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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

MIMEDX is a transformational placental biologics company, developing and distributing placental tissue allografts with patent-protected, proprietary processes for multiple sectors of healthcare. As a pioneer in placental biologics, we are focused on addressing unmet clinical needs in areas of advanced wound care, surgical recovery applications and musculoskeletal conditions. We derive our products from human placental tissues and process these tissues using our proprietary methods, including the PURION® process. We apply CGTP, CGMP, and terminal sterilization to produce our allografts. MIMEDX provides products primarily in the wound care, burn, and surgical recovery sectors of healthcare. All of our products are regulated by the FDA.

MIMEDX is a leading supplier of human placental allografts, which are human tissues that are derived from one person (the donor) and used to produce products that treat another person (the recipient). MIMEDX has supplied over two million allografts, through both direct and consignment shipments. Our platform technologies include tissue allografts derived from the amnion and chorion layers of the human placental membrane (EPIFIX and AMNIOFIX) and tissue allografts derived from human umbilical cord (EPICORD and AMNIOCORD).

EPIFIX and EPICORD products are marketed for external use, such as in advanced wound care applications, while our AMNIOFIX and AMNIOCORD products are positioned for use in surgical recovery applications, including lower extremity repair, plastic surgery, vascular surgery and multiple orthopedic repairs and reconstructions.

AMNIOFIX Injectable, or mdHACM is a micronized configuration of AMNIOFIX and is not currently marketed in the United States. mdHACM is our lead product candidate for our late-stage pipeline targeted at achieving FDA approval for specific clinical indications, including degenerative musculoskeletal conditions.

We have two classes of products: (1) Advanced Wound Care products, or Section 361 products, consisting of our tissue and cord sheet allograft products, and (2) Section 351 products, consisting of our micronized and particulate products, which, prior to May 31, 2021, the date of the FDA’s period of enforcement discretion ended, were used to treat a variety of clinical conditions, including both advanced wound care and musculoskeletal applications. Our Advanced Wound Care business includes two product categories, Tissue/Other and Cord products. We sell product through two distribution channels: (1) direct to customers (healthcare professionals and/or facilities); and (2) sales through distributors.

In November 2017, the FDA published a series of guidances that established an updated framework for the regulation of cellular and tissue-based products. These guidances clarified the FDA’s views about the criteria that differentiate those products subject to regulation under Section 361 of the Public Health Service Act from those considered to be drugs, devices, and/or biological products subject to licensure under Section 351 of the Public Health Service Act and related regulations. The FDA exercised enforcement discretion under limited conditions with respect to IND applications and pre-market approval requirements through May 31, 2021. The enforcement discretion period ended on May 31, 2021. We are not currently marketing our micronized and particulate products affected by the guidance in the United States.

This discussion, which presents our results for the fiscal years ended December 31, 2021 and December 31, 2020, should be read in conjunction with our Consolidated Financial Statements and the accompanying notes. Also please refer to Item 1 — Business and Item 1A — Risk Factors, which include detailed discussions of various items impacting our business, results of operations and financial condition. We intend for this discussion to provide the reader with information that will assist in understanding our financial statements, the changes in certain key items in those financial statements from period to period and the primary factors that accounted for those changes. We also discuss certain performance metrics that management uses to assess the Company's performance. Further information on the factors that can affect our operating results can be found in Part I under the caption “Explanatory Note and Important Cautionary Statement Regarding Forward-Looking Statements.”

Our Annual Report for the year ended December 31, 2020 includes a discussion and analysis of our financial condition and results of operations for the year ended December 31, 2019 in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Trends in Our Business

Analysis of our Phase 2B Knee Osteoarthritis clinical trial has identified a probable root cause of the failure for this study to meet its primary endpoints. We intend to use these findings to inform planned future clinical trials

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In September 2021, we reported top-line data from the results of two late-stage musculoskeletal clinical trials of the Company’s mdHACM product, including a Phase 2B clinical trial for the treatment of Knee Osteoarthritis. Results from a topline analysis of the six-month efficacy data for the Phase 2B clinical trial for Knee Osteoarthritis revealed that the study did not meet its primary endpoints, but did reveal varied efficacy signals between patient cohorts evaluated pre- and post-blinded interim analysis performed in mid-2019.

A root-cause analysis of the Knee Osteoarthritis study indicated that the varied efficacy signals between the pre-interim analysis and post-interim analysis cohorts was the result of faded potency of the investigational product over time. We intend to incorporate these findings into the design of our Phase 3 program, which we plan to initiate in 2022.

We are expanding beyond advanced wound care and into areas of surgical recovery

Surgical recovery applications focus on the use of tissue products to augment tissue, serve as a barrier membrane, or aid in incisional closure with the goal of preventing or reducing procedural complications. Following a thorough review of surgical procedures and potential clinical applications across several specialties, we have identified those areas where we believe our tissue products could be incorporated. We are targeting certain procedures for use of our products based on unmet clinical need, potential procedural complication rate, clinical relevance, economic factors and overall business priorities. As in advanced wound care, we believe this market is expanding as a result of demographic trends, including an aging population, increasing incidence of obesity and diabetes and the associated higher susceptibility to non-healing chronic wounds.

We are actively pursuing growth strategies by expanding our geographic reach

We are actively pursuing international expansion, with an initial focus in Japan. We received regulatory approval by the Japanese Ministry of Health, Labor and Welfare in June 2021 to market EPIFIX in Japan. We expect to secure reimbursement approval in mid-2022, and are putting in place the necessary structure, medical education programs, and market development initiatives that will operationalize our commercial strategy. We are evaluating opportunities for geographic expansion in the United Kingdom, certain other areas of Europe and also the Middle East.

Impact of COVID-19 Pandemic

While the impact of the COVID-19 pandemic is still ongoing, the effects on our operations, such as access restrictions to hospitals and difficulties obtaining donor materials that we observed during the year ended December 31, 2020 did not materially affect our operations during the year ended December 31, 2021. We are continuously monitoring developments with respect to novel variants of the virus and government and societal responses to mitigate the continued spread of COVID-19, which could impact our operations.

We continue to exercise an abundance of caution with respect to the health and well being of our employees. We are providing employees with Personal Protective Equipment as needed, and advising all employees to receive a COVID-19 vaccine or booster as soon as reasonably possible. None of these efforts have materially affected the Company’s operations for the year ended December 31, 2021.

Components of and Key Factors Influencing Our Results of Operations

In assessing the performance of our business, we consider a variety of performance and financial measures. We believe the items discussed below provide insight into the factors that affect these key measures.

Net sales

Net sales is recognized based on the consideration we expect to receive from the sale. This consists of the gross selling price of the product, less any discounts, rebates, fees paid to GPOs, and returns.

We derive the majority of our revenue from selling our tissue and cord products in the United States. We are actively working to broaden our product portfolio in a number of clinical applications, while also seeking regulatory approval with the appropriate regulators to expand our geographic footprint.

We have two classes of products: (1) Advanced Wound Care products, or Section 361 products, consisting of our tissue and cord sheet allograft products, and (2) Section 351 products, consisting of our micronized and particulate products, which, prior to May 31, 2021, the date the FDA’s period of enforcement discretion ended, were used to treat a variety of patient needs, including both advanced wound care and musculoskeletal applications. Our Advanced Wound Care business includes two product categories, Tissue/Other and Cord products.

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We have two distribution channels: (1) direct to customers and (2) sales through distributors.

Several factors affect our reported revenue in any period, including product, payer and geographic sales mix, operational effectiveness, pricing realization, marketing and promotional efforts, timing of orders and shipments, regulatory actions including healthcare reimbursement scenarios, competition, and business acquisitions that involve our customers or competitors.

Cost of goods sold and gross profit

Cost of goods sold includes product testing costs, quality assurance costs, personnel costs, manufacturing costs, raw materials and product costs, depreciation and facility costs associated with our manufacturing and warehouse facilities. Fluctuations in our cost of goods sold correspond with the fluctuations in these costs as well as in sales units driven by the changes in our sales force and sales territories, product portfolio offerings and the number of facilities that offer our products.

Gross profit is calculated as net sales less cost of goods sold. Our gross profit is affected by product and geographic sales mix, realized pricing of our products, the efficiency of our manufacturing operations and the costs of materials used to make our products. Regulatory actions, including with respect to reimbursement for our products, may require costly expenditures or result in pricing pressure, and may decrease our gross profit and gross margin.

Selling, general and administrative expense

Selling, general and administrative expense includes personnel costs, commissions, incentive compensation, customer support, administrative and labor costs, insurance, professional fees, depreciation and bad debt expense. We expect our selling, general and administrative expense to fluctuate based on revenue fluctuations, geographic changes, and any changes to the size of our headcount, particularly that of our sales and marketing forces.

Research and development expense

Research and development expense relates to our investments in clinical trials to expand our product pipeline and platforms, as well as investments in improvements to our manufacturing process and the enhancement of existing products. Our research and development costs also include expenses such as salaries and benefits related to our research department, consulting costs and advisory costs, and regulatory costs.

We expense research and development costs as incurred. Fluctuations in research and development expenses are potentially driven by the timing and cadence of our clinical trials.

Investigation, restatement and related expense

Investigation, restatement and related expense primarily relates to legal fees advanced to certain former officers and directors of the Company under certain indemnification agreements and the Company’s liability from legal proceedings taken against us, which arose from the findings of the Audit Committee Investigation. The timing and extent of these expenses depend on the stage and status of legal proceedings. Other activity includes amounts received from certain director and officer insurance providers.

Interest expense

We incur interest expense primarily through stated interest on our outstanding term loan. The interest on our term loan is tied to the three-month London Interbank Offered Rate (“LIBOR”), subject to a floor of 1.5%. Increases in LIBOR could cause our interest expense to increase. Other activity influencing interest expense relates to the amortization of deferred financing costs and original issue discount associated with credit facilities outstanding.

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Results of Operations for 2021 Compared to 2020

Year Ended December 31,

(in thousands)

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

Other expense, net (23) (3) (20) —

Net Sales

We recorded net sales for the year ended December 31, 2021 of $258.6 million, an increase of $10.4 million or 4.2% over 2020 net sales of $248.2 million. Net sales for 2021 and 2020 include collections on the Remaining Contracts of $1.0 million and $7.8 million, respectively. Refer to Item 8, Note 2, “Significant Accounting Policies,” of the consolidated financial statements for additional details regarding the Remaining Contracts.

Adjusted Net Sales, which excludes cash collected on the Remaining Contracts, were $257.6 million in 2021, an increase of $17.1 million or 7.1%, compared to $240.5 million in 2020. Adjusted Net Sales in these periods included net sales of Section 351 products of $17.6 million and $31.8 million in 2021 and 2020, respectively. Adjusted Net Sales is a Non-GAAP measure intended to remove cash collections from the Remaining Contracts, which are not a reflection of recurring revenue. We expect that collections on the Remaining Contracts will be negligible in 2022 and beyond. Refer to the section “Non-GAAP Financial Measures” below for more information.

Sales of our Advanced Wound Care products, which excludes the Section 351 Products, increased $31.4 million or 15.0%, year-over-year. This increase was primarily the result of an increase in sales volume due to lessening of restrictions implemented at the onset of the COVID-19 pandemic, including access to hospitals and travel restrictions. The increase also reflects the initial results of our commercial focus on areas of surgical recovery. We also saw growth in our EPIFIX sheet portfolio and the positive impact of sales of our EPICORD Expandable product launched in September 2020.

Refer to Item 8, Note 15, “Revenue”, for a disaggregation of our sales by product.

Gross Margin

Gross margin in 2021 was 83.3%, compared to 84.2% in 2020. The decrease in gross margin was driven primarily by write-downs of discontinued product recorded during 2021. The write-downs related to our Section 351 Products, which we no longer market in the United States after May 31, 2021, the date the FDA’s period of enforcement discretion ended, and certain Advanced Wound Care product lines which we no longer intend to market. We do not currently anticipate significant write-downs of our inventory to recur in 2022.

Selling, General and Administrative Expense

Selling, general and administrative (“SG&A”) expense increased $17.3 million, or 9.6%, to $198.4 million for 2021, compared to $181.0 million for 2020.

The increase in SG&A expense was driven by:

•the restoration of full-salary levels, which were restricted for a portion of 2020 as part of our response to the COVID-19 pandemic, and merit increases;

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•incremental costs associated with the expansion of our sales force;

•higher travel costs during 2021 compared to 2020, as travel was restricted at the onset of the COVID-19 pandemic in 2020;

•a proxy contest during the second quarter of 2021, totaling $3.9 million of expenses; and

•increases in sales commissions, resulting from higher sales volumes.

Research and Development Expense

Our research and development expense increased $5.6 million, or 48.0%, to $17.3 million in 2021, compared to $11.7 million in the prior year.

The increase was driven by higher personnel costs due to headcount increases to support investments in our clinical trials and the restoration of full salary levels and merit increases, which were restricted for a portion of 2020. We also incurred higher consulting fees in 2021, primarily to assist in the evaluation of the results of our clinical trials.

Investigation, Restatement and Related Expense

Investigation, restatement, and related expenses decreased $55.7 million, or 93.6% to $3.8 million for 2021 compared to $59.5 million for 2020. The decrease was the result of:

•lower fees advanced under indemnification agreements with certain former members of management during 2021 compared to 2020;

•recoveries from certain director and officer insurance policies relating to previously-recognized legal expenses in 2021;

•negotiated reductions in previously-recognized legal expenses in 2021; and

•year-over-year reductions in costs related to the restatement of our prior period financial information.

The funds received from insurance providers and reductions in legal expenses were reflected as reductions to expense in the periods in which those transactions occurred.

The restatement of our prior period financial information concluded in 2020 and we will not incur any expenses related to the restatement moving forward.

We remain subject to indemnification agreements with certain former officers and directors of the Company (other than our former Chief Executive Officer and our former Chief Operating Officer) for whom legal proceedings are still ongoing.

Amortization of Intangible Assets

Amortization expense related to intangible assets decreased $0.3 million to $0.8 million in 2021, compared to $1.1 million in 2020. The decrease was the result of intangible assets impaired in 2020.

Impairment of Intangible Assets

Impairment of intangible assets of $0.1 million was recorded in 2021 related to the impairment of a supplier relationship acquired as part of the acquisition of Surgical Biologics, LLC (“SB”) in 2011.

Impairment of intangible assets of $1.0 million was recorded in 2020 related to the impairment of customer relationships acquired as part of the SB acquisition.

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Loss on Extinguishment of Debt

Loss on extinguishment of debt of $8.2 million was recorded in 2020 resulting from the repayment and termination of a previous term loan agreement.

Interest Expense, Net

Interest expense, net decreased by $2.9 million to $5.0 million during 2021 from $7.9 million during 2020. The decrease was the result of less principal outstanding, a lower stated interest rate, and lower amortization of deferred financing costs and original issue discount under the Hayfin Loan Agreement, as defined and described in the Liquidity and Capital Resources section below, compared to our previous term loan agreement which was outstanding for the first half of 2020.

Other Expense, Net

Other expense was negligible in both periods.

Income Tax Provision (Expense) Benefit

The effective tax rate for 2021 was (2.5)% on pre-tax book loss of $10.0 million, primarily reflecting a current tax expense associated with state income taxes and adjustment to federal income tax refund receivable.

Liquidity and Capital Resources

We require capital for our operating activities, including costs associated with the sale of product through direct and indirect sales channels, the conduct of clinical trials and other research and development activities, compliance costs, costs to sell and market our products, regulatory fees, and legal and consulting fees in connection with ongoing litigation and other matters. We generally fund our operating capital requirements through our operating activities and cash reserves. We expect to use capital in the near and medium term to commence late-stage clinical trials for certain of our products, invest in the international expansion of our business and the broadening of our product portfolio, and invest in certain capital projects.

As of December 31, 2021, we had $87.1 million of cash and cash equivalents.

Our net working capital at December 31, 2021 was $106.2 million, an increase of $4.7 million from $101.5 million at December 31, 2020. Our current ratio (current assets divided by current liabilities) was 3.5 to 1 as of December 31, 2021 and 2.7 to 1 as of December 31, 2020.

The Company is currently paying its obligations in the ordinary course of business. We believe that our anticipated cash from operating activities and existing cash and cash equivalents will enable us to meet our operational liquidity needs for the twelve months following the filing date of this Annual Report.

We expect to incur additional costs in connection with the commencement of two late-stage clinical trials. This includes development of protocols, site selection, patient recruitment, start-up costs, ongoing monitoring, and the costs advanced to sites for carrying out such trials. These efforts also require human capital, expertise and resources.

Contractual Obligations

Contractual obligations associated with ongoing business activities are expected to result in cash payments in future periods. The table below summarizes the amounts and estimated timing of these future cash payments as of December 31, 2021 (in thousands):

Less than

Contractual Obligations Total 1 year 1-3 years 3-5 years Thereafter

Hayfin Term Loan Principal $ 50,000 $ — $ — $ 50,000 $ —

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We have not declared or paid any cash dividends on our Series B Convertible Preferred Stock since their issuance. Dividends in arrears as of December 31, 2021 were $7.2 million. These were convertible into 27,850,916 shares as of December 31, 2021. Assuming we do not declare or pay a cash dividend, the holders do not exercise their option to convert, and the other conversion or redemption features are not triggered, we would accrue $6.6 million of dividends in 2022, $14.4 million in aggregate in 1-3 years, and $16.3 million in aggregate in 3-5 years. Refer to Item 8, Note 11, “Equity” for more detailed discussion regarding the rights and preferences of our Series B Convertible Preferred Stock.

Term Loan

The Hayfin Loan Agreement was funded on July 2, 2020 and provided us with a senior secured term loan in an aggregate amount of $50 million (the “Term Loan”). The Term Loan matures on June 30, 2025 (the “Maturity Date”). On February 28, 2022 (the “Amendment Date”), we executed an Amendment to the Hayfin Loan Agreement (the “Amendment”).

No principal payments are due on the Term Loan until the Maturity Date.

Interest is payable on the Term Loan for principal outstanding quarterly through the Maturity Date. The interest rate applicable to any borrowings under the Term Loan is equal to LIBOR (subject to a floor of 1.5%) plus a margin of 6.75%. If LIBOR is unavailable, the loan will carry interest at the greatest of the Prime Rate, the Federal Funds Rate plus 0.5% per annum, and 2.5% plus the Margin.

An additional 3.0% margin would be applied to the interest rate upon the occurrence of an Event of Default as defined in the Hayfin Loan Agreement. At issuance, and as of December 31, 2021, the Term Loan carried an interest rate of 8.3%.

Prior to the Amendment Date, the Hayfin Loan Agreement contained financial covenants requiring the Company, on a consolidated basis, to maintain the following:

•Maximum Total Net Leverage Ratio, required to be calculated on a quarterly basis, of 4.0x; and

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

We were in compliance with all debt covenants as of December 31, 2021.

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

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

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

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

•On or before July 2, 2023: 2% of the principal balance repaid.

•After July 2, 2023, but on or before July 2, 2024: 1% of the principal balance repaid.

•After July 2, 2024: no premium.

The Hayfin Loan Agreement also includes certain negative covenants and events of default customary for facilities of this type, and upon the occurrence of such events of default, subject to customary cure rights, all outstanding loans under the Hayfin Loan Agreement may be accelerated or the lender’s commitments terminated. The mandatory prepayments are also required in the event of a change in control, incurring other indebtedness, certain proceeds from disposal of assets and insured casualty event.

From January 1, 2021, we are required to prepay the outstanding loans based on a percentage of Excess Cash Flow, as defined in the Hayfin Loan Agreement, if Excess Cash Flow is generated, with the percentage determined based on the Total Net Leverage thresholds. To date, we have not been required to make any such prepayments.

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

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as any applicable prepayment premiums. Future compliance with the financial covenants, as amended, requires continuing growth in net sales consistent with the Company’s business strategy and plans. Our business is subject to inherent uncertainties that could impact the Company’s net sales growth, including, but not limited to, the regulatory pathway of our cord-derived product.

While we currently have sufficient cash to repay all such amounts in an event of default, we may require alternative financing to cover other obligations. Even if alternative financing were available in an event of default under the Hayfin Loan Agreement, it might be on unfavorable terms, and the interest rate charged on any new borrowings may be substantially higher than the interest rate under the Hayfin Loan Agreement, thus adversely affecting our future cash flows, liquidity, and results of operations.

Series B Preferred Stock

The Company has 100,000 shares of Series B Preferred Stock outstanding as of December 31, 2021.

The Series B Preferred Stock paid a 4.0% cumulative dividend per annum prior to June 30, 2021, and pays a 6.0% cumulative dividend per annum thereafter. Dividends are declared at the sole discretion of our board of directors. Dividends, if declared, are paid in cash at the end of each quarter based on dividend amounts that accumulate beginning on the last payment date through the day prior to the end of each quarter. In lieu of paying a dividend in cash, we may elect to accrue the dividend owed to shareholders. Dividend balances accumulate at the prevailing dividend rate for each dividend period for which they are outstanding.

Each share of Series B Preferred Stock, including any accrued and unpaid dividends, is convertible into our common stock at any time at the option of the holder at a conversion price of $3.85 per common share, or 259.74 common shares for each Series B Preferred Share prior to any accrued and unpaid dividends. The Series B Preferred Stock, including any accrued and unpaid dividends, automatically converts into common stock at any time after July 2, 2023, provided that the common stock has traded at $7.70 or higher (i) for 20 out of 30 consecutive trading days and (ii) on such date of conversion.

If we undergo a change of control, we will have the option to repurchase some or all of the then-outstanding shares of Series B Preferred Stock for cash in an amount equal to the liquidation preference and any accumulated and unpaid dividends, subject to the rights of the holders of the Series B Preferred Stock in connection with such change in control. If we do not exercise such repurchase right, holders of the Series B Preferred Stock will have the option to (1) require us to repurchase any or all of our then-outstanding shares of Series B Preferred Stock for cash in an amount equal to the liquidation preference or (2) convert the Series B Preferred Stock, including accrued and unpaid dividends into common stock and receive its pro rata consideration thereunder.

Liquidity Considerations

Our net sales increased 4% in 2021 compared to 2020. This increase was due primarily to increases in sales volume due to lessening of access restrictions imposed by hospitals and travel restrictions implemented at the onset of the COVID-19 pandemic. However, our sales were negatively impacted by our inability to market our Section 351 products in the United States after May 31, 2021. Sales of our Section 351 products were $17.6 million and $31.8 million in 2021 and 2020, respectively. In addition, there is a possibility that the FDA may rule that our cord-derived products do not meet the requirements to be regulated solely under the authority of Section 361 of the Public Health Service Act, in which case we might need to cease marketing such products in the United States until FDA approval or clearance is secured. Sales of our cord products were $23.6 million and $16.1 million in 2021 and 2020, respectively.

See Item 1A - Risk Factors - “Certain of our products no longer qualify for regulation as human cells, tissues and cellular and tissue-based products solely under Section 361 of the Public Health Service Act (“Section 361”), which has resulted in removal of the applicable products from the market, made the introduction of some new tissue products more expensive, significantly delayed the expansion of our tissue product offerings and subjected us to additional post-market regulatory requirements. Additional regulatory requirements may be imposed in the future.”

Further, our liquidity will be impacted by expected and unexpected costs, investments in clinical trials to support BLAs, and contingent liabilities:

•Advancement of our clinical trials and BLA pipeline will involve substantial cost. Products subject to the FDA’s BLA requirements must comply with a range of pre- and post-market provisions. Pre-market compliance includes the conduct of clinical trials in support of BLA approval, the development and submission of a BLA, and the production of product for use in the clinical trials that meets the FDA’s quality expectations. See Item 1A - Risk Factors - “Obtaining and maintaining the necessary regulatory approvals for certain of our products will be expensive and time

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consuming and may impede our ability to fully exploit our technologies,” and“If any of the BLAs are approved, the Company would be subject to additional regulation which will increase costs and could result in adverse sanctions for non-compliance.”

•The international expansion of our business will require investment through the costs to achieve necessary regulatory approvals and reimbursement schemes, establishing a physical presence through office and warehouse space, identifying and hiring employees, and other costs to establish ongoing operations. Whether we pursue such opportunities will depend on a myriad of factors and the amount and timing of these costs are uncertain at this time.

•We are exposed to potential liabilities and reputational risk associated with litigation, regulatory proceedings, and government enforcement actions. The amounts, if any, for which we may be liable resulting from such proceedings are highly uncertain. See Item 3, “Legal Proceedings” and Item 8, Note 14, “Commitments and Contingencies” andItem 1A, “Risk Factors” - “We are currently, and may in the future be, subject to substantial litigation and ongoing investigations that could cause us to incur significant legal expenses and result in harm to our business.

•The application of CGMP requires investment in our manufacturing establishments for production for our micronized products. The transition process includes development and enhancement of production processes, procedures, test and assays, and it requires extensive validation work. It can also involve the procurement and installation of new production or lab equipment. These efforts require human capital, expertise and resources. See Item 1A. – “Risk Factors” under the heading “Certain of our products no longer qualify for regulation as human cells, tissues and cellular and tissue-based products solely under Section 361 of the Public Health Service Act (“Section 361”), which has resulted in removal of the applicable products from the market, made the introduction of some new tissue products more expensive, significantly delayed the expansion of our tissue product offerings and subjected us to additional post-market regulatory requirements. Additional regulatory requirements may be imposed in the future.”

Moreover, the COVID-19 pandemic may affect our operations in 2022 and beyond. More specifically:

•Our results of operations may be adversely affected if our customers restrict access to hospitals and our ability to access other healthcare providers, particularly for elective procedures.

•Our manufacturing operations, sales and demand for our products, and clinical trials may be adversely affected if our leadership, employees, sales agents, suppliers, medical professionals, or users of our products are impacted by illness or through actions taken to stop or slow the spread of the COVID-19 pandemic.

•Our results of operations may be adversely affected if we experience shortages of donated placentas because donors or our recovery specialists are excluded from hospitals, or because additional testing protocols are implemented for donated tissues based on guidance issued by the AATB, FDA, or other standards and are screened as ineligible.

•Because our sales are not evenly spread across the United States, to the extent that areas most impacted by COVID- are those where we have more of our sales, the pandemic will have a greater adverse impact on our results from operations.

•While vaccines have been approved by the FDA, the continued efficacy of the vaccine against current and future variants, as well as the general willingness to accept the vaccine and any recommended “boosters”, could influence the magnitude of the impact of the COVID-19 pandemic and any of the factors noted above.

The ultimate impact of the COVID-19 pandemic is highly uncertain. The duration and magnitude of these impacts on our business is uncertain.

Expectations for 2022 Operating Results

We expect net sales of our Advanced Wound Care products, which were $240 million in 2021, to grow 11% to 14% in 2022. We expect gross margin for 2022 to be slightly lower than 2021. We anticipate beginning the Phase 3 Knee Osteoarthritis clinical trial program in 2022, and expect the cost to be approximately $30 million, representing $15 million per trial for two trials incurred over the next three years. We expect research and development expense to increase over 2021 as we plan and begin to execute new clinical trials and execute other product development initiatives. However, the amount and timing of these expenses are dependent on many factors.

Discussion of Cash Flows

Operating Activities

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During the year ended December 31, 2021, net cash used in operating activities decreased $28.3 million to $2.0 million compared to $30.3 million for the year ended December 31, 2020. The decrease in cash used was primarily attributable to year-over-year reductions in amounts paid related to the Audit Committee Investigation, the Restatement, and related expenses, particularly those incurred with respect to the Restatement and the indemnification of certain former officers and directors of the Company. In addition, we received $9.2 million in income tax refunds during 2021. These effects were offset by year-over-year increases in SG&A and research and development expense.

Investing Activities

During the year ended December 31, 2021, net cash used in investing activities was $3.4 million, a decrease of $1.2 million, compared to $4.6 million for the year ended December 31, 2020. The primary reason for the decrease was a $1.0 million decrease in capital expenditures, year-over-year. The remaining variance was the result of a year-over-year decrease in paid for patent application costs as well as collections on a note receivable in 2021.

Financing Activities

During the year ended December 31, 2021, net cash used in financing activities was approximately $3.4 million compared to cash provided from financing activities of $61.6 million for the year ended December 31, 2020. Activity in 2020 was driven by the issuance of our Series B Convertible Preferred Stock, for which we received proceeds of $92.5 million, net of stock issuance costs. In addition, we received net proceeds on the borrowing of our Term Loan of $46.3 million, net of deferred financing costs and original issue discount. These proceeds were used to repay the outstanding principal and prepayment premium on a previous term loan of $73.4 million. We did not have a similar financing transaction in 2021.

The remaining variance was driven by year-over-year increases in the cash paid for shares repurchased for tax withholding ($2.4 million), offset by increases in proceeds from option exercises ($1.0 million).

Non-GAAP Financial Measures

In addition to our GAAP results, we provide the following Non-GAAP measures: Adjusted Net Sales, Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), and Adjusted EBITDA. We believe that the presentation of these measures provides important supplemental information to management and investors regarding our performance. These measurements are not, and should not be used as, a substitute for GAAP measures. Company management uses these Non-GAAP measures as aids in monitoring our on-going financial performance from quarter-to-quarter and year-to-year on a regular basis and for benchmarking against comparable companies.

Adjusted Net Sales

We provide Adjusted Net Sales to provide a normalized view of revenue by removing effects related to our Transition Adjustment in revenue recognition practices. Specifically, we recognized a one-time Transition Adjustment in 2019 to reflect the change in our pattern of revenue recognition from a “cash receipts” to an “as-shipped” basis. Since the third quarter of 2019, we have recognized revenue from cash collections related to the Remaining Contracts, or transactions which occurred prior to the Transition but for which we had not previously recognized revenue. Refer to Item 8, Note 2, “Significant Accounting Policies,” of the consolidated financial statements for additional details regarding the Transition Adjustment and the Remaining Contracts.

Adjusted Net Sales provides comparative assessments of our revenue and assists in evaluating our sales performance. Adjusted Net Sales consists of GAAP net sales less the effects of the Transition. For 2019, this includes the Transition Adjustment and cash received from the Remaining Contracts. For 2020 and 2021, this reflects cash received from the Remaining Contracts. A reconciliation of GAAP net sales to Adjusted Net Sales is provided in the table below (in thousands):

Year Ended December 31,

56

EBITDA and Adjusted EBITDA

We provide EBITDA and Adjusted EBITDA to facilitate comparisons to results of other companies. We use EBITDA as a measure of our operating performance, planning, and budgeting purposes as it eliminates the effects of financing and investing activities. EBITDA is widely used by investors and analysts to measure operating performance and evaluate enterprise value.

EBITDA consists of GAAP net loss excluding: (i) depreciation, (ii) amortization of intangibles, (iii) interest expense, net, (iv) loss on extinguishment of debt, and (v) income tax provision.

Adjusted EBITDA is intended to provide an enduring, normalized view of EBITDA and our broader business operations that we expect to experience on an ongoing basis by removing from EBITDA certain items which may be irregular, non-recurring, or non-cash items not excluded when calculating EBITDA. This enables us to identify underlying trends in our business that could otherwise be masked by such items.

Adjusted EBITDA consists of GAAP net loss excluding: (i) depreciation, (ii) amortization of intangibles, (iii) interest expense, net, (iv) loss on extinguishment of debt, (v) income tax provision, (vi) costs incurred in connection with Audit Committee Investigation and Restatement, (vii) the effect of the change in revenue recognition on net income, (viii) share-based compensation, and (ix) impairment of intangible assets.

A reconciliation of GAAP net loss to EBITDA and Adjusted EBITDA appears in the table below (in thousands):

Year Ended December 31,

Non-GAAP Adjustments:

Loss on extinguishment of debt — 8,201 —

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

Additional Non-GAAP Adjustments:

Effect of change in revenue recognition (864) (6,680) (24,450)

Critical Accounting Estimates

This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires that we make judgments and estimates which may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We derive these judgments and estimates on historical experience and other relevant factors which we believe to be reasonable. Actual results may differ from these estimates.

57

Net Sales

Description

We record estimates for returns and allowances as a reduction to net sales based on our expectation for such returns.

Judgments and Uncertainties

We sell our products to individual customer and independent distributors (collectively referred to as “customers”). Customers obtain and use products either through ship and bill sales or consignment arrangements. We recognize revenue as performance obligations are fulfilled, which generally occurs upon the shipment of product to customers for ship and bill sales or upon implantation for consignment sales. We recognize revenue based on consideration we expect to receive from the sale. This consists of the gross selling price of the product, less any discounts, rebates, fees paid to GPOs, and an expectation for sales returns.

We maintain a return policy that allows our customers to return product for any reason within 30 days of sale, and to return product that is damaged or non-conforming, ordered in error, or due to recall at any time.

We derive an expectation for product returns based on historical return patterns and other factors, including shifts in our regulatory environment and product recalls. Determinations involving other factors are based on our estimates for product at customer sites that are eligible for return.

Additions or reversals to our return allowance, as determined necessary, are accounted for prospectively and recorded as a decrease or increase to net sales, respectively. Actual returns are recorded against the recorded accrual.

Sensitivity of Estimate to Change

We have accrued $0.8 million for sales returns as of December 31, 2021. Changes in return patterns or unforeseen changes in regulations or identified product recalls could cause returns significantly in excess of this estimate.

Contingencies

Description

We record contingent liabilities related to legal and other proceedings at such point in time when loss is probable and reasonably estimable.

Judgments and Uncertainties

We evaluate the probability of loss and the range of potential losses based on salient details about a case. These evaluations consider evidence derived from discussions with counsel and include the merits and jurisdiction of the proceeding, the nature and the number of other similar current and past proceedings, damages sought by the counterparty, settlement offers we have extended to the counterparty and other factors. From this information, we make a judgmental determination of whether loss from a case is probable and whether a reasonable estimate of loss can be derived. In situations where a reasonable estimate is a range of estimates, we record the most likely amount in the range or, if no single amount is more likely than any of the others, we record the minimum amount of the range.

Sensitivity of Estimate to Change

We have accrued $1.0 million as of December 31, 2021 for potential losses relating to legal proceedings discussed in Item 8, Note 14, “Commitments and Contingencies.” The outcome of court judgments could lead to a change in our evaluation of probability of loss or our estimate for such loss. In addition, court judgments may result from matters for which we had previously assessed loss as being not probable or which result in losses which materially depart from our estimate, both favorably or unfavorably.

We believe that our estimates applied are based on reasonable assumptions, but are inherently uncertain. Actual results may differ from the assumptions and judgments used to derive our accrual.

Income Taxes

Description

58

We record a valuation allowance to offset our net deferred tax asset to the extent that realization is not likely.

Judgments and Uncertainties

Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements. Transactions which result in lower taxable income in the future give rise to deferred tax assets.

We evaluate our ability to recover deferred tax assets based on projected future taxable income, scheduled reversals of deferred tax liabilities, tax planning strategies, and our recent operating results. Judgment is required to determine whether the totality of this evidence suggests that we can recover our deferred tax assets in the future.

Sensitivity of Estimate to Change

As of December 31, 2021, we had valuation allowances recorded of $41.1 million, fully offsetting our net deferred tax asset. This determination may change due to changes in tax law, a revision to our expectation regarding taxable income in the future, taxable income generated in a period in which we had not previously anticipated taxable income, a change in scheduled reversals of deferred tax liabilities, and other changes.

Historically, exclusive of changes in tax law such as that enacted under the Coronavirus Aid, Relief and Economic Security Act, we have not reversed our valuation allowance.

If the weight of available evidence suggests that some or all of this amount is more likely than not to be realized, we will derecognize the valuation allowance as an income tax benefit to the extent that the underlying deferred tax asset is more likely than not to be realized.

Recently Adopted Accounting Pronouncements

See Note 2, “Significant Accounting Policies,” in the Consolidated Financial Statements for recently adopted accounting pronouncements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Based on our lack of market risk sensitive instruments outstanding at December 31, 2021, we have determined that we had no material market risk exposure as of such date.

59

Item 8. Financial Statements and Supplementary Data

Index to Financial Statements

Consolidated Balance Sheets – As of December 31, 2021 and 2020 F- 6

Notes to Consolidated Financial Statements F- 10

Schedule II - Valuation and Qualifying Accounts F- 41

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 sheet of MiMedx Group, Inc. and subsidiaries (the "Company") as of December 31, 2021, the related consolidated statements of operations, stockholders' equity (deficit), and cash flows, for the year then ended, and the related notes and the schedule listed in the Index at Item 8 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

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

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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

Critical Audit Matter Description

The Company sells its products primarily to individual customers and independent distributors (collectively referred to as “customers”). Customers obtain and use products either through ship and bill sales or consignment arrangements. Under ship and bill arrangements, the Company retains possession of the product until the customer submits an order and the product ordered is shipped to the customer. Under consignment arrangements, the customer takes possession of the product, but the Company retains title until the implantation, or application of the Company’s product to the end user. The Company recognizes revenue as performance obligations are fulfilled, which generally occurs upon the shipment of product to the customers for ship and bill orders or upon implantation for consignment sales.

We identified the timing of revenue recognition for ship and bill and consignment sales at or near year-end as a critical audit matter because of the judgments involved in evaluating that the performance obligations are fulfilled. This required extensive audit effort due to the volume of transactions and a high degree of auditor judgment when performing audit procedures and evaluating the results of those procedures.

How the Critical Audit Matter Was Addressed in the Audit

F-2

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

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

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

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

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

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

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

/s/ Deloitte & Touche LLP

Atlanta, Georgia

February 28, 2022

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

F-3

Report of Independent Registered Public Accounting Firm

Shareholders and Board of Directors

MiMedx Group, Inc.

Marietta, Georgia

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of MiMedx Group, Inc. (the “Company”) as of December 31, 2020, the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2020, and the related notes and schedule (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the audit of the consolidated financial statements for the year ended December 31, 2020 that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of the audit evidence for revenue recognition

The Company recorded consolidated net sales of $248.2 million for the year ended December 31, 2020. As more fully described in Note 2 to the consolidated financial statements, during 2018 and into part of 2019, the Company’s control environment was such that it created uncertainty surrounding all of its customer arrangements. The control environment allowed for the existence of extra-contractual or undocumented terms or arrangements initiated by or agreed to by the Company and former members of Company management at the outset of the transactions (side agreements). Concessions were also agreed to subsequent to the initial sale (e.g. sales above established customer credit limits, extended and unusually long payment terms, return or exchange rights, and contingent payment obligations). Beginning October 1, 2019, for all new customer arrangements, the Company determined adequate measures were in place to understand the terms of its contracts with customers. As such, the Company concluded that the Step 1 Criteria (identify the contracts with a customer) for revenue recognition would be met prior to shipment of product to the customer or implantation of the products on consignment.

We identified the evaluation of the sufficiency of audit evidence over revenue recognition as a critical audit matter. Evaluating the sufficiency of audit evidence required especially challenging auditor judgment to determine that extracontractual arrangements or side agreements did not exist at the onset of the transaction and that fictitious customer purchase orders were not entered into the system by sales personnel.

F-4

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

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

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

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

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

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

/s/ BDO USA, LLP

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

Atlanta, Georgia

March 8, 2021

F-5

MIMEDX GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

December 31,

ASSETS

Current assets:

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

Current liabilities:

Commitments and contingencies (Note 14)

Stockholders’ equity (deficit):

Total stockholders’ equity (deficit) 82 (150)

See notes to the consolidated financial statements.

F-6

MIMEDX GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

Year Ended December 31,

Operating expenses:

Other (expense) income

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

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

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

Net loss per common share - basic $ (0.15) $ (0.77) $ (0.24)

Net loss per common share - diluted $ (0.15) $ (0.77) $ (0.24)

See notes to the consolidated financial statements.

F-7

MIMEDX GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands, except share data)

Common Stock AdditionalPaid-in Treasury Stock Accumulated

Shares Amount Capital Shares Amount Deficit Total

Share-based compensation expense — — 11,689 — — — 11,689

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

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

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

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

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

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

See notes to the consolidated financial statements.

F-8

MIMEDX GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Years Ended December 31,

Cash flows from operating activities:

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

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

Loss on fixed asset disposal 262 1 318

Accretion of asset retirement obligation 81 10 —

Loss on extinguishment of debt — 8,201 —

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

Increase (decrease) in cash resulting from changes in:

Cash flows from investing activities:

Principal payments from note receivable 75 — 2,722

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

Cash flows from financing activities:

Proceeds from exercise of stock options 1,437 411 108

Payments under finance lease obligations (38) — —

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

Stock issuance costs — (7,470) —

Deferred financing costs — (3,235) (6,650)

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

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

See notes to the consolidated financial statements.

F-9

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 transformational placental biologics company, developing and distributing placental tissue allografts with patent-protected, proprietary processes for multiple sectors of healthcare. As a pioneer in placental biologics, the Company is focused on addressing unmet clinical needs in the areas of advanced wound care, surgical recovery applications, and musculoskeletal conditions. We derive our products from human placental tissues and process these tissues using our proprietary methods, including the PURION® process. The Company applies Current Good Tissue Practices, Current Good Manufacturing Practices, and terminal sterilization to produce its allografts. MIMEDX provides products primarily in the wound care, burn, and surgical recovery sectors of healthcare. All of its products are regulated by the U.S. Food & Drug Administration (“FDA”).

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

Effect of the COVID-19 Pandemic

On March 11, 2020, the World Health Organization designated the outbreak of a novel strain of coronavirus as a global pandemic. The COVID-19 pandemic and associated governmental and societal responses have affected the Company’s business, results of operations and financial condition in the past and could continue to have an adverse impact on the Company’s business, results of operations, and financial condition in the future.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law. The CARES Act included provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, loans, and grants to certain businesses, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Certain of these provisions were extended or expanded as a result of the Consolidated Appropriations Act, 2021, which was signed into law on December 27, 2020. As a result of these laws, the Company recorded a federal tax benefit of $11.3 million due to the release of a previously-recorded valuation allowance in 2020. Of this amount, the Company received $9.2 million and $1.2 million during the years ended December 31, 2021 and 2020, respectively. The remaining $0.9 million is recorded as part of income tax receivable on the consolidated balance sheet as of December 31, 2021.

In addition, the CARES Act provided an employee retention credit (“ERC”), which was a refundable tax credit against certain payroll taxes. Upon determination that the Company had complied with all of the conditions required to receive the credit, the Company qualified and filed to claim the ERC. The Company reflected the ERC as a reduction to the respective captions on the consolidated statements of operations associated with the employees to which the payroll tax benefit related. For the year ended December 31, 2021, the Company recorded a $1.6 million reduction to selling, general and administrative expense. As of December 31, 2021, the Company recorded $1.6 million as other current assets in the consolidated balance sheet.

Enforcement Discretion

In November 2017, the FDA published a series of guidances that established an updated framework for the regulation of cellular and tissue-based products. These guidances clarified the FDA’s views about the criteria that differentiate those products subject to regulation under Section 361 of the Public Health Service Act from those considered to be drugs, devices, and/or biological products subject to licensure under Section 351 of the Public Health Service Act and related regulations. The Company identified its micronized and particulate products (collectively, the “Section 351 Products”) as being subject to regulation under Section 351, requiring pre-market approval from the FDA for a specified indication with demonstrated clinical efficacy.

The FDA exercised enforcement discretion with respect to Investigational New Drug (“IND”) applications and pre-market approval requirements through May 31, 2021. As of May 31, 2021, the Company stopped marketing its Section 351 Products in the United States and is precluded from marketing such products until a Biologics License Application (“BLA”) is granted. If and when the FDA approves a BLA, the Company expects to be allowed to market its Section 351 Products in the United States, but only for specific indications as permitted by the FDA. Sales of the Company’s Section 351 Products were $17.6 million and $31.8 million for the years ended December 31, 2021 and 2020, respectively. Sales of Section 351 Products for the year ended December 31, 2021 reflects the sale of such products in the United States through May 31, 2021.

F-10

The Company currently markets EPICORD® and AMNIOCORD® tissue products derived from human umbilical cord as providing a protective environment or as a barrier. If the FDA were to determine that EPICORD and AMNIOCORD do not meet the requirements for regulation solely under Section 361, then pre-market clearance or approval would be required. The loss of the Company’s ability to market and sell its umbilical cord-derived products would have an adverse effect on the Company’s revenue, business, financial condition, and results of operations. Net sales of the Company’s umbilical cord-derived products were $23.6 million and $16.1 million for the years ended December 31, 2021 and 2020, respectively. The Company’s cord inventory was $1.9 million as of December 31, 2021.

Out-of-Period Adjustment

During the year ended December 31, 2021, the Company identified certain Restricted Stock Unit and Performance Stock Unit awards that were not appropriately reflected in the Company’s balance of common stock outstanding beginning in 2019. The effects of these errors caused misstatements in the Company’s balance of treasury stock, additional paid-in capital, and common stock outstanding on each of the Company’s reported consolidated balance sheets and consolidated statements of stockholders’ equity (deficit) for interim and annual periods beginning with those statements as of and for the year ended December 31, 2019. The identified errors did not affect total stockholders’ equity (deficit) or earnings per share in any period.

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

The Company concluded the effect of the misstatement was not material, qualitatively or quantitatively, to any interim or annual period. These amounts are reflected as part of other in the consolidated statement of stockholders’ equity (deficit) for the year ended December 31, 2021.

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.

Use of Estimates

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported consolidated statements of operations during the reporting period. Actual results could differ from those estimates. Significant estimates include estimated useful lives and potential impairment of property and equipment, goodwill and intangible assets, estimates of loss for contingent liabilities, estimate of allowance for doubtful accounts, management’s assessment of the Company’s ability to continue as a going concern, estimate of fair value of share-based payments, estimates of returns and allowances, and valuation of deferred tax assets.

Segment Reporting

Accounting Standards Codification (“ASC”) 280, “Segment Reporting” requires the use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s chief operating decision maker organizes segments within the Company for which separate discrete financial information is available regarding resource allocation and assessing performance. The Company has determined it operates as one operating segment.

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.

F-11

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

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.

Bad debt expense and the allowance for doubtful accounts are based on historical trends and current expectations for credit losses. The Company’s policy to reserve for potential bad debts is based on the aging of the individual receivables 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. The 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 at the sooner of the imposition of the legal requirement and when an estimate for the cost of retirement can reasonably be made. The Company reviews legal obligations associated with the retirement of long-lived assets that result from contractual obligations or the acquisition, construction, development and/or normal use of the assets. 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 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.

F-12

Impairment reviews are based on an estimated future cash flow approach that requires significant judgment with respect to future revenue and expense growth rates, selection of appropriate discount rate, asset groupings, and other assumptions and estimates. The Company uses estimates that are consistent with its business plans and a market participant view of the assets being evaluated. Actual results may differ from these estimates.

The Company recorded impairment losses on amortizable intangible assets of $0.1 million, $1.0 million, and $0.5 million in in 2021, 2020, and 2019, respectively. The Company recorded no impairment losses with respect to any other classes of long-lived assets in those periods.

Goodwill and Indefinite-lived Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets of acquired businesses. The Company assesses goodwill for impairment at least annually on October 1, or more frequently whenever events or substantive changes in circumstances indicate that it is more likely than not that goodwill is impaired. In performing the goodwill impairment test, the Company assesses qualitative factors to determine the existence of impairment. If the qualitative factors indicate that it is more likely than not that the carrying value of the reporting unit exceeds its fair value, the Company proceeds to a quantitative test to measure the existence and amount of goodwill impairment. The Company may also choose to bypass the qualitative assessment and proceed directly to the quantitative analysis.

The Company has one reporting unit.

In performing the quantitative test, impairment loss is recorded to the extent that the carrying value of the reporting unit exceeds its assessed fair value, not to exceed goodwill allocated to that reporting unit. No impairment is recognized if fair value is determined to exceed carrying value. The Company determines the fair value utilizing the income and market approaches. Under the income approach, the fair value of the reporting unit is the present value of its future cash flows. These future cash flows are derived from expectations of revenue, expenses, tax deductions, working capital flows, capital expenditures, and other projected sources and uses of cash. Value indications are developed by discounting expected cash flows to their present value at a risk-adjusted weighted average cost of capital using the capitalization of market-comparable companies. The weighted average cost of capital is rooted in the risk-free rate of a U.S. Treasury with a similar maturity to the time period evaluated, credit risk specific to the Company, relevant equity risk premia, the Company’s incremental borrowing rate, and the prevailing marginal income tax rate. Under the market approach, the Company uses its market capitalization, which is calculated by taking the Company’s share price multiplied by the number of outstanding common shares plus the number of common shares to which the holders of the Company’s Convertible preferred stock Series B would be entitled to upon conversion.

Acquired indefinite-lived intangible assets are tested for impairment annually on October 1 or whenever events or changes in circumstances indicate that the carrying amount of an intangible asset may not be recoverable. The Company’s impairment reviews are based on an estimated future cash flow approach that requires significant judgment with respect to future revenue and expense growth estimates. The Company uses estimates consistent with business plans and a market participant view of the assets being evaluated. Actual results may differ from the estimates used in these analyses.

For the goodwill impairment test performed on October 1, 2021, the Company performed a qualitative assessment for its reporting unit, concluding that it was not more likely than not that the carrying value of the reporting unit exceeded its fair value. Therefore, the Company did not perform a quantitative assessment and no goodwill impairment was recognized related to this test.

There were no recorded impairment losses related to goodwill in 2021, 2020, or 2019. The Company recorded impairment losses related to our indefinite-lived intangible assets of $0, $0, and $0.8 million related to the abandonment of patents in process during 2021, 2020, and 2019, respectively.

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 $0.3 million, $0.3 million, and $0.5 million of patent costs for the years ended December 31, 2021, 2020, and 2019, 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

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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 that option. Options to renew or terminate a lease are included in the lease term to the extent that such provisions are reasonably certain to be exercised. This determination is reassessed as new information arises and is accounted for prospectively. As an accounting policy election, the Company does not capitalize leases having initial terms of 12 months or fewer. 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 as part of operating lease liabilities.

Finance lease right of use assets and the related liabilities are included in property and equipment, net, other current liabilities, and other liabilities, respectively, in the consolidated balance sheets. Finance lease right of use assets are amortized, straight-line, over the lease term as depreciation expense. Interest expense is recognized using the effective interest method on finance lease liabilities as part of interest expense, net.

Treasury Stock

Shares repurchased by the Company are recorded as treasury stock at the cost to acquire such shares. Subsequent issuances of shares held in treasury are assumed to be released on a FIFO basis.

Contingencies

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

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

Revenue is recognized based on the consideration the Company expects to receive from the sale. This consists of the gross selling price of the product, less any discounts, rebates, fees paid to Group Purchasing Organizations (“GPOs”), and returns

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(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.

Previous Revenue Recognition Policy and Transition

During the first three quarters of 2019, the Company’s control environment was such that it created uncertainty surrounding all of its customer arrangements, which required consideration related to the proper revenue recognition under the applicable literature. The control environment allowed for the existence of extra-contractual or undocumented terms or arrangements initiated by or agreed to by the Company and former members of Company management at the outset of the transactions (side agreements). Concessions were also agreed to subsequent to the initial sale (e.g. sales above established customer credit limits extended and unusually long payment terms, return or exchange rights, and contingent payment obligations) that precluded the Company from recognizing revenue at the time that product was shipped to a customer.

Because of the prevalence of these arrangements, the Company’s sales arrangements did not qualify as contracts under ASC 606, Revenue from Contracts with Customers, until consideration was collected from customers. This determination precluded the recognition of revenue at the time of shipment. Instead, recognition of revenue was deferred until: (1) the customer returned the product prior to payment; or (2) the Company received payment from the customer. Cost of sales associated with product shipped was deferred until collection was received.

The Company implemented changes and remediated weaknesses, which gave rise to the above conclusion beginning in mid-2018. Management concluded that these efforts had been sufficiently implemented such that customers were aware of the Company’s sales policies and procedures and that a contract existed prior to the transfer of title or the implantation of product for ship-and-bill and consignment sales, respectively, by the third quarter of 2019. Accordingly, the Company changed its pattern of revenue recognition effective October 1, 2019 to the policy described under the section titled “Current Policy” above.

The Company also reassessed whether the revenue recognition criteria had been met for all shipments of products where payment had not been received as of September 30, 2019. While the measures summarized above provided significant evidence necessary to understand the terms of the Company’s contractual arrangements with its customers, certain of these customers continued to exhibit behaviors that resulted in extended periods until cash collection. Such delays in collection suggested that uncertainty regarding extra-contractual arrangements may continue, particularly as it relates to payment terms. As a result, the Company concluded the following for any existing arrangements, which remained unpaid at September 30, 2019:

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

•For the remaining customer arrangements (the “Remaining Contracts”), the Company concluded that, due to the uncertainty that extra-contractual arrangements may continue, the revenue recognition criteria would not be satisfied until the Company received payment from the customer. At that point, the Company determined that an accounting contract would exist and the performance obligations of the Company to deliver product and the customer to pay for the product would be satisfied. The Company continued to reassess the Remaining Contracts for settlement of the revenue recognition criteria prior to payment, concluding that the revenue recognition criteria continued to not be met due to the same circumstances described above.

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

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Year Ended December 31,

Transition Adjustment $ — $ — $ 21,385

Cost of sales

Transition Adjustment — — 2,565

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

Group Purchasing Organization Fees

The Company sells to Group Purchasing Organization (“GPO”) members who transact directly with the Company at GPO-agreed pricing. GPOs are funded by administrative fees that are paid by the Company. These fees are set as a percentage of the purchase volume, which is typically 3% of sales made to the GPO members. Fees paid to GPOs are presented as a reduction to net sales.

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.

Subsequent to the Transition Adjustment, the Company deferred cost of sales related to the Remaining Contracts. Deferred cost of sales were $0 and $0.2 million as of December 31, 2021 and 2020, respectively. These amounts were recorded within other current assets on the consolidated balance sheet.

Research and Development Costs

Research and development costs consist of direct and indirect costs associated with the development of the Company’s technologies. 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 each of the years ended December 31, 2021, 2020, and 2019 amounted to $0.1 million.

Income Taxes

Income tax provision (expense) benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect management’s best assessment of estimated current and future taxes to be paid. The Company is subject to income taxes in the United States and numerous states.

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

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In evaluating the Company’s ability to recover its deferred tax assets within the jurisdiction from which they arise, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax-planning strategies, results of recent operations, and changes in tax laws. In projecting future taxable income, the Company begins with historical results and incorporates assumptions about the amount of future state and federal pretax operating income adjusted for items that do not have tax consequences. 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). 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. Accounting Standards Codification Topic 740, Income Taxes, states that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. The Company (1) records unrecognized tax benefits as liabilities in accordance with ASC 740 included within other liabilities on the consolidated balance sheets, and (2) adjusts these liabilities when management’s judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from management’s current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to the deferred tax asset or income tax expense in the period in which new information is available.

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

The Company 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 restricted common stock is the value of common stock on the grant date. The fair value of stock option grants is estimated using the Black-Scholes option pricing model. Use of the valuation model requires management to make certain assumptions with respect to selected model inputs.

For awards with service-based vesting conditions only, the Company recognizes share-based compensation expense on a straight-line basis through the vesting date of the last tranche of the award. For awards with service- and performance-based vesting conditions, the Company recognizes stock-based compensation expense using the graded-vesting method, treating each tranche as if it were a separately-granted award and recognizing expense through the vesting date of each individual tranche. In each scenario, the Company recognizes share-based compensation expense based upon the probability that the award will ultimately vest. The Company recognizes the cumulative effect of changes in the probability outcomes in the period in which the changes occur.

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Basic and Diluted Net Loss per Common Share

Basic net loss per common share is calculated as net loss available to common stockholders divided by weighted average common shares outstanding for the applicable period. Net loss available to common stockholders is calculated by adjusting net loss for periodic preferred accrued or deemed dividends. These amounts include (i) dividends accumulated on the Company’s Series B Convertible Preferred Stock during the period, (ii) periodic amortization of the beneficial conversion feature, and (iii) periodic accretion of the increasing-rate dividend feature.

This amount is divided by the weighted average common shares outstanding during the period. Weighted average common shares outstanding is calculated as shares of the Company outstanding adjusted for the portion of the period for which they are outstanding. Unvested restricted stock awards are excluded from the calculation of weighted average common shares outstanding until they have vested.

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

The Company uses the if-converted method to calculate the dilutive effect of the Series B Convertible Preferred Stock, and other convertible securities, to the extent they are outstanding. The if-converted method assumes that convertible securities are converted at the later of the issuance date or the beginning of the period. If the hypothetical conversion of convertible securities, and the consequential avoidance of any deemed or accumulated preferred dividends, would decrease basic net loss per common share, these effects are incorporated in the calculation of diluted net loss per common share, adjusted for the proportion of the period the securities were outstanding.

The Company uses the treasury stock method to calculate the dilutive effect of outstanding options, restricted stock awards, and other share-based payments. The treasury stock method assumes that the proceeds from exercise are used to repurchase common shares at the weighted average market price during the period, increasing the denominator for the net effect of shares issued upon exercise less hypothetical shares repurchased.

If the dilutive effects noted above would cause diluted net loss per common share to exceed basic net loss per common share, such effects are not incorporated into the calculation, as they are deemed antidilutive. For all periods with a net loss available to common stockholders, any adjustment for potential common shares would be naturally anti-dilutive. Therefore, the weighted average shares outstanding used to calculate both basic and diluted net loss per common share are the same for periods with a net loss.

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

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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.

Recently Adopted Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity,” which simplifies and clarifies certain calculation and presentation matters related to convertible equity and debt instruments. Specifically, this ASU simplifies the accounting for such instruments by removing requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement to account for beneficial conversion features on such instruments. Accounting Standards Update 2020-06 also provides clearer guidance surrounding disclosure of such instruments and provides specific guidance for how such instruments are to be incorporated in the calculation of Diluted EPS. The guidance under ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The Company adopted this standard on January 1, 2021 on a modified retrospective basis. There was no impact upon adoption.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU 2020-04, “Reference Rate Reform (Topic 848)”, which provides temporary, optional expedients and exceptions to accounting guidance for certain contract modifications and hedging arrangements to ease financial reporting burdens as a result of market transitions from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates. The guidance is available for prospective application upon its issuance and can generally be applied to contract modifications and hedging relationships entered into beginning March 12, 2020 through December 31, 2022. As of December 31, 2021, the Company has long-term debt outstanding which carries an interest rate tied to LIBOR, the agreement for which contemplates an interest rate alternative in the event that LIBOR is unavailable. The Company is evaluating the possibility of adoption and the related impact on its financial statements. If adopted, the Company does not expect the provisions of this ASU to have a material impact on its consolidated financial statements.

In November 2021, the FASB issued ASU 2021-10, “Government Assistance (Topic 832)”, which provides disclosure requirements regarding government grants and contributions. The ASU requires disclosure of the nature of transactions and related accounting policies used to account for transactions, the effect, including amounts, of government assistance on individual line items on the financial statements, and significant terms and conditions of the transactions, including commitments and contingencies. This ASU is effective for fiscal years beginning after December 15, 2021. The Company does not expect the provisions of this ASU to have a material impact on its consolidated financial statements.

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

3. Accounts Receivable, Net

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

December 31,

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

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

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4. Inventory

Inventory consists of the following (in thousands):

December 31,

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

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

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

5. Property and Equipment, Net

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

.

December 31,

Finance lease right of use assets 189 —

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

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

Depreciation expense for each of the years ended December 31, 2021, 2020, and 2019 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,

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

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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.

The Company subleases one of its leased industrial warehouse spaces. The sublease income from the facility offsets the lease expense associated with the facility. Sublease income for the facility was $0.1 million, $0.1 million, and $0 for the years ended December 31, 2021, 2020, and 2019, respectively, and is presented as a reduction to selling, general, and administrative expense on the consolidated statements of operations in those periods.

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

Operating Leases Finance Leases

December 31, December 31,

Assets

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

Property and equipment, net — — 145 —

Liabilities

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

Weighted-average discount rate 8.4 % 10.0 % 8.3 %

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

Year Ended December 31,

Depreciation of finance lease ROU assets 43 — —

Interest expense on finance lease liabilities 13 — —

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

Year Ending December 31, Operating Leases Finance Leases Total

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

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asset in an amount equal to the estimated fair value of the obligation. In subsequent periods, the asset retirement obligation is accreted for the change in its present value and the capitalized asset is depreciated, both over the term of the associated lease agreement. Asset retirement obligations of $1.0 million and $0.8 million as of December 31, 2021 and 2020, respectively, are included in other liabilities in the consolidated balance sheets.

7. Goodwill and Intangible Assets

Goodwill

For the impairment test performed October 1, 2021, the Company performed a qualitative assessment to determine the existence of impairment. The qualitative assessment concluded that it was not more likely than not that goodwill was impaired. The Company did not proceed to the quantitative assessment, and no impairment was recorded for the year ended December 31, 2021.

For the impairment tests performed on September 30, 2020 and October 1, 2020, the Company performed a quantitative analysis to determine the existence and extent of impairment. The quantitative analysis concluded that the fair value of the Company’s reporting unit exceeded its carrying value. As a result of these assessments, the Company concluded that there was no impairment. Accordingly, no impairment was recorded for the year ended December 31, 2020.

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

Activity —

Activity —

Intangible Assets

Intangible assets are summarized as follows (in thousands):

Amortized intangible assets

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

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

Unamortized intangible assets

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

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Year ended December 31,

Impairment of intangible assets in 2021 related to supplier relationship assets that were determined to be unrecoverable due to attrition. Impairment of intangible assets in 2020 related to customer relationship assets that were determined to be unrecoverable due to lower than expected margins. Impairment of intangible assets in 2019 were related to the abandonment of patents in process and customer relationship assets.

Expected future amortization of intangible assets as of December 31, 2021, is as follows (in thousands):

Estimated

Amortization

Year Ending December 31, Expense

Total amortization expense $ 3,170

8. Accrued Expenses

Accrued expenses consist of the following (in thousands):

December 31,

Accrued clinical trials 694 651

The Company’s accrual for settlement costs, which was presented separately in previously-issued financial statements, is included as part of legal and settlement costs in the table above. Accrued settlement costs were $10.0 million as of December 31, 2020.

9. Long Term Debt

Hayfin Loan Agreement

On June 30, 2020, the Company entered into a Loan Agreement with, among others, Hayfin Services, LLP, (“Hayfin”) an affiliate of Hayfin Capital Management LLP (the “Hayfin Loan Agreement”), which was funded on July 2, 2020 (the “Closing Date”) and provided the Company with a senior secured term loan in an aggregate amount of $50.0 million (the “Term Loan”). The Term Loan matures on June 30, 2025 (the “Maturity Date”). Interest is payable quarterly on the Term Loan for the principal balance outstanding through the Maturity Date. No principal payments are due and payable until the Maturity Date.

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

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facility until June 30, 2021. The Company did not exercise the option. On February 28, 2022 (the “Amendment Date”), the Company executed an Amendment to the Hayfin Loan Agreement (the “Amendment”).

The interest rate applicable to the Term Loan is equal to LIBOR (subject to a floor of 1.5%) plus a margin (the “Margin”), as determined below. If LIBOR is unavailable, the loan will carry interest at the greatest of the Prime Rate, the Federal Funds Rate plus 0.5% per annum, and 2.5%, plus the Margin.

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

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

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

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

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

An additional 3.0% margin is applied to the interest rate in the event of default as defined by the Hayfin Loan Agreement. Both at issuance and as of December 31, 2021, the Term Loan carried an interest rate of 8.3%.

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

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

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

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

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

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

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

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

•On or before July 2, 2023: 2% of the principal balance repaid.

•After July 2, 2023, but on or before July 2, 2024: 1% of the principal balance repaid.

•After July 2, 2024: no premium.

The Hayfin Loan Agreement also includes events of default customary for facilities of this type, and upon the occurrence of such events of default, subject to customary cure rights, the Term Loan may be accelerated or the lenders’ commitments terminated. The mandatory prepayments are also required in the event of a change in control (as defined in the Hayfin Loan Agreement), incurring other indebtedness, certain proceeds from disposal of assets and an insured casualty event.

Beginning with the fiscal year ending December 31, 2021, the Company is required to prepay the outstanding loans based on the percentage of Excess Cash Flow (as defined in the Hayfin Loan Agreement), if Excess Cash Flow is generated, with the percentage determined based on the Total Net Leverage thresholds. The Company is not required to make any payments under this provision as of December 31, 2021.

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

F-24

A breach of a financial covenant in the Hayfin Loan Agreement, if uncured or unable to be cured, would likely result in an event of default that could trigger the lender’s remedies, including acceleration of the entire principal balance of the loan as well as any applicable prepayment premiums. Future compliance with the financial covenants, as amended, requires continuing growth in net sales consistent with the Company’s business strategy and plans. Our business is subject to inherent uncertainties that could impact the Company’s net sales growth, including, but not limited to, the regulatory pathway of the Company’s cord-derived products. While we currently have sufficient cash to repay all such amounts in an event of default, we may require alternative financing to cover other obligations. Even if alternative financing were available in an event of default under the Hayfin Loan Agreement, it might be on unfavorable terms, and the interest rate charged on any new borrowings may be substantially higher than the interest rate under the Hayfin Loan Agreement, thus adversely affecting our future cash flows, liquidity, and results of operations.

Original issue discount and deferred financing costs were allocated between the sale of the Series B Convertible Preferred Stock (which occurred simultaneously with the Hayfin Term Loan, collectively the “Financing Transactions”) and the Term Loan on the basis of the relative fair values of the transactions. The costs allocated to the Term Loan were further allocated between the Term Loan and the DD TL on the basis of the maximum potential principal outstanding between the Credit Facilities. The allocation of the deferred financing costs and original issue discount between Term Loan and the DD TL on July 2, 2020 was as follows (amounts in thousands):

Term Loan DD TL Total

Long term debt Other current assets

Deferred financing costs and original issue discount allocated to the Term Loan are amortized using the effective interest method through the Maturity Date. The amortization of such amounts is presented as part of interest expense, net on the consolidated statement of operations for the years ended December 31, 2021 and 2020 .

Deferred financing costs and original issue discount associated with the DD TL were amortized using the straight-line method through the expiration of the DD TL commitment term on June 30, 2021. Amortization of these amounts are presented as part of interest expense, net on the consolidated statements of operations. Unamortized deferred financing costs and original issue discount associated with the DD TL are presented as other current assets on the consolidated balance sheet as of December 31, 2020.

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

December 31,

Original issue discount (249) (307)

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

Year Ended December 31,

Amortization of deferred financing costs 372 173

Accretion of original issue discount 58 26

F-25

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

Year Ended December 31,

Amortization of deferred financing costs 542 542

Accretion of original issue discount 83 83

Scheduled principal payments on the Term Loan as of December 31, 2021 are as follows:

Year ending December 31, Principal

Thereafter —

Outstanding principal $ 50,000

The DD TL was not funded as of December 31, 2021. Consequently, no principal payments are owed.

As of December 31, 2021, the fair value of the Term Loan was $50.7 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 Term Loan were discounted to December 31, 2021 using this discount rate to derive the fair value.

BT Term Loan

On June 10, 2019, the Company entered into a loan agreement (the “BT Loan Agreement”) with Blue Torch Finance LLC (“Blue Torch”), as administrative agent and collateral agent, to borrow funds with a face value of $75.0 million (the “BT Term Loan”), of which the full amount was borrowed and funded. The proceeds from the BT Term Loan were used (i) for working capital and general corporate purposes and (ii) to pay transaction fees, costs and expenses incurred in connection with the BT Term Loan and the related transactions. The BT Term Loan would have matured on June 20, 2022 and was repayable in quarterly installments of $0.9 million, with the balance due on June 20, 2022. Blue Torch maintained a first-priority security interest in substantially all the Company’s assets. The BT Term Loan was issued net of the original issue discount of $2.3 million. The Company incurred $6.7 million of deferred financing costs.