Annual report pursuant to Section 13 and 15(d)

Intangible Assets

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Intangible Assets
 12 Months Ended
Dec. 31, 2011
Intangible Assets [Abstract]  
Intangible Assets
6. Intangible Assets

The Company’s intangible assets consist of the following:

 

                 
    December 31,
2011		     December 31,
2010		  

License agreements

   $ 899,231     $ 833,481  

Patents

     291,907       28,801  

Less: accumulated amortization

     (291,658 )     (224,511 ) 
   

 

 

    

 

 

  

Intangible assets, net

   $ 899,480     $ 637,771  
   

 

 

    

 

 

  

License agreements are being amortized over periods ranging from 17-20 years. Patent costs are being amortized over three years. Pending patent costs are not amortizable. Amortization expense for 2011 and 2010 was approximately $67,000 and $47,000, respectively. As of December 31, 2011, future amortization of license agreements is expected to be $133,000 for 2012 and 2013, $112,000 for 2014 and $47,000 for 2015 and 2016.

License Agreements

The Company has entered into multiple license agreements (the “License Agreements”) with the University of Florida Research Foundation (“UFRF”), University of Texas at Austin (“UTA”) and Emory University (“Emory”). Under the terms of the License Agreements, the Company acquired exclusive worldwide licenses for underlying technology used in repairing and regenerating nerves. The licensed technologies include the rights to issued patents and patents pending in the United States and international markets. The effective term of the License Agreements extends through the term of the related patents and the agreements may be terminated by the Company with 60 days prior written notice. Additionally, in the event of default, licensors may terminate an agreement if the Company fails to cure a breach after written notice. The License Agreements contain the key terms listed below:

 

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AxoGen pays royalty fees ranging from 1% to 3% under the License Agreements based on net sales of licensed products. One of the agreements also contains a minimum royalty of $12,500 per quarter, which may include a credit in future quarters in the same calendar year for the amount the minimum royalty exceeds the royalty fees. Also, when AxoGen pays royalties to more than one licensor for sales of the same product, a royalty stack cap applies, capping total royalties at 3.75%;

 

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Under one of the agreements, if AxoGen does not achieve certain regulatory milestones, which AxoGen has not achieved, AxoGen would owe an annual license maintenance fee starting on August 31, 2012 of $120,000, escalating to $240,000 on August 31, 2013 and August 31, 2014;

 

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If AxoGen sublicenses technologies covered by the License Agreements to third parties, AxoGen would pay a percentage of sublicense fees received from the third party to the licensor. Currently, AxoGen does not sublicense any technologies covered by License Agreements. The Company is not considered a sub-licensee under the License Agreements and does not owe any sublicensee fees for its own use of the technologies;

 

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AxoGen reimburses the licensors for certain legal expenses incurred for patent prosecution and defense of the technologies covered by the License Agreements; and

 

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Currently, under one of the License Agreements, AxoGen would owe a $15,000 milestone fee upon receiving a Phase II Small Business Innovation Research or Phase II Small Business Technology Transfer grant involving the licensed technology. The Company has not received either grant and does not owe such a milestone fee. Other milestone fees are due if AxoGen develops certain pharmaceutical or medical device products under the License Agreements. No such products are currently under development.

Regarding the license agreement with Emory, a series of milestone payments are listed within the agreement. Particularly, the agreement includes a schedule of license maintenance fees to be paid in the event that no regulatory-related milestone payments have been paid by certain anniversary dates of the agreement, of which none has yet been met. AxoGen renegotiated the License Agreement with Emory prior to any license maintenance fees coming due, but will continue to owe certain fees in the future or risk the loss of such License.

Royalty fees were approximately $115,000 and $81,000 during 2011 and 2010 and are included in sales and marketing expense on the accompanying consolidated statements of operations.