10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2022
☐	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

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, MA	01746
(Address of Principal Executive Offices)	(Zip Code)

(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

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

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

As of May 16, 2022, there were 11,605,507 shares of common stock, par value $0.01 per share, outstanding.

Biostage Inc.

Form 10-Q

For the Quarter Ended March 31, 2022

INDEX

		Page
PART I-FINANCIAL INFORMATION		3
Item 1.	Consolidated Financial Statements (unaudited)	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Operations	4
	Consolidated Statements of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	6
	Notes to Unaudited Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4.	Controls and Procedures	21
PART II-OTHER INFORMATION		22
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	23
Item 6	Exhibits	24
SIGNATURES		25

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PART I. FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements.

BIOSTAGE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value data)

	March 31,		December 31,
	2022		2021
ASSETS		(Unaudited)
Current assets:
Cash	$	723	$	1,242
Restricted cash		3,105		50
Prepaid expenses and other current assets		102		295
Total current assets		3,930		1,587
Property, plant and equipment, net		96		110
Right-of-use assets, net		142		169
Total assets	$	4,168	$	1,866
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	1,273	$	676
Accrued and other current liabilities		1,419		800
Accrual for contingency matter		3,250		3,250
Advance from private placement		3,055		—
Current portion of operating lease liability		112		110
Total current liabilities		9,109		4,836
Operating lease liability, net of current portion		30		59
Total liabilities		9,139		4,895
Commitments and contingencies (Note 6)
Stockholders’ deficit:
Preferred stock, $0.01 par value; 2,000,000 shares authorized, none issued and outstanding		—		—
Common stock, par value $0.01 per share, 60,000,000 shares authorized; 10,760,871 and 9,388,407 issued and outstanding at March 31, 2022 and December 31, 2021, respectively		108		108
Additional paid-in capital		74,036		73,801
Accumulated deficit		(79,115)		(76,938)
Total stockholders’ deficit		(4,971)		(3,029)
Total liabilities and stockholders’ deficit	$	4,168	$	1,866

See accompanying notes to unaudited consolidated financial statements.

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BIOSTAGE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)

	Three Months Ended
	March 31,
	2022		2021
Revenues	$	—	$	—
Operating expenses:
Research and development		303		473
General and administrative		1,902		522
Total operating expenses		2,205		995
Operating loss		(2,205)		(995)
Other income (expense), net:
Sublease income		29		—
Grant income		—		118
Other income (expense), net		(1)		3
Total other income, net		28		121
Net loss	$	(2,177)	$	(874)
Basic and diluted net loss per share	$	(0.20)	$	(0.09)
Weighted average common shares, basic and diluted		10,761,861		9,388,407

See accompanying notes to unaudited consolidated financial statements.

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BIOSTAGE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(In thousands, except share data)

	Three Months Ended March 31, 2022
	Number of
	Common			Additional				Total
	Shares	Common		Paid-in		Accumulated		Stockholders’
	Outstanding	Stock		Capital		Deficit		Deficit
Balance at December 31, 2021	10,760,871	$	108	$	73,801	$	(76,938)	$	(3,029)
Net loss	—		—		—		(2,177)		(2,177)
Share-based compensation expense	—		—		235		—		235
Balance at March 31, 2022	10,760,871	$	108	$	74,036	$	(79,115)	$	(4,971)

	Three Months Ended March 31, 2021
	Number of
	Common			Additional				Total
	Shares	Common		Paid-in		Accumulated		Stockholders’
	Outstanding	Stock		Capital		Deficit		Equity
Balance at December 31, 2020	9,388,407	$	94	$	69,991	$	(68,960)	$	1,125
Net loss	—		—		—		(874)		(874)
Share-based compensation expense	—		—		130		—		130
Balance at March 31, 2021	9,388,407	$	94	$	70,121	$	(69,834)	$	381

See accompanying notes to unaudited consolidated financial statements

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BIOSTAGE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three Months Ended
	March 31,
	2022		2021
OPERATING ACTIVITIES
Net loss	$	(2,177)	$	(874)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense		235		130
Depreciation		14		43
Change in fair value of warrant liability		(2)		(3)
Changes in operating assets and liabilities:
Grant receivable		—		55
Prepaid expenses and other current assets		193		136
Accounts payable		597		50
Accrued and other current liabilities		621		(97)
Net cash used in operating activities		(519)		(560)
FINANCING ACTIVITIES
Advance from private placement		3,055		—
Net cash provided by financing activities		3,055		—
Net increase (decrease) in cash and restricted cash		2,536		(560)
Cash and restricted cash at the beginning of the year		1,292		1,076
Cash and restricted cash at the end of the year	$	3,828	$	516

See accompanying notes to unaudited consolidated financial statements.

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BIOSTAGE, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  Overview and Basis of Presentation

Overview

Biostage, Inc. (Biostage or the Company) is a biotechnology company with a mission to cure patients of cancers, injuries, and birth defects of the gastro-intestinal tract and the airways. The Company believes its technology is likely to be used to treat esophageal cancer, esophageal injuries, and birth defects in the esophagus. The Company believes additional product candidates in its pipeline may treat bronchial cancer, intestinal cancer, and colon cancer. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and acquiring operating assets. 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 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 March 31, 2022 had an accumulated deficit of approximately $79.1 million and will require additional financing to fund future operations. The Company expects that its operating cash on-hand as of March 31, 2022 of approximately $0.7 million, along with cash proceeds of approximately $5.1 million received through May 16, 2022 from a private placement from new and existing investors, will enable it to fund its operating expenses and capital expenditure requirements through the first quarter of 2023. Therefore, these conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company will need to raise additional funds to fund its operations. In the event the Company is unable to raise additional capital from outside sources in first quarter of 2023, it may be forced to curtail or cease its operations.

Cash requirements and cash resource needs will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing development, pre-clinical and clinical testing of product candidates, as well as regulatory efforts and collaborative arrangements necessary for the Company’s product candidates that are currently under development. The Company is currently seeking and will continue to seek 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 consolidated financial statements have been prepared assuming that the Company will continue as a going concern and therefore, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

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

Summary of Significant Accounting Policies

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

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Principles of Consolidation

The consolidated financial statements include the accounts of Biostage, and 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 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 consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, share-based compensation, valuation of warrant liability, accrued expenses and the valuation allowance for deferred income taxes. Actual results could differ from those estimates.

Net Loss Per Share

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

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

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

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

Unaudited Interim Financial Information

The accompanying interim consolidated balance sheet as of March 31, 2022, consolidated interim statements of operations, stockholders’ equity and cash flows for the three months ended March 31, 2022 and 2021 are unaudited. The interim unaudited 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 March 31, 2022, its consolidated results of operations, stockholders’ equity and consolidated cash flows for the three months ended March 31, 2022 and 2021. The financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and 2021 are unaudited. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods or any future year or period.

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SBIR Award

Grant income is recognized when qualified research and development costs are incurred and recorded in other income (expense), net in the consolidated statements of operations. When evaluating grant revenue from the SBIR grant, the Company considered accounting requirements under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers. The Company concluded that ASC 606 did not apply as there is no exchange of goods or services or an exchange of intellectual property between the parties; therefore, the Company presents grant income in other income.

For the three months ended March 31, 2021, the Company recognized approximately $118,000 of grant income from the SBIR grant. The SBIR grant expired effective September 30, 2021.

Restricted Cash

A reconciliation of the cash and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the consolidated statements of cash flows is as follows:

	March 31,		December 31,
	2022		2021
	(In thousands)
Cash	$	723	$	1,242
Restricted cash		3,105		50
Total cash and restricted cash as shown in the consolidated statements of cash flows	$	3,828	$	1,292

Restricted cash consists of cash advances received in February and March of 2022 of approximately $3.1 million from a group of new and existing investors pertaining to a private placement transaction which closed in May 2022. These funds remain the respective investor’s property and are being held in escrow by the Company in a separate account until the execution of a common stock purchase agreement which occurred on May 12, 2022.

In addition, approximately $50,000 is held as collateral for the Company’s credit card program as of March 31, 2022 and December 31, 2021. The Company’s consolidated statements of cash flows include restricted cash with cash when reconciling the beginning-of-period and end-of-period total amounts shown on such statements.

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 consolidated financial statements upon adoption.

3.  Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value 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 as of March 31, 2022 and December 31, 2021. The Company’s restricted cash consists of a $50,000 cash deposit that serves as collateral for the Company’s credit card program are held in demand

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money market accounts and are measured at fair value based on quoted prices, which are Level 1 inputs. The Company classifies warrants to purchase common stock that are accounted for as liabilities as Level 3 liabilities, as 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 March 31, 2022
	(in thousands)
	Level 1		Level 2		Level 3		Total
Assets:
Restricted cash	$	50	$	—	$	—	$	50
Total	$	50	$	—	$	—	$	50
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 were initially recorded at fair value and subsequently re-measured each reporting period. The changes in the fair value between issuance and the end of each reporting period is recorded as a component of other income (expense), net, in the consolidated statements of operations.

During 2017, the holders of 952,184 warrants agreed to a modification of the term which removed the cash put provision. The remaining 92,212 warrants were re-measured at each reporting period as long as they are outstanding and un-modified. In February of 2022, the remaining 92,212 warrants expired unexercised resulting in a $2,000 gain on extinguishment recorded in other income (expense), net, for the three months ended March 31, 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 March 31, 2022:

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

Warrants to purchase common stock activity for the three months ended March 31, 2022 was as follows:

		Weighted-average
	Amount	exercise price
Outstanding at December 31, 2021	2,501,419	$	4.35
Issued	—		—
Exercised	(917,633)		8.11

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Outstanding at March 31, 2022 1,583,786 $ 2.16

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

4.  Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following:

	March 31,		December 31,
	2022		2021
	(in thousands)
Due to Harvard Bioscience	$	628	$	—
Legal costs		486		577
Advisory costs		188		151
Audit services		96		59
Payroll		21		11
Warrant liability		—		2
Total accrued and other current liabilities	$	1,419	$	800

5.  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. Canceled and forfeited options and awards are available to be reissued under the Plan.

In June 2020, the Company’s shareholders approved the Plan, to among other things, increase of the number of shares of the Company’s common stock available for issuance pursuant 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. There were 2,674,710 shares available for issuance as of March 31, 2022.

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The Company has granted options to purchase common stock under the Plan. Stock option activity during the three months ended March 31, 2022 was as follows:

		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	$	129
Granted	70,000		4.68
Canceled / forfeited	—		—
Outstanding at March 31, 2022	2,402,603	$	3.82	8.11	$	5,658
Options exercisable	1,189,782	$	5.13	7.24	$	2,783
Options vested and expected to vest	2,305,838	$	3.87

The Company’s outstanding stock options include 510,742 performance-based awards that have vesting provisions subject to the achievement of certain business milestones. Total unrecognized compensation expense for the remaining performance-based awards is approximately $1.3 million. No expense has been recognized for these awards as of March 31, 2022 given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes.

Aggregate intrinsic value for outstanding options and exercisable options for the quarter ended March 31, 2022, was approximately $5.7 million based on the Company’s closing stock price of $4.90 per share as of March 31, 2022. As of March 31, 2022, unrecognized compensation cost related to unvested non-performance-based awards amounted to $1.2 million, which will be recognized over a weighted-average period of 1.36 years.

The Company uses the Black-Scholes option pricing model to value its stock options. The weighted average assumptions for valuing options granted during the three months ended March 31, 2022 and 2021 were as follows:

	Three Months Ended March 31,
	2022		2021
Risk-free interest rate	1.77	%	0.47	%
Expected volatility	122.06	%	123.20	%
Expected term (in years)	6.0	years	5.3	years
Expected dividend yield	—	%	—	%

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

	March 31,
	2022		2021
	(In thousands)
Research and development	$	60	$	80
General and administrative		175		50
Total stock-based compensation	$	235	$	130

6.  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 seeks payment for an unspecified amount of damages and alleges 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 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 will result in the dismissal with prejudice of the wrongful death claim, and neither the

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Company nor HBIO admit any fault or liability in connection with the claim. The Settlement also resolves any and all claims by and between the parties and the Company’s product liability insurance carriers, which will result in the dismissal with prejudice of all claims asserted by or against those carriers, the Company and HBIO. However, based on review of the circumstances surrounding the Settlement, the Company recorded an accrual for this matter of approximately $3.3 million in general and administrative expenses during the year ended December 31, 2021.

In relation to the litigation, the Company estimates that it will incur approximately $6.0 million of costs, of which, approximately $5.5 million remain unpaid. This amount includes the cost of both the accrual for contingency matter of $3.3 million and approximately $2.7 million of legal and related costs incurred by the Company which consist of attorneys’ fees and advisor and specialist costs as part of its defense in this matter.

For the three months ended March 31, 2022, the Company incurred legal and related costs of approximately $1.3 million recorded in general and administrative expenses. On March 3, 2022, the Company received a cash payment of approximately $0.1 million from Medmarc, 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 three months ended March 31, 2022.

The Company has incurred an additional $0.2 million of legal and related costs subsequent to March 31, 2022.

With respect to such $6.0 million of costs described above, the Company is required to either pay such costs directly or indemnify HBIO as to such amounts it incurs. Of such amounts, Company anticipates that HBIO will pay an aggregate amount of $4.0 million by the end of the second quarter of 2022. With respect to these indemnification obligations of the Company to HBIO pertaining to these costs, the Company and HBIO have entered into a Preferred Issuance Agreement dated as of April 27, 2022, or the PIA. In connection with the PIA, the Company and HBIO have agreed that once HBIO has paid at least $4.0 million in such costs, to satisfy the Company’s indemnification obligations with respect thereto, in lieu of paying cash, the Company will issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA. In addition, as described above, the Company will continue to pay, or otherwise indemnify HBIO as to its payment thereof, the remaining legal expenses incurred in connection with the litigation, Settlement and related matters. Assuming the issuance of such preferred stock, the Company currently estimates that the remaining aggregate amount of such costs it will be obligated to pay will be approximately $1.5 million.

The issuance of such preferred stock, and the terms thereof, are subject to the negotiation and execution of definitive documents relating thereto, but in accordance with the PIA, such 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 public offering that includes common stock following the issuance of the preferred stock, or its initial private placement that includes common stock following the issuance of the preferred stock in the event the gross proceeds of such private placement are $4.0 million or more. In addition, in accordance with the PIA, such preferred stock will also be subject to optional conversion by HBIO at any time and prior to any such automatic or optional conversion, will have dividends paid quarterly in additional shares of preferred stock at a rate of 8% per annum. The preferred stock will also have customary liquidation preferences, and certain limited consent and piggyback registration rights.

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.

7.  Leases

The Company leases laboratory and office space and certain equipment with remaining terms ranging approximately from 1.1 to 2.6 years.

The laboratory and office space arrangement is under a sublease that was renewed in December of 2021 and currently extends through May 31, 2023. This lease automatically renews annually for a one-year period unless the Company or the counterparty provides a notice of termination within one hundred and eighty days prior to May 31^st of each year.

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On January 5, 2022, the Company executed a four-month sublease agreement for certain laboratory space at its Holliston, Massachusetts facility. For the three months ended March 31, 2022, the Company recorded sublease income of approximately $29,000 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 consolidated balance sheets:

		March 31,		December 31,
	Balance Sheet Classification	2022		2021
Assets:
Operating lease assets	Right-of-use asset, net	$	142	$	169
Liabilities:
Current portion of operating lease liabilities	Current portion of operating lease liabilities		112		110
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion		30		59
Total operating lease liabilities		$	142	$	169

The Company recorded operating lease expense in the following categories in its consolidated statements of operations:

	Three months ended March 31,
	2022		2021
	(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 months ended March 31, 2022 and 2021 amounted to approximately $30,000, respectively.

The weighted average remaining lease term and weighted average discount rate of the Company’s operating leases are as follows:

	As of March 31,
	2022		2021
Remaining lease term (in years)	1.37		1.72
Discount rate	9.18	%	10.24	%

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

	As of
	March 31, 2022
	(in thousands)
2022	$	91
2023		54
2024		7
2025		—
Total lease payments		152
Less: imputed interest		10
Present value of operating lease liabilities	$	142

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8.  Net Loss Per Share

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

	Three months ended March 31,
	2022	2021
Warrants to purchase common stock	1,583,786	1,893,201
Options to purchase common stock	2,402,603	1,616,134
Total	3,986,389	3,509,335

9.  Income Taxes

The Company did not record a federal or state income tax provision or benefit for the three months ended March 31, 2022 and 2021, respectively, due to the expected loss before income taxes to be incurred for the years ended December 31, 2021 and 2020, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.

10.  Subsequent Events

Private Placement

On May 12, 2022, the Company entered into Securities Purchase Agreements (each a “Purchase Agreement”) with new and existing investors (the “Investors”) pursuant to which the Investors agreed to purchase in a private placement an aggregate of 854,771 shares of common stock and warrants to purchase 427,390 shares of common stock, subject to adjustment as provided in the warrant agreement (the “Warrants”), for the aggregate purchase price of approximately $5.1 million with a purchase price per unit of $5.92 (the “Private Placement”). Each unit consisted of one share of common stock and a warrant to purchase one half of one share of common stock, subject to adjustment, as provided in the Warrants. The Company has received an aggregate of $5.1 million gross proceeds from the Private Placement through May 16, 2022.

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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 filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2022 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 biotechnology company with a mission to cure patients of cancers, injuries, and birth defects of the gastro-intestinal tract and the airways.

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

We believe our technology is likely to be used to treat esophageal cancer, esophageal injuries, and birth defects in the esophagus. Additional product candidates in our pipeline may treat bronchial cancer, intestinal cancer and colon cancer.

Our first esophageal product candidate, the Biostage Esophageal Implant, or BEI, was used in the first successful regeneration of the esophagus in a patient with esophageal cancer. This successful first-in-human experience, plus the research we have performed on 45 pigs, led the FDA to approve our 10-patient combined phase 1 and phase 2 clinical trial. This combination trial will measure both safety and efficacy in the patient population.

We were incorporated and commenced operations on November 1, 2013 as a result of a spin-off from Harvard Bioscience, Inc., or Harvard Bioscience. On that date, we became an independent company that operates the regenerative medicine business previously

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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 March 31, 2022 and 2021.

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 and in future years.

Operating Losses and Cash Requirements

We have incurred substantial operating losses since our inception, and as of March 31, 2022 had an accumulated deficit of approximately $79.1 million and will require additional financing to fund future operations. We expect that our operating cash on-hand as of March 31, 2022 of approximately $0.7 million, along with cash proceeds of approximately $5.1 million received through May 16, 2022 from a private placement from new and existing investors, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023. We expect to continue to incur operating losses and negative cash flows from operations for 2022 and in future years. Therefore, as disclosed in Note 1 to our Consolidated Financial Statements, these conditions raise substantial doubt about our ability to continue as a going concern.

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

Cash requirements and cash resource needs will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing development, pre-clinical and clinical testing of product candidates, as well as regulatory efforts and collaborative arrangements necessary for our 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 consolidated financial statements have been prepared assuming that we will continue as a going concern and therefore, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

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 BEI’s. For the three months

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ended March 31, 2021, the Company recognized approximately $118,000 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.

Sublease income. On January 5, 2022, the Company executed a four-month sublease agreement for certain laboratory space at its Holliston, Massachusetts facility. For the three months ended March 31, 2022, we recognized approximately $29,000 in sublease income.

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

Other income (expense), net. Other income (expense), 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 months ended March 31, 2021. 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 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.

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 forfeitures at the time of grant and revise our estimate, if necessary, in subsequent periods. 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.

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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) in the condensed consolidated statements of operations. The warrants classified as a liability expired unexercised during the three months ended 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, 2022 and 2021 (in thousands):

	Three months ended March 31,				Change 2021 vs. 2020
	2022		2021		Change		%
Operating expenses
Research and development	$	303	$	473	$	(170)	(36)	%
General and administrative		1,902		522		1,380	264	%
Total operating expenses		2,205		995		1,210	122	%
Other income (expense)
Sublease income		29		—		29	nm
Grant income		—		118		(118)	nm
Other income (expense), net		(1)		3		(4)	(1,333)	%
Total other income (expense), net		28		121		(93)	(77)	%
Net loss	$	(2,177)	$	(874)	$	(1,303)	149	%

nm = not meaningful

Comparison of the three months ended March 31, 2022 compared to the three months ended March 31, 2021

Research and Development Expense

Research and development expense decreased approximately $0.2 million, or 36%, to approximately $0.3 million for the three months ended March 31, 2022 as compared to approximately $0.5 million for the three months ended March 31, 2021. This decrease was due primarily to lower employee and share-based compensation expenses of approximately $0.1 million and lower outsourced study costs and lab operating supplies expenses of approximately $0.1 million.

General and Administrative Expense

General and administrative expense increased approximately $1.4 million, or 264%, to approximately $1.9 million for the three months ended March 31, 2022 as compared to approximately $0.5 million for the three months ended March 31, 2021.  This increase was due primarily to an increase in legal and related costs of approximately $1.2 million relating to the contingency matter for our ongoing litigation for a wrongful death complaint and related matters more fully described in Note 6 to our consolidated financial statements, an increase of approximately $0.1 million for higher stock-based compensation expenses and an increase of approximately $0.1 million for outside consulting fees for supporting our ongoing public company requirements.

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Sublease income

On January 5, 2022, we executed a four-month sublease agreement for certain laboratory space at our Holliston, Massachusetts facility. For the three months ended March 31, 2022, we recorded sublease income of approximately $29,000 relating to this agreement.

Grant income

For the three months ended March 31, 2021, we recorded grant income of approximately $0.1 million for qualified expenditures under our SBIR grant which expired effective September 30, 2021.

Other income (expense), net

During the three months ended March 31, 2022, we recorded a gain on expiration of the common share warrants of approximately $2,000 in other income (expense), net, as they expired unexercised in February 2022. During the three months ended March 31, 2021, the change in fair value of our warrant liability resulted in other income of approximately $4,000 due primarily to a decrease in the stock price and volatility of the underlying common shares.

Liquidity and Capital Resources

Sources of liquidity. We have incurred operating losses since inception, and as of March 31, 2022, we had a deficit of approximately $79.1 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 six months ended March 31, 2022 and 2021 (in thousands):

	Three Months Ended March 31,
	2022		2021
Net cash used in operating activities	$	(519)	$	(560)
Net cash used by investing activities	$	—	$	—
Net cash provided by financing activities	$	3,055	$	—

Comparison of three months ended March 31, 2022 and 2021

Operating activities. 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 $2.2 million and adjustments for non-cash items of approximately $0.3 million due to 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 an approximately $1.4 million increase in cash from changes in working capital due to the timing of payments for prepaid expenses and increases in accounts payable and accrued expenses.

Net cash used in operating activities of $0.6 million for the three months ended March 31, 2021 was due primarily to our net loss of $0.9 million, partially offset by a $0.2 million add-back for non-cash expenses including share-based compensation, depreciation, and change in the fair value of the warrant liability and $0.1 million of cash provided by working capital due to the timing of prepaid expenses and accounts payable.

Investing activities. There were no investing activities for the three months ended March 31, 2022 and 2021, respectively.

Financing activities. In February and March of 2022, we received cash of approximately $3.1 million from a group of new and existing investors pertaining to a private placement transaction which closed in May 2022. These funds remain the respective investor’s property and were being held in escrow by us in a separate account until the execution of the common stock purchase agreements which occurred on May 12, 2022.

There were no financing activities for the three months ended March 31, 2021.

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Off-Balance Sheet Arrangements

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

Other Information

None.

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.

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 Interim Vice President of Finance, 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 March 31, 2022. 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 March 31, 2022. 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.

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PART II. OTHER INFORMATION

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 ongoing civil lawsuit described in Item 3 of Part I of our Annual Report on Form 10-K filed with the SEC on March 31, 2021 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 will result in the dismissal with prejudice of the wrongful death claim, and neither we nor HBIO admit 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 will result 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 the contingency matter of approximately $3.3 million in general and administrative expenses during the year ended December 31, 2021.

In relation to the litigation, we estimate that we will incur an aggregate of approximately $6.0 million of costs, of which, approximately $5.5 million remains unpaid. This amount includes the cost of both the accrual for this matter of $3.3 million and approximately $2.7 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 three months ended March, 31, 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 three months ended March 31, 2022.

We have incurred an additional $0.2 million of legal and related costs subsequent to March 31, 2022.

With respect to such $6.0 million of estimated costs described above, we are required to either pay such costs directly or indemnify HBIO as to such amounts it incurs. Of such amounts, we anticipate that HBIO will pay an aggregate amount of $4.0 million by the end of the second quarter of 2022. With respect to this indemnification obligation of the Company to HBIO pertaining to such costs, we and HBIO have entered into a Preferred Issuance Agreement dated as of April 27, 2022, or the “PIA”. In connection with the PIA, we and HBIO have agreed that once HBIO has paid at least $4.0 million in such costs, to satisfy our indemnification obligations with respect thereto, in lieu of paying cash, we will issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA. In addition, as described above, we will continue to pay, or otherwise indemnify HBIO as to its payment thereof, the remaining legal expenses incurred in connection with the litigation, Settlement and related matters. Assuming the issuance of such preferred stock, we currently estimate that the remaining aggregate amount of such costs we will be obligated to pay will be approximately $1.5 million.

The issuance of such preferred stock, and the terms thereof, are subject to the negotiation and execution of definitive documents relating thereto, but in accordance with the PIA, such preferred stock will automatically convert into shares of our common stock upon the earlier to occur of our offering that includes common stock (whether private placement or public offering) that coincides with its uplisting onto NASDAQ, its public offering that includes common stock following the issuance of the preferred stock, or its initial private placement that includes common stock following the issuance of the preferred stock in the event the gross proceeds of such private placement are $4,000,000 or more. In addition, in accordance with the PIA, such preferred stock will also be subject to optional conversion by HBIO at any time and prior to any such automatic or optional conversion, will have dividends paid quarterly in

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additional shares of preferred stock at a rate of 8% per annum. The preferred stock will also have customary liquidation preferences, and certain limited consent and piggyback registration rights.

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.

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, which was filed with the SEC on March 31, 2022.

Our audited financial statements for the year ended December 31, 2021 contain a going concern qualification. Our financial status creates doubt whether we will continue as a going concern. We will need additional funds in the near future and our operations will be adversely affected if we are unable to obtain needed funding.

We ended March 31, 2022 with approximately $0.7 million of operating cash on-hand. While giving consideration to cash proceeds of approximately $5.1 million received through May 16, 2022 from a private placement from new and existing investors, we will need to raise additional capital in the first quarter of 2023 and beyond to fund operations. If we do not raise additional capital from outside sources during the first quarter of 2023, we may be forced to further curtail or cease our operations. Based on these circumstances, our ability to continue as a going concern is at risk as our independent registered public accounting firm included a “going concern” qualification as to our ability to continue as a going concern in their audit report dated March 31, 2022, included in our Form 10-K for the year ended December 31, 2021, which was filed with the SEC on March 31, 2022. Our cash requirements and cash resources will vary significantly depending upon the timing, and the financial and other resources that will be required to complete ongoing development and pre-clinical and clinical testing of our product candidates, regulatory efforts and collaborative arrangements necessary for our product candidates that are currently under development. In addition to development and other costs, we expect to incur capital expenditures from time to time. These capital expenditures will be influenced by our regulatory compliance efforts, our success, if any, at developing collaborative arrangements with strategic partners, our needs for additional facilities and capital equipment and the growth, if any, of our business in general. We will require additional funding to continue our anticipated operations and support our capital and operating needs. 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, strategic collaborations and licensing arrangements. We may not be able to obtain additional financing on terms favorable to us, if at all. In addition, general market conditions, including the effect of the COVID-19 pandemic on financial markets, as well as the effects of laws and regulations on foreign investment in the United States under the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS), and other agencies and related regulations, including the Foreign Investment Risk Review Modernization Act (FIRRMA), adopted in August 2018, may make it difficult for us to seek financing from the capital markets.

Any additional equity financings could result in significant dilution to our stockholders and possible restrictions on subsequent financings. Debt financing, if available, could result in agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or paying dividends. Other financing mechanisms may involve selling intellectual property rights, payment of royalties or participation in our revenue or cash flow. In addition, in order to raise additional funds through strategic collaborations or licensing arrangements, we may be required to relinquish certain rights to some or all of our technologies or product candidates. If we cannot raise funds or engage strategic partners on acceptable terms when needed, we may not be able to continue our research and development activities, develop or enhance our product candidates, take advantage of future opportunities, grow our business, respond to competitive pressures or unanticipated requirements, or at worst may be forced to curtail or cease our operations.

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Item 6. Exhibits

Exhibit Index
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 Interim Vice President of Finance 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 Interim Vice President of Finance 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	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	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	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.

24

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: May 16, 2022

BIOSTAGE, INC.
By:	/s/ David Green
	Name: David Green
	Title: Interim Chief Executive Officer, Director, and Chairman (principal executive officer)
By:	/s/ Peter A. Pellegrino Jr.
	Name: Peter A. Pellegrino Jr.
	Title: Interim Vice President of Finance (principal financial officer)

25

EX-31.1

Exhibit 31.1

Certification

I, David Green, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Biostage, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 16, 2022

/s/ David Green

David Green

Interim Chief Executive Officer, Director, and Chairman

EX-31.2

Exhibit 31.2

Certification

I, Peter A. Pellegrino Jr., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Biostage, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 16, 2022

/s/ Peter A. Pellegrino Jr.

Peter A. Pellegrino Jr.

Interim Vice President of Finance

EX-32.1

Exhibit 32.1

CERTIFICATION OF PERIODIC FINANCIAL REPORT

PURSUANT TO 18 U.S.C. SECTION 1350

The undersigned officer of Biostage, Inc. (the “Company”) hereby certifies to his knowledge that the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (the “Report”) to which this certification is being furnished as an exhibit, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (Item 601(b)(32)) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b) (32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Date: May 16, 2022

	/s/ David Green
Name:	David Green
Title:	Interim Chief Executive Officer, Director, and Chairman

EX-32.2

Exhibit 32.2

CERTIFICATION OF PERIODIC FINANCIAL REPORT

PURSUANT TO 18 U.S.C. SECTION 1350

The undersigned officer of Biostage, Inc. (the “Company”) hereby certifies to his knowledge that the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (the “Report”) to which this certification is being furnished as an exhibit, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (Item 601(b)(32)) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b) (32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.

Date: May 16, 2022

	/s/ Peter A. Pellegrino Jr.
Name:	Peter A. Pellegrino Jr.
Title:	Interim Vice President of Finance

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2022	May 16, 2022
Document and Entity Information [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2022
Document Transition Report	false
Entity File Number	001-35853
Entity Registrant Name	BIOSTAGE, INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	45-5210462
Entity Address, Address Line One	84 October Hill Road, Suite 11
Entity Address, City or Town	Holliston
Entity Address, State or Province	MA
Entity Address, Postal Zip Code	01746
City Area Code	774
Local Phone Number	233-7300
Title of 12(b) Security	None
No Trading Symbol Flag	true
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		11,605,507
Entity Central Index Key	0001563665
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	None

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Current assets:
Cash	$ 723	$ 1,242
Restricted cash	3,105	50
Prepaid expenses and other current assets	102	295
Total current assets	3,930	1,587
Property, plant and equipment, net	96	110
Right-of-use assets, net	142	169
Total assets	4,168	1,866
Current liabilities:
Accounts payable	1,273	676
Accrued and other current liabilities	1,419	800
Accrual for contingency matter	3,250	3,250
Advance from private placement	3,055	0
Current portion of operating lease liability	112	110
Total current liabilities	9,109	4,836
Operating lease liability, net of current portion	30	59
Total liabilities	9,139	4,895
Commitments and contingencies (Note 6)
Stockholders' deficit:
Preferred stock, $0.01 par value; 2,000,000 shares authorized, none issued and outstanding	0	0
Common stock, par value $0.01 per share, 60,000,000 shares authorized; 10,760,871 and 9,388,407 issued and outstanding at March 31, 2022 and December 31, 2021, respectively	108	108
Additional paid-in capital	74,036	73,801
Accumulated deficit	(79,115)	(76,938)
Total stockholders' deficit	(4,971)	(3,029)
Total liabilities and stockholders' deficit	$ 4,168	$ 1,866

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2022	Dec. 31, 2021
CONSOLIDATED BALANCE SHEETS
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized	60,000,000	60,000,000
Common stock, shares issued	10,760,871	9,388,407
Common stock, shares outstanding	10,760,871	9,388,407

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues	$ 0	$ 0
Operating expenses:
Research and development	303,000	473,000
General and administrative	1,902,000	522,000
Total operating expenses	2,205,000	995,000
Operating loss	(2,205,000)	(995,000)
Other income (expense), net:
Sublease Income	29,000	0
Grant income	0	118,000
Other income (expense), net	(1,000)	3,000
Total other income, net	28,000	121,000
Net loss	$ (2,177,000)	$ (874,000)
Basic net loss per share (in dollars per share)	$ (0.20)	$ (0.09)
Diluted net loss per share (in dollars per share)	$ (0.20)	$ (0.09)
Weighted-average common shares, basic	10,761,861	9,388,407
Weighted-average common shares, diluted	10,761,861	9,388,407

XML

CONSOLIDATED STATEMENTS CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common Stock	Additional Paid-in Capital	Accumulated Deficit	Total
Balance at Dec. 31, 2020	$ 94	$ 69,991	$ (68,960)	$ 1,125
Balance (in shares) at Dec. 31, 2020	9,388,407
Net loss	$ 0	0	(874)	(874)
Share-based compensation	$ 0	130	0	130
Share-based compensation (in shares)	0
Balance at Mar. 31, 2021	$ 94	70,121	(69,834)	381
Balance (in shares) at Mar. 31, 2021	9,388,407
Balance at Dec. 31, 2021	$ 108	73,801	(76,938)	(3,029)
Balance (in shares) at Dec. 31, 2021	10,760,871
Net loss	$ 0	0	(2,177)	(2,177)
Share-based compensation	$ 0	235	0	235
Share-based compensation (in shares)	0
Balance at Mar. 31, 2022	$ 108	$ 74,036	$ (79,115)	$ (4,971)
Balance (in shares) at Mar. 31, 2022	10,760,871

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
OPERATING ACTIVITIES
Net loss	$ (2,177)	$ (874)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense	235	130
Depreciation	14	43
Change in fair value of warrant liability	(2)	(3)
Changes in operating assets and liabilities:
Grant receivable		55
Prepaid expenses and other current assets	193	136
Accounts payable	597	50
Accrued and other current liabilities	621	(97)
Net cash used in operating activities	(519)	(560)
FINANCING ACTIVITIES
Advance from private placement	3,055
Net cash provided by financing activities	3,055
Net increase/(decrease) in cash and restricted cash	2,536	(560)
Cash and restricted cash at the beginning of the year	1,292	1,076
Cash and restricted cash at the end of the year	$ 3,828	$ 516

XML

Overview and Basis of Presentation

3 Months Ended

Mar. 31, 2022

Organization.

Overview and Basis of Presentation

1.  Overview and Basis of Presentation

Overview

Biostage, Inc. (Biostage or the Company) is a biotechnology company with a mission to cure patients of cancers, injuries, and birth defects of the gastro-intestinal tract and the airways. The Company believes its technology is likely to be used to treat esophageal cancer, esophageal injuries, and birth defects in the esophagus. The Company believes additional product candidates in its pipeline may treat bronchial cancer, intestinal cancer, and colon cancer. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and acquiring operating assets. 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 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 March 31, 2022 had an accumulated deficit of approximately $79.1 million and will require additional financing to fund future operations. The Company expects that its operating cash on-hand as of March 31, 2022 of approximately $0.7 million, along with cash proceeds of approximately $5.1 million received through May 16, 2022 from a private placement from new and existing investors, will enable it to fund its operating expenses and capital expenditure requirements through the first quarter of 2023. Therefore, these conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company will need to raise additional funds to fund its operations. In the event the Company is unable to raise additional capital from outside sources in first quarter of 2023, it may be forced to curtail or cease its operations.

Cash requirements and cash resource needs will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing development, pre-clinical and clinical testing of product candidates, as well as regulatory efforts and collaborative arrangements necessary for the Company’s product candidates that are currently under development. The Company is currently seeking and will continue to seek 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 consolidated financial statements have been prepared assuming that the Company will continue as a going concern and therefore, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2022

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

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

Summary of Significant Accounting Policies

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

Principles of Consolidation

The consolidated financial statements include the accounts of Biostage, and 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 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 consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, share-based compensation, valuation of warrant liability, accrued expenses and the valuation allowance for deferred income taxes. Actual results could differ from those estimates.

Net Loss Per Share

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

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

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

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

Unaudited Interim Financial Information

The accompanying interim consolidated balance sheet as of March 31, 2022, consolidated interim statements of operations, stockholders’ equity and cash flows for the three months ended March 31, 2022 and 2021 are unaudited. The interim unaudited 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 March 31, 2022, its consolidated results of operations, stockholders’ equity and consolidated cash flows for the three months ended March 31, 2022 and 2021. The financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and 2021 are unaudited. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods or any future year or period.

SBIR Award

Grant income is recognized when qualified research and development costs are incurred and recorded in other income (expense), net in the consolidated statements of operations. When evaluating grant revenue from the SBIR grant, the Company considered accounting requirements under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers. The Company concluded that ASC 606 did not apply as there is no exchange of goods or services or an exchange of intellectual property between the parties; therefore, the Company presents grant income in other income.

For the three months ended March 31, 2021, the Company recognized approximately $118,000 of grant income from the SBIR grant. The SBIR grant expired effective September 30, 2021.

Restricted Cash

A reconciliation of the cash and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the consolidated statements of cash flows is as follows:

	March 31,		December 31,
	2022		2021
	(In thousands)
Cash	$	723	$	1,242
Restricted cash		3,105		50
Total cash and restricted cash as shown in the consolidated statements of cash flows	$	3,828	$	1,292

Restricted cash consists of cash advances received in February and March of 2022 of approximately $3.1 million from a group of new and existing investors pertaining to a private placement transaction which closed in May 2022. These funds remain the respective investor’s property and are being held in escrow by the Company in a separate account until the execution of a common stock purchase agreement which occurred on May 12, 2022.

In addition, approximately $50,000 is held as collateral for the Company’s credit card program as of March 31, 2022 and December 31, 2021. The Company’s consolidated statements of cash flows include restricted cash with cash when reconciling the beginning-of-period and end-of-period total amounts shown on such statements.

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 consolidated financial statements upon adoption.

XML

Fair Value Measurements

3 Months Ended

Mar. 31, 2022

Fair Value Measurements

Fair Value Measurements

3.  Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value 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 as of March 31, 2022 and December 31, 2021. The Company’s restricted cash consists of a $50,000 cash deposit that serves as collateral for the Company’s credit card program are held in demand

money market accounts and are measured at fair value based on quoted prices, which are Level 1 inputs. The Company classifies warrants to purchase common stock that are accounted for as liabilities as Level 3 liabilities, as 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 March 31, 2022
	(in thousands)
	Level 1		Level 2		Level 3		Total
Assets:
Restricted cash	$	50	$	—	$	—	$	50
Total	$	50	$	—	$	—	$	50
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 were initially recorded at fair value and subsequently re-measured each reporting period. The changes in the fair value between issuance and the end of each reporting period is recorded as a component of other income (expense), net, in the consolidated statements of operations.

During 2017, the holders of 952,184 warrants agreed to a modification of the term which removed the cash put provision. The remaining 92,212 warrants were re-measured at each reporting period as long as they are outstanding and un-modified. In February of 2022, the remaining 92,212 warrants expired unexercised resulting in a $2,000 gain on extinguishment recorded in other income (expense), net, for the three months ended March 31, 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 March 31, 2022:

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

Warrants to purchase common stock activity for the three months ended March 31, 2022 was as follows:

		Weighted-average
	Amount	exercise price
Outstanding at December 31, 2021	2,501,419	$	4.35
Issued	—		—
Exercised	(917,633)		8.11

Outstanding at March 31, 2022 1,583,786 $ 2.16

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

XML

Accrued and Other Current Liabilities

3 Months Ended

Mar. 31, 2022

Accrued and Other Current Liabilities

Accrued and Other Current Liabilities

4.  Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following:

	March 31,		December 31,
	2022		2021
	(in thousands)
Due to Harvard Bioscience	$	628	$	—
Legal costs		486		577
Advisory costs		188		151
Audit services		96		59
Payroll		21		11
Warrant liability		—		2
Total accrued and other current liabilities	$	1,419	$	800

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Share-Based Compensation

3 Months Ended

Mar. 31, 2022

Share-Based Compensation

Share-Based Compensation

5.  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. Canceled and forfeited options and awards are available to be reissued under the Plan.

In June 2020, the Company’s shareholders approved the Plan, to among other things, increase of the number of shares of the Company’s common stock available for issuance pursuant 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. There were 2,674,710 shares available for issuance as of March 31, 2022.

The Company has granted options to purchase common stock under the Plan. Stock option activity during the three months ended March 31, 2022 was as follows:

		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	$	129
Granted	70,000		4.68
Canceled / forfeited	—		—
Outstanding at March 31, 2022	2,402,603	$	3.82	8.11	$	5,658
Options exercisable	1,189,782	$	5.13	7.24	$	2,783
Options vested and expected to vest	2,305,838	$	3.87

The Company’s outstanding stock options include 510,742 performance-based awards that have vesting provisions subject to the achievement of certain business milestones. Total unrecognized compensation expense for the remaining performance-based awards is approximately $1.3 million. No expense has been recognized for these awards as of March 31, 2022 given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes.

Aggregate intrinsic value for outstanding options and exercisable options for the quarter ended March 31, 2022, was approximately $5.7 million based on the Company’s closing stock price of $4.90 per share as of March 31, 2022. As of March 31, 2022, unrecognized compensation cost related to unvested non-performance-based awards amounted to $1.2 million, which will be recognized over a weighted-average period of 1.36 years.

The Company uses the Black-Scholes option pricing model to value its stock options. The weighted average assumptions for valuing options granted during the three months ended March 31, 2022 and 2021 were as follows:

	Three Months Ended March 31,
	2022		2021
Risk-free interest rate	1.77	%	0.47	%
Expected volatility	122.06	%	123.20	%
Expected term (in years)	6.0	years	5.3	years
Expected dividend yield	—	%	—	%

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

	March 31,
	2022		2021
	(In thousands)
Research and development	$	60	$	80
General and administrative		175		50
Total stock-based compensation	$	235	$	130

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2022

Commitments and Contingencies

Commitments and Contingencies

6.  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 seeks payment for an unspecified amount of damages and alleges 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 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 will result 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 resolves any and all claims by and between the parties and the Company’s product liability insurance carriers, which will result in the dismissal with prejudice of all claims asserted by or against those carriers, the Company and HBIO. However, based on review of the circumstances surrounding the Settlement, the Company recorded an accrual for this matter of approximately $3.3 million in general and administrative expenses during the year ended December 31, 2021.

In relation to the litigation, the Company estimates that it will incur approximately $6.0 million of costs, of which, approximately $5.5 million remain unpaid. This amount includes the cost of both the accrual for contingency matter of $3.3 million and approximately $2.7 million of legal and related costs incurred by the Company which consist of attorneys’ fees and advisor and specialist costs as part of its defense in this matter.

For the three months ended March 31, 2022, the Company incurred legal and related costs of approximately $1.3 million recorded in general and administrative expenses. On March 3, 2022, the Company received a cash payment of approximately $0.1 million from Medmarc, 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 three months ended March 31, 2022.

The Company has incurred an additional $0.2 million of legal and related costs subsequent to March 31, 2022.

With respect to such $6.0 million of costs described above, the Company is required to either pay such costs directly or indemnify HBIO as to such amounts it incurs. Of such amounts, Company anticipates that HBIO will pay an aggregate amount of $4.0 million by the end of the second quarter of 2022. With respect to these indemnification obligations of the Company to HBIO pertaining to these costs, the Company and HBIO have entered into a Preferred Issuance Agreement dated as of April 27, 2022, or the PIA. In connection with the PIA, the Company and HBIO have agreed that once HBIO has paid at least $4.0 million in such costs, to satisfy the Company’s indemnification obligations with respect thereto, in lieu of paying cash, the Company will issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA. In addition, as described above, the Company will continue to pay, or otherwise indemnify HBIO as to its payment thereof, the remaining legal expenses incurred in connection with the litigation, Settlement and related matters. Assuming the issuance of such preferred stock, the Company currently estimates that the remaining aggregate amount of such costs it will be obligated to pay will be approximately $1.5 million.

The issuance of such preferred stock, and the terms thereof, are subject to the negotiation and execution of definitive documents relating thereto, but in accordance with the PIA, such 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 public offering that includes common stock following the issuance of the preferred stock, or its initial private placement that includes common stock following the issuance of the preferred stock in the event the gross proceeds of such private placement are $4.0 million or more. In addition, in accordance with the PIA, such preferred stock will also be subject to optional conversion by HBIO at any time and prior to any such automatic or optional conversion, will have dividends paid quarterly in additional shares of preferred stock at a rate of 8% per annum. The preferred stock will also have customary liquidation preferences, and certain limited consent and piggyback registration rights.

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.

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Leases

3 Months Ended

Mar. 31, 2022

Leases

Leases

7.  Leases

The Company leases laboratory and office space and certain equipment with remaining terms ranging approximately from 1.1 to 2.6 years.

The laboratory and office space arrangement is under a sublease that was renewed in December of 2021 and currently extends through May 31, 2023. This lease automatically renews annually for a one-year period unless the Company or 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 sublease agreement for certain laboratory space at its Holliston, Massachusetts facility. For the three months ended March 31, 2022, the Company recorded sublease income of approximately $29,000 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 consolidated balance sheets:

		March 31,		December 31,
	Balance Sheet Classification	2022		2021
Assets:
Operating lease assets	Right-of-use asset, net	$	142	$	169
Liabilities:
Current portion of operating lease liabilities	Current portion of operating lease liabilities		112		110
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion		30		59
Total operating lease liabilities		$	142	$	169

The Company recorded operating lease expense in the following categories in its consolidated statements of operations:

	Three months ended March 31,
	2022		2021
	(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 months ended March 31, 2022 and 2021 amounted to approximately $30,000, respectively.

The weighted average remaining lease term and weighted average discount rate of the Company’s operating leases are as follows:

	As of March 31,
	2022		2021
Remaining lease term (in years)	1.37		1.72
Discount rate	9.18	%	10.24	%

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

	As of
	March 31, 2022
	(in thousands)
2022	$	91
2023		54
2024		7
2025		—
Total lease payments		152
Less: imputed interest		10
Present value of operating lease liabilities	$	142

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Net Loss Per Share

3 Months Ended

Mar. 31, 2022

Net Loss Per Share

Net Loss Per Share

8.  Net Loss Per Share

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

	Three months ended March 31,
	2022	2021
Warrants to purchase common stock	1,583,786	1,893,201
Options to purchase common stock	2,402,603	1,616,134
Total	3,986,389	3,509,335

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Income Taxes

3 Months Ended

Mar. 31, 2022

Income Taxes

Income Taxes

9.  Income Taxes

The Company did not record a federal or state income tax provision or benefit for the three months ended March 31, 2022 and 2021, respectively, due to the expected loss before income taxes to be incurred for the years ended December 31, 2021 and 2020, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.

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Subsequent Events

3 Months Ended

Mar. 31, 2022

Subsequent Events

Subsequent Events

10.  Subsequent Events

Private Placement

On May 12, 2022, the Company entered into Securities Purchase Agreements (each a “Purchase Agreement”) with new and existing investors (the “Investors”) pursuant to which the Investors agreed to purchase in a private placement an aggregate of 854,771 shares of common stock and warrants to purchase 427,390 shares of common stock, subject to adjustment as provided in the warrant agreement (the “Warrants”), for the aggregate purchase price of approximately $5.1 million with a purchase price per unit of $5.92 (the “Private Placement”). Each unit consisted of one share of common stock and a warrant to purchase one half of one share of common stock, subject to adjustment, as provided in the Warrants. The Company has received an aggregate of $5.1 million gross proceeds from the Private Placement through May 16, 2022.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2022

Summary of Significant Accounting Policies

Principles of Consolidation

Principles of Consolidation

The consolidated financial statements include the accounts of Biostage, and 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

Basis of Presentation

The 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

Use of Estimates

The process of preparing consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, share-based compensation, valuation of warrant liability, accrued expenses and the valuation allowance for deferred income taxes. Actual results could differ from those estimates.

Net Loss per Share

Net Loss Per Share

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

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

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

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

Unaudited Interim Financial Information

Unaudited Interim Financial Information

The accompanying interim consolidated balance sheet as of March 31, 2022, consolidated interim statements of operations, stockholders’ equity and cash flows for the three months ended March 31, 2022 and 2021 are unaudited. The interim unaudited 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 March 31, 2022, its consolidated results of operations, stockholders’ equity and consolidated cash flows for the three months ended March 31, 2022 and 2021. The financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and 2021 are unaudited. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods or any future year or period.

SBIR Award

SBIR Award

Grant income is recognized when qualified research and development costs are incurred and recorded in other income (expense), net in the consolidated statements of operations. When evaluating grant revenue from the SBIR grant, the Company considered accounting requirements under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers. The Company concluded that ASC 606 did not apply as there is no exchange of goods or services or an exchange of intellectual property between the parties; therefore, the Company presents grant income in other income.

For the three months ended March 31, 2021, the Company recognized approximately $118,000 of grant income from the SBIR grant. The SBIR grant expired effective September 30, 2021.

Restricted Cash

Restricted Cash

A reconciliation of the cash and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the consolidated statements of cash flows is as follows:

	March 31,		December 31,
	2022		2021
	(In thousands)
Cash	$	723	$	1,242
Restricted cash		3,105		50
Total cash and restricted cash as shown in the consolidated statements of cash flows	$	3,828	$	1,292

Restricted cash consists of cash advances received in February and March of 2022 of approximately $3.1 million from a group of new and existing investors pertaining to a private placement transaction which closed in May 2022. These funds remain the respective investor’s property and are being held in escrow by the Company in a separate account until the execution of a common stock purchase agreement which occurred on May 12, 2022.

In addition, approximately $50,000 is held as collateral for the Company’s credit card program as of March 31, 2022 and December 31, 2021. The Company’s consolidated statements of cash flows include restricted cash with cash when reconciling the beginning-of-period and end-of-period total amounts shown on such statements.

Recently Adopted Accounting Pronouncements

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 consolidated financial statements upon adoption.

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2022

Summary of Significant Accounting Policies

Schedule of reconciliation of the cash and restricted cash reported within the balance sheet that sum to the total of the same amounts shown in the consolidated statements of cash flows

	March 31,		December 31,
	2022		2021
	(In thousands)
Cash	$	723	$	1,242
Restricted cash		3,105		50
Total cash and restricted cash as shown in the consolidated statements of cash flows	$	3,828	$	1,292

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2022

Fair Value Measurements

Schedule of assets and liabilities measured at fair value on a recurring basis

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 March 31, 2022
	(in thousands)
	Level 1		Level 2		Level 3		Total
Assets:
Restricted cash	$	50	$	—	$	—	$	50
Total	$	50	$	—	$	—	$	50
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

Schedule of reconciliation company's liabilities at fair value on recurring basis

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

Schedule of warrant to purchase common stock

		Weighted-average
	Amount	exercise price
Outstanding at December 31, 2021	2,501,419	$	4.35
Issued	—		—
Exercised	(917,633)		8.11

Outstanding at March 31, 2022 1,583,786 $ 2.16

Schedule of 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

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Accrued and Other Current Liabilities (Tables)

3 Months Ended

Mar. 31, 2022

Accrued and Other Current Liabilities

Schedule of accrued and other current liabilities

	March 31,		December 31,
	2022		2021
	(in thousands)
Due to Harvard Bioscience	$	628	$	—
Legal costs		486		577
Advisory costs		188		151
Audit services		96		59
Payroll		21		11
Warrant liability		—		2
Total accrued and other current liabilities	$	1,419	$	800

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Share-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2022

Share-Based Compensation

Schedule of Stock option activity

The Company has granted options to purchase common stock under the Plan. Stock option activity during the three months ended March 31, 2022 was as follows:

		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	$	129
Granted	70,000		4.68
Canceled / forfeited	—		—
Outstanding at March 31, 2022	2,402,603	$	3.82	8.11	$	5,658
Options exercisable	1,189,782	$	5.13	7.24	$	2,783
Options vested and expected to vest	2,305,838	$	3.87

Schedule of weighted average assumptions

The Company uses the Black-Scholes option pricing model to value its stock options. The weighted average assumptions for valuing options granted during the three months ended March 31, 2022 and 2021 were as follows:

	Three Months Ended March 31,
	2022		2021
Risk-free interest rate	1.77	%	0.47	%
Expected volatility	122.06	%	123.20	%
Expected term (in years)	6.0	years	5.3	years
Expected dividend yield	—	%	—	%

Schedule of share-based compensation expense

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

	March 31,
	2022		2021
	(In thousands)
Research and development	$	60	$	80
General and administrative		175		50
Total stock-based compensation	$	235	$	130

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Leases (Tables)

3 Months Ended

Mar. 31, 2022

Leases

Summary of presentation of operating leases in consolidated balance sheets

		March 31,		December 31,
	Balance Sheet Classification	2022		2021
Assets:
Operating lease assets	Right-of-use asset, net	$	142	$	169
Liabilities:
Current portion of operating lease liabilities	Current portion of operating lease liabilities		112		110
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion		30		59
Total operating lease liabilities		$	142	$	169

Summary of presentation of operating leases in consolidated balance sheets

The Company recorded operating lease expense in the following categories in its consolidated statements of operations:

	Three months ended March 31,
	2022		2021
	(In thousands)
Research and development	$	19	$	19
General and administrative		11		11
Total	$	30	$	30

Schedule of Weighted average discount rate and lease term

The weighted average remaining lease term and weighted average discount rate of the Company’s operating leases are as follows:

	As of March 31,
	2022		2021
Remaining lease term (in years)	1.37		1.72
Discount rate	9.18	%	10.24	%

Summary of minimum lease payments for the next five years and thereafter

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

	As of
	March 31, 2022
	(in thousands)
2022	$	91
2023		54
2024		7
2025		—
Total lease payments		152
Less: imputed interest		10
Present value of operating lease liabilities	$	142

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Net Loss Per Share (Tables)

3 Months Ended

Mar. 31, 2022

Net Loss Per Share

Schedule of antidilutive securities excluded from computation of earnings per share

	Three months ended March 31,
	2022	2021
Warrants to purchase common stock	1,583,786	1,893,201
Options to purchase common stock	2,402,603	1,616,134
Total	3,986,389	3,509,335

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Organization (Details) $ in Thousands		1 Months Ended	3 Months Ended
	May 12, 2022 USD ($)	Oct. 31, 2013 USD ($)	Mar. 31, 2022 USD ($)	Dec. 31, 2021 USD ($)
Overview And Basis Of Presentation [Line Items]
Number of business segment			1
Retained Earnings (Accumulated Deficit)			$ (79,115)	$ (76,938)
Cash			$ 723	$ 1,242
Harvard Bioscience Plan [Member]
Overview And Basis Of Presentation [Line Items]
Proceeds from Contributions from Parent		$ 15,000
Subsequent Event [Member] | Group of new and existing investors
Overview And Basis Of Presentation [Line Items]
Cash proceeds received	$ 5,100

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Summary of Significant Accounting Policies - Additional Information (Details)	2 Months Ended	3 Months Ended
	Mar. 31, 2022 USD ($)	Mar. 31, 2022 USD ($) item	Mar. 31, 2021 USD ($)	Dec. 31, 2021 USD ($)
Basic And Diluted Earnings Per Share [Line Items]
Number Of Wholly Owned Subsidiaries | item		3
Restricted Cash	$ 50,000	$ 50,000		$ 50,000
Group of new and existing investors
Basic And Diluted Earnings Per Share [Line Items]
Cash advances	$ 3,100,000
Phase Two
Basic And Diluted Earnings Per Share [Line Items]
Grant Income Recognized			$ 118,000

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Summary of Significant Accounting Policies - Restricted cash (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021	Mar. 31, 2021	Dec. 31, 2020
Summary of Significant Accounting Policies
Cash	$ 723	$ 1,242
Restricted cash	3,105	50
Total cash and restricted cash as shown in the consolidated statements of cash flows	$ 3,828	$ 1,292	$ 516	$ 1,076

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Fair Value Measurements (Details) - Fair Value, Recurring [Member] - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Assets:
Total	$ 50	$ 50
Liabilities:
Total		2
Restricted cash [Member]
Assets:
Total	50	50
Warrant liability
Liabilities:
Total		2
Level 1 [Member]
Assets:
Total	50	50
Level 1 [Member] | Restricted cash [Member]
Assets:
Total	$ 50	50
Level 3 [Member]
Liabilities:
Total		2
Level 3 [Member] | Warrant liability
Liabilities:
Total		$ 2

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Fair Value Measurements - Reconciliation of company liabilities (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2022 USD ($)
Fair Value Measurements
Beginning Balance	$ 2
Change in fair value upon re-measurement	$ (2)

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Fair Value Measurements - Warrant to purchase common stock activity (Details)	3 Months Ended
	Mar. 31, 2022 $ / shares shares
Fair Value Measurements
Amount, Outstanding | shares	2,501,419
Amount, Exercised | shares	(917,633)
Amount, Outstanding | shares	1,583,786
Weighted-average exercise price, Outstanding | $ / shares	$ 4.35
Weighted-average exercise price, Exercised | $ / shares	8.11
Weighted-average exercise price, Outstanding | $ / shares	$ 2.16

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Fair Value Measurements - Weighted average assumptions (Details)	12 Months Ended
	Dec. 31, 2021 $ / shares
Fair Value Measurements
Risk-free interest rate	0.05%
Expected volatility	174.54
Expected term (in years)	1 month 6 days
Expected dividend yield	0.00%
Exercise Price	$ 8.00
Market value of common stock	$ 2.30

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Fair Value Measurements - Additional Information (Details) - USD ($)	2 Months Ended	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2022	Feb. 28, 2022	Dec. 31, 2021	Dec. 31, 2017
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Liabilities classified				$ 2,000
Cash Collateral for Borrowed Securities	$ 50,000	$ 50,000
Warrants to be re-measured	92,212	92,212			1,044,396
Warrants to be modified					952,184
Warrants expired and unexercised			92,212
Change in fair value upon re-measurement		$ (2,000)
Other income (expense)
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Change in fair value upon re-measurement		2,000
Level 2 [Member]
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Assets classified	$ 0	0		0
Liabilities classified	0	$ 0		$ 0
Group of new and existing investors
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Cash advances	$ 3,100,000

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Accrued and Other Current Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Accrued and Other Current Liabilities
Due to Harvard Bioscience	$ 628
Legal costs	486	$ 577
Advisory costs	188	151
Audit services	96	59
Payroll	21	11
Warrant liability		2
Total expenses	$ 1,419	$ 800

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Share-Based Compensation - Stock option and restricted stock unit activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2022	Dec. 31, 2021
Amount, Outstanding	2,501,419
Amount, Outstanding	1,583,786	2,501,419
Weighted-average exercise price, Outstanding	$ 4.35
Weighted-average exercise price, Outstanding	$ 2.16	$ 4.35
Biostage2013 Equity Incentive Plan [Member] | Stock Options [Member]
Amount, Outstanding	2,332,603
Amount, Granted	70,000
Amount, Outstanding	2,402,603	2,332,603
Amount, Options exercisable	1,189,782
Amount, Options vested and expected to vest	2,305,838
Weighted-average exercise price, Outstanding	$ 3.93
Weighted-average exercise price, Granted	4.68
Weighted-average exercise price, Outstanding	3.82	$ 3.93
Weighted-average exercise price, Options exercisable	5.13
Weighted-average exercise price, Options vested and expected to vest	$ 3.87
Weighted-average contractual life, Outstanding	8 years 1 month 9 days	8 years 3 months 18 days
Weighted-average contractual life, Options exercisable	7 years 2 months 26 days
Outstanding at the beginning (in dollars)	$ 129
Outstanding at the end (in dollars)	5,658	$ 129
Exercisable at the end (in dollars)	$ 2,783

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Share-Based Compensation - Weighted average assumptions (Details) - Biostage2013 Equity Incentive Plan [Member]	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	1.77%	0.47%
Expected volatility	122.06%	123.20%
Expected term (years)	6 years	5 years 3 months 18 days
Expected dividend yield	0.00%	0.00%

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Share-Based Compensation - Share-based compensation expenses (Details) - Biostage2013 Equity Incentive Plan [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total share-based compensation	$ 235	$ 130
Research and development [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total share-based compensation	60	80
General and administrative [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Compensation Cost [Line Items]
Total share-based compensation	$ 175	$ 50

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Share-Based Compensation - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended
	Jun. 30, 2020	Mar. 31, 2022	Mar. 31, 2021	Dec. 31, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of award outstanding		1,583,786		2,501,419
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share Based Compensation Arrangement By Share Based Payment Award Unrecognized Compensation Costs		$ 0
Allocated Share-based Compensation Expense		$ 1,300
Number of award outstanding		510,742
Biostage Amended and Restated Equity Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		4 years
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period		10 years
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized	3,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	5,098,000
Share Price		$ 4.90
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value		$ 5,700
Shares available for issuance		2,674,710
Unrecognized compensation expense		$ 1,200
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition		1 year 4 months 9 days
Biostage2013 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense		$ 235	$ 130
Expected dividend yield		0.00%	0.00%

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Commitments and Contingencies (Details) - USD ($) $ in Thousands		3 Months Ended	12 Months Ended
	Apr. 01, 2022	Mar. 31, 2022	Dec. 31, 2021	Mar. 03, 2022
Loss Contingencies [Line Items]
Accrual for contingency matter			$ 3,300
Estimated litigation cost		$ 6,000
Litigation expenses payable		5,500
Accrual for contingency matter		3,250	$ 3,250
Legal costs on claims against insurance carrier	$ 200	2,700
Cash payment received on litigation		4,000
Litigation amount received		4,000
Reimbursement of legal costs		1,500
Proceeds from Issuance of Private Placement		3,055
Minimum
Loss Contingencies [Line Items]
Proceeds from Issuance of Private Placement		4,000
General and administrative expense
Loss Contingencies [Line Items]
Legal costs on claims against insurance carrier		$ 1,300
Medmarc
Loss Contingencies [Line Items]
Reimbursement of legal costs				$ 100
Preferred Stock
Loss Contingencies [Line Items]
Percentage of preferred stock dividend		8.00%

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Leases (Details) - USD ($)		3 Months Ended
	Jan. 05, 2022	Mar. 31, 2022	Mar. 31, 2021
Lessee, Lease, Description [Line Items]
Renewal term		1 year
Termination option		false
Notice period for termination		180 days
Sublease Income		$ 29,000	$ 0
Sublease Term	4 months
Minimum
Lessee, Lease, Description [Line Items]
Remaining term		1 year 1 month 6 days
Maximum
Lessee, Lease, Description [Line Items]
Remaining term		2 years 7 months 6 days

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Leases - Operating leases in consolidated balance sheets (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Leases
Right-of-use asset, net	Operating lease assets	Operating lease assets
Operating lease assets	$ 142	$ 169
Current portion of operating lease liabilities	$ 112	$ 110
Current portion of operating lease liabilities	Current portion of operating lease liabilities	Current portion of operating lease liabilities
Operating lease liabilities, net of current portion	$ 30	$ 59
Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion	Operating lease liabilities, net of current portion
Total operating lease liabilities	$ 142	$ 169

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Leases - Operating leases in condensed consolidated statements of operations (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Lessee, Lease, Description [Line Items]
Total	$ 30	$ 30
Research and development [Member]
Lessee, Lease, Description [Line Items]
Total	19	19
General and administrative [Member]
Lessee, Lease, Description [Line Items]
Total	$ 11	$ 11

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Leases - Weighted average discount rate and lease term (Details) - USD ($)	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Leases
Remaining lease term (in years)	1 year 4 months 13 days	1 year 8 months 19 days
Discount rate	9.18%	10.24%
Cash paid included in the computation of the operating lease assets and lease liability	$ 30,000	$ 30,000

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Leases - Minimum lease payments (Details) - USD ($) $ in Thousands	Mar. 31, 2022	Dec. 31, 2021
Minimum lease payments for the next five years and thereafter
2022	$ 91
2023	54
2024	7
Total lease payments	152
Less: imputed interest	10
Total operating lease liabilities	$ 142	$ 169

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Net Loss per Share - Anti-dilutive shares (Details) - shares	3 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	3,986,389	3,509,335
Warrants to purchase common stock
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,583,786	1,893,201
Options to purchase common stock
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	2,402,603	1,616,134

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Subsequent Events (Details) - Subsequent Event [Member] - USD ($) $ / shares in Units, $ in Millions	May 16, 2022	May 12, 2022
Private Placement
Subsequent Event [Line Items]
Price Per Share		$ 5.92
Cash received on stock transaction after deduction of costs	$ 5.1
Amount of consideration received from the transaction		$ 5.1
Group of new and existing investors
Subsequent Event [Line Items]
Cash proceeds received		$ 5.1
Common Stock | Private Placement
Subsequent Event [Line Items]
Number of Shares Issued in Transaction		854,771
Number of securities into which each warrant or right may be converted		0.5
Number of securities into which the class of warrant or right may be converted		427,390