What changed in this filing

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Item 9A. Controls and Procedures

2023-03-23 compared with 2022-03-08 · 394 added, 463 removed, 569 unchanged (60% of the section changed)

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Other Information.

We are reporting the following information in lieu of reporting on a Current Report on Form 8-K under Item 5.02 Departure of Directors or Certain Officers;

Election of Directors;

Appointment of Certain Officers;

Compensatory Arrangements of Certain Officers.

On March 20, 2023, Thomas Englese, the Company’s Chief Commercial Officer, was informed that his position was being eliminated in connection with the Company’s headcount reduction.

In connection with the foregoing, on March 22, 2023 Mr.

Englese and the Company entered into a separation agreement (the “Englese Separation Agreement”), pursuant to which Mr.

Englese will cease serving as the Company’s Chief Commercial Officer and an employee of the Company effective March 24, 2023 (the “Separation Date”).

During the period beginning on the Separation Date and ending on October 8, 2023 (the “Transition Period”), Mr.

Englese has agreed to assist completing strategic partnerships in process, advising on strategic decisions impacting the sales organization and mentoring the new head of sales.

Under the terms of the Englese Separation Agreement, subject to Mr.

Englese’s non-revocation of a release of claims, continued compliance with the restrictive covenants set forth in his employment agreement, and compliance with the terms of the Englese Separation Agreement, (i) Mr.

Englese will receive the severance payments and benefits payable in connection with a termination without cause under his employment agreement as currently in effect, (ii) Mr.

Englese will remain eligible to receive an annual bonus for the 2022 fiscal year, (iii) all of the outstanding equity awards that Mr.

Englese received under the Aziyo Biologics, Inc.

2020 Incentive Award Plan (the “ 2020 Equity Plan ”) and the Aziyo Biologics, Inc.

2015 Stock Option/Stock Issuance Plan will remain outstanding and continue to vest on their original vesting dates during the Transition Period and (iv) all of the restricted stock units awarded to Mr.

Englese pursuant to the 2020 Equity Plan that remain outstanding and unvested as of the last day of the Transition Period will accelerate and vest in full on the last day of the Transition Period.

The forgoing description of the Englese Separation Agreement is qualified in its entirety by the full text of the Englese Separation Agreement, which is filed as Exhibit 10.15 hereto and is incorporated herein by reference.

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Directors, Executive Officers and Corporate Governance.

INFORMATION ABOUT OUR DIRECTORS & EXECUTIVE OFFICERS

The following information with respect to our Board of Directors (the "Board") and executive officers is presented as of March 21, 2023:

Position at Azyo Biologics

Principal Employment

Randal Mills, Ph.D.

Chief Executive Officer and President, and Director

Matthew Ferguson

Chief Financial Officer

Michelle Williams, Ph.D.

Chief Scientific Officer

Thomas Englese(1)

Chief Commercial Officer

David Colpman

Former Managing Partner of Colpman Consulting Ltd., a business development consultancy

Maybelle Jordan

Chief Strategy Officer at Deerfield Device Design and Development Catalyst, a medical technology incubator

Chief Financial Officer at Vivani Medical, Inc., a biopharmaceutical company

Co-founder and General Partner at HighCape Partners, an investment fund

Chief Financial Officer and Chief Business Officer at Acumen Pharmaceuticals, Inc., a biotechnology company

Englese will cease to be an employee and an executive officer of the Company effective March 24, 2023 and has agreed to provide advisory services to the Company until October 8, 2023.

See Part II, Item 9B.

“Other Information.”

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to our annual meeting of stockholders to be held in 2023 (the “2023 Annual Meeting of Stockholders”), which we intend to file with the SEC within 120 days of the year ended December 31, 2022.

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In connection with our IPO, we adopted the Aziyo Biologics, Inc.

2020 Incentive Award Plan (the “2020 Plan”) and, as of the consummation of our initial public offering (the “IPO”), ceased making grants or awards under the Aziyo Biologics, Inc.

2020 Incentive Award Plan (the “2020 Plan”) and, as of the consummation of our IPO, ceased making grants or awards under the Aziyo Biologics, Inc.

2015 Stock Option/Stock Issuance Plan (the “2015 Plan”).

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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.

A common stock outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of Class A common stock as determined by our board of directors.

The number of shares of Class A common stock available for issuance under the ESPP automatically increases on each January 1, until and including January 1, 2030, by an amount equal to the lesser of (A) 1% of the shares of Class A and Class B common stock outstanding on the last day of the immediately preceding fiscal year and (B) such smaller number of shares of Class A common stock as determined by our board of directors.

The calculation of the weighted average exercise price does not include outstanding equity awards that are received or exercised for no consideration.

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Exhibit Number

Filed/Furnished Herewith

Restated Certificate of Incorporation of Aziyo Biologics, Inc.

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Second Amended and Restated Investor Rights Agreement, dated as of September 14, 2020, among the Registrant and the investors named therein

Exhibit Number

Specimen stock certificate evidencing the shares of Class A common stock

Specimen stock certificate evidencing the shares of Class B common stock

Exhibit Number

Filed/Furnished Herewith

Warrant to Purchase Stock, issued on August 10, 2022, by Aziyo Biologics, Inc.to SWK Funding LLC.

Description of Securities

Amended and Restated Credit and Security Agreement (Term Loan), dated as of July 15, 2019, by and among the Registrant and Aziyo Med, LLC, as Borrowers, Midcap Financial Trust, as Agent and as a Lender, and the additional Lenders from time to time party thereto, as amended

Amended and Restated Credit and Security Agreement (Revolving Loan), dated as of July 15, 2019, by and among the Registrant and Aziyo Med, LLC, as Borrowers, Midcap Funding IV Trust, as Agent and as a Lender, and the additional Lenders from time to time party thereto, as amended

Second Amendment, dated January 21, 2022, to Amended and Restated Credit and Security Agreement (Revolving Loan), dated as of July 15, 2019, by and among the Registrant and Aziyo Med, LLC, as Borrowers, Midcap Funding IV Trust, as Agent and as a Lender, and the additional Lenders from time to time party thereto, as amended

Second Amendment, dated January 21, 2022, to Amended and Restated Credit and Security Agreement (Term Loan), dated as of July 15, 2019, by and among the Registrant and Aziyo Med, LLC, as Borrowers, Midcap Funding IV Trust, as Agent and as a Lender, and the additional Lenders from time to time party thereto, as amended

Registration Rights Agreement, dated December 5, 2021, by and among Aziyo Biologics, Inc.

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Royalty Agreement, dated as of May 31, 2017, by and between Aziyo Med, LLC and Ligand Pharmaceuticals Incorporated

Exhibit Number

License Agreement, dated as of May 31, 2017, by and between Cook Biotech Incorporated and Aziyo Med, LLC

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Aziyo Biologics, Inc.

2020 Incentive Award Plan and form of award agreements thereunder

2020 Incentive Award Plan and form of stock option agreements thereunder

Exhibit Number

Filed/Furnished Herewith

Form of Restricted Stock Unit Award Agreement (approved August 2022)

Form of Restricted Stock Unit Award Agreement (approved October 2020)

Aziyo Biologics, Inc.

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Amended and Restated Employment Agreement, by and between the Registrant and Ronald Lloyd, dated as of September 30, 2021

Employment Agreement, by and between the Registrant and Thomas Englese, dated as of September 30, 2020

Employment Agreement, by and between the Registrant and Darryl Roberts, dated as of September 30, 2020

Employment Agreement, by and between the Registrant and Matthew Ferguson, dated as of September 30, 2020

Separation and Release of Claims Agreement, dated June 21, 2022, by and between Ronald Lloyd and Aziyo Biologics, Inc.

Employment Agreement, dated June 21, 2022, by and between C.

Randal Mills, Ph.D.

and Aziyo Biologics, Inc.

Amended and Restated Employment Agreement, dated December 23, 2022, by and between Aziyo Biologics, Inc.

and Thomas Englese

Exhibit Number

Filed/Furnished Herewith

Letter Agreement, dated as of March 22, 2023, by and between Aziyo Biologics, Inc.

and Thomas Englese

Amended and Restated Employment Agreement, dated December 23, 2022, by and between Aziyo Biologics, Inc.

and Matthew Ferguson

Form of Indemnification Agreement for Directors and Officers

Credit Agreement, dated as of August 10, 2022, between Aziyo Biologics, Inc.

and SWK Funding LLC, as Agent and the Lenders from time to time party thereto

Amendment Letter, dated as of October 9, 2022 to Credit Agreement, dated as of August 10, 2022, between Aziyo Biologics, Inc.

and SWK Funding LLC, as Agent and the Lenders from time to time party thereto

Exhibit Number

Filed/Furnished Herewith

Amendment Letter, dated as of November 10, 2022 to Credit Agreement, dated as of August 10, 2022, between Aziyo Biologics, Inc.

and SWK Funding LLC, as Agent and the Lenders from time to time party thereto (as amended by the Amendment Letter dated as of October 9, 2022)

Amendment Letter, dated as of November 21, 2022, to the Credit Agreement, dated as of August 10, 2022, among Aziyo Biologics, Inc., SWK Funding LLC, as Agent, and the Lenders from time to time party thereto (as amended).

Amendment Letter, dated as of November 30, 2022, to the Credit Agreement, dated as of August 10, 2022, among Aziyo Biologics, Inc., SWK Funding LLC, as Agent, and the Lenders from time to time party thereto (as amended).

Subsidiaries of Aziyo Biologics, Inc.

Consent of PricewaterhouseCoopers LLP

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit Number

Filed/Furnished Herewith

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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Inline XBRL Taxonomy Extension Schema Document

Exhibit Number

Filed/Furnished Herewith

Inline XBRL Taxonomy Extension Calculation Linkbase Document

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† Denotes a management contract or compensation plan or arrangement.

# Annexes, schedules and exhibits have been omitted pursuant to Item 601(a)(5)(b)(2) of Regulation S-K.

The Registrant hereby agrees to furnish supplementally a copy of any omitted annex, schedule or exhibit to the SEC upon request.

Form 10-K Summary.

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March 23, 2023

/s/ RONALD LLOYD

RANDAL MILLS, PH.D.

President and Chief Executive Officer

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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

/s/Ronald Lloyd

Randal Mills, Ph.D.

President, Chief Executive Officer and Director

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Maybelle Jordan

Randal Mills, Ph.D.

/s/David Colpman

March 23, 2023

Randal Mills, Ph.D.

David Colpman

March 23, 2023

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Consolidated Statements of Operations

Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity (Deficit)

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

Consolidated Statements of Cash Flows

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We have audited the accompanying consolidated balance sheets of Aziyo Biologics, Inc.

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of operations, of changes in convertible preferred stock and stockholders’ equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, of changes in stockholders' equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Substantial Doubt About the Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 2 to the consolidated financial statements, the Company has generated recurring losses from operations and is expected to incur cash outflows from operating activities that raise substantial doubt about its ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 2.

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

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2022.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Emphasis of Matter

As discussed in Note 2 to the consolidated financial statements, the Company has incurred losses and expects losses to continue for the foreseeable future, which may have an adverse impact on the Company’s future liquidity.

Management’s evaluation of the events and conditions and management’s plans to mitigate this matter are also described in Note 2.

/s/ PricewaterhouseCoopers LLP

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Accounts receivable, net

Receivables of FiberCel litigation costs

Prepaid expenses and other current assets

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Intangible assets, net

Liabilities and Stockholders’ Equity

Operating lease right-of-use assets and other

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:

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Revolving line of credit

Deferred revenue and other current liabilities

Contingent liability for FiberCel litigation

Current operating lease liabilities and other

Total current liabilities

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Long-term revenue interest obligation

Long-term operating lease liabilities

Other long-term liabilities

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Class A Common stock, $ 0.001 par value, 200,000,000 shares authorized as of December 31, 2022 and December 31, 2021, and 11,823,445 and 9,245,146 shares issued and outstanding , as of December 31, 2022 and December 31, 2021, respectively

Class B Common stock, $ 0.001 par value, 20,000,000 shares authorized, as of December 31, 2021 and December 31, 2020 and 4,313,406 and 3,134,162 issued and outstanding as of December 31, 2021 and December 31, 2020, respectively

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

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders' equity

Total stockholders’ equity (deficit)

Total liabilities and stockholders' equity (deficit)

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

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Research and development

FiberCel litigation costs, net

Total operating expenses

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Interest expense

Other (income) expense, net

Other income, 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.

CONSOLIDATED STATEMENT OF CHANGES IN CONVERTIBLE

PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(In Thousands, Except Share and Per Share Data)

Convertible Preferred Stock

Class A Common Stock

Class B Common Stock

Stockholders'

Equity (Deficit)

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

Preferred stock warrant exercises

Net exercise of Common Stock warrants

Conversion of Preferred Stock to Class A and Class B Common Stock upon Initial Public Offering

( 50,819,427 )

Conversion of Common Stock to Class A and Class B Common Stock upon Initial Public Offering

Issuance of Class A and Class B Common Stock in Initial Public Offering, net of offering costs of $ 7,000

Proceeds from sale of common stock through Employee Stock Purchase Plan

Issuance of common stock through private placement, net of issuance costs of $ 247

Stock-based compensation

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Proceeds from stock option exercises

Issuance of common stock through Employee Stock Purchase Plan

Issuance of common stock through Private Placement, net of issuance costs of $ 247

Additional issuance costs in connection with private placement

Proceeds from sale of common stock through Employee Stock Purchase Plan

Proceeds from sale of common stock in secondary public offering, net of issuance costs of $ 966

Vesting of restricted stock units, net of shares withheld and taxes paid

Issuance of warrants in connection with debt financing

Stock-based compensation

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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

(Gain) loss on extinguishment of debt

(Gain) on revaluation of revenue interest obligation

Amortization of deferred financing costs and debt discount

Interest expense recorded as additional revenue interest obligation or long-term debt

Stock-based compensation

Operating expense satisfied through Convertible Preferred Stock issuance

Changes in operating assets and liabilities:

Accounts receivable

Receivables of FiberCel litigation costs

Prepaid expenses and other

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Obligations to tissue suppliers

Contingent liability for FiberCel litigation

Deferred revenue and other liabilities

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FINANCING ACTIVITIES:

Proceeds from Initial Public Offering, net of offering costs

Proceeds from Private Placement, net of issuance costs

Proceeds from exercise of preferred stock warrants

Proceeds from issuance of Convertible Promissory Note

Proceeds from public offering or private placement, net of offering costs

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

Deferred financing costs

Repayments of long-term debt

Costs related to the extinguishment of debt

Payments on revenue interest obligation

Payments for taxes upon vesting of restricted stock units

Proceeds from sales of common stock through Employee Stock Purchase Plan

Net cash provided by financing activities

Net (decrease) increase in cash and restricted cash

Net decrease in cash and restricted cash

Cash and restricted cash, beginning of period

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Cash paid for interest

Conversion of Convertible Promissory Note to Convertible Preferred Stock

Fair value of warrants issued

Forgiveness of SBA PPP loan

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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 products span the device protection, women’s health, orthobiologics and cardiovascular markets.

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

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

Reverse Stock Split and Initial Public Offering

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

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

Accordingly, all share and share-related information presented in these consolidated financial statements and the accompanying notes has been retroactively adjusted for all periods presented to give effect to the reverse stock split.

On October 13, 2020, in connection with the Company's initial public offering ("IPO"), Aziyo issued and sold 2,941,176 shares of common stock, consisting of 2,205,882 shares of Class A common stock and 735,294 shares of Class B common stock, at a price to the public of $ 17.00 per share, resulting in net proceeds of approximately $ 43.0 million, after deducting the underwriting discount of approximately $ 3.5 million and offering expenses of approximately $ 3.5 million.

The Company also sells human tissue products under contract manufacturing and certain other arrangements with corporate customers.

Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation and Liquidity

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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.

The Company believes that the net proceeds from its IPO, together with its existing cash, availability under its Revolving Line of Credit (the “Revolver”) and cash generated from expected future commercial sales as well as the December 2021 private placement financing (see Note 12) will be sufficient to fund its operating expenses and capital expenditure requirements through at least one year after the issuance date of the consolidated financial statements for the year ended December 31, 2021

The Company expects its losses to continue for the foreseeable future and these losses, along with the monthly principal repayments of its Term Loan Facility, will continue to have an adverse effect on our financial position.

For the year ended December 31, 2022, the Company incurred a net loss of $ 32.9 million, and as of December 31, 2022, the Company had an accumulated deficit of $ 138.0 million.

In addition, during the year ended December 31, 2022, the Company used $ 21.4 million of cash in operating activities, and expects to continue to incur cash outflows in 2023.

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

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

As such, in the short-term, the Company will seek to raise capital through the issuance of common stock,

either refinance or restructure its Term Loan Facility and Revolving Credit Facility (see Note 8) or pursue asset sale transactions in order to support its continuing operations and pursue its growth strategy.

The Company may not be able to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms or at all.

If the Company fails to raise capital or enter into such agreements in the short-term, it will be unable to fund its operations and capital expenditure requirements at that time which may result in there being substantial doubt about its ability to continue as a going concern.

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 or debt, restructure its Revenue Interest Obligation (as such term is defined, and further described, in Note 10), or pursue asset sale or other transactions.

However, such transactions may not be successful and the Company may not be able to raise additional equity or debt, restructure its Revenue Interest Obligation, or sell or license 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, issuances of additional equity 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 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 year ended December 31, 2020 along with the line items in the Consolidated Statement of Operations that were impacted (in thousands).

Increase (Decrease) From

Previously Reported Amounts

Sales and marketing

General and administrative

Research and development

These reclassifications did not impact the Company’s consolidated earnings or assets for the year ended December 31, 2020.

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

The reclassifications relate to the separate presentation of prior year costs related to the FiberCel Litigation.

Such costs were formerly shown as a component of general and administrative expenses in the accompanying consolidated statements of operations.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Estimates and assumptions relating to inventories, receivables, long-lived assets, the valuation of stock-based awards, the valuation of the revenue interest obligation and deferred income taxes are made at the end of each financial reporting period by management.

Estimates and assumptions relating to inventories, receivables, long-lived assets, the valuation of stock-based awards, the valuation of the revenue interest obligation, the contingent liability for the FiberCel Litigation 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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Impact of COVID-19

The Company is closely monitoring 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.

Since that time, the number of procedures performed using the Company's products has decreased significantly, as governmental authorities in the United States have recommended, and in certain cases required, that elective, specialty and other non-emergency procedures and appointments be suspended or canceled in order to avoid patient exposure to medical environments and the risk of potential infection with COVID-19, and to focus limited resources and personnel capacity on the treatment of COVID-19 patients.

As a result, beginning in March 2020, a significant number of procedures using the Company's products have been postponed or cancelled, which has negatively impacted sales of its products.

These measures and challenges will likely continue for the duration of the pandemic, which is uncertain, and will likely continue to reduce the Company's net sales and negatively impact its business, financial condition and results of operations while the pandemic continues.

Net Loss per Share Attributable to Common Stockholders

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

The Convertible Preferred Stock was considered a participating security through the completion of the IPO (see Note 12).

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

Under the two-

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

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

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

Our common stock has a dual class structure, consisting of Class A common stock, $ 0.001 par value per share (the “Class A common stock) and Class B common stock, $ 0.001 par value per share (the “Class B common stock).

Other than voting rights, the Class B common stock has the same rights as the Class A common stock, and therefore both are treated as the same class of stock for purposes of the earnings per share calculation.

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average shares outstanding during the period.

For purposes of the diluted net income (loss) per share attributable to common stockholders’ calculation, Convertible Preferred Stock, stock options, and preferred and common stock warrants are considered to be common stock equivalents.

For purposes of the diluted net income (loss) per share attributable to common stockholders calculation, stock options, restricted stock units (“RSUs”) and warrants are considered to be common stock equivalents.

All common stock equivalents have been excluded from the calculation of diluted net loss per share attributable to common stockholders, as their effect would be anti-dilutive for all periods presented.

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The Company maintains cash balances that may, at times, exceed this insured limit.

Under the provisions of the Revolving Credit Facility (see Note 8), the Company has a lockbox arrangement with the banking institution whereby daily lockbox receipts are contractually utilized to pay down outstanding balances on the Revolving Credit Facility debt.

Lockbox receipts that have not yet been applied to the Revolving Credit Facility are classified as restricted cash in the accompanying consolidated balance sheets.

Under the provisions of the Company’s former revolving credit facility, the MidCap Credit Facility (as such term is defined, and further described in Note 9), the Company had a lockbox arrangement with the banking institution whereby daily lockbox receipts were contractually utilized to pay down outstanding balances on the MidCap Credit Facility debt.

Lockbox receipts that had not yet been applied to the MidCap Credit Facility were classified as restricted cash in the accompanying consolidated balance sheets.

The following table provides a reconciliation of cash and restricted cash included in the consolidated balance sheets to the amounts included in the statements of cash flows (in thousands).

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Repairs and maintenance costs are expensed as incurred.

In February 2016, the FASB issued ASU No 2016-02 “Leases” to increase the transparency and comparability about leases among entities.

Additional ASUs have been issued subsequent to ASU 2016-02 to provide supplementary clarification and implementation guidance for leases related to, among other things, the application of certain practical expedients, the rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments.

ASU 2016-02 and these additional ASUs are now codified as Accounting Standards Codification Standard 842 - “Leases” (“ASC 842”).

ASC 842 supersedes the lease accounting guidance in Accounting Standards Codification 840 “Leases” (“ASC 840”) and requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts.

It also requires additional disclosures about leasing arrangements.

The Company elected to utilize the “package” of expedients, as defined in ASC 842, which retain the lease classification and initial direct costs for any leases that existed prior to adoption of the standard.

Accordingly, previously reported financial information has not been restated to reflect the application of the new standard to the comparative periods presented.

Aziyo adopted the standard in the fourth quarter of 2022 for the full 2022 year resulting in the recognition of a Right-of-use (“ROU”) asset and operating lease liability on the Company’s consolidated balance sheet of approximately $ 2.4 million as of January 1, 2022.

As the ROU asset and the lease payable obligation were essentially the same upon adoption of ASC 842 , there was no cumulative effect impact on the Company’s accumulated deficit.

The Company determines if an arrangement contains a lease at inception.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from that lease.

For leases with a term greater than 12 months, ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The lease term includes the option to extend the lease when it is reasonably certain the Company will exercise that option.

When available, the Company uses the rate implicit in the lease to discount lease payments to present value.

In the case the implicit rate is not available, the Company uses its incremental borrowing rate based on information available at the lease commencement date, including publicly available data for instruments with similar characteristics, to determine the present value of lease payments.

The Company combines lease and non-lease elements for office leases.

Long-Lived Assets

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Deferred Rent

The Company recognizes rent expense by the straight-line method over the lease term.

Prior to the adoption of ASU 2016-02 (as noted above) in the year ended December 31, 2022, the Company recognized rent expense by the straight-line method over the lease term.

Funds received from the lessor used to reimburse the Company for the cost of leasehold improvements are recorded as a deferred credit resulting from a lease incentive and are amortized over the lease term as a reduction of rent expense.

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

FASB ASC 718 requires the measurement and

recognition of compensation expense for all stock-based awards made to employees and directors, including employee stock options and restricted stock.

FASB ASC 718 requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including employee stock options and restricted stock.

Stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis over the requisite service period of the entire award.

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The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense.

Segment Reporting

Operating segments are components of an entity that engage in business activities with discrete financial information available that is regularly reviewed by the chief operating decision maker (“CODM”) in order to assess performance and allocate resources.

The Company’s CODM is its President and Chief Executive Officer.

As discussed further in Note 19, the Company has determined in its fourth quarter of 2022 that its operating and reportable segments are consistent with its major product groupings – device protection, women’s health, orthobiologics and cardiovascular.

Segment results for the year ended December 31, 2021 have been restated to conform to the new segment presentation.

See Note 19 for further discussion .

Recently Issued Accounting Standards

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

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

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

The ASU also establishes a general contract modification principle that entities can apply in other areas that may be affected by reference rate reform and certain elective hedge accounting expedients.

For eligible contract modifications, the principle generally allows an entity to account for and present modifications as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination.

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

The standard was effective upon issuance on March 12, 2020, and the optional practical expedients can generally be applied to contract modifications made and hedging relationships entered into on or before December 31, 2022.

Borrowings under the Company’s term loan facility and

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

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

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

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

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

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

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

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

and are not employee benefit plans (EBPs) that file or furnish financial statements with or to the SEC) to fiscal years beginning after December 15, 2020, and interim periods in the following year.

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

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

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

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.” The standard eliminates, adds, and modifies certain disclosure requirements for fair value measurements.

Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements.

The standard is effective for annual reporting periods beginning after December 15, 2019.

Adoption of this new standard in the first quarter of 2020 did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses, which changed the impairment model for most financial assets and certain other financial instruments.

The standard requires the use of a forward-looking “expected loss” model for instruments measured at amortized cost that generally will result in the earlier recognition of allowances for losses.

The standard is effective for years beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2019.

The adoption of this standard on January 1, 2020 did not have a material impact on the Company's consolidated financial results.

In February 2016, the FASB issued ASU 2016-02, Leases.

The standard requires that lessees recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term lease).

The liability will be equal to the present value of lease payments.

The asset will be based on the liability subject to certain adjustments.

For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance.

Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases).

In November 2019, the FASB issued 2019-10 which extended the adoption of ASU 2016-02 for the Company to be effective for periods ending after December 15, 2022.

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.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Disclosure Framework – Measurement of Credit Losses on Financial Instruments, which requires financial assets measured at amortized cost, including trade receivables, be presented net of the amount expected to be collected.

The measurement of all expected credit losses will be based on relevant information about the credit quality of customers, past events, including historical experience, and reasonable and supportable forecasts that affect the collectability of the reported amount.

In October 2019, the FASB voted to approve a proposal to defer the effective date of ASC 2016-13 for certain entities, including emerging growth companies that take advantage of the extended transition period, to fiscal years beginning after December 15, 2022.

The Company is currently evaluating the impact of adopting this new guidance on its consolidated financial statements and timing of adoption.

Stock-Based Compensation

In 2015, the Company established the Aziyo Biologics, Inc.

2015 Stock Option/Stock Issuance Plan, as amended (the “2015 Plan”) which provided for the granting of incentive and non-qualified stock options to employees, directors

and consultants of the Company.

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.

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As of December 31, 2022, the Company had 656,689 shares of Class A common stock available for issuance under the 2020 Plan.

On June 21, 2022, C.

Randa l 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, succeeding 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 appointment as the Interim President and Chief Executive Officer, Dr.

Mills and the Company entered into an employment agreement for an initial term of 90 days (such period, the “Interim Period”).

On August 9, 2022, Dr.

Mills was appointed to the role of President and Chief Executive Officer of the Company, thereby ending the Interim Period, and his employment agreement was extended pursuant to the terms thereof.

In accordance with the terms of his employment agreement, Dr.

Mills (1) received a stock option award to purchase 456,278 shares of Class A common stock of the Company (the “Option Grant”) on June 21, 2022;

three -fifths of such Option Grant is subject to time-based vesting (the “Time-Based Options”) and two -fifths of such Option Grant is subject to performance-based vesting (the “Performance Based Options”) and (2) is eligible to receive 224,734 restricted stock units (the “RSU Grant”);

three -fifths of such RSU Grant is subject to time-based vesting (the “Time-Based RSUs”) and two -fifths of such RSU Grant is subject to performance-based vesting (the “Performance-Based RSUs”).

One -third of the Time-Based Options vested on August 9, 2022 (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 June 21, 2022 and the remaining portion vesting in twelve equal quarterly installments.

One -third of the Time-Based RSUs vest on the grant date, 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 certain share price thresholds for twenty consecutive days of trading at each respective threshold.

Pursuant to the terms of the employment agreement, all of these awards were deemed granted on June 21, 2022, for purposes of and in accordance with ASC 718, Accounting for Stock Based Compensation ;

however, the RSUs had not been legally granted as of December 31, 2022.

It is anticipated that such RSUs will be legally granted prior to June 30, 2023, and the vested shares underlying the award will be deemed outstanding as of such time.

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

Lloyd and the Company entered into a separation agreement, pursuant to which Mr.

Lloyd remained 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 received:

(i) cash severance in an amount equal to his base salary for a period of 12 months and 100 % of his annual target bonus and (ii) the COBRA benefits, during the 12-month period following September 30, 2022.

The Company recognized

Lloyd’s severance costs totaling approximately $ 1.0 million over the period from June 21, 2022 through September 30, 2022, and as of December 31, 2022, all such expenses remaining to be paid were included in Accrued Expenses in the accompanying consolidated balance sheets.

Stock Options

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The total intrinsic value of options exercised was not material for both the years ended December 31, 2022 and 2021.

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

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

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

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

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

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

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

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

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

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

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

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

Number of Shares

Underlying RSUs

Unvested, December 31, 2021

Unvested, December 31, 2022

The total fair value of the RSUs granted during the twelve months ended December 31, 2021 and 2020 of $ 1.3 million and $ 2.5 million, respectively was based on the fair market value of the Company's Class A common stock on the date of grant.

The total fair value of the RSUs granted during the year ended December 31, 2022 and 2021 of $ 2.4 million and $ 1.3 million, respectively 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 December 31, 2021, $ 2.5 million of unrecognized compensation costs related to RSUs is expected to be recognized over a weighted average period of 2.3 years.

During the year ended December 31, 2022, the Company granted 289,282 Performance-Based RSUs, with 209,054 still outstanding at December 31, 2022.

All such RSUs, including those granted to Dr.

Mills and described above, vest only if or when the Company’s Class A common stock closing price is at or exceeds a defined share price for a defined period of time.

As such, all of these awards have been accounted for as market condition awards.

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 as well as the expense recognition term of two to three years using the graded vesting method.

As of December 31, 2022, $ 1.5 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

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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.

or (ii) a lesser number of shares determined by the Company’s board of directors.

As of December 31, 2022, the total shares of Class A common stock authorized for issuance under the ESPP was 380,997 , of which 279,345 remained available for future issuance.

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Total stock-based compensation expense

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

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

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

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

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

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

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

The following weighted-average assumptions were used to determine the fair value of options during the years ended December 31, 2021 and 2020:

Expected term (years)

Risk-free interest rate

Volatility factor

Dividend yield

Inventory as of December 31, 2022 and 2021 was comprised of the following (in thousands):

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Depreciation and amortization expense on property and equipment totaled approximately $ 0.3 million and $ 0.3 million for the years ended December 31, 2022 and 2021, respectively, of which approximately $ 0.2 million and $ 0.1 million, respectively, are included within cost of goods sold in the accompanying consolidated statements of operations.

The Company leases two production facilities, one administrative and research facility and one administrative facility under non-cancelable operating lease arrangements that expire through November 2025.

All leases contain renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges.

The following is a summary of the Company’s ROU assets and operating lease liabilities as of December 31, 2022 (in thousands):

Classification on the Balance Sheet

December 31, 2022

Operating leases assets

Operating lease right-of-use assets and other

Operating leases current liabilities

Current operating lease liabilities and other

Operating leases non-current liabilities

Long-term operating lease liabilities

Total lease liabilities

Weighted average remaining lease term

Weighted average discount rate

For the year ended December 31, 2022, the Company recognized operating lease cost of approximately $ 1.0 million and expenses related to non-lease elements such as building maintenance and utilities of $ 0.5 million.

Cash paid for amounts included in the measurement of operating lease liabilities are included in operating cash flows and were approximately $ 1.0 million for the year ended December 31, 2022.

For the year ended December 31, 2021, the Company recorded 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 was recorded as deferred rent and included in accrued liabilities on the balance sheet as of December 31, 2021.

Rent expense for the year ended December 31, 2021 was approximately $ 1.2 million and is included as a component of either cost of goods sold or general and administrative expenses.

The table below reconciles the Company’s future cash obligations to the operating lease liabilities recorded on the balance sheet as of December 31, 2022 (in thousands):

Years ending December 31,

Total minimum lease payments

amount of lease payments representing interest

Present value of future minimum lease payments

current operating lease liabilities

Long-term operating lease liabilities

Intangible Assets

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Amortization expense totaled approximately $ 3.4 million for each of the years ended December 31, 2022 and 2021, which is included in cost of goods sold in the accompanying consolidated statements of operations.

Annual amortization expense is expected to be approximately $ 3.4 million during each of the years ended December 31, 2022, 2023 , 2024 , 2025 and 2026 .

Annual amortization expense is expected to be approximately $ 3.4 million during the years ended December 31, 2023 through 2026 and approximately $ 1.5 million during the year ended December 31, 2027.

Long-Term Debt

On May 31, 2017, in connection with the Company’s acquisition of CorMatrix described in Note 7, Aziyo entered into a $ 12 million term loan facility (the “Term Loan Facility”) and an $ 8.0 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 December 31, 2021 and 2020, the Company’s borrowing capacity under its Revolving Credit Facility was $ 6.9 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.

Borrowings under the Term Loan Facility, as amended, bear interest at a rate per annum equal to the sum of (x) the greater of (i) 2.25 % and (ii) the applicable London Interbank Offered Rate for U.S.

On May 31, 2017, Aziyo entered into a $ 12 million term loan facility (the “MidCap Loan Facility”) and an $ 8.0 million asset-backed revolving line of credit (the “MidCap Credit Facility”), under which the Company’s borrowing capacity was limited by certain qualifying assets, with a financial institution (the “May 2017 Financing”).

The MidCap 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 MidCap Loan Facility to $ 20 million.

The borrowings under the MidCap Loan Facility and the MidCap Credit Facility were fully repaid with a portion of the proceeds from the SWK Loan Facility (as defined below) as more fully described below.

O n August 10, 2022 (the “Closing Date”), the Company entered into a senior secured term loan facility with SWK Funding LLC, as agent, and other lenders party thereto (the “SWK Loan Facility”) for an aggregate principal amount of $ 25 million.

An initial draw of $ 21 million drawn was made on the Closing Date with the additional $ 4 million drawn on December 14, 2022 upon satisfaction of the amended terms enabling such receipt.

The SWK Loan Facility also allows for the establishment of a separate, new asset-based revolving loan facility of up to $ 8 million, which had not been entered into as of December 31, 2022.

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 certain conditions have been satisfied.

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

As of December 31, 2022, quarterly principal payments are scheduled to begin on November 15, 2024, in an amount equal to 5 % of the Initial Term Loan with the balance paid at maturity.

T he SWK Loan Facility also includes both revenue and liquidity covenants, restrictions as to payment of dividends, and is secured by all assets of the Company, subject to certain customary exceptions.

As of December 31, 2022, Aziyo was in compliance with its financial covenants under the agreement governing the SWK Loan Facility (the “SWK Loan Facility Agreement”).

All of the SWK Loan Facility borrowings take the form of Secured Overnight Financing Rate (“SOFR”) loans and bear interest at a rate per annum equal to the sum of an applicable margin of (i) 7.75 % 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 %.

The agreement governing the SWK Loan Facility also includes an exit fee equal to 6.5 % of the aggregate principal amount funded prior to termination and prepayment penalties equal to:

(i) if such prepayment occurs prior to the first anniversary of the Closing Date, 2 % of the aggregate principal amount funded prior to the termination plus remaining unpaid interest payments scheduled to be paid during the first year of the loan or (ii) if such prepayment occurs after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date, 2 % of the aggregate principal amount funded prior to the termination.

weighted average interest rate on the SWK Loan Facility was 12.6 % for the period from August 10, 2022 through December 31, 2022.

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 at an exercise price of $ 6.65 per share.

The Warrant is immediately exercisable for up to 187,969 shares of Class A common stock from time to time on or after the Closing Date.

The exercise price and number of shares of Class A 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 Class A common stock.

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

Upon issuance, the Company valued the Warrant at approximately $ 0.6 million using the Black-Scholes model.

The recognition of the Warrant as well as deferred financing costs of approximately $ 0.5 million incurred in securing the SWK Loan Facility served to reduce the recorded value of the associated debt.

The debt discount and deferred financing costs will be recognized as interest expense through the maturity of the loan.

The Company used $ 16 million of the proceeds of the SWK Loan Facility to repay all outstanding obligations on the MidCap Loan Facility and MidCap Credit Facility.

Such payment included (i) $ 12.8 million to repay all outstanding principal and accrued interest on the MidCap Loan Facility, (ii) $ 1.7 million to pay the prepayment and exit fees on the MidCap Loan Facility and (iii) $ 1.5 million to repay the outstanding balance, accrued interest and exit fees on the MidCap Credit Facility.

The prepayment fees, payment of unaccrued exit fees and the write-off of unamortized deferred financing costs resulted in a loss to the Company of approximately $ 1.2 million which has been recorded as other income, net in the accompanying consolidated statements of operations for the year ended December 31, 2022.

The SWK Loan Facility Agreement requires certain mandatory prepayments, subject to certain exceptions, with:

(1) 100 % of any net casualty proceeds in excess of $ 250,000 and (2) for non-ordinary course asset sales, an amount equal to the difference between (x) the proportion of divested gross profit (as defined in the SWK Loan Facility Agreement) to the Company’s total gross profit (as defined in the SWK Loan Facility Agreement) multiplied by the outstanding loans under the SWK Loan Facility and (y) the difference between $ 1,000,000 and the aggregate sale proceeds of any assets previously sold during the fiscal year.

No such mandatory prepayments were required during the year ended December 31, 2022.

Borrowings under the MidCap Loan Facility, as amended, bore interest at a rate per annum equal to the sum of (x) the greater of (i) 2.25 % and (ii) the applicable London Interbank Offered Rate for U.S.

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

The weighted average interest rate on Term Loan Facility borrowings was 9.5 % for both the years ended December 31, 2021 and 2020.

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

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

Accordingly, based on the Company’s successful completion of its IPO, Aziyo exercised this interest-only period extension right and as such, interest and equal principal payments 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:

(1) 100 % of any net casualty proceeds in excess of $ 250,000 with respect to assets upon which the agent maintains a lien and (2) 100 % of the net cash proceeds of non-ordinary course asset sales or sales pertaining to collateral upon which the borrowing base of the Revolving Credit Facility is calculated.

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

No such mandatory prepayments were required during the years ended December 31, 2021 and 2020.

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 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 years ended December 31, 2021 and 2020.

Both debt instruments contain events of default, including,

most significantly, a failure to timely pay interest or principal, insolvency, or an action by the United States Food and Drug Administration or such other material adverse event impacting the operations of Aziyo.

To this end, the mutual termination of our Supply Agreement for FiberCel with Medtronic referred to in Note 16 to the consolidated financial statements would have triggered an event of default;

however, such event of default was waived by our lenders.

The debt instruments also include a financial covenant based on cumulative minimum net product revenue, as defined, restrictions as to payment of dividends, and are secured by all assets of the Company.

As of December 31, 2021, Aziyo was in compliance with this financial covenant.

In January 2022, the minimum net product revenue covenants were amended and all future amounts were reset.

In conjunction with the May 2017 Financing and the amendment thereto, the Company issued to the financial institution warrants to purchase 405,000 shares of Aziyo’s Convertible Preferred Stock at $ 1.00 per share.

The warrants were exercisable through the first to occur of (a) May 31, 2027 (in the case of warrants to purchase 360,000 shares of Convertible Preferred Stock) or December 14, 2027 (in the case of warrants to purchase 45,000 shares of Convertible Preferred Stock), and (b) the earlier of (i) a Sale Transaction (as defined in the Company’s Certificate of Incorporation) or (ii) an initial public offering of the Company’s common stock.

All warrants were exercised in connection with the IPO noted in Note 1.

The Company accounts for stock warrants in accordance with ASC Topic 815 Derivatives and Hedging - Contracts in Entity’s Own Equity,” as either derivative liabilities or as equity instruments depending on the specific terms of the warrant agreement.

As described in Note 10, all of the Company’s issued and outstanding Convertible Preferred Stock warrants are accounted for as a liability and are valued using the Black Scholes model.

Upon issuance, the Company valued such warrants at $ 286,267 .

The recognition of these warrants served to reduce the recorded value of the associated Term Loan Facility borrowings.

This resulting debt discount was recognized as interest expense through December 31, 2021.

The weighted average interest rate on MidCap Loan Facility was 9.5 % from January 1, 2022 through August 10, 2022 (the “Repayment Date”) and for the year ended December 31, 2021.

Borrowings under the MidCap Credit Facility bore 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 weighted average interest rate on MidCap Credit Facility was 7.2 % from January 1, 2022 through the Repayment Date and for the year ended December 31, 2021.

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

The note bears interest at 5 % and includes quarterly interest-only payments in 2017 and quarterly interest and principal payments from March 31, 2018 through August 31, 2021.

The notes are subordinated in payment to the Term Loan Facility and Revolving Credit Facility and in both 2021 and 2020, the Company’s senior lender restricted payment of the amounts due.

In April 2020, the Company issued convertible, subordinated promissory notes (the “2020 Bridge Notes”) with a total principal of approximately $ 2.0 million.

The 2020 Bridge Notes have an interest rate of 5 %, are repayable upon demand by the holders any time after April 1, 2025 and shall automatically be converted into the Company’s shares of capital stock upon the closing of an issuance of the Company’s shares of capital stock to one or more investors that results in gross cash proceeds to the Company of at least Three Million Dollars ($ 3 million).

The number of securities to be issued in connection with the conversion of these notes shall equal (i) the sum of the outstanding principal amount of, and all accrued but unpaid interest on, these notes divided by (ii) the cash purchase price per security paid by the investors in the financing.

See Note 12 for discussion of the conversion of these notes into Convertible Preferred Stock in September 2020.

The Company used $ 1.4 million of the proceeds from the SWK Loan Facility to repay the remaining balance on the promissory note;

however the accrued interest on the promissory note was forgiven by the lender.

Such forgiveness resulted in a gain to the Company of approximately $ 0.4 million which has been recorded as other income, net in the accompanying consolidated statements of operations for the year ended December 31, 2022.

In May 2020, Aziyo entered into a promissory note with Silicon Valley Bank that provided for the receipt by the Company of loan proceeds totaling approximately $ 3.0 million (the “PPP Loan”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”).

The PPP Loan bears interest at a rate of 1.0% per annum with monthly principal and interest payments beginning in March 2021 and ending on the maturity date of May 7, 2022;

however such repayment commencement was deferred by the U.S.

Small Business Administration while they evaluated our forgiveness application.

In June 2021, we were notified by the U.S.

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

Such forgiveness resulted in a gain to us of approximately $ 3.0 million which has been recorded as other income in the accompanying Consolidated Statements of Operations for the year ended December 31, 2021.

In September 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, net in the accompanying consolidated statements of operations for the year ended December 31, 2021.

As of December 31, 2022, the contractual maturities of the long-term debt are as follows (in thousands):

Note to Tissue

Years ending December 31,

Debt Discount

Deferred Financing Costs

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The fair value of all debt instruments, which is based on inputs considered to be Level 2 under the fair value hierarchy, approximates the respective carrying values as of December 31, 2022 and 2021.

The Company had a warrant outstanding to purchase up to 7,656 shares of common stock, at an exercise price of $ 5.44 per share, which had been issued in connection with a prior financing arrangement.

This warrant was fully exercised in connection with the IPO described in Note 1.

Revenue Interest Obligation

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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 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.

The Company recorded the present value of the estimated total future payments under the Revenue Interest Obligation as a long-term obligation, with the short-term portion as of December 31, 2022 comprised of (i) the 2023 minimum payments, (ii) the first $ 5.0 million sales milestone payment noted above and (iii) the unpaid portion of the 2022 minimum payments.

The short-term portion as of December 31, 2021 was comprised of the 2022 minimum payments.

Interest expense related to the Revenue Interest Obligation of approximately $ 2.7 million was recorded for both the years ended December 31, 2022 and 2021.

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At each reporting period, the value of the Revenue Interest Obligation is re-measured based on current estimates of future payments, with changes to be recorded in the consolidated statements of operations using the catch-up method.

There was no change to estimated future payments during both the years ended December 31, 2021 and 2020 and thus, no re-measurement gain or loss was recognized.

The preferred stock warrant liability in the table below consisted of the fair value of warrants to purchase Convertible Preferred Stock (see Note 8) and was based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

The Company’s valuation of the preferred stock warrants utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the preferred stock warrants.

The Company assessed these assumptions and estimates at each reporting period as updated information impacting the assumptions became available.

An increase in the fair value of the preferred stock warrants during the year ended December 31, 2020 resulted in a loss to the Company of approximately $ 0.2 million and such charge was recognized as Other (income) expense in the Consolidated Statements of Operations.

As described in Note 8, all preferred stock warrants were exercised in connection with the IPO and upon such exercise, the preferred stock warrant liability was reclassified to additional paid-in capital in the accompanying Consolidated Balance Sheets.

The following table provides a rollforward of the aggregate fair values of the preferred stock warrant liability and Revenue Interest Obligation categorized with Level 3 inputs for the years ended December 31, 2021 and 2020 (in thousands):

Preferred Stock

Revenue Interest

Warrant Liability

In connection with our estimation at December 31, 2022, it was determined that the estimated future payments, discounted at the original discount rate, had decreased since the prior estimates.

Such decrease was primarily the result of anticipated changes to our strategic partnerships relative to sales of both our CanGaroo and cardiovascular product lines that will impact the timing and extent of such sales and, thereby, will reduce expected future payments to Ligand.

The change to estimated future payments yielded a reduction to the total Revenue Interest Obligation of approximately $ 5.0 million for the year ended December 31, 2022 with such amount recognized as a gain in Other income, net in our consolidated statement of operations.

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

The following table provides a rollforward of the aggregate fair value of the Revenue Interest Obligation categorized with Level 3 inputs for the years ended December 31, 2022 and 2021 (in thousands):

Balance as of January 1, 2021

Fair value adjustment to warrant liability

Payments on Revenue Interest Obligation

Interest accrued to Revenue Interest Obligation

Exercise of Preferred Stock Warrant

Balance as of December 31, 2021

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Interest accrued to Revenue Interest Obligation

Gain on revaluation of revenue interest obligation

Balance as of December 31, 2022

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Income tax expense

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes as well as net operating loss carryforwards.

carryforwards.

As of December 31, 2022 and 2021, significant components of the Company’s net deferred income taxes are as follows (in thousands):

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Net operating loss carryforwards

Deferred revenue

Acquired intangibles

1 unchanged sentence

Interest expense

Research and development costs

Operating lease liability

FiberCel litigation costs

Deferred tax liabilities:

Operating lease right-to-use assets

Prepaid expenses

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These ownership changes may limit the amount of carryforwards that can be utilized annually to offset future taxable income.

The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant complexity and cost associated with such a study.

The Company has not conducted a study to assess whether a change of control has occurred or whether there have been multiple changes of control since inception due to the significant

complexity and cost associated with such a study.

If the Company has experienced a change of control, as defined by Section 382, at any time since inception, utilization of the net operating loss carryforwards would be subject to an annual limitation under Section 382.

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Stockholders’ Equity

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

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

During the year ended December 31, 2020, Convertible Preferred Stock offerings totaled approximately $ 5.4 million.

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

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

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

Such excess was accounted for as a deemed dividend to the Convertible Preferred Stock and was recorded as "Accretion of Convertible Preferred Stock"

in the Consolidated Statements of Operations to arrive at "Net Loss Attributable to Common Shareholders"

and is 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 for the year ended December 31, 2020.

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.

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

The holders of Convertible Preferred Stock shall be entitled to receive dividends prior and in preference

to any payment of any dividend on common stock.

No dividends were declared by the Board of Directors from inception through the conversion of such Convertible Preferred Stock to common stock as noted below.

The Convertible Preferred Stock is convertible at the election of the holders into shares of the Company’s common stock that would result in a conversion ratio of one share of common stock for every 13.9549 shares of Convertible Preferred Stock held.

In addition to this voluntary conversion, each share of Convertible Preferred Stock will automatically be converted into shares of common stock upon (i) the written consent of the required holders (as defined) or (ii) the closing of the sale of shares of common stock to the public at a price of at least $ 5.00 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the common stock), in an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $ 30 million of gross proceeds to the Company.

In case of an underwritten public offering, immediately prior to closing, the holders of Convertible Preferred Stock are entitled to receive additional shares of (the “Liquidation Shares") of common stock as determined by dividing the Convertible Preferred Stock Preference Amount, as defined below, by the price per Common Shares in the underwritten public offering.

At the closing of the IPO, all outstanding shares of the Convertible Preferred Stock, including Convertible Preferred Stock resulting from the warrant exercises described in Note 8 and the Liquidation Shares, converted into 4,232,195 shares of Class A common stock and 2,398,868 shares of Class B common stock, and the related carrying value was reclassified to the respective common stock accounts and additional paid-in capital.

Other than voting rights, the Class B common stock has the same rights as the Class A common stock.

It was at the discretion of certain holders of the Convertible Preferred Stock that they receive non-voting Class B common stock.

When such non-voting Class B common shares are sold by the current holders, they will automatically convert to Class A common stock.

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

The Convertible Preferred Stock does not have a mandatory redemption date.

However, while it is not mandatorily redeemable, until conversion, the Convertible Preferred Stock was reclassified into mezzanine equity because it will become redeemable at the option of the stockholders upon the occurrence of certain deemed liquidation events that are considered not solely within the Company’s control.

That is, unless a majority of the holders of the then outstanding preferred stock, on an as-if-converted to common stock basis, elect otherwise, deemed liquidation events include a sale of all or substantially all of Aziyo’s assets or a sale of at least fifty percent ( 50 %) of the issued and outstanding voting securities, capital stock, or other comparable equity or ownership interest in Aziyo.

Upon issuance of the Convertible Preferred Stock, the Company assessed the embedded conversion and liquidation features of the securities.

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

At the IPO date, the Company authorized 10,000,000 shares of Preferred Stock with a par value per share of $ 0.001 .

If issued, this new Preferred Stock shall have the rights and preferences as determined by the Company’s Board of Directors.

Public Offering of Common Stock

On December 1, 2022, the Company issued and sold 2,350,000 shares of its Class A common stock at a price to the public of $ 4.75 per share in a registered underwritten public offering, resulting in net proceeds to the Company of approximately $ 10.2 million, after deducting underwriting discounts and offering expense.

Private Placement of Common Stock

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The Company’s matching contributions totaled approximately $ 0.3 million and $ 0.4 million for the years ended December 31, 2022 and 2021, respectively.

Net Loss Per Share Attributable to Common Stockholders

Net Loss Per Share

(in thousands, except share and per share data)

Net loss attributable to common stockholders

Weighted average number of common shares - basic and diluted

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

Net loss per share - basic and diluted

The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive.

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Restricted stock units

Class A common stock warrants

Distribution Agreements

4 unchanged sentences

Such upfront payment was recorded as deferred revenue and was amortized into revenue through the 2021 minimum purchase period.

During each of the years ended December 31, 2021 and 2020, Aziyo recognized approximately $ 0.6 million as revenue.

During each of the year ended December 31, 2021, Aziyo recognized approximately $ 0.6 million as revenue.

Significant Customers

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The following table presents percentage of total revenues derived from the Company’s largest customers:

Year Ended December 31,

Percent of revenues derived from:

Medtronic Sofamor Danek USA

Surgalign Holdings

Percent of accounts receivable derived from:

Medtronic Sofamor Danek USA

Surgalign Holdings

In June 2021, Medtronic notified the Company that sales of FiberCel Viable Bone Matrix (“FiberCel) as well as all such other Non-Core products supplied to Medtronic would be suspended until further notice.

In October 2021, the Company was informed by Medtronic that they would no longer be distributing cellular bone products such as FiberCel and, in December 2021, the two companies mutually terminated the associated FiberCel distribution agreement.

In December 2021, the Company terminated our distribution agreement with Medtronic (Company C in the tables above) as a result of the Company’s voluntary recall of the Company’s FiberCel product.

Commitment and Contingencies

Operating Leases

The Company leases two production facilities and one administrative and research facility under non-cancelable operating lease arrangements that expire through November 2025.

All leases contain renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges.

The Company records rent expense on a straight-line basis over the life of the lease and the difference between the average rent expense and cash payments for rent is recorded as deferred rent and is included in accrued liabilities on the balance sheet.

Rent expense for the years ended December 31, 2021 and 2020 was approximately $ 1.2 million and $ 1.1 million, respectively, and is included as a component of either cost of goods sold or general and administrative expenses.

Future minimum lease commitments under non-cancelable operating leases as of December 31, 2021 are as follows (in thousands):

Years ending December 31,

Cook Biotech License and Supply Agreements

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Under certain limited circumstances, Aziyo has the right to manufacture the licensed product and pay Cook a royalty of 3 % of sales of the Aziyo-manufactured tissue.

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

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

No royalties were paid to Cook during the years ended December 31, 2022 and 2021.

5 unchanged sentences

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.

1 unchanged sentence

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

On June 2, 2021, we issued a voluntary recall pertaining to a single donor lot of our FiberCel Fiber Viable Bone Matrix, a bone repair product formerly distributed by Medtronic, after learning of post-surgical infections reported in several patients treated with the product, including some patients that tested positive for tuberculosis.

Between June 21, 2021 and February 18, 2022, forty-five 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.

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

49D02-2109-CT-032234 (case dismissed without prejudice on 09/16/2021 and re-filed on 09/24/2021);

(2) Tamara and Richard Marksberry v.

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

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

(3) Ramon Cabello v.

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

49D13-2106-CT-021650 (consolidated);

(4) Luis Caban v.

Aziyo Biologics, Inc., Case No.

49D13-2107-CT-022413 (consolidated);

(5) Machell and Samuel Hargrave v.

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

49D01-2106-CT-021275 (consolidated);

(6) Georgia Flinn as Personal Representative of the Estate of Gregory Flinn v.

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

49D12-2107-CT-024051 (consolidated);

(7) Ruth and William Flynn v.

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

49D12-2107-CT-024624 (consolidated);

(8) Tracy Warner and Kristin Foate v.

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

49D04-2107-CT-024631 (consolidated);

(9) Donna Schilling v.

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

49D04-2107-CT-024443 (consolidated);

(10) Robby and Stephanie Anderson v.

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

49D13-2107-CT-025221 (consolidated);

(11) Max Shepard v.

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

49D11-2108-CT-025984 (consolidated);

(12) Leon Chew v.

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

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

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

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

49D04-2107-CT-024626 (consolidated);

(14) James and Lauri Ann Jackson v.

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

49D02-2108-CT-028321 (re-filed in state court and consolidated);

(15) James and Kathy Shaw v.

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

49D11-2108-CT-028669 (consolidated);

(16) Larry Szynski v.

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

49D05-2108-CT-029225 (consolidated);

(17) Jerrold Jenkins v.

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

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:

(1) Richard Williams v.

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

N21C-06-166 EMD;

(2) Jean and Shante Georges v.

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

N21C-06-256-DJB;

(3) Marjorie Hitchens v.

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

N21C-06-214-DJB;

(4) Larry and Joanne Fortner v.

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

N21C-06-215-DJB;

(5) Nancy and John Smith v.

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

N21C-06-219-DJB;

(6) Joan Trincia v.

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

N21C-06-220-DJB;

(7) Bernadette Burgess v.

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

N21C-06-264-DJB;

(8) Summer Fitzhugh v.

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

N21C-06-221-DJB;

(9) Linda Shields v.

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

N21C-06-166-DJB;

and (10) Sharon Riddick v.

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

N21C-07-005-EMD;

(11) Carl Stevens v.

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

N21C-08-149-DJB;

(12) Joel and Melissa Stanton v.

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

N21C-08-212-AML;

(13) Bruce and Beverly Carroll v.

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

N21C-08-130-DJB;

(14) Margaret Cook v.

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

N21C-08-131-DJB;

(15) Robert Jr.

and Kelly Aspinall v.

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

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.

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

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

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

Michelle and Charles Weethee v.

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

2021 CV 03621 (“Ohio State Complaint”).

One lawsuit has been 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 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:

Aurelia and Belvin Sherrill v.

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

21cvs2797 (“North Carolina State Complaint”).

One lawsuit has been filed in the U.S.

District Court for the Northern District of Florida, captioned Deborah Rice v.

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

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

One lawsuit has been filed in the U.S.

District Court for the Eastern District of Michigan, captioned:

Karrold Dudley v.

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.

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

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

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”).

One lawsuit has been filed in Fayette, Kentucky Circuit Court, captioned Earl Wesley Robinson and Joyce Ann Robinson v.

Aziyo Biologics, Inc., Case No.

21-CI-03842 (“Kentucky State Complaint”).

Lastly, two lawsuits have been dismissed:

(1) in the state court of Maryland, captioned Tracey and Stan Gearhart v.

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

C-02-CV-21-000997(dismissed without prejudice on 09/14/2021), and (2) in the U.S.

District Court for the Northern District of Indiana, captioned:

David Hahn v.

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

2:21-cv-00265-PPS-JEM (dismissed without prejudice on 09/30/2021).

FiberCel Litigation

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

Since September 2021, 58 lawsuits ( 60 plaintiffs) in Indiana, Delaware, Florida, Maryland, Colorado, Michigan, Ohio, Kentucky, Oregon, North Carolina, Louisiana and Illinois have been filed against Aziyo Biologics Inc., certain Medtronic entities, and others alleging that the plaintiffs were exposed to and/or contracted tuberculosis and/or suffered substantial symptoms and complications following the implantation of FiberCel during spinal fusion operations.

Such lawsuits were filed in Indiana state court (collectively, the “Indiana State Complaints”);

the Superior Court of the State of Delaware (collectively, the “Delaware State Complaints”);

the Circuit Court of Maryland (collectively, the “Maryland State Complaints”);

the Court of Common Pleas of Ohio (“Ohio State Complaint”);

the Northern District of Ohio (“Ohio Federal Complaint”);

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

District Court for the Northern District of Florida (“Florida Federal Complaint”);

District Court for the Eastern District of Michigan and the Eastern District of Michigan (collectively “Michigan Federal Complaints.”);

District Court for the District of Colorado (“Colorado Federal Complaint”);

District Court for the District of Oregon (“Oregon Federal Complaint”);

the Fayette, Kentucky Circuit Court and the U.S.

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

District Court for the Western District of Louisiana (“Louisiana Federal Complaint”) and the Circuit Court of Cook County, Illinois (“Illinois State Complaint”).

Plaintiffs in the Indiana State Complaints allege a cause of action under Indiana’s Product Liability Act, citing manufacturing defects, defective design and failure to properly warn and instruct, and several of the complaints allege loss of consortium.

1 unchanged sentence

Plaintiffs in one of the Indiana State Complaints allege causes of action for product liability, negligence, breach of express and implied warranties, and punitive damages.

Each of the plaintiffs in the Delaware State Complaints allege negligence, breach of implied warranty, breach of express warranty, medical monitoring and punitive damages, and two also allege loss of consortium.

Each of the plaintiffs in the Delaware State Complaints alleges negligence, breach of implied warranty, breach of express warranty, and medical monitoring and punitive damages, and two also allege loss of consortium.

Plaintiffs in the Delaware State Complaints are seeking economic, consequential, and punitive damages.

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 Maryland State Complaints assert claims of negligence, breach of implied warranty, breach of express warranty, medical monitoring, and loss of consortium.

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.

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 Complaint asserts strict liability claims based on manufacturing defect, design defect, and failure to warn.

It also alleges negligence, breach of implied warranty, breach of express warranty, and seeks recovery for medical monitoring, loss of consortium, compensatory damages, and punitive damages.

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

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.

At present, it is not possible for Aziyo to estimate a range of probable loss in the FiberCel Litigation;

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.

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.

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

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

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 are 47 claims related to the FiberCel recall that have not yet resulted in a lawsuit.

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

Since August 2022, the Company has engaged in a process to negotiate and attempt to resolve many of the cases in the FiberCel Litigation.

In total, Aziyo’s liability in 26 of the cases was settled for a total of approximately $ 7.3 million.

Settlement agreements have been executed in 20 of those cases and settlements of the remaining six cases are pending finalization of the related settlement agreements.

Of these settled matters, 11 cases were both settled and paid as of December 31, 2022 for a total cash outlay of $ 3.6 million.

For the remaining 81 cases for which settlements have not been reached, the Company estimated a probable loss related to each case and has recorded a liability at an estimated amount of $ 13.7 million bringing the total estimated liability at December 31, 2022 to $ 17.4 million, which is recorded as Contingent Liability for FiberCel Litigation in the accompanying consolidated balance sheets.

Although the Company believes there is a possibility that a loss in excess of the amount recognized exists, the Company is unable to estimate the possible loss or range of loss in excess of the amount recognized at this time.

In order to reasonably estimate the liability for the unsettled FiberCel Litigation cases, the Company, along with outside legal counsel, has assessed a variety of factors, including (i) the extent of the injuries incurred, (ii) recent experience on the settled claims, (iii) settlement offers made to the other parties to the litigation and (iv) any other factors that may have a material effect on the FiberCel Litigation.

While the Company believes its estimated liability to be reasonable, the actual loss amounts are highly variable and turn on a case-by-case analysis of the relevant facts.

As more information is learned about asserted claims and potential future trends, adjustments may be made to this Contingent Liability for FiberCel Litigation as appropriate.

Defense costs are recognized in the accompanying consolidated statements of operations as incurred.

The Company has purchased insurance coverage that, subject to common contract exclusions, provided coverage for the FiberCel Litigation product liability losses as well as legal defense costs.

Additionally, the Company has various potential indemnity and/or contribution rights against third party sources with respect to certain product liability losses.

When settlements are reached and/or amounts are recorded in the related Contingent Liability for FiberCel Litigation, the Company calculates amounts due to be reimbursed pursuant to the terms of the coverage and related agreements, and pursuant to other indemnity or contribution claims, in respect of product liability losses and related defense costs.

The amounts probable of reimbursement or recovery from this calculation are recorded as receivables.

The determination that the recorded receivables are probable of collection is based on the terms of agreements reached in respect of indemnity and contribution claims as well as the advice of the Company’s outside legal counsel.

These receivables at December 31, 2022 totaled $ 13.8 million and are recorded as Receivables of FiberCel Litigation Costs in the accompanying consolidated balance sheets.

The indemnity and contribution receivables amount at December 31, 2022 represents amounts that are not believed to be subject to any current dispute.

At December 31, 2022, the Company continues to pursue up to $ 3.8 million or more in additional amounts in respect of such indemnity and contribution claims and as such, has not been reflected as part of this receivable.

The Company will vigorously pursue its position with respect to this amount.

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

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 year ended 2020, the Company recorded expenses totaling $ 0.2 million for these services.

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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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 Consolidated Statements of Operations for the year ended December 31, 2021.

Amounts received in connection with this settlement were recorded as other income, net in the accompanying consolidated statements of operations for the year ended December 31, 2021.

Segment Information

The Company operates as one segment, regenerative medicines.

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

For the years ended December 31, 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):

Sales by product

Core Products

Non-Core Products

The Company operates in four segments.

These segments are based on financial information that is utilized by the Company’s CODM to assess performance and allocate resources.

The Company determined its operating and reportable segments to be consistent with its major product groupings – Device Protection, Women’s Health, Orthobiologics and Cardiovascular.

For the years ended December 31, 2022 and 2021, the Company’s net sales disaggregated by segment were as follows (in thousands):

Device protection

Women's health

Orthobiologics

Cardiovascular

Total Net Sales

For the years ended December 31, 2022 and 2021, the Company’s gross profit disaggregated by segment were as follows (in thousands):

Gross profit:

Device protection

Women's health

Orthobiologics

Cardiovascular

Gross profit, excluding intangible asset amortization

Intangible asset amortization expense

The following table is a reconciliation of segment gross profit to the consolidated loss before provision for income taxes for the years ended December 31, 2022 and 2021 (in thousands):

Sales and marketing

General and administrative

Research and development

FiberCel litigation costs

Loss from operations

Interest expense

Other income, net

Loss before provision for income taxes

During the years ended December 31, 2022 and 2021, the Company did not have any international product sales to specific countries where such country-specific sales represented material product sales, and the Company did not own any long-lived assets outside the United States.

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What changed 10-K

Item 9A. Controls and Procedures