What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2023-11-14 compared with 2023-08-14 · 22 added, 46 removed, 72 unchanged (49% of the section changed)

5 unchanged sentences

Except as set forth below, there have been no material changes in our risk factors to those included in our Annual Report.

A substantial portion of our net sales is generated through our commercial partners and independent sales agents, which subjects us to various risks.

We currently rely on the efforts of our commercial partners and independent sales agents to generate a substantial portion of our net sales, and we expect to continue to rely on these third parties to generate a substantial portion of our net sales in the future while we work to grow our direct sales force.

For example, we have commercial agreements with major medical device companies, including Boston Scientific, Biotronik, Sientra and LeMaitre Vascular.

As a result, the impairment or termination of these relationships for any reason, or the failure of these parties to diligently sell our products and comply with applicable laws and regulations, has and could in the future materially and adversely affect our ability to generate revenue and profits.

One such partner, Surgalign Holdings, Inc.

(“Surgalign”) and certain of its direct and indirect subsidiaries commenced voluntary proceedings under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas on June 19, 2023.

Total revenues generated by us from Surgalign during the six months ended June 30, 2023 and 2022 were $2.3 million and $2.5 million, respectively.

Surgalign is in the process of selling its assets through the chapter 11 process, but our contract with Surgalign is not being assumed by the buyer of the relevant assets.

Consequently, future revenues from our Surgalign relationship are highly uncertain.

Because our commercial partners and independent sales agents control the relationships with our end customers, if our relationship with any commercial partner or independent sales agent ends, we will likely also lose our relationship with their customers.

Furthermore, our success is partially dependent on the willingness and ability of the sales representatives and other employees of our commercial partners and independent sales agents to diligently sell our products.

However, we cannot guarantee that they will be successful in marketing our products.

In addition, because our commercial partners and independent sales agents do not sell our products exclusively, they may focus their sales efforts and resources on other products that produce better margins or greater commissions for them or are incorporated into a

broader strategic relationship with a partner.

Because we do not control the sales representatives and other employees of our commercial partners, we cannot guarantee that our sales processes, regulatory compliance and other priorities will be consistently communicated and executed.

In addition, we do not have staff in many of the areas covered by our commercial partners and independent sales agents, which makes it particularly difficult for us to monitor their performance.

While we may take steps to mitigate the risks associated with noncompliance by our commercial partners and independent sales agents, there remains a risk that they will not comply with regulatory requirements or our requirements and policies.

Actions by the sales representatives and other employees of our commercial partners and independent sales agents that are beyond our control could adversely impact sales in that territory or result in harm to the reputation of the Company or our products or legal liability, any of which could have a material adverse effect on our business, financial condition and results of operations.

In addition to the risk of losing customers, the operation of local laws and our agreements with our commercial partners and independent sales agents would make it difficult for us to replace a commercial partner or independent sales agent we believe is underperforming.

In order to increase our sales, we intend to develop relationships and arrangements with additional commercial partners and/or independent sales agents, which we may not be able to do on commercially reasonable terms or at all.

If we are unable to establish new commercial partner and independent sales agent relationships and maintain our relationships with our existing commercial partners and independent sales agents, in each case, on commercially reasonable terms, we will be unable to increase sales of our products, which, in turn, could materially and adversely affect our business, financial condition and results of operations.

The loss of one or more significant commercial partners, a material reduction in their purchases of our products, such as what we may experience with Surgalign, or their inability to perform their contractual obligations, including, for example, committed purchase requirements, has affected and could continue to adversely affect our business, financial condition and results of operations.

We are also subject to the risk that any such commercial partner will experience financial difficulties that prevent them from making payments to us on a timely basis or at all.

We may not realize the anticipated benefits of our sale of our Orthobiologics business .

On November 8, 2023, pursuant to the Asset Purchase Agreement with Berkeley Biologics, LLC (the “Purchase Agreement”), we completed the previously announced sale of our Orthobiologics Business.

We received an up-front payment of approximately $14.6 million, as adjusted, shortly after the closing, and for each of the five years following the closing, Berkeley would be required to pay to the Company an earn-out payment (each, an “Earn-Out Payment”) equal to 10% of the actual revenue earned by Berkeley in the applicable year that is derived from sales of those sold products defined as “Earn-Out Products” under the Purchase Agreement, and from any improvements, modifications, derivatives and enhancements related to the Earn-Out Products, with the aggregate amount of Earn-Out Payments capped at $20 million.

There can be no assurance that we will be able to realize the expected benefits of the transaction, or that we will receive all of the potential consideration associated with the Earn-Out Payments.

If we are unable to or do not realize the expected strategic, economic, or other benefits of the transaction, it could adversely affect our business and financial position.

The processing of human and porcine tissue for our products is technically complex, requiring high levels of quality control and precision, which subjects us to increased production risks.

We manufacture our human and porcine tissue products using technically complex processes requiring specialized facilities, highly specific raw materials, skill and diligence by our personnel and other production constraints.

The complexity of these processes, as well as strict company and government standards for the manufacture and storage of our products, subjects us to production risks.

The complexity of these processes, as well as strict company and government standards for the manufacture and storage of our products, subject us to production risks.

In addition to ongoing production risks, process deviations or unanticipated effects of approved process changes may result in non-compliance with regulatory requirements, including stability requirements or specifications.

For example, our bone allograft products, such as ViBone and OsteGro V, must be shipped and maintained within a specified temperature range.

If environmental conditions deviate from that range, our products’ remaining shelf-lives could be impaired or their safety and efficacy could be adversely affected, making them unsuitable for use.

The occurrence of this or any other actual or suspected production or distribution problem can lead to lost inventory, customer returns and, in some cases, recalls, with consequential damage to our reputation and customer relationships and the risk of product liability.

4 unchanged sentences

Notice of the voluntary recall was issued to hospitals that received product from this specific lot following our learning of post-surgical infections in patients treated with FiberCel, including some patients that tested positive for tuberculosis.

The lot consisted of 154 units of FiberCel, all derived from a single donor, that were shipped to facilities in 20 states.

The lot consisted of 154 units of FiberCel, all derived from a single donor, which were shipped to facilities in 20 states.

We have investigated the source of the infections in coordination with our distributor, the FDA and the U.S.

Centers for Disease Control and Prevention (“CDC”).

The FDA inspected our Richmond, California production facility, and this inspection did not result in any Form-483 observations.

Additionally, multiple product liability lawsuits have been filed against us in connection with FiberCel.

7 unchanged sentences

For example, since the voluntary recall pertaining to a single donor lot of our FiberCel Fiber Viable Bone Matrix was issued, and since September 2021, we have received notice of 109 separate lawsuits or claims alleging that the plaintiffs contracted tuberculosis and/or suffered substantial symptoms and complications following the implantation of FiberCel during spinal fusion operations.

We have settled 27 of these lawsuits for a total of approximately $7.5 million as of June 30, 2023.

Of these settled matters, 26 cases were both settled and paid as of June 30, 2023 for a total cash outlay of $7.3 million.

For the remaining 82 cases for which settlements have not been reached, we estimated a probable loss related to each case and have recorded a liability at an estimated amount of $14.3 million for a total estimated liability at June 30, 2023 of $14.5 million, which is recorded as Contingent Liability for FiberCel Litigation in the accompanying condensed consolidated balance sheets included in this Quarterly Report.

We have settled 27 of these lawsuits for a total of approximately $7.5 million as of September 30, 2023.

For the remaining 82 cases for which settlements have not been reached, we estimated a probable loss related to each case and have recorded a liability at an estimated amount of $15.7 at September 30, 2023, which is recorded as Contingent Liability for FiberCel Litigation in the accompanying condensed consolidated balance sheets included in this Quarterly Report.

See Part II, Item 1, “Legal Proceedings” and Note 10 to the condensed consolidated financial statements included elsewhere in this Quarterly Report.

18 unchanged sentences

Our product liability insurance is subject to deductibles and coverage limitations, and we may not be able to maintain this insurance.

As of June 30, 2023, we have recorded insurance receivables of $8.9 million on our balance sheet in respect of our insurance coverage for the FiberCel Litigation product liability losses.

As of September 30, 2023, we have recorded insurance receivables of $7.5 million on our balance sheet in respect of our insurance coverage for the FiberCel Litigation product liability losses.

However, it is possible that future claims related to the FiberCel Litigation or other product liability claims could exceed the limits of, or be excluded from, coverage under our policies, and claims against us could also increase the cost of maintaining our coverage.

11 unchanged sentences

Civil or criminal sanctions could be assessed against our officers, employees, or us.

regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and selling our products.

Any adverse regulatory action, depending on its magnitude, may restrict us from effectively manufacturing, marketing and selling our products.

If our products do not function as designed, or are designed improperly, we or the third-party manufacturer of such products may withdraw such products from the market, whether by choice or as a result of regulatory requirements.

9 unchanged sentences

Any actual or perceived quality issues may also result in issuances of physician’s advisories against our products or cause us to conduct voluntary recalls.

Any product defects or problems, regulatory action, litigation, negative publicity or recalls could disrupt our business and have a material adverse effect on our business, financial condition and results of operations.

We recently received a Nasdaq notice for failing to comply with listing requirements and there is no assurance we will regain compliance or maintain our Nasdaq listing.

On May 4, 2023, we received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) informing us that, due to our Market Value of Listed Securities (“MVLS”) having been below the minimum of $35 million for 30 consecutive business days, we are not in compliance with the MVLS required for continued listing on the Nasdaq Capital Market set forth in Nasdaq Listing Rule 5550(b)(2) (the “Market Value Standard”).

In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we have a period of 180 calendar days from May 4, 2023, or until October 31, 2023, to regain compliance with the Market Value Standard.

If we do not regain compliance within the allotted compliance period, including any extensions that may be granted by Nasdaq, Nasdaq will provide notice that our common stock will be subject to delisting.

We intend to monitor our MVLS during the allotted compliance period, and may, if appropriate, evaluate available options to regain compliance by resolving the deficiency under the Market Value Standard, or under Nasdaq’s alternative continued listing requirements.

However, there can be no assurance that we will regain compliance with the Market Value Standard during the 180 day compliance period, secure an extension to the 180 calendar day period to regain compliance, or gain or maintain compliance under or with Nasdaq’s other applicable listing requirements.

defects or problems, regulatory action, litigation, negative publicity or recalls could disrupt our business and have a material adverse effect on our business, financial condition and results of operations.

We recently received a Nasdaq delisting determination letter and there is no assurance that we will be successful in our appeal of the delisting determination, that we will regain compliance with Nasdaq continued listing standards, or that we will maintain our Nasdaq listing.

On May 4, 2023, we received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) notifying us that we did not meet the Market Value of Listed Securities (“MVLS”) requirement for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(2) (the “Market Value Standard”), and noting that the Company did not meet the requirements under Nasdaq Listing Rules 5550(b)(1) (Equity Standard) and 5550(b)(3) (Net Income Standard).

The Original Notice provided that, in accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company would have a period of 180 calendar days from the date of the Original Notice, or until October 31, 2023 (the “Compliance Date”), to regain compliance with the Market Value Standard by having the Company’s MVLS close at or above $35 million for a minimum of 10 consecutive business days prior to the Compliance Date.

On November 1, 2023, we received a delisting determination letter (the “Letter”) from the Staff advising the Company that the Staff had determined that the Company did not regain compliance with the Market Value Standard by the Compliance Date.

As a result, if not for our appeal of the Staff’s determination, trading of our common stock on the Nasdaq Capital Market would have been suspended at the opening of business on November 10, 2023, and Form 25-NSE would have been filed with the Securities and Exchange Commission to remove the Company’s securities from listing and registration on the Nasdaq Capital Market.

However, we timely submitted a hearing request to Nasdaq's Hearings Panel (the “Panel”), which stayed the suspension of our common stock pending the panel's conclusion of the hearing process.

Our hearing has been scheduled for February 15, 2024.

At the hearing, we intend to present a plan to regain compliance with the Market Value Standard, and in the interim, our common stock will continue to trade on the Nasdaq Capital Market under the symbol “ELUT” at least pending the ultimate conclusion of the hearing.

There can be no assurance that our plan will be accepted by the Panel or that, if it is, we will be able to regain compliance with the applicable Nasdaq listing requirements.

If we cannot regain compliance with the Market Value Standard or under Nasdaq’s alternative continued listing requirements, and if our common stock is delisted by Nasdaq, it could lead to a number of negative implications, including an adverse effect on the price of our common stock, increased volatility in our common stock, reduced liquidity in our common stock, the loss of federal preemption of state securities laws and greater difficulty in obtaining financing.

In addition, delisting of our common stock could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, could result in a loss of current or future coverage by certain sell-side analysts

and might deter certain institutions and persons from investing in our securities at all.

Delisting could also cause a loss of confidence of our collaborators, vendors, suppliers and employees, which could harm our business and future prospects.

Unregistered Sales of Equity Securities and Use of Proceeds.

Defaults Upon Senior Securities.

Mine Safety Disclosures.

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors