Company) is a biotechnology company with a mission to cure patients of cancers, injuries, and birth defects of

the gastro-intestinal tract and the airways.

The Company believes its technology is likely to be used to treat esophageal cancer, esophageal

injuries, and birth defects in the esophagus.

The Company believes additional product candidates in its pipeline may treat bronchial

cancer, intestinal cancer, and colon cancer.

Since inception, the Company has devoted substantially all of its efforts to business planning,

research and development, recruiting management and technical staff, and acquiring operating assets.

October 31, 2013, Harvard Bioscience, Inc., or Harvard Bioscience, contributed its regenerative medicine business assets, plus $ 15

million of cash, into Biostage, or the Separation.

On November 1, 2013, the spin-off of the Company from Harvard Bioscience was completed.

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

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

Basis of Presentation

The consolidated financial statements reflect the Company’s financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the United States, or U.S.

Going Concern

The Company has incurred substantial operating losses since its 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.

The Company expects that its operating cash on-hand as of December 31, 2021 of approximately $ 1.2 million will enable it to fund its operating expenses and capital expenditure requirements only into early third quarter of 2022.

Therefore, these conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company will need to raise additional funds to fund its operations.

In the event the Company does not raise additional capital from outside sources in the third quarter of 2022, it may be forced to curtail or cease its 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 the Company’s product candidates that are currently under development.

The Company is 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.

The Company may also pursue debt financings, other financing mechanisms, research grants, or strategic collaborations and licensing arrangements.

On that date, the Company became an independent

company that operates the regenerative medicine business previously owned by Harvard Bioscience.

The spin-off was completed through the

distribution to Harvard Bioscience stockholders of all the shares of common stock of Biostage, or the Distribution.

As of December 31,

2022, Harvard Bioscience owned 4,180

shares of Series E Preferred Stock at a price

of Presentation

consolidated financial statements reflect the Company’s financial position, results of operations and cash flows in conformity

with generally accepted accounting principles in the United States, or U.S.

Company has incurred substantial operating losses since its 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.

The Company expects that its operating cash on-hand as

of December 31, 2022 of approximately $ 1.2 million will enable it to fund its operating expenses and capital expenditure requirements

only into the second quarter of 2023.

Therefore, these conditions raise substantial doubt about the Company’s ability to continue

as a going concern.

Company will need to raise additional funds to fund its operations.

In the event the Company does not raise additional capital from outside

sources before or during the second quarter of 2023, it may be forced to curtail or cease its 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 the Company’s product candidates that are currently under development.

The Company is 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.

The Company may also pursue debt financings, other financing mechanisms, research grants, or strategic collaborations

and licensing arrangements.

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

The Company’s operations will be adversely affected if it is unable to raise or obtain needed funding and may materially affect the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared assuming that the Company 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.

Company’s operations will be adversely affected if it is unable to raise or obtain needed funding and may materially affect the

Company’s ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared assuming

that the Company 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.

Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of Biostage, and its three wholly-owned subsidiaries, Harvard Apparatus Regenerative Technology Limited (Hong Kong), Harvard Apparatus Regenerative Technology GmbH (Germany) and Biostage Limited (UK).

The functional currency for these subsidiaries is the U.S dollar.

of Consolidation

consolidated financial statements include the accounts of Biostage, and its three wholly-owned subsidiaries, Harvard Apparatus Regenerative

Technology Limited (Hong Kong), Harvard Apparatus Regenerative Technology GmbH (Germany) and Biostage Limited (UK).

The functional currency

for these subsidiaries is the U.S dollar.

All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The process of preparing consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.

Such estimates include, but are not limited to, share-based compensation, valuation of warrant liability, accrued expenses and the valuation allowance for deferred income taxes.

process of preparing consolidated financial statements in conformity with U.S.

GAAP requires management to make estimates and assumptions

that affect the amounts reported in the consolidated financial statements and accompanying notes.

Such estimates include, but are not

limited to, share-based compensation, valuation of warrant liability, accrued expenses and the valuation allowance for deferred income

Actual results could differ from those estimates.

The Company has one business segment and does not have significant costs or assets outside the U.S.

Restricted Cash

The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the total of the same amounts shown in the consolidated statements of cash flows:

Company has one business segment and does not have significant costs or assets outside the U.S.

Cash Concentrations

following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sum to the

total of the same amounts shown in the consolidated statements of cash flows:

Schedule of Cash and Restricted Cash

(in thousands)

Restricted cash

Total cash and restricted cash as shown in the consolidated statements of cash flows

Restricted cash consists of approximately $ 50,000 held as collateral for the Company’s credit card program as of December 31, 2021, and December 31, 2020.

Property, Plant and Equipment

Property, plant and equipment are carried at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows:

Leasehold improvements

Shorter of expected useful life or lease term

Furniture, machinery and equipment, computer equipment and software

Maintenance and repairs are charged to expense as incurred, while any additions or improvements are capitalized.

Impairment of Long-Lived Assets

Assessments of long-lived assets and the remaining useful lives of such long-lived assets are reviewed for impairment whenever a triggering event occurs or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

An asset, or group of assets, are considered to be impaired when the undiscounted estimated net cash flows expected to be generated by the asset, or group of assets, are less than its carrying amount.

The impairment recognized is the amount by which the carrying amount exceeds the fair market value of the impaired asset, or group of assets, based on the present value of the expected future cash flows associated with the use of the asset.

Total cash and restricted

cash as shown in the consolidated statements of cash flows

cash consisted of approximately $ 50,000 held as collateral for the Company’s credit card program as of December 31, 2021.

2022, we cancelled our corporate credit card and liquidated our money market account that was held as collateral for our corporate credit

The Company’s consolidated statements of cash flows include restricted cash with cash when reconciling the beginning-of-period

and end-of-period total amounts shown on such statements.

Plant and Equipment

plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the

assets as follows:

Schedule of Property Plant And Equipment Estimated Useful Lives

of expected useful life

or lease term

machinery and equipment, computer equipment and software

and repairs are charged to expense as incurred, while any additions or improvements are capitalized.

of Long-Lived Assets

of long-lived assets and the remaining useful lives of such long-lived assets are reviewed for impairment whenever a triggering event

occurs or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

An asset, or group of assets,

are considered to be impaired when the undiscounted estimated net cash flows expected to be generated by the asset, or group of assets,

are less than its carrying amount.

The impairment recognized is the amount by which the carrying amount exceeds the fair market value

of the impaired asset, or group of assets, based on the present value of the expected future cash flows associated with the use of the

Through December 31, 2022, no such impairment charges have been recorded.

Research and Development

Research and development costs are expensed as incurred.

Share-based Compensation

The Company measures all stock options and restricted stock awards granted to employees, directors and non-employees based on the fair value on the date of the grant and recognizes compensation expense of those awards, net of forfeitures, over the requisite vesting period, which is generally the service period of the respective award.

Generally, the Company issues stock options and restricted stock awards with only service-based vesting conditions on a straight-line basis over the requisite service period for the entire award (that is, over the requisite service period of the last separately vesting portion of the award).

The Company elected to use the Black-Scholes option-pricing model for the valuation of stock-based payment awards.

The determination of the fair value of stock-based payment awards is determined on the date of grant using the Black-Scholes option-pricing model which is affected by the market price as well as assumptions regarding a number of subjective variables.

These variables include, but are not limited to, its expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors.

When performance-based grants are issued, the Company recognizes no expense until achievement of the performance requirement is deemed probable.

Share-based compensation expense is based on awards ultimately expected to vest and has been reduced for annualized estimated forfeiture where the minimum amount of expense recorded is at least equal to the percent of an award vested.

Forfeitures are estimated based on historical experience and weighting of various employee classes under the respective plan at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

The fair value of Restricted Stock Units, or RSUs, is based on the number of shares granted and market price of the stock on the date of grant and is recorded as compensation expense ratably over the applicable service period, which is generally four years .

Unvested restricted stock units and vested and unvested stock options are forfeited in the event of termination of employment.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as for operating losses and tax credit carry-forwards.

Deferred tax assets and liabilities are measured using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

and Development

and development costs are expensed as incurred.

Company measures all stock options and restricted stock awards granted to employees, directors and non-employees based on the fair value

on the date of the grant and recognizes compensation expense of those awards, net of forfeitures, over the requisite vesting period,

which is generally the service period of the respective award.

Generally, the Company issues stock options and restricted stock awards

with only service-based vesting conditions on a straight-line basis over the requisite service period for the entire award (that is,

over the requisite service period of the last separately vesting portion of the award).

Expense on share-based awards for which vesting

is performance or milestone based is recognized on a straight-line basis from the date when it is determined that the achievement of

the milestone is probable to the vesting/milestone achievement date.

Company elected to use the Black-Scholes option-pricing model for the valuation of stock-based payment awards.

The determination of the

fair value of stock-based payment awards is determined on the date of grant using the Black-Scholes option-pricing model which is affected

by the market price as well as assumptions regarding a number of subjective variables.

These variables include, but are not limited to,

its expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors.

performance-based grants are issued, the Company recognizes no expense until achievement of the performance requirement is deemed probable.

compensation expense is based on awards ultimately expected to vest and has been reduced for annualized estimated forfeiture where the

minimum amount of expense recorded is at least equal to the percent of an award vested.

Forfeitures are estimated based on historical

experience and weighting of various employee classes under the respective plan at the time of grant and revised, if necessary, in subsequent

periods if actual forfeitures differ from those estimates.

fair value of Restricted Stock Units, or RSUs, is based on the number of shares granted and market price of the stock on the date of

grant and is recorded as compensation expense ratably over the applicable service period, which is generally four years .

Unvested restricted

stock units and vested and unvested stock options are forfeited in the event of termination of employment.

taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are recognized for the future tax consequences

attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective

tax bases, as well as for operating losses and tax credit carry-forwards.

Deferred tax assets and liabilities are measured using enacted

tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes

the enactment date.

Deferred tax assets and liabilities are recorded net as long-term on the consolidated balance sheets.

A valuation allowance is recorded when it is more likely than not that some or all of the net deferred tax assets will not be realized.

Accordingly, the Company provides a valuation allowance, if necessary, to reduce net deferred tax assets to the amount that is expected to be realized.

Tax positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.

Tax positions not deemed to meet a “more-likely-than-not” threshold would be recorded as a tax expense in the current year.

When necessary, the Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

Net Loss per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period.

Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options, warrants, and the impact of unvested restricted stock.

The Company applies the two-class method to calculate basic and diluted net loss per share attributable to common stockholders as its warrants to purchase common stock are participating securities.

The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders.

However, the two-class method does not impact the net loss per share of common stock as the Company has been in a net loss position and the warrant holders do not participate in losses.

Basic and diluted shares outstanding are the same for each period presented as all common stock equivalents would be antidilutive due to the net losses incurred.

Warrant Liability

The Company classifies warrants to purchase shares of its common stock as a liability on its consolidated balance sheets when the warrant is a free-standing financial instrument that may require the Company to transfer cash consideration upon exercise and that cash transfer event would be out of the Company’s control.

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

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

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

For warrants that do not meet the criteria of a liability warrant and are classified on the Company’s consolidated balance sheets as equity instruments, the Company uses the Black-Scholes model to measure the value of the warrants at issuance and then applies the relative fair-value of the equity transaction between common stock, preferred stock and warrants.

Common stock, and equity-classified warrants each are considered permanent equity.

Concentration of Credit Risk

Financial investments that potentially subject the Company to credit risk consist of cash.

valuation allowance is recorded when it is more likely than not that some or all of the net deferred tax assets will not be realized.

Accordingly, the Company provides a valuation allowance, if necessary, to reduce net deferred tax assets to the amount that is expected

to be realized.

positions taken or expected to be taken in the course of preparing the Company’s tax returns are required to be evaluated to determine

whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority.

Tax positions not

deemed to meet a “more-likely-than-not” threshold would be recorded as a tax expense in the current year.

necessary, the Company recognizes interest and penalties related to uncertain tax positions in income tax expense.

Loss per Share

net loss per share is calculated by dividing net loss applicable to common stockholders by the weighted-average number of shares outstanding

during the period, without consideration for common stock equivalents.

Diluted net loss per share is calculated by adjusting the weighted-average

number of shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock

For purposes of the diluted net loss per share calculation, warrants to purchase common stock and stock options are considered

to be common stock equivalents, but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive

for all periods presented.

Therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods

Company classifies warrants to purchase shares of its common stock as a liability on its consolidated balance sheets when the warrant

is a free-standing financial instrument that may require the Company to transfer cash consideration upon exercise and that cash transfer

event would be out of the Company’s control.

Such a “liability warrant” is initially recorded at fair value on date

of grant using the Black-Scholes model and net of issuance costs, and it is subsequently re-measured to fair value at each subsequent

balance sheet date.

Changes in the fair value of the warrant are recognized as a component of other income (expense), net in the consolidated

statements of operations.

The Company will continue to adjust the liability for changes in fair value until the earlier of the exercise

or expiration of the warrant.

warrants that do not meet the criteria of a liability warrant and are classified on the Company’s consolidated balance sheets as

equity instruments, the Company uses the Black-Scholes model to measure the value of the warrants at issuance and then applies the relative

fair-value of the equity transaction between common stock, preferred stock and warrants.

Common stock, and equity-classified warrants

each are considered permanent equity.

Concentration

of Credit Risk

investments that potentially subject the Company to credit risk consist of cash.

The Company has all cash at accredited financial institutions.

Bank accounts in the United States are insured by the Federal Deposit Insurance Corporation (FDIC) up to $ 250,000 .

The Company does not believe that it is subject to unual credit risk beyond the normal credit risk associated with commercial banking relationships.

Grant income is recognized when qualified research and development costs are incurred and recorded in other income (expense), net in the consolidated statements of operations.

When evaluating grant revenue from the SBIR grant, the Company considered the accounting requirements under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers .

The Company concluded that ASC 606 did not apply as there is no exchange of goods or services or an exchange of intellectual property between the parties;

The Company does not

believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

income is recognized when qualified research and development costs are incurred and recorded in other income (expense), net in the consolidated

statements of operations.

When evaluating grant revenue from the SBIR grant, the Company considered the accounting requirements under

the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers .

The Company concluded that ASC 606 did not apply as there is no exchange of goods or services or an exchange of intellectual property

between the parties;

therefore, the Company presents grant income in other income.

On March 28, 2018, the Company was 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 the 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, the Company was 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, the Company was 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, the Company filed and was 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, the Company recognized approximately $ 165,000 and $ 447,000 of grant income, respectively, from Phase II of the SBIR grant.

The aggregate SBIR grant 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.

Recently Issued Accounting Pronouncements Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies we adopt as of the specified effective date.

Unless otherwise discussed below, we do not believe that the adoption of recently issued standards have or may have a material impact on our consolidated financial statements.

March 28, 2018, the Company was 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 the 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, the Company was 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, the Company was 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,

In September of 2020, the Company filed and was 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, the Company recognized approximately $ 0

and $ 165,000

of grant income, respectively, from Phase II of the SBIR grant.

The aggregate SBIR grant provided a total award of $ 1.8

million, of which, approximately $ 1.5

million had been recognized through December 31, 2022.

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

Recent Accounting Pronouncements

time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies we adopt as of the specified effective

Unless otherwise discussed below, we do not believe that the adoption of recently issued standards have or may have a material

impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments - Credit Losses (Topic 326):

2016-13, Financial

Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-12) .

The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses.

It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases.

The Company expects to adopt this standard on January 1, 2023, and is evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.

In December 2019 the FASB issued Accounting Standards Update No.

The new standard requires

that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be

recorded through an allowance for credit losses.

It also limits the amount of credit losses to be recognized for available-for-sale debt

securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses

if fair value increases.

The Company adopted this standard on January 1, 2023, and the adoption of ASU 2016-13 did not have a material

impact on its consolidated financial statements.

December 2019 the FASB issued Accounting Standards Update No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This standard removes certain exceptions to the general principles in Topic 740 and simplifies certain other aspects of the accounting for income taxes.

This standard became effective on January1, 2021, and did not have a material impact on the Company’s consolidated financial statements and related disclosures.

Simplifying the Accounting for

Income Taxes.

This standard removes certain exceptions to the general principles in Topic 740 and simplifies certain other aspects

of the accounting for income taxes.

This standard became effective on January 1, 2021, and did not have a material impact on the

Company’s consolidated financial statements and related disclosures.

Notes Payable

On May 4, 2020, the Company 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 the Company and accrued interest at a fixed interest rate of 1 % per annum from the funding date of May 4, 2020.

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

On May 23, 2021, the Company was notified that the SBA determined that the application for loan forgiveness was approved, and that the SBA remitted the forgiven amount to the Lender.

Payments of principal and interest were deferred since the funding under the original terms of the promissory note and all such amounts were forgiven.

The Company has accounted for the loan under FASB ASC 470, Debt .

As such, the Notes Payable and applicable accrued interest have been recorded as forgiveness of the Notes Payable resulting in a gain of approximately $ 408,000 for the year ended December 31, 2021.

As of December 31, 2020, repayment amounts due within one year were recorded as current liabilities, and the remaining amounts due in more than one year as long-term liabilities.

May 4, 2020, the Company 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 the Company and accrued interest at a fixed interest rate of 1 % per annum from the funding date of May 4, 2020.

On December 18, 2020,

the Company submitted the loan forgiveness application for the entire borrowings of approximately $ 0.4 million to the lender and was

notified on January 7, 2021 that the application was submitted to the Small Business Administration, or SBA, for review.

On May 23, 2021,

the Company was notified that the SBA determined that the application for loan forgiveness was approved, and that the SBA remitted the

forgiven amount to the Lender.

Payments of principal and interest were deferred since the funding under the original terms of the promissory

note and all such amounts were forgiven.

Company has accounted for the loan under FASB ASC 470, Debt .

As such, the Notes Payable and applicable accrued interest have been

recorded as forgiveness of the Notes Payable resulting in a gain of approximately $ 408,000 for the year ended December 31, 2021.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value.

This hierarchy prioritizes the inputs into three broad levels as follows.

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.

Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company’s restricted cash that serves as collateral for the Company’s credit card program is held in a demand money market account and is measured at fair value based on quoted prices, which are Level 1 inputs.

The Company has concluded that warrants to purchase common stock, which are accounted for as liabilities as discussed in Note 8 are classified as Level 3.

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020:

Fair Value Measurement as of December 31, 2021

(in thousands)

Restricted cash

Warrant liability

Fair Value Measurement as of December 31, 2020

value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal

or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value.

This hierarchy prioritizes

the inputs into three broad levels as follows.

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or

Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for

the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial

Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities

at fair value.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input

that is significant to the fair value measurement.

Company had no assets or liabilities classified as fair value instruments as of December 31, 2022 and no assets or liabilities

classified as Level 2 as of December 31, 2021.

The Company’s restricted cash served as collateral for the Company’s

credit card program held in a demand money market account and measured at fair value based on quoted prices, which are Level 1

The Company classified warrants to purchase common stock that were accounted for as liabilities as discussed in Note 8 are

classified as Level 3 liabilities.

following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair

value on a recurring basis as of December 31, 2021:

of Assets and Liabilities Measured at Fair Value on a Recurring Basis

Value Measurement as of December 31, 2021

(in thousands)

Restricted cash

Warrant liability

There were no transfers between Level 1, Level 2 and Level 3 in either of the years ended December 31, 2021 and December 31, 2020.

Prepaid Expenses and Other Current Asset

Prepaid expenses and other current assets consist of the following:

were no transfers between Level 1, Level 2 and Level 3 in either of the years ended December 31, 2022 and December 31, 2021.

Prepaid Expenses and Other Current Assets

expenses and other current assets consist of the following:

of Prepaid expenses and Other Current Assets

(in thousands)

Sponsored research

Other current assets

Total prepaid expenses and other current assets

Deposits consist of cash payments for retainers for legal representation in support of the Company’s ongoing litigation as more fully described in Note 9.

Property, Plant and Equipment, Net

Property, plant and equipment, net consist of the following:

plant and equipment, net consist of the following:

of Property Plant and Equipment Net

(in thousands)

1 unchanged sentence

Furniture, machinery and equipment

Computer equipment and software

Computer equipment and

Total property, plant and equipment

accumulated depreciation

Property, plant and equipment, net

Depreciation expense amounted to approximately $ 107,000 and $ 184,000 for the years ended December 31, 2021 and 2020, respectively.

Property, plant and

equipment, net

Company determined that there were fully depreciated fixed assets no longer in use and the company therefore wrote off $ 1.1 million

of those assets as of December 31, 2022.

Depreciation expense amounted to approximately $ 52,000

and $ 107,000 for the

years ended December 31, 2022 and 2021, respectively.

Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following:

and other current liabilities consist of the following:

of Accrued and Other Current Liabilities

(in thousands)

3 unchanged sentences

Warrant Liability

During 2016 and 2017, the Company closed a sale of shares of the Company’s common stock, the issuance of warrants to purchase shares of common stock, and the issuance of warrants to the placement agent for each transaction.

Due to a cash put provision within the warrant agreement, which could be enacted in certain change in control events, a liability associated with those 1,044,396 warrants were initially recorded at fair value and subsequently re-measured each reporting period.

The changes in the fair value between issuance and the end of each reporting period is recorded as a component of other income (expense), net in the consolidated statements of operations.

During 2017, the holders of 952,184 warrants agreed to a modification of the term which removed the cash put provision.

The remaining 92,212 warrants continue to be re-measured at each reporting period as long as they are outstanding and un-modified.

In February of 2022, the remaining 92,212 warrants expired unexercised.

The Company has re-measured the liability for the remaining outstanding warrants to their estimated fair value using the Black-Scholes option pricing model with the following weighted average assumptions:

Assumptions for Estimating Fair Value

on Reporting Dates of:

2016 and 2017, the Company closed a sale of shares of the Company’s common stock, the issuance of warrants to purchase shares of

common stock, and the issuance of warrants to the placement agent for each transaction.

Due to a cash put provision within the warrant

agreement, which could be enacted in certain change in control events, a liability associated with those 1,044,396 warrants were initially

recorded at fair value and subsequently re-measured each reporting period.

The changes in the fair value between issuance and the end

of each reporting period is recorded as a component of other income (expense), net in the consolidated statements of operations.

2017, the holders of 952,184 warrants agreed to a modification of the term which removed the cash put provision.

The remaining 92,212

warrants continued to be re-measured at each reporting period as long as they were outstanding and un-modified.

In February 2022,

the remaining 92,212 warrants expired unexercised.

Company had re-measured the liability for the remaining outstanding warrants to their estimated fair value using the Black-Scholes option

pricing model with the following weighted average assumptions:

of Option Pricing Weighted Average Assumptions

for Estimating Fair

on Reporting Date of:

Risk-free interest rate

4 unchanged sentences

Market value of common stock

The following table presents a reconciliation of the Company’s warrant liabilities for the years ended December 31, 2021 and 2020:

Warrant Liability

following table presents a reconciliation of the Company’s warrant liabilities for the years ended December 31, 2022 and 2021:

of Warrant Liability

(in thousands)

5 unchanged sentences

Commitments and Contingencies

On April 14, 2017, representatives for the estate of an individual plaintiff filed a wrongful death complaint with the Suffolk Superior Court, in the County of Suffolk, Massachusetts, or the “Court”, against the Company and other defendants, including Harvard Bioscience, our former parent entity prior to the spin-off of the Company in 2013, as well as another third party.

The complaint seeks payment for an unspecified amount of damages and alleges that the plaintiff sustained terminal injuries allegedly caused by products, including one synthetic trachea scaffold and two bioreactors, provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013.

This lawsuit relates to the Company’s first-generation trachea scaffold technology for which the Company discontinued development in 2014, and not to the Company’s current Biostage Esophageal Implant.

On October 1, 2019, the Court entered an order granting plaintiffs’ motion to compel the defendants to produce discovery.

Subsequently, the plaintiff filed a motion for sanctions against the Company on January 6, 2020 claiming failure to produce the required discovery.

The Company’s counsel at the time, which had been selected for the case by its liability insurance carrier, never notified the Company of plaintiffs’ motion and never responded to plaintiff’s motion.

As a result of the failure of the Company’s former counsel to respond, on January 29, 2020, the Court entered an order allowing plaintiffs’ sanctions against the Company and the other defendants, which established a sanction of admitted liability.

In June 2021, the Company was informed of these 2019 and 2020 court actions by new defense counsel appointed by its liability insurance carrier.

On June 9, 2021, the Company, together with the other defendants, filed a motion to vacate the Court’s order allowing plaintiff’s motion for sanctions, and following a hearing on such motion, on August 6, 2021 the Court issued a ruling in our favor, vacating the sanctions.

This case is now proceeding on the merits, which the Company will continue to oppose vigorously.

On September 15, 2021, one of the Company’s product liability insurance carriers which had been providing a defense to the Company and Harvard Bioscience, notified each party that it was denying coverage under the applicable policy for the lawsuit and would no longer be providing a defense to each such company with respect thereto, or covering related legal expenses incurred after September 30, 2021.

The insurance carrier also filed a corresponding complaint for declaratory judgment with the Court asking the Court to declare that said insurance carrier is not required to defend, indemnify or provide coverage to the Company and Harvard Bioscience with respect to the lawsuit described above.

The Company responded by filing claims against its insurance carrier for insurance coverage, and the Company also brought a motion seeking the Court to order Medmarc to continue paying for the Company’s reasonable defense costs in the underlying litigation while

the coverage dispute is pending.

During the fourth quarter of 2021, the Company incurred legal costs of approximately $ 1.4 million in support of these claims.

On January 25, 2022, the Court granted the Company’s motion for preliminary injunction and held that Medmarc breached its duty to defend the Company when it unilaterally stopped paying for the defense.

Although the coverage dispute remains pending between the parties, the Court ordered Medmarc to pay for the cost of the defense until the coverage dispute is resolved, and the Company’s attorneys’ fees incurred in connection with the preliminary injunction motion.

The Company submitted a request for immediate reimbursement of approximately $ 1.0 million of legal costs from Medmarc.

On March 3, 2022, the Company received a cash payment of approximately $ 0.1 million from Medmarc and is actively pursuing all amounts owed the Company under the Court’s order.

Additionally, plaintiffs in the wrongful death action filed suit in the Superior Court of Suffolk County, Massachusetts against the Company, Harvard Bioscience, and their insurance carriers on November 18, 2021 alleging violations of Massachusetts’ General Laws 175 §112C, 93A, and 176D §3.

That matter is at a preliminary stage and no schedule has been set in that case.

While there can be no assurance of prevailing in any of the matters described above, the Company intends to defend the claims against it vigorously, and to recover all available amounts under the Company’s insurance coverage.

The Company has retained new defense counsel for the wrongful death lawsuit and a trial date has been set for October 2022.

If the Company loses on the merits and a jury awards damages, the Company does not know the exact amount of compensatory and, potentially, punitive damages that could be awarded, but the amounts could be substantial.

The Company cannot determine such amount in relation to trial.

However, based on review of the circumstances surrounding the case, the Company has recorded an accrual for the contingency matter of approximately $ 3.3 million in general and administrative expenses during the year ended December 31, 2021.

The Company cannot provide any assurance that any further disposition of these matters would not result in a change in such estimate.

The Company is also evaluating possible malpractice claims as one source of recovery but have not asserted such a claim and cannot provide assurance that such a claim would provide a recovery.

From time to time, the Company may be involved in various claims and legal proceedings arising in the ordinary course of business.

Other than the above matter, there are no such matters pending that the Company expects to be material in relation to its business, financial condition, and results of operations or cash flows.

The Company leases laboratory and office space and certain equipment with remaining terms ranging from 1 year to 3 years .

The laboratory and office arrangement is under a sublease that was renewed in December of 2021 and currently extends through May 31, 2023.

This lease automatically renews annually for a one-year period unless the Company or Harvard Bioscience provides a notice of termination within one hundred and eighty days prior to May 31 of each year.

All of the Company’s leases qualify as operating leases.

The following table summarizes the presentation of the Company’s operating leases in its consolidated balance sheets:

Balance Sheet Classification

April 14, 2017, representatives for the estate of an individual plaintiff filed a wrongful death complaint with the Suffolk Superior

Court, in the County of Suffolk, Massachusetts, or the “Court”, against the Company and other defendants, including Harvard

Bioscience, our former parent entity prior to the spin-off of the Company in 2013, as well as another third party.

The complaint seeks

payment for an unspecified amount of damages and alleges that the plaintiff sustained terminal injuries allegedly caused by products,

including one synthetic trachea scaffold and two bioreactors, provided by certain of the named defendants and utilized in connection

with surgeries performed by third parties in Europe in 2012 and 2013.

This lawsuit relates to the Company’s first-generation trachea

scaffold technology for which the Company discontinued development in 2014, and not to the Company’s current esophageal

April 27, 2022, the Company and HBIO executed a settlement with the plaintiffs (the “Settlement”), which resolves all claims

relating to the litigation.

The Settlement resulted in the dismissal with prejudice of the wrongful death claim, and neither we nor HBIO

admitted any fault or liability in connection with the claim.

The Settlement also resolved any and all claims by and between the parties

and our products liability insurance carriers, which resulted in the dismissal with prejudice of all claims asserted by or against those

carriers, the Company and HBIO.

However, based on review of the circumstances surrounding the Settlement, the Company recorded an accrual for

this matter of approximately $ 3.3 million in general and administrative expenses during the year ended December 31, 2021.

relation to the litigation, the Company has incurred approximately $ 5.9 million

of aggregate costs, of which 100 %

has been paid as of December 31, 2022.

This aggregate amount includes the cost of both the accrual for contingency matter of

approximately $ 3.3

million and approximately $ 2.6

million of legal and related costs incurred by us which consist of attorney’s fees and advisor and specialist costs as part of

our defense in this matter.

For the year ended December 31, 2022, the Company incurred legal and related costs of approximately $ 1.3

million recorded in general and administrative expenses.

On March 3, 2022, the Company received a cash payment of approximately $ 0.1

million from Medmarc, our insurance carrier.

This amount represented a reimbursement of previously incurred legal costs and was

recorded as a reduction to general and administrative expenses during the year ended December 31, 2022.

respect to such $ 5.9 million of costs described above, the Company was required to either pay such costs directly or indemnify HBIO as to such

amounts it incurs.

Of such amounts, the Company anticipated that HBIO would pay an aggregate amount of $ 4.0 million by the end of the second quarter

With respect to the indemnification obligation of the Company to HBIO pertaining to such costs, the Company and HBIO entered into a Preferred

Issuance Agreement dated as of April 27, 2022, or the “PIA”.

In connection with the PIA, the Company and HBIO agreed that once HBIO

had paid at least $ 4.0 million in such costs, to satisfy our indemnification obligations with respect thereto, in lieu of paying cash,

the Company would issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA, including the term sheet attached

On June 10, 2022, following the execution of a subscription agreement and HBIO providing evidence of payment of the requisite

$ 4.0 million amount, the Company issued HBIO 4,000 shares of Series E Preferred Stock at a price of $ 1,000 per share to satisfy our related indemnification

obligations aggregating $ 4.0 million, which included the accrual for contingency of approximately $ 3.3 million and approximately $ 0.8

million of legal and related costs paid on behalf of the Company by HBIO.

time to time, the Company may be involved in various claims and legal proceedings arising in the ordinary course of business.

the above matter, there are no such matters pending that the Company expects to be material in relation to its business, financial condition,

and results of operations or cash flows.

Company leases laboratory and office space and certain equipment with remaining terms ranging from 1 year to 3 years.

laboratory and office arrangement is under a sublease that was renewed in December of 2022 and currently extends through May 31, 2024.

of the Company’s leases qualify as operating leases.

The following table summarizes the presentation of the Company’s operating

leases in its consolidated balance sheets:

of Operating Leases in Consolidated Balance Sheets

Sheet Classification

(in thousands)

Operating lease assets

Right-of-use asset, net

Current portion of operating lease liabilities

Operating lease liabilities, net of current portion

Total operating lease liabilities

Cash paid for leases included in cash used in operating activities in the Company’s consolidated statement of cash flows during the years ended December 31, 2021, and 2020 amounted to approximately $ 121,000 , respectively.

The weighted average remaining lease terms and weighted average discount rates as of December 31, 2021 and 2020 were as follows:

Year ended December 31,

Operating lease liabilities,

net of current portion

Operating lease liabilities,

net of current portion

Total operating lease

paid for leases included in cash used in operating activities in the Company’s consolidated statements of cash flows during

each of the years ended December 31, 2022, and 2021 amounted to approximately $ 121,000 .

weighted average remaining lease terms and weighted average discount rates as of December 31, 2022 and 2021 were as follows:

of Weighted Average Lease Term and Discount Rates

ended December 31,

Remaining lease term (in years)

Discount rate

The following table summarizes the effect of lease costs in the Company’s consolidated statements of operations:

For the Year Ended December 31,

following table summarizes the effect of lease costs in the Company’s consolidated statements of operations:

Summary of Lease Expense Categories in Consolidated Statements of Operations

the Year Ended December 31,

(in thousands)

2 unchanged sentences

General and administrative

The minimum lease payments for the next five years and thereafter are as follows:

December 31, 2021

minimum lease payments for the next two years and thereafter are as follows:

of Minimum Lease Payments

(in thousands)

1 unchanged sentence

imputed interest

Present value of operating lease liabilities

A reconciliation of taxes utilizing the expected federal tax rate of 21 % and the effective tax rate is as follows:

Years ended December 31,

Computed “expected” income tax benefit

State income tax benefit, net of federal income tax benefit

Permanent items, primarily change in fair value of warrants and non-deductible share-based compensation

Present value of

operating lease liabilities

reconciliation of taxes utilizing the expected federal tax rate of 21 % and the effective tax rate is as follows:

Schedule of Effective Income Tax

ended December 31,

Computed “expected”

income tax benefit

State income tax benefit, net of federal income

Permanent items, primarily change in fair value

of warrants and non-deductible share-based compensation

Stock-option cancellations

Change in valuation allowance

Change in valuation

Total income taxes

The components of the Company’s deferred tax asset are as follows:

Years ended December 31,

components of the Company’s deferred tax assets and liabilities are as follows:

of Deferred tax Assets and Liabilities

ended December 31,

(in thousands)

Deferred tax assets:

Operating loss and credit carryforwards

Capitalized research and development

Operating loss

and credit carryforwards

Capitalized research and

Stock-based compensation

Accrual for contingency matter

Accrual for contingency

Lease liabilities

Excess book over tax depreciation

book over tax depreciation

Total deferred tax assets

2 unchanged sentences

Deferred tax liability:

Operating lease assets

Total deferred tax liability

The Company has recorded a valuation allowance against its deferred tax assets for the years ended December 31, 2021 and 2020, because the Company’s management believes that it is more likely than not that these assets will not be realized.

The valuation allowance increased by approximately $ 2.1 million and $ 1.0 million for the years ended December 31, 2021 and 2020, respectively, primarily as a result of operating losses generated with no corresponding financial statement benefit.

As of December 31, 2021, the Company had federal net operating loss carryforwards, or NOLs, of approximately $ 52.8 million to offset future federal taxable income and state NOLs of approximately $ 52.2 million to offset future state taxable income.

The federal and state NOLs generated for annual periods prior to January 1, 2018 begin to expire in 2033.

The Company’s federal NOL generated for the years ended December 31, 2018 through December 31, 2021, which amount to $ 26.3 million, can be carried forward indefinitely, however, are limited to be utilized to offset 80% of taxable income in each successive year.

As of December 31, 2021, the Company also has federal and state tax research and development credit carryforwards of approximately $ 1.5 million and $ 1.0 million, respectively, to offset future income taxes.

Company has recorded a valuation allowance against its deferred tax assets for the years ended December 31, 2022 and 2021, because the

Company’s management believes that it is more likely than not that these assets will not be realized.

The valuation allowance increased

by approximately $ 2.9 million and $ 2.1 million for the years ended December 31, 2022 and 2021, respectively, primarily as a result of

operating losses generated with no corresponding financial statement benefit.

of December 31, 2022, the Company had federal net operating loss carryforwards, or NOLs, of approximately $ 66.9 million to offset future

federal taxable income and state NOLs of approximately $ 66.4 million to offset future state taxable income.

The federal and state NOLs

generated for annual periods prior to January 1, 2019 begin to expire in 2034.

The Company’s federal NOL generated for the years

ended December 31, 2019 through December 31, 2022, which amount to $ 32.3 million, can be carried forward indefinitely, however, are limited

to be utilized to offset 80% of taxable income in each successive year.

As of December 31, 2022, the Company also has federal and state

tax research and development credit carryforwards of approximately $ 1.5 million and $ 1.0 million, respectively, to offset future income

The federal and state research and development tax credit carryforwards begin to expire in 2034 and 2030, respectively.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.

This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or

tax liabilities.

The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change.

Subsequent ownership changes may further affect the limitation in future years.

The Company has recently completed several equity financings transactions which have either individually or cumulatively resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code or could result in a change in control in the future.

The Company does not believe the impact of any limitation on the use of its net operating loss or credit carryforwards will have a material impact on the Company’s consolidated financial statements since the Company has a full valuation allowance against its net deferred tax assets due to the uncertainty regarding future taxable income for the foreseeable future.

For all years through December 31, 2021, the Company generated research credits but has not conducted a study to document the qualified activities.

the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment

by the Internal Revenue Service and state tax authorities.

Net operating loss and tax credit carryforwards may become subject to an annual

limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period

in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.

This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.

of the annual limitation is determined based on the value of the Company immediately prior to the ownership change.

Subsequent ownership

changes may further affect the limitation in future years.

The Company has recently completed several equity financings transactions

which have either individually or cumulatively resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue

Code or could result in a change in control in the future.

The Company does not believe the impact of any limitation on the use of its

net operating loss or credit carryforwards will have a material impact on the Company’s consolidated financial statements since

the Company has a full valuation allowance against its net deferred tax assets due to the uncertainty regarding future taxable income

for the foreseeable future.

all years through December 31, 2022, the Company generated research credits but has not conducted a study to document the qualified activities.

This study may result in an adjustment to the Company’s research and development credit carryforwards;

however, until a study is completed, and any adjustment is known, no amounts are being presented as an uncertain tax position.

A full valuation allowance has been provided against the Company's research and development credits and, if an adjustment is required, this adjustment would be offset by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

Harvard Bioscience received a Supplemental Ruling to the Private Letter Ruling dated March 22, 2013 from the IRS to the effect that, among other things, the Separation and Distribution by Harvard Bioscience will qualify as a transaction that is tax-free for U.S.

federal income tax purposes under Section 355 and 368(a)(1)(D) of the Internal Revenue Code continuing in effect.

The private letter and supplemental rulings and the tax opinion that Harvard Bioscience received from legal counsel to Harvard Bioscience rely on certain representations, assumptions and undertakings, including those relating to the past and future conduct of the Biostage business, and neither the private letter and supplemental rulings nor the opinion would be valid if such representations, assumptions and undertakings were incorrect.

Moreover, the private letter and supplemental rulings do not address all the issues that are relevant to determining whether the Distribution will qualify for tax-free treatment.

Notwithstanding the private letter and supplemental rulings and opinion, the IRS could determine the Distribution should be treated as a taxable transaction for U.S.

federal income tax purposes if, among other reasons, it determines any of the representations, assumptions or undertakings that were included in the request for the private letter and supplemental rulings are false or have been violated or if it disagrees with the conclusions in the opinion that are not covered by the IRS ruling.

To preserve the tax-free treatment to Harvard Bioscience of the Separation and Distribution, for the two-year period following the Distribution, which such period ended November 1, 2015, the Company was limited, except in specified circumstances, from entering into certain transactions pursuant to which all or a portion of the Company’s stock would be acquired, whether by merger or otherwise;

issuing equity securities beyond certain thresholds;

however, until a study is

completed, and any adjustment is known, no amounts are being presented as an uncertain tax position.

A full valuation allowance has been

provided against the Company’s research and development credits and, if an adjustment is required, this adjustment would be offset

by an adjustment to the deferred tax asset established for the research and development credit carryforwards and the valuation allowance.

Bioscience received a Supplemental Ruling to the Private Letter Ruling dated March 22, 2013 from the IRS to the effect that, among other

things, the Separation and Distribution by Harvard Bioscience will qualify as a transaction that is tax-free for U.S.

federal income

tax purposes under Section 355 and 368(a)(1)(D) of the Internal Revenue Code continuing in effect.

The private letter and supplemental

rulings and the tax opinion that Harvard Bioscience received from legal counsel to Harvard Bioscience rely on certain representations,

assumptions and undertakings, including those relating to the past and future conduct of the Biostage business, and neither the private

letter and supplemental rulings nor the opinion would be valid if such representations, assumptions and undertakings were incorrect.

Moreover, the private letter and supplemental rulings do not address all the issues that are relevant to determining whether the Distribution

will qualify for tax-free treatment.

Notwithstanding the private letter and supplemental rulings and opinion, the IRS could determine

the Distribution should be treated as a taxable transaction for U.S.

federal income tax purposes if, among other reasons, it determines

any of the representations, assumptions or undertakings that were included in the request for the private letter and supplemental rulings

are false or have been violated or if it disagrees with the conclusions in the opinion that are not covered by the IRS ruling.

preserve the tax-free treatment to Harvard Bioscience of the Separation and Distribution, for the two-year period following the Distribution,

which such period ended November 1, 2015, the Company was limited, except in specified circumstances, from entering into certain transactions

pursuant to which all or a portion of the Company’s stock would be acquired, whether by merger or otherwise;

issuing equity securities

beyond certain thresholds;

repurchasing the Company’s common stock;

and ceasing to actively conduct the Company’s regenerative medicine business.

In addition, at all times, including during and following such two-year period, the Company may not take or fail to take any other action that prevents the Separation and Distribution and related transactions from being tax-free.

If the Distribution fails to qualify for tax-free treatment, in general, Harvard Bioscience would be subject to tax as if it had sold the Company’s common stock in a taxable sale for its fair market value, and Harvard Bioscience stockholders who received shares of Biostage common stock in the Distribution would be subject to tax as if they had received a taxable Distribution equal to the fair market value of such shares.

Under the tax sharing agreement between Harvard Bioscience and the Company, the Company would generally be required to indemnify Harvard Bioscience against any tax resulting from the Distribution to the extent that such tax resulted from (i) an acquisition of all or a portion of the Company's stock or assets, whether by merger or otherwise, (ii) other actions or failures to act by the Company, or (iii) any of the Company's representations or undertakings being incorrect or violated.

The Company's indemnification obligations to Harvard Bioscience and its subsidiaries, officers and directors are not limited by any maximum amount.

If the Company is required to indemnify Harvard Bioscience or such other persons under the circumstances set forth in the tax sharing agreement, the Company may be subject to substantial liabilities.

All deferred tax assets prior to the Separation remained with Harvard Bioscience.

The Company has determined that any uncertain tax positions would have no material impact on the consolidated financial statements of the Company and there are no unrecognized tax benefits or related interest and penalties accrued for the period for the years ended December 31, 2021 and 2020.

The Company is subject to U.S.

and ceasing to actively conduct the Company’s regenerative

medicine business.

In addition, at all times, including during and following such two-year period, the Company may not take or fail to

take any other action that prevents the Separation and Distribution and related transactions from being tax-free.

the Distribution fails to qualify for tax-free treatment, in general, Harvard Bioscience would be subject to tax as if it had sold the

Company’s common stock in a taxable sale for its fair market value, and Harvard Bioscience stockholders who received shares of

Biostage common stock in the Distribution would be subject to tax as if they had received a taxable Distribution equal to the fair market

value of such shares.

the tax sharing agreement between Harvard Bioscience and the Company, the Company would generally be required to indemnify Harvard Bioscience

against any tax resulting from the Distribution to the extent that such tax resulted from (i) an acquisition of all or a portion of the

Company’s stock or assets, whether by merger or otherwise, (ii) other actions or failures to act by the Company, or (iii) any of

the Company’s representations or undertakings being incorrect or violated.

The Company’s indemnification obligations to Harvard

Bioscience and its subsidiaries, officers and directors are not limited by any maximum amount.

If the Company is required to indemnify

Harvard Bioscience or such other persons under the circumstances set forth in the tax sharing agreement, the Company may be subject to

substantial liabilities.

deferred tax assets prior to the Separation remained with Harvard Bioscience.

Company has determined that any uncertain tax positions would have no material impact on the consolidated financial statements of the

Company and there are no unrecognized tax benefits or related interest and penalties accrued for the period for the years ended December

31, 2022 and 2021.

Company is subject to U.S.

federal income tax and Massachusetts state income tax.

The statute of limitations for assessment by the IRS and state tax authorities is open for all periods from inception through December 31, 2020;

currently, no federal or state income tax returns are under examination by the respective taxing authorities.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES, Act was signed into law making several changes to the Internal Revenue Code.

The changes include but are not limited to increasing the limitation on the amount of deductible interest expense, allowing companies to carryback certain net operating losses, and increasing the amount of net operating loss carryforwards that corporations can use to offset taxable income.

The tax law changes in the CARES Act did not have a material impact on the Company's income tax provision.

The statute of limitations for assessment by the IRS

and state tax authorities is open for all periods from inception through December 31, 2021;

currently, no federal or state income tax

returns are under examination by the respective taxing authorities.

March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES, Act was signed into law making several changes to the Internal

Revenue Code.

The changes include but are not limited to increasing the limitation on the amount of deductible interest expense, allowing

companies to carryback certain net operating losses, and increasing the amount of net operating loss carryforwards that corporations

can use to offset taxable income.

The tax law changes in the CARES Act did not have a material impact on the Company’s income tax

Employee Benefit Plan

The Company sponsors a retirement plan for its U.S.

employees, which includes an employee savings plan established under Section 401(k) of the U.S.

Company sponsors a retirement plan for its U.S.

employees, which includes an employee savings plan established under Section 401(k) of

Internal Revenue Code, or the 401(k) Plan.

The 401(k) Plan covers substantially all full-time employees who meet certain eligibility requirements.

The 401(k) Plan covers substantially all full-time employees who meet certain eligibility

requirements.

Contributions to the retirement plan are at the discretion of management.

The Company’s matching contributions to the plan were approximately $ 39,000 and $ 62,000 for the years ended December 31, 2021 and 2020, respectively.

Preferred Stock

There are no shares of any class of preferred stock outstanding as of December 31, 2021 or December 31, 2020.

The Company’s matching contributions to

the plan were approximately $ 35,000 and $ 39,000 for the years ended December 31, 2022 and 2021, respectively.

Series E Convertible Preferred Stock

April 28, 2022, the Company entered into a Preferred Issuance Agreement, or PIA, with Harvard Bioscience, Inc., or HBIO, dated as of

April 27, 2022.

Pursuant to the PIA, the Company and HBIO agreed that once HBIO has paid at least $ 4.0 million in certain settlement

and related legal expenses, to satisfy the Company’s indemnification obligations with respect thereto, in lieu of paying cash,

the Company would issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA.

June 10, 2022, following the execution of a subscription agreement and HBIO providing evidence of payment of the requisite $ 4.0 million

amount, the Company issued HBIO 4,000 shares of Series E Convertible Preferred Stock, or Series E Preferred, at a price of $ 1,000 per

share to satisfy the Company’s related indemnification obligations pertaining to the $ 4.0 million, in lieu of paying cash.

December 31, 2022, there were 4,000 shares of Series E Preferred outstanding and approximately $ 180,000 accrued as dividends payable

as shares of Series E Preferred.

rights, preferences, and privileges of the Series E Preferred stock were as follows as of December 31, 2022:

Payable quarterly in additional shares of Series E Preferred stock at a rate of 8 % per annum, accrued daily and compounded quarterly.

The holders of Series E Preferred stock shall have no voting rights except as required by applicable law.

As long as any shares of Series E Preferred stock are outstanding, the holder of the Series E Preferred stock has certain consent

rights with respect to the Company (a) incurring any indebtedness for borrowed money or any guaranty

therefor in excess of $ 500,000 individually or in the aggregate, (b) entering into certain new material related party transactions, and

The Series E Preferred stock shall, with respect to dividends and distributions upon any voluntary or involuntary liquidation,

dissolution or winding up of the Company or a deemed liquidation event or otherwise, rank prior to all classes of Common Stock of the

Company and, except for any Preferred Stock that may be pari passu or senior to the Series E Preferred Stock, in each case, if consented

to by the holder of the Series E Preferred, all other classes or series of Preferred Stock of the Company, whether currently existing

or hereafter created.

Each share of Series E Preferred stock will automatically convert into shares of Common Stock of the Company upon the

earlier to occur of the Company’s offering that includes common stock (whether private placement or public offering) that coincides

with its uplisting onto NASDAQ, its initial public offering pursuant to a Registration Statement on Form S-1 that includes common stock

following the issuance of the Series E Preferred, or its initial private placement that includes common stock following the issuance

of the Series E Preferred in the event the gross proceeds of such private placement are at least $ 4,000,000 .

In such instance, each share

of Series E Preferred will convert into that number of shares of Common Stock determined by dividing (i) the stated value plus all accrued

and unpaid dividends, by (ii) the lowest price per share of common stock purchased in the applicable offering by the Company which triggered

the mandatory conversion, or if such price cannot be reliably determined, a reasonably calculated price per common share determined by

the Company and the holder.

Each share of Series E Preferred stock will also be subject to optional conversion by the holder thereof into that number

of shares of Common Stock determined by dividing (i) the stated value plus all accrued and unpaid dividends, by (ii) a price per share

equal to the average of the volume weighted average trading prices of the Common Stock for the most recently completed sixty (60) consecutive

trading days prior to the date of determination.

Classification :

The conversion options require the settlement through a variable number of shares.

Based on the mechanic of the conversion

options, it is not possible to determine if the company would be able to satisfy the settlement of the conversion option.

approval would be required to increase the number of authorized common shares.

This action would be outside of the control of the Company.

Accordingly, it is presumed that cash settlement would be required.

Management has determined that based upon this analysis, temporary

equity classification would be appropriate.

than Series E Preferred Shares, there were no other shares of any of the other classes of preferred stock outstanding as of December

Authorized shares for each preferred stock class is as follows:

of Categories of Preferred Stock

Undesignated Preferred Stock

2 unchanged sentences

Series D Convertible Preferred Stock

The Company has 60,000,000 shares authorized as of December 31, 2021 and 44,405,107 shares of common stock available for issuance.

The following represent the Company’s common stock transactions during December 31, 2021 and 2020:

Series E Convertible Preferred Stock

Company has 60,000,000 shares authorized as of December 31, 2022 and 44,194,987 shares of common stock available for issuance.

following represent the Company’s common stock transactions during December 31, 2022 and 2021:

Capital Transactions

On November 26, 2021, the Company issued a total of 72,464 shares of its common stock at a purchase price of $ 3.45 per share and warrants to purchase 36,232 shares of common stock to its Interim Chief Executive Officer at a purchase price of $ 3.45 per unit.

Each unit consisted of one share of common stock and a warrant to purchase one half of one share of common stock.

The shares and warrants were sold for aggregate gross and net proceeds of approximately $ 0.3 million of which, $ 0.2 million and $ 0.1 million was allocated to the common stock and warrants, respectively.

During the year ended December 31, 2021, the Company issued a total of 1,300,000 shares of its common stock at a purchase price of $ 2.00 per share and warrants to purchase 650,000 shares of common stock to a group of existing investors at a purchase price of $ 2.00 per unit.

Each unit consisted of one share of common stock and a warrant to purchase one half of one share of common stock.

The shares and warrants were sold for aggregate gross and net proceeds of approximately $ 2.6 million, of which $ 1.8 million and $ 0.8 million was allocated to the common stock and warrants, respectively.

The Company classified the warrants in each of the aforementioned issuances on its consolidated balance sheets as equity, and valued the respective warrants issued in conjunction with common stock placements using the Black-Scholes model based on the following weighted average assumptions:

May 12, 2022, the Company entered into Securities Purchase Agreements, each a Purchase Agreement, with new and existing investors, the

Investors, pursuant to which the Investors agreed to purchase in a private placement an aggregate of 854,771 shares of common stock and

warrants to purchase 427,390 shares of common stock, subject to adjustment as provided in the warrant agreement, the Warrants, for the

aggregate purchase price of approximately $ 5.1 million with a purchase price per unit of $ 5.92 , the Private Placement.

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

The Company received an aggregate of $ 5.1 million gross and net proceeds from the Private Placement by May 16, 2022.

$ 5.1 million of gross and net proceeds where allocated $ 3.6 million and $ 1.5 million to the common stock and warrants, respectively.

The Company classified these warrants on its consolidated balance sheets as equity as the warrants do not have any redemption features

nor a right to put for cash that is outside the control of the Company, and valued using the Black-Scholes model based on the following

weighted average assumptions:

Schedule of Classification of Warrants to Equity

Risk-free interest rate

4 unchanged sentences

Market value of common stock

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.

Capital Transactions

During the year ended December 31, 2020, the Company issued a total of 151,027 and 125,000 shares of its common stock at purchase prices of $ 3.70 and $ 4.00 per share, respectively, and 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, of which, $ 1.0 million and $ 0.1 million was allocated to the common stock and warrants, respectively, utilizing the relative fair value.

The Company classified these warrants on its consolidated balance sheets as equity, and valued the respective warrants utilizing the Black-Scholes model based on the following weighted average assumptions:

November 26, 2021, the Company issued a total of 72,464 shares of its common stock at a purchase price of $ 3.45 per share and warrants

to purchase 36,232 shares of common stock to its Chief Executive Officer at a purchase price of $ 3.45 per unit.

Each unit consisted of

one share of common stock and a warrant to purchase one half of one share of common stock.

The shares and warrants were sold for aggregate

gross and net proceeds of approximately $ 0.3 million of which, $ 0.2 million and $ 0.1 million was allocated to the common stock and warrants,

respectively.

the year ended December 31, 2021, the Company issued a total of 1,300,000 shares of its common stock at a purchase price of $ 2.00 per

share and warrants to purchase 650,000 shares of common stock to a group of existing investors at a purchase price of $ 2.00 per unit.

Each unit consisted of one share of common stock and a warrant to purchase one half of one share of common stock.

The shares and warrants

were sold for aggregate gross and net proceeds of approximately $ 2.6 million, of which $ 1.8 million and $ 0.8 million was allocated to

the common stock and warrants, respectively.

Company classified the warrants in each of the aforementioned issuances on its consolidated balance sheets as equity, and valued the

respective warrants issued in conjunction with common stock placements using the Black-Scholes model based on the following weighted

average assumptions:

Risk-free interest rate

4 unchanged sentences

Market value of common stock

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

Warrant to purchase common stock activity for the year ended December 31, 2021 was as follows:

to purchase common stock activity for the year ended December 31, 2022 was as follows:

Schedule of Warrant to Purchase Common Stock

Weighted-average

exercise price

Outstanding at December 31, 2020

Outstanding at December 31, 2021

Employee Stock Purchase Plan

The Company maintains the 2013 Employee Stock Purchase Plan, or the ESPP Plan, whereas participating employees can authorize the Company to withhold a portion of their base pay during consecutive six-month payment periods for the purchase of shares of the Company’s common stock.

At the conclusion of the period, participating employees can purchase shares of the Company’s common stock at 85 % of the lower of the fair market value of the Company’s common stock at the beginning or end of the period.

Shares are issued under the plan for the six-month periods ending June 30 and December 31.

Under this plan, 7,500 shares of common stock are

authorized for issuance of which 4,534 shares have been issued as of December 31, 2021.

There are 2,966 shares available for issuance as of December 31, 2021 and December 31, 2020.

( 1,040,187 )

Outstanding at December 31, 2022

Stock Purchase Plan

Company maintains the 2013 Employee Stock Purchase Plan, or the ESPP Plan, whereas participating employees can authorize the Company

to withhold a portion of their base pay during consecutive six -month payment periods for the purchase of shares of the Company’s

common stock.

At the conclusion of the period, participating employees can purchase shares of the Company’s common stock at 85 %

of the lower of the fair market value of the Company’s common stock at the beginning or end of the period.

Shares are issued under

the plan for the six -month periods ending June 30 and December 31.

Under this plan, 7,500 shares of common stock are authorized for issuance

of which 4,534 shares have been issued as of December 31, 2022.

There are 2,966 shares available for issuance as of December 31, 2022

and December 31, 2021.

There was no ESPP Plan activity in 2022 or 2021.

Share-based Compensation

Biostage Amended and Restated Equity Incentive Plan

The Company maintains the Amended and Restated Equity Incentive Plan, or the Plan, for the benefit of certain officers, employees, non-employee directors, and other key persons (including consultants and advisory board members).

All options and awards granted under the Plan consist of the Company’s shares of common stock.

The Company’s policy is to issue stock available from its registered but unissued stock pool through its transfer agent to satisfy stock option exercises and the vesting of restricted stock units.

The vesting period for awards is generally four years and the contractual life is ten years .

Canceled and forfeited options and awards are available to be reissued under the Plan.

In June 2020, the Company’s shareholders approved the Plan to, among other things, increase of the number of shares of the Company’s common stock available for issuance pursuant thereto by 3,000,000 shares, which increased the total shares authorized to be issued under the Plan to 5,098,000 .

Amended and Restated Equity Incentive Plan

Company maintains the Amended and Restated Equity Incentive Plan, or the Plan, for the benefit of certain officers, employees, non-employee

directors, and other key persons (including consultants and advisory board members).

All options and awards granted under the Plan consist

of the Company’s shares of common stock.

The Company’s policy is to issue stock available from its registered but unissued

stock pool through its transfer agent to satisfy stock option exercises and the vesting of restricted stock units.

The vesting period

for awards is generally four years and the contractual life is ten years .

Canceled and forfeited options and awards are available to

be reissued under the Plan.

June 2020, the Company’s shareholders approved the Plan to, among other things, increase of the number of shares of the Company’s

common stock available for issuance pursuant thereto by 3,000,000 shares, which increased the total shares authorized to be issued under

the Plan to 5,098,000 .

There are 2,560,389 shares available for issuance as of December 31, 2022.

Stock option activity under the Plan for the year ended December 31, 2021 was as follows:

Weighted-average

option activity under the Plan for the year ended December 31, 2022 was as follows:

Schedule of Stock Option Activity

Weighted-average

Aggregate intrinsic

exercise price

contractual life (years)

value (in thousands)

Weighted-average contractual

Aggregate intrinsic value

(in thousands)

Outstanding at December 31, 2020

1 unchanged sentence

Outstanding at December 31, 2021

Options exercisable

Options vested and expected to vest

The Company’s outstanding stock options include 510,742 performance-based awards that have vesting provisions subject to the achievement of certain business milestones.

Total unrecognized compensation expense for the remaining performance-based awards is approximately $ 1.3 million.

No expense has been recognized for these awards as of December 31, 2021 given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes.

Aggregate intrinsic value for outstanding options and exercisable options for the year ended December 31, 2021, was approximately $ 294,000 based on the Company’s closing stock price of $ 2.30 per share as of December 31, 2021.

As of December 31, 2021, unrecognized compensation cost related to unvested non-performance-based awards amounted to $ 1.1 million, which will be recognized over a weighted-average period of 1.83 years.

The weighted average assumptions for valuing the Company’s stock options granted were as follows:

Year Ended December 31,

Outstanding at December 31, 2022

Options exercisable at December 31, 2022

Options vested or

expected to vest

Company’s outstanding stock options include 510,742 performance-based awards that have vesting provisions subject to the achievement

of certain business milestones.

Total unrecognized compensation expense for the remaining performance-based awards is approximately $ 1.3

No expense has been recognized for these awards as of December 31, 2022 given that the milestone achievements for these awards

have not yet been deemed probable for accounting purposes.

intrinsic value for outstanding options for the year ended December 31, 2022 was approximately $ 6.9 million is calculated as the difference

of the Company’s closing stock price of $ 5.50 per share as of December 30, 2022 and the weighted average exercise price of $ 3.95 .

As of December 31, 2022, unrecognized compensation cost related to unvested non-performance-based awards amounted to $ 1.1 million, which

will be recognized over a weighted-average period of 2.5 years.

weighted average assumptions for valuing the Company’s stock options granted were as follows:

Schedule of Weighted Average Assumptions

Ended December 31,

Risk-free interest rate

2 unchanged sentences

Expected dividend yield

The grant date fair value of stock options is estimated using the Black-Scholes option pricing model that takes into account the fair value of its common stock, the exercise price, the expected life of the option, the expected volatility of its common stock, expected dividends on its common stock, and the risk-free interest rate over the expected life of the option.

The risk-free interest rate assumption is based upon observed treasury bill interest rates (risk-free) appropriate for the expected term of the Company’s employee stock options.

grant date fair value of stock options is estimated using the Black-Scholes option pricing model that takes into account the fair value

of its common stock, the exercise price, the expected life of the option, the expected volatility of its common stock, expected dividends

on its common stock, and the risk-free interest rate over the expected life of the option.

The risk-free interest rate assumption is

based upon observed treasury bill interest rates (risk-free) appropriate for the expected term of the Company’s employee stock

The computation of expected volatility is based on the historical volatility of the Company’s common stock.

The simplified method of estimating expected term was used.

The Company has not paid and do not anticipate paying cash dividends on the Company’s shares of common stock;

The simplified

method of estimating expected term was used.

The Company has not paid and do not anticipate paying cash dividends on the Company’s

shares of common stock;

therefore, the expected dividend yield is assumed to be zero .

The weighted average estimated fair value of stock options granted using the Black-Scholes model was $ 1.84 per share for each of the years ended December 31, 2021 and 2020.

The Company also estimated the fair value of non-employee share options using the Black-Scholes option pricing model reflecting the same assumptions as applied to employee and director options in each of the reporting periods, other than the expected life, which is assumed to be the remaining contractual life of the options.

Share-based compensation expense related to the Plan for the years ended December 31, 2021 and 2020 was allocated as follows:

Years Ended December 31,

weighted average estimated fair value of stock options granted using the Black-Scholes model was $ 4.23 and $ 1.84 per share for the years

ended December 31, 2022 and 2021, respectively.

Company also estimated the fair value of non-employee share options using the Black-Scholes option pricing model reflecting the same

assumptions as applied to employee and director options in each of the reporting periods, other than the expected life, which is assumed

to be the remaining contractual life of the options.

compensation expense related to the Plan for the years ended December 31, 2022 and 2021 was allocated as follows:

Schedule of Share-based Compensation Expenses

Ended December 31,

(in thousands)

Research and development

Selling, general and administrative

Selling, general and

administrative

Total stock-based compensation

In February 2020, as part of the termination agreement with the Company’s former chief executive officer, the Company modified certain options to purchase 236,970 shares of common stock, issued an 80,000 fully vested stock option grant, and accelerated the vesting of 3,300 restricted stock units resulting in $ 153,000 , $ 70,000 , and $ 4,000 , respectively, of share-based compensation for the year ended December 31, 2020.

Net Loss per Share

Basic and diluted net loss per share was calculated as follows:

Years Ended December 31,

(in thousands, except shares and per share data)

and diluted net loss per share was calculated as follows:

Schedule of Basic and Diluted Net Loss Per Share

Ended December 31,

(in thousands, except shares

and per share data)

Weighted-average shares outstanding

Net loss per share – basic and diluted

The Company’s potentially dilutive securities, which include stock options, unvested restricted common stock units and warrants, have been excluded from the computation of diluted net loss per share whenever the effect of including them would be to reduce the net loss per share.

In periods where there is a net loss, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

The following potential common shares were excluded from the calculation of diluted net loss per share attributable to common stockholders for the years ended December 31, 2021 and 2020 because including them would have had an anti-dilutive effect:

Years Ended December 31,

Net loss per share –

basic and diluted

Company’s potentially dilutive securities, which include stock options, unvested restricted common stock units and warrants, have

been excluded from the computation of diluted net loss per share whenever the effect of including them would be to reduce the net loss

In periods where there is a net loss, the weighted average number of common shares outstanding used to calculate both basic

and diluted net loss per share attributable to common stockholders is the same.

following potential common shares were excluded from the calculation of diluted net loss per share attributable to common stockholders

for the years ended December 31, 2022 and 2021 because including them would have had an anti-dilutive effect:

Schedule of Antidilutive Securities Excluded From Computation

of Earnings Per Share

Ended December 31,

Warrants to purchase common stock

Options to purchase common stock

Options to purchase

Subsequent Events

The Company has performed an evaluation of subsequent events through the time of filing this Annual Report on Form 10-K with the Securities Exchange Commission.

In February and March of 2022, the Company received cash deposits in escrow of approximately $ 3.1 million from a group of prospective investors pertaining to a potential private placement transaction.

These funds remain the respective investor’s property and are being held in escrow by the Company in a separate account until the execution of a common stock purchase agreement.

During the period of January 1, 2022 through the date of this filing, the Company has incurred additional legal costs of approximately $ 0.6 million in support of its ongoing litigation as more fully described in Note 9.

Company has performed an evaluation of subsequent events through the time of filing this Annual Report on Form 10-K with the Securities

Exchange Commission.

January 18, 2023, the Company issued 31,933 shares of common stock upon the conversion of 200 shares of Series E Convertible Preferred

Stock and accrued dividends.

Form 10-K Summary.

EXHIBIT INDEX

The following exhibits are filed as part of this Annual Report on Form 10-K.

Where such filing is made by incorporation by reference to a previously filed document, such document is identified.

Description of Exhibit

Separation and Distribution Agreement between Biostage, Inc.

following exhibits are filed as part of this Annual Report on Form 10-K.

Where such filing is made by incorporation by reference to a

previously filed document, such document is identified.

and Distribution Agreement between Biostage, Inc.

and Harvard Bioscience, Inc.

dated as of October 31, 2013 (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on November 6, 2013, and incorporated by reference thereto).

Amended and Restated Certificate of Incorporation of Biostage, Inc.

(previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc.

dated March 30, 2016 (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on March 31, 2016, and incorporated by reference thereto).

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc.

dated May 26, 2016 (previously filed as an exhibit to the Company’s Annual Report on Form 10-K, filed on March 17, 2017, and incorporated by reference thereto).

Certificate of Designations, Preferences and Rights of Series A Preferred Stock of Biostage, Inc.

classifying and designating the Series A Junior Participating Cumulative Preferred Stock (previously filed as an exhibit to the Company’s Registration Statement on Form 8-A, filed October 31, 2013, and incorporated by reference thereto).

Certificate of Designation of Series B Convertible Preferred Stock of Biostage, Inc.

classifying and designating the Series B Convertible Preferred Stock (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on February 12, 2015, and incorporated by reference thereto).

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc.

dated April 26, 2017 (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on April 27, 2017, and incorporated by reference thereto).

Certificate of Designations, Preferences, Rights and Limitations of Series C Convertible Preferred Stock of Biostage, Inc.

classifying and designating the Series C Convertible Preferred Stock (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on August 17, 2017, and incorporated by reference thereto).

Certificate of Elimination of Series A Junior Participating Cumulative Preferred Stock (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on August 17, 2017, and incorporated by reference thereto).

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc.

dated December 22, 2017 (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on December 22, 2017, and incorporated by reference thereto).

Certificate of Designations, Preferences, Rights and Limitations of Series D Convertible Preferred Stock of Biostage, Inc.

classifying and designating the Series D Convertible Preferred Stock (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on January 3, 2018, and incorporated by reference thereto).

Certificate of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc.

dated May 24, 2019 (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on May 28, 2019, and incorporated by reference thereto).

Amended and Restated By-laws of the Biostage, Inc.

(previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on March 31, 2016, and incorporated by reference thereto).

Specimen Stock Certificate evidencing shares of common stock (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Specimen Series B Convertible Preferred Stock Certificate (previously filed as an exhibit to the Company’s Annual Report on Form 10-K, filed on March 27, 2015, and incorporated by reference thereto).

Form of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on January 3, 2018, and incorporated by reference thereto).

Form of Amendment to Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on December 18, 2019, and incorporated by reference thereto).

Form of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on January 2, 2020, and incorporated by reference thereto).

Form of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8 K, filed on June 22, 2021, and incorporated by reference thereto).

Form of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8 K, filed on September 8, 2021, and incorporated by reference thereto).

Form of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8 K, filed on November 30, 2021, and incorporated by reference thereto).

Description of Securities (previously filed as an exhibit to the Company’s Annual Report on Form 10 K, filed on March 27, 2020, and incorporated by reference thereto).

Intellectual Property Matters Agreement between Biostage, Inc.

dated as of October 31, 2013 (previously filed as

an exhibit to the Company’s Current Report on Form 8-K, filed on November 6, 2013, and incorporated by reference thereto).

and Restated Certificate of Incorporation of Biostage, Inc.

(previously filed as an exhibit to the Company’s Registration Statement

on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc.

dated March 30, 2016 (previously filed as an

exhibit to the Company’s Current Report on Form 8-K, filed on March 31, 2016, and incorporated by reference thereto).

of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc.

dated May 26, 2016 (previously filed as an exhibit

to the Company’s Annual Report on Form 10-K, filed on March 17, 2017, and incorporated by reference thereto).

of Designations, Preferences and Rights of Series A Preferred Stock of Biostage, Inc.

classifying and designating the Series A Junior

Participating Cumulative Preferred Stock (previously filed as an exhibit to the Company’s Registration Statement on Form 8-A,

filed October 31, 2013, and incorporated by reference thereto).

of Designation of Series B Convertible Preferred Stock of Biostage, Inc.

classifying and designating the Series B Convertible Preferred

Stock (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on February 12, 2015, and incorporated

by reference thereto).

of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc.

dated April 26, 2017 (previously filed as an

exhibit to the Company’s Current Report on Form 8-K, filed on April 27, 2017, and incorporated by reference thereto).

of Designations, Preferences, Rights and Limitations of Series C Convertible Preferred Stock of Biostage, Inc.

classifying and designating

the Series C Convertible Preferred Stock (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed

on August 17, 2017, and incorporated by reference thereto).

of Elimination of Series A Junior Participating Cumulative Preferred Stock (previously filed as an exhibit to the Company’s

Current Report on Form 8-K, filed on August 17, 2017, and incorporated by reference thereto).

of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc.

dated December 22, 2017 (previously filed as

an exhibit to the Company’s Current Report on Form 8-K, filed on December 22, 2017, and incorporated by reference thereto).

of Designations, Preferences, Rights and Limitations of Series D Convertible Preferred Stock of Biostage, Inc.

classifying and designating

the Series D Convertible Preferred Stock (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed

on January 3, 2018, and incorporated by reference thereto).

of Amendment to Amended and Restated Certificate of Incorporation of Biostage, Inc.

dated May 24, 2019 (previously filed as an exhibit

to the Company’s Current Report on Form 8-K, filed on May 28, 2019, and incorporated by reference thereto).

and Restated By-laws of the Biostage, Inc.

(previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed

on March 31, 2016, and incorporated by reference thereto).

Stock Certificate evidencing shares of common stock (previously filed as an exhibit to the Company’s Registration Statement

on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Series B Convertible Preferred Stock Certificate (previously filed as an exhibit to the Company’s Annual Report on Form 10-K,

filed on March 27, 2015, and incorporated by reference thereto).

of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on January

3, 2018, and incorporated by reference thereto).

of Amendment to Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8-K,

filed on December 18, 2019, and incorporated by reference thereto).

of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on January

2, 2020, and incorporated by reference thereto).

of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8 K, filed on June

22, 2021, and incorporated by reference thereto).

of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8 K, filed on September

8, 2021, and incorporated by reference thereto).

of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8 K, filed on November

30, 2021, and incorporated by reference thereto).

of Securities (previously filed as an exhibit to the Company’s Annual Report on Form 10 K, filed on March 27, 2020, and incorporated

by reference thereto).

of Common Stock Purchase Warrant (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on May

13, 2022, and incorporated by reference thereto).

Property Matters Agreement between Biostage, Inc.

and Harvard Bioscience, Inc.

dated as of October 31, 2013 (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on November 6, 2013, and incorporated by reference thereto).

Product Distribution Agreement between Biostage, Inc.

dated as of October 31, 2013 (previously filed as

an exhibit to the Company’s Current Report on Form 8-K, filed on November 6, 2013, and incorporated by reference thereto).

Distribution Agreement between Biostage, Inc.

and Harvard Bioscience, Inc.

dated as of October 31, 2013 (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on November 6, 2013, and incorporated by reference thereto).

Tax Sharing Agreement between Biostage, Inc.

dated as of October 31, 2013 (previously filed as an exhibit

to the Company’s Current Report on Form 8-K, filed on November 6, 2013, and incorporated by reference thereto).

Sharing Agreement between Biostage, Inc.

and Harvard Bioscience, Inc.

dated as of October 31, 2013 (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on November 6, 2013, and incorporated by reference thereto).

Sublease by and between Biostage, Inc.

dated as of October 31, 2013 (previously filed as an exhibit

to the Company’s Current Report on Form 8-K, filed on November 6, 2013, and incorporated by reference thereto).

by and between Biostage, Inc.

and Harvard Bioscience, Inc.

dated as of October 31, 2013 (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on November 6, 2013, and incorporated by reference thereto).

Form of Indemnification Agreement for Officers and Directors (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Amended and Restated Equity Incentive Plan (previously filed as an exhibit to the Company’s Definitive Proxy Statement on Schedule 14A, filed on April 28, 2020, and incorporated by reference thereto).

Employee Stock Purchase Plan (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Form of Incentive Stock Option Agreement (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Form of Non-Qualified Stock Option Agreement for executive officers (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Form of Non-Qualified Stock Option Agreement for directors (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Form of Deferred Stock Award Agreement (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

dated as of October 31, 2013 (previously filed as an exhibit to the Company’s

Current Report on Form 8-K, filed on November 6, 2013, and incorporated by reference thereto).

of Indemnification Agreement for Officers and Directors (previously filed as an exhibit to the Company’s Registration Statement

on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

and Restated Equity Incentive Plan (previously filed as an exhibit to the Company’s Definitive Proxy Statement on Schedule

14A, filed on April 28, 2020, and incorporated by reference thereto).

Stock Purchase Plan (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31,

2013, and incorporated by reference thereto).

of Incentive Stock Option Agreement (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B,

filed July 31, 2013, and incorporated by reference thereto).

of Non-Qualified Stock Option Agreement for executive officers (previously filed as an exhibit to the Company’s Registration

Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

of Non-Qualified Stock Option Agreement for directors (previously filed as an exhibit to the Company’s Registration Statement

on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

of Deferred Stock Award Agreement (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed

July 31, 2013, and incorporated by reference thereto).

Sublicense Agreement dated as of December 7, 2012 between Biostage, Inc.

and Harvard Bioscience, Inc., and related Trademark License Agreement, dated December 19, 2002, by and between Harvard Bioscience, Inc.

and President and Fellows of Harvard College (previously filed as an exhibit to the Company’s Amendment No.

2 to Form S-1 Registration Statement, filed on February 15, 2013, and incorporated by reference thereto).

Patent Rights Assignment dated December 21, 2012 between Biostage, Inc.

Paolo Macchiarini (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Novel Surgery Agreement dated as of May 21, 2012 between Biostage, Inc.

and State Budget Institution of Public Health Department Regional Clinical Hospital #1 and Vladimir Alekseevich Porhanov (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

and President and Fellows of Harvard College (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on March 7, 2023, and incorporated by reference thereto).

Rights Assignment dated December 21, 2012 between Biostage, Inc.

Paolo Macchiarini (previously filed as an exhibit to the

Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Surgery Agreement dated as of May 21, 2012 between Biostage, Inc.

and State Budget Institution of Public Health Department Regional

Clinical Hospital #1 and Vladimir Alekseevich Porhanov (previously filed as an exhibit to the Company’s Registration Statement

on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Novel Surgery Agreement dated as of May 24, 2012 between Biostage, Inc.

1 unchanged sentence

(previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Amendment to Novel Surgery Agreement dated as of April 5, 2013 between Biostage, Inc.

and OSF Healthcare System, owner and operator of Saint Francis Medical Center and Children’s Hospital of Illinois, and Mark Holterman, M.D.

(previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Amendment to Novel Surgery Agreement dated as of June 26, 2013 between Biostage, Inc.

and State Budget Institution of Public Health Department Regional Clinical Hospital #1 and Igor S.

Polyakov (previously filed as an exhibit to the Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Offer Letter, dated June 4, 2018, between Biostage, Inc.

and William Fodor, PhD (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on July 10, 2018, and incorporated by reference thereto).

Separation and Release Agreement, dated June 14, 2019, between Biostage, Inc.

and Thomas McNaughton (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on June 17, 2019, and incorporated by reference thereto).

Separation and Release Agreement, dated January 31, 2020, between Biostage, Inc.

and James McGorry (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on February 7, 2020, and incorporated by reference thereto).

Employment Agreement, dated November 26, 2021, between Biostage, Inc.

and David Green (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on November 30, 2021 and incorporated by reference thereto).

to Novel Surgery Agreement dated as of April 5, 2013 between Biostage, Inc.

and OSF Healthcare System, owner and operator of Saint

Francis Medical Center and Children’s Hospital of Illinois, and Mark Holterman, M.D.

(previously filed as an exhibit to the

Company’s Registration Statement on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

to Novel Surgery Agreement dated as of June 26, 2013 between Biostage, Inc.

and State Budget Institution of Public Health Department

Regional Clinical Hospital #1 and Igor S.

Polyakov (previously filed as an exhibit to the Company’s Registration Statement

on Form 10-12B, filed July 31, 2013, and incorporated by reference thereto).

Letter, dated June 4, 2018, between Biostage, Inc.

and William Fodor, PhD (previously filed as an exhibit to the Company’s

Current Report on Form 8-K, filed on July 10, 2018, and incorporated by reference thereto).

and Release Agreement, dated June 14, 2019, between Biostage, Inc.

and Thomas McNaughton (previously filed as an exhibit to the Company’s

Current Report on Form 8-K, filed on June 17, 2019, and incorporated by reference thereto).

and Release Agreement, dated January 31, 2020, between Biostage, Inc.

and James McGorry (previously filed as an exhibit to the Company’s

Current Report on Form 8-K, filed on February 7, 2020, and incorporated by reference thereto).

Issuance Agreement (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on April 28, 2022 and

incorporated herein by reference).

of Securities Purchase Agreement (previously filed as an exhibit to the Company’s Current Report on Form 8-K, filed on May

13, 2022 and incorporated herein by reference).

Agreement, dated August 8, 2022, between Biostage, Inc.

and Joseph L.

(previously filed as an exhibit to the Company’s

Current Report on Form 8-K, filed on August 9, 2022 and incorporated by reference thereto).

and Restated Employment Agreement, dated January 11, 2023, between Biostage, Inc.

and David Green (previously filed as an exhibit

to the Company’s Current Report on Form 8-K, filed on January 12, 2023 and incorporated by reference thereto).

Subsidiaries of Biostage, Inc.

Consent of Marcum LLP.

Consent of Wei, Wei & Co.

Consent of RSM US LLP.

Certification of Interim Chief Executive Officer of Biostage., pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Interim Vice President of Finance of Biostage, Inc., pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Interim Chief Executive Officer of Biostage, Inc., pursuant to 18 U.S.C.

Certification of Chief Executive Officer of Biostage., pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Financial Officer of Biostage, Inc., pursuant to Rules 13a-15(e) and 15d-15(e), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Chief Executive Officer of Biostage, Inc., pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification of Interim Vice President of Finance of Biostage, Inc., pursuant to 18 U.S.C.

Certification of Chief Financial Officer of Biostage, Inc., pursuant to 18 U.S.C.

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document.

XBRL Taxonomy Extension Schema Document.

XBRL Taxonomy Extension Calculation Linkbase Document.

XBRL Taxonomy Extension Definition Linkbase Document.

XBRL Taxonomy Extension Label Linkbase Document.

XBRL Taxonomy Extension Presentation Linkbase Document.

Cover Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

Filed herewith.

This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

Management contract or compensatory plan or arrangement.

The schedules and exhibits to the Separation and Distribution Agreement have been omitted.

A copy of any omitted schedule or exhibit will be furnished to the SEC supplementally upon request.

The Company will furnish to stockholders a copy of any exhibit without charge upon written request.

Confidential portions of this exhibit have been redacted and filed separately with the SEC pursuant to a confidential treatment request in accordance with Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Biostage, Inc.

March 31, 2022

/s/ David Green

Interim Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

/s/ David Green

Interim Chief Executive Officer, Director, and Chairman

(principal executive officer)

March 31, 2022

Pellegrino Jr.

Interim Vice President of Finance

(principal financial officer and principal accounting officer)

Instance Document.

Taxonomy Extension Schema Document.

Taxonomy Extension Calculation Linkbase Document.

Taxonomy Extension Definition Linkbase Document.

Taxonomy Extension Label Linkbase Document.

Taxonomy Extension Presentation Linkbase Document.

Page Interactive Data File (formatted in iXBRL and contained in Exhibit 101)

certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise

subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities

Act of 1933 or the Securities Exchange Act of 1934.

contract or compensatory plan or arrangement.

schedules and exhibits to the Separation and Distribution Agreement have been omitted.

A copy of any omitted schedule or exhibit

will be furnished to the SEC supplementally upon request.

The Company will furnish to stockholders a copy of any exhibit without

charge upon written request.

Certain identified information has been excluded from

the exhibit because it is both not material and is of the type that the registrant treats as private or confidential.

to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed

on its behalf by the undersigned, thereunto duly authorized.

March 30, 2023

/s/ Jason Jing Chen

Executive Officer

to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the

registrant and in the capacities and on the dates indicated:

Executive Officer, Director, and Chairman

executive officer)

Joseph Damasio Jr.

Financial Officer

financial officer and principal accounting officer)

Jason Jing Chen

Vice Chairman

March 31, 2022

/s/ Herman Sanchez

Herman Sanchez

March 31, 2022

/s/ James Shmerling

James Shmerling

March 31, 2022

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 9A. Controls and Procedures