Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended June 30, 2009
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-52491
MIMEDX GROUP, INC.
(Exact name of registrant as specified in its charter)
| Florida (State or other jurisdiction of incorporation) |
26-2792552 (I.R.S. Employer Identification Number) |
|
| 1234 Airport Road, Suite 105 Destin, Florida (Address of principal executive offices) |
32541 (Zip Code) |
(850) 269-0000
Registrant’s telephone number, including area code
Registrant’s telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceeding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated
filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one):
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
As of July 31, 2009, there were 41,314,628 shares outstanding of the registrant’s common stock.
MIMEDX GROUP, INC.
TABLE OF CONTENTS
Part I FINANCIAL INFORMATION |
||||||||
Item 1. Condensed Consolidated Financial Statements |
1 | |||||||
| 1 | ||||||||
| 2 | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 16 | ||||||||
| 19 | ||||||||
| 20 | ||||||||
| 20 | ||||||||
| 21 | ||||||||
| Exhibit 31.1 | ||||||||
| Exhibit 31.2 | ||||||||
| Exhibit 32.1 | ||||||||
| Exhibit 32.2 | ||||||||
Table of Contents
MIMEDX GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, | March 31, | |||||||
| 2009 | 2009 | |||||||
| (unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 1,620,900 | $ | 34,828 | ||||
Prepaid expenses and other current assets |
49,082 | 82,953 | ||||||
Total current assets |
1,669,982 | 117,781 | ||||||
Property and equipment,
net of accumulated depreciation of $726,652 (June)
and $610,536 (March) |
1,268,065 | 1,375,896 | ||||||
Goodwill |
857,597 | 857,597 | ||||||
Intangible assets, net of accumulated amortization of $1,157,364 (June)
and $990,660 (March) |
4,949,633 | 5,116,337 | ||||||
Deferred financing costs |
226,771 | — | ||||||
Deposits |
149,202 | 149,202 | ||||||
Total assets |
$ | 9,121,250 | $ | 7,616,813 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 1,106,925 | $ | 1,699,337 | ||||
Total current liabilities |
1,106,925 | 1,699,337 | ||||||
Long term convertible debt, face value $3,472,000, less unamortized
discount of $648,377 and including accrued interest of $17,524 |
2,841,147 | — | ||||||
Total liabilities |
3,948,072 | 1,699,337 | ||||||
Commitments and contingency (Notes 4 and 8) |
— | — | ||||||
Common stock with registration rights,1,905,000 shares issued
and outstanding (Note 6) |
3,761,250 | 3,761,250 | ||||||
Stockholders’ equity: |
||||||||
Preferred stock; $.001 par value; 5,000,000
shares authorized and 0 (June and March) shares
issued and outstanding |
— | — | ||||||
Common stock; $.001 par value; 100,000,000
shares authorized and 37,339,628 (June and March)
shares issued and outstanding |
37,340 | 37,340 | ||||||
Additional paid-in capital |
35,084,069 | 34,230,824 | ||||||
Deficit accumulated during the development stage |
(33,709,481 | ) | (32,111,938 | ) | ||||
Total stockholders’ equity |
1,411,928 | 2,156,226 | ||||||
Total liabilities and stockholders’ equity |
$ | 9,121,250 | $ | 7,616,813 | ||||
See notes to condensed consolidated financial statements
1
Table of Contents
MIMEDX GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Period from | ||||||||||||
| Inception | ||||||||||||
| Three Months Ended | (November 22, 2006) | |||||||||||
| June 30, | through | |||||||||||
| 2009 | 2008 | June 30, 2009 | ||||||||||
Research and development expenses |
$ | 773,517 | $ | 953,546 | $ | 6,923,125 | ||||||
Acquired in-process research and development |
— | — | 7,177,000 | |||||||||
General and administrative expenses |
1,334,316 | 2,236,321 | 18,520,460 | |||||||||
Loss from operations |
(2,107,833 | ) | (3,189,867 | ) | (32,620,585 | ) | ||||||
Other income (expense): |
||||||||||||
Gain on settlement of payables |
564,838 | — | 564,838 | |||||||||
Net interest (expense) income |
(54,548 | ) | 37,985 | 558,456 | ||||||||
Change in fair value of investment, related party |
— | — | (41,775 | ) | ||||||||
Loss before income taxes |
(1,597,543 | ) | (3,151,882 | ) | (31,539,066 | ) | ||||||
Income taxes |
— | — | — | |||||||||
Net loss |
$ | (1,597,543 | ) | $ | (3,151,882 | ) | $ | (31,539,066 | ) | |||
Net loss per common share |
||||||||||||
Basic and diluted |
$ | (0.04 | ) | $ | (0.09 | ) | ||||||
Shares used in computing net loss per common share |
||||||||||||
Basic and diluted |
39,244,628 | 37,073,595 | ||||||||||
See notes to condensed consolidated financial statements
2
Table of Contents
MIMEDX GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Period from | ||||||||||||
| Inception | ||||||||||||
| Three Months Ended | (November 22, 2006) | |||||||||||
| June 30, | through | |||||||||||
| 2009 | 2008 | June 30, 2009 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (1,597,543 | ) | $ | (3,151,882 | ) | $ | (31,539,066 | ) | |||
Adjustments to reconcile net loss to net cash flows from
operating activities, net of effects of acquisition: |
||||||||||||
Gain on settlement of payables |
(564,838 | ) | — | (564,838 | ) | |||||||
Loss on sale of equipment |
— | — | 5,440 | |||||||||
Acquired in-process research and development |
— | — | 7,177,000 | |||||||||
Depreciation |
116,116 | 97,290 | 733,284 | |||||||||
Amortization of intangible assets |
166,704 | 166,704 | 1,157,367 | |||||||||
Amortization of debt discount and deferred financing costs |
37,966 | — | 37,966 | |||||||||
Employee share-based compensation expense |
47,006 | 193,058 | 1,655,260 | |||||||||
Other share-based compensation expense |
31,165 | 36,584 | 671,568 | |||||||||
Issuance of common stock for transaction fees |
— | — | 1,126,379 | |||||||||
Accrued interest on notes receivable, related party |
— | — | (48,894 | ) | ||||||||
Change in fair value of investment, related party |
— | — | 41,775 | |||||||||
Increase (decrease) in cash resulting from changes in: |
||||||||||||
Prepaid expenses and other current assets |
33,871 | 121,676 | (30,004 | ) | ||||||||
Accounts payable and accrued expenses |
(20,550 | ) | (106,580 | ) | 780,673 | |||||||
Deferred interest income |
— | — | (43,200 | ) | ||||||||
Net cash flows from operating activities |
(1,750,103 | ) | (2,643,150 | ) | (18,839,290 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchase of equipment |
(8,285 | ) | (227,672 | ) | (1,549,580 | ) | ||||||
Proceeds from sale of equipment |
— | — | 6,580 | |||||||||
Cash paid for intangible asset |
— | — | (100,000 | ) | ||||||||
Cash paid for security deposits |
— | (3,681 | ) | (115,400 | ) | |||||||
Cash received in acquisition of SpineMedica Corp. |
— | — | 1,957,405 | |||||||||
Cash paid for acquisition costs of SpineMedica Corp. |
— | — | (227,901 | ) | ||||||||
Payments from (advances to) related party |
— | — | (2,008,522 | ) | ||||||||
Net cash flows from investing activities |
(8,285 | ) | (231,353 | ) | (2,037,418 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from convertible debt offering |
3,472,000 | — | 3,472,000 | |||||||||
Proceeds from Series A preferred stock |
— | — | 14,016,000 | |||||||||
Proceeds from Series C preferred stock |
— | — | 3,855,000 | |||||||||
Proceeds from common stock sale |
— | — | 2,198,788 | |||||||||
Proceeds from exercise of stock options |
— | — | 2,166 | |||||||||
Offering costs paid in connection with convertible debt offering |
(127,540 | ) | — | (127,540 | ) | |||||||
Offering costs paid in connection with Series A preferred
stock offering |
— | — | (918,806 | ) | ||||||||
Net cash flows from financing activities |
3,344,460 | — | 22,497,608 | |||||||||
Net change in cash |
1,586,072 | (2,874,503 | ) | 1,620,900 | ||||||||
Cash, beginning of period |
34,828 | 6,749,609 | — | |||||||||
Cash, end of period |
$ | 1,620,900 | $ | 3,875,106 | $ | 1,620,900 | ||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash paid for interest |
$ | — | $ | — | $ | — | ||||||
Cash paid for income taxes |
$ | — | $ | — | $ | — | ||||||
Supplemental disclosure of non-cash financing activity: |
||||||||||||
During the three months ended June 30, 2009, the Company issued 315,520
warrants to purchase common stock, valued at $98,574 and recognized a
beneficial conversion feature of $676,500 in conjunction with our
convertible debt offering |
||||||||||||
See notes to condensed consolidated financial statements
3
Table of Contents
MIMEDX GROUP, INC. AND SUBSIDARIES
(A DEVELOPMENT STAGE ENTERPRISE)
(A DEVELOPMENT STAGE ENTERPRISE)
CONDENSED CONSOLIDATED STATEMENTS STOCKHOLDERS’ EQUITY
PERIOD FROM INCEPTION (NOVEMBER 22, 2006) THROUGH JUNE 30, 2009
| Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible | Convertible | Convertible | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Additional | Stock | Note | During the | ||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Common Stock | Paid-in | Subscriptions | Receivable, | Development | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Related party | Stage | Total | ||||||||||||||||||||||||||||||||||||||||
Balances, November 22, 2006 |
— | $ | — | — | $ | — | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||
Issuance of common stock at inception |
— | — | — | — | — | — | 12,880,000 | 12,880 | — | — | — | (11,592 | ) | 1,288 | ||||||||||||||||||||||||||||||||||||||
Employee share-based compensation
expense |
— | — | — | — | — | — | — | — | 13,409 | — | — | — | 13,409 | |||||||||||||||||||||||||||||||||||||||
Other share-based compensation expense |
— | — | — | — | — | — | — | — | 17,980 | — | — | — | 17,980 | |||||||||||||||||||||||||||||||||||||||
Common stock issued in connection
with purchase of license agreement |
— | — | — | — | — | — | 1,120,000 | 1,120 | 894,880 | — | — | — | 896,000 | |||||||||||||||||||||||||||||||||||||||
Issuance of note receivable, related
party |
— | — | — | — | — | — | — | — | — | — | (2,000,000 | ) | — | (2,000,000 | ) | |||||||||||||||||||||||||||||||||||||
Sale of Series A Preferred stock |
11,212,800 | 14,016,000 | — | — | — | — | — | — | (918,806 | ) | (1,233,750 | ) | — | — | 11,863,444 | |||||||||||||||||||||||||||||||||||||
Accrued interest income |
— | — | — | — | — | — | — | — | — | — | (7,644 | ) | — | (7,644 | ) | |||||||||||||||||||||||||||||||||||||
Net loss for the period |
— | — | — | — | — | — | — | — | — | — | — | (650,777 | ) | (650,777 | ) | |||||||||||||||||||||||||||||||||||||
Balances, March 31, 2007 |
11,212,800 | 14,016,000 | — | — | — | — | 14,000,000 | 14,000 | 7,463 | (1,233,750 | ) | (2,007,644 | ) | (662,369 | ) | 10,133,700 | ||||||||||||||||||||||||||||||||||||
Employee share-based compensation
expense |
— | — | — | — | — | — | — | — | 649,783 | — | — | — | 649,783 | |||||||||||||||||||||||||||||||||||||||
Other share-based compensation
expense |
— | — | — | — | — | — | — | — | 158,247 | — | — | — | 158,247 | |||||||||||||||||||||||||||||||||||||||
Collection of stock subscription
receivable |
— | — | — | — | — | — | — | — | — | 1,233,750 | — | — | 1,233,750 | |||||||||||||||||||||||||||||||||||||||
Accrued interest income |
— | — | — | — | — | — | — | — | — | — | (41,250 | ) | — | (41,250 | ) | |||||||||||||||||||||||||||||||||||||
SpineMedica Corp. acquisition |
— | — | 5,922,397 | 7,402,996 | 2,911,117 | 2,911 | 2,316,908 | — | 2,048,894 | 11,771,709 | ||||||||||||||||||||||||||||||||||||||||||
Sale of Series C Preferred stock |
— | — | — | — | 1,285,001 | 3,855,000 | — | — | — | — | — | — | 3,855,000 | |||||||||||||||||||||||||||||||||||||||
Stock options issued in connection
with purchase of intellectual property |
— | — | — | — | — | — | — | — | 116,000 | — | — | — | 116,000 | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
— | — | — | — | — | — | 1,200 | 1 | 2,159 | — | — | — | 2,160 | |||||||||||||||||||||||||||||||||||||||
Alynx Merger — Recapitalization |
7,207,398 | 11,257,996 | (5,922,397 | ) | (7,402,996 | ) | (1,285,001 | ) | (3,855,000 | ) | 926,168 | 926 | (926 | ) | — | — | — | — | ||||||||||||||||||||||||||||||||||
Alynx Merger — Transaction Costs (expensed) |
— | — | — | — | — | — | 205,851 | 206 | 1,126,173 | — | — | — | 1,126,379 | |||||||||||||||||||||||||||||||||||||||
Conversion of Preferred stock |
(18,420,198 | ) | (25,273,996 | ) | — | — | 18,420,198 | 18,420 | 25,255,576 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
Common stock issued in connection
with purchase of license agreement |
— | — | — | — | — | — | 400,000 | 400 | 2,595,600 | — | — | — | 2,596,000 | |||||||||||||||||||||||||||||||||||||||
Net loss for the period |
— | — | — | — | — | — | — | — | — | — | — | (17,371,475 | ) | (17,371,475 | ) | |||||||||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements
4
Table of Contents
| Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Convertible | Convertible | Convertible | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Additional | Stock | Note | During the | ||||||||||||||||||||||||||||||||||||||||||||||
| Series A | Series B | Series C | Common Stock | Paid-in | Subscriptions | Receivable, | Development | |||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Related party | Stage | Total | ||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2008 |
— | — | — | — | — | — | 36,864,534 | 36,864 | 32,226,983 | — | — | (18,033,844 | ) | 14,230,003 | ||||||||||||||||||||||||||||||||||||||
Employee share-based compensation
expense |
— | — | — | — | — | — | — | — | 945,062 | — | — | — | 945,062 | |||||||||||||||||||||||||||||||||||||||
Other share-based compensation
expense |
— | — | — | — | — | — | — | — | 130,076 | — | — | — | 130,076 | |||||||||||||||||||||||||||||||||||||||
Cashless exercise of stock warrants |
— | — | — | — | — | — | 417,594 | 418 | (418 | ) | — | — | — | |||||||||||||||||||||||||||||||||||||||
Sale of warrants in connection with private
placement of redeemable commoon stock |
— | — | — | — | — | — | — | — | 595,073 | — | — | — | 595,073 | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
— | — | — | — | — | — | 57,500 | 58 | (52 | ) | — | — | — | 6 | ||||||||||||||||||||||||||||||||||||||
Accretion of redeemable common stock and
common stock with registration rights to
fair value |
— | — | — | — | — | — | — | — | — | — | — | (2,158,823 | ) | (2,158,823 | ) | |||||||||||||||||||||||||||||||||||||
Warrants issued in connection with the
amendment
of private placement of common stock |
— | — | — | — | — | — | — | — | 334,100 | — | — | — | 334,100 | |||||||||||||||||||||||||||||||||||||||
Net loss for the period |
— | — | — | — | — | — | — | — | — | — | — | (11,919,271 | ) | (11,919,271 | ) | |||||||||||||||||||||||||||||||||||||
Balances, March 31, 2009 |
— | — | — | — | — | — | 37,339,628 | 37,340 | 34,230,824 | — | — | (32,111,938 | ) | 2,156,226 | ||||||||||||||||||||||||||||||||||||||
Beneficial conversion feature recognized
on convertible debt (unaudited) |
— | — | — | — | — | — | — | — | 676,500 | — | — | — | 676,500 | |||||||||||||||||||||||||||||||||||||||
Warrants issued to placement agents in
conjunction with convertible debt (unaudited) |
— | — | — | — | — | — | — | — | 98,574 | — | — | — | 98,574 | |||||||||||||||||||||||||||||||||||||||
Employee share-based compensation
expense (unaudited) |
— | — | — | — | — | — | — | — | 47,006 | — | — | — | 47,006 | |||||||||||||||||||||||||||||||||||||||
Other share-based compensation
expense (unaudited) |
— | — | — | — | — | — | — | — | 31,165 | — | — | — | 31,165 | |||||||||||||||||||||||||||||||||||||||
Net loss for the period (unaudited) |
— | — | — | — | — | — | — | — | — | — | — | (1,597,543 | ) | (1,597,543 | ) | |||||||||||||||||||||||||||||||||||||
Balances, June 30, 2009 (unaudited) |
— | $ | — | — | $ | — | — | $ | — | 37,339,628 | $ | 37,340 | $ | 35,084,069 | $ | — | $ | — | $ | (33,709,481 | ) | $ | 1,411,928 | |||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements
5
Table of Contents
MIMEDX GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2009 AND 2008 AND THE PERIOD FROM
INCEPTION (NOVEMBER 22, 2006)
THROUGH JUNE 30, 2009
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2009 AND 2008 AND THE PERIOD FROM
INCEPTION (NOVEMBER 22, 2006)
THROUGH JUNE 30, 2009
| 1. | Basis of Presentation: |
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States (“GAAP”) for
interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulations S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation of the results of operations for the periods presented have been included.
Operating results for the three months ended June 30, 2009 and 2008 are not necessarily
indicative of the results that may be expected for the fiscal year. The balance sheet at
March 31, 2009 has been derived from the audited consolidated financial statements at that
date, but does not include all of the information and footnotes required by GAAP for complete
financial statements.
You should read these condensed consolidated financial statements together with the historical
consolidated financial statements of the Company for the years ended March 31, 2009 and 2008,
and the period from inception (November 22, 2006) through March 31, 2009 included in our
Annual Report on Form 10-K for the year ended March 31, 2009, filed with the Securities and
Exchange Commission (“SEC”) on June 15, 2009.
MiMedx, Inc. (“MiMedx”) was incorporated in Florida in 2006. MiMedx entered into an Agreement
and Plan of Merger (“Merger Agreement”) on January 29, 2008 with a publicly-traded Nevada
Corporation, Alynx, Co. (“Alynx”), a public shell company, which was consummated on February
8, 2008. As a result of this transaction, MiMedx shareholders owned approximately 97% of the
outstanding shares, thus giving MiMedx substantial control.
Under GAAP, MiMedx was deemed to be the accounting acquirer since the shareholders of MiMedx
own a substantial majority of the issued and outstanding shares, and thus this reverse merger
was accounted for as a capital transaction. The historical financial statements are a
continuation of the financial statements of the accounting acquirer and the capital structure
of the consolidated enterprise is now different from that appearing in the historical
financial statements of the accounting acquirer in earlier periods due to the
recapitalization.
On March 31, 2008, MiMedx Group, Inc. a Florida corporation, and Alynx merged. As a result of
this transaction, MiMedx Group, Inc. became the surviving corporation. The “Company” refers
to MiMedx Group, Inc., a development stage company, as well as its two operating subsidiaries:
MiMedx, Inc. and SpineMedica, LLC.
The financial statements include the accounts of MiMedx Group, Inc. and its wholly-owned
subsidiaries MiMedx, Inc. and SpineMedica, LLC. All significant inter-company balances and
transactions have been eliminated.
| 2. | Significant accounting policies: |
Net loss per share
Basic net loss per common share is computed using the weighted-average number of common shares
outstanding during the period. Diluted net loss per common share is typically computed using
the weighted-average number of common and dilutive common equivalent shares from stock
options, warrants and convertible debt using the treasury stock method.
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For all periods presented, diluted net loss per share is the same as basic net loss per share,
as the inclusion of equivalent shares from outstanding common stock options, warrants and
convertible debt would be anti-dilutive.
The following table sets forth the computation of basic and diluted net loss per share:
| Three Months Ended | ||||||||
| June 30, | ||||||||
| 2009 | 2008 | |||||||
Net loss |
$ | (1,597,543 | ) | $ | (3,151,882 | ) | ||
Denominator for basic earnings per
share-weighted average shares |
39,244,628 | 37,073,595 | ||||||
Effect of dilutive securities: Stock
options and warrants outstanding
(a) |
— | — | ||||||
Denominator for diluted earnings per
share—weighted average shares adjusted
for dilutive securities |
39,244,628 | 37,073,595 | ||||||
Loss per common share—basic and diluted |
$ | (.04 | ) | $ | (.09 | ) | ||
| (a) | Securities outstanding that were excluded from the computation, prior to the use of the treasury stock method, because they would have been anti-dilutive are as follows: |
| Three Months Ended | ||||||||
| June 30, | ||||||||
| 2009 | 2008 | |||||||
Stock options, warrants, and convertible debt |
12,423,521 | 4,581,501 | ||||||
Recently issued accounting pronouncements:
The Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS
No. 168”), on June 29, 2009 and, in doing so, authorized the Codification as the sole source
for authoritative U.S. GAAP. SFAS No. 168 will be effective for financial statements issued
for reporting periods that end after September 15, 2009. Once effective, it will supersede
all accounting standards in U.S. GAAP, aside from those issued by the SEC. SFAS No. 168
replaces SFAS No. 162 to establish a new hierarchy of GAAP sources for non-governmental
entities under the FASB Accounting Standards Codification.
Management
has adopted the provisions set forth in SFAS No. 165,
Subsequent Events, and considered subsequent events through
August 7, 2009.
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| 3. | Liquidity and management’s plans: |
The accompanying financial statements have been prepared assuming the Company will continue as
a going concern. For the period from inception (November 22, 2006) through June 30, 2009 the
Company experienced net losses of $31,539,066 (unaudited) and cash used in operations of
$18,839,290 (unaudited). As of June 30, 2009, the Company has not emerged from the
development stage. Assuming it receives no additional funds, the Company estimates that it
has sufficient funds to operate through mid-September 2009. In order to fund on-going
operating cash requirements beyond that point or to further accelerate and execute its
business plan, the Company will need to raise significant additional funds. In view of these
matters, the ability of the Company to continue as a going concern is dependent upon the
Company’s ability to secure additional financing sufficient to support its research and
development activities, approval of developed products for sale by regulatory authorities,
including the FDA, and ultimately to generate revenues sufficient
to cover all costs. Since inception, the Company has financed its activities principally from
the sale of equity securities and convertible debt. While the Company has been successful in
the past in obtaining the necessary capital to support its operations, there is no assurance
that the Company will be able to obtain additional equity capital or other financing under
commercially reasonable terms and conditions, or at all. Furthermore, if the Company issues
equity or debt securities to raise additional funds, existing shareholders may experience
dilution and the new equity or debt securities it issues may have rights, preferences and
privileges senior to those of existing shareholders. In addition, if the Company raises
additional funds through collaboration, licensing or other similar arrangements, it may be
necessary to relinquish valuable rights to products or proprietary technologies, or grant
licenses on terms that are not favorable. If the Company cannot raise funds on acceptable
terms, the Company will not be able to continue as a going concern, develop or enhance
products, obtain the required regulatory clearances or approvals, execute the Company’s
business plan, take advantage of future opportunities, or respond to competitive pressure or
unanticipated customer requirements. Any of these events would adversely affect the Company’s
ability to achieve the Company’s development and commercialization goals, which could have a
material adverse effect on the Company’s business, results of operations and financial
condition. The Company’s financial statements do not include any adjustments relating to the
recoverability or classification of assets or the amounts of liabilities that might result
from the outcome of these uncertainties.
| 4. | Intangible assets and royalty agreement: |
Intangible assets activity is summarized as follows:
| License | License | License | Intellectual | |||||||||||||||||
| (a) | (b) | (c) | Property (d) | Total | ||||||||||||||||
April 1, 2009 |
$ | 781,866 | 1,899,471 | 2,336,400 | 98,600 | $ | 5,116,337 | |||||||||||||
Additions |
— | — | — | — | — | |||||||||||||||
Amortization |
(24,900 | ) | (74,004 | ) | (64,900 | ) | (2,900 | ) | (166,704 | ) | ||||||||||
June 30, 2009 |
756,966 | 1,825,467 | 2,271,500 | 95,700 | 4,949,633 | |||||||||||||||
| (a) | On January 29, 2007, the Company acquired a license from Shriners Hospitals for
Children and University of South Florida Research Foundation, Inc. The acquisition price
of this license was a one-time fee of $100,000 and 1,120,000 shares of common stock valued
at $896,000 (based upon the estimated fair value of the common stock on the transaction
date). Within thirty days after the receipt by the Company of approval by the FDA allowing
the sale of the first licensed product, the Company is required to pay an additional
$200,000 to the licensor. This amount is not recorded as a liability based on its
contingent nature. The Company will also be required to pay a royalty of 3% on all
commercial sales revenues of the licensed products. |
|
| (b) | License from SaluMedica, LLC (SaluMedica) for the use of certain developed technologies
related to spine repair. This license was acquired through the acquisition of SpineMedica
Corp. |
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| (c) | On March 31, 2008, the Company entered into a license agreement for the use of certain
developed technologies related to surgical sheets made of polyvinyl alcohol cryogel. The
acquisition price of the asset was 400,000 shares of common stock valued at $2,596,000
(based upon the closing price of the common stock on the transaction date). The agreement
also provides for the issuance of an additional 600,000 shares upon the Company meeting
certain milestones related to future sales. There are no amounts accrued for this
obligation due to its contingent nature. |
|
| (d) | During the year ended March 31, 2008, the Company issued 200,000 stock options valued
at $116,000 for certain technologies relating to medical device designs for products used
in hand surgery. The agreement also provides for royalty payments upon approval and sale
of certain products. There are no amounts accrued for this obligation due to its
contingent nature. |
Expected future amortization of intangible assets is as follows:
| Year ending June 30, | ||||
2010 |
666,821 | |||
2011 |
666,821 | |||
2012 |
666,821 | |||
2013 |
666,821 | |||
2014 |
666,821 | |||
Thereafter |
1,615,528 | |||
| $ | 4,949,633 | |||
| 5. | Convertible Debt: |
In April 2009, the Company commenced a private placement to sell 3% Convertible Senior Secured
Promissory Notes (the “Notes”) to accredited investors. The Company completed the offering on
June 17, 2009 and received aggregate proceeds of $3,472,000; also representing the face value
of the Notes. The aggregate proceeds include $250,000 of Notes sold to the Chairman of the
Board, President and CEO, and $150,000 of Notes sold to one other director.
In total, the Notes are convertible into up to 6,944,000 shares of common stock at $.50 per
share (a) at any time upon the election of the holder of the note; (b) automatically
immediately prior to the closing of the sale of all or substantially all of the assets or more
than 50% of the equity securities of the Company by way of a merger transaction or otherwise
which would yield a price per share of not less than $.50; or (c) at the election of the
Company, at such time as the closing price per share of the Company’s common stock (as
reported by the OTCBB or on any national securities exchange on which the Company’s shares may
be listed, as the case may be) closes at not less than $1.50 for not less than twenty (20)
consecutive trading days in any period prior to the maturity date. If converted, the Common
Stock will be available to be sold following satisfaction of the applicable conditions set
forth in Rule 144. The Notes mature in 3 years and earn interest at 3% per annum on the
outstanding principal amount payable in cash on the maturity date or convertible into shares
of common stock of the Company as provided for above. The Notes are secured by a first
priority lien on all of the assets, including intellectual property, of MiMedx, Inc. The
Notes shall be junior in payment and lien priority to any bank debt of the Company in an
amount not to exceed $5,000,000 hereafter incurred by the Company.
We have evaluated the Notes for accounting purposes under Statements of Financial Accounting
Standards No. 133 Derivative Financial Instruments and Hedging Activities (“SFAS 133”) and
have determined that the conversion feature meets the conventional-convertible exemption and,
accordingly, bifurcation and fair-value measurement of the conversion feature is not required.
We are required to re-evaluate this conclusion upon each financial statement closing date
while the Notes are outstanding. Notwithstanding, the Notes were issued with a beneficial
conversion feature, having an intrinsic value of approximately $676,500. The intrinsic value
of the beneficial conversion feature was determined in accordance with EITF No. 98-5
Accounting for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios by comparing the contracted conversion price to the fair value of
the common stock on the date of the respective Notes. A beneficial conversion feature only
exists when the embedded conversion feature is “in-the-money” at the commitment date.
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As a result of the beneficial conversion feature, the Notes were recorded net of a discount of
$676,500 related to the beneficial conversion feature, which is recorded in paid-in capital,
and the discount will be amortized through periodic charges to interest expense over the term
of the Notes using the effective interest method.
In conjunction with the offering the Company is obligated to pay a placement fee of $138,040
of which $127,540 was paid prior to June 30, 2009. In addition the Company issued warrants to
the placement agents totaling 315,520 at an exercise price of $.50 per share. The fair value
of the warrants was determined to be $98,574 using the Black-Scholes-Merton valuation
technique. The total direct costs of $236,614 are recorded as deferred financing costs and
are being amortized over the term of the Notes using the effective interest method. Further,
the placement agent warrants are classified in stockholders’ equity because they achieved all
of the requisite conditions for equity classification in accordance with EITF 00-19 Accounting
for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock.
| 6. | Common Stock Placements: |
September 2008 Private Placement
On September 25, 2008, the Company commenced a private placement of up to 13,333,333 units (at
$3.00 per unit) wherein each unit consists of one share of common stock and a warrant to
purchase one share of common stock for $3.50 over a five year term (the “September 2008
Private Placement”). The Company sold 487,500 units for total proceeds of $1,462,500 under
the September 2009 Private Placement.
In connection with the September 2008 Private Placement, the Company entered into a
Registration Rights Agreement related solely to the common stock that requires the Company to
among other things, (i) file a Registration Statement within 90 days from the closing of the
September 2008 Private Placement; and (ii) make required filings under the Securities Act of
1933 and the Securities and Exchange Act of 1934. It also provides for (i) achieving and
maintaining effectiveness; and (ii) listing the shares on any exchange on which the Company’s shares are then listed and maintain the listing; each on a best-efforts basis. The
Registration Rights Agreement does not provide for an alternative or contain a penalty in the
event the Company is unable to fulfill its requirements. In addition, the terms of the sale of
common stock provide that the investor has an option, for a period of six months following the
purchase, to exchange the common shares for other financial instruments (including those that
may require classification outside of stockholders’ equity) that may be issued at a price, or
effective price in the case of convertible instruments, lower than the original purchase
price. As a result of the registration rights obligation to file within a specified period,
which is presumed not to be within the Company’s control, and the contingent redemption
feature (which lapsed as of March 31, 2009), the Company is required, to classify the common
stock outside of stockholders’ equity as common stock with registration rights. Further, given
the nature of the contingent redemption provision and the registration rights requirement, the
standard required the Company to initially record the common stock at its fair value, which
was accomplished with a charge to retained earnings of $1,423,823.
Upon the filing of the registration statement, the common stock with registration rights will
be reclassified to stockholders’ equity (See Note 11, Subsequent Events).
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The warrants included in the unit offering are indexed to 487,500 shares of the Company’s
common stock and were evaluated for purposes of their classification under EITF 00-19
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Company’s Own Stock. These warrants are not subject to the Registration Rights Agreement
referred to above, and they otherwise meet the conditions for equity classification provided
in that standard. Accordingly, these warrants are recorded in stockholders’ equity. The
Company is required to reevaluate that classification on each reporting date.
The total basis in the financing was allocated to the redeemable common stock and warrants
based upon their relative fair values as provided in EITF D-98 and related standards. The fair
value of the redeemable common stock represents the value of the number of shares at the
trading market price. The warrants were valued using the Black-Scholes-Merton technique, and
the Company estimated (i) the expected term as equal to the five-year warrant term, (ii) the
volatility, based upon a reasonable peer group, at 75.33% and (iii) the risk free rate as the
published rate for zero coupon government securities with terms consistent with the expected
term, or 3.09%. The following table illustrates the allocation:
| Fair | Relative Fair | |||||||
| Financial Instrument | Values | Values | ||||||
Common Stock with registration rights |
$ | 2,291,250 | $ | 867,427 | ||||
Warrants |
1,571,846 | 595,073 | ||||||
| $ | 3,863,096 | $ | 1,462,500 | |||||
On February 19, 2009 the investors exercised their right to restructure their investment (the
“new transaction) as a result of the February 2009 Private Placement described below. The
investors were granted an additional 682,500 shares of common stock which increased the
aggregate total of common shares issued in conjunction with the September Private Placement to
1,170,000. The re-set provision in the original transaction was removed and the investors
were granted registration rights, with respect to the new shares, identical to those related
to the September transaction.
Additionally, the new transaction provided for the cancellation of the original 487,500
warrants and the Company issued new warrants to purchase 975,000 shares of common stock for
$.73 per share. The Company deemed this transaction to be additional compensation subject to
SFAS No. 123(R). Under SFAS No. 123(R) the Company recorded the $334,100 excess of the fair
value of the new warrants over that of the cancelled warrants on the date of the transaction
as compensation expense during the year ended March 31, 2009. The warrants met all the
requirements for equity classification as noted above under EITF-00-19 and are recorded in
stockholders’ equity (See Note 11, Subsequent Events).
November 2008 Private Placement
On November 21, 2008, the Company commenced a private placement of up to 30,000,000 shares of
common stock at $1.00 per share (the “November 2008 Private Placement”). The Company sold
210,000 shares for total proceeds of $210,000.
In connection with the November 2008 Private Placement, the Company entered into a
Registration Rights Agreement related to the common stock that requires the Company to among
other things, (i) file a Registration Statement within 90 days from the closing of the
November 2008 Private Placement; and (ii) make required filings under the Securities Act of
1933 and the Securities and Exchange Act of 1934. It also provides for (i) achieving and
maintaining effectiveness of the registration statement; and (ii) listing the shares on any
exchange on which the Company’s shares are then listed and maintain the listing; each on a
best-efforts basis. The Registration Rights Agreement does not provide for an alternative or
contain a penalty in the event the Company is unable to fulfill its requirements. As a result
of the registration rights obligation to file within a specified period, which is presumed not
to be within the Company’s control, the Company is required to classify the common stock
outside of stockholders’ equity as common stock with registration rights. Further, the Company
was required to record the stock at its fair value, which was accomplished with a charge to
retained earnings of $735,000. Upon the filing of the required registration statement, the
common stock with registration rights will be reclassified to stockholders’ equity (See Note
11, Subsequent Events).
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February 2009 Private Placement
In February 2009, the November 2008 Private Placement was extended under identical terms
except the number of common shares offered was reduced to 15,000,000. In February and March
2009 the Company sold 525,000 shares of common stock for total proceeds of $525,000.
The Company entered into a Registration Rights Agreement, with respect to the new shares, with
terms identical to those discussed above in the November 2008 Private Placement. As a result
of the registration rights obligation to file within a specified period, which is presumed not
to be within the Company’s control, the Company is required to classify the common stock
outside of stockholders’ equity as common stock with registration rights. The Company recorded
the stock at its per share selling price, which exceeded the then per share trading price of
the Company’s common stock. Upon the filing of the required registration statement, the
common stock with registration rights will be reclassified to stockholders’ equity (See Note
11, Subsequent Events).
| 7. | Gain on Settlement of Payables |
During the three months ended June 30, 2009 we negotiated a settlement
of certain outstanding payables primarily related to legal expenses
incurred during the fiscal year ended March 31, 2009. As a result of
this negotiation the Company recognized a gain on settlement of
payables of $564,838.
| 8. | Stock Options and Warrants |
Stock Options:
Activity with respect to the stock options is summarized as follows:
| Weighted-average | Intrinsic | |||||||||||
| Shares | Exercise Prices | Value | ||||||||||
Options outstanding at April 1, 2009 |
4,301,250 | $ | 1.60 | $ | 18,000 | |||||||
Granted |
— | — | ||||||||||
Forfeited/Cancelled |
(297,500 | ) | 4.13 | |||||||||
Exercised |
— | — | ||||||||||
Options outstanding at June 30, 2009 |
4,003,750 | 1.42 | $ | 24,300 | ||||||||
Options exercisable at June 30, 2009 |
3,232,082 | 1.40 | $ | 15,525 | ||||||||
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Following is a summary of stock options outstanding and exercisable at June 30, 2009:
| Options Outstanding | Options Exercisable | |||||||||||||||||||
| Weighted- | ||||||||||||||||||||
| Average | Weighted- | Weighted- | ||||||||||||||||||
| Number | Remaining | Average | Number | Average | ||||||||||||||||
| Range of Exercise Prices | Outstanding | Contractual Life | Exercise Price | Exercisable | Exercise Price | |||||||||||||||
$.0001 – 1.00 |
2,195,000 | 6.12 | $ | .85 | 1,778,749 | $ | .88 | |||||||||||||
1.80-2.40 |
1,783,750 | 5.11 | 2.06 | 1,428,333 | 1.98 | |||||||||||||||
5.38 |
25,000 | 8.83 | 5.38 | 25,000 | 5.38 | |||||||||||||||
| 4,003,750 | 5.59 | 1.42 | 3,232,082 | 1.40 | ||||||||||||||||
A summary of the status of the Company’s unvested stock options follows:
| Weighted | ||||||||
| Average | ||||||||
| Grant Date | ||||||||
| Unvested Stock Options | Shares | Fair Value | ||||||
Unvested at April 1, 2009 |
1,092,501 | .55 | ||||||
Granted |
— | — | ||||||
Expired |
(32,500 | ) | 2.80 | |||||
Vested |
(288,333 | ) | .55 | |||||
Unvested at June 30, 2009 |
771,668 | .45 | ||||||
Total unrecognized compensation expense related to granted stock options at June 30, 2009 was
approximately $325,000 and will be charged to expense through February, 2012.
The fair value of options granted by the Company is estimated on the date of grant using the
Black-Scholes 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 average of the sum of the vesting term plus the contract
term. 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.
No options were granted during the three months ended June 30, 2009.
The weighted-average grant date fair value for options granted during the three months ended
June 30, 2009, and 2008, was approximately $0, and $3.45, respectively.
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Warrants:
A summary of our common stock warrant activity for the three months ended June 30, 2009 is as
follows:
| Weighted Average | ||||||||
| Exercise | ||||||||
| Number | Price per Share | |||||||
Warrants outstanding at April 1, 2009 |
1,160,251 | $ | .91 | |||||
Issued to placement agents in connection
with the 3% Convertible Senior Secured
Promissory Notes Offering |
315,520 | .50 | ||||||
Warrants outstanding at June 30, 2009 |
1,475,771 | $ | .82 | |||||
The Company grants common stock warrants, in connection with equity share purchases by
investors as an additional incentive for providing long term equity capital to the Company, to
placement agents in connection with direct equity share and convertible debt purchases by
investors and as additional compensation to consultants and advisors.
Warrants may be exercised in whole or in part by:
| • | notice given by the holder accompanied by payment of an amount equal to the warrant
exercise price multiplied by the number of warrant shares being purchased; or |
||
| • | election by the holder to exchange the warrant (or portion thereof) for that number of shares equal to the product of (a) the number of shares issuable upon exercise of the
warrant (or portion) and (b) a fraction, (x) the numerator of which is the market price
of the shares at the time of exercise minus the warrant exercise price per share at the
time of exercise and (y) the denominator of which is the market price per share at the
time of exercise. |
These warrants are not mandatorily redeemable, do not obligate the Company to repurchase its
equity shares by transferring assets or issue a variable number of shares.
The warrants require that the Company deliver shares as part of a physical settlement or a
net-share settlement, at the option of the holder, and do not provide for a net-cash
settlement.
All of our warrants are classified as equity.
| 9. | Income taxes: |
The Company has incurred net losses since its inception and, therefore, no current income tax
liabilities have been incurred for the periods presented. Due to the Company’s losses,
management has established a valuation allowance equal to the amount of net deferred tax
assets since management cannot determine that realization of these benefits is more likely
than not.
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| 10. | Contractual Commitments: |
The table below sets forth our known contractual obligations as of June 30, 2009:
| Payments due by period | ||||||||||||||||
| Less than | ||||||||||||||||
| Contractual Obligations | Total | 1 year | 2 – 3 years | 4 – 5 years | ||||||||||||
Consulting Agreements |
$ | 367,000 | $ | 305,000 | $ | 62,000 | $ | — | ||||||||
Employment Agreements |
1,096,000 | 721,000 | 375,000 | — | ||||||||||||
Operating Lease Obligations |
741,000 | 281,000 | 437,000 | 23,000 | ||||||||||||
Total |
$ | 2,204,000 | $ | 1,307,000 | $ | 874,000 | $ | 23,000 | ||||||||
| 11. | Subsequent Events |
On June 4, 2009 the Company’s Board of Directors agreed to issue additional shares of its
common stock, to investors who had purchased shares of its common stock in conjunction with
the September 2008 Private Placement, the November 2008 Private Placement and the February
2009 Private Placement in order to bring the cost of the acquired shares to $.50 per share.
The Board approved the issuance of the additional shares to be fair to the investors who had
invested in the Company during the year ended March 31, 2009 when it was most in need of
funding and to enable the Company’s future fundraising efforts. The investors include a
Director of the Company and companies controlled by the Company’s Chief Executive Officer.
The issuance was approved by all of the disinterested members of the Board of Directors. As a
condition to the receipt of the additional shares, the investors are required to waive
registration rights otherwise available with respect to the shares issued in the private
placements. The Company expects to issue 2,490,000 additional shares as a result of this
action and will recognize an expense representing the fair value of
the additional shares issued. Subsequent to June 30, 2009 the Company has received registration rights waivers representing
2,070,000 of the additional shares resulting in an expense of
approximately $1,100,000 which will be recognized in our second
quarter ending September 30, 2009.
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Forward-Looking Statements
This Form 10-Q 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 the Company’s
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,” “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.
All forward-looking statements are subject to the risks and uncertainties inherent in
predicting the future. Our actual results may differ materially from those projected, stated or
implied in these forward-looking statements as a result of many factors, including our critical
accounting policies and risks and uncertainties related, but not limited to, overall industry
environment, delay in the introduction of products, regulatory delays, negative clinical results,
and our financial condition. These and other risks and uncertainties are described in more detail
in our most recent Annual Report on Form 10-K, as well as other reports that we file with the SEC.
Forward-looking statements speak only as of the date they are made and should not be relied
upon as representing our views as of any subsequent date. We undertake no obligation to update or
revise such statements to reflect new circumstances or unanticipated events as they occur, except
as required by applicable laws, and you are urged to review and consider disclosures that we make
in this and other reports that we file with the SEC that discuss factors germane to our business.
Overview
We are a development stage enterprise based in Tampa, Florida. The Company has generated no
operating revenue and has a history of losses since its inception in November 2006.
Our business is the business conducted by our three divisions, MiMedx, SpineMedica and Level
Orthopedics. We currently operate in one business segment, musculoskeletal products, which will
include the design, manufacture and marketing of products for three major market categories:
Orthopedic- Sports Medicine, with soft-tissue reconstructive products aimed at repairing tendons
and ligaments, Orthopedics-Spine, including products such as our Paradís Vaso Shield™, which is
indicated for use as a cover for vessels following anterior vertebral surgery, and
Orthopedic-Extremities, with implants for fracture fixation in the upper extremities (hand, wrist,
elbow and shoulder). SpineMedica completed the development of its “Paradís Vaso Shield™” surgical
sheet product, culminating in a submission to the FDA for 510(k) marketing clearance, which we
received on April 20, 2009. We anticipate introducing this product to the marketplace within the
next 90 to 120 days.
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Results of Operations for the Three Months Ended June 30, 2009 Compared to the Three Months Ended
June 30, 2008
Research and Development Expenses
Our research and development expenses decreased approximately $180,000 or 18.9% to $774,000
during the three months ended June 30, 2009 compared to $954,000 during the three months ended June
30, 2008 reflecting our focus on reducing costs. Our research and development expenses consist of internal
personnel costs, fees paid to external consultants and service providers supporting our development
efforts, and supplies and instruments used in our laboratories. Our internal personnel costs
increased approximately $116,000 or 31.8% to $481,000 for the three months ended June 30, 2009
compared to $365,000 for the three months ended June 30, 2008. The increase in personnel costs is
attributed to hiring additional personnel to further our research and development activities and
manufacturing our products for testing, slightly offset by reassigning one individual to a general
and administrative position. As of June 30, 2009 we employed 24 employees devoted to research and
development, compared to 22 employees devoted to research and development at June 30, 2008. Fees
paid to external consultants and service providers decreased approximately $228,000 or 52.7%, to
$204,000 for the three months ended June 30, 2009 compared to $432,000 for the same period in 2008.
This decrease is attributed to reduced activity with external consultants and service providers as
they have completed certain of their assigned projects. Supplies and instruments used for research
and development decreased approximately $68,000 or 43.3% to $89,000 for the three month period
ending June 30, 2009 as compared to $157,000 for the same period in 2008. This decrease is
attributed to our cost reduction initiatives. We anticipate continued activity in the area of
research and development in the foreseeable future as we progress our technologies into clinical
development to obtain approval from the FDA to market our technologies.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 2009 decreased
approximately $902,000 or 40.3% to $1,334,000 compared to approximately $2,236,000 for the three
months ended June 30, 2008 reflecting our focus on reducing costs. General and administrative
expenses primarily consist of personnel costs, legal and accounting fees, facilities costs and
other administrative costs. During the three months ended June 30, 2009, salaries and benefits
decreased approximately $593,000 or 53.6% to $514,000 compared to $1,107,000 for the three months
ended June 30, 2008. As of June 30, 2009, we employed 13 personnel not related to research and
development functions as compared to 17 as of June 30, 2008. Additionally, our management team has
been reduced from the same period in the prior year due to resignations of previous officers who
have not been replaced. The significant factors contributing to the net decrease in personnel costs
are; (i) reductions in salaries and wages of approximately $173,000, (ii) $152,000 reduction in
stock compensation expense, (iii) $223,000 reduction in bonuses and bonus accruals, and (iv)
$45,000 reduction in recruiting and relocation expenses.
Professional fees decreased approximately $188,000 or 43.5% to $244,000 during the three
months ended June 30, 2009 as compared to $432,000 incurred during the three months ended June 30,
2008. These professional fees are primarily attributed to general and patent counsel, and
accounting fees. The decrease is primarily attributed to costs associated with merger and
acquisition activity that we did not continue to pursue and the hiring of key individuals who have
reduced our need for outside assistance.
Facilities and other administrative costs decreased approximately $140,000 or 32.3% to
$293,000 during the three months ended June 30, 2009 compared to $433,000 incurred in the three
months ended June 30, 2008 reflecting our focus on reducing costs and controlling all
discretionary costs. Our primary offices, laboratories and manufacturing facilities are located
in leased spaces located in Marietta, Georgia and Tampa, Florida.
During the three months ended June 30, 2009, we recorded $116,000 in depreciation expense and
$167,000 in amortization expense as compared to $97,000 and $167,000, respectively, for these
expenses in the same period in 2008. We depreciate our assets on a straight-line basis,
principally over five to seven years and amortize our intangible assets over a period of 10 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 at least annually we test
goodwill for impairment and periodically evaluate other intangibles for impairment based on events
or changes in circumstances as they occur.
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Share Based Compensation
We follow the provisions of Statement of Financial Accounting Standards No. 123R — Share-based
Payments (“FAS123R”) which requires the use of the fair-value based method to determine
compensation for all arrangements under which employees and others receive shares of stock or
equity instruments (options). The total share based compensation recognized during the three
months ended June 30, 2009 and 2008 approximated $78,000 and $230,000, respectively.
Other Expense/Income
We recorded net interest expense of approximately $55,000 during the three months ended June
30, 2009 and approximately $38,000 of net interest income during the three months ended June 30,
2008. All our interest expense recorded in the current period is related to our convertible notes
offering which closed in June 2009. In the three month period ending June 30, 2008 we had no debt
and received interest income on our cash balance as a result of our investment of the net proceeds
of the issuance of our Series A Preferred Stock, which occurred in March 2007.
During the three months ended June 30, 2009 we negotiated a settlement of certain outstanding
payables primarily related to legal expenses incurred during the fiscal year ended March 31, 2009.
As a result of this settlement we wrote off these payables and recognized a gain approximating
$565,000.
Liquidity and Capital Resources
Since inception, we have funded our development, operating costs and capital expenditures
through issuances of stock and convertible debt. We had approximately $1,621,000 of cash and cash
equivalents on hand as of June 30, 2009.
As of June 30, 2009, the Company has not emerged from the development stage. Assuming it
receives no additional funds, the Company estimates that it has sufficient funds to operate through
mid-September 2009. In order to fund on-going operating cash requirements beyond that point or to
further accelerate and execute its business plan, the Company will need to raise significant
additional funds. We are considering the possible issuance of additional shares of our common
stock, in connection with a PIPE transaction, and are working toward such a financing transaction,
but there can be no assurance that funds will be available, or the price we can obtain will be
acceptable. In view of these matters, the ability of the Company to continue as a going concern is
dependent upon the Company’s ability to secure additional financing sufficient to support its
research and development activities, approval of developed products for sale by regulatory
authorities, including the FDA, and ultimately to generate revenues sufficient to cover all costs.
While the Company has been successful in the past in obtaining the necessary capital to support its
operations, there is no assurance that the Company will be able to obtain additional equity capital
or other financing under commercially reasonable terms and conditions, or at all. Furthermore, if
the Company issues equity or debt securities to raise additional funds, existing shareholders may
experience dilution and the new equity or debt securities it issues may have rights, preferences
and privileges senior to those of existing shareholders. In addition, if the Company raises
additional funds through collaboration, licensing or other similar arrangements, it may be
necessary to relinquish valuable rights to products or proprietary technologies, or grant licenses
on terms that are not favorable. If the Company cannot raise funds on acceptable terms, the Company
will not be able to continue as a going concern, develop or enhance products, obtain the required
regulatory clearances or approvals, execute the Company’s business plan, take advantage of future
opportunities, or respond to competitive pressure or unanticipated customer requirements. Any of
these events would adversely affect the Company’s ability to achieve the Company’s development and
commercialization goals, which could have a material adverse effect on the Company’s business,
results of operations and financial condition.
Discussion of cash flows
Net cash used in operations during the three months ended June 30, 2009 decreased
approximately $893,000 to $1,750,000 compared to $2,643,000 used in operating activities for the
three month period ended June 30, 2008 reflecting our efforts in controlling expenses. Our operating cash outflows are used
to fund our research and development activities as well as for general corporate purposes.
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Our convertible notes offering which occurred during the three months ended June 30, 2009
provided us cash from financing activities of $3,344,460, net of placement agent fees.
As discussed above, the ability of the Company to continue as a going concern is dependent
upon the Company’s ability to secure additional financing sufficient to support its research and
development activities, approval of developed products for sale by regulatory authorities,
including the FDA, and ultimately to generate revenues sufficient to cover all costs.
Contractual Obligations
Contractual obligations associated with our ongoing business activities are expected to result
in cash payments in future periods. A table summarizing the amounts and estimated timing of these
future cash payments as of June 30, 2009 is provided in Note 10 of the unaudited condensed
consolidated financial statements included in Item 1.
Critical Accounting Policies
We follow accounting principles generally accepted in the United States in preparing our
financial statements, which require us to make certain estimates and apply judgments that affect
our financial position and results of operations. We continually review our accounting policies and
financial information disclosures. A summary of our significant accounting policies that require
the use of estimates and judgments in preparing the financial statements was provided in our Annual
Report on Form 10-K for the year ended March 31, 2009. During the first three months of fiscal
2010, there were no material changes to the accounting policies and assumptions previously
disclosed.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, “The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No.
168”), on June 29, 2009 and, in doing so, authorized the Codification as the sole source for
authoritative U.S. GAAP. SFAS No. 168 will be effective for financial statements issued for
reporting periods that end after September 15, 2009. Once it’s effective, it will supersede all
accounting standards in U.S. GAAP, aside from those issued by the SEC. SFAS No. 168 replaces SFAS
No. 162 to establish a new hierarchy of GAAP sources for non-governmental entities under the FASB
Accounting Standards Codification.
Management
has adopted the provisions set forth in SFAS No. 165,
Subsequent Events, and considered subsequent events through
August 7, 2009.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
In the normal course of doing business we are not exposed to the risks associated with foreign
currency exchange rates and changes in interest rates. We do not engage in trading market risk
sensitive instruments or purchasing hedging instruments or “other than trading” instruments that
are likely to expose us to significant market risk, whether interest rate, foreign currency
exchange, commodity price or equity price risk.
Our exposure to market risk relates to our cash and investments.
The primary objective of our investment activities is to preserve principal while at the same
time maximizing yields without significantly increasing risk. To achieve this objective, we invest
our excess cash in debt instruments of the U.S. Government and its agencies, bank obligations,
repurchase agreements and high-quality corporate issuers, and, by policy, restrict our exposure to
any single corporate issuer by imposing concentration limits. To minimize the exposure due to adverse shifts in interest rates, we maintain
investments at an average maturity of generally less than three months.
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| Item 4. | Controls and Procedures. |
Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), we have carried out an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures as of the end of the period covered by this report. This
evaluation was carried out under the supervision and with the participation of our management,
including our Chief Executive Officer and Principal Financial Officer. Based upon that evaluation,
our Chief Executive Officer and Principal Financial Officer concluded that our controls and
procedures were effective as of the end of the period covered by this report.
Disclosure controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized, and reported within the time periods specified in
the SEC’s rules and forms. Disclosure controls and procedures include controls and procedures
designed to ensure that information required to be disclosed in our reports filed under the
Exchange Act is accumulated and communicated to management, including our Chief Executive Officer
and Principal Financial Officer, as appropriate, to allow timely decisions regarding disclosures.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the
three months ended June 30, 2009 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
We have confidence in our internal controls and procedures. Nevertheless, our management,
including our Chief Executive Officer and Principal Financial Officer, does not expect that our
disclosure procedures and controls or our internal controls will prevent all errors or intentional
fraud. An internal control system, no matter how well-conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of such internal controls are met.
Further, the design of an internal control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all internal control systems, no evaluation of controls can provide
absolute assurance that all our control issues and instances of fraud, if any, have been detected.
PART II — OTHER INFORMATION
| Item 1A. | Risk Factors |
As of the date of this report, there have been no material changes to the risk factors
included in Item 1A to our Annual Report on Form 10-K for the year ended March 31, 2009.
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| Item 6. | Exhibits. |
| Exhibit | ||||||
| Number | Reference | Description | ||||
| 3.1 | 1 | Articles of Incorporation of MiMedx Group, Inc. |
||||
| 3.2 | 1 | Bylaws of MiMedx Group, Inc. |
||||
| 10.71 | 2 | Form of Subscription Agreement |
||||
| 10.72 | 2 | Form of 3% Convertible Senior Secured Promissory Note |
||||
| 10.73 | 2 | Form of Security and Intercreditor Agreement |
||||
| 31.1 | # | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||||
| 31.2 | # | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||||
| 32.1 | # | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||||
| 32.2 | # | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||||
| 1 | Form 8-K filed April 2, 2008. |
|
| 2 | Exhibits 10.71, 10.72, and 10.73 are incorporated by reference to
Exhibits 10.1, 10.2, and 10.3, respectively, to Registrant’s Form 8-K
filed May 5, 2009. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MIMEDX GROUP, INC. |
||||
| Date: August 7, 2009 | By: | /s/ Michael J. Culumber | ||
| Michael J. Culumber | ||||
| Acting Chief Financial Officer | ||||
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EXHIBIT INDEX
| Exhibit | ||||||
| Number | Reference | Description | ||||
| 31.1 | # | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||||
| 31.2 | # | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
||||
| 32.1 | # | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||||
| 32.2 | # | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
||||
23
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULES 13a-14(A) AND 15d-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
PURSUANT TO RULES 13a-14(A) AND 15d-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Parker H. Petit, certify that:
1. I have reviewed this Form 10-Q for the quarter ended June 30, 2009, of MiMedx Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information;
and
b. Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
| Date: August 7, 2009 | /s/ Parker H. Petit | |||
| Parker H. Petit | ||||
| Chief Executive Officer | ||||
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULES 13a-14(A) AND 15d-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
PURSUANT TO RULES 13a-14(A) AND 15d-14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
I, Michael J. Culumber, certify that:
1. I have reviewed this Form 10-Q for the quarter ended June 30, 2009, of MiMedx Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls
and procedures to be designed under our supervision, to ensure that material information
relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, 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;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of
internal control over financial reporting which are reasonably likely to adversely affect
the registrant’s ability to record, process, summarize and report financial information;
and
b. Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
| Date: August 7, 2009 | /s/ Michael J. Culumber | |||
| Michael J. Culumber | ||||
| Acting Chief Financial Officer | ||||
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of MiMedx Group, Inc. (the “Company”) on Form 10-Q for the
quarter ending June 30, 2009 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, Parker H. Petit, Chief Executive Officer of the Company, pursuant to 18
U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby
certify, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
| Date: August 7, 2009 | /s/ Parker H. Petit | |||
| Parker H. Petit | ||||
| Chief Executive Officer | ||||
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of MiMedx Group, Inc. (the “Company”) on Form 10-Q for the
quarter ending June 30, 2009 as filed with the Securities and Exchange Commission on the date
hereof (the “Report”), I, Michael J. Culumber, Chief Financial Officer of the Company, pursuant to
18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby
certify, that to the best of my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the
financial condition and results of operations of the Company.
| Date: August 7, 2009 | /s/ Michael J. Culumber | |||
| Michael J. Culumber | ||||
| Acting Chief Financial Officer | ||||