MIMEDX GROUP, INC. 10-K

Item 8. Financial Statements and Supplementary Data Index to Financial Statements Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm (PCAOB ID: 34 ) F- 2 Consolidated Balance Sheets – As of December 31, 2023 and 2022 F- 4 Consolidated Statements of Operations – For the years ended December 31, 2023, 2022 and 2021 F- 5 Consolidated Statements of Stockholders’ Equity ( Deficit) – For the years ended December 31, 2023, 2022 and 2021 F- 6 Consolidated Statements of Cash Flows – For the years ended December 31, 2023, 2022 and 2021 F- 7 Notes to Consolidated Financial Statements F- 8 F- 1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of MiMedx Group, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of MiMedx Group, Inc. and subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders' equity (deficit), and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, 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, 2023, 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, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our 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 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 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 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 The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Net Sales - Revenue Recognition — Refer to Note 2 to the Financial Statements Critical Audit Matter Description The Company sells its products primarily to individual customers and independent distributors (collectively referred to as “customers”). Customers obtain and use products either through ship and bill sales or consignment arrangements. Under ship and bill arrangements, the Company retains possession of the product until the customer submits an order and the order is shipped to the customer. Under consignment arrangements, the customer takes possession of the product, but the Company retains title until the implantation, or application of the Company’s product to the end user. The Company recognizes revenue as performance obligations are fulfilled, which generally occurs upon the shipment of product to the customers for ship and bill orders or upon implantation for consignment sales. We identified the timing of revenue recognition for ship and bill and consignment sales at or near year end as a critical audit matter because of the judgments involved in evaluating that the performance obligations are fulfilled. This required a higher degree of audit effort and auditor judgment when performing audit procedures and evaluating the results of these 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 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. • We evaluated the appropriateness and consistency of the methods and assumptions utilized by management to estimate consignment revenue. • We tested a sample of consignment revenue transactions manually accrued as of year-end and evaluated whether the transactions were recorded in the correct period. • We selected a sample of ship and bill revenue transactions close to period end by agreeing the amounts recognized to source documents and evaluating whether the transaction was recorded in the correct period. • We tested a sample of credits issued after year end by agreeing to documents supporting the authorization for the issuance of the credit and to evaluate if the credit was issued in the correct period. /s/ Deloitte & Touche LLP Atlanta, Georgia February 28, 2024 We have served as the Company's auditor since 2021. MIMEDX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 82,000 $ 65,950 Accounts receivable, net 53,871 43,084 Inventory 21,021 13,183 Prepaid expenses 5,624 7,315 Current assets of discontinued operations — 1,331 Other current assets 1,745 3,335 Total current assets 164,261 134,198 Property and equipment, net 6,974 7,856 Right of use assets 2,132 3,400 Deferred tax assets 40,777 — Goodwill 19,441 19,441 Intangible assets, net 5,257 5,852 Other assets 205 148 Noncurrent assets of discontinued operations — 535 Total assets $ 239,047 $ 171,430 LIABILITIES, CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY (DEFICIT) Current liabilities: Accounts payable $ 9,048 $ 8,454 Accrued compensation 22,353 20,856 Accrued expenses 9,361 10,934 Current liabilities of discontinued operations 1,352 1,479 Other current liabilities 3,894 1,834 Total current liabilities 46,008 43,557 Long term debt, net 48,099 48,594 Other liabilities 2,223 4,773 Total liabilities $ 96,330 $ 96,924 Commitments and contingencies (Note 16) Convertible preferred stock Series B; $ .001 par value; 100,000 shares authorized, 0 shares issued and outstanding at December 31, 2023 and 100,000 shares issued and outstanding at December 31, 2022 $ — $ 92,494 Stockholders’ equity (deficit) Common stock; $ .001 par value; 250,000,000 shares authorized, 146,227,639 issued and outstanding at December 31, 2023 and 187,500,000 authorized, 113,705,447 issued and outstanding at December 31, 2022 146 114 Additional paid-in capital 276,249 173,804 Accumulated deficit ( 133,678 ) ( 191,906 ) Total stockholders’ equity (deficit) 142,717 ( 17,988 ) Total liabilities, convertible preferred stock, and stockholders’ equity (deficit) $ 239,047 $ 171,430 See notes to the consolidated financial statements. MIMEDX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) Year Ended December 31, 2023 2022 2021 Net sales $ 321,477 $ 267,841 $ 242,019 Cost of sales 54,634 48,316 39,628 Gross profit 266,843 219,525 202,391 Operating expenses: Selling, general and administrative 211,124 208,673 194,846 Research and development 12,665 12,701 9,932 Investigation, restatement and related 5,176 12,177 3,791 Amortization of intangible assets 762 701 820 Impairment of intangible assets — — 53 Operating income (loss) 37,116 ( 14,727 ) ( 7,051 ) Other expense, net Interest expense, net ( 6,457 ) ( 5,016 ) ( 4,980 ) Other expense, net ( 26 ) ( 4 ) ( 23 ) Income (loss) from continuing operations before income tax provision 30,633 ( 19,747 ) ( 12,054 ) Income tax provision benefit (expense) from continuing operations 36,806 ( 206 ) ( 247 ) Net income (loss) from continuing operations 67,439 ( 19,953 ) ( 12,301 ) (Loss) income from discontinued operations, net of tax ( 9,211 ) ( 10,244 ) 2,016 Net income (loss) $ 58,228 $ ( 30,197 ) $ ( 10,285 ) Net income (loss) from continuing operations available to common stockholders (Note 10) $ 55,796 $ ( 26,533 ) $ ( 18,437 ) Basic net income (loss) per common share: Continuing operations $ 0.48 $ ( 0.24 ) $ ( 0.17 ) Discontinued operations ( 0.08 ) ( 0.09 ) 0.02 Basic net income (loss) per common share: $ 0.40 $ ( 0.33 ) $ ( 0.15 ) Diluted net income (loss) per common share: Continuing operations $ 0.43 $ ( 0.24 ) $ ( 0.17 ) Discontinued operations ( 0.06 ) ( 0.09 ) 0.02 Diluted net income (loss) per common share: $ 0.37 $ ( 0.33 ) $ ( 0.15 ) Weighted average common shares outstanding - basic 116,495,810 112,909,266 110,353,406 Weighted average common shares outstanding - diluted 145,962,462 112,909,266 110,353,406 See notes to the consolidated financial statements. MIMEDX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) (in thousands, except share data) Common Stock Additional Paid-in Treasury Stock Accumulated Shares Amount Capital Shares Amount Deficit Total Balance at December 31, 2020 112,703,926 $ 113 $ 158,610 1,773,683 $ ( 7,449 ) $ ( 151,424 ) $ ( 150 ) Deemed dividends — — ( 926 ) — — — ( 926 ) Share-based compensation expense — — 14,757 — — — 14,757 Exercise of stock options — — ( 1,199 ) ( 487,361 ) 2,636 — 1,437 Issuance of restricted stock — — ( 4,053 ) ( 810,405 ) 4,053 — — Restricted stock shares canceled/forfeited — — 515 73,056 ( 515 ) — — Shares repurchased for tax withholding — — — 469,239 ( 4,751 ) — ( 4,751 ) 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 Share-based compensation expense — — 12,666 — — — 12,666 Issuance of restricted stock 840,759 1 ( 3,969 ) ( 882,251 ) 3,968 — — Restricted stock shares canceled/forfeited — — 30 5,338 ( 30 ) — — Exercise of stock options 160,762 — ( 618 ) ( 151,239 ) 1,269 — 651 Shares repurchased for tax withholding — — — 249,442 ( 1,190 ) — ( 1,190 ) Net loss — — — — — ( 30,197 ) ( 30,197 ) Balance at December 31, 2022 113,705,447 $ 114 $ 173,804 — $ — $ ( 191,906 ) $ ( 17,988 ) Conversion of Series B Preferred Stock 29,761,650 30 87,840 — — — 87,870 Repurchase of Series B Preferred Stock — — ( 4,935 ) — — — ( 4,935 ) Employee stock purchase plan 444,809 — 1,367 — — — 1,367 Share-based compensation expense — — 17,178 — — — 17,178 Exercise of stock options 130,129 — 885 ( 17,032 ) 112 — 997 Issuance of restricted stock 2,185,604 2 ( 268 ) ( 73,335 ) 266 — — Restricted stock shares canceled/forfeited — — 378 90,367 ( 378 ) — — Net income — — — — — 58,228 58,228 Balance at December 31, 2023 146,227,639 $ 146 $ 276,249 — $ — $ ( 133,678 ) $ 142,717 See notes to the consolidated financial statements. MIMEDX GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income (loss) from continuing operations $ 67,439 $ ( 19,953 ) $ ( 12,301 ) Adjustments to reconcile net income (loss) from continuing operations to net cash flows provided by (used in) operating activities of continuing operations: Deferred income tax provision ( 37,802 ) — — Share-based compensation 16,959 11,328 14,156 Depreciation 2,665 3,345 4,363 Bad debt expense 1,449 2,820 — Non-cash lease expenses 1,268 1,259 989 Amortization of intangible assets 762 701 820 Amortization of deferred financing costs 505 467 1,055 Accretion of asset retirement obligation 93 92 81 Loss (gain) on fixed asset disposal 15 ( 17 ) 262 Impairment of intangible assets — — 53 Increase (decrease) in cash resulting from changes in: Accounts receivable ( 12,237 ) ( 5,937 ) ( 10,620 ) Inventory ( 7,838 ) ( 1,794 ) ( 1,406 ) Prepaid expenses ( 283 ) ( 1,371 ) ( 501 ) Other assets 1,535 ( 333 ) 9,982 Accounts payable 783 839 ( 159 ) Accrued compensation 1,829 ( 1,859 ) 5,008 Accrued expenses ( 1,708 ) 2,366 ( 20,497 ) Other liabilities ( 497 ) 75 ( 1,159 ) Net cash flows provided by (used in) operating activities of continuing operations 34,937 ( 7,972 ) ( 9,874 ) Net cash flows (used in) provided by operating activities of discontinued operations ( 8,162 ) ( 9,921 ) 7,892 Net cash flows provided by (used in) operating activities 26,775 ( 17,893 ) ( 1,982 ) Cash flows from investing activities: Purchases of equipment ( 1,987 ) ( 1,514 ) ( 3,218 ) Patent application costs ( 168 ) ( 170 ) ( 252 ) Sales of equipment — 24 — Cash paid for licensing agreement — ( 1,000 ) — Principal payments from note receivable — — 75 Net cash flows used in investing activities ( 2,155 ) ( 2,660 ) ( 3,395 ) Cash flows from financing activities: Proceeds from exercise of stock options 997 651 1,437 Payments under finance lease obligations ( 52 ) ( 41 ) ( 38 ) Repurchase of Series B Preferred Shares ( 9,515 ) — — Stock repurchased for tax withholdings on vesting of restricted stock — ( 1,190 ) ( 4,751 ) Net cash flows used in financing activities ( 8,570 ) ( 580 ) ( 3,352 ) Net change in cash and cash equivalents 16,050 ( 21,133 ) ( 8,729 ) Cash and cash equivalents, beginning of period 65,950 87,083 95,812 Cash and cash equivalents, end of period $ 82,000 $ 65,950 $ 87,083 See notes to the consolidated financial statements. MIMEDX GROUP, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business MiMedx Group, Inc. (together with its subsidiaries, except where the context otherwise requires, “ MIMEDX ,” or the “ Company ”) is a pioneer and leader in placental biologics focused on helping humans heal. With more than a decade of helping clinicians manage chronic and other hard-to-heal wounds, MIMEDX is dedicated to providing a leading portfolio of products for applications in the wound care, burn, and surgical sectors of healthcare. The Company’s vision is to be the leading global provider of healing solutions through relentless innovation to restore quality of life. All of our products sold in the United States are regulated by the United States Food and Drug Administration (“ FDA ”). The Company’s product portfolio and product development focuses on Wound and Surgical markets. The Company’s business is focused primarily on the United States of America but the Company also has a small commercial presence in several international locations, including Japan. Disbanding of Regenerative Medicine Business Unit On June 20, 2023, the Company announced the disbanding of its Regenerative Medicine business unit and the suspension of its Knee Osteoarthritis clinical trial program. During the fourth quarter of 2023, the Company completed the regulatory obligations associated with the clinical trial and concluded that the business unit met the criteria for presentation as a discontinued operation at that time. Refer to Note 13, Discontinued Operations , for further discussion. 2. Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of MiMedx Group, Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated upon consolidation. Reclassifications Increases in cash resulting from changes in income taxes of $ 0 and $ 9.3 million for the years ended December 31, 2022 and 2021, respectively, were separately presented in previously issued consolidated statements of cash flows. These amounts are reflected as part of changes in other assets in the consolidated statements of cash flows included in these consolidated financial statements. Use of Estimates The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“ GAAP ”). 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. Significant estimates include estimated useful lives and potential impairment of property and equipment, goodwill and intangible assets, estimates of loss for contingent liabilities, estimate of allowance for doubtful accounts, estimate of fair value of share-based payments, the extent of probable achievement of performance conditions in share-based payment awards, estimates of returns and allowances, and valuation of deferred tax assets. Segment Reporting 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. 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. Prior to the fourth quarter of 2023, the Company assessed that it operated as two operating and reportable segments: Wound & Surgical and Regenerative Medicine. During the fourth quarter of 2023, upon the conclusion that the Regenerative Medicine segment met all the requirements to be classified as a discontinued operation, the Company reassessed its operating segments, concluding that the CODM assesses performance and resources as one reportable segment. Cash and Cash Equivalents Cash and cash equivalents include cash held at various banks. The Company considers all highly-liquid investments purchased with an original maturity of three months or less at the date of purchase and money market mutual funds to be cash equivalents. Market Concentrations and Credit Risk The Company places its cash and cash equivalents on deposit with U.S.-based financial institutions. The U.S. Federal Deposit Insurance Corporation (“ FDIC ”) provides insurance coverage for deposits up to $250,000 for substantially all depository accounts. As of December 31, 2023 and 2022, the Company had cash and cash equivalents of approximately $ 81.3 million and $ 65.2 million, respectively, in excess of the insured amounts in five depository institutions. Accounts Receivable Accounts receivable represent amounts due from customers for which revenue has been recognized. Generally, the Company does not require collateral or any other security to support its receivables. The allowance for doubtful accounts is calculated based on the Company’s current expectations for credit losses, which is generally informed by historical trends. The Company’s policy to reserve for potential bad debts based on the age of the individual receivable as well as customer-specific qualitative factors, such as bankruptcy proceedings. The Company manages credit risk by routinely performing credit checks on customers prior to sales. 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. Inventory Inventory is valued at the lower of cost or net realizable value. Costs of inventory sold are recognized using the first–in, first-out (“ FIFO ”) method. Inventory is tracked through raw material, work-in-process, and finished goods stages as the product progresses through various production steps and stocking locations. Labor and overhead costs are absorbed through the various production processes up to when the work order closes. Historical yields and normal capacities are utilized in the calculation of production overhead rates. Write-downs are utilized to account for slow-moving inventory as well as inventory no longer needed due to diminished demand or regulatory action. Property and Equipment Property and equipment are recorded at cost and depreciated on a straight-line method over their estimated useful lives, principally three to seven years . Leasehold improvements are depreciated on a straight-line method over the shorter of the estimated useful lives and the remaining lease term. Asset Retirement Obligations The Company records obligations associated with the legal requirement to retire long-lived assets when an estimate for the cost of retirement can reasonably be made. The Company reviews legal obligations associated with the retirement of long-lived assets that result from contractual obligations or the acquisition, construction, development and/or normal use of the assets. If it is determined that a legal obligation exists, regardless of whether the obligation is conditional on a future event, the fair value of the liability for an asset retirement obligation is recognized in the period in which it is incurred, if a reasonable estimate of fair value can be made. The fair value is calculated as the estimate of the expected cash outflow to satisfy the legal obligation discounted to present value using the Company’s then-prevailing incremental borrowing rate. At such point in time, an asset and liability are recorded for the amount of the expected liability. The asset amount is depreciated, straight-line, over the life of the underlying asset, while the liability is accreted to the amount of the expected outflow through selling, general and administrative expense using the effective interest method. Subsequent revisions to estimates for future cash flows related to the asset retirement obligations are recorded as equal increases or decreases to the retirement asset and liability. Impairment of Long-lived Assets The Company evaluates the recoverability of its long-lived assets (property, equipment, right of use, and intangible assets with finite lives) whenever adverse events or changes in business climate indicate that the expected undiscounted future cash flows from the related assets may be less than their carrying amounts. When a situation arises which results in a conclusion that it is more likely than not that an asset is not recoverable, the Company estimates cash flows expected to be derived from the continuing use and eventual disposition of the asset. If the sum of those cash flows, not discounted to present value, does not exceed the net book value of the asset, the Company estimates the fair value of the asset. 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 (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 no impairment losses on intangible assets for the years ended December 31, 2023 and 2022 and $ 0.1 million for the year ended December 31, 2021. 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 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. On June 20, 2023, the Company announced the disbanding of its Regenerative Medicine business unit and the suspension of its Knee Osteoarthritis clinical trial program. As a result of this event, the Company evaluated goodwill associated with the Regenerative Medicine reporting unit for potential impairment. The Company estimated fair value for the reporting unit using the income approach; specifically, a discounted cash flow method. As a result of this assessment, management concluded that the fair value of the reporting unit exceeded its carrying value by an amount that exceeded its goodwill balance. Accordingly, the Company recognized an impairment loss for the full amount of the goodwill ascribed to the Regenerative Medicine reporting unit. Patent Costs The Company incurs certain legal and related costs in connection with patent applications. The Company capitalizes such costs to be amortized over the expected life of the patent to the extent that an economic benefit is anticipated from the resulting patent or an alternative future use is available to the Company. The Company capitalized $ 0.2 million, $ 0.2 million, and $ 0.3 million of patent costs for the years ended December 31, 2023, 2022, and 2021, respectively. Leases 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 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. Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. The Company calculates the present value of lease payments by discounting the lease payments using the Company’s incremental borrowing rate for a collateralized or secured borrowing over a term equivalent to that of the lease. Lease payments that vary according to an index or rate are measured using the index or rate at lease inception. The lease term and applicable payments include options to extend or terminate the lease when it is reasonably certain that the Company will exercise 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. This determination is reassessed as new information arises and is accounted for prospectively. As an accounting policy election, the Company does not capitalize leases having initial terms of 12 months or fewer. The Company has made an accounting policy election not to separate lease components from non-lease components in the event that the agreement contains both. Operating lease right of use assets and the related liabilities are included in right of use asset, other current liabilities, and other liabilities, respectively, in the consolidated balance sheets. Lease expense associated with operating leases is recognized, straight-line, over the lease term. The Company does not recognize interest expense from operating lease liabilities. Finance lease right of use assets and the related liabilities are included in property and equipment, net, other current liabilities, and other liabilities, respectively, in the consolidated balance sheets. Finance lease right of use assets are amortized, straight-line, over the lease term as depreciation expense. Interest expense is recognized using the effective interest method on finance lease liabilities as part of interest expense, net. Treasury Stock Shares repurchased by the Company are recorded as treasury stock at the cost to acquire such shares. Subsequent issuances of shares held in treasury are assumed to be released on a FIFO basis. Contingencies The Company is or has been subject to various patent challenges, product liability claims, government investigations, former employee matters, and other legal proceedings. See Note 16, Commitments and Contingencies , for discussion of material matters. Legal fees and other expenses related to litigation are expensed as incurred and included in selling, general and administrative expenses or investigation, restatement and related expenses in the consolidated statements of operations, depending on the nature of the matter. The Company records an accrual for resolution costs and other contingencies in the consolidated financial statements when the Company determines that a loss is both probable and reasonably estimable. Subsequent revisions to the Company’s accrual are made as new information emerges and are accounted for prospectively. The Company discloses all ongoing legal matters for which a loss is reasonably possible, regardless of whether an estimate can be reasonably determined. Due to the fact that legal proceedings and other contingencies are inherently unpredictable, the Company’s estimates of the probability and amount of any such liabilities involve significant judgment regarding future events. The actual costs of resolving a claim may be substantially different from the amount of reserve the Company recorded. The Company records a receivable from its insurance carriers only when the resolution of any dispute has been reached and realization of the amounts equal to the potential claim for recovery is considered probable. Any recovery of an amount in excess of the related recorded contingent loss will be recognized only when all contingencies relating to recovery have been resolved. Revenue Recognition The Company sells its products primarily to individual customers and independent distributors (collectively referred to as “ customers ”). Customers obtain and use products either through ship and bill sales or consignment arrangements. Under ship and bill arrangements, the Company retains possession of the product until the customer submits an order. 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. 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 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. Sales deductions are specified in individual contracts with customers. The Company estimates the total sales deductions which a specific customer will achieve over the relevant term and applies the reduction to sales as they are made throughout the period. Sales deductions owed to customers and other parties are accrued and recorded in accrued expenses on the consolidated balance sheets. The Company acts as the principal in all of its customer arrangements and records revenue on a gross basis. Shipping is considered immaterial in the context of the overall customer arrangement, and damages or loss of goods in transit are rare. Therefore, shipping is not deemed a separately recognized performance obligation and the Company has elected to treat shipping costs as activities to fulfill the promise to transfer the product. The Company maintains a returns policy that allows its customers to return product that is damaged or non-conforming, ordered in error, or due to a recall. The estimate of the provision for returns is based upon historical experience with actual returns. The Company’s payment terms for customers are typically 30 to 60 days from receipt of title of the goods. Cost of Sales Cost of sales includes all costs directly related to bringing the Company’s products to their final selling destination. Amounts include direct and indirect costs to manufacture products including raw materials, personnel costs and direct overhead expenses necessary to convert collected tissues into finished goods, product testing costs, quality assurance costs, facility costs associated with the Company’s manufacturing and warehouse facilities, including depreciation, freight charges, costs to operate equipment and other shipping and handling costs for products shipped to customers. The Company obtains raw material in the form of human placenta donations from participating mothers who give birth via scheduled Caesarean section. Research and Development Costs Research and development costs consist of direct and indirect costs associated with the development of the Company’s technologies. Historically, these expenses largely represented costs associated with our clinical trials, but now largely represent costs associated with new product development and pilot production. These costs are expensed as incurred. Advertising expense Advertising expense consists primarily of print media promotional materials. Advertising costs are expensed as incurred. Advertising expense for the year ended December 31, 2023, 2022, and 2021 was $ 0.6 million, $ 0.2 million, and $ 0.1 million respectively. Income Taxes Income tax provision, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in the United States and numerous states. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of their net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance. 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. 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. In evaluating the objective evidence that historical results provide, management considers three years of cumulative income (loss) exclusive of items that will not recur, such as discontinued operations. The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the tax provision (benefit) in the period that includes the enactment date. The calculation of income tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations both for U.S. federal income tax purposes and across numerous state jurisdictions. 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 records unrecognized tax benefits within other current liabilities on the consolidated balance sheets and 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 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. Accrued interest and penalties, if any, are included within the related deferred tax liability line in the consolidated balance sheets and recorded as a component of income tax expense. Share-based Compensation The Company grants share-based awards to employees and members of the Company’s Board of Directors (the “ Board ”). Awards to employees and the Board are generally made annually. Grants are issued outside of the annual cadence for certain new hires, promotions, and other events. The amount of expense to be recognized is determined by the fair value of the award using inputs available as of the grant date. 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. For awards which are subject to a condition other than a service condition, the Company recognizes stock-based compensation expense using the graded-vesting method, treating each tranche as if it were a separately-granted award and recognizing expense through the vesting date of each individual tranche. In each scenario, the Company recognizes share-based compensation expense based upon the probability that the award will ultimately vest. The Company recognizes the cumulative effect of changes in the probability outcomes in the period in which the changes occur. 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 Income (Loss) per Common Share Basic net income (loss) per common share is calculated as net income (loss) from continuing operations available to common stockholders divided by weighted average common shares outstanding for the applicable period. Net income (loss) from continuing operations available to common stockholders is calculated by adjusting net income (loss) for dividends on the Company’s previously outstanding Series B Convertible Preferred Stock (“ Series B Preferred Stock ”). This amount is divided by the weighted average common shares outstanding during the period. Weighted average common shares outstanding is calculated as shares of the Company outstanding adjusted for the portion of the period for which they are outstanding. Unvested non-option share awards are excluded from the calculation of weighted average common shares outstanding until they have vested. Unexercised stock options are excluded from the calculation of weighted average common shares outstanding until they are exercised. Shares issuable pursuant to the Company’s Employee Stock Purchase Plan (“ ESPP ”) are included for the minimum number of shares issuable beginning at the point in time that all contingencies for share issuance are resolved. Diluted net income (loss) per common share adjusts basic net income (loss) per common share for convertible securities, options, equity incentive awards, and other share-based payment awards which have yet to vest and vest only upon the satisfaction of a service condition. Equity incentive awards and options that are subject to a performance or market condition are included only if the performance or market condition would be satisfied if the end of the applicable period were the end of the performance period. In any case, these adjustments are reflected in the calculation of diluted net income (loss) per common share to the extent that they reduce basic net income (loss) from continuing operations per common share. Basic and diluted net income (loss) per common share from discontinued operations are evaluated using the same denominator as basic and diluted net income (loss) per common share from continued operations. 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 and the beginning of the period. If the hypothetical conversion of convertible securities, and the consequential avoidance of any accumulated preferred dividends, would decrease basic net income (loss) from continuing operations per common share, these effects are incorporated in the calculation of diluted net income (loss) from continuing operations per common share, adjusted for the portion of the period the securities were outstanding. The Company uses the treasury stock method to calculate the dilutive effect of options, non-option share awards, and certain other share-based payments. The treasury stock method assumes that the proceeds from exercise are used to repurchase common shares at the weighted average market price during the period, increasing the denominator for the net effect of shares issued upon exercise less hypothetical shares repurchased. Shares issuable pursuant to the ESPP are included in the calculation of diluted net loss per common share to the extent that such shares would be issued based on the share price at the conclusion of the period, excluding the shares already reflected in the calculation of weighted average common shares outstanding. Fair Value of Financial Instruments and Fair Value Measurements The respective carrying value of certain on-balance sheet financial instruments approximated their fair values due to the short-term nature and type of these instruments. These financial instruments include cash and cash equivalents, accounts receivable, notes receivable, and certain other financial assets and liabilities. The Company measures certain non-financial assets at fair value on a non-recurring basis. These non-recurring valuations include evaluating assets such as long-lived assets, and non-amortizing intangible assets for impairment, allocating value to assets in an acquired asset group, and accounting for business combinations. The Company uses the fair value measurement framework to value these assets and reports these fair values in the periods in which they are recorded or written down. Fair value financial instruments are recorded in accordance with the fair value measurement framework. The fair value measurement framework includes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair values in their broad levels. These levels from highest to lowest priority are as follows: • Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities; • Level 2: Quoted prices in active markets for similar assets or liabilities or observable prices that are based on inputs not quoted on active markets, but corroborated by market data. • Level 3: Unobservable inputs or valuation techniques that are used when little or no market data is available. The determination of fair value and the assessment of a measurement’s placement within the hierarchy require judgment. Level 3 valuations often involve a higher degree of judgment and complexity. Level 3 valuations may require the use of various valuation methodologies which incorporate unobservable inputs, management estimates, and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation method used. Such assumptions could include: estimates of prices, earnings, costs, actions of market participants, market factors, or the weighting of various valuation methods. The Company may also engage external advisors to assist it in determining fair value, as appropriate. 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 March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ ASU ”) 2020-04, “ Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ” ASU 2020-04 provides temporary expedients to accounting guidance for certain contract modifications and hedging arrangements to ease financial reporting burdens as a result of market transitions from certain reference rates, including the London Interbank Offered Rate (“ LIBOR ”). In June 2023, the Company entered into Amendment No. 2 (the “ Amendment No. 2 ”) to the loan agreement, dated as of June 30, 2020, by and among the Company, Hayfin Services, LLP (“ Hayfin ”), an affiliate of Hayfin Capital Management LLP, and certain other parties, (as amended, the “ Hayfin Loan Agreement ”), pursuant to which the reference rate used to determine the interest rate was changed from the LIBOR to the Secured Overnight Financing Rate (“ SOFR ”). Because the only terms of Amendment No. 2 that affected the Company’s contractual cash flows were related to the changes in the reference rate, the Company adopted the optional guidance prescribed by Topic 848 to this transaction. The adoption of ASU 2020-04 and its application to the Second Amendment did not materially impact the Company’s audited consolidated financial statements for the year ended December 31, 2023. Recently Issued Accounting Pronouncements Not Yet Adopted In November 2023, the FASB issued ASU 2023-07, “ Segment Reporting: Improvements to Reportable Segment Disclosures (Topic 280) ”. The standard seeks to improve the disclosures about a public entity’s reportable segments and address requests from investors for additional, more detailed information about a reportable segment’s expenses. ASU 2023-07 is effective for annual reporting periods beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024. As of December 31, 2023, the Company is evaluating the impact of this standard on its consolidated financial statements. In December 2023, the FASB issued ASU 2023-09, “ Improvement to Income Tax Disclosures (Topic 740) ”, which requires additional disclosures for income tax rate reconciliations, income taxes paid, and certain other tax disclosures. ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. Adoption is required for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures. All other ASUs issued and not yet effective as of December 31, 2023, 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 and future financial position or results of operations. 3. Accounts Receivable, Net Accounts receivable, net, consists of the following (in thousands): December 31, 2023 2022 Accounts receivable, gross $ 57,015 $ 46,867 Allowance for doubtful accounts ( 3,144 ) ( 3,783 ) Accounts receivable, net $ 53,871 $ 43,084 Activity related to the Company’s allowance for doubtful accounts during the year ended December 31, 2023 was as follows (in thousands): Allowance for Doubtful Accounts Balance at December 31, 2021 $ 1,187 Bad debt expense 2,820 Write-offs ( 224 ) Balance at December 31, 2022 $ 3,783 Bad debt expense 1,449 Write-offs ( 2,088 ) Balance at December 31, 2023 $ 3,144 4. Inventory Inventory consists of the following (in thousands): December 31, 2023 2022 Raw materials $ 825 $ 810 Work in process 8,521 6,855 Finished goods 11,675 5,518 Inventory $ 21,021 $ 13,183 Consignment inventory, included as a component of finished goods in the table above, was $ 4.0 million and $ 3.4 million as of December 31, 2023 and 2022, respectively. 5. Property and Equipment, Net Property and equipment, net, consists of the following (in thousands): December 31, 2023 2022 Lab and clean room equipment $ 13,954 $ 16,422 Furniture and office equipment 1,989 15,016 Leasehold improvements 8,141 9,190 Construction in progress 1,791 1,983 Asset retirement cost 938 983 Finance lease assets 189 189 Property and equipment, gross 27,002 43,783 Less: accumulated depreciation and amortization ( 20,028 ) ( 35,927 ) Property and equipment, net of accumulated depreciation and amortization $ 6,974 $ 7,856 Depreciation expense for each of the years ended December 31, 2023, 2022, and 2021 was recorded in certain captions of the consolidated statements of operations for those periods in the amounts shown in the table below (in thousands): Year Ended December 31, 2023 2022 2021 Cost of sales $ 1,569 $ 1,816 $ 1,787 Selling, general, and administrative expense 795 1,243 2,278 Research and development expense 301 286 298 Total $ 2,665 $ 3,345 $ 4,363 6. Leases The Company has leases for corporate offices, manufacturing facilities, vehicles, and certain equipment. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Supplemental balance sheet information related to the Company’s leases, including the financial statement caption in which the amounts are presented, is as follows (amounts in thousands, except lease term and discount rate): Operating Leases Finance Leases December 31, December 31, 2023 2022 2023 2022 Assets Right of use asset $ 2,132 $ 3,400 $ — $ — Property and equipment, net — — 51 98 Total assets $ 2,132 $ 3,400 $ 51 $ 98 Liabilities Other current liabilities $ 1,495 $ 1,391 $ 53 $ 49 Other liabilities 893 2,381 5 57 Total liabilities $ 2,388 $ 3,772 $ 58 $ 106 Weighted-average remaining lease term (years) 2.0 2.8 1.1 2.1 Weighted-average discount rate 8.3 % 8.3 % 8.3 % 8.3 % Information related to lease costs are as follows (amounts in thousands): Year Ended December 31, 2023 2022 2021 Operating lease cost $ 1,532 $ 1,620 $ 1,327 Amortization of finance lease ROU assets 47 47 43 Interest expense on finance lease liabilities 7 10 13 Maturities of lease liabilities are as follows (amounts in thousands): Year Ending December 31, Operating Leases Finance Leases Total 2024 $ 1,623 $ 55 $ 1,678 2025 506 5 511 2026 419 — 419 2027 35 — 35 2028 — — — Thereafter — — — Total lease payments 2,583 60 2,643 Less: imputed interest ( 195 ) ( 2 ) ( 197 ) Lease liability $ 2,388 $ 58 $ 2,446 Asset Retirement Obligations 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 $ 1.2 million are included in other liabilities in the consolidated balance sheets as of both December 31, 2023 and 2022. 7. Goodwill and Intangible Assets, Net Goodwill In concert with the disbanding of its Regenerative Medicine business unit, management concluded that the Company operated as a single operating segment. This operating segment reflected its sole reporting unit for goodwill impairment testing purposes. For the annual impairment test performed on October 1, 2023, 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, and the Company did not proceed to the quantitative assessment. There was no impairment of goodwill in 2022 or 2021. The following table indicates the changes in the carrying amount of goodwill for 2023 and 2022 (in thousands): Goodwill Balance as of January 1, 2022 $ 19,441 Activity — Balance as of December 31, 2022 $ 19,441 Activity — Balance as of December 31, 2023 $ 19,441 Intangible Assets, Net Intangible assets, net, are summarized as follows (in thousands): December 31, 2023 December 31, 2022 Gross Carrying Amount Accumulated amortization Net Carrying Amount Gross Carrying Amount Accumulated amortization Net Carrying Amount Amortized intangible assets Patents and know-how $ 10,039 $ ( 7,818 ) $ 2,221 $ 9,923 $ ( 7,106 ) $ 2,817 Licenses 1,000 ( 54 ) 946 1,000 ( 4 ) 996 Total amortized intangible assets $ 11,039 $ ( 7,872 ) $ 3,167 $ 10,923 $ ( 7,110 ) $ 3,813 Unamortized intangible assets Tradenames and trademarks $ 1,008 $ 1,008 $ 1,008 $ 1,008 Patents in process 1,082 1,082 1,031 1,031 Total intangible assets $ 13,129 $ 5,257 $ 12,962 $ 5,852 Amortization expense and impairment expense for the years ended December 31, 2023, 2022, and 2021, is summarized in the table below (amounts in thousands): Year ended December 31, 2023 2022 2021 Amortization of intangible assets $ 762 $ 701 $ 820 Impairment of intangible assets — — 53 Impairment of intangible assets in 2021 related to supplier relationship assets that were determined to be unrecoverable due to attrition. There was no impairment of intangible assets in 2023 or 2022. Expected future amortization of intangible assets as of December 31, 2023, is as follows (in thousands): Estimated Amortization Year Ending December 31, Expense 2024 $ 764 2025 369 2026 214 2027 214 2028 211 Thereafter 1,395 Total amortization expense $ 3,167 8. Accrued Expenses Accrued expenses consist of the following (in thousands): December 31, 2023 2022 External commissions $ 4,136 $ 2,941 Accrued GPO Fees 1,338 638 Estimated returns 1,096 659 Legal costs 834 4,447 Accrued rebates 745 707 Accrued travel 433 566 Other 779 976 Total $ 9,361 $ 10,934 9. Long Term Debt Hayfin Loan Agreement In June 2020, the Company entered into the Hayfin Loan Agreement, under which Hayfin provided the Company with a senior secured term loan of $ 50 million (the “ Hayfin Term Loan ”). The Hayfin Term Loan was to mature on June 30, 2025 (the “ Hayfin Maturity Date ”). Interest on the Hayfin Term Loan was based on SOFR, plus a fallback provision of 0.15 %, subject to the Floor, plus the Margin. As of December 31, 2023, the Hayfin Term Loan carried an interest rate of 12.3 %. As noted below in Note 19. Subsequent Events , in January 2024, the Company repaid in full the Hayfin Term Loan and terminated the Hayfin Loan Agreement as part of the Debt Refinancing Transactions. As of December 31, 2023, the Company was in compliance with all applicable financial covenants under the Hayfin Loan Agreement. Annually, the Company was required to prepay the outstanding loans based on a percentage of Excess Cash Flow (as defined in the Hayfin Loan Agreement), if such were generated. Had the Company not executed the Debt Refinancing Transactions (as defined in Note 19), the Company would have been required to prepay a portion of the outstanding principal pursuant to the Excess Cash Flow provision under the Hayfin Loan Agreement for the year ended December 31, 2023. The Company refinanced this short-term obligation prior to issuance of these consolidated financial statements. The $ 1.0 million of principal repayments for the year ending December 31, 2024 reflects the scheduled principal payments pursuant to the Citizens Credit Agreement (as defined in Note 19) during that period, therefore representing the current obligation that was not refinanced on a long-term basis. This amount is classified in other current liabilities in the Company’s consolidated balance sheets. The Hayfin Loan Agreement also specified that a prepayment of the loan, voluntary or mandatory, would subject the Company to a prepayment premium after July 2, 2023, but on or before July 2, 2024, of 1 % of the principal balance repaid. Deferred financing costs and original issue discount allocated to the Hayfin Term Loan were amortized using the effective interest method through the Hayfin Maturity Date. The amortization of such amounts is presented as part of interest expense, net on the consolidated statement of operations for the years ended December 31, 2023, 2022, and 2021. The balances of the Hayfin Term Loan as of December 31, 2023 and 2022 were as follows (amounts in thousands): December 31, 2023 December 31, 2022 Other current liabilities Long term debt, net Long term debt, net Outstanding principal $ 1,000 $ 49,000 $ 50,000 Deferred financing costs — ( 781 ) ( 1,219 ) Original issue discount — ( 120 ) ( 187 ) Net principal $ 1,000 $ 48,099 $ 48,594 Interest expense related to the Hayfin Term Loan, included in interest expense, net in the consolidated statements of operations, was as follows (amounts in thousands): Year Ended December 31, 2023 2022 2021 Stated interest $ 6,078 $ 4,559 $ 4,182 Amortization of deferred financing costs 438 405 372 Accretion of original issue discount 67 62 58 Interest expense $ 6,583 $ 5,026 $ 4,612 Scheduled principal payments on the Hayfin Term Loan as of December 31, 2023 were as follows: Year ending December 31, Principal 2024 $ 1,000 2025 49,000 2026 — 2027 — 2028 — Thereafter — Outstanding principal $ 50,000 As of December 31, 2023, the fair value of the Hayfin Term Loan was $ 46.7 million. This valuation was calculated based on a series of Level 2 and Level 3 inputs, including a discount rate based on the credit risk spread of debt instruments of similar risk character in reference to U.S. Treasury instruments with similar maturities, with an incremental risk premium for risk factors specific to the Company. The remaining cash flows associated with the Hayfin Term Loan were discounted to December 31, 2023 using this discount rate to derive the fair value. 10. Basic and Diluted Net Loss Per Common Share Net loss per common share is calculated using two methods: basic and diluted. Basic Net Loss Per Common Share The following table provides a reconciliation of net loss to net loss available to common shareholders and calculation of basic net loss per common share for each of the years ended December 31, 2023, 2022, and 2021 (amounts in thousands, except share and per-share amounts): Year ended December 31, 2023 2022 2021 Net income (loss) from continuing operations $ 67,439 $ ( 19,953 ) $ ( 12,301 ) (Loss) income from discontinued operations, net of tax ( 9,211 ) ( 10,244 ) 2,016 Net income (loss) 58,228 ( 30,197 ) ( 10,285 ) Adjustments to reconcile to net loss available to common stockholders: Accumulated dividend on previously converted Series B Preferred Stock 6,753 6,580 5,210 Preferred share repurchase in excess of book value 4,890 — — Accretion of increasing-rate dividend feature — — 926 Total adjustments 11,643 6,580 6,136 Net income (loss) available to common stockholders from continuing operations $ 55,796 $ ( 26,533 ) $ ( 18,437 ) Weighted average common shares outstanding 116,495,810 112,909,266 110,353,406 Basic net income (loss) per common share: Continuing operations $ 0.48 $ ( 0.24 ) $ ( 0.17 ) Discontinued operations ( 0.08 ) ( 0.09 ) 0.02 Basic net income (loss) per common share $ 0.40 $ ( 0.33 ) $ ( 0.15 ) Diluted Net Loss Per Common Share 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, 2023 2022 2021 Net income (loss) available to common stockholders from continuing operations $ 55,796 $ ( 26,533 ) $ ( 18,437 ) Adjustments: Dividends on previously converted Series B Preferred Stock 6,466 6,580 6,136 Preferred share repurchase in excess of book value 5,177 — — Less: antidilutive adjustments ( 5,177 ) ( 6,580 ) ( 6,136 ) Total adjustments 6,466 — — Numerator Net income (loss) available to common stockholders from continuing operations 62,262 ( 26,533 ) ( 18,437 ) (Loss) income from discontinued operations, net of tax ( 9,211 ) ( 10,244 ) 2,016 Weighted average common shares outstanding 116,495,810 112,909,266 110,353,406 Adjustments: Potential common shares (a) Previously converted Series B Preferred Stock 27,457,905 — — Restricted stock unit awards 1,452,153 — — Outstanding stock options 396,779 — — Performance stock unit awards 137,425 — — Restricted stock awards 22,136 — — Employee stock purchase plan 254 — — Total adjustments 29,466,652 — — Weighted average common shares outstanding adjusted for potential common shares 145,962,462 112,909,266 110,353,406 Diluted net income (loss) per common share: Continuing operations $ 0.43 $ ( 0.24 ) $ ( 0.17 ) Discontinued operations $ ( 0.06 ) $ ( 0.09 ) $ 0.02 Diluted net income (loss) per common share $ 0.37 $ ( 0.33 ) $ ( 0.15 ) (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, 2023 2022 2021 Series B Preferred Stock 1,219,348 27,850,916 26,497,570 Restricted stock unit awards — 546,883 1,393,910 Restricted stock awards — 217,971 1,121,019 Outstanding stock options — 65,720 771,409 Performance stock unit awards — 5,251 17,928 Employee stock purchase plan — 18,852 — Potential common shares 1,219,348 28,705,593 29,801,836 11. Equity Series B Preferred Stock In December 2023, all 95,000 outstanding shares of the Company’s Series B Preferred Stock, together with accrued dividends, were mandatorily converted into shares of the Company’s Common Stock in accordance with the Series B Preferred Stock terms set forth in the Company’s Articles of Incorporation. As a result of this conversion, the Company issued 29,761,650 shares of Common Stock. The conversion of the shares ended the dividend accrual associated with the Series B Preferred Stock Prior to the mandatory conversion, in October 2023, the Company repurchased 5,000 shares of the Company’s Series B Preferred Stock for $ 9.5 million (the “ Repurchase ”) pursuant to a Securities Purchase Agreement with certain entities managed by or affiliated with Hayfin Capital Management LLP (the “ Hayfin Shareholders ”). In connection with the Repurchase, the Hayfin Shareholders entered into customary lock-up provisions requiring them to retain the balance of their equity positions for a period of at least one year. Management assessed whether the consideration paid could have reflected a non pro-rata distribution and reached the conclusion that it was not. The below table illustrates changes in the Company’s balance of the Series B Preferred Stock for the years ended December 31, 2023, 2022, and 2021 (in thousands, except per share amounts): Series B Preferred Stock Shares Amount Balance at December 31, 2020 100,000 $ 91,568 Deemed dividends — 926 Balance at December 31, 2021 100,000 $ 92,494 Activity — — Balance at December 31, 2022 100,000 $ 92,494 Repurchase of Series B Preferred Stock ( 5,000 ) ( 4,625 ) Conversion of Series B Preferred Stock ( 95,000 ) ( 87,869 ) Balance at December 31, 2023 — $ — Stock-Based Compensation Awards The Company has two share-based compensation plans which provide for the granting of equity awards, including qualified incentive and non-qualified stock options and restricted stock awards: the MiMedx Group, Inc. 2016 Equity and Cash Incentive Plan Amended and Restated through March 2, 2023 (the “ 2016 Plan ”), which was approved by shareholders on May 18, 2016, and the MiMedx Group, Inc. Assumed 2006 Stock Incentive Plan (the “ Prior Incentive Plan ”). During the years ended December 31, 2023, 2022, and 2021 the Company used only the 2016 Plan to make grants. The 2016 Plan permits the grant of equity awards to the Company’s employees, directors, consultants and advisors for up to 13,400,000 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. Awards granted under the 2016 Plan are subject to a vesting schedule as set forth in each individual agreement. Stock Options A summary of stock option activity for the year ended December 31, 2023 is presented below: Number of Shares Weighted- Average Exercise Price Weighted- Average Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at January 1, 2023 933,894 $ 6.46 Granted 3,694,000 3.77 Exercised ( 147,161 ) 6.78 Unvested options forfeited — — Vested options expired ( 438,213 ) 5.85 Outstanding at December 31, 2023 4,042,520 4.06 5.61 19,086 Exercisable at December 31, 2023 348,520 $ 7.09 0.44 $ 615 The intrinsic values of the options exercised during the years ended December 31, 2023, 2022 and 2021 were $ 0.2 million, $ 0.6 million, and $ 3.3 million, respectively. Cash received from option exercise under all share-based payment arrangements for the years ended December 31, 2023, 2022 and 2021 was $ 1.0 million, $ 0.7 million, and $ 1.4 million, respectively. The actual tax benefit for the tax deductions from option exercise of the share-based payment arrangements totaled $ 0.2 million, $ 0.2 million, and $ 2.0 million, respectively, for the years ended December 31, 2023, 2022 and 2021. 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, 2023, 2022 and 2021. There was no unrecognized compensation expense at December 31, 2023. Equity Incentive Awards The Company has issued several classes of stock awards to employees: restricted share awards (“ 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, 2023. 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, 2023, there was $ 21.4 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 2.26 years, which approximates the remaining vesting period of these grants. 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, 2023, while shares underlying unvested RSUs and PSUs are not considered issued and outstanding as of December 31, 2023. RSAs, RSUs, and PSUs are not reflected in weighted average common shares outstanding for purposes of calculating basic net loss per common share. A summary of Equity Incentive Award activity, by class of award, for the year ended December 31, 2023 is presented below: RSA RSU PSU Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Number of Shares Weighted-Average Grant Date Fair Value Unvested at January 1, 2023 122,755 $ 6.13 4,774,971 $ 6.28 241,072 $ 4.62 Granted — — 3,278,244 4.66 3,851,427 3.83 Vested ( 32,388 ) 6.98 ( 2,258,939 ) 6.18 — — Forfeited ( 90,367 ) 5.83 ( 1,885,537 ) 5.46 ( 365,227 ) 4.24 Unvested at December 31, 2023 — $ — 3,908,739 $ 5.38 3,727,272 $ 3.84 The total fair value of equity incentive awards vested during the years ended December 31, 2023, 2022 and 2021, was $ 10.3 million, $ 10.9 million, and $ 20.1 million, respectively. For the years ended December 31, 2023, 2022, and 2021 the Company recognized share-based compensation as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cost of sales $ 1,533 $ 1,213 $ 813 Selling, general and administrative expenses 14,776 9,578 13,108 Research and development expense 650 537 235 Total share-based compensation 16,959 11,328 14,156 Income tax benefit, before consideration of valuation allowance ( 4,240 ) ( 2,832 ) ( 3,539 ) Total share-based compensation, net of tax benefit $ 12,719 $ 8,496 $ 10,617 Performance Stock Units The Company granted PSUs to certain executive officers during the years ended December 31, 2023 and 2022. These PSUs vest based on and to the extent that stipulated cumulative net sales targets are achieved. 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 ”) is negative, vesting is limited to 100 % of the award for all periods, regardless of actual achievement against the stipulated net sales targets. Employee Stock Purchase Plan On June 7, 2022, the Company adopted the Employee Stock Purchase Plan of MiMedx Group, Inc. (the “ ESPP ”). The ESPP qualifies 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. For the years ended December 31, 2023 and 2022, the Company recorded $ 0.5 million and $ 0.2 million, respectively, in stock-based compensation related to the ESPP. As of December 31, 2023 and 2022, the Company had cumulative payroll deferrals under the ESPP for future share purchases of $ 0.7 million and $ 0.6 million, respectively. This amount is included in accrued compensation in the consolidated balance sheet. Unrecognized stock compensation for the period is less than $ 0.1 million to be recognized over a weighted average period of 0.08 years. CEO Performance Grant 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 (the “ CEO Performance PSUs ”) and a non-qualified stock option (the “ CEO Performance Option ”, collectively with the CEO Performance PSUs, the “ CEO Performance Grant ”) for 3,600,000 shares of the Company’s common stock. In addition to continued employment with the Company, the occurrence and extent of vesting of each component of the CEO Performance Grant is dependent upon the Company’s operating and share price performance: the CEO Performance PSUs vest on the basis of achieved revenue growth, while the CEO Performance Option vests on the basis of share price appreciation. CEO Performance PSUs The CEO Performance PSUs vest in a single tranche on the earlier of the filing date of the Company’s 2026 Annual Report on Form 10-K and March 15, 2027. The occurrence and extent of vesting depends on the Company’s compound annual growth rate (“ CAGR ”) achieved with respect to its revenue growth between the year ended December 31, 2022 and the year ending December 31, 2026. The PSUs may vest with respect to 50 % to 200 % of the granted number of PSUs, depending on the extent of CAGR achievement. Failure to achieve the CAGR associated with 50 % of achievement would result in no vesting. Management determined the probable level of vesting using internally-developed forecasts for the relevant period representing the Company’s best estimate for revenue, with a factor applied to calculate the highest level of CAGR evaluated to be probable of occurring based on that estimate. The Company recognized $ 1.7 million of expense related to the CEO Performance PSUs during year ended December 31, 2023. CEO Performance Option The CEO Performance Option grants Mr. Capper the right to purchase up to 3,600,000 shares of common stock for $ 3.70 per share. The CEO Performance Option vests based on the satisfaction of service and market conditions. Mr. Capper may vest in 25 % of the CEO Performance Option on each of the first four anniversary dates of the date of grant provided that he remains employed by the Company and provided that specified share price goals are achieved at any point between the date of grant and January 31, 2027. There are three separate share price goals associated with the CEO Performance Option. If specified share price goals are met at one level, one-third of the option may vest, at a second level, a further one-third may vest, and at a third level, the full amount of the option may vest. Satisfaction of the share price goals is based on the average of the closing price of the Company’s common stock during any 20 consecutive trading days through January 31, 2027 exceeding the stipulated share price goal. The CEO Performance Option expires on February 1, 2030. 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, 2023, 2022, and 2021 were 0, 249,442 , and 469,239 , respectively, for an aggregate purchase price of $ 0 , $ 1.2 million, and $ 4.8 million, respectively. The Company estimated the fair value of the awards using a Monte Carlo simulation using the following assumptions: Assumption Stock price on grant date $ 3.70 Exercise price $ 3.70 Risk-free interest rate 3.58 % Expected volatility (annualized) 75.00 % Dividend yield — % Weighted average grant date fair value $ 1.93 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 contractual term. The expected volatility was estimated principally based on the Company’s historical daily stock price movements for a term similar in length to the contractual term. The dividend yield was based on the Company’s history of dividends on its common stock. The fair value was determined using an expected term which reflects the anticipated holding and post-vesting behavior pattern, calculated for each individual simulation. The total grant date fair value of the CEO Performance Option was $ 7.0 million. The fair value associated with each tranche of the award will be recognized, straight-line, over the associated requisite service period for that tranche, subject to acceleration if the market condition is met prior to the end of the derived service period. Failure to meet the market condition for an award does not result in reversal of previously-recognized expense, so long as the service is provided for the duration of the required service period. The Company recognized $ 2.6 million of expense related to the CEO Performance Option during year ended December 31, 2023. 12. Revenue Net Sales By Care Setting 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 both wound and 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, 2023 2022 2021 Hospital $ 187,000 $ 163,206 $ 142,140 Private Office 95,789 77,158 74,522 Other 38,688 27,477 25,357 Total $ 321,477 $ 267,841 $ 242,019 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, 2023, 2022, or 2021. Sales Returns Allowance Activity related to the Company’s sales returns allowance during the year ended December 31, 2023 was as follows (in thousands): Sales Returns Allowance Balance at December 31, 2021 $ 788 Additions charged to expense or revenue 2,034 Deductions and write-offs ( 2,163 ) Balance at December 31, 2022 659 Additions charged to expense or revenue 3,899 Deductions and write-offs ( 3,462 ) Balance at December 31, 2023 $ 1,096 AXIOFILL The Company received a Warning Letter on December 21, 2023, relating to the inspections and classification of AXIOFILL. The Company continues to engage with the FDA on this matter, working through the process outlined by the FDA to obtain a formal determination of AXIOFILL’s classification. 13. Discontinued Operations Disbanding of Regenerative Medicine Business Unit On June 20, 2023, the Company announced the disbanding of its Regenerative Medicine business unit and the suspension of its Knee Osteoarthritis clinical trial program. During the fourth quarter of 2023, the Company completed the regulatory obligations associated with the clinical trial. Financial Statement Impact of Discontinued Operations The income and expenses of the discontinued operation have been classified as loss (income) from discontinued operations in the consolidated statements of operations as of December 31, 2023, 2022, and 2021 as follows (in thousands): Year Ended December 31, 2023 2022 2021 Net sales $ — $ — $ 16,596 Cost of sales — — 3,655 Selling, general and administrative expense — 116 3,513 Research and development expense 8,017 10,128 7,412 Restructuring expense 4,168 — — Income tax provision benefit 2,974 — — Net (loss) income from discontinued operations $ ( 9,211 ) $ ( 10,244 ) $ 2,016 The assets and liabilities of the discontinued operations have been classified as discontinued operations in the consolidated balance sheet as of December 31, 2023 and 2022 as follows (in thousands): Year Ended December 31, 2023 2022 Current assets: Prepaid Expenses $ — $ 1,331 Current assets of discontinued operations — 1,331 Goodwill — 535 Noncurrent assets of discontinued operations — 535 Total assets of discontinued operations $ — $ 1,866 Current liabilities: Accounts payable $ — $ 393 Accrued compensation 311 996 Accrued expenses 1,041 90 Total liabilities of discontinued operations $ 1,352 $ 1,479 Goodwill As a result of the announcement of the disbanding of Regenerative Medicine business unit, the Company evaluated goodwill associated with the Regenerative Medicine reporting unit for potential impairment. The Company estimated fair value for the reporting unit using the income approach; specifically, a discounted cash flow method. As a result of this assessment, management concluded that the carrying value of the reporting unit exceeded its fair value by an amount that exceeded its goodwill balance. Accordingly, the Company recognized an impairment loss for the full amount of the goodwill ascribed to the Regenerative Medicine reporting unit. The goodwill impairment loss is included as a component of discontinued operations in the audited consolidated statement of operations for the year ended December 31, 2023. Goodwill related to the Regenerative Medicine business unit of $ 0.5 million is included as a component of assets of discontinued operations in the consolidated balance sheet for the year ended December 31, 2022. Impairment expense of $ 0.5 million was recorded as part of loss from discontinued operations for the year ended December 31, 2023. 14. Income Taxes 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. Significant components of the Company’s deferred tax assets and liabilities are as follows (in thousands): December 31, 2023 2022 Deferred Tax Assets: Net operating loss $ 13,712 $ 23,719 Capitalized research and development expenditures 10,843 3,586 Research and development and other tax credits 8,117 8,384 Accrued expenses 3,660 3,551 Share-based compensation 3,266 3,145 Interest limitation carry forward 1,873 4,898 Allowance for doubtful accounts 778 1,033 Lease liabilities 600 962 Sales return and allowances 270 163 Property and equipment 84 — Other 437 885 Deferred Tax Liabilities: Prepaid expenses ( 1,045 ) ( 1,400 ) Right of use asset ( 571 ) ( 867 ) Intangible assets ( 337 ) ( 351 ) Property and equipment — ( 77 ) Net Deferred Tax Assets 41,687 47,631 Less: Valuation allowance ( 910 ) ( 47,631 ) Net Deferred Tax Assets after Valuation Allowance $ 40,777 $ — The reconciliation of the federal statutory income tax rate of 21 % to the effective rate is as follows: Year ended December 31, 2023 2022 2021 Federal statutory rate 21.00 % 21.00 % 21.00 % Share-based compensation 2.81 % ( 6.06 ) % 19.49 % Nondeductible compensation 1.78 % ( 3.19 ) % ( 11.51 ) % Meals and entertainment 1.21 % ( 0.15 ) % ( 0.94 ) % Deferred tax adjustments 1.31 % ( 4.35 ) % 12.23 % Uncertain tax positions 0.36 % ( 0.49 ) % 0.01 % Employee retention credit — % — % 2.82 % Tax credits ( 3.17 ) % 4.90 % 0.93 % State taxes, net of federal benefit ( 21.77 ) % ( 0.83 ) % 3.79 % Valuation allowance ( 123.50 ) % ( 12.50 ) % ( 46.75 ) % Other ( 0.18 ) % 0.63 % ( 3.12 ) % Effective tax rate ( 120.15 ) % ( 1.04 ) % ( 2.05 ) % The effective tax rate for the year ended December 31, 2023 was significantly influenced by the reversal of a valuation allowance, reflecting a change in the determination of the likelihood of the realizability of certain of the Company’s deferred tax assets as of that date. This re-evaluation was the result of the conclusion of that the Company’s disbanded Regenerative Medicine segment qualified as a discontinued operation, in concert with the Company’s operating results. Current and deferred income tax (benefit) expense is as follows (in thousands): Year Ended December 31, 2023 2022 2021 Current: Federal $ 576 $ — $ 91 State 422 206 156 Total current 998 206 247 Deferred: Federal ( 31,633 ) — — State ( 9,144 ) — — Total deferred ( 40,777 ) — — Income tax provision (benefit) expense $ ( 39,779 ) $ 206 $ 247 Certain items of income and expense are not reported in tax returns and financial statements in the same year. 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 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 $ 0.9 million and $ 47.6 million was recorded against the deferred tax asset balance as of December 31, 2023 and 2022, respectively. Valuation allowances are reflected against the Company’s deferred tax assets to reflect the extent to which the realization of those assets are not more likely than not to be realized 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. At December 31, 2023 and 2022, the Company had income tax net operating loss (“ NOL ”) carryforwards for federal and state purposes of $ 43.5 million and $ 85.7 million and $ 84.9 million and $ 109.8 million, respectively. A portion of the Company’s tax credits are subject to annual limitations due to ownership change limitations provided by Internal Revenue Code Section 382. 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, 2023, the Company has recorded $ 9.1 million and $ 4.6 million deferred tax asset for federal and state NOL carryforwards, respectively. As of December 31, 2022, the Company has recorded a deferred tax asset for federal and state NOL carryforwards of $ 17.8 million and $ 5.9 million, respectively. Unrecognized Tax Benefits The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands) included in the consolidated balance sheets: 2023 2022 2021 Unrecognized tax benefits - January 1 $ 645 $ 469 $ 477 Increases - tax positions in current period 124 98 20 Increases - tax positions in prior period 38 78 — Decreases in prior year positions — — ( 28 ) Unrecognized tax benefits - December 31 $ 807 $ 645 $ 469 Included in the balance of unrecognized tax benefits are tax benefits of $ 0.8 million and $ 0.6 million as of December 31, 2023 and 2022, respectively, that, if recognized, would affect the effective tax rate. Of these amounts, $ 0.1 million and $ 0 , respectively, are recorded as other liabilities in the consolidated balance sheets as of those dates. The remaining balance is reflected as a reduction to the related deferred tax asset. 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 $ 0.0 million of interest during the years ended December 31, 2023 and 2022. The Company is subject to taxation in the U.S. and various state jurisdictions. As of December 31, 2023, the Company’s tax returns for 2020 through 2023 generally remain open for exam by taxing jurisdictions. Additional prior years may be open to the extent attributes are being carried forward to an open tax year. 15. Supplemental Disclosure of Cash Flow and Non-Cash Investing and Financing Activities Selected cash payments, receipts, and non-cash activities are as follows (in thousands): Year Ended December 31, 2023 2022 2021 Cash paid for interest $ 6,034 $ 4,569 $ 4,327 Income taxes (refunded) paid ( 548 ) 181 169 Cash paid for operating leases 1,635 1,567 1,522 Non-cash activities: Conversion of Series B Preferred Stock 87,870 — — Issuance of shares pursuant to employee stock purchase plan 1,367 — — Purchases of equipment included in accounts payable 228 417 8 Financing costs incurred but not paid for Citizens Financing Transaction 138 — — Legal fees associated with the Repurchase of Series B Preferred Stock 45 — — Lease right of use asset and liability — ( 37 ) 2,251 Deemed dividends of Series B Preferred Stock — — 926 Fair value of non-cash consideration received for option exercise — — 380 Note receivable for sale of property and equipment — — 75 16. Commitments and Contingencies Contractual Commitments 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): Year ending December 31, Meeting Space Commitments 2024 $ 654 2025 237 Total $ 891 Separation Agreement with Timothy R. Wright In 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. Payments made to Mr. Wright under the terms of the Separation Agreement during the year ended December 31, 2023 totaled $ 1.9 million. A total of $ 1.2 million is reflected in accrued compensation in the consolidated balance sheet as of December 31, 2023. 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. 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, 2023 reflect the Company's current best estimate of probable losses associated with these matters, including costs to comply with various settlement agreements, where applicable. The Company had zero and $ 0.2 million accrued as of December 31, 2023 and December 31, 2022, respectively, related to expected settlement costs related to legal matters. The actual costs of resolving these matters may be in excess of the amounts accrued. The Company paid $ 0.2 million, $ 0.7 million, and $ 6.7 million toward the resolution of legal matters involving the Company during the years ended December 31, 2023, 2022, and 2021, respectively. In addition, insurance providers paid $ 0.6 million and $ 1.1 million on the Company’s behalf to settle legal matters for the years ended December 31, 2022 and December 31, 2021, respectively. In addition, during 2021, the Company received funds from certain director and officer insurance policies for previously-incurred legal expenses under the Company’s indemnification agreements. These funds were recognized as a reduction to investigation, restatement and related expense on the consolidated statement of operations. Welker v. MiMedx, et. al. On November 4, 2022, Troy Welker and Min Turner, former option holders 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. On motion by the Company, the case has been moved to the Fulton County Business Court. The Company and the individual defendants filed answers and motions to dismiss, which were denied on the RICO claims, but granted with respect to the breach of fiduciary duty claims against the individual defendants. The Company is defending against the allegations and is obligated to indemnify certain of its current and former officers and directors who are party to this proceeding. Former Employee Litigation and Related Matters On January 12, 2021, the Company filed suit in the Circuit Court of the Eleventh Judicial District in and for Miami-Dade County, Florida (MiMedx Group, Inc. v. Petit, et. al.) against its former CEO, Parker H. “Pete” Petit, and its former COO, William C. Taylor, seeking a determination of its rights and obligations under indemnification agreements with Petit and Taylor and seeking reimbursement of amounts previously advanced under the indemnification agreements following a federal jury’s guilty verdict against Petit for securities fraud and Taylor for conspiracy to commit securities fraud. On April 22, 2021, Petit and Taylor filed an answer and asserted counterclaims against the Company alleging breach of their indemnification agreements, breach of the covenant of good faith and fair dealing with respect to their indemnification agreements, and seeking a declaration that the Company remains obligated to indemnify and advance fees in connection with certain cases. Petit and Taylor simultaneously also filed a motion seeking to compel the Company to advance and reinstate its payments of Petit and Taylor’s legal expenses. The Company opposed Petit and Taylor’s motion and a hearing was set for June 23, 2021. At the joint request of the parties, the hearing was cancelled to allow the parties to attend a mediation to attempt a resolution of this matter; such mediation was held on August 11, 2021. Following the mediation, the Company and Mr. Taylor reached an agreement to settle the matter between them. Negotiations with Mr. Petit are ongoing. Other Matters In addition to the matters described above, the Company is a party to a variety of other legal matters that arise in the ordinary course of the Company’s business, none of which are deemed to be individually material at this time. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s business, results of operations, financial position or liquidity. 17. 401(k) Plan The Company has a 401(k) plan (the “ 401(k) Plan ”) covering all employees who have completed one month of service. Under the 401(k) Plan, participants could defer up to 90 % of their eligible wages to a maximum of $ 22,500 per year (annual limit for 2023). Employees age 50 or over in 2022 could make additional pre-tax contributions of up to $ 7,500 . In 2023, 2022 and 2021, the Company matched 50 % of employee contributions up to 8 % of the employee’s eligible compensation. The matching contribution for the years ended December 31, 2023, 2022, and 2021 was $ 2.7 million, $ 3.3 million, and $ 2.7 million, respectively. 18. Government Assistance Employee Retention Credit The Coronavirus Aid, Relief, and Economic Security Act (“ 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, $ 1.0 million and $ 1.4 million were reflected as part of other current assets in the consolidated balance sheets as of December 31, 2023 and 2022, respectively. During year ended December 31, 2023, the Company received $ 0.4 million relating to the ERC. 19. Subsequent Events $ 95 Million Credit Agreement with Citizens and Bank of America On January 19, 2024, the Company entered into a Credit Agreement (the “ Citizens Credit Agreement ”) with certain lenders party thereto, and Citizens Bank, N.A., as administrative agent (the “ Agent ”). The Citizens Credit Agreement provides for senior secured credit facilities in an aggregate principal amount of up to $ 95.0 million consisting of: (i) a $ 75.0 million senior secured revolving credit facility (the “ Revolving Credit Facility ”) with a $ 10.0 million letter of credit sublimit and a $ 10.0 million swingline loan sublimit, and (ii) a $ 20.0 million senior secured term loan facility (the “ Term Loan Facility ” and, together with the Revolving Credit Facility, the “ Credit Facilities ”). All obligations are required to be paid in full on January 19, 2029 (the “ Maturity Date ”). The Company has the option to obtain one or more incremental term loan facilities and/or increase the commitments under the Revolving Credit Facility in an aggregate principal amount equal to the greater of (i) $ 50.0 million and (ii) 1.00 times the Company’s Consolidated EBITDA as defined therein, each subject to the existing or any new lenders’ election to extend additional term loans or revolving commitments. At the Company’s option, borrowings under the Citizens Credit Agreement (other than any swingline loan) will bear interest at a rate per annum equal to (i) the Alternate Base Rate, as defined therein, or (ii) a Term SOFR as defined therein, in each case plus an applicable margin ranging from 1.25 % and 2.50 % with respect to Alternate Base Rate borrowings and 2.25 % and 3.50 % for Term SOFR borrowings. Swingline loans will bear interest at a rate per annum equal to one-month Term SOFR plus the applicable margin. The applicable margin will be determined based on the Company’s consolidated total net leverage ratio. The Company is required to pay a quarterly commitment fee on any unused portion of the Revolving Credit Facility, letter of credit fees, and other customary fees to the Agent and the Lenders. The Term Loan Facility will amortize on a quarterly basis at 1.25 % (for year one and two), 1.875 % (for year three and four), and 2.5 % (for year five) based on the aggregate principal amount outstanding under the Term Loan Facility, with the remainder due on the Maturity Date. The Company must make mandatory prepayments in connection with certain asset dispositions and casualty events, subject in each case to customary reinvestment rights. The Company may prepay borrowings under the Credit Facilities at any time, without premium or penalty, and may, at its option, reduce the aggregate unused commitments under the Revolving Credit Facility in whole or in part, in each case subject to the terms of the Credit Agreement. The Company must also comply with certain financial covenants, including a maximum total net leverage ratio and a minimum consolidated fixed charge coverage ratio, as well as other customary restrictive covenants. In addition, on January 19, 2024, the Company borrowed $ 30.0 million under the Revolving Credit Facility and $ 20.0 million under the Term Loan Facility. Proceeds from the initial drawings under the Credit Facilities together with cash on hand were used to repay in full the $ 50.0 million principal amount and other outstanding obligations under the Hayfin Loan Agreement and to pay related fees, premiums, costs and expenses (collectively with the entry into the Citizens Credit Agreement and the initial borrowings thereunder, the “ Debt Refinancing Transactions ”). On February 27, 2024, the Company repaid the initial $ 30.0 million drawing under the Revolving Credit Facility. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.