What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-15 compared with 2022-05-10 · 194 added, 92 removed, 537 unchanged (35% of the section changed)

26 unchanged sentences

Stockholders’ equity (deficit):

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

Class A Common stock, $ 0.001 par value, 200,000,000 shares authorized as of June 30, 2022 and December 31, 2021, and 9,306,838 and 9,245,146 shares issued and outstanding , as of June 30, 2022 and December 31, 2021, respectively

Class B Common stock, $ 0.001 par value, 20,000,000 shares authorized, as of June 30, 2022 and December 31, 2021 and 4,313,406 issued and outstanding as of June 30, 2022 and December 31, 2021

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total stockholders’ equity (deficit)

Total liabilities and stockholders' equity

4 unchanged sentences

Three Months Ended

Six Months Ended

Cost of goods sold

5 unchanged sentences

Interest expense

Other (income) expense, net

Loss before provision for income taxes

7 unchanged sentences

Stockholders'

Equity (Deficit)

Balance, March 31, 2022

Proceeds from stock option exercises

Proceeds from sale of common stock through Employee Stock Purchase Plan

Vesting of restricted stock units

Stock-based compensation

Balance, June 30, 2022

Balance, March 31, 2021

Proceeds from stock option exercises

Stock-based compensation

Balance, June 30, 2021

Stockholders'

Equity (Deficit)

Balance, December 31, 2021

Proceeds from stock option exercises

Additional issuance costs in connection with Private Placement

2 unchanged sentences

Stock-based compensation

Balance, March 31, 2022

Balance, June 30, 2022

Balance, December 31, 2020

1 unchanged sentence

Stock-based compensation

Balance, March 31, 2021

Balance, June 30, 2021

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

2 unchanged sentences

(In Thousands)

Three Months Ended

Six Months Ended

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

Depreciation and amortization

Gain on forgiveness of debt

Amortization of deferred financing costs

24 unchanged sentences

Cash paid for interest

Forgiveness of SBA PPP loan

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

12 unchanged sentences

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 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 financial information as of June 30, 2022 and for the three and six months ended June 30, 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.

3 unchanged sentences

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 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.

For the six months ended June 30, 2022, the Company incurred a net loss of $ 17.5 million, and as of June 30, 2022, the Company had an accumulated deficit of $ 122.6 million.

In addition, during the six months ended June 30, 2022, the Company used $ 10.7 million and $ 3.0 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.

1 unchanged sentence

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.

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 Revenue Interest Obligation, or sell assets on acceptable terms, or at all.

As such, based on its current operating plans, even after the recent debt refinancing described in Note 12, the Company believes there is

uncertainty as to whether its future cash flows along with its existing cash, availability under the SWK Loan Facility (described in Note 12) 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.

7 unchanged sentences

Impact of COVID-19

The Company continues to closely monitor the impact of the COVID-19 pandemic on its business.

The Company continues to closely monitor the impact of the COVID-19 pandemic and its variants on its business.

In March 2020, the World Health Organization declared COVID-19 a global pandemic and recommended various containment and mitigation measures worldwide.

60 unchanged sentences

Changes in assumptions or market conditions could result in a change in estimated future cash flows and could result in a lower fair value and therefore an impairment, which could impact reported results.

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

There were no impairment losses for the three and six months ended June 30, 2022 or 2021.

Revenue Recognition

31 unchanged sentences

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

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.

At June 30, 2022, the Company maintained $ 16.7 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.

3 unchanged sentences

Three Months Ended

Six Months Ended

Percent of revenues derived from:

Medtronic Sofamor Danek USA

ACE Surgical Supply

Surgalign Holdings

Medtronic Sofamor Danek USA

Percent of accounts receivable derived from:

ACE Surgical Supply

Surgalign Holdings

1 unchanged sentence

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

For the three months ended March 31, 2022 and 2021, the Company’s net loss equaled its comprehensive loss and accordingly, no additional disclosure is presented.

For the three and six months ended June 30, 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.

7 unchanged sentences

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The ASU provides temporary relief from some of the existing rules governing contract modifications when the modification is related to the replacement of the London Interbank Offered Rate (“LIBOR”) or other reference rates discontinued as a result of reference rate reform.

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, “Reference Rate Reform (Topic 848), Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The ASU provides temporary relief from some of the existing rules governing contract modifications when the modification is related to the replacement of the London Interbank Offered Rate (“LIBOR”) or other reference rates discontinued as a result of reference rate reform.

The ASU specifically provides optional practical expedients for contract modification accounting related to contracts subject to ASC 310, Receivables, ASC 470, Debt, ASC 842, Leases, and ASC 815, Derivatives and Hedging.

2 unchanged sentences

That is, the modified contract is accounted for as a continuation of the existing contract.

The standard was effective upon issuance on March 12, 2020, and the optional practical expedients can generally be applied to contract modifications made and hedging relationships entered into on or before December 31, 2024.

Borrowings under the Company’s term loan facility and

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

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.

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 November 2019, the FASB issued ASU 2019-10, “Financial Instruments - Credit Losses (Topic 326), Derivative and Hedging (Topic 815), and Leases (Topic 842), Effective Dates.” The FASB deferred the effective dates of the new credit losses standard for all entities except filers with the Securities and Exchange Commission (the “SEC”) that are not smaller reporting companies (“SRCs”) to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The Board also aligned the effective dates of ASU 2017-04 on goodwill impairment with the new effective dates of the credit losses standard.

The FASB also aligned the effective dates of ASU 2017-04 on goodwill impairment with the new effective dates of the credit losses standard.

The FASB deferred the effective dates of its new standards on hedging and leases for entities that are not public business entities (“PBEs”) (and for leases, for entities that are not non-for-profit (“NFP”) entities that have issues, or are conduit bond obligors for, certain securities;

1 unchanged sentence

The FASB is also reconsidering its philosophy on establishing effective dates for major standards for private companies, NFPs, EBPs and smaller public companies.

The board has developed a two-bucket approach that would give these entities more time to implement major new standards.

The FASB has developed a two-bucket approach that would give these entities more time to implement major new standards.

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

15 unchanged sentences

In addition, the shares reserved for issuance under the 2020 Plan will also include shares reserved but not issued under the 2015 Plan as well as an annual increase as set forth in the 2020 Plan.

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

As of June 30, 2022, the Company had essentially no shares of Class A common stock available for issuance under the 2020 Plan.

On June 21, 2022, C.

Randal Mills, Ph.D., a member of the Board of Directors (the “Board”) of the Company, was appointed as the Company’s Interim President and Chief Executive Officer and succeeds Ronald Lloyd, who stepped down as the Company’s President and Chief Executive Officer and as a member of the Board.

In connection with his resignation as President and Chief Executive Officer, Mr.

Lloyd and the Company have entered into a separation agreement.

In connection therewith, Mr.

Lloyd will remain a full-time, non-officer employee of the Company through September 30, 2022 to assist with the transition of his duties to his successor.

On September 30, 2022, Mr.

Lloyd will be eligible to receive:

(i) cash severance in an amount equal to his base salary for a period of 12 months and 100 % of his annual target bonus;

(ii) an additional cash payment in an amount equal to the difference, if any, between (a) $ 279,656 and (b) the Fair Market Value (as defined in the Company’s 2020 Incentive Award Plan) as of September 8, 2022 of the 39,894 restricted stock units that will have vested in accordance with their terms on such date, payable in a lump sum;

(iii) subject to Mr.

Lloyd’s achievement of certain performance goals, an additional cash bonus of

up to $ 1,000,000 ;

and (iv) the COBRA benefits, during the 12-month period following the September 30, 2022.

The Company will recognize Mr.

Lloyd’s severance costs over the period from June 21, 2022 through September 30, 2022.

As of June 30, 2022, the Company has recognized $ 0.1 million of expense related to such severance and recorded such expense in Accrued Expenses in the accompanying condensed consolidated balance sheet as of June 30, 2022.

In connection with his appointment as Interim President and Chief Executive Officer, Dr.

Mills and the Company have entered into an employment agreement (the “Mills Employment Agreement”), pursuant to which Dr.

Mills’ employment commenced on June 21, 2022 (the “Mills Effective Date”) and ends on the 90-day anniversary of the Mills Effective Date (such period, the “Interim Period”), unless the parties mutually agree to extend the Interim Period or the Board determines that, at the end of the Interim Period, Dr.

Mills is suitable to assume the role of President and Chief Executive Officer.

In the event the Board makes such determination (which the Board determined in August 2022 as noted below), Dr.

Mills’ continued employment will commence on the day immediately following the Interim Period for an initial period ending on the second anniversary of the Mills Effective Date, which shall automatically be extended for successive one -year periods (the “Employment Period”).

In connection with his service as Interim President and Chief Executive Officer, Dr.

Mills (1) has received a stock option award to purchase 456,278 shares of common stock of the Company (the “Option Grant”), three-fifths of which Option Grant will be subject to time-based vesting (the “Time-Based Options”) and two-fifths of such Option Grant will be subject to performance-based vesting (the “Performance Based Options”) and (2) will be eligible to receive 224,734 restricted stock units (the “RSU Grant”), three-fifths of which RSU Grant will be subject to time-based vesting (the “Time-Based RSUs”) and two-fifths of such RSU Grant will be subject to performance-based vesting (the “Performance-Based RSUs”).

One-third of the Time-Based Options vest upon the end of the Interim Period, and two-thirds of the Time-Based Options vest over a four-year vesting schedule with 25 % vesting on the first anniversary of the June 21, 2022 and the remaining portion vesting in twelve equal quarterly installments.

One-third of the Time-Based RSUs vest upon the end of the Interim Period, and two-thirds of the Time-Based RSUs vest over a four-year vesting schedule in equal annual installments.

The Performance-Based Options and Performance-Based RSUs each vest in equal installments upon the achievement of escalating share price thresholds of $ 12.50 , $ 17.00 , $ 25.00 and $ 37.00 , respectively (calculated based on twenty consecutive days of trading at each respective threshold).

The vesting of the Option Grant and RSU Grant are subject to Dr.

Mills’ continuous service through each applicable vesting date.

These awards were deemed granted on June 21, 2022, in accordance with ASC 718, Accounting for Stock Based Compensation ;

however, the Company could not legally issue the RSUs because the available shares in the 2020 Plan were not sufficient as of June 30, 2022.

The Company expects such shares to become available on September 30, 2022 upon Mr.

Lloyd’s separation.

On August 9, 2022, Dr.

Mills was appointed to the role of President and Chief Executive Officer, thereby ending the Interim Period described above.

Stock Options

The Company’s policy is to grant stock options at an exercise price equal to 100 % of the market value of a share of Class A common stock at closing on the date of the grant.

The Company’s stock options have contractual terms of seven to ten years , and vest over a four-year period from the date of grant.

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

The Company’s stock options have contractual terms of seven to ten years , and generally 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 six months ended June 30, 2022 is as follows:

Number of Shares

1 unchanged sentence

Outstanding, December 31, 2021

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.

Outstanding, June 30, 2022

Vested and exercisable, June 30, 2022

The weighted average grant date fair value of options granted during the six months ended June 30, 2022 was $ 3.15 .

As of June 30, 2022, there was approximately $ 8.1 million of total unrecognized compensation expense related to unvested stock options.

These costs are expected to be recognized over a weighted-average period of 2.6 years.

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

The Company uses the Black-Scholes model to value its time-based stock option grants and expenses the related compensation cost using the straight-line method over the vesting period.

The fair value of stock options is determined on the grant date using assumptions for the estimated fair value of the underlying common stock, expected term, expected volatility, dividend yield, and the risk-free interest rate.

Before the completion of the Company’s IPO, the Board determined the fair value of common stock considering the state of the business, input from management, third party valuations and other considerations.

The Company uses the simplified method for estimating the expected term used to determine the fair value of options.

The expected volatility of the Class A common stock is primarily based on the historical volatility of comparable companies in the industry whose share prices are publicly available.

The Company uses a zero -dividend yield assumption as the Company has not paid dividends since inception nor does it anticipate paying dividends in the future.

The risk-free interest rate approximates recent U.S.

Treasury note auction results with a similar life to that of the option.

The period expense is then determined based on the valuation of the options, 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 granted during the six months ended June 30, 2022 and 2021:

Six Months Ended

Expected term (years)

Risk-free interest rate

Volatility factor

Dividend yield

For the Performance-Based Options granted as described above, the Company accounted for the awards as market condition awards and used an option pricing model, the Monte Carlo model, to determine the fair value of the respective equity instruments and an expense recognition term of approximately three years .

Restricted Stock Units

1 unchanged sentence

There is no exercise price and no monetary payment is required for receipt of restricted stock units or the shares issued in settlement of the award.

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

A summary of the RSU activity under the Company’s 2020 Plan for the six months ended June 30, 2022 is as follows:

Number of Shares

Underlying RSUs

Unvested, December 31, 2021

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.

Unvested, June 30, 2022

The total fair value of the RSUs granted during the six months ended June 30, 2022 was $ 2.4 million.

Of this total, $ 1.7 million 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 vesting periods of six months to four years .

With respect to Performance-Based RSUs, during the six months ended June 30, 2022, the Company granted RSUs totaling (i) 199,388 and accounted for these awards as market condition awards and 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 and (ii) 89,894 to Dr.

Mills as described above.

Given the nature of these market condition arrangements, an option pricing model, the Monte Carlo model, was used to determine the fair value of these RSUs which totaled $ 0.7 million, and the expense is being recorded using the graded vesting method over a period of two to three years .

As of June 30, 2022, $ 3.6 million of unrecognized compensation costs related to RSUs is expected to be recognized over a weighted average period of two years .

Employee Stock Purchase Plan

2 unchanged sentences

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 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.

As of June 30, 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 six months ended June 30, 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 months ended March 31, 2022 and 2021 was comprised of the following (in thousands):

Stock-based compensation expense recognized during the three and six months ended June 30, 2022 and 2021 was comprised of the following (in thousands):

Three Months Ended

Six Months Ended

Sales and marketing

3 unchanged sentences

Total stock-based compensation expense

The Company uses the Black-Scholes model to value its stock option grants and expenses the related compensation cost using the straight-line method over the vesting period.

Before the completion of the Company’s IPO, the Board of Directors determined the fair value of common stock considering the state of the business, input from management, third party valuations and other considerations.

The Company uses the simplified method for estimating the expected term used to determine the fair value of options.

The expected volatility of the Class A common stock is primarily based on the historical volatility of comparable companies in the industry whose share prices are publicly available.

The Company uses a zero -dividend yield assumption as the Company has not paid dividends since inception nor does it anticipate paying dividends in the future.

The risk-free interest rate approximates recent U.S.

Treasury note auction results with a similar life to that of the option.

The period expense is then determined based on the valuation of the options, and is recognized on a straight-line basis over the requisite service period for the entire award.

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

Three Months Ended

Expected term (years)

Risk-free interest rate

Volatility factor

Dividend yield

Inventory was comprised of the following (in thousands):

4 unchanged sentences

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

As of June 30, 2022 and December 31, 2021, the Company’s borrowing capacity under its Revolving Credit Facility was $ 7.5 million and $ 6.9 million, respectively.

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

1 unchanged sentence

dollar deposits divided by 1.00 minus the maximum effective reserve percentage for Eurocurrency funding (“LIBOR”) plus (y) 7.25 %.

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 weighted average interest rate on Term Loan Facility borrowings was 9.5 % for both the three and six months ended June 30, 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.

4 unchanged sentences

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 months ended March 31, 2022 and 2021.

No such mandatory prepayments were required during the three and six months ended June 30, 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.

1 unchanged sentence

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.

The weighted average interest rate on Revolving Credit Facility borrowings was 7.2 % for the three and six months ended June 30, 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 March 31, 2022, Aziyo was in compliance with this financial covenant.

As of June 30, 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.

1 unchanged sentence

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 three and six months ended June 30, 2021.

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

3 unchanged sentences

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 March 31, 2022 and December 31, 2021.

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 June 30, 2022 and December 31, 2021.

Refer to Note 12 for discussion of the repayment of the Term Loan Facility, Revolving Credit Facility and tissue supplier promissory note subsequent to June 30, 2022.

Revenue Interest Obligation

4 unchanged sentences

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.

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 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.

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, along with the expected payment timing of the first $ 5.0 million sales milestone payment noted above, 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 six months ended June 30, 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 June 30, 2022 and 2021 and approximately $ 1.3 million for both the six months ended June 30, 2022 and 2021.

Commitments and Contingencies

3 unchanged sentences

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 March 31, 2022 and 2021, 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 June 30, 2022 and 2021, and was approximately $ 0.6 million for both the six months ended June 30, 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.

1 unchanged sentence

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

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

No royalties were paid to Cook during the three and six months ended June 30, 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.

8 unchanged sentences

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

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:

In June 2021, the Company announced a voluntary recall of a single lot of FiberCel fiber viable bone matrix.

Between June 21, 2021 and July 19, 2022, fifty-one lawsuits in Indiana, Delaware, Florida, Maryland, Colorado, Michigan, Ohio, Kentucky, Oregon, North Carolina and Louisiana 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-one lawsuits were filed in Indiana state court, captioned, respectively:

(1) John Dukes and Kimberly Smith v.

3 unchanged sentences

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

49D04-2106-CT-021649 (consolidated);

CT-021649 (consolidated);

(3) Ramon Cabello v.

47 unchanged sentences

(19) Jayson Hartman v.

Aziyo Biologics, et al., Case No.

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

49D12-2202-CT-004835;

and (20) Randy Smith v.

(20) Randy Smith v.

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

49D01-2202-CT-005184;

and (21) Jason and Sherry Haywood v.

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

49D11-206-CT-021446 (collectively, the “Indiana State Complaints”).

27 unchanged sentences

N21C-06-166-DJB;

and (10) Sharon Riddick v.

(10) Sharon Riddick v.

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

10 unchanged sentences

(14) Margaret Cook v.

Aziyo, Biologics Inc., et al.,

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

N21C-08-131-DJB;

(15) Robert Jr.

and (15) Robert Jr.

and Kelly Aspinall v.

1 unchanged sentence

N21C-09-065-DJB (collectively, the “Delaware State Complaints”).

One lawsuit has been re-filed in the Circuit Court of Maryland (previously filed on 07/21/2021 and dismissed without prejudice on 08/12/2021 in the U.S.

District Court of Maryland), captioned:

Diana and James Hanson v.

Two lawsuits were filed in the Circuit Court of Maryland, captioned:

(1) (previously filed on 07/21/2021 and dismissed without prejudice on 08/12/2021 in the U.S.

District Court of Maryland), Diana and James Hanson v.

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

C-02-CV-21-001094 (“Maryland State Complaint”).

C-02-CV-21-001094 and (2) John Christensen v.

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

C-15-CV-22-002044 (collectively, the “Maryland State Complaints”).

One lawsuit has been filed in the Court of Common Pleas of Ohio, captioned:

20 unchanged sentences

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

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

Aziyo Biologics Inc.,

et al., Case No.

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

2 unchanged sentences

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.

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.

10 unchanged sentences

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

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

22-CI-00895 (the “Nelson suit”).

The Nelson suit was subsequently removed to the U.S.

District Court for the Eastern District of Kentucky (collectively, “Kentucky Complaints.”).

One lawsuit has been filed in the U.S.

District Court for the Western District of Louisiana, captioned Freddie J.

Smith and Loretta D.

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

5:22-cv-01288-EEF-KDM (“Louisiana Federal Complaint”).

Lastly, two lawsuits have been dismissed:

21 unchanged sentences

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 Kentucky 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.

The Louisiana Federal Complaint asserts claims of violation of the Louisiana products liability act, negligence and gross negligence, breach of implied warranty, breach of express warranty and seek recovery for medical monitoring.

In addition to the above, there have been forty-three 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.”

8 unchanged sentences

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

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.

As of both June 30, 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

Six Months Ended

(in thousands, except share and per share data)

12 unchanged sentences

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.

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.

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 three and six months ended June 30, 2021.

Segment Information

1 unchanged sentence

The segment is based on financial information that is utilized by the Company’s Chief Operating Decision Maker (“CODM”), who is the Company’s Chief Executive Officer, to assess performance and allocate resources.

For the three months ended March 31, 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):

For the three and six months ended June 30, 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

Six Months Ended

Sales by product

2 unchanged sentences

Total Net Sales

Subsequent Event

On August 10, 2022 (the “Closing Date”), the Company entered into a term loan facility agreement with SWK Funding LLC (the “SWK Loan Facility”) for principal amount of $ 25 million, with $ 21 million funded at closing and $ 4 million that becomes available, subject to the achievement of specified operational and financial metrics by September 30, 2023 (the “Additional Term Loan”).

The SWK Loan Facility allows for the establishment of a new asset-based revolving loan facility of up to $ 8 million.

The SWK Loan Facility matures on August 10, 2027 and accrues interest, payable quarterly in arrears.

Principal amortization of the SWK Loan Facility starts on November 15, 2024, which amortization may be extended to November 17, 2025 if conditions to draw the Additional Term Loan have been satisfied.

Principal payments during the amortization period will be limited based on revenue-based caps.

The SWK Loan Facility also includes both revenue and liquidity covenants, as defined.

All of the SWK Loan Facility borrowings take the form of Secured Overnight Financing Rate (“SOFR”) loans and will bear interest at a rate per annum equal to the sum of an applicable margin of (i) 8.75 % and the “Term SOFR Rate” (based upon an interest period of 3 months), or (ii) if the Company has elected the PIK Interest option (as defined below), 4.75 % and the “Term SOFR Rate.” The Company may elect a portion of the interest due, to be paid in-kind at a rate per annum of 4.5 % (“PIK Interest”), and such election may be made (x) until November 15, 2024 if the conditions to draw the Additional Term Loan have not been met, or (y) if such conditions to draw the Additional Term Loan have been satisfied, until November 17, 2025.

The “Term SOFR Rate” is subject to a floor of 2.75 %.

On August 10, 2022, the Company issued to SWK Funding LLC a warrant (the “Warrant”) to purchase, in the aggregate, up to 187,969 shares of Class A common stock of the Company, $ 0.001 par value per share (the “Common Stock”) at an exercise price of $ 6.65 per share.

The Warrant is immediately exercisable for up to 157,894 shares of Common Stock from time to time on or after the Closing Date.

Subject to and effective upon the borrowing by the Borrower of the Additional Term Loan, the Warrant will be exercisable for up to an additional 30,075 shares of Common Stock.

The exercise price and number of shares of Common Stock issuable upon exercise of the Warrant are subject to

adjustment in the event of stock dividends, stock splits and certain other events affecting the Common Stock.

Unless earlier exercised or terminated in accordance with its terms, the Warrant will expire on the seventh anniversary of the Closing Date.

The Company used $ 16 million of the proceeds of the SWK Loan Facility to prepay all of the remaining outstanding principal and accrued interest and pay all associated payoff fees on the $ 20 million Term Loan Facility and $ 8 million Revolving Credit Facility.

Such payments included $ 12.8 million to prepay all outstanding principal and accrued interest as well as $ 1.7 million to pay the required prepayment and exit fees on the Term Loan Facility and $ 1.2 million to repay the outstanding balance and accrued interest as well as $ 0.3 million to pay the required exit fees on the Revolving Credit Facility.

The Company also used $ 1.4 million of the proceeds to repay the remaining balance on the promissory note with a tissue supplier.

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