Celularity : Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion contains "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. See "Special Note Regarding Forward-Looking Statements." Such forward-looking statements, which represent our intent, belief, or current expectations, involve risks and uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terms such as "may," "will," "expect," "anticipate," "estimate," "intend," "plan," "predict," "potential," "believe," "should" and similar expressions. Factors that could cause or contribute to differences in results include, but are not limited to, those set forth under Item 1.B. "Risk Factors" and elsewhere in this annual report on Form 10-K. Except as required by law, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes.

Overview

We are a cellular and regenerative medicine company focused on advancing health longevity and redefining the standard of care for age-related disease using novel therapies derived from the postpartum human placenta. The objective of extending health longevity is to meaningfully reduce the duration and severity in which an individual experiences aging-related degenerative diseases and disorders associated with increased mortality towards the end of life. Aging is known to be a major risk factor for many degenerative disorders and diseases across multiple high-value therapeutic areas, including immunology and regenerative medicine. Common to all degenerative disorders and diseases is the progressive loss of function or structure (or both) of affected tissues and organs driven by underlying cellular dysfunction. These processes directly impact regenerative capacity, healthspan and overall lifespan. Likewise, age-associated immunosenescence and other physiological changes contribute to increased vulnerability to infections. Infections further exacerbate aging-related decline and are increasingly associated with frailty and adverse clinical outcomes.

Aging and longevity are determined by a complex combination of genetic, nongenetic, and environmental factors. While aging is not itself a disease, it increases vulnerability to disease and is among the most important known risk factors for most chronic diseases. For example, aging is a primary driver of cancer and other chronic conditions. The accumulation of senescent cellsin aged tissues is suggested to be a key factor underlying age related cancer. Likewise, age is a key risk factor for autoimmune disease, and many autoimmune diseases preferentially occur in the second half of adulthood as immune function declines. These processes are increasingly linked to age-related immune dysregulation.

Aging is associated with a progressive degeneration of tissues, resulting in significant impairment on the structure and function of vital organs. Chronic, low-grade systemic inflammation often referred to as "inflammaging" is characterized by higher levels of circulating pro-inflammatory cytokines driven by cellular damage and senescent cell accumulation. Senescent cells contribute to disease progression by limiting the regenerative capacity of tissue stem cells and inducing the accumulation of cellular damage.

There is a close relationship between inflammation and cellular senescence, a process in which cells lose their ability to divide and function properly, and cellular senescence has been described as a link between cancer and age-related degenerative disease. These cells promote inflammation through well-characterized signaling pathways, including NF-κB activation. In younger organisms, cellular senescence prevents the proliferation of damaged cells. With aging, impaired clearance leads to accumulation of these cells, contributing to disease and tissue dysfunction. Stem cell exhaustion also contributes to aging by reducing the regenerative potential of tissues and limits tissue repair capacity. We believe these processes may be modulated by increasing the number and quality of stem cells in order to restore tissues' regenerative power. Aging is also associated with immunosenescence, or the immune dysfunction that occurs with age and contributes to increased susceptibility to infection and possibly autoimmune disease and cancer. We believe immune function may be improved by increasing the number and the quality of immune cells like natural killer or NK cells and naive T cells that improve immune rejuvenation and repair function in damaged tissues.

We believe the development of effective therapies against the degenerative processes (including aging-ameliorating preventive therapies) that underlie aging-related diseases and disease complications and susceptibilities will be central to the extension of health longevity. By harnessing the placenta's unique biology and ready availability, we may be able to develop therapeutic solutions that address a significant unmet global need for effective, accessible, and affordable therapeutics to promote health longevity. To this end, we are developing a pipeline of off-the-shelf placental-derived allogeneic cellular therapy product candidates such as, human placental-derived stems cells and MLASCs, including cenplacel-L. These therapeutic candidates have the potential to target indications across multiple age-related degenerative diseases and conditions, including immune and infectious disease and cancer.

Specifically, we are developing a differentiated portfolio of off-the-shelf, placental-derived allogeneic cellular therapies and advanced biomaterial products for the treatment of degenerative disorders and diseases including those associated with aging. Our cellular therapy candidates are designed to address core biological drivers of aging, including stem cell exhaustion and cellular senescence. One of our MLASCs candidates, cenplacel-L, has demonstrated encouraging clinical data in Phase 1 and Phase 2 studies, and we are selectively advancing programs with a focus on longevity applications.

We also develop and market commercial-stage, off-the-shelf placental-derived biomaterial products, including allografts and connective tissue matrices for use in soft tissue repair and reconstructive procedures addressing a broad range of degenerative and surgical indications. We are actively expanding our biomaterials pipeline and advancing multiple product candidates toward regulatory submission. Our currently marketed advanced biomaterial products include:

In addition to our cell therapy candidates, and commercial-stage biomaterial products, we actively pursue revenue-generating opportunities that leverage our core expertise in cellular therapeutic development and manufacturing by providing contract manufacturing and development services to third parties. These services are designed to accelerate translational and clinical development while addressing key industry challenges, including process variability, supply chain constraints and scalability limitations.. Likewise, our biomaterial contract manufacturing and development services enable scalable production across both early-stage and commercial volumes. Leveraging over three decades of experience in human tissue procurement and biobanking, we maintain a reliable supply of cryopreserved placental tissue procured from informed consent donors, enabling on-demand conversion into finished biomaterial products and addressing the structural inefficiencies inherent to most tissue supply chains.

Our Celularity IMPACT (IMmunomodulatory Placenta-derived Allogeneic Cellular Therapy) platform is designed to harness the unique biological advantages of placenta-derived cells to address multiple disease areas through a fully integrated, end-to-end platform, from biosourcing postpartum placentas from informed consent donors through manufacturing cryopreserved and packaged allogeneic cells in our purpose-built U.S.-based 147,215 square foot facility. We believe placental-derived cells offer distinct scientific and economic advantages. First, relative to adult-derived cells, placental-derived cells demonstrate greater stemness, meaning the ability to expand and persist. Second, placental-derived cells are immunologically naïve, meaning the cells have never been exposed to a specific antigen, which may translate into improved tolerability and reduced risk of graft-versus-host disease. Third, our placental-derived cells are allogeneic, meaning they are intended for use in any patient, as compared to autologous cells, which are derived from an individual patient for that patient's sole use. We believe this enables readily available, off-the-shelf therapies that can be delivered more efficiently, consistently and at scale.

Going Concern

The Company has evaluated whether there are certain 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 of this filing.

The Company has minimal cash on hand, does not generate sufficient cash from operations to operate the business for the next twelve months, and may not be able to continue as a going concern. The Company has historically funded operations through sales of products and services and equity and debt securities issuances to public and private investors. There is no assurance that such cash flows will continue in the future or that the Company will achieve cash positive operations.

As of the date the accompanying consolidated financial statements were issued, or the issuance date, management evaluated the significance of the following adverse conditions and events in considering its ability to continue as a going concern:

These uncertainties raise substantial doubt about the Company's ability to continue as a going concern. The accompanying consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates that the Company will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future.

Business Segments

We manage our operations through an evaluation of three distinct business segments: Cell Therapy, BioBanking and Degenerative Disease. The reportable segments were determined based on the distinct nature of the activities performed by each segment. Cell Therapy broadly refers to cellular therapies we are researching and developing. Therapies being researched are unproven and in various phases of development. All of the cell therapy programs fall into the Cell Therapy segment. Degenerative Disease produces, sells and licenses products used in surgical and wound care markets, such as Biovance, Biovance 3L, InterfylCentaFlex and Rebound. We sell products in this segment using independent sales representatives as well as distributors. We intend to develop additional tissue-based products for the Degenerative Disease segment. BioBanking collects stem cells from umbilical cords and placentas and provides storage of such cells on behalf of individuals for future use. We operate in the biobanking business primarily under the LifebankUSA brand. For more information about our reportable business segments refer to Note 21, "Segment Information" of our audited consolidated financial statements included elsewhere in this annual report on Form 10-K.

Corporate Information

Our principal executive offices are located at 170 Park Avenue, Florham Park, New Jersey 07932, and our telephone number is (908) 768-2170.

Components of Operating Results

Net revenues

Net revenues include: (i) sales of biomaterial products, including Biovance, Biovance 3L, Rebound^TM, Interfyl, and CentaFlex of which our direct sales are included in Product Sales while sales through our network of distribution partners are included in License, royalty and other; and (ii) the collection, processing and storage of umbilical cord and placental blood and tissue after full-term pregnancies, collectively, Services.

Cost of revenues

Cost of revenues consists of labor, material and overhead costs associated with our two existing commercial business segments, biobanking and degenerative disease. Biobanking costs include the cost of storage and transportation kits for newly banked materials as well as tank and facility overhead costs for cord blood and other units in storage. Degenerative disease costs include costs associated with procuring placentas, qualifying the placental material and processing the placental tissue into a marketable product. Costs in the degenerative disease segment include labor and overhead costs associated with the production of the Biovance, Biovance 3L, Interfyl and CentaFlex product lines. Cost of revenues associated with direct sales are part of Product Sales while cost of revenues associated with sales through our network of distribution partners are included in License, royalty and other.

Research and development expense

Our research and development expenses primarily relate to basic scientific research into placentally derived allogeneic cells, pre-clinical studies to support our current and future clinical programs in cellular medicine, clinical development of our NK cell programs and facilities, depreciation and other direct and allocated expenses incurred through research and development activities. We incur expenses for research scientist personnel, specialized chemicals and reagents used to conduct biologic research, expenses for third party testing and validation and various overhead expenses including rent and facility maintenance expenses. Basic research, research collaborations involving partners and research designed to enable successful regulatory submissions are critical to our current and future success in cell therapy. The amount of our research and development expenditures will depend on numerous factors, including the timing of clinical trials, preliminary evidence of efficacy in clinical trials and the number of indications that we choose to pursue.

Selling, general and administrative expense

Selling, general and administrative expense consists primarily of personnel costs including salaries, bonuses, stock compensation and benefits for specialized staff that support our core business operations. Executive management, finance, legal, human resources and information technology are key components of selling, general and administrative expense and those expenses are recognized when incurred. The magnitude and timing of our selling, general and administrative costs will depend on the progress of clinical trials, commercialization efforts for any approved therapies including the release of new products within the degenerative disease portfolio, changes in the regulatory environment or staffing needs to support our business strategy.

Change in fair value of contingent consideration liability

Because the acquisitions of Anthrogenesis from Celgene and HLI CT were accounted for as business combinations, we recognized acquisition-related contingent consideration on the balance sheets in accordance with the acquisition method of accounting. See Note 15, "Commitments and Contingencies" for more information. The fair value of contingent consideration liability is determined based on a probability-weighted income approach derived from revenue estimates and a probability assessment with respect to the likelihood of achieving regulatory and commercial milestone obligations and royalty obligations. The fair value of acquisition-related contingent consideration is remeasured each reporting period with changes in fair value recorded in the consolidated statement of operations and comprehensive loss. Changes in contingent consideration fair value estimates result in an increase or decrease in our contingent consideration obligation and a corresponding charge or reduction to operating results. Key elements of the contingent consideration are regulatory milestone payments, sales milestone payments and royalty payments. Regulatory payments are due on regulatory approval of certain cell types in the United States and the European Union. Regulatory milestone payments are one time but are due prior to any potential commercial success of a cell type in a specific indication. Royalty payments are a percentage of net sales. Sales milestone payments are due when certain aggregate sales thresholds have been met. Management must use substantial judgment in evaluating the value of the contingent consideration. Estimates used by management include but are not limited to: (i) the number and type of clinical programs that we are likely to pursue based on the quality of our preclinical data, (ii) the time required to conduct clinical trials, (iii) the odds of regulatory success in those trials, (iv) the potential number of patients treatable for the indications in which we are successful and (v) the pricing of treatments that achieve commercial status. All of these areas involve substantial judgment on the part of management and are inherently uncertain.

Results of Operations

Product sales were $13.2 million in 2025 compared to $35.3 million in 2024, a decrease of $22.2 million, or 62.7%, mainly driven by lower Biovance 3L and Rebound product sales and in part by changes in customer purchasing behavior due to an uncertain insurance reimbursement environment. Ongoing developments and delays in the rollout of coverage guidance from Medicare Administrative Contractors (MACs), the regional entities responsible for administering Medicare claims and issuing coverage determinations, particularly with respect to skin substitute grafts, created ambiguity around which products would ultimately qualify for reimbursement and under what criteria. As a result, providers and distributors appear to have adopted a more cautious approach to inventory and utilization, including deferring purchases or limiting order volumes until greater clarity on coverage parameters was established.

Revenues from BioBanking services were $5.4 million in 2025 compared to $5.1 million in 2024, an increase of $0.3 million, or 5.7%.

Revenues from license, royalty and other were $7.9 million in 2025 compared to $13.7 million in 2024, a decrease of $5.8 million or 42.2%. Certain license agreements ended during 2025 resulting in lower revenues.

Cost of revenues from product sales were $12.9 million in 2025 compared to $4.9 million in 2024, an increase of $8.0 million or 161.0%. The increase was driven by an inventory realizable value impairment of $4.3 million caused by decreases in product pricing and decreases in the expected price for returns of Rebound product to Sequence. Further, cost of revenues from product sales increased due to a $5.3 million write-off of capitalized bulk material costs that occurred during 2025.

Cost of Services revenues were $0.3 million lower in 2025 compared to 2024 due to lower BioBanking processing costs.

Cost of License, royalty and other revenues decreased $2.5 million in 2025 compared to 2024 primarily due to decreased costs incurred from servicing our licensing agreements.

Research and Development Expenses

Research and development expenses were $15.0 million in 2025, a decrease of $2.4 million, or 13.6%, compared to 2024. The decrease was primarily due to a $2.2 million decrease in lab supplies, a decrease of $1.5 million in salaries expense, a decrease in stock-based compensation of $0.5 million, offset primarily by an increase in facilities expense of $2.3 million.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $51.2 million compared to $58.6 million in 2024, a decrease of $7.4 million, or 12.6%. The decrease was primarily due to $8.6 million decrease in sales commissions on lower sales, a $2.7 million decrease in facilities expense and a $0.5 million decrease in insurance expense, offset primarily by a $2.7 million increase in professional fees.

Change in Fair Value of Contingent Consideration Liability

The acquisition-related contingent consideration liability was unchanged at $1.4 million as of December 31, 2025, compared to December 31, 2024, and there were no changes to market-based assumptions related to future consideration payable in connection with the HLI Cellular Therapeutics acquisition.

Other Income (Expense)

Total other expense was $30.4 million in 2025 compared to $19.5 million in 2024, an increase of $10.9 million, or 55.7%. The increase was primarily due to the $3.7 million increase in the change in fair value of warrant liabilities, a $2.3 million loss on issuance of convertible note with warrants, a $2.5 million increase in loss on debt extinguishment, an increase in interest expense of $0.5 million, an increase in the change in fair value of debt of $1.3 million and a $2.9 million impairment of preferred stock investment.

Liquidity and Capital Resources

As of December 31, 2025, we had cash and cash equivalents of $6.2 million, an accumulated deficit of $991.5 million, and a working capital deficit of $68.4 million. Our primary sources of cash are from financing activities and from products, services and licensing sales. We use this cash to fund our operations and satisfy our debt obligations.

As of the filing date, our current cash resources are not sufficient to fund our operations for a period of 12 months beyond the filing date and we are actively pursuing additional sources of capital and strategic sales partnerships to improve our liquidity and financial position, including transactions designed to monetize assets, reduce indebtedness and transition to a more capital-efficient operating model. While our ability to secure additional financing is subject to market conditions and other factors, these uncertainties raise substantial doubt about our ability to continue as a going concern.

We are evaluating and pursuing commercialization of certain investigational cellular therapies, including cenplacel-L, in jurisdictions that permit the use of such products outside of traditional regulatory approval pathways, subject to applicable local laws and regulations. If we obtain regulatory approval for any of our therapeutic candidates, we expect to incur significant commercialization expenses related to therapeutic sales, marketing, manufacturing and distribution as our current commercialization efforts are limited to our biobanking and degenerative disease businesses.

We expect to finance our cash needs through equity offerings, debt financings or other capital sources, and from commercial sales of our biomaterials products, and from sales collaborations, licenses and other similar arrangements for our cellular therapeutics. We continue to explore licensing and collaboration arrangements for our cellular therapeutics as well as distribution arrangements for our degenerative disease business. We may be unable to raise additional funds or enter such other arrangements when needed. Failure to raise needed cash could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies.

We expect to incur substantial expenses in the foreseeable future for our degenerative disease business and ongoing internal research and development programs. We may require substantial additional funding in the future to build the sales, marketing and distribution infrastructure that will be necessary to commercialize our biomaterials products.

Inflation has not significantly impacted on our business, however, sustained increases in inflation or interest rates could affect the broader economy and, in turn, impact our cash flows.

Cash Flows

Operating Activities

We used cash of $13.3 million for operating activities in 2025 compared to $6.4 million in 2024. This increase in cash used was driven by lower revenues and higher cost of revenues, offset in part by lower operating expenses and from lower inventories and accrued expense uses.

Investing Activities

We made no investing cash expenditures in 2025 compared to a net of $0.5 million produced by investing activities in 2024.

Financing Activities

In 2025 we produced cash of $18.6 million from financing activities compared to $6.7 million produced in 2024. During 2025 our financing activities included the receipt of $10.0 million in proceeds from the issuance of promissory notes with warrants and the receipt of $6.8 million in proceeds from a related party note and warrants. We also received proceeds of $5.0 million from the sale of warrants, common stock and preferred stock. Further, we received $2.5 million of proceeds from the issuance of common stock from warrant exercises pursuant to an inducement agreement. Additionally, we received proceeds from merchant cash advances of $3.3 million and made repayments on merchant cash advances of $2.6 million. Lastly, we made repayments of $5.9 million for related party notes.

In 2024, our financing activities included the receipt of a $15.0 million from the issuance of warrants and short-term debt with related parties and the receipt of $3.6 million in proceeds from short-term debt. A further $6.0 million in proceeds were received due to the issuance of preferred stock with warrants in a PIPE offering. During 2024 we made repayments of approximately $17.4 million on short-term debt.

Recent Developments

During the year ended December 31, 2025, the Company undertook a series of financing and strategic transactions to support its liquidity and operations and to restructure certain of its outstanding indebtedness.

In the first half of 2025, the Company entered into various arrangements with existing lenders, including forbearance extensions and amendments, and completed multiple equity and debt financing transactions to provide working capital and fund operations.

Throughout 2025 the Company generated financing for working capital by entering into merchant cash advances. In 2025, the Company received cash proceeds of $3.3 million from merchant cash advances, as well as made cash repayments of $2.6 million due to merchant cash advances.

In July 2025, the Company issued a promissory note with an aggregate principal amount of approximately $6.8 million. A portion of the proceeds was used to repay existing indebtedness, including amounts owed under a prior loan agreement, resulting in the settlement of outstanding obligations and the recognition of a gain related to the forgiveness of certain accrued interest.

In August 2025, the Company entered into an asset purchase agreement pursuant to which it transferred certain intellectual property in exchange for the assignment and extinguishment of outstanding indebtedness with an aggregate principal balance of approximately $33.8 million, plus accrued interest. In connection with this transaction, the Company also entered into a related license agreement providing for continued access to the transferred intellectual property.

In October 2025, the Company entered into a securities purchase agreement providing for the issuance of Series A Convertible Preferred Stock and related warrants in multiple tranches, the initial closing of which occurred during the period. The Company also agreed to certain registration rights and granted a security interest in certain assets in connection with this transaction. On April 16, 2026, the holder ("Helena") of the Series A Convertible Preferred Stock delivered an exchange notice to the Company pursuant to that certain securities purchase agreement, pursuant to which Helena elected to exchange 1,732,084 shares of Series A Convertible Preferred Stock for a Convertible Promissory Note in the original principal amount of approximately $2.0 million (the "Helena Note"). The Helena Note bears interest at a rate of 18.0% per annum and matures on October 16, 2026, unless earlier converted, prepaid or accelerated in accordance with its terms.

On April 17, 2026, Helena delivered to the Company a notice of event of default (the "Helena Default Notice") under the Helena Note. In the Helena Default Notice, Helena asserted that one or more events of default had occurred under the Helena Note, including among other things, the Company's failure to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended, including becoming delinquent in its filings. The Company believes the asserted default arose from the Company's failure to timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Under the Helena Note, if an event of default is not cured within the applicable cure period, which is five business days for this type of asserted default, Helena may declare due and payable the "Mandatory Default Amount," which is equal to 115% of the outstanding principal amount, accrued interest and all other amounts owing under the Helena Note. In addition, following an event of default, any outstanding principal balance accrues interest at a rate of 15% per annum, compounded annually.

In December 2025 the Company entered into agreements with an investor providing financing through senior secured and convertible notes. The Company issued a Senior Secured Non-Convertible Promissory Note of $7.0 million (the "Senior Note") and a warrant to purchase up to 2,448,917 shares of the Company's Class A common stock (the "Senior Note Warrant"). The Company also issued a Secured Convertible Promissory Note of $3.0 million and a warrant to purchase up to 1,258,740 shares of the Company's Class A common stock (the "Convertible Note Warrant"). The Senior Note Warrant and the Convertible Note Warrant are both exercisable commencing on June 19, 2026 through December 19, 2030 at a price of $2.00 per share. The Company may sell up to an aggregate of $8.4 million of Senior Notes before June 19, 2026.

In February 2026 the Company sold the rights to State of New Jersey income tax net operating loss carryforwards to a 3rd party under a State of New Jersey program and received net proceeds of $12.2 million.

On March 6, 2026, the Company entered into an Asset Purchase and Exclusive License Agreement (the "NexGel Agreement") with NexGel, Inc. ("NexGel"), pursuant to which the Company granted NexGel an exclusive, transferable and sublicensable license to develop and commercialize certain products within the Company's degenerative disease business. The licensed products include certain biomaterial products and pipeline programs that are part of the Company's advanced biomaterials platform and are subject to underlying rights licensed from Celeniv Pte. Ltd. Under the agreement, the Company is entitled to receive aggregate consideration of $35 million, consisting of an initial payment of $15 million due by April 15, 2026, additional milestone payments of up to $20 million upon the achievement of specified milestones and royalties on certain development stage products.

On April 17, 2026, the Company entered into an amendment (the "NexGel Amendment") to the NexGel Agreement. Among other things, the NexGel Amendment provides that: (i) the aggregate consideration payable to the Company under the NexGel Agreement is $13.3 million, consisting of an upfront cash payment of $8.3 million on the transaction commencement date, net of payments to settle outstanding sales representative obligations, and a convertible promissory note in the original principal amount of $5.0 million with an 18-month term; (ii) effective as of the transaction commencement date, NexGel will assume, satisfy, perform and discharge all sales representative obligations and such obligations will constitute assumed liabilities of NexGel from and after such date; (iii) the first milestone payment of $2.5 million will be payable upon the earlier of the achievement of $25.0 million in net sales or the date that is 15 months following the transaction commencement date, provided that net sales of at least $15.0 million have been achieved as of such date. The Company received net proceeds of $4.8 million from NexGel on the closing date, April 17, 2026.

In April 2026, the Company implemented certain organizational changes in connection with its ongoing strategic realignment and previously announced divestiture of its biomaterials business to NexGel, Inc. On April 9, 2026, the Company terminated the employment of John R. Haines, its Senior Vice President, Global Manager and Chief Administrative Officer, without cause. Mr. Haines' final day of employment is expected to be May 8, 2026. On April 13, 2026, Stephen A. Brigido, the Company's President, Degenerative Diseases, resigned from his position, with an effective date of separation of April 15, 2026.. These leadership changes reflect the Company's continued focus on aligning its organizational structure and resources with its core cell therapy platform and strategic priorities.

On April 14, 2026, the Company entered into a Settlement Agreement and Mutual General Release (the "Settlement Agreement") with Sequence LifeScience, Inc. ("SLS") to resolve certain disputes arising under the parties' prior asset purchase and supply agreements. Pursuant to the Settlement Agreement, and subject to the closing of the Company's previously announced transaction with NexGel, Inc. (the "NexGel Transaction"), the Company agreed to provide consideration to SLS, including (i) the grant of a sublicense to certain intellectual property and related assets, (ii) the return of certain product inventory, (iii) the assignment of a portion of future milestone payments payable to the Company in connection with the NexGel Transaction, (iv) the assignment of a portion of the convertible promissory note to be received from NexGel, and (v) certain manufacturing rights. The Settlement Agreement is expressly contingent upon the closing of the NexGel Transaction on or before April 17, 2026. The NexGel Transaction closed on April 17, 2026. The Company expects that, upon effectiveness, the Settlement Agreement will resolve all outstanding disputes between the parties related to these prior agreements.

On April 16, 2026, the Company received a notice from Nasdaq Stock Market LLC indicating that it is not in compliance with the timely filing requirement under Nasdaq Listing Rule 5250(c)(1) due to its failure to timely file its Form 10-K for the period ended December 31, 2025. The Company intends to regain compliance; however, there can be no assurance that it will be able to do so within any applicable period or that its securities will continue to be listed on Nasdaq.

Critical Accounting Policies

Our significant accounting policies are summarized in Note 2, "Summary of Significant Accounting Policies," included in our consolidated financial statements included elsewhere in this annual report on Form 10-K.

The preparation of the Company's consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the determination of incremental borrowing rates, the valuations of inventory, and fair value of contingent consideration, short-term debt, stock options and stock warrants. The Company based its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Revenue Recognition

We recognize revenue when control of the products and services is transferred to our customers in an amount that reflects the consideration we expect to receive from our customers in exchange for those products and services. This process involves identifying the contract with a customer, determining the performance obligations in the contract, determining the contract price, allocating the contract price to the distinct performance obligations in the contract, and recognizing revenue when the performance obligations have been satisfied.

A performance obligation is considered distinct from other obligations in a contract when it provides a benefit to the customer either on its own or together with other resources that are readily available to the customer and is separately identified in the contract. We consider a performance obligation satisfied once it has transferred control of a good or service to the customer, meaning the customer has the ability to use and obtain the benefit of the good or service. Transaction prices of products or services are typically based on contracted rates with customers and to the extent that the transaction price includes variable consideration, we estimate the amount of variable consideration that should be included in the transaction price utilizing the expected value method or the most likely amount, depending on the circumstances, to which we expect to be entitled.

Products within our Degenerative Disease segment generally do not contain multiple elements. We allow for the right of return for those products but to date returns have been minimal.

Valuation of Inventory

We periodically analyze the inventory levels to determine whether there is any obsolete, expired, or excess inventory. If any inventory is (i) expected to expire prior to being sold, (ii) has a cost basis in excess of its net realizable value, (iii) is in excess of expected sales requirements as determined by internal sales forecasts, or (iv) fails to meet commercial sale specifications, the inventory is written-down through a charge to cost of revenues. The determination of whether inventory costs will be realizable requires estimates by management of future expected inventory requirements, based on sales forecasts. If actual market conditions are less favorable than those projected by management, inventory write-downs may be required. Inventory, net of current portion on our consolidated balance sheets includes inventory expected to remain on hand beyond one year.

Contingent Consideration

A liability for acquisition-related contingent consideration was recorded at its estimated fair value, which consists of potential milestone and royalty obligations. We remeasure the fair value each reporting period, with changes recorded in the consolidated statement of operations and comprehensive loss. The determination of fair value requires the exercise of significant judgment and estimates by management. These include estimates and assumptions regarding the achievement and timing of milestones, forecasted revenues and assumptions utilized in calculating a discount rate. If management's assumptions prove to be inaccurate, it could result in changes to the contingent consideration liability and have a material effect on our results of operations.

Warrant Liability

Accounting for liability classified warrants requires management to exercise judgment and make estimates and assumptions regarding their fair value (for more information about the material inputs and assumptions used to value the liability classified warrants refer to Note 4, "Fair Value of Financial Assets and Liabilities" of our audited consolidated financial statements included elsewhere in this annual report on Form 10-K). The warrant liabilities are initially recorded at fair value upon the date of issuance and subsequently remeasured to fair value at each reporting date, with changes recognized in the consolidated statement of operations and comprehensive loss. Changes in the fair value of the liability classified warrants will continue to be recognized until the warrants are exercised, expire or qualify for equity classification.

Stock-Based Compensation

We recognize compensation expense related to stock options granted to employees and nonemployees based on the estimated grant date fair value and recognize forfeitures as they occur. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model for service-based and performance-based awards. For awards with market conditions, we utilize a Monte-Carlo model to estimate the fair value of those awards. The grant date fair value of the stock-based awards is recognized on a straight-line basis over the requisite service period, which is typically the vesting period of the respective awards. The Black-Scholes option-pricing model and Monte-Carlo model requires the use of highly subjective assumptions to determine the fair value of stock-based awards. See Note 17, "Stock-Based Compensation" to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K for information concerning certain of the specific assumptions used in applying the Black-Scholes option-pricing model to determine the estimated fair value of stock options granted during the years ended December 31, 2025 and 2024. Such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

Leases

We cannot readily determine the interest rate implicit in our lease, therefore, we use our incremental borrowing rate, or IBR, to measure lease liabilities. The IBR is the rate of interest that we would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use, or ROU, asset in a similar economic environment. The IBR therefore reflects what we "would have to pay", which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease. We estimate the IBR using observable inputs (such as market interest rates) when available and are required to make certain entity and asset-specific estimates. The IBR used in the calculation of the present value of lease payments in calculating lease liabilities and the corresponding ROU requires the use of significant judgment by management.

Short-Term Debt - Unaffiliated

We use the fair value option to account for the Yorkville PPA. As of December 31, 2023, the Yorkville PPA fair value approximated the January 17, 2024 settlement amount. We also elected the fair value option to account for the Yorkville convertible promissory note, issued on March 13, 2024, and the unsecured senior convertible notes, issued pursuant to the securities purchase agreement signed on November 25, 2024. On December 19, 2025, the Company entered into a series of definitive agreements with an investor whereby the Company issued the investor warrants, a senior secured non-convertible promissory note (the "December 2025 Promissory Note") and a secured convertible note financing (the "December 2025 Convertible Note"). The Company has elected the fair value option to account for the December 2025 Promissory Note and the December 2025 Convertible Note.

The fair value measurement of the debt was determined using Level 3 inputs and assumptions unobservable in the market. Changes in the fair value of debt that is accounted for at fair value, inclusive of related accrued interest expense, are presented as gains or losses in the accompanying consolidated statement of operations and comprehensive loss under change in fair value of debt. The portion of total changes in fair value of debt attributable to changes in instrument-specific credit risk are determined through specific measurement of periodic changes in the discount rate assumption exclusive of base market changes and are presented as a component of comprehensive loss in the accompanying consolidated statement of operations and comprehensive loss. The actual settlement of the short-term debt could differ from estimates based on the timing of when and if the investors elect to convert amounts into common shares, potential cash repayment by us prior to maturity, and movements in our common share price.

Recent Accounting Pronouncements

See Note 2, "Summary of Significant Accounting Policies" to our consolidated financial statements included elsewhere in this annual report on Form 10-K for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition of results of operations.