What changed in this filing

/stocks — the workspaceLOADING

Item 5. Market for Registrant’s Common Equity

2022-03-08 compared with 2021-03-15 · 15 added, 810 removed, 2 unchanged (100% of the section changed)

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases

of Equity Securities.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Market Information

Our Class A common

stock is traded on The Nasdaq Stock Market under the symbol “AZYO.”

As of March 12,

2021, there were approximately 17 holders of record of our Class A common stock and two holders of record of our Class

B common stock.

This number does not include “street name”

or beneficial holders, whose shares are held of record

by banks, brokers, financial institutions and other nominees.

Our Class A common stock is traded on The Nasdaq Stock Market under the symbol “AZYO.”

As of March 4, 2022, there were approximately 26 holders of record of our Class A common stock and two holders of record of our Class B common stock.

This number does not include “street name” or beneficial holders, whose shares are held of record by banks, brokers, financial institutions and other nominees.

Dividend Policy

We have never declared

or paid any cash dividends on our capital stock.

We intend to retain future earnings, if any, to finance the operation and expansion

of our business and do not anticipate paying any cash dividends in the foreseeable future.

Any future determination related to

our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results

of operations, capital requirements, business prospects and other factors the board of directors deems relevant, and subject to

the restrictions contained in any future financing instruments.

In addition, our ability to pay cash dividends is currently restricted

by the terms of the agreements governing our Term Loan Facility and our Revolving Credit Facility.

The issuances of securities

described above were pursuant to Section 4(a)(2) or Rule 701 under the Securities Act, relative to transactions by an issuer not

involving any public offering, to the extent an exemption from such registration was required.

Equity Compensation

The information required

by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 11.

of Part III of this

Annual Report on Form 10-K.

Selected Financial Data.

Not applicable as

permitted based on our classification as a “smaller reporting company”

as defined in Rule 12b-2 of the Exchange Act.

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

The following discussion

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

in this Annual Report on Form 10-K (the “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 I, Item 1A.

“Risk Factors”

of this Annual 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

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.

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.

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

and components.

Except 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

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, most recently, our initial public offering consummated on October 13, 2020 (the “IPO”).

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 December 31, 2020, we had

163 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 and $11.9 million for the years ended December

31, 2020 and 2019, respectively.

Our accumulated deficit as of December 31, 2020 was $80.3 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 IPO, together with our existing cash, availability under our Revolving Credit Facility (as defined below)

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.

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 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.

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.

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.

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

is a breakdown of our main expense categories and the related expenses incurred in each category:

Costs of Goods

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, Georgia.

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

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

Sales and Marketing

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.

Administrative Expenses

General and administrative

(“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.

Development Expenses

Research and development

(“R&D”) expenses consist primarily of salaries and fringe benefits, laboratory supplies, clinical trials and outside

service costs.

Our product 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

Results of Operations

of the Years Ended December 31, 2020 and 2019

Years Ended December 31,

(in thousands, except percentages)

Cost of goods sold

Sales and marketing

General and administrative

Research and development

Total operating expenses

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

Net sales decreased

$0.2 million, or 0.5%, to $42.7 million in the year ended December 31, 2020 compared to $42.9 million in the year ended December

The decrease in net sales was due to a decline of $5.5 million in net sales of our Non-Core Products, partially

offset by $5.3 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:

Ended December 31,

(in thousands, except

Core Products

Net sales generated

by our Core Products grew $5.3 million, or 17.1%, to $36.2 million in the year ended December 31, 2020 compared to $30.9 million

in the year ended December 31, 2019.

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

repair products.

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

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 $5.5 million, or 46.0%, to $6.5 million in the year ended December 31, 2020 from $12.0

million in the year ended December 31, 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.

Cost of goods sold

decreased $1.0 million, or 4.4%, to $22.1 million in the year ended December 31, 2020 compared to $23.1 million in the year ended

December 31, 2019, and included, in each case, $3.4 million of intangible asset amortization expenses.

Gross margin was 48.2%,

in the year ended December 31, 2020 compared to 46.1% in the year ended December 31, 2019.

Gross margin, excluding intangible asset

amortization, was 56.1%, in the year ended December 31, 2020 compared to 54.0% in the year ended December 31, 2019.

in cost of goods sold and related improvement in gross margin in the year ended December 31, 2020 was due to product mix and inventory

write-downs in the year ended December 31, 2019, due to excessive or expiring product, caused largely by the launch of SimpliDerm

which reduced demand for certain other dermis inventory.

Sales and Marketing

Sales and marketing

expenses increased $0.6 million, or 4.2%, to $16.8 million in the year ended December 31, 2020 compared to $16.2 million in the

year ended December 31, 2019.

As a percentage of sales, sales and marketing expenses rose to 39.5% in the year ended December 31,

2020 from 37.7% in the year ended December 31, 2019.

The increase was primarily due to an 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

Collectively, these personnel additions increased expenses in the year ended December 31, 2020 by approximately $1.0

million which was partially offset by declines in salesperson travel costs due to hospital restrictions caused by the COVID-19

Administrative

G&A expenses increased

$3.6 million, or 37.6%, to $13.2 million in the year ended December 31, 2020 compared to $9.6 million in the year ended December

As a percentage of net sales, G&A expenses rose to 31.0% in the year ended December 31, 2020 from 22.4% in the year

ended December 31, 2019.

The dollar increase was due to senior leadership additions beginning late 2019, including the hiring of

our Chief Commercial Officer and Chief Medical Officer, resulting in incremental expenses of $0.8 million as well as increased

public company costs, including directors and officers insurance, totaling $1.1 million.

Also contributing to the overall increase

in the year-over-year period was a one-time advisory fee of $0.8 million paid to HighCape Partners Management, L.P.

(“HighCape”)

in September 2020, in connection with the CorMatrix Acquisition and upon closing of our IPO.

R&D expenses increased

$1.7 million, or 70.1%, to $4.1 million in the year ended December 31, 2020 compared to $2.4 million in the year ended December

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 year ended December 31, 2020 attributable to the work performed

on the development of our CanGaroo anti-infective product and increased clinical trial activities.

With 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 increased

to approximately $5.6 million in the year ended December 31, 2020 compared to approximately $5.4 million in the year ended December

The increase in interest expense in the year ended December 31, 2020 was primarily 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 (Income)

Other (income) expense,

net was an expense of approximately $2.6 million in the year ended December 31, 2020 and was primarily attributable to the loss

on early extinguishment of debt of $2.3 million.

See Note 12 to the consolidated financial statements included elsewhere in this

Annual Report for further discussion.

Other (income) expense, net was income of approximately $1.9 million in the year ended December

31, 2019 and related primarily to gain on the revaluation of our long-term revenue interest obligation (the “Revenue Interest

Obligation”) to Ligand Pharmaceuticals (“Ligand”) assumed in connection with the CorMatrix Acquisition.

10 to the consolidated financial statements included elsewhere in this Annual Report for further discussion.

of Series A Preferred Stock

Accretion of Series

A Preferred Stock was $3.5 million in the year ended December 31, 2020 and $0 in the year ended December 31, 2019.

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 12 to the consolidated financial statements included elsewhere in this Annual

Report for additional information.

Non-GAAP Financial

This Annual Report

presents our gross margin, excluding intangible asset amortization, for the years ended December 31, 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 (“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 years ended December 31, 2020 and

2019 to the most directly comparable GAAP financial measure, which is our GAAP gross margin (in thousands).

Cost of Goods Sold

Intangible asset amortization expense

Gross profit, excluding intangible asset amortization

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 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

As of December 31,

2020, we had cash and restricted cash of approximately $39.5 million and availability under our Revolving Credit Facility of $1.5

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 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 December 31, 2020, our accumulated deficit was $80.3 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.

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.

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 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

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.

for the Years Ended December 31, 2020 and 2019

Years Ended December 31,

(in thousands)

Net cash (used in) provided by:

Operating activities

Investing activities

Financing activities

Net increase in cash

Net Cash Used

in Operating Activities

Net cash used in operating

activities during the year ended December 31, 2020 totaled $13.6 million, primarily driven by a $21.8 million net loss reduced

by non-cash related items, including $3.9 million in depreciation on fixed assets and amortization of intangible assets, $2.7

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

a preferred stock issuance, $0.8 million in stock-based compensation and a $2.3 million loss on early extinguishment of debt.

capital increases of $2.7 million due primarily to growth in inventory levels in the year ended December 31, 2020, compared

to December 31, 2019, to address anticipated demand growth demand also contributed to the net cash used for operations.

Net cash used in operating

activities during the year ended December 31, 2019 totaled $7.2 million, primarily driven by a $11.9 million net loss reduced by

non-cash related items, including $3.9 million in depreciation on fixed assets and amortization of intangible assets as well as

$2.8 million in interest expense recorded as additional revenue interest obligation, offset by a $1.9 million gain on the revenue

interest obligation.

Working capital increases of $0.4 million also contributed to the net cash used in operations.

Net Cash Used

in Investing Activities

Net cash used in investing

activities during the years ended December 31, 2020 and 2019 both totaled approximately $0.6 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

Net Cash Provided

by Financing Activities

Net cash provided

by financing activities in the year ended December 31, 2020 totaled $51.2 million, which includes $43.0 million in net proceeds

from the IPO, $3.0 million of proceeds from a Paycheck Protection Program loan under the CARES Act, net borrowings from the Revolving

Credit Facility of approximately $2.3 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 $2.6 million in payments on the Revenue Interest Obligation.

Net cash provided

by financing activities in the year ended December 31, 2019 totaled $8.0 million, which includes $3.5 million borrowed under the

Term Loan Facility, net borrowings from the Revolving Credit Facility of approximately $2.6 million, and approximately $3.0 million

in proceeds from the issuance of convertible preferred stock.

These increases from financing activities were offset by approximately

$1.9 million in payments on the Revenue Interest Obligation.

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

Commitments 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”).

As of December 31,

2020, we had $19.7 million of indebtedness outstanding under our Term Loan Facility (net of $0.3 million of unamortized

discount and deferred financing costs) and $6.5 million outstanding under our Revolving Credit Facility (with $1.5 million of additional

borrowings available thereunder).

Interest Rates

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%.

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

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).

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:

(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 is calculated.

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.

No such mandatory prepayments were required during the years ended December 31, 2020 and 2019.

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

and Final Maturity

As of December 31,

the Borrowers were expected to be required to make interest-only payments prior to February 1, 2021, the Initial Amortization

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.

the Term Loan Facility also provides 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 Initial Amortization Start Date may,

upon our request, be extended to August 1, 2021.

Based on the successful completion of our IPO, 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, 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 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.

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:

incur additional indebtedness;

incur certain liens;

pay dividends or make other distributions on equity interests;

enter into agreements restricting their subsidiaries’

ability to pay dividends;

redeem, repurchase or refinance subordinated indebtedness;

consolidate, merge or sell or otherwise dispose of their assets;

make investments, loans, advances, guarantees and acquisitions;

enter into transactions with affiliates;

amend or modify their governing documents;

amend or modify certain material agreements;

alter the business conducted by them and their subsidiaries;

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

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 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

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 structure.

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.

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, 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 things:

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 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 and timing of additional regulatory approvals;

costs associated with any product recall that may occur;

the effect of competing technological and market developments;

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 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

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 I, Item 1A.

“Risk Factors —

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.”

Sheet Arrangements

As of December 31,

2020, we did not have any off-balance sheet arrangements, as defined under SEC Regulation S-K Item 303(a)(4)(ii).

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

Policies and Significant Judgments and Estimates

The preparation of

financial statements in conformity with U.S.

GAAP requires that management make estimates and assumptions that affect the reported

amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and

the amounts of revenues and expenses reported during the period.

On an ongoing basis, management evaluates these estimates and

judgments, including those related to revenue, inventory valuation, valuation of intangibles, revenue interest obligation and stock-based

compensation.

Actual results may differ from those estimates.

We have identified the following critical accounting policies:

Revenue Recognition

We enter into contracts

to 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 we have met

our performance obligations pursuant to our contracts with our customers in an amount that we expect to be entitled to in exchange

for the transfer of control of the products and services to our customers.

For all net sales, we have no further performance obligations

and revenue is recognized when control transfers which occurs either when:

i) the product is shipped via common carrier;

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

A portion of our product

revenue is generated from consigned inventory maintained at hospitals, and from inventory physically held by our direct sales representatives.

For these types of products sales, we retain control until the product has been used or implanted, at which time revenue is recognized.

We have 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 us 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 our contracts vary;

however, as a common business practice, payment terms are typically due in full within 30

to 60 days of delivery.

We, at times, extend volume discounts to customers.

We permit returns of our products in accordance

with the terms of contractual agreements with customers.

Inventory Valuation

Inventories, consisting

of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost or net realizable value, with

cost determined using the average cost method.

Inventory write-downs for unprocessed and certain processed donor tissue are recorded

based on the estimated amount of inventory that will not pass the quality control process based on historical data.

At each balance

sheet date, we also evaluate inventories for excess quantities, obsolescence or shelf life expiration.

This evaluation includes

analysis of our current and future strategic plans, historical sales levels by product, projections of future demand, the risk

of technological or competitive obsolescence for products, general market conditions and a review of the shelf life expiration

dates for products.

To the extent that management determines there is excess or obsolete inventory or quantities with a shelf life

that is too near its expiration for us to reasonably expect that we can sell those products prior to their expiration, we adjust

the carrying value of the inventory to its estimated net realizable value.

Due to the judgmental

nature of inventory valuation, we may from time to time be required to adjust our assumptions as processes change and as we gain

better information.

Although we continue to refine the assumptions, described above, on which we base our estimates, we cannot

be sure that our estimates are accurate indicators of future events.

Accordingly, future adjustments may result from refining these

Such adjustments may be significant.

Valuation of Purchased

Intangible 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.

We periodically evaluate the period of amortization for purchased intangible assets to determine

whether current circumstances warrant revised estimates of useful lives.

We review our purchased intangible assets for impairment

whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.

Recoverability is measured

by a comparison of the carrying amount to the net undiscounted cash flows expected to be generated by the asset.

Impairment exists

when the carrying value of our asset exceeds the related estimated undiscounted future cash flows expected to be derived from the

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.

An impairment loss would

be recorded for the excess of net carrying value over the fair value of the asset impaired.

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.

Revenue Interest Obligation

In 2017, we completed

an asset purchase agreement with CorMatrix and acquired all of the CorMatrix commercial assets and related intellectual property.

As part of this acquisition, we entered into a royalty agreement with Ligand pursuant to which we assumed the Revenue Interest

Obligation, to Ligand, with an estimated present value on the acquisition date of $27.7 million.

The terms of the Revenue

Interest Obligation require us to pay Ligand 5% of future sales of the products we acquired in the CorMatrix acquisition, subject

to certain annual minimum payments.

Furthermore, a $5.0 million payment will be due to Ligand if cumulative sales of the acquired

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.

We have estimated

the fair value of the Revenue Interest Obligation, including contingent milestone payments and estimated sales-based payments,

based on assumptions related to future sales of the acquired products.

At each reporting period, the value of the Revenue Interest

Obligation is re-measured based on current estimates of the net present value of future payments, with changes to be recorded in

the consolidated statements of operations.

In connection with our estimation at December 31, 2019, it was determined that

the estimated future payments, discounted at the original discount rate, had decreased since the prior estimates.

Such decrease

was primarily the result of delays in certain regulatory approvals that will impact the timing and extent of future sales and,

thereby, will reduce expected future payments to Ligand.

The change to estimated future payments yielded a reduction to the total

Revenue Interest Obligation of approximately $1.9 million for the year ended December 31, 2019 with such amount

recognized as a gain in Other (income) expense, net in our consolidated statement of operations.

There was no change to estimated

future payments during the year ended December 31, 2020 and thus, no re-measurement gain or loss was recognized.

The estimation

of future sales and the possible attainment of sales milestones is subject to significant judgment.

Different judgments would yield

different valuations of the Revenue Interest Obligation and these differences could be significant.

Stock-Based Compensation

Compensation costs

associated with stock option awards and other forms of equity compensation are measured at the grant-date fair value of the awards

and recognized over the requisite vesting period of the awards on a straight-line basis.

Our policy is to grant

stock options at an exercise price equal to 100.0% of the market value of a share of common stock at closing on the date of the

Our stock options generally have seven to ten year contractual terms and vest over a four-year period from the date of grant.

We use the Black-Scholes model to value our stock option grants.

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 our IPO, our 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.

We use the simplified

method for estimating the expected term used to determine the fair value of options.

Until our IPO in October 2020, there had been

no public market for our common stock and thus, we lacked company-specific historical and implied volatility information.

result, we estimate the expected volatility primarily based on the historical volatility of comparable companies in the industry

whose share prices are publicly available and expect to continue to do so until such time as we have adequate historical data regarding

the volatility of our own traded share price.

We use a zero-dividend yield assumption as we have not paid dividends since inception

nor do we 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 recognized on a straight-line basis over the requisite

service period for the entire award.

Recently Issued

Accounting Pronouncements

“Recently Issued Accounting Standards,”

to our audited consolidated financial statements included elsewhere in

this Annual Report for information regarding recently issued accounting pronouncements.

We have never declared or paid any cash dividends on our capital stock.

We intend to retain future earnings, if any, to finance the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future.

Any future determination related to our dividend policy will be made at the discretion of our board of directors after considering our financial condition, results of operations, capital requirements, business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing instruments.

In addition, our ability to pay cash dividends is currently restricted by the terms of the agreements governing our Term Loan Facility and our Revolving Credit Facility.

The issuances of securities described above were pursuant to Section 4(a)(2) or Rule 701 under the Securities Act, relative to transactions by an issuer not involving any public offering, to the extent an exemption from such registration was required.

Equity Compensation Plans

The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 11.

of Part III of this Annual Report on Form 10-K.

Recent Sales of Unregistered Securities

On December 8, 2021, we sold to several investors an aggregate of (i) 2,122,637 shares of our Class A common stock and (ii) 1,179,244 shares of our Class B common stock at a purchase price equal to $4.24 per share, for aggregate gross proceeds of approximately $14.0 million, before deducting offering expenses.

This transaction was made in reliance on the exemption contained in Section 4(a)(2) of the Securities Act, as a transaction by an issuer not involving a public offering.

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-K

Item 5. Market for Registrant’s Common Equity