SHOULDER INNOVATIONS, INC.

1. Summary of Significant Accounting Policies

Business Activity

Shoulder Innovations, Inc. (the “Company”) is principally involved in developing next generation shoulder replacement implants, utilizing contract manufacturing partners, and distributing them nationwide for surgeries through a network of employed and contracted sales representatives. The Company is headquartered in Grand Rapids, Michigan and markets and sells its products throughout the United States.

Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the applicable rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Certain information and note disclosures included in the Company’s audited annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed financial statements should be read in conjunction with the audited annual financial statements for the year ended December 31, 2025 included in the Company’s Annual Report on Form 10-K dated December 31, 2025, filed with the SEC on March 10, 2026. There have been no material changes in our significant accounting policies as described in our audited annual financial statements for the year ended December 31, 2025. In the opinion of management, these unaudited condensed financial statements reflect all adjustments, including those of a normal and recurring nature, which are necessary for a fair presentation of the results for the interim period presented.

Reverse Stock Split

On July 23, 2025, the Company amended its amended and restated certificate of incorporation to effect a reverse stock split of shares of the Company’s common stock on a 1-for-19.08 basis (the “Reverse Stock Split”). The common stock warrants and options to purchase common stock were subsequently adjusted as a result of the Reverse Stock Split. All impacted share and per-share information included in these unaudited condensed financial statements and notes thereto have been retroactively adjusted to give effect to the Reverse Stock Split.

Initial Public Offering

On August 1, 2025, the Company closed its initial public offering (“IPO”), and issued 5,000,000 shares of common stock at public offering price of $15.00 per share. The Company received net proceeds of approximately $64,212, after deducting underwriting discounts and commissions and offering expenses. Immediately prior to the closing of the IPO, all outstanding shares of convertible preferred stock and $40,000 in aggregate principal amount of convertible notes converted into 15,176,862 shares of common stock. In connection with the closing of the IPO, on August 1, 2025, the Company amended and restated its certificate of incorporation to authorize the issuance of up to 730,000,000 shares of common stock, par value $0.001 per share and 20,000,000 shares of preferred stock, par value $0.001 per share.

New Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) ("ASC 740"). The update requires all public business entities on an annual basis to (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold and an explanation, if not otherwise evident, of the individual reconciling items disclosed, such as the nature, effect, and underlying causes of the reconciling items and the judgment used in categorizing the reconciling items. In addition, the update requires certain new disclosures of the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions in which income taxes paid is equal to or greater than five percent of total income taxes paid (net of refunds received). Other new disclosures required include income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. The new guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments are to be applied on a prospective basis, with retrospective application permitted. As an emerging growth company that has not opted out of the extended transition period for complying with new or revised financial accounting standards, the amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2025. The Company is currently evaluating the impact of the new standard on its financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses requires additional, disaggregated disclosure around certain income statement expense line items. This ASU mandates that entities, at each interim and annual period, disclose the amounts of (a) inventory purchases, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depletion, depreciation, and amortization for oil and gas activities included within each relevant expense caption presented on the income statement within continuing operations. Entities are also required to (1) combine certain disclosures already mandated under GAAP with these new requirements, (2) provide qualitative descriptions of expenses that are not disaggregated quantitatively, and (3) disclose total selling expenses and, annually, the definition of selling expenses. The guidance is effective for annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the potential impact of adopting this new guidance on its financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements (“ASU 2025-11”), which clarifies the guidance in Topic 270 to improve the consistency of interim financial reporting. The ASU provides a comprehensive list of required interim disclosures and introduces a disclosure principle requiring entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 is effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2025-11.

2. Fair Value Measurements

The fair value of marketable securities as of March 31, 2026 and December 31, 2025 are summarized below:

3. Accrued Liabilities

Accrued liabilities consist of the following:

4. Related Party Transactions

On October 22, 2020, the Company entered into a software license agreement with Genesis Software which was amended and restated on January 1, 2023 and subsequently amended on June 10, 2025. Robert Ball, the Company’s Chief Executive Officer and Executive Chairman, is a co-founder and director of Genesis Software. Mr. Ball and Matthew Ahearn, the Company’s Chief Operating Officer and a director, are directors of Genesis Investment Holdings, LLC, which has an ownership interest in Genesis Software. In addition, cultivate(MD) Capital Accelerator Fund L.P. and Genesis Investment Holdings, LLC are investors in Genesis Software. The software licensing agreement has a 5-year term. The agreement required an upfront payment of $1,000, an incremental $500 payment when Food and Drug Administration clearance was obtained, and quarterly payments of royalties equal to 4% of the net sales price of each licensed product sold, until such time we have paid Genesis Software an aggregate of $7,000 under the software license agreement. For the three months ended March 31, 2026 and March 31, 2025, the Company paid Genesis Software $575 and $343, respectively, pursuant to the license agreement. Amounts owed under the agreement of $666 and $575 are included in accrued liabilities on the condensed balance sheets at March 31, 2026, and December 31, 2025, respectively.

For the three months ended March 31, 2026 and March 31, 2025, the Company paid $2,336 and $571, respectively, for software development to Genesis Software. Amounts payable of $754 and $863 are included in accounts payable on the condensed balance sheets at March 31, 2026 and December 31, 2025, respectively.

The Company has entered into a consulting agreement with Genesis Innovation Group, an entity under common ownership. The consulting agreement is currently on a year-to-year basis. The agreement requires compensation for services performed. If services performed are on an hourly basis, the Company shall be responsible to pay for hours actually worked by the consultant’s employees. The Company will reimburse the consultant for all reasonable expenses incurred in connection with performing services for the Company. For the three months ended March 31, 2026 and March 31, 2025, the Company paid Genesis Innovation Group $1,138 and $1,235, respectively. Amounts payable of $422 and $357 are included in accounts payable on the condensed balance sheets at March 31, 2026 and December 31, 2025, respectively.

5. Convertible Preferred Stock

On March 6, 2025, the Company entered into a Series E Preferred Stock Purchase Agreement pursuant to a Series E Preferred Stock financing, whereby it received a total commitment amount of $40,130 for the issuance and sale of 58,774,332 shares of Series E Preferred Stock pursuant totwo separate closing tranches, the first of which closed on March 6, 2025, whereby the Company issued 29,455,169 shares of Series E preferred stock resulting in total gross proceeds to the Company of $20,111.

In June 2025 the Company called the second tranche of its Series E Preferred Stock for the issuance of 29,319,143 shares of Series E Preferred Stock resulting in gross proceeds to the Company of $20,019. The Company recognized the change in value of the Series E purchase option in the other (income) expense, net caption in its condensed statements of operations and comprehensive loss.

On March 4, 2025, Genesis Investment Holdings, LLC exercised 988,999 series Seed warrants resulting in proceeds of $83.

For the three months ended March 31, 2025,125,000 Series B warrants were exercised, resulting in proceeds of $47.

Immediately prior to the closing of the Company’s IPO on August 1, 2025, all shares of the Company’s redeemable convertible preferred stock converted into shares of the Company’s common stock.

6. Stock-Based Compensation Expense

On January 30, 2026, the Company granted 1,327,222 common stock options to certain employees and officers of the Company with an exercise price of $14.16. The Company estimates it will recognize $10,489 in stock-based compensation expense over thefour year vesting period.

7. Loss Per Share

Basic net loss per share is computed by dividing the net loss after tax attributable to common stockholders by the weighted average shares outstanding during the period. Diluted net loss per share is computed by including potentially dilutive securities outstanding during the period in the calculation of weighted average shares outstanding. The Company did not have any dilutive securities during the periods presented; therefore, diluted net loss per share is equal to basic net loss per share.

Presented in the table below is a reconciliation of the numerator and denominator for the basic and diluted net loss per share calculations for the three months ended March 31, 2026 and 2025 (in thousands, except par value, share and per share amounts):

The following securities were not included in the computation of diluted shares outstanding because the effect would be anti-dilutive:

8. Segment Information

The Company reports segment information based on how the Company’s chief operating decision maker (“CODM”), who is the Chief Executive Officer, regularly reviews operating results, allocates resources and makes decisions regarding business operations. The Company’s business structure is comprised ofone operating and reportable segment. The CODM uses segment gross margin and net loss for determining the allocation of resources, including employees, financial, or capital resources, to the segment to achieve the Company's strategic plan and to assess the performance of the segment by monitoring actual results against performance targets established in the Company's annual budget and forecasting process.

All revenue for the three months ended March 31, 2026 and 2025 was generated from customers located in the United States. No customers represent 10% or more of the Company’s net revenue for the three months ended March 31, 2026 and 2025. The measure of segment assets is reported on the condensed balance sheets as total assets.

The table below is a summary of the segment net loss and total net loss, including significant segment expenses (in thousands):

Depreciation expense for the three months ended March 31, 2026 and 2025 totaled $1,057 and $593, respectively. Depreciation expense of $1,034 and $575 for instruments is in sales and marketing and $23 and $18 for computer equipment, furniture and fixtures, and leasehold improvements are included in general and administrative expenses in the condensed statements of operations and comprehensive loss for the three months ended March 31, 2026 and 2025, respectively.

Amortization expense related to the Company’s software license for the three months ended March 31, 2026 and 2025, totaled $75 and $75, respectively, and is included in general and administrative expenses in the condensed statements of operations and comprehensive loss.

9. Commitments and Contingencies

Litigation

From time to time, the Company may be a party to legal proceedings that arise in the ordinary course of business, some of which may be covered by insurance. The Company establishes an accrual for legal proceedings if and when those matters reach a stage where they present loss contingencies that are both probable and reasonably estimable. In such cases, there may be a possible exposure to loss in excess of any amounts accrued. The Company monitors those matters for developments that would affect the likelihood of a loss and the accrued amount, if any, thereof, and adjust the amount as appropriate. If the loss contingency at issue is not both probable and reasonably estimable, the Company does not establish an accrual, but it will continue to monitor the matter for developments that could make the loss contingency both probable and reasonably estimable. If there is at least a reasonable possibility that a material loss will occur, the Company will provide disclosure regarding the contingency. Except as disclosed below, management believes that the Company does not have any pending legal proceedings that, separately or in the aggregate, would have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

On February 28, 2024, the Company filed a complaint against Catalyst Orthoscience Inc. (“Catalyst”) in United States District Court for the District of Delaware claiming patent infringement through Catalyst’s making, using, selling, offering for sale in the United States, and/or importing into the United States, reverse shoulder systems. In response to the Company’s lawsuit, on March 20, 2024, Catalyst filed a counterclaim in United States District Court for the District of Delaware claiming patent infringement by certain of the Company’s products. The Company is seeking an injunction, monetary damages, interest, fees and other costs. The Company believes that it has substantial and meritorious defenses to Catalyst’s claims and intends to vigorously defend its position, including through the trial and appellate stages if necessary.

As the Company’s lawsuit and Catalyst’s counterclaim is ongoing, the Company is unable to determine the likelihood of an outcome or estimate a range of reasonably possible losses, if any. Accordingly, the Company has not made an accrual for any possible loss. The outcome of any litigation, however, is inherently uncertain, and an adverse judgment or settlement in the counterclaim proceeding, if any, could have a material and adverse effect on the Company’s business, financial position, results of operations or cash flows.

10. Subsequent Events

On April 13, 2026 the Company entered into a lease agreement (the “Lease Agreement”) with Ventura Office Park Lot #8, LLC (the “Landlord”), whereby the Landlord has agreed to construct the Company a new commercial building of approximately 15,200 square feet (the “Premises”). The Premises will contain both office and warehouse space, which the Company intends to use as its corporate headquarters. The Lease Agreement has an initial term of 10 years, withtwo extension options offive years each and certain expansion rights. The aggregate estimated rent payments due over the initial term of the Lease Agreement is approximately $4,400. The Company has paid the Landlord a security deposit of $33, and has agreed to pay the Landlord an additional $500 as a down payment for construction costs of the Premises.