Liquidity and Capital Resources

12 Months Ended

Dec. 31, 2018

Liquidity and Capital Resources [Abstract]

Net Working Capital

As of December 31, 2018, the Company had $45.1 million of cash and cash equivalents. The Company reported total current assets of $74.0 million and current liabilities of $71.5 million and had net working capital of $2.5 million as of December 31, 2018.

Overall Liquidity and Capital Resources

The Company’s largest cash requirement for the twelve months ended December 31, 2018 was cash for general working capital needs. In addition, the Company’s other cash requirements included capital expenditures, and repurchases of the Company’s common stock. The Company funded its cash requirements for 2018 through its existing cash reserves, and its operating activities which generated $35.8 million during the period. The Company believes that its anticipated cash from operating and financing activities and existing cash and cash equivalents, as well as the proceeds under the Term Loan Agreement (as defined below) will enable the Company to meet its operational liquidity needs and fund its planned investing activities for the twelve months from issuance of the consolidated financial statements.

As discussed in Note 16, “Commitments and Contingencies,” and further addressed in Note 21, “Subsequent Events,” of the consolidated financial statements, the Company anticipates additional cash requirements related to the following items within one year from the date in which the 2018 Form 10-K was available to be issued:


•	shareholder derivative lawsuits or potential settlements, for which the Company is not able to estimate a loss;


•	operating loss of $3.9 million and net loss of $30.0 million;


•	private securities lawsuits, for which the Company is currently not able to estimate a loss and for which it is unclear whether the Company would be indemnified under various insurance policies;

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the Company’s self-disclosure to the Department of Veterans’ Affairs (“VA”) concerning the eligibility of one of its products for inclusion in the Company’s FSS contract. The Company recorded a liability of $6.9 million as of December 31, 2018 representing the Company’s best estimate for a potential loss. As explained below, the Company has reached an agreement in principle with the Department of Justice to resolve a qui tam matter relating to this issue. The settlement amount is within the Company’s previously-recorded liability.


•	litigation involving former employees of the Company. The Company has settled with one former employee for $4.8 million, but it has potential exposure in other such cases for which a loss is not currently estimable;


•	payments owed to the Company’s former Interim Chief Financial Officer, under a Separation and Transition Services Agreement dated November 18, 2019;


•	payments in connection with the Company’s operating and capital lease agreements; and


•	investments and other expenditures required in order to bring the Company’s facilities into compliance with current Good Manufacturing Practices (“cGMPs”).

In addition, on June 10, 2019, the Company entered into a Term Loan Agreement (the “Term Loan Agreement”) with Blue Torch Finance LLC, as administrative agent and collateral agent, to borrow funds with a face value of $75.0 million (the “Term Loan”), of which the full amount has been borrowed and funded. The proceeds from the Term Loan have been and will continue to be used (i) for working capital and general corporate purposes and (ii) to pay transaction fees, costs and expenses incurred in connection with the Term Loan and the related transactions. The Term Loan matures on June 20, 2022 and is repayable in quarterly installments of $0.9 million with the balance due on June 20, 2022.

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


•	Maximum Total Leverage Ratio, defined as funded debt divided by consolidated adjusted EBITDA, of not more than 3.0 to 1.0 as of the last day of the previous four consecutive fiscal quarters.

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Minimum Liquidity, defined as unrestricted cash and cash equivalents, of not less than $40.0 million as of the last business day of each fiscal month following the term loan closing date through and including the fiscal month ending May 31, 2020. For fiscal months beginning June 30, 2020, the Company is not permitted to have liquidity of less than $30.0 million. If, beginning December 31, 2020, the total leverage ratio is less than 2.50 to 1.0 as of the last business day of a fiscal month, the Company’s liquidity shall not be less than $20.0 million.

The Term Loan Agreement also specifies that any prepayment of the loan, voluntary or mandatory, as defined in the Term Loan Agreement, subjects MiMedx to a prepayment penalty as of the date of the prepayment with respect to the Term Loan of:


•	During the period from June 10, 2019 through June 10, 2020, an amount equal to 3% of the principal amount of the Term Loan prepaid on such date; and


•	During the period from June 11, 2020 through June 10, 2021, an amount equal to 2% of the principal amount of the Term Loan prepaid on such date.

Principal prepayments after June 10, 2021 are not subject to a prepayment penalty.

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

As of the date of the issuance of the consolidated financial statements, the Company is currently in compliance with the financial covenants in the Term Loan Agreement. However, the violation of these covenants in the 12 months from such date could result in an acceleration of the repayment of the loan which, in combination with the Company’s current commitments and contingent liabilities, could cast doubt on the Company’s ability to continue as a going concern.

The Company has analyzed its ability to address the aforementioned commitments and potential liabilities while remaining compliant with the financial covenants set forth in the Term Loan Agreement for the 12 months from the date of the issuance of the consolidated financial statements, consistent with the guidance prescribed by Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-05, “Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.”

Based on this analysis, and in combination with existing cash and cash equivalents on hand, the Company expects to meet all obligations currently projected to come due in the next 12 months without violating the financial covenants set forth by the Term Loan Agreement. Therefore, the Company has concluded that it will continue as a going concern.