UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) |
(Address of principal executive offices and Zip Code)
(
(Registrant’s telephone number, including area code)
N/A
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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The |
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.
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).
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 ☐ |
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
As of August 7, 2024, there were
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; plans for our sales and marketing growth; expectations regarding the potential payment of post-closing earnout payments from the sale of our Orthobiologics Business to Berkeley Biologics, LLC (“Berkeley”); 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”) and viable bone matrix (“VBM”), amounts recoverable under insurance, indemnity and contribution agreements and the impact of such lawsuits and claims on our future financial position; and our expectations and plans regarding pursuit of any strategic transactions 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; |
| ● | the risk of product liability claims and our ability to obtain or maintain adequate product liability insurance; |
| ● | our ability to defend against the various lawsuits related to FiberCel and VBM and avoid a material adverse financial consequence; |
| ● | the continued and future acceptance of our products by the medical community; |
| ● | our ability to market and sell our newly approved EluPro® antibacterial envelope device; |
| ● | 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 dependence on a limited number of third-party suppliers and manufacturers, which, in certain cases are exclusive suppliers for products essential to our business; |
1
| ● | our ability to successfully realize the anticipated benefits of the sale of our Orthobiologics Business; |
· | physician awareness of the distinctive characteristics, benefits, safety, clinical efficacy and cost-effectiveness of our products; |
| ● | our ability to compete against other companies, most of which have longer operating histories, more established products and/or greater resources than we do; |
| ● | pricing pressure as a result of cost-containment efforts of our customers, purchasing groups, third-party payors and governmental organizations could adversely affect our sales and profitability; |
| ● | our ability to obtain regulatory approval or other marketing authorizations by the U.S. Food and Drug Administration and comparable foreign authorities for our products and product candidates; and |
| ● | our ability to obtain, maintain and adequately protect our intellectual property rights. |
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, 2023 (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®,” “EluPro®,” “CanGarooRM®,” “ProxiCor®,” “Tyke®,” “VasCure®,” “SimpliDerm®,” “SimpliDerm Ellipse®” and our logo, which are our property and are protected under applicable intellectual property laws. 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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TABLE OF CONTENTS
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2 | ||
3 | ||
3 | ||
5 | ||
6 | ||
Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | 7 | |
8 | ||
10 | ||
Management’s Discussion and Analysis of Financial Condition and Results Of Operations | 28 | |
43 | ||
43 | ||
44 | ||
44 | ||
44 | ||
44 | ||
44 | ||
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45 | ||
47 | ||
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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)
June 30, | December 31, | ||||||
| 2024 |
| 2023 |
| |||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | | $ | | |||
Accounts receivable, net |
| |
| | |||
Inventory |
| |
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Receivables of litigation costs | | | |||||
Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Intangible assets, net |
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Operating lease right-of-use assets and other |
| |
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Total assets | $ | | $ | | |||
Liabilities and Stockholders’ Deficit | |||||||
Current liabilities: | |||||||
Accounts payable | $ | | $ | | |||
Accrued expenses |
| |
| | |||
Payables to tissue suppliers |
| |
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Current portion of long-term debt | | | |||||
Current portion of revenue interest obligation |
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Contingent liability for legal proceedings | | | |||||
Current operating lease liabilities |
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Total current liabilities |
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Long-term debt |
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Long-term revenue interest obligation |
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Warrant liability |
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Other long-term liabilities |
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Total liabilities |
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Commitments and contingencies (Note 10) | |||||||
Stockholders’ equity (deficit): | |||||||
Class A Common stock, $ | | | |||||
Class B Common stock, $ | | | |||||
Additional paid-in capital |
| |
| | |||
Accumulated deficit |
| ( |
| ( | |||
Total stockholders’ deficit |
| ( |
| ( | |||
Total liabilities and stockholders' deficit | $ | | $ | | |||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ELUTIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Data)
(UNAUDITED)
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| |||||
Net sales | $ | | $ | | $ | | $ | | |||||
Cost of goods sold |
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Gross profit |
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Sales and marketing |
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General and administrative |
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Research and development |
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FiberCel litigation costs, net | | | | | |||||||||
Total operating expenses | | | | | |||||||||
Loss from operations |
| ( |
| ( |
| ( |
| ( | |||||
Interest expense |
| |
| |
| |
| | |||||
Loss on revaluation of warrant liability | | — | | — | |||||||||
Other expense (income), net |
| |
| — |
| ( |
| — | |||||
Loss before provision for income taxes |
| ( |
| ( |
| ( |
| ( | |||||
Income tax expense (benefit) |
| ( |
| |
| ( |
| | |||||
Net loss from continuing operations | ( | ( | ( | ( | |||||||||
Income (loss) from discontinued operations | | ( | | ( | |||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss from continuing operations per share - basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net income (loss) from discontinued operations per share - basic and diluted | $ | | $ | ( | $ | | $ | ( | |||||
Net loss per share - basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Weighted average common shares outstanding - basic and diluted |
| |
| |
| |
| | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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, March 31, 2024 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | ||||||
Issuance of common stock in connection with registered direct offering, net of issuance costs of $ | | | — | — | | — |
| | |||||||||||
Exercises of Common Warrants and Prefunded Warrants | | | — | — | | — | | ||||||||||||
Vesting of restricted stock units, net of shares withheld and taxes paid | | — | — | — | ( | — | ( | ||||||||||||
Stock-based compensation |
| — | — | — | — |
| |
| — |
| | ||||||||
Net loss |
| — | — | — | — |
| — |
| ( |
| ( | ||||||||
Balance, June 30, 2024 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | ||||||
Balance, March 31, 2023 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | ||||||
Vesting of restricted stock units, net of shares withheld and taxes paid | | — | — | — | ( | — | ( | ||||||||||||
Stock-based compensation | — | — | — | — |
| |
| — |
| | |||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Balance, June 30, 2023 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | ||||||
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, 2023 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | ||||||
Issuance of common stock in connection with registered direct offering, net of issuance costs of $ | | | — | — | | — |
| | |||||||||||
Exercises of Common Warrants and Prefunded Warrants | | | — | — | | — |
| | |||||||||||
Issuance of common stock under Employee Stock Purchase Plan | | — | — | — |
| |
| — |
| | |||||||||
Vesting of restricted stock units, net of shares withheld and taxes paid | | — | — | — | ( | — | ( | ||||||||||||
Stock-based compensation |
| — | — | — | — |
| |
| — |
| | ||||||||
Net loss |
| — | — | — | — |
| — |
| ( |
| ( | ||||||||
Balance, June 30, 2024 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | ||||||
Balance, December 31, 2022 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | ||||||
Issuance of common stock under Employee Stock Purchase Plan | | — | — | — |
| |
| — | | ||||||||||
Vesting of restricted stock units | | — | — | — | ( | — | ( | ||||||||||||
Stock-based compensation | — | — | — | — |
| |
| — | | ||||||||||
Net loss | — | — | — | — |
| — |
| ( | ( | ||||||||||
Balance, June 30, 2023 |
| | $ | | | $ | | $ | | $ | ( | $ | ( | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
7
ELUTIA INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
Six Months Ended | ||||||
June 30, | ||||||
2024 |
| 2023 | ||||
Net loss | $ | ( |
| $ | ( | |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
| |
Depreciation and amortization |
| |
|
| | |
Gain on sale of Orthobiologics Business | ( | — | ||||
Loss on revaluation of warrant liability |
| |
|
| — | |
Gain on revaluation of revenue interest obligation |
| ( |
|
| — | |
Amortization of deferred financing costs and debt discount |
| |
|
| | |
Interest expense recorded as additional revenue interest obligation and long-term debt |
| |
|
| | |
Stock-based compensation |
| |
|
| | |
Bad debt expense | — | | ||||
Losses associated with viable bone matrix recall and market withdrawal | — | | ||||
Changes in operating assets and liabilities: |
|
|
| |||
Accounts receivable |
| ( |
|
| ( | |
Inventory |
| |
|
| ( | |
Receivables of litigation costs | ( | | ||||
Prepaid expenses and other |
| |
|
| | |
Accounts payable and accrued expenses and payables to tissue suppliers |
| ( |
|
| | |
Contingent liability for legal proceedings | | ( | ||||
Other liabilities |
| |
|
| | |
Net cash used in operating activities |
| ( |
|
| ( | |
INVESTING ACTIVITIES: |
|
|
|
| ||
Proceeds from sale of Orthobiologics Business | | — | ||||
Expenditures for property, plant and equipment |
| ( |
|
| ( | |
Net cash provided by (used in) investing activities |
| |
|
| ( | |
FINANCING ACTIVITIES: |
|
|
|
|
| |
Proceeds from direct registered offering and warrants, net of offering costs | | — | ||||
Repayments of long-term debt |
| ( |
|
| — | |
Proceeds from exercises of Common Warrants and Prefunded Warrants | | — | ||||
Payments on revenue interest obligation |
| ( |
|
| — | |
Repayments of insurance premium financings | ( | — | ||||
Payments for taxes upon vesting of restricted stock units | ( | ( | ||||
Proceeds from issuance of common stock under Employee Stock Purchase Plan |
| |
|
| | |
Net cash provided by financing activities |
| |
|
| | |
Net decrease in cash and restricted cash |
| ( |
|
| ( | |
Cash and cash equivalents, beginning of period |
| |
|
| | |
Cash and cash equivalents, end of period | $ | |
| $ | | |
Supplemental Cash Flow and Non-Cash Financing Activities Disclosures: |
|
|
|
|
| |
Cash paid for interest | $ | |
| $ | | |
Fair value of warrants issued | $ | | $ | — | ||
Operating lease right-of-use asset extensions executed | $ | | $ | — | ||
Conversion of Common Warrants and Prefunded Warrants to common stock | $ | | $ | — | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
8
ELUTIA INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Organization and Description of Business
Elutia Inc. (together with its consolidated subsidiaries, "Elutia” or the “Company”) is a commercial-stage company leveraging its unique understanding of biologics to improve the interaction between implanted medical devices and patients by reducing complications associated with these surgeries. The Company has developed a portfolio of 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 spans the Device Protection, Women’s Health and Cardiovascular markets. These products are primarily sold to healthcare providers or commercial partners.
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 condensed 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, 2023. The financial information as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023 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, 2023 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.
On November 8, 2023, the Company completed the sale of substantially all of the assets relating to its Orthobiologics segment (the “Orthobiologics Business”) to Berkeley Biologics, LLC (“Berkeley”). The Orthobiologics Business was comprised of assets relating to researching, developing, administering, insuring, operating, commercializing, manufacturing, selling and marketing the Company’s 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 the Company’s Orthobiologics segment. In the sale, the Company received approximately $
10
ended June 30, 2023. Unless indicated otherwise, the information in the notes to condensed consolidated financial statements for the three and six months ended June 30, 2023 relates to continuing operations.
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 condensed consolidated financial statements are issued. For the six months ended June 30, 2024, the Company incurred a net loss of $
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 or pursue asset sales 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. As such, based on our current operating plans, we believe there is uncertainty as to whether our future cash flows along with our existing cash, issuances of additional equity and cash generated from expected future sales will be sufficient to meet our anticipated operating needs through twelve months from the condensed consolidated 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 condensed consolidated financial statements.
The accompanying condensed 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.
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, the valuation of the revenue interest obligation, the valuation of the warrant liability, the contingent liabilities for legal proceedings 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, $
11
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.
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 and Cash Equivalents
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. The Company considers cash on hand, demand deposits in a bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents.
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. 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.
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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 |
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Office equipment and furniture |
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Computer hardware and software |
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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.
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.
During the six months ended June 30, 2024, the Company entered into lease extensions in Silver Spring, Maryland and Roswell, Georgia and entered into a new lease in San Diego, California, which collectively resulted in operating lease right-to-use assets and of $
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
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.
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The Prefunded and Common Warrants issued in connection with the September 2023 private placement (see Note 9) 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 condensed consolidated 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.
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.
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 to
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.
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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.
There were
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 six months ended June 30, 2024 and 2023, 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 November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This update improves reportable segment disclosure requirements, primarily through enhanced disclosures of significant segment expenses. The amendments in this update should be applied retrospectively to all prior periods presented in the condensed consolidated financial statements and are effective for fiscal years beginning after December 31, 2023 and interim periods within fiscal years beginning after December 31, 2024. Early adoption is permitted. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures. This update improves income tax disclosure requirements, primarily through enhanced transparency and decision usefulness of disclosures. The amendments in this update should be applied prospectively with the option to apply retrospectively and are effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the potential impact of this guidance on its condensed consolidated financial statements.
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Note 4. Sale of Orthobiologics Business
As described in Note 2, on November 8, 2023, the Company completed the sale of its Orthobiologics Business. Accordingly, the Orthobiologics Business is reported as discontinued operations in accordance with ASC 205-20 - Discontinued Operations and the amounts for the three and six months ended June 30, 2023 have been recast to conform to this discontinued operations presentation.
In accordance with ASC 205-20, only expenses specifically identifiable and related to a business to be disposed may be presented in discontinued operations.
Three Months Ended | Six Months Ended | ||||
June 30, | June 30, | ||||
2023 |
| 2023 | |||
Net sales | $ | | $ | | |
Cost of goods sold |
| |
| | |
Gross profit |
| ( |
| | |
Sales and marketing |
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| | |
General and administrative |
| |
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Research and development |
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| | |
Total operating expenses | | | |||
Interest expense | | | |||
Net income | $ | ( | $ | ( | |
Total operating and investing cash flows of discontinued operations for the six months ended June 30, 2023 are comprised of the following:
Six Months Ended | ||
June 30, | ||
2023 | ||
Significant operating non-cash reconciliation items | ||
Depreciation | $ | |
Stock-based compensation |
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Changes in operating assets and liabilities: | ||
Accounts receivable |
| ( |
Inventory |
| ( |
Prepaid expenses and other |
| ( |
Accounts payable and accrued expenses and other current liabilities | | |
Obligations to tissue suppliers | ( | |
Significant investing items | ||
Expenditures for property, plant and equipment | ||
Note 5. Stock-Based Compensation
In 2015, the Company established the Elutia Inc. 2015 Stock Option/Stock Issuance Plan, as amended (the “2015 Plan”) which provided for the granting of incentive and non-qualified stock options to employees, directors and consultants of the Company. On October 7, 2020, in connection with the Company’s initial public offering (“IPO”), the Company adopted the Elutia Inc. 2020 Incentive Award Plan, and on June 8, 2023, the Company’s stockholders approved the amendment and restatement of that plan (as amended and restated, the “2020 Plan”), which authorizes the grant of incentive and non-qualified stock options, restricted stock, restricted stock units and stock appreciation rights to employees, directors and consultants. Shares of Class A common stock totaling
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was increased by
Stock Options
The Company’s policy is to grant stock options at an exercise price equal to
A summary of stock option activity under the Company’s 2015 Plan and 2020 Plan for the six months ended June 30, 2024 is as follows:
Weighted- | |||||||||||
Average | |||||||||||
Weighted- | Remaining | Aggregate | |||||||||
Average | Contractual | Intrinsic | |||||||||
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| Exercise |
| Term |
| Value | |||||
Number of Shares | Price | (years) | (in thousands) | ||||||||
Outstanding, December 31, 2023 | | $ | |
| $ | - | |||||
Granted | | $ | | ||||||||
Forfeited | ( | $ | | ||||||||
Outstanding, June 30, 2024 | | $ | | $ | | ||||||
Vested and exercisable, June 30, 2024 | | $ | | $ | | ||||||
The weighted average grant date fair value of options granted during the six months ended June 30, 2024 was $
The Company uses the Black-Scholes model to value its stock option grants that vest based on the passage of time or the achievement of certain performance criteria and expenses the related compensation cost using the straight-line method over the vesting period. 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 the Company’s IPO, the 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. The Company uses the simplified method for estimating the expected term used to determine the fair value of options. The expected volatility of the Class A common stock is partially based on the historical volatility of comparable companies in the industry whose share prices are publicly available. The Company uses a
The following weighted-average assumptions were used to determine the fair value of time-based options granted during the three and six months ended June 30, 2024 and 2023:
Six Months Ended | |||||
June 30, | |||||
| 2024 |
| 2023 | ||
Expected term (years) | |||||
Risk-free interest rate | | % | | % | |
Volatility factor | | % | | % | |
Dividend yield | | | |||
During the six months ended June 30, 2024, the Company granted
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CanGarooRM during development) product. With the FDA’s approval of EluPro in June 2024, such vesting will occur in mid-August 2024. Consistent with the above, these performance vesting options have been valued using the Black-Scholes model. The Company also granted
Restricted Stock Units
Restricted stock units (“RSUs”) represent rights to receive common shares at a future date. There is no exercise price and no monetary payment is required for receipt of restricted stock units or the shares issued in settlement of the award.
A summary of the RSU activity under the Company’s 2020 Plan for the six months ended June 30, 2024 is as follows:
|
| Weighted- | |||
Average | |||||
Number of Shares | Grant Date | ||||
Underlying RSUs | Fair Value | ||||
Unvested, December 31, 2023 |
| | $ | | |
Granted |
| | $ | | |
Vested |
| ( | $ | | |
Forfeited |
| ( | $ | | |
Unvested, June 30, 2024 |
| | $ | | |
The total fair value of the RSUs granted during the six months ended June 30, 2024 was $
As of June 30, 2024, $
During the six months ended June 30, 2024, the Company granted
Employee Stock Purchase Plan
The Company makes shares of its Class A common stock available for purchase under its 2020 Employee Stock Purchase Plan (the “ESPP”). The ESPP provides for separate
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ESPP was
Stock-Based Compensation Expense
Stock-based compensation expense recognized during the three and six months ended June 30, 2024 and 2023 was comprised of the following (in thousands):
Three Months Ended | Six Months Ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
| |||||
Sales and marketing |
| $ | |
| $ | |
| $ | |
| $ | | |
General and administrative |
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| |
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| | |||||
Research and development |
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