UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission File No. 000-51128001-32404

POLARITYTE, INC.

(Exact name of registrant as specified in its charter)

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 [  ] ☐ 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, 2019,2021, was $79,393,237.$80,190,567.

The outstanding number of shares of common stock as of March 6, 2020,25, 2022, was 38,358,450.89,498,691.

Documents incorporated by reference: None.Portions of the registrant’s definitive proxy statement for the Special Meeting of Stockholders called for May 12, 2022 (2022 Proxy Statement) are incorporated into Part III hereof. The 2022 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, 2021.

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.

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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. Our first regenerative SkinTEtissue product is commercially availableSkinTE. On July 23, 2021, we submitted an investigational new drug application (“IND”) for SkinTE to the repair, reconstruction, replacement,U.S. Food and supplementationDrug Administration (the “FDA”) through our subsidiary, PolarityTE MD, Inc. (“PTE-MD”), as the first step in the regulatory process for obtaining licensure for SkinTE under Section 351 of skinthe Public Health Service Act. The FDA subsequently issued clinical hold correspondence to us identifying certain issues that needed to be addressed before the IND could be approved. We provided responses to the FDA, and on January 14, 2022, the FDA notified us that the clinical hold had been removed. The IND approval enables us to commence the first of two expected pivotal studies needed to support a biologics license application (“BLA”) seeking a chronic cutaneous ulcer indication for SkinTE. Our first planned pivotal study under our IND is a multi-center, randomized controlled trial evaluating SkinTE in patients who have a need forthe treatment of acutediabetic foot ulcers classified as Grade 2 in the Wagner classification system (“Wagner 2 DFUs”) entitled “Closure Obtained with Vascularized Epithelial Regeneration for DFUs with SkinTE,” or chronic wounds, burns, surgical reconstruction events, scar revision, or removal“COVER DFUs Trial.” We plan to enroll up to 100 patients at up to 20 sites in the U.S. in the COVER DFUs Trial, which will compare treatment with SkinTE plus the standard-of-care to the standard-of-care alone. The primary endpoint is the incidence of dysfunctional skin grafts. We intendDFUs closed at 24 weeks. Secondary endpoints include percent area reduction (“PAR”) at 4, 8, 12, 16, and 24 weeks, improved quality of life, and new onset of infection of the DFU being evaluated. As we pursue the first study, we plan to continueengage in discussions with the FDA regarding the design and implementation of the second pivotal study.

Beginning in 2017 we developed internally a laboratory and research capability to focus on the SkinTE product offering and 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 IBEX, we also offer preclinical research services to unrelated third parties on a contract basis.

Our Goals and ObjectivesSkinTE

We aspire to deliver products from 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 goal through the development and commercialization of SkinTE. Our current plan is to:

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 defense against a wide spectrum of common pathogens encountered on a regular basis. Biosynthesis of melanin in the skin reduces the harmful effects of ultraviolet light. Skin is a ready source of vitamin D.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 1/10,000th100th 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.

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

Clinically, we believe SkinTE is highly differentiated from current treatment alternatives in these hard-to-treat wound types. In real-world experience and data from preliminary studies conducted to date, we believe that SkinTE has covered exposed critical structures, completely filled in wound depth including tunneling, and ultimately provided complete and durable wound closure with the regenerated tissue having many of the important characteristics of native skin such as pliability, strength, sensation, ability to sweat, and hair growth. In contrast to a multi-staged approach combining numerous treatments in an algorithm dictated by wound progression, SkinTE can be applied directly into deep wounds with exposed structures, typically requires only a single application in the vast majority of cases and, unlike 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 patient and converts 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 future clinical trials conducted under our IND demonstrate outcomes similar to those observed in real-world experience and preliminary clinical studies, we believe that SkinTE has the potential to shift practice patterns, accelerate adoption, and capture a significant portion of these hard-to-treat wound markets.

Clinical Trials

Under the SkinTE IND

Our IND for SkinTE was opened in January 2022. Our first planned pivotal study under our IND is a multi-center, randomized controlled trial evaluating SkinTE in the treatment of diabetic foot ulcers classified as Grade 2 in the Wagner classification system (“Wagner 2 DFUs”) entitled “Closure Obtained with Vascularized Epithelial Regeneration for DFUs with SkinTE,” or “COVER DFUs Trial.” We plan to enroll up to 100 patients at up to 20 sites in the U.S. in the COVER DFUs Trial, which will compare treatment with SkinTE plus the standard-of-care to the standard-of-care alone. The primary endpoint is the incidence of DFUs closed at 24 weeks. Secondary endpoints include percent area reduction (“PAR”) at 4, 8, 12, 16, and 24 weeks, improved quality of life, and new onset of infection of the DFU being evaluated. As we pursue the first study, we plan to engage in discussions with the FDA regarding the design and implementation of the second pivotal study.

On June 25, 2021, we entered into a statement of work with a contract research organization to provide services for the clinical trial described in the IND at a cost of approximately $6.5 million consisting of $3.1 million of service fees and $3.4 million of estimated costs. The estimate increased $1.4 million from the $5.1 million estimated at September 30, 2021, due to additional costs expected for longer trial subject follow up (6 months versus 3 months) and a corresponding increase in trial subject visits. In July 2021 we prepaid 10% of the total cost recited in the original work order, or $0.5 million, which will be applied to payment of the final invoice under the work order. Over the approximately three-year term of the clinical trial the service provider shall submit to us for payment invoices on a monthly basis for units of work stated in the work order that are completed and billable expenses incurred.

Pre-IND

PolarityTE conducted several clinical trials before it filed its IND for SkinTE, was registeredwhich were conducted on a post-marketing basis with SkinTE as a 361 HCT/P. These clinical trials include the United States Food and Drug Administration (FDA) in August 2017, and is commercially available for the repair, reconstruction, replacement, and regeneration 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.following:

Clinical Trials

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. Data from the trial was published in the Journal of Burn Care & Research in September 2020. Eight patients with deep-partial/full thickness burns had a portion of their wounds treated with SkinTE and the remainder of their burn treated with split-thickness skin grafting. The resultsSkinTE treated wounds had graft take and achieved closure by their last follow-up with a single application. A single adverse event at a SkinTE harvest site secondary to a dehiscence (technical error) occurred requiring secondary closure at the time of the interim analysispatient’s definitive grafting procedure. There were accepted for a podium presentation atno other adverse events pertaining to the American Burn Association 52^nd Annual Meeting that was scheduled to begin March 17, 2020, butSkinTE applications in 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 Meeting in September 2019.trial.

Diabetic Foot Ulcer (DFU) Trials

DFUs are chronic wounds and represent one of the most costlycostliest, and medically significant, health related morbidities encountered during a patient’s lifetime. The estimated annual USU.S. 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 inAfter that trial, we conducted a multicenter, randomized controlled trial evaluating SkinTE versusplus standard of care (SOC) versus SOC alone in treatment of DFU.diabetic foot ulcers [NCT03881254] (the “DFU RCT”). In July 2021, we announced final data from the DFU RCT. The size of the study is 102was 100 patients who were evaluated across 13 sites, with 50 participants receiving SkinTE plus SOC and the trial is actively enrolling patients.50 receiving SOC alone. The primary endpoint iswas percentage of ulcers closed at 12 weeks. Secondary endpoints include qualityA secondary endpoint was percent area reduction (PAR) at 4, 6, 8, and 12 weeks.

The trial met the primary endpoint of life, returnwound closure at 12 weeks and secondary endpoint of function, pain,Percent Area Reduction (PAR) assessed at 4, 6, 8, 10, and cost-effectiveness. We are hopeful that we will have initial data from12 weeks. Final analysis of the trial that we can make public inDFU RCT shows the second quarter of 2020.following:

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

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 wePolarityTE 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.VLU [NCT03881267] (“the “VLU-RCT”), but decided in the first quarter of 2021 to suspend that trial after 29 patients were enrolled because we believed that our resources would be better used in future clinical trials conducted under an open IND that can be used in our eventual planned BLA submission. In February 2022, we announced final data from the VLU RCT. The size29 patients who were evaluated across 10 sites, with 14 participants receiving SkinTE plus SOC and 15 receiving SOC alone. The primary endpoint was percentage of ulcers closed at 12 weeks. A secondary endpoint was percent area reduction (PAR) at 4, 6, 8, and 12 weeks.

The trial met the primary endpoint of wound closure at 12 weeks and secondary endpoint of Percent Area Reduction (PAR) assessed at 4, 6, 8, 10, and 12 weeks. Final analysis of the study is 102 patientsVLU RCT shows the following:

Mean (SD) values for PAR at weeks 4, 6, 8, 10, 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 available in the second half of 2020.12 by treatment group

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

Our IND for SkinTE was accepted by the FDA in January 2022, and this enables us to commence the first of two expected pivotal studies needed to support a BLA for a chronic cutaneous ulcer indication for SkinTE. We expect to begin enrolling subjects in the COVER DFUs Trial in the second quarter of 2022. We also expect to engage with the FDA during 2022 regarding the design of the second pivotal study we plan to conduct under our open IND.

Products subject to BLA requirements must be licensed under the Public Health Service Act to be marketed. In order to be licensed, 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 chemistry, manufacturing, and controls (CMC) and other manufacturing information, and the applicant must pass an FDA pre-license inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with the FDA’s current good manufacturing practices (“cGMP”) requirements. Satisfaction of FDA licensure requirements typically takes several years, and the actual time required may vary substantially based on the type, complexity, and novelty of the product. PolarityTE cannot be certain that any BLA approvals for its products will be granted on a timely basis, or at all.

The steps for obtaining FDA approval of a BLA to market a product in the U.S. ordinarily include:

Selling SkinTE

In 2018, we completed the first two stages of our SkinTE commercial roll-out strategy. The first was the limited market release phase, which focused on generating use by early adopters, often in the contextPreclinical tests typically include laboratory evaluations of product evaluations, withchemistry, toxicity, and formulation, as well as animal studies, and an IND sponsor must submit the goal of securing clinical data and experience to prepare the organization and product 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 for specific wounds, and improving 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.

We have observed that the sales process is affected by several factors, including the receptivenessresults of the physicianpreclinical tests, together with manufacturing information and analytical data, to considerthe FDA as part of the IND. Even though our IND for SkinTE is open, the FDA can request additional information and then adopt a new therapeutic approach, facility administrative approval where required,testing pertaining to the nature and type of wounds treated at a target account,product and the incidence of wound care cases at target accounts. We also believeprocedures for manufacturing and delivering the product.

Our preliminary experience indicates 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 begin the sales process with introductions to physicians whose patients may benefit from SkinTE. After a physician inpatients with immediately life-threatening conditions and other serious diseases or conditions. In 2009, the system is willingFDA implemented new regulations related to use the product, the hospital or large facility usually requires an assessment by its Value Analysis Committee (VAC) prior to commencing commercial SkinTE use. This can be a formal and lengthy administrative process, and our experience shows the length of the process varies widely from 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.

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 working closely with our customers to ensure that pricing is not a barrier to broad adoption of SkinTE across a variety of wounds and points of care.

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,Expanded Access Investigational New Drug Applications (“Expanded Access INDs”), which are billed foroften colloquially referred to as “compassionate use,” 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, andpertain 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 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 an investigational drug or biologic when the primary purpose is to diagnose, monitor, or treat a patient’s disease or condition, rather than to obtain the kind of information about the drug that is generally derived from clinical trials. The FDA has proposed several processes for obtaining Expanded Access INDs, which we will evaluate for potential implementation now that the IND for SkinTE is open. Under FDA regulations the amount that may be charged for SkinTE used under an Expanded Access IND must be authorized by the FDA and, if authorized at all, may be limited to our direct costs of manufacture. We believe, however, that an Expanded Access IND may enable us to provide SkinTE to providers treating persons with life-threatening or serious diseases and conditions, and thereby maintain existing, and develop new, relationships with physicians in the office. Of the providers that used SkinTE in the officewound care industry.

Potential Product Enhancements 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.Additions

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 with alpha ‘N’ to denote zero value of the product along with Revenue Code 0636 when SkinTE is bundled within 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 development projects reflects that priority.

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 effort for several reasons. Using one harvest for multiple deployments improves patient treatment when:

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

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 designsstage.

SkinTE Cryo

SkinTE Cryo allows PolarityTE to offer multiple deployments from one original harvest through a cryopreservation process. Using one harvest for multiple deployments may improve patient treatment when a patient is susceptible to multiple chronic wounds, the deviceprovider suspects a patient might require a second deployment of SkinTE due to past non-compliance with rehab protocols, or the provider elects to use a staged deployment on a patient with a viewlarge wound due to what users will find most conducive to applicationwound location or other therapeutic circumstances. SkinTE Cryo is in a hospital or clinic. Thisthe development stage and 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.

OsteoTEOther Tissue Regeneration Products

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 we will investigateintend to apply our business and evaluate thesefinancial resources to the SkinTE IND and BLA and development work on SkinTE POC, and we have at this time put on hold further work on other product opportunities as time and resources permit given our focus on commercializing SkinTE and the product candidates described above.development.

We believe a number of the product candidates described above will be suitable for marketing via the 361 HCT/P regulatory pathway. If we successfully register and list a product with the FDA using the 361 HCT/P pathway, we may deploy a commercialization strategy similar to that of SkinTE or 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

Manufacturing

We have designed and developedPolarityTE maintains at its facility in Salt Lake City, Utah, manufacturing processes and quality systems that allow usit 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 havePolarityTE validated ourits manufacturing process as being aseptic. All SkinTE is manufactured within an ISO 5 isolator located within an ISO 7 cleanroom. OurPolarityTE’s processes are designed and validated to prevent the spread of communicable disease, and to prevent cross-contamination between samples. Oursamples, and its quality systems comply with current Good Tissue Practices (“cGTP”) under 21 C.F.R. Part 1271.

We have designed our scalablePolarityTE is modifying its manufacturing process to allow us to be flexiblepractices and agile in real-time, while allowing us to shift resources daily to meet acute production needsfacility so that it complies with cGMP under requirements of the Federal Food, Drug and Cosmetic Act, as well as respondunder 21 C.F.R. Parts 210 and 211, and other applicable regulations, which are in addition to larger factors, including market forces, multi-facility buildouts, and changes in rapidly evolving technology platforms. In designing our products and systems, we focused both on being able to meet market demand and to scale manufacturing.cGTP referenced above.

We have significant research facilities and this resource is beneficial to the work we are doing in our development projects. We also offer research services 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.Suppliers

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

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

Intellectual Property

As we advance our platform technology,technologies, 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,technology, our Composite-Interfacing, Biomaterial Accelerant Substrate (“CIBAS”) Technology,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 issued on February 23, 2021; U.S. Patent No. 11,000,629 issued on May 11, 2021; U.S. Patent No. 11,266,765 issued on March 8, 2022; and U.S. Application No. 17/326,734 filed on May 21, 2021. Each of U.S. Patent Nos. 10,926,001; 11,000,629; and 11,266,765 have an estimated expiration date of November 30, 2035.

Patent terms extend for varying periods of time according to the date of patent filing or grant and the pertinent law in the various countries 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 theprovide preclinical research services to third parties. In 2021 all of IBEX’ business as IBEX to advance our product development and deliver preclinical researchactivity was providing services to third parties. The business consists of a “good laboratory practices” (GLP) compliant preclinical research facility that complies with Good Laboratory Practices and is USDA registered, and includes a 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. In March 2022, we reached a non-binding understanding with an unrelated third party that contemplates the sale of IBEX and the real property used in the operation of IBEX. The potential sale is subject to a number of contingencies. Even though the proposed sale may not materialize, we are exploring our options with respect to IBEX, which is likely to result in some other disposition or winding up of the business in 2022.

Historically, Arches Research offersoffered 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 art equipment and sophisticated research staff that provideThere was 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 regulationssubstantial surge in COVID-19 testing throughout the United States as a result of the COVID-19 pandemic, which began in the spring of 2020. In 2020 and other countries regulate2021, Arches had equipment and staff capable of performing polymerase chain reaction testing for COVID-19. Arches had the manufacturing, approval, labeling, packaging, storage, record-keeping,opportunity to use its 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 it began providing COVID-19 testing services on May 27, 2020.

Arches’ primary customer for testing services was an organization controlling multiple long-term care and laboratory facilities in New York State and surrounding areas. Beginning in April 2021 there was a significant loss of products such as thoseCOVID-19 testing revenues due to the loss of Arches’ major testing customer in the first quarter of 2021. Subsequent efforts to find new business to replace the lost testing business were not successful and we have developed and are developing. Any product we are developing must comply withmade the standards required for the product category under which the product is classified by such government authorities, laws, and regulations.decision to cease COVID-19 testing in August 2021.

Government Regulation

FDA Regulation of Tissue-Based Productsand Marketing Approval

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 byU.S., 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, orregulates biological products under Section 351 of the PHS Act (42 U.S.C. § 262) and the federalFederal Food, Drug, and Cosmetic Act (the “FD&C Act”(“FDCA”). Under this two-tiered framework, certain higher risk HCT/Ps are regulated as new drugs, biologics, or medical devices. Manufacturers of new drugs, biologics, and some medical devices must complete extensive clinical trials, which must be conducted pursuant to an effective investigational new drug application (“IND”) or investigational device exemption (“IDE”). In addition, the FDA must review and approve a BLA or NDA before a new drug or biologic may be marketed. For most medical devices, including novel or high-risk medical devices, 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 1271various federal regulations. These FDA-regulated products are also subject to state and local statutes and regulations, as well as applicable laws or regulations in foreign countries. The FDA, and comparable regulatory agencies in state and local jurisdictions and in foreign countries, impose substantial requirements on the research, development, testing, manufacture, quality control, labeling, packaging, storage, distribution, record-keeping, approval, post-approval monitoring, advertising, promotion, marketing, sampling, and import and export of Title 21FDA-regulated products. Failure to comply with the applicable requirements at any time during the development process, approval process, or after approval may subject an applicant to administrative or judicial sanctions, suspension of development or marketing, or non-approval of product candidates. These sanctions could include a clinical hold on clinical trials, FDA’s refusal to approve pending applications or related supplements, withdrawal of or restrictions on an existing approval or licensure, untitled or warning letters, product recalls, product seizures, import detentions or export restrictions, total or partial suspension of production or distribution, injunctions, fines, restitution, disgorgement, civil penalties, or criminal prosecution. Such actions by government agencies could also require us to expend a large number of resources to respond to the Codeactions. Any agency or judicial enforcement action could have a material adverse effect on us. We are not sure whether legislative changes will be enacted, or whether the FDA regulations, guidance, or interpretations will be changed, or what the impact of Federal Regulations (so-called “361 HCT/Ps”), no premarket FDA reviewany such changes may be on the marketing approvals or licensures, or the prospects thereof, for safetyour products.

IND and effectiveness underClinical Trials of Drug and Biological Products

Prior to commencing a human clinical trial of a drug device, or biological product, marketingan IND application, which contains the results of preclinical studies and relevant clinical studies or other human experience along with other information, such as information about product chemistry, manufacturing, and controls and a proposed protocol, must be submitted to the FDA. An IND is required.a request for authorization from the FDA to administer an investigational drug or biological product to humans. The processorIND automatically becomes effective 30 days after receipt by the FDA, unless the FDA within the 30-day time period raises concerns or questions about the conduct of the 361 HCT/Pclinical trial. In such a case, the IND sponsor must resolve any outstanding concerns with the FDA before the clinical trial may begin. A separate submission to the existing IND must be made for each successive clinical trial to be conducted during development of the drug or biologic.

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

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

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

During the development of a new drug or biologic, sponsors are given opportunities to meet with the FDA at certain points. These points may be prior to submission of an IND, at the end of Phase 2 clinical trials, and before a New Drug Application (“NDA”) or Biologics License Application (“BLA”) is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the end-of-Phase 2 clinical trials meetings to discuss their Phase 2 clinical trials results and present their plans for the pivotal Phase 3 registration trial that they believe will support approval of the new drug/biologic.

Disclosure of Clinical Trial Information

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

The BLA Approval Process

SkinTE is an autologous product, meaning it is derived from the cells and tissues of the individual to be treated with the product. Based on the FDA’s feedback to the Company, SkinTE will not be marketed in the U.S. until it is licensed by the FDA comply with regulations regarding labeling, record keeping, donor eligibility and screening and testing,through the BLA approval process. The process required by the tissue in accordance with established current Good Tissue Practices (“cGTP”), and investigate and, in certain circumstances, report adverse reactions or deviations.FDA to obtain licensure generally involves the following:

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

We believeThe FDA has 60 days from its receipt of a BLA to determine whether the application will be accepted for filing based on the agency’s threshold determination that SkinTEit is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in- depth review. The FDA has agreed to certain performance goals in the review of BLAs. Most applications for standard review BLA products are reviewed within ten months of submission, and OsteoTE qualify as 361 HCT/Ps. Othermost applications for priority review BLA products we are developing are being evaluated with respect to regulatory classification, and we will prepare for any pathway of manufacturing or regulation that is required.

All establishments that manufacture 361 HCT/Ps must register and list their HCT/Ps with the FDA’s Center for Biologics Evaluation and Research (“CBER”) within five days after commencing operations. In addition, establishments are required to update their registration annually in December or within 30 days of certain changes, and submit changes in HCT/P listing at the time of orreviewed within six months of submission. The review process may be extended by the FDA for three additional months to consider certain late-submitted information, or information intended to clarify information already provided in the submission. Even if such change. Establishmentsadditional information is submitted, the FDA may ultimately decide that manufacture 361 HCT/Psthe BLA does not satisfy the criteria for approval.

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

Before approving a BLA, the FDA will know that they are registered intypically inspect one or more clinical sites to assure compliance with 21 C.F.R. § 1271.10(a)GCP. The FDA may also inspect preclinical study sites to verify compliance with Good Laboratory Practice (“GLP”) requirements prior to approval. Additionally, the FDA will inspect the facility or the facilities at which the BLA product is manufactured. The FDA will not approve the BLA unless compliance with cGMP requirements is satisfactory, and the BLA contains data that provide substantial evidence that the product is safe, pure, and potent for the indication studied.

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

The cost of preparing and submitting a BLA is substantial. Furthermore, each BLA submission requires a user fee payment (approximately $3.1 million in fiscal year 2022), unless a waiver or exemption applies. Waiver of the fee may be sought on several grounds, including that the applicant is a small business submitting its first human drug application to the FDA for review, but there is no assurance we will qualify or 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,waiver if and methods usedwhen we file a BLA in the manufacturefuture. The manufacturer or sponsor of HCT/Ps, including without limitation, recovery, donor screening, donor testing, processing, storage, labeling, packaging,an approved BLA is also subject to annual establishment fees.

An approval letter authorizes commercial marketing and distribution of 361 HCT/Ps.

the licensed product with specific prescribing information for specific indications. As a condition of BLA approval, the FDA inspectionmay require substantial post-approval testing and enforcement with respectsurveillance to establishments described in 21 C.F.R. Part 1271 includes inspections conducted, as deemed necessary, to determinemonitor the product’s safety, purity, and potency and may impose other conditions, including post-market studies, labeling restrictions, or other risk evaluation and mitigation strategies, which can materially affect the product’s potential market and profitability. Once granted, product approvals may be withdrawn if compliance with the applicable provisions and may include, butregulatory standards is not limitedmaintained, or problems or safety issues are identified following initial marketing.

Changes to an assessmentsome of the establishment’sconditions established in an approved application, including changes in indications, labeling, device components, or manufacturing processes or facilities, equipment, finishedrequire submission and unfinished materials, containers, processes, HCT/Ps,FDA approval of a new BLA or BLA supplement before the change can be implemented. A BLA supplement for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the same procedures labeling, records, files, papers, and controls requiredactions in reviewing BLA supplements as it does in reviewing BLAs.

Biosimilar Exclusivity

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

A reference biologic is granted twelve years of exclusivity from the time of first licensure of the reference product, and no application for a biosimilar may be submitted for four years from the date of licensure of the reference product. The first biologic product submitted under the abbreviated approval pathway that is determined to be maintained under 21 C.F.R. Part 1271. Such inspections can occur at any timeinterchangeable with the reference product may obtain exclusivity against a finding of interchangeability for other biosimilars for the same condition or without written notice at such frequency asuse for the lesser of (i) one year after the first commercial marketing of the first interchangeable biosimilar; (ii) eighteen months after the first interchangeable biosimilar is determinedapproved if there is no patent challenge; (iii) eighteen months after resolution of a lawsuit over the patents of the reference biologic in favor of the first interchangeable biosimilar applicant; or (iv) 42 months after the first interchangeable biosimilar’s application has been approved if a patent lawsuit is ongoing within the 42-month period.

Post-Marketing Requirements for FDA Regulated Products

Following licensure of a new product, the company and the licensed products are subject to continuing regulation by the FDA, state, and foreign regulatory authorities including, among other things, monitoring and record-keeping activities, reporting adverse experiences to the applicable regulatory authorities, providing regulatory authorities with updated safety and efficacy information, manufacturing products in accordance with cGMP requirements, product sampling, and distribution requirements, and complying with promotion and advertising requirements, which include, among others, standards for direct-to-consumer advertising and restrictions on promoting products for uses or in patient populations that are not consistent with the product’s approved labeling (known as “off-label use”), limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet, including social media. Although physicians may prescribe products for off-label uses, manufacturers may not market or promote such off-label uses. Modifications or enhancements to the product or its sole discretion. Our Salt Lake City manufacturinglabeling or changes of the site was inspected in July 2018of manufacture are often subject to the approval of the FDA and we received certain inspectional observations on Form FDA 483 following that inspection. We responded to those observations and engagedother regulators, who may or may not grant approval, or may engage in a productive dialog with the FDA. Following our responses, in or around February 2019,lengthy review process.

The 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 foundstate, and documented objectionable conditions during its inspection, FDA will not take or recommendforeign regulatory orauthorities have broad 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.

If we failpowers. Failure to comply with applicable regulatory requirements could result in enforcement action by the FDA, regulations and laws applicable to our operationstate, or tissue products,foreign regulatory authorities, which may include the FDA could take enforcement action, including, without limitation, pursuing any of the following sanctions, among others:following:

For more informationAny of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on this regulatory risk, please see the discussion below, “Risk Factors,” including but not limitedour reputation, business, financial condition, and results of operations. Such actions by government agencies could also require us to expend a large amount of managerial and financial resources to respond to the information underactions. Any agency or judicial enforcement action could have a material adverse effect on us.

In the heading, “Risks RelatedU.S., after a product is approved, its manufacture is subject to Registrationcomprehensive and continuing regulation by the FDA. The FDA regulations require that products be manufactured in registered facilities and in accordance with cGMP. We have a facility for the production of clinical and commercial quantities of SkinTE that is being modified to operate in accordance with cGMP regulations. cGMP regulations require, among other things, quality control and quality assurance as well as the corresponding maintenance of records and documentation and the obligation to investigate and correct deviations from cGMP. For human cellular or Regulatory Approvaltissue-based products like ours, cGMP also includes current good tissue practices to prevent the transmission of Our Product Candidatescommunicable diseases. These regulations also impose certain organizational, procedural, and Other Government Regulations.”documentation requirements with respect to manufacturing and quality assurance activities. Manufacturers and other entities involved in the manufacture and distribution of approved drugs, biologics, and medical devices are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and state agencies for compliance with cGMP and other laws. Accordingly, as a manufacturer we must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

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

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

Fraud, AbuseReimbursement, Anti-Kickback and False Claims Laws, and Other Regulatory Matters

WeIn the U.S., the research, manufacturing, distribution, sale, and promotion of drug and biological products are directly and indirectlypotentially subject to regulation by various federal, state, and state laws governing relationships with healthcare providers andlocal authorities in addition to the FDA, including the Centers for Medicare & Medicaid Services (“CMS”), other potential referral sources for our products pertaining to healthcare fraud and abuse, including anti-kickback, false claims, and similar laws. In addition, federal and state laws are also sometimes open to interpretation. The Company could potentially face legal risks if our interpretation differs from those of enforcement authorities. Further, from time to time the Company may find itself at a competitive disadvantage if the Company’s interpretation differs from that of its competitors.

In particular, the federal 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 Generaldivisions of the U.S. Department of Health and Human Services (“OIG”) has issued a series(e.g., the Office of regulations, known asInspector General), the “safe harbors.” These safe harbors set forth provisions that, if all theirDrug Enforcement Administration, the Consumer Product Safety Commission, the Federal Trade Commission, the Occupational Safety & Health Administration, the Environmental Protection Agency, state Attorneys General, and other state and local government agencies. For example, sales, marketing, and scientific/educational grant programs must comply when applicable 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 towith the federal law.

Also,Anti-Kickback Statute, the federal False Claims Act, the privacy regulations promulgated under HIPAA, and similar state laws. Pricing and rebate programs must comply with the Medicaid Drug Rebate Program requirements of the Omnibus Budget Reconciliation Act of 1990, as amended, and the Veterans Health Care Act of 1992, as amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and requirements apply. All of these activities are also potentially subject to federal and state consumer protection and unfair competition laws.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“FCA”MMA”) imposes civil liability on any person or entity that submits, or causes others to submit, a false or fraudulent claim for payment (e.g., byestablished the Medicare Part D program to provide a voluntary prescription drug benefit to Medicare beneficiaries. Under Part D, Medicare beneficiaries may enroll in prescription drug plans offered by private entities that will provide coverage of outpatient prescription drugs. Unlike Medicare Part A and B, Part D coverage is not standardized. Part D prescription drug plan sponsors are not required to pay for all covered Part D drugs, and each drug plan can develop its own drug formulary that identifies which drugs it will cover and at what tier or Medicaid programs) tolevel. However, Part D prescription drug formularies must include drugs within each therapeutic category and class of covered Part D drugs, though not necessarily all the U.S. government. Damages under the FCA candrugs in each category or class. Any formulary used by a Part D prescription drug plan must be significant,developed and consistreviewed by a pharmacy and therapeutic committee. Government payment for some of the impositioncosts of finesprescription drugs may increase demand for products for which we receive regulatory approval. However, any negotiated prices for our products covered by a Part D prescription drug plan will likely be lower than the prices we might otherwise obtain. Moreover, while the MMA applies only to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and penalties, as well as possible exclusionpayment limitations in setting their own payment rates. Any reduction in payment that results from Medicare, Medicaidthe MMA may result in a similar reduction in payments from non-government payors.

The American Recovery and other federal healthcare programs. The FCA also allows a private individual or entity (i.e., a whistleblower) with knowledgeReinvestment Act of past or present fraud against2009 provides funding for the federal government to suecompare the effectiveness of different treatments for the same illness. A plan for the research will be developed by the Department of Health and Human Services, the Agency for Healthcare Research and Quality, and the National Institutes for Health, and periodic reports on behalfthe status of the governmentresearch and related expenditures will be made to Congress. Although the results of the comparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clear what effect, if any, the research will have on the sale of SkinTE in the future. It is also possible that comparative effectiveness research demonstrating benefits in a competitor’s product could adversely affect the sale of our product. If third-party payors do not consider SkinTE to be cost-effective compared to other available therapies, they may not cover our product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell our product on a profitable basis.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. The requirements governing drug and biologics pricing vary widely from country to country. For example, the European Union provides options for its member states to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to be paidcontrol the prices of medicinal products for human use. A member state may approve a portionspecific price for the medicinal product, or it may instead adopt a system of direct or indirect controls on the profitability of the government’s recovery, whichcompany placing the medicinal product on the market. There can include both civil penaltiesbe no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and up to three timespricing arrangements for our product. Historically, products launched in the amountEuropean Union do not follow price structures of the government’s damages (usuallyU.S. and generally tend to be priced significantly lower than in the amount reimbursed by federal healthcare programs). TheU.S.

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

The federal False Claims Act prohibits anyone from knowingly presenting, or causing to be presented, for payment to federal programs (including Medicare and Medicaid) claims for items or services, including drugs and biologics, that are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Although we would not submit claims directly to payors, manufacturers can be held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information underto customers or promoting a product off-label. In addition, our future activities relating to the heading, “Wereporting of estimated prices for SkinTE, the reporting of prices used to calculate Medicaid rebate information, and other information affecting federal, state, and third-party reimbursement for our product, and the sale and marketing of SkinTE, are subject to numerousscrutiny under this law. Penalties for a federal False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties of between $11,181 and $22,363 for each separate false claim, the potential for exclusion from participation in federal healthcare programs. Although the federal False Claims Act is a civil statute, conduct resulting in a federal False Claims Act violation may also implicate various federal criminal statutes. If the government were to allege that we were, or convict us of, violating these false claims laws, we could be subject to a substantial fine. In addition, private individuals have the ability to bring actions under the federal False Claims Act and certain states have enacted laws modeled after the federal False Claims Act.

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

The failure to comply with such laws and regulations could have an adverse effectregulatory requirements exposes companies to possible legal or regulatory action. Depending on our business and our abilitythe circumstances, failure 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 withmeet 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 andregulatory 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 barrierscriminal prosecution, fines or other penalties, injunctions, recall or seizure of products, total or partial suspension of production, denial or withdrawal of product approvals, or refusal to early coverage reimbursement,allow a company to enter into supply contracts, including government contracts.

Changes in regulations, statutes, or denialthe interpretation of coverage and reimbursement altogether. Accordingly, significant uncertainty exists as toexisting regulations could impact our business in the availability of coverage and reimbursement statusfuture by requiring, for new medical products. If third-party payer reimbursement is unavailableexample: (i) changes to our customer hospitals, physicians, and providers,manufacturing facility; (ii) additions or modifications to product labeling; (iii) the recall or discontinuation of our sales mayproduct; or (iv) additional record-keeping requirements. If any such changes were to be limited and we may not be able to realize an appropriate return onimposed, they could adversely affect the operation of our investment in research and product development.business.

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 PrivacyProtection and Affordable Care Act

HIPAA, as amended byIn March 2010, 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 devicesamended by the FDA,Health Care and 361 HCT/PsEducation Reconciliation Act of 2010, collectively the PPACA, was enacted, which includes measures that have or will significantly change the way healthcare is financed by both governmental and private insurers. Among the provisions of the PPACA of greatest importance to the drug industry are the following:

There have been prior public announcements by members of the federal government regarding their plans to repeal and replace the PPACA and Medicare. For example, the Tax Cuts and Jobs Act of 2017 eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not expressly addressed by this law. We do, however, voluntarily file annual reports because we believe it enhances our reputationsure whether additional legislative changes will be enacted and are unable to predict what impact changes in the medical industry to be transparent about what we dolaw may have on the pricing and how we do it.distribution of our product.

USDAEmployees

The Company and its subsidiaries conduct preclinical research and development, which is regulated by the United States Department of Agriculture (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 researchWe 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 15359 full-time employees and four10 part-time employees as of December 31, 2019,2021, all of whom are in the United States.U.S. 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.

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.

We file annual, quarterly, and current reports, proxy statements, and other information with the SEC. Our SEC filings are available to the public at the SEC’s website address is http://www.polarityte.com.at www.sec.gov. We have included ouralso maintain a website address as an inactive textual reference only. We make available,located at www.polarityte.com, where these SEC filings and other information about the Company can be accessed, 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,the information with, 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.

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 ofwill need additional funding to pursue the regulatory process for SkinTE and sustain our operations, and we may be unable to raise capital when needed, which would force us to delay, reduce, eliminate, or abandon our product development program.

We reported an operating losses and may never achieve or sustain profitability.

We have incurred significant operating losses, and may continue to incur significant operating losses over the next several years. We incurred a net loss of $92.5$33.7 million for the year ended December 31, 2019,2021, and $65.4 million foron that date we had had an accumulated deficit of $508.4 million. We believe our cash and cash equivalents at December 31, 2021, will fund our current business plan including related operating expenses and capital expenditure requirements through the 12-month period ended October 31, 2018. Our ability to achieve profitable operations in the future will depend in large part upon the successful commercialization of SkinTE, and we are unable to predict when, if ever, that may occur. Our continuing capital needs to support expansionend of the marketing effort, clinical trials, and other coststhird calendar quarter 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 equity may result in dilution to our stockholders. In these circumstances,2022. Accordingly, there is no assurance that we would be able to secure funding on terms acceptable to us, or at all.

If the commercialization of our lead product candidate, SkinTE, is not successful, our results of operations and financial condition will be adversely affected.

Our near-term prospects depend uponsubstantial doubt about our ability to effectively market our lead product candidate, SkinTE. Gaining market acceptance and market share depends oncontinue as 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. Ifgoing concern beyond that time unless we are not successful in commercializing SkinTE or are significantly delayed in doing so, our operating results and financial condition will be adversely affected.can raise additional capital from external sources.

Our revenue growth for SkinTE depends on our ability to expand our sales force, increase distribution and sales to existing customers and develop new customers, and there can be no assurance that these efforts will result in significant increases in sales.

We are in the process of investing in development of our direct sales force 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 allow us to sustain our operations.

Meaningful revenue growthsignificant operating costs in the foreseeable future is dependent on one product – SkinTE.

While a contributor to revenues,near term as we do not believe our contract services business offers a revenue growth opportunity substantial enough to sustain our operations. Meaningful revenue growth will come from sales of regenerative tissue products and biomaterials, andpursue the only such product we will be sellingregulatory process for SkinTE with the foreseeable future is SkinTE. To the extent that sales of SkinTE lag behind our need to generate revenue to make up the gap between available capital 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 studies, and pursue product research, all while operating our business and incurring continuing fixed costs related to the resultsmaintenance of these trials is uncertain.

our assets and business. 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 continueexpect 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 impact on our business, financial condition and results of operations.

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

As a result there is significant uncertainty surrounding whether the use of products that incorporate new technology, such as our product candidates, will be eligible for coverage by commercial third-party payers and government payers or, if eligible for coverage, what the reimbursement rates will be for these product candidates. The fact that a product has been approved for reimbursement in the past 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 whether we are able to successfully commercialize our product candidates. Our product and product candidates 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 payers and Medicare 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 inunforeseen 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 coronavirusdifficulties, complications, delays, 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, financial condition, and results of operations.unknown events.

Our manufacturing operationsIf adequate funds are not available for our business in the U.S. depend primarily on one facility. If this facility is destroyed orfuture, we experience any manufacturing difficulties, disruptions, or delays, this could limit supply of our product or adversely affect our ability to sell products or conduct our clinical trials, and our business would be adversely impacted.

All of the manufacturing 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 discontinue production at our current facility, we will not be able to supply SkinTE to patients or have supplies for clinical trials, which would adversely impact our business. If this facility or the equipment in it is significantly damaged or destroyed by fire, flood, power loss, or similar events, we may not be able to quickly or inexpensively replace our manufacturing capacity 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 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 to comply with applicable cGTP or the FDA’s current good manufacturing practices (“cGMP”) regulatory and quality standard requirements and, if applicable, FDA approval would be required before any products manufactured at that facility could be made commercially available.

Performance issues, service interruptions or price increases by our shipping carriers could negatively affect our business, financial condition 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 delays in delivering our product and spoilage of the SkinTE we produce for patients, which is viable for 14 days following the skin harvest date. Any such occurrences may damage our reputation and lead 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 product recall or voluntary market withdrawal, which 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 may be required to do so by a regulatory authority. A recall or market withdrawal of one of our products would be costly and would divert management resources. A recall or withdrawal of one of our products, or a similar product processed by another entity, also could impair sales of our products because of confusion concerningdelay, reduce the scope of, or eliminate the recall or withdrawal, or because of the damage to our reputationplans 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 opportunities in the future to enhance and accelerate the development and commercialization of our existing products and potential product candidates. We may rely on such arrangements 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, developmentobtaining regulatory licensure or approval for SkinTE or be unable to continue operations over a longer term, any 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 effectivelywhich 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 companies (including but not limited to Avita Medical, Integra LifeSciences, Wright Medical Group, MiMedx, Osiris, Organogenesis, Allosource, MTF Biologics and Vericel). These competitors may successfully market products that compete in the wound care market, successfully identify product candidates or develop products earlier than we do, or develop products that are more effective or safe, or that cost less than SkinTE. 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 adversely affect our ability to effectively commercialize SkinTE and achieve revenue and profits.

We may have inadequate resources to pursue the development and commercialization 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. 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.operation.

We discontinued sales of SkinTE and COVID-19 testing, and may make a disposition of IBEX, so we will be entirely dependent on capital obtained from outside sources to fund our operations.

We discontinued sales of SkinTE as a 361 HCT/P product at the end of May 2021 and discontinued COVID-19 testing through Arches in August 2021, and it is likely there will be some disposition of IBEX in 2022. As a result of these developments, in the near term we may not be engaged in any revenue generating activity that would contribute to defraying our operating costs, which will make us entirely dependent on capital obtained from external sources to fund our operations. The inability to obtain capital as needed to fund our operations could result in us curtailing or ceasing operations, which would have a material adverse effect on our business, financial condition, results of operation, and the value of an investment in us.

Our wholly owned subsidiary accepted a loan under the CARES Act pursuant to the Paycheck Protection Program (“PPP”), and the loan may subject us to challenges, audits, or investigations regarding qualification for the loan, any of which could reduce our liquidity and have a material adverse effect on our business, financial condition, and results of operations.

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

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

Under the CARES Act, the SBA may review any PPP loan of any size at any time at its discretion. On September 17, 2021, PTE-MD received notice from the Lender that the SBA is continuing to review the PPP Loan. As part of this review, the SBA requested that PTE-MD provide documents that it is required to maintain but may not have been required to submit with its application for the PPP Loan. These documents included an affiliation worksheet showing the relationship between PolarityTE and PTE-MD and affiliated subsidiaries, documents showing the use of the PPP Loan proceeds, documents showing PTE-MD’s calculation of the loan amount it requested in its loan application, its federal tax returns, and documents showing employee compensation information. PTE-MD submitted the documents to the SBA through the Lender on September 28, 2021.

There is no assurance the SBA will conclude PTE-MD properly applied for, and used the proceeds of, the PPP Loan. If seriousthere is any adverse finding in the SBA review or inappropriate side effectsif PTE-MD were alleged, or determined, not to qualify for the Loan or alleged, or found, to have made false certifications in connection with the PPP Loan and its forgiveness, PTE-MD could be required to return the full amount of the Loan, which would reduce its liquidity, and could subject it to fines and penalties, and exclusion from government contracts. In particular, PTE-MD may become subject to actions under the FCA, including its qui tam provisions, which, among other things, prohibits persons from knowingly filing, or knowingly causing to be filed, a false statement, or knowingly using a false statement, to obtain payment from the federal 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 U.S. PTE-MD 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 PTE-MD is identified as an entity that the media, government officials, or others seek to portray as a business that should not have availed itself of PPP funding, PTE-MD may face negative publicity, which could have a materially adverse impact on its business and operations and on PolarityTE’s business and operations as its parent. Generally, the cost of defending claims under the FCA, regardless of merit, could be substantial, even as much as the PPP loan proceeds.

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

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

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

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

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

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

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

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

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

We cannot assure you that any procedures with whichfuture clinical trial for our product candidates are used,will be started or completed successfully, on schedule, or at all. If we may needexperience suspension or termination of, or delays in the completion of, any clinical trial for our product, the commercial prospects for the product will be harmed, and our ability to abandongenerate product revenues will be delayed 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.diminished. In addition, if any of the procedures with whichdelays in initiating or completing our products are used is determined to be unsafe, we may be required to delay, alter, or abandonclinical trials will increase our costs, slow down our product development and approval process, and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business, prospects, financial condition, and results of operations significantly.

Changes in funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, or commercialization.otherwise prevent new products and services from being developed or commercialized in a timely manner, which could negatively impact our business.

The ability of the FDA to review and approve or license new products can be affected by a variety of factors, including (i) government budget and funding levels, as well as government shutdowns, (ii) the ability to hire and retain key personnel and accept the payment of user fees, and (iii) statutory, regulatory, and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.

Disruptions at the FDA and other agencies may also slow the time necessary for new products to be reviewed or licensed or approved by necessary government agencies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities. If a prolonged government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could have a material adverse effect on our business. Additionally, over the last several years, the COVID-19 pandemic has caused unexpected increases in the FDA’s workload and has degraded the timeliness of many agency activities, including pre-submission interactions, product reviews, and pre-license inspections.

We faceEven if we obtain and maintain regulatory licensure or approval for our product in one jurisdiction, it may never obtain regulatory licensure or approval for the risk of product liability claimsin any other jurisdiction, which would limit our market opportunities and mayadversely affect our business.

Obtaining and maintaining regulatory licensure or approval for our product in one jurisdiction does not guarantee that we will be able to obtain or maintain adequateregulatory licensure or approval in other jurisdictions. For example, even if the FDA grants marketing approval for SkinTE, comparable regulatory authorities in foreign countries must also approve the manufacturing, marketing, and promotion of the product liability insurance.

Our business exposes us to the risk of product liability claims that are inherentin those countries. Approval procedures vary amongst jurisdictions and can involve requirements and administrative review periods different from, and greater than, those in the manufacturing, processing,U.S., including additional preclinical studies or clinical trials. Obtaining foreign regulatory approvals and marketing of human cellular and tissue-based products. We may be subject to such claims if our 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 termscompliance with adequate coverage, or otherwise protect ourselves against potential product liability claims or we underestimate the amount of insurance we need, we could be exposed to significant liabilities, which may harm our business. A product liability or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilitiesforeign regulatory requirements could result in significant delays, difficulties, and costs for us and could delay or prevent the introduction of our product in certain countries. In many countries outside the U.S., a product candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for our product is also subject to approval. If we fail to comply with the regulatory requirements in international markets or fail to receive applicable marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product will be harmed, which would adversely affect our business, prospects, financial condition, and results of operations.

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

If our product receives regulatory approval, the FDA or comparable foreign regulatory authorities may still impose significant harm to our business.

We dependrestrictions on our senior management teamthe indicated uses or marketing of the product or impose ongoing requirements for potentially costly post-approval studies and trials or other risk mitigation measures. In addition, regulatory agencies subject a product, its manufacturer, and the lossmanufacturer’s facilities to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, including adverse events of oneunanticipated nature, severity or frequency, or problems with the facility where the product is manufactured, stored, tested, or released, a regulatory agency may impose restrictions on that product or PolarityTE, including narrowing product indications, requiring labeled warnings, or requiring withdrawal of the product from the market. Our product candidate will also be subject to ongoing FDA or comparable foreign regulatory authorities’ requirements for labeling, packaging, storage, advertising, promotion, record-keeping, import, export, clinical trial registration and results disclosure for post-market as well as pre-market trials, and submission of safety and other post-market information. If our product fails to comply with applicable regulatory requirements, a regulatory agency may:

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

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

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

PolarityTE, and any contract manufacturer it may engage in the future, are subject to significant regulation with respect to manufacturing PolarityTE’s product. Even once cGMP compliance is initially achieved, the manufacturing facility on which PolarityTE relies may not continue to meet regulatory requirements.

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

The regulatory authorities also may, at any time following approval of a product for sale, audit, inspect, or remotely review records regarding our senior management and other key personnel. Although we have entered into employment agreements with allfacility or the manufacturing facilities of our executive officers, each of them may terminate their employmentthird-party contractors. If any such inspection, audit, or review identifies a failure to comply with us at any time. The replacement of anyapplicable statute or regulations or if a violation of our key personnel likely would involve significantproduct specifications or applicable statute or regulations occurs independent of such an inspection, audit, or review, we or the relevant regulatory authority may require remedial measures that may be costly or time and costsconsuming for us or a third party to implement, and may significantly delayinclude the temporary or preventpermanent suspension of a clinical trial or commercial sales or the achievementtemporary or permanent closure of our business objectives anda facility. Any such remedial measures imposed upon us or third parties with whom we contract could therefore negatively affectmaterially harm 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 diversionany 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 wethird-party manufacturers fail to attract new personnelmaintain regulatory compliance, the FDA or failcomparable foreign authorities can impose regulatory sanctions including, among other things, refusal to retain and motivate our current personnel, it will negatively affectapprove a pending application for a product candidate, withdrawal of an approval, or suspension of production. As a result, our business, financial condition, and results of operations.operations may be materially and adversely affected.

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

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

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

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

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

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

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

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

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

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

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

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

There have been prior public announcements by members of the federal government regarding their plans to repeal and replace the PPACA and Medicare. For example, the Tax Cuts and Jobs Act of 2017 eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance, or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.

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

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

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

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

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

If we face allegations of noncompliance with the law and encounter sanctions, our reputation, revenues, and liquidity may suffer, and our product, if approved for commercialization, could be subject to restrictions or withdrawal from the market.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to generate revenues from our product, if approved. If regulatory sanctions are applied or if regulatory licensure or approval is not granted or is withdrawn, our business, financial condition, and results of operations will be adversely affected. Additionally, if we are unable to generate revenues from product sales, our potential for achieving profitability will be diminished and our need to raise capital to fund our operations will increase.

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 nothree issued patents and one allowed patent application in the United StatesU.S. relating to any of our product candidates.minimally polarized functional unit (“MPFU”) technology. We intend to expandcontinue our patenting activities and rely on patent protection, as well as a combination of copyright, trade secret, and trademark laws and nondisclosure, confidentiality, and other contractual restrictions to protect our proprietary technology, and there can be no assurance these methods of protection will be effective. These legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. In addition, our presently pending patent applications include claims to material aspects of our activities that are not currently protected by issued patents in the United States.benefit. The patent application process can be time consuming and expensive. We cannot ensure that any of the pending patent applications we acquire, havealready filed or that may be filed or acquired or may file will result in issued patents. Competitors may be able to design around our patents or develop procedures that provide outcomes that are comparable or even superior to ours. 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 advantagebenefit we might otherwise have had.

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

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

There can be no assurance that a third party, including but not limited to, a university or other research institution that our founders were associated with in the past, will not make claims to ownership or other claims related to our technology. We believe we have developed our technology outside of any institutions, but we cannot guarantee such institutions would not assert a claim to the contrary. Even if successful, litigation to enforce or defend our intellectual property rights could be expensive and time consuming and could divert our management’s attention. Further, bringing litigation to enforce our future patent(s)for patent enforcement subjects us to the potential for counterclaims. If one or more of our current or future patents is challenged in U.S. or foreign courts or the United StatesU.S. 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 Companyus may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators, or advisors have previous employment or consulting relationships. Also, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.

Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. The disclosure of our trade secrets 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,product, require us to obtain licenses from third parties, orrequire us to develop non-infringing alternatives, andor subject us to substantial monetary damages. We have not obtained and do not intend to obtain any 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, we may not be able to enforce those 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.U.S.

Intellectual property law outside the United StatesU.S. is uncertain and, in many countries, is currently undergoing review and revisions. The laws of some countries do not protect patent and other intellectual property rights to the same extent as United StatesU.S. laws. Third parties may challenge our patents or applications in foreign countries by initiating 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.U.S. This could result in substantial costs, divert our efforts and attention from other aspects of our business, and could have a material adverse effect on our results of operations and financial condition.

General Risks Related to Registration or Regulatory Approval

We have one facility for the production 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, andSkinTE for 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 clearancesso if this facility is destroyed 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 BLAit experiences any manufacturing or NDA before a new druglaboratory difficulties, disruptions, 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 wouldthis could adversely affect our ability to market such productsconduct our clinical trials.

Manufacturing of SkinTE takes place at our single U.S. facility. If regulatory, manufacturing, or enhancements.

other problems cause us to discontinue production operations at this facility, we would not be able to supply SkinTE for clinical trials, which would adversely impact our business. If this facility or the equipment in it is significantly damaged or destroyed by fire, flood, power loss, or similar events, we may not be able to replace our manufacturing capacity quickly or inexpensively, or at all. In the event of a temporary or protracted loss of this facility or equipment, we might not be able to quickly transfer manufacturing to a third party. Even if premarket approval or clearance are obtained fromwe could transfer manufacturing, the FDA, the approvals or clearances may contain substantial limitations on the indicated uses of such productsshift would likely be expensive and other uses may be prohibited. Product approvals by the FDA can also be withdrawn due to failuretime-consuming, particularly since an alternative facility would need to comply with regulatory standards or the occurrenceapplicable FDA manufacturing and quality requirements and, if applicable, FDA approval would be required before any products manufactured at that facility could be used.

Our success depends on members of unforeseen problems following initial approval. Furthermore, the FDA could limit or prevent the distribution of products,our senior management team and the FDA has the powerloss of one or more key employees or an inability to require the recall of such products. FDA regulations depend heavily on administrative interpretation,attract and there can be no assurance that future interpretations made by the FDA or other regulatory bodiesretain skilled employees will not adverselynegatively 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.operations.

The manufactureOur 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 certain members of cellsenior management 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,other key personnel. Although we have limited experience in manufacturing products for commercial purposes and could experience difficulties in the continued manufacturingentered into employment agreements with our executive officers, each of our product candidates, either ourselves or through third-party contractorsthem may terminate employment 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 orus at 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 marketingtime. The replacement of any of our products, including SkinTE,key personnel likely would involve significant time and costs and may significantly delay or prevent 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 salesachievement of our product, as well as enforcement actions.

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

There have beenbusiness objectives 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 maycould, therefore, negatively 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 reviewWe do not carry any key person insurance policies that could offset potential loss of us, regardlessservice 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 outcome, would be costlycompanies with which we compete for experienced personnel have greater resources than we do. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees have or we have breached legal obligations, resulting in a diversion of our time and time consuming. Additionally,resources to disputes and litigation and, potentially, result in liability.

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

The ongoing COVID-19 pandemic could materially affect our operations, as well as the business or operations of third parties with whom we cannot predictconduct business.

The impact of COVID-19, including the impact of any changesrestrictions imposed to combat its spread, could result in these laws, whether these changes are retroactive or will have effect on a going-forward basis only.

Ourbusinesses shutting down, additional work restrictions, and reduced capacity and access to sensitive patient information is subject to complex regulations at multiple levelshealthcare facilities, in particular as new COVID-19 variants such as the Delta and we wouldOmicron and other new variants spread. Depending upon the length of COVID-19 surges and resulting work restrictions and limitations on healthcare facilities, our future clinical trials for SkinTE may be adversely affected if we failby: (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 adequately protect this information.

We receive, maintain and utilize personal health and other confidential and sensitive dataconduct the clinical trials, including interruption in shipping that may affect the transport of our clinical trial product; (iv) changes in local regulations as part of a response to the treatments we provide. We have developed a web and mobile application through which our customers can communicate with physicians and others, whichCOVID-19 pandemic that 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 resourceschange the ways in which our clinical trials are to remediate any damage, interrupt our operations, and damage our brand and reputation, and could alsobe conducted, which may result in investigations, regulatory enforcement actions, material finesunexpected costs or discontinuance of the clinical trials 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 penalties, losshospital staff supporting the conduct of customers, litigation,our clinical trials; (vi) interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers, and others, or interruption of clinical trial subject visits and study procedures, the occurrence of which could affect the integrity or reliability of clinical trial data; (vii) risk that participants enrolled in our clinical trials will acquire COVID-19 while clinical trials are ongoing, which could impact the results of the clinical trials, including by increasing the number of observed adverse events; (viii) risk that clinical trial investigators or other actions thatsite staff will acquire COVID-19 while the clinical trial is ongoing, which 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 usimpede the conduct or progress of the clinical trials; (ix) delays in necessary interactions with health relatedlocal regulators, ethics committees, and other sensitive personal information. Eventsimportant agencies and contractors due to limitations in employee resources or forced furlough of government employees; (x) limitations in employee resources that negatively affect that trust, including incorrect or incomplete disclosurewould otherwise be focused on the conduct of our usesclinical trial because of sickness of employees or their information,families or failingthe desire of employees to keepavoid contact with large groups of people; (xi) and interruption or delays to our information technology systems and sensitive information secure from significant attack, theft, damage, loss,clinical trial activities.

We may not be able to enforce our patent or unauthorized disclosure or access, whether as a result of our action or inaction or that ofintellectual property rights against 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 the trading price for our business, cash flows, operatingcommon stock.

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. Unauthorized disclosure of our claims to our trade secrets could result in loss of those intellectual property rights. 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 financial position. There can be no assurance that any such failure will not occur,other interim proceedings or if any does occur,developments. If securities analysts or investors perceive that we will detecthave lost rights to our intellectual property or the results of these disputes are negative, it orcould have a substantial adverse effect on the price of our common stock.

In the event that it can be sufficiently remediated.

Risks Relatedwe fail to Our Common Stock

An active trading market forsatisfy any of the listing requirements of the Nasdaq Capital Market, our common stock may not continue to develop or be sustained.delisted, which could affect our market price and liquidity.

Although ourOur common stock is listed on the NASDAQNasdaq Capital Market. For continued listing on the Nasdaq Capital Market, we will be required to comply with the continued listing requirements, including the minimum market capitalization standard, the minimum stockholders’ equity requirement, the corporate governance requirements, and the minimum closing bid price requirement, among other requirements. On August 13, 2021, we received a deficiency letter from the staff of the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying us that we did not meet the $1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement, which ended February 9, 2022. On February 10, 2022, we received an additional notice from the Staff stating that, although we had not regained compliance with the Minimum Bid Price Rule by February 9, 2022, the Staff determined in accordance with Nasdaq Listing Rule 5810(c)(3)(A) that we are eligible for an additional 180 calendar days from the date of that notice, or NASDAQ, we cannot assure you that an active, liquid trading market for our shares will continueuntil August 8, 2022, 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 depressingregain compliance with the marketMinimum Bid Price Rule. To regain compliance, the bid price for the shares or to sell your shares at all.

The trading price of the shares of ourCompany’s common stock has been andmust close at $1.00 per share or more for a minimum of 10 consecutive business days.

To resolve the noncompliance, we may continue to be volatile, and youconsider available options, including effecting a reverse stock split, which 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, with closing stock prices ranging from a high of $16.43 per share to a low of $1.35 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 currentlya permanent increase 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 throughis dependent on many factors, including general economic, market, and industry conditions, the sale of additional equity securities. In addition, certain future salestiming and results of our equity securities may trigger a downward adjustmentclinical trials, regulatory developments, and other factors detailed from time to time in the exercise price of 10,638,298 common stock purchase warrantsreports we issued in February 2020file with an original exercise price of $2.80 per share, which could apply additional pressure to depressthe SEC. It is not uncommon for the market price of a company’s shares to decline in the period following a reverse stock split. Furthermore, implementation of a reverse stock split requires approval of a majority of the outstanding voting power of our capital stock, and there is no assurance we can obtain that approval.

In the event that we fail to satisfy any of the listing requirements of the Nasdaq Capital Market our common stock may be delisted, and our current deficiency in meeting the Minimum Bid Price Requirement could result in our common stock being delisted in August 2022 if we are unable to resolve that deficiency. If our securities are delisted from trading on the Nasdaq Stock Market, and we are not able to list our securities on another exchange or to have them quoted on the Nasdaq Stock Market, our common stock could be quoted on the OTC Markets or on the Pink Open Market. As a result, we could face significant adverse consequences including:

We will need to issue additional equity securities in the future, which may result in dilution to existing investors and investors purchasing securities in this offering.

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

In addition, the lower warrant exercise price.or conversion of outstanding options or warrants to purchase shares of capital stock may result in dilution to our stockholders upon any such exercise or conversion. As of March 6, 2020,25, 2022, we had 38,358,450 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, we also had a significant number of securities convertible into, or allowing the purchase of, our common stock, including 4,529,9889,836,067 shares reserved for issuance upon conversion of our Series A Convertible Preferred Stock, 35,500,843 warrants to purchase shares of our common stock, 8,911,879 options and rights to acquire shares of our common stock that are outstanding under our equity incentive plans, and 5,353,2574,097,401 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 weit will retain future earnings for the development, operation, and expansion of our business and do not expect to declare or pay any additional cash dividends in the foreseeable future. As a result, only appreciation of the public trading price of our common stock, if any, will provide a return to investors in this offering.investors.

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.

OnPolarityTE is party to a Commercial Lease Agreement with Adcomp LLC (“Adcomp”) dated December 27, 2017 we entered into a commercial lease agreement with(the “Adcomp Lease”). The Adcomp LLC, aLease is for PolarityTE’s principal business facility and property located at 1960 S 4250 W, Salt Lake City, Utah limited liability company, pursuant(the “Property”). The Adcomp Lease pertains 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.space. The initial term of the leaseAdcomp Lease is five years, and it expiresexpiring on November 30, 2022. We havePolarityTE has 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%3% per annum thereafter. The current monthly base rent is $110,514. The initial lease rate on an extension of the lease is $113,830 per month with annual rent increases equal to 3% of the prior year’s lease rate.

Under the original terms of the Adcomp Lease, we have an option to purchase the Property at a purchase price of $17.5 million, which is waived unless we exercise such option on or before March 27, 2022. On December 16, 2021, we gave written notice of its election to exercise the purchase option to Adcomp. Once that notice was given, the Adcomp Lease states the Company and Adcomp are required to negotiate the terms of a purchase agreement covering property diligence, conditions of closing, the timing of closing, and other customary matters for a sale and purchase of improved real estate. In addition, as required by the Adcomp Lease we made an earnest money deposit of $150,000 that may be refunded if closing conditions or contingencies running in our favor are not satisfied or Adcomp defaults in its obligations under the Adcomp Lease or the purchase agreement for the Property. On March 14, 2022, the Company and Adcomp entered into a purchase and sale on the terms described above that provides for a closing of the transaction on November 15, 2022 (the “Adcomp Agreement”).

On October 25, 2021, we signed a Purchase and Sale Agreement, the terms of which were finalized on December 10, 2021, and subsequently amended by Amendment No. 1 thereto dated March 15, 2022 (the “BCG Agreement”), with BCG Acquisitions LLC (“BCG”). Under the BCG Agreement we agreed to sell the Property to BCG or its assigns after our purchase of the Property from Adcomp, if the parties could agree on the terms for BCG to demise the building located on the Property to establish a smaller space within the building for us to lease and agree on the terms of that lease (the “BCG Lease”). The BCG Lease and, therefore, the BCG Agreement, was finalized on December 10, 2021. On March 15, 2022, the parties agreed to amend the BCG Agreement to change the closing date of the transaction from March 2022 to November 2022.

Under the BCG Agreement the Company has agreed to sell the Property to BCG for $17.5 million, subject to the closing of our purchase of the Property from Adcomp. The BCG Agreement also provides for property diligence (which has been completed by BCG), conditions of closing, the timing of closing, and other customary matters for a sale and purchase of improved real estate. Under the BCG Agreement, BCG made an initial earnest money deposit totaling $200,000, which the parties subsequently agreed to reduce to $150,000, that will be refunded if we are unable to complete the purchase of the Property from Adcomp on a timely basis, closing conditions or contingencies running in favor of BCG are not satisfied, or we default in our obligations under the BCG Agreement for the Property. Under the BCG Lease, BCG will demise the building on the Property to create a space of approximately 62,500 square feet that the Company will lease for a term of 10 years with an option to extend for an additional 10 years. The parties may agree to increase the size of the space prior to commencement of the BCG Lease.

The closing of the transactions described above are subject to a number of risks and uncertainties including, but not limited to, the following: our completion of diligence and title review of the Property pursuant to the Adcomp Agreement; satisfaction of all closing conditions, including obtaining financing for the purchase, and closing on the purchase of the Property from Adcomp; and satisfaction of all closing conditions, including BCG obtaining financing for the purchase, and closing on the sale of the Property to BCG. Consequently, we may not be successful in closing the transactions described above. If the transactions fail for any reason we will continue to occupy the Property under an extension of the existing lease.

The foregoing description of the terms and conditions of the Adcomp Lease and the Purchase and Sale Agreement between us and BCG are not complete and are in all respects subject to the actual provisions of such agreements, copies of which are exhibits to this Annual Report.

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.business, IBEX.

Item 3. Legal Proceedings.

Shareholder Litigation

On June 26, 2018,September 24, 2021, a class action complaint alleging violations of the Federal securities laws was filed in the United States District Court, District of Utah, by Jose MorenoMarc Richfield against the Company and two directorscertain officers of the Company, Case No. 2:18-cv-00510-JNP21-cv-00561-BSJ. The Court subsequently appointed a Lead Plaintiff and ordered the Lead Plaintiff to file an amended Complaint by February 7, 2022, which was extended to February 21, 2022. The Lead Plaintiff filed an amended complaint on February 21, 2022, against the Company, two current officers of the Company, and three former officers of the Company (the “Moreno Complaint”“Complaint”). The Complaint alleges that during the period from January 30, 2018, through November 9, 2021, the defendants made or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 adopted thereunder. Specifically, the Complaint alleges that the defendants misrepresented or failed to disclose that: (i) the Company’s product, SkinTE, was improperly registered as a 361 HCT/P under Section 361 of the Public Health Service Act and that, as a result, the Company’s ability to commercialize SkinTE as a 361 HCT/P was not sustainable because it was inevitable SkinTE would need to be registered under Section 351 of the Public Health Service Act; (ii) the Company characterized itself as a commercial stage company when it knew sales of SkinTE as a 361 HCT/P were unsustainable and that, as a result, it would need to file an IND and become a development stage company; (iii) issues arising from an FDA inspection of the Company’s facility in July 2018, were not resolved even though the Company stated they were resolved; and (iv) the IND for SkinTE was deficient with respect to certain chemistry, manufacturing, and control items, including items identified by the FDA in July 2018, and as a result it was unlikely that the FDA would approve the IND in the form it was originally filed. The Company believes the allegations in the Complaint are without merit, and intends to defend the litigation, vigorously. At this early stage of the proceedings, we are unable to make any prediction regarding the outcome of the litigation.

On July 6, 2018,October 25, 2021, a similarstockholder derivative complaint alleging violations of the Federal securities laws was filed in the same courtUnited States District Court, District of Utah, by Steven Battams against the same defendants by Yedid Lawi,Company, each member of the Board of directors, and two officers of the Company, Case No. 2:18-cv-00541-PMW21-cv-00632-DBB (the “Lawi“Stockholder Derivative Complaint”). Both the MorenoThe Stockholder Derivative Complaint and Lawi Complaint allegealleges that the defendants made, or were responsible for, disseminating information to the public through reports filed with the Securities and Exchange Commission and other channels that contained material misstatements or omissions in violation of Sections 1010(b) and 20(a) of the Securities and Exchange Act of 1934, as amended, and Rule 10b-5 adopted thereunder. Specifically, both complaints allegethe Stockholder Derivative Complaint alleges that the defendants misrepresented or failed to disclose that: (i) the status of oneIND for the Company’s product, SkinTE, filed with the FDA was deficient with respect to certain chemistry, manufacturing, and control items; (ii) as a result, it was unlikely that the FDA would approve the IND in its current form; (iii) accordingly, the Company had materially overstated the likelihood that the SkinTE IND would obtain FDA approval; and (iv) as a result, the public statements regarding the IND were materially false and misleading. The parties stipulated to a stay of the Company’s patent applications while toutingStockholder Derivative Complaint until (1) the unique naturedismissal of the Company’s technology and its effectiveness. Plaintiffs are seeking damages suffered by them and the class consistingComplaint described above, (2) denial 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’ oppositionComplaint, or (3) notice is given that any party is withdrawing its consent to the Company’s motion to dismiss was filed on August 2, 2019, andstipulated stay of the Company filed a reply to the opposition on September 13, 2019. A hearing on the Company’s motion to dismiss was held on November 19, 2019; no order has been issued to date.Stockholder Derivative Complaint proceeding. At this early stage of the proceedings, the Company iswe are unable to make any prediction regarding the outcome of the litigation.

In November 2018, a shareholder derivative lawsuit was filed in the United States 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.

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 noteddescribed above, at December 31, 2019,2021, 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.” On August 13, 2021, we received a deficiency letter from the Staff of Nasdaq notifying us that we did not meet the $1.00 per share minimum bid price requirement for continued inclusion on the Nasdaq Capital Market pursuant to the Minimum Bid Price Requirement. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided an initial period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement, which ended February 9, 2022. On February 10, 2022, we received an additional notice from the Staff stating that, although we had not regained compliance with the Minimum Bid Price Rule by February 9, 2022, the Staff determined in accordance with Nasdaq Listing Rule 5810(c)(3)(A) that we are eligible for an additional 180 calendar days from the date of that notice, or until August 8, 2022, to regain compliance with the Minimum Bid Price Rule. To regain compliance, the bid price for the Company’s common stock must close at $1.00 per share or more for a minimum of 10 consecutive business days. To resolve the noncompliance, we may consider available options, including effecting a reverse stock split.

At February 29, 2020,March 25, 2022, there were approximately 11198 holders of record of our common stock.

Information regarding

The following table provides information on our equity compensation plans as ofat December 31, 2019, is disclosed2021, under which equity securities are authorized for issuance.