UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934
Date of Report (date of earliest event reported): January 13, 2016
MIMEDX GROUP, INC.
(Exact name of registrant as specified in charter)
Florida | 001-35887 | 26-2792552 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
1775 West Oak Commons Ct NE Marietta, GA | 30062 (Zip Code) | |
(Address of principal executive offices) | ||
(770) 651-9100
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.01. Completion of Acquisition or Disposition of Assets.
On January 13, 2016, MiMedx Group, Inc. filed a Current Report on Form 8-K reporting that it had acquired all of the outstanding common stock of Stability Inc. d/b/a Stability Biologics ("Stability"). This Current Report on Form 8-K/A is being filed to provide certain audited financial statements and certain unaudited pro forma information of Stability required by Item 9.01 of Form 8-K and should be read in conjunction with the Company's Current Report on Form 8-K filed on January 13, 2016.
Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired
(1) Stability Inc. Audited Balance Sheets as of December 31, 2015 and 2014 and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended and the notes thereto and the Report of Independent Registered Public Accounting Firm related thereto, filed as Exhibit 99.1 hereto and incorporated by reference herein.
(b) Pro Forma Financial Information
The pro forma financial information required by this item with respect to the transaction is filed as Exhibit 99.2 hereto and incorporated by reference herein.
(c) Not applicable.
(d) Exhibits
Exhibit No. | Description |
Exhibit 23.1 | Consent of Cherry Bekaert LLP, Independent Registered Public Accounting Firm. |
Exhibit 99.1 | Stability Inc. Audited Balance Sheets as of December 31, 2015 and 2014 and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended and the notes thereto and the Report of Independent Registered Public Accounting Firm related thereto. |
Exhibit 99.2 | Unaudited Pro Forma Financial Information. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
MIMEDX GROUP, INC. | ||
Dated: March 31, 2016 | By: | /s/ Michael J. Senken |
Michael J. Senken, Chief Financial Officer | ||
Exhibit Index
Exhibit No. | Description |
Exhibit 23.1 | Consent of Cherry Bekaert LLP, Independent Registered Public Accounting Firm. |
Exhibit 99.1 | Stability Inc. Audited Balance Sheets as of December 31, 2015 and 2014 and the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended and the notes thereto and the Report of Independent Registered Public Accounting Firm related thereto. |
Exhibit 99.2 | Unaudited Pro Forma Financial Information. |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-153255, 333-183991, 333-189784 and 333-199841 and Form S-3 No. 333-189785) of our report dated March 31, 2016, relating to the balance sheets of Stability Inc. as of December 31, 2015 and 2014 and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, included in this Current Report on Form 8-K/A of MiMedx Group, Inc.
/s/ Cherry Bekaert LLP
Atlanta, Georgia
March 31, 2016
EXHIBIT 99.1
REPORT OF INDEPENDENT AUDITOR
The Board of Directors of Stability Inc.
Nashville, Tennessee
Report on the Financial Statements
We have audited the accompanying financial statements of Stability Inc. which comprise the balance sheets as of December 31, 2015 and 2014, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stability Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Cherry Bekaert LLP
Cherry Bekaert LLP
Atlanta, Georgia
March 31, 2016
STABILITY INC.
BALANCE SHEETS
December 31, | |||||||||
2015 | 2014 | ||||||||
ASSETS | |||||||||
Current assets: | |||||||||
Cash and cash equivalents | $ | 100 | $ | 98,584 | |||||
Accounts receivable | 2,106,288 | 4,485,739 | |||||||
Federal and state taxes receivable | 27,712 | 123,039 | |||||||
Inventory, net | 8,652,298 | 7,088,520 | |||||||
Deferred taxes | 31,565 | 20,166 | |||||||
Prepaid expenses and other current assets | 96,898 | 148,423 | |||||||
Total current assets | 10,914,861 | 11,964,471 | |||||||
Property and equipment, net | 1,214,097 | 1,031,559 | |||||||
Deferred taxes | 148,985 | — | |||||||
Other assets | 17,868 | 19,108 | |||||||
Total assets | $ | 12,295,811 | $ | 13,015,138 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||
Current liabilities: | |||||||||
Accounts payable and accrued expenses | $ | 11,221,468 | $ | 12,374,650 | |||||
Notes payable - stock repurchase | 95,000 | 210,000 | |||||||
Line of credit | 437,000 | — | |||||||
Current portion of long -term obligations | 194,086 | 185,052 | |||||||
Total current liabilities | 11,947,554 | 12,769,702 | |||||||
Long - term debt, due after one year | 560,063 | 754,149 | |||||||
Deferred taxes | — | 188,259 | |||||||
Total liabilities | 12,507,617 | 13,712,110 | |||||||
Stockholders’ equity (deficit): | |||||||||
Common stock (no par value) 1,500,000 shares authorized, 516,231 issued and 471,231 outstanding at December 31, 2015 and 378,000 issued and 288,000 outstanding at December 31, 2014 | — | — | — | ||||||
Treasury stock at cost: 45,000 shares at December 31,2015 and 90,000 shares at December 31, 2014 | (300,000 | ) | (900,000 | ) | |||||
Additional paid - in capital | 1,382,975 | 160,000 | |||||||
Retained earnings (accumulated deficit) | (1,294,781 | ) | 43,028 | ||||||
Total stockholders’ equity (deficit) | (211,806 | ) | (696,972 | ) | |||||
Total liabilities and stockholders' equity (deficit) | $ | 12,295,811 | $ | 13,015,138 | |||||
The accompanying notes to the financial statements are an integral part of these statements.
STABILITY INC
STATEMENTS OF OPERATIONS
Year Ended December 31, | ||||||||
2015 | 2014 | |||||||
Revenues: | ||||||||
Product revenue, net | $ | 19,121,396 | $ | 19,203,579 | ||||
Commission revenue | 541,667 | 2,378,861 | ||||||
Other revenue | 160,226 | 224,247 | ||||||
Total revenues | 19,823,289 | 21,806,687 | ||||||
Cost of revenues | 8,874,949 | 9,722,302 | ||||||
Gross Profit | 10,948,340 | 12,084,385 | ||||||
General Operating and administrative expenses: | ||||||||
Distributor commissions | 5,077,421 | 6,036,160 | ||||||
Compensation expenses | 4,325,153 | 3,749,668 | ||||||
Other operating expenses | 2,593,352 | 2,233,396 | ||||||
Total general operating and administrative expenses | 11,995,926 | 12,019,224 | ||||||
Income (loss) from operations | (1,047,586 | ) | 65,161 | |||||
Interest expense | (38,866 | ) | (71,456 | ) | ||||
Loss before income tax | (1,086,452 | ) | (6,295 | ) | ||||
Income tax expense (benefit) | (348,643 | ) | 92,690 | |||||
Net Loss | $ | (737,809 | ) | $ | (98,985 | ) | ||
The accompanying notes to the financial statements are an integral part of these statements.
STABILITY INC
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2015 AND 2014
Common Stock | |||||||||||||||||
Shares | Amount | Treasury Stock | Additional Paid - in Capital | Retained Earnings (Accumulated Deficit) | Total | ||||||||||||
Balance, January 1, 2014 | 270,000 | $ | — | $ | (900,000 | ) | $ | 40,000 | $ | 142,013 | $ | (717,987 | ) | ||||
Conversion of debt to equity | 18,000 | — | — | 120,000 | — | 120,000 | |||||||||||
Net loss | — | — | — | — | (98,985 | ) | (98,985 | ) | |||||||||
Balance, December 31, 2014 | 288,000 | — | (900,000 | ) | 160,000 | 43,028 | (696,972 | ) | |||||||||
Issuance of common stock | 60,003 | — | — | 400,020 | — | 400,020 | |||||||||||
Stock based compensation | 123,228 | — | — | 822,955 | — | 822,955 | |||||||||||
Retirement of treasury stock | — | — | 600,000 | — | (600,000 | ) | — | ||||||||||
Net loss | — | — | — | — | (737,809 | ) | (737,809 | ) | |||||||||
Balance, December 31, 2015 | 471,231 | $ | — | $ | (300,000 | ) | $ | 1,382,975 | $ | (1,294,781 | ) | $ | (211,806 | ) | |||
The accompanying notes to the financial statements are an integral part of these statements.
STABILITY INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31, | ||||||||
2015 | 2014 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (737,809 | ) | $ | (98,985 | ) | ||
Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||
Depreciation | 171,578 | 83,893 | ||||||
Stock based compensation | 822,955 | — | ||||||
Deferred taxes | (348,643 | ) | 168,093 | |||||
Gain on disposal of property and equipment | (4,000 | ) | — | |||||
Increase (decrease) in cash resulting from changes in: | ||||||||
Accounts receivable | 2,379,451 | (500,206 | ) | |||||
Inventory | (1,563,778 | ) | (5,489,231 | ) | ||||
Federal and state taxes receivable | 95,327 | (90,767 | ) | |||||
Other assets | 52,765 | (26,400 | ) | |||||
Accounts payable | (1,448,059 | ) | 8,042,883 | |||||
Accrued expenses | 294,877 | (607,413 | ) | |||||
Net cash flows from operating activities | (285,336 | ) | 1,481,867 | |||||
Cash flows from investing activities: | ||||||||
Proceeds on sale of property and equipment | 4,000 | — | ||||||
Purchases of property and equipment | (354,116 | ) | (1,012,573 | ) | ||||
Net cash flows from investing activities | (350,116 | ) | (1,012,573 | ) | ||||
Cash flows from financing activities: | ||||||||
Net borrowings (payments) on line of credit | 437,000 | (1,150,000 | ) | |||||
Principal payments on debt | (185,052 | ) | (60,799 | ) | ||||
Issuance of common stock | 400,020 | — | ||||||
Borrowing proceeds of long term debt | — | 1,000,000 | ||||||
Payments on note payable - related party | — | (80,000 | ) | |||||
Payments on note payable - stock repurchase | (115,000 | ) | (90,000 | ) | ||||
Net cash flows from financing activities | 536,968 | (380,799 | ) | |||||
Net change in cash and cash equivalents | (98,484 | ) | 88,495 | |||||
Cash and cash equivalents, beginning of year | 98,584 | 10,089 | ||||||
Cash and cash equivalents, end of year | $ | 100 | $ | 98,584 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 38,866 | $ | 71,456 | ||||
Conversion of related party note payable to equity | $ | — | $ | 120,000 | ||||
The accompanying notes to the financial statements are an integral part of these statements.
STABILITY INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
1.Nature of operations and summary of significant accounting policies
Stability Inc. (the "Company''), incorporated in 2011, provides surgeons, facilities, and distributors access to high-quality tissue and synthetic products. The Company's national tissue network provides access to a large volume of safe, high-quality tissue for transplant or research. The Company primarily operates out of Nashville, Tennessee, but has a small location in St. Louis, Missouri and a processing facility in San Antonio, Texas that began processing tissue products in 2015.
Basis of Accounting - The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Financial Accounting Standards Board (“FASB”) has established the FASB Accounting Standards Codification (“ASC”) as the single source of authoritative GAAP.
Use of Estimates - The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and cash equivalents include cash on hand and cash deposited with banks.
Accounts Receivable - The Company reports receivables at net realizable value. In the normal course of business, the Company extends unsecured credit to its customers, with no collateral requirements. Management determines the allowance for doubtful accounts based on historical losses and current economic conditions. On a continuing basis, management analyzes delinquent receivables and, once these receivables are determined to be uncollectible, they are written off through a charge against an existing allowance. As of December 31, 2015 and 2014, management determined that no allowance was deemed necessary.
Inventory - Inventory is stated at the lower of cost or market determined by the specific identification method. Inventory consists of finished goods purchased directly from various suppliers along with manufactured products that are tracked through raw materials, work in progress, and finished good stages as the product progresses through various production steps and stocking locations. Labor and overhead costs are absorbed through the various production processes up to when the work order closes. Reserves for inventory obsolescence are utilized to account for slow-moving inventory, expired inventory, and inventory no longer needed due to diminished market demand.
Property and Equipment - Property and equipment are stated at acquisition cost less accumulated depreciation. Expenditures for maintenance and repairs that do not significantly add to the utility or extend the useful life of an asset are expensed as incurred. Property and equipment are depreciated on the straight-line method over estimated useful lives ranging from five to ten years.
The Company assesses property and equipment for possible impairment whenever events or circumstances indicate that the carrying value may not be recoverable. No impairment triggers were identified by management during 2015 or 2014.
Revenue Recognition - The Company has two main sources of revenue which include product revenue and commission revenue. For product revenue, the Company recognizes revenue when title to the goods and risk of loss transfers from the Company to its customers, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. Revenue is recognized according to the shipping terms of the agreement provided all revenue recognition criteria have been met. A portion of the Company’s product revenue is generated from inventory maintained at the customer site. For these products, revenue is recognized at the time the product has been used or implanted. The Company records estimated sales returns and allowances as a reduction of product sales in the same period revenue is recognized. Commission revenue is earned when sales are made to end-user customer and title to the goods and risk of loss transfers from the supplier of the product to the customer.
Stock Based Compensation - The Company accounts for its stock based compensation plan in accordance with FASB ASC topic 718 “Compensation - Stock Compensation”. FASB ASC 718 requires the measurement and recognition of compensation expense for all stock based awards made to employees and directors, including employee stock options, restricted stock and warrants. Under the provisions of FASB ASC 718, stock based compensation cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense on a straight line basis over the requisite service period of the entire award (generally the vesting period of the award).
Income Taxes - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amount of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered in income. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized. The Company determined that a valuation allowance was not necessary as of December 31, 2015 and 2014. Management has evaluated tax positions that could have a significant effect on the financial statements and determined there were no known uncertainties concerning tax positions at December 31, 2015 and 2014.
It is the Company’s policy to include any penalties and interest related to uncertain tax positions as income tax expense; however, the Company currently has recorded no penalties or interest related to uncertain tax positions. The earliest year that the Company is subject to examination is the calendar year ended December 31, 2012.
Fair Value Measurements - For all financial instruments, assets and liabilities required to be recognized or disclosed at fair value on a recurring basis, fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establish a fair value hierarchy which gives the highest priority to observable inputs such as quoted prices in active markets for identical assets or liabilities (Level 1), the next highest priority to inputs from observable data other than quoted prices (Level 2), and the lowest priority to unobservable inputs (Level 3). Inputs are broadly defined as assumptions market participants would use in pricing an asset or liability.
Subsequent Events - Management of the Company has evaluated subsequent events through March 31, 2016, the date the financial statements were available to be issued.
2. Inventory
Inventory consisted of the following as of:
December 31, | ||||||||
2015 | 2014 | |||||||
Raw materials | $ | 451,400 | $ | — | ||||
Work in process | 105,016 | — | ||||||
Finished goods | 8,167,294 | 7,118,520 | ||||||
Total | 8,723,710 | 7,118,520 | ||||||
Less: reserve for obsolescence | (71,412 | ) | (30,000 | ) | ||||
$ | 8,652,298 | $ | 7,088,520 | |||||
3. Property and equipment
Property and equipment consisted of the following as of:
December 31, | ||||||||
2015 | 2014 | |||||||
Furniture and fixtures | $ | 275,699 | $ | 180,151 | ||||
Computers and equipment | 178,855 | 178,031 | ||||||
Processing facility | 868,376 | 616,736 | ||||||
Leasehold improvements | 228,317 | 228,317 | ||||||
Total | 1,551,247 | 1,203,235 | ||||||
Less accumulated depreciation | (337,150 | ) | (171,676 | ) | ||||
$ | 1,214,097 | $ | 1,031,559 | |||||
Depreciation expense totaled $171,578 and $83,893 for the years ended December 31, 2015 and 2014, respectively.
4. Line of credit
The Company has a $1,000,000 line of credit with a bank. The line of credit bears interest at the prime rate plus .750 percentage points, which totaled 4.25% and 4.00% as of December 31, 2015 and 2014, respectively. The line of credit is secured by substantially all assets of the Company. The line of credit is also personally guaranteed by the owners of the Company. The amount outstanding was $437,000 and $0 at December 31, 2015 and 2014, respectively. The line of credit was paid off in January 2016 in connection with the acquisition of the Company (See note 11).
5. Long - term debt
December 31, | ||||||
2015 | 2014 | |||||
Note payable to Bank due August 31, 2019. The interest rate is 4.5%. Principal and interest payments due monthly of $18,672. The Note is secured by substantially all of the assets of the Company. | $ | 754,149 | $ | 939,201 | ||
Less current portion | (194,086 | ) | (185,052 | ) | ||
$ | 560,063 | $ | 754,149 | |||
The future principal payments for long-term debt are summarized as follows:
Year Ending December 31, | |||
2016 | $ | 194,086 | |
2017 | 203,002 | ||
2018 | 212,328 | ||
2019 | 144,733 | ||
$ | 754,149 | ||
The note payable was paid off in January 2016 in connection with the acquisition of the Company (see Note 11).
6. Significant concentrations of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivables and revenue to a primary customer. Customers are considered major customers and a concentration risk when sales volume exceeds 10 percent of total revenue for the fiscal year or outstanding accounts receivable balances exceed 10 percent of total accounts receivable. There were no customers with revenue or outstanding accounts receivable balances exceeding 10 percent for the year ended December 31, 2015. Concentrations of credit risk with respect to revenue and accounts receivable are due to approximately 11% of revenue for the year ended December 31, 2014 and approximately 14% of gross accounts
receivable at December 31, 2014 being from the Company's largest customer.
7.Leases
The Company leases its Nashville, Tennessee location of approximately 3,000 square feet of office space under a non- cancelable lease ending June 30, 2016. The lease is accounted for as an operating lease.
The Company leases its San Antonio, Texas location of approximately 11,250 square feet of space under a non- cancelable lease ending August 1, 2024. The lease is accounted for as an operating lease. In addition to the minimum rental costs, the lease states that additional rent shall be paid monthly for certain operating expenses in proportion to the tenant's share of the net rentable area of the project. The amount of additional rent will be adjusted annually based on operating expenses of the project. Additional rent amounts have been included with minimum future rent costs.
Future minimum payments under operating leases are as follows:
Year ending December 31, | |||||
2016 | $ | 167,278 | |||
2017 | 136,354 | ||||
2018 | 136,363 | ||||
2019 | 134,976 | ||||
2020 | 137,321 | ||||
Thereafter | 515,063 | ||||
$ | 1,227,355 | ||||
Total rental expense under operating leases were $251,244 and $195,419 for the years ended December 31, 2015 and 2014, respectively.
8.Related party transactions
A shareholder owning a substantial portion of the outstanding stock of the Company controls a limited liability company that supplies products to the Company by serving as an intermediary between one of the Company's suppliers and the Company itself. The Company has a general right of return of the products if the products do not sell through to its customers. The costs of goods sold from the purchasing of inventory from this related party totaled approximately $4,378,000 and $4,423,000 for the years ended December 31, 2015 and 2014, respectively. Included in the accompanying balance sheets is approximately $6,447,070 and $8,022,600 of accounts payable owed to the related party as of December 31, 2015 and 2014, respectively. The Company also incurred approximately $24,000 and $24,000 in administrative expenses related to these transactions for the years ended December 31, 2015 and 2014, respectively.
On December 10, 2013, the Company borrowed $200,000 from a shareholder of the Company. The note carried interest at 12% payable monthly with the outstanding balance due in December 2014. During 2014, the Company paid $80,000 on the note and authorized the remaining $120,000 to be converted into 18,000 shares of common stock. The Company paid approximately $9,700 of interest on the note for the year ended December 31, 2014.
9.Income taxes
The components of the income tax provision (benefit) for the years ended December 31, 2015 and 2014 are as follows:
2015 | 2014 | ||||||
Current expense (benefit) | $ | — | $ | (75,403 | ) | ||
Deferred expense (benefit) | (348,643 | ) | 168,093 | ||||
$ | (348,643 | ) | $ | 92,690 | |||
The primary differences between the effective tax rate of 32.09% and the federal statutory tax rate of 34.00% for the year ended
December 31, 2015 relates to state income taxes, other permanent differences, and true-up adjustments to deferred tax items. For the year ended December 31, 2014, the Company elected to carry back their taxable loss to previous tax years and as a result recorded a refund receivable of approximately $97,000 as of December 31, 2014.
Significant components of deferred income tax assets and liabilities as of December 31, 2015 and 2014 are as follows:
2015 | 2014 | ||||||
Current deferred tax assets (liabilities): | |||||||
Deferred rent | $ | 13,096 | $ | 9,709 | |||
Charitable contributions | 18,469 | 10,457 | |||||
31,565 | 20,166 | ||||||
Non - current deferred tax assets (liabilities): | |||||||
Net operating loss carryover | 351,442 | 12,162 | |||||
Property and equipment | (202,457 | ) | (200,421 | ) | |||
148,985 | (188,259 | ) | |||||
Net deferred tax asset (liability) | $ | 180,550 | $ | (168,093 | ) | ||
The Company has available net operating loss carryforwards totaling approximately $950,000 at December 31,
2015, to reduce future tax of the Company and subsidiaries. These carryforwards begin to expire in 2033. Since the
Company was acquired subsequent to December 31, 2015, no valuation allowance was recorded at December 31, 2015.
10.Stockholders’ Equity
On January 7, 2015, the Company completed a 4.5 for 1 stock split. References made to outstanding or issued share amounts in the accompanying financial statements and applicable disclosures have been retroactively adjusted to reflect this 4.5 for 1 stock split. The number of authorized shares as reflected on the balance sheets was not affected by the stock split and accordingly has not been adjusted.
In January 2015, the Company instituted a 2015 Stock incentive Plan and the Board authorized the maximum number of shares to be issued under the plan to be 175,000 shares.
On January 8, 2015, the Company granted certain employees 123,228 shares of the company restricted stock. The shares were immediately vested as of the date of grant. The fair value of the grant was determined to be approximately $6.67 per share based on third party sales and purchases of the Company’s stock. Stock based compensation totaled $822,956 and $0 for the years ended December 31, 2015 and 2014, respectively.
11.Subsequent events
On January 13, 2016, MiMedx Group, Inc. ("MiMedx") completed the acquisition of the Company. The acquisition was effected by the merger of the Company into a newly created wholly owned subsidiary of MiMedx. The new subsidiary was the surviving company in the merger and was subsequently renamed Stability Biologics, LLC ("Stability"). MiMedx paid $10 million at the closing, comprised of 60% cash and 40% in shares of common stock of MiMedx, plus assumed debt. The Company subsequently eliminated a $2.4 million payable Stability owed MiMedx related to MiMedx products sold to the Company prior to the acquisition. MiMedx will also pay future contingent consideration through a two-year earn out arrangement based on the 2016 and 2017 performance of the Company's business. The earn out will also be paid in the form of 60% cash and 40% in shares of stock of MiMedx.
EXHIBIT 99.2
UNAUDITED PRO FORMA FINANCIAL INFORMATION
On January 13, 2016, MiMedx Group, Inc. (the "Company" or "MiMedx") completed the acquisition of Stability Inc., d/b/a Stability Biologics ("Stability"), a provider of human tissue products to surgeons, facilities, and distributors serving the surgical, spine, and orthopedic sectors of the healthcare industry. The acquisition of Stability was effected by the merger of Stability Inc. into a newly created wholly owned subsidiary of the Company. The new subsidiary was the surviving company in the merger and was subsequently renamed Stability Biologics, LLC. The Company paid $10 million at the closing, comprised of 60% cash and 40% in shares of common stock of MiMedx Group, Inc., plus assumed debt. The Company will also pay future contingent consideration through a two-year earn out arrangement based on the 2016 and 2017 performance of Stability's business. The earn out will also be paid in the form of 60% cash and 40% in shares of stock of MiMedx Group, Inc. The contingent consideration is preliminarily valued at approximately $33,200,000.
The following unaudited pro forma combined financial statements reflect the acquisition of 100% of the outstanding stock of Stability using the purchase method of accounting. The acquisition has been accounted for in conformity with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 805, Business Combinations (“ASC 805”). The pro forma adjustments are based upon available information and assumptions that we believe are reasonable. The pro forma adjustments are preliminary and have been prepared to illustrate the estimated effect of the acquisition. Differences between these preliminary estimates and the final acquisition accounting will occur and these differences could have a material impact on the accompanying unaudited pro forma combined financial statements and the combined companies’ future results of operations and financial position. The unaudited pro forma combined financial statements do not purport to be indicative of the operating results or financial position that would have been achieved had the acquisition taken place on the date indicated or the results that may be obtained in the future.
The unaudited pro forma combined balance sheet as of December 31, 2015 is presented as if our acquisition of Stability had occurred on December 31, 2015.
The unaudited pro forma combined consolidated statements of operations for the year ended December 31, 2015 illustrates the effect of the Stability acquisition as if it had occurred on January 1, 2015. The unaudited pro forma combined consolidated statement of operations combines the MiMedx and Stability unaudited statements of operations for the year ended December 31, 2015. The historical consolidated financial information has been adjusted to give effect to pro forma events that are (i) directly attributable to the acquisition (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined results of the companies. These unaudited pro forma condensed combined financial statements are prepared by management for informational purposes only in accordance with Article 11 of Securities and Exchange Commission Regulation S-X and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisition been consummated as of the dates presented, and should not be taken as representative of future consolidated operating results of MiMedx. The unaudited pro forma combined financial statements do not reflect any operating efficiencies and/or cost savings that we may achieve, or any additional expenses or costs of integration that we may incur, with respect to the combined companies as such adjustments are not factually supportable at this point in time. The assumptions used to prepare the pro forma financial information are contained in the notes to the unaudited pro forma combined financial statements, and such assumptions should be reviewed in their entirety.
The unaudited pro forma combined financial statements have been developed from, and should be read in conjunction with the historical audited consolidated financial statements for the year ended December 31, 2015 and notes thereto of MiMedx contained in its Annual Report on Form 10-K which was filed on February 29, 2015.
MIMEDX GROUP, INC. AND SUBSIDIARIES
Unaudited Pro Forma Combined Balance Sheet (in thousands)
Historical MiMedx December 31, 2015 | Historical Stability Inc. December 31, 2015 | ProForma Adjustments | ProForma Combined | |||||||||||||||
ASSETS | ||||||||||||||||||
Current assets: | ||||||||||||||||||
Cash and cash equivalents | $ | 28,486 | $ | — | $ | (7,286 | ) | (A) (E) | $ | 21,200 | ||||||||
Accounts receivable, net | 53,755 | 2,106 | (2,400 | ) | (J) | 53,461 | ||||||||||||
Short term investments | 3,000 | — | — | 3,000 | ||||||||||||||
Inventory, net | 7,460 | 8,652 | 1,868 | (K) | 17,980 | |||||||||||||
Prepaid expenses and other current assets | 3,609 | 157 | — | 3,766 | ||||||||||||||
Total current assets | 96,310 | 10,915 | (7,818 | ) | 99,407 | |||||||||||||
Deferred tax asset, net | 14,838 | 149 | 14,987 | |||||||||||||||
Property and equipment, net of accumulated depreciation | 9,475 | 1,214 | 19 | (K) | 10,708 | |||||||||||||
Goodwill | 4,040 | — | 17,431 | (B) | 21,471 | |||||||||||||
Intangible assets | 10,763 | — | 23,570 | (C) | 34,333 | |||||||||||||
Deferred financing costs and other assets | 487 | 17 | 31 | 535 | ||||||||||||||
Total assets | $ | 135,913 | $ | 12,295 | $ | 33,233 | $ | 181,441 | ||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||
Current liabilities: | ||||||||||||||||||
Accounts payable and accrued expenses | $ | 11,277 | $ | 11,221 | $ | (1,900 | ) | (D) (J) | $ | 20,598 | ||||||||
Accrued compensation | 15,034 | — | — | 15,034 | ||||||||||||||
Line of credit and current portion of long term debt | — | 631 | (631 | ) | (E) | — | ||||||||||||
Other current liabilities | 466 | 95 | (95 | ) | (E) | 466 | ||||||||||||
Total current liabilities | 26,777 | 11,947 | (2,626 | ) | 36,098 | |||||||||||||
Other liabilities: | — | |||||||||||||||||
Debt, net of current portion | — | 560 | (560 | ) | (E) | — | ||||||||||||
Other liabilities | 1,148 | — | 33,200 | (F) (G) | 34,348 | |||||||||||||
Total liabilities | 27,925 | 12,507 | 30,014 | 70,446 | ||||||||||||||
Stockholders’ equity: | ||||||||||||||||||
Preferred stock; $.001 par value; 5,000,000 shares authorized and 0 shares issued and outstanding | — | — | — | — | ||||||||||||||
Common stock; $.001 par value; 150,000,000 shares authorized; 109,467,416 issued and 107,361,471 outstanding | 109 | — | 1 | (F) | 110 | |||||||||||||
Additional paid-in capital | 163,133 | 1,383 | (90 | ) | (F) | 164,426 | ||||||||||||
Treasury Stock at cost: 2,105,945 shares | (17,125 | ) | (300 | ) | 3,808 | (13,617 | ) | |||||||||||
Accumulated deficit | (38,129 | ) | (1,295 | ) | (500 | ) | (D) | (39,924 | ) | |||||||||
Total stockholders’ equity | 107,988 | (212 | ) | 3,219 | 110,995 | |||||||||||||
Total liabilities and stockholders’ equity | $ | 135,913 | $ | 12,295 | $ | 33,233 | $ | 181,441 | ||||||||||
MIMEDX GROUP, INC. AND SUBSIDIARIES
Unaudited Combined Statement of Operations (in thousands, except share and per share data)
Historical MiMedx For the year ended December 31, 2015 | Historical Stability Inc. For the year ended December 31, 2015 | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||||
Net Sales | $ | 187,296 | $ | 19,823 | $ | (2,593 | ) | (L) | $ | 204,526 | ||||||||
Cost of sales | 20,202 | 8,875 | 1,275 | (M) | 30,352 | |||||||||||||
Gross margin | 167,094 | 10,948 | (3,868 | ) | 174,174 | |||||||||||||
Operating expenses: | ||||||||||||||||||
Research and development expenses | 8,413 | — | — | 8,413 | ||||||||||||||
Selling, general and administrative expenses | 133,384 | 11,996 | 145,380 | |||||||||||||||
Amortization of intangible assets | 933 | — | 2,503 | (H) | 3,436 | |||||||||||||
— | ||||||||||||||||||
Operating income (loss) | 24,364 | (1,048 | ) | (6,371 | ) | 16,945 | ||||||||||||
Other income (expense), net: | ||||||||||||||||||
Interest expense, net | (86 | ) | (39 | ) | — | (125 | ) | |||||||||||
Income (loss) before income tax provision | 24,278 | (1,087 | ) | (6,371 | ) | 16,820 | ||||||||||||
Income tax provision (benefit) | 5,168 | (349 | ) | — | 4,819 | |||||||||||||
Net income (loss) | $ | 29,446 | $ | (738 | ) | $ | (6,371 | ) | $ | 22,337 | ||||||||
Net income (loss) per common share - basic | $ | 0.28 | $ | 0.21 | ||||||||||||||
Net income (loss) per common share - diluted | $ | 0.26 | $ | 0.19 | ||||||||||||||
Weighted average shares outstanding - basic | 105,929,205 | 0 | 1,905,176 | (I) | 107,834,381 | |||||||||||||
Weighted average shares outstanding - diluted | 113,628,482 | 0 | 1,905,176 | (I) | 115,533,658 | |||||||||||||
MIMEDX GROUP, INC. AND SUBSIDIARIES
Notes to Unaudited Pro Forma Combined Financial Statements
1. Background and Basis of Pro Forma Presentation
On January 13, 2016, MiMedx Group, Inc. (“MiMedx” or the “Company”) acquired the outstanding equity interests in Stability Inc. (“Stability”) a provider of human tissue products to surgeons, facilities, and distributors serving the surgical, spine, and orthopedic sectors of the healthcare industry. The unaudited pro forma combined financial information was prepared based on the historical financial statements of MiMedx and Stability. The acquisition has been accounted for in conformity with ASC 805 and uses the fair value concepts defined in Accounting Standards Codification 820, Fair Value Measurements and Disclosures (“ASC 820-10”). ASC 805 requires, among other things, that most assets acquired and liabilities assumed in an acquisition be recognized at their fair values as of the acquisition date and requires that fair value be measured based on the principles in ASC 820-10. ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820-10 also requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available.
2. Purchase Price Allocation
The acquisition is accounted for using the acquisition method of accounting. The total estimated purchase price is comprised of the following:
Cash paid at closing | $ | 6,000,000 | |
Common Stock Issued | 3,346,000 | ||
Assumed debt | 1,771,000 | ||
Estimated present value of additional contingent consideration | 33,240,000 | ||
Total | $ | 44,357,000 | |
The following table summarizes the preliminary allocation of the purchase price to the estimated fair values of the assets acquired and liabilities assumed on the closing date of January 13, 2016 as if the acquisition had occurred on December 31, 2015.
Cash and cash equivalents | $ | 100 | |
Trade receivables | 2,106,288 | ||
Federal and state taxes receivable | 27,712 | ||
Inventory | 10,520,298 | ||
Prepaid expenses and other current assets | 128,463 | ||
Property and equipment, net | 1,233,000 | ||
Goodwill | 17,431,000 | ||
Intangible Assets, net | 23,570,000 | ||
Other long term assets | 283,000 | ||
Total assets acquired | $ | 55,299,861 | |
Accounts Payable and accrued expenses | 11,221,468 | ||
Stock repurchase note payable | 95,000 | ||
Term note | 754,149 | ||
Line of Credit | 437,000 | ||
Net Assets acquired | $ | 42,792,244 | |
3. Pro Forma Financial Statement Adjustments
The following pro forma adjustments are included in the Company’s unaudited pro forma combined financial statements:
(A) Cash due upon closing of $6,000,000
(B) To record preliminary estimate of goodwill for our acquisition of Stability Inc.
(C) To record the preliminary estimate of the fair value of intangible assets for the acquisition of Stability. The
intangible assets subject to amortization acquired are comprised of the following: approximately $8,900,000 of customer
relationships, $1,000,000 of trade names and trademarks, $2,680,000 of non compete agreements, $760,000 of licenses,
and $10,230,000 of patents & know-how. These items are amortized over periods ranging from two to twenty years.
(D) To reflect impact of non-recurring acquisition related transaction costs
(E) To record payoff of debt
(F) To record 441,009 shares and 1,464,167 contingent shares of MiMedx common stock issued in connection with the
acquisition of Stability valued at $9.07 per share, the contractual price of MiMedx stock on the closing date
(G) Contingent cash consideration to be paid out upon achievement of certain financial goals
(H) Adjustment to record amortization expenses related to intangible assets acquired
(I) To reflect 441,009 shares of MiMedx common stock issued at closing and 1,464,167 contingent shares of MiMedx
common stock to be issued based upon achievement of certain financial goals
(J) Elimination of inter-company Accounts Receivable and Accounts Payable between Stability and MiMedx
(K) Inventory and Fixed Asset valuation step up
(L) Elimination of inter company sales between Stability and MiMedx
(M) Elimination of inter company cost of sales of $447,000 and increase in cost of sales for inventory step up of
$1,722,000