UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q~~10-Q~~

☒	~~Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

~~For the quarterly period ended~~ ~~September 30, 2022~~

☐	~~Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~

☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2023

☐Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-35853~~001-35853~~

BIOSTAGE, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		45-5210462
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification No.)


84 October Hill Road, Suite 11, Holliston, MAMA		01746
(Address of Principal Executive Offices)		(Zip Code)

((774)233-7300~~774~~) ~~233-7300~~

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
N/A		N/A		N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ⌧☒ YES ◻☐ NO NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐

Non-accelerated filer⌧ ☒	Smaller reporting company ☒

	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ◻☐ YES ☒ ☒NO NO

As of ~~November 7, 2022,~~May 8, 2023, there were ~~11,643,751~~13,882,060 shares of common stock, par value $0.01 per share, outstanding.

~~Table of Contents~~

PART I. FINANCIAL INFORMATION

Item 1.Condensed Consolidated Financial Statements.

BIOSTAGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value data)


	September 30,		December 31,
	2022		2021
					March 31,			December 31,
					2023			2022
					(Unaudited)
ASSETS		(Unaudited)
Current assets:
Cash	$	2,971	$	1,242	$	3,269		$	1,241
Restricted cash		—		50
Prepaid research and development						266			274
Prepaid expenses and other current assets		212		295		91			79
Total current assets		3,183		1,587		3,626			1,594
Property, plant and equipment, net		78		110		46			49
Right-of-use assets, net		88		169		120			147
Deferred financing costs		311		—		544			610
Total assets	$	3,660	$	1,866	$	4,336		$	2,400


LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	882	$	676	$	755		$	682
Accrued and other current liabilities		481		798		472			582
Accrual for contingency matter		—		3,250
Warrant liability		—		2
Operating lease liability, current		79		110		99			99
Total current liabilities		1,442		4,836		1,326			1,363
Operating lease liability, net of current portion		9		59		21			48
Total liabilities		1,451		4,895		1,347			1,411

Commitments and contingencies (Note 8)
Series E convertible preferred stock, $0.01 par value per share, 5,000 shares authorized, 4,000 shares issued and outstanding		4,095		—


Commitments and contingencies (Note 7)						-			-
Series E convertible preferred stock, par value $0.01 per share, 5,000 shares authorized; 4,051 and 4,180 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively						4,051			4,180

Stockholders’ deficit:
Common stock, par value $0.01 per share, 60,000,000 shares authorized; 11,615,642 and 10,760,871 issued and outstanding at September 30, 2022 and December 31, 2021, respectively		116		108
Common stock, par value $0.01 per share, 60,000,000 shares authorized; 12,716,534 and 12,174,467 issued and outstanding at March 31, 2023 and December 31, 2022, respectively						127			122
Additional paid-in capital		79,514		73,801		84,712			79,698
Accumulated deficit		(81,516)		(76,938)		(85,901	)		(83,011	)
Total stockholders’ deficit		(1,886)		(3,029)		(1,062	)		(3,191	)
Total liabilities, convertible preferred stock, and stockholders’ deficit	$	3,660	$	1,866
Total liabilities and stockholders’ deficit					$	4,336		$	2,400

See accompanying notes to unaudited condensed consolidated financial statements.

~~Table of Contents~~

BIOSTAGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30,

September 30,


2022

2021

2022

2021

Operating expenses:

Research and development

$
369

$
250

$
998

$
1,023

General and administrative

711

572

3,662

1,712

Total operating expenses

1,080

822

4,660

2,735

Operating loss

(1,080)

(822)

(4,660)

(2,735)

Other income (expense), net:

Forgiveness of notes payable

—

—

—

408

Sublease income

26

—

87

—

Grant income

—

—

—

165

Change in fair value of warrant liability

—

(27)

2

(14)

Other (expense) income, net

(2)

—

(7)

71

Total other income (expense), net

24

(27)

82

630

Net loss

(1,056)

(849)

(4,578)

(2,105)

Less: preferred stock dividends

(77)

—

(95)

—

Net loss attributable to common stockholders

$
(1,133)

$
(849)

$
(4,673)

$
(2,105)

Basic and diluted net loss per share

$
(0.10)

$
(0.08)

$
(0.42)

$
(0.22)

Weighted average common shares, basic and diluted

11,615,642

10,014,494

11,205,477

9,614,781

	2023			2022
	Three Months Ended
	March 31,
	2023			2022

Operating expenses:
Research and development	$	509		$	303
General and administrative		2,378			1,902
Total operating expenses		2,887			2,205

Operating loss		(2,887	)		(2,205	)

Other (expense) income, net:
Sublease income		-			29
Other expense, net		(3	)		(1	)
Total other (expense) income, net		(3	)		28

Net loss		(2,890	)		(2,177	)
Less: preferred stock dividends		(80	)		—
Net loss attributable to common stockholders	$	(2,970	)	$	(2,177	)

Basic and diluted net loss per share	$	(0.24	)	$	(0.20	)
Weighted average common shares, basic and diluted		12,206,036			10,761,861

See accompanying notes to unaudited condensed consolidated financial statements.

~~Table of Contents~~

BIOSTAGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY~~STOCKHOLDERS’ DEFICIT
(Unaudited)
(In thousands, except share data)

Series E

Number of

Convertible

Common

Additional

Total

Preferred

Shares

Common

Paid-in

Accumulated

Stockholders’

Stock


Outstanding

Stock

Capital

Deficit

Deficit
Balance at June 30, 2022
$
4,018

11,615,642

$
116

$
79,347

$
(80,460)

$
(997)
Preferred stock dividends

77

—

—

(77)

—

(77)
Share-based compensation expense

—

—

—

244

—

244
Net loss

—

—

—

—

(1,056)

(1,056)
Balance at September 30, 2022
$
4,095

11,615,642

$
116

$
79,514

$
(81,516)

$
(1,886)
Stock Outstanding Stock Capital Deficit Deficit
Series E Convertible Preferred Number of Common Shares Common Additional Paid-in Accumulated Total Stockholders’
Stock Outstanding Stock Capital Deficit Deficit
Balance at January 1, 2023 - $ 4,180 12,174,467 $ 122 $ 79,698 $ (83,011 ) $ (3,191 )
Preferred stock dividends 80 — — (80 ) — (80 )
Conversion of preferred stock for common stock (209 ) 31,933 — 209 — 209
Issuance of common stock, net of offering costs — 510,134 5 3,045 — 3,050
Share-based compensation expense — — — 1,840 — 1,840
Net loss - — — — — (2,890 ) (2,890 )
Balance at March 31, 2023 - $ 4,051 12,716,534 $ 127 $ 84,712 $ (85,901 ) $ (1,062 )

Series E

Number of

Convertible

Common

Additional

Total

Preferred

Shares

Common

Paid-in

Accumulated

Stockholders’

Stock


Outstanding

Stock

Capital

Deficit

Equity
Balance at June 30, 2021
$
—

9,688,407

$
97

$
70,847

$
(70,216)

$
728
Issuance of common stock and warrants to purchase common stock

—

1,000,000

10

1,988

—

1,998
Share-based compensation expense

—

—

—

160

—

160
Net loss

—

—

—

—

(849)

(849)
Balance at September 30, 2021
$
—

10,688,407

$
107

$
72,995

$
(71,065)

$
2,037
Series E Convertible Preferred
Number of
Common
Shares
Common Additional Paid-in Accumulated Total Stockholders’
Stock Outstanding Stock Capital Deficit Deficit
Balance at January 1, 2022 - $ — 10,760,871 $ 108 $ 73,801 $ (76,938 ) $ (3,029 )
Beginning balance, value - $ — 10,760,871 $ 108 $ 73,801 $ (76,938 ) $ (3,029 )
Share-based compensation expense — — — 235 — 235
Net loss - — — — — (2,177 ) (2,177 )
Balance at March 31, 2022 - $ — 10,760,871 $ 108 $ 74,036 $ (79,115 ) $ (4,971 )
Ending balance, value - $ — 10,760,871 $ 108 $ 74,036 $ (79,115 ) $ (4,971 )

See accompanying notes to unaudited condensed consolidated financial statements

5
5

~~Table of Contents~~

BIOSTAGE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' (DEFICIT) EQUITY~~CASH FLOWS

~~(Unaudited)~~

(~~In thousands, except share data~~)

Series E

Number of

Convertible

Common

Additional

Total


Preferred


Shares

Common

Paid-in

Accumulated

Stockholders’


Stock


Outstanding

Stock

Capital

Deficit

Deficit
Balance at December 31, 2021
$
—

10,760,871

$
108

$
73,801

$
(76,938)

$
(3,029)
Issuance of Series E convertible preferred stock

4,000

—

—

—

—

—
Preferred stock dividends

95

—

—

(95)

—

(95)
Issuance of common stock and warrants to purchase common stock

—

854,771

8

5,052

—

5,060
Share-based compensation expense

—

—

—

756

—

756
Net loss

—

—

—

—

(4,578)

(4,578)
Balance at September 30, 2022
$
4,095

11,615,642

$
116

$
79,514

$
(81,516)

$
(1,886)

Series E

Number of

Convertible

Common

Additional

Total


Preferred


Shares

Common

Paid-in

Accumulated

Stockholders’


Stock


Outstanding

Stock

Capital

Deficit

Equity
Balance at December 31, 2020
$
—

9,388,407

$
94

$
69,991

$
(68,960)

$
1,125
Issuance of common stock and warrants to purchase common stock

—

1,300,000

13

2,583

—

2,596
Share-based compensation expense

—

—

—

421

—

421
Net loss

—

—

—

—

(2,105)

(2,105)
Balance at September 30, 2021
$
—

10,688,407

$
107

$
72,995

$
(71,065)

$
2,037

~~See accompanying notes to unaudited condensed consolidated financial statements~~

(Unaudited)

~~Table of Contents~~

~~BIOSTAGE, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED~~ ~~STATEMENTS OF CASH FLOWS~~
~~(Unaudited)~~
(In thousands)

Nine Months Ended

September 30,


2022

2021

2023 2022
Three Months Ended
March 31,
2023 2022
OPERATING ACTIVITIES

Net loss

$
(4,578)

$
(2,105)

$ (2,890 ) $ (2,177 )
Adjustments to reconcile net loss to net cash used in operating activities:

Forgiveness of notes payable

—

(408)

Share-based compensation expense

756

421

1,840 235
Depreciation

40

87

12 14
Change in fair value of warrant liability

(2)

14

– (2 )
Deferred financing costs 66 —
Changes in operating assets and liabilities:

Grant receivable

—

77

Prepaid research and development 8 —
Prepaid expenses and other current assets

83

247

(12 ) 193
Deferred financing costs

(311)

—

Accounts payable

206

81

73 597
Accrued and other current liabilities

433

(41)

(110 ) 621
Net cash used in operating activities

(3,373)

(1,627)

(1,013 ) (519 )

INVESTING ACTIVITIES

Purchases of property, plant, and equipment

(8)

—

(9 ) —
Net cash used in investing activities

(8)

—

(9 ) —

FINANCING ACTIVITIES

Proceeds from issuance of common stock and warrants

5,060

2,596

Advance from private placement – 3,055
Proceeds from issuance of common stock 3,050 —
Net cash provided by financing activities

5,060

2,596

3,050 3,055
Net increase in cash and restricted cash

1,679

969

2,028 2,536
Cash and restricted cash at the beginning of the year

1,292

1,076

1,241 1,292
Cash and restricted cash at the end of the period

$
2,971

$
2,045

$ 3,269 $ 3,828

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

$
—

Purchases of property and equipment in accounts payable or accrued expenses $ 9 $ —
Preferred stock dividends

$
95

$
—

$ 80 $ —
Conversion of preferred stock into common stock $ 209 $ —

See accompanying notes to unaudited condensed consolidated financial statements.

6
7

~~Table of Contents~~

BIOSTAGE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Overview and Basis of Presentation
~~Overview~~
Overview
Biostage, Inc. (Biostage or the Company) is a clinical-stage biotechnology company focused on the development of regenerative medicine treatments for disorders of the gastro-intestinal system and the airway that result from cancer, trauma or birth defects. The Company’s technology is based on our proprietary cell-therapy platform that uses a patient’s own stem cells to regenerate and restore function to damaged organs. The Company believes that its technology represents a next generation solution for restoring organ function because it allows the patient to regenerate their own organ, thus eliminating the need for human donor or animal transplants, the sacrificing of another of the patient’s own organs or permanent artificial implants. 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. The Company has one business segment and does not have significant costs or assets outside the United States.
On October 31, 2013, Harvard Bioscience, Inc., or Harvard Bioscience, contributed its regenerative medicine business assets, plus ~~$15~~$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.
The Company’s common stock is currently traded on the OTCQB Venture Market under the symbol “BSTG”.
Going Concern
The Company has incurred substantial operating losses since its inception, and as of ~~September 30, 2022~~March 31, 2023 had an accumulated deficit of approximately ~~$81.5~~$85.9 million and will require additional financing to fund future operations. The Company expects that its operating cash on-hand as of ~~September 30, 2022~~March 31, 2023 of approximately ~~$3.0~~$3.3 million and equity financing of $2.9 million in gross proceeds subsequent to March 31, 2023 will enable it to fund its operating expenses and capital expenditure requirements into the ~~second~~first quarter of ~~2023.~~2024. 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 is unable to raise additional capital from outside sources ~~by June~~before or during the first quarter of ~~2023,~~2024, 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 financing 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 condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and therefore, the condensed 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.

7
8

~~Table of Contents~~

2. Summary of Significant Accounting Policies and Recently Issued Accounting Pronouncements

Summary of Significant Accounting Policies

The accounting policies underlying the accompanying unaudited condensed consolidated financial statements are those set forth in Note 2 to the consolidated financial statements for the year ended December 31, ~~2021~~2022 included in the Company’s Annual Report on Form 10-K.

Principles of Consolidation

The condensed 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 Biostage and these subsidiaries is the U.S dollar. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

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

Use of Estimates

The process of preparing condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed 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.

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.

Net Loss Per Share

Basic net loss per share is ~~computed using~~calculated by dividing net loss applicable to common stockholders by the ~~weighted average~~weighted-average number of ~~common~~ shares outstanding during the ~~period.~~period, without consideration for common stock equivalents. Diluted net loss per share is ~~computed using~~calculated by adjusting the ~~sum of the weighted average~~weighted-average number of ~~common~~ shares outstanding ~~during~~for the ~~period and, if~~ dilutive ~~the weighted average number of potential shares~~effect of common stock ~~including~~equivalents outstanding for the ~~assumed conversion~~period, determined using the treasury-stock method. For purposes of ~~preferred~~the diluted net loss per share calculation, warrants to purchase common stock ~~exercise of~~and stock options ~~warrants, and~~are considered to be common stock equivalents, but have been excluded from the ~~impact~~calculation of ~~unvested restricted stock.~~

~~The Company applies the two-class method to calculate~~diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share ~~attributable~~applicable to common stockholders ~~as its warrants to purchase common stock are participating securities.~~

The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. However, the two-class method does not impact the net loss per share of common stock as the Company has been in a net loss position and the warrant holders do not participate in losses.

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

Unaudited Interim Financial Information

The accompanying interim condensed consolidated balance sheet as of ~~September 30, 2022,~~March 31, 2023, condensed consolidated interim statements of operations, ~~and~~ stockholders’ ~~(deficit) equity for the three and nine months ended September 30, 2022 and 2021,~~deficit and cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ are unaudited. The interim unaudited condensed consolidated financial statements have been prepared in accordance with GAAP on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments necessary for a fair statement of the Company’s financial position as of ~~September 30, 2022,~~March 31, 2023, its condensed consolidated results of operations, ~~and~~ stockholders’ ~~(deficit) equity for the three and nine months ended September 30, 2022 and 2021~~deficit and cash flows for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. The financial data and other information disclosed in these notes related to the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

~~Table of Contents~~

are unaudited. The results for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 are not necessarily indicative of results to be expected for the year ending December 31, ~~2022,~~2023, any other interim periods or any future year or period.
~~Forgiveness of 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 470, Debt. As such, the loan and applicable accrued interest have been recorded as forgiveness of the notes payable resulting in a gain of approximately $408,000 during the nine months ended September 30, 2021.
~~Grant income~~
Grant income is recognized when qualified research and development costs are incurred and recorded in other (expense) income, net in the condensed consolidated statements of operations. When evaluating grant revenue from the SBIR grant, the Company considered accounting requirements under FASB ASC 606, Revenue From Contracts With Customers. The Company concluded that the application of ASC 606 had no impact 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.
For the three and nine months ended September 30, 2021, the Company recognized approximately $0 and $165,000, respectively, of grant income from the SBIR Phase II grant. The SBIR Phase II grant expired effective September 30, 2021.
~~Restricted Cash~~
A reconciliation of the cash and restricted cash reported within the balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows is as follows:

September 30,

December 31,


2022

2021

(In thousands)
Cash

$
2,971

$
1,242
Restricted cash

—

50
Total cash and restricted cash as shown in the condensed consolidated statements of cash flows

$
2,971

$
1,292

~~Restricted cash consists of approximately $50,000 that was held as collateral for the Company’s credit card program as of December~~ 31, 2021. Prior to September 30, 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 condensed 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.
Recently Adopted Accounting Pronouncements
Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.

~~Table~~

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of ~~Contents~~

~~3.  Fair Value Measurements~~
~~Fair value is defined as~~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 ~~exchange price that would~~amount of credit losses to be ~~received~~recognized 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~~available-for-sale debt securities to the ~~valuations used to measure fair~~amount by which carrying value that prioritizes the inputs into three broad levels. 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 Level 2 or~~ ~~Level 3~~ ~~as of September 30, 2022 and no assets or~~ ~~liabilities~~ classified as Level 2 as of December 31, 2021. The Company’s restricted cash consisted of a $50,000 cash deposit that 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. As of December 31, 2021, the Company classified warrants to purchase common stock that were accounted for as liabilities as Level 3 liabilities, as more fully discussed below.
~~The following fair value hierarchy tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:~~

~~Fair Value Measurement as of September 30, 2022~~

~~(in thousands)~~

~~Level 1~~
~~Level 2~~
~~Level 3~~
~~Total~~
~~Assets:~~

~~Restricted cash~~
$
—
$
—
$
—
$
—
~~Total~~
$
—
$
—
$
—
$
—

~~Liabilities:~~
~~Warrant liability~~
$
—
$
—
$
—
$
—
~~Total~~
$
—
$
—
$
—
$
—

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

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 was initially recorded atexceeds fair value and ~~subsequently re-measured each reporting period. The changes in~~also requires the reversal of previously recognized credit losses if fair value ~~between issuance~~increases. The Company adopted this standard on January 1, 2023, and the ~~end~~adoption of ~~each reporting period is recorded as~~ASU 2016-13 did not have a ~~component of other income (expense), net, in the condensed~~material impact on its consolidated ~~statements of operations.~~financial statements.

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 were re-measured at each reporting period as long as they are outstanding and un-modified. In February of

~~Table of Contents~~

~~2022, the remaining 92,212 warrants expired unexercised resulting in a $2,000 gain on~~ ~~extinguishment~~ ~~recorded in other (expense) income, net for the nine months ended September 30, 2022.~~

The following table presents a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2022:

Warrant liability


(In thousands)
Balance at December 31, 2021

$
2
Change in fair value upon extinguishment

(2)
Balance at September 30, 2022

$
—

~~Warrants to purchase common stock activity for the nine months ended September 30, 2022 was as follows:~~

Weighted-average


Amount

exercise price
Outstanding at December 31, 2021

2,501,419

$
4.35
Issued

427,390

8.88
Expired

(1,040,187)

7.59
Outstanding at September 30, 2022

1,888,622

3.58

The Company had re-measured the warrant liability to estimated fair value at inception, prior to modification and at December 31, 2021 using the Black-Scholes option pricing model with the following weighted average assumptions:

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


3. 

4.  Accrued and Other Current Liabilities
Accrued and other current liabilities consist of the following:

September 30,

December 31,


2022

2021

(in thousands)
Advisory costs

$
262

$
151
Due to Harvard Bioscience

64

—
Legal costs

35

577
Audit services

68

59
Other liabilities

52

13
Total accrued and other current liabilities

$
481

$
800

Schedule of Accrued and Other Current Liabilities
March 31, December 31,
2023 2022
(in thousands)
Advisory costs $ 337 $ 300
Legal costs - 135
Audit services 44 80
Payroll 83 55
Other liabilities 8 12
Total accrued and other current liabilities $ 472 $ 582
4. Capital Stock

~~5.  Capital Stock~~
Private Placement

~~Table of Contents~~

On ~~May 12, 2022,~~March 31, 2023, 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 510,134~~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~~$3.1 million with a purchase price per unit of ~~$5.92,~~$6.00, 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 net proceeds from the Private Placement by May 16, 2022.~~
had 1,113,622
~~The proceeds were allocated to the common stock and warrants based on their relative fair values resulting in $3.6 million and $1.5~~ million to the common stock and warrants respectively. The Company classified these warrants on its condensed consolidated balance sheets as equity because the warrants do not have any redemption features nor a right to put for cash that is outside the control of the Company The warrants were valued using the Black-Scholes model based on the following weighted average assumptions:

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

If the Company fails for any reason to deliver to the warrant holders, subject to a notice of exercise by the warrant share delivery date, the Company shall pay to the holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of warrant Shares subject to such exercise (based on the volume weighted average price of the common stock on the date of the applicable Notice of Exercise), $5 per Trading Day (increasing to $10 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise.

~~During the nine months ended September 30, 2021, the Company issued a total of 1,300,000 shares of its common stock and~~ warrants to purchase ~~650,000 shares of~~ common stock outstanding as of March 31, 2023 with ana weighted-average exercise price of ~~$2.00 per share, at a purchase price of $2.00 per unit. Each unit consisted of one share of common stock and a warrant to purchase~~ $~~one~~4.69 half of one share of common stock. The shares and warrants were sold to a group of investors for aggregate net proceeds of approximately $2.6 million, of which $1.8 million and $0.8 million were allocated to the common stock and warrants, respectively. The Company classified these warrants on its condensed consolidated balance sheets as equity because 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:

Risk-free interest rate

0.82
%
Expected volatility

121.2
%
Expected term

5
years
Expected dividend yield

—

Exercise price

$
2.08

Market value of common stock

$
2.58

.

6. 5. 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~~$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.
9
On June 10, 2022, following the execution of a subscription agreement and HBIO providing evidence of payment of the requisite ~~$4.0~~$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~~$1,000 per share to satisfy the Company’s related indemnification obligations pertaining to the ~~$4.0~~$4.0 million, in lieu of paying cash. As of ~~September 30, 2022,~~March 31, 2023, there were ~~4,000~~4,051 shares of Series E Preferred outstanding and includes approximately ~~$95,000~~$251,000 accrued as dividends payable as shares of Series E Preferred.

~~Table of Contents~~

The rights, preferences, and privileges of the Series E Preferred stock were as follows as of ~~September 30, 2022:~~March 31, 2023:

Dividends: Payable quarterly in additional shares of Series E Preferred stock at a rate of 8%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~~therefore in excess of ~~$500,000~~$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.

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~~$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.
The conversion options require 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.
10
Other than Series E Preferred shares, there were no other shares of any of the other classes of preferred stock outstanding as of ~~September 30, 2022.~~March 31, 2023. Authorized shares for each preferred stock class are as follows:
Schedule of Categories of Preferred Stock

Authorized

~~Authorized~~
Undesignated preferred stock
~~984,000~~
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

6. 14

~~Table of Contents~~

7.  Share-Based Compensation
Biostage Amended and Restated Equity Incentive Plan
The Company maintains the Amended and Restated Equity Incentive Plan (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 vesting of the restricted stock units. The vesting period for awards is generally four years and the contractual life is ten ~~years.~~years. Canceled and forfeited options and awards are available to be reissued under the Plan.
~~In June 2020, the~~
The Company’s ~~shareholders approved the~~ Plan ~~to among other things, increase of the number of~~has 5,098,000 authorized shares ~~of the Company’s common stock available for issuance pursuant to the 2013 Equity Incentive Plan by 3,000,000 shares, which increased the total shares authorized~~ to be issued under the ~~Plan to 5,098,000.~~Plan. There were ~~2,568,823~~2,275,128 shares available for issuance as of ~~September 30, 2022.~~
~~The Company has granted options to purchase common stock under the Plan. Stock option activity during the nine months ended September 30, 2022 was as follows:~~March 31, 2023.

Weighted-average

Weighted-average

Aggregate intrinsic


Amount

exercise price

contractual life (years)

value (in thousands)
Outstanding at December 31, 2021

2,332,603

$
3.93

8.30

$
294
Granted

325,984

4.81

Canceled / forfeited

(150,097)

3.39

Outstanding at September 30, 2022

2,508,490

3.95

7.92

10,861
Options exercisable

1,395,359

4.76

7.43

6,221
Options vested and expected to vest

2,508,490

4.05

The following table summarizes information concerning options outstanding and exercisable:
Schedule of Options Outstanding and Exercisable
Weighted-average Weighted-average contractual life Aggregate intrinsic value
Amount exercise price (years) (in thousands)
Outstanding at December 31, 2022 2,516,924 $             3.95 7.68 $ 6,917
Granted 858,470 6.03
Canceled / forfeited (573,209 ) 6.16
Outstanding at March 31, 2023 2,802,185 4.14 7.69 9,389
Options exercisable 1,941,834 4.63 7.63 6,446
Options vested and expected to vest 2,696,248 4.18 7.69 9,028
The Company’s outstanding stock options include ~~510,742~~430,579 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~~$1.2 million. No expense has been recognized for these awards as of ~~September 30, 2022~~March 31, 2023 given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes.
Aggregate intrinsic value for outstanding options and exercisable options as of ~~September 30, 2022,~~March 31, 2023, was approximately ~~$10.9~~$9.4 million and ~~$6.2~~$6.4 million, respectively, based on the Company’s closing stock price of ~~$7.10~~$6.45 per share as of ~~September 30, 2022.~~March 31, 2023. As of ~~September 30, 2022,~~March 31, 2023, unrecognized compensation cost related to unvested non-performance-based awards amounted to ~~$1.4~~$0.9 million, which will be recognized over a weighted-average period of ~~1.09~~ 2.39 years.
11
The Company uses the Black-Scholes option pricing model to value its stock options. The weighted average assumptions for valuing options granted during the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and March 31, 2022 ~~and 2021~~ were as follows:
Schedule of Weighted Average Assumptions

Nine Months Ended September 30,


2022

2021

Three Months Ended March 31,
2023 2022
Risk-free interest rate

2.71
%
0.89
%
4.10 % 1.77 %
Expected volatility

123.53
%
116.86
%
126.6 % 122.06 %
Expected term (in years)

5.8
years
5.3
years
5.7 years 6.0 years
Expected dividend yield

—
%
—
%
— % — %

~~Table of Contents~~

The Company recorded share-based compensation expense in the following expense categories of its condensed consolidated statements of operations:

Three months ended

Nine months ended

September 30,

September 30,


2022

2021

2022

2021

(In thousands)

(In thousands)

Research and development

$
72

$
96

$
220

$
213

General and administrative

172

64

536

208

Total stock-based compensation

$
244

$
160

$
756

$
421

Schedule of Share-based Compensation Expense
Three months ended
March 31,
2023 2022
(In thousands)
Research and development $ 62 $ 60
General and administrative 1,778 175
Total stock-based compensation $ 1,840 $ 235

8.  7. 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, against the Company and other defendants, including Harvard Bioscience, Inc., or HBIO, the former parent of the Company that spun off the Company in 2013, as well as another third party. The complaint sought payment for an unspecified amount of damages and alleged that the plaintiff sustained terminal injuries allegedly caused by products 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 related to the Company’s first-generation trachea scaffold technology for which the Company discontinued development in 2014, and not to the Company’s current Biostage Esophageal Implant.
On 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 the Company nor HBIO admit any fault or liability in connection with the claim. The Settlement also resolved any and all claims by and between the parties and the Company’s product 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 $3.3 million in general and administrative expenses during the year ended December 31, 2021.
In relation to the litigation, the Company ~~had incurred~~paid approximately ~~$5.9~~$5.9 million of aggregate costs related to the lawsuit, of which ~~approximately $0.3 million remain unpaid~~100% has been paid as of ~~September 30,~~December 31, 2022. This aggregate amount included the cost ~~of both the accrual for this contingency matter of approximately $3.3 million and approximately $2.6 million~~ of legal and related costs incurred by the Company, which consisted of attorneys’ fees and advisor and specialist costs as part of its defense in this matter. ~~For the nine months ended September 30, 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~~$0.1 million from Medmarc, the Company’s 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 ~~nine~~three months ended ~~September 30,~~March 31, 2022.
12
With respect to such ~~$5.9~~$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~~$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~~$4.0 million in such costs, to satisfy the Company’s indemnification obligations with respect thereto, in lieu of paying cash, the Company would issue senior 8%8% 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~~$4.0 million amount, the Company issued HBIO 4,000 shares of Series E 8%8% Convertible Preferred Stock at a price of ~~$1,000~~$1,000 per share to satisfy the Company’s related indemnification obligations aggregating ~~$4.0~~$4.0 million, which included the accrual for contingency of ~~$3.3~~$3.3 million and approximately ~~$0.8~~$0.8 million of legal and related costs paid on behalf of the Company by HBIO previously included in accrued expenses.
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, results of operations, or cash flows.

168. Leases

~~Table of Contents~~

~~9.  Leases~~
The Company leases laboratory and office space and certain equipment with remaining terms ranging from ~~0.7~~1 to ~~2.1~~2 years.
The laboratory and office space arrangement is under a sublease that was renewed in December of ~~2021~~2022 and currently extends through May 31, ~~2023.~~2024. This lease automatically renews annually for one-year periods unless the Company or the counterparty provides a notice of termination within one hundred and eighty days prior to May 31^st of each year.
On January 5, 2022, the Company executed a ~~four-month~~four-month sublease agreement for certain laboratory and office space at its Holliston, Massachusetts facility. The Company further extended the sublease agreement on a month-to-month basis until August 31, 2022 when the other party vacated the premises. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, the Company recorded sublease income of approximately $29,000~~$26,000 and $87,000, respectively,~~ relating to this agreement.

All of the Company’s leases qualify as operating leases. The following table summarizes the presentation of the Company’s operating leases in its condensed consolidated balance sheets:
Schedule of Operating Leases in Consolidated Balance Sheets

September 30,

December 31,


Balance Sheet Classification

2022

2021


March 31, December 31,
Balance Sheet Classification 2023 2022

Assets:







Operating lease assets

Right-of-use asset, net

$
88

$
169

Right-of-use asset, net $ 120 $ 147
Liabilities:







Current portion of operating lease liabilities

Current portion of operating lease liabilities

79

110

Current portion of operating lease liabilities 99 99
Operating lease liabilities, net of current portion

Operating lease liabilities, net of current portion

9

59

Operating lease liabilities, net of current portion 21 48
Total operating lease liabilities



$
88

$
169

$ 120 $ 147

13
The Company recorded operating lease expense in the following categories in its condensed consolidated statements of operations:
Schedule of Operating Lease Expense Categories in Consolidated Statements of Operations

Three months ended September 30,

Nine months ended September 30,

2022

2021

2022

2021


(In thousands)

(In thousands)

Research and development

$
19

$
19

$
58

$
38

General and administrative

11

11

33

22

Total

$
30

$
30

$
91

$
60

Three months ended March 31,
2023 2022
(In thousands)
Research and development $ 19 $ 19
General and administrative 11 11
Total $ 30 $ 30

Cash paid included in the computation of the operating lease assets and lease liabilities during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 amounted to approximately $30,000 and $91,000, respectively. Cash paid in the computation of the operating lease assets and lease liabilities during the three and nine months ended September 30, 2021 amounted to approximately $30,000 and $60,000, respectively.$30,000 for each quarterly period.

The weighted average remaining lease term and weighted average discount rate of the Company’s operating leases are as follows:
Schedule of Weighted Average Lease Term and Discount Rates

As of September 30,


2022

2021


Remaining lease term (in years)

0.94

1.38


Discount rate

9.35
%
10.54
%

As of March 31,
2023 2022
Remaining lease term (in years) 1.24 1.37
Discount rate 14.76 % 9.18 %

~~Table of Contents~~

The minimum lease payments for the next ~~five~~two years are expected to be as follows:

As of


September 30, 2022

(in thousands)
2022

$
30
2023

55
2024

7
2025

—
Total lease payments

92
Less: imputed interest

4
Present value of operating lease liabilities

$
88

Schedule of Minimum Lease Payments
March 31, 2023
As of
March 31, 2023
(in thousands)
2023 $ 82
2024 50
Total lease payments 132
Less: imputed interest (12 )
Present value of operating lease liabilities $ 120

9. 
~~10.~~  Net Loss Per Share
Schedule of Basic and Diluted Net Loss Per Share

Three months ended September 30,


Nine months ended September 30,

2022

2021

2022

2021

(in thousands, except shares and per share data)

(in thousands, except shares and per share data)
Net loss
$
(1,056)

$
(849)

$
(4,578)

$
(2,105)
Preferred stock dividends

(77)

—

(95)

—
Net loss attributable to common stockholders
$
(1,133)

$
(849)

$
(4,673)

$
(2,105)

Basic and diluted weighted average common shares outstanding

11,615,642

10,014,494

11,205,477

9,614,781

Basic and diluted net loss per share attributable to common stockholders
$
(0.10)

$
(0.08)

$
(0.42)

$
(0.22)
2023 2022
Three months ended March 31,
2023 2022
(in thousands, except shares and per share data)
Net loss $ (2,890 ) $ (2,177 )
Preferred stock dividends (80 ) —
Net loss attributable to common stockholders $ (2,970 ) $ (2,177 )

Basic and diluted weighted average common shares outstanding 12,206,036 10,761,861

Basic and diluted net loss per share attributable to common stockholders $ (0.24 ) $ (0.20 )

14
The following potential common shares were excluded from the calculation of diluted net loss per share attributable to common stockholders for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ because including them would have had an anti-dilutive effect:

Nine months ended September 30,


2022

2021

Options to purchase common stock

2,508,490

1,503,182

Warrants to purchase common stock

1,888,622

2,543,201

Series E convertible preferred stock

653,128

—

Total

5,050,240

4,046,383

Schedule of Antidilutive Securities Excluded From Computation Of Earnings Per Share
Three months ended March 31,
2023 2022
Options to purchase common stock 2,802,185 2,402,603
Warrants to purchase common stock 1,113,622 1,583,786
Total 3,915,807 3,986,389
~~11.~~  10. Income Taxes
The Company did not record a federal or state income tax provision or benefit for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively, due to the expected loss before income taxes to be incurred for the years ended December 31, ~~2022~~2023 and ~~2021,~~2022, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.
The Company maintains the Harvard Apparatus Regenerative Technology GmbH (Germany) subsidiary whereas in fiscal years 2013, 2014 and 2015 certain withholding taxes were paid to the German tax authorities. In June of 2021, the Company received a refund payment of approximately $71,000 for certain withholding taxes paid during those fiscal years. This amount has been recorded in other (expense) income, net, for the three and nine months ended September 30, 2021.

11. ~~Table of Contents~~

~~12.~~ Subsequent Events

The Company performed a review of events subsequent to the balance sheet through the date the financial statements were issued and determined that there were no such events requiring recognition or disclosure in the financial statements except as disclosed below.

~~On October 17, 2022, we issued 28,109~~Subsequent to March 31, 2023 through April 12, 2023, 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 490,833 shares of common stock infor the aggregate purchase price of approximately $2.9 million with a purchase price per unit of $6.00, the Private Placement.

In connection with the Private Placement, as of April 6, 2023 the Company had received $4.0 million in aggregate proceeds in such Private Placement. As a ~~cashless exercise~~result, all of ~~39,000 warrants.~~

the Company’s outstanding Series E Preferred Stock and related accrued dividends were converted into shares of common stock at a conversion price of $6.00 per share. The conversion resulted in 674,693 shares of common stock being issued to the holder of the Series E Preferred Stock. Following such conversion, there are no shares of Series E Preferred Stock outstanding.

~~Table of Contents~~

Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

This Quarterly Report on Form 10-Q contains statements that are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). The forward-looking statements are principally, but not exclusively, contained in “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include, but are not limited to, statements about management’s confidence or expectations and our plans, objectives, expectations and intentions that are not historical facts and the potential impact of COVID-19 on our business and operations. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “goals,” “sees,” “estimates,” “projects,” “predicts,” “intends,” “think,” “potential,” “objectives,” “optimistic,” “strategy,” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Factors that may cause our actual results to differ materially from those in the forward-looking statements include our ability to access debt and equity markets and raise additional funds when needed; the success of our collaborations, clinical trials and pre-clinical development efforts and programs, which success may not be achieved on a timely basis or at all; our ability to obtain and maintain regulatory approval for our implant products, bioreactors, scaffolds and other devices we pursue, including for the esophagus or airway, which approvals may not be obtained on a timely basis or at all; the number of patients who can be treated with our products; the amount and timing of costs associated with our development of implant products, bioreactors, scaffolds and other devices; our failure to comply with regulations and any changes in regulations; unpredictable difficulties or delays in the development of new technology; our collaborators or other third parties we contract with, including with respect to conducting any clinical trial or pre-clinical development efforts, not devoting sufficient time and resources to successfully carry out their duties or meet expected deadlines; our ability to attract and retain qualified personnel and key employees and retain senior management; potential liability exposure with respect to our products; the availability and price of acceptable raw materials and components from third-party suppliers; difficulties in obtaining or retaining the management and other human resource competencies that we need to achieve our business objectives; increased competition in the field of regenerative medicine and bioengineering, and the financial resources of our competitors; our ability to obtain and maintain intellectual property protection for our device and product candidates; our inability to implement our growth strategy; the control our principal stockholders can exert based on holding a majority of voting power; plus factors described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the Securities and Exchange Commission (the “SEC”) on March ~~31, 2022~~30, 2023 or described in our other public filings. Our results may also be affected by factors of which we are not currently aware. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information.

Biostage, Inc. is referred to herein as “we,” “our,” “us”, and “the Company”.

Business Overview

We are a clinical-stage biotechnology company focused on the development of regenerative medicine treatments for disorders of the gastro-intestinal system and the airway that result from cancer, trauma or birth defects. Our technology is based on our proprietary cell-therapy platform that uses a patient’s own stem cells to regenerate and restore function to damaged organs. We believe that our technology represents a next generation solution for restoring organ function because it allows the patient to regenerate their own organ, thus eliminating the need for human donor or animal transplants, the sacrificing of another of the patient’s own organs or permanent artificial implants.

16
We conducted the world’s first successful regeneration of the esophagus in a cancer patient in August 2017. This surgery was performed by Dr. ~~Denis~~Dennis Wigle, Chair of Thoracic Surgery at the Mayo Clinic in a patient with esophageal cancer. The results were published in the Journal of Thoracic Oncology Clinical and Research Reports in August 2021. The procedure demonstrated that using ~~the Biostage~~Biostage’s technology, we were able to successfully regenerate esophageal tissue, including the mucosal lining, to restore the integrity, continuity and functionality of the esophageal tube. This successful first-in-human experience, plus the research we have performed on 45 pigs, led the ~~FDA~~U.S. Food and Drug Administration (“FDA”) to approve our 10-patient combined phase 1 and phase 2 clinical trial. This combination trial will measure both safety and efficacy in the patient population.

~~Table of Contents~~

We were incorporated and commenced operations on November 1, 2013 as a result of a spin-off from Harvard Bioscience, Inc., or Harvard Bioscience. On that date, we became an independent company that operates the regenerative medicine business previously owned by Harvard Bioscience. The spin-off was completed through the distribution of all the shares of common stock of Biostage to Harvard Bioscience stockholders.

We have also formed a subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, as we continue to assess the market and regulatory approval pathway in China as to our implant products. We are not certain at this time as to which market, including U.S. or China for example, may provide the most viable initial pathway for regulatory approval to a commercial product. This will depend on a number of factors, including the approval and development processes, related costs, ability to raise capital and the terms and conditions thereof, as well as the ongoing impact of the COVID-19 pandemic, among other factors. Any development and capital raising efforts in China may include a joint venture in relation to our Hong Kong subsidiary, and would also involve a number of commercial variables, including rights and obligations pertaining to licensing, development, and financing, among others. Our failure to receive or obtain such clearances or approvals on a timely basis or at all, whether that be in the U.S., China or otherwise, would have an adverse effect on our results of operations.

Since our incorporation, we have devoted substantially all of our resources to developing our programs, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations with proceeds from the sales of common stock and preferred stock. In December 2017, we sold the inventory and rights to manufacture and sell research-only versions of our bioreactors to Harvard Bioscience. We did not recognize any revenues during the quarters ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

We have contracted with IQVIA, a leading global provider of advanced analytics, technology solutions and clinical research services to the life sciences industry, as the contract research organization (CRO) to manage our first clinical trial. We plan to start patient enrollment in this clinical trial in the second quarter of 2023. Our product candidates are currently in development and have not yet received regulatory approval for sale anywhere in the world.

Financial Condition and Need for Additional Funds

We expect to continue to incur operating losses and negative cash flows from operations for ~~2022~~2023 and in future years.

Operating Losses and Cash Requirements

We have incurred substantial operating losses since our inception, and as of ~~September 30, 2022~~March 31, 2023 had an accumulated deficit of approximately ~~$81.5~~$85.9 million and will require additional financing to fund future operations. We expect that our operating cash on-hand as of ~~September 30, 2022~~March 31, 2023 of approximately ~~$3.0~~$3.3 million and equity financing of $2.9 million in gross proceeds subsequent to March 31, 2023 will enable us to fund our operating expenses and capital expenditure requirements into the ~~second~~first quarter of ~~2023.~~2024. We expect to continue to incur operating losses and negative cash flows from operations for ~~2022~~2023 and in future years. Therefore, as disclosed in Note 1 to our Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q, these conditions raise substantial doubt about our ability to continue as a going concern.

We will need to raise additional funds to fund our operations. In the event we do not raise additional capital from outside sources ~~prior to~~before or during the ~~end~~first quarter of ~~June of 2023,~~2024, we may be forced to curtail or cease our operations.

Cash requirements and cash resource needs will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing development, pre-clinical and clinical testing of product candidates, as well as regulatory efforts and collaborative arrangements necessary for our product candidates that are currently under development. We are currently seeking and will continue to seek financings from other existing and/or new investors to raise necessary funds through a combination of public or private equity offerings. We may also pursue debt financings, other financing mechanisms, research grants, or strategic collaborations and licensing arrangements. We may not be able to obtain additional financing on favorable terms, if at all.

Our operations will be adversely affected if we are unable to raise or obtain needed funding and may materially affect our ability to continue as a going concern. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and therefore, the condensed 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.

~~Table of Contents~~

~~Small Business Innovation Research Grant~~

On March 28, 2018, we were awarded a Fast-Track Small Business Innovation Research (SBIR) grant by the Eunice Kennedy National Institute of Child Health and Human Development (NICHD) to support testing of pediatric Biostage Esophageal Implants. For the three and nine-month periods ended September 30, 2021, the Company recognized approximately $0 and $165,000, respectively, of grant income from the SBIR grant. The SBIR grant expired effective September 30, 2021.

Components of Operating Loss

Research and development expense. Research and development expense consists of salaries and related expenses, including share-based compensation, for personnel and contracted consultants and various materials and other costs to develop our new products, primarily: synthetic scaffolds, including investigation and development of materials and investigation and optimization of cellularization, ~~autoseeders, and 3D bioreactors,~~ as well as studies of cells and cell behavior. Other research and development expenses include the costs of outside service providers and material costs for prototype and test units and outside laboratories and testing facilities performing cell growth and materials experiments, as well as the costs of all other preclinical research and testing including animal studies and expenses related to potential patents. We expense research and development costs as incurred.

General and administrative expense. General and administrative expense consists primarily of salaries and other related expenses, including share-based compensation, for personnel in executive, accounting, information technology and human resources roles. Other costs include professional fees for legal and accounting services, insurance, investor relations and facility costs.

~~Forgiveness of notes payable.~~ On May 23, 2021, we were notified by our lender that provided our related Loan that the SBA determined that our application for loan forgiveness was approved, and the SBA remitted the forgiveness amount to our lender. We have accounted for this loan forgiveness as an extinguishment during the nine months ended September 30, 2021.

Sublease income. On January 5, 2022, ~~the Company~~we executed a four-month sublease agreement for certain laboratory and office space at its Holliston, Massachusetts facility. ~~The Company~~We further extended the sublease agreement to a month-to-month basis until August 31, 2022 when the other party vacated the ~~premises.. For the three and nine months ended September 30, 2022, the Company recorded~~premises. We have no sublease agreements generating sublease income as of ~~approximately $26,000 and $87,000, respectively, relating to this agreement.~~March 31, 2023.

~~Grant income.~~ ~~Grant income reflects income earned under the SBIR grant. Grant income was recognized based on timing of when qualified research and development costs are incurred.~~

Other (expense) income, net. Other (expense) income, net, consists primarily of the changes in fair value of our warrant liability from the change in the fair value of common stock warrants classified as liability awards during the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022. We previously used the Black-Scholes pricing model to value the related warrant liability. In February of 2022, the underlying common stock warrants expired unexercised.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States, or. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates under different assumptions or conditions.

While our significant accounting policies are discussed in more detail in Note 2 to our Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

~~Table of Contents~~

Share-based Compensation

We account for our share-based compensation in accordance with the fair value recognition provisions of current authoritative guidance. Share-based awards, including stock options, are measured at fair value as of the grant date and recognized as expense over the requisite service period (generally the vesting period), which we have elected to amortize on a straight-line basis. Expense on share-based awards for which vesting is performance or milestone based is recognized on a straight-line basis from the date when we determine the achievement of the milestone is probable to the vesting/milestone achievement date. Since share-based compensation expense is based on awards ultimately expected to vest, it has been reduced by an estimate for future forfeitures. ~~We estimate~~Until December 31, 2022, we estimated forfeitures at the time of grant and would revise our estimate, if necessary, in subsequent periods. As of January 1, 2023, we account for forfeitures as they occur. We estimate the fair value of options granted using the Black-Scholes option valuation model. Significant judgment is required in determining the proper assumptions used in this model. The assumptions used include the risk-free interest rate, expected term, expected volatility, and expected dividend yield. We base our assumptions on historical data when available or, when not available, on a peer group of companies. However, these assumptions consist of estimates of future market conditions, which are inherently uncertain and subject to our judgment, and therefore any changes in assumptions could significantly impact the future grant date fair value of share-based awards.

Warrant Liability

Most of the warrants to purchase shares of our common stock have been classified on our condensed consolidated balance sheets as equity. We classify warrants as a liability in our condensed consolidated balance sheets if the warrant is a free-standing financial instrument that may require us to transfer cash consideration upon exercise and that cash transfer event would be out of our control. Such a “liability warrant” is initially recorded at fair value on the date of grant using the Black-Scholes model, net of issuance costs, and it is subsequently re-measured to fair value at each subsequent balance sheet date. Changes in fair value of the warrants is recognized as a component of other ~~income (expense)~~expense in the condensed consolidated statements of operations. The warrants classified as a liability expired unexercised during the ~~nine~~three months ended ~~September 30,~~March 31, 2022 and the remaining liability on the expiration date of approximately $2,000 was recognized as other income.

Results of Operations

The following table summarizes the results of our operations for the three months ended March 31, 2023 and ~~nine-months ended September 30,~~ 2022 ~~and 2021~~ (in thousands):

Three months ended September 30,

Change 2022 vs. 2021

For the Nine Months Ended September 30,

Change 2022 vs. 2021

2022

2021

Change

%

2022

2021

Change

%

Operating expenses

Research and development
$
369

$
250

$
119

48
%

$
998

$
1,023

$
(25)

(2)
%
General and administrative

711

572

139

24
%

3,662

1,712

1,950

114
%
Total operating expenses

1,080

822

258

31
%

4,660

2,735

1,925

70
%

Other income (expense)

Forgiveness of notes payable

—

—

—

nm
%

—

408

(408)

(100)
%
Sublease income

26

—

26

nm
%

87

—

87

100
%
Grant income

—

—

—

nm
%

—

165

(165)

(100)
%
Other (expense) income, net

(2)

(27)

25

(93)
%

(5)

57

(62)

(109)
%
Total other income (expense), net

24

(27)

51

(189)
%

82

630

(548)

(87)
%
Net loss
$
(1,056)

$
(849)

$
(207)

24
%

$
(4,578)

$
(2,105)

$
(2,473)

117
%
Three months ended March 31, Change 2023 vs. 2022
2023 2022 Change %
Operating expenses
Research and development $ 509 $ 303 $ 206 68 %
General and administrative 2,378 1,902 476 25 %
Total operating expenses 2,887 2,205 682 31 %

Other expense
Sublease income - 29 (29 ) nm %
Other expense, net (3 ) (1 ) (2 ) 200 %
Total other expense, net (3 ) (28 ) (31 ) (111 )%
Net loss $ (2,890 ) $ (2,177 ) $ (713 ) 33 %
nm = not meaningful

19
23

~~Table of Contents~~

Comparison of the three months ended ~~September 30,~~March 31, 2023 and March 31, 2022 ~~and September 30, 2021~~

Research and Development Expense

Research and development expense increased approximately ~~$0.1~~$0.2 million, or ~~48%~~68%, to approximately ~~$0.4~~$0.5 million for the three months ended ~~September 30, 2022~~March 31, 2023 as compared to approximately $0.3 million for the three months ended ~~September 30, 2021. This increase was primarily due to legal costs incurred for a patent application and consulting fees.~~

~~General and Administrative Expense~~

General and administrative expense increased approximately $0.1 million, or 24%, to approximately $0.7 million for the three months ended September 30, 2022 as compared to approximately $0.6 million for the three months ended September 30, 2021.March 31, 2022. This increase was primarily due to higher headcount and preclinical trial activities.

General and Administrative Expense

General and administrative expense increased approximately $0.5 million, or 25%, to approximately $2.4 million for the three months ended March 31, 2023 as compared to approximately $1.9 million for the three months ended March 31, 2022. This increase was primarily due to share-based compensation expense ~~and~~of $1.5 million from the vesting of performance based awards in the first quarter of 2023, increased headcount related costs of approximately $0.1 million and an increase of approximately $0.1 million for ~~outside consulting fees for~~ supporting our ongoing public company requirements ~~and special meeting of stockholders~~ offset by the reduced legal and related costs of approximately ~~$0.1~~$1.2 million relating to the completion of litigation for a wrongful death complaint and related matters more fully described in Note 87 to our condensed consolidated financial statements.

Sublease income

On January 5, 2022, we executed a four-month sublease agreement for certain laboratory and office space at our Holliston, Massachusetts facility. ~~The Company~~We further extended the sublease agreement on a month-to-month basis ~~which is ongoing as of September 30, 2022.~~until August 31, 2022 when the other party vacated the premises. For the three months ended ~~September 30,~~March 31, 2022, we recorded sublease income of approximately ~~$26,000~~$29,000 relating to this agreement.

~~Grant~~ We have no sublease agreements generating sublease income as of March 31, 2023.

For the three months ended September 30, 2022 and 2021, we recorded grant income of approximately $0 in both periods for qualified expenditures under our SBIR grant which expired effective September 30, 2021.

Other (expense) income, net

During the three months ended September 30, 2021, the change in fair value of our warrant liability resulted in other expense of approximately $27,000 due primarily to an increase in the stock price of the underlying common shares.

During the three months ended ~~September 30, 2022,~~March 31, 2023, we recorded interest expense of approximately ~~$2,000 for~~$3,000 on insurance installment payments.

~~Comparison of~~

During the ~~nine~~three months ended ~~September 30,~~March 31, 2022, ~~and 2021~~

~~Research and Development Expense.~~ Research and development expense decreased approximately $25,000, or 2%, to $1 million for the nine months ended September 30, 2022 as compared to approximately $1 million for the nine months ended September 30, 2021. This decrease was primarily due to approximately $0.1 million decrease in outsourced study costs offset by an increase of $0.1 million relating to laboratory operations.

~~General and Administrative Expense.~~ General and administrative expense increased approximately $2 million, or 114%, to approximately $3.7 million for the nine months ended September 30, 2022 compared to approximately $1.7 million for the nine months ended September 30, 2021. This increase was due to primarily to an increase in legal and related costs of approximately $1.4 million relating to the contingency matter for our litigation that has been settled for a wrongful death compliant and related matters more fully described in Note 8 to our condensed consolidated financial statements, an increase of approximately $0.4 million for higher stock-based compensation expenses and ~~increased headcount related costs~~ ~~and an increase of approximately $0.2 million for outside consulting fees for supporting our ongoing public company requirements.~~

~~Forgiveness of notes payable~~. On May 23, 2021, we were notified by the Lender that provided our PPP Loan that the Small Business Administration determined that our application for PPP loan forgiveness was approved, and the SBA remitted the forgiven amount to

~~Table of Contents~~

~~the Lender. As a result,~~ we recorded a gain ~~from forgiveness~~on expiration of ~~our notes payable of approximately $0.4 million for~~ the ~~nine months ended September 30, 2021.~~

~~Sublease income.~~ On January 5, 2022, we executed a four-month sublease agreement for certain laboratory space at our Holliston, Massachusetts facility. For the nine months ended September 30, 2022, we recorded sublease income of approximately $0.1 million relating to this agreement.

~~Grant income~~

For the nine months ended September 30, 2022 and 2021, we recorded grant income of approximately $0 and $0.2 million, respectively, for qualified expenditures under our SBIR grant which expired effective September 30, 2021.

~~Other (expense) income, net~~

~~The~~common share warrants ~~classified as a liability expired unexercised during the nine months ended September 30, 2022 and the remaining liability on the expiration date~~ of approximately $2,000 ~~was recognized as other income. During the nine months ended September 30, 2021, the change in fair value of our warrant liability resulted~~ in other expense, ~~of approximately $14,000 due primarily to a higher stock price of the underlying common shares.~~net as they expired unexercised in February 2022.

During the nine months ended September 30, 2022, we recorded interest expense of approximately $7,000 for on insurance installment payments. During the nine months ended September 30, 2021, we received a refund payment of approximately $0.1 million for certain withholding taxes paid in previous years to the German tax authorities which were remitted on to us on behalf of Harvard Apparatus Regenerative Technology GmbH, our German subsidiary.

Liquidity and Capital Resources

Sources of liquidity. We have incurred operating losses since inception, and as of ~~September 30, 2022,~~March 31, 2023, we had an accumulated deficit of approximately ~~$81.5~~$85.9 million. We are currently investing significant resources in the development and commercialization of our product candidates for use by clinicians and researchers in the fields of regenerative medicine and bioengineering. As a result, we expect to incur operating losses and negative operating cash flows for the foreseeable future.

The following table sets forth the primary uses of cash for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in thousands):

Nine Months Ended September 30,


2022

2021
Net cash used in operating activities

$
(3,373)

$
(1,627)
Net cash used by investing activities

$
(8)

$
—
Net cash provided by financing activities

$
5,060

$
2,596

Three Months Ended March 31,
2023 2022
Net cash used in operating activities $ (1,013 ) $ (519 )
Net cash used by investing activities $ (9 ) $ —
Net cash provided by financing activities $ 3,050 $ 3,055
Comparison of ~~Nine~~three months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

Operating activities. Net cash used in operating activities of approximately ~~$3.4~~$1.0 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 was due primarily to our net loss of approximately $2.9 million offset by adjustments for non-cash items of approximately $1.9 million due to non-cash expenses for share-based compensation and depreciation.
Net cash used in operating activities of approximately $0.5 million for the three months ended March 31, 2022 was due primarily to our net loss of approximately ~~$4.6~~$2.2 million ~~and an increase of $0.3 million for financing costs~~ offset by adjustments for non-cash items of approximately ~~$0.8~~$0.3 million due to non-cash expenses for share-based compensation and depreciation, and an approximately $.7 million increase to cash from changes in working capital due to the timing of payments for accounts payable, accrued expenses and prepaid expenses.

Net cash used in operating activities of approximately $1.6 million for the nine months ended September 30, 2021 was due primarily to our net loss of approximately $2.1 million and adjustments for non-cash items of approximately $0.1 million due to the add-back for a gain from forgiveness of our notes payable, offset, in part, by non-cash expenses including share-based compensation, depreciation and the change in fair value of our warrant ~~liability. These cash outflows were offset, in part, by~~liability and an approximately ~~$0.4~~$1.4 million increase toin cash from changes in working capital due to the timing of payments for prepaid expenses and increases in accounts ~~payable.~~payable and accrued expenses.

Investing ~~activities~~activities.. Net ~~cashed~~cash used in investing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ totaled approximately ~~$8,000~~$9,000 and zero, respectively, and represented purchases of property, plant and equipment.

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Financing activities. Net cash generated from financing activities during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 of approximately ~~$5.1~~$3.1 million consisted of net proceeds received from a private placement transaction that resulted in the issuance of ~~854,771~~510,134 shares of our common stock at a purchase price of ~~$5.92 per share and warrants to purchase 427,390 shares of common stock at an exercise price of $8.88~~$6.00 per share to a group of investors.

~~Net~~In February and March of 2022, we received cash ~~generated from financing activities during the nine months ended September 30, 2021~~ of approximately ~~$2.6~~$3.1 million ~~consisted of net proceeds received~~ from private placement transactions that resulted in the issuance of 1,300,000 shares of our common stock at a purchase price of $2.00 per share and warrants to purchase 150,000 shares of common stock at an exercise price of $2.00 per share to a group of ~~investors.~~

new and existing investors pertaining to a private placement transaction which closed in May 2022. These funds had remained the respective investor’s property and were held in escrow by us in a separate account until the execution of the common stock purchase agreements which occurred on May 12, 2022.

Off-Balance Sheet Arrangements

We do not have any material off-balance sheet arrangements as of ~~September 30, 2022.~~March 31, 2023.

Other Information

None.

21
~~Item 3.~~
~~Quantitative and Qualitative Disclosures About Market Risk.~~

Item 3.Quantitative and Qualitative Disclosures About Market Risk.
The Company is a smaller reporting company and is not required to provide this information pursuant to Item 305(e), Regulation S-K.

~~Item 4.~~
~~Controls and Procedures.~~

Item 4.Controls and Procedures.
This Report includes the certifications of our principal executive officer and our principal financial and accounting officer required by Rule 13a-14 of the Exchange Act. See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.

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 SEC rules and forms and that such information is accumulated and communicated to management, including the ~~Interim~~ Chief Executive Officer, Director, and Chairman, who is our principal executive officer, and our Chief Financial Officer, who is our principal financial and accounting officer, to allow timely decisions regarding required disclosures.

In connection with the preparation of this Quarterly Report on Form 10-Q, our management, under the supervision and with the participation of our principal executive officer and our principal financial and accounting officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~September 30, 2022.~~March 31, 2023. Based upon the evaluation described above, our principal executive officer and our principal financial and accounting officer have concluded that they believe 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 our principal financial and accounting 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.

Changes in Internal Control over Financial Reporting

Our management, with the participation of our principal executive officer and our principal financial and accounting officer, has evaluated whether any change in our internal control over financial accounting and reporting occurred during the quarter ended ~~September 30, 2022.~~March 31, 2023. During the period covered by this report, we have concluded that there were no changes during the fiscal quarter in our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, which have materially affected, or are reasonably likely to materially affect, our internal control over financial accounting and reporting.

22
26

~~Table of Contents~~

PART II. OTHER INFORMATION

~~Item 1.~~
~~Legal Proceedings~~

Item 1.Legal Proceedings
From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business. Other than the civil lawsuit described in Item 3 of Part I of our Annual Report on Form 10-K filed with the SEC on March ~~31, 2022~~30, 2023 and in our Form 8-K filed with the SEC on April 27, 2022, there are no such matters pending that we expect to be material in relation to our business, financial condition, and results of operations or cash flows.
As previously disclosed, including in the Form 8-K filing referenced above, 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, against us and other defendants, including Harvard Bioscience, Inc., or HBIO, the former parent of the Company that spun off the Company in 2013, as well as another third party. The complaint sought payment for an unspecified amount of damages and alleged that the plaintiff sustained terminal injuries allegedly caused by products 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 our first-generation trachea scaffold technology for which we discontinued development in 2014, and not to our current Biostage 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 resolves 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, we 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, we have incurred approximately $5.9 million of aggregate costs, of which approximately $0.3 million remain unpaid as of September 30, 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 nine months ended September 30, 2022, we incurred legal and related costs of approximately $1.3 million recorded in general and administrative expenses. On March 3, 2022, we 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 nine months ended September 30, 2022.
With respect to such $5.9 million of costs described above, we were required to either pay such costs directly or indemnify HBIO as to such amounts it incurs. Of such amounts, we 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, we and HBIO entered into a Preferred Issuance Agreement dated as of April 27, 2022, or the “PIA”. In connection with the PIA, we 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, we 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, we 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, we 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 we expect to be material in relation to our business, financial condition, results of operations, or cash flows.

~~Table of Contents~~

Item 1A.Risk Factors

To our knowledge and except to the extent additional factual information disclosed in this Quarterly Report on Form 10-Q relates to such risk factors, ~~and the additional risk factors noted below,~~ there have been no material changes in the risk factors described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which was filed with the SEC on March ~~31, 2022.~~
30, 2023.
~~Regulatory approval delays due to COVID-19~~

COVID-19 may impede clinical trials and slow down regulatory actions. It could adversely affect the entire clinical trial spectrum from enrollment to data analysis. Assuming patients enroll, clinical trials may face disruptions to protocol schedules for treatment and follow-up visits. Reports from Europe have noted overwhelmed facilities where all non-critical visits have been postponed or canceled. Many U.S. hospitals have followed suit to limit exposure and allow for care of COVID-19 patients. Deviations from trial protocols could present challenges when it comes time to analyze the related data set. Some clinics may stop allowing clinical trial monitors on site. Without reconciling the data, we may be unable to "lock" the trial database, an essential step that precedes the analysis of the data.
We rely on regular interaction and guidance from the FDA and other regional/country regulatory authorities/agencies to plan research and development activities across all stages. Due to the COVID-19 pandemic, the FDA and worldwide regulatory authorities have a great deal of resources dedicated to COVID-19 related matters, resulting in disruption in their ability to fully support the regulatory clearance/approval processes. As resources continue to be diverted, regulatory clearances/approvals may continue to be delayed, until the pandemic is under control. Therefore, delays with approvals, clearances, inspections, and meetings that are currently being experienced may continue for the foreseeable future. Postponement of these interactions could delay us from bringing our product candidates to market.
~~Impact of COVID-19, Supply Chain Disruptions and Other Matters~~

The impact of the COVID-19 outbreak has subsided substantially in the U.S. but continues to result in reduced activity levels outside of the U.S., such as continued restrictions on travel and business operations and advising or requiring individuals to limit or forego their time outside of their homes or places of business. In response to the global supply chain instability and inflationary cost increases, we have taken action to minimize, as much as possible, any potential adverse impacts by working with our suppliers to monitor the availability of raw material components (e.g., polymers and organic solvents), lead times, and freight carrier availability. We expect global supply chain instability will continue to have an impact on our business, but to date that has not been material to our financial performance or the development of our products. The consequences of the pandemic, global supply chain instability and inflationary cost increases and their adverse impact to the global economy, continue to evolve. Accordingly, the significance of the future impact to our business, financial condition and results of operations remains subject to significant uncertainty.

~~Table of Contents~~

~~Item 6.~~
~~Exhibits~~

Item 6.Exhibits
Exhibit Index

~~Exhibit~~
~~Index~~
10.1
~~10.1~~
Employment Agreement between Biostage, Inc. and ~~Joseph L. Damasio, Jr.~~Junli He (previously filed as an exhibit to Form 8-K, filed on ~~August 10, 2022,~~March 14, 2023, and incorporated herein by reference).
10.2
Form of Securities Purchase Agreement ~~(previously~~(previously filed as an exhibit to Form 8-K, filed on ~~May 13, 2022,~~April 6, 2023, and incorporated herein by reference).

31.1+
Certification of ~~Interim~~ Chief Executive Officer, Director, and Chairman of Biostage, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended, 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-14(a) and 15d-14(a) of the Securities Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*
Certification of ~~Interim~~ Chief Executive Officer, Director, and Chairman 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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 Labels Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104
Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

+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.

23

29SIGNATURES

~~Table of Contents~~

~~SIGNATURES~~

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by undersigned thereunto duly authorized.

Date: ~~November 14, 2022~~May 12, 2023

BIOSTAGE, INC.
By:
/s/ ~~David Green~~
Junli He
Name:
~~Name: David Green~~
Junli He
Title:
~~Title: Interim~~ Chief Executive Officer, Director, and Chairman
~~(principal~~ (principal executive officer)
By:
/s/ Joseph L.Damasio Jr.
Name:
~~Name:~~ Joseph L. Damasio Jr.
Title:
~~Title:~~ Chief Financial Officer
(principal financial officer)

24

			Page
			~~Page~~
PART I-FINANCIAL INFORMATION			3

Item 1.	Condensed Consolidated Financial Statements		3

	Condensed Consolidated Balance Sheets		3

	Condensed Consolidated Statements of Operations (Unaudited)		4

	Condensed Consolidated Statements of ~~Convertible Preferred Stock and~~ Stockholders’ ~~(Deficit) Equity~~Deficit (Unaudited)		5

	Condensed Consolidated Statements of Cash Flows (Unaudited)	7	6

	Notes to Unaudited Condensed Consolidated Financial Statements	8	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20	16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	26	22

Item 4.	Controls and Procedures	26	22

PART II-OTHER INFORMATION		27	23

Item 1.	Legal Proceedings	27	23

Item 1A.	Risk Factors	28	23

Item 66..	Exhibits	29	23

SIGNATURES		30	24


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Operating expenses:
Research and development	$	369	$	250	$	998	$	1,023
General and administrative		711		572		3,662		1,712
Total operating expenses		1,080		822		4,660		2,735

Operating loss		(1,080)		(822)		(4,660)		(2,735)

Other income (expense), net:
Forgiveness of notes payable		—		—		—		408
Sublease income		26		—		87		—
Grant income		—		—		—		165
Change in fair value of warrant liability		—		(27)		2		(14)
Other (expense) income, net		(2)		—		(7)		71
Total other income (expense), net		24		(27)		82		630

Net loss		(1,056)		(849)		(4,578)		(2,105)
Less: preferred stock dividends		(77)		—		(95)		—
Net loss attributable to common stockholders	$	(1,133)	$	(849)	$	(4,673)	$	(2,105)

Basic and diluted net loss per share	$	(0.10)	$	(0.08)	$	(0.42)	$	(0.22)
Weighted average common shares, basic and diluted		11,615,642		10,014,494		11,205,477		9,614,781



		Series E	Number of
		Convertible	Common			Additional				Total
		Preferred	Shares	Common		Paid-in		Accumulated		Stockholders’
		Stock	Outstanding	Stock		Capital		Deficit		Deficit
Balance at June 30, 2022	$	4,018	11,615,642	$	116	$	79,347	$	(80,460)	$	(997)
Preferred stock dividends		77	—		—		(77)		—		(77)
Share-based compensation expense		—	—		—		244		—		244
Net loss		—	—		—		—		(1,056)		(1,056)
Balance at September 30, 2022	$	4,095	11,615,642	$	116	$	79,514	$	(81,516)	$	(1,886)

		Stock			Outstanding		Stock		Capital			Deficit			Deficit
		Series E Convertible Preferred			Number of Common Shares		Common		Additional Paid-in			Accumulated			Total Stockholders’
		Stock			Outstanding		Stock		Capital			Deficit			Deficit
Balance at January 1, 2023	-	$	4,180			12,174,467	$	122	$	79,698		$	(83,011	)	$	(3,191	)
Preferred stock dividends			80			—		—		(80	)		—			(80	)
Conversion of preferred stock for common stock			(209	)		31,933		—		209			—			209
Issuance of common stock, net of offering costs			—			510,134		5		3,045			—			3,050
Share-based compensation expense			—			—		—		1,840			—			1,840
Net loss	-		—			—		—		—			(2,890	)		(2,890	)
Balance at March 31, 2023	-	$	4,051			12,716,534	$	127	$	84,712		$	(85,901	)	$	(1,062	)

		Series E Convertible Preferred		Number of Common Shares		Common		Additional Paid-in		Accumulated			Total Stockholders’
		Stock		Outstanding		Stock		Capital		Deficit			Deficit
Balance at January 1, 2022	-	$	—		10,760,871	$	108	$	73,801	$	(76,938	)	$	(3,029	)
Beginning balance, value	-	$	—		10,760,871	$	108	$	73,801	$	(76,938	)	$	(3,029	)
Share-based compensation expense			—		—		—		235		—			235
Net loss	-		—		—		—		—		(2,177	)		(2,177	)
Balance at March 31, 2022	-	$	—		10,760,871	$	108	$	74,036	$	(79,115	)	$	(4,971	)
Ending balance, value	-	$	—		10,760,871	$	108	$	74,036	$	(79,115	)	$	(4,971	)


	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


	Warrant liability
	(In thousands)
Balance at December 31, 2021	$	2
Change in fair value upon extinguishment		(2)
Balance at September 30, 2022	$	—


		Weighted-average
	Amount	exercise price
Outstanding at December 31, 2021	2,501,419	$	4.35
Issued	427,390		8.88
Expired	(1,040,187)		7.59
Outstanding at September 30, 2022	1,888,622		3.58


	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


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


Risk-free interest rate		0.82	%
Expected volatility		121.2	%
Expected term		5	years
Expected dividend yield		—
Exercise price	$	2.08
Market value of common stock	$	2.58

	Authorized
	~~Authorized~~
Undesignated preferred stock	~~984,000~~	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


		Weighted-average		Weighted-average	Aggregate intrinsic
	Amount	exercise price		contractual life (years)	value (in thousands)
Outstanding at December 31, 2021	2,332,603	$	3.93	8.30	$	294
Granted	325,984		4.81
Canceled / forfeited	(150,097)		3.39
Outstanding at September 30, 2022	2,508,490		3.95	7.92		10,861
Options exercisable	1,395,359		4.76	7.43		6,221
Options vested and expected to vest	2,508,490		4.05

				Weighted-average		Weighted-average contractual life		Aggregate intrinsic value
	Amount			exercise price		(years)		(in thousands)
Outstanding at December 31, 2022		2,516,924		$	3.95		7.68	$	6,917
Granted		858,470			6.03
Canceled / forfeited		(573,209	)		6.16
Outstanding at March 31, 2023		2,802,185			4.14		7.69		9,389
Options exercisable		1,941,834			4.63		7.63		6,446
Options vested and expected to vest		2,696,248			4.18		7.69		9,028


	Nine Months Ended September 30,
	2022		2021
					Three Months Ended March 31,
					2023			2022
Risk-free interest rate	2.71	%	0.89	%		4.10	%		1.77	%
Expected volatility	123.53	%	116.86	%		126.6	%		122.06	%
Expected term (in years)	5.8	years	5.3	years		5.7 years			6.0 years
Expected dividend yield	—	%	—	%		—	%		—	%


		September 30,		December 31,
	Balance Sheet Classification	2022		2021

							March 31,		December 31,
						Balance Sheet Classification	2023		2022

Assets:
Operating lease assets	Right-of-use asset, net	$	88	$	169	Right-of-use asset, net	$	120	$	147
Liabilities:
Current portion of operating lease liabilities	Current portion of operating lease liabilities		79		110	Current portion of operating lease liabilities		99		99
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion		9		59	Operating lease liabilities, net of current portion		21		48
Total operating lease liabilities		$	88	$	169		$	120	$	147


	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021

	(In thousands)				(In thousands)
Research and development	$	19	$	19	$	58	$	38
General and administrative		11		11		33		22
Total	$	30	$	30	$	91	$	60


	As of September 30,
	2022		2021
Remaining lease term (in years)	0.94		1.38
Discount rate	9.35	%	10.54	%

	As of March 31,
	2023			2022
Remaining lease term (in years)		1.24			1.37
Discount rate		14.76	%		9.18	%


	As of
	September 30, 2022
	(in thousands)
2022	$	30
2023		55
2024		7
2025		—
Total lease payments		92
Less: imputed interest		4
Present value of operating lease liabilities	$	88

	March 31, 2023
	As of
	March 31, 2023
	(in thousands)
2023	$	82
2024		50
Total lease payments		132
Less: imputed interest		(12	)
Present value of operating lease liabilities	$	120


	Three months ended September 30,				Change 2022 vs. 2021				For the Nine Months Ended September 30,				Change 2022 vs. 2021
	2022		2021		Change		%		2022		2021		Change		%
Operating expenses
Research and development	$	369	$	250	$	119	48	%	$	998	$	1,023	$	(25)	(2)	%
General and administrative		711		572		139	24	%		3,662		1,712		1,950	114	%
Total operating expenses		1,080		822		258	31	%		4,660		2,735		1,925	70	%

Other income (expense)
Forgiveness of notes payable		—		—		—	nm	%		—		408		(408)	(100)	%
Sublease income		26		—		26	nm	%		87		—		87	100	%
Grant income		—		—		—	nm	%		—		165		(165)	(100)	%
Other (expense) income, net		(2)		(27)		25	(93)	%		(5)		57		(62)	(109)	%
Total other income (expense), net		24		(27)		51	(189)	%		82		630		(548)	(87)	%
Net loss	$	(1,056)	$	(849)	$	(207)	24	%	$	(4,578)	$	(2,105)	$	(2,473)	117	%

	Three months ended March 31,						Change 2023 vs. 2022
	2023			2022			Change			%
Operating expenses
Research and development	$	509		$	303		$	206			68	%
General and administrative		2,378			1,902			476			25	%
Total operating expenses		2,887			2,205			682			31	%

Other expense
Sublease income		-			29			(29	)		nm	%
Other expense, net		(3	)		(1	)		(2	)		200	%
Total other expense, net		(3	)		(28	)		(31	)		(111	)%
Net loss	$	(2,890	)	$	(2,177	)	$	(713	)		33	%

Exhibit Index
~~Exhibit~~ ~~Index~~ 10.1
~~10.1~~		Employment Agreement between Biostage, Inc. and ~~Joseph L. Damasio, Jr.~~Junli He (previously filed as an exhibit to Form 8-K, filed on ~~August 10, 2022,~~March 14, 2023, and incorporated herein by reference).

10.2		Form of Securities Purchase Agreement ~~(previously~~(previously filed as an exhibit to Form 8-K, filed on ~~May 13, 2022,~~April 6, 2023, and incorporated herein by reference).

31.1+		Certification of ~~Interim~~ Chief Executive Officer, Director, and Chairman of Biostage, Inc., pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act, as amended, 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-14(a) and 15d-14(a) of the Securities Exchange Act, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of ~~Interim~~ Chief Executive Officer, Director, and Chairman 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 - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 Labels Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 104		Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

BIOSTAGE, INC.

By:	/s/ ~~David Green~~ Junli He
Name:	~~Name: David Green~~ Junli He
Title:	~~Title: Interim~~ Chief Executive Officer, Director, and Chairman ~~(principal~~ (principal executive officer)

By:	/s/ Joseph L.Damasio Jr.
Name:	~~Name:~~ Joseph L. Damasio Jr.
Title:		~~Title:~~ Chief Financial Officer (principal financial officer)