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) | |
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 |
Part I FINANCIAL INFORMATION |
||||||||
Item 1. Condensed Consolidated Financial Statements |
||||||||
2 | ||||||||
3 | ||||||||
4 | ||||||||
6 | ||||||||
7 | ||||||||
20 | ||||||||
25 | ||||||||
26 | ||||||||
26 | ||||||||
26 | ||||||||
26 | ||||||||
28 | ||||||||
28 | ||||||||
28 | ||||||||
29 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 |
1
September 30, | March 31, | |||||||
2009 | 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 5,785 | $ | 34,828 | ||||
Prepaid expenses and other current assets |
180,254 | 82,953 | ||||||
Total current assets |
186,039 | 117,781 | ||||||
Property and equipment,
net of accumulated depreciation of $837,548 (September)
and $610,536 (March) |
1,159,250 | 1,375,896 | ||||||
Goodwill |
857,597 | 857,597 | ||||||
Intangible assets, net of accumulated amortization of $1,324,070 (September)
and $990,660 (March) |
4,782,927 | 5,116,337 | ||||||
Deferred financing costs |
209,971 | | ||||||
Deposits |
149,202 | 149,202 | ||||||
Total assets |
$ | 7,344,986 | $ | 7,616,813 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 932,741 | $ | 1,699,337 | ||||
Hybrid debt instrument |
369,055 | | ||||||
Warrant derivative liability |
609,666 | | ||||||
Total current liabilities |
1,911,462 | 1,699,337 | ||||||
Long term convertible debt, face value $3,472,000 less unamortized
discount of $600,319 and including accrued interest of $43,564 |
2,915,245 | | ||||||
Total liabilities |
4,826,707 | 1,699,337 | ||||||
Commitments and contingencies (Notes 4 and 12) |
| | ||||||
Common stock with registration rights,1,905,000 shares issued
and outstanding March (Note 7) |
| 3,761,250 | ||||||
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 42,185,022 (September) and 37,339,628
(March) shares issued and outstanding |
42,185 | 37,340 | ||||||
Additional paid-in capital |
40,697,152 | 34,230,824 | ||||||
Treasury stock (50,000 shares at cost) (Note 8) |
(25,000 | ) | | |||||
Deficit accumulated during the development stage |
(38,196,058 | ) | (32,111,938 | ) | ||||
Total stockholders equity |
2,518,279 | 2,156,226 | ||||||
Total liabilities and stockholders
equity |
$ | 7,344,986 | $ | 7,616,813 | ||||
2
Period from | ||||||||||||||||||||
Inception | ||||||||||||||||||||
Three Months Ended | Six Months Ended | (November 22, 2006) | ||||||||||||||||||
September 30, | September 30, | through | ||||||||||||||||||
2009 | 2008 | 2009 | 2008 | September 30, 2009 | ||||||||||||||||
Research and development expenses |
$ | 949,281 | $ | 1,225,809 | $ | 1,722,798 | $ | 2,179,355 | $ | 7,872,407 | ||||||||||
Acquired in-process research and development |
| | | | 7,177,000 | |||||||||||||||
General and administrative expenses |
1,459,346 | 2,375,710 | 2,793,663 | 4,612,031 | 19,979,806 | |||||||||||||||
Loss from operations |
(2,408,627 | ) | $ | (3,601,519 | ) | (4,516,461 | ) | (6,791,386 | ) | (35,029,213 | ) | |||||||||
Other income (expense): |
||||||||||||||||||||
Gain on settlement of payables |
1,381 | | 566,219 | | 566,219 | |||||||||||||||
Financing expense associated with registration
rights/waivers |
(1,305,100 | ) | | (1,305,100 | ) | | (1,305,100 | ) | ||||||||||||
Derivative expense |
(683,416 | ) | | (683,416 | ) | | (683,416 | ) | ||||||||||||
Net interest (expense) income, net |
(90,814 | ) | 15,169 | (145,362 | ) | 53,154 | 467,642 | |||||||||||||
Change in fair value of investment, related
party |
| | | | (41,775 | ) | ||||||||||||||
Loss before income taxes |
(4,486,576 | ) | (3,586,350 | ) | (6,084,120 | ) | (6,738,232 | ) | (36,025,643 | ) | ||||||||||
Income taxes |
| | | | | |||||||||||||||
Net loss |
(4,486,576 | ) | (3,586,350 | ) | (6,084,120 | ) | (6,738,232 | ) | (36,025,643 | ) | ||||||||||
Accretion of redeemable common stock
to fair value |
| (1,423,823 | ) | (1,423,823 | ) | (2,158,823 | ) | |||||||||||||
Loss attributable to common shareholders |
$ | (4,486,576 | ) | $ | (5,010,173 | ) | $ | (6,084,120 | ) | $ | (8,162,055 | ) | $ | (38,184,466 | ) | |||||
Loss attributable to common shareholders
per common share |
||||||||||||||||||||
Basic and diluted |
$ | (0.11 | ) | $ | (0.13 | ) | $ | (0.15 | ) | $ | (0.22 | ) | ||||||||
Shares used in computing net loss per common
share |
||||||||||||||||||||
Basic and diluted |
41,576,491 | 37,314,628 | 40,410,560 | 37,279,818 | ||||||||||||||||
3
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 | Treasury | Subscriptions | Receivable, | Development | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stock | 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 |
4
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 | Treasury | Subscriptions | Receivable, | Development | ||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Stock | Receivable | Related party | Stage | Total | |||||||||||||||||||||||||||||||||||||||||||
Employee share-based compensation
expense |
| | | | | | | | 945,062 | | | | | 945,062 | ||||||||||||||||||||||||||||||||||||||||||
Other share-based compensation
expense |
| | | | | | | | 130,076 | | | | | 130,076 | ||||||||||||||||||||||||||||||||||||||||||
Cashless exercise of stock warrants |
| | | | | | 417,594 | 418 | (418 | ) | | | | | ||||||||||||||||||||||||||||||||||||||||||
Sale of warrants in connection with private
placement of redeemable common stock |
| | | | | | | | 595,073 | | | | | 595,073 | ||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options |
| | | | | | 57,500 | 58 | (52 | ) | | | | | 6 | |||||||||||||||||||||||||||||||||||||||||
Accretion of redeemable common stock and
common stock with registration rights to
fair value |
| | | | | | | | | | | | (2,158,823 | ) | (2,158,823 | ) | ||||||||||||||||||||||||||||||||||||||||
Warrants issued in connection with the amendment
of private placement of common stock |
| | | | | | | | 334,100 | | | | | 334,100 | ||||||||||||||||||||||||||||||||||||||||||
Net loss for the period |
| | | | | | | | | | | | (11,919,271 | ) | (11,919,271 | ) | ||||||||||||||||||||||||||||||||||||||||
Balances, March 31, 2009 |
| | | | | | 37,339,628 | 37,340 | 34,230,824 | | | | (32,111,938 | ) | 2,156,226 | |||||||||||||||||||||||||||||||||||||||||
Beneficial conversion feature recognized
on convertible debt (unaudited) |
| | | | | | | | 676,500 | | | | | 676,500 | ||||||||||||||||||||||||||||||||||||||||||
Warrants issued to placement agents in
conjunction with convertible debt
(unaudited) |
| | | | | | | | 98,574 | | | | | 98,574 | ||||||||||||||||||||||||||||||||||||||||||
Common stock issued for waivers
of registration rights (unaudited) |
| | | | | | 2,490,000 | 2,490 | 1,302,610 | | | | | 1,305,100 | ||||||||||||||||||||||||||||||||||||||||||
Reclassification of common stock with
registration rights (unaudited) |
| | | | | | 1,905,000 | 1,905 | 3,759,345 | | | | | 3,761,250 | ||||||||||||||||||||||||||||||||||||||||||
Common stock issued for prepaid financial
services (unaudited) |
| | | | | | 100,000 | 100 | 41,900 | | | | | 42,000 | ||||||||||||||||||||||||||||||||||||||||||
Common stock issued for accrued directors
fees (unaudited) |
| | | | | | 162,750 | 163 | 81,212 | | | | | 81,375 | ||||||||||||||||||||||||||||||||||||||||||
Common stock issued for accrued executive
compensation (unaudited) |
| | | | | | 187,644 | 187 | 93,635 | | | | | 93,822 | ||||||||||||||||||||||||||||||||||||||||||
Employee share-based compensation
expense (unaudited) |
| | | | | | | | 230,771 | | | | | 230,771 | ||||||||||||||||||||||||||||||||||||||||||
Other share-based compensation
expense (unaudited) |
| | | | | | | | 108,781 | | | | | 108,781 | ||||||||||||||||||||||||||||||||||||||||||
Modification of stock options and
purchase of treasury stock (unaudited) |
| | | | | | | | 73,000 | (25,000 | ) | | | | 48,000 | |||||||||||||||||||||||||||||||||||||||||
Net loss for the period (unaudited) |
| | | | | | | | | | | | (6,084,120 | ) | (6,084,120 | ) | ||||||||||||||||||||||||||||||||||||||||
Balances, September 30, 2009 (unaudited) |
| $ | | | $ | | | $ | | 42,185,022 | $ | 42,185 | $ | 40,697,152 | $ | (25,000 | ) | $ | | $ | | $ | (38,196,058 | ) | $ | 2,518,279 | ||||||||||||||||||||||||||||||
5
Period from | ||||||||||||
Inception | ||||||||||||
Six Months Ended | (November 22, 2006) | |||||||||||
September 30, | through | |||||||||||
2009 | 2008 | September 30, 2009 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (6,084,120 | ) | $ | (6,738,232 | ) | $ | (36,025,643 | ) | |||
Adjustments to reconcile net loss to net cash flows from
operating activities, net of effects of acquisition: |
||||||||||||
Gain on settlement of payables |
(566,219 | ) | | (566,219 | ) | |||||||
Loss on sale of equipment |
| | 5,440 | |||||||||
Acquired in-process research and development |
| | 7,177,000 | |||||||||
Depreciation |
227,011 | 203,726 | 844,179 | |||||||||
Amortization of intangible assets |
333,410 | 333,408 | 1,324,073 | |||||||||
Amortization of debt discount and deferred financing costs |
136,194 | | 136,194 | |||||||||
Employee share-based compensation expense |
230,771 | 344,275 | 1,839,025 | |||||||||
Other share-based compensation expense |
108,781 | 67,747 | 749,184 | |||||||||
Issuance of common stock for transaction fees |
| | 1,126,379 | |||||||||
Issuance of common stock for waivers of registration rights |
1,305,100 | | 1,305,100 | |||||||||
Derivative expense |
683,416 | | 683,416 | |||||||||
Modifications of options and purchase of treasury stock |
48,000 | | 48,000 | |||||||||
Accrued interest on notes receivable, related party |
| | (48,894 | ) | ||||||||
Change in fair value of investment, related party |
| | 41,775 | |||||||||
Increase (decrease) in cash resulting from changes in: |
||||||||||||
Prepaid expenses and other current assets |
(55,301 | ) | 130,418 | (119,176 | ) | |||||||
Accounts payable and accrued expenses |
(25,181 | ) | 583,576 | 776,042 | ||||||||
Deferred interest income |
| | (43,200 | ) | ||||||||
Net cash flows from operating activities |
(3,658,138 | ) | (5,075,082 | ) | (20,747,325 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Purchase of equipment |
(10,365 | ) | (299,421 | ) | (1,551,660 | ) | ||||||
Proceeds from sale of equipment |
| | 6,580 | |||||||||
Cash paid for intangible asset |
| | (100,000 | ) | ||||||||
Cash paid for security deposits |
| (2,869 | ) | (115,400 | ) | |||||||
Cash received in acquisition of SpineMedica Corp. |
| | 1,957,405 | |||||||||
Cash paid for acquisition costs of SpineMedica Corp. |
| | (227,901 | ) | ||||||||
Payments from (advances to) related party |
| | (2,008,522 | ) | ||||||||
Net cash flows from investing activities |
(10,365 | ) | (302,290 | ) | (2,039,498 | ) | ||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from convertible debt offering |
3,472,000 | | 3,472,000 | |||||||||
Proceeds from bridge loan |
295,000 | | 295,000 | |||||||||
Proceeds from Series A preferred stock |
| | 14,016,000 | |||||||||
Proceeds from Series C preferred stock |
| | 3,855,000 | |||||||||
Proceeds from common stock sale |
| 975,000 | 2,198,788 | |||||||||
Proceeds from exercise of stock options |
| | 2,166 | |||||||||
Offering costs paid in connection with convertible debt offering |
(127,540 | ) | | (127,540 | ) | |||||||
Offering costs paid in connection with Series A preferred
stock offering |
| | (918,806 | ) | ||||||||
Net cash flows from financing activities |
3,639,460 | 975,000 | 22,792,608 | |||||||||
Net change in cash |
(29,043 | ) | (4,402,372 | ) | 5,785 | |||||||
Cash, beginning of period |
34,828 | 6,749,609 | | |||||||||
Cash, end of period |
$ | 5,785 | $ | 2,347,237 | $ | 5,785 | ||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash paid for interest |
$ | | $ | | $ | | ||||||
Cash paid for income taxes |
$ | | $ | | $ | | ||||||
* | the Company issued 315,520 warrants to purchase common stock, valued at $98,574 and recognized a beneficial conversion feature of $676,500 in conjunction with our convertible debt offering. |
||
* | the Company issued common stock valued at $42,000 for prepaid expenses, $81,375 for accrued directors fees, and $93,822 for accrued executive compensation. |
||
* | the Company reclassified $3,761,250 of common stock with registration rights to equity as the result of the termination of such rights (Note 7). |
* | common stock with registration rights (classified outside of stockholders equity) was accreted to its fair value by $1,423,823 through a charge to accumulated deficit. |
6
1. | Basis of Presentation: |
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States (GAAP) for
interim financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP for complete financial statements. In the opinion of management, all
adjustments (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 six months ended September 30, 2009 and 2008, are not necessarily
indicative of the results that may be expected for the fiscal year. The balance sheet at
March 31, 2009, has been derived from the audited consolidated financial statements at that
date, but does not include all of the information and footnotes required by GAAP for complete
financial statements. |
You should read these condensed consolidated financial statements together with the
historical consolidated financial statements of the Company for the years ended March 31,
2009 and 2008, and the period from inception (November 22, 2006) through March 31, 2009,
included in our Annual Report on Form 10-K for the year ended March 31, 2009, filed with the
Securities and Exchange Commission (SEC) on June 15, 2009. |
MiMedx, Inc. (MiMedx) was incorporated in Florida in 2006. On January 29, 2008, MiMedx
entered into an Agreement and Plan of Merger (Merger Agreement) with a publicly-traded
Nevada Corporation, Alynx, Co. (Alynx), a public shell company. The merger was consummated
on February 8, 2008. As a result of this transaction, MiMedx shareholders owned
approximately 97% of the outstanding shares of Alynx, thus giving MiMedx substantial control. |
Under GAAP, MiMedx was deemed to be the accounting acquirer since the shareholders of MiMedx
owned a substantial majority of the issued and outstanding shares of Alynx, 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, Alynx merged with MiMedx Group, Inc., a Florida corporation formed for
purposes of the merger. MiMedx Group, Inc. was the surviving corporation in the merger. 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. |
7
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 typically is
computed using the
weighted-average number of common and dilutive common equivalent shares from stock options,
warrants, hybrid debt instrument and convertible debt using the treasury stock method. |
For all periods presented, diluted net loss per share is the same as basic net loss per
share, as the inclusion of equivalent shares from outstanding common stock options, warrants,
hybrid debt instrument and convertible debt would be anti-dilutive. |
Outstanding anti-dilutive securities not included in diluted net loss per share calculation
are as follows: |
As of September 30, | ||||||||
2009 | 2008 | |||||||
Common Stock equivalents: |
||||||||
Stock Options |
6,000,000 | 4,149,375 | ||||||
Stock Warrants |
2,459,104 | 672,751 | ||||||
Hybrid Debt Instrument |
491,667 | 0 | ||||||
Convertible Debt |
6,944,000 | 0 | ||||||
15,894,771 | 4,822,126 | |||||||
Fair value of financial assets and liabilities: |
The Company measures the fair value of financial assets and liabilities based on a model that
defines fair value as the exchange price that would be received for an asset or paid to
transfer a liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the measurement
date. Under this methodology the Company maximizes the use of observable inputs and
minimizes the use of unobservable inputs when measuring fair value. The Company considers
three levels of inputs when measuring fair value: |
Level 1 quoted prices in active markets for identical assets or liabilities |
|||
Level 2 quoted prices for similar assets and liabilities in
active markets or inputs that are observable |
|||
Level 3 inputs that are unobservable (for example cash flow
modeling inputs based on assumptions) |
The following table summarizes liabilities measured at fair value on a recurring basis at
September 30, 2009: |
Fair Value Measurement Using | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Liabilities |
||||||||||||||||
Warrant derivative liabilities |
$ | | $ | 609,666 | $ | | $ | 609,666 | ||||||||
Hybrid debt instrument |
| 369,055 | | 369,055 | ||||||||||||
$ | | $ | 978,721 | $ | | $ | 978,721 | |||||||||
8
Recently issued accounting pronouncements: |
The Financial Accounting Standards Board (FASB) issued SFAS No. 168, The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (SFAS
No. 168), on June 29, 2009, and, in so doing, authorized the Codification as the sole source
for authoritative U.S. GAAP. SFAS No. 168 was effective for financial statements issued for
reporting periods that ended after September 15, 2009. Upon effectiveness, it superseded all
accounting standards in U.S. GAAP, aside from those issued by the SEC. |
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 expects to adopt ASU 2009-05 during the three months ended December 31, 2009, and is
evaluating the impact that this adoption will have 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 accordance with GAAP guidance regarding subsequent events, management has considered
subsequent events through November 12, 2009, in connection with the preparation of these
financial statements. |
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,
2009, the Company experienced net losses of $36,025,643 (unaudited) and cash used in
operations of $20,747,325 (unaudited). As of September 30, 2009, the Company has not emerged
from the development stage and had approximately $6,000 of cash and cash equivalents. |
In October 2009 the Company borrowed an additional $205,000 from its Chairman and Chief
Executive Officer under the 5% Convertible Promissory Note (See Note 5) and also received
$300,000 related to the sale of intellectual property (See Subsequent Event Note 13).
Additionally, the Company commenced a private placement to sell common stock and warrants to
accredited investors. Through November 12, 2009, the Company has received aggregate proceeds
of $600,000 under this arrangement and assuming it receives no additional funds and the
holder under the 5% Convertible Promissory Note exercises the conversion option, estimates
that it has sufficient funds to operate through December 2009. In order to fund on-going
operating cash requirements beyond that point and to accelerate and execute its business
plan, the Company will need to raise significant additional funds. In view of these matters,
the Companys ability to continue as a going concern is dependent upon the Companys ability
to secure additional financing sufficient to support its research and development activities,
to obtain clearances and approvals by regulatory authorities, including the FDA, for the sale
of developed products and ultimately to generate revenues sufficient to cover all costs.
Since inception, the Company has financed its activities principally from the sale of equity
securities and convertible debt. While the Company has been successful in the past in
obtaining the necessary capital to support its operations, there is no assurance that the
Company will be able to |
9
obtain additional equity capital or other financing under
commercially reasonable terms and conditions, or at all. Furthermore, if the Company issues
equity or debt securities to raise
additional funds, existing shareholders may experience dilution and the new equity or debt
securities it issues may have rights, preferences and privileges senior to those of existing
shareholders. In addition, if the Company raises additional funds through collaboration,
licensing or other similar arrangements, it may be necessary to relinquish valuable rights to
products or proprietary technologies, or grant licenses on terms that are not favorable. If
the Company cannot raise funds on acceptable terms, the Company will not be able to continue
as a going concern, develop or enhance products, obtain the required regulatory clearances or
approvals, execute the Companys business plan, take advantage of future opportunities, or
respond to competitive pressure or unanticipated customer requirements. Any of these events
would adversely affect the Companys ability to achieve the Companys development and
commercialization goals, which could have a material adverse effect on the Companys
business, results of operations and financial condition. The Companys financial statements
do not include any adjustments relating to the recoverability or classification of assets or
the amounts of liabilities that might result from the outcome of these uncertainties. |
4. | Intangible assets and royalty agreement: |
Intangible assets activity is summarized as follows: |
License | License | License | Intellectual | |||||||||||||||||
(a) | (b) | (c) | Property (d) | Total | ||||||||||||||||
April 1, 2009 |
$ | 781,866 | 1,899,471 | 2,336,400 | 98,600 | $ | 5,116,337 | |||||||||||||
Additions |
| | | | | |||||||||||||||
Amortization |
(49,800 | ) | (148,010 | ) | (129,800 | ) | (5,800 | ) | (333,410 | ) | ||||||||||
September 30, 2009 |
732,066 | 1,751,461 | 2,206,600 | 92,800 | 4,782,927 | |||||||||||||||
(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 30 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 from 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 approval and sale
of certain products. There are no amounts accrued for this obligation due to its
contingent nature. (See Subsequent Event Note 13) |
10
Expected future amortization of intangible assets is as follows: |
Year ending September 30, | ||||
2010 |
666,821 | |||
2011 |
666,821 | |||
2012 |
666,821 | |||
2013 |
666,821 | |||
2014 |
666,821 | |||
Thereafter |
1,448,822 | |||
$ | 4,782,927 | |||
5. | Hybrid Debt Instrument: |
On September 22, 2009, the Company and its Chairman of the Board and CEO 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. |
Under the terms of the Subscription Agreement, the lender has agreed to advance the Company
up to $500,000 to fund its working capital needs as requested by the Company from time to
time until December 20, 2009. As of September 30, 2009, the Company has received $295,000
under this arrangement. 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 20, 2009, 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 22, 2009, or, if there are no such sales, $.60 per share (the
Conversion Price). In connection with the Subscription Agreement and the Note, the Company
issued the 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 and multiplying the
resultant quotient by two. The exercise price of the Warrant is the Conversion Price. |
On the inception date of the Note and Warrant financing, the Company evaluated the terms and
conditions of the transaction and determined (i) the Note possessed a certain feature, the
conversion provision, that was not clearly and closely related to the host debt instrument
and (ii) the terms of the Warrant did not provide for all of the conditions necessary for
equity classification. When a hybrid debt instrument, such as the Note, embodies derivative
features that are not clearly and closely related to the host instrument, current accounting
standards afford the Company an option to (1) bifurcate from the hybrid instrument one
compound derivative financial instrument that would be carried as a derivative liability at
fair value and recognize the balance of the proceeds as a note payable with subsequent
accretions of the resulting discount as interest expense over the term of the note or (2)
carry the entire hybrid financial instrument at fair value. After reviewing the terms and
conditions of the arrangement in its entirety, the Company elected to carry the entire hybrid
convertible debt instrument at fair value. Subsequent adjustments to fair value will be
charged or credited to operations. The $344,167 fair value of the convertible debt
was determined by multiplying the closing share price of the Companys common stock by the
number of common shares into which the debt was convertible as of the transaction date. The
$570,333 fair value of the Warrant was determined based upon the Black-Scholes-Merton pricing
model using the following underlying assumptions: |
Term |
3 years | |||
Volatility |
145 | % | ||
Interest Rate |
1.54 | % |
11
Accordingly, the proceeds of the convertible debt were allocated as follows: |
Convertible debt |
$ | 344,167 | ||
Warrant liability |
570,333 | |||
Day one derivative loss |
(619,500 | ) | ||
Total proceeds |
$ | 295,000 | ||
The fair values of the Note and Warrant liability were again adjusted (marked to market) at
September 30, 2009, resulting in $63,916 of additional derivative expense during the three
and six months ended September 30, 2009. |
6. | Convertible Debt: |
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. |
||
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. |
We have evaluated the Senior Notes for accounting purposes under Generally Accepted
Accounting Principles (GAAP) and have determined that the conversion feature meets the
conventional-convertible exemption and, accordingly, bifurcation and fair-value measurement
of the conversion feature is not required. We are required to re-evaluate this conclusion
upon each financial statement closing date while the 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. |
12
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. |
7. | Common Stock Placements: |
|
September 2008 Private Placement |
On September 25, 2008, the Company commenced a private placement of up to 13,333,333 units
(at $3.00 per unit) wherein each unit consisted of one share of common stock and a warrant to
purchase one share of common stock for $3.50 over a five year term (the September 2008
Private Placement). The Company sold 487,500 units for total proceeds of $1,462,500 under
the September 2008 Private Placement. |
In connection with the September 2008 Private Placement, the Company entered into a
Registration Rights Agreement related solely to the common stock that requires the Company to
among other things, (i) file a Registration Statement within 90 days from the closing of the
September 2008 Private Placement; and (ii) make required filings under the Securities Act of
1933 and the Securities and Exchange Act of 1934. It also provides for (i) achieving and
maintaining effectiveness; and (ii) listing the shares on any exchange on which the Companys
shares are then listed and maintain the listing; each on a best-efforts basis. The
Registration Rights Agreement does not provide for an alternative or contain a penalty in the
event the Company is unable to fulfill its requirements. In addition, the terms of the sale
of common stock provided that the investor has an option, for a period of six months
following the purchase, to exchange the common shares for other financial instruments
(including those that may require classification outside of stockholders equity) that may be
issued at a price, or effective price in the case of convertible instruments, lower than the
original purchase price. As a result of the registration rights obligation to file within a
specified period, which is presumed not to be within the Companys control, and the
contingent redemption feature (which lapsed as of March 31, 2009), the Company was required
to classify the common stock outside of stockholders equity as common stock with
registration rights. Further, given the nature of the contingent redemption provision and the
registration rights requirement, GAAP required the Company to initially record the common
stock at its fair value, which was accomplished with a charge to retained earnings of
$1,423,823. |
The warrants included in the unit offering are indexed to 487,500 shares of the Companys
common stock. These warrants are not subject to the Registration Rights Agreement referred to
above, and they otherwise meet the conditions for equity classification provided under GAAP.
Accordingly, these warrants are recorded in stockholders equity. The Company is required to
reevaluate that classification on each reporting date. |
13
The total basis in the financing was allocated to the redeemable common stock and warrants
based upon their relative fair values. The fair value of the redeemable common stock
represents the value of the number of shares at the trading market price. The warrants were
valued using the Black-Scholes-Merton technique, and the Company estimated (i) the expected
term as equal to the five-year warrant term, (ii) the volatility, based upon a reasonable
peer group, at 75.33% and (iii) the risk free rate as the published rate for zero coupon
government securities with terms consistent with the expected term, or 3.09%. The following
table illustrates the allocation: |
Fair | Relative Fair | |||||||
Financial Instrument | Values | Values | ||||||
Common Stock with registration rights |
$ | 2,291,250 | $ | 867,427 | ||||
Warrants |
1,571,846 | 595,073 | ||||||
$ | 3,863,096 | $ | 1,462,500 | |||||
On February 19, 2009, the investors exercised their right to restructure their investment
(the new transaction) as a result of the February 2009 Private Placement described below.
The investors were granted an additional 682,500 shares of common stock, which increased the
aggregate total of common shares issued in conjunction with the September 2008 Private
Placement to 1,170,000. The re-set provision in the original transaction was removed and
the investors were granted registration rights, with respect to the new shares, identical to
those related to the September transaction. |
Additionally, the new transaction provided for the cancellation of the original 487,500
warrants and the Company issued new warrants to purchase 975,000 shares of common stock for
$.73 per share. The Company recorded the $334,100 excess of the fair value of the new
warrants over that of the cancelled warrants on the date of the transaction as compensation
expense during the year ended March 31, 2009. The warrants met all the requirements for
equity classification as noted above under GAAP and are recorded in stockholders equity. |
||
November 2008 Private Placement |
On November 21, 2008, the Company commenced a private placement of up to 30,000,000 shares of
common stock at $1.00 per share (the November 2008 Private Placement). The Company sold
210,000 shares for total proceeds of $210,000. |
In connection with the November 2008 Private Placement, the Company entered into a
Registration Rights Agreement related to the common stock that requires the Company to among
other things, (i) file a Registration Statement within 90 days from the closing of the
November 2008 Private Placement; and (ii) make required filings under the Securities Act of
1933 and the Securities and Exchange Act of 1934. It also provides for (i) achieving and
maintaining effectiveness of the registration statement; and (ii) listing the shares on any
exchange on which the Companys shares are then listed and maintain the listing; each on a
best-efforts basis. The Registration Rights Agreement does not provide for an alternative or
contain a penalty in the event the Company is unable to fulfill its requirements. As a
result of the 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.
Further, the Company was required to record the stock at its fair value, which was
accomplished with a charge to retained earnings of $735,000. |
||
February 2009 Private Placement |
In February 2009, the November 2008 Private Placement was extended under identical terms
except the number of common shares offered was reduced to 15,000,000. In February and March
2009 the Company sold 525,000 shares of common stock for total proceeds of $525,000. |
The Company entered into a Registration Rights Agreement with respect to the new shares, with
terms identical to those of the November 2008 Private Placement discussed above. 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 is required to classify the
common stock outside of stockholders equity as common stock with registration rights. The
Company recorded the stock at
its per share selling price, which exceeded the then per share trading price of the Companys
common stock. |
14
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 six months ended September 30, 2009. |
8. | 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 previsouly; (vi) amends the
Consulting Agreement dated September 21, 2007, between MiMedx and Graham; and (vii) provides
for certain payments to the Graham Parties 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. |
9. | Gain on Settlement of Payables: |
During the six months ended September 30, 2009, we negotiated a
settlement of certain outstanding payables primarily related to legal
expenses incurred during the fiscal year ended March 31, 2009. As a
result of this negotiation the Company recognized a gain on settlement
of payables of $566,219. |
15
10. | Stock Options and Warrants: |
Stock Options: |
Activity with respect to the stock options is summarized as follows: |
Weighted-average | Intrinsic | |||||||||||
Shares | Exercise Prices | Value | ||||||||||
Options outstanding at
April 1, 2009 |
4,301,250 | $ | 1.60 | $ | 18,000 | |||||||
Granted |
2,057,500 | .60 | ||||||||||
Forfeited/Cancelled |
(358,750 | ) | 4.00 | |||||||||
Exercised |
| | ||||||||||
Options outstanding at
September 30, 2009 |
6,000,000 | 1.12 | $ | 371,600 | ||||||||
Options exercisable at
September 30, 2009 |
3,647,082 | 1.34 | $ | 111,400 | ||||||||
Following is a summary of stock options outstanding and exercisable at September 30, 2009: |
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 | |||||||||||||||
$.001 .50 |
1,115,000 | 4.88 | $ | .48 | 306,250 | $ | .44 | |||||||||||||
.70 1.00 |
3,137,500 | 7.55 | .82 | 1,562,500 | 2.03 | |||||||||||||||
1.80 2.40 |
1,747,500 | 4.30 | 2.06 | 1,778,332 | .89 | |||||||||||||||
6,000,000 | 6.08 | 1.12 | 3,647,082 | 1.34 | ||||||||||||||||
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, 2009 |
1,092,501 | .55 | ||||||
Granted |
2,057,500 | .49 | ||||||
Expired |
(46,250 | ) | 2.07 | |||||
Vested |
( 750,833 | ) | .48 | |||||
Unvested at September 30, 2009 |
2,352,918 | .50 | ||||||
16
Total unrecognized compensation expense related to granted stock options at September 30,
2009 was approximately $1,049,000 and will be charged to expense through February 2012. |
The fair value of options granted by the Company is estimated on the date of grant using the
Black-Scholes-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: |
Six Months Ended | ||||||||
September 30, 2009 | September 30, 2008 | |||||||
Dividend Yield |
0% | 0% | ||||||
Expected Volatility |
112.06% to 140.74% | 70.05% | ||||||
Risk Free Interest Rates |
1.54% to 2.53% | 3.11% | ||||||
Expected Lives |
3.5 to 6 years | 6 years |
The weighted-average grant date fair value for options granted during the six months ended
September 30, 2009, and 2008, was approximately $.49, and $3.45, respectively. |
Warrants: |
A summary of our common stock warrant activity for the six months ended September 30, 2009 is
as follows: |
Weighted Average | ||||||||
Exercise | ||||||||
Number | Price per Share | |||||||
Warrants outstanding at April 1, 2009 |
1,160,251 | $ | .91 | |||||
Issued to placement agents in connection
with the 3% Convertible Senior Secured
Promissory Notes Offering |
315,520 | .50 | ||||||
Issued in connection with the hybrid debt
instrument |
983,333 | .60 | ||||||
Warrants outstanding at September 30, 2009 |
2,459,104 | $ | .74 | |||||
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. |
17
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 |
||
| in some cases, 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 and do not obligate the Company to repurchase
its equity shares by transferring assets or to issue a variable number of shares. |
The warrants require that the Company deliver shares as part of a physical settlement or, in
some cases, at the option of the holder, a net-share settlement, and do not provide for a
net-cash settlement. |
All of our warrants are classified as equity, except for those issued in connection with the
hybrid debt instrument, which are classified as a liability at September 30, 2009. |
Common Stock Issuances: |
During the six months ended September 30, 2009, the Company issued common stock for services
and accrued expenses. The following represents the issuances during the period: |
| the Company issued 100,000 shares with a fair value of $42,000 for prepaid
financial services. |
||
| the Company issued 187,644 shares with a fair value of $93,822 for accrued
executive compensation. |
||
| the Company issued 162,750 shares with a fair value of $81,375 for accrued
directors fees. |
11. | 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. |
12. | Contractual Commitments: |
Payments due by period | ||||||||||||
Less than | ||||||||||||
Contractual Obligations | Total | 1 year | 2 3 years | |||||||||
Consulting Agreements |
$ | 137,500 | $ | 137,500 | $ | | ||||||
Employment Agreements |
322,000 | 322,000 | | |||||||||
Operating Lease Obligations |
672,000 | 283,000 | 389,000 | |||||||||
Total |
$ | 1,131,500 | $ | 742,500 | $ | 389,000 | ||||||
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13. | Subsequent Event: |
On October 19, 2009, the Company sold eight patent applications and related intellectual
property representing the remaining assets of the Companys Level Orthopedics division. The
sales price was up to $1,030,000, payable as follows: $300,000 cash paid at closing (October
19, 2009), $100,000 by the issuance at closing of a secured promissory note and up to
$630,000 in future royalty obligations. |
Additionally, the purchaser assumed and agreed to perform all duties and responsibilities of
the Company under a consulting agreement between the Company and an advisor to the Level
Orthopedics division. (See Note 4) |
As a result of this transaction, the Company recorded a net gain of approximately $250,000 on
the date of sale, representing the cash received and secured promissory note, less the
carrying value of the intellectual property and transaction costs. |
In October 2009 the Company commenced a private placement to sell common stock and warrants
to accredited investors. Through November 12, 2009, the Company has received aggregate
proceeds of $600,000 under this arrangement. |
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(a) Total | (d) Maximum Number (or | |||||||||||||||
Number of | (b) Average | (c) Total Number of Shares | Approximate Dollar Value) | |||||||||||||
Shares (or | Price Paid per | (or Units) Purchased as Part | of Shares (or Units) that May | |||||||||||||
Units) | Share (or | of Publicly Announced | Yet Be Purchased Under the | |||||||||||||
Period | Purchased | Unit) | Plans or Programs | Plans or Programs | ||||||||||||
August 19, 2009 |
50,000 shares | $ | .50 | 0 | 0 |
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Exhibit | ||
Number | Description | |
2.1
|
Sale and Purchase Agreement, dated October 19, 2009, between UPex Holdings, LLC and MiMedx, Inc. (6) | |
3.1
|
Articles of Incorporation of MiMedx Group, Inc. (1) | |
3.2
|
Bylaws of MiMedx Group, Inc. (1) | |
10.1
|
Form of Subscription Agreement (2) | |
10.2
|
Form of 3% Convertible Senior Secured Promissory Note (2) | |
10.3
|
Form of Security and Intercreditor Agreement (2) | |
10.4
|
Amendment and Settlement Agreement between and among MiMedx Group, Inc., MiMedx, Inc., Thomas J. Graham, M.D., and Phantom Hand Project, LLC, dated August 19, 2009. (3) | |
10.5
|
Consulting Agreement between MiMedx, Inc., and Thomas J. Graham, M.D., dated September 21, 2007. (3) | |
10.6
|
Subscription Agreement 5% Convertible Promissory Note (5) | |
10.7
|
5% Convertible Promissory Note (5) | |
10.8
|
Warrant to Purchase Common Stock (5) | |
10.9
|
Right of First Refusal Agreement between MiMedx Group, Inc., and Matthew J. Miller (5) | |
10.10
|
Employment Agreement by and between MiMedx, Inc. and Michael J. Culumber (5) | |
10.11
|
Assignment and Assumption Agreement and Amendment (5) | |
31.1
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (7) | |
31.2
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (7) | |
32.1
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (7) | |
32.2
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (7) | |
99.1
|
Presentation to Prospective Investors (4) |
1 | Incorporated herein by reference to the Companys Form 8-K dated as of March 31, 2008. |
|
2 | Incorporated herein by reference to the Companys Form 8-K dated as of April 30, 2009. |
|
3 | Incorporated herein by reference to the Companys Form 8-K dated as of August 19, 2009. |
|
4 | Incorporated herein by reference to the Companys Form 8-K dated as of September 2, 2009. |
|
5 | Incorporated herein by reference to the Companys Form 8-K dated as of September 22, 2009. |
|
6 | Incorporated herein by reference to the Companys Form 8-K dated as of October 19, 2009. |
|
7 | Included with this filing. |
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MIMEDX GROUP, INC. | ||||||
Date: November 16, 2009
|
By: | /s/ Michael J. Culumber | ||||
Chief Financial Officer |
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