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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 ~~September~~March 3031, ~~2022~~2023

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

For the Transition Period from __________________________________to___________________________________

Commission File No. 001-32404

POLARITYTE, INC.

(Exact name of registrant as specified in its charter)

delaware		06-1529524
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

1960 S. 4250 West, Salt Lake City, UT 84104

(Address of principal executive offices)

Registrant’s Telephone Number, Including Area Code: (800) 560-3983

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol		Name of each exchange on which registered
Common Stock, Par Value $0.001		PTE		The Nasdaq Capital Market

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 definition 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 ~~November~~May 79, ~~2022~~2023, there were 7,~~234~~376,~~319~~231 shares of the Registrant’s common stock outstanding.

INDEX

	Page
PART I - FINANCIAL INFORMATION	3
Item 1. Financial Statements:	3
Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (unaudited)	3
Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 (unaudited)	3
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, 2022 and 2021 (unaudited)	4
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2023 and 2022 (unaudited)	4
Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021 (unaudited)	5
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2023 and 2022 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)	7
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (unaudited)	6
Notes to Condensed Consolidated Financial Statements (unaudited)	87
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3023
Item 3. Quantitative and Qualitative Disclosures about Market Risk	3829
Item 4. Controls and Procedures	3829
PART II - OTHER INFORMATION	3829
Item 1A. Risk Factors	3829
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 6. Exhibits	31
Item 5. Other Information	41
SIGNATURES	32
Item 6. Exhibits	42
SIGNATURES	43

As used in this report, the terms “we,” “us,” “our,” “the Company,” and “PolarityTE” mean PolarityTE, Inc., a Delaware corporation, and our present, and as applicable our former, wholly owned Nevada subsidiaries (direct and indirect), PolarityTE, Inc., PolarityTE MD, Inc., Arches Research, Inc., Utah CRO Services, Inc., IBEX Preclinical Research, Inc., and IBEX Property LLC., unless otherwise indicated or required by the context. In April 2022, the business historically operated under the name “IBEX” was sold, together with the trademark IBEX, to an unrelated third party. References to the Company for periods after April 29, 2022, do not include IBEX Preclinical Research, Inc., or the business historically operated under the name “IBEX.”

POLARITYTE, the PolarityTE Logo, WELCOME TO THE SHIFT, WHERE SELF REGENERATES SELF, COMPLEX SIMPLICITY, ARCHES, and SKINTE are all trademarks or registered trademarks of PolarityTE. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements:

POLARITYTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands, except share and per share amounts)

	September 30, 2022			December 31, 2021
	March 31, 2023			December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	166,~~094~~394		$	1911,~~375~~446
Accounts receivable, net		–			978
Assets held for sale		338			700
Assets held for sale		916			441
Prepaid expenses and other current assets		2,195			1,109
Prepaid expenses and other current assets		1,479			1,595
Total current assets		8,927			13,255
Total current assets		18,489			22,389
Property and equipment, net		1,627			1,775
Property and equipment, net		2,499			6,923
Operating lease right-of-use assets		6,584			6,906
Operating lease right-of-use assets		246			1,146
Other assets		911			911
Other assets		911			720
TOTAL ASSETS	$	18,049		$	22,847
TOTAL ASSETS	$	22,145		$	31,178
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	1,~~895~~714		$	31,~~115~~380
Other current liabilities		~~904~~458			~~1,520~~687
Deferred revenue		–			74
Total current liabilities		2,172			2,067
Total current liabilities		2,799			4,709
Common stock warrant liability		961			1,489
Common stock warrant liability		2,238			6,844
Operating lease liabilities		2,495			2,632
Operating lease liabilities		52			43
Finance lease liabilities		–			41
Other long-term liabilities		113			338
Total liabilities		5,628			6,229
Total liabilities		5,202			11,934
Commitments and Contingencies (Note 14)		-			-
Commitments and Contingencies (Note 16)		-			-
STOCKHOLDERS’ EQUITY
Preferred stock – 25,000,000 shares authorized, 0 shares issued and outstanding at September 30, 2022 and December 31, 2021		–			–
Preferred stock – 25,000,000 shares authorized, 0 shares issued and outstanding at March 31, 2023 and December 31, 2022		–			–
Common stock - $.001 par value; 250,000,000 shares authorized; 7,219,974 and 3,299,379 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively*		7			3
Common stock – $.001 par value; 250,000,000 shares authorized; 7,325,006 and 7,258,186 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		7			7
Additional paid-in capital		532,~~573~~888			~~527~~532,~~639~~842
Accumulated deficit		(~~515~~520,~~637~~474	)		(~~508~~516,~~398~~231	)
Total stockholders’ equity		1612,~~943~~421			1916,~~244~~618
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2218,~~145~~049		$	3122,~~178~~847

* Giving retroactive effect to the 1-for-25 reverse stock split effectuated on May 16, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements

POLARITYTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited, in thousands, except share and per share amounts)

		2022			2021			2022			2021
		For the Three Months Ended
		For the Three Months Ended						For the Nine Months Ended
		March 31,
		September 30,						September 30,
		2023			2022
		2022			2021			2022			2021
Net revenues
Net revenues
Services		$	–		$	741
Products		$	–		$	–		$	–		$	2,924
Total net revenues			–			741
Services			–			1,116			814			5,438
Cost of revenues
Total net revenues			–			1,116			814			8,362
Services			–			491
Cost of revenues
Total costs of revenues			–			491
Products			–			–			–			448
Gross profit			–			250
Services			–			634			616			3,275
Operating costs and expenses
Total costs of revenues			–			634			616			3,723
Research and development			2,282			2,860
Gross profit			–			482			198			4,639
General and administrative			2,464			6,209
Operating costs and expenses
Impairment of assets held for sale			56			54
Research and development			2,551			3,870			8,489			10,491
Total operating costs and expenses			4,802			9,123
General and administrative			2,685			3,687			12,456			14,999
Operating loss			(4,802	)		(8,873	)
Sales and marketing			–			93			–			2,718
Other income (expense), net
Restructuring and other charges			–			242			38			678
Change in fair value of common stock warrant liability			528			5,105
Impairment of assets held for sale			169			–			223			–
Interest expense, net			31			(15	)
Total operating costs and expenses			5,405			7,892			21,206			28,886
Other income, net			–			12
Operating loss			(5,405	)		(7,410	)		(21,008	)		(24,247	)
Net loss and comprehensive loss		$	(4,243	)	$	(3,771	)
Other income (expense), net
Net loss per share attributable to common stockholders
Gain on extinguishment of debt			–			–			–			3,612
Basic		$	(0.58	)	$	(1.12	)*
Change in fair value of common stock warrant liability			1,984			6,354			13,719			4,134
Diluted		$	(0.58	)	$	(2.37	)*
Inducement loss on sale of liability classified warrants			–			–			–			(5,197	)
Weighted average shares outstanding
Interest expense, net			(4	)		(29	)		(33	)		(106	)
Basic			7,320,754			3,364,535	*
Other income, net			25			64			83			185
Diluted			7,320,754			3,575,970	*
Net loss and comprehensive loss		$	(3,400	)	$	(1,021	)	$	(7,239	)	$	(21,619	)
Net loss per share attributable to common stockholders
Basic*	*	$	(0.47	)	$	(0.31	)	$	(1.08	)	$	(6.81	)
Diluted*	*	$	(0.47	)	$	(0.37	)	$	(1.54	)	$	(6.81	)
Weighted average shares outstanding
Basic*	*		7,215,898			3,251,387			6,724,876			3,174,697
Diluted*	*		7,215,898			3,270,188			7,505,128			3,176,787

Giving retroactive effect to the 1-for-25 reverse stock split effectuated on May 16, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements

POLARITYTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands, except share and per share amounts)

						For the Three Months Ended March 31, 2023
	Convertible Preferred Stock					Common Stock					Additional Paid-in			Accumulated			Total Stockholders’
	Number			Amount		Number			Amount		Capital			Deficit			Equity
	For the Three and Nine Months Ended September 30, 2022
Balance – December 31, 2022		—		$	—		7,258,186		$	7	$	532,842		$	(516,231	)	$	16,618
	Convertible Preferred Stock					Common Stock*					Additional Paid-in			Accumulated			Total Stockholders’
Stock-based compensation expense		—			—		—			—		46			—			46
	Number			Amount		Number			Amount		Capital			Deficit			Equity
Vesting of restricted stock units		—			—		66,820			—		—			—			—
Balance – December 31, 2021		–		$	–		3,299,379		$	3	$	527,639		$	(508,398	)	$	19,244
Net loss		—			—		—			—		—			(4,243	)		(4,243	)
Issuance of preferred stock and warrants through underwritten offering, net of issuance costs of $184		5,000			–		–			–		1,685			–			1,685
Balance – March 31, 2023		—		$	—		7,325,006		$	7	$	532,888		$	(520,474	)	$	12,421
Issuance of common stock upon conversion of preferred stock		(5,000	)		–		655,738			1		(1	)		–			–
Stock-based compensation expense		–			–		–			–		762			–			762
Vesting of restricted stock units		–			–		25,676			–		–			–			–
Shares withheld for tax withholding		–			–		(7,402	)		–		(127	)		–			(127	)
Net loss		–			–		–			–		–			(3,771	)		(3,771	)
Balance – March 31, 2022		–			–		3,973,391			4		529,958			(512,169	)		17,793
Issuance of common stock and pre-funded warrants through underwritten offering, net of issuance costs of $173		–			–		445,500			–		1,840			–			1,840
Issuance of common stock upon exercise of pre-funded warrants		–			–		488,659			1		–			–			1
Fractional shares issued for reverse stock split		–			–		17,024			–		–			–			–
Stock-based compensation expense		–			–		–			–		530			–			530
Purchase of ESPP Shares		–			–		1,800			–		2			–			2
Vesting of restricted stock units		–			–		58,738			–		–			–			–
Shares withheld for tax withholding		–			–		(13,876	)		–		(52	)		–			(52	)
Net loss		–			–		–			–		–			(68	)		(68	)
Balance – June 30, 2022		–			–		4,971,236			5		532,278			(512,237	)		20,046
Balance		–			–		4,971,236			5		532,278			(512,237	)		20,046
Issuance of common stock upon exercise of prefunded warrants		–			–		2,234,159			2		–			–			2
Stock-based compensation expense		–			–		–			–		297			–			297
Vesting of restricted stock units		–			–		16,033			–		–			–			–
Shares withheld for tax withholding		–			–		(1,454	)		–		(2	)		–			(2	)
Net loss															(3,400	)		(3,400	)
Balance – September 30, 2022		–		$	–		7,219,974		$	7	$	532,573		$	(515,637	)	$	16,943
Balance		–		$	–		7,219,974		$	7	$	532,573		$	(515,637	)	$	16,943

	For the Three Months Ended March 31, 2022
	Convertible Preferred Stock					Common Stock*					Additional Paid-in			Accumulated			Total Stockholders’
	Number			Amount		Number			Amount		Capital			Deficit			Equity
Balance – December 31, 2021		–		$	–		3,299,379		$	3	$	527,639		$	(508,398	)	$	19,244
Balance		–		$	–		3,299,379		$	3	$	527,639		$	(508,398	)	$	19,244
Issuance of preferred stock and warrants through underwritten offering, net of issuance costs of $184		5,000			–		–			–		1,685			–			1,685
Issuance of common stock upon conversion of preferred stock		(5,000	)		–		655,738			1		(1	)		–			–
Stock-based compensation expense		–			–		–			–		762			–			762
Vesting of restricted stock units		–			–		25,676			–		–			–			–
Shares withheld for tax withholding		–			–		(7,402	)		–		(127	)		–			(127	)
Net loss		–			–		–			–		–			(3,771	)		(3,771	)
Balance – March 31, 2022		–		$	–		3,973,391		$	4	$	529,958		$	(512,169	)	$	17,793
Balance		–		$	–		3,973,391		$	4	$	529,958		$	(512,169	)	$	17,793

Giving retroactive effect to the 1-for-25 reverse stock split effectuated on May 16, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements

POLARITYTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited, in thousands, except share and per share amounts)

	Number			Amount		Capital			Deficit			Equity
	For the Three and Nine Months Ended September 30, 2021
	Common Stock*					Additional Paid-in			Accumulated			Total Stockholders’
	Number			Amount		Capital			Deficit			Equity
Balance – December 31, 2020		2,194,284		$	2	$	505,547		$	(478,211	)	$	27,338
Issuance of common stock and pre-funded warrants through underwritten offering, net of issuance costs of $114		266,800			–		1,255			–			1,255
Issuance of common stock and pre-funded warrants through underwritten offering, net of issuance costs		266,800			–		1,255			–			1,255
Issuance of common stock upon exercise of warrants		428,542			1		6,670			–			6,671
Reclassification of warrant liability upon exercise		–			–		8,964			–			8,964
Issuance of common stock upon exercise of pre-funded warrants		306,358			–		8			–			8
Stock-based compensation expense		–			–		1,651			–			1,651
Stock option exercises		100			–		3			–			3
Vesting of restricted stock units		22,617			–		–			–			–
Shares withheld for tax withholding		(4,664	)		–		(139	)		–			(139	)
Forfeiture of restricted stock awards		(1,385	)		–		–			–			–
Net loss		–			–		–			(17,410	)		(17,410	)
Balance – March 31, 2021		3,212,652			3		523,959			(495,621	)		28,341
Stock-based compensation expense		–			–		1,640			–			1,640
Purchase of ESPP shares		1,970			–		28			–			28
Vesting of restricted stock units		17,366			–		–			–			–
Shares withheld for tax withholding		(2,290	)		–		(53	)		–			(53	)
Net loss		–			–		–			(3,188	)		(3,188	)
Balance – June 30, 2021		3,229,698			3		525,574			(498,809	)		26,768
Balance		3,229,698			3		525,574			(498,809	)		26,768
Stock-based compensation expense		–			–		1,317			–			1,317
Vesting of restricted stock units		41,035			–		–			–			–
Shares withheld for tax withholding		(8,201	)		–		(163	)		–			(163	)
Net loss		–			–		–			(1,021	)		(1,021	)
Balance – September 30, 2021		3,262,532		$	3	$	526,728		$	(499,830	)	$	26,901
Balance		3,262,532		$	3	$	526,728		$	(499,830	)	$	26,901

* Giving retroactive effect to the 1-for-25 reverse stock split effectuated on May 16, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements

POLARITYTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

	2022			2021
	For the Three Months Ended March 31,
	For the Nine Months Ended September 30,
	2023			2022
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(74,~~239~~243	)	$	(213,~~619~~771	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		~~1,589~~46			~~4,389~~762
Depreciation and amortization		~~1,231~~148			~~2,083~~455
Impairment of assets held for sale		~~223~~56			–54
Amortization of intangible assets		–			142
Change in fair value of common stock warrant liability		(528	)		(5,105	)
Bad debt expense		–			99
Gain on finance lease termination		(61	)		–
Inventory write-off		–			747
Net (gain)/loss on sale of property and equipment and held for sale assets		31			(2	)
Gain on extinguishment of debt – PPP loan		–			(3,612	)
Change in fair value of common stock warrant liability		(13,719	)		(4,134	)
Inducement loss on sale of liability classified warrants		–			5,197
Loss on restructuring and other charges		–			321
Loss on sale of property and equipment		37			7
Gain on sale of subsidiary and property		(32	)		–
Loss on disposal of property and equipment		3			–
Changes in operating assets and liabilities:
Accounts receivable		~~396~~–			~~2,534~~256
Inventory		–			136
Prepaid expenses and other current assets		(1,086	)		(393	)
Prepaid expenses and other current assets		326			(1,392	)
Operating lease right-of-use assets		322			292
Operating lease right-of-use assets		900			1,011
Accounts payable and accrued expenses		352			1,702
Other assets/liabilities, net		(1	)		247
Other current liabilities		1			(1	)
Accounts payable and accrued expenses		(1,064	)		(456	)
Deferred revenue		–			(52	)
Other current liabilities		–			(29	)
Operating lease liabilities		(118	)		(238	)
Deferred revenue		(51	)		87
Net cash used in operating activities		(5,080	)		(6,041	)
Operating lease liabilities		(898	)		(1,082	)
Net cash used in operating activities		(18,299	)		(15,324	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment		~~(37~~–	)		(1831	)
Proceeds from sale of property and equipment		195			23
Proceeds from sale of property and equipment and held for sale assets		100			7
Proceeds from sale of subsidiary and property, net of selling expenses and cash sold		2,327			–
Net cash provided by/(used in) investing activities		100			(24	)
Net cash provided by investing activities		2,485			5
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from insurance financing arrangements		~~1,027~~–			1,~~028~~027
Principal payments on term note payable and financing arrangements		~~(699~~–	)		(~~708~~10	)
Principal payments on financing leases		(~~256~~72	)		(~~413~~116	)
Net proceeds from the sale of common stock, warrants and pre-funded warrants		7,823			9,884
Net proceeds from the sale of preferred stock and warrants		–			4,814
Proceeds from the sale of warrants		–			1,002
Cash paid for tax withholdings related to net share settlement		–			(127	)
Proceeds from warrants exercised		–			6,671
Net cash provided by/(used in) financing activities		(72	)		5,588
Proceeds from pre-funded warrants exercised		3			8
Net decrease in cash and cash equivalents, including cash classified within assets held for sale		(5,052	)		(477	)
Net proceeds from the sale of preferred stock and warrants		4,814			–
Less: net increase in cash and cash equivalents classified within assets held for sale		–			175
Cash paid for tax withholdings related to net share settlement		(181	)		(355	)
Net decrease in cash and cash equivalents		(5,052	)		(652	)
Proceeds from stock options exercised		–			3
Cash and cash equivalents - beginning of period		11,446			19,375
Proceeds from ESPP purchase		2			28
Cash and cash equivalents - end of period	$	6,394		$	18,723
Net cash provided by financing activities		12,533			17,148
Net (decrease) increase in cash and cash equivalents		(3,281	)		1,829
Cash and cash equivalents - beginning of period		19,375			25,522
Cash and cash equivalents - end of period	$	16,094		$	27,351
Supplemental cash flow information:
Cash paid for interest	$	567		$	9616
Supplemental schedule of non-cash investing and financing activities:
Fair value of placement agent warrants issued in connection with offerings	$	417		$	838
Disposal of held for sale assets in exchange for extinguishment of finance lease liabilities	$	157		$	–
Reclassification of warrant liability to stockholders’ equity upon exercise of warrant	$	–		$	8,964
Fair value of placement agent warrants issued in connection with offerings	$	–		$	144
Conversion of Series A and Series B preferred stock into common stock	$	16–		$	–16
Allocation of proceeds to warrant liability	$	~~9,113~~–		$	83,~~629~~129
Deferred and accrued offering costs	$	98–		$	~~400~~104
Sale of assets held for sale in exchange for a note receivable	$	400		$	–
Reclassification of assets held for sale	$	–		$	3,163
Reclassification of lease deposit to short term	$	210		$	–
Reclassification of liabilities held for sale	$	–		$	215

The accompanying notes are an integral part of these condensed consolidated financial statements

POLARITYTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. PRINCIPAL BUSINESS ACTIVITY AND BASIS OF PRESENTATION

PolarityTE, Inc. (together with its subsidiaries, the “Company”) is a clinical stage biotechnology company developing regenerative tissue products and biomaterials. The Company also operated a laboratory testing and clinical research business until the end of April 2022.

The Company’s first regenerative tissue product is SkinTE. In July 2021, the Company submitted an investigational new drug application (“IND”) for SkinTE to the United States Food and Drug Administration (the “FDA”) through its subsidiary, PolarityTE MD, Inc. Prior to June 1, 2021, the Company sold SkinTE under Section 361 of the Public Health Service Act in 2020 and into 2021 and, after the Company’s decision to file an IND under Section 351 of that Act, under an enforcement discretion position stated by the FDA in a regenerative medicine policy framework to help facilitate regenerative medicine therapies. The FDA’s stated period of enforcement discretion ended May 31, 2021. Consequently, the Company terminated commercial sales of SkinTE on May 31, 2021, ceased its SkinTE commercial operations, and has transitioned to a clinical stage company pursuing an IND for SkinTE. As a result, there ~~were~~are no ~~product~~ product sales from commercial SkinTE after June 2021. The only revenues recognized subsequent to June 2021 for SkinTE were nominal amounts collected on accounts for product shipped prior to the end of May 2021 that were not previously recognized because of concerns with collectability. No revenue for SkinTE was recognized during the three and nine months ended September 30, 2022.

At the beginning of May 2018, the Company acquired a preclinical research and veterinary sciences business, which ~~has~~had been used for preclinical studies on the Company’s regenerative tissue products and to offer preclinical research services to unrelated third parties on a contract basis. The Company sold the business at the end of April 2022 and ceased to recognize services revenues after the sale. Consequently, the Company is no longer engaged in any revenue generating business activity and its operations are now focused on advancing the IND for SkinTE.

The accompanying interim condensed consolidated financial statements of the Company are unaudited, but in the opinion of management, reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. Accordingly, they do not include all information and notes required by accounting principles generally accepted in the United States of America (U.S. GAAP) for complete financial statements. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire fiscal year. The balance sheet at December 31, ~~2021~~2022, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, ~~2021~~2022, filed with the Securities and Exchange Commission on Form 10-K on March 3027, ~~2022~~2023.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities or the disclosure of gain or loss contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Among the more significant estimates included in these financial statements is the extent of progress toward completion of contracts with customers, stock-based compensation, the valuation allowance for deferred tax assets, the valuation of common stock warrant liabilities, and the impairment of ~~property and equipment~~assets. Actual ~~results~~ results could differ from those estimates.

~~Cash~~Concentration ~~and~~of ~~cash~~Credit ~~equivalents~~Risk. ~~Cash~~Balances ~~equivalents~~are ~~consist~~maintained ofat ~~highly~~U.S. ~~liquid~~financial ~~investments~~institutions ~~with~~and ~~original~~may ~~maturities~~exceed ofthe ~~three~~Federal ~~months~~Deposit orInsurance ~~less~~Corporation ~~from~~(“FDIC”) ~~the~~insurance ~~date~~limit of ~~purchase~~$250,000 per depositor, per insured bank for each account ownership category. AsAlthough ofthe ~~September~~Company ~~30,~~currently ~~2022~~believes that the financial institutions with whom it does business, will be able to fulfill their commitments to the Company, ~~did~~there is no assurance that those institutions will be able to continue to do so. The Company has not ~~hold~~experienced any ~~cash~~credit ~~equivalents~~losses associated with its balances in such accounts for the three months ended March 31, 2023 and 2022.

Assets and Liabilities Held for Sale. Assets and liabilities to be disposed (“disposal group”) of by sale are reclassified into assets held for sale and liabilities held for sale on the Company’s condensed consolidated balance ~~sheet~~sheets. The reclassification occurs when an agreement to sell exists, or management has committed to a plan to sell the assets within one year. Disposal groups are measured at the lower of carrying value or fair value less costs to sell and are not depreciated or amortized. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group. During the three months ended March 31, 2023, the Company remeasured assets held for sale and recorded an impairment loss of $0.1 million.

Leases. The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Finance leases are reported in the condensed consolidated balance ~~sheet~~sheets in property and equipment and other ~~current~~ current and long-term liabilities. The current portion of operating lease obligations are included in other current liabilities. The ~~classification~~ classification of the Company’s leases as operating or finance leases along with the initial measurement and recognition of the associated ROU assets and lease liabilities is performed at the lease commencement date. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The ROU asset is based on the measurement of the lease liability and also includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options. Rent expense for the Company’s operating leases is recognized on a straight-line basis over the lease term. Amortization expense for the ROU asset associated with its finance leases is recognized on a straight-line basis over the term of the lease and interest expense associated with its finance leases is recognized on the balance of the lease liability using the effective interest method based on the estimated incremental borrowing rate.

The Company has lease agreements with lease and non-lease components. As allowed under ASC 842, the Company has elected not to separate lease and non-lease components for any leases involving real estate and office equipment classes of assets and, as a result, accounts for the lease and non-lease components as a single lease component. The Company has also elected not to apply the recognition requirement of ASC 842 to leases with a term of 12 months or less for all classes of assets.

Impairment of Long-Lived Assets. The Company reviews long-lived assets, including property and equipment for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.

Revenue Recognition. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

The Company ~~recorded~~does ~~product~~not ~~revenues~~currently ~~primarily~~perform ~~from~~any revenue generating activities. Prior to the sale of ~~SkinTE,~~IBEX ~~its~~Preclinical ~~regenerative~~Research, ~~tissue product~~Inc. ~~When~~(“IBEX”) in April 2022, the Company ~~marketed~~recorded service revenues from the sale of its ~~SkinTE product~~preclinical research services, itwhich ~~was~~included ~~sold~~delivery toof ~~healthcare~~preclinical studies ~~providers~~and ~~(customers),~~other ~~primarily~~research ~~through~~services ~~direct~~to ~~sales~~unrelated ~~representatives~~third parties. ~~Product~~Service revenues generally consisted of a single performance obligation that the Company satisfied atover atime ~~point~~using inan ~~time.~~input Inmethod ~~general,~~based on costs incurred to date relative to the ~~Company~~total ~~recognized~~costs ~~product~~expected ~~revenue~~to be ~~upon~~required ~~delivery~~ to satisfy the ~~customer~~performance obligation. See Note 5 for further details on the IBEX sale.

In the contract services segment, the Company recorded service revenues from the sale of its preclinical research services, which included delivery of preclinical studies and other research services to unrelated third parties. Service revenues generally consisted of a single performance obligation that the Company satisfied over time using an input method based on costs incurred to date relative to the total costs expected to be required to satisfy the performance obligation. The Company believes that this method provides an appropriate measure of the transfer of services over the term of the performance obligation based on the remaining services needed to satisfy the obligation. This required the Company to make reasonable estimates of the extent of progress toward completion of the contract. As a result, unbilled receivables and deferred revenue were recognized based on payment timing and work completed. Generally, a portion of the payment was due upfront and the remainder upon completion of the contract, with most contracts completing in less than a year. Contract services also included research and laboratory testing services to unrelated third parties on a contract basis. Due to the short-term nature of the services, these customer contracts generally consisted of a single performance obligation that the Company satisfied at a point in time. The Company satisfied the single performance obligation and recognized revenue upon delivery of testing results to the customer. As of September 30, 2022 and December 31, 2021, the Company had unbilled receivables of zero and $0.5 million, respectively, and deferred revenue of zero and $0.1 million, respectively. Revenue of $0.1 million was recognized during the nine months ended September 30, 2022 that was included in the deferred revenue balance as of December 31, 2021.

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

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

Common Stock Warrant Liability. The Company accounts for common stock warrants issued as freestanding instruments in accordance with applicable accounting guidance as either liabilities or as equity instruments depending on the specific terms of the warrant agreement. Under certain change of control provisions, some warrants issued by the Company could require cash settlement which necessitates such warrants to be recorded as liabilities. Warrants classified as liabilities are remeasured at fair value each period until settled or until classified as equity.

Stock-Based Compensation. The Company measures all stock-based compensation to employees and non-employees using a fair value method and records such expense in general and administrative, research and development, and sales and marketing expenses. For stock options with graded vesting, the Company recognizes compensation expense over the service period for each separately vesting tranche of the award as though the award were in substance, multiple awards based on the fair value on the date of grant.

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

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

Reverse Stock Split. On May 12, 2022, the Company’s Board of Directors approved a reverse stock split in the ratio of 1-for-25 (“Reverse Stock Split”). The Reverse Stock Split became effective as of May 16, 2022. Fractional shares resulting from the reverse stock split were rounded up to the nearest whole share, which resulted in the issuance of a total of 17,024 shares of common stock to implement the reverse stock split.

The Company accounted for the reverse stock split on a retrospective basis pursuant to ASC 260, Earnings Per Share. All issued and outstanding common stock, common stock warrants, stock option awards, exercise prices and per share data have been adjusted in these condensed consolidated financial statements, on a retrospective basis, to reflect the reverse stock split for all periods presented. The number of authorized shares and par value of the preferred stock and common stock were not adjusted because of the reverse stock split.

Net Loss Per Share. Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Gains on warrant liabilities are only considered dilutive when the average market price of the common stock during the period exceeds the exercise price of the warrants. All common stock warrants issued participate on a one-for-one basis with common stock in the distribution of dividends, if and when declared by the Board of Directors, on the Company’s common stock. For purposes of computing earnings per share (EPS), outstanding warrants and preferred stock are considered to participate with common stock in earnings of the Company. Therefore, the Company calculates basic and diluted EPS using the two-class method. Under the two-class method, net loss for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed losses. No loss was allocated to the warrants or preferred stock for the three and nine months ended September 30, 2022 and 2021 as the Company incurred a loss for each period and the warrant and preferred stockholders are not required to absorb losses. The Company has issued pre-funded warrants from time to time at an exercise price of $0.025 per share. The shares of common stock into which the pre-funded warrants may be exercised are considered outstanding for the purposes of computing basic earnings per share because the shares may be issued for little or no consideration, are fully vested, and are exercisable after the original issuance date.9

~~Recent~~Net ~~Accounting~~Loss ~~Pronouncements~~Per Share. Basic net loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Gains on warrant liabilities are only considered dilutive when the average market price of the common stock during the period exceeds the exercise price of the warrants. All common stock warrants issued participate on a one-for-one basis with common stock in the distribution of dividends, if and when declared by the Board of Directors, on the Company’s common stock. For purposes of computing earnings per share (EPS), outstanding warrants and preferred stock are considered to participate with common stock in earnings of the Company. Therefore, the Company calculates basic and diluted EPS using the two-class method. Under the two-class method, net loss for the period is allocated between common stockholders and participating securities according to dividends declared and participation rights in undistributed losses. No loss was allocated to the warrants or preferred stock for the three months ended March 31, 2023 and 2022 as the Company incurred a loss for each period and the warrant and preferred stockholders are not required to absorb losses. The Company has issued pre-funded warrants from time to time at an exercise price of $0.025 per share. The shares of common stock into which the pre-funded warrants may be exercised are considered outstanding for the purposes of computing basic earnings per share because the shares may be issued for little or no consideration, are fully vested, and are exercisable after the original issuance date.

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

Recently Adopted Accounting Pronouncements

In ~~August~~June ~~2020~~2016, the ~~FASB~~Financial ~~issued~~Accounting ~~ASU~~Standards ~~No.~~Board ~~2020-06,~~(FASB) ~~Debt—Debt~~issued ~~with~~Accounting ~~Conversion~~Standards ~~and~~Update ~~Other Options~~ (~~Subtopic~~ASU) ~~470~~No. 2016-~~20)~~13, ~~and~~Financial ~~Derivatives~~Instruments-Credit ~~and~~Losses ~~Hedging—Contracts in Entity’s Own Equity~~ (~~Subtopic~~Topic ~~815-40~~326):, ~~Accounting~~which ~~for~~requires ~~Convertible~~entities ~~Instruments~~to ~~and~~measure ~~Contracts~~all inexpected ~~an Entity’s~~credit ~~Own~~losses ~~Equity~~for ~~(ASU~~financial ~~2020-06).~~assets ~~ASU~~held ~~2020-06~~at ~~simplifies~~ the ~~accounting~~reporting ~~for certain financial instruments with characteristics~~date ofbased ~~liabilities~~on ~~and~~historical ~~equity~~experience, ~~including~~current ~~convertible~~conditions, ~~instruments~~ and ~~contracts~~reasonable inand ansupportable ~~entity’s~~forecasts. ~~own~~This ~~equity.~~replaces ~~Those~~the ~~instruments~~existing ~~that~~incurred doloss ~~not~~model ~~have~~and ais ~~separately~~applicable ~~recognized~~to ~~embedded~~the ~~conversion~~measurement ~~feature~~of ~~will~~credit nolosses ~~longer~~on ~~recognize~~financial aassets ~~debt~~measured ~~issuance~~at ~~discount~~amortized ~~related~~cost. toThis ~~such~~standard awas ~~conversion~~effective ~~feature~~for ~~and~~fiscal ~~would~~years ~~recognize~~beginning ~~less~~after ~~interest~~December ~~expense~~15, on2019, aincluding ~~periodic~~interim ~~basis.~~periods Itwithin ~~also~~those ~~removes~~fiscal ~~from~~years ~~ASC~~with ~~815-40-25-10~~early ~~certain~~adoption ~~conditions for equity~~permitted. ~~classification~~In ~~and~~November ~~amends~~2019, ~~certain~~the ~~guidance~~FASB inissued ~~ASC~~ASU ~~Topic~~No. ~~260~~2019-10, onFinancial ~~the~~Instruments–Credit ~~computation~~Losses of(Topic ~~EPS~~326), ~~for~~Derivatives ~~convertible instruments~~ and ~~contracts in an~~Hedging ~~entity’s~~(Topic ~~own~~815) ~~equity.~~and AnLeases ~~entity~~(Topic ~~can~~842): ~~use~~Effective ~~either~~Dates, awhich ~~full~~defers orthe ~~modified~~effective ~~retrospective~~date ~~approach~~of toTopic ~~adopt the ASU’s guidance~~326. The Company ~~early~~ adopted this ASU using the modified-retrospective approach for the fiscal year beginning January 1, ~~2022~~2023. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which specifies that the effects of modifications or exchanges of freestanding equity-classified written call options that remain equity after modification or exchange should be recognized depending on the substance of the transaction, whether it be a financing transaction to raise equity (topic 340), to raise or modify debt (topic 470 and 835), or other modifications or exchanges. If the modification or exchange does not fall under topics 340, 470, or 835, an entity may be required to account for the effects of such modifications or exchanges as dividends which should adjust net income (or loss) in the basic EPS calculation. The Company adopted this ASU prospectively for the fiscal year beginning January 1, 2022. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

3. LIQUIDITY AND GOING CONCERN

The Company is a clinical stage biotechnology company that has incurred recurring losses and negative cash flows from operations since commencing its biotechnology business in 2017. As of ~~September~~March 3031, ~~2022~~2023, the Company had an accumulated deficit of $~~515~~520.65 million. As of ~~September 30,~~March ~~2022~~31, 2023, the Company had cash and cash equivalents of $166.14 million. The Company has been funded historically through sales of equity and debt.

These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and settle its liabilities in the normal course of business. The Company’s significant operating losses raise substantial doubt regarding the Company’s ability to continue as a going concern for at least one year from the date of issuance of these ~~consolidated~~condensed ~~financial~~consolidated financial statements. The financial statements do not include any adjustments relating to the recoverability and classification of recorded ~~asset~~ asset amounts or amounts of liabilities that might result from the outcome of this uncertainty. Consequently, the future success of the ~~Company~~ Company depends on its ability to attract additional capital and, ultimately, on its ability to successfully complete the regulatory ~~approval~~ approval process for its product, SkinTE, and develop future profitable operations. The Company will seek additional capital through equity offerings or debt financing. However, such financing may not be available in the future on favorable terms, if at all.

4. FAIR VALUE

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

● Level 1: Observable inputs such as quoted prices in active markets for identical instruments. ● Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the market. ● Level 3: Significant unobservable inputs supported by little or no market activity. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, for which determination of fair value requires significant judgment or estimation.

	●	Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the market.

	●	Level 3: Significant unobservable inputs supported by little or no market activity. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, for which determination of fair value requires significant judgment or estimation.

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

The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy (in thousands):

SCHEDULE OF FAIR VALUE OF FINANCIAL ~~INSTRUMENTS~~ASSETS ~~MEASURED~~AND LIABILITIES MEASURES ON RECURRING BASIS

September 30, 2022

March 31, 2023

Level 1

Level 2

Level 3

Total

Liabilities

Common stock warrant liability

–

~~2,238~~961

Total

–

~~2,238~~961

December 31, 2021

December 31, 2022

Level 1

Level 2

Level 3

Total

Liabilities

Common stock warrant liability

–

61,~~844~~489

Total

–

61,~~844~~489

The Company assesses its assets held for sale, long-lived assets, including property, ~~plant~~equipment, and ~~equipment and~~ ROU assets at their estimated fair value on a non-recurring basis. The Company reviews the carrying amounts of such assets when events indicate that their carrying amounts may not be recoverable. Any resulting impairment would require that the asset be recorded at its fair value. During each of the ~~nine months~~three months ended ~~September~~March 3031, 2023 and 2022, the Company recognized an impairment charge of $0.21 million related to equipment classified in assets held for sale. ~~During the nine months ended September 30, 2021, the Company recognized an impairment charge of $0.4 million related to property and equipment.~~ As of each measurement date, the fair value of assets held for sale ~~and property and equipment~~ was determined utilizing Level 3 inputs and were based on a market approach. See ~~Notes 7 and~~ Note 155 for additional details.

The following table presents the change in fair value of the liability classified common stock warrants for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 (in thousands):

Fair Value at December 31, 2021

Initial Fair Value at Issuance

(Gain) Loss Upon Change in Fair Value

Liability Reduction Due to Exercises

Fair Value at September 30, 2022

Fair Value at December 31, 2022

(Gain) Loss Upon Change in Fair Value

Fair Value at March 31, 2023

Warrant liabilities

February 14, 2020 issuance

~~291~~8

–(2

)

~~(278~~6

)

–

December 23, 2020 issuance

~~239~~2

–(1

)

~~(234~~1

)

~~(8,964~~

)

January 14, 2021 issuance

~~3,345~~72

–(42

)

~~(3,223~~30

)

–

~~122~~

January 25, 2021 issuance

~~2,969~~64

–(37

)

~~(2,860~~27

)

–

~~109~~

March 16, 2022 issuance

–26

~~3,129~~(25

)

~~(3,073~~1

)

–

June 8, 2022 issuance

–1,317

~~5,984~~(421

)

~~(4,051~~896

)

–

~~1,933~~

Total

61,~~844~~489

~~9,113~~(528

)

~~(13,719~~961

)

~~(8,964~~

)

~~2,238~~

1311

The following table presents the change in fair value of the liability classified common stock warrants for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022 (in thousands):

Fair Value at December 31, 2020

Initial Fair Value at Issuance

(Gain) Loss Upon Change in Fair Value

Liability Reduction Due to Exercises

Fair Value at September 30, 2021

Fair Value at December 31, 2021

Initial Fair Value at Issuance

(Gain) Loss Upon Change in Fair Value

Fair Value at March 31, 2022

Warrant liabilities

February 14, 2020 issuance

~~328~~291

–

(6179

)

–112

~~322~~

December 23, 2020 issuance

~~5,647~~239

–

~~3,585~~(166

)

~~(8,964~~73

)

~~268~~

January 14, 2021 issuance

–3,345

~~8,629~~–

(41,~~858~~856

)

–1,489

~~3,771~~

January 25, 2021 issuance

–2,969

~~6,199~~–

(21,~~855~~649

)

–1,320

~~3,344~~

Inducement loss on initial fair value(1)

–

5,197

–

March 16, 2022 issuance

–

3,129

(1,255

)

1,874

Total

56,~~975~~844

143,~~828~~129

1(5,~~063~~105

)

(84,~~964~~868

)

~~7,705~~

(1) Concurrent with the issuance of the January 25, 2021 warrants, upon the exercise of the December 23, 2020 warrants, an inducement loss of $5.2 million was recorded during the nine-month period ended September 30, 2021, as the fair value of the initial warrant liability for the new warrants of $6.2 million exceeded the gross proceeds received upon sale of the new warrants of approximately $1.0 million.

The Company uses the Monte Carlo simulation model to determine the fair value of the liability classified warrants. Input assumptions used to measure the fair value of these freestanding instruments are as follows:

		For the Nine Months ended
		For the Three Months ended
		September 30, 2022
		March 31, 2023
Stock price	$	$ 0.8750 – 80.5550
Exercise price	$	$ 2.40 – 34.5038
Risk-free rate		13.9568 – 4.2366	%
Volatility		98107.40 – ~~123~~113.61	%
Remaining term (years)		10.4696 – 54.0019

		For the Nine Months ended
		For the Three Months ended
		September 30, 2021
		March 31, 2022
Stock price	$	16$ 6.25 – 308.2550
Exercise price	$	$ 2.50 – 34.50
Risk-free rate		01.4295 – 12.1344	%
Volatility		9998.04 – ~~102~~103.86	%
Remaining term (years)		41.2396 – 54.87

5. ASSETS AND LIABILITIES HELD FOR SALE

Equipment

InThe ~~November 2021, the~~ Company committed to a plan to sell a variety of lab equipment within the regenerative medicine products reporting segment. The lab equipment has been designated as held for sale and is presented as such within the condensed consolidated balance ~~sheet~~ sheets as of ~~December~~March 31, ~~2021~~2023 and December ~~September 30~~31, 2022.

InDuring ~~September~~each ~~2022, the Company committed to a plan to sell a variety~~ of ~~lab equipment within~~ the ~~regenerative~~three ~~medicine~~months ~~products~~ended ~~reporting segment.~~March ~~The~~31, ~~lab~~2023 ~~equipment has been designated as held for sale~~ and ~~is presented as such within the condensed consolidated balance sheet as of September 30,~~ 2022~~. During the nine months ended September 30~~, ~~2022,~~ the Company recorded an impairment of $0.21 million related to the lab equipment designated as held for sale ~~within the regenerative medicine products reporting segment~~.

IBEX Sale

At the beginning of May 2018, the Company acquired a preclinical research and veterinary sciences business, which has been used for preclinical studies on the Company’s regenerative tissue products and to offer preclinical research services to unrelated third parties on a contract basis. The Company operated this business through its indirect subsidiary, IBEX Preclinical Research, Inc. (“IBEX”). Utah CRO Services, Inc., a Nevada corporation (“Utah CRO”), is a direct subsidiary of the Company and held all the outstanding capital stock of IBEX (the “IBEX Shares”). Utah CRO also holds all the member interest of IBEX Property LLC, a Nevada limited liability company (“IBEX Property”), that owned two unencumbered parcels of real property in Logan, Utah, consisting of approximately 1.75 combined gross acres of land, together with the buildings, structures, fixtures, and personal property (the “Property”), which was leased by IBEX Property to IBEX for IBEX to conduct its preclinical research and veterinary sciences business.

In March 2022, the Company reached a nonbinding understanding with an unrelated third party that contemplated the sale of IBEX, which operates within the contract services reporting segment, along with IBEX Property. The assets and liabilities related to IBEX were designated as held for sale. The Company measured the assets and liabilities held for sale at the lower of their carrying value or fair value less costs to sell. The operating results of IBEX did not qualify for reporting as discontinued operations.

On April 14, 2022, Utah CRO entered into a Stock Purchase Agreement (the “Stock Agreement”) with an unrelated third party (“Buyer”), pursuant to which Utah CRO agreed to sell all the outstanding IBEX Shares to Buyer in exchange for an unsecured promissory note in the principal amount of $0.4 million bearing simple interest at the rate of 10% per annum with interest only payable on a quarterly basis and all principal and remaining accrued interest due on the five-year anniversary of the closing of the sale of the IBEX Shares to Buyer. Furthermore, on April 14, 2022, IBEX Property entered into a Real Estate Purchase and Sale Agreement (the “Real Estate Agreement”) with another unrelated third party (“Purchaser”) pursuant to which IBEX Property agreed to sell to Purchaser the Property at a gross purchase price of $2.8 million payable in cash at closing of the transaction. The Buyer and Purchaser are affiliates of each other as a result of common ownership. On April 28, 2022, the parties to the Stock Agreement and Real Estate Agreement closed the transactions contemplated thereby and on April 29, 2022, the Company received the promissory note described above in the principal amount of $0.4 million and net cash proceeds of $2.3 million, after deducting closing costs and advisory fees, from sale of the Property under the Real Estate Agreement. As of a result of this transaction, the Company recorded $0.4 million as a long-term note receivable in other assets within the accompanying condensed consolidated balance sheets as of ~~September~~March 3031, 2023 and December 31, 2022. As the sale price less cost to sell was greater than the carrying value of these assets the Company recognized an insignificant net gain on sale in the second quarter of fiscal year 2022 in other income, net ~~within the accompanying condensed consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2022~~.

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

The following table presents the major components of prepaid expenses and other current assets (in thousands):

SCHEDULE OF PREPAID ~~EXPENSE~~EXPENSES AND OTHER CURRENT ASSETS

	September 30, 2022		December 31, 2021
	March 31, 2023		December 31, 2022
Other current receivable	$	97	$	67
Prepaid insurance	$	1,249	$	239
Short term deposit		359		150
Other current receivable		446		332
Prepaid insurance		627		239
Prepaid expenses		402		440
Prepaid expenses		298		445
Deferred offering costs		98		98
Deferred offering costs		98		694
Total prepaid expenses and other current assets	$	2,195	$	1,109
Total prepaid expenses and other current assets	$	1,479	$	1,595

7. PROPERTY AND EQUIPMENT, NET

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

SCHEDULE OF PROPERTY AND EQUIPMENT, NET

	September 30, 2022			December 31, 2021
	March 31, 2023			December 31, 2022
Machinery and equipment	$	54,~~777~~436		$	84,~~502~~436
Land and buildings		–			2,000
Computers and software		570			570
Computers and software		992			1,129
Leasehold improvements		1,808			1,808
Leasehold improvements		2,038			2,107
Furniture and equipment		100			100
Construction in progress		–			133
Total property and equipment, gross		6,914			6,914
Furniture and equipment		119			123
Accumulated depreciation		(5,287	)		(5,139	)
Total property and equipment, gross		8,926			13,994
Total property and equipment, net	$	1,627		$	1,775
Accumulated depreciation		(6,427	)		(7,071	)
Total property and equipment, net	$	2,499		$	6,923

The Company sold SkinTE under Section 361 of the Public Health Service Act in 2020 and into 2021 and, after the Company’s decision to file an IND under Section 351 of that Act, under an enforcement discretion position stated by the FDA in a regenerative medicine policy framework to help facilitate regenerative medicine therapies. The FDA’s stated period of enforcement discretion ended May 31, 2021. Consequently, the Company terminated commercial sales of SkinTE on May 31, 2021, and ceased its SkinTE commercial operations. As a result, there are no product sales from commercial SkinTE after June 2021 and the Company has eliminated or reduced costs associated with commercial sale of SkinTE.13

The Company evaluated the future use of its commercial property and equipment and recorded an impairment charge of approximately $0.2 million during the nine months ended September 30, 2022. The impairment charge related to lab equipment designated as held for sale within the regenerative medicine products reporting segment.

Depreciation and amortization expense for property and equipment, including assets acquired under financing leases was as follows (in thousands):

	2022		2021		2022		2021
	For the Three Months Ended
	For the Three Months Ended				For the Nine Months Ended
	March 31,
	September 30,				September 30,
	2023		2022
	2022		2021		2022		2021
General and administrative expense	$	3	$	49
General and administrative expense	$	14	$	71	$	75	$	667
Research and development expense		145		406
Research and development expense		359		575		1,156		1,416
Total depreciation and amortization expense	$	148	$	455
Total depreciation and amortization expense	$	373	$	646	$	1,231	$	2,083

8. LEASES

The Company leases facilities and certain equipment under noncancelable leases that expire at various dates through November ~~2024~~2027. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases may include options to extend or terminate the lease at the election of the Company. These optional periods have not been considered in the determination of the right-of-use-assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.

Operating Leases

OnIn ~~December~~November 272022, ~~2017,~~ the Company entered into aan ~~commercial~~operating lease ~~agreement~~for ~~(the “Lease”) with Adcomp LLC (the “Landlord”) pursuant to which the Company leases~~ approximately ~~178~~63,~~528~~156 rentable square feet of warehouse, manufacturing, office, and lab space ~~in Salt Lake City, Utah (the “Property”) from the Landlord~~. The initial term of the ~~Lease~~lease is five years, and it expires on November 30, ~~2022~~2027. The Company has a one-time option to renew for an additional five years ~~and an option to purchase the Property at a purchase price of $17~~.5 ~~million.~~ The initial base rent under ~~the~~this ~~Lease~~lease is $9859,~~190~~998 per month ($0.5595 per sq. ft.) for the first year of the initial lease term and increases 34.0% per annum thereafter. Because the rate implicit in the lease is not readily determinable, the Company ~~has~~ used an incremental borrowing rate of approximately 10% to determine the present value of the lease payments.

On December 16, 2021, the Company gave written notice to the Landlord of its election to exercise the option to purchase the Property, and on March 14, 2022, the Company and Landlord entered into a definitive purchase and sale agreement that provides for a closing of the transaction on November 15, 2022 (the “Purchase Agreement”). In connection with exercising the option to purchase the Property, the Company made an earnest money deposit of $150,000 that may be refunded if closing conditions or contingencies running in the Company’s favor are not satisfied or the Landlord defaults in its obligations under the lease or the purchase agreement for the Property. On October 25, 2021, the Company signed a Purchase and Sale Agreement, the terms of which were finalized on December 10, 2021, and subsequently amended by Amendment No. 1 thereto dated March 15, 2022 (the “BCG Agreement”), with BCG Acquisitions LLC (“BCG”). Under the BCG Agreement the Company agreed to sell the Property to BCG or its assigns for $17.5 million after the Company’s purchase of the Property from the Landlord. Under the BCG Agreement, BCG made an initial earnest money deposit totaling $200,000, which the parties subsequently agreed to reduce to $150,000, that will be refunded if the Company is unable to complete the purchase of the Property from the Landlord under the Purchase Agreement on a timely basis, closing conditions or contingencies running in favor of BCG are not satisfied, or the Company defaults in its obligations under the BCG Agreement. Closing of the foregoing transactions are subject to a number of risks and uncertainties including, but not limited to, satisfaction of all closing conditions, including obtaining financing for the purchase, and closing on the purchase of the Property from the Landlord under the Purchase Agreement, and satisfaction of all closing conditions, including obtaining financing for the purchase, and closing on the sale of the Property to BCG under the BCG Agreement.

In April 2019, the Company entered into an operating lease to obtain 6,307 square feet of manufacturing, laboratory, and office space. The lease provided for monthly lease payments subject to annual increases and had an expiration date in April 2024. During 2020, the Company initiated a business analysis to determine the long-term strategy of the remote facility and cost to remain operational. It was determined that the Company would cease operations and vacate the facility. The Company terminated the lease on June 30, 2021.

In November 2021, the Company entered into an operating lease to obtain office equipment with Pacific Office Automation, Inc. The initial term of the lease is three years and it expires on November 2024. The initial base rent under this lease is $3,983 per month for the entire lease term and includes a cash incentive of $0.1 million. Because the rate implicit in the lease is not readily determinable, the Company has used an incremental borrowing rate of 7.42% to determine the present value of the lease payments.

Financing Leases

In November 2018 and April 2019, the Company entered into financing leases primarily for laboratory equipment used in research and development activities. The financing leases have remaining terms that range from ~~less~~3 ~~than 1 month~~ to 198 months as of ~~September~~March 3031, ~~2022~~2023 and include options to purchase equipment at the end of the lease. Because the rate implicit in the lease is not readily determinable, the Company has used an incremental borrowing rate of 10% to determine the present value of the lease payments for these leases.

AsIn March 2023, the Company negotiated a buyout of ~~September~~a ~~30,~~financing ~~2022~~lease liability of $0.2 million in exchange for the leased equipment and some additional lab equipment. As the leased equipment ROU asset had previously been impaired to zero, the ~~maturities~~buyout ofresulted ~~operating~~in ~~and~~the ~~finance~~Company recording a gain on termination of the lease ~~liabilities~~of ~~were~~$0.1 asmillion, ~~follows~~that (has been recorded in ~~thousands):~~general and administrative expenses on the condensed consolidated income statement for the period ended March 31, 2023.

As of March 31, 2023, the maturities of operating and finance lease liabilities were as follows (in thousands):

	Operating leases			Finance leases
	Operating leases*			Finance leases
2022 (excluding the nine months ended September 30, 2022)	$	233		$	80
2023 (excluding the three months ended March 31, 2023)	$	478		$	45
2023		48			312
2024		793			–
2024		41			42
2025		781			–
Total lease payments		322			434
2026		813			–
2027		772			–
Total lease payments		3,637			45
Less:
Imputed interest		(8729	)		(291	)
Total	$	~~314~~2,908		$	~~405~~44

*	2023 amounts shown above are net of cash inflows for tenant improvement allowances expected to be received during the year.

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

Finance leases

	September 30, 2022		December 31, 2021
	March 31, 2023		December 31, 2022
Finance lease right-of-use assets included within property and equipment, net	$	~~305~~4	$	~~461~~4
Current finance lease liabilities included within other current liabilities	$	~~292~~45	$	~~329~~293
Non-current finance lease liabilities included within other long-term liabilities		~~113~~–		~~338~~41
Total	$	~~405~~45	$	~~667~~334

Operating leases

	September 30, 2022		December 31, 2021
	March 31, 2023		December 31, 2022
Current operating lease liabilities included within other current liabilities	$	~~262~~413	$	~~1,169~~394
Operating lease liabilities – non-current		522,495		432,632
Total	$	~~314~~2,908	$	13,~~212~~026

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

SUMMARY OF ~~COMPONENTS~~COMPONENT OF LEASE EXPENSE

	2022		2021		2022		2021
	2023		2022
	For the Three Months Ended				For the Nine Months Ended
	For the Three Months Ended March 31,
	September 30,				September 30,
	2023		2022
	2022		2021		2022		2021
Operating lease costs included within operating costs and expenses	$	395	$	318
Operating lease costs included within operating costs and expenses	$	318	$	385	$	954	$	1,172
Finance lease costs:
Finance lease costs:
Amortization of right-of-use assets	$	–	$	51
Amortization of right-of-use assets	$	50	$	163	$	151	$	491
Interest on lease liabilities		7		16
Interest on lease liabilities		12		24		42		80
Total	$	7	$	67
Total	$	62	$	187	$	193	$	571

Supplemental cash flow information related to leases was as follows (in thousands):

	2022		2021
	2023		2022
	For the Nine Months Ended September 30,
	For the Three Months Ended March 31,
	2022		2021
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash out flows from operating leases	$	~~952~~192	$	~~1,243~~264
Operating cash out flows from finance leases	$	427	$	8016
Financing cash out flows from finance leases	$	~~256~~72	$	~~413~~116
Lease liabilities arising from obtaining right-of-use assets:
Remeasurement of operating lease liability due to lease modification/termination	$	–	$	386

As of September 30, 2022 and December 31, 2021, the weighted average remaining lease term for operating leases was 0.8 and 1.0 years, respectively, and the weighted average discount rate used for operating leases was 9.26% and 9.96%, respectively. As of September 30, 2022 and December 31, 2021, the weighted average remaining lease term for finance leases was 1.4 and 2.0 years, respectively, and the weighted average discount rate used for finance leases was 9.65% and 9.63%, respectively.15

18As of March 31, 2023 and December 31, 2022, the weighted average remaining lease term for operating leases was 4.6 and 4.8 years, respectively, and the weighted average discount rate used for operating leases was 9.70% and 9.69%, respectively. As of March 31, 2023 and December 31, 2022, the weighted average remaining lease term for finance leases was 0.7 and 1.2 years, respectively, and the weighted average discount rate used for finance leases was 8.25% and 9.67%, respectively.

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The following table presents the major components of accounts payable and accrued expenses (in thousands):

	September 30, 2022		December 31, 2021
	March 31, 2023		December 31, 2022
Accounts payable	$	~~351~~244	$	~~173~~459
Salaries and other compensation		~~610~~517		~~722~~463
Legal and accounting		~~117~~264		~~1,082~~71
Accrued severance		–63		~~111~~16
Benefit plan accrual		66		~~102~~66
Clinical trials		~~404~~369		~~161~~131
Accrued offering costs		–		400
Other		191		174
Accrued property taxes		202		166
Total accounts payable and accrued expenses	$	1,714	$	1,380
Other		145		198
Total accounts payable and accrued expenses	$	1,895	$	3,115

10. OTHER CURRENT LIABILITIES

The following table presents the major components of other current liabilities (in thousands):

SCHEDULE OF OTHER CURRENT LIABILITIES

	September 30, 2022		December 31, 2021
	March 31, 2023		December 31, 2022
Current finance lease liabilities	$	~~292~~45	$	~~329~~293
Current operating lease liabilities		~~262~~413		~~1,169~~394
Short-term financing arrangement		346		–
Total other current liabilities	$	458	$	687
Other		4		22
Total other current liabilities	$	904	$	1,520

The short-term financing balance is related to a financing arrangement entered into during the nine months ended September 30, 2022 to fund an insurance contract. Under the financing arrangement, the amounts will be repaid in nine equal monthly installments, with an interest rate of 3.85%.

11. STOCK-BASED COMPENSATION

2020, 2019 and 2017 Equity Incentive Plans

2020 Plan

On October 25, 2019, the Company’s Board of Directors (the “Board”) approved the Company’s 2020 Stock Option and Incentive Plan (the “2020 Plan”). The 2020 Plan became effective on December 19, 2019, the date approved by the stockholders. The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, unrestricted stock awards, dividend equivalent rights, and cash-based awards to the Company’s employees, officers, directors, and consultants. The Board designated the Compensation Committee of the Board the administrator of the 2020 Plan, including determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards. Up to 419,549 shares of common stock are issuable pursuant to awards under the 2020 Plan. No grants of awards may be made under the 2020 Plan after the later of December 19, 2029, or the tenth anniversary of the latest material amendment of the 2020 Plan and no grants of incentive stock options may be made after October 25, 2029. The 2020 Plan provides that effective on January 1 of each year the number of shares of common stock reserved and available for issuance under the 2020 Plan shall be cumulatively increased by the lesser of 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the 2020 plan administrator. Pursuant to the 2020 Plan, the number of shares of common stock available for issuance increased by 131,872 shares during January 2022. On September 9, 2022, the Board approved an amendment to the Company’s 2020 Stock Option and Incentive Plan to increase the number of shares available for awards by adding 1,450,000 shares to the 2020 Plan. The increase in shares is subject to stockholder approval at the next annual or special meeting of stockholders. As of ~~September~~March 3031, ~~2022~~2023, the Company had ~~171~~6,~~855~~357 shares available for future issuances under the 2020 Plan.

1916

2019 Plan

On October 5, 2018, the Company’s Board approved the Company’s 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and other types of stock-based awards to the Company’s employees, officers, directors, and consultants. The Board designated the Compensation Committee of the Board the administrator of the 2019 Plan, including determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards. Up to 120,000 shares of common stock are issuable pursuant to awards under the 2019 Plan. Unless earlier terminated by the Board, the 2019 Plan shall terminate at the close of business on October 5, 2028. As of ~~September~~March 3031, ~~2022~~2023, the Company had 710,~~385~~920 shares available for future issuances under the 2019 Plan.

2017 Plan

On December 1, 2016, the Company’s Board approved the Company’s 2017 Equity Incentive Plan (the “2017 Plan”). The purpose of the 2017 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees, consultants and other eligible persons. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and other types of stock-based awards to the Company’s employees, officers, directors, and consultants. The Board designated the Compensation Committee of the Board the administrator of the 2017 Plan, including determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards. Up to 292,000 shares of common stock are issuable pursuant to awards under the 2017 Plan. Unless earlier terminated by the Board, the 2017 Plan shall terminate at the close of business on December 1, 2026. As of ~~September~~March 3031, ~~2022~~2023, the Company had 3114,~~977~~246 shares available for future issuances ~~under~~ under the 2017 Plan.

A summary of the Company’s employee and non-employee stock option activity is presented below:

SCHEDULE OF SHARE-BASED COMPENSATION, STOCK OPTIONS, ACTIVITY

	Number of Shares			Weighted-Average Exercise Price
Outstanding – December 31, 2021		230,912		$	197.75
Outstanding – December 31, 2022		182,311		$	188.50
Granted		~~420~~–		$	~~12.64~~–
Forfeited		(4121,~~878~~653	)	$	~~257~~163.7666
Outstanding – September 30, 2022		189,454		$	183.96
Outstanding – March 31, 2023		160,658		$	191.85
Options exercisable, September 30, 2022		172,897		$	197.88
Options exercisable, March 31, 2023		158,459		$	193.22

Employee Stock Purchase Plan (ESPP)

In May 2018, the Company adopted the Employee Stock Purchase Plan (“ESPP”). The Company has initially reserved 20,000 shares of common stock for purchase under the ESPP. The initial offering period began January 1, 2019, and ended on June 30, 2019, with the first purchase date. Subsequent offering periods will automatically commence on each January 1 and July 1 and will have a duration of six months ending with a purchase date June 30 and December 31 of each year. On each purchase date, ESPP participants will purchase shares of common stock at a price per share equal to 85% of the lesser of (1) the fair market value per share of the common stock on the offering date or (2) the fair market value of the common stock on the purchase date. As of March 31, 2023, the Company had 5,584 shares available for future issuances under the ESPP.

Restricted Stock

A summary of the Company’s employee and non-employee restricted stock activity is presented below:

SCHEDULE OF SHARE-BASED COMPENSATION, ,RESTRICTED STOCK ACTIVITY

	Number of Shares
Unvested - December 31, 2021		206,547
Unvested - December 31, 2022		256,435
Granted		–42,986
Vested(1)		(109,516	)
Vested		(66,820	)
Forfeited		(738,~~384~~483	)
Unvested – September 30, 2022		89,647
Unvested – March 31, 2023		194,118

(1) The number of vested restricted stock units and awards includes shares that were withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements.

Stock-Based Compensation Expense

The stock-based compensation expense related to stock options, restricted stock awards, and the employee stock purchase plan was as follows (in thousands):

	2022		2021		2022		2021
	2023		2022
	For the Three Months Ended				~~For the Nine Months Ended~~
	September 30,				September 30,
	March 31,
	2022		2021		2022		2021
	2023		2022
General and administrative expense	$	~~226~~31	$	~~911~~546	$	~~1,154~~	$	~~3,245~~
Research and development expense		7115		~~354~~216		~~435~~		~~950~~
Sales and marketing expense		–		–		–		194
Total stock-based compensation expense	$	46	$	762
Restructuring and other charges		–		52		–		219
Total stock-based compensation expense	$	297	$	1,317	$	1,589	$	4,608

12. STOCKHOLDERS’ EQUITY

December 2020 Offering

On December 23, 2020, the Company completed a registered direct offering of 218,000 shares of its common stock, par value $0.001 per share, pre-funded warrants to purchase up to 209,522 shares of common stock and accompanying common warrants to purchase up to 427,522 shares of common stock (the “December 2020 Warrants”). Each share of common stock and pre-funded warrant was sold together with a warrant. The combined offering price of each common stock share and accompanying warrant was $18.7125 and for each pre-funded warrant and accompanying warrant was $18.6875. The pre-funded warrants had an exercise price of $0.025 each and were exercised in full in January 2021. Each warrant was exercisable for one share of the Company’s common stock at an exercise price of $15.60 per share. The warrants were immediately exercisable and expire five years from the date of issuance. The holder of the warrants could not exercise any portion of the warrants to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, which percentage could be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 9.99% upon 61 days’ notice to the Company. The Company also issued to designees of the placement agent for the registered direct offering warrants to purchase up to 6.0% of the aggregate number of common stock shares and pre-funded warrants sold in the offering (or warrants to purchase up to 25,651 shares of common stock). The placement agent warrants have substantially the same terms as the warrants, except that the placement agent warrants have an exercise price equal to 125% of the purchase price per share (or $23.39 per share). The net proceeds to the Company from the offering were $7.2 million, after offering expenses payable by the Company.

As the common stock warrants and placement agent common stock warrants could each require cash settlement in certain scenarios, the common stock warrants and placement agent common stock warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $5.2 million and $0.3 million, respectively. Since the pre-funded warrants did not contain the same cash settlement provision, these warrants were classified as a component of stockholders’ equity within additional paid-in-capital. The pre-funded warrants are equity classified because they meet characteristics of the equity classification criteria. The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $2.5 million allocated on a relative fair value basis to the common stock and pre-funded common stock warrants. Issuance costs allocated to the equity classified pre-funded common stock warrants and common stock of $0.3 million were recorded as a reduction to paid-in capital. Issuance costs allocated to the liability classified warrants of $0.5 million were recorded as an expense.

January 2021 Offerings

On January 14, 2021, the Company completed a registered direct offering of 266,800 shares of its common stock, par value $0.001 per share, pre-funded warrants to purchase up to 96,836 shares of common stock and accompanying common warrants to purchase up to 363,636 shares of common stock (the “January 14 Warrants”). Each share of common stock and pre-funded warrant was sold together with a warrant. The combined offering price of each common stock share and accompanying warrant was $27.50 and for each pre-funded warrant and accompanying warrant was $27.475. The pre-funded warrants had an exercise price of $0.025 each and were exercised in full in January 2021. Each January 14 Warrant is exercisable for one share of the Company’s common stock at an exercise price of $30.00 per share. The January 14 Warrants are immediately exercisable and will expire five years from the date of issuance. The holder of the January 14 Warrants may not exercise any portion of such warrants to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 9.99% upon 61 days’ notice to the Company. The Company also issued to designees of the placement agent warrants to purchase 6.0% of the aggregate number of common stock shares and pre-funded warrants sold in the offering (or warrants to purchase up to 21,818 shares of common stock). The placement agent warrants have substantially the same terms as the warrants, except that the placement agent warrants have an exercise price equal to 125% of the purchase price per share (or $34.375 per share). The net proceeds to the Company from the offering were $9.2 million, after direct offering expenses of $0.8 million payable by the Company.

As the January 14 Warrants and placement agent common stock warrants could each require cash settlement in certain scenarios, the January 14 Warrants and placement agent common stock warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $8.1 million and $0.5 million, respectively. Since the pre-funded warrants did not contain the same cash settlement provision, these warrants are classified as a component of stockholders’ equity within additional paid-in-capital. The pre-funded warrants were equity classified because they met characteristics of the equity classification criteria. The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $1.4 million allocated on a relative fair value basis to the common stock and pre-funded common stock warrants. Issuance costs allocated to the equity classified pre-funded common stock warrants and common stock of $0.1 million were recorded as a reduction to paid-in capital. Issuance costs allocated to the liability classified warrants of $0.7 million were recorded as an expense.

On January 22, 2021, the Company entered into a letter agreement with the holder of warrants to exercise the warrants and purchase 427,522 shares of common stock at an exercise price of $15.60 per share that were issued to the holder in the registered direct offering that closed on December 23, 2020. Under the letter agreement the holder agreed to exercise the 427,522 warrants in full and the Company agreed to issue and sell to the holder common warrants to purchase up to 320,641 shares of the Company’s common stock, par value $0.001 per share, at a price of $3.125 (the “January 25 Warrants”) (and together with the January 14 Warrants, the “Existing 2021 Warrants”). Each January 25 Warrant is exercisable for one share of Common Stock at an exercise price of $30.00 per share. The January 25 Warrants are immediately exercisable and will expire five years from the date of issuance. A holder may not exercise any portion of the January 25 Warrants to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 9.99% upon 61 days’ notice to the Company. The Company also issued to designees of the placement agent, warrants to purchase 6.0% of the aggregate number of common stock shares and pre-funded warrants sold in the offering (or warrants to purchase up to 19,238 shares of common stock). The placement agent warrants have substantially the same terms as the new warrants. The 427,522 warrants issued on December 23, 2020, were exercised on January 22, 2021, and closing of the offering occurred on January 25, 2021. The Company received gross proceeds of approximately $6.7 million from the exercise of the December 2020 Warrants and gross proceeds of approximately $1.0 million from the sale of the new warrants.

Immediately prior to the exercise of the existing 427,522 liability classified December 2020 Warrants in January 2021, a remeasurement loss of $3.6 million was recorded.

As the new January 25 Warrants and placement agent common stock warrants could each require cash settlement in certain scenarios, the new January 25 Warrants and placement agent common stock warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $5.8 million and $0.4 million, respectively. Cash issuance costs of $0.1 million were recorded as an expense.

March 2022 Offering

On March 16, 2022, the Company completed a registered direct offering of 3,000.000435 shares of Series A convertible preferred stock, 2,000.00029 shares of Series B convertible preferred stock and 655,738 warrants to purchase 655,738 shares of common stock (the “March 2022 Warrants”). Gross proceeds generated by the offering were $5.0 million. The exercise price of each warrant is $8.75 per share, the warrants become exercisable six months after the date of the offering and will expire two years from the offering date.

Concurrent with the closing of the offering on March 16, 2022, the Company modified the exercise price of the Existing 2021 Warrants. 363,636 warrants issued on January 14, 2021, and 320,641 warrants issued on January 25, 2021 were modified to reduce the exercise price from $30 to $8.75 per share. The exercise price of the placement agent warrants was not modified. The Existing 2021 Warrants remain outstanding and unexercised as of ~~September~~March 3031, ~~2022~~2023.

The holders of Series A and Series B convertible preferred stock were entitled to receive dividend payments in the same form as dividends paid on shares of the common stock when, as and if such dividends were paid on shares of the common stock, on an if converted basis. In the event of a liquidation event, the holders of each series of convertible preferred stock were entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the preferred stock were fully converted. Each share of preferred stock was convertible at any time after the offering at the option of the holder into a number of shares of the Company’s common stock, equal to $1,000 stated value per share, divided by the conversion price of $7.625. On March 17, 2022 all shares of Series B preferred stock were converted into 262,295 shares of common stock. On March 29, 2022, all shares of Series A preferred stock were converted into 393,443 shares of common stock.

The holder of the March 2022 Warrants may not exercise any portion of such warrants to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 9.99% upon 61 days’ notice to the Company.

The Company also issued to designees of the placement agent warrants to purchase 5.0% of the aggregate number of March 2022 Warrants sold in the offering, or 32,787 warrants to purchase common stock. The placement agent warrants have substantially the same terms as the March 2022 Warrants, except that the placement agent warrants have an exercise price $9.525 per share, which is 125% of the price at which each share of preferred stock sold in the offering is convertible to common stock.

As the March 2022 Warrants and placement agent warrants could each require cash settlement in certain scenarios, the common stock warrants and placement agent warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $3.0 million and $0.1 million, respectively. The Series A and Series B preferred stock were equity classified because they met characteristics of the equity classification criteria. The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $1.9 million allocated to the preferred stock. The net proceeds to the Company from the offering were $4.5 million, after direct offering expenses of $0.2 attributable to equity classified preferred stock, which were recorded as a reduction to paid-in capital, and $0.3 million attributable to the liability classified March 2022 Warrants and private placement common stock warrants, which are included in general and administrative within the accompanying condensed consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2022.18

As the March 2022 Warrants and placement agent warrants could each require cash settlement in certain scenarios, the March 2022 Warrants and placement agent warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $3.0 million and $0.1 million, respectively. The Series A and Series B preferred stock were equity classified because they met characteristics of the equity classification criteria. The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $1.9 million allocated to the preferred stock. The net proceeds to the Company from the offering were $4.5 million, after direct offering expenses of $0.2 attributable to equity classified preferred stock, which were recorded as a reduction to paid-in capital, and $0.3 million attributable to the liability classified March 2022 Warrants and private placement common stock warrants, which are included in general and administrative expenses within the accompanying condensed consolidated statement of operations and comprehensive loss for the three months ended March 31, 2022.

June 2022 Offering

On June 5, 2022, the Company entered into a securities purchase agreement with a single healthcare-focused institutional investor for the purchase and sale of shares of its common stock (or pre-funded warrants in lieu thereof) in a registered direct offering. In a concurrent private placement (together with the registered direct offering, the “Offerings”), the Company entered into a separate securities purchase agreement with the same investor for the unregistered purchase and sale of shares of common stock (or pre-funded warrants in lieu thereof).

23On June 8, 2022, the Company completed the registered direct offering of 445,500 shares of its common stock, par value $0.001 per share at a purchase price of $2.525 per share and 1,138,659 pre-funded warrants at a purchase price of $2.524 per warrant. The Company also sold 1,584,159 pre-funded warrants at a purchase price of $2.524 per warrant in the private placement offering. Each pre-funded warrant sold in the registered direct offering and private placement offering is exercisable for one share of common stock at an exercise price of $0.001 per share, is immediately exercisable, and will not expire until fully exercised. Under the securities purchase agreements for the Offerings, the Company agreed to issue to the investor in the Offerings unregistered preferred investment options (the “June 2022 Warrants”) to purchase up to an aggregate of 3,168,318 shares of common stock, which were issued at the closing of the Offerings. The June 2022 Warrants are exercisable for one share immediately upon issuance at an exercise price of $2.40 per share and will expire five years from the date of issuance. The holder of the pre-funded warrants sold in the registered direct offering has exercised 488,659, 545,000, and 1,689,159 of such warrants in June 2022, July 2022, and August 2022, respectively, leaving 3,168,318 June 2022 Warrants that remain outstanding and unexercised as of March 31, 2023. The holder of the warrants may not exercise any portion of such warrants to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 9.99% upon 61 days’ notice to the Company. The Company also issued to designees of the placement agent, warrants to purchase 5.0% of the aggregate number of common stock shares and pre-funded warrants sold in the offering (or warrants to purchase up to 158,416 shares of common stock). The placement agent warrants have substantially the same terms as the warrants, except that the placement agent warrants have an exercise price equal to 125% of the purchase price per share (or $3.156 per share). None of the placement agent warrants have been exercised as of March 31, 2023. The net proceeds to the Company from the offering were $7.3 million, after direct offering expenses of $0.7 million payable by the Company.

OnAs the June 8, 2022, ~~the~~Warrants ~~Company~~and ~~completed~~placement ~~the~~agent ~~registered direct offering of 445,500 shares of its~~ common stock, ~~par~~warrants ~~value~~could ~~$0.001~~each ~~per~~require ~~share at~~cash asettlement ~~purchase~~in ~~price~~certain ofscenarios, ~~$2.525~~the ~~per~~June ~~share~~2022 Warrants and ~~1,138,659~~placement ~~pre-funded~~agent ~~warrants~~common atstock awarrants ~~purchase~~were ~~price~~classified ofas ~~$2.524~~liabilities ~~per~~upon ~~warrant.~~issuance ~~The~~and ~~Company~~were ~~also sold~~initially ~~1,584,159~~recorded ~~pre-funded warrants~~ at aestimated fair ~~purchase~~values ~~price~~ of $25.~~524~~7 ~~per~~million ~~warrant in the private placement offering. Each pre-funded warrant sold in the registered direct offering~~ and ~~private placement offering is exercisable for one share of common stock at an exercise price of~~ $0.~~001~~3 ~~per share~~million, ~~is immediately exercisable, and will not expire until fully exercised~~respectively. ~~Under the~~Since ~~securities purchase agreements for~~ the ~~Offerings,~~pre-funded ~~the~~warrants ~~Company~~did ~~agreed~~not tocontain ~~issue to~~ the ~~investor~~same incash ~~the~~settlement ~~Offerings unregistered preferred investment options (the “June 2022 Warrants”) to purchase up to an aggregate of 3~~provision,~~168,318 shares of common stock, which were~~ ~~issued~~these atwarrants ~~the closing of the Offerings. The June 2022 Warrants~~ are ~~exercisable~~classified ~~for~~as ~~one~~a ~~share~~component ~~immediately upon issuance at an exercise price~~ of ~~$2.40~~stockholders’ ~~per~~equity ~~share~~within ~~and~~additional ~~will expire five years from the date of issuance~~paid-in-capital. The ~~holder of the~~ pre-funded warrants ~~sold in the registered~~ ~~direct~~were ~~offering~~equity ~~has~~classified ~~exercised~~because ~~488,659,~~they ~~545,000,~~met ~~and~~characteristics ~~1,689,159~~ of ~~such~~the ~~warrants~~equity inclassification ~~June 2022, July 2022, and August 2022, respectively, leaving 3,168,318 June 2022 Warrants that remain outstanding and unexercised as of September 30, 2022~~criteria. The ~~holder~~total ofproceeds from the ~~warrants~~offering ~~may~~were ~~not~~first ~~exercise~~allocated ~~any portion of such warrants~~ to the ~~extent~~liability ~~that~~classified ~~the~~warrants, ~~holder~~based ~~would~~on ~~own~~their ~~more~~fair ~~than 4.99% of the outstanding common stock immediately after exercise~~values, ~~which~~with ~~percentage may be changed at~~ the ~~holder’s~~residual ~~election~~$2.0 tomillion aallocated ~~lower~~on ~~percentage at any time or to~~ a ~~higher percentage~~relative ~~not~~fair tovalue ~~exceed~~basis ~~9.99% upon 61 days’ notice~~ to the ~~Company. The Company also issued to designees of the placement agent, warrants to purchase 5.0% of the aggregate number of~~ common stock ~~shares~~ and pre-funded ~~warrants sold in the offering (or warrants to purchase up to 158,416 shares of~~ common stock). ~~The placement agent~~ warrants. ~~have~~Issuance ~~substantially~~costs ~~the~~allocated ~~same~~to ~~terms as~~ the ~~warrants,~~equity ~~except~~classified ~~that the~~pre-funded ~~placement~~common ~~agent~~stock warrants ~~have~~and ancommon ~~exercise~~stock ~~price equal to 125%~~ of ~~the purchase price per share (or~~ $30.~~156~~2 ~~per~~million ~~share).~~were ~~None~~recorded ~~of the placement agent warrants have been exercised~~ as ofa ~~September~~reduction ~~30,~~to ~~2022~~paid-in capital. ~~The~~Issuance ~~net~~costs ~~proceeds~~allocated to the ~~Company from the offering were $7.3 million, after~~ ~~direct~~liability ~~offering~~classified ~~expenses~~warrants of $0.75 million ~~payable~~were byrecorded ~~the~~as ~~Company~~an expense.

As the June 2022 Warrants and placement agent common stock warrants could each require cash settlement in certain scenarios, the warrants and placement agent common stock warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $5.7 million and $0.3 million, respectively. Since the pre-funded warrants did not contain the same cash settlement provision, these warrants are classified as a component of stockholders’ equity within additional paid-in-capital. The pre-funded warrants were equity classified because they met characteristics of the equity classification criteria. The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $2.0 million allocated on a relative fair value basis to the common stock and pre-funded common stock warrants. Issuance costs allocated to the equity classified pre-funded common stock warrants and common stock of $0.2 million were recorded as a reduction to paid-in capital. Issuance costs allocated to the liability classified warrants of $0.5 million were recorded as an expense.19

The ~~Company~~following ~~measured~~table ~~the~~summarizes ~~fair~~warrant ~~value~~activity offor the ~~common~~three ~~warrants~~months ~~and~~ended ~~placement~~March ~~agent warrants using the Monte Carlo simulation model at issuance and again on September 30~~31, ~~2022 using the following inputs~~2023:

Common warrants:

SCHEDULE FOR MEASUREMENT OF FAIR VALUE OF WARRANTS

	March 16, 2022			September 30, 2022
Stock price	$	8.55		$	0.87
Exercise price	$	8.75		$	8.75
Risk-free rate		1.95	%		4.13	%
Volatility		101.5	%		119.4	%
Remaining term (years)		2.0			1.46

	June 8, 2022			September 30, 2022
Stock price	$	2.30		$	0.87
Exercise price	$	2.40		$	2.40
Risk-free rate		3.03	%		4.09	%
Volatility		107.1	%		111.7	%
Remaining term (years)		5.0			4.69

Placement agent warrants:

	March 16, 2022			September 30, 2022
Stock price	$	8.55		$	0.87
Exercise price	$	9.53		$	9.53
Risk-free rate		1.95	%		4.13	%
Volatility		101.5	%		119.4	%
Remaining term (years)		2.0			1.46

	June 8, 2022			September 30, 2022
Stock price	$	2.30		$	0.87
Exercise price	$	3.16		$	3.16
Risk-free rate		3.03	%		4.09	%
Volatility		107.1	%		111.7	%
Remaining term (years)		5.0			4.69

The following table summarizes warrant activity for the nine months ended September 30, 2022:

SUMMARY OF WARRANT ACTIVITY

Outstanding December 31, 2021

Warrants Issued

Warrants Exercised

Outstanding September 30, 2022

Outstanding December 31, 2022

Warrants Issued

Warrants Exercised

Outstanding March 31, 2023

Transaction

February 14, 2020 common warrants

21,580

–

21,580

December 23, 2020 placement agent warrants

25,651

–

25,651

January 14, 2021 common warrants

363,636

–

363,636

January 14, 2021 placement agent warrants

21,818

–

21,818

January 25, 2021 common warrants

320,641

–

320,641

January 22, 2021 placement agent warrants

19,238

–

19,238

March 16, 2022 common warrants

–655,738

~~655,738~~–

–

655,738

March 16, 2022 placement agent warrants

–32,787

~~32,787~~–

–

32,787

June 8, 2022 common warrants

–3,168,318

~~3,168,318~~–

–

3,168,318

June 8, 2022 placement agent warrants

–158,416

~~158,416~~–

–

158,416

Total

~~772~~4,~~564~~787,823

~~4,015,259~~–

–

4,787,823

On March 30, 2021, the Company entered into a sales agreement (“Sales Agreement”) with an investment banking firm to sell shares of common stock having aggregate sales proceeds of up to $50.0 million, from time to time, through an “at the market” equity offering program under which the investment banking firm would act as sales agent. On February 28, 2022, the Company exercised its right to terminate the Sales Agreement and was obligated to make a one-time payment to the investment banking firm of $0.4 million. As a result of the termination of the Sales Agreement, the Company expensed previously capitalized deferred offering costs of $0.7 million which are included in general and administrative expense within the accompanying condensed consolidated statement of operations and comprehensive loss for the ~~nine~~three months ended ~~September~~March 3031, 2022. No common stock was sold under the Sales Agreement.

13. NET LOSS PER SHARE ATTRIBUTABLE TO COMMON STOCKHOLDERS

The following tables present reconciliations for the numerators and denominators of basic and diluted net loss per share:

SCHEDULE OF EARNINGS PER SHARE , BASIC AND DILUTED

	For the Three Months Ended						For the Nine Months Ended
Numerator:	2023			2022
	September 30,			September 30,			September 30,			September 30,
	For the Three Months Ended
Numerator:	2022			2021			2022			2021
	March 31,			March 31,
Net loss, primary	$	(3,400	)	$	(1,021	)	$	(7,239	)	$	(21,619	)
Numerator:	2023			2022
Less: gain from change in fair value of warrant liabilities		–			(174	)		(4,329	)		(27	)
Net loss, primary	$	(4,243	)	$	(3,771	)
Net loss, diluted	$	(3,400	)	$	(1,195	)	$	(11,568	)	$	(21,646	)
Less: gain from change in fair value of warrant liabilities		–			(4,694	)
Net loss, diluted	$	(4,243	)	$	(8,465	)

	For the Three Months Ended				For the Nine Months Ended
Denominator:	2023		2022
	September 30,		September 30,		September 30,		September 30,
	For the Three Months Ended
Denominator:	2022		2021		2022		2021
	March 31,		March 31,
Basic weighted average number of common shares(1)		7,215,898		3,251,387		6,724,876		3,174,697
Denominator:	2023		2022
Potentially dilutive effect of warrants		–		18,801		780,252		2,090
Basic weighted average number of common shares		7,320,754		3,364,535
Diluted weighted average number of common shares		7,215,898		3,270,188		7,505,128		3,176,787
Potentially dilutive effect of warrants		–		211,435
Diluted weighted average number of common shares		7,320,754		3,575,970

(1) In December 2020, January 2021, and June 2022, the Company sold pre-funded warrants to purchase up to 209,522, 96,836, and 2,722,818 shares of common stock, respectively. The shares of common stock associated with the pre-funded warrants are considered outstanding for the purposes of computing earnings per share prior to exercise because the shares may be issued for little or no consideration, are fully vested, and are exercisable after the original issuance date. The pre-funded warrants sold in December 2020 and January 2021 were exercised in January 2021 and 488,659, 545,000, and 1,689,159 of the pre-funded warrants sold in June 2022 were exercised in June 2022, July 2022, and August 2022, respectively, and included in the denominator for the period of time the warrants were outstanding.20

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

	For the Three Months Ended				For the Nine Months Ended
	2023		2022
	September 30,		September 30,		September 30,		September 30,
	For the Three Months Ended
	2022		2021		2022		2021
	March 31,		March 31,
Stock options		189,454		235,949		189,454		235,949
	2023		2022
Restricted stock		89,647		185,264		89,647		185,264
Stock options		160,658		212,428
Common stock warrants		4,787,823		750,986		1,439,510		746,914
Restricted stock		194,118		174,054
Shares committed under ESPP		10,308		1,088		10,308		1,088
Common stock warrants		4,787,823		66,708
Shares committed under ESPP		5,584		1,923
Outstanding potentially dilutive securities		5,584		1,923

2614. COMMITMENTS AND CONTINGENCIES

14. DEBT

PPP Loan

On April 12, 2020, our subsidiary PolarityTE MD, Inc. (the “Borrower”) entered into a promissory note evidencing an unsecured loan in the amount of $3,576,145 made to it under the Paycheck Protection Program (the “Loan”). The Paycheck Protection Program (or “PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The Loan to the Borrower was made through KeyBank, N.A., a national banking association (the “Lender”). The interest rate on the Loan is 1.00%. Beginning seven months from the date of the Loan the Borrower is required to make 24 monthly payments of principal and interest in the amount of $150,563. The promissory note evidencing the Loan contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Lender, or breaching the terms of the Loan documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Borrower, or filing suit and obtaining judgment against the Borrower. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of a loan granted under the PPP. On October 15, 2020, the Borrower applied to the Lender for forgiveness of the PPP Loan in its entirety based on the Borrower’s use of the PPP Loan for payroll costs, rent, and utilities. In June of 2021, the Company received notice of forgiveness of the PPP Loan in whole and the Lender was paid by the SBA, including all accrued unpaid interest. The Company recorded the forgiveness of $3.6 million of principal and accrued interest, which were included in gain on extinguishment of debt on the consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2021. The SBA may audit any PPP loan at its discretion up to six years after the date the SBA forgave the PPP loan.

15. RESTRUCTURING

As discussed in Note 7, the Company decided to file an IND in the second half of 2021, cease commercial sales of SkinTE by May 31, 2021, and wind down its SkinTE commercial operations. As a result, management approved several actions as part of a restructuring plan. During the first quarter of 2021, the Company recorded $0.4 million of restructuring charges related to property and equipment impairment. The Company recognized $0.2 and $0.4 million of expense related to employee severance and benefit arrangements for the three and nine months ended September 30, 2021. The Company also recognized incremental expense of $0.2 million for the three and nine months ended September 30, 2021 related to the remeasurement of employee stock options that were modified due to restructuring. Further, during the second quarter of 2021 and effective June 30, 2021, the Company terminated a lease which included manufacturing, laboratory, and office space and recorded a net gain on termination of $0.3 million. During the three months ended September 30, 2022, the Company did not recognize any restructuring expense. During the nine months ended September 30, 2022, the Company recognized nominal expense related to employee severance due to a reduction of headcount in the Company’s research and development department.

16. COMMITMENTS AND CONTINGENCIES

Contingencies

Securities Class Action and Derivative Lawsuits

On September 24, 2021, a class action complaint alleging violations of the Federal securities laws was filed in the United States District Court, District of Utah, by Marc Richfield against the Company and certain officers of the Company, Case No. 2:21-cv-00561-BSJ. The Court subsequently appointed a Lead Plaintiff and ordered the Lead Plaintiff to file an amended Complaint by February 7, 2022, which was extended to February 21, 2022. The Lead Plaintiff filed an amended complaint on February 21, 2022, against the Company, two current officers of the Company, and three former officers of the Company (the “Complaint”). The Complaint alleges that during the period from January 30, 2018, through November 9, 2021, the defendants made or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 adopted thereunder. Specifically, the Complaint alleges that the defendants misrepresented or failed to disclose that: (i) the Company’s product, SkinTE, was improperly registered as a 361 HCT/P under Section 361 of the Public Health Service Act and that, as a result, the Company’s ability to commercialize SkinTE as a 361 HCT/P was not sustainable because it was inevitable SkinTE would need to be registered under Section 351 of the Public Health Service Act; (ii) the Company characterized itself as a commercial stage company when it knew sales of SkinTE as a 361 HCT/P were unsustainable and that, as a result, it would need to file an IND and become a development stage company; (iii) issues arising from an FDA inspection of the Company’s facility in July 2018, were not resolved even though the Company stated they were resolved; and (iv) the IND for SkinTE was deficient with respect to certain chemistry, manufacturing, and control items, including items identified by the FDA in July 2018, and as a result it was unlikely that the FDA would approve the IND in the form it was originally filed. The Company filed a motion to dismiss the complaint for failure to state a claim, on April 22, 2022. The Lead Plaintiff filed its memorandum in opposition to the Company’s motion to dismiss on July 18, 2022. The Company filed its reply memorandum to the Lead Plaintiff’s opposition memorandum on August 11, 2022, and oral argument on the motion to dismiss was held September 8, 2022. At the hearing the judge issued a ruling from the bench dismissing the Complaint without prejudice and granting the Lead Plaintiff leave to file an amended complaint. The Lead Plaintiff filed an amended complaint (the “Amended Complaint”) on October 3, 2022, alleging additional facts. The Company filed a motion to dismiss the Amended Complaint for failure to state a claim on November 2, 2022, ~~and~~ Lead Plaintiff isfiled ~~required to file~~ its brief in opposition to the Company’s motion byon December 2, 2022., ~~The~~and the Company ~~believes~~filed its reply brief to the ~~allegations~~Lead Plaintiff brief in opposition on December 23, 2022. Oral argument on the Company’s motion to dismiss the Amended Complaint ~~are~~was ~~without~~held ~~merit~~March 6, ~~and~~2023. Following ~~intends~~oral toargument, ~~defend~~the judge ruled that the ~~litigation~~Amended ~~vigorously~~Complaint be dismissed with prejudice and requested that the Company, through its counsel, submit a proposed opinion and order. AtThe ~~this~~Company ~~early~~and ~~stage~~Lead Plaintiff subsequently reached an agreement stipulating to the form of the ~~proceedings~~opinion and order, wewaiving ~~are~~the ~~unable~~Lead Plaintiff’s right to appeal, and waiving the Company’s right to seek sanctions ~~make~~under ~~any~~Rule ~~prediction~~11 ~~regarding~~of the ~~outcome~~Federal Rules of Civil Procedure. The final opinion and order dismissing the ~~litigation~~Amended Complaint with prejudice was issued by the judge on April 19, 2023.

2721

On October 25, 2021, a stockholder derivative complaint alleging violations of the Federal securities laws was filed in the United States District Court, District of Utah, by Steven Battams against the Company, each member of the Board of directors, and two officers of the Company, Case No. 2:21-cv-00632-DBB (the “Stockholder Derivative Complaint”). The Stockholder Derivative Complaint alleges that the defendants made, or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 adopted thereunder. Specifically, the Stockholder Derivative Complaint alleges that the defendants misrepresented or failed to disclose that: (i) the IND for the Company’s product, SkinTE, filed with the FDA was deficient with respect to certain chemistry, manufacturing, and control items; (ii) as a result, it was unlikely that the FDA would approve the IND in its current form; (iii) accordingly, the Company had materially overstated the likelihood that the SkinTE IND would obtain FDA approval; and (Iviv) as a result, the public statements regarding the IND were materially false and misleading. The parties have stipulated to stay the Stockholder Derivative Complaint until (1) the dismissal of the Complaint described above, (2) denial of a motion to dismiss the Complaint, or (3) notice is given that any party is withdrawing its consent to the stipulated stay of the Stockholder Derivative Complaint proceeding. After the order of dismissal with prejudice of the class action lawsuit described above and exhaustion of all appeals by the Lead Plaintiff, the stay of the Stockholder Derivative Complaint will expire. The Company believes the allegations in the Stockholder Derivative Complaint are without merit and intends to defend the litigation vigorously after the stay expires. At this early stage of the proceedings the Company is unable to make any prediction regarding the outcome of the litigation.

Other Matters

In the ordinary course of business, the Company may become involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements, employment, regulatory compliance, and other matters. Except as noted above, at ~~September~~March 3031, ~~2022~~2023, the Company was not party to any legal or arbitration proceedings that may have significant effects on its financial position or results of operations. No governmental proceedings are pending or, to the Company’s knowledge, contemplated against the Company. The Company is not a party to any material proceedings in which any director, member of senior management or affiliate of the Company’s is either a party adverse to the Company or its subsidiaries or has a material interest adverse to the Company or its subsidiaries.

Commitments

The Company has entered into employment agreements with key executives that contain severance terms and change of control provisions.

On ~~September~~June 225, ~~2020~~2021, ~~Arches~~the ~~Research,~~Company ~~Inc.,~~entered into a ~~subsidiary~~statement of ~~PolarityTE,~~work ~~Inc. (“Arches”) entered into two agreements~~ with ~~Co-Diagnostics, Inc.~~a ~~(“Co-Diagnostics”).~~contract ~~The~~research ~~COVID-19~~organization ~~Laboratory~~to ~~Services~~provide ~~Agreement between the parties provided that Arches would perform specimen testing~~ services for ~~customers~~a ~~referred~~proposed clinical bytrial ~~Co-Diagnostics~~described toas ~~Arches.~~a Comulti-~~Diagnostics~~center, ~~would~~prospective, ~~arrange~~randomized ~~all~~controlled ~~logistics~~trial ~~for~~evaluating ~~delivering specimens~~the toeffects ~~Arches~~of ~~for~~SkinTE ~~COVID-19~~in ~~testing~~the ~~for those customers~~ treatment of Cofull-~~Diagnostics~~thickness ~~electing~~diabetic tofoot ~~use~~ulcers ~~the~~at ~~service.~~a ~~Arches~~cost ~~would~~of ~~bill~~approximately ~~Co-Diagnostics for~~$6.5 ~~the~~million ~~testing~~consisting ~~services~~of ~~and~~$3.1 ~~Co-Diagnostics~~million ~~would~~of ~~manage~~service ~~all~~fees ~~customer~~and ~~billing~~$3.4 ~~The~~million of ~~Rental~~estimated ~~Agreement~~costs. ~~for~~In ~~LGC~~July ~~Genomics~~2021 ~~Oktopure~~the ~~Extraction Machine~~Company ~~between~~prepaid ~~Arches~~10% ~~and~~of ~~Co-Diagnostics~~the ~~provided~~total ~~that~~cost ~~Co-Diagnostics~~recited ~~would~~in ~~make available to Arches~~ the ~~Oktopure~~original ~~high~~work ~~throughput~~order, ~~extraction machine~~or ~~that~~$0.5 ~~Arches~~million, which will ~~use~~be applied to ~~perform~~payment ~~COVID-19 testing. The term~~ of the ~~rental~~final ~~agreement~~invoice ~~was~~under 12the ~~months~~work ~~and~~order. ~~required~~Over ~~Arches~~the toapproximately ~~use Co~~three-~~Diagnostics tests~~year ~~exclusively~~term inof the ~~machine.~~clinical Intrial the service ~~second~~provider ~~quarter~~shall ofsubmit ~~2021, the rental agreement was amended~~ to ~~remove~~ the ~~minimum~~Company ~~monthly~~for ~~purchase obligation~~payment ofinvoices ~~reagents~~on ~~and was replaced by~~ a ~~$3,300~~ monthly ~~rental~~basis ~~fee.~~for ~~The~~units ~~COVID-19~~of ~~Laboratory~~work ~~Services~~stated ~~Agreement~~in ~~could be canceled by~~ the ~~Company~~work atorder ~~any~~that are ~~time~~completed byand ~~providing~~billable 60expenses ~~days~~incurred. ~~written~~During ~~notice, and~~ the ~~Rental~~three ~~Agreement~~months ~~could~~ended beMarch ~~canceled~~31, at2023 ~~any~~and ~~time by written notice given within 60 days after termination of the Laboratory Services Agreement. On May 27~~2022, ~~2021,~~ the Company ~~gave~~incurred ~~written~~expenses ~~notice to Co-Diagnostics~~totaling of$0.4 ~~termination~~million ofand ~~the~~$0.2 ~~COVID-19 Laboratory Services Agreement~~million, sorespectively. ~~the~~Either ~~last~~party ~~day~~may ofterminate ~~that~~the agreement ~~was~~without ~~July~~cause ~~26, 2021, and no longer in effect~~ on ~~July~~60 ~~27,~~days’ ~~2021. On July 27, 2021, the Company gave written~~ notice to ~~Co-Diagnostics of termination of~~ the ~~Rental Agreement, so the~~other ~~last day of that agreement was July 29, 2021~~party.

2815. SEGMENT REPORTING

OnReportable ~~June~~segments ~~25,~~are ~~2021,~~presented ~~the~~in ~~Company entered into~~ a ~~statement~~manner ofconsistent ~~work~~ with athe ~~contract~~internal ~~research~~reporting ~~organization~~provided to ~~provide~~the ~~services~~chief ~~for~~operating adecision ~~proposed clinical~~maker ~~trial described as a multi-center~~(CODM), ~~prospective, randomized controlled trial evaluating~~ the Chief ~~effects~~Executive Officer of ~~SkinTE in~~ the ~~treatment of~~Company. ~~full-thickness~~The ~~diabetic~~CODM ~~foot~~allocates ~~ulcers~~resources atto aand ~~cost~~assesses ofthe ~~approximately~~performance ~~$6.5 million consisting~~ of ~~$3.1~~each ~~million~~segment ofusing ~~service~~information about ~~fees~~its revenue and ~~$3.4~~operating ~~million of~~income ~~estimated costs~~(loss). InThe ~~July 2021 the~~ Company’s ~~prepaid~~operations ~~10%~~involve ofproducts ~~the~~and ~~total~~services ~~cost~~which ~~recited~~are inmanaged ~~the original work order, or $0~~separately.~~5 million~~ Accordingly, ~~which will~~it beoperates ~~applied~~in totwo ~~payment~~segments: of1) ~~the~~regenerative ~~final~~medicine ~~invoice~~products ~~under~~and ~~the~~2) ~~work~~contract ~~order~~services. ~~Over~~In ~~the~~April ~~approximately~~2022, ~~three-year term of~~ the ~~clinical~~Company ~~trial the~~sold ~~service~~IBEX ~~provider~~and ~~shall~~IBEX ~~submit~~Property, to the Company’s ~~for~~subsidiaries ~~payment~~which ~~invoices~~operate onwithin athe ~~monthly~~contract ~~basis~~services ~~for~~reporting ~~units~~segment. ofContract ~~work stated in the work order that~~services ~~are~~ceased ~~completed~~to ~~and~~be ~~billable~~a ~~expenses~~reportable ~~incurred.~~segment ~~During~~upon ~~the~~disposal ~~three~~of IBEX and ~~nine~~historical ~~months~~information ~~ended~~from ~~September~~prior ~~30,~~to ~~2022,~~ the ~~Company~~disposal ~~received~~date ~~invoices for~~is ~~work~~reported ~~performed and expenses incurred totaling $0~~here.3 See ~~and~~Note ~~$0.9~~5 ~~million,~~for ~~respectively.~~detail ~~Either party may terminate the agreement without cause~~ on ~~60 days~~management’s ~~notice~~disposal toof ~~the other party~~IBEX.

17. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On August 21, 2019, the Company and Dr. Denver Lough, a principal shareholder and former officer and director, signed a settlement terms agreement that provides, in part, that the Company pay to Dr. Lough $1,500,000 in cash on October 1, 2019 and an additional $1,500,000 in cash in equal monthly installments beginning November 1, 2019 and ending April 1, 2021. In addition, the Company agreed to award to Dr. Lough 200,000 restricted stock units that vest in 18 equal monthly installments beginning October 1, 2019. As of September 30, 2022, the Company has no remaining liability related to future cash payments under the agreement. The fair value of the restricted stock units was $0.8 million and was fully expensed upon Dr. Lough’s termination.

In October 2018, the Company entered into an office lease covering approximately 7,250 square feet of rental space in the building located at 40 West 57th Street in New York City. The lease is for a term of three years. The annual lease rate is $60 per square foot. Initially the Company would occupy and pay for only 3,275 square feet of space, and the Company was not obligated under the lease to pay for the remaining 3,975 square feet covered by the lease unless it elected to occupy that additional space. The Company believes the terms of the lease were very favorable to it, and the Company obtained the favorable terms through the assistance of Peter A. Cohen, a director, which he provided so that the company he owns, Peter A. Cohen, LLC (“Cohen LLC”), could sublease a portion of the office space. The lease expired on October 31, 2021. The Company recognized $0 and $55,000 of sublease income for the three months ended September 30, 2022 and 2021, respectively, and $0 and $165,000 for the nine months ended September 30, 2022 and 2021, respectively. The sublease income is included in other income, net in the condensed consolidated statement of operations and comprehensive loss.

18. SEGMENT REPORTING

Reportable segments are presented in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM), the Chief Executive Officer of the Company. The CODM allocates resources to and assesses the performance of each segment using information about its revenue and operating income (loss). The Company’s operations involve products and services which are managed separately. Accordingly, it operates in two segments: 1) regenerative medicine products and 2) contract services. In April 2022, the Company sold IBEX and IBEX Property, the Company’s subsidiaries which operate within the contract services reporting segment. The remaining contract services business is no longer a reportable segment due to immateriality. Contract services ceased to be a reportable segment upon disposal of IBEX and historical information from prior to the disposal date is reported here. See Note 5 for detail on management’s disposal of IBEX.

Certain information concerning the Company’s segments is presented in the following tables (in thousands):

SCHEDULE OF SEGMENT INFORMATION

	2022			2021			2022			2021
	2023			2022
	For the Three Months Ended						~~For the Nine Months Ended~~
	September 30,						September 30,
	March 31,
	2022			2021			2022			2021
	2023			2022
Net revenues:
Reportable segments:
Regenerative medicine	$	–—		$	–—		$	–		$	~~2,924~~
Contract services		–—			~~1,116~~741			~~814~~			~~5,438~~
Total net revenues	$	–—		$	~~1,116~~741		$	~~814~~		$	~~8,362~~
Net (loss)/income:
Reportable segments:
Regenerative medicine	$	(34,~~413~~243	)	$	(~~972~~3,545	)	$	~~(6,836~~	)	$	~~(21,903~~	)
Contract services		13—			(49226	)		~~(403~~	)		~~284~~
Total net loss	$	(34,~~400~~243	)	$	(13,~~021~~771	)	$	~~(7,239~~	)	$	~~(21,619~~	)

~~19. SUBSEQUENT EVENT~~22

As described in Note 8 the Company exercised its option to purchase the Property the Company occupies for offices, manufacturing, and lab activities for $17.5 million. The Company also entered into an agreement with BCG to sell the Property to BCG for $17.5 million and then lease a portion of the building on the Property back to the Company to house the Company’s operations. The transactions provide for closing on November 15, 2022, and included a right to extend the closing to November 30, 2022. On November 9, 2022, the Company entered into an Addendum to the BCG Agreement providing, in part, for BCG exercising its right to extend the closing to November 30, 2022, in consideration of making an extension deposit with the escrow holder of $50,000, and the Company exercising its right under the Purchase Agreement with the Landlord to extend the closing to November 30, 2022, in consideration of making an extension deposit with the escrow holder of $50,000. The Addendum also provides for the Company’s formation of a single member limited liability company owned by the Company, which will be used as the vehicle to effectuate purchase of the Property from the Landlord at closing, effectuate a change in ownership of the Property to BCG or its assigns, and lease a portion of the building on the Property back to the Company to house its operations.

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

The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as described in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021 (“2021 Annual Report”)~~2022, and in this Quarterly Report on Form 10-Q that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities for this fiscal year and periods that follow to differ materially from those expressed in or implied by those forward-looking statements. Readers are cautioned that forward-looking statements contained in this Quarterly Report on Form 10-Q should be read in conjunction with risk factors disclosed in our reports and disclosure under the heading “Disclosure Regarding Forward-Looking Statements” below.

~~Overview~~PolarityTE is a clinical stage biotechnology company developing regenerative tissue products and biomaterials. Until the end of April 2022, PolarityTE also operated a pre-clinical research business. PolarityTE’s first regenerative tissue product is SkinTE, which is intended for the repair, reconstruction, replacement, and supplementation of skin in patients who have a need for treatment of acute or chronic wounds, burns, surgical reconstruction events, scar revision, or removal of dysfunctional skin grafts.

~~PolarityTE~~Since isthe abeginning ~~clinical~~of ~~stage~~2017, ~~biotechnology~~we ~~company~~have ~~developing~~incurred ~~regenerative~~substantial ~~tissue~~operating ~~products~~losses and ~~biomaterials.~~our ~~PolarityTE’s~~operations ~~first~~have ~~regenerative~~been financed primarily by public equity ~~tissue~~financings. ~~product~~The isclinical trials for SkinTE, ~~which~~and isthe ~~intended~~regulatory ~~for~~process will likely result in an increase in our costs in the ~~repair~~foreseeable future, ~~reconstruction,~~we ~~replacement,~~expect ~~and~~we ~~supplementation~~will ofcontinue ~~skin~~to inincur ~~patients~~substantial ~~who~~operating losses as we pursue an investigational new drug application (“IND”) ~~have~~and a ~~need~~biologics ~~for~~license ~~treatment~~application of(“BLA”). ~~acute~~As ordescribed ~~chronic~~in ~~wounds,~~further ~~burns~~detail below, ~~surgical~~we ~~reconstruction~~will ~~events,~~need ~~scar~~to ~~revision,~~seek orfinancing ~~removal~~from ~~of dysfunctional~~external ~~skin~~sources ~~grafts~~over the foreseeable future to fund our operations.

~~Since~~On December 27, 2022, we issued a press release announcing that we signed a non-binding letter of intent (the ~~beginning~~“LOI”) with Michael Brauser (“Brauser”) for him to make an offer to acquire 100% of ~~2017~~our outstanding equity interests at a proposed offering price of $1.03 per common share, ~~PolarityTE~~which ~~has~~would ~~incurred~~be ~~substantial~~paid ~~operating~~entirely ~~losses~~in cash. Completion of the transaction was subject to Brauser conducting due diligence investigations, the negotiation and ~~its~~execution ~~operations~~of ~~have~~definitive ~~been~~transaction ~~financed~~documents, ~~primarily~~Brauser bysuccessfully ~~public~~acquiring a majority ~~equity~~of ~~financings~~the outstanding common stock of the Company, and other customary closing conditions. The ~~clinical~~LOI ~~trials~~provided ~~for~~that ~~SkinTE~~Brauser would pursue due diligence and the ~~regulatory~~parties ~~process~~would ~~will~~endeavor ~~likely~~to ~~result~~negotiate inthe anterms ~~increase~~of inthe ~~PolarityTE’s~~definitive transaction documents during the period ending March ~~expenses~~15, 2023. ~~PolarityTE~~We ~~will~~and ~~continue~~Brauser were unable to ~~incur~~complete ~~substantial~~negotiation ~~operating~~and ~~losses~~drafting asof wedefinitive ~~pursue~~documents anby ~~investigational~~March ~~new~~15, ~~drug~~2023, ~~application~~and ~~(“IND”)~~the LOI terminated ~~and~~on ~~biologics~~that ~~license~~date. ~~application~~Even ~~(“BLA”)~~though the LOI terminated, ~~and~~new ~~PolarityTE~~proposals ~~expects~~for toa ~~seek~~potential ~~financing~~transaction ~~from~~between ~~external~~us ~~sources~~and ~~over~~Mr. ~~the~~Brauser ~~foreseeable~~are under discussion, ~~future~~and we are also pursuing a process of evaluating our financial resources, product opportunities, and business plan with a view to ~~fund~~advancing the ~~its~~interests ~~operations~~of our stockholders.

Regenerative Tissue Product

Our first regenerative tissue product is SkinTE. On July 23, 2021, we submitted an IND for SkinTE to the U.S. Food and Drug Administration (the “FDA”) through our subsidiary, PolarityTE MD, Inc. (“PTE-MD”), as the first step in the regulatory process for obtaining licensure for SkinTE under Section 351 of the Public Health Service Act. ~~The~~ FDA ~~subsequently~~approval ~~issued~~of ~~clinical hold correspondence to us identifying certain issues that needed to be addressed before~~ the IND ~~could~~was begiven ~~approved.~~in WeJanuary ~~provided responses to the FDA~~2022, ~~and~~ onwhich ~~January~~allowed ~~14,~~us ~~2022,~~to commence the ~~FDA~~first ~~notified~~of ustwo ~~that~~pivotal ~~the~~studies ~~clinical~~needed ~~hold~~to ~~had~~support ~~been~~a ~~removed~~BLA. Our first ~~planned~~ pivotal study under our IND is a multi-center, randomized controlled trial evaluating SkinTE in the treatment of diabetic foot ulcers (“DFUs”) classified as Grade 2 in the Wagner classification system entitled “Closure Obtained with Vascularized Epithelial Regeneration for DFUs with SkinTE,” or “COVER DFUs Trial.” We plan to enroll up to 100 subjects at up to 20 sites in the U.S. in the COVER DFUs Trial, which will compare treatment with SkinTE plus the standard-of-care to the standard-of-care alone. The primary endpoint is the incidence of DFUs closed at 24 weeks. Secondary endpoints include percent area reduction (“PAR”) at 4, 8, 12, 16, and 24 weeks, improved quality of life, and new onset of infection of the DFU being evaluated. We have been enrolling subjects in the COVER DFUs Trial since the end of April 2022, and we expect the study will be fully enrolled sometime in the first six months of 2024. Additionally, there is an interim analysis planned for the first 50 patients and we believe that data will be available in the fourth calendar quarter of 2023.

InWe ~~March~~expect ~~2022,~~to weincur ~~submitted~~significant tooperating costs in the ~~FDA~~next athree ~~request~~to ~~for~~four ayears ~~Regenerative~~as ~~Medicine~~we ~~Advanced~~pursue ~~Therapy~~the ~~(“RMAT”)~~regulatory ~~designation~~process for SkinTE ~~under~~ ~~our~~with ~~IND. Established under~~ the ~~21st Century Cures Act~~FDA, conduct ~~RMAT~~clinical ~~designation~~trials isand astudies, ~~dedicated program designed to expedite the drug development~~ and ~~review~~pursue ~~processes~~product ~~for~~research, ~~promising~~all ~~regenerative~~while ~~medicine~~operating ~~products,~~our ~~including~~business ~~human cellular~~ and ~~tissue-based~~incurring ~~therapies.~~continuing Afixed ~~regenerative~~costs ~~medicine~~related ~~therapy~~to isthe ~~eligible~~maintenance ~~for~~of ~~RMAT~~our ~~designation~~assets ifand itbusiness. isWe ~~intended~~expect to ~~treat,~~incur ~~modify,~~significant ~~reverse,~~losses orin ~~cure~~the ~~a serious or life-threatening disease or condition~~future, and ~~preliminary~~those ~~clinical~~losses ~~evidence~~could ~~indicates that the drug or therapy has the potential to address unmet medical~~be ~~needs~~more ~~for~~severe ~~such~~as ~~disease~~a orresult ~~condition. RMAT designation provides the benefits~~ of ~~intensive~~unforeseen ~~FDA~~expenses, ~~guidance on efficient drug development~~difficulties, ~~including~~ ~~the ability for early interactions with the FDA to discuss potential ways to support accelerated approval and satisfy post-approval requirements~~complications, ~~potential priority review of a BLA~~delays, and other ~~opportunities~~unknown toevents. ~~expedite~~Our ~~development~~net ~~and~~losses ~~review.~~may Byfluctuate significantly ~~letter~~from ~~dated~~quarter-to-quarter ~~May~~and 11year-to-year, ~~2022,~~ wedepending ~~were~~upon ~~advised by~~ the ~~FDA~~timing ~~that~~of itour ~~concluded~~clinical ~~SkinTE~~trials ~~meets~~and ~~the~~our ~~criteria~~expenditures for ~~RMAT~~satisfying all ~~designation for~~ the ~~treatment~~conditions of ~~DFUs~~obtaining ~~and~~FDA ~~venous leg~~licensure ~~ulcers~~for ~~(“VLUs”)~~SkinTE.

As a result of the RMAT designation we were able to engage in an expedited dialogue with the FDA on the tasks that are likely to be necessary to support a BLA submission for SkinTE as a treatment of DFUs and VLUs, which were identified in the RMAT designation. Based on that dialogue we plan to run a second multi-center, randomized controlled trial under our current IND to support approval of a broad DFU indication for SkinTE in a BLA, and we plan to engage in discussions with the FDA regarding the design and implementation of the second clinical trial. We believe this strategy will be the fastest and least costly approach to achieving our first BLA submission for SkinTE, with DFUs representing the largest market opportunity within the category of chronic cutaneous ulcers. We plan to further engage with the FDA to fully define our development plan for other wound indications.

We expect to incur significant operating costs in the next three to four years as we pursue the regulatory process for SkinTE with the FDA, conduct clinical trials and studies, and pursue product research, all while operating our business and incurring continuing fixed costs related to the maintenance of our assets and business. We expect to incur significant losses in the future, and those losses could be more severe as a result of unforeseen expenses, difficulties, complications, delays, and other unknown events. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending upon the timing, progress, and outcomes of our clinical trials and our expenditures for satisfying all the conditions of obtaining FDA licensure for SkinTE.

Liquidity and Capital Resources

Available Capital Resources and Potential Sources of Liquidity

As of ~~September~~March 3031, ~~2022~~2023, we had $166.14 million in cash and cash equivalents and working capital of approximately $156.78 million. For the ~~nine~~ three-month period ended ~~September~~March 3031, ~~2022~~2023, cash used in operating activities was $185.31 million, or an average of $~~2.0 million per month, compared to $15.3 million of cash used in operating activities, or an average of $~~1.7 million per month, ~~for~~compared ~~the nine-month period ended~~to ~~September 30, 2021. For the three-month period ended September 30, 2022, cash used in operating activities was~~ $46.0 million, ~~or an average~~ of ~~$1.3 million per month, compared to $4.6 million of~~ cash used in operating activities, or an average of $12.50 million per month, for the three-month period ended ~~September~~March 3031, ~~2021~~ 2022.

As of the date of this quarterly report we do not expect that our cash and cash equivalents of $166.14 million as of ~~September~~March 3031, ~~2022~~2023, will be be sufficient to fund our current business plan including related operating expenses and capital expenditure requirements ~~beyond~~into the ~~second~~ third calendar quarter of 2023. Accordingly, there is substantial doubt about our ability to continue as a going concern, as we do not ~~believe~~ believe that our cash and cash equivalents will be sufficient to fund our business plan for at least twelve months from the date of issuance of our quarterly financial statements in this report. ~~We plan to address this condition by raising additional capital to finance our operations.~~

After April 2022 we have not engaged in any business activity that generates cash flows from operations, which in the past contributed to defraying our operating costs, and we do not expect we will be engaged in any operating business activity that would generate cash flow in the foreseeable future. Accordingly, we expect we will be dependent on obtaining capital from external sources to fund our operations over the next three to four years. Although we have been successful in raising capital in the past, financing may not be available on terms favorable to us, if at all, so we may not be successful in obtaining additional financing. Therefore, it is not considered probable, as defined in applicable accounting standards, that our plan to raise additional capital will alleviate the substantial doubt regarding our ability to continue as a going concern.23

Anticipated Uses of Capital Resources

As noted above, we are focused primarily on the advancement of our IND and subsequent BLA to attain a license to manufacture and distribute SkinTE. To that end, in June 2021 we engaged a ~~contract research organization (“~~CRO”) to provide services for the COVER DFUs Trial at a cost of approximately $6.5 million consisting of $3.1 million of service fees and $3.4 million of estimated costs. In 2021 we prepaid $0.5 million, which will be applied to payment of the final invoice under the work order. Over the approximately three-year term of the COVER DFUs Trial the service provider will submit to us for payment monthly invoices for units of work stated in the work order that are completed and billable expenses incurred. We began enrolling subjects in our COVER DFUs at the end of April 2022, ~~and~~ Subject to the availability of working capital we believe we may be able to complete enrollment of 100 subjects sometime in the ~~first~~second ~~six~~or ~~months~~third calendar quarters of 2024. As enrollment increases, we we expect our monthly CRO and related costs of conducting the trial will ramp up.

31Our expectation is that the second DFU clinical trial under the IND for SkinTE will be similar to the COVER DFUs Trial with respect to size, length of time to complete, and cost. To the extent we decide to pursue additional indications for the application of SkinTE, we expect we will need to submit separate IND applications for those indications and conduct additional clinical trials to support BLAs for those indications.

~~Our~~Clinical ~~expectation~~trials isare ~~that~~ the ~~second~~major ~~DFU~~expense ~~clinical~~we ~~trial~~see ~~under~~in the ~~IND~~near ~~for~~and ~~SkinTE~~long ~~will~~term, beand ~~similar~~while we are pursuing clinical trials, we will continue to incur the costs ~~COVER~~of ~~DFUs~~maintaining ~~Trial~~our ~~with~~business. ~~respect~~In addition to ~~size~~clinical trials, ~~length~~ our most significant uses of ~~time~~cash to ~~complete~~maintain our business going forward are expected to be compensation, costs of occupying, operating, and ~~cost.~~maintaining Toour facilities, and the ~~extent~~costs weassociated ~~decide~~with tomaintaining our ~~pursue~~status ~~additional~~as ~~indications~~a ~~for~~publicly traded company. During the ~~application~~12-month period following the filing of ~~SkinTE,~~this ~~such~~report asour plan is to preserve the facilities, ~~VLUs~~equipment, weand ~~expect~~staff we ~~will~~ need to ~~submit~~advance ~~separate~~the ~~IND~~COVER ~~applications~~DFUs ~~for~~Trial ~~those indications~~ and ~~conduct~~other ~~additional~~work ~~clinical~~necessary ~~trials~~for toadvancing ~~support BLAs~~the process for ~~those~~obtaining ~~indications~~regulatory approval of SkinTE.

Clinical trials are the major expense we see in the near and long term, and while we are pursuing clinical trials, we will continue to incur the costs of maintaining our business. In addition to clinical trials, our most significant uses of cash to maintain our business going forward are expected to be compensation, costs of occupying, operating, and maintaining our facilities, and the costs associated with maintaining our status as a publicly traded company listed on Nasdaq. During the 12-month period following the filing of this report our plan is to preserve the facilities, equipment, and staff we need to advance the COVER DFUs Trial and other work necessary for advancing the process for obtaining regulatory approval of SkinTE.

With the acceptance of our IND for SkinTE and the beginning of the COVER DFUs Trial, we do not expect to have the same need for research and development staff associated with product development and, as a result, we reduced research and development staff in April 2022.

During the latter part of 2021 and into February 2022, we engaged in discussions with certain third parties regarding potential M&A transactions and strategic initiatives. In the first quarter of 2022 we recognized $1.2 million of one-time costs for professional services associated with such M&A and strategic initiatives, which is in addition to $1.2 million of such costs recognized in the fourth quarter of 2021. In the first quarter of 2023 we recognized $0.3 million of one-time costs for professional services associated with negotiation and due diligence activities related to the December 27, 2022 non-binding letter of intent with Michael Brauser for him to make an offer to acquire 100% of the outstanding equity interest of the Company.

Our actual capital requirements will depend on many factors, including the cost and timing of advancing our IND and subsequent BLA for the use of SkinTE on DFUs, the cost and timing of additional INDs and BLAs for other indications where SkinTE may be used, the cost and timing of clinical trials, the cost of establishing and maintaining our facilities in compliance with current good tissue practices and current good manufacturing practice requirements, and the cost and timing of advancing our product development initiatives related to SkinTE. Our projection of the period of time for which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

We will need to raise additional capital in the future to fund our effort to obtain FDA approval of SkinTE and maintain our operations. Any additional equity financing including financings involving convertible securities, if able to be obtained, may be highly dilutive, on unfavorable terms, or otherwise disadvantageous, to existing stockholders. Debt financing, if available, may involve restrictive covenants or require us to grant a security interest in our assets. If we elect to pursue collaborative arrangements, the terms of such arrangements may require us to relinquish rights to certain of our technologies, products, or marketing territories. Our failure to raise additional capital when needed, and on acceptable terms, would require us to reduce our operating expenses and would limit our ability to continue operations, any of which would have a material adverse effect on our business, financial condition, results of operation, and prospects.24

Results of Operations

Changes in Polarity’s Operations

There have been significant changes in our operations affecting our results of operations for the ~~nine~~three-month period ended ~~September~~March 3031, ~~2022~~2023, compared to ~~nine~~three-month period ended ~~September~~March 3031, ~~2021~~2022.

OnAt ~~July~~the ~~23,~~beginning ~~2021~~of May 2018, we ~~submitted~~acquired ana ~~IND~~preclinical ~~for~~research ~~SkinTE~~and toveterinary ~~the~~sciences ~~FDA~~business, which we operated through our indirect subsidiary, ~~PTE-MD~~IBEX Preclinical Research, asInc. ~~the~~(“IBEX”). ~~first~~Utah ~~step~~CRO inServices, ~~the~~Inc., ~~regulatory~~a ~~process for~~Nevada ~~obtaining~~corporation ~~licensure~~(“Utah ~~for~~CRO”), is ~~SkinTE~~our ~~under~~direct ~~Section~~subsidiary ~~351~~and held all of the ~~Public~~outstanding ~~Health~~capital ~~Service~~stock ~~Act.~~of ~~The~~IBEX ~~FDA~~(the ~~subsequently~~“IBEX ~~issued~~Shares”). ~~clinical~~Utah ~~hold~~CRO ~~correspondence~~also held all tothe usmember ~~identifying~~interest ~~certain~~of ~~issues~~IBEX Property LLC, a Nevada limited liability company (“IBEX Property”), that ~~needed~~owned totwo beunencumbered parcels ~~addressed~~of ~~before~~real ~~the~~property ~~IND~~in ~~could~~Logan, beUtah, ~~approved~~consisting of approximately 1.75 Wecombined ~~provided~~gross ~~responses~~acres toof land, together with the ~~FDA~~buildings, structures, fixtures, and on ~~January~~personal ~~14,~~property ~~2022~~(the “Property”), ~~the~~which ~~FDA~~was ~~sent~~leased ~~correspondence~~by ~~informing~~IBEX usProperty ~~that~~to ~~the~~IBEX ~~clinical~~for ~~hold~~IBEX ~~had~~to ~~been~~conduct its ~~removed~~preclinical research and veterinary sciences business. ~~Acceptance~~On ofApril ~~the~~28, ~~IND~~2022, byUtah CRO sold all the ~~FDA enables~~IBEX usShares to ~~commence~~an unrelated third party in exchange for a promissory note in the ~~first~~principal amount of ~~two~~$0.4 ~~expected~~million ~~pivotal~~bearing ~~studies~~simple ~~needed~~interest toat ~~support~~the rate of 10% per annum payable interest only on a ~~BLA~~quarterly ~~for~~basis ~~SkinTE.~~and Weall ~~ceased~~principal ~~selling~~and ~~SkinTE~~remaining ataccrued interest due on the five-year anniversary of the closing ~~end~~of the sale of ~~May~~the ~~2021,~~IBEX ~~when~~Shares. On the ~~period~~same day IBEX Property closed the sale of ~~enforcement~~the ~~discretion~~Property ~~previously~~to ~~announced~~an byaffiliate of the ~~FDA~~same ~~with~~party ~~respect~~that purchased tothe ~~its~~IBEX ~~IND~~Shares and ~~premarket~~we ~~approval requirements~~realized ~~for~~net ~~regenerative~~cash ~~medicine~~proceeds ~~therapies~~of $2.3 million, ~~such~~after asdeducting ~~SkinTE,~~closing ~~came~~costs toand anadvisory ~~end~~fees. Prior to April 2022, ~~and~~while we dowere ~~not~~exploring ~~expect~~the toopportunities befor ~~able~~selling toIBEX ~~commercialize~~and ~~SkinTE until~~IBEX ~~our~~Property, ~~BLA~~IBEX isassumed ~~approved~~a more passive approach to marketing its services, which weresulted ~~believe~~in ~~will~~a ~~take~~decline atin ~~least~~IBEX ~~three~~services revenues in 2022 prior to ~~four~~the ~~years~~sale. ~~Consequently~~Accordingly, weour ~~recognized~~services ~~products~~ net revenues inwere nominal from the ~~nine~~beginning ~~months~~of 2022 through the sale of ~~2021,~~IBEX and ~~did~~the ~~not~~Property ~~have~~completed ~~any~~at ~~such~~the end of April 2022, and services net revenues ingenerated ~~the~~by ~~first~~IBEX ~~nine~~ended ~~months~~permanently ofafter ~~2022~~the sale.

32As a result of the foregoing developments, we made a number of changes to our operations that impacted our results of operations. These included reductions in our work force and reducing the services and infrastructure needed to support a larger work force.

Our subsidiary, Arches Research, Inc. (“Arches”) began offering COVID-19 testing services in May 2020 under 30-day renewable testing agreements with multiple nursing home and pharmacy facilities in the state of New York controlled by a single company, which substantially added to our services net revenues in the first three months of 2021. When the New York nursing homes and pharmacies adopted on-site employee testing at the end of March 2021, our COVID-19 testing revenues declined substantially, and in August 2021, we decided to cease COVID-19 testing. Arches focused its research and development resources on supporting our IND and clinical trial efforts for the remainder of 2021 and continued in that role in 2022. However, we do not expect we will have the same need for research and development staff associated with product development and, as a result, we reduced research and development staff in April 2022, and began to eliminate or sell certain items of equipment that had been leased or purchased for our research and development activity.25

AtComparison ~~the beginning~~ of May 2018, we acquired a preclinical research and veterinary sciences business, which we operated through our indirect subsidiary, IBEX Preclinical Research, Inc. (“IBEX”). Utah CRO Services, Inc., a Nevada corporation (“Utah CRO”), is our direct subsidiary and held all of the ~~outstanding~~three ~~capital~~months ~~stock~~ended ofMarch ~~IBEX (the “IBEX Shares”). Utah CRO also held all the member interest of IBEX Property LLC~~31, ~~a Nevada limited liability company (“IBEX Property”)~~2023, that owned two unencumbered parcels of real property in Logan, Utah, consisting of approximately 1.75 combined gross acres of land, together with the buildings, structures, fixtures, and personal property (the “Property”), which was leased by IBEX Property to IBEX for IBEX to conduct its preclinical research and veterinary sciences business. On April 28, 2022, Utah CRO sold all the IBEX Shares to an unrelated third party in exchange for a promissory note in the principal amount of $0.4 million bearing simple interest at the rate of 10% per annum payable interest only on a quarterly basis and all principal and remaining accrued interest due on the five-year anniversary of the closing of the sale of the IBEX Shares. On the same day IBEX Property closed the sale of the Property to an affiliate of the same party that purchased the IBEX Shares and we realized net cash proceeds of $2.3 million, after deducting closing costs and advisory fees. Prior to April 2022, while we were exploring the opportunities for selling IBEX and IBEX Property, IBEX assumed a more passive approach to marketing its services, which resulted in a decline in IBEX services revenues in the first nine months of 2022 compared to the ~~first~~three ~~nine~~ months of ~~2021.~~ended ~~Accordingly,~~March ~~our services net revenues were nominal from the beginning of 2022 through the sale of IBEX and the Property completed at the end of April 2022~~31, ~~and services net revenues generated by IBEX ended permanently after the sale.~~2022

As a result of the foregoing developments, we made a number of changes to our operations that impacted our results of operations. These included reductions in our work force and reducing the services and infrastructure needed to support a larger work force and commercial sales effort.

	For the Three Months Ended						Increase (Decrease)
(in thousands)	March 31, 2023			March 31, 2022			Amount			%
	(Unaudited)
Net revenues
Services	$	-		$	741		$	(741	)		(100	)%
Total net revenues		-			741			(741	)		(100	)%
Cost of revenues
Services		-			491			(491	)		(100	)%
Total costs of revenues		-			491			(491	)		(100	)%
Gross profit		-			250			(250	)		(100	)%

Operating costs and expenses
Research and development		2,282			2,860			(578	)		(20	)%
General and administrative		2,464			6,209			(3,745	)		(60	)%
Impairment of assets held for sale		56			54			2			4	%
Total operating costs and expenses		4,802			9,123			(4,321	)		(47	)%
Operating loss		(4,802	)		(8,873	)		4,071			(46	)%
Other income (expense), net
Change in fair value of common stock warrant liability		528			5,105			(4,577	)		(90	)%
Interest income (expense), net		31			(15	)		46			(307	)%
Other income, net		-			12			(12	)		(100	)%
Net loss	$	(4,243	)	$	(3,771	)	$	(472	)		13	%

~~Comparison~~Net ofRevenues and Gross Profit. Net revenues decreased $0.7 million, or 100%, for the ~~nine~~three-month ~~months~~period ended ~~September~~March 3031, 2023, compared to the three-month period ended March 31, 2022, due to the sale of IBEX in April 2022. With the decrease in revenues, cost of revenues also decreased by $0.5 million, or 100%. As a result of these changes gross profit decreased by $0.3 million, or 100%, for the three-month period ended March 31, 2023, compared to the ~~nine~~three-month ~~months~~period ended ~~September~~March 3031, ~~2021~~2022.

	For the Nine Months Ended						Increase (Decrease)
(in thousands)	September 30, 2022			September 30, 2021			Amount			%
	(Unaudited)
Net revenues
Products	$	–		$	2,924		$	(2,924	)		(100	)%
Services		814			5,438			(4,624	)		(85	)%
Total net revenues		814			8,362			(7,548	)		(90	)%
Cost of sales
Products		–			448			(448	)		(100	)%
Services		616			3,275			(2,659	)		(81	)%
Total costs of revenues		616			3,723			(3,107	)		(83	)%
Gross profit		198			4,639			(4,441	)		(96	)%
Operating costs and expenses
Research and development		8,489			10,491			(2,002	)		(19	)%
General and administrative		12,456			14,999			(2,543	)		(17	)%
Sales and marketing		–			2,718			(2,718	)		(100	)%
Restructuring and other charges		38			678			(640	)		(94	)%
Impairment of assets held for sale		223			–			223			100	%
Total operating costs and expenses		21,206			28,886			(7,680	)		(27	)%
Operating loss		(21,008	)		(24,247	)		3,239			(13	)%
Other income (expense), net
Gain on extinguishment of debt		–			3,612			(3,612	)		(100	)%
Change in fair value of common stock warrant liability		13,719			4,134			9,585			232	%
Inducement loss on sale of liability classified warrants		–			(5,197	)		5,197			100	%
Interest income (expense), net		(33	)		(106	)		73			69	%
Other income, net		83			185			(102	)		(55	)%
Net loss	$	(7,239	)	$	(21,619	)	$	14,380			(67	)%

Operating Costs and Expenses. Operating costs and expenses decreased $4.3 million, or 47%, for the three-month period ended March 31, 2023, compared to the three-month period ended March 31, 2022.

33Research and development expenses decreased 20% for the three-month period ended March 31, 2023, compared to the three-month period ended March 31, 2022. The decrease is primarily attributable to the reduction of research and development costs and personnel as the Company focuses on the COVER FDUs Trial. This reduction of costs was offset by higher clinical trial costs related to the COVER FDUs Trial.

~~Comparison~~The amount of general and administrative expenses for the three-month ~~months~~period ended ~~September~~March 3031, ~~2022~~2023, decreased $3.7 million compared to the three-month ~~months~~period ended ~~September~~March 3031, ~~2021~~2022. We reduced our workforce throughout 2022. Consequently, there were reductions in cash compensation, stock compensation, consulting fees, and travel expense. We incurred professional fees related to a proposed tender offer in the first quarter of 2023, which were lower than the professional fees incurred in connection with our pursuit of a strategic transaction that did not materialize and investment banking fees paid in connection with an at-the-market offering we terminated in the first quarter of 2022.

	For the Three Months Ended						Increase (Decrease)
(in thousands)	September 30, 2022			September 30, 2021			Amount			%
	(Unaudited)
Net revenues
Services	$	–		$	1,116		$	(1,116	)		(100	)%
Total net revenues		–			1,116			(1,116	)		(100	)%
Cost of sales
Services		–			634			(634	)		(100	)%
Total costs of revenues		–			634			(634	)		(100	)%
Gross profit		–			482			(482	)		(100	)%
Operating costs and expenses
Research and development		2,551			3,870			(1,319	)		(34	)%
General and administrative		2,685			3,687			(1,002	)		(27	)%
Sales and marketing		–			93			(93	)		(100	)%
Restructuring and other charges		–			242			(242	)		(100	)%
Impairment of assets held for sale		169			–			169			100	%
Total operating costs and expenses		5,405			7,892			(2,487	)		(32	)%
Operating loss		(5,405	)		(7,410	)		2,005			27	%
Other income (expense), net
Change in fair value of common stock warrant liability		1,984			6,354			(4,370	)		(69	)%
Interest income (expense), net		(4	)		(29	)		25			86	%
Other income, net		25			64			(39	)		(61	)%
Net loss	$	(3,400	)	$	(1,021	)	$	(2,379	)		233	%

Operating Loss and Net Loss. Operating loss decreased $4.1 million, or 46%, for the three-month period ended March 31, 2023, compared to the three-month period ended March 31, 2022. The decrease in operating loss is due to the reduction in operating expenses for the three-month period ended March 31, 2023, compared to the three-month period ended March 31, 2022, which was only partially offset by the decrease in gross profit due to the sale of IBEX and end of services revenue in 2022.

Net ~~Revenues~~loss ~~and~~increased ~~Gross Profit~~$0.5 Wemillion, ~~ceased~~or ~~commercial~~13%, ~~sales~~for ofthe ~~SkinTE~~three-month inperiod ~~the~~ended ~~second~~March ~~calendar~~31, ~~quarter~~2023, ofcompared ~~2021~~to ~~and~~the ~~sold~~three-month ~~the~~period ~~IBEX~~ended ~~services~~March ~~business~~31, at2022. ~~the~~Warrants ~~end~~issued ofin ~~April~~connection with financings we completed in 2022, so2021 weand ~~were~~2020 ~~not~~are ~~engaged~~classified inas ~~any~~liabilities ~~revenue~~and ~~generating~~remeasured each ~~business~~period ~~activity~~until atsettled, ~~September~~classified 30as equity, ~~2022~~or expiration. As a result of the periodic remeasurement, ~~and~~we dorecorded ~~not~~a gain for change ~~expect~~in tofair ~~generate~~value ~~operating~~of ~~revenues~~common ~~from~~stock ~~any~~warrant ~~business~~liability ~~activity~~of $0.5 million for the ~~foreseeable~~three-month ~~future.~~period ~~The~~ended ~~decreases~~March in31, ~~revenues~~2023, ~~cost~~compared ofto ~~revenues,~~gain for ~~and~~change ~~gross~~in ~~profit~~fair ~~for~~value ~~the~~of ~~nine-month~~common ~~and~~stock warrant liability of $5.1 million for the three-month ~~periods~~period ended ~~September~~March 3031, 2022,. ~~compared~~For toadditional information on the ~~same~~change ~~periods~~ in ~~2021~~fair ~~are~~value ~~consistent with~~of ~~our~~common ~~cessation~~stock ofwarrant ~~revenue-generating~~liability ~~business~~please ~~activity~~see Note 4 to the condensed consolidated financial statements included in this report.

3426

Operating Costs and Expenses. Operating costs and expenses decreased $7.7 million, or 27%, for the nine-month period ended September 30, 2022, compared to the nine-month period ended September 30, 2021, and decreased $2.5 million, or 32%, for the three-month period ended September 30, 2022, compared to the three-month period ended September 30, 2021.

Research and development expenses decreased 19% for the nine-month period ended September 30, 2022, compared to the nine-month period ended September 30, 2021, and decreased 34% for the three-month period ended September 30, 2022, compared to the three-month period ended September 30, 2021. The decrease is primarily attributable to costs incurred in the nine-month period ended September 30, 2021, for completing our pre-IND diabetic foot ulcers trial, lab supplies for work on preparing the technical items for our IND, and consulting services for preparing our IND that did not recur in the nine-month period ended September 30, 2022, which was partially offset by an increase primarily attributable to SkinTE manufacturing and overhead personnel redirecting their efforts following the cessation of SkinTE sales to research and development activities, manufacturing costs for SkinTE produced for use in the COVER DFUs Trial, and increased costs related to quality control supplies and infrastructure implemented for the COVER DFUs Trial.

The amount of general and administrative expenses decreased 17% for the nine-month period ended September 30, 2022, compared to the nine-month period ended September 30, 2021, and decreased 27%, for the three-month period ended September 30, 2022, compared to the three-month period ended September 30, 2021. We effectuated a reduction in force for our commercial operations in the second quarter of 2021. Consequently, there were reductions in cash compensation, stock compensation, consulting fees, and travel expense. Furthermore, with the cessation of SkinTE sales we re-allocated manufacturing supplies and compensation from general and administrative expenses to research and development costs. These reductions were offset by professional fees incurred in connection with our pursuit of a strategic transaction that did not materialize, and investment banking fees paid in connection with an at-the-market offering we terminated in the first quarter of 2022.

In the first nine months of 2021, we incurred sales and marketing costs related to our commercial sales effort that did not recur in the first nine months of 2022. In connection with terminating commercial sales of SkinTE, we realized as a restructuring charge a loss on impairment of property and equipment in the amount of $0.4 million and a charge of $0.6 million for employee severance and revaluing of equity awards related to severance, which was offset by a gain of $0.3 million from early termination of an office/ laboratory lease in Augusta, Georgia. In the first nine months of 2022 we realized a charge of $0.2 million from impairment of equipment to be sold and a nominal amount of restructuring charges on employee severance.

Operating Loss and Net Loss. Operating loss decreased $3.2 million, or 13%, for the nine-month period ended September 30, 2022, compared to the nine-month period ended September 30, 2021, and decreased $2.0 million, or 27%, for the three-month period ended September 30, 2022, compared to the three-month period ended September 30, 2021.

Net loss decreased $14.4 million, or 67%, for the nine-month period ended September 30, 2022, compared to the nine-month period ended September 30, 2021, and increased $2.4 million, or 233%, for the three-month period ended September 30, 2022, compared to the three-month period ended September 30, 2021. Warrants issued in connection with financings we completed in 2022, 2021 and 2020 are classified as liabilities and remeasured each period until settled, classified as equity, or expiration. As a result of the periodic remeasurement, we recorded a gain for change in fair value of common stock warrant liability of $13.7 million for the nine-month period ended September 30, 2022, compared to a gain of $4.1 million for the nine-month period ended September 30, 2021, and a gain for change in fair value of common stock warrant liability of $2.0 million for the three-month period ended September 30, 2022, compared to a gain of $6.4 million for the three-month period ended September 30, 2021. For additional information on the change in fair value of common stock warrant liability please see Note 4 to the condensed consolidated financial statements included in this report. We issued common stock purchase warrants in January 2021, as an inducement to holders of warrants issued in December 2020 to exercise those December warrants. As a result, we recognized an inducement loss of $5.2 million for the nine-month period ended September 30, 2021. There was no similar inducement loss in the first nine months of 2022.

Non-GAAP Financial Measure

The table below provides a reconciliation of adjusted net loss, which is a non-GAAP measure that shows net loss before fair value adjustments relating to our common stock warrant liability and warrant inducement loss, to GAAP net loss. We believe adjusted net loss is useful to to investors because it eliminates the effect of non-operating items that can significantly fluctuate from period to period due to fair value remeasurements. For purposes of calculating non-GAAP per share metrics, the same denominator is used as that which was used in calculating net loss per share under GAAP. Other companies may calculate adjusted net loss differently than we do. Adjusted net loss has limitations as an analytical tool and you should not consider adjusted net loss in isolation or as a substitute for our financial results prepared in accordance with GAAP.

Adjusted Net Loss Attributable to Common Stockholders

(in thousands - unaudited non-GAAP measure)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	For the Three Months Ended March 31,
	2022			2021			2022			2021
	2023			2022
GAAP Net Loss	$	(3,400	)	$	(1,021	)	$	(7,239	)	$	(21,619	)
GAAP net loss	$	(4,243	)	$	(3,771	)
Change in fair value of common stock warrant liability		(~~1,984~~528	)		(65,~~354~~105	)		~~(13,719~~	)		~~(4,134~~	)
Inducement loss on sale of liability classified warrants		–			–			–			5,197
Non-GAAP adjusted net loss attributable to common stockholders – basic & diluted	$	(4,771	)	$	(8,876	)
Non-GAAP adjusted net loss attributable to common stockholders – basic & diluted	$	(5,384	)	$	(7,375	)	$	(20,958	)	$	(20,556	)
GAAP net loss per share attributable to common stockholders
GAAP net loss per share attributable to common stockholders
Basic	$	(0.58	)	$	(1.12	)*
Basic*	$	(0.47	)	$	(0.31	)	$	(1.08	)	$	(6.81	)
Diluted	$	(0.58	)	$	(2.37	)*
Diluted*	$	(0.47	)	$	(0.37	)	$	(1.54	)	$	(6.81	)
Non-GAAP adjusted net loss per share attributable to common stockholders
Non-GAAP adjusted net loss per share attributable to common stockholders
Basic & Diluted	$	(0.65	)	$	(2.64	)*
Basic and diluted*	$	(0.75	)	$	(2.27	)	$	(3.12	)	$	(6.47	)

* Giving retroactive effect to the 1-for-25 reverse stock split effectuated on May 16, 2022

Critical Accounting Policies and Estimates

~~The~~Stock-Based ~~preparation~~Compensation. ofWe ~~financial~~measure ~~statements~~all instock-based ~~accordance~~compensation ~~with~~to ~~GAAP~~employees ~~requires~~and ~~both~~non-employees ~~the~~using ~~use~~a offair ~~estimates~~value ~~and~~method. ~~judgment~~For ~~relative~~stock tooptions with ~~the~~graded ~~application of~~vesting, ~~appropriate~~we ~~accounting~~recognize ~~policies.~~compensation Weexpense ~~are~~over ~~required~~the toservice ~~make~~period ~~estimates~~for ~~and~~each ~~assumptions~~separately investing ~~certain~~tranche ~~circumstances~~of ~~that~~the ~~affect~~award ~~amounts~~as ~~reported~~though in the ~~Unaudited~~award ~~Condensed~~were ~~Consolidated~~in ~~Financial~~substance, ~~Statements~~multiple ~~and~~awards ~~related~~based ~~footnotes.~~on Wethe ~~evaluate~~fair ~~these~~value ~~estimates and assumptions~~ on ~~an ongoing~~the ~~basis~~date ~~based~~of ongrant. ~~historical~~The ~~developments,~~fair ~~market~~value ~~conditions,~~for ~~industry~~options ~~trends,~~issued ~~and~~is ~~other~~estimated at ~~information~~the ~~that~~date weof ~~believe~~grant tousing bea ~~reasonable under~~Black-Scholes ~~the~~option-pricing ~~circumstances~~model. ~~There~~The ~~can~~risk-free berate nois ~~assurance~~derived ~~that~~from ~~actual~~the ~~results~~U.S. ~~will~~Treasury ~~conform~~yield tocurve ~~these~~in effect ~~estimates~~at ~~and~~the ~~assumptions~~time ~~or that reported results~~ of ~~operations~~the ~~will~~grant ~~not~~commensurate bewith ~~materially~~the ~~and~~expected ~~adversely~~term ~~affected~~of by the ~~need~~option. toThe ~~make~~volatility ~~accounting~~factor ~~adjustments~~is todetermined ~~reflect~~based ~~changes~~on inour historical ~~these~~stock ~~estimates~~prices. ~~and~~Forfeitures ~~assumptions~~are ~~from~~recognized ~~time~~as tothey ~~time~~occur. ~~Our~~The ~~critical~~fair ~~accounting~~value ~~policies~~of ~~are~~restricted ~~more~~stock ~~fully~~grants ~~described~~is inmeasured ~~Part~~based ~~II,~~on ~~Item~~the 7fair ~~“Management’s~~market ~~Discussion~~value ~~and~~of ~~Analysis~~our ofcommon ~~Financial~~stock ~~Condition~~on ~~and~~the ~~Results~~date of ~~Operations”~~grant ~~presented~~and inamortized ~~our~~to ~~2021~~compensation ~~Annual~~expense ~~Report.~~over ~~There~~the ~~have~~vesting ~~been no~~period ~~changes~~of, ingenerally, ~~our~~six ~~critical~~months to ~~accounting~~three ~~policies from December 31, 2021~~years.

36Common Stock Warrant Liability. The fair value of the common stock warrant liability is estimated using the Monte Carlo simulation model, which involves simulated future stock price amounts over the remaining life of the commitment. The fair value estimate is affected by our stock price as well as estimated change of control considerations.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements. Risks and uncertainties are inherent in forward-looking statements. Furthermore, such statements may be based on assumptions that fail to materialize or prove incorrect. Consequently, our business development, operations, and results could differ materially from those expressed in forward-looking statements made in this Quarterly Report. We make such forward-looking statements pursuant to the safe harbor provisions in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

	●	our ability to raise capital to fund our operations;
	●	the timing or success of obtaining regulatory licenses or approvals for initiating clinical trials or marketing our products;
	●	the initiation, timing, progress, cost, and results of clinical trials under our open IND for DFUs;
	●	the initiation, timing, progress, cost, and results of other INDs for SkinTE in additional indications and the clinical trials that may be required under those INDs;
	●	sufficiency of our working capital to fund our operations in the near and long term, which raises doubt about our ability to continue as a going concern;
	●	infrastructure required to support operations in future periods, including the expected costs thereof;
	●	estimates associated with revenue recognition, asset impairments, and cash flows;
	●	variance in our estimates of future operating costs;
	●	future vesting and forfeitures of compensatory equity awards;
	●	the effectiveness of our disclosure controls and our internal control over financial reporting;
	●	the impact of new accounting pronouncements;
	●	size and growth of our target markets; and
	●	the initiation, timing, progress, and results of our research and development programs.

Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, without limitation:

	●	the need for, and ability to obtain, additional financing in the future;
	●	the ability to comply with regulations applicable to the development, production, and distribution of SkinTE;
	●	the timing and requirements associated with obtaining FDA acceptance of our second clinical trial;
	●	the ability to obtain subject enrollment in our trials at a pace that allows the trials to progress on the schedules we have established with our CRO;
	●	unexpected developments or delays in the progress of our clinical trials;
	●	the scope of protection we can establish and maintain for intellectual property rights covering our product candidates and technology;
	●	the ability to gain adoption by healthcare providers of our products for patient care;
	●	developments relating to our competitors and industry;
	●	new discoveries or the development of new therapies or technologies that render our products or services obsolete or unviable;
	●	the ability to find and retain skilled personnel;
	●	outbreaks of disease, including the COVID-19 pandemic, and related stay-at-home orders, quarantine policies and restrictions on travel, trade, and business operations;
	●	political and economic instability, whether resulting from natural disasters, wars (such as the conflict between Russia and Ukraine), terrorism, pandemics, or other sources;
	●	changes in economic conditions, including inflation, rising interest rates, lower consumer confidence, and volatile equity capital markets;
	●	inaccuracies in estimates of our expenses, future revenues, and capital requirements;
	●	future accounting pronouncements; and
	●	unauthorized access to confidential information and data on our information technology systems and security and data breaches.

3728

Forward-looking statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q may also contain estimates, projections, and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from reports, research surveys, studies, ~~and~~ and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.

Item 3. Quantitative and Qualitative Disclosure about Market Risk

Not applicable.

Item 4. Controls and Procedures

Our management, with the participation of our principal executive and financial officers, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on the evaluation of the effectiveness of our disclosure controls and procedures as of ~~September~~March 3031, ~~2022~~2023, our principal executive and financial officers concluded that, as of such date, our disclosure controls and procedures were effective. There were no changes in our internal control over financial reporting during the three-month period ended ~~September 30, 2022, that have materially~~ ~~affected,~~March ~~or are reasonably likely to materially affect~~31, ~~our internal controls over financial reporting~~2023.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For a description of our material pending legal proceedings, see Note 1614, “Commitments and Contingencies— - Contingencies” in in the condensed consolidated financial statements included in this report.

Item 1A. Risk Factors

You should carefully consider the factors discussed below and in Part I, “Item 1A. Risk Factors” in our ~~2021~~ Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which could materially affect our business, financial position, or future results of operations. The risks described below and in our ~~2021~~ Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially, adversely affect our business, financial position, future results of operations, and prospects.

Risks Related to Our Financial Condition

We will need additional funding to pursue the regulatory process for SkinTE and sustain our operations, and we may be unable to raise capital when needed, which would force us to delay, reduce, eliminate, or abandon our product development program or seek relief under the United States Bankruptcy Code.

We reported an operating loss of $214.08 million for the ~~nine~~three-month period ended ~~September~~March 3031, ~~2022~~2023, and on that date we had had an accumulated deficit of $~~515~~520.65 million. We believe our cash and cash equivalents at ~~September~~March 3031, ~~2022~~2023, ~~will~~could fund our current business plan including related operating expenses and capital expenditure requirements into the ~~second~~third calendar quarter of 2023. Accordingly, there is substantial doubt about our ability to continue as a going concern beyond that time unless we can raise additional capital from external sources.

We expect to incur significant operating costs in the near term as we pursue the regulatory process for SkinTE with the FDA, conduct clinical trials and studies, and pursue product research, all while operating our business and incurring continuing fixed costs related to the maintenance of our assets and business. We expect to incur significant losses in the future, and those losses could be more severe as a result of unforeseen expenses, difficulties, complications, delays, and other unknown events. As a result of the disposition of IBEX in April 2022, we are no longer engaged in any revenue generating activity that would contribute to defraying our operating costs in future periods, which will make us entirely dependent on capital obtained from external sources to fund our operations. The impact of COVID-19, inflation, and other macroeconomic issues have and may continue to adversely affect capital markets and could limit our ability to obtain the capital we need to operate our business.29

We ~~may~~expect ~~not~~to beincur ~~able~~significant tooperating ~~obtain~~costs ~~necessary~~in ~~capital~~the innear ~~sufficient~~term ~~amounts,~~as onwe ~~terms~~pursue ~~favorable~~the toregulatory usprocess for SkinTE with the FDA, orconduct atclinical trials and studies, and pursue product research, all. Ifwhile ~~adequate~~operating ~~funds~~our ~~are~~business ~~not~~and ~~available~~incurring continuing fixed costs related to the ~~for~~maintenance of our assets and business. We expect to incur significant losses in the future, weand ~~may~~those losses could be ~~required~~more severe due to ~~delay~~unforeseen expenses, ~~reduce~~difficulties, complications, delays, and other unknown events. As a result of the ~~scope~~disposition of IBEX in April 2022, orwe ~~eliminate~~are ~~the~~no ~~plans~~longer ~~for~~engaged ~~obtaining~~in ~~regulatory~~any ~~licensure~~revenue generating activity that would contribute to defraying our operating costs in future periods, orwhich ~~approval~~makes ~~for~~us ~~SkinTE~~entirely ordependent beon ~~unable~~capital obtained from external sources to ~~continue~~fund our operations. ~~over~~The aimpact ~~longer~~of ~~term~~pandemics, ~~any~~inflation, armed ofconflicts ~~which~~overseas, ~~would~~and other macroeconomic issues have aand ~~material~~may ~~adverse~~continue ~~effect~~to onadversely affect capital markets and could limit our ~~business,~~ability ~~financial~~to ~~condition,~~obtain ~~results~~the ofcapital ~~operation,~~we ~~and~~need ~~prospects~~to operate our business.

We may not be able to obtain necessary capital in sufficient amounts, on terms favorable to us, or at all. If adequate funds are not available for our business in the future, we may be required to delay, reduce the scope of, or eliminate the plans for obtaining regulatory licensure or approval for SkinTE. In addition, in the event we determine that additional sources of liquidity will not be available to us or will not allow us to meet our obligations as they become due, we may need to file a voluntary petition for relief under the United States Bankruptcy Code in order to implement a restructuring plan or liquidation. Any of the foregoing developments would have a material adverse effect on our business, financial condition, results of operation, and prospects and likely result in investors losing part or all of their investment.

General risks

~~The~~In ~~trading~~the ~~price~~event that we fail to satisfy any of the ~~shares~~listing requirements of ~~our~~the ~~common~~Nasdaq ~~stock~~Capital ~~has~~Market, ~~declined~~our ~~and~~common stock may ~~continue to~~ be ~~volatile~~delisted, which could ~~adversely~~ affect ~~an investment in~~ our ~~stock~~market price and ~~our ability to raise capital~~liquidity.

~~Investors~~Our ~~should~~common ~~consider~~stock anis ~~investment~~listed inon ~~our~~the ~~securities~~Nasdaq asCapital ~~risky~~Market. ~~and~~For ~~invest~~continued ~~only~~listing ifon ~~they~~the ~~can~~Nasdaq ~~withstand~~Capital aMarket, ~~significant~~we ~~loss~~will ~~and~~be ~~wide~~required ~~fluctuations~~to comply inwith the continued listing requirements, including the minimum market ~~value~~capitalization ofstandard, ~~their~~the ~~investment~~minimum stockholders’ equity requirement, the corporate governance requirements, and the minimum closing bid price requirement, among other requirements. ~~Holders~~On ofOctober 26, ~~our~~2022, ~~stock~~we ~~may~~received bea ~~unable~~deficiency toletter ~~sell~~from ~~their~~the ~~shares~~staff of ~~common~~the ~~stock~~Listing atQualifications orDepartment ~~above~~(the “Staff”) of the ~~price~~Nasdaq ~~paid~~Stock Market (“Nasdaq”) notifying us that we did not meet the $1.00 per share minimum bid price requirement for continued inclusion on the ~~shares~~Nasdaq ~~due~~Capital Market pursuant to ~~fluctuations~~Nasdaq inListing Rule 5550(a)(2) (the ~~market~~“Minimum ~~price~~Bid ofPrice ~~our~~Requirement”). In ~~common~~accordance ~~stock~~with ~~arising.~~Nasdaq ~~Our~~Listing ~~stock~~Rule ~~price~~5810(c)(3)(A), ~~has~~we ~~been~~were ~~highly~~provided ~~volatile~~an ~~during~~initial period of 180 calendar days to regain compliance with the ~~12-month~~Minimum ~~period~~Bid Price Requirement, which ended ~~September~~April 3024, ~~2022~~2023. On April 26, ~~with~~2023, ~~closing~~we ~~stock~~received ~~prices~~an ~~ranging~~additional notice from athe ~~high~~Staff ofstating that, ~~$18.25~~although ~~per~~we ~~share~~had tonot aregained ~~low~~compliance ofwith ~~$0.65~~the ~~per share.~~Minimum ~~The~~Bid ~~stock~~Price ~~market~~Rule inby ~~general~~April 24, ~~and~~2023, the ~~market~~Staff ~~for~~determined ~~biotech~~in ~~company~~accordance ~~stocks~~with Nasdaq inListing ~~particular,~~Rule ~~have~~5810(c)(3)(A) ~~experienced~~that ~~extreme~~we ~~volatility~~are ~~that, at~~eligible ~~times,~~for ~~has~~an ~~been~~extension ~~unrelated~~of to180 ~~the~~calendar ~~operating~~days ~~performance~~until ofOctober ~~particular~~23, ~~companies.~~2023, ~~Some~~to ofregain compliance with the ~~factors~~Minimum ~~that~~Bid ~~may~~Price ~~cause~~Rule. To regain compliance, the ~~market~~bid price of ~~our~~for the Company’s common stock tomust ~~fluctuate~~close ~~include:~~at $1.00 per share or more for a minimum of 10 consecutive business days.

●To resolve the ~~timing~~noncompliance, orwe ~~success~~may ofconsider ~~obtaining~~available ~~regulatory~~options, ~~licenses~~including oreffecting ~~approvals~~a ~~for~~reverse ~~marketing~~stock ~~our products; ● the initiation~~split, ~~timing,~~which ~~progress,~~may ~~and~~not ~~results~~result ofin ~~our~~a ~~pre-clinical~~permanent increase orin ~~clinical~~the ~~trials;~~market ●price ~~sufficiency~~ of our ~~working~~common ~~capital~~stock ~~to fund our operations over the next 12-month period~~ and ~~beyond;~~is ●dependent ~~infrastructure~~on ~~required~~many ~~to support operations in future periods~~factors, including ~~the~~general ~~expected costs thereof; ● estimates associated with revenue recognition~~economic, ~~asset impairments~~market, and ~~cash~~industry ~~flows; ● variance in our estimates of future operating costs; ●~~ conditions, the ~~impact~~timing ~~of new accounting pronouncements; ● size~~ and ~~growth~~results of our ~~target~~clinical ~~markets; ● the initiation~~trials, ~~timing,~~regulatory ~~progress~~developments, and ~~results~~other offactors ~~our~~detailed ~~research~~from ~~and~~time ~~development~~to ~~programs;~~time ~~● issues~~ in ~~manufacturing~~the ~~our~~reports ~~product~~we file ~~candidates~~with orthe ~~future~~SEC. ~~approved~~It ~~products;~~is ●not ~~regulatory~~uncommon ~~developments~~for ~~or enforcement in~~ the ~~United~~market ~~States~~price ~~and~~of ~~foreign~~a ~~countries~~company’s ~~with~~shares ~~respect~~ to ~~our~~decline ~~product~~in ~~candidates~~the orperiod ~~our~~following ~~competitors’~~a ~~products;~~reverse ●stock split. ~~competition from existing products or new products that may emerge; ● developments or disputes concerning patents~~Furthermore, ~~patent~~implementation ~~applications,~~of ora ~~other~~reverse ~~proprietary~~stock ~~rights;~~split ●requires ~~introduction~~approval of ~~technological~~a ~~innovations~~majority orof ~~new~~the ~~commercial~~outstanding ~~products~~voting bypower usof or our ~~competitors; ● announcements by us, our collaborators, or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations, or~~ capital ~~commitments; ● changes in estimates or recommendations by securities analysts~~ stock, ifand ~~any,~~there ~~who~~is ~~cover~~no ~~our~~assurance ~~common~~we ~~stock;~~can ●obtain ~~fluctuations~~that ~~in the valuation of companies perceived by investors to be comparable to us;~~approval.

39In the event that we fail to satisfy any of the listing requirements of the Nasdaq Capital Market our common stock may be delisted. If our securities are delisted from trading on the Nasdaq Capital Market, and we are not able to list our securities on another exchange or to have them quoted on the Nasdaq Capital Market, our common stock could be quoted on the OTC Markets or on the Pink Open Market. As a result, we could face significant adverse consequences including:

● public concern over our product candidates or any future approved products; ● threatened or actual litigation; ● future or anticipated sales of our common stock; ● share price and volume fluctuations attributable to inconsistent trading volume levels of our shares; ● additions or departures of key personnel; ● changes in the structure of health care payment systems in the United States or overseas; ● failure of any of our products or product candidates to perform safely or effectively or achieve commercial success; ● economic and other external factors or other disasters or crises; ● period-to-period fluctuations in our financial condition and results of operations; ● general market conditions and market conditions for biopharmaceutical stocks; and ● overall fluctuations in U.S. equity markets.

In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. Defending such litigation could result in substantial defense costs and divert the time and attention of our management, which could seriously harm our business.

In the event that we fail to satisfy any of the listing requirements of The Nasdaq Capital Market, our common stock may be delisted, which could affect our market price and liquidity.

Our common stock is listed on The Nasdaq Capital Market (“Nasdaq”). For continued listing on Nasdaq, we will be required to comply with the continued listing requirements, including the minimum market capitalization standard, the minimum stockholders’ equity requirement, the corporate governance requirements, and the minimum closing bid price requirement, among other requirements. In the event that we fail to satisfy any of the listing requirements of Nasdaq our common stock may be delisted. If our securities are delisted from trading on Nasdaq, and we are not able to list our securities on another exchange or to have them quoted on Nasdaq, our common stock could be quoted on the OTC Markets or on the Pink Open Market. As a result, we could face significant adverse consequences including:

	●	a limited availability of market quotations for our securities;
	●	a determination that our common stock is a “penny stock,” which would require brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
	●	a limited amount of news and analyst coverage;
	●	a decreased ability to obtain additional financing because we would be limited to seeking capital from investors willing to invest in securities not listed on a national exchange; and
	●	the inability to use short-form registration statements on Form S-3, including the registration statement on Form S-3 we filed in February 2022, to facilitate offerings of our securities.

~~The minimum closing bid price requirement for continued inclusion on Nasdaq under Nasdaq Listing Rule 5550(a)(2) is that we maintain a minimum closing bid price of $1.00 for~~ 30 consecutive business days. On October 26, 2022, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of Nasdaq notifying us that, for the preceding 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on Nasdaq pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A) (the “Compliance Period Rule”), we have an initial period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement, which ends April 24, 2023 (the “Compliance Date”). If, at any time before the Compliance Date, the bid price for our common stock closes at $1.00 or more for a minimum of 10 consecutive business days as required under the Compliance Period Rule, we expect the Staff will notify us we are in compliance with the Minimum Bid Price Requirement, unless the Staff exercises its discretion to extend the 10-business day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H).

As of the date of this Quarterly Report on Form 10-Q, we have not yet regained compliance with the Minimum Bid Price Requirement. We intend to monitor the closing bid price of our common stock, however, there is no assurance we will be able to regain compliance within 180 calendar days following the Nasdaq notice. There are many factors that may adversely affect our minimum bid price. Many of these factors are outside of our control. As a result, we may not be able to sustain compliance with the Minimum Bid Price Requirement in the long term. Any potential delisting of our common stock from Nasdaq would likely result in the adverse consequences described above.

Unfavorable global economic or political conditions could adversely affect our business or financial condition.

Our business and our ability to raise capital are susceptible to general conditions in the global economy and in the global financial markets. Further, the impacts of political unrest, including as a result geopolitical tension, such as a deterioration in the relationship between the U.S. and China or escalation in conflict between Russia and Ukraine, including any additional sanctions, export controls, or other restrictive actions that may be imposed by the U.S. or other countries against governmental or other entities in, for example, Russia, also could lead to disruption, instability, and volatility in the global markets, which may have an adverse impact on our business or ability to access the capital markets. Inflation rates have increased and may continue to rise. A severe or prolonged economic downturn, including a recession or depression resulting from the ongoing COVID-19 pandemic, political disruption, or inflation could result in a variety of risks to our business and our ability to raise additional capital when needed on acceptable terms, if at all. Any of the foregoing could materially and adversely affect our business, financial condition, results of operation, and prospects, and we cannot anticipate all of the ways in which the political, economic, or financial market conditions could adversely impact our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three-month period ended September 30, 2022, we withheld or acquired from employees shares of common stock to satisfy statutory withholding tax liability upon the vesting of share-based awards. The following table sets forth information on our acquisition of these shares for each month during the period in which an acquisition occurred.

Issuer Purchases of Equity Securities

(a)

(b)

(c)

(d)

Period

Total number of shares (or units) purchased

Average price paid per share (or unit)

Total number of shares (or units) purchased as part of publicly announced plans or programs

Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs

July 2022

1,454

1.47

N/A

August 2022

–

N/A

September 2022

–

N/A

Total

1,454

1.47

Item 5. Other Information

On December 27, 2017, we entered into a commercial lease agreement (the “Lease”) with Adcomp LLC (the “Landlord”) pursuant to which we lease approximately 178,528 rentable square feet of warehouse, manufacturing, office, and lab space in Salt Lake City, Utah (the “Property”) from the Landlord. The initial term of the Lease is five years and it expires on November 30, 2022. We have a one-time option to renew for an additional five years and an option to purchase the Property at a purchase price of $17.5 million. On December 16, 2021, we gave written notice to the Landlord of our election to exercise the option to purchase the Property, and on March 14, 2022, we entered into a definitive purchase and sale agreement with the Landlord that provides for a closing of the transaction on November 15, 2022 (the “Purchase Agreement”). In connection with exercising the option to purchase the Property, we made an earnest money deposit of $150,000. On October 25, 2021, we signed a Purchase and Sale Agreement, the terms of which were finalized on December 10, 2021, and subsequently amended by Amendment No. 1 thereto dated March 15, 2022 (the “BCG Agreement”), with BCG Acquisitions LLC (“BCG”). Under the BCG Agreement we agreed to sell the Property to BCG or its assigns for $17.5 million after we purchase the Property from the Landlord. Under the BCG Agreement, BCG made an earnest money deposit totaling $150,000. Concurrently with the sale of the Property to BCG and its assigns, we will enter into a new lease agreement pursuant to which we will lease a portion of the building located on the Property to house our operations.

The Purchase Agreement and BCG Agreement provide for closing of the transactions described above on November 15, 2022, and also provide an option for extending the closing to November 30, 2022. On November 9, 2022, we entered into an Addendum to the BCG Agreement providing, in part, for BCG exercising its right to extend the closing to November 30, 2022, in consideration of making an extension deposit with the escrow holder of $50,000, and the exercise of our right under the Purchase Agreement with the Landlord to extend the closing to November 30, 2022, in consideration of making an extension deposit with the escrow holder of $50,000. The Addendum also provides for our formation of a single member limited liability company owned by us, which will be used as the vehicle to effectuate purchase of the Property from the Landlord at closing, effectuate a change in ownership of the Property to BCG or its assigns, and lease a portion of the building on the Property back to us to house our operations.

Closing of the foregoing transactions are subject to a number of risks and uncertainties including, but not limited to, satisfaction of all closing conditions, including obtaining financing for the purchase, and closing on the purchase of the Property from the Landlord under the Purchase Agreement, and satisfaction of all closing conditions, including obtaining financing for the purchase, and closing on the sale of the Property to BCG under the BCG Agreement.

Item 6. Exhibits

Except as otherwise noted, the following exhibits are included in this filing:

10.1	Employment Agreement Amendment No. 1 with Cameron Hoyler dated August 11, 2022 (incorporated by reference to Exhibit 10.8 to our Form 10-Q filed with the SEC on August 11, 2022)
3.1		(Third) Restated Certificate of Incorporation of PolarityTE, Inc. (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on October 1, 2021)
31.1	Certification Pursuant to Rule 13a-14(a)
3.2		Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on March 17, 2022)
31.2	Certification Pursuant to Rule 13a-14(a)
3.3		Certificate of Designation of Preferences, Rights and Limitations of Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on March 17, 2022)
32.1	Certification Pursuant to Rule 13a-14(b) and Section 1350, Chapter 63 of Title 18, United States Code
3.4		Certificate of Amendment of the (Third) Restated Certificate of Incorporation Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on May 16, 2022)
101.INS	Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
3.5		Certificate of Elimination of Series A Convertible Preferred Stock and Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on June 16, 2022)
101.SCH	Inline XBRL Schema Document
3.6		PolarityTE, Inc., Amended and Restated Bylaws - September 28, 2021 (incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K filed on October 1, 2021)
101.CAL	Inline XBRL Calculation Linkbase Document
10.1		Amendment No. 2 Effective March 13, 2023, to Executive Employment Agreement with Cameron Hoyler
101.DEF	Inline XBRL Definition Linkbase Document
31.1		Certification Pursuant to Rule 13a-14(a)
101.LAB	Inline XBRL Label Linkbase Document
31.2		Certification Pursuant to Rule 13a-14(a)
101.PRE	Inline XBRL Presentation Linkbase Document
32.1		Certification Pursuant to Rule 13a-14(b) and Section 1350, Chapter 63 of Title 18, United States Code
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
101.INS		Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Schema Document
101.CAL		Inline XBRL Calculation Linkbase Document
101.DEF		Inline XBRL Definition Linkbase Document
101.LAB		Inline XBRL Label Linkbase Document
101.PRE		Inline XBRL Presentation Linkbase Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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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 the undersigned thereunto duly authorized.

	POLARITYTE, INC.
Date: November 10, 2022	/s/ Richard Hague
Date: May 12, 2023	/s/ Richard Hague
	Richard Hague
	Chief Executive Officer
	Duly Authorized Officer
Date: November 10, 2022	/s/ Jacob Patterson
Date: May 12, 2023	/s/ Jacob Patterson
	Jacob Patterson
	Chief Financial Officer
	Chief Accounting Officer

4332

Filing Compare · POLARITYTE, INC.