UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
| ☒ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended June 30, 2022
or
| ☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Transition Period from __________________________________to___________________________________
Commission File No. 001-32404
POLARITYTE, INC.
(Exact name of registrant as specified in its charter)
| delaware | 06-1529524 | |
| (State or Other Jurisdiction of | (I.R.S. Employer | |
| Incorporation or Organization) | Identification No.) |
1960 S. 4250 West, Salt Lake City, UT 84104
(Address of principal executive offices)
Registrant’s Telephone Number, Including Area Code: (800) 560-3983
| (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
| Common Stock, Par Value $0.001 | PTE | The Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
As of August 5, 2022, there were shares of the Registrant’s common stock outstanding.
INDEX
As used in this report, the terms “we,” “us,” “our,” “the Company,” and “PolarityTE” mean PolarityTE, Inc., a Delaware corporation, and our present, and as applicable our former, wholly owned Nevada subsidiaries (direct and indirect), PolarityTE, Inc., PolarityTE MD, Inc., Arches Research, Inc., Utah CRO Services, Inc., IBEX Preclinical Research, Inc., and IBEX Property LLC., unless otherwise indicated or required by the context.
POLARITYTE, the PolarityTE Logo, WELCOME TO THE SHIFT, WHERE SELF REGENERATES SELF, COMPLEX SIMPLICITY, ARCHES, and SKINTE are all trademarks or registered trademarks of PolarityTE. Solely for convenience, the trademarks and trade names in this report may be referred to without the ® and ™ symbols, but such references should not be construed as any indicator that we will not assert, to the fullest extent under applicable law, our rights thereto.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share and per share amounts)
| June 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 20,518 | $ | 19,375 | ||||
| Accounts receivable, net | 978 | |||||||
| Assets held for sale | 387 | 441 | ||||||
| Prepaid expenses and other current assets | 1,992 | 1,595 | ||||||
| Total current assets | 22,897 | 22,389 | ||||||
| Property and equipment, net | 3,670 | 6,923 | ||||||
| Operating lease right-of-use assets | 554 | 1,146 | ||||||
| Other assets | 910 | 720 | ||||||
| TOTAL ASSETS | $ | 28,031 | $ | 31,178 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 1,944 | $ | 3,115 | ||||
| Other current liabilities | 1,568 | 1,520 | ||||||
| Deferred revenue | 74 | |||||||
| Total current liabilities | 3,512 | 4,709 | ||||||
| Common stock warrant liability | 4,222 | 6,844 | ||||||
| Operating lease liabilities | 63 | 43 | ||||||
| Other long-term liabilities | 188 | 338 | ||||||
| Total liabilities | 7,985 | 11,934 | ||||||
| Commitments and Contingencies (Note 16) | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock – shares authorized, shares issued and outstanding at June 30, 2022 and December 31, 2021 | ||||||||
| Common stock - $par value; shares authorized; and shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively* | 5 | 3 | ||||||
| Additional paid-in capital | 532,278 | 527,639 | ||||||
| Accumulated deficit | (512,237 | ) | (508,398 | ) | ||||
| Total stockholders’ equity | 20,046 | 19,244 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 28,031 | $ | 31,178 | ||||
| * | Giving retroactive effect to the 1-for-25 reverse stock split effectuated on May 16, 2022 |
The accompanying notes are an integral part of these condensed consolidated financial statements
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POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited, in thousands, except share and per share amounts)
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net revenues | ||||||||||||||||
| Products | $ | $ | 1,195 | $ | $ | 2,924 | ||||||||||
| Services | 73 | 1,342 | 814 | 4,322 | ||||||||||||
| Total net revenues | 73 | 2,537 | 814 | 7,246 | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Products | 207 | 448 | ||||||||||||||
| Services | 125 | 717 | 616 | 2,641 | ||||||||||||
| Total costs of revenues | 125 | 924 | 616 | 3,089 | ||||||||||||
| Gross (loss) profit | (52 | ) | 1,613 | 198 | 4,157 | |||||||||||
| Operating costs and expenses | ||||||||||||||||
| Research and development | 3,078 | 4,190 | 5,938 | 6,621 | ||||||||||||
| General and administrative | 3,562 | 4,941 | 9,771 | 11,312 | ||||||||||||
| Sales and marketing | 1,099 | 2,625 | ||||||||||||||
| Restructuring and other charges | 38 | 11 | 38 | 436 | ||||||||||||
| Impairment of assets held for sale | 54 | |||||||||||||||
| Total operating costs and expenses | 6,678 | 10,241 | 15,801 | 20,994 | ||||||||||||
| Operating loss | (6,730 | ) | (8,628 | ) | (15,603 | ) | (16,837 | ) | ||||||||
| Other income (expense), net | ||||||||||||||||
| Gain on extinguishment of debt | 3,612 | 3,612 | ||||||||||||||
| Change in fair value of common stock warrant liability | 6,630 | 1,807 | 11,735 | (2,220 | ) | |||||||||||
| Inducement loss on sale of liability classified warrants | (5,197 | ) | ||||||||||||||
| Interest expense, net | (14 | ) | (39 | ) | (29 | ) | (77 | ) | ||||||||
| Other income, net | 46 | 60 | 58 | 121 | ||||||||||||
| Net loss and comprehensive loss | $ | (68 | ) | $ | (3,188 | ) | $ | (3,839 | ) | $ | (20,598 | ) | ||||
| Net loss per share attributable to common stockholders | ||||||||||||||||
| Basic* | $ | (0.01 | ) | $ | (0.99 | ) | $ | (0.85 | ) | $ | (6.57 | ) | ||||
| Diluted* | $ | (0.49 | ) | $ | (1.01 | ) | $ | (1.37 | ) | $ | (6.57 | ) | ||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic* | 5,148,106 | 3,224,117 | 4,512,692 | 3,135,715 | ||||||||||||
| Diluted* | 5,418,552 | 3,246,490 | 4,803,671 | 3,135,715 | ||||||||||||
| * | Giving retroactive effect to the 1-for-25 reverse stock split effectuated on May 16, 2022 |
The accompanying notes are an integral part of these condensed consolidated financial statements
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POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in thousands, except share and per share amounts)
| For the Three and Six Months Ended June 30, 2022 | ||||||||||||||||||||||||||||
| Convertible Preferred Stock | Common Stock* | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Number | Amount | Number | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance – December 31, 2021 | $ | 3,299,379 | $ | 3 | $ | 527,639 | $ | (508,398 | ) | $ | 19,244 | |||||||||||||||||
| Issuance of preferred stock and warrants through underwritten offering, net of issuance costs of $184 | 5,000 | – | 1,685 | 1,685 | ||||||||||||||||||||||||
| Issuance of common stock upon conversion of preferred stock | (5,000 | ) | 655,738 | 1 | (1 | ) | ||||||||||||||||||||||
| Stock-based compensation expense | – | – | 762 | 762 | ||||||||||||||||||||||||
| Vesting of restricted stock units | – | 25,676 | ||||||||||||||||||||||||||
| Shares withheld for tax withholding | – | (7,402 | ) | (127 | ) | (127 | ) | |||||||||||||||||||||
| Net loss | – | – | (3,771 | ) | (3,771 | ) | ||||||||||||||||||||||
| Balance – March 31, 2022 | 3,973,391 | 4 | 529,958 | (512,169 | ) | 17,793 | ||||||||||||||||||||||
| Issuance of common stock and pre-funded warrants through underwritten offering, net of issuance costs of $173 | 445,500 | 1,840 | 1,840 | |||||||||||||||||||||||||
| Issuance of common stock upon exercise of pre-funded warrants | 488,659 | 1 | 1 | |||||||||||||||||||||||||
| Fractional shares issued for reverse stock split | – | 17,024 | ||||||||||||||||||||||||||
| Stock-based compensation expense | – | – | 530 | 530 | ||||||||||||||||||||||||
| Purchase of ESPP Shares | – | 1,800 | 2 | 2 | ||||||||||||||||||||||||
| Vesting of restricted stock units | – | 58,738 | ||||||||||||||||||||||||||
| Shares withheld for tax withholding | – | (13,876 | ) | (52 | ) | (52 | ) | |||||||||||||||||||||
| Net loss | – | – | (68 | ) | (68 | ) | ||||||||||||||||||||||
| Balance – June 30, 2022 | $ | 4,971,236 | $ | 5 | $ | 532,278 | $ | (512,237 | ) | $ | 20,046 | |||||||||||||||||
| For the Three and Six Months Ended June 30, 2021 | ||||||||||||||||||||
| Common Stock* | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Number | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance – December 31, 2020 | 2,194,284 | $ | 2 | $ | 505,547 | $ | (478,211 | ) | $ | 27,338 | ||||||||||
| Issuance of common stock and pre-funded warrants through underwritten offering, net of issuance costs of $114 | 266,800 | 1,255 | 1,255 | |||||||||||||||||
| Issuance of common stock upon exercise of warrants | 428,542 | 1 | 6,670 | 6,671 | ||||||||||||||||
| Reclassification of warrant liability upon exercise | – | 8,964 | 8,964 | |||||||||||||||||
| Issuance of common stock upon exercise of pre-funded warrants | 306,358 | 8 | 8 | |||||||||||||||||
| Stock-based compensation expense | – | 1,651 | 1,651 | |||||||||||||||||
| Stock option exercises | 100 | 3 | 3 | |||||||||||||||||
| Vesting of restricted stock units | 22,617 | |||||||||||||||||||
| Shares withheld for tax withholding | (4,664 | ) | (139 | ) | (139 | ) | ||||||||||||||
| Forfeiture of restricted stock awards | (1,385 | ) | ||||||||||||||||||
| Net loss | – | (17,410 | ) | (17,410 | ) | |||||||||||||||
| Balance – March 31, 2021 | 3,212,652 | 3 | 523,959 | (495,621 | ) | 28,341 | ||||||||||||||
| Stock-based compensation expense | – | 1,640 | 1,640 | |||||||||||||||||
| Purchase of ESPP shares | 1,970 | 28 | 28 | |||||||||||||||||
| Vesting of restricted stock units | 17,366 | |||||||||||||||||||
| Shares withheld for tax withholding | (2,290 | ) | (53 | ) | (53 | ) | ||||||||||||||
| Net loss | – | (3,188 | ) | (3,188 | ) | |||||||||||||||
| Balance – June 30, 2021 | 3,229,698 | $ | 3 | $ | 525,574 | $ | (498,809 | ) | $ | 26,768 | ||||||||||
| * | Giving retroactive effect to the 1-for-25 reverse stock split effectuated on May 16, 2022 |
The accompanying notes are an integral part of these condensed consolidated financial statements
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POLARITYTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net loss | $ | (3,839 | ) | $ | (20,598 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Stock-based compensation expense | 1,292 | 3,124 | ||||||
| Depreciation and amortization | 858 | 1,437 | ||||||
| Impairment of assets held for sale | 54 | |||||||
| Amortization of intangible assets | 95 | |||||||
| Bad debt expense | 134 | |||||||
| Inventory write-off | 697 | |||||||
| Gain on extinguishment of debt – PPP loan | (3,612 | ) | ||||||
| Change in fair value of common stock warrant liability | (11,735 | ) | 2,220 | |||||
| Inducement loss on sale of liability classified warrants | 5,197 | |||||||
| Loss on restructuring and other charges | 269 | |||||||
| (Gain) loss on sale of property and equipment | (36 | ) | 7 | |||||
| Gain on sale of subsidiary and property | (32 | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 396 | 1,643 | ||||||
| Inventory | 110 | |||||||
| Prepaid expenses and other current assets | (187 | ) | (1,294 | ) | ||||
| Operating lease right-of-use assets | 592 | 666 | ||||||
| Other assets/liabilities, net | 245 | |||||||
| Accounts payable and accrued expenses | (1,015 | ) | (221 | ) | ||||
| Other current liabilities | (14 | ) | ||||||
| Deferred revenue | (51 | ) | (82 | ) | ||||
| Operating lease liabilities | (564 | ) | (728 | ) | ||||
| Net cash used in operating activities | (14,267 | ) | (10,705 | ) | ||||
| CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES | ||||||||
| Purchase of property and equipment | (31 | ) | (18 | ) | ||||
| Proceeds from sale of property and equipment | 165 | 10 | ||||||
| Proceeds from sale of subsidiary and property, net of selling expenses and cash sold | 2,327 | |||||||
| Net cash provided by/(used in) investing activities | 2,461 | (8 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from insurance financing arrangements | 1,027 | 1,028 | ||||||
| Principal payments on term note payable and financing arrangements | (353 | ) | (359 | ) | ||||
| Principal payments on financing leases | (186 | ) | (272 | ) | ||||
| Net proceeds from the sale of common stock, warrants and pre-funded warrants | 7,823 | 9,884 | ||||||
| Proceeds from the sale of warrants | 1,002 | |||||||
| Proceeds from warrants exercised | 6,671 | |||||||
| Proceeds from pre-funded warrants exercised | 1 | 8 | ||||||
| Net proceeds from the sale of preferred stock and warrants | 4,814 | |||||||
| Cash paid for tax withholdings related to net share settlement | (179 | ) | (188 | ) | ||||
| Proceeds from stock options exercised | 3 | |||||||
| Proceeds from ESPP purchase | 2 | 28 | ||||||
| Net cash provided by financing activities | 12,949 | 17,805 | ||||||
| Net increase in cash and cash equivalents | 1,143 | 7,092 | ||||||
| Cash and cash equivalents - beginning of period | 19,375 | 25,522 | ||||||
| Cash and cash equivalents - end of period | $ | 20,518 | $ | 32,614 | ||||
| Supplemental cash flow information: | ||||||||
| Cash paid for interest | $ | 39 | $ | 66 | ||||
| Supplemental schedule of non-cash investing and financing activities: | ||||||||
| Fair value of placement agent warrants issued in connection with offerings | $ | 417 | $ | 838 | ||||
| Reclassification of warrant liability to stockholders’ equity upon exercise of warrant | $ | $ | 8,964 | |||||
| Conversion of Series A and Series B preferred stock into common stock | $ | 16 | $ | |||||
| Allocation of financing to warrant liability | $ | 9,113 | $ | 8,629 | ||||
| Deferred and accrued offering costs | $ | 98 | $ | 400 | ||||
| Sale of assets held for sale in exchange for a note receivable | $ | 400 | $ | |||||
| Reclassification of lease deposit to short term | $ | 210 | $ | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements
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POLARITYTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. PRINCIPAL BUSINESS ACTIVITY AND BASIS OF PRESENTATION
PolarityTE, Inc. (together with its subsidiaries, the “Company”) is a clinical stage biotechnology company developing regenerative tissue products and biomaterials. The Company also operated a laboratory testing and clinical research business until the end of April 2022.
The Company’s first regenerative tissue product is SkinTE. In July 2021, the Company submitted an investigational new drug application (“IND”) for SkinTE to the United States Food and Drug Administration (the “FDA”) through its subsidiary, PolarityTE MD, Inc. Prior to June 1, 2021, the Company sold SkinTE under Section 361 of the Public Health Service Act in 2020 and into 2021 and, after the Company’s decision to file an IND under Section 351 of that Act, under an enforcement discretion position stated by the FDA in a regenerative medicine policy framework to help facilitate regenerative medicine therapies. The FDA’s stated period of enforcement discretion ended May 31, 2021. Consequently, the Company terminated commercial sales of SkinTE on May 31, 2021, ceased its SkinTE commercial operations, and transitioned to a clinical stage company pursuing an IND for SkinTE. As a result, there were no product sales from commercial SkinTE after June 2021. The only revenues recognized subsequent to June 2021 for SkinTE were nominal amounts collected on accounts for product shipped prior to the end of May 2021 that were not previously recognized because of concerns with collectability. No revenue for SkinTE was recognized during the three and six months ended June 30, 2022.
At the beginning of May 2018, the Company acquired a preclinical research and veterinary sciences business, which has been used for preclinical studies on the Company’s regenerative tissue products and to offer preclinical research services to unrelated third parties on a contract basis. The Company sold the business at the end of April 2022 and ceased to recognize services revenues after the sale. Consequently, the Company is no longer engaged in any revenue generating business activity and its operations are now focused on advancing the IND for SkinTE.
The accompanying interim condensed consolidated financial statements of the Company are unaudited, but in the opinion of management, reflect all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results for the interim periods presented. Accordingly, they do not include all information and notes required by accounting principles generally accepted in the United States of America (U.S. GAAP) for complete financial statements. The results of operations for interim periods are not necessarily indicative of results to be expected for the entire fiscal year. The balance sheet at December 31, 2021, has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 2021, filed with the Securities and Exchange Commission on Form 10-K on March 30, 2022.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation.
Use of estimates. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities or the disclosure of gain or loss contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Among the more significant estimates included in these financial statements is the extent of progress toward completion of contracts, stock-based compensation, the valuation allowance for deferred tax assets, the valuation of common stock warrant liabilities, and the impairment of property and equipment. Actual results could differ from those estimates.
Cash and cash equivalents. Cash equivalents consist of highly liquid investments with original maturities of three months or less from the date of purchase. As of June 30, 2022, the Company did not hold any cash equivalents.
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Assets and Liabilities Held for Sale. Assets and liabilities to be disposed (“disposal group”) of by sale are reclassified into assets held for sale and liabilities held for sale on the Company’s condensed consolidated balance sheet. The reclassification occurs when an agreement to sell exists, or management has committed to a plan to sell the assets within one year. Disposal groups are measured at the lower of carrying value or fair value less costs to sell and are not depreciated or amortized. The fair value of a disposal group, less any costs to sell, is assessed each reporting period it remains classified as held for sale and any remeasurement to the lower of carrying value or fair value less costs to sell is reported as an adjustment to the carrying value of the disposal group.
Leases. The Company determines if an arrangement is a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Finance leases are reported in the condensed consolidated balance sheet in property and equipment and other current and long-term liabilities. The current portion of operating lease obligations are included in other current liabilities. The classification of the Company’s leases as operating or finance leases along with the initial measurement and recognition of the associated ROU assets and lease liabilities is performed at the lease commencement date. The measurement of lease liabilities is based on the present value of future lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future lease payments. The ROU asset is based on the measurement of the lease liability and also includes any lease payments made prior to or on lease commencement and excludes lease incentives and initial direct costs incurred, as applicable. The lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise any such options. Rent expense for the Company’s operating leases is recognized on a straight-line basis over the lease term. Amortization expense for the ROU asset associated with its finance leases is recognized on a straight-line basis over the term of the lease and interest expense associated with its finance leases is recognized on the balance of the lease liability using the effective interest method based on the estimated incremental borrowing rate.
The Company has lease agreements with lease and non-lease components. As allowed under ASC 842, the Company has elected not to separate lease and non-lease components for any leases involving real estate and office equipment classes of assets and, as a result, accounts for the lease and non-lease components as a single lease component. The Company has also elected not to apply the recognition requirement of ASC 842 to leases with a term of 12 months or less for all classes of assets.
Impairment of Long-Lived Assets. The Company reviews long-lived assets, including property and equipment for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows.
Revenue Recognition. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation.
The Company recorded product revenues primarily from the sale of SkinTE, its regenerative tissue product. When the Company marketed its SkinTE product, it was sold to healthcare providers (customers), primarily through direct sales representatives. Product revenues consisted of a single performance obligation that the Company satisfied at a point in time. In general, the Company recognized product revenue upon delivery to the customer.
| 8 |
In the contract services segment, the Company recorded service revenues from the sale of its preclinical research services, which included delivery of preclinical studies and other research services to unrelated third parties. Service revenues generally consisted of a single performance obligation that the Company satisfied over time using an input method based on costs incurred to date relative to the total costs expected to be required to satisfy the performance obligation. The Company believes that this method provides an appropriate measure of the transfer of services over the term of the performance obligation based on the remaining services needed to satisfy the obligation. This required the Company to make reasonable estimates of the extent of progress toward completion of the contract. As a result, unbilled receivables and deferred revenue were recognized based on payment timing and work completed. Generally, a portion of the payment was due upfront and the remainder upon completion of the contract, with most contracts completing in less than a year. Contract services also included research and laboratory testing services to unrelated third parties on a contract basis. Due to the short-term nature of the services, these customer contracts generally consisted of a single performance obligation that the Company satisfied at a point in time. The Company satisfied the single performance obligation and recognized revenue upon delivery of testing results to the customer. As of June 30, 2022 and December 31, 2021, the Company had unbilled receivables of zero and $0.5 million, respectively, and deferred revenue of zero and $0.1 million, respectively. Revenue of $0.1 million was recognized during the six months ended June 30, 2022 that was included in the deferred revenue balance as of December 31, 2021.
Research and Development Expenses. Costs incurred for research and development are expensed as incurred. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities pursuant to executory contractual arrangements with third party research organizations are deferred and recognized as an expense as the related goods are delivered or the related services are performed.
Accruals for Clinical Trials. As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment terms that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the timing of various aspects of the expenses. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress of clinical trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period.
Common Stock Warrant Liability. The Company accounts for common stock warrants issued as freestanding instruments in accordance with applicable accounting guidance as either liabilities or as equity instruments depending on the specific terms of the warrant agreement. Under certain change of control provisions, some warrants issued by the Company could require cash settlement which necessitates such warrants to be recorded as liabilities. Warrants classified as liabilities are remeasured at fair value each period until settled or until classified as equity.
The fair value for options issued is estimated at the date of grant using a Black-Scholes option-pricing model. The risk-free rate is derived from the U.S. Treasury yield curve in effect at the time of the grant commensurate with the expected term of the option. The volatility factor is determined based on the Company’s historical stock prices. Forfeitures are recognized as they occur.
| 9 |
The fair value of restricted stock grants is measured based on the fair market value of the Company’s common stock on the date of grant and recognized as compensation expense over the vesting period of, generally, six months to three years.
Reverse Stock Split. On May 12, 2022, the Company’s Board of Directors approved a reverse stock split in the ratio of 1-for-25 (“Reverse Stock Split”). The Reverse Stock Split became effective as of May 16, 2022. Fractional shares resulting from the reverse stock split were rounded up to the nearest whole share, which resulted in the issuance of a total of shares of common stock to implement the reverse stock split.
The Company accounted for the reverse stock split on a retrospective basis pursuant to ASC 260, Earnings Per Share. All issued and outstanding common stock, common stock warrants, stock option awards, exercise prices and per share data have been adjusted in these condensed consolidated financial statements, on a retrospective basis, to reflect the reverse stock split for all periods presented. The number of authorized shares and par value of the preferred stock and common stock were not adjusted because of the reverse stock split.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This standard was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which defers the effective date of Topic 326. As a smaller reporting company, Topic 326 will now be effective for the Company beginning January 1, 2023. As such, the Company plans to adopt this ASU beginning January 1, 2023. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Those instruments that do not have a separately recognized embedded conversion feature will no longer recognize a debt issuance discount related to such a conversion feature and would recognize less interest expense on a periodic basis. It also removes from ASC 815-40-25-10 certain conditions for equity classification and amends certain guidance in ASC Topic 260 on the computation of EPS for convertible instruments and contracts in an entity’s own equity. An entity can use either a full or modified retrospective approach to adopt the ASU’s guidance. The Company early adopted this ASU for the fiscal year beginning January 1, 2022. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.
| 10 |
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt— Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40), which specifies that the effects of modifications or exchanges of freestanding equity-classified written call options that remain equity after modification or exchange should be recognized depending on the substance of the transaction, whether it be a financing transaction to raise equity (topic 340), to raise or modify debt (topic 470 and 835), or other modifications or exchanges. If the modification or exchange does not fall under topics 340, 470, or 835, an entity may be required to account for the effects of such modifications or exchanges as dividends which should adjust net income (or loss) in the basic EPS calculation. The Company adopted this ASU prospectively for the fiscal year beginning January 1, 2022. The adoption of this ASU did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.
3. LIQUIDITY AND GOING CONCERN
The Company is a clinical stage biotechnology company that has incurred recurring losses and negative cash flows from operations since commencing its biotechnology business in 2017. As of June 30, 2022, the Company had an accumulated deficit of $512.2 million. As of June 30, 2022, the Company had cash and cash equivalents of $20.5 million. The Company has been funded historically through sales of equity and debt.
These financial statements have been prepared on a going concern basis, which assumes the Company will continue to realize its assets and settle its liabilities in the normal course of business. The Company’s significant operating losses raise substantial doubt regarding the Company’s ability to continue as a going concern for at least one year from the date of issuance of these consolidated financial statements. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might result from the outcome of this uncertainty. Consequently, the future success of the Company depends on its ability to attract additional capital and, ultimately, on its ability to successfully complete the regulatory approval process for its product, SkinTE, and develop future profitable operations. The Company will seek additional capital through equity offerings or debt financing. However, such financing may not be available in the future on favorable terms, if at all.
4. FAIR VALUE
In accordance with ASC 820, Fair Value Measurements and Disclosures, financial instruments were measured at fair value using a three-level hierarchy which maximizes use of observable inputs and minimizes use of unobservable inputs:
| ● | Level 1: Observable inputs such as quoted prices in active markets for identical instruments. | |
| ● | Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the market. | |
| ● | Level 3: Significant unobservable inputs supported by little or no market activity. Financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, for which determination of fair value requires significant judgment or estimation. |
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. There were no transfers within the hierarchy for any of the periods presented.
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The following table sets forth the fair value of the Company’s financial assets and liabilities measured on a recurring basis by level within the fair value hierarchy (in thousands):
| June 30, 2022 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| Common stock warrant liability | $ | $ | $ | 4,222 | $ | 4,222 | ||||||||||
| Total | $ | $ | $ | 4,222 | $ | 4,222 | ||||||||||
| December 31, 2021 | ||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||||||
| Liabilities | ||||||||||||||||
| Common stock warrant liability | $ | $ | $ | 6,844 | $ | 6,844 | ||||||||||
| Total | $ | $ | $ | 6,844 | $ | 6,844 | ||||||||||
The Company assesses its assets held for sale, long-lived assets, including property, plant, and equipment and ROU assets at fair value on a non-recurring basis. The Company reviews the carrying amounts of such assets when events indicate that their carrying amounts may not be recoverable. Any resulting impairment would require that the asset be recorded at its fair value. During the six months ended June 30, 2022, the Company recognized an impairment charge of $0.1 million related to equipment classified in assets held for sale. During the six months ended June 30, 2021, the Company recognized an impairment charge of $0.4 million related to property and equipment. As of each measurement date, the fair value of assets held for sale and property and equipment was determined utilizing Level 3 inputs and were based on a market approach. See Notes 7 and Note 15 for additional details.
The following table presents the change in fair value of the liability classified common stock warrants for the six months ended June 30, 2022 (in thousands):
Fair Value at December 31, 2021 | Initial Fair Value at Issuance | (Gain) Loss Upon Change in Fair Value | Fair Value at June 30, 2022 | |||||||||||||
| Warrant liabilities | ||||||||||||||||
| February 14, 2020 issuance | $ | 291 | $ | $ | (268 | ) | $ | 23 | ||||||||
| December 23, 2020 issuance | 239 | (228 | ) | 11 | ||||||||||||
| January 14, 2021 issuance | 3,345 | (3,097 | ) | 248 | ||||||||||||
| January 25, 2021 issuance | 2,969 | (2,748 | ) | 221 | ||||||||||||
| March 16, 2022 issuance | 3,129 | (2,905 | ) | 224 | ||||||||||||
| June 8, 2022 issuance | 5,984 | (2,489 | ) | 3,495 | ||||||||||||
| Total | $ | 6,844 | $ | 9,113 | $ | (11,735 | ) | $ | 4,222 | |||||||
The following table presents the change in fair value of the liability classified common stock warrants for the six months ended June 30, 2021 (in thousands):
Fair Value at December 31, 2020 | Initial Fair Value at Issuance | (Gain) Loss Upon Change in Fair Value | Liability Reduction Due to Exercises | Fair Value at June 30, 2021 | ||||||||||||||||
| Warrant liabilities | ||||||||||||||||||||
| February 14, 2020 issuance | $ | 328 | $ | $ | 168 | $ | $ | 496 | ||||||||||||
| December 23, 2020 issuance | 5,647 | 3,802 | (8,964 | ) | 485 | |||||||||||||||
| January 14, 2021 issuance | 8,629 | (1,700 | ) | 6,929 | ||||||||||||||||
| January 25, 2021 issuance(1) | 6,199 | (50 | ) | 6,149 | ||||||||||||||||
| Total | $ | 5,975 | $ | 14,828 | $ | 2,220 | $ | (8,964 | ) | $ | 14,059 | |||||||||
| (1) | Concurrent with the issuance of the January 25, 2021 warrants, upon the exercise of the December 23, 2020 warrants, an inducement loss of $5.2 million was recorded during the six-month period ended June 30, 2021, as the fair value of the initial warrant liability for the new warrants of $6.2 million exceeded the gross proceeds received upon sale of the new warrants of approximately $1.0 million. |
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The Company uses the Monte Carlo simulation model to determine the fair value of the liability classified warrants. Input assumptions used to measure the fair value of these freestanding instruments are as follows:
For the Six Months ended | ||||
| June 30, 2022 | ||||
| Stock price | $ | – | ||
| Exercise price | $ | 2.40 – 34.50 | ||
| Risk-free rate | 1.95 – 3.03 | % | ||
| Volatility | 98.4 – 123.6 | % | ||
| Remaining term (years) | 1.71 – 5.00 |
For the Six Months ended | ||||
| June 30,2021 | ||||
| Stock price | $ | – | ||
| Exercise price | $ | 2.50 – 34.50 | ||
| Risk-free rate | 0.42 – 1.13 | % | ||
| Volatility | 99.0 – 102.8 | % | ||
| Remaining term (years) | 4.48 – 5.87 |
5. ASSETS AND LIABILITIES HELD FOR SALE
In November 2021, the Company committed to a plan to sell a variety of lab equipment within the regenerative medicine products reporting segment. The lab equipment has been designated as held for sale and is presented as such within the condensed consolidated balance sheet as of December 31, 2021 and June 30, 2022. During the six months ended June 30, 2022 the Company recorded an impairment of $0.1 million related the lab equipment designated as held for sale within the regenerative medicine products reporting segment.
At the beginning of May 2018, the Company acquired a preclinical research and veterinary sciences business, which has been used for preclinical studies on the Company’s regenerative tissue products and to offer preclinical research services to unrelated third parties on a contract basis. The Company operated this business through its indirect subsidiary, IBEX Preclinical Research, Inc. (“IBEX”). Utah CRO Services, Inc., a Nevada corporation (“Utah CRO”), is a direct subsidiary of the Company and held all the outstanding capital stock of IBEX (the “IBEX Shares”). Utah CRO also holds all the member interest of IBEX Property LLC, a Nevada limited liability company (“IBEX Property”), that owned two unencumbered parcels of real property in Logan, Utah, consisting of approximately 1.75 combined gross acres of land, together with the buildings, structures, fixtures, and personal property (the “Property”), which was leased by IBEX Property to IBEX for IBEX to conduct its preclinical research and veterinary sciences business.
In March 2022, the Company reached a nonbinding understanding with an unrelated third party that contemplated the sale of IBEX, which operates within the contract services reporting segment, along with IBEX Property. The assets and liabilities related to IBEX were designated as held for sale. The Company measured the assets and liabilities held for sale at the lower of their carrying value or fair value less costs to sell. The operating results of IBEX did not qualify for reporting as discontinued operations.
| 13 |
On April 14, 2022, Utah CRO entered into a Stock Purchase Agreement (the “Stock Agreement”) with an unrelated third party (“Buyer”), pursuant to which Utah CRO agreed to sell all the outstanding IBEX Shares to Buyer in exchange for an unsecured promissory note in the principal amount of $0.4 million bearing simple interest at the rate of 10% per annum with interest only payable on a quarterly basis and all principal and remaining accrued interest due on the five-year anniversary of the closing of the sale of the IBEX Shares to Buyer. Furthermore, on April 14, 2022, IBEX Property entered into a Real Estate Purchase and Sale Agreement (the “Real Estate Agreement”) with another unrelated third party (“Purchaser”) pursuant to which IBEX Property agreed to sell to Purchaser the Property at a gross purchase price of $2.8 million payable in cash at closing of the transaction. The Buyer and Purchaser are affiliates of each other as a result of common ownership. On April 28, 2022, the parties to the Stock Agreement and Real Estate Agreement closed the transactions contemplated thereby and on April 29, 2022, the Company received the promissory note described above in the principal amount of $0.4 million and net cash proceeds of $2.3 million, after deducting closing costs and advisory fees, from sale of the Property under the Real Estate Agreement. As of a result of this transaction, the Company recorded $0.4 million as a long-term note receivable in other assets within the accompanying condensed consolidated balance sheets as of June 30, 2022. As the sale price less cost to sell was greater than the carrying value of these assets the Company recognized an insignificant net gain on sale in the second quarter of fiscal year 2022 in other income, net within the accompanying condensed consolidated statement of operations and comprehensive loss for the three and six months ended June 30, 2022.
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
The following table presents the major components of prepaid expenses and other current assets (in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| Other current receivable | $ | 104 | $ | 67 | ||||
| Short term deposit | 359 | 150 | ||||||
| Prepaid insurance | 1,015 | 239 | ||||||
| Prepaid expenses | 416 | 445 | ||||||
| Deferred offering costs | 98 | 694 | ||||||
| Total prepaid expenses and other current assets | $ | 1,992 | $ | 1,595 | ||||
7. PROPERTY AND EQUIPMENT, NET
The following table presents the components of property and equipment, net (in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| Machinery and equipment | $ | 7,460 | $ | 8,502 | ||||
| Land and buildings | 2,000 | |||||||
| Computers and software | 1,107 | 1,129 | ||||||
| Leasehold improvements | 2,038 | 2,107 | ||||||
| Construction in progress | 133 | |||||||
| Furniture and equipment | 119 | 123 | ||||||
| Total property and equipment, gross | 10,724 | 13,994 | ||||||
| Accumulated depreciation | (7,054 | ) | (7,071 | ) | ||||
| Total property and equipment, net | $ | 3,670 | $ | 6,923 | ||||
The Company sold SkinTE under Section 361 of the Public Health Service Act in 2020 and into 2021 and, after the Company’s decision to file an IND under Section 351 of that Act, under an enforcement discretion position stated by the FDA in a regenerative medicine policy framework to help facilitate regenerative medicine therapies. The FDA’s stated period of enforcement discretion ended May 31, 2021. Consequently, the Company terminated commercial sales of SkinTE on May 31, 2021, and ceased its SkinTE commercial operations. As a result, there are no product sales from commercial SkinTE after June 2021 and the Company has eliminated or reduced costs associated with commercial sale of SkinTE.
The Company evaluated the future use of its commercial property and equipment and recorded an impairment charge of approximately $0.4 million during the six months ended June 30, 2021. The impairment charge occurred within the Company’s regenerative medicine products business segment and is included in restructuring and other charges within the accompanying condensed consolidated statement of operations and comprehensive loss for the six months ended June 30, 2021. See Note 15.
| 14 |
Depreciation and amortization expense for property and equipment, including assets acquired under financing leases was as follows (in thousands):
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| General and administrative expense | $ | 12 | $ | 292 | $ | 61 | $ | 596 | ||||||||
| Research and development expense | 391 | 444 | 797 | 841 | ||||||||||||
| Total depreciation and amortization expense | $ | 403 | $ | 736 | $ | 858 | $ | 1,437 | ||||||||
8. LEASES
The Company leases facilities and certain equipment under noncancelable leases that expire at various dates through November 2024. These leases require monthly lease payments that may be subject to annual increases throughout the lease term. Certain of these leases may include options to extend or terminate the lease at the election of the Company. These optional periods have not been considered in the determination of the right-of-use-assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options.
Operating Leases
On December 27, 2017, the Company entered into a commercial lease agreement (the “Lease”) with Adcomp LLC (the “Landlord”) pursuant to which the Company leases approximately 178,528 rentable square feet of warehouse, manufacturing, office, and lab space in Salt Lake City, Utah (the “Property”) from the landlord. The initial term of the Lease is five years and it expires on November 30, 2022. The Company has a one-time option to renew for an additional five years and an option to purchase the Property at a purchase price of $17.5 million. The initial base rent under the Lease is $98,190 per month ($0.55 per sq. ft.) for the first year of the initial lease term and increases 3.0% per annum thereafter. Because the rate implicit in the lease is not readily determinable, the Company has used an incremental borrowing rate of 10% to determine the present value of the lease payments.
On December 16, 2021, the Company gave written notice to the Landlord of its election to exercise the option to purchase the Property, and on March 14, 2022, the Company and Landlord entered into a definitive purchase and sale agreement that provides for a closing of the transaction on November 15, 2022 (the “Purchase Agreement”). In connection with exercising the option to purchase the Property, the Company made an earnest money deposit of $150,000 that may be refunded if closing conditions or contingencies running in the Company’s favor are not satisfied or the Landlord defaults in its obligations under the lease or the purchase agreement for the Property. On October 25, 2021, the Company signed a Purchase and Sale Agreement, the terms of which were finalized on December 10, 2021, and subsequently amended by Amendment No. 1 thereto dated March 15, 2022 (the “BCG Agreement”), with BCG Acquisitions LLC (“BCG”). Under the BCG Agreement the Company agreed to sell the Property to BCG or its assigns for $17.5 million after the Company’s purchase of the Property from the Landlord. Under the BCG Agreement, BCG made an initial earnest money deposit totaling $200,000, which the parties subsequently agreed to reduce to $150,000, that will be refunded if the Company is unable to complete the purchase of the Property from the Landlord under the Purchase Agreement on a timely basis, closing conditions or contingencies running in favor of BCG are not satisfied, or the Company defaults in its obligations under the BCG Agreement. Closing of the foregoing transactions are subject to a number of risks and uncertainties including, but not limited to, satisfaction of all closing conditions, including obtaining financing for the purchase, and closing on the purchase of the Property from the Landlord under the Purchase Agreement, and satisfaction of all closing conditions, including obtaining financing for the purchase, and closing on the sale of the Property to BCG under the BCG Agreement.
In April 2019, the Company entered into an operating lease to obtain 6,307 square feet of manufacturing, laboratory, and office space. The lease provided for monthly lease payments subject to annual increases and had an expiration date in April 2024. During 2020, the Company initiated a business analysis to determine the long-term strategy of the remote facility and cost to remain operational. It was determined that the Company would cease operations and vacate the facility. The Company terminated the lease on June 30, 2021.
| 15 |
In November 2021, the Company entered into an operating lease to obtain office equipment with Pacific Office Automation, Inc. The initial term of the lease is three years and it expires on November 2024. The initial base rent under this lease is $3,983 per month for the entire lease term and includes a cash incentive of $0.1 million. Because the rate implicit in the lease is not readily determinable, the Company has used an incremental borrowing rate of 7.42% to determine the present value of the lease payments.
Financing Leases
In November 2018 and April 2019, the Company entered into financing leases primarily for laboratory equipment used in research and development activities. The financing leases have remaining terms that range from less than 1 month to 22 months as of June 30, 2022 and include options to purchase equipment at the end of the lease. Because the rate implicit in the lease is not readily determinable, the Company has used an incremental borrowing rate of 10% to determine the present value of the lease payments for these leases.
As of June 30, 2022, the maturities of operating and finance lease liabilities were as follows (in thousands):
| Operating leases | Finance leases | |||||||
| 2022 (excluding the six months ended June 30, 2022) | $ | 576 | $ | 161 | ||||
| 2023 | 48 | 312 | ||||||
| 2024 | 42 | 42 | ||||||
| Total lease payments | 666 | 515 | ||||||
| Less: | ||||||||
| Imputed interest | (18 | ) | (40 | ) | ||||
| Total | $ | 648 | $ | 475 | ||||
Supplemental balance sheet information related to leases was as follows (in thousands):
Finance leases
| June 30, 2022 | December 31, 2021 | |||||||
| Finance lease right-of-use assets included within property and equipment, net | $ | 355 | $ | 461 | ||||
| Current finance lease liabilities included within other current liabilities | $ | 287 | $ | 329 | ||||
| Non-current finance lease liabilities included within other long-term liabilities | 188 | 338 | ||||||
| Total | $ | 475 | $ | 667 | ||||
Operating leases
| June 30, 2022 | December 31, 2021 | |||||||
| Current operating lease liabilities included within other current liabilities | $ | 585 | $ | 1,169 | ||||
| Operating lease liabilities – non-current | 63 | 43 | ||||||
| Total | $ | 648 | $ | 1,212 | ||||
| 16 |
The components of lease expense were as follows (in thousands):
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating lease costs included within operating costs and expenses | $ | 318 | $ | 393 | $ | 636 | $ | 787 | ||||||||
| Finance lease costs: | ||||||||||||||||
| Amortization of right-of-use assets | $ | 50 | $ | 163 | $ | 101 | $ | 328 | ||||||||
| Interest on lease liabilities | 14 | 26 | 30 | 56 | ||||||||||||
| Total | $ | 64 | $ | 189 | $ | 131 | $ | 384 | ||||||||
Supplemental cash flow information related to leases was as follows (in thousands):
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash out flows from operating leases | $ | 608 | $ | 849 | ||||
| Operating cash out flows from finance leases | $ | 30 | $ | 56 | ||||
| Financing cash out flows from finance leases | $ | 186 | $ | 272 | ||||
| Lease liabilities arising from obtaining right-of-use assets: | ||||||||
| Remeasurement of operating lease liability due to lease modification/termination | $ | $ | 386 | |||||
As of June 30, 2022 and December 31, 2021, the weighted average remaining lease term for operating leases was 0.7 and 1.0 years, respectively, and the weighted average discount rate used for operating leases was 9.63% and 9.96%, respectively. As of June 30, 2022 and December 31, 2021, the weighted average remaining lease term for finance leases was 1.7 and 2.0 years, respectively, and the weighted average discount rate used for finance leases was 9.63%, respectively.
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The following table presents the major components of accounts payable and accrued expenses (in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| Accounts payable | $ | 480 | $ | 173 | ||||
| Salaries and other compensation | 548 | 722 | ||||||
| Legal and accounting | 220 | 1,082 | ||||||
| Accrued severance | 1 | 111 | ||||||
| Benefit plan accrual | 66 | 102 | ||||||
| Clinical trials | 195 | 161 | ||||||
| Accrued offering costs | 400 | |||||||
| Accrued property taxes | 196 | 166 | ||||||
| Other | 238 | 198 | ||||||
| Total accounts payable and accrued expenses | $ | 1,944 | $ | 3,115 | ||||
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10. OTHER CURRENT LIABILITIES
The following table presents the major components of other current liabilities (in thousands):
| June 30, 2022 | December 31, 2021 | |||||||
| Current finance lease liabilities | $ | 287 | $ | 329 | ||||
| Current operating lease liabilities | 585 | 1,169 | ||||||
| Short-term financing arrangement | 692 | |||||||
| Other | 4 | 22 | ||||||
| Total other current liabilities | $ | 1,568 | $ | 1,520 | ||||
The short-term financing balance is related to a financing arrangement entered into during the six months ended June 30, 2022 to fund an insurance contract. Under the financing arrangement, the amounts will be repaid in nine equal monthly installments, with an interest rate of 3.85%.
2020, 2019 and 2017 Equity Incentive Plans
2020 Plan
On October 25, 2019, the Company’s Board of Directors (the “Board”) approved the Company’s 2020 Stock Option and Incentive Plan (the “2020 Plan”). The 2020 Plan became effective on December 19, 2019, the date approved by the stockholders. The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights, unrestricted stock awards, dividend equivalent rights, and cash-based awards to the Company’s employees, officers, directors, and consultants. The Board designated the Compensation Committee of the Board the administrator of the 2020 Plan, including determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards. Up to shares of common stock are issuable pursuant to awards under the 2020 Plan. No grants of awards may be made under the 2020 Plan after the later of , or the tenth anniversary of the latest material amendment of the 2020 Plan and no grants of incentive stock options may be made after October 25, 2029. The 2020 Plan provides that effective on January 1 of each year the number of shares of common stock reserved and available for issuance under the 2020 Plan shall be cumulatively increased by the lesser of 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or such lesser number of shares as determined by the 2020 plan administrator. Pursuant to the 2020 Plan, the number of shares of common stock available for issuance increased by shares during January 2022. As of June 30, 2022, the Company had shares available for future issuances under the 2020 Plan.
2019 Plan
On October 5, 2018, the Company’s Board approved the Company’s 2019 Equity Incentive Plan (the “2019 Plan”). The 2019 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and other types of stock-based awards to the Company’s employees, officers, directors, and consultants. The Board designated the Compensation Committee of the Board the administrator of the 2019 Plan, including determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards. Up to shares of common stock are issuable pursuant to awards under the 2019 Plan. Unless earlier terminated by the Board, the 2019 Plan shall terminate at the close of business on . As of June 30, 2022, the Company had shares available for future issuances under the 2019 Plan.
| 18 |
2017 Plan
On December 1, 2016, the Company’s Board approved the Company’s 2017 Equity Incentive Plan (the “2017 Plan”). The purpose of the 2017 Plan is to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees, consultants and other eligible persons. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, stock appreciation rights and other types of stock-based awards to the Company’s employees, officers, directors, and consultants. The Board designated the Compensation Committee of the Board the administrator of the 2017 Plan, including determining which eligible participants will receive awards, the number of shares of common stock subject to the awards and the terms and conditions of such awards. Up to shares of common stock are issuable pursuant to awards under the 2017 Plan. Unless earlier terminated by the Board, the 2017 Plan shall terminate at the close of business on . As of June 30, 2022, the Company had shares available for future issuances under the 2017 Plan.
| Number of Shares | Weighted-Average Exercise Price | |||||||
| Outstanding – December 31, 2021 | 230,912 | $ | 197.75 | |||||
| Granted | 400 | $ | 13.23 | |||||
| Forfeited | (25,167 | ) | $ | 264.34 | ||||
| Outstanding – June 30, 2022 | 206,145 | $ | 189.16 | |||||
| Options exercisable, June 30, 2022 | 187,286 | $ | 204.40 | |||||
Employee Stock Purchase Plan (ESPP)
In May 2018, the Company adopted the Employee Stock Purchase Plan (“ESPP”). The Company has initially reserved shares of common stock for purchase under the ESPP. The initial offering period began January 1, 2019, and ended on June 30, 2019, with the first purchase date. Subsequent offering periods will automatically commence on each January 1 and July 1 and will have a duration of six months ending with a purchase date June 30 and December 31 of each year. On each purchase date, ESPP participants will purchase shares of common stock at a price per share equal to % of the lesser of (1) the fair market value per share of the common stock on the offering date or (2) the fair market value of the common stock on the purchase date.
Restricted Stock
| Number of Shares | ||||
| Unvested - December 31, 2021 | 206,547 | |||
| Granted | ||||
| Vested(1) | (88,946 | ) | ||
| Forfeited | (7,384 | ) | ||
| Unvested – June 30, 2022 | 110,217 | |||
| (1) | The number of vested restricted stock units and awards includes shares that were withheld on behalf of employees to satisfy the minimum statutory tax withholding requirements. |
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Stock-Based Compensation Expense
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| General and administrative expense | $ | 382 | $ | 1,104 | $ | 928 | $ | 2,333 | ||||||||
| Research and development expense | 148 | 273 | 364 | 596 | ||||||||||||
| Sales and marketing expense | 96 | 195 | ||||||||||||||
| Restructuring and other charges | 167 | 167 | ||||||||||||||
| Total stock-based compensation expense | $ | 530 | $ | 1,640 | $ | 1,292 | $ | 3,291 | ||||||||
12. STOCKHOLDERS’ EQUITY
December 2020 Offering
On December 23, 2020, the Company completed a registered direct offering of shares of its common stock, par value $0.001 per share, pre-funded warrants to purchase up to 209,522 shares of common stock and accompanying common warrants to purchase up to 427,522 shares of common stock (the “December 2020 Warrants”). Each share of common stock and pre-funded warrant was sold together with a warrant. The combined offering price of each common stock share and accompanying warrant was $ and for each pre-funded warrant and accompanying warrant was $. The pre-funded warrants had an exercise price of $0.025 each and were exercised in full in January 2021. Each warrant was exercisable for one share of the Company’s common stock at an exercise price of $15.60 per share. The warrants were immediately exercisable and expire five years from the date of issuance. The holder of the warrants could not exercise any portion of the warrants to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, which percentage could be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 9.99% upon 61 days’ notice to the Company. The Company also issued to designees of the placement agent for the registered direct offering warrants to purchase up to 6.0% of the aggregate number of common stock shares and pre-funded warrants sold in the offering (or warrants to purchase up to 25,651 shares of common stock). The placement agent warrants have substantially the same terms as the warrants, except that the placement agent warrants have an exercise price equal to 125% of the purchase price per share (or $23.39 per share). The net proceeds to the Company from the offering were $7.2 million, after offering expenses payable by the Company.
As the common stock warrants and placement agent common stock warrants could each require cash settlement in certain scenarios, the common stock warrants and placement agent common stock warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $5.2 million and $0.3 million, respectively. Since the pre-funded warrants did not contain the same cash settlement provision, these warrants were classified as a component of stockholders’ equity within additional paid-in-capital. The pre-funded warrants are equity classified because they meet characteristics of the equity classification criteria. The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $2.5 million allocated on a relative fair value basis to the common stock and pre-funded common stock warrants. Issuance costs allocated to the equity classified pre-funded common stock warrants and common stock of $0.3 million were recorded as a reduction to paid-in capital. Issuance costs allocated to the liability classified warrants of $0.5 million were recorded as an expense.
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January 2021 Offerings
On January 14, 2021, the Company completed a registered direct offering of shares of its common stock, par value $0.001 per share, pre-funded warrants to purchase up to 96,836 shares of common stock and accompanying common warrants to purchase up to 363,636 shares of common stock (the “January 14 Warrants”). Each share of common stock and pre-funded warrant was sold together with a warrant. The combined offering price of each common stock share and accompanying warrant was $ and for each pre-funded warrant and accompanying warrant was $. The pre-funded warrants had an exercise price of $ each and were exercised in full in January 2021. Each January 14 Warrant is exercisable for one share of the Company’s common stock at an exercise price of $30.00 per share. The January 14 Warrants are immediately exercisable and will expire five years from the date of issuance. The holder of the January 14 Warrants may not exercise any portion of such warrants to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 9.99% upon 61 days’ notice to the Company. The Company also issued to designees of the placement agent warrants to purchase 6.0% of the aggregate number of common stock shares and pre-funded warrants sold in the offering (or warrants to purchase up to 21,818 shares of common stock). The placement agent warrants have substantially the same terms as the warrants, except that the placement agent warrants have an exercise price equal to 125% of the purchase price per share (or $34.375 per share). The net proceeds to the Company from the offering were $9.2 million, after direct offering expenses of $0.8 million payable by the Company.
As the January 14 Warrants and placement agent common stock warrants could each require cash settlement in certain scenarios, the January 14 Warrants and placement agent common stock warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $8.1 million and $0.5 million, respectively. Since the pre-funded warrants did not contain the same cash settlement provision, these warrants are classified as a component of stockholders’ equity within additional paid-in-capital. The pre-funded warrants were equity classified because they met characteristics of the equity classification criteria. The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $1.4 million allocated on a relative fair value basis to the common stock and pre-funded common stock warrants. Issuance costs allocated to the equity classified pre-funded common stock warrants and common stock of $0.1 million were recorded as a reduction to paid-in capital. Issuance costs allocated to the liability classified warrants of $0.7 million were recorded as an expense.
On January 22, 2021, the Company entered into a letter agreement with the holder of warrants to exercise the warrants and purchase 427,522 shares of common stock at an exercise price of $15.60 per share that were issued to the holder in the registered direct offering that closed on December 23, 2020. Under the letter agreement the holder agreed to exercise the 427,522 warrants in full and the Company agreed to issue and sell to the holder common warrants to purchase up to shares of the Company’s common stock, par value $ per share, at a price of $ (the “January 25 Warrants”) (and together with the January 14 Warrants, the “Existing 2021 Warrants”). Each January 25 Warrant is exercisable for one share of Common Stock at an exercise price of $30.00 per share. The January 25 Warrants are immediately exercisable and will expire five years from the date of issuance. A holder may not exercise any portion of the January 25 Warrants to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 9.99% upon 61 days’ notice to the Company. The Company also issued to designees of the placement agent, warrants to purchase 6.0% of the aggregate number of common stock shares and pre-funded warrants sold in the offering (or warrants to purchase up to 19,238 shares of common stock). The placement agent warrants have substantially the same terms as the new warrants. The 427,522 warrants issued on December 23, 2020, were exercised on January 22, 2021, and closing of the offering occurred on January 25, 2021. The Company received gross proceeds of approximately $6.7 million from the exercise of the December 2020 Warrants and gross proceeds of approximately $1.0 million from the sale of the new warrants.
Immediately prior to the exercise of the existing 427,522 liability classified December 2020 Warrants in January 2021, a remeasurement loss of $3.6 million was recorded.
As the new January 25 Warrants and placement agent common stock warrants could each require cash settlement in certain scenarios, the new January 25 Warrants and placement agent common stock warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $5.8 million and $0.4 million, respectively. Cash issuance costs of $0.1 million were recorded as an expense.
March 2022 Offering
On March 16, 2022, the Company completed a registered direct offering of shares of Series A convertible preferred stock, shares of Series B convertible preferred stock and 655,738 warrants to purchase 655,738 shares of common stock (the “March 2022 Warrants”). Gross proceeds generated by the offering were $5.0 million. The exercise price of each warrant is $8.75 per share, the warrants become exercisable six months after the date of the offering and will expire two years from the offering date.
| 21 |
Concurrent with the closing of the offering on March 16, 2022, the Company modified the exercise price of the Existing 2021 Warrants. 363,636 warrants issued on January 14, 2021, and 320,641 warrants issued on January 25, 2021 were modified to reduce the exercise price from $30 to $8.75 per share. The exercise price of the placement agent warrants was not modified. The Existing 2021 Warrants remain outstanding and unexercised as of June 30, 2022.
The holders of Series A and Series B convertible preferred stock were entitled to receive dividend payments in the same form as dividends paid on shares of the common stock when, as and if such dividends were paid on shares of the common stock, on an if converted basis. In the event of a liquidation event, the holders of each series of convertible preferred stock were entitled to receive out of the assets, whether capital or surplus, of the Company the same amount that a holder of common stock would receive if the preferred stock were fully converted. Each share of preferred stock was convertible at any time after the offering at the option of the holder into a number of shares of the Company’s common stock, equal to $ stated value per share, divided by the conversion price of $7.625. On March 17, 2022 all shares of Series B preferred stock were converted into shares of common stock. On March 29, 2022, all shares of Series A preferred stock were converted into shares of common stock.
The holder of the March 2022 Warrants may not exercise any portion of such warrants to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 9.99% upon 61 days’ notice to the Company.
The Company also issued to designees of the placement agent warrants to purchase 5.0% of the aggregate number of March 2022 Warrants sold in the offering, or 32,787 warrants to purchase common stock. The placement agent warrants have substantially the same terms as the March 2022 Warrants, except that the placement agent warrants have an exercise price $9.525 per share, which is 125% of the price at which each share of preferred stock sold in the offering is convertible to common stock.
As the March 2022 Warrants and placement agent warrants could each require cash settlement in certain scenarios, the common stock warrants and placement agent warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $3.0 million and $0.1 million, respectively. The Series A and Series B preferred stock were equity classified because they met characteristics of the equity classification criteria. The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $1.9 million allocated to the preferred stock. The net proceeds to the Company from the offering were $4.5 million, after direct offering expenses of $0.2 attributable to equity classified preferred stock, which were recorded as a reduction to paid-in capital, and $0.3 million attributable to the liability classified March 2022 Warrants and private placement common stock warrants, which are included in general and administrative within the accompanying condensed consolidated statement of operations and comprehensive loss for the six months ended June 30, 2022.
June 2022 Offering
On June 5, 2022, the Company entered into a securities purchase agreement with a single healthcare-focused institutional investor for the purchase and sale of shares of its common stock (or pre-funded warrants in lieu thereof) in a registered direct offering. In a concurrent private placement (together with the registered direct offering, the “Offerings”), the Company entered into a separate securities purchase agreement with the same investor for the unregistered purchase and sale of shares of common stock (or pre-funded warrants in lieu thereof).
| 22 |
On June 8, 2022, the Company completed the registered direct offering of shares of its common stock, par value $0.001 per share at a purchase price of $per share and 1,138,659 pre-funded warrants at a purchase price of $per warrant. The Company also sold 1,584,159 pre-funded warrants at a purchase price of $per warrant in the private placement offering. Each pre-funded warrant sold in the registered direct offering and private placement offering is exercisable for one share of common stock at an exercise price of $0.001 per share, is immediately exercisable, and will not expire until fully exercised. Under the securities purchase agreements for the Offerings, the Company agreed to issue to the investor in the Offerings unregistered preferred investment options (the “June 2022 Warrants”) to purchase up to an aggregate of 3,168,318 shares of common stock, which were issued at the closing of the Offerings. The June 2022 Warrants are exercisable for one share immediately upon issuance at an exercise price of $2.40 per share and will expire five years from the date of issuance. The holder of the warrants may not exercise any portion of such warrants to the extent that the holder would own more than 4.99% of the outstanding common stock immediately after exercise, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 9.99% upon 61 days’ notice to the Company. The Company also issued to designees of the placement agent, warrants to purchase 5.0% of the aggregate number of common stock shares and pre-funded warrants sold in the offering (or warrants to purchase up to 158,416 shares of common stock). The placement agent warrants have substantially the same terms as the warrants, except that the placement agent warrants have an exercise price equal to 125% of the purchase price per share (or $3.156 per share). None of the placement agent warrants have been exercised as of June 30, 2022. The net proceeds to the Company from the offering were $7.3 million, after direct offering expenses of $0.7 million payable by the Company.
As the June 2022 Warrants and placement agent common stock warrants could each require cash settlement in certain scenarios, the warrants and placement agent common stock warrants were classified as liabilities upon issuance and were initially recorded at estimated fair values of $5.7 million and $0.3 million, respectively. Since the pre-funded warrants did not contain the same cash settlement provision, these warrants are classified as a component of stockholders’ equity within additional paid-in-capital. The pre-funded warrants were equity classified because they met characteristics of the equity classification criteria. The total proceeds from the offering were first allocated to the liability classified warrants, based on their fair values, with the residual $2.0 million allocated on a relative fair value basis to the common stock and pre-funded common stock warrants. Issuance costs allocated to the equity classified pre-funded common stock warrants and common stock of $0.2 million were recorded as a reduction to paid-in capital. Issuance costs allocated to the liability classified warrants of $0.5 million were recorded as an expense.
The Company measured the fair value of the common warrants and placement agent warrants using the Monte Carlo simulation model at issuance and again on June 30, 2022 using the following inputs:
Common warrants:
| March 16, 2022 | June 30, 2022 | |||||||
| Stock price | $ | 8.55 | $ | 1.45 | ||||
| Exercise price | $ | 8.75 | $ | 8.75 | ||||
| Risk-free rate | 1.95 | % | 2.89 | % | ||||
| Volatility | 101.5 | % | 123.6 | % | ||||
| Remaining term (years) | ||||||||
| June 8, 2022 | June 30, 2022 | |||||||
| Stock price | $ | 2.30 | $ | 1.45 | ||||
| Exercise price | $ | 2.40 | $ | 2.40 | ||||
| Risk-free rate | 3.03 | % | 3.01 | % | ||||
| Volatility | 107.1 | % | 107.7 | % | ||||
| Remaining term (years) | ||||||||
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Placement agent warrants:
| March 16, 2022 | June 30, 2022 | |||||||
| Stock price | $ | 8.55 | $ | 1.45 | ||||
| Exercise price | $ | 9.53 | $ | 9.53 | ||||
| Risk-free rate | 1.95 | % | 2.89 | % | ||||
| Volatility | 101.5 | % | 123.6 | % | ||||
| Remaining term (years) | ||||||||
| June 8, 2022 | June 30, 2022 | |||||||
| Stock price | $ | 2.30 | $ | 1.45 | ||||
| Exercise price | $ | 3.16 | $ | 3.16 | ||||
| Risk-free rate | 3.03 | % | 3.01 | % | ||||
| Volatility | 107.1 | % | 107.7 | % | ||||
| Remaining term (years) | ||||||||
The following table summarizes warrant activity for the six months ended June 30, 2022:
Outstanding December 31, 2021 | Warrants Issued | Warrants Exercised | Outstanding June 30, 2022 | |||||||||||||
| Transaction | ||||||||||||||||
| February 14, 2020 common warrants | 21,580 | 21,580 | ||||||||||||||
| December 23, 2020 placement agent warrants | 25,651 | 25,651 | ||||||||||||||
| January 14, 2021 common warrants | 363,636 | 363,636 | ||||||||||||||
| January 14, 2021 placement agent warrants | 21,818 | 21,818 | ||||||||||||||
| January 25, 2021 common warrants | 320,641 | 320,641 | ||||||||||||||
| January 22, 2021 placement agent warrants | 19,238 | 19,238 | ||||||||||||||
| March 16, 2022 common warrants | 655,738 | 655,738 | ||||||||||||||
| March 16, 2022 placement agent warrants | 32,787 | 32,787 | ||||||||||||||
| June 8, 2022 common warrants | 3,168,318 | 3,168,318 | ||||||||||||||
| June 8, 2022 placement agent warrants | 158,416 | 158,416 | ||||||||||||||
| Total | 772,564 | 4,015,259 | 4,787,823 | |||||||||||||
On March 30, 2021, the Company entered into a sales agreement (“Sales Agreement”) with an investment banking firm to sell shares of common stock having aggregate sales proceeds of up to $50.0 million, from time to time, through an “at the market” equity offering program under which the investment banking firm would act as sales agent. On February 28, 2022, the Company exercised its right to terminate the Sales Agreement and was obligated to make a one-time payment to the investment banking firm of $0.4 million. As a result of the termination of the Sales Agreement, the Company expensed previously capitalized deferred offering costs of $0.7 million which are included in general and administrative expense within the accompanying condensed consolidated statement of operations and comprehensive loss for the six months ended June 30, 2022. No common stock was sold under the Sales Agreement.
| 24 |
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| Numerator: | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net loss, primary | $ | (68 | ) | $ | (3,188 | ) | $ | (3,839 | ) | $ | (20,598 | ) | ||||
| Less: gain from change in fair value of warrant liabilities | (2,578 | ) | (107 | ) | (2,757 | ) | ||||||||||
| Net loss, diluted | $ | (2,646 | ) | $ | (3,295 | ) | $ | (6,596 | ) | $ | (20,598 | ) | ||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| Denominator: | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Basic weighted average number of common shares(1) | 5,148,106 | 3,224,117 | 4,512,692 | 3,135,715 | ||||||||||||
| Potentially dilutive effect of warrants | 270,446 | 22,373 | 290,979 | |||||||||||||
| Diluted weighted average number of common shares | 5,418,552 | 3,246,490 | 4,803,671 | 3,135,715 | ||||||||||||
| (1) | In December 2020, January 2021, and June 2022, the Company sold pre-funded warrants to purchase up to 209,522, 96,836, and 2,722,818 shares of common stock, respectively. The shares of common stock associated with the pre-funded warrants are considered outstanding for the purposes of computing earnings per share prior to exercise because the shares may be issued for little or no consideration, are fully vested, and are exercisable after the original issuance date. The pre-funded warrants sold in December 2020 and January 2021 were exercised in January 2021 and of the pre-funded warrants sold in June 2022 were exercised in June 2022 and included in the denominator for the period of time the warrants were outstanding. |
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | June 30, | June 30, | |||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Stock options | 206,145 | 237,609 | 206,145 | 237,609 | ||||||||||||
| Restricted stock | 110,217 | 217,349 | 110,217 | 217,349 | ||||||||||||
| Common stock warrants | 1,439,510 | 725,334 | 1,439,510 | 772,566 | ||||||||||||
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14. DEBT
PPP Loan
On April 12, 2020, our subsidiary PolarityTE MD, Inc. (the “Borrower”) entered into a promissory note evidencing an unsecured loan in the amount of $3,576,145 made to it under the Paycheck Protection Program (the “Loan”). The Paycheck Protection Program (or “PPP”) was established under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The Loan to the Borrower was made through KeyBank, N.A., a national banking association (the “Lender”). The interest rate on the Loan is 1.00%. Beginning seven months from the date of the Loan the Borrower is required to make 24 monthly payments of principal and interest in the amount of $150,563. The promissory note evidencing the Loan contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Lender, or breaching the terms of the Loan documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Borrower, or filing suit and obtaining judgment against the Borrower. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of a loan granted under the PPP. On October 15, 2020, the Borrower applied to the Lender for forgiveness of the PPP Loan in its entirety based on the Borrower’s use of the PPP Loan for payroll costs, rent, and utilities. In June of 2021, the Company received notice of forgiveness of the PPP Loan in whole and the Lender was paid by the SBA, including all accrued unpaid interest. The Company recorded the forgiveness of $3.6 million of principal and accrued interest, which were included in gain on extinguishment of debt on the consolidated statement of operations and comprehensive loss for the six months ended June 30, 2021.
On September 17, 2021, the Company received notice from the Lender that the SBA is continuing to review the PPP Loan. As part of this review, the SBA requested documents that the Company is required to maintain but may not have been required to submit with its application for the PPP Loan. These documents included an affiliation worksheet showing the relationship between the Company and Borrower and affiliated subsidiaries, documents showing the use of the PPP Loan proceeds, documents showing the calculation of the loan amount requested in the Company’s loan application, federal tax returns, and documents showing employee compensation information. The Company submitted the documents to the SBA through the Lender on September 28, 2021. There has been no additional communication from the SBA through the date of filing.
15. RESTRUCTURING
As discussed in Note 7, the Company decided to file an IND in the second half of 2021, cease commercial sales of SkinTE by May 31, 2021, and wind down its SkinTE commercial operations. As a result, management approved several actions as part of a restructuring plan. During the first quarter of 2021, the Company recorded $0.4 million of restructuring charges related to property and equipment impairment. The Company recognized $0.1 million of expense related to employee severance and benefit arrangements for the three and six months ended June 30, 2021. The Company also recognized incremental expense of $0.2 million for the three and six months ended June 30, 2021 related to the remeasurement of employee stock options that were modified due to restructuring. Further, during the second quarter of 2021 and effective June 30, 2021, the Company terminated a lease which included manufacturing, laboratory, and office space and recorded a net gain on termination of $0.3 million. During the three and six months ended June 30, 2022, the Company recognized nominal expenses related to employee severance due to a reduction of headcount in the Company’s research and development department.
16. COMMITMENTS AND CONTINGENCIES
Contingencies
Securities Class Action and Derivative Lawsuits
On September 24, 2021, a class action complaint alleging violations of the Federal securities laws was filed in the United States District Court, District of Utah, by Marc Richfield against the Company and certain officers of the Company, Case No. 2:21-cv-00561-BSJ. The Court subsequently appointed a Lead Plaintiff and ordered the Lead Plaintiff to file an amended Complaint by February 7, 2022, which was extended to February 21, 2022. The Lead Plaintiff filed an amended complaint on February 21, 2022, against the Company, two current officers of the Company, and three former officers of the Company (the “Complaint”). The Complaint alleges that during the period from January 30, 2018, through November 9, 2021, the defendants made or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 adopted thereunder. Specifically, the Complaint alleges that the defendants misrepresented or failed to disclose that: (i) the Company’s product, SkinTE, was improperly registered as a 361 HCT/P under Section 361 of the Public Health Service Act and that, as a result, the Company’s ability to commercialize SkinTE as a 361 HCT/P was not sustainable because it was inevitable SkinTE would need to be registered under Section 351 of the Public Health Service Act; (ii) the Company characterized itself as a commercial stage company when it knew sales of SkinTE as a 361 HCT/P were unsustainable and that, as a result, it would need to file an IND and become a development stage company; (iii) issues arising from an FDA inspection of the Company’s facility in July 2018, were not resolved even though the Company stated they were resolved; and (iv) the IND for SkinTE was deficient with respect to certain chemistry, manufacturing, and control items, including items identified by the FDA in July 2018, and as a result it was unlikely that the FDA would approve the IND in the form it was originally filed. The Company filed a motion to dismiss the complaint for failure to state a claim, on April 22, 2022. The Lead Plaintiff filed its memorandum in opposition to the Company’s motion to dismiss on July 18, 2022. The Company is required to file its reply memorandum to the Lead Plaintiff’s opposition memorandum by August 11, 2022, and oral argument on the motion to dismiss is scheduled for September 8, 2022. We cannot predict when the Court may issue its decision. The Company believes the allegations in the Complaint are without merit, and intends to defend the litigation, vigorously. At this early stage of the proceedings, we are unable to make any prediction regarding the outcome of the litigation.
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On October 25, 2021, a stockholder derivative complaint alleging violations of the Federal securities laws was filed in the United States District Court, District of Utah, by Steven Battams against the Company, each member of the Board of directors, and two officers of the Company, Case No. 2:21-cv-00632-DBB (the “Stockholder Derivative Complaint”). The Stockholder Derivative Complaint alleges that the defendants made, or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 adopted thereunder. Specifically, the Stockholder Derivative Complaint alleges that the defendants misrepresented or failed to disclose that: (i) the IND for the Company’s product, SkinTE, filed with the FDA was deficient with respect to certain chemistry, manufacturing, and control items; (ii) as a result, it was unlikely that the FDA would approve the IND in its current form; (iii) accordingly, the Company had materially overstated the likelihood that the SkinTE IND would obtain FDA approval; and (Iv) as a result, the public statements regarding the IND were materially false and misleading. The parties have stipulated to stay the Stockholder Derivative Complaint until (1) the dismissal of the Complaint described above, (2) denial of a motion to dismiss the Complaint, or (3) notice is given that any party is withdrawing its consent to the stipulated stay of the Stockholder Derivative Complaint proceeding. At this early stage of the proceedings the Company is unable to make any prediction regarding the outcome of the litigation.
Other Matters
In the ordinary course of business, the Company may become involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements, employment, regulatory compliance, and other matters. Except as noted above, at June 30, 2022, the Company was not party to any legal or arbitration proceedings that may have significant effects on its financial position or results of operations. No governmental proceedings are pending or, to the Company’s knowledge, contemplated against the Company. The Company is not a party to any material proceedings in which any director, member of senior management or affiliate of the Company’s is either a party adverse to the Company or its subsidiaries or has a material interest adverse to the Company or its subsidiaries.
Commitments
The Company has entered into employment agreements with key executives that contain severance terms and change of control provisions.
On September 2, 2020, Arches Research, Inc., a subsidiary of PolarityTE, Inc. (“Arches”) entered into two agreements with Co-Diagnostics, Inc. (“Co-Diagnostics”). The COVID-19 Laboratory Services Agreement between the parties provided that Arches would perform specimen testing services for customers referred by Co-Diagnostics to Arches. Co-Diagnostics would arrange all logistics for delivering specimens to Arches for COVID-19 testing for those customers of Co-Diagnostics electing to use the service. Arches would bill Co-Diagnostics for the testing services and Co-Diagnostics would manage all customer billing. The Rental Agreement for LGC Genomics Oktopure Extraction Machine between Arches and Co-Diagnostics provided that Co-Diagnostics would make available to Arches the Oktopure high throughput extraction machine that Arches will use to perform COVID-19 testing. The term of the rental agreement was 12 months and required Arches to use Co-Diagnostics tests exclusively in the machine. In the second quarter of 2021, the rental agreement was amended to remove the minimum monthly purchase obligation of reagents and was replaced by a $3,300 monthly rental fee. The COVID-19 Laboratory Services Agreement could be canceled by the Company at any time by providing 60 days written notice, and the Rental Agreement could be canceled at any time by written notice given within 60 days after termination of the Laboratory Services Agreement. On May 27, 2021, the Company gave written notice to Co-Diagnostics of termination of the COVID-19 Laboratory Services Agreement, so the last day of that agreement was July 26, 2021, and no longer in effect on July 27, 2021. On July 27, 2021, the Company gave written notice to Co-Diagnostics of termination of the Rental Agreement, so the last day of that agreement was July 29, 2021.
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On June 25, 2021, the Company entered into a statement of work with a contract research organization to provide services for a proposed clinical trial described as a multi-center, prospective, randomized controlled trial evaluating the effects of SkinTE in the treatment of full-thickness diabetic foot ulcers at a cost of approximately $6.5 million consisting of $3.1 million of service fees and $3.4 million of estimated costs. In July 2021 the Company prepaid 10% of the total cost recited in the original work order, or $0.5 million, which will be applied to payment of the final invoice under the work order. Over the approximately three-year term of the clinical trial the service provider shall submit to the Company for payment invoices on a monthly basis for units of work stated in the work order that are completed and billable expenses incurred. During the three and six months ended June 30, 2022, the Company received invoices for work performed and expenses incurred totaling $0.3 and $0.5 million, respectively. Either party may terminate the agreement without cause on 60 days’ notice to the other party.
17. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On August 21, 2019, the Company and Dr. Denver Lough, a principal shareholder and former officer and director, signed a settlement terms agreement that provides, in part, that the Company pay to Dr. Lough $1,500,000 in cash on October 1, 2019 and an additional $1,500,000 in cash in equal monthly installments beginning November 1, 2019 and ending April 1, 2021. In addition, the Company agreed to award to Dr. Lough restricted stock units that vest in 18 equal monthly installments beginning October 1, 2019. As of June 30, 2022, the Company has no remaining liability related to future cash payments under the agreement. The fair value of the restricted stock units was $0.8 million and was fully expensed upon Dr. Lough’s termination.
In October 2018, the Company entered into an office lease covering approximately 7,250 square feet of rental space in the building located at 40 West 57th Street in New York City. The lease is for a term of three years. The annual lease rate is $60 per square foot. Initially the Company would occupy and pay for only 3,275 square feet of space, and the Company was not obligated under the lease to pay for the remaining 3,975 square feet covered by the lease unless it elected to occupy that additional space. The Company believes the terms of the lease were very favorable to it, and the Company obtained the favorable terms through the assistance of Peter A. Cohen, a director, which he provided so that the company he owns, Peter A. Cohen, LLC (“Cohen LLC”), could sublease a portion of the office space. The lease expired on October 31, 2021. The Company recognized zero and $55,000 of sublease income for the three months ended June 30, 2022 and 2021, respectively, and zero and $109,000 for the six months ended June 30, 2022 and 2021, respectively. The sublease income is included in other income, net in the condensed consolidated statement of operations and comprehensive loss.
18. SEGMENT REPORTING
Reportable segments are presented in a manner consistent with the internal reporting provided to the chief operating decision maker (CODM), the Chief Executive Officer of the Company. The CODM allocates resources to and assesses the performance of each segment using information about its revenue and operating income (loss). The Company’s operations involve products and services which are managed separately. Accordingly, it operates in two segments: 1) regenerative medicine products and 2) contract services. In April 2022, the Company sold IBEX and IBEX Property, the Company’s subsidiaries which operate within the contract services reporting segment. The remaining contract services business is no longer a reportable segment due to immateriality. Contract services ceased to be a reportable segment upon disposal of IBEX and historical information from prior to the disposal date is reported here. See Note 5 for detail on management’s disposal of IBEX.
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Certain information concerning the Company’s segments is presented in the following tables (in thousands):
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Net revenues: | ||||||||||||||||
| Reportable segments: | ||||||||||||||||
| Regenerative medicine | $ | $ | 1,195 | $ | $ | 2,924 | ||||||||||
| Contract services | 73 | 1,342 | 814 | 4,322 | ||||||||||||
| Total net revenues | $ | 73 | $ | 2,537 | $ | 814 | $ | 7,246 | ||||||||
| Net (loss)/income: | ||||||||||||||||
| Reportable segments: | ||||||||||||||||
| Regenerative medicine | $ | 122 | $ | (3,229 | ) | $ | (3,423 | ) | $ | (20,931 | ) | |||||
| Contract services | (190 | ) | 41 | (416 | ) | 333 | ||||||||||
| Total net loss | $ | (68 | ) | $ | (3,188 | ) | $ | (3,839 | ) | $ | (20,598 | ) | ||||
19. SUBSEQUENT EVENTS
June 2022 Offering
The holder of the pre-funded warrants sold in the registered direct offering that closed on June 8, 2022, exercised pre-funded warrants for the purchase of shares of the Company’s common stock at a total purchase price of $545.00 on July 13, 2022, pre-funded warrants for the purchase of shares of the Company’s common stock at a total purchase price of $105.00 on August 1, 2022, and pre-funded warrants for the purchase of shares of the Company’s common stock at a total purchase price of $359.16 on August 10, 2022. Consequently, pre-funded warrants and investment options issued in the June 2022 Offering remain outstanding and unexercised.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The discussion and analysis below includes certain forward-looking statements that are subject to risks, uncertainties and other factors, as described in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Annual Report”), and in this Quarterly Report on Form 10-Q that could cause our actual growth, results of operations, performance, financial position and business prospects and opportunities for this fiscal year and periods that follow to differ materially from those expressed in or implied by those forward-looking statements. Readers are cautioned that forward-looking statements contained in this Quarterly Report on Form 10-Q should be read in conjunction with risk factors disclosed in our reports and disclosure under the heading “Disclosure Regarding Forward-Looking Statements” below.
Overview
PolarityTE is a clinical stage biotechnology company developing regenerative tissue products and biomaterials. PolarityTE’s first regenerative tissue product is SkinTE, which is intended for the repair, reconstruction, replacement, and supplementation of skin in patients who have a need for treatment of acute or chronic wounds, burns, surgical reconstruction events, scar revision, or removal of dysfunctional skin grafts.
Since the beginning of 2017, PolarityTE has incurred substantial operating losses and its operations have been financed primarily by public equity financings. The clinical trials for SkinTE and the regulatory process will likely result in an increase in PolarityTE’s expenses. PolarityTE will continue to incur substantial operating losses as we pursue an investigational new drug application (“IND”) and biologics license application (“BLA”), and PolarityTE expects to seek financing from external sources over the foreseeable future to fund its operations.
Regenerative Tissue Product
Our first regenerative tissue product is SkinTE. On July 23, 2021, we submitted an investigational new drug application (“IND”) for SkinTE to the U.S. Food and Drug Administration (the “FDA”) through our subsidiary, PolarityTE MD, Inc. (“PTE-MD”), as the first step in the regulatory process for obtaining licensure for SkinTE under Section 351 of the Public Health Service Act. The FDA subsequently issued clinical hold correspondence to us identifying certain issues that needed to be addressed before the IND could be approved. We provided responses to the FDA, and on January 14, 2022, the FDA notified us that the clinical hold had been removed. Our first planned pivotal study under our IND is a multi-center, randomized controlled trial evaluating SkinTE in the treatment of diabetic foot ulcers (DFUs) classified as Grade 2 in the Wagner classification system entitled “Closure Obtained with Vascularized Epithelial Regeneration for DFUs with SkinTE,” or “COVER DFUs Trial.” We plan to enroll up to 100 subjects at up to 20 sites in the U.S. in the COVER DFUs Trial, which will compare treatment with SkinTE plus the standard-of-care to the standard-of-care alone. We have been enrolling subjects in the COVER DFUs Trial since the end of April 2022. The primary endpoint is the incidence of DFUs closed at 24 weeks. Secondary endpoints include percent area reduction (“PAR”) at 4, 8, 12, 16, and 24 weeks, improved quality of life, and new onset of infection of the DFU being evaluated.
In March 2022, we submitted to the FDA a request for a Regenerative Medicine Advanced Therapy (RMAT) designation to SkinTE under our IND. Established under the 21st Century Cures Act, RMAT designation is a dedicated program designed to expedite the drug development and review processes for promising regenerative medicine products, including human cellular and tissue-based therapies. A regenerative medicine therapy is eligible for RMAT designation if it is intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug or therapy has the potential to address unmet medical needs for such disease or condition. RMAT designation provides the benefits of intensive FDA guidance on efficient drug development, including the ability for early interactions with the FDA to discuss potential ways to support accelerated approval and satisfy post-approval requirements, potential priority review of a BLA, and other opportunities to expedite development and review. By letter dated May 11, 2022, we were advised by the FDA that it concluded SkinTE meets the criteria for RMAT designation for the treatment of DFUs and venous leg ulcers (VLUs).
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As a result of the RMAT designation we were able to engage in an expedited dialogue with the FDA on the tasks that are likely to be necessary to support a BLA submission for SkinTE as a treatment of DFUs and VLUs, which were identified in the RMAT designation. Based on that dialogue we plan to run a second multi-center, randomized controlled trial under our current IND to support approval of a broad DFU indication for SkinTE in a BLA, and we plan to engage in discussions with the FDA regarding the design and implementation of the second clinical trial. We believe this strategy will be the fastest and least costly approach to achieving our first BLA submission for SkinTE, with DFUs representing the largest market opportunity within the category of chronic cutaneous ulcers. We plan to further engage with the FDA to fully define our development plan for other wound indications.
We expect to incur significant operating costs in the next three to four years as we pursue the regulatory process for SkinTE with the FDA, conduct clinical trials and studies, and pursue product research, all while operating our business and incurring continuing fixed costs related to the maintenance of our assets and business. We expect to incur significant losses in the future, and those losses could be more severe as a result of unforeseen expenses, difficulties, complications, delays, and other unknown events. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending upon the timing, progress, and outcomes of our clinical trials and our expenditures for satisfying all the conditions of obtaining FDA licensure for SkinTE.
Recent Developments
June 2022 Offering
On June 5, 2022, we entered into a securities purchase agreement with a single healthcare-focused institutional investor for the purchase and sale of shares of our common stock (or pre-funded warrants in lieu thereof) in a registered direct offering. In a concurrent private placement (together with the registered direct offering, the “Offerings”), we entered into a separate securities purchase agreement with the same investor for the unregistered purchase and sale of shares of common stock (or pre-funded warrants in lieu thereof). On June 8, 2022, the Offerings closed, and we sold in the registered direct offering 445,500 shares of our common stock at a purchase price of $2.525 per share and 1,138,659 pre-funded warrants at a purchase price of $2.524 per warrant, and in the private placement offering we sold 1,584,159 pre-funded warrants at a purchase price of $2.524 per warrant. Each pre-funded warrant sold in the registered direct offering and private placement offering is exercisable for one share of common stock at an exercise price of $0.001 per share, is immediately exercisable, and will not expire until fully exercised. Under the securities purchase agreements for the Offerings, we agreed to issue to the investor in the Offerings unregistered preferred investment options (the “investment options”) to purchase up to an aggregate of 3,168,318 shares of common stock, which we issued at the closing of the Offerings. The investment options are exercisable immediately upon issuance at an exercise price of $2.40 per share and will expire five years from the date of issuance. As of the date of this report the holder of the pre-funded warrants sold in the registered direct offering has exercised 1,033,659 of such warrants at a total exercise price of $1,034 leaving 105,000 of such warrants unexercised. None of the pre-funded sold in the private placement offering or investment options issued in the Offerings have been exercised as of the date of this report. We received net proceeds of approximately $7.3 million in the Offerings after deducting placement agent fees and related offering expenses.
Sale of IBEX
At the beginning of May 2018, we acquired a preclinical research and veterinary sciences business, which we operated through our indirect subsidiary, IBEX Preclinical Research, Inc. (“IBEX”). Utah CRO Services, Inc., a Nevada corporation (“Utah CRO”), is our direct subsidiary and held all the outstanding capital stock of IBEX (the “IBEX Shares”). Utah CRO also held all the member interest of IBEX Property LLC, a Nevada limited liability company (“IBEX Property”), that owned two unencumbered parcels of real property in Logan, Utah, consisting of approximately 1.75 combined gross acres of land, together with the buildings, structures, fixtures, and personal property (the “Property”), which was leased by IBEX Property to IBEX for IBEX to conduct its preclinical research and veterinary sciences business.
On April 14, 2022, Utah CRO entered into a Stock Purchase Agreement (the “Stock Agreement”) with an unrelated third party (the “Buyer”), pursuant to which Utah CRO agreed to sell all the outstanding IBEX Shares to the Buyer in exchange for an unsecured promissory note in the principal amount of $400,000 bearing simple interest at the rate of 10% per annum payable interest only on a quarterly basis and all principal and remaining accrued interest due on the five-year anniversary of the closing of the sale of the IBEX Shares to the Buyer. Furthermore, on April 14, 2022, IBEX Property entered into that certain Real Estate Purchase and Sale Agreement (the “Real Estate Agreement”) with another unrelated third party (the “Purchaser”) pursuant to which IBEX Property agreed to sell to the Purchaser the Property at a gross purchase price of $2.8 million payable in cash at closing of the transaction. The Buyer and Purchaser are affiliates as a result of common ownership. On April 28, 2022, the parties to the Stock Agreement and Real Estate Agreement closed the transactions contemplated thereby and on April 29, 2022, we received the promissory note described above in the principal amount of $0.4 million and net cash proceeds of $2.3 million, after deducting closing costs and advisory fees, from sale of the Property under the Real Estate Agreement. We recognized an insignificant net gain on sale.
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Reverse Stock Split
At a special meeting of stockholders held on May 12, 2022, the stockholders approved an amendment to our certificate of incorporation to effectuate a reverse stock split of our outstanding shares of common stock by a ratio of any whole number between 1-for-10 and 1-for-25, the implementation and timing of which is subject to the discretion of our board of directors. The primary goal of the reverse stock split was to increase the per share market price of our common stock to meet the minimum per share bid price requirements for continued listing on The Nasdaq Capital Market. The board of directors subsequently determined to set the reverse stock split ratio at 1-for-25 (the “Reverse Stock Split”). The Reverse Stock Split become effective as of 4:15 p.m., Eastern Time on May 16, 2022, pursuant to a Certificate of Amendment to our (Third) Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware. All issued and outstanding common stock, common stock warrants, stock option awards, exercise prices, and per share data presented in this report has been adjusted on a retrospective basis to reflect the reverse stock split.
Liquidity and Capital Resources
Available Capital Resources and Potential Sources of Liquidity
As of June 30, 2022, we had $20.5 million in cash and cash equivalents and working capital of approximately $19.4 million. For the six-month period ended June 30, 2022, cash used in operating activities was $14.3 million, or an average of $4.8 million per month, compared to $10.7 million of cash used in operating activities, or an average of $3.6 million per month, for the six-month period ended June 30, 2021. For the three-month period ended June 30, 2022, cash used in operating activities was $8.3 million, or an average of $2.8 million per month, compared to $4.1 million of cash used in operating activities, or an average of $1.4 million per month, for the three-month period ended June 30, 2021.
As a result of the sale of IBEX described above, after April 2022 we are not engaged in any business activity that will generate cash flows from operations, which in the past contributed to defraying our operating costs.
As of the date of this quarterly report we do not expect that our cash and cash equivalents of $20.5 million as of June 30, 2022, will be sufficient to fund our current business plan including related operating expenses and capital expenditure requirements beyond the first calendar quarter of 2023. Accordingly, there is substantial doubt about our ability to continue as a going concern, as we do not believe that our cash and cash equivalents will be sufficient to fund our business plan for at least twelve months from the date of issuance of our quarterly financial statements in this report. We plan to address this condition by raising additional capital to finance our operations.
Although we have been successful in raising capital in the past, financing may not be available on terms favorable to us, if at all, so we may not be successful in obtaining additional financing. Therefore, it is not considered probable, as defined in applicable accounting standards, that our plan to raise additional capital will alleviate the substantial doubt regarding our ability to continue as a going concern.
Anticipated Uses of Capital Resources
As noted above, we are focused primarily on the advancement of our IND and subsequent BLA to attain a license to manufacture and distribute SkinTE. To that end, in June 2021 we engaged a contract research organization (“CRO”) to provide services for the COVER DFUs Trial at a cost of approximately $6.5 million consisting of $3.1 million of service fees and $3.4 million of estimated costs. In 2021 we prepaid $0.5 million, which will be applied to payment of the final invoice under the work order. Over the approximately three-year term of the COVER DFUs Trial the service provider will submit to us for payment monthly invoices for units of work stated in the work order that are completed and billable expenses incurred. We began enrolling subjects in our COVER DFUs at the end of April 2022, and we believe we may be able to complete enrollment of 100 subjects by the end of calendar year 2023. As enrollment increases, we expect our monthly CRO and related costs of conducting the trial will ramp up.
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Our expectation is that the second DFU clinical trial under the IND for SkinTE will be similar to the COVER DFUs Trial with respect to size, length of time to complete, and cost. To the extent we decide to pursue additional indications for the application of SkinTE, such as VLUs, we expect we will need to submit separate IND applications for those indications and conduct additional clinical trials to support BLAs for those indications.
Clinical trials are the major expense we see in the near and long term, and while we are pursuing clinical trials, we will continue to incur the costs of maintaining our business. In addition to clinical trials, our most significant uses of cash to maintain our business going forward are expected to be compensation, costs of occupying, operating, and maintaining our facilities, and the costs associated with maintaining our status as a publicly traded company listed on Nasdaq. During the 12-month period following the filing of this report our plan is to preserve the facilities, equipment, and staff we need to advance the COVER DFUs Trial and other work necessary for advancing the process for obtaining regulatory approval of SkinTE.
With the acceptance of our IND for SkinTE and the beginning of the COVER DFUs Trial, we do not expect to have the same need for research and development staff associated with product development and, as a result, we reduced research and development staff in April 2022.
During the latter part of 2021 and into February 2022, we engaged in discussions with certain third parties regarding potential M&A transactions and strategic initiatives. In the first quarter of 2022 we recognized $1.2 million of one-time costs for professional services associated with such M&A and strategic initiatives, which is in addition to $1.2 million of such costs recognized in the fourth quarter of 2021.
Our actual capital requirements will depend on many factors, including the cost and timing of advancing our IND and subsequent BLA for the use of SkinTE on DFUs, the cost and timing of additional INDs and BLAs for other indications where SkinTE may be used, the cost and timing of clinical trials, the cost of establishing and maintaining our facilities in compliance with current good tissue practices and current good manufacturing practice requirements, and the cost and timing of advancing our product development initiatives related to SkinTE. Our projection of the period of time for which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.
We will need to raise additional capital in the future to fund our effort to obtain FDA approval of SkinTE and maintain our operations. Any additional equity financing including financings involving convertible securities, if able to be obtained, may be highly dilutive, on unfavorable terms, or otherwise disadvantageous, to existing stockholders, and debt financing, if available, may involve restrictive covenants or require us to grant a security interest in our assets. If we elect to pursue collaborative arrangements, the terms of such arrangements may require us to relinquish rights to certain of our technologies, products, or marketing territories. Our failure to raise additional capital when needed, and on acceptable terms, would require us to reduce our operating expenses and would limit our ability to continue operations, any of which would have a material adverse effect on our business, financial condition, results of operation, and prospects.
Results of Operations
Changes in Polarity’s Operations
There have been significant changes in our operations affecting our results of operations for the six-month period ended June 30, 2022, compared to six-month period ended June 30, 2021.
On July 23, 2021, we submitted an IND for SkinTE to the FDA through our subsidiary, PTE-MD, as the first step in the regulatory process for obtaining licensure for SkinTE under Section 351 of the Public Health Service Act. The FDA subsequently issued clinical hold correspondence to us identifying certain issues that needed to be addressed before the IND could be approved. We provided responses to the FDA, and on January 14, 2022, the FDA sent correspondence informing us that the clinical hold had been removed. Acceptance of the IND by the FDA enables us to commence the first of two expected pivotal studies needed to support a BLA for SkinTE. We ceased selling SkinTE at the end of May 2021, when the period of enforcement discretion previously announced by the FDA with respect to its IND and premarket approval requirements for regenerative medicine therapies, such as SkinTE, came to an end, and we do not expect to be able to commercialize SkinTE until our BLA is approved, which we believe will take at least three to four years. Consequently, we recognized products net revenues in the six months of 2021, and did not have any such revenues in the first six months of 2022.
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Our subsidiary, Arches Research, Inc. (“Arches”) began offering COVID-19 testing services in May 2020 under 30-day renewable testing agreements with multiple nursing home and pharmacy facilities in the state of New York controlled by a single company, which substantially added to our services net revenues in the first three months of 2021. When the New York nursing homes and pharmacies adopted on-site employee testing at the end of March 2021, our COVID-19 testing revenues declined substantially, and in August 2021, we decided to cease COVID-19 testing. Arches focused its research and development resources on supporting our IND and clinical trial efforts for the remainder of 2021 and continued in that role in the first quarter of 2022. However, going forward we do not expect we will have the same need for research and development staff associated with product development and, as a result, we reduced research and development staff in April 2022, and began to eliminate or sell certain items of equipment that had been leased or purchased for our research and development activity.
While we were exploring the opportunities for selling IBEX and the IBEX Property, IBEX assumed a more passive approach to marketing its services, which resulted in a decline in IBEX services revenues in the first six months of 2022 compared to the first six months of 2021. With the sale of IBEX and the IBEX Property completed at the end of April 2022, our services net revenues were nominal in the first six months of 2022 and we do not expect any services net revenues in the last six months of 2022.
As a result of the foregoing developments, we made a number of changes to our operations that impacted our results of operations. These included reductions in our work force and reducing the services and infrastructure needed to support a larger work force and commercial sales effort.
Comparison of the six months ended June 30, 2022, compared to the six months ended June 30, 2021.
For the Six Months Ended | Increase (Decrease) | |||||||||||||||
| (in thousands) | June 30, 2022 | June 30, 2021 | Amount | % | ||||||||||||
| (Unaudited) | ||||||||||||||||
| Net revenues | ||||||||||||||||
| Products | $ | – | $ | 2,924 | $ | (2,924 | ) | (100 | )% | |||||||
| Services | 814 | 4,322 | (3,508 | ) | (81 | )% | ||||||||||
| Total net revenues | 814 | 7,246 | (6,432 | ) | (89 | )% | ||||||||||
| Cost of sales | ||||||||||||||||
| Products | – | 448 | (448 | ) | (100 | )% | ||||||||||
| Services | 616 | 2,641 | (2,025 | ) | (77 | )% | ||||||||||
| Total costs of revenues | 616 | 3,089 | (2,473 | ) | (80 | )% | ||||||||||
| Gross profit | 198 | 4,157 | (3,959 | ) | (95 | )% | ||||||||||
| Operating costs and expenses | ||||||||||||||||
| Research and development | 5,938 | 6,621 | (683 | ) | (10 | )% | ||||||||||
| General and administrative | 9,771 | 11,312 | (1,541 | ) | (14 | )% | ||||||||||
| Sales and marketing | – | 2,625 | (2,625 | ) | (100 | )% | ||||||||||
| Restructuring and other charges | 38 | 436 | (398 | ) | (91 | )% | ||||||||||
| Impairment of assets held for sale | 54 | – | 54 | 100 | % | |||||||||||
| Total operating costs and expenses | 15,801 | 20,994 | (5,193 | ) | (25 | )% | ||||||||||
| Operating loss | (15,603 | ) | (16,837 | ) | (1,234 | ) | (7 | )% | ||||||||
| Other income (expense), net | ||||||||||||||||
| Gain on extinguishment of debt | – | 3,612 | (3,612 | ) | (100 | )% | ||||||||||
| Change in fair value of common stock warrant liability | 11,735 | (2,220 | ) | 13,955 | 629 | % | ||||||||||
| Inducement loss on sale of liability classified warrants | – | (5,197 | ) | 5,197 | 100 | % | ||||||||||
| Interest income (expense), net | (29 | ) | (77 | ) | (48 | ) | (62 | )% | ||||||||
| Other income, net | 58 | 121 | (63 | ) | (52 | )% | ||||||||||
| Net loss | $ | (3,839 | ) | $ | (20,598 | ) | $ | (16,759 | ) | (81 | )% | |||||
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Comparison of the three months ended June 30, 2022, compared to the three months ended June 30, 2021.
For the Three Months Ended | Increase (Decrease) | |||||||||||||||
| (in thousands) | June 30, 2022 | June 30, 2021 | Amount | % | ||||||||||||
| (Unaudited) | ||||||||||||||||
| Net revenues | ||||||||||||||||
| Products | $ | – | $ | 1,195 | $ | (1,195 | ) | (100 | )% | |||||||
| Services | 73 | 1,342 | (1,269 | ) | (95 | )% | ||||||||||
| Total net revenues | 73 | 2,537 | (2,464 | ) | (97 | )% | ||||||||||
| Cost of sales | ||||||||||||||||
| Products | – | 207 | (207 | ) | (100 | )% | ||||||||||
| Services | 125 | 717 | (592 | ) | (83 | )% | ||||||||||
| Total costs of revenues | 125 | 924 | (799 | ) | (86 | )% | ||||||||||
| Gross (loss) profit | (52 | ) | 1,613 | (1,665 | ) | (103 | )% | |||||||||
| Operating costs and expenses | ||||||||||||||||
| Research and development | 3,078 | 4,190 | (1,112 | ) | (27 | )% | ||||||||||
| General and administrative | 3,562 | 4,941 | (1,379 | ) | (28 | )% | ||||||||||
| Sales and marketing | – | 1,099 | (1,099 | ) | (100 | )% | ||||||||||
| Restructuring and other charges | 38 | 11 | 27 | 245 | % | |||||||||||
| Total operating costs and expenses | 6,678 | 10,241 | (3,563 | ) | (35 | )% | ||||||||||
| Operating loss | (6,730 | ) | (8,628 | ) | (1,898 | ) | (22 | )% | ||||||||
| Other income (expense), net | ||||||||||||||||
| Gain on extinguishment of debt | – | 3,612 | (3,612 | ) | (100 | )% | ||||||||||
| Change in fair value of common stock warrant liability | 6,630 | 1,807 | 4,823 | 267 | % | |||||||||||
| Interest income (expense), net | (14 | ) | (39 | ) | (25 | ) | (64 | )% | ||||||||
| Other income, net | 46 | 60 | (14 | ) | (23 | )% | ||||||||||
| Net loss | $ | (68 | ) | $ | (3,188 | ) | $ | (3,120 | ) | (98 | )% | |||||
Net Revenues and Gross Profit. We ceased commercial sales of SkinTE in the second calendar quarter of 2021 and sold the IBEX services business at the end of April 2022, so we were not engaged in any revenue generating business activity at June 30, 2022, and do not expect to generate operating revenues from any business activity for the foreseeable future. The decreases in revenues, cost of revenues, and gross (loss) profit for the six-month and three-month periods ended June 30, 2022, compared to the same periods in 2021 are consistent with our cessation of revenue-generating business activity.
Operating Costs and Expenses. Operating costs and expenses decreased $5.2 million, or 25%, for the six-month period ended June 30, 2022, compared to the six-month period ended June 30, 2021, and decreased $3.6 million, or 35%, for the three-month period ended June 30, 2022, compared to the three-month period ended June 30, 2021.
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Research and development expenses decreased 10% for the six-month period ended June 30, 2022, compared to the six-month period ended June 30, 2021, and decreased 27%, for the three-month period ended June 30, 2022, compared to the three-month period ended June 30, 2021. The decrease is primarily attributable to costs in the six-month period ended June 30, 2021, for completing our pre-IND diabetic foot ulcers trial, lab supplies for work on preparing the technical items for our IND, and consulting services for preparing our IND that did not recur in the six-month period ended June 30, 2022, which was partially offset by an increase primarily attributable to the SkinTE manufacturing and overhead personnel redirecting their efforts following the cessation of SkinTE sales to research and development activities and increased costs related to quality control supplies and infrastructure implemented for the COVER DFUs Trial.
The amount of general and administrative expenses decreased 14% for the six-month period ended June 30, 2022, compared to the six-month period ended June 30, 2021, and decreased 28%, for the three-month period ended June 30, 2022, compared to the three-month period ended June 30, 2021. We effectuated a reduction in force for our commercial operations in the second quarter of 2021. Consequently, there were reductions in cash compensation, stock compensation, consulting fees, and travel expense. Furthermore, with the cessation of SkinTE sales we re-allocated manufacturing supplies and compensation from general and administrative expenses to research and development costs. These reductions were offset by professional fees incurred in connection with our pursuit of a strategic transaction that did not materialize and investment banking fees paid in connection with an at-the-market offering we terminated in the first quarter of 2022.
In the first six months of 2021, we incurred sales and marketing costs related to our commercial sales effort that did not recur in the first six months of 2022. In connection with terminating commercial sales of SkinTE, we realized as a restructuring charge a loss on impairment of property and equipment in the amount of $0.4 million and a charge of $0.3 million for employee severance and revaluing of equity awards related to severance, which was offset by a gain of $0.3 from early termination of an office/ laboratory lease in Augusta, Georgia. In the first six months of 2022 we realized a nominal amount of restructuring charges on employee severance.
Operating Loss and Net Loss. Operating loss decreased $1.2 million, or 7%, for the six-month period ended June 30, 2022, compared to the six-month period ended June 30, 2021, and decreased $1.9 million, or 22%, for the three-month period ended June 30, 2022, compared to the three-month period ended June 30, 2021.
Net loss decreased $16.8 million, or 81%, for the six-month period ended June 30, 2022, compared to the six-month period ended June 30, 2021, and decreased $3.1 million, or 98%, for the three-month period ended June 30, 2022, compared to the three-month period ended June 30, 2021. Warrants issued in connection with financings we completed in 2022, 2021 and 2020 are classified as liabilities and remeasured each period until settled, classified as equity, or expiration. As a result of the periodic remeasurement, we recorded a gain for change in fair value of common stock warrant liability of $11.7 million for the six-month period ended June 30, 2022, compared to a loss of $2.2 million for the six-month period ended June 30, 2021, and a gain for change in fair value of common stock warrant liability of $6.6 million for the three-month period ended June 30, 2022, compared to a gain of $1.8 million for the three-month period ended June 30, 2021. For additional information on the change in fair value of common stock warrant liability please see Note 4 to the condensed consolidated financial statements included in this report. We issued common stock purchase warrants in January 2021, as an inducement to holders of warrants issued in December 2020 to exercise those December warrants. As a result, we recognized an inducement loss of $5.2 million for the six-month period ended June 30, 2021. There was no similar inducement loss in the first six months of 2022.
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Non-GAAP Financial Measure
The table below provides a reconciliation of adjusted net loss, which is a non-GAAP measure that shows net loss before fair value adjustments relating to our common stock warrant liability and warrant inducement loss, to GAAP net loss. We believe adjusted net loss is useful to investors because it eliminates the effect of non-operating items that can significantly fluctuate from period to period due to fair value remeasurements. For purposes of calculating non-GAAP per share metrics, the same denominator is used as that which was used in calculating net loss per share under GAAP. Other companies may calculate adjusted net loss differently than we do. Adjusted net loss has limitations as an analytical tool and you should not consider adjusted net loss in isolation or as a substitute for our financial results prepared in accordance with GAAP.
Adjusted Net Loss Attributable to Common Stockholders
(in thousands - unaudited non-GAAP measure)
For the Three Months Ended June 30, | For the Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| GAAP Net Loss | $ | (68 | ) | $ | (3,188 | ) | $ | (3,839 | ) | $ | (20,598 | ) | ||||
| Change in fair value of common stock warrant liability | (6,630 | ) | (1,807 | ) | (11,735 | ) | 2,220 | |||||||||
| Inducement loss on sale of liability classified warrants | – | – | – | 5,197 | ||||||||||||
| Non-GAAP adjusted net loss attributable to common stockholders – basic & diluted | $ | (6,698 | ) | $ | (4,995 | ) | $ | (15,574 | ) | $ | (13,181 | ) | ||||
| GAAP net loss per share attributable to common stockholders | ||||||||||||||||
| Basic* | $ | (0.01 | ) | $ | (0.99 | ) | $ | (0.85 | ) | $ | (6.57 | ) | ||||
| Diluted* | $ | (0.49 | ) | $ | (1.01 | ) | $ | (1.37 | ) | $ | (6.57 | ) | ||||
| Non-GAAP adjusted net loss per share attributable to common stockholders | ||||||||||||||||
| Basic and diluted* | $ | (1.30 | ) | $ | (1.55 | ) | $ | (3.45 | ) | $ | (4.20 | ) | ||||
*Giving retroactive effect to the 1-for-25 reverse stock split effectuated on May 16, 2022
Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with GAAP requires both the use of estimates and judgment relative to the application of appropriate accounting policies. We are required to make estimates and assumptions in certain circumstances that affect amounts reported in the Unaudited Condensed Consolidated Financial Statements and related footnotes. We evaluate these estimates and assumptions on an ongoing basis based on historical developments, market conditions, industry trends, and other information that we believe to be reasonable under the circumstances. There can be no assurance that actual results will conform to these estimates and assumptions or that reported results of operations will not be materially and adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. Our critical accounting policies are more fully described in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our 2021 Annual Report. There have been no changes in our critical accounting policies from December 31, 2021.
Disclosure Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. Risks and uncertainties are inherent in forward-looking statements. Furthermore, such statements may be based on assumptions that fail to materialize or prove incorrect. Consequently, our business development, operations, and results could differ materially from those expressed in forward-looking statements made in this Quarterly Report. We make such forward-looking statements pursuant to the safe harbor provisions in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “would,” or the negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
| ● | our ability to raise capital to fund our operations; |
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| ● | the timing or success of obtaining regulatory licenses or approvals for initiating clinical trials or marketing our products; |
| ● | the initiation, timing, progress, cost, and results of clinical trials under our open IND for DFUs; |
| ● | the initiation, timing, progress, cost, and results of other INDs for SkinTE in additional indications and the clinical trials that may be required under those INDs; |
| ● | sufficiency of our working capital to fund our operations in the near and long term, which raises doubt about our ability to continue as a going concern; |
| ● | infrastructure required to support operations in future periods, including the expected costs thereof; |
| ● | estimates associated with revenue recognition, asset impairments, and cash flows; |
| ● | variance in our estimates of future operating costs; |
| ● | future vesting and forfeitures of compensatory equity awards; |
| ● | the effectiveness of our disclosure controls and our internal control over financial reporting; |
| ● | the impact of new accounting pronouncements; |
| ● | size and growth of our target markets; and |
| ● | the initiation, timing, progress, and results of our research and development programs. |
Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, without limitation:
| ● | the need for, and ability to obtain, additional financing in the future; |
| ● | the ability to comply with regulations applicable to the development, production, and distribution of SkinTE; |
| ● | the timing and requirements associated with obtaining FDA acceptance of our second clinical trial; |
| ● | the ability to obtain subject enrollment in our trials at a pace that allows the trials to progress on the schedules we have established with our CRO; |
| ● | unexpected developments or delays in the progress of our clinical trials; |
| ● | the scope of protection we can establish and maintain for intellectual property rights covering our product candidates and technology; |
| ● | the ability to gain adoption by healthcare providers of our products for patient care; |
| ● | developments relating to our competitors and industry; |
| ● | new discoveries or the development of new therapies or technologies that render our products or services obsolete or unviable; |
| ● | the ability to find and retain skilled personnel; |
| ● | outbreaks of disease, including the COVID-19 pandemic, and related stay-at-home orders, quarantine policies and restrictions on travel, trade, and business operations; |
| ● | political and economic instability, whether resulting from natural disasters, wars (such as the conflict between Russia and Ukraine), terrorism, pandemics, or other sources; |
| ● | changes in economic conditions, including inflation, rising interest rates, lower consumer confidence, and volatile equity capital markets; |
| ● | inaccuracies in estimates of our expenses, future revenues, and capital requirements; |
| ● | future accounting pronouncements; and |
| ● | unauthorized access to confidential information and data on our information technology systems and security and data breaches. |
Forward-looking statements relate to future events or to our future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these forward-looking statements. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, industry, and future growth. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
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This Quarterly Report on Form 10-Q may also contain estimates, projections, and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research, or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained industry, business, market, and other data from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Not applicable.
Item 4. Controls and Procedures
Our management, with the participation of our principal executive and financial officers, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on the evaluation of the effectiveness of our disclosure controls and procedures as of June 30, 2022, our principal executive and financial officers concluded that, as of such date, our disclosure controls and procedures were effective. There were no changes in our internal control over financial reporting during the three-month period ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For a description of our material pending legal proceedings, see Note 16, “Commitments and Contingencies—Contingencies” in the condensed consolidated financial statements included in this report.
Item 1A. Risk Factors
You should carefully consider the factors discussed below and in Part I, “Item 1A. Risk Factors” in our 2021 Annual Report, which could materially affect our business, financial position, or future results of operations. The risks described below and in our 2021 Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially, adversely affect our business, financial position, future results of operations, and prospects.
Risks Related to Our Financial Condition
We will need additional funding to pursue the regulatory process for SkinTE and sustain our operations, and we may be unable to raise capital when needed, which would force us to delay, reduce, eliminate, or abandon our product development program.
We reported an operating loss of $15.6 million for the six-month period ended June 30, 2022, and on that date we had had an accumulated deficit of $512.2 million. We believe our cash and cash equivalents at June 30, 2022, will fund our current business plan including related operating expenses and capital expenditure requirements into the first calendar quarter of 2023. Accordingly, there is substantial doubt about our ability to continue as a going concern beyond that time unless we can raise additional capital from external sources.
We expect to incur significant operating costs in the near term as we pursue the regulatory process for SkinTE with the FDA, conduct clinical trials and studies, and pursue product research, all while operating our business and incurring continuing fixed costs related to the maintenance of our assets and business. We expect to incur significant losses in the future, and those losses could be more severe as a result of unforeseen expenses, difficulties, complications, delays, and other unknown events. As a result of the disposition of IBEX in April 2022, we are no longer engaged in any revenue generating activity that would contribute to defraying our operating costs in future periods, which will make us entirely dependent on capital obtained from external sources to fund our operations. The impact of COVID-19, inflation, and other macroeconomic issues have and may continue to adversely affect capital markets and could limit our ability to obtain the capital we need to operate our business.
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We may not be able to obtain necessary capital in sufficient amounts, on terms favorable to us, or at all. If adequate funds are not available for our business in the future, we may be required to delay, reduce the scope of, or eliminate the plans for obtaining regulatory licensure or approval for SkinTE or be unable to continue operations over a longer term, any of which would have a material adverse effect on our business, financial condition, results of operation, and prospects.
General risks
The trading price of the shares of our common stock has declined and may continue to be volatile, which could adversely affect an investment in our stock and our ability to raise capital.
Investors should consider an investment in our securities as risky and invest only if they can withstand a significant loss and wide fluctuations in the market value of their investment. Holders of our stock may be unable to sell their shares of common stock at or above the price paid for the shares due to fluctuations in the market price of our common stock arising. Our stock price has been highly volatile during the 12-month period ended June 30, 2022, with closing stock prices ranging from a high of $24.875 per share to a low of $1.45 per share.
The price at which our common stock trades may continue to fluctuate significantly and may be influenced by many factors, including our financial condition; developments generally affecting our industry; general economic, industry and market conditions; the depth and liquidity of the market for our common stock; investor perceptions of our business; reports by industry analysts; announcements by other market participants, including, among others, investors and our competitors; regulatory action affecting our business; and, the impact of other risk factors discussed in our 2021 Annual Report and this Quarterly Report on Form 10-Q. In addition, changes in the trading price of our common stock may be inconsistent with our operating results and outlook.
Declines and volatility in the market price of our common stock have and may continue to materially and adversely affect our ability to fund our business through public or private sales of equity securities and the retentive power of our equity compensation plans, which we rely upon in part to retain key executives and employees.
Unfavorable global economic or political conditions could adversely affect our business or financial condition.
Our business and our ability to raise capital are susceptible to general conditions in the global economy and in the global financial markets. Further, the impacts of political unrest, including as a result geopolitical tension, such as a deterioration in the relationship between the U.S. and China or escalation in conflict between Russia and Ukraine, including any additional sanctions, export controls, or other restrictive actions that may be imposed by the U.S. or other countries against governmental or other entities in, for example, Russia, also could lead to disruption, instability, and volatility in the global markets, which may have an adverse impact on our business or ability to access the capital markets. Inflation rates have increased and may continue to rise. A severe or prolonged economic downturn, including a recession or depression resulting from the ongoing COVID-19 pandemic, political disruption, or inflation could result in a variety of risks to our business and our ability to raise additional capital when needed on acceptable terms, if at all. Any of the foregoing could materially and adversely affect our business, financial condition, results of operation, and prospects, and we cannot anticipate all of the ways in which the political, economic, or financial market conditions could adversely impact our business.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three-month period ended June 30, 2022, we withheld or acquired from employees shares of common stock to satisfy statutory withholding tax liability upon the vesting of share-based awards. The following table sets forth information on our acquisition of these shares for each month during the period in which an acquisition occurred.
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Issuer Purchases of Equity Securities
| (a) | (b) | (c) | (d) | ||||||||||
| Period | Total
number of shares (or units) purchased | Average
price paid per share (or unit) | Total
number of shares (or units) purchased as part of publicly announced plans or programs | Maximum
number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs | |||||||||
| April 2022 | 3,149 | $ | 6.60 | N/A | N/A | ||||||||
| May 2022 | 5,303 | $ | 4.35 | N/A | N/A | ||||||||
| June 2022 | 5,424 | $ | 1.62 | N/A | N/A | ||||||||
| Total | 13,876 | $ | 3.79 | ||||||||||
Item 5. Other Information
Departure of Directors or Certain Officers; Compensatory Arrangements of Certain Officers.
On August 11, 2022, our Board of Directors (the “Board”), upon the recommendation of the members of the Compensation Committee of the Board, approved an arrangement pursuant to which Cameron Hoyler, our General Counsel, Corporate Secretary, EVP Corporate Development & Strategy, and Chief Compliance Officer, will become a part-time employee beginning August 16, 2022, through an amendment to the Executive Employment Agreement between Mr. Hoyler and us dated August 18, 2021.
After the effective date of the amendment to the Executive Employment Agreement (as so amended, the “Agreement”), Mr. Hoyler will cease to serve in any of the offices listed in the preceding paragraph and will be employed in the position of “Corporate Counsel” to provide advisory services related to our legal matters and, to that end, provide 250 hours of service to the Company in each calendar quarter during the term of the Agreement. Mr. Hoyler’s salary for the 12-month period ending August 15, 2023, is $205,000, which we are obligated to pay in full should Mr. Hoyler be terminated by us without “Cause” (as defined in the Agreement) prior to the end of that 12-month period. There are no other severance payments or benefits under the Agreement. After August 15, 2023, Mr. Hoyler’s salary will be $10,000 per month. Bonus compensation may be paid at our sole discretion. Prior to the amendment of the Agreement, Mr. Hoyler’s annual salary was $350,000, and if he was terminated without Cause or he terminated employment for “Good Reason” (as defined in the Agreement), he was entitled to receive severance payments equal to 12-months of salary, a bonus payment equal to 60% of his annual salary, and reimbursement of health insurance premiums for 12 months following termination.
Mr. Hoyler will not be entitled to participate in any fringe benefits that may be made available to employees or accrue any paid time off. Due to the limited hours of service, we do not expect that Mr. Hoyler will be eligible to participate in our employee benefit plans in which eligibility requires at least 30 hours of service per week or 130 hours of service per month.
If there is a “Fundamental Transaction,” as defined in the Agreement that closes on or before May 15, 2023, Mr. Hoyler will be entitled to receive a payment of $350,000. Prior to the amendment of the Agreement, Mr. Hoyler was entitled to receive upon the occurrence of a Fundamental Transaction and termination of his employment during the 12-month period ending six months following the closing of the Fundamental Transaction a payment of $700,000, a bonus payment equal to 60% of his annual salary, and reimbursement of health insurance premiums for 12 months following termination.
The foregoing description of the Agreement is not complete and is qualified in its entirety by reference to the Employment Agreement with Cameron Hoyler dated August 18, 2021, and Employment Agreement Amendment No. 1 dated August 11, 2022, filed as Exhibits 10.7 and 10.8 to this report, respectively, and are incorporated by reference herein.
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Item 6. Exhibits
Except as otherwise noted, the following exhibits are included in this filing:
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| POLARITYTE, INC. | |
| Date: August 11, 2022 | /s/ Richard Hague |
| Richard Hague | |
| Chief Executive Officer | |
| Duly Authorized Officer | |
| Date: August 11, 2022 | /s/ Jacob Patterson |
| Jacob Patterson | |
| Chief Financial Officer | |
| Chief Accounting Officer |
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EXHIBIT 10.8
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1
This Amendment No. 1 (the “Amendment”) to the Employment Agreement dated August 18, 2021 (the “Original Agreement”), by and between Cameron J. Hoyler (the “Executive”) and PolarityTE, Inc., a Delaware corporation (“PTE”), and PolarityTE MD, Inc., a Nevada corporation (“MD”) (PTE and MD are collectively referred to herein as the “Company”) is made this 11th day of August 2022 to be effective on August 15, 2022 (the “Effective Date”). Capitalized terms used in this Amendment and not otherwise defined shall have the meaning ascribed thereto in the Original Agreement.
WHEREAS, the Company and the Executive wish to modify the title, working hours, compensation, and other terms of employment between the Company and Executive contained in the Original Agreement;
NOW, THEREFORE, in consideration of the mutual covenants, promises, and obligations set forth herein, the parties agree as follows:
1. All changes to the Original Agreement set forth in this Amendment will apply prospectively only after the Effective Date. After the Effective Date the term “Agreement” as used in the Original Agreement shall mean the Original Agreement as amended by this Amendment.
2. Section 1(a) of the Original Agreement is amended by deleting all of Section 1(a) and inserting the following provision in lieu thereof:
(a) Position. The Executive is engaged by the Company as provided in this Agreement with the title “Corporate Counsel.” In such position, the Executive shall have such duties, authority, and responsibilities as are customary and consistent with the role of in-house corporate counsel. Executive agrees to abide by the rules, regulations, instructions, personnel practices, and policies of the Company and its subsidiaries, all of which may be amended or adopted at any time in the sole discretion of the Company or its subsidiaries. The Executive shall report to the Chief Legal Officer of the Company.
3. Section 1(b) of the Original Agreement is amended by deleting all of Section 1(b) and inserting the following provision in lieu thereof:
(b) Duties. During the period of employment, the Executive shall devote 250 hours of Executive’s business time and attention per calendar quarter to the performance of the Executive’s duties hereunder; provided, however, in no event shall Executive provide more than 28 hours of service in one calendar week or provide more than 100 hours of service in one calendar month. Nothing contained herein shall be construed so as to limit or restrict the Executive from engaging in any other business, profession, or occupation for compensation or otherwise.
4. Section 2 of the Original Agreement is amended by deleting all of Section 2 and inserting the following provision in lieu thereof:
| 2. Place of Performance. The parties acknowledge and agree that the Executive shall perform his duties hereunder primarily from his personal residence. From time to time the Executive may be required to travel on Company business during the term of employment, including travel to the Company’s principal business facility in Salt Lake City, UT, and the parties will cooperate in scheduling any such travel. The Executive agrees to preserve and protect the Company’s property in his possession outside the Company’s principal business facility in accordance with applicable policies of the Company and the Company’s Proprietary Information, Invention Assignment, and Restrictive Covenant Agreement. |
5. Section 3(a) of the Original Agreement is amended by deleting all of Section 3(a) and inserting the following provision in lieu thereof:
(a) Base Salary. The Company shall pay the Executive a base salary in periodic installments in accordance with the Company’s customary payroll practices and applicable wage payment laws, but no less frequently than monthly, as follows: (i) for the period beginning August 16, 2022, and ending August 15, 2023, $17,083.33 per month; and for each month subsequent to August 15, 2023, $10,000 per month. The Executive’s monthly base salary, as in effect from time to time, is hereinafter referred to as “Base Salary.”
6. Section 3(b) of the Original Agreement is amended by deleting all of Section 3(b) and inserting the following provision in lieu thereof:
(b) Annual Bonus. The Company may approve payment of one or more bonuses to the Executive from time to time as it may determine in its sole discretion.
7. Section 3(d) of the Original Agreement is amended by deleting all of Section 3(d) and inserting the following provision in lieu thereof:
(d) [Reserved]
8. Section 3(f) of the Original Agreement is amended by deleting all of Section 3(f) and inserting the following provision in lieu thereof:
(f) [Reserved]
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9. Section 5 of the Original Agreement is amended by deleting all of Section 5 and inserting the following provision in lieu thereof:
| 5. Termination on Death or Disability. Executive’s employment will terminate automatically upon Executive’s death or, upon 14 days prior written notice from the Company, in the event of Disability (see Section 10 for the definition of this term and capitalized terms used herein and not otherwise defined). Upon any termination for death or Disability, Executive or his dependents or heirs at law shall be entitled to: (a) Executive’s Base Salary through the effective date of termination that has accrued and remains unpaid as of said date; (b) reimbursement of expenses for which Executive is entitled to be reimbursed pursuant to Section 3(g) above, but for which Executive has not yet been reimbursed; and (c) no other severance or benefits of any kind, unless required by law or pursuant to any other written Company plans or policies, as then in effect. |
10. Section 6 of the Original Agreement is amended by deleting all of Section 6 and inserting the following provision in lieu thereof:
| 6. Involuntary Termination for Cause; Resignation. Notwithstanding any other provision of this Agreement, the Company may terminate Executive’s employment at any time for Cause or Executive may resign from Executive’s employment with the Company at any time. Termination by the Company for Cause or Executive’s resignation shall be effective on the date either Party gives notice to the other Party of such termination in accordance with this Agreement unless otherwise agreed by the Parties. In the event that the Company accelerates the effective date of a resignation, such acceleration shall not be construed as a termination of Executive’s employment by the Company. In the case of the Company’s termination of Executive’s employment for Cause, or Executive’s resignation, Executive shall be entitled to receive: (a) Base Salary through the effective date of the termination or resignation, as applicable, that has accrued and remains unpaid as of said date; (b) reimbursement of all business expenses for which Executive is entitled to be reimbursed pursuant to Section 3(g) above, but for which Executive has not yet been reimbursed; and (c) no other severance or benefits of any kind, unless required by law or pursuant to any other written Company plans or policies, as then in effect. |
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11. Section 7 of the Original Agreement is amended by deleting all of Section 7 and inserting the following provision in lieu thereof:
| 7. Involuntary Termination Without Cause. If Executive is terminated by the Company involuntarily without Cause (excluding any termination due to death or Disability) then, subject to the terms or limitations of Sections 8 and 19 of the Agreement, Executive shall be entitled to receive: (a) Executive’s Base Salary through the effective date of the termination that has accrued and remains unpaid as of said date; (b) if the effective date of the termination is prior to August 16, 2023, a lump sum payment equal to the difference between the total of the monthly Base Salary payments for the 12-month period beginning on and including August 16, 2022, and the total of the Base Salary payments made to Executive for such period under this Agreement; (c) reimbursement of all business expenses for which Executive is entitled to be reimbursed pursuant to Section 3(g) above, but for which Executive has not yet been reimbursed; (d) vesting as of the date of termination or resignation of any outstanding equity awards held by Executive that would have vested within one year of the date of termination but for the termination of the Executive’s employment; and (e) no other severance or benefits of any kind, unless required by law or pursuant to any written Company plans or policies, as then in effect. The foregoing notwithstanding, if Executive is terminated by the Company on or after the date of closing of a Fundamental Transaction with respect to which Executive receives the compensation provided for in Section 8 of the Agreement, then the Executive shall not be entitled to receive any payment or compensation under this Section 7 on account of such termination. |
12. Section 8 of the Original Agreement is amended by deleting all of Section 8 and inserting the following provision in lieu thereof:
| 8. Termination in connection with a Fundamental Transaction. If there is a Fundamental Transaction that closes on or before May 15, 2023, and Executive has not been terminated for Cause prior to such closing, Executive shall be entitled to receive: (a) a lump sum payment equal to $350,000 (b) reimbursement of all business expenses for which Executive is entitled to be reimbursed pursuant to Section 3(g) above, but for which Executive has not yet been reimbursed; and (c) no other severance or benefits of any kind, unless required by law or pursuant to any written Company plans or policies, as then in effect. For the sake of clarity, the Company is obligated to make the payment under Section 8(a) regardless of whether the Executive is employed by the Company at the time the Fundamental Transaction closes, unless the Executive has been terminated for Cause prior to the closing of the Fundamental Transaction. |
13. Section 9 of the Original Agreement is amended by deleting all of Section 9 and inserting the following provision in lieu thereof:
9. [Reserved]
14. Section 10(c) of the Original Agreement is amended by deleting all of Section 10(c) and inserting the following provision in lieu thereof:
(c) [Reserved]
15. The Company and the Executive acknowledge and agree that: (a) at the end of the day on the Effective Date, the Executive shall be deemed to have resigned from all positions that the Executive holds as an officer or member of the board of directors (or a committee thereof) of the Company or any of its subsidiaries; and (b) the Company shall pay to Executive on the payroll payment date following the Effective Date for accrued and unused paid time off, which payment will be a complete and final payment of all amounts owing to Executive for unused vacation time or any other leave as of the Effective Date.
16. This Amendment and the Agreement, for all purposes, shall be construed in accordance with the laws of Utah without regard to conflicts of law principles. Any action or proceeding by either of the parties to enforce this Agreement shall be brought only in a state or federal court located in the state of Utah, county of Salt Lake. The parties hereby irrevocably submit to the exclusive jurisdiction of such courts and waive the defense of inconvenient forum to the maintenance of any such action or proceeding in such venue.
17. Except as specifically amended by this Amendment, all terms of the Original Agreement shall remain in full force and effect.
[signature page follows]
| 4 |
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.
For POLARITYTE, INC., and POLARITYTE MD, INC.
| By: | /s/ Richard Hague | |
| Name: | Richard Hague | |
| Title: | Chief Executive Officer | |
| EXECUTIVE | ||
| /s/ Cameron J. Hoyler | ||
| Cameron J. Hoyler | ||
| 5 |
EXHIBIT 31.1
CERTIFICATION
I, Richard Hague, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of PolarityTE, 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 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 officers 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 Rule 13a-15 (f) and 15 d-15(f)) for the registrant and we 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 quarterly 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 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 officers 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: August 11, 2022 | /s/ Richard Hague |
| Chief Executive Officer | |
| (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
I, Jacob Patterson, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of PolarityTE, 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 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 officers 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 Rule 13a-15 (f) and 15 d-15(f)) for the registrant and we 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 quarterly 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 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 officers 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: August 11, 2022 | /s/ Jacob Patterson |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Exhibit 32.1
Certification Pursuant to Rule 13a-14(b) and Section 1350, Chapter 63 of Title 18, United States Code
Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, the undersigned officers of PolarityTE, Inc. (the “Company”), do hereby certify, to such officers’ knowledge, that:
The Quarterly Report on Form 10-Q for the period ending June 30, 2022 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 11, 2022
| /s/ Richard Hague | |
| Richard Hague | |
| Chief Executive Officer | |
| /s/ Jacob Patterson | |
| Jacob Patterson | |
| Chief Financial Officer |