What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-13 compared with 2023-11-14 · 129 added, 228 removed, 189 unchanged (65% of the section changed)

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At Elutia, our mission is to humanize medicine so that patients can thrive without compromise.

As a commercial-stage company, we leverage our unique understanding of biologics to improve the interaction between implanted medical devices and patients by reducing complications associated with these surgeries.

As a commercial-stage company, we seek to leverage our unique understanding of biologics to improve the interaction between implanted medical devices and patients by reducing complications associated with these surgeries.

These complications include device migration, erosion, non-union of implants as well as implant rejection.

In addition, our products mitigate the formation of scar and fibrotic capsule formation that commonly occurs with device implants and is linked with additional risk factors including infection and capsular contracture.

We estimate that, over the past two years, more than 700,000 surgical procedures were perfomed per year in which the patient was implanted with medical devices such as pacemakers, defibrillators, neuro-stimulators or tissue expanders for breast reconstruction.

In addition, our products are designed to mitigate the formation of scar and fibrotic capsule formation that commonly occurs with device implants and is linked with additional risk factors including infection and capsular contracture.

We estimate that, over the past two years, more than 600,000 surgical procedures were performed per year in the United States in which the patient was implanted with medical devices such as pacemakers, defibrillators, neuro-stimulators or tissue expanders for breast reconstruction.

This number has been driven by advances in medical device technologies, reimbursement models focused on patient outcomes, and an aging population with a growing incidence of comorbidities, including diabetes, obesity and cardiovascular and peripheral vascular diseases.

These comorbidities can exacerbate various immune responses and contribute to other complications upon device implant.

We have leading products in our priority markets – Device Protection and Women’s Health.

Our products are targeted to address unmet clinical needs with the goal of promoting healthy tissue formation and avoiding complications associated with medical device implants, such as scar tissue formation, capsular contraction, erosion, migration and implant rejection.

These products currently focus on our priority markets – Device Protection and Women’s Health.

In Device Protection, we sell CanGaroo, a “first-to-market” biological envelope, protected by a global patent portfolio, that is indicated for use with implantable electronic devices including cardiac and neurostimulator devices.

CanGaroo creates a secure pocket to hold the device and mitigates complications such as device migration and erosion.

It is a biomatrix made of extracellular matrix (ECM), which has been shown to support healthy wound healing.

CanGaroo is designed to create a secure pocket to hold the device and mitigate complications such as device migration and erosion.

The CanGaroo product is a biomatrix comprised of extracellular matrix (“ECM”), which has been shown to support healthy wound healing.

Because of this inherent ECM trait, CanGaroo may facilitate re-operative procedures by mitigating scar formation and fibrosis.

In addition, we offer the only envelope designed for subcutaneous implantable cardiac defibrillators, a growing market.

In Women’s Health, we have developed both patented and proprietary technologies to preserve and protect natural extracellular matrix structure and biologic factors needed to support tissue remodeling.

This results in undamaged human acellular dermal matrices with superior handling, designed to promote faster healing and reduce inflammation.

This technology is the basis for our product, SimpliDerm.

Dermal matrices are standard of care for breast reconstruction surgeries, and our largest market.

With respect to pipeline products, we are pioneering the drug-eluting biomatrix (“DEB”), which will solve problems unaddressed by available options.

Our lead product is a version of CanGaroo known as CanGarooRM, a first-in-class biomatrix that combines the CanGaroo envelope with antibiotics.

In addition, the CanGaroo envelope is the only envelope designed for subcutaneous implantable cardiac defibrillators, a growing market.

In Women’s Health, we have developed both patented and proprietary technologies, culminating in the creation of SimpliDerm—a novel biological matrix meticulously designed to leverage the inherent science of natural healing processes.

SimpliDerm’s design uses human acellular dermal matrices with heightened structural integrity and superior handling capabilities, which may mitigate inflammation and tissue incorporation, leading to a better healing experience.

We believe that these acellular dermal matrices represent an optimal choice for tissue repair and reconstruction, finding applications in fields such as sports medicine, hernia repair, and trauma reconstruction.

These matrices are also useable in breast reconstruction surgeries, particularly for women undergoing mastectomy as part of cancer treatment.

With respect to pipeline products, we are pioneering drug-eluting biomatrices (“DEB”), to help solve problems unaddressed by available options.

One such product is a version of CanGaroo currently known as CanGarooRM, a first-in-class biomatrix that combines the CanGaroo envelope with antibiotics.

These antibiotics, rifampin and minocycline, have been shown to reduce the risk of infection following surgical implantation of an electronic device.

We anticipate CanGarooRM will be the only drug-eluting biomatrix approved for use with implantable electronic devices, providing both acute and long-term benefits to the patient.

CanGarooRM will require clearance of a U.S.

Food and Drug Administration 510(k) submission to be marketed in the United States.

We believe CanGarooRM has a market potential that exceeds $300 million in the established pacemaker and cardiac implant space.

Furthermore, we intend to leverage our DEB platform technology by developing and commercializing products for markets with similar unmet needs, including neurostimulation, wound care and breast reconstruction.

The current status of the CanGarooRM clearance is described below.

CanGaroo is sold through both our internal sales force and independent sales agents and marketing partners, which include Boston Scientific and Biotronik.

If approved, we anticipate CanGarooRM will be the only drug-eluting biomatrix approved for use with implantable electronic

This unique combination will be the first and only envelope that helps protect against infection, erosion, migration and complications associated with fibrotic tissue formation providing both acute and long-term benefits to the patient.

We also intend to leverage our DEB platform technology by developing and commercializing products for markets with similar unmet needs, including neurostimulation, wound care and breast reconstruction.

CanGaroo is sold through both our internal sales force and independent sales agents and our marketing partner, Boston Scientific.

SimpliDerm is sold through both independent sales agents and our distributor, Sientra.

In April 2024, it was announced that the assets of Sientra were acquired by Tiger Aesthetics Medical, with whom we are currently in discusssions regarding the continued distribution of SimpliDerm.

We also sell legacy products into the Cardiovascular market.

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We have a long-term supply agreement with Cook Biotech, the porcine tissue supplier of our raw materials for our CanGaroo and cardiovascular products.

In February 2024, it was announced that Cook Biotech was acquired by RTI Surgical.

We do not expect the acquisition to affect our supply agreement with Cook Biotech, which we understand will continue as a subsidiary of RTI Surgical.

SimpliDerm has historically been processed by us at our Richmond, California facility;

however, with the divestiture of the Orthobiologics Business described below, SimpliDerm will be provided to us on a go forward basis through a long-term supply agreement with the purchaser of the Orthobiologics Business, Berkeley Biologics, LLC, as described below.

Since inception, we have financed our operations primarily through private placements of our convertible preferred stock, amounts borrowed under our credit facilities, sales of our products and, more recently, with proceeds from our initial public offering (“IPO”), a follow-on public offering and private placements of our common stock and warrants.

We have devoted the majority of our resources to acquisitions and integration, manufacturing and administrative costs, general and administrative, research and development, clinical activity, purchase of property and equipment used in the production activities of our former Richmond, California facility and investing in our commercial infrastructure through our direct sales force and our commercial partners in order to expand our presence and to promote awareness and adoption of our products.

As of September 30, 2023, we had 107 full-time employees, and after the divestiture of the Orthobiologics Business described below, we had 53 full-time employees.

We have incurred significant operating losses since our inception.

We incurred a net loss of $28.3 million for the nine months ended September 30, 2023.

Our accumulated deficit as of September 30, 2023 was $166.3 million.

We expect our losses to continue for the foreseeable future and these losses will continue to have an adverse effect on our financial position.

Because of the numerous risks and uncertainties associated with our commercialization and development efforts, including risks relating to our ability to obtain FDA clearance for the next generation of our flagship CanGaroo product, CanGarooRM, and our ability to successfully commercialize this product, we are unable to predict when we will become profitable, and we may never become profitable.

Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations and cash flows.

In order to mitigate the current and potential future liquidity issues caused by the matters noted above, we may seek to raise capital through the issuance of common stock, such as the private placement which we closed in September 2023 described below, pursue asset sales or other transactions, such as the sale of the Orthobiologics Business described below, or restructure our Revenue Interest Obligation.

However, such transactions may not be successful, and we may not be able to raise additional equity, refinance our debt instruments, or sell assets on acceptable terms, or at all.

As such, based on our current operating plans, we believe there is uncertainty as to whether our future cash flows along with our existing cash, issuances of additional equity and cash generated from expected future sales will be sufficient to meet our anticipated operating needs through twelve months from the financial statement issuance date.

Due to these factors, there is substantial doubt about our ability to continue as a going concern within one year after the issuance of the financial statements.

Recent Developments

Sale of Common Stock and Warrants in Private Placement

On September 18, 2023, we entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the purchasers named therein (the “Investors”).

Pursuant to the Purchase Agreement, on September 21, 2023, we sold, in a

private offering exempt from the registration provisions of the Securities Act of 1933, as amended, an aggregate of (i) 6,852,811 units (the “Common Units”) to certain of the Investors, each comprised of (a) one share of Elutia’s Class A common stock, par value $0.001 per share (“Class A Common Stock”) and (b) a warrant (a “Common Warrant”) to purchase one and one half shares of Class A Common Stock, and (ii) 503,058 units (the “Prefunded Units”) to certain of the Investors, each comprised of (a) a prefunded warrant (a “Prefunded Warrant”) to purchase one share of Class A Common Stock, and (b) a Common Warrant.

The Common Units were sold at a purchase price of $1.4275 per unit, and the Prefunded Units were sold at a purchase price of $1.4265 per unit, for aggregate gross proceeds of approximately $10.5 million, before deducting offering expenses.

Each Common Warrant is exercisable at any time until the earlier of (a) 30 trading days after the clearance by the U.S.

Food & Drug Administration of the Company’s CanGaroo®RM antibiotic-eluting biologic envelope or (b) five years from the date of the offering, at an exercise price per share of $1.4275.

Each Prefunded Warrant is exercisable at any time at a nominal exercise price per share of $0.001 (with the remainder of the exercise price per share of Class A Common Stock having been prefunded to the Company).

Sale of Orthobiologics Business

On September 17, 2023, we executed an Asset Purchase Agreement (the “Purchase Agreement”) with Berkeley Biologics, LLC (“Berkeley”), a Delaware limited liability company and wholly owned subsidiary of GNI Group, Ltd.

(Tokyo Stock Exchange:

On November 8, 2023, at the closing (the “Closing”) of the transactions contemplated by the Purchase Agreement (the “Asset Purchase”), Berkeley purchased from us substantially all of our assets that are related to (i) our business of researching, developing, administering, insuring, operating, commercializing, manufacturing, selling and marketing our Orthobiologics products identified in the Purchase Agreement (the “Products”), and (ii) the business of contract manufacturing of particulate bone, precision milled bone, cellular bone matrix, acellular dermis, soft tissue and other products (but excluding the business of contract manufacturing of acellular dermis products for use in the field of breast reconstruction, other than as a supplier to Elutia).

The assets sold represent the entirety of our Orthobiologics segment (the “Orthobiologics Business”).

The Purchase Agreement provides for an aggregate purchase price, subject to certain adjustments pursuant to the terms of the Purchase Agreement, of up to $35 million in cash, with approximately $14.6 million, as adjusted, having been paid shortly after the Closing and up to $20 million after the Closing potentially payable in the form of earn-out payments (each an “Earn-Out Payment”).

For each of the five years following the Closing, Berkeley would be required to pay to us 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 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.

The Purchase Agreement contains customary representations, warranties and covenants of the parties.

We, on the one hand, and Berkeley, on the other hand, have agreed to indemnify each other from and against losses the respective parties may incur arising out of breaches of the other party’s representations, warranties and covenants contained in the Purchase Agreement, and Berkeley will indemnify us for losses relating to the Assumed Liabilities (as defined in the Purchase Agreement), and we will indemnify Berkeley for losses relating to the Excluded Assets, Excluded Liabilities, or Excluded Contracts (each as defined in the Purchase Agreement).

We will also indemnify Berkeley for losses related to the operation of the Orthobiologics Business prior to Closing, actions initiated by stockholders or creditors of the Company relating to the Asset Purchase, non-compliance with any applicable bulk sales laws, and any third party action against Berkeley or its related indemnified parties if the facts alleged in the action would give the indemnified party a right to indemnification under the Purchase Agreement, among other indemnification requirements.

Various of the indemnification obligations of the parties under the Purchase Agreement are subject to specified survival limitations and other customary exceptions and limitations.

Viable Bone Matrix Recall

In July 2023, we announced a voluntary recall of a single lot of one of our viable bone matrix (“VBM”) products and the market withdrawal of all of our VBM products produced after a specified date.

(the “VBM Matter”).

Such VBM products are within our Orthobiologics Business.

Notice of the voluntary recall was issued to centers after we learned of post-surgical Mycobacterium tuberculosis (“MTB”) infections in two patients treated with product from a single donor lot of our VBM product.

Prior to release, samples from this specific lot had tested negative for MTB by an independent laboratory using a nucleic acid test that is designed to specifically detect the

MTB organism.

A total of 36 patients were treated with product from the single donor lot.

At present, one lawsuit has been filed, and twelve claims have been asserted as a result of the VBM Matter.

While unknown at this time, possible losses in connection with the VBM Matter could have a material effect on our financial position and results of operations.

We have purchased insurance coverage that, subject to common contract exclusions, will provide coverage for the VBM Matter as well as legal defense costs.

however, that facility was included with the sale of the Orthobiologics Business described below, and SimpliDerm is now being provided to us on a go-forward basis through a long-term supply agreement with the purchaser of the Orthobiologics Business, Berkeley Biologics, LLC.

Discontinued Operations – Sale of Orthobiologics Business

On November 8, 2023, we completed the sale of substantially all of the assets relating to our former Orthobiologics segment (the “Orthobiologics Business”) to Berkeley Biologics, LLC (“Berkeley”).

The Orthobiologics Business was comprised of assets relating to researching, developing, administering, insuring, operating, commercializing, manufacturing, selling and marketing our Orthobiologics products, and the business of contract manufacturing of particulate bone, precision milled bone, cellular bone matrix, acellular dermis, soft tissue and other products.

The assets sold represent the entirety of our Orthobiologics segment.

In the sale, we received approximately $14.6 million, and we may earn up to an additional $20 million, in the aggregate, in the form of earn-out payments.

The earn-out payments are equal to 10% of the actual revenue earned by Berkeley in each of the five years after the closing of the sale from sales of specified Orthobiologics products under the purchase agreement (including improvements, modifications, derivatives and enhancements related to those products).

There were no earn-out payments earned or paid in the three months ended March 31, 2024.

Additionally, the purchase agreement provides for a customary indemnity holdback in the amount of $1.5 million to be retained by Berkeley for 24 months after close.

We recognized a gain of approximately $6.0 million on the sale of the Orthobiologics Business in the fourth quarter of 2023.

Should we receive incremental proceeds in the future through an earn-out payment or payment of the holdback amount, an additional gain will be recorded upon the receipt of such amounts.

CanGarooRM Status

As described above, we are developing a new version of CanGaroo known as CanGarooRM, a first-in-class biomatrix that combines the CanGaroo envelope with antibiotics.

CanGarooRM will require clearance of a 510(k) submission to be marketed in the United States.

We submitted the required 510(k) in April 2022 and, in March 2023, received a Not Substantially Equivalent (“NSE”) letter from FDA requiring us to address questions relating to drug testing, primarily a request by FDA to modify an in vitro drug release assay employed as a manufacturing control.

We intend to address the questions raised in the NSE letter and continue to work with FDA for potential clearance via the 510(k) pathway.

We anticipate being able to complete our responses to outstanding questions from FDA in the 2023 calendar year and gain clearance from the FDA for CanGarooRM in the first half of 2024.

As described above, we have developed a version of the CanGaroo Envelope, called CanGarooRM, that combines the envelope with antibiotics.

These antibiotics, rifampin and minocycline, have been shown to reduce the risk of infection following surgical implantation of an electronic device.

CanGarooRM will require clearance of an FDA 510(k) submission to be marketed in the United States.

We submitted the required 510(k) in April 2022 and, in March 2023, received a Not Substantially Equivalent letter from FDA requiring us to address questions relating to drug testing, primarily a request by FDA to modify an in vitro drug release assay employed as a manufacturing control.

In December 2023, we submitted a

510(k) premarket notification to the FDA for our next-generation DEB product, CanGarooRM.

The Company anticipates an approval decision in the second quarter of 2024 and is now preparing for commercial launch.

If approved, we anticipate CanGarooRM will be the only drug-eluting biomatrix approved for use with implantable electronic devices, providing both acute and long-term benefits to the patient.

Product Recalls

In June 2021, we issued a voluntary recall pertaining to a single donor lot of our FiberCel Fiber Viable Bone Matrix, a bone repair product formerly manufactured under a contract with Medtronic PLC, which also distributed the product.

The recall was issued after learning of postsurgical infections reported in several patients treated with the product, including some patients that tested positive for tuberculosis.

Additionally, i n July 2023, we announced a voluntary recall of a single lot of one of our viable bone matrix (“VBM”) products and the market withdrawal of all of our VBM products produced after a specified date.

Notice of the voluntary recall was issued to centers after we learned of post-surgical tuberculosis infections in two patients treated with product from a single donor lot of our VBM product.

Both of these products were part of our Orthobiologics Business, which we have fully divested as described above.

For information about legal proceedings in which we are involved and the possible future financial implications, see Note 10 to condensed consolidated financial statements included elsewhere in this Quarterly Report.

Impact of Inflation

Inflationary factors, such as increases in our cost of goods sold or other operating expenses, may adversely affect our operating results.

While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we do not believe inflation had a material effect on our financial condition or results of operations during the three or nine months ended September 30, 2023 and 2022.

We cannot assure you, however, that we will be able to increase the selling prices of our products or reduce our operating expenses in an amount sufficient to offset the effects future inflationary pressures may have on our gross margin.

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We recognize revenue on the sale of our products.

During the three months ended September 30, 2023, our device protection and cardiovascular products were sold to hospitals and other healthcare facilities primarily through our direct sales force, commercial partners or independent sales agents;

however, beginning in April 2023, our cardiovascular products have been sold domestically through our distribution agreement with LeMaitre Vascular and internationally through commercial partners.

Our women’s health product, SimpliDerm, is sold directly to hospitals and other healthcare facilities through independent sales agents or through our distribution agreement with Sientra.

Our device protection products are sold to hospitals and other healthcare facilities primarily through our direct sales force, commercial partners or independent sales agents.

Our cardiovascular products are sold domestically through a distribution agreement with LeMaitre Vascular and internationally through commercial partners.

Our women’s health products are sold directly to hospitals and other healthcare facilities through independent sales agents or through our distribution agreement with Sientra.

In April 2024, it was announced that the assets of Sientra were acquired by Tiger Aesthetics Medical, with whom we are currently in discusssions regarding the continued distribution of SimpliDerm.

In recent years, we have incurred significant costs in the operation of our business.

We expect that our recurring operating costs will largely stabilize, or increase at modest rates, in the near future through the identification of efficiencies as we grow.

We may, however, still experience more significant expense increases as we expand our product development and clinical and research activities.

We may, however, still experience more significant expense increases to the extent we expand our sales and marketing, product development and clinical and research activities.

As a result, we will need to generate significant net sales in order to achieve profitability.

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Cost of Goods Sold

Our cost of goods sold relate to purchased raw materials and the processing and conversion costs of such raw materials consisting primarily of salaries and benefits, supplies, quality control testing and the manufacturing overhead incurred at our processing facilities in Roswell, Georgia and our former facility in Richmond, California.

The Roswell facility has additional capacity, which if utilized, would further leverage our fixed overhead.

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Sales and marketing expenses are primarily related to our direct sales force, consisting of salaries, commission compensation, fringe benefits, meals and other expenses.

Auto and travel costs have also historically contributed to sales and marketing expenses.

Outside of our direct sales force, we incur significant expenses relating to commissions to our CanGaroo commercial partners and independent sales agents.

Auto and travel costs also contribute to sales and marketing expenses.

Outside of our direct sales force, we incur significant expenses relating to commissions to our CanGaroo and SimpliDerm commercial partners and independent sales agents.

Additionally, this expense category includes distribution costs as well as market research, trade show attendance, advertising and public relations related to our products, and customer service expenses.

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FiberCel Litigation Costs

FiberCel litigation costs consist primarily of legal fees and the estimated costs to resolve the outstanding FiberCel litigation cases offset by the estimated amounts recoverable under insurance, indemnity and contribution agreements for such costs.

FiberCel litigation costs consist primarily of legal fees and the estimated costs to resolve the outstanding FiberCel litigation cases offset by the estimated and actual amounts recoverable under insurance, indemnity and contribution agreements for such costs.

Results of Operations

Comparison of the Three Months Ended September 30, 2023 and 2022

Three Months Ended September 30,

Comparison of the Three Months Ended March 31, 2024 and 2023

Three Months Ended March 31,

Change 2023 / 2024

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Interest expense

Other (income) expense, net

Loss on revaluation of warrant liability

Gain on revaluation of revenue interest obligation

Loss before provision of income taxes

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Net sales information for our products is summarized as follows:

Three Months Ended September 30,

Three Months Ended March 31,

Change 2023 / 2024

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Total Net Sales

Total net sales increased $0.3 million, or 4.8%, to $6.1 million in the three months ended September 30, 2023 compared to $5.8 million in the three months ended September 30, 2022.

Revenues from Device Protection and Women’s Health increased compared to the prior year’s third quarter due to volume growth and revenues from Cardiovascular decreased due to the commencement in April 2023 of our distribution agreement with LeMaitre Vascular which provides for sales at a transfer price versus sales prior to such agreement being made at end-user pricing.

Total net sales increased $0.3 million, or 4.7%, to $6.7 million in the three months ended March 31, 2024 compared to $6.4 million in the three months ended March 31, 2023.

Revenues from Device Protection and Women’s Health increased compared to the prior year’s first quarter due to volume growth, and revenues from Cardiovascular decreased due to the commencement in April 2023 of our distribution agreement with LeMaitre Vascular which provides for sales at a contract price versus sales prior to such agreement being made at end-user pricing.

Cost of Goods Sold

Cost of goods sold and gross margin percentage information for our products is summarized as follows:

Three Months Ended September 30,

Three Months Ended March 31,

Change 2023 / 2024

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Total Cost of Goods Sold

Total cost of goods sold increased $0.4 million to $3.3 million in the three months ended September 30, 2023 compared to $2.9 million in the three months ended September 30, 2022.

Gross margin was 46.4% in the three months ended September 30, 2023 compared to 50.2% in the three months ended September 30, 2022.

Gross margin, excluding intangible asset amortization, was 60.2% in the three months ended September 30, 2023 compared to 64.8% in the three months ended September 30, 2022.

Total cost of goods sold increased $0.8 million to $3.9 million in the three months ended March 31, 2024 compared to $3.0 million in the three months ended March 31, 2023.

Gross margin was 42.5% in the three months ended March 31, 2024 compared to 52.8% in the three months ended March 31, 2023.

Gross margin, excluding intangible asset amortization, was 55.2% in the three months ended March 31, 2024 compared to 66.1% in the three months ended March 31, 2023.

The decline in gross margin was primarily due to the Cardiovascular business which declined due to the commencement of the LeMaitre Vascular distribution agreement described above.

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Sales and Marketing

Sales and marketing expenses decreased $1.6 million, or 36.0%, to $2.8 million in the three months ended September 30, 2023 compared to $4.4 million in the three months ended September 30, 2022.

As a percentage of sales, sales and marketing expenses decreased to 45.7% in the three months ended September 30, 2023 from 74.9% in the three months ended September 30, 2022.

The decrease in expense was largely attributable to the previously announced reduction in force which occurred in the first quarter of 2023 and primarily impacted certain members of sales and marketing management.

General and Administrative

G&A expenses decreased $1.5 million, or 36.3%, to $2.8 million in the three months ended September 30, 2023 compared to $4.3 million in the three months ended September 30, 2022.

As a percentage of net sales, G&A expenses decreased to 45.0% in the three months ended September 30, 2023 from 74.0% in the three months ended September 30, 2022.

The decrease in expense was primarily due to certain non-recurring legal and severance costs incurred in the third quarter of 2022.

Research and Development

R&D expenses decreased to $0.6 million in the three months ended September 30, 2023 compared to $1.7 million in the three months ended September 30, 2022.

We continue to focus our R&D efforts primarily on the development of our CanGarooRM Antibacterial Envelope.

Such related costs were less in the third quarter of 2023 versus the prior year’s comparable period due to the reduction of efforts needed and expenses incurred as the development progresses toward anticipated completion.

FiberCel Litigation Costs

FiberCel litigation costs increased to $4.1 million in the three months ended September 30, 2023 compared to $1.5 million in the three months ended September 30, 2022.

The increase in expense was primarily due to the continued evaluation of the contingent FiberCel liability and higher legal defense costs as the FiberCel cases progress.

See further discussion in Note 10 to condensed consolidated financial statements included elsewhere in this Quarterly Report.

Interest Expense

Interest expense was approximately $1.6 million in the three months ended September 30, 2023 compared to $1.3 million in the three months ended September 30, 2022.

The increase was due to the higher principal outstanding and interest rates incurred by us on our existing debt, the SWK Loan Facility, as compared to the debt outstanding in the three months ending September 30, 2022, which consisted primarily of the MidCap Loan Facility and MidCap Credit Facility.

See “ - Liquidity and Capital Resources - Credit Facilities” below for a further discussion of these debt agreements and Note 7 to the condensed consolidated financial statements included elsewhere in this Quarterly Report.

Discontinued Operations

Net loss from discontinued operations for the three months ended September 30, 2023 was $1.1 million and net income from discontinued operations for the three months ended September 30, 2022 was $1.2 million.

The decrease was largely due to revenue reduction and overall financial impact to the Orthobiologics Business caused by the viable bone matrix recall and market withdrawal in July 2023.

Also contributing to the decrease were the legal fees incurred in connection with the Orthobiologics disposition.

Comparison of the Nine Months Ended September 30, 2023 and 2022

Nine Months Ended September 30,

Change 2022 / 2023

(in thousands, except percentages)

Cost of goods sold

Sales and marketing

General and administrative

Research and development

FiberCel litigation costs

Total operating expenses

Loss from operations

Interest expense

Other income, net

Loss before provision of income taxes

Income tax expense

Net loss from continuing operations

Discontinued operations

Net sales information for our products is summarized as follows:

Nine Months Ended September 30,

Change 2022 / 2023

(in thousands, except percentages)

Device protection

Women's health

Cardiovascular

Total Net Sales

Total net sales increased $1,6 million, or 9.3%, to $18.9 million in the nine months ended September 30, 2023 compared to $17.2 million in the nine months ended September 30, 2022.

Revenues from Device Protection and Women’s Health increased compared to the corresponding period of the prior year due to volume growth and revenues from Cardiovascular decreased due to the commencement of our distribution agreement with LeMaitre Vascular which provides for sales at a transfer price versus sales prior to such agreement being made at end-user pricing.

Cost of Goods Sold

Cost of goods sold and gross margin percentage information for our products is summarized as follows:

Nine Months Ended September 30,

Change 2022 / 2023

(in thousands, except percentages)

Device protection

Women's health

Cardiovascular

Cost of goods sold, excluding intangible asset amortization

Intangible asset amortization expense

Total Cost of Goods Sold

Total cost of goods sold increased $1.3 million to $9.9 million in the nine months ended September 30, 2023 compared to $8.7 million in the nine months ended September 30, 2022.

Gross margin was 47.3% in the nine months ended September 30, 2023 compared to 49.7% in the nine months ended September 30, 2022.

Gross margin, excluding intangible asset amortization, was 60.8% in the nine months ended September 30, 2023 compared to 64.4% in the nine months ended September 30, 2022.

The slight decline in gross margin was due to the commencement of the LeMaitre Vascular distribution agreement described above.

Operating Expenses

Sales and Marketing

Sales and marketing expenses decreased $3.2 million, or 23.1%, to $10.5 million in the nine months ended September 30, 2023 compared to $13.7 million in the nine months ended September 30, 2022.

As a percentage of sales, sales and marketing expenses decreased to 55.7% in the nine months ended September 30, 2023 from 79.2% in the nine months ended September 30, 2022.

Sales and marketing expenses decreased $1.4 million, or 29.5%, to $3.3 million in the three months ended March 31, 2024 compared to $4.7 million in the three months ended March 31, 2023.

As a percentage of sales, sales and marketing expenses decreased to 49.4% in the three months ended March 31, 2024 from 73.4% in the three months ended March 31, 2023.

The decrease in expense was largely attributable to the previously announced reduction in force which occurred at the end of the first quarter of 2023 and primarily impacted certain members of sales and marketing management.

General and Administrative

G&A expenses decreased $2.7 million, or 20.7%, to $10.1 million in the nine months ended September 30, 2023 compared to $12.8 million in the nine months ended September 30, 2022.

As a percentage of net sales, G&A expenses decreased to 53.7% in the nine months ended September 30, 2023 from 74.1% in the nine months ended September 30, 2022.

The decrease in expense was primarily due to declines in the cost of insurance and certain non-recurring legal and severance costs incurred in the 2022 period.

G&A expenses increased $1.5 million, or 43.3%, to $5.0 million in the three months ended March 31, 2024 compared to $3.5 million in the three months ended March 31, 2023.

As a percentage of net sales, G&A expenses increased to 75.5% in the three months ended March 31, 2024 from 55.1% in the three months ended March 31, 2023.

The increase in expense was driven, in large measure, by the non-cash equity compensation grants made in January 2024.

See further discussion of such grants in Note 5 to condensed consolidated financial statements included elsewhere in this Quarterly Report.

Research and Development

R&D expenses decreased to $3.0 million in the nine months ended September 30, 2023 compared to $5.9 million in the nine months ended September 30, 2022.

R&D expenses decreased to $1.2 million in the three months ended March 31, 2024 compared to $1.6 million in the three months ended March 31, 2023.

We continue to focus our R&D efforts primarily on the development of our CanGarooRM Antibacterial Envelope.

Such related costs were less in the first nine months of 2023 versus the prior year’s comparable period due to the reduction of efforts needed and expenses incurred as the development progresses toward anticipated completion.

Such related costs were less in the first quarter of 2024 versus the prior year’s comparable period due to the reduction of efforts needed and expenses incurred as the development progresses toward anticipated completion.

FiberCel Litigation Costs

FiberCel litigation costs increased to $7.3 million in the nine months ended September 30, 2023 compared to $1.9 million in the nine months ended September 30, 2022.

The increase in expense was primarily due to the continued evaluation of the contingent FiberCel liability and higher legal defense costs incurred as the FiberCel cases progress.

FiberCel litigation costs decreased to $1.8 million in the three months ended March 31, 2024 compared to $1.9 million in the three months ended March 31, 2023.

The decrease in expense was primarily due to the continued evaluation of the contingent FiberCel liability and slightly lower legal defense costs in the current year period.

See further discussion in Note 10 to condensed consolidated financial statements included elsewhere in this Quarterly Report.

Interest Expense

Interest expense was approximately $4.6 million in the nine months ended September 30, 2023 compared to $3.7 million in the nine months ended September 30, 2022.

The increase was due to the higher principal outstanding and interest rates incurred by us on our existing debt, the SWK Loan Facility, as compared to the debt outstanding in the nine months ending September 30, 2022, which consisted primarily of the MidCap Loan Facility and MidCap Credit Facility.

Interest expense was approximately $1.3 million in the three months ended March 31, 2024 compared to $1.4 million in the three months ended March 31, 2023.

The decrease was primarily due to lower principal outstanding on the SWK debt in the current year period as a result of mandatory repayments in connection with our sale of the Orthobiologics Business in November 2023.

Discontinued Operations

Net loss from discontinued operations for the nine months ended September 30, 2023 was $2.0 million and net income from discontinued operations for the three months ended September 30, 2022 was $2.8 million.

The decrease was largely due to revenue reduction, inventory write-downs and overall financial impact to the Orthobiologics Business caused by the viable bone matrix recall and market withdrawal in July 2023.

Also contributing to the decrease were the legal fees incurred in connection with the Orthobiologics disposition.

Net income from discontinued operations for the three months ended March 31, 2023 was $1.8 million.

See Notes 1 and 4 to condensed consolidated financial statements included elsewhere in this Quarterly Report for further discussion.

Non-GAAP Financial Measures

This Quarterly Report presents our gross margin, excluding intangible asset amortization, for the three and nine months ended September 30, 2023 and 2022.

This Quarterly Report presents our gross margin, excluding intangible asset amortization, for the three months ended March 31, 2024 and 2023.

We calculate gross margin, excluding intangible asset amortization, as gross profit, excluding amortization expense relating to intangible assets we acquired in the CorMatrix Acquisition, divided by net sales.

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We believe this provides our management and investors with useful information to facilitate period-to-period comparisons of our operating results.

Our management uses this metric in assessing the health of our business and our

operating performance, and we believe investors’ understanding of our operating performance is similarly enhanced by our presentation of this metric.

Our management uses this metric in assessing the health of our business and our operating performance, and we believe investors’ understanding of our operating performance is similarly enhanced by our presentation of this metric.

In addition, other companies, including companies in our industry, may use other measures to evaluate their performance, which could reduce the usefulness of this non-GAAP financial measure as a tool for comparison.

The following table presents a reconciliation of our gross margin, excluding intangible asset amortization, for the three and nine months ended September 30, 2023 and 2022 to the most directly comparable GAAP financial measure, which is our GAAP gross margin (in thousands).

The following table presents a reconciliation of our gross margin, excluding intangible asset amortization, for the three months ended March 31, 2024 and 2023 to the most directly comparable GAAP financial measure, which is our GAAP gross margin (in thousands).

Three Months Ended

Nine Months Ended

September 30,

Cost of goods sold

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We have experienced and may in the future experience, higher sales in the fourth quarter as a result of hospitals in the United States increasing their purchases of our products to coincide with the end of their budget cycles.

Satisfaction of patient deductibles throughout the course of the year also results in increased sales later in the year, once patients have paid their annual insurance deductibles in full, which reduces their out-of-pocket costs.

of-pocket costs.

Conversely, our first quarter generally has lower sales than the preceding fourth quarter as patient deductibles are re-established with the new year, which increases their out-of-pocket costs.

Liquidity and Capital Resources

As of September 30, 2023, we had cash of approximately $14.5 million.

Since inception, we have financed our operations primarily through private placements of our convertible preferred stock, amounts borrowed under our credit facilities, sales of our products and more recently, proceeds from our IPO, a follow-on offering and a private placement of our common stock and warrants.

Our historical cash outflows have primarily been associated with acquisitions and integration, manufacturing and administrative costs, general and marketing, research and development, clinical activity, purchase of property and equipment used in the production activities of our Richmond, California facility and investing in our commercial infrastructure through our direct sales force and our commercial partners in order to expand our presence and to promote awareness and adoption of our products.

As of September 30, 2023, our accumulated deficit was $166.3 million.

On September 21, 2023, we sold, in a private offering exempt from the registration provisions of the Securities Act of 1933, as amended, an aggregate of (i) 6,852,811 units (the “Common Units”) to certain of the Investors, each comprised of (a) one share of the Company’s Class A common stock, par value $0.001 per share (“Class A Common Stock”) and (b) a warrant (a “Common Warrant”) to purchase one and one half shares of Class A Common Stock, and (ii) 503,058 units (the “Prefunded Units”) to certain of the Investors, each comprised of (a) a prefunded warrant (a “Prefunded Warrant”) to purchase one share of Class A Common Stock, and (b) a Common Warrant.

Each Common Warrant is exercisable at any time until the earlier of (a) 30 trading days after the clearance by the U.S.

Food & Drug Administration of the Company’s CanGarooRM antibiotic-eluting biologic envelope or (b) five years from the date of the Offering, at an exercise price per share of $1.4275.

Each Prefunded Warrant is exercisable at any time at a nominal

exercise price per share of $0.001 (with the remainder of the exercise price per share of Class A Common Stock having been prefunded to the Company).

As of March 31, 2024, we had cash of approximately $12.6 million.

Since inception, we have financed our operations primarily through amounts borrowed under our credit facilities, proceeds from our initial public offering (“IPO”), sales of our products and more recently, the sale of our Orthobiologics Business and proceeds from a follow-on offering and private placements of our common stock and warrants.

Our historical cash outflows have primarily been associated with acquisitions and integration, manufacturing and administrative costs, general and marketing, research and development, clinical activity, purchase of property and equipment used in our production activities, litigation costs and investing in our commercial infrastructure through our direct sales force and our commercial partners in order to expand our presence and to promote awareness and adoption of our products.

As of March 31, 2024, our accumulated deficit was $193.6 million.

On September 21, 2023, we sold, in a private offering an aggregate of (i) 6,852,811 units (“Common Units”), each comprised of (a) one share of our Class A common stock and (b) a warrant (“Common Warrant”) to purchase one and one half shares of Class A Common Stock, and (ii) 503,058 units (the “Prefunded Units”), each comprised of (a) a prefunded warrant (“Prefunded Warrant”) to purchase one share of Class A Common Stock, and (b) a Common Warrant.

Each Common Warrant is exercisable at any time until the earlier of (a) 30 trading days after the clearance by the FDA of our CanGarooRM antibiotic-eluting biologic envelope or (b) five years from the date of the offering, at an exercise price per share of $1.4275.

We expect our losses to continue for the foreseeable future and these losses will continue to have an adverse effect on our financial position.

Because of the numerous risks and uncertainties associated with our commercialization and development efforts, we are unable to predict when we will become profitable, and we may never become profitable.

Because of the numerous risks and uncertainties associated with our commercialization and development efforts, including our ability to obtain FDA clearance for the next generation of our flagship CanGaroo product, CanGarooRM, and successfully commercialize this product, we are unable to predict when we will become profitable, and we may never become profitable.

Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations and cash flows.

In order to mitigate the current and potential future liquidity issues caused by the matters noted above, we may seek to raise capital through the issuance of common stock, such as the private placement which we closed in September 2023 described above, pursue asset sale or other transactions, such as the sale of the Orthobiologics Business described below, or restructure our Revenue Interest Obligation.

In order to mitigate the current and potential future liquidity issues caused by the matters noted above, we may seek to raise capital through the issuance of common stock, such as the private placement which we closed in September 2023 described above, pursue asset sale or other transactions, such as the sale of the Orthobiologics Business described above.

However, such transactions may not be successful, and we may not be able to raise additional equity, refinance our debt instruments, or sell assets on acceptable terms, or at all.

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Due to these factors, there is substantial doubt about our ability to continue as a going concern within one year after the issuance of the financial statements.

Cash Flows for the Nine Months Ended September 30, 2023 and 2022

Nine Months Ended

September 30,

Cash Flows for the Three Months Ended March 31, 2024 and 2023

Three Months Ended

(in thousands)

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Net Cash Used in Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2023 was $12.7 million compared to $16.2 million for the nine months ended September 30, 2022.

The year-over-year decrease was primarily due to a lower net loss as well as the receipt of insurance proceeds, and a corresponding decrease in insurance receivables, in connection with our FiberCel litigation.

Net cash used in operating activities for the three months ended March 31, 2024 was $2.6 million compared to $5.2 million for the three months ended March 31, 2023.

The year-over-year decrease was primarily due to a lower net loss (excluding non-cash items) as well as the timing of trade payable disbursements.

Net Cash Used in Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2023 was $0.3 million compared to $0.4 million for the nine months ended September 30, 2022.

In both periods, the use of cash related to the purchase of property and equipment, the majority of which were used in the production activities of our Richmond, California facility.

Net cash used in investing activities for the three months ended March 31, 2024 was $0.01 million compared to $0.2 million for the three months ended March 31, 2023.

In both periods, the use of cash related to the purchase of property and equipment for our production activities.

Net Cash Used in Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2023 was $10.5 million compared to net cash used in financing activities of $5.7 million for the nine months ended September 30, 2022.

The year-over-year net increase was caused primarily by the private placement in September 2023 which yielded $10.5 million in gross proceeds through the issuance of common stock and warrants.

Further contributing to the increase were payments made in the 2022 period related to our Revenue Interest Obligation with no such payments having been made in the 2023 period due to ongoing restructuring discussions with Ligand (as defined below).

Net cash used in financing activities for the three months ended March 31, 2024 was $4.1 million compared to net cash provided by financing activities of $0.1 million for the three months ended March 31, 2023.

The year-over-year net decrease was caused primarily by the repayments totaling $4.6 million in the current year period of our long-term debt and revenue interest obligation offset by the proceeds from Common Warrant and Prefunded Warrant exercises of $1.1 million.

No such activity occurred in the 2023 period.

Credit Facilities

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The SWK Loan Facility also allows for the establishment of a separate, new asset-based revolving loan facility of up to $8 million, which has not been entered into to date.

In connection with the August 2022 debt refinancing, we used $16 million of the proceeds of the SWK Loan Facility to pay all outstanding obligations on the formerly outstanding MidCap Loan Facility and MidCap Credit Facility.

Such payment included (i) $12.8 million to repay all outstanding principal and accrued interest on the MidCap Loan Facility, (ii) $1.7 million to pay the prepayment and exit fees on the MidCap Loan Facility and (iii) $1.5 million to repay the outstanding balance, accrued interest and exit fees on the MidCap Credit Facility.

As of September 30, 2023, we had $25.3 million of indebtedness outstanding under our SWK Loan Facility, with such balance being net of $0.8 million of unamortized discount and deferred financing costs.

As of March 31, 2024, we had $22.0 million of indebtedness outstanding under our SWK Loan Facility, with such balance being net of $0.7 million of unamortized discount and deferred financing costs.

Interest Rates

All of the SWK Loan Facility borrowings take the form of Secured Overnight Financing Rate (“SOFR”) loans and will bear interest at a rate per annum equal to the sum of an applicable margin of (i) 7.75% and the “Term SOFR Rate” (based upon an interest period of 3 months), or (ii) if we have elected the PIK Interest option (as defined below), 3.75% and the “Term SOFR Rate.” We may elect a portion of the interest due, to be paid in-kind at a rate per annum of 4.5% (“PIK Interest”), and such election may be made (x) until November 15, 2024 if certain profitability and regulatory conditions (“Extension Conditions”) have not been met, or until November 17, 2025 if such conditions have been satisfied.

All of the SWK Loan Facility borrowings take the form of Secured Overnight Financing Rate (“SOFR”) loans and bear interest at a rate per annum equal to the sum of an applicable margin of (i) 7.75% and the “Term SOFR Rate” (based upon an interest period of 3 months), or (ii) if we have elected the PIK Interest option (as defined below), 3.75% and the “Term SOFR Rate.” We may elect a portion of the interest due, to be paid in-kind at a rate per annum of 4.5% (“PIK Interest”), and such election may be made (x) until November 15, 2024 if certain conditions, as

defined, have not been met, or (y) if such conditions have been satisfied, until November 17, 2025.

The “Term SOFR Rate” is subject to a floor of 2.75%.

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The SWK Loan Facility Agreement requires certain mandatory prepayments, subject to certain exceptions, with:

(1) 100% of any net casualty proceeds in excess of $250,000 and (2) for non-ordinary course asset sales, an amount equal to the difference between (x) the proportion of divested gross profit (as defined in the SWK Loan Facility Agreement) to the Company’s total gross profit (as defined in the SWK Loan Facility Agreement) multiplied by the outstanding loans under the SWK Loan Facility, and (y) the difference between $1,000,000 and the aggregate sale proceeds of any assets previously sold during the fiscal year.

No such mandatory prepayments were required during the three months ended September 30, 2023;

however, the closing of the divestiture of the Orthobiologics Business triggered the mandatory prepayment of $4.0 million.

Of such amount, $2.0 million wa s paid shortly after closing of the divestiture of the Orthobiologics Business and the remainder is to be paid by the earlier of (i) February 15, 2024 and (ii) two business days following written request by SWK based on mutual agreement between the parties.

(1) 100% of any net casualty proceeds in excess of $250,000 and (2) for non-ordinary course asset sales, an amount equal to the difference between (x) the proportion of divested gross profit (as defined in the SWK Loan Facility) to the Company’s total gross profit (as defined in the SWK Loan Facility) multiplied by the outstanding loans under the SWK Loan Facility, and (y) the difference between $1,000,000 and the aggregate sale proceeds of any assets previously sold during the fiscal year.

The closing of the sale of the Orthobiologics Business in November 2023 triggered the mandatory prepayment of $4.0 million.

Of such amount, $2.0 million wa s paid shortly after closing of the divestiture of the Orthobiologics Business and the remainder was paid on February 15, 2024 based on mutual agreement between the parties.

No such mandatory prepayments were required in the three months ended March 31, 2023.

Optional Prepayment

The SWK Loan Facility Agreement also includes an exit fee equal to 6.5% of the aggregate principal amount funded prior to termination, and prepayment penalties that are equal to:

(i) 2% of the aggregate principal amount funded prior to the termination plus remaining unpaid interest payments scheduled to be paid during the first year of the loan if such prepayment occurs prior to the first anniversary of the Closing Date, or (ii) 2% of the aggregate principal amount funded prior to termination if such prepayment occurs after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date.

The agreement, as amended, governing the SWK Loan Facility also includes an exit fee equal to 6.5% of the aggregate principal amount funded prior to termination plus $62,500 and prepayment penalties equal to:

(i) if such prepayment occurs prior to the first anniversary of the Closing Date, 2% of the aggregate principal amount funded prior to the termination plus remaining unpaid interest payments scheduled to be paid during the first year of the loan or (ii) if such prepayment occurs after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date, 2% of the aggregate principal amount funded prior to the termination.

Amortization and Final Maturity

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Principal amortization of the SWK Loan Facility starts on November 15, 2024, which amortization may be extended to November 17, 2025 if the Extension Conditions (as defined in the SWK Loan Facility Agreement) have been satisfied.

payments during the amortization period will be limited based on revenue-based caps.

As of September 30, 2023, quarterly principal payments are scheduled to begin on November 15, 2024, in an amount equal to 5% of the outstanding principal on such principal payment commencement date with the balance paid at maturity.

Principal payments during the amortization period will be limited based on revenue-based caps.

As of March 31, 2024, quarterly principal payments are scheduled to begin on November 15, 2024, in an amount equal to 5% of the outstanding principal on such principal payment commencement date with the balance paid at maturity.

All obligations under the SWK Loan Facility are, and any future guarantees of those obligations will be, secured by, among other things, and in each case subject to certain exceptions, a first priority lien on and security interest in, upon, and to all of our assets, whether now owned or hereafter acquired, wherever located.

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In addition, the SWK Loan Facility Agreement contains two financial covenants.

The first covenant, which is measured quarterly, requires us to achieve a specified Minimum Aggregate Revenue (as defined in the SWK Loan Facility Agreement) for the preceding 12-month period or, alternatively, to maintain Consolidated Unencumbered Liquid Assets (as defined in the SWK Loan Facility Agreement) greater than either (i) the outstanding principal balance of the loan, or (ii) the aggregate operating cash burn (as defined in the SWK Loan Facility Agreement) for the preceding 12-month period.

The second covenant requires us to maintain a minimum liquidity (as defined in the SWK Loan Facility Agreement) of the greater of (a) $5.0 million and (b) the sum of the operating cash burn for the two prior consecutive fiscal quarters then ended (the “Liquidity Covenant”).

The first covenant, which is measured quarterly, requires us to achieve a specified Minimum Aggregate Revenue (as defined in the SWK Loan Facility) for the preceding 12-month period or, alternatively, to maintain Consolidated Unencumbered Liquid Assets (as defined in the SWK Loan Facility) greater than either (i) the outstanding principal balance of the loan, or (ii) the aggregate operating cash burn (as defined in the SWK Loan Facility) for the preceding 12-month period.

The second covenant requires us to maintain a minimum liquidity (as defined in the SWK Loan Facility) of the greater of (a) $5.0 million and (b) the sum of the operating cash burn for the two prior consecutive fiscal quarters then ended (the “Liquidity Covenant”).

On March 27, 2024, we entered into an amendment to the SWK Loan Facility Agreement, which modified the Minimum Aggregate Revenue covenant under the SWK Facility to provide that as of the last business day of each fiscal quarter of the Company beginning with the first fiscal quarter of 2024, our required Minimum Aggregate Revenue (as defined in the SWK Facility) for the trailing twelve-month period must be equal to or greater than $20.0 million.

The SWK Loan Facility Agreement contains events of default, including, most significantly, a failure to timely pay interest or principal, insolvency, or an action by the FDA or such other material adverse event impacting the operations of Elutia.

As of September 30, 2023, we were in compliance with the financial covenant and all other covenants.

On May 12, 2023, we entered into a first amendment to the SWK Loan Facility Agreement with SWK and the other lenders party thereto .

The amendment is described in further detail in Note 6 to the condensed consolidated financial statements included elsewhere in this Quarterly Report.

Supplier Promissory Note

During 2017, we restructured certain of our liabilities with a tissue supplier and entered into an unsecured promissory note bearing interest at 5%.

In connection with the August 2022 debt refinancing, we used $1.4 million of the proceeds from the SWK Loan Facility to repay the remaining balance on the promissory note, and as of September 30, 2023, we had no balance remaining on the promissory note.

As of March 31, 2024, we were in compliance with the financial covenants and all other covenants.

Funding Requirements

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In addition, we expect to continue to incur significant costs and expenses associated with operating as a public company.

As of September 30, 2023, we had $25.3 million of indebtedness outstanding, consisting of $26.1 million outstanding under our SWK Loan Facility (net of $0.8 million of unamortized discount and deferred financing costs).

In addition, as further described in Note 8 to these condensed consolidated financial statements included elsewhere in this Quarterly Report, we are party to a royalty agreement with Ligand Pharmaceuticals Incorporated (“Ligand”) pursuant to which we assumed a restructured, long-term obligation to Ligand (the “Revenue Interest Obligation”), that requires us to pay Ligand 5.0% of future sales of the products we acquired from CorMatrix (as well as products substantially similar to those products), subject to annual minimum payments of $2.75 million.

Furthermore, a $5.0 million payment is due to Ligand if cumulative sales of these products exceed $100 million and a second $5.0 million will be due if cumulative sales exceed $300 million during the ten-year term of the agreement which expires on May 31, 2027.

The initial $5.0 million milestone payment became due in the second quarter of 2023.

As of March 31, 2024, we had $22.0 million of indebtedness outstanding, consisting of $22.7 million outstanding under our SWK Loan Facility, net of $0.7 million of unamortized discount and deferred financing costs.

In addition, we are party to a royalty agreement with Ligand Pharmaceuticals Incorporated (“Ligand”) pursuant to a long-term obligation to Ligand (the “Revenue Interest Obligation”).

The Revenue Interest Obligation, as amended in January 2024, requires us to pay Ligand 5.0% of future sales of our CanGaroo, ProxiCor, Tyke and VasCure products, and substantially similar products, through May 31, 2027, subject to annual minimum payments of $4.4 million.

If our available cash balances and cash flow from operations are insufficient to satisfy our liquidity requirements, we may seek to raise additional capital through equity offerings, debt financings, or asset sale or other transactions.

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● unanticipated general, legal and administrative expenses;

● the effects on any of the above of the COVID-19 pandemic or any other pandemic, epidemic or outbreak of infectious disease.

● the effects on any of the above from any pandemic, epidemic or outbreak of infectious disease.

In addition, our operating plans may change as a result of any number of factors, including those set forth above and other factors currently unknown to us, and we may need additional funds sooner than anticipated.

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Based on our current operating plans, we believe there is uncertainty as to whether our future cash flows along with our existing cash, issuances of additional equity and cash generated from expected future sales will be sufficient to meet our anticipated operating needs through twelve months from the financial statement issuance date.

Due to these factors, there is substantial doubt about our ability to continue as going concern within one year after the issuance of the financial statements.

Due to these factors, there is substantial doubt about our ability to continue as a going concern within one year after the issuance of the financial statements.

Critical Accounting Policies and Estimates

The preparation of our unaudited condensed consolidated financial statements in accordance with GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures.

We have discussed the policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report, and, during the three and nine months ended September 30, 2023, there were no material changes to those previously disclosed other than those outlined in Note 2, “Summary of Significant Accounting Policies.”

We have discussed the policies and estimates that we believe are critical and require the use of complex judgment in their application in our Annual Report, and, during the three months ended March 31, 2024, there were no material changes to those previously disclosed other than those outlined in Note 2, “Summary of Significant Accounting Policies.”

Recent Accounting Pronouncements

Refer to Note 3, “Recently Issued Accounting Standards,” to our condensed consolidated financial statements included elsewhere in this Quarterly Report for information regarding recently issued accounting pronouncements.

Section 107 of the JOBS Act permits us, as an “emerging growth company,” to take advantage of an extended transition period for adopting new or revised accounting standards until those standards would otherwise apply to private

We have elected to avail ourselves of this exemption and, as a result, for so long as we remain an emerging growth company, unless we subsequently choose to affirmatively and irrevocably opt out of the extended transition period, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies.

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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 2. Management’s Discussion and Analysis