þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Florida | 26-2792552 | |
(State or other jurisdiction of incorporation) | (I.R.S. Employer Identification Number) | |
811 Livingston Court, Suite B | ||
Marietta, GA | 30067 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
3
Item 8. | Financial Statements and Supplementary Data |
Page | ||||
5 | ||||
6 | ||||
7 | ||||
9 | ||||
8 | ||||
10 |
4
5
December 31, | ||||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 1,340,922 | $ | 2,653,537 | ||||
Accounts receivable, net |
162,376 | | ||||||
Inventory |
111,554 | 30,920 | ||||||
Prepaid expenses and other current assets |
90,946 | 121,277 | ||||||
Total current assets |
1,705,798 | 2,805,734 | ||||||
Property and equipment,
net of accumulated depreciation of $1,392,704
and $948,445, respectively |
756,956 | 1,049,597 | ||||||
Goodwill |
857,597 | 857,597 | ||||||
Intangible assets, net of accumulated amortization of $2,132,606
and $1,464,674, respectively |
3,929,394 | 4,597,326 | ||||||
Deferred financing costs |
| 192,627 | ||||||
Deposits and other long term assets |
102,500 | 189,202 | ||||||
Total assets |
$ | 7,352,245 | $ | 9,692,083 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 848,285 | $ | 629,349 | ||||
Short-term convertible notes, plus accrued interest of $3,432 |
403,432 | | ||||||
Total current liabilities |
1,251,717 | 629,349 | ||||||
Long-term convertible debt, face value $3,472,000, less unamortized
discount of $550,748 and including accrued interest of $69,604 |
| 2,990,856 | ||||||
Total liabilities |
1,251,717 | 3,620,205 | ||||||
Commitments and contingency (Note 14) |
| | ||||||
Stockholders equity: |
||||||||
Preferred stock; $.001 par value; 5,000,000
shares authorized and 0 shares issued and outstanding |
| | ||||||
Common stock; $.001 par value; 100,000,000 shares authorized;
64,381,910 and 50,002,887 shares issued and
64,331,910 and 49,952,887 shares issued and outstanding, respectively |
64,382 | 50,003 | ||||||
Additional paid-in capital |
57,888,506 | 46,454,482 | ||||||
Treasury stock (50,000 shares at cost) |
(25,000 | ) | (25,000 | ) | ||||
Accumulated deficit |
(51,827,360 | ) | (40,407,607 | ) | ||||
Total stockholders equity |
6,100,528 | 6,071,878 | ||||||
Total liabilities and stockholders equity |
$ | 7,352,245 | $ | 9,692,083 | ||||
6
Year Ended | Nine Months Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
REVENUES: |
||||||||
Net sales |
$ | 544,155 | $ | 800 | ||||
Grant Revenue |
244,719 | $ | | |||||
Total revenue |
788,874 | 800 | ||||||
OPERATING COSTS AND EXPENSES: |
||||||||
Cost of products sold |
1,720,063 | 240 | ||||||
Research and development expenses |
2,753,331 | 2,590,227 | ||||||
Selling, General and Administrative expenses |
6,848,135 | 3,463,303 | ||||||
Gain on sale of assets |
| (280,868 | ) | |||||
LOSS FROM OPERATIONS |
(10,532,655 | ) | (5,772,102 | ) | ||||
OTHER INCOME (EXPENSE) |
||||||||
Financing expense associated with issuance of common
stock for registration rights waivers |
| (1,305,100 | ) | |||||
Financing expense associated with warrants issued
in connection with convertible promissory note |
(287,449 | ) | (975,833 | ) | ||||
Interest (expense) income, net |
(599,649 | ) | (242,634 | ) | ||||
LOSS BEFORE INCOME TAXES |
(11,419,753 | ) | (8,295,669 | ) | ||||
Income taxes |
| | ||||||
NET LOSS |
(11,419,753 | ) | (8,295,669 | ) | ||||
Net loss per common share |
||||||||
Basic and diluted |
$ | (0.19 | ) | $ | (0.20 | ) | ||
Shares used in computing net loss per common share |
||||||||
Basic and diluted |
59,138,357 | 41,365,513 | ||||||
7
Year Ended | Nine Months Ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (11,419,753 | ) | $ | (8,295,669 | ) | ||
Adjustments to reconcile net loss to net cash flows from
operating activities, net of effects of acquisition: |
||||||||
Gain on settlement of payables |
| (584,969 | ) | |||||
(Gain)/loss on sale of assets |
| (280,868 | ) | |||||
Depreciation |
444,259 | 337,909 | ||||||
Amortization of intangible assets |
667,932 | 497,211 | ||||||
Amortization of debt discount and deferred financing costs |
599,001 | 169,739 | ||||||
Employee share-based compensation expense |
996,307 | 363,457 | ||||||
Other share-based compensation expense |
174,354 | 117,689 | ||||||
Financing expense associated with issuance of common stock
for waivers of registration rights |
| 1,305,100 | ||||||
Financing expense associated with warrants issued in
connection with convertible promissory note |
287,448 | 975,833 | ||||||
Modifications of options and purchase of treasury stock |
| 48,000 | ||||||
Increase (decrease) in cash resulting from changes in: |
||||||||
Accounts receivable,net |
(162,376 | ) | | |||||
Inventory |
(80,634 | ) | (30,920 | ) | ||||
Prepaid expenses and other current assets |
30,331 | 21,676 | ||||||
Other assets |
86,702 | | ||||||
Accounts payable and accrued expenses |
218,936 | (240,468 | ) | |||||
Net cash flows from operating activities |
(8,157,493 | ) | (5,596,280 | ) | ||||
Cash flows from investing activities: |
||||||||
Purchase of equipment |
(151,617 | ) | (11,610 | ) | ||||
Proceeds from sale of assets |
| 360,250 | ||||||
Cash paid in conjunction with sales of assets |
| (86,332 | ) | |||||
Net cash flows from investing activities |
(151,617 | ) | 262,308 | |||||
Cash flows from financing activities: |
||||||||
Proceeds from convertible debt offering |
| 3,472,000 | ||||||
Proceeds from bridge loan |
500,000 | | ||||||
Proceeds from convertible promissory note |
| 500,000 | ||||||
Repayment of convertible promissory note |
| (500,000 | ) | |||||
Proceeds from sale of common stock and
warrants and common stock with registration rights, net |
3,122,020 | 4,618,719 | ||||||
Proceeds from exercise of stock options |
155,126 | 2 | ||||||
Net proceeds from exercise of warrants |
3,219,349 | | ||||||
Offering costs paid in connection with convertible debt offering |
| (138,040 | ) | |||||
Net cash flows from financing activities |
6,996,495 | 7,952,681 | ||||||
Net change in cash |
(1,312,615 | ) | 2,618,709 | |||||
Cash, beginning of period |
2,653,537 | 34,828 | ||||||
Cash, end of period |
$ | 1,340,922 | $ | 2,653,537 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid for interest |
$ | 8,330 | $ | 4,745 | ||||
Cash paid for income taxes |
$ | | $ | | ||||
* | the Company issued 500,000 warrants in conjunction with the issuance of Hybrid Debt
instruments valued at $141,974 |
||
* | the Company recognized a beneficial converstion feature valued at $145,474 related to the
Hybrid debt instruments. |
||
* | the Company recognized the amortization of debt discount and deferred financing costs related
to the converstion of convertible debt in the amount of $599,001. |
* | the Company recognized amortization of a debt discount and deferred interest of $169,739 in
conjunction with our convertible debt offering. |
||
* | the Company issued 315,520 warrants to purchase common stock, valued at $98,574 |
||
* | the Company issued 100,000 shares valued at $42,000 for costs associated with its private
placement sale of common
stock and warrants, 162,750 shares valued at $81,375 for accrued directors fees, and 187,644 shares
valued at $93,822
for accrued executive compensation. |
||
* | the Company reclassified 1,905,000 shares with registration rights valued at $3,761,250 to equity
as the result of the
termination of such rights, and issued 2,490,000 shares valued at $1,305,100 as settlement of the
waived rights (Note7). |
||
* | the Company issued 100,000 shares of common stock valued at $71,000 for intellectual property
upon achieving certain
milestones (Note 5). |
||
* | the Company issued 975,833 warrants valued at $975,833 in conjuction with a convertible
promissory note. |
||
* | the Company received a $100,000 3% Secured Promissory Note in conjunction with its sale of
intellectual property (Note 5). |
8
Additional | ||||||||||||||||||||||||
Common Stock | Paid-in | Treasury | Accumulated | |||||||||||||||||||||
Shares | Amount | Capital | Stock | Deficit | Total | |||||||||||||||||||
Balances, March 31, 2009 |
37,339,628 | 37,340 | 34,230,824 | | (32,111,938 | ) | 2,156,226 | |||||||||||||||||
Employee share-based compensation
expense |
| | 363,457 | | | 363,457 | ||||||||||||||||||
Other share-based compensation
expense |
| | 117,689 | | | 117,689 | ||||||||||||||||||
Beneficial conversion feature recognized
on convertible debt |
| | 676,500 | | | 676,500 | ||||||||||||||||||
Warrants issued to placement agents in
conjunction with convertible debt |
| | 98,574 | | | 98,574 | ||||||||||||||||||
Exercise of stock options |
20,000 | 20 | (18 | ) | | | 2 | |||||||||||||||||
Common stock issued for waivers
of registration rights |
2,490,000 | 2,490 | 1,302,610 | | | 1,305,100 | ||||||||||||||||||
Reclassification of common stock with
registration rights |
1,905,000 | 1,905 | 3,759,345 | | | 3,761,250 | ||||||||||||||||||
Common stock issued for accrued directors
fees |
162,750 | 163 | 81,212 | | | 81,375 | ||||||||||||||||||
Common stock issued for accrued executive
compensation |
187,644 | 187 | 93,635 | | | 93,822 | ||||||||||||||||||
Common Stock issued in connection with
purchase of license agreement |
100,000 | 100 | 70,900 | | | 71,000 | ||||||||||||||||||
Sale of common stock and warrants
(net of $42,000 of offering costs) |
7,697,865 | 7,698 | 4,569,021 | | | 4,576,719 | ||||||||||||||||||
Common stock issued for services in
conjunction with private placement |
100,000 | 100 | 41,900 | | | 42,000 | ||||||||||||||||||
Warrants issued in conjunction with
convertible promissory note |
| | 975,833 | | | 975,833 | ||||||||||||||||||
Modification of stock options and
purchase of treasury stock |
| | 73,000 | (25,000 | ) | | 48,000 | |||||||||||||||||
Net loss for the period |
| | | | (8,295,669 | ) | (8,295,669 | ) | ||||||||||||||||
Balances, December 31, 2009 |
50,002,887 | $ | 50,003 | $ | 46,454,482 | $ | (25,000 | ) | $ | (40,407,607 | ) | $ | 6,071,878 | |||||||||||
Employee share-based compensation
expense |
| | 996,307 | | | 996,307 | ||||||||||||||||||
Other share-based compensation
expense |
| | 174,354 | | | 174,354 | ||||||||||||||||||
Beneficial conversion feature recognized
on convertible debt |
| | 287,448 | | | 287,448 | ||||||||||||||||||
Sale of common stock and warrants
(net of $67,980 of offering costs) |
3,713,433 | 3,713 | 3,118,307 | | | 3,122,020 | ||||||||||||||||||
Exercise of stock options |
210,250 | 211 | 154,915 | | | 155,126 | ||||||||||||||||||
Exercise of warrants |
3,219,348 | 3,219 | 3,216,130 | | | 3,219,349 | ||||||||||||||||||
Shares issued in conjunction with conversion
of convertible debt |
7,235,992 | 7,236 | 3,486,563 | | | 3,493,799 | ||||||||||||||||||
Net loss for the year |
| | | | (11,419,753 | ) | (11,419,753 | ) | ||||||||||||||||
Balances, December 31, 2010 |
64,381,910 | $ | 64,382 | $ | 57,888,506 | $ | (25,000 | ) | $ | (51,827,360 | ) | $ | 6,100,528 | |||||||||||
9
1. | Formation and nature of business: |
Prior to the fiscal year ended December 31, 2010, MiMedx was considered a Development Stage
Enterprise. |
MiMedx, Inc. (MiMedx) was incorporated in Florida in 2006. MiMedx entered into and
consummated 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 owned a substantial majority of the issued
and outstanding shares, and thus this reverse merger was accounted for as a capital
transaction. The historical financial statements are a continuation of financial statements
of the accounting acquirer and the capital structure of the consolidated enterprise is now
different from that appearing in the historical financial statements of the accounting
acquirer in earlier periods due to the recapitalization. |
On March 31, 2008, MiMedx Group, Inc., a Florida Corporation, and Alynx merged. As a result
of this transaction, MiMedx Group, Inc. became the surviving corporation. The Company
refers to MiMedx Group, Inc. which is comprised of 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 revenue from the sale of its products. This process is expected to take at
least six months to one year, 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). 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. |
The Company operates in one business segment, Biomaterials, which includes the design,
manufacture, and marketing of products for the Orthopedics and Spine market categories. |
10
2. | Significant accounting policies: |
Fiscal year: |
The current fiscal year is for the twelve months ended December 31, 2010. The prior year
reported financials were for the nine months ended December 31, 2009 due to a change in fiscal
year from March to December in 2009. The result of this change is that our reporting period
for the current fiscal year is compared to the nine months ended December 31, 2009. The
comparable amounts for the twelve months ended December 31, 2010 and 2009 (unaudited),
respectively, are as follows: |
Year ended December 31, | ||||||||
2010 | 2009 | |||||||
Revenues |
$ | 788,874 | $ | 800 | ||||
Loss from operations |
(10,532,658 | ) | (9,229,749 | ) | ||||
Loss before income tax |
(11,419,753 | ) | (11,167,653 | ) | ||||
Income tax |
| | ||||||
Net loss |
(11,419,753 | ) | (11,167,653 | ) | ||||
Net loss per common share |
$ | (0.19 | ) | $ | (0.28 | ) |
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 revenue 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. |
Concentrations of credit risk: |
The Company places its cash and cash equivalents on deposit with 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 amounts insured by the FDIC will return to $100,000.
During the year, the Company from time to time may have had amounts on deposit in excess of
the insured limits. As of December 31, 2010, the Company had cash and cash equivalents of
approximately $1,341,000 which exceeds these insured amounts. |
Cash and cash equivalents: |
Cash and cash equivalents include all highly liquid investments with an original maturity of
three months or less. |
Accounts Receivable |
Accounts receivable represent amounts due from customers for which revenue has been
recognized. Generally, the Company does not require collateral or any other security to
support its receivables. |
The allowance for doubtful accounts is the Companys best estimate of the amount of probable
credit losses in the Companys existing receivables. The Company determines the allowance
based on factors such as historical collection experience, customers current
creditworthiness, customer concentration, age of accounts receivable balance and general
economic conditions that may affect the customers ability to pay. As of December 31, 2010,
the Company has $21,600 in the allowance for doubtful accounts. Actual customer collections
could differ from estimates. |
11
Inventories: |
Inventories at December 31, 2010, are valued at the lower of actual cost or market, using the
first-in, first-out (FIFO) method. Work in process is calculated by estimating the number of
units that will be successfully converted to finished goods, based upon a build-up in the
stage of completion using estimated labor inputs for each stage and historical yields reduced
by estimated usage for quality control testing. Idle facility expense, excessive spoilage,
extra freight, and handling costs are expensed, as necessary, in cost of sales and are not
capitalized into inventories. Allocation of fixed production overheads is based on the normal
capacity of production facilities. |
Goodwill and intangible assets: |
Goodwill 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
estimated term of the patents underlying the licensing rights and intellectual property. The
estimated remaining useful life of the assets is approximately seven more years. |
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 has been no impairment losses in the periods presented. |
Revenue Recognition: |
The Company sells its products primarily through a combination of independent stocking
distributors and representatives in the U.S. and independent distributors in international
markets. The Company recognizes revenue when title to the goods and risk of loss transfers to
customers, provided there are no
material remaining performance obligations required of the Company or any matters of customer
acceptance. In cases where the Company utilized distributors or ships product directly to the
end user, it recognizes revenue upon shipment provided all revenue recognition criteria have
been met. A portion of the Companys revenue is generated from inventory maintained at
hospitals or with field representatives. For these products, revenue is recognized at the
time the product has been used or implanted. The Company records estimated sales returns,
discounts and allowances as a reduction of net sales in the same period revenue is recognized. |
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. |
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. |
12
Share-based compensation: |
The Company follows the provisions of ASC topic 718 Compensation Stock compensation 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). All awards are amortized on a straight-line basis over their vesting terms into
Selling, General and Administrative Expenses in the consolidated Statements of Operations. |
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. The fair value of our short term convertible
debt approximates $403,000 which represents the face value and accrued but unpaid interest at
December 31, 2010. |
Basic net loss per common share is computed using the weighted-average number of common shares
outstanding during the period. |
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,
convertible debt and preferred stock would be anti-dilutive. |
The following table sets forth the computation of basic and diluted net loss per share for the
fiscal year ended December 31, 2010, and the nine months ended December 31, 2009: |
Year ended | Nine Months ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Net loss |
$ | (11,419,753 | ) | $ | (8,295,669 | ) | ||
Denominator for basic earnings per share weighted average shares |
59,138,357 | 41,365,513 | ||||||
Effect of dilutive securities: Stock options and warrants outstanding (a) |
| | ||||||
Denominator for diluted earnings per share weighted average shares adjusted for dilutive securities |
59,138,357 | 41,365,513 | ||||||
Loss per common share basic and diluted |
$ | (0.19 | ) | $ | (0.20 | ) | ||
(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: |
Year ended | Nine Months ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Outstanding Stock Options |
8,257,650 | 6,182,500 | ||||||
Outstanding Warrants |
6,003,924 | 6,991,371 | ||||||
Convertible Debt |
403,432 | 6,944,000 | ||||||
14,661,574 | 20,117,871 | |||||||
13
Recently issued accounting pronouncements: |
In June 2009, the FASB issued Accounting Standards Update No. 2009-01 (ASU 2009-01), which
establishes the FASB Accounting Standards Codification as the source of authoritative U.S.
GAAP recognized by the FASB to be applied by nongovernmental entities. The Company adopted ASU
2009-01 during the three months ended September 30, 2009, and its adoption did not have any
impact on the Companys consolidated financial statements. |
In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), which
clarified how to measure the fair value of liabilities in circumstances when a quoted price in
an active market for the identical liability is not available. ASU 2009-05 is effective for
the first reporting period beginning after the issuance of this standard. The Company adopted
ASU 2009-05, and its adoption did not have an impact on its consolidated financial statements. |
In October 2009, the FASB issued Accounting Standards Update No. 2009-13 (ASU 2009-13),
which addresses the accounting for multiple-deliverable arrangements to enable vendors to
account for products or services (deliverables) separately rather than as a combined unit. ASU
2009-13 is effective prospectively for revenue arrangements entered into or materially
modified beginning in fiscal years on or after June 15, 2010. Early adoption is permitted.
The Company does not expect the adoption of this standard to have any effect on its financial
statements until or unless it enters into agreements covered by this standard. |
In January 2010, the Financial Accounting Standards Board, or FASB, issued Accounting
Standards Update, or ASU, 2010-06 to Topic 820 Fair Value measurements and Disclosures.
This update provided
requirements of new disclosures of significant transfers and also clarified existing
disclosures around the level of disaggregation of each class of assets and liabilities, and
about fair value inputs and valuation techniques. This updates was effective for interim and
annual reporting periods beginning after December 15, 2009. Adoption of this update did not
have a material impact on our financial statements. |
In February 2010, the FAST issued ASU 2010-09 to Topic 855 Subsequent Events, to amend
certain recognition and disclosure requirements related to subsequent events. The new
guidance clarifies that management must evaluate, as of each reporting period, events or
transactions that occur after the balance sheet date through the date that the financial
statements are issued. Management must perform its assessment for both interim and annual
financial reporting periods. This update also exempts SEC filers from disclosing the date
through which subsequent events have been evaluated. Adoption of this update did not have a
material impact on our financial statements. |
Recently Issued Accounting Pronouncements Not Yet Adopted |
In December 2010, the FASB issued ASU 2010-28 to Topic 350 Intangibles Goodwill and
Other: When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts. The amendments to the Codification in this update modify Step 1 of
the goodwill impairment test for reporting units with zero or negative carrying amounts. For
those reporting units, an entity is required to perform Step 2 of the goodwill impairment test
if it is more likely than not that a goodwill impairment exists. Goodwill of a reporting unit
is required to be tested for impairment between annual tests if an event occurs or
circumstances change that would more likely than not reduce the fair value of a reporting unit
below its carrying amount. This update is effective starting in the first quarter of 2011
with early adoption not permitted. Adoption of this update is not expected to have a material
impact on our financial statements. |
14
In December 2010, the FASB issued ASU 2010-29 to Topic 805 Business Combinations:
Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments
to the Codification in this ASU apply to any public entity that enters into business
combination that are material on an individual or aggregate basis and specify that the entity
presents comparative financial statements, the entity should disclose revenue and earnings of
the combined entity as though the business combination(s) that occurred during the current
year had occurred as of the beginning of the comparable prior annual reporting period only.
The update also expands the supplemental pro forma disclosures to include a description of the
nature and amount of material, nonrecurring pro forma adjustments directly attributable to the
business combination included in the reported pro forma revenue and earnings. The update is
effective prospectively for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning in January 2011 with early
adoption permitted. We plan to adopt this update for all acquisitions completed beginning in
2011 and provide the appropriate disclosures. |
3. | Liquidity and managements plans: |
The Company emerged from being a development stage company in 2010. Planned principal
operations have commenced, but the revenue has not been significant enough to fund ongoing
operations. The Companys cash requirements for the twelve months ended December 31, 2010,
arose out of general working capital needs. The Company funded its cash requirements primarily
through a combination of debt and equity financings with a lesser amount derived from company
revenue. As of December 31, 2010, the Company had approximately $1,341,000 of cash and cash
equivalents. Through March 15, 2011, the Company received an additional $1,089,000 of
proceeds related to sales of its common stock and warrants. On March 18, 2011, the Board
approved an agreement between the Company and its CEO whereby the CEO will provide the Company
with a line of credit of up to $3.6 million to fund ongoing operating cash requirements. The
Company believes that its anticipated cash
from operations, existing cash and cash equivalents and the aforementioned line of credit will
enable the Company to meet its operational liquidity needs for the next twelve months. |
4. | Property and equipment: |
Property and equipment consist of the following at: |
December 31, | ||||||||
2010 | 2009 | |||||||
Leasehold improvements |
$ | 793,900 | $ | 793,899 | ||||
Furniture and equipment |
1,355,760 | 1,204,143 | ||||||
2,149,660 | 1,998,042 | |||||||
Less accumulated depreciation |
(1,392,704 | ) | (948,445 | ) | ||||
$ | 756,956 | $ | 1,049,597 | |||||
15
5. | Intangible assets and royalty agreement: |
Intangible assets activity is summarized as follows: |
Weighted | December 31, 2010 | December 31, 2009 | ||||||||||||||||||||||||||
Average | Gross | Net | Gross | Net | ||||||||||||||||||||||||
Amortization | Carrying | Accumulated | Carrying | Carrying | Accumulated | Carrying | ||||||||||||||||||||||
Lives | Value | Amortization | Value | Value | Amortization | Value | ||||||||||||||||||||||
License-Shriners Hsp for Children & USF Research |
10 years | $ | 996,000 | (388,433 | ) | 607,567 | $ | 996,000 | $ | (288,833 | ) | $ | 707,167 | |||||||||||||||
License SaluMedica LLC Spine Repair |
10 years | 2,399,000 | (1,017,557 | ) | 1,381,443 | 2,399,000 | (721,541 | ) | 1,677,459 | |||||||||||||||||||
License Polyvinyl Alcohol Cryogel |
10 years | 2,667,000 | (726,616 | ) | 1,940,384 | 2,667,000 | (454,300 | ) | 2,212,700 | |||||||||||||||||||
Total intangible assets |
$ | 6,062,000 | $ | (2,132,606 | ) | $ | 3,929,394 | $ | 6,062,000 | $ | (1,464,674 | ) | $ | 4,597,326 | ||||||||||||||
(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 December 31, 2009 or 2010, based on its contingent nature.
The Company will also be required to pay a royalty of 3% on all commercial sales revenue of
the licensed products. |
|
(b) | License from SaluMedica, LLC (SaluMedica) for the use of certain developed technologies
related to spine repair. This license was acquired through the acquisition of SpineMedica
Corp. |
|
(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. On December 31, 2009 the Company completed the
sale of its first commercial product and met its first milestone under this agreement. As
a result the Company issued 100,000 shares of common stock to the licensor valued at
$71,000. At December 31, 2009 or 2010, there are no additional amounts accrued for this
obligation due to its contingent nature. |
Expected future amortization of intangible assets is as follows: |
12-month period ended December 31, |
||||
2011 |
$ | 667,932 | ||
2012 |
667,932 | |||
2013 |
667,932 | |||
2014 |
667,932 | |||
2015 |
561,694 | |||
Thereafter |
695,972 | |||
$ | 3,929,394 | |||
6. | Debt: |
3% Convertible Senior Secured Promissory Notes: |
In April 2009, the Company commenced a private placement to sell 3% Convertible Senior Secured
Promissory Notes (the Senior Notes) to accredited investors. The Company completed the
offering on June 17, 2009, and received aggregate proceeds of $3,472,000, representing the
face value of the Senior Notes. The aggregate proceeds include $250,000 of Senior Notes sold
to the Chairman of the Board, President and CEO, and $150,000 of Senior Notes sold to one
other director. |
16
In total, the Senior Notes are convertible into up to 6,944,000 shares of the Companys common
stock at $.50 per share (a) at any time upon the election of the holder of the Senior Notes;
(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) is not less than $1.50 for at least 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 Senior Notes mature in three 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 Senior Notes are secured by a
first priority lien on all of the assets, including intellectual property, of MiMedx, Inc.,
excluding, however, the membership interests in SpineMedica, LLC. The Senior Notes are junior
in payment and lien priority to any bank debt of the Company in an amount not to exceed
$5,000,000 subsequently incurred by the Company. |
The Company has evaluated the Senior Notes for accounting purposes under Generally Accepted
Accounting Principles (GAAP) and has determined that the conversion feature meets the
conventional-convertible exemption and, accordingly, bifurcation and fair-value measurement of
the conversion feature is not required. We are required to re-evaluate this conclusion upon
each financial statement closing date while the Senior Notes are outstanding. Notwithstanding,
the Senior Notes were issued with a beneficial conversion feature, having an intrinsic value
of approximately $676,500. The intrinsic value of the beneficial conversion feature was
determined by comparing the contracted conversion price to the fair value of the common stock
on the date of the respective Senior Notes. A beneficial conversion feature only exists when
the embedded conversion feature is in-the-money at the commitment date. |
As a result of the beneficial conversion feature, the Senior Notes were recorded net of a
discount of $676,500 related to the beneficial conversion feature, which is recorded in
paid-in capital, and the
discount will be amortized through periodic charges to interest expense over the term of the
Senior Notes using the effective interest method. |
In conjunction with the offering, the Company incurred a placement fee of $138,040 and issued
315,520 common stock warrants to the placement agents at an exercise price of $.50 per share.
The warrants expire in five years. The fair value of the warrants was determined to be
$98,574 using the Black-Scholes-Merton valuation technique. The total direct costs of
$236,614 are recorded as deferred financing costs and are being amortized over the term of the
Senior Notes using the effective interest method. Further, the placement agent warrants are
classified in stockholders equity because they achieved all of the requisite conditions for
equity classification in accordance with GAAP. |
On March 31, 2010, the Company elected to exercise its right to convert the outstanding Note
Payable amount, including accrued interest, of $3,532,361 into common stock of the Company at
a conversion price of $0.50 per share, resulting in the issuance of 7,064,721 shares of common
stock. This decision was made based upon the Trading Value Conversion event per the terms of
the Note whereby as of March 30, 2010, the trading price of the Common Stock closed at not
less than $1.50 per share for not less than 20 consecutive trading days prior to the Maturity
Date. Prior to this event, certain individuals had voluntarily elected to convert their Notes,
valued at $35,000 with accrued interest of $196 into Common Stock resulting in the issuance of
70,393 shares of common stock. As a result of the Companys election to convert the remaining
Notes, the Company was required immediately to recognize the remaining unamortized discount of
$499,610 related to the beneficial conversion feature as interest expense in the statement of
operations for the three months ended March 31, 2010. Additionally, the $174,739 in
unamortized deferred financing costs were charged against additional paid in capital. |
Hybrid Debt Instrument |
In October 2010, the Company and its Chairman of the Board and CEO as well as two other
company directors entered into a Subscription Agreement for a 5% Convertible Promissory Note
(Subscription Agreement) and, in connection therewith, issued a 5% Convertible Promissory
Note (Note) and a Warrant to Purchase Common Stock (Warrant), which expires in three
years. |
17
Under the terms of the Subscription Agreement, the Chairman & CEO has agreed to advance the
Company $400,000, comprised of a $150,000 Note dated October 20, 2010, and a $250,000 Note
dated November 4, 2010, and the two company directors have agreed to advance $50,000 each to
fund its working capital needs. Such indebtedness is evidenced by the Note, which bears
interest at the rate of 5% per annum, is due and payable in full on December 31, 2010, and, at
the option of the holder, is convertible into the number of shares of common stock of the
Company equal to the quotient of (a) the outstanding principal amount and accrued interest of
the Note as of the date of such election, divided by (b) the selling price per share, if any,
of the Companys common stock pursuant to a private placement approved by the Corporations
Board of Directors on September 10, 2010, or, if there are no such sales, $1.00 per share (the
Conversion Price). In connection with the Subscription Agreement and the Note, the Company
issued one Warrant for the number of shares of common stock of the Company by dividing the
aggregate amount of the advances by the Conversion Price resulting in 500,000 warrants being
issued. The exercise price of the Warrant is the Conversion Price. |
The issuance of the aforementioned securities was not registered in reliance on Section 4(2)
of the Securities Act of 1933, as amended. |
According to GAAP, proceeds from the sale of debt instruments with stock purchase warrants
(detachable call options) shall be allocated to the two elements based upon the relative fair
values of the debt instrument without the warrants and of the warrants themselves at the time
of issuance. The
portion of the proceeds so allocated to the warrants shall be accounted for as paid-in
capital. The remainder of the proceeds shall be allocated to the debt instrument portion of
the transaction. Also, the embedded beneficial conversion feature present in the convertible
instrument shall be recognized separately at issuance by allocating a portion of the proceeds
equal to the intrinsic value of that feature to additional paid-in capital. The amount of
the warrants and beneficial conversion feature totaled $287,449 which has been recorded as a
debt discount that will be charged to interest expense over the life of the convertible note. |
The fair value of the Warrant was determined based upon the Black-Scholes-Merton pricing model
using the following underlying assumptions: |
October 20 | October 21 | November 4 | ||||||||||
Term |
3 Years | 3 Years | 3 Years | |||||||||
Volatility |
58.75 | % | 58.77 | % | 58.31 | % | ||||||
Interest Rate |
1.11 | % | 1.15 | % | 1.04 | % |
As of December 31, 2010, the holders of the two (2) notes with an initial face value of
$50,000 each exercised the conversion option. The holder of the other two (2) notes agreed to
extend the term of the notes until February 28, 2011, at which time the holder exercised the
conversion option. |
7. | Common Stock Placements: |
February 2009 Private Placement |
In February 2009, the Company commenced a private placement of up to 15,000,000 shares of
common stock at $1.00 per share. 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 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 obligation to file a Registration Statement within a
specified period, which is presumed not to be within the Companys control, the Company was
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. |
18
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 when it was most in need of funding and to enable the Companys future
fundraising efforts. The issuance was approved by all of the disinterested members of the
Board of Directors. As a condition to the receipt of the additional shares, the investors
were required to waive registration rights otherwise available with respect to the shares
issued in the private placements. The Company issued 2,490,000 additional shares as a result
of this action and recorded additional expense of $1,305,100, based on the fair value of the
Companys stock
price on the date each respective waiver was executed. As a result of the waiver of
registration rights, the common stock with registration rights was reclassified into
stockholders equity during the nine months ended December 31, 2009. |
October 2009 Private Placement |
In October 2009, the Company commenced a private placement to sell common stock and warrants.
From October 30, 2009, through December 31, 2009, the Company sold 7,697,865 shares of common
stock at a price of $.60 per share and received proceeds of $4,618,720. Under the terms of
the offering, for every two shares of common stock purchased, the investor received a 5-year
warrant to purchase one share of common stock for $1.50 (a Warrant). Through December 31,
2009, the Company issued a total of 3,848,933 warrants. The warrants met all the requirements
for equity classification under GAAP and are recorded in stockholders equity. |
From January 1, 2010, through January 21, 2010, the Company sold an additional 1,308,332
shares of common stock and issued an additional 654,163 warrants and received proceeds of
$785,000. |
The Company closed the offering on January 21, 2010. |
In connection with the October 2009 Private Placement, the Company entered into a registration
rights agreement which provides Piggy-Back registration rights to each investor. |
19
October 2010 Private Placement |
In October 2010, the Company commenced a private placement to sell common stock and warrants.
From October 30, 2010, through December 31, 2010, the Company sold 2,405,000 shares of common
stock at a price of $1.00 per share and received proceeds of $2,337,020 net of $67,980 in
offering costs. Under the terms of the offering, the investor received 5-year warrants to
purchase the common stock of the Company. The terms of the warrant, (the Callable Warrant)
are that for every two shares of common stock purchased, the holder is issued a 5-year warrant
to purchase one share of the Companys Common Stock at an exercise price of $1.50 per share.
The Callable Warrant does not carry registration rights and is callable by the Company at any
time after the issuance if the closing sale price of the Stock exceeds $1.75 for fifteen (15)
or more consecutive trading days. Upon written notice, the Company may redeem the Callable
Warrant at a price of $0.01 per share. Through December 31, 2010, the Company issued a total of 1,202,500 warrants. The warrants
met all the requirements for equity classification under GAAP and are recorded in
stockholders equity. |
Additionally, contingent warrants have been issued to each investor and will become exercisable provided
certain conditions are met. The First Contingent Warrant, (the First Contingent Warrant) is
issued to each investor to purchase 25% of the number of shares of Stock purchased, at an
exercise price of $0.01 per share, provided that the First Contingent Warrant shall only be
exercisable if the Companys Gross Revenue as reported in the Companys Audited Financial
Statements for the year ended December 31, 2011, does not equal or exceed $11,500,000 and
further provided that such Warrant shall be null and void in the event that prior to issuance
of such Audited Financial Statements (the First Measurement Date) the closing trading price
of the Stock is at least $1.50 per share for ten or more consecutive trading days. |
The Second Contingent Warrant, (the Second Contingent Warrant) is issued to each investor to
purchase 25% of the number of shares of Stock purchased, at an exercise price of $0.01 per
share, provided that the Second Contingent Warrant shall only be exercisable if the Companys
Gross Revenue as reported in the Companys Audited Financial Statements for the year ended
December 31, 2012, does not equal or exceed $31,150,000 and further provided that such Warrant
shall be null and void in the event that prior to issuance of such Audited Financial
Statements (the Second Measurement Date) the closing trading price of the Stock is at least
$1.75 per share for ten or more consecutive trading days. |
The contingent warrants have not been included in our earnings per share calculation per the
guidance in ASC 260-10-45-13 Earnings per share: Treatment of Contingently Issuable Shares
in Weighted-Average Shares Outstanding which states that shares issuable for little or no cash
consideration upon the satisfaction of certain conditions (contingently issuable shares) shall
be considered outstanding common shares and included in the computation of basic EPS as of
the date that all necessary conditions have been satisfied (in essence, when issuance of the
shares is no longer contingent). Total contingent warrants issued as of 12/31/2010 was 1,202,500. |
From January 1,
2011, through March 18, 2011, the Company sold an additional 1,088,775 shares of common stock
and issued an additional 544,388 warrants and received proceeds of $1,088,775. Total contingent warrants issued as of March 18, 2011 was 544,388. |
In connection with the October 2010 Private Placement, the Company entered into a registration
rights agreement that provides Piggy-Back registration rights to each investor. |
8. | Stockholders equity: |
Stock incentive plan: |
The Company has three share-based compensation plans, the MiMedx Group, Inc. Assumed 2006 Stock
Incentive Plan (the 2006 Plan), the MiMedx Inc. 2007 Assumed Stock Plan (the Assumed 2007
Plan) and the MiMedx Group Inc. Amended and Restated Assumed 2005 Stock Plan (the 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
December 31, 2010, totaled 936,250 and the maximum number of shares of common stock which can
be issued under the 2006 Plan is 8,500,000 at December 31, 2010. |
20
Activity with respect to the stock options is summarized as follows: |
Weighted- | ||||||||||||||||
Average | ||||||||||||||||
Weighted- | Remaining | |||||||||||||||
Average | Contractual | Aggregate | ||||||||||||||
Number of | Exercise | Term | Intrinsic | |||||||||||||
Shares | Price | (in years) | Value | |||||||||||||
Outstanding at March 31, 2009 |
4,301,250 | $ | 1.60 | |||||||||||||
Granted |
2,312,500 | $ | 0.60 | |||||||||||||
Exercised |
(20,000 | ) | $ | 0.0001 | ||||||||||||
Forfeited or cancelled |
(411,250 | ) | $ | 3.68 | ||||||||||||
Outstanding at December 31, 2009 |
6,182,500 | $ | 1.10 | 6.0 | $ | 307,535 | ||||||||||
Vested or expected to vest at December 31, 2009 |
3,662,082 | $ | 1.35 | |||||||||||||
Outstanding at January 1, 2010 |
6,182,500 | $ | 1.10 | |||||||||||||
Granted |
2,385,400 | $ | 1.40 | |||||||||||||
Exercised |
(210,250 | ) | $ | 0.74 | ||||||||||||
Forfeited or cancelled |
(100,000 | ) | $ | 0.88 | ||||||||||||
Outstanding at December 31, 2010 |
8,257,650 | $ | 1.20 | 6.3 | $ | 2,833,198 | ||||||||||
Vested or expected to vest at December 31, 2010 |
5,577,863 | $ | 1.22 | 5.3 | $ | 2,015,963 |
The intrinsic value of options exercised during the year ended December 31, 2010 was
approximately $93,713. |
Following is a summary of stock options outstanding and exercisable at December 31, 2010: |
Options | Options | |||||||||||||||||||
Outstanding | Exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
Average | ||||||||||||||||||||
Remaining | ||||||||||||||||||||
Contractual | Weighted- | Weighted- | ||||||||||||||||||
Number | Term | Average | Number | Average | ||||||||||||||||
Range of Exercise Prices | outstanding | (in years) | Exercise Price | Exercisable | Exercise Price | |||||||||||||||
$0.0001 $0.50 |
903,500 | 3.7 | $ | 0.49 | 562,306 | $ | 0.48 | |||||||||||||
$0.65 $1.00 |
3,472,500 | 6.3 | $ | 0.80 | 2,824,148 | $ | 0.82 | |||||||||||||
$1.04 $1.80 |
3,131,650 | 8.1 | $ | 1.55 | 1,441,409 | $ | 1.69 | |||||||||||||
$2.40 |
750,000 | 1.8 | $ | 2.40 | 750,000 | $ | 2.40 | |||||||||||||
8,257,650 | 6.3 | $ | 1.20 | 5,577,863 | $ | 1.22 | ||||||||||||||
A summary of the status of the Companys unvested stock options as of December 31, 2010,
and changes during the year ended December 31, 2010, is presented below: |
Weighted- | ||||||||
Average | ||||||||
Number of | Grant Date | |||||||
Unvested Stock Options | Shares | Fair Value | ||||||
Unvested at January 1, 2010 |
2,520,418 | $ | 0.50 | |||||
Granted |
2,385,400 | $ | 1.09 | |||||
Cancelled/expired |
(100,000 | ) | $ | 0.52 | ||||
Vested |
(2,126,031 | ) | $ | 0.60 | ||||
Unvested at December 31, 2010 |
2,679,787 | $ | 0.87 | |||||
21
Total unrecognized compensation expense at December 31, 2010 was approximately $2,440,023
and will be charged to expense through December 2015. |
The fair value of the options granted was estimated on the date of grant using the
Black-Scholes-Merton option-pricing model that uses assumptions for expected volatility,
expected dividends, expected term, and the risk-free interest rate. Expected volatilities are
based on historical volatility of peer companies and other factors estimated over the expected
term of the options. The term of employee options granted is derived using the simplified
method which computes expected term as the 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-Merton
option-pricing model are set forth in the following table: |
Year ended | Nine Months ended | |||||||
December 31, | December 31, | |||||||
2010 | 2009 | |||||||
Expected volatility |
57.9 60.2 | % | 112.06 140.74 | % | ||||
Expected life (in years) |
6 | 3.5 to 6 | ||||||
Expected dividend yield |
0.00 | % | 0.00 | % | ||||
Risk-free interest rate |
1.15% 2.75 | % | 1.54% 2.53 | % |
The weighted-average grant date fair value for options granted during the year ended December
31, 2010 was approximately $1.09. |
Warrants: |
The Company grants common stock warrants in connection with equity share purchases by
investors as an additional incentive for providing long term equity capital to the Company 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. |
22
Common Stock warrants issued, redeemed and outstanding during the years ended December 31,
2010, and the nine months ended December 31, 2009, are as follows: |
Weighted- | Weighted- | |||||||||||||||
Average | Average Exercise | |||||||||||||||
Exercise | Number of | Price per | ||||||||||||||
Number of | Price per | Contingent | Contingent | |||||||||||||
Warrants | Warrant | Warrants | Warrant | |||||||||||||
Warrants outstanding at March 31, 2009 |
1,160,251 | $ | 0.91 | | $ | | ||||||||||
Issued in connection with private placement of common stock |
315,520 | $ | 0.50 | | $ | | ||||||||||
Issued in connection with related party convertible promissory note |
1,666,667 | $ | 0.60 | | $ | | ||||||||||
Issued in connection with private placement of common stock |
3,848,933 | $ | 1.50 | | $ | | ||||||||||
Warrents outstanding at December 31, 2009 |
6,991,371 | $ | 1.17 | | $ | | ||||||||||
Issued in connection with private placement of common stock |
1,856,662 | $ | 1.50 | 1,202,500 | $ | 0.01 | ||||||||||
Issued in connection with convertible promissory notes |
550,490 | $ | 1.05 | 50,490 | $ | 0.01 | ||||||||||
Expired warrants |
(175,251 | ) | $ | 1.80 | | $ | | |||||||||
Exercised in connection with private placement of common stock |
(3,219,348 | ) | $ | 1.00 | | $ | | |||||||||
Warrants outstanding at December 31, 2010 |
6,003,924 | $ | 1.21 | 1,252,990 | $ | 0.01 | ||||||||||
Warrants may be exercised in whole or in part by: |
| notice given by the holder accompanied by payment of an amount equal to the warrant
exercise price multiplied by the number of warrant shares being purchased; or |
| election by the holder to exchange the warrant (or portion thereof) for that number
of shares equal to the product of (a) the number of shares issuable upon exercise of
the warrant (or portion) and (b) a fraction, (x) the numerator of which is the market
price of the shares at the time of exercise minus the warrant exercise price per share
at the time of exercise and (y) the denominator of which is the market price per share
at the time of exercise. |
These warrants are not mandatorily redeemable, do not obligate the Company to repurchase its
equity shares by transferring assets or issue a variable number of shares. |
The warrants require that the Company deliver shares as part of a physical settlement or a
net-share settlement, at the option of the holder, and do not provide for a net-cash
settlement. |
All of our warrants are classified as equity as of December 31, 2009 and 2010. |
In April 2010, the Company offered investors in the October 2009 Private Placement a discount
to their existing $1.50 warrant exercise price to $1.00 if they exercised their warrants to
purchase common stock for cash by May 1, 2010. As a result of this offer, the Company
received proceeds of approximately $3,200,000, net of placement agent fees, and issued
3,200,000 shares of common stock as of May 1, 2010. The aggregate proceeds include $833,000
in common stock issued to the Chairman and CEO, $20,850 to the President and Chief Operating
Officer and $20,833 to one other company director. As a result of this activity, the number
of warrants outstanding as of December 31, 2010 was 7,256,914. The Company grants common
stock warrants, in connection with equity share purchases by investors as an additional
incentive for providing long term equity capital to the Company, to placement agents in
connection with direct equity share and convertible debt purchases by investors and as
additional compensation to consultants and advisors. |
23
9. | Income taxes: |
Significant items comprising the Companys deferred tax assets and liabilities are as follows
at December 31, 2010 and 2009: |
December 31, | ||||||||
2010 | 2009 | |||||||
Deferred tax assets: |
||||||||
Share-based compensation expense |
$ | 66,000 | $ | 733,000 | ||||
Furniture, software and equipment |
283,000 | 283,000 | ||||||
Accrued expenses |
67,000 | 20,000 | ||||||
Net operating loss carryforward |
14,836,000 | 11,358,000 | ||||||
15,252,000 | 12,394,000 | |||||||
Deferred tax liabilities: |
||||||||
Intangible assets |
(78,000 | ) | (78,000 | ) | ||||
Net deferred tax assets |
15,174,000 | 12,316,000 | ||||||
Valuation allowance |
(15,174,000 | ) | (12,316,000 | ) | ||||
$ | | $ | | |||||
The reconciliation of the Federal statutory income tax rate of 34% to the effective rate
is as follows for the periods ended December 31, 2010 and December 31, 2009: |
December 31, | ||||||||
2010 | 2009 | |||||||
Federal statutory rate |
34.00 | % | 34.00 | % | ||||
State taxes, net of federal benefit |
3.96 | % | 3.96 | % | ||||
Permanent differences |
-3.44 | % | -12.00 | % | ||||
Valuation allowance |
-34.52 | % | -25.96 | % | ||||
| % | | % | |||||
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 $39,083,000 at December 31, 2010 and $29,900,000 at December 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. |
10. | Gain on Settlement of Payables: |
During the nine months ended December 31, 2009, the Company negotiated a settlement of
certain outstanding payables primarily related to legal expenses incurred during the fiscal
year ended March 31,
2009. As a result of this negotiation the Company recognized a gain on settlement of payables
of approximately $585,000, which is included in general and administrative expenses in our
consolidated statement of operations for the nine months ended December 31, 2009. |
24
11. | Termination of agreement: |
On August 19, 2009, the Company and Thomas J. Graham, M.D. (Graham) and Phantom Hand
Project, LLC (Phantom), entered into an Amendment and Settlement Agreement (the
Agreement). |
The Agreement (i) terminates the Cost Recovery and Revenue Sharing Letter agreement between
MiMedx and Graham dated May 22, 2008; (ii) terminates the Finders Fee Letter Agreement
between MiMedx and Graham dated May 22, 2008; (iii) transfers to Graham certain provisional
patent applications that MiMedx did not intend to pursue and to which no value was ascribed;
(iv) accelerates the vesting of options to purchase 250,000 shares of the Companys common
stock previously issued to Graham and extends the period in which such options may be
exercised through the five year anniversary of their date of issuance, without regard to
whether Graham continues to serve as a consultant to MiMedx; (v) obligates Graham to forfeit
50,000 shares of the Companys common stock issued to him previously; (vi) amends the
Consulting Agreement dated September 21, 2007, between MiMedx and Graham; and (vii) provides
for certain payments to Graham upon a disposition of certain of the intellectual property
comprising MiMedxs Level Orthopedics division (the Level Assets) prior to September 20,
2010. |
In connection with the amendment of the options and the recovery of the common stock (recorded
as treasury stock), the Company recorded expense of approximately $48,000, which represented
the fair value of the amended options calculated utilizing the Black-Scholes-Merton model less
the fair value of the common stock surrendered on the date of the agreement. |
12. | Related party transactions: |
Related party expense: |
The Company incurred expenses of approximately, $5,188 during the year ended December 31,
2010, and $71,000 during the nine months ended December 31, 2009 related to administrative
expenses provided by an entity owned by the current Chairman of the Board. |
The Company incurred expenses of approximately $5,175 during the year ended December 31, 2010,
and $20,000 during the nine months ended December 31, 2009 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 $64,238 during the year ended December 31,
2010, and $11,000 during the nine months ended December 31, 2009 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. |
All the above related party expenses were included in general and administrative expenses in
the accompanying consolidated statements of operations. |
13. | 401k Plan: |
The Company has a 401(k) plan (the Plan) covering employees who have attained 21 years of
age and have completed 3 months of service. Under the Plan, participants may defer up to 100%
of their eligible wages to a maximum of $16,500 per year (annual limit for 2010). Employees
age 50 or over in 2010 may
make additional pre-tax contributions up to $5,000 above and beyond normal plan and legal
limits. Annually, the Company may elect to match employee contributions up to 3% of the
employees compensation. Additionally, the Company may elect to make a discretionary
contribution to the Plan. The Company did not provide matching contributions for the years
ended December 31, 2010 and the nine months ended December 31, 2009. |
25
14. | Commitments: |
Contractual Arrangements |
The Company has entered into operating lease agreements for facility space and equipment. In
addition, the Company has minimum royalty payments due in conjunction with one of its
licenses. The estimated annual lease and royalty expense is as follows: |
12-month period ended December 31, |
||||
2011 |
$ | 236,844 | ||
2012 |
179,540 | |||
Thereafter |
| |||
$ | 416,384 | |||
Rent expense on all operating leases for the year ended December 31, 2010, and the nine months
ended December 31, 2009 was approximately $244,598 and $212,000, respectively. |
15. | Subsequent Events |
Acquisition of Surgical Biologics LLC |
On December 21, 2010, the Company entered into an Agreement and Plan of Merger (the Merger
Agreement) with Membrane Products Holdings, LLC and OnRamp Capital Investments, LLC, the
owners of Surgical Biologics, LLC (Surgical Biologics), a privately held company
headquartered in Kennesaw, Georgia, whose primary business is in the development of tissue
processing techniques for creating implants for a variety of surgical indications from amnion
membranes. Pursuant to the Merger Agreement, the Company will acquire all of the outstanding
equity interests in Surgical Biologics. Following the closing, Surgical Biologics will operate
as a wholly owned subsidiary of the Company. The transaction closed on January 5, 2011. |
The Merger Agreement provides, among other things, for initial merger consideration consisting
of MiMedx common stock, debt and cash as follows: |
| 5,250,000 shares of MiMedx common stock; plus |
| $500,000 in cash (subject to adjustment for any shortfall in Surgical Biologics working
capital from the agreed amount, Surgical Biologics debt in excess of the amount agreed to
be assumed and Surgical Biologics transaction costs); plus |
| Convertible Secured Promissory Notes in the aggregate principal sum of $1,250,000, which
will bear interest at the annual rate of 4% and will be payable in full 18 months after
Closing, subject to certain offset rights in favor of the Company. The Notes may be prepaid
at any time without penalty on 30 days written notice to the holders. The Notes will be
secured by a first lien security interest in the intellectual property (consisting of
patents, patent applications and trade secrets) acquired from
Surgical Biologics in the transaction. No other intellectual property or assets of MiMedx
will be pledged to secure the Notes. The Notes will be convertible at any time at the option
of the holder into shares of MiMedx common stock at a conversion price equal to $1 per share
(the Conversion Price). The Notes will be convertible at the option of MiMedx if the
closing trading price of MiMedx common stock equals or exceeds 175% of the Conversion Price
($1.75) for any 20 consecutive trading days; plus |
| Debt assumed in the transaction of approximately $183,000. |
26
In addition, the Merger Agreement provides for contingent consideration payable in MiMedx
Common Stock as follows: |
| An amount equal to 60% of the excess of MiMedxs gross revenue (net of returns and
allowances) (Gross Revenue) in calendar year 2011 from sales of all Surgical Biologics
products over Surgical Biologics Gross Revenue from sales of such products in calendar
year 2010. For purposes of the calculation (i) Gross Revenue is reduced or increased to
the extent the 2011 cost of goods sold for Surgical Biologics current product line exceeds
or is less than certain agreed parameters, and (ii) Gross Revenue from any new product that
incorporates both a placenta derived tissue product of Surgical Biologics and a proprietary
product or process of MiMedx is reduced by 50%. The contingent payment is reduced by the
cost of any required FDA clearances or approvals for the sale of Surgical Biologics
current product line. |
| An amount equal to 30% of the excess of MiMedx Gross Revenue in calendar year 2012 from
sales of all Surgical Biologics products over Surgical Biologics Gross Revenue from sales
of such products in calendar year 2011. For purposes of the calculation, (i) Gross Revenue
is reduced or increased to the extent the 2012 cost of goods sold for Surgical Biologics
current product line exceeds or is less than certain agreed parameters and (ii) Gross
Revenue from any new product that incorporates both a placenta derived tissue product of
Surgical Biologics and a proprietary product or process of MiMedx is reduced by 50%. The
contingent payment is reduced by the cost of any required FDA clearances or approvals for
the sale of Surgical Biologics current product line. |
| For purposes of the contingent consideration, MiMedx shares are valued at the average
closing trading price of MiMedx common stock for the 20 consecutive trading days
immediately preceding the date that is one day prior to the date MiMedx Form 10-K is
filed with the SEC for the applicable year. Contingent consideration is payable 30 days
after MiMedx files its Form 10-K for the applicable year. |
In addition, the Merger Agreement provides for certain indemnification protections for the
Company, secured by the deposit into escrow of 525,000 shares of MiMedx common stock for a two
year period, and offset rights against 50% of the principal amount of the Convertible Secured
Promissory Note and all of the contingent payments. The limitation period for indemnity claims
is generally two years with certain exceptions. |
27
Item 10. | Directors, Executive Officers and Corporate Governance |
Name | Age | Position | ||||
Parker H. Pete Petit
|
71 | Chairman of the Board & Chief Executive Officer | ||||
Steve Gorlin
|
73 | Vice Chairman of the Board | ||||
William C. Taylor
|
42 | President & Chief Operating Officer | ||||
Michael J. Senken
|
52 | Chief Financial Officer | ||||
Thomas J. Koob Ph.D.
|
62 | Chief Scientific Officer | ||||
Roberta McCaw
|
55 | General Counsel | ||||
Joseph G. Bleser
|
65 | Director | ||||
J. Terry Dewberry
|
67 | Director | ||||
Kurt M. Eichler
|
53 | Director | ||||
Bruce L. Hack
|
62 | Director | ||||
Charles E. Koob
|
66 | Director | ||||
Larry W. Papasan
|
70 | Director | ||||
Andrew K. Rooke, Jr.
|
27 | Director |
28
29
30
31
| Oversees the accounting and financial reporting processes of the Company and the audits of the Companys financial statements; |
||
| Reviews the Companys financial statements with management and the Companys outside auditors, and recommends to the Board whether the
audited financial statements should be included in the Companys report on Form 10-K; |
||
| Establishes policies and procedures to take, or recommends that the full Board take, appropriate action to oversee the independence of the
outside auditors; |
||
| Establishes policies and procedures for the engagement of the outside auditors to provide permitted non-audit services; |
||
| Takes responsibility for the appointment, compensation, retention, and
oversight of the work of the Companys outside auditors and recommends
their selection and engagement; |
||
| Ensures that the outside auditors report directly to the Audit Committee; |
||
| Reviews the performance of the outside auditors and takes direct
responsibility for hiring and, if appropriate, replacing any outside
auditor failing to perform satisfactorily; |
||
| Provides, as part of the Companys proxy filed pursuant to SEC
regulations, the report required by SEC regulations; and |
||
| Establishes procedures for handling complaints received by the Company
regarding accounting, internal accounting controls, or auditing matters. |
32
Item 11. | Executive Compensation |
33
Name and Principal | Reporting | Stock | Option | All Other | ||||||||||||||||||||||
Position | Period | Salary $ | Bonus $ | Awards $ | Awards $ (1) | Compensation | Total $ | |||||||||||||||||||
Parker H. Pete Petit, Chairman of Board of Directors and CEO |
YE 12/31/2010 | 308,558 | | 410,000 | 718,558 | |||||||||||||||||||||
9MO 12/31/2009 | 190,961 | | | 100,000 | | 290,961 | ||||||||||||||||||||
YE 3/31/2009 | 22,212 | | | 490,000 | | 512,212 | ||||||||||||||||||||
William C. Taylor, President and Chief Operating Officer |
YE 12/31/2010 | 288,365 | | 532,000 | 820,365 | |||||||||||||||||||||
9MO 12/31/2009 | 60,940 | (2) | | 300,000 | 360,938 | |||||||||||||||||||||
YE 3/31/2009 | | | | | | | ||||||||||||||||||||
Michael J. Senken, VP and Chief Financial Officer |
YE 12/31/2010 | 160,846 | | | 287,500 | | 448,346 | |||||||||||||||||||
9MO 12/31/2009 | | | | | | | ||||||||||||||||||||
YE 3/31/2009 | | | | | | |
(1) | The Company follows the provisions of ASC topic 718 Compensation Stock
compensation, 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. The assumptions made in the valuation of our option awards is
disclosed in Note 8 to our consolidated financial statements contained in our Annual Report
on Form 10-K/A for the year ended December 31, 2010. |
|
(2) | Prior to joining the Company Mr. Taylor was paid $69,400 for consulting services, which
is not included in this amount. |
| Effective February 24, 2009, Mr. Petit was appointed our President and Chief
Executive Officer, in addition to being elected as Chairman of the Board of Directors.
He was awarded a base salary of $225,000 and granted one million options, of which 70%
vested immediately and the remainder will vest in equal increments on each of the next
two anniversaries of the grant date. Additionally, Mr. Petit was awarded 250,000
options on July 31, 2009, of which 25% vested immediately with the remainder to vest in
equal installments on each of the next three anniversaries of the grant date. Mr. Petit
relinquished his position as President upon the appointment of Mr. William C. Taylor in
September 2009. On February 23, 2010, the Compensation Committee approved an increase
in Mr. Petits annual base salary to $325,000 effective March 1, 2010, and granted him
225,000 options which vest in equal installments on their anniversary dates in 2011,
2012 and 2013. In addition, on May 11, 2010, Mr. Petit was awarded 100,000 options
which also vest in equal installments on their anniversary dates in 2011, 2012 and 2013. |
| Effective September 22, 2009, Mr. Taylor was appointed our President and Chief
Operating Officer. He was awarded a base salary of $225,000 and granted 750,000
options, of which 50% vest on the one year anniversary of the grant date and the
remainder to vest in equal installments on the next two anniversaries of the grant date.
On February 23, 2010, the Compensation Committee approved an increase in Mr. Taylors
base salary to $300,000 effective March 31, 2010, and awarded him 350,000 options which
vest in equal installments on their anniversary dates in 2011, 2012 and 2013. |
| Effective January 15, 2010, Mr. Senken was appointed our Vice President and Chief
Financial Officer. He was awarded a base salary of $170,000 and granted 150,000
options, of which 33% vest in equal installments on the anniversary date of the grant.
Mr. Senken was awarded 100,000 options on February 23, 2010, and 25,000 on May 11, 2010,
all of which vest in three equal installments on their anniversary dates in 2011, 2012
and 2013. On March 18, 2011, the Compensation Committee approved an increase in Mr.
Senkens base salary to $200,000 effective January 15, 2011, the anniversary date of his
employment. |
34
Number | ||||||||||||||||
of | Number of | |||||||||||||||
Securities | Securities | |||||||||||||||
Underlying | Underlying | |||||||||||||||
Unexercised | Unexercised | |||||||||||||||
Options | Options | Option Exercise | ||||||||||||||
(#) | (#) | Price | Option Expiration | |||||||||||||
Name | Exercisable | Unexercisable | ($) | Date | ||||||||||||
Parker H. Pete Petit |
850,000 | 150,000 | (1) | 0.73 | 2/24/2019 | |||||||||||
125,000 | 125,000 | (2) | 0.50 | 7/31/2014 | ||||||||||||
225,000 | (3) | 1.65 | 2/23/2020 | |||||||||||||
100,000 | (4) | 1.20 | 5/11/2020 | |||||||||||||
William C. Taylor |
375,000 | 375,000 | (5) | .70 | 9/22/2019 | |||||||||||
5,000 | 5,000 | (2)(6) | .50 | 7/30/2019 | ||||||||||||
350,000 | (3) | 1.65 | 2/23/2020 | |||||||||||||
Michael J. Senken |
50,000 | 100,000 | (7) | .87 | 01/15/2020 | |||||||||||
33,333 | 66,667 | (3) | 1.65 | 02/23/2020 | ||||||||||||
8,333 | 16,667 | (4) | 1.20 | 05/11/2020 |
(1) | The unexercisable portion of this option as of December 31, 2010, vests and becomes
exercisable in equal installments on each of February 24, 2011 and 2012. |
|
(2) | The unexercisable portion of this option as of December 31, 2010, vests and becomes
exercisable in equal installments on each of July 31, 2011 and 2012. |
|
(3) | The unexercisable portion of this option as of December 31, 2010, vests and becomes
exercisable in equal installments on each of February 23, 2011, 2012 and 2013. |
|
(4) | The unexercisable portion of this option as of December 31, 2010, vests and becomes
exercisable in equal installments on each of May 11, 2011, 2012, and 2013. |
|
(5) | The unexercisable portion of this option as of December 31, 2009, vests and becomes 50%
exercisable on September 22, 2009, and the remainder to vest in equal installments on
September 22, 2011, and 2012. |
|
(6) | Mr. Taylor received these options for consulting services prior to his appointment as
President and Chief Operating Officer. |
|
(7) | The unexercisable portion of this option as of December 31, 2010, vests and becomes
exercisable in equal installments on each of January 15, 2012 and 2013. |
35
36
A | B | C | ||||||||||
Number of | ||||||||||||
securities | ||||||||||||
remaining | ||||||||||||
Weighted | available for | |||||||||||
Number of | average | future issuance | ||||||||||
securities to | exercise price | under equity | ||||||||||
be issued | of outstanding | compensation | ||||||||||
upon exercise | options, | plans | ||||||||||
of outstanding | warrants and | (excluding | ||||||||||
options, | rights | securities | ||||||||||
warrants and | reflected in | reflected in | ||||||||||
Plan Category | rights | column (A) | column (A)* | |||||||||
Equity compensation plans approved by security holders |
8,257,650 | $ | 1.20 | 1,178,600 | ||||||||
Equity compensation plans not approved by security holders |
| | | |||||||||
Total |
8,257,650 | $ | 1.20 | 1,178,600 | ||||||||
37
Change in | ||||||||||||||||||||||||||||
Pension Value | ||||||||||||||||||||||||||||
Non- | and | |||||||||||||||||||||||||||
Fees | Equity | Nonqualified | ||||||||||||||||||||||||||
Earned or | Option | Incentive | Deferred | |||||||||||||||||||||||||
Paid in | Stock | Awards $ | Plan | Compensation | All Other | |||||||||||||||||||||||
Name | Cash (1) | Awards $ | (4) | Compensation | Earnings | Compensation | Total $ | |||||||||||||||||||||
Kurt M. Eichler |
28,125 | | 10,200 | (2)(3) | | | | 38,323 | ||||||||||||||||||||
Larry W. Papasan |
29,375 | | 10,200 | (2)(4) | | | | 39,573 | ||||||||||||||||||||
Charles E. Koob |
21,500 | | 10,200 | (2)(5) | | | | 31,698 | ||||||||||||||||||||
Andrew K. Rooke, Jr. |
22,000 | | 10,200 | (2)(4) | | | | 32,198 | ||||||||||||||||||||
Joseph G. Bleser |
20,750 | | | (4) | | | | 20,747 | ||||||||||||||||||||
J. Terry Dewberry |
28,125 | | | (4) | | | | 28,122 | ||||||||||||||||||||
Bruce Hack |
17,333 | | | (4) | | | | 17,330 |
(1) | Amount represents fees paid in during the year ended December 31, 2010. |
|
(2) | Annual stock option grant of 15,000 shares which vests in equal installments on May 11, 2011, 2012 and 2013. |
|
(3) | Mr. Eichler has an aggregate of 15,000 options outstanding and no outstanding stock awards as of December 31, 2010. |
|
(4) | Named director has an aggregate of 65,000 options
outstanding and no outstanding stock awards as of December 31, 2010. |
|
(5) | Mr. Koob has an aggregate of
115,000 options outstanding and no outstanding stock awards as of
December 31, 2010. |
|
(6) | The Company follows the provisions of ASC topic 718 Compensation Stock compensation
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.
The assumptions made in the valuation of our option awards is disclosed in Note 9 to our
consolidated financial statements contained in our Annual Report on Form 10-K for the nine
months ended December 31, 2009. |
| the annual cash retainer of $20,000 for service as a member of the Board was increased to $25,000; |
| the annual cash retainer of $5,000 for service as a chairman of a Board Committee was eliminated in favor of a fee specific to each committee. As a result of the change, the committee chairs receive annual cash retainers as follows: Audit Committee chair- $10,500, Compensation Committee chair- $7,500, and Nominating and Governance Committee chair - $5,000; |
| an annual cash retainer of $2,500 for service as a non-chairman member of
a Board committee; and |
| meeting attendance fees per Board of Directors meeting attended in person
were reduced from $2,500 to $1,000 and meeting attendance fees per Board of
Directors meeting attended telephonically were increased from $500 to $1,000.
Meeting fees for attendance at committee meetings, which previously were the
same as for attendance at meetings of the Board of Directors, are now fixed at
$1,000 for each committee meeting attended, whether in person or
telephonically. |
38
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters |
Name and address of | Percentage | |||||||
beneficial owner | Number of Shares (1) | Ownership (1) | ||||||
Parker H. Pete Petit (2) |
11,963,586 | 15.64 | % | |||||
Steve Gorlin (3) |
2,445,445 | 3.40 | % | |||||
Charles E. Koob (4) |
1,357,732 | 1.89 | % | |||||
Thomas J. Koob, Ph.D. (5) |
656,477 | * | ||||||
Bruce L. Hack (6) |
650,000 | * | ||||||
William C. Taylor (7) |
559,217 | * | ||||||
Kurt M. Eichler (8) |
554,330 | * | ||||||
Roberta McCaw (9) |
276,632 | * | ||||||
Andrew K. Rooke, Jr. (10) |
197,166 | * | ||||||
Larry W. Papasan (11) |
178,668 | * | ||||||
Michael J. Senken (12) |
91,666 | * | ||||||
J. Terry Dewberry (13) |
41,666 | * | ||||||
Joseph Bleser (14) |
41,666 | * | ||||||
Total Directors and Executive Officers (13 persons)(15) |
19,014,251 | 23.75 | % |
* | Less than 1% |
|
(1) | Beneficial ownership is determined in accordance with the rules of the SEC and includes
voting or investment power with respect to shares beneficially owned. Unless otherwise
specified, reported ownership refers to both voting and investment power. Stock options,
warrants and convertible securities which are exercisable within 60 days are deemed to be
beneficially owned. On April 15, 2011, there were 71,791,349 shares of common stock issued and
outstanding, net of 50,000 shares of common stock held in treasury. |
|
(2) | Includes (i) 4,036,922 shares held by Mr. Petit; (ii)1,233,333 shares of common stock
issuable upon the exercise of vested options; (iii) 3,468,331 shares that are subject to
currently exercisable warrants; (iv) 975,000 shares of common stock and currently exercisable
warrants to purchase 325,000 shares of common stock held by each of Cox Road Partners, LLLP,
Cox Road Partners II, LLLP, and Petit Investments II, LLLP, limited liability limited
partnerships over which Mr. Petit possesses sole voting and investment control and for which
Mr. Petit serves as General Partner; (v) 150,000 shares of common stock and held by the Parker
H. Petit Grantor Trust over which Mr. Petit serves as the trustee; and (vi) 150,000 shares of
common stock held by Petit Investments, LP, a limited partnership where Mr. Petit serves as
General Partner and Limited Partner and possesses shared voting and investment control. |
39
(3) | Includes (i) includes 73,800 shares owned by Mr. Gorlin, (ii) 1,851,857 shares held in a trust for the benefit of Mr. Gorlin; (iii) 434,788
shares held by Mr. Gorlins wife; and (iv) 85,000 shares that are subject to currently
exercisable stock options. |
|
(4) | Includes (i) 615,000 shares held jointly by Mr. Koob and his wife; (ii) 562,489 shares held
individually by Mr. Koob; (iii) 105,000 shares that are subject to currently exercisable stock
options; and (iv) 75,243 shares that may be acquired upon the exercise of warrants held
individually by Mr. Koob. |
|
(5) | Includes (i) 363,010 shares owned by Dr. Koob; and (ii) 293,467 shares that are subject to
currently exercisable stock options. |
|
(6) | Includes (i) 416,667 shares owned by Mr. Hack; (ii) 208,333 shares that are subject to
currently exercisable warrants; and (iii) 25,000 shares that are subject to currently
exercisable stock options. |
|
(7) | Includes (i) 62,550 shares owned by Mr. Taylor and (ii) 496,667 shares that are subject to
currently exercisable stock options. |
|
(8) | Includes (i) 524,083 shares owned by Mr. Eichler (ii) 5,000 shares that are subject to
currently exercisable stock options and (iii) 25,247 shares that may be acquired upon the
exercise of warrants. |
|
(9) | Includes (i) 205,174 shares owned by Ms. McCaw and (ii) 71,458 shares that are subject to
currently exercisable stock options. |
|
(10) | Includes (i) 154,666 shares owned by Mr. Rooke; and (ii) 42,500 shares that are subject to
currently exercisable stock options. |
|
(11) | Includes (i) 61,168 shares owned by Mr. Papasan; (ii) 62,500 shares held in a trust for the
benefit of Mr. Papasan; (iii) 55,000 shares that are subject to currently exercisable stock
options. |
|
(12) | Includes 91,666 shares that are subject to currently exercisable stock options. |
|
(13) | Includes (i) 16,166 shares owned by Mr. Dewberry; and (ii) 25,000 shares that are subject to
currently exercisable stock options. |
|
(14) | Includes (i) 16,166 shares owned by Mr. Bleser; and (ii) 25,000 shares that are subject to
currently exercisable stock options. |
|
(15) | Includes (i) shares controlled or held for the benefit of the executive officers and
directors; (ii) 1,385,000 shares that are subject to stock options that are currently
exercisable or exercisable within 60 days; (iii) 3,825,015 shares that are subject to
currently exercisable warrants; and (iv) 1,000,000 shares that may be acquired upon conversion
of notes. |
40
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
| whether the terms of the transaction are fair to the Company and at least as favorable
to the Company as would apply if the transaction did not involve a related party; |
| whether there are demonstrable business reasons for the Company to enter into the
transaction; |
| whether the transaction would impair the independence of an outside director; and |
| whether the transaction would present an improper conflict of interest for any director
or executive officer, taking into account the size of the transaction, the direct or
indirect nature of the related partys interest in the transaction and the ongoing nature
of any proposed relationship, and any other factors the Audit Committee deems relevant. |
On March 31,
2010, the Company elected to exercise its right to convert the outstanding note
payable amount from its 3% Convertible Senior Secured Promissory Notes (the
“Senior Notes”), including accrued interest of $3,532,361, into
common stock of the Company at a conversion price of $0.50 per share, resulting
in the issuance of 7,064,721 shares of common stock. As a result of the
Company’s election to convert the Senior Notes, Parker H. Petit, our
Chairman of the Board of Directors and CEO, received 514,703 shares of MiMedx
common stock resulting from the conversion of a $250,000 note payable and
$7,352 in accrued interest, Charles E. Koob, a Company Director, received
308,821 shares of MiMedx common stock resulting from the conversion of a
$150,000 note payable and $4,411 in accrued interest and Roberta L McCaw,
General Counsel and Corporate Secretary, received 205,174 shares of MiMedx
common stock resulting from the conversion of a $100,000 note payable and
$2,587 in accrued interest, representing the amount of their original
investment plus accrued interest divided by the conversion rate of $.50 per
share. |
In October 2010,
the Company commenced a private placement (the “October 2010 Private
Placement”) to sell common stock and warrants. From October 30,
2010, through April 15, 2011, the Company sold 4,117,775 shares of common
stock at a price of $1.00 per share and received net proceeds of $4,049,795.
Under the terms of the offering, for every two shares of common stock
purchased, the holder received a 5 year callable warrant to purchase one
share of the Company’s common stock at an exercise price of $1.50 per
share. The callable warrant is callable by the Company at any time if the
closing sale price of the common stock exceeds $1.75 for 15 or more consecutive
trading days. Upon written notice, the Company may redeem the callable warrant
at a price of $0.01 per share. |
Contingent warrants
also were issued to each investor. The first contingent warrant to purchase 25%
of the number of shares of common stock purchased in the offering, at an
exercise price of $0.01 per share, is only exercisable if the Company’s
Gross Revenues as reported in the Company’s Audited Financial Statements
for the year ended December 31, 2011, do not equal or exceed $11,500,000
and further provided that the Warrant is null and void in the event that prior
to issuance of such Audited Financial Statements the closing trading price of
the common stock is at least $1.50 per share for ten or more consecutive
trading days. |
The second contingent
warrant to purchase 25% of the number of shares of common stock purchased in
the offering, at an exercise price of $0.01 per share, is only exercisable if
the Company’s Gross Revenues as reported in the Company’s Audited
Financial Statements for the year ended December 31, 2012, do not equal or
exceed $31,150,000 and further provided that such Warrant is null and void in
the event that prior to issuance of such Audited Financial Statements the
closing trading price of the common stock is at least $1.75 per share for ten
or more consecutive trading days. |
Through April 15,
2011, the Company issued a total of 2,058,888 warrants in the October 2010
Private Placement. Mr. Petit, purchased 600,000 shares of our common stock
and received 300,000 warrants for total consideration of $600,000. |
41
In order to provide
bridge financing pending the closing of sales of securities in the
October 2010 Private Placement, also in October 2010, Mr. Petit
advanced the Company $150,000, Mr. Koob advanced the Company $50,000 and
Kurt M. Eichler, a Company Director, advanced the Company $50,000
through Subscription Agreements for 5% Convertible Promissory Note (“Subscription
Agreement”) and, in connection therewith, were issued 5% Convertible
Promissory Notes (“Notes”) and a Warrant to Purchase Common Stock
(“Warrant”), which expires in three years from the date of
issuance. The Notes were convertible into common stock and warrants on the same
terms as was offered to investors in the October 2010 Private Placement.
In November 2010, Mr. Petit advanced an additional $250,000 under the same
terms. |
In connection with the
Subscription Agreements and the Notes, the Company issued one Warrant for the
number of shares of common stock of the Company computed by dividing the
aggregate amount of the advances by the conversion price, resulting in 500,000
Warrants being issued to purchase MiMedx common stock at an exercise price of
$1.00. As a result of these advances Mr. Petit received a total of 400,000
Warrants, which resulted in an additional interest charge recorded by the
Company of $228,675, representing the intrinsic value of the conversion option
allocated to the Warrants issued, Mr. Koob received a total of 50,000
Warrants, which resulted in an additional interest charge recorded by the
Company of $28,413, representing the intrinsic value of the conversion option
allocated to the Warrants issued and Mr. Eichler received 50,000 Warrants,
which resulted in an additional interest charge recorded by the Company of
$30,358. |
On December 31,
2010, Messrs. Koob and Eichler elected to convert their Notes into
securities of the Company on the terms of the October 2010 Private
Placement. Mr. Koob received 50,486 shares of MiMedx common stock
resulting from the conversion of $50,000 of principal and $486 in accrued
interest and Mr. Eichler received 50,493 shares of MiMedx common stock
resulting from the conversion of $50,000 of principal and $493 in accrued
interest. By virtue of this conversion, Mr. Koob also received 25,243
callable warrants and 25,243 contingent warrants. Mr. Eichler received
25,247 callable warrants and 25,247 contingent warrants. Mr. Petit agreed
to extend the term of his Notes until February 28, 2011, at which time he
exercised the conversion option. As a result of the election, Mr. Petit
received 406,664 shares of MiMedx common stock resulting from the conversion of
two Notes with a total face value of $400,000 and accrued interest of $6,664,
203,332 callable warrants and 203,332 contingent warrants. |
In
April 2009, the Company commenced a private placement to sell 3%
Convertible Senior Secured Promissory Notes (the “Senior Notes”) to
accredited investors. The Company completed the offering on June 17, 2009,
and received aggregate proceeds of $3,472,000, representing the face value of
the Senior Notes. The aggregate proceeds include $250,000 of Senior
Notes sold to Parker H. Petit, our Chairman of the Board of Directors, and CEO,
$150,000 of Senior Notes sold to Charles E. Koob, one of our directors, and
$100,000 of Senior Notes to Roberta L. McCaw, who later became our General
Counsel and Corporate Secretary. |
The
Senior Notes were convertible into shares of the Company’s common stock
at $.50 per share (a) at any time upon the election of the holder of the
Senior Notes; (b) automatically immediately prior to the closing of the
sale of all or substantially all of the assets or more than 50% of the equity
securities of the Company by way of a merger transaction or otherwise which
would yield a price per share of not less than $.50; or (c) at
the election of the Company, at such time as the closing price per share of the
Company’s common stock (as reported by the OTCBB or on any national
securities exchange on which the Company’s shares may be listed) is not
less than $1.50 for at least 20 consecutive trading days in any period prior to
the maturity date. The Senior Notes matured in three years and
earned 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 Senior Notes were secured
by a first priority lien on all of the assets, including intellectual property,
of MiMedx, Inc., excluding, however, the membership interests in SpineMedica,
LLC. The Senior Notes were junior in payment and lien priority to any bank debt
subsequently incurred by the Company in an amount not to exceed
$5,000,000. As of December 31, 2009, no Senior Notes had been
converted, no principal payments had been made, no interest had been paid, and
aggregate accrued interest payable to our executives related to their
investments approximated $10,500. |
42
Item 14. | Principal Accounting Fees and Services |
Fiscal year | Nine months | |||||||
end | ended | |||||||
December 31, 2010 | December 31, 2009 | |||||||
Audit Fees |
$ | 90,000 | $ | 116,864 | ||||
Tax Fees |
$ | 17,250 | $ | 11,000 | ||||
All Other Fees |
$ | | $ | |
43
44
Item 15. | Exhibits, Financial Statement Schedules. |
(a) | Documents filed as part of this report: |
(1) | Financial Statements |
(2) | Financial Statement Schedules |
None |
(3) | Exhibits |
See Item 15(b) below. |
(b) | Exhibits |
Exhibit | ||||
Number | Description | |||
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 |
Notes |
||
# | Filed herewith |
45
April 29, 2011 | MIMEDX GROUP, INC. |
|||
By: | /s/ Michael J. Senken | |||
Michael J. Senken | ||||
Chief Financial Officer |
46