Overview
MIMEDX is a transformational placental biologics company, developing and distributing placental tissue allografts with patent-protected, proprietary processes for multiple sectors of healthcare. As a pioneer in placental biologics, we are focused on addressing unmet clinical needs in areas of advanced wound care, surgical recovery applications and musculoskeletal conditions. We derive our products from human placental tissues and process these tissues using our proprietary methods, including the PURION® process. We apply Current Good Tissue Practice ("CGTP") and Current Good Manufacturing Practice ("CGMP") standards in addition to terminal sterilization to produce our allografts.MIMEDX provides products primarily in the wound care, burn, and surgical recovery sectors of healthcare. All of our products are regulated by theUnited States Food and Drug Administration ("FDA").MIMEDX is a leading supplier of human placental allografts, which are human tissues that are derived from one person (the donor) and used to produce products that treat another person (the recipient).MIMEDX has supplied over two million allografts, through both direct and consignment shipments. Our platform technologies include tissue allografts derived from the amnion and chorion layers of human placental membrane (EPIFIX® and AMNIOFIX®) and tissue allografts derived from human umbilical cord (EPICORD® and AMNIOCORD®). Our most recent product innovation, AMNIOEFFECTTM, introduced inJune 2022 via limited market release, is a tri-layer placental tissue allograft that contains amnion, intermediate layer and chorion membranes. This product is designed to meet the needs of surgeons performing procedures where a more robust allograft with expansive size offerings is desired. EPIFIX and EPICORD products are marketed for external use, such as in advanced wound care applications, while our AMNIOFIX, AMNIOEFFECT and AMNIOCORD products are positioned for use in surgical recovery applications, including lower extremity repair, plastic surgery, vascular surgery and multiple orthopedic repairs and reconstructions. AMNIOFIX Injectable, or mdHACM, is a micronized configuration of AMNIOFIX and is not currently marketed inthe United States . mdHACM is our lead product candidate for our late-stage pipeline targeted at achieving FDA approval for specific clinical indications, including degenerative musculoskeletal conditions. We have two classes of products: (1) Advanced Wound Care products, or Section 361 products, consisting of our tissue and cord sheet allograft products, and (2) Section 351 Products, consisting of our micronized and particulate products, which, prior toMay 31, 2021 , the date theFDA's period of enforcement discretion ended (as described below), were used to treat a variety of clinical conditions, including both advanced wound care and musculoskeletal applications. Our Advanced Wound Care business includes two product categories, Tissue/Other and Cord products. We sell product through two distribution channels: (1) direct to customers (healthcare professionals and/or facilities); and (2) sales through distributors. InNovember 2017 , the FDA published a series of guidances that established an updated framework for the regulation of cellular and tissue-based products. These guidances clarified theFDA's views about the criteria that differentiate those products subject to regulation under Section 361 of the Public Health Service Act from those considered to be drugs, devices, and/or biological products subject to licensure under Section 351 of the Public Health Service Act and related regulations. The FDA exercised enforcement discretion with respect to Investigational New Drug ("IND") applications and pre-market approval requirements untilMay 31, 2021 ("Enforcement Discretion"). As ofMay 31, 2021 , we stopped marketing our Section 351 products inthe United States and are precluded from marketing such products until a Biologics License Application ("BLA") is granted. If and when the FDA approves a BLA, we expect to be allowed to market our Section 351 Products inthe United States again, but only for specific indications as permitted by the FDA.
Business Unit Update
During the second quarter of 2022, we announced the creation of two defined, cohesive internal business units within the Company: (1) Wound Care & Surgical, focused on Wound Care and Surgical Recovery markets, our existing product portfolio, and near-term innovation; and (2) Regenerative Medicine & Biologics Innovation, focused solely on Regenerative Medicine technologies, specifically progressing our placental biologics platform towards registration as aU.S. Food & Drug Administration (FDA) approved biological drug. We anticipate transitioning our management structure on the basis of these two business units, and providing operating results by business unit in the future. 25 --------------------------------------------------------------------------------
Effect of Covid-19 Pandemic
The COVID-19 Pandemic is still ongoing, though the effects on our operations, such as restricted access to hospitals and difficulties obtaining donor materials, have largely been ameliorated and did not materially affect our operations during the three months endedJune 30, 2022 . We are continuously monitoring for any developments that may impact our operations, including novel variants of the virus and government and societal responses to mitigate the spread. We continue to exercise an abundance of caution with respect to the health and well-being of our employees. Our offices are open and staffed, and we are operating under a hybrid work model for some personnel as well as encouraging all employees to get vaccinated if they have not already done so.
Results of Operations
Three Months EndedJune 30, 2022 Compared to the Three Months EndedJune 30, 2021 Three Months Ended June 30, (in thousands) 2022 2021 $ Change % Change Net sales$ 66,883 $ 68,165 $ (1,282) (1.9) % Cost of sales 11,823 12,760 (937) (7.3) % Gross profit 55,060 55,405 (345) (0.6) %
Selling, general and administrative 55,793 53,599
2,194 4.1 % Research and development 5,512 4,063 1,449 35.7 %
Investigation, restatement and related 3,218 (2,062)
5,280 (256.1) %
Amortization of intangible assets 173 215 (42) (19.5) % Interest expense, net (1,170) (1,371) 201 (14.7) % Other expense, net - (3) 3 (100.0) % Income tax provision (expense) benefit (62) 5 (67) (1,340.0) % Net loss$ (10,868) $ (1,779)
(9,089) 510.9 % Net Sales We recorded net sales for the three months endedJune 30, 2022 of$66.9 million , a$1.3 million decrease, or 1.9%, compared to the three months endedJune 30, 2021 , in which we recognized revenue of$68.2 million . Our sales by product were as follows (amounts in thousands): Three Months Ended June 30, Change 2022 2021 $ % Advanced Wound Care Tissue/Other$ 60,274 $ 53,408 $ 6,866 12.9 % Cord 5,889 5,886 3 0.1 % Total Advanced Wound Care 66,163 59,294 6,869 11.6 % Section 351 642 8,558 (7,916) (92.5) % Other 78 313 (235) (75.1) % Net sales$ 66,883 $ 68,165 $ (1,282) (1.9) % The decrease in net sales reflects our inability to sell our Section 351 Products inthe United States during the three months endedJune 30, 2022 , following the end of Enforcement Discretion onMay 31, 2021 . Sales of our Section 351 Products were$0.6 million for the three months endedJune 30, 2022 compared to$8.6 million for the three months endedJune 30, 2021 , a decrease of$7.9 million . Sales of Section 351 Products during the three months endedJune 30, 2022 were derived from sales outsidethe United States . Sales growth in our Advanced Wound Care products of$6.9 million , or 11.6% year-over-year, partially offset the decrease in Section 351 Product sales described above. Our sales growth in this area was a result of our focus on the application of these products into areas of surgical recovery, as well as the results of our prior initiatives to expand, realign and train our sales team. 26 --------------------------------------------------------------------------------
Cost of Sales and Gross Profit Margin
Cost of sales for the three months endedJune 30, 2022 and 2021 was$11.8 million and$12.8 million , respectively, a decrease of$0.9 million , or 7.3%. Gross profit margin for the three months endedJune 30, 2022 was 82.3% compared to 81.3% for the three months endedJune 30, 2021 . Cost of sales for the three months endedJune 30, 2021 included$1.0 million of inventory write-downs related to our Section 351 Products, resulting from the end of Enforcement Discretion. This decreased gross margin by 1.5%. There were no significant unusual write-downs during the.three months endedJune 30, 2022 . Gross margin for the three months endedJune 30, 2022 was also positively aided by year-over-year changes in sales mix.
These effects on gross profit margin and cost of sales were offset by inflationary pressures, increasing materials and labor costs.
Selling, General and Administrative Expense
Selling, general and administrative expense for the three months endedJune 30, 2022 was$55.8 million , compared to$53.6 million for the three months endedJune 30, 2021 , an increase of$2.2 million , or 4.1%. The increase in these expenses reflects increases in travel expenses and bad debt expense. The increase in travel expenses reflects the lifting of travel restrictions that were in place during the three months endedJune 30, 2021 due to the COVID-19 Pandemic, as well as inflationary pressures experienced during the three months endedJune 30, 2022 . The increase in bad debt expense was a result of the deterioration of credit for certain specific customers. The increase in selling, general and administrative expense was driven further by year-over-year increases in commissions due to our focus on sales of products into areas of Surgical Recovery, which resulted in a proportional increase in sales through sales agents. The increase was partially offset by a decrease in expenses incurred in connection with our annual meeting of stockholders. During the three months endedJune 30, 2022 we incurred$2.1 million in consulting and advisory expenses related to a withhold the vote campaign launched by a shareholder. This compares to$3.8 million of expenses incurred during the three months endedJune 30, 2021 related to a proxy contest initiated by the same shareholder.
The remaining variance was primarily the result of year-over-year decreases in depreciation expense.
Research and Development Expense
Our research and development expense increased$1.4 million , or 35.7%, to$5.5 million for the three months endedJune 30, 2022 , compared to$4.1 million for the three months endedJune 30, 2021 . The increase reflects higher personnel costs, driven by increases in headcount to support clinical research efforts connected to our commercial and late-stage pipelines. This was offset by a year-over-year decrease in professional services expenses and clinical trial expenses that we had incurred during the three months endedJune 30, 2021 to close out and analyze the results of our clinical trials. The remaining variance was primarily the result of increases in development and testing costs. As discussed in the "Contractual Obligations" section below, we have engaged Nordic Bioscience Clinical Development A/S to carry out our Knee Osteoarthritis clinical trial program. Under the terms of this agreement, we are obligated to pay$13.3 million upon the achievement of specified milestones over the course of the clinical trial, as well as certain other costs necessary to complete the clinical trial. We expect to begin incurring expenses related to this arrangement in the third quarter of 2022.
Investigation, Restatement and Related Expense
Investigation, restatement and related expense for the three months endedJune 30, 2022 was$3.2 million compared to a benefit of$2.1 million for the three months endedJune 30, 2021 . The prior year benefit was primarily the result of funds received from certain director and officer insurance policies during the three months endedJune 30, 2021 , as well as negotiated reductions in previously-recognized legal expenses advanced on behalf of certain former members of management. Excluding these negotiated payments and reductions, our expenses decreased, year-over-year. 27 -------------------------------------------------------------------------------- Expenses incurred during the three months endedJune 30, 2022 and 2021 included amounts related to legal fees advanced under indemnification agreements with certain former members of management. We remain subject to indemnification agreements with certain former officers and directors of the Company (other than Messrs. Petit and Taylor, our former Chief Executive Officer and Chief Operating Officer) for whom legal proceedings are still ongoing, in particular, our former Chief Financial Officer. Overall, costs to defend ourselves in legal matters related to the findings of the Audit Committee Investigation fromMay 2019 also decreased, year-over-year.
Amortization of Intangible Assets
Amortization expense related to intangible assets was
Interest Expense, Net
Interest expense, net was$1.2 million for the three months endedJune 30, 2022 compared to$1.4 million for the three months endedJune 30, 2021 , a decrease of$0.2 million , or 14.7%. The difference was the result of the amortization of deferred financing costs and original issue discount associated with a delayed draw term loan facility under the Hayfin Loan Agreement (described below under "Liquidity and Capital Resources"), which ceased at the conclusion of the commitment period for the delayed draw facility onJune 30, 2021 . We expect interest expense to increase in future quarters as a result of the rising interest rate environment, as the London Interbank Offered Rate ("LIBOR") increases to levels above the 1.5% floor stipulated in our Term Loan.
Income Tax Provision (Expense) Benefit
The effective tax rates for the Company were (0.6)% and 0.3% for the three
months ended
Six Months EndedJune 30, 2022 Compared to the Six Months EndedJune 30, 2021 Six Months Ended June 30, (in thousands) 2022 2021 $ Change % Change Net sales$ 125,777 $ 128,132 $ (2,355) (1.8) % Cost of sales 21,759 22,401 (642) (2.9) % Gross profit 104,018 105,731 (1,713) (1.6) %
Selling, general and administrative 105,363 99,003
6,360 6.4 %
Research and development 11,476 8,402
3,074 36.6 %
Investigation, restatement and related 5,770 5,134
636 12.4 %
Amortization of intangible assets 345 454 (109) (24.0) % Interest expense, net (2,295) (2,844) 549 (19.3) % Other expense, net (1) (2) 1 (50.0) % Income tax provision expense (125) (53) (72) 135.8 % Net loss$ (21,357) $ (10,161) $ (11,196) 110.2 % Net Sales We recorded net sales for the six months endedJune 30, 2022 of$125.8 million , a$2.4 million decrease, or 1.8%, compared to the six months endedJune 30, 2021 , for which we recorded net sales of$128.1 million . Our sales by product were as follows (amounts in thousands): 28 --------------------------------------------------------------------------------
Six Months Ended June 30, Change 2022 2021 $ % Advanced Wound Care Tissue/Other$ 113,126 $ 99,977 $ 13,149 13.2 % Cord 11,486 10,846 640 5.9 %
Total Advanced Wound Care 124,612 110,823
13,789 12.4 % Section 351 1,019 16,698 (15,679) (93.9) % Other 146 611 (465) (76.1) % Net sales$ 125,777 $ 128,132 $ (2,355) (1.8) % The decrease in net sales reflects our inability to sell our Section 351 Products inthe United States during the six months endedJune 30, 2022 , following the end of Enforcement Discretion onMay 31, 2021 . Sales of our Section 351 Products were$1.0 million for the six months endedJune 30, 2022 compared to$16.7 million for the three months endedJune 30, 2021 , a decrease of$15.7 million . Sales of Section 351 Products during the six months endedJune 30, 2022 were derived from sales outsidethe United States . Sales growth in our Advanced Wound Care products of$13.8 million , or 12.4%, year-over-year, partially offset the decrease in Section 351 Product sales described above. Our sales growth in this area was a result of our focus on the application of these products into areas of surgical recovery, as well as the results of our prior initiatives to expand, realign and train our sales team.
Cost of Sales and Gross Profit Margin
Cost of sales for the six months ended
Gross profit margin for the six months ended
Cost of sales for the six months endedJune 30, 2021 included$1.0 million of inventory write-downs related to our Section 351 Products, resulting from the end of Enforcement Discretion. This decreased gross margin by 0.8%. There were no significant unusual write-downs during the six months endedJune 30, 2022 .
Gross profit margin and cost of sales during the six months ended
Selling, General and Administrative Expense
Selling, general and administrative expenses for the six months endedJune 30, 2022 increased$6.4 million , or 6.4%, to$105.4 million , compared to$99.0 million for the six months endedJune 30, 2021 . The increase in these expenses reflects increases in travel expenses, sales commissions, personnel costs, and bad debt expense. The increase in travel expenses reflects the lifting of travel restrictions that were in place during the six months endedJune 30, 2021 due to the COVID-19 Pandemic, as well as inflationary pressures experienced during the six months endedJune 30, 2022 . Increases in personnel costs and sales commissions were the result of annual compensation adjustments as well as sales force realignment and expansion; additionally, our focus on sales of products into areas of Surgical Recovery resulted in a proportional increase in sales through sales agents. The increase in bad debt expense was a result of the deterioration of credit for certain specific customers. The increase was partially offset by a decrease in expenses incurred in connection with our annual meeting of stockholders. During the six months endedJune 30, 2022 we incurred$2.1 million in consulting and advisory expenses related to a withhold the vote campaign launched by a shareholder. This compares to$3.8 million of similar expenses incurred during the six months endedJune 30, 2021 related to a proxy contest initiated by the same shareholder.
The remaining variance was the result of year-over-year decreases in depreciation expense.
Research and Development Expense
Our research and development expenses increased$3.1 million , or 36.6%, to$11.5 million for the six months endedJune 30, 2022 , compared to$8.4 million for the six months endedJune 30, 2021 . The increase reflects higher personnel costs, driven by increases in headcount to support clinical research efforts connected to our commercial and late-stage pipelines. This effect was 29 --------------------------------------------------------------------------------
offset primarily by decreases in clinical trial and professional services
expenses that we had incurred during the six months ended
Investigation, Restatement and Related Expense
Investigation, restatement and related expenses for the six months endedJune 30, 2022 increased approximately$0.6 million , or 12.4%, to$5.8 million compared to$5.1 million for the six months endedJune 30, 2021 . The increase reflects receipt of funds from certain director and officer insurance policies during the six months endedJune 30, 2021 . This effect was offset by year-over year decreases in indemnification fees, net of negotiated reductions, advanced to former officers and directors of the Company and litigation expenses toward our defense in legal matters. Expenses incurred during the six months endedJune 30, 2022 and 2021 included amounts related to legal fees advanced under indemnification agreements with certain former members of management, in particular, our former Chief Financial Officer.
Amortization of Intangible Assets
Amortization expense decreased$0.1 million or 24.0% from the six months endedJune 30, 2021 to the six months endedJune 30, 2022 . The decrease was the result of amortization avoided on licenses, supplier relationships, and non-compete agreements, which were fully amortized or impaired during 2021.
Interest Expense, Net
Interest expense, net was$2.3 million for the six months endedJune 30, 2022 compared to$2.8 million for the six months endedJune 30, 2021 . The difference was the result of the amortization of deferred financing costs and original issue discount associated with a delayed draw term loan facility under the Hayfin Loan Agreement (described below under "Liquidity and Capital Resources"), which ceased at the conclusion of the commitment period for the delayed draw facility onJune 30, 2021 . Income Tax Provision Expense
The effective tax rates for the Company were (0.6)% and (0.5)% for the six
months ended
Non-GAAP Financial Measures
In addition to our GAAP results, we provide certain Non-GAAP measures including Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), and Adjusted EBITDA. We believe that the presentation of these measures provides important supplemental information to management and investors regarding our performance. These measurements are not a substitute for GAAP measurements, and the manner in which we calculate such metrics may not be identical to the manner in which other companies calculate and present similar metrics. Company management uses these Non-GAAP measurements as aids in monitoring our ongoing financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against comparable companies.
EBITDA and Adjusted EBITDA
EBITDA is intended to provide a measure of the Company's operating performance as it eliminates the effects of financing and capital expenditures. EBITDA consists of GAAP net loss excluding:
(i) depreciation, (ii) amortization of intangibles, (iii) interest expense, net, and (iv) income tax provision.
Adjusted EBITDA is intended to provide an enduring, normalized view of EBITDA and our broader business operations that we expect to experience on an ongoing basis by removing certain non-cash items and items which may be irregular, one-time, or non-recurring from EBITDA. This also includes share-based compensation, which is predominantly settled in shares. This enables us to identify underlying trends in our business that could otherwise be masked by such items.
Adjusted EBITDA consists of GAAP net loss excluding:
(i) depreciation, (ii) amortization of intangibles, (iii) interest expense, (iv) income tax provision, (v) costs incurred in connection with the Audit Committee Investigation and Restatement, and (vi) share-based compensation. Management also assesses EBITDA margin and Adjusted EBITDA margin to provide an additional layer of context to the Company's profitability; indicating our ability to convert our sales into sustainable operating results. EBITDA margin is calculated as EBITDA divided by GAAP net sales. Similarly, Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by GAAP net sales. 30 --------------------------------------------------------------------------------
A reconciliation of GAAP net loss to EBITDA and Adjusted EBITDA appears in the table below (in thousands):
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Net loss$ (10,868) $ (1,779) $ (21,357) $ (10,161) Net margin (16.2) % (2.6) % (17.0) % (7.9) % Non-GAAP Adjustments: Depreciation expense 858 1,306 1,718 2,467 Amortization of intangible assets 173 215 345 454 Interest expense, net 1,170 1,371 2,295 2,844 Income tax provision 62 (5) 125 53 EBITDA (8,605) 1,108 (16,874) (4,343) EBITDA margin (12.9) % 1.6 % (13.4) % (3.4) % Additional Non-GAAP Adjustments Costs (benefits) incurred in connection with Audit Committee Investigation and Restatement 3,218 (2,062) 5,770 5,134 Share-based compensation 4,428 4,060 8,426 7,305 Adjusted EBITDA $ (959)$ 3,106 $ (2,678) $ 8,096 Adjusted EBITDA margin (1.4) % 4.6 % (2.1) % 6.3 % Discussion of Cash Flows Operating Activities Net cash used in operating activities during the six months endedJune 30, 2022 was$13.2 million , compared to$5.1 million of cash used for the six months endedJune 30, 2021 . The increase was driven primarily by year-over-year increases in selling, general and administrative expenses and research and development expenses. In addition, payments of accrued compensation increased for the six months endedJune 30, 2022 due to a restructuring of our internal commission arrangements during 2021. These effects were offset by year-over-year decreases in payments related to legal accruals and recoveries from director and officer insurance policies during the six months endedJune 30, 2021 .
Investing Activities
Net cash used for investing activities during the six months endedJune 30, 2022 was$0.6 million , compared to$2.5 million for the six months endedJune 30, 2021 . This decrease was the result of a$1.8 million year-over-year decrease in capital expenditures. In addition, patent application costs decreased$0.1 million , year-over-year.
Financing Activities
Net cash used in financing activities was$0.8 million during the six months endedJune 30, 2022 compared to$3.2 million during the six months endedJune 30, 2021 . The decrease was the result of a$3.4 million decrease in cash paid for tax withholdings upon the vesting of restricted stock awards during the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . This was offset by a$0.9 million decrease in cash proceeds from the exercise of stock options, year-over-year.
Liquidity and Capital Resources
Our business requires capital for our operating activities, including costs associated with the sale of product through direct and indirect sales channels, the conduct of research and development activities, compliance costs, and legal and consulting fees in connection with ongoing litigation and other matters.
As of
We are currently paying our obligations in the ordinary course of business.
We anticipate cash requirements related to the following items within one year of the date of the filing of this Quarterly Report:
31 --------------------------------------------------------------------------------
•expenditures required to conduct clinical trials to advance our BLAs and other potential R&D investments;
•expenditures required to achieve necessary regulatory approval and establish operations in new markets deemed strategically important toward the enhancement of our global footprint;
•investments in manufacturing capacity to advance and expand our existing product portfolio; and
•indemnification payments to certain former members of our management team.
We have analyzed our ability to address these commitments and potential liabilities for the 12 months extending from the date of the filing of this Quarterly Report. After completing this analysis, which included a review of expectations of revenue, margins, and expenses, we believe that our existing cash and cash from operations will be sufficient to meet our obligations as they come due. Term Loan The Hayfin Loan Agreement was funded onJuly 2, 2020 and provided us with a senior secured term loan of$50 million (the "Term Loan"). The Term Loan matures onJune 30, 2025 (the "Maturity Date"). OnFebruary 28, 2022 (the "Amendment Date"), we executed an Amendment to the Hayfin Loan Agreement.
No principal payments are due on the Term Loan until the Maturity Date.
Interest is payable on the Term Loan for principal outstanding quarterly through the Maturity Date. The interest rate applicable to any borrowings under the Term Loan is equal to LIBOR (subject to a floor of 1.5%) plus a margin of 6.75%. If LIBOR is unavailable, the loan will carry interest at the greatest of the Prime Rate, the Federal Funds Rate plus 0.5% per annum, and 2.5% plus the 6.75% margin. An additional 3.0% margin would be applied to the interest rate upon the occurrence of an Event of Default as defined in the Hayfin Loan Agreement, as amended (the "Amended Hayfin Loan Agreement"). As ofJune 30, 2022 , the Term Loan carried an interest rate of 9.0%. If an event of default (as defined by the Amended Hayfin Loan Agreement) occurs, an additional 3.0% margin is applied to the interest rate until such event of default is cured.
The Amended Hayfin Loan Agreement contains financial covenants requiring the Company, on a consolidated basis, to maintain the following:
•Maximum Consolidated TotalNet Sales (as defined in the Amended Hayfin Loan Agreement) of varying amounts, required to be calculated on a quarterly basis, and
•Minimum Liquidity (as defined in the Amended Hayfin Loan Agreement) of
As of
The Amended Hayfin Loan Agreement specifies that any prepayment of the Term Loan, voluntary or mandatory, as defined in the agreement, would subject us to a prepayment premium applicable as of the date of the prepayment, as follows:
•On or before
•After
•After
The Amended Hayfin Loan Agreement also includes certain negative covenants and events of default customary for facilities of this type, and upon the occurrence of such events of default, subject to customary cure rights, all outstanding loans under the Amended Hayfin Loan Agreement may be accelerated or the lenders' commitments terminated. Mandatory prepayments are also required in the event of a change in control, incurring other indebtedness, certain proceeds from disposal of assets and insured casualty event (as defined in the Amended Hayfin Loan Agreement). Beginning with the fiscal year endingDecember 31, 2021 , we are required to prepay the outstanding loans based on the percentage of our Excess Cash Flow (as defined in the Amended Hayfin Loan Agreement), if such is generated. To date, we have not been required to make any prepayments under this provision. 32 --------------------------------------------------------------------------------
Series B Preferred Stock
We have 100,000 shares of Series B Preferred Stock outstanding as of
The Series B Preferred Stock pays a 6.0% cumulative dividend per annum. Dividends are declared at the sole discretion of our board of directors. Dividends, if declared, are paid in cash at the end of each quarter based on dividend amounts that accumulate beginning on the last payment date through the day prior to the end of each quarter. In lieu of paying a dividend in cash, we may elect to accrue the dividend owed to shareholders. Dividend balances accumulate at the prevailing dividend rate for each dividend period for which they are outstanding. Each share of Series B Preferred Stock, including any accrued and unpaid dividends, is convertible into our common stock at any time at the option of the holder at a conversion price of$3.85 per common share, or 259.74 common shares for each share of Series B Preferred Stock prior to any accrued and unpaid dividends. The Series B Preferred Stock, including any accrued and unpaid dividends, automatically converts into common stock at any time afterJuly 2, 2023 , provided that the common stock has traded at$7.70 or higher (i) for 20 out of 30 consecutive trading days and (ii) on such date of conversion. If we undergo a change of control, we will have the option to repurchase some or all of the then-outstanding shares of Series B Preferred Stock for cash in an amount equal to the liquidation preference and any accumulated and unpaid dividends, subject to the rights of the holders of the Series B Preferred Stock in connection with such change in control. If we do not exercise such repurchase right, holders of the Series B Preferred Stock will have the option to (1) require us to repurchase any or all of our then-outstanding shares of Series B Preferred Stock for cash in an amount equal to the liquidation preference or (2) convert the Series B Preferred Stock, including accrued and unpaid dividends into common stock and receive its pro rata consideration thereunder.
We have not declared or paid any cash dividends on our Series B Convertible
Preferred Stock since issuance. Dividends accumulated but not paid as of
Share Repurchases
We did not repurchase any shares of our common stock, during the three months endedJune 30, 2022 . The timing and amount of future repurchases, if any, will depend upon our stock price, economic and market conditions, regulatory requirements, and other corporate considerations. We may initiate, suspend or discontinue purchases at any time.
Contractual Obligations
Nordic Agreement
InJune 2022 , we entered into a collaboration agreement (the "Nordic Agreement") with Nordic Bioscience Clinical Development A/S ("NBCD") to provide full operational support for our upcoming Knee Osteoarthritis clinical trial program, which we expect to begin later this year. As part of the agreement, NBCD will perform site selection and monitoring, manage patient recruitment and enrollment, data management, statistical analysis and reporting activities for the duration of the trial. Under the terms of the Nordic Agreement, we are obligated to pay$13.3 million upon the achievement of specified milestones over the course of the clinical trial, including$2.0 million within 30 days of execution of the agreement. The milestones are based upon various factors including, but not limited to, site selection and enrollment, patient enrollment, patient completion, and certain other activities related to start-up and close-out. The milestone payments are revised semi-annually based on fluctuations in the consumer price index.
We have the ability to terminate the Nordic Agreement with 30 days written notice to NBCD. At such time, we would be required to pay for services performed through the date of termination and any non-cancelable obligations.
No payments have been made under the Nordic Agreement as of
Other Obligations
Other than the obligations discussed above, there were no significant changes to our contractual obligations during the six months endedJune 30, 2022 from those disclosed in the section Item 7, "Management's Discussion and Analysis of Financial Condition and Results from Operations", in our 2021 Form 10-K. 33 --------------------------------------------------------------------------------
Critical Accounting Estimates
In preparing financial statements, we follow accounting principles generally accepted inthe United States , which require us to make certain estimates and apply judgments that affect our financial position and results of operations. We regularly review our accounting policies and financial information disclosures. A summary of critical accounting estimates in preparing the financial statements was provided in our 2021 Form 10-K. During the quarter covered by this report, there were no material changes to the accounting policies and assumptions previously disclosed.
Recent Accounting Pronouncements
For the effect of recent accounting pronouncements, see Note 2 to the unaudited condensed consolidated financial statements contained herein.
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