UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 20222023
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to______________
Commission file number: 001-36046
Axogen, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Minnesota
(State or other jurisdiction of
incorporation or organization)

13631 Progress Blvd., Suite 400 Alachua, FL
(Address of principal executive offices)
41-1301878
(I.R.S. Employer
Identification No.)

32615
(Zip Code)

386-462-6800
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valueAXGNThe Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 
As of August 1, 2022,2023, the registrant had 42,283,71542,983,584 shares of common stock outstanding.



Table of Contents
Condensed Consolidated Balance SheetSheets as of June 30, 20222023 and December 31, 20212022 (Unaudited)

1



Forward-Looking Statements

From time to time, in reports filed with the U.S. Securities and Exchange Commission (the “SEC”) (including this Quarterly Report on Form 10-Q), in press releases, and in other communications to shareholders or the investment community, Axogen, Inc. (including Axogen, Inc.’s wholly owned subsidiaries, Axogen Corporation, Axogen Processing Corporation and Axogen Europe GmbH, the “Company,” “Axogen,” “we,” “our,” or “us”) may provide forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, concerning possible or anticipated future results of operations or business developments. These statements are based on management's current expectations or predictions of future conditions, events, or results based on various assumptions and management's estimates of trends and economic factors in the markets in which the Company is active, as well as its business plans. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,” “continue,” “may,” “should,” “will,” “goals,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Actual results or event could differ materially from those described in any
The forward-looking statements as a result of various factors, including, without limitation, , the impact of the 2019 novel coronavirus and any and all variants thereof on our business, includingin this Form 10-Q include, but are not limited to global supply chain issues; hospital staffing challenges and its impact on our business; statementsthe following:
Statements regarding our growth,intentions to return Avive to the market;
Our expectation that our financial guidancerequest to the Food and performance; product development; product potential;Drug Administration ("FDA") for a rolling biologics license application ("BLA") submission for Avance Nerve Graft will occur early in the first quarter of 2024.
Our expectation that the initial BLA submission for Avance Nerve Graft, if approved by the FDA, will begin , in the first quarter of 2024 with completion of the full submission by the second quarter of 2024;
Our expectation that the BLA will be approved in the first half of 2025, subject to the rolling submission process being approved by the FDA;
Our expectation that validation of and beginning tissue processing at the Axogen Processing Center renovation timing("APC Facility") will occur in the third quarter of 2023;
Our expectation that we will incur between $2,000,000 to $3,000,000 in additional costs during the remainder of 2023 for the APC Facility;
Our belief that our existing cash and expense;cash equivalents and investments, as well as cash provided by sales growth; product adoption; market awareness of our products; anticipated capital requirements, includingproducts will allow us to fund our operations through at least the potentialnext 12 months;
Our belief that any losses resulting from any claims, lawsuits, and proceedings are adequately covered by insurance or indemnified and are not expected to result in a material adverse effect on the Company’s financial condition, results of future financings; data validation; expected clinical study enrollment, timingoperation, or cash flow:
Our estimates concerning the mix of scheduled procedures and outcomes; our visibility at and sponsorship of conferencesemergent trauma procedures and our educational events; regulatory processbelief that the growth in scheduled procedures will continue to outpace emergent trauma procedure growth and approvals;continue to become a larger mix of our revenue over time; and other factors, including legislative, regulatory, political, geopolitical and economic developments, including record inflation and global business disruption caused by Russia’s invasion of Ukraine and related sanctions, not within our control.
Our expectation that we will fully launch the Axoguard HA+ Nerve Protector™ later this month.
The forward-looking statements are and will be subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in such forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q should be evaluated together with the many risks and uncertainties that affect the Company’s business and its market, particularly those discussed in the risk factors and cautionary statements set forth in the Company’s filings with the SEC, including as described in “Risk Factors” included in Item 1A and "Risk Factor Summary" included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.2022. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those projected. The forward-looking statements are representative only as of the date they are made and, except as required by applicable law, the Company assumes no responsibility to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise.


2


PART 1 — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
Axogen, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(In Thousands, Except Sharethousands, except share and Per Share Amounts)per share amounts)
June 30,
2022
December 31,
2021
June 30,
2023
December 31,
2022
AssetsAssetsAssets
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$11,822 $32,756 Cash and cash equivalents$23,219 $15,284 
Restricted cashRestricted cash6,251 6,251 Restricted cash6,252 6,251 
InvestmentsInvestments46,210 51,330 Investments11,312 33,505 
Accounts receivable, net of allowance for doubtful accounts of $595 and $276, respectively20,370 18,158 
Accounts receivable, net of allowance for doubtful accounts of $595 and $650, respectivelyAccounts receivable, net of allowance for doubtful accounts of $595 and $650, respectively21,573 22,186 
InventoryInventory19,222 16,693 Inventory21,237 18,905 
Prepaid expenses and otherPrepaid expenses and other2,900 1,861 Prepaid expenses and other2,583 1,944 
Total current assetsTotal current assets106,775 127,049 Total current assets86,176 98,075 
Property and equipment, netProperty and equipment, net70,988 62,923 Property and equipment, net87,459 79,294 
Operating lease right-of-use assetsOperating lease right-of-use assets14,975 15,193 Operating lease right-of-use assets13,958 14,369 
Intangible assets, netIntangible assets, net3,346 2,859 Intangible assets, net4,048 3,649 
Total assetsTotal assets$196,084 $208,024 Total assets$191,641 $195,387 
Liabilities and shareholders’ equityLiabilities and shareholders’ equityLiabilities and shareholders’ equity
Current liabilities:Current liabilities:Current liabilities:
Accounts payable and accrued expensesAccounts payable and accrued expenses$21,838 $22,459 Accounts payable and accrued expenses$22,893 $22,443 
Current maturities of long-term lease obligationsCurrent maturities of long-term lease obligations1,762 1,834 Current maturities of long-term lease obligations1,040 1,310 
Total current liabilitiesTotal current liabilities23,600 24,293 Total current liabilities23,933 23,753 
Long-term debt, net of debt discount and financing feesLong-term debt, net of debt discount and financing fees45,263 44,821 Long-term debt, net of debt discount and financing fees46,154 45,712 
Long-term lease obligationsLong-term lease obligations20,655 20,798 Long-term lease obligations20,131 20,405 
Debt derivative liabilitiesDebt derivative liabilities4,876 5,562 Debt derivative liabilities4,271 4,518 
Total liabilitiesTotal liabilities94,394 95,474 Total liabilities94,489 94,388 
Commitments and contingencies - see Note 12Commitments and contingencies - see Note 1200Commitments and contingencies - see Note 12
Shareholders’ equity:Shareholders’ equity:Shareholders’ equity:
Common stock, $0.01 par value per share; 100,000,000 shares authorized; 42,134,504 and 41,736,950 shares issued and outstanding420 417 
Common stock, 0.01 par value per share; 100,000,000 shares authorized; 42,979,541 and 42,445,517 shares issued and outstandingCommon stock, 0.01 par value per share; 100,000,000 shares authorized; 42,979,541 and 42,445,517 shares issued and outstanding430 424 
Additional paid-in capitalAdditional paid-in capital351,117 342,765 Additional paid-in capital370,036 360,155 
Accumulated deficitAccumulated deficit(249,847)(230,632)Accumulated deficit(273,314)(259,580)
Total shareholders’ equityTotal shareholders’ equity101,690 112,550 Total shareholders’ equity97,152 100,999 
Total liabilities and shareholders’ equityTotal liabilities and shareholders’ equity$196,084 $208,024 Total liabilities and shareholders’ equity$191,641 $195,387 
See notes to condensed consolidated financial statements.



Axogen, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(In Thousands, Except Per Share Amounts)thousands, except share and per share amounts)
Three Months EndedSix Months EndedThree Months EndedSix Months Ended
June 30,
2022
June 30,
2021
June 30,
2022
June 30,
2021
June 30,
2023
June 30,
2022
June 30,
2023
June 30,
2022
RevenuesRevenues$34,454 $33,580 $65,461 $64,617 Revenues$38,155 $34,454 $74,819 $65,461 
Cost of goods soldCost of goods sold6,284 7,092 11,830 12,264 Cost of goods sold7,228 6,284 13,937 11,830 
Gross profitGross profit28,170 26,488 53,631 52,353 Gross profit30,927 28,170 60,882 53,631 
Costs and expenses:Costs and expenses:Costs and expenses:
Sales and marketingSales and marketing19,669 19,250 40,557 37,224 Sales and marketing20,838 19,669 42,456 40,557 
Research and developmentResearch and development7,022 5,723 13,296 11,471 Research and development7,363 7,022 14,043 13,296 
General and administrativeGeneral and administrative9,403 8,669 19,021 17,032 General and administrative9,628 9,403 18,627 19,021 
Total costs and expensesTotal costs and expenses36,094 33,642 72,874 65,727 Total costs and expenses37,829 36,094 75,126 72,874 
Loss from operationsLoss from operations(7,924)(7,154)(19,243)(13,374)Loss from operations(6,902)(7,924)(14,244)(19,243)
Other (expense) income:
Investment income (expense)32 29 (15)63 
Other income (expense):Other income (expense):
Investment income (loss)Investment income (loss)235 32 784 (15)
Interest expenseInterest expense(249)(565)(603)(1,010)Interest expense(148)(249)(164)(603)
Change in fair value of derivativesChange in fair value of derivatives434 (84)686 (105)Change in fair value of derivatives432 434 247 686 
Other expenseOther expense(33)(124)(40)(132)Other expense(277)(33)(357)(40)
Total other expense, net184 (744)28 (1,184)
Total other income (expense), netTotal other income (expense), net242 184 510 28 
Net lossNet loss$(7,740)$(7,898)$(19,215)$(14,558)Net loss$(6,660)$(7,740)$(13,734)$(19,215)
Weighted average common shares outstanding — basic and dilutedWeighted average common shares outstanding — basic and diluted41,994,618 41,080,898 41,900,000 40,894,405 Weighted average common shares outstanding — basic and diluted42,862,384 41,994,618 42,719,096 41,900,000 
Loss per common share — basic and dilutedLoss per common share — basic and diluted$(0.18)$(0.19)$(0.46)$(0.36)Loss per common share — basic and diluted$(0.16)$(0.18)$(0.32)$(0.46)
See notes to condensed consolidated financial statements.



Axogen, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(In Thousands)thousands)
Six Months EndedSix Months Ended
June 30,
2022
June 30,
2021
June 30,
2023
June 30,
2022
Cash flows from operating activities:Cash flows from operating activities:Cash flows from operating activities:
Net lossNet loss$(19,215)$(14,558)Net loss$(13,734)$(19,215)
Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,418 1,405 
DepreciationDepreciation1,506 1,418 
Amortization of right-of-use assetsAmortization of right-of-use assets859 960 Amortization of right-of-use assets642 859 
Amortization of intangible assetsAmortization of intangible assets132 96 Amortization of intangible assets144 132 
Amortization of debt discount and deferred financing feesAmortization of debt discount and deferred financing fees442 227 Amortization of debt discount and deferred financing fees442 442 
Provision for bad debt550 (65)
(Recovery of) provision for bad debt(Recovery of) provision for bad debt(37)550 
Provision for inventory write-downProvision for inventory write-down928 2,455 Provision for inventory write-down1,052 928 
Change in fair value of derivativesChange in fair value of derivatives(686)105 Change in fair value of derivatives(247)(686)
Investment losses145 31 
Investment (gains) lossInvestment (gains) loss(578)145 
Stock-based compensationStock-based compensation7,588 6,499 Stock-based compensation8,344 7,588 
Change in operating assets and liabilities:Change in operating assets and liabilities:Change in operating assets and liabilities:
Accounts receivableAccounts receivable(2,719)(498)Accounts receivable650 (2,719)
InventoryInventory(3,458)(3,341)Inventory(3,384)(3,458)
Prepaid expenses and otherPrepaid expenses and other(1,081)199 Prepaid expenses and other(639)(1,081)
Accounts payable and accrued expensesAccounts payable and accrued expenses(786)(5,061)Accounts payable and accrued expenses(529)(786)
Operating lease obligationsOperating lease obligations(856)35 Operating lease obligations(762)(856)
Cash paid for interest portion of finance leasesCash paid for interest portion of finance leases(1)— 
Cash paid for interest portion of finance leases— (1)
Contract and other liabilities— (3)
Net cash used in operating activitiesNet cash used in operating activities(16,739)(11,515)Net cash used in operating activities(7,131)(16,739)
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Purchase of property and equipmentPurchase of property and equipment(9,086)(10,924)Purchase of property and equipment(8,719)(9,086)
Purchase of investmentsPurchase of investments(6,024)(23,966)Purchase of investments(10,203)(6,024)
Proceeds from sale of investmentsProceeds from sale of investments11,000 32,295 Proceeds from sale of investments32,974 11,000 
Cash payments for intangible assetsCash payments for intangible assets(852)(692)Cash payments for intangible assets(516)(852)
Net cash used in investing activities(4,962)(3,287)
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities13,536 (4,962)
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Proceeds from the issuance of long-term debt— 15,000 
Cash paid for debt portion of finance leasesCash paid for debt portion of finance leases(1)(8)Cash paid for debt portion of finance leases(12)(1)
Proceeds from exercise of stock options and ESPP stock purchasesProceeds from exercise of stock options and ESPP stock purchases767 3,612 Proceeds from exercise of stock options and ESPP stock purchases1,543 767 
Net cash provided by financing activitiesNet cash provided by financing activities766 18,604 Net cash provided by financing activities1,531 766 
Net decrease in cash, cash equivalents, and restricted cash(20,935)3,802 
Net increase (decrease) in cash, cash equivalents, and restricted cashNet increase (decrease) in cash, cash equivalents, and restricted cash7,936 (20,935)
Cash, cash equivalents, and restricted cash, beginning of periodCash, cash equivalents, and restricted cash, beginning of period39,007 55,609 Cash, cash equivalents, and restricted cash, beginning of period21,535 39,007 
Cash, cash equivalents, and restricted cash, end of periodCash, cash equivalents, and restricted cash, end of period$18,073 $59,411 Cash, cash equivalents, and restricted cash, end of period$29,471 $18,073 
Supplemental disclosures of cash flow activity:Supplemental disclosures of cash flow activity:Supplemental disclosures of cash flow activity:
Cash paid for interest, net of capitalized interestCash paid for interest, net of capitalized interest$— $739 Cash paid for interest, net of capitalized interest$— $— 
Supplemental disclosure of non-cash investing and financing activities:Supplemental disclosure of non-cash investing and financing activities:Supplemental disclosure of non-cash investing and financing activities:
Acquisition of fixed assets in accounts payable and accrued expensesAcquisition of fixed assets in accounts payable and accrued expenses$1,817 $3,035 Acquisition of fixed assets in accounts payable and accrued expenses$1,818 $1,817 
Obtaining a right-of-use asset in exchange for a lease liabilityObtaining a right-of-use asset in exchange for a lease liability$700 $371 Obtaining a right-of-use asset in exchange for a lease liability$268 $700 
Embedded derivative associated with the long-term debt$— $1,173 
Acquisition of intangible assets in accounts payable and accrued expensesAcquisition of intangible assets in accounts payable and accrued expenses$186 $190 Acquisition of intangible assets in accounts payable and accrued expenses$326 $186 
See notes to condensed consolidated financial statements.





Axogen, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(unaudited)
(In Thousands, Except Share Amounts)thousands, except share amounts)
Common StockAdditional Paid-in
Capital
Accumulated
Deficit
Total Shareholders'
Equity
Common StockAdditional Paid-in
Capital
Accumulated
Deficit
Total Shareholders'
Equity
SharesAmount
Three Months Ended June 30, 2023Three Months Ended June 30, 2023
Balance at March 31, 2023Balance at March 31, 202342,809,994 $428 $363,739 $(266,654)$97,513 
Net lossNet loss— — — (6,660)(6,660)
Stock-based compensationStock-based compensation— — 5,390 — 5,390 
Issuance of restricted and performance stock unitsIssuance of restricted and performance stock units57,659 (1)— — 
Exercise of stock options and employee stock purchase planExercise of stock options and employee stock purchase plan111,888 908 — 909 
Balance at June 30, 2023Balance at June 30, 202342,979,541 $430 $370,036 $(273,314)$97,152 
Six Months Ended June 30, 2023Six Months Ended June 30, 2023
Balance at December 31, 2022Balance at December 31, 202242,445,517 $424 $360,155 $(259,580)$100,999 
Net lossNet loss— — — (13,734)(13,734)
Stock-based compensationStock-based compensation— — 8,344 — 8,344 
Issuance of restricted and performance stock unitsIssuance of restricted and performance stock units296,378 (4)— — 
Exercise of stock options and employee stock purchase planExercise of stock options and employee stock purchase plan237,646 1,541 — 1,543 
Balance at June 30, 2023Balance at June 30, 202342,979,541 $430 $370,036 $(273,314)$97,152 
SharesAmountAdditional Paid-in
Capital
Accumulated
Deficit
Total Shareholders'
Equity
Three Months Ended June 30, 2022Three Months Ended June 30, 2022Three Months Ended June 30, 2022
Balance at March 31, 2022Balance at March 31, 202241,972,987 $420 $345,538 $(242,107)$103,851 Balance at March 31, 202241,972,987 $420 $345,538 $(242,107)$103,851 
Net lossNet loss— — — (7,740)(7,740)Net loss— — — (7,740)(7,740)
Stock-based compensationStock-based compensation— — 4,910 — 4,910 Stock-based compensation— 4,910 — 4,910 
Issuance of restricted and performance stock unitsIssuance of restricted and performance stock units44,054 — — — — Issuance of restricted and performance stock units44,054 — — — — 
Exercise of stock options and employee stock purchase planExercise of stock options and employee stock purchase plan117,463 — 669 — 669 Exercise of stock options and employee stock purchase plan117,463 — 669 — 669 
Balance at June 30, 2022Balance at June 30, 202242,134,504 $420 $351,117 $(249,847)$101,690 Balance at June 30, 202242,134,504 $420 $351,117 $(249,847)$101,690 
Six Months Ended June 30, 2022Six Months Ended June 30, 2022Six Months Ended June 30, 2022
Balance at December 31, 2021Balance at December 31, 202141,736,950 417 $342,765 $(230,632)$112,550 Balance at December 31, 202141,736,950 $417 $342,765 $(230,632)112,550 
Net lossNet loss— — — (19,215)(19,215)Net loss— — — (19,215)(19,215)
Stock-based compensationStock-based compensation— — 7,588 — 7,588 Stock-based compensation— — 7,588 — 7,588 
Issuance of restricted and performance stock unitsIssuance of restricted and performance stock units259,341 (2)— — Issuance of restricted and performance stock units259,341 (2)— — 
Exercise of stock options and employee stock purchase planExercise of stock options and employee stock purchase plan138,213 766 — 767 Exercise of stock options and employee stock purchase plan138,213 766 — 767 
Balance at June 30, 2022Balance at June 30, 202242,134,504 $420 $351,117 $(249,847)$101,690 Balance at June 30, 202242,134,504 $420 $351,117 $(249,847)$101,690 
Three Months Ended June 30, 2021
Balance at March 31, 202140,842,717 $408 $329,603 $(210,307)119,704 
Net loss— $— $— $(7,898)$(7,898)
Stock-based compensation— — 3,804 — 3,804 
Issuance of restricted and performance stock units44,411 $— $— $— $— 
Exercise of stock options and employee stock purchase plan449,980 3,088 — 3,093 
Balance at June 30, 202141,337,108 $413 $336,495 $(218,205)$118,703 
Six Months Ended June 30, 2021
Balance at December 31, 202040,618,766 $406 $326,390 $(203,647)123,149 
Net loss— — — (14,558)(14,558)
Stock-based compensation— — 6,499 — 6,499 
Issuance of restricted and performance stock units138,944 (1)— — 
Exercise of stock options and employee stock purchase plan579,398 3,607 — 3,613 
Balance at June 30, 202141,337,108 $413 $336,495 $(218,205)$118,703 
See notes to condensed consolidated financial statements.



Axogen, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(In Thousands, Except Per Share Amounts)thousands, except share and per share amounts)

1.Nature of Business
Axogen, Inc. (together with its wholly-owned subsidiaries, the “Company”) was incorporated in Minnesota and is the leader in the science, development and commercialization of the technologies used for peripheral nerve regeneration and repair. The Company's products include Avance® Nerve Graft, Axoguard Nerve Connector®,Axoguard Nerve Protector®,Axoguard HA+ Nerve Protector, Axoguard Nerve Cap® and Axotouch® Two-Point Discriminator. The Company is headquartered in Florida. The Company has processing, warehousing, and distribution facilities in Texas and Ohio.
The Company manages its operations as a single operating segment. Substantially all of the Company's assets are maintained in the United States. The Company derives substantially all of its revenues from sales to customers in the United States.
2.Summary of Significant Accounting Policies

Please see Note 2 to the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange Commission ("SEC") on March 14, 2023, for a description of all significant accounting policies.
Basis of Presentation
General
Unless the context otherwise requires, all references in these Notes to “Axogen,” the “Company,” “we,” “us” and “our” refer to Axogen, Inc. and its wholly owned subsidiaries Axogen Corporation (“AC”), Axogen Processing Corporation, and Axogen Europe GmbH.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company as of June 30, 2022,2023, and December 31, 2021,2022, and for the three and six months ended June 30, 2022,2023, and 2021.2022. The Company’s condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and; therefore, do not include all information and footnotes necessary for a fair presentation of consolidated financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (“US GAAP”("U.S. GAAP") and should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2021,2022, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.2022.
The interim condensed consolidated financial statements are unaudited, and in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results for the periods presented. Results for interim periods are not necessarily indicative of results for the full year. All intercompany accounts and transactions have been eliminated in consolidation.
The results of operations for the three and six months ended June 30, 2022,2023, are not necessarily indicative of the results to be expected for the full year due primarily to the impact of the continued uncertainty of general economic conditions that may impact ourthe Company's markets for the remainder of fiscal year 2022. Specifically, there can be no assurances that resurgences of COVID-19 will not affect future results.
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
2.Summary of Significant Accounting Policies
The accompanying condensed consolidated financial statements and notes follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2021, except as described below.2023.
Cash and Cash Equivalents and Concentration
The Company considersCash and cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less atfrom the date of acquisition asacquisition. Certain of the Company's cash and cash equivalents balances exceed Federal Deposit Insurance Corporation ("FDIC") insured limits or are invested in money market accounts with investment banks that are not FDIC-insured. The Company places its cash and cash equivalents in the accompanying condensed consolidatedwhat they believe to be credit-worthy financial statements. The Company has not experienced any losses related to these balances; however, asinstitutions. As of June 30, 2022, $11,3222023, $22,469 of the cash and cash equivalents balance was in excess of Federal Deposit Insurance CorporationFDIC limits. The Company had
Restricted Cash
Amounts included in restricted cash balancesrepresent those required to be set aside to meet contractual terms of $6,251 for each ofa lease agreement held by the periods ended June 30, 2022, and December 31, 2021. The June 30, 2022, and December 31, 2021, balances both include $6,000 and $250, which represent collateral for two irrevocable standby letters of credit.Company. See "NoteNote 8 - Long-Term Debt, Net of Debt Discount and Financing Fees."Fees - Other Credit Facilities.



The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported in the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:
(In thousands)(In thousands)June 30,
2022
December 31,
2021
(In thousands)June 30,
2023
December 31,
2022
Cash and cash equivalentsCash and cash equivalents$11,822 $32,756 Cash and cash equivalents$23,219 $15,284 
Restricted cashRestricted cash6,251 6,251 Restricted cash6,252 6,251 
Total cash, cash equivalents, and restricted cash shown in the statement of cash flowsTotal cash, cash equivalents, and restricted cash shown in the statement of cash flows$18,073 $39,007 Total cash, cash equivalents, and restricted cash shown in the statement of cash flows$29,471 $21,535 
Stock-Based CompensationProperty and Equipment, Net
The Company measures stock options granted to employeesProperty and directorsequipment, net are stated at a premium price based on market conditions, such ashistorical cost less accumulated depreciation and amortization. Additions and improvements that extend the trading pricelives of the Company’s common stock, usingassets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Leasehold improvements are amortized on a Monte Carlo Simulation in estimatingstraight-line basis over the fair value at grant date. The determinationshorter of the fair valueasset’s estimated useful life or the remaining lease term. Depreciation is affected by the Company's stock price, as well as assumptions regarding several subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatilitycalculated on a straight-line basis over the termestimated useful lives of the awards. The Company determines the expected life of each award giving considerationassets ranging from three to the contractual terms, vesting schedules, and post-vesting forfeitures. The Company uses the risk-free interest ratethirty-nine years.
Gains or losses on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected lifedisposition of the award. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periodsproperty and equipment are recorded in the Company’speriod incurred and recorded in general and administrative expenses on the condensed consolidated statements of operations. The expense has been reduced for forfeitures as they occur.
Capitalized Interest
The interest cost on capital projects, including facilities build-outs, is capitalized and included in the cost of the project. Capitalization begins with the first expenditure for the project and continues until the project is substantially complete and ready for its intended use. For the three and six months ended June 30, 2023, and 2022, the Company recognizescapitalized $2,049 and $1,579, respectively, and $4,196 and $3,024, respectively, of interest expense into property and equipment.
Shipping and Handling
All shipping and handling costs, including facility and warehousing overhead, directly related to bringing the Company’s products to their final selling destination are included in sales and marketing expense. Shipping and handling costs included in sales and marketing expense were $1,284 and $2,740, and $1,214 and $2,532, for all stock-based compensation awards, including stock options, restricted stock units ("RSUs"),the three and performance stock units ("PSUs") granted to employees eligible for retirement, as defined within the award noticesix months ended, June 30, 2023, and allowing for continued vesting post-retirement, over the retirement notice period and continuously updates its estimate of expense over the notice period each reporting period if a retirement notice has not been provided.2022, respectively.
Recent Accounting Pronouncements
All other Accounting Standards Updates ("ASU's") issued and not yet effective as of December 31, 2022, and through the date of this report, were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s current or future financial position or results of operations except for the following:
New Accounting Pronouncements Recently Adopted
In November 2021,December 2022, the Financial Accounting Standards Board issued ASU 2022-06 - Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ("FASB"ASU 2022-06"). ASU 2022-06 amended ASC 832, Government Assistance (issued under Accounting Standards UpdateCodification 848 Reference Rate Reform and ASU 2020 - 4, Reference Rate Reform. The amendment in ASU 2022-06 defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The new guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference the London Interbank Offered Rate (“LIBOR”), or another reference rate expected to be discontinued due to reference rate reform.
On June 29, 2023, the Company entered into an amendment ("ASU"the Amended Credit Facility") 2021-10, "Disclosures by Business Entities about Government Assistance"to its June 30, 2020, seven-year financing agreement, with Oberland Capital and its affiliates TPC Investments II LP and Argo LLC (the "Credit Facility"). ThisPursuant to the amendment, requires annual disclosures about transaction withthe Credit Facility was amended to transition the benchmark interest rate from LIBOR to Adjusted Term Secured Overnight Financing Rate ("SOFR") and corresponding changes to the mechanism for determining alternative rate of interest in the event that Adjusted Term SOFR is unavailable. Consequently, we updated the reference rate within our existing Credit Facility from three-month LIBOR to three-month SOFR plus 0.1% ("Adjusted SOFR"). Accounting Standard Codification ("ASC") 848, Reference Rate Reform, ("ASC 848") includes a governmentprovision in which a debt contract that areis only a



replacement of the reference rate is accounted for by applyingas a grant or contribution accounting model by analogy, including, (1)non-substantial modification. As a result, in the typessecond quarter of transactions; (2) the financial statement line items affected by the transaction, and; (3) significant terms and conditions associated with the transactions. The Company2023, we adopted the guidance on January 1, 2022, the adoption of ASU 2021-10 is not expected to have a materialASC 848, which had no impact on the the Company's condensedour consolidated financial condition, resultsstatements. See Note 8 - Long-Term Debt, Net of operations or disclosures.Debt Discount and Financing Fees for further discussion of the Amended Credit Facility.
3.     Inventory
Inventory consistedconsists of the following (in thousands):following:
June 30,
2022
December 31,
2021
(in thousands)(in thousands)June 30,
2023
December 31,
2022
Finished goodsFinished goods$12,492 $11,011 Finished goods$13,279 $12,651 
Work in processWork in process929 813 Work in process1,085 1,026 
Raw materialsRaw materials5,801 4,869 Raw materials6,873 5,228 
InventoryInventory$19,222 $16,693 Inventory$21,237 $18,905 
For the six months ended June 30, 2022, and 2021, the Company had adjustments to theThe provision for inventory write downswrite-down is as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2023202220232022
Provision for inventory write-down$471 $469 $1,052 $928 
4.     Property and Equipment, Net
Property and equipment, net consist of $928 and $2,455 (including the write-down of Avive inventory of $1,251), respectively.following:
(in thousands)June 30,
2023
December 31,
2022
Land$731 $731 
Building7,009 — 
Leasehold improvements15,482 15,482 
Processing equipment4,597 4,227 
Furniture and equipment7,988 5,316 
Projects in process63,323 63,703 
Finance lease right-of-use assets131 131 
Property and equipment, at cost99,261 89,590 
Less: accumulated depreciation and amortization(11,802)(10,296)
Property and equipment, net$87,459 $79,294 
Depreciation expense is as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2023202220232022
Depreciation expense$798 $713 $1,506 $1,418 




4.     Property and Equipment, Net
Property and equipment consisted of the following (in thousands):
June 30,
2022
December 31,
2021
Furniture and equipment$5,192 $5,100 
Leasehold improvements15,490 14,952 
Processing equipment4,156 3,984 
Land731 731 
Projects in process54,341 45,660 
Finance lease right-of-use assets110 110 
Property and equipment, at cost80,020 70,537 
Less: accumulated depreciation and amortization(9,032)(7,614)
Property and equipment, net$70,988 $62,923 
The Company further added to its projects in process total which is related to our Axogen Processing Center (“APC Facility”). See "Note 12 - Commitments and Contingencies."
Depreciation expense consisted of following (in thousands):
Three Months Ended June, 30Six Months Ended June 30,
2022202120222021
Depreciation expense$713 $633 $1,418 $1,405 
Depreciation expense is allocated among cost of sales, sales and marketing, research and development, and general and administrative expense on the condensed consolidated statements of operations.
5.     Intangible Assets, Net
The Company’s intangibleIntangible assets consistedconsist of the following (in thousands):following:
June 30, 2022December 31, 2021June 30, 2023December 31, 2022
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
(in thousands)(in thousands)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Amortizable intangible assets:Amortizable intangible assets:Amortizable intangible assets:
PatentsPatents$3,083 $(304)$2,780 $2,469 $(234)$2,235 Patents$4,322 $(711)$3,611 $3,792 $(621)$3,170 
License agreementsLicense agreements1,101 (916)185 1,101 (852)249 License agreements1,101 (1,068)34 1,101 (1,014)87 
Total amortizable intangible assetsTotal amortizable intangible assets4,184 (1,219)2,965 3,570 (1,086)2,484 Total amortizable intangible assets5,423 (1,779)3,645 4,893 (1,635)3,258 
Unamortized intangible assets
Unamortized intangible assets:Unamortized intangible assets:
TrademarksTrademarks380 — 380 375 — 375 Trademarks403 — 403 391 — 391 
Total intangible assetsTotal intangible assets$4,565 $(1,219)$3,346 $3,945 $(1,086)$2,859 Total intangible assets$5,827 $(1,779)$4,048 $5,284 $(1,635)$3,649 
Amortization expense consistedis as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2023202220232022
Amortization expense$73 $63 $144 $132 
As of the following (in thousands):
Three Months Ended June, 30Six Months Ended June 30,
2022202120222021
Amortization expense$63 $49 $132 $96 




ExpectedJune 30, 2023, future amortization of intangible assets as of June 30, 2022,patents and license agreements is as follows (in thousands):follows:
Year Ending December 31,Expected Amortization Expense
2022 (excluding the six months ended June 30, 2022)$131 
2023229 
2024160 
2025159 
2026158 
Thereafter2,128 
Total amortized intangible assets$2,965 

Year Ending December 31,(in thousands)
2023 (excluding the six months ended June 30, 2023)$121 
2024208 
2025208 
2026207 
2027203 
Thereafter2,698 
Total$3,645 
License Agreements
The Company has License Agreements withvarious license agreements that require the Universitypayment of Florida Research Foundation and the University of Texas at Austin in which certain royalty payments are paid quarterly.fees.
Royalty fee expense consisted of the following (in thousands):
Three Months Ended June, 30Six Months Ended June 30,
2022202120222021
Royalty expense$766 $709 $1,439 $1,350 
Royalty fees are included in sales and marketing expense on the condensed consolidated statements of operations.is as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2023202220232022
Royalty fee expense$868 $766 $1,698 $1,439 
6.     Fair Value Measurement
Fair value is defined asThe following tables present the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. TheCompany's fair value hierarchy defines a three-level valuation hierarchy for classification and disclosure of fair value measurements as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
There has been no movement between Level 1 and Level 2 or between Level 2 and Level 3 from December 31, 2021 to June 30, 2022. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Debt Derivative Liabilities
The Debt Derivative Liabilities are measured using a ‘with and without’ valuation model to compare the fair value of the Company's financing agreement with Oberland Capital including the identified embedded derivative features and the fair value of a plain vanilla note with the same terms. The fair value of the Oberland Facility including the embedded derivative features was determined using a probability-weighted expected return model based on 4 potential settlement scenarios for the Oberland Facility due to (a) a 5% probability of a mandatory prepayment event of the Oberland Facility on December 31, 2023; (b) a 15% probability of a mandatory prepayment event of the Oberland Facility on March 31, 2026; (c) a 5% probability of the prepayment of the Oberland Facility at the Company’s option on December 31, 2025; and (d) a 75% probability that the Oberland Facility will be held to its scheduled maturity dates in accordance with the terms of the debt agreement. The estimated settlement value of each scenario, which would include any required make-whole payment, is then discounted to present value



using a discount rate that is derived based on the initial terms of the Oberland Facility at issuance and corroborated utilizing a synthetic credit rating analysis.
The significant inputs that are included in the valuation of the Debt derivative liability - first tranche include:
June 30, 2022December 31, 2021
Input
Remaining term (years)55.5
Maturity dateJune 30, 2027June 30, 2027
Coupon rate9.50 %9.50 %
Revenue participation paymentsMaximum each yearMaximum each year
Discount rate14.4% (1)10.72% (1)
Probability of mandatory prepayment before 20245.0 %(1)5.0 %(1)
Estimated timing of mandatory prepayment event before 2024December 31, 2023(1)December 31, 2023(1)
Probability of mandatory prepayment 2024 or after15.0 %(1)15.0 %(1)
Estimated timing of mandatory prepayment event 2024 or afterMarch 31, 2026(1)March 31, 2026(1)
Probability of optional prepayment event5.0 %(1)5.0 %(1)
Estimated timing of optional prepayment eventDecember 31, 2025(1)December 31, 2025(1)
(1)Represents a significant unobservable input
The significant inputs that are included in the valuation of the Debt derivative liability - second tranche include:
June 30, 2022December 31, 2021
Input
Remaining term (years)66.5
Maturity dateJune 30, 2028June 30, 2028
Coupon rate9.5% 9.5% 
Revenue participation paymentsMaximum each yearMaximum each year
Discount rate17.6 %(1)13.21 %(1)
Probability of mandatory prepayment before 20245.0% (1)5.0% (1)
Estimated timing of mandatory prepayment event before 2024December 31, 2023(1)December 31, 2023(1)
Probability of mandatory prepayment 2024 or after15.0% (1)15.0% (1)
Estimated timing of mandatory prepayment event 2024 or afterMarch 31, 2026(1)March 31, 2026(1)
Probability of optional prepayment event5.0% (1)5.0% (1)
Estimated timing of optional prepayment eventDecember 31, 2025(1)December 31, 2025(1)
(1)Represents a significant unobservable input



The following table presents the financial assets and liabilities that the Company measured at fair value on a recurring basis as of June 30, 2022, classified in accordance with the fair value hierarchy (in thousands):2023, and December 31, 2022:
Fair Value Measurements Using
(Level 1)(Level 2)(Level 3)Total
Assets:
Money market funds$6,057 $— $— $6,057 
U.S. government securities17,920 — — 17,920 
Commercial paper— 28,289 — 28,289 
Total assets$23,977 $28,289 $— $52,266 
Liabilities
Debt derivative liabilities— — 4,876 4,876 
Total liabilities$— $— $4,876 $4,876 



June 30, 2023
(in thousands)(Level 1)(Level 2)(Level 3)Total
Assets:
Money market funds$16,521 $— $— $16,521 
U.S. government securities7,344 — — 7,344 
Commercial paper— 3,968 — 3,968 
Total assets$23,865 $3,968 $— $27,833 
Liabilities:
Debt derivative liabilities$— $— $4,271 $4,271 
Total liabilities$— $— $4,271 $4,271 
December 31, 2022
(in thousands)(Level 1)(Level 2)(Level 3)Total
Assets:
Money market funds$10,354 $— $— $10,354 
U.S. government securities12,316 — — 12,316 
Commercial paper— 21,189 — 21,189 
Total assets$22,669 $21,189 $— $43,859 
Liabilities:
Debt derivative liabilities$— $— $4,518 $4,518 
Total liabilities$— $— $4,518 $4,518 
The following table presents the financial assets andchanges in Level 3 liabilities that the Company measured at fair value on a recurring basis for the three and six months ended June 30, 2023, were as of December 31, 2021, classified in accordance with the fair value hierarchyfollows (in thousands):
Fair Value Measurements Using
(Level 1)(Level 2)(Level 3)Total
Assets:
Money market funds$22,012 $— $— $22,012 
U.S. government securities12,081 — — 12,081 
Commercial paper— 39,249 — 39,249 
Total assets$34,093 $39,249 $— $73,342 
Liabilities
Debt derivative liabilities$— $5,562 $5,562 
Total liabilities$— $— $5,562 $5,562 
Three Months Ended June 30, 2023
Balance, April 1, 2023$4,703 
Change in fair value included in net loss(432)
Balance, June 30, 2023$4,271 
Six Months Ended June 30, 2023
Beginning Balance, January 1, 2023$4,518 
Change in fair value included in net loss(247)
Ending Balance, June 30, 2023$4,271 
The changes in Level 3 liabilities measured at fair value on a recurring basis for the three and six months ended June 30, 2022, were as follows (in thousands):
Three Months Ended June 30, 2022
Beginning Balance, April 1, 2022$5,310 
Change in fair value included in net loss(434)
Ending Balance, June 30, 2022$4,876 
Six Months Ended June 30, 2022
Beginning Balance, January 1, 2022$5,562 
Change in fair value included in net loss(686)
Ending Balance, June 30, 2022$4,876 



The changes in Level 3 liabilities measured at fair value on a recurring basis for the three and six months ended June 30, 2021, were as follows (in thousands):
Three Months Ended June 30, 2021
Beginning Balance, April 1, 202139,205 
Addition of Oberland Facility - second tranche13,827 
Addition of debt derivative - second tranche1,173 
Change in fair value of Oberland Facility150 
Change in fair value of debt derivative84 
Ending Balance, June 30, 2021$54,439 
Six Months Ended June 30, 2021
Beginning Balance, January 1, 2021$39,352 
Addition of Oberland Facility - second tranche13,827 
Addition of debt derivative - second tranche1,173 
Change in fair value of Oberland Facility(18)
Change in fair value of debt derivative105 
Ending Balance June 30, 2021$54,439 
The fair value of cash, restricted cash, accounts receivable, accounts payable and accrued expenses approximates the carrying values because of the short-term nature of these instruments. The Oberland Facility is classified as Level 3 within the fair value hierarchy. The carrying value and estimated fair value of the OberlandCredit Facility were $45,263$46,154 and $47,759$51,366 at June 30, 2022,2023, and $45,325$45,712 and $52,605$50,293 at December 31, 2021,2022, respectively. See "NoteNote 8 - Long-Term Debt, Net of Debt Discount and Financing Fees."
The debt derivative liabilities are measured using a ‘with and without’ valuation model to compare the fair value of each tranche of the Credit Facility including the identified embedded derivative features and the fair value of a plain vanilla note with the same terms. The fair value of the Credit Facility including the identified embedded derivative features was determined using a probability-weighted expected return model based on four potential settlement scenarios for the financing agreement as disclosed in the table below. The estimated settlement value of each scenario, which would include any required make-whole payment, (see Note 8 - Long-Term Debt, Net of Debt Discount and Financing Fees), is then discounted to present value using a discount rate that is derived based on the initial terms of the financing agreement at issuance and corroborated utilizing a synthetic credit rating analysis.
The significant inputs that are included in the valuation of the debt derivative liability - first tranche include:
June 30, 2023December 31, 2022
Input
Remaining term (years)4 years4.5 years
Maturity dateJune 30, 2027June 30, 2027
Coupon rate9.5% - 13.1%9.5% -12.7%
Revenue participation paymentsMaximum each yearMaximum each year
Discount rate13.4% (1)13.9% (1)
Probability of mandatory prepayment before 20245.0 %(1)5.0 %(1)
Estimated timing of mandatory prepayment event before 2024December 31, 2023(1)December 31, 2023(1)
Probability of mandatory prepayment 2024 or after15.0 %(1)15.0 %(1)
Estimated timing of mandatory prepayment event 2024 or afterMarch 31, 2026(1)March 31, 2026(1)
Probability of optional prepayment event5.0 %(1)5.0 %(1)
Estimated timing of optional prepayment eventDecember 31, 2025(1)December 31, 2025(1)
(1)Represents a significant unobservable input
The significant inputs that are included in the valuation of the debt derivative liability - second tranche include:
June 30, 2023December 31, 2022
Input
Remaining term (years)5 years5.5 years
Maturity dateJune 30, 2028June 30, 2028
Coupon rate9.5% - 13.1%9.5% -12.7%
Revenue participation paymentsMaximum each yearMaximum each year
Discount rate16.9 %(1)17.56 %(1)
Probability of mandatory prepayment before 20245.0% (1)5.0% (1)
Estimated timing of mandatory prepayment event before 2024December 31, 2023(1)December 31, 2023(1)
Probability of mandatory prepayment 2024 or after15.0% (1)15.0% (1)
Estimated timing of mandatory prepayment event 2024 or afterMarch 31, 2026(1)March 31, 2026(1)
Probability of optional prepayment event5.0% (1)5.0% (1)
Estimated timing of optional prepayment eventDecember 31, 2025(1)December 31, 2025(1)
(1)Represents a significant unobservable input




7.     Leases
The Company leases administrative, manufacturing,processing, research and distribution facilities through operating leases. Several of the leases include fixed payments, including rent and non-lease components such as common-areacommon area or other maintenance costs.
Operating lease expense is as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2023202220232022
Operating lease expense$1,242 $1,355 $2,540 $2,763 
Supplemental balance sheet information related to the operating and financing leases is as follows:
(In thousands, except lease term and discount rate)June 30, 2023December 31, 2022
Operating Leases
Right-of-use operating assets$13,958 $14,369 
Current maturities of long-term lease obligations$1,034 $1,303 
Long-term lease obligations$20,116 $20,387 
Financing Leases
Right-of-use financing leases (1)
$30 $41 
Current maturities of long-term lease obligations$$
Long-term lease obligations$15 $18 
Weighted average operating lease term (in years):10.611
Weighted average financing lease term (in years):3.84
Weighted average discount rate operating leases10.74% 10.58% 
Weighted average discount rate financing leases12.27% 11.91% 
(1) Financing leases are included in property and equipment, net on the condensed consolidated balance sheets.
Future minimum lease payments under operating and financing leases at June 30, 2023, are as follows:
(In thousands) 
2023 (excluding six months ended June 30, 2023)$1,620 
20243,252 
20253,336 
20263,348 
20273,046 
Thereafter21,588 
Total36,190 
Less: Imputed interest(15,019)
Total lease liability21,171 
Less: Current lease liability(1,040)
Long-term lease liability$20,131 




New leases
The Company accounts for new leases in accordance with ASC 842, Leases.
On January 27, 2022,May 9, 2023, the Company entered into a Commercial Lease with JA-Cole L.P., with an effective date of May 9, 2023 (the "2023 JA-Cole Lease"). The 2023 JA-Cole Lease is for an additional 2,500 square feet of office and warehouse facility located in Burleson, Texas. The Commercial Lease has a commencement date of September 1, 2023, and an expiration date of September 30, 2027. The Company will value the 2015 JA-Cole Lease using an incremental borrowing rate and record a right-of-use asset and a lease liability on the commencement date.
Lease modifications
The Company accounts for lease revisions as a lease modification in accordance with ASC 842, Leases, when the modification effectively terminates the existing lease and creates a new lease.
On May 9, 2023, the Company entered into a Commercial Lease Amendment ("Amendment") with JA-Cole L.P., with an effective date of FebruaryMay 1, 2022,2023, pursuant to the original Commercial LeaseLeases dated April 21, 2015, as amended (the "Lease""2015 JA-Cole Lease"). The lease2015 JA-Cole Lease is for the15,000 square feet of office and warehouse facility located in Burleson, Texas. The Amendment revised the commencement date to May 1, 2022,2023, and the expiration date to April 30, 2027.2030. The Company accounted forvalued the 2015 JA-Cole Lease revisionsusing a 13.1% incremental borrowing rate and recorded a right-of-use asset and a lease liability of $268 as a lease modification in accordance with Accounting Standard Codification ("ASC") 842, Leases, as the modification effectively terminated the existing lease and created a new lease which commenced on February 1, 2022. The Lease and related modification entries are included in the operating lease line items on the condensed consolidated balance sheet.
Total operating lease expense for the three months ended June 30, 2022, and 2021 was $1,355 and $1,211 respectively and $2,763 and $2,437 for the six months ended June 30, 2022, and 2021, respectively.

Supplemental balance sheet information related to the operating and financing leases is as follows:
(In thousands, except lease term and discount rate )June 30, 2022December 31, 2021
Operating Leases
Right-of-use operating assets$14,975 $15,193 
Current maturities of long-term lease obligations$1,756 $1,825 
Long-term lease obligations$20,653 $20,794 
Financing Leases
Right-of-use financing leases (1)
$31 $42 
Current maturities of long-term lease obligations$$
Long-term lease obligations$$
Weighted average operating lease term (in years):11.412.1
Weighted average operating financing term (in years):1.62.2
Weighted average discount rate operating leases10.31 %10.32% 
Weighted average discount rate financing leases6.84% 7.23% 
(1) Financing leases are included within property and equipment, net on the condensed consolidated balance sheets.



Future minimum lease payments under operating and financing leases at June 30, 2022, were as follows:
(In thousands) 
2022 (excluding the six months ended June 30, 2022)$2,152 
20233,415 
20243,186 
20253,268 
20263,276 
202761 
Thereafter23,939 
Total$39,296 
Less: Imputed interest(16,879)
Total lease liability$22,417 
Less: Current lease liability(1,762)
Long-term lease liability$20,655 
result of this amendment.
8.     Long-Term Debt, Net of Debt Discount and Financing Fees
Long-term debt, net of debt discount and financing fees consists of the following:
(In thousands)June 30,
2022
December 31, 2021
Oberland Facility - first tranche$35,000 $35,000 
Oberland Facility - second tranche15,000 15,000 
Less - unamortized debt discount and deferred financing fees(4,737)(5,179)
Long-term debt, net of debt discount and financing fees$45,263 $44,821 
(in thousands)June 30, 2023December 31, 2022
Credit Facility - first tranche$35,000 $35,000 
Credit Facility - second tranche15,000 15,000 
Less - unamortized debt discount and deferred financing fees(3,846)(4,288)
Long-term debt, net of debt discount and financing fees$46,154 $45,712 
OberlandCredit Facility
On June 30, 2020,29, 2023, the Company entered into a seven-year financing agreementamended its Credit Facility with Oberland Capital (the "Oberland Facility"and its affiliates TPC Investments II LP and Argo LLC (collectively, the "Lender") and. The term loan agreement for the Credit Facility was amended to transition the base interest rate from three month LIBOR to Adjusted SOFR. The Company obtained the first tranche of $35,000 at closing.closing on June 30, 2020. On June 30, 2021, the second tranche of $15,000 was drawn down by the Company.
The OberlandEach tranche under the Credit Facility requires quarterly interest payments for seven years. Interest is calculated as 7.5% plus the greater of LIBOR orAdjusted SOFR or 2.0% (9.5% as of(12.68% at June 30, 2022)2023). Each tranche of the OberlandCredit Facility has a term of seven years from the date of issuance (with the first tranche issued on June 30, 2020, maturing on June 30, 2027, and the second tranche issued on June 30, 2021, maturing on June 30, 2028). In connection with the OberlandCredit Facility, the Company entered into a revenue participation agreement (the “Revenue Participation Agreement”) with Oberland Capital,the Lender, which providesprovided that, among other things, a quarterly royalty payment as a percentage of the Company’s net revenues, up to $70 million in any given fiscal year, subject to certain limitations set forth therein, during the period commencing on the later of (i)after April 1, 2021, and (ii) the date of funding of a tranche of the loan, and ending on the date upon which all amounts owed under the OberlandCredit Facility have been paid in full (the “Revenue Participation Agreement”). Payments under the Revenue Participant Agreement commenced on September 30, 2021. The royaltyfull. This structure of the Revenue Participant Agreement results in approximately 1.0% per year of additional interest payments on the outstanding loan amount. The Company recorded $360 and $372 as interest expense $372 and $260 for this Revenue Participation Agreement for the three months ended June 30, 2023, and 2022, respectively and 2021$756 and $707 and $260 for the six months ended June 30, 2023, and 2022, and 2021, respectively.The Company pays Oberland Capitalthe quarterly debt interest on the last day of the quarter. The Company paid $1,201quarter and $840 for the three months ended June 30, 2023, and 2022, paid $1,602 and 2021,$1,201, respectively, and $2,388$3,134 and $1,672$2,388 for the six months ended June 30, 2023, and 2022, and 2021, respectively.respectively, to the Lender. The Company capitalized interest of $2,049 and $1,579 for the three months ended June 30, 2023, and 2022, respectively, and $4,196 and $3,024 for the three and six months ended June 30, 2022, respectively2023, and $645 and $1,690 for the three and six months ended June 30, 2021, respectively,2022, towards the costs to construct and retrofit the Axogen Processing Center ("APC FacilityFacility") in Vandalia, OH.Ohio. See "Note 12-Note 12 - Commitments and Contingencies." Since inception, To date, the Company has capitalized interest of $8,298$15,625 related to this project. The capitalized interest is recorded as part of property and equipment,



net in the condensed consolidated balance sheets. As of June 30, 2022,2023, the Company was in compliance with all financial covenants. See "Note 12 - Commitments and Contingencies."



Embedded Derivatives
The Debt Derivative Liabilities are recorded at fair value, with the change in fair value reported in the condensed consolidated statements of operations at each reporting date. The fair values of the Debt Derivative Liabilitiesdebt derivative liabilities were $4,876$4,271 and $5,562$4,518 at June 30, 2022,2023, and December 31, 2021,2022, respectively. See "NoteNote 6 - Fair Value Measurement."
Unamortized Debt Discount and Financing Fees
The unamortized debt discount consists of the remaining unamortized initial fair values of the embedded derivatives related to the first and second tranches of the OberlandCredit Facility. The debt discount is amortized over the respective life of the related tranche and recorded in interest expense using the effective yield method.
The financing fees for the OberlandCredit Facility were $642 and were recorded as a contra liability to long-term debt on the debt facility. The financing fees are amortized over the life of the first tranche of the Oberland Facility and recorded in interest expense.consolidated balance sheet.
Amortization of debt discount and deferred financing fees for the three months ended June 30, 2022,2023, and 20212022 was $223 and $153,$223, respectively, and $442 and $442 for the six months ended June 30, 2023, and 2022, and 2021 was $442 and $227, respectively.
Other credit facilitiesCredit Facilities
The Company had restricted cash of $6,252 and $6,251 at June 30, 2022,2023, and December 31, 2021.2022, respectively. The June 30, 2022,2023, and December 31, 2021,2022, balances both include $6,000 and $250, which represent collateral for two irrevocable standby letters of credit.

9.     Stock-Based Incentive PlansCompensation
The Company maintains 2 share-based incentive plans:Company's stock-based compensation plans are described in Note 11. Stock-Based Compensation to the Axogen, Inc. SecondCompany’s consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
During the fiscal year 2023, the following stock compensation was awarded to officers and employees. All awards were granted under the 2019 Amended and Restated 2019 Long-Term Incentive Plan (“("2019 Plan”Plan"), with the exception of the inducement shares awarded as inducements material to new employees entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4).
Type of AwardQuarter AwardedTarget Shares or Units
Weighted Average Grant Date Fair Value
Stock Options (1)
1st Quarter1,046,800 $4.96 
2nd Quarter2,200 $5.64 
Restricted Stock Units (2)
1st Quarter1,129,718 $8.39 
2nd Quarter33,850 $9.06 
Performance Stock Units (3)(5)
1st Quarter744,000 $8.27 
Inducement Shares (4)(5)
1st Quarter
Stock Options150,000 $4.92 
Restricted Stock Units75,000 $8.16 
(1) Options awarded to officers and employees during the Axogen 2017 Employee Stock Purchase Plan (“2017 ESPP”). Asfirst and second quarter, vest over a four-year period.
(2) Restricted stock units awarded to officers and employees during the first and second quarters, vest over a four-year period. Upon vesting, the outstanding number of June 30, 2022, 3,116,758restricted stock units vested are converted into common stock.
(3) Performance shares were issued to officers and employees during the first quarter. Vesting occurs over a three-year performance period. Participants will earn from 0% to 150% upon achievement of common stock were available for issuance under the 2019 Plan.The Company recognized share-based compensation expense, which consisted of compensation expense related to stock options, PSUs and RSUs basedtarget depending on the valueattainment of share-based payment awardsspecific revenue goals. The maximum number of units that are ultimately expected to vest during the period and stock-based compensation expense of $4,910 and $3,805 for the three months ended June 30, 2022, and 2021, respectively, and $7,588 and $6,499 for the six months ended June 30, 2022, and 2021, respectively.
A summary of the stock option activitycan be issued under this award is as follows:
OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual LifeAggregate Intrinsic Value (in thousands)
Outstanding, December 31, 20213,194,738 $15.65 6.45$2,236 
Granted1,109,754 $9.20 
Exercised(41,209)$4.27 
Cancelled(118,100)$16.41 
Outstanding, June 30, 20224,145,183 $14.02 6.98$1,140 
Exercisable, June 30, 20222,145,901 $15.07 5.03$1,138 
The Company used the following weighted-average assumptions for options granted during the six months June 30, 2022:
Expected term (in years)6.05
Expected volatility60.95  %
Risk free rate2.22  %
Expected dividends—  %
1,116,000.



As of June 30, 2022, there was approximately $9,860 of total unrecognized compensation costs related(4) Inducement shares were issued to unvestedtwo officers during the first quarter, as inducements material to new employees entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). Vesting for both the stock options. These costsoptions and restricted stock units are expected to be recognized over a weighted-average period of 2.7 years.four-year period.
Restricted and Performance Stock Units
A summary of the restricted and(5) No performance stock unit activityunits or inducement shares were granted in the second quarter of 2023.
Total stock-based compensation expense is as follows:
Outstanding Stock Units
Stock UnitsWeighted-Average Fair Value at Date of Grant per ShareWeighted Average Remaining Vesting LifeAggregate Intrinsic Value (in thousands)
Unvested, December 31, 20211,730,765 $18.45 1.51$19,633 
Granted1,874,047 $8.29 
Released(259,341)$14.21 
Forfeited(125,477)$16.61 
Unvested, June 30, 20223,219,994 $12.95 2.01$26,372 
Performance Stock Units
At June 30, 2022, the total future stock compensation expense related to non-vested performance awards at maximum target payout is expected to be approximately $5,332. As of June 30, 2022, there was approximately $21,381 of total unrecognized compensation costs related to both the PSU and RSU unvested awards. The Company expects to recognize these costs over a weighted-average period of 3.0 years.
On March 16, 2022, the Compensation Committee of the Board of Directors approved PSUs that were tied to 2022, 2023 and 2024 revenue (the “2022 PSU award.”) The 2022 PSU award consists of a targeted award of 526,467 shares with a payout ranging from 0% to 150% upon achievement of specific revenue goals.
Employee Stock Purchase Plan
The Company also maintains the 2017 ESPP, which allows eligible employees to acquire shares of the Company’s common stock through payroll deductions at a discount to market price. A total of 600,000 shares of the Company’s common stock are authorized for issuance under the 2017 ESPP, and as of June 30, 2022, 126,674 shares remain available for issuance.
Three Months Ended June 30,Six Months Ended June 30,
(in thousands)2023202220232022
Stock-based compensation expense$5,390 $4,910 $8,344 $7,588 
10.     Net Loss Per Common Share
The following reflects the net loss attributable to common shareholders and share data used in the basic and diluted earnings per share computations using the two classtwo-class method:
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except per share amounts)(In thousands, except per share amounts)2022202120222021(In thousands, except per share amounts)2023202220232022
Numerator:Numerator:Numerator:
Net lossNet loss$(7,740)$(7,898)$(19,215)$(14,558)Net loss$(6,660)$(7,740)$(13,734)$(19,215)
Denominator:Denominator:Denominator:
Weighted-average common shares outstanding (Basic)Weighted-average common shares outstanding (Basic)41,994,618 41,080,898 41,900,000 40,894,405 Weighted-average common shares outstanding (Basic)42,862,384 41,994,618 42,719,096 41,900,000 
Weighted-average common shares outstanding (Diluted)Weighted-average common shares outstanding (Diluted)41,994,618 41,080,898 41,900,000 40,894,405 Weighted-average common shares outstanding (Diluted)42,862,384 41,994,618 42,719,096 41,900,000 
Net loss per common share (Basic and Diluted)Net loss per common share (Basic and Diluted)$(0.18)$(0.19)$(0.46)$(0.36)Net loss per common share (Basic and Diluted)$(0.16)$(0.18)$(0.32)$(0.46)
Anti-dilutive shares excluded from the calculation of diluted earnings per share (1)
Anti-dilutive shares excluded from the calculation of diluted earnings per share (1)
Anti-dilutive shares excluded from the calculation of diluted earnings per share (1)
Stock optionsStock options3,796,254 1,308,583 3,377,594 1,188,243 Stock options3,957,156 3,796,254 3,679,109 3,377,594 
Restricted stock unitsRestricted stock units591,824 17,828 574,431 296,327 Restricted stock units251,112 591,824 343,089 574,431 
(1) These common equivalent shares are not included in the diluted per share calculations as they would be anti-dilutive if the Company was in a net income position.



11.     Income Taxes
The Company has no recorded income tax expense or income tax benefit for the three and six months ended June 30, 2023, and 2022 due to the generation of net operating losses, the benefits of which have been fully reserved.
The Company has not recorded current income tax expense due to the generation of net operating losses. Deferred income taxes are accounted for using the balance sheet approach, which requires recognition of deferred tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. A full valuation allowance has been established on the deferred tax asset as it is more likely than not that a future tax benefit will not be realized. In addition, future utilization of the available net operating loss carryforward may be limited under Internal Revenue Code Section 382 as a result of changes in ownership.
The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more likely than not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the condensed consolidated balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company’s remaining open tax years subject to examination by federal tax authorities include the years ended December 31, 2019, through 2021.2022. However, for tax years 2004 through 2017, federal taxing authorities may examine and adjust loss carryforwards in the years in which those loss carryforwards are ultimately utilized.



12.     Commitments and Contingencies
Service Agreements
On August 6, 2015, theThe Company entered into a License and Service Agreement ("CTS Agreement") withpays Community Blood Center, (d/b/a Community Tissue Service) ("CTS") which has been extended through December 31, 2023 . In accordance with the CTS Agreement, the Company pays CTS a facility fee for the use of clean room/manufacturing,rooms, storage and office space which the Company accountsand for as an embedded lease in accordance with ASC 842, “Leases.” The Company also pays CTS for serviceservices in support of its manufacturing process such astissue processing including for routine sterilization of daily supplies, providing disposable supplies and microbial services, and office support. The Company paid fees to CTS during$582 and $622 for the three months ended June 30, 2022,2023, and 2021, of approximately $622 and $628,2022, respectively, and $1,311 and $1,245 during the six months ended June 30, 2023, and 2022, and 2021respectively, related to the agreement with CTS. The agreement terminates on December 31, 2023, subject to earlier termination by either party at any time for cause, or without cause upon six months prior notice. The Company expects to reduce its utilization of approximately $1,245 and $1,271 which are includedCTS in costthe second half of goods sold on the accompanying condensed consolidated statements of operations.2023.
In December 2011, the Company entered into a Master Services Agreement for Clinical Researchclinical research and Related Services.related services. The Company was required to pay $151 upon execution of this agreement and the remainder monthly based on activities associated with the execution of Axogen’sthe Company's phase 3 pivotal clinical trial to support the BLAbiologics license application ("BLA") for Avance Nerve Graft. Payments made under this agreement were $356$56 and $154$356 for the three months ended June 30, 2022,2023, and 2021,2022, respectively and $684$168 and $432$684 for the six months ended June 30, 2023, and 2022, and 2021, respectively.
Concentrations
Vendor
Substantially all of the Company’s revenue is currently derived from five products, Avance Nerve Graft, Avive Soft Tissue Membrane (currently, market availability is suspended), Axoguard Nerve Protector, Axoguard Nerve Connector, and Axoguard Nerve Cap for the treatment of peripheral nerve damage. Of these five products, Avance Nerve Graft represents approximately half of the Company’s total revenue. The Company has an exclusive distribution agreement with Cook Biotech for the purchase of Axoguard which expires June 30, 2027. The agreement with Cook Biotech establishes a formula for the transfer cost of the Axoguard products and requires certain minimum purchases by the Company, although, through mutual agreement, the parties have not established such minimums and to date have not enforced such provision.
The agreement allows for termination provisions for both parties. The loss of the ability to sell the Axoguard products could have a material adverse effect on the Company’s business until other replacement products would be available.



Axogen Processing Center Facility
The Company is highly dependent on the continued availability of its processing facilities at the Community Blood CenterCTS facility (“CTS”) in Dayton, Ohio and could be harmed if the physical infrastructure of this facility is unavailable for any prolonged period of time.
On July 31, 2018, the Company purchased the APC Facility in Vandalia, Ohio, located near the CTS processing facility where Avance Nerve Graft is currently processed. The APC Facility, when and if operational, will be the new processing facility for Avance Nerve Graft to provide continued capacity for growth and to support the transition of Avance Nerve Graft from a human cellular and tissue-based product to a biologic product. The APC Facility is comprised of a 107,000 square foot building on approximately 8.6 acres of land. The Company paid $731 for the land, whichand this is recorded as land in property and equipment on the condensed consolidated balance sheet. The Company paid $4,300 for the building which is recorded in projects in process in propertywithin Property and equipment, net on the condensed consolidated balance sheet.sheets. The Company paid $4,300 for the building and this is recorded within Property and equipment, net on the condensed consolidated balance sheets.
On July 9, 2019, the Company entered into a Standard Form of Agreement Between Owner and Design-Builder with CRB Builders, L.L.C., (“CRB”), inpursuant to which CRB will renovate and retrofit the APC Facility. For the three and six months ended June 30, 20222023, the Company recorded $2,842$1,640 and $5,431,$3,239, respectively, of expenditures related to renovations and design and build in projects in progress. The Company has recorded $40,847 from inception-to-date$49,593 to date related to this project. In addition to these project costs, the Company has capitalized interest of $1,579$2,049 and $3,004$4,196 for the three and six months ended June 30, 20222023. To date, the Company has capitalized interest of $15,625 related to this project. During the three months ended June 30, 2023, the Company completed construction of the APC Facility and $8,298 inception-to-dateplaced $8,020 into service related to the project.warehouse and office spaces. These items arecosts were recorded as projectsto their respective asset category in process in propertyProperty and equipment, net on the condensed consolidated balance sheet. The Company expects to complete final validation of the tissue processing center and begin operations during the third quarter of this year. The costs related to the tissue processing center are recorded in projects in process in Property and equipment, net on the condensed consolidated balance sheet. The Company anticipates recording an additional $2,000 to $3,000 in the remainder of 2023.
The Company obtained certain economic development grants from state and local authorities totaling up to $2,685 including $1,250 of cash grants to offset costs to acquire and develop the APC Facility. The economic development grants are subject to certain job creation milestones to be reached by December 31, 2023, and have clawback clauses if the Company does not meet the job creation milestones. The Company has requested extensions from the grant authorities to extend the job creation milestone date and has not yet received any decisions regarding whether the extensions will be granted. As of June 30, 2023, the Company has received $1,188 from the cash grants and has a grant receivable of $287 recorded in receivables on the condensed consolidated balance sheets.
Fair Value of the Debt Derivative Liabilities
The fair value of the Debt Derivative Liabilitiesdebt derivative liabilities is $4,271 as of June 30, 2023. The fair value of the debt derivative liabilities was determined using a probability-weighted expected return model based upon the four potential settlement scenarios for the Oberland FacilityCredit Facility. The estimated settlement value of each scenario, which includes any required make-whole payment, is then discounted to present value using a discount rate that is derived based upon the initial terms of the Credit Facility at issuance and corroborated utilizing a synthetic rating analysis. The calculated fair values under the four scenarios are then compared to the fair value of a plain vanilla note.note, with the difference reflecting the fair value of the debt derivative liabilities. The Company



estimated the make-whole payments required under each scenario according to the Oberlandterms of the Credit Facility to generate an internal rate of return equal to 11.5% through the scheduled maturity dates, less the total of all quarterly interest and royalty payments previously paid to Oberland Capithe Lendertal.. The calculation utilized the XIRR function in Microsoft Excel as required by the OberlandCredit Facility. If the debt is not prepaid but instead is held to its scheduled maturities, the Company’s estimate of the make-



wholemake-whole payment for the first tranche and second tranchestranche of the Credit Facility due on June 30, 2027, and June 30, 2029,2028, respectively, isare approximately zero. The Company has consistently applied this approach since the inception of the debt agreement on June 30, 2020.
In the first quarter of 2022, theThe Company becameis aware that Oberland Capitalthe Lender may have an alternative interpretation of the calculation of the make-whole payments that the Company believesbelieves does not properly utilize the same methodology utilized by the XIRR function in Microsoft Excel as described in the OberlandCredit Facility. The Company estimates the top end of the range of the make-whole payments if the debt is held to scheduled maturity under an alternative interpretation to be approximately $13,000$9,000 for the first tranche of the OberlandCredit Facility due on June 30, 2027, and approximately $5,000$4,000 for the second tranche of the OberlandCredit Facility due on June 30, 2028. Further, if the debt is prepaid prior to the scheduled maturity dates and subject to the alternative interpretation, the make-whole payment would be larger than the amounts herein. There have been no updates since reported in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2021.
Legal Proceedings
The Company is and may be subject to various claims, lawsuits, and proceedings in the ordinary course of the Company's business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. While there can be no assurances as to the ultimate outcome of any legal proceeding or other loss contingency involving the Company. InCompany, in the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected individually or in the aggregate, to result in a material, adverse effect on the Company's financial condition, results of operations or cash flows. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.
13. Subsequent Events
On January 9, 2019, Plaintiff Neil Einhorn, on behalfAugust 4, 2023, Axogen Corporation ("AC") entered into an amendment, effective as of himselfAugust 4, 2023 ("Supply Agreement Amendment") to the Nerve End Cap Commercial Supply Agreement, dated June 27, 2017 (the "Supply Agreement") entered into by and others similarly situated, filed a putative class action complaint inbetween AC and Cook Biotech Incorporated ("Cook"). Pursuant to the United States District Court forSupply Agreement Amendment, the Middle District of Florida alleging violationsterm of the federal securities laws against Axogen, Inc., certain of its directors and officers (“Individual Defendants”), and Axogen’s 2017 Offering Underwriters and 2018 Offering Underwriters (collectively, with the Individual Defendants, the “Defendants”), captioned Einhorn v. Axogen, Inc., et al., No. 8:19-cv-00069 (M.D. Fla.). Plaintiff asserts that Defendants made false or misleading statements in connection with the Company’s November 2017 registration statement issued regarding its secondary public offering in November 2017 and May 2018 registration statement issued regarding its secondary public offering in May 2018, and duringSupply Agreement was extended through December 31, 2030.
On August 4, 2023, AC also entered into a class periodthird amendment, effective as of August 7, 20174, 2023 ("Distribution Agreement Amendment"), to December 18,the Distribution Agreement, dated August 27, 2008 (the "Distribution Agreement") entered into by and between AC and Cook, as amended on February 24, 2012, October 10, 2014, and February 26, 2018. In particular, Plaintiff asserts that Defendants issued false and misleading statements and failedPursuant to disclose to investors: (1) that the Company aggressively increased prices to mask lower sales; (2) thatDistribution Agreement Amendment, the Company’s pricing alienated customers and threatened the Company’s future growth; (3) that ambulatory surgery centers form a significant partterm of the market for the Company’s products; (4) that such centers were especially sensitive to price increases; (5) that the CompanyDistribution Agreement was dependent on a small number of surgeons whom the Company paid to generate sales; (6) that the Company’s consignment model for inventory was reasonably likely to lead to channel stuffing; (7) that the Company offered purchase incentives to sales representatives to encourage channel stuffing; (8) that the Company’s sales representatives were encouraged to backdate revenue to artificially inflate metrics; (9) that the Company lacked adequate internal controls to prevent such channel stuffing and backdating of revenue; (10) that the Company’s key operating metrics, such as the number of active accounts, were overstated; and (11) that, as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects, were materially misleading and/or lacked a reasonable basis. Axogen was served on January 15, 2019. On February 4, 2019, the Court granted the parties’ stipulated motion which provided that Axogen is not required to file a response to the complaint until thirty days after Plaintiff files a consolidated amended complaint. On June 19, 2019, Plaintiff filed an Amended Class Action Complaint, and on July 22, 2019, Defendants filed a motion to dismiss. Plaintiff filed opposing papers on August 12, 2019. The Court held a status hearing on September 11, 2019 and stayed all deadlines regarding the parties’ obligations to file a case management report. Onextended through December 4, 2019, the parties presented oral arguments. On April 21, 2020, the Court dismissed the complaint without prejudice, finding the Plaintiff failed to state a claim upon which relief could be granted. The Plaintiff filed a Second Amended Class Action Complaint on June 22, 2020. Axogen filed a motion to dismiss on August 6, 2020. The Plaintiff filed an opposition on September 20, 2020. The Court held oral argument on February 25, 2021. On March 19, 2021, the Court dismissed the Second Amended Complaint with prejudice, finding again that the Plaintiff failed to state a claim upon which relief could be granted. On April 14, 2021, Plaintiff filed a notice of appeal. Plaintiff filed its opening brief on June 28, 2021. The Company filed its appellee brief on August 11, 2021. The Plaintiff filed a reply brief on September 14, 2021. The Eleventh Circuit heard oral argument the week of March 8, 2022. On August 1, 2022, the Eleventh Circuit affirmed the dismissal of the complaint with prejudice. The amount of loss, if any, cannot be reasonably estimated at this time. This matter is subject to various uncertainties and it is possible that it may be resolved unfavorably to the Company. However, while it is not possible to predict with certainty the outcome of the matter, the Company and the Individual Defendants dispute the allegations and intend to vigorously defend themselves.31, 2030.




ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto appearing elsewhere in this report and our consolidated financial statements for the year ended December 31, 2021,2022, included in our Annual Report on Form 10-K. All dollar amounts in the discussion and analysis, unless noted otherwise, are presented in thousands.
Unless the context otherwise requires, all references in this report to “Axogen,” the “Company,” “we,” “us” and “our” refer to Axogen, Inc., and its wholly owned subsidiaries Axogen Corporation (“AC”), Axogen Processing Corporation, Axogen Europe GmbH and Axogen EuropeGermany GmbH.
OVERVIEW
We are the leading company focused specifically on the science, development, and commercialization of technologies for peripheral nerve regeneration and repair. We are passionate about helpingproviding the opportunity to restore peripheral nerve function and quality of life tofor patients with physical damage or transection to peripheral nerves providingnerve injuries. We provide innovative, clinically proven, and economically effective repair solutions for surgeons and health carehealthcare providers. Peripheral nerves provide the pathways for both motor and sensory signals throughout the body. Every day, people suffer traumatic injuries or undergo surgical procedures that impact the function of their peripheral nerves. Physical damage to a peripheral nerve or the inability to properly reconnect peripheral nerves can result in the loss of muscle or organ function, the loss of sensory feeling, or the initiation of pain.
Product Portfolio
Our platform for peripheral nerve repair features a comprehensive portfolio of products, including Avance® Nerve Graft, a biologically active off-the-shelf processed human nerve allograft for bridging severed peripheral nerves without the comorbidities associated with a second surgical site; site.
Axoguard Nerve Connector®, a porcine (pig) submucosa ECMextracellular matrix ("ECM") coaptation aid for tensionless repair of severed peripheral nerves; nerves.
Axoguard Nerve Protector®, a porcine submucosa extracellular matrix ("ECM")ECM product used to wrap and protect damaged peripheral nerves and reinforce the nerve reconstruction while preventing soft tissue attachments;attachments.
Axoguard HA+ Nerve Protector™, is comprised of a processed porcine submucosa ECM base layer with a hyaluronate-alginate gel coating designed to provide short- and long-term protection for peripheral nerve injuries. The gel layer facilitates enhanced nerve gliding to aid in minimizing soft tissue attachments, while the base layer is remodeled into a long-term protective tissue layer.
Axoguard Nerve Cap®, a porcine submucosa ECM product used to protect a peripheral nerve end and separate the nerve from the surrounding environment to reduce the development of symptomatic or painful neuroma; Avive Soft Tissue Membrane, a processed human umbilical cord intended for surgical use as a resorbable soft tissue conduit; and neuroma.
Axotouch® Two-Point Discriminator, used to measure the innervation density of any surface area of the skin.
Our portfolio of products is currently available in the U.S.,United States, Canada, Germany, the UK,United Kingdom, Spain South Korea, and several other European, Asian and Latin American countries.
Revenue from the distribution of our nerve repair products, Avance® Nerve Graft, Axoguard Nerve Connector®, Axoguard Nerve Protector®, Axoguard HA+ Nerve Protector™, and Axoguard Nerve Cap®, in the United States ("U.S.") is the main contributor to our total reported sales and have been the key component of our growth to date.
As previously announced, we suspended the market availability of Avive® Soft Tissue Membrane ("Avive") effectiveon June 1, 2021, and we continue discussions with the FDAU.S. Food and Drug Administration ("FDA") to determine the appropriate regulatory classification and requirements for Avive.The suspension was not based on any known or reported safety or product performance issues or concerns with Avive. We seek to return Avive to the market, although we are unable to estimate the timeframe or provide any assurances that a return to the market will be achievable. Avive has historically represented approximately 5% of our revenues through the second quarter of 2021 and no Avive revenue was recorded during the six months ended June 30, 2022.
Revenue from the distribution of our nerve repair products, Avance Nerve Graft, Axoguard Nerve Connector, Axoguard Nerve Protector, and Axoguard Nerve Cap in the United States is the main contributor to our total reported sales and has been the key component of our growth to date.
We have observed that surgeons are initially cautious adopters of nerve repair products. Surgeons typically start with a few cases and then wait and review the results of these initial cases. Active accounts are usually past this wait period and have developed some level of product reorder. These active accounts have typically gone through the Value Analysis Committee approval process, have at least one surgeon who has converted a portion of his or her treatment algorithms of peripheral nerve repair to our portfolio and have ordered our products at least six times in the last twelve months. As of June 30, 2022,2023, we had 941



974 active accounts, an increase of 2% compared to the first quarter3.5% from 941 as of June 30, 2022, of 923, and a decrease of 2%1.1% from 959 one year ago.985 compared to March 31, 2023. Active accounts are approximately 85% of our revenue. The top 10% of these active accounts continue to represent approximately 35% of our revenue. As our business continues to grow, we have transitioned to reporting a new account metric that we believe demonstrates the strength of adoption and potential revenue growth in
Core accounts that have developed a more consistent use of our products in their nerve repair algorithm. We refer to these as core accounts which we defineare defined as accounts that have purchased at least $100,000 in the past twelve months. As of June 30, 2022,2023, we had 299347 core accounts, an increase of 5% compared to the first quarter16% from 299 as of June 30, 2022, of 285, and a decrease of 2% or 3060.9% from one year ago.350 compared to March 31, 2023. These core accounts represented approximately 60% of our revenue in the quarter, which has remained consistent over the past two years.
Our business was originally anchored in emergent trauma and over the past several years we have introduced a number of new nerve repair applications that utilize our Avance and Axoguard product lines. These new applications share common characteristics that now lead us to think about our business along two primary categories, scheduled non-trauma (“Scheduled”) procedures, and emergent trauma (“Emergent”) procedures.
Scheduled procedures are generally characterized as procedures where a patient is seeking relief of a condition caused by a nerve defect or surgical procedure. These include breast reconstruction following a mastectomy, nerve reconstruction following the surgical removal of painful neuromas, oral and maxillofacial procedures, and nerve decompression.
The nature of Scheduled procedures affords patients the opportunity to actively search for treatment options and advocate for solutions that may improve quality of life following the procedure. For example, in breast reconstruction, this may include prioritizing neurotization as a part of their treatment plan. These procedures lend themselves to standardization of surgical techniques and more consistent nerve repair algorithms. In addition, these patients are likely to engage in extended follow-up evaluations with their physicians.
Emergent procedures generally result from injuries that initially present in an emergency room. These procedures are typically referred to and completed by a specialist either immediately or within a few days following the initial injury. Given the emergent and diverse nature of traumatic injuries, the required repair algorithm and procedure scheduling can be highly variable, and follow-up evaluations are generally inconsistent.
While the various applications can have unique surgeon customers, the procedures are often performed in the same accounts and use the same family of Axogen products. Scheduled procedures typically have a higher value of Axogen products used per procedure as compared to routine trauma; and, given the planned nature of these procedures, there is a higher level of predictability and are generally additive to our sales rep productivity.
Reporting by application has historically been challenging. However, we have recently developed improved analytical tools that we believe allow us to better monitor product utilization data within accounts and generate improved estimates of our revenue by application. We estimate revenue by application using the information received from hospitals and sales representatives based on assumptions regarding specific surgeon practice and account information. Accordingly, the accuracy of our estimates is subject to the limited data we receive and the accuracy of those assumptions.
We estimate that the mix of Scheduled and Emergent procedures for fiscal year 2022 was approximately 45% Scheduled and 55% Emergent. In the first half of 2023, the mix has shifted to approximately 50% Scheduled and 50% Emergent; and we expect Scheduled procedure growth will continue to outpace Emergent procedure growth and continue to become a larger mix of our revenue over time.
Summary of Operational and Business Highlights
Revenues were $38,155 for the quarter ended June 30, 2023, an increase of $3,701 or 10.7% compared to the quarter ended June 30, 2022.
We estimate revenues from Scheduled procedures represent approximately half of total revenues for the quarter ended June 30, 2023 and grew over 20% from the quarter ended June 30, 2022.
We estimate revenues from Emergent procedures represent approximately half of total revenues for the quarter ended June 30, 2023 and grew in the low single digit percent range from the quarter ended June 30, 2022.
Gross profit was $30,927 for the quarter ended June 30, 2023, an increase of $2,757 or 9.8% compared to the quarter ended June 30, 2022.
We had 115 direct sales representatives as of June 30, 2023, and December 31, 2022.



We successfully initiated the pilot launch of the Axoguard HA+ Nerve Protector™ in the quarter ended June 30, 2023 and expect to fully launch this extension of its nerve protection platform later this month.
We ended the quarter with over 200 peer-reviewed clinical publications featuring our nerve repair product portfolio.
We completed construction of the APC and in the second quarter of 2023 placed into service the warehouse and office spaces, and now expect to begin processing tissue in the APC in the third quarter of 2023.
We will include tissue processing information from the APC in our submission of the BLA for Avance Nerve Graft. Additionally, we will request the utilization of a rolling submission process with the FDA at a pre-BLA meeting that is expected to occur by early first quarter 2024. If the rolling BLA submission is approved by the FDA, we expect to begin the rolling submission in the first quarter of 2024 and complete the full submission in the second quarter of 2024. We also expect, if the BLA submission proceeds in accordance with this timeline, this process will support BLA approval in the first half of 2025.



Results of Operations
Comparison of the Three Months Ended June 30, 20222023, and 20212022
The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and percentage of total revenue:

Three Months Ended June 30,Three Months Ended June 30,
2022202120232022
Amount% of
Revenue
Amount% of
Revenue
Amount% of
Revenue
Amount% of
Revenue
(dollars in thousands)(dollars in thousands)
RevenuesRevenues$34,454 100.0 %$33,580 100.0 %Revenues$38,155 100.0 %$34,454 100.0 %
Cost of goods soldCost of goods sold6,284 18.2 %7,092 21.1 %Cost of goods sold7,228 18.9 6,284 18.2 
Gross profitGross profit28,170 81.8 %26,488 78.9 %Gross profit30,927 81.1 28,170 81.8 
Costs and expensesCosts and expensesCosts and expenses
Sales and marketingSales and marketing19,669 57.1 %19,250 57.3 %Sales and marketing20,838 54.6 19,669 57.1 
Research and developmentResearch and development7,022 20.4 %5,723 17.0 %Research and development7,363 19.3 7,022 20.4 
General and administrativeGeneral and administrative9,403 27.3 %8,669 25.8 %General and administrative9,628 25.2 9,403 27.3 
Total costs and expensesTotal costs and expenses36,094 104.8 %33,642 100.2 %Total costs and expenses37,829 99.1 36,094 104.8 
Loss from operationsLoss from operations(7,924)(23.0)%(7,154)(21.3)%Loss from operations(6,902)(18.1)(7,924)(23.0)
Other (expense) income:
Other income (expense):Other income (expense):
Investment incomeInvestment income32 0.1 %29 0.1 %Investment income235 0.6 32 0.1 
Interest expenseInterest expense(249)(0.7)%(565)(1.7)%Interest expense(148)(0.4)(249)(0.7)
Change in fair value of derivativesChange in fair value of derivatives434 1.3 %(84)(0.3)%Change in fair value of derivatives432 1.1 434 1.3 
Other expenseOther expense(33)(0.1)%(124)(0.4)%Other expense(277)(0.7)(33)(0.1)
Total other expense, net184 0.5 %(744)(2.2)%
Net Loss$(7,740)(22.5)%$(7,898)(23.5)%
Total other income, netTotal other income, net242 0.6 184 0.5 
Net lossNet loss$(6,660)(17.5)%$(7,740)(22.5)%
Revenues
Revenues for the three months ended June 30, 20222023, increased by $874$3,701 or 3%11% to $34,454$38,155 as compared to $33,580$34,454 for the three months ended June 30, 2021. Revenues were positively impacted2022. The increase in revenue was driven by an increase in price of 3.1% and product mix of approximately 2.5% offset by the decrease inunit volume of 3.1%. Excluding the impact of Avive revenue of $1,8266%, a 4.0% increase in the three months ended June 30, 2021, our revenues would have increased by approximately 9%.prices and 1.2% increase from changes in product mix.
Gross Profit
Gross profit for the three months ended June 30, 20222023, increased by $1,682$2,757 or 6%10% to $28,170$30,927 as compared to $26,488$28,170 for the three months ended June 30, 2021.2022. Gross margin increased towas 81% and 82% from 79% year over year, the prior year included a provision for the write down of Avive inventory of approximately $1,429.three months ended June 30, 2023, and 2022, respectively.
Costs and Expenses
Total costs and expenses increased by $2,452$1,735 or 7%5% to $37,829 for the three months ended June 30, 2023, as compared to $36,094 for the three months ended June 30, 2022, as compared2022. The net increase in total costs and expenses was primarily the result of increased compensation costs of $1,824 and marketing programs of $326, partially offset by reduction in research and development projects of $342.
Sales and marketing expenses increased $1,169 or 6% to $33,642$20,838 for the three months ended June 30, 2021. The increase in total operating expenses was a result of an increase in research and development costs of $1,005, due primarily to increases in product development and clinical programs, compensation costs of $682 and travel costs of $5952023, as a result of the increase in sales travel to hospitals and physician offices.
Sales and marketing expenses increased $419 or 2%compared to $19,669 for the three months ended June 30, 2022, as compared to $19,250 for the three months ended June 30, 2021.2022. This increase was primarily attributable to travel related costother services of $428 due to$496, marketing programs of $326 and compensation costs of $306.



increase in sales travel to hospitals and physician offices and net compensation related expenses of $362, partially offset by a reduction in marketing programs of $204 and other services of $125.
Research and development expenses increased $1,299$341 or 23%5% to $7,363 for the three months ended June 30, 2023, as compared to $7,022 for the three months ended June 30, 2022, as compared to $5,723 for the three months ended June 30, 2021.2022. The increase was primarily due to product development and clinical expenses of $1,005.expenses. Product development costs include spending in a number of specific programs including the non-clinical expenses related to the BLA for Avance Nerve Graft and a next generation Avance product.Graft. Product development expenses represented approximately 51%58% and 52%51% of total research and development expense for the three months ended June 30, 2022,2023, and 2021,2022, respectively. Clinical trial expenses represented approximately 49%42% and 48%49% of total research and development expense the three months ended June 30, 2023, and 2022, respectively.
General and administrative expenses increased $225 or 2% to $9,628 for the three months ended June 30, 2022, and 2021, respectively.
General and administrative expenses increased $734 or 8%2023, as compared to $9,403 for the three months ended June 30, 2022,2022. The increase was primarily due to compensation costs of $1,627 offset by lower insurance fees of $438, professional services of $431, merchant fees of $298 and other, net of $227.
Other Income and Expense
Other income, net increased $58 or 32% to $242 for thethree months ended June 30, 2023, as compared to $8,669other income, net of $184 for the three months ended June 30, 2021.2022. The net increase was due to an increase in investment income of $203 and a decrease in interest expense of $101 partially offset by an increase in other expenses of $240.
Investment income increased $203 to $235 for the three months ended June 30, 2023, as compared to an investment income of $32 for the three months ended June 30, 2022. This change was primarily due to higher net compensation expenses of $515.
Other Expense and Incomean increase in interest rates.
Interest expense decreased $101 or 41% to $148 for the three months ended June 30, 2023, as compared to $249 for the three months ended June 30, 2022, as compared2022. The decrease was primarily due to $565capitalizing the interest expense related to the Credit Facility for the three months ended June 30, 2021.2023. We recognized total interest chargesexpense of $1,795$1,824 and $1,251$1,795 in connection with the OberlandCredit Facility infor the three months ended June 30, 2023, and 2022, respectively, of which $2,049 and 2021, respectively, $1,579 and $645 of this interest was capitalized to the construction costs of the APC Facility during the second quarter of 20222023 and 2021,2022, respectively.
Income Taxes
We had no income tax expense or benefit during the three months ended June 30, 2022,2023, and 20212022 due to the incurrence of net operating losses in each of these periods, the benefits of which have been fully reserved.a full valuation allowance. We do not believe that there are any additional tax expenses or benefits currently available.




Comparison of the Six Months Ended June 30, 20212023, and 20202022
Six Months Ended June 30,
20222021
Amount% of
Revenue
Amount% of
Revenue
(dollars in thousands)
Revenues$65,461 100.0 %$64,617 100.0 %
Cost of goods sold11,830 18.1 %12,264 19.0 %
Gross Profit53,631 81.9 %52,353 81.0 %
Cost and expenses
Sales and marketing40,557 62.0 %37,224 57.6 %
Research and development13,296 20.3 %11,471 17.8 %
General and administrative19,021 29.1 %17,032 26.4 %
Total costs and expenses72,874 111.3 %65,727 26.4 %
Loss from operations$(19,243)(29.4)%(13,374)(20.7)%
Other (expense) income:
Investment (expense) income(15)— %63 0.1 %
Interest expense(603)(0.9)%(1,010)(1.6)%
Change in fair value of derivatives680 1.0 %(105)(1.6)%
Other expense(34)(0.1)%(132)(0.2)%
Total other (expense) income, net28 — %(1,184)(1.8)%
Net Loss$(19,215)(29.4)%$(14,558)(22.5)%
The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and percentage of total revenue:
Six Months Ended June 30,
20232022
Amount% of
Revenue
Amount% of
Revenue
(dollars in thousands)
Revenues$74,819 100.0 %$65,461 100.0 %
Cost of goods sold13,937 18.6 %11,830 18.1 %
Gross profit60,882 81.4 %53,631 81.9 %
Costs and expenses
Sales and marketing42,456 56.7 %40,557 62.0 %
Research and development14,043 18.8 %13,296 20.3 %
General and administrative18,627 24.9 %19,021 29.1 %
Total costs and expenses75,126 100.4 %72,874 111.3 %
Loss from operations(14,244)(19.0)%(19,243)(29.40)
Other income (expense):
Investment income (loss)784 1.0 %(15)— %
Interest expense(164)(0.2)%(603)(0.9)%
Change in fair value of derivatives247 0.3 %686 1.0 %
Other expense(357)(0.5)%(40)(0.1)%
Total other income, net510 0.7 %28 — %
Net loss$(13,734)(18.4)%$(19,215)(29.4)%
Revenues
Revenues for six months ended June 30, 2023, increased $9,358 or 14.3% to $74,819 as compared to $65,461 for the six months ended June 30, 2022, increased 1% to $65,461 as compared to $64,617 for the six months ended June 30, 2021. Revenue2022. The increase in revenue was negatively impacteddriven by a decreasean increase in unit volume of approximately 3%, offset by the net impact of changes8% as well as a 4% increase in prices and 3% in product mix of approximately 4%. Excluding the impact of Avive revenue of $3,574 in the six months ended June 30, 2021, revenue would have increased approximately 7%.mix.
Gross Profit

Gross profit for the six months ended June 30, 2022,2023, increased 2.4%$7,251 or 14% to $53,631$60,882 as compared to $52,353$53,631 for the six months ended June 30, 2021.2022. Gross margin increased towas 81% and 82% for the six months ended June 30, 2023, and 2022, comparedrespectively.
Costs and Expenses
Total costs and expenses increased $2,252 or 3% to 81%$75,126 for the six months ended June 30, 2021. In the prior year we recorded a $1,429 charge in the second quarter, reflecting the write-down of inventory and related production costs due to the suspension of market availability of Avive.
Costs and Expenses

Total costs and expenses increased 11%2023, as compared to $72,874 for the six months ended June 30, 2022, as compared2022. The net increase in total costs and expenses was primarily the result of increased compensation costs of $3,174, marketing programs of $463 and occupancy costs of $303 partially offset by reduction in projects of $862 and professional services of $739.
Sales and marketing expenses increased $1,899 or 5% to $65,727$42,456 for the six months ended June 30, 2021. The increase in total operating expenses was a result of the following: (i) compensation expense of $2,133, primarily due to an increase in head count and stock based compensation; (ii) travel cost of $1,410 due to increased travel2023, as a result of the return of sales travel to hospitals and physician offices; (iii) research and development projects of $1,314; (iv) marketing programs of $883; and (v) $740 of occupancy costs.

Sales and marketing expenses increased 9%compared to $40,557 for the six months ended June 30, 2022, as compared2022. This increase was primarily attributable to $37,224other services of $1,196, marketing programs of $463 and travel of $204.
Research and development expenses increased $747 or 6% to $14,043 for the six months ended June 30, 2021. This increase was primarily attributable to the following: (i) compensation related expenses of $1,354 primarily due to increase in headcount; (ii) travel related expenses of $1,066,2023, as hospital access and restrictions improved; and (iii) marketing development programs of $883.

Research and development expenses increased 16%compared to $13,296 for the six months ended June 30, 2022, as compared to $11,471 for six months ended June 30, 2021.2022. The increase was primarily due to compensation related product development and



clinical expenses of $1,314.expenses. Product development costs include spending in a number of specific programs including the non-clinical expenses related to the BLA for Avance Nerve Graft and a next generation Avance product.Graft. Product development expenses represented approximately 51%57% and 56% of total research and development expense during the six months ended June 30, 2022, and 2021. Clinical trial expenses represented approximately 49% and 44% 51%



of total research and development expense for the six months ended June 30, 2023, and 2022, respectively. Clinical trial expenses represented approximately 42% and 2021.49% of total research and development expense for the six months ended June 30, 2023, and 2022, respectively.

General and administrative expenses increased 12%decreased $394 or 2% to $18,627 for the six months ended June 30, 2023, as compared to $19,021 for the six months ended June 30, 2022, as compared2022. The decrease was primarily due to $17,032lower professional services of $1,489, merchant fees of $675, bad debt expense of $586, insurance expense of $553 and other services of $327 partially offset by an increase in net compensation costs of $3,233.
Other Income and Expense
Other income, net increased $482 to $510 for the six months ended June 30, 2021. The increase was primarily due2023, as compared to other expense, net compensation related expenses of $627, professional services in the quarter, including legal and consulting services of $ 627, and occupancy-related costs of $407.

Other Income and Expenses
Total other income was $28 for the six months ended June 30, 2022, compared to2022. The net increase was driven by an increase in investment income of $799 and income and a decrease in interest expense of $1,184$439, partially offset by an increase in other expense of $317 and the change in fair value of derivatives of $439.
Investment income increased $799 to $784 for the six months ended June 30, 2021. The change was primarily due2023, as compared to the non-cash change in the fair valuean investment loss of the derivative of $785 year-over-year. We recognized total interest charges of $3,537 and $2,233 in connection with the Oberland Facility during$15 for the six months ended June 30, 2022. This change was primarily due to increased interest rates.
Interest expense decreased $439 to $164 for the six months ended June 30, 2023, as compared to $603 for the six months ended June 30, 2022. The decrease was primarily due to capitalizing the interest expense related to APC for the six months ended June 30, 2023. We recognized total interest expense of $2,830 and $3,537 in connection with the Credit Facility for the six months ended June 30, 2023, and 2022, respectively, of which $4,196 and 2021, respectively, $3,024 and $1,690 of this interest was capitalized to the construction costs of the APC Facility during the six months ended June 30, 2023, and 2022, and 2021, respectively. The increase in total interest expense over the prior period was the result of higher interest rates on the Credit Facility.
Income Taxes
We had no income tax expense or benefit for each ofduring the six months ended June 30, 2022,2023, and 2021,2022 due to the incurrence of net operating losses in each of these periods, the benefits of which have been fully reserved.a full valuation allowance. We do not believe that there are any additional tax expenses or benefits currently available.
Critical Accounting PoliciesEstimates
In preparing financial statements, we follow accounting principles generally accepted in the United States, which require us to make certain estimates and apply judgments that affect our financial position and results of operations. Management regularly reviews our accounting policies and financial information disclosures. A summary of significant accounting policiesestimates that require the use of estimates and judgments in preparing the financial statements was provided in our 20212022 Annual Report on Form 10-K. During the quarter and six months covered by this report, there were no material changes to the accounting policiesestimates and assumptions previously disclosed, except as disclosed in Note 2. Summary of Significant Accounting Policies to the condensed consolidated financial statements contained herein.disclosed.
Liquidity and Capital Resources
Cash Flow Information
As of June 30, 2022,2023, our principal sources of liquidity were our cash and cash equivalents and investments totaling $64,283.$34,531. Our cash equivalents are comprised primarily of a money market mutual fund and our investments are comprisedconsist of primarily short-term commercial paper and U.S. Treasuries. Our cash and cash equivalents and investments decreased $26,054$14,258 from $90,337$48,789 at December 31, 2021,2022, primarily as a result of operating activities and renovating the APC Facility.
We had working capital of $83,175$62,243 and a current ratio of 4.5x3.6x at June 30, 2022,2023, compared to working capital of $102,756$74,322 and a current ratio of 5.2x4.1x at December 31, 2021.2022. The decrease in the current ratioour working capital at June 30, 2022,2023, as compared to December 31, 2021,2022, was primarily due to cash used in operations and to renovate the APC Facility, which is included in non-current assets and used in operations. Based on current estimates, we believe that our existing cash and cash equivalents and investments, as well as cash provided by sales of our products will allow us to fund our operations through at least the next 12 months.



Cash Flow Information
The following table presents a summary of cash flows from operating, investing and financing activities:
Six Months Ended June 30,
(In thousands)20232022
Net cash (used in) provided by:
Operating activities$(7,131)$(16,739)
Investing activities13,536 (4,962)
Financing activities1,531 766 
Net increase (decrease) in cash, cash equivalents, and restricted cash$7,936 $(20,935)
Net Cash Used in Operating Activities
Net cash used in operating activities was $7,131 and $16,739 during the six months ended June 30, 2023, and 2022, respectively. The favorable change in net cash used in operating activities of $9,608, or 57%, is due to the decrease in net loss of $5,481 and the net favorable change of $4,234 in working capital accounts.
Net Cash Used in Investing Activities
Net cash provided by investing activities for the six months ended June 30, 2023, was $13,536 as compared to net cash used in investing activities of $4,962 for the six months ended June 30, 2022, an increase of $18,498, or 373%. The increase of net cash provided by investing activities is principally due to the increase in the net proceeds from the sale and purchase of investments totaling $17,795, the reduction in purchases of property and equipment of $366 and the reduction in purchases of intangible assets of $336 during the six months ended June 30, 2023.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $1,531 and $766 for the six months ended June 30, 2023, and 2022, respectively, an increase of $765. The favorable change in net cash provided by financing activities was primarily due to the increase in proceeds from the exercise of stock options of $776 during the six months ended June 30, 2023.
Sources of Capital
Our expected future capital requirements may depend on a number ofmany factors including without limitation,expanding our growth rate, thecustomer base and sales force and timing and extent of spending to support development efforts, the expansion of salesin obtaining regulatory approval and marketing activities, the acquisition and/or developmentintroduction of new products and the costproducts. Additional sources of products. We could face increasing capital needs. Such capital needs could be substantial depending on the extentliquidity available to which we are unable to increase revenue.
If we needus include issuance of additional capital in the future, we may raise additional fundsequity securities through public or private equity offerings, debt financings or from other sources. The sale of additional equity wouldmay result in dilution to our shareholders. There is no assurance that we will be able to secure funding on terms acceptable to us, or at all. The increasing need for capital could also make it more difficult to obtain funding through either equity or debt. Should additional capital not become available to us as



needed, we may be required to take certain actions, such as slowing sales and marketing expansion, delaying regulatory approvals, or reducing headcount.
Contractual Obligations and Forward-Looking Cash Flow Information
The following table presents a summary of cash flows from operating, investing and financing activities:
Six Months Ended June 30,
(In thousands)20222021
Net cash (used in) provided by:
Operating activities$(16,739)$(11,515)
Investing activities(4,962)(3,287)
Financing activities766 18,604 
Net decrease in cash, cash equivalents, and restricted cash$(20,935)$3,802 
Requirements
Net Cash Used in Operating Activities
Net cash used in operating activities was $16,739 and $11,515 during the six months ended June 30, 2022, and 2021, respectively. The unfavorable change in net cash used in operating activities of $5,224 or 45% is due to the following: (i) the net unfavorable change of $230 in working capital accounts and the increase in net loss of $4,657.
Net Cash Used in Investing Activities
Net cash used in investing activities for the six months ended June 30, 2022, was $4,962 as compared to $3,287 for the six months ended June 30, 2021, an increase of $1,675 or 51%. The increase in net cash used in investing activities is principally due to the reduction in the net proceeds from the sale of investments totaling $3,353 and the increase in cash payments for intangible assets of $160 during the six months ended June 30, 2022, which was partially offset by a decrease in the purchases of property and equipment of $1,838.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $766 and $18,604 for the six months ended June 30, 2022, and 2021, respectively, a decrease of 17,838 or 96%. The unfavorable change in net cash provided by financing activities was primarily due to the $15,000 of proceeds from the issuance of long-term debt and $2,845 decrease in proceeds from the exercise of stock options received during six months ended June 30, 2022.
Operating Cash Requirements
APC Facility Commitment
On July 9, 2019, we entered into thea Standard Form of Agreement Between Owner and Design-Builder with CRB (the "Design Build Agreement"Builders, L.L.C., (“CRB”). The estimated cost, pursuant to which CRB will renovate and retrofit the Design-Build Agreement is $29,300. Additional costs associated withAPC Facility. We anticipate spending between $2,000 to $3,000 in the renovation, purchasingremainder of furniture2023. See Note 12 - Commitments and equipment, validation and certification ofContingencies.
In addition to the APC Facility are estimatedcapital expenditures, other capital expenditures on an annual basis generally range from $4,000 to be $20,900, plus projected capitalized interest$5,000 as a use of $11,300. cash.
We have recorded $49,145 to datelease facilities in Florida, Ohio and Texas, and as of June 30, 2023, our total remaining obligation related to this project, including capitalized interest of $8,298. We anticipate spending $12,355, including projected capitalized interest of $3,002,operating and financing lease payments was $36,190, of which $1,700$1,620 is anticipated in 2023. Construction of the facility is now substantially complete. We anticipate completion of validation and certification of the facility by early 2023, followed by commencement of tissue processingdue in the facility.remainder of 2023. See Note 7 - Leases.
Credit Facilities
OnAs of June 30, 2020,2023, we entered into the Oberland Facility and obtained the first tranche ofhad $50,000 outstanding in indebtedness under a credit facility: $35,000 at closing. Onmaturing on June 30, 2021,2027, and $15,000 maturing on June 30, 2028. Quarterly interest only and revenue participation payments are due through each



of the second tranche of $15,000 was drawn down by the Company. The financing costs for this facility were $642 and were recorded as a contra liability to the debt facility.
The Oberland Facility requires quarterly interest payments for seven years.maturity dates. Interest is calculated as 7.5% plus the greater of LIBORthree-month SOFR plus 0.1% ("Adjusted SOFR") or 2.0% (9.5%(12.68% as of June 30, 2022)2023). Each tranche of the Oberland Facility has a term of seven years from the date of issuance (with the first tranche issued on June 30, 2020, maturing on June 30, 2027, and the second tranche issued on June 30, 2021, maturing on June 30, 2028). In connection with the Oberland Facility, we entered into a revenueRevenue participation agreement



with Oberland Capital, which provides that, among other things, a quarterly royalty paymentpayments are calculated as a percentage of our net revenues, up to $70 million$70,000 in any given year, subject to certain limitations set forth therein, during the period commencing on the later of (i) April 1, 2021 and (ii) the date of funding of a tranche of the loan, and ending on the date upon which all amounts owed under the Oberland Facility have been paid in full (the “Revenue Participation Agreement”). Royalty payments commenced on September 30, 2021. This royalty structure results inadding approximately 1.0% per year of additional interest payments on the outstanding loan amount.indebtedness. Upon each maturity date or upon such date earlier repayment of the Oberland Facility,occurs, we will repay the principal balance and provide a make-whole payment calculated to generate an internal rate of return to Oberland Capitalthe lender equal to 11.5%, less the total of all quarterly interest and royaltyrevenue participation payments previously paid to Oberland Capital.

paid. See Note 8 - Long-Term Debt, Net of Debt Discount and Financing Fees and Note 12 - Commitments and Contingencies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of our market risks, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” included in our 20212022 Annual Report on Form 10-K. There have been no material changes to any of these risks since December 31, 2021.

The amount of interest expense on the outstanding debt is based on LIBOR. Adjusted SOFR. Changes in the Adjusted SOFR rate may affect our interest expense associated with the Credit Facility. Based on the outstanding balance of the debtCredit Facility as of June 30, 2022,2023, a hypothetical 100 basis point increase in the applicable rate would result in an increase to our annual interest expense of approximately $500.





ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, and Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.
Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 20222023, and concluded that our disclosure controls and procedures were effective.
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended June 30, 20222023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(d) or 15d-15(f) of the Exchange Act).




PART II –OTHER INFORMATION
ITEM 1 – LEGAL PROCEEDINGS
As disclosed in "NoteNote 12 - Commitments and Contingencies"Contingencies in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, we are engaged in certain legal proceedings, and the disclosure set forth in Note 12 - Commitments and Contingencies relating to legal proceedings is incorporated herein by reference.
ITEM 1A - RISK FACTORS
There have been no material changes to the risk factors disclosed in our 20212022 Annual Report on Form 10-K, except as set forth below.10-K. Any investment in our business involves a high degree of risk. Before making an investment decision, you should carefully consider the information we include in this Quarterly Report on Form 10-Q, including our unaudited interim condensed consolidated financial statements and accompanying notes, our Annual Report on Form 10-K for the year ended December 31, 2021,2022, including our financial statements and related notes contained therein, and the additional information in the other reports we file with the Securities and Exchange Commission. These risks may result in material harm to our business and our financial condition and results of operations. In this event, the market price of our common stock may decline, and you could lose part or all of your investment. Additional risks that we currently believe are immaterial may also impair our business operations. Our business, financial conditions and future prospects and the trading price of our common stock could be harmed as a result of any of these risks.

We are currently operating in a period of economic uncertainty and capital markets disruption, which has been significantly impacted by geopolitical instability, an ongoing military conflict between Russia and Ukraine, and record inflation. Our business, financial condition and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine, geopolitical tensions, or record inflation.

We are exposed to the risk of changes in social, geopolitical, legal, and economic conditions. The global economy has been, and may continue to be, negatively impacted by Russia’s invasion of Ukraine. As a result of Russia's invasion of Ukraine, the United States, the European Union, the United Kingdom, and other G7 countries, among other countries, have imposed substantial financial and economic sanctions on certain industry sectors and parties in Russia. Broad restrictions on exports to Russia have also been imposed. These measures include: (i) comprehensive financial sanctions against major Russian banks; (ii) additional designations of Russian individuals with significant business interests and government connections; (iii) designations of individuals and entities involved in Russian military activities; and (iv) enhanced export controls and trade sanctions limiting Russia's ability to import various goods.
Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine has led to market disruptions, including significant volatility in commodity prices, credit markets, as well as supply chain interruptions, which has contributed to record inflation globally. In addition, the ongoing Russian military actions and the resulting sanctions could continue to adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for us to obtain additional funds. We are continuing to monitor inflation, the situation in Ukraine and global capital markets and assessing its potential impact on our business.
Although, to date, our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine, geopolitical tensions, or record inflation, it is impossible to predict the extent to which our operations will be impacted in the short and long term, or the ways in which such matters may impact our business. The extent and duration of the conflict in Ukraine, geopolitical tensions, record inflation and resulting market disruptions are impossible to predict but could be substantial. Any such disruptions may also magnify the impact of other risks described in our 2021 Annual Report on Form 10-K.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.



ITEM 4 - MINE SAFETY DISCLOSURES
Not Applicable.
ITEM 5 - OTHER INFORMATION
None.Supply Agreement and Distribution Agreement Amendments
On August 4, 2023, Axogen Corporation ("AC") entered into an amendment, effective as of August 4, 2023 ("Supply Agreement Amendment") to the Nerve End Cap Commercial Supply Agreement, dated June 27, 2017 (the "Supply Agreement") entered into by and between AC and Cook Biotech Incorporated ("Cook"). Pursuant to the Supply Agreement Amendment, the term of the Supply Agreement was extended through December 31, 2030.
On August 4, 2023, AC also entered into a third amendment, effective as of August 4, 2023 ("Distribution Agreement Amendment"), to the Distribution Agreement, dated August 27, 2008 (the "Distribution Agreement") entered into by and between AC and Cook, as amended on February 24, 2012, October 10, 2014, and February 26, 2018. Pursuant to the Distribution Agreement Amendment, the term of the Distribution Agreement was extended through December 31, 2030.



Rule 10b5-1 Trading Plans
During the quarter ended June 30, 2023, our Section 16 officers and directors adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement” as each term is defined in Item 408(a) of Regulation S-K as noted below:
Trading Arrangement
Name and TitleActionAdoption DateRule 10b5-1*Non-Rule 10b5-1**Aggregate Number of Securities to be SoldExpiration Date
Maria Martinez, Chief Human Resource OfficerAdopt6/15/2023X39,1746/15/2024
*Intended to satisfy the affirmative defense of Rule 10b5-1(c)
** Not intended to satisfy the affirmative defense of Rule 10b5-1(c)



ITEM 6 - EXHIBITS
Exhibit
Number
Description
10.1**10.1
10.2**10.2†
10.3**10.3 †
10.4**
10.5**
31.1†
31.2†
32††
101.INS†XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH†XBRL Taxonomy Extension Schema Document.
101.CAL†XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF†XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB†XBRL Extension Labels Linkbase.
101.PRE†XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File – The cover pages doesdo not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
†     Filed herewith.
††   Furnished herewith.



** Management contract or compensatory plan or arrangement.



SIGNATURES
Pursuant to the requirements 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.
AXOGEN, INC.
Dated: August 5, 20228, 2023/s/ Karen Zaderej
Karen Zaderej
Chief Executive Officer and President
(Principal Executive Officer)
Dated: August 5, 20228, 2023/s/ Peter J. Mariani
Peter J. Mariani
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)