UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For
the quarterly period ended
For the transition period from to
Commission
file number
(Exact Name of Registrant as Specified in Its Charter)
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| Incorporation or Organization) | Identification No.) |
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Securities registered pursuant to Section 12(b) of the Act: None
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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. ☒ ☐ NO
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| Emerging
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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. ☐
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As of November 6, 2023, there were shares of common stock, par value $0.01 per share, outstanding.
Harvard Apparatus Regenerative Technology, Inc.
(formerly Biostage, Inc.)
Form 10-Q
For the Quarter Ended September 30, 2023
INDEX
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value data)
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Short-term investments | ||||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid research and development | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Deferred financing costs | ||||||||
| Long-term prepaid contracts | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued and other current liabilities | ||||||||
| Operating lease liability, current | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 8) | ||||||||
| Series E convertible preferred stock, par value $ per share, shares authorized; and shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Stockholders’ equity (deficit): | ||||||||
| Common stock, par value $ per share, shares authorized; and issued and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity (deficit) | ( | ) | ||||||
| Total liabilities and stockholders’ equity (deficit) | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 3 |
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Product revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net: | ||||||||||||||||
| Sublease (expense) income | ( | ) | ( | ) | ||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Total other income, net | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred stock dividends | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per share | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares, basic and diluted | ||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
(in thousands, except share data)
Number of Common Shares | Common | Additional Paid-in | Accumulated | Total Stockholders’ (Deficit) | ||||||||||||||||
| Outstanding | Stock | Capital | Deficit | Equity | ||||||||||||||||
| Balance at July 1, 2023 | $ | $ | $ | ( | ) | $ | | |||||||||||||
| Share-based compensation expense | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
Series E Convertible Preferred | Number of Common Shares | Common | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||
| Stock | Outstanding | Stock | Capital | Deficit | Deficit | |||||||||||||||||||
| Balance at July 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Preferred stock dividends | — | ( | ) | ( | ) | |||||||||||||||||||
| Share-based compensation expense | — | — | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
Series E Convertible Preferred | Number of Common Shares | Common | Additional Paid-in | Accumulated | Total Stockholders’ (Deficit) | |||||||||||||||||||
| Stock | Outstanding | Stock | Capital | Deficit | Equity | |||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Preferred stock dividends | — | ( | ) | ( | ) | |||||||||||||||||||
| Conversion of preferred stock for common stock | ( | ) | ||||||||||||||||||||||
| Issuance of common stock, net of offering costs | — | |||||||||||||||||||||||
| Share-based compensation expense | — | — | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
Series E Convertible Preferred | Number of Common Shares | Common | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||||
| Stock | Outstanding | Stock | Capital | Deficit | Deficit | |||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Issuance of series E convertible preferred stock | — | |||||||||||||||||||||||
| Preferred stock dividends | — | ( | ) | ( | ) | |||||||||||||||||||
| Issuance of common stock, net of offering costs | — | |||||||||||||||||||||||
| Share-based compensation expense | — | — | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 5 |
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2023 | 2022 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Share-based compensation expense | ||||||||
| Depreciation | ||||||||
| Amortization of right-of-use assets | ||||||||
| Change in fair value of warrant liability | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid research and development | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Deferred financing costs | ( | ) | ||||||
| Long-term prepaid contracts | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Accrued and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchases of short-term investments | ( | ) | ||||||
| Redemption of short-term investments | ||||||||
| Purchases of property, plant, and equipment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at the beginning of the year | ||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||
| Supplemental disclosure of non-cash activities: | ||||||||
| Settlement of contingency matter | $ | $ | ( | ) | ||||
| Settlement of due to Harvard Bioscience included in accrued and other current liabilities | $ | $ | ( | ) | ||||
| Issuance of Series E convertible preferred stock | $ | $ | ||||||
| Purchases of property and equipment in accounts payable or accrued expenses | $ | $ | ||||||
| Preferred stock dividends | $ | $ | ||||||
| Conversion of preferred stock into common stock | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 6 |
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Overview and Basis of Presentation
Overview
Harvard Apparatus Regenerative Technology, Inc., formerly Biostage, Inc., (HRGN or the Company) is a clinical-stage biotechnology company focused on the development of regenerative medicine treatments for disorders of the gastro-intestinal system and other organs that result from cancer, trauma or birth defects. The Company’s technology is based on our proprietary cell-therapy platform that uses a patient’s own stem cells to regenerate and restore function to damaged organs. The Company believes that its technology represents a next generation solution for restoring organ function because it allows the patient to regenerate their own organ, thus eliminating the need for human donor or animal transplants, the sacrificing of another of the patient’s own organs or permanent artificial implants. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and acquiring operating assets. The Company has two business segments and does not have significant costs or assets outside the United States.
On
October 31, 2013, Harvard Bioscience, Inc., or Harvard Bioscience, contributed its regenerative medicine business assets, plus $
The Company filed an amendment (the “Certificate of Amendment”) to its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of State for the State of Delaware to change its name from Biostage, Inc. to Harvard Apparatus Regenerative Technology, Inc. The Company also amended and restated its Amended and Restated Bylaws, solely to reflect the name change (as amended, the “Third Amended and Restated Bylaws”). The Certificate of Amendment and the Third Amended and Restated Bylaws each became effective on July 20, 2023.
In connection with the name change, the Company traded on the OTCQB under the new ticker symbol “HRGN”. The new ticker symbol was effective at the open of the market on July 20, 2023.
Longevity Products
In the second quarter of 2023, the Company’s subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, or HRGN LTD, started a longevity products business.
The longevity products business plans to include a broad range of products focused on longevity dietary supplements. The Company started selling longevity supplements through HRGN LTD in the third quarter of 2023. These products are marketed to the general public and initially targeted at consumers in the Great China Region through eCommerce (online sales).
Going Concern
The
Company has incurred substantial operating losses since its inception, and as of September 30, 2023 had an accumulated deficit of approximately
$
The Company will need to raise additional funds to fund its operations. In the event the Company is unable to raise additional capital from outside sources before or during the first quarter of 2024, it may be forced to curtail or cease its operations.
Cash requirements and cash resource needs will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing development, pre-clinical and clinical testing of product candidates, as well as regulatory efforts and collaborative arrangements necessary for the Company’s product candidates that are currently under development. The Company is currently seeking and will continue to seek financing from other existing and/or new investors to raise necessary funds through a combination of public or private equity offerings. The Company may also pursue debt financings, other financing mechanisms, research grants, or strategic collaborations and licensing arrangements. The Company may not be able to obtain additional financing on favorable terms, if at all.
The Company’s operations will be adversely affected if it is unable to raise or obtain needed funding and may materially affect the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and therefore, the condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.
| 7 |
2. Summary of Significant Accounting Policies and Recently Issued Accounting Pronouncements
Summary of Significant Accounting Policies
The accounting policies underlying the accompanying unaudited condensed consolidated financial statements are those set forth in Note 2 to the consolidated financial statements for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. “Selling and marketing” operating expenses was reclassified from “Selling, general and administrative” operating expenses on our condensed consolidated financial statements.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of HRGN and its subsidiaries, Harvard Apparatus Regenerative Technology Limited (Hong Kong), Harvard Apparatus Regenerative Technology (Hangzhou) Limited (China), Harvard Apparatus Regenerative Technology GmbH (Germany) and HRGN Limited (UK). The functional currency for HRGN and these subsidiaries is the U.S dollar. All intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation
The condensed consolidated financial statements reflect the Company’s financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States, or U.S. GAAP.
Use of Estimates
The process of preparing condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, share-based compensation, valuation of warrant liability, accrued expenses and the valuation allowance for deferred income taxes. Actual results could differ from those estimates.
Revenue
We recognize revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers. We offer consumer products primarily through a third-party online store. Revenue is recognized at a point in time when control of the goods is transferred to the customer, which generally occurs upon the delivery to the customer. For any company direct sales to customers, revenue is recognized at a point in time upon shipment of product or hand-delivery to customer. Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes.
We identify a performance obligation as distinct if both the following criteria are true: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) and allocation of consideration from a contract to the individual performance obligations, and the appropriate timing of revenue recognition, is the result of significant qualitative and quantitative judgments. Management considers a variety of factors such as historical sales, usage rates, costs, and expected margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.
Cost of Sales
Cost of sales primarily consists of the purchase price of consumer products, taxes, inbound and outbound shipping costs. Shipping costs to receive products from our suppliers are recognized as cost of sales when incurred. E-commerce processing and related transaction costs, including those associated with seller transactions, are classified in sales and marketing on our condensed consolidated statements of operations.
Sales and Marketing
Sales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities.
General and Administrative
General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses; facilities and equipment expenses, such as depreciation and amortization expense and rent; and professional fees.
Cash Concentrations
The Company maintains its cash balances with a financial institution in federally insured accounts and may periodically have cash balances in excess of insurance limits. The Company maintains its accounts with financial institutions with a high credit rating. The Company has not experienced any losses to date and believes that it is not exposed to any significant credit risk on cash.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company currently invests available cash in money market funds.
Inventory
Inventory, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category.
We maintain ownership of our inventory at the third-party warehouse, regardless of whether fulfillment is provided by us or the third-party e-commerce seller, and therefore these products are included in our inventories.
Long-term prepaid contracts
We have contracted with partners relating to our clinical trial activities. Upon execution of the contracts, we made initial payments as deposits to be held on account and reconciled against final invoices when the clinical trial is substantially completed.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows:
| Leasehold improvements | Shorter of expected useful life or lease term | |
Maintenance and repairs are charged to expense as incurred, while any additions or improvements are capitalized.
Basic net loss per share is calculated by dividing net loss applicable to common stockholders by the weighted-average number of shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted-average number of shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, warrants to purchase common stock and stock options are considered to be common stock equivalents, but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented.
Unaudited Interim Financial Information
The accompanying interim condensed consolidated balance sheet as of September 30, 2023, condensed consolidated interim statements of operations and stockholders’ equity (deficit) for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022 are unaudited. The interim unaudited condensed consolidated financial statements have been prepared in accordance with GAAP on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2023, its condensed consolidated results of operations and stockholders’ equity (deficit) for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2023 and 2022 are unaudited. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods or any future year or period.
| 8 |
Recently Adopted Accounting Pronouncements
Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-12). The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The Company adopted this standard on January 1, 2023, and the adoption of ASU 2016-13 did not have a material impact on its consolidated financial statements.
3. Fair Value Measurements and Short-term Investments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value that prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The
Company had no assets or liabilities classified as Level 2 or Level 3 as of September 30, 2023 and December 31, 2022. The Company’s
short-term investments consist of a certificate of deposit account held to maturity and is carried at amortized cost. The carrying value
of financial instruments (consisting of cash, accounts payable, accrued compensation and accrued expenses) is considered to be representative
of their respective fair values due to the short-term nature of those instruments. The certificate of deposit matured in October 2023
with the remaining $
The
company has investments classified as short term and held-to-maturity on the accompanying condensed consolidated balance sheets. Investment
income is included as other income. Investment income for the three months ended September 30, 2023 and September 30, 2022 consists primarily
of interest earned of $
The
Company had approximately $
| September 30, 2023 | ||||
| (in thousands) | Amortized cost | |||
| Held-to-maturity | ||||
| Certificate of deposit | $ | |||
| Total investment securities | $ | |||
4. Accrued and Other Current Liabilities
Accrued and other current liabilities consist of the following:
| September 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (in thousands) | ||||||||
| Research and development | $ | $ | ||||||
| Advisory costs | | | ||||||
| Legal costs | ||||||||
| Audit services | ||||||||
| Payroll | ||||||||
| Other liabilities | ||||||||
| Total accrued and other current liabilities | $ | $ | ||||||
5. Capital Stock
Private Placement
On
April 12, 2023 and on March 31, 2023, the Company entered into Securities Purchase Agreements, each a Purchase Agreement, with new and
existing investors, the Investors, pursuant to which the Investors agreed to purchase in a private placement an aggregate of
| 9 |
The
Company had
6. Series E Convertible Preferred Stock
On
April 28, 2022, the Company entered into a Preferred Issuance Agreement, or PIA, with Harvard Bioscience, Inc., or HBIO, dated as of
April 27, 2022. Pursuant to the PIA, the Company and HBIO agreed that once HBIO had paid at least $
On
June 10, 2022, following the execution of a subscription agreement and HBIO providing evidence of payment of the requisite $
On
January 18, 2023, HBIO converted Series E Preferred Shares with accrued dividends of $
In
connection with the private placement, as of April 12, 2023, the Company had received $
There were shares of any of the classes of preferred stock outstanding as of September 30, 2023. Authorized shares for each preferred stock class are as follows:
| Authorized | ||||
| Undesignated preferred stock | ||||
| Series B convertible preferred stock | ||||
| Series C convertible preferred stock | ||||
| Series D convertible preferred stock | ||||
| Series E convertible preferred stock | ||||
HRGN Amended and Restated Equity Incentive Plan
The Company maintains the Amended and Restated Equity Incentive Plan (the Plan) for the benefit of certain officers, employees, non-employee directors, and other key persons (including consultants and advisory board members). All options and awards granted under the Plan consist of the Company’s shares of common stock. The Company’s policy is to issue stock available from its registered but unissued stock pool through its transfer agent to satisfy stock option exercises and vesting of the restricted stock units. The vesting period for awards is generally and the contractual life is . Canceled and forfeited options and awards are available to be reissued under the Plan.
The Company’s Plan has authorized shares to be issued under the Plan. There were shares available for issuance as of September 30, 2023.
| Amount | Weighted-average exercise price | Weighted-average contractual life (years) | Aggregate intrinsic value (in thousands) | |||||||||||||
| Outstanding at December 31, 2022 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Canceled / forfeited | ( | ) | ||||||||||||||
| Outstanding at September 30, 2023 | ||||||||||||||||
| Options exercisable | ||||||||||||||||
| Options vested and expected to vest | ||||||||||||||||
The Company’s outstanding stock options include performance-based awards that have vesting provisions subject to the achievement of certain business milestones. Total unrecognized compensation expense for the remaining performance-based awards is approximately $ million. expense has been recognized for these awards as of September 30, 2023 given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes.
Aggregate intrinsic value for outstanding options and exercisable options as of September 30, 2023, was approximately $ million and $ million, respectively, based on the Company’s closing stock price of $ per share as of September 30, 2023. As of September 30, 2023, unrecognized compensation cost related to unvested non-performance-based awards amounted to $ million, which will be recognized over a weighted-average period of years.
| 10 |
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility | % | 1 | % | |||||
| Expected term (in years) | years | years | ||||||
| Expected dividend yield | % | % | ||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
8. Commitments and Contingencies
On April 14, 2017, representatives for the estate of an individual plaintiff filed a wrongful death complaint with the Suffolk Superior Court, in the County of Suffolk, Massachusetts, against the Company and other defendants, including Harvard Bioscience, Inc., or HBIO, the former parent of the Company that spun off the Company in 2013, as well as another third party. The complaint sought payment for an unspecified amount of damages and alleged that the plaintiff sustained terminal injuries allegedly caused by products provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013. This lawsuit related to the Company’s first-generation trachea scaffold technology for which the Company discontinued development in 2014, and not to the Company’s current HRGN Esophageal Implant.
On April 27, 2022, the Company and HBIO executed a settlement with the plaintiffs (the “Settlement”), which resolves all claims relating to the litigation. The Settlement resulted in the dismissal with prejudice of the wrongful death claim, and neither the Company nor HBIO admit any fault or liability in connection with the claim. The Settlement also resolved any and all claims by and between the parties and the Company’s product liability insurance carriers, which resulted in the dismissal with prejudice of all claims asserted by or against those carriers, the Company and HBIO.
In
relation to the litigation, the Company paid approximately $
| 11 |
With
respect to such $
From time to time, the Company may be involved in various claims and legal proceedings arising in the ordinary course of business. Other than the above matter, there are no such matters pending that the Company expects to be material in relation to its business, financial condition, results of operations, or cash flows.
9. Leases
The
Company leases laboratory and office space and certain equipment with remaining terms ranging from
The laboratory and office space arrangement is under a sublease that was renewed in December of 2022 and currently extends through May 31, 2024. This lease automatically renews annually for one-year periods unless the Company or the counterparty provides a notice of termination within one hundred and eighty days prior to May 31st of each year.
On
January 5, 2022, the Company executed a four-month sublease agreement for certain laboratory and office space at its Holliston, Massachusetts
facility. The Company further extended the sublease agreement on a month-to-month basis until August 31, 2022 when the other party vacated
the premises. For the nine months ended September 30, 2022, the Company recorded sublease income of approximately $
All of the Company’s leases qualify as operating leases. The following table summarizes the presentation of the Company’s operating leases in its condensed consolidated balance sheets:
| Balance Sheet Classification | September 30, 2023 | December 31, 2022 | ||||||||
| (in thousands) | ||||||||||
| Assets: | ||||||||||
| Operating lease assets | Right-of-use asset, net | $ | $ | |||||||
| Liabilities: | ||||||||||
| Current portion of operating lease liabilities | Current portion of operating lease liabilities | |||||||||
| Operating lease liabilities, net of current portion | Operating lease liabilities, net of current portion | | | |||||||
| Total operating lease liabilities | $ | $ | ||||||||
The Company recorded operating lease expense in the following categories in its condensed consolidated statements of operations:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 12 |
Cash
paid included in the computation of the operating lease assets and lease liabilities during the three and nine months ended September
30, 2023 amounted to approximately $
The weighted average remaining lease term and weighted average discount rate of the Company’s operating leases are as follows:
| As of September 30, | ||||||||
| 2023 | 2022 | |||||||
| Remaining lease term (in years) | ||||||||
| Discount rate | % | % | ||||||
The minimum lease payments for the next three years are expected to be as follows:
| As of | ||||
| September 30, 2023 | ||||
| (in thousands) | ||||
| 2023 | $ | |||
| 2024 | ||||
| 2025 | | |||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ | |||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (in thousands, except shares and per share data) | (in thousands, except shares and per share data) | |||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Preferred stock dividends | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average common shares outstanding | ||||||||||||||||
| Basic and diluted net loss per share attributable to common stockholders | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Nine months ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Options to purchase common stock | ||||||||
| Warrants to purchase common stock | ||||||||
| Series E convertible preferred stock | ||||||||
| Total | ||||||||
11. Income Taxes
The Company did not record a federal or state income tax provision or benefit for the nine months ended September 30, 2023 and 2022, respectively, due to the expected loss before income taxes to be incurred for the years ended December 31, 2023 and 2022, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.
12. Subsequent Events
The Company performed a review of events subsequent to the balance sheet through the date the financial statements were issued and determined that there were no such events requiring recognition or disclosure in the financial statements.
| 13 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains statements that are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). The forward-looking statements are principally, but not exclusively, contained in “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include, but are not limited to, statements about management’s confidence or expectations and our plans, objectives, expectations and intentions that are not historical facts and the potential impact of COVID-19 on our business and operations. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “goals,” “sees,” “estimates,” “projects,” “predicts,” “intends,” “think,” “potential,” “objectives,” “optimistic,” “strategy,” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Factors that may cause our actual results to differ materially from those in the forward-looking statements include our ability to access debt and equity markets and raise additional funds when needed; the success of our collaborations, clinical trials and pre-clinical development efforts and programs, which success may not be achieved on a timely basis or at all; our ability to obtain and maintain regulatory approval for our implant products, bioreactors, scaffolds and other devices we pursue, including for the esophagus or airway, which approvals may not be obtained on a timely basis or at all; the number of patients who can be treated with our products; the amount and timing of costs associated with our development of implant products, bioreactors, scaffolds and other devices; our failure to comply with regulations and any changes in regulations; unpredictable difficulties or delays in the development of new technology; our collaborators or other third parties we contract with, including with respect to conducting any clinical trial or pre-clinical development efforts, not devoting sufficient time and resources to successfully carry out their duties or meet expected deadlines; our ability to attract and retain qualified personnel and key employees and retain senior management; potential liability exposure with respect to our products; the availability and price of acceptable raw materials and components from third-party suppliers; difficulties in obtaining or retaining the management and other human resource competencies that we need to achieve our business objectives; increased competition in the field of regenerative medicine and bioengineering, and the financial resources of our competitors; our ability to obtain and maintain intellectual property protection for our device and product candidates; our inability to implement our growth strategy; the control our principal stockholders can exert based on holding a majority of voting power; plus factors described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2023 or described in our other public filings. Our results may also be affected by factors of which we are not currently aware. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information.
Harvard Apparatus Regenerative Technology, Inc. is referred to herein as “we,” “our,” “us”, and “the Company”.
Business Overview
We are a clinical-stage biotechnology company focused on the development of regenerative medicine treatments for disorders of the gastro-intestinal system and other organs that result from cancer, trauma or birth defects. Our technology is based on our proprietary cell-therapy platform that uses a patient’s own stem cells to regenerate and restore function to damaged organs. We believe that our technology represents a next generation solution for restoring organ function because it allows the patient to regenerate their own organ, thus eliminating the need for human donor or animal transplants, the sacrificing of another of the patient’s own organs or permanent artificial implants.
| 14 |
We conducted the world’s first successful regeneration of the esophagus in a cancer patient in August 2017. This surgery was performed by Dr. Dennis Wigle, Chair of Thoracic Surgery at the Mayo Clinic in a patient with esophageal cancer. The results were published in the Journal of Thoracic Oncology Clinical and Research Reports in August 2021. The procedure demonstrated that using HRGN’s technology, we were able to successfully regenerate esophageal tissue, including the mucosal lining, to restore the integrity, continuity and functionality of the esophageal tube. This successful first-in-human experience, plus the research we have performed on 45 pigs, led the U.S. Food and Drug Administration (“FDA”) to approve our 10-patient combined phase 1 and phase 2 clinical trial. This combination trial will measure both safety and efficacy in the patient population.
We were incorporated and commenced operations on November 1, 2013 as a result of a spin-off from Harvard Bioscience, Inc., or Harvard Bioscience. On that date, we became an independent company that operates the regenerative medicine business previously owned by Harvard Bioscience. The spin-off was completed through the distribution of all the shares of common stock of HRGN to Harvard Bioscience stockholders.
We continue to assess the market and regulatory approval pathway in China as to our implant products. We are not certain at this time as to which market, including U.S. or China for example, may provide the most viable initial pathway for regulatory approval to a commercial product. This will depend on a number of factors, including the approval and development processes, related costs, ability to raise capital and the terms and conditions thereof, among other factors. Any development and capital raising efforts in China may include a joint venture in relation to our Hong Kong subsidiary, and would also involve a number of commercial variables, including rights and obligations pertaining to licensing, development, and financing, among others. Our failure to receive or obtain such clearances or approvals on a timely basis or at all, whether that be in the U.S., China or otherwise, would have an adverse effect on our results of operations.
We filed an amendment (the “Certificate of Amendment”) to our Amended and Restated Certificate of Incorporation with the Secretary of State for the State of Delaware to change our name from Biostage, Inc. to Harvard Apparatus Regenerative Technology, Inc. We also amended and restated our Amended and Restated Bylaws, solely to reflect the name change (as amended, the “Third Amended and Restated Bylaws”). The Certificate of Amendment and the Third Amended and Restated Bylaws each became effective on July 20, 2023.
Since our incorporation, we have devoted substantially all of our resources to developing our programs, building our intellectual property portfolio, business planning, raising capital and providing selling, general and administrative support for these operations. To date, we have financed our operations with proceeds from the sales of common stock and preferred stock. In December 2017, we sold the inventory and rights to manufacture and sell research-only versions of our bioreactors to Harvard Bioscience.
We have contracted with IQVIA, a leading global provider of advanced analytics, technology solutions and clinical research services to the life sciences industry, as the contract research organization (CRO) to manage our first clinical trial. We activated the first clinical trial site and started screening patients in the third quarter of 2023. Our product candidates are currently in development and have not yet received regulatory approval for sale anywhere in the world.
In the second quarter of 2023, the Company’s subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, or HRGN LTD, started a longevity products business.
The longevity products business plans to include a broad range of products focused on personal healthcare including longevity dietary supplements. The Company started selling longevity supplements through the Hong Kong subsidiary in the third quarter of 2023. These products are marketed to the general public and initially targeted at consumers in the Great China Region through eCommerce (online sales).
Financial Condition and Need for Additional Funds
We expect to continue to incur operating losses and negative cash flows from operations for 2023 and in future years.
Operating Losses and Cash Requirements
We have incurred substantial operating losses since our inception, and as of September 30, 2023 had an accumulated deficit of approximately $90.1 million and will require additional financing to fund future operations. We expect that our operating cash and short-term investments on-hand as of September 30, 2023 of approximately $1.5 million will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024. We expect to continue to incur operating losses and negative cash flows from operations for 2023 and in future years. Therefore, as disclosed in Note 1 to our Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q, these conditions raise substantial doubt about our ability to continue as a going concern.
We will need to raise additional funds to fund our operations. In the event we do not raise additional capital from outside sources before or during the first quarter of 2024, we may be forced to curtail or cease our operations.
| 15 |
Cash requirements and cash resource needs will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing development, pre-clinical and clinical testing of product candidates, as well as regulatory efforts and collaborative arrangements necessary for our product candidates that are currently under development. We are currently seeking and will continue to seek financings from other existing and/or new investors to raise necessary funds through a combination of public or private equity offerings. We may also pursue debt financings, other financing mechanisms, research grants, or strategic collaborations and licensing arrangements. We may not be able to obtain additional financing on favorable terms, if at all.
Our operations will be adversely affected if we are unable to raise or obtain needed funding and may materially affect our ability to continue as a going concern. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and therefore, the condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.
Components of Operating Loss
Product revenue. Product revenue consists of longevity product sales, launched in the Asia region in the third quarter of 2023. We had not generated any revenue prior to the launch of our longevity products.
Research and development expense. Research and development expense consists of salaries and related expenses, including share-based compensation, for personnel and contracted consultants and various materials and other costs to develop our new products, primarily: synthetic scaffolds, including investigation and development of materials and investigation and optimization of cellularization, as well as studies of cells and cell behavior. Other research and development expenses include the costs of outside service providers and material costs for prototype and test units and outside laboratories and testing facilities performing cell growth and materials experiments, as well as the costs of all other preclinical research and testing including animal studies and expenses related to potential patents. We expense research and development costs as incurred.
Sales and marketing expense. Sales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities.
General and administrative expense. Selling, general and administrative expense consists primarily of salaries and other related expenses, including share-based compensation. Other costs include professional fees for legal and accounting services, insurance, investor relations and facility costs.
Sublease income. On January 5, 2022, we executed a four-month sublease agreement for certain laboratory and office space at its Holliston, Massachusetts facility. We further extended the sublease agreement to a month-to-month basis until August 31, 2022 when the other party vacated the premises. We have no sublease agreements generating sublease income as of September 30, 2023.
Other income, net. Other income, net, consists primarily of interest income and the changes in fair value of our warrant liability from the change in the fair value of common stock warrants classified as liability awards during the nine months ended September 30, 2022. We previously used the Black-Scholes pricing model to value the related warrant liability. In February of 2022, the underlying common stock warrants expired unexercised.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States, or. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates under different assumptions or conditions.
While our significant accounting policies are discussed in more detail in Note 2 to our Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
| 16 |
Share-based Compensation
We account for our share-based compensation in accordance with the fair value recognition provisions of current authoritative guidance. Share-based awards, including stock options, are measured at fair value as of the grant date and recognized as expense over the requisite service period (generally the vesting period), which we have elected to amortize on a straight-line basis. Expense on share-based awards for which vesting is performance or milestone based is recognized on a straight-line basis from the date when we determine the achievement of the milestone is probable to the vesting/milestone achievement date. Since share-based compensation expense is based on awards ultimately expected to vest, it has been reduced by an estimate for future forfeitures. Until December 31, 2022, we estimated forfeitures at the time of grant and would revise our estimate, if necessary, in subsequent periods. As of January 1, 2023, we account for forfeitures as they occur. We estimate the fair value of options granted using the Black-Scholes option valuation model. Significant judgment is required in determining the proper assumptions used in this model. The assumptions used include the risk-free interest rate, expected term, expected volatility, and expected dividend yield. We base our assumptions on historical data when available or, when not available, on a peer group of companies. However, these assumptions consist of estimates of future market conditions, which are inherently uncertain and subject to our judgment, and therefore any changes in assumptions could significantly impact the future grant date fair value of share-based awards.
Warrant Liability
Most of the warrants to purchase shares of our common stock have been classified on our condensed consolidated balance sheets as equity. We classify warrants as a liability in our condensed consolidated balance sheets if the warrant is a free-standing financial instrument that may require us to transfer cash consideration upon exercise and that cash transfer event would be out of our control. Such a “liability warrant” is initially recorded at fair value on the date of grant using the Black-Scholes model, net of issuance costs, and it is subsequently re-measured to fair value at each subsequent balance sheet date. Changes in fair value of the warrants is recognized as a component of other expense in the condensed consolidated statements of operations. The warrants classified as a liability expired unexercised during the nine months ended September 30, 2022 and the remaining liability on the expiration date of approximately $2,000 was recognized as other income.
Results of Operations
The following table summarizes the results of our operations for the three and nine months ended September 30, 2023 and 2022 (in thousands):
| Three
months ended September 30, |
Change
2023 vs. 2022 |
Nine months ended September 30, | Change
2023 vs. 2022 |
|||||||||||||||||||||||||||||
| 2023 | 2022 | Change | % | 2023 | 2022 | Change | % | |||||||||||||||||||||||||
| Product revenue | $ | 40 | $ | — | $ | 40 | 100 | % | $ | 40 | $ | — | $ | 40 | 100 | % | ||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| Cost of sales | 13 | — | 13 | 100 | % | 13 | — | 13 | 100 | % | ||||||||||||||||||||||
| Research and development | 339 | 369 | (30 | ) | (8) | % | 2,414 | 998 | 1,416 | 142 | % | |||||||||||||||||||||
| Sales and marketing | 143 | — |
143 |
100 |
% | 198 | — | 198 | 100 | % | ||||||||||||||||||||||
| General and administrative | 1,169 | 711 | 458 | 64 | % | 4,577 | 3,662 | 915 | 25 | % | ||||||||||||||||||||||
| Total operating expenses | 1,664 | 1,080 | 584 | 54 | % | 7,202 | 4,660 | 2,542 | 55 | % | ||||||||||||||||||||||
| Other income | ||||||||||||||||||||||||||||||||
| Sublease (expense) income | (5 | ) | 26 | (31 | ) | nm | % | (5 | ) | 87 | (92 | ) | nm | % | ||||||||||||||||||
| Other income (expense), net | 14 | (2 | ) | 16 | nm | % | 48 | (5 | ) | 53 | nm | % | ||||||||||||||||||||
| Total other income, net | 9 | 24 | (15 | ) | (63) | % | 43 | 82 | (39 | ) | (48 | )% | ||||||||||||||||||||
| Net loss | $ | (1,615 | ) | $ | (1,056 | ) | $ | (559 | ) | 53 | % | $ | (7,119 | ) | $ | (4,578 | ) | $ | (2,541 | ) | 56 | % | ||||||||||
nm = not meaningful
| 17 |
Comparison of the three months ended September 30, 2023 and September 30, 2022
Product Revenue
Product revenue was $40,000 and zero for the three months ended September 30, 2023 and 2022, respectively. Product revenue consists of longevity product sales, launched in the Asia region in the third quarter of 2023. We had not generated any revenue prior to the launch of our longevity products.
Cost of Sales
Cost of sales was $13,000 and zero for the three months ended September 30, 2023 and 2022, respectively. For the three months ended September 30, 2023, cost of sales consists of the purchase price of consumer products, taxes, inbound and outbound shipping costs.
Research and Development Expense
Research and development expense decreased approximately $30,000, or 8%, to approximately $0.3 million for the three months ended September 30, 2023 as compared to approximately $0.4 million for the three months ended September 30, 2022. This decrease was primarily due to lower advisory costs for the three months ended September 30, 2023.
Sales and Marketing Expense
HRGN Limited launched its longevity products Business in the second quarter of 2023 so there were no prior comparable period costs. Selling and marketing expense was $0.1 million for the three months ended September 30, 2023 as compared to zero for the three months ended September 30, 2022.
General and Administrative Expense
General and administrative expense increased approximately $0.5 million, or 64%, to approximately $1.2 million for the three months ended September 30, 2023 as compared to approximately $0.7 million for the three months ended September 30, 2022. This increase was primarily due to share-based compensation expense of $0.3 million from the vesting of time-based awards in the third quarter of 2023 and increased headcount related costs of approximately $0.2 million.
Sublease (expense) income
On January 5, 2022, we executed a four-month sublease agreement for certain laboratory and office space at our Holliston, Massachusetts facility. We further extended the sublease agreement on a month-to-month basis until August 31, 2022 when the other party vacated the premises. For the three months ended September 30, 2022, we recorded sublease income of approximately $26,000 relating to this agreement. We have no sublease agreements generating sublease income as of September 30, 2023. In 2023, we refunded $5,000 of a deposit not utilized, which was recorded as sublease income in 2022.
Other income, net
During the three months ended September 30, 2023, we recorded interest income of approximately $18,000 earned from our money market account and certificate of deposit offset by approximately $4,000 on insurance installment payments. During the three months ended September 30, 2022, we recorded interest expense of approximately $2,000 on insurance installment payments.
Comparison of the nine months ended September 30, 2023 and September 30, 2022
Product Revenue
Product revenue was $40,000 and zero for the nine months ended September 30, 2023 and 2022, respectively. Product revenue consists of longevity product sales, launched in the Asia region in the third quarter of 2023. We had not generated any revenue prior to the launch of our longevity products.
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Cost of Sales
Cost of sales was $13,000 and zero for the nine months ended September 30, 2023 and 2022, respectively. For the nine months ended September 30, 2023, cost of sales consists of the purchase price of consumer products, taxes, inbound and outbound shipping costs.
Research and Development Expense
Research and development expense increased approximately $1.4 million, or 142%, to approximately $2.4 million for the nine months ended September 30, 2023 as compared to approximately $1.0 million for the nine months ended September 30, 2022. This increase was primarily due to preclinical trial activities to increase our product pipeline and clinical trial activities resulting in our first site activation in the third quarter of 2023.
Sales and Marketing Expense
HRGN Limited launched its longevity products Business in the second quarter of 2023 so there were no prior period costs. Selling and marketing expense was $0.2 million for the nine months ended September 30, 2023 as compared to zero for the nine months ended September 30, 2022.
General and Administrative Expense
General and administrative expense increased approximately $0.9 million, or 25%, to approximately $4.6 million for the nine months ended September 30, 2023 as compared to approximately $3.7 million for the nine months ended September 30, 2022. This increase was primarily due to share-based compensation expense of $2.1 million from the vesting of performance based awards in the first half of 2023 and increased headcount related costs of approximately $0.4 million offset by a decrease of approximately $0.3 million for supporting our ongoing public company requirements and reduced legal and related costs of approximately $1.3 million relating to the completion of litigation for a wrongful death complaint and related matters more fully described in Note 8 to our condensed consolidated financial statements.
Sublease (expense) income
On January 5, 2022, we executed a four-month sublease agreement for certain laboratory and office space at our Holliston, Massachusetts facility. We further extended the sublease agreement on a month-to-month basis until August 31, 2022 when the other party vacated the premises. For the nine months ended September 30, 2022, we recorded sublease income of approximately $87,000 relating to this agreement. We have no sublease agreements generating sublease income as of September 30, 2023. In 2023, we refunded $5,000 of a deposit not utilized, which was recorded as sublease income in 2022.
Other income, net
During the nine months ended September 30, 2023, we recorded interest income of approximately $59,000 earned from our money market account and certificate of deposit offset by approximately $11,000 on insurance installment payments.
During the nine months ended September 30, 2022, we recorded a gain on expiration of the common share warrants of approximately $2,000 in other expense, net as they expired unexercised in February 2022. We also recorded interest expense of approximately $7,000 on insurance installment payments.
Liquidity and Capital Resources
Sources of liquidity. We have incurred operating losses since inception, and as of September 30, 2023, we had an accumulated deficit of approximately $90.1 million. We are currently investing significant resources in the development and commercialization of our product candidates for use by clinicians and researchers in the fields of regenerative medicine and bioengineering. As a result, we expect to incur operating losses and negative operating cash flows for the foreseeable future.
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The following table sets forth the primary uses of cash for the three months ended September 30, 2023 and 2022 (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (5,721 | ) | $ | (3,373 | ) | ||
| Net cash used by investing activities | $ | (1,243 | ) | $ | (8 | ) | ||
| Net cash provided by financing activities | $ | 5,992 | $ | 5,060 | ||||
Comparison of nine months ended September 30, 2023 and 2022
Operating activities. Net cash used in operating activities of approximately $5.7 million for the nine months ended September 30, 2023 was due primarily to our net loss of approximately $7.1 million offset by adjustments for non-cash items of approximately $2.9 million due to non-cash expenses for share-based compensation and depreciation, and an approximately $1.5 million decrease to cash from changes in working capital due to the timing of payments for accounts receivable, inventory, prepaid expenses, deferred financing costs, long-term prepaid contracts, accounts payable and accrued expenses.
Net cash used in operating activities of approximately $3.4 million for the nine months ended September 30, 2022 was due primarily to our net loss of approximately $4.6 million and offset by adjustments for non-cash items of approximately $0.8 million due to non-cash expenses for share-based compensation and depreciation, and an approximately $0.4 million increase to cash from changes in working capital due to the timing of payments for accounts payable, accrued expenses, prepaid expenses and deferred financing costs.
Investing activities. Net cash used in investing activities included purchases of property, plant and equipment for the nine months ended September 30, 2023 and 2022 representing approximately $11,000 and $8,000, respectively. During the nine months ended September 30, 2023, we invested in a certificate of deposit for $2.5 million that earned $32,000 in interest. We withdrew $1.3 million from the certificate of deposit prior to the maturity date to pay clinical trial related deposits. The certificate of deposit matured in October 2023 with the remaining $1.2 million released from short-term investments into cash and cash equivalents.
Financing activities. Net cash generated from financing activities during the nine months ended September 30, 2023 of approximately $6.0 million consisted of net proceeds received from a private placement transaction that resulted in the issuance of 1,000,967 shares of our common stock at a purchase price of $6.00 per share to a group of investors.
Net cash generated from financing activities during the nine months ended September 30, 2022 of approximately $5.1 million consisted of net proceeds received from a private placement transaction that resulted in the issuance of 854,771 shares of our common stock at a purchase price of $5.92 per share and warrants to purchase 427,390 shares of common stock at an exercise price of $8.88 per share to a group of investors.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements as of September 30, 2023.
Other Information
None.
| 20 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is a smaller reporting company and is not required to provide this information pursuant to Item 305(e), Regulation S-K.
Item 4. Controls and Procedures.
This Report includes the certifications of our principal executive officer and our principal financial and accounting officer required by Rule 13a-14 of the Exchange Act. See Exhibits 31.1 and 31.2. This Item 4 includes information concerning the controls and control evaluations referred to in those certifications.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer, Director, and Chairman, who is our principal executive officer, and our Chief Financial Officer, who is our principal financial and accounting officer, to allow timely decisions regarding required disclosures.
In connection with the preparation of this Quarterly Report on Form 10-Q, our management, under the supervision and with the participation of our principal executive officer and our principal financial and accounting officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023. Based upon the evaluation described above, our principal executive officer and our principal financial and accounting officer have concluded that they believe our disclosure controls and procedures were effective as of the end of the period covered by this report, in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial and accounting officer, to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Changes in Internal Control over Financial Reporting
Our management, with the participation of our principal executive officer and our principal financial and accounting officer, has evaluated whether any change in our internal control over financial accounting and reporting occurred during the quarter ended September 30, 2023. During the period covered by this report, we have concluded that there were no changes during the fiscal quarter in our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, which have materially affected, or are reasonably likely to materially affect, our internal control over financial accounting and reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business. Other than the civil lawsuit described in Item 3 of Part I of our Annual Report on Form 10-K filed with the SEC on March 30, 2023 and in our Form 8-K filed with the SEC on April 27, 2022, there are no such matters pending that we expect to be material in relation to our business, financial condition, and results of operations or cash flows.
Item 1A. Risk Factors
To our knowledge and except to the extent additional factual information disclosed in this Quarterly Report on Form 10-Q relates to such risk factors, there have been no material changes in the risk factors described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 30, 2023.
Item 5. Other Information
Item 6. Exhibits
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| # | Management contract or compensatory plan or arrangement. |
| + | Filed herewith. |
| * | This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
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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 undersigned thereunto duly authorized.
Date: November 13, 2023
| HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. | ||
| By: | /s/ Junli He | |
| Name: | Junli He | |
| Title: | Chief Executive Officer, Director, and Chairman (principal executive officer) | |
| By: | /s/ Joseph L.Damasio Jr. | |
| Name: | Joseph L. Damasio Jr. | |
| Title: | Chief Financial Officer (principal financial officer) | |
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EXHIBIT 10.2
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC.
AMENDED AND RESTATED EQUITY INCENTIVE PLAN
1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the Harvard Apparatus Regenerative Technology, Inc. Amended and Restated Equity Incentive Plan (the “Plan”). The purpose of the Plan is to encourage and enable the officers, employees, Non-Employee Directors, and other key persons (including consultants) of Harvard Apparatus Regenerative Technology, Inc. (the “Company”) and its Subsidiaries upon whose judgment, initiative and efforts the Company largely depends for the successful conduct of its business to acquire a proprietary interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a closer identification of their interests with those of the Company, thereby stimulating their efforts on the Company’s behalf and strengthening their desire to remain with the Company. In addition, the issuance of Awards in partial substitution of equity awards that cover shares of the common stock of Harvard Bioscience, Inc. (“HBIO”) immediately prior to the spin-off of the Company by HBIO are authorized to be issued under this Plan.
The following terms shall be defined as set forth below:
“Act” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Adjustment Awards” is defined in Section 4.
“Administrator” is defined in Section 2(a).
“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Deferred Stock Awards, Restricted Stock Awards, Unrestricted Stock Awards, Performance Share Awards and Dividend Equivalent Rights.
“Board” means the Board of Directors of the Company.
“Cash-Based Award” means an Award entitling the recipient to receive a cash-denominated payment.
“Change of Control” is defined in Section 19.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations and interpretations.
“Committee” means the Compensation Committee of the Board or a similar committee performing the functions of the Compensation Committee and that is comprised of not less than two Independent Directors.
“Covered Employee” means an employee who is a “Covered Employee” within the meaning of Section 162(m) of the Code.
“Deferred Stock Award” means Awards granted pursuant to Section 8.
“Distribution Date” means the date that HBIO distributes to holders of shares of its outstanding common stock, through a spin-off, at least 50% of the outstanding shares of the Company’s common stock (the “Spin-Off”).
“Dividend Equivalent Right” means Awards granted pursuant to Section 13.
“Effective Date” shall have the meaning specified in Section 21 hereof.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith by the Administrator; provided, however, that if the Stock is traded on a national securities exchange the Fair Market Value of the Stock will equal the closing sales price as reported on the principal exchange or market for the Stock on such date, provided further that with respect to the Separation Grants and the initial Non-Employee Director grants described in Section 5(b)(i)(1), the Fair Market Value on the date of grant for such grants shall mean the arithmetic average of the daily dollar volume-weighted average price of the Stock (during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time) for each of the ten (10) Trading Days immediately preceding the date of grant. If there is no trading on such date, the determination shall be made by reference to the last date preceding such date for which there was trading.
“HBIO Award” shall have the meaning specified in Section 4 hereof.
“Incentive Stock Option” means any Stock Option designated and qualified as an “incentive stock option” as defined in Section 422 of the Code.
“Independent Director” means a member of the Board who is not also an employee of the Company or any Subsidiary and who is independent.
“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any Subsidiary.
“Non-Qualified Stock Option” means any Stock Option that is not an Incentive Stock Option.
“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.
“Parent” means Harvard Bioscience, Inc., a Delaware corporation that, as of the Effective Date is the parent of the Company. If at any time Harvard Bioscience, Inc. ceases to hold stock representing more than 50% of the Voting Securities of the Company, it shall no longer be treated as the Parent.
“Performance Cycle” means one or more periods of time, which may be of varying and overlapping durations, as the Administrator may select, over which the attainment of one or more performance criteria will be measured for the purpose of determining a grantee’s right to and the payment of a Performance Share Award, Restricted Stock Award or Deferred Stock Award. Each such period shall not be less than three months.
“Performance Share Award” means Awards granted pursuant to Section 11.
“Restricted Stock Award” means Awards granted pursuant to Section 7.
“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.
“Separation Grants” means the initial Stock Options granted by the Company to certain executives and employees of the Company in connection with the Spin-Off which shall be granted on the eleventh Trading Day after the Distribution Date (with the first Trading Day being the Trading Day immediately after the Distribution Date).
“Spin-Off” shall have the meaning specified in the definition of Distribution Date.
“Stock” means the Common Stock, par value $.01 per share, of the Company, subject to adjustments pursuant to Section 3.
“Stock Appreciation Right” means any Award granted pursuant to Section 6.
“Subsidiary” means any corporation or other entity (other than the Company) in any unbroken chain of corporations or other entities beginning with the Company if each of the corporations or entities (other than the last corporation or entity in the unbroken chain) owns stock or other interests possessing 50 percent or more of the economic interest or the total combined voting power of all classes of stock or other interests in one of the other corporations or entities in the chain.
“Trading Day” means any day on which the Stock is traded on a national securities exchange, or, if a national securities exchange is not the principal trading market for the Stock, then on the principal securities exchange or securities market on which the Stock is then traded, provided that “Trading Day” shall not include any day on which the Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time).
“Unrestricted Stock Award” means any Award granted pursuant to Section 9.
2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND DETERMINE AWARDS
(a) Committee. The Plan shall be administered by either the Board or the Committee (in either case, the “Administrator”).
(b) Powers of Administrator. The Administrator shall have the power and authority to grant Awards consistent with the terms of the Plan, including the power and authority:
(i) to select the individuals to whom Awards may from time to time be granted;
(ii) to determine the time or times of grant, and the extent, if any, of Incentive Stock Options, Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock Awards, Deferred Stock Awards, Unrestricted Stock Awards, Performance Share Awards and Dividend Equivalent Rights, or any combination of the foregoing, granted to any one or more grantees;
(iii) to determine the number of shares of Stock to be covered by any Award;
(iv) to determine and modify from time to time the terms and conditions, including restrictions, not inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and grantees, and to approve the form of written instruments evidencing the Awards;
(v) to accelerate at any time the exercisability or vesting of all or any portion of any Award; provided that, other than by reason of, or in connection with, any death, disability, retirement, employment termination (without cause or by the employee for good reason), Sale Event or Change of Control, the Administrator shall not accelerate or waive any restriction period applicable to any outstanding Restricted Stock Award, Deferred Stock Award or Performance Share Award granted to an employee beyond the minimum restriction periods set forth in Section 7(d), Section 8(a) and Section 11(a), respectively, or accelerate the exercisability or vesting of unvested Stock Options which in the aggregate, when combined with the aggregate number of shares of Stock issued pursuant to Section 9, exceed ten percent (10%) of the maximum number of shares of stock reserved and available for issuance under the Plan pursuant to Section 3(a);
(vi) subject to the provisions of Section 5(a)(ii), to extend at any time the period in which Stock Options may be exercised; and
(vii) at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan grantees.
(c) Delegation of Authority to Grant Awards. The Administrator, in its discretion, may delegate to the Chief Executive Officer of the Company all or part of the Administrator’s authority and duties with respect to the granting of Awards at Fair Market Value, to individuals who are not subject to the reporting and other provisions of Section 16 of the Exchange Act or “covered employees” within the meaning of Section 162(m) of the Code. Any such delegation by the Administrator shall include a limitation as to the amount of Awards that may be granted during the period of the delegation and shall contain guidelines as to the determination of the exercise price of any Stock Option or Stock Appreciation Right, the conversion ratio or price of other Awards and the vesting criteria. The Administrator may revoke or amend the terms of a delegation at any time but such action shall not invalidate any prior actions of the Administrator’s delegate or delegates that were consistent with the terms of the Plan.
(d) Indemnification. Neither the Board nor the Committee, nor any member of either or any delegatee thereof, shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan, and the members of the Board and the Committee (and any delegatee thereof) shall be entitled in all cases to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s organizational documents or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any indemnification agreement between such individual and the Company.
3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a)(1) Stock Issuable. Subject to adjustment as provided in Section 3(b), the last paragraph of this Section 3(a) and any other applicable provisions hereof, the maximum number of shares of Stock reserved and available for issuance under the Plan shall be Nine Million Ninety Eight Thousand (9,098,000) shares of Stock. To the extent an Award (including any Adjustment Awards) expires or terminates or is surrendered or forfeited (other than by exercise), in whole or in part, the shares subject to such Award or portion thereof so forfeited, expired, terminated or surrendered again will become available for future grant or sale under the Plan. To the extent an Award (including any Adjustment Awards) expires or terminates or is surrendered or forfeited (other than by exercise), in whole or in part, the shares subject to such Award or portion thereof so forfeited, expired, terminated or surrendered again will become available for future grant or sale under the Plan. Should the exercise price of an Option be paid with shares underlying such Option, then the authorized reserve of shares under the Plan shall be reduced by the gross number of shares for which that Option is exercised, and not by the net number of shares issued under the exercised Option. If shares otherwise issuable under the Plan are withheld by the Company in satisfaction of the withholding taxes incurred in connection with an Award, then the number of shares available for issuance under the Plan shall be reduced by the gross number of shares issuable under the Award, calculated in each instance prior to any such share withholding. In addition, upon exercise of Stock Appreciation Rights, the gross number of shares exercised shall be deducted from the total number of shares remaining available for issuance under the Plan. Shares of Stock may be issued up to such maximum number pursuant to any type or types of Award; provided, however, that Stock Options or Stock Appreciation Rights with respect to no more than 1,000,000 shares of Stock may be granted to any one individual grantee during any one calendar year period. The shares available for issuance under the Plan may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company and held in its treasury.
(a)(2) Automatic Share Reserve Increase. [Reserved].
(a)(3) Adjustment Awards Increase. [Reserved.]
(b) Changes in Stock. Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization, reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for a different number or kind of securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, including the maximum number of shares that may be issued in the form of Unrestricted Stock Awards, Restricted Stock Awards or Performance Share Awards, (ii) the number of Stock Options or Stock Appreciation Rights that can be granted to any one individual grantee and the maximum number of shares that may be granted under a Performance-based Award, (iii) the number and kind of shares or other securities subject to any then outstanding Awards under the Plan, (iv) the repurchase price per share subject to each outstanding Restricted Stock Award, and (v) the price for each share subject to any then outstanding Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock Appreciation Rights remain exercisable in a manner that will trigger tax under Section 409A. The adjustment by the Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.
The Administrator shall also adjust the number of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration material changes in accounting practices or principles, extraordinary dividends, acquisitions or dispositions of stock or property or any other event if it is determined by the Administrator that such adjustment is appropriate to avoid distortion in the operation of the Plan, provided that no such adjustment shall be made in the case of an Incentive Stock Option, without the consent of the grantee, if it would constitute a modification, extension or renewal of the Option within the meaning of Section 424(h) of the Code.
(c) Mergers and Other Transactions. In the case of and subject to the consummation of (i) the dissolution or liquidation of the Company, (ii) the sale of all or substantially all of the assets of the Company on a consolidated basis to an unrelated person or entity, (iii) a merger, reorganization or consolidation in which the outstanding shares of Stock are converted into or exchanged for a different kind of securities of the successor entity and the holders of the Company’s outstanding voting power immediately prior to such transaction do not own a majority of the outstanding voting power of the successor entity immediately upon completion of such transaction, or (iv) the sale of all of the Stock of the Company to an unrelated person or entity (in each case, a “Sale Event”), all Options and Stock Appreciation Rights that are not exercisable immediately prior to the effective time of the Sale Event shall become fully exercisable as of the effective time of the Sale Event and all other Awards with conditions and restrictions relating solely to the passage of time and continued employment shall become fully vested and nonforfeitable as of the effective time of the Sale Event, except as the Administrator may otherwise specify with respect to particular Awards. Upon the effective time of the Sale Event, the Plan and all outstanding Awards granted hereunder shall terminate, unless provision is made in connection with the Sale Event in the sole discretion of the parties thereto for the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of shares and, if appropriate, the per share exercise prices, as such parties shall agree (after taking into account any acceleration hereunder). In the event of such termination, each grantee shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the Administrator, to exercise all outstanding Options and Stock Appreciation Rights held by such grantee, including those that will become exercisable upon the consummation of the Sale Event; provided, however, that the exercise of Options and Stock Appreciation Rights not exercisable prior to the Sale Event shall be subject to the consummation of the Sale Event.
Notwithstanding anything to the contrary in this Section 3(c), in the event of a Sale Event pursuant to which holders of the Stock of the Company will receive upon consummation thereof a cash payment for each share surrendered in the Sale Event, the Company shall have the right, but not the obligation, to make or provide for a cash payment to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation thereof, in an amount equal to the difference between (A) the value as determined by the Administrator of the consideration payable per share of Stock pursuant to the Sale Event (the “Sale Price”) times the number of shares of Stock subject to outstanding Options and Stock Appreciation Rights (to the extent then exercisable at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and Stock Appreciation Rights.
(d) Substitute Awards. The Administrator may grant Awards under the Plan in substitution for stock and stock based awards held by employees, directors or other key persons of another corporation in connection with the merger or consolidation of the employing corporation with the Company or a Subsidiary or the acquisition by the Company or a Subsidiary of property or stock of the employing corporation. The Administrator may direct that the substitute awards be granted on such terms and conditions as the Administrator considers appropriate in the circumstances. Any substitute Awards granted under the Plan shall not count against the share limitation set forth in Section 3(a).
4. ELIGIBILITY
Grantees under the Plan will be such full or part-time officers and other employees, Non-Employee Directors and key persons (including consultants and prospective employees) of the Company and its Subsidiaries as are selected from time to time by the Administrator in its sole discretion.
Additionally, the Company is authorized to issue Awards (“Adjustment Awards”) under the Plan in connection with the equitable adjustment by HBIO of certain stock options, deferred stock awards, restricted stock awards, performance share awards and other equity-based awards previously granted by HBIO (collectively, the “HBIO Awards”) to reflect the Company stock dividend on HBIO Awards. Notwithstanding any other provision of the Plan to the contrary, the number of shares subject to an Adjustment Award and other terms and conditions relating thereto, including, but not limited to option exercise prices, shall be equitable and determined by the Committee (a) in accordance with the provisions and formulas for the equity adjustment of HBIO Awards that are set forth in the Separate and Distribution Agreement entered into by and between the Company and HBIO; and (b) in an amount that will not cause the aggregate number of shares of Stock available for grant and issuance under the Plan (as set forth in Section 3(a)(3) hereof) to be exceeded.
Notwithstanding anything to the contrary contained herein or in any Award (including any Adjustment Award), for purposes of exercisability, vesting and the post-termination exercise periods applicable to the Adjustment Awards, continued employment with, or service to, HBIO (or its subsidiaries) or the Company (or its subsidiaries) is considered to be continued employment with, and service to, the other, provided that the failure to exercise Incentive Stock Options within the applicable deadline following any separation from service from the Company shall cause such options to be treated thereafter as Non-Qualified Stock Options.
5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the Administrator may from time to time approve.
Stock Options granted under the Plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company or any Subsidiary that is a “subsidiary corporation” within the meaning of Section 424(f) of the Code. To the extent that any Option does not qualify as an Incentive Stock Option, it shall be deemed a Non-Qualified Stock Option.
(a) Stock Options Granted to Employees and Key Persons. The Administrator in its discretion may grant Stock Options to eligible employees and key persons of the Company or any Subsidiary. Stock Options granted pursuant to this Section 5(a) shall be subject to the following terms and conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem desirable. If the Administrator so determines, Stock Options may be granted in lieu of cash compensation at the optionee’s election, subject to such terms and conditions as the Administrator may establish.
(i) Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this Section 5(a) shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market Value on the date of grant. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the option price of such Incentive Stock Option shall be not less than 110 percent of the Fair Market Value on the grant date.
(ii) Option Term. The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall be exercisable more than 10 years after the date the Stock Option is granted. If an employee owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10 percent of the combined voting power of all classes of stock of the Company or any parent or subsidiary corporation and an Incentive Stock Option is granted to such employee, the term of such Stock Option shall be no more than five years from the date of grant.
(iii) Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times, whether or not in installments, as shall be determined by the Administrator at or after the grant date. Subject to Section 2(b)(v), the Administrator may at any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.
(iv) Method of Exercise. Stock Options may be exercised in whole or in part, by giving written notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made by one or more of the following methods to the extent provided in the Option Award agreement:
(1) In cash, by certified or bank check or other instrument acceptable to the Administrator;
(2) Through the delivery (or attestation to the ownership) of shares of Stock that have been purchased by the optionee on the open market or that have been beneficially owned by the optionee for at least six months and are not then subject to restrictions under any Company plan. Such surrendered shares shall be valued at Fair Market Value on the exercise date; or
(3) By the optionee delivering to the Company a properly executed exercise notice together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the Administrator shall prescribe as a condition of such payment procedure.
Payment instruments will be received subject to collection. The transfer to the optionee on the records of the Company or of the transfer agent of delivery of certificates representing the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt from the optionee (or a purchaser acting in his stead in accordance with the provisions of the Stock Option) by the Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award agreement or applicable provisions of laws (including the satisfaction of any withholding taxes that the Company is obligated to withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock Option shall be net of the number of attested shares. In the event that the Company establishes, for itself or using the services of a third party, an automated system for the exercise of Stock Options, such as a system using an internet website or interactive voice response, then the paperless exercise of Stock Options may be permitted through the use of such an automated system.
(v) Annual Limit on Incentive Stock Options. To the extent required for “incentive stock option” treatment under Section 422 of the Code, the aggregate Fair Market Value (determined as of the time of grant) of the shares of Stock with respect to which Incentive Stock Options granted under this Plan and any other plan of the Company or its parent and subsidiary corporations become exercisable for the first time by an optionee during any calendar year shall not exceed $100,000. To the extent that any Stock Option exceeds this limit, it shall constitute a Non-Qualified Stock Option.
(b) Reserved.
(c) Non-transferability of Options. No Stock Option shall be transferable by the optionee otherwise than by will or by the laws of descent and distribution and all Stock Options shall be exercisable, during the optionee’s lifetime, only by the optionee, or by the optionee’s legal representative or guardian in the event of the optionee’s incapacity. Notwithstanding the foregoing, the Administrator, in its sole discretion, may provide in the Award agreement regarding a given Option that the optionee may transfer his Non-Qualified Stock Options to members of his immediate family, to trusts for the benefit of such family members, or to partnerships in which such family members are the only partners; provided that the transferee agrees in writing with the Company to be bound by all of the terms and conditions of this Plan and the applicable Option.
6. STOCK APPRECIATION RIGHTS.
(a) Nature of Stock Appreciation Rights. A Stock Appreciation Right is an Award entitling the recipient to receive shares of Stock having a value equal to the excess of the Fair Market Value of the Stock on the date of exercise over the exercise price Stock Appreciation Right, which price shall not be less than 100 percent of the Fair Market Value of the Stock on the date of grant multiplied by the number of shares of Stock with respect to which the Stock Appreciation Right shall have been exercised.
(b) Grant and Exercise of Stock Appreciation Rights. Stock Appreciation Rights may be granted by the Administrator independently of any Stock Option granted pursuant to Section 5 of the Plan.
(c) Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such terms and conditions as shall be determined from time to time by the Administrator; provided that during the grantee’s lifetime all Stock Appreciation Rights shall be exercisable only by the grantee or the grantee’s legal representative.
(d) Stock Appreciation Rights Term. The term of each Stock Appreciation Right shall be fixed by the Administrator, but no Stock Appreciation Right shall be exercisable more than ten years after the date the Stock Appreciation Right is granted.
7. RESTRICTED STOCK AWARDS
(a) Nature of Restricted Stock Awards. A Restricted Stock Award is an Award entitling the recipient to acquire, at such purchase price as determined by the Administrator, shares of Stock subject to such restrictions and conditions as the Administrator may determine at the time of grant (“Restricted Stock”). Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The grant of a Restricted Stock Award is contingent on the grantee executing the Restricted Stock Award agreement. The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.
(b) Rights as a Stockholder. Upon execution of a written instrument setting forth the Restricted Stock Award and payment of any applicable purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Stock, subject to such conditions contained in the written instrument evidencing the Restricted Stock Award. Unless the Administrator shall otherwise determine, (i) uncertificated Restricted Stock shall be accompanied by a notation on the records of the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Stock are vested as provided in Section 7(d) below, and (ii) certificated Restricted Stock shall remain in the possession of the Company until such Restricted Stock is vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to deliver to the Company a stock power endorsed in blank.
(c) Restrictions. Restricted Stock may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of except as specifically provided herein or in the Restricted Stock Award agreement. If a grantee’s employment (or other service relationship) with the Company and its Subsidiaries terminates for any reason, any Restricted Stock that has not vested at the time of termination shall automatically and without any requirement of notice to such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its original purchase price (if any) from such grantee or such grantee’s legal representative simultaneously with such termination of employment (or other service relationship), and thereafter shall cease to represent any ownership of the Company by the grantee or rights of the grantee as a stockholder. Following such deemed reacquisition of unvested Restricted Stock that are represented by physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.
(d) Vesting of Restricted Stock. The Administrator at the time of grant shall specify the date or dates and/or the attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the Restricted Stock and the Company’s right of repurchase or forfeiture shall lapse. Notwithstanding the foregoing, in the event that any such Restricted Stock granted to an employee shall have a performance-based goal, the restriction period with respect to such shares shall not be less than one year, and in the event any such Restricted Stock granted to an employee shall have a time-based restriction, the restriction period with respect to such shares shall not be less than three years; provided, however, that Restricted Stock with a time-based restriction may become vested incrementally over such three-year period. The minimum vesting requirements set forth in the foregoing sentence will not apply to Restricted Stock granted to a Non-Employee Director. Subsequent to such date or dates and/or the attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have lapsed shall no longer be Restricted Stock and shall be deemed “vested.” Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 17 below, in writing after the Award agreement is issued, a grantee’s rights in any shares of Restricted Stock that have not vested shall automatically terminate upon the grantee’s termination of employment (or other service relationship) with the Company and its Subsidiaries and such shares shall be subject to the Company’s right of repurchase as provided in Section 7(c) above.
(e) Waiver, Deferral and Reinvestment of Dividends. The Restricted Stock Award agreement may require or permit the immediate payment, waiver, deferral or investment of dividends paid on the Restricted Stock.
8. DEFERRED STOCK AWARDS
(a) Nature of Deferred Stock Awards. A Deferred Stock Award is an Award of phantom stock units to a grantee, subject to restrictions and conditions as the Administrator may determine at the time of grant. Conditions may be based on continuing employment (or other service relationship) and/or achievement of pre-established performance goals and objectives. The grant of a Deferred Stock Award is contingent on the grantee executing the Deferred Stock Award agreement. The terms and conditions of each such agreement shall be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees. Notwithstanding the foregoing, in the event that any such Deferred Stock Award granted to an employee shall have a performance-based goal, the restriction period with respect to such award shall not be less than one year, and in the event any such Deferred Stock Award granted to an employee shall have a time-based restriction, the restriction period with respect to such award shall not be less than three years; provided, however, that any such Deferred Stock Award with a time-based restriction may become vested incrementally over such three-year period. The minimum vesting requirements set forth in the foregoing sentence will not apply to Deferred Stock Awards granted to Non-Employee Directors. At the end of the deferral period, the Deferred Stock Award, to the extent vested, shall be paid to the grantee in the form of shares of Stock. To the extent that a Deferred Stock Award is subject to Section 409A, it may contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order for such Award to comply with the requirements of Section 409A.
(b) Election to Receive Deferred Stock Awards in Lieu of Compensation. The Administrator may, in its sole discretion, permit a grantee to elect to receive a portion of the cash compensation or Restricted Stock Award otherwise due to such grantee in the form of a Deferred Stock Award. Any such election shall be made in writing and shall be delivered to the Company no later than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures established by the Administrator. Any such future cash compensation that the grantee elects to defer shall be converted to a fixed number of phantom stock units based on the Fair Market Value of Stock on the date the compensation would otherwise have been paid to the grantee if such payment had not been deferred as provided herein. The Administrator shall have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations and other terms and conditions thereon as the Administrator deems appropriate.
(c) Rights as a Stockholder. During the deferral period, a grantee shall have no rights as a stockholder; provided, however, that the grantee may be credited with Dividend Equivalent Rights with respect to the phantom stock units underlying his Deferred Stock Award, subject to such terms and conditions as the Administrator may determine.
(d) Restrictions. A Deferred Stock Award may not be sold, assigned, transferred, pledged or otherwise encumbered or disposed of during the deferral period.
(e) Termination. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 17 below, in writing after the Award agreement is issued, a grantee’s right in all Deferred Stock Awards that have not vested shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.
9. UNRESTRICTED STOCK AWARDS
The Administrator may, in its sole discretion, grant (or sell at par value or such higher purchase price determined by the Administrator) an Unrestricted Stock Award to any grantee pursuant to which such grantee may receive shares of Stock free of any restrictions (“Unrestricted Stock”) under the Plan. Unrestricted Stock Awards may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee. The aggregate number of shares of Stock issuable pursuant to this Section 9, when combined with the number of shares of underlying unvested Stock Options accelerated pursuant to Section 2(b)(v) other than by reason of, or in connection with, any death, disability, retirement, employment termination (without cause or by the employee for good reason), Sale Event or Change of Control, is limited to ten percent (10%) of the maximum number of shares of Stock reserved and available for issuance under the Plan pursuant to Section 3(a).
10. CASH-BASED AWARDS
The Administrator may, in its sole discretion, grant Cash-Based Awards to any grantee in such number or amount and upon such terms, and subject to such conditions, as the Administrator shall determine at the time of grant. The Administrator shall determine the maximum duration of the Cash-Based Award, the amount of cash to which the Cash-Based Award pertains, the conditions upon which the Cash-Based Award shall become vested or payable, and such other provisions as the Administrator shall determine. Each Cash-Based Award shall specify a cash-denominated payment amount, formula or payment ranges as determined by the Administrator. Payment, if any, with respect to a Cash-Based Award shall be made in accordance with the terms of the Award and, if such Award is deemed deferred compensation, Section 15 hereof, and may be made in cash or in shares of Stock, as the Administrator determines.
11. PERFORMANCE SHARE AWARDS
(a) Nature of Performance Share Awards. A Performance Share Award is an Award entitling the recipient to acquire shares of Stock upon the attainment of specified performance goals. The Administrator may make Performance Share Awards independent of or in connection with the granting of any other Award under the Plan. The Administrator in its sole discretion shall determine whether and to whom Performance Share Awards shall be made, the performance goals, the periods during which performance is to be measured, and all other limitations and conditions. Notwithstanding the foregoing, any Performance Share Award granted to an employee shall have a restriction period of not less than one year. The minimum vesting requirements set forth in the foregoing sentence will not apply to Performance Share Awards granted to Non-Employee Directors.
(b) Rights as a Stockholder. A grantee receiving a Performance Share Award shall have the rights of a stockholder only as to shares actually received by the grantee under the Plan and not with respect to shares subject to the Award but not actually received by the grantee. A grantee shall be entitled to receive a stock certificate evidencing the acquisition of shares of Stock under a Performance Share Award only upon satisfaction of all conditions specified in the Performance Share Award agreement (or in a performance plan adopted by the Administrator).
(c) Termination. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 17 below, in writing after the Award agreement is issued, a grantee’s rights in all Performance Share Awards shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.
12. RESERVED.
13. DIVIDEND EQUIVALENT RIGHTS
(a) Dividend Equivalent Rights. A Dividend Equivalent Right is an Award entitling the grantee to receive credits based on cash dividends that would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if such shares had been issued to and held by the grantee. A Dividend Equivalent Right may be granted hereunder to any grantee only as a component of Unrestricted Stock Awards, Restricted Stock Awards, Deferred Stock Awards or Performance Share Awards. The terms and conditions of Dividend Equivalent Rights shall be specified in the Award agreement. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a component of another Award may provide that such Dividend Equivalent Right shall be settled upon exercise, settlement, or payment of, or lapse of restrictions on, such other award, and that such Dividend Equivalent Right shall expire or be forfeited or annulled under the same conditions as such other award. A Dividend Equivalent Right granted as a component of another Award may also contain terms and conditions different from such other award.
(b) Interest Equivalents. Any Award under this Plan that is settled in whole or in part in cash on a deferred basis may provide in the grant for interest equivalents to be credited with respect to such cash payment. Interest equivalents may be compounded and shall be paid upon such terms and conditions as may be specified by the grant.
(c) Termination. Except as may otherwise be provided by the Administrator either in the Award agreement or, subject to Section 17 below, in writing after the Award agreement is issued, a grantee’s rights in all Dividend Equivalent Rights or interest equivalents shall automatically terminate upon the grantee’s termination of employment (or cessation of service relationship) with the Company and its Subsidiaries for any reason.
14. TAX WITHHOLDING
(a) Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax purposes, pay to the Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any kind required by law to be withheld by the Company with respect to such income. The Company and its Subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on tax withholding obligations being satisfied by the grantee.
(b) Payment in Stock. Subject to approval by the Administrator, a grantee may elect to have the Company’s minimum required tax withholding obligation satisfied, in whole or in part, by (i) authorizing the Company to withhold from shares of Stock to be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due, or (ii) transferring to the Company shares of Stock owned by the grantee with an aggregate Fair Market Value (as of the date the withholding is effected) that would satisfy the withholding amount due.
15. SECTION 409A AWARDS.
To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as specified by the Administrator from time to time in order to comply with Section 409A. In this regard, if any amount under a 409A Award is payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is then considered a “specified employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i) six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section 409A. Further, the settlement of any such Award may not be accelerated except to the extent permitted by Section 409A.
16. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a termination of employment:
(a) a transfer to the employment of the Company from a Subsidiary or from the Company to a Subsidiary, or from one Subsidiary to another; or
(b) an approved leave of absence for military service or sickness, or for any other purpose approved by the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.
17. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall adversely affect rights under any outstanding Award without the holder’s consent. Except as provided in Section 3(b) or 3(c), in no event may the Administrator exercise its discretion to reduce the exercise price of outstanding Stock Options or Stock Appreciation Rights or effect repricing through cancellation and regrants or by exchanging a Stock Option or Stock Appreciation Right for any other Award, without stockholder approval. If and to the extent determined by the Administrator to be required by the Code to ensure that Incentive Stock Options granted under the Plan are qualified under Section 422 of the Code or to ensure that compensation earned under Awards qualifies as performance-based compensation under Section 162(m) of the Code, if and to the extent intended to so qualify, and to the extent required under the applicable rules of The NASDAQ Stock Market, or such other securities exchange or market system on which the Stock is then principally listed, Plan amendments shall be subject to approval by the Company stockholders entitled to vote at a meeting of stockholders. Nothing in this Section 17 shall limit the Administrator’s authority to take any action permitted pursuant to Section 3(c).
18. STATUS OF PLAN
With respect to the portion of any Award that has not been exercised and any payments in cash, Stock or other consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent with the foregoing sentence.
19. CHANGE OF CONTROL PROVISIONS
Upon the occurrence of a Change of Control as defined in this Section 19:
(a) Except as otherwise provided in the applicable Award agreement, each outstanding Stock Option and Stock Appreciation Right shall automatically become fully exercisable.
(b) Except as otherwise provided in the applicable Award Agreement, conditions and restrictions on each outstanding Restricted Stock Award, Deferred Stock Award and Performance Share Award which relate solely to the passage of time and continued employment will be removed. Performance or other conditions (other than conditions and restrictions relating solely to the passage of time and continued employment) will continue to apply unless otherwise provided in the applicable Award agreement.
(c) “Change of Control” shall mean the occurrence of any one of the following events:
(i) any “Person,” as such term is used in Sections 13(d) and 14(d) of the Act (other than the Parent, the Company, any of its Subsidiaries, or any trustee, fiduciary or other person or entity holding securities under any employee benefit plan or trust of the Company or any of its Subsidiaries), together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Exchange Act) of such person, shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing twenty five percent (25%) or more of the combined voting power of the Company’s then outstanding securities having the right to vote in an election of the Company’s Board of Directors (“Voting Securities”) (in such case other than as a result of an acquisition of securities directly from the Company); or
(ii) persons who, as of the Effective Date, constitute the Company’s Board of Directors (the “Incumbent Directors”) cease for any reason, including, without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority of the Board; provided that any person becoming a director of the Company subsequent to the Effective Date shall be considered an Incumbent Director if such person’s election was approved by or such person was nominated for election by either (A) a vote of at least a majority of the Incumbent Directors or (B) a vote of at least a majority of the Incumbent Directors who are members of a nominating committee comprised, in the majority, of Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board of Directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or
(iii) the consummation of a consolidation, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Transaction”); excluding, however, a Corporate Transaction in which the stockholders of the Company immediately prior to the Corporate Transaction, would, immediately after the Corporate Transaction, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, shares representing in the aggregate more than 50 percent of the voting shares of the corporation issuing cash or securities in the Corporate Transaction (or of its ultimate parent corporation, if any); or
(iv) the approval by the stockholders of any plan or proposal for the liquidation or dissolution of the Company.
Notwithstanding the foregoing, a Change of Control shall not be deemed to have occurred for purposes of the foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares of Voting Securities outstanding, increases the proportionate number of shares of Voting Securities beneficially owned by any person to 25 percent or more of the combined voting power of all then outstanding Voting Securities; provided, however, that if any person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities (other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly from the Company) and immediately thereafter beneficially owns 25 percent or more of the combined voting power of all then outstanding Voting Securities, then a Change of Control shall be deemed to have occurred for purposes of the foregoing clause (i).
20. GENERAL PROVISIONS
(a) No Distribution; Compliance with Legal Requirements. The Administrator may require each person acquiring Stock pursuant to an Award to represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.
No shares of Stock shall be issued pursuant to an Award until all applicable securities law and other legal and stock exchange or similar requirements have been satisfied. The Administrator may require the placing of such stop-orders and restrictive legends on certificates for Stock and Awards as it deems appropriate.
The Plan, the granting and exercising of Awards hereunder, and any obligations of the Company under the Plan, shall be subject to all applicable federal, state and foreign country laws, rules and regulations, and to such approvals by any regulatory or governmental agency as may be required, and to any rules or regulations of any exchange on which the Stock is listed. The Company, in its discretion, may postpone the granting and exercising of Awards, the issuance or delivery of Stock under any Award or any other action permitted under the Plan to permit the Company, with reasonable diligence, to complete such stock exchange listing or registration or qualification of such Stock or other required action under any federal, state or foreign country law, rule or regulation and may require any grantee to make such representations and furnish such information as it may consider appropriate in connection with the issuance or delivery of Stock in compliance with applicable laws, rules and regulations. The Company shall not be obligated by virtue of any provision of the Plan to recognize the exercise of any Award or to otherwise sell or issue Stock in violation of any such laws, rules or regulations, and any postponement of the exercise or settlement of any Award under this provision shall not extend the term of such Awards. Neither the Company nor its directors or officers shall have any obligation or liability to a grantee with respect to any Award (or Stock issuable thereunder) that shall lapse because of such postponement.
(b) Delivery of Stock Certificates. Stock certificates to grantees under this Plan shall be deemed delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company. Uncertificated Stock shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic “book entry” records). Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates evidencing shares of Stock pursuant to the exercise of any Award, unless and until the Administrator has determined, with advice of counsel (to the extent the Administrator deems such advice necessary or advisable), that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authorities and, if applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded. All Stock certificates delivered pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or advisable to comply with federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the Stock is listed, quoted or traded. The Administrator may place legends on any Stock certificate to reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may require that an individual make such reasonable covenants, agreements, and representations as the Administrator, in its discretion, deems necessary or advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have the right to require any individual to comply with any timing or other restrictions with respect to the settlement or exercise of any Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.
(c) Stockholder Rights. Until Stock is deemed delivered in accordance with Section 20(b), and subject to the provisions of the applicable Award contained in the Plan and in an agreement evidencing such Award, no right to vote or receive dividends or any other rights of a stockholder will exist with respect to shares of Stock to be issued in connection with an Award, notwithstanding the exercise of a Stock Option or any other action by the grantee or any permitted transferee or designated beneficiary with respect to an Award.
(d) Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon any employee any right to continued employment with the Company or any Subsidiary.
(e) Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to such Company’s insider trading policy, as in effect from time to time.
(f) Forfeiture of Awards under Sarbanes-Oxley Act. If the Company is required to prepare an accounting restatement due to the material noncompliance of the Company, as a result of misconduct, with any financial reporting requirement under the securities laws, then, to the extent required by law, any grantee who is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002 shall reimburse the Company for the amount of any Award received by such individual under the Plan during the 12-month period following the first public issuance or filing with the United States Securities and Exchange Commission, as the case may be, of the financial document embodying such financial reporting requirement.
(g) Designation of Beneficiary. Each grantee to whom an Award has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.
(h) No Constraint on Corporate Action. Nothing in this Plan shall be construed (i) to limit, impair or otherwise affect the Company’s right or power to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell or transfer all or any part of its business or assets, or (ii) to limit the right or power of the Company, or any Subsidiary, to take any action which such entity deems to be necessary or appropriate.
21. EFFECTIVE DATE OF PLAN
This Plan shall become effective on the approval by the holders of a majority of the votes cast at a meeting of stockholders at which a quorum is present or by written consent of the stockholders (the “Effective Date”). Subject to such approval by the stockholders and to the requirement that no Stock may be issued hereunder prior to such approval, Stock Options and other Awards may be granted hereunder on and after adoption of this Plan by the Board. No Incentive Stock Options may be granted under the Plan after the 10-year anniversary of the Effective Date or of the most recent prior date on which the Plan was approved by the Board (provided that the Plan was approved by stockholders within one year of such date) and no other Award may be granted under the Plan after the 10-year anniversary of the most recent prior date on which the Plan was approved by stockholders.
22. GOVERNING LAW
This Plan and all Awards and actions taken hereunder shall be governed by, and construed in accordance with, the laws of the State of Delaware, applied without regard to conflict of law principles.
DATES THE HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AMENDED AND RESTATED EQUITY INCENTIVE PLAN APPROVED: (I) BY BOARD OF DIRECTORS: April 22, 2020 AND (II) BY STOCKHOLDERS: June 18, 2020
DATES THE FIRST AMENDMENT TO THE HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AMENDED AND RESTATED EQUITY INCENTIVE PLAN APPROVED: (I) BY BOARD OF DIRECTORS: April 28, 2023 AND (II) BY STOCKHOLDERS: July 19, 2023
Exhibit 31.1
Certification
I, Junli He, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Harvard Apparatus Regenerative Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 13, 2023
| /s/ Junli He | |
| Junli He | |
| Chief Executive Officer, Director, and Chairman |
Exhibit 31.2
Certification
I, Joseph L. Damasio Jr., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Harvard Apparatus Regenerative Technology, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 13, 2023
| /s/ Joseph L. Damasio Jr. | |
| Joseph L. Damasio Jr. | |
| Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF PERIODIC FINANCIAL REPORT
PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned officer of Harvard Apparatus Regenerative Technology, Inc. (the “Company”) hereby certifies to his knowledge that the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 (the “Report”) to which this certification is being furnished as an exhibit, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (Item 601(b)(32)) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b) (32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Date: November 13, 2023
| /s/ Junli He | ||
| Name: | Junli He | |
| Title: | Chief Executive Officer, Director, and Chairman |
Exhibit 32.2
CERTIFICATION OF PERIODIC FINANCIAL REPORT
PURSUANT TO 18 U.S.C. SECTION 1350
The undersigned officer of Harvard Apparatus Regenerative Technology, Inc. (the “Company”) hereby certifies to his knowledge that the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 (the “Report”) to which this certification is being furnished as an exhibit, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350 and Item 601(b)(32) of Regulation S-K (Item 601(b)(32)) promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and the Exchange Act. In accordance with clause (ii) of Item 601(b) (32), this certification (A) shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and (B) shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.
Date: November 13, 2023
| /s/ Joseph L. Damasio Jr. | ||
| Name: | Joseph L. Damasio Jr. | |
| Title: | Chief Financial Officer |
Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Series E convertible preferred stock, par value, per share | $ 0.01 | $ 0.01 |
| Series E convertible preferred stock, shares authorized | 5,000 | 5,000 |
| Series E convertible preferred stock, shares issued | 0 | 4,180 |
| Series E convertible preferred stock, shares outstanding | 0 | 4,180 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized | 60,000,000 | 60,000,000 |
| Common stock, shares issued | 13,882,060 | 12,174,467 |
| Common stock, shares outstanding | 13,882,060 | 12,174,467 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
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| Income Statement [Abstract] | ||||
| Product revenue | $ 40 | $ 40 | ||
| Operating expenses: | ||||
| Cost of sales | 13 | 13 | ||
| Research and development | 339 | 369 | 2,414 | 998 |
| Sales and marketing | 143 | 198 | ||
| General and administrative | 1,169 | 711 | 4,577 | 3,662 |
| Total operating expenses | 1,664 | 1,080 | 7,202 | 4,660 |
| Operating loss | (1,624) | (1,080) | (7,162) | (4,660) |
| Other income, net: | ||||
| Sublease (expense) income | (5) | 26 | (5) | 87 |
| Other income (expense), net | 14 | (2) | 48 | (5) |
| Total other income, net | 9 | 24 | 43 | 82 |
| Net loss | (1,615) | (1,056) | (7,119) | (4,578) |
| Preferred stock dividends | (77) | (77) | (95) | |
| Net loss attributable to common stockholders | $ (1,615) | $ (1,133) | $ (7,196) | $ (4,673) |
| Basic net loss per share | $ (0.12) | $ (0.10) | $ (0.54) | $ (0.42) |
| Diluted net loss per share | $ (0.12) | $ (0.10) | $ (0.54) | $ (0.42) |
| Weighted average common shares, basic | 13,882,060 | 11,615,642 | 13,297,391 | 11,205,477 |
| Weighted average common shares, diluted | 13,882,060 | 11,615,642 | 13,297,391 | 11,205,477 |
Pay vs Performance Disclosure - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
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| Pay vs Performance Disclosure [Table] | ||||
| Net Income (Loss) Attributable to Parent | $ (1,615) | $ (1,056) | $ (7,119) | $ (4,578) |
Insider Trading Arrangements |
3 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Insider Trading Arrangements [Line Items] | |
| Material Terms of Trading Arrangement | In the three months ended September 30, 2023, no directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K. |
| Rule 10b5-1 Arrangement Adopted | false |
| Non-Rule 10b5-1 Arrangement Adopted | false |
| Rule 10b5-1 Arrangement Terminated | false |
| Non-Rule 10b5-1 Arrangement Terminated | false |
Overview and Basis of Presentation |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Overview and Basis of Presentation | 1. Overview and Basis of Presentation
Overview
Harvard Apparatus Regenerative Technology, Inc., formerly Biostage, Inc., (HRGN or the Company) is a clinical-stage biotechnology company focused on the development of regenerative medicine treatments for disorders of the gastro-intestinal system and other organs that result from cancer, trauma or birth defects. The Company’s technology is based on our proprietary cell-therapy platform that uses a patient’s own stem cells to regenerate and restore function to damaged organs. The Company believes that its technology represents a next generation solution for restoring organ function because it allows the patient to regenerate their own organ, thus eliminating the need for human donor or animal transplants, the sacrificing of another of the patient’s own organs or permanent artificial implants. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and acquiring operating assets. The Company has two business segments and does not have significant costs or assets outside the United States.
On October 31, 2013, Harvard Bioscience, Inc., or Harvard Bioscience, contributed its regenerative medicine business assets, plus $15 million of cash into HRGN, or the Separation. On November 1, 2013, the spin-off of the Company from Harvard Bioscience was completed. On that date, the Company became an independent company that operates the regenerative medicine business previously owned by Harvard Bioscience. The spin-off was completed through the distribution to Harvard Bioscience stockholders of all the shares of common stock of HRGN, or the Distribution.
The Company filed an amendment (the “Certificate of Amendment”) to its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”) with the Secretary of State for the State of Delaware to change its name from Biostage, Inc. to Harvard Apparatus Regenerative Technology, Inc. The Company also amended and restated its Amended and Restated Bylaws, solely to reflect the name change (as amended, the “Third Amended and Restated Bylaws”). The Certificate of Amendment and the Third Amended and Restated Bylaws each became effective on July 20, 2023.
In connection with the name change, the Company traded on the OTCQB under the new ticker symbol “HRGN”. The new ticker symbol was effective at the open of the market on July 20, 2023.
Longevity Products
In the second quarter of 2023, the Company’s subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, or HRGN LTD, started a longevity products business.
The longevity products business plans to include a broad range of products focused on longevity dietary supplements. The Company started selling longevity supplements through HRGN LTD in the third quarter of 2023. These products are marketed to the general public and initially targeted at consumers in the Great China Region through eCommerce (online sales).
Going Concern
The Company has incurred substantial operating losses since its inception, and as of September 30, 2023 had an accumulated deficit of approximately $90.1 million and will require additional financing to fund future operations. The Company expects that its operating cash and short-term investments on-hand as of September 30, 2023 of approximately $1.5 million will enable it to fund its operating expenses and capital expenditure requirements into the first quarter of 2024. Therefore, these conditions present risks about the Company’s ability to continue as a going concern.
The Company will need to raise additional funds to fund its operations. In the event the Company is unable to raise additional capital from outside sources before or during the first quarter of 2024, it may be forced to curtail or cease its operations.
Cash requirements and cash resource needs will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing development, pre-clinical and clinical testing of product candidates, as well as regulatory efforts and collaborative arrangements necessary for the Company’s product candidates that are currently under development. The Company is currently seeking and will continue to seek financing from other existing and/or new investors to raise necessary funds through a combination of public or private equity offerings. The Company may also pursue debt financings, other financing mechanisms, research grants, or strategic collaborations and licensing arrangements. The Company may not be able to obtain additional financing on favorable terms, if at all.
The Company’s operations will be adversely affected if it is unable to raise or obtain needed funding and may materially affect the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and therefore, the condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.
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Summary of Significant Accounting Policies and Recently Issued Accounting Pronouncements |
9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||
| Accounting Policies [Abstract] | |||||||
| Summary of Significant Accounting Policies and Recently Issued Accounting Pronouncements | 2. Summary of Significant Accounting Policies and Recently Issued Accounting Pronouncements
Summary of Significant Accounting Policies
The accounting policies underlying the accompanying unaudited condensed consolidated financial statements are those set forth in Note 2 to the consolidated financial statements for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. “Selling and marketing” operating expenses was reclassified from “Selling, general and administrative” operating expenses on our condensed consolidated financial statements.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of HRGN and its subsidiaries, Harvard Apparatus Regenerative Technology Limited (Hong Kong), Harvard Apparatus Regenerative Technology (Hangzhou) Limited (China), Harvard Apparatus Regenerative Technology GmbH (Germany) and HRGN Limited (UK). The functional currency for HRGN and these subsidiaries is the U.S dollar. All intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation
The condensed consolidated financial statements reflect the Company’s financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States, or U.S. GAAP.
Use of Estimates
The process of preparing condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, share-based compensation, valuation of warrant liability, accrued expenses and the valuation allowance for deferred income taxes. Actual results could differ from those estimates.
Revenue
We recognize revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers. We offer consumer products primarily through a third-party online store. Revenue is recognized at a point in time when control of the goods is transferred to the customer, which generally occurs upon the delivery to the customer. For any company direct sales to customers, revenue is recognized at a point in time upon shipment of product or hand-delivery to customer. Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes.
We identify a performance obligation as distinct if both the following criteria are true: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) and allocation of consideration from a contract to the individual performance obligations, and the appropriate timing of revenue recognition, is the result of significant qualitative and quantitative judgments. Management considers a variety of factors such as historical sales, usage rates, costs, and expected margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.
Cost of Sales
Cost of sales primarily consists of the purchase price of consumer products, taxes, inbound and outbound shipping costs. Shipping costs to receive products from our suppliers are recognized as cost of sales when incurred. E-commerce processing and related transaction costs, including those associated with seller transactions, are classified in sales and marketing on our condensed consolidated statements of operations.
Sales and Marketing
Sales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities.
General and Administrative
General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses; facilities and equipment expenses, such as depreciation and amortization expense and rent; and professional fees.
Cash Concentrations
The Company maintains its cash balances with a financial institution in federally insured accounts and may periodically have cash balances in excess of insurance limits. The Company maintains its accounts with financial institutions with a high credit rating. The Company has not experienced any losses to date and believes that it is not exposed to any significant credit risk on cash.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company currently invests available cash in money market funds.
Inventory
Inventory, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category.
We maintain ownership of our inventory at the third-party warehouse, regardless of whether fulfillment is provided by us or the third-party e-commerce seller, and therefore these products are included in our inventories.
Long-term prepaid contracts
We have contracted with partners relating to our clinical trial activities. Upon execution of the contracts, we made initial payments as deposits to be held on account and reconciled against final invoices when the clinical trial is substantially completed.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows:
Maintenance and repairs are charged to expense as incurred, while any additions or improvements are capitalized.
Basic net loss per share is calculated by dividing net loss applicable to common stockholders by the weighted-average number of shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted-average number of shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, warrants to purchase common stock and stock options are considered to be common stock equivalents, but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented.
Unaudited Interim Financial Information
The accompanying interim condensed consolidated balance sheet as of September 30, 2023, condensed consolidated interim statements of operations and stockholders’ equity (deficit) for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022 are unaudited. The interim unaudited condensed consolidated financial statements have been prepared in accordance with GAAP on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2023, its condensed consolidated results of operations and stockholders’ equity (deficit) for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2023 and 2022 are unaudited. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods or any future year or period.
Recently Adopted Accounting Pronouncements
Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-12). The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The Company adopted this standard on January 1, 2023, and the adoption of ASU 2016-13 did not have a material impact on its consolidated financial statements.
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Fair Value Measurements and Short-term Investments |
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Sep. 30, 2023 | ||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||
| Fair Value Measurements and Short-term Investments | 3. Fair Value Measurements and Short-term Investments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value that prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The Company had no assets or liabilities classified as Level 2 or Level 3 as of September 30, 2023 and December 31, 2022. The Company’s short-term investments consist of a certificate of deposit account held to maturity and is carried at amortized cost. The carrying value of financial instruments (consisting of cash, accounts payable, accrued compensation and accrued expenses) is considered to be representative of their respective fair values due to the short-term nature of those instruments. The certificate of deposit matured in October 2023 with the remaining $1.2 million released from short-term investments into cash and cash equivalents.
The company has investments classified as short term and held-to-maturity on the accompanying condensed consolidated balance sheets. Investment income is included as other income. Investment income for the three months ended September 30, 2023 and September 30, 2022 consists primarily of interest earned of $18,000 and $0, respectively. Investment income for the nine months ended September 30, 2023 and September 30, 2022 consists of interest earned of $59,000 and $0, respectively.
The Company had approximately $0.3 million in cash equivalents and $1.2 million in short-term investments that consist of a certificate of deposit held to maturity and is carried at amortized cost on the Company’s balance sheet as of September 30, 2023. The Company had $1.2 million in cash equivalents and $ in short-term investments that were measured and recorded at fair value on the Company’s balance sheet at December 31, 2022.
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Accrued and Other Current Liabilities |
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| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Accrued and Other Current Liabilities | 4. Accrued and Other Current Liabilities
Accrued and other current liabilities consist of the following:
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Capital Stock |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Equity [Abstract] | |
| Capital Stock | 5. Capital Stock
Private Placement
On April 12, 2023 and on March 31, 2023, the Company entered into Securities Purchase Agreements, each a Purchase Agreement, with new and existing investors, the Investors, pursuant to which the Investors agreed to purchase in a private placement an aggregate of 1,000,967 shares of common stock for the aggregate purchase price of approximately $6 million with a purchase price per unit of $.
The Company had 1,113,622 warrants to purchase common stock outstanding as of September 30, 2023 with a weighted-average exercise price of $4.69.
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Series E Convertible Preferred Stock |
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| Series E Convertible Preferred Stock | |||||||||||||||||||||||||||||||
| Series E Convertible Preferred Stock | 6. Series E Convertible Preferred Stock
On April 28, 2022, the Company entered into a Preferred Issuance Agreement, or PIA, with Harvard Bioscience, Inc., or HBIO, dated as of April 27, 2022. Pursuant to the PIA, the Company and HBIO agreed that once HBIO had paid at least $4.0 million in certain settlement and related legal expenses, to satisfy the Company’s indemnification obligations with respect thereto, in lieu of paying cash, the Company would issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA.
On June 10, 2022, following the execution of a subscription agreement and HBIO providing evidence of payment of the requisite $4.0 million amount, the Company issued HBIO shares of Series E Convertible Preferred Stock, or Series E Preferred Stock, at a price of $ per share to satisfy the Company’s related indemnification obligations pertaining to the $4.0 million, in lieu of paying cash.
On January 18, 2023, HBIO converted Series E Preferred Shares with accrued dividends of $9,545 into shares of common stock.
In connection with the private placement, as of April 12, 2023, the Company had received $6.0 million in aggregate proceeds in such private placement. The private placement resulted in gross proceeds of at least $4.0 million which triggered the mandatory conversion of all the Company’s outstanding Series E Preferred Stock and related accrued dividends into shares of common stock at a conversion price of $6.00 per share. The conversion resulted in shares of common stock being issued to the holder of the Series E Preferred Stock. Following such conversion, there are no shares of Series E Preferred Stock outstanding.
There were shares of any of the classes of preferred stock outstanding as of September 30, 2023. Authorized shares for each preferred stock class are as follows:
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Share-Based Compensation |
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| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Compensation |
HRGN Amended and Restated Equity Incentive Plan
The Company maintains the Amended and Restated Equity Incentive Plan (the Plan) for the benefit of certain officers, employees, non-employee directors, and other key persons (including consultants and advisory board members). All options and awards granted under the Plan consist of the Company’s shares of common stock. The Company’s policy is to issue stock available from its registered but unissued stock pool through its transfer agent to satisfy stock option exercises and vesting of the restricted stock units. The vesting period for awards is generally and the contractual life is . Canceled and forfeited options and awards are available to be reissued under the Plan.
The Company’s Plan has authorized shares to be issued under the Plan. There were shares available for issuance as of September 30, 2023.
The Company’s outstanding stock options include performance-based awards that have vesting provisions subject to the achievement of certain business milestones. Total unrecognized compensation expense for the remaining performance-based awards is approximately $ million. expense has been recognized for these awards as of September 30, 2023 given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes.
Aggregate intrinsic value for outstanding options and exercisable options as of September 30, 2023, was approximately $ million and $ million, respectively, based on the Company’s closing stock price of $ per share as of September 30, 2023. As of September 30, 2023, unrecognized compensation cost related to unvested non-performance-based awards amounted to $ million, which will be recognized over a weighted-average period of years.
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Commitments and Contingencies |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | 8. Commitments and Contingencies
On April 14, 2017, representatives for the estate of an individual plaintiff filed a wrongful death complaint with the Suffolk Superior Court, in the County of Suffolk, Massachusetts, against the Company and other defendants, including Harvard Bioscience, Inc., or HBIO, the former parent of the Company that spun off the Company in 2013, as well as another third party. The complaint sought payment for an unspecified amount of damages and alleged that the plaintiff sustained terminal injuries allegedly caused by products provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013. This lawsuit related to the Company’s first-generation trachea scaffold technology for which the Company discontinued development in 2014, and not to the Company’s current HRGN Esophageal Implant.
On April 27, 2022, the Company and HBIO executed a settlement with the plaintiffs (the “Settlement”), which resolves all claims relating to the litigation. The Settlement resulted in the dismissal with prejudice of the wrongful death claim, and neither the Company nor HBIO admit any fault or liability in connection with the claim. The Settlement also resolved any and all claims by and between the parties and the Company’s product liability insurance carriers, which resulted in the dismissal with prejudice of all claims asserted by or against those carriers, the Company and HBIO.
In relation to the litigation, the Company paid approximately $5.9 million of aggregate costs related to the lawsuit. As of December 31, 2022, all such lawsuit related costs had been paid or otherwise satisfied as provided below. This aggregate amount included the cost of legal and related costs incurred by the Company, which consisted of attorneys’ fees and advisor and specialist costs as part of its defense in this matter. On March 3, 2022, the Company received a cash payment of approximately $0.1 million from Medmarc, the Company’s insurance carrier. This amount represented a reimbursement of previously incurred legal costs and was recorded as a reduction to selling, general and administrative expenses during the nine months ended September 30, 2022.
With respect to such $5.9 million of costs described above, the Company was required to either pay such costs directly or indemnify HBIO as to such amounts it incurs. Of such amounts, the Company anticipated that HBIO would pay an aggregate amount of $4.0 million by the end of the second quarter of 2022. With respect to the indemnification obligation of the Company to HBIO pertaining to such costs, the Company and HBIO entered into a Preferred Issuance Agreement dated as of April 27, 2022 (the PIA). In connection with the PIA, the Company and HBIO agreed that once HBIO had paid at least $4.0 million in such costs, to satisfy the Company’s indemnification obligations with respect thereto, in lieu of paying cash, the Company would issue senior 8% convertible preferred stock to HBIO that will contain terms as described in the PIA, including the term sheet attached thereto. On June 10, 2022, following the execution of a subscription agreement and HBIO providing evidence of payment of the requisite $4.0 million amount, the Company issued HBIO shares of Series E 8% Convertible Preferred Stock at a price of $ per share to satisfy the Company’s related indemnification obligations aggregating $4.0 million, which included the accrual for contingency of $3.3 million and approximately $0.8 million of legal and related costs paid on behalf of the Company by HBIO previously included in accrued expenses.
From time to time, the Company may be involved in various claims and legal proceedings arising in the ordinary course of business. Other than the above matter, there are no such matters pending that the Company expects to be material in relation to its business, financial condition, results of operations, or cash flows.
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Leases |
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| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | 9. Leases
The Company leases laboratory and office space and certain equipment with remaining terms ranging from 1 to 2 years.
The laboratory and office space arrangement is under a sublease that was renewed in December of 2022 and currently extends through May 31, 2024. This lease automatically renews annually for one-year periods unless the Company or the counterparty provides a notice of termination within one hundred and eighty days prior to May 31st of each year.
On January 5, 2022, the Company executed a four-month sublease agreement for certain laboratory and office space at its Holliston, Massachusetts facility. The Company further extended the sublease agreement on a month-to-month basis until August 31, 2022 when the other party vacated the premises. For the nine months ended September 30, 2022, the Company recorded sublease income of approximately $61,000 relating to this agreement.
All of the Company’s leases qualify as operating leases. The following table summarizes the presentation of the Company’s operating leases in its condensed consolidated balance sheets:
The Company recorded operating lease expense in the following categories in its condensed consolidated statements of operations:
Cash paid included in the computation of the operating lease assets and lease liabilities during the three and nine months ended September 30, 2023 amounted to approximately $33,000 and $89,000, respectively. Cash paid included in the computation of the operating lease assets and lease liabilities during the three and nine months ended September 30, 2022 amounted to approximately $30,000 and $91,000, respectively.
The weighted average remaining lease term and weighted average discount rate of the Company’s operating leases are as follows:
The minimum lease payments for the next three years are expected to be as follows:
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Net Loss Per Share |
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| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss Per Share |
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Income Taxes |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | 11. Income Taxes
The Company did not record a federal or state income tax provision or benefit for the nine months ended September 30, 2023 and 2022, respectively, due to the expected loss before income taxes to be incurred for the years ended December 31, 2023 and 2022, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.
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Subsequent Events |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | 12. Subsequent Events
The Company performed a review of events subsequent to the balance sheet through the date the financial statements were issued and determined that there were no such events requiring recognition or disclosure in the financial statements. |
Summary of Significant Accounting Policies and Recently Issued Accounting Pronouncements (Policies) |
9 Months Ended | ||||||
|---|---|---|---|---|---|---|---|
Sep. 30, 2023 | |||||||
| Accounting Policies [Abstract] | |||||||
| Prior Period Reclassifications | Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. “Selling and marketing” operating expenses was reclassified from “Selling, general and administrative” operating expenses on our condensed consolidated financial statements.
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| Principles of Consolidation | Principles of Consolidation
The condensed consolidated financial statements include the accounts of HRGN and its subsidiaries, Harvard Apparatus Regenerative Technology Limited (Hong Kong), Harvard Apparatus Regenerative Technology (Hangzhou) Limited (China), Harvard Apparatus Regenerative Technology GmbH (Germany) and HRGN Limited (UK). The functional currency for HRGN and these subsidiaries is the U.S dollar. All intercompany balances and transactions have been eliminated in consolidation.
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| Basis of Presentation | Basis of Presentation
The condensed consolidated financial statements reflect the Company’s financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States, or U.S. GAAP.
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| Use of Estimates | Use of Estimates
The process of preparing condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, share-based compensation, valuation of warrant liability, accrued expenses and the valuation allowance for deferred income taxes. Actual results could differ from those estimates.
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| Revenue | Revenue
We recognize revenue in accordance with FASB ASC 606, Revenue from Contracts with Customers. We offer consumer products primarily through a third-party online store. Revenue is recognized at a point in time when control of the goods is transferred to the customer, which generally occurs upon the delivery to the customer. For any company direct sales to customers, revenue is recognized at a point in time upon shipment of product or hand-delivery to customer. Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes.
We identify a performance obligation as distinct if both the following criteria are true: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) and allocation of consideration from a contract to the individual performance obligations, and the appropriate timing of revenue recognition, is the result of significant qualitative and quantitative judgments. Management considers a variety of factors such as historical sales, usage rates, costs, and expected margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.
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| Cost of Sales | Cost of Sales
Cost of sales primarily consists of the purchase price of consumer products, taxes, inbound and outbound shipping costs. Shipping costs to receive products from our suppliers are recognized as cost of sales when incurred. E-commerce processing and related transaction costs, including those associated with seller transactions, are classified in sales and marketing on our condensed consolidated statements of operations.
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| Sales and Marketing | Sales and Marketing
Sales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities.
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| General and Administrative | General and Administrative
General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses; facilities and equipment expenses, such as depreciation and amortization expense and rent; and professional fees.
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| Cash Concentrations | Cash Concentrations
The Company maintains its cash balances with a financial institution in federally insured accounts and may periodically have cash balances in excess of insurance limits. The Company maintains its accounts with financial institutions with a high credit rating. The Company has not experienced any losses to date and believes that it is not exposed to any significant credit risk on cash.
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| Cash and Cash Equivalents | Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company currently invests available cash in money market funds.
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| Inventory | Inventory
Inventory, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category.
We maintain ownership of our inventory at the third-party warehouse, regardless of whether fulfillment is provided by us or the third-party e-commerce seller, and therefore these products are included in our inventories.
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| Long-term prepaid contracts | Long-term prepaid contracts
We have contracted with partners relating to our clinical trial activities. Upon execution of the contracts, we made initial payments as deposits to be held on account and reconciled against final invoices when the clinical trial is substantially completed.
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| Property, Plant and Equipment | Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows:
Maintenance and repairs are charged to expense as incurred, while any additions or improvements are capitalized.
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| Net Loss Per Share |
Basic net loss per share is calculated by dividing net loss applicable to common stockholders by the weighted-average number of shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted-average number of shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted net loss per share calculation, warrants to purchase common stock and stock options are considered to be common stock equivalents, but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented.
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| Unaudited Interim Financial Information | Unaudited Interim Financial Information
The accompanying interim condensed consolidated balance sheet as of September 30, 2023, condensed consolidated interim statements of operations and stockholders’ equity (deficit) for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022 are unaudited. The interim unaudited condensed consolidated financial statements have been prepared in accordance with GAAP on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments necessary for a fair statement of the Company’s financial position as of September 30, 2023, its condensed consolidated results of operations and stockholders’ equity (deficit) for the three and nine months ended September 30, 2023 and 2022, and cash flows for the nine months ended September 30, 2023 and 2022. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2023 and 2022 are unaudited. The results for the three and nine months ended September 30, 2023 are not necessarily indicative of results to be expected for the year ending December 31, 2023, any other interim periods or any future year or period.
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| Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements
Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s condensed consolidated financial statements upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-12). The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. The Company adopted this standard on January 1, 2023, and the adoption of ASU 2016-13 did not have a material impact on its consolidated financial statements. |
Summary of Significant Accounting Policies and Recently Issued Accounting Pronouncements (Tables) |
9 Months Ended | ||||||
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Sep. 30, 2023 | |||||||
| Accounting Policies [Abstract] | |||||||
| Schedule of Property Plant and Equipment Estimated Useful Lives | Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows:
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Fair Value Measurements and Short-term Investments (Tables) |
9 Months Ended | |||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||
| Fair Value Disclosures [Abstract] | ||||||||||||||||||||||||||
| Schedule of Short Term Investment Securities |
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Accrued and Other Current Liabilities (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Accrued and Other Current Liabilities | Accrued and other current liabilities consist of the following:
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Series E Convertible Preferred Stock (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||
| Series E Convertible Preferred Stock | |||||||||||||||||||||||||||||||
| Schedule of Categories of Preferred Stock |
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Share-Based Compensation (Tables) |
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Options Outstanding and Exercisable |
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| Schedule of Weighted Average Assumptions |
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| Schedule of Share-based Compensation Expense |
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Leases (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Operating Leases in Consolidated Balance Sheets | All of the Company’s leases qualify as operating leases. The following table summarizes the presentation of the Company’s operating leases in its condensed consolidated balance sheets:
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| Schedule of Operating Lease Expense Categories in Consolidated Statements of Operations | The Company recorded operating lease expense in the following categories in its condensed consolidated statements of operations:
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| Schedule of Weighted Average Lease Term and Discount Rates | The weighted average remaining lease term and weighted average discount rate of the Company’s operating leases are as follows:
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| Schedule of Minimum Lease Payments | The minimum lease payments for the next three years are expected to be as follows:
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Net Loss Per Share (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Basic and Diluted Net Loss Per Share |
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| Schedule of Antidilutive Securities Excluded from Computation of Earnings per Share |
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Overview and Basis of Presentation (Details Narrative) - USD ($) $ in Thousands |
Oct. 31, 2013 |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|---|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |||
| Accumulated deficit | $ 90,130 | $ 83,011 | |
| Short-term investments on hand | $ 1,500 | ||
| Harvard Bioscience Plan [Member] | |||
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |||
| Proceeds from contributions | $ 15,000 |
Schedule of Property Plant and Equipment Estimated Useful Lives (Details) |
Sep. 30, 2023 |
|---|---|
| Property, Plant and Equipment [Line Items] | |
| Property, Plant, and Equipment, Useful Life, Term, Description [Extensible Enumeration] | Useful Life, Lease Term [Member] |
| Minimum [Member] | Furniture Machinery And Equipment Computer Equipment And Software [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Property, plant and equipment, useful life | 3 years |
| Maximum [Member] | Furniture Machinery And Equipment Computer Equipment And Software [Member] | |
| Property, Plant and Equipment [Line Items] | |
| Property, plant and equipment, useful life | 7 years |
Schedule of Short Term Investment Securities (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Cash and Cash Equivalents [Line Items] | ||
| Total investment securities | $ 1,232 | |
| Certificates of Deposit [Member] | ||
| Cash and Cash Equivalents [Line Items] | ||
| Total investment securities | $ 1,232 |
Fair Value Measurements and Short-term Investments (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | |||
|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
|
| Fair Value Disclosures [Abstract] | |||||
| Short-term investments | $ 1,232,000 | $ 1,232,000 | |||
| Primarily of interest earned | 18,000 | $ 0 | 59,000 | $ 0 | |
| Cash equivalents | $ 300,000 | $ 300,000 | $ 1,200,000 | ||
Schedule of Accrued and Other Current Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Research and development | $ 39 | |
| Advisory costs | 300 | 300 |
| Legal costs | 135 | |
| Audit services | 84 | 80 |
| Payroll | 110 | 55 |
| Other liabilities | 6 | 12 |
| Total accrued and other current liabilities | $ 539 | $ 582 |
Capital Stock (Details Narrative) - Common Stock [Member] - Private Placement [Member] - USD ($) $ / shares in Units, $ in Millions |
Apr. 12, 2023 |
Mar. 31, 2023 |
Sep. 30, 2023 |
|---|---|---|---|
| Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
| Warrants to purchase common stock outstanding | 1,000,967 | 1,000,967 | 1,113,622 |
| Amount of consideration received from the transaction | $ 6 | $ 6 | |
| Price per share | $ 6.00 | $ 6.00 | |
| Weighted-average exercise price | $ 4.69 |
Schedule of Categories of Preferred Stock (Details) |
Sep. 30, 2023
shares
|
|---|---|
| Undesignated Preferred Stock [Member] | |
| Preferred stock, shares authorized | 979,000 |
| Series B Preferred Stock [Member] | |
| Preferred stock, shares authorized | 1,000,000 |
| Series C Preferred Stock [Member] | |
| Preferred stock, shares authorized | 4,000 |
| Series D Preferred Stock [Member] | |
| Preferred stock, shares authorized | 12,000 |
| Series E Preferred Stock [Member] | |
| Preferred stock, shares authorized | 5,000 |
Series E Convertible Preferred Stock (Details Narrative) - USD ($) |
Apr. 12, 2023 |
Jan. 18, 2023 |
Jun. 10, 2022 |
Apr. 28, 2022 |
Sep. 30, 2023 |
|---|---|---|---|---|---|
| Preferred stock, shares outstanding | 0 | ||||
| Private Placement [Member] | |||||
| Proceeds from private placement | $ 6,000,000.0 | ||||
| Common Stock [Member] | |||||
| Common stock dividends, shares | 31,933 | ||||
| Series E Convertible Preferred Stock [Member] | |||||
| Conversion of stock, shares issued | 200 | ||||
| Accrued dividends | $ 9,545 | ||||
| Series E Preferred Stock [Member] | |||||
| Conversion of stock, shares issued | 674,693 | ||||
| Conversion price, per share | $ 6.00 | ||||
| Series E Preferred Stock [Member] | Private Placement [Member] | |||||
| Proceeds from private placement | $ 4,000,000.0 | ||||
| Harvard Bioscience Inc [Member] | Series E Convertible Preferred Stock [Member] | |||||
| Litigation amount received | $ 4,000,000.0 | $ 4,000,000.0 | |||
| Temporary equity, stock issued | 4,000 | ||||
| Temporary equity, issue price per share | $ 1,000 |
Schedule of Weighted Average Assumptions (Details) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Share-Based Payment Arrangement [Abstract] | ||
| Risk-free interest rate | 3.82% | 2.71% |
| Expected volatility | 125.38% | 23.53% |
| Expected term (years) | 5 years 9 months 18 days | 5 years 9 months 18 days |
| Expected dividend yield | 0.00% | 0.00% |
Schedule of Share-based Compensation Expense (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
| Total share-based compensation | $ 535 | $ 244 | $ 2,854 | $ 756 |
| Research and Development Expense [Member] | ||||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
| Total share-based compensation | 69 | 72 | 182 | 220 |
| General And Administrative Expenses [Member] | ||||
| Share-Based Payment Arrangement, Expensed and Capitalized, Amount [Line Items] | ||||
| Total share-based compensation | $ 466 | $ 172 | $ 2,672 | $ 536 |
Commitments and Contingencies (Details Narrative) - USD ($) $ / shares in Units, $ in Millions |
9 Months Ended | |||
|---|---|---|---|---|
Jun. 10, 2022 |
Mar. 03, 2022 |
Sep. 30, 2023 |
Dec. 31, 2022 |
|
| Loss Contingencies [Line Items] | ||||
| Estimated litigation cost | $ 5.9 | $ 5.9 | ||
| Harvard Bioscience Inc. [Member] | ||||
| Loss Contingencies [Line Items] | ||||
| Litigation amount received | $ 4.0 | |||
| Harvard Bioscience Inc. [Member] | Convertible Preferred Stock [Member] | ||||
| Loss Contingencies [Line Items] | ||||
| Preferred stock, dividend rate, percentage | 8.00% | |||
| Harvard Bioscience Inc. [Member] | Series E 8% Convertible Preferred Stock [Member] | ||||
| Loss Contingencies [Line Items] | ||||
| Litigation amount received | $ 4.0 | |||
| Preferred stock, dividend rate, percentage | 8.00% | |||
| Temporary equity, stock issued | 4,000 | |||
| Temporary equity, issue price per share | $ 1,000 | |||
| Accrual for contingency matter | $ 3.3 | |||
| Legal costs on claims against insurance carrier | $ 0.8 | |||
| Medmarc [Member] | ||||
| Loss Contingencies [Line Items] | ||||
| Cash payment received on litigation | $ 0.1 |
Schedule of Operating Leases in Consolidated Balance Sheets (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Leases | ||
| Operating lease assets | $ 103 | $ 147 |
| Current portion of operating lease liabilities | 92 | 99 |
| Operating lease liabilities, net of current portion | 11 | 48 |
| Total operating lease liabilities | $ 103 | $ 147 |
Schedule of Operating Lease Expense Categories in Consolidated Statements of Operations (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Operating lease expense | $ 33 | $ 30 | $ 89 | $ 91 |
| Research and Development Expense [Member] | ||||
| Operating lease expense | 17 | 19 | 51 | 58 |
| Selling and Marketing Expense [Member] | ||||
| Operating lease expense | 5 | 5 | ||
| Selling, General and Administrative Expenses [Member] | ||||
| Operating lease expense | $ 11 | $ 11 | $ 33 | $ 33 |
Schedule of Weighted Average Lease Term and Discount Rates (Details) |
Sep. 30, 2023 |
Sep. 30, 2022 |
|---|---|---|
| Leases | ||
| Remaining lease term (in years) | 7 months 28 days | 11 months 8 days |
| Discount rate | 12.77% | 9.35% |
Schedule of Minimum Lease Payments (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Leases | ||
| 2023 | $ 33 | |
| 2024 | 69 | |
| 2025 | 5 | |
| Total lease payments | 107 | |
| Less: imputed interest | (4) | |
| Present value of operating lease liabilities | $ 103 | $ 147 |
Leases (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Sublease income | $ 61 | |||
| Operating lease cost | $ 33 | $ 30 | $ 89 | $ 91 |
| Minimum [Member] | ||||
| Remaining lease term | 1 year | 1 year | ||
| Maximum [Member] | ||||
| Remaining lease term | 2 years | 2 years | ||
Schedule of Basic and Diluted Net Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Earnings Per Share [Abstract] | ||||
| Net loss | $ (1,615) | $ (1,056) | $ (7,119) | $ (4,578) |
| Preferred stock dividends | (77) | (77) | (95) | |
| Net loss attributable to common stockholders | $ (1,615) | $ (1,133) | $ (7,196) | $ (4,673) |
| Weighted average number of shares outstanding basic | 13,882,060 | 11,615,642 | 13,297,391 | 11,205,477 |
| Weighted average number of shares outstanding diluted | 13,882,060 | 11,615,642 | 13,297,391 | 11,205,477 |
| Basic net loss per share | $ (0.12) | $ (0.10) | $ (0.54) | $ (0.42) |
| Diluted net loss per share | $ (0.12) | $ (0.10) | $ (0.54) | $ (0.42) |
Schedule of Antidilutive Securities Excluded from Computation of Earnings per Share (Details) - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive securities excluded from computation of earnings per share, amount | 5,158,126 | 5,050,240 |
| Share-Based Payment Arrangement, Option [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive securities excluded from computation of earnings per share, amount | 4,044,504 | 2,508,490 |
| Warrant [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive securities excluded from computation of earnings per share, amount | 1,113,622 | 1,888,622 |
| Series E Convertible Preferred Stock [Member] | ||
| Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
| Antidilutive securities excluded from computation of earnings per share, amount | 653,128 | |