Nonrefundable advance payments for goods or services that have the characteristics that will be used or rendered for future research and development activities pursuant to executory contractual arrangements with third party research organizations are deferred and recognized as an expense as the related goods are delivered or the related services are performed.

Accruals for Research and Development Expenses and Clinical Trials. As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the timing of various aspects of the expenses. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period.

Prior Quarter Adjustment.

Common Stock Warrant Liability. Previously reported amountsThe Company accounts for the three months ended March 31, 2019 have been correctedcommon stock warrants issued as freestanding instruments in the Company’s Condensed Consolidated Statement of Stockholders’ Equity related to the overstatement of “Stock option exercises, net” offset by the overstatement of “Shares withheld for tax withholding” in the amount of $598,000. The change is due to the Company correcting itsaccordance with applicable accounting for cashless exercises of stock options. Such correction does not impact the ending balance of “Additional paid-in capital”guidance as either liabilities or as equity instruments depending on the Condensed Consolidated Balance Sheets,specific terms of the warrant agreement. The Company’s warrants under certain change of control situations, could require settlement in cash, which require the warrants to be recorded as liabilities. Warrants classified as liabilities are remeasured each period until settled or “Net loss” on the Condensed Consolidated Statement of Operationsuntil classified as of and for the three months ended March 31, 2019. This correction is also reflected in the “Proceeds from stock options exercised” presented in the Cash Flows from Financing Activities and “Changes in operating assets and liabilities: Accounts payable and accrued expenses” presented in the Cash Flows from Operating Activities in the Condensed Consolidated Statement of Cash Flows for the six months ended June 30, 2019. The Company evaluated this correction considering both quantitative and qualitative factors and concluded it was immaterial to previously issued condensed consolidated financial statements.equity.

Revenue Recognition.Stock-Based Compensation. Revenue is recognized whenThe Company measures all stock-based compensation to employees and non-employees using a customer obtains control of promised goods or services,fair value method and records such expense in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606,general and administrative, research and development, and sales and marketing expenses. For stock options with graded vesting, the Company performsrecognizes compensation expense over the following five steps: (i) identifyservice period for each separately vesting tranche of the contract(s) with a customer; (ii) identifyaward as though the performance obligationsaward were in substance, multiple awards based on the contract; (iii) determinefair value on the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.date of grant.

InThe fair value for options issued is estimated at the regenerative medicine products segment,date of grant using a Black-Scholes option-pricing model. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of the grant. The volatility factor is determined based on the Company’s historical stock prices. Forfeitures are recognized as they occur.

The fair value of restricted stock grants is measured based on the fair market value of the Company’s common stock on the date of grant and amortized over the vesting period of, generally, six months to three years.

Loss Per Share. Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period.Since the Company records products revenues primarily fromwas in a loss position for all periods presented, basic net loss per share is the salesame as diluted net loss per share since the effects of its regenerative tissue products.potentially dilutive securities are antidilutive.

Impairment of Long-Lived Assets. The Company sells its products to healthcare providers, primarily through direct sales representatives. Products revenues consistsreviews long-lived assets, including property and equipment, intangible assets and goodwill for impairment whenever events or changes in business circumstances indicate that the carrying amount of a single performance obligationthe assets may not be fully recoverable. Factors that the Company satisfies atconsiders in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a point in time. In general,long-lived asset for recoverability, the Company recognizes products revenues upon deliverycompares forecasts of undiscounted cash flows expected to the customer.

In the contract services segment, the Company records services revenuesresult from the saleuse and eventual disposition of the long-lived asset to its contract research services, which includes delivery of preclinical studies and other research services to unrelated third parties. Services revenues generally consist of a single performance obligation that the Company satisfies over time using an input method based on costs incurred to date relative to the total costscarrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to be required to satisfyresult from the performance obligation.use of an asset are less than its carrying amount. The Company believes that this method provides a faithful depiction of the transfer of services over the term of the performance obligationimpairment loss would be based on the remaining services needed to satisfy the obligation. This requires the Company to make reasonable estimatesexcess of the extent of progress toward completioncarrying value of the contract. As a result, unbilled receivables and deferred revenue are recognizedimpaired asset over its fair value, determined based on payment timing and work completed. Generally, a portiondiscounted cash flows. There were no impairments of long-lived assets for any of the payment is due upfront and the remainder upon completion of the study, with most studies completing in less than a year. As of June 30, 2019 and December 31, 2018, the Company had unbilled receivables of $220,000 and $157,000 and deferred revenue of $44,000 and $170,000, respectively. The unbilled receivables balance is included in consolidated accounts receivable. Revenues of $164,000 were recognized during the six months ended June 30, 2019 that were included in the deferred revenue balance at the beginning of the period.

Costs to obtain the contract are incurred for products revenues as they are shipped and are expensed as incurred.periods presented

Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13,Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement. The ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU No. 2016-13,Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. In November 2019, the FASB issued ASU No. 2019-10,Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of Topic 326. As a smaller reporting company, Topic 326 will now be effective for the Company beginning January 1, 2023. As such, the Company plans to adopt this ASU beginning January 1, 2023. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

Recently Adopted Accounting Pronouncements

On January 1, 2019 the Company adopted ASU 2016-02,Leases (ASC 842) and related amendments, which require lease assets and liabilities to be recorded on the balance sheet for leases with terms greater than twelve months. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. The standard was adopted using the modified retrospective transition approach by applying the new standard to all leases existing at the date of the initial application and not restating comparative periods.

We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward our historical lease classification, our assessment on whether a contract was or contains a lease, and our initial direct costs for any leases that existed prior to January 1, 2019. The impact of the adoption of ASC 842 on the accompanying Condensed Consolidated Balance Sheet as of January 1, 2019 was as follows (in thousands):

The adjustments due to the adoption of ASC 842 related to the recognition of operating lease right-of-use assets and operating lease liabilities for the existing operating leases. A cumulative-effect adjustment to beginning accumulated deficit was not required.

In JuneAugust 2018, the FASB issued ASU 2018-07,2018-13,Compensation – Stock CompensationFair Value Measurement (Topic 718): Improvements820), Disclosure Framework-Changes to Nonemployee Share-based Payment Accountingthe Disclosure Requirements for Fair Value Measurement. The standard expandsASU modifies the scope of Topic 718 to include share-based payments issued to nonemployeesdisclosure requirements for goodsfair value measurements by removing, modifying or services, simplifying the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, withadding certain exceptions.disclosures. The standard is effective for fiscal years beginning after December 15, 2018,2019, including interim periods within those fiscal years with early adoption permitted, including adoption in an interim period.permitted. The Company adopted this ASUstandard on January 1, 2019.2020. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

3. LIQUIDITY AND NEED FOR ADDITIONAL CAPITAL

The Company has experienced recurring losses and cash outflows from operating activities. Since inception through June 30, 2019,As of March 31, 2020, the Company hashad an accumulated deficit of $391.2$448.4 million. As of June 30, 2019,March 31, 2020, the Company had cash and cash equivalents and short-term investments of $58.2$39.5 million.

On April 10, 2019, the Company completed an underwritten offering providing for the issuance and sale of 3,418,918 shares of the Company’s common stock, par value $0.001 per share, at an offering price of $8.51 per share, for net proceeds of approximately $27.9 million, after deducting offering expenses payable by the Company.

On December 5, 2019, the Company entered into an Equity Purchase Agreement (the “Purchase Agreement”), with Keystone Capital Partners, LLC (“Keystone”), pursuant to which Keystone has agreed to purchase from the Company up to $25.0 million of shares of its common stock, subject to certain limitations including a minimum stock price of $2.00, at the direction of the Company from time to time during the 36-month term of the Purchase Agreement. Concurrently, the Company entered into a Registration Rights Agreement with Keystone, pursuant to which it agreed to register the sales of its common stock pursuant to the Purchase Agreement under the Company’s existing shelf registration statement on Form S-3 or a new registration statement. On December 19, 2019, the Company sold 54,090 shares under the Purchase Agreement at a purchase price of $2.31 per share, for total proceeds of $0.1 million. During the three months ended March 31, 2020, the Company completed four additional sales of common stock to Keystone under the Purchase Agreement for a total of 216,412 shares generating total gross proceeds of $0.6 million.

On February 14, 2020, the Company completed an underwritten offering of 10,638,298 shares of its common stock and warrants to purchase 10,638,298 shares of common stock. Each common share and warrant were sold together for a combined public purchase price of $2.35 before underwriting discount and commission. The exercise price of each warrant is $2.80 per share, the warrants were exercisable immediately, and they will expire February 12, 2027. The net proceeds to the Company from the offering were $22.5 million, after offering expenses payable by the Company. In connection with this agreement, the Company agreed not to sell any additional shares under the Keystone Purchase Agreement for a period of 90 days after the closing date of the offering.

Based upon the current status of the Company’sour product development and commercialization plans, the Company believes that its existing cash and cash equivalents, with planned operating cost reductions, and short-term investmentsproceeds from the Loan, will be adequate to satisfy its capital and operating needs for at least the next 12 months from the date of filing. However,As noted in our April 21, 2020 press release, we have already taken action to reduce future cash burn by reducing payroll expense, adopting a salary and wage reduction, and reducing discretionary spending across the organization to minimal levels. As discussed in our April 30, 2020 press release updating corporate strategy and regulatory pathway for SkinTE, we are substantially reducing commercial operations and other functions to further significantly decrease cash burn. The Company anticipates needing substantialbelieves it may need additional financing to continue clinical deployment and commercialization of its lead product SkinTE and development of its other product candidates, and scaling the manufacturing capacity for its products and product candidates and prepare for commercial readiness. However, thecandidates. The Company will continue to pursue fundraising opportunities when available, but such financing may not be available in the future on terms favorable to the Company,terms, if at all. If adequate financing is not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its product development programs.programs, or be unable to continue operations over a longer term. The Company plans to meet its capital requirements primarily through issuances of equity securities, debt financing, revenue from product and services sales and future collaborations.or strategic partnership arrangements. Failure to generate revenuecash from revenues, or raise additional capital, would adversely affect the Company’s ability to achieve its intended business objectives.

4. FAIR VALUE

In accordance withASC 820, Fair Value Measurements and Disclosures, financial instruments were measured at fair value using a three-level hierarchy which maximizes use of observable inputs and minimizes use of unobservable inputs:

Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There were no transfers within the hierarchy for any of the periods presented.

In connection with the offering of Units in September 2017 (see Note 10), the Company issued Series F Preferred Shares and warrants to purchase an aggregate of 322,727 shares of common stock. The Series F Preferred Shares contained an embedded conversion feature that was not clearly and closely related to the identified host instrument and, as such, was recognized as a derivative liability measured at fair value. The Company classified these derivatives on the consolidated balance sheet as a current liability. The warrants were exercisable at $30.00 per share and expire in two years. The warrants were liabilities pursuant to ASC 815. The warrant agreement provided for an adjustment to the number of common shares issuable under the warrant or adjustment to the exercise price, including but not limited to, if: (a) the Company issues shares of common stock as a dividend or distribution to holders of its common stock; (b) the Company subdivides or combines its common stock (i.e., stock split); or (c) the Company issues new securities for consideration less than the exercise price. Under ASC 815, warrants that provide for down-round exercise price protection are recognized as derivative liabilities.

As discussed in Note 10, both the warrants and the Series F Preferred Shares were exchanged for common stock on March 6, 2018.

The fair value of the bifurcated embedded conversion feature was estimated to be approximately $7.2 million at March 5, 2018, as calculated using the Monte Carlo simulation with the following assumptions:

The fair value of the warrant liability was estimated to be approximately $2.5 million at March 5, 2018 as calculated using the Monte Carlo simulation with the following assumptions:

The following table sets forth the changes in the estimated fair value for our Level 3 classified derivative liabilities (in thousands):

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy as of June 30, 2019 and December 31, 2018 (in thousands):

In May 2018, the Company purchased the assets of a preclinical research sciences business and related real estate from Ibex Group, L.L.C., a Utah limited liability company, and Ibex Preclinical Research, Inc., a Utah corporation (collectively, “IBEX”). The aggregate purchase price was $3.8 million, of which $2.3 million was paid at closing and the balance satisfied by a promissory note payable to IBEX with an initial fair value of $1.2 millionthe common stock warrant liability is estimated using a Monte Carlo simulation model, which uses certain assumptions related to risk-free interest rates, expected volatility, and contingent consideration with an initialexpected term. The fair value of $0.3the warrant liability was $11.7 million upon the issuance date of February 14, 2020 and $7.1 million as of March 31, 2020.

The following assumptions were used in estimating the fair value of the warrant liability as of March 31, 2020 and upon the issuance date of February 14, 2020:

The contingent consideration represents the estimated fair value of future payments duerelated to the SellerIBEX acquisition of IBEX based on IBEX’s revenue generated from studies quoted prior$31,000 outstanding at December 31, 2019, was paid during the three months ended March 31, 2020. As of March 31, 2020, the obligation related to but completed after the transaction. Contingent consideration was initially recognized at fair value as purchase consideration and is subsequently remeasured at fair value through earnings. The initial fair value of the contingent consideration was based on the present value of estimated future cash flows using a 20% discount rate. The contingent consideration is the payment of 15% of the actual revenues received for work on any study initiated within 18 months following the closing of the purchase on the basis of certain specific customer prospects that received service proposals prior to the closing, provided that the total payments will not exceed $650,000. Adjustments to the fair value of the contingent consideration liability is included in general and administrative expense in the accompanying consolidated statements of operations.fully satisfied.

The following table sets forth the changes in the estimated fair value of our contingent consideration liability (in thousands) which is included in other current liabilities:

5. CASH EQUIVALENTS AND AVAILABLE FOR SALE MARKETABLE SECURITIESSHORT-TERM INVESTMENTS

Cash equivalents and available-for-sale marketable securitiesshort-term investments consisted of the following as of June 30, 2019 and December 31, 2018 (in thousands):

All investments in debt securities held as of June 30, 2019March 31, 2020 and December 31, 20182019 had maturities of less than one year. For the three and six months ended June 30,March 31, 2020 and 2019, the Company recognized no materialnet realized gains or losses on available-for-sale marketable securities.securities of $0.1 million.

6. PROPERTY AND EQUIPMENT, NET

The following table presents the components of property and equipment, net (in thousands):

Depreciation and amortization expense for property and equipment, including assets acquired under financing leases for the three and six months ended June 30, 2019 and 2018 was as follows (in thousands):

7. LEASES

The Company leases facilities and certain equipment under noncancelable leases that expire at various dates through November 2024. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases may include options to extend or terminate the lease at the election of the Company. These optional periods have not been considered in the determination of the right-of-use-assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.

In April 2019, the Company entered into an operating lease to obtain 6,307 square feet of manufacturing, laboratory, and office space. The lease expires April 2024 and requires monthly lease payments subject to annual increases. During the six months ended June 30, 2019, the Company also increased office space under an existing lease, which requires additional monthly lease payments.

As of June 30, 2019,March 31, 2020, the maturities of our operating and finance lease liabilities were as follows (in thousands):

Supplemental balance sheet information related to leases was as follows (in thousands):

Finance leases

Operating leases

The components of lease expense were as follows (in thousands):