Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
MDXG > SEC Filings for MDXG > Form 10-Q on 8-Aug-2013All Recent SEC Filings

Show all filings for MIMEDX GROUP, INC.

Form 10-Q for MIMEDX GROUP, INC.


8-Aug-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
MiMedx Group, Inc. ("MiMedx Group") is an integrated developer, manufacturer and marketer of patent-protected regenerative biomaterials and bioimplants processed from human amniotic membrane.
"Innovations in Regenerative Biomaterials" is the framework behind our mission to give physicians products and tissues to help the body heal itself. Our biomaterial platform technologies include the device technologies HydroFix® and CollaFix™, and our tissue technologies, AmnioFix® and EpiFix®. Our tissue technologies, processed from the human amniotic membrane, utilize our proprietary Purion® process that was developed by our wholly-owned subsidiary, Surgical Biologics, to produce a safe, effective and minimally manipulated implant.
Recent Events
During the months of January and February 2013, all holders of the Convertible Senior Secured Promissory Notes converted their interest in this obligation of approximately $5.3 million to shares of MiMedx common stock. The number of shares of common stock issued as a result of these transactions totaled approximately 5,272,000. In connection with this conversion, the Company expensed, during the quarter, approximately $1,328,000 of debt discount and deferred financing costs. Included in this total are approximately 532,000 shares representing the Chief Executive Officer's conversion of his Note. On January 31, 2013, the Company entered into a lease agreement (the "Lease") under which the Company leased approximately 80,000 square feet of office, laboratory and warehouse space in Marietta, Georgia. The building became the Company's new corporate headquarters in June. The initial term of the lease is sixty nine (69) months. Base rental payments


over the term of the lease total approximately $6,700,000. Under the Lease, the Company has two standby letters of credit outstanding for approximately $500,000.
In March of 2013, the Company issued approximately 1,175,000 shares of Common Stock in final settlement of the earn-out liability of approximately $5.8 million connected with the 2011 acquisition of Surgical Biologics. On May 17, 2013, the Company and Bank of America, N.A. (the "Lender") entered into a Loan Agreement (the "Loan Agreement"). The Loan Agreement provides the Company with a secured revolving line of credit (the "Revolving Line of Credit") of up to $3,000,000, and includes a sub-limit of up to $1,000,000 for the issuance of letters of credit. The Revolving Line of Credit is secured by the Company's accounts receivable and inventory. The Company intends to utilize the Revolving Line of Credit for general corporate purposes. As of the date of this filing, the Company has not made any draws under the Revolving Line of Credit.

During the six months ended June 30, 2013, the Company was granted one international patent for the hydrogel technology, one US patent for the collagen technology, and seven US patents for the amnion technology.


Results of Operations Comparison for the Three Months Ended June 30, 2013 to the Three Months Ended June 30, 2012
Revenue
Total revenue increased approximately $8,631,000 or 177% to $13,515,000 for the three months ended June 30, 2013, as compared to $4,884,000 for the three months ended June 30, 2012. The increase in revenue as compared to the prior year is due primarily to increased sales of our amniotic membrane tissue products, EpiFix® and AmnioFix®.
Wound Care market revenue increased by approximately $7,025,000 or 2,187% to $7,346,000 as compared to $321,000 in the prior year. Growth was driven by increased revenue in both government and commercial accounts. In the first half of 2012, the Company sold through existing distributors with limited success. The Company made the strategic decision to hire a direct sales force beginning early in the third quarter of 2012 initially focused on government accounts. In January 2013, the Medicare Q code for Epifix® became effective and during the quarter the Company received reimbursement coverage by five regional Medicare Administrative Contractors ("MACs"). Beginning in mid-February, the Company expanded its direct sales personnel for the commercial market. The sales executives hired have extensive experience in the wound care sector and maintain direct relationships with the physicians. Sales to government accounts are sold through a distributor who handles all of the contracting matters including invoicing and collection. This distributor is also a service disabled veteran owned small business.
Surgical and Sports Medicine revenue increased approximately $1,878,000 or 51% to $5,562,000 as compared to $3,684,000 in the prior year. The growth was driven by increased use of our AmnioFix ® injectable products in both government and commercial accounts as well as additional surgical applications where the anti-scarring properties of the tissue were deemed to be beneficial. The Other markets category which includes our Ophthalmic and Dental tissue based products which are sold on an OEM basis as well as our HydroFix® medical device product sold through distributors decreased approximately $272,000 or 31% as compared to the prior year.

Tissue Processing Costs and Cost of Products Sold Cost of products sold as a percentage of revenue improved to 16.3% from 22.8% as compared to prior year. The improvement was due primarily to the increase in direct sales revenue and improved product mix. Personnel costs represent approximately $1,143,000 or 52.0% of total manufacturing, quality assurance and recovery spending for the three months ended June 30, 2013.

Research and Development Expenses
Our research and development expenses ("R&D expenses") increased approximately $421,000 or 83.7% to $924,000 during the three months ended June 30, 2013, compared to approximately $503,000 in the prior year. The increase is primarily related to increased investments in clinical trials, personnel costs, lab supplies, and testing costs. Approximately $271,000, or 29.3%, of R&D expenses for the three months ended June 30, 2013 were attributable to personnel costs, compared to approximately $197,000 or 39.2% for the three months ended June 30, 2012.

Our research and development expenses consist primarily of internal personnel costs, clinical trials, fees paid to external consultants, and supplies and instruments used in our laboratories.


Selling, General and Administrative Expenses Selling, General and Administrative expenses for the three months ended June 30, 2013, increased approximately $7,818,000 to $10,868,000 compared to $3,050,000 for the three months ended June 30, 2012. Selling expense increases were driven by costs associated with building our direct sales organization for government accounts and to a lesser degree our commercial direct sales organization as well as increased commissions due to higher sales volume. Increased spending on support costs related to medical reimbursement, including our reimbursement hotline; our information technology infrastructure to help manage the growth of the business; and increased share-based compensation expense as well as a provision for anticipated costs associated with the management incentive program. Selling, General and Administrative expenses consist of personnel costs, professional fees, sales commissions, sales training costs, industry trade show fees and expenses, product promotions and product literature costs, facilities costs and other sales, marketing and administrative costs, depreciation and amortization, and share-based compensation. Personnel costs, excluding sales commissions and bonuses, represent approximately $3,750,000 or 34.5% of total Selling, General and Administrative expenses in the second quarter of 2013.

Net Interest Expense
We recorded financing and net interest expense of approximately $13,000 during
the three months ended June 30, 2013, compared with approximately $627,000 of
financing and net interest expense during the three months ended June 30,
2012. The decrease of approximately $614,000 is primarily due to the conversion
and payoff of debt. The following table summarizes the interest charges for the
three months ended June 30, 2013 and 2012:
                                                                  Three Months Ended June 30,
                                             2013                                                              2012
                    Debt                                Interest                                        Accrued        Interest
                  Discount       Accrued Interest       Expense        Total        Debt Discount       Interest        Expense         Total
Convertible
line of credit
with related
party           $         -     $               -     $        -     $      -     $       150,880     $   16,205              -      $ 167,085
Converted debt
related to
acquisition               -                     -             -             -              86,335          9,973              -         96,308
Convertible
Senior secured
promissory
notes                     -                     -             -             -             230,744        124,657              -        355,401
Deferred
financing
related to
senior secured
promissory
notes                     -                     -             -             -               4,790             -               -          4,790
Other                    -                     -          13,172       13,172                  -              -            2,969         2,969
                $         -     $               -     $   13,172     $ 13,172     $       472,749     $  150,835     $     2,969     $ 626,553


Results of Operations Comparison for the Six Months Ended June 30, 2013 to the Six Months Ended June 30, 2012

Revenue
Total revenue increased approximately $16,481,000 or 192% to $25,071,000 for the six months ended June 30, 2013, as compared to $8,590,000 for the six months ended June 30, 2012. The increase in revenue as compared to the prior year is due primarily to increased sales of our amniotic membrane tissue products, EpiFix® and AmnioFix®.
Wound Care market revenue increased by approximately $12,104,000 or 812% to $13,594,000 as compared to $1,490,000 in the prior year. Growth was driven by increased revenue in both government and commercial accounts. In the first half of 2012, the Company sold through existing distributors with limited success. The Company made the strategic decision to hire a direct sales force beginning early in the third quarter of 2012 initially focused on government accounts. In January 2013, the Medicare Q code for Epifix® became effective and during the first quarter the Company received reimbursement coverage by five regional MACs. Beginning in mid-February, the Company expanded its direct sales personnel for the commercial market. The sales executives hired have extensive experience in the wound care sector and maintain direct relationships with the physicians. Sales to government accounts are sold through a distributor who handles all of the contracting matters including invoicing and collection. This distributor is also a service disabled veteran owned small business.
Surgical and Sports Medicine revenue increased approximately $4,535,000 or 80% to $10,221,000 as compared to $5,686,000 in the prior year. The growth was driven by increased use of our AmnioFix ® injectable products in both government and commercial accounts as well as additional surgical applications where the anti-scarring properties of the tissue were deemed to be beneficial. The Other markets category which includes our Ophthalmic and Dental tissue based products sold on an OEM basis as well as our HydroFix® medical device product sold through distributors decreased approximately $158,000 or 11% as compared to the prior year.
Tissue Processing Costs and Cost of Products Sold Cost of products sold as a percentage of revenue improved to 16.4% from 24.1% as compared to prior year. The improvement was due primarily to the increase in direct sales revenue, improved product mix and higher production rates that absorb a greater percentage of fixed manufacturing costs. Personnel costs represent approximately $2,271,000 or 48.7% of total manufacturing, quality assurance and recovery spending for the six months ended June 30, 2013. Research and Development Expenses
Our research and development expenses ("R&D expenses") increased approximately $1,261,000 or 138.5% to $2,171,000 during the six months ended June 30, 2013, compared to approximately $910,000 in the prior year. The increase is primarily related to increased investments in clinical trials, personnel costs, lab supplies, and testing costs. Approximately $504,000, or 23.2%, of R&D expenses for the six months ended June 30, 2013 were attributable to personnel costs, compared to approximately $333,000 or 36.7% for the six months ended June 30, 2012.

Our research and development expenses consist primarily of internal personnel costs, clinical trials, fees paid to external consultants, and supplies and instruments used in our laboratories.
Selling, General and Administrative Expenses Selling, General and Administrative expenses for the six months ended June 30, 2013, increased approximately $13,550,000 to $19,237,000 compared to $5,687,000 for the six months ended June 30, 2012. Selling expense increases were driven by costs associated with building our direct sales organization for government accounts and to a lesser degree our commercial direct sales organization as well as increased commissions due to higher sales volume. Increased spending on support costs related to medical reimbursement, including our reimbursement hotline; our information technology infrastructure to help manage the growth of the business; and increased share-based compensation expense and a provision for anticipated costs associated with the management incentive program. Selling, General and Administrative expenses consist of personnel costs, professional fees, sales commissions, sales training costs, industry trade show fees and expenses, product promotions and product literature costs, facilities costs and other sales, marketing and administrative costs, depreciation and amortization, and share-based compensation. Personnel costs, excluding sales commissions and bonuses, represent approximately $6,942,000 or 36.1% of total Selling, General and Administrative expenses in the first half of 2013.


Net Interest Expense
We recorded financing and net interest expense of approximately $1,356,000
during the six months ended June 30, 2013, compared with approximately
$1,089,000 of financing and net interest expense during the six months ended
June 30, 2012. The increase of approximately $267,000 is primarily due to the
acceleration of debt discount related to the conversion of our Convertible
Senior Secured Promissory Notes, which were issued during the last quarter of
2011. The following table summarizes the interest charges for the three months
ended June 30, 2013 and 2012:
                                                                  Six Months Ended June 30,
                                           2013                                                             2012
                    Debt          Accrued        Interest                                           Accrued        Interest
                  Discount        Interest       Expense          Total         Debt Discount       Interest        Expense          Total
Convertible
line of credit
with related
party           $         -     $        -             -      $         -     $       162,303     $   32,411              -      $   194,714
Converted debt
related to
acquisition               -              -             -                -             166,688         20,493              -          187,181
Convertible
Senior secured
promissory
notes             1,328,439         11,571             -        1,340,010             444,698        247,945              -          692,643
Deferred
financing
related to
senior secured
promissory
notes                     -             -              -                -               9,537             -               -            9,537
Other                    -              -          16,405          16,405                  -              -            4,765           4,765
                $ 1,328,439     $   11,571     $   16,405     $ 1,356,415     $       783,226     $  300,849     $     4,765     $ 1,088,840

Liquidity and Capital Resources
Revenue continues to increase quarter over quarter while management maintains tight controls over spending. As of June 30, 2013, the Company had approximately $4,194,000 of cash and cash equivalents. The Company reported total current assets of approximately $21,528,000 and total current liabilities of approximately $6,141,000 at June 30, 2013. The current ratio for the period increased to 3.5 as compared to 2.5 as of June 30, 2012. Management believes that its anticipated cash from operating and financing activities and existing cash and cash equivalents will enable the Company to meet its operational liquidity needs and fund its planned investing activities for the next year.

Contractual Obligations
Contractual obligations associated with our ongoing business activities are
expected to result in cash payments in future periods. The table below
summarizes the amounts and estimated timing of these future cash payments as of
June 30, 2013:
                                           Less than                              More than
Contractual Obligations        TOTAL         1 year     1-3 years    3-5 years     5 years
Capital lease obligations   $   153,600       31,817       71,324       50,459            -
Operating lease obligations $ 6,876,139      837,406    2,441,776    2,759,887      837,070
                            $ 7,029,739      869,223    2,513,100    2,810,346      837,070


Discussion of cash flows
Net cash used in operations during the six months ended June 30, 2013, increased approximately $1,255,000 to $2,854,000 compared to $1,599,000 used in operating activities for the six months ended June 30, 2012, primarily attributable to increases in accounts receivable and inventory offset by increases in accrued compensation and accounts payable.
Net cash used in investing activities during the six months ended June 30, 2013, increased approximately $1,158,000 to $1,396,000 compared to $238,000 used in investing activities for the six month period ended June 30, 2012. The increase was due to purchases of plant and equipment related to our relocation to a new facility with expanded production capacity and capitalization of patent application costs.
Net cash flows from financing activities during the six months ended June 30, 2013 increased approximately $1,308,000 to $1,688,000 compared to $380,000 during the six months ended June 30, 2012. Cash flows from financing activities during the past two quarters include approximately $1,167,000 received from the exercise of warrants and approximately $543,000 received from the exercise of stock options offset by $22,000 in payments on capital lease obligations for equipment.
Due to the material amount of non-cash related items included in the Company results of operations, the Company has developed an Adjusted EBITDA metric which provides management with a clearer view of operational use of cash (see the table below). The Adjusted EBITDA for the first two quarters of 2013 was approximately $2,284,000 which is an improvement of approximately $1,047,000 as compared to the prior year two quarters. This improvement was the result of increased revenue and improved gross margins.
We use various numerical measures in investor conference calls, investor meetings and other forums which are or may be considered "Non-GAAP financial measures" under Regulation G. We have provided below for your reference, supplemental financial disclosure for these measures, including the most directly comparable GAAP measure and an associated reconciliation.
The following table provides reconciliation of reported Net Loss on a GAAP basis to Adjusted EBITDA defined as Earnings before Interest, Taxes, Depreciation, Amortization and Share-Based Compensation:

                                              Three Months Ended               Six Months Ended
                                                   June 30,                        June 30,
                                             2013            2012            2013             2012
Net Loss (Per GAAP)                      $  (757,389 )   $ (744,069 )   $ (2,377,797 )   $ (1,837,721 )

Add back:
Income Taxes                                       -              -           50,275                -
Financing expense associated with
beneficial conversion of note payable
issued in conjunction with acquisition             -         86,335                -          166,688
Financing expense associated with
beneficial conversion of Line of Credit
with Related Party                                 -        150,880                -          162,303
Financing expense associated with
beneficial conversion of Senior Secured
Promissory Notes                                   -        235,534        1,328,439          454,235
Other interest expense, net                   13,172        153,804           27,976          305,614
Depreciation Expense                         139,184        121,103          237,934          231,491
Amortization Expense                         267,638        333,977          530,234          667,954
Share Based Compensation                   1,502,447        585,215        2,487,239        1,086,200
Earnings Before Interest, Taxes,
Depreciation, Amortization and
Share-Based Compensation                 $ 1,165,052     $  922,779     $  2,284,300     $  1,236,764


Critical Accounting Policies
In preparing our financial statements we follow accounting principles generally accepted in the United States, which require us to make certain estimates and apply judgments that affect our financial position and results of operations. We continually review our accounting policies and financial information disclosures. A summary of our significant accounting policies that require the use of estimates and judgments in preparing the financial statements was provided in our Annual Report on Form 10-K for the year ended December 31, 2012. There were no material changes to the accounting policies and assumptions previously disclosed.

Recent Accounting Pronouncements
For the effect of recent accounting pronouncements, see Item 1 Financial Statements - Note 2.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.

  Add MDXG to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for MDXG - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.