10-Q 1 mdxg-20220930.htm 10-Q mdxg-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
Quarterly Period Ended
September 30, 2022

OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________to______________________

Commission File Number 001-35887
MIMEDX GROUP, INC.
(Exact name of registrant as specified in its charter)
Florida 26-2792552
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1775 West Oak Commons Ct NE
Marietta, GA
 30062
(Address of principal executive offices) (Zip Code)
(770) 651-9100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
 
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per shareMDXGThe Nasdaq Stock Market

Securities registered pursuant to Section 12(g) of the Act: None.

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes x No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer x
Accelerated filer ¨
Non-accelerated filer ¨
(Do not check if a smaller reporting company)
Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No x
 
There were 113,668,179 shares of the registrant’s common stock, par value $0.001 per share, outstanding as of October 26, 2022.




Table of Contents
Part I     FINANCIAL INFORMATION 
Item 1Financial Statements (Unaudited) 
 Condensed Consolidated Balance Sheets
 Condensed Consolidated Statements of Operations
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity
 Condensed Consolidated Statements of Cash Flows
Notes to the Condensed Consolidated Financial Statements
Item 2Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3Quantitative and Qualitative Disclosures About Market Risk
Item 4Controls and Procedures
Part II   OTHER INFORMATION
Item 1Legal Proceedings
Item 1ARisk Factors
Item 2Unregistered Sales of Equity Securities and Use of Proceeds
Item 3Defaults upon Senior Securities
Item 4Mine Safety Disclosures
Item 5Other Information
Item 6Exhibits
Signatures 

3


As used herein, the terms “MIMEDX,” the “Company,” “we,” “our” and “us” refer to MiMedx Group, Inc., a Florida corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only MiMedx Group, Inc.
Important Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements. All statements relating to events or results that may occur in the future are forward-looking statements, including, without limitation, statements regarding the following:
our strategic focus and current business priorities, and our ability to implement these priorities, including as a result of our no longer being able to market our micronized products and certain other products;
our expectations regarding our ability to fund our ongoing operations and future operating costs and the sufficiency of our liquidity and existing capital resources to implement our current business priorities;
our expectations regarding future income tax liability;
the advantages of our products and development of new products;
our expectations regarding the size of potential markets for our products and any growth in such markets;
our expectations regarding the regulatory pathway for our products, including our existing and planned investigative new drug application and pre-market approval requirements; current plans, designs, expected timelines, and expectations for success of our clinical trials; and our expectations regarding timing and receipt of necessary regulatory approvals for certain of our products, including Biological License Applications (“BLAs”);
our expectations regarding ongoing regulatory obligations and oversight and the changing nature thereof impacting our products, research and clinical programs, and business, including those relating to patient privacy;
our expectations regarding our ability to manufacture certain of our products in compliance with current Good Manufacturing Practices (“CGMP”) in sufficient quantities to meet current and potential demand;
our expectations regarding costs relating to compliance with regulatory requirements, including those arising from our clinical trials, pursuit of Investigational New Drug applications and BLAs, and CGMP compliance;
the likelihood, timing, and scope of possible regulatory approval and commercial launch of our late-stage product candidates and new indications for our products;

our expectations regarding government and other third-party coverage and reimbursement for our existing and new products;
our expectations regarding future revenue growth;
our belief in the sufficiency of our intellectual property rights in our technology;
our expectations regarding our ability to procure sufficient supplies of human tissue to manufacture and process our products;
our expectations regarding the outcome of pending litigation and investigations;
our expectations regarding the ongoing and future effects arising from the investigation conducted by the Audit Committee (the “Audit Committee”) of our Board of Directors (the “Board”) that concluded in May 2019 relating to allegations regarding certain sales and distribution practices at the Company and certain other matters (the “Investigation” or the “Audit Committee Investigation”), the restatement of our consolidated financial statements previously filed in our Annual Report for the year ended December 31, 2016, as well as selected unaudited condensed consolidated financial data as of and for the years ended December 31, 2015 (Restated) and 2014 (Restated), which reflected adjustments to our previously filed consolidated financial statements as of and for the years ended December 31, 2015 and 2014 (collectively, the “Restatement”), and related litigation;
the ongoing and future effects arising from the COVID-19 pandemic (“Covid-19”) on our business, employees, suppliers and other third parties with whom we do business, and our responses intended to mitigate such effects;

demographic and market trends; and
4


our ability to compete effectively.
Forward-looking statements generally can be identified by words such as “expect,” “will,” “change,” “intend,” “seek,” “target,” “future,” “plan,” “continue,” “potential,” “possible,” “could,” “estimate,” “may,” “anticipate,” “to be” and similar expressions. These statements are based on numerous assumptions and involve known and unknown risks, uncertainties and other factors that could significantly affect the Company’s operations and may cause the Company’s actual actions, results, financial condition, performance or achievements to differ materially from any future actions, results, financial condition, performance or achievements expressed or implied by any such forward-looking statements.
Factors that may cause such a difference include, without limitation, those discussed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021 (our “2021 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022.
Unless required by law, the Company does not intend, and undertakes no obligation, to update or publicly release any revision to any forward-looking statements, whether as a result of the receipt of new information, the occurrence of subsequent events, a change in circumstances or otherwise. Each forward-looking statement contained in this Quarterly Report is specifically qualified in its entirety by the aforementioned factors. Readers are advised to carefully read this Quarterly Report in conjunction with the important disclaimers set forth above prior to reaching any conclusions or making any investment decisions and not to place undue reliance on forward-looking statements, which speak only as of the date of the filing of this Quarterly Report with the SEC.
Estimates and Projections
This Quarterly Report includes certain estimates, projections and other statistical data. These estimates and projections reflect management’s best estimates based upon currently available information and certain assumptions we believe to be reasonable as of the date of this Quarterly Report. These estimates are inherently uncertain, subject to risks and uncertainties, many of which are not within our control, have not been reviewed by our independent auditors and may be revised as a result of management’s further review. In addition, these estimates and projections are not a comprehensive statement of our financial results, and our actual results may differ materially from these estimates and projections due to developments that may arise between now and the time the results are final. There can be no assurance that the estimates will be realized, and our results may vary significantly from the estimates, including as a result of unexpected issues in our business and operations. Accordingly, you should not place undue reliance on such information. Projections, assumptions and estimates of our future performance and the future performance of the markets in which we operate are necessarily subject to a high degree of uncertainty and risk.
5


PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MIMEDX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
September 30,
2022
December 31,
2021
ASSETS 
Current assets:  
Cash and cash equivalents$73,217 $87,083 
Accounts receivable, net40,830 40,353 
Inventory13,976 11,389 
Prepaid expenses 4,679 6,146 
Income tax receivable756 743 
Other current assets2,582 2,809 
Total current assets136,040 148,523 
Property and equipment, net7,912 9,165 
Right of use asset3,728 4,696 
Goodwill19,976 19,976 
Intangible assets, net4,992 5,383 
Other assets150 186 
Total assets$172,798 $187,929 
LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ (DEFICIT) EQUITY  
Current liabilities:  
Accounts payable$8,820 $7,385 
Accrued compensation24,090 23,595 
Accrued expenses10,986 9,812 
Other current liabilities1,962 1,565 
Total current liabilities45,858 42,357 
Long term debt, net48,475 48,127 
Other liabilities5,491 4,869 
Total liabilities$99,824 $95,353 
Commitments and contingencies (Note 13)
Convertible preferred stock Series B; $0.001 par value; 100,000 shares authorized, issued and outstanding at September 30, 2022 and December 31, 2021
$92,494 $92,494 
Stockholders' (deficit) equity
Preferred stock Series A; $0.001 par value; 5,000,000 shares authorized, 0 issued and outstanding at September 30, 2022 and December 31, 2021
$ $ 
Common stock; $0.001 par value; 187,500,000 shares authorized; 113,670,017 issued and 113,668,179 outstanding at September 30, 2022 and 112,703,926 issued and 111,925,216 outstanding at December 31, 2021
114 113 
Additional paid-in capital171,865 165,695 
Treasury stock at cost; 1,838 shares at September 30, 2022 and 778,710 shares at December 31, 2021
(7)(4,017)
Accumulated deficit(191,492)(161,709)
Total stockholders' (deficit) equity(19,520)82 
Total liabilities, convertible preferred stock, and stockholders’ (deficit) equity$172,798 $187,929 
See notes to unaudited condensed consolidated financial statements
6


MIMEDX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net sales$67,689 $63,074 $193,466 $191,206 
Cost of sales12,188 10,129 33,947 32,530 
Gross profit55,501 52,945 159,519 158,676 
Operating expenses:
Selling, general and administrative53,475 46,289 158,838 145,291
Research and development5,953 4,368 17,429 12,770 
Investigation, restatement and related3,001 3,170 8,771 8,304 
Amortization of intangible assets175 193 519 647 
Operating loss(7,103)(1,075)(26,038)(8,336)
Other expense, net
Interest expense, net(1,270)(963)(3,566)(3,806)
Other expense, net  (1)(3)
Loss before income tax provision(8,373)(2,038)(29,605)(12,145)
Income tax provision expense(53)(301)(178)(355)
Net loss$(8,426)$(2,339)$(29,783)$(12,500)
Net loss available to common stockholders (Note 9)$(10,096)$(3,913)$(34,667)$(17,039)
Net loss per common share - basic $(0.09)$(0.04)$(0.31)$(0.15)
Net loss per common share - diluted$(0.09)$(0.04)$(0.31)$(0.15)
Weighted average common shares outstanding - basic 113,448,251 110,717,073 112,650,713110,136,517
Weighted average common shares outstanding - diluted113,448,251 110,717,073 112,650,713110,136,517

See notes to unaudited condensed consolidated financial statements
7




MIMEDX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
(in thousands, except share data)
(unaudited)
Common Stock IssuedAdditional Paid - inTreasury StockAccumulated
SharesAmountCapitalSharesAmount DeficitTotal
Balance at June 30, 2022113,609,274 $114 $169,352 1,003 $(3)$(183,066)$(13,603)
Share-based compensation expense— — 2,372 — — — 2,372 
Exercise of stock options49,666 — 132 (1,001)5 — 137 
Issuance of restricted stock11,077 — — — — —  
Restricted stock canceled/forfeited— — 9 1,836 (9)—  
Net loss— — — — — (8,426)(8,426)
Balance at September 30, 2022113,670,017 $114 $171,865 1,838 $(7)$(191,492)$(19,520)
Common Stock IssuedAdditional Paid - inTreasury StockAccumulated
SharesAmountCapitalSharesAmount DeficitTotal
Balance at June 30, 2021112,703,926 $113 $158,720 821,988 $(4,385)$(161,585)$(7,137)
Share-based compensation expense— — 3,811 — — — 3,811 
Exercise of stock options— — (250)(30,032)295 — 45 
Issuance of restricted stock— — (477)(48,630)477 —  
Restricted stock shares canceled/forfeited— — 199 18,348 (199)—  
Shares repurchased for tax withholding— — — 15,354 (188)— (188)
Net loss— — — — — (2,339)(2,339)
Balance at September 30, 2021112,703,926 $113 $162,003 777,028 $(4,000)$(163,924)$(5,808)

Common Stock IssuedAdditional Paid - inTreasury StockAccumulated
SharesAmountCapitalSharesAmount DeficitTotal
Balance at December 31, 2021112,703,926 $113 $165,695 778,710 $(4,017)$(161,709)$82 
Share-based compensation expense— — 10,798 — — — 10,798 
Exercise of stock options133,762 — (697)(151,239)1,271 — 574 
Issuance of restricted stock832,329 1 (3,960)(880,749)3,959 —  
Restricted stock canceled/forfeited— — 29 5,338 (29)—  
Shares repurchased for tax withholding— — — 249,778 (1,191)— (1,191)
Net loss— — — — — (29,783)(29,783)
Balance at September 30, 2022113,670,017 $114 $171,865 1,838 $(7)$(191,492)$(19,520)

8


Common Stock IssuedAdditional Paid - inTreasury StockAccumulated
SharesAmountCapitalSharesAmount DeficitTotal
Balance at December 31, 2020112,703,926 $113 $158,610 1,773,683 $(7,449)$(151,424)$(150)
Deemed dividends— — (926)— — — (926)
Share-based compensation expense— — 11,115 — — — 11,115 
Exercise of stock options— — (1,184)(482,361)2,588 — 1,404 
Issuance of restricted stock— — (4,053)(810,405)4,053 —  
Restricted stock canceled/forfeited— — 450 66,374 (450)—  
Shares repurchased for tax withholding— — — 469,239 (4,751)— (4,751)
Net loss— — — — — (12,500)(12,500)
Other— — (2,009)(239,502)2,009 —  
Balance at September 30, 2021112,703,926 $113 $162,003 777,028 $(4,000)$(163,924)$(5,808)

See notes to unaudited condensed consolidated financial statements
9


MIMEDX GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Nine Months Ended September 30,
 20222021
Cash flows from operating activities:  
Net loss$(29,783)$(12,500)
Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities:  
Share-based compensation10,798 11,115 
Depreciation2,549 3,390 
Bad debt expense2,817  
Amortization of intangible assets519 647 
Amortization of deferred financing costs348 943 
Non-cash lease expenses931 724 
Accretion of asset retirement obligation69 57 
(Gain) loss on fixed asset disposal(17)236 
Increase (decrease) in cash resulting from changes in:  
Accounts receivable(3,295)(1,113)
Inventory(2,586)(835)
Prepaid expenses1,467 3,527 
Income taxes(13)9,420 
Other assets(287)1,990 
Accounts payable1,090 (828)
Accrued compensation495 2,085 
Accrued expenses1,724 (16,768)
Other liabilities905 (840)
Net cash flows (used in) provided by operating activities(12,269)1,250 
Cash flows from investing activities:  
Purchases of equipment(847)(2,893)
Patent application costs(128)(263)
Principal payments from note receivable 75 
Proceeds from sale of equipment24  
Net cash flows used in investing activities(951)(3,081)
Cash flows from financing activities:  
Stock repurchased for tax withholdings on vesting of restricted stock(1,191)(4,751)
Proceeds from exercise of stock options574 1,404 
Principal payments on finance lease(29)(27)
Net cash flows used in financing activities(646)(3,374)
Net change in cash(13,866)(5,205)
Cash and cash equivalents, beginning of period87,083 95,812 
Cash and cash equivalents, end of period$73,217 $90,607 
See notes to unaudited condensed consolidated financial statements
10


MIMEDX GROUP, INC.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

1.Nature of Business
MiMedx Group, Inc. (together with its subsidiaries, except where the context otherwise requires, “MIMEDX,” or the “Company”) is a transformational placental biologics company, developing and distributing placental tissue allografts with patent-protected, proprietary processes for multiple sectors of healthcare. As a pioneer in placental biologics, the Company is focused on addressing unmet clinical needs in the areas of advanced wound care, surgical recovery applications, and musculoskeletal conditions. The Company derives its products from human placental tissues and processes these tissues using its proprietary methods, including the PURION® process. The Company applies Current Good Tissue Practices, Current Good Manufacturing Practices, and terminal sterilization to produce its allografts. MIMEDX provides products primarily in the wound care, burn, and surgical recovery sectors of healthcare. All of its products are regulated by the U.S. Food & Drug Administration (“FDA”).
As of September 30, 2022, the Company manages itself as two reportable segments: Wound & Surgical and Regenerative Medicine. Information regarding the principal operations and results of these segments can be found in Note 15, Segment Information.
The Company’s business is currently focused primarily in the United States. The Company is pursuing opportunities for international expansion, with specific focus on the launch of its placental tissue products in Japan.
Enforcement Discretion
In November 2017, the FDA published a series of guidances that established an updated framework for the regulation of cellular and tissue-based products. These guidances clarified the FDA’s views about the criteria that differentiate those products subject to regulation solely under Section 361 of the Public Health Service Act (“Section 361”) from those considered to be drugs, devices, and/or biological products subject to licensure under Section 351 of the Public Health Service Act and related regulations. The Company identified its micronized and certain other products (collectively, the “Section 351 products”) as being subject to regulation under Section 351, requiring pre-market approval from the FDA for a specified indication with demonstrated clinical efficacy.
The FDA exercised enforcement discretion with respect to Investigational New Drug applications and pre-market approval requirements through May 31, 2021. As of May 31, 2021, the Company stopped marketing its Section 351 products in the United States and is precluded from marketing such products until a Biologics License Application (“BLA”) is granted. If and when the FDA approves a BLA, the Company expects to be allowed to market its Section 351 products in the United States again, but only for specific indications as permitted by the FDA. Sales of the Company’s Section 351 products were $0.8 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively, and $1.8 million and $17.2 million for the nine months ended September 30, 2022 and 2021, respectively. Sales of Section 351 products during the three and nine months ended September 30, 2022 were derived from sales outside the United States.
The Company currently markets EPICORD® and AMNIOCORD® tissue products derived from human umbilical cord as providing a protective environment or as a barrier. If the FDA were to determine that EPICORD and AMNIOCORD do not meet the requirements for regulation solely under Section 361, then pre-market clearance or approval would be required for these products. The loss of the Company’s ability to market and sell its umbilical cord-derived products could have an adverse effect on the Company’s revenue, business, financial condition, and results of operations. Net sales of the Company’s umbilical cord-derived products were $5.7 million and $6.2 million for the three months ended September 30, 2022 and 2021 and $17.2 million and $17.1 million for the nine months ended September 30, 2022 and 2021, respectively. The Company’s cord inventory, which would be at risk for write-down in the case of such a determination by the FDA, was $1.8 million and $1.9 million as of September 30, 2022 and December 31, 2021, respectively.
2.Significant Accounting Policies
Please see Note 2 to the Company’s Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on February 28, 2022 for a description of all significant accounting policies.
11


Basis of Presentation
The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations for the periods presented have been included. The operating results for the three and nine months ended September 30, 2022 and 2021 are not necessarily indicative of the results that may be expected for the full fiscal year. The balance sheet as of December 31, 2021 was derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
These unaudited condensed consolidated financial statements should be read in conjunction with the historical consolidated financial statements of the Company included in the 2021 Form 10-K.
Use of Estimates
The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. Conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported unaudited condensed consolidated statements of operations during the reporting period. Actual results could differ from those estimates. Significant estimates include estimated useful lives and potential impairment of property and equipment and intangible assets, estimates regarding asset retirement obligations, estimates for contingent liabilities, estimates related to the Company’s assessment of goodwill impairment, the measurement of right of use assets and lease liabilities, management’s assessment of the Company’s ability to continue as a going concern, estimates of fair value of share-based payments, estimate for allowance for doubtful accounts, estimates of sales returns and allowances, and valuation of deferred tax assets.
Principles of Consolidation
The unaudited condensed consolidated financial statements include the accounts of MiMedx Group, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation.
Segment Reporting
The application of GAAP requires the use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker (“CODM”) organizes segments within the Company for which separate, discrete financial information is available regarding resource allocation and assessing performance. The Company has concluded that its Chief Executive Officer (“CEO”) is its CODM. Prior to June 30, 2022, the Company assessed that it operated as one operating and reportable segment. The Company reassesses the existence of operating segments when facts and circumstances suggest that there may have been a change in the way that the Company was managed.
On September 30, 2022, the Company reassessed its operating segments, concluding that the CODM assesses performance and allocates resources between two, distinct reportable segments: Wound & Surgical and Regenerative Medicine. Information regarding the principal operations and results of these segments can be found in Note 15, Segment Information.
Goodwill
The Company assesses goodwill for impairment at least annually on October 1 and more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that goodwill is impaired. In performing the goodwill impairment test, the Company first assesses qualitative factors to determine the existence of impairment. If the qualitative factors indicate that the carrying value of a reporting unit exceeds its fair value, the Company proceeds to a quantitative test to measure the existence and amount, if any, of goodwill impairment. The Company may also choose to bypass the qualitative assessment and proceed directly to the quantitative test.
In performing the quantitative test, impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its assessed fair value. The Company determines the fair value using the income and market approaches.
Under the income approach, the fair value of a reporting unit is the present value of its future cash flows as viewed from the lens of a hypothetical market participant in an orderly transaction. These future cash flows are derived from expectations of revenue, expenses, tax deductions and credits, working capital flows, capital expenditures, and other projected sources and uses of cash, as applicable. Value indications are developed by discounting expected cash flows to their present value using a discount rate commensurate with the risks associated with the reporting unit subject to testing.
12


Under the market approach, the Company uses market multiples derived from the various comparable companies based on measures salient to investors in those companies.
If the Company concludes that a reporting unit is being managed on the basis of multiple reporting units, the goodwill assigned to the original reporting unit is allocated to the new reporting units based on the relative fair value of the new reporting units.
As indicated above, on September 30, 2022, the Company changed its operating segments, determining that it operates as three operating segments. In concert with this re-evaluation, the Company concluded that it has three reporting units. Management performed a goodwill impairment test as of that date on its previous reporting unit, concluding that goodwill was not impaired as of that date. Management subsequently allocated the goodwill assigned to its previous reporting unit to its new reporting units. Refer to Note 6, Goodwill and Intangible Assets, Net for information regarding the reallocation of goodwill to the new reporting units.
Recently Adopted Accounting Standards
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-10, “Government Assistance (Topic 832)”, which provides disclosure requirements regarding government grants and contributions. The ASU requires disclosure of the nature of transactions and related accounting policies used to account for transactions, the effect, including amounts, of government assistance on individual line items on the financial statements, and significant terms and conditions of the transactions, including commitments and contingencies. This ASU is effective for fiscal years beginning after December 15, 2021. The Company adopted the provisions of this ASU effective January 1, 2022. There was no impact upon adoption.
Recently Issued Accounting Standards Not Yet Adopted
All ASUs issued and not yet effective for the three and nine months ended September 30, 2022, and through the date of this report, were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s financial position and results of operations.
3. Accounts Receivable, Net
Accounts receivable, net, consisted of the following (in thousands):
 September 30, 2022December 31, 2021
Accounts receivable, gross$44,660 $41,540 
Less: allowance for doubtful accounts(3,830)(1,187)
Accounts receivable, net$40,830 $40,353 
Bad debt expense, included in selling, general and administrative expense on the condensed consolidated statements of operations, for the three and nine months ended September 30, 2022 was $0.4 million and $2.8 million, respectively. Bad debt expense for the three and nine months ended September 30, 2021 was not significant in either period.
4.     Inventory
Inventory consisted of the following (in thousands):
 September 30, 2022December 31, 2021
Raw materials$670 $364 
Work in process7,604 6,112 
Finished goods5,702 4,913 
Inventory$13,976 $11,389 
As a result of the conclusion of the FDA’s period of Enforcement Discretion on May 31, 2021, the Company wrote-off $1.0 million of its Section 351 product inventory during the nine months ended September 30, 2021. In addition, during the three and nine months ended September 30, 2021, the Company wrote-down $0.5 million and $0.7 million, respectively, for inventory related to product lines which had been discontinued. These amounts are included as part of cost of sales on the unaudited condensed consolidated statements of operations for those periods.
There were no significant, unusual write-downs of inventory during the three or nine months ended September 30, 2022.
13


5.    Property and Equipment, Net
Property and equipment, net, consisted of the following (in thousands):
 September 30, 2022December 31, 2021
Leasehold improvements$9,190 $9,052 
Laboratory and clean room equipment16,302 16,567 
Furniture and equipment14,997 14,975 
Construction in progress1,383 397 
Asset retirement cost982 863 
Finance lease right-of-use asset189 189 
Property and equipment, gross43,043 42,043 
Less: accumulated depreciation and amortization(35,131)(32,878)
Property and equipment, net$7,912 $9,165 
Depreciation expense for the three and nine months ended September 30, 2022 and 2021 is summarized in the table below (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Depreciation expense$831 $923 $2,549 $3,390 
Depreciation expense is allocated amongst cost of sales, research and development expense, and selling, general, and administrative expense on the unaudited condensed consolidated statements of operations.
6.     Goodwill and Intangible Assets, Net
Goodwill
Historically, the Company had concluded that it operated as a single operating segment and single reporting unit. During the three and nine months ended September 30, 2022, as a result of changes in the management of the Company’s business, management concluded that the Company operates as three operating segments, including two distinct reportable segments: Wound & Surgical and Regenerative Medicine. See Note 15 for a description of the Company’s operating segments. Management further concluded that it had three reporting units.
The Company allocated the $20.0 million of consolidated goodwill, which was entirely allocated to its previous reporting unit, to each of Wound & Surgical and Regenerative Medicine based on their relative fair values from a market participant standpoint. The result was $19.5 million and $0.5 million allocated to Wound & Surgical and Regenerative Medicine, respectively. A third reporting unit associated with the Company’s third operating segment was deemed immaterial and no goodwill was assigned to it.
The Company performed goodwill impairment tests using the Company’s single reporting unit and the new reporting units. In all cases, the Company concluded that the estimated fair values of each reporting unit exceeded their respective carrying values. Therefore, the Company did not record impairment for goodwill during the three or nine months ended September 30, 2022. There was no other activity related to goodwill during the three or nine months ended September 30, 2022.
Intangible Assets, Net
14


Intangible assets, net, are summarized as follows (in thousands):
September 30, 2022December 31, 2021
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Amortized intangible assets
Patents and know-how$9,810 $(6,928)$2,882 $9,578 $(6,408)$3,170 
Unamortized intangible assets:
Tradenames and trademarks$1,008 $1,008 $1,008 $1,008 
Patents in Process1,102 1,102 1,205 1,205 
Total intangible assets$11,920 $4,992 $11,791 $5,383 
Amortization expense for the three and nine months ended September 30, 2022 and 2021 is summarized in the table below (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Amortization expense$175 $193 $519 $647 
Expected future amortization of intangible assets as of September 30, 2022, is as follows (in thousands):
Year ending December 31,Estimated
Amortization
Expense
2022 (excluding the nine months ended September 30, 2022)
$174 
2023698 
2024698 
2025303 
2026148 
Thereafter861 
Total amortized intangible assets$2,882 
7. Accrued Expenses
Accrued expenses consisted of the following (in thousands):
September 30, 2022December 31, 2021
Legal and settlement costs$4,185 $2,806 
Commissions to sales agents2,238 2,630 
Accrued rebates878 1,343 
Accrued group purchasing organization fees616 559 
Estimated sales returns999 788 
Accrued travel402 385 
Accrued clinical trials214 694 
Other1,454 607 
Accrued expenses$10,986 $9,812 
15


8.    Long Term Debt, Net
Hayfin Loan Agreement
On June 30, 2020, the Company entered into a Loan Agreement with, among others, Hayfin Services, LLP (“Hayfin”), an affiliate of Hayfin Capital Management LLP (the “Hayfin Loan Agreement”), which Hayfin funded on July 2, 2020 (the “Closing Date”), providing the Company with a senior secured term loan in an aggregate amount of $50 million (the “Term Loan”). The Term Loan matures on June 30, 2025 (the “Maturity Date”). Interest is payable on the Term Loan for the principal balance outstanding quarterly through the Maturity Date. No principal payments on the Term Loan are due and payable until the Maturity Date.
The Hayfin Loan Agreement also provided the Company an option to draw on an additional delayed draw term loan (the “DD TL,” collectively with the Term Loan, the “Credit Facilities”) in the form of a committed but undrawn facility until June 30, 2021. The Company did not exercise the option.
On February 28, 2022 (the “Amendment Date”), the Company executed an Amendment to the Hayfin Loan Agreement (the “Amendment”). The Amendment was accounted for as a modification. No gain or loss was recognized nor was there a change to the carrying amount of the debt as a result of the Amendment.
Interest on any borrowings under the Hayfin Loan Agreement, as amended (the “Amended Hayfin Loan Agreement”), is equal to the London Interbank Offered Rate (“LIBOR”) (subject to a floor of 1.5%), plus a margin of 6.75% per annum. If LIBOR is unavailable, the Term Loan will carry interest at the 6.75% margin plus the greatest of the Prime Rate, the Federal Funds Rate plus 0.5% per annum, and 2.5%.
An additional 3.0% margin is applied to the interest rate in the event of a default as defined in the Amended Hayfin Loan Agreement. The Term Loan carried an interest rate of 8.3% at issuance and 10.4% as of September 30, 2022.
The Amended Hayfin Loan Agreement, contains financial covenants requiring the Company, on a consolidated basis, to maintain the following:
Minimum Consolidated Total Net Sales (as defined in the Amended Hayfin Loan Agreement) of varying amounts, required to be calculated on a quarterly basis, and
Minimum Liquidity (as defined in the Amended Hayfin Loan Agreement) of $20 million, an at-all-times financial covenant tested monthly.
As of September 30, 2022, the Company is in compliance with all applicable financial covenants under the Amended Hayfin Loan Agreement.
The Amended Hayfin Loan Agreement also includes certain negative covenants and events of default customary for facilities of this type, and upon the occurrence of such events of default, subject to customary cure rights, the Term Loan may be accelerated or the lenders’ commitments terminated. Mandatory prepayments are also required in the event of a change in control, incurring other indebtedness, certain proceeds from disposal of assets and insured casualty event (as defined in the Amended Hayfin Loan Agreement). Annually, beginning with the fiscal year ended December 31, 2021, the Company is required to prepay the outstanding loans based on a percentage of Excess Cash Flow (as defined in the Amended Hayfin Loan Agreement), if such is generated. No such prepayments have been required as of September 30, 2022.
A breach of a financial covenant in the Amended Hayfin Loan Agreement, if uncured or unable to be cured, would likely result in an event of default that could trigger the lender’s remedies, including acceleration of the entire principal balance of the loan as well as any applicable prepayment premiums.
The Amended Hayfin Loan Agreement also specifies that any prepayment of the Term Loan, voluntary or mandatory, will subject the Company to a prepayment premium applicable as of the date of the prepayment as follows:
On or before July 2, 2023: 2% of the principal balance repaid.
After July 2, 2023 and on or before July 2, 2024: 1% of the principal balance repaid.
After July 2, 2024: no premium.
Hayfin maintains a first-priority security interest in substantially all of the Company’s assets.
16


Original issue discount and deferred financing costs were allocated between the sale of the Series B Preferred Stock (which occurred on the same day as the funding of the Hayfin Loan Agreement as described in Note 10) and the Hayfin Loan Agreement on the basis of the relative fair values of the transactions. The costs allocated to the Hayfin Loan Agreement were further allocated between the Term Loan and the DD TL on the basis of the maximum potential principal outstanding between the Credit Facilities. The allocation of the deferred financing costs and original issue discount between the Term Loan and the DD TL on July 2, 2020 was as follows (in thousands):
July 2, 2020
Term LoanDD TLTotal
Original issue discount$333 $167 $500 
Deferred financing costs2,169 1,084 3,253 
Deferred financing costs and original issue discount associated with the Term Loan are amortized using the effective interest method through the Maturity Date. The amortization of such amounts is presented as part of interest expense, net on the unaudited condensed consolidated statement of operations. Unamortized deferred financing costs and original issue discount associated with the Term Loan are presented as a reduction to the principal balance on the Term Loan as part of long term debt, net on the unaudited condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021.
Deferred financing costs and original issue discount associated with the DD TL were amortized using the straight-line method through the expiration of the DD TL commitment term on June 30, 2021. Amortization of these amounts is presented as part of interest expense, net on the unaudited condensed consolidated statement of operations for the nine months ended September 30, 2021. The DD TL was subject to a commitment fee of 1% per annum of the amount undrawn, which was recognized as interest expense.
The balances of the Term Loan as of September 30, 2022 and December 31, 2021 were as follows (in thousands):
September 30, 2022December 31, 2021
Outstanding principal$50,000 $50,000 
Deferred financing costs(1,322)(1,624)
Original issue discount(203)(249)
Long term debt, net$48,475 $48,127 
Interest expense related to the Term Loan, included in interest expense, net in the unaudited condensed consolidated statements of operations, was as follows (amounts in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Stated interest$1,151 $1,054 $3,225 3,116
Amortization of deferred financing costs103 95 302 276 
Accretion of original issue discount16 15 46 42 
Interest expense$1,270 $1,164 $3,573 $3,434 
Interest expense related to the DD TL, included in interest expense, net in the unaudited condensed consolidated statements of operations, was as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Commitment fee$ $ $ $126 
Amortization of deferred financing costs   542 
Accretion of original issue discount   83 
Interest expense$ $ $ $751 
17


A summary of principal payments due on the Term Loan, by year, from September 30, 2022 through maturity are as follows (in thousands):
Year ending December 31,Principal
2022 (excluding the nine months ended September 30, 2022)
$ 
2023
 
2024
 
2025
50,000 
2026
 
Thereafter 
Total long term debt$50,000 
As of September 30, 2022, the fair value of the Term Loan was $44.7 million. This valuation was calculated based on a series of Level 2 and Level 3 inputs, including a discount rate based on the credit risk spread of debt instruments of similar risk character in reference to U.S. Treasury instruments with similar maturities, with an incremental risk premium for risk factors specific to the Company. The remaining cash flows associated with the Term Loan were discounted to September 30, 2022 using this discount rate to determine fair value.
9. Net Loss Per Common Share
Net loss per common share is calculated using two methods: basic and diluted.
Basic Net Loss Per Common Share
Basic net loss per common share is calculated as net loss available to common stockholders divided by weighted average common shares outstanding. Net loss available to common stockholders is calculated as net loss less (i) dividends accumulated on the Company’s Series B Convertible Preferred Stock during the period, and (ii) periodic accretion of the increasing-rate dividend feature.
The following table provides a reconciliation of net loss to net loss available to common stockholders and calculation of basic net loss per common share for each of the three and nine months ended September 30, 2022 and 2021 (in thousands, except share and per share amounts):
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net loss$(8,426)$(2,339)$(29,783)$(12,500)
Adjustments to reconcile to net loss available to common stockholders
Accumulated dividend on Series B Preferred Stock1,670 1,574 4,8843,613
Accretion of increasing-rate dividend feature   926
Total adjustments1,670 1,574 4,884 4,539 
Net loss available to common stockholders$(10,096)$(3,913)$(34,667)$(17,039)
Weighted average common shares outstanding113,448,251 110,717,073 112,650,713110,136,517
Basic net loss per common share$(0.09)$(0.04)$(0.31)$(0.15)
Diluted Net Loss Per Common Share
Diluted net loss per common share is calculated as net loss available to common stockholders, adjusted for dividends on convertible preferred stock (to the extent conversion would be dilutive), divided by weighted average common shares outstanding plus potential common shares. The calculation of potential common shares considers incremental shares resulting from certain transactions, including the exercise of stock options and the issuance of restricted stock, using the treasury stock method, as well as the hypothetical conversion of the Company’s Series B Convertible Preferred Stock using the if-converted method. The treasury stock method assumes that proceeds from the transaction are used to purchase common stock at the average market price throughout the period. The if-converted method adds back periodic accrued or deemed dividends on the Company’s Series B Convertible Preferred Stock, and assumes conversion as of the beginning of the period.
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Each individual transaction is assessed for its dilutive effect on net loss per common share. To the extent that the transaction is antidilutive or does not reduce net loss per common share, the effect is excluded from the calculation.
The following table sets forth the computation of diluted net loss per common share (in thousands, except share and per share amounts):
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net loss available to common stockholders$(10,096)$(3,913)$(34,667)$(17,039)
Adjustments:
Dividends on Series B Convertible Preferred Stock1,670 1,574 4,884 4,539 
Less: antidilutive adjustments(1,670)(1,574)(4,884)(4,539)
Total adjustments— — — — 
Numerator$(10,096)$(3,913)$(34,667)$(17,039)
Weighted average shares outstanding113,448,251 110,717,073 112,650,713 110,136,517 
Adjustments
Potential common shares29,269,481 30,658,193 28,858,049 30,185,813 
Less: antidilutive potential common shares (a)(29,269,481)(30,658,193)(28,858,049)(30,185,813)
Total adjustments— — — — 
Weighted average shares outstanding adjusted for potential common shares113,448,251 110,717,073 112,650,713 110,136,517 
Diluted net loss per common share$(0.09)$(0.04)$(0.31)$(0.15)
(a) Weighted average common shares outstanding for the calculation of diluted net loss per common share does not include the following adjustments for potential common shares below because their effects were determined to be antidilutive for the periods presented.
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Series B Convertible Preferred Stock28,685,739 27,027,252 27,850,916 26,497,570 
Restricted stock unit awards474,355