Contractual Commitments and Contingencies

Contractual Commitments

In addition to the Capital Leases noted under Property and Equipment above, the Company has entered into operating lease agreements for facility space and equipment. The estimated annual lease payments are as follows:



12-month period ended September 30
2014	$	784,771
2015	1,251,301
2016	1,329,436
2017	1,369,696
2018	1,410,754
Thereafter	478,326
	$	6,624,284

Letters of Credit

As a condition of the leases for the Company's facility space we are obligated under standby letters of credit in the amount of approximately $525,000. These obligations decrease in value at various times over the lives of the leases.

FDA Untitled Letter

Initially, MiMedx processed its tissue allografts in only one form, which was a sheet form. In 2011, MiMedx introduced a micronized form of its sheet allografts.

The U.S. Food and Drug Administration, or FDA, has specific regulations governing human cells, tissues and cellular and tissue-based products, or HCT/Ps. An HCT/P is a product containing or consisting of human cells or tissue intended for transplantation into a human patient. If an HCT/P meets the criteria for regulation solely under Section 361 of the Public Health Service Act (so-called “361 HCT/Ps”), no FDA review for safety and effectiveness under a drug, device, or biological product marketing application is required. However, the processor of the tissue is required to register with the FDA, comply with regulations regarding labeling, record keeping, donor eligibility, and screening and testing, process the tissue in accordance with established Good Tissue Practices, and report any adverse events.

To be a 361 HCT/P, a product generally must meet all four of the following criteria:



	·	It must be minimally manipulated;
	·	It must be intended for homologous use;
	·	Its manufacture does not involve combination with another article, except for water, crystalloids or a sterilizing, preserving or storage agent; and
	·	It does not have a systemic effect and is not dependent upon the metabolic activity of living cells for its primary function (unless the product is intended for reproductive use, autologous use, or use in a first or second degree blood relative).

MiMedx believes that all of its tissue products qualify as 361 HCT/P’s, however, on August 28, 2013, the FDA issued an Untitled Letter alleging that the Company’s micronized allografts do not meet the minimal manipulation criteria for regulation solely under Section 361 of the Public Health Service Act due to the “micronization process which alters the original, relevant characteristics of the structural tissue, relating to the tissue’s utility for reconstruction, repair or replacement.” The Untitled Letter concluded that, as a result, MiMedx would need a biologics license to lawfully market the micronized products. Importantly, the Untitled Letter did not specify which relevant characteristics the FDA believes are altered by the micronization process.

As explained on the FDA’s website, an “Untitled Letter is an initial correspondence with regulated industry that cites violations that do not meet the threshold of regulatory significance for a Warning Letter.” The Company was surprised by the Untitled Letter, considering the FDA conducted a directed inspection of our facility in July 2012, one of the express purposes of which was to determine the status of the Company’s AmnioFix® injectable product. The inspection report indicated that “information regarding the firms AmnioFix® Injectable product, which was rolled out August 2011, was collected and forwarded to CBER for review. The information collected included advertising, packaging, process procedures and studies conducted related to the product.” Following that inspection, the inspector advised the Company that CBER had completed its review and had no findings or further questions and, therefore, the inspection was classified as NAI, or No Action Indicated. The formal establishment inspection report confirming the NAI conclusion was issued on December 4, 2012.

On October 28, 2013, the Company met with the FDA to present the reasons it believes its micronized products do qualify as 361 HCT/Ps. The FDA acknowledged that our presentation included new information that they would review and consider, and they committed to responding in a timely fashion. We hope that, upon further analysis, the FDA will agree with our position. In all events, we are committed to continuing to work with the Agency to agree on a regulatory solution to ensure that our micronized products are available for patients who can benefit from their clinical effectiveness. If, ultimately, it is determined that our injectable products as currently marketed are not 361 HCT/Ps, in order to continue marketing our injectable products, we could have to do one or more of the following: change the labeling for the injectable products, modify the products or our processes, or go through the process of obtaining an approved biologics license for the injectable products. Any of the foregoing could create additional efforts and financial resources. If it is determined that we must obtain a biologics license for the injectable products, obtaining a biologics license requires substantial time, effort and financial resources and there is no assurance that any approvals for our injectable products will be granted on a timely basis, or at all. Further, unless we are permitted to continue to market our injectable products while we pursue a biologics license, we would have to discontinue marketing of those products. It is also possible that we would have to recall injectable products already on the market, though in light of the FDA’s actions in other situations with other HCT/P manufacturers, and the absence of any adverse reactions reported for our product, we consider the possibility of a recall to be remote and therefore not likely to have a material adverse impact on our financial position or results of operations.

Litigation

Following the publication of the Untitled Letter from the FDA regarding the Company’s injectable products in September 2013, four purported class action lawsuits were filed against us and certain of our executive officers. Two of the lawsuits were filed in the U.S. District Court for the Southern District of New York on September 9, 2013, and September 10, 2013, respectively. The other two lawsuits were filed in the U.S. District Court for the Northern District of Georgia on September 13, 2013, and September 19, 2013, respectively.

Each complaint purports to be brought on behalf of shareholders who purchased our common stock during different time periods, beginning on various dates and all ending on September 4, 2013. The complaints generally allege that, during the differing class periods, all of the defendants violated Sections 10(b) of the Securities Exchange Act of 1934, or the Exchange Act, and SEC Rule 10b-5 and the individual defendants violated Section 20(a) of the Exchange Act in making various statements related to the Company’s belief that FDA approval was not required to market its products, including its micronized product. The complaints seek unspecified damages, interest, attorneys’ fees, and other costs. We and our executive officers intend to vigorously defend against these lawsuits. We currently believe that the outcome of this litigation will not have a material adverse impact on our financial position or results of operations.