HRGN 10-Q
Harvard Apparatus Regenerative Technology, Inc. (HRGN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from to
Commission
file number
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of | (IRS Employer | |
| Incorporation or Organization) | Identification No.) |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
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. ☒ ☐ 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). ☒ ☐ 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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ YES
As of November 4, 2024, there were shares of common stock, par value $ per share, outstanding.
Harvard Apparatus Regenerative Technology, Inc.
(formerly Biostage, Inc.)
Form 10-Q
For the Quarter Ended September 30, 2024
INDEX
| 2 |
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements.
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and par value data)
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Prepaid research and development | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Right-of-use assets, net | ||||||||
| Deferred financing costs | ||||||||
| Long-term prepaid contracts | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued and other current liabilities | ||||||||
| Operating lease liability | ||||||||
| Total current liabilities | ||||||||
| Operating lease liability, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 7) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, par value $ per share, shares authorized; and issued and outstanding at September 30, 2024 and December 31, 2023, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 3 |
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(in thousands, except share and per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Product revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Cost of sales | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income, net: | ||||||||||||||||
| Other (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Preferred stock dividends | ( | ) | ||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted net loss per share attributable to common stockholders | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average common shares outstanding, basic and diluted | ||||||||||||||||
| Comprehensive loss: | ||||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: Preferred stock dividends | ( | ) | ||||||||||||||
| Comprehensive loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 4 |
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(Unaudited)
(in thousands, except share data)
Series E Convertible Preferred | Number of Common Shares | Common | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ (Deficit) | ||||||||||||||||||||||
| Stock | Outstanding | Stock | Capital | Deficit | Loss | Equity | ||||||||||||||||||||||
| Balance at July 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||
| Issuance of common stock | — | |||||||||||||||||||||||||||
| Issuance of common stock from exercise of warrants | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
Number of Common Shares | Common | Additional Paid-in | Accumulated | Total Stockholders’ | ||||||||||||||||
| Outstanding | Stock | Capital | Deficit | Equity | ||||||||||||||||
| Balance at July 1, 2023 | $ | $ | $ | ( | ) | $ | | |||||||||||||
| Share-based compensation expense | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | ) | $ | ||||||||||||||
Series E Convertible Preferred | Number of Common Shares | Common | Additional Paid-in | Accumulated | Accumulated Other Comprehensive | Total Stockholders’ | ||||||||||||||||||||||
| Stock | Outstanding | Stock | Capital | Deficit | Loss | Equity | ||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | | |||||||||||||||||||
| Share-based compensation | — | — | ||||||||||||||||||||||||||
| Issuance of common stock | — | |||||||||||||||||||||||||||
| Issuance of common stock from exercise of warrants | ||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Other comprehensive loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
Series E Convertible Preferred | Number of Common Shares | Common | Additional Paid-in | Accumulated | Total Stockholders’ (Deficit) | |||||||||||||||||||
| Stock | Outstanding | Stock | Capital | Deficit | Equity | |||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||
| Preferred stock dividends | — | ( | ) | ( | ) | |||||||||||||||||||
| Conversion of preferred stock for common stock | ( | ) | ||||||||||||||||||||||
| Issuance of common stock, net of offering costs | — | |||||||||||||||||||||||
| Share-based compensation expense | — | — | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements
| 5 |
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Share-based compensation expense | ||||||||
| Depreciation | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ( | ) | ||||
| Prepaid research and development | ||||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Deferred financing costs | ||||||||
| Long-term prepaid contracts | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Accrued and other current liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES | ||||||||
| Purchases of short-term investments | ( | ) | ||||||
| Redemption of short-term investments | ||||||||
| Purchases of property, plant, and equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from convertible debt – related party | ||||||||
| Proceeds from issuance of common stock | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Payments on convertible debt – related party | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( | ) | ||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash and cash equivalents at the beginning of the year | ||||||||
| Cash and cash equivalents at the end of the period | $ | $ | ||||||
| Supplemental disclosure of non-cash activities: | ||||||||
| Purchases of property and equipment in accounts payable or accrued expenses | $ | $ | ||||||
| Preferred stock dividends | $ | $ | ||||||
| Conversion of preferred stock into common stock | $ | $ | ||||||
See accompanying notes to unaudited condensed consolidated financial statements.
| 6 |
HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Overview
Harvard Apparatus Regenerative Technology, Inc. (Harvard Apparatus Regenerative Technology or the Company) is a biotechnology company with a mission to cure patients of cancers, injuries, and birth defects of the gastro-intestinal tract and the airways. The Company believes its technology is likely to be used to treat esophageal cancer, esophageal injuries, and birth defects in the esophagus. The Company believes additional product candidates in our development pipeline may treat intestinal cancer and colon cancer. Since inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and acquiring operating assets.
Consumer Health Products
In the second quarter of 2023, the Company’s subsidiary in Hong Kong, Harvard Apparatus Regenerative Technology Limited, or Consumer Health Products, started focusing on sales of consumer health products.
Consumer Health Products plans to include a broad range of products focused on personal healthcare including dietary supplements. The Company currently sells dietary supplements through Consumer Health Products. These products are commercially marketed to the general public and initially targeted at consumers in the Great China Region through eCommerce (online sales).
Going Concern
The
Company has incurred substantial operating losses since its inception, and as of September 30, 2024, had an accumulated deficit of approximately
$
The Company will need to raise additional capital to fund its current operations. In the event the Company is unable to raise additional capital from outside sources during the first quarter of 2025, it may be forced to curtail or cease its operations.
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 the Company’s product candidates that are currently under development. The Company is currently seeking and will continue to seek financing from other existing and/or new investors to raise necessary funds through a combination of public or private equity offerings. The Company may also pursue debt financings, other financing mechanisms, research grants, or strategic collaborations and licensing arrangements. The Company may not be able to obtain additional financing on favorable terms, if at all.
The Company’s operations will be adversely affected if it is unable to raise or obtain needed funding and may materially affect the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and therefore, the condensed 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.
| 7 |
2. Summary of Significant Accounting Policies and Recently Issued Accounting Pronouncements
Summary of Significant Accounting Policies
The accounting policies underlying the accompanying condensed consolidated financial statements are those set forth in Note 2 to the condensed consolidated financial statements for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K.
Prior Period Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation. “Selling and marketing” operating expenses was reclassified from “Selling, general and administrative” operating expenses on our condensed consolidated financial statements.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Harvard Apparatus Regenerative Technology and its subsidiaries, Harvard Apparatus Regenerative Technology Limited (Hong Kong), Harvard Apparatus Regenerative Technology (Hangzhou) Limited (China), and Harvard Apparatus Regenerative Technology GmbH (Germany). All intercompany balances and transactions have been eliminated in consolidation.
Basis of Presentation
The condensed consolidated financial statements reflect the Company’s financial position, results of operations and comprehensive loss and cash flows in conformity with accounting principles generally accepted in the United States, or U.S. GAAP. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
Use of Estimates
The process of preparing condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed 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.
Revenue
We recognize revenue in accordance with Financial Accounting Standards Board (FASB) ASC 606, Revenue from Contracts with Customers. We offer consumer products primarily through a third-party online store. Revenue is recognized at a point in time when control of the goods is transferred to the customer, which generally occurs upon the delivery to the customer. For any company direct sales to customers, revenue is recognized at a point in time upon shipment of product or hand-delivery to customer. Revenue also excludes any amounts collected on behalf of third parties, including sales and indirect taxes.
We identify a performance obligation as distinct if both the following criteria are true: the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract. Determining the standalone selling price (“SSP”) and allocation of consideration from a contract to the individual performance obligations, and the appropriate timing of revenue recognition, is the result of significant qualitative and quantitative judgments. Management considers a variety of factors such as historical sales, usage rates, costs, and expected margin, which may vary over time depending upon the unique facts and circumstances related to each performance obligation in making these estimates. While changes in the allocation of the SSP between performance obligations will not affect the amount of total revenue recognized for a particular contract, any material changes could impact the timing of revenue recognition, which would have a material effect on our financial position and result of operations. This is because the contract consideration is allocated to each performance obligation, delivered or undelivered, at the inception of the contract based on the SSP of each distinct performance obligation.
Cost of Sales
Cost of sales primarily consists of the purchase price of consumer products, taxes, inbound and outbound shipping costs. Shipping costs to receive products from our suppliers are recognized as cost of sales when incurred. E-commerce processing and related transaction costs, including those associated with seller transactions, are classified in sales and marketing on our condensed consolidated statements of operations and comprehensive loss.
Research and Development
Research and development costs are expensed as incurred.
Sales and Marketing
Sales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities.
| 8 |
General and Administrative
General and administrative expenses primarily consist of costs for corporate functions, including payroll and related expenses; facilities and equipment expenses, such as depreciation and amortization expense and rent; and professional fees.
Segment Information
The
Company manages its operations as
Cash Concentrations
The Company maintains its cash balances with a financial institution in federally insured accounts and may periodically have cash balances in excess of insurance limits. The Company maintains its accounts with financial institutions with a high credit rating. The Company has not experienced any losses to date and believes that it is not exposed to any significant credit risk on cash.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. The Company currently invests available cash in money market funds.
Accounts Receivable
Allowances
for credit losses are provided for estimated amounts of accounts receivable which may not be collected. At September 30, 2024 and December
31, 2023, we determined that
Inventory
Inventory, consisting of products available for sale, are primarily accounted for using the first-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category.
We maintain ownership of our inventory at the third-party warehouse, regardless of whether fulfillment is provided by us or the third-party e-commerce seller, and therefore these products are included in our inventory.
Deferred Financing Costs
We capitalized costs relating to a registered offering that we postponed in fiscal year 2023 but expected to resume in the near future. The costs include payments made to attorneys, accountants, regulators and consultants. We have changed our outlook and do not expect to complete the registered offering in fiscal year 2024, therefore, the deferred financing costs were expensed to general and administrative expenses on the condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2024.
| 9 |
Long-term Prepaid Contracts
We
have contracted with partners relating to our clinical trial activities. Upon execution of the contracts, we made initial payments of
$
Property, Plant and Equipment
Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets as follows:
| Leasehold improvements | ||
| Computer equipment and software | ||
| Furniture, machinery and equipment |
Maintenance and repairs are charged to expense as incurred, while any additions or improvements are capitalized.
Foreign Currency
Assets and liabilities of non-U.S. operations where the functional currency is other than the U.S. dollar are translated from the functional currency into U.S. dollars at year end exchange rates, and revenues and expenses are translated at average rates prevailing during the year. Resulting translation adjustments are accumulated as part of accumulated other comprehensive loss. Transaction gains or losses are recognized in income or loss in the period in which they occur.
Basic net loss per share is calculated by dividing net loss applicable to common stockholders by the weighted-average number of shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted-average number of shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the if-converted method. For purposes of the diluted net loss per share calculation, warrants to purchase the Company’s common stock, par value $ per share ( the “Common Stock”) and stock options are considered to be common stock equivalents, but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share applicable to common stockholders were the same for all periods presented.
Unaudited Interim Financial Information
The accompanying interim condensed consolidated balance sheet as of September 30, 2024, condensed consolidated interim statements of operations and comprehensive loss and condensed consolidated statements of stockholders’ (deficit) equity for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023 are unaudited. The interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. 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 September 30, 2024, its condensed consolidated results of operations and stockholders’ (deficit) equity for the three and nine months ended September 30, 2024 and 2023, and cash flows for the nine months ended September 30, 2024 and 2023. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2024 and 2023 are unaudited. The results for the three and nine months ended September 30, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods or any future year or period.
| 10 |
Recent 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 condensed consolidated financial statements upon adoption.
In August 2020, the FASB issued Accounting Standards Update (ASU) No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Among other changes, the new guidance removes the beneficial conversion separation model for convertible debt. As a result, after adopting the guidance, entities will no longer account for beneficial conversion features in equity. The guidance is effective for public business entities, other than small reporting company’s financial statements starting January 1, 2022, with early adoption permitted. The Company is a small reporting company and adopted the new guidance on January 1, 2024, and the adoption of ASU 2020-06 did not have a material impact on its condensed consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The objective of ASU 2023-09 is to enhance disclosures related to income taxes, including specific thresholds for inclusion within the tabular disclosure of income tax rate reconciliation and specified information about income taxes paid. ASU 2023-09 is effective for public companies starting in annual periods beginning after December 15, 2024. The Company is currently evaluating the impact that ASU 2023-09 will have on its condensed consolidated financial statements.
In November 2023, the FASB issued ASU Number 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker(s) that are included within each reported measure of segment profit or loss. The guidance also expands disclosure requirements for interim periods, as well as requires disclosure of other segment items, including the title and position of the entity’s chief operations decision maker(s). ASU 2023-07 will become effective for the Company for the fiscal year ending December 31, 2024, and for interim periods starting in the Company’s first quarter of 2025. Early adoption is permitted, and guidance is required to be applied retrospectively. The Company is currently evaluating the impact of the adoption of ASU 2023-07 on its condensed consolidated financial statements.
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 or Level 3 as of September 30, 2024 and December 31, 2023. The carrying value
of financial instruments (consisting of cash, accounts payable, accrued compensation and accrued expenses) is considered to be representative
of their respective fair values due to the short-term nature of those instruments. For the nine months ended September 30, 2023, the
Company had short-term investments generating investment income. Investment income is included as other income. Investment income for
the three months ended September 30, 2024 and September 30, 2023 consists primarily of interest earned of $
4. Accrued and Other Current Liabilities
Accrued and other current liabilities consist of the following:
| September 30, | December 31, | |||||||
| 2024 | 2023 | |||||||
| (in thousands) | ||||||||
| Advisory costs | $ | $ | ||||||
| Audit services | ||||||||
| Payroll | ||||||||
| Other liabilities | ||||||||
| Total accrued and other current liabilities | $ | $ | ||||||
| 11 |
5. Capital Stock
Preferred Stock
The Company has authorized a total of shares of preferred stock, par value $ per share (the “Preferred Stock”), none of which were outstanding at September 30, 2024 and December 31, 2023. The Company’s Board of Directors (the “Board”) has the authority to issue Preferred Stock and to determine the rights, preferences, privileges, and restrictions, including voting rights.
Common Stock
On
August 19, 2024, the Company entered into a securities purchase agreement (“August Purchase
Agreement”) with an investor (the “August Investor”) pursuant to which the August Investor agreed to purchase
in a private placement an aggregate of shares of Common Stock for the aggregate purchase price of approximately $
The
August Purchase Agreement required the Company to increase the size of the Board by one member, to appoint a designee selected by the
August Investor to the Board, and to take certain actions to ensure that the designee remains on the Board. The Company also agreed to
use its reasonable best efforts to obtain approval from its stockholders at the next annual meeting of stockholders to amend the Company’s
Amended and Restated Certificate of Incorporation (the “Charter”) to eliminate classification of directors and to amend the
Charter and the Company’s Third Amended and Restated Bylaws to permit special stockholder meetings to be called by holders of at
least
On
April 15, 2024, the Company entered into securities purchase agreements (each an “April Purchase
Agreement,” collectively the “April Purchase Agreements”) with certain investors each
named therein (the “Investor,” collectively the “Investors”) pursuant to which each of the Investors agreed
to purchase in a private placement an aggregate of shares of Common Stock for the aggregate gross proceeds of approximately $
Pursuant to the April Purchase Agreements, if the Company closes an equity financing in a registered public offering of its securities on or before six (6) months from the date of the April Purchase Agreements, and the public offering price per share was less than the per share purchase price of the 2024 Private Placement, then the Company shall promptly following such closing issue to each Investor additional shares of Common Stock in an amount equal to the difference between (i) the shares issued in the 2024 Private Placement, and (ii) result of dividing (a) the subscription amount for each April Purchase Agreement, by (b) the public offering per share. As of October 15, 2024, the Company had not completed an equity financing through a registered public offering of its securities since April 15, 2024.
On
April 12, 2023 and on March 31, 2023, 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
shares of Common Stock for the aggregate purchase price of approximately $
On
January 18, 2023, Harvard Bioscience converted Series E Preferred Shares with accrued dividends of $
| 12 |
In
connection with the 2023 Private Placement, as of April 12, 2023, the Company had received $
Warrants
The
Company had
| Amount | ||||
| Outstanding at December 31, 2023 | ||||
| Exercised | ( | ) | ||
| Outstanding at September 30, 2024 | ||||
Harvard Apparatus Regenerative Technology Amended and Restated Equity Incentive Plan
The Company maintains the Amended and Restated Equity Incentive Plan, or 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 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 the vesting of restricted stock units. The vesting period for awards is generally and the contractual life is . Canceled and forfeited options and awards are available to be reissued under the Plan.
As of September 30, 2024, the Company’s Plan has authorized shares to be issued under the Plan. There were shares available for issuance as of September 30, 2024.
| Amount | Weighted-average exercise price | Weighted-average contractual life (years) | Aggregate intrinsic value (in thousands) | |||||||||||||
| Outstanding at December 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Outstanding at September 30, 2024 | ||||||||||||||||
| Options exercisable | ||||||||||||||||
| Options vested and expected to vest | ||||||||||||||||
The Company’s outstanding stock options include performance-based awards that have vesting provisions subject to the achievement of certain business milestones. Total unrecognized compensation expense for the performance-based awards is approximately $ million. The Company recognized approximately $million and $ million in stock-based compensation during the three and nine months ended September 30, 2024 given that some milestone achievements for these awards have been deemed probable for accounting purposes. expense had been recognized for these awards during the three and nine months ended September 30, 2023 given that the milestone achievements for these awards were not probable at the time for accounting purposes.
Aggregate intrinsic value for outstanding options as of September 30, 2024 was approximately $ million and calculated as the difference between the Company’s closing stock price of $ per share as of September 30, 2024 and the weighted average exercise price of $. As of September 30, 2024, unrecognized compensation cost related to unvested non-performance-based awards amounted to $ million, which will be recognized over a weighted-average period of years.
| 13 |
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected volatility | % | % | ||||||
| Expected term (in years) | years | years | ||||||
| Expected dividend yield | % | % | ||||||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
7. Commitments and Contingencies
From time to time, the Company may be involved in various claims and legal proceedings arising in the ordinary course of business. 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.
On
March 25, 2024,
On
August 12, 2024, the Company entered into an operating lease agreement for approximately
We
currently have a co-development initiative with Yale University and the McGowan Institute for Regenerative Medicine at the University
of Pittsburgh. We owe advance payments of approximately $
| 14 |
8. Convertible Debt – Related Party
Convertible Debt
On
February 1, 2024, the Company entered into a loan arrangement with Junli He, the Chairman and Chief Executive Officer of the Company
(the “Lender”), pursuant to which the Lender loaned the Company an aggregate amount of $
9. Leases
The
Company leases laboratory and office space and certain equipment with a remaining term of
On
August 12, 2024, the Company entered into the HQ Lease, an operating lease agreement for laboratory and office space in Holliston,
MA, with an initial three-year term from September 1, 2024 through August 31, 2027. The Company accounts for the HQ Lease under the
provisions of ASU No. 2021-09, ASU 2018-10, and ASC 842. We recorded approximately $
The HQ Lease contains escalating payments during the lease term. Upon execution of the HQ Lease, the Company paid
a security deposit, which will be held in escrow and credited at the termination of the lease. As of September 30, 2024, a security deposit
of approximately $
On
March 25, 2024, the Company entered into an operating lease agreement for office space in Beijing, China with an initial two-year term
from April 1, 2024 through April 10, 2026. We recorded approximately $
All of the Company’s leases qualify as operating leases. The following table summarizes the presentation of the Company’s operating leases in its condensed consolidated balance sheets:
| Balance Sheet Classification | September 30, 2024 | December 31, 2023 | ||||||||
| Assets: | ||||||||||
| Operating lease assets | Right-of-use assets, net | $ | $ | |||||||
| Liabilities: | ||||||||||
| Current portion of operating lease liability | Current portion of operating lease liability | |||||||||
| Operating lease liability, net of current portion | Operating lease liability, net of current portion | |||||||||
| Total operating lease liability | $ | $ | ||||||||
The Company recorded operating lease expense in the following categories in its condensed consolidated statements of operations and comprehensive loss:
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (in thousands) | (in thousands) | |||||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 15 |
Cash
paid included in the computation of the operating lease assets and lease liability during the three and nine months ended September 30,
2024 amounted to approximately $
The weighted average remaining lease term and weighted average discount rate of the Company’s operating leases are as follows:
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Remaining lease term (in years) | ||||||||
| Discount rate | % | % | ||||||
The minimum lease payments for the next year are expected to be as follows:
| As of | ||||
| September 30, 2024 | ||||
| (in thousands) | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | ) | ||
| Present value of operating lease liability | $ | |||
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| (in thousands, except shares and per share data) | (in thousands, except shares and per share data) | |||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Preferred stock dividends | ( | ) | ||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average common shares outstanding | ||||||||||||||||
| Basic and diluted net loss per share attributable to common stockholders | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Nine months ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Options to purchase Common Stock | ||||||||
| Warrants to purchase Common Stock | ||||||||
| Total | ||||||||
11. Income Taxes
The Company did not record a federal or state income tax provision or benefit for the nine months ended September 30, 2024 and 2023, respectively, due to the expected loss before income taxes to be incurred for the years ended December 31, 2024 and 2023, as well as the Company’s continued maintenance of a full valuation allowance against its net deferred tax assets.
12. Segments
The Company’s CODM is its Chief Executive Officer. The Company’s CODM evaluates the operating results of the Company’s reportable segments based on revenues and net income (loss).
The
Company has
| Regenerative Biotech | Consumer Health Products | Total | ||||||||||
| 2024 | ||||||||||||
| Revenues | $ | $ | $ | |||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ||||||
| Total assets | ||||||||||||
13. Subsequent Events
In October 2024, the Company entered into an exclusive distribution agreement (the “Distribution Agreement”) with Health Regen, Inc. (“Health Regen”), of Pittsfield, MA. Pursuant to the Distribution Agreement the Company granted Health Regen exclusive distribution rights to all of our Consumer Health Products globally. The initial term of the Distribution Agreement is from November 1, 2024 through December 31, 2030.
| 16 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward Looking Statements
This Quarterly Report on Form 10-Q contains statements that are not statements of historical fact and are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). The forward-looking statements are principally, but not exclusively, contained in “Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements include, but are not limited to, statements about management’s confidence or expectations and our plans, objectives, expectations and intentions that are not historical facts and the potential impact of COVID-19 on our business and operations. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “goal,” “see,” “estimate,” “project,” “predict,” “intend,” “think,” “potential,” “objective,” “optimistic,” “strategy,” and similar expressions intended to identify forward-looking statements. These statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Factors that may cause our actual results to differ materially from those in the forward-looking statements include our ability to access debt and equity markets and raise additional capital when needed; the success of our collaborations, clinical trials and pre-clinical development efforts and programs, which success may not be achieved on a timely basis or at all; our ability to obtain and maintain regulatory approval for our implant products, bioreactors, scaffolds and other devices we pursue, including for the esophagus or airway, which approvals may not be obtained on a timely basis or at all; the number of patients who can be treated with our products; the amount and timing of costs associated with our development of implant products, bioreactors, scaffolds and other devices; our failure to comply with regulations and any changes in regulations; unpredictable difficulties or delays in the development of new technology; our collaborators or other third parties we contract with, including with respect to conducting any clinical trial or pre-clinical development efforts, not devoting sufficient time and resources to successfully carry out their duties or meet expected deadlines; our ability to attract and retain qualified personnel and key employees and retain senior management; potential liability exposure with respect to our products; the availability and price of acceptable raw materials and components from third-party suppliers; difficulties in obtaining or retaining the management and other human resource competencies that we need to achieve our business objectives; increased competition in the field of regenerative medicine and bioengineering, and the financial resources of our competitors; increased competition in the field of consumer health products; our ability to obtain and maintain intellectual property protection for our device and product candidates; our inability to implement our growth strategy; the control our principal stockholders can exert based on holding a majority of voting power; plus factors described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 28, 2024 or described in our other public filings. Our results may also be affected by factors of which we are not currently aware. We may not update these forward-looking statements, even though our situation may change in the future, unless we have obligations under the federal securities laws to update and disclose material developments related to previously disclosed information.
Harvard Apparatus Regenerative Technology, Inc. is referred to herein as “we,” “our,” “us”, and “the Company”.
Business Overview
We are a clinical-stage biotechnology company focused on the development of regenerative medicine treatments for disorders of the gastro-intestinal system and other organs that result from cancer, trauma or birth defects.
We believe that our technology represents a next generation solution for restoring organ function because it allows the patient to regenerate their own organ, thus eliminating the need for human donor or animal transplants, the sacrificing of another of the patient’s own organs or permanent artificial implants.
Our first esophageal product candidate, our esophageal implant was used in the first successful regeneration of the esophagus in a patient with esophageal cancer. This successful first-in-human experience, plus the research we have performed on over 50 pigs, led the FDA to approve our 10-patient phase 1 clinical trial. This combination trial will measure both safety and efficacy in the patient population.
We have contracted with IQVIA, a leading global provider of advanced analytics, technology solutions and clinical research services to the life sciences industry, as the contract research organization (“CRO”) to manage our first clinical trial. We activated the first clinical trial site and started screening patients in the third quarter of 2023.
We have encountered delays in patient recruitment for our ongoing clinical trial, driven by several factors, including the existing comorbid conditions for clinical trial participants, the stringent eligibility criteria required by FDA for our studies, and logistical difficulties in enrolling participants across various sites.
Although we are actively implementing strategies to mitigate these challenges, such as increasing the number of trial sites and enhancing patient outreach efforts, there is a risk that these measures may not completely resolve the recruitment issues. Our product candidates are currently in development and have not yet received regulatory approval for sale anywhere in the world.
In addition to our development of regenerative medicine treatments, we also sell dietary supplements. In the second quarter of 2023, the Company’s subsidiary in Hong Kong, Consumer Health Products started focusing on consumer health products. Consumer Health Products plans to include a broad range of products focused on personal healthcare including dietary supplements. Consumer Health Products started selling consumer health supplements in the third quarter of 2023. These products are commercially marketed to the general public and initially targeted at consumers in the Great China Region through eCommerce (online sales).
| 17 |
We were incorporated and commenced operations on November 1, 2013 as a result of a spin-off from Harvard Bioscience, Inc., or Harvard Bioscience. On that date, we became an independent company that operates the regenerative medicine business previously owned by Harvard Bioscience. The spin-off was completed through the distribution of all the shares of common stock of Harvard Apparatus Regenerative Technology to Harvard Bioscience stockholders.
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, 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 selling, 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.
Business Segments
The Company has two separate reportable segments. The Company has one segment, Harvard Apparatus Regenerative Technology, Inc., or Regenerative Biotech, focused on the development and commercialization of therapies to cure patients of cancers, injuries, and birth defects of the gastro-intestinal tract and the airways. The other segment, Consumer Health Products, is focused on personal healthcare including dietary supplements.
Financial Condition and Need for Additional Funds
We expect to continue to incur operating losses and negative cash flows from operations for 2024 and in future years.
Operating Losses and Cash Requirements
We have incurred substantial operating losses since our inception, and as of September 30, 2024, had an accumulated deficit of approximately $98.3 million and will require additional financing to fund future operations. We expect that our operating cash on-hand as of September 30, 2024 of approximately $3.6 million will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2025. We expect to continue to incur operating losses and negative cash flows from operations for 2024 and in future years. Therefore, as disclosed in Note 1 to our Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q, these conditions raise substantial doubt about our ability to continue as a going concern.
We will need to raise additional capital to fund our current operations. In the event we do not raise additional capital from outside sources during the first quarter of 2025, we may be forced to curtail or cease our operations.
| 18 |
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.
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 condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and therefore, the condensed 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.
Components of Operating Loss
Product revenue. Product revenue consists of consumer health product sales, launched in the Great China Region in the third quarter of 2023. We had not generated any revenue prior to the launch of our consumer health products.
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, 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.
Sales and marketing expense. Sales and marketing costs include advertising and payroll and related expenses for personnel engaged in marketing and selling activities.
General and administrative expense. Selling, general and administrative expense consists primarily of salaries and other related expenses, including share-based compensation. Other costs include professional fees for legal and accounting services, insurance, investor relations and facility costs.
Other (expense) income, net. Other (expense) income, net, consists primarily of interest expense on convertible debt and finance charges on insurance installment payments offset by interest income.
Critical Accounting Policies and Estimates
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 U.S. 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.
While our significant accounting policies are discussed in more detail in Note 2 to our Condensed Consolidated 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.
| 19 |
Share-based Compensation
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. Until December 31, 2022, we estimated forfeitures at the time of grant and would revise our estimate, if necessary, in subsequent periods. As of January 1, 2023, we account for forfeitures as they occur. 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. 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.
Results of Operations
The following table summarizes the results of our operations for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three months ended September 30, | Change 2024 vs. 2023 | Nine months ended September 30, | Change 2024 vs. 2023 | |||||||||||||||||||||||||||||
| 2024 | 2023 | Change | % | 2024 | 2023 | Change | % | |||||||||||||||||||||||||
| Product revenue | $ | 59 | $ | 40 | $ | 19 | 48 | % | $ | 172 | $ | 40 | $ | 132 | 330 | % | ||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||
| Cost of sales | 70 | 13 | 57 | 439 | % | 95 | 13 | 82 | 631 | % | ||||||||||||||||||||||
| Research and development | 557 | 339 | 218 | 64 | % | 2,039 | 2,414 | (375 | ) | (16 | )% | |||||||||||||||||||||
| Sales and marketing | 143 | 143 | — | — | % | 455 | 198 | 257 | 130 | % | ||||||||||||||||||||||
| General and administrative | 1,148 | 1,169 | (21 | ) | (2 | )% | 3,944 | 4,577 | (633 | ) | (14 | )% | ||||||||||||||||||||
| Total operating expenses | 1,918 | 1,664 | 254 | 15 | % | 6,533 | 7,202 | (669 | ) | (9 | )% | |||||||||||||||||||||
| Other (expense) income | ||||||||||||||||||||||||||||||||
| Other (expense) income, net | (1 | ) | 9 | (10 | ) | (111 | )% | (27 | ) | 43 | (70 | ) | (163 | )% | ||||||||||||||||||
| Net loss | $ | (1,860 | ) | $ | (1,615 | ) | $ | (245 | ) | (15 | )% | $ | (6,388 | ) | $ | (7,119 | ) | $ | 731 | 10 | % | |||||||||||
| 20 |
Comparison of the three months ended September 30, 2024 and September 30, 2023
Product Revenue
Product revenue was $59,000 and $40,000 for the three months ended September 30, 2024 and 2023, respectively. Product revenue consists of consumer health product sales, launched in the Great China Region in the third quarter of 2023. We had not generated any revenue prior to the launch of our consumer health products.
Cost of Sales
Cost of sales was $70,000 and $13,000 for the three months ended September 30, 2024 and 2023, respectively. For the three months ended September 30, 2024, cost of sales consists of the purchase price of consumer products, taxes, inbound and outbound shipping costs. The gross profit margin on our products decreased primarily due to discounted sales aimed at achieving market penetration for our newly introduced product.
Research and Development Expense
Research and development expense increased approximately $0.2 million, or 64%, to approximately $0.5 million for the three months ended September 30, 2024 as compared to approximately $0.3 million for the three months ended September 30, 2023. This increase was primarily due to significant initial clinical trial activities in the prior period resulting in our first site activation in the third quarter of 2023.
Sales and Marketing Expense
Selling and marketing expense was $0.2 million for the three months ended September 30, 2024 and 2023. The headcount related costs stayed steady over the prior period.
General and Administrative Expense
General and administrative expense decreased approximately $0.02 million, or 2%, to approximately $1.1 million for the three months ended September 30, 2024 as compared to approximately $1.2 million for the three months ended September 30, 2023. This decrease was primarily due to reduced legal fees incurred during the current quarter.
Other (expense) income, net
During the three months ended September 30, 2024, we recorded interest expense of approximately $7,000 on convertible debt and approximately $4,000 on insurance installment payments offset by interest income of approximately $9,000 earned from our money market account. During the three months ended September 30, 2023, we recorded interest income of approximately $18,000 earned from our money market account and certificate of deposit offset by approximately $4,000 on insurance installment payments. In 2023, we refunded $5,000 of a deposit not utilized, which was recorded as sublease income in 2022.
| 21 |
Comparison of the nine months ended September 30, 2024 and September 30, 2023
Product Revenue
Product revenue was $172,000 and $40,000 for the nine months ended September 30, 2024 and 2023, respectively. Product revenue consists of consumer health product sales, launched in the Asia region in the third quarter of 2023. Sales grew as a result of broadening our distribution channels to access a larger consumer base.
Cost of Sales
Cost of sales was $95,000 and $13,000 for the nine months ended September 30, 2024 and 2023, respectively. For the nine months ended September 30, 2024, cost of sales consists of the purchase price of consumer products, taxes, inbound and outbound shipping costs. The cost of sales in 2024 reflects nine months of activity, following the product’s launch in the Asia region during the third quarter of 2023.
Research and Development Expense
Research and development expense decreased approximately $0.4 million, or 15%, to approximately $2.0 million for the nine months ended September 30, 2024 as compared to approximately $2.4 million for the nine months ended September 30, 2023. This decrease was primarily due to significant initial clinical trial activities in the prior period resulting in our first site activation in the third quarter of 2023.
Sales and Marketing Expense
Selling and marketing expense was $0.5 million for the nine months ended September 30, 2024 as compared to $0.02 million for the nine months ended September 30, 2023. The Consumer Health Products business was launched in the Asia region in the third quarter of 2023.
General and Administrative Expense
General and administrative expense decreased approximately $0.6 million, or 14%, to approximately $3.9 million for the nine months ended September 30, 2024 as compared to approximately $4.6 million for the nine months ended September 30, 2023. This decrease was primarily due to share-based compensation expense of $1.3 million from the vesting of performance based awards in the first half of 2023 offset by the recording of expense in the current period of one-time offering costs of $0.5 million relating to the initial registered offering that did not occur in a prior year.
Other (expense) income, net
During the nine months ended September 30, 2024, we recorded interest expense of approximately $23,000 on convertible debt and approximately $13,000 on insurance installment payments offset by interest income of approximately $9,000 earned from our money market account. During the nine months ended September 30, 2023, we recorded interest income of approximately $59,000 earned from our money market account and certificate of deposit offset by approximately $11,000 on insurance installment payments. In 2023, we refunded $5,000 of a deposit not utilized, which was recorded as sublease income in 2022.
Liquidity and Capital Resources
Sources of liquidity. We have incurred operating losses since inception, and as of September 30, 2024, we had an accumulated deficit of approximately $98.3 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. Therefore, as disclosed in Note 1 to our Condensed Consolidated Financial Statements, these conditions raise substantial doubt about our ability to continue as a going concern.
| 22 |
The following table sets forth the primary uses of cash for the nine months ended September 30, 2024 and 2023 (in thousands):
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (3,727 | ) | $ | (5,721 | ) | ||
| Net cash used by investing activities | $ | — | $ | (1,243 | ) | |||
| Net cash provided by financing activities | $ | 6,912 | $ | 5,992 | ||||
Comparison of the nine months ended September 30, 2024 and 2023
Operating activities. Net cash used in operating activities of approximately $3.7 million for the nine months ended September 30, 2024 was due primarily to our net loss of approximately $6.4 million offset by adjustments for non-cash items of approximately $1.7 million due to non-cash expenses for share-based compensation and depreciation, and an approximately $1.0 million increase to cash from changes in working capital due to the timing of payments for accounts receivable, inventory, prepaid expenses, deferred financing costs, long-term prepaid contracts, accounts payable and accrued expenses.
Net cash used in operating activities of approximately $5.7 million for the nine months ended September 30, 2023 was due primarily to our net loss of approximately $7.1 million offset by adjustments for non-cash items of approximately $2.9 million due to non-cash expenses for share-based compensation and depreciation, and an approximately $1.5 million decrease to cash from changes in working capital due to the timing of payments for accounts receivable, inventory, prepaid expenses, deferred financing costs, long-term prepaid contracts, accounts payable and accrued expenses.
Investing activities. Net cash used in investing activities included purchases of property, plant and equipment for the nine months ended September 30, 2024 and 2023 representing approximately zero and $11,000, respectively. During the nine months ended September 30, 2023, we invested in a certificate of deposit for $2.5 million that earned $32,000 in interest. We withdrew $1.3 million from the certificate of deposit prior to the maturity date to pay clinical trial related deposits. The certificate of deposit matured in October 2023 with the remaining $1.2 million released from short-term investments into cash and cash equivalents.
Financing activities. During the nine months ended September 30, 2024, net cash generated from financing activities totaled approximately $6.9 million. This included net proceeds of $0.5 million from debt financing, $0.4 million from stock warrant exercises, and $6.5 million from private placement transactions, which resulted in the issuance of 1,756,655 shares of our Common Stock to a group of investors. The $0.5 million in debt was repaid in August 2024. In comparison, net cash generated from financing activities during the nine months ended September 30, 2023, was approximately $6.0 million, primarily from private placement transactions that resulted in the issuance of 1,000,967 shares of our Common Stock to a group of investors.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements as of September 30, 2024.
Other Information
None.
| 23 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is a smaller reporting company and is not required to provide this information pursuant to Item 305(e), Regulation S-K.
Item 4. Controls and Procedures.
This Report includes the certifications of our principal executive officer and our principal financial and accounting officer required by Rule 13a-14 of the Exchange Act. See Exhibits 31.1 and 31.2.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer, Director, and Chairman, who is our principal executive officer, and our Chief Financial Officer, who is our principal financial and accounting officer, to allow timely decisions regarding required disclosures.
In connection with the preparation of this Quarterly Report on Form 10-Q, our management, under the supervision and with the participation of our principal executive officer and our principal financial and accounting officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2024. Based upon the evaluation described above, our principal executive officer and our principal financial and accounting officer have concluded that they believe our disclosure controls and procedures were effective as of the end of the period covered by this report, in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and our principal financial and accounting officer, to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
Changes in Internal Control over Financial Reporting
Our management, with the participation of our principal executive officer and our principal financial and accounting officer, has evaluated whether any change in our internal control over financial accounting and reporting occurred during the quarter ended September 30, 2024. During the period covered by this report, we have concluded that there were no changes during the fiscal quarter in our internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act, which have materially affected, or are reasonably likely to materially affect, our internal control over financial accounting and reporting.
| 24 |
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in various claims and legal proceedings arising in the ordinary course of business. There are no such matters pending that we expect to be material in relation to our business, financial condition, and results of operations or cash flows.
Item 1A. Risk Factors
To our knowledge and except to the extent additional factual information disclosed in this Quarterly Report on Form 10-Q relates to such risk factors, there have been no material changes in the risk factors described in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 28, 2024.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 5. Other Information
In
the three months ended September 30, 2024, no directors or officers
Item 6. Exhibits
| 25 |
| # | Management contract or compensatory plan or arrangement. |
| + | Filed herewith. |
| * | This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934. |
| 26 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by undersigned thereunto duly authorized.
Date: November 13, 2024
| HARVARD APPARATUS REGENERATIVE TECHNOLOGY, INC. | ||
| By: | /s/ Junli He | |
| Name: | Junli He | |
| Title: | Chief Executive Officer, Director, and Chairman (principal executive officer) | |
| By: | /s/ Joseph L.Damasio Jr. | |
| Name: | Joseph L. Damasio Jr. | |
| Title: | Chief Financial Officer (principal financial officer) | |
| 27 |