What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-03-11 compared with 2023-03-23 · 367 added, 311 removed, 652 unchanged (51% of the section changed)

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Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months and year ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Other Information.

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

Election of Directors;

Appointment of Certain Officers;

Compensatory Arrangements of Certain Officers.

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

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

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

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

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

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

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

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

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

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

Englese received under the Aziyo Biologics, Inc.

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

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

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

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

Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

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Directors, Executive Officers and Corporate Governance.

INFORMATION ABOUT OUR DIRECTORS & EXECUTIVE OFFICERS

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

Position at Azyo Biologics

Principal Employment

Randal Mills, Ph.D.

Chief Executive Officer and President, and Director

Matthew Ferguson

Chief Financial Officer

Michelle Williams, Ph.D.

Chief Scientific Officer

Thomas Englese(1)

Chief Commercial Officer

David Colpman

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

Maybelle Jordan

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

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

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

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

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

See Part II, Item 9B.

“Other Information.”

The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to our annual meeting of stockholders to be held in 2024 (the “2024 Annual Meeting of Stockholders”), which we intend to file with the SEC within 120 days of the year ended December 31, 2023.

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Equity Compensation Plans Not Approved by Stockholders

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

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

In connection with our IPO, we adopted the Elutia Inc.

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

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

To the extent stock options outstanding under the 2015 Plan are forfeited, lapse unexercised or are settled in cash, the shares of Class A common stock subject to the stock options will be available for future issuance under the 2020 Plan.

To the extent stock options outstanding under the 2015 Plan are forfeited, lapse unexercised

or are settled in cash, the shares of Class A common stock subject to the stock options will be available for future issuance under the 2020 Plan.

1,685,962 shares of Class A common stock were initially available for issuance under the 2020 Plan.

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In addition, the shares reserved for issuance under the 2020 Plan will also include shares reserved but not issued under the 2015 Plan.

In June 2023, the stockholders of the Company approved the amendment and restatement of the 2020 Plan which, among other things, increased the number of shares of Class A common stock reserved for issuance under the 2020 Plan by 2,000,000 shares.

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

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

On January 31, 2024, the Compensation Committee of the Company’s Board of Directors approved an exchange program to reprice certain stock options granted under the 2020 Plan with exercise prices per share greater than $7.00.

The exercise prices of the stock options were reduced to $3.61.

On January 31, 2024, the Company granted stock options covering 1,615,561shares of Class A common stock and restricted stock units covering 2,267,500 shares of Class A common stock to employees and consultants under the 2020 Plan.

In addition to the amounts available for future issuance noted in the table above, such grants also partially utilized the increased availability from the automatic increase of 927,904 on January 1, 2024.

The other information required by this Item is incorporated herein by reference to the information that will be contained in our proxy statement related to the 2024 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended December 31, 2023.

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Filed/Furnished Herewith

Restated Certificate of Incorporation of Aziyo Biologics, Inc.

Amended and Restated Bylaws of Aziyo Biologics, Inc.

Asset Purchase Agreement, dated September 17, 2023, by and among Elutia Inc., Berkeley Biologics, LLC, and GNI Group, Ltd.

(solely with respect to Section 11.18)

Restated Certificate of Incorporation of Elutia Inc.

Amended and Restated Bylaws of Elutia Inc.

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

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Specimen stock certificate evidencing the shares of Class B common stock

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

Form of Common Warrant

Exhibit Number

Filed/Furnished Herewith

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

Form of Prefunded Warrant

Registration Rights Agreement, dated September 21, 2023, by and among Elutia Inc.

and the Investors named therein

Description of Securities

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

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

and the Investors named therein.

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

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

December 2017 Amendment to License Agreement, dated as of December 21, 2017, by and between Cook Biotech Incorporated and Aziyo Med, LLC

Aziyo Biologics, Inc.

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

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

December 2017 Amendment to License Agreement, dated as of December 21, 2017, by and between Cook Biotech Incorporated and Elutia Med, LLC

2015 Stock Option/Stock Issuance Plan (as amended)

Aziyo Biologics, Inc.

2020 Incentive Award Plan and form of stock option agreements thereunder

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

Aziyo Biologics, Inc.

Non-Employee Director Compensation Program

Aziyo Biologics, Inc.

2020 Employee Stock Purchase Plan

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

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

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

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

Randal Mills, Ph.D.

and Aziyo Biologics, Inc.

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

and Elutia Inc.

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

and Thomas Englese

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Filed/Furnished Herewith

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

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

and Thomas Englese

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

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

and Matthew Ferguson

Form of Indemnification Agreement for Directors and Officers

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

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

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

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

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

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

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

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

Exhibit Number

Filed/Furnished Herewith

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

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

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

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

Subsidiaries of Aziyo Biologics, Inc.

Consent of PricewaterhouseCoopers LLP

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

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

First Amendment, dated as of May 12, 2023, to the Credit Agreement, dated August 10, 2022, by and among Aziyo Biologics, Inc., SWK Funding LLC, as Agent and the Lenders from time to time party thereto

Aziyo Biologics, Inc.

Amended and Restated 2020 Incentive Award Plan

Proxy Statement

Distribution Agreement by and between Aziyo Biologics, Inc.

and LeMaitre Vascular, Inc.

Securities Purchase Agreement, dated September 18, 2023, by and among Elutia Inc.

and the Investors named therein.

Subsidiaries of Elutia, Inc.

Exhibit Number

Filed/Furnished Herewith

Consent of PricewaterhouseCoopers LLP

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

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Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Inline XBRL Taxonomy Extension Schema Document

Excess Incentive-based Compensation Recoupment Policy

Exhibit Number

Filed/Furnished Herewith

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Aziyo Biologics, Inc.

March 11, 2024

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March 11, 2024

AZIYO BIOLOGICS, INC.

INDEX TO FINANCIAL STATEMENTS

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Aziyo Biologics, Inc.

To the Board of Directors and Stockholders of Elutia Inc.

Opinion on the Financial Statements

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

We have audited the accompanying consolidated balance sheets of Elutia Inc.

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, of changes in stockholders’ equity (deficit) and of cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”).

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/s/ PricewaterhouseCoopers LLP

Baltimore, Maryland

Philadelphia, Pennsylvania

March 11, 2024

We have served as the Company’s auditor since 2015.

AZIYO BIOLOGICS, INC.

CONSOLIDATED BALANCE SHEETS

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Current assets:

Restricted cash

Cash and cash equivalents

Accounts receivable, net

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Prepaid expenses and other current assets

Current assets of discontinued operations

Total current assets

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Operating lease right-of-use assets and other

Noncurrent assets of discontinued operations

Liabilities and Stockholders’ Equity (Deficit)

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Current portion of revenue interest obligation

Revolving line of credit

Contingent liability for FiberCel litigation

Current operating lease liabilities and other

Current operating lease liabilities

Current liabilities of discontinued operations

Total current liabilities

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Long-term revenue interest obligation

Long-term operating lease liabilities

Warrant liability

Other long-term liabilities

Noncurrent liabilities of discontinued operations

Total liabilities

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

AZIYO BIOLOGICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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Total operating expenses

Loss from operations

Loss from continuing operations

Interest expense

Other income, net

Other expense (income), net

Loss before provision for income taxes

Income tax expense

Net loss from continuing operations

Income from discontinued operations

Net loss per share from continuing operations attributable to common stockholders - basic and diluted

Net income per share from discontinued operations attributable to common stockholders - basic and diluted

Net loss per share - basic and diluted

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

AZIYO BIOLOGICS, INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

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Proceeds from stock option exercises

Proceeds from sale of common stock through Employee Stock Purchase Plan

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

Stock-based compensation

Balance, December 31, 2021

Proceeds from stock option exercises

Additional issuance costs in connection with private placement

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Balance, December 31, 2022

Proceeds from sale of common stock in connection with private placement, net of issuance costs of $ 0.4 million

Proceeds from sale of common stock through Employee Stock Purchase Plan

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

Stock-based compensation

Balance, December 31, 2023

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

AZIYO BIOLOGICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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Depreciation and amortization

(Gain) loss on extinguishment of debt

Gain on sale of Orthobiologics Business, excluding divestiture costs

Loss on extinguishment of debt and revaluation of warrant liability

Gain on revaluation of revenue interest obligation

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Stock-based compensation

Changes in operating assets and liabilities:

Bad debt expense

Losses associated with viable bone matrix recall and market withdrawal

Changes in operating assets and liabilities, net:

Accounts receivable

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Prepaid expenses and other

Accounts payable and accrued expenses

Obligations to tissue suppliers

Accounts payable and accrued expenses and payables to tissue suppliers

Contingent liability for FiberCel litigation

Deferred revenue and other liabilities

Other liabilities

Net cash used in operating activities

INVESTING ACTIVITIES:

Proceeds from sale of Orthobiologics Business

Expenditures for property, plant and equipment

Net cash used in investing activities

Net cash provided by (used in) investing activities

FINANCING ACTIVITIES:

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

Net borrowings (repayments) under revolving line of credit

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

Repayments under revolving line of credit

Proceeds from stock option exercises

Proceeds from long-term debt

Proceeds (repayments) of long-term debt, net

Deferred financing costs

Repayments of long-term debt

Costs related to the extinguishment of debt

Payments on revenue interest obligation

Proceeds from insurance premium financings

Repayments of insurance premium financings

Payments for taxes upon vesting of restricted stock units

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Net cash provided by financing activities

Net decrease in cash and restricted cash

Cash and restricted cash, beginning of period

Cash and restricted cash, end of period

Net increase (decrease) in cash

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Supplemental Cash Flow and Non-Cash Financing Activities Disclosures:

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Fair value of warrants issued

Forgiveness of SBA PPP loan

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

AZIYO BIOLOGICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

(together with its consolidated subsidiaries, "Elutia” or the “Company”) is a commercial-stage company leveraging its unique understanding of biologics to improve the interaction between implanted medical devices and patients by reducing complications associated with these surgeries.

The Company has developed a portfolio of products using both human and porcine tissue that are designed to be as close to natural biological material as possible.

Elutia’s portfolio of products spans the Device Protection, Women’s Health 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.

Summary of Significant Accounting Policies

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Intercompany accounts and transactions have been eliminated in consolidation.

On November 8, 2023, the Company completed the sale of substantially all of the assets relating to its Orthobiologics segment (the “Orthobiologics Business”) to Berkeley Biologics, LLC (“Berkeley”).

The Orthobiologics Business was comprised of assets relating to researching, developing, administering, insuring, operating, commercializing, manufacturing, selling and marketing the Company’s Orthobiologics products, and the business of contract manufacturing of particulate bone, precision milled bone, cellular bone matrix, acellular dermis, soft tissue and other products.

The assets sold represent the entirety of the Company’s Orthobiologics segment.

In the sale, the Company received approximately $ 14.6 million, and the Company may earn up to an additional $ 20 million, in the aggregate, in the form of earn-out payments.

The earn-out payments are equal to 10 % of the actual revenue earned by Berkeley in each of the five years after the closing of the sale from sales of specified Orthobiologics products under the purchase agreement (including improvements, modifications, derivatives and enhancements related to those products).

Additionally, the purchase agreement provides for a customary indemnity holdback in the amount of $ 1.5 million to be retained by Berkeley for 24 months after close.

The Company recognized a gain of approximately $ 6.0 million on the sale of the Orthobiologics Business which is recorded in " Income from discontinued operations " in the Company's consolidated statement of operations for the year ended December 31, 2023.

Should the Company receive incremental proceeds in the future through an Earn-Out Payment or payment of the holdback amount, an additional gain will be recorded upon the receipt of such amounts.

The sale of the Orthobiologics Business represents a strategic shift that has a major effect on the Company’s operations and financial results.

Accordingly, this transaction is accounted for as Discontinued Operations for all periods presented in accordance with Accounting Standards Codification (“ASC”) 205-20, Discontinued Operations .

Unless indicated otherwise, the information in the notes to the consolidated financial statements relates to continuing operations.

See Note 4 for further discussion of the divestiture of the Orthobiologics Business.

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.

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In addition, during the year ended December 31, 2023, the Company used $ 21.8 million of cash in operating activities and expects to continue to incur cash outflows in 2024.

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.

Because of the numerous risks and uncertainties associated with the Company’s commercialization and development efforts, the Company is unable

to predict when it will become profitable, and it may never become profitable.

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

In order to mitigate the current and potential future liquidity issues caused by the matters noted above, the Company may seek to raise capital through the issuance of common stock or debt, restructure its Revenue Interest Obligation (as such term is defined, and further described, in Note 10), or pursue asset sale or other transactions.

However, such transactions may not be successful and the Company may not be able to raise additional equity or debt, restructure its Revenue Interest Obligation, or sell or license assets on acceptable terms, or at all.

Furthermore, even if the Company does achieve profitability, it may not be able to sustain or increase profitability on an ongoing basis, or, in general, be able to satisfy its obligations, including those related to the FiberCel Recall described in Note 17, when they become due.

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, such as the private placement which we closed in September 2023, which is described further in Note 14, or pursue asset sale or other transactions, such as the sale of the Orthobiologics Business described above.

However, such transactions may not be successful and the Company may not be able to raise additional equity 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.

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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.

Estimates and assumptions relating to inventories, receivables, long-lived assets, the valuation of stock-based awards, the valuation of the revenue interest obligation, the valuation of the warrant liability, 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

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).

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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, restricted stock units (“RSUs”) and warrants are considered to be common stock equivalents.

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

Cash and Cash Equivalents

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 9), the Company had a lockbox arrangement with the banking institution whereby daily lockbox receipts were contractually utilized to pay down outstanding balances on the MidCap Credit Facility debt.

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

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

Restricted cash

Total cash and restricted cash shown in statements of cash flows

The Company considers cash on hand, demand deposits in a bank, money market funds, and all highly liquid investments with an original maturity of 90 days or less to be cash and cash equivalents.

Accounts Receivable and Allowances

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Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.

The Company's allowance for doubtful accounts was approximately $ 0.1 million as of December 31, 2022 and 2021.

The Company's allowance for doubtful accounts was approximately $ 0.7 million and $ 0.1 million as of December 31, 2023 and 2022, respectively.

Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost or net realizable value, with cost determined generally using the average cost method.

Inventory write-downs for unprocessed and certain processed donor tissue are recorded based on the estimated amount of inventory that will not pass the quality control process based on historical data.

At each balance sheet date, the Company also evaluates inventories for excess quantities, obsolescence or shelf life expiration.

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

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

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

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

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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.

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.

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There were no impairment losses for the years ended December 31, 2023 and 2022.

Warrant Liability

The Company accounts for its warrants in accordance with ASC 815, Derivatives and Hedging – Contracts in Entity's Own Equity , as either liabilities or as equity instruments depending on the specific terms of the warrant agreement.

The Prefunded and Common Warrants issued in connection with the September 2023 private placement (see Note 14) are

classified as liabilities and are recorded at fair value.

The warrants are subject to re-measurement at each settlement date and at each balance sheet date and any change in fair value is recognized in other expense (income), net in the consolidated statements of operations.

The Company estimates the fair value of the warrant liability using a Black-Scholes pricing model.

We are required to make assumptions and estimates in determining an appropriate term, risk-free interest rate, volatility factor, dividend yield, and the fair value of common stock.

Any significant adjustments to the unobservable inputs would have a direct impact on the fair value of the warrant liability.

Revenue Recognition

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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 primarily sell and distribute products to healthcare providers or commercial partners, or are produced and sold under contract manufacturing arrangements with corporate customers which are billed under ship and bill contract terms.

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

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 products 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 shipped, 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.

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The related shipping and freight charges incurred by the Company are included in sales and marketing costs.

Shipping and handling costs were approximately $ 0.3 million for both the years ended December 31, 2022 and 2021.

Shipping and handling costs were not material in both the years ended December 31, 2023 and 2022, respectively.

Contracts with customers state the final terms of the sale, including the description, quantity, and price of each implant distributed.

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

Deferred Rent

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

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

Stock-Based Compensation Plans

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

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

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 units.

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

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

At December 31, 2022 and 2021, the Company maintained $ 17.8 million and $ 30.9 million, respectively, in bank deposit accounts that are in excess of the $0.25 million insurance provided by the Federal Deposit Insurance Corporation in one federally insured financial institution.

The Company has not experienced any losses in such accounts.

The Company’s cash balances with the individual institutions may at times exceed the federally insured limits.

As of December 31, 2023, there was one customer that represented 10 % of the Company’s net sales for the year ended 2023 and another customer that represented 31 % of the Company’s accounts receivable as of December 31, 2023.

Comprehensive Income (Loss)

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

Segment Reporting

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

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

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

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

See Note 19 for further discussion .

Recently Issued Accounting Standards

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

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

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

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

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

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

This update improves reportable segment disclosure requirements, primarily through enhanced disclosures of significant segment expenses.

The amendments in this update should be applied retrospectively to all prior periods presented in the consolidated financial statements and are effective for fiscal years beginning after December 31, 2023 and interim periods within fiscal years beginning after December 31, 2024.

Early adoption is permitted.

The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvement to Income Tax Disclosures.

This update improves income tax disclosure requirements, primarily through enhanced transparency and decision usefulness of disclosures.

The amendments in this update should be applied prospectively with the option to apply retrospectively and are effective for fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Company is currently evaluating the potential impact of this guidance on its consolidated financial statements.

Sale of Orthobiologics Business

As described in Note 2, on November 8, 2023, the Company completed the sale of its Orthobiologics Business.

The sale of the Orthobiologics Business represents a strategic shift that has a major effect on the Company’s operations and financial results.

Accordingly, the Orthobiologics Business is reported as discontinued operations in accordance with

ASC 205-20 - Discontinued Operations .

The related assets and liabilities of the Orthobiologics Business are classified as assets and liabilities of discontinued operations as of December 31, 2022 in the consolidated balance sheets and the results of operations from the Orthobiologics Business are reported as discontinued operations in the consolidated statements of operations for the years ended December 31, 2023 and 2022, with the year ended December 31, 2023 including the financial results from January 1, 2023 through the transaction closing date of November 8, 2023.

Applicable amounts in the prior year have been recast to conform to this discontinued operations presentation.

The following tables show the assets and liabilities of the discontinued operations:

Year Ended December 31, 2022

Carrying amounts of the major classes of assets included in discontinued operations:

Accounts receivable, net

Prepaid expenses and other current assets

Total current assets

Property and equipment, net

Operating lease right-of-use assets and other

Total non-current assets

Total assets of discontinued operations

Carrying amounts of the major classes of liabilities included in discontinued operations:

Accounts payable

Accrued expenses and other current liabilities

Payables to tissue suppliers

Current operating lease liabilities

Total current liabilities

Long-term operating lease liabilities

Total liabilities of discontinued operations

In accordance with ASC 205-20, only expenses specifically identifiable and related to a business to be disposed may be presented in discontinued operations.

The following table shows the financial results of the discontinued operations for the years ended December 31, 2023 and 2022, with the year ended December 31, 2023 including the financial results from January 1, 2023 through the transaction closing date of November 8, 2023:

Cost of goods sold

Sales and marketing

General and administrative

Research and development

Total operating expenses

Interest Expense

Net income (loss)

Total operating and investing cash flows of discontinued operations for the years ended December 31, 2023 and 2022 are comprised of the following:

Significant operating non-cash reconciliation items:

Stock-based compensation

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

Changes in operating assets and liabilities:

Accounts receivable

Prepaid expenses and other

Accounts payable and accrued expenses and other current liabilities

Obligations to tissue suppliers

Significant investing items:

Expenditures for property, plant and equipment

The Company’s Women’s Health product, SimpliDerm, has historically been processed by Elutia at the Company’s Richmond, California facility;

however, with the divestiture of the Orthobiologics Business, which includes such facility, SimpliDerm will be provided to the Company on a go forward basis through a long-term supply agreement with the purchaser, Berkeley.

Stock-Based Compensation

In 2015, the Company established the Elutia Inc.

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

On October 7, 2020, in connection with the Company’s IPO, the Company adopted the Aziyo Biologics, Inc.

2020 Incentive Award Plan (the “2020 Plan”), which authorizes the grant of incentive and non-qualified stock options, restricted stock, restricted stock units and stock appreciation rights to employees, directors and consultants.

Shares of Class A common stock totaling 1,636,000 were initially reserved for issuance pursuant to the 2020 Plan.

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

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

On June 21, 2022, C.

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

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

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

On August 9, 2022, Dr.

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

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

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

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

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

One -third of the Time-Based Options vested on August 9, 2022 (end of the Interim Period), and two -thirds of the Time-Based Options vest over a four-year vesting schedule with 25 % vesting on the first anniversary of June 21, 2022 and the remaining portion vesting in twelve equal quarterly installments.

One -third of the Time-Based RSUs vest on the grant date, and two -thirds of the Time-Based RSUs vest over a four-year vesting schedule in equal annual installments.

The Performance-Based Options and Performance-Based RSUs each vest in equal installments upon the achievement of certain share price thresholds for twenty consecutive days of trading at each respective threshold.

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

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

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

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

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

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

On September 30, 2022, Mr.

Lloyd received:

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

The Company recognized

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

On October 7, 2020, in connection with the Company’s IPO, the Company adopted the Elutia Inc.

2020 Incentive Award Plan, and on June 8, 2023, the Company’s stockholders approved the amendment and restatement of that plan (as amended and restated, 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, and in June 2023, the number of shares of Class A common stock reserved for issuance under the 2020 Plan was increased by 2,000,000 shares.

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

As of December 31, 2023, the Company had 3,401,678 shares of Class A common stock available for issuance under the 2020 Plan, and on January 1, 2024, the shares available for issuance were increased by 927,904 pursuant to the automatic increase provisions of the plan.

On January 31, 2024, we granted stock options covering 1,615,561 shares of Class A common stock and restricted stock units covering 2,267,500 shares of Class A common stock to employees and consultants under the 2020 Plan.

Stock Options

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

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

A summary of stock option activity under the Company’s 2015 Plan and 2020 Plan for the years ended December 31, 2022 and 2021 is as follows:

The Company’s stock options have contractual terms of 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 years ended December 31, 2023 is as follows:

Number of Shares

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The total intrinsic value of options exercised was not material for both the years ended December 31, 2023 and 2022.

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

The Company uses the Black-Scholes model to value its stock option grants that vest based on the passage of time or the achievement of certain performance criteria 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.

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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 expected volatility of the Class A common stock is partially 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.

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Dividend yield

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

The Company has also granted to President and Chief Executive Officer stock options that vest in equal installments upon the achievement of certain share price thresholds for twenty consecutive days of trading at each respective threshold.

For these stock options, 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 .

As of December 31, 2023, there are 182,511 stock options outstanding that are market condition stock option awards.

Restricted Stock Units

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The fair value at the time of the grant is amortized to expense on a straight-line basis over the vesting period of three to four years .

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

All such RSUs, including those granted to Dr.

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

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

Given the nature of these market condition arrangements, an option pricing model, the Monte Carlo model, was used to determine the fair value of these RSUs as well as the expense recognition term of two to three years using the graded vesting method.

As of December 31, 2022, $ 1.5 million of unrecognized compensation costs related to RSUs is expected to be recognized over a weighted average period of two years .

The Company has also granted to President and Chief Executive Officer RSUs that vest in equal installments upon the achievement of certain share price thresholds for twenty consecutive days of trading at each respective threshold.

For these RSUs, the Company accounted for the awards as market condition awards and used a Monte Carlo model to determine the fair value of these RSUs as well as the expense recognition term of two to three years using the graded vesting method.

As of December 31, 2023, there were 89,894 RSUs outstanding that were market condition RSU awards.

As of December 31, 2023, $ 0.8 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.

The Company makes shares of its Class A common stock available for purchase under the Elutia 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.

Under the ESPP, employees may purchase a limited number of shares of Elutia 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.

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Property and equipment, net

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

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

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

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

Depreciation and amortization expense on property and equipment totaled approximately $ 0.1 million in both the years ended December 31, 2023 and 2022.

Amounts included within cost of goods sold are not material.

The Company leases one production facility, one administrative and research facility and one administrative facility under non-cancelable operating lease arrangements that expire through July 2024.

Our administrative and research facility contains renewal options and escalation clauses based upon increases in the lessors’ operating expenses and other charges.

The following is a summary of the Company’s ROU assets and operating lease liabilities as of December 31, 2023 and 2022 (in thousands):

Classification on the Balance Sheet

December 31, 2022

Operating leases assets

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Weighted average discount rate

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

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

For the year ended December 31, 2021, the Company recorded rent expense on a straight-line basis over the life of the lease and the difference between the average rent expense and cash payments for rent was recorded as deferred rent and included in accrued liabilities on the balance sheet as of December 31, 2021.

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

For the years ended December 31, 2023 and 2022, the Company recognized operating lease cost of approximately $ 0.5 million and $ 0.4 million, respectively.

Cash paid for amounts included in the measurement of operating lease liabilities are included in operating cash flows and were approximately $ 0.6 million and $ 0.4 million for the years ended December 31, 2023 and 2022, respectively.

The table below reconciles the Company’s future cash obligations to the operating lease liabilities recorded on the balance sheet as of December 31, 2023 (in thousands):

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Acquired products and customer relationships are both amortized over a ten-year period.

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

Amortization expense totaled approximately $ 3.4 million for each of the years ended December 31, 2023 and 2022, which is included in cost of

goods sold in the accompanying consolidated statements of operations.

Annual amortization expense is expected to be approximately $ 3.4 million during the years ended December 31, 2024 through 2026 and approximately $ 1.5 million during the year ended December 31, 2027.

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”).

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

The MidCap Loan Facility was amended in December 2017, February 2018 and July 2019 (all amendments being considered modifications) such that an additional $ 1.5 million, $ 3.0 million, and $ 3.5 million, respectively were received by the Company bringing the total aggregate principal amount outstanding under the MidCap Loan Facility to $ 20 million.

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

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

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

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

The 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 more fully described below.

O n August 10, 2022, the Company entered into a senior secured term loan facility with SWK Funding LLC, as agent, and other lenders party thereto for an aggregate principal amount of $ 25 million, and the Company amended the facility on May 12, 2023 (as amended, the “SWK Loan Facility”).

An initial draw of $ 21 million was made in August 2022, 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 has not been entered into to date.

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

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

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

As of December 31, 2023, quarterly principal payments are scheduled to begin on November 15, 2024, in an amount equal to 5 % of the aggregate principal amount funded with the balance paid at maturity.

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

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

As of December 31, 2023, Elutia was in compliance with its financial covenants under the agreement governing the SWK Loan Facility (“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.

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:

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 plus $ 62,500 and prepayment penalties equal to:

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

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

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

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

The exercise price and number of shares of Class A common stock issuable upon exercise of the Warrant are subject to adjustment in the event of stock dividends, stock splits and certain other events affecting the Class A common stock.

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

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

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

The weighted average interest rate on the SWK Loan Facility was 13.2 % for the year ended December 31, 2023 and 12.6 % for the period from August 10, 2022 through December 31, 2022.

On August 10, 2022, the Company issued to SWK Funding LLC a warrant (“Class A 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 Class A 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 Class A 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 Class A Warrant will expire on the seventh anniversary of the Closing Date.

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

The recognition of the Class A 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.

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

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

The 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 (income), net in the accompanying consolidated statements of operations for the year ended December 31, 2022.

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

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

however, the closing of the divestiture of the Orthobiologics Business on November 8, 2023 triggered the mandatory prepayment of $ 4.0 million.

Of such amount, $ 2.0 million wa s paid shortly after closing of the divestiture of the Orthobiologics Business and the remainder was paid on February 15, 2024 based on mutual agreement between the parties.

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

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

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

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

Borrowings under the MidCap Credit Facility bore interest at a rate per annum equal to the sum of (x) the greater of (i) 2.25 % and (ii) LIBOR plus (y) 4.95 %.

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

The weighted average interest rate on MidCap Credit Facility was 7.2 % from January 1, 2022 through the Repayment Date.

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

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

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

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

In September 2021, Aziyo was notified by the U.S.

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

Such forgiveness resulted in a gain to the Company of approximately $ 3.0 million which

has been recorded as other income, net in the accompanying consolidated statements of operations for the year ended December 31, 2021.

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

As of December 31, 2023, the contractual maturities of the long-term debt are as follows (in thousands):

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Long-term Debt

In addition to the above, the Company finances the annual premiums of certain insurance policies through short-term financing arrangements and includes the liabilities associated with such arrangements within accrued liabilities in accompanying consolidated balance sheets.

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

Revenue Interest Obligation

As part of the CorMatrix asset acquisition described in Note 8, the Company assumed a restructured, long-term obligation (the “Revenue Interest Obligation”) to Ligand Pharmaceuticals (“Ligand”) with an estimated present value on the acquisition date of $ 27.7 million.

Subject to annual minimum payments of $ 2.75 million per year, the terms of the Revenue Interest Obligation require Aziyo to pay Ligand, 5 % of future sales of the products Aziyo acquired from CorMatrix, including CanGaroo, ProxiCor, Tyke and VasCure, as well as products substantially similar to those products, such as the version of CanGaroo that Aziyo is currently developing that is designed to include antibiotics.

As part of the CorMatrix asset acquisition described in Note 9, the Company assumed a restructured, long-term obligation (the “Initial 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 Initial Revenue Interest Obligation require Elutia to pay Ligand, 5 % of future sales of the products Elutia acquired from CorMatrix, including CanGaroo, ProxiCor, Tyke and VasCure, as well as products substantially similar to those products, such as the version of CanGaroo that Elutia is currently developing that is designed to include antibiotics.

Furthermore, a $ 5.0 million payment will be due to Ligand if cumulative sales of these products exceed $ 100 million and a second $ 5.0 million will be due if cumulative sales exceed $ 300 million during the ten-year term of the agreement which expires on May 31, 2027.

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

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

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

See Note 11 for discussion of the value of this obligation.

On January 10, 2024, the Company entered into an amendment to the Revenue Interest Obligation (“Amended Revenue Interest Obligation”).

Pursuant to the Amended Revenue Interest Obligation, the parties modified and restructured the Revenue Interest Obligation by (i) revising the annual minimum payments for 2024 and each subsequent fiscal year during the term of the agreement from $ 2.75 million to $ 4.4 million;

(ii) agreeing to a payment by the Company of $ 3.0 million in satisfaction of all royalty obligations for the first three fiscal quarters of 2023, with half of such amount to be paid not later than January 20, 2024, and the remainder to be paid not later than April 10, 2024;

(iii) agreeing to a payment by the Company of $ 1.1 million in satisfaction of the royalty obligations for the fourth quarter of 2023;

and (iii) waiving the obligation of Elutia to make the $ 5.0 million milestone payment that became due to Ligand in the second quarter of 2023.

As of December 31, 2023, the Company recorded the present value of the estimated total future payments under the Initial Revenue Interest Obligation as a long-term obligation and the short-term portion is comprised of (i) the 2023 and 2024 minimum payments, (ii) the first $ 5.0 million sales milestone payment noted above and (iii) the unpaid portion of the 2022 minimum payments.

The short-term portion as of December 31, 2022 is comprised of (i) the 2023 minimum payments, (ii) the first $ 5.0 million sales milestone payment noted above and (iii) the unpaid portion of the 2022 minimum payments.

Fair Value Measurements

The following table sets forth by level, within the fair value hierarchy, the liabilities that are measured at fair value on a recurring basis (in thousands):

The following tables set forth by level, within the fair value hierarchy, the liabilities that are measured at fair value on a recurring basis (in thousands):

Fair Value Measurements at December 31, 2022 Using:

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Fair Value Measurements at December 31, 2023 Using:

Money market fund

Revenue Interest Obligation*

Warrant liability

*Net Present Value;

see discussion of value below

The Company has estimated the value of the Revenue Interest Obligation, including contingent milestone payments and estimated sales-based payments, based on assumptions related to future sales of the acquired products.

The warrant liability in the table above consisted of the fair value of Offering Warrants (as defined in Note 14 below) to purchase the Company’s Class A Common Stock and was based on significant inputs not observable on the market, which represents a Level 3 measurement within the fair value hierarchy.

See Note 14 for discussion of the Company’s valuation methods and related impacts on the consolidated statement of operations with respect to the warrant liability.

The Company has estimated the value of the Initial Revenue Interest Obligation as of December 31, 2023 and 2022, including contingent milestone payments and estimated sales-based payments, based on assumptions related to future sales of the acquired products.

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

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

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

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

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

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

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

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

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

The following table provides a rollforward of the aggregate fair value of the Revenue Interest Obligation and warranty liability categorized with Level 3 inputs for the years ended December 31, 2023 and 2022 (in thousands):

Revenue Interest Obligation

Warranty Liability

Balance as of January 1, 2022

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Interest accrued to Revenue Interest Obligation

Gain on revaluation of revenue interest obligation

Balance as of December 31, 2022

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Gain on revaluation of revenue interest obligation

Fair value adjustment to warrant liability

Balance as of December 31, 2023

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Income taxes are accounted for under the asset and liability method.

Deferred income tax assets and liabilities are calculated based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using the enacted income tax rates expected to be in effect during the years in which the temporary differences are expected to reverse.

Deferred income tax assets and liabilities are calculated based on the difference between the financial

statement carrying amounts of existing assets and liabilities and their respective tax bases using the enacted income tax rates expected to be in effect during the years in which the temporary differences are expected to reverse.

The reconciliation of the U.S.

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Income tax expense

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

carryforwards.

As of December 31, 2023 and 2022, significant components of the Company’s net deferred income taxes are as follows (in thousands):

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

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

complexity and cost associated with such a study.

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

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

Any limitation may result in expiration of a portion of the net operating loss carryforwards before utilization.

As of December 31, 2022, the Company had no unrecognized tax benefits.

Stockholders’ Equity

As of December 31, 2023 and 2022, the Company had no unrecognized tax benefits.

Common Stock and Warrants

Private Placement of Common Stock and Warrants

On September 21, 2023, the Company sold, in a private offering an aggregate of (i) 6,852,811 units (“Common Units”) each comprised of (a) one share of the Company’s Class A common stock and (b) a warrant (“Common Warrant”) to purchase one and one half shares of Class A Common Stock, and (ii) 503,058 units (the “Prefunded Units”), each comprised of (a) a prefunded warrant (“Prefunded Warrant”) to purchase one share of Class A Common Stock, and (b) a Common Warrant.

The Common Units were sold at a purchase price of $ 1.4275 per unit, and the Prefunded Units were sold at a purchase price of $ 1.4265 per unit, for aggregate gross proceeds of approximately $ 10.5 million, before deducting offering expenses.

Each Common Warrant is exercisable at any time until the earlier of (a) 30 trading days after the clearance by the FDA of the Company’s CanGarooRM antibiotic-eluting biologic envelope or (b) five years from the date of the offering, at an exercise price per share of $ 1.4275 .

Each Prefunded Warrant is exercisable at any time at a nominal exercise price per share of $ 0.001 (with the remainder of the exercise price per share of Class A Common Stock having been prefunded to the Company).

The Company incurred transaction fees, including commissions and legal fees, of approximately $ 1.1 million in connection with the private placement, of which $ 0.4 million were allocated to the issuance of the common stock.

See below for discussion of the accounting for warrants and the allocation of the remainder of the transaction fees.

Warrant Liabilities

The Company has concluded that the Common Warrants and the Prefunded Warrants (collectively, the “Offering Warrants”) do not meet the equity contract scope exception under ASC 815-40 as in the event of a (i) fundamental transaction such as a merger and (ii) failure to timely delivery warrant shares upon exercise, certain provisions may require the Company to adjust the settlement value that is not consistent with a fixed-for-fixed option pricing model.

As a result, as of the September 21, 2023 issuance date, the Company allocated $ 8.6 million of the gross proceeds from the offering to the Offering Warrants based on their fair value, and the remaining $ 1.9 million was allocated to the common shares and recorded as permanent equity.

The liability associated with the Offering Warrants is recorded as warrant liability in the accompanying consolidated balance sheet as of December 31, 2023.

The valuation of the Offering Warrants is adjusted to fair value (Level 3) at each subsequent balance sheet date until the warrants are settled.

To this end, due primarily to fluctuations in the Company’s underlying common stock price between the issuance date of the Offering Warrants and December 31, 2023, the warrant liability was revalued to $ 12.8 million as of December 31, 2023.

The change in fair value of $ 4.2 million has been recorded as other expense (income), net in the accompanying consolidated statements of operations for the year ended December 31, 2023.

The Company also allocated a portion of the transaction fees noted above to the Offering Warrants and expensed within other expense (income), net, approximately $ 0.7 million of these fees.

The Company calculated the fair value of the Offering Warrants using the Black-Scholes option pricing model with the following inputs:

September 21, 2023

December 31, 2023

Common stock price

Expected term (years)

Risk-free interest rate

Volatility factor

Dividend yield

The expected term of the Offering Warrants is based on a significant unobservable input, the Company’s probability-weighted expectations relative to the timing of the clearance by the U.S.

Food & Drug Administration of the Company’s CanGarooRM antibiotic-eluting biologic envelope.

Public Offering of Common Stock

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

Private Placement of Common Stock

On December 8, 2021, the Company closed on a private investment in public equity (PIPE) financing, thereby receiving net proceeds of approximately $ 13.8 million, after deducting offering costs.

The PIPE investors purchased an aggregate of 2,122,637 shares of the Company’s Class A common stock and an aggregate of 1,179,244 shares of the Company’s Class B common stock (which are convertible on a one -for-one basis into shares of Class A common stock), in each case, at a price of $ 4.24 per share.

Retirement Plan

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The Company matches employee contributions made to the plan according to a specified formula.

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

The Company’s matching contributions totaled approximately $ 0.3 million for both the years ended December 31, 2023 and 2022.

In June 2022, our former President and Chief Executive Officer, in connection with his resignation from the Company, entered into a separation agreement pursuant to which he 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, our former President and Chief Executive Officer received:

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

Net Loss Per Share

(in thousands, except share and per share data)

Net loss from continuing operations

Net income from discontinued operations

Weighted average number of common shares - basic and diluted

Net loss per share from continuing operations attributable to common stockholders - basic and diluted

Net income per share from discontinued operations attributable to common stockholders - basic and diluted

Net loss per share - basic and diluted

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Class A common stock warrants

Distribution Agreements

ViBone Exclusivity Agreement

In August 2018, the Company entered into an agreement with Surgalign Holdings, Inc.

(formerly RTI Surgical, Inc.) (“Surgalign Holdings”) for the exclusive distribution in the United States of the Company’s ViBone® cellular bone product.

Such agreement includes requirements that Surgalign Holdings purchase certain annual minimum quantities for years 2019 through 2021 and also included an upfront payment of $ 2.0 million for the exclusivity.

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

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

Significant Customers

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

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

Percent of revenues derived from:

Percent of accounts receivable derived from:

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

Common Warrants

Prefunded Warrants

Commitment and Contingencies

Cook Biotech License and Supply Agreements

Aziyo has entered into a license agreement with Cook Biotech (“Cook”) for an exclusive, worldwide license to the porcine tissue for use in the Company’s Cardiac Patch and CanGaroo products, subject to certain co-exclusive rights retained by Cook.

The term of such license is through the date of the last to expire of the licensed Cook patents, which is anticipated to be July 2031.

Along with this license agreement, Aziyo entered into a supply agreement whereby Cook would be the exclusive supplier to Aziyo of the licensed porcine tissue.

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

Elutia has entered into a license agreement with Cook Biotech Incorporated (“Cook Biotech”) for an exclusive, worldwide license to the porcine tissue for use in the Company’s Cardiovascular and CanGaroo products, subject to certain co-exclusive rights retained by Cook Biotech.

The term of such license is through the date of the last to expire of the licensed Cook Biotech patents, which is anticipated to be July 2031.

Along with this license agreement, Elutia entered into a supply agreement whereby Cook Biotech would be the exclusive supplier to Elutia of the licensed porcine tissue.

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

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

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

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

Specifically, the Cook Amendment provides for a worldwide exclusive license to the porcine tissue for use with neuromodulation devices in addition to cardiovascular devices.

No royalties were paid to Cook Biotech during the years ended December 31, 2023 and 2022.

Elutia has also entered into an amendment to the Cook Biotech license agreement (the “Cook Biotech Amendment”) in order to add fields of exclusive use.

Specifically, the Cook Biotech Amendment provides for a worldwide exclusive license to the porcine tissue for use with neuromodulation devices in addition to cardiovascular devices.

The Cook Amendment includes license fee payments of $ 0.1 million per year in each of the years 2021 through 2026.

Such license payments would accelerate if a change in control, as defined, occurs within Aziyo.

Such license payments would accelerate if a change in control, as defined, occurs within Elutia.

The Company, in its sole discretion, can terminate the license agreement at any time.

In February 2024, it was announced that Cook Biotech was acquired by RTI Surgical, Inc.

The Company does not expect the acquisition to affect its supply agreement with Cook Biotech, which the Company understands will continue as a subsidiary of RTI Surgical.

Legal Proceedings

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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.

Where the available information is only sufficient to establish a range of probable liability, and no point within the range is more likely than any other, the lower end of the range has been used.

When a material loss contingency is reasonably possible, but not probable, the Company does not record a liability, but instead discloses the nature of the matter and an estimate of the loss or range of loss, to the extent such estimate can be made.

Accruals recorded are adjusted periodically as assessments change or additional information becomes available, and management's judgments may be materially different than the actual outcomes.

FiberCel Litigation

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

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

Since September 2021, 109 lawsuits or claims have been filed or asserted against the Company.

The lawsuits, which have been filed against Elutia, certain Medtronic entities, and others, allege that the plaintiffs were exposed to and/or contracted tuberculosis and/or suffered substantial symptoms and complications following the implantation of FiberCel during orthopedic fusion operations.

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

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

District Court of the Southern District of Ohio (the “Ohio Federal Complaint”);

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

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

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

the Circuit Court of Florida, and the U.S.

District Court for the Northern District and the Southern District of Florida (collectively, the “Florida Complaints”);

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

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

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

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

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

District Court for the Northern District of Illinois (collectively, the “Illinois Complaints”);

District Court for the Eastern District of Pennsylvania (“Pennsylvania Federal Complaint);

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

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

District Court 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 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.

The Florida Complaints contain three strict liability claims for defective design, defective manufacture, and failure to warn.

A claim for punitive damages is also pled.

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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 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.

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

In addition to the above, there are 47 claims related to the FiberCel recall that have not yet resulted in a lawsuit.

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

Plaintiff in the Pennsylvania Federal Complaint asserts claims for strict liability, negligence, breach of implied warranty, and breach of express warranty, as well as claims under the Wrongful Death Act and the Survival Act and seeks compensatory and punitive damages.

The Virginia Federal 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.

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

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

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

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

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

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

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

In total, Elutia’s liability in 29 of the cases was settled for a total cash outlay of approximately $ 9.1 million.

For the remaining 80 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 $ 15.0 million at December 31, 2023, which is recorded as Contingent liability for FiberCel litigation in the accompanying consolidated balance sheets.

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 are dependent upon the relevant facts and case by case resolutions.

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.

Management believes that it is reasonably possible that the Company could incur liabilities in excess of amounts accrued and the ultimate liability could be material to the results of operations and the cash flows in the period recognized.

The Company, however, is unable to estimate the possible loss or range of loss in excess of the amount recognized at this time.

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

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

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

Related Party Transactions

As part of the contribution of assets transacted from Tissue Banks International, now KeraLink International (“KeraLink”), to Aziyo upon formation of the Company, a provision existed which guaranteed a certain level of working capital, as defined, on the opening balance sheet of Aziyo.

Such guarantee was largely finalized in 2016;

however, an additional $ 0.4 million was received by the Company in connection with a settlement reached in 2018.

Furthermore, as part of the 2018 settlement, it was agreed that when KeraLink sells its Aziyo common shares for net proceeds greater than $ 550,000 , KeraLink is obligated to pay Aziyo $ 550,000 within three days of such cash being received.

In May 2021, KeraLink sold Aziyo common shares for proceeds in excess of $ 550,000 , and as such, remitted $ 550,000 to Aziyo in full satisfaction of the 2018 settlement.

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

Viable Bone Matrix Recall

In July 2023, the Company announced a voluntary recall of a single lot of a certain viable bone matrix (“VBM”) product and the market withdrawal of all of its VBM products produced after a specified date (the “VBM Recall”).

Notice of the voluntary recall was issued to centers after the Company learned of post-surgical Mycobacterium tuberculosis (“MTB”) infections in two patients treated with a VBM product from a single donor lot.

Prior to release, samples from this specific lot had tested negative for MTB by an independent laboratory using a nucleic acid test that is designed to specifically detect the MTB organism.

At present, two lawsuits have been filed, and 15 claims have been asserted as a result of the VBM Recall.

Management has determined that there is a reasonably possible likelihood of material claims due to the VBM Recall, but does not believe that an estimate of the loss or range of loss can be made.

This is mainly due to the early stages of the lawsuits and claims and the lack of receipt by the Company of the medical records needed to assess any possible loss.

Consequently, management has determined that no probable liability for such possible claims would be recognized for the VBM Recall as of December 31, 2023.

While unknown at this time, possible losses in connection with the VBM Recall could have a material effect on the Company’s financial position and results of operations.

Consistent with the FiberCel Litigation above, the Company has purchased insurance coverage that, subject to common contract exclusions, provide coverage for the possible claims associated with the VBM Recall as well as legal defense costs.

As of December 31, 2023, the Company has recorded a legal fee liability and related insurance receivable totaling $ 0.1 million for legal services rendered in defending Elutia in the VBM Recall.

As of both December 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 and the VBM Recall.

Segment Information

The Company operates in four segments.

With the divestiture of the Orthobiologics Business, the Company now operates in three 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.

This financial information does not include the assets by segment.

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

For the years ended December 31, 2023 and 2022, the Company’s net sales disaggregated by segment were as follows (in thousands):

Year Ended December 31,

Device protection

Women's health

Orthobiologics

Cardiovascular

Total Net Sales

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

The net sales above include the revenues derived from one customer which represents 10 % of total net sales.

Such customer is included within the Cardiovascular segment.

For the years ended December 31, 2023 and 2022, the Company’s gross profit disaggregated by segment was as follows (in thousands):

Gross profit:

1 unchanged sentence

Women's health

Orthobiologics

Cardiovascular

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

Gross profit, excluding intangible asset amortization

Intangible asset amortization expense

Sales and marketing

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Research and development

FiberCel litigation costs

FiberCel litigation costs, net

Loss from operations

Interest expense

Other income, net

Other expense (income), net

Loss before provision for income taxes

1 unchanged sentence

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-K

Item 9A. Controls and Procedures