What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-13 compared with 2024-05-13 · 163 added, 90 removed, 228 unchanged (53% of the section changed)

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

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

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

Additionally, in June 2024, we received clearance from the U.S.

Food and Drug Administration (“FDA”) for our antibiotic-eluting bioenvelope, EluPro (referred to as CanGarooRM during development).

Specifically designed to prevent post-operative complications for devices such as pacemakers and defibrillators, EluPro provides antibiotic delivery combined with advanced tissue engineering to create a bioenvelope that over time remodels into a protective pocket of the patient's own tissue.

Infection, migration, and skin erosion are some of the most frequently encountered complications of pacemaker surgery, occurring in up to five to seven percent of cases.

EluPro is the only drug-eluting biomatrix (“DEB”) offering in the $600 million U.S.

implantable electronic device protection 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.

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.

CanGarooRM will require clearance of a U.S.

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

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.

With respect to pipeline products, we are pioneering DEB to help solve problems unaddressed by available options.

As described above, EluPro is our first DEB product offering.

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.

CanGaroo and EluPro, upon its commercial introduction in the third quarter of 2024, are sold through our internal sales force, independent sales agents and our marketing partner, Boston Scientific.

SimpliDerm is sold through both independent sales agents and our distributor, Tiger Aesthetics Medical after their acquisition of the assets of Sientra in April 2024.

We also sell legacy products into the Cardiovascular market.

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We rely on a single or limited number of suppliers for certain raw materials and supplies.

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.

We have a long-term supply agreement with Cook Biotech (now owned by RTI Surgical), the porcine tissue supplier of our raw materials for our CanGaroo and cardiovascular products.

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

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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.

There were no earn-out payments earned or paid in the three months ended June 30, 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.

We recognized a gain of approximately $6.0 million on the sale of the Orthobiologics Business in the fourth quarter of 2023 and an additional gain of $0.2 million in the second quarter of 2024 from an adjustment payment related to the final working capital received by Berkeley at the sale date.

The indemnity holdback is available as a source of recovery for Berkeley for claims of indemnification under the purchase agreement, and some or all of the holdback may be retained by Berkeley if Berkeley is successful in asserting a claim or claims for indemnification against us.

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 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.

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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 months ended March 31, 2024 and 2023.

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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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.

Our women’s health products are sold directly to hospitals and other healthcare facilities through independent sales agents or through our distribution agreement with Tiger Aesthetics Medical after their acquisition of the assets of Sientra in April 2024.

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

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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.

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.

General and Administrative Expenses

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Research and development (“R&D”) expenses consist primarily of salaries and fringe benefits, laboratory supplies, clinical studies and outside service costs.

Our product development efforts primarily relate to activities associated with the development of CanGarooRM, our CanGaroo Envelope with antibiotics.

Over the last several years, our product development efforts have primarily related to activities associated with the development of EluPro (referred to as CanGarooRM during development), our initial DEB product offering.

See above for discussion of the June 2024 FDA approval of EluPro.

Future development efforts are expected to focus on (i) expanding the EluPro offering with additional sizes and product features and (ii) developing new products within the DEB product portfolio.

We also conduct clinical studies to validate the performance characteristics of our products and to capture patient data necessary to support our commercial efforts.

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Results of Operations

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

Three Months Ended March 31,

Comparison of the Three Months Ended June 30, 2024 and 2023

Three Months Ended June 30,

Change 2023 / 2024

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Loss on revaluation of warrant liability

Gain on revaluation of revenue interest obligation

Other expense (income), net

Loss before provision of income taxes

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Discontinued operations

NM = not meaningful

Net sales information for our products is summarized as follows:

Three Months Ended March 31,

Three Months Ended June 30,

Change 2023 / 2024

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Total Net Sales

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.

Total net sales decreased $0.1 million, or 0.9%, to $6.3 million in the three months ended June 30, 2024 compared to $6.4 million in the three months ended June 30, 2023.

Revenues from Device Protection and Women’s Health increased compared to the prior year’s second quarter due primarily 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 March 31,

Three Months Ended June 30,

Change 2023 / 2024

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Total Cost of Goods Sold

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.

Total cost of goods sold decreased $0.1 million to $3.5 million in the three months ended June 30, 2024 compared to $3.6 million in the three months ended June 30, 2023.

Gross margin was 44.5% in the three months ended June 30, 2024 compared to 42.7% in the three months ended June 30, 2023.

Gross margin, excluding intangible asset amortization, was 58.0% in the three months ended June 30, 2024 compared to 56.1% in the three months ended June 30, 2023.

The improvement in gross margin was primarily due to the Women’s health business which experienced certain non-recurring production issues in the 2023 period which had a negative impact on gross margins.

As noted above, with the sale of the Orthobiologics Business in November 2023, we no longer internally produce our women’s health product, SimpliDerm.

Operating Expenses

Sales and Marketing

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.

Sales and marketing expenses increased $0.3 million, or 10.2%, to $3.3 million in the three months ended June 30, 2024 compared to $3.0 million in the three months ended June 30, 2023.

As a percentage of sales, sales and marketing expenses increased to 52.9% in the three months ended June 30, 2024 from 47.6% in the three months ended June 30, 2023.

The increase in expense was largely attributable to the non-cash equity compensation grants made in January 2024.

General and Administrative

G&A expenses increased $0.8 million, or 21.4%, to $4.7 million in the three months ended June 30, 2024 compared to $3.9 million in the three months ended June 30, 2023.

As a percentage of net sales, G&A expenses increased to 74.5% in the three months ended June 30, 2024 from 60.8% in the three months ended June 30, 2023.

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

Research and Development

R&D expenses were essentially flat between years slightly increasing to $1.0 million in the three months ended June 30, 2024 compared to $0.9 million in the three months ended June 30, 2023.

Over the last several years, our R&D efforts have primarily related to activities associated with the development of EluPro (referred to as CanGarooRM during development).

The June 2024 FDA approval of EluPro is discussed in further under the heading "Overview" above..

FiberCel Litigation Costs

FiberCel litigation costs increased to $2.3 million in the three months ended June 30, 2024 compared to $1.3 million in the three months ended June 30, 2023.

The increase in expense was primarily due to the continued evaluation of the contingent FiberCel liability.

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

Interest Expense

Interest expense was approximately $1.3 million in the three months ended June 30, 2024 compared to $1.4 million in the three months ended June 30, 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

Income from discontinued operations for the three months ended June 30, 2024 was $0.2 millon and loss from discontinued operations for the three months ended June 30, 2023 was $2.9 million.

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

Comparison of the Six Months Ended June 30, 2024 and 2023

Six Months Ended June 30,

Change 2023 / 2024

(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

Loss on revaluation of warrant liability

Other expense (income), net

Loss before provision of income taxes

Income tax expense

Net loss from continuing operations

Discontinued operations

NM = not meaningful

Net sales information for our products is summarized as follows:

Six Months Ended June 30,

Change 2023 / 2024

(in thousands, except percentages)

Device protection

Women's health

Cardiovascular

Total Net Sales

Total net sales increased $0.3 million, or 1.9%, to $13.0 million in the six months ended June 30, 2024 compared to $12.7 million in the six months ended June 30, 2023.

Revenues from Device Protection and Women’s Health increased compared to the prior year period due primarily 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:

Six Months Ended June 30,

Change 2023 / 2024

(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 $0.6 million to $7.3 million in the six months ended June 30, 2024 compared to $6.7 million in the six months ended June 30, 2023.

Gross margin was 43.5% in the six months ended June 30, 2024 compared to 47.8% in the six months ended June 30, 2023.

Gross margin, excluding intangible asset amortization, was 56.5% in the six months ended June 30, 2024 compared to 61.1% in the six months ended June 30, 2023.

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

Operating Expenses

Sales and Marketing

Sales and marketing expenses decreased $1.1 million, or 13.9%, to $6.6 million in the six months ended June 30, 2024 compared to $7.7 million in the six months ended June 30, 2023.

As a percentage of sales, sales and marketing expenses decreased to 51.1% in the six months ended June 30, 2024 from 60.5% in the six months ended June 30, 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 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.

G&A expenses increased $2.3 million, or 32.0%, to $9.7 million in the six months ended June 30, 2024 compared to $7.4 million in the six months ended June 30, 2023.

As a percentage of net sales, G&A expenses increased to 75.0% in the six months ended June 30, 2024 from 57.9% in the six months ended June 30, 2023.

The increase in expense resulted largely from the non-cash equity compensation grants made in January 2024.

Research and Development

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 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.

R&D expenses decreased to $2.2 million in the six months ended June 30, 2024 compared to $2.5 million in the six months ended June 30, 2023.

Over the last several years, our R&D efforts have primarily related to activities associated with the development of EluPro (referred to as CanGarooRM during development).

See above for discussion of the June 2024 FDA approval of EluPro.

Such related costs were less in the first half of 2024 versus the prior year’s comparable

period due to the reduction of efforts needed and expenses incurred as the development progressed toward anticipated completion.

FiberCel Litigation Costs

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.

FiberCel litigation costs increased to $4.1 million in the six months ended June 30, 2024 compared to $3.2 million in the six months ended June 30, 2023.

The increase in expense was primarily due to the continued evaluation of the contingent FiberCel liability.

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

Interest Expense

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.

Interest expense was approximately $2.6 million in the six months ended June 30, 2024 compared to $2.8 million in the six months ended June 30, 2023.

Discontinued Operations

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

Income from discontinued operations for the six months ended June 30, 2024 was $0.2 millon and loss from discontinued operations for the six months ended June 30, 2023 was $1.1 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 months ended March 31, 2024 and 2023.

This Quarterly Report presents our gross margin, excluding intangible asset amortization, for the three and six months ended June 30, 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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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 months ended March 31, 2024 and 2023 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 and six months ended June 30, 2024 and 2023 to the most directly comparable GAAP financial measure, which is our GAAP gross margin (in thousands).

Three Months Ended

Six Months Ended

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.

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

As of June 30, 2024, we had cash of approximately $18.2 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.

As of June 30, 2024, our accumulated deficit was $221.8 million.

On June 18, 2024, we sold, in a registered direct offering (“Registered Offering”) an aggregate of (i) 3,175,000 shares (“Common Shares”) of the Company’s Class A common stock and (ii) prefunded warrants (“2024 Prefunded Warrants”) to purchase up to an aggregate of 725,000 shares of Class A Common Stock.

The public offering price for each share of Class A Common Stock was $3.40, and the public offering price for each 2024 Prefunded Warrant was $3.399 , for aggregate gross proceeds of approximately $13.3 million, before deducting offering expenses.

The 2024 Prefunded Warrants have an exercise price of $0.001 per share of Class A Common Stock, are exercisable immediately and will expire when exercised in full.

On September 21, 2023, we sold, in a private offering (“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 (“2023 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 2023 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 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.

date of the offering, at an exercise price per share of $1.4275.

Each 2023 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 us).

With the FDA’s approval of EluPro in June 2024 (referred to as CanGarooRM during development), the last exercise date for the Common Warrants was July 31, 2024.

All Common Warrants outstanding as of June 30, 2024 were exercised by such date yielding exercise proceeds of $13.8 million in July 2024.

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 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.

Because of the numerous risks and uncertainties associated with our commercialization and development efforts, including our ability to successfully commercialize our new EluPro 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 above.

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 Registerd Offering and Private Offering 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 Three Months Ended March 31, 2024 and 2023

Three Months Ended

Cash Flows for the Six Months Ended June 30, 2024 and 2023

Six Months Ended

(in thousands)

Net cash used in:

Net cash provided by (used in):

Operating activities

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Net decrease in cash

Net Cash Used in Operating Activities

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 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 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.

Cash Flows From Operating Activities

Net cash used in operating activities for the six months ended June 30, 2024 was $7.0 million compared to $7.6 million for the six months ended June 30, 2023.

The year-over-year decrease was primarily due to a lower net loss (excluding non-cash items) as well as reductions in inventory held.

Cash Flows From Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2024 was $0.2 million compared to net cash used in investing activities of $0.3 million for the six months ended June 30, 2023.

The current year period reflects the receipt of $0.2 million in the second quarter of 2024 from an adjustment payment related to the final working capital received by Berkeley at the sale date.

The prior year period use of cash is related to the purchase of property and equipment for our production activities.

Cash Flows From Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2024 was $5.7 million compared to $0.1 million for the six months ended June 30, 2023.

The year-over-year increase was caused primarily by the Registered Offering and warrant exercises which yielded proceeds of $14.1 million offset by repayments of long-term debt and

payments on the revenue interest obligation which collectively totalled $7.2 million.

No such activity occurred in the 2023 period.

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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.

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.

As of June 30, 2024, we had $23.0 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 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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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.

No such mandatory prepayments were required in the six months ended June 30, 2023.

Optional Prepayment

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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.

As of June 30, 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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● redeem, repurchase or refinance subordinated indebtedness;

● consolidate, merge or sell or otherwise dispose of their assets;

● consolidate, merge or sell or otherwise dispose of assets;

● make investments, loans, advances, guarantees and acquisitions;

● enter into transactions with affiliates;

● amend or modify their governing documents;

● amend or modify our governing documents;

● amend or modify certain material agreements;

● alter the business conducted by them and their subsidiaries.

● alter the business conducted by us and our subsidiaries.

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

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

As of June 30, 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 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.

As of June 30, 2024, we had $22.3 million of indebtedness outstanding, consisting of $23.0 million outstanding under our SWK Loan Facility, net of $0.7 million of unamortized discount and deferred financing costs.

Such indebtedness currently has a principal payment commencement date of November 15, 2024, with quarterly principal payments in an amount equal to 5% of the outstanding principal.

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”).

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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 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.”

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 six months ended June 30, 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

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(ii) the last day of 2025;

(iii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common equity held by non-affiliates is $700 million or more as of the last business day of our most recently completed second fiscal quarter;

fiscal quarter;

or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

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