UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission File No. 000-51128

POLARITYTE, INC.

(Exact name of registrant as specified in its charter)

123 Wright Brothers Drive1960 S. 4250 West

Salt Lake City, Utah 8411684104

(Address of principal executive office)

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

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

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [  ] 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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X] ☒ No [  ]☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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. ☐

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 June 30, 2019,2020, was $79,393,237.$36,135,894.

The outstanding number of shares of common stock as of March 6, 2020,25, 2021, was 38,358,450.80,319,378.

Documents incorporated by reference: None.Portions of the registrant’s proxy statement for the 2021 Annual Meeting of Stockholders (2021 Proxy Statement) are incorporated into Part III hereof. The 2021 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the registrant’s fiscal year ended December 31, 2020.

TABLE OF CONTENTS

As used in this report, the terms “we”, “us”, “our”,“we,” “us,” “our,” “the Company”,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, POLARITYRD, POLARITYIS, POLARITYRX, WELCOME TO THE SHIFT, WHERE SELF REGENERATES SELF, COMPLEX SIMPLICITY, IBEX, SKINTE, OSTEOTE, CARTTE, ADIPOTE, MYOTE, NEURALTE, ANGIOTE, LIVERTE, UROTE,ARCHES, and BOWELTESKINTE 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.

Forward-looking Statements

This 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 fail to materialize or prove incorrect. Consequently, our business development, operations, and results could differ materially from those expressed in forward-looking statements made in this Annual Report. We make such forward-looking statements pursuant to the safe harbor provisions in Section 27A of the Private Securities Litigation Reform Act of 19951933, as amended (the “Securities Act”), and other federal securities laws.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 negative of these words or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

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

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

This 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 similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies, and 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., headquartered in Salt Lake City, Utah, is a biotechnology company developing and commercializing regenerative tissue products and biomaterials. We also operate a laboratory testing and clinical research business using equipment, personnel, and facilities we acquired to advance our development of regenerative tissue products.

Regenerative Tissue Product

Our first regenerative SkinTEtissue product is commercially availableSkinTE, 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. SkinTE was registered and listed with the United States Food and Drug Administration (“FDA”) in August 2017 based on our determination that SkinTE is appropriately regulated solely under Section 361 of the Public Health Service Act and Part 1271 of Title 21 of the Code of Federal Regulations (i.e., as a so-called 361 HCT/P) and that, as a result, no premarket review or approval by the FDA was required. We intendproceeded to continuedevelop sales and manufacturing capabilities for SkinTE and focused on advancing commercialization of SkinTE. We began a regional commercial rollout of SkinTE in October 2018.

Following informal, voluntary discussions between us and the FDA we were advised by the FDA in April 2020 that its preliminary assessment is that SkinTE does not meet the requirements to be regulated solely as a 361 HCT/P. Rather, the FDA’s preliminary assessment was that SkinTE is a biological product that should be regulated under Section 351 of the Public Health Service Act. We re-evaluated our regulatory approach and determined it is prudent to submit an investigational new drug application (“IND”) for SkinTE and an eventual biologics license application (“BLA”) because we believe it will create a more valuable asset with a greater likelihood of achieving widespread commercial adoption, and to avoid the possibility of a protracted dispute with the FDA. As a result of the change in the regulatory approach for SkinTE, we decided to adjust our SkinTE commercial operations accordingly.

The FDA developed and published in November 2017 a regenerative medicine policy framework to help facilitate regenerative medicine therapies. Under the framework, the FDA stated its intent to exercise enforcement discretion until November 2020 with respect to the FDA’s IND and premarket approval requirements, which was subsequently extended through May 2021. We continued to sell SkinTE as a 361 HCT/P in 2020 and into 2021 in reliance on our view that there is a reasonable basis for regulating SkinTE as a 361 HCT/P and also in reliance on the enforcement discretion position stated in the policy framework. In May 2020, we effectuated a reduction in force within our regenerative medicine business segment to reduce historical monthly cash burn and preserve capital for pursuing the filing of an IND. Since then we have focused our commercial effort for SkinTE on the territories where we have current and repeat users of SkinTE.

We have evaluated the question of whether the FDA may extend enforcement discretion on regenerative medical products, and as of the date of this report the FDA has not taken any action on extending enforcement discretion. Following the end of the FDA’s period of enforcement discretion, we may need to cease selling SkinTE until the FDA approves a BLA, and then we will only be able to market the product for indications that have been approved in a BLA. We cannot predict at this time when we may decide on continuing SkinTE sales because of the uncertainty around the decisions the FDA may make in this area.

We plan to focus our SkinTE activity on the preparation and submission of an IND in the second half of 2021, and the commencement of clinical trials under that IND once it is open. We believe that the network of physicians and other healthcare providers who have treated more than 1,100 patients to date with SkinTE product offeringwill provide valuable support for our clinical development program as we work towards a BLA for SkinTE.

Testing and Research Services

Beginning in 2017 we developed internally a laboratory and research capability to enhance that offering withadvance the development of SkinTE Cryo and other products.related technologies, which we operate 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 operate through our subsidiary IBEX Preclinical Research, Inc. (“IBEX”). Through Arches and IBEX, we also offer research and laboratory testing services to unrelated third parties on a contract basis.

Our GoalsThere 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 the course of its operations, Arches maintains equipment and Objectives

staff capable of performing molecular polymerase chain reaction testing for COVID-19, which made it possible for Arches to begin providing COVID-19 testing services at the end of May 2020. We aspirebelieve that COVID-19 testing offers an opportunity to deliver products fromuse existing resources to generate additional revenue in the contract services segment and thereby help defray our platform technologies that provide superior results to patients, while reducing costs and promoting improved health economics for patients, providers, and payors. During the past three years we pursued the attainment of that goaloperating expenses. We provided COVID-19 testing services through the development and commercializationend of SkinTE. Our current plan is to:2020, which we expect will continue in 2021.

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,functions. Skin is an active immune organ functioning as well as synthesizinga first line of defence 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.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. According to statistics collected by the Nation Burn Repository, the mortality rate from 2008 to 2017 among burn patients treated at surveyed burn centers is approximately 3%. A 12-month prospective observational study of diabetic foot ulcers first published in October 2017Diabetic 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 full-thickness skin with all the processes and appendages that enable it to perform its vital functions is critical to long-term, positive patient outcomes following serious skin injury.

Limitations of Other Skin Treatment Therapies

Current clinical standards and practice adhere to the concept that 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 an autograft (using the patient’s own skin in a skin graft), an allograft (using human skin from a donor), or a variety of skin substitutes to provide a skin-like barrier while the margin of the wound heals through secondary intention and contraction. 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. However, full-thickness harvest of skin also 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. Because of this absolute limit on how much autologous full-thickness donor skin can be harvested without leaving behind a non-closable wound, medical professionals can only harvest small, elliptically shaped pieces of such skin from areas of redundancy, which is termed full-thickness skin graft (FTSG)grafting (“FTSG”).

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)(“STSG”) for coverage of voids of the integument to get better coverage and more skin. STSGs, however, do not represent the true anatomy or function of native skin because such graftSTSG harvest procedures commonly take the top 1/10,000th of an inch of the patient’s own skin and therefore do not capture all the necessary cellular and tissue components and structures required for the regeneration of normal skin.

AfterBecause of the failure to harvest all the necessary skin structures and components from the STSG donor site, 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 often results in dysfunctional, painful scar tissues and lifelong morbidities.

Because ofDue to the limits of STSG and FTSG and the type of procedures required for such harvests, the industry has continued to investigate skin substitutes and skin alternatives that can be used in place of native cutaneous substrate.skin. Among these alternatives or options are a cultured epithelial autograft (a form of manipulated autograft), allograft (tissue grafts derived from a donor of the same species as the recipient but not genetically identical), xenograft (a tissue graft or organ transplant from a donor of a different species from the recipient), and engineered skin substitutes. NoneTo our knowledge, none of these substitutes have been able to regenerate the cutaneous appendages (e.g., hair follicle, sweat gland, sebaceous glands, etc.), which are necessary for the development of full-thickness, normal skin.

Our Solution - SkinTE

Many organs have a series of layered interfaces: an avascular cellular epithelium that spontaneously regenerates, a basement membrane zone, and stroma or vascular supporting connective tissue that does not regenerate. In skin,these layers are referred to as an epidermis of stratified squamous epithelium and a fibrous neurovascular dermis, which rests on a hypodermis or subcutaneous fat. We believe there is something powerful, reactive, and dynamic controlling regeneration of tissues such as skin, which is the interactome, the whole set of interactions a cell is impacted by, both intra and extra-cellularly. Cells rarely act on their own to create functional repair or regeneration; instead, tissues have functionally organized cellular aggregates called appendages, which run, and even regenerate, the composite tissues they are a part of when altered, stimulated, and processed in certain ways.

The core technology of SkinTE is minimally polarized functional units (“MPFUs”). MPFUs are multi-cellular micro-aggregates that act as an intrinsic, regenerative bio-reactor capable of expanding, proliferating, and synthesizing cells, materials, factors, and systems necessary for regenerating full-thickness, three-dimensional tissue. In the application of SkinTE to date we have been able, when applicable to a particular case, to collectsegments created from a patient a skin tissue sample 5 cm² in size or less and produce enough SkinTE to treat a wound 30x greater in size thanpiece of the skin collected.patient’s healthy skin. SkinTE allows the patient to regenerate full-thickness, three-dimensional skin (similar to a FTSG) by contributing a much smaller skin sample, while reducing the scarring and morbidities associated with STSGs, and producing results we believe to be superior to STSGs and synthetic skin substitutes.

SkinTE can be utilized by a variety of health care providers in an operating room, wound clinic, or doctor’s office. WhenThe process begins with the collection of a new health care facility or practice begins using our SkinTE product, we ship harvest boxes to the facility so that the procedure for treating a patient with SkinTE can begin immediately when the need arises. Each harvest box includes a container for the skin sample collected, labels forfrom the patient and shipping the sample to our facility, andin a temperature-controlled shipping box that maintains an appropriate environment for the sample as it is delivered to our FDA regulatedFDA-regulated biomedical manufacturing facility.

The harvested skin is used in its entirety to manufacture SkinTE, which is expeditiously returned for application to the patient’s wound as early as 48 hours after harvest and is viable for use up to 14 days after harvest.wound. Processing of the skin creates cellular micro-aggregatesmulti-cellular segments that are optimized for grafting, and expansion, which retain the progenitor cells withinfound throughout the skin, including the hair follicles. The product is not cultured or expanded ex-vivo, and no enzymes, growth factors, or serum derivatives are utilized during manufacturing. The final product, SkinTE, is delivered in a syringe and has the consistency of a paste. Following wound bed preparation, SkinTE is spread evenly across the entire surface of the wound and adheres (or “takes”) toengrafts within the wound in a similar manner to traditional skin grafts. Once integrated with the wound bed, the product expands and regenerates full-thickness skin across the entire surface.

Given our significant real-world experience with SkinTE was registeredin 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 tunnelling, and ultimately provided complete and durable wound closure with the United States Foodregenerated tissue having many of the important characteristics of native skin such as pliability, strength, sensation, ability to sweat, and Drug Administration (FDA)hair growth. In contrast to a multi-staged approach combining numerous treatments in August 2017,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 vast majority of cases and, is commercially availableunlike other products in this space, may not require a skin graft to achieve final closure. In our experience, providers treating complex wounds are most concerned with reliably covering deep structures, as this mitigates a substantial risk factor for the repair, reconstruction, replacement,patient and regenerationconverts the wound to a 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 and 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 our future clinical trials conducted under an IND demonstrate outcomes similar to those observed in patients who havereal-world experience and preliminary clinical studies, we believe that SkinTE has the potential to shift practice patterns, accelerate adoption, and capture a need for treatmentsignificant portion of acute or chronic wounds, burns, surgical reconstruction events, scar revision, or removal of dysfunctional skin grafts.these hard-to-treat wound markets.

Clinical Trials

We have initiated and completed several clinical trials and have additional clinical trials underway. All clinical trials to date have been conducted on a post-marketing basis with SkinTE as a 361 HCT/P. As we transition to a BLA, and as discussed in more detail under “Our Plan for Advancing SkinTE” below, we will be conducting additional clinical trials once we have an open IND for SkinTE with the FDA, and we expect that those registration trials will be used to support our eventual BLA submission. We believe that the data from our clinical trials to date, however, are valuable as robust evidence of the strong safety and efficacy profile of SkinTE, and plan to include information from these trials in our IND submission to the FDA.

Burns and Traumatic Wounds

We initiated a head-to-head trial comparing SkinTE to the STSG, the clinical standard of care, in the first quarter of 2018. Eight patients were enrolled in the trial and the primary endpoint for the trial iswas graft take. The resultsData from the trial was published in the Journal of the interim analysis were accepted for a podium presentation at the American Burn Association 52^nd Annual Meeting that was scheduled to begin March 17, 2020, but the meeting was canceled as a coronavirus preventative measure and we have not received any word on rescheduling. We continue to accumulate clinical results on non-trial patients from our commercial sales of SkinTE for various indications, including acute burn, burn reconstruction, surgical reconstruction, scar revision, and chronic wounds. Some of these cases have been presented independently by, or in collaboration with, providers at national conferences, such as the American Society of Plastic Surgery – The MeetingCare & Research in September 2019.2020. Eight patients with deep-partial/full thickness burns had a portion of their wounds treated with SkinTE and the remainder of their burn treated with split-thickness skin grafting. The SkinTE treated wounds had graft take and achieved closure by their last follow-up with a single application. There were no related adverse events pertaining to the SkinTE applications in the trial.

Diabetic Foot Ulcer (DFU) Trials

DFUs are chronic wounds and represent one of the most costly, and medically significant, health related morbidities encountered during a patient’s lifetime. The estimated annual US payor burden of DFU ranges from $9.1 billion to $13.2 billion according to a 2014 article inDiabetes Care, a publication of the American Diabetes Association. The outpatient management of diabetic foot ulcersDFUs represents the major contributing cost to the health care system. Inadequate assessment and management with chronicity of treatment is one of the primary cost drivers and failures of care.

SkinTE was used to treat 10 patients (11 DFUs) in a 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:

We are now engaged in a multicenter, randomized controlled trial evaluating SkinTE versusplus standard of care (SOC) versus SOC alone in treatment of DFU.DFU (the DFU RCT). The size of the study is 102100 patients and the trial is actively enrolling patients.final patient was enrolled in January 2021. The primary endpoint is percentage of ulcers closed at 12 weeks. Secondary endpoints include percent area reduction (PAR) at 4, 6, 8, and 12 weeks, quality of life return of function,assessment at 12 weeks, pain assessment at 12 weeks, peripheral neuropathy assessment at 12 weeks, and cost-effectiveness. We are hopeful that

In July 2020, we will have initialreported data from an interim analysis of the trial that we can make publicDFU RCT. The analysis was based on 25 SkinTE/SOC patients and 25 SOC patients at 13 sites across the United States. All patients received only one application of SkinTE, except two patients who received reapplication due to inadvertent removal of the original product (mean 1.08 applications per SkinTE/SOC subject). Key demographics included:

For the primary endpoint, 18 of 25 DFUs (72%) in the second quarterSkinTE/SOC group closed at 12 weeks, 8 of 2020.25 DFUs (32%) in the SOC group closed at 12 weeks, and the associated p-value for these results is 0.005. For the PAR secondary endpoint, the interim analysis showed:

Furthermore, there was no significant difference between SkinTE/SOC closed wounds and SOC closed wounds with respect to the quality of life assessment at 12 weeks, pain assessment at 12 weeks, and peripheral neuropathy assessment at 12 weeks. In our interim analysis for the DFU RCT we calculated mean total product cost per patient by multiplying current pricing for SkinTE by the number of applications required per patient (1.08 mean applications per patient), resulting in a SkinTE mean total product cost per treated wound of $1,311.20.

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 we received recognition as Best Abstract. The following are the results as determined by independent review:

We are now engaged instarted a multicenter, randomized controlled trial evaluating SkinTE versus standard of care in treatment of VLU. The size of the study is 102 patients and the trial is actively enrolling patients. Secondary endpoints include quality of life, return of function, pain, and cost-effectiveness. An interim analysis is planned at 50 patients, and based on current enrollment we are hopeful this analysis may be availableVLU, but decided in the second halffirst quarter of 2020.2021 to suspend that trial after 30 patients were enrolled because we believed that our resources would be better used in future clinical trials conducted under an open IND that can be used in our eventual planned BLA submission.

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, and wounds from traumatic injury.procedures.

Our Plan for Advancing SkinTE

As discussed above under “Overview,” we decided in April 2020 to pursue the preparation and filing with the FDA of an IND and BLA for SkinTE. Consequently, in May 2020 we effectuated a reduction in force within our regenerative medicine business segment to reduce monthly cash burn. At the end of 2020 we had approximately 10 salespeople and six clinical science staff that supported the sales team. In the coming months we will pursue the preparation of an IND filing with the FDA, which we believe we will be able to file in the second half of 2021.

In August 2020 we submitted a Type B Pre-IND meeting request to FDA regarding an indication for SkinTE to treat DFUs, and we received written responses to our meeting request and questions in October 2020. FDA’s responses included, among other things, feedback, and recommendations on SkinTE manufacturing, preclinical studies, and clinical data submitted in the Company’s briefing package, and guidance on additional information for the Company to include in its IND submission. Consistent with published FDA guidance documents, including “Guidance for Industry: Providing Clinical Evidence of Effectiveness for Human Drug and Biological Products,” the Agency stated that for a condition like DFUs, it would generally expect at least two adequate and well-controlled studies to provide substantial evidence of effectiveness and evidence of safety to support a future marketing application. The Agency noted that our ongoing DFU RCT has elements of an adequate and well-controlled study but stated that it would not accept our ongoing post-marketing DFU RCT as one of the two adequate and well-controlled studies to support a future marketing application.

Based on FDA’s feedback and our real-world experience with SkinTE, we plan to pursue multiple indications addressing complex wounds, including wounds with exposed critical structures. The initial indications we plan to pursue are DFUs penetrating to tendon, capsule, and bone classified Wagner Grades 2 through 4 (corresponding to University of Texas Grades 2 and 3), Stage 3 and 4 pressure injuries, and acute wounds. These wound types occur in patients with different demographics and have different etiologies, but they have common characteristics including significant wound depth, significant wound volume, frequent presence of tunnelling and undermining, and exposure of critical structures. We believe much of the chemistry, manufacturing, and controls (CMC) work, as well as preclinical work, that we would do for our initial IND in the DFU indication can be leveraged for multiple subsequent indications. Our present intention is to focus our efforts on an initial IND submission for the above-referenced DFU indication and make further IND submissions to develop the indications for pressure injuries and acute wounds either in parallel or a tight sequential process.

The Company has maintained a collaborative dialogue with the FDA and will continue to work closely with the FDA as it progresses towards its BLA submission. Upon BLA approval, we believe that SkinTE we will have 12 years of data exclusivity with regard to potential biosimilars.

Biological Product License Application (BLA) Pathway

Selling SkinTE

Biological products subject to BLA requirements are approved under the Public Health Service Act. Biological products require FDA approval of a BLA to be marketed. In order to be approved, a BLA must demonstrate the safety, purity and potency of the product candidate based on results of preclinical studies and clinical trials. A BLA must also contain extensive CMC and other manufacturing information, and the applicant must pass an FDA pre-approval inspection of the manufacturing facility or facilities at which the biologic product is produced to assess compliance with the FDA’s current Good Manufacturing Practices (cGMP). Satisfaction of FDA approval requirements for biologics typically takes several years and the actual time required may vary substantially based on the type, complexity, and novelty of the product. We cannot be certain that any BLA approvals for our products will be granted on a timely basis, or at all.

In 2018, we completed the first two stages

The steps for obtaining FDA approval of our SkinTE commercial roll-out strategy. The first was the limiteda BLA to market release phase, which focused on generating use by early adopters, oftena biologic product in the contextU.S. ordinarily include:

Preclinical tests typically include laboratory evaluations of product evaluations,chemistry, toxicity, and formulation, as well as animal studies, and an IND sponsor must submit the results of the preclinical tests, together with manufacturing information and analytical data, to the FDA as part of the IND. In our communications with the goalFDA, the FDA has informed us that its current position is that additional preclinical studies are not required to support initiation of securinga clinical trial once the IND is effective, but this is not a final determination, and the Company still expects to conduct certain additional preclinical work as part of its SkinTE development program, including a toxicology study conducted under Good Laboratory Practices with a three-month terminal timepoint.

The IND must become effective before human clinical trials may begin. An IND will automatically become effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions about issues such as the conduct of the trials and or supporting preclinical data as outlined in the IND. In that case, the sponsor and experiencethe FDA must resolve any outstanding FDA concerns or questions before clinical trials can proceed. In other words, submission of an IND may not result in the FDA allowing clinical trials to prepare the organization and productcommence.

We plan to submit an IND for a broader commercial release. The second stage was the regional market release that began in late October 2018 with initial build out of our commercial organization. In 2019, we pushed to grow our SkinTE sales by increasing market awareness, positioning SkinTE for broader adoption as the treatment of certain DFUs in the second half of 2021, and plan to commence clinical trials for specific wounds, and improvingthis indication shortly after the productivity of our sales team by selective additional hiring and optimized training. We ended 2019 with approximately 25 salespeople and 10 clinical science staff that support the sales team.IND becomes effective.

Our SkinTE Sales Activity in 2020

We have observed that the sales process is affected by several factors, including the receptiveness of the physician to consider and then adopt a new therapeutic approach, facility administrative approval where required, the nature and type of wounds treated at a target account, and the incidence of wound care cases at target accounts. We also believe that the previous lack of SkinTE clinical trials, which we were not required to obtain before commercialization as a 361 HCT/P, has adversely affected the willingness of healthcare providers to use SkinTE.

In the hospital and large facility setting we beginfirst part of 2020 the sales process for SkinTE met a new challenge with introductions to physicians whose patients may benefit from SkinTE. After a physicianthe COVID-19 pandemic that broke out in March 2020, which grew rapidly in the system is willingUnited States as spring began. Throughout the country, healthcare assets in terms of facilities and providers were marshalled and dedicated to use the product,care and treatment of COVID-19 patients while still trying to meet the acute and traumatic care needs of the general population. Consequently, medical care and procedures that are considered “elective” were put on hold in many regions across the country. Many of the initial economic effects in the healthcare industry of the early stages of the COVID-19 outbreak in the United States and the shift in healthcare resources occurred during the last three weeks of the quarter ended March 31, 2020, and we observed that some SkinTE procedures planned for the second calendar quarter were postponed, cancelled, or not scheduled as a direct result of the COVID-19 pandemic. The impact was most evident in chronic wounds without amputation risk. As a result of the shift in patient care due to COVID-19, other challenges in the sales offering, and the shift in our regulatory pathway for SkinTE, beginning in May 2020, our commercial team focused the sales effort on regions where we had repeat customers that are hospital groups or large facility usually requires an assessment by its Value Analysis Committee (VAC) prior to commencing commercialfacilities that treat acute and traumatic wounds conditions. Consequently, in 2020 38% of our net revenues from SkinTE use. This can be a formal and lengthy administrative process, and our experience shows the length of the process varies widely fromsales were generated at one customer to the next. In some cases, the physician seeking to use our product can complete a product evaluation during the VAC process, but in others the test trial must wait until VAC approval. After VAC approval and any product evaluations are complete, we negotiate the terms of a final purchase agreement.hospital system.

In clinics and smaller facility operations there is often no VAC and related approval process. The salesperson focuses more directly on the physician and the benefits SkinTE can provide to the physician’s patients. In these facilities the process focuses on selling the physician on an evaluation use of SkinTE, and, after the evaluation, entering into a purchase agreement.

Once purchase agreements are in place, our sales team and clinical operations staff maintain close contact with the health care provider to support the initial therapeutic applications of SkinTE. This relationship enhances a provider’s ability to effectively incorporate SkinTE into its existing patient treatment decisions.

SkinTE’s pricing structure is designed to be competitive in the marketplace and reflects SkinTE’s ability to deliver durable, functional full-thickness skin replacement with only one application, compared to the costly practice of regular wound care over a long period of time. We are workingOur practice has been to work closely with our customers to ensure that pricing is not a barrier to broad adoptionuse of SkinTE acrossfor patient care.

We have continued to sell SkinTE in 2021, but as discussed above under “Overview” we may need to cease selling SkinTE if FDA enforcement discretion ends and while a variety of woundsBLA is pending until the FDA approves a BLA, and points of care.then we will only be able to market SkinTE for the indications that have been approved in the BLA.

Payment and Reimbursement

Inpatient Setting.

In the inpatient setting, facility reimbursement is dictated by the associated bundled Medicare Severity-Diagnosis Related Group (MS-DRG) payment for the entire episode of care under the Medicare Inpatient Prospective Payment System (IPPS). The bundled DRG facility payment is determined by the DRG code applied, which factors in the primary diagnosis and patient characteristics, such as co-morbidities present on admission. In this scenario, all products and supplies utilized during the episode of care are paid for with the bundled DRG facility payment, including products like SkinTE. In addition, physician services are billed and reimbursed outside of the bundled DRG facility payment, including any procedures performed during that admission, which are billed for and reimbursed utilizing Current Procedural Terminology (CPT) codes associated with the respective procedures. SkinTE has been used within the inpatient setting and reimbursed underneath the applicable DRG bundled facility payments, and to our knowledge all associated procedures billed for outside the DRG as physician services with CPT codes have been reimbursed, as well.

Hospital Outpatient Department (HOPD) and Ambulatory Surgical Center (ASC) Setting.

Like the inpatient setting, bundled Ambulatory Payment Classification Payment (APC) facility payments are received under the Medicare Outpatient Prospective Payment System (OPPS) for services and supplies utilized for procedures within Hospital Outpatient Departments (HOPDs) and Ambulatory Surgical Centers (ASCs). In these settings, bundled APC facility payments are dictated by the procedures performed and billed for through the appropriate CPT codes. SkinTE has been used in these settings and covered with the associated bundled APC facility payments and physician services have been paid for outside of the APC payment utilizing CPT codes to bill for the associated procedures.

Office or Clinic Setting.

In contrast to the inpatient, HOPD, and ASC settings, care provided in a physician office or clinic is reimbursed based on individual Healthcare Common Procedure Coding System (HCPCS) and CPT codes, facilitating reimbursement for the specific products utilized and procedures performed during the clinic visit. The CPT codes used in the setting are the same or similar to the CPT codes used to bill for physician services in the other settings of care. In 2018, providers utilized HCPCS Q code 4100 (skin substitute not otherwise specified) to bill for the use of SkinTE in the office. Of the providers that used SkinTE in the office or clinic setting throughout 2018, to our knowledge all were reimbursed utilizing Q4100. Early in 2018 we filed an application with The Centers for Medicare and Medicaid Services (“CMS”) for a unique HCPCS SkinTE Q code. We were successful and received HCPCS Q4200, which was effective January 1, 2019.

In November 2019, we made a business decision to no longer promote the use of Q4200 in office or clinic settings. We believe there are appropriate Level 1 CPT Codes within the Full Thickness Skin Graft code category, in addition to Surgical Preparation codes with appropriate modifiers (52 & 58) that are appropriate for SkinTE. We expect, however, that hospitals will continue to use Q4200

Development Projects

Preparing and filing our IND with alpha ‘N’ to denote zero value of the product along with Revenue Code 0636 when SkinTE is bundled withinFDA and beginning necessary clinical trials are the payments hospitals receive for full thickness skin grafting CPTs. We will continue to report ASP and work with CMS within the respective framework because we believe that SkinTE can qualify as a high cost product based on current CMS guidance in place. The strategy will support projected commercial payer adoption moving forward, and we are developing evidence to support this objective.

Development Projects

Accelerating adoption and growth of SkinTE is a priority for us. The focus of our operational activity. We have development projects, reflectshowever, that priority.we believe will add value to SkinTE if and when we obtain pre-market approval.

SkinTE Cryo

SkinTE Cryo allows us to offer multiple deployments from one original harvest through a cryopreservation process. We believe this is a valuable offering that will enhance our SkinTE commercialization effortproduct offering for several reasons. Using one harvest for multiple deployments improvesmay improve patient treatment when:

We believe we will complete our development work on SkinTE Cryo is in the second quarter of 2020development stage and are evaluating options for commercializing SkinTE Cryo, which we believe we will be able to test inis a limited market release during the second half of 2020.long-term development project.

SkinTE POC

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. SkinTE POC is in the development stage and we are now evaluating different designs for the device with a view to what users will find most conducive to application in a hospital or clinic. This is a long-term development project.

PTE 11000

PTE 11000 is an allogenic, biologically active dressing for use in wound care and aesthetics to accelerate healing of skin. It is a composition made using cadaveric tissue via a proprietary process. It is currently in the preclinical phase of development and we believe this developmentcannot predict when that phase may be completed sometime in 2021.complete.

OsteoTE

We applied our platform technology to develop OsteoTE, our autologous, homologous bone regeneration product. OsteoTE is designed to utilize the patient’s own bone to target applications for bone repair, reconstruction, replacement, supplementation, 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. We are pursuing additional pre-clinical testing and research to gather more information on potential markets for this product. This is a long-term development project.

Other Potential 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. Accordingly,For the foreseeable future, however, we will investigateintend to apply our business and evaluate these product opportunities as timefinancial resources to the SkinTE IND and resources permit given our focus on commercializing SkinTEBLA, and the product candidates described above.

We believe a number of the product candidatesSkinTE-related projects described above, will be suitable for marketing via the 361 HCT/P regulatory pathway. Ifand we successfully registerhave at this time put on hold further development work on OsteoTE and list a product with the FDA using the 361 HCT/P pathway,products related to other tissue substrates so that we may deploy a commercialization strategy similar to that of SkinTE orcan focus our resources on SkinTE.

Manufacturing

Throughout 2020 we may commercialize the product through a licensing or strategic partnership arrangement. Any products not suitable for the 361 HCT/P regulatory pathway will need to go through the FDA pre-market approval process, which usually involves the filing, as applicable, of an Investigational New Drug Application or Biologics License Application that will require preclinical and clinical testing and substantially extend the time of bringing the product to market.

Manufacturing

We have designed and developedmaintained at our facility in Salt Lake City, Utah, manufacturing processes and quality systems that allow us to receive a skin specimen, qualify the incoming tissue, process and manufacture the SkinTE tissue product, and perform outgoing quality control and quality assurance work prior to shipping. We have validated our manufacturing process as being aseptic. All SkinTE is manufactured within an ISO 5 isolator located within an ISO 7 cleanroom. Our processes are designed and validated to prevent the spread of communicable disease, and to prevent cross-contamination between samples. Our quality systems comply with current Good Tissue Practices (“cGTP”) under 21 C.F.R. Part 1271.

We have designedIn connection with the preparation of our scalable manufacturing process to allow us to be flexible and agile in real-time, while allowing us to shift resources daily to meet acute production needs as well as respond 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 have significant research facilities and this resource is beneficial to the workIND we are doingmaking plans to modify our manufacturing practices and facility so that we comply with current Good Manufacturing Practices (“cGMP”) under 21 C.F.R. Parts 210 and 211, and other applicable regulations, which are in our development projects. We also offer research servicesaddition to third parties on a contract basis through our subsidiary, Arches Research and IBEX.Contract research services help us defray the costs of maintaining a research facility.cGTP referenced above.

We currently operate a facility in Salt Lake City, Utah, consisting of approximately 178,528 square feet. We use this facility for product manufacturing and research and development work. In April 2019, we leased 6,307 square feet of manufacturing, laboratory, and office space in the Doctors Hospital complex in Augusta, Georgia, where The Joseph M. Still Burn Center is located. We intend to establish at the Doctors Hospital a remote manufacturing facility to service the region, which we believe will be operational in the middle of 2020.Suppliers

Suppliers

As part of our strategy of ensuring timely delivery of our products, we have avoided relying on any third-party supplier as a sole source vendor for any element of our production process. We have identified alternate suppliers and, where appropriate, supply alternatives for any sourcing challenges.

Intellectual Property

As we advance our platform technology, product, and pipeline developments, we seek to apply a multilayered approach for protecting intellectual property relating to our innovation with patents (utility and design), copyrights, trademarks, as well as know-how and trade secret protection. We are actively seeking U.S. and internationalforeign patent protection in selected jurisdictions for a variety of technologies, including our MPFU technology, our Complex Living Interface Coordinated Self-Assembling Materials (“CLICSAM”) Technology, our Composite-Interfacing, Biomaterial Accelerant Substrate (“CIBAS”) Technology, as well as Biological Sample Harvest and Deployment Kits. We have a number of patents issued and pending applications allowed in the United States and abroad related to our MPFU technology, including U.S. Patent No. 10,926,001 which issued on February 23, 2021. U.S. Patent No. 10,926,001 was filed on November 30, 2015 as Application No. 14/954,335 and thus has 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 where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends upon the 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 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 for biosimilar applicants to challenge the patents. Such patent litigation may begin as early as four years after the innovative biological product is first approved by the FDA.

In the United States, the increased likelihood of generic and biosimilar challenges to innovators’ intellectual property has increased the risk of loss of innovators’ market exclusivity. First, generic companies have increasingly sought to challenge innovators’ basic patents covering major pharmaceutical products. Second, statutory and regulatory provisions in the United States limit 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 of these developments, it is not possible to predict the length of market exclusivity for a particular product with certainty based solely on the expiration of the relevant patent(s) or the current forms of regulatory exclusivity.

In striving to protect and enhancethe proprietary technology, inventions, and improvements that are commercially important to the development of our business, we also rely heavily on trade secrets relating to our proprietary technology 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.

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 logo, WELCOME TO THE SHIFT, and WHERE SELF REGENERATES SELF.SELF, and SKINTE.

Competition

Competition

The regenerative medicine industry is characterized by rapidly advancing technologies, intense competition, and a strong emphasis on intellectual property. We face substantial competition from companies developing and selling regenerative medicine products, as well as academic research institutions, governmental agencies, and public and private research institutions. Our competition includes providers of FTSGs and STSGs, the current standards of care, as well as other companies developing and commercializing skin substitutes. Any advances in regenerative medicine by others may be used to develop therapies that compete against SkinTE. We are aware of several companies focused on the wound market, including Avita Medical, Integra LifeSciences, Wright Medical Group, MiMedx, Osiris, Organogenesis, Allosource, MTF Biologics and Vericel, and we face significant competition in the wound care space from multiple products, including ReCell, Integra Bilayer Wound Matrix, EpiFix, Apligraf, Dermagraft, Grafix, Epicel, and others.

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 our programs are likely to be their efficacy, safety, convenience, price, and the availability of reimbursement from government and other third-party payers.

Contract Research Services

In May 2018, we purchased the assets of a preclinical research sciences business and related real estate from Ibex Group, L.L.C., a Utah limited liability company, and Ibex Preclinical Research, Inc., a Utah corporation. We acquired these assets to accelerate research and development of our product candidates, and now operate the business as IBEX to advance our product development and deliver preclinical research services to third parties. The business consists of a “good laboratory practices” (GLP) compliant preclinical research facility that that complies with Good Laboratory Practices and is USDA registered and includes vivarium, operating rooms, preparation rooms, storage facilities, and surgical and imaging equipment. The real property includes two parcels in Logan, Utah, consisting of approximately 1.75 combined gross acres of land, together with the buildings, structures, fixtures, and personal property located on the real property.

Arches Research offers a complimentary array of research services to those offered through IBEX, providing access to experimental planning, histology, and in vivo and in vitro imaging, including micro-ct. Arches Research is well equipped with state of the artstate-of-the-art equipment and sophisticated research staff that provide a range of services including veterinary and preclinical services, advanced imaging, biomedical engineering and validation, and molecular biology assays.

Government Regulation

Government authorities, laws, and regulationsThere 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 the course of its operations, Arches maintains equipment and other countries regulatestaff capable of performing molecular polymerase chain reaction (“PCR”) testing for COVID-19. We had the manufacturing, approval, labeling, packaging, storage, record-keeping,opportunity to use our research facilities to offer laboratory testing services for COVID-19, and promotionto that end registered under the Clinical Laboratory Improvement Amendments (“CLIA”) in May 2020, and we began providing COVID-19 testing services on May 27, 2020. We believe that COVID-19 testing offers an opportunity to use existing resources to generate additional revenue and thereby help defray our operating expenses. We pursued this opportunity through the end of products such2020 and expect to continue to do so as long as we believe COVID-19 testing services are beneficial to supporting our operations.

On September 2, 2020, Arches entered into two agreements with Co-Diagnostics, Inc. (“Co-Diagnostics”). The COVID-19 Laboratory Services Agreement between the parties provides that Arches will perform specimen testing services for customers referred by Co-Diagnostics to Arches. Co-Diagnostics will arrange all logistics for delivering specimens to Arches for COVID-19 testing for those customers of Co-Diagnostics electing to use the service. Arches bills Co-Diagnostics for the testing services and Co-Diagnostics manages all customer billing. The Rental Agreement for LGC Genomics Oktopure Extraction Machine between Arches and Co-Diagnostics provides that Co-Diagnostics will make available to Arches the Oktopure high throughput extraction machine that Arches will use to perform COVID-19 testing. The term of the agreement is 12 months, requires Arches to use Co-Diagnostics tests exclusively in the machine, and establishes for Arches a minimum monthly purchase obligation for Co-Diagnostics tests and related consumables used in the testing process.

Competition for COVID-19 testing is intense with a large number of participants providing testing services. Many of our current competitors, either alone or with their collaboration partners, have significantly greater financial resources, testing resources, laboratory personnel, expertise, and marketing resources than we do. We are only able to offer our testing services in states where Arches is licensed or registered to provide laboratory testing services or where an emergency order or authorization allows unlicensed laboratories to provide COVID-19 testing, which limits the geographical market we can serve. We are a relatively unknown testing laboratory, so we have developedrelied on word of mouth and are developing. Any productmanagement relationships to connect with prospects and vied for new business on the basis of price and service. During 2020 we are developing must complyhad testing agreements with multiple nursing home and pharmacy facilities in the standards requiredstate of New York controlled by a single company that accounted for 96% of COVID-19 testing revenues in 2020. We were fortunate to obtain our major customer for testing services, which was a result of a direct relationship with management, and we have been able to retain this customer on the basis of price and service. We provide testing services in New York in reliance on monthly executive orders and authorizations that require regular testing of staff in these facilities and permit laboratories not licensed in New York to provide those services. On March 26, 2021, we were advised by the company that controls the New York nursing homes and pharmacy facilities we service that the state of New York is allowing on-site employee testing and that on-site testing will be implemented for the product category underNew York facilities we service, which will likely have the producteffect of substantially diminishing our revenues from COVID-19 testing after the first quarter of 2021.

We offer PCR testing for COVID-19, which is classified bythe current industry standard for accuracy of results. A number of companies, as well as academic research institutions, governmental agencies, and public and private research institutions, are pursuing the development of new COVID-19 tests that purport to be faster, easier, and less expensive than PCR testing. The successful development of such government authorities, laws, and regulations.a test could substantially diminish the demand for the PCR testing we offer.

Government Regulation

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 subject to varying degrees of regulation by the FDA, depending on if they fall solely within the scope 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, or biological products under Section 351 of the PHS Act (42 U.S.C. § 262) and the federal Food, Drug, and Cosmetic Act (the “FD&C Act”). Under this two-tiered framework, certain higher risk HCT/Ps are regulated as new drugs, biologics, or medical devices.biologics. Manufacturers of new drugs, biologics and some medical devices must complete extensive clinical trials, which must be conducted pursuant to an effective investigational new drug application (“IND”) or investigational device exemption (“IDE”).IND. 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, the FDA must approve a premarket approval application (“PMA”) or grant clearance to a premarket notification (“510(k)”) application prior to marketing of the device.

If however, an HCT/P meets the criteria for regulation solely under Section 361 of the Public Health Service Act and Part 1271 of Title 21 of the Code of Federal Regulations (so-called “361 HCT/Ps”), no premarket FDA review for safety and effectiveness under a drug, device, or biological product marketing application is required. The processor of the 361 HCT/P 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 tissue in accordance with established current Good Tissue Practices (“cGTP”),cGTP, and investigate and, in certain circumstances, report adverse reactions or deviations.

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

We believe that SkinTE and OsteoTE qualifyqualifies as a 361 HCT/Ps. Other productsP. Following informal, voluntary discussions between us and the FDA we are developing are being evaluatedwere advised by the FDA in April 2020 that its preliminary assessment is that SkinTE does not meet the requirements to be regulated solely as a 361 HCT/P. Rather, the FDA’s preliminary assessment was that SkinTE is a biological product that should be regulated under Section 351 of the Public Health Service Act. We re-evaluated our regulatory approach and determined it is prudent to submit an IND for SkinTE and an eventual BLA because we believe it will create a more valuable asset with respecta greater likelihood of achieving widespread commercial adoption, and to avoid the possibility of a protracted dispute with the FDA. As a result of the change in the regulatory classification, andapproach for SkinTE, we will prepare for any pathway of manufacturing or regulation that is required.decided to adjust our SkinTE commercial operations accordingly.

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 Federal Establishment Identification number (“FEI#”) after submitting the Form FDA 3356 (registration form). 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. During the enforcement discretion period, the FDA is permitting products that will become regulated under Section 351 to be manufactured in compliance with cGTP regulations. After the end of the enforcement discretion period, however, these products will be subject to cGMP compliance. The transition from cGTP to cGMP compliance includes development and enhancement of production processes, procedures, tests, and assays, and it requires extensive validation work. It can also involve the procurement and installation of new production or lab equipment. These efforts require expertise and resources.

FDA inspection and enforcement with respect to establishments described in 21 C.F.R. Part 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. Part 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. Our Salt Lake City manufacturing site was inspected in July 2018 and we received certain inspectional observations on Form FDA 483 following that inspection. We responded to those observations and engaged in a productive dialog with the FDA. Following our responses, in or around February 2019, FDA classified the July 2018 inspection of our Salt Lake City Manufacturing site as “Voluntary Action Initiated,” or “VAI.” A VAI classification indicates that, although FDA found and documented objectionable conditions during its inspection, FDA will not take or recommend regulatory or enforcement action with respect to such inspectional observations at this time.

The Tissue Reference Group (“TRG”) is a body within the FDA designed to provide recommendations regarding whether a product candidate will be regulated as a 361 HCT/P. The Office of Combination Products (“OCP”) at FDA provides informal, non-binding recommendations and formal, binding designations 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 TRG or sought a formal designation from the OCP, though we have had informal interactions with OCP.

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 or Regulatory Approval of Our Product Candidates and Other Government Regulations.”

Regulation of Clinical Laboratories

Virtually all clinical laboratories operating in the United States must be certified by the federal government or by a federally-approved accreditation agency. In most cases, that certification is regulated by the Centers for Medicare & Medicaid Services of the U.S. Department of Health and Human Services (“HHS”) through CLIA, which requires that applicable clinical laboratories meet quality assurance, quality control, and personnel standards. Laboratories also must undergo proficiency testing and are subject to inspections.

Arches has been issued a CLIA Certificate of Registration (“CLIA Certificate”) to accept human specimens for the purpose of performing laboratory examinations or procedures. The CLIA Certificate was issued on April 20, 2020 and is valid until April 19, 2022, but is subject to revocation, suspension, limitation, or other sanctions for violations of applicable laws or regulations.

Arches is also subject to state and local laboratory regulation. CLIA provides that a state may adopt laboratory regulations different from or more stringent than those under federal law, and a number of states have implemented their own laboratory regulatory requirements. State laws may require that laboratory personnel meet certain qualifications, specify certain quality controls, or require maintenance of certain records.

We believe Arches is in compliance with all applicable laboratory requirements. Its laboratory has continuing programs to ensure that Arches’ operations meet all such regulatory requirements, but no assurances can be given that the laboratory will pass all future licensure or certification inspections.

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 CompanyWe could potentially face legal risks if our interpretation differs from those of enforcement authorities. Further, from time to time the Company may find itselfwe could be at a competitive disadvantage if the Company’sour interpretation differs from that of itsour competitors.

In particular, the federal 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 ServicesHHS (“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, exempt 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 False Claims Act (“FCA”) imposes civil liability on any person or entity that submits, or causes others to submit, a false or fraudulent claim for payment (e.g., by the Medicare or Medicaid programs) to the U.S. government. Damages under the FCA can be significant, and consist of the imposition of fines and penalties, as well as possible exclusion from Medicare, Medicaid, and other federal healthcare programs. 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 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, in order to settle allegations under the FCA, 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 research, development and 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 research, development and 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, demand for access to any medical product will depend in large part on both the availability and the amount of reimbursement from third-party payers, including government healthcare programs (such as Medicare and Medicaid), and commercial healthcare insurers, such as 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 depending 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 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 case of the hospital outpatient clinic setting, Medicare payment rates generally are premised on classifications of services that have similar clinical characteristics and similar costs.

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. 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 or criminal penalties. Since we do not submit claims electronically to payers, we do not believe we are a covered entity under HIPAA.

Transparency Laws

The Patient Protection and Affordable Care Act imposes, among other things, 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 statute because our products are neither regulated as pharmaceuticals, biologics, nor medical devices by the FDA, and 361 HCT/Ps are not expressly addressed by this law. We do, however, voluntarily file annual reports because we believe it enhances our reputation in the medical industry to be transparent about what we do and how we do it.it, and if we receive a BLA approval, we will be required to report certain information under applicable transparency laws.

USDA

The Company and its subsidiaries conduct preclinical research and development, which is regulated by the United States Department of Agriculture (USDA)(“USDA”) Animal and Plant Health and Inspection Service (APHIS) and must be performed in compliance with the Animal Welfare Act, Animal Welfare Regulations, and Animal Care Policies. The Company and each of its subsidiaries that conduct preclinical research have in place Institutional Animal Care and Use Committees to oversee compliance with the animal care and use program and report accordingly to the USDA on an at least a semi-annual basis. All sites that maintain USDA-covered species are actively registered as USDA research facilities.

Employees

We had approximately 15380 full-time employees and fourfive part-time employees as of December 31, 2019,2020, all of whom are in the United States. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.

Corporate History

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 owned subsidiary of Majesco DE, entered into an Agreement and Plan of Reorganization with PolarityTE, Inc., a Nevada corporation (“PolarityTE NV”) and the sole shareholderstockholder 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, changed its name to “PolarityTE MD, Inc.,” and remains a wholly owned subsidiary of PolarityTE.

Prior to the acquisition of PolarityTE NV, Majesco DE developed and published a wide range of video games on digital networks through its Midnight City label. On May 2, 2017, Majesco Entertainment Company, a Nevada corporation and wholly owned subsidiary of PolarityTE (“Majesco NV Sub”), was formed, into which all the assets and liabilities of this gaming business were placed. On June 23, 2017, PolarityTE sold the Majesco NV Sub to Zift Interactive LLC, a Nevada limited liability company (“Zift”), pursuant to a purchase agreement. Pursuant to the terms of the agreement, PolarityTE sold 100% of the issued and outstanding shares of common stock of Majesco NV Sub to Zift, including all the right, title, and interest in and to Majesco NV Sub’s business of developing, publishing, and distributing video game products.

In May 2018 we acquired assets of a preclinical research and veterinary sciences business and related real estate, which we now operate through our subsidiary, Ibex Preclinical Research, Inc.IBEX. The aggregate purchase price was $3.8 million, of which $2.3 million was paid at closing and the balance satisfied by a promissory note payable to the seller with an initial fair value of $1.22 million and contingent consideration with an initial fair value of approximately $0.3 million. As a result, we have significant research facilities and a well-educated and skilled team of scientists and researchers that perform research on our development projects and comprise the contract research segment of our business.

Summary Risk Factors

The risk factors described below are a summary of the principal risk factors associated with an investment in us. These are not the only risks we face. You should carefully consider these risk factors, together with the risk factors set forth in “Item 1A. Risk Factors” of this Report and the other reports and documents filed by us with the U.S. Securities and Exchange Commission (“SEC”).

Risks Related to Our Financial Condition

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

Risks Related to our Operating Activities

Risks Related to Our Intellectual Property

Risks Related to Our Common Stock

Contact and Available Information

Our principal executive offices are located at 123 Wright Brothers Drive,1960 S. 4250 West, Salt Lake City, UT 8411684104, and our telephone number is (385) 237-2279.(800) 560-3983.

Our website address is http://www.polarityte.com. We have included our website address as an inactive textual reference only. We make available, free of charge through our website, our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as soon as reasonably practicable after we electronically file such material, or furnish it to the SEC. We also similarly make available, free of charge on our website, the reports filed with the SEC by our executive officers, directors and 10% stockholders pursuant to Section 16 under the Exchange Act as soon as reasonably practicable after copies of those filings are provided to us by those persons. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

Item 1A. Risk Factors.

Our business and operations are subject to many 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 occur, our financial condition or results of operations could suffer.

Risks Related to Our BusinessFinancial Condition

We have a history of operating losses and may never achieve or sustain profitability.incur additional losses in the future.

WeOn a cumulative basis we have incurred significant operatingsustained substantial losses and may continue to incur significant operating losses overnegative cash flows from operations since we embarked on our regenerative tissue product business at the next several years. We incurred a net lossbeginning of $92.5 million for the year ended2017. As of December 31, 2019,2020, our accumulated deficit was $478.2 million. As of December 31, 2020, we had $25.5 million in cash and $65.4cash equivalents, and working capital of approximately $22.7 million. In January 2021, we raised an additional $17.7 million in gross proceeds before offering expenses in a registered direct offering and through a warrant exercise agreement. In fiscal year 2020, we incurred losses of $42.9 million and we experienced negative cash flows from operations of $37.8 million. We expect to continue incurring material general and administrative expenses in connection with our operations, including the costs associated with preparing and filing our IND and BLA for SkinTE and beginning clinical trials as part of those applications. As a result, we anticipate that we will incur losses in the 12-month period ended October 31, 2018. Our ability to achieve profitable operationsfuture.

We will need additional funding in the future, will depend in large part upon the successful commercialization of SkinTE,which may not be available on acceptable terms, or at all, and, we are unable to predict when, if ever, that may occur. Our continuing capital needs to support expansion of the marketing effort, clinical trials, and other costs of our business could cause us to seek additional funding through public or private equity offerings, debt financings or from other sources. The sale of additional equityavailable, may result in dilution to our stockholders. If we are unable to successfully raise additional capital, our future clinical trials and product development could be limited, and our long-term viability may be threatened.

In these circumstances, there is2020 our net revenues from product sales and services contributed $10.1 million to defray cost of sales and total operating costs and expenses in the amount of $56.1 million. Our net revenues reduce the rate at which we burn our capital resources in the pursuit of our IND and BLA for SkinTE, but we have no expectation that product sales and services will be a major contributor to the capital resources we will need to advance SkinTE through the FDA regulatory process over the next several years.

Based on currently available information as of the date we file this report, we believe that our existing cash and cash equivalents will be sufficient to fund our activities through the end of 2021 and into the third quarter of 2022. However, our projections of future cash needs may differ from actual results. Furthermore, finite resources may inhibit our ability to respond to competitive pressures or unanticipated capital needs, or may force us to reduce operating expenses, which would significantly harm our business. We will need to seek additional working capital, which may be through sales of our equity securities or through bank credit facilities or public or private debt from various financial institutions or through future arrangements with strategic partners. We cannot be certain that additional funding will be available on acceptable terms, or at all. If we do identify sources for additional funding, the sale of additional equity securities or convertible debt could result in dilution to our stockholders. Additionally, the sale of equity securities or issuance of debt securities may be subject to certain security holder approvals under applicable Nasdaq rules or may result in the downward adjustment of the exercise or conversion price of our outstanding securities. We can give no assurance that wesources of funding, such as sales of equity or debt, or strategic relationships would be able to secure fundingavailable or would be approved by our security holders, if needed, on favorable terms acceptable to us, or at all.

If the commercialization ofwe fail to obtain additional working capital as and when needed, such failure could have a material adverse impact on our lead product candidate, SkinTE, is not successful, ourbusiness, results of operations and financial condition will be adversely affected.condition.

Our near-term prospects depend uponWe plan to devote a majority of our abilityfinancial and human resources to effectively market our lead product candidate, SkinTE. Gaining market acceptancepursue an IND and market share depends on a number of factors, including favorable completion of pending clinical trials, obtaining certainty on reimbursement for different applications, and our ability to develop an effective sales team. If we are not successful in commercializing SkinTE or are significantly delayed in doing so, our operating results and financial condition will be adversely affected.

Our revenue growthBLA for SkinTE, dependswhich means we may fail to capitalize on our ability to expand our sales force, increase distribution and sales to existing customers and develop new customers, andproduct candidates that may be more profitable or for which there can be no assurance that these efforts will result in significant increases in sales.is a greater likelihood of success.

We are in the processBecause we have limited resources, we plan to forego or delay pursuit of investing in development of our direct sales forceopportunities with other product candidates or for indications that later could prove to allow for the opportunity to increase sales to existing customers and reach new customers. There can be no assurance that this effort will result in a meaningful increase in revenues. We expect to incur substantial expense to expand our sales force, and there is no assurance that we will recoup this investment through increased sales or that any increase in sales will allowhave greater commercial potential. Our resource allocation decisions may cause us to sustain our operations.

Meaningful revenue growth in the foreseeablefail to capitalize on viable commercial products or profitable market opportunities. Our spending on current and future is dependent on oneresearch and development programs for product – SkinTE.

While a contributor to revenues,candidates may not yield any commercially viable products. If we do not believe our contract services business offersaccurately evaluate the commercial potential or target market for a revenue growth opportunity substantial enoughparticular product candidate, we may relinquish valuable rights to sustain our operations. Meaningful revenue growth will come from sales of regenerative tissue productsthat product candidate through strategic collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and biomaterials,commercialization rights to such product candidate, or we may allocate internal resources to a product candidate for which it would have been more advantageous to enter into a partnering arrangement.

Our wholly owned subsidiary accepted a loan under the CARES Act pursuant to the Paycheck Protection Program (“PPP”), and the only such product we willloan may not be sellingforgiven or may subject us to challenges, audits, or investigations regarding qualification for the foreseeable future is SkinTE. To the extent that salesloan, any of SkinTE lag behindwhich could reduce our need to generate revenue to make up the gap between available capitalliquidity and cash flow from operations or there is a disruption in our ability to generate revenue from the distribution of SkinTE, our results of operations, financial condition, and growth prospects would be materially, adversely affected.

Our ability to effectively sell SkinTE depends on a number of factors that we are still learning about.

Factors impacting our ability to successfully commercialize SkinTE include:

We began marketing SkinTE on a regional level in the fourth quarter of 2018, so we are still learning about the market and how to approach it with our product. We have begun to identify important factors, such as the items listed above, that affect our sales effort and continue to gain insight as our experience with marketing SkinTE grows. As we are still in the learning stage, we cannot predict when, if ever, we will succeed in establishing a formula for selling SkinTE that will produce revenue at a level sufficient to sustain our operations.

We will incur substantial costs in terms of both money and corporate resources for clinical and preclinical trials, and the results of these trials is uncertain.

We are pursuing two clinical trials for DFUs and VLUs and are evaluating plans for additional clinical trials for SkinTE. Clinical trials entail substantial costs, and we will continue to incur substantial costs on clinical trials for SkinTE. In addition, we expect that we will pursue development work and pre-clinical trials on our product development projects, which will result in additional costs with no assurance that the research and development work will result in any marketable product or revenue for us. These expenditures are subject to numerous uncertainties in timing and cost of completion, and potentially detract from our effort to commercialize SkinTE. Finally, there is no assurance that the results of a clinical or preclinical trial will be helpful in advancing the marketability or development of any product, and to the extent the results are not helpful, it is unlikely we would be able to recoup our investment in these trials and development efforts.

Our success will be dependent on our ability to achieve a meaningful level of SkinTE acceptance by the medical community.

We believe the lack of SkinTE clinical trials, which we were not required to obtain before commercialization as a 361 HTC/P, has adversely affected the acceptance of SkinTE by the wound care segment of the medical community. While we hope that our clinical trials will provide positive results, which will help to advance acceptance of SkinTE, we cannot guarantee this outcome. Our ability to gain, and then maintain, acceptance depends on whether we can demonstrate that SkinTE is an attractive alternative to existing or wound care treatment options, including both surgical techniques and products. Our ability to do so will depend on physicians’ evaluations of clinical safety, efficacy, ease of use, reliability, and cost-effectiveness, including insurance reimbursement. If the medical community and patients do not accept SkinTE as safe and effective, our ability to sell SkinTE and our results of operations may be materially and adversely affected.

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

Our success will depend on 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 for new treatments. Until established payment rates are set by payers, significant uncertainty usually exists as 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 pricing, future changes in reimbursement policies could have a negative impactmaterial adverse effect on our business, financial condition and results of operations.

Commercial third-party payersOn April 12, 2020, our subsidiary PolarityTE MD, Inc. (the “Borrower”) entered into a promissory note offered by a bank (the “Lender”) evidencing an unsecured loan in the amount of $3,576,145 made to the Borrower under the PPP (the “Loan”). The PPP was established under the Coronavirus Aid, Relief, and government payers are increasingly attemptingEconomic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration (the “SBA”). The interest rate on the Loan is 1.00%. Beginning seven months from the date of the Loan the Borrower is required to contain healthcare costs by demanding price discounts, including by limiting coverage on which products they will paymake 24 monthly payments of principal and interest in the amount of $150,563. The promissory note evidencing the Loan contains customary events of default relating to, among other things, payment defaults, making materially false and misleading representations to the SBA or Lender, or breaching the terms of the Loan documents. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all amounts owing from the Borrower, or filing suit and obtaining judgment against the Borrower. Under the terms of the CARES Act, PPP loan recipients can apply for and be granted forgiveness for all or a portion of a loan granted under the amountsPPP.

On October 15, 2020, the Borrower applied to the Lender for forgiveness of the Loan in its entirety based on the Borrower’s use of the PPP loan for payroll costs, rent, and utilities. On October 26, 2020, the Borrower was advised that theythe Lender approved the application and that the Lender was submitting the application to the SBA for a final decision. The Company classified the principal balance of the PPP loan within “Current portion of long-term notes payable” and “Long-term notes payable” on the consolidated balance sheet as of December 31, 2020. If the Borrower’s application for forgiveness of the PPP loan is not approved or approved only in part, it will paybe obligated to repay the unforgiven portion of the loan after the SBA makes its decision on the application for new products or productsforgiveness, in competitive markets,which case our liquidity could be reduced and our business, financial condition, and results of operations may be adversely affected.

Pursuant to the requirements under the CARES Act, in connection with the Loan, the Borrower certified that current economic uncertainty makes the Loan request necessary to support the ongoing operations of the Borrower. We believe that the Borrower made such certification 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. While we believe any certification by creating conditions to reimbursement, such as coverage eligibilitythe Borrower’s certification was supported in light of the understandings of the requirements based upon clinical evidence development involving research studies and the collectionassessment made on the certification date, we cannot be certain that SBA or any other governmental entity or third party will concur with the Borrower, especially in light of physician decisionthe press scrutiny and SBA’s evolving guidance and views, our change in strategy triggered, in part, on regulatory developments occurring after the Loan was made, and the eventual extent of the impact of current economic uncertainties on Borrower’s operations.

Subsequent to the Borrower’s application for the loan, SBA issued various interpretive guidelines in connection with the PPP, including guidance on how SBA interprets certain of the certification requirements. One of the interpretations appears to be in response to various press reports that well-established or well capitalized private and patient outcomes data. Becausepublic companies were able to secure PPP loans that were meant for smaller companies. SBA’s interpretive guidelines published on April 23, 2020, set forth that public companies with substantial market value and access to capital markets would likely not qualify to participate in the PPP and SBA advised any such public company to be prepared to provide the basis for the certifications upon SBA request. Subsequently, on April 28, 2020 the Secretary of the Treasury and SBA announced that the government will conduct a full audit of all PPP loans of more than $2 million for which the borrower applies for forgiveness. Consistent with that announcement the SBA established an audit procedure for obtaining additional information from PPP borrowers regarding the loan application certification and use of PPP loan proceeds. The Borrower completed and submitted the additional information in December 2020 and plans to continue to provide information to SBA in support of the Borrower’s original Loan application and use of Loan proceeds. The Borrower has yet to receive any response from the SBA. There is no assurance the SBA will conclude the Borrower properly applied for, and used the proceeds of, the Loan. If there is any adverse finding in the SBA audit or if the Borrower were alleged, or determined, not to qualify for the Loan or alleged, or found, to have made false certifications in connection with the Loan, the Borrower 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, the Borrower 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 government. 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 United States. The Borrower may also face enforcement arising under other federal statutes, including criminal laws, and administrative actions and investigations initiated by SBA or other governmental entities. Furthermore, if the Borrower 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 PPP funding, the Borrower may face negative publicity, which could have a materially adverse impact on its business and operations and on our 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 PPP loan proceeds, so the Borrower may evaluate voluntarily repaying the loan on the basis of future circumstances to avoid these cost-containment trends, commercial third-party payerscosts as well as the significant drain on management resources that accompanies litigation.

Our ability to use our net operating loss carryforwards and government payers that currently providecertain other tax attributes may be limited, which could adversely affect future cash flows.

We have incurred net losses over the past several years, and we may never achieve or sustain profitability. Generally, losses incurred will carry forward until such losses expire or are used to offset future taxable income, if any. Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), if a corporation undergoes an “ownership change,” generally defined as a greater than 50 percentage point change (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss, or NOL, carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. We have not completed a study to assess whether an ownership change for purposes of Section 382 or 383 has occurred, or whether there have been multiple ownership changes in the past. We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of shifts in our stock ownership (some of which shifts are outside our control). As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset such taxable income could be subject to limitations. Similar provisions of state tax law may provide reimbursement for one or morealso apply to limit our use of accumulated state tax attributes. As a result, even if we attain profitability, we may be unable to use a material portion of our productsNOL carryforwards and other tax attributes, which could adversely affect our future cash flows.

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

We are pursuing an IND and BLA for SkinTE, so we are an early-stage biotechnology company subject to the risks associated with such companies, which may make it difficult to evaluate our current business and predict our success and viability.

Our primary focus for the foreseeable future will be shepherding SkinTE through the FDA regulatory process, which is a lengthy process with no assurance of success. Stockholders should understand that we are an early-stage biotechnology company with a limited history of revenue-generating operations. Therefore, we are subject to all the risks and uncertainties inherent in an early-stage biotechnology company, in particular those businesses engaged in the pursuit of tissue regenerative technologies.

Accordingly, you should evaluate our prospects in light of the costs, uncertainties, delays, and difficulties frequently encountered by early-stage companies, particularly those in the biotechnology field. In particular, stockholders should consider that there is a significant risk that we will not be able to:

Any of the foregoing risks may adversely affect us and result in the failure of our business. In addition, we expect to encounter unforeseen expenses, difficulties, complications, delays, and other known and unknown factors.

Our ability to timely submit an IND to the FDA may depend on circumstances outside of our control.

Our ability to submit an IND to the FDA depends on a variety of factors. We must submit the results of various preclinical tests, together with manufacturing information, analytical data, any available past clinical data or literature, and a proposed clinical protocol to the FDA as part of the IND. Preclinical tests include laboratory evaluations of product chemistry and formulation, as well as other studies to assess the potential safety and activity of the product candidate. The conduct of the preclinical tests must comply with federal regulations and requirements, subject to any adjustments allowed by the FDA. The FDA may require that we conduct additional preclinical testing for any product candidate before it allows us to initiate the clinical testing under any IND, which may lead to additional delays and increase the costs of our preclinical and clinical development. An IND also involves considerable work from our employees and advisors. Difficulties or delays in the process will likely increase the costs associated with the IND and result in an unanticipated reduction in the working capital we have available to pursue the IND and BLA.

Clinical trials are expensive, time-consuming, and difficult to design and implement, and as a result there is significant uncertainty with respect to successful completion.

Human clinical trials are expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The costs of our clinical trials may increase if the FDA does not agree with our clinical development plans or requires us to conduct additional clinical trials, data analyses, or data audits to demonstrate the safety and efficacy of SkinTE or future product candidates. Should we be unable to cover the expense of our clinical trials or encounter difficulties in execution of our clinical trials it is unlikely we will be able to advance SkinTE or other product candidates to marketing approval, which would have a significant adverse effect on our business, prospects, financial condition, and results of operations.

Biotechnology and pharmaceutical product development is a highly speculative undertaking and involves a substantial degree of uncertainty. While we have generated revenue from sales of SkinTE, we have never achieved profitable operating results in our regenerative medicine product segment, and we may reduce, suspend, revoke,never be able to do so.

Our ability to generate revenue depends in large part on our ability, alone or discontinue paymentswith partners, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize, product candidates. Following the end of the FDA’s period of enforcement discretion (currently scheduled through May 2021) for regenerative tissue products, we may need to cease selling SkinTE until the FDA approves a BLA, and then we will only be able to market the product for indications that have been approved in a BLA. Our ability to generate future revenues from product sales of regenerative tissue products depends heavily on our success in:

Because of the numerous risks and uncertainties associated with biologic and pharmaceutical product development, we are unable to predict the likelihood or coverage at any time, including those payers that designatetiming for when we may receive regulatory approval of our product candidates or when we will be able to achieve or maintain profitability, if ever. If we are unable to establish a development and or commercialization partnership, or do not receive regulatory approvals, our business, prospects, financial condition, and results of operations will be adversely affected. Even if we or a partner obtain the regulatory approvals to market and sell one or more of our product candidates, as experimental and investigational. Payerswe may also create conditions to coveragenever generate significant revenues from any commercial sales for several reasons, including because the market for our products may be smaller than we anticipate, or contract with third-party vendors to manage laboratory benefit coverage, in both cases creating burdens for orderingproducts may not be adopted by physicians and patients that may makepayors, or because our products 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 discountsnot be as efficacious 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, suchsafe 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 for any particular intended use or indication or in any particular jurisdiction, does not guarantee that such product will remain approved for reimbursement, will continue to be reimbursed at comparable rates, or that similar or additional products will be approved for reimbursement 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 limit or 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 whethertreatment options. If we are ablefail to successfully commercialize our product candidates. Our product and product candidatesone or more products, by ourselves or through a partner, we may receive negative assessments that may impact our ability to receive reimbursement for a product. We cannot be sure that reimbursement in the United States or elsewhere will be available for any of our products or product candidates in the future. If reimbursement is not available or is limited, our ability to commercialize our products and product candidates would be substantially impaired, which would adversely affect the viability of our commercial operations.

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 or payment that we would receive for any products in the future, which would limit our revenue and profitability. If we are unable to obtain or maintain reimbursement approval from commercial third-party payersgenerate sufficient revenues to sustain and Medicaregrow our business and Medicaid programs for our products and product candidates, or if the amount reimbursed is inadequate, our ability to generate revenues could be limited.

There may be significant fluctuations in our operating results.

We are at the beginning of the second year of our focused commercialization effort for SkinTE, so significant quarterly fluctuations in our results of operations are expected because our customer base, while growing, remains very small in relation to the overall wound care market. Fluctuations in quarterly results may also be caused by seasonal changes in wound care treatment demand, timing of sales force expansion, and general economic conditions. There can be no assurance that the level of revenues and profits, if any, we achieve in any particular fiscal period, will not be significantly lower than in other comparable fiscal periods. Our spending on operations is based, in part, on our expectations as to future revenues. As a result, if future revenues are below expectations, net income or loss may be disproportionately affected by a reduction in revenues, as any corresponding reduction in expenses may not be proportionate to the reduction in revenues.

The recent widespread outbreak of respiratory illness caused by a strain of coronavirus (Covid-19) has resulted in business closures and disruptions that may affect various suppliers of items we may use to produce and deliver SkinTE, notwithstanding the fact that we operate entirely within the United States. A significant outbreak of coronavirus and other contagious diseases could result in a widespread health crisis that might have a chilling effect on patients seeking treatment from healthcare providers for conditions where SkinTE may be suitable, and could adversely affect the economies and financial markets worldwide, resulting in an economic downturn that could affect demand for our products and impact our business, prospects, financial condition, and results of operations.operations will be adversely affected.

We are dependent on third parties to conduct our clinical trials and the failure of such third parties to perform or delays in performance could increase our costs or prevent us from being able to use the results of the trials.

We depend and will continue to depend upon independent investigators and collaborators, such as universities and medical institutions, to conduct our clinical trials under agreements with us. Negotiations of budgets and contracts with study sites may result in delays to our development timelines and increased costs. We will rely heavily on these third parties over the course of our clinical trials, and we control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol, legal, regulatory, and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with current good clinical practices (“cGCPs”), which are regulations and guidelines enforced by the FDA for product candidates in clinical development. The FDA enforces these cGCPs through periodic inspections of clinical trial sponsors, principal investigators, and clinical trial sites. If we or any of these third parties fail to comply with applicable cGCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and the FDA could require us to perform additional clinical trials, undertake data analyses or audits, or adopt new or revised clinical study procedures and systems before approving our marketing applications. It is possible the FDA could determine that any of our clinical trials fail to comply with the cGCP regulations. In addition, our clinical trials must be conducted with a biologic product produced under current good manufacturing practices, or cGMPs, and will require a large number of test patients. Our failure or any failure by these third parties to comply with these regulations or to recruit a sufficient number of patients may require us to repeat clinical trials, which would delay the regulatory approval process. Moreover, our business may be implicated if any of these third parties violates federal or state fraud and abuse or false claims laws and regulations, or healthcare privacy and security laws.

Any third parties conducting our clinical trials are not and will not be our employees and, except for remedies available to us under our agreements with these third parties, we cannot control whether they devote sufficient time and resources to our ongoing preclinical, clinical, and nonclinical programs. These third parties may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other drug development activities, which could affect their performance on our behalf. If these third parties do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to complete development of, obtain regulatory approval of or successfully commercialize our product candidates. As a result, our financial results and the commercial prospects for SkinTE or other product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed.

Switching or adding third parties to conduct our clinical trials involves substantial cost and requires extensive management time and focus. In addition, there is a natural transition period when a new third party commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.

If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

Our manufacturing operationsEven if we are permitted to conduct clinical trials for SkinTE under an IND, we may experience difficulties in subject enrollment in our clinical trials for a variety of reasons. The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a sufficient number of patients who remain in the U.S. depend primarilystudy until its conclusion. The enrollment of patients depends on one facility. Ifmany factors, including:

In particular, SkinTE clinical trials will be designed to test the treatment of wounds with specific characteristics and be conducted at a limited number of sites, so to a large extent we will have no control or influence on the number and timing of enrolling patients that are suitable for our trials.

Our clinical trials could compete with other companies’ clinical trials for product candidates that are in the same therapeutic areas as our product candidates, and this facility is destroyed or we experience any manufacturing difficulties, disruptions, or delays, thiscompetition could limit supplyreduce the number and types of patients available to us, because some patients who might have opted to enroll in our clinical trials may instead opt to enroll in a trial being conducted by one of our productcompetitors. It is possible we could conduct our clinical trials at the same clinical trial sites that some of our competitors may use, which could reduce the number of patients who are available for our clinical trial in these clinical trial sites. Delays in patient enrollment may result in increased costs or may affect the timing or outcome of our planned clinical trials, which could prevent completion of the clinical trials and adversely affect our ability to sell productsadvance the development of SkinTE.

Any adverse developments that occur during any clinical trials conducted by academic investigators or other entities conducting clinical trials under separate INDs may negatively affect the conduct of our clinical trials or our ability to obtain regulatory approvals or commercialize our product candidates.

Skin-based HCT/Ps and other HCT/Ps for wound care are being used, or may be used, by third parties in clinical trials that are completely independent of our business would be adversely impacted.

Allplan for SkinTE. We have no control over the conduct of those clinical trials. If serious adverse events occur during those or any other clinical trials using technologies similar to ours, the manufacturingFDA and other regulatory authorities may delay our clinical trial, or could delay, limit, or deny approval of SkinTE takes place at our single U.S. facility. We are in the process of developing another manufacturing facility in Augusta, Georgia, but this facility is not yet operational. If regulatory, manufacturing, or other problems require us to conduct additional clinical trials as a condition to marketing approval, which would increase our costs. If we receive regulatory approval for SkinTE and a new and serious safety issue is identified in connection with clinical trials conducted by third parties, the applicable regulatory authorities may withdraw their approval of SkinTE or otherwise restrict our ability to market and sell our product. In addition, treating physicians may be less willing to administer our products due to concerns over such adverse events, which would limit our ability to commercialize our products.

Adverse side effects or other safety risks associated with our product candidates could cause us to suspend or discontinue productionclinical trials or delay or preclude approval.

During our DFU RCT and in the course of our commercial sales of SkinTE we did not observe undesirable side effects from the application of SkinTE. There is no assurance, however, that undesirable side effects will not be observed in our clinical trials, whether or not they are caused by SkinTE. Any such undesirable side effects could result in the delay, suspension, or termination of clinical trials by the FDA or us for a number of reasons. In addition, because the patients who will be enrolled in our clinical trials may be suffering from one or more serious chronic or life-threatening conditions it may be difficult to accurately assess the relationship between SkinTE and adverse events experienced by very ill patients. If we elect or are required to delay, suspend, or terminate any of our clinical trials, the commercial prospects of SkinTE could be harmed and our ability to generate product revenues from SkinTE could be delayed or eliminated. In addition, serious adverse events observed in clinical trials could hinder or prevent market acceptance of SkinTE. Any of these occurrences may harm our business, prospects, financial condition, and results of operations significantly.

We may form or seek strategic alliances, enter into additional licensing arrangements, or participate in acquisition transactions in the future, and we may not succeed in realizing the benefits of such alliances, licensing arrangements, or acquisition transactions.

We may form or seek strategic alliances, create joint ventures or collaborations, enter into licensing arrangements, or participate in an acquisition in which we are the acquirer or the target with third parties that we believe will complement or augment our development and commercialization efforts with respect to SkinTE or our other product candidates we may develop. Any of these relationships or transactions may require us to incur non-recurring and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders, or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic opportunities and the negotiation process is time-consuming and complex. Moreover, we may not be successful in arranging a strategic partnership or other alternative arrangements for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and third parties may not view our current facility,product candidates as having the requisite potential to demonstrate safety and efficacy or achieve commercial success. If we license or acquire products or businesses, we may not be able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and company culture. It is possible that, following a strategic transaction or license, we may not achieve the revenue or specific net income that justifies such transaction. Any delays in entering into new strategic partnership agreements related to our product candidates could delay the development and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects, financial condition, and results of operations.

Even if we obtain regulatory approval of SkinTE or future product candidates, they may not gain market acceptance among physicians, patients, hospitals, third-party payors, and others in the medical community.

The development and use of HCT/Ps for tissue regeneration therapies is a recently developed technology and may not become broadly accepted by physicians, patients, hospitals, third-party payors, and others in the medical community. Many factors will influence whether SkinTE or any other product candidates we may develop are accepted in the market, including:

If our product candidates are approved but fail to achieve market acceptance among physicians, patients, hospitals, or others in the medical community, we will not be able to supply SkinTE to patients or have supplies for clinical trials, which would adversely impactgenerate significant revenue. Even if our business. If this facility or the equipment in it is significantly damaged or destroyed by fire, flood, power loss, or similar events,products achieve market acceptance, we may not be able to quicklymaintain that market acceptance over time if new products or inexpensively replacetechnologies are introduced that are more favorably received than our products, are more cost effective or render our products obsolete.

Our ability to timely submit an IND to the FDA may depend on circumstances outside of our control.

Our ability to submit an IND to the FDA depends on a variety of factors. We must submit the results of various preclinical tests, together with manufacturing capacityinformation, analytical data, all available past clinical data or replaceliterature, and a proposed clinical protocol to the facility at all. InFDA as part of the eventIND. Preclinical tests include laboratory evaluations of a temporary or protracted lossproduct chemistry and formulation, as well as other studies to assess the potential safety and activity of this facility or equipment, we might not be able to quickly transfer manufacturing to our facility under development or to another 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 toproduct candidate. The conduct of the preclinical tests must comply with applicable cGTPfederal regulations and requirements, subject to any adjustments allowed by the FDA. The FDA may require that we conduct additional preclinical testing or for any product candidate before it allows us to initiate the FDA’s current good manufacturing practices (“cGMP”) regulatoryclinical testing under any IND, which may lead to additional delays and quality standard requirementsincrease the costs of our preclinical and if applicable, FDA approval would be required before any products manufactured at that facility could be made commercially available.

Performance issues, service interruptionsclinical development. An IND also involves considerable work from our employees and advisors. Difficulties or price increases by our shipping carriers could negatively affect our business, financial conditiondelays in the process will likely increase the costs associated with the IND and results of operations and harm our reputation and the relationship between us and the healthcare providers with which we work.

Expedited, reliable shipping is essential to our operations. We rely heavily on providers of transport services for reliable and secure point-to-point transport of skin harvested from patients and the return of SkinTE manufactured for those patients, and for tracking of these shipments. Should a carrier encounter delivery performance issues such as loss, damage, or destruction of any delivery systems, it could result in delaysan unanticipated reduction in delivering our productthe working capital we have available to pursue the IND and spoilage of the SkinTEBLA.

If we produce for patients, which is viable for 14 days following the skin harvest date. Any such occurrences may damage our reputation and leadare required to decreased demand for our solution and increased cost and expense to our business. In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery services we use would adversely affect our ability to process orders for SkinTE on a timely basis.

We may implement a productvoluntarily withdraw, recall, or voluntary market withdrawal, whichcease product manufacturing, it could significantly increase our costs, damage our reputation, and disrupt our business.

The manufacturing, marketing, and processing of our products and product candidates involves an inherent risk that our tissue products or processes do not meet applicable quality standards and requirements. In that event, we may voluntarily implement a recall, or market withdrawal, or cessation of manufacturing or may be required to do so by a regulatory authority. A recall, or market withdrawal, or cessation of manufacturing of one of our products would be costly and would divert management resources. A recall or withdrawal ofAny such action involving one of our products, or a similar product processed by another entity, also could impair sales of our products because of confusion concerning the scope of the recall or withdrawal, or because of the damage to our reputation for quality and safety.

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

We may pursue licensing or strategic partnership opportunitiesface significant uncertainty in the futureindustry due to enhancegovernment healthcare reform.

There have been and acceleratecontinue to be proposals by the developmentfederal government, state governments, regulators and commercialization of our existing products and potential product candidates. We may rely on such arrangementsthird-party payers to assist in launching, marketing, and developing our products and product candidates. However, we may face significant competition in seeking appropriate arrangements and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a licensing, strategic partnership, or other alternative arrangements for any present or future proposed products and programs for a variety of reasons. Even if we are successful in our efforts to establish licensing agreements or strategic partnerships, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such arrangements if, for example, development or approval of a product candidate is delayed or sales of an approved or registered product are disappointing.

We operate in a highly competitive and evolving field and face competition from regenerative medicine, biotech, and pharmaceutical companies, tissue engineering entities, tissue processors and medical device manufacturers, as well as new market entrants.

We operate in a competitive and continually evolving field. Competition from other regenerative medicine, biotech, and pharmaceutical companies, tissue engineering entities, tissue processors, medical device companies and from research and academic institutions is intense, expected to increase, subject to rapid change, and could be significantly affected by new product introductions. 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 the wound care space from multiple products, including ReCell, Integra Bilayer Wound Matrix, EpiFix, Apligraf, Dermagraft, Grafix, Epicel, and others. 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 SkinTE is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to SkinTE, or if physicians switch to other new drug or biologic products, or choose to reserve SkinTE for use in limited circumstances.

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

SkinTE faces intense competition from existing and future products marketed by large, well-established companiescontrol healthcare costs (including but not limited to Avita Medical, Integra LifeSciences, Wright Medical Group, MiMedx, Osiris, Organogenesis, Allosource, MTF Biologicscapitation – the generalized cap on annual fees for a type of service or procedure such as burn or wound care or rehabilitation), and Vericel). These competitors may successfully market products that competegenerally, to reform the healthcare system in the wound care market, successfully identify product candidatesUnited States. There are many programs and requirements for which the details have not yet been fully established or develop products earlier than we do, or develop products thatthe consequences are more effective or safe, or that cost less than SkinTE.not fully understood. These competitive factors could require us to conduct additional research and development activities to establish new competitive product targets, which would be costly and time consuming. These activities would adverselyproposals may affect our ability to effectively commercialize SkinTE and achieve revenue and profits.

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

We are focused on employing our resources to commercialize SkinTE, and thus we expect to continue to use our capital to advance that objective rather than on research and development on product candidates that will take a long time to evaluate and develop. Until we can successfully commercialize our product candidates and achieve significant revenue, if any, it is unlikely we will be able to make a significant capital commitment to research and development of new product candidates.

The cost and timing of completion of 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 potential product opportunities. As we obtain results from investigations, preclinical studies, or clinical trials, we may elect to discontinue or delay further evaluations for certain product candidates or programs 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 of a product candidate. The cost of clinical trials is uncertain and may vary significantly over the life of a product or development project because of unanticipated differences, regulatory requirements, or other obligations, or challenges arising during clinical development.

Our product development programs are based on novel technologies. As a 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 for all our product candidates.business. We also cannot at this stage be certain of the safety of all product candidates that may be developed from our core 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 regarding 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.

Our potential 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 market may not understand or accept our potential 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 potential product candidates creates significant challenges regarding product development and optimization, manufacturing, government regulation, and third-party reimbursement. As a result, the development pathway for any such product and its commercialization may be subject to increased scrutiny, as compared to the pathways for more conventional products.

The degree of market acceptance of 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, having a material adverse effect on our business, financial condition and results of operations.

If serious adverse or inappropriate side effects are identified during the development or use 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.

If SkinTE or other products we develop are associated with undesirable side effects or have characteristics that are unexpected, we may need to abandon their use or development, or limit them 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,predict what further reform proposals, if any, of the procedures with which our products are used is determined towill be unsafe, weadopted, when they will be adopted, or what impact they may be required to delay, alter, or abandon our product development or commercialization.have on us.

We face the risk of product liability claims and may not be able to obtain or maintain adequate product liability insurance.

Our business exposes us to the risk of product liability claims that are inherent in the manufacturing, processing, and marketing of human cellular and tissue-based products. We may be subject to such claims if our products 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 products. Defending a lawsuit, regardless of merit, could be costly, divert management attention, and result in adverse publicity, which could result in the withdrawal, or reduced acceptance, of our products 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 terms 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 or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could result in significant costs and significant harm to our business.

We operate in a highly competitive and evolving field and face competition from regenerative medicine, biotechnology, and pharmaceutical companies, tissue engineering entities, tissue processors, and medical device manufacturers, as well as new market entrants, which may result in others discovering, developing or commercializing competing products before or more successfully than we do.

We operate in a competitive and continually evolving field. Competition from other regenerative medicine, biotechnology, and pharmaceutical companies, tissue engineering entities, tissue processors, medical device companies, and from research and academic institutions is intense, expected to increase, subject to rapid change, and could be significantly affected by new product introductions. Many of our competitors have substantially greater financial, technical, and other resources, such as larger research and development staff and experienced marketing and manufacturing organizations and well-established sales forces. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated in our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors, either alone or with collaborative partners, may succeed in developing, acquiring, or licensing on an exclusive basis drug or biologic products that are more effective, safer, more easily commercialized, or less costly than our product candidates or may develop proprietary technologies or secure patent protection that we may need for the development of our technologies and products. Our failure to compete effectively would have a material and adverse effect on our business, results of operations, and financial condition.

Risks Related to our Operating Activities

We may be required to discontinue sales of SkinTE, which would adversely affect our revenues, financial condition, and results of operations.

We continue to market SkinTE as a 361 HCT/P product and under the FDA’s policy of enforcement discretion (currently scheduled through May 2021) as we work to transition SkinTE to a Section 351 product. Our net revenues from SkinTE sales in 2020 were $3.7 million. Following the end of the FDA’s period of enforcement discretion, we may need to cease selling SkinTE until the FDA approves a BLA, and then we will only be able to market the product for indications that have been approved in a BLA. The loss of our ability to market and sell SkinTE would have an adverse impact on our revenues, financial condition, and results of operations.

We have a limited history of operation with our laboratory testing service so we are unable to predict with any certainty what contribution it will make to defraying our operating expenses in the future, which could adversely affect our ability to plan for the use of our resources to achieve our goals.

Net loss from our contract services segment was $39,000 for the year ended December 31, 2020 compared to a net loss of $1.2 million for the year ended December 31, 2019, and this reversal is directly attributable to the new source of revenue we found in COVD-19 testing. Net revenues from our historical clinical service offerings were $59,000 for the year ended December 31, 2020, compared to $4.3 million in net revenues generated by COVID-19 testing services. COVID-19 testing is a relatively new business activity that we started with existing equipment and personnel when the opportunity presented itself, which means there are substantial risks and uncertainties associated with this new business activity. We obtained 96% of COVID-19 testing revenues in 2020 under 30-day renewable testing agreements with multiple nursing home and pharmacy facilities in the state of New York controlled by a single company. On March 26, 2021, we were advised by the company that controls the New York nursing homes and pharmacy facilities we service that the state of New York is allowing on-site employee testing and that on-site testing will be implemented for the New York facilities we service, which will likely have the effect of substantially diminishing our revenues from COVID-19 testing after the first quarter of 2021. We are a relatively unknown testing laboratory, so we have relied on word of mouth and management relationships to connect with prospects and vied for new business on the basis of price and service, and we cannot predict how well this marketing approach will work in finding new customers for Arches’ testing services. Even if we are able to find new customers for the COVID-19 testing business there remain substantial risks associated with the COVID-19 testing business, including the following:

A significant decline or loss of the COVID-19 testing business in 2021 that we are unable to substantially replace with new customers could have a material and adverse effect on our business, results of operations, and financial condition.

Our manufacturing and COVID 19 testing operations depend primarily on one facility. If this facility is destroyed or we experience any manufacturing or laboratory difficulties, disruptions, or delays, this could adversely affect our ability to conduct our clinical trials or perform laboratory testing services.

All of the manufacturing of SkinTE and COVID-19 testing takes place at our single U.S. facility. If regulatory, manufacturing, or other problems require us to discontinue production or laboratory operations at our current facility, we would not be able to supply SkinTE for clinical trials or operate our COVID-19 testing business, 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 or laboratory capacity or replace the facility 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 a third party or laboratory testing to our IBEX facility. Even if we could transfer manufacturing, the shift would likely be expensive and time-consuming, particularly since an alternative facility would need to comply with applicable FDA manufacturing and quality requirements and, if applicable, FDA approval would be required before any products manufactured at that facility could be used. Similarly, if we are able to transfer laboratory testing to IBEX, the transfer will likely be expensive and require CLIA registration.

We depend on our senior management team and the loss of one or more key employees or an inability to attract and retain highly skilled employees will negatively affect our business, financial condition, 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 highly dependent upon our senior management and other key personnel. Although we have entered into employment agreements with all of our executive officers, each of them may terminate their 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. In addition, 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 expect to continue 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 us. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached legal obligations, resulting in a diversion of our time and resources and, potentially, damages.

In addition, 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 declines, it may harm our ability to recruit and retain highly skilled employees. Many of our employees have become or will soon become vested in a substantial amount of our common stock or a number of common stock options. Our employees may be more likely to leave us if the shares they own have significantly appreciated in value relative to the original purchase prices of the shares, or if the exercise prices of the options that they hold are significantly below the market price of our common stock. Our future success also depends on our ability to continue to attract and retain additional executive officers and other key employees. If we fail to attract new personnel or fail to retain and motivate our current personnel, it will negatively affect our business, financial condition, and results of operations.

The ongoing COVID-19 pandemic could materially affect our operations, as well as the business or operations of third parties with whom we conduct business. Our business could be adversely affected by the effects of other future health pandemics in regions where we or third parties on which we rely have significant business operations.

COVID-19 has spread globally and the World Health Organization has declared it a pandemic. While still evolving, the COVID-19 pandemic has caused significant worldwide economic and financial turmoil and has fueled concerns that it will lead to a global recession. On March 13, 2020, the United States declared a national emergency with respect to COVID-19 and the majority of states, including the state of Utah, and local governments have since issued orders restricting the operations of non-essential businesses or restricting activities of residents. As the pandemic has evolved since March 2020, some restrictions have eased, however, if in the future there are surges of infection and hospitalization rates, more severe restrictions many be implemented by local government agencies. We are following the recommendations of local health authorities to minimize exposure risk for our employees and visitors, including requiring designated employees to work from home. The continued and prolonged implementation of restrictions by federal, state, and local authorities to slow the spread of COVID-19 have disrupted and, we expect, will continue to disrupt, our business and operations.

Depending upon the length of the COVID-19 pandemic and whether the FDA allows us to commence our clinical trials once we submit our proposed IND, our future clinical trials for SkinTE may be affected by the COVID-19 pandemic. If COVID-19 continues to spread in the U.S. and elsewhere, we may experience additional disruptions that could adversely impact our business and clinical trials, including: (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 our clinical trial, 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 the COVID-19 pandemic that may require us to change the ways in which our clinical trial is to be conducted, which may result in unexpected costs, or to discontinue the clinical trial altogether; (v) diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trial; (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 could affect the integrity of clinical trial data; (vii) risk that participants enrolled in our clinical trials will acquire COVID-19 while the clinical trial is ongoing, which could impact the results of the clinical trial, including by increasing the number of observed adverse events; (viii) 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; (ix) limitations in employee resources that would otherwise be focused on the conduct of our clinical trial because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; (x) refusal of the FDA to accept data from clinical trials in affected geographies; and (xi) interruption or delays to our clinical trial activities.

The extent to which the COVID-19 pandemic impacts our business, operations, and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including: the duration and scope of the pandemic; governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic; the impact of the pandemic on economic activity and actions taken in response; our ability to continue daily operations, including as a result of travel restrictions and people working from home; and any closures of our and our business partners’ offices and facilities.

Risks Related to Our Intellectual Property

We do not currently own any issued patents in the United States 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 noone issued patentspatent and one allowed patent application in the United States relating to any of our product candidates.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 in the United States. 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. There 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 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 or held unenforceable, such an outcome could reduce or eliminate any competitive advantage 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. If one or more of our current or future patents is challenged in U.S. or foreign courts or the United States Patent and Trademark Office (“USPTO”) or foreign patent offices, the patent(s) may be found invalid 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 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 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, or 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 manufacture of our productsSkinTE and potential product candidates, is unpatented and is maintained by us as trade secrets. To protect these trade secrets, the information is restricted to our employees, consultants, collaborators, and advisors on a need-to-know 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 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 Company 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 could impair our competitive position and 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, require us to obtain licenses from third parties, or to develop non-infringing alternatives, and subject us to substantial monetary damages. We have not obtained and do not intend to obtain any formal legal opinion regarding 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 or that do not currently contain claims of concern that may later result in issued patents that SkinTE, our product candidates, procedures, 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 have a present intention to obtain, any legal opinion regarding our freedom to practice our 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 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 or services, which could adversely affect our business and results of operations.

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

Successful challenge of any patents or future patents or patent applications 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 relating to 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 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.

Intellectual property law outside the United States 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 States laws. Third parties may challenge our patents or applications in foreign countries by initiating pre- and post-grant oppositions or 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. 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 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, whose requirements are costly to comply with, 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” or “cGTP”), labeling, record keeping, adverse-reaction reporting, inspection, and enforcement.

We believe SkinTE is appropriately regulated solely under Section 361 of the Public Health Service Act and Part 1271 of Title 21 of the Code of Federal Regulations (i.e., as a so-called “361 HCT/P”) and that, as a result, no premarket review or approval by the FDA is required. If the FDA does not agree that SkinTE meets its regulatory criteria for regulation as a 361 HCT/P, it will be regulated as a drug, device, or biological product, and we could be required to withdraw SkinTE from the market until the required clinical trials are complete and the applicable premarket regulatory clearances or approvals are obtained. Manufacturers of new drugs, biologics, and some medical devices must complete extensive clinical trials, which must be conducted pursuant to an effective IND. In addition, the FDA must review and approve a BLA or NDA before a new drug or biologic may be marketed.

A determination by the FDA that SkinTE is not a 361 HCT/P would negatively impact our commercialization of the product and substantially increase the cost to us of regulatory compliance, all of which would adversely affect our results of operations and financial condition. This same risk applies to any other product we may develop that we believe should be regulated as a 361 HCT/P.

Some of the future new products and enhancements of existing products that we expect to develop and market may not be 361 HCT/Ps, and may require premarket approval or clearance from the FDA. As a result, those product candidates would be subject to additional regulatory requirements, including premarket approval or clearance. There can be no assurance, however, that approval or clearance will be granted with respect to any such products or enhancements of existing products. Such products or enhancements may encounter significant delays during FDA’s premarket review process that would adversely affect our ability to market such products or enhancements.

Even if premarket approval or clearance are obtained from the FDA, the approvals or clearances may contain substantial limitations on the indicated uses of such products and other uses may be prohibited. Product approvals by the FDA can also be withdrawn due to failure to comply with regulatory standards or the occurrence of unforeseen problems following initial approval. Furthermore, the FDA could limit or prevent the distribution of products, and the FDA has the power to require the recall of such products. FDA regulations depend heavily on administrative interpretation, and there can be no assurance that future interpretations made by the FDA or other regulatory bodies will not adversely affect our operations. 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 initiate or take enforcement action, including, without limitation, any of the following actions or sanctions:

It is likely that the FDA’s regulation of 361 HCT/Ps and other types of products (e.g., drugs, devices, 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, the FDA could in the future adopt more restrictive interpretations of existing regulations or increase its enforcement activity, which may adversely affect our business.

Our failure 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 or registration of any product candidates, or the commercialization of our product candidates.

We are subject to regulation and inspection by the FDA for cGTP compliance, with respect to our 361 HCT/P products. To the extent that future products we develop or enhancements of existing products we develop are not regulated as 361 HCT/Ps, we will be subject to regulation under cGMP with respect to any such product candidates that are not 361 HCT/Ps. Complying with cGTP or cGMP 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 premarket approval or clearance, we must also pass a pre-approval inspection prior to FDA approval or clearance. Failure to pass a pre-approval inspection may significantly delay FDA approval or clearance 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, 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.

Additionally, we have limited experience in manufacturing products for commercial purposes and could experience difficulties in the continued manufacturing of our product candidates, either ourselves or through third-party contractors with whom we may enter strategic relationships. 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 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 necessary to achieve profitability. Our failure to develop these manufacturing processes and capabilities in a timely manner could prevent us from achieving positive results of operations and cash flows.

Even if the FDA regulates SkinTE as 361 HCT/P, 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 we may not need to submit SkinTE 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 clinical use, case studies, clinical studies, as well as other endeavors, we intend to generate such adequate substantiation for any claims we make about our products. If, however, after we commence marketing of any of our products, 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, or may be forced to alter our marketing approach in one or more jurisdictions. Any of this could materially harm our business.

Even if SkinTE meets the criteria for a 361 HCT/P, it will be subject to ongoing regulation. We could be subject to significant penalties if we fail to comply with these requirements, which would adversely affect our results of operations.

Even if SkinTE meets the criteria for a 361 HCT/P, we are still subject to numerous post-market requirements, including those related to registration and listing, record keeping, labeling, cGTP, donor eligibility, deviation and adverse event reporting, and other activities. HCT/Ps that do not meet the definition of a 361 HCT/P are also subject to these 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 have established our own processing facility, which we believe is cGTP compliant. Any failure by us to maintain cGTP compliance would require remedial actions, which could potentially include actions such as delays in distribution and sales of our product, as well as enforcement actions.

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.

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.

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 Act (“FCA”), and state law equivalents to these federal laws that are meant to protect against fraud and abuse, and there are 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, solicitation or receipt of any form of remuneration (direct or indirect, in cash or in kind) in return for the referral, use, ordering, or recommending 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 agreements 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 following 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 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 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, as well as potential exclusion from federal healthcare programs (including Medicare and Medicaid). 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 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, in order to settle allegations of FCA violations, 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 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 these laws is uncertain and subject to rapid change, especially considering 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 or federal regulatory or enforcement review of us, regardless of the outcome, would be costly and time consuming. Additionally, we cannot predict the impact of any changes in these laws, whether these changes are retroactive or will have effect on a going-forward basis only.

Our access to sensitive patient information is subject to complex regulations at multiple levels and we would be adversely affected if we fail to adequately protect this information.

We receive, maintain and utilize personal health and other confidential and sensitive data as part of the treatments we provide. 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, such as the audit program implemented by the U.S. Department of Health and Human Services under HIPAA. International laws, rules and regulations governing the use 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 a third party, could require us to expend significant resources to remediate any damage, interrupt 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 actions that could have a material adverse effect on our business, brand, reputation, cash flows, and operating results.

Our business depends on provider and patient willingness to entrust us with health related and other sensitive personal information. Events that negatively affect that trust, including incorrect or incomplete disclosure of our uses of their information, or failing to keep our information technology systems and sensitive information secure from significant attack, theft, damage, loss, 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 or remediation costs, and compensatory, special, punitive, and statutory damages, consent orders, 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.

Risks Related to Our Common Stock

An active trading market for our common stock may not continue to develop or be sustained.

Although our common stock is listed on the NASDAQ Capital Market, or NASDAQ, we cannot assure you that an active, liquid trading market for our shares will continue to develop or be sustained. If an active market for our common stock does not continue to develop or is not sustained, it may be difficult for you to sell shares quickly or without depressing the market price for the shares or to sell your shares at all.

We are pursuing a plan to advance regulatory approval of SkinTE, so delay or failure in achieving our milestones could adversely affect our prospects and the value of ownership of our common stock.

While a positive contributor to operating results, we do not plan to commit any meaningful amount of capital to scale our testing and research services business because we plan to devote our capital resources to the advancement of SkinTE through the regulatory process. We believe growth in stockholder value will follow if and when we achieve milestones in the process of pursuing our IND and BLA for SkinTE. To the extent that we encounter problems or delays in this process, our growth prospects and stockholder value could be materially, adversely affected.

The trading price of the shares of our common stock has been and may continue to be volatile, and you may not be able to resell some or all your shares at a desired price.

Our stock price has been highly volatile during the 12-month period ended February 29, 2020,28, 2021, with closing stock prices ranging from a high of $16.43$1.85 per share to a low of $1.35$0.61 per share. The stock market in general, and the market for biotech companies in particular, have experienced extreme volatility that, at times, has been unrelated to the operating performance of particular companies. Because of this volatility, investors in our stock may not be able to sell their common stock at or above the price paid for the shares. The market price for our common stock may be influenced by many factors, including:

In addition, in the past, when the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against the company that issued the stock. Defending such litigation could result in substantial defense costs and divert the time and attention of our management, which could seriously harm our business. As discussed above under “Item 3. Legal Proceedings,” we are currently in the early stages of a stockholder class action lawsuit and, to the extent we incur substantial costs to defend or resolve that lawsuit, our ability to fund our business will be diminished, which would adversely affect our operations and financial condition.

We are the subject of an SEC investigation, which could result in litigation, government investigations and enforcement actions that could have a material adverse impact on our operations and financial condition.

On September 7, 2018, the SEC filed a complaint in the U.S. District Court for the Southern District of New York (SEC v. Honig et al., No. 1:18-cv-01875 (S.D.N.Y. 2018)) alleging that certain persons, including John Stetson, our former Chief Financial Officer and Chief Investment Officer, Barry Honig, who is also a current 5% shareholder of the Company, and Michael Brauser, who is also a current 5% shareholder of the Company, manipulated the price of securities of three public companies (none of which is PolarityTE). This complaint, which was amended on March 8, 2019 (as amended, the “Complaint”), alleges that the defendants violated the anti-fraud and other provisions of the Securities Act, the Exchange Act and SEC rules promulgated thereunder by writing, or causing to be written, false or misleading promotional articles, engaging in a variety of other manipulative trading practices as well as filing false reports of their beneficial ownership or failure to file reports of their beneficial ownership when required to do so.

In October 2018, we received a document request and inquiries from the SEC relating to subjects addressed in the short seller reports and cooperated fully by providing the SEC with all information relevant to their requests. On March 1, 2019, we received a subpoena from the SEC requesting additional documents related to, among other things, (i) communications and agreements between us and, among others, John Stetson, Barry Honig and Michael Brauser, (ii) the transaction pursuant to which Majesco Entertainment Company acquired PolarityTE NV and our current regenerative medicine business, (iii) the performance of and communications with regulators regarding SkinTE, our lead product, and (iv) any promotion of the Company or its securities. On March 4, 2019, we obtained from the SEC a copy of the formal order of investigation of the Company and its affiliates with respect to possible violations of the federal securities laws, including, among other things, the anti-fraud provisions of the Securities Act and the Exchange Act with respect to the Company’s public disclosures, the beneficial ownership reporting provisions of the Exchange Act and the anti-price manipulation provisions of the Exchange Act. We intend to fully cooperate with the SEC regarding their March 2019 subpoena and this ongoing investigation. Since March 2019, we have received four additional subpoenas seeking documents on these and other topics. The documents and information requested in the subpoenas include materials concerning (i) the circumstances under which the Company placed Denver Lough, former Chief Executive Officer, and Naveen Krishnan, former Vice President of Analytics, on paid administrative leave, (ii) termination and separation agreements with former employees, and (iii) certain commercialization metrics included in Company disclosures. We have already provided a substantial amount of documents and information to the SEC in response to these requests and expect to make additional productions in response to the subpoenas. We met with the SEC on February 11, 2020, to review the status of the investigation and completion of the document production.

As a result of the SEC investigation, we could be subject to additional stockholder litigation, government inquiries or enforcement actions that could name us, our affiliates, or others. While we will not tolerate stock manipulation and will continue to report suspected wrongdoing to authorities, we cannot predict whether any of these will arise or, if they do, the possible outcomes. Stockholder litigation, government inquiries or enforcement actions could adversely affect our reputation, result in significant expenditures, including legal expenses, and potentially result in significant fines, penalties or other remedies against us, which could have a material adverse effect on our results of operations and financial condition. Although we maintain insurance that may provide coverage for some of these expenses and costs, and we have given notice to our insurers of the claims, there is risk that the insurers will rescind or otherwise not renew the policies, that some or all of the claims will not be covered by such policies, or that, even if covered, our ultimate liability will exceed the available insurance.

Our stock price may also be negatively affected by the SEC investigation, any negative press or other coverage we receive as a result thereof and the uncertainty surrounding the result of any of these developments, which could adversely affect our ability to raise capital to fund future operations, result in the loss of potential business opportunities, be exploited by our competitors, undermine the confidence that hospitals and doctors, key potential adopters of our products, have in us and our technology, cause concern to our current or potential customers, and make it more difficult to attract and retain qualified personnel and business partners, any of which would materially harm our financial condition, results of operations and prospects. We expect management will continue to devote significant time, attention and resources to these matters and any additional matters that may arise, which could have a material adverse impact on our commercial development, results of operations and financial condition.

Future sales of our common stock in the public market could cause our stock price to fall.

Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales might occur, could depress the market price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. In addition, certain future sales of our equity securities may trigger a downward adjustment in the exercise price of 10,638,298 common stock purchase warrants we issued in February 2020 with an original exercise price of $2.80 per share, which could apply additional pressure to depress the market price of our common stock because of the lower warrant exercise price. As of March 6, 2020,25, 2021, we had 38,358,45080,319,378 shares of common stock outstanding, all of which, other than shares held by our directors and certain officers and affiliates, were eligible for sale in the public market, subject in some cases to compliance with the requirements of Rule 144, including the volume limitations and manner of sale requirements. As of December 31, 2019,March 25, 2021, we also had a significant number of securities convertible into, or allowing the purchase of, our common stock, including 4,529,98819,314,143 warrants to purchase shares of our common stock, 6,079,210 options and rights to acquire shares of our common stock that are outstanding under our equity incentive plans, and 5,353,2574,271,350 shares of common stock reserved for future issuance under our equity incentive plans, including our 2020 Stock Option and Incentive Plan. Pursuant to a Purchase Agreement that we have entered with Keystone Capital Partners, LLC (“Keystone”), Keystone has agreed to purchase up to $25.0 million of shares of our common stock, subject to certain limitations, at our direction from time to time during the 36-month term of the Purchase Agreement. As of February 29, 2020, we have sold 270,502 shares of our common stock under the Purchase Agreement generating total gross proceeds of $725,000 and have up to $24,275,000 available for future sale under the Purchase Agreement.plans.

Our Restated Certificate of Incorporation, our Restated Bylaws, our Rights Agreement 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:

We also entered into a rights agreement (the “Rights Agreement”), dated as of November 7, 2019, with Equity Stock Transfer, LLC, as rights agent. Generally, the Rights Agreement works by imposing a significant penalty upon any person or group (including a group of persons that are acting in concert with each other) that acquires 10% or more (or 20% or more in the case of a “Passive Institutional Investor,” as defined in the Rights Agreement) of our common stock without the approval of the Board. As a result, the overall effect of the Rights Agreement may be to render more difficult or discourage a tender or exchange offer or other acquisition of our common stock that is not approved by the Board. The Rights Agreement could reduce the price that stockholders might be willing to pay for shares of our common stock in the future. Furthermore, the anti-takeover provisions of the Rights Agreement may make it more difficult to replace management even if the stockholders consider it beneficial to do so. The Rights Agreement does not prevent the Board from considering any offer that it considers to be in the best interest of its stockholders.

In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions by prohibiting Delaware corporations from engaging in specified business combinations with particular stockholders of those companies. These provisions could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent changes in our management or limit the price that investors are willing to pay for our stock.

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 price of our common stock, if any, will provide a return to investors in this offering.

A material weakness in our internal control over financial reporting could have a material adverse effect on our business, results of operations, financial condition and liquidity.

As discussed in “Item 9A. Controls and Procedures,” below, we have identified a material weakness in our internal control over financial reporting through our evaluation of our controls at December 31, 2019. In 2019 we failed to execute controls relating to reconciliation procedures. In addition, we did not have a sufficient level of precision in our review procedures to detect potentially material errors in accrual and related accounts.

A material weakness could result in a material misstatement of our annual or interim financial statements requiring a restatement of the affected financial statements. A material misstatement and resulting restatement entail numerous risks, including the following:

Each of these risks described above could have a material adverse effect on our business, results of operations, financial condition, and liquidity.

We incur costs and demands upon management because of being a public company.

As a public company listed in the United States, we are incurring, and will continue to incur, significant legal, accounting, and other costs. These costs could negatively affect our financial results. In addition, changing laws, regulations and standards relating to corporate governance and public disclosure, including regulations implemented by the SEC and stock exchanges, may increase legal and financial compliance costs, and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If, notwithstanding our efforts to comply with new laws, regulations, and standards, we fail to comply, regulatory authorities may initiate legal proceedings against us, and our business may be harmed.

Failure to comply with these rules also might make it more difficult for us to obtain some types of insurance, including directors’ and officers’ liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees of our board of directors or as members of senior management

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

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 at 1960 S. 4250 West, Salt Lake City, UT.Utah. The initial term of the lease is five years, and it expires on November 30, 2022. We have a one-time option to renew for an additional five years. The initial base rent under this lease is $98,190 per month ($0.55 per sq. ft.) for the first year of the initial lease term and increases 3.0% per annum thereafter.

In May 2018, we purchased two parcels of real property in Cache County, Utah, consisting of approximately 1.75 combined gross acres of land, together with the buildings, structures, fixtures, and personal property located at 1072 West RSI Drive, Logan, Utah. This facility is used for the operation of our pre-clinical contract services business.

Item 3. Legal Proceedings.

Shareholder Litigation

On June 26, 2018, a class action complaint alleging violations of the Federalfederal securities laws was filed in the United StatesU.S. District Court, District of Utah, by Jose Moreno against the Company and two directors of the Company, Case No. 2:18-cv-00510-JNP (the “Moreno Complaint”). On July 6, 2018, a similar complaint was filed in the same court against the same defendants by Yedid Lawi, Case No. 2:18-cv-00541-PMW (the “Lawi Complaint”). BothOn November 28, 2018, the court consolidated the Moreno Complaint and Lawi Complaint allegecases under the caption In re PolarityTE, Inc. Securities Litigation with Case No. 2:18-cv-00510 (the “Consolidated Securities Litigation”). The gravamen of the consolidated complaint in the Consolidated Securities Litigation was that the defendants made statements or were responsible for, disseminatingdisseminated information to the public through reports filed with the Securities and Exchange CommissionSEC and other channels that contained material misstatements or omissions in violation of Sections 10 and 20(a) of the Exchange Act and Rule 10b-5 adopted thereunder. Specifically, both complaints allegethereunder, specifically that the defendants misrepresented the status of one of the Company’s patent applications while touting the unique nature of the Company’s technology and its effectiveness. Plaintiffs are seeking damages suffered by them and the class consisting of the persons who acquired the publicly traded securities of the Company between March 31, 2017, and June 22, 2018. Plaintiffs have filed motions to consolidate and for appointment as lead plaintiff. On November 28, 2018, the Court consolidated theMoreno andLawi cases under the captionIn re PolarityTE, Inc. Securities Litigation(the “Consolidated Securities Litigation”), and requested the appointment of the plaintiff inLawi as the lead plaintiff. On January 16, 2019, the Court granted the motion of Yedid Lawi for appointment as lead plaintiff, and on February 1, 2019, the Court granted the lead plaintiff’s motion for approval of lead counsel and liaison counsel. The Court also ordered that the lead plaintiff file and serve a consolidated complaint no later than 60 days after February 1, 2019. The Lead Plaintiff filed a consolidated complaint on Aril 2, 2019, and asserted essentially the same violations of Federal securities laws recited in the original complaints. The Company filed a motion to dismiss the consolidated complaint on June 3, 2019. Plaintiffs’ opposition to the Company’s motion to dismiss was filed on August 2, 2019, and the Company filed a reply to the opposition on September 13, 2019. AFollowing a hearing on the Company’s motion to dismiss was heldthe court issued an order on November 19, 2019; no order has been issued to date. At this early stage of22, 2020, dismissing the proceedingscomplaint in the Company is unable to make any prediction regarding the outcome of the litigation.Consolidated Securities Litigation with prejudice.

In November 2018, a shareholder derivative lawsuit was filed in the United StatesU.S. District Court, District of Utah, with the captionMonther v. Lough, et al., case no. 2:18-cv-00791-TC, alleging violations of the Exchange Act, breach of fiduciary duty, and unjust enrichment on the part of certain officers and directors based on the facts and circumstances recited in the Consolidated Securities Litigation. On November 26, 2018, the court issued an order staying all proceedings until after the disposition of motions to dismiss the Consolidated Securities Litigation. After disposition of the Consolidated Securities Litigation described above the parties to the shareholder derivative lawsuit agreed to dismiss the lawsuit without prejudice, and the lawsuit was dismissed on January 29, 2021.

Other Matters

In the ordinary course of business, 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 noted above, atAt December 31, 2019,2020, we were not party to any legal or arbitration proceedings that may have significant effects on our financial position 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 for 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 “PTE.”

At FebruaryMarch 29, 2020,2021, there were approximately 111104 holders of record of our common stock.

The following table provides information on our compensation plans at December 31, 2020, under which equity securities are authorized for issuance.