What changed in this filing

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Item 1. Financial Statements

2022-05-10 compared with 2021-11-10 · 140 added, 227 removed, 489 unchanged (43% of the section changed)

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(In Thousands, Except for Share and Per Share Data)

September 30,

Current assets:

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Revolving line of credit

Deferred revenue and other current liabilities

Other current liabilities

Total current liabilities

1 unchanged sentence

Long-term revenue interest obligation

Deferred revenue and other long-term liabilities

Other long-term liabilities

Total liabilities

1 unchanged sentence

Stockholders’ equity (deficit):

Class A Common stock, $ 0.001 par value, 200,000,000 shares authorized as of September 30, 2021 and December 31, 2020, and 7,122,509 and 7,091,960 shares issued and outstanding , as of September 30, 2021 and December 31, 2020, respectively

Class B Common stock, $ 0.001 par value, 20,000,000 shares authorized, as of September 30, 2021 and December 31, 2020 and 3,134,162 issued and outstanding as of September 30, 2021 and December 31, 2020

Class A Common stock, $ 0.001 par value, 200,000,000 shares authorized as of March 31, 2022 and December 31, 2021, and 9,306,738 and 9,245,146 shares issued and outstanding , as of March 31, 2022 and December 31, 2021, respectively

Class B Common stock, $ 0.001 par value, 20,000,000 shares authorized, as of March 31, 2022 and December 31, 2021 and 4,313,406 issued and outstanding as of March 31, 2022 and December 31, 2021

Additional paid-in capital

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Three Months Ended

Nine Months Ended

September 30,

Cost of goods sold

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Interest expense

Other (income) 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 - basic and diluted

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AZIYO BIOLOGICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In Thousands, Except Share Amounts)

Preferred Stock

Stockholders'

Balance, June 30, 2021

Proceeds from sale of common stock through Employee Stock Purchase Plan

Stock-based compensation

Balance, September 30, 2021

Balance, June 30, 2020

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

Proceeds from stock option exercises

Accretion of Convertible Preferred Stock

Stock-based compensation

Balance, September 30, 2020

Preferred Stock

Stockholders'

Balance, December 31, 2021

Proceeds from stock option exercises

Additional issuance costs in connection with Private Placement

Proceeds from sale of common stock through Employee Stock Purchase Plan

Vesting of restricted stock units

Stock-based compensation

Balance, September 30, 2021

Balance, March 31, 2022

Balance, December 31, 2020

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

Proceeds from stock option exercises

Accretion of Convertible Preferred Stock

Stock-based compensation

Balance, September 30, 2020

Balance, March 31, 2021

The accompanying notes are an integral part of these condensed consolidated financial statements

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(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization

(Gain) loss on (forgiveness)/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:

Proceeds from issuance of Convertible Promissory Note

Additional issuance costs in connection with Private Placement

Net borrowings (repayments) under revolving line of credit

Proceeds from Convertible Preferred Stock issuance, net

Proceeds from stock option exercises

Proceeds from long-term debt

Repayments of long-term debt

1 unchanged sentence

Proceeds from sales of common stock through Employee Stock Purchase Plan

Net cash (used in) provided by financing activities

Net cash used in financing activities

Net decrease in cash and restricted cash

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Cash paid for interest

Cash paid for taxes

Conversion of Convertible Promissory Note to Convertible Preferred Stock

Forgiveness of SBA PPP loan

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

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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”).

Aziyo’s portfolio of core products spans the implantable electronic devices/cardiovascular-related market, the orthopedic/spinal repair market and the soft tissue reconstruction market (“Core Products”).

These products are primarily sold to healthcare providers or commercial partners.

The Company also sells human tissue products under contract manufacturing and certain other arrangements (“Non-Core Products”) with corporate customers.

Reverse Stock Split and Initial Public Offering

On September 25, 2020, the Company's Board of Directors and stockholders approved an amendment to the Company's amended and restated certificate of incorporation to effect a 1-for- 13.9549 reverse stock split of the Company's common stock, which was effected on September 29, 2020.

The par value of the common stock was not adjusted as a result of the reverse stock split.

Accordingly, all share and share-related information presented in these 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"), the Company 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

Basis of Presentation

Basis of Presentation and Liquidity

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, 2021.

The financial information as of September 30, 2021 and for the three and nine months ended September 30, 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 financial information as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 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, 2021 was derived from audited financial statements but does not include all disclosures required by GAAP.

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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.

For the three and nine

months ended September 30, 2021, the Company incurred net losses of $ 8.3 million and $ 15.8 million, respectively, and as of September 30, 2021, the Company had an accumulated deficit of $ 96.0 million.

For the three months ended March 31, 2022, the Company incurred a net loss of $ 8.1 million, and as of March 31, 2022, the Company had an accumulated deficit of $ 113.2 million.

In addition, during the three months ended March 31, 2022, the Company used $ 7.4 million and $ 0.9 million of cash in operating and financing activities, respectively, and expects to continue to incur cash outflows for the remainder of the year.

Because of the numerous risks and uncertainties associated with the Company’s commercialization and development efforts, the Company is unable to predict when it will become profitable, and it may never become profitable.

The Company’s inability to achieve and then maintain profitability would negatively affect its business, financial condition, results of operations and cash flows.

As further described in Note 6, the Company’s Term Debt Facility (“Term Debt”) and Revolving Line of Credit (the “Revolver”) include monthly revenue covenants, the non-compliance of which would permit our lenders to accelerate the repayment of these outstanding borrowings.

In October 2021, the Company was informed by Medtronic that they would no longer be distributing cellular bone products such as FiberCel and, as such, the two companies are working towards a mutual termination of the associated FiberCel distribution agreement (“FiberCel Agreement”).

Such termination will follow the suspension of all FiberCel purchases by Medtronic after Aziyo’s voluntary recall pertaining to a single donor lot of FiberCel in June 2021.

Given the associated revenues derived from the FiberCel Agreement, its suspension and then termination may negatively affect the Company’s future revenues.

As such, while Aziyo is currently in compliance with all revenue covenants, the Company’s ability to comply with these covenants in the future is uncertain.

Additionally, in August 2021, the Company commenced the principal repayment of its Term Debt with such repayments totaling approximately $ 556,000 per month .

However, the Company may not be able to raise additional equity or refinance its Term Debt and Revolver on acceptable terms, or at all.

As such, based on its current operating plans, the Company believes there is uncertainty as to whether its future cash flows along with its existing cash, availability under its Revolver and cash generated from expected future sales will be sufficient to meet the Company’s anticipated operating needs through twelve months from the financial statement issuance date.

Due to these factors, there is substantial doubt about Aziyo’s ability to continue as a going concern within one year after the issuance of the financial statements.

In order to mitigate the current and potential future liquidity issues caused by the matters noted above, the Company may seek to raise capital through the issuance of common stock, either refinance or restructure its Term Loan Facility and Revolving Credit Facility (as such terms are defined, and further described, in Note 6), restructure its Revenue Interest Obligation (as such term is defined, and further described, in Note 7), or pursue asset sale transactions.

However, such transactions may not be successful and the Company may not be able to raise additional equity, refinance or restructure its debt instruments, or sell assets on acceptable terms, or at all.

As such, based on its current operating plans, the Company believes there is uncertainty as to whether its future cash flows along with its existing cash, availability under

the Revolving Credit Facility and cash generated from expected future sales will be sufficient to meet the Company’s anticipated operating needs through twelve months from the financial statement issuance date.

Due to these factors, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the issuance of the financial statements.

The accompanying condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

That is, the accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and satisfaction of liabilities in the ordinary course of business.

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 and nine months ended September 30, 2020 along with the line items in the condensed consolidated statement of operations that were impacted (in thousands).

Increase (Decrease) From Previously Reported Amounts

Three Months Ended

Nine Months Ended

September 30,

Sales and marketing

General and administrative

Research and development

These reclassifications did not impact the Company’s consolidated earnings or assets for the three and nine months ended September 30, 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.

Estimates and assumptions relating to inventory, 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.

Estimates and assumptions relating to inventory, receivables, long-lived assets, the valuation of stock-based awards, the valuation of the revenue interest obligation 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.

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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 and the access of Aziyo’s sales representatives to the associated healthcare facilities has been curtailed, all of 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.

Since that time, the number of procedures performed using the Company's products has intermittently decreased, 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 intermittently 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 may reduce the Company's net sales in the future and negatively impact its business, financial condition and results of operations while the pandemic continues.

Net Loss per Share Attributable to Common Stockholders

The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities.

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

The two-class method requires income (loss) available to common stockholders for the period to be allocated between common and participating securities based upon their respective rights to share in the earnings as if all income (loss) for the period had been distributed.

Under the two-class method, the net loss attributable to common stockholders is not allocated to the Convertible Preferred Stock as the holders of the preferred stock do not have a contractual obligation to share in losses.

Our common stock has a dual class structure, consisting of Class A common stock and Class B common stock.

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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.

For purposes of the diluted net income (loss) per share attributable to common stockholders calculation, stock options and restricted stock units 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.

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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).

September 30,

Restricted cash

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

Inventory, 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, consisting of purchased materials, direct labor and manufacturing overhead, is 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.

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This evaluation includes analysis of the Company’s current and future strategic plans, historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions and a review of the shelf life expiration dates for products.

To the extent that management determines there is excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value.

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

that is too near its expiration for the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value.

Property and Equipment

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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 and nine months ended September 30, 2021 or 2020.

There were no impairment losses for the three months ended March 31, 2022 or 2021.

Revenue Recognition

The Company’s revenue is generated from contracts with customers in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No.

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 Company’s revenue is generated from contracts with customers in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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:

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A portion of the Company’s product revenue is generated from consigned inventory maintained at hospitals and from inventory physically held by direct sales representatives.

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

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

The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation.

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Stock-Based Compensation Plans

The Company accounts for its stock-based compensation plans in accordance with FASB Accounting Standards Codification (“ASC”) 718, Accounting for Stock Compensation .

The Company accounts for its stock-based compensation plans in accordance with FASB 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.

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

At September 30, 2021, the Company maintained $ 23.3 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.

At March 31, 2022, the Company maintained $ 22.1 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.

Significant Customers

The Company sells certain of its products under large contract manufacturing or distribution arrangements.

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Three Months Ended

September 30,

Nine Months Ended

September 30,

Percent of revenues derived from:

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Surgalign Holdings

September 30, 2021

December 31, 2020

Percent of accounts receivable derived from:

Medtronic Sofamor Danek USA

Surgalign Holdings

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

For the three months ended March 31, 2022 and 2021, 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.

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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, 2024.

Borrowings under the Company’s term loan facility and revolving line of credit bear interest based on LIBOR or an alternate rate.

Borrowings under the Company’s term loan facility and

revolving line of credit bear interest based on LIBOR or an alternate rate.

Provisions currently provide the Company with the ability to replace LIBOR with a different reference rate in the event that LIBOR ceases to exist.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which clarifies and simplifies certain aspects of the accounting for income taxes.

The standard is effective for years beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2020.

The adoption of this standard on January 1, 2021 did not have a material impact on the Company’s consolidated financial statements.

In November 2019, the FASB issued ASU 2019-10, “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.

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.

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In November 2019, the FASB issued 2019-10 which extended the adoption of ASU 2016-02 for the Company to be effective for 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.

While early adoption is permitted, the Company intends to adopt in the fourth quarter of 2022 for the full 2022 year.

The Company is evaluating this standard to determine if adoption will have a material impact on the Company’s consolidated financial statements.

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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.

On October 7, 2020, in connection with the Company’s initial public offering (“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.

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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 September 30, 2021, the Company had 343,999 shares of Class A common stock available for issuance under the 2020 Plan.

As of March 31, 2022, the Company had 481,195 shares of Class A common stock available for issuance under the 2020 Plan.

Stock Options

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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 nine months ended September 30, 2021 is as follows:

A summary of stock option activity under the Company’s 2015 Plan and 2020 Plan for the three months ended March 31, 2022 is as follows:

Number of Shares

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Outstanding, December 31, 2021

Outstanding, September 30, 2021

Vested and exercisable, September 30, 2021

As of September 30, 2021, there was approximately $ 7.3 million of total unrecognized compensation expense related to unvested stock options.

Outstanding, March 31, 2022

Vested and exercisable, March 31, 2022

As of March 31, 2022, there was approximately $ 7.3 million of total unrecognized compensation expense related to unvested stock options.

These costs are expected to be recognized over a weighted-average period of 2.9 years.

The weighted average grant date fair value of options granted during the nine months ended September 30, 2021 was $ 7.31 .

The weighted average grant date fair value of options granted during the three months ended March 31, 2022 was $ 3.03 .

Restricted Stock Units

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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 nine months ended September 30, 2021 is as follows:

A summary of the RSU activity under the Company’s 2020 Plan for the three months ended March 31, 2022 is as follows:

Unvested, December 31, 2021

Unvested, September 30, 2021

The total fair value of the RSUs granted during the nine months ended September 30, 2021 of $ 1.3 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 September 30, 2021, $ 2.8 million of unrecognized compensation costs related to RSUs is expected to be recognized over a weighted average period of 2.6 years.

Unvested, March 31, 2022

The total fair value of the RSUs granted during the three months ended March 31, 2022 of $ 1.3 million, of which nearly all was based on the fair market value of the Company's Class A common stock on the date of grant and such 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 .

The Company granted RSUs totaling 199,388 during the three months ended March 31, 2022, pursuant to which such RSUs will only vest if or when the Company’s Class A common stock closing price is at or exceeds $ 10 per share for 30 consecutive days by March 8, 2024, subject to the grantee’s continued employment with the Company.

Given the nature of this arrangement, an option pricing model, the Monte Carlo model, was used to determine the fair value of the RSUs granted and an expense recognition on a straight-line basis over two years .

As of March 31, 2022, $ 3.3 million of unrecognized compensation costs related to RSUs is expected to be recognized over a weighted average period of 1.7 years.

Employee Stock Purchase Plan

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The ESPP provides for separate six-month offering periods that begin in March and September of each year.

Under the ESPP, employees may purchase a limited number of shares of Aziyo Class A common stock at 85 % of the fair market value on either the first day of the offering period or the purchase date, whichever is lower.

Under the ESPP, employees may purchase a limited number of shares of Aziyo Class A common stock at 85 % of the fair market value on either the first day of the offering period or the purchase date,

whichever is lower.

The ESPP is considered compensatory for purposes of stock-based compensation expense.

The number of shares reserved under the ESPP will automatically increase on the first day of each fiscal year through January 1, 2030, in an amount equal to the lesser of (i) 1 % of the total shares of Class A common stock outstanding on the final day of the immediately preceding calendar year;

or (ii) a lesser number of shares determined by our board of directors.

As of September 30, 2021, the total shares of Class A common stock authorized for issuance under the ESPP was 214,069 , of which 186,825 remained available for future issuance.

During the nine months ended September 30, 2021, 27,244 shares of Class A common stock were issued under the ESPP.

The number of shares reserved under the ESPP will automatically increase on the first day of each fiscal year through January 1, 2030, in an amount as set forth in the ESPP.

As of March 31, 2022, the total shares of Class A common stock authorized for issuance under the ESPP was 380,997 , of which 311,408 remained available for future issuance.

During the three months ended March 31, 2022, 42,345 shares of Class A common stock were issued under the ESPP.

Stock-Based Compensation Expense

Stock-based compensation expense recognized during the three and nine months ended September 30, 2021 and 2020 was comprised of the following (in thousands):

Stock-based compensation expense recognized during the three months ended March 31, 2022 and 2021 was comprised of the following (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Sales and marketing

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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 nine months ended September 30, 2021 and 2020:

Nine Months Ended

September 30,

The following weighted-average assumptions were used to determine the fair value of options during the three months ended March 31, 2022 and 2021:

Three Months Ended

Expected term (years)

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Inventory was comprised of the following (in thousands):

September 30,

Raw materials

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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 $ 8.0 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 September 30, 2021 and December 31, 2020, the Company’s borrowing capacity under its Revolving Credit Facility was $ 6.4 million and $ 8.0 million, respectively.

As of March 31, 2022 and 2021, the Company’s borrowing capacity under its Revolving Credit Facility was $ 7.0 million and $ 8.0 million, respectively.

The Term Loan Facility was amended in December 2017, February 2018 and July 2019 (all amendments being considered modifications) such that an additional $ 1.5 million, $ 3.0 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.

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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 of approximately $ 556,000 per month began on August 1, 2021 and will continue through maturity in July 2024.

The weighted average interest rate on Term Loan Facility borrowings was 9.5 % for both the three months ended March 31, 2022 and 2021.

The agreement governing the Term Loan Facility provides for interest only payments through January 2021 and interest and equal monthly principal payments from February 2021 through maturity in July 2024.

However, the Term Loan Facility also provides that if certain conditions were satisfied prior to December 1, 2020 (including the completion of a qualified initial public offering and no continuing default or event of default), interest only payments may, upon the Company’s request, be extended to August 1, 2021.

Accordingly, based on the Company’s successful completion of its IPO, Aziyo exercised this interest-only period extension right and as such, interest and equal principal payments commenced on August 1, 2021 and will continue through maturity in July 2024.

The agreement that governs the Term Loan Facility, as amended, requires certain mandatory prepayments, subject to certain exceptions, with:

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In addition, the Company is required to prepay all outstanding obligations under the Term Loan Facility upon the termination of all commitments under the Revolving Credit Facility and the repayment of the outstanding borrowings thereunder.

No such mandatory prepayments were required during the three and nine months ended September 30, 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 7.3 % and 7.4 %, respectively, for the three months ended September 30, 2021 and 2020 and 7.4 % and 7.9 %, respectively for the nine months ended September 30 2021 and 2020.

No such mandatory prepayments were required during the three months ended March 31, 2022 and 2021.

The agreement governing the Term Loan Facility also includes an exit fee of 6.5 % of the aggregate principal amount and prepayment penalties which, based on an amendment to the Term Loan Facility executed in January 2022, shall be equal to the amount prepaid multiplied by 3.0 % until January 21, 2023 and 2.0 % thereafter.

Borrowings under the Revolving Credit Facility bear interest at a rate per annum equal to the sum of (x) the greater of (i) 2.25 % and (ii) LIBOR plus (y) 4.95 %.

The agreement governing the Revolving Credit Facility includes an unused line fee in an amount equal to 0.5 % per annum of the unused borrowing capacity and prepayment penalties of 2 % to 4 % on the $ 8 million borrowing capacity if terminated by the Company prior to its expiration in July 2024.

The weighted average interest rate on Revolving Credit Facility borrowings was 5.0 % and 5.1 %, respectively, for the three months ended September 30, 2021 and 2020 and 5.1 % and 5.5 %, respectively, for the nine months ended September 30, 2021 and 2020.

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 based on an amendment to the Revolving Credit Facility executed in January 2022, prepayment penalties equal to $ 8.0 million multiplied by 3.0 % until January 21, 2023 and 2.0 % thereafter.

The weighted average interest rate on Revolving Credit Facility borrowings was 7.2 % for the three months ended March 31, 2022 and 2021.

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 September 30, 2021, Aziyo was in compliance with this financial covenant and all other covenants.

When finalized, the mutual termination of the Company’s Supply Agreement for FiberCel with Medtronic referred to in Note 2 would have triggered an event of default;

however, such event of default was waived by the Company’s lenders.

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.

As of March 31, 2022, Aziyo was in compliance with this financial covenant.

During 2017, the Company restructured certain of its liabilities with a tissue supplier and entered into an unsecured promissory note totaling $ 2.1 million.

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The notes are subordinated in payment to the Term Loan Facility and Revolving Credit Facility and in both 2022 and 2021, 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”).

In June 2021, Aziyo was notified by the U.S.

Small Business Administration that the entire balance of the Company’s PPP Loan and all related accrued interest was forgiven.

Such forgiveness resulted in a gain to the Company of approximately $ 3.0 million which has been recorded as other income in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2021.

Long-term debt was comprised of the following (in thousands):

September 30,

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

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Long-Term Debt

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 September 30, 2021 and December 31, 2020.

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, 2022 and December 31, 2021.

Revenue Interest Obligation

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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.

Subject to annual minimum payments of $ 2.75 million per year, the terms of the Revenue Interest Obligation require Aziyo to pay Ligand, 5 % of future sales of the products Aziyo acquired from CorMatrix, including CanGaroo, ProxiCor, Tyke and VasCure, as well as products substantially similar to those products, such as the version of CanGaroo Aziyo is currently developing that is designed to have anti-infective properties.

Furthermore, a $ 5.0 million payment will be due to Ligand if cumulative sales of these products exceed $ 100 million and a second $ 5.0 million will be due if cumulative sales exceed $ 300 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.

The Company recorded the present value of the estimated total future payments under the Revenue Interest Obligation as a long-term obligation, with the annual minimum payments serving to establish the short-term portion.

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 condensed consolidated statements of operations using the catch-up method.

There was no change to estimated future payments during the three and nine months ended September 30, 2021 and 2020, and thus, no re-measurement gain or loss was recognized.

Interest expense related to the Revenue Interest Obligation was approximately $ 0.7 million for both the three months ended September 30, 2021 and 2020, respectively, and approximately $ 2.0 million for both the nine months ended September 30, 2021 and 2020, respectively.

Stockholders’ Equity

At inception, Aziyo was capitalized through the sale of 19.5 million shares of Series A Convertible Preferred Stock, par value $ 0.001 per share (the “Convertible Preferred Stock”).

From inception through the Company’s IPO, the Company issued an additional 30.9 million shares of Convertible Preferred Stock yielding proceeds of approximately $ 30.4 million, which were used for general corporate purposes and the CorMatrix Acquisition.

During the nine months ended September 30, 2020, Convertible Preferred Stock offerings totaled approximately $ 5.4 million.

The Convertible Preferred Stock issued during the nine months ended December 31, 2020 occurred primarily in September 2020 at which time the Company completed the sale of 3.0 million shares of Convertible Preferred Stock for net proceeds of approximately $ 3.0 million.

At the same time, the bridge notes of $ 2.0 million (issued in April 2020), and related accrued interest, converted into approximately 2.0 million shares of Convertible Preferred Stock.

The fair value of the 3.0 million shares of Convertible Preferred Stock described above exceeded the purchase price of the Convertible Preferred Stock by $ 3.5 million.

Such excess was accounted for as a deemed dividend to the

Convertible Preferred Stock and was recorded as “Accretion of Convertible Preferred Stock” in the Consolidated Statements of Operations to arrive at “Net Loss Attributable to Common Shareholders” and was included in the numerator of basic Earnings Per Share.

With respect to the Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Deficit, these deemed dividends have been recorded such that Additional Paid-in Capital was first eliminated and any residual dividends served to reduce Accumulated Deficit.

Additionally, the fair value of the 2.0 million shares of Convertible Preferred Stock issued upon conversion of Convertible Bridge Notes exceeded the face value of the Convertible Bridge Notes by $ 2.3 million.

Such excess has been recorded as Loss on Early Extinguishment of Debt within Other (income) expense, net in the accompanying Consolidated Statements of Operations.

As consideration for the advisory services provided to Aziyo in connection with the CorMatrix Acquisition, an agreement was executed between Aziyo and HighCape Partners Management, L.P.

whereby upon consummation by Aziyo of a sale transaction, as defined in the Company’s Certificate of Incorporation, or an initial public offering of the Company’s common stock, Aziyo would be required to pay HighCape a fee totaling $ 0.75 million.

In September 2020, the Company’s obligation in respect of this fee was extinguished in connection with the issuance of 375,000 shares of Convertible Preferred Stock.

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

There was no change to estimated future payments during the three months ended March 31, 2022 and 2021, and thus, no re-measurement gain or loss was recognized.

Interest expense related to the Revenue Interest Obligation of approximately $ 0.7 million was recorded for both the three months ended March 31, 2022 and 2021.

Commitments and Contingencies

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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 was approximately $ 0.3 million for both the three months ended September 30, 2021 and 2020, respectively, and was approximately $ 0.9 million for both the nine months ended September 30, 2021 and 2020, respectively, and is included as a component of either cost of goods sold or general and administrative expenses.

Rent expense was approximately $ 0.3 million for both the three months ended March 31, 2022 and 2021, 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.

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.

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

No royalties were paid to Cook during the three and nine months ended September 30, 2021 or 2020.

No royalties were paid to Cook during the three months ended March 31, 2022 or 2021.

Aziyo has also entered into an amendment to the Cook license agreement (the “Cook Amendment”) in order to add fields of exclusive use.

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Legal Proceedings

From time to time, we may be involved in claims and proceedings arising in the course of our business.

From time to time, the Company may be involved in claims and proceedings arising in the course of the Company’s business.

The outcome of any such claims or proceedings, regardless of the merits, is inherently uncertain.

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These accruals are adjusted periodically as assessments change or additional information becomes available.

Between June 21, 2021 and November 5, 2021, forty-one lawsuits in Indiana, Delaware, Florida, Maryland, Colorado, Michigan, Ohio, and North Carolina have been filed against Aziyo Biologics Inc., certain Medtronic entities, and others alleging that the plaintiffs contracted tuberculosis and/or suffered substantial symptoms and complications following the implantation of FiberCel during spinal fusion operations.

Seventeen lawsuits were filed in Indiana state court, captioned, respectively:

In June 2021, the Company announced a voluntary recall of a single lot of FiberCel.

Between June 21, 2021 and May 9, 2022, forty-seven lawsuits in Indiana, Delaware, Florida, Maryland, Colorado, Michigan, Ohio, Kentucky, Oregon, and North Carolina have been filed against Aziyo Biologics Inc., certain Medtronic entities, and others alleging that the plaintiffs contracted tuberculosis and/or suffered substantial symptoms and complications following the implantation of FiberCel during spinal fusion operations.

Twenty lawsuits were filed in Indiana state court, captioned, respectively:

(1) John Dukes and Kimberly Smith v.

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49D12-2108-CT-025967 (consolidated);

and (13) Candace Kozor, Kenneth Largin and Anthony Young v.

(13) Candace Kozor, Kenneth Largin and Anthony Young v.

Aziyo Biologics, Inc., et al., Case No.

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Aziyo Biologics, Inc., et al., Case No.

49D03-2108-CT-029367 (consolidated) (collectively, the “Indiana State Complaints”).

On September 20, 2021, a motion was granted to consolidate the cases pending in the Marion Superior Court in the State of Indiana for purposes of discovery and pre-trial practice.

49D03-2108-CT-029367 (consolidated;

(18) Hon Vien v.

Aziyo Biologics, Inc., et al., Case No.

49D01-2202-CT-004812;

(19) Jayson Hartman v.

Aziyo Biologics, et al., Case No.

49D12-2202-CT-004835;

and (20) Randy Smith v.

Aziyo Biologics, Inc., et al., Case No.

49D01-2202-CT-005184 (collectively, the “Indiana State Complaints”).

Fifteen lawsuits were filed in the Superior Court of the State of Delaware, captioned respectively:

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(14) Margaret Cook v.

Aziyo, Biologics Inc., et al., C.A.

Aziyo, Biologics Inc., et al.,

N21C-08-131-DJB;

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2021 CV 03621 (“Ohio State Complaint”).

One lawsuit has been filed in the Circuit Court of Michigan, captioned:

Ilona and Christian Hildebrandt v.

Aziyo Biologics, Inc., Case No.

2021-003804-NP (“Michigan State Complaint”).

One lawsuit has been filed in the Superior Court of North Carolina, captioned:

One lawsuit was filed in the Northern District of Ohio, captioned:

Heath Raker and Neal Raker v.

Aziyo Biologics, Inc., et al., Case No.

1:22-cv-54 (“Ohio Federal Complaint”).

One lawsuit filed in the Superior Court of North Carolina, captioned:

Aurelia and Belvin Sherrill v.

Aziyo Biologics, Inc., et al., Case No.

21cvs2797 (“North Carolina State Complaint”).

21-cvs-2797 has since been removed to the U.S.

District Court for the Western District of North Carolina (“North Carolina Federal Complaint”).

One lawsuit has been filed in the U.S.

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5:21-cv-00135-MW-MJF (“Florida Federal Complaint”).

One lawsuit has been filed in the U.S.

Two lawsuits were filed in the U.S.

District Court for the Eastern District of Michigan, captioned:

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Aziyo, Biologics Inc., et al., Case No.

2:21-cv-11813-GAD-EAS (“Michigan Federal Complaint”).

One lawsuit has been filed in the U.S.

2:21-cv-11813-GAD-EAS and (2) Diane Parron v.

Aziyo Biologics Inc., et al., Case No.

2:22-cv-10522-NGE-EAS.

A third lawsuit originally filed in the Circuit Court of Michigan, captioned:

(3) Ilona and Christian Hildebrandt v.

Aziyo Biologics, Inc., Case No.

2021-003804-NP has since been removed to the Eastern District of Michigan (collectively “Michigan Federal Complaints.”) One lawsuit has been filed in the U.S.

District Court for the District of Colorado, captioned Christopher and Julie Buri v.

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1:21-cv-02789-SKC (“Colorado Federal Complaint”).

One lawsuit has been filed in the U.S.

District Court for the District of Oregon, captioned Christy Bryant v.

Aziyo Biologics, Inc., et al., Case No.

1:21-cv-01759-AA (“Oregon Federal Complaint”).

Two lawsuits have been filed in Fayette, Kentucky Circuit Court, captioned:

(1) Earl Wesley Robinson and Joyce Ann Robinson v.

Aziyo Biologics, Inc., Case No.

21-CI-03842 and (2) Horace B.

Aziyo Biologics, Inc., et al., Case No.

22-CI-00895 (collectively “Kentucky State Complaints”).

Lastly, two lawsuits have been dismissed:

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The Maryland Complaint asserts claims of negligence, breach of implied warranty, breach of express warranty, medical monitoring, and loss of consortium.

The Florida Federal Complaint also contains three strict liability claims for defective design, defective manufacture, and failure to warn.

The Florida Federal Complaint contains three strict liability claims for defective design, defective manufacture, and failure to warn.

A claim for punitive damages is also pled.

The Ohio State Complaint alleges causes of action for product liability and negligence, and seeks compensatory damages.

The Michigan State Complaint asserts causes of action for product defect and breach of implied warranty, product defect and breach of express warranty, negligence, gross negligence, and possible knowledge of defect, and seeks compensatory and exemplary damages.

The Colorado Federal Complaint asserts causes of action for strict product liability, misrepresentation, negligence, breach of express warranty, and breach of implied warranty of merchantability.

The Michigan Federal Complaint asserts causes of action for negligence, breach of implied warranty, breach of express warranty, intentional infliction of emotional distress, and liability under the res ipsa loquitur doctrine.

The Michigan Federal Complaint seeks compensatory damages and punitive damages.

The North Carolina State Complaint alleges causes of action for negligence, defective design, breach of implied warranty, breach of express warranty, and loss of consortium, and seeks both compensatory and punitive damages.

In addition to the above, there have been thirty-five claims related to the FiberCel recall, which have not yet resulted in a lawsuit.

We refer to all of the aforementioned litigation, or claim notices, collectively as the “FiberCel Litigation.”

The Michigan Federal Complaints assert causes of action for negligence, gross negligence breach of implied warranty, breach of express warranty, intentional infliction of emotional distress, and liability under the res ipsa loquitur doctrine.

The Michigan Federal Complaints seek compensatory damages and punitive damages.

The North Carolina Federal Complaint alleges causes of action for negligence, defective design, breach of implied warranty, breach of express warranty, and loss of consortium, and seeks both compensatory and punitive damages.

The Oregon Federal Complaint asserts strict liability claims for defective design, defective manufacture, and failure to warn, and seeks compensatory damages.

The Ohio Federal Complaint asserts strict liability claims for defective manufacturing, inadequate warning, nonconformance with representations, and also alleges loss of consortium and seeks compensatory damages.

The Kentucky State Complaints assert strict liability claims based on manufacturing defect, design defect, failure to warn, negligence, breach of implied warranty, breach of express warranty, and seek recovery for medical monitoring, loss of consortium, compensatory damages, and punitive damages.

In addition to the above, there have been forty-four claims related to the FiberCel recall, which have not yet resulted in a lawsuit.

The Company refers to all of the aforementioned litigation, or claim notices, collectively as the “FiberCel Litigation.”

In order to reasonably estimate a loss or range of loss for the FiberCel Litigation, the Company must assess a variety of factors, including, (i) what claims, if any, will survive dispositive motion practice, (ii) the extent of the claims, particularly when damages are not specified or are indeterminate, (iii) how the discovery process will affect the litigation, (iv) the settlement posture of the other parties to the litigation and (v) any other factors that may have a material effect on the litigation.

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however, while unknown, the probable loss could have a material effect on the Company’s financial position and results of operations.

Should Aziyo be required to pay claims related to the FiberCel Litigation, the Company believes that certain settlements and judgments, as well as legal defense costs, may be covered in whole or in part under our insurance policies with two insurance carriers.

In certain circumstances, insurance carriers reserve their rights to contest or deny coverage.

We intend to contest vigorously any disputes with our insurance carriers and to enforce our rights under the terms of our insurance policies.

Accordingly, we will record receivables with respect to amounts due under these policies only when the realization of the potential claim for recovery is considered probable.

Amounts recovered under our insurance policies could be materially less than stated coverage limits and may not be adequate to cover damages, other relief and/or costs relating to claims.

The Company intends to contest vigorously any disputes with its insurance carriers and to enforce its rights under the terms of its insurance policies.

Accordingly, the Company will record receivables with respect to amounts due under these policies only when the realization of the potential claim for recovery is considered probable.

Amounts recovered under the Company’s insurance policies could be materially less than stated coverage limits and may not be adequate to cover damages, other relief and/or costs relating to claims.

In addition, there is no guarantee that insurers will pay claims or that coverage will otherwise be available.

As of both September 30, 2021 and December 31, 2020, the Company was not a party to, or aware of, any material legal matters or claims except for the FiberCel Litigation.

As of both March 31, 2022 and December 31, 2021, the Company was not a party to, or aware of, any material legal matters or claims except for the FiberCel Litigation.

Net Loss Per Share Attributable to Common Stockholders

Three Months Ended

Nine Months Ended

(in thousands, except share and per share data)

September 30,

Net loss attributable to common stockholders

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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:

September 30,

Convertible Preferred Stock

Options to purchase common stock

Restricted stock units

Common stock warrants

Preferred stock warrants

Related Party Transactions

Prior to the IPO, the Company had a management services agreement with an affiliate of HighCape Partners through which strategic, operational and management consulting services are provided to the Company.

During the three and nine months ended September 30, 2020, the Company recorded expenses totaling $ 0.1 million and $ 0.2 million, respectively.

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 (“KeraLink”), 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.

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Furthermore, as part of the 2018 settlement, it was agreed that when KeraLink sells its Aziyo common shares for net proceeds greater than $ 550,000 , KeraLink is obligated to pay Aziyo $ 550,000 within three days of such cash being received.

In May 2021, KeraLink sold Aziyo common shares for proceeds in excess of $ 550,000 , and as such, remitted $ 550,000 to Aziyo in full satisfaction of the 2018 settlement.

Amounts received in connection with this settlement were recorded as other income in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2021.

KeraLink sold Aziyo common shares for proceeds in excess of $ 550,000 , and as such, remitted $ 550,000 to Aziyo in full satisfaction of the 2018 settlement.

Segment Information

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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, 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):

For the three months ended March 31, 2022 and 2021, 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

Nine Months Ended

September 30,

Sales by product

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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