An internal audit of MiMedx Group's (OTC:MDXG) accounting is requiring the restatement of five years' worth of financials, and it's taking longer than hoped for. As a result, the Nasdaq has informed the company that its shares will be suspended by the exchange before the open on November 8. The delisting to the less-regulated over-the-counter market is causing shares to crash 30% at 12:45 p.m. EST on Wednesday.
Last year, short-sellers questioned how the company accounts for sales of its injectable amniotic-tissue products, which resulted in an internal probe that found enough sketchy activity to warrant the departure of MiMedx's CEO, CFO, and COO. It also forced the company to delay its filings with the Securities and Exchange Commission as it restates figures back to 2012.
The revelations have resulted in pushback from payers, including healthcare service Blue Cross/Blue Shield's operations. This insurer, which covers 15 million people in Illinois, Montana, New Mexico, Oklahoma, and Texas, decided to stop reimbursing for MiMedx's products in August after determining they're "experimental, investigational and/or unproven for all indications."
The Nasdaq's action, however, stems from MiMedx's disclosure that it won't be able to get its filing current with the SEC by a previously agreed-to timeline. On Sept. 20, 2018, the Nasdaq exchange granted the company a listing extension through Feb. 25, 2019 on the condition the company is up-to-date on its filings by then and it files progress reports with the exchange.
On October 31, MiMedx submitted its latest progress report to the exchange and disclosed: "It has determined that, for the restatement period, it must conduct an assessment of revenue recognition for all of the Company's sales, which will prolong the amount of time it will take for the Company to prepare the restated financial statements. As a result, the Company no longer believes that it is likely that it will be able to regain compliance with SEC reporting obligations and Nasdaq listing rules by February 25, 2019."
Given the new information, Nasdaq's hearings panel reconsidered the extension, informing MiMedx management on Nov. 6 that trading of MiMedx stock will cease on the Nasdaq exchange on Nov. 7, making this the last day of trading on the Nasdaq.
The revelation does little to shore up investor's battered confidence that the company will get its arms around its accounting anytime soon, and the shift to the over-the-counter market could present additional headwinds to the company's share price. Many institutional investors avoid stocks that don't trade on the major market exchanges, which are viewed to be less risky than the over-the-counter market.
MiMedx did say in its update to the Nasdaq that its audit-committee investigation is "substantially complete," but it also acknowledged that there's "some work" left. Until the company discloses the full findings of the audit committee and gets its financials squared away, this stock is simply too risky for most investors to consider buying.