SEC Filing | Elutia Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-39577

Elutia Inc.

(Exact name of registrant as specified in its charter)


Delaware		47-4790334
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12510 Prosperity Drive, Suite 370

Silver Spring, MD 20904

(Address of principal executive offices and Zip Code)

(240) 247-1170

(Registrant’s telephone number, including area code)

Aziyo Biologics, Inc.

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share	ELUT	The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☒		Smaller reporting company ☒
		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 9, 2023, there were 18,884,146 shares of the registrant’s Class A common stock and 4,313,406 shares of the registrant’s Class B common stock outstanding.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical facts contained in this Quarterly Report, including, without limitation, statements regarding our results of operations, financial position, and business strategy; expectations regarding our products and their targeted effects; expectations regarding the voluntary recall of a single lot of a certain viable bone matrix product and the market withdrawal of all of our viable bone matrix (“VBM”) products (“VBM Matter”), and any impact of the recall and suspension of sales of these products on the Company’s business; plans for our sales and marketing growth; expectations regarding our recently completed sale of our Orthobiologics Business to Berkeley Biologics, LLC, including potential payment of post-closing earnout payments; our anticipated expansion of our product development and research activities; increases in expenses and seasonality; expectations regarding our competitive advantages, and overall clinical and commercial success; expectations regarding the pending lawsuits and claims related to our recall of a single lot of Fiber Viable Bone Matrix (“FiberCel”), amounts recoverable under insurance, indemnity and contribution agreements and the impact of such lawsuits and claims on our future financial position; expectations regarding the potential emergence of lawsuits, claims and regulatory findings related to the VBM Matter, amounts recoverable under insurance, indemnity and contribution agreements and the impact of such lawsuits and claims on our future financial position; our expectations and plans regarding pursuit of any strategic transactions; expectations regarding the continued listing of our stock on the Nasdaq Capital Market; and our expectations relating to the FDA regulatory process for the CanGarooRM Antibacterial Envelope are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

Without limiting the foregoing, the words “aim,” “believe,” “may,” “will,” “should,” “expect,” “exploring,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” “seeks,” or “continue” or the negative of these terms or other similar expressions, are intended to identify forward-looking statements, although not all forward-looking statements contain these words. These forward-looking statements are not a guarantee of future results, performance, or achievements, and one should avoid placing undue reliance on such statements.

These forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to us. Such beliefs and assumptions may or may not prove to be correct. Additionally, such forward-looking statements are subject to a number of known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied in the forward-looking statements, including, but not limited to the following:

our ability to continue as a going concern;

●

our ability to achieve or sustain profitability;

●

our ability to obtain regulatory approval or other marketing authorizations by the U.S. Food and Drug Administration (“FDA”) and comparable foreign authorities for our products and product candidates;

●

our ability to enhance our products, expand our product indications and develop, acquire and commercialize additional product offerings;

our dependence on our commercial partners and independent sales agents to generate a substantial portion of our net sales;

our ability to maintain our relationships with our existing contract manufacturing customers and enter into agreements with new contract manufacturing customers, or if existing contract manufacturing customers reduce purchases of our products;

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●

our ability to successfully realize the anticipated benefits of the sale of our Orthobiologics Business;

our ability to successfully execute or realize the anticipated benefits under our distribution arrangements with LeMaitre Vascular and Sientra;

physician awareness of the distinctive characteristics, benefits, safety, clinical efficacy and cost-effectiveness of our products;

the continued and future acceptance of our products by the medical community;

our dependence on a limited number of third-party suppliers;

●

our ability to defend against the various lawsuits related to our recall of a single lot of FiberCel and avoid a material adverse financial consequence;

●

with respect to earnout payments potentially payable in connection with the sale of our Orthobiologics Business, the ability of the sold business to generate specified revenues; and

●

our ability to regain compliance with the listing standards of the Nasdaq Capital Market (“Nasdaq”) and maintain the listing of our Class A common stock on Nasdaq.

These and other important factors discussed in Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A. “Risk Factors” in this Quarterly Report, and in Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Annual Report”) and in our other filings with the Securities and Exchange Commission (the “SEC”), each of which filings are accessible on the SEC’s website at www.sec.gov and the Investor Relations page of our website at https://investors.Elutia.com/financials/sec-filings, could cause actual results to differ materially from those indicated by the forward-looking statements made in this Quarterly Report.

Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.

As used in this Quarterly Report, unless otherwise specified or the context otherwise requires, references to “we,” “us,” “our,” the “Company” and “Elutia” refer to the operations of Elutia Inc. and its consolidated subsidiaries.

WEBSITE DISCLOSURE

We may use our website as a distribution channel of material information about the Company. Financial and other important information regarding the Company is routinely posted on and accessible through the Investor Relations sections of its website at www.Elutia.com. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” option under the IR Resources menu of the Investor Relations of our website at www.Elutia.com. The reference to our website address does not constitute incorporation by reference of the information contained on or available through our website, and you should not consider such information to be a part of this Quarterly Report.

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TRADEMARKS, TRADE NAMES AND SERVICE MARKS

This Quarterly Report includes our trademarks, trade names and service marks, including, without limitation, “Elutia®,” “CanGaroo®,” “ProxiCor®,” “Tyke®,” “VasCure®,” “ViBone®,” “OsteGro®,” “SimpliDerm®” and our logo, which are our property and are protected under applicable intellectual property laws. The “ViBone®” and “OsteGro®” tradenames were sold in connection with the divestiture of the Orthobiologics Business described in Note 1 to the condensed consolidated financial statements. This Quarterly Report also contains trademarks, trade names and service marks of other companies, which are the property of their respective owners. Solely for convenience, trademarks, trade names and service marks may appear in this Quarterly Report without the ®, TM and SM symbols, but such references are not intended to indicate, in any way, that we or the applicable owner forgo or will not assert, to the fullest extent permitted under applicable law, our rights or the rights of any applicable licensors to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.

INDUSTRY AND OTHER DATA

Unless otherwise indicated, information contained in this Quarterly Report concerning our industry and the markets in which we operate, including our general expectations, market position and market opportunity, is based on our management’s estimates and research, as well as industry and general publications and research, surveys and studies conducted by third parties. We believe the information from these third-party publications, research, surveys and studies included in this Quarterly Report is reliable. Management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. This data involves a number of assumptions and limitations which are subject to a high degree of uncertainty and risk due to a variety of factors, including those described in this Quarterly Report under “Forward-Looking Statements” and Part I, Item 1A. “Risk Factors” in our Annual Report which can be found at https://investors.Elutia.com/financials/sec-filings. These and other factors could cause our future performance to differ materially from our assumptions and estimates.

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		Page
FORWARD-LOOKING STATEMENTS		1
WEBSITE DISCLOSURE		2
TRADEMARKS, TRADE NAMES AND SERVICE MARKS		3
INDUSTRY AND OTHER DATA		3
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	5
	Condensed Consolidated Statements of Operations	6
	Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit)	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to the Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results Of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	52
Signatures		54

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PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

ELUTIA INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except for Share and Per Share Data)

(UNAUDITED)


	September 30,		December 31,
	2023		2022
Assets
Current assets:
Cash	$	14,517	$	16,989
Accounts receivable, net of credit loss reserve of $652 and $87, respectively		2,883		3,774
Inventory		6,503		4,240
Receivables of FiberCel litigation costs		7,452		13,813
Prepaid expenses and other current assets		452		2,387
Current assets of discontinued operations		7,320		9,496
Total current assets		39,127		50,699

Property and equipment, net		175		245
Intangible assets, net		12,520		15,069
Operating lease right-of-use assets and other		155		320
Noncurrent assets of discontinued operations		2,603		2,508
Total assets	$	54,580	$	68,841

Liabilities and Stockholders’ Deficit

Current liabilities:
Accounts payable	$	2,962	$	1,374
Accrued expenses and other current liabilities		10,723		8,830
Payables to tissue suppliers		707		900
Current portion of revenue interest obligation		11,053		8,990
Contingent liability for FiberCel litigation		15,702		17,360
Current operating lease liabilities		399		232
Current liabilities of discontinued operations		3,190		4,929
Total current liabilities		44,736		42,615

Long-term debt		25,278		24,260
Long-term revenue interest obligation		5,471		5,916
Warrant liability		7,550		—
Other long-term liabilities		433		127
Noncurrent liabilities of discontinued operations		585		956
Total liabilities		84,053		73,874

Commitments and contingencies (Note 10)

Stockholders’ equity (deficit):
Class A Common stock, $0.001 par value, 200,000,000 shares authorized as of September 30, 2023 and December 31, 2022, and 18,852,930 and 11,823,445 shares issued and outstanding, as of September 30, 2023 and December 31, 2022, respectively		19		12
Class B Common stock, $0.001 par value, 20,000,000 shares authorized, as of September 30, 2023 and December 31, 2022 and 4,313,406 issued and outstanding as of September 30, 2023 and December 31, 2022		4		4
Additional paid-in capital		136,834		132,939
Accumulated deficit		(166,330)		(137,988)
Total stockholders’ deficit		(29,473)		(5,033)
Total liabilities and stockholders' deficit	$	54,580	$	68,841

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ELUTIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Share and Per Share Data)

(UNAUDITED)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net sales	$	6,127	$	5,849	$	18,870	$	17,262
Cost of goods sold		3,286		2,910		9,943		8,689
Gross profit		2,841		2,939		8,927		8,573
Sales and marketing		2,802		4,379		10,514		13,672
General and administrative		2,757		4,330		10,137		12,788
Research and development		557		1,723		3,016		5,867
FiberCel litigation costs, net		4,096		1,474		7,278		1,908
Total operating expenses		10,212		11,906		30,945		34,235
Loss from operations		(7,371)		(8,967)		(22,018)		(25,662)
Interest expense		1,448		1,247		4,285		3,666
Other income, net		(312)		803		(312)		803
Loss before provision for income taxes		(8,507)		(11,017)		(25,991)		(30,131)
Income tax expense		12		12		36		36
Net loss from continuing operations		(8,519)		(11,029)		(26,027)		(30,167)
Income (loss) from discontinued operations		(1,228)		1,119		(2,315)		2,710
Net loss		(9,747)	$	(9,910)		(28,342)	$	(27,457)

Net loss from continuing operations per share - basic and diluted	$	(0.50)	$	(0.81)	$	(1.58)	$	(2.22)
Net income (loss) from discontinued operations per share - basic and diluted	$	(0.07)	$	0.08	$	(0.14)	$	0.20
Net loss - basic and diluted	$	(0.57)	$	(0.73)	$	(1.72)	$	(2.02)

Weighted average common shares outstanding - basic and diluted		17,017,610		13,660,555		16,464,262		13,618,580

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ELUTIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In Thousands, Except Share Amounts)

(UNAUDITED)


	Class A			Class B
	Common Stock			Common Stock
							Additional				Total
	Number of			Number of			Paid-in		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance, June 30, 2023	11,936,441	$	12	4,313,406	$	4	$	134,439	$	(156,583)	$	(22,128)
Proceeds from sale of common stock in connection with private placement, net of issuance costs of $0.2 million	6,852,811		7	—		—		1,708		—		1,715
Proceeds from sale of common stock through Employee Stock Purchase Plan	63,628		—	—		—		72		—		72
Vesting of restricted stock units	50		—	—		—		—		—		—
Stock-based compensation	—		—	—		—		615		—		615
Net loss	—		—	—		—		—		(9,747)		(9,747)
Balance, September 30, 2023	18,852,930	$	19	4,313,406	$	4	$	136,834	$	(166,330)	$	(29,473)

Balance, June 30, 2022	9,306,838	$	9	4,313,406	$	4	$	121,256	$	(122,638)	$	(1,369)
Proceeds from stock option exercises	1,881		—	—		—		10		—		10
Proceeds from sale of common stock through Employee Stock Purchase Plan	32,063		—	—		—		126		—		126
Vesting of restricted stock units, net of shares withheld and taxes paid	120,182		—	—		—		(395)		—		(395)
Issuance of warrants in connection with debt financing	—		—	—		—		560		—		560
Stock-based compensation	—		—	—		—		297		—		297
Net loss	—		—	—		—		—		(9,910)		(9,910)
Balance, September 30, 2022	9,460,964	$	9	4,313,406	$	4	$	121,854	$	(132,548)	$	(10,681)

	Class A			Class B
	Common Stock			Common Stock
							Additional				Total
	Number of			Number of			Paid-in		Accumulated		Stockholders'
	Shares	Amount		Shares	Amount		Capital		Deficit		Equity (Deficit)
Balance, December 31, 2022	11,823,445	$	12	4,313,406	$	4	$	132,939	$	(137,988)	$	(5,033)
Proceeds from sale of common stock in connection with private placement, net of issuance costs of $0.2 million	6,852,811		7	—		—		1,708		—		1,715
Proceeds from sale of common stock through Employee Stock Purchase Plan	104,905		—	—		—		219		—		219
Vesting of restricted stock units, net of shares withheld and taxes paid	71,769		—	—		—		(19)		—		(19)
Stock-based compensation	—		—	—		—		1,987		—		1,987
Net loss	—		—	—		—		—		(28,342)		(28,342)
Balance, September 30, 2023	18,852,930	$	19	4,313,406	$	4	$	136,834	$	(166,330)	$	(29,473)

Balance, December 31, 2021	9,245,146	$	9	4,313,406	$	4	$	118,599	$	(105,091)	$	13,521
Proceeds from stock option exercises	1,881		—	—		—		10		—		10
Additional issuance costs in connection with private placement	—		—	—		—		(110)		—		(110)
Proceeds from sale of common stock through Employee Stock Purchase Plan	74,408		—	—		—		317		—		317
Vesting of restricted stock units, net of shares withheld and taxes paid	139,529		—	—		—		(395)		—		(395)
Issuance of warrants in connection with debt financing	—		—	—		—		560		—		560
Stock-based compensation	—		—	—		—		2,873		—		2,873
Net loss	—		—	—		—		—		(27,457)		(27,457)
Balance, September 30, 2022	9,460,964	$	9	4,313,406	$	4	$	121,854	$	(132,548)	$	(10,681)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ELUTIA INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(UNAUDITED)


	Nine Months Ended
	September 30,
	2023		2022
Net loss	$	(28,342)	$	(27,457)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		2,854		2,796
(Gain) loss on extinguishment of debt and revaluation of warrant liability		(1,070)		311
Amortization of deferred financing costs and debt discount		161		63
Interest expense recorded as additional revenue interest obligation and long-term debt		2,473		1,983
Stock-based compensation		1,987		2,873
Bad debt expense		590		—
Losses associated with viable bone matrix recall and market withdrawal		1,984		—
Changes in operating assets and liabilities:
Accounts receivable		1,045		(1,163)
Inventory		(2,490)		(638)
Receivables of FiberCel litigation costs		6,361		(17,234)
Prepaid expenses and other		1,609		467
Accounts payable and accrued expenses and other current liabilities		2,562		4,029
Obligations to tissue suppliers		(1,049)		743
Contingent liability for FiberCel litigation		(1,658)		17,643
Deferred revenue and other liabilities		305		(605)
Net cash used in operating activities		(12,678)		(16,189)
INVESTING ACTIVITIES:
Expenditures for property, plant and equipment		(329)		(406)
Net cash used in investing activities		(329)		(406)
FINANCING ACTIVITIES:
Proceeds from private placement and warrants, net of offering costs of $0.2 million		10,335		—
Additional issuance costs in connection with private placement		—		(110)
Net borrowings (repayments) under revolving line of credit		—		(4,763)
Proceeds from stock option exercises		—		10
Proceeds from long-term debt		—		21,000
Deferred financing costs		—		(468)
Repayments of long-term debt		—		(18,615)
Costs related to the extinguishment of debt		—		(633)
Payments on revenue interest obligation		—		(2,075)
Payments for taxes upon vesting of restricted stock units		(19)		(395)
Proceeds from sales of common stock through Employee Stock Purchase Plan		219		317
Net cash provided by (used in) financing activities		10,535		(5,732)

Net decrease in cash and restricted cash		(2,472)		(22,327)

Cash and restricted cash, beginning of period		16,989		30,428
Cash, end of period	$	14,517	$	8,101

Supplemental Cash Flow and Non-Cash Financing Activities Disclosures:
Cash paid for interest	$	1,696	$	5,047
Fair value of warrants issued	$	—	$	560

The accompanying notes are an integral part of these condensed consolidated financial statements.

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ELUTIA INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Organization and Description of Business

Elutia Inc. (formerly known as Aziyo Biologics, Inc., together with its consolidated subsidiaries, “Elutia” or the “Company”) is a regenerative medicine company, with a focus on patients receiving implantable medical devices. The Company has developed a portfolio of regenerative products using both human and porcine tissue that are designed to be as close to natural biological material as possible. Elutia’s portfolio of products span the device protection, women’s health and cardiovascular markets. These products are primarily sold to healthcare providers or commercial partners.

On September 17, 2023, the Company executed an Asset Purchase Agreement (the “Purchase Agreement”) with Berkeley Biologics, LLC (“Berkeley”), a Delaware limited liability company and wholly owned subsidiary of GNI Group, Ltd. On November 8, 2023, at the closing (the “Closing”) of the transactions contemplated by the Purchase Agreement (the “Asset Purchase”), Berkeley purchased from the Company substantially all of the assets that are related to (i) the Company’s prior business of researching, developing, administering, insuring, operating, commercializing, manufacturing, selling and marketing the Company’s Orthobiologics products identified in the Purchase Agreement (the “Products”), and (ii) the business of contract manufacturing of particulate bone, precision milled bone, cellular bone matrix, acellular dermis, soft tissue and other products (but excluding the business of contract manufacturing of acellular dermis products for use in the field of breast reconstruction, other than as a supplier to Elutia). The assets sold represent the entirety of the Company’s Orthobiologics segment (the “Orthobiologics Business”). The Purchase Agreement provides for an aggregate purchase price, subject to certain adjustments pursuant to the terms of the Purchase Agreement, of up to $35 million in cash, with approximately $14.6 million, as adjusted, having been paid shortly after Closing and up to $20 million potentially payable after the Closing in the form of earn-out payments (“Earn-Out Payments”). For each of the five years following the Closing, Berkeley would be required to pay to the Company an Earn-Out Payment equal to 10% of the actual revenue earned by Berkeley in the applicable year that is derived from sales of those Products defined as “Earn-Out Products” under the Purchase Agreement, and from any improvements, modifications, derivatives and enhancements related to the Earn-Out Products, with the aggregate amount of Earn-Out Payments capped at $20 million.

The sale of the Orthobiologics Business represents a strategic shift that has a major effect on the Company’s operations and financial results. Accordingly, this transaction is accounted for as Discontinued Operations for all periods presented in accordance with Accounting Standards Codification (“ASC”) 205-20, Discontinued Operations. Unless indicated otherwise, the information in the notes to the Condensed Consolidated Financial Statements relates to continuing operations. See Note 4 for further discussion of the divestiture of the Orthobiologics Business.

On May 4, 2023, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) notifying us that it did not meet the Market Value of Listed Securities (“MVLS”) requirement for continued listing on the Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(b)(2) (the “Market Value Standard”), and noting that the Company did not meet the requirements under Nasdaq Listing Rules 5550(b)(1) (Equity Standard) and 5550(b)(3) (Net Income Standard). The Original Notice provided that, in accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company would have a period of 180 calendar days from the date of the Original Notice, or until October 31, 2023 (the “Compliance Date”), to regain compliance with the Market Value Standard by having the Company’s MVLS close at or above $35 million for a minimum of 10 consecutive business days prior to the Compliance Date.

On November 1, 2023, the Company received a delisting determination letter (the “Letter”) from the Staff advising the Company that the Staff had determined that the Company did not regain compliance with the Market Value Standard by the Compliance Date. As a result, if not for the Company’s appeal of the Staff’s determination, trading of our common stock on the Nasdaq Capital Market would have been suspended at the opening of business on November 10, 2023, and Form 25-NSE would have been filed with the Securities and Exchange Commission to remove the Company’s securities from listing and registration on the Nasdaq Capital Market. However, the Company timely submitted a hearing

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

The Company’s hearing has been scheduled for February 15, 2024. At the hearing, the Company intends to present a plan to regain compliance with the Market Value Standard, and in the interim, the Company’s common stock will continue to trade on the Nasdaq Capital Market under the symbol “ELUT” at least pending the ultimate conclusion of the hearing.

There can be no assurance that the the Company’s plan will be accepted by the Panel or that, if it is, the Company will be able to regain compliance with the applicable Nasdaq listing requirements. If the Company cannot regain compliance with the Market Value Standard or under Nasdaq’s alternative continued listing requirements, and if the Company’s common stock is delisted by Nasdaq, it could lead to a number of negative implications, including an adverse effect on the price of our common stock, increased volatility in our common stock, reduced liquidity in our common stock, the loss of federal preemption of state securities laws and greater difficulty in obtaining financing. In addition, delisting of our common stock could deter broker-dealers from making a market in or otherwise seeking or generating interest in our common stock, could result in a loss of current or future coverage by certain sell-side analysts and might deter certain institutions and persons from investing in our securities at all. Delisting could also cause a loss of confidence of our collaborators, vendors, suppliers and employees, which could harm the Company’s business and future prospects.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Liquidity

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and accompanying notes included in the Company's annual report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2022. The financial information as of September 30, 2023 and for the three and nine months ended September 30, 2023 and 2022 is unaudited, but in the opinion of management, all adjustments considered necessary for a fair statement of the results for these interim periods have been included. The condensed consolidated balance sheet data as of December 31, 2022 was derived from audited financial statements but does not include all disclosures required by GAAP. The results of the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any other interim period or any future year or period.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

The financial position and operating results of the disposed-of Orthobiologics Business have been reported as discontinued operations in the condensed consolidated financial statements in the current as well as prior comparative periods.

In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. For the nine months ended September 30, 2023, the Company incurred a net loss of $28.3 million, and as of September 30, 2023, the Company had an accumulated deficit of $166.3 million. In addition, during the nine months ended September 30, 2023, the Company used $12.7 million of cash in operating activities, and expects to continue to incur cash outflows during the remainder of 2023. Because of the numerous risks and uncertainties associated with the Company’s commercialization and development efforts, the Company is unable to predict when it will become profitable, and it may never become profitable. The Company’s inability to achieve and then maintain profitability would negatively affect its business, financial condition, results of operations and cash flow.

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In order to mitigate the current and potential future liquidity issues caused by the matters noted above, the Company may seek to raise capital through the issuance of common stock, such as the private placement which we closed in September 2023 described in Note 9, pursue asset sale or other transactions, such as the completed sale of the Orthobiologics Business described in Note 4, or restructure our Revenue Interest Obligation. However, such transactions may not be successful, and we may not be able to raise additional equity, refinance our debt instruments, or sell assets on acceptable terms, or at all. As such, based on our current operating plans, the Company believes there is uncertainty as to whether our future cash flows along with our existing cash, issuances of additional equity and cash generated from expected future sales will be sufficient to meet our anticipated operating needs through twelve months from the financial statement issuance date. Due to these factors, there is substantial doubt about our ability to continue as a going concern within one year after the issuance of the financial statements.

The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. That is, the accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business.

Reclassifications

The Company determined in its fourth quarter of 2022 that its operating and reportable segments are consistent with its major product groupings – Device Protection, Women’s Health, Cardiovascular and Orthobiologics prior to its divestiture. Segment results for the three and nine months ended September 30, 2022, have been recasted to conform to the new segment presentation, which now excludes Orthobiologics due to its divestiture noted above. Refer to the Segment Information in Note 12.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions relating to inventories, receivables, long-lived assets, the valuation of stock-based awards and warrants, the valuation of the revenue interest obligation, the contingent liability for the FiberCel Litigation and deferred income taxes are made at the end of each financial reporting period by management. Management continually re-evaluates its estimates, judgments and assumptions, and management's evaluation could change. Actual results could differ from those estimates.

Net Loss per Share Attributable to Common Stockholders

Our common stock has a dual class structure, consisting of Class A common stock, $0.001 par value per share (the “Class A common stock”) and Class B common stock, $0.001 par value per share (the “Class B common stock”). Other than voting rights, the Class B common stock has the same rights as the Class A common stock, and therefore both are treated as the same class of stock for purposes of the earnings per share calculation. Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average shares outstanding during the period. For purposes of the diluted net income (loss) per share attributable to common stockholders calculation, stock options, restricted stock units (“RSUs”) and warrants are considered to be common stock equivalents. All common stock equivalents have been excluded from the calculation of diluted net loss per share attributable to common stockholders, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share were the same for both periods presented.

Fair Value of Financial Instruments

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value:

Level 1 - Valuations based on quoted prices for identical assets and liabilities in active markets.

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Level 2 - Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment.

The estimated fair value of financial instruments disclosed in the financial statements has been determined by using available market information and appropriate valuation methodologies. The carrying value of all current assets and current liabilities approximates fair value because of their short-term nature.

Cash

The Company maintains its cash balances at banks and financial institutions. The balances are insured up to the legal limit. The Company maintains cash balances that may, at times, exceed this insured limit.

Accounts Receivable and Allowances

Accounts receivable in the accompanying balance sheets are presented net of allowances for credit losses. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables.

The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations to the Company, a provision to the allowance for doubtful accounts is recorded to reduce the net recognized receivable to the amount that is reasonably expected to be collected. For all other customers, a provision to the allowance for credit losses is recorded based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowance for doubtful accounts are recorded to general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.

Inventory

Inventory, consisting of purchased materials, direct labor and manufacturing overhead, is stated at the lower of cost or net realizable value, with cost determined generally 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, the Company also evaluates inventory for excess quantities, obsolescence or shelf-life expiration. This evaluation includes analysis of the Company’s 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 the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the following estimated useful lives of the assets:


Processing and research equipment		5 to 10 years
Office equipment and furniture		3 to 5 years
Computer hardware and software		3 years

Leasehold improvements are amortized on the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Repairs and maintenance costs are expensed as incurred.

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Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No 2016-02, Leases to increase the transparency and comparability about leases among entities. ASU 2016-02 and certain additional ASUs are now codified as ASC 842, Leases. ASC 842 supersedes the lease accounting guidance in ASC 840 and requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. The Company determines if an arrangement contains a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from that lease. For leases with a term greater than 12 months, ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The lease term includes the option to extend the lease when it is reasonably certain the Company will exercise that option. When available, the Company uses the rate implicit in the lease to discount lease payments to present value. In the case the implicit rate is not available, the Company uses its incremental borrowing rate based on information available at the lease commencement date, including publicly available data for instruments with similar characteristics, to determine the present value of lease payments. The Company combines lease and non-lease elements for office leases.

Long-Lived Assets

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.

The Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. The Company reviews its property and equipment and intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Impairment exists when the carrying value of the company’s 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. The results of impairment tests are subject to management’s estimates and assumptions of projected cash flows and operating results. Changes in assumptions or market conditions could result in a change in estimated future cash flows and could result in a lower fair value and therefore an impairment, which could impact reported results. There were no impairment losses for the three and nine months ended September 30, 2023 or 2022.

Revenue Recognition

The Company’s revenue is generated from contracts with customers in accordance with ASC 606. The core principle of ASC 606 is that the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The ASC 606 revenue recognition model consists of the following five steps: (1) identify the contracts with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.

As noted above, the Company enters into contracts to primarily sell and distribute products to healthcare providers or commercial partners. Revenue is recognized when the Company has met its performance obligations pursuant to its contracts with its customers in an amount that the Company expects to be entitled to in exchange for the transfer of control of the products to the Company’s customers. For all product sales, the Company has 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 the Company’s 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, the Company retains control until the product has been used or implanted, at which time revenue is recognized.

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The Company 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. The related shipping and freight charges incurred by the Company are included in sales and marketing costs.

Contracts with customers state the final terms of the sale, including the description, quantity, and price of each implant distributed. The payment terms and conditions in the Company’s contracts vary; however, as a common business practice, payment terms are typically due in full within 30 to 60 days of delivery. The Company, at times, extends volume discounts to customers.

The Company permits returns of its products in accordance with the terms of contractual agreements with customers. Allowances for returns are provided based upon analysis of the Company’s historical patterns of returns matched against the revenues from which they originated. The Company records estimated returns as a reduction of revenue in the same period revenue is recognized.

Stock-Based Compensation Plans

The Company accounts for its stock-based compensation plans in accordance with ASC 718, Accounting for Stock Compensation. ASC 718 requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including employee stock options and restricted stock. Stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis over the requisite service period of the entire award.

Warrant Liability

The Company accounts for its 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. Our Offering Warrants 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, net in the statements of operations.The Company estimates the fair value of the 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.

Research and Development Costs

Research and development costs, which include mainly salaries, outside services and supplies, are expensed as incurred.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. The Company’s cash balances with the individual institutions may at times exceed the federally insured limits.

On June 19, 2023, Surgalign Holdings, Inc. (“Surgalign”) and certain of its direct and indirect subsidiaries commenced voluntary proceedings under chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas. As of September 30, 2023, the Company’s gross accounts receivable from Surgalign totaled $0.6 million which has fully been reserved at September 30, 2023 due to the uncertainty of collection.

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Comprehensive Income (Loss)

Comprehensive income (loss) comprises net income (loss) and other changes in equity that are excluded from net income (loss). For the three and nine months ended September 30, 2023 and 2022, the Company’s net loss equaled its comprehensive loss and accordingly, no additional disclosure is presented.

Income Taxes

The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are recorded to reflect the tax consequences on future years for differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to amounts that are more likely than not to be realized.

The Company is subject to income taxes in the federal and state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In accordance with the authoritative guidance on accounting for uncertainty in income taxes, the Company recognizes tax liabilities for uncertain tax positions when it is more likely than not that a tax position will not be sustained upon examination and settlement with various taxing authorities. Liabilities for uncertain tax positions are measured based upon the largest amount of benefit that is more likely than not (greater than 50%) of being realized upon settlement. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

Note 3. Recently Issued Accounting Standards

In 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Disclosure Framework – Measurement of Credit Losses on Financial Instruments, which requires financial assets measured at amortized cost, including trade receivables, be presented net of the amount expected to be collected. The measurement of all expected credit losses is based on relevant information about the credit quality of customers, past events, including historical experience, and reasonable and supportable forecasts that affect the collectability of the reported amount. In October 2019, the FASB voted to approve a proposal to defer the effective date of ASC 2016-13 for certain entities, including emerging growth companies that take advantage of the extended transition period, to fiscal years beginning after December 15, 2022. This ASU was effective for the Company beginning on January 1, 2023 and did not have a material impact on our condensed consolidated Financial Statements. The Company adopted this ASU using the modified retrospective transition method. Under this transition method, the new standard is applied from January 1, 2023 without restatement of comparative period amounts. The impact of transitioning to the new standard was immaterial and no adjustment was recorded to retained earnings for the cumulative effect of adopting this ASU on January 1, 2023. Results for reporting periods beginning after January 1, 2023 are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Note 4. Divestiture of Orthobiologics Business

As described in Note 1, on September 17, 2023, the Company executed the Purchase Agreement for the sale of its Orthobiologics Business. Accordingly, the Orthobiologics Business is reported as discontinued operations in accordance with ASC 205-20 - Discontinued Operations. The related assets and liabilities of the Orthobiologics Business are classified as assets and liabilities of discontinued operations as of September 30, 2023 and December 31, 2022 in the condensed consolidated balance sheets and the results of operations from the Orthobiologics Business are reported as discontinued operations in the condensed consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022. Applicable amounts in the prior year have been recast to conform to this discontinued operations presentation.

The following tables shows the assets and liabilities of the discontinued operations:

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	September 30,		December 31,
	2023		2022
Carrying amounts of the major classes of assets included in discontinued operations:
Accounts receivable, net of credit loss reserve of $62 and $62, respectively	$	2,311	$	3,056
Inventory		4,055		5,812
Prepaid expenses and other current assets		954		628
Total current assets		7,320		9,496
Property and equipment, net		1,253		1,158
Operating lease right-of-use assets and other		1,350		1,350
Total non-current assets		2,603		2,508
Total assets of discontinued operations	$	9,923	$	12,004


Carrying amounts of the major classes of liabilities included in discontinued operations:
Accounts payable	$	401	$	954
Accrued expenses and other current liabilities		906		1,273
Payables to tissue suppliers		1,395		2,252
Current operating lease liabilities		488		450
Total current liabilities		3,190		4,929
Long-term operating lease liabilities		585		956
Total liabilities of discontinued operations	$	3,775	$	5,885

In accordance with ASC 205-20, only expenses specifically identifiable and related to a business to be disposed may be presented in discontinued operations. The following table shows the financial results of the discontinued operations:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Net sales	$	2,291	$	6,540	$	12,894	$	19,260
Cost of goods sold		1,839		4,430		11,218		13,605
Gross profit		452		2,110		1,676		5,655
Sales and marketing		374		536		1,636		1,467
General and administrative		927		157		1,231		435
Research and development		262		243		776		988
Total operating expenses		1,563		936		3,643		2,890
Interest expense		117		55		348		55
Net income (loss)	$	(1,228)	$	1,119	$	(2,315)	$	2,710

Total operating and investing cash flows of discontinued operations for the nine months ended September 30, 2023 and 2022 are comprised of the following:


	Nine Months Ended
	September 30,
	2023		2022
Significant operating non-cash reconciliation items
Depreciation		213		149
Stock-based compensation		115		119
Changes in operating assets and liabilities: