What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-11 compared with 2024-03-11 · 177 added, 173 removed, 259 unchanged (57% 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 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 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.

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

These complications include infection, device migration, erosion, implant rejection, non-union of implants, fibrosis and scar formation.

We estimate that in 2024, more than 700,000 surgical procedures were performed annually in the United States involving the implantation of medical devices such as pacemakers, defibrillators, neurostimulators 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.

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 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, 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.

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 devices.

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.

We currently focus on two priority markets – Device Protection and Women’s Health.

In Device Protection, we sell EluPro, a unique bioenvelope designed to mitigate CIED complications including infection, device migration and erosion.

The bioenvelope features a biomatrix comprised of ECM, which supports healthy wound healing and may facilitate re-operative procedures by reducing scar formation and fibrosis.

Additionally, EluPro is embedded with the powerful antibiotics rifampin and minocycline, which are gradually released into the surrounding tissue over several weeks post-implantation to provide antimicrobial protection.

Currently, EluPro is the only drug-eluting biomatrix (“DEB”) offering in the U.S.

implantable electronic device protection market.

Alongside EluPro, we market the CanGaroo bioenvelope, our first generation product, which uses the same biomatrix but does not contain antibiotics.

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

SimpliDerm’s design uses human-based hydrated acellular dermal matrix with heightened structural integrity and superior handling capabilities, which may mitigate inflammation and enhance tissue incorporation, leading to a better healing experience as compared to other ADM products.

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

With respect to pipeline products, we plan to expand our DEB offerings beyond EluPro and are pioneering DEBs to help solve problems unaddressed by available options.

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

We sell EluPro and CanGaroo in the United States using our direct sales force and our commercial partner, Boston Scientific, which acts as a sales agent and gives us access to approximately 900 sales representatives and clinical specialists to further expand our footprint and accelerate our sales.

Our primary customers are electrophysiologists, cardiac surgeons and neurosurgeons.

Our direct sales force is focused on gaining additional market access and driving market penetration, not only by selling our products, but also, where appropriate, by managing our commercial partners and providing technical assistance for selling our products.

Our sales team provides the critical knowledge of the advantages that EluPro and CanGaroo provide for patients over those of our competitors.

We ship the product directly to hospitals.

We sell SimpliDerm through independent sales agents to plastic and reconstructive surgeons.

Additionally, in March 2023, we entered into an agreement with Sientra, a medical aesthetics company uniquely focused on plastic surgery, to expand the distribution of SimpliDerm.

In April 2024, such agreement was acquired by Tiger in connection with their asset acquisition of Sientra.

Under the agreement terms, Elutia has granted Tiger certain non-exclusive rights in the United States to market, sell and distribute SimpliDerm.

This agreement with Tiger gives us access to approximately 50 sales representatives to further expand our footprint and accelerate our sales.

We also sell legacy products into the Cardiovascular market.

In Cardiovascular, we sell our specialized porcine small intestine submucosa, which is also the tissue used to make CanGaroo, for use as an intracardiac and vascular patch as well as for pericardial reconstruction.

In Cardiovascular, we sell our specialized porcine small intestine submucosa, which is based on the same the biomatrix used to make EluPro and CanGaroo, for use as an intracardiac and vascular patch as well as for pericardial reconstruction.

In addition, our TYKE product is designed for use in the neonatal patient population.

These cardiovascular products are sold in the United States through an exclusive agreement with LeMaitre Vascular and internationally through distributors.

We process all of our CanGaroo and cardiovascular products at our manufacturing facility in Roswell, Georgia and stock inventory of raw materials, supplies and finished goods at this location.

These cardiovascular products are sold in the United States through an exclusive distribution agreement with LeMaitre Vascular.

This agreement also provided LeMaitre with an option to acquire the Cardiovascular product line, exercisable through March 2026.

We produce all of our CanGaroo and cardiovascular products at our manufacturing facility in Roswell, Georgia and stock inventory of raw materials, supplies and finished goods at this location.

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.

We have a long-term supply agreement with Cook, 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;

however, that facility was included with the divestiture of the Orthobiologics Business, and 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.

however, that facility was included with the divestiture of the Orthobiologics Business, and SimpliDerm is now provided to us on a go-forward basis through a long-term supply agreement with the purchaser of the Orthobiologics Business, Berkeley Biologics, LLC (“Berkeley”).

We also intend to develop our own in-house capability for the production of SimpliDerm.

To this end, in March 2025, we signed a lease for 26,598 square feet in Gaithersburg, Maryland for purposes of, among other things, the internal production of SimpliDerm.

We expect to be able to internally produce SimpliDerm by the third quarter of 2025.

We have focused much of our attention recently on EluPro, which was cleared for marketing by the FDA in June 2024 and is indicated for use with implantable electronic devices including cardiac and neurostimulator devices.

We believe the Company’s success is highly dependent on the successful commercialization, marketing and sale of EluPro, as well as the extension of our DEB technology into potential adjacent applications.

Furthermore, we believe the commercialization and marketing efforts with respect to EluPro will require significant investments in time and resources.

However, there can be no assurance that we will have or be able to obtain sufficient resources to make the necessary investments in order to increase the sales and market penetration for EluPro, or that if made, such investments will yield the results sought.

Discontinued Operations – Sale of Orthobiologics Business

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

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

As part of the divestiture, we also assigned the lease to our 36,173 square feet of manufacturing, laboratory and office space in Richmond, California to Berkeley.

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.

On November 8, 2023, we completed the sale of substantially all of the assets relating to our former Orthobiologics Business to 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 $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 have been no earn-out payments made to date.

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.

The purchase agreement contains customary representations, warranties and covenants of the parties, and we, on the one hand, and Berkeley, on the other hand, agreed to customary indemnification provisions for breaches of representations, warranties and covenants, as well as assumed and excluded liabilities and pre-closing items.

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.

In the purchase agreement, the Company has retained the liabilities arising out of the viable bone matrix (“VBM”) and FiberCel matters, as described in Note 17, both of which products were part of the Orthobiologics Business.

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

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.

Product Recalls

FiberCel Recall

On June 2, 2021, we issued a voluntary recall pertaining to a single donor lot of our FiberCel Fiber Viable Bone Matrix, a bone repair product formerly distributed by Medtronic PLC, after we learned of post-surgical Mycobacterium tuberculosis (“MTB”) infections in several patients treated with the product.

Since the voluntary recall, we have settled and paid 29 lawsuits and claims relating to FiberCel for a total cash outlay of approximately $9.1 million.

For the remaining 80 cases for which settlements have not been reached, we estimated a probable loss related to each case and have recorded a liability at an estimated amount of $15.0 million at December 31, 2023 recorded as Contingent Liability for FiberCel Litigation in the accompanying consolidated balance sheets included in this Annual Report.

As of December 31, 2023, we have recorded insurance receivables of $2.7 million on our balance sheet in respect of our insurance coverage for the FiberCel Litigation product liability losses.

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 Recall”).

Notice of the voluntary recall was issued to centers after we learned of post-surgical 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, two lawsuits have been filed, and 15 claims have been asserted as a result of the VBM Recall.

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

We have purchased insurance coverage that, subject to common contract exclusions, is expected to provide full coverage for the VBM Recall as well as legal defense costs.

As of December 31, 2023, the Company has recorded a legal fee liability and related insurance receivable totaling $0.1 million for legal services rendered in defending the Company in the VBM Recall.

All VBM products, which includes FiberCel, were divested by us in connection with the sale of our Orthobiologics Business to Berkeley in November 2023.

Berkeley did not assume any liabilities related to the FiberCel Recall or VBM Recall, our market withdrawal of all of our viable bone matrix products, or any claims or lawsuits related thereto.

The FiberCel Recall and VBM Recall are described in further detail in Part I, Item 3, “Legal Proceedings” and Note 17 to the consolidated financial statements, included elsewhere in this Annual Report.

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 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.

These product recalls and the associated legal proceedings in which we are involved as well as their possible future financial implications are described in further detail in Part I, Item 3, “Legal Proceedings” and Note 17 to the consolidated financial statements, included elsewhere in this Annual Report.

Defending any current or future claims, proceedings or lawsuits, regardless of merit, could be costly, divert management attention and result in adverse publicity, which could result in the withdrawal of, or reduced acceptance of, our products in the market.

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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 years ended December 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.

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.

Accordingly, we cannot assure you that our financial condition and results of operations will not be materially impacted by inflation in the future.

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We recognize revenue on the sale of our products.

During the year ended December 31, 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 were previously sold 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 Tiger.

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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Costs 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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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 commercial partners and independent sales agents.

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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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.

We also conduct clinical studies to

validate the performance characteristics of our products and to capture patient data necessary to support our commercial efforts.

FiberCel Litigation Costs

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

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 Part I, Item 1, “Business” for discussion of the June 2024 FDA clearance of EluPro.

Future development efforts are expected to focus on (i) expanding our EluPro offering with additional sizes and product features, (ii) developing new products within the DEB product portfolio and (iii) conducting clinical studies to validate the performance characteristics of our products and to capture patient data necessary to support our commercial efforts.

Litigation Costs, net

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

Results of Operations

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Research and development

FiberCel litigation costs

Litigation costs, net

Total operating expenses

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Interest expense

Other expense (income), net

Loss on revaluation of warrant liability

Other (income) expense, net

Loss before provision of income taxes

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Net loss from continuing operations

Net income from discontinued operations

Income from discontinued operations

NM = not meaningful

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Total Net Sales

Total net sales increased $0.9 million, or 3.8%, to $24.7 million in the year ended December 31, 2023 compared to $23.8 million in the year ended December 31, 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 contracted price to the distributor versus sales prior to such agreement being made at end-user pricing.

Total net sales decreased $0.4 million, or 1.5%, to $24.4 million in the year ended December 31, 2024 compared to $24.7 million in the year ended December 31, 2023.

Revenues from Device Protection and Women’s Health increased compared to the corresponding period of the prior year due to volume growth, but such increases were offset by a decrease in revenues from Cardiovascular due to lower sales volumes in the current year as well as the commencement in April 2023 of our distribution agreement with LeMaitre Vascular which provides for sales at a contracted price to the distributor versus sales prior to such agreement being made at end-user pricing.

Revenues from EluPro, which are within the Device Protection segment, commenced in September 2024 (after its FDA clearance in June 2024) and contributed to the segment’s current year sales increase.

EluPro revenues as well as overall Device Protection revenues are expected to continue to grow as we further commercialize this product in 2025.

Cost of Goods Sold

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Total Cost of Goods Sold

Total cost of goods sold increased $1.5 million to $13.7 million in the year ended December 31, 2023 compared to $12.2 million in the year ended December 31, 2022.

Total cost of goods sold was unchanged at $13.7 million for both the years ended December 31, 2024 and 2023.

Gross margin was 43.9% in the year ended December 31, 2024 compared to 44.7% in the year ended December 31, 2023.

Gross margin, excluding intangible asset amortization, was 57.9% in the year ended December 31, 2024 compared to 58.4% in the year ended December 31, 2023.

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

The slight 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.

Gross margin in the Device Protection segment is expected to slightly decline in 2025 versus 2024 due to a higher percentage of the revenues in such segment coming from EluPro and shifting away CanGaroo.

Until we can achieve certain economies of scale and fully implement other cost reduction opportunities, our gross margins on EluPro will be lower than CanGaroo.

Operating Expenses

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

Such decrease from the reduction in force was partially offset by an increase in expense from the non-cash equity compensation grants made in January 2024.

We anticipate that our sales and marketing costs will increase in 2025 versus 2024 as we continue to commercialize EluPro.

General and Administrative

G&A expenses decreased $1.9 million, or 12.1%, to $14.1 million in the year ended December 31, 2023 compared to $16.1 million in the year ended December 31, 2022.

As a percentage of net sales, G&A expenses decreased to 57.0% in the year ended December 31, 2023 from 67.3% in the year ended December 31, 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 $4.6 million, or 32.3%, to $18.7 million in the year ended December 31, 2024 compared to $14.1 million in the year ended December 31, 2023.

As a percentage of net sales, G&A expenses increased to 76.5% in the year ended December 31, 2024 from 57.0% in the year ended December 31, 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 $3.8 million in the year ended December 31, 2024 compared to $4.4 million in the year ended December 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 2023 versus the prior year 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 $10.0 million in the year ended December 31, 2023 compared to $5.2 million in the year ended December 31, 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.

See further discussion in Note 17 to consolidated financial statements included elsewhere in this Annual Report.

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).

With the FDA’s approval of EluPro in June 2024, the related costs were less in the year ended December 31, 2024 versus the prior year’s comparable period.

Increases in non-cash equity compensation recognized in 2024 served to partially offset the EluPro development cost decrease noted above.

Litigation Costs, net

Litigation costs, net increased to $11.4 million in the year ended December 31, 2024 compared to $10.0 million in the year ended December 31, 2023.

The continued evaluation and settlements of our FiberCel and VBM contingent litigation liabilities along with increases in legal defense costs resulted in higher expenses in the 2024 period.

Such increase was partially offset by our recovery in September 2024 of $1.6 million in connection with the settlement of certain disputed indemnity and contribution amounts related to the FiberCel Litigation.

See further discussion in Note 17 to the consolidated financial statements included elsewhere in this Annual Report.

Interest Expense

Interest expense was approximately $4.8 million in the year ended December 31, 2024 compared to $5.8 million in the year ended December 31, 2023.

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 year ended December 31, 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 10 to the consolidated financial statements included elsewhere in this Annual Report.

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 income from discontinued operations was $3.6 million for the year ended December 31, 2023 compared to $3.3 million for the year ended December 31, 2022.

The increase was due to the gain on sale of the Orthobiologics Business of approximately $6.0 million recorded upon closing of the transaction in November 2023 partially offset by losses incurred by the Orthobiologics Business during 2023 due to the financial impact of the VBM Recall and market withdrawal in July 2023 causing revenue reversals and inventory write-downs of approximately $3.0 million and $2.0 million, respectively.

Other Expense (Income), net

Other expense (income), net was an expense of approximately $4.9 million in the year ended December 31, 2023 and was primarily attributable to the revaluation of Common Warrants (defined below) and Prefunded Warrants (defined below) between issuance on September 21, 2023 and December 31, 2023.

Income from discontinued operations for the year ended December 31, 2024 was $0.2 million and the loss from discontinued operations for the year ended December 31, 2023 was $3.6 million.

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

Other (Income) Expense, net

Other (income) expense, net was income of approximately $1.2 million in the year ended December 31, 2024 and was primarily attributable to the $1.4 million gain on the revaluation of our Revenue Interest Obligation to Ligand.

See Note 11 to the consolidated financial statements included elsewhere in this Annual Report for additional information.

Other expense (income), net was income of approximately $4.2 million in the year ended December 31, 2022 and was primarily attributable to the $5.0 million gain on the revaluation of our Revenue Interest Obligation to Ligand.

Other (income) expense, net was an expense of approximately $0.8 million in the year ended December 31, 2023 and was attributable to the transaction fees incurred in connection with the 2023 Private Offering which were allocated to the Common Warrants (defined below) and Prefunded Warrants (defined below).

See Note 14 to the consolidated financial statements included elsewhere in this Annual Report for additional information.

Such gain was offset by o ther expense related to our debt refinancing in August 2022 and the associated prepayment fees, payment of unaccrued exit fees and the write-off of unamortized deferred financing costs, which collectively resulted in a loss of $1.2 million.

Such loss was offset by other income of $0.4 million related to the forgiveness of interest accrued on the promissory note to a tissue supplier upon repayment of such note in August 2022.

See Note 10 to the accompanying consolidated financial statements included elsewhere in this Annual Report for further discussion of these transactions.

Non-GAAP Financial Measures

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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 and the results of the segments 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.

Although we use gross margin, excluding intangible asset amortization, as described above, this metric has limitations as an analytical tool and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP.

Our management uses this metric and the results of the segments 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.

presented in accordance with GAAP.

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.

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Gross margin, excluding intangible asset amortization

Historically, we have experienced seasonality in our first and fourth quarters, and we expect this trend to continue.

Historically, we have experienced seasonality in our first and fourth quarters, and we generally expect this trend to continue but may also see quarter-to-quarter fluctuations that are inconsistent with this trend.

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.

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Liquidity and Capital Resources

As of December 31, 2023, we had cash of approximately $19.3 million.

As of December 31, 2024, we had cash and cash equivalents of approximately $13.2 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.

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 defense and settlement 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.

Such commercial infrastructure costs are likely to become more significant in the future as we further commercialize the newly approved EluPro product.

As of December 31, 2024, our accumulated deficit was $229.6 million.

On October 13, 2020, in connection with our IPO, we issued and sold 2,941,176 shares of common stock, consisting of 2,205,882 shares of Class A common stock and 735,294 shares of Class B common stock, at a price to the public of $17.00 per share, resulting in net proceeds to us of approximately $43.0 million, after deducting the underwriting discount of approximately $3.5 million and offering expenses of approximately $3.5 million.

On December 8, 2021, we closed on a private investment in public equity (“PIPE”) financing, thereby receiving net proceeds of approximately $13.8 million, after deducting offering costs.

The PIPE investors purchased an aggregate of 2,122,637 shares of the Company’s Class A common stock and an aggregate of 1,179,244 shares of the Company’s

Class B common stock (which are convertible on a one-for-one basis into shares of Class A common stock), in each case, at a price of $4.24 per share.

On December 1, 2022, we issued and sold 2,350,000 shares our Class A common stock at a price to the public of $4.75 per share in a registered underwritten offering, resulting in net proceeds to us of approximately $10.2 million, after deducting underwriting discounts and offering expenses.

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.

Subsequent to year-end, on February 4, 2025, we sold, in a registered direct offering (“2025 Registered Offering”) an aggregate of (i) 5,520,000 shares of our Class A common stock and (ii) prefunded warrants (“2025 Prefunded Warrants”) to purchase up to an aggregate of 480,000 shares of Class A Common Stock.

The public offering price for each share of Class A Common Stock was $2.50, and the public offering price for each 2025 Prefunded Warrant was $2.499 , for aggregate gross proceeds of approximately $15.0 million, before deducting offering expenses.

The 2025 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 June 18, 2024, we sold, in a registered direct offering (“2024 Registered Offering”) an aggregate of (i) 3,175,000 shares of our 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.

Each Common Warrant was exercisable until July 31, 2024, the date which was 30 trading days after the clearance by the FDA of the Company’s EluPro product, at an exercise price per share of $1.4275.

All Common Warrants were exercised by such date yielding exercise proceeds of $15.7 million in 2024.

Certain of these exercises ultimately resulted in their conversion to 2023 Prefunded Warrants.

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).

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 2025 Registered Offering, 2024 Registered 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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Net cash used in operating activities for the year ended December 31 2024 was $22.7 million compared to $21.8 million for the year ended December 31, 2023.

The slight year-over-year increase was primarily due to the higher net loss in the 2023 period.

The year-over-year increase was primarily due to cash disbursed in satisfaction of FiberCel legal settlements and related defense costs.

In the second half of 2024, our insurance available to cover such costs was fully utilized.

Net Cash Used in Investing Activities

Net cash provided by investing activities for the year ended December 31, 2023 was $14.2 million and net cash used in investing activities was approximately $0.5 million for the year ended December 31, 2022.

The significant increase was due to the proceeds received from the sale of our Orthobiologics Business.

Net cash used in investing activities for the year ended December 31, 2024 was $0.4 million compared to net cash provided by investing activities of $14.2 million for the year ended December 31, 2023.

The current year period mainly reflects the purchase of property and equipment for our production facilities.

The prior year period’s cash generation resulted from the sale of substantially all of the assets relating to our former Orthobiologics Business to Berkeley which yielded proceeds of $14.6 million.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2024 was $17.1 million compared to $9.8 million for the year ended December 31, 2023.

Both years included the proceeds of $10.1 million from the issuance of common stock (and warrants in 2023).

The year-over-year net increase of $1.3 million was primarily due to proceeds received from the financing of certain insurance premiums during the year ended December 31, 2023.

Both years included proceeds from the issuance of common stock ($12.4 million in 2024 and $10.1 million in 2023);

however, the year ended December 31, 2024 also included the proceeds from the exercise of Common Warrants yielding exercise proceeds of $15.7 million.

Such cash infusions in 2024 were offset by payments on our Ligand revenue interest obligation which totaled $7.4 million during the year ended December 31, 2024.

Credit Facilities

O n August 10, 2022, we entered into a senior secured term loan facility with SWK Funding LLC (“SWK”), as agent, and other lenders party thereto for an aggregate principal amount of $25 million, and we amended the facility on May 12, 2023 (as amended, the “SWK Loan Facility”).

An initial draw of $21 million was made in August 2022, with the additional $4 million drawn on December 14, 2022 upon satisfaction of the amended terms enabling such receipt.

O n August 10, 2022 (the “Closing Date”), we entered into a senior secured term loan facility with SWK Funding LLC (“SWK”), as agent, and other lenders party thereto (as amended and modified subsequent to the Closing Date, the “SWK Loan Facility”) for an aggregate principal amount of $25 million.

An initial draw of $21 million was made on the Closing Date with the additional $4 million drawn on December 14, 2022.

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.

A total of $16 million of the proceeds from the SWK Loan Facility were used to pay all outstanding obligations on the formerly outstanding loan facility with MidCap Financial Trust (the “MidCap Loan Facility”), and credit facility with MidCap Financial Trust (the “MidCap Credit Facility”), which 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 December 31, 2023, we had $23.7 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 December 31, 2024, we had $23.5 million of indebtedness outstanding under our SWK Loan Facility and an exit fee liability to SWK of $0.9 million, with such balances being net of $0.5 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 the Company has elected the PIK Interest option (as defined below), 3.75% and the “Term SOFR Rate.” The Company 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 the conditions to draw the Additional Term Loan have not been met, or (y) if such conditions to draw the Additional Term Loan have been satisfied, until November 17, 2025.

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 until November 15, 2025.

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

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(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.

No such mandatory prepayments were required during the three or twelve months ended December 31, 2022;

however, the closing of the divestiture 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.

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 in 2023 and the remainder was paid on February 15, 2024 based on mutual agreement between the parties.

No other such mandatory prepayments were required in the year ended December 31, 2024.

Optional Prepayment

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.

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 $112,500.

Amortization and Final Maturity

The SWK Loan Facility matures on August 10, 2027 and accrues interest, payable quarterly in arrears.

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.

Principal amortization of the SWK Loan Facility starts on November 15, 2025.

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

As of December 31, 2023, quarterly principal payments are scheduled to begin on November 15, 2024, in an amount equal to 5% of the Initial Term Loan with the balance paid at maturity.

As of December 31, 2024, quarterly principal payments will be in an amount equal to 5% of the aggregate principal amount funded 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) 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.

On September 30, 2024, we entered into an amendment to the SWK Loan Facility Agreement, which (i) deferred the commencement of principal repayment under the SWK Facility from November 15, 2024 to November 15, 2025, (ii) extended the date until which the Company may elect a portion of the interest due under the SWK Facility to be paid in-kind from November 15, 2024 to November 15, 2025, and (iii) modified the exit fee upon termination of the SWK Facility from (a) 6.50% of the aggregate amount of Term Loan funded prior to such termination date plus $62,500 to (b) 6.50% of the aggregate amount of Term Loan funded prior to such termination date plus $112,500.

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

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 2022, no payments were made on the promissory note because the Company’s senior lender restricted payment of the amounts due.

The Company used $1.4 million of the proceeds from the SWK Loan Facility to repay the remaining balance on the promissory note;

however the accrued interest on the promissory note was forgiven by the lender.

Such forgiveness resulted in a gain to the Company of approximately $0.4 million which has been recorded as other expense (income), net in the accompanying consolidated statements of operations for the year ended December 31, 2022 included elsewhere in this Annual Report.

Funding Requirements

We expect to continue to incur significant expenses and operating losses for the foreseeable future as we expand our product development and clinical and research activities.

We expect to continue to incur significant expenses and operating losses for the foreseeable future as we further commercialize EluPro and expand our product development and clinical and research activities.

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

As of December 31, 2023, we had $23.7 million of indebtedness outstanding, consisting of $24.5 million outstanding under our SWK Loan Facility, net of $0.8 million of unamortized discount and deferred financing costs.

As of December 31, 2024, we had $23.9 million of indebtedness outstanding, consisting of $23.5 million outstanding under our SWK Loan Facility and $0.9 million of exit fee liabilities, net of $0.5 million of unamortized discount and deferred financing costs.

Such indebtedness currently has a principal payment commencement date of November 15, 2025, 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”).

The Revenue Interest Obligation 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.

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, such as EluPro, 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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Our present and future funding requirements will depend on many factors, including, among other things:

● the costs of defending against or the damages payable in connection with the FiberCel Recall and VBM Recall and any future litigation that we may be subject to (to the extent above the applicable insurance coverage);

● the cost of fully commercializing our EluPro product;

● continued patient, physician and market acceptance of our products;

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● the cost of defending, in litigation or otherwise, any claims that we infringe, misappropriate or otherwise violate third-party patents or other intellectual property rights;

● the costs of defending against or the damages payable in connection with the FiberCel Litigation, associated litigation related to indemnity claims by other defendants to the FiberCel Litigation and any future litigation that we may be subject to (to the extent above the applicable insurance coverage);

● the cost and timing of additional regulatory approvals;

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● the expenses we incur in manufacturing and selling our products;

● the extent to which we acquire or invest in products, technologies and businesses, although we currently have no commitments or agreements relating to any of these types of transactions;

● the extent to which we acquire or invest in products, technologies and businesses in the future, although we may currently have no commitments or agreements relating to any of these types of transactions;

● the costs of operating as a public company;

● unanticipated general, legal and administrative expenses;

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

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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If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay the development or commercialization of our products, license to third parties the rights to commercialize products or technologies that we would otherwise seek to commercialize and reduce marketing, customer support or other resources devoted to our products or cease operations.

See “Risk Factors — Risks Related to Our Business — Our future capital needs are uncertain and we may need to raise funds in the future, and such funds may not be available on acceptable terms or at all .” elsewhere in this Annual Report.

See Part I, Item 1A.

“Risk Factors — Risks Related to Our Business — Our future capital needs are uncertain and we may need to raise funds in the future, and such funds may not be available on acceptable terms or at all .”

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.

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The preparation of financial statements in conformity with U.S.

GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses reported during the period.

On an ongoing basis, management evaluates these estimates and judgments, including those related to inventories, receivables, long-lived assets, stock-based awards, revenue interest obligation, the warrant liability, the contingent liability for the FiberCel

Litigation and deferred income taxes.

GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities

at the date of the financial statements and the amounts of revenues and expenses reported during the period.

Actual results may differ from those estimates.

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Revenue Recognition

We enter into contracts to sell and distribute products to healthcare providers or commercial partners which are billed under ship and bill contract terms.

Revenue is recognized when we have met our performance obligations pursuant to our contracts with our customers in an amount that we expect to be entitled to in exchange for the transfer of control of the products and services to our customers.

For all net sales, we have no further performance obligations and revenue is recognized when control transfers which occurs either when:

We enter into contracts to primarily sell and distribute products to healthcare providers or commercial partners.

For all product sales, we have no further performance obligations and revenue is recognized at the point control transfers which occurs either when:

i) the product is shipped via common carrier;

or ii) the product is delivered to the customer or distributor, in accordance with the terms of the agreement.

A portion of our product revenue is generated from consigned inventory maintained at hospitals, distributors and by our direct sales representatives.

For these types of products sales, we retain control until the product has been shipped, used or implanted, at which time revenue is recognized.

We have elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation.

A portion of our product revenue is generated from consigned inventory maintained at hospitals and from inventory physically held by distributors and direct sales representatives.

For these types of products sales, we retain control until the product has been used or implanted, at which time revenue is recognized.

We elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation.

Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying products is transferred to the customer.

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We, at times, extend volume discounts to customers.

We permit returns of our products in accordance with the terms of contractual agreements with customers.

Inventory Valuation

Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined using the average cost method.

Inventory write-downs for unprocessed and certain processed donor tissue are recorded based on the estimated amount of inventory that will not pass the quality control process based on historical data.

At each balance sheet date, we also evaluate inventories for excess quantities, obsolescence or shelf life expiration.

This evaluation includes analysis of our current and future strategic plans, historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions and a review of the shelf life expiration dates for products.

To the extent that management determines there is excess or obsolete inventory or quantities with a shelf life that is too near its expiration for us to reasonably expect that we can sell those products prior to their expiration, we adjust the carrying value of the inventory to its estimated net realizable value.

To the extent that we determine there is excess or obsolete inventory or quantities with a shelf life that is too near its expiration for us to reasonably expect that we can sell those products prior to their expiration, we adjust the carrying value of the inventory to its estimated net realizable value.

Due to the judgmental nature of inventory valuation, we may from time to time be required to adjust our assumptions as processes change and as we gain better information.

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Purchased intangible assets with finite lives are carried at acquired fair value, less accumulated amortization.

Amortization is computed over the estimated useful lives of the respective assets.

Amortization is recorded over the estimated useful lives of the respective assets.

We periodically evaluate the period of amortization for purchased intangible assets to determine whether current circumstances warrant revised estimates of useful lives.

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Impairment exists when the carrying value of our asset exceeds the related estimated undiscounted future cash flows expected to be derived from the asset.

If impairment exists, the carrying value of that asset is adjusted to its fair value.

A discounted cash flow analysis is used to

estimate an asset’s fair value, using assumptions that market participants would apply.

impairment exists, the carrying value of that asset is adjusted to its fair value.

A discounted cash flow analysis is used to estimate an asset’s fair value, using assumptions that market participants would apply.

An impairment loss would be recorded for the excess of net carrying value over the fair value of the asset impaired.

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As part of this acquisition, we entered into a royalty agreement with Ligand pursuant to which we assumed the Revenue Interest Obligation, with an estimated present value on the acquisition date of $27.7 million.

The terms of the Revenue Interest Obligation require 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 $2.75 million.

Furthermore, a $5.0 million payment will be due to Ligand if cumulative sales of the acquired 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 terms of the Revenue Interest Obligation, as amended in January 2024, require 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.

Furthermore, a $5.0 million payment will be due if cumulative sales exceed $300 million or the assets related to CanGaroo and any substantially similar products undergo a change of control during the ten-year term of the agreement which expires on May 31, 2027.

We have estimated the fair value of the Revenue Interest Obligation, including contingent milestone payments and estimated sales-based payments, based on assumptions related to future sales of the acquired products.

At each reporting period, the value of the Revenue Interest Obligation is re-measured based on current estimates of the net present value of future payments, with changes to be recorded in the consolidated statements of operations.

The January 2024 amendment to the Revenue Interest Obligation changed the timing and extent of our future payments to Ligand and such change to the estimated future payments yielded a reduction to the total obligation of approximately $1.4 million during the year ended December 31, 2024.

The resulting gain was recognized as other income in the accompanying consolidated statement of operations.

There was no change to estimated future payments during the year ended December 31, 2023, and thus, no re-measurement gain or loss was recognized.

In connection with our estimation at December 31, 2022, it was determined that the estimated future payments, discounted at the original discount rate, had decreased since the prior estimates.

Such decrease was primarily the result of anticipated changes to our strategic partnerships relative to sales of both our CanGaroo and cardiovascular product lines that will impact the timing and extent of such sales and, thereby, will reduce expected future payments to Ligand.

The change to estimated future payments yielded a reduction to the total Revenue Interest Obligation of approximately $5.0 million for the year ended December 31, 2022 with such amount recognized as a gain in other expense (income), net in our consolidated statement of operations.

The estimation of future sales and the possible attainment of sales milestones is subject to significant judgment.

Different judgments would yield different valuations of the Revenue Interest Obligation and these differences could be significant.

In January 2024, we amended the royalty agreement with Ligand and restructured the Revenue Interest Obligation by (i) revising the minimum annual royalty for 2024 and each subsequent fiscal year during the term of the agreement from $2.75 million to $4.4 million, (ii) revising the minimum quarterly payments for each fiscal quarter beginning October 1, 2023, and continuing through the term of the agreement from approximately $0.7 million to $1.1 million, (iii) agreeing to a payment of $3.0 million in satisfaction of all royalty obligations for the first three fiscal quarters of 2023, with half of such amount paid on January 20, 2024, and the remainder to be paid not later than April 10, 2024, and (iv) waiving the obligation to make the $5.0 million milestone payment that became due to Ligand in the second quarter of 2023.

The accounting impact of this amendment will be recognized in our consolidated financial statements for the quarter ended March 31, 2024.

Contingent Liability for FiberCel Litigation

We review every lawsuit and claim and are in contact with outside counsel on an ongoing basis in determining our Contingent Liability for FiberCel Litigation.

Contingent Liability for Legal Proceedings

We review every lawsuit and claim and are in contact with outside counsel on an ongoing basis in determining our Contingent Liability for Legal Proceedings.

Where the available information is only sufficient to establish a range of probable liability, and no point within the range is more likely than any other, the lower end of the range has been used.

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An accrual is established for each lawsuit and claim, when appropriate, based on the nature of each such lawsuit or claim.

The provision for FiberCel Litigation claims are based upon many factors, which vary for each case.

The provision for litigation claims is based upon many factors, which vary for each case.

These factors include (i) the extent of the injuries incurred, (ii) recent experience on settled claims, (iii) settlement offers made to the other parties to the litigation and (iv) any other factors that may have a material effect on the estimated liability.

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We account for warrants in accordance with ASC 815, Derivatives and Hedging – Contracts in Entity's Own Equity , as either liabilities or as equity instruments depending on the specific terms of the warrant agreement.

The Prefunded and Common Warrants issued in connection with the September 2023 private placement (see Note 14 to the consolidated financial statements included elsewhere in this Annual Report) are classified as liabilities and are recorded at fair value.

The warrants are subject to re-measurement at each settlement date and at each balance sheet date and any change in fair value is recognized in other expense (income), net in the statements of operations.

The Company estimates the fair value of the warrant liability using a Black-Scholes pricing model.

The 2024 Prefunded Warrants from the Registered Offering and the Common Warrants and the 2023 Prefunded Warrants from the Private Offering (see Note 14 to the consolidated financial statements included elsewhere in this Annual Report) are classified as liabilities and are recorded at fair value.

The warrants are subject to re-measurement at each settlement date and at each balance sheet date and any change in fair value is recognized in other (income) expense, net in the consolidated

statements of operations.

The Company estimates the fair value of the Common Warrant liability using a Black-Scholes pricing model.

We are required to make assumptions and estimates in determining an appropriate term, risk-free interest rate, volatility factor, dividend yield, and the fair value of common stock.

Any significant adjustments to the unobservable inputs would have a direct impact on the fair value of the warrant liability.

Different assumptions relative to the fair valuation of our Prefunded and Common Warrants would result in an adjustment to other expense (income), net in the consolidated statements of operations and such differences may be material.

Different assumptions relative to the fair valuation of our Prefunded and Common Warrants would result in a change to such valuation and these differences could be material.

Stock-Based Compensation

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The fair value of stock options is determined on the grant date using assumptions for the estimated fair value of the underlying common stock, expected term, expected volatility, dividend yield and the risk-free interest rate.

Before the completion of our IPO, our board of directors determined the fair value of common stock considering the state of the business, input from management, third party valuations and other considerations.

We use the simplified method for estimating the expected term used to determine the fair value of options.

Until our IPO in October 2020, there had been no public market for our common stock and thus, we lacked company-specific historical and implied volatility information.

As a result, we estimate the expected volatility primarily based on the historical volatility of comparable companies in the industry whose share prices are publicly available and expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded share price.

We use a zero-dividend yield assumption as we have not paid dividends since inception nor do we anticipate paying dividends in the future.

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Treasury note auction results with a similar life to that of the option.

We have incorporated our historical stock trading volatility with those of our peer group for the calculation of volatility.

Industry peers consist of several public companies in the medical device technology industry with comparable characteristics including enterprise value, risk profiles and position within the industry.

For our performance-based stock option and restricted stock unit grants which vest upon the achievement of specified market conditions, we used the Monte Carlo simulation model to calculate the grant-date fair value.

14 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis