ELUTIA INC. 10-K

Item 9A. Controls and Procedures. Limitations on Effectiveness of Controls and Procedures In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs. Evaluation of Disclosure Controls and Procedures The Company’s management has evaluated, with the participation of our principal executive officer and our principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report. Based on this evaluation, management concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2022. Management’s Annual Report on Internal Control Over Financial Reporting O ur management, with the participation of our principal executive officer and our principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the criteria set forth in “Internal Control–Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of December 31, 2022, our internal control over financial reporting was effective. Attestation Report of the Registered Public Accounting Firm Our independent registered accounting firm will not be required to opine on the effectiveness of our internal control over financial reporting pursuant to Section 404 of Sarbanes-Oxley Act of 2002 until we are no longer an “emerging growth company” as defined in the JOBS Act. Changes in Internal Control over Financial Reporting 113 ​ Table of Contents There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ​ Item 9B. 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. ​ ​ Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ​ Not applicable. ​ 114 ​ Table of Contents PART III Item 10. 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: ​ ​ ​ Name ​ Age ​ Position at Azyo Biologics ​ Principal Employment C. Randal Mills, Ph.D. ​ 51 ​ Chief Executive Officer and President, and Director ​ Same Matthew Ferguson ​ 55 ​ Chief Financial Officer ​ Same Michelle Williams, Ph.D. ​ 49 ​ Chief Scientific Officer ​ Same Thomas Englese(1) ​ 48 ​ Chief Commercial Officer ​ Same David Colpman ​ 61 ​ Director ​ Former Managing Partner of Colpman Consulting Ltd., a business development consultancy Maybelle Jordan ​ 57 ​ Director ​ Chief Strategy Officer at Deerfield Device Design and Development Catalyst, a medical technology incubator Brigid A. Makes ​ 67 ​ Director ​ Chief Financial Officer at Vivani Medical, Inc., a biopharmaceutical company Kevin Rakin ​ 62 ​ Director ​ Co-founder and General Partner at HighCape Partners, an investment fund W. Matthew Zuga ​ 57 ​ Director ​ Chief Financial Officer and Chief Business Officer at Acumen Pharmaceuticals, Inc., a biotechnology company (1) Mr. 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. ​ Item 11. Executive Compensation. The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2022. ​ 115 ​ Table of Contents Item 12. Security Ownership of Certain Beneficial Owners and Management Related Stockholder Matters. Equity Compensation Plan Information The following table provides information on our equity compensation plans as of December 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ Number of securities ​ ​ Securities to be ​ ​ ​ ​ remaining available for ​ ​ Issued Upon ​ ​ ​ ​ future issuance under ​ ​ Exercise of ​ Weighted Average ​ equity compensation ​ ​ Outstanding ​ Exercise Price of ​ plans (excluding ​ ​ Options, Warrants ​ Outstanding Options, ​ securities reflected in ​ ​ and Rights ​ Warrants and Rights ​ column (a)) Plan Category ​ (a) ​ (b) ​ (c) Equity Compensation Plans Approved by Stockholders ​ ​ 2015 Plan (1) 233,464 ​ $ 6.28 (4) — 2020 Plan (2) 1,823,345 ​ $ 9.86 (4) 656,689 ESPP (3) — ​ — ​ 279,345 Equity Compensation Plans Not Approved by Stockholders — ​ — ​ — Total 2,056,809 ​ $ 9.41 ​ 936,034 (1) 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 IPO, ceased making grants or awards under the Aziyo Biologics, Inc. 2015 Stock Option/Stock Issuance Plan (the “2015 Plan”). To the extent stock options outstanding under the 2015 Plan are forfeited, lapse unexercised or are settled in cash, the shares of Class A common stock subject to the stock options will be available for future issuance under the 2020 Plan. (2) 1,685,962 shares of Class A common stock were initially available for issuance under the 2020 Plan. The number of shares of Class A common stock available for issuance under the 2020 Plan automatically increases on each January 1, until and including January 1, 2030, by an amount equal to the lesser of (A) 4% of the shares of Class A common stock outstanding (on an as-converted basis) 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 (but no more than 1,636,000 shares of Class A common stock may be issued upon the exercise of incentive stock options). In addition, the shares reserved for issuance under the 2020 Plan will also include shares reserved but not issued under the 2015 Plan. (3) 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. (4) The calculation of the weighted average exercise price does not include outstanding equity awards that are received or exercised for no consideration. The other information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2022. ​ Item 13. Certain Relationships and Related Transactions, and Director Independence. The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2022. ​ 116 ​ Table of Contents Item 14. Principal Accountant Fees and Services. The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2023 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2022. ​ PART IV Item 15. Exhibits and Financial Statement Schedules. (a)(1) Financial Statements The Consolidated Financial Statements are included on pages F-2 through F-24 attached hereto and are filed as part of this Annual Report. See Index to Consolidated Financial Statements on page F-1. (a)(2) Financial Statement Schedules All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown in the financial statements or the notes thereto. (a)(3) Exhibits The following is a list of exhibits filed as part of this Annual Report. Exhibit Number Description Form File No. Exhibit Filing Date Filed/Furnished Herewith ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3.1 ​ Restated Certificate of Incorporation of Aziyo Biologics, Inc. ​ 8-K ​ 001-39577 ​ 3.1 ​ 10/13/2020 ​ ​ ​ ​ ​ 3.2 ​ Amended and Restated Bylaws of Aziyo Biologics, Inc. ​ 8-K ​ 001-39577 ​ 3.2 ​ 10/13/2020 ​ ​ ​ ​ ​ 4.1 ​ Second Amended and Restated Investor Rights Agreement, dated as of September 14, 2020, among the Registrant and the investors named therein ​ S-1 ​ 333-248788 ​ 4.1 ​ 09/14/2020 ​ ​ ​ ​ ​ 4.2 ​ Specimen stock certificate evidencing the shares of Class A common stock ​ S-1 ​ 333-248788 ​ 4.2 ​ 09/14/2020 ​ ​ ​ ​ ​ 4.3 ​ Specimen stock certificate evidencing the shares of Class B common stock ​ S-1/A ​ 333-248788 ​ 4.3 ​ 09/30/2020 117 ​ Table of Contents Exhibit Number Description Form File No. Exhibit Filing Date Filed/Furnished Herewith ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4.4 ​ Warrant to Purchase Stock, issued on August 10, 2022, by Aziyo Biologics, Inc.to SWK Funding LLC. ​ ​ 8-K ​ 001-39577 ​ 4.1 ​ 8/15/2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4.5 ​ Description of Securities ​ 10-K ​ 001-39577 ​ 4.4 ​ 03/15/2021 ​ ​ ​ ​ ​ 10.1 ​ Registration Rights Agreement, dated December 5, 2021, by and among Aziyo Biologics, Inc. and the Investors named therein. ​ 8-K ​ 001-39577 ​ 10.2 ​ 12/08/2021 ​ ​ ​ ​ ​ ​ 10.2 ​ Royalty Agreement, dated as of May 31, 2017, by and between Aziyo Med, LLC and Ligand Pharmaceuticals Incorporated ​ S-1 ​ 333-248788 ​ 10.14 ​ 09/14/2020 ​ ​ ​ ​ ​ 10.3 ​ License Agreement, dated as of May 31, 2017, by and between Cook Biotech Incorporated and Aziyo Med, LLC ​ S-1 ​ 333-248788 ​ 10.16 ​ 09/14/2020 ​ ​ ​ ​ ​ 10.4 ​ December 2017 Amendment to License Agreement, dated as of December 21, 2017, by and between Cook Biotech Incorporated and Aziyo Med, LLC ​ S-1 ​ 333-248788 ​ 10.17 ​ 09/14/2020 ​ ​ ​ ​ ​ 10.5† ​ Aziyo Biologics, Inc. 2015 Stock Option/Stock Issuance Plan (as amended) ​ S-1 ​ 333-248788 ​ 10.1 ​ 09/14/2020 ​ ​ ​ ​ ​ 10.6† ​ Aziyo Biologics, Inc. 2020 Incentive Award Plan and form of stock option agreements thereunder ​ ​ ​ ​ * ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 118 ​ Table of Contents Exhibit Number Description Form File No. Exhibit Filing Date Filed/Furnished Herewith ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.7† ​ Form of Restricted Stock Unit Award Agreement (approved August 2022) ​ 10-Q ​ 001-39577 ​ 10.4 ​ 11/14/2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.8† ​ Form of Restricted Stock Unit Award Agreement (approved October 2020) ​ ​ ​ ​ ​ ​ ​ ​ * ​ ​ ​ ​ ​ 10.9† ​ Aziyo Biologics, Inc. Non-Employee Director Compensation Program ​ S-1/A ​ 333-248788 ​ 10.3 ​ 09/30/2020 ​ ​ ​ ​ ​ 10.10† ​ Aziyo Biologics, Inc. 2020 Employee Stock Purchase Plan ​ S-1/A ​ 333-248788 ​ 10.4 ​ 09/30/2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.11† ​ Amended and Restated Employment Agreement, by and between the Registrant and Ronald Lloyd, dated as of September 30, 2021 ​ S-1/A ​ 333-248788 ​ 10.6 ​ 09/30/2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.12† ​ Separation and Release of Claims Agreement, dated June 21, 2022, by and between Ronald Lloyd and Aziyo Biologics, Inc. ​ ​ 8-K ​ 001-39577 ​ 10.1 ​ 6/21/2022 ​ 10.13† ​ Employment Agreement, dated June 21, 2022, by and between C. Randal Mills, Ph.D. and Aziyo Biologics, Inc. ​ 8-K ​ 001-39577 ​ 10.2 ​ 6/21/2022 ​ ​ ​ ​ ​ ​ 10.14† ​ Amended and Restated Employment Agreement, dated December 23, 2022, by and between Aziyo Biologics, Inc. and Thomas Englese ​ 8-K ​ 001-39577 ​ 10.2 ​ 12/30/2022 ​ ​ ​ ​ ​ 119 ​ Table of Contents Exhibit Number Description Form File No. Exhibit Filing Date Filed/Furnished Herewith ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.15† ​ Letter Agreement, dated as of March 22, 2023, by and between Aziyo Biologics, Inc. and Thomas Englese ​ ​ ​ ​ * ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.16† ​ Amended and Restated Employment Agreement, dated December 23, 2022, by and between Aziyo Biologics, Inc. and Matthew Ferguson ​ 8-K ​ 001-39577 ​ 10.1 ​ 12/30/2022 ​ ​ ​ ​ ​ 10.17† ​ Form of Indemnification Agreement for Directors and Officers ​ S-1/A ​ 333-248788 ​ 10.12 ​ 09/30/2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.18# ​ 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 ​ ​ 8-K ​ 001-39577 ​ 10.1 ​ 8/15/2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.19 ​ 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 ​ ​ 8-K ​ 001-39577 ​ 10.1 ​ 10/13/2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 120 ​ Table of Contents Exhibit Number Description Form File No. Exhibit Filing Date Filed/Furnished Herewith ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.20 ​ 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) ​ ​ 10-Q ​ 001-39577 ​ 10.3 ​ 11/14/2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.21 ​ 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). ​ 8-K ​ 001-39577 ​ 10.1 ​ 11.28 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10.22 ​ 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). ​ 8-K ​ 001-39577 ​ 10.1 ​ 12/5/2022 ​ ​ ​ ​ ​ ​ 21.1 ​ Subsidiaries of Aziyo Biologics, Inc. ​ 10-K ​ 001-39577 ​ 21.1 ​ 03/8/2022 ​ ​ ​ ​ ​ 23.1 ​ Consent of PricewaterhouseCoopers LLP ​ ​ ​ ​ * ​ ​ ​ ​ ​ 121 ​ Table of Contents Exhibit Number Description Form File No. Exhibit Filing Date Filed/Furnished Herewith ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 31.1 ​ 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. ​ ​ ​ ​ * ​ ​ ​ ​ ​ 31.2 ​ 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. ​ ​ ​ ​ * ​ ​ ​ ​ ​ 32.1 ​ Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ​ ​ ​ ​ ** ​ ​ ​ ​ ​ 32.2 ​ Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ​ ​ ​ ​ ** 101.INS ​ Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document ​ ​ ​ ​ * ​ ​ ​ ​ ​ 101.SCH ​ Inline XBRL Taxonomy Extension Schema Document ​ ​ ​ ​ * ​ ​ ​ ​ ​ 122 ​ Table of Contents Exhibit Number Description Form File No. Exhibit Filing Date Filed/Furnished Herewith ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 101.CAL ​ Inline XBRL Taxonomy Extension Calculation Linkbase Document ​ ​ ​ ​ * ​ ​ ​ ​ ​ 101.DEF ​ Inline XBRL Taxonomy Extension Definition Linkbase Document ​ ​ ​ ​ * ​ ​ ​ ​ ​ 101.LAB ​ Inline XBRL Taxonomy Extension Label Linkbase Document ​ ​ ​ ​ * ​ ​ ​ ​ ​ 101.PRE ​ Inline XBRL Taxonomy Extension Presentation Linkbase Document ​ ​ ​ ​ * ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 104 ​ Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) ​ ​ ​ ​ ​ ​ ​ ​ * * Filed herewith. ** Furnished herewith. † 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. ​ Item 16. Form 10-K Summary. None. ​ 123 ​ Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Aziyo Biologics, Inc. Date: March 23, 2023 By: /s/ C. RANDAL MILLS, PH.D. C. Randal Mills President and Chief Executive Officer (Principal Executive Officer) Date: March 23, 2023 /s/ MATTHEW FERGUSON Matthew Ferguson Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) ​ 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. Name Title Date /s/C. Randal Mills, Ph.D. President, Chief Executive Officer and Director (principal executive officer) March 23, 2023 C. Randal Mills /s/Matthew Ferguson Chief Financial Officer (principal financial officer and principal accounting officer) March 23, 2023 Matthew Ferguson /s/Kevin Rakin Chairperson of the Board of Directors March 23, 2023 Kevin Rakin /s/W. Matthew Zuga Director March 23, 2023 W. Matthew Zuga /s/Maybelle Jordan Director March 23, 2023 Maybelle Jordan /s/David Colpman Director March 23, 2023 David Colpman /s/Brigid A. Makes Director March 23, 2023 Brigid A. Makes ​ ​ ​ 124 ​ Table of Contents AZIYO BIOLOGICS, INC. INDEX TO FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm (PCAOB ID: 238 ) F-2 ​ ​ Consolidated Balance Sheets F-4 ​ ​ Consolidated Statements of Operations F-5 ​ ​ Consolidated Statements of Changes in Stockholders’ Equity (Deficit) F-6 ​ ​ Consolidated Statements of Cash Flows F-7 ​ ​ Notes to Consolidated Financial Statements F-8 ​ ​ ​ ​ F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Aziyo Biologics, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Aziyo Biologics, Inc. 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 These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. ​ ​ F-2 Table of Contents /s/ PricewaterhouseCoopers LLP Baltimore, Maryland March 23, 2023 We have served as the Company’s auditor since 2015. ​ ​ F-3 Table of Contents ​ AZIYO BIOLOGICS, INC. CONSOLIDATED BALANCE SHEETS (In Thousands, Except for Share and Per Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2022 2021 Assets ​ ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ Cash ​ $ 16,989 ​ $ 30,393 ​ Restricted cash ​ — ​ 35 ​ Accounts receivable, net ​ 6,830 ​ 5,996 ​ Inventory ​ 10,052 ​ 9,554 ​ Receivables of FiberCel litigation costs ​ ​ 13,813 ​ ​ — ​ Prepaid expenses and other current assets ​ 3,015 ​ 1,450 ​ Total current assets ​ 50,699 ​ 47,428 ​ ​ ​ ​ ​ ​ ​ ​ ​ Property and equipment, net ​ 1,403 ​ 1,200 ​ Intangible assets, net ​ 15,069 ​ 18,466 ​ Operating lease right-of-use assets and other ​ 1,670 ​ 76 ​ Total assets ​ $ 68,841 ​ $ 67,170 ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders’ Equity (Deficit) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 2,328 ​ $ 1,582 ​ Accrued expenses ​ 10,103 ​ 6,375 ​ Payables to tissue suppliers ​ 3,152 ​ 2,467 ​ Current portion of long-term debt ​ — ​ 8,059 ​ Current portion of revenue interest obligation ​ 8,990 ​ 2,750 ​ Revolving line of credit ​ — ​ 4,763 ​ Contingent liability for FiberCel litigation ​ ​ 17,360 ​ ​ — ​ Current operating lease liabilities and other ​ 682 ​ 5 ​ Total current liabilities ​ 42,615 ​ 26,001 ​ ​ ​ ​ ​ ​ ​ ​ ​ Long-term debt ​ 24,260 ​ 10,410 ​ Long-term revenue interest obligation ​ 5,916 ​ 16,540 ​ Long-term operating lease liabilities ​ 956 ​ — ​ Other long-term liabilities ​ 127 ​ 698 ​ Total liabilities ​ 73,874 ​ 53,649 ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 17) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity (deficit): ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 12 ​ ​ 9 ​ 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 ​ ​ 4 ​ ​ 4 ​ Additional paid-in capital ​ 132,939 ​ 118,599 ​ Accumulated deficit ​ ( 137,988 ) ​ ( 105,091 ) ​ Total stockholders’ equity (deficit) ​ ( 5,033 ) ​ 13,521 ​ Total liabilities and stockholders' equity (deficit) ​ $ 68,841 ​ $ 67,170 ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ ​ F-4 Table of Contents ​ AZIYO BIOLOGICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share and Per Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 Net sales ​ $ 49,187 ​ $ 47,390 Cost of goods sold ​ 29,965 ​ 28,368 Gross profit ​ 19,222 ​ 19,022 Sales and marketing ​ 20,195 ​ 18,825 General and administrative ​ 16,627 ​ 13,687 Research and development ​ 8,940 ​ 9,266 FiberCel litigation costs, net ​ ​ 5,200 ​ ​ 276 Total operating expenses ​ ​ 50,962 ​ ​ 42,054 Loss from operations ​ ( 31,740 ) ​ ( 23,032 ) Interest expense ​ 5,282 ​ 5,324 Other income, net ​ ( 4,159 ) ​ ( 3,579 ) Loss before provision for income taxes ​ ( 32,863 ) ​ ( 24,777 ) Income tax expense ​ 34 ​ 55 Net loss ​ $ ( 32,897 ) ​ $ ( 24,832 ) Net loss per share - basic and diluted ​ $ ( 2.38 ) ​ $ ( 2.38 ) ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding - basic and diluted ​ 13,832,887 ​ 10,444,767 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ F-5 Table of Contents AZIYO BIOLOGICS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (In Thousands, Except Share and Per Share Data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Class A ​ Class B ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ Common Stock ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ Total ​ ​ Number of ​ ​ ​ ​ Number of ​ ​ ​ ​ Paid-in ​ Accumulated ​ Stockholders' ​ Shares Amount Shares Amount ​ Capital ​ Deficit Equity (Deficit) Balance, December 31, 2020 7,091,960 ​ $ 7 ​ 3,134,162 ​ $ 3 ​ $ 101,080 ​ $ ( 80,259 ) ​ $ 20,831 Proceeds from stock option exercises 3,305 ​ ​ — ​ — ​ ​ — ​ 26 ​ — ​ 26 Proceeds from sale of common stock through Employee Stock Purchase Plan ​ 27,244 ​ ​ — ​ — ​ ​ — ​ ​ 208 ​ ​ — ​ ​ 208 Issuance of common stock through private placement, net of issuance costs of $ 247 ​ 2,122,637 ​ ​ 2 ​ 1,179,244 ​ ​ 1 ​ ​ 13,750 ​ ​ — ​ ​ 13,753 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 3,535 ​ ​ — ​ ​ 3,535 Net loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 24,832 ) ​ ​ ( 24,832 ) Balance, December 31, 2021 9,245,146 ​ $ 9 ​ 4,313,406 ​ $ 4 ​ $ 118,599 ​ $ ( 105,091 ) ​ $ 13,521 Proceeds from stock option exercises 13,887 ​ ​ — ​ — ​ ​ — ​ 78 ​ — ​ 78 Additional issuance costs in connection with private placement ​ — ​ ​ — ​ — ​ ​ — ​ ​ ( 110 ) ​ ​ — ​ ​ ( 110 ) Proceeds from sale of common stock through Employee Stock Purchase Plan ​ 74,408 ​ ​ — ​ — ​ ​ — ​ ​ 317 ​ ​ — ​ ​ 317 Proceeds from sale of common stock in secondary public offering, net of issuance costs of $ 966 ​ 2,350,000 ​ ​ 3 ​ — ​ ​ — ​ ​ 10,196 ​ ​ — ​ ​ 10,199 Vesting of restricted stock units, net of shares withheld and taxes paid ​ 140,004 ​ ​ — ​ — ​ ​ — ​ ​ ( 395 ) ​ ​ — ​ ​ ( 395 ) Issuance of warrants in connection with debt financing ​ — ​ ​ — ​ — ​ ​ — ​ ​ 607 ​ ​ — ​ ​ 607 Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 3,647 ​ ​ — ​ ​ 3,647 Net loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 32,897 ) ​ ​ ( 32,897 ) Balance, December 31, 2022 11,823,445 ​ $ 12 ​ 4,313,406 ​ $ 4 ​ $ 132,939 ​ $ ( 137,988 ) ​ $ ( 5,033 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these consolidated financial statements. ​ F-6 Table of Contents AZIYO BIOLOGICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ ​ 2022 2021 Net loss ​ $ ( 32,897 ) $ ( 24,832 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ Depreciation and amortization ​ 3,733 3,730 (Gain) loss on extinguishment of debt ​ 311 ( 3,029 ) (Gain) on revaluation of revenue interest obligation ​ ( 4,962 ) — Amortization of deferred financing costs and debt discount ​ 115 121 Interest expense recorded as additional revenue interest obligation or long-term debt ​ 2,908 2,654 Stock-based compensation ​ 3,647 3,535 Changes in operating assets and liabilities: ​ ​ ​ Accounts receivable ​ ( 834 ) 1,170 Inventory ​ ( 498 ) 563 Receivables of FiberCel litigation costs ​ ​ ( 13,813 ) ​ ​ — Prepaid expenses and other ​ ( 1,526 ) 1,442 Accounts payable and accrued expenses ​ 4,908 ( 420 ) Obligations to tissue suppliers ​ 685 172 Contingent liability for FiberCel litigation ​ ​ 17,360 ​ ​ — Deferred revenue and other liabilities ​ ( 571 ) ( 552 ) Net cash used in operating activities ​ ( 21,434 ) ( 15,446 ) INVESTING ACTIVITIES: ​ ​ Expenditures for property, plant and equipment ​ ( 540 ) ( 369 ) Net cash used in investing activities ​ ( 540 ) ( 369 ) FINANCING ACTIVITIES: ​ Proceeds from public offering or private placement, net of offering costs ​ ​ 10,089 ​ ​ 13,753 Net borrowings (repayments) under revolving line of credit ​ ​ ( 4,763 ) ​ ​ ( 1,751 ) Proceeds from stock option exercises ​ 78 26 Proceeds from long-term debt ​ 25,000 — Deferred financing costs ​ ​ ( 468 ) ​ ​ — Repayments of long-term debt ​ ( 18,615 ) ( 2,778 ) Costs related to the extinguishment of debt ​ ​ ( 633 ) ​ ​ — Payments on revenue interest obligation ​ ( 2,075 ) ( 2,747 ) Payments for taxes upon vesting of restricted stock units ​ ​ ( 395 ) ​ ​ — Proceeds from sales of common stock through Employee Stock Purchase Plan ​ 317 208 Net cash provided by financing activities ​ 8,535 6,711 ​ ​ ​ ​ ​ ​ ​ Net decrease in cash and restricted cash ​ ( 13,439 ) ( 9,104 ) ​ ​ ​ ​ ​ ​ ​ Cash and restricted cash, beginning of period ​ 30,428 39,532 Cash and restricted cash, end of period ​ $ 16,989 $ 30,428 ​ ​ ​ ​ ​ ​ ​ Supplemental Cash Flow and Non-Cash Financing Activities Disclosures: ​ Cash paid for interest ​ $ 5,480 $ 4,984 Fair value of warrants issued ​ $ 607 ​ $ — Forgiveness of SBA PPP loan ​ $ - $ 3,029 ​ The accompanying notes are an integral part of these consolidated financial statements. ​ F-7 Table of Contents AZIYO BIOLOGICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Organization and Description of Business Aziyo Biologics, Inc. (together with its consolidated subsidiaries, "Aziyo” or the “Company”) is a regenerative medicine company, with a focus on patients receiving implantable medical devices. The Company has developed a portfolio of regenerative products using both human and porcine tissue that are designed to be as close to natural biological material as possible. Aziyo’s portfolio of 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 with corporate customers. Note 2. Summary of Significant Accounting Policies 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”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. 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. ​ 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 to current year financial statement presentation. The reclassifications relate to the separate presentation of prior year costs related to the FiberCel Litigation. F-8 Table of Contents 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, 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. Actual results could differ from those estimates. Impact of COVID-19 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 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, 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. Therefore, basic and diluted net loss per share were the same for both periods presented. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To increase the comparability of fair value measures, the following hierarchy prioritizes the inputs to valuation methodologies used to measure fair value: Level 1 -   Valuations based on quoted prices for identical assets and liabilities in active markets. Level 2 -   Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data. F-9 Table of Contents Level 3 -   Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants. These valuations require significant judgment. The estimated fair value of financial instruments disclosed in the financial statements has been determined by using available market information and appropriate valuation methodologies. The carrying value of all current assets and current liabilities approximates fair value because of their short-term nature. Cash and Restricted Cash The Company maintains its cash balances at banks and financial institutions. The balances are insured up to the legal limit. The Company maintains cash balances that may, at times, exceed this insured limit. ​ 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). ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Cash ​ $ 16,989 ​ $ 30,393 Restricted cash ​ — ​ 35 Total cash and restricted cash shown in statements of cash flows ​ $ 16,989 ​ $ 30,428 ​ Accounts Receivable and Allowances Accounts receivable in the accompanying balance sheets are presented net of allowances for doubtful accounts and other credits. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables. The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations to the Company, a provision to the allowance for doubtful accounts is recorded to reduce the net recognized receivable to the amount that is reasonably expected to be collected. For all other customers, a provision to the allowance for doubtful accounts is recorded based on factors including the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to the allowance for doubtful accounts are recorded to general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. The Company's allowance for doubtful accounts was approximately $ 0.1 million as of December 31, 2022 and 2021. Inventories Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined generally using the average cost method. Inventory write-downs for unprocessed and certain processed donor tissue are recorded based on the estimated amount of inventory that will not pass the quality control process based on historical data. At each balance sheet date, the Company also evaluates inventories for excess quantities, obsolescence or shelf life expiration. This evaluation includes analysis of the Company’s current and future strategic plans, historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions and a review of the shelf life expiration dates for products. To the extent that management determines there is excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value. F-10 Table of Contents Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the following estimated useful lives of the assets: ​ ​ ​ ​ Processing and research equipment 5 to 10 years Office equipment and furniture 3 to 5 years Computer hardware and software 3 years ​ Leasehold improvements are amortized on the straight-line method over the shorter of the lease term or the estimated useful life of the asset. Repairs and maintenance costs are expensed as incurred. Leases 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 Purchased intangible assets with finite lives are carried at acquired fair value, less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets. The Company periodically evaluates the period of depreciation or amortization for long-lived assets to determine whether current circumstances warrant revised estimates of useful lives. The Company reviews its property and equipment and intangible assets for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. Impairment exists when the carrying value of the company’s asset exceeds the related estimated undiscounted future cash flows expected to be derived from the asset. If impairment exists, the carrying value of that asset is adjusted to its fair value. A discounted cash flow analysis is used to estimate an asset’s fair value, using assumptions F-11 Table of Contents that market participants would apply. The results of impairment tests are subject to management’s estimates and assumptions of projected cash flows and operating results. Changes in assumptions or market conditions could result in a change in estimated future cash flows and could result in a lower fair value and therefore an impairment, which could impact reported results. There were no impairment losses for the years ended December 31, 2022 and 2021. Revenue Recognition The Company’s revenue is generated from contracts with customers in accordance with ASC 606. The core principle of ASC 606 is that the Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The ASC 606 revenue recognition model consists of the following five steps: (1) identify the contracts with a customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. As noted above, the Company enters into contracts to primarily sell and distribute products to healthcare providers or commercial partners, or are produced and sold under contract manufacturing arrangements with corporate customers which are billed under ship and bill contract terms. Revenue is recognized when the Company has met its performance obligations pursuant to its contracts with its customers in an amount that the Company expects to be entitled to in exchange for the transfer of control of the products to the Company’s customers. For all product sales, the Company has no further performance obligations and revenue is recognized at the point control transfers which occurs either when: i) the product is shipped via common carrier; or ii) the product is delivered to the customer or distributor, in accordance with the terms of the agreement. A portion of the Company’s product revenue is generated from consigned inventory maintained at hospitals and from inventory physically held by direct sales representatives. For these types of products sales, the Company retains control until the product has been used or implanted, at which time revenue is recognized. The Company elected to account for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transaction price and recognized as revenue when control of the underlying products is transferred to the customer. The related shipping and freight charges incurred by the Company are included in sales and marketing costs. Shipping and handling costs were approximately $ 0.3 million for both the years ended December 31, 2022 and 2021. Contracts with customers state the final terms of the sale, including the description, quantity, and price of each implant distributed. The payment terms and conditions in the Company’s contracts vary; however, as a common business practice, payment terms are typically due in full within 30 to 60 days of delivery. The Company, at times, extends volume discounts to customers. The Company permits returns of its products in accordance with the terms of contractual agreements with customers. Allowances for returns are provided based upon analysis of the Company’s historical patterns of returns matched against the revenues from which they originated. The Company records estimated returns as a reduction of revenue in the same period revenue is recognized. Deferred Rent 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. F-12 Table of Contents Stock-Based Compensation Plans The Company accounts for its stock-based compensation plans in accordance with FASB Accounting Standards Codification (“ASC”) 718, Accounting for Stock Compensation . FASB ASC 718 requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including employee stock options and restricted stock. Stock-based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight-line basis over the requisite service period of the entire award. Research and Development Costs Research and development costs, which include mainly salaries, outside services and supplies, are expensed as incurred. Concentration of Credit Risk Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash. At December 31, 2022 and 2021, the Company maintained $ 17.8 million and $ 30.9 million, respectively, in bank deposit accounts that are in excess of the $0.25 million insurance provided by the Federal Deposit Insurance Corporation in one federally insured financial institution. The Company has not experienced any losses in such accounts. Comprehensive Income (Loss) Comprehensive income (loss) comprises net income (loss) and other changes in equity that are excluded from net income (loss). For the years ended December 31, 2022 and 2021, the Company’s net loss equaled its comprehensive loss and accordingly, no additional disclosure is presented. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Deferred income taxes are recorded to reflect the tax consequences on future years for differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to amounts that are more likely than not to be realized. The Company is subject to income taxes in the federal and state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. In accordance with the authoritative guidance on accounting for uncertainty in income taxes, the Company recognizes tax liabilities for uncertain tax positions when it is more likely than not that a tax position will not be sustained upon examination and settlement with various taxing authorities. Liabilities for uncertain tax positions are measured based upon the largest amount of benefit that is more likely than not (greater than 50%) of being realized upon settlement. The Company’s policy is to recognize interest and/or penalties related to income tax matters in income tax expense. ​ 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 . ​ F-13 Table of Contents Note 3. Recently Issued Accounting Standards 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. Note 4. 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. On October 7, 2020, in connection with the Company’s IPO, the Company adopted the Aziyo Biologics, Inc. 2020 Incentive Award Plan (the “2020 Plan”), which authorizes the grant of incentive and non-qualified stock options, restricted stock, restricted stock units and stock appreciation rights to employees, directors and consultants. Shares of Class A common stock totaling 1,636,000 were initially reserved for issuance pursuant to the 2020 Plan. In addition, the shares reserved for issuance under the 2020 Plan will also include shares reserved but not issued under the 2015 Plan as well as an annual increase as set forth in the 2020 Plan. As of 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 F-14 Table of Contents Mr. 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 The Company’s policy is to grant stock options at an exercise price equal to 100 % of the market value of a share of Class A common stock at closing on the date of the grant. The Company’s stock options have contractual terms of seven to ten years , and vest over a four-year period from the date of grant. A summary of stock option activity under the Company’s 2015 Plan and 2020 Plan for the years ended December 31, 2022 and 2021 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ Weighted- ​ Remaining ​ Aggregate ​ ​ ​ ​ Average ​ Contractual ​ Intrinsic ​ ​ Exercise Term Value ​ ​ Number of Shares ​ Price ​ (years) ​ (in thousands) Outstanding, December 31, 2021 ​ 1,386,811 ​ $ 13.28 ​ ​ 7.8 $ 179 Granted ​ 1,246,904 ​ $ 5.91 ​ ​ ​ ​ ​ ​ Exercised ​ ( 13,887 ) ​ $ 5.57 ​ ​ ​ ​ ​ ​ Forfeited ​ ( 755,089 ) ​ $ 10.83 ​ ​ ​ ​ ​ ​ Outstanding, December 31, 2022 ​ 1,864,739 ​ $ 9.41 ​ ​ 7.5 ​ $ 8 Vested and exercisable, December 31, 2022 ​ 723,793 ​ $ 11.25 ​ ​ 5.0 ​ $ - ​ As of December 31, 2022, there was approximately $ 4.3 million of total unrecognized compensation expense related to unvested stock options. These costs are expected to be recognized over a weighted- average period of 2.5 years. The weighted average grant date fair value of options granted during the years ended December 31, 2022 and 2021 were $ 3.30 and $ 7.26 , respectively. 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2022 2021 ​ Expected term (years) ​ 6.2 ​ 5.9 ​ Risk-free interest rate ​ 2.3 % 1.0 % Volatility factor ​ 63.8 % 63.6 % Dividend yield ​ — ​ — ​ F-15 Table of Contents ​ 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 ​ Restricted stock units (“RSUs”) represent rights to receive common shares at a future date. There is no exercise price and no monetary payment is required for receipt of restricted stock units or the shares issued in settlement of the award. A summary of the RSU activity under the Company’s 2020 Plan for the year ended December 31, 2022 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Average ​ ​ Number of Shares ​ Grant Date ​ ​ Underlying RSUs ​ Fair Value Unvested, December 31, 2021 235,985 ​ $ 15.98 Granted 586,083 ​ $ 4.08 Vested ( 238,617 ) ​ $ 6.64 Forfeited ( 211,144 ) ​ $ 11.40 Unvested, December 31, 2022 372,307 ​ $ 5.90 ​ 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 . ​ 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 The Company makes shares of its Class A common stock available for purchase under the Aziyo Biologics, Inc. 2020 Employee Stock Purchase Plan (the “ESPP”). The ESPP provides for separate six-month offering periods that begin in March and September of each year. Under the ESPP, employees may purchase a limited number of shares of Aziyo Class A common stock at 85 % of the fair market value on either the first day of the offering period or the purchase date, whichever is lower. The ESPP is considered compensatory for purposes of stock-based compensation expense. The number of shares reserved under the ESPP will automatically increase on the first day of each fiscal year through January 1, 2030, in an amount equal to the lesser of (i) 1 % of the total shares of Class A common stock outstanding on the final day of the immediately preceding calendar year; or (ii) a lesser number of shares determined by 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. During the year ended December 31, 2022, 74,408 shares of Class A common stock were issued under the ESPP. F-16 Table of Contents Stock-Based Compensation Expense Stock-based compensation expense recognized during the years ended December 31, 2022 and 2021 comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ December 31, ​ ​ 2022 2021 Sales and marketing $ 1,047 $ 654 ​ General and administrative ​ 1,935 ​ 2,186 ​ Research and development ​ 483 ​ 531 ​ Cost of goods sold ​ 182 ​ 164 ​ Total stock-based compensation expense ​ $ 3,647 ​ $ 3,535 ​ ​ ​ Note 5. Inventory Inventory as of December 31, 2022 and 2021 was comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ 2022 2021 Raw materials ​ $ 1,716 ​ $ 1,880 ​ Work in process ​ ​ 623 ​ ​ 834 ​ Finished goods ​ ​ 7,713 ​ ​ 6,840 ​ Total ​ $ 10,052 ​ $ 9,554 ​ ​ ​ Note 6. Property and Equipment ​ Property and equipment as of December 31, 2022 and 2021 were comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Processing and research equipment ​ $ 4,348 ​ $ 3,853 Leasehold improvements ​ 613 ​ 606 Office equipment and furniture ​ 188 ​ 187 Computer hardware and software ​ 998 ​ 994 ​ ​ 6,147 ​ 5,640 Less: accumulated depreciation and amortization ​ ( 4,744 ) ​ ( 4,440 ) Property and equipment, net ​ $ 1,403 ​ $ 1,200 ​ 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. ​ Note 7. Leases ​ 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. ​ F-17 Table of Contents 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 Assets ​ ​ ​ Operating leases assets Operating lease right-of-use assets and other $ 1,576 ​ ​ ​ Liabilities ​ ​ ​ Operating leases current liabilities Current operating lease liabilities and other ​ 682 Operating leases non-current liabilities Long-term operating lease liabilities ​ 956 Total lease liabilities ​ $ 1,638 ​ ​ ​ ​ Weighted average remaining lease term ​ ​ 2.5 Weighted average discount rate ​ ​ 7.2 % ​ 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, ​ 2023 ​ $ 774 2024 ​ 554 2025 ​ 470 Total minimum lease payments ​ ​ 1,798 Less: amount of lease payments representing interest ​ ​ ( 160 ) Present value of future minimum lease payments ​ ​ 1,638 Less: current operating lease liabilities ​ ​ ( 682 ) Long-term operating lease liabilities ​ $ 956 ​ ​ Note 8. Intangible Assets ​ On May 31, 2017, the Company completed an asset purchase agreement with CorMatrix Cardiovascular, Inc. (“CorMatrix”) and acquired all CorMatrix commercial assets and related intellectual property. A substantial portion of the assets acquired consisted of intangible assets related to the acquired products and customer relationships. Management determined that the estimated acquisition-date fair values of the intangible assets related to acquired products and customer relationships were $ 29.3 million and $ 4.7 million, respectively. ​ F-18 Table of Contents The components of identified intangible assets as of December 31, 2022 and 2021 are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2022 December 31, 2021 ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ Cost Amortization Net Cost Amortization Net Acquired products ​ $ 29,317 ​ $ ( 16,334 ) ​ $ 12,983 ​ $ 29,317 ​ $ ( 13,409 ) ​ $ 15,908 Customer relationships ​ ​ 4,723 ​ ​ ( 2,637 ) ​ ​ 2,086 ​ 4,723 ​ ( 2,165 ) ​ 2,558 Total ​ $ 34,040 ​ $ ( 18,971 ) ​ $ 15,069 ​ $ 34,040 ​ $ ( 15,574 ) ​ $ 18,466 ​ Acquired products and customer relationships are both amortized over a ten-year period. 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 the years ended December 31, 2023 through 2026 and approximately $ 1.5 million during the year ended December 31, 2027. ​ Note 9. Long-Term Debt 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. The F-19 Table of Contents 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 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 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”). 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 F-20 Table of Contents 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ Years ending December 31, Term Loan 2023 ​ $ — 2024 ​ 1,263 2025 ​ 5,051 2026 ​ 5,051 2027 ​ ​ 13,890 Total ​ 25,255 Debt Discount ​ ( 562 ) Deferred Financing Costs ​ ( 433 ) Total, net ​ 24,260 Current Portion ​ — Long-term Debt ​ $ 24,260 ​ 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. Note 10. Revenue Interest Obligation As part of the CorMatrix asset acquisition described in Note 8, the Company assumed a restructured, long-term obligation (the “Revenue Interest Obligation”) to Ligand Pharmaceuticals (“Ligand”) with an estimated present value on the acquisition date of $ 27.7 million. Subject to annual minimum payments of $ 2.75 million per year, the terms of the Revenue Interest Obligation require Aziyo to pay Ligand, 5 % of future sales of the products Aziyo acquired from CorMatrix, including CanGaroo, ProxiCor, Tyke and VasCure, as well as products substantially similar to those products, such as the version of CanGaroo that Aziyo is currently developing that is designed to include antibiotics. 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 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. See Note 11 for discussion of the value of this obligation. ​ Note 11. Fair Value Measurements The following table sets forth by level, within the fair value hierarchy, the liabilities that are measured at fair value on a recurring basis (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2021 Using: ​ Level 1 Level 2 Level 3 Total Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue Interest Obligation* ​ ​ — ​ ​ — ​ ​ 19,290 ​ ​ 19,290 Total ​ $ — ​ $ — ​ $ 19,290 ​ $ 19,290 ​ F-21 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements at December 31, 2022 Using: ​ Level 1 Level 2 Level 3 Total Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Revenue Interest Obligation* ​ ​ — ​ ​ — ​ ​ 14,906 ​ ​ 14,906 Total ​ $ — ​ $ — ​ $ 14,906 ​ $ 14,906 *Net Present Value; see discussion of value below ​ The Company has estimated the value of the Revenue Interest Obligation, including contingent milestone payments and estimated sales-based payments, based on assumptions related to future sales of the acquired products. At each reporting period, the value of the Revenue Interest Obligation is re-measured based on current estimates of future payments, with changes to be recorded in the consolidated statements of operations using the catch-up method. 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 ​ $ 19,383 Payments on Revenue Interest Obligation ​ ​ ( 2,747 ) Interest accrued to Revenue Interest Obligation ​ ​ 2,654 Balance as of December 31, 2021 ​ $ 19,290 Payments on Revenue Interest Obligation ​ ​ ( 2,075 ) Interest accrued to Revenue Interest Obligation ​ ​ 2,653 Gain on revaluation of revenue interest obligation ​ ​ ( 4,962 ) Balance as of December 31, 2022 ​ $ 14,906 ​ ​ Note 12. Income Taxes The Company is subject to income taxes in the United States. Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are calculated based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using the enacted income tax rates expected to be in effect during the years in which the temporary differences are expected to reverse. The reconciliation of the U.S. federal statutory rate to the consolidated effective tax rate is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2022 2021 ​ Tax benefit at U.S. statutory rate ​ 21.0 % 21.0 % State income tax benefit, net of federal benefit 1.9 % 1.6 % Nondeductible expenses ​ ( 0.3 ) % 1.6 % State law changes ​ 0.5 % 0.4 % Other ​ 0.1 % 0.3 % Change in valuation allowance ​ ( 23.3 ) % ( 25.1 ) % Income tax expense ​ ( 0.1 ) % ( 0.2 ) % ​ 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 F-22 Table of Contents carryforwards. As of December 31, 2022 and 2021, significant components of the Company’s net deferred income taxes are as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ 2022 2021 Deferred tax assets: ​ ​ ​ ​ ​ ​ Tax goodwill ​ $ 2,947 ​ $ 3,267 Net operating loss carryforwards ​ ​ 19,743 ​ ​ 14,794 Inventory ​ ​ 491 ​ ​ 647 Acquired intangibles ​ ​ 1,452 ​ ​ 1,174 Revenue interest obligation ​ ​ 774 ​ ​ 1,347 Interest expense ​ ​ 2,533 ​ ​ 1,866 Research and development costs ​ ​ 1,749 ​ ​ - Operating lease liability ​ ​ 364 ​ ​ - FiberCel litigation costs ​ ​ 669 ​ ​ - Other ​ ​ 2,045 ​ ​ 1,314 Total assets ​ ​ 32,767 ​ ​ 24,409 Deferred tax liabilities: ​ ​ ​ ​ ​ ​ Operating lease right-to-use assets ​ ​ ( 350 ) ​ ​ - Prepaid expenses ​ ​ ( 562 ) ​ ​ ( 200 ) Total liabilities ​ ​ ( 912 ) ​ ​ ( 200 ) ​ ​ ​ ​ ​ ​ ​ Total net deferred tax asset ​ ​ 31,855 ​ ​ 24,209 Valuation allowance ​ ​ ( 31,855 ) ​ ​ ( 24,209 ) Net deferred tax asset, net of valuation allowance ​ $ — ​ $ — ​ The Company did not recognize any deferred benefit for income taxes for the years ended December 31, 2022 and 2021, as the increases to the respective net deferred tax assets of $ 7.6 million and $ 6.2 million, respectively, were offset by corresponding increases to the Company’s deferred tax asset valuation allowance due to uncertainty of realizing the deferred tax assets. The Company evaluates the need for deferred tax asset valuation allowances based on a more likely than not standard. The ability to realize deferred tax assets depends on the ability to generate sufficient taxable income within the carryback or carryforward periods provided for in the tax law for each applicable tax jurisdiction. Valuation allowances are established when necessary to reduce deferred tax assets to amounts that are more likely than not to be realized. Based on the uncertainty of future taxable income generation, as of December 31, 2022 and 2021, the Company has provided valuation allowances against all deferred tax assets. The Company regularly assesses the realizability of its deferred tax assets. Changes in historical earnings performance and future earnings projections, among other factors, may cause the Company to adjust its valuation allowance, which would impact the Company’s income tax expense in the period the Company determines that these factors have changed. The income tax expense for the years ended December 31, 2022 and 2021 relates to current amounts due on certain state tax obligations. As of December 31, 2022, the Company had net operating loss carryforwards for federal income tax purposes of approximately $ 86.9 million, comprised of  $ 17.7 million that will expire beginning in 2036 and $ 69.3 million that have no expiration date. The Company also had state net operating loss carryforwards of approximately $ 26.4 million that will expire beginning in 2030. Utilization of the net operating loss carryforwards may be subject to an annual limitation under Section 382 of the Code, and corresponding provisions of state law, due to ownership changes that have occurred previously or that could occur in the future. 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 F-23 Table of Contents 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. Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization. As of December 31, 2022, the Company had no unrecognized tax benefits. ​ Note 13. Stockholders’ Equity 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 ​ On December 8, 2021, the Company closed on a private investment in public equity (PIPE) financing, thereby receiving net proceeds of approximately $ 13.8 million, after deducting offering costs. The PIPE investors purchased an aggregate of 2,122,637 shares of the Company’s Class A common stock and an aggregate of 1,179,244 shares of the Company’s Class B common stock (which are convertible on a one -for-one basis into shares of Class A common stock), in each case, at a price of $ 4.24 per share. ​ Note 14. Retirement Plan ​ The Company has a defined contribution savings plan under section 401(k) of the Internal Revenue Code. The plan covers substantially all employees. The Company matches employee contributions made to the plan according to a specified formula. The Company’s matching contributions totaled approximately $ 0.3 million and $ 0.4 million for the years ended December 31, 2022 and 2021, respectively. ​ Note 15. Net Loss Per Share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ (in thousands, except share and per share data) ​ December 31, ​ ​ 2022 2021 Numerator: ​ ​ Net loss ​ $ ( 32,897 ) ​ $ ( 24,832 ) ​ Denominator: ​ ​ ​ Weighted average number of common shares - basic and diluted ​ 13,832,887 ​ 10,444,767 ​ Net loss per share - basic and diluted ​ $ ( 2.38 ) ​ $ ( 2.38 ) ​ ​ The Company’s potential dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be anti-dilutive. Therefore, the weighted average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at period end, from the computation of diluted net loss per share attributable to common stockholders: ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ ​ 2022 2021 Options to purchase common stock 1,864,739 ​ 1,386,811 Restricted stock units ​ 372,307 ​ 235,985 ​ Class A common stock warrants ​ 187,969 ​ — ​ Total 2,425,015 ​ 1,622,796 ​ ​ F-24 Table of Contents Note 16. Distribution Agreements ViBone Exclusivity Agreement In August 2018, the Company entered into an agreement with Surgalign Holdings, Inc. (formerly RTI Surgical, Inc.) (“Surgalign Holdings”) for the exclusive distribution in the United States of the Company’s ViBone® cellular bone product. Such agreement includes requirements that Surgalign Holdings purchase certain annual minimum quantities for years 2019 through 2021 and also included an upfront payment of $ 2.0 million for the exclusivity. Such upfront payment was recorded as deferred revenue and was amortized into revenue through the 2021 minimum purchase period. During each of the year ended December 31, 2021, Aziyo recognized approximately $ 0.6 million as revenue. Significant Customers The Company sells certain of its products under large contract manufacturing or distribution arrangements. The following table presents percentage of total revenues derived from the Company’s largest customers: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ ​ ​ December 31, ​ ​ ​ 2022 ​ 2021 ​ Percent of revenues derived from: ​ ​ ​ ​ ​ Customer A ​ 11 % ​ 10 % ​ Customer B ​ ​ 5 % ​ 4 % ​ Customer C ​ - ​ 11 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, ​ December 31, ​ ​ ​ 2022 ​ 2021 ​ Percent of accounts receivable derived from: ​ ​ ​ ​ ​ Customer A ​ 12 % ​ 12 % ​ Customer B ​ 10 % ​ 4 % ​ Customer C ​ - ​ - ​ ​ ​ ​ ​ ​ ​ ​ 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. ​ ​ ​ ​ ​ ​ ​ Note 17. Commitment and Contingencies Cook Biotech License and Supply Agreements Aziyo has entered into a license agreement with Cook Biotech (“Cook”) for an exclusive, worldwide license to the porcine tissue for use in the Company’s Cardiac Patch and CanGaroo products, subject to certain co-exclusive rights retained by Cook. The term of such license is through the date of the last to expire of the licensed Cook patents, which is anticipated to be July 2031. Along with this license agreement, Aziyo entered into a supply agreement whereby Cook would be the exclusive supplier to Aziyo of the licensed porcine tissue. Under certain limited circumstances, Aziyo has the right to manufacture the licensed product and pay Cook a royalty of 3 % of sales of the Aziyo-manufactured tissue. 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. Aziyo has also entered into an amendment to the Cook license agreement (the “Cook Amendment”) in order to add fields of exclusive use. Specifically, the Cook Amendment provides for a worldwide exclusive license to the porcine tissue for use with neuromodulation devices in addition to cardiovascular devices. The Cook Amendment includes license fee payments of  $ 0.1 million per year in each of the years 2021 through 2026. Such license payments would accelerate if a change in control, as defined, occurs within Aziyo. The Company, in its sole discretion, can terminate the license agreement at any time. F-25 Table of Contents Legal Proceedings 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. The Company records accruals for contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. These accruals are adjusted periodically as assessments change or additional information becomes available. 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”); the U.S. District Court for the Western District of North Carolina (“North Carolina Federal Complaint”); the U.S. District Court for the Northern District of Florida (“Florida Federal Complaint”); U.S. District Court for the Eastern District of Michigan and the Eastern District of Michigan (collectively “Michigan Federal Complaints.”); the U.S. District Court for the District of Colorado (“Colorado Federal Complaint”); the U.S. 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.”); the U.S. 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. Plaintiffs in these actions assert that the defendants are strictly liable or have breached the duty of care owed to plaintiffs by failing to exercise reasonable care in designing, manufacturing, marketing and labeling FiberCel and are seeking various types of damages, including economic damages, non-economic damages and loss of consortium. 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 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 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 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 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 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. F-26 Table of Contents 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. ​ ​ Note 18. Related Party Transactions 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. Such guarantee was largely finalized in 2016; however, an additional $ 0.4 million was received by the Company in connection with a settlement reached in 2018. Furthermore, as part of the 2018 settlement, it was agreed that when KeraLink sells its Aziyo common shares for net proceeds greater than $ 550,000 , KeraLink is obligated to pay Aziyo $ 550,000 within three days of such cash being received. In May 2021, KeraLink sold Aziyo common shares for proceeds in excess of $ 550,000 , and as such, remitted $ 550,000 to Aziyo in full satisfaction of the 2018 settlement. Amounts received in connection with this settlement were recorded as other income, net in the accompanying consolidated statements of operations for the year ended December 31, 2021. ​ F-27 Table of Contents Note 19. Segment Information 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 Net sales: ​ ​ ​ ​ ​ ​ Device protection ​ $ 9,093 ​ $ 7,902 Women's health ​ ​ 7,474 ​ ​ 5,046 Orthobiologics ​ ​ 25,338 ​ ​ 26,934 Cardiovascular ​ ​ 7,282 ​ ​ 7,508 Total Net Sales ​ $ 49,187 ​ $ 47,390 ​ For the years ended December 31, 2022 and 2021, the Company’s gross profit disaggregated by segment were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 Gross profit: ​ ​ ​ ​ ​ ​ Device protection ​ $ 6,114 ​ $ 5,761 Women's health ​ ​ 3,137 ​ ​ 914 Orthobiologics ​ ​ 7,583 ​ ​ 9,742 Cardiovascular ​ ​ 5,785 ​ ​ 6,001 Gross profit, excluding intangible asset amortization ​ ​ 22,619 ​ ​ 22,418 Intangible asset amortization expense ​ ​ 3,397 ​ ​ 3,396 Gross profit ​ $ 19,222 ​ $ 19,022 ​ 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year Ended ​ ​ December 31, ​ 2022 2021 ​ ​ ​ ​ ​ ​ ​ Gross profit ​ $ 19,222 ​ $ 19,022 Adjustments: ​ ​ ​ ​ ​ ​ Sales and marketing ​ ​ ( 20,195 ) ​ ​ ( 18,825 ) General and administrative ​ ​ ( 16,627 ) ​ ​ ( 13,687 ) Research and development ​ ​ ( 8,940 ) ​ ​ ( 9,266 ) FiberCel litigation costs ​ ​ ( 5,200 ) ​ ​ ( 276 ) Loss from operations ​ ​ ( 31,740 ) ​ ​ ( 23,032 ) Interest expense ​ ​ 5,282 ​ ​ 5,324 Other income, net ​ ​ ( 4,159 ) ​ ​ ( 3,579 ) Loss before provision for income taxes ​ $ ( 32,863 ) ​ $ ( 24,777 ) ​ F-28 Table of Contents 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. ​ ​ ​ F-29