What happened

Shares of MiMedx Group (NASDAQ:MDXG) are falling today, down 13.3% as of 2:32 p.m. EDT, after a company update stoked investors' fears that the stock will be delisted from the Nasdaq. That would affect the ability of certain institutional investors to own the stock and significantly limit the company's ability to tap into equity markets for fundraising. 

While there's still a path forward in which the company's stock doesn't get delisted, the update provided to investors yesterday afternoon shows the clock is ticking. Unfortunately, delisting might be the least of the company's problems. 

A chart drawn on a chalk board showing a negative slope.

Image source: Getty Images.

So what

MiMedx stock is at risk of being delisted from the Nasdaq stock exchange because the company is too far behind on paperwork. It has yet to file an annual report for 2017 or a first-quarter 2018 report with the SEC, which places it out of compliance with certain listing rules. After notifying the Nasdaq that the paperwork would not be filed by an Aug. 28 deadline, the stock exchange sent a letter to the company stating shares would likely be removed from the exchange. Management has requested a meeting with Nasdaq, which will temporarily halt delisting actions, but it's unclear if a deal can be worked out.

Why is the company so behind on paperwork in the first place? MiMedx has been facing serious allegations of fraud and unethical past business practices. An ongoing independent investigation determined that the company's financial statements from 2012 onward would have to be restated and are unreliable as reported. Similarly, management is awaiting the conclusion of the investigation before filing its quarterly and annual reports with the SEC. 

Now what

As far as investors are concerned, the looming risk of delisting is the least of this company's worries. There are too many red flags and too much uncertainty hanging over the business right now. Investors should steer clear of MiMedx stock until the dust settles. And even then, it will take a serious effort from a new management team to regain the trust of customers and shareholders.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.