What changed in this filing

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Item 1. Financial Statements

2021-05-07 compared with 2020-11-20 · 1186 added, 1318 removed, 236 unchanged (91% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands,

Except for Share and Per Share Data)

September 30,

(In Thousands, Except for Share and Per Share

Current assets:

5 unchanged sentences

Intangible assets, net

Liabilities, Convertible Preferred Stock and Stockholders’

Liabilities and Stockholders’

Current liabilities:

10 unchanged sentences

Deferred revenue and other long-term liabilities

Preferred stock warrant liability

Total liabilities

Commitments and contingencies (Note 8)

Convertible preferred stock

Series A Preferred stock, $0.001 par value, 51,505,000 and 45,500,000 shares authorized, as of September 30, 2020 and December 31, 2019, respectively, 50,414,427 and 44,550,230 shares issued and outstanding, in September 30, 2020 and December 31, 2019, respectively

Stockholders’

Common stock, $0.001 par value, 4,801,180 and 4,514,543 shares authorized, as of September 30, 2020 and December 31, 2019 respectively, 648,679 and 648,277 issued and outstanding in September 30, 2020 and December 31, 2019, respectively

Class A Common stock, $0.001 par value, 200,000,000 shares authorized as of March 31, 2021 and December 31, 2020, and 7,092,521 and 7,091,960 shares issued and outstanding, as of March 31, 2021 and December 31, 2020, respectively

Class B Common stock, $0.001 par value, 20,000,000 shares authorized, as of March 31, 2021 and December 31, 2020 and 3,134,162 issued and outstanding as of March 31, 2021 and December 31, 2020

Additional paid-in capital

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Total stockholders’

Total liabilities, convertible preferred stock and stockholders' deficit

The accompanying notes are an integral part

of these condensed consolidated financial statements.

Total liabilities and stockholders' equity

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Biologics, Inc.

2 unchanged sentences

Three Months Ended

September 30,

Nine Months Ended

September 30,

Cost of goods sold

4 unchanged sentences

Interest expense

Other expense, net

Loss before provision for income taxes

Income tax expense

Accretion of Convertible Preferred stock

Net loss attributable to common stockholders

Net loss per share attributable

to common stockholders –

Net loss per share –

basic and diluted

1 unchanged sentence

basic and diluted

The accompanying notes are an integral part

of these condensed consolidated financial statements.

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Biologics, Inc.

1 unchanged sentence

Preferred Stock and Stockholders’

EQUITY (Deficit)

(In Thousands, Except Share Amounts)

Convertible Preferred Stock

Preferred Stock

Paid-in Capital

Stockholders’

December 31, 2020

September 30, 2019

Balance, December 31,

of Convertible Preferred Stock, net of issuance costs of $9

from stock option exercises

of Convertible Preferred stock

September 30, 2020

March 31, 2021

Preferred Stock

Class A Common

Class B Common

Number of Shares

Additional Paid-in Capital

Accumulated Deficit

Stockholders’

Balance, June 30, 2019

Stock-based compensation

Balance, September 30,

Balance, June 30, 2020

Issuance of Convertible Preferred

Stock, net of issuance costs of $9

Proceeds from stock option

Accretion of Convertible Preferred

Balance, December 31, 2019

Issuance of Convertible Preferred Stock

Stock-based compensation

Balance, September 30,

The accompanying

notes are an integral part of these condensed consolidated financial statements.

Balance, March 31, 2020

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Biologics, Inc.

1 unchanged sentence

(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

OPERATING ACTIVITIES:

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Depreciation and amortization

Loss on early extinguishment of debt

Gain on revaluation of revenue interest obligation and other

Amortization of deferred financing costs

Interest expense recorded as additional revenue interest obligation

Interest expense recorded as Convertible Preferred Stock

Stock-based compensation

Operating expense satisfied through Convertible Preferred Stock issuance

Changes in operating assets and liabilities:

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FINANCING ACTIVITIES:

Net borrowings under revolving line of credit

Proceeds from long-term debt

Proceeds from issuance of Convertible Promissory Notes

Net borrowings (repayments) under revolving line of credit

Proceeds from Convertible Preferred Stock issuance, net

2 unchanged sentences

Payments on revenue interest obligation

Deferred financing costs

Proceeds from Surgalign transition services agreement, net

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Net decrease in cash and restricted cash

4 unchanged sentences

Cash paid for taxes

Conversion of Convertible Promissory Note to Convertible Preferred Stock

The accompanying

notes are an integral part of these condensed consolidated financial statements.

The accompanying notes are an integral part of

these condensed consolidated financial statements.

Biologics, Inc.

TO consolidated CONDENSED FINANCIAL Statements

TO CONDENSED consolidated FINANCIAL Statements

Organization and Description of Business

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(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.

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.

all share and share-related information presented in these condensed 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 our initial public offering (“IPO”), we 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 to us of approximately $43.0 million, after deducting the underwriting discount

of approximately $3.5 million and offering expenses of approximately $3.5 million.

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

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 condensed 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”), we 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 to the Company of approximately $43.0 million, after deducting the underwriting discount of approximately $3.5

million and offering expenses of approximately $3.5 million.

Summary of Significant Accounting Policies

of Presentation

The accompanying

condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in

the United States of America (“GAAP”) for interim financial information and with the instructions of the Securities

and Exchange Commission (SEC) on Form 10-Q and Rule 10-01 of Regulation S-X.

Certain information and note disclosures

normally included in annual financial statements prepared in accordance with GAAP have been omitted.

The results for the nine

months ended September 30, 2020 are not necessarily indicative of results to be expected for the year ending December 31,

2020, any other interim periods, or any future year or period.

accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements

and the related notes thereto for the year ended December 31, 2019, which are included in the Company’s final prospectus

filed with the SEC pursuant to Rule 424(b)(4) on October 8, 2020 under the Securities Act of 1933, as amended (the

Securities Act).

The financial information as of September 30, 2020 and for the three

and nine months ended September 30, 2020 and 2019 is unaudited, but in the opinion of management, all adjustments, consisting

of normal and recurring adjustments, considered necessary for a fair statement of the results for these interim periods have been

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

Intercompany accounts and transactions have been eliminated in consolidation.

The condensed balance sheet as of December 31,

2019 was derived from the audited annual financial statements but does not contain all of the disclosures from the annual financial

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 condensed

consolidated financial statements for the nine months ended September 30, 2020.

expects its losses to continue for the foreseeable future and these losses will continue to have an adverse effect on our financial

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.

Basis of Presentation

The unaudited condensed consolidated

financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)

for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X.

Accordingly, they do not

include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the

Company’s consolidated financial statements and accompanying notes included in the Company's annual report on Form 10-K (Annual

Report) for the fiscal year ended December 31, 2020.

The financial information as of March 31, 2021 and for the three months ended March

31, 2021 and 2020 is unaudited, but in the opinion of management, all adjustments considered necessary for a fair statement of the results

for these interim periods have been included.

The condensed consolidated balance sheet data as of December 31, 2020 was derived

from audited financial statements but does not include all disclosures required by GAAP.

The results of the Company’s operations

for any interim period are not necessarily indicative of the results that may be expected for any other interim period or any future year

The condensed 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 condensed consolidated financial statements for the three months ended March

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

As such, the Company may need additional funding to support its continuing operations and pursue its growth strategy.

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.

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.

Loss per Share Attributable to Common Stockholders

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 is considered a participating security.

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.

Reclassifications

Certain reclassifications

have been made to prior year amounts to conform with current year financial statement presentation.

The reclassifications relate to certain

executive compensation costs and technical operations expenses at the Company’s Richmond, California plant.

As follows are the total

amounts reclassified for the three months ended March 31, 2020 along with the line items in the condensed consolidated statement of operations

that were impacted (in thousands).

From Previously

Reported Amounts

Sales and marketing

General and administrative

Research and development

These reclassifications did

not impact the Company’s consolidated earnings or assets for the three months ended March 31, 2020.

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.

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

The Convertible Preferred Stock was considered a participating security through the completion of the IPO.

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.

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’

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

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.

basic and diluted net loss per share were the same for both periods presented.

Value of Financial Instruments

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

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:

1 —Valuations based on quoted prices for identical assets and liabilities in active

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.

3 —Valuations based on unobservable inputs reflecting the Company’s own assumptions,

consistent with reasonably available assumptions made by other market participants.

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.

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.

and Restricted Cash

maintains its cash balances at banks and financial institutions.

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

Cash and Restricted

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.

provisions of the Revolving Credit Facility (see Note 5), the Company has a lockbox arrangement with the banking institution whereby

daily lockbox receipts are contractually utilized to pay down outstanding balances on the Revolver debt.

Lockbox receipts that

have not yet been applied to the Revolver are classified as restricted cash in the accompanying consolidated balance sheets.

following table provides a reconciliation of cash and restricted cash included in the condensed consolidated balance sheets to

the amounts included in the statements of cash flows (in thousands).

September 30,

The Company maintains cash balances

that may, at times, exceed this insured limit.

Under the provisions of the

Revolving Credit Facility (see Note 6), 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 condensed consolidated balance sheets to the amounts included

in the statements of cash flows (in thousands).

Restricted cash

Total cash and restricted cash shown in statements of cash flows

Receivable and Allowances

receivable in the accompanying balance sheets are presented net of allowances for doubtful accounts and sales returns and other

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.

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.

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

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.

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

Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.

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.

balance sheet date, the Company also evaluates inventories for excess quantities, obsolescence or shelf life expiration.

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

1 unchanged sentence

those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value.

and Equipment

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:

and research equipment

equipment and furniture

hardware and software

improvements are amortized on the straight-line method over the shorter of the lease term or the estimated useful life of the

and maintenance costs are expensed as incurred.

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.

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.

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.

cash flow analysis is used to estimate an asset's fair value, using assumptions that market participants would apply .

results of impairment tests are subject to management’s estimates and assumptions of projected cash flows and operating

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 during

either the three or nine months ended September 30, 2020 or 2019.

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.

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.

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

or (ii) the product is delivered to the customer or distributor, in accordance with the terms of the agreement.

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.

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.

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.

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 to 10 years

Office equipment and furniture

Computer hardware and software

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 three months ended March 31, 2021 or 2020.

Revenue Recognition

The Company’s revenue

is generated from contracts with customers in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification

606, “Revenue from Contracts with Customers”.

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:

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:

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

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.

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.

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.

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.

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.

Compensation Plans

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.

and Development Costs

and development costs, which include mainly salaries, outside services and supplies, are expensed as incurred.

Concentration

of Credit Risk

instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash.

At September 30,

2020, the Company maintained $1.9 million 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) comprises net income (loss) and other changes in equity that are excluded from net income (loss).

For the three

and nine months ended September 30, 2020 and 2019, the Company’s net loss equaled its comprehensive loss and accordingly,

no additional disclosure is presented.

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.

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.

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

Research and development costs,

which include mainly salaries, outside services and supplies, are expensed as incurred.

Concentration of

Financial instruments that

potentially subject the Company to significant concentrations of credit risk consist primarily of cash.

At March 31, 2021, the Company

maintained $30.5 million 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

Comprehensive income (loss)

comprises net income (loss) and other changes in equity that are excluded from net income (loss).

For the three months ended March 31,

2021 and 2020, the Company’s net loss equaled its comprehensive loss and accordingly, no additional disclosure is presented.

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.

Recently Issued Accounting Standards

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 SEC filers 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.

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.

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.

of this standard on January 1, 2021 did not 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;

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 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.

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, 2021.

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.

were comprised of the following (in thousands):

September 30,

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.

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 March 31, 2021, the Company had 502,216

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 three months ended March 31, 2021 is as follows:

Outstanding, December 31, 2020

Outstanding, March 31, 2021

Vested and exercisable, March 31, 2021

As of March 31, 2021, there

was approximately $7.9 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 three months ended March 31, 2021 was $8.46.

Restricted Stock Units

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.

A summary of the RSU activity

under the Company’s 2020 Plan for the three months ended March 31, 2021 is as follows:

Unvested, December 31, 2020

Outstanding, March 31, 2021

total fair value of the RSUs granted during the three months ended March 31, 2021 of $1.2 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 vesting period of three to four years.

As of March 31, 2021, $3.3 million of unrecognized compensation costs related to

RSUs is expected to be recognized over a weighted average period of 3.0 years.

Stock-Based Compensation Expense

Stock-based compensation expense recognized during

the three months ended March 31, 2021 and 2020 comprised of the following (in thousands):

Three Months Ending

Sales and marketing

General and administrative

Research and development

Cost of goods sold

Total stock-based compensation expense

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

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, 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 three months ended March 31, 2021 and 2020:

Three Months Ending

Expected term (years)

Risk-free interest rate

Volatility factor

Dividend yield

Inventories were comprised

of the following (in thousands):

Raw materials

1 unchanged sentence

Finished goods

nine months ended September 30, 2019, the Company recorded an inventory writedown of approximately $0.5 million relating

to quantities on-hand deemed to be excessive compared to near-term demand or whose remaining shelf-lives will limit salability.

Such writedown largely resulted from the impact on future sales of an existing dermis product after the Company’s launch

in mid-2019 of a new dermis offering.

Long-Term Debt

2017, in connection with the Company’s acquisition of CorMatrix described in Note 6, 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”), which the Company’s borrowing capacity under the Revolving Credit Facility is limited by certain

qualifying assets, with a financial institution (the “May 2017 Financing”).

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% (a reduction from 7.75% per annum prior to the July 2019 amendment).

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 (a deferral from principal repayments from January 2020 through

December 2021 prior to July 2019 amendment).

Both the Term Loan Facility and the Revolving Credit Facility include mandatory

and 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 Term Loan Facility also provides for a delay in the

payment of principal if certain conditions are met including a qualified initial public offering and no continuing default or

event of default.

The weighted average interest rate on Term Loan Facility borrowings for the three months ended September 30,

2020 and 2019 and for the nine months ended September 30, 2020 and 2019 was 8.5%, 9.4%, 8.7% and 10.0%, respectively.

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 the Revolving

Credit Facility borrowings for the three months ended September 30, 2020 and 2019 and for the nine months ended September 30,

2020 and 2019 was 6.2%, 7.1%, 6.1% and 7.3%, respectively.

Both debt instruments contain events of default, including, most significantly,

a failure to timely pay interest or principal, insolvency, or an action by the 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.

September 30, 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 $40,000 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.

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.

Company’s issued and outstanding Convertible Preferred Stock warrants are accounted for as a liability and are valued using

the Black Scholes model.

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 both March 31, 2021 and December 31, 2020, the Company’s borrowing capacity under its Revolving Credit

Facility was $8.0 million.

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%.

In January 2021, based on its IPO, the Company exercised its right to extend the interest-only payment

period for the Term Loan Facility to August 1, 2021 and, accordingly, interest and equal principal payments will be made beginning 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.

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 three months ended March 31, 2021 and 2020.

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 7.4% and 8.7%, respectively, for

the three months ended March 31, 2021 and 2020.

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.

weighted average interest rate on Revolving Credit Facility borrowings was 5.1% and 6.3%, respectively, for the three months ended

March 31, 2021 and 2020.

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 March 31,

2021, Aziyo was in compliance with this financial covenant.

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.

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.

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 2019, the Company’s senior lender restricted payment of certain amounts due.

2020, the Company issued convertible, subordinated promissory notes (the “Initial 2020 Bridge Notes”) with a total

principal of approximately $0.6 million.

The Initial 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.

Note 7 for discussion of the conversion of these notes into Convertible Preferred Stock in September 2020.

2020 and April 29, 2020, the Company issued additional convertible, subordinated promissory notes (the “Additional

2020 Bridge Notes”

and, together with the Initial 2020 Bridge Notes, the “2020 Bridge Notes”) with a total principal

of approximately $1.4 million.

The Additional 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.

Note 7 for discussion of the conversion of these notes into Convertible Preferred Stock in September 2020.

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 matures on May 7, 2022 and bears interest

at a rate of 1.0% per annum (unaudited).

Monthly amortized principal and interest payments are deferred for ten months after the

date of disbursement.

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.

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

2021 and 2020, the Company’s senior lender restricted payment of the amounts due.

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 contains events of default and other provisions customary for a loan of this type.

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 principal.

The Company is not yet able to determine the amount that might be forgiven, and as such,

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.

PPP loan has been recorded within long-term debt in the accompanying Consolidated Balance Sheets.

September 30,

Term Loan Facility, net of unamortized

discount and deferred financing costs

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;

however such repayment commencement has been deferred by the U.S.

Small Business Administration while they are evaluating

the Company’s forgiveness application.

Long-term debt was comprised

of the following (in thousands):

Term Loan Facility, net of unamortized discount and deferred financing costs

Note to Tissue Supplier

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Long-Term Debt

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 September 30, 2020 and December 31, 2019.

Company has 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 is fully vested and was exercisable

through the earliest to occur of (i) March 1, 2027, (ii) the consummation of a Sale Transaction (as defined in

the Company’s Certificate of Incorporation), or (iii) the initial public offering of the Company’s common

This warrant was fully exercised in connection with the IPO described in Note

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 March 31, 2021 and December 31, 2020.

Revenue Interest Obligation

2017, the Company completed an asset purchase agreement with CorMatrix Cardiovascular, Inc.

(“CorMatrix”) and

acquired all CorMatrix commercial assets and related intellectual property (the “CorMatrix Acquisition”).

of the CorMatrix Acquisition, 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.

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

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 (the “CorMatrix Acquisition”).

As part of the CorMatrix

Acquisition, 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.

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.

Company has 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.

expense related to the Revenue Interest Obligation for the three months ended September 30, 2020 and 2019 and for the nine

months ended September 30, 2020 and 2019 was approximately $0.7 million, $0.7 million, $2.0 million and $2,1 million, respectively.

Preferred Stock

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 were used for general corporate purposes and the

CorMatrix Acquisition.

During the year ended December 31, 2019 and the nine months ended September 30, 2020, Convertible

Preferred Stock offerings totaled approximately $3.0 million and $5.4 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 nine months ended September 30, 2020 occurred largely on September 11, 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

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.

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 statement of operations to arrive at “Net

Loss Attributable to Common Shareholders”

and will be included in the numerator of basic Earnings Per Share.

to the 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 Expenses in the accompanying Statements of Operations.

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, our obligation

in respect of this fee was extinguished in connection with the issuance of 375,000 shares of Convertible Preferred Stock.

Convertible Preferred Stock and the associated expense was recorded at its fair value of approximately $0.8 million.

of Convertible Preferred Stock are entitled to receive noncumulative dividends as declared by the Board of Directors.

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 have been declared by the Board of Directors from inception through September 30, 2020.

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 (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 converted into 6,578,220 shares of common stock, including

the Liquidation Shares, and the related carrying value was reclassified to common stock and additional paid-in capital.

were no shares of Convertible Preferred Stock outstanding as of the closing of the IPO on October 13, 2020.

and Balance Sheet Classification

The Convertible

Preferred Stock does not have a mandatory redemption date.

However, while it is not mandatorily redeemable, 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.

Company determined that the preferred stock did not require the Company to separately account for the liquidation features.

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 has 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.

Total future payments, including contingent milestone payments and estimated

sales-based payments, are 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.

There was no change to estimated future payments during the three

months ended March 31, 2021 and 2020 and thus, no re-measurement gain or loss was recognized.

Interest expense related to the Revenue

Interest Obligation for both the three months ended March 31, 2021 and 2020 was approximately $0.7 million.

Commitments and Contingencies

leases two production facilities and one administrative and research facility under non-cancelable operating lease arrangements

that expire through July 2023.

Operating Leases

The Company leases two production

facilities and one administrative and research facility under non-cancelable operating lease arrangements that expire through November

All leases contain renewal options and escalation clauses based upon increases in the lessors’

operating expenses and other charges.

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 other current and long-term liabilities on the balance

Rent expense for the three months ended September 30, 2020 and 2019 and for the nine months ended September 30,

2020 and 2019 was approximately $0.3 million, $0.3 million, $0.9 million and $0.8 million, respectively, and is included as a

component of either cost of goods sold or general and administrative expenses.

Biotech License and Supply Agreements

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.

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 three or nine months ended September 30, 2020 or 2019.

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 

operating expenses and other

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 other current and long-term liabilities on the balance sheet.

Rent expense for the three

months ended March 31, 2021 and 2020 was approximately $0.3 million and $0.3 million, respectively, and is included as a component of

either cost of goods sold or general and administrative expenses.

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

The supply agreement expires on the same date as the related license agreement.

No royalties were paid to Cook during the three

months ended March 31, 2021 or 2020.

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 2020 through 2026.

2 unchanged sentences

The Company, in its sole discretion, can terminate the license agreement at any time.

to time, the Company may become involved in legal proceedings arising in the ordinary course of business.

As of September 30,

2020, the Company was not a party to, or aware of, any material legal matters or claims.

Net Loss Per Share

Attributable to Common Stockholders

Legal Proceedings

From time to time, the Company

may become involved in legal proceedings arising in the ordinary course of business.

As of March 31, 2021, the Company was not a party

to, or aware of, any material legal matters or claims.

Net Loss Per Share Attributable to Common Stockholders

(In thousands, except share and per share data)

Three Months Ended

September, 30

Nine Months Ended

September, 30

Net loss attributable to common shareholders

Net loss attributable to common stockholders

Weighted average number of common shares, basic and diluted

Net loss per common share attributable to common stockholders, basic and diluted

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:

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.

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:

Three Months Ended

September 30,

Nine Months Ended,

September 30,

Convertible Preferred Stock

Options to purchase common stock

Restricted stock units

Common stock warrants

Preferred stock warrants

Related Party Transactions

has a management services agreement with an affiliate of HighCape Partners through which strategic, operational and management

consulting services are provided to the Company.

Fees for such services are $0.25 million per year.

During both the nine months

ended September 30, 2020 and 2019, the Company recorded expenses totaling $0.19 million for these services, respectively.

As of September 30, 2020 and December 31, 2019, approximately $0.2 million and $10,000, respectively, was recorded as

an accrued expense related to such management fees.

Related Party

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 three months ended March 31, 2020, the Company recorded expenses totaling $0.1 million.

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.

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.

Segment Information

The Company operates as one segment, regenerative

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 three and nine months ended September 30,

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):

Three Months Ended September 30,

Nine Months Ended September 30,

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 three months

ended March 31, 2021 and 2020, the Company’s net sales disaggregated by the major sources –

Core Products and Non-Core

Products (see Note 1) - were as follows (in thousands):

Three Months Ended

Sales by product

2 unchanged sentences

Total Net Sales

Subsequent Events

On October 7, 2020, in connection

with the Company’s IPO, the Company adopted the Aziyo Biologics, Inc.

2020 Omnibus Incentive Award Plan (the “2020

Plan”), which authorizes the grant of equity awards initially equal to 1,636,000 shares of Class A Common Stock, plus

any shares of Class A Common Stock which as of such date were available for issuance under the Aziyo Biologics, Inc.

2015 Stock Option/Stock Issuance Plan, plus an annual increase, as set forth in the 2020 Plan.

Additionally, 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”)

initially equal to 143,150 shares of Class A Common Stock, plus an annual increase, as set forth in the ESPP.

Upon adoption

of the 2020 Plan, the Company granted stock options to purchase 588,907 shares of Class A Common Stock with an exercise price

of $17.00 per share (the IPO price per share) which vest, subject to continued service, in equal annual installments over a four

year period and have a term of ten years.

On October 8, 2020, the Company granted restricted stock units (“RSU”)

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.

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

The following discussion and analysis

should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere

in this Quarterly Report, as well as the audited financial statements and the related notes thereto, and the discussion under “Management’s

Discussion and Analysis of Financial Condition and Results of Operations”

The following discussion

and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included

elsewhere in this Quarterly Report, as well as the audited financial statements and the related notes thereto, and the discussion under

“Management’s Discussion and Analysis of Financial Condition and Results of Operations”

and “Business”

included in our Prospectus

filed with the Securities and Exchange Commission (the “SEC”) on October 8, 2020 (the “Prospectus”).

This discussion contains forward-looking statements reflecting our current expectations, estimates, plans and assumptions concerning

events and financial trends that involve risks and may affect our future operating results and financial position.

in our Annual Report.

This discussion contains forward-looking statements reflecting our current expectations, estimates, plans and assumptions

concerning events and financial trends that involve risks and may affect our future operating results and financial position.

Actual results

and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors,

including those discussed in the sections entitled “Forward-Looking Statements,”

“Risk Factors Summary”

and in Part II, Item 1A.

and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including

those discussed in the section entitled “Forward-Looking Statements”

of this Quarterly Report and in the section entitled

“Risk Factor Summary”

and in Part I, Item IA.

“Risk Factors”

of this Quarterly Report.

We are a commercial-stage regenerative

medicine company focused on creating the next generation of differentiated products and improving outcomes in patients undergoing

surgery, concentrating on patients receiving implantable medical devices.

From our proprietary tissue processing platforms, we

have developed a portfolio of advanced regenerative medical products that are designed to be very similar to natural biological

Our proprietary products, which we refer to as our Core Products, are designed to address the implantable electronic

device/cardiovascular, orthopedic/spinal repair and soft tissue reconstruction markets, which represented a combined $3 billion

of our Annual Report.

are a commercial-stage regenerative medicine company focused on creating the next generation of differentiated products and improving

outcomes in patients undergoing surgery, concentrating on patients receiving implantable medical devices.

From our proprietary tissue

processing platforms, we have developed a portfolio of advanced regenerative medical products that are designed to be very similar to

natural biological material.

Our proprietary products, which we refer to as our Core Products, are designed to address the implantable

electronic device/cardiovascular, orthopedic/spinal repair and soft tissue reconstruction markets, which represented a combined $3 billion

market opportunity in the United States in 2020.

To expand our commercial reach, we have commercial relationships with major medical

device companies, such as Boston Scientific and Medtronic, to promote and sell some of our Core Products.

We believe our focus

on our unique regenerative medicine platforms and our Core Products will ultimately maximize our probability of continued clinical

and commercial success and will create a long-term competitive advantage for us.

We estimate that more than two million

patients were either implanted with medical devices, such as pacemakers, defibrillators, neuro-stimulators, spinal fusion and trauma

fracture hardware or tissue expanders for breast reconstruction, in the United States in 2019.

This number is driven by advances

in medical device technologies and an aging population with a growing incidence of comorbidities, including diabetes, obesity and

cardiovascular and peripheral vascular diseases.

These comorbidities can exacerbate various immune responses and other complications

that can be triggered by a device implant.

Our Core Products are targeted to address

unmet clinical needs with the goal of promoting healthy tissue formation and avoiding complications associated with medical device

implants, such as scar-tissue formation, capsular contraction, erosion, migration, non-union of implants and implant rejection.

We believe that we have developed the only biological envelope, which is covered by a number of patents, that forms a natural,

systemically vascularized pocket for holding implanted electronic devices.

We have a proprietary processing technology for manufacturing

bone regenerative products for use in orthopedic/spinal repair that preserves a cell’s ability to regenerate bone and decelerates

cell apoptosis or programmed cell death.

We have a patented cell removal technology that produces undamaged extracellular matrices

for use in soft tissue reconstruction.

In pre-clinical and clinical studies, our products have supported and, in some cases, accelerated

tissue healing, and thereby improved patient outcomes.

Our Non-Core Products are those fulfilled

through tissue processing contracts at our Richmond, California facility.

These contracts serve to utilize as much as possible

of the starting human biological material from which we produce our orthopedic/spinal repair and soft tissue reconstruction products,

leverage our existing overhead and improve our cash flow.

The resulting processed materials, including particulate bone, precision

milled bone, cellular bone matrix, acellular dermis and other soft tissue products, are sold to medical/surgical companies as finished

products and as a subcomponent of their products.

Additionally, we process amniotic membrane as finished product for selected customers.

We process all of our products at our two

manufacturing facilities in Roswell, Georgia and Richmond, California, and stock inventory of raw materials, components and finished

goods at those locations.

To expand our commercial reach, we have commercial relationships with major medical device

companies, such as Boston Scientific and Medtronic, to promote and sell some of our Core Products.

We believe our focus on our unique

regenerative medicine platforms and our Core Products will ultimately maximize our probability of continued clinical and commercial success

and will create a long-term competitive advantage for us.

estimate that, over the past two years, approximately two million patients per year in the United States are implanted with either medical

devices, such as pacemakers, defibrillators, neuro-stimulators, spinal fusion and trauma fracture hardware or tissue expanders for breast

reconstruction.

This number is driven by advances in medical device technologies and an aging population with a growing incidence of comorbidities,

including diabetes, obesity and cardiovascular and peripheral vascular diseases.

These comorbidities can exacerbate various immune responses

and other complications that can be triggered by a device implant.

Core Products are targeted to address unmet clinical needs with the goal of promoting healthy tissue formation and avoiding complications

associated with medical device implants, such as scar-tissue formation, capsular contraction, erosion, migration, non-union of implants

and implant rejection.

We believe that we have developed the only biological envelope, which is covered by a number of patents that forms

a natural, systemically vascularized pocket for holding implanted electronic devices.

We have a proprietary processing technology for

manufacturing bone regenerative products for use in orthopedic/spinal repair that preserves a cell’s ability to regenerate bone

and decelerates cell apoptosis or programmed cell death.

We have a patented cell removal technology that produces undamaged extracellular

matrices for use in soft tissue reconstruction.

In pre-clinical and clinical studies, our products have supported and, in some cases,

accelerated tissue healing, and thereby improved patient outcomes.

Non-Core Products are those fulfilled through tissue processing contracts at our Richmond, California facility.

These contracts serve

to utilize as much as possible of the starting human biological material from which we produce our orthopedic/spinal repair and soft tissue

reconstruction products, leverage our existing overhead and improve our cash flow.

The resulting processed materials, including particulate

bone, precision milled bone, cellular bone matrix, acellular dermis and other soft tissue products, are sold to medical/surgical companies

as finished products and as a subcomponent of their products.

Additionally, we process amniotic membrane as finished product for selected

We process all of our products

at our two manufacturing facilities in Roswell, Georgia and Richmond, California, and stock inventory of raw materials, components and

finished goods at those locations.

We rely on a single or limited number of suppliers for certain raw materials and components.

the porcine tissue supplier of our raw materials for our CanGaroo and cardiovascular products, which is Cook Biotech, we generally

for the porcine tissue supplier of our raw materials for our CanGaroo and cardiovascular products, which is Cook Biotech, we generally

have no long-term supply agreements with our suppliers, as we obtain supplies on a purchase order basis.

Specifically, we acquire

donated human tissue directly through tissue procurement firms engaged by us.

We primarily ship our Core Products from our facilities

directly to hospital customers.

Since inception, we have financed our operations

primarily through private placements of our convertible preferred stock, amounts borrowed under our credit facilities and sales

of our products.

We have devoted the majority of our resources to acquisitions and integration, manufacturing and administrative

costs, research and development, clinical activity and investing in our commercial infrastructure through our direct sales force

and our commercial partners in order to expand our presence and to promote awareness and adoption of our products.

As of September 30,

2020, we had 156 employees, of which 25 were direct sales representatives.

We have incurred significant operating

losses since our inception.

We incurred a net loss of $11.9 million for the year ended December 31, 2019, and incurred

net losses of 

$16.5 million and $9.2 million for the nine months ended September 30, 2020 and 2019, respectively.

Our accumulated deficit as of September 30, 2020 was $74.9 million.

We expect to continue to incur significant

expenses and operating losses for the foreseeable future as we seek to grow our sales organization and expand our product development

and clinical and research activities.

In addition, we expect to continue to incur additional costs and expenses associated with

operating as a public company.

Our ability to achieve profitability will

depend on our ability to generate sales from existing or new products sufficient to exceed our ongoing operating expenses and capital

Specifically, we acquire donated

human tissue directly through tissue procurement firms engaged by us.

We primarily ship our Core Products from our facilities directly

to hospital customers.

Since inception, we have

financed our operations primarily through private placements of our convertible preferred stock, amounts borrowed under our credit

facilities, sales of our products and registered sales of our common stock.

We have devoted the majority of our resources to

acquisitions and integration, manufacturing and administrative costs, research and development, clinical activity and investing in

our commercial infrastructure through our direct sales force and our commercial partners in order to expand our presence and to

promote awareness and adoption of our products.

As of March 31, 2021, we had 171 employees, of which 33 were direct sales

representatives.

We have incurred significant

operating losses since our inception.

We incurred a net loss of $21.8 million for the year ended December 31, 2020, and incurred

net losses of $5.1 million and $4.6 million for the three months ended March 31, 2021 and 2020, respectively.

Our accumulated deficit

as of March 31, 2021 was $85.3 million.

We expect to continue to incur

significant expenses and operating losses for the foreseeable future as we seek to grow our sales organization and expand our product

development and clinical and research activities.

In addition, we expect to continue to incur additional costs and expenses associated

with operating as a public company.

Our ability to achieve profitability

will depend on our ability to generate sales from existing or new products sufficient to exceed our ongoing operating expenses and capital

requirements.

Because of the numerous risks and uncertainties affecting product sales and our ongoing commercialization and product

development efforts, we are unable to predict with any certainty whether we will be able to increase sales of our products or the

timing or amount of ongoing expenditures we will be required to incur.

Accordingly, even if we are able to increase sales of our

products, we may not become profitable.

As a result, we anticipate that we will need additional funding to support our continuing

operations and pursue our growth strategy.

Until such time as we are able to generate sufficient sales from our products, we expect

to finance our operations through equity offerings, debt financings or other capital sources, which may include collaborations

or license agreements with other companies or other strategic transactions.

We may not be able to raise additional funds or enter

into such other agreements or arrangements when needed on favorable terms or at all.

If we fail to raise capital or enter into

such agreements as and when needed, we will be unable to execute our growth strategy and may be forced to reduce or terminate some

or all of our operations.

We believe that the net proceeds from our

initial public offering consummated on October 13, 2020 (the “IPO”), together with our existing cash and our availability

under our Revolving Credit Facility (as defined below), will be sufficient to fund our operating expenses and capital expenditure

requirements through 2022.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available

capital resources sooner than we expect.

Because of the numerous risks and uncertainties affecting product sales and our ongoing commercialization and product development

efforts, we are unable to predict with any certainty whether we will be able to increase sales of our products or the timing or amount

of ongoing expenditures we will be required to incur.

Accordingly, even if we are able to increase sales of our products, we may not become

As a result, we anticipate that we will need additional funding to support our continuing operations and pursue our growth

Until such time as we are able to generate sufficient sales from our products, we expect to finance our operations through equity

offerings, debt financings or other capital sources, which may include collaborations or license agreements with other companies or other

strategic transactions.

We may not be able to raise additional funds or enter into such other agreements or arrangements when needed on

favorable terms or at all.

If we fail to raise capital or enter into such agreements as and when needed, we will be unable to execute

our growth strategy and may be forced to reduce or terminate some or all of our operations.

We believe that the net proceeds

from our initial public offering consummated on October 13, 2020 (“IPO”), together with our existing cash, our availability

under our Revolving Credit Facility (as defined below) and cash generated from expected future sales, will be sufficient to fund our operating

expenses and capital expenditure requirements through 2022.

We have based this estimate on assumptions that may prove to be wrong, and

we could exhaust our available capital resources sooner than we expect.

Impact of COVID-19

We are closely monitoring the impact of

the COVID-19 pandemic on our 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 our

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

our products have been postponed or cancelled, which has negatively impacted sales of our products.

These measures and challenges

will likely continue for the duration of the pandemic, which is uncertain, and will likely continue to reduce our net sales and

negatively impact our business, financial condition and results of operations while the pandemic continues.

In addition, numerous state and local jurisdictions,

including those where our facilities are located, have imposed, and others in the future may impose or re-impose, “shelter-in-place”

orders, quarantines, executive orders and similar government orders and restrictions for their residents to control the spread

Such orders or restrictions have resulted in reduced operations at our manufacturing facilities, travel restrictions

and cancellation of events, and have restricted the ability of our sales representatives and those of our commercial partners and

independent sales agents to attend procedures in which our products are used, among other effects, thereby significantly and negatively

We are closely monitoring

the impact of the COVID-19 pandemic on our 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 our 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

As a result, beginning in March 2020, a significant number of procedures using our products have been postponed or cancelled,

which has negatively impacted sales of our products.

These measures and challenges will likely continue for the duration of the pandemic,

which is uncertain, and will likely continue to reduce our net sales and negatively impact our business, financial condition and results

of operations while the pandemic continues.

In addition, numerous state

and local jurisdictions, including those where our facilities are located, have imposed, and others in the future may impose or re-impose,

“shelter-in-place”

orders, quarantines, executive orders and similar government orders and restrictions for their residents

to control the spread of COVID-19.

Such orders or restrictions have resulted in reduced operations at our manufacturing facilities, travel

restrictions and cancellation of events, and have restricted the ability of our sales representatives and those of our commercial partners

and independent sales agents to attend procedures in which our products are used, among other effects, thereby significantly and negatively

impacting our operations.

The extent to which the COVID-19 pandemic

impacts our future financial condition and results of operations will depend on future events and developments, which are highly

uncertain and cannot be predicted, including the severity and spread of the disease and the effectiveness of actions to contain

the disease or treat its impact, among others.

As new information regarding COVID-19 continues to emerge, it is difficult to predict

the degree to which this disease will ultimately have on our business.

The extent to which the COVID-19

pandemic impacts our future financial condition and results of operations will depend on future events and developments, which are highly

uncertain and cannot be predicted, including the severity and spread of the disease and the effectiveness of actions to contain the disease

or treat its impact, among others.

As new information regarding COVID-19 continues to emerge, it is difficult to predict the degree to

which this disease will ultimately have on our business.

Components of Our Results of Operations

We recognize revenue on the sale of our

Core Products and our Non-Core Products.

With respect to our Core Products, CanGaroo and our cardiovascular products are sold to

hospitals and other healthcare facilities primarily through our direct sales force, commercial partners or independent sales agents.

We recognize revenue on

the sale of our Core Products and our Non-Core Products.

With respect to our Core Products, CanGaroo and our cardiovascular products

are sold to hospitals and other healthcare facilities primarily through our direct sales force, commercial partners or independent

sales agents.

Our orthopedic/spinal repair products are sold through commercial partners.

Our soft tissue reconstruction product SimpliDerm is

sold directly to hospitals and other healthcare facilities through direct sales and independent sales agents.

Our contract manufacturing

products are sold directly to corporate customers.

Gross to net sales adjustments include sales returns and prompt payment and

volume discounts.

In recent years, we have incurred significant

costs in the operation of our business.

We expect our expenses to continue to increase for the foreseeable future as we grow our

sales and marketing organization, expand our product development and clinical activities and increase our administrative infrastructure.

Our soft tissue reconstruction product

SimpliDerm is sold directly to hospitals and other healthcare facilities through direct sales and independent sales agents.

contract manufacturing products are sold directly to corporate customers.

Gross to net sales adjustments include sales returns and

prompt payment and volume discounts.

In recent years, we have incurred

significant costs in the operation of our business.

We expect our expenses to continue to increase for the foreseeable future as we grow

our sales and marketing organization, expand our product development and clinical activities and increase our administrative infrastructure.

As a result, we will need to generate significant net sales in order to achieve profitability.

Below is a breakdown of our main

expense categories and the related expenses incurred in each category:

Below is a breakdown of our main expense

categories and the related expenses incurred in each category:

Costs of Goods Sold

Our cost of goods sold relate to purchased

raw materials and the processing and conversion costs of such raw materials consisting primarily of salaries and benefits, supplies,

quality control testing and the manufacturing overhead incurred at our processing facilities in Richmond, California and Roswell,

Our cost of goods sold relate

to purchased raw materials and the processing and conversion costs of such raw materials consisting primarily of salaries and benefits,

supplies, quality control testing and the manufacturing overhead incurred at our processing facilities in Richmond, California and Roswell,

Both facilities have additional capacity, which if utilized, would further leverage our fixed overhead.

Cost of goods

sold also includes the amortization of intangibles generated from the CorMatrix Acquisition in 2017.

Cost of goods sold also

includes the amortization of intangibles generated from the CorMatrix Acquisition in 2017.

Sales and Marketing Expenses

Sales and marketing expenses are primarily

related to our direct sales force, consisting of salaries, commission compensation, fringe benefits, meals and other expenses.

Auto and travel costs have also historically contributed to sales and marketing expenses, albeit to a lesser extent due to the

COVID-19 pandemic.

Outside of our direct sales force, we incur significant expenses relating to commissions to our CanGaroo commercial

partners and independent sales agents.

Additionally, this expense category includes distribution costs as well as market research,

trade show attendance, advertising and public relations and customer service expenses.

We expect sales and marketing expenses to

grow commensurate with sales increases, and to an even larger degree in the near-term due to a continued focus on growing our direct

sales force and increasing marketing activities, particularly with respect to our CanGaroo and SimpliDerm product lines.

Sales and marketing expenses

are primarily related to our direct sales force, consisting of salaries, commission compensation, fringe benefits, meals and other expenses.

Auto and travel costs have also historically contributed to sales and marketing expenses, albeit to a lesser extent due to the COVID-19

Outside of our direct sales force, we incur significant expenses relating to commissions to our CanGaroo commercial partners

and independent sales agents.

Additionally, this expense category includes distribution costs as well as market research, trade show attendance,

advertising and public relations and customer service expenses.

We expect sales and marketing expenses to grow commensurate with sales

increases, and to an even larger degree in the near-term due to a continued focus on growing our direct sales force and increasing marketing

activities, particularly with respect to our CanGaroo and SimpliDerm product lines.

General and Administrative Expenses

General and administrative, or G&A,

expenses consist of compensation, consulting, legal, human resources, information technology, accounting, insurance and general

business expenses.

We expect our G&A expenses to increase as a result of operating as a public company, especially as a result

of hiring additional personnel and incurring greater director and officer insurance premiums, greater investor and public relations

costs, and additional costs associated with accounting, legal, tax-related and other services associated with maintaining compliance

with exchange listing and SEC requirements.

Research and Development Expenses

Research and development, or R&D, expenses

consist primarily of salaries and fringe benefits, laboratory supplies, clinical trials and outside service costs.

development efforts primarily relate to new offerings in support of the orthopedic/spinal repair market and activities associated

with the development of a CanGaroo envelope with anti-infective properties.

We also conduct clinical trials to validate the performance

characteristics of our products and to capture patient data necessary to support our commercial efforts.

Results of Operations

Comparison of the Three Months Ended

September 30, 2019 and 2020

Three Months Ended September 30,

Change 2019 / 2020

(in thousands,

except percentages)

Cost of goods sold

Sales and marketing

General and administrative

Research and development

Loss from operations

Interest expense

Other (income) expense, net

Loss before provision of income taxes

Income tax expense

Accretion of Convertible Preferred Stock

Net loss attributable to common stockholders

NM = not meaningful

Net sales grew $0.6 million, or 5.7%, to

$11.8 million in the three months ended September 30, 2020 compared to $11.1 million in the three months ended September 30,

The increase in net sales was due to the significant growth of our Core Products net sales, which grew $2.5 million, partially

offset by a decrease of $1.8 million in net sales of our Non-Core Products.

Net sales information for our Core Products

and Non-Core Products is summarized as follows:

Three Months Ended September 30,

Change 2019 / 2020

(in thousands, except percentages)

&NegativeThickSpace;

Core Products

Non-Core Products

Total Net Sales

Net sales generated by our Core Products

grew $2.5 million, or 31.3%, to $10.3 million in the three months ended September 30, 2020 compared to $7.9 million in the

three months ended September, 30 2019.

The Core Products net sales growth can be largely attributed to the volume growth of our

orthopedic/spinal repair products and SimpliDerm, the latter of which was launched in the second half of 2019.

The growth in our

orthopedic/spinal repair products was due to a broadening of our commercial relationships.

Net sales generated by our Non-Core Products

decreased $1.8 million, or 56.2%, to $1.4 million in the three months ended September 30, 2020 compared to $3.3 million in

the three months ended September 30, 2019.

Despite initial shipments to three new customers during the three months ended

September 30, 2020, net sales generated by our Non-Core Products decreased largely due to the reduction in the volume of products

purchased by one significant contract customer following the expiration of its contract with us in the first half of 2020.

Cost of Goods Sold

Cost of goods sold was $6.2 million and

$5.6 million in the three months ended September 30, 2020 and 2019, respectively, and included, in each case, $0.8 million

of intangible asset amortization expenses.

Gross margin in the three months ended September 30, 2020 was 47.1%, a decline

from 49.8% in the corresponding prior year period.

Gross margin, excluding intangible asset amortization, in the three months ended

September 30, 2020 was 54.3%, a decline from 57.4% in the corresponding prior year period.

Gross margin, excluding intangible

asset amortization, is a non-GAAP financial measure.

See "Non-GAAP Financial Measures”

for a discussion regarding our

use of gross margin, excluding intangible asset amortization, including its limitations and a reconciliation to the most directly

comparable GAAP financial measure.

The decline in gross margin was due to an extended plant maintenance shutdown for two consecutive

weeks during the third quarter of 2020.

This shutdown caused idle capacity during such period resulting in plant costs being charged

directly to cost of goods sold during this shutdown period rather than being a component of inventory.

An extended shutdown occurred

in the fourth quarter of 2019 and as such, did not impact our gross margin in the corresponding prior year period.

Operating Expense

(“G&A”) expenses consist of compensation, consulting, legal, human resources, information technology, accounting, insurance

and general business expenses.

We expect our G&A expenses to increase as a result of operating as a public company, especially as

a result of hiring additional personnel and incurring greater director and officer insurance premiums, greater investor and public relations

costs, and additional costs associated with accounting, legal, tax-related and other services associated with maintaining compliance with

exchange listing and SEC requirements.

Research and Development Expenses

Research and development (“R&D”)

expenses consist primarily of salaries and fringe benefits, laboratory supplies, clinical trials and outside service costs.

development efforts primarily relate to new offerings in support of the orthopedic/spinal repair market and activities associated with

the development of a CanGaroo Envelope with anti-infective properties.

We also conduct clinical trials to validate the performance characteristics

of our products and to capture patient data necessary to support our commercial efforts.

Reclassifications

Certain reclassifications

have been made to prior year amounts to conform with current year financial statement presentation.

The reclassifications relate to certain

executive compensation costs and technical operations expenses at the Company’s Richmond, California plant.

As follows are the total

amounts reclassified for the three months ended March 31, 2020 along with the line items in the condensed consolidated statement of operations

that were impacted (in thousands).

Increase (Decrease)

From Previously

Reported Amounts

Sales and marketing

Sales and marketing expenses decreased

$0.3 million, or 5.9%, to $4.2 million in the three months ended September 30, 2020 compared to $4.4 million in the three

months ended September 30, 2019.

As a percentage of sales, sales and marketing expenses fell to 35.4% in the three months

ended September 30, 2020 from 39.8% in the three months ended September 30, 2019.

The slight decrease was primarily due

to declines in salesperson travel costs due to hospital restrictions caused by the COVID-19 pandemic.

General and administrative

G&A expenses increased $0.8 million,

or 30.5 %, to $3.2 million in the year three months ended September 30, 2020 compared to $2.4 million in the three months

ended September 30, 2019.

As a percentage of net sales, G&A expenses increased from 22.0% to 27.1% in the three months

ended September 30, 2020 and 2019, respectively.

The dollar increase was primarily due to a fee of $0.8 million paid to HighCape

Partners Management, L.P.

in September 2020.

In connection with the CorMatrix Acquisition, we had agreed to pay HighCape Partners

Management, L.P.

a one-time advisory fee of $750,000 upon the first to occur of any sale transaction (as defined in our certificate

of incorporation, as then in effect) and the closing of an initial public offering.

In September 2020, our obligation

in respect of this fee was extinguished in connection with the issuance of 375,000 shares of Convertible Preferred Stock which

was recorded at its fair value.

Research and development

expenses increased to $0.9 million being incurred in the three months ended September 30, 2020 compared to $0.5 million in

the three months ended September 30, 2019.

We continue to focus our R&D efforts on the development of our pipeline products

in the orthopedic/spinal repair and CanGaroo product groups with the growth in R&D expenses in the three months ended

September 30, 2020 largely attributable to the work performed on the development of our CanGaroo anti-infective product.

respect to the costs of the individual development projects, the majority of our costs are internal salaries and benefits as well

as laboratory supplies.

These costs represent shared resources amongst all projects.

Interest Expense

Interest expense increased to approximately

$1.5 million in the three months ended September 30, 2020 compared to approximately $1.2 million in the three months ended

September 30, 2019.

The increase in interest expense in the three months ended September 30, 2020 was due to an increase

in the average outstanding balance of our Revolving Credit Facility (as defined below) as well as the interest associated with

the Silicon Valley Bank Promissory Note (as defined below) entered into by us in May 2020 under the Paycheck Protection Program

of the CARES Act.

Other Expense, net

Other expense, net was approximately $2.6

million in the three months ended September 30, 2020 and $0 in the three months ended September 30, 2019.

in the three months ended September 30, 2020 was primarily attributable to the loss on early extinguishment of debt of $2.3

See Note 4 to the consolidated financial statements for further discussion.

Accretion of Series A Preferred

Accretion of Series A Preferred Stock

was $3.5 million in the three months ended September 30, 2020 and $0 in the three months ended September 30, 2019.

Accretion of Series A Preferred Stock relates to $3.5 million of deemed dividends related to the sale of the Convertible Preferred

Stock in September 2020 below its fair value.

See Note 7 to the condensed consolidated financial statements included elsewhere

in this Quarterly Report for additional information.

Comparison of the Nine Months Ended

September 30, 2020 and 2019

Nine Months Ended September 30,

These reclassifications did

not impact our consolidated earnings or assets for the three months ended March 31, 2020.

Results of Operations

Comparison of the Three Months Ended March

31, 2021 and 2020

Three Months Ended March 31,

Change 2020 / 2021

6 unchanged sentences

Interest expense

Other (income) expense, net

Loss before provision of income taxes

Income tax expense

Accretion of Convertible Preferred Stock

Net loss attributable to common stockholders

NM = not meaningful

Net sales decreased $0.6 million, or 2.0%,

to $30.2 million in the nine months ended September 30, 2020 compared to $30.8 million in the nine months ended September 30,

The decrease in net sales was due to a decline of 

$5.0 million in net sales of our Non-Core Products, partially

offset by $4.4 million of growth in net sales of our Core Products.

Net sales information for our Core Products and Non-Core Products

is summarized as follows:

Nine Months Ended September 30,

Net sales grew $3.0 million,

or 30.6%, to $12.9 million in the three months ended March 31, 2021 compared to $9.9 million in the three months ended March 31, 2020.

The increase in net sales was due to the significant growth of our Core Products net sales, which grew $2.4 million, and an increase of

$0.6 million in net sales of our Non-Core Products.

Net sales information for

our Core Products and Non-Core Products is summarized as follows:

Three Months Ended March 31,

Change 2020 / 2021

(in thousands, except percentages)

&NegativeThickSpace;

Core Products

1 unchanged sentence

Total Net Sales

Net sales generated by our Core Products

grew $4.4 million, or 20.4%, to $26.0 million in the nine months ended September 30, 2020 compared to $21.6 million in the

nine months ended September 30, 2019.

The Core Products net sales growth can be largely attributed to the volume growth of

our orthopedic/spinal repair products and SimpliDerm, the latter of which was launched in the second half of 2019.

The growth in

our orthopedic/spinal repair products was due to a broadening of our commercial relationships.

This growth in net sales of our

Core Products occurred despite the impact of the COVID-19 pandemic, which negatively affected our sales principally during the

second quarter of 2020.

Net sales generated by our Non-Core Products

decreased $5.0 million, or 54.1%, to $4.3 million in the nine months ended September 30, 2020 from $9.3 million in the nine

months ended September 30, 2019.

This decrease was due to both the reduction in the volume of products purchased by one significant

contract customer following the expiration of its contract with us in the first half of 2020, as well as the impact of the COVID-19

pandemic, which negatively affected our sales principally during the second quarter of 2020.

Net sales generated by our

Core Products grew $2.4 million, or 29.5%, to $10.7 million in the three months ended March 31, 2021 compared to $8.2 million in the three

months ended March 31, 2020.

The Core Products net sales growth can be largely attributed to the volume growth of our orthopedic/spinal

repair products and of our SimpliDerm product.

The growth in our orthopedic/spinal repair products was primarily due to a broadening of

our commercial relationships.

Net sales generated by our

Non-Core Products increased $0.6 million, or 36.4%, to $2.2 million in the three months ended March 31, 2021 compared to $1.6 million

in the three months ended March 31, 2020.

The Non-Core Products net sales increase was primarily due to revenues associated with new contracts

signed in the latter half of 2020.

Cost of Goods Sold

Cost of goods sold decreased $0.3 million,

or 1.9%, to $15.7 million in the nine months ended September 30, 2020 compared to $16.0 million in the nine months ended September 30,

2019, and included, in each case, $2.5 million of intangible asset amortization expenses.

Gross margin was 48.1%, in the nine months

ended September 30, 2020 compared to 48.2% in the nine months ended September 30, 2019.

Gross margin, excluding intangible

asset amortization, was 56.6%, in the nine months ended September 30, 2020 compared to 56.5% in the nine months ended September 30,

Cost of goods sold for the nine months ended September 30, 2020 included approximately $0.4 million of costs due to

an extended plant maintenance shutdown for two consecutive weeks during the third quarter of 2020.

This shutdown caused idle capacity

during such period resulting in plant costs being charged directly to cost of goods sold during this shutdown period rather than

being a component of inventory.

An extended shutdown occurred in the fourth quarter of 2019 and as such, did not impact our gross

margin in the corresponding prior year period.

Cost of goods sold for the nine months ended September 30, 2019 included inventory

write-downs, due to excessive or expiring product, totaling $0.5 million, caused largely by the launch of SimpliDerm which reduced

demand for certain other dermis inventory.

Cost of goods sold was

$6.6 million and $4.6 million in the three months ended March 31, 2021 and 2020, respectively, and included, in each case, $0.8

million of intangible asset amortization expenses.

Gross margin in the three months ended March 31, 2021 was 49.1%, a decline from

52.9% in the corresponding prior year period.

Gross margin, excluding intangible asset amortization, in the three months ended March

31, 2021 was 55.7%, a decline from 61.5% in the corresponding prior year period.

Gross margin, excluding intangible asset

amortization, is a non-GAAP financial measure.

See "Non-GAAP Financial Measures”

for a discussion regarding our use of

gross margin, excluding intangible asset amortization, including its limitations and a reconciliation to the most directly

comparable GAAP financial measure.

The decline in gross margin was due mainly to product mix (higher Non-Core revenues in 2021 with

lower gross margins) and product cost benefits in the first quarter of 2020 from significant SimpliDerm production in late 2019 and

early 2020 to meet projected demand of the recently-launched product.

Operating Expenses

Sales and Marketing

Sales and marketing expenses increased

$0.9 million, or 7.6%, to $12.5 million in the nine months ended September 30, 2020 compared to $11.6 million in the nine

months ended September 30, 2019.

As a percentage of sales, sales and marketing expenses rose to 41.3% in the nine months ended

September 30, 2020 from 37.6% in the nine months ended September 30, 2019.

The increase was primarily due to a significant

increase in the number of personnel in our direct sales force which enabled us to cover new territories, as well as additions to

our marketing and hospital contracting functions.

Collectively, these personnel additions increased expenses in the nine months

ended September 30, 2020 by $1.4 million which was partially offset by declines in salesperson travel costs due to hospital

restrictions caused by the COVID-19 pandemic.

Sales and marketing expenses

increased $0.2 million, or 4.9%, to $4.7 million in the three months ended March 31, 2021 compared to $4.5 million in the three months

ended March 31, 2020.

As a percentage of sales, sales and marketing expenses fell to 36.5% in the three months ended March 31, 2021 from

45.4% in the three months ended March 31, 2020.

Along with declines in salesperson travel costs due to hospital restrictions caused by

the COVID-19 pandemic, the decrease as a percentage of sales is the result of the growth in our orthopedic/spinal repair revenues during

the first quarter of 2021, as such revenues have limited associated selling costs.

General and Administrative

G&A expenses increased $2.2 million,

or 31.9%, to $8.9 million in the nine months ended September 30, 2020 compared to $6.7 million in the nine months ended September 30,

As a percentage of net sales, G&A expenses rose to 29.4% in the nine months ended September 30, 2020 from 21.9%

in the nine months ended September 30, 2019.

The dollar increase was primarily due to senior leadership additions beginning

during late 2019, including the hiring of our Chief Commercial Officer and Chief Medical Officer, to support and drive the growth

of the business, which increased G&A expenses by $1.4 million.

Also contributing to the overall increase in the year-over-year

period was a fee of $0.8 million paid to HighCape Partners Management, L.P.

in September 2020, as discussed above under the

heading “

Comparison of the Three Months Ended September 30, 2019 and 2020 —

General and Administrative Expenses.”

G&A expenses increased

$1.0 million, or 38.3%, to $3.6 million in the year three months ended March 31, 2021 compared to $2.6 million in the three months ended

March 31, 2020.

As a percentage of net sales, G&A expenses increased to 28.0% in the three months ended March 31, 2021 from 26.4%

in the three months ended March 31, 2020.

The dollar increase was primarily due to costs of being a public company, most notably increases

in directors and officers insurance, legal fees and stock-based compensation.

Research and Development

R&D expenses increased $1.1 million,

or 61.5%, to $2.8 million in the nine months ended September 30, 2020 compared to $1.7 million in the nine months ended September 30,

We continue to focus our R&D efforts on the development of our pipeline products in the orthopedic/spinal repair and

CanGaroo product groups, with the growth in R&D expenses in the nine months ended September 30, 2020 largely attributable

to the work performed on the development of our CanGaroo anti-infective product.

Additionally, during the nine months ended September 30,

2020, increased clinical trial activities also caused higher R&D costs compared to the same prior year period.

R&D expenses increased

to $1.7 million incurred in the three months ended March 31, 2021 compared to $1.3 million in the three months ended March 31, 2020.

continue to focus our R&D efforts on the development of our pipeline products with the growth in R&D expenses in the three months

ended March 31, 2021 largely attributable to the work performed on the development of our CanGaroo anti-infective product.

to the costs of the individual development projects, the majority of our costs are internal salaries and benefits as well as laboratory

1 unchanged sentence

Interest Expense

Interest expense increased to approximately

$4.2 million in the nine months ended September 30, 2020 compared to approximately $3.9 million in the nine months ended September 30,

The increase in interest expense in the nine months ended September 30, 2020 was due to an increase in the average outstanding

balance of our Revolving Credit Facility as well as the interest associated with the $3.0 million Silicon Valley Bank Promissory

Note, entered into by us in May 2020 under the Paycheck Protection Program of the CARES Act.

Other Expense, net

Other expense, net was approximately

$2.6 million in the nine months ended September 30, 2020 and $0 in the nine months ended September 30, 2019.

increase in the nine months ended September 30, 2020 was primarily attributable to the loss on early extinguishment of

debt of $2.3 million.

See Note 3 to the consolidated financial statements for further discussion.

Accretion of Series A Preferred

Stock was $3.5 million in the nine months ended September 30, 2020 and $0 in the nine months ended September 30,

The Accretion of Series A Preferred Stock relates to $3.5 million of deemed dividends related to the sale of the

Convertible Preferred Stock in September 2020 below its fair value.

See Note 7 to the condensed consolidated financial

statements included elsewhere in this Quarterly Report for additional information.

Non-GAAP Financial Measures

This Quarterly Report presents our gross

margin, excluding intangible asset amortization, for the three and nine months ended September 30, 2020 and 2019.

gross margin, excluding intangible asset amortization, as gross profit, excluding amortization expense relating to intangible assets

we acquired in the CorMatrix Acquisition, divided by net sales.

Gross margin, excluding intangible asset amortization, is a supplemental

measure of our performance, is not defined by or presented in accordance with U.S.

generally accepted accounting principles, or

GAAP, has limitations as an analytical tool and should not be considered in isolation or as an alternative to our GAAP gross margin,

gross profit or any other financial performance measure presented in accordance with GAAP.

We present gross margin, excluding intangible

asset amortization, because we believe that it provides meaningful supplemental information regarding our operating performance

by removing the impact of amortization expense, which is not indicative of our overall operating performance.

We believe this provides

our management and investors with useful information to facilitate period-to-period comparisons of our operating results.

Our management

uses this metric in assessing the health of our business and our operating performance, and we believe investors’

understanding

of our operating performance is similarly enhanced by our presentation of this metric.

Although we use gross margin, excluding

intangible asset amortization, as described above, this metric has limitations as an analytical tool and should not be considered

Interest expense was approximately

$1.4 million in both the three months ended March 31, 2021 and 2020.

These expenses relate primarily to the debt agreements noted below

and the Revenue Interest Obligation defined and described in Note 7 to the condensed consolidated financial statements shown elsewhere

in this Quarterly Report.

Non-GAAP Financial

This Quarterly Report presents

our gross margin, excluding intangible asset amortization, for the three months ended March 31, 2021 and 2020.

We calculate gross margin,

excluding intangible asset amortization, as gross profit, excluding amortization expense relating to intangible assets we acquired in

the CorMatrix Acquisition, divided by net sales.

Gross margin, excluding intangible asset amortization, is a supplemental measure of our

performance, is not defined by or presented in accordance with U.S.

generally accepted accounting principles (“GAAP”), has

limitations as an analytical tool and should not be considered in isolation or as an alternative to our GAAP gross margin, gross profit

or any other financial performance measure presented in accordance with GAAP.

We present gross margin, excluding intangible asset amortization,

because we believe that it provides meaningful supplemental information regarding our operating performance by removing the impact of

amortization expense, which is not indicative of our overall operating performance.

We believe this provides our management and investors

with useful information to facilitate period-to-period comparisons of our operating results.

Our management uses this metric in

assessing the health of our business and our operating performance, and we believe investors’

understanding of our operating performance

is similarly enhanced by our presentation of this metric.

Although we use gross margin,

excluding intangible asset amortization, as described above, this metric has limitations as an analytical tool and should not be considered

in isolation or as a substitute for financial information presented in accordance with GAAP.

In addition, other companies, including

companies in our industry, may use other measures to evaluate their performance, which could reduce the usefulness of this non-GAAP

financial measure as a tool for comparison.

The following table presents a reconciliation

of our gross margin, excluding intangible asset amortization, for the three and nine months ended September 30, 2020 and 2019

to the most directly comparable GAAP financial measure, which is our GAAP gross margin (in thousands).

Three Months Ended September 30,

Nine Months Ended September 30,

In addition, other companies, including companies

in our industry, may use other measures to evaluate their performance, which could reduce the usefulness of this non-GAAP financial

measure as a tool for comparison.

The following table presents

a reconciliation of our gross margin, excluding intangible asset amortization, for the three months ended March 31, 2021 and 2020 to the

most directly comparable GAAP financial measure, which is our GAAP gross margin (in thousands).

Three Months Ended

Cost of Goods Sold

Intangible asset amortization expense

1 unchanged sentence

Gross margin, excluding intangible asset amortization

Historically, we have experienced seasonality

in our first and fourth quarters, and we expect this trend to continue.

We have experienced and may in the future experience higher

sales in the fourth quarter as a result of hospitals in the United States increasing their purchases of our products to coincide

with the end of their budget cycles.

Satisfaction of patient deductibles throughout the course of the year also results in increased

sales later in the year, once patients have paid their annual insurance deductibles in full, which reduces their out-of-pocket

Conversely, our first quarter generally has lower sales than the preceding fourth quarter as patient deductibles are re-established

with the new year, which increases their out-of-pocket costs.

Historically, we have

experienced seasonality, with lower sales in our first quarter and higher sales in our fourth quarter, and we expect this trend to

We have experienced and may in the future experience higher sales in the fourth quarter as a result of hospitals in the

United States increasing their purchases of our products to coincide with the end of their budget cycles.

Satisfaction of patient

deductibles throughout the course of the year also results in increased sales later in the year, once patients have paid their

annual insurance deductibles in full, which reduces their out-of-pocket costs.

Conversely, our first quarter generally has lower

sales than the preceding fourth quarter as patient deductibles are re-established with the new year, which increases their

out-of-pocket costs.

Liquidity and Capital Resources

As of September 30, 2020, we had

cash of approximately $1.6 million and availability under our Revolving Credit Facility of $2.1 million.

Since inception, we

have financed our operations primarily through private placements of our convertible preferred stock, amounts borrowed under

our credit facilities and sales of our products.

Our historical cash outflows have primarily been associated with acquisition

and integration, manufacturing costs, general and marketing, research and development, clinical activity and investing in our

commercial infrastructure through our direct sales force and our commercial partners in order to expand our presence and to

promote awareness and adoption of our products.

As of September 30, 2020, our accumulated deficit was $74.9 million.

As of March 31, 2021, we had

cash and restricted cash of approximately $30.5 million and availability under our Revolving Credit Facility of $4.5 million.

historically financed our operations primarily through private placements of our convertible preferred stock, amounts borrowed under our

credit facilities and sales of our products and, more recently, with proceeds from our IPO.

Our historical cash outflows have primarily

been associated with acquisition and integration, manufacturing costs, general and marketing, research and development, clinical activity,

purchase of property and equipment used in the production activities of our Richmond, California facility and investing in our commercial

infrastructure through our direct sales force and our commercial partners in order to expand our presence and to promote awareness and

adoption of our products.

As of March 31, 2021, our accumulated deficit was $85.3 million.

On October 13, 2020, in connection

with our IPO, we 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 to us

of approximately $43.0 million, after deducting the underwriting discount of approximately $3.5 million and offering expenses of

approximately $3.5 million.

We expect our losses to continue for the

foreseeable future and these losses will continue to have an adverse effect on our financial position.

with our IPO, we 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 to us of approximately $43.0 million,

after deducting the underwriting discount of approximately $3.5 million and offering expenses of approximately $3.5 million.

We expect our 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 our commercialization and development efforts, we are unable to predict when we will become

profitable, and we may never become profitable.

Our inability to achieve and then maintain profitability would negatively affect

our business, financial condition, results of operations and cash flows.

risks and uncertainties associated with our commercialization and development efforts, we are unable to predict when we will become profitable,

and we may never become profitable.

Our inability to achieve and then maintain profitability would negatively affect our business, financial

condition, results of operations and cash flows.

As discussed below under “—

Funding Requirements,”

we may need additional funding to support our continuing operations and pursue our growth strategy.

We believe that the net proceeds from our

initial public offering consummated on October 13, 2020 (the “IPO”), together with our existing cash and our availability

under our Revolving Credit Facility, will be sufficient to fund our operating expenses and capital expenditure requirements through

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources

sooner than we expect.

Cash Flows for the Nine Months Ended

September 30, 2019 and 2020

Nine Months Ended September 30,

we may need additional

funding to support our continuing operations and pursue our growth strategy.

We believe that the net proceeds

from our IPO, together with our existing cash, availability under our Revolving Credit Facility and cash generated from expected future

commercial sales will be sufficient to fund our operating expenses and capital expenditure requirements through 2022.

We have based this

estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

Cash Flows for the Three Months Ended March

31, 2021 and 2020

Months Ended March 31,

Net cash (used in) provided by:

5 unchanged sentences

Net Cash Used in Operating Activities

Net cash used in operating activities during

the nine months ended September 30, 2020 totaled $8.3 million, primarily driven by a $16.5 million net loss reduced by non-cash

related items, including $2.9 million in depreciation on fixed assets and amortization of intangible assets, $2.0 million in interest

expense recorded as additional revenue interest obligation, $0.8 million of operating expenses satisfied through a preferred stock

issuance and a $2.3 million loss on early extinguishment of debt.

Working capital reductions of 

$0.4 million also contributed

to the net cash used for operations.

Net cash used in operating activities during

the nine months ended September, 2019 totaled $4.7 million primarily driven by a $9.2 million net loss reduced by non-cash related

items, including $2.9 million in depreciation on fixed assets and amortization of intangible assets as well as $2.1 million in

interest expense recorded as additional revenue interest obligation.

Working capital reductions of 

$0.8 million also contributed

to the net cash used for operations.

Net cash used in operating activities during the

three months ended March 31, 2021 totaled $5.2 million, primarily driven by a $5.1 million net loss reduced by non-cash related items,

including $0.9 million in depreciation on fixed assets and amortization of intangible assets, $0.7 million in interest expense recorded

as additional revenue interest obligation and $0.7 million of expense related to stock-based compensation.

Working capital changes of

$2.4 million also contributed to the net cash used for operations.

Net cash used in operating activities during the

three months ended March 31, 2020 totaled $3.0 million primarily driven by a $4.6 million net loss reduced by non-cash related items,

including $1.0 million in depreciation on fixed assets and amortization of intangible assets as well as $0.7 million in interest expense

recorded as additional revenue interest obligation.

Working capital changes of $0.2 million also contributed to the net cash used for

Net Cash Used in Investing Activities

Net cash used in investing activities during

the nine months ended September 30, 2020 and 2019 totaled approximately $0.5 million and $0.4 million, respectively, and were,

in each case, related to the purchase of property and equipment.

Net Cash Provided by Financing Activities

Net cash provided by financing activities

in the nine months ended September 30, 2020 totaled $7.8 million, which includes $3.0 million of proceeds from a Paycheck

Protection Program loan under the CARES Act, net borrowings from the Revolving Credit Facility of approximately $1.6 million, approximately

$2.0 million in proceeds from the issuance of the 2020 Bridge Notes, and proceeds from Convertible Preferred Stock Issuance of approximately

$3.4 million.

These increases from financing activities were offset by approximately $1.9 million in payments on the revenue interest

Net cash provided by financing activities

in the nine months ended September 30, 2019 totaled $3.2 million, which was generated primarily from the $3.9 million of net

borrowings from the Revolving Credit Facility offset by approximately $1.4 million in payments on revenue interest obligation.

Net cash used in investing activities during both

the three months ended March 31, 2021 and 2020 totaled approximately $0.1 million and were, in each case, related to the purchase of property

and equipment, the majority of which are used in the production activities of our Richmond, California facility.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities in the three

months ended March 31, 2021 totaled $3.7 million, which includes $3.1 million of net repayments from the Revolving Credit Facility and

$0.7 million in payments on the revenue interest obligation.

Net cash provided by financing activities in the

three months ended March 31, 2020 totaled $1.1 million, which was generated primarily from the $1.6 million of net borrowings from the

Revolving Credit Facility and $0.4 of proceeds from the issuance of convertible preferred stock offset by approximately $0.6 million in

payments on revenue interest obligation and $0.3 million of repayments on our long-term debt.

Credit Facilities

On July 15, 2019, Aziyo and Aziyo

Med, LLC, which we refer to collectively as the Borrowers, entered into an amended and restated term loan credit agreement (the

“Term Loan Credit Agreement”), with Midcap Financial Trust, as agent and lender, and the other lenders party thereto,

which provided for the conversion of our existing term loans into borrowing under the Term Loan Credit Agreement (consisting of

a $8.5 million tranche (Term Loan Tranche 1), a $5.0 million tranche (Term Loan Tranche 2) and a $3.0 million tranche

(Term Loan Tranche 3)), and established a new $3.5 million tranche (Term Loan Tranche 4) and a new $5.0 million tranche

(Term Loan Tranche 5).

Commitments in respect of Term Loan Tranche 5 terminated without being borrowed on June 30, 2020.

refer to Term Loan Tranche 1, Term Loan Tranche 2, Term Loan Tranche 3 and Term Loan Tranche 4 collectively as the Term Loan Facility.

On July 15, 2019, the Borrowers also

entered into an amended and restated revolving credit agreement (the “Revolving Credit Agreement”), with Midcap Funding

IV Trust, as agent and lender, and the other lenders party thereto, which provided for an $8.0 million asset-based revolving

On July 15, 2019, Aziyo

and Aziyo Med, LLC, which we refer to collectively as the Borrowers, entered into an amended and restated term loan credit agreement (the

“Term Loan Credit Agreement”), with Midcap Financial Trust, as agent and lender, and the other lenders party thereto, which

provided for the conversion of our existing term loans into borrowing under the Term Loan Credit Agreement (consisting of a $8.5 million

tranche (Term Loan Tranche 1), a $5.0 million tranche (Term Loan Tranche 2) and a $3.0 million tranche (Term Loan Tranche 3)),

and established a new $3.5 million tranche (Term Loan Tranche 4) and a new $5.0 million tranche (Term Loan Tranche 5).

in respect of Term Loan Tranche 5 terminated without being borrowed on June 30, 2020.

We refer to Term Loan Tranche 1, Term Loan

Tranche 2, Term Loan Tranche 3 and Term Loan Tranche 4 collectively as the Term Loan Facility.

On July 15, 2019, the

Borrowers also entered into an amended and restated revolving credit agreement (the “Revolving Credit Agreement”), with Midcap

Funding IV Trust, as agent and lender, and the other lenders party thereto, which provided for an $8.0 million asset-based revolving

credit facility (the “Revolving Credit Facility”).

of September 30, 2020, we had $19.7 million of indebtedness outstanding under our Term Loan Facility (net of 

of unamortized discount and deferred financing costs) and $ 5.9 million outstanding under our Revolving Credit Facility

(with $2.1 million of additional borrowings available thereunder).

As of March 31, 2021, we had

$19.8 million of indebtedness outstanding under our Term Loan Facility (net of $0.2 million of unamortized discount and deferred

financing costs) and $3.5 million outstanding under our Revolving Credit Facility (with $4.5 million of additional borrowings

available thereunder).

Interest Rates and Fees

Borrowings under the Term Loan Facility

accrue interest at a rate per year equal to the LIBOR Rate (as defined below) plus a margin of 7.25%.

Borrowings under the Revolving

Credit Facility bear interest at the per annum rate equal to the LIBOR Rate plus a margin of 4.95%.

The LIBOR Rate is defined as

the greater of 2.25% and the applicable London Interbank Offered Rate for U.S.

dollar deposits divided by 1.00 minus the maximum

effective reserve percentage for Eurocurrency funding.

Under the terms of the Revolving Credit

Facility, we can borrow up to an amount (the “Borrowing Base”), equal to (1) 85.0% of the aggregate net amount

at such time of the Eligible Accounts (as defined in the Revolving Credit Agreement), plus (2) 50% of the value of the Eligible

Inventory (as defined in the Revolving Credit Agreement), valued at the lower of first-in-first-out cost or market cost, and after

factoring in all rebates, discounts and other incentives or rewards associated with the purchase of the applicable Eligible Inventory

(provided that the Borrowing Base will be automatically adjusted down, if necessary, such that the aggregate availability from

Eligible Inventory shall never exceed the lesser of 

(x) an amount equal to 40.0% of the Borrowing Base and (y) $2,000,000).

The amount available for borrowing under the Revolving Credit Facility may also be reduced by certain reserve amounts that may

be established by the administrative agent from time to time .

In addition to paying interest on the principal

amounts outstanding under the Revolving Credit Facility, we are required to pay an unused line fee to the lenders under the Revolving

Credit Facility in respect of the unutilized commitments thereunder equal to 0.50% multiplied by the lesser of 

Borrowings under the Term

Loan Facility accrue interest at a rate per year equal to the LIBOR Rate (as defined below) plus a margin of 7.25%.

Borrowings under the

Revolving Credit Facility bear interest at the per annum rate equal to the LIBOR Rate plus a margin of 4.95%.

The LIBOR Rate is defined

as the greater of 2.25% and the applicable London Interbank Offered Rate for U.S.

dollar deposits divided by 1.00 minus the maximum effective

reserve percentage for Eurocurrency funding.

Under the terms of the

Revolving Credit Facility, we can borrow up to an amount (the “Borrowing Base”), equal to (1) 85.0% of the

aggregate net amount at such time of the Eligible Accounts (as defined in the Revolving Credit Agreement), plus (2) 50% of the

value of the Eligible Inventory (as defined in the Revolving Credit Agreement), valued at the lower of first-in-first-out cost or

market cost, and after factoring in all rebates, discounts and other incentives or rewards associated with the purchase of the

applicable Eligible Inventory (provided that the Borrowing Base will be automatically adjusted down, if necessary, such that the

aggregate availability from Eligible Inventory shall never exceed the lesser of (x) an amount equal to 40.0% of the

Borrowing Base and (y) $2,000,000).

The amount available for borrowing under the Revolving Credit Facility may also be reduced

by certain reserve amounts that may be established by the administrative agent from time to time .

In addition to paying interest

on the principal amounts outstanding under the Revolving Credit Facility, we are required to pay an unused line fee to the lenders under

the Revolving Credit Facility in respect of the unutilized commitments thereunder equal to 0.50% multiplied by the lesser of (1) the

unutilized commitments and (2) $8,000,000 minus 40% of the Borrowing Base.

Mandatory Prepayments

The Term Loan Credit Agreement requires

the Borrowers to prepay amounts outstanding under the Term Loan Facility, subject to certain exceptions, with:

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 is

In addition, the Borrowers are 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.

The Revolving Credit Agreement requires

the Borrowers to prepay amounts outstanding under the Revolving Credit Facility (or provide cash collateral up to the amount of

any outstanding letter of credit obligations) to the extent outstanding borrowings under the Revolving Credit Facility exceed the

lesser of (1) $8,000,000 and (2) the Borrowing Base.

The Term Loan Credit Agreement

requires the Borrowers to prepay amounts outstanding under the Term Loan Facility, subject to certain exceptions, with:

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 is calculated.

addition, the Borrowers are 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 three months ended March 31, 2021 and 2020.

The Revolving Credit Agreement

requires the Borrowers to prepay amounts outstanding under the Revolving Credit Facility (or provide cash collateral up to the amount

of any outstanding letter of credit obligations) to the extent outstanding borrowings under the Revolving Credit Facility exceed the lesser

of (1) $8,000,000 and (2) the Borrowing Base.

Optional Prepayment

The Borrowers may prepay the Term Loan

Facility in whole but not in part at any time with at least 10 business days’

prior written notice, provided, however, that

such prepayment shall be accompanied by a portion of the Exit Fee (as defined below) equal to the amount prepaid divided by the

then-outstanding principal amount of borrowings outstanding under the Term Loan Facility, and a prepayment fee equal to the amount

prepaid multiplied by, in the case of Term Loan Tranche 1, Term Loan Tranche 2 or Term Loan Tranche 3, 3.0% until July 15,

2021 and 2.0% thereafter, and, in the case of Term Loan Tranche 4, 4.0% until November 21, 2020, 3.0% until November 21,

2021 and 2.0% thereafter.

The “Exit Fee”

is defined as an amount equal to 6.50% multiplied by the aggregate principal

amount of all borrowings advanced to the Borrowers under the Term Loan Facility.

The Borrowers may prepay the Revolving

Credit Facility in whole or in part at any time, provided, however, that any such partial prepayment shall be in an amount equal

The Borrowers may prepay the

Term Loan Facility in whole but not in part at any time with at least 10 business days’

prior written notice, provided, however,

that such prepayment shall be accompanied by a portion of the Exit Fee (as defined below) equal to the amount prepaid divided by the then-outstanding

principal amount of borrowings outstanding under the Term Loan Facility, and a prepayment fee equal to the amount prepaid multiplied by,

in the case of Term Loan Tranche 1, Term Loan Tranche 2 or Term Loan Tranche 3, 3.0% until July 15, 2021 and 2.0% thereafter,

and, in the case of Term Loan Tranche 4, 4.0% until November 21, 2020, 3.0% until November 21, 2021 and 2.0% thereafter.

“Exit Fee”

is defined as an amount equal to 6.50% multiplied by the aggregate principal amount of all borrowings advanced

to the Borrowers under the Term Loan Facility.

The Borrowers may prepay the

Revolving Credit Facility in whole or in part at any time, provided, however, that any such partial prepayment shall be in an amount equal

to $100,000 or a higher integral multiple of $25,000.

Amortization and Final Maturity

The Borrowers are required to make interest-only

payments prior to February 1, 2021, the Initial Amortization Start Date.

Commencing on the Initial Amortization Start Date,

and continuing on the first day of each calendar month thereafter, in addition to interest payments, the Borrowers must repay an

amount equal to the total principal amount of borrowings under the Term Loan Facility divided by 42, for a 42-month straight-line

amortization of equal monthly principal payments;

provided, however, that if certain conditions are satisfied prior to December 1,

2020 (including our completion of a qualified initial public offering and no continuing default or event of default), the Initial

Amortization Start Date may, upon our request, be extended to August 1, 2021, in which case the principal payments to be made

in respect of borrowings under the Term Loan Facility shall be in an amount equal to the total principal amount of borrowings under

the Term Loan Facility divided by 36, for a 36-month straight-line amortization of equal monthly principal payments.

The remaining

unpaid balance on the Term Loan Facility, together with all accrued and unpaid interest thereon and any remaining unpaid amount

of the Exit Fee, is due and payable on July 15, 2024.

Outstanding borrowings under the Revolving

Credit Facility do not amortize and are due and payable on July 15, 2024.

All obligations under the Term Loan Facility

and the Revolving Credit Facility are, and any future guarantees of those obligations will be, secured by, among other things,

and in each case subject to certain exceptions, a first priority lien on and security interest in, upon, and to all of each Borrower’s

The Borrowers are required

to make interest-only payments prior to the principal amortization start date.

The Term Loan Facility provided that if certain conditions

were satisfied prior to December 1, 2020 (including our completion of a qualified initial public offering and no continuing default or

event of default), the principal amortization start date may, upon our request, be extended to August 1, 2021 (from the previous principal

amortization start date of February 1, 2021).

Based on the completion of our IPO, in January 2021, we exercised this interest-only period

extension right and as such, the principal payments in respect of borrowings under the Term Loan Facility will commence on August 1, 2021.

Such principal payments shall be in an amount equal to the total principal amount of borrowings under the Term Loan Facility divided by

36, for a 36-month straight-line amortization of equal monthly principal payments.

The remaining unpaid balance on the Term Loan Facility,

together with all accrued and unpaid interest thereon and any remaining unpaid amount of the Exit Fee, is due and payable on July 15,

Outstanding borrowings under

the Revolving Credit Facility do not amortize and are due and payable on July 15, 2024.

All obligations under the

Term Loan Facility and the Revolving Credit Facility are, and any future guarantees of those obligations will be, secured by, among other

things, and in each case subject to certain exceptions, a first priority lien on and security interest in, upon, and to all of each Borrower’s

assets, including all goods, equipment, inventory, contract rights or rights to payment of money, leases, license agreements, franchise

agreements, general intangibles, commercial tort claims, documents, instruments (including any promissory notes), chattel paper

(whether tangible or electronic), cash, deposit accounts, securities accounts, fixtures, letter of credit rights (whether or not

the letter of credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial

assets, whether now owned or hereafter acquired, wherever located.

agreements, general intangibles, commercial tort claims, documents, instruments (including any promissory notes), chattel paper (whether

tangible or electronic), cash, deposit accounts, securities accounts, fixtures, letter of credit rights (whether or not the letter of

credit is evidenced by a writing), securities, and all other investment property, supporting obligations, and financial assets, whether

now owned or hereafter acquired, wherever located.

Covenants and Other Matters

The Term Loan Credit Agreement and the

Revolving Credit Agreement each contain a number of covenants that, among other things and subject to certain exceptions, restrict

the ability of the Borrowers to:

The Term Loan Credit

Agreement and the Revolving Credit Agreement each contain a number of covenants that, among other things and subject to certain exceptions,

restrict the ability of the Borrowers to:

incur additional indebtedness;

11 unchanged sentences

enter into sale and leaseback transactions.

In addition, the Term Loan Credit Agreement

and the Revolving Credit Agreement contain a financial covenant, which is tested on a monthly basis, and requires us to achieve

a specified Minimum Net Product Revenue (as defined in the applicable credit agreement) for the preceding 12-month period.

The Term Loan Credit Agreement and the

Revolving Credit Agreement each contains events of default, including, most significantly, a failure to timely pay interest or

principal, insolvency, or an action by the FDA or such other material adverse event impacting the operations of Aziyo.

The Term Loan Credit Agreement and the

Revolving Credit Agreement also contain certain customary representations and warranties and affirmative covenants, and certain

reporting obligations.

In addition, the Term

Loan Credit Agreement and the Revolving Credit Agreement contain a financial covenant, which is tested on a monthly basis, and requires

us to achieve a specified Minimum Net Product Revenue (as defined in the applicable credit agreement) for the preceding 12-month period.

The Term Loan Credit

Agreement and the Revolving Credit Agreement each contains events of default, including, most significantly, a failure to timely pay interest

or principal, insolvency, or an action by the FDA or such other material adverse event impacting the operations of Aziyo.

The Term Loan Credit

Agreement and the Revolving Credit Agreement also contain certain customary representations and warranties and affirmative covenants,

and certain reporting obligations.

In addition, the lenders will be permitted to accelerate all outstanding borrowings and other obligations,

terminate outstanding commitments and exercise other specified remedies upon the occurrence of certain events of default (subject

to certain grace periods and exceptions), which include, among other things, payment defaults, breaches of representations and

warranties, covenant defaults, certain cross-defaults and cross-accelerations to other indebtedness, certain events of bankruptcy

and insolvency, certain judgments and changes of control.

In May 2020, we entered into a promissory

note with Silicon Valley Bank, or SVB, under the Paycheck Protection Program of the CARES Act pursuant to which SVB agreed to make

a loan to us in the amount of approximately $3.0 million.

The PPP Loan matures in May 2022, bears interest at a rate of 1.0%

per annum and requires no payments during the first six months from the date of the loan.

The PPP Loan is unsecured and guaranteed

by the Small Business Administration, or the SBA.

Under the terms of the PPP Loan, the principal

amount of the loan may be forgiven to the extent it is used for qualifying expenses as described in the CARES Act and we otherwise

request forgiveness in accordance with the terms of the PPP Loan and the requirements of the SBA.

The agreement governing the PPP

Loan also provides that if we knowingly use the proceeds of such loan for unauthorized purposes, we may be subject to liability,

terminate outstanding commitments and exercise other specified remedies upon the occurrence of certain events of default (subject to certain

grace periods and exceptions), which include, among other things, payment defaults, breaches of representations and warranties, covenant

defaults, certain cross-defaults and cross-accelerations to other indebtedness, certain events of bankruptcy and insolvency, certain judgments

and changes of control.

In May 2020, we entered into

a promissory note with Silicon Valley Bank, or SVB, under the Paycheck Protection Program of the CARES Act pursuant to which SVB agreed

to make a loan to us in the amount of approximately $3.0 million.

The PPP Loan bears interest at a rate of 1.0% per annum with monthly

principal and interest payments beginning in March 2021 and ending on the maturity date of May 7, 2022;

however such repayment commencement

has been deferred by the U.S.

Small Business Administration while they are evaluating the Company’s forgiveness application.

PPP Loan is unsecured and guaranteed by the Small Business Administration, or the SBA.

Under the terms of the PPP

Loan, the principal amount of the loan may be forgiven to the extent it is used for qualifying expenses as described in the CARES Act

and we otherwise request forgiveness in accordance with the terms of the PPP Loan and the requirements of the SBA.

The agreement governing

the PPP Loan also provides that if we knowingly use the proceeds of such loan for unauthorized purposes, we may be subject to liability,

including charges of fraud.

We will be required to repay any principal amount of the PPP Loan that is not forgiven, together with

accrued and unpaid interest, in equal monthly installments prior to the maturity date of the loan.

In addition, we are permitted

to prepay the PPP Loan at any time without penalty or premium.

SVB will be permitted to accelerate all outstanding borrowings and

other obligations and exercise other specified remedies upon the occurrence of certain events of default, which include, among

other things, payment defaults, breaches of representations and warranties, covenant defaults, certain cross-defaults and cross-accelerations

to other indebtedness, certain events of bankruptcy and insolvency, certain judgments and changes to our ownership or business

We will be required to repay any principal amount of the PPP Loan that is not forgiven, together with accrued

and unpaid interest, in equal monthly installments prior to the maturity date of the loan.

In addition, we are permitted to prepay the

PPP Loan at any time without penalty or premium.

SVB will be permitted to accelerate all outstanding borrowings and other obligations

and exercise other specified remedies upon the occurrence of certain events of default, which include, among other things, payment defaults,

breaches of representations and warranties, covenant defaults, certain cross-defaults and cross-accelerations to other indebtedness, certain

events of bankruptcy and insolvency, certain judgments and changes to our ownership or business structure.

2020 Bridge Notes

In April 2020, we entered into a bridge

note purchase agreement pursuant to which we issued approximately $2.0 million in aggregate principal amount of convertible promissory

notes (the “2020 Bridge Notes”), to HighCape Partners QP, HighCape Partners and Deerfield.

The 2020 Bridge Notes had

a maturity date of April 1, 2025 and accrued interest at a rate of 5.0% per year.

The aggregate principal amount of, and accrued

interest on, the 2020 Bridge Notes automatically converted into an aggregate of 2,039,427 shares of our Series A convertible

preferred stock upon the closing of our Series A convertible preferred stock financing in September 2020.

In April 2020, we entered

into a bridge note purchase agreement pursuant to which we issued approximately $2.0 million in aggregate principal amount of convertible

promissory notes (the “2020 Bridge Notes”), to HighCape Partners QP, HighCape Partners and Deerfield.

The 2020 Bridge Notes

had a maturity date of April 1, 2025 and accrued interest at a rate of 5.0% per year.

The aggregate principal amount of, and accrued interest

on, the 2020 Bridge Notes automatically converted into an aggregate of 2,039,427 shares of our Series A convertible preferred stock upon

the closing of our Series A convertible preferred stock financing in September 2020.

Funding Requirements

We expect to continue to incur significant

expenses and operating losses for the foreseeable future as we grow our sales organization and expand our product development and

clinical and research activities.

In addition, we expect to incur additional costs and expenses associated with operating as a

public company.

Based on our current and planned business

operations, we believe that the net proceeds from the IPO, together with our existing cash and our availability under our Revolving

Credit Facility, will be sufficient to fund our operating expenses and capital expenditure requirements through 2022.

We have based

this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

If our available cash balances and cash flow from operations, if any, are insufficient to satisfy our liquidity requirements, we

may seek to raise additional capital through equity offerings, debt financings, collaborations or licensing arrangements.

also consider raising additional capital in the future to expand our business, pursue strategic investments or take advantage of

financing opportunities.

Our present and future funding requirements will depend on many factors, including, among other things:

We expect to continue to incur

significant expenses and operating losses for the foreseeable future as we grow our sales organization and expand our product development

and clinical and research activities.

In addition, we expect to incur additional costs and expenses associated with operating as a public

Based on our current and planned

business operations, we believe that the net proceeds from the IPO, together with our existing cash, our availability under our Revolving

Credit Facility, and cash generated from expected future sales will be sufficient to fund our operating expenses and capital expenditure

requirements through 2022.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital

resources sooner than we expect.

If our available cash balances and cash flow from operations, if any, are insufficient to satisfy our

liquidity requirements, we may seek to raise additional capital through equity offerings, debt financings, collaborations or licensing

arrangements.

We may also consider raising additional capital in the future to expand our business, pursue strategic investments or take

advantage of financing opportunities.

Our present and future funding requirements will depend on many factors, including, among other

continued patient, physician and market acceptance of our products;

the scope, rate of progress and cost of our current and future pre-clinical studies and clinical

the cost of our research and development activities and the cost and timing of commercializing

new products or technologies;

the scope, rate of progress and cost of our current and future

pre-clinical studies and clinical trials;

the cost of our research and development activities and the cost and timing of commercializing new products

or technologies;

the cost and timing of expanding our sales and marketing capabilities;

the cost of filing and prosecuting patent applications and maintaining, defending and enforcing

our patent or other intellectual property rights;

the cost of defending, in litigation or otherwise, any claims that we infringe, misappropriate

or otherwise violate third-party patents or other intellectual property rights;

the cost of filing and prosecuting patent applications and maintaining,

defending and enforcing our patent or other intellectual property rights;

the cost of defending, in litigation or otherwise, any claims

that we infringe, misappropriate or otherwise violate third-party patents or other intellectual property rights;

the cost and timing of additional regulatory approvals;

2 unchanged sentences

the expenses we incur in manufacturing and selling our products;

the extent to which we acquire or invest in products, technologies and businesses, although we

currently have no commitments or agreements relating to any of these types of transactions;

the extent to which we acquire or invest in products, technologies

and businesses, although we currently have no commitments or agreements relating to any of these types of transactions;

the costs of operating as a public company;

unanticipated general, legal and administrative expenses;

the effects on any of the above of the current COVID-19 pandemic or any other pandemic, epidemic

or outbreak of infectious disease.

In addition, our operating plans may change

as a result of any number of factors, including those set forth above and other factors currently unknown to us, and we may need

additional funds sooner than anticipated.

To the extent that we raise additional capital through the sale of equity or convertible

debt securities, your ownership interest may be materially diluted, and the terms of such securities could include liquidation

or other preferences that adversely affect your rights as a common stockholder.

Debt financing and preferred equity financing,

if available, may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as

incurring additional debt, making capital expenditures, creating liens, redeeming shares of our common stock and/or declaring dividends.

If we raise funds through collaborations, licensing agreements or other strategic alliances, we may have to relinquish valuable

rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses on terms that may

not be favorable to us.

If we are unable to raise additional funds through equity or debt financings or other arrangements when

needed, we may be required to delay the development or commercialization of our products, license to third parties the rights to

commercialize products or technologies that we would otherwise seek to commercialize and reduce marketing, customer support or

other resources devoted to our products or cease operations.

See Part II, Item 1A.

“Risk Factors — Risks

Related to our Business — Our future capital needs are uncertain and we may need to raise funds in the future,

and such funds may not be available on acceptable terms or at all.”

the effects on any of the above of the current COVID-19 pandemic

or any other pandemic, epidemic or outbreak of infectious disease.

In addition, our

operating plans may change as a result of any number of factors, including those set forth above and other factors currently unknown

to us, and we may need additional funds sooner than anticipated.

To the extent that we raise additional capital through the sale of

equity or convertible debt securities, your ownership interest may be materially diluted, and the terms of such securities could

include liquidation or other preferences that adversely affect your rights as a common stockholder.

Debt financing and preferred

equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specific

actions, such as incurring additional debt, making capital expenditures, creating liens, redeeming shares of our common stock and/or

declaring dividends.

If we raise funds through collaborations, licensing agreements or other strategic alliances, we may have to

relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or grant licenses

on terms that may not be favorable to us.

If we are unable to raise additional funds through equity or debt financings or other

arrangements when needed, we may be required to delay the development or commercialization of our products, license to third parties

the rights to commercialize products or technologies that we would otherwise seek to commercialize and reduce marketing, customer

support or other resources devoted to our products or cease operations.

See our Annual Report, Part I, Item 1A.

Factors —

Risks Related to our Business —

Our future capital needs are uncertain and we may need

to raise funds in the future, and such funds may not be available on acceptable terms or at all.”

Off-Balance Sheet Arrangements

As of September 30, 2020, we did not

have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii).

As of March 31, 2021, we did

not have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii).

Contractual Obligations

Except as updated in the Prospectus, there

have been no material changes to our contractual obligations as of December 13, 2019, as described under the section of the

Prospectus entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations —

Contractual Obligations.”

Not applicable as permitted

based on our classification as a “smaller reporting company”

as defined in Rule 12b-2 of the Exchange Act.

Critical Accounting Estimates

Refer to Note 2, “Summary

of Significant Accounting Policies,”

to our condensed consolidated financial statements included elsewhere in this Quarterly Report

for information regarding our critical accounting estimates and policies.

Recent Accounting Pronouncements

Refer to Note 3, “Recently

Issued Accounting Standards,”

to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report for

information regarding recently issued accounting pronouncements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements