Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. MIMEDX GROUP, INC. (1376339) 10-Q published on Oct 31, 2017 at 5:15 pm
Reporting Period: Sep 29, 2017
On September 30, 2017, we completed the previously announced divestiture (the “Stability Divestiture”) of our wholly-owned subsidiary, Stability Biologics, LLC, a Georgia limited liability company (successor-in-interest to Stability Inc., a Florida corporation) (“Stability LLC”), pursuant to the Membership Interest Purchase Agreement (“Agreement”) by and among the Company, Stability LLC, each person that, as of January 13, 2016, was a stockholder (the “Stockholders”) of Stability Inc., a Florida corporation and a predecessor-in-interest to Stability LLC ("Stability, Inc."), and Brian Martin, as stockholder representative, the terms of which were previously disclosed in the Current Report on Form 8-K dated August 18, 2017.
(a) In accordance with ASC 350-20-35-52 when a portion of a reporting unit is disposed of, goodwill associated with that business shall be included in the carrying amount of the business in determining the gain on disposal. In accordance with ASC 350-20-35-53, the amount of goodwill to be included in that carrying amount shall be based on the relative fair values of the business to be disposed of and the portion of the reporting unit that will be retained. Based on an estimated approximate fair value of Stability LLC compared to the business retained, approximately $300,000 out of the total goodwill of $20.2 million residing in the reporting unit was included in the carrying amount of the business sold.
On October 12, 2015, the Company and its subsidiaries entered into a Credit Agreement (the "Credit Agreement") with certain lenders and Bank of America, N.A., as administrative agent. The Credit Agreement establishes a senior secured revolving credit facility in favor of the Company with a maturity date of October 12, 2018 and an aggregate lender commitment of up to $50 million. In September 2017, the expiration date of the credit agreement was extended to October 12, 2019. The Credit Agreement also provides for an uncommitted incremental facility of up to $35 million, which can be exercised as one or more revolving commitment increases or new term loans, all subject to certain customary terms and conditions set forth in the Credit Agreement. The obligations of the Company under the Credit Agreement are guaranteed by the Company's subsidiaries. The obligations of the loan parties under the Credit Agreement and the other credit documents are secured by liens on and security interests in substantially all of the assets of each of the loan parties and a pledge of the equity interests of each subsidiary owned by a loan party, subject to certain customary exclusions. Borrowings under the facility will bear interest at LIBOR plus 1.5% to 2.25%. Fees paid in connection with the initiation of the credit facility totaled approximately $500,000. These deferred financing costs are being amortized to interest expense over the initial life of the facility. The Credit Agreement contains customary representations, warranties, covenants and events of default, including restrictions on certain payments of dividends by the Company. As of September 30, 2017, there were no outstanding revolving loans under the credit facility, and the Company was in compliance with all covenants under the Credit Agreement.
On September 21, 2017, MiMedx filed a lawsuit against DBW Partners LLC d/b/a The Capitol Forum (the “Capitol Forum”), Trevor Baine, Teddy Downey, Jake Williams, Miles Pulsford, Matt Treacy and John Does 1-100 (collectively, the “Capitol Defendants”) in the United States District Court for the District of Columbia. The Company has brought claims for defamation, libel, slander, tortious interference, false light, and violations of the Lanham Act in relation to the Capitol Defendants publishing articles and sending emails to shareholders that are false and misleading for the purpose of negatively impacting the price of MiMedx stock. The Capitol Defendants have not yet responded to the Company’s complaint.
Selling, General and Administrative ("SG&A") expenses for the three months ended September 30, 2017 increased approximately $12.0 million, or 24.9%, to $60.2 million compared to $48.2 million for the three months ended September 30, 2016. Selling expense increases were driven primarily by costs associated with the continued build out of our direct sales organization for both the Wound Care and SSO markets. Total sales and marketing head count was at 449 at September 30, 2017, an increase of 79 employees since September 30, 2016 with a significant portion of the additions dedicated to our direct sales activity. Related expense for sales commissions and travel were also higher due to sales volume and head count increases. General and administrative expense increases were driven primarily by costs associated with adding personnel to support and maintain continued growth including reimbursement staffs and other support areas. Total General and Administrative head count was at 160 at September 30, 2017 as compared to 122 at September 30, 2016. Litigation costs tied to general and patent litigation were at $3.5 million for the quarter as compared to $1.2 million in the prior year. Also included in SG&A were increased provisions for bonuses, increased share-based compensation and bank fees. Share-based compensation included in SG&A for the three months ended September 30, 2017 and 2016 was approximately $5.0 million and $4.4 million, respectively, an increase of approximately $0.6 million, or 13.6%.