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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to______________
Commission file number: 001-36046
Axogen, Inc.
(Exact Name of Registrant as Specified in Its Charter)

Minnesota
(State or other jurisdiction of
incorporation or organization)

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

32615
(Zip Code)

386-462-6800
(Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valueAXGNThe Nasdaq Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No 
As of August 1, 2022, the registrant had 42,283,715 shares of common stock outstanding.



Table of Contents
Condensed Consolidated Balance Sheet as of June 30, 2022 and December 31, 2021 (Unaudited)

1



Forward-Looking Statements

From time to time, in reports filed with the U.S. Securities and Exchange Commission (the “SEC”) (including this Quarterly Report on Form 10-Q), in press releases, and in other communications to shareholders or the investment community, Axogen, Inc. (including Axogen, Inc.’s wholly owned subsidiaries, Axogen Corporation, Axogen Processing Corporation and Axogen Europe GmbH, the “Company,” “Axogen,” “we,” “our,” or “us”) may provide forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, concerning possible or anticipated future results of operations or business developments. These statements are based on management's current expectations or predictions of future conditions, events, or results based on various assumptions and management's estimates of trends and economic factors in the markets in which the Company is active, as well as its business plans. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “projects,” “forecasts,” “continue,” “may,” “should,” “will,” “goals,” and variations of such words and similar expressions are intended to identify such forward-looking statements. Actual results or event could differ materially from those described in any forward-looking statements as a result of various factors, including, without limitation, , the impact of the 2019 novel coronavirus and any and all variants thereof on our business, including but not limited to global supply chain issues; hospital staffing challenges and its impact on our business; statements regarding our growth, our financial guidance and performance; product development; product potential; Axogen Processing Center renovation timing and expense; sales growth; product adoption; market awareness of our products; anticipated capital requirements, including the potential of future financings; data validation; expected clinical study enrollment, timing and outcomes; our visibility at and sponsorship of conferences and our educational events; regulatory process and approvals; 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. 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. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those projected. The forward-looking statements are representative only as of the date they are made and, except as required by applicable law, the Company assumes no responsibility to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise.


2


PART 1 — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS
Axogen, Inc.
Condensed Consolidated Balance Sheets
(unaudited)
(In Thousands, Except Share and Per Share Amounts)
June 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents$11,822 $32,756 
Restricted cash6,251 6,251 
Investments46,210 51,330 
Accounts receivable, net of allowance for doubtful accounts of $595 and $276, respectively
20,370 18,158 
Inventory19,222 16,693 
Prepaid expenses and other2,900 1,861 
Total current assets106,775 127,049 
Property and equipment, net70,988 62,923 
Operating lease right-of-use assets14,975 15,193 
Intangible assets, net3,346 2,859 
Total assets$196,084 $208,024 
Liabilities and shareholders’ equity
Current liabilities:
Accounts payable and accrued expenses$21,838 $22,459 
Current maturities of long-term lease obligations1,762 1,834 
Total current liabilities23,600 24,293 
Long-term debt, net of debt discount and financing fees45,263 44,821 
Long-term lease obligations20,655 20,798 
Debt derivative liabilities4,876 5,562 
Total liabilities94,394 95,474 
Commitments and contingencies - see Note 12
Shareholders’ equity:
Common stock, $0.01 par value per share; 100,000,000 shares authorized; 42,134,504 and 41,736,950 shares issued and outstanding
420 417 
Additional paid-in capital351,117 342,765 
Accumulated deficit(249,847)(230,632)
Total shareholders’ equity101,690 112,550 
Total liabilities and shareholders’ equity$196,084 $208,024 
See notes to condensed consolidated financial statements.



Axogen, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
(In Thousands, Except Per Share Amounts)
Three Months EndedSix Months Ended
June 30,
2022
June 30,
2021
June 30,
2022
June 30,
2021
Revenues$34,454 $33,580 $65,461 $64,617 
Cost of goods sold6,284 7,092 11,830 12,264 
Gross profit28,170 26,488 53,631 52,353 
Costs and expenses:
Sales and marketing19,669 19,250 40,557 37,224 
Research and development7,022 5,723 13,296 11,471 
General and administrative9,403 8,669 19,021 17,032 
Total costs and expenses36,094 33,642 72,874 65,727 
Loss from operations(7,924)(7,154)(19,243)(13,374)
Other (expense) income:
Investment income (expense)32 29 (15)63 
Interest expense(249)(565)(603)(1,010)
Change in fair value of derivatives434 (84)686 (105)
Other expense(33)(124)(40)(132)
Total other expense, net184 (744)28 (1,184)
Net loss$(7,740)$(7,898)$(19,215)$(14,558)
Weighted average common shares outstanding — basic and diluted41,994,618 41,080,898 41,900,000 40,894,405 
Loss per common share — basic and diluted$(0.18)$(0.19)$(0.46)$(0.36)
See notes to condensed consolidated financial statements.



Axogen, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
(In Thousands)
Six Months Ended
June 30,
2022
June 30,
2021
Cash flows from operating activities:
Net loss$(19,215)$(14,558)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization1,418 1,405 
Amortization of right-of-use assets859 960 
Amortization of intangible assets132 96 
Amortization of debt discount and deferred financing fees442 227 
Provision for bad debt550 (65)
Provision for inventory write-down928 2,455 
Change in fair value of derivatives(686)105 
Investment losses145 31 
Stock-based compensation7,588 6,499 
Change in operating assets and liabilities:
Accounts receivable(2,719)(498)
Inventory(3,458)(3,341)
Prepaid expenses and other(1,081)199 
Accounts payable and accrued expenses(786)(5,061)
Operating lease obligations(856)35 
Cash paid for interest portion of finance leases (1)
Contract and other liabilities (3)
Net cash used in operating activities(16,739)(11,515)
Cash flows from investing activities:
Purchase of property and equipment(9,086)(10,924)
Purchase of investments(6,024)(23,966)
Proceeds from sale of investments11,000 32,295 
Cash payments for intangible assets(852)(692)
Net cash used in investing activities(4,962)(3,287)
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 15,000 
Cash paid for debt portion of finance leases(1)(8)
Proceeds from exercise of stock options and ESPP stock purchases767 3,612 
Net cash provided by financing activities766 18,604 
Net decrease in cash, cash equivalents, and restricted cash(20,935)3,802 
Cash, cash equivalents, and restricted cash, beginning of period39,007 55,609 
Cash, cash equivalents, and restricted cash, end of period$18,073 $59,411 
Supplemental disclosures of cash flow activity:
Cash paid for interest, net of capitalized interest$ $739 
Supplemental disclosure of non-cash investing and financing activities:
Acquisition of fixed assets in accounts payable and accrued expenses$1,817 $3,035 
Obtaining a right-of-use asset in exchange for a lease liability$700 $371 
Embedded derivative associated with the long-term debt$ $1,173 
Acquisition of intangible assets in accounts payable and accrued expenses$186 $190 
See notes to condensed consolidated financial statements.




Axogen, Inc.
Condensed Consolidated Statements of Changes in Shareholders’ Equity
(unaudited)
(In Thousands, Except Share Amounts)
Common StockAdditional Paid-in
Capital
Accumulated
Deficit
Total Shareholders'
Equity
SharesAmount
Three Months Ended June 30, 2022
Balance at March 31, 202241,972,987 $420 $345,538 $(242,107)$103,851 
Net loss— — — (7,740)(7,740)
Stock-based compensation— — 4,910 — 4,910 
Issuance of restricted and performance stock units44,054 — — —  
Exercise of stock options and employee stock purchase plan117,463  669 — 669 
Balance at June 30, 202242,134,504 $420 $351,117 $(249,847)$101,690 
Six Months Ended June 30, 2022
Balance at December 31, 202141,736,950 417 $342,765 $(230,632)$112,550 
Net loss— — — (19,215)(19,215)
Stock-based compensation— — 7,588 — 7,588 
Issuance of restricted and performance stock units259,341 2 (2)—  
Exercise of stock options and employee stock purchase plan138,213 1 766 — 767 
Balance at June 30, 202242,134,504 $420 $351,117 $(249,847)$101,690 
Three Months Ended June 30, 2021
Balance at March 31, 202140,842,717 $408 $329,603 $(210,307)119,704 
Net loss— $— $— $(7,898)$(7,898)
Stock-based compensation— — 3,804 — 3,804 
Issuance of restricted and performance stock units44,411 $— $— $— $ 
Exercise of stock options and employee stock purchase plan449,980 5 3,088 — 3,093 
Balance at June 30, 202141,337,108 $413 $336,495 $(218,205)$118,703 
Six Months Ended June 30, 2021
Balance at December 31, 202040,618,766 $406 $326,390 $(203,647)123,149 
Net loss— — — (14,558)(14,558)
Stock-based compensation— — 6,499 — 6,499 
Issuance of restricted and performance stock units138,944 1 (1)—  
Exercise of stock options and employee stock purchase plan579,398 6 3,607 — 3,613 
Balance at June 30, 202141,337,108 $413 $336,495 $(218,205)$118,703 
See notes to condensed consolidated financial statements.



Axogen, Inc.
Notes to Condensed Consolidated Financial Statements
(unaudited)
(In Thousands, Except Per Share Amounts)

1.Basis of Presentation
General
Unless the context otherwise requires, all references in these Notes to “Axogen,” the “Company,” “we,” “us” and “our” refer to Axogen, Inc. and its wholly owned subsidiaries Axogen Corporation (“AC”), Axogen Processing Corporation, and Axogen Europe GmbH.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company as of June 30, 2022, and December 31, 2021, and for the three and six months ended June 30, 2022, and 2021. 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”) and should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
The interim condensed consolidated financial statements are unaudited and in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results for the periods presented. Results for interim periods are not necessarily indicative of results for the full year. All intercompany accounts and transactions have been eliminated in consolidation.
The results of operations for the three and six months ended June 30, 2022, 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 markets for the remainder of fiscal year 2022. Specifically, there can be no assurances that resurgences of COVID-19 will not affect future results.
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
2.Summary of Significant Accounting Policies
The accompanying condensed consolidated financial statements and notes follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2021, except as described below.
Cash and Cash Equivalents and Concentration
The Company considers highly liquid investments with maturities of three months or less at the date of acquisition as cash equivalents in the accompanying condensed consolidated financial statements. The Company has not experienced any losses related to these balances; however, as of June 30, 2022, $11,322 of the cash and cash equivalents balance was in excess of Federal Deposit Insurance Corporation limits. The Company had restricted cash balances of $6,251 for each of the periods ended June 30, 2022, and December 31, 2021. The June 30, 2022, and December 31, 2021, balances both include $6,000 and $250, which represent collateral for two irrevocable standby letters of credit. See "Note 8 - Long-Term Debt, Net of Debt Discount and Financing Fees."



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)June 30,
2022
December 31,
2021
Cash and cash equivalents$11,822 $32,756 
Restricted cash6,251 6,251 
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows$18,073 $39,007 
Stock-Based Compensation
The Company measures stock options granted to employees and directors at a premium price based on market conditions, such as the trading price of the Company’s common stock, using a Monte Carlo Simulation in estimating the fair value at grant date. The determination of the fair value 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 over the term of the awards. The Company determines the expected life of each award giving consideration to the contractual terms, vesting schedules, and post-vesting forfeitures. The Company uses the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life 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 in the Company’s consolidated statements of operations. The expense has been reduced for forfeitures as they occur.
The Company recognizes expense for all stock-based compensation awards, including stock options, restricted stock units ("RSUs"), 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.
Recent Accounting Pronouncements
In November 2021, the Financial Accounting Standards ("FASB") amended ASC 832, Government Assistance (issued under Accounting Standards Update ("ASU") 2021-10, "Disclosures by Business Entities about Government Assistance"). This amendment requires annual disclosures about transaction with a government that are accounted for by applying a grant or contribution accounting model by analogy, including, (1) the types of transactions; (2) the financial statement line items affected by the transaction, and; (3) significant terms and conditions associated with the transactions. The Company adopted the guidance on January 1, 2022, the adoption of ASU 2021-10 is not expected to have a material impact on the the Company's condensed consolidated financial condition, results of operations or disclosures.
3.     Inventory
Inventory consisted of the following (in thousands):
June 30,
2022
December 31,
2021
Finished goods$12,492 $11,011 
Work in process929 813 
Raw materials5,801 4,869 
Inventory$19,222 $16,693 
For the six months ended June 30, 2022, and 2021, the Company had adjustments to the provision for inventory write downs of $928 and $2,455 (including the write-down of Avive inventory of $1,251), respectively.



4.     Property and Equipment, Net
Property and equipment consisted of the following (in thousands):
June 30,
2022
December 31,
2021
Furniture and equipment$5,192 $5,100 
Leasehold improvements15,490 14,952 
Processing equipment4,156 3,984 
Land731 731 
Projects in process54,341 45,660 
Finance lease right-of-use assets110 110 
Property and equipment, at cost80,020 70,537 
Less: accumulated depreciation and amortization(9,032)(7,614)
Property and equipment, net$70,988 $62,923 
The Company further added to its projects in process total which is related to our Axogen Processing Center (“APC Facility”). See "Note 12 - Commitments and Contingencies."
Depreciation expense consisted of following (in thousands):
Three Months Ended June, 30Six Months Ended June 30,
2022202120222021
Depreciation expense$713 $633 $1,418 $1,405 
Depreciation expense is allocated among cost of sales, sales and marketing, research and development, and general and administrative expense on the condensed consolidated statements of operations.
5.     Intangible Assets, Net
The Company’s intangible assets consisted of the following (in thousands):
June 30, 2022December 31, 2021
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Amortizable intangible assets:
Patents$3,083 $(304)$2,780 $2,469 $(234)$2,235 
License agreements1,101 (916)185 1,101 (852)249 
Total amortizable intangible assets4,184 (1,219)2,965 3,570 (1,086)2,484 
Unamortized intangible assets
Trademarks380 — 380 375 — 375 
Total intangible assets$4,565 $(1,219)$3,346 $3,945 $(1,086)$2,859 
Amortization expense consisted of the following (in thousands):
Three Months Ended June, 30Six Months Ended June 30,
2022202120222021
Amortization expense$63 $49 $132 $96 




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

License Agreements
The Company has License Agreements with the University of Florida Research Foundation and the University of Texas at Austin in which certain royalty payments are paid quarterly.
Royalty expense consisted of the following (in thousands):
Three Months Ended June, 30Six Months Ended June 30,
2022202120222021
Royalty expense$766 $709 $1,439 $1,350 
Royalty fees are included in sales and marketing expense on the condensed consolidated statements of operations.
6.     Fair Value Measurement
Fair value is defined as 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. The fair value hierarchy defines a three-level valuation hierarchy for classification and disclosure of fair value measurements as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
There has been no movement between Level 1 and Level 2 or between Level 2 and Level 3 from December 31, 2021 to June 30, 2022. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Debt Derivative Liabilities
The Debt Derivative Liabilities are measured using a ‘with and without’ valuation model to compare the fair value of the Company's financing agreement with Oberland Capital including the identified embedded derivative features and the fair value of a plain vanilla note with the same terms. The fair value of the Oberland Facility including the embedded derivative features was determined using a probability-weighted expected return model based on 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:
June 30, 2022December 31, 2021
Input
Remaining term (years)55.5
Maturity dateJune 30, 2027June 30, 2027
Coupon rate9.50 %9.50 %
Revenue participation paymentsMaximum each yearMaximum each year
Discount rate14.4(1)10.72(1)
Probability of mandatory prepayment before 20245.0 %(1)5.0 %(1)
Estimated timing of mandatory prepayment event before 2024December 31, 2023(1)December 31, 2023(1)
Probability of mandatory prepayment 2024 or after15.0 %(1)15.0 %(1)
Estimated timing of mandatory prepayment event 2024 or afterMarch 31, 2026(1)March 31, 2026(1)
Probability of optional prepayment event5.0 %(1)5.0 %(1)
Estimated timing of optional prepayment eventDecember 31, 2025(1)December 31, 2025(1)
(1)Represents a significant unobservable input
The significant inputs that are included in the valuation of the Debt derivative liability - second tranche include:
June 30, 2022December 31, 2021
Input
Remaining term (years)66.5
Maturity dateJune 30, 2028June 30, 2028
Coupon rate9.59.5
Revenue participation paymentsMaximum each yearMaximum each year
Discount rate17.6 %(1)13.21 %(1)
Probability of mandatory prepayment before 20245.0(1)5.0(1)
Estimated timing of mandatory prepayment event before 2024December 31, 2023(1)December 31, 2023(1)
Probability of mandatory prepayment 2024 or after15.0(1)15.0(1)
Estimated timing of mandatory prepayment event 2024 or afterMarch 31, 2026(1)March 31, 2026(1)
Probability of optional prepayment event5.0(1)5.0(1)
Estimated timing of optional prepayment eventDecember 31, 2025(1)December 31, 2025(1)
(1)Represents a significant unobservable input



The following table presents the financial assets and liabilities that the Company measured at fair value on a recurring basis as of June 30, 2022, classified in accordance with the fair value hierarchy (in thousands):
Fair Value Measurements Using
(Level 1)(Level 2)(Level 3)Total
Assets:
Money market funds$6,057 $ $ $6,057 
U.S. government securities17,920   17,920 
Commercial paper 28,289  28,289 
Total assets$23,977 $28,289 $ $52,266 
Liabilities
Debt derivative liabilities  4,876 4,876 
Total liabilities$ $ $4,876 $4,876 
The following table presents the financial assets 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):
Fair Value Measurements Using
(Level 1)(Level 2)(Level 3)Total
Assets:
Money market funds$22,012 $ $ $22,012 
U.S. government securities12,081   12,081 
Commercial paper 39,249  39,249 
Total assets$34,093 $39,249 $ $73,342 
Liabilities
Debt derivative liabilities$ $5,562 $5,562 
Total liabilities$ $ $5,562 $5,562 
The changes in Level 3 liabilities measured at fair value on a recurring basis for the three and six months ended June 30, 2022, were as follows (in thousands):
Three Months Ended June 30, 2022
Beginning Balance, April 1, 2022$5,310 
Change in fair value included in net loss(434)
Ending Balance, June 30, 2022$4,876 
Six Months Ended June 30, 2022
Beginning Balance, January 1, 2022$5,562 
Change in fair value included in net loss(686)
Ending Balance, June 30, 2022$4,876 



The changes in Level 3 liabilities measured at fair value on a recurring basis for the three and six months ended June 30, 2021, were as follows (in thousands):
Three Months Ended June 30, 2021
Beginning Balance, April 1, 202139,205 
Addition of Oberland Facility - second tranche 13,827 
Addition of debt derivative - second tranche1,173 
Change in fair value of Oberland Facility150 
Change in fair value of debt derivative84 
Ending Balance, June 30, 2021$54,439 
Six Months Ended June 30, 2021
Beginning Balance, January 1, 2021$39,352 
Addition of Oberland Facility - second tranche13,827 
Addition of debt derivative - second tranche1,173 
Change in fair value of Oberland Facility(18)
Change in fair value of debt derivative105 
Ending Balance June 30, 2021$54,439 
The fair value of cash, restricted cash, accounts receivable, accounts payable and accrued expenses approximates the carrying values because of the short-term nature of these instruments. The Oberland Facility is classified as Level 3 within the fair value hierarchy. The carrying value and estimated fair value of the Oberland Facility were $45,263 and $47,759 at June 30, 2022, and $45,325 and $52,605 at December 31, 2021, respectively. See "Note 8 - Long-Term Debt, Net of Debt Discount and Financing Fees."




7.     Leases
The Company leases administrative, manufacturing, research and distribution facilities through operating leases. Several leases include fixed payments including rent and non-lease components such as common-area or other maintenance costs.
On January 27, 2022, the Company entered into a Commercial Lease Amendment ("Amendment") with JA-Cole L.P., with an effective date of February 1, 2022, pursuant to the original Commercial Lease dated April 21, 2015, as amended (the "Lease"). The lease is for the office and warehouse facility located in Burleson, Texas. The Amendment revised the commencement date to May 1, 2022, and the expiration date to April 30, 2027. The Company accounted for the Lease revisions as a lease modification in accordance with Accounting Standard Codification ("ASC") 842, Leases, as the modification effectively terminated the existing lease and created a new lease which commenced on February 1, 2022. The Lease and related modification entries are included in the operating lease line items on the condensed consolidated balance sheet.
Total operating lease expense for the three months ended June 30, 2022, and 2021 was $1,355 and $1,211 respectively and $2,763 and $2,437 for the six months ended June 30, 2022, and 2021, respectively.

Supplemental balance sheet information related to the operating and financing leases is as follows:
(In thousands, except lease term and discount rate )June 30, 2022December 31, 2021
Operating Leases
Right-of-use operating assets$14,975 $15,193 
Current maturities of long-term lease obligations$1,756 $1,825 
Long-term lease obligations$20,653 $20,794 
Financing Leases
Right-of-use financing leases (1)
$31 $42 
Current maturities of long-term lease obligations $6 $9 
Long-term lease obligations $2 $4 
Weighted average operating lease term (in years):11.412.1
Weighted average operating financing term (in years):1.62.2
Weighted average discount rate operating leases10.31 %10.32
Weighted average discount rate financing leases6.847.23
(1) Financing leases are included within property and equipment, net on the condensed consolidated balance sheets.



Future minimum lease payments under operating and financing leases at June 30, 2022, were as follows:
(In thousands) 
2022 (excluding the six months ended June 30, 2022)$2,152 
20233,415 
20243,186 
20253,268 
20263,276 
202761 
Thereafter23,939 
Total$39,296 
Less: Imputed interest(16,879)
Total lease liability$22,417 
Less: Current lease liability (1,762)
Long-term lease liability$20,655 
8.     Long-Term Debt, Net of Debt Discount and Financing Fees
Long-term debt, net of debt discount and financing fees consists of the following:
(In thousands)June 30,
2022
December 31, 2021
Oberland Facility - first tranche$35,000 $35,000 
Oberland Facility - second tranche15,000 15,000 
Less - unamortized debt discount and deferred financing fees(4,737)(5,179)
Long-term debt, net of debt discount and financing fees$45,263 $44,821 
Oberland Facility
On June 30, 2020, the Company entered into a seven-year financing agreement with Oberland Capital (the "Oberland Facility") and obtained the first tranche of $35,000 at closing. On June 30, 2021, the second tranche of $15,000 was drawn down by the Company.
The Oberland Facility requires quarterly interest payments for seven years. Interest is calculated as 7.5% plus the greater of LIBOR or 2.0% (9.5% as of June 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).  In connection with the Oberland Facility, the Company entered into a revenue participation agreement with Oberland Capital, which provides 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) 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”). Payments under the Revenue Participant Agreement commenced on September 30, 2021. The royalty 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 interest expense $372 and $260 for this Revenue Participation Agreement for the three months ended June 30, 2022, and 2021 and $707 and $260 for the six months ended June 30, 2022 and 2021, respectively. The Company pays Oberland Capital quarterly debt interest on the last day of the quarter. The Company paid $1,201 and $840 for the three months ended June 30, 2022, and 2021, respectively, and $2,388 and $1,672 for the six months ended June 30, 2022, and 2021, respectively. The Company capitalized interest of $1,579 and $3,024 for the three and six months ended June 30, 2022, respectively and $645 and $1,690 for the three and six months ended June 30, 2021, respectively, towards the costs to construct and retrofit the APC Facility in Vandalia, OH. See "Note 12- Commitments and Contingencies." Since inception, the Company has capitalized interest of $8,298 related to this project. The capitalized interest is recorded as part of property and equipment, net in the condensed consolidated balance sheets. As of June 30, 2022, the Company was in compliance with all covenants. See "Note 12 - Commitments and Contingencies."



Embedded Derivatives
The Debt Derivative Liabilities are recorded at fair value, with the change in fair value reported in the condensed consolidated statements of operations at each reporting date. The fair values of the Debt Derivative Liabilities were $4,876 and $5,562 at June 30, 2022, and December 31, 2021, respectively. See "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 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 Facility were $642 and were recorded as a contra liability to the debt facility. The financing fees are amortized over the life of the first tranche of the Oberland Facility and recorded in interest expense.
Amortization of debt discount and deferred financing fees for the three months ended June 30, 2022, and 2021 was $223 and $153, respectively, and for the six months ended June 30, 2022, and 2021 was $442 and $227, respectively.
Other credit facilities
The Company had restricted cash of $6,251 at June 30, 2022, and December 31, 2021. The June 30, 2022, and December 31, 2021, balances both include $6,000 and $250, which represent collateral for two irrevocable standby letters of credit.

9.     Stock-Based Incentive Plans
The Company maintains two share-based incentive plans: the Axogen, Inc. Second Amended and Restated 2019 Long-Term Incentive Plan, (“2019 Plan”), and the Axogen 2017 Employee Stock Purchase Plan (“2017 ESPP”). As of June 30, 2022, 3,116,758 shares 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 on the value of share-based payment awards that are ultimately expected to vest during the period and stock-based compensation expense of $4,910 and $3,805 for the three months ended June 30, 2022, and 2021, respectively, and $7,588 and $6,499 for the six months ended June 30, 2022, and 2021, respectively.
A summary of the stock option activity is as follows:
OptionsWeighted Average Exercise PriceWeighted Average Remaining Contractual LifeAggregate Intrinsic Value (in thousands)
Outstanding, December 31, 20213,194,738 $15.65 6.45$2,236 
Granted1,109,754 $9.20 
Exercised(41,209)$4.27 
Cancelled(118,100)$16.41 
Outstanding, June 30, 20224,145,183 $14.02 6.98$1,140 
Exercisable, June 30, 20222,145,901 $15.07 5.03$1,138 
The Company used the following weighted-average assumptions for options granted during the six months June 30, 2022:
Expected term (in years)6.05
Expected volatility60.95  %
Risk free rate2.22  %
Expected dividends  %



As of June 30, 2022, there was approximately $9,860 of total unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted-average period of 2.7 years.
Restricted and Performance Stock Units
A summary of the restricted and performance stock unit activity is as follows:
Outstanding Stock Units
Stock UnitsWeighted-Average Fair Value at Date of Grant per ShareWeighted Average Remaining Vesting LifeAggregate Intrinsic Value (in thousands)
Unvested, December 31, 20211,730,765 $18.45 1.51$19,633 
Granted1,874,047 $8.29 
Released(259,341)$14.21 
Forfeited(125,477)$16.61 
Unvested, June 30, 20223,219,994 $12.95 2.01$26,372 
Performance Stock Units
At June 30, 2022, the total future stock compensation expense related to non-vested performance awards at maximum target payout is expected to be approximately $5,332. As of June 30, 2022, there was approximately $21,381 of total unrecognized compensation costs related to both the PSU and RSU unvested awards. The Company expects to recognize these costs over a weighted-average period of 3.0 years.
On March 16, 2022, the Compensation Committee of the Board of Directors approved PSUs that were tied to 2022, 2023 and 2024 revenue (the “2022 PSU award.”) The 2022 PSU award consists of a targeted award of 526,467 shares with a payout ranging from 0% to 150% upon achievement of specific revenue goals.
Employee Stock Purchase Plan
The Company also maintains the 2017 ESPP, which allows eligible employees to acquire shares of the Company’s common stock through payroll deductions at a discount to market price. A total of 600,000 shares of the Company’s common stock are authorized for issuance under the 2017 ESPP, and as of June 30, 2022, 126,674 shares remain available for issuance.
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 June 30,Six Months Ended June 30,
(In thousands, except per share amounts)2022202120222021
Numerator:
Net loss $(7,740)$(7,898)$(19,215)$(14,558)
Denominator:
Weighted-average common shares outstanding (Basic)41,994,618 41,080,898 41,900,000 40,894,405 
Weighted-average common shares outstanding (Diluted)41,994,618 41,080,898 41,900,000 40,894,405 
Net loss per common share (Basic and Diluted)$(0.18)$(0.19)$(0.46)$(0.36)
Anti-dilutive shares excluded from the calculation of diluted earnings per share (1)
Stock options3,796,254 1,308,583 3,377,594 1,188,243 
Restricted stock units591,824 17,828 574,431 296,327 
(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 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.
12.     Commitments and Contingencies
Service Agreements
On August 6, 2015, the Company entered into a License and Service Agreement ("CTS Agreement") with 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 use of clean room/manufacturing, storage and office space, which the Company accounts for as an embedded lease in accordance with ASC 842, “Leases.” The Company also pays CTS for service in support of its manufacturing process such as for routine sterilization of daily supplies, providing disposable supplies, microbial services and office support. The Company paid fees to CTS during the three months ended June 30, 2022, and 2021, of approximately $622 and $628, respectively, and during the six months ended June 30, 2022, and 2021 of approximately $1,245 and $1,271 which are included in cost of goods sold on the accompanying condensed consolidated statements of operations.
In December 2011, the Company entered into a Master Services Agreement for Clinical Research and 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 phase 3 pivotal clinical trial to support the BLA for Avance Nerve Graft. Payments made under this agreement were $356 and $154 for the three months ended June 30, 2022, and 2021, respectively, and $684 and $