What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-28 compared with 2021-03-08 · 499 added, 602 removed, 856 unchanged (56% of the section changed)

1 unchanged sentence

Index to Financial Statements

Reports of Independent Registered Public Accounting Firm

Report of Deloitte & Touch LLP, Indep endent Registered Public Accounting Firm (PCAOB ID:

Report of BDO USA, LLP, Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets – As of December 31, 2021 and 2020

Consolidated Statements of Operations – For the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Stockholders’ (Deficit) Equity – For the years ended December 31, 20 20, 2019 and 2018

Consolidated Statements of Stockholders’ Equity (Deficit) – For the years ended December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows – For the years ended December 31, 2021, 2020 and 2019

2 unchanged sentences

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Board of Directors

To the Stockholders and the Board of Directors of MiMedx Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of MiMedx Group, Inc.

and subsidiaries (the "Company") as of December 31, 2021, the related consolidated statements of operations, stockholders' equity (deficit), and cash flows, for the year then ended, and the related notes and the schedule listed in the Index at Item 8 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2022, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Net Sales - Timing of Revenue Recognition — Refer to Note 2 to the Financial Statements

Critical Audit Matter Description

The Company sells its products primarily to individual customers and independent distributors (collectively referred to as “customers”).

Customers obtain and use products either through ship and bill sales or consignment arrangements.

Under ship and bill arrangements, the Company retains possession of the product until the customer submits an order and the product ordered is shipped to the customer.

Under consignment arrangements, the customer takes possession of the product, but the Company retains title until the implantation, or application of the Company’s product to the end user.

The Company recognizes revenue as performance obligations are fulfilled, which generally occurs upon the shipment of product to the customers for ship and bill orders or upon implantation for consignment sales.

We identified the timing of revenue recognition for ship and bill and consignment sales at or near year-end as a critical audit matter because of the judgments involved in evaluating that the performance obligations are fulfilled.

This required extensive audit effort due to the volume of transactions and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the timing of revenue recognition transactions included the following, among others:

• We created data visualizations using a detail of all revenue transactions and evaluated trends in the transactional revenue data with emphasis on activity at or near period end.

• We evaluated and tested corollary relationships between revenue and related accounts.

• We evaluated the appropriateness and consistency of the methods and assumptions utilized by management to estimate consignment revenue.

• We tested a sample of consignment revenue transactions manually accrued as of year-end and evaluated whether the transactions were recorded in the correct period.

• We tested a sample of ship and bill revenue transactions close to period end by agreeing the amounts recognized to source documents and evaluating whether the transaction was recorded in the correct period.

• We tested a sample of credits issued after year-end by agreeing to documents supporting the authorization for the issuance of the credit and to evaluate if the credit was issued in the correct period.

/s/ Deloitte & Touche LLP

Atlanta, Georgia

February 28, 2022

We have served as the Company's auditor since 2021.

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

MiMedx Group, Inc.

1 unchanged sentence

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of MiMedx Group, Inc.

(the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and schedule (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 8, 2021 expressed an adverse opinion thereon.

We have audited the accompanying consolidated balance sheet of MiMedx Group, Inc.

(the “Company”) as of December 31, 2020, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and schedule (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

The critical audit matter communicated below is a matter arising from the audit of the consolidated financial statements for the year ended December 31, 2020 that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

17 unchanged sentences

/s/ BDO USA, LLP

We have served as the Company's auditor since 2019.

Atlanta, Georgia

March 8, 2021

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

MiMedx Group, Inc.

Marietta, Georgia

Opinion on Internal Control over Financial Reporting

We have audited MiMedx Group, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”).

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We do not express an opinion or any other form of assurance on management’s statement referring to any corrective actions taken by the Company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and schedule (collectively referred to as “the financial statements”)” and our report dated March 8, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and described in management’s assessment:

• Failure to design, implement and maintain controls over financial reporting, revenue, income taxes, inventory, procure-to-pay, financial forecasting, goodwill impairment testing and going concern.

These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2020 financial statements, and this report does not affect our report dated March 8, 2021 on those financial statements.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ BDO USA, LLP

We served as the Company's auditor from 2019 to 2020.

Atlanta, Georgia

7 unchanged sentences

Accounts receivable, net 40,353 35,423

Inventory, net 10,361 9,104

Inventory 11,389 10,361

Prepaid expenses 6,146 5,605

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Total assets $ 187,929 $ 202,032

LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ (DEFICIT) EQUITY

LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

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Accrued expenses 9,812 30,460

Current portion of long term debt — 3,750

Other current liabilities 1,565 1,470

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$ .001 par value;

100,000 shares authorized, issued and outstanding at December 31, 2020 and 0 authorized, issued and outstanding at December 31, 2019

Stockholders’ (deficit) equity:

100,000 shares authorized, issued and outstanding at December 31, 2021 and December 31, 2020

$ 92,494 $ 91,568

Stockholders’ equity (deficit):

Preferred stock Series A;

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$ .001 par value;

187,500,000 shares authorized, 112,703,926 issued, and 110,930,243 outstanding at December 31, 2020 and 150,000,000 authorized, 112,703,926 issued and 110,818,649 outstanding at December 31, 2019

187,500,000 shares authorized, 112,703,926 issued, and 111,925,216 outstanding at December 31, 2021 and 110,930,243 outstanding at December 31, 2020

Additional paid-in capital 165,695 158,610

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Accumulated deficit ( 161,709 ) ( 151,424 )

Total stockholders’ (deficit) equity ( 150 ) 34,398

Total liabilities, convertible preferred stock, and stockholders’ (deficit) equity $ 202,032 $ 167,166

Total stockholders’ equity (deficit) 82 ( 150 )

Total liabilities, convertible preferred stock, and stockholders’ equity (deficit) $ 187,929 $ 202,032

See notes to the consolidated financial statements.

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(in thousands, except share and per share data)

Years Ended December 31,

Year Ended December 31,

2021 2020 2019

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Selling, general and administrative 198,359 181,022 198,205

Investigation, restatement and related 59,465 66,504 51,322

Research and development 17,344 11,715 11,140

Investigation, restatement and related 3,791 59,465 66,504

Amortization of intangible assets 820 1,073 1,039

3 unchanged sentences

Loss on extinguishment of debt — ( 8,201 ) —

Interest (expense) income, net ( 7,941 ) ( 4,708 ) 527

Interest expense, net ( 4,980 ) ( 7,941 ) ( 4,708 )

Other (expense) income, net ( 23 ) ( 3 ) 283

Loss before income tax provision ( 10,038 ) ( 61,543 ) ( 25,585 )

Income tax provision benefit (expense) 12,259 5 ( 26,582 )

Income tax provision (expense) benefit ( 247 ) 12,259 5

Net loss $ ( 10,285 ) $ ( 49,284 ) $ ( 25,580 )

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AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

6 unchanged sentences

Issuance of restricted stock — — ( 37,798 ) ( 3,084,875 ) 37,798 — —

Restricted stock cancellation / forfeited — — 19,194 1,861,314 ( 19,194 ) — —

Shares repurchased — — — 507,600 ( 7,572 ) — ( 7,572 )

Shares repurchased for tax withholding on vesting of restricted stock units — — — 614,123 ( 4,914 ) — ( 4,914 )

Restricted stock shares canceled/forfeited — — 9,939 1,084,971 ( 9,939 ) — —

Shares repurchased for tax withholding — — — 429,918 ( 1,474 ) — ( 1,474 )

Net loss — — — — — ( 25,580 ) ( 25,580 )

Balance at December 31, 2019 112,703,926 $ 113 $ 147,231 1,885,277 $ ( 10,806 ) $ ( 102,140 ) $ 34,398

Issuance of Series B Convertible Preferred Stock — — 32,954 — — — 32,954

Deemed dividends — — ( 32,028 ) — — — ( 32,028 )

Share-based compensation expense — — 15,733 — — — 15,733

1 unchanged sentence

Issuance of restricted stock — — ( 5,463 ) ( 613,146 ) 5,463 — —

Restricted stock cancellation / forfeited — — 9,939 1,084,971 ( 9,939 ) — —

Shares repurchased for tax withholding on vesting of restricted stock units — — — 429,918 ( 1,474 ) — ( 1,474 )

Restricted stock shares canceled/forfeited — — 3,363 425,388 ( 3,363 ) — —

Shares repurchased for tax withholding — — — 435,492 ( 2,334 ) — ( 2,334 )

Net loss — — — — — ( 49,284 ) ( 49,284 )

Balance at December 31, 2020 112,703,926 $ 113 $ 158,610 1,773,683 $ ( 7,449 ) $ ( 151,424 ) $ ( 150 )

Issuance of Series B Convertible Preferred Stock

— — 32,954 — — — 32,954

Deemed dividends — — ( 926 ) — — — ( 926 )

Shares repurchased for tax withholding — — — 469,239 ( 4,751 ) — ( 4,751 )

Share-based compensation expense — — 14,757 — — 14,757

1 unchanged sentence

Issuance of restricted stock — — ( 4,053 ) ( 810,405 ) 4,053 — —

Restricted stock cancellation / forfeited — — 3,363 425,388 ( 3,363 ) — —

Shares repurchased for tax withholding on vesting of restricted stock units — — — 435,492 ( 2,334 ) — ( 2,334 )

Restricted stock shares canceled/forfeited — — 515 73,056 ( 515 ) — —

Other — — ( 2,009 ) ( 239,502 ) 2,009 — —

Net loss — — — — — ( 10,285 ) ( 10,285 )

9 unchanged sentences

Net loss $ ( 10,285 ) $ ( 49,284 ) $ ( 25,580 )

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Effect of change in revenue recognition — ( 17,382 ) —

Adjustments to reconcile net loss to net cash used in operating activities:

Share-based compensation 14,757 15,357 12,064

Loss on extinguishment of debt 8,201 — —

Depreciation 4,363 5,782 6,546

Amortization of deferred financing costs and debt discount 1,055 2,276 1,431

Amortization of intangible assets 1,073 1,039 1,034

Impairment of intangible assets 1,027 1,258 —

Non cash lease expenses 989 983 947

Accretion of asset retirement obligation 10 — —

Amortization of intangible assets 820 1,073 1,039

Loss on fixed asset disposal 262 1 318

Amortization of discount on notes receivable — — ( 190 )

Change in deferred income taxes — — 25,541

Accretion of asset retirement obligation 81 10 —

Impairment of intangible assets 53 1,027 1,258

Loss on extinguishment of debt — 8,201 —

Effect of change in revenue recognition — — ( 17,382 )

Increase (decrease) in cash resulting from changes in:

8 unchanged sentences

Other liabilities ( 1,159 ) ( 1,718 ) ( 2,717 )

Net cash flows (used in) provided by operating activities ( 30,263 ) ( 39,412 ) 35,796

Net cash flows used in operating activities ( 1,982 ) ( 30,263 ) ( 39,412 )

Cash flows from investing activities:

2 unchanged sentences

Principal payments from note receivable 75 — 2,722

Proceeds from property and equipment sale — — 30

Net cash flows (used in) provided by investing activities ( 3,395 ) ( 4,555 ) 504

Cash flows from financing activities:

Stock repurchased for tax withholdings on vesting of restricted stock ( 4,751 ) ( 2,334 ) ( 1,474 )

Proceeds from exercise of stock options 1,437 411 108

Payments under finance lease obligations ( 38 ) — —

Proceeds from sale of Series B convertible preferred stock — 100,000 —

4 unchanged sentences

Prepayment premium on early repayment of term loan — ( 1,439 ) —

Stock repurchased for tax withholdings on vesting of restricted stock ( 2,334 ) ( 1,474 ) ( 4,914 )

Proceeds from exercise of stock options 411 108 3,555

Stock repurchase under repurchase plan — — ( 7,572 )

Payments under capital lease obligations

Net cash flows provided by (used in) financing activities 61,561 62,859 ( 8,934 )

Net cash flows (used in) provided by financing activities ( 3,352 ) 61,561 62,859

Net change in cash ( 8,729 ) 26,743 23,951

7 unchanged sentences

MiMedx Group, Inc.

(together with its subsidiaries, except where the context otherwise requires, “ MiMedx ,” or the “ Company ”) is an industry leader in utilizing birth tissue as a platform for regenerative medicine, developing and distributing placental tissue allografts with patent-protected, proprietary processes for multiple sectors of healthcare.

As a pioneer in placental biologics, we have both a core business, focused on addressing the needs of patients with acute and chronic non-healing wounds, and a promising late-stage pipeline targeted at decreasing pain and improving function for patients with degenerative musculoskeletal conditions.

We derive our products from human placental tissues and process these tissues using our proprietary processing methods, including the PURION® process.

We employ Current Good Tissue Practices, Current Good Manufacturing Practices, and terminal sterilization to produce our allografts.

MiMedx provides products primarily in the wound care, burn, surgical, and non-operative sports medicine sectors of healthcare.

All of our products are regulated by the FDA.

(together with its subsidiaries, except where the context otherwise requires, “ MIMEDX ,” or the “ Company ”) 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, the Company is focused on addressing unmet clinical needs in the 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.

The Company applies Current Good Tissue Practices, Current Good Manufacturing Practices, and terminal sterilization to produce its allografts.

MIMEDX provides products primarily in the wound care, burn, and surgical recovery sectors of healthcare.

All of its products are regulated by the U.S.

Food & Drug Administration (“ FDA” ).

The Company’s business model is focused primarily on the United States of America but the Company is pursuing opportunities for international expansion.

Effect of the COVID-19 Pandemic

On March 11, 2020, the World Health Organization designated the outbreak of a novel strain of coronavirus as a global pandemic (the “ Pandemic ” or “ COVID-19 Pandemic ”).

The COVID-19 pandemic and associated governmental and societal responses have affected the Company’s business, results of operations and financial condition.

The continuation or additional waves of the outbreak of the COVID-19 pandemic or the outbreak of other health epidemics could harm the Company’s operations, hinder the Company’s ability to generate revenue, or increase the Company’s costs and expenses.

The ultimate impact of the pandemic is highly uncertain.

As a result of the pandemic, the Company has experienced delays and impacts on the business and clinical trials.

It is uncertain the extent and how long the pandemic will affect the healthcare system and the global economy as a whole.

The effects of the pandemic or other health epidemics could continue to have an adverse impact on the Company’s business, results of operations, and financial condition in the future.

On March 11, 2020, the World Health Organization designated the outbreak of a novel strain of coronavirus as a global pandemic.

The COVID-19 pandemic and associated governmental and societal responses have affected the Company’s business, results of operations and financial condition in the past and could continue to have an adverse impact on the Company’s business, results of operations, and financial condition in the future.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “ CARES Act ”) was signed into law.

The CARES Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, loans, and grants to certain businesses, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act included provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, loans, and grants to certain businesses, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

Certain of these provisions were extended or expanded as a result of the Consolidated Appropriations Act, 2021, which was signed into law on December 27, 2020.

As a result of these laws, the Company recorded a federal tax benefit of approximately $ 11.3 million due to the release of a previously-recorded valuation allowance.

Of this amount, the Company received $ 1.2 million during the year ended December 31, 2020.

As a result of these laws, the Company recorded a federal tax benefit of $ 11.3 million due to the release of a previously-recorded valuation allowance in 2020.

Of this amount, the Company received $ 9.2 million and $ 1.2 million during the years ended December 31, 2021 and 2020, respectively.

The remaining $ 0.9 million is recorded as part of income tax receivable on the consolidated balance sheet as of December 31, 2021.

In addition, the CARES Act provided an employee retention credit ( “ERC” ), which was a refundable tax credit against certain payroll taxes.

Upon determination that the Company had complied with all of the conditions required to receive the credit, the Company qualified and filed to claim the ERC.

The Company reflected the ERC as a reduction to the respective captions on the consolidated statements of operations associated with the employees to which the payroll tax benefit related.

For the year ended December 31, 2021, the Company recorded a $ 1.6 million reduction to selling, general and administrative expense.

As of December 31, 2021, the Company recorded $ 1.6 million as other current assets in the consolidated balance sheet.

Enforcement Discretion

In November 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 the FDA’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 Company identified its micronized and particulate products (collectively, the “ Section 351 Products ”) as being subject to regulation under Section 351, requiring pre-market approval from the FDA for a specified indication with demonstrated clinical efficacy.

The FDA exercised enforcement discretion with respect to Investigational New Drug (“ IND ”) applications and pre-market approval requirements through May 31, 2021.

As of May 31, 2021, the Company stopped marketing its Section 351 Products in the United States and is precluded from marketing such products until a Biologics License Application (“ BLA ”) is granted.

If and when the FDA approves a BLA, the Company expects to be allowed to market its Section 351 Products in the United States, but only for specific indications as permitted by the FDA.

Sales of the Company’s Section 351 Products were $ 17.6 million and $ 31.8 million for the years ended December 31, 2021 and 2020, respectively.

Sales of Section 351 Products for the year ended December 31, 2021 reflects the sale of such products in the United States through May 31, 2021.

The Company currently markets EPICORD® and AMNIOCORD® tissue products derived from human umbilical cord as providing a protective environment or as a barrier.

If the FDA were to determine that EPICORD and AMNIOCORD do not meet the requirements for regulation solely under Section 361, then pre-market clearance or approval would be required.

The loss of the Company’s ability to market and sell its umbilical cord-derived products would have an adverse effect on the Company’s revenue, business, financial condition, and results of operations .

Net sales of the Company’s umbilical cord-derived products were $ 23.6 million and $ 16.1 million for the years ended December 31, 2021 and 2020, respectively.

The Company’s cord inventory was $ 1.9 million as of December 31, 2021.

Out-of-Period Adjustment

During the year ended December 31, 2021 , the Company identified certain Restricted Stock Unit and Performance Stock Unit awards that were not appropriately reflected in the Company’s balance of common stock outstanding beginning in 2019.

The effects of these errors caused misstatements in the Company’s balance of treasury stock, additional paid-in capital, and common stock outstanding on each of the Company’s reported consolidated balance sheets and consolidated statements of stockholders’ equity (deficit) for interim and annual periods beginning with those statements as of and for the year ended December 31, 2019.

The identified errors did not affect total stockholders’ equity (deficit) or earnings per share in any period.

The Company recorded an out-of-period adjustment during the year ended December 31, 2021, which resulted in a decrease of $ 2.0 million to the balance of additional paid-in capital for the year ended December 31, 2021 and an increase of $ 2.0 million to the balance of treasury stock.

The Company concluded the effect of the misstatement was not material, qualitatively or quantitatively, to any interim or annual period.

These amounts are reflected as part of other in the consolidated statement of stockholders’ equity (deficit) for the year ended December 31, 2021.

Significant Accounting Policies

Use of Estimates

The consolidated financial statements have been prepared in accordance with generally accepted accounting principles (“ GAAP ”) in the United States of America (“ U.S.

Generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported consolidated statements of operations during the reporting period.

Actual results could differ from those estimates.

Significant estimates include estimated useful lives and potential impairment of property and equipment, goodwill and intangible assets, estimates of loss for contingent liabilities, estimate of allowance for doubtful accounts, management’s assessment of the Company’s ability to continue as a going concern, estimate of fair value of share-based payments, and valuation of deferred tax assets.

Principles of Consolidation

2 unchanged sentences

All intercompany balances and transactions have been eliminated upon consolidation.

Use of Estimates

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“ GAAP ”).

Actual results could differ from those estimates.

Segment Reporting

2 unchanged sentences

The Company has determined it operates as one operating segment.

Cash and Cash Equivalents

Cash and cash equivalents include cash held at various banks.

The Company considers all highly-liquid investments purchased with an original maturity of three months or less at the date of purchase and money market mutual funds to be cash equivalents.

Market Concentrations and Credit Risk

2 unchanged sentences

As of December 31, 2021 and 2020, the Company had cash and cash equivalents of approximately $86.4 million and $95.1 million, respectively, in excess of the insured amounts in four depository institutions.

Cash and Cash Equivalents

Cash and cash equivalents include cash held at various banks.

The Company considers all highly-liquid investments purchased with an original maturity of three months or less at the date of purchase and money market mutual funds to be cash equivalents.

Accounts Receivable

6 unchanged sentences

Actual write-offs may differ from the amounts reserved.

Inventories are valued at the lower of cost or net realizable value, using the first–in, first-out (“ FIFO ”) method.

Inventory is valued at the lower of cost or net realizable value.

Costs of inventory sold are recognized using the first–in, first-out (“ FIFO ”) method.

Inventory is tracked through raw material, work-in-process, and finished goods stages as the product progresses through various production steps and stocking locations.

1 unchanged sentence

Historical yields and normal capacities are utilized in the calculation of production overhead rates.

Reserves for inventory obsolescence are utilized to account for slow-moving inventory as well as inventory no longer needed due to diminished demand.

Write-downs are utilized to account for slow-moving inventory as well as inventory no longer needed due to diminished demand or regulatory action.

Property and Equipment

Property and equipment are recorded at cost and depreciated on a straight-line method over their estimated useful lives, principally three to seven years .

Leasehold improvements are depreciated on a straight-line method over the shorter of the estimated useful lives or the lease term.

Leasehold improvements are depreciated on a straight-line method over the shorter of the estimated useful lives and the remaining lease term.

Asset Retirement Obligations

The Company records obligations associated with the retirement of tangible long-lived assets and right of use assets and the associated asset retirement costs in accordance with authoritative guidance on asset retirement obligations.

The Company records obligations associated with the legal requirement to retire long-lived assets at the sooner of the imposition of the legal requirement and when an estimate for the cost of retirement can reasonably be made.

The Company reviews legal obligations associated with the retirement of long-lived assets that result from contractual obligations or the acquisition, construction, development and/or normal use of the assets.

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The asset amount is depreciated, straight-line, over the life of the underlying asset, while the liability is accreted to the amount of the expected outflow through selling, general and administrative expense using the effective interest method.

Subsequent revisions to estimates for future cash flows related to the asset retirement obligations are recorded as equal increases or decreases to the retirement asset and liability.

Impairment of Long-lived Assets

The Company evaluates the recoverability of its long-lived assets (property, equipment, and intangible assets with finite lives) whenever adverse events or changes in business climate indicate that the expected undiscounted future cash flows from the related assets may be less than their carrying amounts.

When a situation determines that it is more likely than not that an asset is not recoverable, the Company estimates cash flows expected to be derived from the continuing use and eventual disposition of the asset.

The Company evaluates the recoverability of its long-lived assets (property, equipment, right of use, and intangible assets with finite lives) whenever adverse events or changes in business climate indicate that the expected undiscounted future cash flows from the related assets may be less than their carrying amounts.

When a situation arises which results in a conclusion that it is more likely than not that an asset is not recoverable, the Company estimates cash flows expected to be derived from the continuing use and eventual disposition of the asset.

If the sum of those cash flows, not discounted to present value, does not exceed the net book value of the asset, the Company estimates the fair value of the asset.

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Actual results may differ from these estimates.

The Company recorded impairment losses on amortizable intangible assets of $ 1.0 million, $ 0.5 million, and $ 0 in in 2020, 2019, and 2018, respectively.

The Company recorded no impairment losses with respect to its property and equipment in those periods.

The Company recorded impairment losses on amortizable intangible assets of $ 0.1 million, $ 1.0 million, and $ 0.5 million in in 2021, 2020, and 2019, respectively.

The Company recorded no impairment losses with respect to any other classes of long-lived assets in those periods.

Goodwill and Indefinite-lived Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets of acquired businesses.

The Company assesses the recoverability of its goodwill at least annually on September 30, or more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that goodwill is impaired.

The Company assesses goodwill for impairment at least annually on October 1, or more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that goodwill is impaired.

In performing the goodwill impairment test, the Company assesses qualitative factors to determine the existence of impairment.

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The Company may also choose to bypass the qualitative assessment and proceed directly to the quantitative analysis.

At present, the Company has one reporting unit.

In performing the quantitative test, impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds the assessed fair value of the reporting unit, not to exceed goodwill allocated to that reporting unit.

The Company has one reporting unit.

In performing the quantitative test, impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its assessed fair value, not to exceed goodwill allocated to that reporting unit.

No impairment is recognized if fair value is determined to exceed carrying value.

The Company determines the fair value utilizing the income and market approaches.

Under the income approach, the fair value of the Company is the present value of its future cash flows.

These future cash flows are derived from revenue, cost savings, tax deductions, working capital flows, capital expenditures, and other projected sources and uses of cash.

Under the income approach, the fair value of the reporting unit is the present value of its future cash flows.

These future cash flows are derived from expectations of revenue, expenses, tax deductions, working capital flows, capital expenditures, and other projected sources and uses of cash.

Value indications are developed by discounting expected cash flows to their present value at a risk-adjusted weighted average cost of capital using the capitalization of market-comparable companies.

The weighted average cost of capital is rooted in the risk-free rate of a U.S.

Treasury with a similar maturity to the time period evaluated, credit risk specific to the Company, relevant equity risk premia, the incremental borrowing rate for the Company, and the prevailing marginal income tax rate.

Under the market approach, the Company uses its market capitalization, which is calculated by taking the Company’s share price times the number of outstanding common shares plus the value of Convertible preferred stock Series B outstanding.

The Company’s estimates associated with the goodwill impairment test are considered critical due to the amount of goodwill recorded on its consolidated balance sheets and the judgment required in determining fair value, including projected future cash flows.

Acquired indefinite-lived intangible assets are tested for impairment annually on September 30 or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable.

Treasury with a similar maturity to the time period evaluated, credit risk specific to the Company, relevant equity risk premia, the Company’s incremental borrowing rate, and the prevailing marginal income tax rate.

Under the market approach, the Company uses its market capitalization, which is calculated by taking the Company’s share price multiplied by the number of outstanding common shares plus the number of common shares to which the holders of the Company’s Convertible preferred stock Series B would be entitled to upon conversion.

Acquired indefinite-lived intangible assets are tested for impairment annually on October 1 or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable.

The Company’s impairment reviews are based on an estimated future cash flow approach that requires significant judgment with respect to future revenue and expense growth estimates.

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Actual results may differ from the estimates used in these analyses.

For the goodwill impairment test performed on September 30, 2020, the Company performed a quantitative test for its reporting unit, concluding that the fair value exceeded the carrying value.

Therefore, no goodwill impairment was recognized related to this test.

For the goodwill impairment test performed on October 1, 2021, the Company performed a qualitative assessment for its reporting unit, concluding that it was not more likely than not that the carrying value of the reporting unit exceeded its fair value.

Therefore, the Company did not perform a quantitative assessment and no goodwill impairment was recognized related to this test.

There were no recorded impairment losses related to goodwill in 2021, 2020, or 2019.

The Company recorded impairment losses related to our indefinite-lived intangible assets of $ 0 , $ 0.8 million, and $ 0 related to the abandonment of patents in process during 2020, 2019, and 2018, respectively.

The Company incurs certain legal and related costs in connection with patent applications for tissue-based products and processes.

The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or alternative future use is available to the Company.

The Company recorded impairment losses related to our indefinite-lived intangible assets of $ 0 , $ 0 , and $ 0.8 million related to the abandonment of patents in process during 2021, 2020, and 2019, respectively.

The Company incurs certain legal and related costs in connection with patent applications.

The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or an alternative future use is available to the Company.

The Company capitalized $ 0.3 million, $ 0.3 million, and $ 0.5 million of patent costs for the years ended December 31, 2021, 2020, and 2019, respectively.

Lease Obligations

The Company determines if a contract is, or contains, a lease at inception.

Right of use assets and the related liabilities resulting from operating leases were included in Right of use asset, Other current liabilities, and Other liabilities, respectively, in the consolidated balance sheets as of December 31, 2020 and 2019.

Operating lease assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

Operating lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

Since most of the Company’s leases do not have a readily determinable implicit discount rate, the Company uses its incremental borrowing rate to calculate the present value of lease payments determined using the rate of interest that the Company would have to pay on collateralized or secured borrowing over a similar term.

Variable components of the lease payments such as fair market value adjustments, utilities, and maintenance costs are expensed as incurred and not included in determining the present value of lease liabilities.

Leases provide the Company with the right to control an underlying asset for a contractual term, subject to certain renewal and other rights, in exchange for a series of stipulated cash

Right of use (“ ROU ”) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease.

Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The Company calculates the present value of lease payments by discounting the lease payments using the Company’s incremental borrowing rate for a collateralized or secured borrowing over a term equivalent to that of the lease.

Lease payments that vary according to an index or rate are measured using the index or rate at lease inception.

The lease term and applicable payments include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Options to renew or terminate a lease are included in the lease term to the extent that such provisions are reasonably certain to be exercised.

This determination is reassessed as new information arises and is accounted for prospectively.

As an accounting policy election, the Company does not capitalize leases having initial terms of 12 months or fewer.

Lease expense is recognized on a straight-line basis over the lease term.

The Company has made an accounting policy election not to separate lease components from non-lease components in the event that the agreement contains both.

The Company continues to account for leases in financial statements prior to January 1, 2019 under ASC 840.

See Note 5, “ Leases” for further information regarding lease obligations.

Operating lease right of use assets and the related liabilities are included in right of use asset, other current liabilities, and other liabilities, respectively, in the consolidated balance sheets.

Lease expense associated with operating leases is recognized, straight-line, over the lease term.

The Company does not recognize interest expense as part of operating lease liabilities.

Finance lease right of use assets and the related liabilities are included in property and equipment, net, other current liabilities, and other liabilities, respectively, in the consolidated balance sheets.

Finance lease right of use assets are amortized, straight-line, over the lease term as depreciation expense.

Interest expense is recognized using the effective interest method on finance lease liabilities as part of interest expense, net.

Treasury Stock

Shares repurchased by the Company are recorded as treasury stock at the cost to acquire such shares.

Subsequent issuances of shares held in treasury are assumed to be released on a FIFO basis.

Contingencies

The Company is or has been subject to various patent challenges, product liability claims, government investigations, former employee matters, and other legal proceedings, see Note 14, “ Commitments and Contingencies .” Legal fees and other expenses related to litigation are expensed as incurred and included in selling, general and administrative expenses in the consolidated statements of operations.

The Company records an accrual for legal settlements and other contingencies in the consolidated financial statements when the Company determines that a loss is both probable and reasonably estimable.

The Company discloses all ongoing legal matters for which a loss is probable, regardless of whether an estimate can be reasonably determined.

The Company records an accrual for resolution costs and other contingencies in the consolidated financial statements when the Company determines that a loss is both probable and reasonably estimable.

Subsequent revisions to the Company’s accrual are made as new information emerges and are accounted for prospectively.

The Company discloses all ongoing legal matters for which a loss is reasonably possible, regardless of whether an estimate can be reasonably determined.

Due to the fact that legal proceedings and other contingencies are inherently unpredictable, the Company’s estimates of the probability and amount of any such liabilities involve significant judgment regarding future events.

The actual costs of resolving a claim may be substantially different from the amount of reserve the Company recorded.

The Company records a receivable from its product liability insurance carriers only when the resolution of any dispute has been reached and realization of the amounts equal to the potential claim for recovery is considered probable.

The Company records a receivable from its insurance carriers only when the resolution of any dispute has been reached and realization of the amounts equal to the potential claim for recovery is considered probable.

Any recovery of an amount in excess of the related recorded contingent loss will be recognized only when all contingencies relating to recovery have been resolved.

Revenue Recognition

Current Policy

The Company sells its products primarily to individual customers and independent distributors (collectively referred to as “ customers ”).

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Under consignment arrangements, the customer takes possession of the product, but the Company retains title until the implantation, or application of the Company’s product to the end user.

Subsequent to the Transition (as defined below) and including all of the year ended December 31, 2020, the Company recognizes revenue as performance obligations are fulfilled;

which occurs upon the shipment of product to the customers for ship and bill orders or upon implantation for consignment sales.

Subsequent to the Transition (as defined below) and including all of the years ended December 31, 2021 and 2020, the Company recognizes revenue as performance obligations are fulfilled, which generally occurs upon the shipment of product to the customers for ship and bill orders or upon implantation for consignment sales.

Revenue is recognized based on the consideration the Company expects to receive from the sale.

This consists of the gross selling price of the product, less any discounts or rebates (collectively, “ deductions ” or “ sales deductions ”).

Gross selling price

is a standard set by the Company for all customers unless a contract governing the sale provides for a specified price.

Sales deductions are specified in individual contracts with customers and generally achieved based on total sales during a specified period.

This consists of the gross selling price of the product, less any discounts, rebates, fees paid to Group Purchasing Organizations (“ GPOs ”), and returns

(collectively, “ deductions ” or “ sales deductions ”).

Gross selling price is a standard set by the Company for all customers unless a contract governing the sale provides for a specified price.

Sales deductions are specified in individual contracts with customers.

The Company estimates the total sales deductions which a specific customer will achieve over the relevant term and applies the reduction to sales as they are made throughout the period.

Rebates owed to customers are accrued and recorded in accrued expenses on the consolidated balance sheets.

The Company acts as the principal in all of its customer arrangements and therefore records revenue on a gross basis.

Sales deductions owed to customers and other parties are accrued and recorded in accrued expenses on the consolidated balance sheets.

The Company acts as the principal in all of its customer arrangements and records revenue on a gross basis.

Shipping is considered immaterial in the context of the overall customer arrangement, and damages or loss of goods in transit are rare.

Therefore, shipping is not deemed a separately recognized performance obligation and the Company has elected to treat shipping costs as activities to fulfill the promise to transfer the product.

The Company maintains a returns policy that allows its customers to return product that is consigned, damaged or non-conforming, ordered in error, or due to a recall.

The estimate of the provision for returns is based upon historical experience with actual returns given consideration to any changes in historical periods presented.

The Company maintains a returns policy that allows its customers to return product that is damaged or non-conforming, ordered in error, or due to a recall.

The estimate of the provision for returns is based upon historical experience with actual returns.

The Company’s payment terms for customers are typically 30 to 60 days from receipt of title of the goods.

In addition to the above revenue recognition policy, the Company recognizes revenue associated with the Remaining Contracts (as defined below) upon cash receipt.

The Remaining Contracts represent contracts for which all of the criteria necessary for revenue recognition were not met at the time of shipment and that such criteria would not be met until ultimate collection of such sales.

A summary of amounts collected and recorded as net sales for the years ended December 31, 2020 and 2019, as well as amounts still outstanding as of those dates, are as follows (amounts in thousands):

Amounts Invoiced and Not Collected Deferred Cost of Sales

Amounts as of September 30, 2019 $ 48,883 $ 6,415

Revenue recognized related to amounts invoiced and not collected at September 30, 2019:

Transition Adjustment during the three months ended September 30, 2019 ( 21,385 ) ( 2,565 )

Cash collected during the three months ended December 31, 2019 related to the Remaining Contracts ( 8,219 ) ( 1,151 )

( 29,604 ) ( 3,716 )

Write-off of customer contracts where collection is no longer reasonably assured (a) ( 10,273 ) ( 1,438 )

Amounts as of December 31, 2019 9,006 1,261

Cash collected during the year ended December 31, 2020 related to the Remaining Contracts ( 7,767 ) ( 1,087 )

Amounts as of December 31, 2020 $ 1,239 $ 174

(a) The Company determined that for approximately $ 10.3 million of existing contracts where payment had not been received, collection was no longer reasonably assured.

As a result, $ 1.4 million of deferred cost of sales relating to these customers was written off.

Any future collections relating to these customer contracts will be recorded as revenue at the time payment is received.

Previous Revenue Recognition Policy and Transition

In 2018, and into part of 2019, the Company’s control environment was such that it created uncertainty surrounding all of its customer arrangements, which required consideration related to the proper revenue recognition under the applicable literature.

During the first three quarters of 2019, the Company’s control environment was such that it created uncertainty surrounding all of its customer arrangements, which required consideration related to the proper revenue recognition under the applicable literature.

The control environment allowed for the existence of extra-contractual or undocumented terms or arrangements initiated by or agreed to by the Company and former members of Company management at the outset of the transactions (side agreements).

Concessions were also agreed to subsequent to the initial sale ( e.g .

sales above established customer credit limits extended and unusually long payment terms, return or exchange rights, and contingent payment obligations) that called into question the ability to recognize revenue at the time that product was shipped to a customer.

The applicable revenue recognition guidance also changed beginning January 1, 2018, which further impacted the Company’s revenue recognition methodology.

The Company changed its pattern of revenue recognition effective October 1, 2019.

As a result, the Company’s pattern of revenue recognition varies between the years ended December 31, 2020, 2019, and 2018.

The application of the relevant revenue recognition guidance and the pattern of revenue recognition are further discussed below for each period presented.

Fiscal Year Ended December 31, 2018

The Company adopted ASC Topic 606, Revenue from Contracts with Customers (“ ASC 606 ”) , on January 1, 2018 by using the modified retrospective method.

ASC 606 establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity's contracts to provide goods or services to customers.

The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.

The Company assessed the impact of the ASC 606 guidance by reviewing customer contracts and accounting policies and practices to identify differences, including identification of the contract and the evaluation of the Company’s performance obligations, transaction price, customer payments, transfer of control and principal versus agent considerations.

ASC 606 establishes a five-step model for revenue recognition.

The first of these steps requires the identification of the contract as described in ASC 606-10-25-1.

The specific criteria (the “ Step 1 Criteria ”) to this determination are as follows:

• The parties to the contract have approved the contract (in writing, orally, or in accordance with other customary business practices) and are committed to perform their respective obligations;

• The entity can identify each party’s rights regarding the goods or services to be transferred;

• The entity can identify the payment terms for the goods or services to be transferred;

• The contract has commercial substance;

• It is probable that the entity will collect substantially all of the consideration to which it will be entitled in exchange for the goods or services that will be transferred to the customer.

The Company concluded that the first three of the above criteria were not met upon shipment of product to the customer, the fourth criteria had been met and the Company acknowledges that there is a degree of uncertainty as to whether last criteria above had been met.

Although the parties to the contract may have approved the contract and purchase orders in writing, the Company concluded that upon shipment of products to the customer there was not sufficient evidence that its customers were committed to perform their obligations defined in the contract due to the existence of extra-contractual or undocumented terms or arrangements (e.g., regarding payment terms, right of return, etc.).

The Company could not reliably identify each party’s rights regarding the products to be transferred upon shipment of those products to customers.

The Company’s sales personnel continued to make side agreements with customers which directly conflicted with the explicitly stated terms of sale.

These side agreements created significant ambiguity around the rights and obligations of both parties involved in the transaction.

This practice continued to result in extended payment terms and returns occurring long after the original sale was made.

The Company’s business practices created an implied right for the customer to demand future, unknown, performance by the Company.

As a result, each party (and, in particular, the Company) could not at the time of product shipment adequately determine its rights regarding the good transferred as required by ASC 606-10-25-1.

Upon shipment of product to the customer, the Company could not reliably identify the payment terms for the products it sold to customers.

Although the written payment terms were known to both parties, the Company’s pervasive business practices (e.g., informal and undocumented side agreements) overrode the written payment terms and often resulted in extensions of the terms for payment.

The Company’s contracts did appear to have commercial substance (i.e., the risk, timing, or amount of the Company’s future cash flows was expected to change as a result of the contract) upon fulfillment of a purchase order, as most fulfillments have eventually resulted in the Company receiving cash.

Therefore, the Company concluded that this criterion appears to be met upon shipment of product to customers (i.e., fulfillment of the purchase order).

The probability that the Company would collect the consideration to which it was entitled in exchange for products shipped to the customer was questionable.

In evaluating whether the collectibility of an amount of consideration was probable, the Company considered the customer’s ability and intention to pay that amount of consideration when it was due.

Historically, the customers’ intention to pay amounts when due was uncertain in light of the conflicting messages customers received with respect to the payment terms and rights of return and lack of adherence to credit limits.

The assessment in ASC 606 is based on whether the customer has the ability and intention to pay for the product being delivered by the Company.

Assessment of a customer’s ability to pay is typically done through a credit check process and the establishment of a credit limit for each customer by the Company’s accounts receivable team.

Although the Company did have a process in place to establish credit limits, the evidence previously mentioned indicates that those credit limits were routinely overridden by certain sales personnel and members of management.

Despite these overrides, the Company recovered the majority of its billings made in 2018.

Furthermore, the quantitative and qualitative evidence gathered by the Company raised considerable doubt as to the collectibility of its billings at the time of shipment, but this evidence was not persuasive enough for the Company to conclude

that collectibility was not probable.

As a result of the considerations outlined above, the Company determined that it did not meet the criteria necessary for its revenue arrangements to qualify as “contracts” under the requirements of ASC 606 (i.e., these arrangements did not pass the Step 1 Criteria of the revenue recognition model).

The Company’s inability to fulfill these criteria was due to uncertainties of contractual adjustments with customers created by a combination of an inappropriate tone at the top and extra-contractual arrangements.

Consequently, as of the date of the Company’s adoption of ASC 606 effective January 1, 2018 and for the remainder of the year ended December 31, 2018, the Company concluded that it did not meet the Step 1 Criteria upon physical delivery of the product.

Subsequent to the delivery of product, uncertainties surrounding contractual adjustment were not resolved until either:

sales above established customer credit limits extended and unusually long payment terms, return or exchange rights, and contingent payment obligations) that precluded the Company from recognizing revenue at the time that product was shipped to a customer.

Because of the prevalence of these arrangements, the Company’s sales arrangements did not qualify as contracts under ASC 606, Revenue from Contracts with Customers , until consideration was collected from customers.

This determination precluded the recognition of revenue at the time of shipment.

Instead, recognition of revenue was deferred until:

(1) the customer returned the product prior to payment;

or (2) the Company received payment from the customer.

At that point, the Company determined that an accounting contract existed and the performance obligations of the Company to deliver product and the customer to pay for the product were satisfied.

The Company determined the transaction price of its contracts to equal the amount of consideration received from customers less the amount expected to be refunded or credited to customers, which is recognized as a refund liability that is updated at the end of each reporting period for changes in circumstances.

The refund liability was included within accrued expenses in the consolidated balance sheet as of December 31, 2018.

The Company considered how to account for costs associated with the delivered products of the contract for which revenue has been deferred, which is whether to match the related costs of sales expense with revenue or recognize expense upon shipment.

In making this assessment, the Company considered the financial viability of its distributors and customers based on their creditworthiness to determine if collectibility of amounts sufficient to realize the costs of the products shipped was reasonably assured at the time of shipment.

As the Company determined that there was a probable economic benefit associated with sales transactions, the Company deferred the cost of sales until the revenue was recognized for the year ended December 31, 2018.

The Company also continued to offset deferred revenue with the associated accounts receivable obligations in connection with the sales of products to its customers.

The amount shipped and billed but not recorded as revenue was $ 51.0 million for the year ended December 31, 2018.

Fiscal Year Ended December 31, 2019 and Transition

The Company continued to assess contracts, new and existing, throughout 2019 to determine if the Step 1 Criteria noted above for the determination of a contract under ASC 606 were met for new contracts at the outset of a sales transaction (i.e., upon shipment of product) or for existing contracts at some point within 2019 when all the terms of the arrangement would have been known.

Until it was determined if the Step 1 Criteria had been met, revenue recognition continued to be deferred consistent with the assessment for the year ended December 31, 2018.

As further discussed above, the primary factors contributing to the determination in prior periods that the Step 1 Criteria had not been met were the inappropriate tone at the top and the existence of pervasive extra-contractual or undocumented terms or arrangements.

These prior business practices and the lack of transparency surrounding them created a systemically implied right for customers to demand future, unknown, performance by the Company.

Although some of the former executives were employed by the Company only through June 2018, the Company determined that based on the impact of the prior tone at the top, the continued internal sales force strategy and the existing customer base’s continued expectations (based on past practice), there would be flexibility with respect to arrangement terms even after delivery of the product so pervasive that all customer arrangements continued to be subject to uncertain modification of terms into 2019.

After identifying the primary factors contributing to the lack of knowledge regarding its customer contractual terms, the Company began implementing changes in mid-2018 to remediate the pervasive weaknesses in the control environment, followed by gradually implementing measures to empower its compliance, legal, and accounting departments, educating its sales force on appropriate business practices, and communicating its revised terms of sale to customers.

The Company assessed its efforts throughout 2019 to determine when, if at any point, the factors contributing to the inability to satisfy the Step 1 Criteria were sufficiently addressed such that the Step 1 Criteria were met at the time of physical delivery to the customer.

Determining when these conditions were effectively satisfied was a matter of judgment;

however, the Company determined that adequate knowledge of the contractual arrangements with its customers did exist in 2019 for new and certain existing arrangements.

Management did note that there is no single, definitive change that overcame the pervasive challenges noted above, but rather an accumulation of efforts that, taken together, resulted in sufficient knowledge of contractual relationships both internally within the Company and externally with its customers.

To address the tone at the top issues, the Company noted that proper remediation involved not only the removal of members of management who were setting an inappropriate tone but also the establishment of new management throughout the organization who emphasized a commitment to integrity, ethical values and transparency and have that reinforcement for a sustained period

The changes made to management positions throughout the organization and the resulting organization behavior changes were assessed to have been sufficiently addressed by mid-2019.

To determine when the Company had either eliminated or had sufficient knowledge to identify any extra-contractual arrangements, the Company noted that a key factor contributing to its historical lack of visibility into the arrangements with its customers was the failure to adhere to credit limits, payment terms and return policies.

The establishment of additional controls and the emphasis on adherence to the Company’s existing policies and controls was an iterative process that continued through the first two quarters of 2019.

Additional factors contributing to the increased visibility into its contractual arrangements involved further education and training of the sales personnel regarding the Company’s terms and conditions as well as monitoring of the sales personnel and customers for compliance with the contractual arrangements.

The Company implemented a disciplined approach to educating the sales personnel regarding the prior practices that were considered unacceptable, ensuring they were knowledgeable regarding current terms and conditions and implementing an open dialogue with the credit and collections department.

Monitoring of the customer base was accomplished through a variety of measures including, but not limited to, analysis of payments made within the original terms, levels of returns post-shipment, and various continued communication with the customer account representatives by members of the Company’s credit and collections department.

During the third quarter of 2019, management determined that these efforts with the sales personnel and the external customers had been in place for a sufficient period of time to provide the customers an understanding of the Company’s contractual arrangements with them.

Therefore, beginning October 1, 2019, for all new customer arrangements, the Company determined adequate measures were in place to understand the terms of its contracts with customers.

As such, beginning October 1, 2019, the Company concluded that the Step 1 Criteria would be met prior to shipment of product to the customer or implantation of the products on consignment.

The Company also reassessed whether the Step 1 Criteria had been met for all shipments of products where payment had not been received as of September 30, 2019.

Cost of sales associated with product shipped was deferred until collection was received.

The Company implemented changes and remediated weaknesses, which gave rise to the above conclusion beginning in mid-2018.

Management concluded that these efforts had been sufficiently implemented such that customers were aware of the Company’s sales policies and procedures and that a contract existed prior to the transfer of title or the implantation of product for ship-and-bill and consignment sales, respectively, by the third quarter of 2019.

Accordingly, the Company changed its pattern of revenue recognition effective October 1, 2019 to the policy described under the section titled “ Current Policy ” above.

The Company also reassessed whether the revenue recognition criteria had been met for all shipments of products where payment had not been received as of September 30, 2019.

While the measures summarized above provided significant evidence necessary to understand the terms of the Company’s contractual arrangements with its customers, certain of these customers continued to exhibit behaviors that resulted in extended periods until cash collection.

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As a result, the Company concluded the following for any existing arrangements, which remained unpaid at September 30, 2019:

• For customer arrangements where collection was considered probable within 90 days from the date of original shipment or implantation of the products, the Company concluded the Step 1 Criteria were met (the “ Transition Adjustment ”).

• For the remaining customer arrangements (the “ Remaining Contracts ”), the Company concluded that, due to the uncertainty that extra-contractual arrangements may continue, the Step 1 Criteria would not be satisfied until the Company receives payment from the customer.

• For customer arrangements where collection was considered probable within 90 days from the date of original shipment or implantation of the products, the Company concluded the revenue recognition criteria were met (the “ Transition Adjustment ”).

• For the remaining customer arrangements (the “ Remaining Contracts ”), the Company concluded that, due to the uncertainty that extra-contractual arrangements may continue, the revenue recognition criteria would not be satisfied until the Company received payment from the customer.

At that point, the Company determined that an accounting contract would exist and the performance obligations of the Company to deliver product and the customer to pay for the product would be satisfied.

The Company continued to reassess the Remaining Contracts for settlement of the Step 1 Criteria prior to payment, concluding that the Step 1 Criteria continued to not be met due to the same circumstances described above.

The Company continued to record the deferred costs of sales on the arrangements that failed the Step 1 Criteria where collectibility was reasonably assured and will recognize the costs when the related revenue is recognized.

The Company also continued to offset deferred revenue with the associated accounts receivable obligations for these arrangements that continued to fail the Step 1 Criteria.

For all customer transactions concluded to meet the Step 1 Criteria, the Company then assessed the remaining criteria of ASC 606 to determine the proper timing of revenue recognition.

Under ASC 606, the Company recognizes revenue following the five-step model:

(i) identify the contracts with a customer (the Step 1 Criteria);

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

As noted above, beginning October 1, 2019, the Company determined that they had met the Step 1 Criteria for new customer arrangements.

The Company has determined that the performance obligation was met upon delivery of the product to the customer, or at the time the product is implanted for products on consignment, at which point the Company determined it will collect the consideration it is entitled to in exchange for the product transferred to the customer.

As a result, the Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied, generally upon shipment of the product to the customer or upon implantation of the product to the end user.

The nature of the Company’s contracts gives rise to certain types of variable

consideration, including rebates and other discounts.

The Company includes estimated amounts of variable consideration in the transaction price to the extent that it is probable there will not be a significant reversal of revenue.

Estimates are based on historical or anticipated performance.

The Company does have consignment agreements with several customers and distributors which allow the Company to better market its products by moving them closer to the end user.

In these cases, the Company determined that it has fulfilled its performance obligation once control of the product has been delivered to the customer, which occurs simultaneously with the product being implanted.

The Company continued to reassess the Remaining Contracts for settlement of the revenue recognition criteria prior to payment, concluding that the revenue recognition criteria continued to not be met due to the same circumstances described above.

The effect of the Transition Adjustment and cash collections on the Remaining Contracts on net sales and cost of sales for each of the years ended December 31, 2021, 2020, and 2019 were as follows (amounts in thousands):

Year Ended December 31,

Net sales 2021 2020 2019

Transition Adjustment $ — $ — $ 21,385

Collections on Remaining Contracts 1,038 7,767 8,219

Net sales 1,038 7,767 29,604

Cost of sales

Transition Adjustment — — 2,565

Collections on Remaining Contracts 145 1,087 1,151

Write-off of cost of sales deemed uncollectible 29 — 1,438

Cost of sales 174 1,087 5,154

Gross profit $ 864 $ 6,680 $ 24,450

Group Purchasing Organization Fees

The Company sells to Group Purchasing Organization (“ GPO ”) members who transact directly with the Company at GPO-agreed pricing.

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These fees are set as a percentage of the purchase volume, which is typically 3 % of sales made to the GPO members.

Upon adoption of ASC 606, the Company concluded that although it benefited from the access that a GPO provides to its members, this benefit was neither distinct from other promises in the Company’s contracts with GPOs nor was the benefit separable from the sale of goods by the Company to the end customer.

Therefore, the Company presents fees paid to GPOs as a reduction of product revenues.

Fees paid to GPOs are presented as a reduction to net sales.

Cost of Sales

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The Company obtains raw material in the form of human placenta donations from participating mothers who give birth via scheduled Caesarean section.

Prior to the Transition, the Company deferred the cost of sales from transactions where title to inventory transferred from the Company to the customer, but for which all revenue recognition criteria have not yet been met.

Once all revenue recognition criteria are met, the revenue and associated cost of sales was recognized.

Subsequent to the Transition, the Company continued to defer the cost of sales for certain arrangements for which all revenue recognition criteria have not been met.

These amounts were recorded within other current assets on the consolidated balance sheets in the amount of $ 0.2 million and $ 1.3 million as of December 31, 2020 and 2019, respectively.

Subsequent to the Transition Adjustment, the Company deferred cost of sales related to the Remaining Contracts.

Deferred cost of sales were $ 0 and $ 0.2 million as of December 31, 2021 and 2020, respectively.

These amounts were recorded within other current assets on the consolidated balance sheet.

Research and Development Costs

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Advertising expense for each of the years ended December 31, 2021, 2020, and 2019 amounted to $ 0.1 million.

Income tax provision benefit (expense), deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid.

The Company is subject to income taxes in the United States, including numerous state jurisdictions.

Income tax provision (expense) benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid.

The Company is subject to income taxes in the United States and numerous states.

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future.

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In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, results of recent operations, and changes in tax laws.

In projecting future taxable income, the Company begins with historical results and incorporates assumptions about the amount of future state and federal

pretax operating income adjusted for items that do not have tax consequences.

In projecting future taxable income, the Company begins with historical results and incorporates assumptions about the amount of future state and federal pretax operating income adjusted for items that do not have tax consequences.

The assumptions about future taxable income require significant judgment and are consistent with the plans and estimates the Company uses to manage the underlying businesses.

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federal income tax purposes and across numerous state jurisdictions.

ASC Topic 740 (“ ASC 740 ”) states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

Accounting Standards Codification Topic 740, Income Taxes , states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits.

The Company (1) records unrecognized tax benefits as liabilities in accordance with ASC 740 included within other liabilities on the consolidated balance sheets, and (2) adjusts these liabilities when management’s judgment changes as a result of the evaluation of new information not previously available.

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Share-based Compensation

The Company grants share-based awards to employees and members of the Company’s Board of Directors (the “ Board ”) and non-employee consultants.

Awards to employees and the Board are generally made annually as well as at certain points of time throughout the year at the discretion of the Board.

Awards to non-employee consultants are rare, occurring most recently in February 2018.

Such awards are recognized as share-based payment expense over the requisite service or vesting period, to the extent such awards are expected to vest in accordance with FASB ASC Topic 718 “ Compensation—Stock Compensation.

The Company grants share-based awards to employees and members of the Company’s Board of Directors (the “ Board ”).

Awards to employees and the Board are generally made annually.

Grants are issued outside of the annual cadence for certain new hires, promotions, and other events.

The amount of expense to be recognized is determined by the fair value of the award using inputs available as of the grant date.

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Use of the valuation model requires management to make certain assumptions with respect to selected model inputs.

The Company uses the simplified method for share-based compensation to estimate the expected term.

The risk-free interest rate is based on the U.S.

Treasury yield curve in effect at the time of grant for the estimated option expected term.

The Company estimates volatility using a blend of its own historical stock price volatility as well as that of market-comparable publicly-traded peer companies.

The Company routinely reviews its calculation of volatility for potential changes in future volatility, the Company’s life cycle, its peer group, and other factors.

Finally, the Company uses an expected dividend yield of zero;

the Company does not pay cash dividends on its common stock and does not expect to pay any cash dividends on its common stock in the foreseeable future.

For awards with service-based vesting conditions only, the Company recognizes share-based compensation expense on a straight-line basis over the requisite service or vesting period.

For awards with service- and performance-based vesting conditions, the Company recognizes stock-based compensation expense using the graded vesting method over the requisite service period beginning in the period in which the awards are deemed probable to vest, to the extent such awards are probable to vest.

For awards with service-based vesting conditions only, the Company recognizes share-based compensation expense on a straight-line basis through the vesting date of the last tranche of the award.

For awards with service- and performance-based vesting conditions, the Company recognizes stock-based compensation expense using the graded-vesting method, treating each tranche as if it were a separately-granted award and recognizing expense through the vesting date of each individual tranche.

In each scenario, the Company recognizes share-based compensation expense based upon the probability that the award will ultimately vest.

The Company recognizes the cumulative effect of changes in the probability outcomes in the period in which the changes occur.

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Basic net loss per common share is calculated as net loss available to common stockholders divided by weighted average common shares outstanding for the applicable period.

Net loss available to common stockholders is determined by adjusting net loss for preferred dividends accrued or deemed during the period.

Net loss available to common stockholders is calculated by adjusting net loss for periodic preferred accrued or deemed dividends.

These amounts include (i) dividends accumulated on the Company’s Series B Convertible Preferred Stock during the period, (ii) periodic amortization of the beneficial conversion feature, and (iii) periodic accretion of the increasing-rate dividend feature.

This amount is divided by the weighted average common shares outstanding during the period.

Weighted average common shares outstanding is calculated as shares of the Company outstanding adjusted for the portion of the period for which they are outstanding.

Unvested restricted stock awards are excluded from the calculation of weighted average common shares outstanding until they have vested.

Diluted net loss per common share adjusts basic net loss per common share for convertible securities, options, restricted stock unit awards, and other share-based payment awards which have yet to vest, to the extent such adjustments reduce basic net loss per common share.

The dilutive effect of the Company’s Series B Convertible Preferred Stock, and other convertible securities to the extent they are outstanding, is determined based on the if-converted method.

The Company uses the if-converted method to calculate the dilutive effect of the Series B Convertible Preferred Stock, and other convertible securities, to the extent they are outstanding.

The if-converted method assumes that convertible securities are converted at the later of the issuance date or the beginning of the period.

If the hypothetical conversion of convertible securities, and the consequential avoidance of any deemed or accumulated preferred dividends, would decrease basic net loss per common share, these effects are incorporated in the calculation of diluted net loss per common share, adjusted for the proportion of the period the securities were outstanding.

The dilutive effect of outstanding options, restricted stock unit awards, and other share-based payments is derived using the treasury stock method.

The Company uses the treasury stock method to calculate the dilutive effect of outstanding options, restricted stock awards, and other share-based payments.

The treasury stock method assumes that the proceeds from exercise are used to repurchase common shares at the weighted average market price during the period, increasing the denominator for the net effect of shares issued upon exercise less hypothetical shares repurchased.

If the dilutive effects noted above would cause diluted net loss per common share to exceed basic net loss per common share, such effects are not incorporated into the calculation, as they are deemed antidilutive.

For all periods with a net loss available to common stockholders, any adjustment for potential common shares would be naturally anti-dilutive.

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Level 3 valuations often involve a higher degree of judgment and complexity.

Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable management estimates and assumptions.

Management’s assumptions could vary depending on the asset or liability valued and the valuation method used.

Level 3 valuations may require the use of various valuation methodologies which incorporate unobservable inputs, management estimates, and assumptions.

assumptions could vary depending on the asset or liability valued and the valuation method used.

Such assumptions could include:

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Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, “ Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ,” that introduces a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses.

This includes accounts receivable, trade receivables, loans, held-to-maturity debt securities, net investments in leases and certain off-balance sheet credit exposures.

The guidance also modifies the impairment model for available-for-sale debt securities.

This ASU is effective for the Company and all public filers which do not qualify as smaller reporting companies for fiscal years beginning after December 15, 2019.

The Company adopted this ASU on January 1, 2020 using a modified retrospective transition method which requires a cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption with no change to financial results reported in prior periods.

The Company adopted this ASU on January 1, 2020 using a modified retrospective transition method which requires a cumulative-effect adjustment to the opening balance of retained earnings to be recognized on the date of adoption, with no change to the financial results reported in prior periods.

There was no impact on the Company’s consolidated financial statements upon adoption of this ASU.

Recently Issued Accounting Pronouncements Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, “ Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ,” which simplifies and clarifies certain calculation and presentation matters related to convertible equity and debt instruments.

Specifically, ASU 2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement to account for beneficial conversion features on such instruments.

In August 2020, the FASB issued Accounting Standards Update (“ ASU ”) 2020-06, “ Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ,” which simplifies and clarifies certain calculation and presentation matters related to convertible equity and debt instruments.

Specifically, this ASU simplifies the accounting for such instruments by removing requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement to account for beneficial conversion features on such instruments.

Accounting Standards Update 2020-06 also provides clearer guidance surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation of Diluted EPS.

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Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

The Company will adopt this standard using a modified retrospective approach effective January 1, 2021.

The Company does not expect a material impact on the consolidated financial statements as a result of adoption.

The Company adopted this standard on January 1, 2021 on a modified retrospective basis.

There was no impact upon adoption.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, “ Reference Rate Reform (Topic 848) ”, which provides temporary, optional expedients and exceptions to accounting guidance for certain contract modifications and hedging arrangements to ease financial reporting burdens as a result of market transitions from the London Interbank Offered Rate (“ LIBOR ”) to alternative reference rates.

The guidance is available for prospective application upon its issuance and can generally be applied to contract modifications and hedging relationships entered into beginning March 12, 2020 through December 31, 2022.

As of December 31, 2021, the Company has long-term debt outstanding which carries an interest rate tied to LIBOR, the agreement for which contemplates an interest rate alternative in the event that LIBOR is unavailable.

The Company is evaluating the possibility of adoption and the related impact on its financial statements.

If adopted, the Company does not expect the provisions of this ASU to have a material impact on its consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, “ Government Assistance (Topic 832)” , which provides disclosure requirements regarding government grants and contributions .

The ASU requires disclosure of the nature of transactions and related accounting policies used to account for transactions, the effect, including amounts, of government assistance on individual line items on the financial statements, and significant terms and conditions of the transactions, including commitments and contingencies.

This ASU is effective for fiscal years beginning after December 15, 2021.

The Company does not expect the provisions of this ASU to have a material impact on its consolidated financial statements.

All other ASUs issued and not yet effective as of December 31, 2021, and through the date of this report, were assessed and determined to be either not applicable or are expected to have minimal impact on the Company’s current or future financial position or results of operations.

Accounts Receivable, Net

Accounts receivable, net, consists of the following (in thousands):

Accounts receivable, gross $ 41,540 $ 36,160

Allowance for doubtful accounts ( 1,187 ) ( 737 )

Accounts receivable, net $ 40,353 $ 35,423

Bad debt expense for the years ended December 31, 2021, 2020, and 2019 was $0.8 million, $0.7 million, and $0, respectively.

Inventory consists of the following (in thousands):

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Finished goods 4,913 5,731

Inventory, gross 11,200 9,823

Reserve for obsolescence ( 839 ) ( 719 )

Inventory, net $ 10,361 $ 9,104

Inventory $ 11,389 $ 10,361

Write-downs recorded against the inventory balance as of December 31, 2020, which were presented separately in previously-issued financial statements, have been reclassified as reductions to raw materials, work in process, and finished goods.

As a result of the conclusion of the FDA’s period of enforcement discretion on May 31, 2021, the Company wrote down $ 1.0 million of its Section 351 product inventory and $ 0.7 million related to discontinued product during the year ended December 31, 2021.

Consignment inventory, included as a component of finished goods in the table above, was $ 2.6 million and $ 3.2 million as of December 31, 2021 and 2020, respectively.

Property and Equipment

Property and Equipment, Net

Property and equipment consist of the following (in thousands):

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Asset retirement cost 863 785

Finance lease right of use assets 189 —

Property and equipment, gross 42,043 40,935

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Total $ 4,363 $ 5,782 $ 6,546

The Company has operating leases primarily for corporate offices, vehicles, and certain equipment.

The Company has leases for corporate offices, manufacturing facilities, vehicles, and certain equipment.

Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees.

The Company determines if an arrangement is or contains a lease at inception.

Lease expense for operating lease payments is recognized on a straight-line basis over the term of the lease.

Operating lease assets and liabilities are recognized based on the present value of lease payments over the lease term.

As a practical expedient, the Company has made an accounting policy election not to separate lease components from non-lease components in the event that the agreement contains both.

The Company includes both the lease and non-lease components for purposes of calculating the right of use asset and related lease liability.

As of December 31, 2020, the Company does not have any leases classified as financing leases.

The Company subleases one of its leased industrial warehouse spaces.

The sublease income from the facility offsets the lease expense associated with the facility.

Sublease income for the facility is $ 0.1 million, $ 0 , and $ 0 for the years ended December 31, 2020, 2019, and 2018, respectively, and is presented as a reduction to selling, general, and administrative expense on the consolidated statements of operations in those periods.

Supplemental balance sheet information related to operating leases is as follows (amounts in thousands, except lease term and discount rate):

Sublease income for the facility was $ 0.1 million, $ 0.1 million, and $ 0 for the years ended December 31, 2021, 2020, and 2019, respectively, and is presented as a reduction to selling, general, and administrative expense on the consolidated statements of operations in those periods.

Supplemental balance sheet information related to the Company’s leases, including the financial statement caption in which the amounts are presented, is as follows (amounts in thousands, except lease term and discount rate):

Operating Leases Finance Leases

December 31, December 31,

2021 2020 2021 2020

Right of use asset $ 4,696 $ 3,623 $ — $ —

Short term lease liability 1,176 1,168

Long term lease liability 2,960 2,919

Weighted-average remaining lease term (years) 4.4 years 3.1 years

Property and equipment, net — — 145 —

Total assets $ 4,696 $ 3,623 $ 145 $ —

Other current liabilities $ 1,203 $ 1,176 $ 45 $ —

Other liabilities 3,812 2,960 106 —

Total liabilities $ 5,015 $ 4,136 $ 151 $ —

Weighted-average remaining lease term (years) 4.0 4.4 3.1

Weighted-average discount rate 8.4 % 10.0 % 8.3 %

Information related to lease costs for operating leases are as follows (amounts in thousands):

Information related to lease costs are as follows (amounts in thousands):

Year Ended December 31,

2021 2020 2019

Operating lease cost $ 1,327 $ 1,392 $ 1,469

Amortization of leased assets 983 947

Rent expense for the year ended December 31, 2018, which was accounted for under ASC 840, Leases , was $ 1.5 million.

This amount, as well as those included in the table above, are allocated among cost of sales, research and development and selling, general and administrative expenses in the consolidated statements of operations.

Maturities of operating lease liabilities are as follows (amounts in thousands):

Year ending December 31, Maturities

Depreciation of finance lease ROU assets 43 — —

Interest expense on finance lease liabilities 13 — —

Maturities of lease liabilities are as follows (amounts in thousands):

Year Ending December 31, Operating Leases Finance Leases Total

2022 $ 1,566 $ 55 $ 1,621

2023 1,605 55 1,660

2024 1,569 55 1,624

2025 441 5 446

2026 338 — 338

Thereafter 367 — 367

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imputed interest ( 871 ) ( 19 ) ( 890 )

Certain lease agreements require the Company to return designated areas of leased space to its original condition upon termination of the lease agreement, for which the Company records an asset retirement obligation and a corresponding capital asset in an amount equal to the estimated fair value of the obligation.

Lease liability $ 5,015 $ 151 $ 5,166

asset in an amount equal to the estimated fair value of the obligation.

In subsequent periods, the asset retirement obligation is accreted for the change in its present value and the capitalized asset is depreciated, both over the term of the associated lease agreement.

Asset retirement obligations of $ 0.8 million and $ 0 of December 31, 2020 and 2019, respectively, are included under Other liabilities in the consolidated balance sheets.

Asset retirement obligations of $ 1.0 million and $ 0.8 million as of December 31, 2021 and 2020, respectively, are included in other liabilities in the consolidated balance sheets.

Goodwill and Intangible Assets

Goodwill is evaluated for impairment on an annual basis on September 30, and when events or changes indicate it is more likely than not the carrying value exceeds fair value.

The Company operates as one reporting unit.

For the impairment test performed September 30, the Company performed a quantitative analysis to determine the existence and extent of impairment.

For the impairment test performed October 1, 2021, the Company performed a qualitative assessment to determine the existence of impairment.

The qualitative assessment concluded that it was not more likely than not that goodwill was impaired.

The Company did not proceed to the quantitative assessment, and no impairment was recorded for the year ended December 31, 2021.

For the impairment tests performed on September 30, 2020 and October 1, 2020, the Company performed a quantitative analysis to determine the existence and extent of impairment.

The quantitative analysis concluded that the fair value of the Company’s reporting unit exceeded its carrying value.

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Accordingly, no impairment was recorded for the year ended December 31, 2020.

For the impairment test performed September 30, 2019, the Company performed a qualitative analysis to determine if it was more likely than not that goodwill impairment existed as of the annual impairment test date.

As a result of this assessment, the Company concluded that it was not more likely than not that goodwill was impaired.

Accordingly, the Company did not perform a quantitative assessment.

There was no impairment recorded with respect to goodwill for the year ended December 31, 2019.

The following represents the changes in the carrying amount of goodwill for 2020 and 2019 (in thousands):

The following table indicates the changes in the carrying amount of goodwill for 2021 and 2020 (in thousands):

Balance as of January 1, 2020 $ 19,976

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Amortized intangible assets

Licenses $ 1,414 $ ( 1,334 ) $ 80 $ 1,414 $ ( 1,200 ) $ 214

Patents and know-how $ 9,578 $ ( 6,408 ) $ 3,170 $ 9,510 $ ( 5,730 ) $ 3,780

Licenses — — — 1,414 ( 1,334 ) 80

Customer and supplier relationships — — — 241 ( 172 ) 69

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Total intangible assets $ 11,791 $ 5,383 $ 13,338 $ 6,004

Amortization expense for the years ended December 31, 2020, 2019, and 2018, is summarized in the table below (amounts in thousands):

Amortization expense and impairment expense for the years ended December 31, 2021, 2020, and 2019, is summarized in the table below (amounts in thousands):

Year ended December 31,

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Impairment of intangible assets 53 1,027 1,258

Impairment of intangible assets in 2021 related to supplier relationship assets that were determined to be unrecoverable due to attrition.

Impairment of intangible assets in 2020 related to customer relationship assets that were determined to be unrecoverable due to lower than expected margins.

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Thereafter 720

Total amortization expense $ 3,170

Accrued Expenses

Accrued expenses consist of the following (in thousands):

Legal costs $ 14,822 $ 12,202

Settlement costs 9,975 12,825

Estimated returns 688 2,581

Legal and settlement costs $ 2,806 $ 24,797

External commissions 2,630 2,141

Estimated returns 788 688

Accrued clinical trials 694 651

Accrued rebates 1,343 886

Accrued GPO fees 559 554

Other 992 743

Total $ 9,812 $ 30,460

The Company’s accrual for the pricing adjustment with the Department of Veterans Affairs of $ 6.9 million, which was presented separately in previously-issued financial statements, is included as part of settlement costs above as of December 31, 2019.

This matter was settled and paid during the year ended December 31, 2020.

The Company’s accrual for settlement costs, which was presented separately in previously-issued financial statements, is included as part of legal and settlement costs in the table above.

Accrued settlement costs were $ 10.0 million as of December 31, 2020.

Long Term Debt

Hayfin Term Loan Agreement

On June 30, 2020, the Company entered into a Loan Agreement with, among others, Hayfin Services, LLP, (“ Hayfin ”) an affiliate of Hayfin Capital Management LLP (the “ Hayfin Loan Agreement ”), which was funded (the “ Hayfin Loan Transaction ”) on July 2, 2020 (the “ Closing Date ”) and provided the Company with a senior secured term loan in an aggregate amount of $ 50.0 million (the “ Term Loan ”) and an additional delayed draw term loan (the “ DD TL ”, collectively, the “ Credit Facilities ”) in the form of a committed but undrawn $ 25.0 million facility.

The Company has the right to draw upon the DD TL until June 30, 2021.

The Term Loan and the DD TL (if drawn upon prior to expiry) both mature on June 30, 2025 (the “ Maturity Date ”).

Interest is payable on the Term Loan and the DD TL for balances outstanding quarterly through the Maturity Date.

No principal payments on either the Term Loan or the DD TL are due and payable until the Maturity Date.

The Term Loan and DD TL, which are senior secured obligations, were entered into together with the sale of the Company’s Series B Convertible Preferred Stock (as defined and described in Note 10, “ Equity ”) for $ 100.0 million (collectively, the “ Financing Transactions ”) in order to:

(1) refinance, in whole, the outstanding indebtedness (the “ Refinancing ”) under the Loan Agreement, dated as of June 10, 2019 (as amended and restated, the “ BT Term Loan Agreement ”), among the Company, the lenders and Blue Torch Finance LLC as administrative agent and collateral agent for such lenders,

(2) pay fees and expenses incurred with certain financing transactions, and

(3) finance the working capital, capital expenditures, and other general corporate obligations of the Company.

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 % per annum.

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 margin of 6.75 %.

After December 31, 2020, the margin on the interest rate is eligible for a reduction;

• 6.75 % per annum if the Total Net Leverage Ratio (as defined in the Hayfin Loan Agreement) is greater than 2.0 x,

Hayfin Loan Agreement

The Term Loan matures on June 30, 2025 (the “ Maturity Date ”).

Interest is payable quarterly on the Term Loan for the principal balance outstanding through the Maturity Date.

No principal payments are due and payable until the Maturity Date.

The Hayfin Loan Agreement also provided the Company with an option to draw on an additional delayed draw term loan (the “ DD TL ”, collectively with the Term Loan, the “ Credit Facilities ”) in the form of a committed but undrawn $ 25.0 million

facility until June 30, 2021.

The Company did not exercise the option.

On February 28, 2022 (the “ Amendment Date ”), the Company executed an Amendment to the Hayfin Loan Agreement (the “ Amendment ”).

The interest rate applicable to the Term Loan is equal to LIBOR (subject to a floor of 1.5 %) plus a margin (the “ Margin ”), as determined below.

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 Margin.

Prior to the Amendment Date, the Margin on the Term Loan was calculated based on the Company’s Total Net Leverage Ratio (as defined in the Hayfin Loan Agreement) for the quarter, as follows:

• 6.75 % per annum if the Total Net Leverage Ratio is greater than 2.0 x,

• 6.5 % per annum if the Total Net Leverage Ratio is less than 2.0 x but greater than or equal to 1.0 x, or

• 6.0 % per annum if the Total Net Leverage Ratio is less than 1.0 x.

An additional 3.0 % margin is applied to the interest rate in the event of default as defined by the Hayfin Term Loan Agreement.

After the Amendment Date, the Margin is fixed at 6.75 % through the Maturity Date.

An additional 3.0 % margin is applied to the interest rate in the event of default as defined by the Hayfin Loan Agreement.

Both at issuance and as of December 31, 2021, the Term Loan carried an interest rate of 8.3 %.

The Credit Facilities contain financial covenants requiring the Company, on a consolidated basis, to maintain the following:

• Maximum Total Net Leverage Ratio of 5.0 x through December 31, 2020, reduced to 4.5 x through June 30, 2021, further reduced to 4.0 x thereafter for the life of the loans, required to be calculated on a quarterly basis,

• Delayed Draw Term Loan Incurrence Covenant (as defined in the Hayfin Loan Agreement) of 3.5 x Total Net Leverage, tested prior to any drawings under the DD TL, and

• Minimum Liquidity (as defined in the Hayfin Term Loan Agreement) of $ 10 million, an at-all-times financial covenant, tested monthly.

The Credit Facilities also specify that any prepayment of the loan, voluntary or mandatory, as defined in the Term Loan Agreement, subjects the Company to a prepayment premium applicable as of the date of the prepayment:

• On or before the first anniversary of the Closing Date:

◦ A make-whole premium, equal to the greater of:

▪ 5 % of the principal balance repaid,

▪ 102 % of the principal balance plus interest that would have been accrued from the repayment date to 12 months following the Closing Date.

• After the first anniversary of the Closing Date but on or before the second anniversary of the Closing Date:

2 % of the principal balance repaid.

• After the second anniversary of the Closing Date but on or before the third anniversary of the Closing Date:

The Term Loan contained financial covenants requiring the Company, on a consolidated basis, to maintain the following through the Amendment Date:

• Maximum Total Net Leverage Ratio of 4.0 x for the remaining life of the loan, required to be calculated on a quarterly basis,

• Minimum Liquidity (as defined in the Hayfin Loan Agreement) of $ 10 million, an at-all-times financial covenant, tested monthly.

The Company is in compliance with all debt covenants as of December 31, 2021.

The Amendment changed these financial covenants and requires the Company, on a consolidated basis, to maintain the following beginning on the Amendment Date:

• Minimum Consolidated Total Net Sales (as defined in the Amendment) of varying amounts, required to be calculated on a quarterly basis,

• Minimum Liquidity of $ 20 million, an at-all-times financial covenant, tested monthly.

The Hayfin Loan Agreement, as amended, also specifies that any prepayment of the loan, voluntary or mandatory, will subject the Company to a prepayment premium applicable as of the date of the prepayment:

• On or before July 2, 2023:

2 % of the principal balance repaid.

• After the third anniversary of the Closing Date:

• After July 2, 2023, but on or before July 2, 2024:

1 % of the principal balance repaid.

The Hayfin Loan Agreement also includes 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 Credit Facilities may be accelerated or the lenders’ commitments terminated.

The 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.

Beginning with the fiscal year ending December 31, 2021, the Company is required to prepay the outstanding loans based on the percentage of Excess Cash Flow (as defined in the Hayfin Loan Agreement), if such is generated, with the percentage determined based on the Total Net Leverage thresholds.

• After July 2, 2024:

The Hayfin Loan Agreement also includes events of default customary for facilities of this type, and upon the occurrence of such events of default, subject to customary cure rights, the Term Loan may be accelerated or the lenders’ commitments terminated.

The mandatory prepayments are also required in the event of a change in control (as defined in the Hayfin Loan Agreement), incurring other indebtedness, certain proceeds from disposal of assets and an insured casualty event.

Beginning with the fiscal year ending December 31, 2021, the Company is required to prepay the outstanding loans based on the percentage of Excess Cash Flow (as defined in the Hayfin Loan Agreement), if Excess Cash Flow is generated, with the percentage determined based on the Total Net Leverage thresholds.

The Company is not required to make any payments under this provision as of December 31, 2021.

Hayfin maintains a first-priority security interest in substantially all of the Company’s assets.

Original issue discount and deferred financing costs incurred as part of the Financing Transactions were allocated between the sale of the Series B Convertible Preferred Stock and the Hayfin Term Loan on the basis of the relative fair values of the transactions.

The costs allocated to the Hayfin Term Loan were further allocated between the Term Loan and the DD TL on the basis of the maximum potential principal outstanding between the Credit Facilities.

A breach of a financial covenant in the Hayfin Loan Agreement, if uncured or unable to be cured, would likely result in an event of default that could trigger the lender’s remedies, including acceleration of the entire principal balance of the loan as well as any applicable prepayment premiums.

Future compliance with the financial covenants, as amended, requires continuing growth in net sales consistent with the Company’s business strategy and plans.

Our business is subject to inherent uncertainties that could impact the Company’s net sales growth, including, but not limited to, the regulatory pathway of the Company’s cord-derived products.

While we currently have sufficient cash to repay all such amounts in an event of default, we may require alternative financing to cover other obligations.

Even if alternative financing were available in an event of default under the Hayfin Loan Agreement, it might be on unfavorable terms, and the interest rate charged on any new borrowings may be substantially higher than the interest rate under the Hayfin Loan Agreement, thus adversely affecting our future cash flows, liquidity, and results of operations.

Original issue discount and deferred financing costs were allocated between the sale of the Series B Convertible Preferred Stock (which occurred simultaneously with the Hayfin Term Loan, collectively the “ Financing Transactions ”) and the Term Loan on the basis of the relative fair values of the transactions.

The costs allocated to the Term Loan were further allocated between the Term Loan and the DD TL on the basis of the maximum potential principal outstanding between the Credit Facilities.

The allocation of the deferred financing costs and original issue discount between Term Loan and the DD TL on July 2, 2020 was as follows (amounts in thousands):

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Deferred financing costs and original issue discount allocated to the Term Loan are amortized using the effective interest method through the Maturity Date.

The amortization of such amounts are presented as part of interest expense (income), net on the consolidated statement of operations for the year ended December 31, 2020.

Deferred financing costs and original issue discount associated with the DD TL are amortized using the straight-line method through the earlier of the expiration of the DD TL commitment term on June 30, 2021, or the date the balance of the DD TL is funded.

To the extent that there are unamortized deferred financing costs or original issue discount associated with the DD TL upon funding, such amounts will be amortized using the effective interest method through the Maturity Date.

Amortization of these amounts are presented as part of interest expense (income), net on the consolidated statements of operations.

The amortization of such amounts is presented as part of interest expense, net on the consolidated statement of operations for the years ended December 31, 2021 and 2020 .

Deferred financing costs and original issue discount associated with the DD TL were amortized using the straight-line method through the expiration of the DD TL commitment term on June 30, 2021.

Amortization of these amounts are presented as part of interest expense, net on the consolidated statements of operations.

Unamortized deferred financing costs and original issue discount associated with the DD TL are presented as other current assets on the consolidated balance sheet as of December 31, 2020.

The DD TL is subject to a commitment fee of 1 % per annum of the amount undrawn, which is recognized as interest expense.

The DD TL was not drawn upon as of December 31, 2020.

The balances of the Term Loan as of December 31, 2020 were as follows (amounts in thousands):

December 31, 2020

The balances of the Term Loan as of December 31, 2021 and 2020 were as follows (amounts in thousands):

Outstanding principal $ 50,000 $ 50,000

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Original issue discount ( 249 ) ( 307 )

Long term debt $ 47,697

Components of interest expense related to the Term Loan, included in interest expense (income), net on the consolidated statements of operations, was as follows (amounts in thousands):

Long term debt, net $ 48,127 $ 47,697

Components of interest expense related to the Term Loan, included in interest expense, net in the consolidated statements of operations, was as follows (amounts in thousands):

Year Ended December 31,

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Interest expense $ 4,612 $ 2,284

Interest expense related to the DD TL, included in interest (expense) income, net in consolidated statements of operations, was as follows (amounts in thousands):

Interest expense related to the DD TL, included in interest expense, net in the consolidated statements of operations, was as follows (amounts in thousands):

Year Ended December 31,

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In connection with the amendment, the Company agreed to pay a one-time fee of approximately $ 0.7 million, added to the principal balance, and a 1 percentage point increase in the interest rate to LIBOR plus 9 %.

On July 2, 2020, a portion of the proceeds from the Financing Transactions were used to repay the outstanding balance of principal, accrued but unpaid interest, and prepayment premium under the BT Loan Agreement.

On July 2, 2020, a portion of the proceeds from the Financing Transactions was used to repay the outstanding balance of principal, accrued but unpaid interest, and prepayment premium under the BT Loan Agreement.

In connection with the repayment of the BT Term Loan, the Company terminated the BT Loan Agreement.

The Company has no continuing obligations related to the BT Term Loan as of December 31, 2021.

The Company recorded a loss on extinguishment of debt of $ 8.2 million.

The Company recorded a loss on extinguishment of debt of $ 8.2 million during the year ended December 31, 2020.

The composition of the loss on extinguishment of debt was as follows (amounts in thousands):

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Loss on extinguishment of debt $ 8,201

The balances of the BT Term Loan were as follows (amounts in thousands):

December 31, 2019

Current portion Long-term

Outstanding principal $ 3,750 $ 69,375

Original issue discount — ( 1,890 )

Deferred financing cost — ( 5,579 )

Long-term debt $ 3,750 $ 61,906

Interest expense related to the BT Term Loan, included in interest (expense) income, net in the consolidated statements of operations was as follows (amounts in thousands):

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There are no continuing obligations under the PPP Loan as of December 31, 2021.

Net Loss Per Common Share

Basic and Diluted Net Loss Per Common Share

Net loss per common share is calculated using two methods:

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Basic Net Loss Per Common Share

Basic net loss per common share is calculated as net loss available to common shareholders divided by weighted average common shares outstanding.

Net loss available to common shareholders is calculated as net loss less (i) dividends accumulated on the Company’s Convertible preferred stock Series B during the period, (ii) periodic amortization of beneficial conversion feature, and (iii) periodic accretion of the increasing-rate dividend feature.

The following table provides a reconciliation of net loss to net loss available to common shareholders and calculation of basic net loss per common share for each of the years ended December 31, 2021, 2020, and 2019 (amounts in thousands, except share and per-share amounts):

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Adjustments to reconcile to net loss available to common stockholders:

Accumulated dividend on Series B Convertible Preferred Stock 2,016 — —

Accumulated dividend on convertible preferred stock Series B 5,210 2,016 —

Amortization of beneficial conversion feature — 31,110 —

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Diluted Net Loss Per Common Share

Diluted loss per common share is calculated as net loss available to common shareholders, adjusted for dividends on convertible preferred stock (to the extent conversions of such shares would be dilutive), divided by weighted average common shares outstanding plus potential common shares.

Potential common shares considers incremental shares resulting from certain transactions, including the exercise of stock options and the issuance of restricted stock using the treasury stock method, as well as the hypothetical conversion of the Company’s Series B Preferred Stock using the if-converted method.

The treasury stock method assumes that proceeds from the transaction are used to purchase common stock at the average market price throughout the period.

The if-converted method adds back dividends accrued or deemed on the Company’s Series B Convertible Preferred Stock and assumes conversion as of the later of the beginning of the period or the original transaction date, to the extent that such effects are determined to be dilutive.

Each individual transaction is assessed for its dilutive effect on net loss per common share.

To the extent that the transaction is antidilutive, or does not reduce net loss per common share, the effect is excluded from the calculation.

The following table sets forth the computation of basic and diluted net loss per common share (in thousands, except share and per-share data):

The following table sets forth the computation of basic and diluted net loss per common share (in thousands, except share and per-share amounts):

Year ended December 31,

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Net loss available to common stockholders $ ( 16,421 ) $ ( 83,328 ) $ ( 25,580 )

Dividends on Series B Convertible Preferred Stock 34,044 — —

Dividends on convertible preferred stock Series B 6,136 34,044 —

Numerator - net loss available to common stockholders adjusted for hypothetical conversion of Series B Convertible Preferred Stock (a) $ ( 16,421 ) $ ( 83,328 ) $ ( 25,580 )

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Diluted net loss per common share $ ( 0.15 ) $ ( 0.77 ) $ ( 0.24 )

(a) Diluted net loss per common share is not adjusted for dividends of $ 34.0 million on the Series B Convertible Preferred Stock because the effect of a hypothetical conversion was determined to be anti-dilutive.

(a) Diluted net loss per common share is not adjusted for dividends on the Series B convertible preferred stock in 2021 or 2020 because the effect of a hypothetical conversion was determined to be anti-dilutive.

(b) Weighted average common shares outstanding for the calculation of diluted net loss per common share does not include the following adjustments for potential common shares below because their effects were determined to be anti-dilutive for the periods presented:

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Convertible Preferred Stock Series B

On July 2, 2020, the Company issued shares of its Convertible preferred stock Series B, par value $ 0.001 per share (the “ Series B Preferred Stock ”) to an affiliate of EW Healthcare Partners and to certain funds managed by Hayfin (individually, the “ Holder ”, collectively the “ Holders ”) pursuant to a Securities Purchase Agreement with Falcon Fund 2 Holding Company, L.P., an affiliate of EW Healthcare Partners, and certain funds managed by Hayfin, dated as of June 30, 2020 (the “ Securities Purchase Agreement ”), for an aggregate purchase price of $ 100 million (the “ Preferred Stock Transaction ”).

The Series B Preferred Stock accumulates a 4.0 % cumulative dividend per annum prior to the quarterly dividend payment for the period ending June 30, 2021, and a 6.0 % cumulative dividend per annum thereafter.

Dividends are declared at the sole discretion of the Company’s board of directors.

Dividends are paid at the end of each quarter based for 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, the Company may elect to accrue the dividend owed to shareholders.

The Company’s Convertible preferred stock Series B (the “ Series B Preferred Stock ”) are convertible, cumulative securities which rank senior to the Company’s Series A Junior Participating Preferred Stock and the Company’s common stock.

The Series B Preferred Stock accumulated a 4.0 % cumulative dividend per annum through June 30, 2021, and accumulates a 6.0 % cumulative dividend per annum thereafter.

Dividends are declared at the sole discretion of the Board.

Dividends are paid 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, the Company may elect to accrue the dividend owed to holders of the Series B Preferred Stock.

Accrued dividend balances accumulate dividends 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 Company’s 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 Series B Preferred Share 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 after the third anniversary of the issuance date, provided that the common stock has traded at 200 % or more of the conversion price (i) for 20 out of 30 consecutive trading days and (ii) on such date of conversion.

Holders of the Series B Preferred Stock, voting as a class, are entitled to appoint two members to the board of directors.

Holders of the Series B Preferred Stock are entitled to vote on all matters to be voted on by the Company’s shareholders shall vote on an as-converted basis as a single class with the Common Stock not to exceed 19.9 % of the total voting stock of the Company.

Holders of the Series B Preferred Stock are also entitled to a liquidation preference in an amount equal to the original issue price plus all accrued and unpaid dividends in the event of a liquidation, dissolution, or winding-up of the Company.

Each share of Series B Preferred Stock is convertible into Company’s common stock at any time at the option of the Holder.

Shares are converted based on the liquidation preference of $1,000 per share (the “ Liquidation Preference ”) plus any accrued or accumulated dividends through the date of the conversion at a conversion price of $ 3.85 per common share.

The Series B Preferred Stock, including any accumulated and unpaid dividends, automatically converts into common stock at any time after July 2, 2023, provided that the common stock has traded at $ 7.70 per common share or more (i) for 20 out of 30 consecutive trading days and (ii) on such date of conversion.

The holders of the Series B Preferred Stock, voting as a class, are entitled to appoint two members to the board of directors.

The Holders vote are entitled to vote on all matters on an as-converted basis as a single class with the common stock assuming a conversion price of $ 5.25 per share;

provided that the votes represented by the Series B Preferred Stock cannot exceed 19.9 % of the total voting stock of the Company.

Holders of the Series B Preferred Stock are also entitled to the Liquidation Preference and all accumulated and unpaid dividends in the event of a liquidation, dissolution, or winding-up of the Company.

If the Company undergoes a change of control (as defined), the Company 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 plus any accumulated and unpaid dividends, subject to the rights of the holders in connection with such change in control.

Company does not exercise such repurchase right, the Holders will have the option to (1) require the Company to repurchase any or all of its 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 accumulated and unpaid dividends into common stock and receive their pro rata consideration thereunder.

The Company evaluated its Series B Preferred Stock and determined that it was considered an equity host under ASC 815, Derivatives and Hedging .

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The Series B Preferred Stock instrument contains an increasing-rate cumulative dividend feature.

The Company determined the present value of the difference between the (1) dividends that will be payable, in the period preceding commencement of the

perpetual dividend;

and (2) the perpetual dividend amount for a corresponding number of periods to ascribe a fair value to this feature.

These amounts were discounted to present value using a market rate for dividend yield as of the Closing Date.

The Company determined the present value of the difference between the (1) dividends that will be payable in the period preceding commencement of the perpetual dividend and (2) the perpetual dividend amount for a corresponding number of periods in order to ascribe a fair value to this feature.

These amounts were discounted to present value using a market rate for dividend yield as of the date on which the Series B Preferred Stock was issued.

The Company calculated the amount of the increasing-rate dividend feature as $ 1.8 million.

This amount is amortized as a deemed dividend to preferred shareholders using the effective interest method through the commencement date of the Perpetual Dividend Rate.

During the year ended December 31, 2020, the Company recognized $ 0.9 million of deemed dividends related to the amortization of the increasing-rate dividend feature.

If the Company undergoes a change of control, the Company 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, subject to the rights of the Holders of the Series B Preferred Stock in connection with such change in control.

If the Company does not exercise such repurchase right, Holders of the Series B Preferred Stock will have the option to (1) require the Company to repurchase any or all of its 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.

Because the contingent redemption of the Series B Preferred Stock by the holder in the event of change in control is outside the Company’s control, the Series B Preferred Stock and related beneficial conversion feature were classified as temporary equity.

The below table illustrates changes in the Company’s balance of Convertible preferred stock Series B for the year ended December 31, 2020 (in thousands, except per share amounts):

This amount is amortized as a deemed dividend to preferred shareholders using the effective interest method through June 30, 2021.

During each of the years ended December 31, 2021 and 2020, the Company recognized $ 0.9 million of deemed dividends related to the amortization of the increasing-rate dividend feature.

The below table illustrates changes in the Company’s balance of the Series B Preferred Stock for the years ended December 31, 2021 and 2020 (in thousands, except per share amounts):

Convertible preferred stock Series B

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Balance at December 31, 2020

The Company has not declared or paid any dividends on the Series B Convertible Preferred Stock since issuance.

Dividends in arrears as of December 31, 2020 was $ 2.0 million.

100,000 $ 91,568

Deemed dividends — 926

Balance at December 31, 2021

100,000 $ 92,494

The Company has not declared or paid any dividends on the Series B Preferred Stock since issuance.

Dividends in arrears as of December 31, 2021 were $ 7.2 million.

As this amount has not been declared, the Company has not recorded this amount on its consolidated balance sheet as of December 31, 2021.

Based on accumulated dividends as of December 31, 2020, the Series B Convertible Preferred Stock was convertible into an aggregate of 26,497,570 shares of the Company’s common stock.

As of December 31, 2021, based on accumulated dividends as of that date, the Series B Preferred Stock was convertible into an aggregate of 27,850,916 shares of the Company’s common stock.

Stock Incentive Plans

The Company has two share-based compensation plans which provide for the granting of equity awards, including qualified incentive and non-qualified stock options, stock appreciation awards and restricted Common Stock awards:

The Company has two share-based compensation plans which provide for the granting of equity awards, including qualified incentive and non-qualified stock options and restricted stock awards:

the MiMedx Group, Inc.

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The awards are subject to a vesting schedule as set forth in each individual agreement.

Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant, and those option awards generally vest based on three years of continuous service and have 10-year contractual terms.

Restricted stock awards generally vest over three years .

Stock Options

Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant.

Option awards generally vest based on three years of continuous service and have 10-year contractual terms.

Certain option and restricted stock awards provide for accelerated vesting if there is a change in control or upon death or disability.

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The Company has a policy of using its available repurchased treasury stock to satisfy option exercises.

The fair value of options vested during the years ended December 31, 2020, 2019 and 2018 were $ 0 , $ 1.4 million, and $ 0.1 million, respectively.

The fair value of options vested during the years ended December 31, 2021, 2020 and 2019 were $ 0 , $ 0 , and $ 1.4 million, respectively.

There were no options granted during the years ended December 31, 2021, 2020 and 2019 and there was no unrecognized compensation expense at December 31, 2021.

Modification of Stock Options

During the year ended December 31, 2019, On June 13, 2019, our Board of Directors (prior to the election or appointment of any of the Company’s current non-executive Board members), in its capacity as Administrator of the 2006 Plan, extended the contractual life of 612,000 fully vested share options held by 7 members of the Board and 278,916 fully vested share options held by a former employee.

As a result of that modification, the Company recognized incremental share-based compensation expense of $ 0.4 million for the year ended December 31, 2019.

The incremental fair value of the modified options in 2020 was estimated on the modification date using the Black-Scholes option-pricing model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate.

On June 13, 2019, our Board of Directors (prior to the election or appointment of any of the Company’s current non-executive Board members), in its capacity as Administrator of the Prior Incentive Plan, extended the contractual life of 612,000 fully vested share options held by 7 members of the Board and 278,916 fully vested share options held by a former employee.

As a result of that modification, the Company recognized incremental share-based compensation expense of $ 0.4 million during the year ended December 31, 2019.

The incremental fair value of the modified options was estimated on the modification date using the Black-Scholes option-pricing model that uses assumptions for expected volatility, expected dividends, expected term, and the risk-free interest rate.

Expected volatilities were the blend of the Company’s historical stock price volatility as well as that of market comparable publicly traded peer companies and other factors estimated over the expected term of the options.

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Restricted stock and RSUs vest over a one - to three-year period in equal annual increments and require continuous service.

Performance stock unit awards vest based on specific agreements with employees and require continuous service through the specified event.

Performance stock unit awards vest based on the achievement of specific performance targets subject to agreements with employees and require continuous service through the specified event.

As of December 31, 2021, there was approximately $ 23.9 million of total unrecognized stock-based compensation related to unvested restricted stock awards.

That expense is expected to be recognized over a weighted-average period of 2.01 years, which approximates the remaining vesting period of these grants.

All RSAs noted below as unvested are considered issued and outstanding at December 31, 2020, while unvested RSAs and PSUs are not considered issued and outstanding as of December 31, 2020.

All RSAs noted below as unvested are considered issued and outstanding at December 31, 2021, while unvested RSUs and PSUs are not considered issued and outstanding as of December 31, 2021.

Shares Weighted-Average Grant Date

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Unvested at January 1, 2021 2,175,859 $ 4.78 2,325,273 $ 5.90 35,212 $ 7.10

Modification of prior year grants — — 271,184 5.90 — —

Granted — — 3,020,935 10.07 — —

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The total fair value of restricted stock awards vested during the years ended December 31, 2021, 2020 and 2019, was $ 20.1 million, $ 10.1 million, and $ 5.2 million, respectively.

During the year ended December 31, 2019, the Company granted a fixed dollar value restricted share unit award to the members of its Board in the amount of $ 1.6 million.

The restricted share unit awards vested at the date of the 2019 Annual Meeting and were settled in common stock with the number of shares of common stock based on the closing price of the Company’s share price on August 5, 2020, a date thirty days after the Company became current on its SEC filings.

During the year ended December 31, 2019, the Company granted a fixed-dollar value RSU award to the members of its Board in the amount of $ 1.6 million.

The RSU awards vested at the date of the 2019 Annual Meeting and were settled in common stock with the number of shares of common stock based on the closing price of the Company’s share price on August 5, 2020, a date thirty days after the Company became current on its SEC filings.

Upon this event, these awards were modified from a fixed dollar-amount of awards to be settled in a variable number of shares to a fixed number of shares based on the closing price of the Company’s common stock on August 5, 2020.

This event constituted a modification of the awards from liability-based awards to equity-based awards and did not change the total amount of expense recognized.

This event constituted a modification of the awards from liability-based awards to equity-based awards.

This event did not change the total amount of expense recognized.

Prior to August 5, 2020, the Company recorded $ 1.3 million of expense, of which $ 0.9 million and $ 0.4 million were recognized during the years ended December 31, 2020 and 2019, respectively.

The Company reclassified $ 1.3 million of recorded liability to additional paid-in capital to reflect this modification on August 5, 2020.

Subsequent to the modification, $ 0.3 million of expense was recognized as additional paid-in capital.

Subsequent to the modification, $ 0.3 million of expense was recognized as additional paid-in capital during the year ended December 31, 2020.

For the years ended December 31, 2021, 2020, and 2019 the Company recognized share-based compensation as follows (in thousands):

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Total share-based compensation 14,757 15,357 12,064

Income tax benefit ( 3,792 ) $ ( 3,081 ) $ ( 3,803 )

Income tax benefit, before consideration of valuation allowance ( 3,649 ) ( 3,792 ) ( 3,081 )

Total share-based compensation, net of tax benefit $ 11,108 $ 11,565 $ 8,983

Treasury Stock

For the year ended December 31, 2018, the Company purchased 507,600 shares of its Common Stock under the Company’s share repurchase program, for an aggregate purchase price of approximately $ 7.6 million.

The share repurchase program expired during the year ended December 31, 2018.

Repurchases of shares of Common Stock in connection with the satisfaction of employee tax withholding obligations upon vesting of restricted stock and exercise of stock options for the years ended December 31, 2021, 2020, and 2019 were 469,239 , 435,492 , and 429,918 , respectively, for an aggregate purchase price of $ 4.8 million, $ 2.3 million, and $ 1.5 million, respectively.

During 2020, certain stock option holders elected to return restricted shares to the Company as consideration to exercise stock options.

In total, 148,972 shares were returned to the Company during the year ended December 31, 2020 for an aggregate fair value of $ 0.9 million.

There were no equivalent transactions during either the years ended December 31, 2019 or 2018.

During 2020 and 2021, certain stock option holders elected to return restricted shares to the Company as consideration to exercise stock options.

In total, 41,810 and 148,972 shares were returned to the Company during the year ended December 31, 2021 and 2020, respectively, for an aggregate fair value of $ 0.4 million and $ 0.9 million, respectively.

On March 27, 2020, the U.S.

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These provisions allowed the Company to carry back federal tax losses related to 2018 and 2019.

The Company recorded net tax receivable totaling $ 11.3 million in 2020 related to these provisions, of which $ 1.2 million has been collected as of December 31, 2020.

The Company recorded net tax receivable totaling $ 11.3 million in 2020 related to these provisions, of which $ 1.2 million had been collected as of December 31, 2020, and another $ 9.2 million was collected during the year ended December 31, 2021.

The remaining $ 0.9 million is reflected in income tax receivable on the consolidated balance sheet as of December 31, 2021.

The Company has deferred payment on $ 2.2 million in employer taxes until 2021, which is included as part of accrued compensation on the consolidated balance sheet as of December 31, 2020.

The Company has deferred payment on $ 2.2 million in employer taxes, $ 1.1 million of which was paid in January 2022 and the remainder is due December 2022.

The $ 2.2 million is included as part of accrued compensation on the consolidated balance sheet as of December 31, 2021.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

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Deferred costs of goods sold — ( 43 )

Unearned insurance refund — ( 894 )

Net Deferred Tax Assets 41,126 35,626

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Net Deferred Tax Assets after Valuation Allowance $ — $ —

Interest limitation carryforward of $ 0.8 million was included as part of other in 2019.

This amount is presented separately in the table above for comparative purposes.

The reconciliation of the federal statutory income tax rate of 21 % to the effective rate is as follows:

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Share-based compensation 23.31 % ( 1.24 ) % ( 5.05 ) %

Employee retention credit 3.37 % — % — %

Tax credits 2.01 % 0.32 % 0.45 %

Uncertain tax positions 0.02 % 0.24 % 1.22 %

Write-off of net operating losses — % — % ( 11.81 ) %

Fixed asset adjustment — % — % 5.33 %

NOL carryback rate differential — % 10.99 % — %

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Effective tax rate ( 2.46 ) % 19.92 % 0.02 %

The tax benefit associated with the change in the valuation allowance had a significant impact on the Company’s effective tax rate for the year ended December 31, 2021.

Additionally, the effective tax rate was affected by other permanent differences, such as share based compensation, executive compensation limitations and employee retention credit benefit.

The tax benefit associated with the carryback of federal net operating losses under the CARES Act had a significant impact on the Company’s effective tax rate for the year ended December 31, 2020.

Additionally, the effective tax rate was affected by other permanent differences, as well as the change in the valuation allowance.

Share-based Compensation had a significant impact on the Company's effective tax rate for the year ended December 31, 2019.

Additionally, state taxes, Meals and Entertainment, and Nondeductible Compensation had a significant impact on the Company's effective tax rate.

Meals and Entertainment had a significant impact on the Company's effective tax rate for the year ended December 31, 2018 due to the impact of the Act on the Company's method of calculating this permanent adjustment.

Additionally, Federal and state tax credits, mostly related to the Company's Research and Development activities, had a significant impact on the Company's effective rate.

Current and deferred income tax (benefit) expense is as follows (in thousands):

Year Ended December 31,

2021 2020 2019

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Federal — — —

State — — 6,089

Total deferred — — —

Total (benefit) expense $ ( 12,259 ) $ ( 5 ) $ 26,582

Total expense (benefit) $ 247 $ ( 12,259 ) $ ( 5 )

Certain items of income and expense are not reported in tax returns and financial statements in the same year.

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The Company establishes a valuation allowance for deferred tax assets for which realization is not likely.

As of each reporting date,

management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

A valuation allowance of $ 35.6 million and $ 30.6 million was recorded against the deferred tax asset balance as of December 31, 2020 and December 31, 2019, respectively.

The Company maintains a full valuation allowance because it is not more likely than not the deferred tax assets will be utilized based on all available positive and negative evidence.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.

A valuation allowance of $ 41.1 million and $ 35.6 million was recorded against the deferred tax asset balance as of December 31, 2021 and 2020, respectively.

The Company maintains a full valuation allowance because it is not more likely than not the

deferred tax assets will be utilized based on all available positive and negative evidence.

In the event that the weight of the evidence changes in the future, any reduction in the valuation allowance would result in an income tax benefit.

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Unrecognized tax benefits - December 31 $ 469 $ 477 $ 627

Included in the balance of unrecognized tax benefits as of December 31, 2020 and December 31, 2019, are $ 0 and $ 0.6 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.

Included in the balance of unrecognized tax benefits as of both December 31, 2021 and 2020 were $ 0.5 million of tax benefits that, if recognized, would affect the effective tax rate.

The Company recognizes accrued interest related to unrecognized tax benefits and penalties as income tax expense.

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Deferred financing costs — 53 6,650

Deemed dividends on convertible preferred stock Series B 32,028 — —

Amendment fee on BT Term Loan 722 — —

Note receivable for sale of property and equipment 75 — —

Deemed dividends of Series B Convertible Preferred Stock 926 32,028 —

Amendment fee on previous term loan — 722 —

Lease right of use asset and liability 2,251 1,169 —

Fair value of non-cash consideration received for option exercise 380 922 —

The Company has a 401(k) plan (the “ 401(k) Plan ”) covering all employees who have completed one month of service.

Under the 401(k) Plan, participants could defer up to 90 % of their eligible wages to a maximum of $ 19,500 per year (annual limit for 2020).

Employees age 50 or over in 2020 could make additional pre-tax contributions up to $ 6,500 .

The Company matched 50 % of employee contributions up to 5 % of the employee’s eligible compensation.

The matching contribution for the years ended December 31, 2020, 2019, and 2018 was $ 1.5 million, $ 1.5 million, and $ 1.9 million, respectively.

For 2021, the Company continues to match to 50 % of employee contributions and has increased the cap on its matching contribution to 8 % of the employee’s eligible compensation.

Additionally, the Company could elect to make a discretionary contribution to the 401(k) Plan.

Commitments and Contingencies

Contractual Commitments

In addition to the leases noted under Note 5, “ Leases ,” the Company has commitments for meeting space.

These leases expire over 3 years following December 31, 2020, and generally contain renewal options.

The Company anticipates that most of these leases will be renewed or replaced upon expiration.

The Company has commitments for meeting space.

These commitments expire over 3 years following December 31, 2021, and generally contain renewal options.

The estimated meeting space commitments are as follows (in thousands):

Years Ended December 31,

See Note 5, “ Leases” for further information regarding maturities of operating lease liabilities.

Litigation and Regulatory Matters

In the ordinary course of business, the Company and its subsidiaries may routinely be a party to many pending and threatened legal, regulatory, and governmental actions and proceedings (including those described below).

In the ordinary course of business, the Company and its subsidiaries may be a party to pending and threatened legal, regulatory, and governmental actions and proceedings (including those described below).

In view of the inherent difficulty of predicting the outcome of such matters, particularly where the plaintiffs or claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, the Company generally cannot predict what the eventual outcome of the pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual recovery, loss, fines or penalties related to each pending matter may be.

In accordance with applicable accounting guidance, the Company accrues a liability when those matters present loss contingencies that are both probably and estimable.

In accordance with applicable accounting guidance, the Company accrues a liability when those matters present loss contingencies that are both probable and estimable.

The Company's financial statements at December 31, 2021 reflect the Company's current best estimate of probable losses associated with these matters, including costs to comply with various settlement agreements, where applicable.

As of December 31, 2021, the Company had accrued $ 1.0 million related to the matters described below.

Of this amount, the Company is indemnified for $ 0.6 million from its insurance providers.

The Company paid $ 6.7 million to settle legal proceedings during 2021.

In addition, $ 1.1 million was paid on the Company’s behalf through an insurance provider during 2021 relating directly to settlement matters.

In addition, during 2021, the Company received funds from certain director and officer insurance policies for previously-incurred legal expenses under the Company’s indemnification agreements.

These funds were recognized as a reduction to investigation, restatement and related expense on the consolidated statement of operations.

The Company paid $ 7.4 million to settle legal proceedings during 2020.

In addition, $ 3.5 million was paid on the Company’s behalf through an insurance provider during 2020.

As of December 31, 2019, the Company had accrued $ 12.8 million related to legal proceedings and other matters of litigation.

The actual costs of resolving these matters may be in excess of the amounts reserved.

The following is a description of certain litigation and regulatory matters:

Securities Class Action

On January 16, 2019, the United States District Court for the Northern District of Georgia entered an order consolidating two purported securities class actions ( MacPhee v.

MiMedx Group, Inc., et al.

MiMedx Group, Inc.

filed February 23, 2018 and Kline v.

MiMedx Group, Inc., et al.

MiMedx Group, Inc.

filed February 26, 2018).

The order also appointed Carpenters Pension Fund of Illinois as lead plaintiff.

On May 1, 2019, the lead plaintiff filed a consolidated amended complaint, naming as defendants the Company, Michael J.

The order also appointed Carpenters Pension Fund of Illinois (“ CPFI ”) as lead plaintiff.

On May 1, 2019, CPFI filed a consolidated amended complaint, naming as defendants the Company, Michael J.

Senken, Parker H.

Petit, William C.

“Pete” Petit, William C.

Taylor, Christopher M.

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It asserted a class period of March 7, 2013 through June 29, 2018.

Following the filing of motions to dismiss by the various defendants, the lead plaintiff was granted leave to file an amended complaint.

The lead plaintiff filed its amended complaint against the Company, Michael Senken, Pete Petit, William Taylor, and Cherry Bekaert & Holland (Christopher Cashman was dropped as a defendant) on March 30, 2020.

The Defendants filed motions to dismiss on May 29, 2020, which remain pending.

At this time, given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, class certification and success on the merits, the Company is unable to predict the outcome of the securities class action described above.

In the event of an adverse judgment or material settlement with respect to the securities class actions described above, the Company may be required to pay significant damages or settlement costs.

Successful claims brought against the Company with respect to the securities class action in excess of its available insurance coverage could have a material adverse effect on its business, financial condition and results of operations.

Following the filing of motions to dismiss by the various defendants, CPFI was granted leave to file an amended complaint.

CPFI filed its amended complaint against the Company, Michael J.

Senken, Parker H.

Petit, William C.

Taylor, and Cherry Bekaert & Holland (Christopher Cashman was dropped as a defendant) on March 30, 2020;

defendants filed motions to dismiss on May 29, 2020.

On March 25, 2021, the Court granted defendants’ respective motions to dismiss, finding that CPFI lacked standing to bring the underlying claims and also could not establish loss causation because it sold all of its shares in MIMEDX prior to any corrective disclosures, and dismissed the case.

On April 22, 2021, CPFI filed a motion for reconsideration of the dismissal and for leave to amend to add a new plaintiff to attempt to cure the standing and loss causation issues.

The Company opposed CPFI’s motions and the hearing on the same was held on September 24, 2021.

On January 28, 2022, the Court denied CPFI’s motion to reconsider and motion to substitute class representative.

On February 25, 2022, CPFI filed a Notice of Appeal in the 11th Circuit Court of Appeals.

Investigations

On February 8, 2021, the Company received a subpoena issued by the Department of Defense Office of Inspector General seeking records regarding the sales of the Company’s micronized and other products to federal medical facilities and federal contracting offices, including those operated by the Department of Veterans Affairs or the Department of Defense.

The subpoena also seeks information regarding the Company’s communications with the FDA regarding its products.

The Company understands that the Office of the United States Attorney for the Western District of Washington Civil Division is overseeing the investigation, which is being conducted principally by agents employed by the Department of the Army Criminal Investigation Command.

The Company is cooperating with the government’s investigation and at this time the Company is unable to predict the outcome of the investigation, including whether the investigation will result in any action or proceeding against the Company.

Former Employee Litigation and Related Matters

On January 12, 2021, the Company filed suit in the Circuit Court of the Eleventh Judicial District in and for Miami-Dade County, Florida ( MiMedx Group, Inc.

al.) against its former CEO, Parker H.

“Pete” Petit, and its former COO, William C.

Taylor, seeking a determination of its rights and obligations under indemnification agreements with Petit and Taylor following a federal jury’s guilty verdict against Petit for securities fraud and Taylor for conspiracy to commit securities fraud.

The Company is seeking a declaratory judgment that it is not obligated to indemnify or advance expenses to Petit and Taylor in connection with certain cases to which Petit and Taylor are parties and also seeking to recoup amounts previously paid on behalf of Petit and Taylor in connection with such cases.

On April 22, 2021, Petit and Taylor filed an answer and asserted counterclaims against the Company alleging breach of their indemnification agreements, breach of the covenant of good faith and fair dealing with respect to their indemnification agreements, and seeking a declaration that the Company remains obligated to indemnify and advance fees in connection with certain cases.

Petit and Taylor simultaneously filed a motion seeking to compel the Company to advance and reinstate its payments of Petit and Taylor’s legal expenses.

The Company opposed Petit and Taylor’s motion and a hearing was set for June 23, 2021.

At the joint request of the parties, the hearing was cancelled to allow the parties to attend a mediation to attempt a resolution of this matter;

such mediation was held on August 11, 2021.

Negotiations are ongoing.

Defamation Claims

On June 4, 2018, Sparrow Fund Management, LP (“ Sparrow ”) filed a complaint against the Company and Petit, including claims for defamation and civil conspiracy in the United States District Court for the Southern District of New York ( Sparrow Fund Management, L.P.

MiMedx Group, Inc., et.

The complaint seeks monetary damages and injunctive relief and alleges the defendants commenced a campaign to publicly discredit Sparrow by falsely claiming it was a short seller who engaged in illegal and criminal behavior by spreading false information in an attempt to manipulate the price of our common stock.

The Company has settled this matter.

Other Matters

Under the Florida Business Corporation Act and agreements with its current and former officers and directors, the Company is obligated to indemnify its current and former officers and directors who are made party to a proceeding, including a proceeding brought by or in the right of the corporation, with certain exceptions, and to advance expenses to defend such matters.

The Company has already borne substantial costs to satisfy these indemnification and expense advance obligations and may continue to do so in the future.

In addition to the matters described above, the Company is a party to a variety of other legal matters that arise in the ordinary course of the Company’s business, none of which is deemed to be individually material at this time.

Previously-Settled Matters

The matters discussed below have been settled with the counterparty and their resolution has been disclosed in previously-issued financial statements.

There are no contingent or continuing obligations associated with these matters.

Shareholder Derivative Suits

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On January 22, 2019, plaintiffs filed a verified consolidated shareholder derivative complaint.

The consolidated action sets forth claims of breach of fiduciary duty, corporate waste and unjust enrichment against certain former officers, and certain current and former directors, of the Company:

The consolidated action sets forth claims of breach of fiduciary duty, corporate waste and unjust enrichment against certain former officers, and certain current and former

directors, of the Company:

Petit, William C.

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(Nix and Demaio v.

Evans, et al.

) The complaint alleges claims for breaches of fiduciary duty, corporate waste and unjust enrichment against certain current and former directors and officers of the Company:

Evans, et al.) The complaint alleges claims for breaches of fiduciary duty, corporate waste and unjust enrichment against certain current and former directors and officers of the Company:

Petit, William C.

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Papasan and Neil S.

The allegations generally involve claims that the defendants breached their fiduciary duties by

causing or allowing the Company to misrepresent its financial statements as a result of improper revenue recognition.

The allegations generally involve claims that the defendants breached their fiduciary duties by causing or allowing the Company to misrepresent its financial statements as a result of improper revenue recognition.

The Court ordered this matter stayed pending the resolution of the consolidated derivative suit pending in the Northern District of Georgia.

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Pursuant to the terms of the settlement, this action is deemed dismissed with prejudice.

Investigations

United States Attorney’s Office for the Southern District of New York (“ USAO-SDNY ”) Investigation

The USAO-SDNY conducted an investigation into, among other things, the Company’s recognition of revenue and practices with certain distributors and customers.

The USAO-SDNY conducted interviews of various individuals, including employees and former employees of the Company.

The USAO-SDNY issued an indictment in November 2019 against former executives Messrs.

Petit and Taylor charging them with one count each for (i) securities fraud and (ii) conspiracy to commit securities fraud, to make false filings with the SEC, and to influence improperly the conduct of audits relating to alleged misconduct that resulted in inflated revenue figures for fiscal 2015.

On November 19, 2020, the jury found Mr.

Petit guilty of securities fraud and Mr.

Taylor guilty of conspiracy to commit securities fraud.

The Company has cooperated with the investigation, and the USAO-SDNY recently advised the Company that, based on the USAO-SDNY’s current understanding of facts, it does not intend to pursue further action or remedies against the Company.

Department of Veterans’ Affairs Office of Inspector General (“ VA-OIG ”) and Civil Division of the Department of Justice (“ DOJ-Civil ”) Subpoenas and/or Investigations

VA-OIG has issued subpoenas to the Company seeking, among other things, information concerning the Company’s financial relationships with VA clinicians.

DOJ-Civil has requested similar information.

The Company has cooperated fully and produced responsive information to VA-OIG and DOJ-Civil.

Periodically, VA-OIG has requested additional documents and information regarding payments to individual VA clinicians.

On June 3, 2020, the Company received a subpoena from the VA-OIG requesting information regarding the Company’s financial relationships and interactions with two healthcare providers at the VA Long Beach Healthcare System.

The Company has continued to cooperate and respond to these requests.

United States Attorney’s Office for the Middle District of North Carolina (“ USAO-MDNC ”) Investigation

On January 9, 2020, the USAO-MDNC informed the Company that it is investigating the Company’s financial relationships with two former clinicians at the Durham VA Medical Center.

The Company has cooperated with the investigation and reached an agreement in principal to resolve this issue with the government.

The subpoena also seeks information regarding the Company’s communications with the FDA regarding its products.

Qui Tam Actions

Qui Tam Matters

On January 19, 2017, a former employee of the Company filed a qui tam False Claims Act complaint in the United States District Court for the District of South Carolina ( United States of America, ex rel.

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This amount was paid during the year ended December 31, 2020.

Accordingly, there is no liability outstanding with respect to this matter as of December 31, 2020.

Former Employee Litigation

On November 19, 2018, the Company’s former Chief Financial Officer filed a complaint in the Superior Court for Cobb County, Georgia ( Michael J.

MiMedx Group, Inc.

) in which he claims that the Company has breached its obligations under the Company’s charter and bylaws to advance to him, and indemnify him for, his legal fees and costs that he incurred in connection with certain Company internal investigations and litigation.

The Company filed its answer denying the plaintiff’s claims on April 19, 2019.

To date, no deadlines have been established by the court.

Former Employee Matters

In December 2019, MiMedx received notice of a complaint filed in July 2018 with the Occupational Safety and Health Administration (“OSHA”) section of the Department of Labor (“DOL”) by Thomas Tierney, a former Regional Sales Director, against MiMedx and the referenced individuals, Tierney v.

6 unchanged sentences

MiMedx Group, Inc.

) against the Company alleging retaliation, defamation and unjust enrichment and seeking monetary damages.

al.) against the Company alleging retaliation, defamation and unjust enrichment and seeking monetary damages.

The former employee claims he was retaliated against after raising concerns related to insurance fraud and later defamed by comments concerning the indictments of three South Carolina VA employees.

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The Company filed a motion to dismiss on April 8, 2019, which was denied by the Court.

The parties have reached an agreement to resolve this matter.

On January 12, 2021, the Company filed suit in the Circuit Court of the Eleventh Judicial District in and for Miami-Dade County, Florida ( MiMedx Group, Inc.

) against its former CEO, Parker “Pete” Petit, and its former COO, Bill Taylor, seeking a determination of its rights and obligations under indemnification agreements with Petit and Taylor following a federal jury’s guilty verdict against Petit for securities fraud and Taylor for conspiracy to commit securities fraud.

The Company is seeking a declaratory judgment that it is not obligated to indemnify or advance expenses to Petit and Taylor in connection with certain cases to which Petit and Taylor are parties and also seeking to recoup moneys previously paid on behalf of Petit and Taylor in connection with such cases.

Defamation Claims

On June 4, 2018, Sparrow Fund Management, LP (“ Sparrow ”) filed a complaint against the Company and Mr.

Petit, including claims for defamation and civil conspiracy in the United States District Court for the Southern District of New York ( Sparrow Fund Management, L.P.

MiMedx Group, Inc.

On March 31, 2019, a judge granted defendants’ motions to dismiss in full, but allowed Sparrow the ability to file an amended complaint.

The Magistrate has recommended Sparrow’s motion for leave to amend be granted in part and denied in part and the Judge adopted the Magistrate’s recommendation.

On April 3, 2020, Sparrow filed its amended complaint against MiMedx (Mr.

Petit has been dropped from the lawsuit) , on April 3, 2020 and the Company subsequently filed its answer.

This case is in discovery.

On June 17, 2019, the principals of Viceroy Research (“ Viceroy ”), filed suit in the Circuit Court for the Seventeenth Judicial Circuit in Broward County, Florida ( Fraser John Perring et.

MiMedx Group, Inc.

) against the Company and Mr.

Petit, alleging defamation and malicious prosecution based on the defendants’ alleged campaign to publicly discredit Viceroy and the lawsuit the Company previously filed against the plaintiffs, but which the Company subsequently dismissed without prejudice.

On November 1, 2019, the Court granted Mr.

Petit’s motion to dismiss on jurisdictional grounds, denied the

Company’s motion to dismiss, and granted plaintiffs leave to file an amended complaint to address the deficiencies in its claims against Mr.

Petit, which they did on November 21, 2019.

The Company filed its answer on December 20, 2019.

The parties have agreed to a stay of this matter in order to hold a mediation in March 2021.

This matter is resolved.

Intellectual Property Litigation

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The parties have reached a settlement in the matter and the case was dismissed with prejudice on October 26, 2020.

Other Matters

Pursuant to the Florida Business Corporation Act and indemnification agreements with its former Chairman and CEO, Parker H.

“Pete” Petit, and former COO, William Taylor, the Company has advanced defense costs to Petit and Taylor in connection with certain legal proceedings arising from their corporate status as former directors and officers of the Company.

Following the jury verdict against Petit for securities fraud and Taylor for conspiracy to commit securities fraud, on January 12, 2021, the Company filed suit in the Eleventh Judicial Circuit of Florida in and for Miami-Dade County ( MiMedx Group, Inc.

Petit and Taylor ) seeking (1) a declaratory judgment that a conviction of Petit and Taylor means the Company has no further obligation to indemnify or advance expenses to them, (2) reimbursement of amounts previously advanced to Petit and Taylor, and (3) any other relief deemed just and proper by the court.

Given the inherent difficulty of predicting the outcome of litigation, the Company cannot estimate recoveries, ranges of recoveries, losses or ranges of losses in these proceedings, nor can it predict whether it may be required to continue to indemnify or advance defense costs to Petit and Taylor.

Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s business, results of operations, financial position or liquidity.

Revenue Data by Customer Type

The Company has two primary distribution channels:

Disaggregation of Revenue by Product

MIMEDX has two classes of products:

(1) Advanced Wound Care, or Section 361, products, consisting of its sheet allograft products, and (2) Section 351 products, consisting of the Company’s micronized and particulate products.

Advanced Wound Care is further disaggregated between the Company’s Tissue/Other and Cord products.

Below is a summary of net sales by each class of product (in thousands):

Year Ended December 31,

Advanced Wound Care

Tissue/Other $ 216,418 $ 192,566

Cord 23,599 16,073

Advanced Wound Care 240,017 208,639

Section 351 17,610 31,828

Other 988 7,767

$ 258,615 $ 248,234

Due to the disconnection between the performance obligations related to sales and the recognition of revenue on such sales, it is not practical for the Company to allocate these amounts to specific product lines related to the Remaining Contracts (included in “Other” in the table above) as well as revenue recognized during the year ended December 31, 2019.

Disaggregation of Revenue by Customer

Prior to May 31, 2021, the conclusion of the FDA’s enforcement discretion period, the Company evaluated its revenue on the basis of its two primary distribution channels:

(1) direct to customers (healthcare professionals and/or facilities) (“ Direct Customers ”);

and (2) sales through distributors (“ Distributors ”).

The Company did not have significant foreign operations or a single external customer from which 10% or more of revenues were derived during the years ended December 31, 2020, 2019, and 2018.

Below is a summary of net sales by each customer type (in thousands):

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$ 258,615 $ 248,234 $ 299,255

The Company did not have significant foreign operations or a single external customer from which 10% or more of revenues were derived during the years ended December 31, 2021, 2020, and 2019.

The Company has a 401(k) plan (the “ 401(k) Plan ”) covering all employees who have completed one month of service.

Under the 401(k) Plan, participants could defer up to 90 % of their eligible wages to a maximum of $ 19,500 per year (annual limit for 2021).

Employees age 50 or over in 2021 could make additional pre-tax contributions up to $ 6,500 .

In 2021, the Company matched 50 % of employee contributions up to 8 % of the employee’s eligible compensation.

In 2020 and 2019, the Company matched 50 % of employee contributions up to 5 % of the employee’s eligible compensation.

The matching contribution for the years ended December 31, 2021, 2020, and 2019 was $ 2.7 million, $ 1.5 million, and $ 1.5 million, respectively.

Related Party Transactions

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In December 2018, the Company announced a reduction of the Company’s workforce by approximately 240 full-time employees, or 24 % of its total workforce, of which approximately half were sales personnel as part of the plans to implement a broad-based organizational realignment, cost reduction and efficiency program to better ensure the Company’s cost structure was appropriate given its revenue expectations.

As a result of the December 2018 broad-based organizational realignment, cost reduction and efficiency program, the Company incurred pre-tax charges of $ 8.5 million and $ 6.1 million during the years ended December 31, 2019 and 2018, respectively.

As a result of the December 2018 broad-based organizational realignment, cost reduction and efficiency program, the Company incurred pre-tax charges of $ 8.5 million during the years ended December 31, 2019.

The charges related to employee retention and other one-time employee separation benefit-related costs.

2 unchanged sentences

All obligations related to the Company’s restructuring program have been settled as of December 31, 2020.

The liability related to restructuring activities during 2020 are included in accrued compensation in the consolidated balance sheets.

Changes to this liability during the years ended December 31, 2020 were as follows (in thousands):

Liability balance as of January 1, 2018 $ —

Expenses 6,055

Cash distributions ( 448 )

Changes to this liability during the years ended December 31, 2020 and 2019 were as follows (in thousands):

Liability balance as of December 31, 2018 $ 5,607

4 unchanged sentences

Liability balance as of December 31, 2020 $ —

Quarterly Financial Data

The following table sets forth selected quarterly financial data for 2020 and 2019.

Amounts for the fourth quarter of 2020 reflect the recording of out of period adjustments related to certain accruals recorded in prior quarters, including accruals of rebates, which were identified subsequent to the filings of the financial statements for those periods.

The reflection of these adjustments increased net sales and gross profit by $ 0.8 million and decreased net loss by $ 1.3 million in the fourth quarter.

The adjustments decreased basic and diluted net loss per common share in the fourth quarter by $ 0.01 .

All identified adjustments exclusively related to 2020 and did not affect any reported amounts for periods prior to 2020.

Amounts presented are unaudited, in thousands, except per share amounts:

First Quarter Second Quarter Third Quarter (1) Fourth Quarter

Net sales 2020 $ 61,736 $ 53,647 $ 64,303 $ 68,548

2019 66,555 67,437 88,863 76,400

Gross profit 2020 51,711 45,449 54,014 57,730

2019 59,137 57,688 75,658 63,691

Income tax provision benefit (expense) 2020 11,304 ( 27 ) ( 38 ) 1,020

2019 ( 42 ) ( 42 ) 309 ( 220 )

Net (loss) income 2020 ( 4,821 ) ( 8,466 ) ( 19,417 ) ( 16,580 )

2019 ( 13,273 ) ( 17,210 ) 12,379 ( 7,476 )

Net (loss) income per common share - basic 2020 $ ( 0.04 ) $ ( 0.08 ) $ ( 0.48 ) $ ( 0.17 )

2019 $ ( 0.12 ) $ ( 0.16 ) $ 0.12 $ ( 0.07 )

Net (loss) income per common share - diluted 2020 $ ( 0.04 ) $ ( 0.08 ) $ ( 0.48 ) $ ( 0.17 )

2019 $ ( 0.12 ) $ ( 0.16 ) $ 0.11 $ ( 0.07 )

(1) - Q3 2019 amounts include the transition adjustment discussed in Note 2.

Subsequent Events

The Company has assessed subsequent events through March 8, 2021, the date which these consolidated financial statements were first available to be issued.

Based on this assessment, there were no material subsequent events requiring disclosure.

On February 28, 2022, the Company executed an Amendment to the Hayfin Loan Agreement (the “ Amendment ”).

Material provisions of the Amendment are detailed in Note 9, Long-Term Debt .

Schedule II Valuation and Qualifying Accounts

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Allowance for product returns $ 2,321 $ 2,508 $ ( 2,280 ) $ 2,549

Allowance for obsolescence 719 340 ( 220 ) 839

For the year ended December 31, 2020

Allowance for doubtful accounts $ — $ 719 $ 18 $ 737

Allowance for product returns $ 4,115 $ 705 $ ( 2,499 ) $ 2,321

Allowance for obsolescence 589 1,204 ( 1,074 ) 719

For the year ended December 31, 2019

Allowance for doubtful accounts $ — $ — $ — $ —

Allowance for product returns $ 8,510 $ — $ ( 4,395 ) $ 4,115

Allowance for obsolescence 768 511 ( 690 ) 589

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data