##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2010
 Commission file number 0-52491
 MIMEDX GROUP, INC.
  Florida
    
    26-2792552(State or other jurisdiction of incorporation)
    
    (I.R.S. Employer Identification Number)
 811 Livingston Court, Suite BMarietta, GA
(Address of principal executive offices)
    
    30067
(Zip Code)
 (678) 384-6720
  Common Stock, par
value $0.001 per share
 o þ
 o þ
 þ o
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o 
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 Yes
o No
þ
   Documents Incorporated by Reference




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##### 



TABLE OF CONTENTS
 PART I
    
    
    3Item 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    18Item 1B. Unresolved Staff Comments
    
    
    32Item 2. Properties
    
    
    32Item 3. Legal Proceedings
    
    
    32Item 4. (Removed and Reserved)
    
    
    32PART II
    
    
    33Item 5. Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
    
    
    33Item 6. Selected Financial Data
    
    
    34Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    34Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    39Item 8. Financial Statements and Supplementary Data
    
    
    40Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    63Item 9A. Controls and Procedures
    
    
    63Item 9B. Other Information
    
    
    64PART III
    
    
    65Item 10. Directors, Executive Officers and Corporate Governance
    
    
    65Item 11. Executive Compensation
    
    
    65Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
    
    
    65Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    65Item 14. Principal Accounting Fees and Services
    
    
    65PART IV
    
    
    66Item 15. Exhibits, Financial Statement Schedules.
    
    
    66SIGNATURES
    
    
    69Exhibit 2.1Exhibit 10.89Exhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
    2




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PART I
    
 Item 1.
    
    Business
 Overview
   Recent Events
   3




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Our Strategy
  TM TM
    4




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History of MiMedx Group, Inc.
      th
  5




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TM
 TM
 TM
 
 Our Technology
 CollaFix 
   
    
    Initial tests of cross-linked fibers appear to demonstrate they are stronger than
existing collagenous tissue, including healthy tendons and ligaments. These fibers form
the fundamental unit from which a variety of devices could be configured as follows:
 
    
    Linear and braided arrays for tendon and ligament repair
    
    Cross-helical arrays forming tubular structures that also can be cut to form flat patches
    
    Woven meshes for general surgical use;
 
    
    CollaFix biomaterials have been tested and results preliminarily
suggest that the materials are biocompatible and biodegradable;
 
    
    Biocompatibilization (making a material biocompatible that may otherwise not be)
of in-dwelling medical devices by coating with MiMedx proprietary NDGA
(nordihydroguaiaretic acid) polymerized collagen;
    
    NDGA treatment of xenograft (animal in origin) and allograft (human in origin)
materials could make them more biocompatible and possibly improve functional lifetime;
and
 
    
    Cross-linked collagen-based biorivets have the potential to be used for bone
fracture fixation.
    6




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HydroFix
     Market Opportunity
   ,
  7




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Tendon and Ligament Repair Technologies
  PVA-Based Biomaterials
 ® ®
 Spine Anatomy and Disorders
   8




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Current Treatments for Spine Disorders
  Spine Repair and Vessel Protection
  nucleus pulposus annulus fibrosus,
       9




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Medical Advisory Board
     Government Regulation
  
    
    product design and development;
 
    
    product testing;
 
    
    product manufacturing;
 
    
    product labeling;
 
    
    product storage;
 
    
    premarket clearance or approval;
 
    
    advertising and promotion;
 
    
    product sales and distribution; and
 
    
    medical device reporting.
    10




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5 10(k) Clearance Pathway
    PMA Approval Pathway
    e.g. e.g.
  11




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Clinical Trials
  Post market
   
    
    fines, injunctions, and civil penalties;
 
    
    recall or seizure of our products;
 
    
    operating restrictions, partial suspension or total shutdown of production;
 
    
    refusing our requests for 510(k) clearance or PMA approval of new products;
 
    
    withdrawing 510(k) clearance or PMA approvals already granted; and
 
    
    criminal prosecution.
  International
    12




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Export of Uncleared or Unapproved Devices
  Regulatory Status of our Products
  ReimbursementProcedures, Profitability and Costs
    Competition
 CollaFix Products
    13




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Leading Competitors in the Orthopedic Soft Tissue Solutions Market, as a % of Total, US, 2007.
 Percent of US totalLeading Competitors
    
    Soft Tissue MarketArthrex
    
    
    33.8
    %DePuy Mitek
    
    
    17.1
    %Smith and Nephew
    
    
    13.2
    %CONMED Linvatec
    
    
    5.8
    %Genzyme Biosurgery
    
    
    3.4
    %Musculoskeletal Transplant Foundation
    
    
    3.2
    %Biomet Sports Medicine
    
    
    3.1
    %AlloSource
    
    
    2.7
    %ArthroCare
    
    
    2.1
    %LifeNet Health
    
    
    1.9
    %Other
    
    
    13.7
    %
    Developer
    
    Product
    
    Cross-linkingDePuy
    
    RESTORE
    
    NoneWright Medical Technology
    
    GraftJacket
    
    NoneSynovis
    
    OrthAdapt
    
    CarbodiimideReGen Biologics
    
    Collagen matrices
    
    NoneBiomet/Organogenesis
    
    CuffPatch
    
    Carbodiimide
   HydroFix Products
   14




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Collaborations and License Agreements
 License Agreement between MiMedx, Shriners Hospitals for Children, and University of South
Florida Research Foundation
   License Agreement between SpineMedica and SaluMedica, LLC
 ®
 License Agreement between SaluMedica, LLC and Georgia Tech Research Corporation
  Rotator Cuff License with SaluMedica, LLC
 ® ®
  15




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Surgical Sheet License with SaluMedica, LLC
  Intellectual Property
    Improvements to Technology
 ® ®
 Trademarks & Trade Names
 TM ®
 Manufacturing
     16




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Suppliers
  Marketing and Sales
  Employees
  Litigation
  Research and Development
  Surgeon Training and Education
  Available Information
 www.mimedx.com
   17




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Item 1A.
    
    Risk Factors
 Risks Related to Our Business and Industry
 We are a high-risk startup venture.
  Most of our planned products are in the early stage of product development.
  Continuing disruptions in the overall economy and the credit and financial markets may
adversely impact our ability to raise necessary additional capital.
   18




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We will need additional financing to meet our future capital requirements.
  
    
    the revenue generated by sales of our products;
 
    
    the costs associated with expanding our sales and marketing efforts, including
efforts to hire independent agents and sales representatives;
 
    
    the expenses we incur in developing and commercializing our products, including the
cost of obtaining and maintaining FDA or other regulatory clearances and approvals; and
 
    
    general and administrative expenses.
   We are in a highly competitive industry and face competition from large, well-established
medical device manufacturers as well as new market entrants.
   
    
    products which have been approved by regulatory authorities for use in the United
States and/or Europe and which are supported by long-term clinical data;
 
    
    significantly greater name recognition;
 
    
    established relations with surgeons, hospitals, other healthcare providers and third
party payors;
 
    
    large and established distribution networks in the United States and/or in
international markets;
 
    
    greater experience in obtaining and maintaining regulatory approvals and/or
clearances from the United States Food and Drug Administration and other regulatory
agencies;
 
    
    more expansive portfolios of intellectual property rights; and
 
    
    greater financial, managerial and other resources for products research and
development, sales and marketing efforts and protecting and enforcing intellectual
property rights.
  19




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Our ability to protect our intellectual property and proprietary technology through patents
and other means is uncertain and may be inadequate, which would have a material and adverse
effect on us.
   We may become subject to claims of infringement or misappropriation of the intellectual
property rights of others, which could prohibit us from developing our products, require us
to obtain licenses from third parties or to develop non-infringing alternatives, and subject
us to substantial monetary damages.
    20




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Our patents and licenses may be subject to challenge on validity grounds, and our patent
applications may be rejected.
  The prosecution and enforcement of patents licensed to us by third parties are not within our
control, and without these technologies, our product may not be successful and our business
would be harmed if the patents were infringed or misappropriated without action by such third
parties.
  Our NDGA License Agreement could be terminated.
  We may be subject to damages resulting from claims that we, our employees, or our independent
contractors have wrongfully used or disclosed alleged trade secrets of others.
  SaluMedica, LLC may license the PVA-based hydrogel, the material used to make MiMedxs
HydroFix products and other products we are developing, and its trademark to third parties
for use in applications unrelated to the spine, rotator cuff, or surgical sheet applications.
This may expose us to adverse publicity if these uses are not proven safe and effective.
 ® ® ® ®
  21




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We depend on key personnel.
  Our operating results may fluctuate significantly as a result of a variety of factors, many
of which are outside of our control.
  
    
    the announcement or introduction of new products by our competitors;
 
    
    our ability to upgrade and develop our systems and infrastructure to accommodate
growth;
 
    
    our ability to attract and retain key personnel in a timely and cost effective
manner;
 
    
    technical difficulties;
 
    
    the amount and timing of operating costs and capital expenditures relating to the
expansion of our business, operations and infrastructure;
 
    
    regulation by federal, state or local governments; and
 
    
    general economic conditions as well as economic conditions specific to the
healthcare industry.
  The failure of government health administrators and private health insurers to reimburse
patients for costs of services incorporating our current or potential products would
materially and adversely affect our business.
  Disruption of our manufacturing could adversely affect our business, financial condition and
results of operations.
   22




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We currently have only one product cleared by the FDA for marketing, and may never develop or
launch, any commercialized products.
  
    
    we may not be able to obtain regulatory clearance or approvals for our products, or
the approved indication may be narrower than we seek;
 
    
    our products may not prove to be safe and effective in preclinical or clinical
trials;
 
    
    physicians or hospitals may not receive any reimbursement from third party payors,
or the level of reimbursement may be insufficient to support widespread adoption of our
products;
 
    
    we may experience delays in our development program;
 
    
    any products that are approved may not be accepted in the marketplace by physicians
or patients;
 
    
    we may not be able to manufacture any of our products in commercial quantities or at
an acceptable cost; and
 
    
    rapid technological change may make our products obsolete.
 We face the risk of product liability claims or recalls and may not be able to obtain or
maintain adequate product liability insurance.
   If we are unable to sell, market and distribute our products, our business may be harmed.
  
    
    We may be required to relinquish important rights to our products;
 
    
    We may not be able to control the amount and timing of resources that our distributors may devote to the commercialization of our products;
 
    
    Our distributors may experience financial difficulties; and
 
    
    Business combinations or significant changes in a
distributors business strategy may also adversely affect a distributors willingness or
ability to complete its obligations under any arrangement.
   23




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Off-label promotion of our products could result in substantial penalties.
  To be commercially successful, we must convince surgeons that our products are safe and
effective alternatives to existing surgical treatments and that our products should be used
in their procedures.
  
    
    their lack of experience with prior procedures in the field using our products;
 
    
    lack of evidence supporting additional patient benefits and our products over
conventional methods;
 
    
    perceived liability risks generally associated with the use of new products and
procedures;
 
    
    limited availability of reimbursement from third party payors; and
 
    
    the time that must be dedicated to training.
  Any failure in our efforts to train surgeons could significantly reduce the market acceptance
of our products.
  We depend on a single or a limited number of third-party suppliers, and the loss of these
third-party suppliers or their inability to supply us with adequate raw materials could
adversely affect our business.
   24




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We will need to increase the size of our organization, and we may be unable to manage rapid
growth effectively.
  Our business could be materially and adversely impacted by risks inherent in international
markets.
  
    
    Fluctuations in currency exchange rates;
    
    Regulatory, product approval and reimbursement requirements;
    
    Tariffs and other trade barriers;
    
    Greater difficulty in accounts receivable collection and longer collection
periods;
    
    Difficulties and costs of managing foreign distributors;
    
    Reduced protection for intellectual property rights in some countries;
    
    Burdens of complying with a wide variety of foreign laws;
    
    The impact of recessions in economics outside the U.S.; and
    
    Political and economic instability
    
    U.S. Export regulatory restrictions
  Recent and future acquisitions may cause integration problems, disrupt our business and strain
our resources.
   25




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Risks Related to Regulatory Approval of Our Products and Other Government Regulations
 Government regulation of our business is extensive and obtaining and maintaining the
necessary regulatory approvals is uncertain, expensive and time-consuming.
    We expect to be required to conduct clinical trials for some of our products. We have no
experience conducting clinical trials, they may proceed more slowly than anticipated, and we
cannot be certain that our products will be shown to be safe and effective for human use.
   
    
    failure to obtain approval from the FDA or any foreign regulatory authority to
commence an investigational study;
 
    
    conditions imposed on us by the FDA or any foreign regulatory authority regarding the
scope or design of our clinical trials;
 
    
    delays in obtaining or in our maintaining required approvals from institutional
review boards or other reviewing entities at clinical sites selected for participation
in our clinical trials;
 
    
    insufficient supply of our products or other materials necessary to conduct our
clinical trials;
 
    
    difficulties in enrolling patients in our clinical trials;
 
    
    negative or inconclusive results from clinical trials, or results that are
inconsistent with earlier results, that necessitate additional clinical studies;
 
    
    serious or unexpected side effects experienced by patients in whom our products are
implanted; or
 
    
    failure by any of our third-party contractors or investigators to comply with
regulatory requirements or meet other contractual obligations in a timely manner.
  26




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Our products contain biologic materials, and so may face additional obstacles to FDA
clearance or approval.
   Subsequent modifications to our products may require new regulatory approvals, or may require
us to cease marketing or recall the modified products until approvals are obtained.
   27




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If we or our suppliers fail to comply with the FDAs quality system regulations, the
manufacture of our products could be delayed.
  
    
    untitled letters, warning letters, fines, injunctions, consent decrees and civil
penalties;
 
    
    customer notifications for repair, replacement, refunds;
 
    
    recall, detention or seizure of our products;
 
    
    operating restrictions or partial suspension or total shutdown of production;
 
    
    refusing or delaying our requests for 510(k) clearance or premarket approval of new
products or modified products;
 
    
    withdrawing 510(k) clearances on PMA approvals that have already been granted;
 
    
    refusal to grant export approval for our products; or
 
    
    criminal prosecution.
 We and our sales personnel, whether employed by us or by others, must comply with various
federal and state anti-kickback, self referral, false claims and similar laws, any breach of
which could cause a material adverse effect on our business, financial condition and results
of operations.
    28




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We face significant uncertainty in the industry due to government healthcare reform.
  Risks Related to the Securities Markets and Ownership of Our Common Stock
 The price of our Common Stock has been, and will likely continue to be, volatile.
  
    
    Fluctuations in stock market prices and trading volumes of similar companies or of
the markets generally;
 
    
    Our ability to successfully launch, market and earn significant revenue from our
products;
 
    
    Our ability to obtain additional financing to support our continuing operations;
 
    
    Disclosure of the details and results of regulatory applications and proceedings;
 
    
    Changes in government regulation;
 
    
    Additions or departures of key personnel;
 
    
    Our investments in research and development or other corporate resources;
 
    
    Announcements of technological innovations or new commercial products or services by
us or our competitors;
 
    
    Developments in the patents or other proprietary rights owned or licensed by us or
our competitors;
 
    
    The timing of new product introductions;
 
    
    Actual or anticipated fluctuations in our operating results, including any
restatements of previously reported results;
 
    
    Our ability to effectively and consistently manufacture our products and avoid costs
associated with the recall of defective or potentially defective products;
 
    
    Our ability and the ability of our distribution partners to market and sell our
products;
 
    
    Changes in distribution channels; and
 
    
    The ability of our vendors to effectively and timely deliver necessary materials and
product components.
  29




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The concentrated Common Stock ownership by certain of our executive officers and
directors will limit your ability to influence corporate matters.
  The exercise of warrants or options or conversion of notes may depress our stock price and
may result in dilution to our common stockholders.
   Our Common Stock is and likely will remain subject to the SECs Penny Stock rules, which
may make its shares more difficult to sell.
  
    
    make a special written suitability determination for the purchaser;
 
    
    receive the purchasers written agreement to a transaction prior to sale;
 
    
    provide the purchaser with risk disclosure documents which identify certain risks
associated with investing in penny stocks and which describe the market for these
penny stocks as well as a purchasers legal remedies;
 
    
    obtain a signed and dated acknowledgment from the purchaser demonstrating that
the purchaser has received the required risk disclosure document before a transaction in
a penny stock can be completed; and
 
    
    give bid and offer quotations and broker and salesperson compensation information
to the customer orally or in writing before or with the confirmation.
   30




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Our Common Stock may be thinly traded.
  Securities analysts may elect not to report on our Common Stock or may issue negative reports
that adversely affect the stock price.
  We do not intend to pay cash dividends.
  Shareholders may experience significant dilution if future equity offerings are used to fund
operations or acquire complementary businesses.
   31




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We may become involved in securities class action litigation that could divert managements
attention and harm its business.
  Anti-takeover provisions in our organizational documents may discourage or prevent a change
of control, even if an acquisition would be beneficial to shareholders, which could affect
our share price adversely and prevent attempts by shareholders to replace or remove current
management
  
    
    authorizing the issuance of preferred stock which can be created and issued by the
Board of Directors without prior common stock shareholder approval, with rights senior
to those of the common stock;
 
    
    restricting persons who may call shareholder meetings; and
 
    
    allowing the Board to fill vacancies and to fix the number of directors.
 
 Item 1B.
    
    Unresolved Staff Comments
  
 Item 2.
    
    Properties
  
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    (Removed and Reserved)
  32




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PART II
 
 Item 5.
    
    Market for Registrants Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
   High*
    
    
    Low*Year Ended December 31, 2010First Quarter
    
    $
    1.75
    
    
    $
    .75Second Quarter
    
    
    1.55
    
    
    
    1.00Third Quarter
    
    
    1.48
    
    
    
    0.99Fourth Quarter
    
    
    1.35
    
    
    
    0.80Year Ended December 31, 2009First Quarter
    
    $
    4.40
    
    
    $
    .40Second Quarter
    
    
    .75
    
    
    
    .40Third Quarter
    
    
    .75
    
    
    
    .42Fourth Quarter
    
    
    .89
    
    
    
    .60
 
 *
    
    Adjusted to reflect the reverse stock split effective on April 2, 2008.    Unregistered Sales of Equity Securities and Use of Proceeds
      33




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Item 6.
    
    Selected Financial Data
  
 Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
  th
     34




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Critical Accounting Policies
  Goodwill and intangible assets:
  Impairment of long-lived assets:
  Share-based compensation:
   35




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Recently Adopted Accounting Pronouncements
    Fair Value measurements and Disclosures
 Subsequent Events
 Recently Issued Accounting Pronouncements Not Yet Adopted
 Intangibles  Goodwill and
Other: When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts
 Business Combinations:
Disclosure of Supplementary Pro Forma Information for Business Combinations
  36




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Results of Operations for the year ended December 31, 2010, compared to the 9 months ended December
31, 2009
  Net Sales
  Cost of Product Sold
  Research and Development Expenses
  Selling, General and Administrative Expenses
   37




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Gain on Sale of Assets
   Other
Income / (Expense)
   38




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Off-Balance Sheet Arrangements
  Liquidity and Capital Resources
  Inflation
  
 Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
     39




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Item 8.
    
    Financial Statements and Supplementary Data
 Index to Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    41Consolidated Balance Sheets  As of December 31, 2010, and December 31, 2009
    
    
    42Consolidated Statements of Operations  For the year ended December 31, 2010, and the nine months ended December 31, 2009
    
    
    43Consolidated Statements of Stockholders Equity (Deficit) and Comprehensive Income (Loss)  For the year ended December 31, 2010, and the nine months ended December 31, 2009
    
    
    45Consolidated Statements of Cash Flows  For the year ended December 31, 2010, and the nine months ended December 31, 2009
    
    
    44Notes to Consolidated Financial Statements
    
    
    46
  40




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41




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December 31,2010
    
    
    2009ASSETSCurrent assets:Cash and cash equivalents
    
    $
    1,340,922
    
    
    $
    2,653,537Accounts receivable, net
    
    
    162,376
    
    
    
    Inventory
    
    
    111,554
    
    
    
    30,920Prepaid expenses and other current assets
    
    
    90,946
    
    
    
    121,277Total current assets
    
    
    1,705,798
    
    
    
    2,805,734Property and equipment,
net of accumulated depreciation of $1,392,704
and $948,445, respectively
    
    
    756,956
    
    
    
    1,049,597Goodwill
    
    
    857,597
    
    
    
    857,597Intangible assets, net of accumulated amortization of $2,132,606
and $1,464,674, respectively
    
    
    3,929,394
    
    
    
    4,597,326Deferred financing costs
    
    
    
    
    
    
    192,627Deposits and other long term assets
    
    
    102,500
    
    
    
    189,202Total assets
    
    $
    7,352,245
    
    
    $
    9,692,083LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable and accrued expenses
    
    $
    848,285
    
    
    $
    629,349Short-term convertible notes, plus accrued interest of $3,432
    
    
    403,432
    
    
    
    Total current liabilities
    
    
    1,251,717
    
    
    
    629,349Long-term convertible debt, face value $3,472,000, less unamortized
discount of $550,748 and including accrued interest of $69,604
    
    
    
    
    
    
    2,990,856Total liabilities
    
    
    1,251,717
    
    
    
    3,620,205Commitments and contingency (Note 14)
    
    
    
    
    
    
    Stockholders equity:Preferred stock; $.001 par value; 5,000,000
shares authorized and 0 shares issued and outstanding
    
    
    
    
    
    
    Common stock; $ .001 par value; 100,000,000 shares authorized;
64,331,910 and 50,002,887 shares issued and outstanding, respectively
    
    
    64,382
    
    
    
    50,003Additional paid-in capital
    
    
    57,888,506
    
    
    
    46,454,482Treasury stock (50,000 shares at cost)
    
    
    (25,000
    )
    
    
    (25,000
    )Accumulated deficit
    
    
    (51,827,360
    )
    
    
    (40,407,607
    )Total stockholders equity
    
    
    6,100,528
    
    
    
    6,071,878Total liabilities and stockholders equity
    
    $
    7,352,245
    
    
    $
    9,692,083
   42




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Year Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009REVENUES:Net sales
    
    $
    544,155
    
    
    $
    800Grant Revenue
    
    
    244,719
    
    
    $
    Total revenue
    
    
    788,874
    
    
    
    800OPERATING COSTS AND EXPENSES:Cost of products sold
    
    
    1,720,063
    
    
    
    240Research and development expenses
    
    
    2,753,331
    
    
    
    2,590,227Selling, General and Administrative expenses
    
    
    6,848,135
    
    
    
    3,463,303Gain on sale of assets
    
    
    
    
    
    
    (280,868
    )LOSS FROM OPERATIONS
    
    
    (10,532,655
    )
    
    
    (5,772,102
    )OTHER INCOME (EXPENSE)Financing expense associated with issuance of
common
stock for registration rights waivers
    
    
    
    
    
    
    (1,305,100
    )Financing expense associated with warrants issued
in connection with convertible promissory note
    
    
    (287,449
    )
    
    
    (975,833
    )Interest (expense) income, net
    
    
    (599,649
    )
    
    
    (242,634
    )LOSS BEFORE INCOME TAXES
    
    
    (11,419,753
    )
    
    
    (8,295,669
    )Income taxes
    
    
    
    
    
    
    NET LOSS
    
    
    (11,419,753
    )
    
    
    (8,295,669
    )Net loss per common shareBasic and diluted
    
    $
    (0.19
    )
    
    $
    (0.20
    )Shares used in computing net loss per common shareBasic and diluted
    
    
    59,138,357
    
    
    
    41,365,513
   43




---



##### Table of Contents



Year Ended
    
    
    Nine Months EndedDecember 31,
    
    
    December 31,2010
    
    
    2009Cash flows from operating activities:Net loss
    
    $
    (11,419,753
    )
    
    $
    (8,295,669
    )Adjustments to reconcile net loss to net cash flows from
operating activities, net of effects of acquisition:Gain on settlement of payables
    
    
    
    
    
    
    (584,969
    )(Gain)/loss on sale of assets
    
    
    
    
    
    
    (280,868
    )Depreciation
    
    
    444,259
    
    
    
    337,909Amortization of intangible assets
    
    
    667,932
    
    
    
    497,211Amortization of debt discount and deferred financing costs
    
    
    599,001
    
    
    
    169,739Employee share-based compensation expense
    
    
    996,307
    
    
    
    363,457Other share-based compensation expense
    
    
    174,354
    
    
    
    117,689Financing expense associated with issuance of common stock
for waivers of registration rights
    
    
    
    
    
    
    1,305,100Financing expense associated with warrants issued in
connection with convertible promissory note
    
    
    287,448
    
    
    
    975,833Modifications of options and purchase of treasury stock
    
    
    
    
    
    
    48,000Increase (decrease) in cash resulting from changes in:Accounts receivable, net
    
    
    (162,376
    )
    
    
    Inventory
    
    
    (80,634
    )
    
    
    (30,920
    )Prepaid expenses and other current assets
    
    
    30,331
    
    
    
    21,676Other assets
    
    
    86,702
    
    
    
    Accounts payable and accrued expenses
    
    
    218,936
    
    
    
    (240,468
    )Net cash flows from operating activities
    
    
    (8,157,494
    )
    
    
    (5,596,280
    )Cash flows from investing activities:Purchase of equipment
    
    
    (151,617
    )
    
    
    (11,610
    )Proceeds from sale of assets
    
    
    
    
    
    
    360,250Cash paid in conjunction with sales of assets
    
    
    
    
    
    
    (86,332
    )Net cash flows from investing activities
    
    
    (151,617
    )
    
    
    262,308Cash flows from financing activities:Proceeds from convertible debt offering
    
    
    
    
    
    
    3,472,000Proceeds from bridge loan
    
    
    500,000
    
    
    
    Proceeds from convertible promissory note
    
    
    
    
    
    
    500,000Repayment of convertible promissory note
    
    
    
    
    
    
    (500,000
    )Proceeds from sale of common stock and
warrants and common stock with registration rights, net
    
    
    3,122,020
    
    
    
    4,618,719Proceeds from exercise of stock options
    
    
    155,126
    
    
    
    2Net proceeds from exercise of warrants
    
    
    3,219,349
    
    
    
    Offering costs paid in connection with convertible debt offering
    
    
    
    
    
    
    (138,040
    )Net cash flows from financing activities
    
    
    6,996,495
    
    
    
    7,952,681Net change in cash
    
    
    (1,312,615
    )
    
    
    2,618,709Cash, beginning of period
    
    
    2,653,537
    
    
    
    34,828Cash, end of period
    
    $
    1,340,922
    
    
    $
    2,653,537Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    8,330
    
    
    $
    4,745Cash paid for income taxes
    
    $
    
    
    
    $
    
 Supplemental disclosure of non-cash financing activity:
 During the year ended December 31, 2010:
 *
    
    the Company issued 500,000 warrants in conjunction with the
issuance of Hybrid Debt instruments valued at $141,974.
 *
    
    the Company recognized a beneficial conversion feature valued
at $145,474 related to the Hybrid Debt instruments.
 *
    
    the Company recognized the amortization of debt discount and
deferred financing costs related to the conversion of convertible debt in the amount of $599,001.
 During the nine months ended December 31, 2009:
 *
    
    the Company recognized amortization of a debt discount and deferred interest
of $169,739 in conjunction with our convertible debt offering.
 *
    
    the Company issued 315,520 warrants to purchase common stock, valued at $98,574
 *
    
    the Company issued 100,000 shares valued at $42,000 for costs associated with its private
placement sale of common stock and warrants, 162,750 shares valued at $81,375 for accrued
directors fees, and 187,644 shares valued at $93,822 for accrued executive compensation.
 *
    
    the Company reclassified 1,905,000 shares with registration rights valued at $3,761,250
to equity as the result of the termination of such rights, and issued 2,490,000 shares
valued at $1,305,100 as settlement of the waived rights (Note7).
 *
    
    the Company issued 100,000 shares of common stock valued at $71,000 for intellectual
property upon achieving certain milestones (Note 5).
 *
    
    the Company issued 975,833 warrants valued at $975,833 in conjuction with a convertible
promissory note.
 *
    
    the Company received a $100,000 3% Secured Promissory Note in conjunction with its sale
of intellectual property (Note 5)
   44




---



##### Table of Contents



AdditionalCommon Stock
    
    
    Paid-in
    
    
    Treasury
    
    
    AccumulatedShares
    
    
    Amount
    
    
    Capital
    
    
    Stock
    
    
    Deficit
    
    
    TotalBalances, March 31, 2009
    
    
    37,339,628
    
    
    
    37,340
    
    
    
    34,230,824
    
    
    
    
    
    
    
    (32,111,938
    )
    
    
    2,156,226Employee share-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    363,457
    
    
    
    
    
    
    
    
    
    
    
    363,457Other share-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    117,689
    
    
    
    
    
    
    
    
    
    
    
    117,689Beneficial conversion feature recognized
on convertible debt
    
    
    
    
    
    
    
    
    
    
    676,500
    
    
    
    
    
    
    
    
    
    
    
    676,500Warrants issued to placement agents in
conjunction with convertible debt
    
    
    
    
    
    
    
    
    
    
    98,574
    
    
    
    
    
    
    
    
    
    
    
    98,574Exercise of stock options
    
    
    20,000
    
    
    
    20
    
    
    
    (18
    )
    
    
    
    
    
    
    
    
    
    
    2Common stock issued for waivers
of registration rights
    
    
    2,490,000
    
    
    
    2,490
    
    
    
    1,302,610
    
    
    
    
    
    
    
    
    
    
    
    1,305,100Reclassification of common stock with
registration rights
    
    
    1,905,000
    
    
    
    1,905
    
    
    
    3,759,345
    
    
    
    
    
    
    
    
    
    
    
    3,761,250Common stock issued for accrued directors
fees
    
    
    162,750
    
    
    
    163
    
    
    
    81,212
    
    
    
    
    
    
    
    
    
    
    
    81,375Common stock issued for accrued executive
compensation
    
    
    187,644
    
    
    
    187
    
    
    
    93,635
    
    
    
    
    
    
    
    
    
    
    
    93,822Common Stock issued in connection with
purchase of license agreement
    
    
    100,000
    
    
    
    100
    
    
    
    70,900
    
    
    
    
    
    
    
    
    
    
    
    71,000Sale of common stock and warrants
(net of $42,000 of offering costs)
    
    
    7,697,865
    
    
    
    7,698
    
    
    
    4,569,021
    
    
    
    
    
    
    
    
    
    
    
    4,576,719Common stock issued for services in
conjunction with private placement
    
    
    100,000
    
    
    
    100
    
    
    
    41,900
    
    
    
    
    
    
    
    
    
    
    
    42,000Warrants issued in conjunction with
convertible promissory note
    
    
    
    
    
    
    
    
    
    
    975,833
    
    
    
    
    
    
    
    
    
    
    
    975,833Modification of stock options and
purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    73,000
    
    
    
    (25,000
    )
    
    
    
    
    
    
    48,000Net loss for the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,295,669
    )
    
    
    (8,295,669
    )Balances, December 31, 2009
    
    
    50,002,887
    
    
    $
    50,003
    
    
    $
    46,454,482
    
    
    $
    (25,000
    )
    
    $
    (40,407,607
    )
    
    $
    6,071,878Employee share-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    996,307
    
    
    
    
    
    
    
    
    
    
    
    996,307Other share-based compensation
expense
    
    
    
    
    
    
    
    
    
    
    174,354
    
    
    
    
    
    
    
    
    
    
    
    174,354Beneficial conversion feature recognized
on convertible debt
    
    
    
    
    
    
    
    
    
    
    287,448
    
    
    
    
    
    
    
    
    
    
    
    287,448Sale of common stock and warrants
(net of $67,980 of offering costs)
    
    
    3,713,433
    
    
    
    3,713
    
    
    
    3,118,307
    
    
    
    
    
    
    
    
    
    
    
    3,122,020Exercise of stock options
    
    
    210,250
    
    
    
    211
    
    
    
    154,915
    
    
    
    
    
    
    
    
    
    
    
    155,126Exercise of warrants
    
    
    3,219,348
    
    
    
    3,219
    
    
    
    3,216,130
    
    
    
    
    
    
    
    
    
    
    
    3,219,349Shares issued in conjunction with
conversion
of convertible debt
    
    
    7,235,992
    
    
    
    7,236
    
    
    
    3,486,563
    
    
    
    
    
    
    
    
    
    
    
    3,493,799Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,419,753
    )
    
    
    (11,419,753
    )Balances, December 31, 2010
    
    
    64,381,910
    
    
    $
    64,382
    
    
    $
    57,888,506
    
    
    $
    (25,000
    )
    
    $
    (51,827,360
    )
    
    $
    6,100,528
   45




---



##### Table of Contents



1.
    
    Formation and nature of business:
 Nature of business:
      ®
   46




---



##### Table of Contents



2.
    
    Significant accounting policies:
 Fiscal year:
  Year ended December 31,2010
    
    
    2009Revenues
    
    $
    788,874
    
    
    $
    800Loss from operations
    
    
    (10,532,658
    )
    
    
    (9,229,749
    )Loss before income tax
    
    
    (11,419,756
    )
    
    
    (11,167,653
    )Income tax
    
    
    
    
    
    
    Net loss
    
    
    (11,419,756
    )
    
    
    (11,167,653
    )Net loss per common share
    
    $
    (0.19
    )
    
    $
    (0.28
    )
 Use of estimates:
  Principles of consolidation:
  Concentrations of credit risk:
  Cash and cash equivalents:
  Accounts Receivable
    47




---



##### Table of Contents



Inventories:
  Goodwill and intangible assets:
  Property and equipment:
  Impairment of long-lived assets:
  Revenue Recognition:
  Research and development costs:
   48




---



##### Table of Contents



Income taxes:
  Share-based compensation:
  Fair value of financial instruments:
  Net loss per share
    Year ended
    
    
    Nine Months endedDecember 31,
    
    
    December 31,2010
    
    
    2009Net loss
    
    $
    (11,419,753
    )
    
    $
    (8,295,669
    )Denominator for basic earnings per share  weighted
average shares
    
    
    59,138,357
    
    
    
    41,365,513Effect of dilutive securities: Stock options and warrants
outstanding (a)
    
    
    
    
    
    
    Denominator for diluted earnings per share  weighted
average shares adjusted for dilutive securities
    
    
    59,138,357
    
    
    
    41,365,513Loss per common share  basic and diluted
    
    $
    (0.19
    )
    
    $
    (0.20
    )
  49




---



##### Table of Contents



(a)
    
    Securities outstanding that were excluded from the computation, prior to the use of the
treasury stock method, because they would have been anti-dilutive are as follows: Nine MonthsYear ended
    
    
    endedDecember 31,
    
    
    December 31,2010
    
    
    2009Outstanding Stock Options
    
    
    8,257,650
    
    
    
    6,182,500Outstanding Warrants
    
    
    6,003,924
    
    
    
    6,991,371Convertible Debt
    
    
    403,432
    
    
    
    6,944,00014,661,574
    
    
    
    20,117,871
 Recently issued accounting pronouncements:
    Fair Value measurements and Disclosures
 Subsequent Events
 Recently Issued Accounting Pronouncements Not Yet Adopted
 Intangibles  Goodwill and
Other: When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or
Negative Carrying Amounts
  50




---



##### Table of Contents



Business Combinations:
Disclosure of Supplementary Pro Forma Information for Business Combinations
 3.
    
    Liquidity and managements plans:
  4.
    
    Property and equipment:
  December 31,2010
    
    
    2009Leasehold improvements
    
    $
    793,900
    
    
    $
    793,899Furniture and equipment
    
    
    1,355,760
    
    
    
    1,204,1432,149,660
    
    
    
    1,998,042Less accumulated depreciation
    
    
    (1,392,704
    )
    
    
    (948,445
    )$
    756,956
    
    
    $
    1,049,597
  51




---



##### Table of Contents



5.
    
    Intangible assets and royalty agreement:
  December 31, 2010
    
    
    December 31, 2009WeightedAverage
    
    
    Gross
    
    
    
    
    
    
    Net
    
    
    Gross
    
    
    
    
    
    
    NetAmortization
    
    
    Carrying
    
    
    Accumulated
    
    
    Carrying
    
    
    Carrying
    
    
    Accumulated
    
    
    CarryingLives
    
    
    Value
    
    
    Amortization
    
    
    Value
    
    
    Value
    
    
    Amortization
    
    
    ValueLicense-Shriners Hsp for Children & USF Research
    
    10 years
    
    $
    996,000
    
    
    
    (388,433
    )
    
    
    607,567
    
    
    $
    996,000
    
    
    $
    (288,833
    )
    
    $
    707,167License  SaluMedica LLC Spine Repair
    
    10 years
    
    
    2,399,000
    
    
    
    (1,017,557
    )
    
    
    1,381,443
    
    
    
    2,399,000
    
    
    
    (721,541
    )
    
    
    1,677,459License  Polyvinyl Alco holCryogel
    
    10 years
    
    
    2,667,000
    
    
    
    (726,616
    )
    
    
    1,940,384
    
    
    
    2,667,000
    
    
    
    (454,300
    )
    
    
    2,212,700Total intangible assets
    
    
    
    
    
    $
    6,062,000
    
    
    $
    (2,132,606
    )
    
    $
    3,929,394
    
    
    $
    6,062,000
    
    
    $
    (1,464,674
    )
    
    $
    4,597,326
 (a)
    
    On January 29, 2007, the Company acquired a license from Shriners Hospitals for
Children and University of South Florida Research Foundation, Inc. which is further
discussed in Note 1. The acquisition price of this license was a one-time fee of $100,000
and 1,120,000 shares of common stock valued at $896,000 (based upon the estimated fair
value of the common stock on the transaction date). Within thirty days after the receipt
by the Company of approval by the FDA allowing the sale of the first licensed product, the
Company is required to pay an additional $200,000 to the licensor. This amount is not
recorded as a liability as of December 31, 2009 or 2010, based on its contingent nature.
The Company will also be required to pay a royalty of 3% on all commercial sales revenue of
the licensed products.(b)
    
    License from SaluMedica, LLC (SaluMedica) for the use of certain developed technologies
related to spine repair. This license was acquired through the acquisition of SpineMedica
Corp.(c)
    
    On March 31, 2008, the Company entered into a license agreement for the use of certain
developed technologies related to surgical sheets made of polyvinyl alcohol cryogel. The
acquisition price of the asset was 400,000 shares of common stock valued at $2,596,000
(based upon the closing price of the common stock on the transaction date). The agreement
also provides for the issuance of an additional 600,000 shares upon the Company meeting
certain milestones related to future sales. On December 31, 2009 the Company completed the
sale of its first commercial product and met its first milestone under this agreement. As
a result the Company issued 100,000 shares of common stock to the licensor valued at
$71,000. At December 31, 2009 or 2010, there are no additional amounts accrued for this
obligation due to its contingent nature.  12-month period ended December 31,2011
    
    $
    667,9322012
    
    
    667,9322013
    
    
    667,9322014
    
    
    667,9322015
    
    
    561,694Thereafter
    
    
    695,971$
    3,929,394
 6.
    
    Debt:
 3% Convertible Senior Secured Promissory Notes
   52




---



##### Table of Contents



Hybrid Debt Instrument
   53




---



##### Table of Contents



October 20
    
    
    October 21
    
    
    November 4Term
    
    3 Years
    
    
    3 Years
    
    
    3 YearsVolatility
    
    
    58.75
    %
    
    
    58.77
    %
    
    
    58.31
    %Interest Rate
    
    
    1.11
    %
    
    
    1.15
    %
    
    
    1.04
    %
  7.
    
    Common Stock Placements:
 February 2009 Private Placement
    54




---



##### Table of Contents



October 2009 Private Placement
      55




---



##### Table of Contents



Earnings per share Treatment of Contingently Issuable Shares
in Weighted-Average Shares Outstanding
   8.
    
    Stockholders equity:
 Stock incentive plan:
   56




---



##### Table of Contents



Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateNumber of
    
    
    Exercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    Value(in years)Outstanding at March 31, 2009
    
    
    4,301,250
    
    
    $
    1.60Granted
    
    
    2,312,500
    
    
    $
    0.60Exercised
    
    
    (20,000
    )
    
    $
    0.0001Forfeited or cancelled
    
    
    (411,250
    )
    
    $
    3.68Outstanding at December 31, 2009
    
    
    6,182,500
    
    
    $
    1.10
    
    
    
    6.0
    
    
    $
    307,535Vested or expected to vest at
December 31, 2009
    
    
    3,662,082
    
    
    $
    1.35Outstanding at January 1, 2010
    
    
    6,182,500
    
    
    $
    1.10Granted
    
    
    2,385,400
    
    
    $
    1.40Exercised
    
    
    (210,250
    )
    
    $
    0.74Forfeited or cancelled
    
    
    (100,000
    )
    
    $
    0.88Outstanding at December 31, 2010
    
    
    8,257,650
    
    
    $
    1.20
    
    
    
    6.3
    
    
    $
    2,833,198Vested or
expected to vest at December 31, 2010
    
    
    5,577,863
    
    
    $
    1.22
    
    
    
    5.3
    
    
    $
    2,015,963
   OptionsOptions Outstanding
    
    
    ExercisableWeighted-AverageRemaining
    
    
    Weighted-
    
    
    
    
    
    Weighted-Range of
    
    Number
    
    
    Contractual
    
    
    Average
    
    
    Number
    
    
    AverageExercise Prices
    
    outstanding
    
    
    Term
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price(in years)$0.0001  $0.50
    
    
    903,500
    
    
    
    3.7
    
    
    $
    0.49
    
    
    
    562,306
    
    
    $
    0.48$0.65  $1.00
    
    
    3,472,500
    
    
    
    6.3
    
    
    $
    0.80
    
    
    
    2,824,148
    
    
    $
    0.82$1.04  $1.80
    
    
    3,131,650
    
    
    
    8.1
    
    
    $
    1.55
    
    
    
    1,441,409
    
    
    $
    1.69$2.40
    
    
    750,000
    
    
    
    1.8
    
    
    $
    2.40
    
    
    
    750,000
    
    
    $
    2.408,257,650
    
    
    
    6.3
    
    
    $
    1.20
    
    
    
    5,577,863
    
    
    $
    1.22
  Weighted-AverageNumber of
    
    
    Grant DateUnvested Stock Options
    
    Shares
    
    
    Fair ValueUnvested at January 1, 2010
    
    
    2,520,418
    
    
    $
    0.50Granted
    
    
    2,385,400
    
    
    $
    1.09Cancelled/expired
    
    
    (100,000
    )
    
    $
    0.52Vested
    
    
    (2,126,031
    )
    
    $
    0.60Unvested at December 31, 2010
    
    
    2,679,787
    
    
    $
    0.87
  57




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##### Table of Contents



Year ended
    
    
    Nine Months endedDecember 3 1,
    
    
    December 3 1,2010
    
    
    2009Expected volatility
    
    
    57.960.2
    %
    
    
    112.06140.74
    %Expected life (in years)
    
    
    6
    
    
    
    3.5 to 6Expected dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Risk-free interest rate
    
    
    1.15%  2.75
    %
    
    
    1.54%  2.53
    %
  Warrants:
   58




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##### Table of Contents



Weighted-
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    ExerciseExercise
    
    
    Number of
    
    
    Price perNumber of
    
    
    Price per
    
    
    Contingent
    
    
    ContingentWarrants
    
    
    Warrant
    
    
    Warrants
    
    
    WarrantWarrants outstanding at March 31, 2009
    
    
    1,160,251
    
    
    $
    0.91
    
    
    
    
    
    
    $
    Issued in connection with private placement of common
stock
    
    
    315,520
    
    
    $
    0.50
    
    
    
    
    
    
    $
    Issued in connection with related party convertible
promissory
    
    
    1,666,667
    
    
    $
    0.60
    
    
    
    
    
    
    $
    Issued in connection with private placement of common
stock
    
    
    3,848,933
    
    
    $
    1.50
    
    
    
    
    
    
    $
    Warrents outstanding at December 31, 2009
    
    
    6,991,371
    
    
    $
    1.17
    
    
    
    
    
    
    $
    Issued in connection with private placement of common
stock
    
    
    1,856,662
    
    
    $
    1.50
    
    
    
    1,202,500
    
    
    $
    1.50Issued in connection with convertible promissory notes
    
    
    550,490
    
    
    $
    1.05
    
    
    
    50,490
    
    
    $
    1.50Expired warrants
    
    
    (175,251
    )
    
    $
    1.80
    
    
    
    
    
    
    $
    Exercised in connection with private placement of
common stock
    
    
    (3,219,348
    )
    
    $
    1.00
    
    
    
    
    
    
    $
    Warrants outstanding at December 31, 2010
    
    
    6,003,924
    
    
    $
    1.21
    
    
    
    1,252,990
    
    
    $
    1.50
  
    
    notice given by the holder accompanied by payment of an amount equal to the warrant
exercise price multiplied by the number of warrant shares being purchased ; or
 
    
    election by the holder to exchange the warrant (or portion thereof) for that number
of shares equal to the product of (a) the number of shares issuable upon exercise of
the warrant (or portion) and (b) a fraction, (x) the numerator of which is the market
price of the shares at the time of exercise minus the warrant exercise price per share
at the time of exercise and (y) the denominator of which is the market price per share
at the time of exercise.
      59




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9.
    
    Income taxes:
 Significant items comprising the Companys deferred tax assets and liabilities are as follows
at December 31, 2010 and 2009:
 December 31,2010
    
    
    2009Deferred tax assets:Share-based compensation expense
    
    $
    66,000
    
    
    $
    733,000Furniture, software and equipment
    
    
    283,000
    
    
    
    283,000Accrued expenses
    
    
    67,000
    
    
    
    20,000Net operating loss carryforward
    
    
    14,836,000
    
    
    
    11,358,00015,252,000
    
    
    
    12,394,000Deferred tax liabilities:Intangible assets
    
    
    (78,000
    )
    
    
    (78,000
    )Net deferred tax assets
    
    
    15,174,000
    
    
    
    12,316,000Valuation allowance
    
    
    (15,174,000
    )
    
    
    (12,316,000
    )$
    
    
    
    $
    
 The reconciliation of the Federal statutory income tax rate of 34% to the effective rate
is as follows for the periods ended December 31, 2010 and December 31, 2009:
 December 31,2010
    
    
    2009Federal statutory rate
    
    
    34.00
    %
    
    
    34.00
    %State taxes, net of federal benefit
    
    
    3.96
    %
    
    
    3.96
    %Permanent differences
    
    
    -3.44
    %
    
    
    -12.00
    %Valuation allowance
    
    
    -34.52
    %
    
    
    -25.96
    %
    %
    
    
    
    %
 Income taxes are based on estimates of the annual effective tax rate and evaluations of
possible future events and transactions and may be subject to subsequent refinement or
revision.
 The Company has incurred net losses since its inception and, therefore, no current income tax
liabilities have been incurred for the periods presented. The amount of unused tax losses
available to carry forward and apply against taxable income in future years totaled
approximately $39,083,000 at December 31, 2010 and $29,900,000 at December 31, 2009. The loss
carry forwards expire in 2029. Due to the Companys losses, management has established a
valuation allowance equal to the amount of net deferred tax assets since management cannot
determine that realization of these benefits is more likely than not.
 Under Section 382 and 383 of the Internal Revenue Code, if an ownership change occurs with
respect to a loss corporation, as defined, there are annual limitations on the amount of the
net operating loss and other deductions which are available to the Company. At this time the
Company has not yet determined whether some of the loss carryforwards may be subject to these
limitations.
 10.
    
    Gain on Settlement of Payables:
 During the nine months ended December 31, 2009, the Company negotiated a settlement of
certain outstanding payables primarily related to legal expenses incurred during the fiscal
year ended March 31, 2009. As a result of this negotiation the Company recognized a gain on
settlement of payables of approximately $585,000, which is included in general and
administrative expenses in our consolidated statement of operations for the nine months ended
December 31, 2009.
  60




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##### Table of Contents



11.
    
    Termination of agreement:
 On August 19, 2009, the Company and Thomas J. Graham, M.D. (Graham) and Phantom Hand
Project, LLC (Phantom), entered into an Amendment and Settlement Agreement (the
Agreement).
 The Agreement (i) terminates the Cost Recovery and Revenue Sharing Letter agreement between
MiMedx and Graham dated May 22, 2008; (ii) terminates the Finders Fee Letter Agreement
between MiMedx and Graham dated May 22, 2008; (iii) transfers to Graham certain provisional
patent applications that MiMedx did not intend to pursue and to which no value was ascribed;
(iv) accelerates the vesting of options to purchase 250,000 shares of the Companys common
stock previously issued to Graham and extends the period in which such options may be
exercised through the five year anniversary of their date of issuance, without regard to
whether Graham continues to serve as a consultant to MiMedx; (v) obligates Graham to forfeit
50,000 shares of the Companys common stock issued to him previously; (vi) amends the
Consulting Agreement dated September 21, 2007, between MiMedx and Graham; and (vii) provides
for certain payments to Graham upon a disposition of certain of the intellectual property
comprising MiMedxs Level Orthopedics division (the Level Assets) prior to September 20,
2010.
 In connection with the amendment of the options and the recovery of the common stock (recorded
as treasury stock), the Company recorded expense of approximately $48,000, which represented
the fair value of the amended options calculated utilizing the Black-Scholes-Merton model less
the fair value of the common stock surrendered on the date of the agreement.
 12.
    
    Related party transactions:
 Related party expense:
 The Company incurred expenses of approximately, $5,188 during the year ended December 31, 2010
and $71,000 during the nine months ended December 31, 2009 related to administrative expenses
provided by an entity owned by the current Chairman of the Board.
 The Company incurred expenses of approximately $5,175 during the year ended December 31, 2010
and $20,000 during the nine months ended December 31, 2009 related to aircraft use from an
entity owned by the former Chairman of the Board and current member of the Board of Directors.
 The Company incurred expenses of approximately $64,238 during the year ended December 31, 2010
and $11,000 during the nine months ended December 31, 2009 related to the lease of office
space from an entity owned by the former Chairman of the Board and current member of the Board
of Directors.
 All the above related party expenses were included in general and administrative expenses in
the accompanying consolidated statements of operations.
 13.
    
    401k Plan:
 The Company has a 401(k) plan (the Plan) covering employees who have attained 21 years of
age and have completed 3 months of service. Under the Plan, participants may defer up to 100%
of their eligible wages to a maximum of $16,500 per year (annual limit for 2010). Employees
age 50 or over in 2010 may make additional pre-tax contributions up to $5,000 above and beyond
normal plan and legal limits. Annually, the Company may elect to match employee contributions
up to 3% of the employees compensation. Additionally, the Company may elect to make a
discretionary contribution to the Plan. The Company did not provide matching contributions
for the years ended December 31, 2010 and the nine months ended December 31, 2009.
  61




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14.
    
    Commitments:
 Contractual Arrangements
 The Company has entered into operating lease agreements for facility space and equipment. In
addition, the Company has minimum royalty payments due in conjunction with one of its
licenses. The estimated annual lease and royalty expense is as follows:
 12-month period ended December 31,2011
    
    $
    236,8442012
    
    
    179,540Thereafter
    
    
    $
    416,384
 Rent expense on all operating leases for the year ended December 31, 2010, and the nine months
ended December 31, 2009 was approximately $244,598 and $212,000, respectively.
 15.
    
    Subsequent Events
 Acquisition of Surgical Biologics LLC
 On December 21, 2010, the Company entered into an Agreement and Plan of Merger (the
Merger Agreement) with Membrane Products Holdings, LLC and OnRamp Capital Investments, LLC,
the owners of Surgical Biologics, LLC (Surgical Biologics), a privately held company
headquartered in Kennesaw, Georgia, whose primary business is in the development of tissue
processing techniques for creating implants for a variety of surgical indications from amnion
membranes. Pursuant to the Merger Agreement, the Company will acquire all of the outstanding
equity interests in Surgical Biologics. Following the closing, Surgical Biologics will operate
as a wholly owned subsidiary of the Company. The transaction closed on January 5, 2011.
 The Merger Agreement provides, among other things, for initial merger consideration consisting
of MiMedx common stock, debt and cash as follows:
 
    
    $5,200,000 of MiMedx common stock; plus
 
    
    $500,000 in cash (subject to adjustment for any shortfall in Surgical Biologics working
capital from the agreed amount, Surgical Biologics debt in excess of the amount agreed to
be assumed and Surgical Biologics transaction costs); plus
 
    
    Convertible Secured Promissory Notes in the aggregate principal sum of $1,250,000, which
will bear interest at the annual rate of 4% and will be payable in full 18 months after
Closing, subject to certain offset rights in favor of the Company. The Notes may be prepaid
at any time without penalty on 30 days written notice to the holders. The Notes will be
secured by a first lien security interest in the intellectual property (consisting of
patents, patent applications and trade secrets) acquired from Surgical Biologics in the
transaction. No other intellectual property or assets of MiMedx will be pledged to secure
the Notes. The Notes will be convertible at any time at the option of the holder into shares of MiMedx common stock at a conversion price equal to $1 per share (the Conversion
Price). The Notes will be convertible at the option of MiMedx if the closing trading price
of MiMedx common stock equals or exceeds 175% of the Conversion Price ($1.75) for any 20
consecutive trading days; plus
 
    
    Debt assumed in the transaction of approximately $183,000.
  62




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##### Table of Contents



In addition, the Merger Agreement provides for contingent consideration payable in MiMedx
Common Stock as follows:
 
    
    An amount equal to 60% of the excess of MiMedxs gross revenue (net of returns and
allowances) (Gross Revenue) in calendar year 2011 from sales of all Surgical Biologics
products over Surgical Biologics Gross Revenue from sales of such products in calendar
year 2010. For purposes of the calculation (i) Gross Revenue is reduced or increased to
the extent the 2011 cost of goods sold for Surgical Biologics current product line exceeds
or is less than certain agreed parameters, and (ii) Gross Revenue from any new product that
incorporates both a placenta derived tissue product of Surgical Biologics and a proprietary
product or process of MiMedx is reduced by 50%. The contingent payment is reduced by the
cost of any required FDA clearances or approvals for the sale of Surgical Biologics
current product line.
 
    
    An amount equal to 30% of the excess of MiMedx Gross Revenue in calendar year 2012 from
sales of all Surgical Biologics products over Surgical Biologics Gross Revenue from sales
of such products in calendar year 2011. For purposes of the calculation, (i) Gross Revenue
is reduced or increased to the extent the 2012 cost of goods sold for Surgical Biologics
current product line exceeds or is less than certain agreed parameters and (ii) Gross
Revenue from any new product that incorporates both a placenta derived tissue product of
Surgical Biologics and a proprietary product or process of MiMedx is reduced by 50%. The
contingent payment is reduced by the cost of any required FDA clearances or approvals for
the sale of Surgical Biologics current product line.
 
    
    For purposes of the contingent consideration, MiMedx shares are valued at the average
closing trading price of MiMedx common stock for the 20 consecutive trading days
immediately preceding the date that is one day prior to the date MiMedx Form 10-K is
filed with the SEC for the applicable year. Contingent consideration is payable 30 days
after MiMedx files its Form 10-K for the applicable year.
 In addition, the Merger Agreement provides for certain indemnification protections for the
Company, secured by the deposit into escrow of 525,000 shares of MiMedx common stock for a two
year period, and offset rights against 50% of the principal amount of the Convertible Secured
Promissory Note and all of the contingent payments. The limitation period for indemnity claims
is generally two years with certain exceptions.
 
 Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A.
    
    Controls and Procedures
 Disclosure Controls and Procedures
   63




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##### Table of Contents



Form 10-K.
 Managements Report on Internal Control over Financial Reporting
    
 Item 9B.
    
    Other Information
   64




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##### Table of Contents



PART III
 
 Item 10.
    
    Directors, Executive Officers and Corporate Governance
  http://mimedx.com/governance.aspx
  
 Item 11.
    
    Executive Compensation
  
 Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
  
 Item 13.
    
    Certain Relationships and Related Transactions, and Director Independence
  
 Item 14.
    
    Principal Accounting Fees and Services
   65




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits, Financial Statement Schedules.
 (a)
    
    Documents filed as part of this report:
 (1)
    
    Financial Statements
 (2)
    
    Financial Statement Schedules
 None
 (3)
    
    Exhibits
 See Item 15(b) below. Each management contract or compensation plan has been identified.
 (b)
    
    Exhibits
 ExhibitNumber

    
    Description2.1
    #
    
    Agreement and Plan of Merger is entered into as of the 22nd day of
December, 2010 by and among MiMedx Group, Inc., MP Holdings Acquisition Sub, LLC, ORCI Acquisition Sub, LLC, Membrane Products
Holdings, LLC, Onramp Capital Investments, LLC, each of the OnRamp Members (as defined therein); John R. Daniel, in his capacity
as the representative of the Members and Surgical Biologics, LLC (Certain exhibits and schedules have been omitted pursuant to
Item 601(b)(2) of Regulation S-K, but a copy will be furnished supplementally to the Securities and Exchange Commission upon request)3.1
    (2)
    
    Articles of Incorporation of MiMedx Group, Inc.3.2
    (2)
    
    Bylaws of MiMedx Group, Inc.10.1
    (1)*
    
    MiMedx, Inc. 2006 Stock Incentive Plan10.2
    (1) *
    
    Declaration of Amendment to MiMedx, Inc. 2006 Stock Incentive Plan10.3
    (1) *
    
    Form of Incentive Award Agreement under the MiMedx, Inc. 2006 Stock Incentive Plan, including a list of
officers and directors receiving options thereunder10.4
    (1) *
    
    Form of Nonqualified Incentive Award Agreement under the MiMedx, Inc. 2006 Stock Incentive Plan, including a
list of officers and directors receiving options thereunder10.5
    (1) *
    
    MiMedx, Inc. 2005 Assumed Stock Plan10.6
    (1) *
    
    Declaration of Amendment to MiMedx, Inc. 2005 Assumed Stock Plan10.7
    (1) *
    
    Form of Incentive Award Agreement under the MiMedx, Inc. Assumed 2005 Stock Plan (formerly the SpineMedica
Corp. 2005 Employee, Director and Consultant Stock Plan), including a list of officers and directors receiving
options thereunder10.8
    (1) *
    
    Form of Nonqualified Incentive Award Agreement under the MiMedx, Inc. Assumed 2005 Stock Plan (formerly the
SpineMedica Corp. 2005 Employee, Director and Consultant Stock Plan)10.9
    (1) *
    
    MiMedx, Inc. Assumed 2007 Stock Plan (formerly the SpineMedica Corp. 2007 Stock Incentive Plan)10.10
    (1) *
    
    Declaration of Amendment to MiMedx, Inc. Assumed 2007 Stock Plan (formerly the SpineMedica Corp. 2007 Stock
Incentive Plan)10.11
    (1) *
    
    Form of Incentive Award Agreement under the MiMedx, Inc. Assumed 2007 Stock Plan (formerly the SpineMedica
Corp. 2007 Stock Incentive Plan)10.12
    (1) *
    
    Form of Nonqualified Incentive Award Agreement under the MiMedx, Inc. Assumed 2007 Stock Plan (formerly the
SpineMedica Corp. 2007 Stock Incentive Plan)10.13
    (1)
    
    Form of MiMedx, Inc. Employee Proprietary Information and Inventions Assignment Agreement10.23
    (1)
    
    Lease between MiMedx, Inc. and University of South Florida Research Foundation, Incorporated dated March 6, 200710.32
    (1)
    
    Technology License Agreement between MiMedx, Inc., Shriners Hospitals for Children, and University of South
Florida Research Foundation dated January 29, 200710.33
    (1)
    
    Technology License Agreement between SpineMedica Corp. and SaluMedica, LLC dated August 12, 200510.34
    (1)
    
    Trademark License Agreement between SaluMedica, LLC and SpineMedica Corp. dated August 12, 200510.35
    (1)
    
    Technology License Agreement between SpineMedica Corp. and SaluMedica, LLC dated August 3, 200710.36
    (1)
    
    First Amendment Technology License Agreement between SpineMedica Corp. and SaluMedica, LLC dated August 3, 200710.37
    (1)
    
    Trademark License Agreement between SaluMedica, LLC and SpineMedica Corp dated August 13, 200710.38
    (1)
    
    Acknowledgement of Georgia Tech Research Corporation dated August 12, 200510.39
    (1)
    
    License Agreement between Georgia Tech Research Corporation and Restore Therapeutics, Inc. dated March 5, 199810.40
    (1)
    
    First Amendment to License Agreement between Georgia Tech Research Corporation and Restore Therapeutics, Inc.
dated November 18, 199810.41
    (1)
    
    Second Amendment to License Agreement between Georgia Tech Research Corporation and SaluMedica, LLC (f/k/a
Restore Therapeutics, Inc.) dated February 28, 200510.42
    (1)
    
    Third Amendment to License Agreement between Georgia Tech Research Corporation and SaluMedica, LLC dated August
12, 2005
  66




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##### Table of Contents



ExhibitNumber

    
    Description10.43
    (1)
    
    Assignment of Invention and Non-Provisional Patent Application from David N. Ku to SpineMedica Corp. dated
August 11, 200510.44
    (1)
    
    Assignment of Invention and Non-Provisional Patent Application from SaluMedica, LLC to SaluMedica, LLC dated
August 12, 200510.45
    (1)
    
    Form of SpineMedica, Corp. Employee Proprietary Information and Inventions Assignment Agreement10.46
    (1)
    
    Purchase Agreement between SpineMedica Corp. and SaluMedica, LLC dated March 12, 200710.47
    (1)
    
    Letter Agreement between MiMedx, Inc. and SaluMedica, LLC dated June 26, 200710.54
    (3)
    
    Investment Agreement dated March 31, 2008 between MiMedx Group, Inc. and SaluMedica, LLC10.55
    (3)
    
    Technology License Agreement dated March 31, 2008 between MiMedx Group, Inc. and SaluMedica, LLC10.56
    (3)
    
    Trademark License Agreement dated March 31, 2008 between MiMedx Group, Inc. and SaluMedica, LLC10.65
    (5)
    
    Form of Indemnification Agreement10.66
    (5)*
    
    Declaration of Amendment to Alynx, Co. Assumed 2006 Stock Incentive Plan (formerly the MiMedx, Inc. 2006 Stock
Incentive Plan)10.67
    (6)*
    
    MiMedx Group, Inc. Amended and Restated Assumed 2005 Stock Plan10.68
    (7)*
    
    Form of Incentive Stock Option Award Agreement under MiMedx Group, Inc. Amended and Restated Assumed 2005 Stock
Plan10.69
    (7)*
    
    Form of Nonqualified Stock Option Award Agreement under MiMedx Group, Inc. Amended and Restated Assumed 2005
Stock Plan10.71
    (8)
    
    Form of Subscription Agreement10.72
    (8)
    
    Form of 3% Convertible Senior Secured Promissory Note10.73
    (8)
    
    Form of Security and Intercreditor Agreement10.74
    (9)
    
    Sale and Purchase Agreement with UPex Holdings, LLC10.76
    (10)
    
    Subscription Agreement 5% Convertible Promissory Note10.77
    (10)
    
    5% Convertible Promissory Note10.78
    (10)
    
    Warrant to Purchase Common Stock10.79
    (10)
    
    Right of First Refusal Agreement between MiMedx Group, Inc., and Matthew J. Miller10.82
    (11)
    
    Form of Subscription and Stock Purchase Agreement Accredited Investor10.83
    (11)
    
    Form of Subscription and Stock Purchase Agreement Unaccredited Investor10.84
    (11)
    
    Form of Registration Rights Agreement10.85
    (11)
    
    Form of Warrant to Purchase Common Stock10.86
    (12)
    
    Form of Subscription Agreement 5% Convertible Promissory Note10.87
    (12)
    
    Form of 5% Convertible Promissory Note10.88
    (12)
    
    Form of Warrant to Purchase Common Stock10.89
    #
    
    Revolving
Secured Line of Credit Agreement21.1
    #
    
    Subsidiaries of MiMedx Group, Inc.23.1
    #
    
    Consent of Independent Registered Public Accounting Firm31.1
    #
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 200231.2
    #
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Acts of 200232.1
    #
    
    Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
    #
    
    Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 200299.1
    (13)
    
    The audited consolidated financial statements as of and for the years ended December 31, 2010 and 2009 for
Surgical Biologics, LLC, including the notes to such financial statements and the report of the independent
auditor thereon.
  67




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##### Table of Contents



Notes
 *
    
    Indicates a management contract or compensatory plan or arrangement#
    
    Filed herewith  (1)
    
    Incorporated by reference to the exhibit with the same number filed with the Registrants Form
8-K filed February 8, 2008(2)
    
    Incorporated by reference to the exhibit with the same number filed with the Registrants Form
8-K filed April 2, 2008(3)
    
    Incorporated by reference to the exhibit with the same number filed with the Registrants Form
8-K filed April 4, 2008(4)
    
    Incorporated by reference to the exhibit with the same number filed with the Registrants Form
10-K filed June 27, 2008(5)
    
    Incorporated by reference to the exhibit with the same number filed with the Registrants
Form 8 -K filed July 15, 2008(6)
    
    Incorporated by reference to exhibit 10.4 filed with the Registrants Form S-8 filed August
29, 2008(7)
    
    Incorporated by reference to the exhibit with the same number filed with the Registrants
Form 8 -K on September 4, 2008(8)
    
    Exhibits 10.71, 10.72, and 10.73 are incorporated by reference to Exhibits 10.1, 10.2, and
10.3, respectively, to the Registrants Form 8-K filed May 5, 2009(9)
    
    Incorporated by reference to Exhibit 2.1 to the Registrants Form 8-K filed October 22, 2009(10)
    
    Exhibits 10.76, 10.77, 10.78, 10.79 are incorporated by reference to Exhibits 10.1, 10.2,
10.3, and 10.4, respectively, to the Registrants Form 8-K filed September 28, 2009(11)
    
    Exhibits 10.82, 10.83, 10.84, and 10.85 are incorporated by reference to Exhibits 10.1, 10.2,
10.3, and 10.4, respectively, to the Registrants Form 8-K filed January 7, 2010(12)
    
    Exhibits 10.86, 10.87 and 10.88 are incorporated by reference to Exhibits 10.1, 10.2 and
10.3, respectively, to the Registrants Form 8-K filed October 25, 2010.(13)
    
    Exhibit 99.1 is hereby incorporated by reference to Exhibit 99.1 to the Registrants Form
8-K/A filed March 16, 2011  68




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##### Table of Contents



SIGNATURES
  March 31, 2011
    MIMEDX GROUP, INC.By:
    /s/ Michael J. SenkenMichael J. SenkenChief Financial Officer  Signature / Name
    
    Title
    
    Date/s/: Parker H. Petit

Parker H. Petit
    
    Chief Executive Officer
(principal executive officer)
    
    March 31, 2011/s/: Michael J. Senken

Michael J. Senken
    
    Chief Financial Officer
(principal financial and accounting officer)
    
    March 31, 2011/s/: Steve Gorlin

Steve Gorlin
    
    Director
    
    March 31, 2011/s/: Kurt M. Eichler

Kurt M. Eichler
    
    Director
    
    March 31, 2011/s/: Charles E. Koob

Charles E. Koob
    
    Director
    
    March 31, 2011/s/: Larry W. Papasan

Larry W. Papasan
    
    Director
    
    March 31, 2011/s/: A. Kreamer Rooke, Jr.

A. Kreamer Rooke, Jr.
    
    Director
    
    March 31, 2011/s/: Joseph G. Bleser

Joseph G. Bleser
    
    Director
    
    March 31, 2011/s/: J. Terry Dewberry

J. Terry Dewberry
    
    Director
    
    March 31, 2011/s/: Bruce Hack

Bruce Hack
    
    Director
    
    March 31, 2011
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