Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2009
Commission file number 0-52491
MIMEDX GROUP, INC.
(Exact name of registrant as specified in its charter)
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Florida
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26-2792552 |
(State or other jurisdiction of incorporation)
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(I.R.S. Employer Identification Number) |
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1234 Airport Road, Suite 105 |
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Destin, Florida
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32541 |
(Address of principal executive offices)
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(Zip Code) |
(850) 269-0000
Registrants telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of class)
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No þ
Indicate by check mark whether the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
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 (§229,405 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of the registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yes o No þ
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):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o |
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
The aggregate market value of Common Stock held by non-affiliates on September 30, 2008, based upon
the last sale price of the shares as reported on the OTC Bulletin Board on such date, was
approximately $179,000,000.
There were 41,734,628 shares of Common Stock outstanding as of June 10, 2009.
Documents Incorporated by Reference
Portions of the proxy statement relating to the 2009 annual meeting of shareholders, to be
filed within 120 days after the end of the fiscal year to which this report relates, are
incorporated by reference in Part III of this Report.
PART I
Item 1. Business
This Form 10-K 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 Companys
products by the market, and managements 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.
Our actual results may differ materially from those expressed or implied in these
forward-looking statements. Factors that may cause such a difference, include, but are not limited
to those discussed in Part I, Item 1A, Risk Factors, below. Except as expressly required by the
federal securities laws, we undertake no obligation to update any such factors, or to publicly
announce the results of, or changes to any of the forward-looking statements contained herein to
reflect future events, developments, changed circumstances, or for any other reason.
Background of MiMedx Group, Inc.
MiMedx Group, Inc. was originally formed as a Utah corporation on July 30, 1985, under the
name Leibra, Inc. We later changed domicile, through a merger, to Nevada, and subsequently changed
our name to Alynx, Co. We had several additional name changes in connection with various business
acquisitions, all of which were discontinued or rescinded. We were an inactive shell corporation
for 10 years or more, seeking to acquire an interest in a business with long-term growth potential.
On March 6, 2007, Alynx, Co. filed a registration statement with the SEC on Form 10-SB to register
its common stock under the Securities Exchange Act of 1934.
In a merger consummated on February 8, 2008, Alynx, Co. acquired MiMedx, Inc., a
Florida-based, privately-held, development-stage medical device company (MiMedx). MiMedxs
assets included three development units focused on the development of medical devices based on
their respective patented and proprietary technologies. MiMedxs primary development unit was
focused on the development of products for the repair of soft tissue, such as tendons, ligaments
and cartilage, using a collagen fiber-based platform predicated on certain cross linking
technology, which was licensed from Shriners Hospital for Children and University of South Florida
Research Foundation in January 2007. The assets of MiMedx also included 100% of the membership
interests in SpineMedica, LLC (SpineMedica), a development-stage company focused on
Orthopedic-Spine biomaterial technologies using a poly-vinyl alcohol (PVA) based hydrogel that
its predecessor, SpineMedica Corp., licensed from SaluMedica, LLC for applications related to the
spine in August 2005, and for applications related to the hand (excluding the wrist) and rotator
cuff in August 2007. Additionally, MiMedxs assets included certain intellectual property related
to implants for use in fracture fixation in the upper extremities that had been contributed to, or
developed on behalf of, MiMedx pursuant to a consulting agreement it had entered into in September
2007, with Thomas J. Graham, M.D., a leading hand surgeon.
On March 31, 2008, Alynx, Co. merged into MiMedx Group, Inc, a Florida corporation and
wholly-owned subsidiary that had been formed for purposes of the merger. MiMedx Group, Inc. was
the surviving corporation in the merger. Also on March 31, 2008, MiMedx entered into a license
with SaluMedica, LLC, for the PVA-based hydrogel biomaterial for applications as a surgical sheet
outside of the spine.
As used herein, the terms the Company, we, our and us refer to MiMedx Group, Inc., a
Florida corporation (formerly Alynx, Co.), and its consolidated subsidiaries as a combined entity,
except where it is clear that the terms mean only MiMedx Group, Inc.
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To assist the Company in transitioning from a development stage company to an operating
company, effective February 24, 2009, the Companys Board of Directors appointed Parker H. Pete
Petit to serve as the Companys Chairman of the Board, President and Chief Executive Officer. Mr.
Petit has 28 years experience in the healthcare products and services markets, and a track record
of having successfully nurtured several companies from the development stage to industry
leadership.
On April 20, 2009, we received clearance from the U.S. Food and Drug Administration (the
FDA) to market our Paradís Vaso Shield device, indicated for use as a cover for vessels
following anterior vertebral surgery.
Our Strategy
Our initial business strategy was to identify and acquire innovative new medical products and
technologies, focused initially on the musculoskeletal market, as well as novel medical
instrumentation and surgical techniques. We have organized an advisory panel of leading physicians
to provide insight in our primary fields of interest for new products and technology as well as
guidance and advice with ongoing product development programs. Our plan now is to utilize our
experienced management team to commercialize these medical technologies by advancing them through
the proper regulatory approval processes, developing or arranging for reliable and cost-effective
manufacturing, and either selling or licensing the product lines to others or marketing and selling
the products ourselves. Under the direction of our new leadership, our focus is on the near-term
opportunities for each of our product groups.
Overview
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).
During our most recently completed fiscal year ended March 31, 2009 the Company made progress
resulting in a number of achievements, including:
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MiMedx finalized the design and concluded initial testing on its first NDGA
cross-linked collagen product, the BioBraid designed for tendon and ligament
augmentation and repair. |
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MiMedx successfully completed the build-out of its manufacturing facility,
designed to permit MiMedx to operate in accordance with Good Manufacturing Practices
(GMP) guidelines, which is an integral step for seeking FDA clearance and/or
approval and CE Mark certification. This facility is now able to continuously spool
NDGA cross-linked collagen fibers, which is a significant step toward
commercialization of the fibers. |
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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. |
MiMedx Products
MiMedxs core technology combines an innovative means of wet spinning fibers from soluble
collagen and a unique cross-linking process that utilizes nordihydroguaiaretic acid (NDGA), a
naturally occurring plant compound. Initial laboratory and animal testing shows that collagen
cross-linked with NDGA produces a very strong, biocompatible, and durable fiber that can be woven
or braided into surgical meshes that can be used to treat a number of orthopedic soft-tissue trauma
and disease disorders. Furthermore, tests have shown NDGA biocompatibilizes certain materials that
may otherwise create a foreign body response. NDGA is a biological compound, and therefore
biomaterials cross-linked with NDGA are composed entirely of biological components.
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Embodiments and benefits of products that we believe, based on preliminary studies, could be
developed using this licensed technology are:
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Initial tests of fibers cross-linked with NDGA appear to demonstrate they are
stronger than existing collagenous tissue, including healthy tendons and ligaments. These
fibers form the fundamental unit from which a variety of devices could be configured as
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Linear and braided arrays for tendon and ligament repair |
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Cross-helical arrays forming tubular structures |
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Woven meshes for general surgical use; |
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NDGA-treated biomaterials have been tested and results preliminarily suggest that the
materials are biocompatible and biodegradable; |
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Biocompatibilization (making a material biocompatible that may otherwise not be) of
in-dwelling medical devices by coating with NDGA polymerized collagen; |
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NDGA treatment of xenograft (animal in origin) and allograft (human in origin)
materials could make them more biocompatible and possibly improve functional lifetime; and |
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NDGA-treated collagen-based biorivets have the potential to be used for bone fracture
fixation. |
Our core collagen technology is licensed to us and is embodied in two patents. It covers the
polymerization chemistry of NDGA as applied to biological materials, bioprostheses, or devices
created through its application. It covers chemistries and compounds that have the reactive groups
that are responsible for the effectiveness of NDGA, including a variety of organically synthesized
NDGA analogs and natural compounds. Multiple medical products could potentially be developed and
patented that are all tied to the core patented technology.
We are currently pursuing the manufacture and optimization of braided collagen and we are
focused on advancing our products through the regulatory process to receive FDA clearance to
introduce our products to the market.
We may license rights to specific aspects of our collagen technology to third parties for use
in applications and indications that we choose not to exploit ourselves.
SpineMedica Products
SpineMedica
licenses rights to a PVA polymer, which is a water-based
biomaterial that can be manufactured with a wide range of mechanical properties, including those
that appear to closely mimic the mechanical and physical properties of natural, healthy human
tissue. This hydrogel has been used in other orthopedic and general surgery device applications
and we believe it has demonstrated biocompatibility and durability inside the human body. In the
United States, the FDA has cleared the material for use as a cover for vessels following anterior
vertebral surgery as well as for use next to nerves and in the European Union and Canada, (where
other licensees have developed products), it has been cleared for use next to nerves and to replace
worn-out and lesioned cartilage in the knee.
As mentioned above, on April 20, 2009, SpineMedica received FDA clearance via a 510(k), for
our Paradís Vaso Shield (the Vaso Shield) surgical sheet, which is a vessel guard, made of our
hydrogel material, and we are currently pursuing a CE Mark in Europe. The CE marking, also known
as CE Mark, is a mandatory conformity mark on many products placed on the single market in the
European Economic Area (EEA). The CE marking certifies that a product has met European Union (EU)
consumer safety, health or environmental requirements. Protection of veins and arteries is a
common issue associated with many types of surgeries. Protection of the aorta, vena cava, iliac
vessels and other anatomy is particularly important in anterior spine surgery. The Paradis Vaso
Shield was designed to help physicians protect vessels following anterior vertebral surgery. The
FDA cleared the Paradis Vaso Shield as a vessel guard or cover for anterior vertebral surgery,
however, the safety and effectiveness of this device for reducing the incidence, severity and
extent of post-operative adhesion formation has not been established.
We are currently in the process of identifying other uses and indications for the Vaso Shield
product line, including, but not limited to other areas of the spine as well as healthcare
categories outside the spine, such as general surgery, obstetrics, and gynecology, maxilla-facial,
plastic and cosmetic applications, and others.
There are several other potential applications for the PVA-based hydrogel that we may choose
to exploit in the future, but those applications appear to have longer pathways to
commercialization.
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Level Orthopedics Products
Level Orthopedics, a division of MiMedx owns a number of pending patents that were obtained
through a partnership with Thomas Graham, M.D., a well-recognized hand surgeon and Chairman of
Surgery at the National Hand Center, Union Memorial Hospital in Baltimore, MD. The focus of Level
is the Orthopedic-Extremity category-as directed by scope of our patent applications. The
technology encompasses a broad range of unique plates and other devices for fracture fixation of
the finger, wrist, arm and elbow, as well as implant designs for joint replacement of the
carpometacarpal (CMC or thumb) joint and other extremity-bone and soft tissue repair products.
Market Opportunity
In 2008, the value of the Orthopedic-Biomaterials segment is estimated to be $7.4 billion,
representing over 20% of the total Orthopedic Market. It is estimated that this market segment
will grow at over 13% per year, which is more than double the rate for the overall Orthopedics
Market. The Biomaterials market is expected to grow to a value of $9.4 billion by 2011, mainly due
to advancements in the materials science technology, the incidence of trauma and disease associated
with the baby-boomer population and resource focus and investment (MedMarket Diligence, Report
#M625, Emerging Trends, Technologies and Opportunities in the Markets for Orthopedic Biomaterials,
Worldwide, 2008).
Orthopedics is one of the largest medical sectors utilizing biomaterials. The development of
advanced generation products has prompted many orthopedic companies whose foundations lie in
traditional therapies to focus on biomaterials due to physician and patient demand. We believe that
new biomaterial products will continue to replace existing products.
The main orthopedic biomaterials markets driving growth are connective and soft tissues, such
as tendon and ligament repair (tendons connect muscle to bone and ligaments connect bone to bone),
meniscus repair, bone grafts, resorbable technologies, and cartilage repair.
We believe that the number of procedures that might utilize our products is large. The total
number of procedures of arthroscopy and soft-tissue repair (including shoulders, hands, knees,
ankles, and elbows) in 2003 was estimated at approximately 2.6 million compared to approximately
2.3 million procedures in 2002 according to The Ortho FactBook (2006), published by
Knowledge Enterprises, Inc.
Rotator cuff injuries represent a leading cause of shoulder instability and result in
approximately 300,000 invasive procedures annually, according to MedTech Insight, an industry
marketing research firm.
Also, the NDGA-based biomaterials and related processes under license may prove suitable for
use in general surgical procedures for reinforcement of soft tissue where weakness exists or scar
tissue formation is not desirable.
Though not yet in development, other possible non-orthopedic products are related to the use
of our collagen platform technology as wound care patches indicated for repair of ulcers,
second-degree burns and adhesions, as well as general soft-tissue patches and slings, including
general surgical reconstruction.
The market revenues for biomaterials in wound care are expected to rise at an accelerated
compound annual growth rate of 16.5% from 2006-2013. Combination products (biomaterial dressings
that also possess moist dressing, antimicrobials, or alignates) are further driving growth and
gaining market share from other advanced wound dressing segments, according to the Frost and
Sullivan US Interactive Wound Care Markets Report for 2008.
The market for general soft-tissue patches and slings is not heavily populated because few
products have fully satisfied clinical needs and physicians and patients are demanding implants
that resorb over time. In 2005, the general soft-tissue repair market for the products listed above
was valued at over $600 million in the United States and over $500 million in Europe, with an
anticipated growth rate of 14% through 2010, according to a 2006 market research report by
Millennium Research Group.
Tendon and Ligament Repair Technologies
Advancements in tendon surgery have focused largely on augmenting the standard of care using
synthetic and biomaterials including collagen based devices. Advancements in ligament surgery have
focused largely on new methods of graft fixation using interference screws and anchors, which have
opened new approaches to repair. We believe there is a new wave of development for ligament and
tendon repair, including collagen matrices, allografts and tissue engineered tendons and ligaments
that we believe will
change how physicians treat these procedures. Therapeutic modalities we continue to focus on
are related to the treatment and repair of soft tissues during tendon repair surgery, including
reinforcement of the rotator cuff, patellar, Achilles, biceps, quadriceps or other tendons.
Following clinical development of the above, we plan to focus on treatments for ligaments and
joints, such as medial and lateral collateral ligaments of the knee, elbow and ankle and meniscal
repair. Our products could potentially be used in other orthopedic categories as well.
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PVA-Based Biomaterials
Our PVA based biomaterial has been used in several medical device applications and is cleared
by the FDA for use as a cover for vessels following anterior vertebral surgery (SpineMedica,
April 2009) and for use as a nerve cuff (SaluMedica, LLC). We have licensed the right to use
Salubria®, SaluMedica LLCs formulation, or similar PVA-based biomaterials for certain applications
within the body (see Collaborations and License Agreements). The material, as Salubria®, has been
sold in Europe for certain applications for over seven years. The PVA-based hydrogel can be
processed to have mechanical and physical properties similar to that of human tissue. The biostable
hydrogel composition contains water in similar proportions to human tissue, mimicking human
tissues strength and compliance. For certain applications, the PVA-based hydrogel has been
formulated to be wear-resistant and strong. The base organic polymer is known to be biocompatible
and hydrophilic. These properties make it a candidate for use as an implant, and may prove suitable
for development into medical products addressing various applications. The PVA-based hydrogel and
products formed thereof are MRI compatible (allowing for Magnetic Resonance Imaging of a patient
with no artifacts or special safety precautions necessary). We have licensed the PVA-based hydrogel
for use in the spine, hand (excluding the wrist), rotator cuff and as a surgical sheet.
Spine Anatomy and Disorders
The spine is considered by many orthopedic and neurosurgeons to be the most complex motion
segment of the human body. It provides a balance between structural support and flexibility. It
consists of 26 separate bones called vertebrae that are connected together by connective tissue to
permit a normal range of motion. The spinal cord, the bodys central nerve conduit, is enclosed
within the spinal column. Vertebrae are paired into what are called motion segments that move by
means of three joints: two facet joints and one spinal disc.
The four major categories of spine disorders are degenerative conditions, deformities, trauma
and tumors. The largest market is degenerative conditions of the vertebral discs. These conditions
can result in instability, pressure and impingement on the nerve roots as they exit the spinal
column, causing often severe and debilitating pain in the back, arms and/or legs.
Current Treatments for Spine Disorders
The current prescribed treatment for spine disorders depends on the severity and duration of
the disorder. Initially, physicians typically prescribe non-operative procedures including bed
rest, medication, lifestyle modification, exercise, physical therapy, chiropractic care and steroid
injections. Non-operative treatment options are often effective; however, other patients require
spine surgery. According to Knowledge Enterprises, Inc., the number of spine surgery procedures
grew to over 1.2 million per year in 2005 in the United States. The most common spine surgery
procedures are: discectomy, the removal of all or part of a damaged disc; laminectomy, the removal
of all or part of a lamina, or thin layer of bone, to relieve pinching of the nerve and narrowing
of the spinal canal; and fusion, where two or more adjoining vertebrae are fused together to
provide stability.
Spine Repair and Vessel Protection
MedTech Insight, LLCs March 2007 report on United States Markets for Spinal Motion
Preservation Devices, states that an estimated 50 million people in the United States suffer from
back pain. This report also states that in 2004, more than 1 million spine surgeries were performed
in the United Statesfar more than the number of hip and knee replacements combined. Factors
driving growth of the spine surgery products market include the growing number of people with
degenerative disc disease, which typically is caused by gradual disc damage and often results in
disc herniation and chronic, debilitating lower back pain. It is most common among otherwise
healthy people in their 30s and 40s and affects approximately half of the United States population
age 40 and older.
A disc herniation, or abnormal bulge or rupture, is often caused by degenerative disc disease
but may also result from trauma and/or injury. As we age, the discs nucleus pulposus, or the
center of a spinal disc, loses its water content and the disc begins to degenerate, becoming drier,
less flexible, and prone to damage or tears. By the time a person reaches age 80, the nucleus
pulposus water content decreases to approximately 74%; during the first year of a persons life,
the water content is approximately 90%. The annulus fibrosus, or the outer rim of a spinal disc,
also may be damaged by general wear and tear or by injury and can cause bulging and impingement on
adjacent nerve roots.
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Repair of herniated intervertebral discs or damage as a result of degenerative disc disease
commonly involves surgical intervention such as fusion or total disc replacement (TDR).
Postsurgical adhesions and fibrosis formation are a common consequence of the normal healing
process. The presence of fibrosis may render reoperations or follow- up surgeries risky and have
caused nerve root tethering in some patients.
One approach to protecting vessels following anterior vertebral surgery is to provide a
barrier between the anterior spine and adjacent vessels. Some studies, not performed by us, have
demonstrated that the application of a barrier to protect adjacent vessels may create a dissection
plane for future surgeries in that anatomical area.
The safety and effectiveness of SpineMedicas Vaso Shield device for reducing the incidence,
severity and extent of post-operative adhesion formation has not been established.
Another market for which a barrier or plane of dissection-type product is needed is in
gynecological uses where the removal and surgical cutting of fibroids and cysts, hysterectomies,
and other procedures may lead to post-surgical adhesions. Such adhesions may result in infertility
and pelvic pain. Gynecological surgery provides a compelling market because of the high volume of
procedures worldwide, and because gynecological infertility surgery is frequently followed up by a
laparoscopic second-look procedure at the disease site.
There are many other medical categories for which scar-tissue and fibrosis formation are
complicating issues and the Company is researching opportunities for expansion of this product
platform.
Market for Level Orthopedic Products
The US Orthopedic-Extremity device market, comprising joint replacement (arthroplasty; as it
relates to shoulder, digit, elbow, ankle, and wrist implants and bone cement) and joint fusion
(arthrodesis) devices generated $510.1 million in revenue in 2008 (2009 Global Small Joint
Implants Market Report; Life Science Intelligence, LLC; Huntington Beach, CA; April, 2009).
Sales are expected to grow to $1 billion in 2015. Growth is being driven by the availability of
new replacement products, the aging baby-boomer generation and the rising prevalence of diseases
such as osteoarthritis. Because arthroplasty and arthrodesis are largely alternative methods for
treating the same disorders, technological improvements and patients desire to preserve motion and
avoid fusion, are expected to drive growth and capture market share in the arthroplasty-related
implants market segment away from the arthrodesis segment. From 2006 to 2010, the small joint
device market is expected to grow at a compound annual growth rate (CAGR) of 12.9% (U.S.
Markets for Small-Joint Devices 2006; Millenium Research Group, July 2006).
Physician Advisory Boards
We have empanelled 35 key physician opinion leaders in relevant fields by asking these
physicians to serve on one of our Physician Advisory Boards (PABs). Each has entered into a
consulting agreement with MiMedx or SpineMedica.
Our PABs include physicians who move medicine forward by scientific endeavor, such as
publishing, teaching and developing new solutions to treat injury and diseases. Several members are
chairmen of their respective departments at university medical schools, teaching institutions and
fellowship programs. Our MiMedx PABs have been assembled consisting of two committees for the
initial intended uses: orthopedics sports medicine (the Sports Committee) and upper-extremity and
plastic surgery indications (the Hand Committee).
The Chairman of our MiMedx PAB is James Andrews, M.D., of Birmingham, Alabama, and Gulf
Breeze, Florida. Dr. Andrews is one of the best known and most respected sports-medicine physicians
in the world. He is the physician for several National Football League and Major League Baseball
teams and treats many of the highest-paid professional athletes from numerous teams and from a
multitude of sports and is regularly profiled in newspapers and magazines. Dr. Andrews also runs a
sought-after fellowship program. Dr. Andrews entered into a three-year consulting agreement with
MiMedx on April 10, 2007. Under this agreement, Dr. Andrews receives compensation of $75,000 per
year and received a stock option grant for the purchase of up to 100,000 shares of our Common Stock
at $1.00 per share, one-third of which vested upon grant and one-third of which will vest on each
anniversary date.
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The Hand Committee is chaired by Thomas Graham, M.D., Chairman of the National Hand Center
located in Baltimore, Maryland. Dr. Graham is the team physician for the Georgetown Hoyas, the
Toronto Blue Jays, the Washington Nationals, and the Philadelphia Fliers. The National Hand Center
is the largest practice specializing in hand surgery in the United States. Additionally,
the Center has been designated by The United States Congress as the National Center for the
Treatment of the Hand and Upper Extremity. Dr. Graham entered into a three-year consulting
agreement with MiMedx on September 21, 2007, pursuant to which he also transferred certain
intellectual property to us. Under his agreement, Dr. Graham receives compensation of $125,000 per
year, received a stock option grant to purchase up to 200,000 shares of our Common Stock at an
exercise price of $2.40 per share, one-third of which vested upon grant and one-third of which will
vest on each anniversary date, and received a right to certain royalty payments. Dr. Graham also
received a stock option grant under a previous consulting agreement dated March 8, 2007, for the
purchase of up to 50,000 shares of our Common Stock at an exercise price of $1.00 per share,
one-third of which vested upon grant and one-third of which will vest on each anniversary date.
His previous consulting agreement was terminated upon execution of the new consulting agreement on
September 21, 2007, except that his stock option grant was not terminated.
The Sports Committee is chaired by Lonnie Paulos, M.D. an internationally renowned orthopedic
surgeon and researcher. Dr. Paulos is presently a surgeon at the Andrews Institute for Orthopedics
& Sports Medicine in Gulf Breeze, Florida. He is the former physician to the Cincinnati Bengals,
Cincinnati Reds, US Ski team, and the US Gymnastics Federation.
Under consulting agreements we have entered into with other MiMedx PAB members, we have agreed
to compensate each of them with a stock option grant for the purchase of up to 30,000 shares of our
Common Stock at $1.00 per share, one-third of which vests upon grant and one-third of which will
vest on each of the next two anniversaries of grant. All MiMedx PAB members are also compensated
$200 per conference call. Hand Committee members receive $2,000 in per diem compensation, and
Sports Committee members receive $2,500 in per diem compensation. The maximum amounts allowed to be
paid to PAB members are regulated by the Health Insurance Portability and Accountability Act, which
we believe we are in compliance with.
Similarly, SpineMedica has assembled a group of leading orthopedic spine and neurosurgeons who
are advising on the development of our spinal implants, instruments and surgical procedures. Our
SpineMedica PAB members were compensated with a grant of 25,000 shares of Common Stock, which
vested fully upon grant. In addition, each SpineMedica PAB member is compensated $250 per
conference call, $2,500 per diem for meetings involving out of town travel, and $1,000 per diem for
meetings not involving travel.
The Chairman of the Spine PAB is Randal Betz, M.D. Dr. Betz holds hospital positions as Chief
of Staff at Shriners Hospitals for Children and Medical Director of Shriners Spinal Cord Injury
Unit, in Philadelphia, PA. Additionally, Dr. Betz is on staff at Temple University Childrens
Medical Center and is a Professor of Orthopaedic Surgery at Temple University School of Medicine.
Dr. Betz entered into a three-year consulting agreement with SpineMedica, effective September 1,
2005. This agreement has been renewed and will expire in September, 2009. Under this agreement,
Dr. Betz receives compensation of $50,000 per year and received a stock option grant for the
purchase of up to 100,000 shares of our Common Stock at an exercise price of $1.80 per share, which
option is now fully vested, and received 50,000 shares of founders Common Stock.
SpineMedica also entered into a one-year consulting agreement with another of its PAB members,
Carl Lauryssen, M.D., effective June 18, 2007, which automatically renews on a year-to-year basis
after its expiration. Under this agreement, Dr. Lauryssen receives compensation of $35,000 per year
and received a stock option grant for the purchase of up to 25,000 shares of our Common Stock at an
exercise price of $1.80 per share, which option is now fully vested.
Government Regulation
Our products are medical devices subject to extensive regulation by the FDA, under the Federal
Food, Drug, and Cosmetic Act. FDA regulations govern, among other things, the following activities
that we will perform:
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product design and development; |
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premarket clearance or approval; |
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advertising and promotion; |
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product sales and distribution; and |
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medical device reporting. |
8
Each medical device that we wish to commercially distribute in the U.S. will likely require
either 510(k) clearance or Premarket Approval (PMA) prior
to marketing from the FDA under the Federal Food, Drug, and Cosmetic Act. Devices deemed to pose
relatively less risk are placed in either Class I or II, which requires the manufacturer to submit
a premarket notification requesting permission for commercial distribution; this is known as 510(k)
clearance. Some low risk devices are exempted from this requirement. Devices deemed by the FDA to
pose the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices
deemed not substantially equivalent to a previously 510(k) cleared device or a pre-amendment Class
III device for which PMA applications have not been called, are placed in Class III requiring PMA
approval.
Some
of our products contain biologic materials. We believe that the FDA will regulate our
products as medical devices. However, the FDA may determine that some of our products are combination
products comprised of a biologic and medical device component. For a combination product, the FDA
must determine which center or centers within the FDA will review the products and under what legal
authority the products will be reviewed. While we believe our products would likely be regulated
under the medical device authorities even if they are deemed combination products, there can be
no assurances that the FDA will agree. In addition, the review of combination products is often more
complex and more time consuming than the review of a product under the jurisdiction of only one
center within the FDA.
510(k) Clearance Pathway
To obtain 510(k) clearance for one of our products, we must submit a premarket notification
demonstrating that the proposed device is substantially equivalent in intended use and in safety
and effectiveness to a previously 510(k) cleared device or a device that was in commercial
distribution before May 28, 1976 for which the FDA has not yet called for submission of PMA
applications. The FDAs 510(k) clearance pathway usually takes from four to 12 months, but it can
take significantly longer for submissions that include clinical data.
After a device receives 510(k) clearance, any modification that could significantly affect its
safety or effectiveness, or that would constitute a major change in its intended use, requires a
new 510(k) clearance or could require a PMA approval. The FDA requires each manufacturer to make
this determination in the first instance, but the FDA can review any such decision. If the FDA
disagrees with a manufacturers decision not to seek a new 510(k) clearance, the agency may
retroactively require the manufacturer to seek 510(k) clearance or PMA approval.
The FDA also can require the manufacturer to cease marketing and/or recall the modified device
until 510(k) clearance or PMA approval is obtained.
PMA Approval Pathway
If 510(k) clearance is unavailable for one of our products, the product must follow the PMA
approval pathway, which requires proof of the safety and effectiveness of the device to the FDAs
satisfaction. The PMA approval pathway is much more costly, lengthy and uncertain. It generally
takes from one to three years and can take even longer.
A PMA application must provide extensive preclinical and clinical trial data and also
information about the device and its components regarding, among other things, device design,
manufacturing and labeling. As part of the PMA review, the FDA will typically inspect the
manufacturers facilities for compliance with Quality System Regulation, or QSR, requirements,
which impose elaborate testing, control, documentation and other quality assurance procedures.
Upon submission, the FDA determines if the PMA application is sufficiently complete to permit
a substantive review, and, if so, the application is accepted for filing. The FDA then commences an
in-depth review of the PMA application, which typically takes one to three years, but may last
longer. The review time is often significantly extended as a result of the FDA asking for more
information or clarification of information already provided. The FDA also may respond with a not
approvable determination based on deficiencies in the application and require additional clinical
trials that are often expensive and time consuming and can delay approval for months or even years.
During the review period, an FDA advisory committee may be convened to review the application and
recommend to the FDA whether, or upon what conditions, the device should be approved. Although the
FDA is not bound by the advisory panel decision, the panels recommendation is important to the
FDAs overall decision making process.
9
If the FDAs evaluation of the PMA application is favorable, the FDA typically issues an
approvable letter requiring the applicants agreement to specific conditions (e.g., changes in
labeling) or specific additional information (e.g., submission of final
labeling) in order to secure final approval of the PMA application. Once the approvable letter
is satisfied, the FDA will issue a PMA for the approved indications, which can be more limited than
those originally sought by the manufacturer. The PMA can include post approval conditions that the
FDA believes necessary to ensure the safety and effectiveness of the device including, among other
things, restrictions on labeling, promotion, sale and distribution. Failure to comply with the
conditions of approval can result in material adverse enforcement action, including the loss or
withdrawal of the approval. Even after approval of a PMA, a new PMA or PMA supplement is required
in the event of a modification to the device, its labeling or its manufacturing process.
Clinical Trials
A clinical trial is generally required to support a PMA application and is sometimes required
for a premarket notification. Such trials generally require submission of an application for an
Investigational Device Exemption, or IDE. The IDE application must be supported by appropriate
data, such as animal and laboratory testing results, showing that it is safe to test the device in
humans and that the testing protocol is scientifically sound. The IDE must be approved in advance
by the FDA for a specified number of patients (unless the product is deemed a nonsignificant risk
device eligible for more abbreviated IDE requirements). Clinical trials are subject to extensive
monitoring, record keeping and reporting requirements. Clinical trials may begin once the IDE
application is approved by the FDA and the appropriate institutional review boards, or IRBs, at the
clinical trial sites, and must comply with FDA regulations. To conduct a clinical trial, we also
are required to obtain the patients informed consent that complies with both FDA requirements and
state and federal privacy and human subject protection regulations. We, the FDA or the IRB could
suspend a clinical trial at any time for various reasons, including a belief that the risks to
study subjects outweigh the anticipated benefits. Even if a trial is completed, the results of
clinical testing may not adequately demonstrate the safety and efficacy of the device or may
otherwise not be sufficient to obtain FDA approval to market the product in the U.S.
Postmarket
After a device is placed on the market, numerous regulatory requirements apply. These include:
the Quality System Regulation, which requires manufacturers to follow elaborate design, testing,
control, documentation and other quality assurance procedures during the manufacturing process;
labeling regulations; the FDAs general prohibition against promoting products for unapproved or
off-label uses; and the Medical Device Reporting regulation, which requires that manufacturers
report to the FDA if their device may have caused or contributed to a death or serious injury or
malfunctioned in a way that would likely cause or contribute to a death or serious injury if it
were to recur. Class II devices also can have special controls such as performance standards,
postmarket surveillance, patient registries, and FDA guidelines that do not apply to Class I
devices.
We are subject to inspection and marketing surveillance by the FDA to determine our compliance
with regulatory requirements. If the FDA finds that we have failed to comply, it can institute a
wide variety of enforcement actions, ranging from a public warning letter to more severe sanctions
such as:
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fines, injunctions, and civil penalties; |
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recall or seizure of our products; |
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operating restrictions, partial suspension or total shutdown of production; |
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refusing our requests for 510(k) clearance or PMA approval of new products; |
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withdrawing 510(k) clearance or PMA approvals already granted; and |
The FDA also has the authority to require repair, replacement or refund of the cost of any
medical device that we have manufactured or distributed.
International
International sales of medical devices are subject to foreign government regulations, which
vary substantially from country to country. The time required to obtain approval by a foreign
country may be longer or shorter than that required for FDA approval, and the requirements may
differ. In addition, the export by us of certain of our products that have not yet been cleared or
approved for domestic distribution may be subject to FDA export restrictions. There can be no
assurance that we will receive on a timely basis, if at all, any foreign government or United
States export approvals necessary for the marketing of our products abroad.
10
The primary regulatory environment in Europe is that of the European Union, which consists of
twenty-seven countries, encompassing most of the major countries in Europe. Other countries, such
as Switzerland, have voluntarily adopted laws and regulations that mirror those of the European
Union with respect to medical devices. The European Union has adopted numerous directives and
standards regulating design, manufacture, clinical trials, labeling, and adverse event reporting
for medical devices. Devices that comply with the requirements of a relevant directive will be
entitled to bear a CE mark and can be commercially distributed throughout Europe. The method of
assessing conformity varies depending on the class of the product, but normally involves a
combination of self-assessment by the manufacturer and a third party assessment by a Notified
Body. This third party assessment may consist of an audit of the manufacturers quality system and
specific testing of the manufacturers product. An assessment by a Notified Body in one country
within the European Union is required in order for a manufacturer to commercially distribute the
product throughout the European Union.
Export of Uncleared or Unapproved Devices
Export of devices eligible for the 510(k) clearance process, but not yet cleared to market,
are permitted without FDA approval, provided that certain requirements are met. Unapproved devices
subject to the PMA process can be exported to any country without FDA approval provided that, among
other things, they are not contrary to the laws of the country to which they are intended for
import, they are manufactured in substantial compliance with the QS Regs., and they have been
granted valid marketing authorization by any member country of the European Union, Australia,
Canada, Israel, Japan, New Zealand, Switzerland or South Africa. If these conditions are not met,
FDA approval must be obtained, among other things, by demonstrating to the FDA that the product is
approved for import into the country to which it is to be exported and, in some cases, by providing
safety data for the device. There can be no assurance that the FDA will grant export approval when
necessary or that countries to which the device is to be exported will approve the device for
import. Our failure to obtain necessary FDA export authorization and/or import approval could have
a material adverse effect on our business, financial condition and results of operation.
Regulatory Status of our Products
On April 20, 2009, the Company received FDA clearance to market the Paradís Vaso Shield
device, indicated for use as a cover for vessels following anterior vertebral surgery. The
proprietary, patented, and PVA based membrane may reduce the
risk of associated injury following anterior vertebral surgeries by providing a vessel cover. We
have not received regulatory approval from the FDA regarding the regulatory pathway for any of our
other products (i.e. pre-510(k) or pre-IDE meetings). Both MiMedx and SpineMedica have products
under development that may qualify for 510(k), such as NDGA-polymerized collagen implants and
additional sheet products made from PVA-based hydrogel.
ReimbursementProcedures, Profitability and Costs
Private and third-party payors often follow Medicare reimbursement policies, and these
policies often follow FDA approval by one to two years, or more.
Arthroscopy and soft tissue repair are often profitable procedures for hospitals and surgery
centers. This profit translates to incentive for medical professionals, hospitals and clinics to
continue to leverage the return by prescribing arthroscopic procedures for the repair of soft
tissue treatments over open procedures. Open surgical procedures often result in multi-night stays
and consistently lower reimbursement rates.
According to The Ortho FactBook, many orthopedic procedures are currently not
profitable for hospitals and surgery centers, such as the Total Hip Replacement, for which
hospitals and surgery centers are reimbursed $3,214 less than their costs.
We are currently working with industry reimbursement consultants to aid in the reimbursement
planning for our products. However, at this time there can be no assurance that reimbursement
policies will provide an acceptable return on our products.
11
Competition
MiMedx Products
In the US in 2007, approximately 2,090,000 orthopedic soft tissue repair procedures were
performed. This procedure volume is growing at a rate of 4.5 % supported by the rising number of
sports-related injuries, particularly among the increasingly active aging population. Source: (US
Markets for Orthopedic Soft Tissue Solutions 2008, Millennium Research Group)
There are currently a large number of devices on the market used to reinforce surgically
repaired soft tissues. These include hardware (screws, pins, disposables) as well as allografts,
synthetic products and xenografts (derived from porcine, bovine and equine tissues).
Leading Competitors in the Orthopedic Soft Tissue Solutions Market, as a % of Total, US, 2007.
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Percent of US total Soft Tissue |
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Leading Competitors |
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Market |
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Arthrex |
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33.8 |
% |
DePuy Mitek |
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17.1 |
% |
Smith and Nephew |
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13.2 |
% |
CONMED Linvatec |
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5.8 |
% |
Genzyme Biosurgery |
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3.4 |
% |
Musculoskeletal Transplant Foundation |
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3.2 |
% |
Biomet Sports Medicine |
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3.1 |
% |
AlloSource |
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2.7 |
% |
ArthroCare |
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2.1 |
% |
LifeNet Health |
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1.9 |
% |
Other |
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13.7 |
% |
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Source: |
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(US Markets for Orthopedic Soft Tissue Solutions 2008, Millennium Research
Group) |
There are several technologies currently on the market or anticipated to enter the market for
ligament and tendon repair and/or replacements. Those technologies include collagen matrices,
cell-seeded polymer scaffolds, cryopreserved allografts, fibroblast-seeded ligament analogs, and
small intestinal submucosa.
Competitors who market collagen based devices currently include:
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Developer |
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Product |
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Cross-linking |
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DePuy
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RESTORE
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None |
Wright Medical Technology
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GraftJacket
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None |
Pegasus
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OrthAdapt
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Carbodiimide |
ReGen Biologics
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Collagen matrices
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None |
Biomet/Organogenesis
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CuffPatch
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Carbodiimide |
The above technologies may or may not utilize cross-linking agents, which are FDA-approved and
used in the manufacturing of collagen for soft-tissue repair. The current market leader is the
Restore Orthobiologic Soft Tissue Implant from DePuy. It utilizes small intestinal submucosa of
porcine origin. We believe our collagen fiber-based devices will provide better reinforcement for
tendon and ligament repair because they are made of high strength cross-linked collagen fibers and,
by mimicking the natural fiber orientation in tendons and ligaments, they provide targeted
mechanical properties equivalent to those of tendons and ligaments.
There are a few synthetic products, such as W.L. Gores GoreTex, 3M Kennedy Ligament
Augmentation Device (LAD), and Strykers Meadox Dacron Ligament Augmentation Graft which were
developed for use in Anterior Cruciate Ligament (ACL) reconstruction. These were first and second
generation soft-tissue repair products and generally produce results
that we believe are less satisfactory
than those containing soft-tissue constructs, because the materials tend to stretch and become
deformed over time.
12
SpineMedica Products
Orthopaedic spine and neurosurgeons actively seek patient treatment alternatives and utilize
various technologies during different stages of the patient care continuum. Until the recent
success of non-fusion technologies, spine implant market manufacturers have focused almost
exclusively on refining and improving spinal fusion techniques. Multiple fusion techniques and
products are available to patients today.
However, regardless of the type of surgery, fusion or TDR, physicians commonly deal with
venous injury during anterior spinal revision surgery. Currently, competition for vessel guards for
this specific application is limited. W.L. Gore & Associates, Inc. is the dominant player in this
area.
Level Products
In 2008, the leading suppliers of Orthopedic-Extremities products included Ascension
Orthopedics, Biomet, DJO Surgical (DJO Global), Exactech, DePuy Orthopedics (Johnson & Johnson),
Integra Lifesciences, Small Bone Innovations, Stryker, Synthes, Tornier S.A., Wright Medical,
Zimmer and a bevy of other start ups. In 2006, the combined market shares of Stryker, Synthes,
DePuy, and Zimmer accounted for 65% of the US Orthopedic-Extremity device market with Stryker
dominating the bone cement, DePuy with a broad range of arthroplasty and arthrodesis products,
Synthes with trauma products and Zimmer with strong positions in elbow, shoulder, and bone cement.
Collaborations and License Agreements
License Agreement between MiMedx, Shriners Hospitals for Children, and University of South
Florida Research Foundation
We entered into a license agreement with Shriners Hospitals for Children and University of
South Florida Research Foundation (collectively Licensor) in January 2007 for the worldwide,
exclusive rights for all applications using NDGA-polymerized materials, including for
reconstruction of soft tissue. We paid a one-time license fee of $100,000, plus 1,120,000 shares of
our Common Stock, and the Licensor will receive future additional milestone payments and continuing
royalties based on sales of all licensed products.
License Agreement between SpineMedica and SaluMedica, LLC
In August 2005, we entered into an exclusive, perpetual, worldwide, non-terminable,
royalty-free, transferable license of certain patents and patent application rights held by
SaluMedica, LLC that relate to a PVA-based hydrogel. SpineMedica has the right to manufacture,
market, use and sell medical devices and products incorporating the claimed technology for all
neurological and orthopedic uses related to the human spine, including muscular and skeletal uses.
Some of the licensed patents and patent application rights are owned by SaluMedica, LLC and at
least one of these patent and patent application rights are licensed by SaluMedica, LLC from
Georgia Tech Research Corporation. In connection with this license agreement, SpineMedica also
acquired certain of SaluMedica, LLCs assets, including manufacturing and testing equipment and
office equipment and obtained a license to use the trademarks SaluMedica and Salubria®
biomaterial.
License Agreement between SaluMedica, LLC and Georgia Tech Research Corporation
Some of the patents and patent application rights licensed to SpineMedica by SaluMedica, LLC
are licensed to SaluMedica, LLC from Georgia Tech Research Corporation. SaluMedica, LLC and Georgia
Tech Research Corporation have agreed that in the event the license agreement between them is
terminated for any reason (other than the expiration of the patents), Georgia Tech Research
Corporation will license the technology to SpineMedica for uses related to the human spine on
substantially the same terms as granted to SaluMedica, LLC without further payment.
13
Hand License with SaluMedica, LLC
MiMedx has a Technology License Agreement, as amended by a First Amendment to Technology
License Agreement, as well as a related Trademark License Agreement, all dated August 3, 2007
(collectively, the Hand License) that provides MiMedx with the exclusive, fully-paid, worldwide,
royalty-free, irrevocable and non-terminable (except as provided in the Hand License), and
sublicensable rights to develop, use, manufacture, market, and sell Salubria® biomaterial or
similar PVA-based hydrogels for all neurological and orthopedic uses (including muscular and
skeletal uses) related to the rotator cuff and the hand (excluding the wrist), but excluding the
product SaluBridge (which is made from Salubria® biomaterial and is currently approved for use by
the FDA) (the Licensed Hand IP). SaluMedica, LLCs rights in the Licensed Hand IP derive from and
are subject to one or more licenses from Georgia Tech Research Corporation and, consequently, the
Hand License is subject to those same licenses.
Surgical Sheet License with SaluMedica, LLC
On March 31, 2008, we entered into an exclusive world-wide license with SaluMedica, LLC for a
PVA-based hydrogel biomaterial for applications as a surgical sheet. The license covers both
internal and external applications. In exchange for the exclusive, worldwide, perpetual license to
develop, manufacture, and sell the surgical sheet technology for application anywhere in the
body, we issued SaluMedica, LLC 400,000 shares of restricted Common Stock. In addition, SaluMedica,
LLC is eligible to receive up to an aggregate additional 600,000 shares of restricted Common Stock
if certain sales and revenue milestones are achieved not later than June 30, 2013.
Intellectual Property
Our intellectual property includes licensed patents, owned and licensed patent applications
and patents pending, proprietary manufacturing processes and trade secrets, brands, trademarks and
trade names associated with our technology. Furthermore, we require employees, consultants and
advisors to sign Proprietary Information and Inventions Agreements as well as Nondisclosure
Agreements that assign and protect the intellectual property existing and generated from their work
to us and that we may use and own exclusively.
The pending and provisional patent applications may not issue into patents, as is true with
any provisional or patent application.
MiMedx Intellectual Property
Our MiMedx intellectual property, includes two licensed and issued patents, eight licensed
patent applications and two licensed provisional patent applications, as well as proprietary
manufacturing processes and trade secrets, related to NDGA coatings, devices, scaffolds,
substrates, or other materials and polymer treated collagen material for medical devices, implants,
prosthesis and constructs. The licensed patents protecting the NDGA Polymer Composite, rather than
being limited to specific products, provide broad process compatibility and protection.
SpineMedica Intellectual Property
Our Spinemedica intellectual property includes two licensed and issued patents, eleven owned
patent applications and one co-owned (with Salumedica, LLC) patent application, and six licensed
patent applications related to products and technology intended for, but not limited to, the
Orthopedic-Spine market.
Improvements to Technology
Any improvements to Salubria® developed by SaluMedica, LLC during the life of the licensed
patents are included as part of the license from SaluMedica, LLC. SpineMedica will own all
improvements to Salubria® that we develop. However, SpineMedica will license these improvements to
SaluMedica, LLC for no additional consideration, provided that the use of these improvements must
be unrelated to all neurological and orthopedic uses, including muscular and skeletal uses, related
to the human spine.
Level Intellectual Property
Our Level intellectual property includes eight patent applications pending and two provisional
patent applications related to a broad range of novel concepts intended for indications in the
Orthopedics-Extremity market, which includes the fingers and thumb, wrist, arm, and elbow, as well
as the foot and ankle. Five applications address fracture fixation; two applications address joint
replacement (arthroplasty) of the small joints of the hand and one patent has been filed to address
fusion (arthrodesis) of small joints. Additionally two provisional patents have been filed that
address fracture fixation as well as arthroplasty systems.
14
Trademarks & Trade Names
We also own trademark and trade name registration of the mark Paradís Vaso Shield and license
the SaluMedica and Salubria® trademarks.
Manufacturing
MiMedx
conducts operations, performs research and development activities and manufactures its
proprietary cross-linked collagen products in its office and lab space, in Tampa, Florida. In the
future, we may contract with third parties to perform manufacturing of the products that are
developed and enter into strategic relationships for sales and marketing of products that we
develop.
SpineMedica conducts operations, performs research and development activities and manufactures
its PVA based hydrogel products in its office and lab space in Marietta, Georgia.
We are subject to the FDAs quality system regulations, state regulations, and regulations
promulgated by the European Union. For our implants and instruments, we plan to be FDA registered,
CE marked and ISO certified. Our facilities are
subject to periodic unannounced inspections by regulatory authorities, and may undergo compliance
inspections conducted by the FDA and corresponding state and foreign agencies.
Suppliers
We have identified reliable sources and suppliers of collagen, source materials of NDGA, which
we believe will provide a product in compliance with FDA guidelines. SpineMedica engages in the
manufacture of its own hydrogel products and accessibility to critical raw materials for the
PVA-based biomaterial products is not inhibited by supply or market constraints.
Marketing and Sales
We plan to utilize our experienced management team to commercialize these medical technologies
by advancing them through the proper regulatory approval processes, developing or arranging for
reliable and cost-effective manufacturing, and to either sell or license the product lines to
others or market and sell the products.
Employees
As of June 10, 2009, we have 37 employees, of whom 35 are full-time and 2 are part-time
employees. We consider our relationships with our employees to be satisfactory. None of our
employees is covered by a collective bargaining agreement.
Litigation
We are not involved in any litigation, nor are we aware of any threatened litigation.
Research and Development
Our research and development efforts are focused on developing products for the foot and
ankle, shoulder, elbow, knee, hand, wrist, and thumb using NDGA biomaterials, and development of
other sheet based spine products and other sheet products using a PVA-based hydrogel. Our research
and development staff currently consists of 11 employees. To support development, we have contracts
with outside labs who aid us in our research and development process. Our research and development
group has extensive experience in developing products related to our field of interest, and works
with our Physician Advisory Boards to design products that are intended to improve patient
outcomes, simplify techniques, shorten procedures, reduce hospitalization and rehabilitation times
and, as a result, reduce costs. From our inception in November 2006 to March 31, 2009, we have
spent approximately $6,150,000 on research and development and $7,177,000 on acquired in-process
research and development. See Managements Discussion and Analysis of Financial Condition and
Results of Operations at Item 7 below for information regarding expenditures for research and
development in each of the last two fiscal years.
15
Surgeon Training and Education
We devote significant resources to working with our Physician Advisory Boards. We believe that
the most effective way to introduce and build market demand for our products will be by partnering
with leading surgeons from around the globe in the use of our products. We have access to
state-of-the-art cadaver operating theaters and other training facilities at some of the nations
leading medical institutions. We intend to continue to focus on working with leading surgeons in
the United States. See Business-Physician Advisory Boards.
Environmental Compliance
We will incur significant costs in complying with good manufacturing practices and safe
handling and disposal of materials used in our research and manufacturing activities. We do not
anticipate the costs to comply with Federal, state and local environmental laws and regulations
will be material.
Available Information
Our
website address is www.mimedx.com. We make available on this website under Investor
Relations SEC Filings, free of charge, our proxy statements, annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as
soon as reasonably practicable after we electronically file or furnish such materials to the U.S.
Securities and Exchange Commission (SEC). In addition, we post filings of Forms 3, 4, and 5
filed by our directors, executive officers and ten percent or more shareholders. We also make
available on this website under the heading Investor Relations Corporate Governance our Code of
Business Conduct and Ethics.
16
Item 1A. Risk Factors
Risks Related to Our Business and Industry
We are a high-risk startup venture.
We are in the development stage. We do not currently have any material assets, other than
cash, certain laboratory equipment, and certain intellectual property rights. We have 37 employees,
of whom 35 are full-time and 2 are part-time employees. Our business and prospects must be
evaluated in light of the expenses, delays, uncertainties and complications typically encountered
by development stage businesses, many of which may be beyond our control. These include, but are
not limited to, lack of sufficient capital, unanticipated problems, delays or expenses relating to
product development, governmental approvals, and licensing and marketing activities, competition,
technological changes and uncertain market acceptance. In addition, if we are unable to manage
growth effectively, our operating results could be materially and adversely affected. We must
overcome these and other business risks to be successful. Our efforts may not be successful. We may
never be profitable. Therefore, investors could lose their entire investment.
We are in the early stage of product development.
We have only had one product cleared by the FDA for market. The possible products we have
rights to have had only limited research in the fields of use we presently intend to commercialize.
We will have to go through extensive research and testing to determine the safety and effectiveness
of their proposed use. Our product candidates will require testing and regulatory clearances.
Accordingly, most of the products we are developing are not yet ready for sale and may never be
ready for sale. The successful development of any products is subject to the risks of failure
inherent in the development of products based on innovative technologies. These risks include the
possibilities that any or all of these proposed products or procedures are found to be ineffective
or toxic, or otherwise fail to receive necessary regulatory clearances; that the proposed products
or procedures are uneconomical to market or do not achieve broad market acceptance; that third
parties hold proprietary rights that preclude us from marketing them; or third parties market a
superior or equivalent product. We are unable to predict whether our research and development
activities will result in any commercially viable products or procedures. Furthermore, due to the
extended testing and regulatory review process required before marketing clearances can be
obtained, the time frames for commercialization of any products or procedures are long and
uncertain.
Our financial condition raises substantial doubt about our ability to continue as a going
concern.
As of March 31, 2009, we had approximately $35,000 of cash or cash equivalents on hand. In
April 2009, the Company commenced a private placement to sell 3% Convertible Senior Secured
Promissory Notes (the Notes) to accredited investors. Thru June 10, 2009, the Company has
received aggregate proceeds of $3,322,000 under this arrangement and estimates, assuming it
receives no additional funds, that it has sufficient funds to operate for the next ninety days or
through mid September 2009. If we fail to obtain additional capital in the immediate future, we
will have to terminate our planned business operations, in which case the investors will lose all
or part of their investment. If we default on our Notes, the holders could foreclose on our
property and investors could lose all or part of their investment.
Continuing disruptions in the overall economy and the credit and financial markets may
adversely impact our ability to raise necessary additional capital.
The capital and credit markets continue to be very volatile as a result of adverse conditions
that have caused the failure and near failure of a number of large financial services companies.
If the capital and credit markets continue to experience volatility and the availability of funds
remains limited, it is possible that our ability to access the capital and credit markets may be
limited or nonexistent because of these or other factors, and we require additional capital in the
near future in order to continue operations.
17
We will need additional financing to meet our future capital requirements.
We will require significant additional funds, either through additional equity or debt
financings or collaborative agreements or from other sources to engage in research and development
activities with respect to our potential product candidates and to establish
the personnel necessary to successfully manage us. We believe that our current cash and cash
equivalents will be sufficient to meet our projected operating requirements for at least the next
ninety days or through mid September 2009. However, obtaining the required regulatory approvals and
clearances and the planned expansion of our business will be expensive and time-consuming and we
will in the future seek funds from public and private stock or debt offerings, borrowings under
lines of credit or other sources. Our capital requirements will depend on many factors, including:
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the revenues generated by sales of our products, if any; |
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the costs associated with expanding our sales and marketing efforts, including
efforts to hire independent agents and sales representatives; |
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the expenses we incur in developing and commercializing our products, including the
cost of obtaining and maintaining FDA or other regulatory approvals; and |
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unanticipated general and administrative expenses. |
As a result of these factors, we must raise additional funds now and in the future and such
funds may not be available on favorable terms, or at all. Furthermore, if we issue equity or debt
securities to raise additional funds, our existing shareholders may experience dilution and the new
equity or debt securities we issue may have rights, preferences and privileges senior to those of
our existing shareholders. In addition, if we raise additional funds through collaboration,
licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our
products or proprietary technologies, or grant licenses on terms that are not favorable to us. If
we cannot raise funds on acceptable terms, we may not be able to develop or enhance our products,
obtain the required regulatory clearances or approvals, execute our business plan, take advantage
of future opportunities, or respond to competitive pressures or unanticipated customer
requirements. Any of these events could adversely affect our ability to achieve our development and
commercialization goals, which could have a material and adverse effect on our business, results of
operations and financial condition.
We expect to continue to incur losses through most of 2010.
We have a limited operating history, and we have not generated any revenues from our products.
Further, we have incurred losses since inception. We expect to incur losses for the foreseeable
future. The principal causes of our losses are likely to be primarily attributable to personnel
costs, working capital costs, research and development costs, brand development costs and marketing
and promotion costs. We may never achieve profitability.
We are in a highly competitive industry and face competition from large, well-established
medical device manufacturers as well as new market entrants.
Competition from other medical device companies and from research and academic institutions is
intense, expected to increase, subject to rapid change, and significantly affected by new product
introductions and other market activities of industry participants. In addition to competing with
universities and other research institutions in the development of products, technologies and
processes, we compete with other companies in acquiring rights to products or technologies from
those institutions. There can be no assurance that we can develop products that are more effective
or achieve greater market acceptance than competitive products, or that our competitors will not
succeed in developing or acquiring products and technologies that are more effective than those
being developed by us, that would render our products and technologies less competitive or
obsolete.
With respect to the market for total disc implants, we expect to compete with Synthes Spine
and Medtronic Sofamor Danek, which have significantly greater resources and longer operating
histories than us.
Our competitors enjoy several competitive advantages over us, including some or all of the
following:
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products which have been approved by regulatory authorities for use in the United
States and/or Europe and which are supported by long-term clinical data; |
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significantly greater name recognition; |
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established relations with surgeons, hospitals, other healthcare providers and third
party payors; |
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large and established distribution networks in the United States and/or in
international markets; |
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greater experience in obtaining and maintaining regulatory approvals and/or
clearances from the United States Food and Drug Administration and other regulatory
agencies; |
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more expansive portfolios of intellectual property rights; and |
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greater financial, managerial and other resources for products research and
development, sales and marketing efforts and protecting and enforcing intellectual
property rights. |
18
Our competitors products will compete directly with our products if and when ours can be
marketed. In addition, our competitors as well as new market entrants may develop or acquire new
treatments, products or procedures that will compete directly or indirectly with our products. The
presence of this competition in our market may lead to pricing pressure which would make it more
difficult to sell our products at a price that will make us profitable or prevent us from selling
our products at all. Our failure to compete effectively in the market for spine surgery products
would have a material and adverse effect on our business, results of operations and financial
condition.
Our ability to protect our intellectual property and proprietary technology through patents
and other means is uncertain and may be inadequate, which would have a material and adverse
effect on us.
Our success depends significantly on our ability to protect our proprietary rights to the
technologies used in our products. We rely on patent protection, as well as a combination of
copyright, trade secret and trademark laws and nondisclosure, confidentiality and other contractual
restrictions to protect our proprietary technology, including our licensed technology. However,
these legal means afford only limited protection and may not adequately protect our rights or
permit us to gain or keep any competitive advantage. For example, our pending United States and
foreign patent applications (and those we have or will have licensees to) may not issue as patents
in a form that will be advantageous to us or may issue and be subsequently successfully challenged
by others and invalidated. In addition, our pending patent applications include claims to material
aspects of our products and procedures that are not currently protected by issued patents. Both the
patent application process and the process of managing patent disputes can be time consuming and
expensive. Competitors may be able to design around our patents or develop products which provide
outcomes which are comparable or even superior to ours. Although we have taken steps to protect our
intellectual property and proprietary technology, including entering into confidentiality
agreements and intellectual property assignment agreements with some of our officers, employees,
consultants and advisors, such agreements may not be enforceable or may not provide meaningful
protection for our trade secrets or other proprietary information in the event of unauthorized use
or disclosure or other breaches of the agreements. Furthermore, the laws of foreign countries may
not protect our intellectual property rights to the same extent as do the laws of the United
States.
In the event a competitor infringes upon our licensed or pending patent or other intellectual
property rights, enforcing those rights may be costly, uncertain, difficult and time consuming.
Even if successful, litigation to enforce our intellectual property rights or to defend our patents
against challenge could be expensive and time consuming and could divert our managements
attention. We may not have sufficient resources to enforce our intellectual property rights or to
defend our patents rights against a challenge. The failure to obtain patents and/or protect our
intellectual property rights could have a material and adverse effect on our business, results of
operations, and financial condition.
We may become subject to claims of infringement or misappropriation of the intellectual
property rights of others, which could prohibit us from developing our products, require us
to obtain licenses from third parties or to develop non-infringing alternatives, and subject
us to substantial monetary damages.
Third parties could, in the future, assert infringement or misappropriation claims against us
with respect to products we develop. Whether a product infringes a patent or misappropriates other
intellectual property involves complex legal and factual issues, the determination of which is
often uncertain. Therefore, we cannot be certain that we have not infringed the intellectual
property rights of others. Our potential competitors may assert that some aspect of our product
infringes their patents. Because patent applications may take years to issue, there also may be
applications now pending of which we are unaware that may later result in issued patents that our
products infringe. There also may be existing patents or pending patent applications of which we
are unaware that our products may inadvertently infringe.
Any infringement or misappropriation claim could cause us to incur significant costs, place
significant strain on our financial resources, divert managements attention from our business and
harm our reputation. If the relevant patents in such claim were upheld as valid and enforceable and
we were found to infringe, we could be prohibited from selling any product that is found to
infringe unless we could obtain licenses to use the technology covered by the patent or are able to
design around the patent. We may be unable to obtain such a license on terms acceptable to us, if
at all, and we may not be able to redesign our products to avoid infringement. A court could also
order us to pay compensatory damages for such infringement, plus prejudgment interest and could, in
addition, treble the compensatory damages and award attorney fees. These damages could be
substantial and could harm our reputation, business,
financial condition and operating results. A court also could enter orders that temporarily,
preliminarily or permanently enjoin us and our customers from making, using, or selling products,
and could enter an order mandating that we undertake certain remedial activities. Depending on the
nature of the relief ordered by the court, we could become liable for additional damages to third
parties.
19
Our patents and licenses may be subject to challenge on validity grounds, and our patent
applications may be rejected.
We rely on our patents, patent applications, licenses and other intellectual property rights
to give us a competitive advantage. Whether a patent is valid, or whether a patent application
should be granted, is a complex matter of science and law, and therefore we cannot be certain that,
if challenged, our patents, patent applications and/or other intellectual property rights would be
upheld. If one or more of those patents, patent applications, licenses and other intellectual
property rights are invalidated, rejected or found unenforceable, that could reduce or eliminate
any competitive advantage we might otherwise have had.
The prosecution and enforcement of patents licensed to us by third parties are not within our
control, and without these technologies, our product may not be successful and our business
would be harmed if the patents were infringed or misappropriated without action by such third
parties.
We have obtained licenses from third parties for patents and patent application rights related
to the products we are developing, allowing us to use intellectual property rights owned by or
licensed to these third parties. We do not control the maintenance, prosecution, enforcement or
strategy for many of these patents or patent application rights and as such are dependent in part
on the owners of the intellectual property rights to maintain their viability. Without access to
these technologies or suitable design-around or alternative technology options, our ability to
conduct our business could be impaired significantly.
Our NDGA License Agreement could be terminated.
Under our license agreement with Shriners Hospitals for Children and University of South
Florida Research Foundation dated January 29, 2007, it is possible for the licensor to terminate
the agreement if we breach the license agreement and all of our cure rights are exhausted. If our
license agreement were to be terminated, it would have a negative impact on our business.
We may be subject to damages resulting from claims that we, our employees, or our independent
contractors have wrongfully used or disclosed alleged trade secrets of others.
Some of our employees were previously employed at other medical device companies. We may also
hire additional employees who are currently employed at other medical device companies, including
our competitors. Additionally, consultants or other independent agents with which we may contract
may be or have been in a contractual arrangement with one or more of our competitors. Although no
claims against us are currently pending, we may be subject to claims that these employees or
independent contractors have used or disclosed any partys trade secrets or other proprietary
information. Litigation may be necessary to defend against these claims. Even if we are successful
in defending against these claims, litigation could result in substantial costs and be a
distraction to management. If we fail to defend such claims, in addition to paying monetary
damages, we may lose valuable intellectual property rights or personnel. A loss of key personnel or
their work product could hamper or prevent our ability to market existing or new products, which
could severely harm our business.
SaluMedica, LLC may license the PVA-based hydrogel, the material used to make SpineMedicas
products and other products we are developing, and its trademark to third parties for use in
applications unrelated to the spine, hand, rotator cuff, or surgical sheet applications. This
may expose us to adverse publicity if these uses are not proven safe and effective.
Our licenses with SaluMedica, LLC allows us to use technology and/or know-how related to the
material used to manufacture our applications related to the spine and other products we are
developing in applications related to the hand and rotator cuff and surgical sheet, and allows us
to use the Salubria® biomaterial trademark. SaluMedica, LLC may license the PVA-based hydrogel and
rights related to the Salubria® biomaterial trademark to third parties for applications not related
to the spine, hand, rotator cuff, or surgical sheet. If the use of Salubria® biomaterial or the
PVA-based hydrogel by these third parties results in product liability claims or has other adverse
effects in patients, surgeons and patients may associate these claims and effects with our
products, even if our products are nevertheless proven safe and effective. If Salubria® biomaterial
experiences adverse publicity or is not proven safe and effective in other applications, sales of
our products could be harmed.
20
We depend on key personnel.
We currently have 35 full-time and 2 part-time employees. Our success will depend, in part,
upon our ability to attract and retain additional skilled personnel, which will require substantial
additional funds. There can be no assurance that we will be able to find and attract additional
qualified employees or retain any such personnel. Our inability to hire qualified personnel, the
loss of services of our key personnel, or the loss of services of executive officers or key
employees that that may be hired in the future may have a material and adverse effect on our
business.
In addition, some of our executives and other employees only work for us on a part-time basis,
and there is no assurance that they will be able to devote sufficient time to our operations to
ensure optimal success.
Our operating results may fluctuate significantly as a result of a variety of factors, many
of which are outside of our control.
We are subject to the following factors, among others, that may negatively affect our
operating results:
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the announcement or introduction of new products by our competitors; |
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our ability to upgrade and develop our systems and infrastructure to accommodate
growth; |
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our ability to attract and retain key personnel in a timely and cost effective
manner; |
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technical difficulties; |
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the amount and timing of operating costs and capital expenditures relating to the
expansion of our business, operations and infrastructure; |
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regulation by federal, state or local governments; and |
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general economic conditions as well as economic conditions specific to the healthcare
industry. |
As a result of our limited operating history, limited resources, and the nature of the markets
in which we compete, it is extremely difficult for us to forecast accurately. We have based our
current and future expense levels largely on our investment plans and estimates of future events
although certain of our expense levels are, to a large extent, fixed. Assuming our products reach
the market, we may be unable to adjust spending in a timely manner to compensate for any unexpected
revenue shortfall. Accordingly, any significant shortfall in revenues relative to our planned
expenditures would have an immediate adverse effect on our business, results of operations and
financial condition. Further, as a strategic response to changes in the competitive environment,
the Company may from time to time make certain pricing, service or marketing decisions that could
have a material and adverse effect on our business, results of operations and financial condition.
Due to the foregoing factors, our revenues and operating results are and will remain difficult to
forecast.
The failure of government health administrators and private health insurers to reimburse
patients for costs of services incorporating our potential products would materially and
adversely affect our business.
Our success depends, in part, on the extent to which reimbursement for the costs of products
to users will be available from government health administration authorities, private health
insurers and other organizations. Significant uncertainty usually exists as to the reimbursement
status of newly approved healthcare products. Adequate third party insurance coverage may be
unavailable for us, our sublicensees or corporate partners to establish and maintain price levels
sufficient for realization of an appropriate return on investment. Government and other third-party
payers attempt to contain healthcare costs by limiting both coverage and the level of reimbursement
of new products. Therefore, we cannot be certain that our products or the procedures performed with
them will be covered or adequately reimbursed and thus we may be unable to sell our products
profitably if third-party payors deny coverage or reduce their levels of payment below that which
we project, or if our production costs increase at a greater rate than payment levels. If
government and other third party payers do not provide adequate coverage and reimbursement for uses
of the products incorporating our technology, the markets acceptance of our products could be
adversely affected.
21
We currently have only one product cleared by the FDA for marketing, and may never develop or
launch, any commercialized products.
We currently do not have any commercialized products or any significant source of revenue. We
have invested substantially all of our time and resources in developing various products.
Commercialization of these products, including NDGA and PVA-based hydrogel products will require
additional development, clinical evaluation, regulatory approval, significant marketing efforts and
substantial additional investment before they can provide us with any revenue. Despite our
efforts, our products may not become commercially successful products for a number of reasons,
including:
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we may not be able to obtain regulatory approvals for our products, or the approved
indication may be narrower than we seek; |
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our products may not prove to be safe and effective in clinical trials; |
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physicians may not receive any reimbursement from third party payors, or the level of
reimbursement may be insufficient to support widespread adoption of our products; |
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we may experience delays in our development program; |
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any products that are approved may not be accepted in the marketplace by physicians
or patients; |
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we may not be able to manufacture any of our products in commercial quantities or at
an acceptable cost; and |
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rapid technological change may make our products obsolete. |
We face the risk of product liability claims or recalls and may not be able to obtain or
maintain adequate product liability insurance.
Our business exposes us to the risk of product liability claims that are inherent in the
testing, manufacturing and marketing of medical devices, including those which may arise from the
misuse or malfunction of, or design flaws in, our products. We may be subject to such claims if our
products cause, or appear to have caused, an injury. Claims may be made by patients, healthcare
providers or others selling our products. Defending a lawsuit, regardless of merit, could be
costly, divert management attention and result in adverse publicity, which could result in the
withdrawal of, or reduced acceptance of, our product in the market.
Although we have product liability insurance that we believe is adequate, this insurance is
subject to deductibles and coverage limitations and we may not be able to maintain this insurance.
If we are unable to maintain product liability insurance at an acceptable cost or on acceptable
terms with adequate coverage or otherwise protect ourselves against potential product liability
claims, we could be exposed to significant liabilities, which may harm our business. A product
liability claim or other claim with respect to uninsured liabilities or for amounts in excess of
insured liabilities could result in significant costs and significant harm to our business.
If we are unable to establish sales, marketing and distribution capabilities or enter into
and maintain arrangements with third parties to sell, market and distribute our products, our
business may be harmed.
We do not have a sales organization, and have no experience as a company in the marketing and
distribution of medical devices. To achieve commercial success for our products, we must sell
rights to our product lines at favorable prices, develop a sales and marketing force, or enter into
arrangements with others to market and sell our products. In addition to being expensive,
developing such a sales force is time consuming, and could delay or limit the success of any
product launch. We may not be able to develop this capacity on a timely basis or at all. Qualified
direct sales personnel with experience in the medical device market are in high demand, and there
is no assurance that we will be able to hire or retain an effective direct sales team. Similarly,
qualified independent medical device representatives both within and outside the United States are
in high demand, and we may not be able to build an effective network for the distribution of our
product through such representatives. We have no assurance that we will be able to enter into
contracts with representatives on terms acceptable to us. Furthermore, there is no assurance that
we will be able to build an alternate distribution framework should we attempt to do so.
We may also need to contract with third parties in order to market our products. To the extent
that we enter into arrangements with third parties to perform marketing and distribution services,
our product revenue could be lower and our costs higher than if we directly marketed our products.
Furthermore, to the extent that we enter into co-promotion or other marketing and sales
arrangements with other companies, any revenue received will depend on the skills and efforts of
others, and we do not know whether these efforts will be successful. If we are unable to establish
and maintain adequate sales, marketing and distribution capabilities, independently or with others,
we will not be able to generate product revenue, and may not become profitable.
22
To be commercially successful, we must convince surgeons that our products are safe and
effective alternatives to existing surgical treatments and that our products should be used
in their procedures.
We believe surgeons may not widely adopt our products unless they determine, based on
experience, clinical data and published peer reviewed journal articles, that the use of our
products in a particular procedure is a favorable alternative to conventional methods. Surgeons may
be slow to change their medical treatment practices for the following reasons, among others:
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their lack of experience with prior procedures in the field using our products; |
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lack of evidence supporting additional patient benefits and our products over
conventional methods; |
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perceived liability risks generally associated with the use of new products and
procedures; |
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limited availability of reimbursement from third party payors; and |
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the time that must be dedicated to training. |
In addition, we believe recommendations for and support of our products by influential
surgeons are essential for market acceptance and adoption. If we do not receive this support or if
we are unable to demonstrate favorable long-term clinical data, surgeons and hospitals may not use
our products which would significantly reduce our ability to achieve expected revenues and would
prevent us from becoming profitable.
Any failure in our efforts to train surgeons could significantly reduce the market acceptance
of our products.
There will be a learning process involved for surgeons to become proficient in the use of our
products. It will be critical to the success of our commercialization efforts to train a sufficient
number of surgeons and to provide them with adequate instruction in the use of our products. This
training process may take longer than expected and may therefore affect our ability to generate
sales. Convincing surgeons to dedicate the time and energy necessary for adequate training is
challenging and we may not be successful in these efforts. If surgeons are not properly trained,
they may misuse or ineffectively use our products. This may result in unsatisfactory patient
outcomes, patient injury, negative publicity, or lawsuits against us, any of which could have an
adverse effect on our business.
The FDA and other regulatory agencies actively enforce regulations prohibiting promotion of
products for unapproved or off-label uses. Our promotional materials and training methods
regarding surgeons must comply with FDA and other applicable laws and regulations regarding
promotion for unapproved or off-label uses. If the FDA determines that our training constitutes
promotion for unapproved or off-label uses, they could request that we modify our training or
subject us to regulatory enforcement actions, including the issuance of a warning letter,
injunction, seizure, civil fine and criminal penalty.
We depend on a single or a limited number of third-party suppliers, and the loss of these
third-party suppliers or their inability to supply us with adequate raw materials could
adversely affect our business.
We rely on a limited number of third-party suppliers for the raw materials required for the
production of our implant products. Furthermore, in some cases we rely on a single supplier. Our
dependence on a limited number of third-party suppliers or on a single supplier, and the challenges
we may face in obtaining adequate supplies of raw materials, involve several risks, including
limited control over pricing, availability, quality, and delivery schedules. We cannot be certain
that our current suppliers will continue to provide us with the quantities of these raw materials
that we require or satisfy our anticipated specifications and quality requirements. Any supply
interruption in limited or sole sourced raw materials could materially harm our ability to
manufacture our products until a new source of supply, if any, could be identified and qualified.
Although we believe there are other suppliers of these raw materials, we may be unable to find a
sufficient alternative supply channel in a reasonable time or on commercially reasonable terms. Any
performance failure on the part of our suppliers could delay the development and commercialization
of our implant products, including limiting supplies necessary for clinical trials and regulatory
approvals, or interrupt production of then existing products that are already marketed, which would
have a material adverse effect on our business.
We also use collagen, a protein obtained from animal source tissue, as another significant
material required to produce our products. We may not be able to obtain adequate supplies of animal
source tissue, or to obtain this tissue from animal herds that we believe do not involve pathogen
contamination risks, to meet our future needs or on a cost-effective basis. Any significant supply
interruption could adversely affect the production of our products and delay our product
development or clinical trial programs. These delays would have an adverse effect on our business.
We will need to increase the size of our organization, and we may be unable to manage rapid
growth effectively.
Our failure to manage growth effectively could have a material and adverse effect on out
business, results of operations and financial condition. We anticipate that a period of significant
expansion will be required to address possible other acquisitions of business, products, or rights,
and potential internal growth to handle licensing and research activities. This expansion will
place a significant strain on management, operational and financial resources. To manage the
expected growth of our operations and personnel, we must both improve our existing operational and
financial systems, procedures and controls and implement new systems, procedures and controls. We
must also expand our finance, administrative, and operations staff. Our current personnel, systems,
procedures and controls may not adequately support our future operations. Management may be
unable to hire, train, retain, motivate and manage necessary personnel or to identify, manage and
exploit existing and potential strategic relationships and market opportunities.
23
Risks Related to Regulatory Approval of Our Products and Other Government Regulations
Government regulation of our business is extensive and obtaining and maintaining the
necessary regulatory approvals is uncertain, expensive and time-consuming.
The process of obtaining regulatory clearances or approvals to market a medical device from
the FDA, or similar regulatory authorities outside of the United States is costly and time
consuming, and there can be no assurance that such clearances or approvals will be granted on a
timely basis, or at all. The FDAs 510(k) clearance process generally takes 4 to 12 months from
submission, depending on whether a Special or traditional 510(k) premarket notification has been
submitted, but can take significantly longer. An application for premarket approval, or PMA, must
be submitted to the FDA if the device cannot be cleared through the 510(k) clearance process and is
not exempt from premarket review by the FDA. The PMA process almost always requires one or more
clinical trials and can take one to three years from the date of filing, or longer. In some cases,
the FDA has indicated that it will require clinical data as part of the 510(k) process.
There is no certainty that any of our products will be cleared by the FDA by means of either a
510(k) notice or a PMA application. Even if the FDA permits us to use the 510(k) clearance process,
we cannot assure you that the FDA will not require either supporting data from laboratory tests or
studies that we have not conducted, or substantial supporting clinical data. If we are unable to
use the 510(k) clearance process for any of our products, are required to provide clinical data or
laboratory data that we do not possess to support our 510(k) premarket notifications for any of
these products, or otherwise experience delays in obtaining or fail to obtain regulatory
clearances, the commercialization of such product will be delayed or prevented, which will
adversely affect our ability to generate revenues. It also may result in the loss of potential
competitive advantages that we might otherwise attain by bringing our products to market earlier
than our competitors. Any of these contingencies could adversely affect our business.
Even if regulatory clearance is obtained, a marketed product is subject to continual review,
and later discovery of previously unidentified problems or failure to comply with the applicable
regulatory requirements may result in restrictions on a products marketing or withdrawal of the
product from the market as well as possible civil or criminal sanctions.
We expect to be required to conduct clinical trials for some of our products. We have no
experience conducting clinical trials, they may proceed more slowly than anticipated, and we
cannot be certain that our products will be shown to be safe and effective for human use.
In order to commercialize some of our products, we may be required to submit a PMA, which will
require us to conduct clinical trials. Even if we seek FDA clearance of one our products through
the 510(k) process, the FDA may require us to conduct a clinical trial in support of our 510(k). We
will receive approval from the FDA to commercialize products requiring a clinical trial only if we
can demonstrate to the satisfaction of the FDA, in well-designed and properly conducted clinical
trials, that our product candidates are safe and effective and otherwise meet the appropriate
standards required for approval for specified indications. Clinical trials are complex, expensive,
time consuming, uncertain and subject to substantial and unanticipated delays. Before we may begin
clinical trials that present a significant risk to subjects, we must submit and obtain FDA approval
of an investigational device exemption, or IDE, that describes, among other things, the manufacture
of, and controls for, the device and a complete investigational plan. Clinical trials may involve a
substantial number of patients in a multi-year study. We may encounter problems with our clinical
trials and any of those problems could cause us or the FDA to suspend those trials, or delay the
analysis of the data derived from them.
A number of events or factors, including any of the following, could delay or prevent the
completion of our clinical trials in the future and negatively impact or even foreclose our ability
to obtain FDA approval for, and to introduce a particular product:
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failure to obtain approval from the FDA or any foreign regulatory authority to
commence an investigational study; |
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conditions imposed on us by the FDA or any foreign regulatory authority regarding the
scope or design of our clinical trials; |
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delays in obtaining or in our maintaining required approvals from institutional
review boards or other reviewing entities at clinical sites selected for participation
in our clinical trials; |
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insufficient supply of our products or other materials necessary to conduct our
clinical trials; |
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difficulties in enrolling patients in our clinical trials; |
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negative or inconclusive results from clinical trials, or results that are
inconsistent with earlier results, that necessitate additional clinical studies; |
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serious or unexpected side effects experienced by patients in whom our products are
implanted; or |
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failure by any of our third-party contractors or investigators to comply with
regulatory requirements or meet other contractual obligations in a timely manner. |
Our clinical trials may not begin as planned, may need to be redesigned, and may not be
completed on schedule, if at all. Delays in our clinical trials may result in increased development
costs for our product candidates, which could cause our stock price to decline and limit our
ability to obtain additional financing. In addition, if one or more of our clinical trials are
delayed, competitors may be able to bring products to market before we do, and the commercial
viability of our product candidates could be significantly reduced.
We have not yet conducted any clinical trials with our products, and any adverse results in
our clinical trials could have a material adverse effect on our business.
There may be unexpected findings, particularly those that may only become evident from larger
scale clinical trials, as compared with the smaller scale tests we intend to do initially. The
occurrence of unexpected findings in connection with our clinical trials or any subsequent clinical
trial required by our regulators may prevent or delay obtaining regulatory approval, and may
adversely affect coverage or reimbursement determinations. Our regulators may also determine that
additional clinical trials are necessary, in which case approval may be delayed for several months
or even years while these trials are conducted. The clinical trials may not show that our products
based on NDGA, PVA-based hydrogel, or any other products we develop are safe and effective. If we
are unable to complete the clinical trials necessary to successfully support our regulatory
applications, our ability to commercialize our products, business, financial condition, and results
of operations would be materially adversely affected.
Our products contain biologic materials, and so may face additional obstacles to FDA
clearance or approval.
To complete successful clinical trials, a product must meet the criteria for clinical
approval, or endpoints, established in the clinical study. These endpoints are established in
consultation with the FDA, following any applicable clinical trial design guidelines, to establish
the safety and effectiveness for approval of devices subject to PMA approval, or to demonstrate the
substantial equivalence of devices subject to 510(k) clearance. However, in the case of products
which are novel or which target parts of the human body for which there are no FDA approved
products, the scientific literature may not be as complete and there may not be established
guidelines for the design of studies to demonstrate the effectiveness of such products. As a
result, clinical trials considering such products may take longer than average and obtaining
approval may be more difficult. Additionally, the endpoints established for such a clinical trial
might be inadequate to demonstrate the safety and efficacy or substantial equivalence required for
regulatory clearance because they do not adequately measure the clinical benefit of the product
being tested. In certain cases additional data collected in the clinical trial or further clinical
trials may be required by the FDA. Any delays in regulatory approval will delay commercialization
of our products, which may have an adverse effect on our business.
The FDA regulates human therapeutic products in one of three broad categories: drugs,
biologics or medical devices. The FDAs scrutiny of products containing biologic materials may be
heightened. Although we anticipate that our products will be regulated in the U.S. as medical
devices, we will use biological materials in the production of several devices. FDA may conclude
that some of our products are combinations of devices and biologicals, or may conclude that some of
our products are biologics rather than devices, potentially requiring a different and more time
consuming premarket clearance mechanism. Use of this biological material in our products may result
in heightened scrutiny of such product which may result in further delays in, or obstacles to,
obtaining FDA clearance or approval.
25
Subsequent modifications to our products may require new regulatory approvals, or may require
us to cease marketing or recall the modified products until approvals are obtained.
Once our products receive FDA approval or clearance, subsequent modification to our products
may require new regulatory approvals or clearances, including 510(k) clearances or premarket
approvals, or require us to recall or cease marketing the modified devices until these clearances
or approvals are obtained. The FDA requires device manufacturers to initially make and document a
determination of whether or not a modification requires a new approval, supplement or clearance. A
manufacturer may determine that a modification does not require a new clearance or approval.
However, the FDA can review a manufacturers decision and may
disagree. The FDA may also on its own initiative determine that a new clearance or approval
is required. We may make modifications that we believe do not or will not require additional
clearances or approvals. If the FDA disagrees and requires new clearances or approvals for the
modifications, we may be required to recall and to stop marketing our products as modified, which
could require us to redesign our products and harm our operating results. In these circumstances,
we may be subject to significant enforcement actions.
If a manufacturer determines that a modification to a FDA-cleared device requires premarket
clearance, then the manufacturer must file for a new 510(k) clearance or possibly a premarket
approval application supplement. Where we determine that modifications to our products require a
new 510(k) clearance or premarket approval application, we may not be able to obtain those
additional clearances or approvals for the modifications or additional indications in a timely
manner, or at all. Obtaining clearances and approvals can be a time consuming process, and delays
in obtaining required future clearances or approvals would adversely affect our ability to
introduce new or enhanced products in a timely manner, which in turn would harm our future growth.
If we or our suppliers fail to comply with the FDAs quality system regulations, the
manufacture of our products could be delayed.
We and our suppliers are required to comply with the FDAs quality system regulations, which
cover the methods and documentation of the design, testing, production, control, quality assurance,
labeling, packaging, storage and shipping of our products. The FDA enforces the quality system
regulation through inspections. If we or our supplier fail a quality system regulations inspection
or if any corrective action plan is not sufficient, FDA could take enforcement action, including
any of the following sanctions and the manufacture of our products could be delayed or terminated:
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untitled letters, warning letters, fines, injunctions, consent decrees and civil
penalties; |
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customer notifications for repair, replacement, refunds; |
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recall, detention or seizure of our products; |
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operating restrictions or partial suspension or total shutdown of production; |
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refusing or delaying our requests for 510(k) clearance or premarket approval of
new products or modified products; |
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withdrawing 510(k) clearances on PMA approvals that have already been granted; |
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refusal to grant export approval for our products; or |
Once our products are commercialized, we and our sales personnel, whether employed by us or
by others, must comply with various federal and state anti-kickback, self referral, false
claims and similar laws, any breach of which could cause a material adverse effect on our
business, financial condition and results of operations.
Once our products are commercialized, our relationships with surgeons, hospitals and the
marketers of our products will be subject to scrutiny under various federal anti-kickback,
self-referral, false claims and similar laws, often referred to collectively as healthcare fraud
and abuse laws. Healthcare fraud and abuse laws are complex, and even minor, inadvertent violations
can give rise to claims that the relevant law has been violated. Possible sanctions for violation
of these fraud and abuse laws include monetary fines, civil and criminal penalties, exclusion from
federal and state healthcare programs, including Medicare, Medicaid, Veterans Administration health
programs, workers compensation programs and TRICARE (the healthcare system administered by or on
behalf of the U.S. Department of Defense for uniformed services beneficiaries, including active
duty and their dependents, retirees and their dependents), and forfeiture of amounts collected in
violation of such prohibitions. Certain states in which we intend to market our products have
similar fraud and abuse laws, imposing substantial penalties for violations. Any government
investigation or a finding of a violation of these laws would likely result in a material adverse
effect on the market price of our common stock, as well as our business, financial condition and
results of operations.
26
Anti-kickback laws and regulations prohibit any knowing and willful offer, payment,
solicitation or receipt of any form of remuneration in return for the referral of an individual or
the ordering or recommending of the use of a product or service for which payment may be made by
Medicare, Medicaid or other government-sponsored healthcare programs. We have formed Physician
Advisory Boards consisting of an aggregate of 35 physicians to assist us with scientific research
and development and to help us evaluate technologies. We have also entered into consulting
agreements and product development agreements with surgeons, including some who may make referrals
to us or order our products after our products are introduced to market. In addition, some of these
physicians own our stock, which they purchased in arms length transactions on terms identical to
those offered to non-surgeons, or received stock options from us as consideration for consulting
services performed by them. We also may engage additional
physicians on a consulting basis. While these transactions were structured with the intention
of complying with all applicable laws, including the federal ban on physician self referrals,
commonly known as the Stark Law, state anti-referral laws and other applicable anti-kickback
laws, it is possible that regulatory or enforcement agencies or courts may in the future view these
transactions as prohibited arrangements that must be restructured or for which we would be subject
to other significant civil or criminal penalties, or prohibit us from accepting referrals from
these surgeons. Because our strategy relies on the involvement of physicians who consult with us on
the design of our product candidates, we could be materially impacted if regulatory or enforcement
agencies or courts interpret our financial relationships with our physician advisors who refer or
order our products to be in violation of applicable laws and determine that we would be unable to
achieve compliance with such applicable laws. This could harm our reputation and the reputations of
our physician advisors. In addition, the cost of noncompliance with these laws could be substantial
since we could be subject to monetary fines and civil or criminal penalties, and we could also be
excluded from federally funded healthcare programs, including Medicare and Medicaid, for
non-compliance.
The scope and enforcement of all of these laws is uncertain and subject to rapid change,
especially in light of the lack of applicable precedent and regulations. There can be no assurance
that federal or state regulatory or enforcement authorities will not investigate or challenge our
current or future activities under these laws. Any investigation or challenge could have a material
adverse effect on our business, financial condition and results of operations. Any state or federal
regulatory or enforcement review of us, regardless of the outcome, would be costly and time
consuming. Additionally, we cannot predict the impact of any changes in these laws, whether these
changes are retroactive or will have effect on a going-forward basis only.
We face significant uncertainty in the industry due to government healthcare reform.
Political, economic and regulatory influences are subjecting the healthcare industry to
fundamental changes. Reforms under consideration in the United States include mandated basic
healthcare benefits, controls on healthcare spending, increases in insurance premiums and increased
out-of-pocket requirements for patients, the creation of large group purchasing organizations that
aim to reduce the costs of products that their member hospitals consume, and significant
modifications to the healthcare delivery system. We anticipate that the U.S. Congress and state
legislatures will continue to review and assess alternative healthcare delivery systems and payment
methods. Due to uncertainties regarding the ultimate features of reform initiatives and the timing
of their enactment and implementation, we cannot predict which, if any, of such reform proposals
will be adopted, when they may be adopted or what impact reform initiatives may have on us.
Risks Related to the Securities Markets and Ownership of Our Common Stock
The concentrated common stock ownership by certain of our executive officers and directors
will limit your ability to influence corporate matters.
As of June 9, 2009, our directors and executive officers together beneficially owned
approximately 22% of our outstanding capital stock. This group has significant influence over our
management and affairs and overall matters requiring shareholder approval, including the election
of directors and significant corporate transactions, such as a merger or sale of our company or our
assets, for the foreseeable future. This concentrated control will limit the ability of other
shareholders to influence corporate matters and, as a result, we may take actions that some of its
shareholders do not view as beneficial. In addition, such concentrated control could discourage
others from initiating changes of control. As a result, the market price of our shares could be
adversely affected.
Our Common Stock is and likely will remain subject to the SECs Penny Stock rules, which may
make its shares more difficult to sell.
Because the price of our Common Stock is currently and may remain less than $5.00 per share,
it is expected to be classified as a penny stock. The SEC rules regarding penny stocks may have
the effect of reducing trading activity in our shares, making it more difficult for investors to
sell. Under these rules, broker-dealers who recommend such securities to persons other than
institutional accredited investors must:
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make a special written suitability determination for the purchaser; |
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receive the purchasers written agreement to a transaction prior to sale; |
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provide the purchaser with risk disclosure documents which identify certain risks
associated with investing in penny stocks and which describe the market for these penny
stocks as well as a purchasers legal remedies; |
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obtain a signed and dated acknowledgment from the purchaser demonstrating that the
purchaser has received the required risk disclosure document before a transaction in a
penny stock can be completed; and |
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give bid and offer quotations and broker and salesperson compensation information to
the customer orally or in writing before or with the confirmation. |
27
These rules make it more difficult for broker-dealers to effectuate customer transactions and
trading activity in our securities and may result in a lower trading volume of our common stock and
lower trading prices.
Our Common Stock may be thinly traded.
There is a minimal public market for our Common Stock. We cannot be certain more of a public
market for our Common Stock will develop, or if developed, that it will be sustained. Our Common
Stock will likely be thinly traded compared to larger more widely known companies. We cannot
predict the extent to which an active public market for our Common Stock will develop or be
sustained at any time in the future. If we are unable to develop or sustain a market for our Common
Stock, investors may be unable to sell the Common Stock they own, and may lose the entire value of
their investment.
Securities analysts may elect not to report on our Common Stock or may issue negative reports
that adversely affect the stock price.
At this time, no securities analysts provide research coverage of our Common Stock, and
securities analysts may elect not to provide such coverage in the future. Rules mandated by the
Sarbanes-Oxley Act and a global settlement reached in 2003 among the SEC, other regulatory
agencies, and a number of investment banks led to a number of fundamental changes in how analysts
are reviewed and compensated. In particular, many investment banking firms are required to contract
with independent financial analysts for their stock research. It may remain difficult for a company
such as ours, with a smaller market capitalization, to attract independent financial analysts that
will cover our Common Stock. If securities analysts do not cover our Common Stock, the lack of
research coverage may adversely affect its actual and potential market price. The trading market
for our Common Stock may be affected in part by the research and reports that industry or financial
analysts publish about its business. If one or more analysts elect to cover us and then downgrade
the stock, the stock price would likely decline rapidly. If one or more of these analysts cease
coverage of us, we could lose visibility in the market, which in turn could cause its stock price
to decline. This could have a negative effect on the market price of our shares.
We are now a development-stage company, making it difficult to comply with SEC requirements
and to reliably predict future growth and operating results.
Our new management team is now responsible for its operations and reporting. This requires
outside assistance from legal, accounting, investor relations, or other professionals that could be
more costly than planned. We may also be required to hire additional staff to comply with
additional SEC reporting requirements and compliance under the Sarbanes-Oxley Act of 2002. Our
failure to comply with reporting requirements and other provisions of securities laws could
negatively affect our stock price and adversely affect our results of operations, cash flow and
financial condition.
Operating as a public company also requires us to make forward-looking statements about future
operating results and to provide some guidance to the public markets. Our management has limited
experience as a management team in a public company and as a result projections may not be made
timely or set at expected performance levels and could materially affect the price of our shares.
Any failure to meet published forward-looking statements that adversely affect the stock price
could result in losses to investors, shareholder lawsuits or other litigation, sanctions or
restrictions issued by the SEC or the stock market upon which our stock is traded.
We do not intend to pay cash dividends.
We have never declared or paid cash dividends on our capital stock. We currently expect to use
available funds and any future earnings in the development, operation and expansion of our business
and do not anticipate paying any cash dividends in the foreseeable future. In addition, the terms
of any future debt or credit facility we may obtain may preclude us from paying any dividends. As a
result, capital appreciation, if any, of our Common Stock will be an investors only source of
potential gain from our Common Stock for the foreseeable future.
28
Shareholders may experience significant dilution if future equity offerings are used to fund
operations or acquire complementary businesses.
If future operations or acquisitions are financed through the issuance of equity securities,
shareholders could experience significant dilution. In addition, securities issued in connection
with future financing activities or potential acquisitions may have rights and preferences senior
to the rights and preferences of our Common Stock. The issuance of shares of our Common Stock upon
the exercise of options may result in dilution to our shareholders.
We may become involved in securities class action litigation that could divert managements
attention and harm its business.
The stock market in general and the stocks of medical device companies in particular have
experienced extreme price and volume fluctuations. These fluctuations have often been unrelated or
disproportionate to the operating performance of the companies involved. If these fluctuations
occur in the future, the market price of our shares could fall regardless of its operating
performance. In the past, following periods of volatility in the market price of a particular
companys securities, securities class action litigation has been brought against that company. If
the market price or volume of our shares suffers extreme fluctuations, then we may become involved
in this type of litigation which would be expensive and divert managements attention and resources
from managing the business.
Anti-takeover provisions in our organizational documents may discourage or prevent a change
of control, even if an acquisition would be beneficial to shareholders, which could affect
our share price adversely and prevent attempts by shareholders to replace or remove current
management.
Our Articles of Incorporation and Bylaws contain provisions that could delay or prevent a
change of control of our company or its Board of Directors that shareholders might consider
favorable. Some of these provisions include:
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authorizing the issuance of preferred stock which can be created and issued by the
Board of Directors without prior common stock shareholder approval, with rights senior
to those of the common stock; |
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restricting persons who may call shareholder meetings; and |
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allowing the Board to fill vacancies and to fix the number of directors. |
Item 1B. Unresolved Staff Comments
None
Item 2. Properties
Our corporate headquarters are located in Destin, Florida, where we lease approximately 1,900
square feet of office space. (see Certain Relationships and Related Transactions below). Our
MiMedx operations are conducted in a leased facility of approximately 5,000 square feet in Tampa,
Florida. This facility consists of laboratory (2,000 feet) and manufacturing (3,000 feet) space.
Also in Tampa, Florida we lease approximately 2,000 square feet of office space across the street
from our laboratory and manufacturing operations. We lease approximately 12,200 square feet of
office, laboratory and manufacturing space in Marietta, Georgia which is where we conduct our
SpineMedica operations. Lastly, we lease approximately 225 square feet of office space inside the
Andrews Institute in Gulf Breeze, Florida, which is used for clinical development and teaching. We
believe these facilities are adequate for our current activities. We do not own any real estate.
Item 3. Legal Proceedings
None
Item 4. Submissions of Matters to a Vote of Security Holders
None
29
PART II
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Item 5. |
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Market for Registrants Common Equity, Related Shareholder Matters and Issuer
Purchases of Equity Securities |
Our Common Stock was approved for quotation on the OTC Bulletin Board on July 19, 2007. Only a
limited number of shares were traded after the approval of the quotation in July 2007. The Common
Stock was traded with the trading symbol of AYXC.
Our common stock began trading under the symbol MDXG on April 2, 2008. The following table
sets forth the high and low bid prices on the OTC Bulletin Board for our common stock, based on
information provided from OTC Bulletin Board. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down, or commission and may not necessarily represent actual
transactions.
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High* |
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Low* |
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Year Ended March 31, 2009 |
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First Quarter |
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$ |
6.35 |
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$ |
4.05 |
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Second Quarter |
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5.10 |
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4.50 |
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Third Quarter |
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4.75 |
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2.60 |
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Fourth Quarter |
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4.40 |
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0.40 |
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Year Ended March 31, 2008 |
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First Quarter |
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N/A |
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N/A |
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Second Quarter |
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$ |
0.96 |
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$ |
0.96 |
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Third Quarter |
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0.96 |
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0.96 |
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Fourth Quarter |
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6.52 |
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0.96 |
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* |
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Adjusted to reflect the reverse stock split effective on April 2, 2008. |
Based upon information supplied from our transfer agent, there were approximately 735
shareholders of record of our Common Stock as of June 9, 2009.
We have not paid any cash dividends on our common stock since our formation and do not intend
to do so in the future.
The Company did not repurchase any of its outstanding securities during the years ended March
31, 2009 and 2008.
Item 6. Selected Financial Data
Not applicable.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of financial condition and results of
operations, together with the financial statements and the related notes appearing at the end of
this report. Some of the information contained in this discussion and analysis or set forth
elsewhere in this report, including information with respect to our plans and related financing,
includes forward-looking statements that involve risks and uncertainties. You should read the Risk
Factors section of this report for a discussion of important factors that could cause actual
results to differ materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.
The discussion and analysis of our financial conditions and results of operations are based on
the Companys financial statements, which have been prepared in accordance with U.S. generally
accepted accounting principles. The preparation of these financial statements requires making
estimates and assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial statements, as well as
the reported revenues, if any, and expenses during the reporting periods. On an ongoing basis, we
evaluate such estimates and judgments, including those described in greater detail below. We base
our estimates on historical experience and on various other factors that we believe are reasonable
under the circumstances, the results of which form the basis for making judgments about the
carrying value of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or conditions.
30
Overview
The Company is a development-stage company that has two operating subsidiaries: MiMedx and
SpineMedica. MiMedx was formed to acquire a license for the use, adaptation and development of
certain core technologies developed at the Shriners Hospitals for Children and the University of
South Florida. This technology focuses on biomaterials for soft tissue repair, such as tendons,
ligaments and cartilage, as well as other biomaterial-based products for numerous other medical
applications. In September 2007, MiMedx entered into a consulting agreement with Thomas J. Graham,
M.D., a leading hand surgeon, pursuant to which Dr. Graham contributed to, or developed on behalf
of, MiMedx certain intellectual property related to implants for use in upper extremities. The
business of developing that intellectual property is known as MiMedxs Level Orthopedics division.
In July of 2007, SpineMedica was formed to acquire SpineMedica Corp., which had licensed from
SaluMedica, LLC the rights to use a PVA-based hydrogel in spinal applications. MiMedx also has a
license from SaluMedica, LLC to use a PVA-based hydrogel in the surgical repair of the rotator cuff
and hand (excluding the wrist) and to make surgical sheets. In April 2009, SpineMedica received
clearance from the FDA to market our Paradís Vaso Shield device, indicated for use as a cover for
vessels following anterior vertebral surgery. The proprietary, patented, and biocompatible
polyvinyl alcohol polymer (PVA) membrane may reduce the risk of associated injury following
anterior vertebral surgeries by providing a vessel cover.
The Company has generated no operating revenue and has a history of losses since its inception
in November 2006. The Company incurred a net loss of approximately $11,919,000 in the fiscal year
ended March 31, 2009, or approximately $(0.32) per share. Since its inception in November 2006, the
Company has incurred a net loss of approximately $29,942,000.
From inception through March 31, 2009, we funded our start-up costs, operating costs and
capital expenditures through issuances of stock. We are currently attempting to raise additional
funds through our Notes offering and private placements of our common stock to accredited investors
but there can be no assurances that funds will be available, or that the price or terms we can
obtain will be acceptable. Management has taken steps to address the current liquidity crisis,
including the deferral of payments related to our accrued legal and professional fees, the deferral
of salaries for certain executives of MiMedx Group, Inc., the deferral of directors fees, and
adjusting our critical spend schedule. We currently have no material commitments for capital
expenditures.
Over the next twelve months, assuming we are able to address our need for capital, our plan of
operation is to further develop and market our core product platforms: NDGA-polymerized collagen
for the treatment and repair of soft tissues related to tendons and ligaments and PVA-based
implants for the spine and other applications. This effort will include initiating management of
our quality system, executing our process for obtaining FDA clearance and other required regulatory
approvals, engineering, prototype development, and pre-clinical testing. With respect to
NDGA-polymerized collagen, over the course of the next year, the Company intends to perform
required biocompatibility and other testing that may be used in future FDA applications as well as
continue to conduct testing after further refinement of our tendon and ligament prototypes through
collaboration with our Physician Advisory Board. We will continue to explore the best avenues for
exploiting our Level Orthopedics assets. With respect to PVA-based implants for spine and other
applications, over the course of the next year we will conduct biocompatibility, and other testing
on device prototypes focused on treatments for spine disorders and other applications. Furthermore,
we may develop PVA-based implants for use in the hand and as a general patch, used in the surgical
repair of the spine.
We expect to invest in infrastructure development with respect to manufacturing scale-up and
quality system implementation. This will enable us to increase our capacity to manufacture our
NDGA-polymerized fibers in quantities and lengths sufficient for large-scale weaving and braiding
and other manufacturing systems. We plan to implement infrastructure in multiple stages as
development progresses. SpineMedica initially plans to manufacture the Paradís Vaso Shield product
at their Marietta, GA location and believes it has sufficient capacity to meet projected needs.
We also intend to analyze acquisition and partnership opportunities as they arise. Our focus
will likely be in the orthopedics, spine, general surgery, trauma and regenerative segments.
To implement our business plan and generate revenue from other sources, we must develop
products and obtain regulatory clearances or approvals for those products in many jurisdictions.
Other than the clearance for the Paradís Vaso Shield, we may not receive any such regulatory
clearances or approvals. Due to this and a variety of other factors, many of which are discussed in
this report under Risk Factors, we may be unable to generate significant revenues or margins,
control operating expenses, or achieve or sustain profitability in future years.
31
Critical Accounting Policies
We believe that of our significant accounting policies, which are described in Note 2 to our
financial statements appearing elsewhere in this report, the following accounting policies involve
a greater degree of judgment and complexity. Accordingly, these are the policies we believe are the
most critical to aid in fully understanding and evaluating our consolidated financial condition and
results of operations.
Goodwill and intangible assets:
Intangible assets include licensing rights and are accounted for based on Financial Accounting
Standard Statement No. 142 Goodwill and Other Intangible Assets (FAS 142). In that regard,
goodwill is not amortized but is tested at least annually for impairment, or more frequently if
events or changes in circumstances indicate that the asset might be impaired. Intangible assets
with finite useful lives are amortized using the straight-line method over a period of ten years,
the remaining term of the patents underlying the licensing rights (considered to be the remaining
useful life of the license).
Impairment of long-lived assets:
We evaluate the recoverability of our long-lived assets (finite lived intangible asset and
property and equipment) whenever adverse events or changes in business climate indicate that the
expected undiscounted future cash flows from the related assets may be less than previously
anticipated. If the net book value of the related assets exceeds the expected undiscounted future
cash flows of the assets, the carrying amount will be reduced to the present value of their
expected future cash flows and an impairment loss would be recognized.
Acquired in-process research and development:
In connection with the acquisition of SpineMedica, during the year ended March 31, 2008, we
determined that approximately $7.2 million of the fair value of the acquisition price qualifies as
in-process research and development, and as such, this amount was expensed as research and
development expense on the acquisition date.
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 and warrants).
Research and development costs:
Research and development costs consist of direct and indirect costs associated with the
development of our technologies. These costs are expensed as incurred.
Fair value determination of privately-held securities:
The fair values of the common stock as well as the common stock underlying options and
warrants granted as part of asset purchase prices or as compensation prior to the February 8, 2008
Alynx merger were estimated by management with input from an independent valuation specialist.
Determining the fair value of stock requires making complex and subjective judgments. We used
the market approach to estimate the value of the enterprise at each date on which securities were
issued or granted. The enterprise value was then allocated to preferred and common shares taking
into account the enterprise value available to all shareholders and allocating that value among the
various classes of stock based on the rights, privileges and preferences of the respective classes.
There is inherent uncertainty in these estimates.
32
Recent Accounting Pronouncements
In April 2008, FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible
Assets (FSP 142-3) was issued. This standard amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement 142, Goodwill and Other Intangible Assets. FSP 142-3 is
effective for financial statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The Company does not believe adoption will have a
material impact on its financial statements.
In June 2008, the Emerging Issues Task Force issued EITF Consensus No. 07-05 Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock for periods
beginning after December 15, 2008. The objective of this Consensus is to provide guidance for
determining whether an equity-linked financial instrument (or embedded feature) is indexed to an
entitys own stock and it applies to any freestanding financial instrument or embedded feature that
has all the characteristics of a derivative in Statement of Financial Accounting Standards No. 133
(SFAS 133) Accounting for Derivative Financial Instruments and Hedging Activities, for purposes
of determining whether the financial instrument or embedded feature qualifies for the first part of
the scope exception in paragraph 11(a) of SFAS 133. This Issue also applies to any freestanding
financial instrument that is potentially settled in an entitys own stock, regardless of whether
the instrument has all the characteristics of a derivative in SFAS 133, for purposes of determining
whether the instrument is within the scope of Issue 00-19 Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Companys Own Stock. The Consensus requires
the application of a two-step approach that requires us to (1) evaluate the instruments contingent
exercise provisions and (2) evaluate the instruments settlement provisions. Based on applying
this approach to the Companys outstanding financial instruments, the Company has determined that
adoption will have no impact on its financial statements.
Results of Operations for the year ended March 31, 2009 compared to the year ended March 31, 2008
Research and Development Expenses
Research and development expenses increased approximately $2,010,000, nearly doubling from the
prior year expense, to approximately $4,023,000 for the year ended March 31, 2009, as compared to
approximately $2,013,000 for the year ended March 31, 2008, reflecting our focus on further
developing our PVA hydrogel and cross-linked collagen products. These costs consist primarily of
internal personnel costs, fees paid to external consultants, and supplies and instruments used in
our laboratories. As of March 31, 2009, we employed 25 employees devoted to research and
development, validation of our manufacturing processes, and the manufacturing of prototype devices.
As of March 31, 2008, we had 17 employees devoted to these efforts. We also increased our use of
external consultants and their services to assist us with testing and validation of our products.
We anticipate our spending in the area of research and development in the foreseeable future to
continue at comparable levels as we progress our technologies thru additional testing and
validation in order to obtain clearance or approval from the FDA to market our technologies.
Acquired In-Process Research and Development
For the year ended March 31, 2009, we did not acquire any in-process research and development
costs, compared to the $7,177,000 recognized in conjunction with our acquisition of SpineMedica
during the year ended March 31, 2008. As part of our acquisition of SpineMedica, a total of
approximately $7,177,000 was allocated from the purchase price to acquired in-process research and
development. The allocation of the purchase costs relates to two products that were still under
development and had not yet yielded a completed finished product. This amount was recognized as an
expense in the year ended March 31, 2008.
General and Administrative Expenses
General and administrative expenses for the year ended March 31, 2009, decreased approximately
$703,000 or 8.1%, to approximately $7,956,000 compared to approximately $8,659,000 for the year
ended March 31, 2008. General and administrative expenses consist of personnel costs, professional
fees consisting of legal and accounting fees, travel and entertainment, occupancy costs and
administrative expenses. During the year ended March 31, 2009, personnel costs increased
approximately $775,000 or 25%, to $3,923,000 compared to approximately $3,148,000 for the year
ended March 31, 2008. Personnel costs include stock based compensation which increased
approximately $611,000 from the year ended March 31, 2008, accounting for most of the increase in
personnel costs. As of March 31, 2009, we employed 9 personnel not related to research and
development functions as compared to 15 as of March 31, 2008. Professional fees during the year
ended March 31, 2009, decreased approximately $2,295,000 or 59%, to $1,600,000 during the year
ended March 31, 2009, as compared to approximately $3,895,000 of fees incurred during the year
ended
March 31, 2008. The decrease in professional fees is primarily attributed to approximately
$1,870,000 of professional fees related to merger costs, of which $1,126,000 represented the fair
value of common shares issued to certain persons as compensation for finders services related to
the transaction. Occupancy costs consist primarily of leasing office and lab space in Tampa,
Florida, and in Marietta, Georgia. The first lease we entered into was in April 2007. Prior to
that, during the fiscal year ended March 31, 2007, we operated out of the offices of our founder,
for no consideration.
33
During the year ended March 31, 2009, we recorded approximately $425,000 in depreciation
expense and approximately $667,000 in amortization expense as compared to amounts approximating
$191,000 and $309,000, respectively, for the year ended March 31, 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 ten 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.
Net Interest Income
We recorded net interest income of approximately $60,000 during the year ended March 31, 2009,
compared to approximately $520,000 during the year ended March 31, 2008.
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 and warrants). The total share based compensation recognized during the year ended
March 31, 2009, approximated $1,419,000 as compared to $808,000 recognized during the year ended
March 31, 2008.
Contractual Commitments
The table below sets forth our known contractual obligations as of March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
|
|
|
|
Less than |
|
|
|
|
|
|
4 5 |
|
|
|
|
Contractual Obligations |
|
Total |
|
|
1 year |
|
|
2 3 years |
|
|
years |
|
|
After 5 years |
|
Consulting Agreements |
|
$ |
367,000 |
|
|
$ |
305,000 |
|
|
$ |
62,000 |
|
|
$ |
|
|
|
$ |
|
|
Employment Agreements |
|
|
1,338,000 |
|
|
|
888,000 |
|
|
|
450,000 |
|
|
|
|
|
|
|
|
|
Operating Lease Obligations |
|
|
810,000 |
|
|
|
279,000 |
|
|
|
475,000 |
|
|
|
56,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,515,000 |
|
|
$ |
1,472,000 |
|
|
$ |
987,000 |
|
|
$ |
56,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Liquidity and Capital Resources
From inception through March 31, 2009, we funded our start-up costs, operating costs and
capital expenditures through issuances of stock.
34
We had approximately $35,000 of cash and cash equivalents on hand as of March 31, 2009. In
April 2009, the Company commenced a private placement to sell 3% Convertible Senior Secured
Promissory Notes (the Notes) to accredited investors. Thru June 10, 2009, the Company has
received aggregate proceeds of $3,322,000 under this arrangement and estimates, assuming it
receives no additional funds, that it has sufficient funds to operate for the next ninety days
or 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 Companys 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. We are currently attempting to raise additional funds through our Notes offering and
anticipate future private placements of our common stock to accredited investors but there can be
no assurances that funds will be available, or that the price or terms we can obtain will be
acceptable. Management has taken steps to address the current liquidity crisis, including the
deferral of payments related to our accrued legal and professional fees, the deferral of salaries
for certain executives of MiMedx Group, Inc., the deferral of directors fees, and adjusting our
critical spend schedule. We currently have no material commitments for capital expenditures.
Since inception, the Company has financed its activities principally from the sale of equity
securities. 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 Companys business plan, take
advantage of future opportunities, or respond to competitive pressure or unanticipated customer
requirements. Any of these events would adversely affect the Companys ability to achieve the
Companys development and commercialization goals, which could have a material adverse effect on
the Companys business, results of operations and financial condition. The Companys 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.
Inflation
We do not believe that the rate of inflation has had a material effect on our operating
results. However, inflation could adversely affect our future operating results.
Item 7A. 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.
Item 8. Financial Statements and Supplementary Data
35
Report of Independent Registered Public Accounting Firm
Board of Directors
MiMedx Group, Inc.
We have audited the accompanying consolidated balance sheets of MiMedx Group, Inc. and subsidiaries
as of March 31, 2009 and 2008, and the related consolidated statements of operations, stockholders
equity and cash flows for the years then ended and the period from inception (November 22, 2006)
through March 31, 2009. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight
Board (United States of America). The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting.
Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in all material
respects, the consolidated financial position of MiMedx Group, Inc. and subsidiaries as of March
31, 2009 and 2008 and the consolidated results of their operations and their cash flows for the
years then ended and the period from inception (November 22, 2006) through March 31, 2009, in
conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a
going concern. As discussed in Note 3 to the financial statements, the Company has incurred net
losses and negative operating cash flows since inception and will require additional financing over
a period of years to fund the continued development of products subject to its licensed
technologies. The availability of such financing cannot be assured. These conditions raise
substantial doubt about the Companys ability to continue as a going concern. Managements plans
in regard to these matters are described in Note 3. The financial statements do not include any
adjustments with respect to the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that might result from the outcome of these
uncertainties.
|
|
|
|
|
|
|
/s/ Cherry, Bekaert & Holland, L.L.P
Cherry, Bekaert & Holland, L.L.P.
|
|
|
Tampa, Florida
June 15, 2009
36
MIMEDX GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
34,828 |
|
|
$ |
6,749,609 |
|
Prepaid expenses and other current assets |
|
|
82,953 |
|
|
|
189,253 |
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
117,781 |
|
|
|
6,938,862 |
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net of accumulated depreciation |
|
|
1,375,896 |
|
|
|
1,452,436 |
|
Goodwill |
|
|
857,597 |
|
|
|
857,597 |
|
Intangible assets, net |
|
|
5,116,337 |
|
|
|
5,783,153 |
|
Deposits |
|
|
149,202 |
|
|
|
146,433 |
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
7,616,813 |
|
|
$ |
15,178,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
1,699,337 |
|
|
$ |
948,478 |
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,699,337 |
|
|
|
948,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingency (Notes 6 and 10) |
|
|
|
|
|
|
|
|
Common stock with registration rights, 1,905,000 shares issued
and outstanding |
|
|
3,761,250 |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity: |
|
|
|
|
|
|
|
|
Preferred stock; $.001 par value; 5,000,000
shares authorized and 0 (2009 and 2008) shares
issued and outstanding |
|
|
|
|
|
|
|
|
Common stock; $.001 par value; 100,000,000 shares
authorized and 37,339,628
(2009) and 36,864,534 (2008) shares issued and
outstanding |
|
|
37,340 |
|
|
|
36,864 |
|
Additional paid-in capital |
|
|
34,230,824 |
|
|
|
32,226,983 |
|
Deficit accumulated during the development stage |
|
|
(32,111,938 |
) |
|
|
(18,033,844 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
2,156,226 |
|
|
|
14,230,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
7,616,813 |
|
|
$ |
15,178,481 |
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
37
MIMEDX GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
|
|
|
|
|
Inception |
|
|
|
Year |
|
|
Year |
|
|
(November 22, 2006) |
|
|
|
Ended |
|
|
Ended |
|
|
through |
|
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
|
March 31, 2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
$ |
4,022,709 |
|
|
$ |
2,013,002 |
|
|
$ |
6,149,608 |
|
Acquired in-process research and development (Note 4) |
|
|
|
|
|
|
7,177,000 |
|
|
|
7,177,000 |
|
General and administrative expenses |
|
|
7,956,113 |
|
|
|
8,659,405 |
|
|
$ |
17,186,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations |
|
|
(11,978,822 |
) |
|
|
(17,849,407 |
) |
|
|
(30,512,752 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
59,551 |
|
|
|
519,707 |
|
|
|
613,004 |
|
Change in fair value of investment,
related party |
|
|
|
|
|
|
(41,775 |
) |
|
|
(41,775 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(11,919,271 |
) |
|
|
(17,371,475 |
) |
|
|
(29,941,523 |
) |
Income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(11,919,271 |
) |
|
|
(17,371,475 |
) |
|
|
(29,941,523 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of redeemable common stock and
common stock with registration rights
to fair value |
|
|
(2,158,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to common shareholders |
|
$ |
(14,078,094 |
) |
|
$ |
(17,371,475 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.37 |
) |
|
$ |
(0.97 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing net loss per common share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
37,735,563 |
|
|
|
17,909,903 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
38
MIMEDX GROUP, INC. AND SUBSIDARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
PERIOD FROM INCEPTION (NOVEMBER 22, 2006) THROUGH MARCH 31, 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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
39
MIMEDX GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
|
|
|
|
|
Inception |
|
|
|
Year |
|
|
Year |
|
|
(November 22, 2006) |
|
|
|
Ended |
|
|
Ended |
|
|
through |
|
|
|
March 31, 2009 |
|
|
March 31, 2008 |
|
|
March 31, 2009 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(11,919,271 |
) |
|
$ |
(17,371,475 |
) |
|
$ |
(29,941,523 |
) |
Adjustments to reconcile net loss to net cash flows
from
operating activities, net of effects of acquisition: |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on sale of equipment |
|
|
5,440 |
|
|
|
|
|
|
|
5,440 |
|
Acquired in-process research and development |
|
|
|
|
|
|
7,177,000 |
|
|
|
7,177,000 |
|
Depreciation |
|
|
425,013 |
|
|
|
191,348 |
|
|
|
617,168 |
|
Amortization of intangible assets |
|
|
666,816 |
|
|
|
308,914 |
|
|
|
990,663 |
|
Employee share-based compensation expense |
|
|
945,062 |
|
|
|
649,783 |
|
|
|
1,608,254 |
|
Other share-based compensation expense |
|
|
464,176 |
|
|
|
158,247 |
|
|
|
640,403 |
|
Issuance of common stock for transaction fees |
|
|
|
|
|
|
1,126,379 |
|
|
|
1,126,379 |
|
Accrued interest on notes receivable, related party |
|
|
|
|
|
|
(41,250 |
) |
|
|
(48,894 |
) |
Change in fair value of investment, related party |
|
|
|
|
|
|
41,775 |
|
|
|
41,775 |
|
Increase (decrease) in cash resulting from changes
in: |
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other current assets |
|
|
106,300 |
|
|
|
(169,244 |
) |
|
|
(63,875 |
) |
Accounts payable and accrued expenses |
|
|
750,859 |
|
|
|
(164,601 |
) |
|
|
801,223 |
|
Deferred interest income |
|
|
|
|
|
|
(43,200 |
) |
|
|
(43,200 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from operating activities |
|
|
(8,555,605 |
) |
|
|
(8,136,324 |
) |
|
|
(17,089,187 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Payments for purchase of equipment |
|
|
(360,493 |
) |
|
|
(1,172,730 |
) |
|
|
(1,541,295 |
) |
Proceeds from sale of equipment |
|
|
6,580 |
|
|
|
|
|
|
|
6,580 |
|
Cash paid for intangible asset |
|
|
|
|
|
|
|
|
|
|
(100,000 |
) |
Cash paid for security deposits |
|
|
(2,769 |
) |
|
|
6,569 |
|
|
|
(115,400 |
) |
Cash received in acquisition of SpineMedica Corp. |
|
|
|
|
|
|
1,957,405 |
|
|
|
1,957,405 |
|
Cash paid for acquisition costs of SpineMedica Corp. |
|
|
|
|
|
|
(227,901 |
) |
|
|
(227,901 |
) |
Payments from (advances to) related party |
|
|
|
|
|
|
30,125 |
|
|
|
(2,008,522 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from investing activities |
|
|
(356,682 |
) |
|
|
593,468 |
|
|
|
(2,029,133 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of related party borrowing |
|
|
|
|
|
|
(500,000 |
) |
|
|
|
|
Proceeds from Series A preferred stock |
|
|
|
|
|
|
1,233,750 |
|
|
|
14,016,000 |
|
Proceeds from Series C preferred stock |
|
|
|
|
|
|
3,855,000 |
|
|
|
3,855,000 |
|
Proceeds from sale of common stock and warrants
and common stock with registration rights |
|
|
2,197,500 |
|
|
|
|
|
|
|
2,198,788 |
|
Proceeds from exercise of stock options |
|
|
6 |
|
|
|
2,160 |
|
|
|
2,166 |
|
Offering costs paid in connection with Series A
preferred
stock offering |
|
|
|
|
|
|
(755,152 |
) |
|
|
(918,806 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities |
|
|
2,197,506 |
|
|
|
3,835,758 |
|
|
|
19,153,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(6,714,781 |
) |
|
|
(3,707,098 |
) |
|
|
34,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
|
6,749,609 |
|
|
|
10,456,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period |
|
$ |
34,828 |
|
|
$ |
6,749,609 |
|
|
$ |
34,828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
40
MIMEDX GROUP, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
During the year ended March 31, 2008, the Company acquired 100% of the capital stock of SpineMedica
Corp. for shares of common and preferred stock (Note 4).
During the year ended March 31, 2008, the Company issued 400,000 shares of common stock valued at
$2,596,000, in connection with the purchase of an intangible asset.
During the year ended March 31, 2008, the Company issued stock options to acquire 200,000 shares of
common stock valued at $116,000, in connection with the purchase of an intangible asset.
During the year ended March 31, 2008, the Company issued 205,851 shares of common stock valued at
$1,126,379, in connection with transaction costs related to the Alynx merger.
During the year ended March 31, 2009, common stock and common stock with registration rights
(classified outside of stockholders equity) was accreted to fair value by $2,158,823 through a
charge to accumulated deficit.
See notes to consolidated financial statements.
41
MIMEDX GROUP, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MARCH 31, 2009 AND 2008 AND THE PERIOD FROM INCEPTION (NOVEMBER 22, 2006)
THROUGH MARCH 31, 2009
1. |
|
Formation and nature of business: |
Nature of business:
MiMedx, Inc. (MiMedx) was incorporated in Florida in 2006. MiMedx entered into an Agreement
and Plan of Merger (Merger Agreement) with a publicly-traded Nevada Corporation, Alynx, Co.
(Alynx), a public shell company, 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 U.S. generally accepted accounting principles (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.
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 and SpineMedica, LLC.
MiMedx acquired a license for the use, adoption and development of certain core technologies
developed at the Shriners Hospital for Children and the University of South Florida Research
Foundation. This technology focuses on biomaterials for soft tissue repair, such as tendons,
ligaments and cartilage, as well as other biomaterial-based products for numerous other medical
applications. The development of the licensed technologies requires continued research and
development and, ultimately, the approval of the U.S. Food and Drug Administration (FDA)
and/or foreign regulatory authorities in order for the Company to be able to generate revenues
from the sale of its products. This process is expected to take at least one to two years, and
there can be no assurance that the Company will be successful in its efforts to commercialize
the licensed technology.
On July 23, 2007, MiMedx acquired SpineMedica Corp. through its wholly-owned subsidiary,
SpineMedica, LLC (SpineMedica) (Note 4). SpineMedica Corp. was incorporated in the State of
Florida on June 9, 2005 and its successor SpineMedica, LLC was incorporated in the State of
Florida on June 27, 2007. SpineMedica has licensed the right to use Salubria®, or similar
poly-vinyl alcohol (PVA) -based biomaterials for certain applications within the body.
SpineMedica also owns certain assets (equipment) for the production of products based on a
PVA-based hydrogel, which is a water-based biomaterial that can be manufactured with a wide
range of mechanical properties, including those that appear to closely mimic the mechanical and
physical properties of natural, healthy human tissue. In the United States, the FDA has
cleared the material for use as a cover for vessels following anterior vertebral surgery as
well as for use next to nerves and in the European Union and Canada it has been cleared for use
next to nerves and to replace worn-out and lesioned cartilage in the knee. The Company is
exploring numerous applications using the licensed technologies and future developed
products may require continued research and development and, ultimately, the clearance or
approval of the FDA and/or foreign regulatory authorities in order for the Company to be able
to generate revenues from the sale of developed products. This process can take from six
months up to five years depending on the type of product and regulatory pathway, and there can
be no assurance that SpineMedica will be successful in its efforts to commercialize products
using the licensed technology. SpineMedica is also pursuing clearance by foreign regulatory
authorities to commercialize its first product outside the United States. This process also
depends on the type of product and is expected to take six months for less regulated products
and approximately two years for more regulated products.
Future products developed by SpineMedica may fall within less regulated classifications,
allowing for earlier commercialization in the United States.
42
The
Company currently operates 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 Paradis 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).
The Company is a development stage enterprise and will remain as such until significant
revenues are generated, if ever.
2. |
|
Significant accounting policies: |
Use of estimates:
The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
Principles of consolidation:
The financial statements include the accounts of MiMedx Group, Inc. and its wholly-owned
subsidiaries MiMedx and, SpineMedica. All significant inter-company balances and transactions
have been eliminated.
Concentration of credit risk:
|
|
Cash and cash equivalents are maintained with major financial institutions in the United
States. In October and November, 2008, the Federal Deposit Insurance Corporation (FDIC)
temporarily increased coverage to $250,000 for substantially all depository accounts and
temporarily provides unlimited coverage for certain qualifying and participating
non-interest bearing transaction accounts. The increased coverage is scheduled to expire
on December 31, 2013, at which time it is anticipated that amount insured by the FDIC will
return to $100,000. As of March 31, 2009 the Company had no cash balances which exceeded
these insured limits. |
Cash and cash equivalents:
Cash and cash equivalents include all highly liquid investments with an original maturity of
three months or less.
Goodwill and intangible assets:
Goodwill is not amortized but is tested at least annually for impairment, or more frequently if
events or changes in circumstances indicate that the asset might be impaired. Intangible
assets with finite useful lives are amortized using the straight-line method over a period of
10 years, the remaining term of the patents underlying the licensing rights and intellectual
property (considered to be the remaining useful life of the assets).
Property and equipment:
Property and equipment are recorded at cost and depreciated on a straight-line basis over their
estimated useful lives, principally five to seven years. Leasehold improvements are
depreciated on a straight-line basis over the lesser of the estimated useful lives or the life
of the lease.
Impairment of long-lived assets:
The Company evaluates the recoverability of its long-lived assets (finite lived intangible
assets and property and equipment) whenever adverse events or changes in business climate
indicate that the expected undiscounted future cash flows from the related assets may be less
than previously anticipated. If the net book value of the related assets exceeds the expected
undiscounted future cash flows of the assets, the carrying amount would be reduced to the
present value of their expected future cash flows and an impairment loss would be recognized.
There have been no impairment losses in the periods presented.
43
Research and development costs:
Research and development costs consist of direct and indirect costs associated with the
development of the Companys technologies. These costs are expensed as incurred.
Acquired in-process research and development:
In connection with the acquisition of SpineMedica, the Company determined that approximately
$7.2 million of the fair value of the acquisition price qualified as in-process research and
development, and as such, this amount was expensed as research and development expense on the
acquisition date (see Note 4).
Income taxes:
Deferred tax assets and liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective income 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 or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the period that included
the enactment date. Valuation allowances are recorded for deferred tax assets when the
recoverability of such assets is not deemed more likely than not.
Share-based compensation:
The Company follows the provisions of Statement of Financial Accounting Standards No. 123R
Share-based Payments (SFAS123R) 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 and warrants).
Fair value of financial instruments:
The carrying value of accounts payable and accrued expenses approximate their fair value due to
the short-term nature of these liabilities.
Fair value determination of privately-held securities:
Prior to February 8, 2008, the fair values of the common stock as well as the common stock
underlying options and warrants granted as part of asset purchase prices or as compensation
were estimated by management with input from an unrelated valuation specialist. Determining
the fair value of stock requires making complex and subjective judgments. The Company used the
market approach to estimate the value of the enterprise at each date on which securities were
issued or granted. The enterprise value was then allocated to preferred and common shares
taking into account the enterprise value available to all stockholders and allocating that
value among the various classes of stock based on the rights, privileges and preferences of the
respective classes. There is inherent uncertainty in these estimates.
Net loss per share / Reverse stock split
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 preferred stock using the treasury stock method.
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 preferred stock would be anti-dilutive. All share and per share amounts for all
periods presented have been adjusted to give effect to the reverse stock split discussed in
Note 8.
44
The following table sets forth the computation of basic and diluted net loss per share for the
years ended March 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(11,919,271 |
) |
|
$ |
(17,371,475 |
) |
Accretion of redeemable common stock
and common stock with registration
rights to fair value |
|
|
(2,158,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
Loss attributable to common shareholders |
|
$ |
(14,078,094 |
) |
|
$ |
(17,371,475 |
) |
|
|
|
|
|
|
|
Denominator for basic earnings per
share-weighted average shares |
|
|
37,735,563 |
|
|
|
17,909,903 |
|
Effect of dilutive securities: Stock
options and warrants outstanding
(a) |
|
|
|
|
|
|
|
|
Denominator for diluted earnings per
shareweighted average shares adjusted
for dilutive securities |
|
|
37,735,563 |
|
|
|
17,909,903 |
|
|
|
|
|
|
|
|
|
|
Loss per common share attributable to
common shareholdersbasic and diluted |
|
$ |
(0.37 |
) |
|
$ |
(0.97 |
) |
|
|
|
|
|
|
|
|
|
|
(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: |
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Stock options |
|
|
4,301,250 |
|
|
|
4,446,250 |
|
Warrants |
|
|
1,160,251 |
|
|
|
709,331 |
|
Recently issued accounting pronouncements:
In April 2008, FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible
Assets (FSP 142-3) was issued. This standard amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement 142, Goodwill and Other Intangible Assets. FSP 142-3 is
effective for financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The Company does not believe adoption will have
a material impact on its financial statements.
In June 2008, the Emerging Issues Task Force issued EITF Consensus No. 07-05 Determining
Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock for periods
beginning after December 15, 2008. The objective of this Consensus is to provide guidance for
determining whether an equity-linked financial instrument (or embedded feature) is indexed to
an entitys own stock and it applies to any freestanding financial instrument or embedded
feature that has all the characteristics of a derivative in Statement of Financial Accounting
Standards No. 133 (SFAS 133) Accounting for Derivative Financial Instruments and Hedging
Activities, for purposes of determining whether the financial instrument or embedded feature
qualifies for the first part of the scope exception in paragraph 11(a) of SFAS 133. This Issue
also applies to any freestanding financial instrument that is potentially settled in an
entitys own stock, regardless of whether the instrument has all the characteristics of a
derivative in SFAS 133, for purposes of determining whether the instrument is within the scope
of Issue 00-19 Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock. The Consensus requires the application of a two-step
approach that requires us to (1) evaluate the instruments contingent exercise provisions and
(2) evaluate the instruments settlement provisions. Based on applying this approach to the
Companys outstanding financial instruments, the Company has determined that adoption will have
no impact on its financial statements.
45
3. |
|
Liquidity and managements 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 March 31, 2009 the
Company experienced net losses of $29,941,523 and cash used in operations of $17,089,187. As of
March 31, 2009, the Company has not emerged from the development stage and had approximately
$35,000 of cash and cash equivalents. In April 2009, the Company commenced a private placement
to sell 3% Convertible Senior Secured Promissory Notes (the Notes) to accredited investors (see
note 12 for further information). Thru June 10, 2009, the Company has received aggregate
proceeds of $3,322,000 under this arrangement and, assuming it receives no additional funds,
estimates that it has sufficient funds to operate for the next ninety days, or 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 Companys 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. 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 Companys business plan, take advantage of future
opportunities, or respond to competitive pressure or unanticipated customer requirements. Any of
these events would adversely affect the Companys ability to achieve the Companys development
and commercialization goals, which could have a material adverse effect on the Companys
business, results of operations and financial condition. The Companys 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. |
|
SpineMedica Corp. acquisition: |
On July 23, 2007, MiMedx purchased 100% of the capital stock of SpineMedica Corp. through a
newly formed subsidiary, SpineMedica, LLC. SpineMedicas results of operations and cash flows
are included in the accompanying March 31, 2008 financial statements from July 23, 2007 through
March 31, 2008.
The acquisition was accounted for as a purchase and was accomplished through the issuance of
2,911,117 Common Shares of MiMedx (for the acquisition of the SpineMedica Corp.s Common
Shares) and the issuance of 5,922,397 Series B Convertible Preferred Shares of MiMedx and
5,922,398 Common Stock Warrants (for the acquisition of SpineMedica Corp. Preferred Stock).
The Series B preferred stockholders had voting rights identical to those of common
stockholders, were entitled to dividends only when, or if, declared by the Board of Directors
and had preference over the common stockholders in the event of the Companys liquidation.
The Series B Preferred Stock was convertible into Common Stock of MiMedx at the option of the
holder at any time on a one share for one share basis, subject to adjustment for stock splits,
stock dividends, recapitalizations and the like. All preferred stock automatically was to
convert to common stock upon the Company becoming a publicly traded company, an upstream merger
or consolidation, a sale of substantially all the Companys assets or the consent of holders of
the majority of the then outstanding shares of Series B Preferred Stock. As a result of the
Alynx merger transaction, discussed in Note 8, all Series B Preferred Stock was exchanged for
New Series A Preferred Stock.
46
The Common Stock Warrants were exercisable at $.01 per share from January 2009 through January
2010 and were automatically cancelled under any of the following conditions:
|
|
|
Preferred Stock sales for at least $3.00 per share. |
|
|
|
Sale of a controlling interest in the Company of at least $3.00 per share. |
|
|
|
Issuance of securities by the Company with $2,000,000 minimum proceeds at a minimum
price of $3.00 per share. |
|
|
|
Trading of the Series B Preferred Stock on a national or regional exchange, quotation
system, or the OTCBB at a closing price of at least $3.00 per share for 15 out of 20
days on a rolling basis. |
These Common Stock Warrants were cancelled on September 30, 2007 as the result of the Series C
Convertible Preferred Stock sale (Note 8).
In addition, the Company assumed 1,333,750 common stock options and 175,251 common stock
warrants to the holders of an equal number of SpineMedica Corp. options and warrants in
connection with the acquisition. Terms of those options and warrants are summarized as
follows:
|
|
|
Stock options: |
|
|
Exercise price |
|
$1.80 |
Range of expiration dates |
|
April 2011 April 2017 |
|
|
|
Warrants: |
|
|
Exercise price |
|
$1.80 |
Expiration date |
|
October 2010 |
Finally, the Companys note receivable, related party, deferred interest income related thereto
and common stock warrant in SpineMedica (recorded as investment, related party) were cancelled
pursuant to this transaction.
The SpineMedica acquisition was accounted for as a purchase and is summarized as follows (in
thousands $):
|
|
|
|
|
Purchase price components: |
|
|
|
|
Common stock issued |
|
$ |
2,300 |
|
Preferred stock issued |
|
|
7,403 |
|
Common stock warrants issued |
|
|
20 |
|
Expenses incurred on acquisition |
|
|
238 |
|
Cancellation of note receivable from and
warrants in SpineMedica |
|
|
2,049 |
|
|
|
|
|
Total consideration |
|
$ |
12,010 |
|
|
|
|
|
|
|
|
|
|
Allocation of purchase price: |
|
|
|
|
Cash (acquired at closing) |
|
$ |
1,957 |
|
Prepaid expenses and other current assets |
|
|
19 |
|
Property and equipment |
|
|
464 |
|
Intangible
assets (licenses 10 year amortization period) |
|
|
2,399 |
|
Deposits |
|
|
34 |
|
Current liabilities |
|
|
(898 |
) |
|
|
|
|
Net assets received |
|
|
3,975 |
|
Goodwill |
|
|
858 |
|
In-process research and development (1) |
|
|
7,177 |
|
|
|
|
|
|
|
$ |
12,010 |
|
|
|
|
|
|
|
|
(1) |
|
The in-process research and development (IPR&D) acquired was related to two
products, a cervical total disc replacement device and a posterior lumbar interbody
fusion device. |
47
Significant assumptions used in connection with the determination of the value of the IPR&D
were as follows:
|
|
|
Material cash inflows from the products were anticipated to commence in the near
future. |
|
|
|
Material anticipated changes from historical pricing and margins were not
considered as there was no history for the products. There were projected increases
in expenditures associated with the products development over the historical levels
in order to advance the products through any regulatory agencies. |
|
|
|
The risk adjusted discount rate applied to the estimated future cash flows was
43%. |
The following pro-forma information presents a summary of the Companys consolidated results of
operations as if the SpineMedica acquisition had occurred at inception (November 22, 2006):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from |
|
|
|
|
|
|
|
Inception |
|
|
|
Year |
|
|
(November 22, 2006) |
|
|
|
Ended |
|
|
through |
|
|
|
March 31, 2008 |
|
|
March 31, 2009 |
|
Loss from operations |
|
$ |
(12,482,000 |
) |
|
$ |
(33,360,000 |
) |
Net loss |
|
$ |
(12,073,000 |
) |
|
$ |
(32,860,000 |
) |
5. |
|
Property and equipment: |
Property and equipment consist of the following at March 31,:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Leasehold improvements |
|
$ |
793,899 |
|
|
$ |
746,382 |
|
Furniture and equipment |
|
|
1,192,533 |
|
|
|
897,642 |
|
|
|
|
|
|
|
|
|
|
|
1,986,432 |
|
|
|
1,644,024 |
|
Less accumulated depreciation |
|
|
(610,536 |
) |
|
|
(191,588 |
) |
|
|
|
|
|
|
|
|
|
$ |
1,375,896 |
|
|
$ |
1,452,436 |
|
|
|
|
|
|
|
|
6. |
|
Intangible assets and royalty agreement: |
Intangible assets activity is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intellectual |
|
|
|
|
|
|
License |
|
|
License |
|
|
License |
|
|
Property |
|
|
|
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1, 2007 |
|
$ |
981,067 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
981,067 |
|
Additions |
|
|
|
|
|
|
2,399,000 |
|
|
|
2,596,000 |
|
|
|
116,000 |
|
|
|
5,111,000 |
|
Amortization |
|
|
(99,601 |
) |
|
|
(203,513 |
) |
|
|
|
|
|
|
(5,800 |
) |
|
|
(308,914 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2008 |
|
|
881,466 |
|
|
|
2,195,487 |
|
|
|
2,596,000 |
|
|
|
110,200 |
|
|
|
5,783,153 |
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
(99,600 |
) |
|
|
(296,016 |
) |
|
|
(259,600 |
) |
|
|
(11,600 |
) |
|
|
(666,816 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2009 |
|
$ |
781,866 |
|
|
|
1,899,471 |
|
|
|
2,336,400 |
|
|
|
98,600 |
|
|
$ |
5,116,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
On January 29, 2007, the Company acquired a license from Shriners Hospitals for Children
and University of South Florida Research Foundation, Inc. which is further discussed in Note
1. 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
as of March 31, 2009 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. |
48
|
|
|
(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. (see Notes 1 and 4). |
|
(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. At March 31, 2009, 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 (Note 11). At March 31, 2009, there are no amounts accrued for this
obligation due to its contingent nature. |
Expected future amortization of intangible assets is as follows:
|
|
|
|
|
Year ending March 31, |
|
|
|
|
2010 |
|
$ |
666,816 |
|
2011 |
|
|
666,816 |
|
2012 |
|
|
666,816 |
|
2013 |
|
|
666,816 |
|
2014 |
|
|
666,816 |
|
Thereafter |
|
|
1,782,257 |
|
|
|
|
|
|
|
$ |
5,116,337 |
|
|
|
|
|
7. |
|
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 Companys 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 Companys 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.
49
Upon the filing of the registration statement, the common stock with registration rights will
be reclassified to stockholders equity, unless exchanged for other financial instrument (See
Note 12, Subsequent Events).
The warrants included in the unit offering are indexed to 487,500 shares of the Companys
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
Companys 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 |
|
|
|
|
|
|
|
|
|
|
Redeemable Common Stock |
|
$ |
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 12, 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 Companys 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 Companys 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 12, Subsequent Events).
50
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 Companys 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 Companys common stock. Upon the filing of the required registration statement, the
redeemable common stock will be reclassified to stockholders equity (See Note 12, Subsequent
Events).
Alynx merger transaction:
On January 29, 2008 MiMedx entered into an Agreement and Plan of Merger (Merger Agreement)
with Alynx. The merger transaction became effective on February 8, 2008.
In accordance with the Merger Agreement, Alynx issued 52,283,090 shares of common stock to
MiMedx shareholders based on a conversion rate of 3.091421 for each share of MiMedx common
stock. All Preferred Stock of MiMedx (Series A, B and C) was exchanged for a Series A
Preferred Stock of Alynx based on a conversion rate of one share of Alynx Series A Preferred
Stock for every five shares of MiMedx Preferred Stock . The Alynx Series A preferred stock was
convertible into common stock and contained no cash redemption features. On March 31, 2008,
all of the Alynx Series A Preferred Stock shares were converted into common shares of the
Company at a rate of five shares of Common Stock of the Company for every one share of Series A
Preferred Stock of Alynx.
The Company incurred approximately $1,870,000 of merger costs related to the merger
acquisition. These costs, (including 205,851 shares of common stock which had a value of
approximately $1,126,000) are included in general and administrative expenses in the statement
of operations for the year ended March 31, 2008.
Because Alynx had de minimus operations, the merger transaction was accounted for as a reverse
acquisition (recapitalization) whereby MiMedx was deemed to be the acquirer for accounting
purposes.
Reverse Stock Split:
On March 31, 2008, with shareholder approval, the Company affected a reverse stock split. Each
share of common stock was converted into .3234758 shares of post reverse split shares of common
stock. All share amounts have been retroactively adjusted for all periods presented.
51
Conversion of Alynx Series A Preferred Stock:
The following series of preferred stock were issued prior to the Alynx merger transaction and,
as previously discussed, were all redeemed through the issuance of Alynx Series A Preferred
Stock:
Preferred Series A stock:
During the period ended March 31, 2007, MiMedx issued 11,212,800 shares of Series A
Convertible Preferred Stock for $13,097,194 ($14,016,000 net of $918,806 transaction
expenses). Additionally, the placement agent received detachable warrants to acquire up to
524,080 shares of the Companys common stock at $1.25 per share with a fair value of $183,428
on the date of issuance. In April 2008, the placement agent executed a cashless exercise of
these warrants and the Company issued 417,594 shares of common stock.
The preferred stockholders had voting rights identical to those of common stockholders, were
entitled to dividends only when, or if, declared by the Board of Directors and had preference
over the common stockholders in the event of the Companys liquidation.
The preferred stock was convertible into common stock at the option of the holder at any time
on a one share for one share basis, subject to adjustment for stock splits, stock dividends,
recapitalizations and the like.
This preferred stock was to automatically convert to common stock upon the Company becoming a
publicly traded company, an upstream merger or consolidation, a sale of substantially all the
Companys assets or the consent of holders of the majority of the then outstanding shares of
Series A Preferred Stock. There was no beneficial conversion feature associated with this
transaction.
Preferred series B stock:
In connection with the SpineMedica acquisition the Company issued 5,922,397 shares of Series
B Convertible Preferred Stock. See Note 4.
Preferred series C stock:
The Company sold 1,285,001 shares of Preferred Series C Stock for $3,855,000 or $3.00 per
share in September and October 2007. Preferred Series C stockholders had voting rights
identical to those of common stockholders, were entitled to dividends only when, or if,
declared by the Board of Directors and had preference over the common stockholders in the
event of the Companys liquidation. The preferred stock was convertible into common stock at
the option of the holder at any time on a one share for one share basis, subject to
adjustment for stock splits, stock dividends, recapitalizations and the like.
This preferred stock was to automatically convert to common stock upon the Company becoming a
publicly traded company, an upstream merger or consolidation, a sale of substantially all the
Companys assets or the consent of holders of the majority of the then outstanding shares of
Series C preferred stock.
Registration rights agreements:
On February 9, 2009, all shares subject to registration rights agreements became eligible for
sale pursuant to Rule 144, other than those associated with the September and November 2008 and
February 2009 Private Placements discussed in Note 7.
52
Stock incentive plan:
The Company has three share-based compensation plans (the 2006 Plan, Assumed 2007 Plan and
Assumed 2005 Plan) which provide for the granting of qualified incentive and non-qualified
stock options, stock appreciation awards and restricted stock awards to employees, directors,
consultants and advisors. The awards are subject to a vesting schedule as set forth in each
individual agreement. The Company intends to use only the 2006 Plan to make future grants.
The number of assumed options under the Assumed 2005 Plan and Assumed 2007 Plan outstanding at
March 31, 2009 totaled 1,041,250 and the maximum number of shares of common stock which can be
issued under the 2006 Plan is 5,500,000 at March 31, 2009.
Activity with respect to the stock options is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of |
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
Exercise |
|
|
average Exercise |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Prices |
|
|
Price |
|
|
Value |
|
|
Balance at November 22, 2006 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
Granted |
|
|
410,000 |
|
|
|
.0001 1.00 |
|
|
|
.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2007 |
|
|
410,000 |
|
|
|
.0001 1.00 |
|
|
|
.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2007 |
|
|
177,500 |
|
|
|
.0001 1.00 |
|
|
|
.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
3,302,500 |
|
|
|
1.00 5.44 |
|
|
|
2.50 |
|
|
|
|
|
Assumed in business
combination |
|
|
1,333,750 |
|
|
|
1.80 |
|
|
|
1.80 |
|
|
|
|
|
Expired |
|
|
(600,000 |
) |
|
|
1.80 2.40 |
|
|
|
1.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2008 |
|
|
4,446,250 |
|
|
|
.0001 5.44 |
|
|
|
2.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2008 |
|
|
2,036,667 |
|
|
$ |
.0001 5.44 |
|
|
$ |
1.91 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
1,100,000 |
|
|
|
.73 5.38 |
|
|
|
.94 |
|
|
|
|
|
Cancelled |
|
|
(1,187,500 |
) |
|
|
.0001 5.44 |
|
|
|
3.29 |
|
|
|
|
|
Exercised |
|
|
(57,500 |
) |
|
|
.0001 |
|
|
|
.0001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2009 |
|
|
4,301,250 |
|
|
|
.0001 5.44 |
|
|
$ |
1.60 |
|
|
$ |
18,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2009 |
|
|
3,208,749 |
|
|
|
.0001 5.44 |
|
|
$ |
1.64 |
|
|
$ |
11,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during the year ended March 31, 2009 was approximately
$259,000.
Following is a summary of stock options outstanding and exercisable at March 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
Exercise |
|
Number |
|
|
Remaining |
|
|
Average |
|
|
Number |
|
|
Average |
|
Price |
|
Outstanding |
|
|
Contractual Life |
|
|
Exercise Price |
|
|
Exercisable |
|
|
Exercise Price |
|
$.0001 1.00 |
|
|
2,195,000 |
|
|
|
6.27 |
|
|
$ |
.85 |
|
|
|
1,517,916 |
|
|
$ |
.85 |
|
1.80 2.40 |
|
|
1,906,250 |
|
|
|
5.31 |
|
|
|
2.07 |
|
|
|
1,528,333 |
|
|
|
2.01 |
|
5.38 5.44 |
|
|
200,000 |
|
|
|
5.19 |
|
|
|
5.43 |
|
|
|
162,500 |
|
|
|
5.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,301,250 |
|
|
|
5.79 |
|
|
|
1.60 |
|
|
|
3,208,749 |
|
|
|
1.64 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
A summary of the status of the Companys unvested stock options as of March 31, 2009, and
changes during the year ended March 31, 2009, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
Unvested Stock Options |
|
Shares |
|
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
Unvested at April 1, 2008 |
|
|
2,409,583 |
|
|
|
.49 |
|
|
Granted |
|
|
1,100,000 |
|
|
|
.63 |
|
Vested |
|
|
(1,532,500 |
) |
|
|
.50 |
|
Cancelled |
|
|
(884,582 |
) |
|
|
1.65 |
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2009 |
|
|
1,092,501 |
|
|
|
.55 |
|
|
|
|
|
|
|
|
|
Total unrecognized compensation expense at March 31, 2009 was approximately $402,000 and will
be charged to expense through February 2012.
The fair value of the options granted was 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.
The assumptions used in calculating the fair value of options using the Black-Scholes
option-pricing model are set forth in the following table:
|
|
|
|
|
|
|
Year Ended |
|
Period Ended |
|
|
March 31, 2009 |
|
March 31, 2008 |
Dividend yield |
|
0% |
|
0% |
Expected volatility |
|
68.85 76.90% |
|
45.53% to 64.97% |
Risk free interest rates |
|
1.89 3.11% |
|
2.24% to 5.10% |
Expected lives |
|
5.75 6 years |
|
2.75 to 5 years |
The weighted-average grant date fair value for options granted during the years ended March 31,
2009 and 2008 was approximately $.63 and $1.07, respectively.
Warrants:
The Company grants common stock warrants in connection with equity shares purchases by
investors as an additional incentive for providing long term equity capital to the Company and
as additional compensation to consultants and advisors. The warrants are granted at negotiated
prices in connection with the equity share purchases and at the market price of the common
stock in other instances. The warrants have been issued for terms of five years.
54
Common Stock warrants issued, redeemed and outstanding during the years ended March 31, 2009
and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
Number |
|
|
Price per Share |
|
|
|
|
|
|
|
|
|
|
Warrants outstanding at April 1, 2007 |
|
|
524,080 |
|
|
$ |
1.25 |
|
Warrants assumed by MiMedx
on July 23, 2007 (Note 4) |
|
|
175,251 |
|
|
|
1.80 |
|
Warrants issued on July 23, 2007 (Note 4) |
|
|
5,922,398 |
|
|
|
.01 |
|
Warrants cancelled during the year ended
March 31, 2008 (Note 4) |
|
|
(5,922,398 |
) |
|
|
.01 |
|
Warrants issued during the year ended
March 31, 2008 |
|
|
10,000 |
|
|
|
3.00 |
|
|
|
|
|
|
|
|
Warrants outstanding at March 31, 2008 |
|
|
709,331 |
|
|
|
1.41 |
|
Cashless exercise of warrants (417,594 shares of
common stock issued) |
|
|
(524,080 |
) |
|
|
(1.25 |
) |
Warrants issued in connection with private placement
of common stock (Note 7) |
|
|
975,000 |
|
|
|
.73 |
|
|
|
|
|
|
|
|
Warrants outstanding at March 31, 2009 |
|
|
1,160,251 |
|
|
$ |
.91 |
|
|
|
|
|
|
|
|
Warrants outstanding at March 31, 2009 consist of the following:
|
|
|
|
|
Issued in connection with private placement discussed
in Note 7 ($.73 exercise price); expire February 2014 |
|
|
975,000 |
|
Assumed by the Company in connection with acquisition
of SpineMedica Corp. in July 2007 ($1.80 exercise
price); expire October, 2010 |
|
|
175,251 |
|
Service provided by consultant in October, 2007 ($3.00
exercise price); expire October, 2012 |
|
|
10,000 |
|
|
|
|
|
|
|
|
|
|
Total warrants outstanding at March 31, 2009 |
|
|
1,160,251 |
|
|
|
|
|
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.
55
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 as of March 31, 2009.
Significant items comprising the Companys deferred tax assets and liabilities are as follows at March 31,:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
$ |
678,000 |
|
|
$ |
398,000 |
|
Furniture, software and equipment |
|
|
283,000 |
|
|
|
283,000 |
|
Accrued expenses |
|
|
14,000 |
|
|
|
51,000 |
|
Net operating loss carryforward |
|
|
9,266,000 |
|
|
|
5,251,000 |
|
|
|
|
|
|
|
|
|
|
|
10,241,000 |
|
|
|
5,983,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Intangible assets |
|
|
(78,000 |
) |
|
|
(78,000 |
) |
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
10,163,000 |
|
|
|
5,905,000 |
|
|
|
|
|
|
|
|
Valuation allowance |
|
|
(10,163,000 |
) |
|
|
(5,905,000 |
) |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
The reconciliation of the Federal statutory income tax rate of 34% to the effective rate is as follows at March 31:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
Federal statutory rate |
|
|
34.00 |
% |
|
|
34.00 |
% |
State taxes, net of federal benefit |
|
|
3.96 |
% |
|
|
3.96 |
% |
Acquisition adjustment |
|
|
|
% |
|
|
17.08 |
% |
Permanent difference |
|
|
(2.24 |
%) |
|
|
(22.45 |
%) |
Valuation allowance |
|
|
(35.72 |
%) |
|
|
(32.59 |
%) |
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
% |
|
|
|
|
|
|
|
Income taxes are based on estimates of the annual effective tax rate and evaluations of
possible future events and transactions and may be subject to subsequent refinement or
revision.
The Company has incurred net losses since its inception and, therefore, no current income tax
liabilities have been incurred for the periods presented. The amount of unused tax losses
available to carry forward and apply against taxable income in future years totaled
approximately $24,400,000 at March 31, 2009. The loss carry forwards expire in 2029. Due to
the Companys 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.
Under Section 382 and 383 of the Internal Revenue Code, if an ownership change occurs with
respect to a loss corporation, as defined, there are annual limitations on the amount of the
net operating loss and other deductions which are available to the Company. At this time the
Company has not yet determined whether some of the loss carryforwards may be subject to these
limitations.
56
10. |
|
Related party transactions: |
Related party expense:
The Company incurred expenses of approximately $55,000 and $105,000 during the years ended
March 31, 2009 and 2008, respectively, related to aircraft use from an entity owned by the
former Chairman of the Board and current member of the Board of Directors.
The Company incurred expenses of approximately $25,000 during each of the years ended March 31,
2009 and 2008 related to the lease of office space from an entity owned by the former Chairman
of the Board and current member of the Board of Directors.
The company incurred expenses of approximately, $23,000 during the year ended March 31, 2009
related to administrative fees provided by an entity owned by the current Chairman of the
Board.
The Company incurred no expenses during the year ended March 31, 2009 and approximately
$290,000 during the year ended March 31, 2008 for legal fees provided by an entity in which one
of our Board Members serves as a partner.
All the above related party expenses were included in general and administrative expenses in
the accompanying consolidated statements of operations.
Consulting agreements:
The Company has entered into consulting agreements with individuals to provide consulting and
advisory services to the Company. The agreements provide for terms of three years.
At March 31, 2009 the minimum future consulting payments due under non-cancellable consulting
agreements with remaining terms in excess of one year are as follows:
|
|
|
|
|
Years ending March 31, |
|
|
|
|
2010 |
|
$ |
305,000 |
|
2011 |
|
|
62,000 |
|
|
|
|
|
Total minimum payments |
|
$ |
367,000 |
|
|
|
|
|
Under one consulting agreement the Company will also be required to pay a royalty upon approval
and sale of certain products (Note 6).
Employment agreements:
The Company has entered into employment agreements with terms ranging from one to three years.
At March 31, 2009 the minimum future employment payments due under these agreements are as
follows:
|
|
|
|
|
Years ending March 31, |
|
|
|
|
2010 |
|
$ |
888,000 |
|
2011 |
|
|
244,000 |
|
2012 |
|
|
206,000 |
|
|
|
|
|
Total minimum payments |
|
$ |
1,338,000 |
|
|
|
|
|
Leases:
The Company leases office space in Tampa, Florida and Marietta, Georgia. These leases expire
during 2013 and 2012, respectively.
57
Future minimum lease payments under these operating leases are as follows:
|
|
|
|
|
Years ending March 31, |
|
|
|
|
2010 |
|
$ |
279,000 |
|
2011 |
|
|
285,000 |
|
2012 |
|
|
190,000 |
|
2013 |
|
|
56,000 |
|
|
|
|
|
Total minimum payments |
|
$ |
810,000 |
|
|
|
|
|
Rent expense on all operating leases for the years ended March 31, 2009 and 2008, was
approximately $277,000 and $162,000, respectively.
In April 2009, the Company commenced a private placement to sell 3% Convertible Senior Secured
Promissory Notes (the Notes) to accredited investors. Thru June 10, 2009, the Company has
received aggregate proceeds of $3,322,000. 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 6,644,000 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 Companys common stock (as reported
by the OTCBB or on any national securities exchange on which the Companys 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. (a wholly-owned subsidiary of the Company),
excluding the membership interest in SpineMedica LLC held by 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.
In connection with the above offering, the Company will pay a placement fee equal to 7% of the
proceeds of the Notes sold to the placement agents clients and issue to the placement agent 5
year warrants to purchase such number of shares of Common Stock of the Company as shall equal
8% of the number of shares of Common Stock into which the securities sold in the private
placement to the placement agents clients are convertible. The warrants carry an exercise
price of $.50 per share.
On June 4, 2009 the Companys 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 Companys future fundraising efforts. The investors include Charles
E. Koob, a Director of the Company, and companies controlled by Parker H. Petit, the Companys
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 Board of
Directors required that the investors waive certain registration rights otherwise available
with respect to the shares issued in the private placements. The Company will issue 2,490,000
additional shares as a result of this decision.
The Common Stock was offered and sold solely to accredited investors in reliance on the
exemption from registration afforded by Rule 506 of Regulation D promulgated under the
Securities Act of 1933, as amended.
58
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A(T). Controls and Procedures
Managements Report on Internal Control over Financial Reporting
We maintain disclosure controls and procedures within the meaning of Rule 13a-15(e) of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Our disclosure controls and
procedures are designed to provide reasonable assurance that information required to be disclosed
by the Company in the reports filed under the Exchange Act, such as this Annual Report on Form
10-K, is recorded, processed, summarized and reported within the time periods specified in the U.S.
Securities and Exchange Commissions rules and forms. Our disclosure controls and procedures
include controls and procedures designed to provide reasonable assurance that such information is
accumulated and communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In
designing and evaluating our disclosure controls and procedures, management recognizes that any
controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving the desired control objectives, and no evaluation of controls and procedures
can provide absolute assurance that all control issues and instances of fraud, if any, within a
company have been detected. Management is required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) of the Exchange Act, prior to filing this Annual Report on Form
10-K, we carried out an evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Annual
Report on Form 10-K. Based on their evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective as of the end of the
period covered by this Annual Report on Form 10-K.
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as
amended). Our management assessed the effectiveness of our internal control over financial
reporting as of March 31, 2009. In making this assessment, our management used the criteria set
forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Our management has concluded that, as of March 31, 2009, our
internal control over financial reporting is effective based on these criteria.
An evaluation was also performed under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial Officer, of any changes in
our internal control over financial reporting that occurred during our last fiscal quarter and that
has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting. That evaluation did not identify any change in our internal control over
financial reporting that occurred during our latest fiscal quarter that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.
This Annual Report on Form 10-K does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial reporting.
Managements report was not subject to attestation by our independent registered public accounting
firm pursuant to temporary rules of the SEC that permit us to provide only managements report in
this Annual Report on Form 10-K.
Item 9B. Other Information
None.
59
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this Item will be contained in our definitive proxy statement relating
to our Annual Meeting of Shareholders under the captions Corporate Governance, Executive
Officers, Nominees for Election of Directors and Section 16(a) Beneficial Ownership Reporting
Compliance, or similar captions which are incorporated herein by reference.
We have adopted our Code of Business Conduct and Ethics and a copy is posted on our website
at http://mimedx.com/governance.aspx. In the event that we amend any of the provisions of this
Code of Business Conduct and Ethics that require disclosure under applicable law, SEC rules or
listing standards, we intend to disclose such amendment on our website.
Any waiver of the Code of Business Conduct and Ethics for any executive officer or director
must be approved by the Board and will be disclosed on a Form 8-K filed with the SEC, along with
the reasons for the waiver.
Item 11. Executive Compensation
Information required by this Item will be contained in our definitive proxy statement relating
to our Annual Meeting of Shareholders under the caption Executive Compensation, which is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Shareholder Matters
Information required by this Item will be contained in our definitive proxy statement relating
to our Annual Meeting of Shareholders under the captions Security Ownership of Certain Beneficial
Owners and Management, Executive Compensation, and Equity Compensation Plan Information, which
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this Item will be contained in our definitive proxy statement relating
to our Annual Meeting of Shareholders under the caption Certain Relationships and Related
Transactions, which is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information required by this Item will be contained in our definitive proxy statement relating
to our Annual Meeting of Shareholders under the captions Ratification of Appointment of
Independent Registered Public Accounting Firm and Corporate Governance, which are incorporated
herein by reference.
60
PART IV
Item 15. Exhibits, Financial Statement Schedules.
(a) |
|
Documents filed as part of this report: |
|
(1) |
|
Financial Statements |
|
|
(2) |
|
Financial Statement Schedules |
None
See Item 15(b) below. Each management contract or compensation plan has been identified.
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
3.1 |
(3)
|
|
Articles of Incorporation of MiMedx Group, Inc. |
3.2 |
(3)
|
|
Bylaws of MiMedx Group, Inc. |
4.1 |
(1)
|
|
Amended and Restated Registration Rights Agreement dated July 23, 2007 between MiMedx, Inc. and the holders of
Preferred Stock |
4.3 |
(1)
|
|
Form of Warrant to purchase MiMedx common stock |
10.1 |
(1) *
|
|
MiMedx, Inc. 2006 Stock Incentive Plan |
10.1 |
(1) *
|
|
Declaration of Amendment to MiMedx, Inc. 2006 Stock Incentive Plan |
10.2 |
(1) *
|
|
Form of Incentive Award Agreement under the MiMedx, Inc. 2006 Stock Incentive Plan, including a list of officers
and directors receiving options thereunder |
10.3 |
(1) *
|
|
Form of Nonqualified Incentive Award Agreement under the MiMedx, Inc. 2006 Stock Incentive Plan, including a
list of officers and directors receiving options thereunder |
10.6 |
(1) *
|
|
Form of Incentive Award Agreement under the MiMedx, Inc. Assumed 2005 Stock Plan (formerly the SpineMedica Corp.
2005 Employee, Director and Consultant Stock Plan), including a list of officers and directors receiving options
thereunder |
10.7 |
(1) *
|
|
Form of Nonqualified Incentive Award Agreement under the MiMedx, Inc. Assumed 2005 Stock Plan (formerly the
SpineMedica Corp. 2005 Employee, Director and Consultant Stock Plan) |
10.8 |
(1) *
|
|
MiMedx, Inc. Assumed 2007 Stock Plan (formerly the SpineMedica Corp. 2007 Stock Incentive Plan) |
10.9 |
(1) *
|
|
Declaration of Amendment to MiMedx, Inc. Assumed 2007 Stock Plan (formerly the SpineMedica Corp. 2007 Stock
Incentive Plan) |
10.10 |
(1) *
|
|
Form of Incentive Award Agreement under the MiMedx, Inc. Assumed 2007 Stock Plan (formerly the SpineMedica Corp.
2007 Stock Incentive Plan) |
10.11 |
(1) *
|
|
Form of Nonqualified Incentive Award Agreement under the MiMedx, Inc. Assumed 2007 Stock Plan (formerly the
SpineMedica Corp. 2007 Stock Incentive Plan) |
10.12 |
(1)
|
|
Form of MiMedx, Inc. Employee Proprietary Information and Inventions Assignment Agreement |
10.15 |
*(1)
|
|
Employment Agreement between MiMedx, Inc. and Matthew J. Miller |
10.18 |
*(1)
|
|
Employment Agreement between MiMedx, Inc. and Thomas Koob, Ph.D. |
10.21 |
(1)
|
|
Sublease Agreement between MiMedx, Inc. and The Gorlin Companies, LLC dated April 1, 2007 |
10.22 |
(1)
|
|
Lease Agreement between MiMedx, Inc. and the Andrews Institute Medical Park, LLC dated June 12, 2007 |
10.23 |
(1)
|
|
Lease between MiMedx, Inc. and University of South Florida Research Foundation, Incorporated dated March 6, 2007 |
10.24 |
(1)
|
|
Amendment to Lease Agreement between MiMedx, Inc. and the Andrews Institute Medical Park, LLC dated June 12, 2007 |
10.26 |
(1)
|
|
Consulting Agreement between MiMedx, Inc. and James Andrews, M.D. |
10.27 |
(7)
|
|
Consulting Agreement between MiMedx, Inc. and Thomas Graham, M.D. |
10.28 |
(1)
|
|
Consulting Agreement between MiMedx, Inc. and Joseph Story, M.D. |
10.29 |
(1)
|
|
Form of MiMedx, Inc. Physician Advisory Board Consulting Agreement |
10.30 |
(1)
|
|
Joint Development Agreement between MiMedx, Inc. and Offray Specialty Narrow Fabrics, Inc. dated October 18, 2007 |
10.31 |
(1)
|
|
Collaborative Research and Evaluation Agreement between MiMedx, Inc. and Regeneration Technologies, Inc. dated
November 1, 2007 |
10.32 |
(1)
|
|
Technology License Agreement between MiMedx, Inc., Shriners Hospitals for Children, and University of South
Florida Research Foundation dated January 29, 2007 |
61
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
10.33 |
(1)
|
|
Technology License Agreement between SpineMedica Corp. and SaluMedica, LLC dated August 12, 2005 |
10.34 |
(1)
|
|
Trademark License Agreement between SaluMedica, LLC and SpineMedica Corp. dated August 12, 2005 |
10.35 |
(1)
|
|
Technology License Agreement between SpineMedica Corp. and SaluMedica, LLC dated August 3, 2007 |
10.36 |
(1)
|
|
First Amendment Technology License Agreement between SpineMedica Corp. and SaluMedica, LLC dated August 3, 2007 |
10.37 |
(1)
|
|
Trademark License Agreement between SaluMedica, LLC and SpineMedica Corp dated August 13, 2007 |
10.38 |
(1)
|
|
Acknowledgement of Georgia Tech Research Corporation dated August 12, 2005 |
10.39 |
(1)
|
|
License Agreement between Georgia Tech Research Corporation and Restore Therapeutics, Inc. dated March 5, 1998 |
10.40 |
(1)
|
|
First Amendment to License Agreement between Georgia Tech Research Corporation and Restore Therapeutics, Inc.
dated November 18, 1998 |
10.41 |
(1)
|
|
Second Amendment to License Agreement between Georgia Tech Research Corporation and SaluMedica, LLC (f/k/a
Restore Therapeutics, Inc.) dated February 28, 2005 |
10.42 |
(1)
|
|
Third Amendment to License Agreement between Georgia Tech Research Corporation and SaluMedica, LLC dated
August 12, 2005 |
10.43 |
(1)
|
|
Assignment of Invention and Non-Provisional Patent Application from David N. Ku to SpineMedica Corp. dated
August 11, 2005 |
10.44 |
(1)
|
|
Assignment of Invention and Non-Provisional Patent Application from SaluMedica, LLC to SaluMedica, LLC dated
August 12, 2005 |
10.45 |
(1)
|
|
Form of SpineMedica, Corp. Employee Proprietary Information and Inventions Assignment Agreement |
10.46 |
(1)
|
|
Purchase Agreement between SpineMedica Corp. and SaluMedica, LLC dated March 12, 2007 |
10.47 |
(1)
|
|
Letter Agreement between MiMedx, Inc. and SaluMedica, LLC dated June 26, 2007 |
10.48 |
(1)
|
|
Materials Transfer Agreement dated March 28, 2007 between Kensey Nash Corporation and MiMedx, Inc. |
10.49 |
(1)
|
|
Materials Transfer Agreement dated June 7, 2007 between Kensey Nash Corporation and MiMedx, Inc. |
10.50 |
(1)
|
|
Industrial Lease Agreement between SpineMedica Corp. and Franklin Forest Investors, LLC dated April 25, 2007 |
10.51 |
(1)
|
|
Sublease and Agreement dated April 9, 2007 between CCA Global Partners, Inc. (f/k/a Carpet Co-op of America
Association) and SpineMedica, Corp. & Landlord consent |
10.52 |
(5)
|
|
Investment Agreement dated March 31, 2008 between MiMedx Group, Inc. and SaluMedica, LLC |
10.53 |
(5)
|
|
Technology License Agreement dated March 31, 2008 between MiMedx Group, Inc. and SaluMedica, LLC |
10.54 |
(5)
|
|
Trademark License Agreement dated March 31, 2008 between MiMedx Group, Inc. and SaluMedica, LLC |
10.57 |
(7)*
|
|
Assignment and Assumption of Employment Agreement of Steve Gorlin between MiMedx Group, Inc. and MiMedx, Inc.
dated June 20, 2008 |
10.60 |
(7)*
|
|
Assignment and Assumption of Employment Agreement of Matthew J. Miller between MiMedx Group, Inc. and MiMedx,
Inc. dated June 23, 2008 |
10.63 |
(7)*
|
|
Consulting Agreement between SpineMedica Corp. and Ronald DeWald, M.D. |
10.64 |
(7)*
|
|
Form of SpineMedica Corp. Physician Advisory Board Consulting Agreement |
10.65 |
(8)
|
|
Form of Indemnification Agreement |
10.66 |
(8)*
|
|
Declaration of Amendment to Alynx, Co. Assumed 2006 Stock Incentive Plan (formerly the MiMedx, Inc. 2006 Stock
Incentive Plan) |
10.67 |
(9)*
|
|
MiMedx Group, Inc. Amended and Restated Assumed 2005 Stock Plan |
10.68 |
(10)* |
|
Form of Incentive Stock Option Award Agreement under MiMedx Group, Inc. Amended and Restated Assumed 2005 Stock
Plan |
10.69 |
(10)* |
|
Form of Nonqualified Stock Option Award Agreement under MiMedx Group, Inc. Amended and Restated Assumed 2005
Stock Plan |
10.70 |
(11)* |
|
Amendment to Employment Agreement of Matthew Miller, dated September 25, 2007 |
10.71 |
(12)
|
|
Form of Subscription Agreement |
10.72 |
(12)
|
|
Form of 3% Convertible Senior Secured Promissory Note |
10.73 |
(12)
|
|
Form of Security and Intercreditor Agreement |
14.1 |
(13)
|
|
Code of Business Conduct and Ethics |
21.1 |
(1) |
|
Subsidiaries of MiMedx Group, Inc. |
23.1 |
# |
|
Consent of Independent Registered Public Accounting Firm |
31.1 |
#
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 2002 |
62
|
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
31.2 |
#
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Acts 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 |
|
|
|
Notes |
|
* |
|
Indicates a management contract or compensatory plan or arrangement |
|
# |
|
Filed herewith |
All other footnotes indicate a document previously filed as an exhibit to and incorporated by
reference from the following:
|
|
|
(1) |
|
Form 8-K filed February 8, 2008 |
|
(2) |
|
Schedule 14A filed March 10, 2008 |
|
(3) |
|
Form 8-K filed April 2, 2008 |
|
(4) |
|
Form 8-K filed February 25, 2008 |
|
(5) |
|
Form 8-K filed April 4, 2008 |
|
(6) |
|
Form 8-K filed May 29, 2008 |
|
(7) |
|
Incorporated by reference to the exhibit with the same number filed with the Registrants
Form 10-K for the year ended March 31, 2008 |
|
(8) |
|
Incorporated by reference to the exhibit with the same number filed with the Registrants
Form 8 -K on July 15, 2008 |
|
(9) |
|
Incorporated by reference to Exhibit 10.4 to the Companys Registration Statement on Form S-8
filed with the Commission on August 29, 2008 |
|
(10) |
|
Incorporated by reference to the exhibit with the same number filed with the Registrants
Form 8 -K on September 4, 2008 |
|
(11) |
|
Incorporated by reference to Exhibit 10.8 filed with the Registrants Form 10-Q for the
quarter ended June 30, 2008 |
|
(12) |
|
Exhibits 10.71, 10.72, and 10.73 are incorporated by reference to Exhibits 10.1, 10.2, and
10.3 respectively, to Registrants Form 8-K filed May 5, 2009 |
|
(13) |
|
Form 8-K filed May 1, 2008 |
The agreements identified in this report as exhibits are between and among the parties to them, and
are not for the benefit of any other person. Each agreement speaks as of its date, and the Company
does not undertake to update them, unless otherwise required by the terms of the agreement or by
law. As permitted, the Company has omitted some disclosure schedules because the Company has
concluded that they do not contain information that is material to an investment decision and is
not otherwise disclosed in the agreement or this report. Omitted schedules may nevertheless affect
the related agreement. The agreements, including the Companys representations, warranties, and
covenants, are subject to qualifications and limitations agreed to by the parties and may be
subject to a contractual standard of materiality, and remedies, different from those generally
applicable or available to investors and may reflect an allocation of risk between or among the
parties to them. Accordingly, the representations, warranties, covenants of the Company contained
in the agreements may not constitute strict representations of factual matters or absolute promises
of performance. Moreover, the agreements may be subject to differing interpretations by the
parties, and a party may, in accordance with the agreement or otherwise, waive or modify the
Companys representations, warranties, or covenants.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
Date: June 15, 2009 |
|
MIMEDX GROUP, INC. |
|
|
|
|
|
|
|
By:
|
|
/s/ Michael J. Culumber
Michael
J. Culumber |
|
|
|
|
Acting Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
Signature / Name |
|
Title |
|
Date |
|
|
|
|
|
|
|
Chief Executive Officer
|
|
June 15 , 2009 |
Parker H. Petit
|
|
(principal executive officer) |
|
|
|
|
|
|
|
|
|
Chief Financial Officer
|
|
June 15, 2009 |
Michael J. Culumber
|
|
(principal financial and accounting officer) |
|
|
|
|
|
|
|
/s/ Steve Gorlin
Steve Gorlin
|
|
Director
|
|
June 15, 2009 |
|
|
|
|
|
/s/ Kurt M. Eichler
Kurt M. Eichler
|
|
Director
|
|
June 15, 2009 |
|
|
|
|
|
/s/ Charles E. Koob
Charles E. Koob
|
|
Director
|
|
June 15, 2009 |
|
|
|
|
|
/s/ Larry W. Papasan
Larry W. Papasan
|
|
Director
|
|
June 15, 2009 |
|
|
|
|
|
/s/ A. Kreamer Rooke, Jr.
A. Kreamer Rooke, Jr.
|
|
Director
|
|
June 15, 2009 |
64
Exhibit Index
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
23.1 #
|
|
Consent of Independent Registered Public Accounting Firm |
31.1 #
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Acts of 2002 |
31.2 #
|
|
Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Acts 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 |
65