UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission File No. 000-51128001-32404

POLARITYTE, INC.

(Exact name of registrant as specified in its charter)

615 Arapeen Drive1960 S. 4250 West

Salt Lake City UT 84108, Utah84104

(Address of principal executive office)

Registrant’s telephone number, including area code (732) 225-8910(800)560-3983

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well knownwell-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] ☐ No [X] ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [  ] ☐ No [X] ☒

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 [X] ☒ No [  ]☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [X] ☒ No [  ]☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein and, will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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 definitionthe definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b).

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ] ☐ No [X] ☒

The aggregate market value of the common stock held by non-affiliates as of AprilJune 30, 20172022, was $58.3 million.$7,013,749.

The outstanding number of shares of common stock as of January 26, 2018March 20, 2023, was 6,922,044.7,323,755.

The Registrant’s proxy or information statement isDocuments incorporated by reference into Part III of this Annual Report on Form 10-K.reference: None.

TABLE OF CONTENTS

As used in this report, the terms “we,” “us,” “our,” “the Company,” and “PolarityTE” mean PolarityTE, Inc., a Delaware corporation, and our 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, IBEX, 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.

In April 2022, the business historically operated under the name “IBEX” was sold, together with the trademark IBEX, to an unrelated third party, so references to the Company for periods after April 29, 2022, do not include IBEX Preclinical Research, Inc., or the business historically operated under the name “IBEX.”

Item 1. Business.

Forward-looking Statements

Statements in thisThis Annual Report on Form 10-K contains forward-looking statements. Risks and uncertainties are inherent in forward-looking statements. Furthermore, such statements may be based on assumptions that are not historical facts constitutefail to materialize or prove incorrect. Consequently, our business development, operations, and results could differ materially from those expressed in forward-looking statements that are made in this Annual 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 Annual 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 “Exchange Act”. Examplesnegative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements relatingabout:

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

Forward-looking statements relate to future events or to our future economicfinancial performance including anticipated revenues and expenditures, results of operations or financial position,involve known and unknown risks, uncertainties, and other financial items, our business plans and objectives, including our intended product releases, and may include certain assumptions that underlie forward-looking statements. Risks and uncertaintiesfactors that may affectcause our actual results, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements include, among other things, those listed under “Risk Factors” and elsewherestatements. Any forward-looking statement in this Annual Report. In some cases,Report on Form 10-K and the documents incorporated by reference herein 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 can identifyshould 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 by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential”for any reason, even if new information becomes available in the future.

This Annual Report on Form 10-K also contains 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 “continue” or the negative of these terms or other comparable terminology. These statements aresimilar methodologies is inherently subject to businessuncertainties, and economic risk and reflect management’s current expectations, and involve subjects that are inherently uncertain and difficult to predict. Actualactual events or resultscircumstances may differ materially. Moreover, neithermaterially from events and circumstances reflected in this information. Unless otherwise expressly stated, we nor anyobtained this industry, business, market, and other person assumes responsibility for the accuracy or completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this Annual Report to conform these statements to actual results. References herein to “we,” “us,”data from reports, research surveys, studies, and “the Company” are to similar data prepared by market research firms and other third parties, industry, medical and general publications, government data, and similar sources.

PART I

Item 1. Business.

Overview

PolarityTE, Inc.

Introduction

PolarityTE™, headquartered in Salt Lake City, Utah, is a commercial-stage biotechnology and regenerative biomaterials company focused on transforming the lives of patients by discovering, designing and developing a range of regenerative tissue products and biomaterialsbiomaterials. Our first regenerative tissue product is SkinTE. On July 23, 2021, we submitted an investigational new drug application (“IND”) for SkinTE to the fieldsU.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 medicine, biomedical engineering and material sciences. We believe thatthe Public Health Service Act. FDA approval of the IND was given in January 2022, which allowed us to commence the first of two pivotal studies needed to support a biologics license application (“BLA”). Our first pivotal study under our PolarityTE platform technologyIND is a new approachmulti-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.”

In March 2022, we submitted to pragmaticthe FDA a request for a Regenerative Medicine Advanced Therapy (“RMAT”) designation for SkinTE under our IND. Established under the 21st Century Cures Act, RMAT designation is a dedicated program designed to expedite the drug development and functional tissue regenerationreview 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 manyunmet medical needs for such disease or condition. RMAT designation provides the benefits of the challenges currently facing the regenerative medicine and cell therapy markets. Recognizing the natural complexity of human tissue, our core “TE” platform begins with a small piece of the patient’s own, or autologous, healthy tissue, rather than artificially manipulated individual cells. From this small piece of healthy autologous tissue, we create an easily deployable, dynamic and self-propagating product designed to enhance and stimulate the patient’s own cells to regenerate the target tissues. Rather than manufacturing with synthetic and foreign materials within artificially engineered environments, we manufacture with the patient’s own tissue and use the patient’s own body to support the regenerative process to create the same tissue from which it was derived. We believe that our innovative method promotes and accelerates growth of the patient’s tissues to undergo a form of effective regenerative healing.

We believe our core “TE” platform has applications across many indications,intensive FDA guidance on efficient drug development, including the regrowth of skin, bone, cartilage, fat, muscle, blood vessels and neural elements, as well as solid and hollow organ composite tissue systems. Our first product, SkinTE™, is registered with the United States Food and Drug Administration, or the FDA, pursuant to the regulatory pathwayability for human cells, tissues, and cellular and tissue-based products (HCT/Ps) regulated solely under Section 361 of the Public Health Service Act, or 361 HCT/Ps, which permits qualifying products to be marketed without first obtaining FDA marketing authorization or approval. SkinTE is commercially available for the repair, reconstruction, replacement and regeneration of skin (i.e., homologous uses) for patients who have suffered from wounds, burns or injuries that require skin coverage over both small and large areas of their body.

We believe that living systems require more than a simple singular input, like a growth factor, stem cell or nano-particle, to produce a complex output. We have designed, engineered and developed our technology platform to allow us to induce, maintain and promote the complete development of cellular entities, their products and tissue elements in a way that mirrors regenerative healing in the body. We aim to maintain and promote key dynamic processes that drive integrative regeneration of our tissue products once deployed back to the patient to improve upon common issues seen with other tissue products, such as immune system rejection, inflammation, and other adverse reactions.

The following chart summarizes the development of our core products and product candidates.

SkinTE, our first of the core “TE” tissue products, was registeredearly interactions with the FDA on August 14, 2017,to discuss potential ways to support accelerated approval and is now commercially available for the repair, reconstruction, replacement or regenerationsatisfy post-approval requirements, potential priority review of skin in patients who have or require treatment of acute and chronic wounds, burns, surgical reconstruction events, scar revision, or removal of dysfunctional skin grafts. We have initiated a staged-commercial release of SkinTE to select medical institutions, and expect to scale up manufacturing efforts during 2018 following the buildout of our 200,000 ft² biomedical manufacturing facility.

In preclinical testing, we observed that SkinTE regenerated full-thickness skin complete with all of its layers (epidermis, dermis, hypodermis) and functional appendages, including hair follicles, sweat glands and sebaceous glands. Thus far, in the early stages of the human clinical application of SkinTE, we have observed results that are correlative with our preclinical observations. We intend to target sales of SkinTE toward the wound care market, which according to MedMarket Diligence LLC is expected to exceed 250 million wounds worldwide by 2020.

Because we do not expect our product candidates to require time-intensive, costly, multi-phase clinical trials or prior marketing approval or authorization like other therapeutics, biologics and devices, we plan to develop and commercialize several products simultaneously. As we believe our innovative platform technology has wide applicability—not only to regenerate multiple human tissues, organs, and composite structures, but also across other complex interacting biological systems (such as the immune system)—we believe that over time we can become a leader in the global regenerative medicine market, which according to Stratistics MRC is expected to exceed $100 billion by 2022.

We are a company built and run by physicians for patients and the physicians who care for them. We believe that developing tangible regenerative products requires an intimate knowledge of the realities that exist within the trenches of medicine. Our management team’s expertise is the result of years of medical training and clinical practice, extensive direct experience in the field at major reconstructive surgery and burn centers, and, collectively, hundreds of articles published in peer-reviewed journalsBLA, and other publications. Our founders, Chief Executive Officer, Dr. Denver Lough,opportunities to expedite development and Chief Operating Officer, Dr. Edward Swanson, left the Department of Plastic and Reconstructive Surgery at the Johns Hopkins University School of Medicine to launch the Company and pursue their passion to impact the lives of patients on a much larger scale, and to address many of the clinical problems they encountered on a daily basis. Dr. Michael W. Neumeister, our Chief Medical Officer, is Professor and Chairman of the Department of Surgery at Southern Illinois University School of Medicine, and Dr. Stephen Milner, our Chief Clinical Officer, is former Professor of Plastic and Reconstructive Surgery and Pediatrics at the Johns Hopkins University School of Medicine and former Director of the Johns Hopkins Burn Center. Dr. Maurice Nahabedian, our Chief Surgical Officer, is Chairman of this year’s meeting of the American Society of Plastic Surgeons, is former Professor and Section Chief of Plastic Surgery at MedStar Washington Hospital Center, and former Vice Chairman of the Department of Plastic Surgery at the Georgetown University.

We believe that our expertise is further bolsteredreview. In May 2022, we were advised by the vast knowledge and experience of our Clinical Board of Advisors, composed of leaders across a variety of medical and surgical specialties, including professors, chairmen of departments, and national surgical society presidents at a number of medical institutions, such as former President ofFDA that it concluded SkinTE meets the American Burn Association and Chairman of the American Board of Plastic Surgery, Dr. Martin C. Robson.

In addition to our Clinical Board of Advisors, we have assembled a Military and Mass Casualty Board led by Major General (U.S. Army – Retired) Jay Hood, who served as the Commander of First Army Division East, the Chief of Staff, United States Central Command and the Commander of Joint Task Force Guantanamo, among other high-level leadership positions during his 36 years of distinguished service. We intend to leverage the expertise of our Military and Mass Casualty Board to identify ways to use our technology platform to develop regenerative products with the potential to address the complex and devastating injuries of military service members, wounded warriors, veterans, and mass casualty victims.

Limitations of Current Wound Care and Regenerative Medicine Technologies and Products

To date, many wound care, regenerative medicine and tissue engineered products have focused on “large scale manufacturable materials” and “off the shelf” designscriteria for products as opposed to employing a more patient-specific approach. Many products utilize animal-derived tissues, referred to as xenografts, or cadaveric-derived tissues, referred to as allografts, in part to allow for a robust supply chain of sourced raw materials. However, we believe these skin substitutes do not result in actual tissue regeneration.

We believe that, prior to PolarityTE, the evolving field of regenerative medicine has been characterized by tremendous potential, but has also been wedded to approaches that are fraught with significant challenges. We believe the approach to regenerative medicine that our predecessors and competitors employ has anchored itself within tissue engineering algorithms that—while potentially profitable because of mass production and scalability—are incongruent with living cells, dynamic tissues and reactive systems. Some current regenerative medicine approaches aim to isolate a single cellular population to regenerate a tissue, such as adipose-derived stem cells. Other approaches aim to deliver a molecule to manipulate cell function, such as driving cell growth and expansion, or coaxing one cell type to become another. The final prominent current approach aims to create some form of a scaffold that recapitulates the appearance of the target tissue with specific properties designed to mimic that tissue, such as polymers with similar mechanical properties of bone, and allow or encourage a targeted cellular function and tissue integration, such as 3-D printing of scaffolds and nano-particles.

We believe these approaches incorrectly focus on the synthesis and/or engineering of singularities (i.e. a type of cell, a type of molecule, and/or type of matrix) in an attempt to build a complex tissue from the ground up, which we believe creates an incomplete system without interactions, diverse cells and molecules, or a natural environment to direct organization.

Our Solution — The PolarityTE Core “TE” Platform Technology

We believe each person’s cells and tissues have vastly different and dynamic profiles (genomic, transcriptomic, proteomic, metabolomic etc.), and therefore different requirements when it comes to the regenerative potential and/or healing capacity of tissue-based systems. With this in mind, we designed our core “TE” platform technology to focus not on singularities but on regenerating complete tissue systems.

Our core “TE” platform and self-complexing intelligent regenerative materials technologies are based on our ability to create minimally polarized functional units, or MPFUs, which contain polarizing multi-cellular aggregates capable of expanding, proliferating and synthesizing those cells, materials, factors and/or systems we believe are necessary for integrative full-thickness three-dimensional tissue regeneration, not simply two-dimensional cell sheets. Instead of starting with artificial materials, synthetic factors and/or altered cell suspensions, our platform begins with the patient’s own (autologous) tissue and those components, appendages and substrates we believe are necessary for the development of an expandable and self-propagating complete system.

With SkinTE, often within 24-48 hours of the initial skin harvest, our product is applied to the patient, whose body then provides a receptive environment and nutrients for controlled healing. By both preserving the tissue’s natural microenvironment and using the patient’s body as an intrinsic bioreactor—which means using the body’s own natural biological healing process rather than a manufactured or engineered environment to support the regenerative process—we believe a patient’s own tissue can be regenerated, along with its natural coloring and texture, layers and structure, hair and appendages. We have designed our technology platform to use the patient’s own healthy tissue, in part to increase the likelihood that the patient’s immune system will identify the regenerating tissue as its own so that our product is neither rejected nor reacted to adversely. We believe that our platform has the potential to transform tissue regeneration, including potential regeneration of multiple tissue substrates, such as skin, bone, muscle, fat, cartilage, nerves, and blood vessels. The harvest, deployment, and application of our platform technology in SkinTE is shown in the images below.

Our product pipeline focuses on the development of regenerative products for a variety of tissue types and organ systems which are commonly altered, injured or destroyed by a variety of diseases, pathologies, traumatic events and medical interventions. We believe that our biomaterials platform capabilities extend to applications across many indications, including bone, cartilage, muscle, blood vessels and neural elements as well as solid and hollow organ composite tissue systems. The key attributes of our platform technology include the following:

Our Competitive Strengths

We believe that our key competitive strengths include the following:

Novel Platform Technology.Our technology platform deploys activated MPFUs into a wound or other tissue defect with the goal of regenerating fully-functional, polarized tissues and hierarchically organized tissue structures, such as skin with all of its layers, hair and glands. We design the MPFUs to facilitate the expansion, proliferation and synthesis of the cells, materials, factors and systems that we believe are necessary for complete, full-thickness generation and regeneration across a spectrum of tissue substrates and organ systems. Rather than relying on a single stem cell, growth factor, or scaffold, we believe that complex tissue regeneration requires a dynamic composite cellular interface to engineer a complex tissue that is expected to integrate into living systems. We design our core tissue substrate materials to create complex functional living tissue systems in a way that mirrors natural healing in the body and is not seen as foreign by the immune system.

Proof of Concept Through FDA-Registered, Commercialized SkinTE Product.SkinTE is registered with the FDA and is our first commercially available product. In our preclinical animal studies, we observed favorable outcomes using SkinTE to aid skin regeneration compared to natural wound healing. In a natural, unaided setting, skin defects heal through a process of wound contraction and often scar formation. Although skin grafts may reduce contraction, they also often leave patients with scarring. In our preclinical animal studies, we observed that SkinTE reduced scar formation and regenerated full-thickness, hair-bearing skin within the wound bed. The following images from our preclinical animal studies show the SkinTE skin regeneration and native wound healing we observed in one of our preclinical animal studies.

Since November 2017, we have sold and provided SkinTE to multiple medical providers across the country who have treated patients for acute and chronic wounds, surgical reconstruction, burns, and removal of scarred and contracted skin grafts for replacement with SkinTE. Preliminary results from the initial human clinical applications of SkinTE are yielding results that are correlative with our preclinical observations.

Deep Pipeline of Additional Potential Applications. In addition to the regrowth of skin, we believe our platform’s capabilities can be extended across many indications, including bone, cartilage, muscle, blood vessels and neural elements, as well as solid and hollow organ composite tissue systems. For example, we believe there are currently unmet medical needs that can be addressed by the regeneration of cartilageRMAT designation for the treatment of osteoarthritisDFUs and facial reconstruction,venous leg ulcers (“VLUs”).

Since the beginning of 2017, we have incurred substantial operating losses and our 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 our costs in the foreseeable future, we expect we will continue to incur substantial operating losses as we pursue an IND and BLA, and we expect to seek financing from external sources over the foreseeable future to fund our operations.

SkinTE

The Importance of Skin

Skin has several functions. It provides a barrier to water loss and pathogens, and protects against diverse forms of trauma, including thermal, chemical, and ultraviolet radiation. Skin keeps us in touch with our environment through a host of nerve endings, regulates body temperature, and enhances metabolic functions. Skin is an active immune organ functioning as a first line of defense against a wide spectrum of common pathogens encountered on a regular basis. Biosynthesis of melanin in the skin reduces the harmful effects of ultraviolet light. Skin is a ready source of vitamin D, which plays an important role in maintaining healthy levels of serum calcium and resorption of bone.

The clinical significance of skin is illustrated by the morbidity associated with chronic wounds, burns, and cutaneous defects. A 12-month prospective observational study of diabetic foot ulcers first published in Diabetic medicine: a journal of the British Diabetic Association in 2018 reported that out of a group of 299 patients, 17.4% had some sort of amputation of the foot and 6.0% of the 299 patients underwent revascularization surgery. A report published on Medscape in June 2018 states that pressure injuries are listed as the direct cause of death in 7-8% of all patients with paraplegia. And according to statistics collected by the National Burn Repository, the mortality rate from 2008 to 2017 among burn patients treated at surveyed burn centers is approximately 3%. We believe that the regeneration of fat-for-fat transfers during plastic surgery procedures, the regeneration of nerves following traumatic loss, the regeneration of blood vessels for vascular grafts, the regeneration of the urogenital epithelium and submucosa for urethral strictures and bladder reconstruction following tumor removal, the regeneration of liver tissue for liver fibrosis or failure, and the regeneration of bowel tissue to prevent leaking where the bowel is reconnected (prevention of anastomotic leak) or replaced due to excessive loss from trauma, surgery or congenital defects.

Shortened Product Development Timelines. Since our core “TE” product candidates all stem from a common platform technology, we believe we are able to accelerate research and development, pre-clinical model prototyping, and product development in a manner which is efficient and optimized across substrates.

Scalable Manufacturing and Distribution Capability.Because we believe our technology can be applied across a variety of tissue substrates, we believe we have the ability to prototype, model and develop products for commercialization relatively quickly. We have developed flexible manufacturing processes, systems and facilities that we believe can allow us to quickly respond to increases in demand and market forces. Because we believe we can apply our technology to many types of tissue and organ systems, we believe we can effectively scale and reproduce the manufacturing and distribution of multiple pipeline products at the same time. In addition, we believe we can leverage our platform technology to create a variety of substrate sub-platforms and related technology derivative arms, which can act either as additive technologies to core “TE” products, or as standalone products. We believe we may also be able to integrate our technology with other off-the-shelf products (e.g. to cellularize an acellular scaffold or function with existing dressings).

Efficient Regulatory Pathway. We believe our products and product candidates, including SkinTE, are appropriately regulated by the FDA as 361 HCT/Ps, which provides us with the potential to register and list products with the FDA, and begin commercializing quickly and efficiently. Unlike products regulated by the FDA under the Federal Food, Drug, and Cosmetic Act (the “FD&C Act”) and/or the Public Health Service Act as drugs, devices, or biologics, which require multi-phase clinical trials and premarket approvals, our SkinTE product is regulated by the FDA as human cells or tissues intended for implantation. We are developing our additional pipeline candidates to be regulated as 361 HCT/Ps as well. 361 HCT/Ps do not require premarket approval or other premarket authorization and may be lawfully marketed for appropriate human use in the United States following registration with the FDA.

Experienced and Recognized Physician-Led Leadership Team. We believe our extensive experience and knowledge in cell-tissue and molecular biology, reconstructive surgery, regenerative medicine, biomedical engineering, biomedical manufacturing and clinical pragmatism arms us with the ability to effectively commercialize our regenerative technologies for unmet medical needs. We are a company run by physicians for patients and the physicians who care for them. Our management team has spent considerable time in the operating room gaining direct front-line experience with many of the products that comprise the existing regenerative medicine market, and working on ways to address the limitations of these products. Our Chief Executive Officer, Dr. Denver Lough, and Chief Operating Officer, Dr. Edward Swanson, were Plastic Surgery Residents at the Johns Hopkins University School of Medicine prior to founding PolarityTE, and have hands-on experience working in wound care and tissue engineering. Dr. Michael W. Neumeister, our Chief Medical Officer, is Professor and Chairman of the Department of Surgery at Southern Illinois University School of Medicine, and Stephen Milner, our Chief Clinical Officer, was Professor of Plastic and Reconstructive Surgery and Pediatrics at the Johns Hopkins University School of Medicine and served as the Director of the Johns Hopkins Burn Center. We believe our front-line experience not only provides a deep understanding of the comparative standards of care for tissue regeneration, but also an understanding of the user experience and adoption mechanisms behind successful surgical products generally. We also benefit from the guidance of our Clinical Board of Advisors, which includes professors and directors of surgery at a number of medical institutions and former President of the American Burn Association and Chairman of the American Board of Plastic Surgery, Dr. Martin C. Robson.

Our Growth Strategy

Complete the full commercial launch of SkinTE and establish SkinTE as an improvement over the standard of care for skin tissue injuries, including wounds, burns and scars.We believe that SkinTE has the potential to supplant prevailing methods of wound and burn care because, unlike existing treatment options, it is designed to regenerate full-thickness skin using small samples ofwith all the patient’s own tissue. Rather than being limited by dimensions of the tissue received, SkinTE is designed to regenerate significantly beyond the sample size. Our initial limited commercial roll-out of SkinTE commenced in November 2017 and has focused on severe wounds and burn patients at key regional centers as, in our experience, these patients are often in critical need of large areas of skin regrowth and may have limited available healthy skin to use for skin grafts. However, we expect to make SkinTE commercially available to address the broader wound market, which is expected to exceed 250 million wounds worldwide by 2020. Along with the treatment of acute and chronic wounds, we intend to market SkinTE for other surgical reconstruction events, including cosmetic and elective surgeries, and for scar revision or the removal of dysfunctional events. We are leveraging the front-line experience of our leadership team to enhance adoption of SkinTE by physicians and patients by designing our products with a focus on simplicity, the user experience, reliability and ease of application. For SkinTE, and for each of our product candidates we plan to commercialize, we intend to conduct prospective clinical evaluations to compare the products to the standard of care, to bolster adoption and reimbursement with third-party payers.

Capitalize on our scalable manufacturing capabilities and the 361 HCT/P regulatory pathway to commercialize additional pipeline products quickly and efficiently. In addition to SkinTE, we are actively preparing and advancing our other core “TE” pipeline candidates for FDA registration using the 361 HCT/P pathway that does not require FDA approval prior to marketing, and for market entry. We currently expect to register our bone regeneration product candidate, OsteoTE, with the FDA and to begin commercial roll-out by the end of 2018. We are also developing numerous other regenerative products including CartTE™ (cartilage for osteoarthritis, facial reconstruction and more), AdipoTE™ (fat transfers for plastic surgery procedures), AngioTE™ (vascular grafts), NeuralTE™ (nerve repair), UroTE™ (urogenital epithelium and submucosa), LiverTE™ (liver tissue for liver fibrosis or failure) and BowelTE™ (bowel tissue). Our current expectation is to rely on the versatility of our platform technology, the 361 HCT/P regulatory pathway, and our scalable manufacturing capability to develop and launch multiple products concurrently.

Explore partnership or collaboration opportunities for pipeline candidates as well as potential acquisitions or in-licenses of complementary product candidates. We are actively exploring the possibility of partnership or collaboration opportunities with third parties, which we believe could be used to facilitate the commercial adoption of our pipeline candidates worldwide or in certain territories. We are selectively evaluating the formation of collaborative alliances, product licensure and distribution agreements and integrative product offerings, as well as opportunities to accelerate the commercialization and development of our products. In the future, we also expect to consider the acquisition or in-license of complementary product candidates.

Our Products and Product Candidates

The following chart summarizes our product development pipeline.

SkinTE

Our first product, SkinTE, is registered with the FDA and is now commercially available for treatment of defects of the skin. SkinTE is created from a small piece of the patient’s own tissue, which is extracted, and then manufactured using our proprietary technology platform to expand and regenerate full-thickness, fully functional skin with what we believe to be the critical layers, including epidermis, dermis and hypodermis,processes and appendages including hair follicles and glands. Each package of SkinTEthat enable it to perform its vital functions is patient-specific and designed for a single application. We believe SkinTE offers a compelling alternativecritical to current standards of care forlong-term, positive patient outcomes following serious skin regeneration.injury.

PolarityTE designed SkinTE for use by physicians and other healthcare professionals in the treatment of patients who have suffered from an event, disease, or process, or who have an acquired defect that has resulted in the functional loss or absence of the skin. Specifically, SkinTE is designed for the treatment of chronic wounds such as diabetic foot ulcers, acute wounds such as traumatic injuries, chronic burn wounds or scars, acute burn wounds, scars of the integument, and defects from medical or surgical resection or reconstruction events which require skin coverage. According to a 2015 report from MedMarket Diligence, LLC, more than 250 million wounds are expected globally by 2020. And according to Stratistics MRC’s 2016 Global Regenerative Medicine Market Outlook, the global market for regenerative medicine and tissue engineering is expected to grow to $101.3 billion by 2020.

SkinTE was registered as a 361 HCT/P with the FDA pursuant to Section 361 of the Public Health Service Act and 21 CFR 1271. An HCT/P is defined as articles containing or consisting of human cells or tissues that are intended for implantation, transplantation, infusion, or transfer into a human recipient. Products that qualify as 361 HCT/Ps are not subject to the FDA’s pre-market clearance or approval requirements, but rather can be immediately listed for commercial use with the FDA and are then subject to post-market regulatory requirements such as compliance with current good tissue practices (cGTP), adverse event and deviation reporting, and post-market inspections by the FDA. For more information on the 361 HCT/P regulatory pathway, please see “Government Regulation” and “Risk Factors – Risks Related to Registration and/or Regulatory Approval of Our Product Candidates and Other Government Regulations.”

Limitations of Current Wound TreatmentsOther Skin Treatment Therapies

Current clinical standards and practice adhere to the concept that tissue should be replaced with like, or homologous, tissue. For example, skin should be replaced with skin whenever possible in settings where patients have suffered the loss of such tissue. Understanding this, medical professionals are left with a decision to attempt to temporize a wound bed with cadaveric skin (allograft), utilizean autograft (using the patient’s own skin (autograft)in a skin graft), an allograft (using human skin from a donor), or apply a variety of skin substitutes in order to provide a skin-like barrier while the margin of the wound heals through secondary intention and contraction. Presently,Historically, harvest and placement of autologous full-thickness skin results in the best outcome within wound beds because it most closely resembles the full-thickness skin that was lost. Full-thicknessHowever, full-thickness harvest of skin however, also inherently results in a full-thickness skin defect at the donor site, which requires primary closure (skin edge approximation and suturing) so as not to leave a gaping wound behind. There is aBecause of this absolute limit on how much autologous full-thickness donor skin can be harvested without leaving behind a non-closable wound. As a result,wound, medical professionals can only harvest small, elliptically-shapedelliptically shaped pieces of such skin from areas of redundancy, which are referred to asis termed full-thickness skin grafts, or FTSGs.grafting (“FTSG”).

Due to these limitations,It is because there remains only a finite supply of FTSG donor material and sites that medical professionals often rely on the harvest of split-thickness skin grafts (“STSG”) for coverage of voids of the integument to get better coverage and more skin. STSGs, however, do not represent the true anatomy or STSGs, whichfunction of native skin because STSG harvest onlyprocedures commonly take the top layer1/100th of an inch of the patient’s own skin as a means to get more skinand therefore do not capture all the necessary cellular and tissue components and structures required for better coveragethe regeneration of voids. Following harvestnormal skin. Because of the top layer offailure to harvest all the necessary skin for an STSG—which leaves behind the many necessary structures cellular elements and tissue interfacescomponents from the STSG donor site—patients are oftensite, the patient is left with an incomplete top layer of skin covering the initial defect (recipient site) and a remaining bottom layer at the donor site. In this setting, both donor and recipient sites contain incomplete skin, which can resultoften results in dysfunctional, painful scar tissues that can result inand lifelong morbidities.

BecauseDue to the limits of STSG and FTSG and the limitationstype of STSGs and FTSGs, medical professionals and companies haveprocedures required for such harvests, the industry has continued to investigate skin substitutes and skin alternatives for usethat can be used in place of a patient’s own skin, such asnative skin. Among these alternatives or options are a cultured epithelial autograft (a form of manipulated autograft,autograft), allograft (cadaveric tissues)(tissue grafts derived from a donor of the same species as the recipient but not genetically identical), xenograft (animal tissues)(a tissue graft or organ transplant from a donor of a different species from the recipient), and alloplast or synthetic materials.engineered skin substitutes. To our knowledge, no skin substitute hasnone of these substitutes have been able to replicate the appearance of native skin, or regenerate full-thickness skin or the cutaneous appendages (hair follicles,(e.g., hair follicle, sweat glands,gland, sebaceous glands, etc.), which are necessary for the development of full-thickness, functionallynormal skin.

Our Solution - SkinTE

The core technology of SkinTE is minimally polarized hierarchically organized skin. In its Local Coverage Determination for the Application of Skin Substitutes (L36466), the Centers for Medicare and Medicaid Services, or CMS, acknowledges that “sufficient data is available to establish distinct inferiority [of current skin substitutes] to human skin autografts and preclude their designation as skin equivalence.” The CMS determination also finds that “without the componentfunctional units (“MPFUs”). MPFUs are multi-cellular segments created from a piece of the recipient’s own distinct epithelium and cellular skin elements, permanent skin replacement or coverage bypatient’s healthy skin. SkinTE allows the graft cannot be accomplished.”

Our Wound, Burn and Skin Reconstruction Treatment Solution – SkinTE

PolarityTE designed SkinTE to address the limitations from which current wound and burn treatment methods suffer. We designed SkinTE to combine the advantages of autologous STSGs with those of FTSGs. Notably, SkinTE is designed to provide not only the large surface area treatment capability of STSGs, but also the restoration and smaller, less morbid donor site associated with FTSGs. In essence, we believe our minimally manipulated SkinTE product can provide an expandable form of a FTSG.

SkinTE is composed of small viable cellular and tissue-based units, which we call MPFUs, that retain all of the components of skin that we believe are requiredpatient to regenerate full-thickness, skin. The initial processes underlyingthree-dimensional skin (similar to a FTSG) by contributing a much smaller skin sample, while reducing the function of SkinTE are analogous to those responsible for the healing of an autologous skin graft, namely imbibition, inosculation,scarring and neo-vascularization. During imbibition, SkinTE,morbidities associated with STSGs, and the small cellular and tissue based units that comprise it, survive through the direct application of the SkinTE “paste” on the wound bed, exchanging nutrients and waste within the fluid of the wound bed. Inosculation is the stage in which the capillaries and blood vessels already present within the wound bed begin to align and connect with those present within the graft. Neovascularization marks the ingrowth of new blood vessels into the wound bed and out of the graft, with vasculogenesis describing the formation of new vessels from cellular precursors present within the wound and graft, and angiogenesis referring to the sprouting of new vessels from pre-existing ones. Due to their size and composition,producing results we design the small cellular and tissue based units within SkinTE to have reduced metabolic demand andbelieve to be capable of surviving through diffusion,superior to STSGs and to readily excrete metabolic waste, resulting in what we believesynthetic skin substitutes. SkinTE can be less ischemic damage when compared to FTSGs. Reduction in ischemic damage has the potential to decrease scar formation and provideutilized by a more functional result. Following completionvariety of the initial stages of integrating and healing within the wound bed, the SkinTE product is designed to begin forming and organizing discrete areas of full-thickness skin. We have observed in preclinical animal testing that these regenerative centers of full-thickness skin then expand out radially across the wound, eventually coalescing with each other and the margins of the wound.

As compared to the currently marketed skin substitutes of which we are aware, each SkinTE tissue-product is derived entirely from the patient’s own skin and is not combined with any other tissue-engineered substitutes. We believe these differences allow SkinTE to regenerate all of the important layers of the skin as well as the necessary cutaneous appendages for the development of functionally-polarized, hierarchically organized autologous, homologous skin.

How SkinTE Works

SkinTE is designed as an all-in-one system to make the process as simple and efficient as possible for the user—whether that individual is a surgeon, medical doctor, physician assistant or nursehealth care providers in an operating room, wound clinic, emergency department,or doctor’s office or forward operating military facility. Whenoffice. The process begins with the collection of a new clinical center or practice is activated to begin using our SkinTE product, we ship a supply of all-inclusive harvest boxes (see the image furthest to the left above) to the facility for convenient on-site, off-the-shelf storage for that user and facility. Each harvest box contains all the materials and instruments needed to perform the relatively standard skin excision procedure to obtain the tissue sample and all of the pre-paid/pre-completed shipping labels, and a one-touch NanoCool® shipping box that maintains the temperature within the harvest box as it is delivered to a PolarityTE biomedical manufacturing facility.

At our manufacturing facility, we use proprietary techniques to create a paste-like product from the small piece of healthy patient tissue that preserves the original tissue’s microenvironment and allows new cells to integrate into existing, healthy cells, with similarly organized assembly and interface development. Following manufacturing at our facility, the SkinTE product is shipped back to the provider at a time that best suits the patient and provider’s schedulingshipping the sample in a temperature-controlled shipping box to our FDA-regulated biomedical manufacturing facility. The harvested skin is used to manufacture SkinTE, which is expeditiously returned for application to the patient’s wound. Processing of the skin creates multi-cellular segments that are optimized for grafting, which retain the progenitor cells found throughout the skin, including the hair follicles. The product is not cultured or expanded ex-vivo, and location needs (i.e. operating room, procedure clinic, in-patient bedside, out-patient doctor’s office). Our goalno enzymes, growth factors, or serum derivatives are utilized during manufacturing. The final product, SkinTE, is to be able to returndelivered in a syringe and has the ready-to-use SkinTE product to physicians as early as the same day. In our limited time selling SkinTE, we have observed that the majorityconsistency of return requests have been for return within 24-72 hours from tissue harvest. At application time, once the patienta paste. Following wound bed is prepared per clinical guidelines,preparation, SkinTE is dispensed ontospread evenly across the entire surface of the wound and engrafts within the wound in a similar manner to traditional skin grafts. Once integrated with the wound bed, (see the imageproduct expands and regenerates full-thickness skin across the entire surface.

Given our significant real-world experience with SkinTE in clinical settings for a variety of wounds and several supporting publications, we believe SkinTE can be successful in closing full-thickness complex wounds, such as DFUs penetrating to tendon, capsule, and bone classified Wagner Grades 2 through 4; Stage 3 and 4 pressure injuries; and, acute wounds. Full-thickness DFUs that penetrate to deep structures are best classified as University of Texas Grades 2 and 3, corresponding to Wagner Grades 2 through 4, and are at the highest risk for progressing to amputation with very few treatment options and a paucity of high-level data related to current treatment options. Similarly, Stage 3 pressure injuries involve the entire thickness of the skin and Stage 4 pressure injuries have exposed muscle, tendon, or bone. Due to limited reliable solutions, these injuries affect a large number of people for extended periods of time. We believe that focusing our efforts in these hard-to-treat wound types, where there are significant unmet needs, can deliver substantial positive impacts in patients’ lives and value for the SkinTE franchise for several reasons.

Clinically, we believe SkinTE is highly differentiated from current treatment alternatives in these hard-to-treat wound types. In real-world experience and data from preliminary studies conducted to date, we believe that SkinTE has covered exposed critical structures, completely filled in wound depth including tunneling, and ultimately provided complete and durable wound closure with the regenerated tissue having many of the important characteristics of native skin such as pliability, strength, sensation, ability to sweat, and hair growth. In contrast to a multi-staged approach combining numerous treatments in an algorithm dictated by wound progression, SkinTE can be applied directly into deep wounds with exposed structures, typically requires only a single application in the middle above). The wound is dressed usingvast majority of cases and, unlike other products in this space, may not require a non-adherent, occlusive, non-absorbent dressing placed directly over the SkinTE product (see the image furthestskin graft to the right above), with recommended dressings that we include in the deployment box.

To assist physicians and other medicalachieve final closure. In our experience, providers in using SkinTE, we developed a web application called the PolarityTE 24-Hour Real-Time Assistant, or the RTA, which permits experienced and medically trained PolarityTE physicians and staff to provide real-time support through a customer’s computer or smart phone. The RTA permits HIPAA-compliant direct calling, video chat, text, emails and data sharing. Through the RTA, our customers can also track their packages and submit forms. We also use the RTA to gain advanced visibility into daily manufacturing requirements and product flow.

Preclinical Studies

In preclinical models of full-thickness swine burns and wounds, we observed that SkinTE generated healing with reduced scarring, hair follicle growth, complete wound coverage, and the progressive regeneration of all skin layers including epidermis, dermis and hypodermal layers. We believe swine models of burns andtreating complex wounds are predictive of results found in humans due tomost concerned with reliably covering deep structures, as this mitigates a substantial risk factor for the similarities between swinepatient and human skin. We have included images below of the SkinTE-generated swine wound healing we observed.

Stereoscopic Imaging of Progressively Healing Wounds. (a.) Representative progression of wound healing in excised full-thickness burn wound (untreated control) vs. excised full-thickness burn wound treated with SkinTE. Image sequence – left column: day 0; middle column day 2; right column day 50. (b.) Cross-section of healed tissue in untreated control wound. Pseudo-epithelium (PsE); Contracted Scar (CS). (c.) Cross-section of healed tissue in SkinTE treated wound. Black arrows indicate where SkinTE propagated and expanded into the residual burn scar that remained in addition to regenerating full-thickness, hair-bearing skin in the excised tissue void. Hair Follicle (HF); Epidermis (Ep); Epidermal-Dermal Junction (EDJ); Neo-dermis (ND); Hypodermal Fat (HDF). The 9 images in the 3x3 grid to the right represent progressive regeneration of cutaneous appendages which progressively develop and directly promote the regeneration of full-thickness, hierarchically organized skin. Pore (P); Neo-dermal expansion (NDE); Cornification (CF). Top right image of 3x3 grid represents region of where the ❶ native skin ❷ meets (wound margin interface) ❸ the progressively healing SkinTE construct. Notice that at the margin of where native skin meets SkinTE (❷), the residual scar has a smaller width than individual hair shafts. The images and data presented here are from pre-clinical studies.

Comparing Native Skin and Skin Grafts to SkinTE.Stereoscopic Imaging of Comparative Healed Burn Wounds. Comparative images depict a baseline burn wound control (untreated excised burn) on the upper left and untouched native skin to its right. The right sequence of images depicts three rows of excised full-thickness burns treated with: (upper row) full-thickness allograft skin; (middle row) full-thickness autologous skin graft; (bottom row) autologous, homologous SkinTE product. Images were captured at day 54 following treatment. Type of wound treatment is indicated at the left side of the image (allograft, autograft, SkinTE); (white arrow) indicates the margin of interface between the peri-wound native skin and SkinTE; and untreated native skin is indicated at the right side of the image. Sequential images are increasing zoom to identify the margin of linear interface. The images and data presented here are from pre-clinical studies.

The following image shows our observations of the wound edge and interface between native skin and SkinTE following regenerative healing.

Comparing Native Skin at the Wound Edge (above) to SkinTE Following Regenerative Healing (below).) Depicts a region of the SkinTE treated wound bed (lower bracket) and marginal peri-wound bed containing native skin (upper bracket) and the direct interface between two tissue types, as indicated by the round-ended arrow heads and connecting dotted line. The images and data presented here are from pre-clinical studies.

The following images show our observations of SkinTE healing, including full-thickness hair-bearing skin regeneration, compared to native wound healing.

Direct Comparison of SkinTE Full-thickness Hair-bearing Skin Regeneration vs. Native Wound Healing.

The following images compare mid-stage healing burn wounds, showing the differences in tissue formation and scar contraction in the control wound as compared to SkinTE-regenerated tissue.

Comparing Mid-stage Healing Processes Between Native Wounds and Defects Treated with SkinTE. Stereoscopic Imaging of Comparative Mid-stage Healing Burn Wounds Representing the Different Mechanisms of Tissue Formation Between Scar Contraction in the Control Wound and Full-thickness Skin Regeneration with SkinTE. (Left panels) The native Mid-stage contracting wound represents typical wound contracture and scar formation subsequent to keratinocyte migration from the margin ofconverts the wound to form overlying pseudo-epithelium. (Right panels) Expandinga lower grade that is more manageable. We believe that covering deep structures and filling wound volume with newly generated vascular tissue is an important advantage of SkinTE undergoes regenerative healingand differentiates SkinTE from other treatments that have increased failure rates in these hard-to-treat wound settings. Another valuable aspect of SkinTE clinically is that it is created from a relatively small skin harvest that is well tolerated by the patient.

We believe that patients with complex wounds face significant unmet needs, and that providers are motivated to better address them. If future clinical trials conducted under our IND demonstrate outcomes similar to those observed in real-world experience and preliminary clinical studies, we believe that SkinTE has the potential to shift practice patterns, accelerate adoption, and capture a significant portion of these hard-to-treat wound markets.

Clinical Trials

Under the SkinTE IND

Our IND for SkinTE was opened in January 2022. Our first pivotal study under the IND is the COVER DFUs Trial. We plan to enroll up to 100 subjects at up to 20 sites in the U.S. in the COVER DFUs Trial, which will compare treatment with SkinTE plus the standard-of-care to the standard-of-care alone. The primary endpoint is the incidence of DFUs closed at 24 weeks. Secondary endpoints include percent area reduction (“PAR”) at 4, 8, 12, 16, and 24 weeks, improved quality of life, and new onset of infection of the DFU being evaluated. We have been enrolling subjects in the COVER DFUs Trial since the end of April 2022, and we expect the study will be fully enrolled sometime in the first six months of 2024. Additionally, there is an interim analysis planned for the first 50 patients and we believe that data will be available in late 2023 or early 2024.

As a result of the RMAT designation received in May 2022, 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. 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.

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 permits wound edge marginswill 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 propagatingbillable expenses incurred.

Pre-IND

PolarityTE conducted several clinical trials before it filed its IND for SkinTE, elements to interact inwhich were conducted on a manner which promotes integrative full-thickness healingpost-marketing basis with augmented levels of cross interface angio and vasculogenesis, resulting in significantly less contraction and scar formation. The images and data presented here are from pre-clinical studies.

The following images from our preclinical studies show stereoscopic imaging of progressively healing full-thickness burn wounds following the application of SkinTE as compared against an untreated control wound. The image indicates where growtha 361 HCT/P. These clinical trials include the following:

Burns and Traumatic Wounds

We initiated a head-to-head trial comparing SkinTE to the STSG, the clinical standard of hair follicles, neo-dermal expansion and neo-glandular development can be seencare, in the SkinTE-treated wound. Also depicted is a comparison betweenfirst quarter of 2018. Eight patients were enrolled in the contraction of the underlying neo-dermis of an untreated control wound as compared to a SkinTE-treated wound.

Stereoscopic Imaging of Progressively Healing Wounds Following Application of SkinTE vs. Untreated Control Wound in a Preclinical Full-thickness Burn Wound. (a.) SkinTE, depicts stereoscopic image and correlative trichrome ancillary staining indicating regions of original wound edge (black arrow-ball dots); hair follicle (HF); Neo-dermal expansion (NDE with correlative white dot outline; Neo-glandular development (NGD). (b.) Control untreated wound, Contracted Scar (*CS) with correlative dual headed arrow spanning remaining scar width region. (c.) Bar graph showing the reduced contraction with SkinTE and full-thickness skin grafts relative to split-thickness skin grafts, allografts, scaffolds, and untreated controls wounds. (d.) Mid-stage expansion of the underlying neo-dermis of SkinTE prevents contraction early on by preventing myofibroblast directed collagen synthesis and contracting orientation from forming directly along stress lines and by preventing tension induced scar hypertrophy. The images and data presented here are from pre-clinical studies.

Direct Comparison of SkinTE Full-thickness Hair-bearing Skin Regeneration vs. Native Skin and Wound.Regenerative healing occurs through a process which not only regenerates the appropriate and necessary tissues, functions and interfaces but also prevents wound contraction, scar formation and fibrotic pseudo-tissue deposition (Top Row) Left- SkinTE at 54 days of healing. Middle - Depicts a region of the SkinTE treated wound bed (lower bracket) and marginal peri-wound bed containing native skin (upper bracket)trial and the direct interface between two tissue types, as indicated byprimary endpoint for the round-ended arrow heads and connecting dotted line. Right- Native wound undergoing healing at 54 days. (Bottom Row) Left- Comparative elastic modulus (kPA) across, SkinTE™, native skin andtrial was graft take. Data from the trial was published in the Journal of Burn Care & Research in September 2020. Eight patients with deep-partial/full thickness burns had a native wound. X and Y coordinates represents the dimension tested and correlative area (14 cm x 14 cm) containing color spectrum associated units as described by kPA scale. Comparative Raman spectroscopyportion of the molecular fingerprint region of the of ❶Native Control Wound, ❷SkinTE (defined as a woundtheir wounds treated with SkinTE and the resultant tissue within the region at 6 months), ❸Native Skin – Untreated, ❹Spectral Δ: SkinTE vs. Native Untreated, (defined as a comparative analysis betweenremainder of their burn treated with split-thickness skin grafting. The SkinTE treated woundwounds had graft take and achieved closure by their last follow-up with a single application. A single adverse event at a SkinTE harvest site secondary to a dehiscence (technical error) occurred requiring secondary closure at the native skin), ❺Spectral Δ: Wound vs. Native Untreated, (defined astime of the native wound compared to native skin). The images and data presented here are from pre-clinical studies.

In additionpatient’s definitive grafting procedure. There were no other adverse events pertaining to the preclinical SkinTE animal results described above, we have conductedapplications in the trial.

Diabetic Foot Ulcer (DFU) Trials

DFUs are chronic wounds and represent one of the costliest, and medically significant, health related morbidities encountered during a seriespatient’s lifetime. The estimated annual U.S. payor burden ofex vivo preclinical human tissue studies on full-thickness skin DFU ranges from $9.1 billion to $13.2 billion according to a 2014 article in Diabetes Care, a publication of the American Diabetes Association. The outpatient management of DFUs represents the major contributing cost to the health care system. Inadequate assessment and management with chronicity of treatment is one of the subsequent final tissue product, primary cost drivers and failures of care.

SkinTE in orderwas used to identify potential variations between native skin and SkinTE. As described more fully below, in these studies we observed that the methods of harvest, processing and deployment necessary to produce SkinTE did not meaningfully alter viability and regenerative outcome of SkinTEtreat 10 patients (11 DFUs) in a treated wound.pilot trial completed in June 2019, and first reported at the Symposium on Advanced Wound Care Fall 2019. The following are the results as determined by independent review:

Tissue Product Viability: In order to assess a variety of cell and tissue functional abilities, including cell viability, we utilized CellInsight CX7 High-Content Screening (HCS) systems in our R&D facilities. This high-content platform is a plate-based confocal imaging system with multi-assay integration to assess both relative and quantitative values within comparative specimens in real-time.

The results of our HCS Analytics on the impact of time, temperature and processing of SkinTE under commercial protocol simulation conditions are illustrated below.

High Content Screening Analytics on the Impact of Time, Temperature and Processing of SkinTE™ under Commercial Protocol Simulation Conditions. (a.) Comparative percent relative viability (%RV) before and following standard processing of human full-thickness skin into SkinTE™. %RV of specimen at day 1: Pre-processed substrate (Skin: 89.67 ± SD 1.36); Post-processed product (SkinTE™: 97.11 ± SD 1.78). (b.) Daily %RV of SkinTE™ following post-processing production. Dotted lines indicate associated predictive 95% Confidence Interval (95% CI). Blue line indicates linear predictive correlative regression. Red line indicates semi-logarithmic predictive correlate for time impact on %RV. Correlation (R²: 0.9431); (P value 0.0012). (c.) Delay impact on %RV of skin and SkinTE™. Assumptions considered represent 1.) Late arrival for CGTP manufacturing (D2-D10:2-10 days) of pre-processed incoming full-thickness skin substrate [provider to PolarityTE]; 2.) Late receipt for clinical deployment (D2-D10:2-10 days) of outgoing full-thickness SkinTE™ construct. (d.) High temperature impact on %RV of pre-processed skin and post-processed SkinTE™ after 24 hours of exposure. P-values: (*)0.05; (**)0.001. Study (n) = 120.

From the viability studies described above, we observed the following:

Human Tissue Expression Profile: In order to assess a variety of cell/tissue expression profiles across genes related to proliferation, cell stress, apoptosis, necrosis and cellular potency, we conducted focused gene tests on the same tissues analyzed in the human tissue viability tests describe above.

The results of these human gene expression tests evaluating the impact of time, temperature and processing of SkinTE under commercial protocol simulation conditions are illustrated in the comparative heat maps below.

Comparative Heat Maps of Focused Human Gene Expression Arrays Evaluating the Impact of Time, Temperature and Processing of SkinTE under Commercial Protocol Simulation Conditions.(a.) Relative gene expression (84 gene apoptosis array) across 10 patient samples under specific conditions related to the effect of: ❶ Full-thickness unprocessed skin vs. Manufactured SkinTE on Day 1, representing the day of arrival, processing and preparation for return to provider in a standard commercial operations setting. ❷ Comparison of apoptosis of full-thickness skin and SkinTE at day 5, representing the relative profile between both tissue systems if a delay in transport occurred ❸ Comparison of apoptosis profile of unprocessed full-thickness skin at day 1 vs. day 5, representing a delay in transport from the provider facility to the PolarityTE Tissue Processing Center ❹ Comparison of apoptosis profile between SkinTE at day 1 vs. day 5 representing a delay in transport of SkinTE from the PolarityTE Tissue Processing Center back to the provider for clinical deployment (b.) Relative gene expression (84 gene stem cell array) across the same 10 patient samples under the same specific conditions described above. No statistical significance was found across the replicates.

From these expression profile studies, we observed that:

To date, preliminary resultsAfter that trial, we conducted a multicenter, randomized controlled trial evaluating SkinTE plus standard of care (“SOC”) compared to SOC alone in treatment of diabetic foot ulcers [NCT03881254] (the “DFU RCT”). In July 2021, we announced final data from the initial human clinical applicationsDFU RCT. The size of the study was 100 patients who were evaluated across 13 sites, with 50 participants receiving SkinTE are correlative with the preclinical results previously observed.

OsteoTE

We are using our platform technology to develop OsteoTE, our autologous, homologous bone regeneration product. We are designing OsteoTE to utilize the patient’s own bone to target applications for bone repair, reconstruction, replacement, supplementation,plus SOC and regeneration, including in the long bone (hard, dense bones that provide structure, strength and mobility such as the femur or humerus), craniomaxillofacial, spine, dental, hand, and foot/ankle markets. As with skin, we believe existing treatments for the repair50 receiving SOC alone. The primary endpoint was percentage of bone with autologous grafts suffer from significant limitations that we can address with OsteoTE. Below are preliminary images of OsteoTE bone regeneration in a preclinical model of a cranial defect.

Comparative Imaging of OsteoTE in Critical Sized Cranial Defect Model System.(a.) Three-dimensional (3-D) micro computed tomography (micro-CT) native cranial bone displaying pre-defect left parietal and right parietal bones ofin vivomodel systemulcers closed at timepoint T^PDN. (b.) Gross image of surgically-created, complete, bi-parietal critical sized defects of both the left and right parietal bones within thein vivomodel system at timepoint T⁰. (c.) 3-D micro-CT of surgically-created, complete (full-thickness), bi-parietal critical sized defects of both the left and right parietal bones within thein vivomodel system. ① Indicates the right parietal bone region with 8 mm diameter defect at timepoint T⁰ which12 weeks. A secondary endpoint was un-treated and maintained as the defect control throughout study. ② Indicates the left parietal bone region with 8 mm defect which was treated with OsteoTE and maintained as the defect-treated control throughout the study. (d.percent area reduction (“PAR”) 3-D micro-CT of surgically-created, complete, bi-parietal critical sized defects of both the left and right parietal bones within thein vivomodel system at 4, 6, 8, and 12 weeks.

The trial met the primary endpoint of wound closure at 12 weeks post-procedure and intervention (timepoint T^PPI-4WK). ❶Indicates the un-treated right parietal bone region (defect control)secondary endpoint of PAR assessed at 4, 6, 8, 10, and 12 weeks. ❷ Indicates the treated left parietal bone region (OsteoTE) at 4 weeks. (e.) Depicts the relative margins of the primary bi-parietal defects (dotted circles) at time point T⁰; ROI (broken line box) indicates zoomed comparison of 4 weeks post-treatment defects of 3-D micro-CT and correlative 3-D thermal spectrum colored surface plot indicating relative surface depth and volumetric contour. Abbreviations: Pre-defect Native Timepoint (T^PDN): timepoint at which native skull was imaged prior to creation of defect; Defect Native Timepoint (T⁰): timepoint at which complete (full-thickness) 8 mm critically sized defects were created in parietal skull regions; Post-procedure and intervention at 4 weeks timepoint (T^PPI-4WK): timepoint at which 4 weeks have passed since the defects were created +/- treated with intervention.

Based on our internalFinal analysis of the Truven Health Analytics Market Scan Research Database, there were approximately 1.9 million addressable orthopedic cases inDFU RCT shows the United States, including patients suffering from pathology of the femur, radius, ulna, tibia, fibula, and/or humerus. (Copyright © 2017 Truven Health Analytics LLC, an IBM Company, All Rights Reserved). According to Markets and Markets, the global spinal fusion and implant market is expected to reach $17.3 billion by 2021, the global craniomaxillofacial implants market is expected to reach $2.5 billion by 2021, and the dental market is expected to reach $35.4 billion by 2021. We are targeting FDA registration of OsteoTE as a 361 HCT/P by the end of 2018, with commercial launch to take place soon thereafter into each of the markets listed above, in addition to hand and foot/ankle surgery.following:

CartTE

With our CartTE product candidate, we are aiming to deliver on a long-imagined product—one that is able to tackle the highly prevalent and debilitating process of osteoarthritis in an attempt to delay or prevent the need for more invasive procedures, such as prosthetic joint replacement and reconstruction. Furthermore, we believe the autologous cartilage construct delivered with CartTE can be utilized in a variety of other applications, including facial reconstruction, facial aesthetics, hand reconstruction, as well as wrist reconstruction.

Osteoarthritis of the hip or knee is estimated to affect 9% of the US population greater than 30 years of age, with costs of treatment totaling $28.6 billion in 2013, according to a review by Grande et al. Market projections by Krutz et al. in 2007 predict that the demand for primary (first-time) total hip and knee replacements will grow to 572,000 and 3.48 million procedures per year by 2030 in the US, respectively. In contrast to the staggering number of patients suffering from osteoarthritis and those pursuing joint replacement, the cartilage repair and regeneration market is only estimated to reach $6.7 billion by 2025, according to a Cartilage Repair/Regeneration Market Analysis report by Grand View Research. This lopsided market, in which cartilage repair and regeneration only captures a small fraction of the patient population that could benefit from articular cartilage regeneration, demonstrates a significant opportunity for our autologous cartilage regeneration product, CartTE, to displace the current trends and standards of care, delivering the regenerative medicine product that has remained elusive until now.

Additional Core “TE” Product Candidates

In addition, we intend to continue developing:

Mean (SD) values for PAR at weeks 4, 6, 8, 10, and 12 by treatment group were:

Venous Leg Ulcer (“VLU”) Trials

VLUs are a type of chronic wound and constitute a significant burden on the worldwide health care system and are often refractory to treatment. Up to one-third of treated patients experience four or more episodes of recurrence. Delivering all the elements of native skin can potentially reduce the recurrence rate.

SkinTE was used to treat 10 patients in a pilot trial completed in September 2019, and first reported at the Symposium on Advanced Wound Care Fall 2019, where PolarityTE received recognition as Best Abstract. The following are the results as determined by independent review:

We started a multicenter, randomized controlled trial evaluating SkinTE versus standard of care in treatment of VLU [NCT03881267] (“the “VLU-RCT”), but decided in the first quarter of 2021 to suspend that trial after 29 patients were enrolled because we believed that our resources would be better used in future clinical trials conducted under an IND that can be used in our eventual planned BLA submission. In February 2022, we announced final data from the VLU RCT. The 29 patients who were evaluated across 10 sites, with 14 participants receiving SkinTE plus SOC and 15 receiving SOC alone. The primary endpoint was percentage of ulcers closed at 12 weeks. A secondary endpoint was PAR at 4, 6, 8, and 12 weeks.

The trial met the primary endpoint of wound closure at 12 weeks and secondary endpoint of PAR assessed at 4, 6, 8, 10, and 12 weeks. Final analysis of the VLU RCT shows the following:

Mean (SD) values for PAR at weeks 4, 6, 8, 10, and 12 by treatment group were:

Market Opportunity

The primary markets for SkinTE are wounds from traumatic injury, chronic wounds (including DFUs, VLUs, and pressure ulcers), burn wounds, and acute wounds, such as traumatic wounds, and wounds from surgical procedures. The following is some information on potential markets for SkinTE.

Potential Product Enhancements or Additions

SkinTE Point-of-Care Device

Our SkinTE point-of-care device is intended to permit the processing and deployment of SkinTE immediately following the initial harvest at the point-of-care. This device is in the development stage.

SkinTE Cryo

SkinTE Cryo allows PolarityTE to offer multiple deployments from one original harvest through a cryopreservation process. Using one harvest for multiple deployments may improve patient treatment when a patient is susceptible to multiple chronic wounds, the provider suspects a patient might require a second deployment of SkinTE due to past non-compliance with rehab protocols, or the provider elects to use a staged deployment on a patient with a large wound due to wound location or other therapeutic circumstances. SkinTE Cryo is in the development stage and is a long-term development project.

Other Tissue Regeneration Products

We believe our innovative technologies may be platforms for developing therapies that address a variety of indications, including bone, cartilage, muscle, blood vessels, and neural elements, as well as solid and hollow organ composite tissue systems.

For the foreseeable future we intend to pursueapply our business and financial resources to the marketing of each of theSkinTE IND and BLA and development work on SkinTE POC, and we have at this time put on hold further work on other product candidates described above via the 361 HCT/P regulatory pathway. If we successfully register and list a product with the FDA using the 361 HCT/P pathway, we plan to deploy a commercialization strategy that is similar to that for SkinTE.development.

Manufacturing

We do not separately engineer individual manufacturing processes around each individual tissue product. Rather, we design, develop and adapt our core “TE” products and product candidates to a common manufacturing process which we believe we can utilize across our product pipelinePolarityTE maintains at its facility in order to establish fast, effective and cost-efficient systems, enhance our production capacity and expansion strategy, and at the same time potentially reduce our cost of goods sold.

We have designed and developedSalt Lake City, Utah, manufacturing processes and quality systems that allow usit to receive a skin specimen, qualify the incoming tissue, and process and manufacture the cell/SkinTE tissue product, proficiently and perform outgoing quality control and quality assurance work prior to expedited return shipping—often during the same day in which a sample is received.

We believe that our ultra-clean dual-barrier system, which involves clean room structures containing fully-isolated and air-locked internal ISO 4 containment systems, allows us to move specimen and product in an efficient manner, while maintaining protective quality systems.

We have designed our scalableshipping. PolarityTE validated its manufacturing process as being aseptic. All SkinTE is manufactured within an ISO 5 certified isolator located within an ISO 7 certified cleanroom. PolarityTE’s processes are designed and validated to allow usprevent the spread of communicable disease, and to be flexibleprevent cross-contamination between samples, and agile in real-time, while allowing usits quality systems comply with current Good Tissue Practices (“cGTP”) under 21 C.F.R. Part 1271.

PolarityTE is modifying its operational and quality management systems to shift resources on a daily basis to meet acute production needscomply with cGMP under requirements of the Federal Food, Drug and Cosmetic Act, as well as respondunder 21 C.F.R. Parts 210 and 211, and other applicable regulations, which are in addition to larger factors including market forces, multi-facility buildouts, and changes in rapidly evolving technology platforms. In designing our products and systems, we focused both on being able to meet market demand and to scale manufacturing. We believe that we have designed our manufacturing clean dual-barrier system to be efficient in flow processes, column production, and in repeated scalability in local, national and international arenas. In compliance with ISO standards and cGTP/cGMP, our repeating clean manufacturing column systems and fully-isolated and air-locked internal ISO 4 containment units are engineered and designed with scalable production in mind. We currently are expanding our manufacturing to have two separate product manufacturing facilities in the United States, which together comprise over 200,000 ft², and which we are continuing to build out for our commercially available SkinTE tissue product, and as we plan for the expected registration, listing, and commercial launch of our OsteoTE tissue product.cGTP referenced above.

Suppliers

As part of ourPolarityTE’s strategy of ensuring timely delivery of ourits products, we haveit has avoided relying on any third-party supplier as a sole source vendor for any element of ourits production process. We aimPolarityTE has identified alternate suppliers and, where appropriate, supply alternatives for any sourcing need.

Intellectual Property

As we advance our technologies, product, and pipeline developments, we seek to maintain multiple back-up suppliersapply a multilayered approach for every item in the chain, with validated lead times allowing us to trigger alternative options at the first sign of constraint.

Reimbursement

We understand that coverage and reimbursement by third-party payers is critical for product adoption. As a result, we are focusing significant resources on understanding the coverage and reimbursement landscape for the application of SkinTE. Payment to us for SkinTE, including associated purchasing contracts, is derived from transactions between PolarityTE and those healthcare facilities, medical practices, and physicians utilizing the product for their patients, whereas payer reimbursement generally would be requested and made by the providers and medical practices. We believe our SkinTE customers may be able to use existing billing codes established in the Current Procedural Terminology (“CPT®”), Healthcare Common Procedure Coding System (“HCPCS”), or International Classification of Diseases, Tenth Revision, Procedural Coding System (“ICD-10-PCS”) code sets,protecting intellectual property relating to our productsinnovation with patents (utility and related services on claimsdesign), copyrights, trademarks, as well as know-how and trade secret protection. We are actively seeking U.S. and foreign patent protection in selected jurisdictions for reimbursement submitted to third-party payers. Because we only recently began selling SkinTE, our first commercial-stage product, the reimbursement landscape for SkinTE is uncertain at this timeMPFU technology. We have a number of patents issued and we cannot guarantee that our customers will be able to successfully obtain adequate coverage and reimbursement, or whether they can rely on existing billing codes to report SkinTE and/or the related services. For more information on risks associated with coverage and reimbursement, please see “Risk Factors” including but not limited to the information under the heading “Our revenues from our regenerative medicine business will depend upon adequate reimbursement from public and private insurers and health systems.”

Government Regulation

Government authorities and/or laws and regulationspending applications allowed in the United States and otherabroad related to our MPFU technology, including U.S. Patent No. 10,926,001 issued on February 23, 2021; U.S. Patent No. 11,000,629 issued on May 11, 2021; U.S. Patent No. 11,266,765 issued on March 8, 2022; U.S. Patent No. 11,338,060 issued on May 24, 2022, and U.S. Patent Application No. 17/723,748 filed April 19, 2022. Each of U.S. Patent Nos. 10,926,001; 11,000,629; 11,266,765; and 11,338,060 have an estimated expiration date of November 30, 2035.

Patent terms extend for varying periods of time according to the date of patent filing or grant and the pertinent law in the various countries regulatewhere patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the manufacturing,type of patent, the scope of its coverage, and the availability of legal remedies in the country. Further, patent term extension may be available in certain countries to compensate for a regulatory delay in approval labeling, packaging, storage, record-keeping,of certain products.

The U.S. healthcare legislation enacted in 2010 created an approval pathway for biosimilar versions of innovative biological products that did not previously exist. Prior to that time, innovative biologics had essentially unlimited regulatory exclusivity. Under the new regulatory mechanism, the FDA can approve products that are similar to (but not generic copies of) innovative biologics on the basis of less extensive data than is required by a full BLA. After an innovator has marketed its product for four years, any manufacturer may file an application for approval of a “biosimilar” version of the innovator product. However, although an application for approval of a biosimilar may be filed four years after approval of the innovator product, qualified innovative biological products will receive 12 years of regulatory exclusivity, meaning that the FDA may not approve a biosimilar version until 12 years after the innovative biological product was first approved by the FDA. The law also provides a mechanism for innovators to enforce the patents that protect innovative biological products and promotion of products suchfor biosimilar applicants to challenge the patents. Such patent litigation may begin as those we have developed and are developing. Any product we are developing must comply withearly as four years after the standards required for the product category under which theinnovative biological product is classifiedfirst approved by such government authorities and/or laws.the FDA.

FDA Regulation of Tissue-Based Products

The FDA has specific regulations governing human cells, tissues and cellular and tissue-based products, or HCT/Ps. An HCT/P is a product containing or consisting of human cells or tissue intended for transplantation into a human patient. In the United States, HCT/Ps are subjectthe increased likelihood of generic and biosimilar challenges to varying degreesinnovators’ intellectual property has increased the risk of regulation by the FDA, depending on if they fall solely within the scopeloss of Section 361 of the Public Health Service Act (the “PHS Act”) (42 U.S.C. § 264) or if they are regulated as drugs, devices, and/or biological products under Section 351 of the PHS Act (42 U.S.C. § 262) and/or the FD&C Act.

If an HCT/P meets the criteria for regulation solely under Section 361 of the Public Health Service Act (so-called “361 HCT/Ps”), no premarket FDA review for safetyinnovators’ market exclusivity. First, generic companies have increasingly sought to challenge innovators’ basic patents covering major pharmaceutical products. Second, statutory and effectiveness under a drug, device, or biological product marketing application is required. However, the processor of the tissue is required to register and list its products with the FDA, comply with regulations regarding labeling, record keeping, donor eligibility and screening and testing, process the tissueregulatory provisions in accordance with established current Good Tissue Practices (cGTP), and investigate and, in certain circumstances, report adverse events or deviations.

To be a 361 HCT/P, a product generally must meet all four of the following criteria:

We believe that SkinTE qualifies as a 361 HCT/P, and believe that our core “TE” products in development (e.g., OsteoTE) will qualify as 361 HCT/Ps. Other products we are developing are being evaluated with respect to regulatory classification, and we will prepare for any pathway of manufacturing or regulation that is required.

All establishments that manufacture 361 HCT/Ps must register and list their HCT/Ps with the FDA’s Center for Biologics Evaluation and Research (“CBER”) within five days after commencing operations. In addition, establishments are required to update their registration annually in December or within 30 days of certain changes, and submit changes in HCT/P listing at the time of or within six months of such change. Establishments that manufacture 361 HCT/Ps will know that they are registered in compliance with 21 C.F.R. § 1271.10(a) when they receive a validated form with the registration number (“FEI#”) after submitting the Form FDA 3356 (registration form). Current Good Tissue Practice (“cGTP”) requirements govern, as may be applicable, the facilities, controls, and methods used in the manufacture of HCT/Ps, including without limitation, recovery, donor screening, donor testing, processing, storage, labeling, packaging, and distribution of 361 HCT/Ps. FDA inspection and enforcement with respect to establishments described in 21 C.F.R. § 1271 includes inspections conducted, as deemed necessary, to determine compliance with the applicable provisions and may include, but is not limited to, an assessment of the establishment’s facilities, equipment, finished and unfinished materials, containers, processes, HCT/Ps, procedures, labeling, records, files, papers, and controls required to be maintained under 21 C.F.R. § 1271. Such inspections can occur at any time with or without written notice at such frequency as is determined by the FDA in its sole discretion.

If we fail to comply with the FDA regulations and laws applicable to our operation or tissue products, the FDA could take enforcement action, including, without limitation, pursuing any of the following sanctions, among others:

For more information on this regulatory risk, please see the discussion below, “Risk Factors,” including but not limited to the information under the heading, “Risks Related to Registration and/or Regulatory Approval of Our Product Candidates and Other Government Regulations.”

Fraud, Abuse and False Claims

We are directly and indirectly subject to various federal and state laws governing relationships with healthcare providers and other potential referral sources for our products pertaining to healthcare fraud and abuse, including anti-kickback, false claims, and similar laws. In addition, federal and state laws are also sometimes open to interpretation. The Company could potentially face legal risks if our interpretation differs from those of enforcement authorities. Further, from time to time the Company may find itself at a competitive disadvantage if the Company’s interpretation differs from that of its competitors.

In particular, the federal healthcare program Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration (in cash or in kind), directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing, arranging for, or recommending of, a good or service for which payment may be made in whole or part under federal healthcare programs, such as the Medicare and Medicaid programs. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are lawful in businesses outside of the healthcare industry. In implementing the statute, the Office of Inspector General of the U.S. Department of Health and Human Services (“OIG”) has issued a series of regulations, known as the “safe harbors.” These safe harbors set forth provisions that, if all their applicable requirements are met, except certain remuneration and remunerative arrangements from violating the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy each applicable element of a safe harbor may result in increased scrutiny by Government enforcement authorities, such as the OIG. Many states have laws similar to the federal law.

Also, the federal civil False Claims Act (“FCA”) imposes civil liability on any person or entity that submits, or causes the submission of, a false or fraudulent claim to the U.S. government. Damages under the FCA can be significant, and consist of the imposition of fines and penalties. The FCA also allows a private individual or entity (i.e., a whistleblower) with knowledge of past or present fraud against the federal government to sue on behalf of the government and to be paid a portion of the government’s recovery, which can include both civil penalties and up to three times the amount of the government’s damages (usually the amount reimbursed by federal healthcare programs). The DOJ takes the position that the marketing and promotional practices of life sciences product manufacturers, including the off-label promotion of products, the provision of inaccurate or misleading reimbursement guidance, or the payment of prohibited kickbacks, may cause the submission of improper claims to federal and state healthcare entitlement programs such as Medicare and Medicaid by health care providers that use the manufacturer’s products, which results in a violation of the FCA. In certain cases, manufacturers have entered into criminal and civil settlements with the federal government under which they entered into plea agreements, paid substantial monetary amounts and entered into corporate integrity agreements (“CIAs”) that require, among other things, substantial government oversight, as well as reporting and remedial actions going forward

If we fail to comply with these laws, we could be subject to enforcement actions, including but not limited to:

For more information on this fraud, abuse, and false claim risk, please see the discussion below, “Risk Factors,” including but not limited to the information under the heading, “We are subject to numerous federal and state healthcare laws and regulations, and a failure to comply with such laws and regulations could have an adverse effect on our business and our ability to compete in the marketplace.”

Environmental Matters

Our tissue preservation activities generate some chemical and biomedical wastes, consisting primarily of diluted alcohols and acids, and human and animal pathological and biological wastes, including human and animal tissue and body fluids removed during laboratory procedures. The chemical and biomedical wastes generated by our tissue processing operations are placed in appropriately constructed and labeled containers and are segregated from other wastes. We contract with third parties for transport, treatment, and disposal of waste. We strive to remain compliant with applicable laws and regulations promulgated by the Resource Conservation and Recovery Act, the U.S. Environmental Protection Agency and similar state agencies.

Reimbursement

In the United States demandlimit the ability of an innovator company to prevent generic and biosimilar drugs from being approved and launched while patent litigation is ongoing. As a result of all these developments, it is not possible to predict the length of market exclusivity for access to any medicala particular product will depend in large part on both the availability and the amount of reimbursement from third-party payers, including government healthcare programs (including Medicare and Medicaid), and commercial healthcare insurers, including managed care organizations and other private health plans. Third-party payers have complex rules and requirements for coverage and reimbursement of healthcare products and services. Even the applications to such third-party payers to be eligible for reimbursement for product or services are complex and can be lengthy and time consuming. For new technologies coming to market, these payers are increasingly examining the clinical evidence supporting medical necessity and cost effectiveness decisions in addition to safety and efficacy, which can result in barriers to early coverage reimbursement, or denial of coverage and reimbursement altogether. Accordingly, significant uncertainty exists as to the availability of coverage and reimbursement status for new medical products. If third-party payer reimbursement is unavailable to our customer hospitals, physicians, and providers, our sales may be limited and we may not be able to realize an appropriate return on our investment in research and product development.

Payers often set payment rates dependingwith certainty based solely on the site of service and many use the Medicare program as a benchmark for their own payment methodologies. In the hospital inpatient setting, Medicare payment generally is set at pre-determined rates for all products and services provided during a particular patient stay, and is based on such factors as the patient diagnosis, procedures performed, patient age, and complications. In the physician office or clinic setting, Medicare payment generally is based on a fee schedule, with payment rates set for each procedure performed and product used, although the schedule may in some instance bundle the product into the payment for the procedure. In some outpatient settings, such as in the caseexpiration of the hospital outpatient clinic setting, Medicare payment rates generally are premised on classificationsrelevant patent(s) or the current forms of services that have similar clinical characteristics and similar costs.regulatory exclusivity.

In order to better track utilization, we have applied for a product-specific billing code for SkinTE. Our application was submitted to the Centers for Medicare and Medicaid Services (“CMS”), the agency that administers the Medicare program and establishes new codes under the Healthcare Common Procedure Coding System (“HCPCS”) code set. If our application for a new HCPCS code is successful, we expect that the code could go into effect as early as the 2019 calendar year. In the interim, we believe SkinTE used in the office or clinic setting may be reported using an existing “not otherwise specified” HCPCS code.

Reimbursement policies depend in part on legislation designed to regulate the healthcare industry and federal and state governments continue to propose and pass new healthcare legislation and government agencies revise or change their regulations and policies from time to time. We cannot predict whether or how such reform measures and policy changes would affect reimbursement rates and demand for our products.

Patient Privacy

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act, or HITECH, and their implementing regulations, including the final omnibus rule published on January 25, 2013, mandates, among other things, the adoption of uniform standards for the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information, which require the adoption of administrative, physical and technical safeguards to protect such information. Among other things, HITECH makes HIPAA’s security standards directly applicable to business associates, defined as independent contractors or agents of covered entities that create, receive or obtain protected health information in connection with providing a service for or on behalf of a covered entity. Since we do not submit claims electronically to payers, we are not a covered entity under HIPAA; however, at present, it is unclear if we would be considered a business associate subject to HIPAA based on our business activities and service offerings. Because our products use autologous tissue sources that are tracked and reapplied to the same individual patient from which the tissue was harvested, our business maintains substantial amounts of patient identifiable health information. HITECH also increased the civil and criminal penalties that may be imposed against covered entities and business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civil actions. In addition, certain state laws govern the privacy and security of health information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties.

Transparency Laws

The Patient Protection and Affordable Care Act, through the enactment of the Physician Payments Sunshine Act, imposes, among other things, new annual reporting requirements for covered manufacturers for certain payments and other transfers of value provided to physicians and teaching hospitals, as well as certain ownership and investment interests held by physicians and their immediate family members. We do not believe that we are a covered manufacturer under the Sunshine Act because our products are neither regulated as pharmaceuticals, biologics, nor medical devices by FDA, and 361 HCT/P autologous tissue sources are not expressly addressed by this law.

Intellectual Property

We do not own any granted patents. We have three pending U.S. non-provisional patent applications relating to methods for development and use of minimally polarized function cell micro-aggregate units in tissue applications using LGR4, LGR5 and LGR6 expressing epithelial stem cells. Each of these applications claims priority to a U.S. provisional application filed on December 2, 2014. We have one PCT International Patent Application and national phase applications have been entered in OAIP, ARIPO, Australia, Brazil, Canada, China, Colombia, Costa Rica, Eurasia, Europe, Great Britain, Israel, India, Indonesia, Japan, South Korea, Mexico, Malaysia, New Zealand, Philippines, Singapore, South Africa, Thailand, United Arab Emirates, Ukraine, Vietnam.

In striving to protect and enhancethe proprietary technology, inventions, and improvements that are commercially important to the development of our business, we currentlyalso rely heavily on trade secrets relating to our proprietary technology platform and on know-how. We enter into confidentiality agreements with our employees, consultants, scientific advisors, and contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and physical and electronic security of our information technology systems.

Our objective is to continue to expand our portfolio of patents and

We previously filed patent applications in conjunction2018 and 2019 for our Complex Living Interface Coordinated Self-Assembling Materials technology, our Composite-Interfacing, Biomaterial Accelerant Substrate technology, and our Biological Sample Harvest and Deployment Kits. In 2022 we made the decision to abandon pursuing the applications for these technologies based on our evaluation of the difficulties and costs of obtaining allowance of the applications and our view of the value of patent protection for the technologies in the context of our operations.

We seek to complement the protection of our innovation with a portfolio of trademarks and service marks in the United States and around the world. The POLARITYTE trademark has been registered in the United States and in other countries throughout the world. Additional registered trademarks in the United States include our trade secretslogo, WELCOME TO THE SHIFT, WHERE SELF REGENERATES SELF, and know-how, in order to further protect our regenerative medicine platform and derivative technologies, as well as the manufacturing and deployment processes of those technologies.SKINTE.

Competition

The wound care industry, including the regenerative medicine industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on intellectual property. To our knowledge, SkinTE is the only fully autologous, homologous skin regeneration product available for the treatment of wounds and functional losses of the skin of human patients. We face substantial competition from providers of FTSGs and STSGs, as well as other companies developing and selling skin substitutes and other regenerative medicine products. We also face substantial competition fromproducts, as well as academic research institutions, and governmental agencies, and public and private research institutions.

We are aware of several companies focused on the wound market, including Integra LifeSciences, Wright Medical Group, MiMedx, Osiris, Organogenesis, Allosource, MTF and Vericel. Any advances in regenerative medicine by a competitor may be used to develop therapies competing against SkinTE or one of our product candidates.

Many of our current or potential competitors, either alone or with their collaboration partners, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, (if required), which could result in our competitors establishing a strong market position before we are able to enter the market. The key competitive factors affecting the success of all of our programs are likely to be their efficacy, safety, convenience, price, and the availability of reimbursement from government and other third-party payers.

PropertyGovernment Regulation

FDA and Contact InformationMarketing Approval

Our principal executive officesIn the U.S., the FDA regulates biological products under the Federal Food, Drug, and Cosmetic Act (“FDCA”), the Public Health Service Act, and various federal regulations. These FDA-regulated products are locatedalso subject to state and local statutes and regulations, as well as applicable laws or regulations in foreign countries. The FDA, and comparable regulatory agencies in state and local jurisdictions and in foreign countries, impose substantial requirements on the research, development, testing, manufacture, quality control, labeling, packaging, storage, distribution, record-keeping, approval, post-approval monitoring, advertising, promotion, marketing, sampling, and import and export of FDA-regulated products. Failure to comply with the applicable requirements at 615 Arapeen Drive, Salt Lake City, UT 84108any time during the development process, approval process, or after approval may subject an applicant to administrative or judicial sanctions, suspension of development or marketing, or non-approval of product candidates. These sanctions could include a clinical hold on clinical trials, FDA’s refusal to approve pending applications or related supplements, withdrawal of or restrictions on an existing approval or licensure, untitled or warning letters, product recalls, product seizures, import detentions or export restrictions, total or partial suspension of production or distribution, injunctions, fines, restitution, disgorgement, civil penalties, or criminal prosecution. Such actions by government agencies could also require us to expend a large number of resources to respond to the actions. Any agency or judicial enforcement action could have a material adverse effect on us. We are not sure whether legislative changes will be enacted, or whether the FDA regulations, guidance, or interpretations will be changed, or what the impact of any such changes may be on the marketing approvals or licensures, or the prospects thereof, for our products.

IND and our telephone numberClinical Trials of Drug and Biological Products

Prior to commencing a human clinical trial of a drug or biological product, an IND application, which contains the results of preclinical studies and relevant clinical studies or other human experience along with other information, such as information about product chemistry, manufacturing, and controls and a proposed protocol, must be submitted to the FDA. An IND is 1-800-560-3983. Our web site addressa request for authorization from the FDA to administer an investigational drug or biological product to humans. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA within the 30-day period raises concerns or questions about the conduct of the clinical trial. In such a case, the IND sponsor must resolve any outstanding concerns with the FDA before the clinical trial may begin. A separate submission to the existing IND must be made for each successive clinical trial to be conducted during development of the drug or biologic.

An independent Institutional Review Board (“IRB”) must review and approve the investigational plan for the trial before it commences at each site. Informed written consent must be obtained from each trial subject.

Human clinical trials for drug and biological products typically are conducted in sequential phases that may overlap:

All clinical trials must be conducted in accordance with FDA regulations, including good clinical practice (“GCP”) requirements, which are intended to protect the rights, safety, and well-being of trial participants, define the roles of clinical trial sponsors, investigators, administrators, and monitors, and ensure clinical trial data integrity and reliability. Regulatory authorities, including the FDA, an IRB, a data safety monitoring board, or the sponsor, may suspend or terminate a clinical trial at any time on various grounds, including, among other reasons, a finding that the participants are being exposed to an unacceptable health risk or that the clinical trial is www.polarityte.com.not being conducted in accordance with FDA requirements.

On December 1, 2016, we entered intoDuring the development of a leasenew drug or biologic, sponsors are given opportunities to meet with Paradigm Resources, L.C. pursuantthe FDA at certain points. These points may be prior to which we lease approximately 11,000 square feetsubmission of officean IND, at the end of Phase 2 clinical trials, and lab space in Salt Lake City, Utahbefore a New Drug Application (“NDA”) or BLA is submitted. Meetings at a monthly lease rate of $24,044. The officeother times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and lab space is located at 615 Arapeen Drive, Salt Lake City, Utah 84108,for the sponsor and the lease commencedFDA to reach agreement on January 1, 2017the next phase of development. Sponsors typically use the end-of-Phase 2 clinical trials meetings to discuss their Phase 2 clinical trials results and present their plans for the pivotal Phase 3 registration trial that they believe will terminatesupport approval of the new drug/biologic.

Disclosure of Clinical Trial Information

Sponsors of certain clinical trials of FDA-regulated products, including drugs, biologics, and devices, are required to register and disclose certain clinical trial information on March 31, 2018.clinicaltrials.gov. Information related to the product, trial subject population, phase of investigation, study sites and investigators, and other aspects of the clinical trial, is made public as part of the registration. Sponsors also are obligated to disclose the results of their clinical trials, including the study protocol and statistical analysis plan, after completion. Disclosure of the clinical trial results can be delayed until the new product or new indication being studied has been approved, as long as approval occurs within a certain timeframe. Competitors may use this publicly available information to gain knowledge regarding our development programs.

On December 27, 2017, we entered into a commercial lease agreement with Adcomp LLC, a Utah limited liability company, pursuant to which we leased approximately 178,528 rentable square feet of warehouse, manufacturing, office, and lab space in Salt Lake City, Utah

The BLA Approval Process

SkinTE is an autologous product, meaning it is derived from the landlord. The initial termcells and tissues of the leaseindividual to be treated with the product. The Company’s current plan is five yearsnot to market SkinTE in the U.S. until it is licensed by the FDA through the BLA approval process. The process required by the FDA to obtain licensure generally involves the following:

The FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in- depth review. The FDA has agreed to certain performance goals in the review of BLAs. Most applications for standard review BLA products are reviewed within ten months of submission, and most applications for priority review BLA products are reviewed within six months of submission. The review process may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission. Even if such additional information is submitted, the FDA may ultimately decide that the BLA does not satisfy the criteria for approval.

The FDA may also refer applications for novel BLA products or products that present difficult questions of safety, purity, or potency, to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation, and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it expires on November 30, 2022. We havegenerally follows such recommendations.

Before approving a one-time optionBLA, the FDA will typically inspect one or more clinical sites to renew for an additional five years.assure compliance with GCP. The initial base rent under this leaseFDA may also inspect preclinical study sites to verify compliance with Good Laboratory Practice (“GLP”) requirements prior to approval. Additionally, the FDA will inspect the facility or the facilities at which the BLA product is $98,190 per month ($0.55 per sq. ft.)manufactured. The FDA will not approve the BLA unless compliance with cGMP requirements is satisfactory, and the BLA contains data that provide substantial evidence that the product is safe, pure, and potent for the first yearindication studied.

After the FDA evaluates the BLA and the manufacturing facilities, it issues either an approval letter or a complete response letter. A complete response letter outlines the deficiencies in the submission and may require substantial additional testing, including additional large-scale clinical testing or other information in order for the FDA to reconsider the application. If, or when, those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the initial lease termBLA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included.

The cost of preparing and increases 3.0% per annum thereafter.

We expectsubmitting a BLA is substantial. Furthermore, each BLA submission requires a user fee payment (approximately $3.1 million in fiscal year 2022), unless a waiver or exemption applies. Waiver of the fee may be sought on several grounds, including that the applicant is a small business submitting its first human drug application to the FDA for review, but there is no assurance we will require additional facilities to continue our researchqualify or receive a waiver if and development and our commercialization efforts, and are actively seeking suitable locations.

Employees

We had 33 full-time employees as of October 31, 2017.

Legal Proceedings

On February 26, 2015,when we file a complaint for patent infringement was filedBLA in the United States District Courtfuture. The manufacturer or sponsor of an approved BLA is also subject to annual establishment fees.

An approval letter authorizes commercial marketing and distribution of the licensed product with specific prescribing information for specific indications. As a condition of BLA approval, the FDA may require substantial post-approval testing and surveillance to monitor the product’s safety, purity, and potency and may impose other conditions, including post-market studies, labeling restrictions, or other risk evaluation and mitigation strategies, which can materially affect the product’s potential market and profitability. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained, or problems or safety issues are identified following initial marketing.

Changes to some of the conditions established in an approved application, including changes in indications, labeling, device components, or manufacturing processes or facilities, require submission and FDA approval of a new BLA or BLA supplement before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures and actions in reviewing BLA supplements as it does in reviewing BLAs.

Biosimilar Exclusivity

The Biologics Price Competition and Innovation Act of 2009 (BPCIA) creates an abbreviated approval pathway for biosimilar products. A biosimilar is a biological product that is highly similar to, and has no clinically meaningful differences from, an existing FDA-licensed reference product. Biosimilarity must be shown through analytical studies, animal studies, and at least one clinical study, absent a waiver. A biosimilar product may be deemed interchangeable with a prior licensed product if it is biosimilar and meets additional requirements under the BPCIA, including that it can be expected to produce the same clinical results as the reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. Where permitted by state law, an interchangeable product may be substituted for the Eastern Districtreference product without the involvement of Texas by Richard Baker, an individual residing in Australia,the prescriber.

A reference biologic is granted twelve years of exclusivity from the time of first licensure of the reference product, and no application for a biosimilar may be submitted for four years from the date of licensure of the reference product. The first biologic product submitted under the abbreviated approval pathway that is determined to be interchangeable with the reference product may obtain exclusivity against Microsoft, Nintendo, Majesco Entertainment Company (“Majesco DE”), and a numberfinding of interchangeability for other game publisher defendants. The complaint alleged thatbiosimilars for the Zumba Fitness Kinect game infringed plaintiff’ssame condition or use for the lesser of (i) one year after the first commercial marketing of the first interchangeable biosimilar; (ii) eighteen months after the first interchangeable biosimilar is approved if there is no patent challenge; (iii) eighteen months after resolution of a lawsuit over the patents in motion tracking technology. The plaintiff is representing himself pro se inof the litigation and is seeking monetary damages in the amount of $1.3 million. The case was subsequently transferred to the Western District of Washington. On June 16, 2017, final judgment was enteredreference biologic in favor of the defendants. The plaintifffirst interchangeable biosimilar applicant; or (iv) 42 months after the first interchangeable biosimilar’s application has appealed that decisionbeen approved if a patent lawsuit is ongoing within the 42-month period.

Post-Marketing Requirements for FDA Regulated Products

Following licensure of a new product, the company and the licensed products are subject to continuing regulation by the FDA, state, and foreign regulatory authorities including, among other things, monitoring and record-keeping activities, reporting adverse experiences to the Courtapplicable regulatory authorities, providing regulatory authorities with updated safety and efficacy information, manufacturing products in accordance with cGMP requirements, product sampling and distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising and restrictions on promoting products for uses or in patient populations that are not consistent with the product’s approved labeling (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet, including social media. Although physicians may prescribe products for off-label uses, manufacturers may not market or promote such off-label uses. Modifications or enhancements to the product or its labeling or changes of Appealsthe site of manufacture are often subject to the approval of the FDA and other regulators, who may or may not grant approval, or may engage in a lengthy review process.

The FDA, state, and foreign regulatory authorities have broad enforcement powers. Failure to comply with applicable regulatory requirements could result in enforcement action by the FDA, state, or foreign regulatory authorities, which may include the following:

Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, financial condition, and results of operations. Such actions by government agencies could also require us to expend a large amount of managerial and financial resources to respond to the actions. Any agency or judicial enforcement action could have a material adverse effect on us.

In the U.S., after a product is approved, its manufacture is subject to comprehensive and continuing regulation by the FDA. The FDA regulations require that products be manufactured in registered facilities and in accordance with cGMP. We have a facility for the Federal Circuit. The appealproduction of clinical and commercial quantities of SkinTE. Effectuating compliance to cGMP requirements is currently pending. On June 23, 2017,underway. cGMP regulations require, among other things, quality control and quality assurance as partwell as the corresponding maintenance of records and documentation and the obligation to investigate and correct deviations from cGMP. For human cellular or tissue-based products like ours, cGMP also includes current good tissue practices to prevent the transmission of communicable diseases. These regulations also impose certain organizational, procedural, and documentation requirements with respect to manufacturing and quality assurance activities. Manufacturers and other entities involved in the manufacture and distribution of approved drugs, biologics, and medical devices are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP and other laws. Accordingly, as a manufacturer we must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

If in the future we elect to use a contract manufacturer, we will be responsible for the selection and monitoring of qualified firms and, in certain circumstances, suppliers to these firms. These firms and, where applicable, their suppliers are subject to inspections by the FDA at any time, and the discovery of violative conditions, including failure to conform to cGMP, could result in enforcement actions that can interrupt the operation of any such firm or result in restrictions on product supply, including, among other things, recall or withdrawal of the product from the market.

Newly discovered or developed data on safety, purity, or potency may require changes to a product’s approved labeling, including the addition of new warnings and contraindications, and may require the implementation of other risk management measures.

Reimbursement, Anti-Kickback and False Claims Laws, and Other Regulatory Matters

In the U.S., the research, manufacturing, distribution, sale, and promotion of drug and biological products are potentially subject to regulation by various federal, state, and local authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services (“CMS”), other divisions of the U.S. Department of Health and Human Services (e.g., the Office of Inspector General), the Drug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, state Attorneys General, and other state and local government agencies. For example, sales, marketing, and scientific/educational grant programs must comply, when applicable, with the federal Anti-Kickback Statute, the federal False Claims Act, the privacy regulations promulgated under HIPAA, and similar state laws. Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All these activities are also potentially subject to federal and state consumer protection and unfair competition laws.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”) established the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that will provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or level. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the drugs in each category or class. Any formulary used by a Part D prescription drug plan must be developed and reviewed by a pharmacy and therapeutic committee. Government payment for some of the costs of prescription drugs may increase demand for products for which we receive regulatory approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own payment rates. Any reduction in payment that results from the MMA may result in a similar reduction in payments from non-government payors.

The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality, and the National Institutes for Health, and periodic reports on the status of the research and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sale of SkinTE in the future. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sale of our product. If third-party payors do not consider SkinTE to be cost-effective compared to other available therapies, they may not cover our product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our product on a profitable basis.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug and biologics pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. A member state may approve a specific price for the medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the medicinal product on the market. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for our product. Historically, products launched in the European Union do not follow price structures of the U.S. and generally tend to be priced significantly lower than in the U.S.

In the U.S. we are subject to complex laws and regulations pertaining to healthcare “fraud and abuse,” including, but not limited to, the federal Anti-Kickback Statute, the federal False Claims Act, and other state and federal laws and regulations. The federal Anti-Kickback Statute makes it illegal for any person, or a party acting on its behalf, to knowingly and willfully solicit, receive, offer, or pay any remuneration that is intended to induce the referral of business, including the purchase, order, or prescription of a purchase agreement, liabilitiesparticular drug, or other good or service for which payment in whole or in part may be made under a federal healthcare program, such as Medicare or Medicaid. Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs. In addition, many states have adopted laws similar to the federal Anti-Kickback Statute. Some of these state prohibitions apply to the referral of patients for healthcare services reimbursed by any insurer, not just federal healthcare programs such as Medicare and Medicaid. Due to the breadth of these federal and state anti-kickback laws, the absence of guidance in the form of regulations or court decisions and the potential for additional legal or regulatory change in this area, it is possible that PolarityTE’s future sales and marketing practices or its future relationships with medical professionals might be challenged under fraud and abuse laws, which could harm PolarityTE.

The federal False Claims Act prohibits anyone from knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs and biologics, that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Although we would not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or promoting a product off-label. In addition, our future activities relating to the reporting of estimated prices for SkinTE, the reporting of prices used to calculate Medicaid rebate information, and other information affecting federal, state, and third-party reimbursement for our product, and the sale and marketing of SkinTE, are subject to scrutiny under this litigationlaw. Penalties for a federal False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties of between $12,537 and $25,076 for each separate false claim, and the potential for exclusion from participation in federal healthcare programs. Although the federal False Claims Act is a civil statute, conduct resulting in a federal False Claims Act violation may also implicate various federal criminal statutes. If the government were transferred to Zift Interactive LLC.allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine. In addition, private individuals have the ability to bring actions under the federal False Claims Act and certain states have enacted laws modeled after the federal False Claims Act.

There are also an increasing number of state laws that require manufacturers to make reports to states on pricing and marketing information. Many of these laws contain ambiguities as to what is required to comply with the laws. In addition, as discussed below, a similar federal requirement requires manufacturers to track and report to the federal government certain payments made to physicians and teaching hospitals in the previous calendar year. These laws may affect our sales, marketing, and other promotional activities by imposing administrative and compliance burdens on us. In addition, given the lack of clarity with respect to these laws and their implementation, our reporting actions could be subject to the penalty provisions of the pertinent state, and some federal, authorities.

The failure to comply with regulatory requirements exposes companies to possible legal or regulatory action. Depending on the circumstances, failure to meet applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to allow a company to enter into supply contracts, including government contracts.

Changes in regulations, statutes, or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing facility; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our product; or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect the operation of our business.

Patient Protection and Affordable Care Act

In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively the PPACA, was enacted, which includes measures that have or will significantly change the way healthcare is financed by both governmental and private insurers. Among the provisions of the PPACA of greatest importance to the drug industry are the following:

There have been prior public announcements by members of the federal government regarding their plans to repeal and replace the PPACA and Medicare. For example, the Tax Cuts and Jobs Act of 2017 eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not sure whether additional legislative changes will be enacted and are unable to predict what impact changes in the law may have on the pricing and distribution of our product.

Employees

We had approximately 42 full-time employees and two part-time employees as of December 31, 2022, all of whom are in the U.S. None of our employees are represented by a labor union or covered by a collective bargaining agreement.

Corporate History

The Parent Company – PolarityTE, Inc.

Majesco Entertainment Company, a Delaware corporation (“Majesco DE”), was incorporated in the state of Delaware on May 8, 1998. On December 1, 2016, Majesco Acquisition Corp., a Nevada corporation and wholly-ownedwholly owned subsidiary of Majesco Entertainment Company, a Delaware corporation (“Majesco DE”)DE, entered into an Agreement and Plan of Reorganization with PolarityTE, Inc., a Nevada corporation (“PolarityTE NV”) and Dr. Denver Lough, the owner of 100% of the issued and outstanding shares of capital stocksole stockholder of PolarityTE NV. The asset acquisition was subject to shareholderstockholder approval, which was received on March 10, 2017, and the transaction closed on April 7, 2017. In January 2017, Majesco DE changed its name to “PolarityTE, Inc.” (“PolarityTE”). Majesco Acquisition Corp. was then merged with PolarityTE NV, which remains a subsidiary of PolarityTE. Majesco Acquisition Corp. II, formed in November 2016 under Majesco Entertainment Company, remains a wholly-owned subsidiary of PolarityTE.

Previously, Majesco Holdings Inc. (formerly ConnectivCorp) was incorporated in 2004 under the laws of the State of Delaware. As a result of a merger, Majesco Sales Inc. became a wholly-owned subsidiary and the sole operating business of Majesco Holdings Inc., which changed its name to Majesco Entertainment Company (Majesco DE, as identified above). Majesco DE developed“PolarityTE MD, Inc.,” and publishedremains a wide range of video games on digital networks through its Midnight City label, including Nintendo’s DS, 3DS, Wii and WiiU, Sony’s PlayStation 3 and 4, or PS3 and PS4, Microsoft’s Xbox 360 and Xbox One and the personal computer, or PC. On May 2, 2017, Majesco Entertainment Company, a Nevada corporation, or Majesco NV Sub, and wholly owned subsidiary of PolarityTE, was formed, intoPolarityTE.

Contract Research Services

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 assets and liabilitiesmember interest of this gaming business were placed.

On June 23, 2017, PolarityTE sold the Majesco NV Sub to Zift InteractiveIBEX Property LLC, a Nevada limited liability company pursuant(“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. The aggregate purchase price for the business was $3.8 million, of which $2.3 million was paid at closing and the balance satisfied by a purchase agreement. Pursuantpromissory note payable to the termsseller with an initial fair value of the agreement, PolarityTE sold 100%$1.22 million and contingent consideration with an initial fair value of the issued and outstanding shares of common stock of Majesco NV Sub to Zift, including all of the right, title and interest in and to Majesco NV Sub’s business of developing, publishing and distributing video game products through mobile and online digital downloading.approximately $0.3 million.

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 due to 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 of the IBEX Shares and IBEX Property and as a result of the transaction we were no longer engaged in any revenue generating business activity.

Our subsidiary, Arches Research, Inc. (“Arches”), offered prior to 2022 research services to third parties consisting of experimental planning, histology, and in vivo and in vitro imaging, including micro-ct. There was a substantial surge in COVID-19 testing throughout the United States as a result of the COVID-19 pandemic, which began in the spring of 2020. In 2020 and 2021, Arches had equipment and staff capable of performing polymerase chain reaction testing for COVID-19. Arches had the opportunity to use its research facilities to offer laboratory testing services for COVID-19, and to that end registered under the Clinical Laboratory Improvement Amendments (“CLIA”) in May 2020, and it began providing COVID-19 testing services on May 27, 2020. Arches’ primary customer for testing services was an organization controlling multiple long-term care and laboratory facilities in New York State and surrounding areas. Beginning in April 2021 there was a significant loss of COVID-19 testing revenues due to the loss of Arches’ major testing customer in the first quarter of 2021. Subsequent efforts to find new business to replace the lost testing business were not successful and we made the decision to cease COVID-19 testing in August 2021. At the same time, Arches ceased offering research services to outside third parties.

Contact and Available Information

Our principal executive offices are located at 1960 S. 4250 West, Salt Lake City, UT 84104, and our telephone number is (800) 560-3983.

We file annual, quarterly, and current reports, as well as proxy statements, and other information with the Securities and Exchange Commission (“SEC”). Our SEC filings are available to the public at the SEC’s website at www.sec.gov. We also maintain a website located at www.polarityte.com, where these SEC filings and other information about us can be accessed, free of charge, overas soon as reasonably practicable after we electronically file the Internet at our website at http://www.polarityte.com In addition, any materials we fileinformation with, or furnish it to, the SEC are available on the SEC’s website as www.SEC.GOV free of charge.SEC.

Item 1A. Risk Factors.

Our business and operations are subject to a number ofmany risks and uncertainties as described below. However, the risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we may currently deem immaterial, may become important factors that could harm our business, financial condition, or results of operations. If any of the following risks actuallyshould occur in the future, our financial condition or results of operations could suffer.

Risks Related to Our BusinessFinancial Condition

IfWe will need additional funding to pursue the clinical developmentregulatory process for SkinTE and commercialization of our lead product candidate, SkinTE, is not successful, our ability to financesustain our operations, may be adversely affected.

Our near-term prospects depend upon our ability to effectively market our lead product candidate, SkinTE, and to demonstrate its safety and effectiveness in humans, as well as its superiority over existing therapies and standards of care. Our ability to finance our company and to generate revenues will depend in part on our ability to obtain favorable results in the planned clinical evaluations of SkinTE and to successfully develop and commercialize SkinTE.

SkinTE could be unsuccessful if it:

If we are not successful in developing and commercializing SkinTE or are significantly delayed in doing so, our financial condition and future prospects may be adversely affected and we may experience difficulties in raising the substantial additionalbe unable to raise capital requiredwhen needed, which would force us to funddelay, reduce, eliminate, or abandon our business.product development program.

We arereported an early stage company. Our limited operating history makes it difficult to evaluate our current business and future prospects, and our profitability in the future is uncertain.

Our limited operating history hinders an evaluation of our prospects, which should be considered in light of the risks, expenses and difficulties frequently encountered in the establishment of a business in a new industry, characterized by a number of market entrants and intense competition, and in the shift from development to commercialization of new product candidates based on innovative technologies.

We became a publicly traded company through our merger with Majesco Entertainment Company, and we could be liable for unanticipated claims or liabilities as a result thereof.

On December 1, 2016, we entered into an Agreement and Plan of Reorganization with Majesco Acquisition Corp., our wholly-owned subsidiary, PolarityTE NV and Dr. Denver Lough, the owner of 100% of the issued and outstanding shares of capital stock of PolarityTE NV pursuant to which, on April 5, 2017, we acquired the intellectual property rights and other assets of PolarityTE NV through the merger of Majesco Acquisition Corp. with and into PolarityTE NV, with PolarityTE NV surviving as our wholly-owned subsidiary.

We face substantial risks of known and unknown liabilities associated with Majesco Entertainment Company, including absence of accurate or adequate public information concerning the former public company; undisclosed liabilities; improper accounting; claims or litigation from former officers, directors, employees or stockholders; contractual obligations; and regulatory requirements. Although management performed due diligence on us, there can be no assurance that such risks will not occur. The occurrence of any such risk could materially adversely affect our financial condition.

Additionally, we are defendants in a patent infringement lawsuit filed against Majesco Entertainment Company. On February 26, 2015, a complaint for patent infringement was filed in the United States District Court for the Eastern District of Texas by Richard Baker, an individual residing in Australia, against Microsoft, Nintendo, us and a number of other game publisher defendants. The complaint alleged that the Zumba Fitness Kinect game infringed plaintiff’s patents in motion tracking technology and the plaintiff sought damages in the amount of $1.3 million. In August 2015, the defendants jointly moved to transfer the case to the Western District of Washington. On May 17, 2016, the Washington Court issued a scheduling order that provided defendants leave to jointly file an early motion for summary judgement in June 2016. On June 17, 2016, the defendants jointly filed a motion for summary judgment that stated that none of the defendants, including Majesco Entertainment Company, infringed upon the asserted patent. On July 9, 2016, Mr. Baker opposed the motion. On January 3, 2017, the Court granted the defendants’ motion for summary judgment and the case was dismissed. On June 16, 2017, final judgment was entered in favor of the defendants. On July 5, 2017, Baker filed an appeal of the District Court’s Final Order of Judgment in favor of the Defendants’ to the Court of Appeals for the Federal Circuit. The appeal is currently pending. An adverse determination of the appeal could result in significant liability against us, although on June 23, 2017, as part of a purchase agreement, we believe that liabilities and claims relating to this litigation were transferred to Zift Interactive LLC.

We have a history of operating losses and may never achieve or sustain profitability.

We have to date incurred, and may continue to incur significant operating losses over the next several years. We have incurred significant net losses in each year since our inceptions, and have a net loss of $130.8$22.4 million for the year ended OctoberDecember 31, 2017. Our2022, and on that date we had an accumulated deficit of $516.2 million. We believe our cash and cash equivalents at December 31, 2022, will fund our current business plan including related operating expenses and capital expenditure requirements through the end of the second calendar quarter of 2023. Accordingly, there is substantial doubt about our ability to achieve profitable operationscontinue 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 due to 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 depend in large part upon the successful developmentmake us entirely dependent on capital obtained from external sources to fund our operations. The impact of pandemics, inflation, armed conflicts overseas, and commercialization of our product candidatesother macroeconomic issues have and technologies. Factors impactingmay continue to adversely affect capital markets and could limit our ability to successfully develop and commercializeobtain the capital we need to operate our product candidates include:business.

The likelihood of the long-term success of our company must be considered in light of the expenses, difficulties and delays frequently encountered in the development and commercialization of new and innovative medical techniques and technologies, unknown and uncertain regulatory hurdles for a new and novel technology or technique, competitive factors and competition, as well as the uncertain nature of new business development and ongoing capital requirements.

We may have inadequate resources to complete the development and commercialization of our product candidates or to continue our development programs.

We are a development stage company, and thus we expect to continue to spend a significant amount of cash on the continued research and development of our product candidates. Until we are able to successfully commercialize our product candidates and achieve significant revenue, if any, we will be required to raise additional capital to fund our ongoing operations. We may not be able to raiseobtain necessary capital in sufficient amounts, on acceptable terms favorable to us, or at all.

The cost and timing of completion of If adequate funds are not available for our preclinical and clinical development programs is uncertain.

We expect that a large percentage of our future research and development expenses will be incurred in support of current and future preclinical and clinical development programs. These expenditures are subject to numerous uncertainties in timing and cost of completion. We evaluate our objectives in preclinical models based upon our own development goals, but such evaluation may differ from requirements of regulatory authorities. We may conduct early stage clinical trials, which may differ for each of our targeted markets or markets we may targetbusiness in the future, (i.e., presently, skin, bone, muscle, cartilage, fat, blood vessels and nerves). As we obtain results from investigations, preclinical studies, and/or clinical trials, we may electbe required to discontinuedelay, reduce the scope of, or delay further evaluationseliminate the plans for certain product candidatesobtaining regulatory licensure or programs in orderapproval for SkinTE or be unable to focus resources on more promising product candidates or programs. Completion of clinical trials may take several years and the length of time generally varies according to the type, complexity, novelty and intended use ofcontinue operations over a product candidate. The cost of clinical trials is uncertain and may vary significantly over the life of a product or development project as a result of unanticipated differences, regulatory requirements, or other obligations, or challenges arising during clinical development.

Our product development programs are based on novel technologies. As result, our product candidates are inherently risky.

We cannot guarantee that the results we see in clinical applications will be comparable to the preclinical results we have observed in animals. We also cannot at this stage be certain of the safety of our platform technology in humans.

We are subject to the risks of failure inherent in the development of product candidates based on new technologies. The novel nature of our products creates significant challenges in regard to product development and optimization, manufacturing, government regulation, third-party reimbursement and market acceptance. For example, if regulatory agencies have limited experience or concerns in approving cellular and tissue-based therapies for commercialization, the development and commercialization pathway for our therapies may be subject to increased uncertainty, as compared to the pathway for new conventional drugs.

Further, when manufacturing autologous cell and tissue-based therapies, the number and the composition of the cell population varies from patient to patient, in part due to the age of the patient, since the therapy is dependent on patient-specific physiology. Such variability in the number and composition of these cells could adversely affect our ability to manufacture autologous cell and tissue-based therapies in a cost-effective manner and meet acceptable product release specifications for use in a clinical trial or, if approved and/or registered, for commercial sale. As a consequence, the development and regulatory approval and/or registration process for autologous cell and tissue-based product candidates could be delayed or may never be completed.

Our product candidates represent new classes of therapy that the marketplace may not understand or accept. Furthermore, the success of our product candidates is dependent on wider acceptance by the medical community.

The broader market may not understand or accept our product candidates. Our product candidates represent new treatments or therapies and compete with a number of more conventional products and therapies manufactured and marketed by others. The new nature of our product candidates creates significant challenges in regards to product development and optimization, manufacturing, government regulation, and third-party reimbursement.

As a result, the development pathway for our product candidates and the commercialization of our potential products may be subject to increased scrutiny, as compared to the pathway(s) for more conventional products.

The degree of market acceptance oflonger term, any of our potential products will depend on a number of factors, including:

If patients or the medical community do not accept our potential products as safe and effective for any of the foregoing reasons, or for any other reason, it could affect our sales, havingwhich would have a material adverse effect on our business, financial condition, and results of operations.operation, and prospects.

Our revenues from our regenerative medicine business will depend upon adequate reimbursement from public and private insurers and health systems.

Our success will depend onwholly owned subsidiary accepted a loan under the extent to which reimbursement for the costs of our treatments will be available from third-party payers, such as public and private insurers and health systems, as well as the amounts that they will agree to reimburse. Government and other third-party payers attempt to contain healthcare costs by limiting both coverage and the level of reimbursement, and the amount of reimbursement of new treatments. Therefore, significant uncertainty usually exists asCARES Act pursuant to the reimbursement status of new healthcare treatments. If we are not successful in obtaining adequate reimbursement for our treatments from these third-party payers, the market’s acceptance of our treatments could be adversely affected. Inadequate reimbursement levels also likely would create downward price pressure on our treatments. Even if we succeed in obtaining widespread reimbursement for our treatments at adequate treatment amounts, future changes in reimbursement policies could have a negative impact on our business, financial condition and results of operations.

Commercial third-party payers and government payers are increasingly attempting to contain healthcare costs by demanding price discounts, including by limiting coverage on which products they will pay for and the amounts that they will pay for new products, and by creating conditions to reimbursement, such as coverage eligibility requirements based upon clinical evidence development involving research studies and the collection of physician decision impact and patient outcomes data. Because of these cost-containment trends, commercial third-party payers and government payers that currently provide or in the future may provide reimbursement for one or more of our product candidates may reduce, suspend, revoke, or discontinue payments or coverage at any time, including those payers that designate one or more of our product candidates as experimental and investigational. Payers may also create conditions to coverage or contract with third-party vendors to manage laboratory benefit coverage, in both cases creating burdens for ordering physicians and patients that may make our product candidates more difficult to sell. The percentage of submitted claims that are ultimately paid, the length of time to receive payment on claims, and the average reimbursement of those paid claims, is likely to vary from period to period. Finally, payers may demand discounts or offer reimbursement that minimizes our ability to sell our products profitably, or simply choose to not cover or reimburse our products at all.

As a result, there is significant uncertainty surrounding whether the use of products that incorporate new technology, such as our product candidates, will be eligible for coverage by commercial third-party payers and government payers or, if eligible for coverage, what the reimbursement rates will be for these product candidates. The fact that a product has been approved for reimbursement in the past, or has received FDA approval, for any particular indication or in any particular jurisdiction, does not guarantee that such product will remain approved for reimbursement or that similar or additional products will be approved in the future. Reimbursement of our existing and future products by commercial third-party payers and government payers may depend on a number of factors, including a payer’s determination that our existing and future products are:

Market acceptance, sales of products based upon our platform technology, and our profitability may depend on reimbursement policies and healthcare reform measures. Several entities conduct technology assessments and provide the results of their assessments for informational purposes to other parties. These assessments may be used by third-party payers and healthcare providers as grounds to deny coverage for a product. The levels at which government authorities and third-party payers, such as private health insurers and health maintenance organizations, may reimburse the price patients pay for such products could affect whether we are able to commercialize our product candidates. Our product candidates may receive negative assessments that may impact our ability to receive reimbursement of the test. Since each payer makes its own decision as to whether to establish a policy to reimburse our test, seeking these approvals may be a time-consuming and costly process. We cannot be sure that reimbursement in the United States or elsewhere will be available for any of our product candidates in the future. If reimbursement is not available or is limited, we may not be able to commercialize our product candidates.

The United States and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare. We expect that there will continue to be federal and state proposals to implement governmental controls or impose healthcare requirements. In addition, the Medicare program and increasing emphasis on managed or accountable care in the United States will continue to put pressure on product utilization and pricing. Utilization and cost control initiatives could decrease the volume of orders and payment that we would receive for any products in the future, which would limit our revenue and profitability. If we are unable to obtain reimbursement approval from commercial third-party payers and Medicare and Medicaid programs for our product candidates, or if the amount reimbursed is inadequate, our ability to generate revenues could be limited.

We are subject to numerous federal and state healthcare laws regulations, and a failure to comply with such laws and regulations could have an adverse effect on our business and our ability to compete in the marketplace.

There are numerous laws and regulations that govern the means by which companies in the healthcare industry may market their treatments to healthcare professionals and may compete by discounting the prices of their treatments, including for example, the federal Anti-Kickback Statute, the federal False Claims ActPaycheck Protection Program (“FCA”), the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”PPP”), and state law equivalentsthe loan may subject us to these federal laws that are meant to protect against fraud and abuse and analogous laws in foreign countries. Violations of these laws are punishable by criminal and civil sanctions, including, but not limited to, in some instances civil and criminal penalties, damages, fines, and exclusion from participation in federal and state healthcare programs, including Medicare and Medicaid. In addition, federal and state laws are also sometimes open to interpretation. Accordingly, we could potentially face legal risks if our interpretation differs from those of enforcement authorities. Further, from time to time we may find ourselves at a competitive disadvantage if our interpretation differs from that of our competitors.

Specifically, anti-kickback laws and regulations prohibit any knowing and willful offer, payment, solicitationchallenges, audits, or receipt of any form of remuneration (direct or indirect, in case or in kind) in returninvestigations regarding qualification for the referral, use, ordering, or recommendingloan, any of the use of a product or service for which payment may be made by Medicare, Medicaid or other Government-sponsored healthcare programs. We have entered into consulting agreements, research agreementscould reduce our liquidity and product development agreements with physicians, including some who may order our products or make decisions to use them. In addition, some of these physicians own our stock, which they purchased in arm’s length transactions on terms identical to those offered to non-physicians, or received stock awards from us as consideration for services performed by them. While these transactions were structured with the intention of complying with all applicable laws, including state anti-referral laws and other applicable anti-kickback laws, it is possible that regulatory or enforcement agencies or courts may in the future view these transactions as prohibited arrangements that must be restructured or for which we would be subject to other significant civil or criminal penalties. There can be no assurance that regulatory or enforcement authorities will view these arrangements as being in compliance with applicable laws or that one or more of our employees or agents will not disregard the rules we have established. Because our strategy relies on the involvement of physicians who consult with us on the design of our potential products, perform clinical research on our behalf or educate the market about the efficacy and uses of our potential products, we could be materially impacted if regulatory or enforcement agencies or courts interpret our financial relationships with physicians who refer or order our potential products to be in violation of applicable laws and determine that we would be unable to achieve compliance with such applicable laws. This could harm our reputation and the reputations of the physicians we engage to provide services on our behalf. In addition, the cost of noncompliance with these laws could be substantial since we could be subject to monetary fines and civil or criminal penalties, and we could also be excluded from federally-funded healthcare programs, including Medicare and Medicaid, for non-compliance. Further, even the costs of defending investigations of noncompliance could be substantial.

Also, the FCA imposes civil liability on any person or entity that submits, or causes the submission of, a false or fraudulent claim to the federal government. Damages under the FCA can be significant and consist of the imposition of fines and penalties. The FCA also allows a private individual or entity (i.e., a whistleblower) with knowledge of past or present fraud against the federal government to sue on behalf of the government and to be paid a portion of the government’s recovery, which can include both civil penalties and up to three times the amount of the government’s damages (usually the amount reimbursed by federal healthcare programs). The U.S. Department of Justice (“DOJ”) on behalf of the government takes the position that the marketing and promotional practices of life sciences product manufacturers, including the off-label promotion of products, the provision of inaccurate or misleading reimbursement guidance, or the payment of prohibited kickbacks to doctors or other referral sources may cause the submission of improper claims to federal and state healthcare entitlement programs such as Medicare and Medicaid, by health care providers that use the manufacturer’s products, which results in a violation of the FCA. In certain cases, manufacturers have entered into criminal and civil settlements with the federal government under which they entered into plea agreements, paid substantial monetary amounts and entered into corporate integrity agreements that require, among other things, substantial reporting and remedial actions going forward.

In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other health care providers. In addition to federal laws, some states, such as California, Massachusetts and Vermont, mandate implementation of commercial compliance programs, along with the tracking and reporting of gifts, compensation and other remuneration to physicians. The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance and/or reporting requirements in multiple jurisdictions increase the possibility that a healthcare company may run afoul of one or more of the requirements.

The scope and enforcement of all of these laws is uncertain and subject to rapid change, especially in light of the lack of applicable precedent and regulations. There can be no assurance that federal or state regulatory or enforcement authorities will not investigate or challenge our current or future activities under these laws. Any investigation or challenge could have a material adverse effect on our business, financial condition, and results of operations. Any state

On April 12, 2020, our subsidiary PolarityTE MD, Inc. (the “PTE-MD”) entered into a promissory note offered by a bank (the “Lender”) evidencing an unsecured loan in the amount of $3,576,145 made to PTE-MD under the PPP (the “Loan”). On October 15, 2020, PTE-MD applied to the Lender for forgiveness of the PPP Loan in its entirety (as provided for in the CARES Act) based on PTE-MD’s use of the PPP Loan for payroll costs, rent, and utilities. On October 26, 2020, PTE-MD was advised that the Lender approved the application, and that the Lender was submitting the application to the Small Business Administration (“SBA”) for a final decision. The SBA subsequently approved PTE-MD’s application for forgiveness of the PPP Loan, and the principal and interest of $3,612,376 was fully paid by the SBA on June 12, 2021.

Pursuant to the requirements under the CARES Act, in connection with the PPP Loan PTE-MD certified that current economic uncertainty made the Loan request necessary to support the ongoing operations of PTE-MD. We believe that certification was made in a manner consistent with SBA guidance that borrowers must make the certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. In connection with PTE-MD’s application for forgiveness of the PPP Loan, it provided information on the use of the PPP Loan proceeds for payroll costs, rent, and utilities, which are permitted uses to qualify for forgiveness of the loan.

Under the CARES Act, the SBA may review any PPP loan of any size at any time at its discretion. On September 17, 2021, PTE-MD received notice from the Lender that the SBA is continuing to review the PPP Loan. As part of this review, the SBA requested that PTE-MD provide documents that it 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 PolarityTE and PTE-MD and affiliated subsidiaries, documents showing the use of the PPP Loan proceeds, documents showing PTE-MD’s calculation of the loan amount it requested in its loan application, its federal tax returns, and documents showing employee compensation information. PTE-MD submitted the documents to the SBA through the Lender on September 28, 2021.

There is no assurance the SBA could not in the future make an adverse finding with respect to our qualification for the Loan or the validity of the certifications we made in connection with the PPP Loan and its forgiveness. If an adverse finding arises, PTE-MD could be required to return the full amount of the Loan, which would reduce its liquidity, and could subject it to fines and penalties, and exclusion from government contracts. In particular, PTE-MD may become subject to actions under the FCA, including its qui tam provisions, which, among other things, prohibits persons from knowingly filing, or knowingly causing to be filed, a false statement, or knowingly using a false statement, to obtain payment from the federal regulatorygovernment. Violations of the FCA are subject to treble damages and penalties. In the case of an SBA loan, the government could allege that single damages are the amount of the loan and interest thereon (or more), which under the FCA could then be trebled. Substantial penalties must also be imposed for each submitted false statement when a defendant loses an FCA trial. FCA cases may be initiated by the U.S. Department of Justice or by private persons or entities, often called “whistleblowers,” who bring the action on behalf of the U.S. PTE-MD may also face enforcement reviewarising under other federal statutes, including criminal laws, and administrative actions and investigations initiated by SBA or other governmental entities. Furthermore, if PTE-MD is identified as an entity that the media, government officials, or others seek to portray as a business that should not have availed itself of us,PPP funding, PTE-MD may face negative publicity, which could have a materially adverse impact on its business and operations and on PolarityTE’s business and operations as its parent. Generally, the cost of defending claims under the FCA, regardless of merit, could be substantial, even as much as the outcome, wouldPPP loan proceeds.

Risks Related to our Research & Development, Clinical, and Commercialization Activities

Our product is subject to extensive regulation by the FDA or comparable foreign regulatory authorities, which can be costly and time consuming. Additionally,consuming, cause unanticipated delays or prevent the receipt of the required licensures and approvals to commercialize our product.

The preclinical and clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing, and distribution of SkinTE is subject to extensive regulation by the FDA and other U.S. regulatory agencies, or comparable authorities in foreign markets. In the U.S., we are not permitted, directly or through others, to market our product until the FDA approves a BLA for SkinTE and licenses the product. Similar approval is required in foreign jurisdictions. The process of obtaining these approvals is uncertain, dependent on future clinical trial results, expensive, often takes many years, and can vary substantially based upon the type, complexity, and novelty of the product candidate involved. Approval policies or regulations may change and may be influenced by the results of other similar or competitive products, making it more difficult for us to achieve such approval in a timely manner or at all. Any guidance that may result from FDA advisory committee discussions may make it more difficult or expensive to develop and commercialize SkinTE. In addition, as a company, we have not previously filed a BLA with the FDA or filed a similar application with other foreign regulatory agencies. This lack of experience may impede our ability to obtain FDA or other foreign regulatory agency licensure or approval in a timely manner, if at all, for our product.

Despite the time and expense invested, regulatory approval is never guaranteed. The FDA or comparable foreign authorities can delay, limit, or deny approval or licensure of a product candidate for many reasons, including:

Our inability to obtain these approvals would prevent us from commercializing our product.

The FDA regulatory approval process is lengthy and time-consuming, and we could experience significant delays or other challenges in the clinical development and regulatory licensures or approval of its product.

We may experience delays or other challenges in commencing and completing clinical trials for SkinTE that would be necessary for product licensure or approval. We do not know whether planned clinical trials will begin on time, need to be redesigned, enroll trial subjects on time or in sufficient numbers, or be completed on schedule, if at all. Any of our future clinical trials may be delayed or precluded for a variety of reasons, including issues related to:

Trial subject enrollment, a significant factor in the timing and success of clinical trials, is affected by many factors including the size and nature of the trial subject population, the proximity of trial subjects to clinical sites, the eligibility criteria for the clinical trial, the potential impact of COVID-19 or other pandemic, the design of the clinical trial, competing clinical trials and clinicians, and trial subjects’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any therapies that may be approved for the indications we are investigating. In addition, significant numbers of trial subjects who enroll in our clinical trials may drop out during the clinical trials for various reasons. We endeavor to account for dropout rates in our trials when determining expected clinical trial timelines, but we cannot predictassure you that our assumptions are correct, or that trials will not experience higher numbers of dropouts than anticipated, which would result in the impactdelay of completion of such trials beyond our expected timelines, if at all.

We could encounter delays if physicians encounter unresolved ethical issues associated with enrolling trial subjects in clinical trials of our product candidate in lieu of prescribing existing treatments that have established safety and efficacy profiles. Further, a clinical trial may be delayed, suspended, or terminated by us, any reviewing IRB, the institutions in which such trial is conducted, the data monitoring committee for such trial, or by the FDA or other regulatory authorities due to a number of factors, including inadequate protocols or other information supporting an IND, failure to conduct the clinical trial in accordance with regulatory requirements, GCP, or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations, or administrative actions or lack of adequate funding to continue the clinical trial. Furthermore, many of the factors that cause, or lead to, a termination or delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory licensure or approval of a product. In connection with clinical trials, we face additional risks that:

We cannot assure you that any future clinical trial for our product will be started or completed successfully, on schedule, or at all. If we experience suspension or termination of, or delays in the completion of, any changesclinical trial for our product, the commercial prospects for the product will be harmed, and our ability to generate product revenues will be delayed or diminished. In addition, any delays in initiating or completing our clinical trials will increase our costs, slow down our product development and approval process, and jeopardize our ability to commence product sales and generate revenues. Any of these laws, whether these changes are retroactiveoccurrences may harm our business, prospects, financial condition, and results of operations significantly.

Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or will have effect on a going-forward basis only.

We operateotherwise prevent new products and services from being developed or commercialized in a highly competitivetimely manner, which could negatively impact our business.

The ability of the FDA to review and evolving fieldapprove or license new products can be affected by a variety of factors, including (i) government budget and face competition from regenerative medicine, biotech, and pharmaceutical companies, tissue engineering entities, tissue processors and medical device manufacturers,funding levels, as well as new market entrants.

We operategovernment shutdowns, (ii) the ability to hire and retain key personnel and accept the payment of user fees, and (iii) statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a very competitive and continually evolving field. Competition fromresult. In addition, government funding of other regenerative medicine, biotech, and pharmaceutical companies, tissue engineering entities, tissue processors, medical device companies and fromgovernment agencies that fund research and academic institutions is intense, expected to increase, subject to rapid change, and could be significantly affected by new product introductions. In addition, consolidation in the healthcare industry continues to drive demands for price concessions or to the exclusion of some suppliers from certain of our markets, which could have an adverse effect on our business, results of operations or financial condition. Our failure to compete effectively would have a material and adverse effect on our business, results of operations and financial condition.

Specifically, we face significant competition in both the regenerative medicine and wound care space from multiple products, including Integra Bilayer Wound Matrix, EpiFix, Apligraf, Dermagraft, Grafix, Epicel, and others. Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors’ products could limit the demand and the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances.

Our use of sensitive patient informationdevelopment activities is subject to complex regulationsthe political process, which is inherently fluid and unpredictable.

Disruptions at multiple levels and we would be adversely affected if we fail to adequately protect this sensitive information.

We process, maintain and utilize personal healththe FDA and other confidentialagencies may also slow the time necessary for new products to be reviewed or licensed or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and sensitive data. In particular, we have developed a web and mobile application through which our customers can communicate with physicians and others, which may involve sharing patient identifiable health information. The use and disclosure of such information is regulated at the federal, state and international levels, and these laws, rules and regulations are subject to change and increased enforcement activity,certain regulatory agencies, such as the audit program implemented by HHS under HIPAA. International laws, rulesFDA, have had to furlough critical FDA employees and regulations governingstop critical activities. If a prolonged government shutdown occurs, it could significantly impact the useability of the FDA to timely review and disclosure of such information are generally more stringent than in the United States, and they vary from jurisdiction to jurisdiction. Noncompliance with any privacy or security laws or regulations, or any security breach, cyber-attack or cybersecurity breach, and any incident involving the theft, misappropriation, loss or other unauthorized disclosure of, or access to, sensitive or confidential information, whether by us or by another third party, could require us to expend significant resources to remediate any damage, interruptprocess our operations and damage our brand and reputation, and could also result in investigations, regulatory enforcement actions, material fines and penalties, loss of customers, litigation or other actionssubmissions, which could have a material adverse effect on our business, brand, reputation, cash flowsbusiness. Additionally, over the last several years, the COVID-19 pandemic has caused unexpected increases in the FDA’s workload and operating results.has degraded the timeliness of many agency activities, including pre-submission interactions, product reviews, and pre-license inspections.

Our business depends on providerEven if we obtain and patient willingness to entrust us with health related and other sensitive personal information. Events that negatively affect that trust, including inadequate disclosure of our uses of their information, failing to keep our information technology systems and sensitive information secure from significant attack, theft, damage, lossmaintain regulatory licensure or unauthorized disclosure or access, whether as a result of our action or inaction or that of third parties, could adversely affect our brand, reputation and revenues and also expose us to mandatory disclosure to the media, litigation (including class action litigation) and other enforcement proceedings, material fines, penalties and/or remediation costs, and compensatory, special, punitive and statutory damages, consent orders and/or injunctive relief, any of which could adversely affect our business, cash flows, operating results or financial position. There can be no assurance that any such failure will not occur, or if any does occur, that we will detect it or that it can be sufficiently remediated.

Many of our competitors have substantially greater resources than we do, and we expect that all ofapproval for our product candidates will face intense competition from existing or future products.

All of our product candidates face intense competition from existing and future products marketed by large, well-established companies (including but not limited to Integra LifeSciences, Wright Medical Group, MiMedx, Osiris, Organogenesis, Allosource and Vericel). These competitors may successfully market products that compete with our product candidates, successfully identify product candidates or develop products earlier than we do, or develop products that are more effective or cost less than our products. These competitive factors could require us to conduct substantial new research and development activities to establish new product targets, which would be costly and time consuming. These activities would adversely affect our ability to effectively commercialize products and achieve revenue and profits.

We depend heavily on our senior management andin one jurisdiction, we may be unable to replace key executives if they leave.

The loss ofnever obtain regulatory licensure or approval for the services of one or more members of our senior management team or our inability to attract, retain and maintain additional senior management personnel could harm our business, financial condition, results of operations and future prospects. Our operations and prospects dependproduct in large part on the performance of our senior management team, particularly Dr. Denver Lough, our Chief Executive Officer and Chief Scientific Officer. In addition, we may not be able to find qualified replacements if his services are no longer available. We do not presently maintain “key-man” life insurance on any of our executives or key employees.

Many executive officers and employees in the regenerative medicine business are subject to strict non-compete or confidentiality agreements with their employers,other jurisdiction, which would limit our ability to recruit them to join our company. In addition, some of our existingmarket opportunities and future employees are or may be subject to confidentiality agreements with previous employers. Our competitors may allege breaches of and seek to enforce such non-compete agreements or initiate litigation based on such confidentiality agreements. Such litigation, whether or not meritorious, may impede our ability to hire executive officers and other key employees who have been employed by our competitors and may result in intellectual property claims against us.

Certain key members of our management team may be subject to conflicts of interest.

Certain members of our management team have full or part-time interests outside of our business, including employment at other institutions. Such management team members may face conflicts of interest, including conflicts in allocating time and the ability to present research and business opportunities learned in the scope of other positions. These conflicts could result in unanticipated actions that adversely affect us. Currently, we have no policy in place to address such conflicts of interest. In addition, many universities and medical institutions have policies that apply to faculty members’ activities outside the scope of their employment at the university and medical institution. We do not independently review all of these policies or monitor our executive’s compliance with these types of third party policies and policies of former employers of our executives. Instead, we rely on representations made by the executive and periodic confirmations from the executive that he or she is in compliance with PolarityTE’s employment policies.

If serious adverse or inappropriate side effects are identified during the development of our product candidates or with any procedures with which our product candidates are used, we may need to abandon or limit our development of those product candidates.

None of our product candidates has been proven effective or safe in humans. It is impossible to predict when or if any of our product candidates will prove effective or safe in humans or, to the extent required, will receive marketing approval. If our product candidates are associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon their development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. In addition, if any of the procedures with which our product candidates are used is determined to be unsafe, we may be required to delay, alter, or abandon our product development or commercialization.

We rely on third parties to assist in the development of our product candidates.

Our research and development relies upon the efforts and support of third parties over which we have little or no control. Accordingly, we may be subject to significant delays from third parties on which we rely or may rely, including but not limited to clinical research organizations, academic institutions, and/or other research collaborators, related to a variety of factors including but not limited to contract negotiations, funding, preparing research protocols, and identifying appropriate investigators.

We intend to, but may not be successful in, establishing and maintaining strategic partnerships.

We intend to enter into strategic partnerships in the future to enhance and accelerate the development and commercialization of our proposed products. We may rely on such partnerships to assist in launching, marketing and developing our product candidates. However, we may face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for any future proposed products and programs because our research and development pipeline may be insufficient, our proposed products and programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy (or other requirements or goals that potential strategic partners may seek). Even if we are successful in our efforts to establish strategic partnerships, the terms that we agree upon may not be favorable to us and we may not be able to maintain such strategic partnerships if, for example, development or approval of a product candidate is delayed or sales of an approved and/or registered product are disappointing.

Rapid technological change could cause our business to become obsolete.

The technologies underlying our product candidates are subject to rapid and profound technological change. Competition intensifies as technical advances in each field are made and become more widely known. We can give no assurance that others will not develop services, products, or processes with significant advantages over the products, services, and processes that we offer or are seeking to develop. Any such occurrence could have a material and adverse effect on our business, results of operations and financial condition.

The success of any of our product candidates or enhancements to an existing product will depend on numerous factors, including our ability to:

If we do not develop and, when necessary, obtain regulatory clearance, registration, or approval for product candidates or product enhancements in time to meet market demand, or if there is insufficient demand for these products or enhancements, our results of operations will suffer. Our research and development efforts may require a substantial investment of time and resources before we are adequately able to determine the commercial viability of a new product, technology, material or other innovation. In addition, even if we are able to successfully develop enhancements or new generations of our product candidates, these enhancements or new generations of product candidates may not produce sales in excess of the costs of development and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of product candidates embodying new technologies or features.

To be commercially successful, we must convince physicians that our treatments are safe and effective alternatives to existing treatments and that our treatments should be accepted and used.

We believe physicians will only adopt our treatment if they determine, based on experience, clinical data and published peer reviewed journal articles, that the use of our treatment is a favorable alternative to existing and conventional methods, including but not limited to skin grafting. Physicians may be slow to change their medical treatment practices for the following reasons, among others:

In addition, while acceptance by the medical community may be fostered by broad evaluation via peer-reviewed literature, we may not have the resources to facilitate sufficient publication. We also believe that recommendations for, and support of our treatments by, influential physicians are essential for market acceptance and adoption. If we do not obtain this support or are unable to demonstrate favorable long-term clinical data, physicians and hospitals may not use our treatments, which would have a material and adverse effect on our result of operations and prospects.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to sell and market our product candidates we may not be successful in commercializing them.

We do not have a sales or marketing infrastructure and have no experience in the sale, marketing or distribution of potential products. To achieve commercial success for any product candidate, we must either develop a sales and marketing team or outsource these functions to third parties. We also plan to recruit appropriate sales and marketing resources for countries or regions of countries in which we determine to commercialize our product candidates on our own, if any.

There are risks involved both with establishing our own sales and marketing capabilities and entering into arrangements with third parties to perform these services. For example, recruiting and training a sales force is expensive and time consuming and could delay any product launch. If the commercial launch of SkinTE, OsteoTE or another product candidate for which we recruit a sales force and establish marketing capabilities is delayed or does not occur for any reason, we would have prematurely or unnecessarily incurred these commercialization expenses. This may be costly, and our investment would be lost if we cannot retain or reposition our sales and marketing personnel.

If we enter into arrangements with third parties to perform sales, marketing and distribution services, our product revenues or the profitability of these product revenues to us are likely to be lower than if we were to market and sell any products ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our potential products or may be unable to do so on terms that are favorable to us. We likely will have limited control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our potential products effectively and in compliance with applicable laws.

Significant disruptions of information technology systems or breaches of information security could adversely affect our business.

We rely to a large extent upon sophisticated information technology systems to protectObtaining and maintaining regulatory licensure or approval for our intellectual property and to operate our business. In the ordinary course of business,product in one jurisdiction does not guarantee that we collect, store and transmit large amounts of confidential information (including, but not limited to, our trade secrets and data, personal information, and intellectual property). The size and complexity of our information technology and information security systems make such systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees or vendors, or from malicious attacks by third parties. Such attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives (including, but not limited to, industrial espionage and market manipulation) and expertise. There can be no assurance that our efforts to protect our data and related information technology and intellectual property will prevent service interruptions or security breaches. Any interruption or breach in our systems could adversely affect our business operations and/or result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal, business and reputational harm to us or allow third parties to gain material, inside information that they use to trade in our securities.

We face the risk of product liability claims and may not be able to obtain or maintain adequateregulatory licensure or approval in other jurisdictions. For example, even if the FDA grants marketing approval for SkinTE, comparable regulatory authorities in foreign countries must also approve the manufacturing, marketing, and promotion of the product liability insurance.

Our business exposes us to the risk of product liability claims that are inherentin those countries. Approval procedures vary amongst jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the manufacturing, processingU.S., including additional preclinical studies or clinical trials. Obtaining foreign regulatory approvals and marketing of human cellular and tissue-based products. We may be subject to such claims if our product candidates cause, or appear to have caused, an injury during clinical trials or after commercialization. Claims may be made by patients, healthcare providers or others selling our product candidates. Defending a lawsuit, regardless of merit, could be costly, divert management attention and result in adverse publicity, which could result in the withdrawal of, or reduced acceptance of, our product candidates in the market.

Although we have obtained product liability insurance, such insurance is subject to deductibles and coverage limitations and we may not be able to maintain this insurance. Also, it is possible that claims could exceed the limits of our coverage. If we are unable to obtain or maintain product liability insurance at an acceptable cost or on acceptable termscompliance with adequate coverage or otherwise protect ourselves against potential product liability claims or we underestimate the amount of insurance we need, we could be exposed to significant liabilities, which may harm our business. A product liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilitiesforeign regulatory requirements could result in significant delays, difficulties, and costs for us and significant harm to our business.

We may implement a product recallcould delay or voluntary market withdrawal, which could significantly increase our costs, damage our reputation and disrupt our business.

The manufacturing, marketing and processingprevent the introduction of our product candidates involves an inherent riskin certain countries. In many countries outside the U.S., a product candidate must be approved for reimbursement before it can be approved for sale in that our tissue products or processes do not meet applicable quality standards and requirements.country. In some cases, the price that event, we may voluntarily implement a recall or market withdrawal or may be requiredintend to do so by a regulatory authority. A recall or market withdrawal of one ofcharge for our product candidates would be costly and would divert management resources. A recall or withdrawal of one of our product candidates, or a similar product processed by another entity,is also could impair sales of our product candidates as a result of confusion concerning the scope of the recall or withdrawal, or as a result of the damagesubject to our reputation for quality and safety.

Our limited public company experience may adversely impact our ability to comply with the reporting requirements of the U.S. securities laws.

We have limited experience operating as a public company. As a public company, we are required to establish and maintain disclosure controls and procedures and internal control over financial reporting. Our limited public company experience could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. We may not be able to implement programs and policies in an effective and timely manner that adequately respond to such increased legal, regulatory compliance and reporting requirements, including the establishing and maintaining internal controls over financial reporting. Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our ability to comply with SEC reporting requirements, which may be necessary in the future to maintain our public company status. If we were to fail to fulfill those obligations, our ability to continue as a public company would be in jeopardy.

If we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.

Our management team has supervised the completion of the first full audit of our financial statements for the year ending October 31, 2017.approval. If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to disclosure controls and procedures,regulatory requirements in international markets or if we fail to timely remediatereceive applicable marketing approvals, our target market will be reduced and our ability to realize the material weakness or other deficiencies infull market potential of our internal control and accounting procedures, our stock price could decline significantly and raising capital couldproduct will be more difficult. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud,harmed, which would adversely affect our business, and operating results could be harmed, investors could lose confidence in our reportedprospects, financial information, and the trading price of our common stock could drop significantly. In addition, we cannot be certain that material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.

We may not be able to effectively control and manage our growth.

Our strategy envisions a period of potentially rapid growth. We currently maintain minimal administrative and other personnel due to the startup nature of our business, and our expected growth may impose a significant burden on our future planned administrative and operational resources. The growth of our business may require significant investments of capital and increased demands on our management, workforce and facilities. We will be required to substantially expand our administrative and operational resources and attract, train, manage and retain qualified management and other personnel. Failure to do so or to satisfy such increased demands would interrupt or would have a material adverse effect on our businesscondition, and results of operations.

Even if our product candidate receives regulatory licensure or approval, our product candidate may still face future development and regulatory difficulties.

If our product receives regulatory approval, the FDA or comparable foreign regulatory authorities may still impose significant restrictions on the indicated uses or marketing of the product or impose ongoing requirements for potentially costly post-approval studies and trials or other risk mitigation measures. In addition, regulatory agencies subject a product, its manufacturer, and the manufacturer’s facilities to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, including adverse events of unanticipated nature, severity, or frequency, or problems with the facility where the product is manufactured, stored, tested, or released, a regulatory agency may impose restrictions on that product or PolarityTE, including narrowing product indications, requiring labeled warnings, or requiring withdrawal of the product from the market. Our results may fluctuate significantly as a result of a variety of factors, many of which are outside of our control.

We areproduct candidate will also be subject to the following factors, among others, that may negatively affectongoing FDA or comparable foreign regulatory authorities’ requirements for labeling, packaging, storage, advertising, promotion, record-keeping, import, export, clinical trial registration and results disclosure for post-market as well as pre-market trials, and submission of safety and other post-market information. If our operating results:product fails to comply with applicable regulatory requirements, a regulatory agency may:

The FDA and comparable foreign authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses and other unlawful promotion.

The FDA and comparable foreign authorities strictly regulate the promotional claims that may be made about products, such as SkinTE, if licensed or approved. In particular, a product may not be promoted for uses that are not approved by the FDA or comparable foreign authorities as reflected in the product’s approved labeling and may not be promoted with claims that are false, misleading, or inadequately substantiated. If we receive marketing approval for our product for its proposed indications, physicians may nevertheless use our product for their patients in a manner that is inconsistent with the approved label, if the physicians believe in their professional medical judgment that our product could be used in such manner.

However, if we are found to have promoted our product for any off-label uses, or with claims that are false, misleading, or not adequately substantiated, the federal government could levy civil, criminal, or administrative penalties, and seek to impose fines on us. Such enforcement has become more common in the industry. The FDA or comparable foreign authorities could also request that we enter into a consent decree or a corporate integrity agreement or seek a permanent injunction against us under which specified promotional conduct is monitored, changed, or curtailed. If we cannot successfully manage the promotion of our product, if licensed or approved, we could become subject to significant liability, which would materially adversely affect our business, financial condition, and results of operations.

We, and any contract manufacturer we may engage in the future, are subject to significant regulation with respect to manufacturing our product. Even once cGMP compliance is initially achieved, the manufacturing facility on which we rely may not continue to meet regulatory requirements.

Entities involved in the preparation of products subject to BLA approval for clinical trials or commercial sale, including us and any contract manufacturer we may engage in the future, are subject to extensive regulation. Products sold commercially after BLA approval or used in clinical trials must be manufactured in accordance with cGMP. cGMP laws and regulations govern manufacturing facilities, processes, and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes or facilities can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidate that may not be detectable in final product testing. We, or our contract manufacturers, must supply all necessary documentation on a timely basis in support of a BLA or a change in valuemanufacturing site after a BLA is issued on a timely basis and must adhere to cGMP statutory requirements and regulations enforced by the FDA or comparable foreign authorities through their facilities inspection program. The facilities and quality systems of our derivative liabilities could havefacility where we will manufacture SkinTE must pass a material effectpre-license inspection for compliance with the applicable statutory and regulatory requirements as a condition of regulatory licensure or approval of our product. In addition, the regulatory authorities may, at any time, with or without cause, audit, inspect, or conduct a remote review of records or information about a manufacturing facility involved with the preparation of our product or the associated quality systems for compliance with the statute or regulations applicable to the activities being conducted. If our facility does not pass a pre-license plant inspection, regulatory licensure or approval of our product may not be granted or may be substantially delayed until any deficiencies are corrected to the satisfaction of the regulatory authority, if ever. If we engage contract manufacturers in the future, we intend to oversee the contract manufacturers, but we cannot control the manufacturing process and will be completely dependent on our contract manufacturing partners for compliance with the regulatory requirements.

The regulatory authorities also may, at any time following approval of a product for sale, audit, inspect, or remotely review records regarding our facility or the manufacturing facilities of our third-party contractors. If any such inspection, audit, or review identifies a failure to comply with applicable statute or regulations or if a violation of our product specifications or applicable statute or regulations occurs independent of such an inspection, audit, or review, we or the relevant regulatory authority may require remedial measures that may be costly or time consuming for us or a third party to implement, and may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business, financial results.condition, and results of operations.

If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA or comparable foreign authorities can impose regulatory sanctions including, among other things, refusal to approve a pending application for a product candidate, withdrawal of an approval, or suspension of production. As a result, our business, financial condition, and results of operations may be materially and adversely affected.

Included on our balance sheet at October 31, 2017 are derivative liabilities related to embedded features bifurcated

Additionally, if supply from our preferred stockfacility or the facility of a future contract manufacturer is interrupted, an alternative manufacturer would need to be qualified through a BLA supplement, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies or trials if a new manufacturer is relied upon for commercial production. Switching manufacturing facilities may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.

These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product. Furthermore, if our facility or future contract manufacturers fail to meet production requirements and we are unable to secure one or more replacement manufacturing facilities capable of production at a substantially equivalent cost or at all, our clinical trials may be delayed, or we could lose potential revenue.

If we fail to obtain and sustain an adequate level of reimbursement for our product by third-party payors, potential future sales would be materially adversely affected.

There will be no viable commercial market for our product, if approved, without reimbursement from third-party payors. Reimbursement policies may be affected by future healthcare reform measures. We cannot be certain warrant contracts. At each reporting period,that reimbursement will be available for our product. Additionally, even if there is a viable commercial market, if the level of reimbursement is below our expectations, our anticipated revenue and gross margins will be adversely affected. Third-party payors, such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan, and other factors. Reimbursement rates may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. There is a current trend in the U.S. healthcare industry toward cost containment.

Large public and private payors, managed care organizations, group purchasing organizations, and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish for products, which could result in product revenues being lower than anticipated. If we are unable to show a significant benefit relative to existing therapies, Medicare, Medicaid, and private payors may not be willing to provide reimbursement for our product, which would significantly reduce the likelihood of our product gaining market acceptance.

We expect that private insurers will consider the efficacy, cost-effectiveness, safety, and tolerability of our product in determining whether to approve reimbursement and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business, financial condition, and results of operations would be materially adversely affected if we do not receive approval for reimbursement of our product from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Medicare Part D, which provides a pharmacy benefit to Medicare patients as discussed below, does not require participating prescription drug plans to cover all drugs within a class of products. Our business, financial condition, and results of operations could be materially adversely affected if Part D prescription drug plans were to limit access to, or deny or limit reimbursement of, our product.

Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, the product cannot be commercially launched until reimbursement is approved. In some foreign markets, prescription drug pricing remains subject to continuing governmental control even after initial approval is granted. The negotiation process in some countries can be very long. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies.

If the prices for our product are reduced or if governmental and other third-party payors do not provide adequate coverage and reimbursement of our product, our future revenue, cash flows, and prospects for profitability will suffer.

Current and future legislation may increase the difficulty and cost of commercializing our product and may affect the prices we may obtain if our product is approved for commercialization.

In the U.S. and some foreign jurisdictions, there have been a number of adopted and proposed legislative and regulatory changes regarding the healthcare system that could prevent or delay regulatory licensure or approval of our product, restrict or regulate post-marketing activities, and affect our ability to profitably sell our product.

In the U.S., the Medicare Modernization Act of 2003 (“MMA”) changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for our product. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.

The Patient Protection and Affordable Care Act (“PPACA”) was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry, and impose additional health policy reforms. The PPACA increased manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of Average Manufacturer Price, which may also increase the amount of Medicaid drug rebates manufacturers are required to determinepay to states. The legislation also expanded Medicaid drug rebates and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the fair valuerebates due on those drugs. The Centers for Medicare & Medicaid Services, which administer the Medicaid Drug Rebate Program, also proposed to expand Medicaid rebates to the utilization that occurs in the territories of the U.S., such as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the PPACA imposed a significant annual fee on companies that manufacture or import branded prescription drug products and required manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the “donut hole.” Legislative and regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.

There have been prior public announcements by members of the federal government regarding their plans to repeal and replace the PPACA and Medicare. For example, the Tax Cuts and Jobs Act of 2017 eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance, or interpretations will be changed, or what the impact of such derivatives and recordchanges on the fair value adjustments as non-cash unrealized gains or losses. The share pricemarketing approvals of our common stock representsproduct may be. In addition, increased scrutiny by the primary underlying variable that impacts the valueU.S. Congress of the derivative instruments. Additional factorsFDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.

We are subject to “fraud and abuse” and similar laws and regulations, and a failure to comply with such regulations or prevail in any adverse claim or proceeding related to noncompliance could harm our business, financial condition, and results of operations.

In the U.S., we are subject to various federal and state healthcare “fraud and abuse” laws, including anti-kickback laws, false claims laws, and other laws intended, among other things, to reduce fraud and abuse in federal and state healthcare programs. The federal Anti-Kickback Statute makes it illegal for any person, including a drug or biologics manufacturer, or a party acting on its behalf, to knowingly and willfully solicit, receive, offer, or pay any remuneration that impactis intended to induce the valuereferral of business, including the purchase, order, or prescription of a particular drug or biologic, or other good or service, for which payment in whole or in part may be made under a federal healthcare program, such as Medicare or Medicaid. Although we seek to structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in specific circumstances. Accordingly, it is possible that our practices may be challenged under the federal Anti-Kickback Statute.

The federal False Claims Act prohibits anyone from, among other things, knowingly presenting or causing to be presented for payment to the government, including the federal healthcare programs, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or claims for medically unnecessary items or services. Under the Health Insurance Portability and Accountability Act of 1996, we are prohibited from knowingly and willfully executing a scheme to defraud any healthcare benefit program, including private payors, or knowingly and willfully falsifying, concealing or covering up a material fact, or making any materially false, fictitious, or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items, or services to obtain money or property of any healthcare benefit program. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including penalties, fines, or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid, and debarment from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the derivative instruments includegovernment under the volatilityfederal False Claims Act as well as under the false claims laws of several states.

Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payors. In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers or the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement, we could be subject to penalties.

Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that as we pursue our business we may be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. If we are found in violation of one of these laws, we could be subject to significant civil, criminal, and administrative penalties, damages, fines, exclusion from governmental funded federal or state healthcare programs, and the curtailment or restructuring of our stock price,operations. If this occurs, our credit rating, discount rates,business, financial condition, and stated interest rates. Due toresults of operations may be materially adversely affected.

If we face allegations of noncompliance with the volatile nature oflaw and encounter sanctions, our share price, we expect that we will recognize non-cash gains or losses onreputation, revenues, and liquidity may suffer, and our derivative instruments each reporting period and that the amount of such gains or lossesproduct, if approved for commercialization, could be material.subject to restrictions or withdrawal from the market.

WeAny government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may increasingly become a target for public scrutiny, including complaints to regulatory agencies, negative media coverage, including social media and malicious reports, all of which could severely damage our reputation and materiallysignificantly and adversely affect our ability to generate revenues from our product, if approved. If regulatory sanctions are applied or if regulatory licensure or approval is not granted or is withdrawn, our business, financial condition, and prospects.

We focus on the research and development (including through preclinical, animal testing)results of therapies used in the regenerative medicine and wound care space, and such therapies mayoperations will be the subject of regulatory, watchdog and media scrutiny and coverage, which also raise the possibility of heightened attentionadversely affected. Additionally, if we are unable to generate revenues from the public, the mediaproduct sales, our potential for achieving profitability will be diminished and our participants. From timeneed to time, these objections or allegations, regardless of their veracity, may result in public protests or negative publicity, which could result in government inquiry or harmraise capital to fund our reputation. Corporate transactions we or related parties undertake may also subject us to increased media exposure and public scrutiny. There is no assurance that we would not become a target for public scrutiny in the future or such scrutiny and public exposure would not severely damage our reputation as well as our business and prospects.operations will increase.

Risks Related to Our Intellectual Property

We do not currently own any issued patents and ourOur ability to protect our intellectual property and proprietary technology through patents and other means is uncertain and may be inadequate, which could have a material and adverse effect on us.

Our success depends significantly on our ability to protect our proprietary rights in technologies that presently consist of trade secrets, patents, and patent applications. We currently have nofour issued patents and one allowed patent application in the U.S. relating to any of our product candidates.minimally polarized functional unit (“MPFU”) technology. We intend to expandcontinue our patenting activities and rely on patent protection, as well as a combination of copyright, trade secret, and trademark laws and nondisclosure, confidentiality, and other contractual restrictions to protect our proprietary technology, and there can be no assurance these methods of protection will be effective. These legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. In addition, our presently pending patent applications include claims to material aspects of our activities that are not currently protected by issued patents.benefit. The patent application process can be time consuming and expensive. We cannot ensure that any of the pending patent applications we acquire, havealready filed or that may be filed or acquired or may file will result in issued patents. Competitors may be able to design around our patents or develop procedures that provide outcomes that are comparable or even superior to ours. We also cannot assure youThere is no assurance that the inventors of the patents and applications that we expect to own or license were the first-to-invent or the first-inventor-to-file on the inventions, or that a third party will not claim ownership in one of our patents or patent applications. We cannot assure you that a third party does not have or will not obtain patents that could preclude us from practicing the patents we own or license now or in the future.

The failure to obtain and maintain patents and/or protect our intellectual property rights could have a material and adverse effect on our business, results of operations, and financial condition. We cannot be certain that, if challenged, any patents we have obtained or ultimately obtain would be upheld because a determination of the validity and enforceability of a patent involves complex issues of fact and law. If one or more of any patents we have obtained or ultimately obtain is invalidated and/or held unenforceable, such an outcome could reduce or eliminate any competitive advantagebenefit we might otherwise have had.

In the event a competitor infringes upon any patent we have obtained or ultimately obtain, or a third party including but not limited to a university or other research institution, makes a claim of ownership over our patents or other intellectual property rights, confirming, defending, or enforcing those rights may be costly, uncertain, difficult, and time consuming.

There can be no assurance that a third party, including, but not limited to, a university or other research institution that our founders were associated with in the past, will not make claims to ownership or other claims related to our technology.

There can be no assurance that a third party, including but not limited to, a university or other research institution that our founders were associated with in the past, will not make claims to ownership or other claims related to our technology. We believe we have developed our technology outside of any institutions, but we cannot guarantee such institutions would not assert a claim to the contrary. Even if successful, litigation to enforce or defend our intellectual property rights could be expensive and time consuming and could divert our management’s attention. Further, bringing litigation to enforce our future patent(s)for patent enforcement subjects us to the potential for counterclaims. In the event thatIf one or more of our current or future patents is challenged in U.S. and/or foreign courts or the United StatesU.S. Patent and Trademark Office (“USPTO”) and/or foreign patent offices, the patent(s) may be found invalid and/or unenforceable, which could harm our competitive position. If any court or any patent office ultimately cancels or narrows the claims in any of our future patents through any pre- or post-grant patent proceedings, such an outcome could prevent or hinder us from being able to enforce the patent against competitors. Such adverse decisions could negatively affect our future expected revenue.revenue and results of operations.

We may be subject to claims that our employees have wrongfully appropriated, used, or disclosed intellectual property of their former employers.

We employ individuals who were previously employed by other companies, universities, and/or other academic institutions. We may be subject to claims that we or our employees have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a prior employer. Litigation may be necessary to defend against these claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel, which could adversely impact our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees. Any of the foregoing could have an adverse impact on our business, financial condition, results of operations, and cash flows.

We may be subject to claims that former or current employees, collaborators, or other third parties have an interest in our patents, patent applications, or other intellectual property as an inventor or co-inventor. Litigation may be necessary to defend against any claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.

If we are unable to protect the confidentiality of our proprietary information and know-how related to SkinTE or any of our product candidates, our competitive position would be impaired and our business, financial condition, and results of operations could be adversely affected.

Some of our technology, including our knowledge regarding certain aspects of the processingmanufacture of ourSkinTE and potential product candidates, is unpatented and is maintained by us as trade secrets. In an effort toTo protect these trade secrets, the information is restricted to our employees, consultants, collaborators, and advisors on a need-to-know basis only.basis. In addition, we require our employees, consultants, collaborators, and advisors to execute confidentiality agreements upon the commencement of their relationships with us. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements, however, do not ensure protection against improper use or disclosure of confidential information, and these agreements may be breached. A breach of confidentiality could affect our competitive position. In addition, in some situations, these agreements and other obligations of our employees to assign intellectual property to the Companyus may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators, or advisors have previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.

Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets wouldcould impair our competitive position and could have a material adverse effect on our business, financial condition, and results of operations.

We may become subject to claims of infringement of the intellectual property rights of others, which could prohibit us from developing our treatment,product, require us to obtain licenses from third parties, orrequire us to develop non-infringing alternatives, andor subject us to substantial monetary damages. We have not obtained and do not intend to obtain any legal opinion with regard to our freedom to practice our technology.

Third parties could assert that our processes, SkinTE, product candidates, or technology infringe their patents or other intellectual property rights. Whether a process, product, or technology infringes a patent or other intellectual property involves complex legal and factual issues, the determination of which is often uncertain. We cannot be certain that we will not be found to have infringed the intellectual property rights of others. Because patent applications may remain unpublished for certain periods of time and may take years to be issued as patents, there may be applications now pending of which we are unaware and/or that do not currently contain claims of concern that may later result in issued patents that SkinTE, our product candidates, procedureprocedures, or processes will infringe. There may be existing patents that SkinTE, our product candidates, procedures, or processes infringe, of which infringement we are not aware. Third parties could also assert ownership over our intellectual property. Such an ownership claim could cause us to incur significant costs to litigate the ownership issues. If an ownership claim by a third party were upheld as valid, we may be unable to obtain a license from the third party on acceptable terms to continue to make, use, or sell technology free from claims by that third party of infringement of the third party’s intellectual property. We have not obtained, and do not intendhave a present intention to obtain, any legal opinion with regard toregarding our freedom to practice our technology at this time.technology.

If we are unsuccessful in actions we bring against the patents of other parties, and it is determined that we infringe upon the patents of third parties, we may be subject to injunctions, or otherwise prevented from commercializing potential products and/or services in the relevant jurisdiction or may be required to obtain licenses to those patents or develop or obtain alternative technologies, any of which could harm our business. Furthermore, if such challenges to our patent rights are not resolved in our favor, we could be delayed or prevented from entering into new collaborations or from commercializing certain product candidates, and/or services, which could adversely affect our business and results of operations.

If we are successful in obtaining patent protection, we may not be able to enforce those patent rights against third parties.

Successful challenge of any future patents such as through opposition, reexamination,inter partes review, interference, or derivation proceedings could result in a loss of patent rights in the relevant jurisdiction. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential or sensitive information could be compromised by disclosure in the event of litigation. In addition, during the course of litigation there could be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the price of our common stock.

We may not be able to protect our intellectual property in countries outside of the United States.U.S.

Intellectual property law outside the United StatesU.S. is uncertain and, in many countries, is currently undergoing review and revisions. The laws of some countries do not protect patent and other intellectual property rights to the same extent as United StatesU.S. laws. Third parties may challenge our patents or applications in foreign countries by initiating proceedings including pre- and post-grant oppositions andor invalidation proceedings. Developments during opposition or invalidation proceedings in one country may directly or indirectly affect a corresponding patent or patent application in another country in an adverse manner. It may be necessary or useful for us to participate in proceedings to determine the validity of our patents or our competitors’ patents that have been issued in countries other than the United States.U.S. This could result in substantial costs, divert our efforts and attention from other aspects of our business, and could have a material adverse effect on our results of operations and financial condition.

Risks Related to Registration and/or Regulatory Approval of Our Product Candidates and Other Government Regulations

Our business is subject to continuing regulatory oversight by the FDA and other authorities, compliance with whose requirements is costly, and our failure to comply could result in negative effects on our business.

The FDA has specific regulations governing human cell, tissue, and cellular and tissue-based products, commonly known as “HCT/Ps”. The FDA has broad post-market and regulatory and enforcement powers. The FDA’s regulation of HCT/Ps includes requirements for registration and listing of products, donor screening and testing, processing and distribution (“Current Good Tissue Practices”), labeling, record keeping, adverse-reaction reporting, and inspection and enforcement.

We believe that our current product candidates are appropriately regulated under Section 361 of the Public Health Service Act (so-called “361 HCT/Ps”) and that as a result no premarket review or approval by the FDA is required. If the FDA does not agree that one or more of our HCT/P products meet its regulatory criteria for regulation solely as 361 HCT/Ps, our product candidates will be regulated as drugs, devices, and/or biological products, and we could be required to withdraw those potential products from the market until the required clinical trials are complete and the applicable premarket regulatory clearances or approvals are obtained.

In addition, other products we may develop may not be 361 HCT/Ps. As result, those product candidates would be subject to additional regulatory requirements, including premarket approval or clearance. Even if pre-market clearance or approval is obtained, the approval or clearance may place substantial restrictions on the indications for which the product(s) may be marketed or to whom the product(s) may be marketed, and may require warnings to accompany the product or impose additional restrictions on the sale and/or use of the product. In addition, regulatory approval is subject to continuing compliance with regulatory standards, including the FDA’s current good manufacturing practice (cGMP) or quality system regulations and adverse event reporting regulations.

If we fail to comply with the FDA regulations regarding our products and manufacturing processes, the FDA could take enforcement action, including, without limitation, any of the following sanctions:

It is likely that the FDA’s regulation of 361 HCT/Ps and other types of products (e.g., drugs, devices, and/or biologics) will continue to evolve in the future. Complying with any such new regulatory requirements, guidance or statutes may entail significant time delays and expense, which could have a material adverse effect on our business. While the FDA may issue new or revised guidance or regulations for 361 HCT/Ps, we do not know whether or when such revised draft or final guidance or regulations (if any) will be issued, the scope of such guidance, any new rules or regulations, whether they will apply to our technologies or products, or whether they will be advantageous or disadvantageous to us. In addition, even if it does not issue new regulations or guidance, FDA could in the future adopt more restrictive interpretations of existing regulations or increase its enforcement activity, which may adversely affect our business.

We believe our current product candidates, including the FDA-registered SkinTE product, satisfy applicable criteria for regulation as a 361 HCT/P and are therefore exempt from FDA requirements for premarket approval or clinical studies. If the FDA disagrees with our interpretation of the relevant laws and regulations as they apply to our product candidates, and requires an Investigational New Drug application (“IND”) or Investigational Device Exemption application (“IDE”) for any of our product candidates, we may need to delay, abandon, or revise our current development plans, discontinue ongoing marketing, and/or recall products. The submission of an IND, Biologics License Applications (“BLA”), New Drug Application (“NDA”), or other medical device clearance or approval application would require us to compile significant amounts of data related to our regulatory process, as well as data from preclinical and/or clinical testing. We cannot guarantee that we will ever be able to secure such approvals if required. Even if such approvals are obtained, regulation as a drug, biologic, or medical device would subject us to additional FDA postmarketing requirements that are complex and involve substantial expense, such as compliance with drug, biologic, or medical device current Good Manufacturing Practice or quality system requirements.General Risks

The FDA regulates HCT/Ps under a two-tiered framework. Certain higher risk HCT/Ps are regulated as new drugs, biologics or medical devices. Manufacturers of new drugs, biologics and some medical devices must complete extensive clinical trials, which must be conducted pursuant to an effective IND or IDE. In addition, the FDA must review and approve a BLA or NDA before a new drug or biologic may be marketed. For most medical devices, including novel or high-risk medical devices, FDA must approve a premarket approval application (“PMA”) or grant clearance to a premarket notification (“510(k)”) application prior to marketing of the device.

By contrast, the FDA exempts 361 HCT/Ps from these requirements if they meet certain specified criteria. We believe that our current product candidates, including SkinTE, meet the criteria for regulation as a 361 HCT/P rather than as a new drug or biologic or medical device and, therefore, we do not currently expect that any of our current product candidates will be subject to the requirement for an IND or IDE or FDA premarket review and approval. Thus, our financial and business plans assume that we will not need to seek or obtain premarket FDA approval or clearance for our product candidates. Rather, we will have to comply with the requirements for 361 HCT/Ps set forth in FDA regulations and develop adequate substantiation to support marketing claims we plan to make.

The Tissue Reference Group (“TRG”) is a body within the FDA designed to provide recommendations regarding whether a particular product candidate will be regulated as a 361 HCT/P. The Office of Combination Products (“OCP”) at FDA provides informal and formal opinions regarding the classification of products as 361 HCT/Ps or drugs, biologics, or medical devices. Product manufacturers are not required to consult with the TRG or OCP and instead can market their products based on their own conclusion that the product meets the 361 HCT/P criteria.

We have not consulted the OCP or TRG. We continue to believe that our product candidates qualify as 361 HCT/Ps; however, the FDA could disagree with our conclusion.

The regulatory pathway for cell and tissue-based products is subject to significant uncertainty. The FDA’s criteria for regulation as a 361 HCT/P are complex, and the FDA has not provided comprehensive guidance on the meaning of certain terms used in the criteria, such as “minimal manipulation,” “homologous,” or “combination of the cells and tissues with another article.” In addition, our product candidates, including SkinTE, use new technology that may present a matter of first impression for the FDA in determining whether to require premarket authorization. Further, our product candidates may receive a high degree of scrutiny from the FDA. The FDA or Congress could change the relevant criteria or interpretations for determining which products qualify as 361 HCT/Ps or the regulatory requirements for HCT/Ps.

Additionally, it may be difficult to convince the courts to overturn any adverse decisions made against us by the FDA. Courts have recognized the longstanding principle that the FDA’s decisions on scientific matters, including the agency’s conclusion that a tissue processing procedure involves more than minimal manipulation, are entitled to substantial deference. This means that if the FDA disagrees with our conclusion that any of our product candidates should be regulated as a 361 HCT/P, and not as a new biologic, drug, or medical device, it may be very difficult to challenge the agency’s position in court.

Even if the FDA regulates our product candidates, including SkinTE, as 361 HCT/Ps, we must still generate adequate substantiation for any claims we will make in our marketing. Failure to establish such adequate substantiation in the opinion of federal or state authorities could substantially impair our ability to generate revenue.

Although as 361 HCT/Ps, we may not need to submit our product candidates to the FDA for premarket approval or be subject to FDA requirements for labeling or promotion of new drugs, biologics, or medical devices, we still must generate adequate substantiation for claims we make in our marketing materials. Both the Federal Trade Commission (“FTC”) and the states retain jurisdiction over the marketing of 361 HCT/Ps (and other) products in commerce and require a reasonable basis for claims made in marketing materials. Through our planned preclinical and clinical studies, as well as other endeavors, we intend to generate such adequate substantiation for any claims we make about our product candidates. If, however, after we commence marketing of any of our product candidates, including SkinTE, the FTC or one or more states conclude that we lack adequate substantiation for our claims, we may be subject to significant penalties and/or may be forced to alter our marketing of our product candidates in one or more jurisdictions. Any of this could materially harm our business. In addition, if our promotion of any of our product candidates suggests that the HCT/P is not intended for homologous use, the FDA might consider the product to be a new drug, biologic, or medical device. We will therefore be limited in the promotional claims that we can make about our product candidates.

Any changes in the governmental regulatory classifications of our product candidates could prevent, limit or delay our ability to market or develop our product candidates.

The FDA establishes regulatory requirements based on the classification of a product. An HCT/P is a product containing or consisting of human cells or tissue intended for transplantation into a human patient. 361 HCT/Ps are not subject to any premarket clearance or approval requirements and are subject to less extensive post-market regulatory requirements. Because our product development programs are designed to satisfy the standards applicable to 361 HCT/Ps, any change in the regulatory classification or designation of our products would affect our ability to obtain FDA approval or clearance for and marketing of our product candidates.

If a product candidate is deemed not to be a 361 HCT/P, FDA regulations will require premarket clearance or approval requirements that will involve significant time and cost investments by us. Further, there can be no assurance that the FDA will not, at some future point, change its position on current or future products’ 361 HCT/P status, and any regulatory reclassification could have adverse consequences for us and make it substantially more difficult or expensive for us to conduct our business by requiring extensive clinical trials, premarket clearance or approval and compliance with additional post-market regulatory requirements with respect to those product candidates. Moreover, increased regulatory scrutiny within the industry in which we operate could lead to increased regulation of HCT/Ps, including 361 HCT/Ps. We also cannot assure you that the FDA will not impose more stringent interpretations, restrictions, or requirements with respect to products that qualify as 361 HCT/Ps.

Even if we successfully launch any product candidate, it will be subject to ongoing regulation. We could be subject to significant penalties if we fail to comply with these requirements, and we may be unable to commercialize our product candidates.

Even if the FDA does not object to the marketing of any of our product candidates as a 361 HCT/P and, therefore, without an NDA, BLA, PMA, or 510(k), we will still be subject to numerous post-market requirements, including those related to registration and listing, record keeping, labeling, current good tissue practices, or cGTPs, donor eligibility, deviation and adverse event reporting, and other activities. HCT/Ps that do not meet the definition of a 361 HCT/P and, therefore, are required to be approved or cleared via an NDA, BLA, PMA, or 510(k) are also subject to these and/or additional obligations. If we fail to comply with these requirements, we could be subject to, without limitation, warning letters, product seizures, injunctions or civil and criminal penalties. We are currently relying on a third-party cGTP-compliant facility to conduct the various steps involved in our process. In the future, we plan to establish our own processing facility, which will need to be cGTP compliant. Any failure by us or the third-party facility on which we rely to maintain cGTP compliance would require remedial actions, which could potentially include actions such as product recalls or delays in distribution and sales of our product candidates, including SkinTE, as well as enforcement actions.

Moreover, even if the FDA allows any product candidate of ours to be marketed without premarket authorization, the FDA could still seek to withdraw the product from the market for a variety of reasons, including if the agency develops concerns regarding the safety or efficacy of the product or the product’s manufacturing process.

We face significant uncertainty in the industry due to government healthcare reform.

There have been and continue to be proposals by the federal government, state governments, regulators and third-party payers to control healthcare costs (including but not limited to capitation – the generalized cap on annual fees for a type of service or procedure such as burn or wound care or rehabilitation), and generally, to reform the healthcare system in the United States. There are many programs and requirements for which the details have not yet been fully established or the consequences are not fully understood. These proposals may affect aspects of our business. We also cannot predict what further reform proposals, if any, will be adopted, when they will be adopted, or what impact they may have on us.

Risks Related to Our Manufacturing

Failure by our third-party manufacturers, including Cell Therapy and Regenerative Medicine, to comply with the regulatory guidelines set forth by the FDA with respect to our product candidates could delay or prevent the completion of market entry, clinical trials, the approval and/or registration of any product candidates, or the commercialization of our product candidates.

Third-party manufacturers, such as Cell Therapy and Regenerative Medicine (“CTRM”) at the University of Utah School of Medicine, are subject to regulation and inspection by the FDA for current Good Tissue Practice, or cGTP, and/or current Good Manufacturing Practice, or cGMP, compliance before they can produce commercial product. We may be in competition with other companies for access to these manufacturers’ facilities and may be subject to delays in manufacture if the manufacturers give other clients higher priority than they give to us. If we are unable to secure and maintain third-party manufacturing capacity, the development and sales of our product candidates and our financial performance may be materially affected.

Manufacturers are obligated to operate in accordance with FDA-mandated requirements. A failure of any of our third-party manufacturers to establish and follow cGTP and/or cGMP requirements, if applicable, and to document their adherence to such practices may lead to significant delays in the availability of material for clinical trials, may delay or prevent filing or approval of marketing applications for our product candidates, if applicable, and may cause delays or interruptions in the availability of our product candidates for commercial distribution. This could result in higher costs to us or deprive us of potential product revenues.

Complying with cGTP and/or cGMP and non-U.S. regulatory requirements will require that we expend time, money, and effort in production, recordkeeping, and quality control to assure that the product meets applicable specifications and other requirements. For any products for which we are required to obtain FDA pre-market approval, we, or our contracted manufacturing facility, must also pass a pre-approval inspection prior to FDA approval. Failure to pass a pre-approval inspection may significantly delay FDA approval of our product candidates. If we fail to comply with these requirements, we would be subject to possible regulatory action and may be limited in the jurisdictions in which we are permitted to sell our product candidates. As a result, our business, financial condition, and results of operations may be materially harmed.

The manufacture of cell and tissue-based therapy products is characterized by inherent risks and challenges and has proven to be a costly endeavor relative to manufacturing other therapeutics products. We have limited experience in manufacturing products for commercial purposes and we cannot assure you that we will be able to successfully and efficiently manage the manufacturing of our product candidates, either ourselves or through third-party contractors with whom we may enter into strategic relationships.

The manufacture of cell and tissue-based therapy products, such as our product candidates, is highly complex and is characterized by inherent risks and challenges such as autologous raw material inconsistencies, logistical challenges, significant quality control and assurance requirements, manufacturing complexity, and significant manual processing. Unlike products that rely on chemicals for efficacy, such as most pharmaceuticals, cell and tissue-based therapy products are difficult to characterize due to the inherent variability of biological input materials. Difficulty in characterizing biological materials or their interactions creates greater risk in the manufacturing process. However, there can be no assurance that we will be able to maintain adequate sources of biological materials or that biological materials that we maintain in inventory will yield finished products that satisfy applicable product release criteria. Our inability to obtain necessary biological materials or to successfully manufacture cell and tissue-based therapy products that incorporate such materials could have a material adverse effect on our results of operations.

Additionally, we have limited experience in manufacturing products for commercial purposes and could experience difficulties in the continued manufacturing of our product candidates. Because our experience in manufacturing, sales, marketing and distribution is limited, we may encounter unforeseen difficulties in our efforts to efficiently manage the manufacturing, sale and distribution of our product candidates or have to rely on third-party contractors over which we may not have sole control to manufacture our product candidates. Moreover, there can be no assurance that we or any third-party contractors with whom we enter into strategic relationships will be successful in streamlining manufacturing operations and implementing efficient, low-cost manufacturing capabilities and processes that will enable us to meet the quality, price and production standards or production volumes to achieve profitability. Our failure to develop these manufacturing processes and capabilities in a timely manner could prevent us from achieving our growth and profitability objectives as projected or at all.

We intend to obtain assistance to market our product candidates and some of our future products through collaborative relationships with companies with established sales, marketing and distribution capabilities. Our inability to develop and maintain those relationships would limit our ability to market, sell and distribute our product candidates. Our inability to enter into successful, long-term relationships could require us to develop alternate arrangements at a time when we need sales, marketing or distribution capabilities to meet existing demand. We may market one or more of our product candidates through our own sales force. Our inability to develop and retain a qualified sales force could limit our ability to market, sell and distribute our cell products.

We are subject to significant regulation with respect to the manufacturing of our product candidates.

All of those involved in the preparation of a cellular therapy for clinical trials or commercial sale, including our existing supply contract manufacturers and clinical trial investigators, are subject to extensive and continuing government regulations by the FDA and comparable agencies in other jurisdictions. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGTP and/or cGMP. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors and suppliers must pass inspection for compliance with the applicable regulations as a condition of FDA approval of our product candidates (if approval of any such candidates is required). The FDA also may, at any time following approval of a product for sale (if applicable), audit our manufacturing facilities or those of our third-party contractors. In addition, the FDA may, at any time, audit or inspect a manufacturing facility involved with the preparation of our current products or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted.

Any manufacturing facility we maintain and that of our third-party contract manufacturer(s) is subject to inspections by the FDA. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulation occurs independent of such an inspection or audit, we or the FDA may require remedial measures that may be costly and/or time consuming for us or a third party to implement and that may include the temporary or permanent suspension of clinical trials, product manufacture, commercial sales or exports, recalls, warning letters, market withdrawals, seizures or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business.

We have limited manufacturing capacity andone facility for the production of SkinTE for our manufacturing operations in the U.S. depend primarily on one facility. Ifclinical trials, so if this facility is destroyed or we experienceit experiences any manufacturing or laboratory difficulties, disruptions, or delays, this could limit supply of our product candidates or adversely affect our ability to conduct our clinical trials and our business would be adversely impacted.trials.

We have entered into a manufacturing agreement with CTRM, an accredited, FDA-inspected facility at the UniversityManufacturing of Utah School of Medicine that maintains procedures for cGMP and cGTP compliance, and conduct all of our manufacturing operations at the CTRM facility located in Salt Lake City, Utah. As a result, all of the manufacturing of our product candidatesSkinTE takes place at aour single U.S. facility. We will require additional and/or expanded manufacturing facilities to support our growth plans. If regulatory, manufacturing, or other problems requirecause us to discontinue production operations at this facility, we willwould not be able to supply our product candidates to patients or have suppliesSkinTE for any clinical trials, which would adversely impact our business. If this facility or the equipment in it is significantly damaged or destroyed by fire, flood, power loss, or similar events, we may not be able to quickly or inexpensively replace our manufacturing capacity quickly or replace the facilityinexpensively, or at all. In the event of a temporary or protracted loss of this facility or equipment, we might not be able to quickly transfer manufacturing to anothera third party. Even if we could transfer manufacturing, from one facility to another, the shift would likely be expensive and time-consuming, particularly since an alternative facility would need to comply with the cGTP and/or cGMP (if applicable) regulatoryapplicable FDA manufacturing and quality standard requirements and, if applicable, FDA approval would be required before any products manufactured at that facility could be made commercially available.used.

Risks Related to Liquidity and Capital Resources

Our success depends on members of our senior management team and the loss of one or more key employees or an inability to attract and retain skilled employees will negatively affect our business, financial resourcescondition, and results of operations.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical, and other personnel. We are limitedhighly dependent upon certain members of senior management and other key personnel. Although we have entered into employment agreements with our senior management, each of them may terminate employment with us at any time. The replacement of any of our key personnel likely would involve significant time and costs and may significantly delay or prevent the achievement of our business objectives and could, therefore, negatively affect our business, financial condition, and results of operations. We do not carry any key person insurance policies that could offset potential loss of service under applicable circumstances.

We have from time to time experienced, and we will needexpect to raise additional capitalcontinue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we do. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees have or we have breached legal obligations, resulting in a diversion of our time and resources to disputes and litigation and, potentially, result in liability.

Job candidates and existing employees often consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards decline, it may harm our ability to recruit and retain highly skilled employees.

A resurgence of COVID-19 or another pandemic in the future to continuecould materially affect our operations, as well as the business or operations of third parties with whom we conduct business.

AsThe impact of a resurgence of COVID-19 or another pandemic in the future, including the impact of restrictions imposed to combat its spread, could result in businesses shutting down, work restrictions, and reduced capacity and access to healthcare facilities. Depending upon the length of COVID-19 surges or another pandemic and resulting work restrictions and limitations on healthcare facilities, our future clinical trials for SkinTE may be adversely affected by: (i) delays or difficulties in enrolling patients in our clinical trials approved under our IND; (ii) delays or difficulties in clinical site activation, including difficulties in recruiting clinical site investigators and clinical site personnel; (iii) delays in clinical sites receiving the supplies and materials needed to conduct the clinical trials, including interruption in shipping that may affect the transport of our clinical trial product; (iv) changes in local regulations as part of a response to a pandemic that may require us to change the ways in which our clinical trials are to be conducted, which may result in unexpected costs or discontinuance of the reorganization transactions,clinical trials altogether; (v) diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our business focus has changed from a gaming business to regenerative medicine. We do not expect to generateclinical trial sites and hospital staff supporting the level of revenues going forward that we have achieved in prior years, and no longer expect to generate meaningful revenues from other segmentsconduct of our businessclinical trials; (vi) interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers, and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which have been terminatedcould affect the integrity or disposed of. This significantly reduced revenuereliability of clinical trial data; (vii) risk that participants enrolled in our clinical trials will acquire COVID-19 or other pandemic disease while clinical trials are ongoing, which could impact our needs for future capital. We cannot ensurethe results of the clinical trials, including by increasing the number of observed adverse events; (viii) risk that additional fundingclinical trial investigators or other site staff will be availableacquire COVID-19 or if itother pandemic disease while the clinical trial is available,ongoing, which could impede the conduct or progress of the clinical trials; (ix) delays in necessary interactions with local regulators, ethics committees, and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; (x) limitations in employee resources that it can be obtained on terms and conditions we will deem acceptable. Any additional funding derived from the sale of equity securities is likely to result in significant dilution to our existing stockholders. These matters involve risks and uncertainties that may prevent us from raising additional capital or may cause the terms upon which we raise additional capital, if additional capital is available, to be less favorable to us than would otherwise be focused on the case. If we reach a point where we are unableconduct of our clinical trial because of sickness of employees or their families or the desire of employees to raise needed additional fundsavoid contact with large groups of people; (xi) and interruption or delays to continue as a going concern, we will be forced to cease our business activities and dissolve. In such an event, we will need to satisfy various severances, contract termination, and other dissolution-related obligations.clinical trial activities.

Our financial statements have been prepared on a going concern basis; we must raise additional capital to fund our operations in order to continue as a going concern.

In its report dated January 29, 2018, EisnerAmper LLP, our independent registered public accounting firm, expressed substantial doubt about our ability to continue as a going concern as we have suffered recurring losses from operations and have insufficient liquidity to fund our future operations. If we are unable to improve our liquidity position we may not be able to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments that might result if we are unable to continue as a going concern and, therefore, be required to realize our assets and discharge our liabilities other than in the normal course of business which could cause investors to suffer the loss of all or a substantial portion of their investment.

As of October 31, 2017, we had $17.7 million of cash. We anticipate that our principal sources of liquidity will only be sufficient to fund our activities through approximately October 2018. In order to have sufficient cash to fund our operations, we will need to raise additional equity or debt capital and we cannot provide any assurance that we will be successful in doing so.

We may not be able to raiseenforce our patent or intellectual property rights against third parties, which could adversely affect the required capital to conducttrading price for our operations and develop and commercialize our product candidates.common stock.

We incurred net lossesSuccessful challenge of $130.8 million in fiscal 2017. We will require substantial additional capital resources in order to complete our product development programs, complete clinical trials, and market and commercialize our product candidates. In order to grow and expand our business, and to introduce our new product candidates into the marketplace, we will need to raise a significant amount of additional funds. We will also need significant additional fundsany patents or a collaborative partner,future patents or both, to finance the research and development activities. Accordingly, we are continuing to pursue additional sources of financing.

Our future capital requirements will depend on numerous factors, including:

We expect to devote substantial capital resources to, among other things, fund operations, continue development programs, and to build out and increase our portfolio of product candidates. If we are unable to securepatent applications such additional financing, it will have a material adverse effect on our business and we may have to limit operations in a manner inconsistent with our development and commercialization plans. If additional funds are raisedas through the issuance of equity securitiesopposition, re-examination, inter partes review, interference, or convertible debt securities, it will be dilutive to our stockholders andderivation proceedings could result in a decreaseloss of patent rights in our stock price.

We have funded our operations primarily with proceeds from public and private offeringsthe relevant jurisdiction. Unauthorized disclosure of our common stock. Our historyclaims to our trade secrets could result in loss of operating losses and cash uses, our projectionsthose intellectual property rights. Furthermore, because of the levelsubstantial amount of cashdiscovery required relating to intellectual property litigation, there is a risk that willsome of our confidential or sensitive information could be required for our operations to reach profitability,compromised by disclosure in the termsevent of litigation. In addition, during litigation there could be public announcements of the private placement transactionsresults of hearings, motions, or other interim proceedings or developments. If securities analysts or investors perceive that we completed inhave lost rights to our intellectual property or the past, and the restricted availabilityresults of credit for emerging industries, may impair our ability to raise capital on terms that we consider reasonable and at the levels that we will require over the coming months. We cannot provide any assurances that we will be able to secure additional funding from public or private offerings on terms acceptable to us, if at all. If wethese disputes are unable to obtain the requisite amount of financing needed to fund our planned operations, it would have a material adverse effect on our business and ability to continue as a going concern.

If adequate funds are not available in the future, we may not be able to develop or enhance our product candidates, take advantage of future opportunities, or respond to competitive pressures or unanticipated requirements and we may be required to delay or terminate research and development programs, curtail capital expenditures, and reduce business development and other operating activities. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could have a material adverse effect on our business, operating results, financial condition and prospects.

Our financial condition may impair our ability to obtain credit terms with our suppliers.

Our revenues may be dependent and our reimbursement arrangement may provide us with extended payment terms. However, our financial condition may make it difficult for us to continue to receive payment terms from our suppliers or vendors making demand for adequate assurance, which could include a demand for payment-in-advance. If we are unable to obtain reasonable payment terms or if any of our material vendors or suppliers were to successfully demand payment-in-advance,negative, it could have a materialsubstantial adverse effect on our liquidity.

Risks Related to Our Common Stock

Our Restated Certificate of Incorporation, our Restated Bylaws and Delaware law could deter a change of our management which could discourage or delay offers to acquire us.

Certain provisions of Delaware law and of our Restated Certificate of Incorporation, as amended, and by-laws, could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or in our best interests. These provisions include:

Our executive officers and directors have the ability to control all matters submitted to stockholders for approval.

On April 7, 2017, we issued 7,050 shares of our Series E Preferred Stock convertible into an aggregate of 7,050,000 shares of our common stock with a fair value of approximately $104.7 million to Dr. Denver Lough. Pursuant to the Certificate of Designation for the Series E Preferred Stock, such shares are entitled to two votes for each share of common stock into which such shares are convertible. Accordingly, Dr. Lough is entitled to cast votes equivalent to 14,100,000 shares of common stock on all matters presented for a vote of our stockholders on an “as-converted” basis. As of October 31, 2017, there were 6,515,524 shares of common stock issued and outstanding eligible to vote (in addition to our voting preferred stock). As a result, Dr. Lough, together with other executive officers and directors, would be able to control all matters submitted to our stockholders for approval, as well as our management and affairs.

Substantial future sales of our common stock by us or by our existing stockholders could cause our stock price to fall.

Additional equity financings or other share issuances by us, including shares issued in connection with strategic alliances and corporate partnering transactions, could adversely affect the market price of our common stock. Sales by existing stockholders

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

Our common stock is listed on the Nasdaq Capital Market. For continued listing on the Nasdaq Capital Market, we will be required to comply with the continued listing requirements, including the minimum market capitalization standard, the minimum stockholders’ equity requirement, the corporate governance requirements, and the minimum closing bid price requirement, among other requirements. On October 26, 2022, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying us that, for the preceding 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A) (the “Compliance Period Rule”), the Company has been provided an initial period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement, which ends April 24, 2023 (the “Compliance Date”). If, at any time before the Compliance Date, the bid price for our common stock closes at $1.00 or more for a minimum of 10 consecutive business days as required under the Compliance Period Rule, the Staff will provide written notification to the Company that it complies with the Bid Price Rule, unless the Staff exercises its discretion to extend this 10-day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H).

The notice also provides that, if we do not regain compliance with the Minimum Bid Price Requirement by April 24, 2023, we may be eligible for additional time to regain compliance. To qualify for additional time, we are required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement and provide written notice of its intention to cure the minimum bid price deficiency during the second compliance period by effectuating a reverse split, if necessary. If we meet these requirements, we will be granted an additional compliance period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement. If the Staff determines that the Company will not be able to cure the deficiency, or if the Company is otherwise not eligible for such additional compliance period, Nasdaq will provide notice that the Company’s Common Stock will be subject to delisting.

To resolve the noncompliance, we may consider available options, including effecting a reverse stock split, which may not result in the public market or the perception that additional sales could occur could causea permanent increase in the market price of our common stock and is dependent on many factors, including general economic, market, and industry conditions, the timing and results of our clinical trials, regulatory developments, and other factors detailed from time to drop.time in the reports we file with the SEC. It is not uncommon for the market price of a company’s shares to decline in the period following a reverse stock split. Furthermore, implementation of a reverse stock split requires approval of a majority of the outstanding voting power of our capital stock, and there is no assurance we can obtain that approval.

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

The marketWe will need to issue additional equity securities in the future, which may result in dilution to existing investors.

We expect to seek the additional capital necessary to fund our future operations through public or private equity offerings, debt financings, and collaborative and licensing arrangements. To the extent we raise additional capital by issuing equity securities, including in a debt financing where we issue convertible notes or notes with warrants and any shares of our common stock to be issued in a private placement, our stockholders may experience substantial dilution. We expect to sell additional equity securities from time to time in one or more transactions at prices and in a manner we determine. If we sell additional equity securities, existing stockholders may be materially diluted. In addition, new investors could gain rights superior to existing stockholders, such as liquidation and other preferences.

In addition, the exercise or conversion of outstanding options or warrants to purchase shares of capital stock may result in dilution to our stockholders upon any such exercise or conversion. As of March 20, 2023, we had a significant number of securities convertible into, or allowing the purchase of, our common stock, including 4,787,824 warrants to purchase shares of our common stock, 370,037 options and rights to acquire shares of our common stock that are outstanding under our equity incentive plans, and 17,535 shares of common stock reserved for future issuance under our equity incentive plans.

Because we do not expect to declare cash dividends on our common stock in the foreseeable future, stockholders must rely on appreciation of the value of our common stock for any return on their investment.

While we have in the past declared and paid cash dividends on our capital stock, we currently anticipate that we will retain future earnings for the development, operation, and expansion of our business and do not expect to declare or pay any additional cash dividends in the foreseeable future. As a result, only appreciation of the public trading price of our common stock, may be affectedif any, will provide a return to investors.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

Our Current Lease

We entered into a lease agreement on November 30, 2022 (the “Lease”) with 1960 South 4250 West LLC (the “Landlord”) pursuant to which we lease approximately 63,156 square feet of space in a building located at 1960 South 4250 West, Salt Lake City, Utah 84104, for a term of five years beginning December 1, 2022, with an option to renew for an additional five years. The initial basic rent is $0.95 per rentable square foot per month, or a total of $59,998 per month, and the monthly basic rent in effect at the end of each year during the Lease term will increase by factors different from those affecting4%. In addition, we are obligated to pay the market price forLandlord our common stock in recent history.proportionate share of operating costs and other expenses based on the portion of the building we occupy, which is approximately 41%. Under the Lease the Landlord is obligated to construct a demising wall between the area rented to us and the rest of the building, which the Landlord intends to lease to other parties. From the date construction begins until completion of the demising wall and related reconstruction items, our rent is reduced by 50%.

Our Prior Lease

Our current Lease described above is the end result of two transactions that closed concurrently on November 30, 2022. On June 23,December 27, 2017, we entered into a purchase agreement with Majesco Entertainment Company, a Nevada corporation and our wholly-owned subsidiary, and Zift Interactive LLC, a Nevada limited liability company. Pursuant to the terms of the purchase agreement, we sold to Zift Interactive LLC 100% of the issued and outstanding shares of common stock of Majesco Entertainment Company, including all of the right, title and interest in and to Majesco Entertainment Company’s business of developing, publishing and distributing video game products through both retail distribution and mobile and online digital downloading. As a result of the transactions, we disposed entirely of our gaming business assets and intend to devote its resources and attention to our regenerative medicine efforts.

As result, our business in recent history differs from that of our current business, and accordingly, the results of operations for our company may be affected by factors different from those affecting our results of operation in recent history. As such, the market price for our stock may be impacted differently in the future by those factors than it is currently.

We have experienced volatility in the price of our stock and are subject to volatility in the future.

The price of our common stock has experienced significant volatility. The high and low bid quotations for our common stock, as reported by NASDAQ, ranged between a high of $31.68 and a low of $2.79 during the past 12 months. The historic market price of our common stock may be higher or lower than the price paid for our shares and may not be indicative of future market prices, depending on many factors, some of which are beyond our control. In addition, our Chief Executive Officer controls approximately 61.34% of our voting capital stock and maintains effective majority control over decisions affecting our Company and business. As a result investors may be unwilling to purchase our common stock and our market price may be affected. The price of our stock may change dramatically in response to our success or failure and based upon our relationship and the decisions of our chief executive officer.

We may not be able to maintain our listing on NASDAQ.

Our common stock currently trades on NASDAQ. This market has continued listing requirements that we must continue to maintain to avoid delisting. The standards include, among others, a minimum bid price requirement of $1.00 per share and any of: (i) a minimum stockholders’ equity of $2.5 million; (ii) a market value of listed securities of $35 million; or (iii) net income from continuing operations of $500,000 in the most recently completed fiscal year or in two of the last three fiscal years. Our results of operations and our fluctuating stock price directly impact our ability to satisfy these listing standards. In the event we are unable to maintain these listing standards, we may be subject to delisting.

On January 6, 2017, we were notified by NASDAQ of failure to comply with NASDAQ Listing Rule 5605(b)(1) which requires that a majority of the directors comprising our Board of Directors be considered “independent”, as defined under Rule 5605(b). The notice had no immediate effect on the listing or trading of our common stock on NASDAQ. On February 22, 2017, we regained compliance with Listing Rule 5605(b)(1) with the appointment of Mr. Steve Gorlin and Dr. Jon Mogford.

On November 1, 2017, we were notified by NASDAQ of failure to comply with Nasdaq Listing Rule 5605(b)(1) which requires that a majority of the directors comprising our Board of Directors be considered “independent” and Listing Rule 5605(c)(2)(a) requiring an audit committee to be comprised of at least three independent directors. The Company plans to regain compliance upon appointment of one or more additional independent directors prior to the deadline provided by NASDAQ.

A delisting from NASDAQ would result in our common stock being eligible for quotation on the Over-The-Counter market which is generally considered to be a less efficient system than listing on markets such as NASDAQ or other national exchanges because of lower trading volumes, transaction delays and reduced security analyst and news media coverage. These factors could contribute to lower prices and larger spreads in the bid and ask prices for our common stock. Additionally, trading of our common stock on the OTCBB may make us less desirable to institutional investors and may, therefore, limit our future equity funding options and could negatively affect the liquidity of our stock.

The rights of our common stockholders are limited by and subordinate to the rights of the holders of Series A Convertible Preferred Stock, Series B Convertible Preferred Stock, Series C Convertible Preferred Stock, Series D Convertible Preferred Stock, Series E Convertible Preferred Stock and Series F Convertible Preferred Stock; these rights may have a negative effect on the value of shares of our common stock.

The holders of our preferred stocks have rights and preferences generally superior to those of the holders of our common stock. The existence of these superior rights and preferences may have a negative effect on the value of shares of our common stock. These rights are more fully set forth in the certificates of designations governing our preferred stocks, and include, but are not limited to:

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

The Company leases office space in Hazlet, New Jersey at a cost of approximately $1,100 per month under acommercial lease agreement that expires on March 31, 2018.

The Company also leases space in Salt Lake City, Utah at a cost of approximately $24,044 per month under a lease agreement that expires on March 31, 2018.

On December 27, 2017, the Company signed a five-year lease(the “Adcomp Lease”) with one five-year optionAdcomp LLC (“Adcomp”) pursuant to renew onwhich we leased approximately 178,528 rentable square feet inof warehouse, manufacturing, office, and lab space at 1960 South 4250 West, Salt Lake City, Utah.Utah (the “Real Property”) from Adcomp. The initial term of the Adcomp Lease was five years and it expired on November 30, 2022. We had 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 Adcomp Lease was $98,190 per month ($0.55 per sq. ft.) for the first year of the initial lease is $1,178,285term and escalates at the rate of 3%increased 3.0% per annum thereafter. On December 16, 2021, we gave written notice to Adcomp of our election to exercise the option to purchase the Real Property, and on March 14, 2022, we entered into a definitive purchase and sale agreement with Adcomp (the “Purchase Agreement”). In connection with exercising the option to purchase the Real Property, we made an earnest money deposit of $150,000.

On October 25, 2021, we signed a Purchase and Sale Agreement, the terms of which were finalized on December 10, 2021, and subsequently amended by Amendment No. 1 thereto dated March 15, 2022 (the “BCG Agreement”), with BCG Acquisitions LLC (“BCG”). Under the BCG Agreement we agreed to sell the Real Property to BCG or its assigns for $17.5 million after we purchased the Real Property from Adcomp, and then lease a portion of the building located on the Real Property. Under the BCG Agreement, BCG made an earnest money deposit totaling $150,000.

The Purchase Agreement and BCG Agreement provided for closing of the transactions described above on November 15, 2022, and also provided for an option to extend the closing to November 30, 2022. On November 9, 2022, BCG and we entered into an Addendum to the BCG Agreement (the “Addendum”) providing, in part, for BCG exercising its right to extend the closing to November 30, 2022, in consideration of making an extension deposit with the escrow holder of $50,000, and the exercise of our right under the Purchase Agreement with Adcomp to extend the closing to November 30, 2022, in consideration of making an extension deposit with the escrow holder of $50,000. The Addendum also stated that we would form a single member limited liability company owned by us, which would be used as the vehicle to effectuate purchase of the Real Property from Adcomp at closing, effectuate a change in ownership of the limited liability company to BCG or its assigns, and lease a portion of the building on the Real Property to us to house our operations. Pursuant thereto we formed the Landlord, 1960 South 4250 West LLC, and we assigned to the Landlord all of our rights and obligations under the Purchase Agreement with Adcomp and under the BCG Agreement and Addendum. Also, BCG assigned all of its rights and obligations under the BCG Agreement and Addendum to BC 1960 South Industrial, LLC, a Delaware limited liability company (“BC1960”), which is unaffiliated with the Company.

The addendum also provided that BCG would arrange financing from a third-party lender for the Landlord to apply to the purchase of the Real Property under the Purchase Agreement with Adcomp and that BCG would provide such credit enhancements and accommodations necessary to obtain such financing in consideration of the terms of the Addendum that contemplated BCG or its assigns acquiring ownership of the Landlord concurrently with the Landlord’s acquisition of the Real Property from Adcomp.

The following transactions occurred concurrently on November 30, 2022:

Item 3. Legal Proceedings.

On February 26, 2015,September 24, 2021, a class action complaint for patent infringementalleging violations of the Federal securities laws was filed in the United States District Court, District of Utah, by Marc Richfield against the Company and certain officers of the Company, Case No. 2:21-cv-00561-BSJ. The Court subsequently appointed a Lead Plaintiff and ordered the Lead Plaintiff to file an amended Complaint by February 7, 2022, which was extended to February 21, 2022. The Lead Plaintiff filed an amended complaint on February 21, 2022, against the Company, two current officers of the Company, and three former officers of the Company (the “Complaint”). The Complaint alleges that during the period from January 30, 2018, through November 9, 2021, the defendants made or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 adopted thereunder. Specifically, the Complaint alleges that the defendants misrepresented or failed to disclose that: (i) the Company’s product, SkinTE, was improperly registered as a 361 HCT/P under Section 361 of the Public Health Service Act and that, as a result, the Company’s ability to commercialize SkinTE as a 361 HCT/P was not sustainable because it was inevitable SkinTE would need to be registered under Section 351 of the Public Health Service Act; (ii) the Company characterized itself as a commercial stage company when it knew sales of SkinTE as a 361 HCT/P were unsustainable and that, as a result, it would need to file an IND and become a development stage company; (iii) issues arising from an FDA inspection of the Company’s facility in July 2018, were not resolved even though the Company stated they were resolved; and (iv) the IND for SkinTE was deficient with respect to certain chemistry, manufacturing, and control items, including items identified by the FDA in July 2018, and as a result it was unlikely that the FDA would approve the IND in the form it was originally filed. The Company filed a motion to dismiss the complaint for failure to state a claim, on April 22, 2022. The Lead Plaintiff filed its memorandum in opposition to the Company’s motion to dismiss on July 18, 2022. The Company filed its reply memorandum to the Lead Plaintiff’s opposition memorandum on August 11, 2022, and oral argument on the motion to dismiss was held September 8, 2022. At the hearing the judge issued a ruling from the bench dismissing the Complaint without prejudice and granting the Lead Plaintiff leave to file an amended complaint. The Lead Plaintiff filed an amended complaint (the “Amended Complaint”) on October 3, 2022, alleging additional facts. The Company filed a motion to dismiss the Amended Complaint for failure to state a claim on November 2, 2022, Lead Plaintiff filed its brief in opposition to the Company’s motion on December 2, 2022, and the Company filed its reply brief to the Lead Plaintiff brief in opposition on December 23, 2022. Oral argument on the Company’s motion to dismiss the Amended Complaint was held March 6, 2023. Following oral argument, the judge ruled that the Amended Complaint be dismissed with prejudice and requested that we, through our counsel, submit a proposed opinion and order. Once the judge enters the order, the Lead Plaintiff will have 30 days to file a notice of appeal. We are unable to predict at this time whether the Lead Plaintiff will file an appeal.

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 Eastern District of Texas by Richard Baker, an individual residing in Australia, against Microsoft, Nintendo, Majesco Entertainment Company (“Majesco DE”),Company’s product, SkinTE, filed with the FDA was deficient with respect to certain chemistry, manufacturing, and control items; (ii) as a number of other game publisher defendants. The complaint allegedresult, it was unlikely that the Zumba Fitness Kinect game infringed plaintiff’s patentsFDA 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 (including any amendment) described above, (2) denial of a motion tracking technology. The plaintiffto dismiss the Complaint, or (3) notice is representing himself pro segiven that any party is withdrawing its consent to the stipulated stay of the Stockholder Derivative Complaint proceeding. After the order of dismissal with prejudice of the class action lawsuit described above and exhaustion of all appeals by the Lead Plaintiff, the stay of the Stockholder Derivative Complaint will expire. We believe the allegations in the Stockholder Derivative Complaint are without merit and we intend to defend the litigation and is seeking monetary damages invigorously after the amount of $1.3 million. The case was subsequently transferred to the Western District of Washington. On June 16, 2017, final judgment was entered in favorstay expires. At this early stage of the defendants. The plaintiff has appealed that decisionproceedings we are unable to make any prediction regarding the Courtoutcome of Appeals for the Federal Circuit. The appeal is currently pending. On June 23, 2017, as part of a purchase agreement, liabilities and claims relating to this litigation were transferred to Zift Interactive LLC.litigation.

In addition to the item above, the Company at times may be a party to claims and suits in the ordinary course of business. We record a liability when it is both probablebusiness, we 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 described above, at December 31, 2022, we were not party to any legal or arbitration proceedings that a liability has been incurred and the amount of the loss or range of loss can be reasonably estimated. The Company has not recorded a liability with respect to the matter above. While the Company believes that it has valid defenses with respect to the legal matter pending and intends to vigorously defend the matter above, given the uncertainty surrounding litigation and our inability to assess the likelihood of a favorable or unfavorable outcome, it is possible that the resolution of the matter couldmay have a material adverse effectsignificant effects on our consolidated financial position cash flows or results of operations. No governmental proceedings are pending or, to our knowledge, contemplated against us. We are not a party to any material proceedings in which any director, member of senior management, or affiliate of ours is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.

Item 4. Mine Safety Disclosures.

Not applicable.

PART II

Item 5. Market Forfor Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed for trading on the Nasdaq Capital Market under the symbol “COOL.“PTE.” The marketOn October 26, 2022, we received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying us that, for the preceding 30 consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued inclusion on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A) (the “Compliance Period Rule”), the Company has often been sporadic, volatile and limited.

The following table showsprovided an initial period of 180 calendar days to regain compliance with the high and low quotationsMinimum Bid Price Requirement, which ends April 24, 2023 (the “Compliance Date”). If, at any time before the Compliance Date, the bid price for our common stock closes at $1.00 or more for a minimum of 10 consecutive business days as reportedrequired under the Compliance Period Rule, the Staff will provide written notification to the Company that it complies with the Bid Price Rule, unless the Staff exercises its discretion to extend this 10-day period pursuant to Nasdaq Listing Rule 5810(c)(3)(H).

The notice also provides that, if we do not regain compliance with the Minimum Bid Price Requirement by April 24, 2023, we may be eligible for additional time to regain compliance. To qualify for additional time, we are required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for The Nasdaq from November 1, 2015 through October 31, 2017. The prices reflect inter-dealer quotations, without retail markup, markdownCapital Market, with the exception of the Minimum Bid Price Requirement and provide written notice of its intention to cure the minimum bid price deficiency during the second compliance period by effectuating a reverse split, if necessary. If we meet these requirements, we will be granted an additional compliance period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement. If the Staff determines that the Company will not be able to cure the deficiency, or commissions, and mayif the Company is otherwise not represent actual transactions.

Holders ofeligible for such additional compliance period, Nasdaq will provide notice that the Company’s Common Stock. On January 26, 2018, we had 120 registered will be subject to delisting.

At March 15, 2023, there were approximately 88 holders of record of our common stock. On January 26, 2018, the closing sales price of our common stock as reported on Nasdaq was $20.60 per share.

Dividends and dividend policy. Prior to October 31, 2015, we had never declared or paid any dividends on our common stock.

On January 4, 2016, we declared a special cash dividend of an aggregate of $10.0 million to be paid to holders of record on January 14, 2016 of our outstanding shares of: (i) common stock (ii) Series A Convertible Preferred Stock; (iii) Series B Convertible Preferred Stock; (iv) Series C Convertible Preferred Stock and (v) Series D Convertible Preferred Stock. The holders of record of our outstanding preferred stock participated in receiving their pro rata portion of the dividend on an “as converted” basis. The dividend was paid January 15, 2016.

We do not anticipate paying future dividends at the present time. We currently intend to retain earnings, if any, for use in our business.

Securities authorized for issuance under equity compensation plans. The information called for by this item is incorporated by reference from our definitive proxy statement relating to our 2017 Annual Meeting of Stockholders, which we intend to file within 120 days after our October 31, 2017 fiscal year end.

Recent Sales of Unregistered Securities. All prior sales of unregistered securities have been previously reported either on a current report on Form 8-K or a quarterly report on Form 10-Q.

Item 6. Selected Financial Data[Reserved]

As a smaller reporting company, we are not required to provide the information under this item, pursuant to Regulation S-K Item 301(c).

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

YouThe following information should be read the following discussion and analysis of our financial condition and results of operations togetherin conjunction with “Selected Financial Data” and ourthe consolidated financial statements and related notes appearing elsewherethereto included in this Annual Report on Form 10-K.

In addition to historical information, this report contains forward-looking statements that involve risks and uncertainties that may cause our actual results to differ materially from plans and results discussed in forward-looking statements. We encourage you to review the risks and uncertainties discussed in the sections entitled Item 1A. “Risk Factors” and “Forward-Looking Statements” included above in this Annual Report on Form 10-K. This discussionThe risks and analysis containsuncertainties can cause actual results to differ significantly from those in our forward-looking statements or implied in historical results and trends. We caution readers not to place undue reliance on any forward-looking statements made by us, which speak only as of the date they are made. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions, or circumstances on which any such statements may be based, or that involve risks, uncertainties and assumptions. Themay affect the likelihood that actual results maywill differ materially from those anticipatedset forth in thesethe forward-looking statementsstatements.

Overview

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

Since the beginning of 2017, we have incurred substantial operating losses and our 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 our costs in the foreseeable future, we expect we will continue to incur substantial operating losses as we pursue an IND and BLA, and we expect to seek financing from external sources over the foreseeable future to fund our operations.

Regenerative Tissue Product

Our first regenerative tissue product is SkinTE. 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. FDA approval of the IND was given in January 2022, which allowed us to commence the first of two pivotal studies needed to support a BLA. Our first pivotal study under our IND is the COVER DFUs Trial.

We expect to incur significant operating costs in the next three to four calendar 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 due to 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 of our clinical trials and our expenditures for satisfying all the conditions of obtaining FDA licensure for SkinTE.

Pre-clinical and Clinical Research and Testing Services

Beginning in 2017, we developed internally a laboratory and research capability to advance the development of SkinTE and related technologies, which we operated through our subsidiary, Arches Research, Inc. (“Arches”). At the beginning of May 2018, we acquired a preclinical research and veterinary sciences business to be used, in part, for preclinical studies on our regenerative tissue products, which we operated through our subsidiary IBEX. Through Arches and IBEX, we also offered research and laboratory testing services to unrelated third parties on a contract basis. As noted above, Arches offered COVID-19 testing from the end of May 2020 to August 2021, when it discontinued the service. We sold the IBEX business and related real estate at the end of April 2022. As a result of the foregoing developments, we have not been engaged in any revenue generating operating activity since the end of April 2022 and we do not expect to be engaged in any revenue generating activity unless and until we are successful in obtaining a BLA for SkinTE.

Business Effects of COVID-19

We do not believe that COVID-19 had a significant impact on our business activities in 2022, which is consistent with the trend we observed in 2021 that the impact of the COVID-19 pandemic waned as a result of certain factors, including, but not limitedthe broad distribution of vaccines and effects of sustained public health actions to those set forthmitigate the spread of disease. Nevertheless, a significant resurgence of COVID-19 attributable to a news strain of the disease or the rise of a new pandemic could adversely affect our employees, patients, clinicians, communities, and business operations, as well as the U.S. economy and financial markets. The full extent to which any such pandemic could directly or indirectly impact the timing and cost of pursuing FDA licensure of SkinTE under “Risk Factors”a BLA is highly uncertain and elsewhere in this Annual Report on Form 10-K.cannot be predicted.

OverviewRecent Developments

On December 1, 2016, Majesco Entertainment Company (n/k/a PolarityTE, Inc.),27, 2022, we issued a Delaware corporationpress release announcing that we signed a non-binding letter of intent (the “Company”“LOI”) entered intowith Michael Brauser (“Brauser”) for him to make an agreementoffer to acquire 100% of our outstanding equity interests at a proposed offering price of $1.03 per common share, which would be paid entirely in cash. Completion of the assets of Polarity NV (as defined below), a regenerative medicine company. The asset acquisitiontransaction was subject to shareholder approval, which was received on March 10, 2017Brauser conducting due diligence investigations, the negotiation and theexecution of definitive transaction closed on April 7, 2017, as more fully described below. In January 2017, the Company changed its name to “PolarityTE, Inc.” (“Polarity”).

On December 1, 2016, the Company appointed Dr. Denver Lough as Chief Executive Officer, Chief Scientific Officer and Chairman of our Board of Directors and Dr. Ned Swanson as Chief Operating Officerdocuments, Brauser successfully acquiring a majority of the Company. Until their respective appointments, both doctors were associated with Johns Hopkins University, Baltimore, Maryland, as full-time residents. On December 1, 2016, Dr. Lough assigned the patent application as well as all related intellectual property to a newly-formed Nevada corporation, Polarityte, Inc. (“Polarity NV”), and the Company entered into an Agreement and Plan of Reorganization (the “Agreement”) with Polarity NV and Dr. Lough. As a result, at closing, the patent application would be owned by the Company without the need for further assignments or recordation with the Patent Trademark Office.

On April 7, 2017, the Company issued 7,050 shares of its newly authorized Series E Preferred Stock (the “Series E Preferred Shares”) convertible into an aggregate of 7,050,000 shares of the Company’soutstanding common stock with a fair value of approximately $104.7 million which is equal to 7,050,000 common shares times $14.85 (the closing price of the Company’s common stock as of April 7, 2017) to Dr. Lough for the purchase of Polarity NV’s assets. Since the assets purchased were in-process research and development assets, the total purchase price was immediately expensed as research and development - intellectual property acquired since they have no alternative future use.

PolarityTE, Inc. is aiming to be the first company to deliver regenerative medicine into clinical practice through tissue engineering. Subsequent to the acquisition, the Company’s platform technology will allow it to regenerate a patient’s tissues using their own cells.

Research and Development Expenses. Research and development expenses primarily represent employee related costs, including stock compensation, for research and development executives and staff, lab and office expenses and other overhead charges.

Research and Development - Intellectual Property Acquired. On April 7, 2017, as payment for the Polarity NV asset acquisition, the Company issued 7,050 shares of Series E Preferred Stock convertible into an aggregate of 7,050,000 shares of the Company’s common stock and with a fair value of approximately $104.7 million which is equal to 7,050,000 common shares times $14.85 (the closing price of the Company’s common stock as of April 7, 2017). Since the assets purchased were in-process research and development assets, the total purchase price was immediately expensed as research and development - intellectual property acquired since they have no alternative future use.

General and Administrative Expenses. General and administrative expenses primarily represent employee related costs, including stock compensation, for corporate executive and support staff, general office expenses, professional fees and various other overhead charges. Professional fees, including legal and accounting expenses, typically represent one of the largest components of our general and administrative expenses. These fees are partially attributable to our required activities as a publicly traded company, such as SEC filings, and corporate- and business-development initiatives.

Discontinued Operations. On June 23, 2017, the Company sold Majesco Entertainment Company, a Nevada corporation and wholly-owned subsidiary of the Company, (“Majesco”)and other customary closing conditions. The LOI provided that Brauser would pursue due diligence and the parties would endeavor to Zift Interactive LLC, a Nevada limited liability company (the “Purchaser”) pursuant to a purchase agreement (the “Agreement”). Pursuant tonegotiate the terms of the Agreement,definitive transaction documents during the Company soldperiod ending March 15, 2022. We and Brauser were unable to complete negotiation and drafting of definitive documents by March 15, 2023, and the Purchaser 100%LOI terminated on that date. Even though the LOI terminated, new proposals for a potential transaction between us and Mr. Brauser are under discussion, and we are also pursuing a process of evaluating our financial resources, product opportunities, and business plan with a view to advancing the issued and outstanding shares of common stock of Majesco, including all of the right, title and interest in and to Majesco’s business of developing, publishing and distributing video game products through both retail distribution and mobile and online digital downloading. Pursuant to the terms of the Agreement, the Company will receive total cash consideration of approximately $100,000 ($5,000 upon signing the Agreement and 19 additional monthly payments of $5,000) plus contingent consideration based on net revenues.

Income Taxes. Income taxes consistinterests of our provisions for income taxes, as affected by our net operating loss carryforwards. Future utilization of our net operating loss, or NOL, carryforwards may be subject to a substantial annual limitation due to the “change in ownership” provisions of the Internal Revenue Code. The annual limitation may result in the expiration of NOL carryforwards before utilization. Due to our history of losses, a valuation allowance sufficient to fully offset our NOL and other deferred tax assets has been established under current accounting pronouncements, and this valuation allowance will be maintained unless sufficient positive evidence develops to support its reversal.stockholders. 

In December 2017, the federal government enacted numerous amendments to the Internal Revenue Code of 1986 pursuant to an act known by the Tax Cuts and Jobs Act (the “TCJA”). The TCJA may impact the Company’s income tax expense (benefit) from continuing operations in future periods. The Company has recorded a full valuation allowance on its net deferred tax assets and therefore any impact on the value of the company’s deferred tax assets will be offset by a change in the valuation allowance.

Critical Accounting Estimates

Our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP.

The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ materially from these estimates under different assumptions or conditions.

We have identified the policies below as critical to our business operations and to the understanding of our financial results. The impact and any associated risks related to these policies on our business operations is discussed throughout management’s discussion and analysis of financial condition and results of operations when such policies affect our reported and expected financial results.

Accounting for Stock-Based Compensation. Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. Determining the fair value of stock-based awards at the grant date requires judgment, including, in the case of stock option awards, estimating expected stock volatility. In addition, judgment is also required in estimating the amount of stock-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

Accounting for Common and Preferred Stock and Warrant transactions. We issued units consisting of preferred shares and warrants and common stock and warrants and subsequently remeasured certain of those warrants. Determining the fair value of the securities in these transactions requires significant judgment, including adjustments to quoted share prices and expected stock volatility. Such estimates may significantly impact our results of operations and losses applicable to common stockholders.

Commitments and Contingencies. We record a liability for contingencies when the amount is both probable and reasonably estimable. We record associated legal fees as incurred.

Results of Operations

Year ended October 31, 2017 versus the year ended October 31, 2016

Research and Development Expenses. For the year ended October 31, 2017, research and development expenses were approximately $7.1 million. Research and development costs consist of salaries of approximately $2.4 million, stock-based compensation of approximately of $1.8 million, travel related expenses of approximately $664,000, trade show related expenses of $530,000, medical equipment depreciation of approximately $431,000, consulting expense of $240,000, rent expense of $206,000, samples expense of $179,000, medical study expense of $174,000, health insurance of $166,000 and various other expenses totaling approximately $393,000. There was no research and development activity in the comparative 2016 period.

Research and Development - Intellectual Property Acquired. For the year ended October 31, 2017, research and development - intellectual property acquired relates to the Polarity NV asset acquisition and the issuance of 7,050 shares of Series E Preferred Stock convertible into an aggregate of 7,050,000 shares of the Company’s common stock with a fair value of approximately $104.7 million which is equal to 7,050,000 common shares times $14.85 (the closing price of the Company’s common stock as of April 7, 2017). Since the assets purchased were in-process research and development assets, the total purchase price was immediately expensed as research and development - intellectual property acquired since there is no alternative future use. There was no research and development – intellectual property acquired activity in the comparative 2016 period.

General and Administrative Expenses. For the year ended October 31, 2017, general and administrative expenses increased $14.7 million to approximately $18.8 million compared to $4.1 million for the year ended October 31, 2016. The increase is primarily due to increased stock-based compensation of approximately $12.8 million and increased headcount and salaries related to the Company’s new medical activities.

Loss from continuing operations. Loss from continuing operations for the year ended October 31, 2017 was approximately $130.5 million, compared to a loss of approximately $3.8 million in the comparable period in 2016, primarily reflecting higher research and development - intellectual property acquired expenses and stock-based compensation expenses.

Liquidity and Capital Resources

Available Capital Resources and Potential Sources of Liquidity

As of OctoberDecember 31, 2017,2022, we had $11.4 million in cash and cash equivalents and working capital of $11.2 million. As of December 31, 2021, we had $19.4 million in cash and cash equivalents, and working capital of $17.7 million. For each of the years ended December 31, 2022 and 2021, cash used in operating activities was $22.6 million, or an average of $1.9 million per month.

As of the date of this annual report we do not expect that our cash and cash equivalents balance was $17.7of $11.4 million as of December 31, 2022, will be sufficient to fund our current business plan including related operating expenses and our working capital was approximately $2.5 million, compared to cash and equivalentsexpenditure requirements beyond the second calendar quarter of $6.5 million and working capital of $5.4 million at October 31, 2016.

As reflected in the consolidated financial statements, we had an accumulated deficit of approximately $259.0 million at October 31, 2017, a loss of approximately $130.5 million from continuing operations and approximately $7.6 million net cash used in continuing operating activities for the year ended October 31, 2017. These factors raise2023. Accordingly, there is substantial doubt about the Company’sour ability to continue as a going concern.

We will continue to pursue fundraising opportunitiesconcern, as we do not believe that meet our long-term objectives, however, our cash positionand cash equivalents will be sufficient to fund our business plan for at least twelve months from the date of issuance of our annual financial statements in this report. We plan to address this condition by raising additional capital to finance our operations.

After April 2022 we have not engaged in any business activity that generates cash flows from operations, which in the past contributed to defraying our operating costs, and we do not expect we will be engaged in any operating business activity that would generate cash flow in the foreseeable future. Accordingly, we expect we will be dependent on obtaining capital from external sources to fund our operations over the next three to four years. Although we have been successful in raising capital in the past, financing may not be available on terms favorable to us, if at all, so we may not be successful in obtaining additional financing. Therefore, it is not sufficientconsidered probable, as defined in applicable accounting standards, that our plan to supportraise additional capital will alleviate the substantial doubt regarding our operations through December 2018. The consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unableability to continue as a going concern.

Series E Preferred Shares

Anticipated Uses of Capital Resources

On April 7, 2017,

As noted above, we are focused primarily on the Company issued 7,050 sharesadvancement of its newly authorized Series E Preferred Stock (the “Series E Preferred Shares”) convertible into an aggregateour IND and subsequent BLA to attain a license to manufacture and distribute SkinTE. To that end, in June 2021 we engaged a CRO to provide services for the COVER DFUs Trial at a cost of 7,050,000 sharesapproximately $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 Company’s common stock with a fair value offinal invoice under the work order. Over the approximately $104.7 million which is equal to 7,050,000 common shares times $14.85 (the closing pricethree-year term of the Company’s common stock asCOVER 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 7, 2017)2022, and we believe we may be able to Dr. Loughcomplete enrollment of 100 subjects sometime in the first six months of 2024. As enrollment increases, we expect our monthly CRO and related costs of conducting the trial will ramp up.

Our expectation is that the second DFU clinical trial under the IND for the purchase of the Polarity NV’s assets.

The Preferred E Shares are convertible into shares of common stock based on a conversion calculation equalSkinTE will be similar to the stated value of such Preferred E Shares, plus all accrued and unpaid dividends, if any as of such date of determination, divided by the conversion price. The stated value of each Preferred E Share is $1,000 and the initial conversion price is $1.00 per share, each subject to adjustment for stock splits, stock dividends, recapitalizations, combinations, subdivisions or other similar events. The Preferred E Shares,COVER DFUs Trial with respect to dividendsize, length of time to complete, and cost. To the extent we decide to pursue additional indications for the application of SkinTE, we expect we will need to submit separate IND applications for those indications and conduct additional clinical trials to support BLAs for those indications.

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. 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. 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 rights on liquidation, winding-upacceptable terms, would require us to reduce our operating expenses and dissolution,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