Item 1A. RISK FACTORS

Our

business faces significant risks. You should carefully consider all of the information set forth in this Annual Report, including the following risk factors. Our business, results of operations, and financial condition could be materially and

adversely affected by any of these risks, and in such event, the trading price of our common stock would likely decline and you might lose all or part of your investment. This Annual Report also contains forward-looking statements that involve risks

and uncertainties and our results could materially differ from those anticipated in these forward-looking statements. See “Forward-Looking Statements” included elsewhere within this Annual Report for a discussion of certain risks,

uncertainties and assumptions associated with these statements.

Risks Related to Our Business

We have experienced significant losses, expect losses to continue for the foreseeable future and may never achieve or maintain profitability.

Although we have begun full scale marketing and sales of our RECELL® System in the United

States and other jurisdictions, such sales have been limited to date and we have not yet obtained profitability. We had a total comprehensive loss of $42 million, $25 million, and $12.7 million for our fiscal years ended June 30,

2020, 2019 and 2018, respectively. We have incurred a cumulative deficit of $194.9 million through June 30, 2020. We anticipate that we may continue to incur losses at least until margins from U.S. sales of the RECELL System are adequate

to fund operating expenses. We may not be able to successfully achieve or sustain profitability. Successful transition to profitable operations is dependent upon achieving a level of revenues adequate to support our cost structure, including in new

markets for which we are not presently approved.

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Our operations are overseen directly by management. Our management oversees all responsibilities in the

areas of corporate administration, business development, and research. We have successfully expanded our current management to retain skilled employees with experience to our business and intend to continue with this initiative.

We may be unsuccessful in obtaining additional approvals for our RECELL System for the treatment of pediatric burns, trauma wounds and skin conditions

such as vitiligo.

Although our PMA application for the RECELL System was approved by the FDA for use in the treatment of acute thermal burn wounds

in patients 18 years and older in September 2018, it has not been approved for additional indications such as pediatric burns or trauma wounds, or for the treatment of vitiligo. We plan to expand into each of these indications and will need to apply

for a supplement to our PMA approval with the FDA in connection with each proposed additional indication. While clinical trials for such uses are presently underway or planned, there can be no assurance that we will be successful in those clinical

trials or ever receive approval by the FDA for the use of our RECELL System for such additional applications. Such a failure of approval would have a material negative effect on our future prospects.

We are dependent on our contract with the U.S. Biomedical Advanced Research and Development Authority (“BARDA”), and if we do not continue to

receive funding under this contract, we may need to obtain alternative sources of funding.

We have a contract with BARDA valued currently at

$53.4 million related to funding for the development of the RECELL System and future use of the product to assist disaster preparedness and response in the United States for mass casualties involving burn victims. As of June 30, 2020, we

had received cumulative payments of $24.4 million under the BARDA contract. Under the contract BARDA has agreed to fund and provide technical support for the development of the RECELL System including two randomized, controlled pivotal clinical

trials, Compassionate Use and Continued Access programs, development of the health economic model demonstrating the cost savings associated with the RECELL System, and a randomized, controlled clinical trial in pediatric scald patients. Also

included in the BARDA contract is a provision for the future procurement of the RECELL System by BARDA under a vendor-managed inventory system to bolster disaster preparedness which BARDA initiated procurement for in July 2020. There can be no

assurances that BARDA will take shipment of the RECELL System under the contract nor that BARDA will perform under the contract and changes in government agenda and annual budgets may result in changing priorities and funding mandates at BARDA. Any

reduction or delay in BARDA funding may force us to seek alternative funding, which may not be available on non-dilutive terms, terms favorable to us or at all, or cease our development programs related to the

BARDA contract.

Provisions in our U.S. government contracts, including our contracts with BARDA, may affect our intellectual property rights.

Certain of our activities have been funded, and may in the future be funded, by the U.S. government, including through our contracts with BARDA.

When new technologies are developed with U.S. government funding, the government obtains certain rights in any resulting patents, including the right to a nonexclusive license authorizing the government to use the invention and rights that may

permit the government to disclose our confidential information to third parties and to exercise “march-in” rights. The government can exercise its march-in

rights if it determines that action is necessary because we fail to achieve practical application of the U.S. government-funded technology, because action is necessary to alleviate health or safety needs, to meet requirements of federal regulations,

or to give preference to U.S. industry. In addition, U.S. government-funded inventions must be reported to the government, U.S. government funding must be disclosed in any resulting patent applications, and our rights in such inventions may be

subject to certain requirements to manufacture products in the United States.

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Development and commercialization of any products requires successful completion of the regulatory

approval process and may suffer delays or fail.

In the United States, as well as other jurisdictions, we have been and will be required to apply

for and receive regulatory authorization before we can market our products. Although our RECELL System has been approved for use in the treatment of acute thermal burn wounds in patients 18 years and older in the United States, we will have to apply

for a supplement to our PMA approval to market the product for use in the treatment of pediatric burns, trauma injuries and vitiligo. In Australia, the RECELL System is approved to use for the treatment of burns, acute wounds, scars and

repigmentation (vitiligo). In the EU the product has been approved for the treatment of burns, chronic wounds, scars and vitiligo. We will require additional clinical data or approvals from regulatory authorities within these countries to market the

product for the treatment of other indications, and from any other jurisdictions in which we seek to market the product. This process can be time consuming and complicated and may be unsuccessful or otherwise result in unanticipated delays or fail

altogether. To secure marketing authorization, an applicant generally is required to submit an application that includes the data supporting preclinical and clinical safety and effectiveness as well as detailed information on the manufacturing and

control of the product, proposed labeling and other additional information. Before marketing authorization is granted, regulatory authorities may require the inspection of the manufacturing facility or facilities and quality systems (including those

of third parties) at which the product candidate is manufactured and tested, as well as potential audits of the non-clinical and clinical trial sites that generated the data cited in the marketing

authorization application.

We cannot predict whether any additional marketing authorizations will ultimately be granted or how long the applicable

regulatory authority or agency will take to do so. Regulatory agencies, including the FDA, have substantial discretion in the approval process. In addition, the approval process and the requirements governing clinical trials vary from country to

country. The policies of the FDA or other regulatory authorities may change, and additional government regulations may be enacted that could prevent, limit or delay the necessary approval of any products we may develop and commercialize. We cannot

predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or elsewhere. If we are slow or unable to adapt to new or changed requirements, or if we

are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, and we may not achieve or sustain profitability.

Additionally, any future regulatory approvals that we receive may also contain requirements for costly post-marketing testing and surveillance to monitor the

safety and effectiveness of the product. Once a product is approved, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for the product will be

subject to extensive and ongoing regulatory requirements. These requirements include submission of safety and other post-marketing reports, registration and continued compliance with good manufacturing practices for any clinical trials that we

conduct post-approval.

Finally, per FDA regulations, changes made to products, specifications, or test data evaluation methodology would generally

require communication with the FDA. There are several pathways for communicating with the FDA of such changes. As part of such review, the FDA may request additional information, at which time the product may become temporarily unavailable.

Obtaining and maintaining regulatory approval for a product candidate in one jurisdiction does not mean that we will be successful in obtaining

regulatory approval for that product candidate in other jurisdictions.

Obtaining and maintaining regulatory approval for a product in one

jurisdiction does not guarantee that we will be able to obtain or maintain similar approval in other jurisdictions, while a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory approval

process in others. For example, even if the FDA grants marketing approval for use of our RECELL System for the treatment of pediatric burns, trauma injuries and/or vitiligo, comparable regulatory authorities in foreign jurisdictions must also

approve the manufacturing, marketing and promotion of the product candidate in those countries if not currently approved. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and

greater than, those in the United States, including additional preclinical studies or clinical trials as clinical trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions

outside the United States, a medical device must be approved for reimbursement before it can be approved for sale in that jurisdiction. In some cases, the price that we intend to charge for our products is also subject to approval.

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We are highly dependent on our regulatory approval (“PMA”) in the United States and failure

to maintain that approval would materially impact our business and prospects.

Our business is highly dependent on the PMA we received in September

2018 from the FDA. This PMA allows us to sell our RECELL System in the United States, our current primary market. In addition, maintaining this PMA also increases the probability of approval of secondary indications for the PMA outside of

trauma burns. While we intend to take every action and precaution to ensure that our PMA remains effective, it is possible that the FDA could take a position in the future that requires a modification, temporary suspension or revocation of our

PMA. Any such action by the FDA would have a material adverse effect on our business.

We may encounter substantial delays in any further

clinical studies necessary to support any regulatory applications for additional commercial applications of our technology.

We cannot guarantee

that any preclinical testing or clinical trials will be conducted as planned or completed on schedule, if at all. As a result, we may not achieve the expected clinical milestones necessary for approval by the FDA, or other regulators, for the use of

our RECELL System for additional applications in the United States or other countries.

A failure in a clinical study or regulatory application can occur

at any stage. Events that may prevent successful or timely commencement, enrollment or completion of clinical development or a regulatory application include:

• delays in reaching a consensus with regulatory agencies on trial design;

• changes in trial design;

• inability to identify, recruit and train suitable clinical investigators;

• inability to add new clinical trial sites;

• failure by any relevant parties to adhere to clinical trial requirements;

• delays caused by clinical trial sites not completing a trial;

• failure to demonstrate adequate effectiveness;

Delays, including delays caused by the above factors, can be costly and could negatively affect our ability to complete clinical trials

for our product candidates. If we are not able to successfully complete clinical trials or are not able to do so in a timely and cost-effective manner, we will not be able to obtain regulatory approval for the use of our RECELL System for additional

applications, all of which could have a material adverse effect on our business, financial condition and results of operations.

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We may be unsuccessful in commercializing our RECELL System, or other future products, due to

unfavorable pricing regulations or third-party coverage and reimbursement policies.

We cannot guarantee that we will receive favorable pricing and

reimbursement for use of our products. The rules and regulations that govern pricing and reimbursement for medical products vary widely from country to country or from indication to indication, and within the United States, can also vary widely from

one health system or hospital to the next. In some foreign jurisdictions, including the EU, the government largely controls pricing of medical products. In other countries, coverage negotiations must occur at the regional or hospital level. Pricing

negotiations can take considerable time after the receipt of marketing approval for a medical product.

As a result, even after obtaining regulatory

approval for a product in a particular country, we may be subject to price regulations or limited reimbursement, which may delay or limit our commercial launch of the product and negatively impact the revenue we are able to generate from the sale of

the product in that country. Adverse pricing limitations may hinder our ability to recoup our total investment in our RECELL System or other future products, even after obtaining regulatory approval.

If we are unable to promptly obtain coverage and profitable payment rates from hospital budget, government-funded and private purchasers for the RECELL System

or any future products, this could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

For example, we presently benefit from various reimbursement codes, including the following:

There can be no guarantee that the above reimbursement codes will not be withdrawn, reduced, consolidated

or otherwise be altered in a manner which is not supportive of ongoing commercial use of the RECELL System. In addition, we are also seeking a Transitional Pass-through Application (“TPT”) to support additional Medicare payment in

the outpatient and the ambulatory surgical setting, and there can be no guarantee that the TPT will be approved or we will be available in an amount or manner that supports our commercialization efforts.

We have limited financial resources and will likely require additional financings to continue the development and commercialization of our RECELL System

or any future products, which may cause dilution to our existing stockholders or place restrictions on our operations. If additional financing is not available, we may have to postpone, reduce or cease operations.

If we are unable to achieve profitability sufficient to permit us to fund our operations and other planned actions, we may be required to raise additional

capital. There can be no assurance that such capital would be available on favorable terms, or at all. If we raise additional capital through the issuance of equity or convertible debt securities, the percentage ownership held by existing

stockholders may be reduced, and the market price of our common stock or CDIs could fall due to an increased number of shares or CDIs available for sale in the market. Debt financing, if available, may involve restrictive covenants, which may limit

our operating flexibility with respect to certain business matters. If we are unable to secure additional capital as circumstances require, we may not be able to fund our planned activities or continue our operations.

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We have limited experience in manufacturing our products in large-scale commercial quantities and we

may face manufacturing risks that may adversely affect our ability to manufacture products and could reduce our gross margins and negatively affect our business and operating results.

Our success depends, in part, on our ability to manufacture our current and future products in sufficient quantities and on a timely basis to meet demand,

while adhering to product quality standards, complying with regulatory quality system requirements and managing manufacturing costs. We have a manufacturing facility located in Ventura, California where we produce, package and warehouse the RECELL

System. We also rely on global third-party manufacturers, Baxter International Inc., Hospira (a division of Pfizer), Thermo Fisher Scientific, Lyophilization Services of New England and Becton Dickinson and Company, for production of some of the

components used in the RECELL System. If our facility, or the facilities of our third-party contract manufacturers, suffer damage, or a force majeure event, this could materially impact our ability to operate.

We are also subject to other risks relating to our manufacturing capabilities, including:

• inability to increase production capacity or volumes to meet demand; and

These risks could be exacerbated by our limited

experience as an entity with large-scale commercial manufacturing. As demand for our products increases, we will have to invest additional resources to purchase raw materials and components, sub-assemblies and

materials, hire and train employees and enhance our manufacturing processes. If we fail to increase our production capacity efficiently to meet demand for our products, we may not be able to fill customer orders on a timely basis, our sales may not

increase in line with our expectations and our operating margins could fluctuate or decline. It may not be possible for us to manufacture our products at a cost or in quantities sufficient to make these products commercially viable or to maintain

current operating margins, all of which could have a material adverse effect on our business, financial condition and results of operations. In addition, we are is continually identifying additional third-party manufacturers who could serve if

necessary, as replacement manufacturers should the need arise.

We rely on third parties to conduct, supervise and monitor our clinical trials. If

these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our drug product candidates and our business could be substantially harmed.

We rely on clinical research organizations, or CROs, and clinical trial sites to ensure our clinical trials are conducted properly and on time.

While we will have agreements governing their activities, we will have limited influence over their actual performance. CROs manage and monitor the clinical trials, duties and functions, and we will control only certain aspects of our CROs’

activities. Nevertheless, we will be responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on the CROs does not relieve us of

our regulatory responsibilities.

We and our CROs are required to comply with the FDA’s GCPs for conducting, recording and reporting the results of

clinical trials to assure that the data and reported results are credible and accurate and that the rights, integrity and confidentiality of clinical trial participants are protected. The FDA, and comparable foreign regulatory authorities, enforce

these GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with applicable GCPs, the clinical data generated in our future clinical trials may be deemed unreliable

and the FDA or other foreign regulatory authorities may require us to perform additional clinical trials before approving any marketing applications.

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If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected

deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements, or for any other reasons, our clinical trials may be extended, delayed or

terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize, our product candidates. If any such event were to occur, our financial results and the commercial prospects for our product candidates would be

harmed, our costs could increase, and our ability to generate revenues could be delayed. If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on

commercially reasonable terms. Further, switching or adding additional CROs involves additional costs and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur,

which could materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that

these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

Product recalls or inventory

losses caused by unforeseen events may adversely affect our operating results and financial condition.

Our products are manufactured, stored and

distributed using technically complex processes requiring specialized facilities, highly specific raw materials and other production constraints. The complexity of these processes, as well as strict company and government standards for the

manufacture, storage and distribution of our product candidates, subjects us to risks. In addition, process deviations or unanticipated effects of approved process changes may result in production runs of our RECELL System not complying with

stability requirements or specifications. The occurrence or suspected occurrence of production and distribution difficulties can lead to lost inventories and in some cases product recalls, with consequential reputational damage and the risk of

product liability. The investigation and remediation of any identified problems can cause production delays, substantial expense, lost sales and delays of new product launches. In the event our production efforts require a recall or result in an

inventory loss, our operating results and financial condition may be adversely affected.

If we fail to manage our growth effectively, our business

could be disrupted.

Our future financial performance and ability to successfully commercialize our products, which is not guaranteed, and to

compete in the market will depend, in part, on our ability to manage any future growth effectively. We expect to make significant investments to facilitate our future growth through, among other things:

• new product development;

• clinical trials for additional indications; and

• funding of our marketing and sales infrastructure.

Any failure to manage future growth effectively could have a material adverse effect on our business and results of operations.

Our growth and success depend on our ability to attract and retain additional highly qualified and skilled sales and marketing, research and

development, operational, managerial and finance personnel.

Competition for skilled personnel is intense and the unexpected loss of an employee

with a particular skill could have a material adverse effect on our operations until a replacement can be found and trained. If we cannot attract and retain skilled scientific and operational personnel for our research and development and

manufacturing operations on acceptable terms, we may not be able to develop and commercialize our products. Further, any failure to effectively integrate new personnel could prevent us from successfully growing our company.

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Risks Relating to our Industry and Intellectual Property

We face competition from the existing standard of care and any future potential changes in medical practice and technology and the possibility that our

competitors may develop products, treatments or procedures that are similar, more advanced, safer or more effective than ours.

The medical device,

biotechnology and pharmaceutical industries, specifically relating to the areas where we currently or intend to market our RECELL System, are intensely competitive and subject to significant changes due to technology and medical practice standards.

We may face competition from any number of different sources with respect to any products we develop and commercialize.

Our commercial opportunity could

be reduced or eliminated if our competitors develop and commercialize products, treatments or procedures that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than our RECELL System or any

future products we develop. Many of our current or future competitors may have significantly greater financial resources and experience and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials,

obtaining regulatory approvals and marketing approved products than we may have. Mergers and acquisitions in the pharmaceutical, medical device, and biotechnology industries or wound care markets may result in increased concentration of resources

among a smaller number of our competitors. Other early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These companies compete with us in recruiting

and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

We could be subject to product liability lawsuits, which could result in costly and time-consuming litigation and significant liabilities.

The development of medical device products, such as our RECELL System, involves an inherent risk of product liability claims and associated financial liability

and adverse publicity. Any products we may develop could be found to be harmful or to contain harmful substances and expose us to substantial liability and risk of litigation or may force us to discontinue production. We may be unable to obtain or

maintain insurance on reasonable terms or otherwise protect ourselves against potential product liability claims that could impede or prevent further business development of any products we may create and commercialize. Furthermore, a product

liability claim could damage our reputation, whether or not such claims are covered by insurance or have merit. A product liability claim against us or the withdrawal of a product from the market could have a material adverse effect on our business

or financial condition. Furthermore, product liability lawsuits, regardless of their success, would likely be time consuming and expensive to resolve and would divert management’s time and attention, which could seriously harm our business.

If we are unable to effectively protect our intellectual property, we may not be able to operate our business and third parties may be able to use

and profit from our technology, both of which would impair our ability to be competitive

Our success will be heavily dependent on our ability to

obtain and maintain meaningful patent protection for our technologies and products throughout the world. Patent law relating to the scope of claims in the technology fields in which we will operate is still evolving. The amount of ongoing protection

for our proprietary rights therefore is uncertain. We will rely on patents to protect a significant part of our intellectual property and to enhance our competitive position. However, our presently pending or future patent applications may be

denied, and any patent previously issued to us or our subsidiaries may be challenged, invalidated, held unenforceable or circumvented. Furthermore, the patent protections we have been granted may not be broad enough to prevent competitors from

producing products similar to ours. In addition, the laws of various foreign countries in which we may compete, such as China, may not protect our intellectual property to the same extent as do the laws of the United States. If we fail to obtain

adequate patent protection for our proprietary technology, our ability to be commercially competitive will be materially impaired.

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In the ordinary course of business and as appropriate, we intend to apply for additional patents covering

both our technologies and products, as we deem appropriate. Our existing patents and any future patents we obtain may not be sufficiently broad to prevent others from practicing our technologies or developing competing products and technologies. In

addition, because patent law is evolving in the life science industry, the patent positions of companies like ours are uncertain. As a result, the validity and enforceability of our patents cannot be predicted with certainty.

We may find it difficult to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on all of our technologies and products in every jurisdiction is expensive. Competitors could reverse engineer our

technologies in jurisdictions where we have not obtained patent protection to develop their own products. These products may compete with our products and may not be covered by any patent claims or other intellectual property rights.

The laws of some countries do not protect intellectual property rights to the same extent as the laws of the United States and many companies have encountered

significant problems in protecting and defending such rights in foreign jurisdictions. This lack of protection, particularly in relation to biotechnology, could make it difficult for us to stop the infringement of our patents. Proceedings to enforce

our patent rights in foreign jurisdictions could result in substantial cost and divert the efforts and attention of key personnel from other aspects of our business.

We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be

unable to protect our rights to, or use of, our technology.

If we choose to go to court to stop someone else from using the inventions claimed in

our patents or our licensed patents, that individual or company has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would distract our key

personnel and consume time and other resources, even if we were successful in stopping the infringement of these patents. In addition, there is a risk that a court will decide that these patents are invalid or unenforceable and that we do not have

the right to stop the other party from using the inventions or, even if the validity or enforceability of these patents is upheld, the court may refuse to stop the other party because the competitors’ activities do not infringe our rights.

If third parties make claims of intellectual property infringement against us, or otherwise seek to establish their intellectual property rights equal

or superior to ours, we may have to spend time and money in response and potentially discontinue certain of our operations.

While we currently do

not believe it to be the case, third parties may claim that we are employing their proprietary technology without authorization or that we are infringing on their patents. If such claims were made, we could incur substantial costs coupled with

diversion of our management and key technical personnel in defending against these claims. Furthermore, parties making claims against us may be able to obtain injunctive or other equitable relief which could effectively halt our ability to further

develop, commercialize and sell products. In the event of a successful claim of infringement, courts may order us to pay damages and obtain one or more licenses from third parties. We may not be able to obtain these licenses at a reasonable cost, if

at all. Defense of any lawsuit or failure to obtain any of these licenses could prevent us from commercializing available products and have a material negative effect on our business.

Any suits filed against us by third parties alleging we infringe their intellectual property rights could harm our business and operating results as

well as our reputation.

There is considerable patent and other intellectual property activity in the industry in which we operate. We may be

unaware of intellectual property rights of others that may cover some or all of our technology. Additionally, notwithstanding our receipt of a patent, a third-party may nevertheless challenge the validity of one or more claims included in the

patent, which may require significant expenditure of funds, as well as time and effort by key personnel, to defend our claims.

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Healthcare legislative reform measures may have a material adverse effect on our business and results

of operations.

In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For

example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the Health Care Reform Law, was passed, which substantially changed the way health care is financed by both

governmental and private insurers, and significantly impacts the U.S. healthcare industry. The Health Care Reform Law, among other things, (i) subjects biologic products to potential competition by lower-cost biosimilars, (ii) addresses a

new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected, (iii) increases the minimum Medicaid rebates owed by

manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, (iv) establishes annual fees and taxes on manufacturers of certain branded prescription drugs,

and (v) promotes a new Medicare Part D coverage gap discount program.

In addition, other legislative changes have been proposed and adopted in the

United States since the Health Care Reform Law was enacted. On August 2, 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with

recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes

aggregate reductions of Medicare payments to providers up to 2% per fiscal year. On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, or the ATRA, which, among other things, delayed for another two

months the budget cuts mandated by these sequestration provisions of the Budget Control Act of 2011. On March 1, 2013, the President signed an executive order implementing sequestration, and on April 1, 2013, the 2% Medicare payment

reductions went into effect. Additional state and federal healthcare reform measures may be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could

result in reduced demand for our product candidates or additional pricing pressures.

Our operations are subject to anti-corruption laws, including

Australian bribery laws, and the FCPA and other anti-corruption laws that apply in countries where we do business.

Anti-corruption laws generally

prohibit us and our employees and intermediaries from bribing, being bribed or making other prohibited payments to government officials or other persons to obtain or retain business or gain some other business advantage. We participate in

collaborations and relationships with third parties whose actions could potentially subject us to liability under these anti-corruption laws. In addition, we cannot predict the nature, scope or effect of future regulatory requirements to which our

international operations might be subject or the manner in which existing laws might be administered or interpreted.

There is no assurance that we will

be completely effective in ensuring our compliance with all applicable anti-corruption laws or other laws including trade related laws. If we are not in compliance with these laws, we may be subject to criminal and civil penalties, disgorgement and

other sanctions and remedial measures, and legal expenses, which could have an adverse impact on our business, financial condition, results of operations and liquidity.

Likewise, any investigation of any potential violations of these laws by respective government bodies could also have an adverse impact on our reputation, our

business, results of operations and financial condition.

We could be negatively impacted by the outbreak of coronavirus

(“COVID-19”).

In light of the continuing uncertain and rapidly evolving situation relating to the

spread of COVID-19, this public health concern poses a risk to the ability of medical facilities to focus on the treatment of acute burns should they be overwhelmed, our employees, our partners and suppliers

and the communities in which we operate, which could negatively impact our business. The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot

be predicted at this time. We could experience employee impacts from illness, school closures and other community response measures, all of which could negatively impact our business. Timing of the development on any vaccine against COVID-19 is uncertain and when any such vaccine will be determined to be effective and made widely available, if ever, cannot be predicted. We intend to continue to monitor the situation and may adjust our current

policies and practices as more information and guidance become available.

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Risks Relating to Our Common Stock

We have never paid a dividend on our common stock and do not intend to do so in the foreseeable future, and consequently, investors’ only

opportunity to realize a return on their investment in our company is through the appreciation in the price of our common stock.

We do not

anticipate paying cash dividends on our common stock in the foreseeable future and intend to retain all earnings, if any, for our operations. If we decided to pay dividends at some future time, we may not have sufficient funds legally available to

do so. Even if funds are legally available for distribution, we may be unable to pay any dividends to our stockholders because of limitations imposed by a lack of liquidity. Accordingly, our stockholders may have to sell some or all of their common

stock in order to generate cash flow from their investment. Our stockholders may not receive a gain on their investment when they sell their common stock and may lose some or all of their investment. Any determination to pay dividends in the future

on our common stock will be made at the discretion of our board of directors and will depend on our results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law, capital requirements, and other

factors that our board of directors deems relevant.

As long as we remain subject to the rules of the ASX and of NASDAQ, we will be unable to access

equity capital without shareholder approval if such equity capital sales would result in an equity issuance above regulatory thresholds and consequently we may be unable to obtain financing sufficient to sustain our business if we are unsuccessful

in soliciting requisite shareholder approvals.

Our ability to access equity capital is currently limited by ASX Listing Rule 7.1, which provides

that a company must not, subject to specified exceptions (including approval by shareholders), issue or agree to issue during any consecutive 12-month period any equity securities, or other securities with

rights to conversion to equity, if the number of those securities in aggregate would exceed 15% of the number of ordinary securities on issue at the commencement of that 12-month period.

Our equity issuances will be limited by ASX Listing Rule 7.1 as long as we continue to be listed on the ASX and this constraint may prevent us from raising

the full amount of equity capital needed for operations without prior shareholder approval.

In addition to ASX Listing Rule 7.1, we are also subject to

NASDAQ Listing Rule 5635(d), commonly referred to as the NASDAQ 20% Rule, which requires shareholder approval of a transaction other than a public offering involving the sale, issuance, or potential issuance by a company of common stock (or

securities convertible into or exercisable for common stock) equal to 20% or more of the common stock, or 20% or more of the voting power outstanding before the issuance for less than the greater of book or market value of the shares. While less

restrictive than ASX Listing Rule 7.1, the operation of the NASDAQ 20% rule could limit our ability to raise capital through issuance of common stock or convertible securities without jeopardizing our listing status. If we were to violate the NASDAQ

20% rule, our company would be subject to delisting from NASDAQ and share prices and trading volumes would likely suffer.

There has been relatively

limited trading volume in the markets for our common stock and CDIs, and more active, liquid trading markets for such securities may never develop.

Trading in our common stock on NASDAQ and our CDIs on the ASX is often thin and susceptible to wide fluctuations in trading prices due to such limited trading

volume and other factors, some of which may have little to do with our operations or business prospects. Limited liquidity in the trading markets for our common stock and CDIs may adversely affect a stockholder’s ability to sell its shares of

our common stock or our CDIs at the time it wishes to sell them or at a price that it considers acceptable. In addition, if a more active, liquid public trading market does not develop we may be limited in our ability to raise capital by selling

shares of common stock or CDIs. We cannot assure you that more active, liquid public trading markets for our common stock and CDIs will develop or, if developed, will be sustained.

The market price and trading volume of our common stock may be volatile and may be affected by variability in our performance from period to period and

economic conditions beyond management’s control.

The market price of our common stock (including common stock represented by CDIs) may be

highly volatile and could be subject to wide fluctuations. This means that our stockholders could experience a decrease in the value of their common stock or CDIs regardless of our operating performance or prospects. The market prices of securities

of companies operating in the medical device and biotech sectors have often experienced fluctuations that have been unrelated or disproportionate to the operating results of these companies. In addition, the trading volume of our common stock and

CDIs may fluctuate and cause significant price variations to occur. If the market price of our common stock or CDIs declines significantly, our stockholders may be unable to resell our common stock or CDIs at or above their purchase price, if at

all. There can be no assurance that the market price of our common stock and CDIs will not fluctuate or significantly decline in the future.

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Some specific factors that could negatively affect the price of our common stock and CDIs or result in

fluctuations in their price and trading volume include:

• actual or expected fluctuations in our operating results;

• results of clinical trials of our product candidates;

• results of clinical trials of our competitors’ products;

• regulatory actions with respect to our products or our competitors’ products;

• reports of one or more patient serious adverse events;

• issuances by us of debt or equity securities;

• litigation involving our company, including shareholder litigation;

• investigations or audits by regulators into the operations of our company;

• proceedings initiated by our competitors or clients;

• short selling or other market manipulation activities;

• announcement or expectation of additional financing efforts;

• terrorist acts, acts of war or periods of widespread civil unrest;

• economic and social effects of the COVID-19 virus or other pandemics;

• natural disasters and other calamities;

• changes in market conditions for biopharmaceutical stocks;

• changes in market prices for our product or for our raw materials;

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• changes in market valuations of similar companies;

• changes in key personnel for us or our competitors;

• speculation in the press or investment community;

The requirements of being a public company in the United States may strain our resources and divert management’s attention.

As a public company, we are subject to the reporting requirements of the Exchange Act, the U.S. Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley

Act”) the Dodd-Frank Act and the listing standards and the rules and regulations of NASDAQ. We are also subject to the reporting requirements under the ASX Listing Rules due to the listing of our CDIs on ASX. We expect that the requirements

of these rules and regulations will increase our legal, accounting and financial compliance costs, make some activities more difficult, time consuming and costly, and place significant strain on our personnel, systems and resources. As a result of

our disclosure of information in filings required of a public company, our business and financial condition will become more visible, which may result in threatened or actual litigation, including by competitors, stockholders or third parties. If

such claims are successful, our business and operating results could be harmed, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the

resources of our management and harm our business and operating results.

We are an emerging growth company, and the reduced disclosure requirements

applicable to emerging growth companies may make our common stock less attractive to investors.

We are an “emerging growth company,” as

defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). For as long as we continue to be an emerging growth company, we may take advantage of certain exemptions and relief from various U.S. reporting requirements

that are applicable to other public companies that are not emerging growth companies, including (i) not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, (ii) having the

option of delaying the adoption of certain new or revised financial accounting standards, (iii) reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and (iv) exemptions from the

requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We have taken, and in the future may take, advantage of these exemptions until such time

that we are no longer an emerging growth company. Accordingly, the information contained herein and in other reports we file with the SEC may be different than the information our investors receive from other public companies in which they hold

stock. Further, we have elected to take advantage of the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our operating results and

financial statements may not be comparable to the operating results and financial statements of other companies who have adopted the new or revised accounting standards. It is possible that some investors will find our common stock and CDIs less

attractive as a result, which may result in a less active trading market for our common stock and CDIs and higher volatility in our stock and CDI price.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the date of the

first sale of our common stock pursuant to an effective registration statement under the U.S. Securities Act of 1933, as amended (the “Securities Act”), (ii) the last day of the fiscal year in which we have total annual gross revenue of at

least $1.07 billion, (iii) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, or (iv) the date on

which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.

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If research analysts publish unfavorable commentary or downgrade our common stock and CDIs it could

adversely affect our share price and trading volume.

The trading market for our common stock and CDIs depends, in part, on the research and

reports that research analysts publish about us and our business and industry. If one or more research analysts downgrade our shares or CDIs, publish unfavorable commentary about the Company or cease publishing reports about us or our business, the

price of our common stock and CDIs could decline. If one or more of the research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our common stock and CDIs could decrease, which could cause our share

price or trading volume to decline.

Item 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

Item 2.

PROPERTIES

Our principal corporate office is located at 28159 Avenue Stanford, Suite 220, Valencia, California 91355. We lease the 17,465 square

foot facility under two lease agreements that, as amended, expire on January 31, 2021. Our production plant in Ventura, California, is a 23,040 square foot facility that we lease through September 30, 2021 with the right to extend the

lease, at our sole option, as a result of three, three-year, options that allow us to extend the lease up to an additional nine years in total. We do not own any real property. We believe that leased facilities are adequate to meet current needs and

that additional facilities will, if required, be available for lease to meet future needs.

Item 3. LEGAL PROCEEDINGS

We are not currently involved in any significant legal, arbitration or governmental proceedings. From time to time, as an operating business, we are

involved in disputes (both formal and informal) with customer, manufacturing partners and employees.

Item 4. MINE SAFETY

DISCLOSURES

Not applicable.

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER

PURCHASES OF EQUITY SECURITIES

Market Information

Following the completion of our Redomicile Transaction on June 29, 2020, our shares of common stock are listed on NASDAQ under ticker symbol

“RCEL”, and our CDIs are quoted on ASX under ticker symbol “AVH”. Five CDIs on ASX represent one share of common stock on NASDAQ.

Prior to the completion of our Redomicile Transaction, the ordinary shares of AVITA Medical (the AVITA Group’s former parent company prior to

redomiciliation) traded on the ASX, under the same ticker symbol of “AVH” since June 17, 2008. In the United States, the American Depositary Shares, or ADSs, of AVITA Medical traded over the counter on the OTCQX under the ticker

symbol “AVMXY” from May 14, 2012 through September 30, 2019. Beginning on October 1, 2019 (and until completion of our redomiciliation) the ADSs of AVITA Medical traded on NASDAQ under the ticker symbol “RCEL” with

each of these ADSs representing 20 ordinary shares in AVITA Medical. These ADSs were evidenced by American Depositary Receipts (“ADRs”) and the ADRs were issued pursuant to a Depositary Agreement entered into with The Bank of New

York Mellon.

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Holders

As of August 14, 2020, we had approximately 22,731 stockholders of record of our common stock (which includes CHESS Depositary Nominees Pty Ltd, who holds

all of the outstanding common stock underlying the CDIs of the Company).

Dividends

We have never paid cash dividends to our stockholders, or prior to the Redomicile Transaction, holders of our ordinary shares. We intend to retain future

earnings for use in our business and do not anticipate paying cash dividends on our common stock in the foreseeable future. Any future dividend policy will be determined by our board of directors and will be based upon various factors, including our

results of operations, financial condition, current and anticipated cash needs, future prospects, contractual restrictions and other factors as our board of directors may deem relevant.

Recent Sales of Unregistered Securities

During the year

ended June 30, 2020, we completed an institutional placement to raise $81.7 million (through our former parent company, AVITA Medical). We sold 2,033,898 shares at an issue price of $40.17 per share for total net proceeds of

$76.6 million, after deducting commission and offering expenses. In addition, an aggregate of 15,853 shares were issued to our directors in lieu of their director fees during the year ended June 30, 2020 under the Director Share Plan that

was approved by shareholders in December 2017. Each transaction was exempt from the registration requirements of the Securities Act as a transaction not involving a public offering pursuant to Section 4(2) of the Securities Act.

Item 6. SELECTED FINANCIAL DATA

Year Ended June 30,

(In thousands, except share and per share data) 2020 2019 2018

Operating Expenses:

Income tax benefit (expense) (4 ) 121 1,074

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Net loss per common share:

Weighted-average common shares:

Year Ended June 30,

(in thousands)

Balance Sheet Data

Total long term liabilities 2,352 471

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF

OPERATIONS

The following discussion and analysis of our financial condition and results of operations for the years ended June 30, 2020 and 2019,

should be read in conjunction with our consolidated financial statements and related notes included in this Annual Report.

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Results of Operations

The table below summarizes the results of our continuing operations for each of the periods presented.

Year Ended June 30, $ %

Statement of Operations Data: 2020 2019 Change Change

Operating Expenses:

Income tax benefit (expense) (4 ) 121 (125 ) (103 %)

Year Ended June 30, 2020 compared to Year Ended June 30, 2019

Revenue of the RECELL System totaled $14.3 million for the year ended June 30, 2020, an increase of $8.8 million or 161% over the

$5.5 million for the year ended June 30, 2019. Similar to prior years, most of the current year increase in sales occurred in the United States as a result of the September 2018 FDA approval and commencement of the U.S. national market

launch of the RECELL System in January 2019. U.S. sales during the year ended June 30, 2020 totaled $13.8 million compared to $4.4 million in the prior year. Gross margin for the year ended June 30, 2020 was 79% compared to 77%

for the same period in 2019.

BARDA income consisted of funding from the Biomedical Advanced Research and Development Authority

(“BARDA”), under the Assistant Secretary for Preparedness and Response, within the U.S. Department of Health and Human Services, under ongoing USG Contract No. HHSO100201500028C. Under the BARDA contract, income of $3.9 million

was recognized during the year ended June 30, 2020 compared to income of $5.9 million for the year ended June 30, 2019. BARDA income declined as a result of wind-down of certain activities associated with supporting the U.S. FDA

approval of the RECEL System as well as the compassionate use and continued access programs.

Operating costs for the year ended June 30, 2020

totaled $57.9 million, a $22.2 million or 62% increase over the $35.7 million incurred during the year ended June 30, 2019. Sales and marketing expenses for the year ended June 30, 2020 totaled $14.8 million, an

increase of $2.6 million or 21% over the $12.3 million recognized during the year ended June 30, 2019. This increase was primarily attributed to commercialization activities being provided for the entire fiscal year ended

June 30, 2020 versus the prior fiscal year where those activities were rendered for less than twelve months. General and administrative expenses totaled $18.1 million for the year ended June 30, 2020, an increase of $4.6 million

or 34% over the $13.6 million recognized during the year ended June 30, 2019. The increase was primarily a result of the costs related to the Redomicile Transaction, together with additional headcount associated with the growth of the

Company and the Company’ status as a cross listed entity on NASDAQ and the ASX. Research and development expenses for the year ended June 30, 2020 totaled $8.5 million, an increase of $0.6 million or 7% over the $7.9 million

recognized during the year ended June 30, 2019. Share-based compensation also increased to $16.5 million for the year ended June 30, 2020, an increase of $14.6 million or 747% over the $1.9 million recognized during the year

ended June 30, 2019 primarily due to the increase in the grant date fair value of awards granted during the year. The increase in the grant date fair value of the awards is due to the increase in the Company’s stock price.

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Net loss after tax for the year ended June 30, 2020 was $42 million, an increase of

$16.9 million or 67% over the $25.1 million recognized during the year ended June 30, 2019. The increase in net loss was driven by the higher operating costs described above, partially offset by the higher revenue during the year. As

a result of the U.S. national launch of the RECELL System in January 2019, and the expansion of research and development including multiple pivotal clinical studies seeking premarket approval from the FDA, operating expenses are expected to increase

in future periods. These expenses are expected to be partially offset by increased commercial sales of the RECELL System as well as income under the BARDA contract.

The table below summarizes the results of our continuing operations for each of the periods presented.

Year Ended June 30, $ %

Statement of Operations Data: 2019 2018 Change Change

Operating Expenses:

Year Ended June 30, 2019 compared to Year Ended June 30, 2018

Revenue of the RECELL System totaled $5.5 million for the year ended June 30, 2019, an increase of $4.6 million or 489% over the

$0.9 million for the year ended June 30, 2018. Most of the current year increase in sales occurred in the U.S. as a result of the September 2018 FDA approval and commencement of the U.S. national market launch of the RECELL System in

January 2019. U.S. sales during the year ended June 30, 2019 totaled $4.4 million compared to zero in the prior year. Gross margin for the year ended June 30, 2019 was 77% compared to 41% for the same period in 2018, and management

expects gross margins to further increase as sales ramp up within the U.S.

BARDA income of $5.9 million was recognized during the year ended

June 30, 2019 compared to income of $7.7 million for the year ended June 30, 2018. The decrease was the result of wind-down of certain activities associated with supporting the U.S. FDA approval of the RECELL System as well as the

compassionate use and continued access programs.

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Operations for the first half of the year ended June 30, 2019 were focused primarily on preparation for

the January 2019 U.S. market launch of the RECELL System. Sales and marketing expenses for the year ended June 30, 2019 totaled $12.3 million, an increase of $7.4 million or 151% over the $4.9 million recognized during the year

ended June 30, 2018. This increase was primarily attributed to the recruitment, hiring and training of a U.S. sales force and the associated product launch sales and marketing materials and activities. Research and development expenses for the

year ended June 30, 2019 totaled $7.9 million an increase of $1.6 million or 26% over the $6.3 million recognized during the year ended June 30, 2018. General and administrative expenses totaled $13.6 million for the

year ended June 30, 2019, an increase of $4.2 million or 44% over the $9.4 million recognized during the year ended June 30, 2018. As the result of investments in commercial, manufacturing, and system capabilities for the U.S.

market launch of the RECELL System and related initiatives, operating costs for the year ended June 30, 2019 totaled $35.7 million, a $13.7 million or 62% increase over the $22 million incurred during the year ended June 30,

2018 and were in line with management expectations.

Net loss after tax for the year ended June 30, 2019 was $25.1 million, an increase of

$12.4 million or 97% over $12.7 million recognized during the year ended June 30, 2018. The increase in net loss was driven by the higher operating costs described above, partially offset by the higher sale of goods during the year.

As a result of the U.S. national launch of the RECELL System in January 2019, and the expansion of research and development, operating expenses will increase in future periods. These expenses are expected to be partially offset by increased

commercial sales of goods as well as income under the BARDA grant.

B. Liquidity and Capital Resources

We expect to utilize cash reserves until U.S. sales of our products reach a level sufficient to fund ongoing operations. The AVITA Group has historically

funded its research and development activities, and more recently its substantial investment in sales and marketing activities, through raising capital by issuing securities, and it is expected that similar funding will be obtained to provide

working capital if and when required. If the Company is unable to raise capital in the future, the Company may need to curtail expenditures by scaling back certain research and development or other programs.

During the year ended June 30, 2020, we raised additional capital via a private placement in the amount of $81.7 million (through our former parent

company, AVITA Medical). We sold the equivalent of 2,033,898 shares at an issue price of $40.17 per share for total net proceeds of $76.6 million, after deducting commission and offering expenses.

During the year ended June 30, 2019, we completed a series of equity transactions (through our former parent company, AVITA Medical). The second tranche

of the June 2018 Placement (defined below) closed on July 27, 2018, raising an aggregate of $2.4 million through the issuance of the equivalent of 650,000 shares in the Company at $3.70 per share. During December 2018, we completed a

placement to raise $28.8 million over two tranches. We completed the first tranche on December 10, 2018 and issued the equivalent of 3,100,471 shares in the Company at a price of $5.76 per share raising gross proceeds of

$17.9 million. The settlement of the second tranche for $10.9 million was approved by the shareholders at an extraordinary meeting held during January 2019. The second tranche closed on January 18, 2019 and raised gross proceeds of

$10.9 million through the sale of the equivalent of 1,899,530 shares in the Company at the same price as the first tranche, being $5.76 per share. In addition, on January 10, 2019, we completed a Share Purchase Plan under which we

effectively offered existing eligible shareholders the opportunity to purchase shares in the Company at a purchase price of $5.74 per share pursuant to a Share Purchase Plan. As part of the Share Purchase Plan we received gross proceeds of

$1.3 million for the issuance of the equivalent of 220,612 shares in the Company.

During the year ended June 30, 2018, the Company completed a

series of equity transactions (through our former parent company, AVITA Medical). During October 2017, we announced a capital raising in aggregate to raise $13.2 million over two tranches; the first a private placement and the second a rights

offering to existing shareholders. On October 17, 2017, we completed the private placement of the equivalent of 1,009,830 shares at a price of $3.53 per share raising gross proceeds of $3.6 million. On November 2, 2017, we completed

the rights offering resulting in a total issue of the equivalent of 2,765,029 shares to raise a gross total of $9.6 million. During June 2018, we announced an institutional placement to raise an aggregate of $13.3 million over two tranches

(“June 2018 Placement”). The first tranche closed on June 13, 2018 and raised an aggregate of $9.7 million by issuing the equivalent of 2,554,756 shares at a price of $3.79 per share. The second tranche for an aggregate of

$2.4 million (referenced above) was issued on July 27, 2018.

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During December 2017, the board of directors approved the 2016 Director Share Plan which previously allowed

directors to convert their compensation into our shares.

The AVITA Group also benefits from cash inflows from the BARDA contract, awarded to the AVITA

Group in September 2015 and subsequently expanded through a series of modifications. These payments from BARDA offset operating costs from various activities undertaken to support the FDA regulatory approval process for RECELL in the United States,

preparation for the planned commercial launch of RECELL in the United States, and RECELL clinical programs in the United States. Further, there were no material expenditure commitments from the BARDA contract. With the U.S. FDA approval of RECELL

for the treatment of burns in September 2018, and the U.S. market launch of the product in January 2019, sales of goods are expected to be an increasing source of revenue in the future. On July 13, 2020 the Company announced that BARDA will

procure the RECELL System and agreed to the purchase, storage and delivery of RECELL Systems utilizing a vendor-managed inventory (“VMI”) plan valued at $7.6 million. Further, BARDA has expanded the awarded contract to provide

supplemental funding of $1.6 million to support emergency deployment of RECELL Systems for use in mass casualty or other emergency situations. Delivery of RECELL Systems under the VMI plan is expected to commence in the second half of the 2020

calendar year. As of June 30, 2020, we had received cumulative payments of $24.4 million under the BARDA contract.

The Company’s research

and development activities are eligible to receive an incentive under an Australian Government tax incentive for eligible expenditure incurred on or after July 1, 2012 (“R&D Incentive”). Our management has assessed these

activities and expenditure to determine our likely eligibility under the R&D Incentive. For the years ended June 30, 2020 and 2019, the Company has received $0.1 million and $1.6 million, respectively related to this R&D

Incentive.

Given the above, we believe there is presently sufficient working capital to support our committed research and development programs and other

activities over the next twelve months and the Company believes it has the ability to realize its assets and pay its liabilities and commitments in the normal course of business.

The following table summarizes our cash flows for the periods presented:

As of June 30,

Net cash used in operations $ (22,747 ) $ (19,250 )

Net cash used in investing activities (847 ) (1,227 )

Net cash provided by financing activities 77,057 29,709

Effect of foreign exchange rate on cash and restricted cash 3 156

Net increase in cash and restricted cash 53,466 9,388

Cash and restricted cash at beginning of year 20,374 10,986

Cash and restricted cash at end of year 73,840 20,374

Years Ended June 30, 2020, and 2019

Net cash used in operating activities was $22.7 million and $19.3 million during the years ended June 30, 2020 and 2019, respectively. The

increase was primarily due to higher operating costs associated with a full year of commercialization of the RECEL System in the United States, and the expansion of research and development.

Net cash used in investing activities was $0.8 million and $1.2 million during the years ended June 30, 2020 and 2019, respectively. Cash flows

used for investing activities was primarily attributable to payments for the purchase of a property and equipment.

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Net cash provided by financing activities was $77.1 million and $29.7 million for the years ended

June 30, 2020 and 2019, respectively. The AVITA Group completed a series of financing transactions and received proceeds from the issuance of shares and exercise of options.

Capital management

We aim to manage capital so that the

Company continues as a going concern while also maintaining optimal returns to s tockholders and benefits for other stakeholders. We also aim to maintain a capital structure that ensures the lowest cost of capital available to the Company. We

regularly review the Company’s capital structure and seek to take advantage of available opportunities to improve outcomes for the Company and its stockholders.

For the year ended June 30, 2020, there were no dividends paid and we have no plans to commence the payment of dividends. We have no committed plans to

issue further shares on the market but will continue to assess market conditions and the Company’s cash flow requirements to ensure the Company is appropriately funded in order to pursue its various opportunities.

There is no significant external borrowing at the reporting date. Neither the Company nor any of the subsidiaries are subject to externally imposed capital

requirement.

C. Research and Development, Patents and Licenses

In recent years, we have continued our practice of building valuable research collaborations with institutions based primarily in the United States but also in

Australia, Japan and Europe and other regions to enable us to develop a point-of-care solution for the potential treatment of a wide range of skin injuries or defects

which may be suitable for use with the RECELL System. These collaborative arrangements ensure that we work with well-respected key option leaders and laboratories without incurring ongoing administrative and personnel costs. All clinical, research

and development of RECELL System, including clinical studies, is performed in compliance with the appropriate governing authorities, regulators and standards. We maintain in-house general counsel and research

and development project expertise to coordinate these research collaborations.

Our research and development expenses consist primarily of expenses for

contracted research and development activities conducted by major contract research organizations on our behalf, including personnel, testing facilities and other payments in accordance with our research and clinical agreements. Research and

development expenses were $8.5 million, and $7.9 million, during the years ended June 30, 2020, and 2019, respectively.

D. Trend

Information

While our RECELL System has reached commercialization for specific applications in certain jurisdictions, the United States remains our

primary point of commercial and clinical focus. In addition, we are currently seeking to expand the breadth of clinical indications for which the RECELL System is approved for use in the United States ut have no plans to conduct clinical studies

outside of the United States at this time. While we seek to advance the commercial opportunities for the RECELL System, it is not possible for us to predict with any degree of accuracy the outcome of our business in the future.

E. Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements (as defined in the rules and regulations of the SEC) that have or are

reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material investors.

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F. Contractual Obligations and Commitments

The following summarizes our contractual obligations and commitments as of June 30, 2020:

Payments due by period

Less than 2-3 4-5 More than

Contractual Obligations (in thousands) Total 1 year years years 5 years

Operating lease obligations (1) $ 607 $ 530 $ 77 $ — $ —

G. Critical Accounting Policies and Estimates

The SEC defines “critical accounting policies” as those that require the application of management’s most difficult, subjective, or complex

judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Practices, or U.S. GAAP, requires us to make

estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting

period. We base those estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ from those estimates.

The following listing is not intended to be a comprehensive list of all of our accounting policies. Our significant accounting policies are described in

Note 2 to our consolidated financial statements contained elsewhere in this Annual Report. In many cases, the accounting treatment of a particular transaction is dictated by U.S. GAAP, with no need for our judgment in its application. There are

also areas in which our judgment in selecting an available alternative would not produce a materially different result. We have identified the following as our critical accounting policies.

Revenue Recognition

Revenues are recognized as

control of the product is transferred to customers, at an amount that reflects the consideration expected to be received in exchange for the product. Revenues are recognized net of volume discounts. As such revenue is recognized only to the extent a

significant reversal of revenues is not expected to occur in subsequent periods. Effective July 1, 2018, the Company adopted ASC 606, Revenue from Contracts with Customers, using the modified retrospective method applicable to all

contracts that were not completed at the date of initial application. This update outlined a comprehensive new revenue recognition model designed to depict the transfer of promised goods or services to customers in an amount that reflects the

consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also required additional qualitative disclosures. Upon adoption, the ASC 606 did not have a material impact on the financial

statements. Refer to Note 12 – Revenues for further information. For the Company’s contracts that have an original duration of one year or less, the Company used the practical expedient applicable to such contracts and does not consider

the time value of money. Further, because of the short duration of these contracts, the Company has not disclosed the transaction price for the remaining performance obligations as of each reporting period or when the Company expects to recognize

this revenue. The Company has further applied the practical expedient to exclude sales tax in the transaction price and expense contract fulfilment costs such as commissions and shipping and handling expenses as incurred.

See Note 12 to our Consolidated Financial Statements included in this Annual Report for additional detail on revenue recognition.

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Government Grants / BARDA Income and Receivables

The AVITA Group was granted a BARDA contract in September 2015, wherein BARDA provided funding to the AVITA Group to support the ongoing U.S. clinical

regulatory program towards FDA premarket approval, Compassionate Use program, clinical and health economics research, and U.S. pediatric burn programs.

Income under the BARDA contract is earned under a cost-plus-fixed-fee arrangement in which the Company is reimbursed

for direct costs incurred plus allowable indirect costs and a fixed-fee earned. Billings under the contracts are based on approved provisional indirect billing rates, which permit recovery of fringe benefits,

general and administrative expenses and a fixed fee.

The Company has concluded that grants are not within the scope of ASC 606, as they do not meet the

definition of a contract with a “customer”. The Company has further concluded that Subtopic 958-605,Not-for-Profit-Entities-Revenue Recognition also does not apply, as the Company is a business entity and the grants are with governmental agencies. Government grants and

related receivables are recognized when there is reasonable assurance that the grant will be received, and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the periods

necessary to match the grant on a systematic basis to the costs that it is intended to compensate. When the grant relates to an asset, the fair value is credited to deferred income and is released to the profit or loss over the expected useful life

of the relevant asset by equal annual installments.

Stock Based Compensation

The Company records compensation expense for stock options based on the fair market value of the awards on the date of grant. The fair value of stock-based

compensation awards is amortized over the vesting period of the award. Compensation expense for performance-based awards is measured based on the number of shares ultimately expected to vest, estimated at each reporting date based on

management’s expectations regarding the relevant performance criteria.

For certain awards, the Company estimates the fair value of share options and

other equity-based compensation using a Binomial option pricing model on the date of grant.

See Note 13 to our Consolidated Financial Statements

included in this Annual Report for additional detail on stock based compensation.

Income Taxes

RCEL US Equity

RCEL · 10-K · period ended 2020-06-30

Item 1A. RISK FACTORS

Item 1B. UNRESOLVED STAFF COMMENTS

Item 2.

Item 3. LEGAL PROCEEDINGS

Item 4. MINE SAFETY

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER

Item 6. SELECTED FINANCIAL DATA

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF

RCEL US Equity☆

RCEL · 10-K · period ended 2020-06-30

Item 1A. RISK FACTORS

Item 1B. UNRESOLVED STAFF COMMENTS

Item 2.

Item 3. LEGAL PROCEEDINGS

Item 4. MINE SAFETY

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER

Item 6. SELECTED FINANCIAL DATA

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF

RCEL US Equity