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Note 14 - Litigation Settlement

9 Months Ended

Sep. 30, 2023

Legal Matters and Contingencies [Text Block]

14.

Litigation Settlement

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 Biostage, a former subsidiary of the Company that was spun off in 2013, as well as another third party (the “Biostage Litigation”). The complaint sought payment for an unspecified amount of damages and alleged that the plaintiff sustained terminal injuries allegedly caused by products, including one synthetic trachea scaffold and two bioreactors, provided by certain of the named defendants and utilized in connection with surgeries performed by third parties in Europe in 2012 and 2013.

On April 27, 2022, the Company and Biostage executed a settlement with the plaintiffs of the Biostage Litigation and Biostage’s products liability insurance carriers (the “Biostage Settlement”), which resolved all claims by and between the parties and Biostage’s product liability insurance carriers and resulted in the dismissal with prejudice of the wrongful death claim and all claims between the Company, Biostage and the insurance carriers. The Biostage Settlement was entered into solely by way of compromise and settlement and was not in any way an admission of liability or fault by the Company or Biostage. Biostage has indemnified the Company for all losses and expenses, including legal expenses that the Company incurred in connection with the Biostage Litigation and the Biostage Settlement.

During the nine months ended September 30, 2022, the Company recorded a net credit of $0.2 million related to the Biostage Settlement consisting of charges (credits) as follows:

	●	During the three months ended March 31, 2022, the Company accrued $5.2 million of costs related to legal fees and the Biostage Settlement. Additionally, during the year ended December 31, 2021, the Company had incurred $0.3 million in legal fees in connection with the Biostage Litigation. Due to the financial condition of Biostage, the Company determined that it was uncertain as to whether Biostage would be able to meet its indemnification obligation and had fully reserved any receivable from Biostage.

	●	During the three months ended June 30, 2022, the Company recorded credit adjustments of $4.9 million to the reserve against the indemnification receivable from Biostage. These adjustments reflected: i) the issuance by Biostage of 4,000 shares of its Series E Convertible Preferred Stock (the “Series E Preferred Stock”) to the Company on June 10, 2022, in satisfaction of $4.0 million of Biostage’s total indemnification obligation, ii) the payment by Biostage of a portion of the legal fees associated with the Biostage Settlement, and iii) other accrual adjustments. The Series E Preferred Stock was initially recorded at an estimated fair value of $3.9 million using a Monte Carlo valuation simulation incorporating information from selected guideline companies.

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During the three months ended September 30, 2022, the Company recorded a credit adjustment of $0.5 million to the reserve against the indemnification receivable from Biostage due to the final payment by Biostage of the legal fees associated with the Biostage Settlement.

As of December 31, 2022, the book value of the shares of Series E Preferred Stock, inclusive of accrued dividends, was $4.0 million and was included in the consolidated balance sheet as a component of Other long-term assets. The Company elected the provisions within ASC 321, Investment Securities, to subsequently measure the Series E Preferred Stock at its original cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of Biostage. As of December 31, 2022, there were no observable price changes or indicators of impairment and therefore, there was no measurement adjustments to the carrying value of the Series E Preferred Stock.

On April 6, 2023, Biostage completed a private placement of its common stock for an aggregate offering amount of approximately $6.0 million at a purchase price of $6.00 per share. This transaction triggered a mandatory conversion of the Company’s remaining Series E Preferred Stock into shares of Biostage common stock at the offering price of $6.00 per share.

On July 20, 2023, Biostage, Inc. changed its corporate name to Harvard Apparatus Regenerative Technology, Inc. (“HART”) and began to trade under the OTCQB Marketplace symbol HRGN.

As of September 30, 2023, the Company held 706,626 shares of HART common stock with an estimated fair value of $3.8 million, which have been included in the consolidated balance sheet as a component of Other long-term assets. During the three and nine months ended September 30, 2023, the Company recorded an unrealized gain (loss) related to these shares of $1.2 million and $(0.4) million, respectively, which were recorded in the Other income (expense) section in the consolidated statements of operations.

The Company determines the fair value of its HART common stock based on the closing price as quoted on the OTCQB Marketplace at the reporting date. Due to HART’s limited operating history, its overall financial condition and the limited trading volumes and liquidity of its common stock, the value of the Company’s investment in this common stock could fluctuate considerably or become worthless.