| Item No. | | Page No. |
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| PART I |
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| ITEM 1. | BUSINESS | 7 |
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| ITEM 1A. | RISK FACTORS | 40 |
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| ITEM 1B. | UNRESOLVED STAFF COMMENTS | 83 |
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| ITEM 1C. | CYBERSECURITY | 83 |
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| ITEM 2. | PROPERTIES | 84 |
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| ITEM 3. | LEGAL PROCEEDINGS | 85 |
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| ITEM 4. | MINE SAFETY DISCLOSURES | 85 |
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| PART II |
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| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 85 |
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| ITEM 6. | [RESERVED] | 85 |
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| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 86 |
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| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK | 97 |
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| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA | 98 |
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| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE | 98 |
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| ITEM 9A. | CONTROLS AND PROCEDURES | 99 |
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| ITEM 9B. | OTHER INFORMATION | 100 |
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| ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS | 100 |
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| PART III |
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| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 100 |
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| ITEM 11. | EXECUTIVE COMPENSATION | 100 |
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| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 100 |
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| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE | 101 |
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| ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES | 101 |
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| PART IV |
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| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | 101 |
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| EXHIBIT INDEX | 103 | |
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| SIGNATURES | 106 | |
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”) and the documents incorporated by reference herein contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In addition, we may, through our officers and other authorized representatives, make certain forward-looking statements in publicly released materials, both written and oral, including statements contained in filings with the Securities and Exchange Commission, press releases, and our communications with our stockholders.
Forward-looking statements are neither statements of historical facts nor assurances of future performance, but instead discuss the future of our business, operations, future financial performance, future financial condition, plans, anticipated growth strategies, anticipated or perceived trends in our business, the industry in which we operate or the broader economy, and other objectives of management. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “positioned,” “potential,” “seek,” “should,” “target,” “will,” “would,” the negative of such terms, and other similar expressions although not all forward-looking statements contain these identifying words.
You should understand that the following important factors could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:
| ● | estimates regarding future results of operations, financial position, research and development costs, capital requirements and our needs for additional financing; |
| ● | our ability to maintain the listing of our common stock on the Nasdaq Global Market (“Nasdaq”) |
| ● | the commercial success and degree of market acceptance of our products; |
| ● | the introduction of new products or product enhancements by us or others in our industry, including new products which may be perceived to negatively impact the demand for our products now or in the future; |
| ● | our ability to expand, manage and maintain our direct sales and marketing organization and to market and sell our products in the United States (“U.S.”) and Europe; |
| ● | the performance of our exclusive contract manufacturer for our OviTex and OviTex PRS products, Aroa Biosurgery Ltd. (“Aroa”), in connection with the supply of product and in the development of additional products and product configurations within these products; |
| ● | our ability to maintain our supply chain integrity and expand our supply chain to manage increased demand for our products; |
| ● | our ability to compete successfully with larger competitors in our highly competitive industry; |
| ● | our ability to achieve and maintain adequate levels of coverage or reimbursement for our current products and any future products we may seek to commercialize; |
| ● | our ability to enhance our products, expand our indications and develop and commercialize additional products; |
| ● | the development, regulatory approval, efficacy and commercialization of competing products; |
| ● | our business model and strategic plans for our products, technologies and business, including our implementation thereof; |
| ● | the size of the markets for our current and future products; |
| ● | our ability to recruit and retain senior management and other highly qualified personnel; |
| ● | our ability to obtain additional capital to finance our planned operations; |
| ● | our ability to maintain regulatory approval for our products; |
| ● | our ability to commercialize or obtain regulatory approvals for our future products, or the effect of delays in commercializing or obtaining regulatory approvals; |
| ● | decreasing selling prices and pricing pressures; |
| ● | regulatory developments in the U.S., including regulatory developments due to current or future changes in the U.S. presidential administration and European markets; |
| ● | the potential impact of healthcare reform in the U.S., including the Inflation Reduction Act of 2022, and measures being taken worldwide designed to reduce healthcare costs; |
| ● | any decrease in frequency of surgical procedures using our products, whether through outbreak of illness or disease, cybersecurity events impacting hospital operations, potential hospital closures, labor and hospital |
| ● | the occurrence of adverse safety events, restrictions on use with our products or product liability claims; and |
staffing shortages, supply chain disruptions to critical surgical and hospital supplies, and any applicable adverse healthcare economic factors;
| ● | the volatility of capital markets and other adverse macroeconomic factors, including due to inflationary pressures, interest rate and currency rate fluctuations, economic slowdown or recession, banking instability, monetary policy changes, changes in trade policies (including tariffs and trade protection measures that have been or may in the future be imposed by the U.S. or other countries), geopolitical tensions or the outbreak of hostilities or war, including from the ongoing Russia-Ukraine conflict, recent events in Venezuela, the current conflicts in the Middle East (including any escalation or expansion) and increasing tensions between China and Taiwan; |
| ● | our ability to develop and maintain our corporate infrastructure, including our internal controls; |
| ● | our ability to establish and maintain intellectual property protection for our products, as well as our ability to operate our business without infringing the intellectual property rights of others; |
| ● | our expectations regarding the use of proceeds from recent and any future financings, if any; |
| ● | the occurrence of adverse safety events, restrictions on use with our products or product liability claims; and |
| ● | other risks and uncertainties, including those listed under the caption “Risk Factors.” |
These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe the expectations reflected in the forward-looking statements are reasonable, the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements may not be achieved or occur at all.
You should refer to the section titled “Risk Factors” in this Annual Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.
SUMMARY RISK FACTORS
We are providing the following summary of the risk factors contained in our Form 10-K to enhance the readability and accessibility of our risk factor disclosures. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks and uncertainties that we face, can be found under “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in this Annual Report. The below summary is qualified in its entirety by those more complete discussions of such risks and uncertainties.
Risks Related to Achieving or Sustaining Profitability, Financial Position and Capital Requirements
| ● | We have incurred significant operating losses since inception, we expect to incur operating losses in the future, and we may not be able to achieve or sustain profitability. |
| ● | Our indebtedness may limit our flexibility in operating our business and adversely affect our financial health and competitive position. |
| ● | We may require substantial additional capital to finance our planned operations, which may not be available to us on acceptable terms or at all. |
| ● | If we are unable to expand, manage and maintain our direct sales and marketing organizations, we may not be able to generate anticipated revenue. |
| ● | Macroeconomic conditions, including those placing financial strain on hospital systems and their ability to perform the procedures in which our products are used may negatively impact certain aspects of our business, our prospects, results of operations and financial condition. |
| ● | Rising inflation rates could negatively impact our revenues and profitability if increases in the prices of our product or a decrease in consumer spending results in lower volumes of elective surgeries. In addition, if our costs increase and we are not able to pass along these price increases, our profitability would be adversely affected, and the adverse impact may be material. |
Risks Related to the Commercialization of our Products
| ● | To date, the vast majority of our revenue has been generated from sales of our OviTex products, and we therefore are highly dependent on the commercial success of our OviTex products. |
| ● | The commercial success of our products will largely depend upon attaining significant market acceptance. |
| ● | Even if we are able to attain significant market acceptance of our products, the commercial success of our products is not guaranteed. |
| ● | The misuse or off-label use of our products may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of our products for these uses. |
| ● | If we are unable to achieve and maintain adequate levels of coverage or reimbursement for our OviTex and OviTex PRS products we may commercialize in the future, our commercial success may be hindered. |
| ● | If competitors enter into supply contracts with our customers that disfavor our products or discourage their use, our commercial success could be adversely affected. |
| ● | Our long-term growth may depend on our ability to enhance our product offerings. |
| ● | In the future our products may become obsolete, which would negatively affect operations and financial condition. |
Risks Related to Our Reliance on Third Parties
| ● | We are highly dependent upon Aroa as the exclusive contract manufacturer of our OviTex and OviTex PRS products. |
| ● | We, or our partners, may experience development or manufacturing problems, capacity constraints, or delays in the production of our products that could limit the potential growth of our revenue or increase our losses. |
| ● | Our products contain materials derived from animal sources and may become subject to additional regulation. |
| ● | Our supply of ovine rumen for use in manufacturing our products may be vulnerable to disruption due to natural disaster, disease or other events. |
| ● | Cybersecurity risks, cyber incidents and technology failures related to our or our vendors’ management of our systems may adversely affect our business by causing a disruption to our operations, a compromise or |
corruption of our confidential information or the personal information of our customers, and/or damage to our business relationships, all of which could negatively impact our financial results.
Risks Related to Intellectual Property Matters
| ● | We may need to license intellectual property from third parties, and such licenses may not be available or may not be available on commercially reasonable terms. |
| ● | If we fail to comply with our obligations under any license, collaboration or other agreements, we could lose intellectual property rights that are necessary for developing and protecting our products. |
| ● | If we are unable to adequately protect our intellectual property rights, or if we are accused of infringing on the intellectual property rights of others, our competitive position could be harmed, or we could be required to incur significant expenses to enforce or defend our rights. |
| ● | Litigation or other proceedings or third-party claims of intellectual property infringement could require us to spend significant time and money, enter into license agreements for disputed intellectual property and could prevent us from selling our products. |
| ● | If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed. |
Risks Related to Government Regulation
| ● | Our products and operations are subject to extensive government regulation and oversight both in the U.S. and internationally. |
| ● | We may not receive, or may be significantly delayed in receiving, the necessary clearances or approvals for our future products and modifications to our current products may require new 510(k) clearances or premarket approval, and may require us to cease marketing or recall the modified products until clearances or approvals are obtained. |
| ● | Although we have obtained regulatory clearance for our products, they will remain subject to extensive regulatory scrutiny. |
| ● | If guidelines for soft-tissue reconstruction surgery change or the standard of care evolves, we may need to redesign and seek new marketing authorization from the U.S. Food and Drug Administration for our OviTex and OviTex PRS products or other products we may commercialize in the future. |
Risks Related to Our Business and Products
| ● | Our financial results may fluctuate significantly and may not fully reflect the underlying performance of our business. |
| ● | We may be unable to renew existing or obtain additional contract positions with major group purchasing organizations and integrated delivery networks for our products, and even if we are able to do so, such contracts may not generate sufficient sales of our products. |
| ● | We have limited data and experience regarding the safety and efficacy of certain of our products. Results of earlier studies may not be predictive of future clinical trial results, or the safety or efficacy profile for such products. |
| ● | Interim or preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. |
Risks Related to Our Securities
| ● | The trading price of the shares of our common stock has been and could in the future be highly volatile. |
| ● | If we fail to comply or regain compliance with the continued listing standards of Nasdaq, we may be delisted and the price of our common stock, or ability to access the capital markets and our financial condition could be negatively impacted. |
| ● | Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders. |
| ● | Provisions in our corporate charter documents and under Delaware law could discourage another company from acquiring us and may prevent attempts by our stockholders to replace or remove our current management. |
