Table of Contents
| Item | Description | Page | ||||||||
| Part I | ||||||||||
| Item 1. | Business | |||||||||
| Item 1A. | Risk Factors | |||||||||
| Item | ||||||||||
| Item | ||||||||||
| Item 2. | Properties | |||||||||
| Item 3. | Legal Proceedings | |||||||||
| Item 4. | Mine Safety Disclosures | |||||||||
| Part II | ||||||||||
| Item 5. | Market for | |||||||||
| Item 6. | ||||||||||
| Item 7. | ||||||||||
| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | |||||||||
| Item 8. | Financial Statements and Supplementary Data | F- | ||||||||
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |||||||||
| Item 9A. | Controls and Procedures | |||||||||
| Item 9B. | Other Information | |||||||||
| Item 9C. | Disclosures Regarding Foreign Jurisdictions that Prevent Inspections | |||||||||
| Part III | ||||||||||
| Item 10. | Directors, Executive Officers and Corporate Governance | |||||||||
| Item 11. | Executive Compensation | |||||||||
| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related | |||||||||
| Item 13. | Certain Relationships and Related Transactions, and Director Independence | |||||||||
| Item 14. | Principal Accounting Fees and Services | |||||||||
| Part IV | ||||||||||
| Item 15. | Exhibits, Financial Statement Schedules | |||||||||
| Item 16. | Form 10-K Summary | |||||||||
| Signatures | ||||||||||
PART I
Explanatory Note and certain information incorporated herein by reference contain forward-looking statements and information within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. This information includes assumptions made by, and information currently available to management, including statements regarding future economic performance and financial condition, liquidity and capital resources, acceptance of our products by the market, and management’s plans and objectives. In addition, certain statements included in this and our future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “expectation,” “anticipate,” “estimate,” “intend,” “seeks,” “plan,” “project,” “continue,” “predict,” “will,” “should,” and other words or expressions of similar meaning are intended by us to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are found at various places throughout this report and in the documents incorporated herein by reference. These statements are based on our current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made.
As used herein, the terms “MiMedx,“MIMEDX,” “the Company,” “we,” “our” and “us” refer to MiMedx Group, Inc., a Florida corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only MiMedx Group, Inc.
The following discussion should be read in conjunction with the financial statements and related notes contained elsewhere in this Annual Report. Certain statements made in this Annual Report are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended. All statements relating to events or results that may occur in the future are forward-looking statements, including, without limitation, statements regarding the following:
•our strategic focus and our current business priorities, and our ability to implement these priorities, including as a result of our no longer being able to market our micronized products and certain other products;
•the advantages of our products and development of new products;
•our expectations regarding the size of potential markets for our products and any growth in such markets;
•our expectations regarding ongoing regulatory obligations and oversight and the changing nature thereof impacting our products, research and clinical programs, and business, including those relating to patient privacy;
•our expectations regarding our ability to procure sufficient supplies of human tissue to manufacture and process our existing and future products;
•our expectations regarding costs relating to compliance with regulatory requirements;
•our expectations regarding government and other third-party coverage and reimbursement for our products;
•our expectations regarding future revenue growth;
•our expectation regarding the outcome of pending litigation and investigations;
•our belief in the sufficiency of our intellectual property rights in our technology;
•our expectations regarding future income tax liability;
•demographic and market trends; and
•our ability to compete effectively.
Forward-looking statements generally can be identified by words such as “expect,” “will,” “change,” “intend,” “seek,” “target,” “future,” “plan,” “continue,” “potential,” “possible,” “could,” “estimate,” “may,” “anticipate,” “to be” and similar expressions. These statements are based on numerous assumptions and involve known and unknown risks, uncertainties and other factors that could significantly affect our operations and may cause our actual actions, results, financial condition, performance or achievements to differ materially from any future actions, results, financial condition, performance or achievements expressed or implied by any such forward-looking statements. Factors that may cause such a difference include, without limitation, those discussed in Item 1A, Risk Factors in this Annual Report.
Unless required by law, the Company does not intend, and undertakes no obligation, to update or publicly release any revision to any forward-looking statements, whether as a result of the receipt of new information, the occurrence of subsequent events, a change in circumstances or otherwise. Each forward-looking statement contained in this Annual Report is specifically qualified in its entirety by the aforementioned factors. Readers are advised to carefully read this Annual Report in conjunction with the important disclaimers set forth above prior to reaching any conclusions or making any investment decisions and not to place undue reliance on forward-looking statements, which apply only as of the date of the filing of this Annual Report with the SEC.
Summary of Risk Factors
Risks Related to Our Business and Industry
•If we do not successfully execute our priorities, our business, operating results and financial condition could be adversely affected.
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•We are in a highly competitive and evolving field and face competition from well-established tissue processors and medical device manufacturers, as well as new market entrants.
•Rapid technological change could cause our products to become obsolete.
•Our products depend on the availability of tissue from human donors, and any disruption in supply could adversely affect our business.
•We depend on our senior leadership team and may not be able to retain or replace these employees or recruit additional qualified personnel.
•Our revenues depend on adequate reimbursement from public and private insurers and health systems and changes to the way in which our products are reimbursed in various sites of service could adversely impact our financial results.
•Our revenue, results of operations and cash flows may suffer upon the loss of a Group Purchasing Organization or Integrated Delivery Network.
•We contract with independent sales agents and distributors.
•Disruption of our processing could adversely affect our business, financial condition and results of operations.
•To be commercially successful, we must convince physicians, where appropriate, how and when our products are proper alternatives to existing treatments and that our products should be used in their procedures.
•If we cannot successfully address quality issues that may arise with our products, our brand reputation could suffer, and our business, financial condition, and results of operations could be adversely impacted.
•The formation of physician-owned distributorships could result in increased pricing pressure on our products or harm our ability to sell our products to physicians who own or are affiliated with those distributorships.
•We face the risk of product liability claims and may not be able to obtain or maintain adequate product liability insurance.
•The products we manufacture and process are derived from human tissue and therefore have the potential for disease transmission.
•We may implement a product recall or voluntary market withdrawal.
•A cyberattack or significant disruptions of information technology systems could adversely affect our business.
•We may expand or contract our business through acquisitions, divestitures, licenses, investments, and other commercial arrangements.
•A portion of our revenues and accounts receivable come from government accounts.
•New lines of business or new products and services may subject us to additional risks.
•Our international expansion and operations outside the U.S. expose us to risks.
Risks Related to Regulatory Approval of Our Products and Other Government Regulations
•In the future, certain of our products may no longer qualify for regulation as human cells, tissues and cellular and tissue-based products solely under Section 361 of the Public Health Service Act, which could result in removal of the applicable products from the market, making the introduction of new tissue products more expensive, significantly delay the expansion of our tissue product offerings and subject us to additional post-market regulatory requirements. Additional regulatory requirements may be imposed in the future.
•Obtaining and maintaining the necessary regulatory approvals for certain of our products will be expensive and time consuming and may impede our ability to fully exploit our technologies.
•Our business is subject to extensive regulation by the FDA and other authorities, which is costly.
•We may be subject to fines, penalties, injunctions and other sanctions if we are deemed to be promoting the use of our products for unapproved, or off-label, uses.
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•We and our sales representatives must comply with various federal and state anti-kickback, self-referral, false claims and similar laws.
•Our results of operations may be adversely affected by current and potential future healthcare reforms.
•We may fail to obtain or maintain foreign regulatory approvals to market our products in other countries.
•Federal and state laws that protect the privacy and security of personal information may increase our costs and limit our ability to collect and use that information and subject us to liability if we are unable to fully comply with such laws.
Risks Related to Our Intellectual Property
•Our ability to protect our intellectual property and proprietary technology through patents and other means is uncertain and may be inadequate.
•We may become subject to claims of infringement of the intellectual property rights of others.
•We may be subject to damages resulting from claims that we, our employees, or our independent contractors have wrongfully used or disclosed alleged trade secrets, proprietary or confidential information of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.
Risks Related to Our Consolidated Financial Statements, Internal Controls and Related Matters
•If we fail to maintain adequate internal control over financial reporting in the future, this could adversely affect our business, financial condition and operating results.
Risks Related to the Securities Markets and Ownership of Our Common Stock
•Our indebtedness may adversely affect our financial health.
•EW Healthcare Partners and its interests may conflict with those of our other shareholders.
•The price of our Common Stock has been, and will likely continue to be, volatile.
•Securities analysts may elect not to report on our common stock or may issue negative reports that adversely affect the stock price.
•Fluctuations in revenue or results of operations could cause additional volatility in our stock price.
•We do not intend to pay cash dividends on our Common Stock.
•Certain provisions of Florida law and anti-takeover provisions in our organizational documents may discourage or prevent a change of control.
Estimates and Projections
This discussion includes certain estimates, projections and other statistical data. These estimates and projections reflect management’s best estimates based upon currently available information and certain assumptions we believe to be reasonable. These estimates are inherently uncertain, subject to risks and uncertainties, many of which are not within our control, have not been reviewed by our independent auditors and may be revised as a result of management’s further review. In addition, these estimates and projections are not a comprehensive statement of our financial results, and our actual results may differ materially from these estimates and projections due to developments that may arise between now and the time the results are final. There can be no assurance that the estimates will be realized, and our results may vary significantly from the estimates, including as a result of unexpected issues in our business and operations. Accordingly, you should not place undue reliance on such information. Projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk. See Item 1A, Risk Factors for further information.
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Item 1. Business
Overview
With deep expertise and real-world data in the field of placental biologics, MIMEDX develops and distributes placental tissue allografts that are manufactured using patent-protected, proprietary processes for multiple sectors of healthcare. Today, our product portfolio is made up entirely of human placental allografts, which are human tissues that are derived from one person (the donor) and used to produce products that treat multiple people (the recipients). MIMEDX has supplied roughly three million allografts, through all shipments, filling direct orders and consignment orders, through December 31, 2023. Our products help clinicians treat patients suffering from chronic and other hard-to-heal wounds. These wounds can be slow to respond or unresponsive to conventional treatments and may benefit from advanced treatments, such as through the use of our products, in order to support the healing process.
The manufacturing of our product offering begins with donated birth tissue, namely the placenta, umbilical cord and placental disc, which we source through a large donor network developed over multiple years with leading hospitals and clinician groups. In partnership with these facilities, we are able to obtain donated birth tissue from consenting mothers, which then are shipped to our manufacturing facilities in Marietta, Georgia, and undergo a series of testing followed by our proprietary tissue manufacturing workflow, which we refer to as the PURION® process. We employ Current Good Tissue Practices (“CGTP”) and terminal sterilization to produce our allografts. MIMEDX provides products primarily for use in the wound care, burn, and surgical sectors of healthcare. All of our products sold in the United States are regulated by the U.S. Food & Drug Administration (“FDA”), and to the extent we sell our products outside the United States, by other regulatory agencies in such international markets.
We devote significant research and development resources and expertise to the therapeutic potential of placental tissue in an integrated developer, processoreffort to grow our product offering, develop innovative products that address a wide range of chronic and marketeracute health conditions affecting large patient populations, and generate best-in-class clinical evidence and data to support the use of patent protectedour products.
Market Overview
Domestic sales currently account for substantially all of our revenue today. In the United States, our primary areas of clinical use include applications in surgical settings as well as for the treatment of wounds and proprietary regenerative biomaterialburns. Additionally we are actively pursuing international expansion, primarily targeting Japan, as discussed below.
Wound
The unmet need for healing solutions is large and growing, with an estimated 2.1% of the total U.S. population, or approximately 7 million people, suffering from chronic, non-healing wounds1. The treatment of chronic wounds is often referred to as Advanced Wound Care (“AWC”). Chronic wounds are defined and characterized as those that do not progress through the normal process of healing and remain open for an extended period of time, which, depending on the wound, can be from several weeks to a few months. There are numerous underlying causes of these wounds, with this patient population typically sharing some combination of comorbidities, including age, obesity, smoking history, diabetes and heart and vascular diseases. Due to the rising incidence of each of these factors, we expect the AWC market will continue to grow.
Patients present with chronic wounds in a variety of care settings and these wounds vary in severity and complexity to treat. Our products can be found in many of these sites of service, including the private physician office (e.g., podiatry clinics), wound care centers, hospital inpatient and outpatient settings, nursing homes and federal facilities, such as those operated by the Department of Veterans Affairs (“VA”). The most common types of chronic and hard-to-heal wounds appear in the lower extremities, presenting as diabetic foot ulcers (“DFUs”), venous leg ulcers (“VLUs”), and pressure ulcers, among others. Taken together, nearly 60% of the chronic wounds in the U.S. are categorized as chronic leg ulcers (which include DFUs and VLUs), with 47% treated with Advanced Wound Care dressings such as skin substitutes2. These wounds require intervention and active management by clinicians and are treated in a variety of sites-of-service, with numerous products aimed at achieving healing for the patie
1Chronic Wounds: Economic Impact & Costs to Medicare, https://www.woundcarestakeholders.org/news/studies-and-publications/chronic-wounds-economic-impact-costs-to-medicare
2GlobalData: 2022 Wound Care Management- Tissue Engineered Skin Subs U.S. Updated May 2022
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nt. The costs associated with treatment and management of patients with acute and chronic wounds is also high, with some estimates of the Medicare spend associated with such wounds approaching $100 billion annually.
The large and increasing number of patients requiring advanced treatment represents a significant cost burden on the healthcare system. The overall cost of treating chronic wounds is rising sharply, and the current annual estimated cost in the United States exceeds $28 billion3.
Complications from non-healing chronic wounds can ultimately result in significant, life-altering adverse outcomes, such as limb amputation4. Ineffective wound management is linked to numerous poor outcomes for patients, up to and including the potential for amputation of the extremity where the wound is present. Amputation is a catastrophic event for patients, with significant impacts to their quality of life, the lives of their caretakers and the expense burden on the healthcare system. Today, up to one-fifth of diabetic patients who develop a DFU will require some form of amputation. Further, patients who undergo a major lower extremity amputation have an increased five-year mortality rate that is comparable to, and in some cases higher than, patients with many forms of cancer5.
Advances in managing chronic and hard-to-heal wounds with solutions such as our EPIFIX® product have been shown to help contribute to improved outcomes for these patients. It is estimated that up to 85% of amputations are avoidable with a holistic, multispecialty team approach that incorporates innovative treatments, such as MIMEDX’s products, and bioimplants processedadherence to treatment parameters. MIMEDX is a leader in the cellular tissue products/skin substitute segment of the AWC category and the amniotic tissue allograft sub-category.
The AWC market is comprised of many product types, such as medical devices, advanced dressings, xenografts, biological products, and Human Cells, Tissues, and Cellular and Tissue - Based Products (“HTC/Ps”), which are used as skin substitutes to treat severe and chronic wounds. Not included in AWC are traditional wound care dressings, such as bandages, gauzes and ointments, which typically are used in the treatment of non-severe or non-chronic wounds.
The prevalence of both acute and chronic wounds has grown not only in the U.S., but also globally. While historically we have focused primarily on the U.S. market, we are in the process of expanding our footprint internationally, most notably with the recent launch of our EPIFIX product in Japan. EPIFIX is the first and currently the only amniotic tissue product approved in Japan for wound treatment across a broad range of conditions. We believe our first-mover advantage, favorable reimbursement rate, and strong distribution partner set us up for long-term success in this large and growing market.
Traditional dressings such as bandages, gauzes and ointments, along with treatment of active infection and debridement, currently represent the “standard of care” for treating chronic wounds such as DFUs and VLUs. If, after four weeks of standard of care therapy, the wound has not responded appropriately or improved, clinical research has shown that advanced therapy such as a skin substitute can be beneficial as part of the patient’s treatment plan. However, oftentimes advanced therapies are not employed due to current treatment guidelines, product access, or medical education around the clinical and economic benefits of AWC products, including skin substitutes. We believe this represents a large opportunity for us to expand the market and drive initiatives resulting in market growth. According to recent data, MIMEDX’s EPIFIX is the current product of choice for physicians choosing to use an amniotic skin substitute product as a barrier or cover. Our EPIFIX, EPICORD® and EPIEFFECT® products can be stored at room temperature for up to five years, in contrast to certain other skin substitutes currently on the market that have performance, storage or handling limitations. In addition, we market multiple sizes of EPIFIX, EPICORD and EPIEFFECT sheets for use as protective barriers, which enables a healthcare provider to select an appropriate size graft based on the size of the wound to reduce product waste. Our EPICORD, EPICORD Expandable and EPIEFFECT product lines also offer an alternative treatment option to address larger, deeper wounds in a cost-effective way at a point earlier in the treatment algorithm.
With broad payor coverage, the largest body of Level 1 clinical evidence among placental allograft products and a dedicated sales team calling on each of the major sites-of-service, we expect to continue to expand our presence in the AWC market, driving future growth of our business6.
Surgical
3Chronic Wounds: Economic Impact & Costs to Medicare, https://www.woundcarestakeholders.org/news/studies-and-publications/chronic-wounds-economic-impact-costs-to-medicare
4Five year mortality and direct costs of care for people with diabetic foot complications are comparable to cancer, https://www.ncbi.nlm.nih.gov/pmc/articles/PMC7092527/#CR1
5Epidemiology and Risk of Amputation in Patients With Diabetes Mellitus and Peripheral Artery Disease, https://www.ahajournals.org/doi/10.1161/ATVBAHA.120.314595
6 Zelen CM, et al. Int Wound J. 2013;10(5):502-507. 2. Zelen CM. J Wound Care. 2013;22(7):347-351. 3. Zelen CM, et al. Wound Medicine. 2014;4:1-4. 4. Zelen CM, et al. Int Wound J. 2014;11(2):122-128. 5. Zelen CM, et al. Int Wound J. 2015;12(6):724-732. 6. Zelen CM, et al. Int Wound J. 2016;13(2):272-282. 7. Tettelbach W,et al. Int Wound J. 2019;16(1):122-130. 8. Serena TE, et al. Wound Repair Regen. 2014;22(6):688-693. 9. Bianchi C, et al. Int Wound J. 2018;15(1):114-122. 10. Bianchi C, et al. Int Wound J. 2019;16(3):761-767
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In addition to our presence in the AWC settings, our products are also used in a variety of surgical settings, and our strategic goals include building a body of evidence and real-world use data for our products in a wide range of procedures. The applications in Surgical range from those involving the closure of an acute wound (which we refer to as “Surgical Recovery”), to those where our allografts are used inside the body to protect or reinforce tissues and/or regions of interest.
Acute wounds are defined as those that are recent, are acquired from an incision or trauma and have yet to progress through the sequential stages of wound healing. Acute wounds can be caused accidentally or they can arise in the normal course of a wide-range of surgical procedures. When acute wounds present in patients with similar comorbidities to those of chronic wound patients, the risk of a slow or ineffective healing wound increases, and the risk of a surgical site infection or other similar complication increases for the patient.
In other surgical settings, the need to protect sensitive nerves, tissues or other areas may occur during the course of a procedure and presents an opportunity for the use of our products. We believe our placental-based allografts are ideally suited for these applications in a growing number of surgical specialties that we are targeting and expect the utilization of our products to continue to grow over time in this market.
Our strategy is to continue to deliver advanced products that serve patient needs within the Advanced Wound Care and Surgical markets and increase access to our products through clinical data generation and physician education. We estimate that the combined U.S. wound and surgical market for our products is currently $2.0 billion ($1.1 billion in wound; $0.9 billion in surgical) and is largely under-penetrated7. We expect the U.S. wound and surgical market will grow at an annual rate of 7-10% over the next three to five years beginning in 20238.
Our Strategic Priorities
We manage our business by focusing on the following strategic priorities, which we believe are paramount to the success of MIMEDX over the short- and long-term.
Our first priority is to build our leadership position in Wound & Surgical. Achievement of this priority is measured by our ability to grow in all sites-of-service, regain share in the private office setting and expand our presence throughout the Surgical end markets.
Our second priority is to develop opportunities for MIMEDX in adjacent markets. We believe our ability to continue to innovate and develop new products has provided us with a rich product pipeline that will result in numerous product launches in future periods. In addition to these in-house efforts, we are actively evaluating opportunities to expand inorganically through acquisitions, licensing agreements or other arrangements that would afford us the opportunity to augment the Company’s growth profile and expand our offering in existing and new care settings.
In 2023, we made several decisions related to the Company’s strategy and also made structural changes to our organization, including disbanding our Regenerative Medicine business unit given the substantial uncertainties surrounding clinical trial costs and outcomes, as well as regulatory pathways and timing, which had the effect of improving our profitability and cash flow compared to prior periods. Moving forward, we plan to continue to focus on enhancing efficiencies across our organization and setting expense, profitability and cash flow targets as we grow our business.
By incorporating a strategy to advance the scientific and therapeutic potential of placental tissue and rigorously demonstrate the clinical and economic effectiveness of our products, we believe we can differentiate the value of our portfolio and address multiple areas of significant unmet clinical need. We have focused our priorities on initiatives across our organization that position us to realize our commercial ambitions over the long-term while also generating a profitable, cash flow positive business capable of self-funding our future growth objectives.
Our Product Portfolio & Pipeline
We sell our placenta-based allograft products under our own brands. We maintain strict controls on quality at each step of the manufacturing process beginning at the time of procurement. Our Quality Management System is focused on compliance with the American Association of Tissue Banks’ (“AATB”) standards, the FDA’s CGTP regulations, and applicable foreign regulations.
Our primary platform technologies include tissue allografts derived from human placental membrane (EPIFIX®, AMNIOFIX®, EPIEFFECT® and AMNIOEFFECT®), tissue skinallografts derived from human umbilical cord (EPICORD® and bone. "InnovationsAMNIOCORD®), and a particulate extracellular matrix derived from human placental disc (AXIOFILL®).
7GlobalData Tissue Engineered-Skin Sub Data Model Wound Management Year 2020 – retrieved Sept 2021
8GlobalData Tissue Engineered-Skin Sub Data Model Wound Management Year 2020 – retrieved Sept 2021
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EPIFIX, EPICORD and EPIEFFECT products are marketed for external use, such as in Regenerative Biomaterials"Advanced Wound Care applications, while our AMNIOFIX, AMNIOCORD and AMNIOEFFECT products are positioned for use in Surgical applications, including lower extremity repair, plastic surgery, vascular surgery and multiple orthopedic repairs and reconstruction, and our AXIOFILL product is positioned for use in the framework behind our missionreplacement or supplementation of damaged or inadequate integumental tissue.
Wound Portfolio
EPIFIX
EPIFIX is a protective barrier allograft comprised of dehydrated human amnion/chorion membrane that may be used in the treatment of chronic wounds, including diabetic foot ulcers (DFUs), venous leg ulcers (VLUs), and pressure ulcers. EPIFIX is available in an assortment of sheet configurations and sizes to accommodate various wounds.
EPICORD
EPICORD is a dehydrated human umbilical cord allograft that may be used to provide a protective environment for the healing process. Compared to EPIFIX, EPICORD is thicker than our amniotic membrane allografts and can be applied in deeper wounds or in areas where suturing the allograft in place may be advantageous. EPICORD is available as a sheet or an expandable form that can expand to twice its size.
EPIEFFECT
EPIEFFECT is a lyophilized, tri-layer placental tissue allograft that contains amnion, intermediate layer, and chorion membranes. This product was launched in October 2023 and represents the latest innovation in our product pipeline to deliver a thick, robust allograft to the market in a wide range of sizes for use as a barrier during chronic wound treatment, including deep or tunneling wound areas.
Surgical Portfolio
AMNIOFIX
AMNIOFIX is a protective barrier allograft comprised of dehydrated human amnion/chorion membrane that may be used in Surgical Recovery applications. AMNIOFIX is available in an assortment of sheet configurations and sizes for internal use, including in the areas of lower extremity repair, spine, orthopedic, sports medicine, gastrointestinal, urologic, and other general surgery applications.
MIMEDX also has a micronized version of this product that it no longer markets or sells in the United States. As further discussed below under the heading “Government Regulation and Compliance - 2017 FDA Guidance and Transition Policy for HCT/Ps,” the FDA clarified in its 2017 guidance that it regards micronized amniotic membrane products as subject to FDA licensure as biological products under Section 351 of the Public Health Service Act (“Section 351”).
AMNIOCORD
AMNIOCORD is a dehydrated human umbilical cord allograft that may be used to provide a protective environment for the healing process. These products are thicker than our amniotic membrane allografts and can be used in surgical settings where an allograft needs to be applied to a deeper area or needs to be sutured in place.
AMNIOEFFECT
AMNIOEFFECT is a tri-layer placental tissue allograft that contains amnion, intermediate layer, and chorion membranes. This product is designed to meet the needs of surgeons performing procedures where a more robust allograft with expansive size offerings is desired.
AXIOFILL
AXIOFILL is an extracellular matrix derived from human placental disc, and is designed to provide a cost-effective human collagen scaffold that is conducive for use in large, complex wounds and those of irregular geometries. Our AXIOFILL product has seen most uptake by clinicians primarily focused on Surgical applications.
We continue to research new opportunities for amniotic and other placental tissue, and we have additional offerings in various stages of conceptualization and development.
Placenta Donation Program
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In order to obtain the source material for our human birth tissue-based product portfolio, we partner with physicians with innovative products that helpand hospitals to recover donations of these materials at hospitals around the body heal itself. MiMedx is the leading global supplier of amniotic tissue products, having supplied over 700,000 allografts to date in Wound Care, Burns, Surgery, Orthopedics, Spine, Sports Medicine, Ophthalmology and Dentistry.
United States. Through our donor program, a mother who is scheduled to deliverdelivers a healthy full-term baby via Caesarean section can elect to donate her placentalplacenta and umbilical cord tissue in lieu of having it discarded as medical waste. MiMedx’s procurement network collectsAfter consent for donation is obtained, a blood sample from each donor is tested for communicable diseases, and the donated human placental tissue whichdonor is converted into safe, effective and sterile product at our fully integrated manufacturing facility utilizing our proprietary PURION® Process.
Processing (Manufacturing)
The Company has developed and patented a unique and proprietary technique (PURION) for processing allografts from the donated placental tissue. The PURION Process produces an allograft that is easy to use and effective. This unique processing technique specifically focuses on preserving the tissue’s bioactivenatural growth factor content and regulatory proteins and maintaining the structure and collagen matrix of the tissue. Our patented and proprietary processing method employs aseptic processing techniques in addition to terminal sterilization for increased product safety. Despite starting with similar placental tissues, all placental tissue products and processing methods are not the same – we believe that our proprietary process preserves more of the natural beneficial characteristics of the tissue than the processes used by many of our competitors.
The PURION Process also allowsprocess produces an allograft that retains the tissue’s inherent biological properties and regulatory proteins (including cytokines, chemokines, and growth factors) found in the placental tissue and produces an allograft that is safe and easy for healthcare providers to use. Our allografts can be stored at room temperature and have a five-year shelf life. Additionally, eachEach sheet allograft incorporates specialized visual embossmentsmarkings that assist the health care practitioner with proper allograft placement and orientation.
Our facilities are subject to periodic announced and unannounced inspections by regulatory authorities and may undergo compliance inspections conducted by the FDA and corresponding state and foreign agencies. We are registered with the FDA as a tissue establishment and are subject to the FDA’s CGTP quality program regulations, state regulations, and AATB standards.regulations promulgated by various regulatory authorities outside the United States.
Intellectual Property
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Our intellectual property includes owned and licensed patents, owned and licensed patent applications and patents pending, proprietary manufacturing processes and trade secrets, and trademarks associated with our technology. Furthermore, we require employees, consultants and advisors to sign Proprietary Information and Inventions Agreements, as well as Nondisclosure Agreements that assign to us and protect the intellectual property existing and generated from their work or that we may otherwise use or own. We believe that our patents, proprietary manufacturing processes, trade secrets, trademarks, and technology licensing rights provide us with important competitive advantages.
Patents and Patent Applications
Office. The vast majority of our domestic patents covering our core amniotic tissue technology and products will not begin to expire until August of 2027.
Marketing and Sales
We continue to pursue private label or “OEM” relationship, to date the most notable of which are Medtronic and Zimmer Biomet. In September 2013, we entered into a non-exclusive distribution agreement with Medtronic, Inc. and its wholly-owned subsidiary, SpinalGraft Technologies, LLC (SGT). Under the agreement, MiMedx provides our PURION Processed grafts to Medtronic to be marketed by SGT under the RDX2® brand name for spinal applications throughout the United States.
Coverage and Reimbursement
Medicare Coverage
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The coverage and reimbursement framework for products under Medicare is determined in accordance with the Social Security Act and pursuant to regulations promulgated by the CMS, as well as the agency’s regulatory coverage and reimbursement determinations. Ultimately, however,guidance. In some cases, CMS does not specify coverage, leaving each of the MACs to determine whether and on what conditions they will provide coverage for the product. Such decisions are based on theireach MAC’s assessments of the science and efficacy of the applicable product. As noted below under the heading “Research and Development,” we have devoted significant resources to clinical studies to provide data to the MACs, as well as other payers, in order to demonstrate the clinical efficacy and clinicaleconomic effectiveness of our EpiFix sheet products.tissue technologies. As of the date of this report, our EpiFix sheet productsboth EPIFIX and EPICORD allografts are eligible for coverage by all eight of the Medicare Contractors.MACs. In January 2019, EPIFIX and EPICORD received separate CMS HCPCS Codes, Q4186 and Q4187, distinguishing each product in coverage and reimbursement policies. On July 1, 2023, EPIEFFECT received a CMS Code Q4278, also.
For Medicare reimbursement purposes, our EpiFix sheet productsEPIFIX and EPICORD allografts are classified as “skin substitutes.” Current reimbursement methodology varies between the hospital outpatient department (HOPD)(“HOPD”) and ambulatory surgery center (ASC)ASC setting versus the physician office. Our EpiFix sheet allografts come in many sizes to appropriately fit the size of the patient’s wound. Some competitive products come in one size only with the product size significantly larger than the wounds they are used to treat. The provider has to cut these products to fit the wound size, with the rest of the product discarded, and, therefore, wasted. Formerly, reimbursement for these products was based on the size of the graft and the Medicare payment for these grafts was costly. In 2014, CMS implemented a new reimbursement methodology inCurrently, within the HOPD and ASC in part to combat this wastage. Currently,places of service, skin substitutes are reimbursed under a “packaged” or “bundled” methodology along with the related application procedure under a two-tier payment system. Thus, in the HOPD setting, providers receivethat provides a single payment that reimburses for both the application of the product as well as the product itself. CMS also classifies skin substitutes into low cost or high cost groups, based on a weightedgeometric mean unit cost and per day cost. For 2022, the geometric mean unit cost threshold applicable to both our EPIFIX and EPICORD allograft products was $48 per square centimeter, average. In 2016,and the weighted averageper day cost threshold was $949. For 2023, the geometric mean unit cost threshold applicable to determineboth our EPIFIX and EPICORD allograft products was $47 per square centimeter, and the highper day cost threshold was $949. For 2024, the geometric mean unit cost threshold applicable to our EPIFIX, EPICORD and lowEPIEFFECT allograft products is $47 per square centimeter, and the per day cost groupthreshold was $25 per sq. cm.$807. The national HOPD average packaged (“bundled”) rate for our EPIFIX and EPICORD allograft products was $1,371$1,549 in 2014, $1,4072019, $1,623 in 2015, $1,4112020, $1,715 in 2016,2021, $1,749.26 in 2022, and $1,427$1,725 in 2017. All skin substitute2023. The national HOPD average packaged (“bundled”) rate for our EPIFIX, EPICORD and EPIEFFECT products administeredin 2024 is $1,738. CMS assigns lower national rates to the ASC to reflect a less resource-intensive place of service. Revenue in the HOPDASC setting are bundled exceptconstitutes less than 1% of the Company’s annual net sales. Medicare payments for those thatmost items and services, including EPIFIX and EPICORD sheet products, have been approved by CMS for pass-through status. This "bundled" payment structure applies onlysubject to the HOPD and ASC settings.sequestration reductions of approximately 2% periodically from 2013.
Currently, providers that administer EpiFixEPIFIX, EPICORD or EPIEFFECT allografts and other skin substitutes in the physician office setting are reimbursed based on the size of the graft, computed on a per square centimeter basis. The payment rate is calculated using the manufacturer’s reported average sales price (ASP)(“ASP”) submitted quarterly to CMS. This payment methodology applies only to physician offices.offices, as well as places of service such as patient home, assisted living and nursing home. The Medicare payment rates are updated quarterly based on this ASP information.information for many skin substitute products but not all. EPIFIX, EPICORD and EPIEFFECT are included on the Medicare national ASP Drug Pricing File. The published skin substitute Medicare payment rate established by statute is ASP plus 6%. Reimbursement for products not included on the Medicare national ASP Drug Pricing File are at the discretion of each MAC, which typically is invoice cost or wholesale acquisition cost (“WAC”) plus 6%.
In August 2023, three MACs published changes to their Local Coverage Determinations (“LCDs”) that were intended to go into effect on October 1, 2023, before ultimately being abandoned. These LCDs included language that would have lowered the number of allowed applications of a product below what is commonly used in standard practice by physicians today (supported by clinical evidence) and reflected by LCDs currently in force with the MACs. Additionally, the LCDs outlined those skin substitute products which is alsowould explicitly be eligible for coverage and those which would not. While these LCDs ultimately were not implemented, the Q code specifiedMACs have indicated plans to bring forth a new proposed LCD for EpiFix.skin substitutes in the future, which could include elements that could be unfavorable to our business.
Private Payers
We continue to devotehave devoted considerable resources to clinical trials to support coverage and reimbursement of our products and have confirmed anproducts. An increasing number of private payers that reimburse for EpiFixEPIFIX and EPICORD in the physician office, the HOPD and the ASC settings.settings, and we have complete national commercial coverage for the use of EPIFIX in the treatment of DFUs. Coverage and reimbursement varies
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vary according to the patient’s health plan and related benefits. More than 800The majority of health plans currently provide coverage for EpiFixEPIFIX and EPICORD for the treatment of Diabetic Foot Ulcers (DFUs). Venous Leg Ulcers (VLUs) areDFUs, and many include treatment of VLUs. MIMEDX has secured payer coverage for over 300 million covered lives, allowing a significant number of patients access to our products. Information contributing to the coverage determination included a third-party technical brief (by the Agency for Healthcare Research and Quality (“AHRQ”)) that evaluated a number of skin substitutes for treating chronic wounds, in which EPIFIX was noted to have the most Randomized Controlled Trials, a low risk of overall study bias, and statistically significant findings.
Our newest product, EPIEFFECT, has also covered by a series of payers. At the close of 2016, we reported coverage of over 298 million lives, including allstarted to receive private reimbursement in certain regions of the Medicare MACs,U.S. and over 36 State Medicaid plans. we are focused on continuing to increase the number of covered lives eligible for this product in the future.
We have established and continue to grow a reimbursement support group to educate and assist providers and patients with regard to accurate coverage and reimbursement information regarding our products, and plan to continue investing in clinical data supportive of coverage for our products.products in additional clinical areas of use.
Hospital Use
Seasonality
Revenues during our fourth quarter tend to be stronger than other quarters because many hospitals increase their purchases of our products during the fourth quarter to coincide with the end of their budget cycles in the United States. Satisfaction of patient deductibles through the course of the year also results in positive healing outcomes, providesincreased revenues later in the potential for a reduced length-of-stay,year. In general, our first quarter usually has lower revenues than the preceding fourth quarter, the second and is cost-effective.
Customer Concentration
Competition
Due to Government accounts, including the Department of Veterans Affairs, are made through a distributor relationship with AvKARE, Inc. ("AvKARE") which is a veteran-owned General Services Administration Federal Supply Schedule (FSS) contractor. The Company's agreement with AvKARE expires, subjectlower barriers to certain for-cause termination rights, on June 30, 2017. The Company may also elect to terminate
In February 2020, the AHRQ published a significant competitive advantage.
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more difficult. Furthermore, other skin substitutes currently on the market require cryogenic freezer storage and have limited shelf life.
Our main competitors in the wound; however, it offers limited growth factors to enhance healingskin substitute market include Integra LifeSciences Holdings Corporation, Organogenesis, Inc., and due toSmith & Nephew plc, which sell a variety of AWC products, including skin substitutes and placental tissue allografts. In addition, the porcine origin may cause an immune responseoverall market is competitive, with a large number of other, smaller and oftentimes privately-held competitors that compete regionally and nationally.
Government Regulation and Compliance
The products we sell are regulated by the FDA in the patient.
United States. The products currently manufactured and processed by the Company are derived from human tissue. As discussed below, some tissue-basedGenerally, our products currently sold in the United States are regulated as Human Cells, Tissues, and Cellular and Tissue - Based Products (“HCT/Ps”), and are subject solely underto Section 361 of the Public Health Service Act as human cells, tissues(“Section 361”) and cellular and tissue-based products, or HCT/Ps,related regulations, which do not require premarketpre-market clearance or approval by the FDA. Other tissueWe do not currently sell in the United States those cellular and tissue-based products considered to be drugs, devices, and/or biological products (“Section 351 HCT/Ps”) subject to licensure under Section 351 of the Public Health Service Act (“Section 351”) and related regulations. Section 351 HCT/Ps are regulated as biologicsbiological products, and, in order to be lawfully marketed in the United States, require an FDA-approved biologics application (BLA).FDA pre-market approval.
Tissue Products Regulated as
In 1997, the FDA proposed a regulatory framework for cells and tissues. This framework was intended to provide adequate protection of public health while enabling the development of new therapies and products with limited regulatory burden. A key innovation in the system was that covered HCT/Ps would be regulated solely under Section 361 and would not be subject to pre-market clearance. The registration and listing rules were finalized in January 2001 in 21 CFR Part 1271. Additional rules regarding donor eligibility and good tissue practices were soon adopted. Together, these rules form a comprehensive system intended to encourage significant innovation.
The FDA has specific regulations governing human cells, tissuesrequires each HCT/P establishment to register and cellular and tissue-based products, or HCT/Ps. An HCT/P is aestablish that its product containing or consisting of human cells or tissue intended for transplantation into a human patient. HCT/Ps that meetmeets the criteriarequirements to qualify for regulation solely under Section 361 of the Public Health Service Act (so-called “361 HCT/Ps”) are not subject to any premarket clearance or approval requirements but are subject to post-market regulatory requirements.
361. To be a Section 361 HCT/P, a cellular or tissue-based product generally must meet all four of the following criteria:criteria (fully set forth in 21 CFR Part 1271):
Products Regulated Solely as Section 361 HCT/Ps
The FDA review for safety and effectiveness under a drug, device, or biological product marketing application is required. We believe that our amniotic tissue allografts arehas specific regulations governing HCT/Ps, including some regulations specific to Section 361 HCT/Ps, which are set forth in 21 CFR Part 1271. All establishments that manufacture Section 361 HCT/Ps must register and list their HCT/Ps with the FDA’s Center for Biologics Evaluation and Research within five days after commencing operations. In addition, establishments are required to update their registration annually in December or within 30 days of certain changes and submit changes in HCT/P listing at the time of or within six months of such change.
The regulations in 21 CFR Part 1271 also require establishments to comply with donor screening, eligibility and testing requirements, and CGTP to prevent the introduction, transmission and spread of communicable diseases. The CGTP govern, as may be applicable, the facilities, controls, and methods used in the manufacture of all HCT/Ps, including the micronized versionsprocessing, storage, recovery, labeling, packaging, and distribution of EpiFixSection 361 HCT/Ps. CGTP require us, among other things, to maintain a quality program, train personnel, control, and AmnioFix.monitor environmental conditions as appropriate, control and validate processes, properly store, handle and test our products and raw materials, maintain our facilities and equipment, keep records and comply with standards regarding recovery, pre-distribution, distribution, tracking and labeling of our products, and complaint handling. 21 CFR Part 1271 also mandates compliance with adverse reaction and CGTP deviation reporting and labeling requirements.
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by the FDA issuedin its sole discretion. To determine compliance with the applicable provisions, the inspection may include, but is not limited to, an Untitled Letter allegingassessment of the establishment’s facilities, equipment, finished and unfinished materials, containers, processes, HCT/Ps, procedures, labeling, records, files, papers and controls required to be maintained under 21 CFR Part 1271. If the FDA were to find serious non-compliant manufacturing or processing practices during such an inspection, it could take regulatory actions that could adversely affect our business, results of operations, financial condition, and cash flows.
2017 FDA Guidance and Transition Policy for HCT/Ps
In November 2017, the FDA released four guidance documents that, collectively, the agency described as a “comprehensive policy framework” for applying existing laws and regulations governing regenerative medicine products, including HCT/Ps. One guidance document in particular, “Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue – Based Products: Minimal Manipulation and Homologous Use – Guidance for Industry and Food and Drug Administration Staff,” offered important clarity.
The guidance documents confirmed that sheet forms of amniotic membrane generally are appropriately regulated as solely Section 361 HCT/Ps when intended for use as a barrier or covering. We continually evaluate our marketing materials for each of our products to align with FDA guidance.
Second, the guidance documents confirmed the FDA’s stance that all micronized amniotic tissue allograftsmembrane products are more than minimally manipulated, and therefore do not qualify as Section 361 HCT/Ps. However, the guidance documents also stated that the FDA intended to exercise enforcement discretion under limited conditions with respect to the IND application and pre-market approval requirements for certain HCT/Ps through November 2020, which was later extended through May 2021. This period of enforcement discretion was intended to give sponsors time to evaluate their products, have a dialogue with the agency and, if necessary, begin clinical trials and file the appropriate pre-market applications. The FDA’s approach was risk-based, and the guidance documents clarified that high-risk products and uses could be subject to immediate enforcement action.
This enforcement discretion applied across our industry, and during the period, the Company continued to market its products under this policy of enforcement discretion. After May 31, 2021, the Company ceased marketing or selling in the United States its products that were impacted by enforcement discretion, including its micronized dehydrated human amnion chorion membrane (“mDHACM”) products.
The Company is engaged with the FDA regarding the classification of AXIOFILL and certain of its other products. If the FDA makes a final determination that these products do not meet the criteriarequirements for regulation solely under Section 361 then, in order to continue to market the products, the Company would be required to obtain the appropriate FDA clearance or approval.
The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that the Company has failed to comply with applicable regulatory requirements, it can take a variety of the Public Health Service Act and that,compliance or enforcement actions, such as issuing an FDA Form 483 notice of inspectional observations; sending a result, MiMedx would need a biologics license to lawfully market those micronized products. Since thewarning letter or untitled letter; issuing an order of retention, destruction, or cessation of marketing; imposing civil money penalties; suspending or delaying issuance of approvals; requiring product recalls; imposing a total or partial shutdown of production; withdrawing approvals or clearances already granted; pursuing product seizures, consent decrees or other injunctive relief; and criminal prosecution through the Untitled Letter, we have been in discussions with the Department of Justice (“DOJ”).
FDA to communicate its disagreement with the FDA's assertion that our allografts are more than minimally manipulated. To date, the FDA has not changed its position that our micronized products are not eligible for marketingPost–Market Regulation
Tissue processors regulated solely under Section 361 of the Public Health Service Act. We continue to market the micronized products but are also pursuing the Biologics License Application (“BLA”) process for certain of our micronized products.
Other Regulation Specific to Tissue Products
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Tissue Bank Laws, Regulations, and Related Accreditation
As discussed above, we are required to register with the heading "Our businessFDA as an establishment that manufactures human cells, tissues, and cellular and tissue-based products. We are licensed, registered, or permitted as a tissue bank in California, New York, Delaware, Illinois, Oregon, and Maryland. Additionally, we received and actively maintain AATB accreditation. The AATB has issued operating standards for tissue banking. Compliance with these standards is required in order to become an AATB-accredited tissue establishment. AATB standards include specific requirements for recovery, screening, testing, labeling, processing, and storing of birth tissue. We maintain compliance with AATB standards and our state licensure requirements.
To the extent we sell our products outside of the United States, we also are subject to continuing regulatory compliancelaws and regulations of foreign countries.
Other Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including CMS, other divisions of the HHS (e.g., the Office of Inspector General), the DOJ and other authorities,individual United States Attorney offices within the DOJ, and state and local governments. These regulations include those described below.
•The federal Anti-Kickback Statute (“AKS”), which is costly and our failure to comply could result in negative effects on our business".
•The federal False Claims Act (“FCA”) imposes significant civil liability on any person or entity that knowingly presents, or causes to be presented, a claim for payment to the U.S. government, including the Medicare and Medicaid programs, that is false or fraudulent. The FCA also allows a private individual or entity as a whistleblower to sue on behalf of the government to recover civil penalties and treble damages. FCA liability is potentially significant in the healthcare industry because the statute provides for significant damages (treble) and mandatory penalties per false claim or statement. As a result of a safe harbor may result in increased scrutinymodification made by Government enforcement authorities, such as the OIG. Many states have laws similarFraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government.
•The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) fraud and abuse provisions prohibit executing a scheme to defraud any healthcare benefit program, willfully obstructing a criminal investigation of a health care offense, or making false statements or concealing a material fact relating to payment for healthcare benefits, items or services.
•While manufacturers of human cell and tissue products regulated solely under Section 361 are not subject to the federal law.
•Federal conflicts of interest laws, the Standards of Ethical Conduct for Employees of the Executive Branch, and local site policies for each federal institution we call upon govern our interactions with federal employees at our various government accounts (e.g., DoD, VA, etc.) and impose a number of limitations on such interactions.
•There are state regulations,law equivalents of each of the above federal laws, such as anti-kickback and regulations promulgatedfalse claims laws, which may apply to items or services reimbursed by any third-party payer, including commercial insurers, many of which differ from each other in significant ways and often are not preempted by federal laws, thus complicating compliance efforts.
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In addition, we may be subject to data privacy and security regulation by both the federal government and the states in which we conduct our business. HIPAA, as amended by the European Union. Our facilities are subjectHealth Information Technology for Economic and Clinical Health Act (“HITECH”) and its implementing regulations, imposes certain requirements relating to periodic unannounced inspections by regulatory authorities,the privacy, security and transmission of protected health information. Among other things, HITECH made HIPAA’s privacy and security standards directly applicable to “business associates,” independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates and possibly other persons and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may undergonot have the same effect, thus complicating compliance inspections conductedefforts.
International Regulation (Japan)
In 2021, MIMEDX received regulatory approval from the Japanese Ministry of Health, Labour and Welfare (JMHLW) to market EPIFIX in Japan. Under JMHLW guidelines, EPIFIX is classified as a Class IV Medical Device and “Specified Biological Product” and is approved for the treatment of refractory ulcers, such as DFUs and VLUs that do not respond to conventional therapy. As a condition of the final approval, MIMEDX will conduct post-market surveillance, consisting of a limited study of over 75 participants. The JMHLW has the ultimate responsibility of granting final approval on all Class III and IV Medical Devices and “Specified Biological Products.” All approved products in Japan, including EPIFIX, are regulated by the Pharmaceuticals and Medical Devices Agency (“PMDA”), which acts as the technical arm of the JMHLW. The PMDA serves in a similar function as the FDA in the United States, and corresponding stateis responsible for ensuring the safety, efficacy, and foreign agencies.quality of pharmaceuticals and medical devices in Japan. The PMDA provides review and approval of medical devices, QMS/GLP/GCP inspections, and collection and analysis of adverse event reports.
Research and Development
Our research and development group has extensive experience in developing products related tofor our field of interest,target markets, and works to design products that are intended to improve patient outcomes, simplify techniques, shorten procedures, reduce hospitalization and rehabilitation times and, as a result, reduce costs. Our research and development group also works to establish scientific evidence in support of the use of our products. Clinical trials that demonstrate the safety, efficacy and cost effectiveness of our products are key to obtaining broader third-party reimbursement for our products. In addition to our internal staff, we contract with outside labslaboratories and physicians who aid us in our research and development process. See Part II, Item 7, below, for information regarding expenditures for research and development in each of the last three fiscal years.
Environmental, Social & Governance Matters (“ESG”)
At MIMEDX, we are committed to improving people’s health and lives through innovation that makes healing possible. Our product offering is derived from donated human placental and umbilical cord tissue, which are processed into products used by health professionals to treat patients suffering from both acute and chronic hard-to-heal wounds. We are continuously looking to expand the breadth of our product offering, further leveraging birth tissue that would otherwise become medical waste, and have a product pipeline that includes innovations for wound and surgical end markets. Our Core Values define how we lead the field with rigorous science, help clinicians elevate the standard of care, provide a safe and healthy environment for our employees, and work and grow as a company.
In additionan effort to deliver long-term value to all of our stakeholders, we incorporate environmental, social, and governance (ESG) objectives that are relevant to our business. These ESG objectives are informed by a combination of feedback from our stakeholders as well as leading ESG frameworks, such as the numerous published scientific studies,Sustainability Accounting Standards Board (SASB) Medical Equipment & Supplies standards, under the oversight of our allograft is the first and only dHACM product to meet the requirementsBoard of the USP (United States Pharmacopeia) Monograph for amniotic membrane allografts. This monograph includes both EpiFix and AmnioFix sheet products, and is the culmination of several years of work to define specifications, review, and test those specifications to ensure they accurately define the dHACM product with high manufacturing standards.
Directors.
Environmental Matters
Stewardship is a Core Value at MIMEDX. We are stewards of a precious, life-protecting and life-giving resource – human birth tissue – which currently represent the biological source material for all of our products. Without our placental donation and recovery program, this material would most likely be discarded as medical waste at the hospital. We do not produce a significant amount of emissions from our operations.
Environmental Management
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We recently worked with a third-party to conduct an environmental, health, and safety gap assessment in order to accurately benchmark our environmental impact. The review looked at several areas including:
•Air Pollution Control Management
•Battery Handling and Disposal
•Community Right-to-Know (Hazardous Material Reporting)
•Hazardous Waste Management
•SARA Title III (Release Reporting)
•Solid Waste Management
•Spill, Prevention, Control and Countermeasure
•State Pollutant Discharge Elimination System (SPDES)
•Storm Water Management
•Universal Waste Management
•Waste Oil Management
We are evaluating the results of this exercise in order to consider implementation of measures in support of our Environmental Management program.
Waste Management
We work with waste removal providers to responsibly dispose of medical waste and biohazardous waste and have a program in place for the management of all medical and biohazardous waste processed in our facilities. In addition, we follow applicable packaging requirements for regulated medical waste, and conduct regular required training for all employees responsible for packaging medical waste for shipment. Our tissue preservation activities generate some chemicalwaste management initiatives also include the shredding and biomedical wastes, consisting primarilyrecycling of diluted alcoholspaper waste from our facilities, our transition to digital systems where possible to reduce print waste, and acids,the distribution of electronic tablets to our sales teams to minimize printing needs, shipping costs, and humanprinted materials.
Our facilities management team collects recyclable and animal pathologicalreusable material when possible, including for cardboard, plastics, batteries, fluorescent lamps, and biological wastes, including humanballasts. We have significantly reduced the use of plastic and animal tissuealuminum materials with the installation of filtered water and body fluids removed during laboratory procedures.soda machines within our facilities. The chemicalpackaging of our product cartons is recyclable and, biomedical wastes generatedsince 2015, has been reduced in size by our tissue processing operations are placed in appropriately constructed and labeled containers and are segregated from other wastes. We contract with third parties for transport, treatment, and disposal of waste. We strive to remain compliant with applicable laws and regulations promulgated by the Resource Conservation and Recovery Act, the U.S. Environmental Protection Agency and similar state agencies.50%.
As of December 31, 2016,2023, we had approximately 690895 full time employees. WeGenerally, we consider our relationships with our employees to be satisfactory. Nonegood, and none of our employees isare covered by a collective bargaining agreement. We conduct regular surveys of employees to monitor engagement levels and act on feedback received through this process.
Our Diversity and Inclusion
MIMEDX values the diversity of perspective, experience, and background within our Company. We have stated goals to promote diversity, inclusion, and equal opportunity regardless of race, gender, nationality, ethnic origin, religion, age, or sexual orientation. Intimidation or harassment of any kind are not acceptable in our workplace.
Our business requires a workforce with a wide range backgrounds, experiences, skills, and knowledge and a culture that blends this diversity into an effective team. In order for our employees to do their best work, and for us to achieve our mission, everyone at MIMEDX must feel respected, valued, and included. Comprised of employees across the Company, our Inclusion and Diversity Council reviews programs created to support best practices for our work environment challenges, champion diversity, and provide an intentional link for each employee to the company values and goals.
The table below provides an overview of MIMEDX’s diversity as of December 31, 2023:
| Board of Directors | Women and minorities hold one-third of the seats on our Board, including the Chair of the Board. | ||||
| Employee Gender Diversity | Women represented 56% of our workforce. Women represented 55% of our new hires in 2023. | ||||
| Employee Ethnic/Racial Diversity | Black or African American: 25% Hispanic or Latino: 9% Other Non-White (including American Indian, Alaskan Native, Asian, Native Hawaiian, or Other Pacific Islander): 9% | ||||
Recruiting, Retaining, and Engaging Talent
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Talent is our greatest asset and we are dependent on being able to recruit, develop, and retain talent that share our Core Values. We use tools, such as an interview guide and a process reviewed by our Inclusion and Diversity Council, designed to prevent us from bias in our hiring decisions. We are currently in compliance with affirmative action reporting. As part of our Affirmative Action Plan, we leverage targeted outreach in our hiring process to ensure our postings reach underrepresented groups.
We are focused on retaining our talented professionals who we believe are key to the Company’s success. Our human resource group continuously monitors and benchmarks employee turnover and other trends in our industry and on a regional level to ensure MIMEDX is competitive and responsive to changes in the broader marketplace. Combining this data with feedback from exit interviews in any instances of voluntary employee turnover, we are able to use these actionable insights to improve employee engagement, provide opportunities for career development, evolve our total rewards offering and evaluate implementation of additional resources to enhance the employee experience at MIMEDX.
Compensation and Benefits
We offer all full-time employees a comprehensive benefits package, including:
•Health coverage, including Medical, Dental, Vision insurance, a wellness incentive program and virtual and text-based healthcare
•Paid Parental and Caregiver leave
•Employee Assistance Program
•Paid company holidays
•401(k) plan, including Employer match
•Employee Stock Purchase Plan opportunity.
Our History
Our current business began on February 8, 2008 when Alynx, Co., our predecessor company, acquired MiMedx, Inc., a development-stage medical device company, the assets of which included licenses to two development-stage medical device technology platforms which we do not currently market. On March 31, 2008, Alynx, Co. merged into MiMedx Group, Inc., a Florida corporation and wholly-owned subsidiary that had been formed for purposes of the merger, with MiMedx Group, Inc. as the surviving corporation in the merger. In January 2011, we acquired all of the outstanding equity interests of Surgical Biologics, LLC (n/k/a MiMedx Tissue Services, LLC).
Available Information
Ethics, are on our website under the heading “Investors–Corporate Governance.” The reference to our website does not constitute incorporation by reference of any information contained aton that site.
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Item 1A. Risk Factors
An investment in our Common Stock involves a substantial risk of loss. Set forth below is a summary of the risks and uncertainties affecting our business that we currently believe to be material. We caution you to read the following risk factors, which have affected, and/or in the future could affect, our business, prospects, operating results, and financial condition. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also affect our business, prospects, operating results, and financial condition. Additional risks and uncertainties are described under other captions in this report and should also be considered by our stockholders. If any of these risks materialize, our business, financial condition or operating results could suffer. In this case, the trading price of our Common Stock could decline, and you may lose part or all of your investment.
Risks Related to Our Business and Industry
Our priorities in our Wound & Surgical business are to address large, underpenetrated market opportunities, domestically and internationally, including by launching new organic or inorganic products. We intend to implement and maintain rigorous quality standards throughout our entire supply chain and continue to advance the scientific body of a varietyevidence substantiating clinical efficacy, economic viability and the underlying mechanism offactors, many of which are outside of our control.
We have basedsought and may continue to seek capital to implement our currentpriorities. In developing our priorities, we evaluated many factors including, without limitation, those related to developments in our industry, customer demand, competition, regulatory developments, and future expense levels largely on our investment plans and estimates of future events, although certain of our expense levels are, to a large extent, fixed. Wegeneral economic conditions. Actual conditions may be unabledifferent from our assumptions, and we may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenue relative tosuccessfully execute our planned expenditures would have an immediate adverse effect onpriorities. If we do not successfully execute our priorities, or if actual results vary significantly from our assumptions, our business, operating results of operations and financial condition. Further, as a strategic response to changes in the competitive environment, we may from time to time make certain pricing, service or marketing decisions thatcondition could have a material and adverse effect on our business, results of operations and financial condition. Due to the foregoing factors, our revenue and operating results are and will remain difficult to forecast.be adversely impacted.
We are in a highly competitive and evolving field and face competition from well-established tissue processors and medical device manufacturers, as well as new market entrants.
Our business is in a very competitive and evolving field. Competition from other tissue processors, medical device companies, and biotherapeutic companies, and from research and academic institutions, is intense, expected to increase and subject to rapid change, and could be significantly affected by new product introductions.introductions as well as changes in reimbursement that could favor certain products and competitors over others. Established competitors and newer market entrants are investing in additional clinical research that may allow them to gain further clinician usage, adoption and payer coverage of their products. In addition, consolidation and cost containment measures in the healthcare industry continuesmay cause hospitals to leadconsolidate their purchases with suppliers that have a broad portfolio of products. This would continue to give rise to demands for price concessions, or to the exclusion of some suppliers from certain of our markets, which could have an adverse effect on our business, results of operations orand financial condition. Further, competitors may introduce placental-based membrane products in the future at lower prices, adding new features or gaining additional reimbursement coverage, or utilize sales and marketing practices that negatively impact the industry. Further, they may copy our products outside the United States. The presence of this competition in our market may lead to pricing pressure, which would make it more difficult to sell our products at a price that will make us profitable or prevent us from selling our products at all. Our failure to compete effectively wouldcould have a material andan adverse effect on our business, results of operations and financial condition.
Rapid technological change could cause our products to become obsolete and, if we do not enhance our product offerings through our research and development efforts or business development and inorganic activities, we may be unable to effectively compete.compete effectively.
The technologies underlying our products are subject to rapid and profound technological change. Competition intensifies as technical advances in each field are made and become more widely known. We can give no assurance that others will notOthers may develop services, products or processes with significant advantages over the products, services and processes that we offer or are seeking to develop. Any such occurrence could have a material andan adverse effect on our business, results of operations and financial condition.
We plan to enhance and broaden our product offerings in responseas part of a strategy that involves responding to changing customer demands and competitive pressure and technologies.technologies, among other factors. The success of any new product offering or enhancement to an existing product will depend on numerous factors, including our ability to:
•properly identify and anticipate physician and patient needs;
•acquire, through licensing, co-development or outright purchase, new technology developed outside of MIMEDX;
•develop and introduce new products or product enhancements in a timely manner;
•adequately protect our intellectual property and avoid infringing upon the intellectual property rights of third parties;
•demonstrate the safety and efficacy of new products; and
•obtain the necessary regulatory clearances or approvals for new products or product enhancements.
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If we do not develop and, when necessary, obtain regulatory clearance or approval for new products or product enhancements in time to meet market demand, or if there is insufficient demand for these products or enhancements, our results of operations and financial condition will suffer. Our research and development efforts may require a substantial investment of time and resources, including additional capital, before we are adequately able to determine the commercial viability of a new product, technology, material or other innovation. In addition, even if we are able to successfully develop enhancements or new generations of our products, these enhancements or new generations of products may not produce sales in excess of the costs of development, or they may never receive required regulatory approval and they may be quickly rendered obsolete by changing customer preferences or the introduction by our competitors of products embodying new technologies or features.
The success of our human tissue products depends upon, among other factors, the availability of tissue from human donors. Any failure to obtain tissue from our sources will interfere with our ability to effectively meet demand for our products incorporating human tissue. The processing of human tissue into our products is very labor-intensive and it is therefore difficult to maintain a steady supply stream. The availability of donated tissue could also be adversely impacted by regulatory changes, public opinion of the donor process as well asand our own reputation in the industry. The challenges weWe may facenot be successful in obtainingour ability to scale tissue recovery efforts to meet the potential future demand of our pipeline. Obtaining adequate supplies of human tissue involveinvolves several risks, including limited control over availability (due to for example, access to hospital accounts and the number of consenting mothers), quality, delivery schedules, and delivery schedules.eligibility requirements. In addition, any interruption in the supply of any human tissue component could materially harm our ability to manufacture our products until a new source of supply, if any, could be found. We also utilize third-party providers of placental donations on an as-needed basis to mitigate risks but there can be no assurance that these third parties will be able to provide donated tissues at all times. We may be unable to find a sufficient alternative supply channel in a reasonable time period or on commercially reasonable terms, if at all, which would have a materialan adverse effect on our business, results of operations and financial condition.
We depend on key personnel.our senior leadership team and may not be able to retain or replace these employees or recruit additional qualified personnel, which would harm our business, results of operations and financial condition.
Our business and success are materially dependent on attracting and retaining members of our senior leadership team to formulate and execute the Company’s business plans. Since June 2018, we have made significant changes to our senior leadership team, and hired several new senior leaders, including our CEO and CFO in 2023.
Leadership changes can be inherently difficult to manage and may cause material disruption to our business or management team. Changes in senior management could also lead to an environment that presents additional challenges in recruiting and retaining employees, which could have an adverse effect on our business, results of operations and financial condition.
Our future success will also depend, in part, upon our ability to attract and retain skilled personnel, including sales, managerial and technical personnel. There can be no assurance that we will be able to continue to find and attract additional qualified employees to support our expected growth or retain any such personnel.
Our inabilityrevenues depend on adequate reimbursement from public and private insurers and health systems and changes to hire and retain qualified personnel or the lossways in which our products are reimbursed in various sites of servicesservice could adversely impact our financial results.
Our success depends on the extent to which our customers receive adequate reimbursement for the costs of our key personnelproducts and related treatments from third-party payers, including government healthcare programs, such as Medicare and Medicaid, as well as private insurers and health systems. Government and other third-party payers attempt to contain healthcare costs by limiting both coverage and the level of reimbursement of medical products, particularly new products. Therefore, significant uncertainty may exist as to the reimbursement status of new healthcare products by third-party payers. Although EPIFIX and EPICORD have coverage with the majority of large payers, a materialsignificant number of public and private insurers currently do not cover or reimburse our other products.
The reimbursement landscape for our products varies depending upon the site in which the products are administered. If we are not successful in obtaining adequate coverage and reimbursement for our products from these third-party payers in one or more of the sites of service where our products are used, it could have an adverse effect on market acceptance of our products. Inadequate reimbursement levels would likely also create downward price pressure on our products. Even if we do succeed in obtaining widespread coverage and reimbursement rates or policies for our products, future changes in coverage or reimbursement rates or policies could have a negative impact on our business, financial condition and results of operations.
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Administrative Contractors (MACs) signaled their intent to change coverage guidance by moving Local Coverage Determinations (LCDs) through our current or another distributor ). Any disruptionthe process. While these were ultimately withdrawn, the same MACs signaled their intent to revisit the issue. If the national reimbursement proposals were to be adopted, it would significantly change Medicare policies governing the reimbursement of ourskin substitute products on the FSS or a changeprincipally when used for wound treatment in the wayprivate physician office setting. If MACs proceed to change coverage policies, this could significantly change guidance within the Government purchases products like ours oraffected regions.
Changes in the price it is willing to pay forcoverage and reimbursement environment as described above could result in declines in our products, could materially andrevenue that would adversely affect our business, financial condition and results of operation.
Our revenue, results of operations and financial condition.cash flows may suffer upon the loss of a Group Purchasing Organization or Integrated Delivery Network.
Our agreements with GPOs and IDNs allow us to sell our products we must expandefficiently to large groups of customers. Our agreements with GPOs and IDNs typically provide their members with favorable ordering terms and conditions and access to favorable product pricing. These customers purchase our relationshipsproduct through GPO and IDN arrangements in part because of the favorable pricing and terms and conditions. If our agreement with distributorsany GPO or IDN is terminated or expires without being extended, renewed or renegotiated, this could adversely affect our revenue, results of operations and cash flows.
We contract with and are dependent upon independent sales representatives, whom we do not control.agents and distributors.
If our relationships with our independent sales representatives, though, other than our distributor for Government accounts, no one distributor comprised over 5% of our revenues. If such
Because our agents and distributors are not control a distributor's field sales agents,employees, there is a risk we will be unable to ensure that our sales processes, compliance safeguards, and other prioritiesrelated policies will be consistently communicatedadhered to despite our communication and executed by the distributor. Iftraining of agents and distributors regarding these requirements. Furthermore, if we fail to maintain relationships with our key distributors,independent agents, or fail to ensure that our distributorsindependent agents adhere to our sales processes, compliance safeguards and other priorities, thisrelated policies, there could havebe an adverse effect on our operations.business, results of operations, and financial condition.
We intend tomay obtain the assistance of additional distributors and independent sales representatives to continue oursell products in certain sales growth with respect to certain of our products.channels, particularly in territories and fields where agents are commonly used. Our success is partially dependent upon our ability to train, retain and motivate our distributors, independent sales agencies, distributors, and their representatives to appropriately and compliantly sell our products in certain territories.territories or fields. They may not be successful in implementing our marketing plans.plans or compliance safeguards. Some of our distributors and independent sales agencies and distributors do not sell our products exclusively and may offer similar products from other companies. Our distributors and independent sales agencies and distributors may terminate their contracts with us, may devote insufficient sales efforts to our products or may focus their sales efforts on other products that produce greater commissions for them, which could have an adverse effect on our business, results of operations and operating results.financial condition. We also may not be able to find additional distributors and independent sales representativesagencies and distributors who will agree to appropriately and compliantly market and/or distribute thoseour products on commercially reasonable terms, if at all. If we are unable to establish new distribution and independent sales representative and distribution relationships or renew current distributionsales agency and sales agencydistribution agreements on commercially acceptable terms, our business, financial condition, and results of operations could be materially and adversely affected.
Disruption of our processing facilities could adversely affect our business, financialcondition and results of operations.
Our results of operations are dependentbusiness depends upon the continued operation of our processing facilities.facilities in Marietta, Georgia and Kennesaw, Georgia. Risks that could impact our ability to use these facilities include the occurrence of natural and other disasters, the outbreak of pandemics, and the need to comply with the requirements of directives from Governmentgovernment agencies, including the FDA. We haveEither of our two processing facilities can serve as a secondaryredundant processing facility for most of our products in Kennesaw, Georgia that also serves asthe event the other facility experiences a disaster recovery center.event. However, the unavailability ofif our manufacturing and processing facilities were to become unavailable, this could have a material adverse effect on our business, financial condition and results of operations during the period of such unavailability.
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To be commercially successful, we must convinceeducate physicians, thatwhere appropriate, how and when our products aresafe and effectiveproper alternatives to existing treatments and that ourproducts should be used in their procedures.
We believe physicians will only adoptuse our products if they determine, based on their independent medical judgment and experience, clinical data, and published peer reviewed journal articles, that the use of our products in a particular procedure is a favorable alternative to conventional methods.other treatments. Physicians may be slowhesitant to change their existing medical treatment practices for the following reasons, among others:
•their lack of experience with advanced therapeutics, such as our placenta-based allografts;
•lack of evidence supporting additional patient benefits of advanced therapeutics, such as our placenta-based allografts, over conventional methods in certain therapeutic applications; •perceived liability risks generally associated with the use of new products and procedures; •limited availability of reimbursement from third-party payers; •more favorable reimbursement for other market-available products; and •the time that must be dedicated to physician training in the use |
If we do not receive this support or if we are unable to demonstrate favorable long-term clinical data, physicians and hospitalscannot successfully address quality issues that may not usearise with our products, which would significantly reduce our ability to achieve expected revenuebrand reputation could suffer, and would prevent us from sustaining profitability.our business, financial condition, and results of operations could be adversely impacted.
In the course of conducting our business, we must adequately address quality issues that may arise with our products, as well as defects in third-party components included in our products, as any quality issues or defects may negatively impact physician use of our products. Although we have established internal procedures to minimize risks that may arise from quality issues, we may not be able to eliminate or mitigate occurrences of these issues and associated liabilities. If the quality of our products does not meet the expectations of physicians or patients, then our brand and reputation could suffer and our business could be adversely impacted. We must also ensure any promotional claims made for our products comport with government regulations.
The formation of PODsphysician-owned distributorships (“PODs”) could result in increased pricing pressure on our products or harm our ability to sell our products to physicians who own or are affiliated with those distributorships.
PODs are medical product distributors that are owned, directly or indirectly, by physicians. These physicians derive a proportion of their revenue from selling or arranging for the sale of medical products for use in procedures they perform on their own patients at hospitals that agree to purchase from or through the POD, or that otherwise furnish ordering physicians with income that is based directly or indirectly on those orders of medical products. The Office of Inspector General (OIG)(“OIG”) of the Department of Health & Human Services has issued a Special Fraud Alert on PODs, indicating that they are inherently suspect under the anti-kickback statute.federal Anti-Kickback Statute.
Our commercial strategy emphasizes selling directly to healthcare providers and, to a limited extent, through distributors. To our knowledge, we do not directly sell to or distribute any of our products through PODs. The number and strength of PODs in the industry may continue to grow as economic pressures increase throughout the industry asand hospitals, insurers and physicians search for ways to reduce costs, and, in the case of the physicians, search for waysidentify additional sources to increase their incomes. These companies and the physicians who own, or partially own, themPODs may have significant market knowledge, and access to and influence on the physicians who use our products and the hospitals that purchase our products, and growth in this areawe may reduce our abilitynot be able to compete effectively for business from physicians who own such distributorships.PODs.
We face the risk of product liability claims and may not be able toobtain or maintain adequate product liability insurance.
While we have had a low product complaint and adverse event rate historically, our business exposes us to the risk of product liability claims that are inherent in the manufacturing, processing and marketing of medical devices and human tissue products. We may be subject to such claims if our products cause, or appear to have caused, an injury. Claims may be made by patients, healthcare providers or others selling our products. Defending a lawsuit, regardlessProduct liability claims can be expensive to defend (regardless of merit, could be costly,merit), divert managementour management’s attention, and result in substantial damage awards against us, harm our reputation, and generate adverse publicity, which could result in the withdrawal of, or reduced acceptance of, our products in the market.
Although we have product liability insurance that we believe is adequate, this insurance is subject to deductibles and coverage limitations, and we may not be able to maintain this insurance at an acceptable cost or on acceptable terms or be able to secure increased coverage (if needed), nor can we be sure that existing or future claims against us will be covered by our product liability insurance. Also, it is possible that claims could exceedMoreover, the limitsexisting coverage of our coverage.insurance or any rights of indemnification and contribution that we
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may have may not be sufficient to offset existing or future claims. If we are unable to maintain product liability insurance at an acceptable cost or on acceptable terms with adequate coverage or otherwise protect ourselves against potential product liability claims or we underestimate the amount of insurance we need, we could be exposed to significant liabilities, which may harm our business. A product liability claim or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could result in significant costs and significant harm to our business. Even if a claim is not successful, defending such claim would be time-consuming and expensive, may damage our reputation in the marketplace, and would likely divert our management’s attention.
The products we process are derived from human tissue and therefore have the potential for disease transmission.
The utilization of human tissue creates the potential for transmission of communicable disease, including, without limitation, human immunodeficiency virus, viral hepatitis, syphilis and other viral, fungal or bacterial pathogens. We are required to comply with federal and state regulations intended to prevent communicable disease transmission.
We maintain strict quality controls designed in accordance with CGTP to ensure the safe procurement and processing of our tissue, including terminal sterilization of our products. These controls are intended to prevent the transmission of communicable disease. However, risks exist with any human tissue implantation. Also, negative publicity concerning disease transmission from other companies’ improperly processed donated tissue could have a negative impact on the demand for our products and adversely affect our business, financial condition and results of operations.
We may implement a product recall or voluntary market withdrawal, which could significantly increase our costs, damage
our reputation, and disrupt our business.business and adversely affect our business, results of operations and financial condition.
The manufacturing,processing and marketing and processing of our tissue products involves an inherent risk that our tissue products or processes domay not meet applicable quality standards and requirements. In the event that event,one or more of our products experiences a failure to meet such standards and requirements, we may voluntarily implement a recall or market withdrawal or may be required to do so by a regulatory authority.
A recall or market withdrawal of one of our products wouldcould be costly and wouldmay divert management resources. A recall or withdrawal of one of our products, or a similar product processed by another entity, also could impair sales of our products as a result of confusion concerning the scope of the recall or withdrawal, or as a result of the damage to our reputation for quality and safety.
A cyberattack, a disruption in availability, or the unauthorized alteration of systems or data could adversely affect our business, results of operations and financial condition. We rely on technology for day-to-day operations as well as positioning to a large extent upon sophisticated information technology systemsenhance our stance in the market. We generate intellectual property that is central to operate our business. In the ordinary coursefuture success of the business we collect, store and transmit large amounts of confidential information. Additionally, we collect, store and transmit confidential information (including, but not limited to, personal informationof customers, patients, employees and intellectual property).third parties. We also have outsourced significant elements of our operations to third parties, including significant elements of our information technology infrastructure, and, as a result, we are managing many independent vendor relationships with third parties who may or could have access to our confidential information. The size and complexitycontinually changing threat landscape of cybersecurity today makes our information technology and information security systems, and those of our third-party vendors with whom we contract (and the large amounts of confidential information that is present on them), make such systems potentially vulnerable to service interruptions or to security breaches from inadvertent or intentional actions by our employees, orpartners, and vendors, orand from malicous attacks by malicious third parties.parties, including supply chain attacks originating at our third-party partners. Such attacks are of ever-increasing levels of sophistication andsophistication. Attacks are made by individuals or groups that have varying levels of expertise, some of which are technologically advanced and well-funded including, without limitation, nation states, organized criminal groups and individuals withhacktivists organizations.
To ensure protection of our information, we have invested in cybersecurity and have implemented processes and procedural controls to maintain the confidentiality and integrity of such information. We measure these controls and their success through a wide range of motives (including, but not limited to, industrial espionage and market manipulation) and expertise.cybersecurity framework that is based on industry standards. While we have invested significantly in the protection of our data and information technology, there can be no assuranceguarantees that our efforts will prevent all service interruptions or security breaches. Although we have cyber-insurance coverage that may cover certain events described above, this insurance is subject to deductibles and coverage limitations and we may not be able to maintain this insurance. Also, it is possible that claims could exceed the limits of our coverage. Any such interruption or breach inof our systems could adversely affect our business operations and/orand result in the loss of critical or sensitive confidential information or intellectual property, and could result in financial, legal business and reputational harm to us or allow third parties to gain material, insideour business, including legal claims and proceedings, liability under laws that protect the privacy of personal information, that they use to trade in our securities.
government enforcement actions and regulatory penalties, as well as remediation costs. We also maintain cyber liability insurance. However, this insurance may not be successful in commercializingsufficient to cover the financial, legal or reputational losses that may result from an interruption or breach of our CollaFix Technology.systems.
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We may expand or contract our business through acquisitions, divestitures, licenses, investments, and other commercial arrangements inwith other companies or technologies, which contain significant risks.may adversely affect our business, results of operations and financial condition.
We periodically evaluate strategic opportunities to acquire companies or divest divisions, technologies, products, and rights through licenses, distribution agreements, investments, and outright acquisitions to grow our business. In connection with one or more of those transactions, we may:may, subject to the requirements and limitations set forth in our Citizens Credit Agreement (as defined below in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), Liquidity and Capital Resources):
Any of these items could materially, and adversely affect our revenues, results of operations and financial condition, and profitability.condition. Business acquisitions also involve the risk of unknown liabilities associated with the acquired business, which could be material. Incurring unknown liabilities or the failure to realize the anticipated benefits of an acquisitionany transaction could materially, and adversely affect our business if we are unable to recover our initial investment, which could include the cost of acquiring licenses or distribution rights, acquiring products, purchasing initial inventory, or investments in early stage companies.investment. Inability to recover our investment, or any write off of such investment, associated goodwill or assets could have a material andan adverse effect on our business, results of operations and financial condition.
Some of our revenues are derived from sales, both direct and through a distributor, to risks associated with international sales and operations.
condition.
New lines of business or new products and services may subject us to additional risks.
From time to time, we may implement or may acquire new lines of business or offer new products and services within existing lines of business. There are risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed or are evolving. In developing and marketing new lines of business and new products and services, we may invest significant time and resources. External factors, such as regulatory compliance obligations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a materialan adverse effect on our business, results of operations and financial condition.
Our international expansion and operations outside the U.S. expose us to risks associated with international sales and operations.
We are pursuing further expansion outside the U.S., including in Japan. Managing a global organization is difficult, time consuming and expensive. Our future capital needs are uncertainability to conduct international operations is affected by many of the same risks we face in our U.S. operations, as well as unique costs and difficulties of managing international operations, including the relationships and operations of distributors we elect to work with in these markets. Adoption of our products in new geographic regions could take longer and cost more than we anticipate. Risks inherent in international operations also include, among others, potential adverse tax consequences, greater difficulty in enforcing intellectual property rights, risks associated with the Foreign Corrupt Practices Act and local anti-bribery law compliance, and other international regulations. These regulations may limit our ability to market, sell, distribute or otherwise transfer our products to prohibited countries or persons. International regulations may also limit what promotional claims we may needmake for our products.
Compliance with these regulations and laws is costly, and failure to raisecomply with applicable legal and regulatory obligations could adversely affect us in a variety of ways that include, without limitation, significant criminal, civil and administrative penalties, including imprisonment of individuals, fines and penalties, denial of export privileges, seizure of shipments and restrictions on certain business activities. Also, the failure to comply with applicable legal and regulatory obligations could result in the disruption of our distribution and sales activities.
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These risks may limit or disrupt our expansion, restrict the movement of funds or result in the deprivation of contractual rights or the taking of property by nationalization or expropriation without fair compensation. Operating outside of the U.S. also requires significant management attention and financial resources.
Risks Related to Regulatory Approval of Our Products and Other GovernmentRegulations
The FDA has in the past determined, and may in the future determine, that certain of our products that are, or are derived from, human cells or tissues, do not qualify for regulation solely under Section 361 of the Public Health Service Act (“Section 361”), and may require that we revise our labeling and marketing claims for these products or that we suspend sales of such products until FDA pre-market clearance or approval is obtained, which could adversely affect our business, results of operations, and financial condition.
The products we manufacture and process are derived from human tissue. Amniotic and other birth tissue have in the past generally been regulated as HCT/P and were therefore eligible to be subject to regulation solely under Section 361 (“Section 361 HCT/P”) depending on whether the specific product at issue and the claims made for it were consistent with the applicable criteria. HCT/Ps that do not meet these criteria are subject to more extensive regulation as drugs, medical devices, biological products, or combination products. These HCT/Ps must comply with both the FDA’s requirements for HCT/Ps and the requirements applicable to biologics, devices or drugs, including pre-market clearance or approval from the FDA. Obtaining FDA pre-market clearance or approval involves significant time and investment by the Company.
In accordance with the FDA Guidance, as discussed above in “Business – Government Regulation,” after May 31, 2021, the Company no longer markets or sells its products that were impacted by enforcement discretion in the United States, has requested the return of unused consignment inventory as of that date, and does not intend to sell such products in the United States until the FDA grants pre-market approval. Our sales of such products for all uses was $0.5 million, $2.4 million, and $17.6 million, respectively, in 2023, 2022, and 2021. Prior to May 31, 2021, these sales were primarily in the United States. The loss of our ability to market and sell our micronized products previously had an adverse impact on our revenues, business, financial condition and results of operations.
Also, we are engaged with the FDA regarding the classification of AXIOFILL and certain of our other products. If the FDA makes a final determination that any of these products do not meet the requirements for regulation solely under Section 361, in order to continue to market the products, we would be required to obtain the appropriate FDA approval or clearance. The loss of our ability to market and sell these products would have an adverse impact on our revenues, business, financial condition and results of operations.
Any future regulatory changes could also have adverse consequences for us and make it more difficult or expensive for us to conduct our business by requiring pre-market clearance or approval and compliance with additional post-market regulatory requirements with respect to those products. For example, the FDA may in the future impose conditions, such as labeling restrictions, and the requirement that a product be manufactured in compliance with CGMP, which would require significant additional time and cost investments by the Company. Moreover, increased regulatory scrutiny within the industry in which we operate could lead to increased regulation of HCT/Ps, including Section 361 HCT/Ps, which could ultimately increase our costs and adversely impact our business, results of operations and financial condition.
Obtaining and maintaining the necessary regulatory approvals, including conducting clinical trials, for certain of our products or potential products could be expensive and time consuming.
The process of obtaining regulatory clearances or approvals to market a biological product or medical device from the FDA or similar regulatory authorities outside of the U.S. may be costly and time consuming, and such fundsclearances or approvals may not be availablegranted on acceptable termsa timely basis, or at all.
that we expect to develop or may acquire and market may require marketing clearance or approval from the number and timing of acquisitions and other strategic transactions;
The process of obtaining an approved BLA, including clinical trial development and commercializationexecution as well as manufacturing processes, requires the expenditure of substantial time, effort and financial resources and may take years to complete, including costs incurred on top of those fees incurred as part of conducting various clinical studies. The fee for filing a BLA and program fees payable with respect to any establishment that manufactures biologics are substantial. The FDA may not grant approval on a timely basis, or at all, or we may decide not to pursue a BLA for certain products or indications, or need to conduct additional trials for a given indication. Additionally, the FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial application of the products. If we do receive approval, some types of changes to the approved product, such as adding new indications or doses, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval. Our revenues could be adversely
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affected if we fail to obtain BLA approvals on a timely basis or at all, or if the FDA limited the indications for use or required other conditions that restrict the commercial application of our products.
Additionally, there are significant costs associated with clinical trials that can be difficult to accurately estimate until a BLA is approved. Clinical trials may not be successful or may return results that do not support approval. Moreover, the results of early clinical trials are not necessarily predictive of future results, and any product we advance into clinical trials may not have favorable results in later clinical trials. Our interpretation of data and results from our clinical trials does not ensure that we will achieve similar results in future clinical trials. In addition, clinical data are often susceptible to various interpretations and analyses, and many companies that have believed their products performed satisfactorily in earlier clinical trials or retrospective studies have nonetheless failed to replicate results in later clinical trials.
Our business is subject to extensive regulation by the FDA and other authorities, which is costly, and our failure to comply could result in negative effects on our business, results of operations and financial condition.
As discussed above, the FDA has specific regulations governing our tissue-based products, or HCT/Ps. The FDA has broad post-market and regulatory and enforcement powers, even for Section 361 HCT/Ps. The FDA’s regulation of HCT/Ps includes requirements for registration and listing of products, donor screening and testing, processing and distribution, labeling, record keeping and adverse-reaction reporting, and inspection and enforcement.
HCT/Ps that are regulated as drugs, biological products or medical devices are subject to even more stringent regulation by the FDA. Even if pre-market clearance or approval is obtained, the approval or clearance may place substantial restrictions on the indications for which the product may be marketed or to whom it may be marketed, may require warnings to accompany the product or impose additional restrictions on the sale or use of the product. In addition, regulatory approval is subject to continuing compliance with regulatory standards, including the FDA’s quality system regulations.
If we fail to comply with the FDA regulations regarding our tissue products, the FDA could take enforcement action, including, without limitation, any of the following sanctions and the manufacture of our products or processing of our tissue could be delayed or terminated:
•untitled letters, warning letters, cease and desist orders, fines, injunctions, and civil penalties;
•recall or seizure of our products;
•operating restrictions, partial suspension or total shutdown of production;
•refusing our requests for clearance or approval of new products;
•withdrawing or suspending current applications for approval or approvals already granted;
•refusal to grant export approval for our products; and
•criminal prosecution.
The FDA’s regulation of HCT/Ps may continue to evolve. Complying with any such new regulatory requirements may entail significant time delays and expense, which could have an adverse effect on our business, results of operations and financial condition.
The AATB has issued operating standards for tissue banking. Compliance with these standards is a requirement in order to become an accredited tissue bank. In addition, some states have their own tissue banking regulations.
In addition, procurement of certain human organs and tissue for transplantation is subject to the restrictions of the NOTA, which prohibits the transfer of certain human organs, including skin and related tissue for valuable consideration, but permits the reasonable payment associated with the removal, transportation, implantation, processing, preservation, quality control and storage of human tissue and skin. We reimburse tissue banks, hospitals and physicians for their services associated with the recovery and storage of donated human tissue. Although we have independent third-party appraisals that confirm the reasonableness of the service fees we pay, if we were to be found to have violated NOTA’s prohibition on the sale or transfer of human tissue for valuable consideration, we could potentially be subject to criminal enforcement sanctions, which could adversely affect our results of operations.
Finally, we and other manufacturers of skin substitutes are required to provide averageASP information to CMS on a quarterly basis. The Medicare payment rates are updated quarterly based on this ASP information. If a manufacturer is found to have made a misrepresentation in the reporting of ASP, such manufacturer is subject to civil monetary penalties of up to $10,000 for each misrepresentation for each day in which the misrepresentation was applied, and potential False Claims Act liability. See “We and our sales representatives, whether employees or independent contractors, must comply with various federal and state anti-kickback, self-referral, false claims and similar laws, any breach of which could cause an adverse effect on our business, results of operations and financial condition.”
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We may be subject to fines, penalties, injunctions and other sanctions if we are deemed to be promoting the use of our products for unapproved, or off-label, uses.
As a general rule, FDA regulations require that the marketing of 361 HCT/Ps only be for appropriate homologous uses, and that the promotion of pre-approved biological products or devices only be for FDA-approved indications. Generally, unless the products are approved by the FDA for alternative uses, the FDA contends that we may not make claims about the safety or effectiveness of our products, or promote them as safe or effective for uses other than those specifically approved by the FDA. Such limitations present a risk that the FDA or other federal or state law enforcement authorities could determine that the nature and scope of our sales, marketing and support activities, though designed to comply with all FDA requirements, constitute the promotion of our products for an unapproved use in violation of the federal FD&C Act. We also face the risk that the FDA or other governmental authorities might pursue enforcement based on past activities that we have discontinued or changed, including sales activities, prior marketing materials, arrangements with institutions and doctors, educational and training programs and other activities.
Investigations concerning the promotion of unapproved product uses and related issues are typically expensive, disruptive and burdensome and generate negative publicity. If our promotional activities are found to be in violation of the law, we may face significant legal action, fines, penalties, and even criminal liability and may be required to substantially change our sales, promotion, grant and educational activities. There is also a possibility that we could be enjoined from selling some or all of our products for any unapproved use. In addition, as a result of an enforcement action against us or any of our executive officers, we could be excluded from participation in government healthcare programs such as Medicare and Medicaid.
However, under the Guidance, as discussed above in “Business – Government Regulation,” after May 31, 2021, the Company no longer markets or sells its products that were impacted by enforcement discretion in the United States, and does not intend to sell such products in the United States until the FDA grants pre-market approval. We will ultimately only be able to market such products for indications that have been cleared or approved by the FDA.
Nevertheless, while we believe we are fully in compliance with the FDA's Guidance on HCT/Ps, there can be no assurance that we have correctly interpreted the FDA Guidance, or that we will not need to discontinue marketing a product and/or may be subject to fines, penalties, injunctions, and other sanctions if we are deemed to be promoting the use of our products for unapproved uses. Such regulatory penalties by the FDA could adversely affect our business and results of operations.
We and our sales representatives, whether employees or independent contractors, must comply with various federal and state anti-kickback, self-referral, false claims and similar laws, any breach of which could cause an adverse effect on our business, results of operations and financial condition.
Our relationships with physicians, hospitals and other healthcare providers are subject to various federal and state healthcare fraud and abuse laws. Healthcare fraud and abuse laws are complex and, in some instances, even minor or inadvertent violations can give rise to liability. Possible sanctions for violation of the healthcare fraud and abuse laws include, without limitation, monetary fines, civil and criminal penalties, exclusion from participating in the federal and state healthcare programs, including, without limitation, Medicare, Medicaid, the VA health programs and TRICARE (the healthcare program administered by or on behalf of the U.S. Department of Defense for uniformed service members, including both those in active duty and retirees, as well as their dependents), and forfeiture of amounts collected in violation of such prohibitions. Many states have similar fraud and abuse laws, imposing substantial penalties for violations. A finding of a violation of one or more of these laws, or even a government investigation or inquiry into the same, would likely result in a material adverse effect on the market price of our Common Stock, as well as on our business, results of operations, and financial condition.
The federal Anti-Kickback Statute (“AKS”) is a criminal law that prohibits, among other things, any person from knowingly and willfully offering, paying, soliciting or receiving remuneration, directly or indirectly, in cash or in kind, to induce or reward referrals, purchases or orders or arranging for or recommending the purchase, order or referral of any item or service for which payment may be made in whole or in part by a federal healthcare program, such as the Medicare and Medicaid programs. The term “remuneration” has been broadly interpreted to include anything of value. The Patient Protection and Affordable Care Act (the “PPACA”) amended the federal AKS to clarify the intent that is required to prove a violation. Under the federal AKS as amended, a person or entity need not have actual knowledge of this statute or specific intent to violate it. The PPACA also amended the federal AKS to provide that any claims for items or services resulting from a violation of the federal AKS are considered false or fraudulent for purposes of the federal FCA. A conviction for violation of the AKS results in criminal fines and requires mandatory exclusion from participation in federal health care programs. Although there are a number of statutory exceptions and regulatory safe harbors to the federal AKS that protect certain common industry practices from prosecution, the exceptions and safe harbors are drawn narrowly, and arrangements may be subject to scrutiny or penalty if they do not fully satisfy all elements of an available exception or safe harbor. We have entered into consulting agreements, speaker agreements, research agreements and product development agreements with physicians, including some who may order or recommend our products or make decisions to use them. In addition, some of these physicians own our stock, which
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they purchased in arm’s-length transactions on terms identical to those offered to non-physicians, or received stock awards from us in the past as consideration for services performed by them. While we believe these transactions generally meet the requirements of applicable laws, including the federal AKS and analogous state laws, it is possible that our arrangements with physicians and other providers may be questioned by regulatory or enforcement authorities under such laws, which could lead us to redesign the arrangements and subject us to significant civil or criminal penalties. We have designed our policies and procedures to comply with the federal AKS, FCA, and industry best practices. In addition, we have conducted training sessions on these principles. If, however, regulatory or enforcement authorities were to view these arrangements as non-compliant with applicable laws, there would be risk of government investigations/inquiries or penalties. There is also risk that one or more of our employees or agents will disregard the rules we have established. Because our strategy relies on the involvement of physicians who consult with us on the design of our products, perform clinical research on our behalf or educate other health care professionals about the efficacy and uses of our products, we could be materially impacted if regulatory or enforcement agencies or courts interpret our financial relationships with physicians who refer or order our products to be in violation of applicable laws. This could harm our reputation and the reputations of the physicians we engage to provide services on our behalf. In addition, the cost of noncompliance with these laws could be substantial since we could be subject to monetary fines and civil or criminal penalties, and we could also be excluded from federally-funded healthcare programs, including Medicare, Medicaid, VA and TRICARE.
The FCA imposes civil liability on any person or entity that knowingly submits, or causes the submission of, a false or fraudulent claim to the U.S. government. Damages under the FCA can be significant and consist of the imposition of fines and penalties. The FCA also allows a private individual or entity to sue on behalf of the government to recover civil penalties and treble damages as a whistleblower. FCA liability is potentially significant in the healthcare industry because the statute provides for treble damages and mandatory penalties of between $11,181 and $22,363 per false claim or statement for penalties assessed after January 29, 2018, with respect to violations occurring after November 2, 2015.
Manufacturers can be held liable under the FCA even when they do not submit claims directly to government payers if they are deemed to “cause” the submission of false or fraudulent claims. The PPACA provides that claims tainted by a violation of the federal AKS are false for purposes of the FCA. The DOJ on behalf of the government has previously alleged that the marketing and promotional practices of pharmaceutical and medical device manufacturers, including the off-label promotion of products or the payment of prohibited kickbacks to doctors, violated the FCA, resulting in the submission of improper claims to federal and state healthcare programs such as Medicare and Medicaid. In certain cases, manufacturers have entered into criminal and civil settlements with the federal government under which they entered into plea agreements, paid substantial monetary amounts and entered into onerous corporate integrity agreements with the government that require, among other things, substantial reporting and remedial actions, as well as oversight and review by an outside entity, an Independent Review Organization (“IRO”), at substantial expense to the Company.
Under the HIPAA criminal federal healthcare fraud statute, it is a crime to knowingly and willfully execute, or attempt to execute, a scheme or artifice to defraud any health care benefit program or to obtain, by means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program, in connection with the delivery of or payment for health care benefits, items or services.
There are federal and state laws requiring detailed reporting of manufacturer interactions with and payments to healthcare providers, such as the federal Physician Payments Sunshine Act (“Sunshine Act”). The Sunshine Act requires, among others, “applicable manufacturers” of drugs, devices, biological products, and medical supplies reimbursed under Medicare, Medicaid or the Children’s Health Insurance Program to annually report to CMS information related to payments and other transfers of value provided to “covered recipients.” The term covered recipients includes U.S.-licensed physicians and teaching hospitals, and, for reports submitted on or after January 1, 2022, physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and certified nurse-midwives. There is the risk that CMS or another government agency may take the position that our products are not human cell and tissue products regulated solely under Section 361, and thereby assert that we are currently subject to the Sunshine Act, which could subject us to civil penalties and the administrative burden of having to comply with the law.
There are state law equivalents to the AKS and FCA. There are also so-called state “all-payer” anti-kickback laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers, as well as when no insurer is involved (i.e. cash-pay patients).
The enforcement of all of these laws is uncertain and subject to rapid change. Federal or state regulatory or enforcement authorities may investigate or challenge our current or future activities under these laws. Any investigation or challenge could have a material adverse effect on our business, financial condition and results of operations. Any state or federal regulatory or enforcement review of us, regardless of the outcome, would be costly and time consuming. Additionally, we cannot predict the impact of any changes in these laws, whether these changes are retroactive or will have effect on a going-forward basis only.
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Our results of operations may be adversely affected by current and potential future healthcare reforms.
In response to perceived increases in healthcare costs in recent years, there have been and continue to be proposals by the U.S. federal government, state governments, regulators and third-party payers to control these costs and, more generally, to reform the U.S. healthcare system. In the U.S., the PPACA was enacted in 2010 with a goal of reducing the cost of healthcare and substantially changing the way healthcare is financed by both government and private insurers.
In addition, other legislative changes have been proposed and adopted in the U.S. since the PPACA was enacted. The Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This included aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013. In January 2013, the American Taxpayer Relief Act was signed into law, which, among other things, further reduced Medicare payments to several provider types, including hospitals.
In addition to the ACA, the Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) repealed the Sustainable Growth Rate formula used to calculate Medicare payment updates for physicians providing services to Medicare beneficiaries. In its place, MACRA introduced the Quality Payment Program (“QPP”), which is a value-based program that focuses on quality and outcomes as a metric for physician reimbursement. The Centers for Medicare and Medicaid Services released its final rules for the QPP in October 2016. The QPP, which impacts more than 600,000 physicians and other practice-based clinicians, represents a fundamental change in physician reimbursement, transitioning from a system that solely rewards volume of care to one that also rewards quality and value of care. The rule may have an impact on our revenue in the future. The program’s increased emphasis on quality and cost of care may encourage physicians to merge practices or seek direct employment with hospitals. In addition, the ACA encourages hospitals and physicians to work collaboratively through shared savings programs as well as other bundled payment initiatives. These shifts could lead to a consolidation of hospital providers into larger delivery networks with increased price negotiation strength resulting in downward pressure on our selling prices. Although we believe that we are well positioned to minimize any such impact on our business, our inability to address the consolidation trend could materially and adversely affect our business and results of operations.
There is uncertainty with respect to the impact the U.S. Administration, the executive order, and the attempted legislation may have, if any, and any changes will likely take time to unfold and could have an impact on coverage and reimbursement for healthcare items and services, including our products. We believe that substantial uncertainty remains regarding the net effect of the PPACA, or its repeal and potential replacement, on our business, including uncertainty over how benefit plans purchased on exchanges will cover our products, how the expansion or contraction of the Medicaid program will affect access to our products, the effect of risk-sharing payment models such as Accountable Care Organizations and other value-based purchasing programs on coverage for our product, and the effect of the general increase or decrease in federal oversight of healthcare payers. The taxes imposed and the expansion in government’s role in the U.S. healthcare industry under the PPACA, if unchanged, may result in decreased revenues, lower reimbursements by payers for our products and reduced medical procedure volumes, all of which could have a material adverse effect on our business, results of operations and financial condition.
We may fail to obtain or maintain foreign regulatory approvals to market our products in other countries.
We have identifiedcurrently market our products in a material weaknesssmall number of foreign countries, including in Japan. Foreign jurisdictions require separate regulatory approvals and compliance with numerous and varying regulatory requirements. The approval procedures vary among countries and may involve requirements for additional testing. Certain of our internal control over financial reporting which, ifproducts require clearance or approval by the FDA. However, such clearance or approval does not remediated, could adversely affect our reputation, businessensure approval or stock price.
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Federal and state laws that protect the privacy and security of personal information may increase our costs and limit our ability to collect and use that information and subject us to liability if we are unable to remediatefully comply with such laws.
Numerous federal and state laws, rules and regulations govern the material weakness,collection, dissemination, use, security and confidentiality of personal information, including protected health information and individually identifiable health information. These laws include:
•provisions of HIPAA that limit how covered entities and business associates may use and disclose protected health information, provide certain rights to individuals with respect to that information and impose certain security requirements
•HITECH, which strengthened and expanded the HIPAA Privacy Rule and Security Rules, imposed data breach notification obligations, created new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates and gave state attorneys general new authority to file civil actions for damages or injunctions in U.S. federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions;
•other federal and state laws restricting the use and protecting the privacy and security of personal information, including health information, many of which are not preempted by HIPAA;
•federal and state consumer protection laws; and
•federal and state laws regulating the conduct of research with human subjects.
The California Consumer Protection Act (“CCPA”), which became effective on January 1, 2020, is a privacy law that requires certain companies doing business in California to disclose information regarding the collection and use of a consumer’s personal data and to delete a consumer’s data upon request. The Act also permits the imposition of civil penalties and expands existing state security laws by providing a private right of action for consumers in certain circumstances where consumer data is subject to a breach. We are still evaluating whether and how this rule will impact our U.S. operations and/or limit the ways in which we can provide services or use personal data collected while providing services.
As part of our business operations, including our medical record keeping, third-party billing and reimbursement and research and development activities, we collect and maintain protected health information in paper and electronic format. Standards related to collecting and maintaining health information, whether implemented pursuant to HIPAA, HITECH, state laws, federal or state action or otherwise, could have a significant effect on the manner in which we handle personal information, including healthcare-related data, and communicate with payers, providers, patients, donors and others, and compliance with these standards could impose significant costs on us or limit our ability to record, processoffer services, thereby negatively impacting the business opportunities available to us.
If we are alleged to have not complied with existing or new laws, rules and report financialregulations related to personal information, accurately,we could be subject to litigation and to prepare financial statements within the time periods specified by the rules and forms of the Securities and Exchange Commission, could be adversely affected. The occurrence ofsanctions that include monetary fines, civil or failure to remediate the material weakness may adversely affect our reputation and business and the market price of our common stock and any other securities we may issue.
administrative penalties, civil damage awards or criminal penalties.
Risks Related to Our Intellectual Property
Our ability to protect our intellectual property and proprietary technologythrough patents and other means is uncertain and may be inadequate, which couldhave a material andan adverse effect on us.our business, results of operations and financial condition.
Our success depends significantly on our ability to protect our proprietary rights to the technologies used in our products. We rely on patent protection, as well as a combination of copyright, trade secret and trademark laws and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology, including our licensed technology. These legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. In addition, our pending patent applications include claims to material aspects of our products and procedures that aremay not currentlybe protected by issued patents. The patent application process can be time consuming and expensive. We cannot ensure that any of ourOur pending patent applications willmight not result in issued patents.patents, and issued patents may later be determined to be invalid or unenforceable as a result of district court litigation or related administrative proceedings. Competitors may be able to design around our patents or develop products that provide outcomes that are comparable or even superior to ours. Although we have taken steps to protect our intellectual property and proprietary technology, including entering into confidentiality agreements and intellectual property assignment agreements with some of our officers, employees, consultants and advisors, such agreements may not be enforceable or may not provide meaningful protection for our trade secrets or other proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements.
The failure to obtain and maintain patents and/or protect our intellectual property rights could have a material andan adverse effect on our business, results of operations, and financial condition. Whether a patent claim is valid is a complex matter of science, facts and law, and therefore we cannot be certain that, if challenged in a court of law, or through an administrative proceeding, our patents
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patent claims would be upheld. If one or moreany of those patentspatent claims are invalidated that could reduce or eliminate anydetermined to be unenforceable, our competitive advantage we might otherwise have had.may be reduced or eliminated.
In the event a competitor infringes upon our licensed orpatents, issued patents, pending patent applications or other intellectual property rights, enforcing those rights may be costly, uncertain, difficult and time consuming. Even if successful, litigation to enforce or defend our intellectual property rights could be expensive and time consuming and could divert our management'smanagement’s attention. Further, bringing litigation to enforce our patents subjects us to the potential for counterclaims. Other companies or entities also have commenced, and may again commence, actions seeking to establish the invalidity of our patents. For example,patents and certain related claims. In the defendants in certainevent that any of our ongoing patent infringement suits have filed petitions for inter-partes review of certain of our patents withclaims are challenged, a court, the United States Patent and Trademark Office (USPTO). We intend to defend these actions vigorously, but there is no guarantee(“USPTO”), or the Patent Trial and Appeal Board (“PTAB”) of success, and such effort takes financial and time resources from the Company. In the event that one or more of our patents are challenged, a court or the USPTO may invalidate the patent(s)one or more challenged patent claims or determine that the patent(s)patent is not enforceable,unenforceable, which could harm our competitive position. If the USPTO or the PTAB ultimately cancels or narrows the claim inscope of any of our patents through these proceedings, it could prevent or hinder us from being able to enforce them against competitors. Such adverse decisions could negatively impact our future, expected revenue. See Item 3, Legal Proceedings for information regarding our ongoing patent
In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protectingenforcing and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop infringement of our foreign patents, if obtained, or the misappropriation of our other intellectual property rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in suchsome countries may be inadequate.
We may become subject to claims of infringement of theintellectual property rights of others, which could prohibit us from developingour products, require us to obtain licenses from third parties or to developnon-infringing alternatives, and subject us to substantial monetary damages.
Third parties could assert that our products infringe one or more claims of their issued patents or other intellectual property rights. Whether a product infringes a patent claim or other intellectual property right involves a complex combination of legal and factual issues, the determination of which is often uncertain. Therefore, we cannot be certain that we have not infringed the intellectual property rights of others. Because patent applications are not immediately published, and may take years to issue, there also may be applications now pending of which we are unaware that may later result in issued patentspatent claims that our products or processes may infringe. There also may be existing patents or pending patent applications of which we are unaware that our products or processes may inadvertently infringe.
Any infringement claim could cause us to incur significant costs, place significant strain on our financial resources, divert management'smanagement’s attention from our business and harm our reputation. If the relevant patentspatent claims at issue in such claima dispute were upheld as valid and enforceable and we were found to infringe, we could be prohibited from selling any product that is found to infringe those claims through an injunction unless we could obtain licenses to use the technology covered by the asserted patent claims or other intellectual property, or are able to design around the patent claim or claims at issue or other intellectual property. We may be unable to obtain such a license on terms acceptable to us, if at all, and we may not be able to redesign our products to avoid infringement. A court could also order us to pay compensatory damages for such infringement, plus prejudgment interest and could, in addition, treble the compensatory damages and award attorney fees. These damages could be substantial and could harm our reputation, business, financial condition and operating results. A court also could enter orders that temporarily, preliminarily or permanently enjoin us and our customers from making, using, or selling products, and could enter an order mandating that we undertake certain remedial activities.measures. Depending on the nature of the relief ordered by the court, we could become liable for additional damages to third parties. Further, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our trade secrets or other confidential information could be compromised by inadvertent or court-ordered disclosure during this type of litigation.
We may be subject to damages resulting from claims that we, our employees, orour independent contractors have wrongfully used or disclosed alleged tradesecrets, proprietary or confidential information of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.
Some of our employees were previously employed at other medical device, pharmaceutical or tissue companies. We may also hire additional employees who are currently employed at other medical device, pharmaceutical or tissue companies, including our competitors. Additionally, consultants or other independent agents with which we may contract may be or have been in a
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contractual arrangement with one or more of our competitors. Although no claims are currently pending, we may be subject to claims that we, our employees, or our independent contractors have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of these former employers or competitors. In addition, we have been and may in the future be subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these
claims, litigation could result in substantial costs and be a distraction to management. If we fail to defend such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. There can be no assurance that this type of litigation will not continue, and anyAny future litigation or the threat thereof may adversely affect our ability to hire additional direct sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to market existing or new products, which could severely harm our business.business, financial condition and operating results.
Risks Related to Regulatory Approval of Our ProductsConsolidated Financial Statements, Internal Controls and Other GovernmentRegulationsRelated Matters
We have in the past reported material weaknesses in our internal control over financial reporting which we have since remediated. If material weaknesses or deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements might contain material misstatements and tissue-based products under Section 361we could be required to restate our financial results. Moreover, because of the Public Health Service Act, this could result in removalinherent limitations of the applicable products from the market, would make the introduction of new tissue products more expensive and significantly delay the expansion of our tissue product offerings and subject usany control system, material misstatements due to additional post-market regulatory requirements.
Risks Related to the Securities Markets and Ownership of Our Common Stock
Our indebtedness may adversely affect our financial health.
As of January 2024, the Company had aggregate borrowings outstanding of $30.0 million under its Revolving Credit Facility and $20.0 million under its Term Loan Facility, all pursuant to its Citizens Credit Agreement (as defined below in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations). Our outstanding debt may limit our ability to borrow additional funds or may adversely affect the terms on which such additional funds may be available. Additionally, a default under certain other indebtedness constitutes an event of default under the Citizens Credit Agreement. Consequently, the effects of a default under other debt may be amplified by the lenders exercising the remedies available to it in the Citizens Credit Agreement for events of default, including foreclosure on the collateral securing our obligations and the declaration that all amounts outstanding under the Citizens Credit Agreement are immediately due and payable.
The restrictive covenants in the Citizens Credit Agreement, and the Company’s obligation to make payments under the Citizens Credit Agreement, limit our operating and financial flexibility and may adversely affect our business, results of operations and financial condition.
The Citizens Credit Agreement imposes operating and financial restrictions and covenants. The Company must comply with certain financial covenants, including, a maximum total net leverage ratio and a minimum consolidated fixed charge coverage ratio. Additionally, the Citizens Credit Agreement includes certain customary restrictive covenants, including, but not limited to, limitations on indebtedness, liens, fundamental changes, dispositions, investments, loans, advances, guarantees, acquisitions, dividends and other restricted payments, transactions with affiliates, swap transactions, sale and leaseback transactions, prepayments on subordinated debt, and amendments to organizational and other material agreements.
The Citizens Credit Agreement also contains certain customary events of default, including, without limitation, (i) failure to pay interest or principal when due, (i) failure to provide notice of certain material events and (iii) failure to perform or observe certain covenants under the Citizens Credit Agreement or any related loan documents (subject to a 30-day grace period in certain circumstances). If an event of default occurs and is continuing, the agent under the agreement may, and at the direction of the lenders, take one or more of the following actions: (i) terminate the commitments, (ii) declare any amounts outstanding immediately due and payable, and (iii) exercise any other right it has under the Citizens Credit Agreement or at law. Compliance with such covenants may restrict our operating flexibility, and in the event that we were unable to comply with such covenants, leading to default and acceleration, this could adversely affect our business, results of operations and financial condition.
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EW Healthcare Partners and its interests may conflict with those of our other shareholders.
As of December 31, 2023, EW Healthcare Partners and their affiliates owned approximately 19.3% of our Common Stock (calculated on the basis described in Item 12, “Security Ownership Of Certain Beneficial Owners And Management” below). Also, for as long as EW Healthcare Partners and its affiliates collectively hold at least (i) 10% of the outstanding shares of our Common Stock, EW Healthcare Partners has the right to select two individuals that the Company must include among its nominees to serve on our Board and (ii) 5% (but less than 10%) of the outstanding shares of our outstanding Common Stock, EW Healthcare Partners has the right to select one individual that the Company must include among its nominees to serve on our Board. EW Healthcare Partners designated Martin P. Sutter and William A. Hawkins, III, who continue to serve on our board as directors. The interests of EW Healthcare Partners may conflict with those of our other shareholders, and EW Healthcare Partners may seek to influence, and may be able to influence, us through its director nomination rights and its share ownership.
The price of our common stockCommon Stock has been, and will likely continue to be,volatile.
The market price of our common stock,Common Stock, like that of the securities of many other healthcare companies that are engaged in or are just emerging from, theresearch, development, stage,and commercialization, has fluctuated over a wide range, and it is likely that the price of our common stockCommon Stock will fluctuate in the future. The market price of our common stockCommon Stock could be impacted by a variety of factors, including:
•Fluctuations in stock market prices and trading volumes of similar companies or of the markets generally; •Our ability to successfully launch, market and earn significant revenue from our products; •Our ability to obtain additional financing to support our continuing operations; •Disclosure of the details and results of our clinical trials and our regulatory applications and proceedings; •Developments in and disclosure or publicity regarding existing or new litigation or contingent liabilities; •Changes in government regulations or our failure to comply with any such regulations; •Additions or departures of key personnel; •Our investments in research and development or other corporate resources; •Announcements of technological innovations or new commercial products by us or our competitors; •Developments in the patents or other proprietary rights owned or licensed by us or our competitors; •The timing of new product introductions; •Actual or anticipated fluctuations in our operating results, including as a result of seasonality in our business, as well as any restatements of previously reported results; •Our ability to effectively and consistently process or manufacture our products and avoid costs associated with the recall of defective or potentially defective products; •Our ability and the ability of our distribution partners to market and sell our products; •Changes in reimbursement for our products or the price for our products to our customers; •Removal of our products from the FSS, or changes in how government accounts purchase products such as ours or in the price for our products to government accounts; •Activities of market participants and investors, including analysts and MIMEDX shareholders; •Material amounts of short-selling of our Common Stock; and •The other risks detailed in this Item 1A. Any unanticipated shortfall in our revenue in any fiscal quarter could have an adverse effect on our results of operations in that quarter. The effect on our net income of such a shortfall could be exacerbated by |
Securities analysts may elect not to report on our common stock or may issue negative reports that adversely affect the stock price.
Fluctuations in revenue or results of operations could cause additional volatility in our stock price.
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Any unanticipated shortfall in our revenue in any fiscal quarter could have a negativean adverse effect on our results of operations in that quarter. The effect on our net income of such a shortfall could be exacerbated by the marketrelatively fixed nature of most of our costs, which primarily include personnel costs as well as facilities costs. These fluctuations could cause the trading price of our shares.
We do not intend to pay cash dividends.dividends on our Common Stock.
We have never declared or paid cash dividends on our capital stock.Common Stock. We currently expect to use available funds and any future earningsearnings; in the development, operation and expansion of our businessbusiness; to repay debt; and, to the extent authorized by our Board, repurchasing our Common Stock. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. In addition, the terms of our existing credit facility restrict us from paying dividends. As a result, capital appreciation, if any, of our common stockCommon Stock will be an investor'sinvestor’s only source of potential gain from our common stockCommon Stock for the foreseeable future.
•allow directors to take other stakeholders into account in discharging their duties;
•a requirement that certain transactions statute, which generally requires approvalwith a shareholder of 10% or more ownership must be approved by the affirmative vote of two-thirds of the other shareholders unless approved by a majority of the disinterested directors or supermajority approvalcertain fair price requirements are met; and
•voting rights acquired by a shareholder at ownership levels at or above one-fifth, one-third and a majority of voting power are denied unless authorized by the Board prior to such acquisition or by a majority of the other shareholders for "affiliated transactions" between a corporation and an "interested stockholder." (excluding interested shares (as defined in the FBCA)).
Additionally, our organizational documents contain provisions:
•authorizing the issuance of blank check preferred stock;
•restricting persons who may call shareholder meetings;
•permitting shareholders to remove directors only “for cause” and only by super-majority vote; and
•providing the Board with the exclusive right to fill vacancies and to fix the number of directors.
These provisions of Florida law and our articles of incorporation and bylaws could negatively affect our share price, prevent attempts by shareholders to remove current management, prohibit or delay mergers or other takeovers or changes of control of the Company and discourage attempts by other companies to acquire us, even if such a transaction would be beneficial to our shareholders.
Item 1B. Unresolved Staff Comments
There are no unresolved SEC Staff comments with respect to our SEC filings.
Item 1C. Cybersecurity
We face significant and persistent cybersecurity risks due primarily to: the substantial level of harm that could occur to us and our customers were we to suffer impacts of a material cybersecurity incident; and our use of third-party products, services and components. We are committed to maintaining robust governance and oversight of these risks and to implementing mechanisms, controls, technologies, and processes designed to help us assess, identify, and manage these risks. While we have not, as of the date of this Annual Report, experienced a cybersecurity threat or incident that resulted in a material adverse impact to our business or operations, there can be no guarantee that we will not experience such an incident in the future. In addition, these threats are constantly evolving, thereby increasing the difficulty of successfully defending against them or implementing adequate preventative measures. We seek to detect and investigate unauthorized attempts and attacks against our network, products, and services, and to prevent their occurrence and recurrence where practicable through changes or updates to our internal processes and tools and changes or updates to our products and services; however, we remain potentially vulnerable to known or unknown threats.
We aim to incorporate industry best practices throughout our cybersecurity program. Our cybersecurity strategy focuses on implementing effective and efficient controls, technologies, and other processes to assess, identify, and manage material cybersecurity risks. Our cybersecurity program is designed to be aligned with applicable industry standards and is assessed periodically by independent third-parties. We have processes in place to assess, identify, manage, and address material cybersecurity threats and incidents. These include, among other things: annual and ongoing security awareness training for employees; mechanisms to detect and monitor unusual network activity; and containment and incident response tools. We monitor issues that are internally discovered or externally reported that may affect our business, and have processes to assess those issues for potential cybersecurity impact or risk. We also have a process in place to manage cybersecurity risks associated with third-party service providers. We impose security requirements upon our suppliers, including: maintaining an effective security management program and abiding by information handling and asset management requirements. Our Board of Directors has ultimate oversight of cybersecurity risk, which it manages as part of our enterprise risk management program. That program is utilized in making decisions with respect to company priorities, resource allocations, and oversight structures. The Board of Directors is assisted by the Audit Committee, which regularly reviews our cybersecurity program with management and reports to the Board of Directors. Cybersecurity reviews by the Audit Committee or the Board of Directors generally occur at least annually, or more frequently as determined to be necessary or advisable. Our cybersecurity program is run by the head of our information security department, who reports to our Chief Financial Officer. Our Chief Financial Officer is informed about and monitors prevention, detection, mitigation, and remediation efforts through regular communication and reporting from professionals in the information security team, who hold cybersecurity certifications such as a Certified Information Systems Security Professional, and through the use of technological tools and software and results from third party audits. We have an escalation process in place to inform senior management and the Board of Directors of material issues.
Item 2. Properties
Our corporate headquarters are located in Marietta, Georgia, where we lease approximately 80,000 square feet of office, laboratory, tissue processing and warehouse space. We also lease (a) approximately 21,000 square feet for a facility in Kennesaw, Georgia, which primarily consists of laboratory, tissue processing and warehouse space;space. Our properties are used for the design, manufacture and (b) approximately 26,000 square feetmarketing of additional office space in Marietta, Georgia. In addition, Stability leases approximately 3,000 square feet for its corporate offices in Nashville, TennesseeWound & Surgical product portfolio. We believe that such properties are suitable and approximately 15,000 square feet in San Antonio, Texas which consistsadequate to meet the needs of its tissue processing center.our business.
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Not applicable.
PART II
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Item 5. Market for Registrant'sRegistrant’s Common Equity, Related ShareholderStockholder Matters and Issuer Purchases of Equity Securities
Market for Common Stock
Our common stock was approved for quotationCommon Stock trades on the OTC Bulletin Board on July 19, 2007. Only a limited number of shares were traded after the approval of the quotation in July 2007. The common stock was traded withNasdaq Stock Market under the trading symbol of “AYXC.” Our common stock began trading under the symbol “MDXG” on April 2, 2008. On April 25, 2013, our common stock was approved for trading on the NASDAQ Capital Market..
| Year Ended December 31, 2016 | High | Low | |||||
| First Quarter | $ | 9.25 | $ | 7.31 | |||
| Second Quarter | 9.19 | 6.66 | |||||
| Third Quarter | 9.34 | 7.06 | |||||
| Fourth Quarter | 9.99 | 7.85 | |||||
| Year Ended December 31, 2015 | High | Low | |||||
| First Quarter | $ | 11.33 | $ | 7.92 | |||
| Second Quarter | 11.93 | 8.97 | |||||
| Third Quarter | 13.20 | 8.52 | |||||
| Fourth Quarter | 10.14 | 6.71 | |||||
Holders
Based upon information supplied from our transfer agent, there were approximately 756810 shareholders of record of our common stockCommon Stock as of February 15, 2017.23, 2024.
Dividends
We have not paid any dividends since our inception and do not anticipate declaring or paying any cash dividends on our Common Stock in the foreseeable future. Payment of future dividends, if any, will be at the discretion of our Board of Directors and will depend on many factors, including general economic and business conditions, our strategic plans, our financial results and condition, legal requirements and other factors as our Board deems relevant.
Stock Performance Graph
The following graph compares the cumulative total stockholder return on our common stockCommon Stock with the cumulative total stockholderstockholder return of the Nasdaq Composite Index and the Nasdaq BiotechnologyRussell 2000 Index, for the five year period that commenced on December 31, 2018 and assumesended December 31, 2023, assuming an investment of $100.00 on December 31, 2011, in each of the common stock, the stocks comprising the Nasdaq Composite Index and the stocks comprising the Nasdaq Biotechnology Index.2018.
ASSUMES $100 INVESTED ON DEC. 31, 2011
2018
ASSUMES DIVIDEND REINVESTMENT; NO DIVIDENDS
ASSUMES DIVIDEND REINVESTMENT; NO DIVIDENDS
ISSUED BY MIMEDX
FISCAL YEARENDINGENDED DEC. 31, 2016
FISCAL YEAR
2023
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Securities Authorized for Issuance Under Equity Compensation Plans
Information about securities authorized for issuance under our equity compensation plans is incorporated herein by reference to Item 12 of Part III of this Annual Report.
Recent Sales of Unregistered Securities
On December 22, 2023, all 95,000 outstanding shares of the Company’s Series B Convertible Preferred Stock (the “Preferred Stock”), together with accrued dividends, were mandatorily converted into shares of the Company’s Common Stock in accordance with the Preferred Stock terms set forth in the Company’s Articles of Incorporation, as amended. The Preferred Stock conversion, triggered by the Company’s increased Common Stock share price and following the third anniversary of the Preferred Stock financing transaction in July of 2020. As a result of this conversion, 29,761,650 new shares of Common Stock were issued by the Company to an affiliate of EW Healthcare Partners and to certain funds managed by Hayfin Capital Management LLP. The Company received no consideration upon the conversion. The shares of Common Stock issued pursuant to the conversion of the Preferred Stock were issued in reliance upon exemptions pursuant to Section 3(a)(9) under the Securities Act of 1933, as amended, and pursuant to applicable state securities laws and regulations, in that the shares of Common Stock were issued by the Company to its existing security holders and no commission or other remuneration was paid or given directly or indirectly for soliciting such exchange.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
| Total Number of Shares Purchased (a) | Average Price Paid per Share | Total number of shares purchased under publicly announced plan (b) | Total Amount Spent Under the Plan During Each Period | Remaining Amount to be Spent Under the Plan | ||||||||||
| Total amount remaining October 1, 2016 | $ | 3,935,789 | ||||||||||||
| October 1, 2016 - October 31, 2016 | 18,202 | $ | — | $ | — | $ | — | $ | 3,935,789 | |||||
| November 1, 2016 - November 30, 2016 | 11,542 | $ | — | $ | — | $ | — | $ | 3,935,789 | |||||
| December 2016 increased spending authorization | 6,000,000 | |||||||||||||
| December 1, 2016 - December 31, 2016 | 2,520 | $ | — | $ | — | $ | — | $ | 9,935,789 | |||||
| Total for the quarter | 32,264 | $ | — | $ | — | $ | — | |||||||
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Item 6. Selected Financial Data[Reserved]
| As of December 31, in thousands | |||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||||
| Net sales | $ | 245,015 | $ | 187,296 | $ | 118,223 | $ | 59,181 | 27,054 | ||||||||||||
| Gross margin | 212,608 | 167,094 | 105,558 | 49,853 | 21,865 | ||||||||||||||||
| Operating income (loss) | 18,446 | 24,364 | 7,100 | (2,639 | ) | (5,355 | ) | ||||||||||||||
| Net income (loss) | 11,974 | 29,446 | 6,220 | (4,112 | ) | (7,662 | ) | ||||||||||||||
| Net income (loss) per common share - basic | 0.11 | 0.28 | 0.06 | (0.04 | ) | (0.09 | ) | ||||||||||||||
| Net income (loss) per common share - diluted | $ | 0.11 | $ | 0.26 | $ | 0.05 | $ | (0.04 | ) | $ | (0.09 | ) | |||||||||
| As of December 31, in thousands | |||||||||||||||||||||
| 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||||
| Balance Sheet Data: | |||||||||||||||||||||
| Total assets | $ | 193,263 | $ | 135,913 | $ | 109,259 | $ | 84,694 | $ | 35,183 | |||||||||||
| Working capital | 75,806 | 69,533 | 67,272 | 55,781 | 13,072 | ||||||||||||||||
| Long term liabilities | 9,531 | 1,148 | 1,526 | 1,518 | 10,158 | ||||||||||||||||
| Stockholders' equity | $ | 133,000 | $ | 107,988 | $ | 89,329 | $ | 73,568 | $ | 20,007 | |||||||||||
Item 7. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
During 2023, the Company delivered 20.0% growth in net sales, with broad-based contributions by customer type. This growth was driven by a combination of commercial execution, favorable end market demand and contributions from newer products to our portfolio. Operating and financial highlights during the year include:
•Fourth quarter and full year 2023 net sales of $86.8 million and $321.5 million, respectively, reflecting 16.7% and 20.0% growth over the fourth quarter and full year 2022, respectively.
•Net income from continuing operations for the fourth quarter and full year 2023 of $51.3 million and $67.4 million, respectively.
•Announced strategic realignment of the Company, increasing focus on Wound & Surgical business and significantly improving profitability; disbanded the Regenerative Medicine business unit and suspended knee osteoarthritis clinical trial program.
•Launched EPIEFFECT, the latest addition to the Company’s broad portfolio of Advanced Wound Care products.
•Announced conversion of outstanding Series B convertible preferred stock to common stock.
•Appointed new members to the Company’s Executive Leadership Team, including a new CEO, CFO and Chief Operating Officer.
Overview
MIMEDX is a pioneer and leader in placental biologics focused on delivering innovative solutions to patients and the healthcare professionals who treat them. With more than a decade of experience helping clinicians manage acute and chronic wounds, MIMEDX has been dedicated to providing a leading portfolio of products for applications in the wound care, burn, and surgical sectors of healthcare. All of our products sold in the United States are regulated by the U.S. Food & Drug Administration (“FDA”). We apply Current Good Tissue Practices (“CGTP”) and other applicable quality standards in addition to terminal sterilization to produce our allografts.
Our Products
Our product portfolio is divided into two categories (1) Wound Care Products and (2) Surgical and Other Products.
Our Wound Care Products include EPIFIX, EPICORD and EPIEFFECT, which are all marketed for external use, such as in Advanced Wound Care applications. Within Surgical and Other, our product offering includes AMNIOFIX, AMNIOCORD and AMNIOEFFECT, which are positioned for use in a variety of applications and surgical settings, including lower extremity repair, plastic surgery, vascular surgery and multiple orthopedic repairs and reconstructions. Our AXIOFILL product has also seen the most uptake by clinicians for surgical applications.
By specific source material, our primary platform technologies include tissue allografts derived from human placental membrane (EPIFIX, AMNIOFIX, EPIEFFECT, and AMNIOEFFECT), tissue allografts derived from human umbilical cord (EPICORD and AMNIOCORD), and a particulate extracellular matrix derived from human placental disc (AXIOFILL).
This discussion, which presents our results for the fiscal years ended December 31, 2023 and analysis2022, should be read in conjunction with theour Consolidated Financial Statements and the corresponding notes included inaccompanying notes. Also, please refer to Part I, Item 8. Certain percentages presented in1, Business, and Part I, Item 1A, Risk Factors, which include detailed discussions of various items impacting our business, results of operations and financial condition. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and analysis are calculated from the underlying whole dollar amounts and therefore may not recalculate from the rounded numbers used for disclosure purposes. Some of the information contained in this discussion and analysis or set forth elsewhere in this report includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this report for a discussion of importantprimary factors that could cause actual resultsaccounted for those changes. We also discuss certain performance metrics that management uses to differ materially fromassess the results described in or implied byCompany's performance.
Our Annual Report for the forward-looking statements contained in the following discussion and analysis.
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Components of and Key Factors Influencing Our Results of Continuing Operations
In assessing the performance of our business, we consider a variety of performance and financial measures. We believe the items discussed below provide insight into the factors that affect these key measures.
Net sales
Our net sales are derived from otherselling to a wide range of customers, including hospitals, wound care centers and private physician offices that have clinicians using our suite of products to aid in the management of patients with chronic or hard-to-heal wounds. These customers choose products like ours based upon a variety of factors, including clinical efficacy, availability, handling characteristics, and reimbursement coverage and payer sources. Actual results may differNet sales is recognized based on the consideration we expect to receive from the sale at the point in time when control of the goods is transferred to the customer, which generally occurs upon our delivery to a third-party carrier or implantation for consignment arrangements. Net sales consists of the gross selling price of the product, less any discounts, rebates, fees paid to GPOs, and returns.
Cost of goods sold and gross profit
Cost of goods sold includes product testing costs, quality assurance costs, personnel costs, manufacturing costs, raw materials and product costs, depreciation and facility costs associated with our manufacturing and warehouse facilities. Fluctuations in our cost of goods sold correspond with the fluctuations in these estimates under different assumptions or conditions.costs as well as sales volume.
Selling, general and administrative expense
Selling, general and administrative (“SG&A”) expense includes costs to execute our sales strategy. These include personnel costs pertaining to our sales force and sales support functions, including salaries, commissions and other incentive compensation, commissions to sales agents, customer support, travel expenses, and bad debt expense. SG&A expense also includes costs related to functions which support our business, such as legal, finance, human resources, and other such functions that it took in the Untitled Letterinclude costs such as personnel costs, insurance, and certain professional fees. We expect our SG&A expense to fluctuate based on revenue fluctuations, geographic changes, and any changes to the Company 16 months earlier. The Company submitted commentssize of our headcount, particularly that of our sales and marketing forces. Certain of these costs scale with sales, but can fluctuate depending on sales mix. For example, we pay sales agents a greater commission than our internal sales force, meaning that we could incur greater commission expenses if a greater proportion of our sales are through sales agents.
Research and development expense
Research and development expense relates to the Minimal Manipulation draft guidance asserting that the Minimal Manipulation draft guidance represents agency action that goes far beyond the FDA’s statutory authority, is inconsistent with existing HCT/ P regulationsour investments to expand our product pipeline and the FDA’s prior positions, and is internally inconsistent and scientifically unsound. On October 28, 2015, the FDA issued for comment, "Draft Guidance for Industry and FDA Staff: Homologous Use of Human Cells, Tissues, and Cellular and Tissue-Based Products." The Company submitted comments on this Homologous Use draft guidance as well. On September 12 and 13, 2016, the FDA held a public hearing to obtain input on the Homologous Use draft guidance and the previously released Minimal Manipulation draft guidance,platforms, including historically through clinical trials, as well as other recently issued guidance documents on HCT/Ps. The Company awaits further decision from FDA onexpenditures in improvements to our manufacturing process and the draft guidances, but anticipates this will be a lengthy process.
our research department, consulting costs and advisory costs, and regulatory costs.
We believe thatexpense research and development costs as incurred. Fluctuations in research and development expenses can be impacted by the timing and cadence of our significant accounting policies, which are described in Note 2clinical trials.
Investigation, restatement and related expense
Investigation, restatement and related expense primarily relates to our financial statements appearing elsewhere in this report, the following accounting policies involve a greater degree of judgmentlegal fees advanced to certain former officers and complexity.
Interest expense
We record revenues from salesincur interest expense primarily through stated interest on our outstanding term and revolving loans. The interest on our term and revolving loans are currently tied to applicable Secured Overnight Financing Rates (“SOFR”). Increases in SOFR
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could cause our independent stocking distributors at the time the product is shippedinterest expense to increase. Other activity influencing interest expense relates to the distributor. Our stocking distributors, who sell the products to their customers or sub-distributors, contractually take title to the productsamortization of deferred financing costs and assume all risks of ownership at the time of shipment. Our stocking distributors are obligated to pay us the contractually agreed upon invoice price within specified terms regardless of when, if ever, they sell the products. Our stocking distributors do not have any contractual rights of return or exchange other than for defective product or shipping error; however, in limited situations, we do accept returns or exchanges at our discretion.
Income Taxes
We account for income taxes undergenerate tax liability primarily in the assetUnited States and liability method, which requires the recognition ofhave net operating losses, research and development tax credit carryforwards, and other deferred tax assets and liabilities for the expected future tax consequences of events that have been includedwhich defray our liability. Large fluctuations are generally due to changes in the financial statements. Under this method, we determine deferred tax assets and liabilities on the basisour expectations of the differences between the financial statement and tax basesrealizability of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Results of their net recorded amount, we would make an adjustmentContinuing Operations for 2023 Compared to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.2022
| Year Ended December 31, | |||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | ||||||||||||||||||||
| Net sales | $ | 321,477 | $ | 267,841 | $ | 53,636 | 20.0 | % | |||||||||||||||
| Cost of sales | 54,634 | 48,316 | 6,318 | 13.1 | % | ||||||||||||||||||
| Gross profit | 266,843 | 219,525 | 47,318 | 21.6 | % | ||||||||||||||||||
| Selling, general and administrative | 211,124 | 208,673 | 2,451 | 1.2 | % | ||||||||||||||||||
| Research and development | 12,665 | 12,701 | (36) | (0.3) | % | ||||||||||||||||||
| Investigation, restatement and related | 5,176 | 12,177 | (7,001) | (57.5) | % | ||||||||||||||||||
| Amortization of intangible assets | 762 | 701 | 61 | 8.7 | % | ||||||||||||||||||
| Interest expense, net | (6,457) | (5,016) | (1,441) | 28.7 | % | ||||||||||||||||||
| Other expense, net | (26) | (4) | (22) | nm | |||||||||||||||||||
| Income tax provision benefit (expense) | 36,806 | (206) | 37,012 | nm | |||||||||||||||||||
| Net income (loss) from continuing operations | $ | 67,439 | $ | (19,953) | $ | 87,392 | nm | ||||||||||||||||
Net Sales
We record uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
| Year Ended December 31, | Change | ||||||||||||||||||||||
| 2023 | 2022 | $ | % | ||||||||||||||||||||
| Hospital | $ | 187,000 | $ | 163,206 | $ | 23,794 | 14.6 | % | |||||||||||||||
| Private Office | 95,789 | 77,158 | $ | 18,631 | 24.1 | % | |||||||||||||||||
| Other | 38,688 | 27,477 | $ | 11,211 | 40.8 | % | |||||||||||||||||
| Total | $ | 321,477 | $ | 267,841 | $ | 53,636 | 20.0 | % | |||||||||||||||
Net sales in the Hospital setting were $187.0 million for the year ended December 31, 2016 of $245.0 million,2023, a $57.7$23.8 million, or 30.8%14.6% increase, over 2015 revenuecompared to $163.2 million for the year ended December 31, 2022. The increase was primarily driven by sales of $187.3 million.our new products introduced since the third quarter of 2022, particularly AMNIOEFFECT.
Net sales in 2016 was $61.0 million which represented a $14.8Other care settings increased by $11.2 million, or 32%40.8%, increase over 2015 revenue of $46.2 million.
to $38.7 million for the year ended December 31, 2023 compared to $27.5 million for the year ended December 31, 2022. The increase was primarily driven by the addition of $57.7 millionnew customers in 2016 revenue ascertain other sites of service and, to a lesser extent, initial contributions related to our commercial efforts in Japan.
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Gross Margin and Cost of Sales
Gross margin in 2023 was 83.0%, compared to 2015 includes approximately $21.1 million82.0% in volume from market share gains and market expansion2022. The increase in margin was driven by a higher proportion of sales with lower manufacturing costs as well as increased throughput efficiencies compared to 2022.
Cost of sales for the additionyear ended December 31, 2023 was $54.6 million, an increase of $6.3 million, or 13.1%, compared to $48.3 million for the year ended December 31, 2022. The increase in excesscost of 1,600 new customers due tosales was driven by the increase of our directin sales forcevolume and new customers added as part of the acquisition of Stability Biologics. Overall pricing was $15.3 million favorable and was impacted by a continued shift from distributor to direct sales and product mix was $ 21.3 million favorable primarily due to the sale of new products including those from Stability Biologics.
Selling, General and Administrative ExpensesExpense
$211.1 million for December 31, 2023, compared to $133.4$208.7 million for 2015. Selling expense increases wereDecember 31, 2022. The increase was driven primarily by costs associated with the continued buildhigher levels of our direct sales organization for both the Wound Care and SSO markets, where headcount grew by 71 during the year, as well as increased commissions due to higher sales volume. General and administrative expense increases were driven primarily by costs associated with adding personnel to support continued growth including government affairs and other support areasvolumes, as well as increases in stock-based compensation in 2023. These increases were partially offset by a decrease in certain administrative expenses, including severance expenses associated with the additiondeparture of Stability Biologics personnelour former CEO in 2022.
Research and associated costs. Selling, GeneralDevelopment Expense
Our research and Administrative expenses consist of personnel costs, professional fees, sales commissions, sales training costs, industry trade show fees and expenses, product promotions and product literature costs, facilities costs and other sales, marketing and administrative costs, depreciation and amortization, and share-based compensation. Share-based compensation included in Selling, General and
Investigation, Restatement and Related Expense
Investigation, restatement, and related expenses decreased $7.0 million to $5.2 million for the year ended December 31, 2023, compared to $12.2 million for the year ended December 31, 2022. The decrease was approximately $16.7 millionrelated to negotiated reductions in legal fees previously incurred under indemnification agreements with certain former members of management year-over-year. In addition, following the end of a legal proceeding, expenses under our last material indemnification agreement substantially ceased in 2023. Prior to this, the Company had incurred significant expenses in fulfilling its obligations under indemnification agreements by advancing and $15.8 million, respectively, an increasereimbursing legal fees of approximately $0.9 million, or 5.7%. certain former officers and directors of the Company.
Amortization of Intangible Assets
Amortization expense related to intangible assets increased approximately $1.2$0.1 million or 133.3%, to $2.1from $0.7 million for the year ended December 31, 2016, compared2022 to $0.9 million in the prior year due to the acquisition of Stability. We amortize our intangible assets over a period of 4 to 19 years, which we believe represents the remaining useful lives of the patents underlying the licensing rights and intellectual property. We do not amortize goodwill but we test our goodwill at least annually for impairment and periodically evaluate other intangibles for impairment based on events or changes in circumstances as they occur.
Interest Expense, Net
Interest expense increased $1.4 million to the prior year.
Income Tax Provision
The effective tax rate for 2023 and 2022 was (120.2)% and (1.0)%, respectively, on pre-tax book income from continuing operations of $30.6 million for 2023 and pre-tax book loss from continuing operations of $19.7 million for 2022. Our effective tax rate for the amortizationyear ended December 31, 2023 was significantly influenced by the reversal of a valuation allowance, reflecting a change in the determination of the likelihood of the realizability of certain of the Company’s deferred financing coststax assets as of that date. This re-evaluation occurred as a result of the conclusion that the disbanding of our Regenerative Medicine segment qualified as a discontinued operation, in concert with the Company’s operating results. Net operating losses incurred during 2015 related2022 were offset by a full valuation allowance.
Liquidity and Capital Resources
We require capital for our operating activities, including costs associated with the sale of product through direct and indirect sales channels, research and development activities, compliance costs, costs to sell and market our $50 million revolving credit facility. See Note 9products, regulatory fees, and legal and consulting fees in connection with ongoing litigation and other matters. We generally fund our operating capital requirements through our operating activities and cash reserves. We expect to use capital to invest in the consolidated financial statementsbroadening of our
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product portfolio, including through potential acquisitions, licensing agreements or other arrangements, the international expansion of our business and certain capital projects.
As of December 31, 2023, we had $82.0 million of cash and cash equivalents.
Our net working capital at December 31, 2023 was $118.3 million, an increase of $27.6 million from $90.6 million at December 31, 2022. Our current ratio was 3.6 to 1 as of December 31, 2023 and 3.1 to 1 as of December 31, 2022.
The Company is currently paying its obligations in Item 8the ordinary course of business. We believe that our anticipated cash from operating activities, existing cash and cash equivalents, and available credit under the Citizens Credit Agreement, as defined below, will enable us to meet our operational liquidity needs for further details.the twelve months following the filing date of this Annual Report.
Contractual Obligations
Contractual obligations associated with ongoing business activities are expected to result in cash payments in future periods. The table below summarizesSee Item 8, Note 16, Commitments and Contingencies, in the amounts and estimated timing of these future cash payments as of December 31, 2016 (in thousands):Consolidated Financial Statements for more information regarding our contractual commitments.
Citizens Loan Facilities
| Less than | |||||||||||||||||||
| Contractual Obligations | TOTAL | 1 year | 1-3 years | 3-5 years | Thereafter | ||||||||||||||
| Capital lease obligations | $ | 31 | $ | 29 | $ | 2 | $ | — | |||||||||||
| Operating lease obligations | 6,988 | 2,089 | 3,894 | 631 | 374 | ||||||||||||||
| Software License | 284 | 95 | 189 | — | |||||||||||||||
| Meeting space commitments | 1,662 | 643 | 1,019 | — | |||||||||||||||
| $ | 8,965 | $ | 2,856 | $ | 5,104 | $ | 631 | $ | 374 | ||||||||||
On October 12, 2015, the Company and its subsidiariesJanuary 19, 2024, we entered into a Credit Agreement (the “Citizens Credit Agreement”) with a syndicate of banks comprised of Citizens Bank, N.A. as administrative agent (the "Credit Agreement"“Agent”) with certain lenders, and Bank of America, N.A., as administrative agent. The Citizens Credit Agreement establisheswas designed to simultaneously improve our capital structure, providing the ability to refinance the $50 million Hayfin Term Loan at lower interest rates and have access to additional borrowing capacity that could be deployed in the future in support of our organic and potential inorganic growth objectives.
The Citizens Credit Agreement provides for senior secured credit facilities in an aggregate principal amount of up to $95.0 million consisting of: (i) a $75.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) with a $10.0 million letter of credit sublimit and a $10.0 million swingline loan sublimit, and (ii) a $20.0 million senior secured term loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”). All obligations are required to be paid in favorfull on January 19, 2029 (the “Maturity Date”), and are guaranteed by certain of the Company’s subsidiaries, and secured by substantially all of the assets of the Company with an aggregate lender commitment of upand the guarantors pursuant to $50 million at any time outstanding. Asa customary security agreement.Subject to the terms of the date hereof, there are no outstanding revolving loans under the Credit Agreement. TheCitizens Credit Agreement, also provides for an uncommitted incremental facility of upthe Company has the option to $35 million, which can be exercised asobtain one or more revolving commitment increases incremental term loan facilities and/or increase the commitments under the Revolving Credit Facility in an aggregate principal amount equal to the greater of (i) $50.0 million and (ii) 1.00 times the Company’s Consolidated EBITDA as defined therein, each subject to the existing or any new lenders’ election to extend additional term loans all subject to certain customary terms and conditions set forth in the Credit Agreement. The obligations of the Companyor revolving commitments.
At our option, borrowings under the Citizens Credit Agreement are guaranteed by the Company's subsidiaries. Borrowings under the Credit Agreement(other than any swingline loan) will bear interest at a rate per annum equal to at(i) the Company’s option, the base rateAlternate Base Rate, as defined therein, or LIBOR,(ii) a Term SOFR as defined therein, in each case plus an applicable margin. The base rate under the Credit Agreement equals the highest of (i) the agent’s prime rate, (ii) the Federal Funds rate plus 0.50%, or (iii) LIBOR for a one month interest period plus 1.0%. The initial applicable margin is 0.50%ranging from 1.25% and 2.50% with respect to base rateAlternate Base Rate borrowings and 1.50% with respect2.25% and 3.50% for Term SOFR borrowings. Swingline loans will bear interest at a rate per annum equal to one-month Term SOFR plus the LIBOR borrowings.applicable margin. The applicable margin is subject to quarterly pricing adjustmentswill be determined based on the Company’s consolidated total net leverage ratio. In addition to paying interest on outstanding principal under the facility, the
The Company is required to pay a quarterly commitment fee in respecton any unused portion of committed but unutilized commitments equalthe Revolving Credit Facility, letter of credit fees, and other customary fees to 0.25% per annum initially.the Agent and the Lenders. The commitment fee is subject toTerm Loan Facility will amortize on a quarterly adjustmentsbasis at 1.25% (for year one and two), 1.875% (for year three and four), and 2.5% (for year five) based on the Company's consolidated leverage ratio.aggregate principal amount outstanding under the Term Loan Facility, with the remainder due on the Maturity Date. The Company must pay a fee on outstanding letters of creditmake mandatory prepayments in connection with certain asset dispositions and casualty events, subject in each case to customary reinvestment rights. The Company may prepay borrowings under the facilityCredit Facilities at a rate equalany time, without premium or penalty, and may, at its option, reduce the aggregate unused commitments under the Revolving Credit Facility in whole or in part, in each case subject to the applicable margin in respect of LIBOR borrowings plus certain fronting and administrative fees. The maturity dateterms of the revolving credit facility is October 12, 2018.Credit Agreement. The Credit Agreement provides that the maturity date may be extended up to twice for one additional year each, subject toCompany must also comply with certain customary terms and conditions set forth in the Credit Agreement, if requested by the Company and agreed-upon by the lenders. The Credit Agreement contains customaryfinancial covenants, and events of default for senior secured credit agreements of this type. The covenants include (a) a requirement for the Company to maintainincluding a maximum consolidatedtotal net leverage ratio of 2.50:1.00; (b) a requirement for the Company to maintainand a minimum consolidated fixed charge coverage ratio, as well as other customary restrictive covenants.
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In addition, on January 19, 2024, we borrowed $30.0 million under the Revolving Credit Facility and $20.0 million under the Term Loan Facility. Proceeds from the initial drawings under the Credit Facilities, together with cash on hand, were used to repay in full the $50.0 million principal amount and other obligations under that certain Loan Agreement, dated as of 2.00:1.00;June 30, 2020 (as amended from time to time), by and (c) a requirement foramong the Company, the guarantors party thereto, the lenders party thereto and Hayfin Services LLP, as administrative and collateral agent (as amended from time to maintain minimum liquidity of $10 million.
time, the “Hayfin Loan Agreement”) and to pay related fees, premiums, costs and expenses (collectively with the entry into the Citizens Credit Agreement and the initial borrowings thereunder, the “Debt Refinancing Transactions”).
time, the “Hayfin Loan Agreement”) and to pay related fees, premiums, costs and expenses (collectively with the entry into the Citizens Credit Agreement and the initial borrowings thereunder, the “Debt Refinancing Transactions”).
Hayfin Term Loan
In June 2020, we entered into the CompanyHayfin Loan Agreement, under which Hayfin provided us with a senior secured term loan of $50 million (the “Hayfin Term Loan”). The Hayfin Term Loan was in compliance with allto mature on June 30, 2025 (the “Maturity Date”). Interest on any borrowings was based on SOFR, plus a fallback provision of its covenants.
As noted above, in January 2024, we repaid in full the Hayfin Term Loan as part of the Debt Refinancing Transactions and terminated the Hayfin Loan Agreement.
Separation Agreement
In 2022, the Company had approximately $9,936,000entered into a Separation Agreement and General Release with Timothy R. Wright, the former Chief Executive Officer of availability remaining under the repurchase program. The timingCompany (the “Separation Agreement”). Pursuant to the terms of the Separation Agreement and Mr. Wright’s general release of all claims against the Company, the Company will pay Mr. Wright a total of $3.1 million in cash in a series of installments through September 2024. Of this amount, $1.2 million is reflected in accrued compensation in the consolidated balance sheet as of future repurchases, if any, will depend uponDecember 31, 2023.
Discussion of Cash Flows for 2023 Compared to 2022
Operating Activities from Continuing Operations
During the Company's stock price, economic and market conditions, regulatory requirements, and other corporate considerations. The Company may initiate, suspend or discontinue purchases under the stock repurchase program at any time.
Investing Activities
During the year ended December 31, 2023, net cash used in investing activities was $2.2 million, to $25.8a decrease of $0.5 million, compared to $18.8$2.7 million from operating activities for the year ended December 31, 2015, and2022. The primary reason for the decrease was primarily attributablea $0.5 million increase in capital expenditures, year-over-year, offset by $1.0 million of payments made pursuant to a smaller increaselicensing agreement in accounts receivable as compared to the prior year's increase.2022.
During the year ended December 31, 2016, increased approximately $11.02023, net cash used in financing activities was $8.6 million, to $11.7an increase of $8.0 million compared to $0.7 millioncash used in investingfinancing activities of $0.6 million for the year ended December 31, 2015.2022. During 2023, we repurchased 5,000 shares of our Series B Preferred Stock for $9.5 million. The increaserepurchase was primarily dueoffset by increases in proceeds from option exercises ($0.3 million) and decreases in stock repurchases for tax withholdings ($1.2 million).
Critical Accounting Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires that we make judgments and estimates which may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We derive these judgments and estimates on historical experience and other relevant factors which we believe to be reasonable. Actual results may differ from these estimates.
Share-Based Compensation
45
Description
We measure the fair value of stock options and other stock-based awards granted to employees on the grant date and recognize the assessed fair value as share-based compensation expense, straight-line, over the requisite service period to achieve the award based on the vesting requirements, to the acquisitionextent that the achievement of Stability.performance conditions associated with such awards, as applicable, are determined to be “probable.”
Share-based payment arrangements are measured at fair value on the grant date. The fair value of equity incentive awards, which are usually shares of our common stock, are generally measured at the last trading price on the grant date.
The fair value of stock options is calculated using an appropriate valuation technique. The valuation technique generally requires us to make certain assumptions, including (1) the fair value of the common stock, (2) the expected volatility of our stock price, (3) the expected term of the award, (4) the risk-free interest rate, and (5) expected dividends. Our expectation for financing activitiesvolatility is generally based on historical daily share price movements, with certain adjustments for abnormal share price activity associated with events which are not expected to recur during the expected term. The expected term of the award requires us to make assumptions regarding the post-vesting behavior of the recipients, which is based off available evidence. Our assumption for the risk-free rate is derived from prevailing U.S. Treasuries with similar terms to the award on the grant date. Our assumption for dividends is derived from our own dividend history.
To the extent that any such awards are subject to a market condition, the resolution of the market condition is reflected in the fair value of the grant date. Further, the requisite service period associated with an award containing a market condition must derive the service period over which the market condition is expected to be met. Fair value and derived service periods are generally determined using a Monte Carlo simulation.
Subsequent to the determination of fair value, we recognize expense to the extent we evaluate that performance conditions associated with share-based payment arrangements are probable of occurring. In certain cases where the extent of vesting is based on the extent of achievement, we are required to determine the extent to which achievement is probable. We determine probable performance based on actual performance to date, internally-developed budgets and forecasts for periods covered by the relevant performance condition, and other evidence deemed relevant to this determination. We re-evaluate our probability assessments at least quarterly, with any revisions reflected as a cumulative adjustment to expense. Because of the cumulative nature of adjustments, during any period in which we re-evaluate probability, the adjustments could significantly impact our results of operations.
Sensitivity of Estimate to Change
For the year ended December 31, 2016,2023, we granted stock options with a fair value on the grant date of $7.0 million. This estimate was approximately $8.2determined using a Monte Carlo simulation using the following inputs:
| Assumption | |||||
| Stock price on grant date | $ | 3.70 | |||
| Exercise price | $ | 3.70 | |||
| Risk-free interest rate | 3.58 | % | |||
| Expected volatility (annualized) | 75.00 | % | |||
| Dividend yield | — | % | |||
| Weighted average grant date fair value | $ | 1.93 | |||
The granted stock options reflected an expected term based on our expectations for exercise activity. Changes in any of these assumptions could result in a revised estimate of fair value of the granted stock options, which would impact the amount of expense recognized over the requisite service period, and could materially affect the total fair value or the amount of expense recognized in a particular period.
In addition, cumulative expense recognized for unvested performance stock unit awards was $1.7 million compared to $36.2 million duringfor the year ended December 31, 2015.2023. This is based on determinations regarding probable resolution or the extent of probable resolution of relevant performance conditions to earn such awards. If it is subsequently determined that the performance conditions associated with these awards are no longer probable of being met, or performance conditions which were determined to be probable of occurring do not actually occur, we could reverse up to this amount of expense in the period such determination is made. Furthermore, if probable levels of achievement are later determined to be greater, or actual achievement exceeds the level
46
of achievement assessed as probable, we could record increases to expense to reflect this level of achievement. The decreaseamount of any incremental expense recognition or reversal will depend on the magnitude and timing of such change in estimate.
Net Sales
Description
We record estimates for returns and allowances as a reduction to net sales based on our expectation for such returns.
Judgments and Uncertainties
We sell our products to individual customer and independent distributors (collectively referred to as “customers”). Customers obtain and use products either through ship and bill sales or consignment arrangements. We recognize revenue as performance obligations are fulfilled, which generally occurs upon the shipment of product to customers for ship and bill sales or upon implantation for consignment sales. We recognize revenue based on consideration we expect to receive from the sale. This consists of the gross selling price of the product, less any discounts, rebates, fees paid to GPOs, and an expectation for sales returns.
We maintain a return policy that allows our customers to return product for any reason within 30 days of sale, and to return product that is primarilydamaged or non-conforming, ordered in error, or due to recall at any time. We anticipate increases in sales returns in light of potential or actual regulatory actions.
We derive an expectation for product returns based on historical return patterns and other factors, including shifts in our regulatory environment and product recalls. Determinations involving other factors are based on our estimates for product at customer sites that are eligible for return.
Additions or reversals to our return allowance, as determined necessary, are accounted for prospectively and recorded as a decrease or increase to net sales, respectively. Actual returns are recorded against the recorded accrual.
Sensitivity of Estimate to Change
We have accrued $1.1 million for sales returns as of December 31, 2023. Changes in share repurchases.return patterns or unforeseen changes in regulations or identified product recalls could cause returns significantly in excess of this estimate.
We record a valuation allowance to offset our GAAP results, we provide certain Non-GAAP metrics including Adjusted EBITDA, Adjusted Gross Margin, Adjusted Net Incomenet deferred tax asset to the extent that realization is not likely.
Judgments and Adjusted Diluted Net Income per share. We believe that the presentation of these measures provides important supplemental information to management and investors regarding our performance. These measurements are not a substitute for GAAP measurements, although Company management uses these measurements as aids in monitoring the Company's on-going financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against other medical technology companies. Adjusted EBITDA consists of GAAP Net Income excluding: (i) depreciation and amortization, (ii) interest income and expense, (iii)Uncertainties
Deferred income taxes (iv) one time acquisition related costs, (v)arise from temporary differences between the effecttax basis of purchase accounting dueassets and liabilities and their reported amounts in the financial statements. Transactions which result in lower taxable income in the future give rise to acquisitionsdeferred tax assets.
We evaluate our ability to recover deferred tax assets based on projected future taxable income, scheduled reversals of deferred tax liabilities, tax planning strategies, and (vi) share-based compensation expense. Dueour recent operating results. Judgment is required to determine whether the impacttotality of this evidence suggests that we can recover our deferred tax assets in the acquisitionfuture.
Sensitivity of StabilityEstimate to Change
As of December 31, 2023, we had $0.9 million in January 2016valuation allowances recorded against our deferred tax assets balance of $41.7 million. The amount and the releaseextent of the valuation allowance onnecessary to reflect the extent of realization of these deferred tax assets being more likely than not may change due to changes in tax law, a revision to our expectation regarding taxable income in the future, taxable income generated in a period in which we had not previously anticipated taxable income, a change in scheduled reversals of deferred tax liabilities, and other changes.
If the weight of available evidence suggests that some or all of this amount is more likely than not to be realized, we will change the valuation allowance with a corresponding adjustment to income tax provision (benefit) expense to the extent that the underlying deferred tax asset on reported tax expense in 2015 on results, we have decidedis more likely than not to provide additional adjusted non-GAAP measures to provide comparability of normal ongoing operating results. Beginning in 2016, we have reported Adjusted Gross Margin, Adjusted Net Income and Adjusted Diluted Net Income per Share to normalize results for comparison purposes. Adjusted Gross Margin consists of GAAP gross margin excluding amortization of inventory fair value step-up. Adjusted Net Income and Adjusted Diluted Net Income per share consists of GAAP net income excluding: (i) one time acquisition related costs, (ii) amortization of inventory fair value step-up, (iii) amortization of intangible assets and (iv) share-based compensation. Reconciliations of GAAP net income to Adjusted EBITDA, GAAP Gross Margin to Adjusted Gross Margin and GAAP Net Income to Adjusted Net Income and Adjusted Diluted Net Income per share for the years ended December 31, 2016, 2015 and 2014 appearbe realized.
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Recently Adopted Accounting Pronouncements
See Item 8, Note 2, Significant Accounting Policies, in the tables below (in thousands):Consolidated Financial Statements for recently adopted accounting pronouncements.
| Years Ended December 31 | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Net Income (Per GAAP) | $ | 11,974 | $ | 29,446 | $ | 6,220 | |||||
| Add back (deduct): | |||||||||||
| Income taxes | 6,133 | (5,168 | ) | 832 | |||||||
| One time costs incurred in connection with acquisition | 1,088 | — | — | ||||||||
| One time inventory costs incurred in connection with acquisition | 1,593 | — | — | ||||||||
| Other interest expense, net | 339 | 86 | 48 | ||||||||
| Depreciation expense | 3,333 | 1,799 | 1,197 | ||||||||
| Amortization of intangible assets | 2,127 | 933 | 928 | ||||||||
| Share-based compensation | 17,818 | 16,896 | 11,453 | ||||||||
| Adjusted EBITDA | $ | 44,405 | $ | 43,992 | $ | 20,678 | |||||
| Years Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Gross Margin (Per GAAP) | $ | 212,608 | $ | 167,094 | $ | 105,558 | |||||
| Non-GAAP Adjustments: | |||||||||||
| One time inventory costs incurred in connection with acquisition | 1,593 | — | — | ||||||||
| Gross Margin before Amortization of inventory fair value step-up | $ | 214,201 | $ | 167,094 | $ | 105,558 | |||||
| Adjusted Gross Margin | 87.4 | % | 89.2 | % | 89.3 | % | |||||
| Years Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Net Income (Per GAAP) | $ | 11,974 | $ | 29,446 | $ | 6,220 | |||||
| Non-GAAP Adjustments: | |||||||||||
| Tax rate normalization* | (898 | ) | (15,374 | ) | (4,069 | ) | |||||
| One time costs incurred in connection with acquisition | 1,088 | — | — | ||||||||
| One time inventory costs incurred in connection with acquisition | 1,593 | — | — | ||||||||
| Amortization of intangible assets | 2,127 | 933 | 928 | ||||||||
| Share - based compensation | 17,818 | 16,896 | 11,453 | ||||||||
| Estimated income tax impact from adjustments | (9,335 | ) | (7,495 | ) | (8,605 | ) | |||||
| Adjusted Net Income | $ | 24,367 | $ | 24,406 | $ | 5,927 | |||||
| Adjusted diluted net income per share | $ | 0.22 | $ | 0.21 | $ | 0.05 | |||||
| Denominator for diluted earnings per share - weighted average shares adjusted for dilutive securities | 112,441,709 | 113,628,482 | 113,295,504 | ||||||||
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The interest rate on our new Term Loan Facility is currently determined quarterly based on the 1-month SOFR. As of December 31, 2023, after giving effect to the Debt Refinancing Transactions, the interest rate on our Term Loan Facility was 7.9%. A 100-basis point change in SOFR would change interest expense by $0.5 million on an annualized basis.
During the year ended December 31, 2023, we incurred $1.5 million in incremental interest expense as a result of such date.
increases in relevant reference rates during the year under the Hayfin Loan Agreement.
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Item 8. Financial Statements and Supplementary Data
| Index to Financial Statements | |||||
F- | |||||
Consolidated Balance Sheets – As of December 31, | F- | ||||
Consolidated Statements of Operations – For the years ended December 31, | F- | ||||
Consolidated Statements of Stockholders’ Equity(Deficit) – For the years ended December 31, | F- | ||||
Consolidated Statements of Cash Flows – For the years ended December 31, | F- | ||||
F- | |||||
F- 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors and
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of MiMedx Group, Inc. and subsidiaries (the Company)"Company") as of December 31, 20162023 and 2015, and2022, the related consolidated statements of operations, stockholders’stockholders' equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2016. We have also audited2023, and the accompanying consolidated financial statement schedule for each ofrelated notes (collectively referred to as the three years in the period ended December 31, 2016 listed in the index at Item 15. These consolidated financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of MiMedx Group, Inc. and subsidiariesthe Company as of December 31, 20162023 and 2015,2022, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016,2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related consolidated financial statement schedule for each of the three years in the period ended December 31, 2016, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets andCompany's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the related consolidated statementsCommittee of operations, stockholders’ equity, and cash flowsSponsoring Organizations of MiMedx Group, Inc.,the Treadway Commission and our report dated March 1, 2017,February 28, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
Net Sales - Revenue Recognition — Refer to Note 2 to the Financial Statements
Critical Audit Matter Description
The Company sells its products primarily to individual customers and independent distributors (collectively referred to as “customers”). Customers obtain and use products either through ship and bill sales or consignment arrangements. Under ship and bill arrangements, the Company retains possession of the product until the customer submits an order and the order is shipped to the customer. Under consignment arrangements, the customer takes possession of the product, but the Company retains title until the implantation, or application of the Company’s product to the end user. The Company recognizes revenue as performance obligations are fulfilled, which generally occurs upon the shipment of product to the customers for ship and bill orders or upon implantation for consignment sales.
We identified the timing of revenue recognition for ship and bill and consignment sales at or near year end as a critical audit matter because of the judgments involved in evaluating that the performance obligations are fulfilled. This required a higher degree of audit effort and auditor judgment when performing audit procedures and evaluating the results of these procedures.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the timing of revenue recognition transactions included the following, among others:
•We tested the effectiveness of controls over the recognition of ship and bill and consignment sales at or near year end.
•We created data visualizations using a detail of all revenue transactions and evaluated trends in the transactional revenue data with emphasis on activity at or near year end.
•We evaluated and tested corollary relationships between revenue and related accounts.
•We evaluated the appropriateness and consistency of the methods and assumptions utilized by management to estimate consignment revenue.
•We tested a sample of consignment revenue transactions manually accrued as of year-end and evaluated whether the transactions were recorded in the correct period.
•We selected a sample of ship and bill revenue transactions close to period end by agreeing the amounts recognized to source documents and evaluating whether the transaction was recorded in the correct period.
•We tested a sample of credits issued after year end by agreeing to documents supporting the authorization for the issuance of the credit and to evaluate if the credit was issued in the correct period.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 28, 2024
Atlanta, Georgia
February 28, 2024
We have served as the Company's auditor since 2021.
MIMEDX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) | |||||||
| December 31, | |||||||
| 2016 | 2015 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 34,391 | $ | 28,486 | |||
| Short term investments | — | 3,000 | |||||
| Accounts receivable, net | 67,151 | 53,755 | |||||
| Inventory, net | 17,814 | 7,460 | |||||
| Prepaid expenses | 5,894 | 3,394 | |||||
| Other current assets | 1,288 | 215 | |||||
| Total current assets | 126,538 | 96,310 | |||||
| Property and equipment, net of accumulated depreciation | 13,786 | 9,475 | |||||
| Goodwill | 20,203 | 4,040 | |||||
| Intangible assets, net of accumulated amortization | 23,268 | 10,763 | |||||
| Deferred tax asset, net | 9,114 | 14,838 | |||||
| Deferred financing costs and other assets | 354 | 487 | |||||
| Total assets | $ | 193,263 | $ | 135,913 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable | $ | 11,436 | $ | 6,633 | |||
| Accrued compensation | 12,365 | 15,034 | |||||
| Accrued expenses | 10,941 | 4,644 | |||||
| Current portion of earn out liability | 8,740 | — | |||||
| Income taxes | 5,768 | (67 | ) | ||||
| Other current liabilities | 1,482 | 533 | |||||
| Total current liabilities | 50,732 | 26,777 | |||||
| Earn out liability | 8,710 | — | |||||
| Other liabilities | 821 | 1,148 | |||||
| Total liabilities | 60,263 | 27,925 | |||||
| Commitments and contingencies (Note 16) | |||||||
| Stockholders' equity: | |||||||
Preferred stock; $.001 par value; 5,000,000 shares authorized and 0 shares issued and outstanding | — | — | |||||
| Common stock; $0.001 par value; 150,000,000 shares authorized; 110,212,547 issued and 109,862,787 outstanding at December 31, 2016 and 109,467,416 issued and 107,361,471 outstanding at December 31, 2015 | 110 | 109 | |||||
| Additional paid-in capital | 161,261 | 163,133 | |||||
| Treasury stock at cost: 349,760 shares at December 31, 2016 and 2,105,945 shares at December 31, 2015 | (2,216 | ) | (17,125 | ) | |||
| Accumulated deficit | (26,155 | ) | (38,129 | ) | |||
| Total stockholders' equity | 133,000 | 107,988 | |||||
| Total liabilities and stockholders' equity | $ | 193,263 | $ | 135,913 | |||
MIMEDX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 82,000 | $ | 65,950 | |||||||
| Accounts receivable, net | 53,871 | 43,084 | |||||||||
| Inventory | 21,021 | 13,183 | |||||||||
| Prepaid expenses | 5,624 | 7,315 | |||||||||
| Current assets of discontinued operations | — | 1,331 | |||||||||
| Other current assets | 1,745 | 3,335 | |||||||||
| Total current assets | 164,261 | 134,198 | |||||||||
| Property and equipment, net | 6,974 | 7,856 | |||||||||
| Right of use assets | 2,132 | 3,400 | |||||||||
| Deferred tax assets | 40,777 | — | |||||||||
| Goodwill | 19,441 | 19,441 | |||||||||
| Intangible assets, net | 5,257 | 5,852 | |||||||||
| Other assets | 205 | 148 | |||||||||
| Noncurrent assets of discontinued operations | — | 535 | |||||||||
| Total assets | $ | 239,047 | $ | 171,430 | |||||||
| LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT) | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 9,048 | $ | 8,454 | |||||||
| Accrued compensation | 22,353 | 20,856 | |||||||||
| Accrued expenses | 9,361 | 10,934 | |||||||||
| Current liabilities of discontinued operations | 1,352 | 1,479 | |||||||||
| Other current liabilities | 3,894 | 1,834 | |||||||||
| Total current liabilities | 46,008 | 43,557 | |||||||||
| Long term debt, net | 48,099 | 48,594 | |||||||||
| Other liabilities | 2,223 | 4,773 | |||||||||
| Total liabilities | $ | 96,330 | $ | 96,924 | |||||||
| Commitments and contingencies (Note 16) | |||||||||||
| Convertible preferred stock Series B; $.001 par value; 100,000 shares authorized, 0 shares issued and outstanding at December 31, 2023 and 100,000 shares issued and outstanding at December 31, 2022 | $ | — | $ | 92,494 | |||||||
| Stockholders’ equity (deficit) | |||||||||||
| Common stock; $.001 par value; 250,000,000 shares authorized, 146,227,639 issued and outstanding at December 31, 2023 and 187,500,000 authorized, 113,705,447 issued and outstanding at December 31, 2022 | 146 | 114 | |||||||||
| Additional paid-in capital | 276,249 | 173,804 | |||||||||
| Accumulated deficit | (133,678) | (191,906) | |||||||||
| Total stockholders’ equity (deficit) | 142,717 | (17,988) | |||||||||
| Total liabilities, convertible preferred stock, and stockholders’ equity (deficit) | $ | 239,047 | $ | 171,430 | |||||||
See notes to the consolidated financial statements
statements.
MIMEDX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) | |||||||||||
| Years Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Net sales | $ | 245,015 | $ | 187,296 | $ | 118,223 | |||||
| Cost of sales | 32,407 | 20,202 | 12,665 | ||||||||
| Gross margin | 212,608 | 167,094 | 105,558 | ||||||||
| Operating expenses: | |||||||||||
| Research and development expenses | 12,038 | 8,413 | 7,050 | ||||||||
| Selling, general and administrative expenses | 179,997 | 133,384 | 90,480 | ||||||||
| Amortization of intangible assets | 2,127 | 933 | 928 | ||||||||
| Operating income | 18,446 | 24,364 | 7,100 | ||||||||
| Other expense, net | |||||||||||
| Interest expense, net | (339 | ) | (86 | ) | (48 | ) | |||||
| Income before income tax provision | 18,107 | 24,278 | 7,052 | ||||||||
| Income tax provision (expense) benefit | (6,133 | ) | 5,168 | (832 | ) | ||||||
| Net income | $ | 11,974 | $ | 29,446 | $ | 6,220 | |||||
| Net income per common share - basic | $ | 0.11 | $ | 0.28 | $ | 0.06 | |||||
| Net income per common share - diluted | $ | 0.11 | $ | 0.26 | $ | 0.05 | |||||
| Weighted average shares outstanding - basic | 105,928,348 | 105,929,205 | 105,793,008 | ||||||||
| Weighted average shares outstanding - diluted | 112,441,709 | 113,628,482 | 113,295,504 | ||||||||
MIMEDX GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net sales | $ | 321,477 | $ | 267,841 | $ | 242,019 | |||||||||||
| Cost of sales | 54,634 | 48,316 | 39,628 | ||||||||||||||
| Gross profit | 266,843 | 219,525 | 202,391 | ||||||||||||||
| Operating expenses: | |||||||||||||||||
| Selling, general and administrative | 211,124 | 208,673 | 194,846 | ||||||||||||||
| Research and development | 12,665 | 12,701 | 9,932 | ||||||||||||||
| Investigation, restatement and related | 5,176 | 12,177 | 3,791 | ||||||||||||||
| Amortization of intangible assets | 762 | 701 | 820 | ||||||||||||||
| Impairment of intangible assets | — | — | 53 | ||||||||||||||
| Operating income (loss) | 37,116 | (14,727) | (7,051) | ||||||||||||||
| Other expense, net | |||||||||||||||||
| Interest expense, net | (6,457) | (5,016) | (4,980) | ||||||||||||||
| Other expense, net | (26) | (4) | (23) | ||||||||||||||
| Income (loss) from continuing operations before income tax provision | 30,633 | (19,747) | (12,054) | ||||||||||||||
| Income tax provision benefit (expense) from continuing operations | 36,806 | (206) | (247) | ||||||||||||||
| Net income (loss) from continuing operations | 67,439 | (19,953) | (12,301) | ||||||||||||||
| (Loss) income from discontinued operations, net of tax | (9,211) | (10,244) | 2,016 | ||||||||||||||
| Net income (loss) | $ | 58,228 | $ | (30,197) | $ | (10,285) | |||||||||||
| Net income (loss) from continuing operations available to common stockholders (Note 10) | $ | 55,796 | $ | (26,533) | $ | (18,437) | |||||||||||
| Basic net income (loss) per common share: | |||||||||||||||||
| Continuing operations | $ | 0.48 | $ | (0.24) | $ | (0.17) | |||||||||||
| Discontinued operations | (0.08) | (0.09) | 0.02 | ||||||||||||||
| Basic net income (loss) per common share: | $ | 0.40 | $ | (0.33) | $ | (0.15) | |||||||||||
| Diluted net income (loss) per common share: | |||||||||||||||||
| Continuing operations | $ | 0.43 | $ | (0.24) | $ | (0.17) | |||||||||||
| Discontinued operations | (0.06) | (0.09) | 0.02 | ||||||||||||||
| Diluted net income (loss) per common share: | $ | 0.37 | $ | (0.33) | $ | (0.15) | |||||||||||
| Weighted average common shares outstanding - basic | 116,495,810 | 112,909,266 | 110,353,406 | ||||||||||||||
| Weighted average common shares outstanding - diluted | 145,962,462 | 112,909,266 | 110,353,406 | ||||||||||||||
See notes to the consolidated financial statementsstatements.
MIMEDX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data) | |||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Treasury Stock | Accumulated | ||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Deficit | Total | |||||||||||||||||||
| Balances, December 31, 2013 | 104,425,614 | $ | 104 | $ | 147,284 | 50,000 | $ | (25 | ) | $ | (73,795 | ) | $ | 73,568 | |||||||||||
| Share-based compensation expense | — | — | 11,453 | — | — | — | 11,453 | ||||||||||||||||||
| Exercise of stock options | 1,653,690 | 2 | 2,468 | — | — | — | 2,470 | ||||||||||||||||||
| Exercise of warrants | 1,242,416 | 1 | 1,112 | — | — | — | 1,113 | ||||||||||||||||||
| Issuance of restricted stock | 1,438,569 | 1 | (1 | ) | — | — | — | — | |||||||||||||||||
| Shares issued for services performed | 15,958 | — | 117 | — | — | — | 117 | ||||||||||||||||||
| Stock repurchase | — | — | — | 936,636 | (5,612 | ) | — | (5,612 | ) | ||||||||||||||||
| Net income | — | — | — | — | — | 6,220 | 6,220 | ||||||||||||||||||
| Balances, December 31, 2014 | 108,776,247 | $ | 108 | $ | 162,433 | 986,636 | $ | (5,637 | ) | $ | (67,575 | ) | $ | 89,329 | |||||||||||
| Share-based compensation expense | — | — | 16,896 | — | — | — | 16,896 | ||||||||||||||||||
| Tax benefit of share-based compensation expense | — | — | 7,757 | — | — | — | 7,757 | ||||||||||||||||||
| Exercise of stock options | 647,656 | 1 | (9,792 | ) | (1,573,225 | ) | 14,420 | — | 4,629 | ||||||||||||||||
| Exercise of warrants | — | — | (379 | ) | (42,400 | ) | 425 | — | 46 | ||||||||||||||||
| Issuance of restricted stock | 34,250 | — | (14,547 | ) | (1,940,009 | ) | 14,547 | — | — | ||||||||||||||||
| Shares Canceled / Forfeited | (2,058 | ) | — | 652 | 69,949 | (652 | ) | — | — | ||||||||||||||||
| Shares issued for services performed | 11,321 | — | 113 | (5,172 | ) | 51 | — | 164 | |||||||||||||||||
| Stock repurchase | — | — | — | 4,610,166 | (40,279 | ) | — | (40,279 | ) | ||||||||||||||||
| Net Income | — | — | — | — | — | 29,446 | 29,446 | ||||||||||||||||||
| Balances, December 31, 2015 | 109,467,416 | $ | 109 | $ | 163,133 | 2,105,945 | $ | (17,125 | ) | $ | (38,129 | ) | $ | 107,988 | |||||||||||
| Share-based compensation expense | 17,818 | 17,818 | |||||||||||||||||||||||
| Tax benefit of share-based compensation expense | (424 | ) | (424 | ) | |||||||||||||||||||||
| Exercise of stock options | 243,928 | — | (3,767 | ) | (918,544 | ) | 7,261 | 3,494 | |||||||||||||||||
| Issuance of restricted stock | 501,203 | 1 | (17,546 | ) | (2,210,879 | ) | 17,546 | 1 | |||||||||||||||||
| Restricted stock shares canceled/forfeited | 2,503 | 377,317 | (2,503 | ) | — | ||||||||||||||||||||
| Shares issued for services performed | 6 | (43,344 | ) | 340 | 346 | ||||||||||||||||||||
| Stock repurchase | 1,338,616 | (10,378 | ) | (10,378 | ) | ||||||||||||||||||||
| Shares repurchased for tax withholding | 141,658 | (1,165 | ) | (1,165 | ) | ||||||||||||||||||||
| Shares issued in conjunction with acquisition | (462 | ) | (441,009 | ) | 3,808 | 3,346 | |||||||||||||||||||
| Net income | 11,974 | 11,974 | |||||||||||||||||||||||
| Balances, December 31, 2016 | 110,212,547 | $ | 110 | $ | 161,261 | 349,760 | $ | (2,216 | ) | $ | (26,155 | ) | $ | 133,000 | |||||||||||
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
(in thousands, except share data)
| Common Stock | Additional Paid-in | Treasury Stock | Accumulated | ||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Capital | Shares | Amount | Deficit | Total | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 112,703,926 | $ | 113 | $ | 158,610 | 1,773,683 | $ | (7,449) | $ | (151,424) | $ | (150) | |||||||||||||||||||||||||||||
| Deemed dividends | — | — | (926) | — | — | — | (926) | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | 14,757 | — | — | — | 14,757 | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | — | (1,199) | (487,361) | 2,636 | — | 1,437 | ||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | — | — | (4,053) | (810,405) | 4,053 | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock shares canceled/forfeited | — | — | 515 | 73,056 | (515) | — | — | ||||||||||||||||||||||||||||||||||
| Shares repurchased for tax withholding | — | — | — | 469,239 | (4,751) | — | (4,751) | ||||||||||||||||||||||||||||||||||
| Other | — | — | (2,009) | (239,502) | 2,009 | — | — | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (10,285) | (10,285) | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 112,703,926 | $ | 113 | $ | 165,695 | 778,710 | $ | (4,017) | $ | (161,709) | $ | 82 | |||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | 12,666 | — | — | — | 12,666 | ||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 840,759 | 1 | (3,969) | (882,251) | 3,968 | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock shares canceled/forfeited | — | — | 30 | 5,338 | (30) | — | — | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | 160,762 | — | (618) | (151,239) | 1,269 | — | 651 | ||||||||||||||||||||||||||||||||||
| Shares repurchased for tax withholding | — | — | — | 249,442 | (1,190) | — | (1,190) | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (30,197) | (30,197) | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 113,705,447 | $ | 114 | $ | 173,804 | — | $ | — | $ | (191,906) | $ | (17,988) | |||||||||||||||||||||||||||||
| Conversion of Series B Preferred Stock | 29,761,650 | 30 | 87,840 | — | — | — | 87,870 | ||||||||||||||||||||||||||||||||||
| Repurchase of Series B Preferred Stock | — | — | (4,935) | — | — | — | (4,935) | ||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | 444,809 | — | 1,367 | — | — | — | 1,367 | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | 17,178 | — | — | — | 17,178 | ||||||||||||||||||||||||||||||||||
| Exercise of stock options | 130,129 | — | 885 | (17,032) | 112 | — | 997 | ||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 2,185,604 | 2 | (268) | (73,335) | 266 | — | — | ||||||||||||||||||||||||||||||||||
| Restricted stock shares canceled/forfeited | — | — | 378 | 90,367 | (378) | — | — | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | 58,228 | 58,228 | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | 146,227,639 | $ | 146 | $ | 276,249 | — | $ | — | $ | (133,678) | $ | 142,717 | |||||||||||||||||||||||||||||
See notes to the consolidated financial statementsstatements.
MIMEDX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) | |||||||||||
| Years Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 11,974 | $ | 29,446 | $ | 6,220 | |||||
| Adjustments to reconcile net income to net cash from operating activities: | |||||||||||
| Depreciation | 3,333 | 1,799 | 1,197 | ||||||||
| Amortization of intangible assets | 2,127 | 933 | 928 | ||||||||
| Amortization of inventory fair value step-up | 1,485 | — | — | ||||||||
| Amortization of deferred financing costs | 181 | 42 | — | ||||||||
| Share-based compensation | 17,818 | 16,896 | 11,453 | ||||||||
| Change in deferred income taxes | (594 | ) | (7,081 | ) | — | ||||||
| Increase (decrease) in cash, net of effects of acquisition, resulting from changes in: | |||||||||||
| Accounts receivable | (11,396 | ) | (27,083 | ) | (10,579 | ) | |||||
| Inventory | (2,837 | ) | (2,327 | ) | (1,252 | ) | |||||
| Prepaid expenses | (2,400 | ) | (1,854 | ) | (203 | ) | |||||
| Other current assets | (384 | ) | (240 | ) | — | ||||||
| Accounts payable | (3,665 | ) | 3,136 | 1,287 | |||||||
| Accrued compensation | (2,669 | ) | 3,511 | 5,935 | |||||||
| Accrued expenses | 6,297 | 2,140 | 1,098 | ||||||||
| Income taxes | 5,835 | (519 | ) | 452 | |||||||
| Other liabilities | 723 | 8 | 266 | ||||||||
| Net cash flows from operating activities | 25,828 | 18,807 | 16,802 | ||||||||
| Cash flows from investing activities: | |||||||||||
| Purchases of equipment | (6,269 | ) | (5,827 | ) | (2,558 | ) | |||||
| Purchase of Stability Inc., net of cash acquired | (7,631 | ) | — | — | |||||||
| Fixed maturity securities redemption | 3,000 | 6,000 | (9,000 | ) | |||||||
| Patent application costs | (842 | ) | (851 | ) | (594 | ) | |||||
| Net cash flows from investing activities | (11,742 | ) | (678 | ) | (12,152 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from exercise of stock options | 3,494 | 4,629 | 2,470 | ||||||||
| Proceeds from exercise of warrants | — | 46 | 1,113 | ||||||||
| Stock repurchase under repurchase plan | (10,378 | ) | (40,279 | ) | (5,612 | ) | |||||
| Stock repurchase for tax withholdings on vesting of restricted stock | (1,165 | ) | — | — | |||||||
| Deferred financing costs | (30 | ) | (504 | ) | — | ||||||
| Payments under capital lease obligations | (102 | ) | (117 | ) | (117 | ) | |||||
| Net cash flows from financing activities | (8,181 | ) | (36,225 | ) | (2,146 | ) | |||||
| Net change in cash | 5,905 | (18,096 | ) | 2,504 | |||||||
| Cash and cash equivalents, beginning of period | 28,486 | 46,582 | 44,078 | ||||||||
| Cash and cash equivalents, end of period | $ | 34,391 | $ | 28,486 | $ | 46,582 | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
See notes to the consolidated financial statements
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash flows from operating activities: | |||||||||||||||||
| Net income (loss) from continuing operations | $ | 67,439 | $ | (19,953) | $ | (12,301) | |||||||||||
| Adjustments to reconcile net income (loss) from continuing operations to net cash flows provided by (used in) operating activities of continuing operations: | |||||||||||||||||
| Deferred income tax provision | (37,802) | — | — | ||||||||||||||
| Share-based compensation | 16,959 | 11,328 | 14,156 | ||||||||||||||
| Depreciation | 2,665 | 3,345 | 4,363 | ||||||||||||||
| Bad debt expense | 1,449 | 2,820 | — | ||||||||||||||
| Non-cash lease expenses | 1,268 | 1,259 | 989 | ||||||||||||||
| Amortization of intangible assets | 762 | 701 | 820 | ||||||||||||||
| Amortization of deferred financing costs | 505 | 467 | 1,055 | ||||||||||||||
| Accretion of asset retirement obligation | 93 | 92 | 81 | ||||||||||||||
| Loss (gain) on fixed asset disposal | 15 | (17) | 262 | ||||||||||||||
| Impairment of intangible assets | — | — | 53 | ||||||||||||||
| Increase (decrease) in cash resulting from changes in: | |||||||||||||||||
| Accounts receivable | (12,237) | (5,937) | (10,620) | ||||||||||||||
| Inventory | (7,838) | (1,794) | (1,406) | ||||||||||||||
| Prepaid expenses | (283) | (1,371) | (501) | ||||||||||||||
| Other assets | 1,535 | (333) | 9,982 | ||||||||||||||
| Accounts payable | 783 | 839 | (159) | ||||||||||||||
| Accrued compensation | 1,829 | (1,859) | 5,008 | ||||||||||||||
| Accrued expenses | (1,708) | 2,366 | (20,497) | ||||||||||||||
| Other liabilities | (497) | 75 | (1,159) | ||||||||||||||
| Net cash flows provided by (used in) operating activities of continuing operations | 34,937 | (7,972) | (9,874) | ||||||||||||||
| Net cash flows (used in) provided by operating activities of discontinued operations | (8,162) | (9,921) | 7,892 | ||||||||||||||
| Net cash flows provided by (used in) operating activities | 26,775 | (17,893) | (1,982) | ||||||||||||||
| Cash flows from investing activities: | |||||||||||||||||
| Purchases of equipment | (1,987) | (1,514) | (3,218) | ||||||||||||||
| Patent application costs | (168) | (170) | (252) | ||||||||||||||
| Sales of equipment | — | 24 | — | ||||||||||||||
| Cash paid for licensing agreement | — | (1,000) | — | ||||||||||||||
| Principal payments from note receivable | — | — | 75 | ||||||||||||||
| Net cash flows used in investing activities | (2,155) | (2,660) | (3,395) | ||||||||||||||
| Cash flows from financing activities: | |||||||||||||||||
| Proceeds from exercise of stock options | 997 | 651 | 1,437 | ||||||||||||||
| Payments under finance lease obligations | (52) | (41) | (38) | ||||||||||||||
| Repurchase of Series B Preferred Shares | (9,515) | — | — | ||||||||||||||
| Stock repurchased for tax withholdings on vesting of restricted stock | — | (1,190) | (4,751) | ||||||||||||||
| Net cash flows used in financing activities | (8,570) | (580) | (3,352) | ||||||||||||||
| Net change in cash and cash equivalents | 16,050 | (21,133) | (8,729) | ||||||||||||||
| Cash and cash equivalents, beginning of period | 65,950 | 87,083 | 95,812 | ||||||||||||||
| Cash and cash equivalents, end of period | $ | 82,000 | $ | 65,950 | $ | 87,083 | |||||||||||
statements.
MIMEDX GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MiMedx Group, Inc. (together with its subsidiaries, except where the context otherwise requires, “MIMEDX,” or the “Company”) is a pioneer and leader in placental biologics focused on helping humans heal. With more than a decade of helping clinicians manage chronic and other hard-to-heal wounds, MIMEDX is dedicated to providing a leading portfolio of products for applications in the wound care, burn, and surgical sectors of healthcare. The Company’s vision is to be the leading global provider of healing solutions through relentless innovation to restore quality of life. All of our products sold in the United States are regulated by the United States Food and Drug Administration (“FDA”).
The Company operates in one business segment, Regenerative Biomaterials, which includes the design, manufacture,Company’s product portfolio and marketing of productsproduct development focuses on Wound and tissue processing services for the Wound Care, Surgical Sports Medicine, Ophthalmic and Dental market categories. The MiMedx allograft product families include our: dHACM family with AmnioFix® ans EpiFix® brands; Amniotic Fluid family with OrthoFlo brand; Umbilical family with EpiCord® and AmnioCord® brands; Placental Collagen family with CollaFix™ and AmnioFill™ brands; and Bone family with Physio® brand. AmnioFix and EpiFix are our tissue technologies processed from human amniotic membrane; OrthoFlo is an amniotic fluid derived allograft; EpiCord and AmnioCord are derived from the umbilical cord; Physio is a bone grafting material comprised of 100% bone tissue with no added carrier; and CollaFix, our next brand we plan to commercialize, is our collagen fiber technology, developed with our patented cross-linking polymers, designed to mimic the natural composition, structure and mechanical properties of musculoskeletal tissues in order to augment their repair.
markets.
The CompanyCompany’s business is focused primarily on the United States but is actively exploring international expansion opportunities. The adoption of the technologies may vary depending on each country’s regulations,America but the opportunitiesCompany also has a small commercial presence in several international locations, including Japan.
Disbanding of Regenerative Medicine Business Unit
On June 20, 2023, the Company announced the disbanding of its Regenerative Medicine business unit and the suspension of its Knee Osteoarthritis clinical trial program. During the fourth quarter of 2023, the Company completed the regulatory obligations associated with the clinical trial and concluded that the business unit met the criteria for presentation as a discontinued operation at that time. Refer to help individualsNote 13, Discontinued Operations, for further discussion.
2. Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of MiMedx Group, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
Reclassifications
Increases in cash resulting from changes in income taxes of $0 and $9.3 million for the years ended December 31, 2022 and 2021, respectively, were separately presented in previously issued consolidated statements of cash flows. These amounts are reflected as part of changes in other assets in the different disease states remain similar and large.consolidated statements of cash flows included in these consolidated financial statements.
Use of Estimates
The preparation ofconsolidated financial statements have been prepared in conformityaccordance with accounting principles generally accepted accounting principlesin the United States of America (“GAAP”GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported consolidated statements of operations during the reporting period. Actual results could differ from those estimates.
Segment Reporting
Cash and Cash Equivalents
Cash and cash equivalents include cash and FDIC insured certificates of deposit held at various banksbanks. The Company considers all highly-liquid investments purchased with an original maturity of three months or less.less at the date of purchase and money market mutual funds to be cash equivalents.
Market Concentrations and Credit Risk
The Company places its cash and cash equivalents on deposit with U.S.-based financial institutions. The U.S. Federal Deposit Insurance Corporation (“FDIC”) provides insurance coverage for deposits up to $250,000 for substantially all depository accounts. As of December 31, 2023 and 2022, the Company had cash and cash equivalents of approximately $81.3 million and $65.2 million, respectively, in excess of the insured amounts in five depository institutions.
Accounts Receivable
Accounts receivable represent amounts due from customers for which revenue has been recognized. Generally, the Company does not require collateral or any other security to support its receivables.
The allowance for doubtful accounts is calculated based on the Company's best estimateCompany’s current expectations for credit losses, which is generally informed by historical trends. The Company’s policy to reserve for potential bad debts based on the age of the amount of probable credit losses in the Company's existing receivables. The Company determines the allowance based onindividual receivable as well as customer-specific qualitative factors, such as historical collection experience, customers' current creditworthiness, customer concentrations, age of accounts receivable balance and general economic conditions thatbankruptcy proceedings. The Company manages credit risk by routinely performing credit checks on customers prior to sales. Individual receivables are written-off after all reasonable efforts to collect the funds have been made. Actual write-offs may affectdiffer from the customers' ability to pay.amounts reserved.
Property and equipment are recorded at cost and depreciated on a straight-line method over their estimated useful lives, principally three to seven years. Leasehold improvements are depreciated on a straight-line method over the shorter of the estimated useful lives and the remaining lease term.
Asset Retirement Obligations
The Company records obligations associated with the legal requirement to retire long-lived assets when an estimate for the cost of retirement can reasonably be made. The Company reviews legal obligations associated with the retirement of long-lived assets that result from contractual obligations or the acquisition, construction, development and/or normal use of the assets. If it is determined that a legal obligation exists, regardless of whether the obligation is conditional on a future event, the fair value of the liability for an asset retirement obligation is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The fair value is calculated as the estimate of the expected cash outflow to satisfy the legal obligation discounted to present value using the Company’s then-prevailing incremental borrowing rate. At such point in time, an asset and liability are recorded for the amount of the expected liability. The asset amount is depreciated, straight-line, over the life of the underlying asset, while the liability is accreted to the amount of the expected outflow through selling, general and administrative expense using the effective interest method. Subsequent revisions to estimates for future cash flows related to the asset retirement obligations are recorded as equal increases or decreases to the retirement asset and liability.
Impairment of Long-lived Assets
Impairment reviews are based on an estimated future cash flow approach that requires significant judgment with respect to future revenue and expense growth rates, selection of appropriate discount rate (as applicable), asset groupings, and other assumptions and estimates. The Company uses estimates that are consistent with ourits business plans and a market participant view of the assets being evaluated. Actual results may differ from ourthese estimates.
The Company has determined that there arerecorded no impairment losses on intangible assets for the years ended December 31, 2023 and 2022 and $0.1 million for the year ended December 31, 2021. The Company recorded no impairment losses with finite lives impairmentsrespect to any other classes of long-lived assets in 2016those periods.
Goodwill and 2015.Indefinite-lived Intangible Assets
The Company assesses goodwill for impairment at least annually on October 1 and more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that goodwill is impaired. In performing the goodwill impairment test, the Company first assesses qualitative factors to determine the existence of impairment. If the qualitative factors indicate that the carrying value of a reporting unit exceeds its fair value, the Company proceeds to a quantitative test to measure the existence and amount, if any, of goodwill impairment. The Company may also choose to bypass the qualitative assessment and proceed directly to the quantitative test.
If the lifeCompany concludes that the way in which it is being managed has changed and results in a change to its concluded reporting units, the goodwill assigned to the original reporting unit is allocated to the new reporting units based on the relative fair value of the lease. new reporting units.
The Company determines the fair value of reporting units using the income and market approaches, as applicable. Under the income approach, the fair value of a reporting unit is partythe present value of its future cash flows as viewed from the lens of a hypothetical market participant in an orderly transaction. These future cash flows are derived from expectations of revenue, expenses, tax deductions and credits, working capital flows, capital expenditures, and other projected sources and uses of cash, as applicable. Value indications are developed by discounting expected cash flows to their present value using a discount rate commensurate with the risks associated with the reporting unit subject to testing. Under the market approach, the Company uses market multiples derived from various lease arrangementscomparable companies based on measures salient to investors in those companies.
On June 20, 2023, the Company announced the disbanding of its Regenerative Medicine business unit and the suspension of its Knee Osteoarthritis clinical trial program. As a result of this event, the Company evaluated goodwill associated with the Regenerative Medicine reporting unit for potential impairment. The Company estimated fair value for the reporting unit using the income approach; specifically, a discounted cash flow method. As a result of this assessment, management concluded that the fair value of the reporting unit exceeded its facility space and equipment. These arrangements include interest, scheduled rent increases and rent holidays which are included incarrying value by an amount that exceeded its goodwill balance. Accordingly, the determinationCompany recognized an impairment loss for the full amount of minimum lease payments when assessing lease classification, and are included in rent expense on a straight line basis over the lease term. See Notes 7 and 16 for further information regarding capital leases, operating leases and rent expense.goodwill ascribed to the Regenerative Medicine reporting unit.
Patent Costs
The Company incurs certain legal and related costs in connection with patent applications for tissue based products and processes.applications. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or an alternative future use is available to the Company. The Company capitalized approximately $842,000$0.2 million, $0.2 million, and $0.3 million of patent costs during 2016, $851,000 of patent costs during 2015for the years ended December 31, 2023, 2022, and $594,000 of patent costs during 2014.2021, respectively.
The Company evaluatesdetermines if a contract is, or contains, a lease at inception. Leases provide the recoverabilityCompany with the right to control an underlying asset for a contractual term, subject to certain renewal and other rights, in exchange for a series of its long-livedstipulated cash flows. Right of use (“ROU”) assets (propertyrepresent the Company's right to use an underlying asset for the lease term and equipment) whenever adverse events or changes in business climate indicate thatlease liabilities represent the expected undiscounted future cash flowsCompany's obligation to make lease payments arising from the relatedlease.
Lease assets may be less than previously anticipated. Ifand liabilities are recognized at the net booklease commencement date based on the estimated present value of lease payments over the related assets exceeds the expected undiscounted future cash flows of the assets, the carrying amount would be reduced tolease term. The Company calculates the present value of their expectedlease payments by discounting the lease payments using the Company’s incremental borrowing rate for a collateralized or secured borrowing over a term equivalent to that of the lease. Lease payments that vary according to an index or rate are measured using the index or rate at lease inception. The lease term and applicable payments include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Options to renew or terminate a lease are included in the lease term to the extent that such provisions
are reasonably certain to be exercised. This determination is reassessed as new information arises and is accounted for prospectively. As an accounting policy election, the Company does not capitalize leases having initial terms of 12 months or fewer. The Company has made an accounting policy election not to separate lease components from non-lease components in the event that the agreement contains both.
Operating lease right of use assets and the related liabilities are included in right of use asset, other current liabilities, and other liabilities, respectively, in the consolidated balance sheets. Lease expense associated with operating leases is recognized, straight-line, over the lease term. The Company does not recognize interest expense from operating lease liabilities.
Finance lease right of use assets and the related liabilities are included in property and equipment, net, other current liabilities, and other liabilities, respectively, in the consolidated balance sheets. Finance lease right of use assets are amortized, straight-line, over the lease term as depreciation expense. Interest expense is recognized using the effective interest method on finance lease liabilities as part of interest expense, net.
Treasury Stock
Shares repurchased by the Company are recorded as treasury stock at the cost to acquire such shares. Subsequent issuances of shares held in treasury are assumed to be released on a FIFO basis.
Contingencies
The Company is or has been subject to various patent challenges, product liability claims, government investigations, former employee matters, and other legal proceedings. See Note 16, Commitments and Contingencies, for discussion of material matters. Legal fees and other expenses related to litigation are expensed as incurred and included in selling, general and administrative expenses or investigation, restatement and related expenses in the consolidated statements of operations, depending on the nature of the matter. The Company records an accrual for resolution costs and other contingencies in the consolidated financial statements when the Company determines that a loss is both probable and reasonably estimable. Subsequent revisions to the Company’s accrual are made as new information emerges and are accounted for prospectively. The Company discloses all ongoing legal matters for which a loss is reasonably possible, regardless of whether an estimate can be reasonably determined.
Due to the fact that legal proceedings and other contingencies are inherently unpredictable, the Company’s estimates of the probability and amount of any such liabilities involve significant judgment regarding future cash flowsevents. The actual costs of resolving a claim may be substantially different from the amount of reserve the Company recorded. The Company records a receivable from its insurance carriers only when the resolution of any dispute has been reached and realization of the amounts equal to the potential claim for recovery is considered probable. Any recovery of an impairmentamount in excess of the related recorded contingent loss wouldwill be recognized.recognized only when all contingencies relating to recovery have been resolved.
Revenue Recognition
The Company sells its products through a combination of a direct sales force, independent stocking distributors and third - party representatives in the U.S.primarily to individual customers and independent distributors in international markets. (collectively referred to as “customers”). Customers obtain and use products either through ship and bill sales or consignment arrangements. Under ship and bill arrangements, the Company retains possession of the product until the customer submits an order. Upon approval of the sales order, the Company ships product to the customer and invoices them for the product sold. Under consignment arrangements, the customer takes possession of the product, but the Company retains title until the implantation or application of the Company’s product to the end user.
The Company recognizes revenue when titleas performance obligations are fulfilled, which generally occurs upon the shipment of product to the goodscustomers for ship and riskbill orders or upon implantation for consignment sales.
Revenue is recognized based on the consideration the Company expects to receive from the sale. This consists of loss transfersthe gross selling price of the product, less any discounts, rebates or other amounts paid to customers, provided therefees paid to Group Purchasing Organizations (“GPOs”), and returns (collectively, “deductions” or “sales deductions”). Gross selling price is a standard set by the Company for all customers unless a contract governing the sale provides for a specified price. Sales deductions are no material remaining performance obligations requiredspecified in individual contracts with customers. The Company estimates the total sales deductions which a specific customer will achieve over the relevant term and applies the reduction to sales as they are made throughout the period.
Sales deductions owed to customers and other parties are accrued and recorded in accrued expenses on the consolidated balance sheets.
The Company acts as the principal in all of its customer arrangements and records revenue on a gross basis. Shipping is considered immaterial in the context of the overall customer arrangement, and damages or loss of goods in transit are rare. Therefore, shipping is not deemed a separately recognized performance obligation and the Company or any matters of customer acceptance.has elected to treat shipping costs as activities to fulfill the promise to transfer the product. The Company records revenuesmaintains a returns policy that allows its customers to return product that is damaged or non-conforming, ordered in error, or due to a recall. The estimate of the provision for returns is based upon historical experience with actual returns. The Company’s payment terms for customers are typically 30 to 60 days from receipt of title of the goods.
Cost of Sales
Cost of sales includes all costs directly related to our independent stocking distributors atbringing the time the product is shipped to the distributor. Our stocking distributors, who sell theCompany’s products to their customers or sub-distributors, contractually take titlefinal selling destination. Amounts include direct and indirect costs to themanufacture products including raw materials, personnel costs and assume all risks of ownership at the time of shipment. Our stocking distributors are obligateddirect overhead expenses necessary to pay us the contractually agreed upon invoice price within specified terms regardless of when, if ever, they sell the products. Our stocking distributors do not have any contractual rights of return or exchange other than for defectiveconvert collected tissues into finished goods, product or shipping error; however, in limited situations, we do accept returns or exchanges at our discretion.
The Company may also elect to terminate the agreement without cause and pay a termination fee to AvKARE as specifiedobtains raw material in the agreement. Upon terminationform of the agreement, the parties may mutually agree to extend the agreement or the Company has an obligation to repurchase AvKARE’s remaining inventory, if any, within ninety (90) days in accordance with the terms of the Agreement. At the end of the term, the parties expect AvKARE’s inventory to be minimal, based upon AvKARE's obligation to use commercially reasonable efforts to achieve target sales levels over the remaining term of the agreement.
participating mothers who give birth via scheduled Caesarean section.
Research and Development Costs
Research and development costs consist of direct and indirect costs associated with the development of the Company’s technologies. Historically, these expenses largely represented costs associated with our clinical trials, but now largely represent costs associated with new product development and pilot production. These costs are expensed as incurred.
Advertising expense
Advertising expense consists primarily of print media promotional materials. Advertising costs are expensed as incurred. Advertising expense for the year ended December 31, 2023, 2022, and 2021 was $0.6 million, $0.2 million, and $0.1 million respectively.
Income Taxes
Income tax provision, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in the United States and numerous states.
Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance.
In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, results of recent operations, and changes in tax laws. In projecting future taxable income, the Company begins with historical results and incorporates assumptions about the amount of future state and federal pretax operating income adjusted for items that do not have tax consequences. The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates the Company uses to manage the underlying businesses. In evaluating the objective evidence that historical results provide, management considers three years of cumulative income (loss) exclusive of items that will not recur, such as discontinued operations. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, we determine deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in incomethe tax provision (benefit) in the period that includes the enactment date.
The Company recognizes deferredcalculation of income tax assets toliabilities involves dealing with uncertainties in the extentapplication of complex tax laws and regulations both for U.S. federal income tax purposes and across numerous state jurisdictions. ASC Topic 740, Income Taxes, states that we believe that these assets area tax benefit from an uncertain tax position may be recognized when it is more likely than not tothat the position will be realized. In making suchsustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical
merits. The Company records unrecognized tax benefits within other current liabilities on the consolidated balance sheets and adjusts these liabilities when management’s judgment changes as a determination, we consider all available positive and negative evidence, including future reversalsresult of existing taxable temporarythe evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from management’s current estimate of the unrecognized tax benefit liabilities. These differences projected future taxable income, tax-planning strategies, and results of recent operations. If we determine that we wouldwill be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustmentreflected as increases or decreases to the deferred tax asset valuation allowance,or income tax expense in the period in which would reduce the provision for income taxes.new information is available.
The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process in whichwhereby (1) we determineit determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, we recognizeit recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the consolidated statements of operations. Accrued interest and penalties, if any, are included within the related deferred tax liability line in the consolidated balance sheets and recorded as a component of income tax expense.
Share-based Compensation
The Company accounts for its share- based compensation plans in accordance with FASB ASC topic 718 “Compensation- Stock compensation”. FASB ASC 718 requires the measurement and recognition of compensation expense for allgrants share-based awards made to employees and directors, including employee stock options, restricted stockmembers of the Company’s Board of Directors (the “Board”). Awards to employees and warrants. Under the provisionsBoard are generally made annually. Grants are issued outside of FASB ASC 718,the annual cadence for certain new hires, promotions, and U. S. Securities and Exchange Commission Staff Accounting Bulleting No. 107, share-based compensation costother events.
The amount of expense to be recognized is measured atdetermined by the grant date, based on the calculated fair value of the award andusing inputs available as of the grant date. The fair value of equity incentive awards that are not subject to a market condition is recognizedthe value of common stock on the grant date. For equity incentive awards that are subject to a market condition, the fair value of common stock on the grant date is adjusted to reflect the value of the market condition, generally using a path-dependent pricing model, such as ana Monte Carlo simulation.
For awards with service-based vesting conditions only, the Company recognizes share-based compensation expense on a straight linestraight-line basis overthrough the requisite service periodvesting date of the entirelast tranche of the award. For awards which are subject to a condition other than a service condition, the Company recognizes stock-based compensation expense using the graded-vesting method, treating each tranche as if it were a separately-granted award (generallyand recognizing expense through the vesting date of each individual tranche. In each scenario, the Company recognizes share-based compensation expense based upon the probability that the award will ultimately vest. The Company recognizes the cumulative effect of changes in the probability outcomes in the period in which the changes occur.
For awards subject to a market condition, the resolution of the award)market condition is not subsequently considered in expense recognition. Consequently, the Company could recognize expense for awards that do not ultimately vest.
Basic and Diluted Net Income (Loss) per Common Share
Basic net income (loss) per common share is calculated as net income (loss) from continuing operations available to common stockholders divided by weighted average common shares outstanding for the applicable period. Net income (loss) from continuing operations available to common stockholders is calculated by adjusting net income (loss) for dividends on the Company’s previously outstanding Series B Convertible Preferred Stock (“Series B Preferred Stock”). This amount is divided by the weighted average common shares outstanding during the period.
Weighted average common shares outstanding is calculated as shares of the Company outstanding adjusted for the portion of the period for which they are outstanding. Unvested non-option share awards are excluded from the calculation of weighted average common shares outstanding until they have vested. Unexercised stock options are excluded from the calculation of weighted average common shares outstanding until they are exercised. Shares issuable pursuant to the Company’s Employee Stock Purchase Plan (“ESPP”) are included for the minimum number of shares issuable beginning at the point in time that all contingencies for share issuance are resolved.
Diluted net income (loss) per common share adjusts basic net income (loss) per common share for convertible securities, options, equity incentive awards, and other share-based payment awards which have yet to vest and vest only upon the satisfaction of a service condition. Equity incentive awards and options that are subject to a performance or market condition are included only if the performance or market condition would be satisfied if the end of the applicable period were the end of the performance period. In any case, these adjustments are reflected in the calculation of diluted net income (loss) per common share to the extent that they reduce basic net income (loss) from continuing operations per common share.
Basic and diluted net income (loss) per common share from discontinued operations are evaluated using the same denominator as basic and diluted net income (loss) per common share from continued operations.
The Company uses the if-converted method to calculate the dilutive effect of the Series B Preferred Stock and other convertible securities to the extent they are outstanding. The if-converted method assumes that convertible securities are converted at the later of the issuance date and the beginning of the period. If the hypothetical conversion of convertible securities, and the consequential avoidance of any accumulated preferred dividends, would decrease basic net income (loss) from continuing operations per common share, these effects are incorporated in the calculation of diluted net income (loss) from continuing operations per common share, adjusted for the portion of the period the securities were outstanding.
The Company uses the treasury stock method to calculate the dilutive effect of options, non-option share awards, and certain other share-based payments. The treasury stock method assumes that the proceeds from exercise are used to repurchase common shares at the weighted average market price during the period, increasing the denominator for the net effect of shares issued upon exercise less hypothetical shares repurchased.
Shares issuable pursuant to the ESPP are included in the calculation of diluted net loss per common share to the extent that such shares would be issued based on the share price at the conclusion of the period, excluding the shares already reflected in the calculation of weighted average common shares outstanding.
Fair Value of Financial Instruments and Fair Value Measurements
The respective carrying value of certain on-balance-sheeton-balance sheet financial instruments approximated their fair values due to the short-term nature and type of these instruments. These financial instruments include cash and cash equivalents, accounts receivable, short term investments, accounts payablenotes receivable, and accrued expenses. The carrying cost of the Company’s investments also reflects their fair values due to the type of these investmentscertain other financial assets and the fair value of capital leases approximates their carrying value based upon current rates available to the Company.
The Company records certain financial instruments at fair value, including: cash equivalents, short term investments and investments. The Company may make an irrevocable election to measure other financial instruments at fair value on an instrument-by-instrument basis; although as of December 31, 2016, the Company has not chosen to make any such elections. Fair value financial instruments are recorded in accordance with the fair value measurement framework.
Fair value financial instruments are recorded in accordance with the fair value measurement framework. The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows:
•Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities;
•Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data.
•Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available.
The determination of fair value and the assessment of a measurement’s placement within the hierarchy require judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied towhich incorporate unobservable inputs, management estimates, and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include: estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist it in determining fair value, as appropriate.
Although the Company believes that the recorded fair value of its financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.
Government Assistance
The Company receives benefits from various government entities for various purposes from time to time. With respect to any benefits that are not dependent on income (which are subject to the policy described under Income Taxes, above), the Company recognizes such benefits at the point in time in which all barriers to receive the assistance have been overcome in an amount equal to the expected benefit. Benefits are reflected in the consolidated statements of operations in the line item to which the associated benefit relates.
Recently IssuedAdopted Accounting Pronouncements
In May 2014,March 2020, the Financial Accounting Standards Board ("FASB"issued Accounting Standards Update (“ASU”) issued2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” ASU 2014-09, “Revenue Recognition - Revenue2020-04 provides temporary expedients to accounting guidance for certain contract modifications and hedging arrangements to ease financial reporting burdens as a result of market transitions from Contracts with Customers” (ASU 2014-09)certain reference rates, including the London Interbank Offered Rate (“LIBOR”).
In June 2023, the Company entered into Amendment No. 2 (the “Amendment No. 2”) to the loan agreement, dated as of June 30, 2020, by and among the Company, Hayfin Services, LLP (“Hayfin”), an affiliate of Hayfin Capital Management LLP, and certain other parties, (as amended, the “Hayfin Loan Agreement”), pursuant to which the reference rate used to determine the interest rate was changed from the LIBOR to the Secured Overnight Financing Rate (“SOFR”). Because the only terms of Amendment No. 2 that requires companiesaffected the Company’s contractual cash flows were related to recognize revenue when a customer obtains control rather than when companies have transferred substantially all risks and rewards of a good or service. This update is effective for annual reporting periods beginning on or after December 15, 2017 and interim periods therein and requires expanded disclosures.the changes in the reference rate, the Company adopted the optional guidance prescribed by Topic 848 to this transaction. The Company is currently assessing the impact the adoption of ASU 2014-09 will have on2020-04 and its application to the Second Amendment did not materially impact the Company’s audited consolidated financial statements.statements for the year ended December 31, 2023.
Recently Issued Accounting Pronouncements Not Yet Adopted
In September 2015,November 2023, the FASB issued ASU No. 2015-16, Business Combinations2023-07, “Segment Reporting: Improvements to Reportable Segment Disclosures (Topic 805): Simplifying280)”. The standard seeks to improve the Accountingdisclosures about a public entity’s reportable segments and address requests from investors for Measurement-Period Adjustments, that eliminates the requirement for an acquirer inadditional, more detailed information about a business combination to account for measurement-period adjustments retrospectively.reportable segment’s expenses. ASU 2015-162023-07 is effective for public companies for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The Company has adopted this standard in the first quarter of 2016 and its application is shown in Note 4.
In December 2023, the FASB issued ASU 2023-09, “Improvement to Income Tax Disclosures (Topic 740)”, which requires additional disclosures for income tax rate reconciliations, income taxes paid, and certain other tax disclosures. ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. Adoption is required for annual periods beginning after December 15, 2024. The Company is currently assessingevaluating the impact the adoption of ASU 2016-09 will havethis standard on its consolidated financial
All other ASUs issued and not yet effective for the year endedas of December 31, 2016,2023, and through the date of this report, were assessed and determined to be either not applicable or are expected to have minimal impact on the Company'sCompany’s current and future financial position or results of operations.
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Accounts receivable, gross | $ | 57,015 | $ | 46,867 | |||||||
| Allowance for doubtful accounts | (3,144) | (3,783) | |||||||||
| Accounts receivable, net | $ | 53,871 | $ | 43,084 | |||||||
| Common Share Price at Closing on 1/13/2016 | $ | 8.43 | ||
| Multiplied by: Number of Common Shares Transferred to the Sellers | 441,009 | |||
| Indicated Value of Equity Consideration (on a Freely Tradable Interest Basis) | $ | 3,717,706 | ||
| Less: Marketability Discount @ 10% | [a] | (371,771 | ) | |
| Fair Value of Equity Consideration Transferred | $ | 3,345,935 | ||
| [a] Shares transferred to the Sellers are restricted securities pursuant to Rule 144. As such, the Sellers are prevented from selling the shares for a period of six months. In addition, they are subject to contractual lockups which restrict sales for up to twelve months following the closing of the transaction. | ||||
| Allowance for Doubtful Accounts | |||||
| Balance at December 31, 2021 | $ | 1,187 | |||
| Bad debt expense | 2,820 | ||||
| Write-offs | (224) | ||||
| Balance at December 31, 2022 | $ | 3,783 | |||
| Bad debt expense | 1,449 | ||||
| Write-offs | (2,088) | ||||
| Balance at December 31, 2023 | $ | 3,144 | |||
4. Inventory
| Cash paid at closing | $ | 6,000 | ||
| Working capital adjustment | (480 | ) | ||
| Common stock issued (441,009 shares) | 3,346 | |||
| Assumed debt | 1,771 | |||
| Fair value of earn-out | 17,450 | |||
| Total fair value of purchase price | $ | 28,087 | ||
| Net assets acquired: | ||||
| Debt-free working capital | $ | 2,456 | ||
| Other long-term assets | 199 | |||
| Property, plant and equipment | 1,375 | |||
| Deferred tax liability | (5,896 | ) | ||
| Subtotal | (1,866 | ) | ||
| Intangible assets: | ||||
| Customer relationships | 5,330 | |||
| Patents and know-how | 6,790 | |||
| Trade names and trademarks | 450 | |||
| Non compete agreements | 830 | |||
| Licenses and permits | 390 | |||
| Subtotal | 13,790 | |||
| Goodwill | 16,163 | |||
| Total Assets Purchased | $ | 28,087 | ||
| Working capital and other assets were composed of the following (in thousands): | ||||
| Working capital | ||||
| Cash | $ | 140 | ||
| Prepaid Expenses and other current assets | 100 | |||
| Accounts receivable | 2,001 | |||
| Federal and state taxes receivable | 28 | |||
| Inventory | 9,002 | |||
| Accounts payable and accrued expenses | (8,815 | ) | ||
| Debt-free working capital | $ | 2,456 | ||
| Current portion of long term debt | $ | (194 | ) | |
| Long-term debt | (560 | ) | ||
| Line of Credit | (932 | ) | ||
| Shareholder loan | (85 | ) | ||
| Assumed debt | $ | (1,771 | ) | |
| Net working capital | $ | 685 | ||
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Raw materials | $ | 825 | $ | 810 | |||||||
| Work in process | 8,521 | 6,855 | |||||||||
| Finished goods | 11,675 | 5,518 | |||||||||
| Inventory | $ | 21,021 | $ | 13,183 | |||||||
Consignment inventory, included as a component of finished goods in the table above, was $4.0 million and $3.4 million as of December 31, 2023 and 2022, respectively.
5. Property and Equipment, Net
Property and equipment, net, consists of the following (in thousands):
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Lab and clean room equipment | $ | 13,954 | $ | 16,422 | |||||||
| Furniture and office equipment | 1,989 | 15,016 | |||||||||
| Leasehold improvements | 8,141 | 9,190 | |||||||||
| Construction in progress | 1,791 | 1,983 | |||||||||
| Asset retirement cost | 938 | 983 | |||||||||
| Finance lease assets | 189 | 189 | |||||||||
| Property and equipment, gross | 27,002 | 43,783 | |||||||||
| Less: accumulated depreciation and amortization | (20,028) | (35,927) | |||||||||
| Property and equipment, net of accumulated depreciation and amortization | $ | 6,974 | $ | 7,856 | |||||||
Depreciation expense for each of the years ended December 31, 2023, 2022, and 2021 was recorded in certain captions of the consolidated statements of operations for those periods in the amounts shown in the table below (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cost of sales | $ | 1,569 | $ | 1,816 | $ | 1,787 | |||||||||||
| Selling, general, and administrative expense | 795 | 1,243 | 2,278 | ||||||||||||||
| Research and development expense | 301 | 286 | 298 | ||||||||||||||
| Total | $ | 2,665 | $ | 3,345 | $ | 4,363 | |||||||||||
| Balance at 3/31/16 | $ | 22,912 | ||
| Goodwill Adjustments (a) | (6,749 | ) | ||
| Balance at 12/31/16 | $ | 16,163 | ||
| (a) Goodwill is the result of a residual calculation | ||||
6. Leases
The changesCompany has leases for corporate offices, manufacturing facilities, vehicles, and certain equipment. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees.
Supplemental balance sheet information related to the Company’s leases, including the financial statement caption in which the preliminary fair valuesamounts are presented, is as follows (amounts in thousands, except lease term and discount rate):
| Operating Leases | Finance Leases | ||||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Right of use asset | $ | 2,132 | $ | 3,400 | $ | — | $ | — | |||||||||||||||
| Property and equipment, net | — | — | 51 | 98 | |||||||||||||||||||
| Total assets | $ | 2,132 | $ | 3,400 | $ | 51 | $ | 98 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Other current liabilities | $ | 1,495 | $ | 1,391 | $ | 53 | $ | 49 | |||||||||||||||
| Other liabilities | 893 | 2,381 | 5 | 57 | |||||||||||||||||||
| Total liabilities | $ | 2,388 | $ | 3,772 | $ | 58 | $ | 106 | |||||||||||||||
| Weighted-average remaining lease term (years) | 2.0 | 2.8 | 1.1 | 2.1 | |||||||||||||||||||
| Weighted-average discount rate | 8.3 | % | 8.3 | % | 8.3 | % | 8.3 | % | |||||||||||||||
Information related to lease costs are as follows (amounts in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Operating lease cost | $ | 1,532 | $ | 1,620 | $ | 1,327 | |||||||||||
| Amortization of finance lease ROU assets | 47 | 47 | 43 | ||||||||||||||
| Interest expense on finance lease liabilities | 7 | 10 | 13 | ||||||||||||||
Maturities of lease liabilities are as follows (amounts in thousands):
| Year Ending December 31, | Operating Leases | Finance Leases | Total | ||||||||||||||
| 2024 | $ | 1,623 | $ | 55 | $ | 1,678 | |||||||||||
| 2025 | 506 | 5 | 511 | ||||||||||||||
| 2026 | 419 | — | 419 | ||||||||||||||
| 2027 | 35 | — | 35 | ||||||||||||||
| 2028 | — | — | — | ||||||||||||||
| Thereafter | — | — | — | ||||||||||||||
| Total lease payments | 2,583 | 60 | 2,643 | ||||||||||||||
| Less: imputed interest | (195) | (2) | (197) | ||||||||||||||
| Lease liability | $ | 2,388 | $ | 58 | $ | 2,446 | |||||||||||
Asset Retirement Obligations
Certain lease agreements require the Company to return designated areas of leased space to its original condition upon termination of the acquired assetslease agreement, for which the Company records an asset retirement obligation and liabilities were duea corresponding capital asset in an amount equal to adjustments made to the prospective financial information ("PFI") to better reflect an expected case from a market participant's perspective. As the earn-out is limited to the gross profit margin for the first two years after the acquisition, the adjustment to the PFI had a decreasing impact on the estimated fair value of the earn-out atobligation. In subsequent periods, the acquisition date, which resultedasset retirement obligation is accreted for the change in a lower total purchase considerationits present value and a reductionthe capitalized asset is depreciated, both over the term of the estimated fair value of the identifiable intangible assets.
associated lease
| Provisional Per | Measurement Period | |||||||||||
| 3/31/2016 Form 10Q | Adjustments 2016 | Final | ||||||||||
| Cash paid at closing | $ | 6,000 | $ | — | $ | 6,000 | ||||||
| Working capital adjustment | (480 | ) | — | (480 | ) | |||||||
| Common stock issued | 3,346 | — | 3,346 | |||||||||
| Assumed debt | 1,771 | — | 1,771 | |||||||||
| Fair value of earn-out | 25,620 | (8,170 | ) | 17,450 | ||||||||
| Total fair value of purchase price | $ | 36,257 | $ | (8,170 | ) | $ | 28,087 | |||||
| Net assets acquired: | ||||||||||||
| Debt-free working capital | $ | 2,179 | $ | 277 | $ | 2,456 | ||||||
| Other assets, net | 199 | — | 199 | |||||||||
| Property, plant and equipment | 1,375 | — | 1,375 | |||||||||
| Deferred tax liability | (8,268 | ) | 2,372 | (5,896 | ) | |||||||
| Subtotal | $ | (4,515 | ) | $ | 2,649 | $ | (1,866 | ) | ||||
| Intangible assets: | ||||||||||||
| Customer relationships | $ | 6,090 | $ | (760 | ) | $ | 5,330 | |||||
| Patents and know-how | 9,170 | (2,380 | ) | 6,790 | ||||||||
| Trade names and trademarks | 830 | (380 | ) | 450 | ||||||||
| Non compete agreements | 1,080 | (250 | ) | 830 | ||||||||
| Licenses and permits | 690 | (300 | ) | 390 | ||||||||
| Subtotal | 17,860 | (4,070 | ) | 13,790 | ||||||||
| Goodwill | 22,912 | (6,749 | ) | 16,163 | ||||||||
| Total Assets Purchased | $ | 36,257 | $ | (8,170 | ) | $ | 28,087 | |||||
| Years Ended December 31, | |||
| 2016 | 2015 | ||
| Revenue | $245,563 | $204,481 | |
| Net income | $12,611 | $24,960 | |
| Income per share, fully diluted | $0.11 | $0.22 | |
| December 31, | |||||||
| 2016 | 2015 | ||||||
| Raw materials | $ | 1,148 | $ | 602 | |||
| Work in process | 6,677 | 3,850 | |||||
| Finished goods | 10,817 | 3,405 | |||||
| Inventory, gross | 18,642 | 7,857 | |||||
| Reserve for obsolescence | (828 | ) | (397 | ) | |||
| Inventory, net | $ | 17,814 | $ | 7,460 | |||
| December 31, | |||||||
| 2016 | 2015 | ||||||
| Leasehold improvements | $ | 3,274 | $ | 2,684 | |||
| Lab and clean room equipment | 8,666 | 4,564 | |||||
| Furniture and equipment | 7,051 | 4,577 | |||||
| Construction in Progress | 3,300 | 2,629 | |||||
| Property and equipment, gross | 22,291 | 14,454 | |||||
| Less accumulated depreciation | (8,505 | ) | (4,979 | ) | |||
| Property and equipment, net | $ | 13,786 | $ | 9,475 | |||
7. Goodwill and Intangible Assets, Net
Goodwill
In concert with the liabilitydisbanding of its Regenerative Medicine business unit, management concluded that the Company operated as a single operating segment. This operating segment reflected its sole reporting unit for goodwill impairment testing purposes.
For the annual impairment test performed on October 1, 2023, the Company performed a qualitative assessment to determine the existence of impairment. The qualitative assessment concluded that it was $188,000more likely than not that goodwill was not impaired, and $361,000, respectively.the Company did not proceed to the quantitative assessment. There was no impairment of goodwill in 2022 or 2021.
| Goodwill | ||||||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | 19,441 | ||||||||||||||||||||||||
| Activity | — | |||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | 19,441 | ||||||||||||||||||||||||
| Activity | — | |||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ | 19,441 | ||||||||||||||||||||||||
Intangible Assets, Net
Intangible assets, net, are summarized as follows (in thousands):
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Gross Carrying Amount | Accumulated amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated amortization | Net Carrying Amount | ||||||||||||||||||
| Amortized intangible assets | |||||||||||||||||||||||
| Patents and know-how | $ | 10,039 | $ | (7,818) | $ | 2,221 | $ | 9,923 | $ | (7,106) | $ | 2,817 | |||||||||||
| Licenses | 1,000 | (54) | 946 | 1,000 | (4) | 996 | |||||||||||||||||
| Total amortized intangible assets | $ | 11,039 | $ | (7,872) | $ | 3,167 | $ | 10,923 | $ | (7,110) | $ | 3,813 | |||||||||||
| Unamortized intangible assets | |||||||||||||||||||||||
| Tradenames and trademarks | $ | 1,008 | $ | 1,008 | $ | 1,008 | $ | 1,008 | |||||||||||||||
| Patents in process | 1,082 | 1,082 | 1,031 | 1,031 | |||||||||||||||||||
| Total intangible assets | $ | 13,129 | $ | 5,257 | $ | 12,962 | $ | 5,852 | |||||||||||||||
Amortization expense and impairment expense for the years ended December 31, 2016, 2015,2023, 2022, and 20142021, is summarized in the table below (amounts in thousands):
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Amortization of intangible assets | $ | 762 | $ | 701 | $ | 820 | |||||||||||
| Impairment of intangible assets | — | — | 53 | ||||||||||||||
Impairment of intangible assets in 2021 related to supplier relationship assets that were determined to be unrecoverable due to attrition.
There was approximately $3,333,000, $1,799,000, and $1,197,000, respectively.
no impairment of intangible assets in 2023 or 2022.
| December 31, | ||||||||||
| 2016 | 2015 | |||||||||
| Weighted Average Amortization Lives | Cost | Cost | ||||||||
| Licenses (a) (b) (c) (d) | 7 years | $ | 1,399 | $ | 1,009 | |||||
| Patents & Know How (b) (d) | 19 years | 14,839 | 8,001 | |||||||
| Customer & Supplier Relationships (b) (d) | 13 years | 9,091 | 3,761 | |||||||
| Tradenames & Trademarks (d) | indefinite | 1,458 | 1,008 | |||||||
| Non-Compete Agreements | 4 years | 830 | — | |||||||
| In Process Research & Development (b) | various | 25 | 25 | |||||||
| Patents in Process (c) | various | 2,618 | 1,823 | |||||||
| Total | 30,260 | 15,627 | ||||||||
| Less Accumulated amortization and impairment charges | (6,992 | ) | (4,864 | ) | ||||||
| Net | $ | 23,268 | $ | 10,763 | ||||||
Expected future amortization of intangible assets as of December 31, 2016,2023, is as follows (in thousands):
| Estimated | |||||
| Amortization | |||||
| Year Ending December 31, | Expense | ||||
| 2024 | $ | 764 | |||
| 2025 | 369 | ||||
| 2026 | 214 | ||||
| 2027 | 214 | ||||
| 2028 | 211 | ||||
| Thereafter | 1,395 | ||||
| Total amortization expense | $ | 3,167 | |||
8. Accrued Expenses
| Estimated | |||
| Amortization | |||
| Year ending December 31, | Expense | ||
| 2017 | $ | 2,034 | |
| 2018 | 1,829 | ||
| 2019 | 1,829 | ||
| 2020 | 1,622 | ||
| 2021 | 1,622 | ||
| Thereafter | 12,874 | ||
| $ | 21,810 | ||
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| External commissions | $ | 4,136 | $ | 2,941 | |||||||
| Accrued GPO Fees | 1,338 | 638 | |||||||||
| Estimated returns | 1,096 | 659 | |||||||||
| Legal costs | 834 | 4,447 | |||||||||
| Accrued rebates | 745 | 707 | |||||||||
| Accrued travel | 433 | 566 | |||||||||
| Other | 779 | 976 | |||||||||
| Total | $ | 9,361 | $ | 10,934 | |||||||
Hayfin Loan Agreement
In June 2020, the Company and its subsidiaries entered into a Creditthe Hayfin Loan Agreement, (the "Credit Agreement") with certain lenders and Bank of America, N.A., as administrative agent. The Credit Agreement establishes a senior secured revolving credit facility in favor ofunder which Hayfin provided the Company with a maturity datesenior secured term loan of October 12, 2018 and an aggregate lender commitment$50 million (the “Hayfin Term Loan”). The Hayfin Term Loan was to mature on June 30, 2025 (the “Hayfin Maturity Date”). Interest on the Hayfin Term Loan was based on SOFR, plus a fallback provision of up to $50 million. The Credit Agreement also provides for an uncommitted incremental facility of up to $35 million, which can be exercised as one or more revolving commitment increases or new term loans, all0.15%, subject to certain customary terms and conditions set forth in the Credit Agreement. The obligations ofFloor, plus the Company under the Credit Agreement are guaranteed by the Company's subsidiaries. The obligations of the loan parties under the Credit Agreement and the other credit documents are secured by liens on and security interests in substantially all of the assets of each of the loan parties and a pledge of the equity interests of each subsidiary owned by a loan party, subject to certain customary exclusions. Borrowings under the facility will bear interest at LIBOR plus 1.5% to 2.25%. Fees paid in connection with the initiation of the credit facility totaled approximately $500,000. These deferred financing costs are being amortized to interest expense over the three-year life of the facility. The Credit Agreement contains customary representations, warranties, covenants, and events of default, including restrictions on certain payments of dividends by the Company.Margin. As of December 31, 2016, there were no outstanding revolving loans under2023, the credit facility. Hayfin Term Loan carried an interest rate of 12.3%.
As noted below in Note 19. Subsequent Events, in January 2024, the Company repaid in full the Hayfin Term Loan and terminated the Hayfin Loan Agreement as part of the Debt Refinancing Transactions.
As of December 31, 2016,2023, the Company was in compliance with all applicable financial covenants under the CreditHayfin Loan Agreement.
Annually, the Company was required to prepay the outstanding loans based on a percentage of Excess Cash Flow (as defined in the Hayfin Loan Agreement), if such were generated. Had the Company not executed the Debt Refinancing Transactions (as defined in Note 19), the Company would have been required to prepay a portion of the outstanding principal pursuant to the Excess Cash Flow provision under the Hayfin Loan Agreement for the year ended December 31, 2023. The Company refinanced this short-term obligation prior to issuance of these consolidated financial statements. The $1.0 million of principal repayments for the year ending December 31, 2024 reflects the scheduled principal payments pursuant to the Citizens Credit Agreement (as defined in Note 19) during that period, therefore representing the current obligation that was not refinanced on a long-term basis. This amount is classified in other current liabilities in the Company’s consolidated balance sheets.
The Hayfin Loan Agreement also specified that a prepayment of the loan, voluntary or mandatory, would subject the Company to a prepayment premium after July 2, 2023, but on or before July 2, 2024, of 1% of the principal balance repaid.
Deferred financing costs and original issue discount allocated to the Hayfin Term Loan were amortized using the effective interest method through the Hayfin Maturity Date. The amortization of such amounts is presented as part of interest expense, net on the consolidated statement of operations for the years ended December 31, 2023, 2022, and 2021.
The balances of the Hayfin Term Loan as of December 31, 2023 and 2022 were as follows (amounts in thousands):
| December 31, 2023 | December 31, 2022 | ||||||||||||||||
| Other current liabilities | Long term debt, net | Long term debt, net | |||||||||||||||
| Outstanding principal | $ | 1,000 | $ | 49,000 | $ | 50,000 | |||||||||||
| Deferred financing costs | — | (781) | (1,219) | ||||||||||||||
| Original issue discount | — | (120) | (187) | ||||||||||||||
| Net principal | $ | 1,000 | $ | 48,099 | $ | 48,594 | |||||||||||
Interest expense related to the Hayfin Term Loan, included in interest expense, net in the consolidated statements of operations, was as follows (amounts in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Stated interest | $ | 6,078 | $ | 4,559 | $ | 4,182 | |||||||||||
| Amortization of deferred financing costs | 438 | 405 | 372 | ||||||||||||||
| Accretion of original issue discount | 67 | 62 | 58 | ||||||||||||||
| Interest expense | $ | 6,583 | $ | 5,026 | $ | 4,612 | |||||||||||
Scheduled principal payments on the Hayfin Term Loan as of December 31, 2023 were as follows:
| Year ending December 31, | Principal | |||||||
| 2024 | $ | 1,000 | ||||||
| 2025 | 49,000 | |||||||
| 2026 | — | |||||||
| 2027 | — | |||||||
| 2028 | — | |||||||
| Thereafter | — | |||||||
| Outstanding principal | $ | 50,000 | ||||||
As of December 31, 2023, the fair value of the Hayfin Term Loan was $46.7 million. This valuation was calculated based on a series of Level 2 and Level 3 inputs, including a discount rate based on the credit risk spread of debt instruments of similar risk character in reference to U.S. Treasury instruments with similar maturities, with an incremental risk premium for risk factors specific to the Company. The remaining cash flows associated with the Hayfin Term Loan were discounted to December 31, 2023 using this discount rate to derive the fair value.
10. Basic net incomeand Diluted Net Loss Per Common Share
Net loss per common share is computedcalculated using the weighted-average numbertwo methods: basic and diluted.
Basic Net Loss Per Common Share
The following table provides a reconciliation of net loss to net loss available to common shares outstanding during the period. Dilutedshareholders and calculation of basic net incomeloss per common share is computed usingfor each of the weighted-average number of commonyears ended December 31, 2023, 2022, and dilutive common equivalent shares from stock options, warrants2021 (amounts in thousands, except share and restricted stock using the treasury stock method.
per-share amounts):
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net income (loss) from continuing operations | $ | 67,439 | $ | (19,953) | $ | (12,301) | |||||||||||
| (Loss) income from discontinued operations, net of tax | (9,211) | (10,244) | 2,016 | ||||||||||||||
| Net income (loss) | 58,228 | (30,197) | (10,285) | ||||||||||||||
| Adjustments to reconcile to net loss available to common stockholders: | |||||||||||||||||
| Accumulated dividend on previously converted Series B Preferred Stock | 6,753 | 6,580 | 5,210 | ||||||||||||||
| Preferred share repurchase in excess of book value | 4,890 | — | — | ||||||||||||||
| Accretion of increasing-rate dividend feature | — | — | 926 | ||||||||||||||
| Total adjustments | 11,643 | 6,580 | 6,136 | ||||||||||||||
| Net income (loss) available to common stockholders from continuing operations | $ | 55,796 | $ | (26,533) | $ | (18,437) | |||||||||||
| Weighted average common shares outstanding | 116,495,810 | 112,909,266 | 110,353,406 | ||||||||||||||
| Basic net income (loss) per common share: | |||||||||||||||||
| Continuing operations | $ | 0.48 | $ | (0.24) | $ | (0.17) | |||||||||||
| Discontinued operations | (0.08) | (0.09) | 0.02 | ||||||||||||||
| Basic net income (loss) per common share | $ | 0.40 | $ | (0.33) | $ | (0.15) | |||||||||||
Diluted Net Loss Per Common Share
The following table sets forth the computation of basic and diluted net income (loss)loss per common share (in thousands, except per share data)and per-share amounts):
| Year Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Net income | $ | 11,974 | $ | 29,446 | $ | 6,220 | |||||
| Denominator for basic earnings per share - weighted average shares | 105,928,348 | 105,929,205 | 105,793,008 | ||||||||
| Effect of dilutive securities: Stock options, warrants, and restricted stock (a) | 6,513,361 | 7,699,277 | 7,502,496 | ||||||||
| Denominator for diluted earnings per share - weighted average shares adjusted for dilutive securities | 112,441,709 | 113,628,482 | 113,295,504 | ||||||||
| Income per common share - basic | $ | 0.11 | $ | 0.28 | $ | 0.06 | |||||
| Income per common share - diluted | $ | 0.11 | $ | 0.26 | $ | 0.05 | |||||
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net income (loss) available to common stockholders from continuing operations | $ | 55,796 | $ | (26,533) | $ | (18,437) | |||||||||||
| Adjustments: | |||||||||||||||||
| Dividends on previously converted Series B Preferred Stock | 6,466 | 6,580 | 6,136 | ||||||||||||||
| Preferred share repurchase in excess of book value | 5,177 | — | — | ||||||||||||||
| Less: antidilutive adjustments | (5,177) | (6,580) | (6,136) | ||||||||||||||
| Total adjustments | 6,466 | — | — | ||||||||||||||
| Numerator | |||||||||||||||||
| Net income (loss) available to common stockholders from continuing operations | 62,262 | (26,533) | (18,437) | ||||||||||||||
| (Loss) income from discontinued operations, net of tax | (9,211) | (10,244) | 2,016 | ||||||||||||||
| Weighted average common shares outstanding | 116,495,810 | 112,909,266 | 110,353,406 | ||||||||||||||
| Adjustments: | |||||||||||||||||
| Potential common shares (a) | |||||||||||||||||
| Previously converted Series B Preferred Stock | 27,457,905 | — | — | ||||||||||||||
| Restricted stock unit awards | 1,452,153 | — | — | ||||||||||||||
| Outstanding stock options | 396,779 | — | — | ||||||||||||||
| Performance stock unit awards | 137,425 | — | — | ||||||||||||||
| Restricted stock awards | 22,136 | — | — | ||||||||||||||
| Employee stock purchase plan | 254 | — | — | ||||||||||||||
| Total adjustments | 29,466,652 | — | — | ||||||||||||||
| Weighted average common shares outstanding adjusted for potential common shares | 145,962,462 | 112,909,266 | 110,353,406 | ||||||||||||||
| Diluted net income (loss) per common share: | |||||||||||||||||
| Continuing operations | $ | 0.43 | $ | (0.24) | $ | (0.17) | |||||||||||
| Discontinued operations | $ | (0.06) | $ | (0.09) | $ | 0.02 | |||||||||||
| Diluted net income (loss) per common share | $ | 0.37 | $ | (0.33) | $ | (0.15) | |||||||||||
(a)Securities that are includedWeighted average common shares outstanding for the calculation of diluted net loss per common share does not include the following adjustments for potential common shares below because their effects were determined to be anti-dilutive for the periods presented:
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Series B Preferred Stock | 1,219,348 | 27,850,916 | 26,497,570 | ||||||||||||||
| Restricted stock unit awards | — | 546,883 | 1,393,910 | ||||||||||||||
| Restricted stock awards | — | 217,971 | 1,121,019 | ||||||||||||||
| Outstanding stock options | — | 65,720 | 771,409 | ||||||||||||||
| Performance stock unit awards | — | 5,251 | 17,928 | ||||||||||||||
| Employee stock purchase plan | — | 18,852 | — | ||||||||||||||
| Potential common shares | 1,219,348 | 28,705,593 | 29,801,836 | ||||||||||||||
11. Equity
Series B Preferred Stock
In December 2023, all 95,000 outstanding shares of the Company’s Series B Preferred Stock, together with accrued dividends, were mandatorily converted into shares of the Company’s Common Stock in accordance with the Series B Preferred Stock terms set forth in the computationCompany’s Articles of Incorporation. As a result of this conversion, the Company issued 29,761,650 shares of Common Stock. The conversion of the denominator above, utilizingshares ended the treasury stock methoddividend accrual associated with the Series B Preferred Stock
Prior to the mandatory conversion, in October 2023, the Company repurchased 5,000 shares of the Company’s Series B Preferred Stock for $9.5 million (the “Repurchase”) pursuant to a Securities Purchase Agreement with certain entities managed by or affiliated with Hayfin Capital Management LLP (the “Hayfin Shareholders”). In connection with the Repurchase, the Hayfin Shareholders entered into customary lock-up provisions requiring them to retain the balance of their equity positions for a period of at least one year. Management assessed whether the consideration paid could have reflected a non pro-rata distribution and reached the conclusion that it was not.
The below table illustrates changes in the Company’s balance of the Series B Preferred Stock for the years ended December 31, 2016, 20152023, 2022, and 2014 are as follows: 2021 (in thousands, except per share amounts):
| Effect of dilutive securities: | 2016 | 2015 | 2014 | |||||
| Stock Options | 5,845,377 | 7,121,774 | 7,035,728 | |||||
| Warrants | — | 33,676 | 226,926 | |||||
| Restricted Stock Awards | 667,984 | 543,827 | 239,842 | |||||
| 6,513,361 | 7,699,277 | 7,502,496 | ||||||
| Series B Preferred Stock | |||||||||||
| Shares | Amount | ||||||||||
| Balance at December 31, 2020 | 100,000 | $ | 91,568 | ||||||||
| Deemed dividends | — | 926 | |||||||||
| Balance at December 31, 2021 | 100,000 | $ | 92,494 | ||||||||
| Activity | — | — | |||||||||
| Balance at December 31, 2022 | 100,000 | $ | 92,494 | ||||||||
| Repurchase of Series B Preferred Stock | (5,000) | (4,625) | |||||||||
| Conversion of Series B Preferred Stock | (95,000) | (87,869) | |||||||||
| Balance at December 31, 2023 | — | $ | — | ||||||||
Stock-Based Compensation Awards
The Company has fourtwo share-based compensation plans which provide for the granting of equity awards, including qualified incentive and non-qualified stock options stock appreciation awards and restricted stock awards to employees, directors, consultants and advisors:awards: the MiMedx Group, Inc. 2016 Equity and Cash Incentive Plan Amended and Restated through March 2, 2023 (the "2016 Plan"“2016 Plan”), which was approved by shareholders on May 18, 2016;2016, and the MiMedx Group, Inc. Assumed 2006 Stock Incentive Plan (the “Assumed 2006 Plan”“Prior Incentive Plan”);. During the MiMedx Inc. 2007 Assumed Stockyears ended December 31, 2023, 2022, and 2021 the Company used only the 2016 Plan (the “Assumed 2007 Plan”);to make grants.
The 2016 Plan permits the grant of equity awards to the Company’s employees, directors, consultants and advisors for up to 13,400,000 shares of the MiMedx Group Inc. AmendedCompany’s common stock plus (i) the number of shares of the Company’s common stock that remain available for issuance under the Prior Incentive Plan, and Restated Assumed 2005 Stock(ii) the number of shares that are represented by outstanding awards that later become available because of the expiration or forfeiture of the award without the issuance of the underlying shares. Awards granted under the 2016 Plan (the “Assumed 2005 Plan”). The awards are subject to a vesting schedule as set forth in each individual agreement. The Company currently intends to use only
Stock Options
A summary of stock option activity for the 2016 Plan to make future grants.year ended December 31, 2023 is presented below:
| Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| Outstanding at January 1, 2023 | 933,894 | $ | 6.46 | ||||||||||||||||||||
| Granted | 3,694,000 | 3.77 | |||||||||||||||||||||
| Exercised | (147,161) | 6.78 | |||||||||||||||||||||
| Unvested options forfeited | — | — | |||||||||||||||||||||
| Vested options expired | (438,213) | 5.85 | |||||||||||||||||||||
| Outstanding at December 31, 2023 | 4,042,520 | 4.06 | 5.61 | 19,086 | |||||||||||||||||||
| Exercisable at December 31, 2023 | 348,520 | $ | 7.09 | 0.44 | $ | 615 | |||||||||||||||||
Number of Shares | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||
| Outstanding at January 1, 2016 | 14,019,629 | $ | 3.62 | |||||||||
| Granted | — | $ | — | |||||||||
| Exercised | (1,164,138 | ) | $ | 3.02 | ||||||||
| Unvested options forfeited | (154,200 | ) | $ | 6.77 | ||||||||
| Vested options expired | (148,683 | ) | $ | 6.16 | ||||||||
| Outstanding at December 31, 2016 | 12,552,608 | $ | 3.61 | 5.4 | $ | 66,137,378 | ||||||
| Vested at December 31, 2016 | 11,680,455 | $ | 3.33 | 5.3 | $ | 64,733,964 | ||||||
| Vested or expected to vest at December 31, 2016 (a) | 12,539,865 | $ | 3.60 | 5.4 | $ | 66,119,285 | ||||||
The intrinsic valuevalues of the options exercised during the years ended December 31, 2016, 20152023, 2022 and 20142021 were approximately $6,460,000, $17,181,000,$0.2 million, $0.6 million, and $10,566,000,$3.3 million, respectively. Cash received from option exercise under all share-based payment arrangements for the
years ended December 31, 2023, 2022 and 2021 was $1.0 million, $0.7 million, and $1.4 million, respectively. The intrinsic valueactual tax benefit for the tax deductions from option exercise of the share-based payment arrangements totaled $0.2 million, $0.2 million, and $2.0 million, respectively, for the years ended December 31, 2023, 2022 and 2021. The Company has a policy of using its available repurchased treasury stock to satisfy option exercises prior to the issuance of new shares of common stock.
No options vested during the years ended December 31, 2016, 20152023, 2022 and 2014 were approximately $7,378,000, $10,044,000, and $6,615,000, respectively.
| Options Outstanding | Options Exercisable | ||||||||||||||
| Range of Exercise Prices | Number outstanding | Weighted- Average Remaining Contractual Term (in years) | Weighted- Average Exercise Price | Number Exercisable | Weighted- Average Exercise Price | ||||||||||
| $0.50 - $0.76 | 441,429 | 2.4 | $ | 0.72 | 441,429 | $ | 0.72 | ||||||||
| $0.87 - $1.35 | 4,385,570 | 4.7 | 1.19 | 4,385,570 | 1.19 | ||||||||||
| $1.40 - $2.45 | 1,362,424 | 4.1 | 1.92 | 1,362,424 | 1.92 | ||||||||||
| $2.66 - $3.99 | 878,680 | 5.8 | 3.06 | 878,680 | 3.06 | ||||||||||
| $4.19 - $6.38 | 3,056,069 | 6.2 | 5.36 | 2,937,038 | 5.34 | ||||||||||
| $6.45- $9.78 | 2,324,103 | 7.0 | 7.30 | 1,610,485 | 7.25 | ||||||||||
| $9.90 - $10.99 | 104,333 | 7.7 | 10.42 | 64,829 | 10.46 | ||||||||||
| 12,552,608 | 5.4 | $ | 3.61 | 11,680,455 | $ | 3.33 | |||||||||
| Unvested Stock Options | Number of Shares | Weighted- Average Grant Date Fair Value | ||||
| Unvested at January 1, 2016 | 3,067,935 | $ | 3.81 | |||
| Granted | — | $ | — | |||
| Cancelled | (154,200 | ) | $ | 6.77 | ||
| Vested | (2,041,582 | ) | $ | 3.61 | ||
| Unvested at December 31, 2016 | 872,153 | $ | 4.28 | |||
Equity Incentive Awards
The Company has issued several classes of stock awards to employees: restricted share awards (“RSAs”), restricted stock unit awards (“RSUs”), and will be charged to expense through June 2017.
performance stock unit awards (“PSUs”, collectively the “Equity Incentive Awards”). The fair value of the options granted was estimated on the date of grant using the Black-Scholes-Merton option-pricing model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate. Expected volatilities are based on historical volatility of peer companies and other factors estimated over the expected term of the options. The term of employee options granted is derived using the “simplified method” which computes expected term as the midpoint between the weighted average time to vesting and the contractual maturity. The simplified method was used due to the Company’s lack of sufficient historical data to provide a reasonable basis upon which to estimate the expected term due to the limited period of time its equity shares have been publicly traded. The term for non-employee options is generally based upon the contractual term of the option. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for the period of the expected term or contractual term as described.
| Year ended December 31, | ||||||||
| 2016 | 2015 | 2014 | ||||||
| Expected volatility | — | % | 54.35 - 58.14% | 58.14 - 64.50% | ||||
| Expected life (in years) | 0 | 6 | 6 | |||||
| Expected dividend yield | — | — | — | |||||
| Risk-free interest rate | 0 | 1.51 - 1.68% | 1.64 - 1.96% | |||||
Restricted stock and RSUs generally vest over a one- to three year period. three-year period in equal annual increments and require the recipient to provide continuous service through each vesting date. PSUs vest based on the achievement of specific performance targets subject to agreements with employees and also require the recipient to provide continuous service through a specified date or event.
As of December 31, 2016,2023, there was approximately $21,905,000$21.4 million of total unrecognized stock-based compensation related to time-based, non-vested restricted stock.unvested Equity Incentive Awards. That expense is expected to be recognized on a straight-line basis over a weighted-average period of 1.9 years.2.26 years, which approximates the remaining vesting period of these grants. RSAs are considered common shares issued and outstanding upon grant, while shares underlying the RSUs and PSUs are considered issued and outstanding only upon vesting. Therefore, all RSAs noted below as unvested are considered issued and outstanding as of December 31, 2023, while shares underlying unvested RSUs and PSUs are not considered issued and outstanding as of December 31, 2023. RSAs, RSUs, and PSUs are not reflected in weighted average common shares outstanding for purposes of calculating basic net loss per common share.
| RSA | RSU | PSU | ||||||||||||||||||||||||
| Number of Shares | Weighted-Average Grant Date Fair Value | Number of Shares | Weighted-Average Grant Date Fair Value | Number of Shares | Weighted-Average Grant Date Fair Value | |||||||||||||||||||||
| Unvested at January 1, 2023 | 122,755 | $ | 6.13 | 4,774,971 | $ | 6.28 | 241,072 | $ | 4.62 | |||||||||||||||||
| Granted | — | — | 3,278,244 | 4.66 | 3,851,427 | 3.83 | ||||||||||||||||||||
| Vested | (32,388) | 6.98 | (2,258,939) | 6.18 | — | — | ||||||||||||||||||||
| Forfeited | (90,367) | 5.83 | (1,885,537) | 5.46 | (365,227) | 4.24 | ||||||||||||||||||||
| Unvested at December 31, 2023 | — | $ | — | 3,908,739 | $ | 5.38 | 3,727,272 | $ | 3.84 | |||||||||||||||||
The total fair value of common stock valued at approximately $345,700 were issued underequity incentive awards vested during the 2006 Plan to a consultant in return for services performed,years ended December 31, 2023, 2022 and is included in the table that follows.2021, was $10.3 million, $10.9 million, and $20.1 million, respectively.
| Number of Shares | Weighted-Average Grant Date Fair Value | ||||||
| Unvested at January 1, 2016 | 2,613,267 | $ | 9.14 | ||||
| Granted | 2,755,426 | $ | 8.05 | ||||
| Vested | (1,162,931 | ) | $ | 8.68 | |||
| Forfeited | (377,317 | ) | $ | 8.71 | |||
| Unvested at December 31, 2016 | 3,828,445 | $ | 8.53 | ||||
For the years ended December 31, 2016, 2015,2023, 2022, and 20142021 the Company recognized stock-basedshare-based compensation as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cost of sales | $ | 1,533 | $ | 1,213 | $ | 813 | |||||||||||
| Selling, general and administrative expenses | 14,776 | 9,578 | 13,108 | ||||||||||||||
| Research and development expense | 650 | 537 | 235 | ||||||||||||||
| Total share-based compensation | 16,959 | 11,328 | 14,156 | ||||||||||||||
| Income tax benefit, before consideration of valuation allowance | (4,240) | (2,832) | (3,539) | ||||||||||||||
| Total share-based compensation, net of tax benefit | $ | 12,719 | $ | 8,496 | $ | 10,617 | |||||||||||
| Years Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Cost of sales | $ | 426 | $ | 352 | $ | 322 | |||||
| Research and development | 647 | 790 | 660 | ||||||||
| Selling, general and administrative | 16,745 | 15,754 | 10,471 | ||||||||
| $ | 17,818 | $ | 16,896 | $ | 11,453 | ||||||
Employee Stock Purchase Plan
On November 18, 2015, 42,400June 7, 2022, the Company adopted the Employee Stock Purchase Plan of MiMedx Group, Inc. (the “ESPP”). The ESPP qualifies as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. All regular full-time employees of the Company (including officers) and all other employees who meet the eligibility requirements of the plan may participate in the ESPP. The ESPP provides eligible employees an opportunity to acquire the Company’s common stock warrants representingon a semi-annual basis at a purchase price of 85% of the balance remaining from those grantedlower of the closing price per share of the Company’s common stock on the first day and the last day of each six-month purchase period (the “Purchase Period”). The aggregate number of shares which may be issued and sold under the ESPP is 3 million shares of common stock.
For the years ended December 31, 2023 and 2022, the Company recorded $0.5 million and $0.2 million, respectively, in connection with equitystock-based compensation related to the ESPP. As of December 31, 2023 and 2022, the Company had cumulative payroll deferrals under the ESPP for future share purchases by investors as an additional incentiveof $0.7 million and $0.6 million, respectively. This amount is included in accrued compensation in the consolidated balance sheet.
Unrecognized stock compensation for providing long - term equity capitalthe period is less than $0.1 million to the Company and as additional compensation to consultants and advisors were exercised at an exercise pricebe recognized over a weighted average period of $1.09. The warrants were granted at negotiated prices in connection with the equity share purchases and at the market price of the common stock in other instances. The warrants were issued for terms of five0.08 years.
CEO Performance Grant
On May 12, 2014, ourJanuary 27, 2023, the Board of Directors authorizedappointed Joseph H. Capper to serve as Chief Executive Officer. The Company entered into a Letter Agreement with Mr. Capper that included, among other things, a grant of 3,300,000 PSUs (the “CEO Performance PSUs”) and a non-qualified stock option (the “CEO Performance Option”, collectively with the repurchaseCEO Performance PSUs, the “CEO Performance Grant”) for 3,600,000 shares of upthe Company’s common stock. In addition to $10 millioncontinued employment with the Company, the occurrence and extent of our common stock from time to time, through December 31, 2014. The Board subsequently extendedvesting of each component of the program until December 31, 2017. In December 2014, the Board increased the authorization to $20 million and further increased the authorization in 2015 to $60 million. In December 2016, the Board further increased the authorization to $66 million. The timing and amount of repurchases will dependCEO Performance Grant is dependent upon the Company's stockCompany’s operating and share price economicperformance: the CEO Performance PSUs vest on the basis of achieved revenue growth, while the CEO Performance Option vests on the basis of share price appreciation.
CEO Performance PSUs
The CEO Performance PSUs vest in a single tranche on the earlier of the filing date of the Company’s 2026 Annual Report on Form 10-K and market conditions, regulatory requirements,March 15, 2027. The occurrence and other corporate considerations. The Company may initiate, suspend or discontinue purchases underextent of vesting depends on the stock repurchase program at any time.
Management determined the probable level of vesting using internally-developed forecasts for the relevant period representing the Company’s best estimate for revenue, with a factor applied to calculate the highest level of CAGR evaluated to be probable of occurring based on that estimate. The Company recognized $1.7 million of expense related to the CEO Performance PSUs during year ended December 31, 2023.
CEO Performance Option
The CEO Performance Option grants Mr. Capper the right to purchase up to 3,600,000 shares of common stock for $3.70 per share. The CEO Performance Option vests based on the satisfaction of service and market conditions. Mr. Capper may vest in 25% of the CEO Performance Option on each of the first four anniversary dates of the date of grant provided that he remains employed by the Company purchased approximately 1,338,616and provided that specified share price goals are achieved at any point between the date of grant and January 31, 2027. There are three separate share price goals associated with the CEO Performance Option. If specified share price goals are met at one level, one-third of the option may vest, at a second level, a further one-third may vest, and at a third level, the full amount of the option may vest. Satisfaction of the share price goals is based on the average of the closing price of
the Company’s common stock during any 20 consecutive trading days through January 31, 2027 exceeding the stipulated share price goal. The CEO Performance Option expires on February 1, 2030.
Treasury Stock
Repurchases of shares of its commonCommon Stock in connection with the satisfaction of employee tax withholding obligations upon vesting of restricted stock and exercise of stock options for the years ended December 31, 2023, 2022, and 2021 were 0, 249,442, and 469,239, respectively, for an aggregate purchase price of approximately $10,338,000 exclusive$0, $1.2 million, and $4.8 million, respectively.
The Company estimated the fair value of commissionsthe awards using a Monte Carlo simulation using the following assumptions:
| Assumption | |||||
| Stock price on grant date | $ | 3.70 | |||
| Exercise price | $ | 3.70 | |||
| Risk-free interest rate | 3.58 | % | |||
| Expected volatility (annualized) | 75.00 | % | |||
| Dividend yield | — | % | |||
| Weighted average grant date fair value | $ | 1.93 | |||
The risk-free interest rate was derived based on the U.S. Treasury Yield curve in effect at the date of approximately $40,000. Asgrant for maturities of similar periods to the contractual term. The expected volatility was estimated principally based on the Company’s historical daily stock price movements for a term similar in length to the contractual term. The dividend yield was based on the Company’s history of dividends on its common stock. The fair value was determined using an expected term which reflects the anticipated holding and post-vesting behavior pattern, calculated for each individual simulation.
The total grant date fair value of the CEO Performance Option was $7.0 million. The fair value associated with each tranche of the award will be recognized, straight-line, over the associated requisite service period for that tranche, subject to acceleration if the market condition is met prior to the end of the derived service period. Failure to meet the market condition for an award does not result in reversal of previously-recognized expense, so long as the service is provided for the duration of the required service period. The Company recognized $2.6 million of expense related to the CEO Performance Option during year ended December 31, 2023.
12. Revenue
Net Sales By Care Setting
MIMEDX has three sites of service for its products (1) Hospital settings and wound care clinics, which are stable reimbursement settings in which products are used for both wound and surgical applications, (2) Private offices, which generally represents doctors and practitioners with independent operations, and (3) Other, which includes federal facilities, international sales, and other sites of service.
Below is a summary of net sales by site of service (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Hospital | $ | 187,000 | $ | 163,206 | $ | 142,140 | |||||||||||
| Private Office | 95,789 | 77,158 | 74,522 | ||||||||||||||
| Other | 38,688 | 27,477 | 25,357 | ||||||||||||||
| Total | $ | 321,477 | $ | 267,841 | $ | 242,019 | |||||||||||
The Company did not have significant foreign operations or a single external customer from which 10% or more of revenues were derived during the years ended December 31, 2023, 2022, or 2021.
Sales Returns Allowance
Activity related to the Company’s sales returns allowance during the year ended December 31, 2023 was as follows (in thousands):
| Sales Returns Allowance | |||||
| Balance at December 31, 2021 | $ | 788 | |||
| Additions charged to expense or revenue | 2,034 | ||||
| Deductions and write-offs | (2,163) | ||||
| Balance at December 31, 2022 | 659 | ||||
| Additions charged to expense or revenue | 3,899 | ||||
| Deductions and write-offs | (3,462) | ||||
| Balance at December 31, 2023 | $ | 1,096 | |||
AXIOFILL
The Company received a Warning Letter on December 21, 2023, relating to the inspections and classification of AXIOFILL. The Company continues to engage with the FDA on this matter, working through the process outlined by the FDA to obtain a formal determination of AXIOFILL’s classification.
13. Discontinued Operations
Disbanding of Regenerative Medicine Business Unit
On June 20, 2023, the Company announced the disbanding of its Regenerative Medicine business unit and the suspension of its Knee Osteoarthritis clinical trial program. During the fourth quarter of 2023, the Company completed the regulatory obligations associated with the clinical trial.
Financial Statement Impact of Discontinued Operations
The income and expenses of the discontinued operation have been classified as loss (income) from discontinued operations in the consolidated statements of operations as of December 31, 2016,2023, 2022, and 2021 as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Net sales | $ | — | $ | — | $ | 16,596 | |||||||||||
| Cost of sales | — | — | 3,655 | ||||||||||||||
| Selling, general and administrative expense | — | 116 | 3,513 | ||||||||||||||
| Research and development expense | 8,017 | 10,128 | 7,412 | ||||||||||||||
| Restructuring expense | 4,168 | — | — | ||||||||||||||
| Income tax provision benefit | 2,974 | — | — | ||||||||||||||
| Net (loss) income from discontinued operations | $ | (9,211) | $ | (10,244) | $ | 2,016 | |||||||||||
The assets and liabilities of the discontinued operations have been classified as discontinued operations in the consolidated balance sheet as of December 31, 2023 and 2022 as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | ||||||||||||||||
| Current assets: | |||||||||||||||||
| Prepaid Expenses | $ | — | $ | 1,331 | |||||||||||||
| Current assets of discontinued operations | — | 1,331 | |||||||||||||||
| Goodwill | — | 535 | |||||||||||||||
| Noncurrent assets of discontinued operations | — | 535 | |||||||||||||||
| Total assets of discontinued operations | $ | — | $ | 1,866 | |||||||||||||
| Current liabilities: | |||||||||||||||||
| Accounts payable | $ | — | $ | 393 | |||||||||||||
| Accrued compensation | 311 | 996 | |||||||||||||||
| Accrued expenses | 1,041 | 90 | |||||||||||||||
| Total liabilities of discontinued operations | $ | 1,352 | $ | 1,479 | |||||||||||||
Goodwill
As a result of the announcement of the disbanding of Regenerative Medicine business unit, the Company had approximately $9,936,000 remaining underevaluated goodwill associated with the repurchase program.Regenerative Medicine reporting unit for potential impairment. The Company estimated fair value for the reporting unit using the income approach; specifically, a discounted cash flow method. As a result of this assessment, management concluded that the carrying value of the reporting unit exceeded its fair value by an amount that exceeded its goodwill balance. Accordingly, the Company recognized an impairment loss for the full amount of the goodwill ascribed to the Regenerative Medicine reporting unit. The goodwill impairment loss is included as a component of discontinued operations in the audited consolidated statement of operations for the year ended December 31, 2023. Goodwill related to the Regenerative Medicine business unit of $0.5 million is included as a component of assets of discontinued operations in the consolidated balance sheet for the year ended December 31, 2022. Impairment expense of $0.5 million was recorded as part of loss from discontinued operations for the year ended December 31, 2023.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands):
| December 31, | |||||||
| 2016 | 2015 | ||||||
| Deferred tax assets and liabilities: | |||||||
| Accruals and prepaids | $ | 4,992 | $ | 4,606 | |||
| Intangible assets | (5,130 | ) | 146 | ||||
| Property and equipment | (1,338 | ) | (1,396 | ) | |||
| R&D and other tax credits | 1,219 | 3,293 | |||||
| Stock Compensation | 7,417 | 7,063 | |||||
| Net operating loss | 2,395 | 1,763 | |||||
| Other | 113 | 145 | |||||
| Net deferred tax assets | $ | 9,668 | $ | 15,620 | |||
| Valuation allowance | (554 | ) | (782 | ) | |||
| $ | 9,114 | $ | 14,838 | ||||
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Deferred Tax Assets: | |||||||||||
| Net operating loss | $ | 13,712 | $ | 23,719 | |||||||
| Capitalized research and development expenditures | 10,843 | 3,586 | |||||||||
| Research and development and other tax credits | 8,117 | 8,384 | |||||||||
| Accrued expenses | 3,660 | 3,551 | |||||||||
| Share-based compensation | 3,266 | 3,145 | |||||||||
| Interest limitation carry forward | 1,873 | 4,898 | |||||||||
| Allowance for doubtful accounts | 778 | 1,033 | |||||||||
| Lease liabilities | 600 | 962 | |||||||||
| Sales return and allowances | 270 | 163 | |||||||||
| Property and equipment | 84 | — | |||||||||
| Other | 437 | 885 | |||||||||
| Deferred Tax Liabilities: | |||||||||||
| Prepaid expenses | (1,045) | (1,400) | |||||||||
| Right of use asset | (571) | (867) | |||||||||
| Intangible assets | (337) | (351) | |||||||||
| Property and equipment | — | (77) | |||||||||
| Net Deferred Tax Assets | 41,687 | 47,631 | |||||||||
| Less: Valuation allowance | (910) | (47,631) | |||||||||
| Net Deferred Tax Assets after Valuation Allowance | $ | 40,777 | $ | — | |||||||
The reconciliation of the Federalfederal statutory income tax rate of 35%21% to the effective rate is as follows:
| Year ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Federal statutory rate | 21.00 | % | 21.00 | % | 21.00 | % | |||||||||||
| Share-based compensation | 2.81 | % | (6.06) | % | 19.49 | % | |||||||||||
| Nondeductible compensation | 1.78 | % | (3.19) | % | (11.51) | % | |||||||||||
| Meals and entertainment | 1.21 | % | (0.15) | % | (0.94) | % | |||||||||||
| Deferred tax adjustments | 1.31 | % | (4.35) | % | 12.23 | % | |||||||||||
| Uncertain tax positions | 0.36 | % | (0.49) | % | 0.01 | % | |||||||||||
| Employee retention credit | — | % | — | % | 2.82 | % | |||||||||||
| Tax credits | (3.17) | % | 4.90 | % | 0.93 | % | |||||||||||
| State taxes, net of federal benefit | (21.77) | % | (0.83) | % | 3.79 | % | |||||||||||
| Valuation allowance | (123.50) | % | (12.50) | % | (46.75) | % | |||||||||||
| Other | (0.18) | % | 0.63 | % | (3.12) | % | |||||||||||
| Effective tax rate | (120.15) | % | (1.04) | % | (2.05) | % | |||||||||||
| December 31, | |||||
| 2016 | 2015 | ||||
| Federal statutory rate | 35.00 | % | 34.00 | % | |
| State taxes, net of federal benefit | 4.78 | % | 3.33 | % | |
| Non deductible compensation | 0.04 | % | 0.63 | % | |
| Meals & entertainment | 3.82 | % | 2.27 | % | |
| Equity Compensation | 5.51 | % | 6.39 | % | |
| Domestic Production Activities Deduction | (4.71 | )% | — | % | |
| Tax Credits | (8.79 | )% | (2.84 | )% | |
| Prior Period Adjustments | (3.79 | )% | — | % | |
| Other | 3.27 | % | (1.74 | )% | |
| Valuation allowance | (1.26 | )% | (63.33 | )% | |
| 33.87 | % | (21.29 | )% | ||
Current and deferred income tax (benefit) expense (benefit) is as follows (in thousands):
| December 31, 2016 | December 31, 2015 | |||||
| Current: | ||||||
| Federal | $ | 4,700 | $ | 8,452 | ||
| State | 1,423 | 1,218 | ||||
| Total current | 6,123 | 9,670 | ||||
| Deferred: | ||||||
| Federal | 26 | (13,070 | ) | |||
| State | (16 | ) | (1,768 | ) | ||
| Total deferred | 10 | (14,838 | ) | |||
| Total expense | $ | 6,133 | $ | (5,168 | ) | |
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | 576 | $ | — | $ | 91 | |||||||||||
| State | 422 | 206 | 156 | ||||||||||||||
| Total current | 998 | 206 | 247 | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | (31,633) | — | — | ||||||||||||||
| State | (9,144) | — | — | ||||||||||||||
| Total deferred | (40,777) | — | — | ||||||||||||||
| Income tax provision (benefit) expense | $ | (39,779) | $ | 206 | $ | 247 | |||||||||||
Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effecteffects of such temporary differences isare reported as deferred income taxes.tax assets and liabilities. The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized. The Company establishes a valuation allowance for deferred tax assets for which realization is not likely.more likely than not. As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.
At December 31, 2016,2023 and 2022, the Company had income tax net operating loss ("NOL"(“NOL”) carryforwards for federal and state purposes of $2,327,000$43.5 million and $27,912,000$85.7 million and $84.9 million and $109.8 million, respectively. At December 31, 2015,A portion of the Company has income tax net operating loss ("NOL") carryforwards for federal and state purposes of $579,000 and $27,552,000 respectively. As of December 31, 2016, the Company has recorded a deferred tax asset for both federal and state NOL carryforwards of approximately $815,000 and approximately $1,580,000, respectively. As of December 31, 2015, the Company has recorded a deferred tax asset for both federal and state NOL carryforwards of approximately $197,000 and approximately $1,566,000, respectively. The Company's net operating losses andCompany’s tax credits are subject to annual limitations due to ownership change limitations provided by Internal Revenue Code Section 382. If not utilized,All of the Company’s federal NOL carryforwards have been generated since 2018 and will carry forward indefinitely. The majority of the Company’s state tax lossNOL carryforwards will expire between 2027 and 2035. A valuation allowance remains2042; the remainder of the Company’s state NOLs will carryforward indefinitely. As of December 31, 2023, the Company has recorded against the$9.1 million and $4.6 million deferred tax asset for certainfederal and state net operating loss carryovers in the amount of $554,000 that are not expected to be utilized prior to expiration.
Unrecognized Tax Benefits
The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands): included in the consolidated balance sheets:
| 2023 | 2022 | 2021 | |||||||||||||||
| Unrecognized tax benefits - January 1 | $ | 645 | $ | 469 | $ | 477 | |||||||||||
| Increases - tax positions in current period | 124 | 98 | 20 | ||||||||||||||
| Increases - tax positions in prior period | 38 | 78 | — | ||||||||||||||
| Decreases in prior year positions | — | — | (28) | ||||||||||||||
| Unrecognized tax benefits - December 31 | $ | 807 | $ | 645 | $ | 469 | |||||||||||
| December 31, 2016 | December 31, 2015 | ||||||
| Unrecognized tax benefits - January 1 | $ | 170 | $ | — | |||
| Gross increases - tax positions in current period | 111 | 170 | |||||
| Unrecognized tax benefits - December 31 | $ | 281 | $ | 170 | |||
Included in the balance of unrecognized tax benefits are tax benefits of $0.8 million and $0.6 million as of December 31, 20162023 and December 31, 2015, are $281,000 and $170,000,2022, respectively, of tax benefits that, if recognized, would affect the effective tax rate. Also includedOf these amounts, $0.1 million and $0, respectively, are recorded as other liabilities in the consolidated balance of unrecognized tax benefitssheets as of December 31, 2016 and December 31, 2015, are $281,000 and $170,000, respectively, ofthose dates. The remaining balance is reflected as a reduction to the related deferred tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred taxes. This amount is recorded in Other Liabilities in the accompanying consolidated balance sheets.asset.
The Company recognizes accrued interest accrued related to unrecognized tax benefits and penalties as income tax expense. Related to the unrecognized tax benefits noted above, the Company accrued no penalties or$0.0 million of interest during 2016, and, in total, as of the years ended December 31, 2016 has not recognized any liabilities for penalties or interest. During 2015, we also did not accrue any penalties or interest2023 and in total, as of December 31, 2015, had not recognized any liability for penalties or interest.
2022.
The Company is subject to taxation in the USU.S. and various state jurisdictions. As of December 31, 20162023, the Company’s tax returns for 2013, 2014 and 20152020 through 2023 generally remain open for exam by taxing jurisdictions. Additional prior years may be open to the extent attributes are subjectbeing carried forward to examination by thean open tax authorities. As of December 31, 2016, the Company is generally no longer subject to US federal, state, or local examinations by tax authorities for years before 2013.year.
Selected cash payments, receipts, and noncashnon-cash activities are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2023 | 2022 | 2021 | |||||||||||||||
| Cash paid for interest | $ | 6,034 | $ | 4,569 | $ | 4,327 | |||||||||||
| Income taxes (refunded) paid | (548) | 181 | 169 | ||||||||||||||
| Cash paid for operating leases | 1,635 | 1,567 | 1,522 | ||||||||||||||
| Non-cash activities: | |||||||||||||||||
| Conversion of Series B Preferred Stock | 87,870 | — | — | ||||||||||||||
| Issuance of shares pursuant to employee stock purchase plan | 1,367 | — | — | ||||||||||||||
| Purchases of equipment included in accounts payable | 228 | 417 | 8 | ||||||||||||||
| Financing costs incurred but not paid for Citizens Financing Transaction | 138 | — | — | ||||||||||||||
| Legal fees associated with the Repurchase of Series B Preferred Stock | 45 | — | — | ||||||||||||||
| Lease right of use asset and liability | — | (37) | 2,251 | ||||||||||||||
| Deemed dividends of Series B Preferred Stock | — | — | 926 | ||||||||||||||
| Fair value of non-cash consideration received for option exercise | — | — | 380 | ||||||||||||||
| Note receivable for sale of property and equipment | — | — | 75 | ||||||||||||||
16. Commitments and Contingencies
Contractual Commitments
The Company has commitments for meeting spaces, generally for hotel and conference spaces for company functions. These commitments generally contain renewal options.
The estimated meeting space commitments are as follows (in thousands):
| Year ending December 31, | Meeting Space Commitments | ||||
| 2024 | $ | 654 | |||
| 2025 | 237 | ||||
| Total | $ | 891 | |||
Separation Agreement with Timothy R. Wright
In 2022, the Company entered into a Separation Agreement and General Release with Timothy R. Wright, the former Chief Executive Officer of the Company (the “Separation Agreement”). Pursuant to the terms of the Separation Agreement and Mr. Wright’s general release of all claims against the Company, the Company will pay Mr. Wright a total of $3.1 million in cash in a series of installments through September 2024. The terms of the severance benefits provided in the Separation Agreement were the same as those provided for in the original employment Letter Agreement between Mr. Wright and the Company dated
| Years Ended December 31, | |||||||||||
| 2016 | 2015 | 2014 | |||||||||
| Cash paid for interest | $ | 162 | $ | 86 | $ | 48 | |||||
| Income taxes paid | 642 | 2,293 | 384 | ||||||||
| Retirement of fixed assets | — | 319 | — | ||||||||
| Deferred financing costs | 10 | 504 | — | ||||||||
| APIC related tax adjustments | (424 | ) | 7,757 | — | |||||||
| Stock issuance of 441,009 shares in connection with acquisition of Stability | 3,346 | — | — | ||||||||
| Stock issuance of 43,344, 16,493 and 15,958 shares in exchange for services performed in 2016, 2015 and 2014, respectively | 346 | 164 | 117 | ||||||||
April 8, 2019. The $3.1 million was recorded as part of selling, general and administrative expense on the consolidated statement of operations for the year ended December 31, 2022.
Payments made to Mr. Wright under the terms of the Separation Agreement during the year ended December 31, 2023 totaled $1.9 million. A total of $1.2 million is reflected in accrued compensation in the consolidated balance sheet as of December 31, 2023.
Litigation and Regulatory Matters
In the ordinary course of business, the Company and its subsidiaries may be a party to pending and threatened legal, regulatory, and governmental actions and proceedings (including those described below). In view of the inherent difficulty of predicting the outcome of such matters, particularly where the plaintiffs or claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual recovery, loss, fines or penalties related to each pending matter may be.
In accordance with applicable accounting guidance, the Company accrues a liability when those matters present loss contingencies that are both probable and estimable. The Company's financial statements at December 31, 2023 reflect the Company's current best estimate of probable losses associated with these matters, including costs to comply with various settlement agreements, where applicable. The Company had zero and $0.2 million accrued as of December 31, 2023 and December 31, 2022, respectively, related to expected settlement costs related to legal matters. The actual costs of resolving these matters may be in excess of the amounts accrued.
The Company paid $0.2 million, $0.7 million, and $6.7 million toward the resolution of legal matters involving the Company during the years ended December 31, 2023, 2022, and 2021, respectively. In addition, insurance providers paid $0.6 million and $1.1 million on the Company’s behalf to settle legal matters for the years ended December 31, 2022 and December 31, 2021, respectively. In addition, during 2021, the Company received funds from certain director and officer insurance policies for previously-incurred legal expenses under the Company’s indemnification agreements. These funds were recognized as a reduction to investigation, restatement and related expense on the consolidated statement of operations.
Welker v. MiMedx, et. al.
On November 4, 2022, Troy Welker and Min Turner, former option holders of the Company, brought a lawsuit in Fulton County State Court against the Company, former directors Terry Dewberry and Charles Evans, and former officers Parker H. “Pete” Petit, William C. Taylor, and Michael Senken alleging violations of the Georgia Racketeer Influenced and Corrupt Organizations (“RICO”) Act against all defendants, and conspiracy to violate the Georgia RICO Act and breach of fiduciary duty against the individual defendants. On motion by the Company, the case has been moved to the Fulton County Business Court. The Company and the individual defendants filed answers and motions to dismiss, which were denied on the RICO claims, but granted with respect to the breach of fiduciary duty claims against the individual defendants. The Company is defending against the allegations and is obligated to indemnify certain of its current and former officers and directors who are party to this proceeding.
Former Employee Litigation and Related Matters
On January 12, 2021, the Company filed suit in the Circuit Court of the Eleventh Judicial District in and for Miami-Dade County, Florida (MiMedx Group, Inc. v. Petit, et. al.) against its former CEO, Parker H. “Pete” Petit, and its former COO, William C. Taylor, seeking a determination of its rights and obligations under indemnification agreements with Petit and Taylor and seeking reimbursement of amounts previously advanced under the indemnification agreements following a federal jury’s guilty verdict against Petit for securities fraud and Taylor for conspiracy to commit securities fraud. On April 22, 2021, Petit and Taylor filed an answer and asserted counterclaims against the Company alleging breach of their indemnification agreements, breach of the covenant of good faith and fair dealing with respect to their indemnification agreements, and seeking a declaration that the Company remains obligated to indemnify and advance fees in connection with certain cases. Petit and Taylor simultaneously also filed a motion seeking to compel the Company to advance and reinstate its payments of Petit and Taylor’s legal expenses. The Company opposed Petit and Taylor’s motion and a hearing was set for June 23, 2021. At the joint request of the parties, the hearing was cancelled to allow the parties to attend a mediation to attempt a resolution of this matter; such mediation was held on August 11, 2021.
Following the mediation, the Company and Mr. Taylor reached an agreement to settle the matter between them. Negotiations with Mr. Petit are ongoing.
Other Matters
In addition to the matters described above, the Company is a party to a variety of other legal matters that arise in the ordinary course of the Company’s business, none of which are deemed to be individually material at this time. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s business, results of operations, financial position or liquidity.
17. 401(k) Plan
The Company has a 401(k) plan (the “Plan”“401(k) Plan”) covering all employees who have attained 21 years of age and have completed three monthsone month of service. Under the 401(k) Plan, participants maycould defer up to 100%90% of their eligible wages to a maximum of $18,000$22,500 per year (annual limit for 2015)2023). Employees age 50 or over in 2016 may2022 could make additional pre-tax contributions of up to $6,000 above$7,500. In 2023, 2022 and beyond normal plan and legal limits. Annually,2021, the Company may elect to matchmatched 50% of employee contributions up to 6%8% of the employee’s eligible compensation. Additionally, the Company may elect to make a discretionaryThe matching contribution to the Plan. The Company did not provide matching contributions for the years ended December 31, 2016, 2015,2023, 2022, and 2014.2021 was $2.7 million,$3.3 million, and $2.7 million, respectively.
Employee Retention Credit
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provided an employee retention credit (“ERC”), which was a refundable tax credit against certain payroll taxes. Upon determination that the Company completedovercame the acquisition of Stability Inc., d/b/a Stability Biologics ("Stability") there was an assumed payable of $5,954,555barriers required to a related party.receive the credit, the Company qualified and filed to claim the ERC. The Company made payments of $1,361,030 during 2016. The payable was further reduced by $3,367,250reflected the ERC as a result of the return or destruction of expired inventory. The outstanding payable at 12/31/16 is $1,226,275 and is included in Accounts Payable. The related party is a limited liability company that is controlled by a former stockholder of Stability Inc. who is now an employee of the Company.
| Year ended December 31, | |||
| 2017 | $ | 2,827 | |
| 2018 | 3,079 | ||
| 2019 | 2,023 | ||
| 2020 | 490 | ||
| 2021 | 141 | ||
| Thereafter | 374 | ||
| $ | 8,934 | ||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||
| NET SALES | 2016 | $ | 53,367 | $ | 57,342 | $ | 64,429 | $ | 69,877 | |||||||||
| 2015 | 40,767 | 45,679 | 49,015 | 51,835 | ||||||||||||||
| GROSS MARGIN | 2016 | $ | 45,421 | $ | 49,948 | $ | 56,432 | $ | 60,807 | |||||||||
| 2015 | 35,619 | 40,590 | 44,036 | 46,849 | ||||||||||||||
| NET INCOME | 2016 | $ | 1,197 | $ | 1,975 | $ | 3,321 | $ | 5,481 | |||||||||
| 2015 | 4,087 | 5,430 | 6,551 | 13,378 | ||||||||||||||
| NET INCOME PER COMMON SHARE - BASIC | 2016 | $ | 0.01 | $ | 0.02 | $ | 0.03 | $ | 0.05 | |||||||||
| 2015 | 0.04 | 0.05 | 0.06 | 0.13 | ||||||||||||||
| NET INCOME PER COMMON SHARE - DILUTED | 2016 | $ | 0.01 | $ | 0.02 | $ | 0.03 | $ | 0.05 | |||||||||
| 2015 | 0.04 | 0.05 | 0.06 | 0.11 | ||||||||||||||
| Year Ended December 31, | ||||||||||||
| 2016 | 2015 | 2014 | ||||||||||
| Wound Care | $ | 183,984 | $ | 141,096 | $ | 93,623 | ||||||
| Surgical, Sports Medicine & Orthopedics (SSO) | 61,031 | 46,200 | 24,600 | |||||||||
| Total | $ | 245,015 | $ | 187,296 | $ | 118,223 | ||||||
19. Subsequent Events
$95 Million Credit Agreement with Citizens and Bank of America
On January 19, 2024, the Company entered into a Credit Agreement (the “Citizens Credit Agreement”) with certain lenders party thereto, and Citizens Bank, N.A., as administrative agent (the “Agent”). The Citizens Credit Agreement provides for senior secured credit facilities in an aggregate principal amount of up to $95.0 million consisting of: (i) a $75.0 million senior secured revolving credit facility (the “Revolving Credit Facility”) with a $10.0 million letter of credit sublimit and a $10.0 million swingline loan sublimit, and (ii) a $20.0 million senior secured term loan facility (the “Term Loan Facility” and, together with the Revolving Credit Facility, the “Credit Facilities”). All obligations are required to be paid in full on January 19, 2029 (the “Maturity Date”). The Company has the option to obtain one or more incremental term loan facilities and/or increase the commitments under the Revolving Credit Facility in an aggregate principal amount equal to the greater of (i) $50.0 million and (ii) 1.00 times the Company’s Consolidated EBITDA as defined therein, each subject to the existing or any new lenders’ election to extend additional term loans or revolving commitments.
At the Company’s option, borrowings under the Citizens Credit Agreement (other than any swingline loan) will bear interest at a rate per annum equal to (i) the Alternate Base Rate, as defined therein, or (ii) a Term SOFR as defined therein, in each case plus an applicable margin ranging from 1.25% and 2.50% with respect to Alternate Base Rate borrowings and 2.25% and 3.50% for Term SOFR borrowings. Swingline loans will bear interest at a rate per annum equal to one-month Term SOFR plus the applicable margin. The applicable margin will be determined based on the Company’s consolidated total net leverage ratio.
The BoardCompany is required to pay a quarterly commitment fee on any unused portion of Directors in February 2017 authorized an increasethe Revolving Credit Facility, letter of $20 millioncredit fees, and other customary fees to the Company's Share Repurchase Program. This action bringsAgent and the Lenders. The Term Loan Facility will amortize on a quarterly basis at 1.25% (for year one and two), 1.875% (for year three and four), and 2.5% (for year five) based on the aggregate principal amount outstanding under the Term Loan Facility, with the remainder due on the Maturity Date. The Company must make mandatory prepayments in connection with certain asset dispositions and casualty events, subject in each case to customary reinvestment rights. The Company may prepay borrowings under the Credit Facilities at any time, without premium or penalty, and may, at its option, reduce the aggregate unused commitments under the Revolving Credit Facility in whole or in part, in each case subject to the terms of the Credit Agreement. The Company must also comply with certain financial covenants, including a maximum total amount authorized to $86net leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as other customary restrictive covenants.
In addition, on January 19, 2024, the Company borrowed $30.0 million sinceunder the Share Repurchase Program commenced in May 2014.
MIMEDX GROUP, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS | ||||||||||||||||
| Years ended December 31, 2016, 2015 and 2014 (in thousands) | ||||||||||||||||
| Balance at Beginning of Year | Additions charged to Expense or Revenue | Deductions and write-offs | Balance at End of Year | |||||||||||||
| For the Year ended December 31, 2016 | ||||||||||||||||
| Allowance for doubtful accounts | $ | 3,270 | $ | 2,127 | $ | (555 | ) | $ | 4,842 | |||||||
| Allowance for product returns | 1,262 | 8,319 | (4,687 | ) | 4,894 | |||||||||||
| Allowance for obsolescence | 397 | 2,280 | (1,849 | ) | 828 | |||||||||||
| For the Year ended December 31, 2015 | ||||||||||||||||
| Allowance for doubtful accounts | $ | 1,750 | $ | 1,698 | $ | (178 | ) | $ | 3,270 | |||||||
| Allowance for product returns | 841 | 3,257 | (2,836 | ) | 1,262 | |||||||||||
| Allowance for obsolescence | 527 | 540 | (670 | ) | 397 | |||||||||||
| For the Year ended December 31, 2014 | ||||||||||||||||
| Allowance for doubtful accounts | $ | 407 | $ | 1,357 | $ | (14 | ) | $ | 1,750 | |||||||
| Allowance for product returns | 215 | 2,215 | (1,589 | ) | 841 | |||||||||||
| Allowance for obsolescence | 322 | 405 | (200 | ) | 527 | |||||||||||
used to repay in full the $50.0 million principal amount and other outstanding obligations under the Hayfin Loan Agreement and to pay related fees, premiums, costs and expenses (collectively with the entry into the Citizens Credit Agreement and the initial borrowings thereunder, the “Debt Refinancing Transactions”).
On February 27, 2024, the Company repaid the initial $30.0 million drawing under the Revolving Credit Facility.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of MiMedx Group, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of MiMedx Group, Inc. and subsidiaries (the “Company”) as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 28, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A Managements Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
February 28, 2024
79
Evaluation of Disclosure Controls and Procedures
An evaluation of controls and procedures can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Management's Report on Internal Control Over Financial Reporting
Management, including our internal control over financial reporting discussed below.
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error or overriding of controls, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that occurredcontrols may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may demonstrate.
Under the supervision and with the participation of our management, including our CEO and CFO, we have conducted an evaluation of the effectiveness of our internal control over financial reporting based on the COSO framework. Based on evaluation under these criteria, management determined that we did maintain effective internal control over financial reporting as of December 31, 2023.
Our independent registered public accounting firm, Deloitte & Touche LLP, has audited the effectiveness of our internal control over financial reporting as of December 31, 2023, as stated in their report which appears on page 79 of this Form 10-K.
Changes in Internal Control Over Financial Reporting
There were no changes during the quarter ended December 31, 2023 in our most recently completed fiscal quarterinternal control over financial reporting (as such term is defined in the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this Item will be contained in our definitive proxy statement relating to our 20172024 Annual Meeting of Shareholders under the captions “Executive Officers,” “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance,” or similar captions which are incorporated herein by reference.
80
Item 11. Executive Compensation
Information required by this Item will be contained in our definitive proxy statement relating to our 20172024 Annual Meeting of Shareholders under the caption “Executive Compensation Discussion and Analysis,” “Summary Compensation Table (2023, 2022 and 2021,” “Grants of Plan Based Awards for 2023,” “Outstanding Equity Awards on December 31, 2023,” “2023 Options Exercised and Stock Vested Table,” “2023 Potential Payments Upon Termination or Change in Control,” “2023 Director Compensation,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation” or similar captioncaptions which isare incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related ShareholderStockholder Matters
Information required by this Item will be contained in our definitive proxy statement relating to our 20172024 Annual Meeting of Shareholders under the captions “Stock Ownership",” “Executive Compensation,“Security Ownership of Certain Beneficial Owners and Management,” and “Equity Compensation Plan Information,” or similar captions which are incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this Item will be contained in our definitive proxy statement relating to our 20172024 Annual Meeting of Shareholders under the captions “Certain Relationships“Policies and Procedures for Approval of Related Party Transactions,” “Related Party Transactions,” and "Election of Directors""Director Independence" or similar captions which are incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by this Item will be contained in our definitive proxy statement relating to our 20172024 Annual Meeting of Shareholders under the captions “Ratification of Appointment of Independent Registered Public Accounting Firm” and “Election of Directors,“Audit Matters,” or a similar captionscaption which areis incorporated herein by reference.
81
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)Documents filed as part of this report:
(i)Financial Statements
(ii)Financial Statement Schedule:
The following Financial Statement Schedule is filed as part of this Report:
Schedule II Valuation and Qualifying Accounts for the years ended December 31, 2016, 20152023, 2022 and 20142021
(iii)Exhibits
See Item 15(b) below. Each management contract or compensation plan has been identified.
identified with an asterisk.
(b)Exhibits
Notes
| * | Indicates a management contract or compensatory plan or arrangement | |||||
| # | Filed herewith | |||||
| Certain exhibits and schedules have been omitted pursuant to Item 601(b)(10) of Regulation S-K, but a copy will be furnished supplementally to the Securities and Exchange Commission upon request. | ||||||
82
| Exhibit Number | Description | ||||||||||
| 10.2C | Third Amendment to Lease made as of November 30, 2021 for real property and improvements located at 1775 West Oak Commons Court, Marietta, Georgia between RE Fields, LLC, successor in interest to HUB Properties GA, LLC, and CPVF II West Oak LLC, and MiMedx Group, Inc., dated January 25, 2013, as amended March 7, 2017 (incorporated by reference to Exhibit 10.6 to the Registrant’s Annual Report on Form 10-K filed on February 28, 2022). | ||||||||||
| 10.2D# | |||||||||||
| 10.3## | Securities Purchase Agreement, dated as of June 30, 2020, by and between MiMedx Group, Inc., Falcon Fund 2 Holding Company, L.P. and certain other investors (incorporated by reference to Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K filed July 6, 2020). | ||||||||||
| 10.4 | Registration Rights Agreement dated as of July 2, 2020, by and between MiMedx Group, Inc. and Falcon Fund 2 Holding Company, L.P. (incorporated by reference to Exhibit 10.39 to the Registrant’s Annual Report on Form 10-K filed on July 6, 2020). | ||||||||||
| 10.5 | MiMedx Group, Inc. Assumed 2006 | ||||||||||
Form of Incentive Stock Option Agreement under the MiMedx Group, Inc. Assumed 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K filed on March 4, 2014). | |||||||||||
| 10.7* | Form of Nonqualified Stock Option Agreement under the MiMedx Group, Inc. Assumed 2006 Stock Incentive Plan (incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K filed on March 4, 2014). | ||||||||||
| 10.8* | Form of Restricted Stock Agreement for Non-Employee Directors under the MiMedx Group, Inc. 2006 Assumed Stock Incentive Plan | ||||||||||
Form of Restricted Stock Agreement under the MiMedx Group, Inc. 2006 Assumed Stock Incentive Plan | |||||||||||
| 10.10* | 2016 Equity and Cash Incentive Plan, | |||||||
| 10.11* | ||||||||
| Form of Incentive Stock Option Agreement under the MiMedx Group, Inc. 2016 Equity and Cash Incentive Plan | |||||||||||
Form of Restricted Stock Agreement under the MiMedx Group, Inc. 2016 Equity and Cash Incentive Plan | |||||||||||
| 10.13* | Form of Restricted Stock Agreement under the MiMedx Group, Inc. 2016 Equity and Cash Incentive Plan (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 2, | ||||||||||
Form of Restricted Stock Agreement for Non-Employee Directors under the MiMedx Group, Inc. 2016 Equity and Cash Incentive Plan (incorporated by reference to Exhibit 10.11 to the Registrant’s Current Report onForm 8-K filed on May 30, 2019). | |||||||||||
| 10.15* | Form of Nonqualified Stock Option Agreement under the MiMedx Group, Inc. 2016 Equity and Cash Incentive Plan | ||||||||||
Form of Director Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K filed on March 17, 2020). | |||||||||||
| 10.17 | Form of Employee (Time-Vested) Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K filed on July 6, 2020). | ||||||||||
| 10.18* | Form of Employee (Performance-Vested, uncertain number of shares) Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed on July 6, 2020). | ||||||||||
| 10.19* | Form of Employee (Performance-Vested, certain number of shares) Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K filed on July 6, 2020). | ||||||||||
| 10.20* | Form of Non-Employee Restricted Stock Award Agreement (vest into retirement) (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on August 4, 2020). | ||||||||||
| 10.21* | Form of Employee (Time-Vested) Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.25 to the Registrant’s Annual Report on Form 10-K filed on March 8, 2021). | ||||||||||
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| Exhibit Number | Description | ||||||||||
| 10.22* | Letter Agreement dated April 10, 2019 between MiMedx Group, Inc. and Timothy R. Wright (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 9, 2019). | ||||||||||
| 10.23* | Employment Offer Letter between MiMedx Group, Inc. and Peter M. Carlson, as amended and restated on June 30, 2021 (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q filed on August 3, 2021). | ||||||||||
| 10.24* | Employment Offer Letter between MiMedx Group, Inc. and William F. Hulse IV dated November 4, 2019, (incorporated by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K filed on July 6, 2020). | ||||||||||
| 10.25* | Form of Key Employee Retention and Restrictive Covenant Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on December 21, 2020). | ||||||||||
| 10.26* | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.65 to the Registrant’s Current Report on Form 8-K filed on July 15, 2008). | ||||||||||
| 10.27* | Form of Director Restricted Stock Unit Award Agreement (Type I - Initial Grant, Full Amount) (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 3, 2021). | ||||||||||
| 10.28* | Form of Director Restricted Stock Unit Award Agreement (Type II - Initial Grant, Pro Rata Amount) (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on August 3, 2021). | ||||||||||
| 10.29* | Form of Director Restricted Stock Unit Award Agreement (Type III - Annual Grant) (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed on August 3, 2021). | ||||||||||
| 10.30 | Technology License Agreement dated January 29, 2007 between MiMedx, Inc., Shriner's Hospitals for Children and University of South Florida Research Foundation (incorporated by reference to Exhibit 10.32 to the Registrant’s Current Report onForm 8-K filed on February 8, 2008). | ||||||||||
| 10.31 | Cooperation Agreement dated as of May 29, 2019 among MiMedx Group, Inc., M. Kathleen Behrens Wilsey, K. Todd Newton, Richard J. Barry, Prescience Partners, LP, Prescience Point Special Opportunity LP, Prescience Capital LLC, Prescience Investment Group, LLC d/b/a Prescience Point Capital Management LLC and Eiad Asbahi (incorporated by reference to Exhibit 10.32 to the Registrant’s Current Report on Form 8-K filed on May 30, 2019). | ||||||||||
| 10.32* | Separation Agreement and General Release between MiMedx Group, Inc. and Timothy R. Wright dated September 15, 2022 (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on September 14, 2022). | ||||||||||
| 10.33* | Interim Executive Employment Agreement between MiMedx Group, Inc. and K. Todd Newton dated September 14, 2022 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 14, 2022). | ||||||||||
| 10.34* | Restricted Stock Unit Agreement between MiMedx Group, Inc. and K. Todd Newton dated September 15, 2022 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on September 14, 2022). | ||||||||||
| 10.35* | Employment Offer Letter between MiMedx Group, Inc. and Ricci S. Whitlow dated December 27, 2022 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 3, 2023). | ||||||||||
| 10.36* | Letter Agreement between MiMedx Group, Inc. and Joseph H. Capper dated January 27, 2023 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 27, 2023). | ||||||||||
| 10.37* | Performance Stock Unit Agreement between MiMedx Group, Inc. and Joseph H. Capper dated January 27, 2023 (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on January 27, 2023). | ||||||||||
| 10.38* | Nonqualified Stock Option Agreement between MiMedx Group, Inc. and Joseph H. Capper dated January 27, 2023 (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on January 27, 2023). | ||||||||||
| 10.39 | Platform Intellectual Property License Agreement by and between MiMedx Group, Inc. and Global Health Solutions, Inc. (d.b.a. Turn Therapeutics) (incorporated by reference to Exhibit 10.44 to the Registrant’s Annual Report on Form 10-K filed on February 28, 2023). | ||||||||||
| 10.40* | Separation Agreement and General Release between MiMedx Group, Inc. and Peter M. Carlson dated July 14, 2023 (incorporated by reference to Exhibit 10.7 to the Registrant’s Quarterly Report on Form 10-Q filed on October 30, 2023). | ||||||||||
| 10.41* | Offer Letter dated June 30, 2023, between the Company and Doug Rice (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on July 5, 2023). | ||||||||||
| 10.42* | Key Employee Retention and Restrictive Covenant Agreement dated July 5, 2023, between the Company and Doug Rice (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on July 5, 2023). | ||||||||||
84
| Exhibit Number | Description | ||||||||||
| 10.43* | Inducement Performance Stock Unit Agreement dated June 30, 2023, between the Company and Doug Rice (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed on July 5, 2023). | ||||||||||
| 10.44* | Inducement Restricted Stock Unit Agreement dated June 30, 2023, between the Company and Doug Rice (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed on July 5, 2023). | ||||||||||
| 10.45* | Inducement Stock Option Agreement dated June 30, 2023, between the Company and Doug Rice (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed on July 5, 2023). | ||||||||||
| 10.46# | |||||||||||
| 21.1# | |||||||||||
| 23.1# | |||||||||||
| Power of Attorney (included on the signature page to this Report). | |||||||||||
| 31.1# | |||||||||||
| 31.2# | |||||||||||
| 32.1# | |||||||||||
| 32.2# | |||||||||||
| 101.INS# | XBRL Instance Document | ||||||||||
| 101.SCH# | XBRL Taxonomy Extension Schema Document | ||||||||||
| XBRL Taxonomy Extension Calculation Linkbase Document | |||||||||||
| 101.DEF# | XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||
| 101.LAB# | XBRL Taxonomy Extension Label Linkbase Document | ||||||||||
| 101.PRE# | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||
Item 16. Form 10-K Summary
Not applicable.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| MIMEDX GROUP, INC. | |||||||||
| February 28, 2024 | By: | /s/ | |||||||
| Chief Financial Officer | |||||||||
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints William F. Hulse IV and Sajid N. Ajmeri and each of them acting individually, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and resubstitution, for him or her in any and all capacities, to sign any and all amendments to this Annual Report for the year ended December 31, 2023, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Annual Report.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
86
| Signature / Name | Title | Date | ||||||||||||
| /s/ | Chief Executive Officer and | |||||||||||||
| /s/ | Chief Financial Officer | |||||||||||||
| Doug Rice | Principal Financial Officer and Principal Accounting Officer | |||||||||||||
| /s/ M. Kathleen Behrens | Chair of the Board (Director) | February 28, 2024 | ||||||||||||
| M. Kathleen Behrens | ||||||||||||||
| /s/ James L. Bierman | Director | February 28, 2024 | ||||||||||||
| James L. Bierman | ||||||||||||||
| /s/ Michael J. | February 28, 2024 | |||||||||||||
| Michael J. Giuliani | ||||||||||||||
| /s/ William A. Hawkins III | Director | February 28, 2024 | ||||||||||||
| William A. Hawkins III | ||||||||||||||
| /s/ | Director | |||||||||||||
| /s/ K. Todd Newton | Director | February 28, 2024 | ||||||||||||
| K. Todd Newton | ||||||||||||||
| /s/ | Director | |||||||||||||
| /s/ Phyllis I. Gardner | Director | February 28, 2024 | ||||||||||||
| Phyllis I. Gardner | ||||||||||||||
87