ELUTIA INC. 10-Q

Item 1. Financial Statements. AZIYO BIOLOGICS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except for Share and Per Share Data) (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ ​ 2023 2022 Assets ​ ​ ​ ​ ​ ​ ​ Current assets: ​ ​ ​ ​ ​ ​ ​ Cash ​ $ 11,789 ​ $ 16,989 ​ Accounts receivable, net ​ 7,334 ​ 6,830 ​ Inventory ​ 11,055 ​ 10,052 ​ Receivables of FiberCel litigation costs ​ ​ 10,921 ​ ​ 13,813 ​ Prepaid expenses and other current assets ​ 2,367 ​ 3,015 ​ Total current assets ​ 43,466 ​ 50,699 ​ ​ ​ ​ ​ ​ ​ ​ ​ Property and equipment, net ​ 1,488 ​ 1,403 ​ Intangible assets, net ​ 14,220 ​ 15,069 ​ Operating lease right-of-use assets and other ​ 1,456 ​ 1,670 ​ Total assets ​ $ 60,630 ​ $ 68,841 ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities and Stockholders’ Deficit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Current liabilities: ​ ​ ​ ​ ​ ​ ​ Accounts payable ​ $ 3,498 ​ $ 2,328 ​ Accrued expenses ​ 9,342 ​ 10,103 ​ Payables to tissue suppliers ​ 2,687 ​ 3,152 ​ Current portion of revenue interest obligation ​ 9,678 ​ 8,990 ​ Contingent liability for FiberCel litigation ​ ​ 15,631 ​ ​ 17,360 ​ Current operating lease liabilities and other ​ 588 ​ 682 ​ Total current liabilities ​ 41,424 ​ 42,615 ​ ​ ​ ​ ​ ​ ​ ​ ​ Long-term debt ​ 24,589 ​ 24,260 ​ Long-term revenue interest obligation ​ 5,750 ​ 5,916 ​ Long-term operating lease liabilities ​ 835 ​ 956 ​ Other long-term liabilities ​ 207 ​ 127 ​ Total liabilities ​ 72,805 ​ 73,874 ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitments and contingencies (Note 8) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stockholders’ equity (deficit): ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ 12 ​ ​ 12 ​ 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 ​ ​ 4 ​ ​ 4 ​ Additional paid-in capital ​ 133,771 ​ 132,939 ​ Accumulated deficit ​ ( 145,962 ) ​ ( 137,988 ) ​ Total stockholders’ deficit ​ ( 12,175 ) ​ ( 5,033 ) ​ Total liabilities and stockholders' deficit ​ $ 60,630 ​ $ 68,841 ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 5 Table of Contents AZIYO BIOLOGICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share and Per Share Data) (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2023 2022 Net sales ​ $ 13,050 ​ $ 11,495 Cost of goods sold ​ 6,719 ​ 7,214 Gross profit ​ 6,331 ​ 4,281 Sales and marketing ​ 5,356 ​ 4,818 General and administrative ​ 3,679 ​ 4,025 Research and development ​ 1,803 ​ 2,272 FiberCel litigation costs, net ​ ​ 1,911 ​ ​ 88 Total operating expenses ​ ​ 12,749 ​ ​ 11,203 Loss from operations ​ ( 6,418 ) ​ ( 6,922 ) Interest expense ​ 1,544 ​ 1,215 Loss before provision for income taxes ​ ( 7,962 ) ​ ( 8,137 ) Income tax expense ​ 12 ​ 12 Net loss ​ $ ( 7,974 ) ​ $ ( 8,149 ) Net loss per share - basic and diluted ​ $ ( 0.49 ) ​ $ ( 0.60 ) ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding - basic and diluted ​ 16,149,567 ​ 13,574,058 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ ​ 6 Table of Contents ​ AZIYO BIOLOGICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (In Thousands, Except Share Amounts) (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2022 11,823,445 ​ $ 12 ​ 4,313,406 ​ $ 4 ​ $ 132,939 ​ $ ( 137,988 ) ​ $ ( 5,033 ) Proceeds from sale of common stock through Employee Stock Purchase Plan ​ 41,277 ​ ​ — ​ — ​ ​ — ​ 148 ​ — ​ 148 Vesting of restricted stock units ​ 12,070 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock-based compensation — ​ ​ — ​ — ​ ​ — ​ 684 ​ — ​ 684 Net loss — ​ ​ — ​ — ​ ​ — ​ — ​ ( 7,974 ) ​ ( 7,974 ) Balance, March 31, 2023 11,876,792 ​ $ 12 ​ 4,313,406 ​ $ 4 ​ $ 133,771 ​ $ ( 145,962 ) ​ $ ( 12,175 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2021 9,245,146 ​ $ 9 ​ 4,313,406 ​ $ 4 ​ $ 118,599 ​ $ ( 105,091 ) ​ $ 13,521 Additional issuance costs in connection with Private Placement ​ — ​ ​ — ​ — ​ ​ — ​ ( 110 ) ​ — ​ ( 110 ) Proceeds from sale of common stock through Employee Stock Purchase Plan ​ 42,345 ​ ​ — ​ — ​ ​ — ​ 192 ​ — ​ 192 Vesting of restricted stock units ​ 19,247 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ 1,105 ​ ​ — ​ ​ 1,105 Net loss ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ ( 8,149 ) ​ ​ ( 8,149 ) Balance, March 31, 2022 9,306,738 ​ $ 9 ​ 4,313,406 ​ $ 4 ​ $ 119,786 ​ $ ( 113,240 ) ​ $ 6,559 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The accompanying notes are an integral part of these condensed consolidated financial statements ​ ​ 7 Table of Contents AZIYO BIOLOGICS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (UNAUDITED) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ ​ 2023 2022 Net loss ​ $ ( 7,974 ) $ ( 8,149 ) Adjustments to reconcile net loss to net cash used in operating activities: ​ Depreciation and amortization ​ 947 929 Amortization of deferred financing costs and debt discount ​ 53 15 Interest expense recorded as additional revenue interest obligation or long-term debt ​ 796 660 Stock-based compensation ​ 684 1,105 Changes in operating assets and liabilities: ​ ​ ​ Accounts receivable ​ ( 504 ) ( 14 ) Inventory ​ ( 1,003 ) ( 309 ) Receivables of FiberCel litigation costs ​ ​ 2,892 ​ ​ — Prepaid expenses and other ​ 648 ( 1,580 ) Accounts payable and accrued expenses ​ 409 ( 492 ) Obligations to tissue suppliers ​ ( 465 ) 417 Contingent liability for FiberCel litigation ​ ​ ( 1,729 ) ​ ​ — Deferred revenue and other liabilities ​ 80 68 Net cash used in operating activities ​ ( 5,166 ) ( 7,350 ) INVESTING ACTIVITIES: ​ ​ Expenditures for property, plant and equipment ​ ( 182 ) ( 34 ) Net cash used in investing activities ​ ( 182 ) ( 34 ) FINANCING ACTIVITIES: ​ Additional issuance costs in connection with Private Placement ​ ​ — ​ ​ ( 110 ) Net borrowings (repayments) under revolving line of credit ​ ​ — ​ ​ 1,397 Repayments of long-term debt ​ — ( 1,667 ) Payments on revenue interest obligation ​ — ( 681 ) Proceeds from sales of common stock through Employee Stock Purchase Plan ​ 148 192 Net cash provided by (used in) financing activities ​ 148 ( 869 ) ​ ​ ​ ​ ​ ​ ​ Net decrease in cash and restricted cash ​ ( 5,200 ) ( 8,253 ) ​ ​ ​ ​ ​ ​ ​ Cash and restricted cash, beginning of period ​ 16,989 30,428 Cash and restricted cash, end of period ​ $ 11,789 $ 22,175 ​ ​ ​ ​ ​ ​ ​ Supplemental Cash Flow and Non-Cash Financing Activities Disclosures: ​ Cash paid for interest ​ $ 572 $ 1,162 ​ The accompanying notes are an integral part of these condensed consolidated financial statements. ​ 8 Table of Contents AZIYO BIOLOGICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements and accompanying notes included in the Company's annual report on Form 10-K (“Annual Report”) for the fiscal year ended December 31, 2022. 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. The results of the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any other interim period or any future year or period. The condensed 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 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 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 9 Table of Contents 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. 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. Net Loss per Share Attributable to Common Stockholders 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. 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. 10 Table of Contents 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 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. ​ Accounts Receivable and Allowances 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. 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 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. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. Inventory Inventory, consisting of purchased materials, direct labor and manufacturing overhead, is stated at the lower of cost or net realizable value, with cost determined generally using the average cost method. Inventory write-downs for unprocessed and certain processed donor tissue are recorded based on the estimated amount of inventory that will not pass the quality control process based on historical data. At each balance sheet date, the Company also evaluates inventory 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. 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. 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 11 Table of Contents 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 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 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 three months ended March 31, 2023 or 2022. 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 (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. 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 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 12 Table of Contents 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. 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. Stock-Based Compensation Plans The Company accounts for its stock-based compensation plans in accordance with FASB ASC 718, Accounting for Stock Compensation . FASB ASC 718 requires the measurement and recognition of compensation expense for all stock-based awards made to employees and directors, including employee stock options and restricted stock. 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 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. 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 months ended March 31, 2023 and 2022, 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 13 Table of Contents 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. ​ 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 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. 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 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. 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 ; 14 Table of Contents 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 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average ​ ​ ​ ​ ​ ​ Weighted- ​ Remaining ​ Aggregate ​ ​ ​ ​ Average ​ Contractual ​ Intrinsic ​ ​ Exercise Term Value ​ ​ Number of Shares ​ Price ​ (years) ​ (in thousands) Outstanding, December 31, 2022 ​ 1,864,739 ​ $ 9.41 ​ ​ 7.5 $ 8 Granted ​ 20,000 ​ $ 4.50 ​ ​ ​ ​ ​ ​ Exercised ​ — ​ $ — ​ ​ ​ ​ ​ ​ Forfeited ​ ( 314,870 ) ​ $ 9.75 ​ ​ ​ ​ ​ ​ Outstanding, March 31, 2023 ​ 1,569,869 ​ $ 9.28 ​ ​ 8.2 ​ $ - Vested and exercisable, March 31, 2023 ​ 548,300 ​ $ 11.25 ​ ​ 6.9 ​ $ - ​ 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. The Company uses the Black-Scholes model to value its time-based stock option grants and expenses the related compensation cost using the straight-line method over the vesting period. The fair value of stock options is determined on the grant date using assumptions for the estimated fair value of the underlying common stock, expected term, expected volatility, dividend yield, and the risk-free interest rate. Before the completion of the Company’s IPO, the Board determined the fair value of common stock considering the state of the business, input from management, third party valuations and other considerations. The Company uses the simplified method for estimating the expected term used to determine the fair value of options. The expected volatility of the Class A common stock is primarily based on the historical volatility of comparable companies in the industry whose share prices are publicly available. The Company uses a zero -dividend yield assumption as the Company has not paid dividends since inception nor does it anticipate paying dividends in the future. The risk-free interest rate approximates recent U.S. Treasury note auction results with a similar life to that of the option. The period expense is then determined based on the valuation of the options, and is recognized on a straight-line basis over the requisite service period for the entire award. The following weighted-average assumptions were used to determine the fair value of options granted during the three months ended March 31, 2023 and 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ ​ March 31, ​ ​ 2023 2022 ​ Expected term (years) ​ 6.0 ​ 6.2 ​ Risk-free interest rate ​ 4.3 % 1.8 % Volatility factor ​ 63.8 % 63.8 % Dividend yield ​ — ​ — ​ ​ 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. 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 three months ended March 31, 2023 is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted- ​ ​ ​ ​ Average ​ ​ Number of Shares ​ Grant Date ​ ​ Underlying RSUs ​ Fair Value Unvested, December 31, 2022 372,307 ​ $ 5.90 Granted — ​ $ — Vested ( 12,070 ) ​ $ 14.53 Forfeited ( 33,378 ) ​ $ 4.45 Unvested, March 31, 2023 326,859 ​ $ 5.66 ​ 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 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 as set forth in 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. 16 Table of Contents Stock-Based Compensation Expense 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 ​ ​ ​ March 31, ​ ​ 2023 2022 Sales and marketing $ 144 $ 195 ​ General and administrative ​ 454 ​ 682 ​ Research and development ​ 46 ​ 178 ​ Cost of goods sold ​ 40 ​ 50 ​ Total stock-based compensation expense ​ $ 684 ​ $ 1,105 ​ ​ ​ ​ Note 5. Inventory Inventory was comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ ​ 2023 2022 Raw materials ​ $ 1,705 ​ $ 1,716 ​ Work in process ​ ​ 737 ​ ​ 623 ​ Finished goods ​ ​ 8,613 ​ ​ 7,713 ​ Total ​ $ 11,055 ​ $ 10,052 ​ ​ ​ Note 6. 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 (“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 certain conditions have been satisfied. Principal payments during the amortization period will be limited based on revenue-based caps. 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 March 31, 2023, Aziyo was in compliance with its financial covenants under the agreement governing the SWK Loan Facility (the “SWK Loan Facility Agreement”). ​ 17 Table of Contents 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. 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 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. 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 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 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 % 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 % 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. 18 Table of Contents Long-term debt was comprised of the following (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ ​ 2023 ​ 2022 Term Loan Facility, net of unamortized discount and deferred financing costs ​ $ 24,589 ​ $ 24,260 Current Portion ​ — ​ — Long-Term Debt ​ $ 24,589 ​ $ 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 March 31, 2023 and December 31, 2022. ​ Note 7. 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”). As part of the CorMatrix Acquisition, the Company assumed a restructured, long-term obligation (the “Revenue Interest Obligation”) to Ligand Pharmaceuticals (“Ligand”) with an estimated present value on the acquisition date of $ 27.7 million. Subject to annual minimum payments of $ 2.75 million per year, the terms of the Revenue Interest Obligation require Aziyo to pay Ligand, 5 % of future sales of the products Aziyo acquired from CorMatrix, including CanGaroo, ProxiCor, Tyke and VasCure, as well as products substantially similar to those products, such as the version of CanGaroo Aziyo is currently developing that is designed to 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 annual minimum payments, along with the expected payment timing of the first $ 5.0 million sales milestone payment noted above, serving to establish the short-term portion. At each reporting period, the value of the Revenue Interest Obligation is re-measured based on current estimates of future payments, with changes to be recorded in the condensed consolidated statements of operations using the catch-up method. There was no change to estimated future payments during the three 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. ​ Note 8. Commitments 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 “Cook License Agreement”). 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 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. 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 in the Cook Amendment, occurs within Aziyo. The Company, in its sole discretion, can terminate the Cook License Agreement at any time. 19 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, 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”); 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”); the U.S. District Court for the Eastern District of Michigan (collectively “the 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”); Loudon County Virginia Circuit Court (“Virginia State Complaint”); the U.S. 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. 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 20 Table of Contents 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.” 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. 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 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. ​ 21 Table of Contents Note 9. Net Loss Per Share Attributable to Common Stockholders ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ (in thousands, except share and per share data) ​ March 31, ​ ​ 2023 2022 Numerator: ​ ​ Net loss ​ $ ( 7,974 ) ​ $ ( 8,149 ) ​ Denominator: ​ ​ ​ Weighted average number of common shares - basic and diluted ​ 16,149,567 ​ 13,574,058 ​ Net loss per share - basic and diluted ​ $ ( 0.49 ) ​ $ ( 0.60 ) ​ ​ 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: ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ ​ 2023 2022 Options to purchase common stock 1,569,869 ​ 1,857,091 Restricted stock units ​ 326,859 ​ 564,159 ​ Class A common stock warrants ​ 187,969 ​ — ​ Total 2,084,697 ​ 2,421,250 ​ ​ Note 10. 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 three months ended March 31, 2023 and 2022, the Company’s net sales disaggregated by segment were as follows (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2023 2022 Net sales: ​ ​ ​ ​ ​ ​ Device protection ​ $ 2,350 ​ $ 2,053 Women's health ​ ​ 2,295 ​ ​ 1,634 Orthobiologics ​ ​ 6,658 ​ ​ 6,243 Cardiovascular ​ ​ 1,747 ​ ​ 1,565 Total Net Sales ​ $ 13,050 ​ $ 11,495 ​ 22 Table of Contents 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 ​ ​ March 31, ​ 2023 2022 Gross profit: ​ ​ ​ ​ ​ ​ Device protection ​ $ 1,796 ​ $ 1,319 Women's health ​ ​ 1,052 ​ ​ 674 Orthobiologics ​ ​ 2,957 ​ ​ 1,903 Cardiovascular ​ ​ 1,375 ​ ​ 1,234 Gross profit, excluding intangible asset amortization ​ ​ 7,180 ​ ​ 5,130 Intangible asset amortization expense ​ ​ 849 ​ ​ 849 Gross profit ​ $ 6,331 ​ $ 4,281 ​ 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 ​ ​ March 31, ​ 2023 2022 Gross profit ​ $ 6,331 ​ $ 4,281 Adjustments: ​ ​ ​ ​ ​ ​ Sales and marketing ​ ​ ( 5,356 ) ​ ​ ( 4,818 ) General and administrative ​ ​ ( 3,679 ) ​ ​ ( 4,025 ) Research and development ​ ​ ( 1,803 ) ​ ​ ( 2,272 ) FiberCel litigation costs ​ ​ ( 1,911 ) ​ ​ ( 88 ) Loss from operations ​ ​ ( 6,418 ) ​ ​ ( 6,922 ) Interest expense ​ ​ 1,544 ​ ​ 1,215 Loss before provision for income taxes ​ $ ( 7,962 ) ​ $ ( 8,137 ) ​ ​ Note 11. 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. ​ ​ ​ ​ ​ ​ 23 Table of Contents