NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Overview and Basis of Presentation
Overview
Biostage,
Inc. (Biostage or the Company) is a clinical-stage biotechnology company focused on the development of regenerative medicine treatments
for disorders of the gastro-intestinal system and the airway that result from cancer, trauma or birth defects. The Company’s technology
is based on our proprietary cell-therapy platform that uses a patient’s own stem cells to regenerate and restore function to damaged
organs. The Company believes that its 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. 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. The
Company has one business segment and does not have significant costs or assets outside the United States.
On
October 31, 2013, Harvard Bioscience, Inc., or Harvard Bioscience, contributed its regenerative medicine business assets, plus $15 million
of cash into Biostage, or the Separation. On November 1, 2013, the spin-off of the Company from Harvard Bioscience was completed. On
that date, the Company became an independent company that operates the regenerative medicine business previously owned by Harvard Bioscience.
The spin-off was completed through the distribution to Harvard Bioscience stockholders of all the shares of common stock of Biostage,
or the Distribution.
The
Company’s common stock is currently traded on the OTCQB Venture Market under the symbol “BSTG”.
Going
Concern
The
Company has incurred substantial operating losses since its inception, and as of March 31, 2023 had an accumulated deficit of approximately
$85.9 million and will require additional financing to fund future operations. The Company expects that its operating cash on-hand as
of March 31, 2023 of approximately $3.3 million and equity financing of $2.9 million in gross proceeds subsequent to March 31, 2023 will
enable it to fund its operating expenses and capital expenditure requirements into the first quarter of 2024. Therefore, these conditions
raise substantial doubt about the Company’s ability to continue as a going concern.
The
Company will need to raise additional funds to fund its operations. In the event the Company is unable to raise additional capital from
outside sources before or during the first quarter of 2024, 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.
2.
Summary of Significant Accounting Policies and Recently Issued Accounting Pronouncements
Summary
of Significant Accounting Policies
The
accounting policies underlying the accompanying unaudited condensed consolidated financial statements are those set forth in Note 2 to
the consolidated financial statements for the year ended December 31, 2022 included in the Company’s Annual Report on Form 10-K.
Principles
of Consolidation
The
condensed consolidated financial statements include the accounts of Biostage and its 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
condensed 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 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.
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:
Schedule of Property Plant And Equipment Estimated Useful Lives
| Leasehold improvements | |
Shorter
of
expected useful
life or lease term
| |
| Furniture, machinery and equipment, computer equipment and software | |
| 3-7 years | |
Maintenance and repairs are charged to expense as
incurred, while any additions or improvements are capitalized.
Net
Loss Per Share
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 treasury-stock
method. For purposes of the diluted net loss per share calculation, warrants to purchase 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 March 31, 2023, condensed consolidated interim statements of
operations, stockholders’ deficit and cash flows for the three months
ended March 31, 2023 and 2022 are unaudited. The interim unaudited condensed 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, 2023, its condensed
consolidated results of operations, stockholders’ deficit and cash flows
for the three months ended March 31, 2023 and 2022. The financial data and other information disclosed in these notes related to the
three months ended March 31, 2023 and 2022 are unaudited. The results for the three months ended March 31, 2023 are not necessarily
indicative of results to be expected for the year ending December 31, 2023, any other interim periods or any future year or
period.
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 condensed consolidated financial statements upon adoption.
In June 2016, the FASB issued ASU No. 2016-13, Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-12). The new standard requires
that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be
recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt
securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses
if fair value increases. The Company adopted this standard on January 1, 2023, and the adoption of ASU 2016-13 did not have a material
impact on its consolidated financial statements.
3.
Accrued and Other Current Liabilities
Accrued
and other current liabilities consist of the following:
Schedule
of Accrued and Other Current Liabilities
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| | |
(in thousands) | |
| Advisory costs | |
$ | 337 | | |
$ | 300 | |
| Legal costs | |
| - | | |
| 135 | |
| Audit services | |
| 44 | | |
| 80 | |
| Payroll | |
| 83 | | |
| 55 | |
| Other liabilities | |
| 8 | | |
| 12 | |
| Total accrued and other
current liabilities | |
$ | 472 | | |
$ | 582 | |
4.
Capital Stock
Private
Placement
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 510,134 shares of common
stock for the aggregate purchase price of approximately $3.1 million with a purchase price per unit of $6.00, the Private Placement.
The
Company had 1,113,622 warrants to purchase common stock outstanding as of March 31, 2023 with a weighted-average exercise price of $4.69.
5.
Series E Convertible Preferred Stock
On
April 28, 2022, the Company entered into a Preferred Issuance Agreement, or PIA, with Harvard Bioscience, Inc., or HBIO, dated as of
April 27, 2022. Pursuant to the PIA, the Company and HBIO agreed that once HBIO has paid at least $4.0 million in certain settlement
and related legal expenses, to satisfy the Company’s indemnification obligations with respect thereto, in lieu of paying cash,
the Company would issue senior convertible preferred stock to HBIO that will contain terms as described in the PIA.
On
June 10, 2022, following the execution of a subscription agreement and HBIO providing evidence of payment of the requisite $4.0
million amount, the Company issued HBIO 4,000 shares of Series E Convertible Preferred Stock, or Series E Preferred, at a price of
$1,000 per share to satisfy the Company’s related indemnification obligations pertaining to the $4.0 million, in lieu of
paying cash. As of March 31, 2023, there were 4,051 shares of Series E Preferred outstanding and includes approximately $251,000
accrued as dividends payable as shares of Series E Preferred.
The
rights, preferences, and privileges of the Series E Preferred stock were as follows as of March 31, 2023:
Dividends:
Payable quarterly in additional shares of Series E Preferred stock at a rate of 8% per annum, accrued daily and compounded quarterly.
Voting
Rights: The holders of Series E Preferred stock shall have no voting rights except as required by applicable law.
Consent
Rights: As long as any shares of Series E Preferred stock are outstanding, the holder of the Series E Preferred stock has certain
consent rights with respect to the Company (a) incurring any indebtedness for borrowed money or any guaranty therefore in excess of $500,000
individually or in the aggregate, (b) entering into certain new material related party transactions, and (c) authorizing or issuing any
securities unless the same ranks junior to the Series E Preferred.
Liquidation
Rights: The Series E Preferred stock shall, with respect to dividends and distributions upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company or a deemed liquidation event or otherwise, rank prior to all classes of Common Stock of the
Company and, except for any Preferred Stock that may be pari passu or senior to the Series E Preferred Stock, in each case, if consented
to by the holder of the Series E Preferred, all other classes or series of Preferred Stock of the Company, whether currently existing
or hereafter created.
Mandatory
Conversion: Each share of Series E 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 initial public offering pursuant to a Registration Statement on Form S-1 that includes common stock
following the issuance of the Series E Preferred, or its initial private placement that includes common stock following the issuance
of the Series E Preferred in the event the gross proceeds of such private placement are at least $4,000,000. In such instance, each share
of Series E Preferred will convert into that number of shares of Common Stock determined by dividing (i) the stated value plus all accrued
and unpaid dividends, by (ii) the lowest price per share of common stock purchased in the applicable offering by the Company which triggered
the mandatory conversion, or if such price cannot be reliably determined, a reasonably calculated price per common share determined by
the Company and the holder.
Optional
Conversion: Each share of Series E Preferred stock will also be subject to optional conversion by the holder thereof into that number
of shares of Common Stock determined by dividing (i) the stated value plus all accrued and unpaid dividends, by (ii) a price per share
equal to the average of the volume weighted average trading prices of the Common Stock for the most recently completed sixty (60) consecutive
trading days prior to the date of determination.
The
conversion options require settlement through a variable number of shares. Based on the mechanic of the conversion options, it is not
possible to determine if the Company would be able to satisfy the settlement of the conversion option. Shareholder approval would be
required to increase the number of authorized common shares. This action would be outside of the control of the Company. Accordingly,
it is presumed that cash settlement would be required. Management has determined that based upon this analysis, temporary equity classification
would be appropriate.
Other
than Series E Preferred shares, there were no other shares of any of the other classes of preferred stock outstanding as of March 31,
2023. Authorized shares for each preferred stock class are as follows:
Schedule
of Categories of Preferred Stock
| | |
Authorized | |
| Undesignated
preferred stock | |
| 979,000 | |
| Series B convertible
preferred stock | |
| 1,000,000 | |
| Series C convertible
preferred stock | |
| 4,000 | |
| Series D convertible
preferred stock | |
| 12,000 | |
| Series E convertible
preferred stock | |
| 5,000 | |
6.
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.
The
Company’s Plan has 5,098,000 authorized shares to be issued under the Plan. There were 2,275,128 shares available for issuance
as of March 31, 2023.
The
following table summarizes information concerning options outstanding and exercisable:
Schedule
of Options Outstanding and Exercisable
| | |
| | |
Weighted-average | | |
Weighted-average
contractual life | | |
Aggregate
intrinsic value | |
| | |
Amount | | |
exercise
price | | |
(years) | | |
(in thousands) | |
| Outstanding at December 31, 2022 | |
| 2,516,924 | | |
$ | 3.95 | | |
| 7.68 | | |
$ | 6,917 | |
| Granted | |
| 858,470 | | |
| 6.03 | | |
| | | |
| | |
| Canceled
/ forfeited | |
| (573,209 | ) | |
| 6.16 | | |
| | | |
| | |
| Outstanding at March 31, 2023 | |
| 2,802,185 | | |
| 4.14 | | |
| 7.69 | | |
| 9,389 | |
| Options exercisable | |
| 1,941,834 | | |
| 4.63 | | |
| 7.63 | | |
| 6,446 | |
| Options vested and expected
to vest | |
| 2,696,248 | | |
| 4.18 | | |
| 7.69 | | |
| 9,028 | |
The
Company’s outstanding stock options include 430,579 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 $1.2
million. No expense has been recognized for these awards as of March 31, 2023 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 as of March 31, 2023, was approximately $9.4
million and $6.4
million, respectively, based on the Company’s closing stock price of $6.45
per share as of March 31, 2023. As of March 31, 2023, unrecognized compensation cost related to unvested non-performance-based
awards amounted to $0.9
million, which will be recognized over a weighted-average period of
2.39 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, 2023 and March 31, 2022 were as follows:
Schedule
of Weighted Average Assumptions
| | |
Three
Months Ended March 31, | |
| | |
2023 | | |
2022 | |
| Risk-free
interest rate | |
| 4.10 | % | |
| 1.77 | % |
| Expected
volatility | |
| 126.6 | % | |
| 122.06 | % |
| Expected
term (in years) | |
| 5.7
years | | |
| 6.0
years | |
| Expected
dividend yield | |
| — | % | |
| — | % |
The
Company recorded share-based compensation expense in the following expense categories of its condensed consolidated statements of operations:
Schedule
of Share-based Compensation Expense
| | |
Three
months ended | |
| | |
March
31, | |
| | |
2023 | | |
2022 | |
| | |
(In
thousands) | |
| Research
and development | |
$ | 62 | | |
$ | 60 | |
| General
and administrative | |
| 1,778 | | |
| 175 | |
| Total
stock-based compensation | |
$ | 1,840 | | |
$ | 235 | |
7.
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 sought payment for
an unspecified amount of damages and alleged 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 related 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 resulted in the dismissal with prejudice of the wrongful death claim, and neither the Company
nor HBIO admit any fault or liability in connection with the claim. The Settlement also resolved any and all claims by and between the
parties and the Company’s product liability insurance carriers, which resulted in the dismissal with prejudice of all claims asserted
by or against those carriers, the Company and HBIO.
In
relation to the litigation, the Company paid approximately $5.9 million of aggregate costs related to the lawsuit, of which 100% has
been paid as of December 31, 2022. This aggregate amount included the cost of legal and related costs incurred by the Company, which
consisted of attorneys’ fees and advisor and specialist costs as part of its defense in this matter. 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.
With
respect to such $5.9 million of costs described above, the Company was required to either pay such costs directly or indemnify HBIO as
to such amounts it incurs. Of such amounts, the Company anticipated that HBIO would pay an aggregate amount of $4.0 million by the end
of the second quarter of 2022. With respect to the indemnification obligation of the Company to HBIO pertaining to such costs, the Company
and HBIO entered into a Preferred Issuance Agreement dated as of April 27, 2022, or the “PIA”. In connection with the PIA,
the Company and HBIO agreed that once HBIO had 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 would issue senior 8% convertible preferred stock to HBIO that
will contain terms as described in the PIA, including the term sheet attached thereto. On June 10, 2022, following the execution of a
subscription agreement and HBIO providing evidence of payment of the requisite $4.0 million amount, the Company issued HBIO 4,000 shares
of Series E 8% Convertible Preferred Stock at a price of $1,000 per share to satisfy the Company’s related indemnification obligations
aggregating $4.0 million, which included the accrual for contingency of $3.3 million and approximately $0.8 million of legal and related
costs paid on behalf of the Company by HBIO previously included in accrued expenses.
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.
8.
Leases
The
Company leases laboratory and office space and certain equipment with remaining terms ranging from 1 to 2 years.
The
laboratory and office space arrangement is under a sublease that was renewed in December of 2022 and currently extends through May 31,
2024. This lease automatically renews annually for one-year periods unless the Company or the counterparty provides a notice of termination
within one hundred and eighty days prior to May 31st of each year.
On
January 5, 2022, the Company executed a four-month sublease agreement for certain laboratory and office space at its Holliston, Massachusetts
facility. The Company further extended the sublease agreement on a month-to-month basis until August 31, 2022 when the other party vacated
the premises. For the three months ended March 31, 2022, the Company recorded sublease income of approximately $29,000 relating to this
agreement.
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:
Schedule of Operating Leases in Consolidated Balance Sheets
| | |
| |
March
31, | | |
December
31, | |
| | |
Balance
Sheet Classification | |
2023 | | |
2022 | |
| | |
| |
| | |
| |
| Assets: | |
| |
| | | |
| | |
| Operating
lease assets | |
Right-of-use
asset, net | |
$ | 120 | | |
$ | 147 | |
| Liabilities: | |
| |
| | | |
| | |
| Current
portion of operating lease liabilities | |
Current
portion of operating lease liabilities | |
| 99 | | |
| 99 | |
| Operating
lease liabilities, net of current portion | |
Operating
lease liabilities, net of current portion | |
| 21 | | |
| 48 | |
| Total
operating lease liabilities | |
| |
$ | 120 | | |
$ | 147 | |
The
Company recorded operating lease expense in the following categories in its condensed consolidated statements of operations:
Schedule
of Operating Lease Expense Categories in Consolidated Statements of Operations
| | |
Three
months ended March 31, | |
| | |
2023 | | |
2022 | |
| | |
(In
thousands) | |
| Research
and development | |
$ | 19 | | |
$ | 19 | |
| General
and administrative | |
| 11 | | |
| 11 | |
| Total | |
$ | 30 | | |
$ | 30 | |
Cash
paid included in the computation of the operating lease assets and lease liabilities during the three months ended March 31, 2023 and
2022 amounted to approximately $30,000 for each quarterly period.
The
weighted average remaining lease term and weighted average discount rate of the Company’s operating leases are as follows:
Schedule
of Weighted Average Lease Term and Discount Rates
| | |
As
of March 31, | |
| | |
2023 | | |
2022 | |
| Remaining
lease term (in years) | |
| 1.24 | | |
| 1.37 | |
| Discount
rate | |
| 14.76 | % | |
| 9.18 | % |
The
minimum lease payments for the next two years are expected to be as follows:
Schedule
of Minimum Lease Payments
| | |
March
31, 2023 | |
| | |
As
of | |
| | |
March
31, 2023 | |
| | |
(in thousands) | |
| 2023 | |
$ | 82 | |
| 2024 | |
| 50 | |
| Total
lease payments | |
| 132 | |
| Less:
imputed interest | |
| (12 | ) |
| Present
value of operating lease liabilities | |
$ | 120 | |
9.
Net Loss Per Share
Schedule
of Basic and Diluted Net Loss Per Share
| | |
2023 | | |
2022 | |
| | |
Three
months ended March 31, | |
| | |
2023 | | |
2022 | |
| | |
(in
thousands, except shares and per share data) | |
| Net
loss | |
$ | (2,890 | ) | |
$ | (2,177 | ) |
| Preferred
stock dividends | |
| (80 | ) | |
| — | |
| Net
loss attributable to common stockholders | |
$ | (2,970 | ) | |
$ | (2,177 | ) |
| | |
| | | |
| | |
| Basic
and diluted weighted average common shares outstanding | |
| 12,206,036 | | |
| 10,761,861 | |
| | |
| | | |
| | |
| Basic
and diluted net loss per share attributable to common stockholders | |
$ | (0.24 | ) | |
$ | (0.20 | ) |
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, 2023 and 2022 because including them would have had an anti-dilutive effect:
Schedule
of Antidilutive Securities Excluded From Computation Of Earnings Per Share
| | |
Three
months ended March 31, | |
| | |
2023 | | |
2022 | |
| Options
to purchase common stock | |
| 2,802,185 | | |
| 2,402,603 | |
| Warrants
to purchase common stock | |
| 1,113,622 | | |
| 1,583,786 | |
| Total | |
| 3,915,807 | | |
| 3,986,389 | |
10.
Income Taxes
The
Company did not record a federal or state income tax provision or benefit for the three months ended March 31, 2023 and 2022, respectively,
due to the expected loss before income taxes to be incurred for the years ended December 31, 2023 and 2022, as well as the Company’s
continued maintenance of a full valuation allowance against its net deferred tax assets.
11.
Subsequent Events
The
Company performed a review of events subsequent to the balance sheet through the date the financial statements were issued and determined
that there were no such events requiring recognition or disclosure in the financial statements except as disclosed below.
Subsequent
to March 31, 2023 through April 12, 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 490,833
shares of common stock for the aggregate purchase price of approximately $2.9 million with a purchase price per unit of $6.00, the Private
Placement.
In
connection with the Private Placement, as of April 6, 2023 the Company had received $4.0 million in aggregate proceeds in such Private
Placement. As a result, all of the Company’s outstanding Series E Preferred Stock and related accrued dividends were converted
into shares of common stock at a conversion price of $6.00 per share. The conversion resulted in 674,693 shares of common stock being
issued to the holder of the Series E Preferred Stock. Following such conversion, there are no shares of Series E Preferred Stock outstanding.