The Biostage (BSTG) Chronicles: what’s there to invest in?

October 30, 2021 2:53pm

A company with NO clinical trial, a 24  month (2 years) approved IND with No clinical trial initiation, four (4) employees and NO CRO <clinical research organization> hired.

What’s there to invest in:

• The “Sword of Damocles” hanging over its recent insurance company rejection of legal expense/costs of a terminal death suit against the company?

Will Q3 filings reflect an audit by a Mass certified firm ...? ... there have been some questions whether Q2 was audited?

This week ... Biostage (BSTG) was flat again $0.00 to $3.10 with 162 shares traded after Thursday’s 95 shares traded after Wednesday’s move from -$0.40 with 216 shares traded until the “pump” was turned-on with 1,676 shares traded to close +$0.10 – where is the SEC?

Is transparency an issue for the company re its trial initiation "conditions".

Shouldn't their be a sunsequent filling to the FDA re the staus of the IND?

Is Biostage (BSTG) a Chinese controlled i.e. stock ownersip by Mrs. Bin Zhao of DST Capital  and An Zang's ownership  which as aggregated amounts to over 50% ownersip by foreign nationalists i.e. Chinese citizens, some residing in the U.S. ... specifically in Weston, Mass. 

For years, U.S. regulators said they never got the transparency they needed into the auditing on Chinese companies because ... https://www.regmedinvestors.com/articles/12110

... “some” firms won’t routinely hand over papers and files that were needed.”

Sound familiar …

Questions:

• WERE BSTG’s Q2 8-K and 10-Q filings AUDITED or UN-AUDITED for investor’s review?

• WHO were the auditors for this Q2/21 8-K and 10-Q?

• Auditor, RSM US LLP “walked” post Q1 – WHY?

• WHY the inclusion of this disclosure (from reading) in the 10-K, BSTG has “identified a material weakness … “in our internal control over financial reporting. Our ability to remediate this, our discovery of additional weaknesses and our ability to achieve and maintain effective control over financial reporting, could adversely affect our results of operations, our stock price and investor confidence in our company.”

The issues continue … beyond the wrongful death law suit, insurance claim denied ...

On September 15, 2021, one of BSTG’s product liability insurance carriers which had been providing a defense to BSTG and Harvard Bioscience (HBIO), notified each party that it was denying coverage under the applicable policy for the lawsuit and would no longer be providing a defense or covering related legal expenses incurred after September 30, 2021.” <8-K filed>

Question#1: Could negligence (not turning over documents and a sanction being initiated) be the reason BSTG’s insurance company dropped coverage and legal reimbursement for the terminal death suit legal costs?

                          Will a potential bankruptcy be in the cards?

Question#2: Board members and officers are fiduciaries, and by statutory and common law mandate, they must act with the utmost responsibility.  A fiduciary duty means that both directors and officers handle their powers only for the collective benefit of the corporation and its stockholders.

When a court determines whether there has been a breach of fiduciary duty, what factors may be considered? There are circumstances that make a director liable to the corporation, and sometimes to its creditors, shareholders, or other people, for any losses caused by their inability or failure to exercise due care. A director typically breaches his or her duty in one of two ways:

• He commits overt acts that constitute mismanagement
• No action can also be construed as a failure to direct

WHAT is the status of the $1,000,000.00 “gift” to Connecticut Childrens (hospital) where the CEO, James Schmerling of this hospital is a board of director member and $429,500.00 is still OWED (that is NOT listed as a payable in FY20 and Q1 and Q2/21 financials by BSTG, when the company is all but broke?

The Bottom Line: The hits just keep coming, this management team, Hong Yu, Shunfu Hu and Linghui Meng and its board of directors, Jason Jing Chen, Ting Li, James Schmerling, Wei Zhang and Herman Sanchez have YET to get it right.

The law suit seeks an unspecified amount of damages and alleges that a plaintiff sustained terminal injuries allegedly caused by products, including one synthetic trachea scaffold and two bioreactors

History: as defined from 8-K …

• On October 1, 2019, the Court entered an order granting plaintiffs’ motion to compel the defendants to produce discovery.

• Subsequently, the plaintiff filed a motion for sanctions against the Company on January 6, 2020 claiming failure to produce the required discovery.

• The Company’s counsel at the time, which had been selected for the case by its liability insurance carrier, never notified the Company of plaintiffs’ motion and never responded to plaintiff’ motion.

• As a result of the failure of the Company’s former counsel to respond, on January 29, 2020, the Court entered an order allowing plaintiffs’ sanctions against the Company and the other defendants, which establishes a sanction of admitted liability.

• In June 2021, the Company was informed of these 2019 and 2020 court actions by new defense counsel appointed by its liability insurance carrier.

• On June 9, 2021, the Company, together with the other defendants, filed a motion to vacate the Court’s order allowing plaintiff’s motion for sanctions, and following a hearing on such motion,
• On August 6, 2021 the Court issued a ruling in BSTG's favor, vacating the sanctions.

• This case will now proceed on the merits, which BSTG will continue to oppose vigorously.

Further, “in accordance with a separation and distribution agreement between Harvard Bioscience (HBIO) and BSTG relating to the spin-off, we would be required to indemnify HBIO against losses that Harvard Bioscience may suffer as a result of this litigation.”

Maintaining SELL

Monday (10/4) closed up +$0.58 with 2,189 shares traded following a a.m. dive of -$0.46 with 2,018 shares traded.

Last Friday closed up +$0.12 with 1,113 shares traded after Thursday closed down -$0.02 with 6,030 shares traded, Wednesday close down -$0.72 with 1,273 shares traded, Tuesday closed up +$0.48 at $3.74 with 1,236 shares traded, Monday also closed flat with 135 shares traded,

The previous Friday closed flat with 62 shares traded, Thursday closed up +$0.06 with 839 shares traded and last Wednesday closed down -$0.45 with 3,833 shares traded.

The Bottom Line: The hits just keep coming, this management team, Hong Yu, Shunfu Hu and Linghui Meng have YET to get it right.

A cash position or “runway” that ends Q4/21 … now a new potential and serious DRAIN to retain new counsel to ‘fight” this suit – where is it coming from?

Additional questions: 

• WERE BSTG’s Q2 8-K and 10-Q filings AUDITED or UNAUDITED for investors?

• Should BSTG be considered a Chinese company and subject to SEC de-listing as U.S. regulators start a countdown that will force many Chinese companies to leave stock exchanges?

• Will legal fees to defend the terminal death suit going to bankrupt the company now, that costs will not be covered by insurance?

• The largest issue was NOT providing the documents to the other attorneys as a sanction was put-on and then removed?

• Should the D&O, company and office and board covered insurances <which were very high> about to jump even higher?

• Will legal fees to defend the terminal death suit going to … bankrupt the company now, that legal costs and potential pay-out will not be covered by insurance?

• Hong Yu - president, Shunfu Hu and Linghui Meng V.P.'s of what - NEGLIGENCE ... they SHOULD/MUST RESIGN, where is William (BILL) Fodor PhD - CSO, the overseer of a non-happening clinical trial after 1 year and 6 months of approval!

Opinions expressed are those of the author and are subject to change, and not intended to be a forecast of future events, a guarantee of future results, nor investment advice. Whether information or intelligence is good, bad or somewhere in between; I put into context what is relevant and useful for investors.  All investments are subject to risks. Investors should consider investment objectives.

Regulation Analyst Certification (Reg AC): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Henry McCusker, the editor and publisher of RegMed Investors does not hold or have positions in securities referred to in this publication.