ELUTIA INC. 10-K

Item 9A. Controls and Procedures. Limitations on Effectiveness of Controls and Procedures In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Evaluation of Disclosure Controls and Procedures The Company’s management has evaluated, with the participation of the chief executive officer and the chief financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report. Based on this evaluation, management concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020. Management’s Annual Report on Internal Control Over Financial Reporting This Annual Report does not include a report of management’s assessment regarding our internal control over financial reporting or an attestation report of our independent registered accounting firm due to a transition period established by rules of the SEC for newly public companies. Additionally, our independent registered accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 of Sarbanes-Oxley Act of 2002 until we are no longer an “emerging growth company” as defined in the JOBS Act. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Item 9B. Other Information. None. 108 PART III Item 10. Directors, Executive Officers and Corporate Governance. The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to our annual meeting of stockholders to be held in 2021 (the “2021 Annual Meeting of Stockholders”), which we intend to file with the SEC within 120 days of the year ended December 31, 2020. Item 11. Executive Compensation. The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2021 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2020. Item 12. Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters. Equity Compensation Plan Information The following table provides information on our equity compensation plans as of December 31, 2020. Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) Weighted Average Exercise Price of Outstanding Options, Warrants and Rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity Compensation Plans Approved by Stockholders 2015 Plan (1) 287,309 $ 6.43 (4) — 2020 Plan (2) 630,128 $ 16.99 (4) 908,103 ESPP (3) — — 143,150 Equity Compensation Plans Not Approved by Stockholders — — — Total 917,437 $ 13.68 1,051,253 (1) In connection with our IPO, we adopted the Aziyo Biologics, Inc. 2020 Incentive Award Plan (the “2020 Plan”) and, as of the consummation of our initial public offering(the “IPO”), ceased making grants or awards under the Aziyo Biologics, Inc. 2015 Stock Option/Stock Issuance Plan (the “2015 Plan”). To the extent stock options outstanding under the 2015 Plan are forfeited, lapse unexercised or are settled in cash, the shares of Class A common stock subject to the stock options will be available for future issuance under the 2020 Plan. (2) 1,685,962 shares of Class A common stock were initially available for issuance under the 2020 Plan. The number of shares of Class A common stock available for issuance under the 2020 Plan automatically increases on each January 1, until and including January 1, 2030, by an amount equal to the lesser of (A) 4% of the shares of Class A common stock outstanding (on an as-converted basis) on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of Class A common stock as determined by our board of directors (but no more than 1,636,000 shares of Class A common stock may be issued upon the exercise of incentive stock options). In addition, the shares reserved for issuance under the 2020 Plan will also include shares reserved but not issued under the 2015 Plan. 109 (3) The number of shares of Class A common stock available for issuance under the ESPP automatically increases on each January 1, until and including January 1, 2030, by an amount equal to the lesser of (A) 1% of the shares of Class A common stock outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of Class A common stock as determined by our board of directors. (4) The calculation of the weighted average exercise price does not include outstanding equity awards that are received or exercised for no consideration. The other information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2021 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2020. Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2021 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2020. Item 14. Principal Accounting Fees and Services. The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2021 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2020. 110 PART IV Item 15. Exhibits, Financial Statement Schedules. (a)(1) Financial Statements The Consolidated Financial Statements are included on pages F-2 through F-24 attached hereto and are filed as part of this Annual Report. See Index to Consolidated Financial Statements on page F-1. (a)(2) Financial Statement Schedules All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto. (a)(3) Exhibits The following is a list of exhibits filed as part of this Annual Report. Exhibit Number Description Form File No. Exhibit Filing Date Filed / Furnished Herewith 3.1 Restated Certificate of Incorporation of Aziyo Biologics, Inc. 8-K 001-39577 3.1 10/13/2020 3.2 Amended and Restated Bylaws of Aziyo Biologics, Inc. 8-K 001-39577 3.2 10/13/2020 4.1 Second Amended and Restated Investor Rights Agreement, dated as of September 14, 2020, among the Registrant and the investors named therein S-1 333-248788 4.1 09/14/2020 4.2 Specimen stock certificate evidencing the shares of Class A common stock S-1 333-248788 4.2 09/14/2020 4.3 Specimen stock certificate evidencing the shares of Class B common stock S-1/A 333-248788 4.3 09/30/2020 4.4 Description of Securities * 10.1 Amended and Restated Credit and Security Agreement (Term Loan), dated as of July 15, 2019, by and among the Registrant and Aziyo Med, LLC, as Borrowers, Midcap Financial Trust, as Agent and as a Lender, and the additional Lenders from time to time party thereto, as amended S-1/A 333-248788 10.13 09/30/2020 111 Exhibit Number Description Form File No. Exhibit Filing Date Filed / Furnished Herewith 10.2 Amended and Restated Credit and Security Agreement (Revolving Loan), dated as of July 15, 2019, by and among the Registrant and Aziyo Med, LLC, as Borrowers, Midcap Funding IV Trust, as Agent and as a Lender, and the additional Lenders from time to time party thereto, as amended S-1/A 333-248788 10.14 09/30/2020 10.3 U.S. Small Business Administration Paycheck Protection Program Note, dated as of May 7, 2020, by and between the Registrant and Silicon Valley Bank (previously filed as Exhibit 10.14) S-1 333-248788 10.14 09/14/2020 10.4 Royalty Agreement, dated as of May 31, 2017, by and between Aziyo Med, LLC and Ligand Pharmaceuticals Incorporated S-1 333-248788 10.15 09/14/2020 10.5 License Agreement, dated as of May 31, 2017, by and between Cook Biotech Incorporated and Aziyo Med, LLC S-1 333-248788 10.16 09/14/2020 10.6 December 2017 Amendment to License Agreement, dated as of December 21, 2017, by and between Cook Biotech Incorporated and Aziyo Med, LLC S-1 333-248788 10.17 09/14/2020 10.7 Settlement Agreement and General Release, by and between the Registrant and KeraLink International Inc. (formerly named Tissue Banks International, Inc.), dated as of April 6, 2018 S-1 333-248788 10.19 09/14/2020 10.8† Aziyo Biologics, Inc. 2015 Stock Option/Stock Issuance Plan (as amended) S-1 333-248788 10.1 09/14/2020 10.9† Aziyo Biologics, Inc. 2020 Incentive Award Plan and form of award agreements thereunder S-1/A 333-248788 10.2 09/30/2020 10.10† Aziyo Biologics, Inc. Non-Employee Director Compensation Program S-1/A 333-248788 10.3 09/30/2020 10.11† Aziyo Biologics, Inc. 2020 Employee Stock Purchase Plan S-1/A 333-248788 10.4 09/30/2020 112 Exhibit Number Description Form File No. Exhibit Filing Date Filed / Furnished Herewith 10.12† Amended and Restated Employment Agreement, by and between the Registrant and Ronald Lloyd, dated as of September 30, 2020 S-1/A 333-248788 10.6 09/30/2020 10.13† Employment Agreement, by and between the Registrant and Thomas Englese, dated as of September 30, 2020 S-1/A 333-248788 10.8 09/30/2020 10.14† Employment Agreement, by and between the Registrant and Darryl Roberts, dated as of September 30, 2020 S-1/A 333-248788 10.10 09/30/2020 10.15† Employment Agreement, by and between the Registrant and Matthew Ferguson, dated as of September 30, 2020 S-1/A 333-248788 10.11 09/30/2020 10.16† Form of Indemnification Agreement for Directors and Officers S-1/A 333-248788 10.12 09/30/2020 21.1 Subsidiaries of Aziyo Biologics, Inc. * 23.1 Consent of PricewaterhouseCoopers LLP * 31.1 Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 31.2 Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. * 32.1 Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 32.2 Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ** 113 Exhibit Number Description Form File No. Exhibit Filing Date Filed / Furnished Herewith 101.INS XBRL Instance Document * 101.SCH XBRL Taxonomy Extension Schema Document * 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document * 101.DEF XBRL Taxonomy Extension Definition Linkbase Document * 101.LAB XBRL Taxonomy Extension Label Linkbase Document * 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * * Filed herewith. ** Furnished herewith. † Denotes a management contract or compensation plan or arrangement. Item 16. Form 10-K Summary. None. 114 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Aziyo Biologics, Inc. Date: March 15, 2021 By: /s/ RONALD LLOYD Ronald Lloyd President and Chief Executive Officer (Principal Executive Officer) Date: March 15, 2021 /s/ MATTHEW FERGUSON Matthew Ferguson Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/Ronald Lloyd President, Chief Executive Officer and Director (principal executive officer) March 15, 2021 Ronald Lloyd /s/Matthew Ferguson Chief Financial Officer (principal financial officer and principal accounting officer) March 15, 2021 Matthew Ferguson /s/Kevin Rakin Chairperson of the Board of Directors March 15, 2021 Kevin Rakin /s/W. Matthew Zuga Director March 15, 2021 W. Matthew Zuga /s/Maybelle Jordan Director March 15, 2021 Maybelle Jordan /s/C. Randal Mills, Ph.D. Director March 15, 2021 C. Randal Mills, Ph.D. /s/Brigid A. Makes Director March 15, 2021 Brigid A. Makes 115 AZIYO BIOLOGICS, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets F-3 Consolidated Statements of Operations F-4 Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit) F-5 Consolidated Statements of Cash Flows F-6 Notes to Consolidated Financial Statements F-7 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Aziyo Biologics, Inc, Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Aziyo Biologics, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, of changes in convertible preferred stock and stockholders’ equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Baltimore, Maryland March 15, 2021 We have served as the Company's auditor since 2015. F- 2 Aziyo Biologics, Inc. Consolidated Balance Sheets (In Thousands, Except for Share and Per Share Data) As of December 31, 2020 2019 Assets Current assets: Cash $ 39,150 $ 2,482 Restricted cash 382 108 Accounts receivable, net 7,166 7,229 Inventory 10,117 7,190 Prepaid expenses and other current assets 2,892 1,437 Total current assets 59,707 18,446 Property and equipment, net 1,162 988 Intangible assets, net 21,865 25,262 Other assets 76 76 Total assets $ 82,810 $ 44,772 Liabilities, Convertible Preferred Stock and Stockholders’ Equity (Deficit) Current liabilities: Accounts payable $ 2,054 $ 2,492 Accrued expenses 6,323 3,978 Payables to tissue suppliers 2,295 2,485 Current portion of long-term debt 6,310 1,692 Current portion of revenue interest obligation 2,750 2,750 Revolving line of credit 6,514 4,227 Deferred revenue and other current liabilities 533 650 Total current liabilities 26,779 18,274 Long-term debt 17,811 19,612 Long-term revenue interest obligation 16,633 16,596 Deferred revenue and other long-term liabilities 756 705 Preferred stock warrant liability - 247 Total liabilities 61,979 55,434 Commitments and contingencies (Note 16) Convertible preferred stock Series A Preferred stock, $0.001 par value, 45,500,000 shares authorized and 44,550,230 shares issued and outstanding, as of December 31, 2019 - 44,449 Stockholders’ equity (deficit): Common stock, $0.001 par value, 4,514,543 shares authorized and 648,277 shares issued and outstanding, as of December 31, 2019 - 1 Class A Common stock, $0.001 par value, 200,000,000 shares authorized and 7,091,960 shares issued and outstanding, as of December 31, 2020 7 - Class B Common stock, $0.001 par value, 20,000,000 shares authorized and 3,134,162 shares issued and outstanding, as of December 31, 2020 3 - Additional paid-in capital 101,080 1,826 Accumulated deficit (80,259 ) (56,938 ) Total stockholders’ equity (deficit) 20,831 (55,111 ) Total liabilities, convertible preferred stock and stockholders' equity (deficit) $ 82,810 $ 44,772 The accompanying notes are an integral part of these consolidated financial statements. F- 3 Aziyo Biologics, Inc. Consolidated Statements of Operations (In Thousands, Except Share and Per Share Data) Year Ended December 31, 2020 2019 Net sales $ 42,682 $ 42,901 Cost of goods sold 22,121 23,133 Gross Profit 20,561 19,768 Sales and marketing 16,845 16,161 General and administrative 13,232 9,616 Research and development 4,083 2,400 Total operating expenses 34,160 28,177 Loss from operations (13,599 ) (8,409 ) Interest expense 5,633 5,381 Other (income) expense, net 2,567 (1,881 ) Loss before provision for income taxes (21,799 ) (11,909 ) Income tax expense 26 30 Net loss (21,825 ) (11,939 ) Accretion of Convertible Preferred Stock 3,510 - Net loss attributable to common stockholders $ (25,335 ) $ (11,939 ) Net loss per share attributable to common stockholders – basic and diluted $ (8.88 ) $ (18.48 ) Weighted average common shares outstanding – basic and diluted 2,852,541 645,994 The accompanying notes are an integral part of these consolidated financial statements. F- 4 Aziyo Biologics, Inc. CONSOLIDATED STATEMENT OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT) (In Thousands, Except Share and Per Share Data) Convertible Preferred Stock Common Stock Class A Common Stock Class B Common Stock Additional Total Stockholder’ Number of Shares Amount Number of Shares Amount Number of Shares Amount Number of Shares Amount Paid-in Capital Accumulated Deficit Equity (Deficit) Balance, December 31, 2018 41,500,000 $ 41,411 645,143 $ 1 - $ - - $ - $ 1,592 $ (44,999 ) $ (43,406 ) Issuance of Convertible Preferred Stock, net of issuance costs of $12 3,050,230 3,038 - - - - - - - - - Proceeds from stock option exercises - - 3,134 - - - - - 17 - 17 Stock-based compensation - - - - - - - - 217 - 217 Net loss - - - - - - - - - (11,939 ) (11,939 ) Balance, December 31, 2019 44,550,230 $ 44,449 648,277 1 - - - - 1,826 (56,938 ) (55,111 ) Issuance of Convertible Preferred Stock, net of issuance costs of $9 5,864,197 8,634 - - - - - - - - - Proceeds from stock option exercises - - 402 - - - - - 2 - 2 Accretion of Convertible Preferred stock - 3,510 - - - - - - (2,014 ) (1,496 ) (3,510 ) Preferred stock warrant exercises 405,000 405 - - - - - - 474 - 474 Net exercise of Common Stock warrants - - 5,204 - - - - - - - - Conversion of Preferred Stock to Class A and Class B Common Stock upon Initial Public Offering (50,819,427 ) (56,998 ) - - 4,232,195 4 2,398,868 2 56,992 - 56,998 Conversion of Common Stock to Class A and Class B Common Stock upon Initial Public Offering - - (653,883 ) (1 ) 653,883 1 - - - - - Issuance of Class A and Class B Common Stock in Initial Public Offering, net of offering costs of $7,000 - - - - 2,205,882 2 735,294 1 43,021 - 43,024 Stock-based compensation - - - - - - - - 779 - 779 Net loss - - - - - - - - - (21,825 ) (21,825 ) Balance, December 31, 2020 - $ - - $ - 7,091,960 $ 7 3,134,162 $ 3 $ 101,080 $ (80,259 ) $ 20,831 The accompanying notes are an integral part of these consolidated financial statements. F- 5 Aziyo Biologics, Inc. Consolidated Statements of Cash Flows (In Thousands) 2020 2019 OPERATING ACTIVITIES: Net loss $ (21,825 ) $ (11,939 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 3,864 3,856 Loss on early extinguishment of debt 2,340 - Gain on revaluation of revenue interest obligation - (1,883 ) Loss (gain) on revaluation of preferred stock warrant liability 227 (2 ) Amortization of deferred financing costs 121 142 Interest expense recorded as additional revenue interest obligation 2,682 2,856 Interest expense recorded as Convertible Preferred Stock 39 4 Stock-based compensation 779 208 Operating expense satisfied through Convertible Preferred Stock issuance 814 Changes in operating assets and liabilities: Accounts receivable 64 (30 ) Inventory (2,927 ) 269 Prepaid expenses and other (1,455 ) (373 ) Accounts payable and accrued expenses 1,907 (627 ) Obligations to tissue suppliers (191 ) 1,221 Deferred revenue and other liabilities (65 ) (927 ) Net cash used in operating activities (13,626 ) (7,225 ) INVESTING ACTIVITIES: Expenditures for property, plant and equipment (640 ) (577 ) Net cash used in investing activities (640 ) (577 ) FINANCING ACTIVITIES: Proceeds from Initial Public Offering, net of offering costs 43,024 - Proceeds from exercise of preferred stock warrants 405 - Net borrowings under revolving line of credit 2,286 2,588 Proceeds from Convertible Promissory Note 2,000 750 Proceeds from Convertible Preferred Stock issuance, net 3,441 2,284 Proceeds from stock option exercises 2 17 Proceeds from long-term debt 2,995 3,500 Repayments of long-term debt (300 ) (112 ) Payments on revenue interest obligation (2,645 ) (1,879 ) Deferred financing costs - (43 ) Proceeds from RTI transition services agreement, net - 874 Net cash provided by financing activities 51,208 7,979 Net increase in cash and restricted cash 36,942 177 Cash and restricted cash, beginning of year 2,590 2,413 Cash and restricted cash, end of year $ 39,532 $ 2,590 Supplemental Cash Flow and Non-Cash Financing Activities Disclosures: Cash paid for interest $ 5,113 $ 4,399 Cash paid for taxes $ 32 $ 25 Conversion of Convertible Promissory Note to Convertible Preferred Stock $ 2,000 $ 750 The accompanying notes are an integral part of these consolidated financial statements. F- 6 Aziyo Biologics, Inc. Notes to Consolidated Financial Statements Note 1. Organization and Description of Business Aziyo Biologics, Inc. (together with its consolidated subsidiaries, “Aziyo” or the “Company”) is a regenerative medicine company, with a focus on patients receiving implantable medical devices. The Company has developed a portfolio of regenerative products using both human and porcine tissue that are designed to be as close to natural biological material as possible. Aziyo’s portfolio of core products span the implantable electronic devices/cardiovascular-related market, the orthopedic/spinal repair market and the soft tissue reconstruction market (“Core Products”). These products are primarily sold to healthcare providers or commercial partners. The Company also sells human tissue products under contract manufacturing and certain other arrangements (“Non-Core Products”) with corporate customers. Reverse Stock Split and Initial Public Offering On September 25, 2020, the Company’s Board of Directors and stockholders approved an amendment to the Company’s amended and restated certificate of incorporation to effect a 1-for-13.9549 reverse stock split of the Company’s common stock, which was effected on September 29, 2020. The par value of the common stock was not adjusted as a result of the reverse stock split. Accordingly, all share and share-related information presented in these consolidated financial statements and the accompanying notes has been retroactively adjusted for all periods presented to give effect to the reverse stock split. On October 13, 2020, in connection with the Company’s initial public offering (“IPO”), Aziyo issued and sold 2,941,176 shares of common stock, consisting of 2,205,882 shares of Class A common stock and 735,294 shares of Class B common stock, at a price to the public of $17.00 per share, resulting in net proceeds of approximately $43.0 million, after deducting the underwriting discount of approximately $3.5 million and offering expenses of approximately $3.5 million. Note 2. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company believes that the net proceeds from its IPO, together with its existing cash and availability under its Revolving Line of Credit (the “Revolver”), will be sufficient to fund its operating expenses and capital expenditure requirements through at least one year after the issuance date of the consolidated financial statements for the year ended December 31, 2020. The Company expects its losses to continue for the foreseeable future and these losses will continue to have an adverse effect on our financial position. Because of the numerous risks and uncertainties associated with the Company’s commercialization and development efforts, the Company is unable to predict when it will become profitable, and it may never become profitable. The Company’s inability to achieve and then maintain profitability would negatively affect its business, financial condition, results of operations and cash flows. As such, the Company may need additional funding to support its continuing operations and pursue its growth strategy. F- 7 Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates and assumptions relating to inventories, receivables, long-lived assets, the valuation of stock-based awards, the valuation of the preferred stock warrant liability and deferred income taxes are made at the end of each financial reporting period by management. Management continually re-evaluates its estimates, judgments and assumptions, and management’s evaluation could change. Actual results could differ from those estimates. Impact of COVID-19 The Company is closely monitoring the impact of the COVID-19 pandemic on its business. In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended various containment and mitigation measures worldwide. Since that time, the number of procedures performed using the Company’s products has decreased significantly, as governmental authorities in the United States have recommended, and in certain cases required, that elective, specialty and other non-emergency procedures and appointments be suspended or canceled in order to avoid patient exposure to medical environments and the risk of potential infection with COVID-19, and to focus limited resources and personnel capacity on the treatment of COVID-19 patients. As a result, beginning in March 2020, a significant number of procedures using the Company’s products have been postponed or cancelled, which has negatively impacted sales of its products. These measures and challenges will likely continue for the duration of the pandemic, which is uncertain, and will likely continue to reduce the Company’s net sales and negatively impact its business, financial condition and results of operations while the pandemic continues. Net Loss per Share Attributable to Common Stockholders The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. The Convertible Preferred Stock was considered a participating security through the completion of the IPO (see Note 12). The two-class method requires income (loss) available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in the earnings as if all income (loss) for the period had been distributed. Under the two-class method, the net loss attributable to common stockholders is not allocated to the Convertible Preferred Stock as the holders of the preferred stock do not have a contractual obligation to share in losses. Our common stock has a dual class structure, consisting of Class A common stock and Class B common stock. Other than voting rights, the Class B common stock has the same rights as the Class A common stock, and therefore both are treated as the same class of stock for purposes of the earnings per share calculation. Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average shares outstanding during the period. For purposes of the diluted net income (loss) per share attributable to common stockholders’ calculation, Convertible Preferred Stock, stock options, and preferred and common stock warrants are considered to be common stock equivalents. All common stock equivalents have been excluded from the calculation of diluted net loss per share attributable to common stockholders, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per share were the same for both periods presented. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value: Level 1 -  Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 -  Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. Level 3 -  Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. F- 8 The estimated fair value of financial instruments disclosed in the financial statements has been determined by using available market information and appropriate valuation methodologies. The carrying value of all current assets and current liabilities approximates fair value because of their short-term nature. Cash and Restricted Cash The Company maintains its cash balances at banks and financial institutions. The balances are insured up to the legal limit. The Company maintains cash balances that may, at times, exceed this insured limit. Under the provisions of the Revolving Credit Facility (see Note 8), the Company has a lockbox arrangement with the banking institution whereby daily lockbox receipts are contractually utilized to pay down outstanding balances on the Revolving Credit Facility debt. Lockbox receipts that have not yet been applied to the Revolving Credit Facility are classified as restricted cash in the accompanying consolidated balance sheets. The following table provides a reconciliation of cash and restricted cash included in the consolidated balance sheets to the amounts included in the statements of cash flows (in thousands). December 31, 2020 2019 Cash $ 39,150 $ 2,482 Restricted cash 382 108 Total cash and restricted cash shown in statements of cash flows $ 39,532 $ 2,590 Accounts Receivable and Allowances Accounts receivable in the accompanying balance sheets are presented net of allowances for doubtful accounts and sales returns and other credits. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables. The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations to the Company, a provision to the allowance for doubtful accounts is recorded to reduce the net recognized receivable to the amount that is reasonably expected to be collected. For all other customers, a provision to the allowance for doubtful accounts is recorded based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowance for doubtful accounts are recorded to general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. The Company’s allowance for doubtful accounts was approximately $0.1 million as of December 31, 2020 and 2019. Inventories Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined generally using the average cost method. Inventory write-downs for unprocessed and certain processed donor tissue are recorded based on the estimated amount of inventory that will not pass the quality control process based on historical data. At each balance sheet date, the Company also evaluates inventories for excess quantities, obsolescence or shelf life expiration. This evaluation includes analysis of the Company’s current and future strategic plans, historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions and a review of the shelf life expiration dates for products. To the extent that management determines there is excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value. F- 9 Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the following estimated useful lives of the assets: Processing and research equipment 5 years Office equipment and furniture 3 to 5 years Computer hardware and software 3 to 4 years Leasehold improvements are amortized on the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Repairs and maintenance costs are expensed as incurred. Long-Lived Assets Purchased intangible assets with finite lives are carried at acquired fair value, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets. The Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. The Company reviews its property and equipment and intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Impairment exists when the carrying value of the company’s asset exceeds the related estimated undiscounted future cash flows expected to be derived from the asset. If impairment exists, the carrying value of that asset is adjusted to its fair value. A discounted cash flow analysis is used to estimate an asset’s fair value, using assumptions that market participants would apply. The results of impairment tests are subject to management’s estimates and assumptions of projected cash flows and operating results. Changes in assumptions or market conditions could result in a change in estimated future cash flows and could result in a lower fair value and therefore an impairment, which could impact reported results. There were no impairment losses for the years ended December 31, 2020 and 2019. Revenue Recognition On January 1, 2019, the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 606, “Revenue from Contracts with Customers,” utilizing the modified retrospective method applied to contracts that were not completed. The adoption of the standard did not have a material impact on the timing and amounts of the Company’s revenue as the Company did not have any material remaining performance obligations, or material costs to obtain or fulfill contracts with its customers as of January 1, 2019. The Company’s revenue is generated from contracts with customers in accordance with ASC 606. The core principle of ASC 606 is that the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The ASC 606 revenue recognition model consists of the following five steps: (1) identify the contracts with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. As noted above, the Company enters into contracts to primarily sell and distribute products to healthcare providers or commercial partners, or are produced and sold under contract manufacturing arrangements with corporate customers which are billed under ship and bill contract terms. Revenue is recognized when the Company has met its performance obligations pursuant to its contracts with its customers in an amount that the Company expects to be entitled to in exchange for the transfer of control of the products to the Company’s customers. For all product sales, the Company has no further performance obligations and revenue is recognized at the point control transfers which occurs either when: i) the product is shipped via common carrier; or ii) the product is delivered to the customer or distributor, in accordance with the terms of the agreement. A portion of the Company’s product revenue is generated from consigned inventory maintained at hospitals and from inventory physically held by direct sales representatives. For these types of products sales, the Company retains control until the product has been used or implanted, at which time revenue is recognized. The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying products is transferred to the customer. The related shipping and freight charges incurred by the Company are included in sales and marketing costs. Shipping and handling costs were approximately $0.3 and $0.4 million for the years ended December 31, 2020 and 2019, respectively. F- 10 Contracts with customers state the final terms of the sale, including the description, quantity, and price of each implant distributed. The payment terms and conditions in the Company’s contracts vary; however, as a common business practice, payment terms are typically due in full within 30 to 60 days of delivery. The Company, at times, extends volume discounts to customers. The Company permits returns of its products in accordance with the terms of contractual agreements with customers. Allowances for returns are provided based upon analysis of the Company’s historical patterns of returns matched against the revenues from which they originated. The Company records estimated returns as a reduction of revenue in the same period revenue is recognized. Deferred Rent The Company recognizes rent expense by the straight-line method over the lease term. Funds received from the lessor used to reimburse the Company for the cost of leasehold improvements are recorded as a deferred credit resulting from a lease incentive and are amortized over the lease term as a reduction of rent expense. Stock-Based Compensation Plans The Company accounts for its stock-based compensation plans in accordance with FASB Accounting Standards Codification (“ASC”) 718, Accounting for Stock Compensation . FASB ASC 718 requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including employee stock options and restricted stock. Stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis over the requisite service period of the entire award. Research and Development Costs Research and development costs, which include mainly salaries, outside services and supplies, are expensed as incurred. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. At December 31, 2020 and December 31, 2019, the Company maintains $40.0 million and $2.4 million, respectively, in bank deposit accounts that are in excess of the $0.25 million insurance provided by the Federal Deposit Insurance Corporation in one federally insured financial institution. The Company has not experienced any losses in such accounts. Comprehensive Income (Loss) Comprehensive income (loss) comprises net income (loss) and other changes in equity that are excluded from net income (loss). For the years ended December 31, 2020 and 2019, the Company’s net loss equaled its comprehensive loss and accordingly, no additional disclosure is presented. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are recorded to reflect the tax consequences on future years for differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to amounts that are more likely than not to be realized. The Company is subject to income taxes in the federal and state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In accordance with the authoritative guidance on accounting for uncertainty in income taxes, the Company recognizes tax liabilities for uncertain tax positions when it is more likely than not that a tax position will not be sustained upon examination and settlement with various taxing authorities. Liabilities for uncertain tax positions are measured based upon the largest amount of benefit that is more likely than not (greater than 50%) of being realized upon settlement. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. F- 11 Note 3. Recently Issued Accounting Standards In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The ASU provides temporary relief from some of the existing rules governing contract modifications when the modification is related to the replacement of the London Interbank Offered Rate (“LIBOR”) or other reference rates discontinued as a result of reference rate reform. The ASU specifically provides optional practical expedients for contract modification accounting related to contracts subject to ASC 310, Receivables, ASC 470, Debt, ASC 842, Leases, and ASC 815, Derivatives and Hedging. The ASU also establishes a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and certain elective hedge accounting expedients. For eligible contract modifications, the principle generally allows an entity to account for and present modifications as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination. That is, the modified contract is accounted for as a continuation of the existing contract. The standard was effective upon issuance on March 12, 2020, and the optional practical expedients can generally be applied to contract modifications made and hedging relationships entered into on or before December 31, 2022. Borrowings under the Company’s term loan facility and revolving line of credit bear interest based on LIBOR or an alternate rate. Provisions currently provide the Company with the ability to replace LIBOR with a different reference rate in the event that LIBOR ceases to exist. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which clarifies and simplifies certain aspects of the accounting for income taxes. The standard is effective for years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2020. The adoption of this standard on January 1, 2021 is not expected to have a material impact on the Company’s consolidated financial statements. In November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivative and Hedging (Topic 815), and Leases (Topic 842), Effective Dates.” The FASB deferred the effective dates of the new credit losses standard for all entities except filers with the Securities and Exchange Commission (the “SEC”) that are not smaller reporting companies (SRCs) to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Board also aligned the effective dates of ASU 2017-04 on goodwill impairment with the new effective dates of the credit losses standard. The FASB deferred the effective dates of its new standards on hedging and leases for entities that are not public business entities (PBEs) (and for leases, for entities that are not non-for-profit (NFP) entities that have issues, or are conduit bond obligors for, certain securities; and are not employee benefit plans (EBPs) that file or furnish financial statements with or to the SEC) to fiscal years beginning after December 15, 2020, and interim periods in the following year. The FASB is also reconsidering its philosophy on establishing effective dates for major standards for private companies, NFPs, EBPs and smaller public companies. The board has developed a two-bucket approach that would give these entities more time to implement major new standards. The Company is evaluating this standard to determine if adoption will have a material impact on the Company’s consolidated financial statements. In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement.” The standard eliminates, adds, and modifies certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The standard is effective for annual reporting periods beginning after December 15, 2019. Adoption of this new standard in the first quarter of 2020 did not have a material impact on the Company’s consolidated financial statements. In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Bared Payment Accounting to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Entities will apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The standard is effective for annual reporting periods beginning after December 15, 2018. The Company adopted this standard on January 1, 2019 and such adoption did not have a material impact on the Company’s financial statements. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which changed the impairment model for most financial assets and certain other financial instruments. The standard requires the use of a forward-looking “expected loss” model for instruments measured at amortized cost that generally will result in the earlier recognition of allowances for losses. The standard is effective for years beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2019. The adoption of this standard on January 1, 2020 did not have a material impact on the Company's consolidated financial results. F- 12 In February 2016, the FASB issued ASU 2016-02, Leases. The standard requires that lessees recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability subject to certain adjustments. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). In November 2019, the FASB issued 2019-10 which extended the adoption of ASU 2016-02 for the Company to be effective periods ending after December 15, 2022. While early adoption is permitted, the company intends to adopt in accordance with the revised timeline provided by the FASB. The Company is evaluating this standard to determine if adoption will have a material impact on the Company’s consolidated financial statements. Note 4. Stock-Based Compensation In 2015, the Company established the Aziyo Biologics, Inc. 2015 Stock Option/Stock Issuance Plan, as amended (the “2015 Plan”) which provided for the granting of incentive and non-qualified stock options to employees, directors and consultants of the Company. On October 7, 2020, in connection with the Company’s IPO, the Company adopted the Aziyo Biologics, Inc. 2020 Incentive Award Plan (the “2020 Plan”), which authorizes the grant of incentive and non-qualified stock options, restricted stock, restricted stock units and stock appreciation rights to employees, directors and consultants. Shares of Class A common stock totaling 1,636,000 were initially reserved for issuance pursuant to the 2020 Plan. In addition, the shares reserved for issuance under the 2020 Plan will also include shares reserved but not issued under the 2015 Plan as well as an annual increase as set forth in the 2020 Plan. As of December 31, 2020, the Company had 908,103 shares of Class A common stock available for issuance under the 2020 Plan. Stock Options The Company’s policy is to grant stock options at an exercise price equal to 100% of the market value of a share of Class A common stock at closing on the date of the grant. The Company’s stock options have contractual terms of seven to ten years, and vest over a four-year period from the date of grant. A summary of stock option activity under the Company’s 2015 Plan and 2020 Plan for the years ended December 31, 2020 and 2019 is as follows: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (years) Aggregate Intrinsic Value (in thousands) Outstanding, December 31, 2019 281,072 $ 6.00 5.2 $ 1,207 Granted 661,035 $ 16.71 Exercised (402 ) $ 5.50 Forfeited (24,268 ) $ 7.69 Outstanding, December 31, 2020 917,437 $ 13.68 8.1 $ 2,070 Vested and expected to vest, December 31, 2020 871,565 $ 13.68 8.1 $ 1,967 Vested and exercisable, December 31, 2020 178,297 $ 5.83 3.8 $ 1,391 As of December 31, 2020, there was approximately $5.6 million of total unrecognized compensation expense related to unvested stock options. These costs are expected to be recognized over a weighted-average period of 3.6 years. The weighted average grant date fair value of options granted during the years ended December 31, 2020 and 2019 were $8.52 and $4.61, respectively. Restricted Stock Units Restricted stock units (“RSUs”) represent rights to receive common shares at a future date. There is no exercise price and no monetary payment is required for receipt of restricted stock units or the shares issued in settlement of the award. On October 8, 2020, in connection with the IPO, the Company granted RSUs covering 147,883 shares of Class A Common Stock, which vest in their entirety on the third anniversary date of the RSU grant, or upon a Change in Control (as defined in the 2020 Plan), if earlier, subject to continued service. F- 13 The total fair value of the RSUs granted during the year ended December 31, 2020 of $2.5 million was based on the fair market value of the Company's Class A common stock on the date of grant. The fair value at the time of the grant is amortized to expense on a straight-line basis over the three-year period of vesting. The weighted average grant date fair value of the RSUs granted during the year ended December 31, 2020 was $17.00. As of December 31, 2020, $2.3 million of unrecognized compensation costs related to RSUs is expected to be recognized over a weighted average period of 2.8 years. Employee Stock Purchase Plan In connection with the IPO, the Company also adopted the Aziyo Biologics, Inc. 2020 Employee Stock Purchase Plan (the “ESPP”), which authorizes the issuance upon the terms and subject to the provisions of the ESPP of a number of shares of Class A common stock (the “ESPP Reserve”). Under the ESPP, eligible employees are permitted to purchase Class A common stock at a discount through payroll deductions. A total of 143,150 shares of Class A common stock are reserved for issuance and will be increased on the first day of each fiscal year, beginning in 2020, by an amount set forth in the ESPP Plan. The price of the common stock purchased will be the lower of 85% of the fair market value of the common stock at the beginning of an offering period or at the end of a purchase period. As of December 31, 2020, no shares of common stock had been issued to employees under the ESPP. Stock-Based Compensation Expense Stock-based compensation expense recognized during the years ended December 31, 2020 and 2019 comprised of the following (in thousands): Year Ending December 31, 2020 2019 Sales and marketing $ 64 $ - General and administrative 681 208 Research and development 9 - Cost of goods sold 25 - Total stock-based compensation expense $ 779 $ 208 The Company uses the Black-Scholes model to value its stock option grants and expenses the related compensation cost using the straight-line method over the vesting period. The fair value of stock options is determined on the grant date using assumptions for the estimated fair value of the underlying common stock, expected term, expected volatility, dividend yield, and the risk-free interest rate. Before the completion of the Company’s IPO, the Board of Directors determined the fair value of common stock considering the state of the business, input from management, third party valuations and other considerations. The Company uses the simplified method for estimating the expected term used to determine the fair value of options. The expected volatility of the Class A common stock is primarily based on the historical volatility of comparable companies in the industry whose share prices are publicly available. The Company uses a zero-dividend yield assumption as the Company has not paid dividends since inception nor does it anticipate paying dividends in the future. The risk-free interest rate approximates recent U.S. Treasury note auction results with a similar life to that of the option. The period expense is then determined based on the valuation of the options, reduced by an estimated forfeiture rate, and is recognized on a straight-line basis over the requisite service period for the entire award. The following weighted-average assumptions were used to determine the fair value of options during the years ended December 31, 2020 and 2019: December 31, 2020 2019 Expected term (years) 6.2 5.0 Risk-free interest rate 0.5 % 2.0 % Volatility factor 55 % 56 % Dividend yield - - F- 14 Note 5. Inventories Inventories as of December 31, 2020 and 2019 were comprised of the following (in thousands): December 31, 2020 2019 Raw materials $ 1,507 $ 928 Work in process 708 1,164 Finished goods 7,902 5,098 Total $ 10,117 $ 7,190 Note 6. Property and Equipment Property and equipment as of December 31, 2019 and 2020 are as follows (in thousands): December 31, 2020 2019 Processing and research equipment $ 3,585 $ 3,062 Leasehold improvements 589 562 Office equipment and furniture 151 148 Computer hardware and software 1,197 1,111 5,522 4,883 Less: accumulated depreciation and amortization (4,360 ) (3,895 ) Property and equipment, net $ 1,162 $ 988 Depreciation expense on property and equipment totaled approximately $0.5 million for each of the years ended December 31, 2020 and 2019, of which approximately $0.3 million are included within cost of goods sold in the accompanying Consolidated Statements of Operations. Note 7. Intangible Assets On May 31, 2017, the Company completed an asset purchase agreement with CorMatrix Cardiovascular, Inc. (“CorMatrix”) and acquired all CorMatrix commercial assets and related intellectual property. A substantial portion of the assets acquired consisted of intangible assets related to the acquired products and customer relationships. Management determined that the estimated acquisition-date fair values of the intangible assets related to acquired products and customer relationships were $29.3 million and $4.7 million, respectively. The components of identified intangible assets as of December 31, 2020 and 2019 are as follows (in thousands): December 31, 2020 December 31, 2019 Cost Accumulated Amortization Net Cost Accumulated Amortization Net Acquired products $ 29,317 $ (10,483 ) $ 18,834 $ 29,317 $ (7,558 ) $ 21,759 Customer relationships 4,723 (1,692 ) 3,031 4,723 (1,220 ) 3,503 Total $ 34,040 $ (12,175 ) $ 21,865 $ 34,040 $ (8,778 ) $ 25,262 Acquired products and customer relationships are both amortized over a ten-year period. Amortization expense totaled approximately $3.4 million for each of the years ended December 31, 2020 and 2019, which is included in cost of goods sold in the accompanying Consolidated Statements of Operations. Annual amortization expense is expected to be approximately $3.4 million during each of the years ended December 31, 2021, 2022, 2023, 2024 and 2025. F- 15 Note 8. Long-Term Debt On May 31, 2017, in connection with the Company’s acquisition of CorMatrix described in Note 7, Aziyo entered into a $12 million term loan facility (the “Term Loan Facility”) and an $8 million asset-backed revolving line of credit (the “Revolving Credit Facility”), under which the Company’s borrowing capacity is limited by certain qualifying assets, with a financial institution (the “May 2017 Financing”). As of December 31, 2020 and 2019, the Company’s borrowing capacity under its Revolving Credit Facility was $8.0 million and $7.9 million, respectively. The Term Loan Facility was amended in December 2017, February 2018 and July 2019 (all amendments being considered modifications) such that an additional $1.5 million, $3 million, and $3.5 million, respectively were received by the Company bringing the total aggregate principal amount outstanding under the Term Loan Facility to $20 million. Borrowings under the Term Loan Facility, as amended, bear interest at a rate per annum equal to the sum of  (x) the greater of  (i) 2.25% and (ii) the applicable London Interbank Offered Rate for U.S. dollar deposits divided by 1.00 minus the maximum effective reserve percentage for Eurocurrency funding (“LIBOR”) plus (y) 7.25%. The agreement governing the Term Loan Facility provides for interest only payments through January 2021 and interest and equal monthly principal payments from February 2021 through maturity in July 2024. However, the Term Loan Facility also provides that if certain conditions were satisfied prior to December 1, 2020 (including the completion of a qualified initial public offering and no continuing default or event of default), interest only payments may, upon our request, be extended to August 1, 2021. Accordingly, based on the Company’s successful completion of its IPO, Aziyo exercised this interest-only period extension right and as such, interest and equal principal payments will be made from August 1, 2020 through maturity in July 2024. The agreement that governs the Term Loan Facility, as amended, requires certain mandatory prepayments, subject to certain exceptions, with: (1) 100% of any net casualty proceeds in excess of $250,000 with respect to assets upon which the agent maintains a lien and (2) 100% of the net cash proceeds of non-ordinary course asset sales or sales pertaining to collateral upon which the borrowing base of the Revolving Credit Facility is calculated. In addition, the Company is required to prepay all outstanding obligations under the Term Loan Facility upon the termination of all commitments under the Revolving Credit Facility and the repayment of the outstanding borrowings thereunder. No such mandatory prepayments were required during the years ended December 31, 2020 and 2019. Both the Term Loan Facility and the Revolving Credit Facility also permit optional prepayments. The agreement governing the Term Loan Facility also includes an exit fee of 6.5% of the aggregate principal amount and prepayment penalties of 2% to 4% if repaid prior to maturity. The weighted average interest rate on Term Loan Facility borrowings was 7.8% and 9.7%, respectively, for the years ended December 31, 2020 and 2019. Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to the sum of  (x) the greater of  (i) 2.25% and (ii) LIBOR plus (y) 4.95%. The agreement governing the Revolving Credit Facility includes an unused line fee in an amount equal to 0.5% per annum of the unused borrowing capacity and prepayment penalties of 2% to 4% on the $8 million borrowing capacity if terminated by the Company prior to its expiration in July 2024. The weighted average interest rate on Revolving Credit Facility borrowings was 5.4% and 7.1%, respectively, for the years ended December 31, 2020 and 2019. Both debt instruments contain events of default, including, most significantly, a failure to timely pay interest or principal, insolvency, or an action by the United States Food and Drug Administration or such other material adverse event impacting the operations of Aziyo. The debt instruments also include a financial covenant based on cumulative minimum net product revenue, as defined, restrictions as to payment of dividends, and are secured by all assets of the Company. As of December 31, 2020, Aziyo was in compliance with this financial covenant. In consummating the July 2019 Amendment to the Term Loan Facility, Aziyo paid origination fees of approximately $0.04 million and accrued exit fees of  $0.4 million. In conjunction with the May 2017 Financing and the amendment thereto, the Company issued to the financial institution warrants to purchase 405,000 shares of Aziyo’s Convertible Preferred Stock at $1.00 per share. The warrants were exercisable through the first to occur of  (a) May 31, 2027 (in the case of warrants to purchase 360,000 shares of Convertible Preferred Stock) or December 14, 2027 (in the case of warrants to purchase 45,000 shares of Convertible Preferred Stock), and (b) the earlier of  (i) a Sale Transaction (as defined in the Company’s Certificate of Incorporation) or (ii) an initial public offering of the Company’s common stock. All warrants were exercised in connection with the IPO noted in Note 1. The Company accounts for stock warrants in accordance with ASC Topic 815 Derivatives and Hedging - Contracts in Entity’s Own Equity,” as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement. As described in Note 10, all of the Company’s issued and outstanding Convertible Preferred Stock warrants are accounted for as a liability and are valued using the Black Scholes model. Upon issuance, the Company valued such warrants at $286,267. The recognition of these warrants served to reduce the recorded value of the associated Term Loan Facility borrowings. This resulting debt discount will be recognized as interest expense through the maturity of the Term Loan Facility. F- 16 During 2017, the Company restructured certain of its liabilities with a tissue supplier and entered into an unsecured promissory note totaling $2.1 million. The note bears interest at 5% and includes quarterly interest-only payments in 2017 and quarterly interest and principal payments from March 31, 2018 through August 31, 2020. The notes are subordinated in payment to the Term Loan Facility and Revolving Credit Facility and in both 2020 and 2019, the Company’s senior lender restricted payment of the amounts due. In April 2020, the Company issued convertible, subordinated promissory notes (the “2020 Bridge Notes”) with a total principal of approximately $2.0 million. The 2020 Bridge Notes have an interest rate of 5%, are repayable upon demand by the holders any time after April 1, 2025 and shall automatically be converted into the Company’s shares of capital stock upon the closing of an issuance of the Company’s shares of capital stock to one or more investors that results in gross cash proceeds to the Company of at least Three Million Dollars ($3 million). The number of securities to be issued in connection with the conversion of these notes shall equal (i) the sum of the outstanding principal amount of, and all accrued but unpaid interest on, these notes divided by (ii) the cash purchase price per security paid by the investors in the financing. See Note 12 for discussion of the conversion of these notes into Convertible Preferred Stock in September 2020. In May 2020, Aziyo entered into a promissory note with Silicon Valley Bank that provided for the receipt by the Company of loan proceeds totaling approximately $3.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”). The PPP Loan bears interest at a rate of 1.0% per annum with monthly principal and interest payments from March 2021 and ending on the maturity date of May 7, 2022. The PPP Loan contains events of default and other provisions customary for a loan of this type. If the PPP Loan amount, or any portion thereof, is forgiven pursuant to the Paycheck Protection Program under the CARES Act, the amount so forgiven shall be applied to both interest and principal. The Company is not yet able to determine the amount to be forgiven, and as such, has recorded the PPP loan as a liability until Aziyo is released as the primary obligor for all or a portion of the loan. As of December 31, 2020, the contractual maturities of the long-term debt are as follows (in thousands): Years ending December 31, Term Loan PPP Loan Note to Tissue Supplier Total 2021 $ 2,778 $ 2,140 $ 1,392 $ 6,310 2022 6,667 855 - 7,522 2023 6,667 - - 6,667 2024 3,888 - - 3,888 Total 20,000 2,995 1,392 24,387 Debt Discount (62 ) - - (62 ) Deferred Financing Costs (204 ) - (204 ) Total, net 19,734 2,995 1,392 24,121 Current Portion (2,778 ) (2,140 ) (1,392 ) (6,310 ) Long-term Debt $ 16,956 $ 855 $ - $ 17,811 The fair value of all debt instruments, which is based on inputs considered to be Level 2 under the fair value hierarchy, approximates the respective carrying values as of December 31, 2020 and 2019. The Company had a warrant outstanding to purchase up to 7,656 shares of common stock, at an exercise price of  $5.44 per share, which had been issued in connection with a prior financing arrangement. This warrant was fully exercised in connection with the IPO described in Note 1. F- 17 Note 9. Revenue Interest Obligation As part of the CorMatrix asset acquisition described in Note 7, the Company assumed a restructured, long-term obligation (the “Revenue Interest Obligation”) to Ligand Pharmaceuticals (“Ligand”) with an estimated present value on the acquisition date of  $27.7 million. Subject to annual minimum payments of $2.75 million per year, the terms of the Revenue Interest Obligation require Aziyo to pay Ligand, 5% of future sales of the products Aziyo acquired from CorMatrix, including CanGaroo, ProxiCor, Tyke and Vascure, as well as products substantially similar to those products, such as the version of CanGaroo Aziyo is currently developing that is designed to have anti-infective properties. Furthermore, a $5.0 million payment will be due to Ligand if cumulative sales of these products exceed $100.0 million and a second $5.0 million will be due if cumulative sales exceed $300.0 million during the ten-year term of the agreement which expires on May 31, 2027. The Company recorded the present value of the estimated total future payments under the Revenue Interest Obligation as a long-term obligation, with the annual minimum payments serving to establish the short-term portion. Interest expense related to the Revenue Interest Obligation of approximately $2.7 million and $2.9 million was recorded for the years ended December 31, 2020 and 2019, respectively. See Note 10 for discussion of the value of this debt instrument. Note 10. Fair Value Measurements The following table sets forth by level, within the fair value hierarchy, the liabilities that are measured at fair value on a recurring basis (in thousands): Fair Value Measurements at December 31, 2019 Using: Level 1 Level 2 Level 3 Total Liabilities: Preferred stock warrant liability $ - $ - $ 247 $ 247 Revenue Interest Obligation* - - 19,346 19,346 Total $ - $ - $ 19,593 $ 19,593 Fair Value Measurements at December 31, 2020 Using: Level 1 Level 2 Level 3 Total Liabilities: Revenue Interest Obligation* - - 19,383 19,383 Total $ - $ - $ 19,383 $ 19,383 *Net Present Value; see discussion of value below The preferred stock warrant liability in the table above consisted of the fair value of warrants to purchase Convertible Preferred Stock (see Note 8) and was based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the preferred stock warrants utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the preferred stock warrants. The Company assesses these assumptions and estimates at each reporting period as updated information impacting the assumptions becomes available. An increase in the fair value of the preferred stock warrants during the year ended December 31, 2020 resulted in a loss to the Company of approximately $0.2 million and such charge was recognized as Other (income) expense in the Consolidated Statements of Operations. As described in Note 8, all preferred stock warrants were exercised in connection with the IPO and upon such exercise, the preferred stock warrant liability was reclassified to additional paid-in capital in the accompanying Consolidated Balance Sheets. F- 18 The Company has estimated the value of the Revenue Interest Obligation, including contingent milestone payments and estimated sales-based payments, based on assumptions related to future sales of the acquired products. At each reporting period, the value of the Revenue Interest Obligation is re-measured based on current estimates of future payments, with changes to be recorded in the Consolidated Statements of Operations using the catch-up method. In connection with the Company’s estimations at December 31, 2019, it was determined that the estimated future payments have decreased since the estimates made in the prior year. Such decrease was primarily the result of delays in certain regulatory approvals that will impact the timing and extent of future sales and thereby, will reduce expected future payments to Ligand. The change to estimated future payments yielded a reduction to the total Revenue Interest Obligation of approximately $1.9 million during the year ended December 31, 2019 with such amount recognized as a gain included in Other (income) expense, net in the accompanying Consolidated Statements of Operations. There was no change to estimated future payments during the year ended December 31, 2020 and thus, no re-measurement gain or loss was recognized. The following table provides a rollforward of the aggregate fair values of the preferred stock warrant liability and Revenue Interest Obligation categorized with Level 3 inputs for the years ended December 31, 2020 and 2019 (in thousands): Preferred Stock Warrant Liability Revenue Interest Obligation Balance as of January 1, 2019 $ 249 $ 20,253 Fair value adjustment to warrant liability (2 ) - Payments on Revenue Interest Obligation - (1,879 ) Interest accrued to Revenue Interest Obligation - 2,856 Fair value adjustment to Revenue Interest Obligation - (1,884 ) Balance as of December 31, 2019 $ 247 $ 19,346 Fair value adjustment to warrant liability 227 - Payments on Revenue Interest Obligation - (2,645 ) Interest accrued to Revenue Interest Obligation - 2,682 Exercise of Preferred Stock Warrant (474 ) - Balance as of December 31, 2020 $ - $ 19,383 There were no transfers among Level 1, Level 2, or Level 3 categories during any of the periods presented. Note 11. Income Taxes The Company is subject to income taxes in the United States. Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are calculated based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using the enacted income tax rates expected to be in effect during the years in which the temporary differences are expected to reverse. The reconciliation of the U.S. federal statutory rate to the consolidated effective tax rate is as follows: Years Ended December 31, 2020 2019 Tax benefit at U.S. statutory rate 21.0% 21.0% State income tax benefit, net of federal benefit 1.1% 2.2% Nondeductible expenses (3.1)% (0.7)% State law changes (3.0)% (1.4)% Other (0.3)% (1.4)% Change in valuation allowance (15.8)% (20.0)% Income tax expense (0.1)% (0.3)% F- 19 Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as net operating loss carryforwards. As of December 31, 2020 and 2019, significant components of the Company’s net deferred income taxes are as follows (in thousands): December 31, 2020 2019 Deferred tax assets: Tax goodwill $ 3,428 $ 3,950 Net operating loss carryforwards 10,008 7,365 Inventory 949 744 Deferred revenue 131 275 Acquired intangibles 908 686 Revenue interest obligation 789 238 Interest expense 1,248 581 Other 1,094 702 Total assets 18,555 14,541 Deferred tax liabilities: Prepaid expenses (556 ) (134 ) Total liabilities (556 ) (134 ) Total net deferred tax asset 17,999 14,407 Valuation allowance (17,999 ) (14,407 ) Net deferred tax asset, net of valuation allowance $ - $ - The Company did not recognize any deferred benefit for income taxes for the years ended December 31, 2020 and 2019, as the increases to the respective net deferred tax assets of  $3.6 million and $2.4 million, respectively, were offset by corresponding increases to the Company’s deferred tax asset valuation allowance due to uncertainty of realizing the deferred tax assets. The Company evaluates the need for deferred tax asset valuation allowances based on a more likely than not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. Valuation allowances are established when necessary to reduce deferred tax assets to amounts that are more likely than not to be realized. Based on the uncertainty of future taxable income generation, as of December 31, 2019 and 2020, the Company has provided valuation allowances against all deferred tax assets. The Company regularly assesses the realizability of its deferred tax assets. Changes in historical earnings performance and future earnings projections, among other factors, may cause the Company to adjust its valuation allowance, which would impact the Company’s income tax expense in the period the Company determines that these factors have changed. The income tax expense for the years ended December 31, 2020 and 2019 relates to current amounts due on certain state tax obligations. As of December 31, 2020, the Company had net operating loss carryforwards for federal income tax purposes of approximately $44.4 million, comprised of  $17.7 million that will expire beginning in 2036 and $26.7 million that have no expiration date. The Company also had state net operating loss carryforwards of approximately $11.8 million that will expire beginning in 2030. Utilization of the net operating loss carryforwards may be subject to an annual limitation under Section 382 of the Code, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income. The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study. If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards would be subject to an annual limitation under Section 382. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. As of December 31, 2020, the Company had no unrecognized tax benefits. F- 20 Note 12. Stockholders’ Equity At inception, Aziyo was capitalized through the sale of 19.5 million shares of Series A Convertible Preferred Stock, par value $0.001 per share (the “Convertible Preferred Stock”). Since inception, the Company has issued an additional 30.9 million shares of Convertible Preferred Stock yielding proceeds of approximately $30.4 million, which were used for general corporate purposes and the CorMatrix Acquisition. During the years ended December 31, 2020 and 2019, Convertible Preferred Stock offerings totaled approximately $5.4 million and $3.0 million, respectively. The proceeds raised in the 2019 offering included the conversion of a $0.75 million Convertible Promissory Note (issued in November 2019), and the related accrued interest, into the Convertible Preferred Stock. The Convertible Preferred Stock issued during the year ended December 31, 2020 occurred primarily in September 2020 at which time the Company completed the sale of 3.0 million shares of Convertible Preferred Stock for net proceeds of approximately $3.0 million. At the same time, the 2020 Bridge Notes of $2.0 million (issued in April 2020), and related accrued interest, converted into approximately 2.0 million shares of Convertible Preferred Stock. The fair value of the 3.0 million shares of Convertible Preferred Stock described above exceeded the purchase price of the Convertible Preferred Stock by $3.5 million. Such excess was accounted for as a deemed dividend to the Convertible Preferred Stock and was recorded as “Accretion of Convertible Preferred Stock” in the Consolidated Statements of Operations to arrive at “Net Loss Attributable to Common Shareholders” and will be included in the numerator of basic Earnings Per Share. With respect to the Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Deficit, these deemed dividends have been recorded such that Additional Paid-in Capital was first eliminated and any residual dividends served to reduce Accumulated Deficit. Additionally, the fair value of the 2.0 million shares of Convertible Preferred Stock issued upon conversion of Convertible Bridge Notes exceeded the face value of the Convertible Bridge Notes by $2.3 million. Such excess has been recorded as Loss on Early Extinguishment of Debt within Other (Income) Expense, net in the accompanying Consolidated Statements of Operations. As consideration for the advisory services provided to Aziyo in connection with the CorMatrix Acquisition, an agreement was executed between Aziyo and HighCape Partners Management, L.P. whereby upon consummation by Aziyo of a sale transaction, as defined in the Company’s Certificate of Incorporation, or an initial public offering of the Company’s common stock, Aziyo would be required to pay HighCape a fee totaling $0.75 million. In September 2020, the Company’s obligation in respect of this fee was extinguished in connection with the issuance of 375,000 shares of Convertible Preferred Stock. Such Convertible Preferred Stock and the associated expense was recorded at its fair value of approximately $0.8 million. Dividends The holders of Convertible Preferred Stock are entitled to receive noncumulative dividends as declared by the Board of Directors. The holders of Convertible Preferred Stock shall be entitled to receive dividends prior and in preference to any payment of any dividend on common stock. No dividends were declared by the Board of Directors from inception through the conversion of such Convertible Preferred Stock to common stock as noted below. Conversion The Convertible Preferred Stock is convertible at the election of the holders into shares of the Company’s common stock that would result in a conversion ratio of one share of common stock for every 13.9549 shares of Convertible Preferred Stock held. In addition to this voluntary conversion, each share of Convertible Preferred Stock will automatically be converted into shares of common stock upon (i) the written consent of the required holders (as defined) or (ii) the closing of the sale of shares of common stock to the public at a price of at least $5.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock), in an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $30 million of gross proceeds to the Company. In case of an underwritten public offering, immediately prior to closing, the holders of Convertible Preferred Stock are entitled to receive additional shares of (the “Liquidation Shares”) of common stock as determined by dividing the Convertible Preferred Stock Preference Amount, as defined below, by the price per Common Shares in the underwritten public offering. At the closing of the IPO, all outstanding shares of the Convertible Preferred Stock, including Convertible Preferred Stock resulting from the warrant exercises described in Note 8 and the Liquidation Shares, converted into 4,232,195 shares of Class A common stock and 2,398,868 shares of Class B common stock, and the related carrying value was reclassified to the respective common stock accounts and additional paid-in capital. Other than voting rights, the Class B common stock has the same rights as the Class A common stock. It was at the discretion of certain holders of the Convertible Preferred Stock that they receive non-voting Class B common stock. When such non-voting Class B common shares are sold by the current holders, they will automatically convert to Class A common stock. There were no shares of Convertible Preferred Stock outstanding as of the closing of the IPO on October 13, 2020. F- 21 The Convertible Preferred Stock does not have a mandatory redemption date. However, while it is not mandatorily redeemable, until conversion, the Convertible Preferred Stock was reclassified into mezzanine equity because it will become redeemable at the option of the stockholders upon the occurrence of certain deemed liquidation events that are considered not solely within the Company’s control. That is, unless a majority of the holders of the then outstanding preferred stock, on an as-if-converted to common stock basis, elect otherwise, deemed liquidation events include a sale of all or substantially all of Aziyo’s assets or a sale of at least fifty percent (50%) of the issued and outstanding voting securities, capital stock, or other comparable equity or ownership interest in Aziyo. Upon issuance of the Convertible Preferred Stock, the Company assessed the embedded conversion and liquidation features of the securities. The Company determined that the preferred stock did not require the Company to separately account for the liquidation features. At the IPO date, the Company authorized 10,000,000 shares of Preferred Stock with a par value per share of $0.001. If issued, this new Preferred Stock shall have the rights and preferences as determined by the Company’s Board of Directors. Note 13. Retirement Plan The Company has a defined contribution savings plan under section 401(k) of the Internal Revenue Code. The plan covers substantially all employees. The Company matches employee contributions made to the plan according to a specified formula. The Company’s matching contributions totaled approximately $0.2 million for each of the years ended December 31, 2020 and 2019. Note 14. Net Loss Per Share Attributable to Common Stockholders December 31, (in thousands, except share and per share data) 2020 2019 Numerator: Net loss attributable to common stockholders $ (25,335 ) $ (11,939 ) Denominator: Weighted average number of common shares, basic and diluted 2,852,541 645,994 Net loss per common share attributable to common stockholders, basic and diluted $ (8.88 ) $ (18.48 ) The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at period end, from the computation of diluted net loss per share attributable to common stockholders: December 31, 2020 2019 Convertible Preferred Stock - 3,192,444 Options to purchase common stock 917,437 281,072 Common stock warrants - 7,656 Preferred stock warrants - 29,022 Total 917,437 3,510,194 F- 22 Note 15. Distribution Agreements ViBone Exclusivity Agreement In August 2018, the Company entered into an agreement with Surgalign Holdings, Inc. (formerly RTI Surgical, Inc.) (“Surgalign Holdings”) for the exclusive distribution in the United States of the Company’s ViBone® cellular bone product. Such agreement includes requirements that Surgalign Holdings purchase certain annual minimum quantities for years 2019 through 2021 and also included an upfront payment of $2 million for the exclusivity. Such upfront payment was recorded as deferred revenue and is being amortized into revenue through the 2021 minimum purchase period. During each of the years ended December 31, 2020 and 2019, Aziyo recognized approximately $0.6 million of the $2 million as revenue, respectively. For the transition period, beginning with the commencement of the agreement and ending on December 31, 2018, Aziyo performed the billing and collections on behalf of Surgalign Holdings for certain existing ViBone customers. During this period, Aziyo also paid, on behalf of Surgalign Holdings, the related sales commissions to independent sales representatives. When Aziyo bills customers on Surgalign Holdings’ behalf, a liability due to Surgalign Holdings is recorded which is offset by the related commissions paid or to be paid on such sales. Amounts collected from customers by Aziyo on the transition period billings less the related commission amounts paid is included as a net cash inflow from financing activities on the Consolidated Statement of Cash Flows. All revenue on sales under the ViBone exclusivity agreement is recognized at the contractual transfer price from Surgalign Holdings upon shipment of the goods to the customer. Significant Customers The Company sells certain of its products under large contract manufacturing or distribution arrangements. The following table presents percentage of total revenues derived from the Company’s largest customers: Year Ended December 31, 2020 2019 Percent of revenues derived from: Medtronic Sofamor Danek USA 17% 3% Surgalign Holdings 10% 12% Osiris Therapeutics 1% 12% December 31, 2020 2019 Percent of accounts receivable derived from: Medtronic Sofamor Danek USA 34% 12% Surgalign Holdings 13% 23% Osiris Therapeutics -% 14% Note 16. Commitment and Contingencies Operating Leases The Company leases two production facilities and one administrative and research facility under non-cancelable operating lease arrangements that expire through November 2025. All leases contain renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges. The Company records rent expense on a straight-line basis over the life of the lease and the difference between the average rent expense and cash payments for rent is recorded as deferred rent and is included in accrued liabilities on the balance sheet. Rent expense for the years ended December 31, 2020 and 2019 was approximately $1.2 million and $1.1 million, respectively, and is included as a component of either cost of goods sold or general and administrative expenses. Future minimum lease commitments under non-cancelable operating leases as of December 31, 2020 are as follows (in thousands): Years ending December 31, 2021 $ 1,148 2022 1,105 2023 948 2024 781 2025 594 Total $ 4,576 F- 23 Cook Biotech License and Supply Agreements Aziyo has entered into a license agreement with Cook Biotech (“Cook”) for an exclusive, worldwide license to the porcine tissue for use in the Company’s Cardiac Patch and CanGaroo products, subject to certain co-exclusive rights retained by Cook. The term of such license is through the date of the last to expire of the licensed Cook patents, which is anticipated to be July 2031. Along with this license agreement, Aziyo entered into a supply agreement whereby Cook would be the exclusive supplier to Aziyo of the licensed porcine tissue. Under certain limited circumstances, Aziyo has the right to manufacture the licensed product and pay Cook a royalty of 3% of sales of the Aziyo-manufactured tissue. The supply agreement expires on the same date as the related license agreement. No royalties were paid to Cook during the years ended December 31, 2020 and 2019. Aziyo has also entered into an amendment to the Cook license agreement (the “Cook Amendment”) in order to add fields of exclusive use. Specifically, the Cook Amendment provides for a worldwide exclusive license to the porcine tissue for use with neuromodulation devices in addition to cardiovascular devices. The Cook Amendment includes license fee payments of  $0.1 million per year in each of the years 2021 through 2026. Such license payments would accelerate if a change in control, as defined, occurs within Aziyo. The Company, in its sole discretion, can terminate the license agreement at any time. Legal Proceedings From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. As of December 31, 2020, the Company was not a party to, or aware of, any material legal matters or claims. Note 17. Related Party Transactions Prior to the IPO, the Company had a management services agreement with an affiliate of HighCape Partners through which strategic, operational and management consulting services are provided to the Company. During the years ended December 31, 2020 and 2019, the Company recorded expenses totaling $0.2 million and $0.3 million for these services. As of December 31, 2019, approximately $0.01 million was recorded as an accrued expense related to such management fees. The management services agreement terminated upon completion of the IPO and all amounts due thereunder were paid as of December 31, 2020. As part of the contribution of assets transacted from Tissue Banks International, now KeraLink International, to Aziyo upon formation of the Company, a provision existed which guaranteed a certain level of working capital, as defined, on the opening balance sheet of Aziyo. Such guarantee was largely finalized in 2016; however, an additional $0.4 million was received by the Company in connection with a settlement reached in 2018. Furthermore, as part of the 2018 settlement, it was agreed that when Keralink sells its Aziyo common shares for net proceeds greater than $550,000, Keralink is obligated to pay Aziyo $550,000 within three days of such cash being received. While terms exist in the settlement agreement that would require Keralink to pay such amount after Aziyo’s IPO, these terms include the registration of the Keralink’s Aziyo holdings with the SEC. As the registration of Keralink’s Aziyo shares has not occurred and is not solely under the control of Aziyo, no amounts have been recorded in the accompanying consolidated financial statements for this gain contingency. Note 18. Segment Information The Company operates as one segment, regenerative medicines. The segment is based on financial information that is utilized by the Company’s Chief Operating Decision Maker (“CODM”), who is the Company’s Chief Executive Officer, to assess performance and allocate resources. For the years ended December 31, 2020 and 2019, the Company’s net sales disaggregated by the major sources – Core Products and Non-Core Products (see Note 1) - were as follows (in thousands): Year Ended December 31, Sales by product 2020 2019 Core Products $ 36,216 $ 30,918 Non-Core Products 6,466 11,983 Total Net Sales $ 42,682 $ 42,901 During the years ended December 31, 2020 and 2019, the Company did not have any international product sales to specific countries where such country-specific sales represented material product sales, and the Company did not own any long-lived assets outside the United States. F- 24