What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-28 compared with 2022-02-28 · 568 added, 444 removed, 911 unchanged (53% of the section changed)

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Index to Financial Statements

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

Report of Deloitte & Touch e LLP, Independent Registered Public Accounting Firm (PCAOB ID:

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

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Consolidated Statements of Operations – For the years ended December 31, 2022, 2021 and 2020

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

Consolidated Statements of Stockholde rs’ (Deficit) Equity – For the years ended December 31, 2022, 2021 and 2020

Consolidated Statements of Cash Flows – For the years ended December 31, 2022, 2021 and 2020

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

and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders' (deficit) equity, and cash flows, for the years 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, 2022 and 2021, and the results of its operations and its cash flows for the years 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, 2022, 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, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

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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.

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

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.

We conducted our audits 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.

Our audits 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.

Our audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matter

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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

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

Critical Audit Matter Description

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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 ship and bill arrangements, the Company retains possession of the product until the customer submits an order and the product orders 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.

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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.

This required extensive audit effort due to the volume of transactions and a 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 tested the effectiveness of controls over the recognition of ship and bill and consignment sales at or near year end.

• 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 year end.

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

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• 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 selected a sample of ship and bill revenue transactions close to year 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.

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Opinion on the Consolidated Financial Statements

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.

We have audited the accompanying consolidated statement of stockholders’ equity (deficit), operations and cash flows for the year ended December 30, 2020 of MiMedx Group, Inc.

(the “Company”) 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 the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

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

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“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 audits in accordance with the standards of 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 consolidated financial statements are free of material misstatement, whether due to error or fraud.

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

Our audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated financial statements.

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

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

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.

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

Evaluation of the audit evidence for revenue recognition

The Company recorded consolidated net sales of $248.2 million for the year ended December 31, 2020.

As more fully described in Note 2 to the consolidated financial statements, during 2018 and into part of 2019, the Company’s control environment was such that it created uncertainty surrounding all of its customer arrangements.

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).

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, the Company concluded that the Step 1 Criteria (identify the contracts with a customer) for revenue recognition would be met prior to shipment of product to the customer or implantation of the products on consignment.

We identified the evaluation of the sufficiency of audit evidence over revenue recognition as a critical audit matter.

Evaluating the sufficiency of audit evidence required especially challenging auditor judgment to determine that extracontractual arrangements or side agreements did not exist at the onset of the transaction and that fictitious customer purchase orders were not entered into the system by sales personnel.

The primary procedures we performed to address this critical audit matter included:

• Testing the design and operating effectiveness of internal controls over the Company’s revenue processes, including controls over management’s review of the Step 1 Criteria.

• Testing the existence of revenue by selecting a sample of revenue transactions and comparing the amounts recorded for consistency with the underlying documentation, including the customer contract, purchase order, sales invoice, third party shipping documents, support documenting the implantation date (for consignment revenue), authorized pricing tables and customer payment support.

• Obtaining the monthly sales returns information recorded during 2020 to determine whether any unauthorized side agreements existed.

• Obtaining the January and February 2021 sales returns information to determine the completeness of the sales returns and associated credit memos.

• Performing data analytics over revenue transactions (excluding consignment and cash basis revenue) during the year ensuring a match of the sales order, sales invoice, shipping documents and payment support and investigating any items that did not agree.

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

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

/s/ BDO USA, LLP

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Atlanta, Georgia

March 8, 2021

March 8, 2021, except for the change in reportable segments discussed in Notes 2 and 13, as to which the date is February 28, 2023

MIMEDX GROUP, INC.

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Total assets $ 171,430 $ 187,929

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

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

Current liabilities:

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$ 92,494 $ 92,494

Stockholders’ equity (deficit):

Stockholders’ (deficit) equity:

Preferred stock Series A;

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$ .001 par value;

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

187,500,000 shares authorized, 113,705,447 issued and outstanding at December 31, 2022 and 112,703,926 issued and 111,925,216 outstanding at December 31, 2021

Additional paid-in capital 173,804 165,695

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0 shares at December 31, 2022 and 778,710 shares at December 31, 2021

( 4,017 ) ( 7,449 )

Accumulated deficit ( 191,906 ) ( 161,709 )

Total stockholders’ equity (deficit) 82 ( 150 )

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

Total stockholders’ (deficit) equity ( 17,988 ) 82

Total liabilities, convertible preferred stock, and stockholders’ (deficit) equity $ 171,430 $ 187,929

See notes to the consolidated financial statements.

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Operating loss ( 24,971 ) ( 5,035 ) ( 45,398 )

Other (expense) income

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

Other expense, net

Interest expense, net ( 5,016 ) ( 4,980 ) ( 7,941 )

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

Other expense, net ( 4 ) ( 23 ) ( 3 )

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

Loss before income tax provision ( 29,991 ) ( 10,038 ) ( 61,543 )

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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

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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

Exercise of stock options — — ( 1,199 ) ( 487,361 ) 2,636 — 1,437

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

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

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

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

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

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

Balance at December 31, 2021 112,703,926 $ 113 $ 165,695 778,710 $ ( 4,017 ) $ ( 161,709 ) $ 82

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

Shares repurchased for tax withholding — — — 249,442 ( 1,190 ) — ( 1,190 )

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Restricted stock shares canceled/forfeited — — 30 5,338 ( 30 ) — —

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

Net loss — — — — — ( 30,197 ) ( 30,197 )

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Depreciation 3,345 4,363 5,782

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

Bad debt expense 2,820 — —

Non cash lease expenses 1,259 989 983

Amortization of intangible assets 701 820 1,073

Loss on fixed asset disposal 262 1 318

Amortization of deferred financing costs and debt discount 467 1,055 2,276

Accretion of asset retirement obligation 92 81 10

(Gain) loss on fixed asset disposal ( 17 ) 262 1

Impairment of intangible assets — 53 1,027

Loss on extinguishment of debt — — 8,201

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

Increase (decrease) in cash resulting from changes in:

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Purchases of property and equipment ( 1,514 ) ( 3,218 ) ( 4,228 )

Cash paid for licensing agreement ( 1,000 ) — —

Patent application costs ( 170 ) ( 252 ) ( 327 )

Principal payments from note receivable — 75 —

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

Proceeds from property and equipment sale 24 — —

Net cash flows used in investing activities ( 2,660 ) ( 3,395 ) ( 4,555 )

Cash flows from financing activities:

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MiMedx Group, Inc.

(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 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 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 $ 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.

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.

(together with its subsidiaries, except where the context otherwise requires, “ MIMEDX ,” or the “ Company ”) is a is a pioneer and leader in placental biologics focused on addressing the needs of patients with acute and chronic non-healing wounds.

The Company is also advancing a promising late-stage biologics pipeline targeted at decreasing pain and improving function for patients with knee osteoarthritis (“ KOA ”).

To accomplish these goals, the Company operates as two defined, internal business units:

Wound & Surgical and Regenerative Medicine.

All of our products sold in the United States are regulated by the United States Food and Drug Administration (“ FDA ”).

The Wound & Surgical business focuses on the Advanced Wound Care and Surgical Recovery markets through sales of the Company’s existing product portfolio and product development to serve these end markets.

This business unit is responsible for substantially all sales of the Company’s Advanced Wound Care products, as well as the sale of the Company’s micronized and certain particulate products (collectively, the “ Section 351 products ”) internationally.

The Regenerative Medicine business focuses on progressing the Company’s placental biologics platform towards registration as a FDA-approved biological drug.

Micronized dehydrated human amnion chorion membrane ( “mDHACM” ) is an injectable placental biologic product candidate in its late-stage pipeline targeted at achieving FDA approval for an indication to help decrease pain and improve function in patients suffering from KOA.

Prior to May 31, 2021, this business unit was responsible for domestic sales of the Company’s Section 351 products.

Regenerative Medicine does not currently generate revenue.

Additional information regarding the principal operations and results of these business units can be found in Note 13, Segment Information .

The Company’s business is focused primarily on the United States of America but the Company is pursuing opportunities for international expansion, with specific focus on the sale of its placental tissue products in Japan.

Significant Accounting Policies

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

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.

GAAP requires 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.

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Segment Reporting

Accounting Standards Codification (“ ASC ”) 280, “ Segment Reporting ” requires the use of the “management approach” model for segment reporting.

The management approach model is based on the way a company’s chief operating decision maker organizes segments within the Company for which separate discrete financial information is available regarding resource allocation and assessing performance.

The Company has determined it operates as one operating segment.

The application of GAAP requires the use of the “management approach” model for segment reporting.

The management approach model is based on the way a company’s chief operating decision maker (“ CODM ”) organizes segments within the Company for which separate financial information is available regarding resource allocation and assessing performance.

The Company has concluded that its Chief Executive Officer (“ CEO ”) is its CODM.

Prior to June 30, 2022, the Company assessed that it operated as one operating and reportable segment.

The Company reassesses the existence of operating segments when facts and circumstances suggest that there may have been a change in the way that the Company is managed.

On September 30, 2022, the Company reassessed its operating segments, concluding that the CODM assesses performance and allocates resources between two , distinct reportable segments:

Wound & Surgical and Regenerative Medicine.

Information regarding the principal operations and results of these segments can be found in Note 13, Segment Information .

Cash and Cash Equivalents

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The Company manages credit risk by routinely performing credit checks on customers prior to sales.

The individual receivables are written-off after all reasonable efforts to collect the funds have been made.

Individual receivables are written-off after all reasonable efforts to collect the funds have been made.

Actual write-offs may differ from the amounts reserved.

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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, Net

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

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Impairment loss is recorded to the extent that the net book value exceeds the fair value of the asset.

Impairment reviews are based on an estimated future cash flow approach that requires significant judgment with respect to future revenue and expense growth rates, selection of appropriate discount rate, asset groupings, and other assumptions and estimates.

Impairment reviews are based on an estimated future cash flow approach that requires significant judgment with respect to future revenue and expense growth rates, selection of appropriate discount rate (as applicable), asset groupings, and other assumptions and estimates.

The Company uses estimates that are consistent with its business plans and a market participant view of the assets being evaluated.

Actual results may differ from these estimates.

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 impairment losses on amortizable intangible assets of $ 0 , $ 0.1 million, and $ 1.0 million in in 2022, 2021, and 2020, 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 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.

If the qualitative factors indicate that it is more likely than not that the carrying value of the reporting unit exceeds its fair value, the Company proceeds to a quantitative test to measure the existence and amount of goodwill impairment.

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

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 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 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.

The Company uses estimates consistent with business plans and a market participant view of the assets being evaluated.

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

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.

The Company assesses goodwill for impairment at least annually on October 1 and 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 first assesses qualitative factors to determine the existence of impairment.

If the qualitative factors indicate that the carrying value of a reporting unit exceeds its fair value, the Company proceeds to a quantitative test to measure the existence and amount, if any, of goodwill impairment.

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

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.

If the Company concludes that the way in which it is being managed has changed and results in a change to its concluded reporting units, the goodwill assigned to the original reporting unit is allocated to the new reporting units based on the relative fair value of the new reporting units.

The Company determines the fair value of reporting units using the income and market approaches, as applicable.

Under the income approach, the fair value of a reporting unit is the present value of its future cash flows as viewed from the lens of a hypothetical market participant in an orderly transaction.

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

Value indications are developed by discounting expected cash flows to their present value using a discount rate commensurate with the risks associated with the reporting unit subject to testing.

Under the market approach, the Company uses market multiples derived from various comparable companies based on measures salient to investors in those companies.

As indicated above, on September 30, 2022, the Company changed its operating segments, determining that it operates as two reportable segments.

In concert with this re-evaluation, the Company concluded that it has two reporting units for goodwill impairment testing purposes.

Management performed a goodwill impairment test as of September 30, 2022 on its previous reporting unit, concluding that goodwill was not impaired as of that date.

Management subsequently allocated the goodwill assigned to its previous reporting unit to its new reporting units.

Refer to Note 7, Goodwill and Intangible Assets, Net, for information regarding the reallocation of goodwill to the reporting units.

As part of the goodwill impairment test performed on October 1, 2022, the Company performed a quantitative assessment, concluding that goodwill was not impaired for any of its reporting units.

There were no recorded impairment losses related to goodwill in 2022, 2021, or 2020.

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 recorded no impairment losses related to any of our other indefinite-lived intangible assets during 2022, 2021, or 2020.

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 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 $ 0.2 million, $ 0.3 million, and $ 0.3 million of patent costs for the years ended December 31, 2022, 2021, and 2020, respectively.

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

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

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 flows.

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.

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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.

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

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.

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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.

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

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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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Upon approval of the sales order, the Company ships product to the customer and invoices them for the product sold.

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 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.

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.

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, rebates, fees paid to Group Purchasing Organizations (“ GPOs ”), and returns

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

This consists of the gross selling price of the product, less any discounts, rebates or other amounts paid to customers, 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.

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

Previous Revenue Recognition Policy and Transition

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.

Remaining Contracts

Prior to 2020, 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 arrangement 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 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.

Because of the prevalence of these arrangements, the Company’s sales arrangements did not qualify as contracts under Accounting Standards Codification (“ ASC ”) Topic 606, Revenue from Contracts with Customers , until consideration was collected from customers.

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

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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 revenue recognition criteria were met (the “ Transition Adjustment ”).

The revenue associated with this event was recognized prior to 2020.

• 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.

At that point, the Company determined that an accounting

contract would exist and the performance obligations for 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 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):

The effect of the cash collections on the Remaining Contracts on net sales and cost of sales for each of the years ended December 31, 2022, 2021, and 2020 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

2022 2021 2020

Net sales $ 259 $ 1,038 $ 7,767

Cost of sales — 174 1,087

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 $ 259 $ 864 $ 6,680

Group Purchasing Organization Fees

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

GPOs are funded by administrative fees that are paid by the Company.

The Company sells to GPO members who transact directly with the Company at GPO-agreed pricing.

Group Purchasing Organizations are funded by administrative fees that are paid by the Company.

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

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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.

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 costs are expensed as incurred.

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

Advertising expense for the year ended December 31, 2022, 2021, and 2020 was $ 0.2 million, $ 0.1 million, and $ 0.1 million respectively.

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.

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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.

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.

ASC 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 Topic 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.

Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from management’s current estimate of the unrecognized tax benefit liabilities.

These differences will be reflected as increases or decreases to the deferred tax asset or income tax expense in the period in which new information is available.

The Company records uncertain tax positions in accordance with ASC 740 on the basis of a two-step process whereby (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company records uncertain tax positions in accordance with ASC Topic 740 on the basis of a two-step process whereby (1) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position, and (2) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the consolidated statements of operations.

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

The fair value of restricted common stock is the value of common stock on the grant date.

The fair value of stock option grants is estimated using the Black-Scholes option pricing model.

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

The fair value of equity incentive awards that are not subject to a market condition is the value of common stock on the grant date.

For equity incentive awards that are subject to a market condition, the fair value of common stock on the grant date is adjusted to reflect the value of the market condition, generally using a path-dependent pricing model, such as a Monte Carlo simulation.

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.

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

For awards subject to a market condition, the resolution of the market condition is not subsequently considered in expense recognition.

Consequently, the Company could recognize expense for awards that do not ultimately vest.

Basic and Diluted Net Loss per Common Share

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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.

These amounts include (i) dividends accumulated on the Company’s Series B Convertible Preferred Stock (“ Series B 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.

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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 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.

Diluted net loss per common share adjusts basic net loss per common share for convertible securities, options, equity incentive 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 Company uses the if-converted method to calculate the dilutive effect of the Series B 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.

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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.

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

Such assumptions could include:

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Although the Company believes that the recorded fair value of its financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future fair values.

Government Assistance

The Company receives benefits from various government entities for various purposes from time to time.

With respect to any benefits that are not dependent on income (which are subject to the policy described under Income Taxes , above), the Company recognizes such benefits at the point in time in which all barriers to receive the assistance have been overcome in an amount equal to the expected benefit.

Benefits are reflected in the consolidated statements of operations in the line item to which the associated benefit relates.

Recently Adopted Accounting Pronouncements

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.

The guidance under ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

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

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

In November 2021, the Financial Accounting Standards Board (“ FASB ”) issued Accounting Standards Update (“ 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 adopted the provisions of this ASU effective January 1, 2022.

There was no impact upon adoption.

Refer to Note 20, Government Assistance , for the disclosures required by this ASU.

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.

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

In December 2022, following the issuance of ASU 2022-06, “ Reference Rate Reform (Topic 848) — Deferral of the Sunset Date of Topic 848 ”, the end date was extended to December 31, 2024.

As of December 31, 2022, 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 LIBOR tenor which underlies the Company’s term loan is expected to sunset effective June 30, 2023.

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 .

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, 2022, 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.

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Accounts receivable, net $ 43,084 $ 40,353

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

Activity related to the Company’s allowance for doubtful accounts during the year ended December 31, 2022 was as follows (in thousands):

Allowance for Doubtful Accounts

Balance at December 31, 2021

Bad debt expense 2,820

Write-offs ( 224 )

Balance at December 31, 2022

Bad debt expense and write-offs were not material for the year ended December 31, 2021.

Inventory consists of the following (in thousands):

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Inventory $ 13,183 $ 11,389

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.

There were no significant, unusual write-downs of inventory during the year ended December 31, 2022.

Consignment inventory, included as a component of finished goods in the table above, was $ 3.4 million and $ 2.6 million as of December 31, 2022 and 2021, respectively.

Property and Equipment, Net

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

Leasehold improvements $ 9,052 $ 6,010

Laboratory and clean room equipment 16,567 15,524

Property and equipment, net, consists of the following (in thousands):

Lab and clean room equipment $ 16,422 $ 16,567

Furniture and office equipment 15,016 14,975

Leasehold improvements 9,190 9,052

Construction in progress 1,983 397

Asset retirement cost 983 863

Finance lease right of use assets 189 —

Finance lease assets 189 189

Property and equipment, gross 43,783 42,043

Less accumulated depreciation and amortization ( 32,878 ) ( 29,498 )

Property and equipment, net of accumulated depreciation $ 9,165 $ 11,437

accumulated depreciation and amortization ( 35,927 ) ( 32,878 )

Property and equipment, net of accumulated depreciation and amortization $ 7,856 $ 9,165

Depreciation expense for each of the years ended December 31, 2022, 2021, and 2020 was recorded in certain captions of the consolidated statements of operations for those periods in the amounts shown in the table below (in thousands):

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Cost of sales $ 1,816 $ 1,787 $ 2,022

Selling, general and administrative expenses 2,278 3,416 4,223

Research and development expenses 298 344 358

Selling, general, and administrative expense 1,243 2,278 3,416

Research and development expense 286 298 344

Total $ 3,345 $ 4,363 $ 5,782

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

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 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):

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Operating lease cost $ 1,620 $ 1,327 $ 1,392

Depreciation of finance lease ROU assets 43 — —

Amortization of finance lease ROU assets 47 43 —

Interest expense on finance lease liabilities 10 13 —

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2026 419 — 419

2026 338 — 338

Thereafter — — —

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Lease liability $ 3,772 $ 106 $ 3,878

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.

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 $ 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

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.

Asset Retirement Obligations

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

Asset retirement obligations of $ 1.2 million and $ 1.0 million are included in other liabilities in the consolidated balance sheets as of December 31, 2022 and 2021, respectively.

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 was $ 0.1 million for each of the years ended December 31, 2022, 2021, and 2020, respectively, and is presented as a reduction to selling, general, and administrative expense on the consolidated statements of operations in those periods.

Goodwill and Intangible Assets, Net

Historically, the Company had concluded that it operated as a single operating segment and single reporting unit.

For the year ended December 31, 2022, as a result of changes in the management of the Company’s business, management concluded that the Company operates as three operating segments, including two distinct reportable segments:

Wound & Surgical and Regenerative Medicine.

See Note 13, Segment Information , for a description of the Company’s operating segments.

Management further concluded that these two reportable segments reflected its reporting units for goodwill impairment testing purposes.

The Company allocated $ 20.0 million of consolidated goodwill, which was entirely allocated to its previous reporting unit, to each of its Wound & Surgical and Regenerative Medicine segments based on their relative fair values from a market participant standpoint.

The result was $ 19.4 million and $ 0.5 million allocated to Wound & Surgical and Regenerative Medicine, respectively.

A third reporting unit associated with the Company’s third operating segment was deemed immaterial and no goodwill was assigned to it.

The Company performed goodwill impairment tests using the Company’s single reporting unit and the new reporting units on September 30, 2022.

In all cases, the Company concluded that the estimated fair values of each reporting unit exceeded its respective carrying values.

Therefore, the Company did not record impairment for goodwill on September 30, 2022.

For the annual impairment test performed October 1, 2022, the Company performed a quantitative assessment to determine the existence of impairment.

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

No impairment was recorded for the year ended December 31, 2022.

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

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

As a result of these assessments, the Company concluded that there was no impairment.

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

The following table indicates the changes in the carrying amount of goodwill for 2022 and 2021 (in thousands):

Previous Reporting Unit Wound & Surgical Regenerative Medicine Total Company

Balance as of January 1, 2021 $ 19,976 $ — $ — $ 19,976

Activity — — — —

Balance as of December 31, 2021 $ 19,976 $ — $ — $ 19,976

Reallocation ( 19,976 ) 19,441 535 —

Balance as of December 31, 2022 $ — $ 19,441 $ 535 $ 19,976

Intangible Assets

Intangible assets are summarized as follows (in thousands):

Intangible Assets, Net

Intangible assets, net, are summarized as follows (in thousands):

December 31, 2022 December 31, 2021

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Licenses 1,000 ( 4 ) 996 — — —

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

Non-compete agreements — — — 120 ( 98 ) 22

Total amortized intangible assets $ 10,923 $ ( 7,110 ) $ 3,813 $ 9,578 $ ( 6,408 ) $ 3,170

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

Impairment of intangible assets in 2019 were related to the abandonment of patents in process and customer relationship assets.

Expected future amortization of intangible assets as of December 31, 2022, is as follows (in thousands):

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Accrued expenses consist of the following (in thousands):

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

Legal costs $ 4,447 $ 2,806

External commissions 2,941 2,630

Estimated returns 788 688

Accrued clinical trials 694 651

Accrued rebates 707 1,343

Estimated returns 659 788

Accrued GPO Fees 638 559

Accrued travel 566 385

Accrued clinical trials 90 694

Other 976 607

Total $ 11,024 $ 9,812

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 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 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 ”).

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 on July 2, 2020 and provided the Company with a senior secured term loan in an aggregate amount of $ 50.0 million (the “ Term Loan ”).

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

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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.

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 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 February 28, 2022, the Company executed an Amendment to the Hayfin Loan Agreement (as amended, the “ Amended Hayfin Loan Agreement ”).

The amendment was accounted for as a modification.

No gain or loss was recognized nor was there a change to the carrying amount of the debt as a result of the amendment.

Interest on any borrowings under the Amended Hayfin Loan Agreement is equal to the London Interbank Offered Rate ( “LIBOR” ) (subject to a floor of 1.5 %) plus a margin of 6.75 % per annum.

If LIBOR is unavailable, the Term Loan will carry interest at the 6.75 % margin plus the greatest of the Prime Rate, the Federal Funds Rate plus 0.5 % per annum, and 2.5 %.

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

The Term Loan carried an interest rate of 8.3 % at issuance and 11.5 % as of December 31, 2022.

The Amended Hayfin Loan Agreement contains financial covenants requiring the Company, on a consolidated basis, to maintain the following:

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

• Minimum Liquidity (as defined in the Amended Hayfin Loan Agreement) of $ 20 million, an at-all-times financial covenant tested monthly.

As of December 31, 2022, the Company is in compliance with all applicable financial covenants under the Amended Hayfin Loan Agreement.

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

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

Annually, beginning with the fiscal year ended December 31, 2021, the Company is required to prepay the outstanding loans based on a percentage of Excess Cash Flow (as defined in the Amended Hayfin Loan Agreement), if such is generated.

No such prepayments have been required as of December 31, 2022.

The Amended 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:

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• 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.

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.

A breach of a financial covenant in the Amended 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 Company 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 EPICORD® and AMNIOCORD®.

If the FDA were to determine that these products do not meet the requirements for regulation solely under Section 361, the Company would be required to obtain the appropriate FDA clearance or approval to continue marketing these products.

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, including its ability to comply with the financial covenants set forth pursuant to the Amended Hayfin Loan Agreement .

Refer to Note 12, Revenue , for net sales derived from the Company’s cord products.

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

The costs allocated to the Hayfin Loan Agreement 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):

Term Loan DD TL Total

Long term debt Other current assets

Original issue discount $ 333 $ 167 $ 500

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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.

Amortization of these amounts are presented as part of interest expense, net on the consolidated statements of operations for the years ended December 31, 2021 and 2020.

The balances of the Term Loan as of December 31, 2022 and 2021 were as follows (amounts in thousands):

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Long term debt, net $ 48,594 $ 48,127

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):

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,

2022 2021 2020

Stated interest $ 4,559 $ 4,182 $ 2,085

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Year Ended December 31,

2022 2021 2020

Commitment fee $ — $ 126 $ 128

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Outstanding principal $ 50,000

The DD TL was not funded as of December 31, 2021.

Consequently, no principal payments are owed.

As of December 31, 2022, the fair value of the Term Loan was $ 46.7 million.

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Loss on extinguishment of debt $ 8,201

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):

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

Year ended December 31, 2020

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Adjustments to reconcile to net loss available to common stockholders:

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

Accumulated dividend on Series B Preferred Stock 6,580 5,210 2,016

Amortization of beneficial conversion feature — — 31,110

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Diluted Net Loss Per Common Share

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

The following table sets forth the computation of 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 $ ( 36,777 ) $ ( 16,421 ) $ ( 83,328 )

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 )

Denominator - weighted average common shares outstanding adjusted for potential common shares (b) 110,353,406 108,257,112 106,946,384

Dividends on Series B Preferred Stock 6,580 6,136 34,044

antidilutive adjustments ( 6,580 ) ( 6,136 ) ( 34,044 )

Total adjustments — — —

Numerator $ ( 36,777 ) $ ( 16,421 ) $ ( 83,328 )

Weighted average common shares outstanding 112,909,266 110,353,406 108,257,112

Potential common shares 28,705,593 29,801,836 15,687,044

antidilutive potential common shares (a) ( 28,705,593 ) ( 29,801,836 ) ( 15,687,044 )

Total adjustments — — —

Weighted average common shares outstanding adjusted for potential common shares 112,909,266 110,353,406 108,257,112

Diluted net loss per common share $ ( 0.33 ) $ ( 0.15 ) $ ( 0.77 )

(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:

(a) 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:

Year ended December 31,

2022 2021 2020

Convertible preferred stock Series B 26,497,570 12,987,013 —

Series B Preferred Stock 27,850,916 26,497,570 12,987,013

Restricted stock unit awards 546,883 1,393,910 616,141

Restricted stock awards 217,971 1,121,019 1,299,770

Outstanding stock options 65,720 771,409 752,499

Restricted stock unit awards 1,393,910 616,141 —

Performance stock unit awards 5,251 17,928 31,621

Employee stock purchase plan 18,852 — —

Potential common shares 28,705,593 29,801,836 15,687,044

Convertible Preferred Stock Series B

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.

Series B Convertible Preferred Stock

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 dividends at a rate of 4.0 % per annum through June 30, 2021, and 6.0 % 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.

Dividends are paid at the end of each quarter based on the dividend amounts that accumulate beginning of 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 the 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.

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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.

The holders of the Series B Preferred Stock are entitled to vote on all matters to be voted on by the Company’s shareholders on an as-converted basis as a single class with the common stock;

provided that the votes represented by a single holder of Series B Preferred Stock cannot exceed 19.9 % of the total voting stock of the Company and no share of Series B Preferred Stock held can entitle the holder to a number of votes that exceeds the quotient of the Liquidation Preference divided by $ 5.25 per share.

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 .

As a result of the Company’s conclusion that the Series B Preferred Stock represented an equity host, the conversion feature of all Series B Preferred Stock was considered to be clearly and closely related to the associated Series B Preferred Stock host instrument.

Accordingly, the conversion feature of all Series B Preferred Stock was not considered an embedded derivative that required bifurcation.

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 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 their then-outstanding shares of Series B Preferred Stock for cash in an amount equal to the Liquidation Preference plus accumulated and unpaid dividends or (2) convert the Series B Preferred Stock into common stock and receive their pro rata consideration thereunder.

Since the contingent redemption of the Series B Preferred Stock by the holders in the event of a change in control is outside the Company’s control, the Series B Preferred Stock is classified as temporary equity.

At the time of the issuance of the Series B Preferred Stock, the Company’s common stock, into which the Company’s Series B Preferred Stock is convertible, had an estimated fair value exceeding the effective conversion price of the Series B Preferred Stock, giving rise to a beneficial conversion feature in the amount of $ 31.1 million.

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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 June 30, 2021.

This amount was 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, 2022, 2021, and 2020 (in thousands, except per share amounts):

Convertible preferred stock Series B

Series B Preferred Stock

Shares Amount

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100,000 $ 92,494

Balance at December 31, 2022

100,000 $ 92,494

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

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The 2016 Plan permits the grant of equity awards to the Company’s employees, directors, consultants and advisors for up to 8,400,000 share s o f the Company’s common stock plus (i) the number of shares of the Company’s common stock that remain available for issuance under the Prior Incentive Plan, and (ii) the number of shares that are represented by outstanding awards that later become available because of the expiration or forfeiture of the award without the issuance of the underlying shares.

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

Awards granted under the 2016 Plan are subject to a vesting schedule as set forth in each individual agreement.

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.

A summary of stock option activity for the year ended December 31, 2021, and changes during the year then ended are presented below:

A summary of stock option activity for the year ended December 31, 2022 is presented below:

Shares Weighted-

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Cash received from option exercise under all share-based payment arrangements for the years ended December 31, 2022, 2021 and 2020 was $ 0.7 million, $ 1.4 million, and $ 0.4 million, respectively.

The actual tax benefit for the tax deductions from option exercise of the share-based payment arrangements totaled $ 2.0 million, $ 1.6 million, and $ 0.2 million, respectively, for the years ended December 31, 2021, 2020 and 2019.

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, 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.

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.

The term of the modified options was the remaining time until the end of the contractual maturity of ten years .

The risk-free rate was based on the U.S.

Treasury yield curve in effect at the time of modification for the period of the expected term.

2019 Option Modification

Expected volatility 65 % - 95 %

Expected life (in years) 0.28 - 5.12

Expected dividend yield 0

Risk-free interest rate 1.56 % - 2.02 %

Restricted Stock Awards

The Company has issued several classes of restricted stock awards to employees:

restricted stock (“ RSAs ”), restricted stock unit awards (“ RSUs ”), and performance stock unit awards (“ PSUs ”).

The following is summary information for restricted stock awards for the year ended December 31, 2021.

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 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.

The actual tax

benefit for the tax deductions from option exercise of the share-based payment arrangements totaled $ 0.2 million, $ 2.0 million, and $ 1.6 million, respectively, for the years ended December 31, 2022, 2021 and 2020.

The Company has a policy of using its available repurchased treasury stock to satisfy option exercises prior to the issuance of new shares of common stock.

No options vested during the years ended December 31, 2022, 2021 and 2020.

There was no unrecognized compensation expense at December 31, 2022.

During 2021 and 2020, 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.

There were no similar transactions for the year ended December 31, 2022.

Equity Incentive Awards

The Company has issued several classes of stock awards to employees:

restricted stock (“ RSAs ”), restricted stock unit awards (“ RSUs ”), and performance stock unit awards (“ PSUs ”, collectively the “ Equity Incentive Awards ”).

The following is summary information for such awards for the year ended December 31, 2022.

Restricted stock and RSUs generally vest over a one - to three-year period in equal annual increments and require the recipient to provide continuous service through each vesting date.

PSUs vest based on the achievement of specific performance targets subject to agreements with employees and also require the recipient to provide continuous service through a specified date or event.

As of December 31, 2022, there was $ 19.8 million of total unrecognized stock-based compensation related to unvested Equity Incentive Awards.

That expense is expected to be recognized over a weighted-average period of 1.72 years, which approximates the remaining vesting period of these grants.

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.

RSAs are considered common shares issued and outstanding upon grant, while shares underlying the RSUs and PSUs are considered issued and outstanding only upon vesting.

Therefore, all RSAs noted below as unvested are considered issued and outstanding as of December 31, 2022, while unvested RSUs and PSUs are not considered issued and outstanding as of December 31, 2022.

RSAs, RSUs, and PSUs are not reflected in weighted average common shares outstanding for purposes of calculated basic net loss per common share.

A summary of Equity Incentive Award activity, by class of award, for the year ended December 31, 2022 is presented below:

Shares Weighted-Average Grant Date

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Unvested at December 31, 2022 122,755 $ 6.13 4,774,971 $ 6.28 241,072 $ 4.62

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 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.

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 during the year ended December 31, 2020.

The total fair value of equity incentive awards vested during the years ended December 31, 2022, 2021 and 2020, was $ 10.9 million, $ 20.1 million, and $ 10.1 million, respectively.

For the years ended December 31, 2022, 2021, and 2020 the Company recognized share-based compensation as follows (in thousands):

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Cost of sales $ 1,213 $ 813 $ 520

Research and development 836 288 265

Selling, general and administrative 13,108 14,549 11,322

Selling, general and administrative expenses 9,578 13,108 14,549

Research and development expense 1,875 836 288

Total share-based compensation 12,666 14,757 15,357

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Total share-based compensation, net of tax benefit $ 9,533 $ 11,108 $ 11,565

Performance Stock Units

The Company granted 441,965 PSUs to certain executive officers during the year ended December 31, 2022.

These PSUs vest based on and to the extent that stipulated cumulative net sales targets are achieved.

Of the granted PSUs:

• 25 % can vest based on net sales achieved for the year ended December 31, 2022,

• 25 % can vest based on net sales achieved for the two-year period ending December 31, 2023, and

• the remaining award can vest based on net sales achieved for the three-year period ending December 31, 2024.

Achievement of the performance targets allow for vesting of 50 % to 150 % of the PSUs granted.

If performance is below 50 %, the PSUs do not vest.

To the extent that the vesting percentage in a subsequent period exceeds the vesting percentage achieved in a previous period, a recipient is eligible to receive the amount of shares from the previous period based on the vesting percentage in the subsequent period.

If total shareholder return (“ TSR ”), as defined below, is negative, vesting is limited to 100 % of the award for all periods, regardless of actual achievement against the stipulated net sales targets.

All of the PSUs require recipients to continue employment with the Company through the vesting date, which will occur upon approval of the results with respect to the established targets by the Compensation Committee of the Board of Directors after December 31, 2024, but no later than March 15, 2025.

The TSR is calculated as the average trading price of the Company’s common stock during the final 30 trading days of 2024, adjusted for dividends paid on the Company’s common stock, less the average trading price during the final 30 trading days of 2021.

Since TSR is based on the Company’s share price, it represents a market condition, which is incorporated in the grant date fair value of the shares in excess of 100 % vesting.

These awards are not reflected in the table above.

The fair value of these awards on the date of grant was estimated using a Monte Carlo simulation, the inputs for which were informed by a Black-Scholes option pricing model.

The assumptions used in determining the fair value of these PSUs were as follows:

Risk-free interest rate 2.68 %

Expected term (years) 2.74

Expected volatility (annualized) 63.7 %

Dividend yield — %

Closing stock price on grant date $ 4.62

Grant date fair value $ 2.78

The expected term was derived from the date of the grant through the latest date of the resolution of the market condition.

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

Treasury Yield curve in effect at the date of grant for maturities of similar periods to the concluded term.

The expected volatility was based on the Company’s historical daily stock price movements for a term similar in length to the expected term.

The dividend yield was based on the Company’s history of dividends on its common stock.

Expense related to PSUs is recognized, straight-line, based on the grant date fair value of the relevant shares, over the requisite service period related to each individual tranche, limited to the extent that the achievement of the associated performance condition associated with that tranche is probable.

These expectations are derived from the Company’s actual results, latest budget, and forecasts for net sales in the associated periods.

Subsequent adjustments to the expectation for vesting are reflected as a cumulative adjustment to expense.

The fair value of the portion of the award subject to a market condition and expense recognized on such awards are not subsequently reconsidered based on the probability of or actual achievement of the market condition.

Accordingly, the Company may recognize share-based compensation expense for awards that do not ultimately vest.

Employee Stock Purchase Plan

On June 7, 2022, the Company adopted the Employee Stock Purchase Plan of MiMedx Group, Inc.

(the “ ESPP ”).

The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

All regular full-time employees of the Company (including officers) and all other employees who meet the eligibility requirements of the plan may participate in the ESPP.

The ESPP provides eligible employees an opportunity to acquire the Company’s common stock on a semi-annual basis at a purchase price of 85 % of the lower of the closing price per share of the Company’s common stock on the first day and the last day of each six-month purchase period (the “ Purchase Period ”).

The aggregate number of shares which may be issued and sold under the ESPP is 3 million shares of common stock.

The first Purchase Period under the ESPP commenced on August 1, 2022 and resulted in a purchase of shares on January 31, 2023.

For the year ended December 31, 2022, the Company recorded $ 0.2 million in stock-based compensation related to the ESPP.

As of December 31, 2022, the Company had cumulative payroll deferrals under the ESPP for future share purchases of $ 0.6 million.

This amount is included in accrued compensation in the consolidated balance sheet.

No shares have been issued under the plan to date.

Unrecognized stock compensation for the period is less than $ 0.1 million to be recognized over a weighted average period of 0.08 years.

2020 RSU Modification

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.

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 was recognized during the year ended December 31, 2020.

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 during the year ended December 31, 2020.

Treasury Stock

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, 2022, 2021, and 2020 were 249,442 , 469,239 , and 435,492 , respectively, for an aggregate purchase price of $ 1.2 million, $ 4.8 million, and $ 2.3 million, respectively.

During 2020 and 2021, certain stock option holders elected to return restricted shares to the Company as consideration to exercise stock options.

On March 27, 2020, the U.S.

government enacted the CARES Act which, among other changes, eliminated the taxable income limit for certain net operating losses (“ NOL ”), allowed businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior years, and provided a payment delay of employer payroll taxes during 2020 after the date of enactment.

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 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, $ 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.

Net Sales by Product

MIMEDX has two classes of products:

(1) Advanced Wound Care, or Section 361, products, consisting of its tissue and cord sheet allograft products as well as certain particulate products regulated under Section 361, and (2) Section 351 products, consisting of the Company’s micronized and certain other particulate products.

Advanced Wound Care is further disaggregated between the Company’s Tissue/Other and Cord products.

Information regarding the business units responsible for the sale of each of these classes of product can be found in Note 13, Segment Information .

Below is a summary of net sales by each class of product (in thousands):

Year Ended December 31,

2022 2021 2020

Advanced Wound Care

Tissue/Other $ 241,992 $ 216,418 $ 192,566

Cord 23,211 23,599 16,073

Advanced Wound Care 265,203 240,017 208,639

Section 351 2,379 17,610 31,828

259 988 7,767

$ 267,841 $ 258,615 $ 248,234

(1) “Other” includes the Remaining Contracts and other revenue transactions in the indicated period relating to performance obligations settled prior to October 1, 2019, the date at which the Company changed its pattern of revenue recognition.

For all practical purposes, the Company is not able to allocate these revenue transactions to different product groups.

This revenue is reflected as part of the Wound & Surgical segment.

Net Sales by Site of Service

MIMEDX has three sites of service for its products (1) Hospital settings and wound care clinics, which are stable reimbursement settings in which products are used for surgical applications, (2) Private offices, which generally represents doctors and practitioners with independent operations, and (3) Other, which includes federal facilities, international sales, and other sites of service.

Below is a summary of net sales by site of service (in thousands):

Year Ended December 31,

2022 2021 2020

Hospital $ 163,206 $ 154,580 $ 144,285

Private Office 77,158 $ 75,816 $ 75,638

Other 27,477 28,219 28,311

Total $ 267,841 $ 258,615 $ 248,234

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 ”).

Below is a summary of net sales by each customer type (in thousands):

Year Ended December 31,

2022 2021 2020

Direct Customers $ 261,508 $ 250,009 $ 240,690

Distributors 6,333 8,606 7,544

Total $ 267,841 $ 258,615 $ 248,234

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, 2022, 2021, or 2020.

Segment Information

The Company has two reportable segments:

Wound & Surgical and Regenerative Medicine.

• Wound & Surgical focuses on the Advanced Wound Care and Surgical Recovery markets through the sale of the Company’s existing product portfolio and product development to serve these primary end markets.

Its platform technologies include tissue allografts derived from human placental membrane (EPIFIX®, AMNIOFIX®, and AMNIOEFFECT®), tissue allografts derived from human umbilical cord (EPICORD® and AMNIOCORD®), and a particulate extracellular matrix derived from human placental disc (AXIOFILL®™).

This segment is also responsible for the international sales of the Company’s Section 351 products.

• The Regenerative Medicine business focuses solely on Regenerative Medicine technologies, specifically progressing the Company’s placental biologics platform towards registration as an FDA-approved biological drug.

mDHACM is the lead product candidate in its late-stage pipeline targeted at achieving FDA approval for an indication to help decrease pain and improve function in patients suffering from KOA.

The Company’s Corporate function includes expenses incurred by executive, finance, human resource, information systems, legal, other functions which are generally shared and whose activities are not specifically identifiable solely to either of the other segments.

It also includes amortization of intangible assets.

The Company has another operating segment related to an expiring dental sales contract, reflecting all sales of the Company’s dental product.

All net sales and cost of sales presented in the Corporate & Other columns below relate to this operating segment.

Wound & Surgical net sales reflects sales of the Company’s Advanced Wound Care products (as discussed in Note 12, Revenue ), except for sales of the Company’s dental product.

In addition, Wound & Surgical reflects international sales of the Company’s Section 351 products, which represent all Section 351 sales not reflected in Regenerative Medicine.

The Company evaluates the performance of its segments and allocates resources based on segment contribution, defined as net sales less (i) cost of sales, (ii) selling, general and administrative expense, (iii) research and development expense, and (iv) amortization of intangible assets.

Prior period results were recast on the basis of new operating segments.

The only components which comprise loss before income tax provision that are not included in operating loss are interest expense, net and other expense, net.

Net sales and segment contribution for each reportable segment for the year ended December 31, 2022 were as follows (in thousands):

Wound & Surgical Regenerative Medicine Corporate & Other Consolidated

Net sales $ 264,906 $ — $ 2,935 $ 267,841

Cost of sales 44,462 — 3,854 48,316

Selling, general and administrative expense 145,887 — 62,902 208,789

Research and development expense 7,836 14,993 — 22,829

Amortization of intangible assets — — 701 701

Segment contribution $ 66,721 $ ( 14,993 )

Investigation, restatement and related expense 12,177

Operating loss $ ( 24,971 )

Supplemental information

Depreciation expense $ 1,791 $ 165 $ 1,389 $ 3,345

Share-based compensation $ 6,513 $ 1,158 $ 4,995 $ 12,666

Net sales and segment contribution for each reportable segment for the year ended December 31, 2021 were as follows (in thousands):

Wound & Surgical Regenerative Medicine Corporate & Other Consolidated

Net sales $ 238,940 $ 16,596 $ 3,079 $ 258,615

Cost of sales 35,204 3,655 4,424 43,283

Selling, general and administrative expense 123,583 12,910 61,866 198,359

Research and development expense 5,864 11,480 — 17,344

Amortization of intangible assets — — 820 820

Segment contribution $ 74,289 $ ( 11,449 )

Investigation, restatement and related expense 3,791

Impairment of intangible assets 53

Operating loss $ ( 5,035 )

Supplemental information

Depreciation expense $ 1,644 $ 246 $ 2,473 $ 4,363

Share-based compensation $ 5,158 $ 1,461 $ 8,138 $ 14,757

Net sales and segment contribution for each reportable segment for the year ended December 31, 2020 were as follows (in thousands):

Wound & Surgical Regenerative Medicine Corporate & Other Consolidated

Net sales $ 213,489 $ 32,362 $ 2,383 $ 248,234

Cost of sales 30,185 5,856 3,289 39,330

Selling, general and administrative expense 103,039 17,546 60,437 181,022

Research and development expense 3,979 7,736 — 11,715

Amortization of intangible assets — — 1,073 1,073

Segment contribution $ 76,286 $ 1,224

Investigation, restatement and related expense 59,465

Impairment of intangibles 1,027

Operating loss $ ( 45,398 )

Supplemental information

Depreciation expense $ 1,755 $ 451 $ 3,576 $ 5,782

Share-based compensation $ 4,373 $ 1,256 $ 9,728 $ 15,357

The Company does not allocate any assets to the reportable segments.

No asset information is reported or disclosed to the CODM in the financial information for each segment.

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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Research and development and other tax credits 8,384 6,297

Share-based compensation 4,220 3,259

Interest limitation carryforward 3,970 2,992

Interest limitation carry forward 4,898 3,970

Accrued expenses 3,501 3,385

Accrued settlement costs 235 2,464

Bad debts 601 2,138

Lease obligation 1,277 1,021

Capitalized research and development expenditures 3,586 —

Share-based compensation 3,145 4,220

Allowance for doubtful accounts 1,033 601

Lease liabilities 962 1,277

Sales return and allowances 163 195

Accrued settlement costs 50 235

Other 885 1,115

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Prepaid expenses ( 1,400 ) ( 1,337 )

Property and equipment ( 705 ) ( 1,073 )

Right of use asset ( 867 ) ( 1,197 )

Intangible assets ( 351 ) ( 263 )

Deferred costs of goods sold — ( 43 )

Property and equipment ( 77 ) ( 705 )

Net Deferred Tax Assets 47,631 41,126

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Federal statutory rate 21.00 % 21.00 % 21.00 %

Tax credits 5.85 % 2.01 % 0.32 %

Employee retention credit — % 3.37 % — %

NOL carryback rate differential — % — % 10.99 %

Meals and entertainment ( 0.10 ) % ( 1.13 ) % ( 0.50 ) %

State taxes, net of federal benefit ( 0.55 ) % 4.53 % ( 0.20 ) %

Uncertain tax positions ( 0.58 ) % 0.02 % 0.24 %

Nondeductible compensation ( 2.22 ) % ( 13.77 ) % ( 0.89 ) %

Meals and entertainment ( 1.13 ) % ( 0.50 ) % ( 2.04 ) %

Deferred tax adjustments ( 2.89 ) % 14.63 % — %

Share-based compensation ( 4.03 ) % 23.31 % ( 1.24 ) %

Employee retention credit 3.37 % — % — %

Tax credits 2.01 % 0.32 % 0.45 %

Uncertain tax positions 0.02 % 0.24 % 1.22 %

NOL carryback rate differential — % 10.99 % — %

Other 10.90 % ( 1.66 ) % 0.12 %

Valuation allowance ( 17.59 ) % ( 52.70 ) % ( 8.14 ) %

Other 0.42 % ( 3.73 ) % ( 1.66 ) %

Effective tax rate ( 0.69 ) % ( 2.46 ) % 19.92 %

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.

Current and deferred income tax (benefit) expense is as follows (in thousands):

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Certain items of income and expense are not reported in tax returns and financial statements in the same year.

The tax effect of such temporary differences is reported as deferred income taxes.

The tax effects of such temporary differences are reported as deferred income tax assets and liabilities.

The measurement of deferred tax assets is reduced, if necessary, by the amount of any tax benefit that, based on available evidence, is not expected to be realized.

The Company establishes a valuation allowance for deferred tax assets for which realization is not likely.

The Company establishes a valuation allowance for deferred tax assets for which realization is not more likely than not.

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 $ 47.6 million and $ 41.1 million was recorded against the deferred tax asset balance as of December 31, 2022 and 2021, 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.

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.

1 unchanged sentence

A portion of the Company’s NOLs and tax credits are subject to annual limitations due to ownership change limitations provided by Internal Revenue Code Section 382.

If not utilized, the federal and state tax NOL carryforwards will expire between 2027 and 2037.

All of the Company’s federal NOL carryforwards have been generated since 2018 and will carry forward indefinitely.

The majority of the Company’s state NOL carryforwards will expire between 2027 and 2042;

the remainder of the Company’s state NOLs will carryforward indefinitely.

As of December 31, 2022, the Company has recorded a deferred tax asset for both federal and state NOL carryforwards of approximately $ 17.8 million and $ 5.9 million, respectively.

As of December 31, 2021, the Company has recorded a deferred tax asset for federal and state NOL carryforwards of $ 17.7 million and approximately $ 5.6 million, respectively.

Unrecognized Tax Benefits

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands) included in other liabilities in the consolidated balance sheets:

1 unchanged sentence

Unrecognized tax benefits - January 1 $ 469 $ 477 $ 627

Gross increases - tax positions in current period 20 — 56

Increases - tax positions in current period 98 20 —

Increases - tax positions in prior period 78 — —

Decreases in prior year positions — ( 28 ) ( 150 )

Unrecognized tax benefits - December 31 $ 645 $ 469 $ 477

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.

Included in the balance of unrecognized tax benefits are tax benefits of $ 0.6 million and $ 0.5 million for the years ended December 31, 2022 and 2021, respectively, 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.

Related to the unrecognized tax benefits noted above, the Company accrued $ 0 of interest during 2021.

The Company accrued $ 0.1 million of interest during 2019 and, in total, as of December 31, 2019 had recognized $ 0.1 million of interest.

The Company accrued $ 0.1 million of interest during 2018, and, in total, as of December 31, 2018 had recognized $ 0.1 million of interest.

Related to the unrecognized tax benefits noted above, the Company accrued $ 0.0 million of interest during the years ended December 31, 2022 and 2021 .

The Company accrued and recognized $ 0.1 million of interest during 2020.

The Company is subject to taxation in the U.S.

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Additional prior years may be open to the extent attributes are being carried forward to an open tax year.

On March 27, 2020, the U.S.

government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “ CARES Act ”) which, among other changes, eliminated the taxable income limit for certain net operating losses (“ NOL ”), allowed businesses to carry back NOLs arising in 2018, 2019, and 2020 to the five prior years, and provided a payment delay of employer payroll taxes during 2020 after the date of enactment.

These provisions allowed the Company to carry back federal tax losses related to 2018 and 2019.

The remaining $ 0.9 million is reflected in income tax receivable on the consolidated balance sheets as of December 31, 2022 and 2021.

The Company had a deferred payment of $ 2.2 million in employer taxes that was included as part of accrued compensation on the consolidated balance sheet as of December 31, 2021.

$ 1.1 million was paid in January 2022 and the remaining balance paid in December 2022.

Supplemental Disclosure of Cash Flow and Non-Cash Investing and Financing Activities

Selected cash payments, receipts, and noncash activities are as follows (in thousands):

Selected cash payments, receipts, and non-cash activities are as follows (in thousands):

Years Ended December 31,

5 unchanged sentences

Purchases of equipment included in accounts payable 417 8 1,062

Deferred financing costs — 53 6,650

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 ( 37 ) 2,251 1,169

Deemed dividends of Series B Preferred Stock — 926 32,028

Fair value of non-cash consideration received for option exercise — 380 922

Note receivable for sale of property and equipment — 75 —

Amendment fee on previous term loan — — 722

Deferred financing costs — — 53

Commitments and Contingencies

Contractual Commitments

The Company has commitments for meeting space.

These commitments expire over 3 years following December 31, 2021, and generally contain renewal options.

The Company has commitments for meeting spaces, generally for hotel and conference spaces for company functions.

These commitments generally contain renewal options.

The estimated meeting space commitments are as follows (in thousands):

Years Ended December 31,

Year ending December 31, Meeting Space Commitments

Total $ 1,383

Separation Agreement with Timothy R.

On September 15, 2022, the Company entered into a Separation Agreement and General Release with Timothy R.

Wright, the former Chief Executive Officer of the Company (the “ Separation Agreement ”).

Pursuant to the terms of the Separation Agreement and Mr.

Wright’s general release of all claims against the Company, the Company will pay Mr.

Wright a total of $ 3.1 million in cash in a series of installments through September 2024.

The terms of the severance benefits provided in the Separation Agreement were the same as those provided for in the original employment Letter Agreement between Mr.

Wright and the Company dated April 8, 2019.

The $ 3.1 million was recorded as part of selling, general and administrative expense on the consolidated statement of operations for the year ended December 31, 2022.

Of the $ 3.1 million, $ 1.9 million is reflected in accrued compensation and $ 1.2 million is reflected in other liabilities in the consolidated balance sheet as of December 31, 2022.

No payments were required to be made to Mr.

Wright under the terms of the Separation Agreement during the year ended December 31, 2022.

Nordic Agreement

In June 2022, the Company entered into a collaboration agreement (the “ Nordic Agreement ”) with Nordic Bioscience Clinical Development A/S (“ NBCD ”) to provide full operational support for the Company’s upcoming Knee Osteoarthritis (“ KOA ”) clinical trial program.

As part of the agreement, NBCD will perform site selection and monitoring, manage patient recruitment and enrollment, data management, statistical analysis and reporting activities for the duration of the trial.

Under the terms of the Nordic Agreement, as of December 31, 2022, the Company was obligated to pay $ 13.3 million upon the achievement of specified milestones over the course of the clinical trial.

The milestones are based upon various factors including, but not limited to, site selection and enrollment, patient enrollment, patient completion, and certain other activities related to clinical trial operations.

These milestone payments are revised semi-annually based on fluctuations in the consumer price index.

The Company has the ability to terminate the Nordic Agreement with 30 days written notice to NBCD.

At such time, the Company would be required to pay for services performed through the date of termination and any non-cancelable obligations.

In addition to the $ 13.3 million, the Company will reimburse NBCD for actual expenses incurred related to third-party vendors to be contracted and managed by NBCD.

As of December 31, 2022, the Company has paid $ 2.0 million under the Nordic Agreement, relating to milestones which have been achieved from inception through that date.

During the year ended December 31, 2022, the Company recognized $ 1.0 million of expense related to the Nordic Agreement.

This amount is included as part of research and development expense in the consolidated statement of operations.

The remaining $ 1.0 million is reflected in prepaid expenses on the consolidated balance sheet as of December 31, 2022.

In January 2023, the Company executed a change order to the Nordic Agreement.

Refer to Note 21, Subsequent Events , for more details.

Turn Agreement

On December 7, 2022, the Company acquired intellectual property rights pursuant to a Platform Intellectual Property License (the “Turn Agreement” ) with Global Health Solutions, Inc.

Turn Therapeutics or “Turn” ).

The Turn Agreement provided MIMEDX with an exclusive, worldwide, sub-licensable license to use Turn’s proprietary antimicrobial technology platform (PermaFusion®) to develop antimicrobial line extensions and new products.

In addition, the Turn Agreement granted the Company the commercial rights to Turn’s placental collagen matrix product, FleX™ AM (“ FleX ”), contingent upon Turn’s receipt of FDA 510(k) clearance and other conditions.

During the year ended December 31, 2022, the Company paid $ 1.0 million upon the execution of the Turn Agreement to acquire the license.

This amount was capitalized and is included as part of intangible assets, net, on the consolidated balance sheet as of December 31, 2022.

The Company is obligated to make additional payments upon the meeting of regulatory and product commercial milestones, including $ 9.6 million if and when Turn receives 510(k) clearance from the FDA for FleX.

This amount is not reflected in the consolidated balance sheet as of December 31, 2022.

Litigation and Regulatory Matters

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.

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 probable and estimable.

The Company's financial statements at December 31, 2022 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.

As of December 31, 2022, the Company had reserved $ 0.2 million related to expected settlement costs related to legal matters.

The Company paid $ 0.7 million toward the resolution of legal matters involving the Company during the year ended December 31, 2022.

In addition, insurance providers paid $ 0.6 million on the Company’s behalf to settle legal matters.

The Company paid $ 6.7 million to settle legal proceedings during 2021.

17 unchanged sentences

Cashman and Cherry Bekaert & Holland LLP.

The amended complaint (the “ Securities Class Action Complaint ”) alleged violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act.

The amended complaint alleged violations of Section 10(b) of the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), Rule 10b-5 promulgated thereunder, and Section 20(a) of the Exchange Act.

It asserted a class period of March 7, 2013 through June 29, 2018.

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On February 25, 2022, CPFI filed a Notice of Appeal in the 11th Circuit Court of Appeals.

Oral arguments were held on January 24, 2023.

On November 4, 2022, Troy Welker and Min Turner, former optionholders of the Company, brought a lawsuit in Fulton County State Court against the Company, former directors Terry Dewberry and Charles Evans, and former officers Parker H.

“Pete” Petit, William C.

Taylor, and Michael Senken alleging violations of the Georgia Racketeer Influenced and Corrupt Organizations (“ RICO ”) Act against all defendants and conspiracy to violate the Georgia RICO Act and breach of fiduciary duty against the individual defendants.

The Company is defending against the allegations and removed the case to the United States District Court for the Northern District of Georgia.

Plaintiffs have filed a motion to remand back to state court, which is currently pending.

Investigations

5 unchanged sentences

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.

) against its former CEO, Parker H.

“Pete” Petit, and its former COO, William C.

6 unchanged sentences

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.

Following the mediation, the Company and Taylor reached an agreement to settle the matter between them.

Negotiations with Petit are ongoing.

Other Matters

14 unchanged sentences

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.

13 unchanged sentences

The Special Litigation Committee completed its investigation relating to this action and filed an executive summary of its findings with the Court on July 1, 2019.

The parties (together with parties from the Hialeah derivative lawsuit, the Nix and Demaio derivative lawsuit, and the Murphy derivative lawsuit, each described below) held a mediation on February 11, 2020.

The parties (together with parties from the

Hialeah derivative lawsuit, the Nix and Demaio derivative lawsuit, and the Murphy derivative lawsuit, each described below) held a mediation on February 11, 2020.

Following continued discussions, on May 1, 2020, the parties notified the Court that plaintiffs and the Company had reached an agreement in principle to settle this consolidated derivative action, which settlement also encompasses all claims asserted in the Hialeah derivative lawsuit, the Nix and Demaio derivative lawsuit, and the Murphy derivative lawsuit.

31 unchanged sentences

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 involved 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.

27 unchanged sentences

The Company filed a motion to dismiss on October 1, 2018.

The Company’s

motion to dismiss was granted in part and denied in part on May 15, 2019.

The Company’s motion to dismiss was granted in part and denied in part on May 15, 2019.

The parties have reached an agreement to resolve this matter.

4 unchanged sentences

On May 7, 2019, the Department of Justice (“ DOJ ”) declined to intervene, and the case was unsealed.

In April 2020, without admitting the allegations, the Company agreed to pay $6.5 million to the DOJ to resolve this matter.

In April 2020,

without admitting the allegations, the Company agreed to pay $ 6.5 million to the DOJ to resolve this matter.

This amount was paid during the year ended December 31, 2020.

6 unchanged sentences

The parties settled this matter and OSHA dismissed the complaint on May 20, 2020.

On January 21, 2019, a former employee filed a complaint in the Fifth Judicial Circuit, Richland County, South Carolina (Jon Michael Vitale v.

MiMedx Group, Inc.

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.

On February 19, 2019, the case was removed to the U.S.

District Court for the District of South Carolina.

The Company filed a motion to dismiss on April 8, 2019, which was denied by the Court.

This matter is resolved.

Intellectual Property Litigation

5 unchanged sentences

The Company has alleged that NuTech and DCI infringed and continue to infringe on the Company’s patents through the manufacture, use, sale and/or offering of their tissue graft product.

The Company has also asserted that NuTech knowingly and willfully made false and misleading representations about its products to customers and prospective customers.

The Company also asserted that NuTech knowingly and willfully made false and misleading representations about its products to customers and prospective customers.

The Company is seeking permanent injunctive relief and unspecified damages.

1 unchanged sentence

Since the Company has completed its restatement, the case resumed.

The parties have reached a settlement in the matter and the case was dismissed with prejudice.

The parties reached a settlement in the matter and the case was dismissed with prejudice.

The Osiris Action

2 unchanged sentences

MiMedx Group, Inc.

The parties have reached a settlement in the matter and the case was dismissed with prejudice on October 26, 2020.

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 ”).

Below is a summary of net sales by each customer type (in thousands):

Year Ended December 31,

2021 2020 2019

Direct Customers

$ 250,009 $ 240,690 $ 288,800

8,606 7,544 10,455

$ 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 parties reached a settlement in the matter and the case was dismissed with prejudice on October 26, 2020.

The Company has a 401(k) plan (the “ 401(k) Plan ”) covering all employees who have completed one month of service.

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Employees age 50 or over in 2022 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 2022 and 2021, the Company matched 50 % of employee contributions up to 8 % of the employee’s eligible compensation.

In 2020, 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, 2022, 2021, and 2020 was $ 3.3 million, $ 2.7 million, and $ 1.5 million, respectively.

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Charles Koob's term as a Director expired at the 2020 Annual Meeting held on November 20, 2020.

In 2019, the Company paid Thomas Koob a salary of $ 0.2 million and provided equity, incentive compensation and other compensation of $ 0.2 million.

In 2020, the Company paid Thomas Koob an annual salary of $ 0.2 million and provided equity, incentive compensation and other compensation of $ 0.3 million.

The Company employs Simon Ryan, the brother-in-law of the Company’s former General Counsel, Alexandra O.

Haden, as a sales representative.

In 2019, the Company paid Mr.

Ryan total compensation of $ 0.2 million, consisting of a salary of $ 0.1 million and sales commissions, equity and other compensation of $ 0.1 million.

Haden resigned from her position as General Counsel and Secretary of the Company, effective August 12, 2019, to accept another position.

The Company had no related party transactions for the years ended December 31, 2022 or 2021.

Restructuring

Set forth below are disclosures relating to restructuring initiatives that resulted in material expenses or cash expenditures during the year ended December 31, 2019, and resulted in material restructuring liabilities at December 31, 2019.

Employee retention and certain other employee benefit-related costs related to the Company’s restructuring are expensed ratably over an agreed-upon service period.

One-time employee separation and related employee benefit costs are generally expensed as incurred.

2018 Restructuring

Set forth below are disclosures relating to restructuring initiatives that resulted in material cash expenditures during the year ended December 31, 2020.

Employee retention and certain other employee benefit-related costs related to the Company’s restructuring were expensed ratably over an agreed-upon service period.

One-time employee separation and related employee benefit costs were generally expensed as incurred.

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 during the years ended December 31, 2019.

The charges related to employee retention and other one-time employee separation benefit-related costs.

These charges are included in the cost of sales, research and development, and selling, general and administrative expenses in the consolidated statements of operations.

The Company’s restructuring program concluded in 2020.

All obligations related to the Company’s restructuring program have been settled as of December 31, 2020.

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

Expenses 8,543

Cash distributions ( 10,589 )

All obligations related to the Company’s restructuring program were settled as of December 31, 2020.

Changes to this liability during the year ended December 31, 2020 was as follows (in thousands):

Liability balance as of December 31, 2019 3,561

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Liability balance as of December 31, 2020 $ —

2022 Reorganization

On September 2, 2022, the Company separated from its Chief Executive Officer.

Subsequent to this event, the Company realigned the organization to improve profitability.

As part of these efforts, the Company incurred $ 2.0 million of one-time employee separation costs.

Of this amount, $ 0.6 million was outstanding as of December 31, 2022.

The remaining amount is reflected as part of accrued compensation on the consolidated balance sheet as of that date.

Government Assistance

Employee Retention Credit

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

Upon determination that the Company overcame the barriers 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 $ 1.6 million as a reduction to selling, general and administrative expense .

Of this amount, $ 1.4 million and $ 1.6 million were reflected as part of other current assets in the consolidated balance sheets as December 31, 2022 and 2021, respectively.

During year ended December 31, 2022, the Company received $ 0.2 million relating to the ERC.

Subsequent Events

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 .

Nordic Agreement Change Order

On January 24, 2023, the Company executed a change order to the Nordic Agreement (the “ Change Order ”), primarily to reflect additional elements required in conducting the trial.

The Change Order modified the scope of NBCD’s responsibilities under the Nordic Agreement, shifting certain activities to other vendors to be administered by NBCD and certain other activities to MIMEDX.

These responsibilities primarily related to areas of patient recruitment and screening and statistical analysis, among other areas of the trial.

Pursuant to the Change Order, the total payments owed to NBCD relating to NBCD’s responsibilities decreased from $ 13.3 million to $ 10.2 million.

Hiring of Chief Executive Officer

On January 27, 2023, the Board of Directors appointed Joseph H.

Capper to serve as Chief Executive Officer.

The Company entered into a Letter Agreement with Mr.

Capper that included, among other things, a grant of 3,300,000 PSUs and a grant of a non-qualified stock option (the “ Option ”) for 3,600,000 shares of the Company’s common stock.

The PSUs vest over a four-year performance period ending December 31, 2026 based upon the achievement of specified performance conditions, up to a maximum of 200 % of the granted PSUs, and subject to Mr.

Capper’s continued employment.

The Option vests over a four-year period ending January 31, 2027 contingent upon the achievement of share price performance goals and subject to Mr.

Capper’s continued employment.

Capper will is eligible to vest in 25 % of the Option on or after each of the first four anniversary dates subsequent to the date of grant, provided certain share price performance targets are achieved at any point during the four-year vesting period.

In concert with the hiring of Mr.

Todd Newton stepped down and ceased to serve as Interim Chief Executive Officer.

Capper’s hiring, 200,000 RSUs granted to Mr.

Newton pursuant to the Interim Executive Employment Agreement between him and the Company vested immediately.

Newton remains on the Board of Directors.

Schedule II Valuation and Qualifying Accounts

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For the year ended December 31, 2022

Allowance for doubtful accounts $ 737 $ 791 $ ( 341 ) $ 1,187

Allowance for product returns $ 2,549 $ 2,449 $ ( 2,304 ) $ 2,694

For the year ended December 31, 2021

Allowance for doubtful accounts $ — $ 719 $ 18 $ 737

Allowance for product returns $ 2,321 $ 2,508 $ ( 2,280 ) $ 2,549

For the year ended December 31, 2020

Allowance for doubtful accounts $ — $ — $ — $ —

Allowance for product returns $ 4,115 $ 705 $ ( 2,499 ) $ 2,321

1 unchanged sentence

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