þ | QUARTERLY 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) | |
1234 Airport Road, Suite 105 | ||
Destin, Florida | 32541 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
1 | ||||||||
13 | ||||||||
18 | ||||||||
19 | ||||||||
19 | ||||||||
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21 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 | ||||||||
Exhibit 32.2 |
September 30, | March 31, | |||||||
2008 | 2008 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 2,347,237 | $ | 6,749,609 | ||||
Prepaid expenses and other current assets |
58,835 | 189,253 | ||||||
Total current assets |
2,406,072 | 6,938,862 | ||||||
Property and equipment, net of accumulated depreciation of
$395,314 (September) and $191,588 (March) |
1,548,131 | 1,452,436 | ||||||
Goodwill |
857,597 | 857,597 | ||||||
Intangible assets, net of accumulated amortization of
$657,256 (September) and
$323,848 (March) |
5,449,745 | 5,783,153 | ||||||
Deposits |
149,302 | 146,433 | ||||||
Total assets |
$ | 10,410,847 | $ | 15,178,481 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 1,532,054 | $ | 948,478 | ||||
Total current liabilities |
$ | 1,532,054 | $ | 948,478 | ||||
Redeemable common stock, 487,500 shares issued and
outstanding (net of subscription receivable of $289,136) |
2,002,108 | | ||||||
Commitments and contingencies (Notes 4 and 9) |
| | ||||||
Stockholders equity: |
||||||||
Preferred stock; $.001 par value; 5,000,000
shares authorized and 0 (September and March) shares
issued and outstanding |
| | ||||||
Common stock; $.001 par value; 100,000,000
shares authorized and 37,282,128 (September) and 36,864,534
(March) shares issued and outstanding |
37,282 | 36,864 | ||||||
Additional paid-in capital |
33,233,660 | 32,226,983 | ||||||
Stock subscriptions receivable |
(198,358 | ) | | |||||
Deficit accumulated during the development stage |
(26,195,899 | ) | (18,033,844 | ) | ||||
Total stockholders equity |
6,876,685 | 14,230,003 | ||||||
Total liabilities and stockholders equity |
$ | 10,410,847 | $ | 15,178,481 | ||||
1
Period from | ||||||||||||||||||||
Inception | ||||||||||||||||||||
Three Months Ended | Six Months Ended | (November 22, 2006) | ||||||||||||||||||
September 30, | September 30, | through | ||||||||||||||||||
2008 | 2007 | 2008 | 2007 | September 30, 2008 | ||||||||||||||||
Research and development expenses |
$ | 1,225,809 | $ | 520,358 | $ | 2,179,355 | $ | 658,007 | $ | 4,306,254 | ||||||||||
Acquired in-process research and development |
| 7,177,000 | | 7,177,000 | 7,177,000 | |||||||||||||||
General and administrative expenses |
2,375,710 | 1,790,639 | 4,612,031 | 2,537,881 | 13,842,062 | |||||||||||||||
Loss from operations |
(3,601,519 | ) | (9,487,997 | ) | (6,791,386 | ) | (10,372,888 | ) | (25,325,316 | ) | ||||||||||
Other income, net |
15,169 | 186,103 | 53,154 | 381,668 | 564,832 | |||||||||||||||
Loss before income taxes |
(3,586,350 | ) | (9,301,894 | ) | (6,738,232 | ) | (9,991,220 | ) | (24,760,484 | ) | ||||||||||
Income taxes |
| | | | | |||||||||||||||
Net loss |
(3,586,350 | ) | (9,301,894 | ) | (6,738,232 | ) | (9,991,220 | ) | (24,760,484 | ) | ||||||||||
Accretion of redeemable common stock
to fair value |
(1,423,823 | ) | | (1,423,823 | ) | | (1,423,823 | ) | ||||||||||||
Loss attributable to common shareholders |
$ | (5,010,173 | ) | $ | (9,301,894 | ) | $ | (8,162,055 | ) | $ | (9,991,220 | ) | $ | (26,184,307 | ) | |||||
Loss attributable to common shareholders per common share |
||||||||||||||||||||
Basic and diluted |
$ | (0.13 | ) | $ | (0.58 | ) | $ | (0.22 | ) | $ | (0.66 | ) | ||||||||
Shares used in computing net loss per common share |
||||||||||||||||||||
Basic and diluted |
37,314,628 | 16,167,165 | 37,279,818 | 15,083,582 | ||||||||||||||||
2
Deficit | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Convertible | Convertible | Convertible | Accumulated | |||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Additional | Stock | Note | During the | ||||||||||||||||||||||||||||||||||||||||||||||
Series A | Series B | Series C | Common Stock | Paid-in | Subscriptions | Receivable, | Development | |||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Receivable | Related party | Stage | Total | ||||||||||||||||||||||||||||||||||||||||
Balances, November 22, 2006 |
| $ | | | $ | | | $ | | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||||||||||||||||
Issuance of common stock at inception |
| | | | | | 12,880,000 | 12,880 | | | | (11,592 | ) | 1,288 | ||||||||||||||||||||||||||||||||||||||
Employee share-based compensation
expense |
| | | | | | | | 13,409 | | | | 13,409 | |||||||||||||||||||||||||||||||||||||||
Other share-based compensation expense |
| | | | | | | | 17,980 | | | | 17,980 | |||||||||||||||||||||||||||||||||||||||
Common stock issued in connection
with purchase of license agreement |
| | | | | | 1,120,000 | 1,120 | 894,880 | | | | 896,000 | |||||||||||||||||||||||||||||||||||||||
Issuance of note receivable, related
party |
| | | | | | | | | | (2,000,000 | ) | | (2,000,000 | ) | |||||||||||||||||||||||||||||||||||||
Sale of Series A Preferred stock |
11,212,800 | 14,016,000 | | | | | | | (918,806 | ) | (1,233,750 | ) | | | 11,863,444 | |||||||||||||||||||||||||||||||||||||
Accrued interest income |
| | | | | | (7,644 | ) | | (7,644 | ) | |||||||||||||||||||||||||||||||||||||||||
Net loss for the period |
| | | | | | | | | | | (650,777 | ) | (650,777 | ) | |||||||||||||||||||||||||||||||||||||
Balances, March 31, 2007 |
11,212,800 | 14,016,000 | | | | | 14,000,000 | 14,000 | 7,463 | (1,233,750 | ) | (2,007,644 | ) | (662,369 | ) | 10,133,700 | ||||||||||||||||||||||||||||||||||||
Employee share-based compensation
expense |
| | | | | | | | 649,783 | | | | 649,783 | |||||||||||||||||||||||||||||||||||||||
Other share-based compensation expense |
| | | | | | | | 158,247 | | | | 158,247 | |||||||||||||||||||||||||||||||||||||||
Collection of stock subscription
receivable |
| | | | | | | | | 1,233,750 | | | 1,233,750 | |||||||||||||||||||||||||||||||||||||||
Accrued interest income |
| | | | | | | | | | (41,250 | ) | | (41,250 | ) | |||||||||||||||||||||||||||||||||||||
SpineMedica Corp. acquisition |
| | 5,922,397 | 7,402,996 | 2,911,117 | 2,911 | 2,316,908 | | 2,048,894 | 11,771,709 | ||||||||||||||||||||||||||||||||||||||||||
Sale of Series C Preferred stock |
| | | | 1,285,001 | 3,855,000 | | | | | | | 3,855,000 | |||||||||||||||||||||||||||||||||||||||
Stock options issued in connection
with purchase of intellectual property |
| | | | | | | | 116,000 | | | | 116,000 | |||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | 1,200 | 1 | 2,159 | | | | 2,160 | |||||||||||||||||||||||||||||||||||||||
Alynx Merger Recapitalization |
7,207,398 | 11,257,996 | (5,922,397 | ) | (7,402,996 | ) | (1,285,001 | ) | (3,855,000 | ) | 926,168 | 926 | (926 | ) | | | | | ||||||||||||||||||||||||||||||||||
Alynx Merger Transaction Costs (expensed) |
| | | | | | 205,851 | 206 | 1,126,173 | | | | 1,126,379 | |||||||||||||||||||||||||||||||||||||||
Conversion of Preferred stock |
(18,420,198 | ) | (25,273,996 | ) | | | 18,420,198 | 18,420 | 25,255,576 | | | | | |||||||||||||||||||||||||||||||||||||||
Common stock issued in connection
with purchase of license agreement |
| | | | | | 400,000 | 400 | 2,595,600 | | | | 2,596,000 | |||||||||||||||||||||||||||||||||||||||
Net loss for the period |
| | | | | | | | | | | (17,371,475 | ) | (17,371,475 | ) | |||||||||||||||||||||||||||||||||||||
Balances, March 31, 2008 |
| | | | | | 36,864,534 | 36,864 | 32,226,983 | | | (18,033,844 | ) | 14,230,003 | ||||||||||||||||||||||||||||||||||||||
Employee share-based compensation
expense (unaudited) |
| | | | | | | | 344,275 | | | | 344,275 | |||||||||||||||||||||||||||||||||||||||
Other share-based compensation
expense (unaudited) |
| | | | | | | | 67,747 | | | | 67,747 | |||||||||||||||||||||||||||||||||||||||
Cashless exercise of stock warrants (unaudited) |
| | | | | | 417,594 | 418 | (418 | ) | | | | | ||||||||||||||||||||||||||||||||||||||
Sale of warrants in connection with private
placement of redeemable common stock (unaudited) |
595,073 | (198,358 | ) | 396,715 | ||||||||||||||||||||||||||||||||||||||||||||||||
Accretion of redeemable common stock
to fair value (unaudited) |
(1,423,823 | ) | (1,423,823 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Net loss for the period (unaudited) |
(6,738,232 | ) | (6,738,232 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balances, September 30, 2008 (unaudited) |
| $ | | | $ | | | $ | | 37,282,128 | $ | 37,282 | $ | 33,233,660 | $ | (198,358 | ) | $ | | $ | (26,195,899 | ) | $ | 6,876,685 | ||||||||||||||||||||||||||||
3
Period from | ||||||||||||
Inception | ||||||||||||
Six Months Ended | (November 22, 2006) | |||||||||||
September 30, | through | |||||||||||
2008 | 2007 | September 30, 2008 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (6,738,232 | ) | $ | (9,991,220 | ) | $ | (24,760,484 | ) | |||
Adjustments to reconcile net loss to net cash flows from
operating activities, net of effects of acquisition: |
||||||||||||
Acquired in-process research and development |
| 7,177,000 | 7,177,000 | |||||||||
Depreciation |
203,726 | 41,363 | 395,881 | |||||||||
Amortization of intangible assets |
333,408 | 49,800 | 657,255 | |||||||||
Employee share-based compensation expense |
344,275 | 120,561 | 1,007,467 | |||||||||
Other share-based compensation expense |
67,747 | 79,168 | 243,974 | |||||||||
Issuance of common stock for transaction fees |
| | 1,126,379 | |||||||||
Accrued interest on notes receivable, related party |
| (41,250 | ) | (48,894 | ) | |||||||
Change in fair value of investment, related party |
| 41,775 | 41,775 | |||||||||
Increase (decrease) in cash resulting from changes in: |
||||||||||||
Prepaid expenses and other current assets |
130,418 | (52,151 | ) | (39,757 | ) | |||||||
Accounts payable and accrued expenses |
583,576 | (273,350 | ) | 633,940 | ||||||||
Deferred interest income |
| (43,200 | ) | (43,200 | ) | |||||||
Net cash flows from operating activities |
(5,075,082 | ) | (2,891,504 | ) | (13,608,664 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchase of equipment |
(299,421 | ) | (751,252 | ) | (1,480,223 | ) | ||||||
Cash paid for intangible asset |
| | (100,000 | ) | ||||||||
Cash paid for security deposits |
(2,869 | ) | (22,902 | ) | (115,500 | ) | ||||||
Cash received in acquisition of SpineMedica Corp. |
| 1,957,405 | 1,957,405 | |||||||||
Cash paid for acquisition costs of SpineMedica Corp. |
| (227,901 | ) | (227,901 | ) | |||||||
Payments from (advances to) related party |
| 18,662 | (2,008,522 | ) | ||||||||
Net cash flows from investing activities |
(302,290 | ) | 974,012 | (1,974,741 | ) | |||||||
Cash flows from financing activities: |
||||||||||||
Payments on related party borrowing |
| (500,000 | ) | | ||||||||
Proceeds from Series A preferred stock |
| 1,233,750 | 14,016,000 | |||||||||
Proceeds from Series C preferred stock |
| 1,380,000 | 3,855,000 | |||||||||
Proceeds from sale of warrants and redeembable
common stock |
975,000 | | 976,288 | |||||||||
Proceeds from exercise of stock options |
| | 2,160 | |||||||||
Offering costs paid in connection with Series A preferred
stock offering |
| (755,152 | ) | (918,806 | ) | |||||||
Net cash flows from financing activities |
975,000 | 1,358,598 | 17,930,642 | |||||||||
Net change in cash |
(4,402,372 | ) | (558,894 | ) | 2,347,237 | |||||||
Cash, beginning of period |
6,749,609 | 10,456,707 | | |||||||||
Cash, end of period |
$ | 2,347,237 | $ | 9,897,813 | $ | 2,347,237 | ||||||
4
1. | Basis of Presentation: |
|
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States (GAAP) for
interim financial information and with the instructions to Form 10-Q and Article 8 of
Regulations S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a fair
presentation of the results of operations for the periods presented have been included.
Operating results for the three and six months ended September 30, 2008 and 2007 are not
necessarily indicative of the results that may be expected for the fiscal year. The balance
sheet at March 31, 2008 has been derived from the audited consolidated financial statements at
that date, but does not include all of the information and footnotes required by GAAP for
complete financial statements. |
||
You should read these condensed consolidated financial statements together with the historical
consolidated financial statements of the Company for the years ended March 31, 2008 and period
from inception (November 22, 2006) through March 31, 2008 and 2007 included in our Annual
Report on Form 10-K for the year ended March 31, 2008, filed with the Securities and Exchange
Commission (SEC) on June 27, 2008, as amended on July 29, 2008 and September 30, 2008. |
||
MiMedx, Inc. (MiMedx) was incorporated in Florida in 2006. MiMedx entered into an Agreement
and Plan of Merger (Merger Agreement) on January 29, 2008 with a publicly-traded Nevada
Corporation, Alynx, Co. (Alynx), a public shell company, which was consummated on February
8, 2008. As a result of this transaction, MiMedx shareholders owned approximately 97% of the
outstanding shares, of the surviving company, thus giving MiMedx substantial control. |
||
Under GAAP, MiMedx was deemed to be the accounting acquirer since the shareholders of MiMedx
own a substantial majority of the issued and outstanding shares, and thus this reverse merger
was accounted for as a capital transaction. The historical financial statements are a
continuation of the financial statements of the accounting acquirer and the capital structure
of the consolidated enterprise is now different from that appearing in the historical
financial statements of the accounting acquirer in earlier periods due to the
recapitalization. |
||
On March 31, 2008, MiMedx Group, Inc., a Florida corporation, and Alynx merged. As a result of
this transaction, MiMedx Group, Inc. became the surviving corporation. The Company refers
to MiMedx Group, Inc., a development stage company, as well as its two operating subsidiaries:
MiMedx, Inc. and SpineMedica, LLC. |
||
The financial statements include the accounts of MiMedx Group, Inc. and its wholly-owned
subsidiaries MiMedx, Inc. and SpineMedica, LLC. All significant inter-company balances and
transactions have been eliminated. |
||
2. | Significant accounting policies: |
|
Net loss per share |
||
Basic net loss per common share is computed using the weighted-average number of common shares
outstanding during the period. Diluted net loss per common share is typically computed using
the weighted-average number of common and dilutive common equivalent shares from stock
options, warrants and convertible preferred stock using the treasury stock method. |
5
For all periods presented, diluted net loss per share is the same as basic net loss per share,
as the inclusion of equivalent shares from outstanding common stock options, warrants and
convertible preferred stock would be anti-dilutive. |
Outstanding anti-dilutive securities not included in diluted net loss per share calculation
are as follows: |
As of September 30, | ||||||||
2008 | 2007 | |||||||
Common Stock equivalents: |
||||||||
Stock Options |
4,149,375 | 4,051,250 | ||||||
Stock Warrants |
672,751 | 699,331 | ||||||
Convertible Preferred Stock |
0 | 18,420,198 | ||||||
4,822,126 | 23,170,779 | |||||||
Recently issued accounting pronouncements: |
||
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (SFAS 157).
SFAS 157 clarifies the principle that fair value should be based on the assumptions that
market participants would use when pricing an asset or liability. Additionally, it establishes
a fair value hierarchy that prioritizes the information used to develop those assumptions.
SFAS 157 is effective for financial statements issued for fiscal years beginning after
November 15, 2007. Effective April 1, 2008 the Company adopted the provisions of SFAS 157.
The adoption of the Standard had no effect on the consolidated financial statements. |
||
In April 2008, FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible
Assets (FSP 142-3) was issued. This standard amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement 142, Goodwill and Other Intangible Assets. FASP 142-3
is effective for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early adoption is prohibited. The
Company has not determined the impact on its financial statements of this accounting standard. |
||
3. | Liquidity and managements plans: |
|
The accompanying financial statements have been prepared assuming the Company will continue as
a going concern. For the period from inception (November 22, 2006) through September 30, 2008
the Company experienced net losses of $24,760,484 (unaudited) and cash used in operations of
$13,608,664 (unaudited). As of September 30, 2008, the Company had not emerged from the
development stage and had only $2,347,000 of cash and cash equivalents on hand. We estimate
that the cash and cash equivalents on hand will be sufficient to fund operations for at least
60 days from September 30, 2008, but in order to fund on-going operating cash requirements
beyond that point, or to further accelerate and execute our business plan, we will need to
raise significant additional funds. In view of these matters, the ability of the Company to
continue as a going concern is dependent upon the Companys ability to secure additional
financing sufficient to support its research and development activities, approval of developed
products for sale by regulatory authorities, including the FDA, and ultimately to generate
revenues sufficient to cover all costs. Since inception, the Company has financed its
activities principally from the sale of equity securities. The Company is currently
attempting to raise additional funds and such funds may not be available on favorable terms,
or at all, particularly when considering the current worldwide financial and credit crises
which has made it significantly more difficult to gain access to the capital markets.
Furthermore, if the Company issues equity or debt securities to raise additional funds,
existing shareholders may experience dilution and the new equity or debt securities it issues
may have rights, preferences and privileges senior to those of existing shareholders. In
addition, if the Company raises additional funds through collaboration, licensing or other
similar arrangements, it may be necessary to relinquish valuable rights to products or
proprietary technologies, or grant licenses on terms that are not favorable. If the Company
cannot raise funds on acceptable terms, the Company may not be able to continue as a going
concern, develop or enhance products, obtain the required regulatory clearances or approvals,
execute the Companys business plan, take advantage of future opportunities, or respond to
competitive. Any of these events could adversely affect the Companys ability to achieve the
Companys development and commercialization goals, which could have a material adverse effect
on the Companys business, results of operations and financial condition. |
6
4. | Intangible assets and royalty agreements: |
|
Intangible assets activity is summarized as follows: |
Intellectual | ||||||||||||||||||||
License | License | License | Property | |||||||||||||||||
(a) | (b) | (c) | (d) | Total | ||||||||||||||||
April 1, 2008 |
$ | 881,466 | $ | 2,195,487 | $ | 2,596,000 | $ | 110,200 | $ | 5,783,153 | ||||||||||
Additions |
| | | | | |||||||||||||||
Amortization |
(49,800 | ) | (148,008 | ) | (129,800 | ) | (5,800 | ) | (333,408 | ) | ||||||||||
September 30, 2008 |
$ | 831,666 | $ | 2,047,479 | $ | 2,466,200 | $ | 104,400 | $ | 5,449,745 | ||||||||||
a) | On January 29, 2007, the Company acquired a license from Shriners Hospitals for
Children and University of South Florida Research Foundation, Inc. The acquisition price
of this license was a one-time fee of $100,000 and 1,120,000 shares of common stock valued
at $896,000 (based upon the estimated fair value of the common stock on the transaction
date). Within thirty days after the receipt by the Company of approval by the FDA allowing
the sale of the first licensed product, the Company is required to pay an additional
$200,000 to the licensor. This amount is not recorded as a liability based on its
contingent nature. The Company will also be required to pay a royalty of 3% on all
commercial sales revenues of the licensed products. |
|
b) | License from SaluMedica, LLC (SaluMedica) for the use of certain developed technologies
related to spine repair. This license was acquired through the acquisition of SpineMedica
Corp. |
|
c) | On March 31, 2008, the Company entered into a license agreement for the use of certain
developed technologies related to surgical sheets made of polyvinyl alcohol cryogel. The
acquisition price of the asset was 400,000 shares of common stock valued at $2,596,000
(based upon the closing price of the common stock on the transaction date). The agreement
also provides for the issuance of an additional 600,000 shares upon the Company meeting
certain milestones related to future sales. There are no amounts accrued for this
obligation due to its contingent nature. |
|
d) | During the year ended March 31, 2008, the Company issued 200,000 stock options valued
at $116,000 for certain technologies relating to medical device designs for products used
in hand surgery. The agreement also provides for royalty payments upon the sale of certain
products. There are no amounts accrued for this obligation due to its contingent nature. |
7
Year ending September 30, | ||||
2009 |
$ | 666,821 | ||
2010 |
666,821 | |||
2011 |
666,821 | |||
2012 |
666,821 | |||
2013 |
666,821 | |||
Thereafter |
2,115,640 | |||
$ | 5,449,745 | |||
5. | September 2008 Private Placement: |
|
On September 25, 2008, the Company commenced a private placement of up to 13,333,333 units (at
$3.00 per unit) wherein each unit consists of one share of common stock and a warrant to
purchase one share of common stock for $3.50 over a five year term (the Private Placement).
As of September 30, 2008, the Company had sold 487,500 units for total proceeds of $1,462,500.
Of this amount, $487,500 is recorded in the form of a subscription receivable that was settled
after September 30, 2008. There can be no assurances that the Company will be successful in
placing any further units under the Private Placement. |
||
In connection with the Private Placement, the Company entered into a Registration Rights
Agreement related solely to the common stock that requires the Company to among other things,
(i) file a Registration Statement within 90 days from the closing of the Private Placement; and,
(ii) make required filings under the Securities Act of 1933 and the
Securities and Exchange Act of 1934. It also provides for (i) achieving and maintaining
effectiveness; and, (ii) listing the shares on any exchange on which the Companys shares are then listed
and maintain the listing; each on a best-efforts basis. The Registration Rights Agreement does not provide for
an alternative or contain a penalty in the event the Company is unable to fulfill its
requirements. In addition, the terms of the sale of common stock provide that the investor has
an option, for a period of six months following the purchase, to exchange the common shares
for other financial instruments (including those that may require classification outside of
stockholders equity) that may be issued at a price, or effective price in the case of
convertible instruments, lower than the original purchase price. As a result of the
registration rights obligation to file within a specified period, which is presumed not to be
within the Companys control, and the contingent redemption feature, the Company is required,
pursuant to EITF D-98 Classification and Measurement of Redeemable Securities, to classify the
common stock outside of stockholders equity as redeemable common stock. Further, given the
nature of the contingent redemption provision, the standard requires the Company to initially
record the redeemable common stock at its fair value, which was accomplished with a charge to retained earnings
of $1,423,823. The Company will evaluate the redemption value of the redeemable common stock during the six month period
that it is redeemable and may record additional accretion depending on facts and circumstances surrounding the status of
the potential exchange. Upon expiration of the exchange period, the redeemable common stock will be
reclassified to paid-in capital and par value, unless exchanged for other financial instruments. If the
redeemable common stock is exchanged for other financial instruments, other accounting standards will be applied. |
||
The warrants included in the unit offering are indexed to 487,500 shares of the Companys
common stock and were evaluated for purposes of their classification under EITF 00-19
Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a
Companys Own Stock. These warrants are not subject to the Registration Rights Agreement
referred to above, and they otherwise meet the conditions for equity classification provided
in that standard. Accordingly, these warrants are recorded in stockholders equity. The
Company is required to reevaluate that classification on each reporting date. |
8
The total basis in the financing, consisting of cash and the subscription receivable, was
allocated to the redeemable common stock and warrants based upon their relative fair values as
provided in EITF D-98 and related standards. The fair value of the redeemable common stock
represents the value of the number of shares at the trading market price. The warrants were
valued using the Black-Scholes-Merton technique, and the Company estimated (i) the expected
term as equal to the five-year warrant term, (ii) the volatility, based upon a reasonable peer
group, at 75.33% and (iii) the risk free rate as the published rate for zero coupon government
securities with terms consistent with the expected term, or 3.09%. The following table
illustrates the allocation: |
Fair | Relative Fair | Subscription | ||||||||||||||
Financial Instrument | Values | Values | Receivable | Allocation | ||||||||||||
Redeemable Common Stock |
$ | 2,291,250 | $ | 867,427 | $ | (289,142 | ) | $ | 578,285 | |||||||
Warrants |
1,571,846 | 595,073 | (198,358 | ) | 396,715 | |||||||||||
$ | 3,863,096 | $ | 1,462,500 | $ | (487,500 | ) | $ | 975,000 | ||||||||
6. | Stockholders equity: |
|
Stock Options: |
||
Activity with respect to the stock options is summarized as follows: |
Weighted- | ||||||||||||
average Exercise | Intrinsic | |||||||||||
Shares | Prices | Value | ||||||||||
Options outstanding at
April 1, 2008 |
4,446,250 | $ | 2.20 | |||||||||
Granted |
50,000 | 5.38 | ||||||||||
Cancelled |
(346,875 | ) | 1.68 | |||||||||
Exercised |
| |||||||||||
Options outstanding at
September 30, 2008 |
4,149,375 | 2.28 | $ | 10,248,956 | ||||||||
Options exercisable at
September 30, 2008 |
2,538,958 | 1.88 | $ | 7,286,809 | ||||||||
Following is a summary of stock options outstanding and exercisable at September 30, 2008: |
Options Outstanding | Options Exercisable | |||||||||||||||||||
Weighted- | ||||||||||||||||||||
Range of | Average | Weighted- | Weighted- | |||||||||||||||||
Exercise | Number | Remaining | Average | Number | Average | |||||||||||||||
Prices | Outstanding | Contractual Life | Exercise Price | Exercisable | Exercise Price | |||||||||||||||
$.0001 1.00 |
1,202,500 | 3.44 | $ | .91 | 815,000 | $ | .91 | |||||||||||||
1.80
2.40 |
2,296,875 | 6.26 | 2.10 | 1,561,458 | 2.01 | |||||||||||||||
5.38 5.44 |
650,000 | 4.81 | 5.44 | 162,500 | 5.44 | |||||||||||||||
4,149,375 | 5.21 | 2.28 | 2,538,958 | 1.88 | ||||||||||||||||
A summary of the status of the Companys unvested stock options follows: |
Weighted | ||||||||
Average | ||||||||
Grant Date | ||||||||
Unvested Stock Options | Shares | Fair Value | ||||||
Unvested at April 1, 2008 |
2,300,626 | .49 | ||||||
Granted |
50,000 | 3.45 | ||||||
Cancelled |
(130,625 | ) | .36 | |||||
Vested |
(609,584 | ) | .50 | |||||
Unvested at September 30, 2008 |
1,610,417 | |||||||
9
Total unrecognized compensation expense at September 30, 2008 was approximately $1,475,000 and
will be charged to expense through June, 2011. |
||
The fair value of the options granted was estimated on the date of grant using the
Black-Scholes option-pricing model that uses assumptions for expected volatility, expected
dividends, expected term, and the risk-free interest rate. Expected volatilities are based on
historical volatility of peer companies and other factors estimated over the expected term of
the options. The term of employee options granted is derived using the simplified method
which computes expected term as the average of the sum of the vesting term plus the contract
term. The term for non-employee options is generally based upon the contractual term of the
option. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of
grant for the period of the expected term or contractual term as described. |
||
The assumptions used in calculating the fair value of options using the Black-Scholes
option-pricing model are set forth in the following table: |
Six Months Ended | ||||
September 30, 2008 | September 30, 2007 | |||
Dividend yield |
0% | 0% | ||
Expected volatility |
70.05% | 45.53% to 57.04% | ||
Risk free interest rates |
3.11% | 4.09% to 4.92% | ||
Expected lives |
6 years | 2.75 to 5 years |
The weighted-average grant date fair value for options granted during the six months ended
September 30, 2008, and 2007, was approximately $3.45, and $.44, respectively. |
||
Warrants: |
||
A summary of our common stock warrant activity for the six months ended September 30, 2008 is
as follows: |
Weighted Average | ||||||||
Exercise | ||||||||
Number | Price per Share | |||||||
Warrants outstanding at April 1, 2008 |
709,331 | $ | 1.41 | |||||
Cashless exercise of warrants (417,594 shares
of common stock issued) |
(524,080 | ) | (1.25 | ) | ||||
Warrants issued in connection with private
placement of common stock |
487,500 | 3.50 | ||||||
Warrants outstanding at September 30, 2008 |
672,751 | $ | 3.05 | |||||
10
Warrants outstanding at September 30, 2008 consist of the following: |
Issued in connection
with private placement
discussed in Note 5 |
487,500 | |||
Assumed by the Company in connection with acquisition of
SpineMedica Corp. in July, 2007 ($1.80 exercise price);
expire October, 2009 |
175,251 | |||
Service provided by consultant in October, 2007 ($3.00
exercise price); expire October, 2012 |
10,000 | |||
Total warrants outstanding at September 30, 2008 |
672,751 | |||
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. |
||
7. | Income taxes: |
|
The Company has incurred net losses since its inception and, therefore, no current income tax
liabilities have been incurred for the periods presented. Due to the 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. |
||
8. | Related party transactions: |
|
The Company incurred expenses of approximately $19,000 and $6,200 during the six months ended
September 30, 2008 related to aircraft usage and the lease of office space, respectively, from
entities owned by the Chairman of the Board. Amounts incurred for these types of expenses
during the six months ended September 30, 2007 approximated $54,000 and $12,000, respectively. |
11
9. | Contractual Commitments: |
|
The table below sets forth our known contractual obligations as of September 30, 2008: |
Payments due by period | ||||||||||||||||
Less than | ||||||||||||||||
Contractual Obligations | Total | 1 year | 2 3 years | 4 5 years | ||||||||||||
Consulting Agreements |
$ | 558,000 | $ | 358,000 | $ | 200,000 | $ | | ||||||||
Employment Agreements |
1,990,000 | 1,394,000 | 596,000 | | ||||||||||||
Operating Lease Obligations |
955,000 | 283,000 | 547,000 | 125,000 | ||||||||||||
Total |
$ | 3,503,000 | $ | 2,035,000 | $ | 1,343,000 | $ | 125,000 | ||||||||
In May 2008, the Company entered into agreements with a consultant/shareholder which require
payments in the event the Company receives proceeds from the sale or disposition of certain
intellectual property contributed by the consultant/shareholder. As of September 30, 2008 no
commitments have been paid or accrued under these agreements due to their contingent nature. |
||
The Companys directors and officers are indemnified against costs and expenses related to
stockholder and other claims (i.e., only actions taken in their capacity as officers and
directors) that are not covered by the Companys directors and officers insurance policy.
This indemnification is ongoing and does not include a limit on the maximum potential future
payments, nor are there any recourse provisions or collateral that may offset the cost. No
events have occurred as of September 30, 2008 which would trigger any liability under the
agreement. |
||
Registration rights: |
||
Certain shareholders of the Company have registration rights covering 18,420,198 shares of the
Companys common stock pursuant to an agreement dated July 23, 2007. The rights will be
effective nine months after the Company either closes an underwritten public offering or
receives, in the aggregate, a minimum of $10,000,000 in cash from the sale or a series of
related sales of the Companys securities at a time when its equity securities are registered
under Section 12 of the Exchange Act. As such, these are contingent rights subject to events
within the Companys control. When and if these events occur and the nine month period
expires, the majority of the holders of the registration rights can demand that the Company
use its best efforts to register such shares on up to two occasions but not more than once in
any 12-month period, subject to certain restrictions. The holders of those shares also have
certain piggyback registration rights. The various registration rights expire upon the
earlier of the fifth anniversary from when the Company has its first underwritten public
offering or the date when the holder of such shares is able to sell the registrable shares
under Rule 144. Pursuant to a separate registration rights agreement, dated February 8, 2008,
the holders of approximately 17,600 additional shares of the Companys common stock have
piggyback registration rights which are substantially the same as those granted in July 2007.
The registration rights agreements do not require the Company to pay any consideration to
holders if an SEC registration statement is not declared effective or maintained. Beginning
February 9, 2009, most, if not all, of the shares subject to the registration rights
agreements will be eligible for sale pursuant to Rule 144. Approximately 966,667 of the
shares are held by persons who are affiliates. Affiliates will be subject to the condition
that the Company be current in its filings before they may utilize Rule 144, and to Rule 144
volume limitations. |
||
As discussed in Note 5, registration rights were also granted to shareholders in conjunction
with the Private Placement. |
12
13
| Initial tests of fibers cross-linked with NDGA appear to demonstrate they are
stronger than existing collagenous tissue, including healthy tendons and ligaments. These
fibers form the fundamental unit from which a variety of devices could be configured as
follows: |
| Linear arrays of fibers for tendons |
||
| Fiber braids for ligament bioprostheses |
||
| Woven meshes for general surgical use; |
| NDGA-treated biomaterials have been tested and results preliminarily suggest that the
materials are biocompatible and biodegradable; |
||
| Biocompatibilization (making a material biocompatible that may otherwise not be) of
in-dwelling medical devices by coating with NDGA polymerized collagen; |
||
| NDGA treatment of xenograft (animal in origin) and allograft (human in origin)
materials could make them more biocompatible and possibly improve functional lifetime; and |
||
| NDGA-treated collagen-based biorivets have the potential to be used for bone repair. |
14
15
16
17
18
19
20
Exhibit | ||||||||
Number | Reference | Description | ||||||
10.68 | * | (1 | ) | Form of Incentive Stock Option Award
Agreement under MiMedx Group, Inc. Amended
and Restated Assumed 2005 Stock Plan |
||||
10.69 | * | (1 | ) | Form of Nonqualified Stock Option Award
Agreement under MiMedx Group, Inc. Amended
and Restated Assumed 2005 Stock Plan |
||||
10.70 | * | (2 | ) | MiMedx Group, Inc. Amended and Restated
Assumed 2005 Stock Plan (formerly the
SpineMedica Corp. 2005 Employee, Director
and Consultant Stock Plan) |
||||
31.1 | # | Certification of Chief Executive Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
||||||
31.2 | # | Certification of Chief Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
||||||
32.1 | # | Certification of Chief Executive Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
||||||
32.2 | # | Certification of Chief Financial Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
(1) | Incorporated by reference to Form 8-K filed September 4, 2008. |
|
(2) | Incorporated by reference to Exhibit 10.4 to Form S-8 filed August 29, 2008. |
|
# | Filed or furnished herewith. |
|
* | Indicates a management contract or compensatory plan or arrangement. |
21
MIMEDX GROUP, INC. |
||||
Date: November 14, 2008 | ||||
By: | /s/ John C. Thomas, Jr. | |||
John C. Thomas, Jr., Chief Financial Officer | ||||
(Principal financial officer and duly authorized officer) |
22
Exhibit | ||||||||
Number | Reference | Description | ||||||
10.68 | * | (1 | ) | Form of Incentive Stock Option Award
Agreement under MiMedx Group, Inc. Amended
and Restated Assumed 2005 Stock Plan |
||||
10.69 | * | (1 | ) | Form of Nonqualified Stock Option Award
Agreement under MiMedx Group, Inc. Amended
and Restated Assumed 2005 Stock Plan |
||||
10.70 | * | (2 | ) | MiMedx Group, Inc. Amended and Restated
Assumed 2005 Stock Plan (formerly the
SpineMedica Corp. 2005 Employee, Director
and Consultant Stock Plan) |
||||
31.1 | # | Certification of Chief Executive Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
||||||
31.2 | # | Certification of Chief Financial Officer
pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 |
||||||
32.1 | # | Certification of Chief Executive Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
||||||
32.2 | # | Certification of Chief Financial Officer
pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 |
(1) | Incorporated by reference to Form 8-K filed September 4, 2008. |
|
(2) | Incorporated by reference to Exhibit 10.4 to Form S-8 filed August 29, 2008. |
|
# | Filed or furnished herewith. |
|
* | Indicates a management contract or compensatory plan or arrangement. |
23