HART NYLI Healthy Hearts ETF

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

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FORM 10-Q

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For the transition period from to

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Commission file number 001-35853

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Biostage Inc.

Form 10-Q

For the Quarter Ended March 31, 2022

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INDEX

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See accompanying notes to unaudited consolidated financial statements.

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See accompanying notes to unaudited consolidated financial statements

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See accompanying notes to unaudited consolidated financial statements.

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BIOSTAGE, INC. AND SUBSIDIARIES

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Principles of Consolidation

The consolidated financial statements include the accounts of Biostage, and three wholly-owned subsidiaries, Harvard Apparatus Regenerative Technology Limited (Hong Kong), Harvard Apparatus Regenerative Technology GmbH (Germany) and Biostage Limited (UK). The functional currency for Biostage and these subsidiaries is the U.S dollar. All intercompany balances and transactions have been eliminated in consolidation.

Basis of Presentation

The consolidated financial statements reflect the Company’s financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States, or U.S. GAAP.

Use of Estimates

The process of preparing consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, share-based compensation, valuation of warrant liability, accrued expenses and the valuation allowance for deferred income taxes. Actual results could differ from those estimates.

Net Loss Per Share

Basic net loss per share is computed using the weighted average number of common shares outstanding during the period. Diluted net loss per share is computed using the sum of the weighted average number of common shares outstanding during the period and, if dilutive, the weighted average number of potential shares of common stock, including the assumed exercise of stock options, warrants, and the impact of unvested restricted stock.

The Company applies the two-class method to calculate basic and diluted net loss per share attributable to common stockholders as its warrants to purchase common stock are participating securities.

The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. However, the two-class method does not impact the net loss per share of common stock as the Company has been in a net loss position and the warrant holders do not participate in losses.

Basic and diluted shares outstanding are the same for each period presented as all common stock equivalents would be antidilutive due to the net losses incurred.

Unaudited Interim Financial Information

The accompanying interim consolidated balance sheet as of March 31, 2022, consolidated interim statements of operations, stockholders’ equity and cash flows for the three months ended March 31, 2022 and 2021 are unaudited. The interim unaudited consolidated financial statements have been prepared in accordance with GAAP on the same basis as the annual audited consolidated financial statements and, in the opinion of management, reflect all adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2022, its consolidated results of operations, stockholders’ equity and consolidated cash flows for the three months ended March 31, 2022 and 2021. The financial data and other information disclosed in these notes related to the three months ended March 31, 2022 and 2021 are unaudited. The results for the three months ended March 31, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods or any future year or period.

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SBIR Award

Grant income is recognized when qualified research and development costs are incurred and recorded in other income (expense), net in the consolidated statements of operations. When evaluating grant revenue from the SBIR grant, the Company considered accounting requirements under the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 606, Revenue From Contracts With Customers. The Company concluded that ASC 606 did not apply as there is no exchange of goods or services or an exchange of intellectual property between the parties; therefore, the Company presents grant income in other income.

For the three months ended March 31, 2021, the Company recognized approximately $118,000 of grant income from the SBIR grant. The SBIR grant expired effective September 30, 2021.

Restricted cash consists of cash advances received in February and March of 2022 of approximately $3.1 million from a group of new and existing investors pertaining to a private placement transaction which closed in May 2022. These funds remain the respective investor’s property and are being held in escrow by the Company in a separate account until the execution of a common stock purchase agreement which occurred on May 12, 2022.

In addition, approximately $50,000 is held as collateral for the Company’s credit card program as of March 31, 2022 and December 31, 2021. The Company’s consolidated statements of cash flows include restricted cash with cash when reconciling the beginning-of-period and end-of-period total amounts shown on such statements.

Recently Adopted Accounting Pronouncements

Accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

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3.  Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The Company utilizes a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value that prioritizes the inputs into three broad levels. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company had no assets or liabilities classified as Level 2 as of March 31, 2022 and December 31, 2021. The Company’s restricted cash consists of a $50,000 cash deposit that serves as collateral for the Company’s credit card program are held in demand

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money market accounts and are measured at fair value based on quoted prices, which are Level 1 inputs. The Company classifies warrants to purchase common stock that are accounted for as liabilities as Level 3 liabilities, as discussed below.

The following fair value hierarchy tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis:

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During 2016 and 2017, the Company closed a sale of shares of the Company’s common stock, the issuance of warrants to purchase shares of common stock, and the issuance of warrants to the placement agent for each transaction. Due to a cash put provision within the warrant agreement, which could be enacted in certain change in control events, a liability associated with those 1,044,396 warrants were initially recorded at fair value and subsequently re-measured each reporting period. The changes in the fair value between issuance and the end of each reporting period is recorded as a component of other income (expense), net, in the consolidated statements of operations.

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During 2017, the holders of 952,184 warrants agreed to a modification of the term which removed the cash put provision. The remaining 92,212 warrants were re-measured at each reporting period as long as they are outstanding and un-modified. In February of 2022, the remaining 92,212 warrants expired unexercised resulting in a $2,000 gain on extinguishment recorded in other income (expense), net, for the three months ended March 31, 2022.

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The following table presents a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended March 31, 2022:

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Warrants to purchase common stock activity for the three months ended March 31, 2022 was as follows:

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4.  Accrued and Other Current Liabilities

Accrued and other current liabilities consist of the following:

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5.  Share-Based Compensation

Biostage Amended and Restated Equity Incentive Plan

The Company maintains the Amended and Restated Equity Incentive Plan (the Plan) for the benefit of certain officers, employees, non-employee directors, and other key persons (including consultants and advisory board members). All options and awards granted under the Plan consist of the Company’s shares of common stock. The Company’s policy is to issue stock available from its registered but unissued stock pool through its transfer agent to satisfy stock option exercises and vesting of the restricted stock units. The vesting period for awards is generally four years and the contractual life is ten years. Canceled and forfeited options and awards are available to be reissued under the Plan.

In June 2020, the Company’s shareholders approved the Plan, to among other things, increase of the number of shares of the Company’s common stock available for issuance pursuant to the 2013 Equity Incentive Plan by 3,000,000 shares, which increased the total shares authorized to be issued under the Plan to 5,098,000. There were 2,674,710 shares available for issuance as of March 31, 2022.

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The Company has granted options to purchase common stock under the Plan. Stock option activity during the three months ended March 31, 2022 was as follows:

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The Company’s outstanding stock options include 510,742 performance-based awards that have vesting provisions subject to the achievement of certain business milestones. Total unrecognized compensation expense for the remaining performance-based awards is approximately $1.3 million. No expense has been recognized for these awards as of March 31, 2022 given that the milestone achievements for these awards have not yet been deemed probable for accounting purposes.

Aggregate intrinsic value for outstanding options and exercisable options for the quarter ended March 31, 2022, was approximately $5.7 million based on the Company’s closing stock price of $4.90 per share as of March 31, 2022. As of March 31, 2022, unrecognized compensation cost related to unvested non-performance-based awards amounted to $1.2 million, which will be recognized over a weighted-average period of 1.36 years.

The Company uses the Black-Scholes option pricing model to value its stock options. The weighted average assumptions for valuing options granted during the three months ended March 31, 2022 and 2021 were as follows:

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The Company recorded share-based compensation expense in the following expense categories of its consolidated statements of operations:

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6.  Commitments and Contingencies

On April 14, 2017, representatives for the estate of an individual plaintiff filed a wrongful death complaint with the Suffolk Superior Court, in the County of Suffolk, Massachusetts, against the Company and other defendants, including Harvard Bioscience, Inc., or HBIO, the former parent of the Company that spun off the Company in 2013, as well as another third party. The complaint seeks payment for an unspecified amount of damages and alleges that the plaintiff sustained terminal injuries allegedly caused by products provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013. This lawsuit relates to the Company’s first-generation trachea scaffold technology for which the Company discontinued development in 2014, and not to the Company’s current Biostage Esophageal Implant.

On April 27, 2022, the Company and HBIO executed a settlement with the plaintiffs (the “Settlement”), which resolves all claims relating to the litigation. The Settlement will result in the dismissal with prejudice of the wrongful death claim, and neither the

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Company nor HBIO admit any fault or liability in connection with the claim. The Settlement also resolves any and all claims by and between the parties and the Company’s product liability insurance carriers, which will result in the dismissal with prejudice of all claims asserted by or against those carriers, the Company and HBIO. However, based on review of the circumstances surrounding the Settlement, the Company recorded an accrual for this matter of approximately $3.3 million in general and administrative expenses during the year ended December 31, 2021.

In relation to the litigation, the Company estimates that it will incur approximately $6.0 million of costs, of which, approximately $5.5 million remain unpaid. This amount includes the cost of both the accrual for contingency matter of $3.3 million and approximately $2.7 million of legal and related costs incurred by the Company which consist of attorneys’ fees and advisor and specialist costs as part of its defense in this matter.

For the three months ended March 31, 2022, the Company incurred legal and related costs of approximately $1.3 million recorded in general and administrative expenses. On March 3, 2022, the Company received a cash payment of approximately $0.1 million from Medmarc, the Company’s insurance carrier. This amount represented a reimbursement of previously incurred legal costs and was recorded as a reduction to general and administrative expenses during the three months ended March 31, 2022.

The Company has incurred an additional $0.2 million of legal and related costs subsequent to March 31, 2022.

With respect to such $6.0 million of costs described above, the Company is required to either pay such costs directly or indemnify HBIO as to such amounts it incurs. Of such amounts, Company anticipates that HBIO will pay an aggregate amount of $4.0 million by the end of the second quarter of 2022. With respect to these indemnification obligations of the Company to HBIO pertaining to these costs, the Company and HBIO have entered into a Preferred Issuance Agreement dated as of April 27, 2022, or the PIA. In connection with the PIA, the Company and HBIO have agreed that once HBIO has paid at least $4.0 million in such costs, to satisfy the Company’s indemnification obligations with respect thereto, in lieu of paying cash, the Company will issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA. In addition, as described above, the Company will continue to pay, or otherwise indemnify HBIO as to its payment thereof, the remaining legal expenses incurred in connection with the litigation, Settlement and related matters. Assuming the issuance of such preferred stock, the Company currently estimates that the remaining aggregate amount of such costs it will be obligated to pay will be approximately $1.5 million.

The issuance of such preferred stock, and the terms thereof, are subject to the negotiation and execution of definitive documents relating thereto, but in accordance with the PIA, such preferred stock will automatically convert into shares of common stock of the Company upon the earlier to occur of the Company’s offering that includes common stock (whether private placement or public offering) that coincides with its uplisting onto NASDAQ, its public offering that includes common stock following the issuance of the preferred stock, or its initial private placement that includes common stock following the issuance of the preferred stock in the event the gross proceeds of such private placement are $4.0 million or more. In addition, in accordance with the PIA, such preferred stock will also be subject to optional conversion by HBIO at any time and prior to any such automatic or optional conversion, will have dividends paid quarterly in additional shares of preferred stock at a rate of 8% per annum. The preferred stock will also have customary liquidation preferences, and certain limited consent and piggyback registration rights.

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From time to time, the Company may be involved in various claims and legal proceedings arising in the ordinary course of business. Other than the above matter, there are no such matters pending that the Company expects to be material in relation to its business, financial condition, results of operations, or cash flows.

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7.  Leases

The Company leases laboratory and office space and certain equipment with remaining terms ranging approximately from 1.1 to 2.6 years.

The laboratory and office space arrangement is under a sublease that was renewed in December of 2021 and currently extends through May 31, 2023. This lease automatically renews annually for a one-year period unless the Company or the counterparty provides a notice of termination within one hundred and eighty days prior to May 31^st of each year.

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On January 5, 2022, the Company executed a four-month sublease agreement for certain laboratory space at its Holliston, Massachusetts facility. For the three months ended March 31, 2022, the Company recorded sublease income of approximately $29,000 relating to this agreement.

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All of the Company’s leases qualify as operating leases. The following table summarizes the presentation of the Company’s operating leases in its consolidated balance sheets:

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The Company recorded operating lease expense in the following categories in its consolidated statements of operations:

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Cash paid included in the computation of the operating lease assets and lease liabilities during the three months ended March 31, 2022 and 2021 amounted to approximately $30,000, respectively.

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The weighted average remaining lease term and weighted average discount rate of the Company’s operating leases are as follows:

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The minimum lease payments for the next five years are expected to be as follows:

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8.  Net Loss Per Share

The following potential common shares were excluded from the calculation of diluted net loss per share attributable to common stockholders for the three months ended March 31, 2022 and 2021 because including them would have had an anti-dilutive effect:

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9.  Income Taxes

The Company did not record a federal or state income tax provision or benefit for the three months ended March 31, 2022 and 2021, respectively, due to the expected loss before income taxes to be incurred for the years ended December 31, 2021 and 2020, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.

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10.  Subsequent Events

Private Placement

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On May 12, 2022, the Company entered into Securities Purchase Agreements (each a “Purchase Agreement”) with new and existing investors (the “Investors”) pursuant to which the Investors agreed to purchase in a private placement an aggregate of 854,771 shares of common stock and warrants to purchase 427,390 shares of common stock, subject to adjustment as provided in the warrant agreement (the “Warrants”), for the aggregate purchase price of approximately $5.1 million with a purchase price per unit of $5.92 (the “Private Placement”). Each unit consisted of one share of common stock and a warrant to purchase one half of one share of common stock, subject to adjustment, as provided in the Warrants. The Company has received an aggregate of $5.1 million gross proceeds from the Private Placement through May 16, 2022.

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owned by Harvard Bioscience. The spin-off was completed through the distribution of all the shares of common stock of Biostage to Harvard Bioscience stockholders.

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We have also formed a subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, as we continue to assess the market and regulatory approval pathway in China as to our implant products. We are not certain at this time as to which market, including U.S. or China for example, may provide the most viable initial pathway for regulatory approval to a commercial product. This will depend on a number of factors, including the approval and development processes, related costs, ability to raise capital and the terms and conditions thereof, as well as the ongoing impact of the COVID-19 pandemic, among other factors. Any development and capital raising efforts in China may include a joint venture in relation to our Hong Kong subsidiary, and would also involve a number of commercial variables, including rights and obligations pertaining to licensing, development and financing, among others. Our failure to receive or obtain such clearances or approvals on a timely basis or at all, whether that be in the U.S., China or otherwise, would have an adverse effect on our results of operations.

Since our incorporation, we have devoted substantially all of our resources to developing our programs, building our intellectual property portfolio, business planning, raising capital and providing general and administrative support for these operations. To date, we have financed our operations with proceeds from the sales of common stock and preferred stock. In December 2017, we sold the inventory and rights to manufacture and sell research-only versions of our bioreactors to Harvard Bioscience. We did not recognize any revenues during the quarters ended March 31, 2022 and 2021.

Our product candidates are currently in development and have not yet received regulatory approval for sale anywhere in the world.

Financial Condition and Need for Additional Funds

We expect to continue to incur operating losses and negative cash flows from operations for 2022 and in future years.

Operating Losses and Cash Requirements

We have incurred substantial operating losses since our inception, and as of March 31, 2022 had an accumulated deficit of approximately $79.1 million and will require additional financing to fund future operations. We expect that our operating cash on-hand as of March 31, 2022 of approximately $0.7 million, along with cash proceeds of approximately $5.1 million received through May 16, 2022 from a private placement from new and existing investors, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023. We expect to continue to incur operating losses and negative cash flows from operations for 2022 and in future years. Therefore, as disclosed in Note 1 to our Consolidated Financial Statements, these conditions raise substantial doubt about our ability to continue as a going concern.

We will need to raise additional funds to fund our operations. In the event we do not raise additional capital from outside sources in the first quarter of 2023, we may be forced to curtail or cease our operations.

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Cash requirements and cash resource needs will vary significantly depending upon the timing of the financial and other resource needs that will be required to complete ongoing development, pre-clinical and clinical testing of product candidates, as well as regulatory efforts and collaborative arrangements necessary for our product candidates that are currently under development. We are currently seeking and will continue to seek financings from other existing and/or new investors to raise necessary funds through a combination of public or private equity offerings. We may also pursue debt financings, other financing mechanisms, research grants, or strategic collaborations and licensing arrangements. We may not be able to obtain additional financing on favorable terms, if at all.

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Our operations will be adversely affected if we are unable to raise or obtain needed funding and may materially affect our ability to continue as a going concern. Our consolidated financial statements have been prepared assuming that we will continue as a going concern and therefore, the consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty.

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Small Business Innovation Research Grant

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On March 28, 2018, we were awarded a Fast-Track Small Business Innovation Research (SBIR) grant by the Eunice Kennedy National Institute of Child Health and Human Development (NICHD) to support testing of pediatric BEI’s. For the three months

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ended March 31, 2021, the Company recognized approximately $118,000 of grant income from the SBIR grant. The SBIR grant expired effective September 30, 2021.

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Components of Operating Loss

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Research and development expense. Research and development expense consists of salaries and related expenses, including share-based compensation, for personnel and contracted consultants and various materials and other costs to develop our new products, primarily: synthetic scaffolds, including investigation and development of materials and investigation and optimization of cellularization, autoseeders, and 3D bioreactors, as well as studies of cells and cell behavior. Other research and development expenses include the costs of outside service providers and material costs for prototype and test units and outside laboratories and testing facilities performing cell growth and materials experiments, as well as the costs of all other preclinical research and testing including animal studies and expenses related to potential patents. We expense research and development costs as incurred.

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General and administrative expense. General and administrative expense consists primarily of salaries and other related expenses, including share-based compensation, for personnel in executive, accounting, information technology and human resources roles. Other costs include professional fees for legal and accounting services, insurance, investor relations and facility costs.

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Sublease income. On January 5, 2022, the Company executed a four-month sublease agreement for certain laboratory space at its Holliston, Massachusetts facility. For the three months ended March 31, 2022, we recognized approximately $29,000 in sublease income.

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Grant income. Grant income reflects income earned under the SBIR grant. Grant income is recognized based on timing of when qualified research and development costs are incurred.

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Other income (expense), net. Other income (expense), net, consists primarily of the changes in fair value of our warrant liability from the change in the fair value of common stock warrants classified as liability awards during the three months ended March 31, 2021. We previously used the Black-Scholes pricing model to value the related warrant liability. In February of 2022, the underlying common stock warrants expired unexercised.

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Critical Accounting Policies and Estimates

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Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States, or. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates under different assumptions or conditions.

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While our significant accounting policies are discussed in more detail in Note 2 to our financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

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Share-based Compensation

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We account for our share-based compensation in accordance with the fair value recognition provisions of current authoritative guidance. Share-based awards, including stock options, are measured at fair value as of the grant date and recognized as expense over the requisite service period (generally the vesting period), which we have elected to amortize on a straight-line basis. Expense on share-based awards for which vesting is performance or milestone based is recognized on a straight-line basis from the date when we determine the achievement of the milestone is probable to the vesting/milestone achievement date. Since share-based compensation expense is based on awards ultimately expected to vest, it has been reduced by an estimate for future forfeitures. We estimate forfeitures at the time of grant and revise our estimate, if necessary, in subsequent periods. We estimate the fair value of options granted using the Black-Scholes option valuation model. Significant judgment is required in determining the proper assumptions used in this model. The assumptions used include the risk-free interest rate, expected term, expected volatility and expected dividend yield.

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We base our assumptions on historical data when available or, when not available, on a peer group of companies. However, these assumptions consist of estimates of future market conditions, which are inherently uncertain and subject to our judgment, and therefore any changes in assumptions could significantly impact the future grant date fair value of share-based awards.

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Warrant Liability

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Most of the warrants to purchase shares of our common stock have been classified on our condensed consolidated balance sheets as equity. We classify warrants as a liability in our condensed consolidated balance sheets if the warrant is a free-standing financial instrument that may require us to transfer cash consideration upon exercise and that cash transfer event would be out of our control. Such a “liability warrant” is initially recorded at fair value on the date of grant using the Black-Scholes model, net of issuance costs, and it is subsequently re-measured to fair value at each subsequent balance sheet date. Changes in fair value of the warrants is recognized as a component of other income (expense) in the condensed consolidated statements of operations. The warrants classified as a liability expired unexercised during the three months ended March 31, 2022 and the remaining liability on the expiration date of approximately $2,000 was recognized as other income.

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Comparison of the three months ended March 31, 2022 compared to the three months ended March 31, 2021

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Research and Development Expense

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Research and development expense decreased approximately $0.2 million, or 36%, to approximately $0.3 million for the three months ended March 31, 2022 as compared to approximately $0.5 million for the three months ended March 31, 2021. This decrease was due primarily to lower employee and share-based compensation expenses of approximately $0.1 million and lower outsourced study costs and lab operating supplies expenses of approximately $0.1 million.

General and Administrative Expense

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General and administrative expense increased approximately $1.4 million, or 264%, to approximately $1.9 million for the three months ended March 31, 2022 as compared to approximately $0.5 million for the three months ended March 31, 2021.  This increase was due primarily to an increase in legal and related costs of approximately $1.2 million relating to the contingency matter for our ongoing litigation for a wrongful death complaint and related matters more fully described in Note 6 to our consolidated financial statements, an increase of approximately $0.1 million for higher stock-based compensation expenses and an increase of approximately $0.1 million for outside consulting fees for supporting our ongoing public company requirements.

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Sublease income

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On January 5, 2022, we executed a four-month sublease agreement for certain laboratory space at our Holliston, Massachusetts facility. For the three months ended March 31, 2022, we recorded sublease income of approximately $29,000 relating to this agreement.

Grant income

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For the three months ended March 31, 2021, we recorded grant income of approximately $0.1 million for qualified expenditures under our SBIR grant which expired effective September 30, 2021.

Other income (expense), net

During the three months ended March 31, 2022, we recorded a gain on expiration of the common share warrants of approximately $2,000 in other income (expense), net, as they expired unexercised in February 2022. During the three months ended March 31, 2021, the change in fair value of our warrant liability resulted in other income of approximately $4,000 due primarily to a decrease in the stock price and volatility of the underlying common shares.

Liquidity and Capital Resources

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Sources of liquidity. We have incurred operating losses since inception, and as of March 31, 2022, we had a deficit of approximately $79.1 million. We are currently investing significant resources in the development and commercialization of our product candidates for use by clinicians and researchers in the fields of regenerative medicine and bioengineering. As a result, we expect to incur operating losses and negative operating cash flows for the foreseeable future.

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The following table sets forth the primary uses of cash for the six months ended March 31, 2022 and 2021 (in thousands):

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Comparison of three months ended March 31, 2022 and 2021

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Operating activities. Net cash used in operating activities of approximately $0.5 million for the three months ended March 31, 2022 was due primarily to our net loss of approximately $2.2 million and adjustments for non-cash items of approximately $0.3 million due to non-cash expenses including share-based compensation, depreciation and the change in fair value of our warrant liability. These cash outflows were offset, in part, by an approximately $1.4 million increase in cash from changes in working capital due to the timing of payments for prepaid expenses and increases in accounts payable and accrued expenses.

Net cash used in operating activities of $0.6 million for the three months ended March 31, 2021 was due primarily to our net loss of $0.9 million, partially offset by a $0.2 million add-back for non-cash expenses including share-based compensation, depreciation, and change in the fair value of the warrant liability and $0.1 million of cash provided by working capital due to the timing of prepaid expenses and accounts payable.

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Investing activities. There were no investing activities for the three months ended March 31, 2022 and 2021, respectively.

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Financing activities. In February and March of 2022, we received cash of approximately $3.1 million from a group of new and existing investors pertaining to a private placement transaction which closed in May 2022. These funds remain the respective investor’s property and were being held in escrow by us in a separate account until the execution of the common stock purchase agreements which occurred on May 12, 2022.

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There were no financing activities for the three months ended March 31, 2021.

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Off-Balance Sheet Arrangements

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We do not have any material off-balance sheet arrangements as of March 31, 2022.

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Other Information

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None.

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additional shares of preferred stock at a rate of 8% per annum. The preferred stock will also have customary liquidation preferences, and certain limited consent and piggyback registration rights.

From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business. Other than the above matter, there are no such matters pending that we expect to be material in relation to our business, financial condition, results of operations, or cash flows.

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