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 ~~March 31,~~September 30, 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 ☐ No ☒

As of ~~May 2,~~November 1, 2022, the registrant had ~~41,980,607~~42,286,590 shares of common stock outstanding.

Table of Contents


Part I - Financial Information
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheet as of September 30, 2022 and December 31, 2021 (Unaudited)	3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (Unaudited)	4
	Condensed Consolidated Statements of Cash flows for the nine months ended September 30, 2022 and 2021 (Unaudited)	5
	Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2022 and 2021 (Unaudited)	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	~~Management's~~Management's Discussion and Analysis of Financial Condition and Results of Operations	2022

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2428

Item 4.	Controls and Procedures	2529

Part II - Other Information

Item 1.	Legal Proceedings	2630

Item 1A.	Risk Factors	2630

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2630

Item 3.	Defaults Upon Senior Securities	2630

Item 4.	Mine Safety Disclosures	2631

Item 5.	Other Information	2631

Item 6.	Exhibits	2731

	~~Signatur~~esSignatures	2832

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~~Actual results or event could differ materially from those described in any forward-looking statements ~~may include,~~as a result of various factors, including, without limitation, ~~statements regarding our assessment of our internal controls over financial reporting; statements related to~~, the impact of the ~~2019 novel coronavirus~~COVID-19 and any and all variants thereof ~~("COVID-19")~~ on our business,, including but not limited to global supply chain ~~issues~~;issues; hospital staffing challenges and its impact on our business; statements regarding our growth, our financial guidance and performance; product development; product potential; Axogen Processing Center renovation timing and expense; sales growth; product adoption; market awareness of our products; anticipated capital requirements, including the potential of future financings; data validation; expected clinical study enrollment, timing and outcomes; our visibility at and sponsorship of conferences and our educational events; regulatory process and approvals; and other factors, including legislative, regulatory, political, geopolitical and economic developments, including record inflation and global business disruption caused by Russia’s invasion of Ukraine and related sanctions, not within our control. The forward-looking statements are and will be subject to risks and uncertainties, which may cause actual results to differ materially from those expressed or implied in such forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q should be evaluated together with the many risks and uncertainties that affect the Company’s business and its market, particularly those discussed in the risk factors and cautionary statements set forth in the Company’s filings with the SEC, including as described in “Risk Factors” included in Item 1A and "Risk Factor Summary" included in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021. Forward-looking statements are not guarantees of future performance, and actual results may differ materially from those projected. The forward-looking statements are representative only as of the date they are made and, except as required by applicable law, the Company assumes no responsibility to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or otherwise.

PART 1 — FINANCIAL INFORMATION

ITEM 1 — FINANCIAL STATEMENTS

Axogen, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

(In Thousands, Except Share and Per Share Amounts)


		March 31, 2022		December 31, 2021			September 30, 2022		December 31, 2021
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	14,559	$	32,756	Cash and cash equivalents	$	14,318	$	32,756
Restricted cash	Restricted cash	6,251		6,251		Restricted cash	6,251		6,251
Investments	Investments	52,859		51,330		Investments	38,792		51,330
Accounts receivable, net of allowance for doubtful accounts of $366 and $276, respectively		18,590		18,158
Accounts receivable, net of allowance for doubtful accounts of $606 and $276, respectively						Accounts receivable, net of allowance for doubtful accounts of $606 and $276, respectively	21,363		18,158
Inventory	Inventory	17,400		16,693		Inventory	19,116		16,693
Prepaid expenses and other	Prepaid expenses and other	2,816		1,861		Prepaid expenses and other	2,614		1,861
Total current assets	Total current assets	112,475		127,049		Total current assets	102,454		127,049
Property and equipment, net	Property and equipment, net	66,954		62,923		Property and equipment, net	74,867		62,923
Operating lease right-of-use assets	Operating lease right-of-use assets	15,406		15,193		Operating lease right-of-use assets	14,751		15,193

Intangible assets, net	Intangible assets, net	3,190		2,859		Intangible assets, net	3,448		2,859

Total assets	Total assets	$	198,025	$	208,024	Total assets	$	195,520	$	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	$	20,872	$	22,459	Accounts payable and accrued expenses	$	22,017	$	22,459
Current maturities of long-term lease obligations	Current maturities of long-term lease obligations	2,073		1,834		Current maturities of long-term lease obligations	1,530		1,834
Total current liabilities	Total current liabilities	22,945		24,293		Total current liabilities	23,547		24,293

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 debt, net of debt discount and financing fees	45,487		44,821
Long-term lease obligations	Long-term lease obligations	20,878		20,798		Long-term lease obligations	20,634		20,798
Debt derivative liabilities	Debt derivative liabilities	5,310		5,562		Debt derivative liabilities	4,407		5,562

Total liabilities	Total liabilities	94,174		95,474		Total liabilities	94,075		95,474

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

Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, $0.01 par value per share; 100,000,000 shares authorized; 41,972,987 and 41,736,950 shares issued and outstanding		420		417
Common stock, 0.01 par value per share; 100,000,000 shares authorized; 42,272,223 and 41,736,950 shares issued and outstanding						Common stock, 0.01 par value per share; 100,000,000 shares authorized; 42,272,223 and 41,736,950 shares issued and outstanding	423		417
Additional paid-in capital	Additional paid-in capital	345,538		342,765		Additional paid-in capital	355,187		342,765
Accumulated deficit	Accumulated deficit	(242,107)		(230,632)		Accumulated deficit	(254,165)		(230,632)
Total shareholders’ equity	Total shareholders’ equity	103,851		112,550		Total shareholders’ equity	101,445		112,550
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	198,025	$	208,024	Total liabilities and shareholders’ equity	$	195,520	$	208,024

See notes to condensed consolidated financial statements.

Axogen, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

(In Thousands, Except Per Share Amounts)


		Three Months Ended					Three Months Ended				Nine Months Ended
		March 31, 2022		March 31, 2021			September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021

Revenues	Revenues	$	31,007	$	31,037	Revenues	$	36,959	$	31,204	$	102,420	$	95,821
Cost of goods sold	Cost of goods sold	5,546		5,172		Cost of goods sold	6,176		5,239		18,006		17,503
Gross profit	Gross profit	25,461		25,865		Gross profit	30,783		25,965		84,414		78,318
Costs and expenses:	Costs and expenses:					Costs and expenses:
Sales and marketing	Sales and marketing	20,888		17,973		Sales and marketing	19,792		18,370		60,349		55,594
Research and development	Research and development	6,275		5,748		Research and development	7,050		6,404		20,347		17,875
General and administrative	General and administrative	9,618		8,364		General and administrative	8,796		7,880		27,817		24,912
Total costs and expenses	Total costs and expenses	36,781		32,085		Total costs and expenses	35,638		32,654		108,513		98,381
Loss from operations	Loss from operations	(11,320)		(6,220)		Loss from operations	(4,855)		(6,689)		(24,099)		(20,063)
Other (expense) income:	Other (expense) income:					Other (expense) income:
Investment income	Investment income	(46)		34		Investment income	186		17		172		80
Interest expense	Interest expense	(354)		(444)		Interest expense	(61)		(417)		(664)		(1,427)
Change in fair value of derivatives	Change in fair value of derivatives	252		(22)		Change in fair value of derivatives	469		(46)		1,155		(152)
Other expense	Other expense	(7)		(8)		Other expense	(57)		(6)		(97)		(137)
Total other expense, net	Total other expense, net	(155)		(440)		Total other expense, net	537		(452)		566		(1,636)
Net loss	Net loss	$	(11,475)	$	(6,660)	Net loss	$	(4,318)	$	(7,141)	$	(23,533)	$	(21,699)

Weighted average common shares outstanding — basic and diluted	Weighted average common shares outstanding — basic and diluted	41,804,330		40,705,840		Weighted average common shares outstanding — basic and diluted	42,220,519		41,467,596		42,008,013		41,087,568
Loss per common share — basic and diluted	Loss per common share — basic and diluted	$	(0.27)	$	(0.16)	Loss per common share — basic and diluted	$	(0.10)	$	(0.17)	$	(0.56)	$	(0.53)

See notes to condensed consolidated financial statements.

Axogen, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In Thousands)


		Three Months Ended					Nine Months Ended
		March 31, 2022		March 31, 2021			September 30, 2022		September 30, 2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net loss	Net loss	$	(11,475)	$	(6,660)	Net loss	$	(23,533)	$	(21,699)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	704		772		Depreciation and amortization	2,182		2,059
Amortization of right-of-use assets	Amortization of right-of-use assets	427		500		Amortization of right-of-use assets	1,303		1,418
Amortization of intangible assets	Amortization of intangible assets	69		47		Amortization of intangible assets	198		148
Amortization of debt discount and deferred financing fees	Amortization of debt discount and deferred financing fees	220		112		Amortization of debt discount and deferred financing fees	667		384
Provision for bad debt	Provision for bad debt	267		(26)		Provision for bad debt	566		(145)
Provision for inventory write-down	Provision for inventory write-down	459		783		Provision for inventory write-down	1,381		2,850
Change in fair value of derivatives	Change in fair value of derivatives	(252)		22		Change in fair value of derivatives	(1,155)		152
Investment losses	Investment losses	96		15		Investment losses	44		49
Stock-based compensation	Stock-based compensation	2,678		2,694		Stock-based compensation	11,437		9,410
Change in operating assets and liabilities:	Change in operating assets and liabilities:					Change in operating assets and liabilities:
Accounts receivable	Accounts receivable	(624)		(2,181)		Accounts receivable	(3,695)		(804)
Inventory	Inventory	(1,166)		(1,642)		Inventory	(3,804)		(5,774)
Prepaid expenses and other	Prepaid expenses and other	(1,030)		(313)		Prepaid expenses and other	(828)		1,146
Accounts payable and accrued expenses	Accounts payable and accrued expenses	(1,104)		(5,061)		Accounts payable and accrued expenses	(870)		(927)
Operating lease obligations	Operating lease obligations	(320)		119		Operating lease obligations	(1,320)		(154)

Cash paid for interest portion of finance leases						Cash paid for interest portion of finance leases	(1)		(1)
Contract and other liabilities	Contract and other liabilities	—		(1)		Contract and other liabilities	—		(3)
Net cash used in operating activities	Net cash used in operating activities	(11,051)		(10,820)		Net cash used in operating activities	(17,428)		(11,891)

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	(5,037)		(3,095)		Purchase of property and equipment	(13,456)		(20,641)

Economic development grant proceeds						Economic development grant proceeds	—		950
Purchase of investments	Purchase of investments	(6,024)		(15,279)		Purchase of investments	(24,607)		(39,139)
Proceeds from sale of investments	Proceeds from sale of investments	4,400		19,400		Proceeds from sale of investments	37,100		49,300
Cash payments for intangible assets	Cash payments for intangible assets	(580)		(156)		Cash payments for intangible assets	(1,028)		(534)
Net cash (used in) provided by investing activities		(7,241)		870
Net cash used in investing activities						Net cash used in investing activities	(1,991)		(10,064)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Proceeds from the issuance of long-term debt						Proceeds from the issuance of long-term debt	—		15,000
Cash paid for debt portion of finance leases	Cash paid for debt portion of finance leases	(2)		(4)		Cash paid for debt portion of finance leases	(9)		(12)
Proceeds from exercise of stock options and ESPP stock purchases	Proceeds from exercise of stock options and ESPP stock purchases	97		521		Proceeds from exercise of stock options and ESPP stock purchases	990		4,421
Net cash provided by financing activities	Net cash provided by financing activities	95		517		Net cash provided by financing activities	981		19,409
Net decrease in cash, cash equivalents, and restricted cash	Net decrease in cash, cash equivalents, and restricted cash	(18,197)		(9,433)		Net decrease in cash, cash equivalents, and restricted cash	(18,438)		(2,546)
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	39,007		55,609		Cash, cash equivalents, and restricted cash, beginning of period	39,007		55,609
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	20,810	$	46,176	Cash, cash equivalents, and restricted cash, end of period	$	20,569	$	53,063

Supplemental disclosures of cash flow activity:	Supplemental disclosures of cash flow activity:					Supplemental disclosures of cash flow activity:
Cash paid for interest, net of capitalized interest	Cash paid for interest, net of capitalized interest	$	—	$	312	Cash paid for interest, net of capitalized interest	$	—	$	646
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	$	1,119	$	4,836	Acquisition of fixed assets in accounts payable and accrued expenses	$	2,090	$	1,460
Obtaining a right-of-use asset in exchange for a lease liability	Obtaining a right-of-use asset in exchange for a lease liability	$	641	$	321	Obtaining a right-of-use asset in exchange for a lease liability	$	920	$	1,375

Obtaining of property and equipment in exchange for a lease liability						Obtaining of property and equipment in exchange for a lease liability	$	22	$	—
Embedded derivative associated with the long-term debt						Embedded derivative associated with the long-term debt	$	—	$	1,173
Acquisition of intangible assets in accounts payable and accrued expenses	Acquisition of intangible assets in accounts payable and accrued expenses	$	239	$	166	Acquisition of intangible assets in accounts payable and accrued expenses	$	177	$	261

See notes to condensed consolidated financial statements.

Axogen, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity

(unaudited)

(In Thousands, Except Share Amounts)


		Common Stock			Additional Paid-in Capital		Accumulated Deficit			Total Shareholders' Equity			Common Stock				Additional Paid-in Capital		Accumulated Deficit		Total Shareholders' Equity
		Shares	Amount						Shares					Amount
Three Months Ended March 31, 2022
Balance at December 31, 2021		41,736,950	$	417	$	342,765	$	(230,632)		$	112,550
Three Months Ended September 30, 2022												Three Months Ended September 30, 2022
Balance at June 30, 2022												Balance at June 30, 2022	42,134,504		$	420	$	351,117	$	(249,847)	$	101,690
Net loss	Net loss	—	—		—		(11,475)			(11,475)		Net loss	—		—		—		(4,318)		(4,318)
Stock-based compensation	Stock-based compensation	—	—		2,678		—			2,678		Stock-based compensation	—		—		3,849		—		3,849
Issuance of restricted and performance stock units	Issuance of restricted and performance stock units	215,287	2		(2)		—			—		Issuance of restricted and performance stock units	55,934		1		(1)		—		—
Exercise of stock options and employee stock purchase plan	Exercise of stock options and employee stock purchase plan	20,750	1		97		—			98		Exercise of stock options and employee stock purchase plan	81,785		2		222		—		224
Balance at March 31, 2022		41,972,987	$	420	$	345,538	$	(242,107)		$	103,851
Balance at September 30, 2022												Balance at September 30, 2022	42,272,223		$	423	$	355,187	$	(254,165)	$	101,445

Three Months Ended March 31, 2021
Balance at December 31, 2020		40,618,766	$	406	$	326,390	$	(203,647)		$	123,149
Nine Months Ended September 30, 2022												Nine Months Ended September 30, 2022
Balance at December 31, 2021												Balance at December 31, 2021	41,736,950		417		$	342,765	$	(230,632)	$	112,550
Net loss	Net loss	—	—		—		(6,660)			(6,660)		Net loss	—		—		—		(23,533)		(23,533)
Stock-based compensation	Stock-based compensation	—	—		2,694		—			2,694		Stock-based compensation	—		—		11,437		—		11,437
Issuance of restricted and performance stock units	Issuance of restricted and performance stock units	94,533	1		(1)		—			—		Issuance of restricted and performance stock units	315,275		3		(3)		—		—

Exercise of stock options and employee stock purchase plan	Exercise of stock options and employee stock purchase plan	129,418	1		520		—			521		Exercise of stock options and employee stock purchase plan	219,998		3		988		—		991
Balance at March 31, 2021		40,842,717	$	408	$	329,603	$	(210,307)		$	119,704
Balance at September 30, 2022												Balance at September 30, 2022	42,272,223		$	423	$	355,187	$	(254,165)	$	101,445

Three Months Ended September 30, 2021												Three Months Ended September 30, 2021
Balance at June 30, 2021												Balance at June 30, 2021	41,337,108		$	413	$	336,495	$	(218,205)	118,703
Net loss												Net loss	—		$	—	$	—	$	(7,141)	$	(7,141)
Stock-based compensation												Stock-based compensation	—		—		2,911		—		2,911
Issuance of restricted and performance stock units												Issuance of restricted and performance stock units	67,249		$	1	$	(1)	$	—	$	—
Exercise of stock options and employee stock purchase plan												Exercise of stock options and employee stock purchase plan	154,572		1		807		—		808
Balance at September 30, 2021												Balance at September 30, 2021	41,558,929		$	415	$	340,212	$	(225,346)	$	115,281

Nine Months Ended September 30, 2021												Nine Months Ended September 30, 2021
Balance at December 31, 2020												Balance at December 31, 2020	40,618,766		$	406	$	326,390	$	(203,647)	123,149
Net loss												Net loss	—		—		—		(21,699)		(21,699)
Stock-based compensation												Stock-based compensation	—		—		9,410		—		9,410
Issuance of restricted and performance stock units												Issuance of restricted and performance stock units	206,193		2		(2)		—		—
Exercise of stock options and employee stock purchase plan												Exercise of stock options and employee stock purchase plan	733,970		7		4,414		—		4,421
Balance at September 30, 2021												Balance at September 30, 2021	41,558,929		$	415	$	340,212	$	(225,346)	$	115,281

See notes to condensed consolidated financial statements.

Axogen, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

(In Thousands, Except Per Share Amounts)

1.Basis of Presentation

General

Unless the context otherwise requires, all references in these Notes to “Axogen,” the “Company,"” “we,” “us” and “our” refer to Axogen, Inc. and its wholly owned subsidiaries Axogen Corporation (“AC”), Axogen Processing Corporation, and Axogen Europe GmbH.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company as of ~~March 31,~~September 30, 2022, and December 31, 2021, and for the three and nine months ended ~~March 31,~~September 30, 2022, and 2021. The Company’s condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, ~~and~~and; therefore, do not include all information and footnotes necessary for a fair presentation of consolidated financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and should be read in conjunction with the audited financial statements of the Company for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The interim condensed consolidated financial statements are unaudited and in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of results for the periods presented. Results for interim periods are not necessarily indicative of results for the full year. All intercompany accounts and transactions have been eliminated in consolidation.

The results of operations for the three and nine months ended ~~March 31,~~September 30, 2022, are not necessarily indicative of the results to be expected for the full year due primarily to the impact of the continued uncertainty of general economic conditions that may impact our markets for the remainder of fiscal year 2022. Specifically, there can be no ~~assurances~~assurance that ~~resurgences~~the resurgence of COVID-19 will not affect future results.

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the ~~reporting~~reported results of operations.

2.Summary of Significant Accounting Policies

~~The changes below were made~~

Please see Note 2 to the ~~Company's significant accounting policies previously disclosed~~Company’s consolidated financial statements included in ~~Note 3, Summary of Significant Accounting Policies, in its~~the Company’s Annual Report on Form 10-K ~~filed on February 25, 2022,~~ for the year ended December 31, ~~2021.~~2021, filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022 for a description of all significant accounting policies.

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 ~~March 31,~~September 30, 2022, ~~$14,059~~$13,818 of the cash and cash equivalents balance was in excess of Federal Deposit Insurance Corporation limits. ~~As of March 31, 2022, and December 31, 2021, the~~The Company had restricted cash balances of $6,251 for each of the periods ended September 30, 2022, and ~~$6,251, respectively.~~December 31, 2021. The ~~March 31,~~September 30, 2022, and December 31, 2021, balances both include $6,000 and $250, which represent collateral for two irrevocable standby letters of credit. See "Note 8 - Long-Term Debt, Net of Debt Discount and Financing Fees."

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


(In thousands)	(In thousands)	March 31, 2022		December 31, 2021		(In thousands)	September 30, 2022		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	14,559	$	32,756	Cash and cash equivalents	$	14,318	$	32,756
Restricted cash	Restricted cash	6,251		6,251		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	$	20,810	$	39,007	Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	20,569	$	39,007

Stock-Based Compensation

The Company measures stock options granted to employees ~~and directors~~ at a premium price based on market conditions, such as the trading price of the Company’s common stock, using a Monte Carlo Simulation model in estimating the fair value at grant date. The determination of the fair value is affected by the Company's stock price, as well as assumptions regarding several subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards. The Company determines the expected life of each award giving consideration to the contractual terms, vesting schedules, and post-vesting forfeitures. The Company uses the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of operations. The expense has been reduced for forfeitures as they occur.

The Company recognizes expense for all stock-based compensation awards, including stock options, restricted stock units ("RSUs"), and performance stock units ("PSUs") granted to employees eligible for retirement, as defined within the award notice and allowing for continued vesting post-retirement, over the retirement notice period and continuously updates its estimate of expense over the notice period each reporting period if a retirement notice has not been provided.

Costs of Goods Sold

Cost of sales includes direct labor and materials costs related to each product sold or produced, including processing, quality assurance labor and scrap, as well as facility and warehousing overhead supporting our manufacturing operations. All of our manufacturing costs are included in cost of sales.

Shipping and Handling

All shipping and handling costs, including facility and warehousing overhead, directly related to bringing the Company’s products to their final selling destination are in included in selling and marketing expenses. Shipping and handling costs included in sales and marketing were $1,330 and $1,366 for the three months ended September 30, 2022, and 2021, respectively and $3,863 and $3,657 for the nine months ended September 30, 2022, and 2021, respectively.

Recent Accounting Pronouncements

In November 2021, the Financial Accounting Standards ("FASB") amended Accounting Standards Codification ("ASC") 832, Government Assistance (issued under Accounting Standards Update ("ASU") 2021-10, Disclosures by Business Entities about Government Assistance). This amendment requires annual disclosures about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy, including, (1) the types of transactions; (2) the financial statement line items affected by the transaction, and; (3) significant terms and conditions associated with the transactions. The ~~Company’s management has reviewed~~Company adopted the guidance on January 1, 2022 and ~~considered all recent accounting pronouncements and believe there are none that could potentially~~the adoption of ASU 2021-10 did not to have a material impact on the ~~Company’s~~Company's condensed consolidated financial condition, results of operations or disclosures.

3. Inventory

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


(In thousands)		March 31, 2022		December 31, 2021
							September 30, 2022		December 31, 2021
Finished goods	Finished goods	$	11,856	$	11,011	Finished goods	$	12,823	$	11,011
Work in process	Work in process	851		813		Work in process	903		813
Raw materials	Raw materials	4,693		4,869		Raw materials	5,390		4,869
Inventory	Inventory	$	17,400	$	16,693	Inventory	$	19,116	$	16,693

The provision for inventory ~~write-downs~~write-down was ~~$459~~$452 and ~~$783~~$395 for the three months ended ~~March 31,~~September 30, 2022, and 2021, respectively, and for the nine months ended September 30, 2022, and 2021, the Company had adjustments to the provision for inventory write-downs of $1,381 and $2,850 (including the write-down of Avive inventory of $1,251 in the 2021 period), respectively.

4. Property and Equipment, Net

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


(In thousands)		March 31, 2022		December 31, 2021
							September 30, 2022		December 31, 2021
Furniture and equipment	Furniture and equipment	$	5,107	$	5,100	Furniture and equipment	$	5,408	$	5,100
Leasehold improvements	Leasehold improvements	14,952		14,952		Leasehold improvements	15,569		14,952
Processing equipment	Processing equipment	4,058		3,984		Processing equipment	4,229		3,984
Land	Land	731		731		Land	731		731
Projects in process	Projects in process	50,314		45,660		Projects in process	58,595		45,660
Finance lease right-of-use assets	Finance lease right-of-use assets	110		110		Finance lease right-of-use assets	131		110
Property and equipment, at cost	Property and equipment, at cost	75,272		70,537		Property and equipment, at cost	84,663		70,537
Less: accumulated depreciation and amortization	Less: accumulated depreciation and amortization	(8,318)		(7,614)		Less: accumulated depreciation and amortization	(9,796)		(7,614)
Property and equipment, net	Property and equipment, net	$	66,954	$	62,923	Property and equipment, net	$	74,867	$	62,923

~~Depreciation expense for 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."

Depreciation expense consisted of following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Depreciation expense	$	764	$	654	$	2,182	$	2,059

Depreciation expense is allocated among cost of sales, sales and marketing, research and development, and general and administrative expense on the condensed consolidated statements of operations.

5. Intangible Assets, Net

The Company’s intangible assets ~~consist~~consisted of the ~~following:~~following (in thousands):


		March 31, 2022						December 31, 2021							September 30, 2022						December 31, 2021
(In thousands)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
															Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizable intangible assets:	Amortizable intangible assets:													Amortizable intangible assets:
Patents	Patents	$	2,861	$	(267)	$	2,594	$	2,469	$	(234)	$	2,235	Patents	$	3,245	$	(342)	$	2,903	$	2,469	$	(234)	$	2,235
License agreements	License agreements	1,101		(889)		212		1,101		(852)		249		License agreements	1,101		(943)		158		1,101		(852)		249
Total amortizable intangible assets	Total amortizable intangible assets	3,962		(1,156)		2,806		3,570		(1,086)		2,484		Total amortizable intangible assets	4,346		(1,285)		3,061		3,570		(1,086)		2,484

Unamortized intangible assets	Unamortized intangible assets													Unamortized intangible assets
Trademarks	Trademarks	384		—		384		375		—		375		Trademarks	387		—		387		375		—		375
Total intangible assets	Total intangible assets	$	4,346	$	(1,156)	$	3,190	$	3,945	$	(1,086)	$	2,859	Total intangible assets	$	4,733	$	(1,285)	$	3,448	$	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 $47 for~~consisted of the ~~three months ended March 31, 2022 and 2021, respectively.~~following (in thousands):


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

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

Expected future amortization of intangible assets as of September 30, 2022, is as follows (in thousands):


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

License Agreements

~~Royalty fees under our~~The Company has License Agreements with the University of Florida Research Foundation and the University of Texas at Austin ~~were $673 and $641 during~~in which certain royalty payments are paid quarterly.

Royalty expense consisted of the ~~three months ended March 31, 2022 and 2021, respectively, and~~following (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Royalty expense	$	848	$	687	$	2,287	$	2,037

Royalty fees are included in sales and marketing expense inon the accompanying condensed consolidated statements of operations.

6. Fair Value 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.

There has been no movement between Level 1 and Level 2 or between Level 2 and Level 3 from December 31, 2021, to ~~March 31,~~September 30, 2022. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Debt Derivative Liabilities

The Debt Derivative Liabilities are measured using a ‘with and without’ valuation model to compare the fair value of the Company's financing agreement with Oberland Capital including the identified embedded derivative features and the fair value of a plain vanilla note with the same terms. The fair value of the Oberland Facility including the embedded derivative features was determined using a probability-weighted expected return model based on 4four potential settlement scenarios for the Oberland Facility due to (a) a 5% probability of a mandatory prepayment event of the Oberland Facility on December 31, 2023; (b) a 15% probability of a mandatory prepayment event of the Oberland Facility on March 31, 2026; (c) a 5% probability of the prepayment of the Oberland Facility at the Company’s option on December 31, 2025; and (d) a 75% probability that the Oberland Facility will be held to its scheduled maturity dates in accordance with the terms of the debt agreement. The estimated settlement value of each scenario, which would include any required make-whole payment, is then discounted to present value

using a discount rate that is derived based on the initial terms of the Oberland Facility at issuance and corroborated utilizing a synthetic credit rating analysis.

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


		March 31, 2022			December 31, 2021				September 30, 2022			December 31, 2021
Input	Input							Input
Remaining term (years)	Remaining term (years)	5.25			5.5			Remaining term (years)	4.75 years			5.5 years
Maturity date	Maturity date	June 30, 2027			June 30, 2027			Maturity date	June 30, 2027			June 30, 2027
Coupon rate	Coupon rate	9.50	%		9.50	%		Coupon rate	9.5% - 12.3%			9.5	%
Revenue participation payments	Revenue participation payments	Maximum each year			Maximum each year			Revenue participation payments	Maximum each year			Maximum each year
Discount rate	Discount rate	11.2%		(1)	10.72%		(1)	Discount rate	14.7%		(1)	10.72%		(1)
Probability of mandatory prepayment before 2024	Probability of mandatory prepayment before 2024	5.0	%	(1)	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)	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)	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)	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)	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)	December 31, 2025		(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~~derivative liability - second tranche include:


		March 31, 2022			December 31, 2021				September 30, 2022			December 31, 2021
Input	Input							Input
Remaining term (years)	Remaining term (years)	6.25			6.5			Remaining term (years)	5.75 years			6.5
Maturity date	Maturity date	June 30, 2028			June 30, 2028			Maturity date	June 30, 2028			June 30, 2028
Coupon rate	Coupon rate	9.5%			9.5%			Coupon rate	9.5% - 12.3%			9.5%
Revenue participation payments	Revenue participation payments	Maximum each year			Maximum each year			Revenue participation payments	Maximum each year			Maximum each year
Discount rate	Discount rate	14.4	%	(1)	13.21	%	(1)	Discount rate	18.3	%	(1)	13.21	%	(1)
Probability of mandatory prepayment before 2024	Probability of mandatory prepayment before 2024	5.0%		(1)	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)	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)	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)	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)	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)	December 31, 2025		(1)	Estimated timing of optional prepayment event	December 31, 2025		(1)	December 31, 2025		(1)

(1)Represents a significant unobservable input

The following table ~~represents~~presents the ~~Company’s fair value hierarchy for its~~ financial assets and liabilities that the Company measured at fair value on a recurring basis as of ~~March 31,~~September 30, 2022, classified in accordance with the fair value hierarchy (in thousands):


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

Liabilities

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

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

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


December 31, 2021		(Level 1)		(Level 2)		(Level 3)		Total
											Fair Value Measurements Using
											(Level 1)		(Level 2)		(Level 3)		Total
Assets:	Assets:									Assets:
Money market funds	Money market funds	$	22,012	$	—	$	—	$	22,012	Money market funds	$	22,012	$	—	$	—	$	22,012
U.S. government securities	U.S. government securities	12,081		—		—		12,081		U.S. government securities	12,081		—		—		12,081

Commercial paper	Commercial paper	—		39,249		—		39,249		Commercial paper	—		39,249		—		39,249

Total assets	Total assets	$	34,093	$	39,249	$	—	$	73,342	Total assets	$	34,093	$	39,249	$	—	$	73,342

Liabilities	Liabilities									Liabilities

Debt derivative liabilities	Debt derivative liabilities	$	—	—		$	5,562	$	5,562	Debt derivative liabilities	$	—	—		$	5,562	$	5,562
Total liabilities	Total liabilities	$	—	$	—	$	5,562	$	5,562	Total liabilities	$	—	$	—	$	5,562	$	5,562

The changes in Level 3 liabilities measured at fair value on a recurring basis for the three and nine months ended September 30, 2022, were as follows (in thousands):


Three Months Ended ~~March 31,~~September 30, 2022
Beginning Balance, ~~at December 31, 2021~~July 1, 2022	$	~~5,562~~4,876



Change in fair value included in net loss	~~(252)~~(469)
Ending Balance, ~~at March 31,~~September 30, 2022	$	~~5,310~~4,407


~~Three~~Nine Months Ended ~~March 31, 2021~~September 30, 2022
Beginning Balance, ~~at December 31, 2020~~January 1, 2022	$	~~2,497~~5,562



Change in fair value included in net loss	22 (1,155)
Ending Balance, ~~at March 31,~~September 30, 2022	$	4,407

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


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





Change in fair value of Oberland Facility	(826)
Change in fair value of debt derivative	46
Ending Balance, September 30, 2021	$	~~2,519~~53,659


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



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

The fair value of cash, restricted cash, accounts receivable, accounts payable and accrued expenses ~~approximates~~approximate 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~~$45,487 and ~~$52,234~~$49,392 at ~~March 31,~~September 30, 2022, and $45,325 and $52,605 at December 31, 2021, respectively. See "Note 8 - Long-Term Debt, Net of Debt Discount and Financing ~~Fees ."~~Fees."

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, ACthe Company entered into a Commercial Lease Amendment ("Amendment") with JA-Cole L.P., with an effective date of February 1, 2022, pursuant to the original Commercial Lease dated April 21, 2015, as amended (the "Lease"). The lease is for the office and warehouse facility located in Burleson, Texas. The Amendment revised the commencement date to May 1, 2022, and the expiration date to April 30, 2027. The Company accounted for the Lease revisions as a lease modification in accordance with ~~Accounting Standard Codification ("ASC")~~ASC 842, Leases, as the modification effectively terminated the existing lease and created a new lease which commenced on February 1, 2022. The Company valued the lease using a 11.3% incremental borrowing rate and recorded a right-of-use asset and a lease liability of $641 as a result of this amendment.

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

Total operating lease expense for the three months ended ~~March 31,~~September 30, 2022, and 2021 was ~~$1,408~~$1,337 and ~~$1,225~~$1,211 respectively and $4,100 and $3,652 for the nine months ended September 30, 2022, and 2021, respectively.

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


(In thousands, except lease term and discount rate )		March 31, 2022			December 31, 2021
(In thousands, except lease term and discount rate)							(In thousands, except lease term and discount rate)	September 30, 2022			December 31, 2021
Operating Leases	Operating Leases						Operating Leases
Right-of-use operating assets	Right-of-use operating assets	$	15,406		$	15,193	Right-of-use operating assets	$	14,751		$	15,193
Current maturities of long-term lease obligations	Current maturities of long-term lease obligations	$	2,065		$	1,825	Current maturities of long-term lease obligations	$	1,523		$	1,825
Long-term lease obligations	Long-term lease obligations	$	20,875		$	20,794	Long-term lease obligations	$	20,615		$	20,794
Financing Leases	Financing Leases						Financing Leases
Right-of-use financing leases (1)	Right-of-use financing leases (1)	$	36		$	42	Right-of-use financing leases (1)	$	46		$	42
Current maturities of long-term lease obligations	Current maturities of long-term lease obligations	$	8		$	9	Current maturities of long-term lease obligations	$	7		$	9
Long-term lease obligations	Long-term lease obligations	$	3		$	4	Long-term lease obligations	$	19		$	4

Weighted average operating lease term (in years):	Weighted average operating lease term (in years):	11.2			12.1		Weighted average operating lease term (in years):	10.9			12.1
Weighted average operating financing term (in years):	Weighted average operating financing term (in years):	1.4			2.2		Weighted average operating financing term (in years):	4.2			2.2

Weighted average discount rate operating lease		10.26		%	10.32%
Weighted average discount rate financing lease		7.09%			7.23%
Weighted average discount rate operating leases							Weighted average discount rate operating leases	10.48		%	10.32%
Weighted average discount rate financing leases							Weighted average discount rate financing leases	11.69%			7.23%

(1) Financing leases are included within property and equipment, net on the condensed consolidated balance sheets.

Future minimum lease payments under operating and financing leases at ~~March 31,~~September 30, 2022, were as follows:


(In thousands)	(In thousands)			(In thousands)
2022 (excluding the three months ended March 31, 2022)		$	3,213
2022 (excluding the nine months ended September 30, 2022)				2022 (excluding the nine months ended September 30, 2022)	$	1,092
2023	2023	3,415		2023	3,476
2024	2024	3,186		2024	3,253
2025	2025	3,268		2025	3,336
2026	2026	3,276		2026	3,348
2027				2027	2,921
Thereafter	Thereafter	24,056		Thereafter	20,931
Total	Total	$	40,414	Total	$	38,356
Less: Imputed interest	Less: Imputed interest	(17,463)		Less: Imputed interest	(16,192)
Total lease liability	Total lease liability	$	22,951	Total lease liability	$	22,164
Less: Current lease liability	Less: Current lease liability	$	(2,073)	Less: Current lease liability	(1,530)
Long-term lease liability	Long-term lease liability	$	20,878	Long-term lease liability	$	20,634

8. Long-Term Debt, Net of Debt Discount and Financing Fees

Long-term debt, net of debt discount and financing fees consists of the following:


(In thousands)	(In thousands)	March 31, 2022		December 31, 2021		(In thousands)	September 30, 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		15,000		Oberland Facility - second tranche	15,000		15,000
Less - unamortized debt discount and deferred financing fees	Less - unamortized debt discount and deferred financing fees	(4,959)		(5,179)		Less - unamortized debt discount and deferred financing fees	(4,513)		(5,179)
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 debt, net of debt discount and financing fees	$	45,487	$	44,821

Oberland Facility

On June 30, 2020, the Company entered into a seven-year financing agreement with Oberland Capital (the "Oberland Facility") and obtained the first tranche of $35,000 at closing. On June 30, 2021, the second tranche of $15,000 was drawn down by the Company.

The Oberland Facility requires quarterly interest payments for seven years. Interest is calculated as 7.5% plus the greater of LIBOR or 2.0% ~~(9.5%~~(9.8% as of ~~March 31,~~September 30, 2022). Each tranche of the Oberland Facility has a term of seven years from the date of issuance (with the first tranche issued on June 30, 2020, maturing on June 30, 2027 and the second tranche issued on June 30, 2021, maturing on June 30, 2028). In connection with the Oberland Facility, the Company entered into a revenue participation agreement with Oberland Capital, which provides that, among other things, a quarterly royalty payment as a percentage of the Company’s net revenues, up to $70 million in any given fiscal year, subject to certain limitations set forth therein, during the period commencing on the later of (i) April 1, 2021, and (ii) the date of funding of a tranche of the loan, and ending on the date upon which all amounts owed under the Oberland Facility have been paid in full (the “Revenue Participation Agreement”). Payments under the Revenue Participant Agreement commenced on September 30, 2021. The royalty structure of the Revenue Participant Agreement results in approximately 1.0% per year of additional interest payments on the outstanding loan amount. The Company recorded ~~$335 as~~ interest expense of $49 and $337 for this Revenue Participation Agreement for the three months ended ~~March 31,~~September 30, 2022, and 2021 and $756 and $590 for the nine months ended September 30, 2022 and 2021, respectively. The Company exceeded the maximum annual revenue participation threshold of $70,000 during the third quarter of 2022. The Company pays ~~the~~Oberland Capital quarterly debt interest on the last day of the ~~quarter~~quarter. The Company paid $1,249 and $1,218 for the three months ended ~~March 31,~~September 30, 2022, and 2021, ~~paid $1,187~~respectively, and ~~$831, respectively, to Oberland Capital.~~$3,637 and $2,890 for the nine months ended September 30, 2022, and 2021, respectively. The Company capitalized interest of ~~$1,445~~$1,450 and ~~$520~~$1,338 for the three months ended ~~March 31,~~September 30, 2022 and 2021, respectively and $4,474 and $2,526 for the nine months ended September 30, 2022 and 2021, respectively, towards the costs to construct and retrofit the APC Facility in Vandalia, OH. See "Note ~~12-~~12 - Commitments and Contingencies." ~~To date,~~Since inception, the Company has capitalized interest of ~~$6,719~~$9,748 related to this project. The capitalized interest is recorded as part of property and equipment, net in the condensed consolidated balance sheets. As of ~~March 31,~~September 30, 2022, the Company was in compliance with all financial covenants. See "Note 12 - Commitments and Contingencies."

Embedded Derivatives

The Debt Derivative Liabilities are recorded at fair value, with the change in fair value reported in the condensed consolidated statements of operations at each reporting date. The fair values of the Debt Derivative Liabilities were ~~$5,310~~$4,407 and $5,562 at ~~March 31,~~September 30, 2022, and December 31, 2021, respectively. See "Note 6 - Fair Value Measurement."

Unamortized Debt Discount and Financing Fees

The unamortized debt discount consists of the remaining unamortized initial fair values of the embedded derivatives related to the first and second tranches of the Oberland Facility. The debt discount is amortized over the respective life of the related tranche and recorded in interest expense using the effective yield method.

The financing fees for the Oberland Facility were $642 and were recorded as a contra liability to the debt facility. The financing fees are amortized over the life of the first tranche of the Oberland Facility and recorded in interest expense.

Amortization of debt discount and deferred financing fees for the three months ended ~~March 31,~~September 30, 2022, and 2021 was ~~$219~~$225 and ~~$112,~~$157, respectively, and for the nine months ended September 30, 2022, and 2021 was $667 and $384, respectively.

Other credit facilities

The Company ~~maintains~~had restricted cash of $6,251 ~~and $6,251~~ at ~~March 31,~~September 30, 2022, and December 31, ~~2021, respectively.~~2021. The ~~March 31,~~September 30, 2022, and December 31, 2021, balances both include $6,000 and $250, which represent collateral for two irrevocable standby letters of credit.

9. Stock-Based Incentive Plans

The Company maintains 2two share-based incentive plans: the Axogen, Inc. Second Amended and Restated 2019 Long-Term Incentive Plan, (“2019 Plan”), and the Axogen 2017 Employee Stock Purchase Plan (“2017 ESPP”). As of ~~March 31,~~September 30, 2022, ~~749,538~~3,340,010 shares of common stock were available for issuance under the 2019 ~~Plan.The~~Plan. The Company recognized ~~stock-based~~share-based compensation expense, which consisted of compensation expense related to stock options, PSUs and RSUs based on the value of share-based payment awards that are ultimately expected to vest during the period and stock-based compensation expense of ~~$2,678~~$3,849 and ~~$2,694~~$2,911 for the three months ended ~~March 31,~~September 30, 2022 and 2021, respectively, and $11,437 and $9,410 for the nine months ended September 30, 2022, and 2021, respectively.

A summary of the stock option activity is as follows:


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

Granted	Granted	999,877	$9.22				Granted	1,185,749	$9.13
Exercised	Exercised	(20,750)	$4.69				Exercised	(153,290)	$4.44
Cancelled	Cancelled	(56,889)	$16.61				Cancelled	(229,964)	$14.83

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

The Company used the following weighted-average assumptions for options granted during the ~~three~~nine months ended ~~March 31,~~September 30, 2022:

Expected term (in years)

~~6.12~~6.02

Expected volatility

~~60.74~~61.06

Risk free rate

~~2.15~~2.26

Expected dividends

—

As of ~~March 31,~~September 30, 2022, there was approximately ~~$11,152~~$8,251 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~~2.6 years.

Restricted and Performance Stock Units

A summary of the restricted and performance stock unit activity is as 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, 2021	Unvested, December 31, 2021	1,730,765	$	18.45	1.51	$	19,633	Unvested, December 31, 2021	1,730,765	$	18.45	1.51	$	19,633

Granted	Granted	1,766,609	$	8.27				Granted	1,916,963	$	8.31
Released	Released	(215,287)	$	13.63				Released	(315,275)	$	14.12
Forfeited	Forfeited	(102,153)	$	17.35				Forfeited	(331,260)	$	13.42

Unvested, March 31, 2022		3,179,934	$	13.15	2.23	$	25,249
Unvested, September 30, 2022								Unvested, September 30, 2022	3,001,193	$	12.98	1.82	$	35,774

Performance Stock Units

At ~~March 31,~~September 30, 2022, the total future stock compensation expense related to non-vested performance awards at maximum target payout is expected to be approximately ~~$6,623.~~$3,774. As of ~~March 31,~~September 30, 2022, there was ~~approximately$23,818~~approximately $17,487 of total unrecognized compensation costs related to both the PSU and RSU unvested awards. The Company expects to recognize these costs over a weighted-average period of ~~3.17~~2.8 years.

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

Employee Stock Purchase Plan

The Company also maintains the 2017 ESPP, which allows eligible employees to acquire shares of the Company’s common stock through payroll deductions at a discount to market price. A total of 600,000 shares of the Company’s common stock are authorized for issuance under the 2017 ESPP, and as of ~~March 31,~~September 30, 2022, ~~223,678~~126,674 shares remain available for issuance.

10. Net Loss Per Common Share

The following reflects the net loss attributable to common shareholders and share data used in the basic and diluted earnings per share computations using the ~~two class~~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


	Three Months Ended September 30,					Nine Months Ended September 30,
(In thousands, except per share amounts)		2022		2021		2022		2021
Numerator:
Net loss		$	(4,318)	$	(7,141)	$	(23,533)	$	(21,699)
Denominator:
Weighted-average common shares outstanding (Basic)		42,220,519		41,467,596		42,008,013		41,087,568
Weighted-average common shares outstanding (Diluted)		42,220,519		41,467,596		42,008,013		41,087,568
Net loss per common share (Basic and Diluted)		$	(0.10)	$	(0.17)	$	(0.56)	$	(0.53)

Anti-dilutive shares excluded from the calculation of diluted earnings per share (1)
Stock options		3,132,722		1,471,539		3,083,519		1,308,191
Restricted stock units		441,866		542,074		498,966		359,895

(1) These common equivalent shares are not included in the diluted per share calculations as they would be anti-dilutive if the Company was in a net income position.

11. Income Taxes

The Company has not recorded current income tax expense due to the generation of net operating losses. Deferred income taxes are accounted for using the balance sheet approach, which requires recognition of deferred tax assets and liabilities for the expected future consequences of temporary differences between the financial reporting basis and the tax basis of assets and liabilities. A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized. A full valuation allowance has been established on the deferred tax asset as it is more likely than not that a future tax benefit will not be realized. In addition, future utilization of the available net operating loss carryforward may be limited under Internal Revenue Code Section 382 as a result of changes in ownership.

The Company identifies and evaluates uncertain tax positions, if any, and recognizes the impact of uncertain tax positions for which there is a less than more likely than not probability of the position being upheld when reviewed by the relevant taxing authority. Such positions are deemed to be unrecognized tax benefits and a corresponding liability is established on the condensed consolidated balance sheet. The Company has not recognized a liability for uncertain tax positions. If there were an unrecognized tax benefit, the Company would recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses. The Company’s remaining open tax years subject to examination by federal tax authorities include the years ended December 31, 2019, through 2021.

12. Commitments and Contingencies

Service Agreements

On August 6, 2015, the Company entered into a License and Service Agreement ("CTS Agreement") with Community Blood Center, (d/b/a Community Tissue Service) ("CTS") which has been extended through December 31, ~~2023 .~~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.”~~Leases. The Company also pays CTS for service in support of its manufacturing process such as for routine sterilization of daily supplies, providing disposable supplies, microbial services and office support. ~~During the three months ended March 31, 2022 and 2021, the~~The Company paid fees to CTS during the three months ended September 30, 2022, and 2021, of approximately ~~$622~~$541 and ~~$643,~~$630, respectively, and during the nine months ended September 30, 2022, and 2021 of approximately $1,785 and $1,901 which are included in cost of goods sold on the accompanying condensed consolidated statements of operations.

In December 2011, the Company entered into a Master Services Agreement for Clinical Research and Related Services. The Company was required to pay $151 upon execution of this agreement and the remainder monthly based on activities associated with the execution of Axogen’s phase 3 pivotal clinical trial to support the BLA for Avance Nerve Graft. Payments made under this agreement were ~~$327~~$279 and ~~$278~~$362 for the three months ended ~~March 31,~~September 30, 2022, and 2021, respectively, and $963 and $794 for the nine months ended September 30, 2022, and 2021, respectively.

Concentrations

Vendor

Substantially all of the Company’s revenue is currently derived from five products, Avance Nerve Graft, Avive Soft Tissue Membrane (currently, market availability is suspended), Axoguard Nerve Protector, Axoguard Nerve Connector, and Axoguard Nerve Cap for the treatment of peripheral nerve damage. Of these five products, Avance Nerve Graft represents approximately half of the Company’s total revenue. The Company has an exclusive distribution agreement with Cook Biotech for the purchase of Axoguard which expires June 30, 2027. The agreement with Cook Biotech establishes a formula for the transfer cost of the Axoguard products and requires certain minimum purchases by the Company, although, through mutual agreement, the parties have not established such minimums and to date have not enforced such provision.

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

Axogen Processing Center Facility

The Company is highly dependent on the continued availability of its processing facilities at the Community Blood 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.

On July 31, 2018, the Company purchased the APC Facility in Vandalia, Ohio, located near the CTS processing facility where Avance Nerve Graft is currently processed. The APC Facility, when and if operational, will be the new processing facility for Avance Nerve Graft to provide continued capacity for growth and to support the transition of Avance Nerve Graft to a biologic product. The APC Facility is comprised of a 107,000 square foot building on approximately 8.6 acres of land. The Company paid $731 for the land, which is recorded as land in property and equipment, net on the condensed consolidated balance sheet. The Company paid $4,300 for the building which is recorded in projects in process in property and equipment, net on the condensed consolidated balance sheet.

On July 9, 2019, the Company entered into a Standard Form of Agreement Between Owner and Design-Builder with CRB Builders, L.L.C., (“CRB”), in which CRB will renovate and retrofit the APC Facility. For the three and nine months ended ~~March 31,~~September 30, 2022, ~~and inception-to-date~~ the Company ~~has~~ recorded ~~$2,589~~$2,688 and ~~$38,005,~~$8,119, respectively, of expenditures related to renovations and design and build in projects in progress. The Company has recorded $43,534 from inception-to-date related to this project. In addition to these project costs, the Company has capitalized interest of ~~$1,426~~$1,450 and $4,474 for the three and nine months ended ~~March 31,~~September 30, 2022, and ~~$6,719~~$9,748 inception-to-date to the project. These items are recorded as projects in process in property and equipment, net on the condensed consolidated balance sheet.

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~~make-

whole payment for the first tranche and second tranches due on June 30, 2027, and June 30 ~~2029,~~2028, 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~~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~~$9,200 for the first tranche of the Oberland Facility on June 30, 2027, and approximately ~~$5,000~~$3,600 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~~The make whole-payments as described above, have decreased due to rising interest rates: however, there have been no further updates since reported in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2021.

Legal Proceedings

The Company is and may be subject to various claims, lawsuits, and proceedings in the ordinary course of the Company's business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. While there can be no assurances as to the ultimate outcome of any legal proceeding or other loss contingency involving the Company. In the opinion of management, such claims are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material, adverse effect on the Company's financial condition, results of operations or cash flows. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.

On January 9, 2019, Plaintiff Neil Einhorn, on behalf of himself and others similarly situated, filed a putative class action complaint in the United 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 granted the parties’ stipulated motion which provided that Axogen is not required to file a response to the complaint until thirty days after Plaintiff files a consolidated amended complaint. On June 19, 2019, Plaintiff filed an Amended Class Action Complaint, and on July 22, 2019, Defendants filed a motion to dismiss. Plaintiff filed opposing papers on August 12, 2019. The Court held a status hearing on September 11, 2019, and stayed all deadlines regarding the parties’ obligations to file a case management report. On December 4, 2019, the parties presented oral arguments. On April 21, 2020, the Court dismissed the complaint without prejudice, finding the Plaintiff failed to state a claim upon which relief could be granted.The Plaintiff filed a Second Amended Class Action Complaint on June 22, 2020.Axogen filed a motion to dismiss on August 6, 2020.The Plaintiff filed an opposition on September 20, 2020.The Court held oral argument on February 25, 2021. On March 19, 2021, the Court dismissed the Second Amended Complaint with prejudice, finding again that the Plaintiff failed to state a claim upon which relief could be granted. On April 14, 2021, Plaintiff filed a notice of appeal. Plaintiff filed its opening brief on June 28, 2021. The Company filed its appellee brief on August 11, 2021. The Plaintiff filed a reply brief on September 14, 2021. The Eleventh Circuit heard oral argument ~~for~~the week of March 8, 2022. ~~The amount of loss, if any, cannot be reasonably estimated at this time. This matter is subject to various uncertainties and it is possible that it may be resolved unfavorably to~~On August 1, 2022, the ~~Company. However, while it is not possible to predict with certainty~~Eleventh Circuit affirmed the ~~outcome~~dismissal of the ~~matter, the Company and the Individual Defendants dispute the allegations and intend to vigorously defend themselves.~~complaint with prejudice.

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; Axoguard Nerve Connector, a porcine (pig) submucosa ECM coaptation aid for tensionless repair of severed peripheral nerves; Axoguard Nerve Protector, a porcine submucosa extracellular matrix ("ECM") product used to wrap and protect damaged peripheral nerves and reinforce the nerve reconstruction while preventing soft tissue 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; Avive Soft Tissue Membrane, a processed human umbilical cord intended for surgical 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 U.S., Canada, Germany, the UK, Spain, South Korea, and several other 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 induring the ~~first quarter of 2022..~~nine months ended September 30, 2022.

Revenue from the distribution of our nerve repair products, Avance Nerve Graft, Axoguard Nerve Connector, Axoguard Nerve Protector, and Axoguard Nerve Cap in the United States is the main contributor to our total reported sales and has been the key component of our growth to date.

We have ~~experienced~~observed that surgeons are initially ~~are~~ cautious adopters ~~for~~of nerve repair products. Surgeons typically start with a few cases and then wait and review the results of these initial cases. Active accounts are usually past this wait period and have developed some level of product reorder. These active accounts have typically gone through the Value Analysis Committee approval process, have at least one surgeon who has converted a portion of his or her treatment algorithms of peripheral nerve repair to our portfolio and have ordered our products at least six times in the last twelve months. As of ~~March 31,~~September 30, 2022, we had ~~926~~952 active accounts, an increase of 1%1.2% compared to the second quarter of 2022 of 941, and an increase of 2.4% from ~~915~~930 (excluding the impact of Avive) from 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 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 our products in their nerve repair algorithm. We refer to these as core accounts which we define as accounts that have purchased at least $100,000 in the past twelve months. As of ~~March 31, 2021,~~September 30, 2022, we had ~~288~~331 core accounts, an increase of 4%10.7% compared to the second quarter of 2022 of 299, and an increase of 17.0% or 283 (excluding the impact of Avive) from ~~277~~ one year ago. These core accounts represented approximately 60% of our revenue in the quarter, which has remained consistent over the past two years.

Results of Operations

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

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


		Three Months Ended March 31,									Three Months Ended September 30,
		2022				2021					2022				2021
		Amount		% of Revenue		Amount		% of Revenue			Amount		% of Revenue		Amount		% of Revenue
		(dollars in thousands)									(dollars in thousands)
Revenues	Revenues	$	31,007	100.0	%	$	31,037	100.0	%	Revenues	$	36,959	100.0	%	$	31,204	100.0	%
Cost of goods sold	Cost of goods sold	5,546		17.9		5,172		16.7		Cost of goods sold	6,176		16.7	%	5,239		16.8	%
Gross profit	Gross profit	25,461		82.1		25,865		83.3		Gross profit	30,783		83.3	%	25,965		83.2	%
Costs and expenses	Costs and expenses									Costs and expenses
Sales and marketing	Sales and marketing	20,888		67.4		17,973		57.9		Sales and marketing	19,792		53.6	%	18,370		58.9	%
Research and development	Research and development	6,275		20.2		5,748		18.5		Research and development	7,050		19.1	%	6,404		20.5	%
General and administrative	General and administrative	9,618		31.0		8,364		26.9		General and administrative	8,796		23.8	%	7,880		25.3	%
Total costs and expenses	Total costs and expenses	36,781		118.6		32,085		103.4		Total costs and expenses	35,638		96.4	%	32,654		104.6	%
Loss from operations	Loss from operations	(11,320)		(36.5)		(6,220)		(20.1)		Loss from operations	(4,855)		(13.1)	%	(6,689)		(21.4)	%
Other (expense) income:	Other (expense) income:									Other (expense) income:
Investment income	Investment income	(46)		(0.1)		34		0.1		Investment income	186		0.5	%	17		0.1	%
Interest expense	Interest expense	(354)		(1.1)		(444)		(1.4)		Interest expense	(61)		(0.2)	%	(417)		(1.3)	%
Change in fair value of derivatives	Change in fair value of derivatives	252		0.8		(22)		(0.1)		Change in fair value of derivatives	469		1.3	%	(46)		(0.1)	%
Other expense	Other expense	(7)		—		(8)		—		Other expense	(57)		(0.2)	%	(6)		—	%
Total other expense, net	Total other expense, net	(155)		(0.5)		(440)		(1.4)		Total other expense, net	537		1.5	%	(452)		(1.4)	%
Net Loss	Net Loss	$	(11,475)	(37.0)	%	$	(6,660)	(21.5)	%	Net Loss	$	(4,318)	(11.7)	%	$	(7,141)	(22.9)	%

Revenues

Revenues for the three months ended ~~March 31,~~September 30, 2022 ~~of $31,007 were relatively unchanged~~increased by $5,755 or 18% to $36,959 as compared to ~~$31,037~~$31,204 for the three months ended ~~March 31,~~September 30, 2021. ~~Revenues were negatively impacted~~The increase in revenue was driven 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 impacted by a decrease~~an increase in unit volume of ~~approximately 4%~~12%, ~~offset by the net change~~as well as a 3% increase in both prices and changes in product ~~mix of approximately 4%. Excluding the impact of Avive revenue in the prior year of $1,747, revenue would have increased approximately 6%.~~mix.

Gross Profit

Gross profit for the three months ended ~~March 31,~~September 30, 2022, ~~decreased~~increased by ~~$404~~$4,818 or 2%19% to ~~$25,461~~$30,783 as compared to ~~$25,865~~$25,965 for the three months ended ~~March 31,~~September 30, 2021. Gross margin ~~decreased to 82.1% from 83.3% due primarily to increased production costs in~~was 83% for each of the ~~quarter.~~three months ended September 30, 2022, and 2021.

Costs and Expenses

Total costs and expenses increased ~~15%~~by $2,984 or 9% to ~~$36,781~~$35,638 for the three months ended ~~March 31,~~September 30, 2022, as compared to ~~$32,085~~$32,654 for the three months ended ~~March 31,~~September 30, 2021. The increase in total operating expenses was a result of ~~an increase in net~~ compensation costs of ~~$1,450, due primarily to increased head count, marketing programs~~$2,636 and occupancy related expenses of ~~$1,087 as a result of the return of in-person sales team and physician education events and programs, travel cost of $815, as well as increased professional services of $857.~~

$523, partially offset by certain other costs.

Sales and marketing expenses increased ~~16%~~$1,422 or 8% to ~~$20,888~~$19,792 for the three months ended ~~March 31,~~September 30, 2022, as compared to ~~$17,973~~$18,370 for the three months ended ~~March 31,~~September 30, 2021. This increase was primarily attributable to ~~the following: (i)~~compensation cost of $1,528 partially offset by a decrease in marketing ~~development~~ programs ~~of $1,087; (ii) compensation related expenses of $992; and (iii) travel related expenses of $638, as hospital access restrictions improved.~~totaling $213.

Research and development expenses increased 9%$646 or 10% to ~~$6,275~~$7,050 for the three months ended ~~March 31,~~September 30, 2022, as compared to ~~$5,748~~$6,404 for the three months ended ~~March 31,~~September 30, 2021. The increase was primarily due to ~~compensation related project expenses of $347.~~product development and clinical expenses. Product development costs include spending in a number of specific programs including the non-clinical expenses related to the BLA for Avance Nerve Graft and a next generation Avance product. Product development expenses represented approximately ~~66%~~50% of total research and development expense infor each of the three months ended ~~March 31,~~September 30, 2022, and 2021. Clinical trial expenses represented approximately ~~34%~~50% of total research and development expense for each of the three months ended ~~March 31,~~September 30, 2022, and 2021.

General and administrative expenses increased ~~15%~~$916 or 12% to ~~$9,618~~$8,796 for the three months ended ~~March 31,~~September 30, 2022, as compared to ~~$8,364~~$7,880 for the three months ended ~~March 31,~~September 30, 2021. The increase was primarily due to ~~higher~~compensation expenses of $1.239 partially offset by a decrease in professional ~~services in the quarter, including legal and consulting services~~service fees of ~~$605 and occupancy-related costs of $330.~~$394.

Other Expense and Income

Interest expense decreased to ~~$354,000~~$61 for the three months ended ~~March 31,~~September 30, 2022, as compared to ~~$444~~$417 for the three months ended ~~March 31,~~September 30, 2021. The decrease was primarily due to Company exceeding the maximum annual revenue participation threshold of $70,000 during the third quarter of 2022. We recognized total interest charges of ~~$1,742~~$1,474 and ~~$944~~$1,438 in connection with the Oberland Facility in the three months ended ~~March 31,~~September 30, 2022, and 2021, respectively, ~~however, $1,445~~$1,450 and ~~$520~~$1,338 of this interest was capitalized to the construction costs of the APC Facility ~~in first~~during the third quarter of 2022 and 2021, respectively. See Note 6. Fair Value for information regarding the change in fair value of the derivatives.

Income Taxes

We had no income tax expense or benefit during the three months ended September 30, 2022, and 2021 due to the incurrence of net operating losses in each of these periods, the benefits of which have a full valuation allowance. We do not believe that there are any additional tax expenses or benefits currently available.

Comparison of the Nine Months Ended September 30, 2022, and 2021


	Nine Months Ended September 30,
	2022				2021
	Amount		% of Revenue		Amount		% of Revenue
	(dollars in thousands)
Revenues	$	102,420	100.0	%	$	95,821	100.0	%
Cost of goods sold	18,006		17.6	%	17,503		18.3	%
Gross Profit	84,414		82.4	%	78,318		81.7	%
Cost and expenses
Sales and marketing	60,349		58.9	%	55,594		58.0	%
Research and development	20,347		19.9	%	17,875		18.7	%
General and administrative	27,817		27.2	%	24,912		26.0	%
Total costs and expenses	108,513		105.9	%	98,381		102.7	%
Loss from operations	$	(24,099)	(23.5)	%	(20,063)		(20.9)	%
Other (expense) income:
Investment (expense) income	172		0.2	%	80		0.1	%
Interest expense	(664)		(0.6)	%	(1,427)		(1.5)	%
Change in fair value of derivatives	1,155		1.1	%	(152)		(0.2)	%
Other expense	(97)		(0.1)	%	(137)		(0.1)	%
Total other (expense) income, net	566		0.6	%	(1,636)		(1.7)	%
Net Loss	$	(23,533)	(23.0)	%	$	(21,699)	(22.6)	%

Revenues

Revenues for the nine months ended September 30, 2022, increased 7% to $102,420 as compared to $95,821 for the nine months ended September 30, 2021. The increase in revenue was driven by an increase unit volume of 1%, as well as a 3% price increase and a 2% increase from changes in product mix. Excluding the impact of Avive revenue of $3,575 in the nine months ended September 30, 2021, revenue would have increased approximately 11%.

Gross Profit

Gross profit for the nine months ended September 30, 2022, increased 8% to $84,414 as compared to $78,318 for the nine months ended September 30, 2021. Gross margin was constant at 82% for each of the nine months ended September 30, 2022 and 2021. In the prior year we recorded a $1,429 charge in the second quarter, reflecting the write-down of inventory and related production costs due to the suspension of market availability of Avive.

Costs and Expenses

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

Sales and marketing expenses increased 9% to $60,349 for the nine months ended September 30, 2022, as compared to $55,594 for the nine months ended September 30, 2021. This increase was primarily attributable to the following: (i) compensation related expenses of $2,911 primarily due to increase in headcount; (ii) travel related expenses of $1,105, as hospital access and restrictions improved; and (iii) marketing development programs of $641.

Research and development expenses increased 14% to $20,347 for the nine months ended September 30, 2022, as compared to $17,875 for nine months ended September 30, 2021. The increase was primarily due to compensation related

product development and clinical expenses of $1,759 and occupancy cost of $432. Product development costs include spending in a number of specific programs including the non-clinical expenses related to the BLA for Avance Nerve Graft and a next generation Avance product. Product development expenses represented approximately 51% of total research and development expense during each of the nine months ended September 30, 2022, and 2021. Clinical trial expenses represented approximately 49% of total research and development expense for each of the nine months ended September 30, 2022, and 2021.

General and administrative expenses increased 12% to $27,817 for the nine months ended September 30, 2022, as compared to $24,912 for the nine months ended September 30, 2021. The increase was primarily due to net compensation related expenses of $1,829, occupancy-related costs of $526, and consulting expenses of $298.

Other Income and Expenses

Total other income was $566 for the nine months ended September 30, 2022, compared to expense of $1,636 for the nine months ended September 30, 2021. The change was primarily due to the non-cash change in the fair value of the derivative of $1,307 year-over-year. We recognized total interest charges of $4,304 and $3,418 in connection with the Oberland Facility during the nine months ended September 30, 2022, and 2021, respectively, $4,474, and $2,526 of this interest was capitalized to the construction costs of the APC Facility during the nine months ended September 30, 2022, and 2021, respectively. See Note 6. Fair Value for information regarding the change in fair value of the derivatives.

Income Taxes

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

Critical Accounting Policies

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~~our financial position and results of operations. Management regularly reviews our accounting policies and financial information disclosures. A summary of significant accounting policies that require the use of estimates and judgments in preparing the financial statements was provided in our 2021 Annual Report on Form 10-K. During the quarter and nine months covered by this report, there were no material changes to the accounting policies and assumptions previously ~~disclosed, except as disclosed in Note 2. Summary of Significant Accounting Policies to the unaudited condensed consolidated financial statements contained herein.~~disclosed.

Liquidity and Capital Resources

Cash Flow Information

As of ~~March 31,~~September 30, 2022, our principal sources of liquidity were our cash and cash equivalents and investments totaling ~~$73,669.~~$59,361. Our cash equivalents are comprised of a money market mutual fund and our investments are comprised of short-term commercial paper and U.S. Treasuries. Our cash and cash equivalents and investments decreased ~~$16,668~~$30,976 from $90,337 at December 31, 2021, primarily as a result of operating activities and renovating the APC Facility.

We had working capital of ~~$89,530~~$78,907 and a current ratio of ~~4.9x~~4.4x at ~~March 31,~~September 30, 2022, compared to working capital of $102,756 and a current ratio of 5.2x at December 31, 2021. The decrease in the current ratio at ~~March 31,~~September 30, 2022, as compared to December 31, 2021, was primarily due to ~~a decrease~~cash used in ~~cash used~~operations and to renovate the APC Facility, which is aincluded in non-current ~~asset~~assets 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, our growth rate, the timing and extent of 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.

If we need additional capital in the future, 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 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,					Nine Months Ended September 30,
(In thousands)	(In thousands)	2022		2021		(In thousands)	2022		2021
Net cash (used in) provided by:	Net cash (used in) provided by:					Net cash (used in) provided by:
Operating activities	Operating activities	$	(11,051)	$	(10,820)	Operating activities	$	(17,428)	$	(11,891)
Investing activities	Investing activities	(7,241)		870		Investing activities	(1,991)		(10,064)
Financing activities	Financing activities	95		517		Financing activities	981		19,409
Net decrease in cash, cash equivalents, and restricted cash	Net decrease in cash, cash equivalents, and restricted cash	$	(18,197)	$	(9,433)	Net decrease in cash, cash equivalents, and restricted cash	$	(18,438)	$	(2,546)

Net Cash Used in Operating Activities

Net cash used in operating activities was ~~$11,051~~$17,428 and ~~$10,820~~$11,891 during the ~~three~~nine months ended ~~March 31,~~September 30, 2022, and ~~March 31,~~ 2021, respectively. The ~~slightly~~ unfavorable change in net cash used in operating activities of ~~$231~~$5,537 or ~~2.1%~~47% is due to the following: (i) the net ~~favorable~~unfavorable change of ~~$4,835~~$4,000 in ~~operating liabilities and assets~~working capital accounts and the increase in ~~the~~ net loss of ~~$4,815 .~~$1,834.

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

Net cash used in investing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2022, was ~~$7,241 cash~~$1,991 as compared to ~~net cash provided by investments of $870~~$10,064 for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, ~~an increase~~a decrease of ~~$8,111 in net cash used in investing.~~$8,073 or 80%. The ~~increase in~~decrease of net cash used in investing activities is principally due to the ~~net sales of investments of $5,745 during the quarter ended March 31, 2022, as part of our asset management program, the purchase~~reduction in purchases of property and equipment of ~~$1,942~~$7,185 and in the ~~acquisition~~net proceeds from the sale and purchase of investments totaling $2,332 partially offset by the increase in cash payments for intangible assets of ~~$424.~~$494 during the nine months ended September 30, 2022.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was ~~$95~~$981 and ~~$517~~$19,409 for the ~~three~~nine months ended ~~March 31,~~September 30, 2022, and 2021, respectively, a decrease of ~~$424~~$18,428 or ~~272%~~95%. The unfavorable change in net cash provided by financing activities was primarily due to ~~a decrease~~the $15,000 of proceeds from the issuance of long-term debt and $4,421 in proceeds from the exercise of stock ~~options.~~options received during the nine months ended September 30, 2021 compared to $990 in proceeds received from the exercise of stock options received during the nine months ended September 30, 2022.

Operating Cash Requirements

APC Facility Commitment

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 the renovation, purchasing of furniture and equipment, validation and certification of the APC Facility are estimated to be $20,900, plus projected capitalized interest of $11,300. We have recorded ~~$46,013~~$53,302 to date related to this project, ~~including~~which includes capitalized interest of ~~$6,719.~~$9,748. We anticipate spending ~~$15,290, including~~$7,245, which includes projected capitalized interest of ~~$4,581,~~$2,360; $2,585 of ~~which $1,700~~the remaining total is anticipated to be spent in 2023. Construction of the facility is now substantially complete. We anticipate completion of validation and certification of the facility by early 2023, followed by commencement of tissue processing in the facility.

Credit Facilities

On June 30, 2020, we entered into the Oberland Facility and obtained the first tranche of $35,000 at closing. On June 30, 2021, the second tranche of $15,000 was drawn down by the Company. The financing costs for this facility were $642 and were recorded as a contra liability to the debt facility.

of issuance (with the first tranche issued on June 30, 2020, maturing on June 30, 2027, and the second tranche issued on June 30, 2021, maturing on June 30, 2028). In connection with the Oberland Facility, we entered into a revenue participation agreement with Oberland Capital, which provides that, among other things, a quarterly royalty payment as a percentage of our net revenues, up to $70 million in any given year, subject to certain limitations set forth therein, during the period commencing on the later of (i) April 1, 2021 and (ii) the date of funding of a tranche of the loan, and ending on the date upon which all amounts owed under the Oberland Facility have been paid in full (the “Revenue Participation Agreement”). Royalty payments commenced on September 30, 2021. This royalty structure results in approximately 1.0% per year of additional interest payments on the outstanding loan amount. Upon maturity or upon such earlier repayment of the Oberland Facility, we will repay the principal balance and provide a make-whole payment calculated to generate an internal rate of return to Oberland Capital equal to 11.5%, less the total of all quarterly interest and royalty payments previously paid to Oberland Capital.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of our market risks, refer to Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” included in our 2021 Annual Report on Form 10-K. There have been no material changes to any of these risks since December 31, 2021.

The amount of interest expense on the outstanding debt is based on LIBOR. Based on the outstanding balance of the debt as of September 30, 2022 a hypothetical 100 basis point increase in the applicable rate would result in an increase to our annual interest expense of $500.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Our management, including our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 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).

PART II –OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

As disclosed in "Note 12 - Commitments and Contingencies" in the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, we are engaged in certain legal proceedings, and the disclosure set forth in Note 12 relating to legal proceedings is incorporated herein by reference.

ITEM 1A - RISK FACTORS

There have been no material changes to the risk factors disclosed in our 2021 Annual Report on Form 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, 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~~

We are currently operating in a period of economic uncertainty and ~~business, financial condition, and prospects may be adversely affected~~capital markets disruption, which has been significantly impacted by ~~the current~~

geopolitical instability, an ongoing military conflict between Russia and Ukraine, and ~~other future social~~record inflation. Our business, financial condition and results of operations could be materially adversely affected by any negative impact on the global economy and capital markets resulting from the conflict in Ukraine, geopolitical ~~instability.~~tensions, or record inflation.

We are exposed to the risk of changes in social, geopolitical, legal, and economic conditions. The global economy has been, and may continue to be, negatively impacted by Russia’s invasion of Ukraine. As a result of Russia's invasion of Ukraine, the United States, the European Union, the United Kingdom, and other G7 countries, among other countries, have imposed substantial financial and economic sanctions on certain industry sectors and parties in Russia. Broad restrictions on exports to Russia have also been imposed. These measures include: (i) comprehensive financial sanctions against major Russian banks; (ii) additional designations of Russian individuals with significant business interests and government connections; (iii) designations of individuals and entities involved in Russian military activities; and (iv) enhanced export controls and trade sanctions limiting Russia's ability to import various goods. ~~The negative impacts arising from~~

Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict ~~and these sanctions and export restrictions may include reduced consumer demand,~~in Ukraine has led to market disruptions, including significant volatility in commodity prices, credit markets, as well as supply chain ~~disruptions~~interruptions, which has contributed to record inflation globally. In addition, the ongoing Russian military actions and ~~increased costs~~the resulting sanctions could continue to adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets, potentially making it more difficult for ~~transportation, energy,~~us to obtain additional funds. We are continuing to monitor inflation, the situation in Ukraine and ~~raw materials.~~ global capital markets and assessing its potential impact on our business.

Although, ~~none of~~to date, our business has not been materially impacted by the ongoing military conflict between Russian and Ukraine, geopolitical tensions, or record inflation, it is impossible to predict the extent to which our operations ~~are~~will be impacted in ~~Russia~~the short and long term, or the ways in which such matters may impact our business. The extent and duration of the conflict in Ukraine, ~~further escalation of~~ geopolitical tensions, record inflation and resulting market disruptions are impossible to predict but could ~~have a broader~~be substantial. Any such disruptions may also magnify the impact ~~that expands into~~of other ~~markets where we do business, which may adversely affect~~risks described in our ~~business and financial condition, results of operations and prospects.~~2021 Annual Report on Form 10-K.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS


Exhibit Number						Description

10.1**10.1						~~Form~~First Amendment to Lease Agreement dated as of ~~Performance-Based Restricted Stock Units Notice~~August 22, 2022, by and ~~Performance-Based Restricted Stock Units Agreement under the~~between Axogen ~~Inc. Amended~~Corporation and ~~Restated 2019 Long-Term Incentive Plan~~Ja-Cole, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on ~~April 1,~~August 25, 2022).

10.2**10.2						~~Form~~Eighth Amendment to License and Services Agreement, dated as of ~~Restricted Stock Units Notice~~August 22, 2022, by and ~~Restricted Stock Units Agreement under the~~between Axogen ~~Inc. Amended~~Corporation and ~~Restated 2019 Long-Term Incentive Plan~~Community Blood Center (d/b/a Community Tissue Services) (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on ~~April 1,~~August 25, 2022).

10.3**						~~Form~~Confidential Separation Agreement and Release 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,~~Claims dated ~~as of January 27,~~July 19, 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.~~Eric Sandberg.

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

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

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

101.INS†						XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH†						XBRL Taxonomy Extension Schema Document.

101.CAL†						XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF†						XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB†						XBRL Extension Labels Linkbase.

101.PRE†						XBRL Taxonomy Extension Presentation Linkbase Document.

104						Cover Page Interactive Data File – The cover pages ~~does~~do not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

† Filed herewith.

†† Furnished herewith.

** Management contract or compensatory plan or arrangement.

SIGNATURES

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


			AXOGEN, INC.


Dated: ~~May 6,~~November 8, 2022			/s/ Karen Zaderej
			Karen Zaderej Chief Executive Officer and President (Principal Executive Officer)

Dated: ~~May 6,~~November 8, 2022			/s/ Peter J. Mariani
			Peter J. Mariani Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)