UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For
the quarterly period ended
or
| 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.
(Exact name of registrant as specified in its charter)
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
(Address of principal executive offices)
Registrant’s
Telephone Number, Including Area Code:
(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 | ||
| The
|
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.
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).
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 | ☐ | |
| ☒ | 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
☐
As of May 9, 2023, there were shares of the Registrant’s common stock outstanding.
INDEX
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.
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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)
March 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Assets held for sale | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Common stock warrant liability | ||||||||
| Operating lease liabilities | ||||||||
| Finance lease liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies (Note 14) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock – shares authorized, shares issued and outstanding at March 31, 2023 and December 31, 2022 | ||||||||
| Common stock – $ par value; shares authorized; and shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 3 |
POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, in thousands, except share and per share amounts)
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net revenues | ||||||||
| Services | $ | $ | ||||||
| Total net revenues | ||||||||
| Cost of revenues | ||||||||
| Services | ||||||||
| Total costs of revenues | ||||||||
| Gross profit | ||||||||
| Operating costs and expenses | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Impairment of assets held for sale | ||||||||
| Total operating costs and expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense), net | ||||||||
| Change in fair value of common stock warrant liability | ||||||||
| Interest expense, net | ( | ) | ||||||
| Other income, net | ||||||||
| Net loss and comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share attributable to common stockholders | ||||||||
| Basic | $ | ( | ) | $ | ( | )* | ||
| Diluted | $ | ( | ) | $ | ( | )* | ||
| Weighted average shares outstanding | ||||||||
| Basic | * | |||||||
| Diluted | * | |||||||
| * |
The accompanying notes are an integral part of these condensed consolidated financial statements
| 4 |
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 | ||||||||||||||||||||||
| Balance – December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Stock-based compensation expense | — | — | ||||||||||||||||||||||||||
| Vesting of restricted stock units | — | |||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance – March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| 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 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance
of preferred stock and warrants through underwritten offering, net of issuance costs of $ | – | |||||||||||||||||||||||||||
| Issuance of common stock upon conversion of preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock-based compensation expense | – | – | ||||||||||||||||||||||||||
| Vesting of restricted stock units | – | |||||||||||||||||||||||||||
| Shares withheld for tax withholding | – | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Net loss | – | – | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance – March 31, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| * |
The accompanying notes are an integral part of these condensed consolidated financial statements
| 5 |
POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation expense | ||||||||
| Depreciation and amortization | ||||||||
| Impairment of assets held for sale | ||||||||
| Change in fair value of common stock warrant liability | ( | ) | ( | ) | ||||
| Gain on finance lease termination | ( | ) | ||||||
| Net (gain)/loss on sale of property and equipment and held for sale assets | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Operating lease right-of-use assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Other current liabilities | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Proceeds from sale of property and equipment and held for sale assets | ||||||||
| Net cash provided by/(used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from insurance financing arrangements | ||||||||
| Principal payments on term note payable and financing arrangements | ( | ) | ||||||
| Principal payments on financing leases | ( | ) | ( | ) | ||||
| Net proceeds from the sale of preferred stock and warrants | ||||||||
| Cash paid for tax withholdings related to net share settlement | ( | ) | ||||||
| Net cash provided by/(used in) financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents, including cash classified within assets held for sale | ( | ) | ( | ) | ||||
| Less: net increase in cash and cash equivalents classified within assets held for sale | ||||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents - beginning of period | ||||||||
| Cash and cash equivalents - end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||
| Disposal of held for sale assets in exchange for extinguishment of finance lease liabilities | $ | $ | ||||||
| Fair value of placement agent warrants issued in connection with offerings | $ | $ | ||||||
| Conversion of Series A and Series B preferred stock into common stock | $ | $ | ||||||
| Allocation of proceeds to warrant liability | $ | $ | ||||||
| Deferred and accrued offering costs | $ | $ | ||||||
| Reclassification of assets held for sale | $ | $ | ||||||
| Reclassification of liabilities held for sale | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
| 6 |
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 are no product sales from commercial SkinTE after June 2021.
At the beginning of May 2018, the Company acquired a preclinical research and veterinary sciences business, which 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, 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, 2022, filed with the Securities and Exchange Commission on Form 10-K on March 27, 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 assets. Actual results could differ from those estimates.
Concentration
of Credit Risk. Balances are maintained at U.S. financial institutions and may exceed the Federal Deposit Insurance Corporation (“FDIC”)
insurance limit of $
| 7 |
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 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 $
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 sheets in property and equipment and other current and long-term liabilities. The current portion of operating lease obligations are included in other current liabilities. The 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 does not currently perform any revenue generating activities. Prior to the sale of IBEX Preclinical Research, Inc. (“IBEX”) in April 2022, 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. See Note 5 for further details on the IBEX sale.
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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.
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
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.
| 9 |
Recently Adopted Accounting Pronouncements
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. The Company adopted this ASU using the modified-retrospective approach for the fiscal year beginning January 1, 2023. 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 March 31, 2023, the Company had an accumulated deficit of $
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 condensed consolidated financial statements. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty. Consequently, the future success of the Company depends on its ability to attract additional capital and, ultimately, on its ability to successfully complete the regulatory 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.
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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. |
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):
| March 31, 2023 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| Common stock warrant liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| December 31, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| Common stock warrant liability | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The
Company assesses its assets held for sale, long-lived assets, including property, 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 three months
ended March 31, 2023 and 2022, the Company recognized an impairment charge of $
The following table presents the change in fair value of the liability classified common stock warrants for the three months ended March 31, 2023 (in thousands):
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 | $ | $ | ( | ) | $ | |||||||
| December 23, 2020 issuance | ( | ) | ||||||||||
| January 14, 2021 issuance | ( | ) | ||||||||||
| January 25, 2021 issuance | ( | ) | ||||||||||
| March 16, 2022 issuance | ( | ) | ||||||||||
| June 8, 2022 issuance | ( | ) | ||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
| 11 |
The following table presents the change in fair value of the liability classified common stock warrants for the three months ended March 31, 2022 (in thousands):
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 | $ | $ | $ | ( | ) | $ | ||||||||||
| December 23, 2020 issuance | ( | ) | ||||||||||||||
| January 14, 2021 issuance | ( | ) | ||||||||||||||
| January 25, 2021 issuance | ( | ) | ||||||||||||||
| March 16, 2022 issuance | ( | ) | ||||||||||||||
| Total | $ | $ | $ | ( | ) | $ | ||||||||||
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 Three Months ended | ||||
| March 31, 2023 | ||||
| Stock price | $ – | |||
| Exercise price | $ – | |||
| Risk-free rate | – | % | ||
| Volatility | – | % | ||
| Remaining term (years) | – |
| For the Three Months ended | ||||
| March 31, 2022 | ||||
| Stock price | $ – | |||
| Exercise price | $ – | |||
| Risk-free rate | – | % | ||
| Volatility | – | % | ||
| Remaining term (years) | – |
5. ASSETS AND LIABILITIES HELD FOR SALE
Equipment
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 sheets as of March 31, 2023 and December 31, 2022.
During
each of the three months ended March 31, 2023 and 2022, the Company recorded an impairment of $
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
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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 $
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The following table presents the major components of prepaid expenses and other current assets (in thousands):
March 31, 2023 | December 31, 2022 | |||||||
| Prepaid insurance | $ | $ | ||||||
| Other current receivable | ||||||||
| Prepaid expenses | ||||||||
| Deferred offering costs | ||||||||
| Total prepaid expenses and other current assets | $ | $ | ||||||
7. PROPERTY AND EQUIPMENT, NET
The following table presents the components of property and equipment, net (in thousands):
March 31, 2023 | December 31, 2022 | |||||||
| Machinery and equipment | $ | $ | ||||||
| Computers and software | ||||||||
| Leasehold improvements | ||||||||
| Furniture and equipment | ||||||||
| Total property and equipment, gross | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
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Depreciation and amortization expense for property and equipment, including assets acquired under financing leases was as follows (in thousands):
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| General and administrative expense | $ | $ | ||||||
| Research and development expense | ||||||||
| Total depreciation and amortization expense | $ | $ | ||||||
8. LEASES
The Company leases facilities and certain equipment under noncancelable leases that expire at various dates through November 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
In
November 2022, the Company entered into an operating lease for approximately
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
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
In
March 2023, the Company negotiated a buyout of a financing lease liability of $
As of March 31, 2023, the maturities of operating and finance lease liabilities were as follows (in thousands):
| Operating leases* | Finance leases | |||||||
| 2023 (excluding the three months ended March 31, 2023) | $ | $ | ||||||
| 2024 | ||||||||
| 2025 | ||||||||
| 2026 | ||||||||
| 2027 | ||||||||
| Total lease payments | ||||||||
| Less: | ||||||||
| Imputed interest | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
| * |
| 14 |
Supplemental balance sheet information related to leases was as follows (in thousands):
Finance leases
March 31, 2023 | December 31, 2022 | |||||||
| Finance lease right-of-use assets included within property and equipment, net | $ | | $ | | ||||
| Current finance lease liabilities included within other current liabilities | $ | $ | ||||||
| Non-current finance lease liabilities included within other long-term liabilities | ||||||||
| Total | $ | $ | ||||||
Operating leases
March 31, 2023 | December 31, 2022 | |||||||
| Current operating lease liabilities included within other current liabilities | $ | $ | ||||||
| Operating lease liabilities – non-current | ||||||||
| Total | $ | $ | ||||||
The components of lease expense were as follows (in thousands):
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating lease costs included within operating costs and expenses | $ | $ | ||||||
| Finance lease costs: | ||||||||
| Amortization of right-of-use assets | $ | $ | ||||||
| Interest on lease liabilities | ||||||||
| Total | $ | $ | ||||||
Supplemental cash flow information related to leases was as follows (in thousands):
| For the Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash out flows from operating leases | $ | $ | ||||||
| Operating cash out flows from finance leases | $ | $ | ||||||
| Financing cash out flows from finance leases | $ | $ | ||||||
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As
of March 31, 2023 and December 31, 2022, the weighted average remaining lease term for operating leases was
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table presents the major components of accounts payable and accrued expenses (in thousands):
March 31, 2023 | December 31, 2022 | |||||||
| Accounts payable | $ | $ | ||||||
| Salaries and other compensation | ||||||||
| Legal and accounting | ||||||||
| Accrued severance | ||||||||
| Benefit plan accrual | ||||||||
| Clinical trials | ||||||||
| Other | ||||||||
| Total accounts payable and accrued expenses | $ | $ | ||||||
10. OTHER CURRENT LIABILITIES
The following table presents the major components of other current liabilities (in thousands):
March 31, 2023 | December 31, 2022 | |||||||
| Current finance lease liabilities | $ | $ | ||||||
| Current operating lease liabilities | ||||||||
| Total other current liabilities | $ | $ | ||||||
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 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 , 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 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 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 March 31, 2023, the Company had shares available for future issuances under the 2020 Plan.
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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 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 . As of March 31, 2023, the Company had 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 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 . As of March 31, 2023, the Company had shares available for future issuances under the 2017 Plan.
| Number of Shares | Weighted-Average Exercise Price | |||||||
| Outstanding – December 31, 2022 | $ | |||||||
| Granted | $ | |||||||
| Forfeited | ( | ) | $ | |||||
| Outstanding – March 31, 2023 | $ | |||||||
| Options exercisable, March 31, 2023 | $ | |||||||
Employee Stock Purchase Plan (ESPP)
In May 2018, the Company adopted the Employee Stock Purchase Plan (“ESPP”). The Company has initially reserved 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 % 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 shares available for future issuances under the ESPP.
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Restricted Stock
| Number of Shares | ||||
| Unvested - December 31, 2022 | ||||
| Granted | ||||
| Vested | ( | ) | ||
| Forfeited | ( | ) | ||
| Unvested – March 31, 2023 | ||||
Stock-Based Compensation Expense
| For the Three Months Ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| General and administrative expense | $ | $ | ||||||
| Research and development expense | ||||||||
| Total stock-based compensation expense | $ | $ | ||||||
12. STOCKHOLDERS’ EQUITY
March 2022 Offering
On
March 16, 2022, the Company completed a registered direct offering of shares of Series A convertible preferred stock,
shares of Series B convertible preferred stock and
Concurrent
with the closing of the offering on March 16, 2022, the Company modified the exercise price of the Existing 2021 Warrants.
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 $
The
Company also issued to designees of the placement agent warrants to purchase % of the aggregate number of March
2022 Warrants sold in the offering, or
| 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 $
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).
On
June 8, 2022, the Company completed the registered direct offering of shares of its common stock, par value $
As
the June 2022 Warrants and placement agent common stock warrants could each require cash settlement in certain scenarios, the June 2022
Warrants and placement agent common stock warrants were classified as liabilities upon issuance and were initially recorded at estimated
fair values of $
| 19 |
The following table summarizes warrant activity for the three months ended March 31, 2023:
Outstanding December 31, 2022 | Warrants Issued | Warrants Exercised | Outstanding March 31, 2023 | |||||||||||||
| Transaction | ||||||||||||||||
| February 14, 2020 common warrants | ||||||||||||||||
| December 23, 2020 placement agent warrants | ||||||||||||||||
| January 14, 2021 common warrants | ||||||||||||||||
| January 14, 2021 placement agent warrants | ||||||||||||||||
| January 25, 2021 common warrants | ||||||||||||||||
| January 22, 2021 placement agent warrants | ||||||||||||||||
| March 16, 2022 common warrants | ||||||||||||||||
| March 16, 2022 placement agent warrants | ||||||||||||||||
| June 8, 2022 common warrants | ||||||||||||||||
| June 8, 2022 placement agent warrants | ||||||||||||||||
| Total | ||||||||||||||||
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 $
| For the Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| Numerator: | 2023 | 2022 | ||||||
| Net loss, primary | $ | ( | ) | $ | ( | ) | ||
| Less: gain from change in fair value of warrant liabilities | ( | ) | ||||||
| Net loss, diluted | $ | ( | ) | $ | ( | ) | ||
| For the Three Months Ended | ||||||||
| March 31, | March 31, | |||||||
| Denominator: | 2023 | 2022 | ||||||
| Basic weighted average number of common shares | ||||||||