Harvard Apparatus Regenerative Technology, Inc. 10-K

Item 9A. Controls and Procedures. This 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 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. 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, 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. 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. GAAP. 50 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. GAAP; (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 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. 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, 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. (c) Changes in Internal Controls Over Financial Reporting 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, 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. (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. Item 9B. Other Information. None. 51 PART III Item 10. Directors, Executive Officers and Corporate Governance. 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. Directors of Biostage, Inc. The following information is current as of March 6, 2023, based on information furnished to the Company by each Director: Director Name Age Position with the Company Since Class I Directors James Shmerling, DHA, FACHE (1)(2) 68 Director 2018 Junli (Jerry) He 48 Chairman 2021 Class II Directors Ting Li (2) 46 Director 2018 David Green 60 Director 2021 Class III Directors Jason Jing Chen (2)(3) 61 Vice Chairman 2018 Herman Sanchez (1)(3) 48 Director 2021 (1) Member of the Audit Committee (2) Member of the Compensation Committee (3) Member of the Governance Committee Class I Directors James Shmerling, DHA, FACHE — Director Dr. 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. Dr. Shmerling has served as the President and Chief Executive Officer of Connecticut Children’s Medical Center since October 2015. Dr. 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. Dr. 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. Dr. 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. Shmerling’s 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. 52 Junli (Jerry) He – Chairman and Chief Executive Officer Mr. He has served as a member of our Board of Directors since September 1, 2021 and has served as Chairman since March 1, 2023. Mr. 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 experience. Class II Directors Ting Li — Director Ms. Li has served as a member of our Board of Directors since November 6, 2018. Ms. Li is also a member of the Compensation Committee. Ms. Li brings over 20 years of investment banking experience, building relationships between customers and enterprises. Ms. Li is 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. Ms. 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. David Green — Director Mr. Green has served as a member of our Board of Directors since November 26, 2021. Mr. 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. Mr. 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. Mr. Green was president and a director of the Harvard Business School Healthcare Alumni Association. Mr. 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. Class III Directors Jason Jing Chen — Vice Chairman Mr. Chen has served as a member of our Board of Directors since February 6, 2018. Mr. Chen is our Vice Chairman as well as a member of the Compensation Committee and Chairman of the Governance Committee. Mr. 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. Mr. 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. Mr. Chen began his career as an electrical engineer at Capital Iron & Steel Co. Mr. 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. 53 Herman Sanchez Mr. 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. Mr. Sanchez 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 industry. He is currently a Senior Partner helping run Trinity Life Sciences’ strategy consulting business. Mr. Sanchez joined Trinity over a decade ago and has worked closely with clients to support strategic decision making across the product lifecycle. In 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. Mr. 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. Mr. 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. INFORMATION REGARDING THE BOARD OF DIRECTORS AND ITS COMMITTEES During 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. David 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 of Mr. Green’s role in such position. The Board of Directors has established an Audit Committee, a Compensation Committee and a Governance Committee. The 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 The Audit Committee currently consists of Dr. Shmerling and Mr. Sanchez. Dr. 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. 54 Under its charter, the Audit Committee is responsible for, among other things: ● reviewing with the independent registered public accounting firm and management the adequacy and effectiveness of internal controls over financial reporting and related matters; ● reviewing 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; ● making a recommendation to the Board as to whether our audited financial statements should be included in our Annual Report on Form 10-K; ● appointing, retaining and terminating, and determining compensation of, the Company’s independent auditors; ● assurance of the regular rotation of audit partners, including any lead and concurring partners, in accordance with applicable laws and regulations; ● preparation of the Audit Committee report required to be included in our annual proxy statement; ● reporting 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; and ● the 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. The 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. The 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. The 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 . With 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. For lead 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. The 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. He and Dr. Shmerling each qualifies as an “audit committee financial expert” under the rules of the SEC. 55 The 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 The Compensation Committee currently consists of Ms. Li, Mr. Chen and Dr. Shmerling, who serves as the Chairman. The 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. The 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. Although 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. The 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. Governance Committee The 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. Under 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. In 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 May 2, 2022. The Governance Committee will review and evaluate the qualifications of any such proposed Director candidate and conduct inquiries it deems appropriate. 56 The 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. Although 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. The 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. The Board’s Role in Risk Oversight Risks 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 risks. 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. CODE OF BUSINESS CONDUCT AND ETHICS The 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. DELINQUENT SECTION 16(a) REPORTS Our 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. 57 REPORT 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. The 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: 1. The Audit Committee has reviewed and discussed with management the audited financial statements of the Company for the fiscal year ended December 31, 2022. 2. 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. 16. 3. 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. Based 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. Submitted by the Audit Committee: James Shmerling, DHA, FACHE, Chairman of the Audit Committee Herman Sanchez Item 11. Executive Compensation. EXECUTIVE COMPENSATION 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. Damasio as the Chief Financial Officer, but in accordance with such reduced disclosure requirements, at the end of fiscal year 2022 Mr. Damasio was 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, and Mr. Green remains on our Board of Directors. 58 SUMMARY COMPENSATION TABLE The 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. Name and Principal Position Year Salary Stock Awards Option Awards (1) All Other Compensation Total David Green 2022 $ 35,568 — $ — $ 1,584 (2) $ 37,152 Chief Executive Officer 2021 35,568 — 222,971 — 258,539 Hong Yu 2022 150,000 — 89,160 8,057 (3) 247,217 President 2021 150,000 — 222,827 7,950 (4) 380,777 William Fodor, PhD 2022 196,490 — — 11,359 (5) 207,849 Chief Scientific Officer 2021 152,500 — 386,303 10,552 (6) 549,355 (1) Based 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 Mr. 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. (2) Amount 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. (3) Amount 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. (4) Amount 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. (5) Amount 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. (6) Amount 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. Discussion of Summary Compensation Table and Related Matters 2022 Executive Compensation Salary and Bonus In 2022, the Board of Directors reviewed the overall executive compensation of the Company’s named executive officers. Based on a 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. Effective 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. 59 The Company entered into an employment agreement with Mr. Green dated as of November 26, 2021 and effective as of November 26, 2021. Mr. 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. Long-Term 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. In 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. Yu and Dr. Fodor. 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. Name and Principal Position Stock Option Awards David Green Chief Executive Officer 374,094 (1) William Fodor, PhD Chief Scientific Officer 196,103 (2) Hong Yu President 113,116 (2) (1) Subject 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. (2) Subject 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. Retirement and Other Benefits We 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. 60 Employment Agreements David Green, our Director and former Chief Executive Officer and Chairman The 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. Mr. 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 without Mr. 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. Pursuant 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 thereafter. Mr. 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. In 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. Mr. 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 Committee. 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. William Fodor, Ph.D., our Chief Scientific Officer On 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. Dr. 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, 2022, Dr. Fodor’s base salary increased to $228,750. Dr. 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. Hong Yu, our President Effective 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. Mr. Yu’s employment commenced in accordance with an offer letter executed as of May 16, 2018. Mr. 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). Mr. 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. Potential Payments upon Termination and Change in Control Benefits In 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. 61 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. REPORT OF THE COMPENSATION COMMITTEE Under rules of the Securities and Exchange Commission, as a Smaller Reporting Company, we are not required to provide a report of the Compensation Committee. DIRECTOR COMPENSATION We use a combination of cash and stock-based incentive compensation to attract and retain qualified candidates to serve on our Board of Directors. 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. Directors who are also employees of the Company receive no additional compensation for service as a director. Our Board of Directors has approved the following compensation arrangements for our non-employee directors: ● Initial 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. ● Annual 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. ● In addition, all non-employee directors shall be reimbursed for their expenses incurred in connection with attending Board and Committee meetings. 62 DIRECTOR COMPENSATION TABLE The following table presents the compensation provided by us to the non-employee directors who served during the fiscal year ended December 31, 2022. Fees earned or Option paid awards Name in cash (1) (2) Total Jason Jing Chen $ — $ 44,996 $ 44,996 Junli (Jerry) He $ — $ 44,996 $ 44,996 Ting Li $ — $ 44,996 $ 44,996 Herman Sanchez $ — $ 44,996 $ 44,996 James Shmerling, DHA, FACHE $ — $ 44,996 $ 44,996 (1) Based 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. (2) The 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. Sanchez. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END — 2022 The 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. Restricted Option Awards Stock Units Number of Number of Securities Securities Number of Underlying Underlying Option Securities Unexercised Unexercised Exercise Option Underlying Options (#) Options (#) Price Expiration Restricted Exercisable Unexercisable ($) Date Stock Units David Green 106,884 — (1) 2.40 11/26/2031 — — 267,210 (2) 2.40 11/26/2031 — 36,281 — (3) 85.80 11/18/2023 — William Fodor, Ph.D 98,052 98,051 (4) 2.30 12/29/2031 — 104,643 — (5) 2.72 5/29/2028 — 20,929 83,714 (6) 2.72 5/29/2028 — Hong Yu 22,089 — (7) 4.71 5/18/2032 — 56,558 56,558 (4) 2.30 12/29/2031 — 104,643 — (5) 2.72 5/29/2028 — 20,929 83,714 (6) 2.72 5/29/2028 — (1) The 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. (2) The 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. (3) The 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. (4) The 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. (5) The 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. (6) The 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. (7) The options are fully vested in satisfaction of sales commissions incurred in relation to the May 2022 private placement. 63 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Our 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. The 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 right. 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. 64 Unless 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. Common Stock Beneficially Owned Name and Address of Beneficial Owner (1) Shares Percent (2) Greater than 5% Holder DST Capital LLC 4,023,186 32.1 % (3) An Zhang 1,153,379 9.2 % (4) Du Ziaoyu 750,000 6.1 % (5) Harvard Bioscience 679,730 5.3 % (6) Named Executive Officers Junli (Jerry) He (current CEO) 271,267 2.2 % (7) David Green (former CEO, current director) 658,846 5.2 % (8) Hong Yu 471,198 3.8 % (9) William Fodor, Ph.D 223,624 1.8 % (10) Non-employee Directors Jason Jing Chen 270,443 2.2 % (11) Ting Li 102,691 * % (12) Herman Sanchez 66,645 * % (13) James Shmerling, DHA FACHE 126,759 1.0 % (14) All current executive officers and directors, as a group (8 persons) 2,191,473 16.2 % (15) * Represents less than 1% of all of the outstanding shares of Common Stock (as calculated in accordance with footnote (2) below). (1) Unless otherwise indicated, the address for all persons shown is c/o Biostage, Inc., 84 October Hill Road, Suite 11, Holliston, Massachusetts 01746-1371. (2) Based 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. (3) This 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. (4) This information is based upon a Schedule 13G/A filed by An Zhang on February 16, 2023 reporting beneficial ownership as of December 31, 2022. (5) This information is based upon a Schedule 13D filed by Du Xiaoyu reporting beneficial ownership as of May 29, 2018. (6) This 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. (7) Includes 235,135 shares of Common Stock and options to acquire 36,132 shares of Common Stock exercisable within 60 days of March 6, 2023. (8) Includes 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. (9) Includes 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. (10) Includes options to acquire 223,624 shares of Common Stock that are exercisable within 60 days of March 6, 2023. (11) Includes 161,468 shares of Common Stock, and options to acquire 108,975 shares of Common Stock that are exercisable within 60 days of March 6, 2023. (12) Includes options to acquire 102,691 shares of Common Stock that are exercisable within 60 days of March 6, 2023. (13) Includes options to acquire 66,645 shares of Common Stock that are exercisable within 60 days of March 6, 2023. (14) Includes 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. (15) Includes 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. 65 EQUITY COMPENSATION PLAN INFORMATION The 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. Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Restricted Stock Units, Warrants and Rights Weighted Average Exercise Price of Outstanding Options, Warrants, and Rights Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (a) (b) (c) Equity compensation plans approved by security holders (1) 2,516,924 3.95 2,563,355 (2) Equity compensation plans not approved by security holders — — — Total 2,516,924 3.95 2,563,355 (1) Consists of our Amended and Restated Equity Incentive Plan and our Employee Stock Purchase Plan. (2) Includes 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. Item 13. Certain Relationships and Related Transactions, and Director Independence. The 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. During the 2022 and 2021 fiscal years, we were not a participant in any related person transactions that required disclosure under this heading. Item 14. Principal Accounting Fees and Services. Our 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 . The 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. 2022 2021 Total Audit Fees (1) $ 213,849 $ 124,100 $ 337,949 Audit-related Fees (2) 173,440 — 173,440 Tax Fees (3) 15,000 34,920 49,920 Total Fees $ 402,289 $ 159,020 $ 561,309 (1) Audit 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. (2) 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. (3) Tax Fees included domestic and international tax compliance, tax advice and tax planning. All Other Fees None. All of the services performed in the years ended December 31, 2022 and December 31, 2021 were pre-approved by the Audit Committee. It is 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. 66 PART IV Item 15. Exhibits, Financial Statement Schedules. (a) Documents Filed. The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements. The consolidated financial statements of Biostage, Inc. and its subsidiaries filed under this Item 15: Page Index to Consolidated Financial Statements F-1 Reports of Independent Registered Public Accounting Firms F-2 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-6 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 F-7 Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2022 and 2021 F-8 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-9 Notes to Consolidated Financial Statements F-10 (2) Financial Statement Schedules: None. 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. 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. (c) Separate Financial Statements and Schedules: None. 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. 67 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS BIOSTAGE, INC. Page Reports of Independent Registered Public Accounting Firms F-2 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-6 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 F-7 Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2022 and 2021 F-8 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-9 Notes to Consolidated Financial Statements F-10 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of Biostage, Inc. Opinion on the Financial Statements We 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. Explanatory Paragraph – Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more 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. The consolidated 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. 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. 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. 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. 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. 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 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. F- 2 Share-Based Compensation – Performance-Based Awards Description of the Matter 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, 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. 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. How We Addressed the Matter in Our Audit 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, (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. Marcum LLP We have served as the Company’s auditor since 2022. Boston, MA March 30, 2023 (PCAOB ID # 688) F- 3 Report of Independent Registered Public Accounting Firm 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’ 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. 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. 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. F- 4 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 served as the Company’s auditor during 2021. Flushing, New York March 31, 2022 F- 5 BIOSTAGE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ( In thousands, except share and par value data ) December 31, December 31, 2022 2021 ASSETS Current assets: Cash $ 1,241 $ 1,242 Restricted cash — 50 Prepaid research and development 274 — Prepaid expenses and other current assets 79 295 Total current assets 1,594 1,587 Property, plant and equipment, net 49 110 Right-of-use assets, net 147 169 Deferred financing costs 610 — Total assets $ 2,400 $ 1,866 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 682 $ 676 Accrued and other current liabilities 582 798 Accrual for contingency matter — 3,250 Warrant liability — 2 Current portion of operating lease liability 99 110 Total current liabilities 1,363 4,836 Operating lease liability, net of current portion 48 59 Total liabilities 1,411 4,895 Commitments and contingencies (Note 9) - - Series E convertible preferred stock, $ 0.01 par value per share, 5,000 shares authorized, 4,180 shares issued and outstanding 4,180 — 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 122 108 Additional paid-in capital 79,698 73,801 Accumulated deficit ( 83,011 ) ( 76,938 ) Total stockholders’ deficit ( 3,191 ) ( 3,029 ) Total liabilities and stockholders’ deficit $ 2,400 $ 1,866 See accompanying notes to consolidated financial statements. F- 6 BIOSTAGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) Year Ended December 31, 2022 2021 Operating expenses: Research and development $ 1,742 $ 1,592 General and administrative 4,411 7,044 Total operating expenses 6,153 8,636 Operating loss ( 6,153 ) ( 8,636 ) Other income, net: Forgiveness of notes payable — 408 Sublease income 87 — Grant income — 165 Change in fair value of warrant liability 2 15 Other (expense) income, net ( 9 ) 70 Total other income, net 80 658 Net loss ( 6,073 ) ( 7,978 ) Less: preferred stock dividends ( 180 ) — Net loss attributable to common stockholders $ ( 6,253 ) $ ( 7,978 ) Basic and diluted net loss per share $ ( 0.54 ) $ ( 0.79 ) Weighted average common shares, basic and diluted 11,349,610 10,062,432 See accompanying notes to consolidated financial statements. F- 7 BIOSTAGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (In thousands, except share data) Series E Convertible Preferred Stock Number of Common Shares Outstanding Common Stock Additional Paid-in Capital Accumulated Deficit Total Stockholders Equity (Deficit) Balance at January 1, 2021 — 9,388,407 $ 94 $ 69,991 $ ( 68,960 ) $ 1,125 Net loss — — — — ( 7,978 ) ( 7,978 ) Share-based compensation — — — 980 — 980 Issuance of common stock and warrants to purchase common stock — 1,372,464 14 2,830 — 2,844 Balance at December 31, 2021 — 10,760,871 $ 108 $ 73,801 $ ( 76,938 ) $ ( 3,029 ) Net loss — — — — ( 6,073 ) ( 6,073 ) Share-based compensation — — — 1,031 — 1,031 Issuance of series E convertible preferred stock 4,000 — — — — — Preferred stock dividends 180 — — ( 180 ) — ( 180 ) Issuance of common stock and warrants to purchase common stock — 854,771 8 5,052 — 5,060 Issuance of common stock from exercise of warrants — 558,825 6 ( 6 ) — — Balance at December 31, 2022 4,180 12,174,467 $ 122 $ 79,698 $ ( 83,011 ) $ ( 3,191 ) See accompanying notes to consolidated financial statements. F- 8 BIOSTAGE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 2022 2021 Year ended December 31, 2022 2021 OPERATING ACTIVITIES Net loss $ ( 6,073 ) $ ( 7,978 ) Adjustments to reconcile net loss to net cash used in operating activities: Forgiveness of notes payable — ( 408 ) Share-based compensation expense 1,031 980 Depreciation 52 107 Change in fair value of warrant liability ( 2 ) ( 15 ) Deferred financing costs ( 610 ) — Changes in operating assets and liabilities: Grant receivable — 77 Prepaid research and development ( 274 ) — Prepaid expenses and other current assets 216 229 Accounts payable 6 645 Accrued and other current liabilities 548 485 Accrual for contingency matter — 3,250 Net cash used in operating activities ( 5,106 ) ( 2,628 ) INVESTING ACTIVITIES Purchases of property, plant and equipment ( 5 ) — Net cash used in investing activities ( 5 ) — FINANCING ACTIVITIES Proceeds from issuance of common stock and warrants 5,060 2,844 Net cash provided by financing activities 5,060 2,844 Net (decrease) increase in cash and restricted cash ( 51 ) 216 Cash and restricted cash at the beginning of the year 1,292 1,076 Cash and restricted cash at the end of the year $ 1,241 $ 1,292 Supplemental disclosure of non-cash activities: Settlement of contingency matter $ ( 3,250 ) $ — Settlement of due to Harvard Bioscience included in accrued and other current liabilities $ ( 750 ) $ — Issuance of Series E convertible preferred stock $ 4,000 $ — Preferred stock dividends $ 180 $ — Increase of right-of-use asset and liability due to lease extension $ 63 $ 94 See accompanying notes to consolidated financial statements. F- 9 BIOSTAGE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 2022 and 2021 1. Organization Overview 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. 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. As of December 31, 2022, Harvard Bioscience owned 4,180 shares of Series E Preferred Stock at a price of $ 1,000 per share. 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. GAAP. Going Concern The 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. 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 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. F- 10 2. 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. 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. Actual results could differ from those estimates. Segment The Company has one business segment and does not have significant costs or assets outside the U.S. Cash Concentrations 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: Schedule of Cash and Restricted Cash 2022 2021 December 31, 2022 2021 (in thousands) Cash $ 1,241 $ 1,242 Restricted cash — 50 Total cash and restricted cash as shown in the consolidated statements of cash flows $ 1,241 $ 1,292 Restricted cash consisted of approximately $ 50,000 held as collateral for the Company’s credit card program as of December 31, 2021. During 2022, we cancelled our corporate credit card and liquidated our money market account that was held as collateral for our corporate credit card. 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. Property, Plant and Equipment Property, 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 Leasehold improvements Shorter of expected useful life or lease term Furniture, machinery and equipment, computer equipment and software 3 - 7 years Maintenance and repairs are charged to expense as incurred, while any additions or improvements are capitalized. F- 11 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. 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). 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. 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 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. Deferred tax assets and liabilities are recorded net as long-term on the consolidated balance sheets. F- 12 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 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 method. 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 presented. 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. 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 unusual credit risk beyond the normal credit risk associated with commercial banking relationships. F- 13 Grant Income 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; 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 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, 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. The Phase II portion of the award expired effective September 30, 2021. Recent Accounting Pronouncements 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. In June 2016, the FASB issued ASU No. 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 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. In 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 January 1, 2021, and did not have a material impact on the Company’s consolidated financial statements and related disclosures. F- 14 3. 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. 4. 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 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 inputs. 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. 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: Schedule of Assets and Liabilities Measured at Fair Value on a Recurring Basis Fair Value Measurement as of December 31, 2021 (in thousands) Level 1 Level 2 Level 3 Total Assets: Restricted cash $ 50 $ — $ — $ 50 Total $ 50 $ — $ — $ 50 Liabilities: Warrant liability $ — $ — $ 2 $ 2 Total $ — $ — $ 2 $ 2 There were no transfers between Level 1, Level 2 and Level 3 in either of the years ended December 31, 2022 and December 31, 2021. F- 15 5. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following: Schedule of Prepaid expenses and Other Current Assets 2022 2021 December 31, 2022 2021 (in thousands) Deposits $ 20 $ 225 Insurance 8 58 Other current assets 51 12 Total prepaid expenses and other current assets $ 79 $ 295 6. Property, Plant and Equipment, Net Property, plant and equipment, net consist of the following: Schedule of Property Plant and Equipment Net 2022 2021 December 31, 2022 2021 (in thousands) Leasehold improvements $ 35 $ 584 Furniture, machinery and equipment 1,405 1,553 Computer equipment and software 36 477 Total property, plant and equipment 1,476 2,614 Less: accumulated depreciation ( 1,427 ) ( 2,504 ) Property, plant and equipment, net $ 49 $ 110 The 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. F- 16 7. Accrued and Other Current Liabilities Accrued and other current liabilities consist of the following: Schedule of Accrued and Other Current Liabilities 2022 2021 December 31, 2022 2021 (in thousands) Legal costs $ 135 $ 577 Advisory costs 300 151 Audit services 80 59 Payroll 55 11 Other 12 — Total expenses $ 582 $ 798 8. 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 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. The 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: Schedule of Option Pricing Weighted Average Assumptions 2021 Assumptions for Estimating Fair Value on Reporting Date of: December 31, 2021 Risk-free interest rate 0.05 % Expected volatility 174.54 % Expected term (in years) 0.1 years Expected dividend yield — Exercise Price $ 8.00 Market value of common stock $ 2.30 The following table presents a reconciliation of the Company’s warrant liabilities for the years ended December 31, 2022 and 2021: Schedule of Warrant Liability Warrant Liability (in thousands) Balance as of December 31, 2020 $ 17 Change in fair value upon re-measurement ( 15 ) Balance as of December 31, 2021 2 Change in fair value upon re-measurement ( 2 ) Balance as of December 31, 2022 $ — F- 17 9. 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 esophageal implant. On 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. In 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. With 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 of 2022. 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 thereto. 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. 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. 10. Leases 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 2022 and currently extends through May 31, 2024. F- 18 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: Schedule of Operating Leases in Consolidated Balance Sheets December 31, Balance Sheet Classification 2022 2021 (in thousands) Assets: Operating lease assets Right-of-use asset, net $ 147 $ 169 Liabilities: Current portion of operating lease liabilities Current portion of operating lease liabilities 99 110 Operating lease liabilities, net of current portion Operating lease liabilities, net of current portion 48 59 Total operating lease liabilities $ 147 $ 169 Cash 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 . The weighted average remaining lease terms and weighted average discount rates as of December 31, 2022 and 2021 were as follows: Schedule of Weighted Average Lease Term and Discount Rates Year ended December 31, 2022 2021 Remaining lease term (in years) 1.43 1.60 Discount rate 14.74 % 9.14 % The 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 For the Year Ended December 31, 2022 2021 (in thousands) Operating lease expense Research and development $ 77 $ 77 General and administrative 44 44 Total $ 121 $ 121 The minimum lease payments for the next two years and thereafter are as follows: Schedule of Minimum Lease Payments As of December 31, 2022 (in thousands) 2023 $ 114 2024 50 Total lease payments 164 Less: imputed interest 17 Present value of operating lease liabilities $ 147 F- 19 11. Income Taxes A reconciliation of taxes utilizing the expected federal tax rate of 21 % and the effective tax rate is as follows: Schedule of Effective Income Tax Years ended December 31, 2022 2021 Computed “expected” income tax benefit 21.0 % 21.0 % State income tax benefit, net of federal income tax benefit 6.3 % 6.3 % Permanent items, primarily change in fair value of warrants and non-deductible share-based compensation 0.8 % 1.0 % Tax credits — % ( 2.1 )% Stock-option cancellations — % ( 0.2 )% Change in valuation allowance ( 28.1 )% ( 26.0 )% Total income taxes — % — % The components of the Company’s deferred tax assets and liabilities are as follows: Schedule of Deferred tax Assets and Liabilities 2022 2021 Years ended December 31, 2022 2021 (in thousands) Deferred tax assets: Operating loss and credit carryforwards $ 20,487 $ 16,611 Capitalized research and development 1,083 1,470 Stock-based compensation 1,566 1,284 Accrual for contingency matter — 888 Lease liabilities 40 46 Excess book over tax depreciation — 21 Total deferred tax assets 23,176 20,320 Less: valuation allowance ( 23,136 ) ( 20,274 ) Deferred tax assets 40 46 Deferred tax liability: Operating lease assets ( 40 ) ( 46 ) Total deferred tax liability ( 40 ) ( 46 ) Deferred Tax Net $ — $ — The 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. As 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 taxes. The federal and state research and development tax credit carryforwards begin to expire in 2034 and 2030, respectively. F- 20 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, 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; 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. F- 21 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, 2022 and 2021. The 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, 2021; 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. 12. 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. Internal Revenue Code, or the 401(k) Plan. 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 $ 35,000 and $ 39,000 for the years ended December 31, 2022 and 2021, respectively. 13. Series E Convertible Preferred Stock On 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. 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 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. As of 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. The rights, preferences, and privileges of the Series E Preferred stock were as follows as of December 31, 2022: Dividends: Payable quarterly in additional shares of Series E Preferred stock at a rate of 8 % per annum, accrued daily and compounded quarterly. Voting Rights: The holders of Series E Preferred stock shall have no voting rights except as required by applicable law. Consent Rights: 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 (c) authorizing or issuing any securities unless the same ranks junior to the Series E Preferred. F- 22 Liquidation Rights: 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. Mandatory Conversion : 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. Optional Conversion : 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. Equity 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. Shareholder 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. Other than Series E Preferred Shares, there were no other shares of any of the other classes of preferred stock outstanding as of December 31, 2022. Authorized shares for each preferred stock class is as follows: Schedule of Categories of Preferred Stock Authorized Undesignated Preferred Stock 979,000 Series B Convertible Preferred Stock 1,000,000 Series C Convertible Preferred Stock 4,000 Series D Convertible Preferred Stock 12,000 Series E Convertible Preferred Stock 5,000 14. Common Stock The Company has 60,000,000 shares authorized as of December 31, 2022 and 44,194,987 shares of common stock available for issuance. The following represent the Company’s common stock transactions during December 31, 2022 and 2021: 2022 Capital Transactions On 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 Warrants. The Company received an aggregate of $ 5.1 million gross and net proceeds from the Private Placement by May 16, 2022. The $ 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 2.81 % Expected volatility 127.36 % Expected term 5 years Expected dividend yield — Exercise price $ 8.88 Market value of common stock $ 5.50 In 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. F- 23 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 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: Risk-free interest rate 0.82 % Expected volatility 121.22 % Expected term 5 years Expected dividend yield — % Exercise price $ 2.08 Market value of common stock $ 2.58 Warrant to purchase common stock activity for the year ended December 31, 2022 was as follows: Schedule of Warrant to Purchase Common Stock Weighted-average Amount exercise price Outstanding at December 31, 2020 1,893,201 $ 6.44 Issued 686,232 2.08 Expired ( 78,014 ) 35.20 Outstanding at December 31, 2021 2,501,419 4.35 Issued 427,390 8.88 Exercised ( 775,000 ) 7.17 Expired ( 1,040,187 ) 7.59 Outstanding at December 31, 2022 1,113,622 4.69 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, 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. 15. 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 . There are 2,560,389 shares available for issuance as of December 31, 2022. F- 24 Stock option activity under the Plan for the year ended December 31, 2022 was as follows: Schedule of Stock Option Activity Amount Weighted-average exercise price Weighted-average contractual life (years) Aggregate intrinsic value (in thousands) Outstanding at December 31, 2020 1,599,720 $ 6.33 5.77 $ — Granted 1,253,336 2.15 Canceled / forfeited ( 520,453 ) 7.73 Outstanding at December 31, 2021 2,332,603 3.93 8.30 294 Granted 334,418 4.84 Canceled / forfeited ( 150,097 ) 3.39 Outstanding at December 31, 2022 2,516,924 $ 3.95 7.68 $ 6,917 Options exercisable at December 31, 2022 1,542,445 $ 4.56 7.35 $ 4,473 Options vested or expected to vest 2,410,987 $ 3.99 7.68 $ 6,657 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, 2022 given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes. Aggregate 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. The weighted average assumptions for valuing the Company’s stock options granted were as follows: Schedule of Weighted Average Assumptions Year Ended December 31, 2022 2021 Risk-free interest rate 2.74 % 1.21 % Expected volatility 123.61 % 120.86 % Expected term (in years) 5.8 years 5.6 years 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. 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; 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 $ 4.23 and $ 1.84 per share for the years ended December 31, 2022 and 2021, respectively. 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. F- 25 Share-based 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 2022 2021 Years Ended December 31, 2022 2021 (in thousands) Research and development $ 284 $ 495 Selling, general and administrative 747 485 Total stock-based compensation $ 1,031 $ 980 16. Net Loss per Share Basic and diluted net loss per share was calculated as follows: Schedule of Basic and Diluted Net Loss Per Share 2022 2021 Years Ended December 31, 2022 2021 (in thousands, except shares and per share data) Net loss $ ( 6,073 ) $ ( 7,978 ) Weighted-average shares outstanding 11,349,610 10,062,432 Net loss per share – basic and diluted $ ( 0.54 ) $ ( 0.79 ) 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, 2022 and 2021 because including them would have had an anti-dilutive effect: Schedule of Antidilutive Securities Excluded From Computation of Earnings Per Share Years Ended December 31, 2022 2021 Warrants to purchase common stock 1,113,622 2,501,419 Options to purchase common stock 2,516,924 2,332,603 Total 3,630,546 4,834,022 17. 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. On 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. F- 26 Item 16. Form 10-K Summary. None. 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. Exhibit Number Description of Exhibit 2.1§ Separation 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). 3.1 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). 3.2 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). 3.3 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). 3.4 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). 3.5 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). 3.6 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). 3.7 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). 3.8 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). 3.9 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). 3.10 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). 3.11 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). 3.12 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). 4.1 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). 4.2 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). 4.3 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). 4.4 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). 68 4.5 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). 4.6 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). 4.7 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). 4.8 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). 4.9 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). 4.10 Form 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). 10.1 Intellectual 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). 10.2 Product 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). 10.3 Tax 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). 10.4 Sublease 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). 10.5 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). 10.6# 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). 10.7 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). 10.8# 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). 10.9# 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). 10.10# 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). 10.11# 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). 10.12† 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 Current Report on Form 8-K, filed on March 7, 2023, and incorporated by reference thereto). 10.13 Patent Rights Assignment dated December 21, 2012 between Biostage, Inc. and Dr. 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). 10.14 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). 10.15 Novel Surgery Agreement dated as of May 24, 2012 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). 10.16 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). 10.17 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). 69 10.18# 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). 10.19# 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). 10.20# 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). 10.21 Preferred 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). 10.22 Form 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). 10.23# Employment Agreement, dated August 8, 2022, between Biostage, Inc. and Joseph L. Damasio, Jr. (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). 10.24# Amended 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). 21.1* Subsidiaries of Biostage, Inc. 23.1* Consent of Marcum LLP. 23.2* Consent of Wei, Wei & Co. LLP. 31.1* 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. 31.2* 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. 32.1** 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. 32.2** 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. 101.INS* Inline XBRL Instance Document. 101.SCH* Inline XBRL Taxonomy Extension Schema Document. 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document. 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document. 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document. 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document. 104 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. † 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. 70 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Biostage, Inc. Date: March 30, 2023 By: /s/ Junli He Junli He 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: Signature Title Date /s/ Junli He Chief Executive Officer, Director, and Chairman Junli He (principal executive officer) March 30, 2023 /s/ Joseph Damasio Jr. Chief Financial Officer Joseph Damasio Jr. (principal financial officer and principal accounting officer) March 30, 2023 /s/ Jason Jing Chen Jason Jing Chen Vice Chairman March 30, 2023 /s/ David Green David Green Director March 30, 2023 /s/ Ting Li Ting Li Director March 30, 2023 /s/ Herman Sanchez Herman Sanchez Director March 30, 2023 /s/ James Shmerling James Shmerling Director March 30, 2023 71