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, 2021~~March 31, 2022


☐			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~~Yes ☐ NONo ☒

As of ~~July 30, 2021,~~May 2, 2022, the registrant had ~~41,397,053~~41,980,607 shares of common stock outstanding.

~~Table of Contents~~

Table of Contents

~~Table of Contents~~

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. The forward-looking statements may include, without limitation, statements regarding our assessment of our internal controls over financial ~~reporting, our growth,~~reporting; statements related to the impact of ~~COVID-19,~~the 2019 novel coronavirus and any and all variants thereof ("COVID-19") 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,~~development; product ~~potential, regulatory process and approvals, APC~~potential; Axogen Processing Center renovation timing and ~~expense, financial performance,~~expense; sales ~~growth,~~growth; product ~~adoption,~~adoption; market awareness of our ~~products,~~products; anticipated capital requirements, including the potential of future financings; data ~~validation,~~validation; expected clinical study enrollment, timing and outcomes; our visibility at and sponsorship of conferences and our educational ~~events.~~events; regulatory process and approvals; and other factors, including legislative, regulatory, political, geopolitical and economic developments, including 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 uncertainties that affect the ~~our~~Company’s business and ~~our~~its market, particularly those discussed in the risk factors and cautionary statements set forth in the ~~our~~Company’s filings with the SEC, including as described in “Risk Factors” included in Item 1A and ~~“Risk~~"Risk Factor ~~Summary”~~Summary" included in ~~our 2020~~the Company's Annual Report on Form ~~10-K.~~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. ~~Forward-looking~~The forward-looking statements are representative only as of the date they are made and, except as required by applicable law, ~~we assume~~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.

~~Table of Contents~~

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, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	53,078	$	48,767	Cash and cash equivalents	$	14,559	$	32,756
Restricted cash	Restricted cash	6,333		6,842		Restricted cash	6,251		6,251
Investments	Investments	46,839		55,199		Investments	52,859		51,330
Accounts receivable, net of allowance for doubtful accounts of $258 and $416, respectively		18,182		17,618
Accounts receivable, net of allowance for doubtful accounts of $366 and $276, respectively						Accounts receivable, net of allowance for doubtful accounts of $366 and $276, respectively	18,590		18,158
Inventory	Inventory	13,415		12,529		Inventory	17,400		16,693
Prepaid expenses and other	Prepaid expenses and other	3,948		4,296		Prepaid expenses and other	2,816		1,861
Total current assets	Total current assets	141,795		145,251		Total current assets	112,475		127,049
Property and equipment, net	Property and equipment, net	50,952		38,398		Property and equipment, net	66,954		62,923
Operating lease right-of-use assets	Operating lease right-of-use assets	15,272		15,614		Operating lease right-of-use assets	15,406		15,193
Finance lease right-of-use assets		53		64
Intangible assets		2,460		2,054

Intangible assets, net						Intangible assets, net	3,190		2,859

Total assets	Total assets	$	210,532	$	201,381	Total assets	$	198,025	$	208,024

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	$	19,839	$	21,968	Accounts payable and accrued expenses	$	20,872	$	22,459
Current maturities of long-term lease obligations	Current maturities of long-term lease obligations	1,789		863		Current maturities of long-term lease obligations	2,073		1,834
Total current liabilities	Total current liabilities	21,628		22,831		Total current liabilities	22,945		24,293

Long-term debt, net of financing fees		46,081		32,027
Long-term debt, net of debt discount and financing fees						Long-term debt, net of debt discount and financing fees	45,041		44,821
Long-term lease obligations	Long-term lease obligations	20,344		20,874		Long-term lease obligations	20,878		20,798
Debt derivative liability		3,776		2,497
Other long-term liabilities		0		3
Debt derivative liabilities						Debt derivative liabilities	5,310		5,562

Total liabilities	Total liabilities	91,829		78,232		Total liabilities	94,174		95,474

Commitments and contingencies - see Note 13		0		0
Commitments and contingencies - see Note 12						Commitments and contingencies - see Note 12	0		0

Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, $0.01 par value per share; 100,000,000 shares authorized; 41,337,108 and 40,618,766 shares issued and outstanding		413		406
Common stock, $0.01 par value per share; 100,000,000 shares authorized; 41,972,987 and 41,736,950 shares issued and outstanding						Common stock, $0.01 par value per share; 100,000,000 shares authorized; 41,972,987 and 41,736,950 shares issued and outstanding	420		417
Additional paid-in capital	Additional paid-in capital	336,495		326,390		Additional paid-in capital	345,538		342,765
Accumulated deficit	Accumulated deficit	(218,205)		(203,647)		Accumulated deficit	(242,107)		(230,632)
Total shareholders’ equity	Total shareholders’ equity	118,703		123,149		Total shareholders’ equity	103,851		112,550
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	210,532	$	201,381	Total liabilities and shareholders’ equity	$	198,025	$	208,024

See notes to condensed consolidated financial statements.

~~Table of Contents~~

Axogen, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(In Thousands, Except ~~Share and~~ Per Share Amounts)


		Three Months Ended				Six Months Ended					Three Months Ended
		June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020			March 31, 2022		March 31, 2021

Revenues	Revenues	$	33,580	$	22,116	$	64,617	$	46,377	Revenues	$	31,007	$	31,037
Cost of goods sold	Cost of goods sold	7,092		5,605		12,264		10,421		Cost of goods sold	5,546		5,172
Gross profit	Gross profit	26,488		16,511		52,353		35,956		Gross profit	25,461		25,865
Costs and expenses:	Costs and expenses:									Costs and expenses:
Sales and marketing	Sales and marketing	19,250		14,290		37,224		32,128		Sales and marketing	20,888		17,973
Research and development	Research and development	5,723		4,071		11,471		8,685		Research and development	6,275		5,748
General and administrative	General and administrative	8,669		6,404		17,032		11,906		General and administrative	9,618		8,364
Total costs and expenses	Total costs and expenses	33,642		24,765		65,727		52,719		Total costs and expenses	36,781		32,085
Loss from operations	Loss from operations	(7,154)		(8,254)		(13,374)		(16,763)		Loss from operations	(11,320)		(6,220)
Other (expense) income:	Other (expense) income:									Other (expense) income:
Investment income	Investment income	29		237		63		548		Investment income	(46)		34
Interest expense	Interest expense	(565)		(31)		(1,010)		(62)		Interest expense	(354)		(444)
Change in fair value of derivatives	Change in fair value of derivatives	(84)		0		(105)		0		Change in fair value of derivatives	252		(22)
Other expense	Other expense	(124)		(57)		(132)		(20)		Other expense	(7)		(8)
Total other (expense) income, net		(744)		149		(1,184)		466
Net Loss		$	(7,898)	$	(8,105)	$	(14,558)	$	(16,297)
Total other expense, net										Total other expense, net	(155)		(440)
Net loss										Net loss	$	(11,475)	$	(6,660)

Weighted average common shares outstanding — basic and diluted	Weighted average common shares outstanding — basic and diluted	41,080,898		39,823,414		40,894,405		39,760,602		Weighted average common shares outstanding — basic and diluted	41,804,330		40,705,840
Loss per common share — basic and diluted	Loss per common share — basic and diluted	$	(0.19)	$	(0.20)	$	(0.36)	$	(0.41)	Loss per common share — basic and diluted	$	(0.27)	$	(0.16)

See notes to condensed consolidated financial statements.

~~Table of Contents~~

Axogen, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In Thousands)


		Six Months Ended					Three Months Ended
		June 30, 2021		June 30, 2020			March 31, 2022		March 31, 2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(14,558)	$	(16,297)	Net loss	$	(11,475)	$	(6,660)
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		1,405		618
Depreciation and amortization						Depreciation and amortization	704		772
Amortization of right-of-use assets	Amortization of right-of-use assets	960		802		Amortization of right-of-use assets	427		500
Amortization of intangible assets	Amortization of intangible assets	96		72		Amortization of intangible assets	69		47
Amortization of deferred financing fees		227		0
Amortization of debt discount and deferred financing fees						Amortization of debt discount and deferred financing fees	220		112
Provision for bad debt	Provision for bad debt	(65)		(115)		Provision for bad debt	267		(26)
Provision for inventory write-down	Provision for inventory write-down	2,455		1,624		Provision for inventory write-down	459		783
Changes in fair value of derivatives		105		0
Changes in investment gains and losses		31		(141)
Share-based compensation		6,499		2,778
Change in fair value of derivatives						Change in fair value of derivatives	(252)		22
Investment losses						Investment losses	96		15
Stock-based compensation						Stock-based compensation	2,678		2,694
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Accounts receivable	Accounts receivable	(498)		3,010		Accounts receivable	(624)		(2,181)
Inventory	Inventory	(3,341)		(600)		Inventory	(1,166)		(1,642)
Prepaid expenses and other	Prepaid expenses and other	199		(1,699)		Prepaid expenses and other	(1,030)		(313)
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(5,061)		(4,212)		Accounts payable and accrued expenses	(1,104)		(5,061)
Operating lease obligations	Operating lease obligations	35		(915)		Operating lease obligations	(320)		119
Cash paid for interest portion of finance leases		(1)		0

Contract and other liabilities	Contract and other liabilities	(3)		(6)		Contract and other liabilities	—		(1)
Net cash used in operating activities	Net cash used in operating activities	(11,515)		(15,081)		Net cash used in operating activities	(11,051)		(10,820)

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	(10,924)		(13,183)		Purchase of property and equipment	(5,037)		(3,095)

Purchase of investments	Purchase of investments	(23,966)		(22,965)		Purchase of investments	(6,024)		(15,279)
Proceeds from sale of investments	Proceeds from sale of investments	32,295		59,883		Proceeds from sale of investments	4,400		19,400
Cash payments for intangible assets	Cash payments for intangible assets	(692)		(216)		Cash payments for intangible assets	(580)		(156)
Net cash (used in) provided by investing activities	Net cash (used in) provided by investing activities	(3,287)		23,519		Net cash (used in) provided by investing activities	(7,241)		870

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		35,000
Proceeds from the paycheck protection program		0		7,820
Repayment of paycheck protection program		0		(7,820)
Payments for debt issuance costs		0		(350)
Payments of employee tax withholding in exchange of common stock awards		0		(658)

Cash paid for debt portion of finance leases	Cash paid for debt portion of finance leases	(8)		(8)		Cash paid for debt portion of finance leases	(2)		(4)
Proceeds from exercise of stock options		3,612		1,784
Proceeds from exercise of stock options and ESPP stock purchases						Proceeds from exercise of stock options and ESPP stock purchases	97		521
Net cash provided by financing activities	Net cash provided by financing activities	18,604		35,768		Net cash provided by financing activities	95		517
Net increase in cash, cash equivalents, and restricted cash		3,802		44,206
Net decrease in cash, cash equivalents, and restricted cash						Net decrease in cash, cash equivalents, and restricted cash	(18,197)		(9,433)
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	55,609		41,724		Cash, cash equivalents, and restricted cash, beginning of period	39,007		55,609
Cash, cash equivalents and restricted cash, end of period		$	59,411	$	85,930
Cash, cash equivalents, and restricted cash, end of period						Cash, cash equivalents, and restricted cash, end of period	$	20,810	$	46,176

Supplemental disclosures of cash flow activity:	Supplemental disclosures of cash flow activity:					Supplemental disclosures of cash flow activity:
Cash paid for interest		$	739	$	23
Cash paid for interest, net of capitalized interest						Cash paid for interest, net of capitalized interest	$	—	$	312
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	$	3,035	$	617	Acquisition of fixed assets in accounts payable and accrued expenses	$	1,119	$	4,836
Obtaining a right-of-use asset in exchange for a lease liability	Obtaining a right-of-use asset in exchange for a lease liability	$	371	$	796	Obtaining a right-of-use asset in exchange for a lease liability	$	641	$	321
Embedded derivative associated with the long-term debt		$	1,173	$	2,563

Acquisition of intangible assets in accounts payable and accrued expenses	Acquisition of intangible assets in accounts payable and accrued expenses	$	190	$	0	Acquisition of intangible assets in accounts payable and accrued expenses	$	239	$	166

See notes to condensed consolidated financial statements.

~~Table of Contents~~

Axogen, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)

(In Thousands, Except Share Amounts)

Common Stock Paid-in
Capital Accumulated
Deficit Shareholders'
Equity/(Deficit)
Shares Amount
Three Months Ended June 30, 2021
Balance at March 31, 2021 40,842,717 $ 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 units 44,411 0 0 — 0
Exercise of stock options and employee stock purchase plan 449,980 5 3,088 — 3,093
Balance at June 30, 2021 41,337,108 $ 413 $ 336,495 $ (218,205) $ 118,703
Six Months Ended June 30, 2021
Balance at December 31, 2020 40,618,766 $ 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 units 138,944 1 (1) — 0
Shares surrendered by employees to pay tax withholdings 0 — 0 — 0
Exercise of stock options and employee stock purchase plan 579,398 6 3,607 — 3,613
Balance at June 30, 2021 41,337,108 $ 413 $ 336,495 $ (218,205) $ 118,703
Three Months Ended June 30, 2020
Balance at March 31, 2020 39,738,767 $ 397 $ 311,850 $ (188,053) $ 124,194
Net Loss — — — (8,105) (8,105)
Stock-based compensation — — 2,222 — 2,222
Issuance of restricted and performance stock units 10,021 0 0 — 0
Shares surrendered by employees to pay tax withholdings (1,766) — (17) — (17)
Exercise of stock options and employee stock purchase plan 273,758 3 1,463 — 1,466
Balance at June 30, 2020 40,020,780 $ 400 $ 315,518 $ (196,158) $ 119,760
Six Months Ended June 30, 2020
Balance at December 31, 2019 39,589,755 $ 396 $ 311,618 $ (179,861) $ 132,153
Net Loss — — — (16,297) (16,297)
Stock-based compensation — — 2,778 — 2,778
Issuance of restricted and performance stock units 145,943 1 (1) — 0
Shares surrendered by employees to pay tax withholdings (38,736) (1) (657) — (658)
Exercise of stock options and employee stock purchase plan 323,818 4 1,780 — 1,784
Balance at June 30, 2020 40,020,780 $ 400 $ 315,518 $ (196,158) $ 119,760


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Shareholders' Equity
	Shares	Amount
Three Months Ended March 31, 2022
Balance at December 31, 2021	41,736,950	$	417	$	342,765	$	(230,632)	$	112,550
Net loss	—	—		—		(11,475)		(11,475)
Stock-based compensation	—	—		2,678		—		2,678
Issuance of restricted and performance stock units	215,287	2		(2)		—		—
Exercise of stock options and employee stock purchase plan	20,750	1		97		—		98
Balance at March 31, 2022	41,972,987	$	420	$	345,538	$	(242,107)	$	103,851

Three Months Ended March 31, 2021
Balance at December 31, 2020	40,618,766	$	406	$	326,390	$	(203,647)	$	123,149
Net loss	—	—		—		(6,660)		(6,660)
Stock-based compensation	—	—		2,694		—		2,694
Issuance of restricted and performance stock units	94,533	1		(1)		—		—

Exercise of stock options and employee stock purchase plan	129,418	1		520		—		521
Balance at March 31, 2021	40,842,717	$	408	$	329,603	$	(210,307)	$	119,704

See notes to condensed consolidated financial statements.

~~Table of Contents~~

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”,~~“Company," “we,” “us” and “our” refer to Axogen, Inc. and its wholly owned subsidiaries Axogen Corporation (“AC”), Axogen Processing Corporation, and Axogen Europe GmbH.

1.~~Basis of Presentation~~

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company as of ~~June 30, 2021~~March 31, 2022, and December 31, ~~2020~~2021 and for the three months ended March 31, 2022 and ~~six-month periods ended June 30, 2021 and 2020.~~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, ~~2020,~~2021, which are included in the Company’s Annual Report on Form 10-K ~~as of and~~ for the year ended December 31, ~~2020.~~ 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~~months ended ~~June 30, 2021~~March 31, 2022, are not necessarily indicative of the results to be expected for the full ~~fiscal~~ 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 ~~2021.~~2022. Specifically, there can be no assurances that resurgences of ~~coronavirus (“COVID-19”)~~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 reporting results of operations.

2.Summary of Significant Accounting Policies

The changes below were made to the Company's significant accounting policies previously disclosed in Note 3, Summary of Significant Accounting Policies, in its Annual Report on Form 10-K, filed on February 25, 2022, for the year ended December 31, 2021.

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, 2021, $52,578~~March 31, 2022, $14,059 of the cash and cash equivalents balance was in excess of Federal Deposit Insurance Corporation limits. As of ~~June 30, 2021~~March 31, 2022, and December 31, ~~2020,~~2021, the Company had restricted cash balances of ~~$6,333~~$6,251 and ~~$6,842,~~$6,251, respectively. The ~~June 30, 2021~~March 31, 2022, and December 31, ~~2020~~2021 balances both include $6,000 and $250, which ~~represents~~represent collateral for antwo irrevocable standby ~~letter~~letters of credit. ~~The June 30, 2021~~See "Note 8 - Long-Term Debt, Net of Debt Discount and December 31, 2020 balances include $83 and $842, respectively, which is the balance of the Heights Union Escrow Account (see Note 13 - Commitments and Contingencies). Additionally, the June 30, 2021 balance includes an additional irrevocable standby letter of credit in the amount of $250 (See Note 10 - Long Term Debt).Financing Fees."

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance ~~sheet~~sheets that sum to the total of the same amounts shown in the ~~statement~~condensed consolidated statements of cash flows:


		June 30, 2021		December 31, 2020
(In thousands)						(In thousands)	March 31, 2022		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	53,078	$	48,767	Cash and cash equivalents	$	14,559	$	32,756
Restricted cash	Restricted cash	6,333		6,842		Restricted cash	6,251		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	$	59,411	$	55,609	Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	20,810	$	39,007

~~Revenue Recognition~~Stock-Based Compensation

The Company ~~enters into contracts~~measures stock options granted to ~~sell~~employees and ~~distribute products and services to hospitals and surgical facilities for use in caring for patients with peripheral nerve damage or transection. Revenue is recognized when~~directors at a premium price based on market conditions, such as the ~~Company has met its performance obligations pursuant to its contracts with its customers in an amount that the Company expects to be entitled to in exchange for the transfer of control~~trading price of the ~~products and services~~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 ~~customers.~~

~~Table of Contents~~

In the case of products or services sold to a customer under a distribution or purchase agreement, the customers are granted exclusive distribution rights to sell the implants internationally in a territory defined by the contract. These international distributor agreements contain provisions that allow the Company to terminate the distribution agreement with the distributor, and upon termination, the right to repurchase inventory from the distributor at the distributor’s cost. The Company has determined that its contractual rights to repurchase distributor inventory upon termination of the distributor agreement are not substantive and do not impact the timing of when control transfers; and, therefore, the Company has determined it is appropriate to recognize revenue when: i) the product is shipped via common carrier; or ii) the product is delivered to the customer or distributor, depending on the terms of the agreement. Determining the timing of revenue recognition for such contracts is subject to judgment, because an evaluation must be made regarding the distributor’s ability to direct the use of, and obtain substantially all of the remaining benefits from, the implants received from the Company. Changes in these assessments could have an impact on the timing of revenue recognition from sales to distributors.

A portion of the Company’s product revenue is generated from consigned inventory maintained at hospitals and independent sales agencies, and also from inventory physically held by field sales representatives. For these types of products sales, the Company retains control until the product has been used or implanted, at which time revenue is recognized.

The Company accounts for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. Amounts billed to customers for shipping and handling are included as part of the transactionexpected stock price ~~and recognized as revenue when control of the underlying products is transferred to the customer. The related shipping and freight charges incurred by the Company are included in cost of sales.~~

The Company operates in a single reportable segment of peripheral nerve repair, offers similar products to its customers, and enters into consistently structured arrangements with similar types of customers. As such, the Company does not disaggregate revenue from contracts with customers as the nature, amount, timing and uncertainty of revenue and cash flows does not materially differ within and among the contracts with customers.

The contract with the customer states the final terms of the sale, including the description, quantity, and price of each implant distributed. The payment terms and conditions in the Company’s contracts vary; however, as a common business practice, payment terms are typically due in full within ~~thirty~~ to sixty days of delivery. Since the customer agrees to a stated price in the contract that does not vary over the contract term, the contracts do not contain any material types of variable consideration, and contractual rights of return are not material. The Company has several contracts with distributors in international markets which include consideration paid to the customer in exchange for distinct marketing and other services. The Company records such consideration paid to the customer as a reduction to revenue from the contracts with those distributor customers.

In connection with the Acroval Neurosensory and Motor Testing System, the Company sold extended warranty and service packages to some of its customers who purchased this evaluation and measurement tool, and the prepayment of these extended warranties represent contract liabilities until the performance obligations are satisfied ratablyvolatility over the term of the ~~contract.~~awards. The ~~sale~~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 ~~aforementioned extended warranty represents the only performance obligation the Company satisfies over time and creates the contract liability disclosed below.~~award. The ~~opening and closing balances~~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 ~~contract receivables and liabilities are~~consolidated statements of operations. The expense has been reduced for forfeitures as ~~follows:~~

Contract Balances
Net Receivables Contract Liabilities, Current Contract Liabilities, Long-Term
Opening, January 1, 2020 $ 16,944 $ 14 $ 15
Closing, June 30, 2020 14,049 14 9
Increase (decrease) (2,895) 0 (6)
Opening, January 1, 2021 $ 17,618 $ 14 $ 3
Closing, June 30, 2021 18,182 14 0
Increase (decrease) 564 0 (3)

~~Table of Contents~~

~~Allowance for Doubtful Accounts Receivable and Concentration of Credit Risk~~they occur.

The Company ~~evaluates the collectability of accounts receivable to determine the appropriate allowance~~recognizes expense for doubtful accounts. In determining the amount of the allowance, the Company considers aging of account balances, historical credit losses, customer-specific information, the current economic environment, supportable forecasts and other relevant factors. An increase to the allowance for doubtful accounts results in a corresponding increase in general and administrative expense. The Company reviews accounts receivable and adjusts the allowance based on current circumstances and charges off uncollectible receivables against the allowance when all attempts to collect the receivable have failed. The Company’s history of write-offs has not been significant. The allowance for doubtful accounts balance was approximately $258 and $416 at June 30, 2021 and December 31, 2020, respectively.

Concentrations of credit risk with respect to accounts receivable are limited because a large number of geographically diverse customers make up the Company’s customer base, thus spreading the credit risk. The Company also controls credit risk through credit approvals and monitoring procedures.

~~Derivative Instruments~~

The Company analyzes all financial instruments with features under Accounting Standards Codification ("ASC") 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. The Company also reviews debt agreements for embedded features. If these features are not clearly and closely related to the debt host, they meet the definition of a derivative and require bifurcation from the host. All derivative instruments are recorded on the balance sheet at their respective fair values. The Company will adjust the carrying value of the derivative liability to fair value at each subsequent reporting date. The changes in the value of the derivatives are recorded in the consolidated statement of operations in the period in which they occur.

~~Net Loss Per Share~~

Basic net loss per share is computed by dividing reported net loss by the weighted average number of common shares outstanding for the reported period. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock of the Company during the reporting period. Diluted net loss per share is computed by dividing net loss by the sum of the weighted average number of common shares and the number of potential dilutive common share equivalents outstanding during the period. Potential dilutive common share equivalents consist of the incremental common shares issuable upon the exercise of vested share options and the incremental shares issuable upon conversion of the convertible notes. Potential dilutive common share equivalents consist ofstock-based compensation awards, including stock options, restricted stock units ~~(“RSUs”~~("RSUs"), and performance stock units ~~(“PSUs”~~("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.

Due to net losses for the three and six months ended June 30, 2021 and 2020, basic and diluted net loss per share were the same as the effect of potentially dilutive securities and would have been anti-dilutive.

3.~~Recently Issued Standards to be Adopted~~Recent Accounting Pronouncements

The Company’s management has reviewed and considered all ~~other~~ recent accounting pronouncements and believe there are none that could potentially have a material impact on the Company’s condensed consolidated financial condition, results of operations, or disclosures.

~~Table of Contents~~

4.3. Inventory

Inventory ~~is comprised of~~includes unprocessed tissue, work-in-process, Avance® Nerve Graft, Axoguard Nerve Connector®, Axoguard Nerve ~~Connector, Axoguard~~Protector®, Axoguard Nerve ~~Protector, Axoguard~~Cap®~~Nerve Cap, Acroval~~®~~Neurosensory~~, and ~~Motor Testing System,~~ Axotouch® Two-Point Discriminator finished goods and ~~supplies and~~supplies. Inventory is valued at the lower of cost (first-in, first-out) or net realizable value and ~~consist~~consists of the following:

June 30,
2021 December 31,
2020
Finished goods $ 9,288 $ 8,876
Work in process 482 751
Raw materials 3,645 2,902
Inventory $ 13,415 $ 12,529


(In thousands)	March 31, 2022		December 31, 2021
Finished goods	$	11,856	$	11,011
Work in process	851		813
Raw materials	4,693		4,869
Inventory	$	17,400	$	16,693

~~Included within Inventory is Avive~~® Soft Tissue Membrane ("Avive"). On May 17, 2021 the Company announced that it would suspend market availability of Avive effective June 1, 2021 pending ongoing discussions with the U.S. Food and Drug Administration (FDA) regarding the regulatory classification of Avive. The ~~Company recorded a write-down of Avive inventory for an amount of $1,251 recorded in cost of goods sold in the condensed consolidated statement of operations related to this announcement.~~

The Company monitors the shelf life of its products and historical expiration and spoilage trends and writes-down inventory based on the estimated amount of inventory that may not be distributed before expiration or spoilage. For the six months ended June 30, 2021 and 2020, the Company had adjustments to the provision for inventory ~~write downs~~write-downs was $459 and $783 for the three months ended March 31, 2022, and 2021, respectively.

4. Property and Equipment, Net

Property and equipment consist of ~~$2,455 (including~~ the ~~reserve~~following:


(In thousands)	March 31, 2022		December 31, 2021
Furniture and equipment	$	5,107	$	5,100
Leasehold improvements	14,952		14,952
Processing equipment	4,058		3,984
Land	731		731
Projects in process	50,314		45,660
Finance lease right-of-use assets	110		110
Property and equipment, at cost	75,272		70,537
Less: accumulated depreciation and amortization	(8,318)		(7,614)
Property and equipment, net	$	66,954	$	62,923

Depreciation expense for ~~Avive~~the three months ended March 31, 2022 and 2021 was $704 and $772, respectively. 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."

5. Intangible Assets, Net

The Company’s intangible assets consist of ~~$1,251),~~the following:


	March 31, 2022						December 31, 2021
(In thousands)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizable intangible assets:
Patents	$	2,861	$	(267)	$	2,594	$	2,469	$	(234)	$	2,235
License agreements	1,101		(889)		212		1,101		(852)		249
Total amortizable intangible assets	3,962		(1,156)		2,806		3,570		(1,086)		2,484

Unamortized intangible assets
Trademarks	384		—		384		375		—		375
Total intangible assets	$	4,346	$	(1,156)	$	3,190	$	3,945	$	(1,086)	$	2,859

License agreements are being amortized over periods ranging from 17-20 years. Patent costs are being amortized over periods of up to 20 years. Amortization expense was $69 and ~~$1,624~~$47 for the three months ended March 31, 2022 and 2021, respectively.


Year Ending December 31,	(In thousands)
2022 (excluding the three months ended March 31, 2022)	$	189
2023	218
2024	149
2025	149
2026	148
Thereafter	1,953
Total	$	2,806

License Agreements

Royalty fees under our License Agreements with the University of Florida Research Foundation and the University of Texas at Austin were $673 and $641 during the three months ended March 31, 2022 and 2021, respectively, and are included in sales and marketing expense in the accompanying condensed consolidated statements of operations.

6. Fair Value ~~Considerations~~Measurement

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Cash equivalents, investments and derivative instruments are recorded at fair value on a recurring basis. 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.

~~The Company classifies cash equivalents~~There has been no movement between Level 1 and ~~investments according to the hierarchy of techniques used to determine fair value based on the types of inputs. The Company has elected the Fair Value Option for all investments in debt securities.~~

~~On June 30, 2020, the Company entered into the Oberland Facility (See Note - 10 Long-Term Debt),~~Level 2 or between Level 2 and concluded that the term debt instrument included certain embedded features that required separate accounting (the “Debt Derivative Liability”) and that the equity contract entered into concurrently was required to be classified as a liability and recorded at its fair value. These instruments were determined to be financial liabilities requiring Level 3 ~~fair value measurements.~~

~~Table of Contents~~

~~The following table represents the Company’s fair value hierarchy for its financial assets~~from December 31, 2021 to March 31, 2022. Assets and liabilities measured at fair value are classified in their entirety based on ~~a recurring basis as~~the lowest level of ~~June 30, 2021:~~

(Level 1) (Level 2) (Level 3) Total
June 30, 2021
Assets:
Money market funds $ 31,496 $ 0 $ 0 $ 31,496
U.S. government securities 12,059 0 0 12,059
Commercial paper 0 34,780 0 34,780
Total assets $ 43,555 $ 34,780 $ 0 $ 78,335
Liabilities
Oberland facility $ 0 0 $ 50,663 $ 50,663
Debt derivative liabilities 0 0 3,776 3,776
Total liabilities $ 0 $ 0 $ 54,439 $ 54,439

(Level 1) (Level 2) (Level 3) Total
December 31, 2020
Assets:
Money market funds $ 23,044 $ 0 $ 0 $ 23,044
U.S. government securities 12,123 0 0 12,123
Corporate bonds 0 6,408 0 6,408
Commercial paper 0 36,668 0 36,668
Total assets $ 35,167 $ 43,076 $ 0 $ 78,243
Liabilities
Oberland facility 0 0 36,855 36,855
Debt derivative liabilities 0 0 2,497 2,497
Total liabilities $ 0 $ 0 $ 39,352 $ 39,352

~~Oberland Facility~~

~~The Company estimates~~input that is significant to the fair value of long-term debt under the Oberland Facility using a discounted cash flow analysis and rates being offered for similar loans to borrowers with similar credit ratings. The discounted cash flow model uses unobservable inputs, including estimates of discount rates and loan prepayments. Both tranches of the Oberland Facility are classified as Level 3. The estimated fair value of the Company’s long-term debt under the Oberland Facility was $50,663 and $36,855, at June 30, 2021 and December 31, 2020, respectively (See Note 10 - Long-Term Debt).

~~Debt Derivative Liabilities~~measurement.

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 ~~Facility~~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~~4 potential settlement scenarios for the Oberland Facility due to (a) a 5% probability of a mandatory prepayment event ~~between January 1, 2024 and~~of the ~~respective maturity dates~~Oberland Facility on December 31, 2023; (b) a 15% probability of ~~June 30, 2027 and June 30, 2028 for~~a mandatory prepayment event of the ~~first and second tranche, respectively; (a)~~Oberland Facility on March 31, 2026; (c) a 5% probability of the prepayment of the Oberland Facility at the Company’s ~~option;~~option on December 31, 2025; and ~~(b) the repayment of~~(d) a 75% probability that the Oberland Facility atwill 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, ~~(See Note 10 - Long-Term Debt)~~ 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.

1110

~~Table of Contents~~

The significant inputs that are included in the valuation of the Debt Derivative Liability - first tranche include:

June 30, 2021 December 31, 2020
Input
Remaining term (years) 6 6.50
Maturity date June 30, 2027 June 30, 2027
Coupon rate 9.50 % 9.50 %
Revenue participation payments Maximum each year Maximum each year
Discount rate 8.65 % (1) 8.70 % (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)


	March 31, 2022			December 31, 2021
Input
Remaining term (years)	5.25			5.5
Maturity date	June 30, 2027			June 30, 2027
Coupon rate	9.50	%		9.50	%
Revenue participation payments	Maximum each year			Maximum each year
Discount rate	11.2%		(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:


		June 30, 2021				March 31, 2022			December 31, 2021
Input	Input				Input
Remaining term (years)	Remaining term (years)	7			Remaining term (years)	6.25			6.5
Maturity date	Maturity date	June 30, 2028			Maturity date	June 30, 2028			June 30, 2028
Coupon rate	Coupon rate	9.50	%		Coupon rate	9.5%			9.5%
Revenue participation payments	Revenue participation payments	Maximum each year			Revenue participation payments	Maximum each year			Maximum each year
Discount rate	Discount rate	11.21	%	(1)	Discount rate	14.4	%	(1)	13.21	%	(1)
Probability of mandatory prepayment before 2024	Probability of mandatory prepayment before 2024	5.0	%	(1)	Probability of mandatory prepayment before 2024	5.0%		(1)	5.0%		(1)
Estimated timing of mandatory prepayment event before 2024	Estimated timing of mandatory prepayment event before 2024	December 31, 2023		(1)	Estimated timing of mandatory prepayment event before 2024	December 31, 2023		(1)	December 31, 2023		(1)
Probability of mandatory prepayment 2024 or after	Probability of mandatory prepayment 2024 or after	15.0	%	(1)	Probability of mandatory prepayment 2024 or after	15.0%		(1)	15.0%		(1)
Estimated timing of mandatory prepayment event 2024 or after	Estimated timing of mandatory prepayment event 2024 or after	March 31, 2026		(1)	Estimated timing of mandatory prepayment event 2024 or after	March 31, 2026		(1)	March 31, 2026		(1)
Probability of optional prepayment event	Probability of optional prepayment event	5.0	%	(1)	Probability of optional prepayment event	5.0%		(1)	5.0%		(1)
Estimated timing of optional prepayment event	Estimated timing of optional prepayment event	December 31, 2025		(1)	Estimated timing of optional prepayment event	December 31, 2025		(1)	December 31, 2025		(1)

(1)Represents a significant unobservable input

~~There were no changes in~~The following table represents the ~~levels or methodology of the measurement of~~Company’s fair value hierarchy for its financial assets orand liabilities ~~during the three~~measured at fair value on a recurring basis as of March 31, 2022 and ~~six months ended June 30, 2021. The maturity dates of the Company’s investments are less than one year.~~December 31, 2021 (in thousands):


March 31, 2022	(Level 1)		(Level 2)		(Level 3)		Total
Assets:
Money market funds	$	7,358	$	—	$	—	$	7,358
U.S. government securities	17,988		—		—		17,988
Commercial paper	—		34,870		—		34,870
Total assets	$	25,346	$	34,870	$	—	$	60,216

Liabilities

Debt derivative liabilities	—		—		5,310		5,310
Total liabilities	$	—	$	—	$	5,310	$	5,310

1211

~~Table of Contents~~


December 31, 2021	(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

The ~~following represents the rollforward of the~~changes in Level 3 liabilities measured at fair value ~~of instruments classified~~on a recurring basis were as ~~Level 3 measurements for the three and six months ended June 30, 2021:~~follows (in thousands):


Three Months Ended March 31, 2022
Balance at December 31, 2021	$	5,562



Change in fair value included in net loss	(252)
Balance at March 31, 2022	$	5,310


~~Quarter Ending June 30,~~Three Months Ended March 31, 2021
~~Beginning~~ Balance ~~April 1, 2021~~at December 31, 2020	$	~~39,205~~2,497
~~Addition of Oberland Facility - second tranche~~	~~13,827~~
~~Addition of debt derivative - second tranche~~	~~1,173~~

Change in fair value ~~of Oberland Facility~~included in net loss	~~150~~22
~~Change in fair value of debt derivative~~	84
~~Ending~~ Balance ~~June 30,~~at March 31, 2021	$	~~54,439~~

~~Six Months Ending June 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~~	~~(18)~~
~~Change in fair value of debt derivative~~	~~105~~
~~Ending Balance, June 30, 2021~~	$	~~54,439~~2,519

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 $45,041 and $52,234 at March 31, 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 ."

6.~~Prepaid Expense and Other~~

~~Prepaid and other assets consist of the following:~~

June 30,
2021 December 31,
2020
Prepaid insurance $ 1,389 $ 2,596
Stock option receivable 421 2
Litigation receivable 23 23
Prepaid events 318 203
Prepaid marketing 270 587
Prepaid software license 312 220
Prepaid professional fees 380 251
Other prepaid items 835 414
Prepaid and Other Assets $ 3,948 $ 4,296

Our policy year for our insurance runs on a calendar year and as such a significant portion of the policy payment is made on or about the beginning of the new year and amortized to expense throughout the remaining year.

7. Leases

The Company leases administrative, manufacturing, research and distribution facilities through operating leases. Several of leases include fixed payments including rent and non-lease components such as common-area or other maintenance costs.

On January 27, 2022, AC 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 March 31, 2022 and 2021 was $1,408 and $1,225 respectively.

Supplemental balance sheet information related to the operating and financing leases is as follows:


(In thousands, except lease term and discount rate )	March 31, 2022			December 31, 2021
Operating Leases
Right-of-use operating assets	$	15,406		$	15,193
Current maturities of long-term lease obligations	$	2,065		$	1,825
Long-term lease obligations	$	20,875		$	20,794
Financing Leases
Right-of-use financing leases (1)	$	36		$	42
Current maturities of long-term lease obligations	$	8		$	9
Long-term lease obligations	$	3		$	4

Weighted average operating lease term (in years):	11.2			12.1
Weighted average operating financing term (in years):	1.4			2.2

Weighted average discount rate operating lease	10.26		%	10.32%
Weighted average discount rate financing lease	7.09%			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 March 31, 2022 were as follows:


(In thousands)
2022 (excluding the three months ended March 31, 2022)	$	3,213
2023	3,415
2024	3,186
2025	3,268
2026	3,276
Thereafter	24,056
Total	$	40,414
Less: Imputed interest	(17,463)
Total lease liability	$	22,951
Less: Current lease liability	$	(2,073)
Long-term lease liability	$	20,878

~~Table~~8. Long-Term Debt, Net of ~~Contents~~

Debt Discount and Financing Fees

7.~~Property~~Long-term debt, net of debt discount and ~~Equipment~~

~~Property and equipment consist of the following:~~

June 30,
2021 December 31,
2020
Furniture and equipment $ 4,166 $ 2,334
Leasehold improvements 14,469 12,983
Processing equipment 3,580 2,634
Land 731 731
Projects in process 34,236 24,540
Property and equipment, at cost 57,182 43,223
Less: accumulated depreciation and amortization (6,230) (4,825)
Property and equipment, net $ 50,952 $ 38,398

Depreciation expense for the three months ended June 30, 2021 and 2020 was $633 and $311, respectively. Depreciation expense for the six months ended June 30, 2021 and 2020 was $1,405 and $618, respectively. The significant increase in projects in process is related to our Axogen Processing Center (“APC”) facility (See Note 13 - Commitments and Contingencies).

On September 20, 2018, the Company entered into an agreement (the “Heights Agreement”) with Heights Union, LLC, a Florida limited liability company (“Heights Union”), for the lease of NaN square feet of office space in Tampa, Florida (See Note 13 - Commitments and Contingencies). In May 2020, the Company entered into a construction escrow agreement with Heights Union and Commonwealth Land Title Insurance Company (“Escrow Agent”), which provided for the establishment of a federally insured escrow bank account (the “Escrow Account”) to hold Company funds to be used for tenant improvements in excess of the tenant allowance as provided in the Heights Agreement. The Company deposited $6,289 into the Escrow Account for use in completing construction of the tenant improvements. The Escrow Agent will disburse the funds upon joint written instructions from Heights Union and the Company. During both the three month and six months ended June 30, 2021, $759 was disbursed from the Escrow Account and recorded in property and equipment account on the balance sheet. As of June 30, 2021, $83 remained in the Escrow Account and is recorded as restricted cash in the condensed consolidated balance sheet.

8.~~Intangible Assets~~

~~The Company’s intangible assets consist of the following:~~

June 30, 2021 December 31, 2020
Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Amortized intangible assets
Patents $ 1,987 $ (180) $ 1,807 $ 1,496 $ (139) $ 1,357
License agreements 1,101 (800) 301 1,093 (745) 348
Total amortizable intangible assets $ 3,088 $ (980) $ 2,108 $ 2,589 $ (884) $ 1,705
Unamortized intangible assets
Trademarks $ 352 $ — $ 352 $ 349 $ — $ 349
Total intangible asset, net $ 3,440 $ (980) $ 2,460 $ 2,938 $ (884) $ 2,054

License agreements are being amortized over periods ranging from 17-20 years. Patent costs are being amortized over periods of up to 20 years. Amortization expense was approximately $49 and $36 for the three months ended June 30, 2021 and

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2020, respectively. Amortization expense was approximately $96 and $72 for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, future amortization of license agreements and patents is as follows:

Year Ending December 31,
2021 (excluding the six months ended June 30, 2021) $ 104
2022 208
2023 183
2024 106
2025 106
Thereafter 1,401
Total $ 2,108

~~License Agreements~~

The Company has entered into multiple license agreements (together, the “License Agreements”) with the University of Florida Research Foundation and the University of Texas at Austin. 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:

•~~The Company pays royalty~~financing 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 $13 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 the Company pays royalties to more than one licensor for sales of the same product, a royalty stack cap applies, capping total royalties at 3.75%;

•If the Company sublicenses technologies covered by the License Agreements to third parties, the Company would pay a percentage of sublicense fees received from the third party to the licensor. Currently, the Company 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 sub-licensee fees for its own use of the technologies;

•~~The Company reimburses the licensors for certain legal expenses incurred for patent prosecution and defense of the technologies covered by the License Agreements; and~~

•Currently, under the University of Texas at Austin’s agreement, the Company would owe a milestone fee of $15 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. A milestone fee to the University of Florida Research Foundation of $2 is due if the Company receives FDA approval of its Avance Nerve Graft, a milestone fee of $25 is due upon the first commercial use of certain licensed technology to provide services to manufacture products for third parties and a milestone fee of $10 is due upon the first use to manufacture products that utilize certain technology that is not currently incorporated into the Company's products.

Royalty fees were approximately $709 and $436 during the three months ended June 30, 2021 and 2020, respectively, and approximately $1,350 and $929 during the six months ended June 30, 2021 and 2020, respectively, and are included in sales and marketing expense on the accompanying condensed consolidated statements of operations.

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9.~~Accounts Payable and Accrued Expenses~~

~~Accounts payable and accrued expenses consist of the following:~~

June 30,
2021 December 31,
2020
Accounts payable $ 6,721 $ 4,597
Accrued expenses 5,480 3,778
Accrued compensation 7,638 13,593
Accounts Payable and Accrued Expenses $ 19,839 $ 21,968

~~10.Long-Term Debt~~

~~The carrying value of the Company’s outstanding debt~~ consists of the following:


		June 30, 2021		December 31, 2020
(In thousands)						(In thousands)	March 31, 2022		December 31, 2021
Oberland Facility - first tranche	Oberland Facility - first tranche	$	35,000	$	35,000	Oberland Facility - first tranche	$	35,000	$	35,000
Oberland Facility - second tranche	Oberland Facility - second tranche	15,000		0		Oberland Facility - second tranche	15,000		15,000
Less - unamortized debt discount and deferred financing fees	Less - unamortized debt discount and deferred financing fees	(3,919)		(2,973)		Less - unamortized debt discount and deferred financing fees	(4,959)		(5,179)
Total long-term debt		$	46,081	$	32,027
Long-term debt, net of debt discount and financing fees						Long-term debt, net of debt discount and financing fees	$	45,041	$	44,821

Oberland Facility

On June 30, 2020, the Company entered into a seven-year financing agreement with Oberland Capital (the ~~“Oberland Facility”~~"Oberland Facility") and obtained the first tranche of $35,000 at closing. The Oberland Facility provides for a total of $75,000 through two additional tranches that can be drawn by December 31, 2021 and requires interest-only payments for the duration of the term. A second tranche of $15,000 may be drawn at the Company’s option upon achieving 2 consecutive quarters with revenue of at least $20,000. Such second tranche may also be put to the Company at any time by Oberland Capital. A third tranche of $25,000 may be drawn at the Company’s option upon achieving 2 consecutive quarters with revenue of $28,000. The financing costs for this facility are approximately $642 and were recorded as a contra liability to the debt facility. As of June 30, 2021, the Company has paid all of the financing costs. On June 30, 2021, the second tranche of $15,000 was drawn down by the Company. ~~The second tranche of the Oberland Facility matures on June 30, 2028.~~

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, 2021)~~March 31, 2022). Each tranche of the Oberland Facility ~~if and when issued, will have~~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)~~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 ~~will commence~~under the Revenue Participant Agreement commenced on September 30, 2021. ~~This~~The royalty structure ~~results~~of the Revenue Participant Agreement results in approximately 1.0% per year of additional interest payments on the outstanding loan amount. The Company recorded ~~$260~~$335 as interest expense for this ~~revenue participation agreement~~Revenue Participation Agreement for ~~both~~ the three ~~and six~~ months ~~periods~~ ended ~~June 30, 2021.~~March 31, 2022. The Company pays the quarterly debt interest on the last day of the quarter and for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 paid ~~$840~~$1,187 and ~~$1,672,~~$831, respectively, to Oberland Capital. The Company capitalized ~~approximately $1,187~~interest of $1,445 and $520 for the ~~interest~~three months ended March 31, 2022 and 2021, respectively, towards the costs to construct and retrofit ~~its Axogen Processing Center~~the APC Facility in Vandalia, ~~OH (See Note 13 -~~OH. See "Note 12- Commitments and ~~Contingencies).~~Contingencies." To date, the Company has capitalized interest of $6,719 related to this project. The capitalized interest is recorded as part of property and equipment, net in the condensed consolidated balance ~~sheet.~~

Additionally, Oberland Capital had the right to purchase up to $3,500 worth of the Company's common stock from the Company in one transaction at any time after closing of the Oberland Facility until the later of (i) the date all amounts due under the Oberland Facility are repaid and (ii) June 30, 2027 (the “Oberland Option”). The purchase price of the common stock will

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be calculated based on the 45-day moving average of the closing stock price on the day prior to the purchase. On December 10, 2020, Oberland Capital exercised in full its option under the Option Agreement. The exercise price was determined to be $14.13, resulting in gross proceeds to the Company of approximately $3,500 and the issuance of 247,699 shares to TPC Investments II LP, a wholly owned subsidiary of Oberland Capital. In conjunction with the issuance, Oberland Capital received certain protective rights (including protection from down-round stock issuances) for a period of one year subsequent to the issuance.

The amounts outstanding under the Oberland Facility may be accelerated upon certain events, including: (a) required mandatory prepayments upon an asset sale; (b) in the event the Company is subject to (i) any litigation brought by a Governmental Authority (as defined in the Oberland Facility) including intervention after litigation is commenced by a Person (as defined in the Oberland Facility ), or (ii) any final administrative action by a Governmental Authority, in each case arising out of or in connection with any of the Company’s registry studies, payments made to doctors or training activities with respect to healthcare professionals (excluding certain final administrative action that have been fully and finally resolved by the parties pursuant to a settlement agreement) or (c) upon the occurrence of an event of default (either automatically or at the option of Oberland Capital depending on the nature of the event). In addition, the Company has the right to prepay any amounts outstanding under the Oberland Facility. Upon maturity or upon such earlier repayment of the Oberland Facility, the Company will repay the principal balance and provide a make-whole payment calculated to generate an internal rate of return to Oberland Capital of at least 11.5%, less the total of all quarterly interest and royalty payments previously paid to Oberland Capital.

Upon the occurrence of an event of default, the interest rate incurred on amounts outstanding under the Oberland Facility will be increased by 4%. The Oberland Facility includes a financial covenant requiring the Company to achieve revenue targets of $8,750 for the third and four quarters of 2020, $17,500 for the first and second quarter of 2021 and $20,000 for each quarter thereafter. In the event of a failure to meet such covenant the Company may avoid a default by electing to be subject to a liquidity covenant and meeting all of the obligations required by such covenant. Specifically, the liquidity covenant provides that the Company must maintain on deposit in a cash collateral account an amount not less than 1.1 times the aggregate outstanding principal balance of all outstanding loan amounts. The borrowings under the Oberland Facility are secured by substantially all of the assets of the Company.sheets. As of ~~June 30, 2021,~~March 31, 2022, the Company was in compliance with all covenants. See "Note 12 - Commitments and Contingencies."

~~Accounting Considerations~~Embedded Derivatives

The ~~Company assessed~~Debt Derivative Liabilities are recorded at fair value, with the ~~accounting impact~~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 $5,310 and $5,562 at March 31, 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 and~~Facility. The debt discount is amortized over the respective life of the related ~~agreements entered into with Oberland Capital.~~ tranche and recorded in interest expense using the effective yield method.

The ~~Company concluded that~~financing fees for the Oberland Facility were $642 and the Revenue Participation Agreement should be assessed on a combined unit of account basis (with the Revenue Participation Agreement being considered as an embedded feature with the Oberland Facility), and that the Oberland Option should be consideredwere recorded as a ~~separate freestanding instrument for analysis purposes.~~

In relation to the Oberland Facility and Revenue Participation Agreement, the Company assessed the identified embedded features to determine if they would require separate accounting. In performing this assessment, the Company concluded the following embedded features met the definition of a derivative and would not be considered clearly and closely relatedcontra liability to the debt ~~instrument, requiring separate accounting as bifurcated derivatives:~~

•~~Mandatory prepayments upon an asset sale or litigation involving~~facility. The financing fees are amortized over the ~~government, including the make-whole payment (put rights)~~

•~~Optional or automatic prepayment upon an event of default (put rights)~~

•~~Payments under the Revenue Participation Agreement (contingent interest feature)~~

•~~Additional interest upon events of default (contingent interest feature)~~

~~The Company considered these separable embedded features on a combined basis as a single derivative feature. The Company estimated the fair value of these features as $2,387 as~~life of the ~~date of issuance~~first tranche of the Oberland Facility and recorded ~~this value as a deduction to~~in interest expense.

Amortization of debt discount and deferred financing fees for the ~~carrying value of the Oberland Facility. As a result of the second tranche draw, the Company recorded an additional derivative~~three months ended March 31, 2022 and ~~estimated the fair value to be $1,173.~~2021 was $219 and $112, respectively.

Other credit facilities

The Company maintains restricted cash of ~~$6,333~~$6,251 and ~~$6,842~~$6,251 at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. InThe March 31, 2022 and December 31, 2021 balances both ~~years, the balance includes~~include $6,000 and $250, which ~~represents~~represent collateral for antwo irrevocable standby ~~letter~~letters of credit. ~~In March 2021, the Company entered in an agreement which required an additional irrevocable standby letter of credit in the amount of $250.~~

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~~The remaining activity in the account relates to the Heights Union Escrow Account (see Note 13 - Commitments and Contingencies).~~

~~11.Stock~~9. Stock-Based Incentive Plans

The Company maintains 2 share-based incentive plans: the Axogen, ~~2017 Stock~~Inc. Amended and Restated 2019 Long-Term Incentive Plan, ~~as amended~~ (“~~2017~~2019 Plan”), and the Axogen 2017 Employee Stock Purchase Plan (“2017 ESPP”).

~~Overview of Equity Incentive Plans~~

At the 2019 Annual Meeting of Shareholders held on August 14, 2019, the shareholders approved the Axogen 2019 Long-Term Incentive Plan (the “New Axogen Plan”), which allows for issuance of incentive stock options, non-qualified stock options, PSUs and RSUs to employees, directors and consultants at exercise prices not less than the fair market value at the date of grant. The number of shares of common stock authorized for issuance under the New Axogen Plan is (A) 3,385,482 shares, comprised of (i) 3,000,000 new authorized shares and (ii) 385,482 unallocated shares of common stock available for issuance as of August 14, 2019 pursuant to the Company’s 2010 Stock Incentive Plan, as amended and restated (the “Prior Axogen Plan”), that were not then subject to outstanding awards; plus (B) shares under the Prior Axogen Plan and the New Axogen Plan that are cancelled, forfeited, expired, unearned or settled in cash, in any such case that does not result in the issuance of common stock. Following shareholder approval of the New Axogen Plan, no future awards will be made under the Prior Axogen Plan. At the 2021 Annual Meeting of Shareholders held May 10, 2021, the shareholders approved an additional 2,500,000 shares to be allocated for issuance under the New Axogen Plan. As of ~~June 30, 2021, 2,832,712~~March 31, 2022, 749,538 shares of common stock were available for issuance under the ~~New Axogen Plan.~~

~~The~~2019 Plan.The Company recognized stock-based compensation expense, which consisted of compensation expense related to ~~employee~~ stock options, PSUs ~~RSUs~~ and ~~the 2017 ESPP~~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 ~~approximately $3,805~~$2,678 and ~~$2,222~~$2,694 for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively and approximately $6,499 and $2,778 for the six months ended June 30, 2021 and 2020,~~ respectively.

~~Stock Options~~

The options granted to employees prior to July 1, 2017 typically vest 25% 1 year after the grant date and 12.5% every six months thereafter for the remaining three-year period until fully vested after four years. The options granted to employees after July 1, 2017 typically vest 50% two years after the grant date and 12.5% every six months thereafter for the remaining two-year period until fully vested after four years. The options granted to directors and certain options granted from time to time to certain executive officers have vested ratably over three years, 25% per quarter over one year or had no vesting period. Options typically have terms ranging from ~~seven~~ ~~to ten years.~~

The Company estimates the fair value of each option award issued under such plans on the date of grant using a Multiple Point Black-Scholes option-pricing model which uses a weighted average of historical volatility and peer company volatility. 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.

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A summary of the stock option activity is as follows:

Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value (in thousands)
Outstanding, December 31, 2020 3,516,484 $12.79 5.93 $ 25,718
Granted 556,160 $20.23
Exercised (545,912) $5.86
Cancelled (126,171) $16.81
Outstanding, June 30, 2021 3,400,561 $14.97 6.59 $ 27,868
Exercisable, June 30, 2021 1,978,225 $13.57 4.97 $ 19,749


	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	999,877	$9.22
Exercised	(20,750)	$4.69
Cancelled	(56,889)	$16.61

Outstanding, March 31, 2022	4,116,976	$14.13	6.99	$	1,144
Exercisable, March 31, 2022	2,085,998	$14.78	4.87	$	1,144

The Company used the following weighted-average assumptions for options granted during the ~~periods indicated:~~three months ended March 31, 2022:

~~June 30, 2021~~

Expected term (in years)

~~5.93~~6.12

Expected volatility

~~58.91~~60.74

Risk free rate

~~1.03~~2.15

Expected dividends

0—

As of March 31, 2022, there was approximately $11,152 of total unrecognized compensation costs related to unvested stock options. These costs are expected to be recognized over a weighted-average period of 2.88 years.

Restricted and Performance Stock Units

RSUs granted to employees have a requisite service period of four years. The RSUs granted to directors and certain RSUs granted from time to time to certain executive officers have vested ratably over three years, over one year or had no vesting period. The Company expenses the fair value of restricted stock awards on a straight-line basis over the requisite service period. PSUs generally have a requisite service period of three years and are subject to graded vesting conditions based on revenue goals of the Company. The Company expenses their fair value over the requisite service period.

A summary of the ~~status of non-vested RSUs/PSUs~~restricted and performance stock unit activity is as ~~of June 30, 2021 and the changes during the six months then ended are presented below:~~follows:


		Outstanding Stock Units							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)			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, 2020		1,782,905	$	15.23	1.83	$	31,825
Unvested, December 31, 2021								Unvested, December 31, 2021	1,730,765	$	18.45	1.51	$	19,633

Granted	Granted	810,316	$	20.68				Granted	1,766,609	$	8.27
Released	Released	(139,145)	$	17.81				Released	(215,287)	$	13.63
Forfeited	Forfeited	(181,673)	$	16.33				Forfeited	(102,153)	$	17.35

Unvested June 30, 2021		2,272,403	$	16.92	1.87	$	49,107
Unvested, March 31, 2022								Unvested, March 31, 2022	3,179,934	$	13.15	2.23	$	25,249

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Performance Stock Units

The Company estimates the fair value of the PSUs based on its closing stock price at the time of grant and its estimate of achieving such performance target and records compensation expense as the milestones are achieved. Over the performance period, the number of shares of common stock that will ultimately vest and be issued and the related compensation expense will be adjusted based upon the Company’s estimate of achieving such performance target. The number of shares delivered to recipients and the related compensation cost recognized as an expense will be based on the actual performance metrics as set forth in the applicable PSU award agreement. The amount actually awarded will be based upon achievement of the performance measures.

At ~~June 30, 2021,~~March 31, 2022, the total future stock compensation expense related to non-vested performance awards at maximum target payout is expected to be approximately ~~$7,721.~~$6,623. As of March 31, 2022, there was approximately$23,818 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 3.17 years.

On March ~~8, 2021,~~16, 2022, the Compensation Committee of the Board of Directors approved PSUs that were tied to 2022, 2023 and 2024 revenue ~~the “2021~~(the “2022 PSU award.”) The ~~2021~~2022 PSU award consists of a targeted award of ~~332,200~~526,467 shares with a payout ranging from 0% to ~~200%~~150% upon achievement of specific revenue goals.

On July 17, 2020, the Compensation Committee of the Board of Directors approved PSU awards of 144,300 tied to the 2020 revenue. These awards were granted in mid-year with certain revenue targets adjusted for the impact of COVID-19. The 2020 PSUs granted in July reached 110% achievement of revenue targets.

On February 21, 2020, the Compensation Committee of the Board of Directors approved PSUs that were tied to 2021 revenue, the "2020 PSU award". The 2020 PSU award consists of a targeted award of 348,000 shares. In June 2020, the Company concluded that the performance metrics relating to the 2020 PSU grant with performance metrics tied to 2021 revenue were no longer probable and therefore stock compensation related to these grants of $340 was also reversed. Subsequently, in the fourth quarter of 2020, it became probable that the Company would achieve 50% of these performance metrics and therefore adjusted stock compensation.

In February 2020, the Company issued PSUs relating to a 2017 grant with performance metrics tied to 2019 revenue. The award was issued at 72.3% of achievement and therefore, 27.7% of the stock compensation, or $536 relating to this grant was forfeited or reversed in the first quarter 2020. Previously, the Compensation Committee of the Board of Director granted PSUs that were tied to 2020 revenue in 2018. As a result of COVID-19, it was determined these PSU grants would not be awarded and therefore stock compensation related to these grants of $1,161 was forfeited in the prior year.

Employee Stock Purchase Plan

The Company also maintains the ~~Axogen~~ 2017 ~~Employee Stock Purchase Plan,~~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, 2021, 272,489~~March 31, 2022, 223,678 shares ~~remained~~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 March 31,
(In thousands, except per share amounts)		2022		2021
Numerator:
Net loss		$	(11,475)	$	(6,660)
Denominator:
Weighted-average common shares outstanding (Basic)		41,804,330		40,705,840
Weighted-average common shares outstanding (Diluted)		41,804,330		40,705,840
Net loss per common share (Basic and Diluted)		$	(0.27)	$	(0.16)

Anti-dilutive shares excluded from the calculation of diluted earnings per share (1)
Stock options		2,983,351		1,055,804
Restricted stock units		581,171		163,281

(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.

~~12.~~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~~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~~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~~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 ~~the Internal Revenue Service~~federal tax authorities include the years ended December 31, ~~2018~~2019 through ~~2020.~~

2021.

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~~13.~~12. Commitments and Contingencies

~~Leases~~

The Company determines whether or not a contract contains a lease at the inception date and determines the lease classification, recognition and measurement at commencement date. The Company classifies a lease based on whether the arrangement is effectively a purchase of the underlying asset. Leases that transfer the control of the underlying asset are classified as finance leases and all others are classified as operating leases. Interest and amortization expense are recognized for operating leases on a straight-line basis. If a change to the lease term leads to a reassessment of the lease classification and remeasurement, assumptions such as the discount rate and variable rents based on a rate or index will be updated as of the remeasurement date. If an arrangement is modified, the Company will reassess whether the arrangement contains a lease. Any subsequent changes in lease payments are recognized when incurred, unless the change requires a remeasurement of the lease liability.

The Company made an accounting policy election to not recognize right-of-use assets and lease liabilities that arise from short term leases, which are defined as leases with a lease term of 12 months or less at the lease commencement date.

We lease office space, medical lab and research space, a distribution center, a tissue processing center and equipment. We recognize lease expense for these leases on a straight-line basis over the lease term.

Certain of the Company’s leases include options for the Company to extend the lease term. None of the options were reasonably certain of exercise and therefore are not included in the measure of lease obligations and right-to-use assets.

Certain of the Company’s lease agreements include provisions for the Company to reimburse the lessor for common area maintenance, real estate taxes, and insurance, which the Company accounts for as variable lease costs. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

The Company and Heights Union are parties to the Heights Agreement for the lease of NaN square feet of office space in Tampa, Florida. Pursuant to the Heights Agreement, the Company will use the leased premises for general office, medical laboratory, training and meeting purposes. In September 2020, the Company began occupying the space. The lease includes a $5,250 lessor allowance to be used towards the hard and soft costs of the tenant improvements. The Company will bear the cost of any tenant improvement in excess of this allowance. The Company concluded that it is the accounting owner of the tenant improvements. The lessor’s allowance of $5,250 for the construction of tenant improvements will be treated as an incentive. Because the Company is the accounting owner of the improvements, the lease incentive is accounted for as a reduction of the right-of-use asset and the total cost of the improvements of $12,149 is recognized on the balance sheet separate from the right-of-use asset as leasehold improvements. The improvements will be amortized over the life of the lease, which was determined to be the shorter of the useful life of the improvements or the lease term. The Company determined the commencement date of the lease was August 28, 2020 and valued the lease using a 10.6% incremental borrowing rate. The Company recorded a right-of-use asset of $13,323 and lease liability of $18,573 for the new office lease as of the commencement date.

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~~The components of total lease expense for the three and six months ended June 30, 2021 were as follows:~~

2021 2020
For the Three Months Ended June 30,
Finance lease costs
Amortization of right-of-use assets $ 2 $ 6
Interest on lease liabilities 0 1
Operating lease costs 1,034 491
Short term lease costs 6 10
Variable lease costs 169 51
Total lease cost $ 1,211 $ 559
For the Six Months Ended June 30,
Finance lease costs
Amortization of right-to-use assets $ 8 $ 11
Interest on lease liabilities 0 2
Operating lease costs 2,081 976
Short term lease costs 11 10
Variable lease costs 337 61
Total lease cost $ 2,437 $ 1,060

The short-term lease costs shown above reasonably reflects the Company’s ongoing short-term lease commitment. The increase in variable lease costs is due to the common area maintenance expenses associated with the Tampa office space.

~~Supplemental balance sheet information related to leases as of June 30, 2021 and December 31, 2020 was as follows:~~

June 30, 2021 December 31, 2020
Finance Leases
Finance lease right-of-use assets $ 53 $ 64
Current maturities of long-term obligations $ 14 $ 17
Long-term obligations $ 8 $ 13
Operating Leases
Operating lease right-of-use assets $ 15,272 $ 15,614
Current maturities of long-term obligations $ 1,775 $ 846
Long-term obligations $ 20,337 $ 20,864

~~Other information related to leases was as follows:~~

For the Six Months Ended June 30, 2021 2020
Cash paid for amounts included in the measurement of operating lease liabilities $ 822 $ 915
Right-of-use assets obtained in exchange for new finance lease liabilities $ 371 $ 0
Weighted-average remaining lease term - finance leases 1.8 2.5
Weighted-average remaining lease term - operating leases 12.0 1.1
Weighted-average discount rate - finance leases 7.28 % 7.28 %
Weighted-average discount rate - operating leases 10.17 % 6.00 %

The weighted-average discount rate for the majority of the Company’s leases is based on the Company’s estimated incremental borrowing rate since the rates implicit in the leases were not determinable. The Company’s incremental borrowing

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~~rate is based on Management’s estimate of the rate of interest the Company would have to pay to borrow on a fully collateralized basis over a similar term an amount equal to the lease payments.~~

Service Agreements

On August 6, 2015, the Company entered into a License and ~~Services~~Service Agreement ~~(the “CTS Agreement”~~("CTS Agreement") with Community Blood Center, (d/b/a Community Tissue ~~Services) (“CTS”~~Service) ("CTS"), in Dayton, Ohio, an FDA registered tissue establishment. Processing of the Avance Nerve Graft pursuant to the CTS Agreement began in February 2016. The CTS Agreement initially had a five-year term ending August 31, 2020. After three previous term extensions, on February 22, 2021, the CTS Agreement was further amended to extend the term of the agreement to until which has been extended through December 31, ~~2023. Under~~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 ~~services~~service in support of its manufacturing process ~~including~~such as for routine sterilization of daily supplies, providing disposable supplies, microbial services and office support. During the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ the Company paid fees to CTS of approximately ~~$628~~$622 and ~~$279, respectively. During the six months ended June 30, 2021 and 2020, the Company paid fees to CTS of approximately $1,271 and $739,~~$643, respectively, and ~~are included~~ are included in cost of goods sold on the accompanying condensed consolidated statements of operations.

~~In August 2008, the Company entered into an agreement with Cook Biotech to distribute the Axoguard~~products worldwide and the parties subsequently amended the agreement on February 26, 2018. Pursuant to the February 2018 amendment, the agreement expires on June 30, 2027. The Cook Biotech agreement establishes a formula for the transfer cost of the Axoguard products and requires certain minimum purchases, although, through mutual agreement, the parties have not established such minimums; and, to date, have not enforced such provision. Under the Cook Biotech agreement, the Company provides purchase orders to Cook Biotech, and Cook Biotech fulfills the purchase orders.

In December 2011, the Company ~~also~~ 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 ~~the Company’s~~Axogen’s phase 3 pivotal clinical trial to support ~~a biologics license application (“BLA”)~~the BLA for Avance Nerve Graft. In March 2020, the Company entered into an amendment to this agreement. The amendment extends the end of the study timeline from December 2020 to December 2021. It also increases the total number of subjects enrolled and the number of sites used in the studies. Payments made under this agreement were ~~$154~~$327 and ~~$107~~$278 for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. ~~Payments made under this agreement were $432 and $623 for the six months ended June 30, 2021 and 2020, respectively.~~

In June 2017, the Company entered into the Nerve End Cap Supply Agreement (the “Supply Agreement”) with Cook Biotech whereby Cook Biotech is the exclusive contract manufacturer of the Axoguard Nerve Cap and both parties have provided the other party the necessary licenses to their technologies for operation of the Supply Agreement. The Supply Agreement has a term through August 27, 2027. Under the Supply Agreement the Company provides purchase orders to Cook Biotech, and Cook Biotech fulfills the purchase orders.

~~Certain executive officers of the Company are parties to employment contracts. Such contracts have severance payments for certain conditions including change in control.~~

Concentrations

Vendor

Substantially all of the Company’s revenue is currently derived from 4five 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 ~~four~~five products, Avance Nerve Graft represents approximately half of the Company’s total revenue. The Company has an exclusive distribution agreement with Cook Biotech for the purchase of Axoguard which expires June 30, 2027. The agreement with Cook Biotech establishes a formula for the transfer cost of the Axoguard products and requires certain minimum purchases by the Company, although, through mutual agreement, the parties have not established such minimums and to date have not enforced such provision.

The agreement allows for termination provisions for both parties. The loss of the ability to sell the Axoguard products could have a material adverse effect on the Company’s business until other replacement products would be available.

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~~Processor~~Axogen Processing Center Facility

The Company is highly dependent on the continued availability of its processing facilities at ~~CTS~~the Community Blood Center facility (“CTS”) in Dayton, Ohio and could be harmed if the physical infrastructure of this facility is unavailable for any prolonged period of time. In addition, disruptions could lead to significant costs and reductions in revenues, as well as a potential harm to the Company’s business reputation and financial results. In the event of disruption, the Company believes it can find and make operational a new leased facility in less than six months, but the regulatory process for approval of facilities is time-consuming and unpredictable. The Company’s ability to rebuild or find acceptable lease facilities could take a considerable amount of time and expense and could cause a significant disruption in service to its customers. Although the Company has business interruption insurance, which would cover certain costs, it may not cover all costs nor help to regain the Company’s standing in the market.

On July 31, 2018, the Company purchased ~~a facility,~~ the APC Facility in Vandalia, Ohio, located near the CTS processing facility where Avance Nerve Graft ~~and Avive Soft Tissue Membrane are~~is currently processed. The APC Facility, when and if operational, will be the new processing facility for Avance Nerve Graft ~~and Avive Soft Tissue Membrane~~ to provide continued capacity for growth and to support the transition of Avance Nerve Graft ~~from a 361 HCT/P tissue product~~ to a biologic product. The APC Facility is comprised of a ~~70,000~~107,000 square foot building on approximately 8.6 acres of land. The Company paid $731 for the land, ~~and this~~which is recorded as ~~Land within our~~land in property and equipment ~~account~~ on ~~our~~the condensed consolidated balance sheet. The Company paid $4,300 for the building ~~and this~~which is recorded asin projects in process ~~as part of the~~in property and equipment on the condensed consolidated balance sheet.

On July 9, 2019, the Company entered into a Standard Form of Agreement Between Owner and Design-Builder ~~(the “Design-Build Agreement”)~~ with CRB Builders, L.L.C., ~~a Missouri limited liability company~~ (“CRB”), ~~pursuant to~~in which CRB will renovate and retrofit the APC. The Design-Build Agreement contains several design phase milestones that began in July 2019 and sets the date for Substantial Completion (as defined in the Design-Build Agreement) by late 2022, subject to adjustment in accordance with the terms of the Design-Build Agreement. The estimated cost pursuant to the Design-Build Agreement is $29,300. Additional costs associated with the renovation, purchasing of furniture and equipment, validation and certification of the APC are estimated to be $13,600. The Company temporarily deferred the construction as part of the cost containment initiatives implemented in the second quarter of 2020, and subsequently determined to resume construction in early January of 2021.Facility. For the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, and inception-to-date the Company has recorded ~~$5,900~~$2,589 and ~~$11,152,~~$38,005, respectively, of expenditures related to renovations and design and build in ~~construction~~projects in progress. ~~The~~In addition to these project costs, the Company has ~~recorded $27,390~~capitalized interest of $1,426 for the three months ended March 31, 2022 and $6,719 inception-to-date to ~~date related to this~~the project. These items are recorded as projects in process ~~as part of the~~in property and equipment, ~~in its~~net on the condensed consolidated balance sheet.

~~Litigation~~Fair Value of the Debt Derivative Liabilities

The fair value of the Debt Derivative Liabilities was determined using a probability-weighted expected return model based upon four potential settlement scenarios for the Oberland Facility discounted to present value, and compared to fair value of a plain vanilla note. The Company estimated the make-whole payments required under the Oberland 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 Capital. The calculation utilized the XIRR function in Microsoft Excel as required by the Oberland Facility. If the debt is not prepaid but instead is held to its scheduled maturities, the Company’s estimate of the make-whole payment for the first tranche and second tranches due on June 30, 2027 and June 30 2029, respectively, is 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 Company became aware that Oberland Capital 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 Facility. The Company estimates the top end of the range of the make-whole payments if the debt is held to scheduled maturity under an alternative interpretation to be approximately $13,000 for the first tranche of the Oberland Facility on June 30, 2027 and approximately $5,000 for the second tranche of the Oberland Facility on June 30, 2028. Further, if the debt is prepaid prior to the scheduled maturity dates and subject to the alternative interpretation, the make-whole payment would be larger than the amounts herein. There has been no updates since reported in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2021.

Legal Proceedings

The Company is and may be subject to various claims, lawsuits, and proceedings in the ordinary course of the Company's ~~business, some~~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 ~~which have been dismissed by~~any legal proceeding or other loss contingency involving the 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.~~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.

On January 9, 2019, Plaintiff Neil Einhorn, on behalf of himself and others similarly situated, filed a putative class action complaint in the United ~~Stated~~States District Court for the Middle District of Florida alleging violations 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 during a class period of August 7, 2017 to December 18, 2018. In particular, Plaintiff asserts that Defendants issued false and misleading statements and failed to disclose to investors: (1) that the Company aggressively increased prices to mask lower sales; (2) that the Company’s pricing alienated customers and threatened the Company’s future growth; (3) that ambulatory surgery centers form a significant part of the market for the Company’s products; (4) that such centers were especially sensitive to price increases; (5) that the Company 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~~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

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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. On December 4, 2019, the ~~parties’~~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’s~~Company filed its appellee brief ~~is due~~on August 11, 2021. The ~~Company and Individual Defendants dispute the allegations and intend to vigorously defend against the Complaint.~~Plaintiff filed a reply brief on September 14, 2021. The Eleventh Circuit heard oral argument for March 8, 2022. The amount of loss, if any, cannot be reasonably estimated at this time.

Jackson v. Zaderej, et al., No. 8:19-cv-01976 U.S. District Court (M.D. FL). On August 12, 2019, Plaintiff Harvey Jackson, derivatively on behalf of Axogen, filed a verified shareholder derivative complaint for violations of securities laws, breach of fiduciary duty, waste of corporate assets and unjust enrichment against Quentin S. Blackford, Gregory G. Freitag, Mark Gold, Jamie M. Grooms, Alan M. Levine, Peter J. Mariani, Guido Neels, Robert J. Rudelius, Amy Wendell, and Karen Zaderej (the “Individual Defendants”) and Nominal Defendant Axogen, Inc. (“Axogen”) (collectively, “Defendants”). Plaintiff asserts that the Individual Defendants, who are current or former Axogen officers or directors, issued a false proxy statement for the election of directors in violation of Section 14(a) of the Securities Exchange Act of 1934, breached their fiduciary duties, wasted corporate assets and were unjustly enriched by allowing Axogen to make false public statements to investors based on the same claims in the report issued December 18, 2018 by Seligman Investments (the same allegations that form the basis for the Einhorn This matter and the Bussey shareholder demand). Plaintiff demands judgment in the Company’s favor against all Individual Defendants as follows: (A) declaring that Plaintiff may maintain this action on behalf of Axogen, and that Plaintiff is an adequate representative of Company; (B) declaring that the Individual Defendants have breached and/or aided and abetted the breach of their fiduciary duties to Axogen; (C) determining and awarding to Axogen the damages sustained by it because of the violations set forth above from each of the Individual Defendants, jointly and severally, together with pre- and post-judgment interest thereon; (D) directing Axogen and the Individual Defendants to take all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws and protect Axogen and its shareholders from a repeat of the damaging events described therein, including, but not limited to, putting forward for shareholder vote the following resolutions for amendments to the Company’s Bylaws or Articles of Incorporation and the following actions as may be necessary to ensure proper corporate governance policies: (i) a proposal to strengthen the Board’s supervision of operations and develop and implement procedures for greater shareholder input into the policies and guidelines of the Board, (ii) a provision to permit the shareholders of Axogen to nominate at least 6 candidates for election to the Board; and (iii) a proposal to ensure the establishment of effective oversight of compliance with applicable laws, rules, and regulations; (E) awarding Axogen restitution from Individual Defendants, and each of them; (F) awarding Plaintiff the costs and disbursements of this action, including reasonable attorneys’ and experts’ fees, costs, and expenses; and (G) granting such other and further relief as the Court may deem just and proper. The Defendants filed a motion to dismiss on October 22, 2019. In response, Plaintiffs voluntarily withdrew their complaint and the matter was dismissed without prejudice by the court on November 5, 2019.

Novitzki v. Zaderej, et al, 19-CA-11745 DIV L (13th Judicial Circuit, Hillsborough Cnty., Fl.). On November 11, 2019, Plaintiff Joseph Novitzki, derivatively on behalf of Axogen, filed a verified stockholder derivative complaint for breach of fiduciary duty, waste of corporate assets and unjust enrichment against Karen Zaderej, Gregory G. Freitag, Peter J. Mariani, Amy Wendell, Robert J. Rudelius, Mark Gold, Guido Neels, and Jamie M. Grooms (the “Individual Defendants”) and Nominal Defendant Axogen, Inc. (“Axogen”) (collectively, “Defendants”). Plaintiff asserts that the Individual Defendants, who are current or former Axogen officers or directors, breached their fiduciary duties, wasted corporate assets and were unjustly enriched by allowing Axogen to make false public statements to investors based on the same claims in the report issued December 18, 2018 by Seligman Investments (the same allegations that form the basis for the Einhorn matter and the Bussey shareholder demand). Plaintiff demands judgment in the Company’s favor against all Individual Defendants as follows: (a) against all of the defendants and in favor of the Company for the amount of damages sustained by the Company as a result of the defendants' breaches of fiduciary duties, waste of corporate assets, and unjust enrichment; (B) directing Axogen to take all necessary actions to reform and improve its corporate governance and internal procedures to comply with applicable laws and to protect Axogen and its stockholders from a repeat of the damaging events described herein, including, but not limited to, putting forward for stockholder vote, resolutions for amendments to the Company’s Bylaws or Articles of Incorporation and taking such other action as may be necessary to place before stockholders for a vote of the following corporate governance policies: (1) directing Axogen to employ an independent, third-party expert to calculate the Company's market size (including the dollar values of Axogen's total addressable market and portion of the market relating to extremity trauma and OMF); (2) a provision to control insider selling; (3) a proposal to strengthen Axogen’s oversight of its disclosure procedures; (4) a proposal to strengthen the Company's controls over financial reporting; (5) a proposal to strengthen the Board's supervision of operations and develop and implement procedures for greater stockholder input into the policies and guidelines of the Board; and (6) a

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provision to permit the stockholders of Axogen to nominate at least 3 candidates for election to the Board; (C) extraordinary equitable and/or injunctive relief as permitted by law, equity, and state statutory provisions sued hereunder, including attaching, impounding, imposing a constructive trust on, or otherwise restricting the proceeds of defendants' trading activities or their other assets so as to assure that plaintiff on behalf of Axogen has an effective remedy; (D) Awarding to Axogen restitution from defendants, and each of them, and ordering disgorgement of all profits, benefits, and other compensation obtained by the defendants, including all ill-gotten gains from insider selling by defendants; (E) awarding to plaintiff the costs and disbursements of the action, including reasonable attorneys' fees, accountants' and experts' fees, costs, and expenses; and (F) granting such other and further relief as the Court deems just and proper. After Defendants’ counsel had multiple discussions with Plaintiff’s counsel pointing out that it’s complaint was deficient for the same reasons argued in Jackson, the Plaintiff agreed to voluntarily dismiss the complaint without prejudice, which the court so-ordered on January 24, 2020.

~~Bach v. Zaderej, et al., 27-cv-20-5997 (Hennepin Cnty., Minn.).~~On April 21, 2020, Plaintiff Michael Bach, derivatively on behalf of Axogen, filed a verified stockholder derivative complaint for breach of fiduciary duty, insider selling, corporate waste and unjust enrichment against Karen Zaderej, Gregory G. Freitag, Peter J. Mariani, Amy Wendell, Robert J. Rudelius, Mark Gold, Guido Neels, Jamie M. Grooms, Quentin S. Blackford, and Alan M. Levine (the “Individual Defendants”) and Nominal Defendant Axogen, Inc. (“Axogen”) (collectively, “Defendants”).~~The Bach Complaint has not yet been served on Defendants and therefore no response is necessary at this time.~~

~~These matters are~~ subject to various uncertainties and it is possible that it may be resolved unfavorably to the Company. However, while it inis not possible to predict with certainty the outcome of the matter, the Company and the Individual Defendants dispute the allegations and intend to vigorously defend themselves.

~~14.Retirement Plan~~

~~Axogen 401(k) Plan~~

The Company sponsors the Axogen 401(k) plan (the “401(k) Plan”), a defined contribution plan covering substantially all employees of the Company. All full-time employees who have attained the age of 18 are eligible to participate in the 401(k) Plan. Eligibility is immediate upon employment and enrollment is available any time during employment. Participating employees may make annual pretax contributions to their accounts up to a maximum amount as limited by law. The 401(k) Plan requires the Company to make matching contributions of 3% on the first 3% of the employee’s annual salary and 1% of the next 2% of the employee’s annual salary as long as the employee participates in the 401(k) Plan. Both employee contributions and Company contributions vest immediately. Employer contributions to the 401(k) Plan for the three months ended June 30, 2021 and 2020 were approximately $285 and $288, respectively and for the six months ended June 30, 2021 and 2020 were approximately $615 and $583, respectively.

~~15. Subsequent Events~~

~~First Amendment to Heights Union Lease~~

One July 12, 2021, the Company entered the First Amendment to the Office Lease (the "First Amendment") to the Heights Agreement. The First Amendment revises the commencement date of the Office Lease to mean October 30, 2020 and revises the termination date of the Office Lease to be October 31, 2034. Pursuant to the First Amendment, the Company is entitled to an additional 1 ½ months of free rent periods.

~~Sixth Amendment to Headquarters Lease~~

On July 13, 2021, the Company entered into the Sixth Amendment to Lease (the “Sixth Amendment”) with Ology Bioservices Holdings, LLC (“Ology”) as successor in interest to SNH Medical Office Properties Trust. Ology is the landlord of the Company's currently leased, approximately 19,000 square foot corporate headquarters facility in Alachua, Florida. The Sixth Amendment amends the term of the lease to expire on October 21, 2026 (the “Expiration Date”). The portion of the term beginning on November 1, 2021 and ending on the Expiration Date is referred to as the “Extension Period”.

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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 included in our Annual Report on Form 10-K.

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, and Axogen Europe 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 to restore peripheral nerve function and quality of life to patients with physical damage or transection to peripheral nerves providing innovative, clinically proven and economically effective repair solutions for surgeons and health care 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.

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 ~~extracellular matrix (“ECM”)~~ECM coaptation aid for tensionless repair of severed peripheral ~~nerves,~~nerves; Axoguard Nerve Protector, a porcine submucosa ~~ECM~~extracellular matrix ("ECM") product used to wrap and protect ~~injured~~damaged peripheral nerves and reinforce the nerve reconstruction while preventing soft tissue ~~attachments, and~~ attachments;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. Along with these core~~neuroma; Avive Soft Tissue Membrane, a processed human umbilical cord intended for surgical ~~products, we also offer the~~use as a resorbable soft tissue conduit; and Axotouch® Two-Point Discriminator, used to measure the innervation density of any surface area of the skin. Our portfolio of products is available in the ~~United States,~~U.S., Canada, Germany, the ~~United Kingdom, several European countries,~~UK, Spain, South Korea, and several other ~~international~~ countries.

As previously announced, we suspended the market availability of Avive Soft Tissue Membrane ("Avive") effective June 1, 2021, and we continue discussions with the FDA to determine the appropriate regulatory classification and requirements for Avive.The suspension was not based on any safety or product 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 in the first quarter of 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 experienced that surgeons initially are cautious adopters for 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 ~~committee~~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 6six times in the last 12twelve months. ~~In the first quarter,~~As of March 31, 2022, we had ~~959~~926 active accounts, an increase of ~~22%~~1% from ~~789~~915 one year ago. 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 ~~will transition~~have transitioned to reporting a new account metric that we believe demonstrates the strength of adoption and potential revenue growth in accounts that have developed a more consistent use of ~~Axogen~~our products in their nerve repair algorithm. We refer to these as ~~“Core Accounts”~~core accounts which we define as accounts that have purchased at least $100,000 in the past 12twelve months. ~~In the second quarter,~~As of March 31, 2021, we had ~~306 Core Accounts,~~288 core accounts, an increase of ~~34%~~4% from ~~227~~277 one year ago. These ~~Core Accounts~~core accounts represented approximately 60% of our revenue in the quarter, which has remained consistent over the past two years.

~~There have been no significant changes to our critical accounting policies from those disclosed in our 2020 Annual Report on Form 10-K.~~

~~Avive~~

~~As previously announced, we suspended the market availability of Avive~~® Soft Tissue Membrane effective June 1, 2021 and we continue discussions with the FDA to determine the appropriate regulatory classification and requirements for Avive. The suspension was not based on any safety or product 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.

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Results of Operations

Comparison of the Three Months Ended ~~June 30,~~March 31, 2022 and 2021

The following table sets forth, for the periods indicated, our results of operations expressed as dollar amounts and ~~2020~~percentage of total revenue:

Three Months Ended June 30,
2021 2020
Amount % of
Revenue Amount % of
Revenue
(dollars in thousands)
Revenues $ 33,580 100.0 % $ 22,116 100.0 %
Cost of goods sold 7,092 21.1 5,605 25.3
Gross Profit 26,488 78.9 16,511 74.7
Cost and expenses
Sales and marketing 19,250 57.3 14,290 64.6
Research and development 5,723 17.0 4,071 18.4
General and administrative 8,669 25.8 6,404 29.0
Total costs and expenses 33,642 100.2 24,765 112.0
Loss from operations (7,154) (21.3) (8,254) (37.3)
Other (expense) income:
Investment income 29 0.1 237 1.1
Interest expense (565) (1.7) (31) (0.1)
Change in fair value of derivatives (84) (0.3) — 0.0
Other expense (124) (0.4) (57) (0.3)
Total other (expense) income, net (744) (2.2) 149 0.7
Net Loss $ (7,898) (23.5) % $ (8,105) (36.6) %


	Three Months Ended March 31,
	2022				2021
	Amount		% of Revenue		Amount		% of Revenue
	(dollars in thousands)
Revenues	$	31,007	100.0	%	$	31,037	100.0	%
Cost of goods sold	5,546		17.9		5,172		16.7
Gross profit	25,461		82.1		25,865		83.3
Costs and expenses
Sales and marketing	20,888		67.4		17,973		57.9
Research and development	6,275		20.2		5,748		18.5
General and administrative	9,618		31.0		8,364		26.9
Total costs and expenses	36,781		118.6		32,085		103.4
Loss from operations	(11,320)		(36.5)		(6,220)		(20.1)
Other (expense) income:
Investment income	(46)		(0.1)		34		0.1
Interest expense	(354)		(1.1)		(444)		(1.4)
Change in fair value of derivatives	252		0.8		(22)		(0.1)
Other expense	(7)		—		(8)		—
Total other expense, net	(155)		(0.5)		(440)		(1.4)
Net Loss	$	(11,475)	(37.0)	%	$	(6,660)	(21.5)	%

Revenues

Revenues for the three months ended ~~June 30, 2021 increased 52% to $33,580~~March 31, 2022 of $31,007 were relatively unchanged as compared to ~~$22,116~~$31,037 for the three months ended ~~June 30, 2020. Revenue~~March 31, 2021. Revenues were negatively impacted by lower procedure volumes due to the impact of COVID-19 variants particularly earlier in the quarter and to related hospital staffing challenges. Specifically, revenue growth was ~~driven~~impacted by ~~an increase~~a decrease in unit volume of approximately ~~40%~~4%, ~~changes~~offset by the net change in prices and product mix of ~~8%, as well as~~approximately 4%. Excluding the impact of changes in prices of 4%. The growth in unit volume and mix was attributed to unit growth in our core and active accounts, and also reflects the initial negative impact of the COVID-19 pandemic, which negatively impacted procedure volumesAvive revenue in the ~~second quarter~~prior year of ~~2020.~~$1,747, revenue would have increased approximately 6%.

Gross Profit

Gross profit for the three months ended ~~June 30, 2021 increased 60%~~March 31, 2022 decreased by $404 or 2% to ~~$26,488~~$25,461 as compared to ~~$16,511~~$25,865 for the three months ended ~~June 30, 2020.~~March 31, 2021. Gross margin decreased to 82.1% from 83.3% due primarily to increased ~~to 79%~~production costs in the three months ended June 30, 2021 compared to 75% for the three months ended June 30, 2020.We recorded a $1,429 charge in the second quarter of 2021, reflecting the write-down of inventory and related production costs due to the suspension of market availability of Avive. Prior year gross margin was negatively impacted by lower revenue and a $1,633 charge related to the suspension of production and an increased provision for inventory write-down as a result of COVID-19.quarter.

Costs and Expenses

Total costs and expenses increased ~~36%~~15% to ~~$33,642~~$36,781 for the three months ended ~~June 30, 2021,~~March 31, 2022, as compared to ~~$24,765~~$32,085 for the three months ended ~~June 30, 2020. Total operating expenses in the second quarter included $3,804 in non-cash stock compensation, compared to $2,222 in the prior year.~~March 31, 2021. The increase in total operating expenses ~~including non-cash stock~~was a result of an increase in net compensation ~~over prior year reflects a return~~of $1,450, due primarily to ~~more normalized spending levels over the past few quarters following the steep reduction in spend in the quarter~~increased head count, marketing programs of ~~2020~~$1,087 as a result of ~~our~~the return of in-person sales team and physician education events and programs, travel cost ~~mitigation initiatives enacted at the beginning~~ of ~~the COVID-19 pandemic. As a percentage~~$815, as well as increased professional services of ~~total revenues, total costs and expenses decreased to 100% for the three months ended June 30, 2021, as compared to 112% for the three months ended June 30, 2020.~~$857.

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Sales and marketing expenses increased ~~35%~~16% to ~~$19,250~~$20,888 for the three months ended ~~June 30, 2021,~~March 31, 2022, as compared to ~~$14,290~~$17,973 for the three months ended ~~June 30, 2020.~~March 31, 2021. This increase was primarily ~~due~~attributable to ~~higher~~the following: (i) marketing development programs of $1,087; (ii) compensation related expenses ~~including sales commissions as well as an increase in~~of $992; and (iii) travel related expenses of $638, as hospitals begin to lift COVID-19 restrictions. As a percentage of total revenues, sales and marketing expenses decreased to 57% for the three months ended June 30, 2021 as compared to 65% for the three months ended June 30, 2020.hospital access restrictions improved.

Research and development expenses increased ~~41%~~9% to ~~$5,723~~$6,275 for the three months ended ~~June 30, 2021,~~March 31, 2022, as compared to ~~$4,071~~$5,748 for the three months ended ~~June 30, 2020. Research and~~March 31, 2021. The increase was primarily due to compensation related project expenses of $347. Product development costs include ~~our product development efforts, including expenses~~spending in ~~support~~a number of our BLA for Avance Nerve Graft and clinical trials. Product development expenses represented approximately 64% of total research and development expense in the three months ended June 30, 2021 as compared to 50% in the prior year period. Clinical trial expenses represented approximately 36% of research and development expense in the three months June 30, 2021 as compared to 50% in the prior year period. The increase in product development expenses reflect increased spending in specific programs including ~~our efforts~~the non-clinical expenses related to the BLA for Avance Nerve Graft and a next generation Avance product. ~~Additionally, pandemic related restrictions lowered spending on certain~~Product development expenses represented approximately 66% of ~~our clinical study programs which have restarted over the past few quarters and spend on these and other clinical activities continue to increase during the second quarter. As a percentage of~~ total ~~revenues,~~ research and development expense in the three months ended March 31, 2022 and 2021. Clinical trial expenses ~~decreased to 17%~~represented approximately 34% of total research and development expense for the ~~quarter~~three months ended ~~June~~March 31, ~~2021 from 18% for the quarter ended June 30, 2020.~~

2022 and 2021.

General and administrative expenses increased ~~35%~~15% to ~~$8,669~~$9,618 for the three months ended ~~June 30, 2021,~~March 31, 2022, as compared to ~~$6,404~~$8,364 for the three months ended ~~June 30, 2020.~~March 31, 2021. The increase was primarily due to ~~increased compensation,~~higher professional services in the quarter, including ~~stock compensation~~legal and ~~increased rent~~consulting services of $605 and ~~utilities from our new Tampa facility. As a percentage~~occupancy-related costs of ~~total revenues, general~~$330.

Other Expense and ~~administrative expenses~~Income

Interest expense decreased to ~~26%~~$354,000 for the three months ended ~~June 30, 2021,~~March 31, 2022 as compared to ~~29%~~$444 for the three months ended ~~June 30, 2020.~~

~~Other Income and Expenses~~

March 31, 2021. We recognized total ~~other expense~~interest charges of ~~$744 for~~$1,742 and $944 in connection with the Oberland Facility in the three months ended ~~June 30,~~March 31, 2022, and 2021, ~~compared to other income~~respectively, however, $1,445 and $520 of ~~$149 for the three months ended June 30, 2020. The change is primarily due to~~this interest ~~expense recognized from our current financing agreement with Oberland Capital (the "Oberland Facility") that began June 30, 2020, including the recording of interest from the royalty agreement related~~was capitalized to the ~~Oberland~~construction costs of the APC Facility in first quarter of 2022 and ~~lower investment income from our asset management program as interest rates remain lower and we lowered our investment balances and increased cash reserves.~~2021, respectively.

Income Taxes

We had no income tax expense or benefit for each of the three months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020,~~ due to the incurrence of net operating losses in each of these periods, the benefits of which have been fully reserved. We do not believe that there are any additional tax expenses or benefits currently available.

Critical Accounting Policies

~~Table~~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 its financial position and results of ~~Contents~~

~~Comparison~~operations. Management regularly reviews our accounting policies and financial information disclosures. A summary of significant accounting policies that require the ~~Six Months Ended June 30, 2021~~use of estimates and ~~2020~~

Six Months Ended June 30,
2021 2020
Amount % of
Revenue Amount % of
Revenue
(dollars in thousands)
Revenues $ 64,617 100.0 % $ 46,377 100.0 %
Cost of goods sold 12,264 19.0 10,421 22.5
Gross Profit 52,353 81.0 35,956 77.5
Cost and expenses
Sales and marketing 37,224 57.6 32,128 69.3
Research and development 11,485 17.8 8,685 18.7
General and administrative 17,018 26.3 11,906 25.7
Total costs and expenses 65,727 101.7 52,719 113.7
Loss from operations (13,374) (20.7) (16,763) (36.2)
Other (expense) income:
Investment income 63 0.1 548 1.2
Interest expense (1,010) (1.6) (62) (0.1)
Change in fair value of derivatives (82) (0.1) 0.0 0.0
Other expense (155) (0.2) (20) 0.0
Total other (expense) income, net (1,184) (1.8) 466 1.0
Net Loss $ (14,558) (22.5) % $ (16,297) (35.1) %

~~Revenues~~

~~Revenues for~~judgments in preparing the ~~six months ended June 30, 2021 increased 39% to $64,617 as compared to $46,377 for the six months ended June 30, 2020. Revenue growth~~financial statements was ~~driven by an increase in unit volume of approximately 31%, as well as the net impact of changes in prices and product mix of approximately 8%. The unit volume increase was attributed to growth~~provided in our ~~core and active accounts, and also reflects~~2021 Annual Report on Form 10-K. During the ~~initial negative impact of the COVID-19 pandemic, which began to negatively impact procedure volumes and revenue in March of 2020.~~

~~Gross Profit~~

Gross profit for the six months ended June 30, 2021 increased 46% to $52,353 as compared to 35,956 for the six months ended June 30, 2020. Gross margin increased to 81% in the six months ended June 30, 2021 compared to 78% for the six months ended June 30, 2020. We recorded a $1,429 charge in the second quarter ~~reflecting the write-down of inventory and related production costs due~~covered by this report, there were no material changes to the ~~suspension~~accounting policies and assumptions previously disclosed, except as disclosed in Note 2. Summary of ~~market availability of Avive. Prior year gross margin was negatively impacted by lower revenue and a $1,713 charge related~~Significant Accounting Policies to the ~~suspension of production and an increased provision for inventory write-downs as a result of the COVID-19 pandemic.~~

~~Costs and Expenses~~

Total costs and expenses increased 25% to $65,727 for the six months ended June 30, 2021, as compared to $52,719 for the six months ended June 30, 2020. Total operating expenses in the second quarter included $6,499 in non-cash stock compensation, compared to $2,778 in the prior year.Prior year stock compensation included a credit of $1,697 on stock compensation primarily reflecting lower estimates of performance stock awards that would be earned resulting from the impact of COVID-19 on performance metrics for these awards. The increase in total operating expenses, including non-cash stock compensation, over prior year reflects a return to more normalized spending levels over the past few quarters following the steep reduction in spend in the prior year as a result of our cost mitigation initiatives enacted at the beginning of the COVID-19 pandemic. As a percentage of total revenues, total costs and expenses decreased from 114% in the six months ended June 30, 2020 as compared to 102% for the six months ended June 30, 2021.

~~Table of Contents~~

Sales and marketing expenses increased 16% to $37,224 for the six months ended June 30, 2021, as compared to $32,128 for the six months ended June 30, 2020. This increase was primarily due to higher compensation related expenses including sales commissions, increased spend in marketing development programs as well as increased expenses for our new Tampa facility.These increases were slightly offset by decreased spend in travel and symposium expense due to pandemic-related restrictions. As a percentage of total revenues, sales and marketing expenses decreased to 58% for the six months ended June 30, 2021 as compared to 69% for the six months ended June 30, 2020.

Research and development expenses increased 32% to $11,471 for the six months ended June 30, 2021, as compared to $8,685 for the six months ended June 30, 2020. Product development expenses represented approximately 67% of total research and development expense in the six months ended June 30, 2021 as compared to 50% in the prior year period. Clinical trial expenses represented approximately 33% of research and development expense in the three months ended June 30, 2021 as compared to 50% in the prior year period. The increase in product development expenses reflect increased spending in specific programs, including our efforts related to the BLA for Avance Nerve Graft and a next generation Avance product. Additionally, pandemic related restrictions lowered spending on certain of our clinical study programs which have restarted over the past few quarters and spend on these and other clinical activities continue to increase during 2021. As a percentage of total revenues, research and development expenses decreased to 18% for the six months ended June 30, 2021 from 19% for the same period in the previous fiscal year.

General and administrative expenses increased 43% to $17,032 for the six months ended June 30, 2021, as compared to $11,906 for the six months ended June 30, 2020. This increase was primarily due to higher compensation, including stock compensation, increased rent and utilities from our new Tampa facility and increased legal fees.~~As a percentage of total revenues, general and administrative expenses were 26% for both six months ended June 30, 2021, and 2020.~~

~~Other Income and Expenses~~

We recognized total other expense of $1,184 for the six months ended June 30, 2021, compared to other income of $466 for the six months ended June 30, 2020. The change is primarily due to interest expense recognized in the current period on our financing agreement with Oberland Capital (the "Oberland Facility") that began June 30, 2020, and lower investment income from our asset management program as we lowered our investment balances and increased cash reserves.

~~Income Taxes~~

We had no income tax expense or benefit for each of the six months ended June 30, 2021 and 2020, due to the incurrence of net operating losses in each of these periods, the benefits of which have been fully reserved. We do not believe that there are any additional tax expenses or benefits currently available.

unaudited condensed consolidated financial statements contained herein.

Liquidity and Capital Resources

Cash Flow Information

As of ~~June 30, 2021, we had~~March 31, 2022, our principal sources of liquidity were our cash and cash equivalents and ~~restricted~~investments totaling $73,669. Our cash equivalents are comprised of ~~$59,411, an increase~~a money market mutual fund and our investments are comprised of ~~$3,802~~short-term commercial paper and U.S. Treasuries. Our cash and cash equivalents and investments decreased $16,668 from ~~$55,609~~$90,337 at December 31, ~~2020,~~2021, primarily as a result of operating activities and renovating the ~~proceeds from long term debt and cash flow from employee option exercises, offset by the use of cash in operating activities.~~APC Facility.

We had working capital of ~~$120,167~~$89,530 and a current ratio of ~~6.6x~~4.9x at ~~June 30, 2021,~~March 31, 2022, compared to working capital of ~~$122,420~~$102,756 and a current ratio of ~~6.4x~~5.2x at December 31, ~~2020.~~2021. The ~~increase~~decrease in the current ratio at ~~June 30, 2021,~~March 31, 2022, as compared to December 31, ~~2020,~~2021, was primarily due to ~~the drawdown of the second tranche of the Oberland Facility, cash payments in the quarter offset by~~ a decrease in ~~investments year over year.~~cash used to renovate the APC Facility, which is a non-current asset and used in operations. We believe we have sufficient cash resources to meet our liquidity requirements for at least the next 12 months based on our expected level of operations.

As of March 31, 2022, total current liabilities were $22,945. 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. Our future capital requirements depend on a number of factors including, without limitation, ~~revenue increases consistent with~~ our ~~business plan, cost~~growth rate, the timing and extent of ~~products~~spending to support development efforts, the expansion of sales and

marketing activities, the acquisition and/or development of new products and the cost of products. We could face increasing capital needs. Such capital needs could be substantial depending on the extent to which we are unable to increase revenue.

~~Table of Contents~~

If we need additional capital in the future, we could draw additional debt proceeds of up to an additional $25,000 from our current financing agreement with Oberland Capital subject to certain restrictions as set forth in the agreement and described in Note 10 – Long Term Debt in the Notes to Condensed Consolidated Financial Statements. If necessary, we may raise additional funds through public or private equity offerings, debt financings or from other sources. The sale of additional equity would 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 ~~action,~~actions, such as slowing sales and marketing expansion, delaying regulatory approvals, or reducing headcount.

Cash Flow Information

The following table presents a summary of cash flows from operating, investing and financing activities:


	Three Months Ended March 31,
(In thousands)	2022		2021
Net cash (used in) provided by:
Operating activities	$	(11,051)	$	(10,820)
Investing activities	(7,241)		870
Financing activities	95		517
Net decrease in cash, cash equivalents, and restricted cash	$	(18,197)	$	(9,433)

Net Cash Used in Operating Activities

Six Months Ended June 30,
2021 2020
Net cash (used in) provided by:
Operating activities $ (11,515) $ (15,081)
Investing activities (3,287) 23,519
Financing activities 18,604 35,768
Net increase (decrease) in cash and cash equivalents $ 3,802 $ 44,206

~~Cash~~Net cash used in operating activities was $11,051 and $10,820 during the three months ended March 31, 2022 and March 31, 2021, respectively. The slightly unfavorable change in net cash used in operating activities of $231 or 2.1% is due to the following: (i) the net favorable change of $4,835 in operating liabilities and assets and the increase in the net loss of $4,815 .

~~Operating~~Net Cash (Used in) Provided by Investing Activities

Net cash used in investing activities for the ~~six~~three months ended ~~June 30, 2021 used $11,515 of~~March 31, 2022 was $7,241 cash as compared to using $15,081 for the six months ended June 30, 2020. The decrease in operating cash outflows primarily relates to higher collections of accounts receivable from increased sales activity year over year, resulting in a reduction in net ~~loss as compared to the prior year period.~~

~~Cash used in / provided by investing activities~~

~~Investing activities for the six months ended June 30, 2021 used $3,287 of cash as compared to providing $23,519 for the six months ended June 30, 2020. This decrease in~~ cash provided by investments of $870 for the three months ended March 31, 2021, an increase of $8,111 in net cash used in investing. The increase in net cash used in investing activities ~~was~~is principally ~~attributable~~due to the ~~sale~~net sales of investments inof $5,745 during the ~~prior year~~quarter ended March 31, 2022, as part of our asset management ~~program.~~program, the purchase of property and equipment of $1,942 and the acquisition of intangible assets of $424.

Net Cash ~~provided~~Provided by ~~financing activities~~Financing Activities

~~Financing activities for the six months ended June 30, 2021 provided $18,604 of cash as compared to used $35,768 of cash for the six months ended June 30, 2020. The decrease in~~Net cash provided by financing activities iswas $95 and $517 for the three months ended March 31, 2022 and 2021, respectively, a decrease of $424 or 272%. The unfavorable change in net cash provided by financing activities was primarily due to ~~the drawdown of $15,000 second tranche of the Oberland Facility~~a decrease in the second quarter of fiscal 2021 as compared to a $35,000 drawdown of the first tranche in the same period of the previous fiscal year. This decrease is slightly offset by the increase in cash receivedproceeds from the exercise of ~~employee~~ stock options.

Operating Cash Requirements

APC Facility Commitment

On July 9, 2019, we entered into the Standard Form of Agreement Between Owner and Design-Builder with CRB (the "Design Build Agreement"). The estimated cost pursuant to the Design-Build Agreement is $29,300. Additional costs associated with ~~CRB, pursuant to which CRB will renovate~~the renovation, purchasing of furniture and ~~retrofit~~equipment, validation and certification of the APC ~~(See Note 13 - Commitments and Contingencies in the Notes~~Facility are estimated to ~~Condensed Consolidated Financial Statements).~~be $20,900, plus projected capitalized interest of $11,300. We have recorded $46,013 to date related to this project, including capitalized interest of $6,719. We anticipate spending ~~up to approximately $20,400 for renovations, equipment~~$15,290, including projected capitalized interest of $4,581, of which $1,700 is anticipated in 2023. Construction of the facility is now substantially complete. We anticipate completion of validation and ~~furniture over~~certification of the ~~next twelve months and up to $21,800 over~~facility by early 2023, followed by commencement of tissue processing in the ~~next 18 months.~~

~~Tampa Commitment~~facility.

Pursuant to the Heights Agreement, we will use the leased premises in Tampa, Florida for general office, research laboratory, training and meeting purposes. We began occupying the premises in September of 2020. The lease term includes several months of free rent, and these free periods will cease in the second half of fiscal 2021. We recorded a right of use asset and lease liability at the commencement of the lease term as discussed in Note 13 - Commitments and Contingencies in the Notes to the Consolidated Financial Statements.

On July 12, 2021, we entered into the First Amendment to the Office Lease (the "First Amendment") to the Heights Agreement. The First Amendment revises the commencement date of the Office Lease to mean October 30, 2020 and revises

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~~the termination date of the Office Lease to be October 31, 2034. Pursuant to the First Amendment, we are entitled to an additional 1 ½ months of free rent periods.~~

Credit Facilities

On June 30, 2020, we entered into the Oberland Facility and obtained the first tranche of $35,000 at closing. ~~The Oberland Facility provides for a total of $75,000 through two additional tranches that can be drawn by December 31,~~On June 30, 2021, ~~and requires interest-only payments for~~ the ~~duration of the term. A~~ second tranche of $15,000 ~~may be~~was drawn ~~at our option upon achieving two consecutive quarters with revenue of at least $20,000. On June 30, 2021, we drew~~down by the ~~$15,000 second tranche of the Oberland Facility. A third tranche of $25,000 may be drawn at our option upon achieving two consecutive quarters with revenue of $28,000.~~Company. The financing costs for this facility ~~are approximately~~were $642 and were recorded as a contra liability to the debt facility.

~~Material Commitments~~

~~As previously disclosed in Note 13 – Commitments and Contingencies, in July 2018, we purchased a 70,000 square foot facility, the APC, on approximately 8.6 acres of land in Vandalia, Ohio.~~

On July 9, 2019, we entered into the Design-Build Agreement with CRB (which was subsequently amended on October 6, 2020), pursuant to which CRB will renovate and retrofit the APC. The Design-Build Agreement contains several design phase milestones that began in July 2019 and sets the date for Substantial Completion (as defined in the Design-Build Agreement) in the third quarter of 2021, subject to adjustment in accordance with the terms Upon maturity or upon such earlier repayment of the ~~Design-Build Agreement. The estimated cost pursuant~~Oberland Facility, we will repay the principal balance and provide a make-whole payment calculated to ~~the Design-Build Agreement is $28,846. Additional costs associated with the renovation, purchasing~~generate an internal rate of ~~furniture and equipment, validation and certification of the APC are estimated~~return to ~~be $13,600. These capital expenditure costs will be incurred as they arise until material processing is transitioned~~Oberland Capital equal to APC, expected to begin in late 2022. As of June 30, 2021, we have recorded $11,152 in the current year and $27,390 to date related to renovations and design build in construction in progress. These renovations included providing a second floor over a portion of the facility which increases11.5%, less the total ~~usable space~~of all quarterly interest and royalty payments previously paid to 107,000 square feet. These items are recorded as projects in process as part of the property and equipment in our consolidated balance sheet. In addition, we will capitalize interest expense from our debt facility based on the amount of accumulated expenditures of this asset during the period that is required to get the asset ready for its intended use. During the second quarter and first half of the fiscal year, we capitalized interest of $668 and $1,188 to construction in progress.

We expect to receive 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. The economic development grants are subject to certain job creation milestones by 2023 and related contingencies. We have received approximately $238 from these grants. These grants have claw back clauses if we do not meet these job creation milestones by 2023. Oberland Capital.

~~Table of Contents~~

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 ~~2020~~2021 Annual Report on Form 10-K. There have been no material changes to any of these risks since December 31, ~~2020.~~

2021.

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ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, and Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable assurance of achieving the desired objectives, and we necessarily are required to apply our judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~June 30, 2021~~March 31, 2022 and concluded that our disclosure controls and procedures were effective.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended ~~June 30, 2021~~March 31, 2022 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).

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PART II –OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

As disclosed in ~~Note 13~~"Note 12 - Commitments and Contingencies" in the Notes to ~~the condensed consolidated financial statements~~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 1312 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 ~~2020~~2021 Annual Report on Form ~~10-K. However, any~~10-K, except as set forth below. 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, ~~2020,~~2021, 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.

Our operations and business, financial condition, and prospects may be adversely affected by the current

military conflict between Russia and Ukraine and other future social and geopolitical instability.

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. The negative impacts arising from the conflict and these sanctions and export restrictions may include reduced consumer demand, supply chain disruptions and increased costs for transportation, energy, and raw materials. Although none of our operations are in Russia or Ukraine, further escalation of geopolitical tensions could have a broader impact that expands into other markets where we do business, which may adversely affect our business and financial condition, results of operations and prospects.

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.

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ITEM 6 - EXHIBITS


Exhibit Number						Description

~~10.1~~10.1**						~~First Amendment to Office Lease, dated as~~Form of ~~July 12, 2021, by~~Performance-Based Restricted Stock Units Notice and ~~among~~Performance-Based Restricted Stock Units Agreement under the Axogen, Inc.~~, Axogen Corporation,~~ Amended and ~~Heights Union I, LLC~~Restated 2019 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K,filed on ~~July 16, 2021)~~April 1, 2022).

~~10.2~~10.2**						~~Sixth Amendment to Lease, dated as~~Form of ~~July 13, 2021, by~~Restricted Stock Units Notice and ~~between~~Restricted Stock Units Agreement under the Axogen, ~~Corporation~~Inc. Amended and ~~Ology Bioservices Holdings, LLC~~Restated 2019 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K,filed on ~~July 16, 2021)~~April 1, 2022).

10.3**						Form of Incentive Stock Options Notice and Incentive Stock Option Agreement under the Axogen, Inc. Amended and Restated 2019 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed on April 1, 2022).

10.4**						Form of Premium Incentive Stock Options Notice and Premium Incentive Stock Option Agreement under the Axogen, Inc. Amended and Restated 2019 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed on April 1, 2022).

10.5						Commercial Lease Amendment, dated as of January 27, 2022, by and between Axogen Corporation and Ja-Cole, L.P. (incorporated by reference as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 31, 2022.

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†~~104						Cover Page Interactive Data File – The cover pages does 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.

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			AXOGEN, INC.


Dated: ~~August 5, 2021~~May 6, 2022			/s/ Karen Zaderej
			Karen Zaderej Chief Executive Officer and President (Principal Executive Officer)

Dated: ~~August 5, 2021~~May 6, 2022			/s/ Peter J. Mariani
			Peter J. Mariani Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

3828


Part I - Financial Information
Item 1.	Financial Statements	3

Item 2.	~~Management~~Managemen’st's Discussion and Analysis of Financial Condition and Results of Operations	2720

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3424

Item 4.	Controls and Procedures	3425

Part II - Other Information

Item 1.	Legal Proceedings	3626

Item 1A.	Risk Factors	3626

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3626

Item 3.	Defaults Upon Senior Securities	3626

Item 4.	Mine Safety Disclosures	3626

Item 5.	Other Information	3626

Item 6.	Exhibits	3727

	~~Signature Page~~Signatur es	3828


	Common Stock			Paid-in Capital		Accumulated Deficit		Shareholders' Equity/(Deficit)
	Shares	Amount
Three Months Ended June 30, 2021
Balance at March 31, 2021	40,842,717	$	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 units	44,411	0		0		—		0
Exercise of stock options and employee stock purchase plan	449,980	5		3,088		—		3,093
Balance at June 30, 2021	41,337,108	$	413	$	336,495	$	(218,205)	$	118,703

Six Months Ended June 30, 2021
Balance at December 31, 2020	40,618,766	$	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 units	138,944	1		(1)		—		0
Shares surrendered by employees to pay tax withholdings	0	—		0		—		0
Exercise of stock options and employee stock purchase plan	579,398	6		3,607		—		3,613
Balance at June 30, 2021	41,337,108	$	413	$	336,495	$	(218,205)	$	118,703

Three Months Ended June 30, 2020
Balance at March 31, 2020	39,738,767	$	397	$	311,850	$	(188,053)	$	124,194
Net Loss	—	—		—		(8,105)		(8,105)
Stock-based compensation	—	—		2,222		—		2,222
Issuance of restricted and performance stock units	10,021	0		0		—		0
Shares surrendered by employees to pay tax withholdings	(1,766)	—		(17)		—		(17)
Exercise of stock options and employee stock purchase plan	273,758	3		1,463		—		1,466
Balance at June 30, 2020	40,020,780	$	400	$	315,518	$	(196,158)	$	119,760

Six Months Ended June 30, 2020
Balance at December 31, 2019	39,589,755	$	396	$	311,618	$	(179,861)	$	132,153
Net Loss	—	—		—		(16,297)		(16,297)
Stock-based compensation	—	—		2,778		—		2,778
Issuance of restricted and performance stock units	145,943	1		(1)		—		0
Shares surrendered by employees to pay tax withholdings	(38,736)	(1)		(657)		—		(658)
Exercise of stock options and employee stock purchase plan	323,818	4		1,780		—		1,784
Balance at June 30, 2020	40,020,780	$	400	$	315,518	$	(196,158)	$	119,760


Contract Balances
	Net Receivables		Contract Liabilities, Current		Contract Liabilities, Long-Term
Opening, January 1, 2020	$	16,944	$	14	$	15
Closing, June 30, 2020	14,049		14		9
Increase (decrease)	(2,895)		0		(6)

Opening, January 1, 2021	$	17,618	$	14	$	3
Closing, June 30, 2021	18,182		14		0
Increase (decrease)	564		0		(3)


	June 30, 2021		December 31, 2020

Prepaid insurance	$	1,389	$	2,596
Stock option receivable	421		2
Litigation receivable	23		23
Prepaid events	318		203
Prepaid marketing	270		587
Prepaid software license	312		220
Prepaid professional fees	380		251
Other prepaid items	835		414
Prepaid and Other Assets	$	3,948	$	4,296


Year Ending December 31,
2021 (excluding the six months ended June 30, 2021)	$	104
2022	208
2023	183
2024	106
2025	106
Thereafter	1,401
Total	$	2,108


	June 30, 2021		December 31, 2020

Accounts payable	$	6,721	$	4,597
Accrued expenses	5,480		3,778
Accrued compensation	7,638		13,593
Accounts Payable and Accrued Expenses	$	19,839	$	21,968


	2021		2020
For the Three Months Ended June 30,
Finance lease costs
Amortization of right-of-use assets	$	2	$	6
Interest on lease liabilities	0		1
Operating lease costs	1,034		491
Short term lease costs	6		10
Variable lease costs	169		51
Total lease cost	$	1,211	$	559

For the Six Months Ended June 30,
Finance lease costs
Amortization of right-to-use assets	$	8	$	11
Interest on lease liabilities	0		2
Operating lease costs	2,081		976
Short term lease costs	11		10
Variable lease costs	337		61
Total lease cost	$	2,437	$	1,060


	June 30, 2021		December 31, 2020
Finance Leases
Finance lease right-of-use assets	$	53	$	64
Current maturities of long-term obligations	$	14	$	17
Long-term obligations	$	8	$	13
Operating Leases
Operating lease right-of-use assets	$	15,272	$	15,614
Current maturities of long-term obligations	$	1,775	$	846
Long-term obligations	$	20,337	$	20,864


	Three Months Ended June 30,
	2021				2020
	Amount		% of Revenue		Amount		% of Revenue
	(dollars in thousands)
Revenues	$	33,580	100.0	%	$	22,116	100.0	%
Cost of goods sold	7,092		21.1		5,605		25.3
Gross Profit	26,488		78.9		16,511		74.7
Cost and expenses
Sales and marketing	19,250		57.3		14,290		64.6
Research and development	5,723		17.0		4,071		18.4
General and administrative	8,669		25.8		6,404		29.0
Total costs and expenses	33,642		100.2		24,765		112.0
Loss from operations	(7,154)		(21.3)		(8,254)		(37.3)
Other (expense) income:
Investment income	29		0.1		237		1.1
Interest expense	(565)		(1.7)		(31)		(0.1)
Change in fair value of derivatives	(84)		(0.3)		—		0.0
Other expense	(124)		(0.4)		(57)		(0.3)
Total other (expense) income, net	(744)		(2.2)		149		0.7
Net Loss	$	(7,898)	(23.5)	%	$	(8,105)	(36.6)	%


	Six Months Ended June 30,
	2021				2020
	Amount		% of Revenue		Amount		% of Revenue
	(dollars in thousands)
Revenues	$	64,617	100.0	%	$	46,377	100.0	%
Cost of goods sold	12,264		19.0		10,421		22.5
Gross Profit	52,353		81.0		35,956		77.5
Cost and expenses
Sales and marketing	37,224		57.6		32,128		69.3
Research and development	11,485		17.8		8,685		18.7
General and administrative	17,018		26.3		11,906		25.7
Total costs and expenses	65,727		101.7		52,719		113.7
Loss from operations	(13,374)		(20.7)		(16,763)		(36.2)
Other (expense) income:
Investment income	63		0.1		548		1.2
Interest expense	(1,010)		(1.6)		(62)		(0.1)
Change in fair value of derivatives	(82)		(0.1)		0.0		0.0
Other expense	(155)		(0.2)		(20)		0.0
Total other (expense) income, net	(1,184)		(1.8)		466		1.0
Net Loss	$	(14,558)	(22.5)	%	$	(16,297)	(35.1)	%