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 ~~September~~June 30, ~~2022~~2023


☐			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 class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.01 par value	AXGN	The 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 filer	☐	Accelerated filer	☒

Non-accelerated filer	☐	Smaller 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 ~~November~~August 1, ~~2022,~~2023, the registrant had ~~42,286,590~~42,983,584 shares of common stock outstanding.

Table of Contents


Part I - Financial Information
Item 1.	Financial Statements	3
	Condensed Consolidated Balance ~~Sheet~~Sheets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	4
	Condensed Consolidated Statements of Cash ~~flows~~Flows for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ (Unaudited)	5
	Condensed Consolidated Statements of Changes in Shareholders' Equity for the three ~~and~~ ~~nine~~and six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2219

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2827

Item 4.	Controls and Procedures	2928

Part II - Other Information

Item 1.	Legal Proceedings	3029

Item 1A.	Risk Factors	3029

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3029

Item 3.	Defaults Upon Senior Securities	3029

Item 4.	Mine Safety Disclosures	3129

Item 5.	Other Information	3129

Item 6.	Exhibits	31

	Signatures	32

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 COVID-19 and any and all variants thereof on our business, including~~in this Form 10-Q include, but are not limited to ~~global supply chain issues; hospital staffing challenges and its impact on our business; statements~~the following:

•Statements regarding our ~~growth,~~intentions to return Avive to the market;

•Our expectation that our ~~financial guidance~~request 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, including~~products will allow us to fund our operations through at least the ~~potential~~next 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, timing~~operation, or cash flow:

•Our estimates concerning the mix of scheduled procedures and ~~outcomes; our visibility at and sponsorship of conferences~~emergent trauma procedures and our ~~educational events; regulatory process~~belief 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.

PART 1 — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

Axogen, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(In ~~Thousands, Except Share~~thousands, except share and ~~Per Share Amounts)~~per share amounts)


		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	14,318	$	32,756	Cash and cash equivalents	$	23,219	$	15,284
Restricted cash	Restricted cash	6,251		6,251		Restricted cash	6,252		6,251
Investments	Investments	38,792		51,330		Investments	11,312		33,505
Accounts receivable, net of allowance for doubtful accounts of $606 and $276, respectively		21,363		18,158
Accounts receivable, net of allowance for doubtful accounts of $595 and $650, respectively						Accounts receivable, net of allowance for doubtful accounts of $595 and $650, respectively	21,573		22,186
Inventory	Inventory	19,116		16,693		Inventory	21,237		18,905
Prepaid expenses and other	Prepaid expenses and other	2,614		1,861		Prepaid expenses and other	2,583		1,944
Total current assets	Total current assets	102,454		127,049		Total current assets	86,176		98,075
Property and equipment, net	Property and equipment, net	74,867		62,923		Property and equipment, net	87,459		79,294
Operating lease right-of-use assets	Operating lease right-of-use assets	14,751		15,193		Operating lease right-of-use assets	13,958		14,369

Intangible assets, net	Intangible assets, net	3,448		2,859		Intangible assets, net	4,048		3,649

Total assets	Total assets	$	195,520	$	208,024	Total assets	$	191,641	$	195,387

Liabilities and shareholders’ equity	Liabilities and shareholders’ equity					Liabilities and shareholders’ equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	22,017	$	22,459	Accounts payable and accrued expenses	$	22,893	$	22,443
Current maturities of long-term lease obligations	Current maturities of long-term lease obligations	1,530		1,834		Current maturities of long-term lease obligations	1,040		1,310
Total current liabilities	Total current liabilities	23,547		24,293		Total current liabilities	23,933		23,753

Long-term debt, net of debt discount and financing fees	Long-term debt, net of debt discount and financing fees	45,487		44,821		Long-term debt, net of debt discount and financing fees	46,154		45,712
Long-term lease obligations	Long-term lease obligations	20,634		20,798		Long-term lease obligations	20,131		20,405
Debt derivative liabilities	Debt derivative liabilities	4,407		5,562		Debt derivative liabilities	4,271		4,518

Total liabilities	Total liabilities	94,075		95,474		Total liabilities	94,489		94,388

Commitments and contingencies - see Note 12	Commitments and contingencies - see Note 12					Commitments and contingencies - see Note 12

Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, 0.01 par value per share; 100,000,000 shares authorized; 42,272,223 and 41,736,950 shares issued and outstanding		423		417
Common stock, 0.01 par value per share; 100,000,000 shares authorized; 42,979,541 and 42,445,517 shares issued and outstanding						Common stock, 0.01 par value per share; 100,000,000 shares authorized; 42,979,541 and 42,445,517 shares issued and outstanding	430		424
Additional paid-in capital	Additional paid-in capital	355,187		342,765		Additional paid-in capital	370,036		360,155
Accumulated deficit	Accumulated deficit	(254,165)		(230,632)		Accumulated deficit	(273,314)		(259,580)
Total shareholders’ equity	Total shareholders’ equity	101,445		112,550		Total shareholders’ equity	97,152		100,999
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	195,520	$	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 Ended				Nine Months Ended					Three Months Ended				Six Months Ended
		September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021			June 30, 2023		June 30, 2022		June 30, 2023		June 30, 2022

Revenues	Revenues	$	36,959	$	31,204	$	102,420	$	95,821	Revenues	$	38,155	$	34,454	$	74,819	$	65,461
Cost of goods sold	Cost of goods sold	6,176		5,239		18,006		17,503		Cost of goods sold	7,228		6,284		13,937		11,830
Gross profit	Gross profit	30,783		25,965		84,414		78,318		Gross profit	30,927		28,170		60,882		53,631
Costs and expenses:	Costs and expenses:									Costs and expenses:
Sales and marketing	Sales and marketing	19,792		18,370		60,349		55,594		Sales and marketing	20,838		19,669		42,456		40,557
Research and development	Research and development	7,050		6,404		20,347		17,875		Research and development	7,363		7,022		14,043		13,296
General and administrative	General and administrative	8,796		7,880		27,817		24,912		General and administrative	9,628		9,403		18,627		19,021
Total costs and expenses	Total costs and expenses	35,638		32,654		108,513		98,381		Total costs and expenses	37,829		36,094		75,126		72,874
Loss from operations	Loss from operations	(4,855)		(6,689)		(24,099)		(20,063)		Loss from operations	(6,902)		(7,924)		(14,244)		(19,243)
Other (expense) income:
Investment income		186		17		172		80
Other income (expense):										Other income (expense):
Investment income (loss)										Investment income (loss)	235		32		784		(15)
Interest expense	Interest expense	(61)		(417)		(664)		(1,427)		Interest expense	(148)		(249)		(164)		(603)
Change in fair value of derivatives	Change in fair value of derivatives	469		(46)		1,155		(152)		Change in fair value of derivatives	432		434		247		686
Other expense	Other expense	(57)		(6)		(97)		(137)		Other expense	(277)		(33)		(357)		(40)
Total other expense, net		537		(452)		566		(1,636)
Total other income (expense), net										Total other income (expense), net	242		184		510		28
Net loss	Net loss	$	(4,318)	$	(7,141)	$	(23,533)	$	(21,699)	Net loss	$	(6,660)	$	(7,740)	$	(13,734)	$	(19,215)

Weighted average common shares outstanding — basic and diluted	Weighted average common shares outstanding — basic and diluted	42,220,519		41,467,596		42,008,013		41,087,568		Weighted average common shares outstanding — basic and diluted	42,862,384		41,994,618		42,719,096		41,900,000
Loss per common share — basic and diluted	Loss per common share — basic and diluted	$	(0.10)	$	(0.17)	$	(0.56)	$	(0.53)	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)


		Nine Months Ended					Six Months Ended
		September 30, 2022		September 30, 2021			June 30, 2023		June 30, 2022
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(23,533)	$	(21,699)	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 amortization		2,182		2,059
Depreciation						Depreciation	1,506		1,418
Amortization of right-of-use assets	Amortization of right-of-use assets	1,303		1,418		Amortization of right-of-use assets	642		859
Amortization of intangible assets	Amortization of intangible assets	198		148		Amortization of intangible assets	144		132
Amortization of debt discount and deferred financing fees	Amortization of debt discount and deferred financing fees	667		384		Amortization of debt discount and deferred financing fees	442		442
Provision for bad debt		566		(145)
(Recovery of) provision for bad debt						(Recovery of) provision for bad debt	(37)		550
Provision for inventory write-down	Provision for inventory write-down	1,381		2,850		Provision for inventory write-down	1,052		928
Change in fair value of derivatives	Change in fair value of derivatives	(1,155)		152		Change in fair value of derivatives	(247)		(686)
Investment losses		44		49
Investment (gains) loss						Investment (gains) loss	(578)		145
Stock-based compensation	Stock-based compensation	11,437		9,410		Stock-based compensation	8,344		7,588
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Accounts receivable	Accounts receivable	(3,695)		(804)		Accounts receivable	650		(2,719)
Inventory	Inventory	(3,804)		(5,774)		Inventory	(3,384)		(3,458)
Prepaid expenses and other	Prepaid expenses and other	(828)		1,146		Prepaid expenses and other	(639)		(1,081)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(870)		(927)		Accounts payable and accrued expenses	(529)		(786)
Operating lease obligations	Operating lease obligations	(1,320)		(154)		Operating lease obligations	(762)		(856)
Cash paid for interest portion of finance leases						Cash paid for interest portion of finance leases	(1)		—

Cash paid for interest portion of finance leases		(1)		(1)
Contract and other liabilities		—		(3)
Net cash used in operating activities	Net cash used in operating activities	(17,428)		(11,891)		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 equipment	Purchase of property and equipment	(13,456)		(20,641)		Purchase of property and equipment	(8,719)		(9,086)
Economic development grant proceeds		—		950

Purchase of investments	Purchase of investments	(24,607)		(39,139)		Purchase of investments	(10,203)		(6,024)
Proceeds from sale of investments	Proceeds from sale of investments	37,100		49,300		Proceeds from sale of investments	32,974		11,000
Cash payments for intangible assets	Cash payments for intangible assets	(1,028)		(534)		Cash payments for intangible assets	(516)		(852)
Net cash used in investing activities		(1,991)		(10,064)
Net cash provided by (used in) investing activities						Net cash provided by (used in) investing activities	13,536		(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 leases	Cash paid for debt portion of finance leases	(9)		(12)		Cash paid for debt portion of finance leases	(12)		(1)
Proceeds from exercise of stock options and ESPP stock purchases	Proceeds from exercise of stock options and ESPP stock purchases	990		4,421		Proceeds from exercise of stock options and ESPP stock purchases	1,543		767
Net cash provided by financing activities	Net cash provided by financing activities	981		19,409		Net cash provided by financing activities	1,531		766
Net decrease in cash, cash equivalents, and restricted cash		(18,438)		(2,546)
Net increase (decrease) in cash, cash equivalents, and restricted cash						Net increase (decrease) in cash, cash equivalents, and restricted cash	7,936		(20,935)
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	39,007		55,609		Cash, cash equivalents, and restricted cash, beginning of period	21,535		39,007
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	20,569	$	53,063	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 interest	Cash paid for interest, net of capitalized interest	$	—	$	646	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 expenses	Acquisition of fixed assets in accounts payable and accrued expenses	$	2,090	$	1,460	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 liability	Obtaining a right-of-use asset in exchange for a lease liability	$	920	$	1,375	Obtaining a right-of-use asset in exchange for a lease liability	$	268	$	700
Obtaining of property and equipment in exchange for a lease liability		$	22	$	—
Embedded derivative associated with the long-term debt		$	—	$	1,173

Acquisition of intangible assets in accounts payable and accrued expenses	Acquisition of intangible assets in accounts payable and accrued expenses	$	177	$	261	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 Stock			Additional Paid-in Capital		Accumulated Deficit			Total Shareholders' Equity			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Shareholders' Equity
		Shares	Amount						Shares			Amount
Three Months Ended September 30, 2022
Balance at June 30, 2022		42,134,504	$	420	$	351,117	$	(249,847)		$	101,690
Three Months Ended June 30, 2023												Three Months Ended June 30, 2023
Balance at March 31, 2023												Balance at March 31, 2023	42,809,994	$	428	$	363,739	$	(266,654)	$	97,513
Net loss	Net loss	—	—		—		(4,318)			(4,318)		Net loss	—	—		—		(6,660)		(6,660)
Stock-based compensation	Stock-based compensation	—	—		3,849		—			3,849		Stock-based compensation	—	—		5,390		—		5,390
Issuance of restricted and performance stock units	Issuance of restricted and performance stock units	55,934	1		(1)		—			—		Issuance of restricted and performance stock units	57,659	1		(1)		—		—
Exercise of stock options and employee stock purchase plan	Exercise of stock options and employee stock purchase plan	81,785	2		222		—			224		Exercise of stock options and employee stock purchase plan	111,888	1		908		—		909
Balance at September 30, 2022		42,272,223	$	423	$	355,187	$	(254,165)		$	101,445
Balance at June 30, 2023												Balance at June 30, 2023	42,979,541	$	430	$	370,036	$	(273,314)	$	97,152

Nine Months Ended September 30, 2022
Balance at December 31, 2021		41,736,950	417		$	342,765	$	(230,632)		$	112,550
Six Months Ended June 30, 2023												Six Months Ended June 30, 2023
Balance at December 31, 2022												Balance at December 31, 2022	42,445,517	$	424	$	360,155	$	(259,580)	$	100,999
Net loss	Net loss	—	—		—		(23,533)			(23,533)		Net loss	—	—		—		(13,734)		(13,734)
Stock-based compensation	Stock-based compensation	—	—		11,437		—			11,437		Stock-based compensation	—	—		8,344		—		8,344
Issuance of restricted and performance stock units	Issuance of restricted and performance stock units	315,275	3		(3)		—			—		Issuance of restricted and performance stock units	296,378	4		(4)		—		—

Exercise of stock options and employee stock purchase plan	Exercise of stock options and employee stock purchase plan	219,998	3		988		—			991		Exercise of stock options and employee stock purchase plan	237,646	2		1,541		—		1,543
Balance at September 30, 2022		42,272,223	$	423	$	355,187	$	(254,165)		$	101,445
Balance at June 30, 2023												Balance at June 30, 2023	42,979,541	$	430	$	370,036	$	(273,314)	$	97,152

Three Months Ended September 30, 2021
Balance at June 30, 2021		41,337,108	$	413	$	336,495	$	(218,205)		118,703
Three Months Ended June 30, 2022												Three Months Ended June 30, 2022
Balance at March 31, 2022												Balance at March 31, 2022	41,972,987	$	420	$	345,538	$	(242,107)	$	103,851
Net loss	Net loss	—	$	—	$	—	$	(7,141)		$	(7,141)	Net loss	—	—		—		(7,740)		(7,740)
Stock-based compensation	Stock-based compensation	—	—		2,911		—			2,911		Stock-based compensation		—		4,910		—		4,910
Issuance of restricted and performance stock units	Issuance of restricted and performance stock units	67,249	$	1	$	(1)	$	—		$	—	Issuance of restricted and performance stock units	44,054	—		—		—		—
Exercise of stock options and employee stock purchase plan	Exercise of stock options and employee stock purchase plan	154,572	1		807		—			808		Exercise of stock options and employee stock purchase plan	117,463	—		669		—		669
Balance at September 30, 2021		41,558,929	$	415	$	340,212	$	(225,346)		$	115,281
Balance at June 30, 2022												Balance at June 30, 2022	42,134,504	$	420	$	351,117	$	(249,847)	$	101,690

Nine Months Ended September 30, 2021
Balance at December 31, 2020		40,618,766	$	406	$	326,390	$	(203,647)		123,149
Six Months Ended June 30, 2022												Six Months Ended June 30, 2022
Balance at December 31, 2021												Balance at December 31, 2021	41,736,950	$	417	$	342,765	$	(230,632)	112,550
Net loss	Net loss	—	—		—		(21,699)			(21,699)		Net loss	—	—		—		(19,215)		(19,215)
Stock-based compensation	Stock-based compensation	—	—		9,410		—			9,410		Stock-based compensation	—	—		7,588		—		7,588
Issuance of restricted and performance stock units	Issuance of restricted and performance stock units	206,193	2		(2)		—			—		Issuance of restricted and performance stock units	259,341	2		(2)		—		—
Exercise of stock options and employee stock purchase plan	Exercise of stock options and employee stock purchase plan	733,970	7		4,414		—			4,421		Exercise of stock options and employee stock purchase plan	138,213	1		766		—		767
Balance at September 30, 2021		41,558,929	$	415	$	340,212	$	(225,346)		$	115,281

Balance at June 30, 2022												Balance at June 30, 2022	42,134,504	$	420	$	351,117	$	(249,847)	$	101,690

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 ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, and for the three and ~~nine~~six months ended ~~September~~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 ~~nine~~six months ended ~~September~~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 ~~our~~the Company's markets for the remainder of fiscal year ~~2022. Specifically, there can be no assurance that the resurgence 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~~

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, 2021, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022 for a description of all significant accounting policies.2023.

Cash and Cash Equivalents and Concentration

~~The Company considers~~Cash and cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less atfrom the date of ~~acquisition as~~acquisition. 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 consolidated~~what they believe to be credit-worthy financial ~~statements. The Company has not experienced any losses related to these balances; however, as~~institutions. As of ~~September~~June 30, ~~2022, $13,818~~2023, $22,469 of the cash and cash equivalents balance was in excess of ~~Federal Deposit Insurance Corporation~~FDIC limits. ~~The Company had~~

Restricted Cash

Amounts included in restricted cash ~~balances~~represent those required to be set aside to meet contractual terms of ~~$6,251 for each of~~a lease agreement held by the periods ended September 30, 2022, and December 31, 2021. The September 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 ~~"Note~~Note 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)	September 30, 2022		December 31, 2021		(In thousands)	June 30, 2023		December 31, 2022
Cash and cash equivalents	Cash and cash equivalents	$	14,318	$	32,756	Cash and cash equivalents	$	23,219	$	15,284
Restricted cash	Restricted cash	6,251		6,251		Restricted cash	6,252		6,251
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	20,569	$	39,007	Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	29,471	$	21,535

St~~ock-Based Compensation~~Property and Equipment, Net

~~The Company measures stock options granted to employees~~Property and equipment, net are stated at ~~a premium price based on market conditions, such as~~historical cost less accumulated depreciation and amortization. Additions and improvements that extend the ~~trading price~~lives of the ~~Company’s common stock, using~~assets are capitalized, while expenditures for repairs and maintenance are expensed as incurred. Leasehold improvements are amortized on a ~~Monte Carlo Simulation model in estimating~~straight-line basis over the ~~fair value at grant date. The determination~~shorter of the ~~fair value~~asset’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 volatility~~calculated on a straight-line basis over the ~~term~~estimated useful lives of the ~~awards. The Company determines the expected life of each award giving consideration~~assets ranging from three to ~~the contractual terms, vesting schedules, and post-vesting forfeitures. The Company uses the risk-free interest rate~~thirty-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 life~~disposition 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 periods~~property and equipment are recorded in the ~~Company’s~~period 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 ~~Company recognizes expense for all stock-based compensation awards,~~interest cost on capital projects, including ~~stock options, restricted stock units ("RSUs"),~~facilities build-outs, is capitalized and performance stock units ("PSUs") granted to employees eligible for retirement, as defined within the award notice 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.

~~Costs of Goods Sold~~

Cost of sales includes direct labor and materials costs related to each product sold or produced, including processing, quality assurance labor and scrap, as well as facility and warehousing overhead supporting our manufacturing operations. All of our manufacturing costs are included in the cost of ~~sales.~~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 capitalized $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 in included in ~~selling~~sales and marketing ~~expenses.~~expense. Shipping and handling costs included in sales and marketing expense were ~~$1,330~~$1,284 and ~~$1,366~~$2,740, and $1,214 and $2,532, for the three and six months ended, ~~September~~June 30, ~~2022,~~2023, and ~~2021, respectively and $3,863 and $3,657 for the nine months ended September 30,~~ 2022, ~~and 2021,~~ 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 Accounting Standards Codification 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 ("the Amended Credit Facility") 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"). Pursuant to the amendment, the 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") ~~832,~~ ~~Government Assistance~~ ~~(issued under Accounting Standards Update~~848, Reference Rate Reform, ("~~ASU"~~ASC 848") ~~2021-10,~~ ~~Disclosures by Business Entities~~ a~~bout Government Assistance). This amendment requires annual disclosures about transactions with~~includes a ~~government~~provision in which a debt contract that ~~are~~is only a

replacement of the reference rate is accounted for ~~by applying~~as a ~~grant or contribution accounting model by analogy, including, (1)~~non-substantial modification. As a result, in the ~~types~~second quarter of ~~transactions; (2) the financial statement line items affected by the transaction, and; (3) significant terms and conditions associated with the transactions. The Company~~2023, we adopted ~~the guidance on January 1, 2022 and the adoption of ASU 2021-10 did not to have a material~~ASC 848, which had no impact on ~~the Company's condensed~~our consolidated financial ~~condition, results~~statements. 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 consists of the following:


(in thousands)	June 30, 2023		December 31, 2022
Finished goods	$	13,279	$	12,651
Work in process	1,085		1,026
Raw materials	6,873		5,228
Inventory	$	21,237	$	18,905

The provision for inventory write-down is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Provision for inventory write-down	$	471	$	469	$	1,052	$	928

4. Property and Equipment, Net

Property and equipment, net consist of the following:


(in thousands)	June 30, 2023		December 31, 2022
Land	$	731	$	731
Building	7,009		—
Leasehold improvements	15,482		15,482
Processing equipment	4,597		4,227
Furniture and equipment	7,988		5,316
Projects in process	63,323		63,703
Finance lease right-of-use assets	131		131
Property and equipment, at cost	99,261		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)	2023		2022		2023		2022
Depreciation expense	$	798	$	713	$	1,506	$	1,418

~~3. Inventory~~

~~Inventory consisted of the following (in thousands):~~

September 30,
2022 December 31,
2021
Finished goods $ 12,823 $ 11,011
Work in process 903 813
Raw materials 5,390 4,869
Inventory $ 19,116 $ 16,693

The provision for inventory write-down was $452 and $395 for the three months ended September 30, 2022, and 2021, respectively, and for the nine months ended September 30, 2022, and 2021, the Company had adjustments to the provision for inventory write-downs of $1,381 and $2,850 (including the write-down of Avive inventory of $1,251 in the 2021 period), respectively.

~~4. Property and Equipment, Net~~

~~Property and equipment, net consisted of the following (in thousands):~~

September 30,
2022 December 31,
2021
Furniture and equipment $ 5,408 $ 5,100
Leasehold improvements 15,569 14,952
Processing equipment 4,229 3,984
Land 731 731
Projects in process 58,595 45,660
Finance lease right-of-use assets 131 110
Property and equipment, at cost 84,663 70,537
Less: accumulated depreciation and amortization (9,796) (7,614)
Property and equipment, net $ 74,867 $ 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 September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Depreciation expense $ 764 $ 654 $ 2,182 $ 2,059

~~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 intangible~~Intangible assets ~~consisted~~consist of the ~~following (in thousands):~~following:


		September 30, 2022						December 31, 2021							June 30, 2023						December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
(in thousands)														(in thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizable intangible assets:	Amortizable intangible assets:													Amortizable intangible assets:
Patents	Patents	$	3,245	$	(342)	$	2,903	$	2,469	$	(234)	$	2,235	Patents	$	4,322	$	(711)	$	3,611	$	3,792	$	(621)	$	3,170
License agreements	License agreements	1,101		(943)		158		1,101		(852)		249		License agreements	1,101		(1,068)		34		1,101		(1,014)		87
Total amortizable intangible assets	Total amortizable intangible assets	4,346		(1,285)		3,061		3,570		(1,086)		2,484		Total amortizable intangible assets	5,423		(1,779)		3,645		4,893		(1,635)		3,258

Unamortized intangible assets
Unamortized intangible assets:														Unamortized intangible assets:
Trademarks	Trademarks	387		—		387		375		—		375		Trademarks	403		—		403		391		—		391
Total intangible assets	Total intangible assets	$	4,733	$	(1,285)	$	3,448	$	3,945	$	(1,086)	$	2,859	Total intangible assets	$	5,827	$	(1,779)	$	4,048	$	5,284	$	(1,635)	$	3,649

Amortization expense ~~consisted~~is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Amortization expense	$	73	$	63	$	144	$	132

As of ~~the following (in thousands):~~

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Amortization expense $ 66 $ 52 $ 198 $ 148

~~Expected~~June 30, 2023, future amortization of ~~intangible assets as of September 30, 2022,~~patents and license agreements is as ~~follows (in thousands):~~follows:

Year Ending December 31, Expected Amortization Expense
2022 (excluding the nine months ended September 30, 2022) $ 68
2023 237
2024 169
2025 169
2026 167
Thereafter 2,251
Total amortized intangible assets $ 3,061


Year Ending December 31,	(in thousands)
2023 (excluding the six months ended June 30, 2023)	$	121
2024	208
2025	208
2026	207
2027	203
Thereafter	2,698
Total	$	3,645

License Agreements

The Company has ~~License Agreements with~~various license agreements that require the ~~University~~payment 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 September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Royalty expense $ 848 $ 687 $ 2,287 $ 2,037

~~Royalty fees are~~ included in sales and marketing expense ~~on the accompanying condensed consolidated statements of operations.~~is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
Royalty fee expense	$	868	$	766	$	1,698	$	1,439

6. Fair Value Measurement

~~Fair value is defined as~~The 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 September 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 four 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:~~

September 30, 2022 December 31, 2021
Input
Remaining term (years) 4.75 years 5.5 years
Maturity date June 30, 2027 June 30, 2027
Coupon rate 9.5% - 12.3% 9.5 %
Revenue participation payments Maximum each year Maximum each year
Discount rate 14.7% (1) 10.72% (1)
Probability of mandatory prepayment before 2024 5.0 % (1) 5.0 % (1)
Estimated timing of mandatory prepayment event before 2024 December 31, 2023 (1) December 31, 2023 (1)
Probability of mandatory prepayment 2024 or after 15.0 % (1) 15.0 % (1)
Estimated timing of mandatory prepayment event 2024 or after March 31, 2026 (1) March 31, 2026 (1)
Probability of optional prepayment event 5.0 % (1) 5.0 % (1)
Estimated timing of optional prepayment event December 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:~~

September 30, 2022 December 31, 2021
Input
Remaining term (years) 5.75 years 6.5
Maturity date June 30, 2028 June 30, 2028
Coupon rate 9.5% - 12.3% 9.5%
Revenue participation payments Maximum each year Maximum each year
Discount rate 18.3 % (1) 13.21 % (1)
Probability of mandatory prepayment before 2024 5.0% (1) 5.0% (1)
Estimated timing of mandatory prepayment event before 2024 December 31, 2023 (1) December 31, 2023 (1)
Probability of mandatory prepayment 2024 or after 15.0% (1) 15.0% (1)
Estimated timing of mandatory prepayment event 2024 or after March 31, 2026 (1) March 31, 2026 (1)
Probability of optional prepayment event 5.0% (1) 5.0% (1)
Estimated timing of optional prepayment event December 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 ~~September~~June 30, ~~2022, classified in accordance with the fair value hierarchy (in thousands):~~

Fair Value Measurements Using
(Level 1) (Level 2) (Level 3) Total
Assets:
Money market funds $ 7,610 $ — $ — $ 7,610
U.S. government securities 22,874 — — 22,874
Commercial paper — 15,918 — 15,918
Total assets $ 30,484 $ 15,918 $ — $ 46,402
Liabilities
Debt derivative liabilities — — 4,407 4,407
Total liabilities $ — $ — $ 4,407 $ 4,407

~~The following table presents the financial assets~~2023, and ~~liabilities that the Company measured at fair value on a recurring basis as of~~ December 31, ~~2021, classified in accordance with the fair value hierarchy (in thousands):~~2022:

Fair Value Measurements Using
(Level 1) (Level 2) (Level 3) Total
Assets:
Money market funds $ 22,012 $ — $ — $ 22,012
U.S. government securities 12,081 — — 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


	June 30, 2023
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Money market funds	$	16,521	$	—	$	—	$	16,521
U.S. government securities	7,344		—		—		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 securities	12,316		—		—		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 changes in Level 3 liabilities measured at fair value on a recurring basis for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, were as follows (in thousands):


Three Months Ended ~~September~~June 30, ~~2022~~2023
~~Beginning~~ Balance, ~~July~~April 1, ~~2022~~2023		$	~~4,876~~4,703



Change in fair value included in net loss	~~(469)~~(432)
~~Ending~~ Balance, ~~September~~June 30, ~~2022~~2023		$	~~4,407~~4,271


~~Nine~~Six Months Ended ~~September~~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
Balance, April 1, 2022	$	5,310






Change in fair value included in net loss	(434)
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	~~(1,155)~~(686)
Ending Balance, ~~September~~June 30, 2022	$	~~4,407~~4,876

~~The changes in Level 3 liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2021, were as follows (in thousands):~~


~~Three Months Ended September 30, 2021~~
~~Beginning Balance, July 1, 2021~~	~~54,439~~





~~Change in fair value of Oberland Facility~~	~~(826)~~
~~Change in fair value of debt derivative~~	46
~~Ending Balance, September 30, 2021~~	$	~~53,659~~


~~Nine Months Ended September 30, 2021~~
~~Beginning Balance, January 1, 2021~~	$	~~39,352~~



~~Addition of Oberland Facility - second tranche~~	~~13,827~~
~~Addition of debt derivative - second tranche~~	~~1,173~~
~~Change in fair value of Oberland Facility~~	~~(845)~~
~~Change in fair value of debt derivative~~	~~152~~
~~Ending Balance September 30, 2021~~	$	~~53,659~~

The fair value of cash, restricted cash, accounts receivable, accounts payable and accrued expenses ~~approximate~~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 ~~Oberland~~Credit Facility were ~~$45,487~~$46,154 and ~~$49,392~~$51,366 at ~~September~~June 30, ~~2022,~~2023, and ~~$45,325~~$45,712 and ~~$52,605~~$50,293 at December 31, ~~2021,~~2022, respectively. See ~~"Note~~Note 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, 2023			December 31, 2022
Input
Remaining term (years)	4 years			4.5 years
Maturity date	June 30, 2027			June 30, 2027
Coupon rate	9.5% - 13.1%			9.5% -12.7%
Revenue participation payments	Maximum each year			Maximum each year
Discount rate	13.4%		(1)	13.9%		(1)
Probability of mandatory prepayment before 2024	5.0	%	(1)	5.0	%	(1)
Estimated timing of mandatory prepayment event before 2024	December 31, 2023		(1)	December 31, 2023		(1)
Probability of mandatory prepayment 2024 or after	15.0	%	(1)	15.0	%	(1)
Estimated timing of mandatory prepayment event 2024 or after	March 31, 2026		(1)	March 31, 2026		(1)
Probability of optional prepayment event	5.0	%	(1)	5.0	%	(1)
Estimated timing of optional prepayment event	December 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, 2023			December 31, 2022
Input
Remaining term (years)	5 years			5.5 years
Maturity date	June 30, 2028			June 30, 2028
Coupon rate	9.5% - 13.1%			9.5% -12.7%
Revenue participation payments	Maximum each year			Maximum each year
Discount rate	16.9	%	(1)	17.56	%	(1)
Probability of mandatory prepayment before 2024	5.0%		(1)	5.0%		(1)
Estimated timing of mandatory prepayment event before 2024	December 31, 2023		(1)	December 31, 2023		(1)
Probability of mandatory prepayment 2024 or after	15.0%		(1)	15.0%		(1)
Estimated timing of mandatory prepayment event 2024 or after	March 31, 2026		(1)	March 31, 2026		(1)
Probability of optional prepayment event	5.0%		(1)	5.0%		(1)
Estimated timing of optional prepayment event	December 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-area~~common area or other maintenance costs.

Operating lease expense is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
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, 2023		December 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	$	6	$	7
Long-term lease obligations	$	15	$	18

Weighted average operating lease term (in years):	10.6		11
Weighted average financing lease term (in years):	3.8		4

Weighted average discount rate operating leases	10.74%		10.58%
Weighted average discount rate financing leases	12.27%		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
2024	3,252
2025	3,336
2026	3,348
2027	3,046
Thereafter	21,588
Total	36,190
Less: Imputed interest	(15,019)
Total lease liability	21,171
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 ~~February~~May 1, ~~2022,~~2023, pursuant to the original Commercial ~~Lease~~Leases dated April 21, 2015, as amended (the ~~"Lease"~~"2015 JA-Cole Lease"). The ~~lease~~2015 JA-Cole Lease is for ~~the~~15,000 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. The Company accounted for the Lease revisions as a lease modification in accordance with ASC 842,~~ ~~Leases, as the modification effectively terminated the existing lease and created a new lease which commenced on February 1, 2022.~~2030. The Company valued the ~~lease~~2015 JA-Cole Lease using a ~~11.3%~~13.1% incremental borrowing rate and recorded a right-of-use asset and a lease liability of ~~$641~~$268 as a result of this amendment.

On August 22, 2022, the Company, entered into the First Amendment to Lease Agreement (the “First Amendment”) with Ja-Cole, L.P. with an effective date of October 1, 2022, pursuant to the original Commercial Lease dated October 1, 2020, as amended (the "Lease"). The lease is for the office and warehouse facility located in Burleson, Texas. The First Amendment adds an additional 2,500 square feet to the Leased Premises, for a total of 5,000 square feet and revises the expiration date of the Lease to mean September 30, 2027. The Company accounted for the Lease revisions as a lease modification in accordance with ASC 842, ~~Leases~~, as the modification effectively terminated the existing lease and created a new lease. The Company valued the lease using a 12.8% incremental borrowing rate and recorded a right-of-use asset and a lease liability of 221 as a result of this amendment.

Total operating lease expense for the three months ended September 30, 2022, and 2021 was $1,337 and $1,211 respectively and $4,100 and $3,652 for the nine months ended September 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) September 30, 2022 December 31, 2021
Operating Leases
Right-of-use operating assets $ 14,751 $ 15,193
Current maturities of long-term lease obligations $ 1,523 $ 1,825
Long-term lease obligations $ 20,615 $ 20,794
Financing Leases
Right-of-use financing leases (1)
$ 46 $ 42
Current maturities of long-term lease obligations $ 7 $ 9
Long-term lease obligations $ 19 $ 4
Weighted average operating lease term (in years): 10.9 12.1
Weighted average operating financing term (in years): 4.2 2.2
Weighted average discount rate operating leases 10.48 % 10.32%
Weighted average discount rate financing leases 11.69% 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 September 30, 2022, were as follows:~~

(In thousands)
2022 (excluding the nine months ended September 30, 2022) $ 1,092
2023 3,476
2024 3,253
2025 3,336
2026 3,348
2027 2,921
Thereafter 20,931
Total $ 38,356
Less: Imputed interest (16,192)
Total lease liability $ 22,164
Less: Current lease liability (1,530)
Long-term lease liability $ 20,634

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) September 30,
2022 December 31, 2021
Oberland Facility - first tranche $ 35,000 $ 35,000
Oberland Facility - second tranche 15,000 15,000
Less - unamortized debt discount and deferred financing fees (4,513) (5,179)
Long-term debt, net of debt discount and financing fees $ 45,487 $ 44,821


(in thousands)	June 30, 2023		December 31, 2022
Credit Facility - first tranche	$	35,000	$	35,000
Credit Facility - second tranche	15,000		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

~~Oberland~~Credit Facility

On June ~~30, 2020,~~29, 2023, the Company ~~entered into a seven-year financing agreement~~amended 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 Oberland~~Each tranche under the Credit Facility requires quarterly interest payments for seven years. Interest is calculated as 7.5% plus the greater of ~~LIBOR or~~Adjusted SOFR or 2.0% ~~(9.8% as of September~~(12.68% at June 30, ~~2022)~~2023). Each tranche of the ~~Oberland~~Credit 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~~Credit Facility, the Company entered into a revenue participation agreement (the “Revenue Participation Agreement”) with ~~Oberland Capital,~~the Lender, which ~~provides~~provided 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 ~~Oberland~~Credit Facility have been paid in ~~full (the “Revenue Participation Agreement”). Payments under the Revenue Participant Agreement commenced on September 30, 2021. The royalty~~full. 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 ~~of $49 and $337~~ for this Revenue Participation Agreement for the three months ended ~~September~~June 30, 2023, and 2022, ~~and 2021~~respectively and $756 and ~~$590~~$707 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, and ~~2021,~~2022, respectively. The Company ~~exceeded~~pays the ~~maximum annual revenue participation threshold of $70,000 during the third quarter of 2022.The Company pays Oberland Capital~~ quarterly debt interest on the last day of the ~~quarter. The Company paid $1,249~~quarter and ~~$1,218~~ for the three months ended ~~September~~June 30, 2023, and 2022, paid $1,602 and ~~2021,~~$1,201, respectively, and ~~$3,637~~$3,134 and ~~$2,890~~$2,388 for the ~~nine~~six months ended ~~September~~June 30, 2023, and 2022, ~~and 2021, respectively.~~respectively, to the Lender. The Company capitalized interest of ~~$1,450~~$2,049 and ~~$1,338~~$1,579 for the three months ended ~~September~~June 30, ~~2022~~2023, and ~~2021,~~2022, respectively, and ~~$4,474~~$4,196 and ~~$2,526~~$3,024 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, and ~~2021, respectively,~~2022, towards the costs to construct and retrofit the Axogen Processing Center ("APC ~~Facility~~Facility") in Vandalia, ~~OH.~~Ohio. See ~~"Note~~Note 12 - Commitments and Contingencies.~~" Since inception,~~ To date, the Company has capitalized interest of ~~$9,748~~$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 September 30, 2022, 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~~net in the condensed consolidated ~~statements~~balance sheets. As of ~~operations at each reporting date.~~ June 30, 2023, the Company was in compliance with all financial covenants.

Embedded Derivatives

The fair values of the ~~Debt Derivative Liabilities~~debt derivative liabilities were ~~$4,407~~$4,271 and ~~$5,562~~$4,518 at ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, respectively. See ~~"Note~~Note 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 Oberland~~Credit 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 ~~Oberland~~Credit 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 ~~September~~June 30, 2023, and 2022 was $223 and ~~2021 was $225 and $157,~~$223, respectively, and $442 and $442 for the ~~nine~~six months ended ~~September~~June 30, 2023, and 2022, ~~and 2021 was $667 and $384,~~ respectively.

Other ~~credit facilities~~Credit Facilities

The Company had restricted cash of $6,252 and $6,251 at ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021.~~2022, respectively. The ~~September~~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 Plan~~sCompensation

The ~~Company maintains two share-based incentive plans:~~Company's stock-based compensation plans are described in Note 11. Stock-Based Compensation to the ~~Axogen, Inc. Second~~Company’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 Award	Quarter Awarded	Target Shares or Units	Weighted Average Grant Date Fair Value
Stock Options (1)	1st Quarter	1,046,800	$	4.96
	2nd Quarter	2,200	$	5.64

Restricted Stock Units (2)	1st Quarter	1,129,718	$	8.39
	2nd Quarter	33,850	$	9.06

Performance Stock Units (3)(5)	1st Quarter	744,000	$	8.27


Inducement Shares (4)(5)	1st Quarter
Stock Options		150,000	$	4.92
Restricted Stock Units		75,000	$	8.16

(1) Options awarded to officers and employees during the ~~Axogen 2017 Employee Stock Purchase Plan (“2017 ESPP”). As~~first 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 ~~September 30, 2022, 3,340,010~~restricted 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 based~~target depending on the ~~value~~attainment of ~~share-based payment awards~~specific revenue goals. The maximum number of units that are ultimately expected to vest during the period and stock-based compensation expense of $3,849 and $2,911 for the three months ended September 30, 2022 and 2021, respectively, and $11,437 and $9,410 for the nine months ended September 30, 2022, and 2021, respectively.

~~A summary of the stock option activity~~can be issued under this award is ~~as follows:~~1,116,000.
Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2021 3,194,738 $15.65 6.45 $ 2,236
Granted 1,185,749 $9.13
Exercised (153,290) $4.44
Cancelled (229,964) $14.83
Outstanding, September 30, 2022 3,997,233 $14.20 6.77 $ 7,772
Exercisable, September 30, 2022 2,117,574 $15.63 4.85 $ 4,059

~~The Company used the following weighted-average assumptions for options granted~~(4) Inducement shares were issued to two officers during the ~~nine months ended September 30, 2022:~~

~~Expected term (in years)~~

~~6.02~~

~~Expected volatility~~

~~61.06~~

~~Risk free rate~~

~~2.26~~

~~Expected dividends~~

—

~~As of September 30, 2022, there was approximately $8,251 of total unrecognized compensation costs related~~first quarter, as inducements material to ~~unvested~~new employees entering into employment with the Company in accordance with Nasdaq Listing Rule 5635(c)(4). Vesting for both the stock ~~options. These costs~~options and restricted stock units are ~~expected to be recognized~~ over a ~~weighted-average period of 2.6 years.~~four-year period.

~~Restricted and Performance Stock Units~~

~~A summary of the restricted and~~(5) No performance stock ~~unit activity~~units or inducement shares were granted in the second quarter of 2023.

Total stock-based compensation expense is as follows:

Outstanding Stock Units
Stock Units Weighted-Average Fair Value at Date of Grant per Share Weighted Average Remaining Vesting Life Aggregate Intrinsic Value (in thousands)
Unvested, December 31, 2021 1,730,765 $ 18.45 1.51 $ 19,633
Granted 1,916,963 $ 8.31
Released (315,275) $ 14.12
Forfeited (331,260) $ 13.42
Unvested, September 30, 2022 3,001,193 $ 12.98 1.82 $ 35,774

~~Performance Stock Units~~

At September 30, 2022, the total future stock compensation expense related to non-vested performance awards at maximum target payout is expected to be approximately $3,774. As of September 30, 2022, there was approximately $17,487 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 2.8 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 September 30, 2022, 126,674 shares remain available for issuance.


	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2023		2022		2023		2022
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-class method:


		Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,					Six Months Ended June 30,
(In thousands, except per share amounts)	(In thousands, except per share amounts)		2022		2021		2022		2021		(In thousands, except per share amounts)		2023		2022		2023		2022
Numerator:	Numerator:										Numerator:
Net loss	Net loss		$	(4,318)	$	(7,141)	$	(23,533)	$	(21,699)	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)		42,220,519		41,467,596		42,008,013		41,087,568		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)		42,220,519		41,467,596		42,008,013		41,087,568		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)		$	(0.10)	$	(0.17)	$	(0.56)	$	(0.53)	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 options	Stock options		3,132,722		1,471,539		3,083,519		1,308,191		Stock options		3,957,156		3,796,254		3,679,109		3,377,594
Restricted stock units	Restricted stock units		441,866		542,074		498,966		359,895		Restricted stock units		251,112		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, the~~The Company ~~entered into a License and Service Agreement ("CTS Agreement") with~~pays 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 accounts~~and for ~~as an embedded lease in accordance with ASC 842,~~ ~~Leases. The Company also pays CTS for service~~services in support of its ~~manufacturing process such as~~tissue 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 ~~September~~June 30, ~~2022,~~2023, and ~~2021, of approximately $541 and $630,~~2022, respectively, and $1,311 and $1,245 during the ~~nine~~six months ended ~~September~~June 30, 2023, and 2022, ~~and 2021~~respectively, 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 $1,785 and $1,901 which are included~~CTS in ~~cost~~the 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 Research~~clinical 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’s~~the Company's phase 3 pivotal clinical trial to support the ~~BLA~~biologics license application ("BLA") for Avance Nerve Graft. Payments made under this agreement were ~~$279~~$56 and ~~$362~~$356 for the three months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, respectively and ~~$963~~$168 and ~~$794~~$684 for the ~~nine~~six months ended ~~September 30, 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~~2023, 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.2022, respectively.

Axogen Processing Center Facility

The Company is highly dependent on the continued availability of its processing facilities at the ~~Community Blood Center~~CTS 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, ~~which~~and this is recorded as land ~~in property~~within Property and equipment, net on the condensed consolidated balance ~~sheet.~~sheets. The Company paid $4,300 for the building ~~which~~and this is recorded ~~in projects in process in property~~within Property and equipment, net on the condensed consolidated balance ~~sheet.~~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 ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company recorded ~~$2,688~~$1,640 and ~~$8,119,~~$3,239, respectively, ~~of expenditures~~ related to renovations and design and build in projects in progress. The Company has recorded ~~$43,534 from inception-to-date~~$49,593 to date related to this project. In addition to these project costs, the Company has capitalized interest of ~~$1,450~~$2,049 and ~~$4,474~~$4,196 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023. 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 ~~$9,748 inception-to-date~~placed $8,020 into service related to the ~~project.~~warehouse and office spaces. These ~~items are~~costs were recorded ~~as projects~~to their respective asset category in ~~process in property~~Property 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 Liabilities~~debt 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 Facility~~Credit 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 ~~Oberland~~terms 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 Capi~~the Lender~~tal.~~. The calculation utilized the XIRR function in Microsoft Excel as required by the ~~Oberland~~Credit Facility. If the debt is not prepaid but instead is held to its scheduled maturities, the Company’s estimate of the ~~make-~~

~~whole~~make-whole payment for the first tranche and second ~~tranches~~tranche of the Credit Facility due on June 30, 2027, and June 30, 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, the~~The Company ~~became~~is aware that ~~Oberland Capital~~the Lender may have an alternative interpretation of the calculation of the make-whole payments that the Company believes does not properly utilize the same methodology utilized by the XIRR function in Microsoft Excel as described in the ~~Oberland~~Credit 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 ~~$9,200~~$9,000 for the first tranche of the ~~Oberland~~Credit Facility due on June 30, 2027, and approximately ~~$3,600~~$4,000 for the second tranche of the ~~Oberland~~Credit 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. ~~The make whole-payments as described above, have decreased due to rising interest rates: however, there have been no further 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. In~~Company, 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 behalf~~August 4, 2023, Axogen Corporation ("AC") entered into an amendment, effective as of ~~himself~~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 ~~others similarly situated, filed a putative class action complaint in~~between AC and Cook Biotech Incorporated ("Cook"). Pursuant to the ~~United States District Court for~~Supply Agreement Amendment, the ~~Middle District of Florida alleging violations~~term 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 period~~third amendment, effective as of August ~~7, 2017~~4, 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 failed~~Pursuant to ~~disclose to investors: (1) that~~ the ~~Company aggressively increased prices to mask lower sales; (2) that~~Distribution Agreement Amendment, the ~~Company’s pricing alienated customers and threatened the Company’s future growth; (3) that ambulatory surgery centers form a significant part~~term of the ~~market for the Company’s products; (4) that such centers were especially sensitive to price increases; (5) that the Company~~Distribution 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.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 ~~Europe~~Germany 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 ~~helping~~providing the opportunity to restore ~~peripheral~~ nerve function and quality of life tofor patients with ~~physical damage or transection to~~ peripheral ~~nerves providing~~nerve injuries. We provide innovative, clinically proven, and economically effective repair solutions for surgeons and ~~health care~~healthcare 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 ~~ECM~~extracellular 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") ~~effective~~on June 1, 2021, and we continue discussions with the ~~FDA~~U.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 nine months ended September 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 ~~September~~June 30, ~~2022,~~2023, we had ~~952~~

974 active accounts, an increase of ~~1.2%~~3.5% from 941 as of June 30, 2022, and a decrease of 1.1% from 985 compared to ~~the second quarter of 2022 of 941, and an increase of 2.4% from 930 (excluding the impact of Avive) from one year ago.~~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 define~~are defined as accounts that have purchased at least $100,000 in the past twelve months. As of ~~September~~June 30, ~~2022,~~2023, we had ~~331~~347 core accounts, an increase of ~~10.7%~~16% from 299 as of June 30, 2022, and a decrease of 0.9% from 350 compared to ~~the second quarter of 2022 of 299, and an increase of 17.0% or 283 (excluding the impact of Avive) from one year ago.~~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 ~~September~~June 30, ~~2022,~~2023, and ~~2021~~2022

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 September 30,									Three Months Ended June 30,
		2022				2021					2023				2022
		Amount		% of Revenue		Amount		% of Revenue			Amount		% of Revenue		Amount		% of Revenue
		(dollars in thousands)									(dollars in thousands)
Revenues	Revenues	$	36,959	100.0	%	$	31,204	100.0	%	Revenues	$	38,155	100.0	%	$	34,454	100.0	%
Cost of goods sold	Cost of goods sold	6,176		16.7	%	5,239		16.8	%	Cost of goods sold	7,228		18.9		6,284		18.2
Gross profit	Gross profit	30,783		83.3	%	25,965		83.2	%	Gross profit	30,927		81.1		28,170		81.8
Costs and expenses	Costs and expenses									Costs and expenses
Sales and marketing	Sales and marketing	19,792		53.6	%	18,370		58.9	%	Sales and marketing	20,838		54.6		19,669		57.1
Research and development	Research and development	7,050		19.1	%	6,404		20.5	%	Research and development	7,363		19.3		7,022		20.4
General and administrative	General and administrative	8,796		23.8	%	7,880		25.3	%	General and administrative	9,628		25.2		9,403		27.3
Total costs and expenses	Total costs and expenses	35,638		96.4	%	32,654		104.6	%	Total costs and expenses	37,829		99.1		36,094		104.8
Loss from operations	Loss from operations	(4,855)		(13.1)	%	(6,689)		(21.4)	%	Loss from operations	(6,902)		(18.1)		(7,924)		(23.0)
Other (expense) income:
Other income (expense):										Other income (expense):
Investment income	Investment income	186		0.5	%	17		0.1	%	Investment income	235		0.6		32		0.1
Interest expense	Interest expense	(61)		(0.2)	%	(417)		(1.3)	%	Interest expense	(148)		(0.4)		(249)		(0.7)
Change in fair value of derivatives	Change in fair value of derivatives	469		1.3	%	(46)		(0.1)	%	Change in fair value of derivatives	432		1.1		434		1.3
Other expense	Other expense	(57)		(0.2)	%	(6)		—	%	Other expense	(277)		(0.7)		(33)		(0.1)
Total other expense, net		537		1.5	%	(452)		(1.4)	%
Net Loss		$	(4,318)	(11.7)	%	$	(7,141)	(22.9)	%
Total other income, net										Total other income, net	242		0.6		184		0.5
Net loss										Net loss	$	(6,660)	(17.5)	%	$	(7,740)	(22.5)	%

Revenues

Revenues for the three months ended ~~September~~June 30, ~~2022~~2023, increased ~~by $5,755~~$3,701 or ~~18%~~11% to ~~$36,959~~$38,155 as compared to ~~$31,204~~$34,454 for the three months ended ~~September~~June 30, ~~2021.~~2022. The increase in revenue was driven by an increase in unit volume of ~~12%~~6%, ~~as well as~~ a 3%4.0% increase in ~~both~~ prices and 1.2% increase from changes in product mix.

Gross Profit

Gross profit for the three months ended ~~September~~June 30, ~~2022,~~2023, increased ~~by $4,818~~$2,757 or ~~19%~~10% to ~~$30,783~~$30,927 as compared to ~~$25,965~~$28,170 for the three months ended ~~September~~June 30, ~~2021.~~2022. Gross margin was ~~83%~~81% and 82% for ~~each of~~ the three months ended ~~September~~June 30, 2023, and 2022, ~~and 2021.~~respectively.

Costs and Expenses

Total costs and expenses increased ~~by $2,984~~$1,735 or 9%5% to ~~$35,638~~$37,829 for the three months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$32,654~~$36,094 for the three months ended ~~September~~June 30, ~~2021.~~2022. The net increase in total ~~operating~~costs and expenses was aprimarily the result of increased compensation costs of ~~$2,636~~$1,824 and ~~occupancy related expenses~~marketing programs of ~~$523,~~$326, partially offset by ~~certain other costs.~~reduction in research and development projects of $342.

Sales and marketing expenses increased ~~$1,422~~$1,169 or 8%6% to ~~$19,792~~$20,838 for the three months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$18,370~~$19,669 for the three months ended ~~September~~June 30, ~~2021.~~2022. This increase was primarily attributable to ~~compensation cost~~other services of ~~$1,528 partially offset by a decrease in~~$496, marketing programs ~~totaling $213.~~of $326 and compensation costs of $306.

Research and development expenses increased ~~$646~~$341 or ~~10%~~5% to ~~$7,050~~$7,363 for the three months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$6,404~~$7,022 for the three months ended ~~September~~June 30, ~~2021.~~2022. The increase was primarily due to product development and clinical 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 ~~50%~~58% and 51% of total research and development expense for ~~each of~~ the three months ended ~~September~~June 30, 2023, and 2022, ~~and 2021.~~respectively. Clinical trial expenses represented approximately ~~50%~~42% and 49% of total research and development expense ~~for each of~~ the three months ended ~~September~~June 30, 2023, and 2022, ~~and 2021.~~respectively.

General and administrative expenses increased ~~$916~~$225 or ~~12%~~2% to ~~$8,796~~$9,628 for the three months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$7,880~~$9,403 for the three months ended ~~September~~June 30, ~~2021.~~2022. The increase was primarily due to compensation ~~expenses~~costs of ~~$1.239 partially~~$1,627 offset by ~~a decrease in professional service~~lower insurance fees of ~~$394.~~$438, professional services of $431, merchant fees of $298 and other, net of $227.

Other ~~Expense~~Income and ~~Income~~Expense

~~Interest expense decreased~~Other income, net increased $58 or 32% to ~~$61~~$242 for thethree months ended June 30, 2023, as compared to other income, net of $184 for the three months ended ~~September~~June 30, ~~2022, as compared~~2022. The net increase was due to ~~$417~~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 ~~September~~June 30, ~~2021.~~2023, as compared to an investment income of $32 for the three months ended June 30, 2022. This change was primarily due to an 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. The decrease was primarily due to ~~Company exceeding~~capitalizing the ~~maximum annual revenue participation threshold of $70,000 during~~interest expense related to the ~~third quarter of 2022.~~Credit Facility for the three months ended June 30, 2023. We recognized total interest ~~charges~~expense of ~~$1,474~~$1,824 and ~~$1,438~~$1,795 in connection with the ~~Oberland~~Credit Facility infor the three months ended ~~September~~June 30, 2023, and 2022, respectively, of which $2,049 and ~~2021, respectively, $1,450 and $1,338~~$1,579 of this interest was capitalized to the construction costs of the APC Facility during the ~~third~~second quarter of 2023 and 2022, ~~and 2021,~~ respectively. ~~See Note 6. Fair Value for information regarding the change in fair value of the derivatives.~~

~~Income~~ Taxes

We had no income tax expense or benefit during the three months ended ~~September~~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 a full valuation allowance. We do not believe that there are any additional tax expenses or benefits currently available.

Comparison of the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022,~~2023, and ~~2021~~2022

Nine Months Ended September 30,
2022 2021
Amount % of
Revenue Amount % of
Revenue
(dollars in thousands)
Revenues $ 102,420 100.0 % $ 95,821 100.0 %
Cost of goods sold 18,006 17.6 % 17,503 18.3 %
Gross Profit 84,414 82.4 % 78,318 81.7 %
Cost and expenses
Sales and marketing 60,349 58.9 % 55,594 58.0 %
Research and development 20,347 19.9 % 17,875 18.7 %
General and administrative 27,817 27.2 % 24,912 26.0 %
Total costs and expenses 108,513 105.9 % 98,381 102.7 %
Loss from operations $ (24,099) (23.5) % (20,063) (20.9) %
Other (expense) income:
Investment (expense) income 172 0.2 % 80 0.1 %
Interest expense (664) (0.6) % (1,427) (1.5) %
Change in fair value of derivatives 1,155 1.1 % (152) (0.2) %
Other expense (97) (0.1) % (137) (0.1) %
Total other (expense) income, net 566 0.6 % (1,636) (1.7) %
Net Loss $ (23,533) (23.0) % $ (21,699) (22.6) %
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,
	2023				2022
	Amount		% of Revenue		Amount		% of Revenue
	(dollars in thousands)
Revenues	$	74,819	100.0	%	$	65,461	100.0	%
Cost of goods sold	13,937		18.6	%	11,830		18.1	%
Gross profit	60,882		81.4	%	53,631		81.9	%
Costs and expenses
Sales and marketing	42,456		56.7	%	40,557		62.0	%
Research and development	14,043		18.8	%	13,296		20.3	%
General and administrative	18,627		24.9	%	19,021		29.1	%
Total costs and expenses	75,126		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 derivatives	247		0.3	%	686		1.0	%
Other expense	(357)		(0.5)	%	(40)		(0.1)	%
Total other income, net	510		0.7	%	28		—	%
Net loss	$	(13,734)	(18.4)	%	$	(19,215)	(29.4)	%

Revenues

Revenues for ~~the nine~~six months ended ~~September~~June 30, ~~2022,~~2023, increased 7%$9,358 or 14.3% to ~~$102,420~~$74,819 as compared to ~~$95,821~~$65,461 for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The increase in revenue was driven by an increase in unit volume of ~~1%,~~8% as well as a ~~3% price~~4% increase in prices and ~~a 2% increase from changes~~3% in product mix. ~~Excluding the impact of Avive revenue of $3,575 in the nine months ended September 30, 2021, revenue would have increased approximately 11%.~~

Gross Profit

Gross profit for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, increased 8%$7,251 or 14% to ~~$84,414~~$60,882 as compared to ~~$78,318~~$53,631 for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. Gross margin was ~~constant at~~81% and 82% for ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, 2023, and 2022, and 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.respectively.

Costs and Expenses

Total costs and expenses increased ~~10%~~$2,252 or 3% to ~~$108,513~~$75,126 for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$98,381~~$72,874 for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The net increase in total ~~operating~~costs and expenses was aprimarily the result of ~~the following: (i)~~increased compensation ~~expense~~costs of $4,760, primarily due to an increase in head count and stock-based compensation; (ii) research and development projects of $1,759; (iii) travel cost of $1,564 due to increased travel as a result of the return of sales travel to hospitals and physician offices; (iv) $1,263 of occupancy costs: and (v)$3,174, marketing programs of ~~$641.~~

$463 and occupancy costs of $303 partially offset by reduction in projects of $862 and professional services of $739.

Sales and marketing expenses increased 9%$1,899 or 5% to ~~$60,349~~$42,456 for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$55,594~~$40,557 for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. This increase was primarily attributable to ~~the following: (i) compensation related expenses~~other services of ~~$2,911 primarily due to increase in headcount; (ii) travel related expenses of $1,105, as hospital access and restrictions improved; and (iii)~~$1,196, marketing ~~development~~ programs of ~~$641.~~$463 and travel of $204.

Research and development expenses increased ~~14%~~ $747 or 6% to ~~$20,347~~$14,043 for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$17,875~~$13,296 for ~~nine~~the six months ended ~~September~~June 30, ~~2021.~~2022. The increase was primarily due to ~~compensation related~~

product development and clinical ~~expenses of $1,759 and occupancy cost of $432.~~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 57% and 51%

of total research and development expense ~~during each of~~for the ~~nine~~six months ended ~~September~~June 30, 2023, and 2022, ~~and 2021.~~respectively. Clinical trial expenses represented approximately 42% and 49% of total research and development expense for ~~each of~~ the ~~nine~~six months ended ~~September~~June 30, 2023, and 2022, ~~and 2021.~~respectively.

General and administrative expenses ~~increased 12%~~decreased $394 or 2% to ~~$27,817~~$18,627 for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~$24,912~~$19,021 for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~increase~~decrease was primarily due to lower 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 ~~related expenses of $1,829, occupancy-related~~ costs of ~~$526, and consulting expenses of $298.~~$3,233.

Other Income and ~~Expenses~~Expense

~~Total other~~Other income, ~~was $566~~net increased $482 to $510 for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to other expense, net of $28 for the six months ended June 30, 2022. The net increase was driven by an increase in investment income of $799 and income and a decrease in interest expense of ~~$1,636~~$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 ~~nine~~six months ended ~~September~~June 30, ~~2021. The~~2023, as compared to an investment loss of $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 ~~non-cash change in~~six months ended June 30, 2023, as compared to $603 for the ~~fair value of~~six months ended June 30, 2022. The decrease was primarily due to capitalizing the ~~derivative of $1,307 year-over-year.~~interest expense related to APC for the six months ended June 30, 2023. We recognized total interest ~~charges~~expense of ~~$4,304~~$2,830 and ~~$3,418~~$3,537 in connection with the ~~Oberland~~Credit Facility ~~during~~for the ~~nine~~six months ended ~~September~~June 30, 2023, and 2022, respectively, of which $4,196 and ~~2021, respectively, $4,474, and $2,526~~$3,024 of this interest was capitalized to the construction costs of the APC Facility during the ~~nine~~six months ended ~~September~~June 30, 2023, and 2022, ~~and 2021,~~ respectively. ~~See Note 6. Fair Value for information regarding~~The increase in total interest expense over the ~~change in fair value~~prior period was the result of higher interest rates on the ~~derivatives.~~Credit Facility.

Income Taxes

We had no income tax expense or benefit ~~for each of~~during the ~~nine~~six months ended ~~September~~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~~ a full valuation allowance. We do not believe that there are any additional tax expenses or benefits currently available.

Critical Accounting ~~Policies~~Estimates

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 ~~policies~~estimates that require the use of estimates and judgments in preparing the financial statements was provided in our ~~2021~~2022 Annual Report on Form 10-K. During the quarter ~~and nine months~~ covered by this report, there were no material changes to the accounting ~~policies~~estimates and assumptions previously disclosed.

Liquidity and Capital Resources

~~Cash Flow Information~~

As of ~~September~~June 30, ~~2022,~~2023, our principal sources of liquidity were our cash and cash equivalents and investments totaling ~~$59,361.~~$34,531. Our cash equivalents are comprised primarily of a money market mutual fund and our investments ~~are comprised~~consist of primarily short-term commercial paper and U.S. Treasuries. Our cash and cash equivalents and investments decreased ~~$30,976~~$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 ~~$78,907~~$62,243 and a current ratio of ~~4.4x~~3.6x at ~~September~~June 30, ~~2022,~~2023, compared to working capital of ~~$102,756~~$74,322 and a current ratio of ~~5.2x~~4.1x at December 31, ~~2021.~~2022. The decrease in ~~the current ratio~~our working capital at ~~September~~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)	2023		2022
Net cash (used in) provided by:
Operating activities	$	(7,131)	$	(16,739)
Investing activities	13,536		(4,962)
Financing activities	1,531		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 of~~many factors including ~~without limitation,~~expanding our ~~growth rate, the~~customer base and sales force and timing and extent of spending ~~to support development efforts, the expansion of sales~~in obtaining regulatory approval and ~~marketing activities, the acquisition and/or development~~introduction of new ~~products and the cost~~products. Additional sources of ~~products. We could face increasing capital needs. Such capital needs could be substantial depending on the extent~~liquidity available to ~~which we are unable to increase revenue.~~

~~If we need~~us include issuance of additional ~~capital in the future, we may raise additional funds~~equity securities through public or private equity offerings, debt financings or from other sources. The sale of additional equity ~~would~~may 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:~~

Nine Months Ended September 30,
(In thousands) 2022 2021
Net cash (used in) provided by:
Operating activities $ (17,428) $ (11,891)
Investing activities (1,991) (10,064)
Financing activities 981 19,409
Net decrease in cash, cash equivalents, and restricted cash $ (18,438) $ (2,546)
Requirements

~~Net Cash Used in Operating Activities~~•

Net cash used in operating activities was $17,428 and $11,891 during the nine months ended September 30, 2022, and 2021, respectively. The unfavorable change in net cash used in operating activities of $5,537 or 47% is due to the following: (i) the net unfavorable change of $4,000 in working capital accounts and the increase in net loss of $1,834.

~~Net Cash Used in Investing Activities~~

Net cash used in investing activities for the nine months ended September 30, 2022, was $1,991 as compared to $10,064 for the nine months ended September 30, 2021, a decrease of $8,073 or 80%. The decrease of net cash used in investing activities is principally due to the reduction in purchases of property and equipment of $7,185 and in the net proceeds from the sale and purchase of investments totaling $2,332 partially offset by the increase in cash payments for intangible assets of $494 during the nine months ended September 30, 2022.

~~Net Cash Provided by Financing Activities~~

Net cash provided by financing activities was $981 and $19,409 for the nine months ended September 30, 2022, and 2021, respectively, a decrease of $18,428 or 95%. 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 $4,421 in proceeds from the exercise of stock options received during the nine months ended September 30, 2021 compared to $990 in proceeds received from the exercise of stock options received during the nine months ended September 30, 2022.

~~Operating Cash Requirements~~

~~APC Facility Commitment~~

On July 9, 2019, we entered into ~~the~~a 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 with~~APC Facility. We anticipate spending between $2,000 to $3,000 in the ~~renovation, purchasing~~remainder of ~~furniture~~2023. See Note 12 - Commitments and ~~equipment, validation and certification of~~Contingencies.

•In addition to the APC Facility ~~are estimated~~capital 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 $53,302 to date~~lease facilities in Florida, Ohio and Texas, and as of June 30, 2023, our total remaining obligation related to ~~this project,~~operating and financing lease payments was $36,190, of which ~~includes capitalized interest of $9,748. We anticipate spending $7,245, which includes projected capitalized interest of $2,360; $2,585 of the remaining total~~$1,620 is anticipated to be spent 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 of~~had $50,000 outstanding in indebtedness under a credit facility: $35,000 ~~at closing. On~~maturing 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 ~~LIBOR~~three-month SOFR plus 0.1% ("Adjusted SOFR") or 2.0% ~~(9.8%~~(12.68% as of ~~September 30, 2022). 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)~~2023). ~~In connection with the Oberland Facility, we entered into a revenue~~Revenue participation ~~agreement with Oberland Capital, which provides that, among other things, a quarterly royalty payment~~payments 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 Capital~~the lender equal to 11.5%, less the total of all quarterly interest and ~~royalty~~revenue 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 ~~2021~~2022 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 ~~debt~~Credit Facility as of ~~September~~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 ~~September~~June 30, ~~2022,~~2023, 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 ~~September~~June 30, ~~2022,~~2023, 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 ~~"Note~~Note 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 ~~2021~~2022 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 Title

Action

Adoption Date

Rule 10b5-1*

Non-Rule 10b5-1**

Aggregate Number of Securities to be Sold

Expiration Date

Maria Martinez, Chief Human Resource Officer

Adopt

6/15/2023

39,174

6/15/2024

*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						~~First~~ Amendment No. 1 to ~~Lease~~the Term Loan Agreement, dated as of ~~August 22, 2022, by and between~~June 30, 2023, among Axogen, Inc., Axogen Corporation, Axogen Processing Corporation, TPC Investments II LP and ~~Ja-Cole, L.P.~~Argo SA LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on ~~August 25, 2022)~~June 30, 2023).

~~10.2~~10.2†						~~Eighth~~ Amendment to ~~License and Services~~the Nerve End Cap Commercial Supply Agreement dated as of August ~~22, 2022, by and between~~4, 2023, among Axogen Corporation and ~~Community Blood Center (d/b/a Community Tissue Services) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on August 25, 2022).~~Cook Biotech Incorporated.

10.3**10.3 †						~~Confidential Separation~~Amendment No. 3 to the Distribution Agreement ~~and Release~~dated as of ~~Claims dated July 19, 2022 by and between~~August 4, 2023, among Axogen Corporation and ~~Eric Sandberg.~~Cook Biotech Incorporated.

31.1†						Certification of Principal Executive Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2†						Certification of Principal Financial Officer pursuant to Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32††						Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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.

104						Cover Page Interactive Data File – The cover pages do 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: ~~November~~August 8, ~~2022~~2023			/s/ Karen Zaderej
			Karen Zaderej Chief Executive Officer and President (Principal Executive Officer)

Dated: ~~November~~August 8, ~~2022~~2023			/s/ Peter J. Mariani
			Peter J. Mariani Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)


Year Ending December 31,	Expected Amortization Expense
2022 (excluding the nine months ended September 30, 2022)	$	68
2023	237
2024	169
2025	169
2026	167
Thereafter	2,251
Total amortized intangible assets	$	3,061


	Fair Value Measurements Using
	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Money market funds	$	7,610	$	—	$	—	$	7,610
U.S. government securities	22,874		—		—		22,874
Commercial paper	—		15,918		—		15,918
Total assets	$	30,484	$	15,918	$	—	$	46,402

Liabilities

Debt derivative liabilities	—		—		4,407		4,407
Total liabilities	$	—	$	—	$	4,407	$	4,407


(In thousands)
2022 (excluding the nine months ended September 30, 2022)	$	1,092
2023	3,476
2024	3,253
2025	3,336
2026	3,348
2027	2,921
Thereafter	20,931
Total	$	38,356
Less: Imputed interest	(16,192)
Total lease liability	$	22,164
Less: Current lease liability	(1,530)
Long-term lease liability	$	20,634


	Options	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2021	3,194,738	$15.65	6.45	$	2,236

Granted	1,185,749	$9.13
Exercised	(153,290)	$4.44
Cancelled	(229,964)	$14.83

Outstanding, September 30, 2022	3,997,233	$14.20	6.77	$	7,772
Exercisable, September 30, 2022	2,117,574	$15.63	4.85	$	4,059


	Outstanding Stock Units
	Stock Units	Weighted-Average Fair Value at Date of Grant per Share		Weighted Average Remaining Vesting Life	Aggregate Intrinsic Value (in thousands)
Unvested, December 31, 2021	1,730,765	$	18.45	1.51	$	19,633

Granted	1,916,963	$	8.31
Released	(315,275)	$	14.12
Forfeited	(331,260)	$	13.42

Unvested, September 30, 2022	3,001,193	$	12.98	1.82	$	35,774