What changed in this filing

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Item 1. Financial Statements

2023-05-12 compared with 2022-11-14 · 165 added, 244 removed, 357 unchanged (53% of the section changed)

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

September 30,

Current assets:

Restricted cash

Accounts receivable, net

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Intangible assets, net

Liabilities and Stockholders’ Equity

Operating lease right-of-use assets and other

Liabilities and Stockholders’ Deficit

Current liabilities:

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Payables to tissue suppliers

Current portion of long-term debt

Current portion of revenue interest obligation

Revolving line of credit

Contingent liability for FiberCel litigation

Other current liabilities

Current operating lease liabilities and other

Total current liabilities

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Long-term revenue interest obligation

Long-term operating lease liabilities

Other long-term liabilities

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Stockholders’ equity (deficit):

Class A Common stock, $ 0.001 par value, 200,000,000 shares authorized as of September 30, 2022 and December 31, 2021, and 9,460,964 and 9,245,146 shares issued and outstanding , as of September 30, 2022 and December 31, 2021, respectively

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

Class A Common stock, $ 0.001 par value, 200,000,000 shares authorized as of March 31, 2023 and December 31, 2022, and 11,876,792 and 11,823,445 shares issued and outstanding , as of March 31, 2023 and December 31, 2022, respectively

Class B Common stock, $ 0.001 par value, 20,000,000 shares authorized, as of March 31, 2023 and December 31, 2022 and 4,313,406 issued and outstanding as of March 31, 2023 and December 31, 2022

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity (deficit)

Total liabilities and stockholders' equity

Total stockholders’ deficit

Total liabilities and stockholders' deficit

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

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Three Months Ended

Nine Months Ended

September 30,

Cost of goods sold

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Research and development

FiberCel litigation costs

FiberCel litigation costs, net

Total operating expenses

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Interest expense

Other (income) expense, net

Loss before provision for income taxes

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Equity (Deficit)

Balance, June 30, 2022

Proceeds from stock option exercises

Proceeds from sale of common stock through Employee Stock Purchase Plan

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

Issuance of warrants in connection with debt financing

Stock-based compensation

Balance, September 30, 2022

Balance, June 30, 2021

Proceeds from sale of common stock through Employee Stock Purchase Plan

Stock-based compensation

Balance, September 30, 2021

Stockholders'

Equity (Deficit)

Balance, December 31, 2022

Proceeds from stock option exercises

Additional issuance costs in connection with Private Placement

Proceeds from sale of common stock through Employee Stock Purchase Plan

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

Issuance of warrants in connection with debt financing

Vesting of restricted stock units

Stock-based compensation

Balance, September 30, 2022

Balance, March 31, 2023

Balance, December 31, 2021

Proceeds from stock option exercises

Additional issuance costs in connection with Private Placement

Proceeds from sale of common stock through Employee Stock Purchase Plan

Vesting of restricted stock units

Stock-based compensation

Balance, September 30, 2021

Balance, March 31, 2022

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

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(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

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

Depreciation and amortization

(Gain) loss on extinguishment of debt

Amortization of deferred financing costs and debt discount

Interest expense recorded as additional revenue interest obligation

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

Stock-based compensation

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Net borrowings (repayments) under revolving line of credit

Proceeds from stock option exercises

Proceeds from long-term debt

Deferred financing costs

Repayments of long-term debt

Costs related to the extinguishment of debt

Payments on revenue interest obligation

Payments for taxes upon vesting of restricted stock units

Proceeds from sales of common stock through Employee Stock Purchase Plan

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net decrease in cash and restricted cash

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Cash paid for interest

Fair value of warrants issued

Forgiveness of SBA PPP loan

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

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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.

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

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

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

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

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

Summary of Significant Accounting Policies

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Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and accompanying notes included in the Company's annual report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2022.

The financial information as of September 30, 2022 and for the three and nine months ended September 30, 2022 and 2021 is unaudited, but in the opinion of management, all adjustments considered necessary for a fair statement of the results for these interim periods have been included.

The financial information as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 is unaudited, but in the opinion of management, all adjustments considered necessary for a fair statement of the results for these interim periods have been included.

The condensed consolidated balance sheet data as of December 31, 2022 was derived from audited financial statements but does not include all disclosures required by GAAP.

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In accordance with Accounting Standards Update (“ASU”) 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) , the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

For the nine months ended September 30, 2022, the Company incurred a net loss of $ 27.5 million, and as of September 30, 2022, the Company had an accumulated deficit of $ 132.5 million.

In addition, during the nine months ended September 30, 2022, the Company used $ 16.2 million and $ 5.7 million of cash in operating and financing activities, respectively, and expects to continue to incur cash outflows for the remainder of the year.

For the three months ended March 31, 2023, the Company incurred a net loss of $ 8.0 million, and as of March 31, 2023, the Company had an accumulated deficit of $ 146.0 million.

In addition, during the three months ended March 31, 2023, the Company used $ 5.2 million of cash in operating activities, and expects to continue to incur cash outflows during the remainder of 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 7), or pursue asset sale or licensing 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, potential availability under the SWK Loan Facility (described in Note 6), 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 condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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.

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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 (see Note 8 for further discussion).

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

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

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

Use of Estimates

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

Estimates and assumptions relating to inventory, receivables, long-lived assets, the valuation of stock-based awards, the valuation of the Revenue Interest Obligation and deferred income taxes are made at the end of each financial reporting period by management.

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 Attributable to Common Stockholders

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

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

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

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

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The 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.

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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 6), 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 condensed consolidated balance sheets.

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

September 30,

Restricted cash

Total cash and restricted cash shown in statements of cash flows

Accounts Receivable and Allowances

Accounts receivable in the accompanying balance sheets are presented net of allowances for doubtful accounts and other credits.

Accounts receivable in the accompanying balance sheets are presented net of allowances for credit losses.

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.

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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.

For all other customers, a provision to the allowance for credit losses 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.

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Repairs and maintenance costs are expensed as incurred.

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

ASU 2016-02 and certain 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.

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

Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from that lease.

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

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

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

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

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

Long-Lived Assets

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

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

There were no impairment losses for the three months ended March 31, 2023 or 2022.

Revenue Recognition

The Company’s revenue is generated from contracts with customers in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606.

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.

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(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 sell and distribute products to healthcare providers or commercial partners, or produce and sell products under contract manufacturing arrangements with corporate customers, and in all such cases, customers are billed under ship and bill contract terms.

As noted above, the Company enters into contracts to primarily (i) sell and distribute products to healthcare providers or commercial partners, or (ii) produce and sell products 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.

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

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

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.

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The Company records estimated returns as a reduction of revenue in the same period revenue is recognized.

Deferred Rent

The Company recognizes 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.

Stock-Based Compensation Plans

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

At September 30, 2022, the Company maintained $ 7.8 million in bank deposit accounts that are in excess of the $0.25 million insurance provided by the Federal Deposit Insurance Corporation in one federally insured financial institution.

At March 31, 2023, the Company maintained $ 11.7 million in bank deposit accounts that are in excess of the $0.25 million insurance provided by the Federal Deposit Insurance Corporation in one federally insured financial institution.

Market conditions can impact the viability of these institutions.

In the event of failure of any of the financial institutions where we maintain our cash, the Company could lose its deposits in excess of the federally insured or protected amounts and there can be no assurance that we will be able to access uninsured funds in a timely manner or at all.

The Company has not experienced any losses in such accounts.

Significant Customers

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

The following table presents percentage of total revenues derived from the Company’s largest customers as well as their respective percentage of total accounts receivable:

Three Months Ended

Nine Months Ended

September 30,

Percent of revenues derived from:

ACE Surgical Supply

Surgalign Holdings

Medtronic Sofamor Danek USA

September 30,

Percent of accounts receivable derived from:

ACE Surgical Supply

Surgalign Holdings

Medtronic Sofamor Danek USA

Comprehensive Income (Loss)

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

For the three and nine months ended September 30, 2022 and 2021, the Company’s net loss equaled its comprehensive loss and accordingly, no additional disclosure is presented.

For the three months ended March 31, 2023 and 2022, the Company’s net loss equaled its comprehensive loss and accordingly, no additional disclosure is presented.

The Company uses the asset and liability method of accounting for income taxes.

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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.

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.

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Recently Issued Accounting Standards

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

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

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

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

The FASB is also reconsidering its philosophy on establishing effective dates

for major standards for private companies, NFPs, EBPs and smaller public companies.

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

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

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

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

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

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

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

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

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

While early adoption is permitted, the Company will adopt the standard in the fourth quarter of 2022 for the full 2022 year, and expects to recognize right-of-use assets and lease liabilities for operating leases of approximately $ 2.4 million.

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 is 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.

This ASU was effective for the Company beginning on January 1, 2023 and did not have a material impact on our condensed consolidated Financial Statements.

The Company adopted this ASU using the modified retrospective transition method.

Under this transition method, the new standard is applied from January 1, 2023 without restatement of comparative period amounts.

The impact of transitioning to the new standard was immaterial and no adjustment was recorded to retained earnings for the cumulative effect of adopting this ASU on January 1, 2023.

Results for reporting periods beginning after January 1, 2023 are presented under Topic 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Stock-Based Compensation

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

On October 7, 2020, in connection with the Company’s initial public offering (“IPO”), the Company adopted the Aziyo Biologics, Inc.

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.

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

As of September 30, 2022, the Company had 756,809 shares of Class A common stock available for issuance under the 2020 Plan.

As of March 31, 2023, the Company had 1,630,411 shares of Class A common stock available for issuance under the 2020 Plan.

On June 21, 2022, C.

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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 September 30, 2022.

It is anticipated that such RSUs will be legally granted prior to December 31, 2022, 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 Mr.

Lloyd’s severance costs totaling approximately $ 0.6 million over the period from June 21, 2022 through September 30, 2022, and as of September 30, 2022, all such expenses were included in Accrued Expenses in the accompanying condensed consolidated balance sheets.

however, the RSUs had not been legally granted as of March 31, 2023.

Such RSUs were legally granted in April 2023 and the vested shares underlying the award were deemed outstanding as of such time.

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 generally vest over a four-year period from the date of grant.

A summary of stock option activity under the Company’s 2015 Plan and 2020 Plan for the nine months ended September 30, 2022 is as follows:

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

A summary of stock option activity under the Company’s 2015 Plan and 2020 Plan for the three months ended March 31, 2023 is as follows:

Number of Shares

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Outstanding, December 31, 2022

Outstanding, September 30, 2022

Vested and exercisable, September 30, 2022

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

As of September 30, 2022, there was approximately $ 4.1 million of total unrecognized compensation expense related to unvested stock options.

Outstanding, March 31, 2023

Vested and exercisable, March 31, 2023

The weighted average grant date fair value of options granted during the three months ended March 31, 2023 was $ 2.79 .

As of March 31, 2023, there was approximately $ 3.4 million of total unrecognized compensation expense related to unvested stock options.

These costs are expected to be recognized over a weighted-average period of 2.4 years.

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

The following weighted-average assumptions were used to determine the fair value of options granted during the nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30,

The following weighted-average assumptions were used to determine the fair value of options granted during the three months ended March 31, 2023 and 2022:

Three Months Ended

Expected term (years)

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The Company’s RSUs generally vest over a three to four year period from the date of grant.

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

A summary of the RSU activity under the Company’s 2020 Plan for the three months ended March 31, 2023 is as follows:

Number of Shares

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Unvested, December 31, 2022

Unvested, September 30, 2022

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

During the nine months ended September 30, 2022, the Company granted 289,282 Performance-Based RSUs.

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 September 30, 2022, $ 1.7 million of unrecognized compensation costs related to RSUs is expected to be recognized over a weighted average period of two years .

Unvested, March 31, 2023

For the Performance-Based RSUs, including those granted to Dr.

Mills 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 two to three years using the graded vesting method.

As of March 31, 2023, $ 1.1 million of unrecognized compensation costs related to RSUs is expected to be recognized over a weighted average period of approximately two years .

Employee Stock Purchase Plan

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

As of September 30, 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 nine months ended September 30, 2022, 74,408 shares of Class A common stock were issued under the ESPP.

As of March 31, 2023, the total shares of Class A common stock authorized for issuance under the ESPP was 542,365 , of which 399,436 remained available for future issuance.

During the three months ended March 31, 2023, 41,277 shares of Class A common stock were issued under the ESPP.

Stock-Based Compensation Expense

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

Stock-based compensation expense recognized during the three months ended March 31, 2023 and 2022 was comprised of the following (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Sales and marketing

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Inventory was comprised of the following (in thousands):

September 30,

Raw materials

2 unchanged sentences

Long-Term Debt

On May 31, 2017, in connection with the Company’s acquisition of CorMatrix described in Note 7, Aziyo entered into a $ 12 million term loan facility (the “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”).

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.

On 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, with $ 21 million drawn on the Closing Date (the “Initial Term Loan”) and $ 4 million that becomes available, subject to the achievement of specified operational and financial metrics by September 30, 2023 (the “Additional Term Loan”).

The SWK Loan Facility 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 September 30, 2022.

O n August 10, 2022 (the “Closing Date”), the Company entered into a senior secured term loan facility with SWK Funding LLC (“SWK”), 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 March 31, 2023.

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

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

Principal 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 September 30, 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.

As of March 31, 2023, quarterly principal payments are scheduled to begin on November 15, 2024, in an amount equal to 5 % of the outstanding principal on such principal payment commencement date 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 September 30, 2022, Aziyo was in compliance with its financial covenants under the agreement governing the SWK Loan Facility (the “SWK Loan Facility Agreement”).

As of March 31, 2023, 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), 3.75 % 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.

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(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 weighted average interest rate on the SWK Loan Facility was 11.7 % for the period from August 10, 2022 through September 30, 2022.

The weighted average interest rate on the SWK Loan Facility was 13.7 % for the three months ended March 31, 2023.

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.

Subject to and effective upon the borrowing of the Additional Term Loan, the Warrant will be exercisable for up to an additional 30,075 shares of Class A common stock.

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.

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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 expense in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 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 three and nine months ended September 30, 2022.

No such mandatory prepayments were required during the three months ended March 31, 2023.

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.

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 July 1, 2022 through the Repayment Date.

The weighted average interest rate on the MidCap Loan Facility was 9.5 % for both the three and nine months ended September 30, 2021.

The weighted average interest rate on MidCap Loan Facility was 9.5 % for the three months ended March 31, 2022.

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 July 1, 2022 through the Repayment Date.

The weighted average interest rate on MidCap Credit Facility was 7.2 % for both the three and nine months ended September 30, 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 in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 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 has been recorded as other income in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2021.

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

On May 12, 2023, the Company entered into a first amendment to the SWK Loan Facility Agreement with SWK and the other lenders party thereto .

The amendment is described in further detail in Note 11 to these condensed consolidated financial statements.

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

September 30,

SWK/MidCap Loan Facility, net of unamortized discount and deferred financing costs

Note to Tissue Supplier

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

Current Portion

Long-Term Debt

The fair value of all debt instruments, which is based on inputs considered to be Level 2 under the fair value hierarchy, approximates the respective carrying values as of September 30, 2022 and December 31, 2021.

The fair value of all debt instruments, which is based on inputs considered to be Level 2 under the fair value hierarchy, approximates the respective carrying values as of March 31, 2023 and December 31, 2022.

Revenue Interest Obligation

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 (the "CorMatrix Acquisition").

(“CorMatrix”) and acquired all CorMatrix commercial assets and related intellectual property (the “CorMatrix Acquisition”).

As part of the CorMatrix Acquisition, the Company assumed a restructured, long-term obligation (the “Revenue Interest Obligation”) to Ligand Pharmaceuticals (“Ligand”) with an estimated present value on the acquisition date of $ 27.7 million.

3 unchanged sentences

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

There was no change to estimated future payments during the three and nine months ended September 30, 2022 and 2021, and thus, no re-measurement gain or loss was recognized.

Interest expense related to the Revenue Interest Obligation of approximately

$ 0.7 million was recorded for both the three months ended September 30, 2022 and 2021 and approximately $ 2.0 million for both the nine months ended September 30, 2022 and 2021.

There was no change to estimated future payments during the three months ended March 31, 2023 and 2022, and thus, no re-measurement gain or loss was recognized.

Interest expense related to the Revenue Interest Obligation of approximately $ 0.5 million and $ 0.7 million was recorded for the three months ended March 30, 2023 and 2022, respectively.

Commitments and Contingencies

Operating Leases

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

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

The Company also has a short-term lease for a small administrative-only facility.

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

Rent expense was approximately $ 0.3 million for both the three months ended September 30, 2022 and 2021, and was approximately $ 0.9 million for both the nine months ended September 30, 2022 and 2021, and is included as a component of either cost of goods sold or general and administrative expenses.

Cook Biotech License and Supply Agreements

4 unchanged sentences

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

No royalties were paid to Cook during the three and nine months ended September 30, 2022 or 2021.

No royalties were paid to Cook during the three months ended March 31, 2023 or 2022.

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

10 unchanged sentences

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

Since September 2021, 55 lawsuits in Indiana, Delaware, Florida, Maryland, Colorado, Michigan, Ohio, Kentucky, Oregon, North Carolina and Louisiana have been filed against Aziyo Biologics Inc., certain Medtronic entities, and others alleging that the plaintiffs were exposed to and/or contracted tuberculosis and/or suffered substantial symptoms and complications following the implantation of FiberCel during spinal fusion operations.

Since September 2021, 71 lawsuits ( 73 plaintiffs) in Indiana, Delaware, Florida, Maryland, Colorado, Michigan, Ohio, Kentucky, Oregon, North Carolina, Louisiana, Illinois, Virginia, California and Arizona 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”);

4 unchanged sentences

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

District Court

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

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

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

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

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

2 unchanged sentences

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

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

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

Loudon County Virginia Circuit Court (“Virginia State Complaint”);

District Court for the Central District of California (“California Federal Complaint”) and the U.S.

District Court for the District of Arizona (“Arizona Federal 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.

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

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

In addition to the above, there have been 42 claims related to the FiberCel recall that have not yet resulted in a lawsuit.

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.

The Illinois State Complaints contain claims of strict liability- defective design and manufacturing, breach of express warranty, breach of implied warranty and negligence and seek compensatory damages.

The Virginia State Complaint asserts causes of action for negligent failure to warn, negligence, breach of implied warranty, breach of express warranty and seeks recovery for medical monitoring, compensatory damages and punitive damages.

The California Federal Complaint advances claims of strict liability (defective design and manufacture), negligence and breach of implied warranty and seeks compensatory damages and recovery for medical monitoring.

The Arizona Federal Complaint asserts strict product liability claims for defective design, manufacture and failure to warn, negligence, breach of implied warranty and breach of express warranty and seeks recovery for medical monitoring, loss of consortium, compensatory damages, and punitive damages.

In addition to the above, there are 36 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.”

In October 2022, the Company engaged in a process to negotiate and attempt to resolve many of the cases in the FiberCel Litigation.

The Company also mediated and resolved a Maryland lawsuit in August 2022.

In total, Aziyo’s liability in 24 of the cases was settled ( 23 of which are pending finalization of the related settlement agreements) for a total of approximately $ 7.2 million.

The settled matters included cases from the Indiana State Complaints, Ohio State Complaint, Florida Federal Complaint, Colorado Federal Complaint, Delaware State Complaints and Maryland Complaint, along with claims in six states.

Of these settled matters, one case was both settled and paid as of September 30, 2022 for a total cash outlay of $ 1.3 million.

For the remaining 73 cases, the Company estimated a probable loss related to each case and has recorded a liability at an estimated amount of $ 11.7 million bringing the total estimated liability at September 30, 2022 to $ 17.6 million, which is recorded as Contingent Liability for FiberCel Litigation in the accompanying condensed consolidated balance sheets.

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

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.

Of these settled matters, 21 cases were both settled and paid as of March 31, 2023 for a total cash outlay of $ 6.2 million.

For the remaining 83 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 $ 13.2 million bringing the total estimated liability at March 31, 2023 to $ 14.3 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.

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 condensed consolidated statements of operations as incurred.

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.

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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 September 30, 2022 totaled $ 17.2 million and are recorded as Receivables of FiberCel Litigation Costs in the accompanying condensed consolidated balance sheets.

The indemnity and contribution receivables amount at September 30, 2022 represents amounts that are not believed to be subject to any current dispute.

At September 30, 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 and while uncertain, does expect to be successful in recovering at least an additional $ 3.8 million or more.

As of both September 30, 2022 and December 31, 2021, the Company was not a party to, or aware of, any material legal matters or claims except for the FiberCel Litigation.

These receivables at March 31, 2023 totaled $ 10.9 million and are recorded as Receivables of FiberCel Litigation Costs in the accompanying consolidated balance sheets.

The indemnity and contribution receivables amount at March 31, 2023 represents amounts that are not believed to be subject to any current dispute.

At March 31, 2023, 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 March 31, 2023 and 2022, the Company was not a party to, or aware of, any legal matters or claims with material financial exposure, except for the FiberCel Litigation.

Net Loss Per Share Attributable to Common Stockholders

Three Months Ended

Nine Months Ended

(in thousands, except share and per share data)

September 30,

Net loss attributable to common stockholders

Weighted average number of common shares - basic and diluted

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

Net loss per share - basic and diluted

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

1 unchanged sentence

The Company excluded the following potential common shares, presented based on amounts outstanding at period end, from the computation of diluted net loss per share attributable to common stockholders:

September 30,

Options to purchase common stock

Restricted stock units

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 in the accompanying condensed consolidated statements of operations for the nine months ended September 30, 2021.

Class A common stock warrants

Segment Information

The Company operates as one segment, regenerative medicines.

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

For the three and nine months ended September 30, 2022 and 2021, the Company’s net sales disaggregated by the major sources - Core Products and Non-Core Products (see Note 1) - were as follows (in thousands):

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 three months ended March 31, 2023 and 2022, the Company’s net sales disaggregated by segment were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Sales by product

Core Products

Non-Core Products

Device protection

Women's health

Orthobiologics

Cardiovascular

Total Net Sales

For the three months ended March 31, 2023 and 2022, the Company’s gross profit disaggregated by segment were as follows (in thousands):

Three Months Ended

Gross profit:

Device protection

Women's health

Orthobiologics

Cardiovascular

Gross profit, excluding intangible asset amortization

Intangible asset amortization expense

The following table is a reconciliation of segment gross profit to the consolidated loss before provision for income taxes for the three months ended March 31, 2023 and 2022 (in thousands):

Three Months Ended

Sales and marketing

General and administrative

Research and development

FiberCel litigation costs

Loss from operations

Interest expense

Loss before provision for income taxes

Subsequent Event

On May 12, 2023, the Company entered into that certain First Amendment to the SWK Loan Facility Agreement with SWK, as agent, and the other lenders party thereto (the “Amendment”).

Pursuant to the Amendment, the exit fee payable upon loan maturity or the earlier repayment in full of all outstanding obligations under the SWK Loan Facility Agreement was modified to be an amount equal to 6.5 % of the aggregate principal amount funded prior to termination plus $ 62,500 .

In addition, the Amendment modified the minimum liquidity covenant applicable to the Company under the SWK Loan Facility Agreement, and now requires the Company to maintain a minimum liquidity of at least $ 5.0 million until August 15, 2023 (which date may be extended by SWK in its commercially-reasonable discretion, to November 15, 2023), and after such date, a minimum liquidity of at least the greater of (i) $ 5.0 million, and (ii) the sum of the operating cash burn (as defined in the SWK Loan Facility Agreement) for the two prior consecutive fiscal quarters then ended.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements