美国
证券交易委员会 及交易所
华盛顿特区，20549
表单
（马克 一）
| 根据1934年证券交易法的第13或15(d)条款，季报。 | ||
| 截至季度结束的报告。 |
或
| 根据1934年证券交易法第13或15(d)条的过渡报告 | ||
| 在 由___________到___________的过渡期间 |
委员会
档案号码：
(根据公司章程所述的注册人的正确名称)
（州或其他管辖区 注册或组织） |
（美国国税局雇主识别号码） 识别号码） | |
| （总执行办公室地址） | （邮政编码） |
（申报人的电话号码，包括区号）
根据该法案第12(b)条纪录的证券：
| 每个类别的标题 | 交易标志 | 在哪个交易所上市的名字 | ||
勾选表示公司已按照证券交易法第13或15(d)条款的规定，在过去12个月（或公司需要提交此类报告的较短期限内）提交了所有所需的报告；并且公司在过去90天内一直受到此类提交报告的要求。
请勾选，指出在过去12个月内（或更短时间并应提供此类文件的情况下），申报人是否已依据Regulation S-t（本章节之§232.405号）提交每一个所需提交的互动式数据文件。
请勾选以下选项，指明挂牌者是否为大型快速申报挂牌者、快速申报挂牌者、非快速申报挂牌者、较小型的报告公司或新兴成长型公司。关于Exchange Act第1202条中「大型快速申报挂牌者」、「快速申报挂牌者」、「较小型报告公司」和「新兴成长型公司」的定义，请参阅。
| 大型加速文件申报者 ☐ | 加速申报者 ☐ | ||
| 较小的报告公司 | |||
| 新兴成长型企业 |
若属新兴成长公司，则请在适用于依据第13(a)款拟定的任何新或修订财务会计准则时，打勾表示注册人已选择不使用过度过渡期遵守该准则。 ☐
请勾选是否登记者为外壳公司（依照交易所法规120亿2的定义）。是 ☐ 否
普通股股份数量，面值 $ 截至2024年11月7日，注册公司的每股流通股： .
XTANT 医疗控股公司。
表格 10-Q
2024年9月30日
目录
| 页面 | ||
| 关于前瞻性陈述的谨慎声明 | ii | |
| 第一部分。 | 财务信息 | 1 |
| 项目 1. | 基本报表 | 1 |
| 项目 2. | 财务状况和业绩的管理讨论和分析 | 18 |
| 项目 3. | 市场风险相关数量和质量的披露 | 22 |
| 项目 4. | 控制和程序 | 22 |
| 第二部分。 | 其他信息 | 24 |
| 项目 1. | 法律诉讼 | 24 |
| 项目 1A。 | 风险因素 | 24 |
| 项目 2. | 未注册的股票销售和收益使用 | 24 |
| 项目 3. | 债券不履行标准 | 24 |
| 项目 4. | 矿山安全披露 | 24 |
| 项目5。 | 其他资讯 | 24 |
| 项目6。 | 附件 | 24 |
本季度的10-Q表格中包含某些前瞻性陈述，符合1933年证券法第27条和1934年证券交易法第21E条的修改，并受到这些条款所创造的安全港的限制。更多信息请参见“有关前瞻性陈述的警语”。
根据本报告使用，除非上下文显示其他含义，"我们"、"我们的"、"我们的"、"xtant"、"xtant医疗"和"公司"指的是xtant医疗控股公司及其全资拥有子公司，所有这些公司都包括在xtant的简明综合财务报表中。在合并中已消除所有公司内部结余和交易。
我们 拥有各种未注册的商标和服务标志，包括我们的公司标志。为了方便起见，本报告中的商标和交易 名称均未附加®和™符号，但此类引用不应解释为任何指标，表明该商标和交易名称的拥有者将不依据适用法规，以最大限度地主张他们的权利。 我们并不打算利用或苹果-显示屏其他公司的商标和交易名称，来暗示与任何其他公司的关系、认可或赞助我们。
我们在本报告中提供我们的网站地址仅供参考。本报告中包含或连接到我们网站上的信息并未被纳入参考。
| i |
对于前瞻性声明的警示
本季度报告（表格10-Q）中包含的声明，若非纯粹历史性的，均属于1995年《私人证券诉讼改革法案》意义上的前瞻性声明。我们的前瞻性声明包括但不限于有关我们对未来的期望、希望、信念、意图或策略的声明。此外，任何提及对未来事件或情况的预测、预测或其他描述的声明，包括任何基本假设，均属于前瞻性声明。 “预期”、“相信”、“持续”、“可能”、“估计”、“期待”、“打算”、“或许”、“可能的”、“潜在的”、“预测”、“计划”、“应该”和“会”等词语，以及类似的表达，可能会识别为前瞻性声明，但缺乏这些字眼并不意味著声明不是前瞻性的。在本表格10-Q中，前瞻性声明可能包括，例如，有关以下话题的声明，并且面临诸多风险和不确定性，包括但不限于下面所述的那些：
| ● | 我们提高营业收入的能力，以及改善我们的毛利率、营业费用占营业收入的百分比，并获得及保持盈利的能力； | |
| ● | 我们保持足够流动性的能力，以资助我们的业务运作并在需要时以合理条件获得融资，以及这些额外融资对我们的业务、业务业绩、财务状况及股东的影响； | |
| ● | 我们通过控制供应链尤其是干细胞的相关运作，使其能够实现自给自足的能力，以及减少对外部生产和制造我们产品的依赖，我们相信这将使我们能够成为更大且更具多样性的生物制品生产商； | |
| ● | 我们依赖并能够留住和招聘具有适当专业知识的独立销售代理和分销商，并激励他们与客户互动及卖出我们的产品，特别是我们对关键独立代理的依赖，这为我们的营业收入占据了重要比例； | |
| ● | 我们的销售人员，包括独立销售代理和经销商，达成预期成果的能力； | |
| ● | 我们整合因收购Surgalign SPV, Inc.所获得的产品、收购Surgalign Holdings, Inc.的某些资产和负债，以及收购RTI Surgical, Inc.的某些资产的能力，并按预期实现这些产品的未来销售，尤其考虑到在我们获得这些产品之前，它们的销售额分别下降，以及与这些收购以及我们可能追求的任何未来业务合并或收购相关的其他风险； | |
| ● | 我们的自有品牌和原始设备制造商（"OEM"）业务对我们的业务和营业结果的影响及相关风险，包括我们营业结果的波动和利润率下降，以及我们在OEM业务中可能变得更加依赖的可能性； | |
| ● | 我们在实施关键增长和流程改进计划方面的能力和成功，这些计划旨在提高我们的生产能力、营业收入和规模，及与这类增长和流程改进计划相关的风险； | |
| ● | 我们 成功实施四个主要成长支柱的能力，这些支柱专注于推出新产品；扩展我们的分销 网络并实现更大的合约进入；利用并进入相邻市场以及完成针对性的战略收购； |
| ● | 风险 与我们的国际业务相关，包括但不限于外汇汇率波动的影响 以及遵守外国法律和监管要求、目前和将来的战争、相关制裁和地缘政治紧张局势、 与我们或我们的客户 或供应商在开展业务的国家的政治风险，以及其他潜在冲突; | |
| ● | 我们 在国际市场运营的能力，并有效管理我们的国际子公司，需要管理注意 和财务资源; | |
| ● | 我们 应对与生物制品制造相关的制造挑战的能力，以及从我们先前的干细胞 短缺中恢复和赢回干细胞客户并实现未来干细胞收入，如预期的那样; | |
| ● | 我们 能否保留并扩大与采购组织（“GPOs”）和独立交付网络 （“IDNs”）的协议，并向此类GPOs和IDNs的成员销售产品; |
| ii |
| ● | 通货膨胀及供应链中断的影响，可能导致产品发布延迟、营业收入损失、成本上升、利润率下降，以及对我们的业务和营运结果的其他不利影响； | |
| ● | 医院及其他医疗设施劳动力和人手不足对于我们产品使用的选择性手术数量的影响，进而影响我们的营业收入，以及全球和地方的人力资源短缺和人员流失，这些都对我们满足需求的产品生产能力造成了不利影响，且可能会持续造成不利影响； | |
| ● | 我们保持竞争力的能力； | |
| ● | 我们将收购的产品重新品牌化并与现有产品线整合的能力，成功将客户从一些旧有的硬件产品转移到这些新产品的能力，以及这些转变对我们的有机营业收入增长率的预期不利影响； | |
| ● | 我们 创新、开发、推出、市场行销以及授权新产品和技术的能力，以及这些新产品和 技术的成功，包括我们最近推出的Cortera® 后固定系统、可行的骨基质、OsteoVive® Plus，以及羊膜膜同种异体移植，SimpliGraft™和SimpliMax™； | |
| ● | 我们 对第三方供应商和制造商的依赖； | |
| ● | 产品责任索赔及我们可能面临的其他诉讼、产品召回及缺陷的影响； | |
| ● | 传染病对我们的业务、经营结果和财务状况的影响； | |
| ● | 外币汇率波动对我们的盈利和外币翻译调整的影响； | |
| ● | 与使用我们的产品从医院转移到门诊手术中心相关的风险，以及这种转变对我们产品价格和利润的压力； | |
| ● | 我们 获得和维持美国及海外的监管批准的能力，以及政府法规的影响和 我们遵守政府法规的情况； | |
| ● | 我们临床试验能够展示我们产品安全性和有效性的能力； | |
| ● | 我们 获得美国组织器官银行协会的认证的能力，并继续获得足够数量的捐赠尸体 以供我们的产品使用； | |
| ● | 我们 获得和维持政府及第三方对我们产品的覆盖和报销的能力； | |
| ● | 我们在吸引、留住和参与合格的技术、销售和处理人员以及管理团队成员方面的能力，特别是在堪考的劳动力市场和蒙大拿州贝尔格莱德地区日益上涨的生活成本下； | |
| ● | 我们偿还债务和遵守信贷协议中的契约的能力，以及我们的重大负债对业务、经营成果、财务状况和前景的影响； | |
| ● | 我们对经营趋势、未来财务绩效和费用管理的预期，以及我们对未来营业收入、费用、持续损失、毛利率、经营杠杆、资本需求和我们的需求或获得额外融资的能力的估计，以及我们信贷设施的可用性； | |
| ● | 我们有效补救未解决的重大弱点并维持有效的财务报告内部控制的能力； | |
| ● | 我们 在商业合理条件下授予某些知识产权许可的能力，以及我们维持任何此类许可的能力； | |
| ● | 我们 获得和保护我们的知识产权和专有权利的能力，并在不侵犯他人知识产权的情况下运营； | |
| ● | 我们 维持在纽交所美国交易所上市的能力； | |
| ● | 作为受控公司的固有风险；以及 | |
| ● | 全球经济放缓、利率上升以及衰退前景的影响，可能在2024年12月出现的美国政府关闭，以及由于银行失败而导致的过去和未来潜在的银行存款或贷款承诺获取障碍，这些都可能对我们的营业收入、流动性、财务状况和业务成果造成实质和不利的影响。 |
本表格 10-Q 所载的前瞻性声明是根据我们目前对未来发展的期望和信念为基础 以及它们对我们的潜在影响。我们无法保证，未来影响我们的发展将是我们所预期的发展。 这些前瞻性声明涉及许多风险、不确定性或假设，其中许多都是我们无法控制的， 可能导致实际结果或表现与这些前瞻性声明所表达或暗示的实际结果或表现有重大不同。 这些风险和不确定性包括但不限于」中描述的因素风险因素」部分 截至二零二三年十二月三十一日止年度有关表格 10-k 年报及本表格 10-Q 的报告。
如果这些风险或不确定性中的一个或多个发生，或若我们的假设证明是错误的，实际结果可能在重大方面与这些前瞻性声明中所预测的结果有所不同。我们没有必要负责更新或修订任何前瞻性声明，无论是因为新的资讯、未来事件或其他原因，除非根据适用的证券法规可能需要这样做。
| iii |
第一部分 财务资讯
ITEm 1. 基本报表
XTANT 医疗控股公司。
缩短的 合并资产负债表
(以千为单位，股数和票面价值除外)
截至 当时 九月 30, 2024 | 截至 2023年12月31日 | |||||||
| (未经审核) | ||||||||
| 资产 | ||||||||
| 流动资产： | ||||||||
| 现金及现金等价物 | $ | $ | ||||||
| 限制性现金 | ||||||||
| 交易应收账款，扣除信贷损失准备及怀疑账款为$ | ||||||||
| 存货 | ||||||||
| 预付及其他流动资产 | ||||||||
| 全部流动资产 | ||||||||
| 物业及设备，扣除折旧后净值 | ||||||||
| 使用权资产，净额 | ||||||||
| 商誉 | ||||||||
| 无形资产，扣除累计摊销 | ||||||||
| 其他资产 | ||||||||
| 总资产 | $ | $ | ||||||
| 负债及股东权益 | ||||||||
| 当前负债： | ||||||||
| 应付帐款 | $ | $ | ||||||
| 应计负债 | ||||||||
| 租约负债流动部分 | ||||||||
| 融资租赁负债的当期部分 | ||||||||
| 授信额度 | ||||||||
| 长期债务的当期偿还 | ||||||||
| 流动负债合计 | ||||||||
| 长期负债: | ||||||||
| 租赁负债-流动负债 | ||||||||
| 融资租赁义务，扣除流动部分 | ||||||||
| 长期负债，加上溢价并减去发行成本 | ||||||||
| 其他负债 | ||||||||
| 总负债 | ||||||||
| 承诺及或有负债（附注14） | ||||||||
| 股东权益： | ||||||||
| 优先股，面额$0.01，授权股数为5,000,000股，发行且流通股数为截至2024年6月30日和2023年12月31日之184,668,188股和181,364,180股。 面值； 授权股份； 股份发行及流通 | ||||||||
| 0.01 面值; 获授权股份; 截至2024年9月30日之发行和流通股份 截至2023年12月31日，已发行并流通的股份数量。 | ||||||||
| 资本公积额额外增资 | ||||||||
| 累积其他全面损失（收入） | ||||||||
| 累积亏损 | ( | ) | ( | ) | ||||
| 股东权益总计 | ||||||||
| 负债总额与股东权益 | $ | $ | ||||||
请参阅未经审核的简明综合基本报表附注。
| 1 |
XTANT 医疗控股公司。
浓缩 综合营运报表
（未经审核，以千为单位，除股数及每股数据外）
截至三个月 九月三十日， | 截至九个月 九月三十日， | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 总营业收入 | $ | $ | $ | $ | ||||||||||||
| 销售成本 | ||||||||||||||||
| 毛利 | ||||||||||||||||
| 营运费用 | ||||||||||||||||
| 一般及行政 | ||||||||||||||||
| 销售与行销 | ||||||||||||||||
| 研究与开发 | ||||||||||||||||
| 营业费用总计 | ||||||||||||||||
| 营业损失 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 其他（费用）收入 | ||||||||||||||||
| 利息费用 | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 利息收入 | ||||||||||||||||
| 外币货币兑换收益 | ||||||||||||||||
| 其他费用 | ( | ) | ( | ) | ||||||||||||
| 价格优惠收益 | ||||||||||||||||
| 总其他（费用）收入 | ( | ) | ( | ) | ||||||||||||
| 营业净（亏损）收入扣除所得税准备之前的收入 | ( | ) | ( | ) | ||||||||||||
| 当期及递延所得税准备 | ( | ) | ( | ) | ||||||||||||
| 净（亏损）收益 | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| 每股净（亏损）收入： | ||||||||||||||||
| 基本 | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| 稀释性 | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| 计算中使用的股份： | ||||||||||||||||
| 基本 | ||||||||||||||||
| 稀释性 | ||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
| 2 |
XTANT MEDICAL HOLDINGS, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(Unaudited, in thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net (Loss) Income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Other Comprehensive (Loss) Income | ||||||||||||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive (Loss) Income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
See notes to unaudited condensed consolidated financial statements.
| 3 |
XTANT MEDICAL HOLDINGS, INC.
Condensed Consolidated Statements of Equity
(Unaudited, in thousands, except number of shares)
| Common Stock | Additional Paid-In- | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | | $ | ( | ) | $ | | |||||||||||||||
| Common stock issued on vesting of restricted stock units | ||||||||||||||||||||||||
| Withholding on common stock upon vesting of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2024 | ( | ) | ( | ) | ||||||||||||||||||||
| Common stock issued on vesting of restricted stock units | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Private placement of common stock, net of issuance costs of $ | ||||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Common stock issued on vesting of restricted stock units | ||||||||||||||||||||||||
| Withholding of common stock upon vesting of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at September 30, 2024 | ( | ) | ||||||||||||||||||||||
| Common Stock | Additional Paid-In- | Accumulated Other Comprehensive | Accumulated | Total Stockholders’ | ||||||||||||||||||||
| Shares | Amount | Capital | Loss | Deficit | Equity | |||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | | $ | $ | ( | ) | $ | | |||||||||||||||
| Common stock issued on vesting of restricted stock units | ||||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Private placement of common stock, net of issuance costs of $ | ||||||||||||||||||||||||
| Common stock issued on vesting of restricted stock units | ||||||||||||||||||||||||
| Withholding of common stock upon vesting of restricted stock units | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||||||
| Foreign currency translation adjustment | — | ( | ) | ( | ) | |||||||||||||||||||
| Net income | — | |||||||||||||||||||||||
| Balance at September 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements.
| 4 |
XTANT MEDICAL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
| Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| Operating activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on disposal of fixed assets | ( | ) | ( | ) | ||||
| Non-cash interest | ||||||||
| Non-cash rent | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Provision for expected credit losses | ||||||||
| Provision for excess and obsolete inventory | ||||||||
| Release of valuation allowance | ( | ) | ||||||
| Gain on bargain purchase | ( | ) | ||||||
| Other | ||||||||
| Changes in operating assets and liabilities, net of the effects of the acquisition: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Prepaid and other assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of fixed assets | ||||||||
| Acquisition of Surgalign SPV, Inc. | ( | ) | ||||||
| Acquisition of Surgalign Holdings, Inc.’s hardware and biologics business, net of cash acquired | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Payments on financing leases | ( | ) | ( | ) | ||||
| Borrowings on line of credit | ||||||||
| Repayments on line of credit | ( | ) | ( | ) | ||||
| Proceeds from private placement, net of cash issuance costs | ||||||||
| Net proceeds from issuance of long-term debt, net of issuance costs | ||||||||
| Payments on long term debt | ( | ) | ||||||
| Proceeds from the exercise of stock based compensation | ||||||||
| Payments of taxes from withholding of common stock on vesting of restricted stock units | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash and cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Net change in cash and cash equivalents and restricted cash | ( | ) | ||||||
| Cash and cash equivalents and restricted cash at beginning of period | ||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Reconciliation of cash and cash equivalents and restricted cash reported in the condensed consolidated balance sheets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash and restricted cash reported in condensed consolidated balance sheets | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
| 5 |
Notes to Unaudited Condensed Consolidated Financial Statements
(1) Business Description, Basis of Presentation and Summary of Significant Accounting Policies
Business Description and Basis of Presentation
The accompanying condensed consolidated financial statements include the accounts of Xtant Medical Holdings, Inc. (“Xtant”), a Delaware corporation, and its wholly owned subsidiaries, which are jointly referred to herein as “Xtant” or the “Company”. The terms “we,” “us” and “our” also refer to Xtant. All intercompany balances and transactions have been eliminated in consolidation.
Xtant is a global medical technology company focused on the design, development, and commercialization of a comprehensive portfolio of orthobiologics and spinal implant systems to facilitate spinal fusion in complex spine, deformity, and degenerative procedures.
The accompanying condensed consolidated balance sheet as of December 31, 2023, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. They do not include all disclosures required by generally accepted accounting principles for annual consolidated financial statements, but in the opinion of management include all adjustments, consisting only of normal recurring items, necessary for a fair presentation.
Interim results are not necessarily indicative of results that may be achieved in the future for the full year ending December 31, 2024.
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, which are included in Xtant’s Annual Report on Form 10-K for the year ended December 31, 2023. The accounting policies set forth in those annual consolidated financial statements are the same as the accounting policies utilized in the preparation of these condensed consolidated financial statements, except as modified for appropriate interim consolidated financial statement presentation.
Liquidity
Since
our inception, we have financed our operations through primarily operating cash flows, private placements of equity securities and convertible
debt, debt facilities, common stock rights offerings, and other debt transactions. For the nine months ended September 30, 2024, we incurred
a net loss of $
Private Placement
On
August 7, 2024, we entered into a securities purchase agreement pursuant to which we issued an aggregate of shares of common
stock to accredited investors in a private placement at a per share purchase price of $ at a closing held on August 9, 2024. The
gross proceeds to us from the private placement were $
| 6 |
Use of Estimates
The preparation of the condensed consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Significant estimates include the carrying amount of property and equipment; goodwill, intangible assets and liabilities; valuation allowances for trade receivables, inventory, deferred income tax assets and liabilities; current and long-term lease obligations and corresponding right-of-use asset; estimates for the fair value of assets acquired as part of business combinations; and estimates for the fair value of long-term debt, stock options and other equity awards upon which the Company determines stock-based compensation expense. Actual results could differ from those estimates.
Restricted Cash
Cash and cash equivalents classified as restricted cash on our condensed consolidated balance sheets are restricted as to withdrawal or use under the terms of certain contractual agreements. The September 30, 2024 and December 31, 2023 balances included lockbox deposits that are temporarily restricted due to timing at the period end. The lockbox deposits are applied against our line of credit the next business day.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains its cash balances primarily with two financial institutions. These balances generally exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents.
Long-Lived Assets
The
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recovered.
Goodwill
Goodwill
represents the excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase
business combination and determined to have indefinite useful lives are not amortized. Instead, they are tested for impairment at least
annually, and whenever events or circumstances indicate, the carrying amount of the asset may not be recoverable.
The Company accounts for stock-based compensation in accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification (“ASC”) 718, Compensation-Stock Compensation. ASC 718 requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based payments including stock options, restricted stock units, performance stock units, and shares issued under its employee stock purchase plan. ASC 718 requires companies to estimate the fair value of all share-based payment option awards on the date of grant using an option pricing model. The fair value of stock options is recognized over the period during which an optionee is required to provide services in exchange for the option award, known as the requisite service period (usually the vesting period), on a straight-line basis. The Company accounts for option forfeitures as they occur.
The Company accounts for stock-based compensation for restricted stock units at their fair value, based on the closing market price of the Company’s common stock on the date of grant. These costs are recognized on a straight-line basis over the requisite service period, which is usually the vesting period.
The Company accounts for stock-based compensation for performance stock units with market-based conditions at their fair value on the date of the award using the Monte Carlo simulation model. These costs are recognized over the requisite service period, which is usually the vesting period, regardless of the likelihood of achievement of the market-based performance criteria.
| 7 |
Foreign Currency
The Company generates revenues outside the United States in multiple foreign currencies including euros, Swiss francs, British pounds and in U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. The Company also incurs operating expenses in euros, Swiss francs and British pounds. All assets and liabilities of foreign subsidiaries which have a functional currency other than the U.S. dollar are translated at the rate of exchange at period-end, while elements of the income statement are translated at the average exchange rates in effect during the period. The net effect of these translation adjustments is shown as a component of accumulated other comprehensive income. Foreign currency transaction gains and losses are reported in other income, net.
Fair Value of Financial Instruments
The carrying values of financial instruments, including trade accounts receivable, accounts payable, accrued liabilities, and long-term debt, approximate their fair values based on terms and related interest rates as of September 30, 2024 and December 31, 2023.
(2) Acquisition of Coflex and CoFix Product Lines
On
February 28, 2023, we entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Surgalign SPV, Inc.
(“Surgalign SPV”), a wholly owned subsidiary of Surgalign Spine Technologies, Inc., (“Seller”), Seller and Surgalign
Holdings, Inc. , pursuant to which we purchased all of the issued and outstanding shares of common stock of Surgalign SPV, which shares
constituted all of the outstanding equity of Surgalign SPV, for an aggregate purchase price of $
Immediately prior to the Closing, Seller and its affiliates transferred and assigned to Surgalign SPV, a newly formed entity wholly owned by Seller, certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of Seller’s Coflex and CoFix products in the United States (the “Coflex Business”). The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving stabilization.
In conjunction with the Equity Purchase Agreement, on February 28, 2023, we entered into a Transition Services Agreement with Surgalign SVP and Seller, whereby Seller agreed to provide, or cause to be provided, to us on and after the effective date of the Equity Purchase Agreement, after giving effect to the Closing, certain transitional services related to the transition of the Coflex Business.
We
funded the Purchase Price with cash on hand and approximately $
We recorded the purchase of this acquisition using the acquisition method of accounting and, accordingly, recognized the assets acquired at their fair values as of the date of acquisition. The table below represents the allocation of the total consideration for Surgalign SPV’s assets and liabilities based on management’s estimates of their respective fair values as of February 28, 2023 (in thousands):
| Inventories | $ | |||
| Equipment | ||||
| Intangible assets | ||||
| Net assets acquired | ||||
| Goodwill | ||||
| Total purchase consideration | $ |
The acquisition was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. The fair values were based on management’s analysis, including work performed by third-party valuation specialists.
The
acquisition strengthened the Company’s spine portfolio with the addition of the Coflex Business.
Coflex is a differentiated and minimally invasive motion preserving stabilization implant that had a premarket application approved by
the U.S. Food and Drug Administration for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression.
This potential benefit resulted in the Company paying a premium for the acquisition resulting in the recognition of $
| 8 |
(3) Acquisition of Surgalign Holdings, Inc.’s Hardware and Biologics Business
On August 10, 2023, we completed the acquisition (the “Transaction”) of the assets of Surgalign Holdings, Inc. (“Surgalign Holdings”), and its subsidiaries used in Surgalign Holdings’ hardware and biologics business. The acquired assets included specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal property, records, the outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles that were related to Surgalign Holdings’ hardware and biologics business (collectively, the “Assets”). As part of the Transaction, we assumed and certain specified liabilities of Surgalign Holdings (collectively, the “Liabilities”), all pursuant to the Asset Purchase Agreement, dated June 18, 2023, between Surgalign Holdings and us (as amended, the “Asset Purchase Agreement”).
The
Transaction was conducted through a process supervised by the United States Bankruptcy Court for the Southern District of Texas, Houston
Division (the “Bankruptcy Court”) in connection with Surgalign Holdings’ bankruptcy proceedings; and therefore, we
acquired the Assets with limited representations and warranties. The Bankruptcy Court issued a Sale Order on August 9, 2023 approving
and authorizing the Transaction. We funded the purchase price of $
We recorded the purchase of the Transaction using the acquisition method of accounting and, accordingly, recognized the assets acquired at their fair values as of the date of acquisition. The table below represents the allocation of the total consideration for Surgalign Holdings’ assets and liabilities based on management’s estimates of their respective fair values as of August 10, 2023 (in thousands):
| Cash | $ | |||
| Accounts receivable | ||||
| Inventories | ||||
| Prepaids and other current assets | ||||
| Equipment | ||||
| Right-of-use asset | ||||
| Accounts payable | ( | ) | ||
| Accrued liabilities | ( | ) | ||
| Current portion of lease liability | ( | ) | ||
| Lease liability, less current portion | ( | ) | ||
| Net assets acquired | ||||
| Bargain purchase gain | ( | ) | ||
| Deferred tax liability | ( | ) | ||
| Total purchase consideration | $ |
The Transaction was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. The fair values were based on management’s analysis, including work performed by third-party valuation specialists.
ASC
805, Business Combinations, requires that any excess of purchase price over the fair value of assets acquired, including identifiable
intangibles and liabilities assumed, be recognized as goodwill and any excess of fair value of acquired net assets, including identifiable
intangible assets over the acquisition consideration, results in a gain from bargain purchase. Prior to recording a gain, the acquiring
entity must reassess whether all assets acquired and assumed liabilities have been identified and recognized and perform re-measurements
to verify that the consideration paid, assets acquired and liabilities assumed have been properly valued. The Transaction resulted in
a gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration
transferred by $
The Company believes that the Transaction will strengthen our growing orthobiologics and spinal fusion device portfolio, while expanding our commercial footprint with new contracts and distributors.
| 9 |
(4) Acquisition of NanOss Production Operations
On
October 23, 2023, the Company acquired the nanOss production operations from RTI Surgical, Inc. (“RTI”) pursuant to an Asset
Purchase Agreement dated October 23, 2023 between the Company and RTI (the “Asset Purchase Agreement”). Under the terms of
the Asset Purchase Agreement, the Company acquired certain assets, including equipment and inventory, used in RTI’s synthetic bone
graft business and assumed from RTI the lease for the nanOss production facility located in Greenville, North Carolina. The purchase
price for the assets was $
The Company recorded the purchase of this acquisition using the acquisition method of accounting and, accordingly, recognized the assets acquired at their fair values as of the date of acquisition. The table below represents the allocation of the total consideration for certain RTI assets based on management’s estimates of their respective fair values as of October 23, 2023 (in thousands):
| Inventories | $ | |||
| Fixed assets | ||||
| Intangible assets | ||||
| Net assets acquired | ||||
| Goodwill | ||||
| Total purchase consideration | $ |
The following unaudited pro forma combined financial information summarizes the results of operations for the periods indicated as if the Transaction, the acquisition of Surgalign SPV, Inc. and the acquisition of nanOss production operations from RTI Surgical, Inc. had been completed as of January 1, 2023 (in thousands):
Nine Months Ended | ||||
| September 30, 2023 | ||||
| Revenues | $ | |||
| Net loss | ( | ) | ||
Pro forma information reflects adjustments that are expected to have a continuing impact on the Company’s results of operations and are directly attributable to the Transaction, the acquisition of Surgalign SPV, Inc. and the acquisition of nanOss production operations from RTI Surgical, Inc. The unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up and the incremental intangible asset amortization to be incurred based on the values of each identifiable intangible asset. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the transactions had occurred as of January 1, 2023 or that may be obtained in the future, and do not reflect future synergies, integration costs, or other such costs or savings.
Revenue
was approximately $
(5) Revenue
In the United States, the Company generates most of its revenue from independent commissioned sales agents. The Company consigns its orthobiologics products to hospitals and consigns or loans its spinal implant sets to independent sales agents. The spinal implant sets typically contain the instruments, disposables, and spinal implants required to complete a surgery. Consigned sets are managed by the sales agent to service hospitals that are high volume users for multiple procedures.
The Company ships replacement inventory to independent sales agents to replace the consigned inventory used in surgeries. Loaned sets are returned to the Company’s distribution center, replenished, and made available to sales agents for the next surgical procedure.
| 10 |
For each surgical procedure, the sales agent reports use of the product by the hospital and, as soon as practicable thereafter, ensures that the hospital provides a purchase order to the Company. Revenue is recognized upon utilization of product.
Additionally, the Company sells product directly to domestic and international stocking resellers, original equipment manufacturer resellers and private label resellers. Upon receipt and acceptance of a purchase order from a stocking reseller, the Company ships product and invoices the reseller. The Company recognizes revenue when the control is transferred upon shipment or upon delivery, based on the customer contract terms and legal requirements, and the transfer of title and risk of loss occurs. There is generally no customer acceptance or other condition that prevents the Company from recognizing revenue in accordance with the delivery terms for these sales transactions. In the normal course of business, the Company accepts returns of product that have not been implanted. Product returns are not material to the Company’s consolidated statements of operations. The Company accounts for shipping and handling activities as a fulfillment cost rather than a separate performance obligation. The Company’s policy is to record revenue net of any applicable sales, use, or excise taxes. Payment terms are generally net 30 days from invoice date and some customers are offered discounts for early pay. The consideration for goods or services reflects any fixed amount stated per the contract and estimates for any variable consideration, such as returns, discounts or rebates, to the extent that it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. For certain sales transactions, we incur GPO fees that are based on a contractual percentage of applicable sales and are treated as consideration payable to a customer and recorded as a reduction of revenue.
The
Company recognizes revenue in certain circumstances before product delivery occurs (commonly referred to as bill-and-hold transactions).
When the Company enters into bill-and-hold arrangements, the Company determines if the customer obtains control of the product by determining
(a) the reason for the bill-and-hold arrangement; (b) whether the product was identified separately as belonging to the customer; (c)
whether the product was ready for physical transfer to the customer; and (d) whether the Company was unable to utilize the product or
direct it to another customer. For bill-and-hold arrangements, the associated product inventory is identified separately by the Company
as belonging to the customer and is ready for physical transfer. At September 30, 2024, $
The
Company operates in
Three Months Ended | Three Months Ended | |||||||||||||||
September 30, 2024 | Percentage of Total Revenue | September 30, 2023 | Percentage of Total Revenue | |||||||||||||
| Orthobiologics | $ | % | $ | % | ||||||||||||
| Spinal implant | % | % | ||||||||||||||
| Total revenue | $ | % | $ | % | ||||||||||||
Nine Months Ended | Nine Months Ended | |||||||||||||||
September 30, 2024 | Percentage of Total Revenue | September 30, 2023 | Percentage of Total Revenue | |||||||||||||
| Orthobiologics | $ | % | $ | % | ||||||||||||
| Spinal implant | % | % | ||||||||||||||
| Total revenue | $ | % | $ | % | ||||||||||||
(6) Receivables
The Company’s provision for current expected credit loss is determined based on historical collection experience adjusted for current economic conditions affecting collectability. Actual customer collections could differ from estimates. Account balances are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions to the allowance for credit losses are charged to expense.
| 11 |
(7) Inventories
Inventories consist of the following (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
(8) Property and Equipment, Net
Property and equipment, net are as follows (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Equipment | $ | $ | ||||||
| Computer equipment | ||||||||
| Computer software | ||||||||
| Leasehold improvements | ||||||||
| Surgical instruments | ||||||||
| Assets not yet in service | ||||||||
| Total cost | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense related to property and equipment, including property under finance leases, for the three months ended September 30, 2024 and
2023 was $
(9) Intangible Assets
The following table sets forth information regarding intangible assets (in thousands):
| September 30, 2024: | Weighted Average Life | Cost | Accumulated Amortization | Net | ||||||||||
| Patents | $ | $ | ( | ) | $ | |||||||||
| Customer List | ( | ) | ||||||||||||
| Tradenames | ( | ) | ||||||||||||
| $ | $ | ( | ) | $ | ||||||||||
| December 31, 2023: | Weighted Average Life | Cost | Accumulated Amortization | Net | ||||||||||
| Patents | $ | $ | ( | ) | $ | |||||||||
| Customer List | ( | ) | ||||||||||||
| Tradenames | ( | ) | ||||||||||||
| $ | $ | ( | ) | $ | ||||||||||
Amortization
expense for both the three months ended September 30, 2024 and 2023 was $
(10) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Cash compensation/commissions payable | $ | $ | ||||||
| Other accrued liabilities | ||||||||
| Accrued liabilities | $ | $ | ||||||
| 12 |
(11) Debt
Long-term debt consists of the following (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Amounts due under the term loan | $ | $ | ||||||
| Accrued end-of-term payments | ||||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Less: current maturities | ( | ) | ||||||
| Long-term debt, less issuance costs | $ | $ | ||||||
On
March 7, 2024, the Company’s term credit agreement was amended and restated to, among other things, extend the maturity date to
On
May 14, 2024, the term credit agreement was amended to increase the amount of term loans that may be borrowed by $
The
effective rate of the term loan, inclusive of amortization of debt issuance costs and accretion of the final payment, was
On July 26, 2023, our stockholders approved and adopted the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan (the “2023 Plan”), which replaced the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan (as amended and restated, the “2018 Plan”) with respect to future grants of equity awards, although the 2018 Plan continues to govern equity awards granted under the 2018 Plan. The 2023 Plan permits the Board of Directors, or a committee thereof, to grant to eligible employees, non-employee directors, and consultants of the Company non-statutory and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, and other stock-based awards. The Board of Directors may select 2023 Plan participants and determine the nature and amount of awards to be granted.
| 13 |
Stock Options
| 2024 | 2023 | |||||||||||||||||||||||
| Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (years) | Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (years) | |||||||||||||||||||
| Outstanding at January 1 | $ | $ | ||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Exercised | ( | ) | ||||||||||||||||||||||
| Cancelled or expired | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Outstanding at September 30 | $ | $ | ||||||||||||||||||||||
| Exercisable at September 30 | $ | $ | ||||||||||||||||||||||
As of September 30, 2024, there was approximately $ million of total unrecognized compensation expense related to unvested stock options. These costs are expected to be recognized over a weighted-average period of years. There were no options granted during the nine months ended September 30, 2024.
Deferred Stock Units and Restricted Stock Units
| 2024 | 2023 | |||||||||||||||
| Shares | Weighted Average Fair Value at Grant Date Per Share | Shares | Weighted Average Fair Value at Grant Date Per Share | |||||||||||||
| Outstanding at January 1 | $ | $ | ||||||||||||||
| Granted | $ | $ | ||||||||||||||
| Vested | ( | ) | $ | ( | ) | $ | ||||||||||
| Cancelled | ( | ) | $ | ( | ) | $ | ||||||||||
| Outstanding at September 30 | $ | $ | ||||||||||||||
Total compensation expense related to unvested deferred stock units and restricted stock units not yet recognized was $ million as of September 30, 2024, which is expected to be allocated to expenses over a weighted-average period of years.
Performance Stock Units
During 2024, the Company began awarding performance stock units, or PSUs, under the 2023 Plan to certain executive officers and key employees. The Company has awarded an aggregate of PSUs, assuming target performance, and each PSU award can be earned and vested at the end of a three-year performance period based on the total stockholder return, or TSR, of the Company’s common stock price relative to a group of peer companies and subject to continued service to the Company. The number of shares of the Company’s common stock to be issued upon vesting and settlement of the PSUs range from to of the target number of shares underlying the award, depending on the Company’s performance against the group of peer companies. The fair value of the PSUs was estimated using the Monte Carlo simulation model and the following assumptions: the volatility of the peer companies was unique to each company used in simulation, Company volatility of , risk-free interest rate of , correlation with index of , and dividend yield of %.
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| 2024 | ||||||||
| Shares | Weighted Average Fair Value | |||||||
| Outstanding at January 1 | $ | |||||||
| Granted | ||||||||
| Forfeited | ( | ) | ||||||
| Vested | ||||||||
| Outstanding at September 30 | $ | |||||||
The total compensation cost related to unvested PSUs was $ million as of September 30, 2024, which is expected to be allocated to expenses over a weighted-average period of years.
(13) Warrants
Warrant activity was as follows for the nine months ended September 30, 2024:
| 2024 | ||||||||
| Common Stock Warrants | Weighted Average Exercise Price |
|||||||
| Outstanding as of January 1, 2024 | $ | |||||||
| Issued | ||||||||
| Outstanding as of September 30, 2024 | $ | |||||||
As of September 30, 2024 and December 31, 2023, the weighted average remaining contractual term of outstanding warrants was years and years, respectively.
(14) Commitments and Contingencies
Litigation
We are subject to potential liabilities under government regulations and various claims and legal actions that are pending or may be asserted from time to time. These matters arise in the ordinary course and conduct of our business and may include, for example, commercial, product liability, intellectual property, and employment matters. We intend to continue to defend the Company vigorously in such matters and, when warranted, take legal action against others. Furthermore, we regularly assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in our financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on our assessment, we have adequately accrued an amount for contingent liabilities currently in existence. We do not accrue amounts for liabilities that we do not believe are probable or that we consider immaterial to our overall financial position. Litigation is inherently unpredictable, and unfavorable resolutions could occur. As a result, assessing contingencies is highly subjective and requires judgment about future events. While we do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations or cash flows, it is possible that the amount of ultimate loss may exceed our current accruals and that our cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.
Indemnification Arrangements
Our indemnification arrangements generally include limited warranties and certain provisions for indemnifying customers against liabilities if our products or services infringe a third-party’s intellectual property rights. To date, we have not incurred any material costs as a result of such warranties or indemnification provisions and have not accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements.
We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by us, arising out of that person’s services as our director or officer or that person’s services provided to any other company or enterprise at our request.
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(15) Income Taxes
Information on the Company’s income taxes for the periods reported is as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Income tax expense (benefit) from continuing operations | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Income (loss) from continuing operations before income taxes | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Effective income tax rate | - | % | - | % | - | % | - | % | ||||||||
Our effective tax rate for the three and nine months ended September 30, 2024 differs from the statutory rate due to a valuation allowance against deferred tax assets, offset by the impact of cash state and foreign taxes.
Our effective tax rate for the three and nine months ended September 30, 2023 differs from the statutory rate due to a valuation allowance against deferred tax assets, offset by the impact of cash state taxes.
As of September 30, 2024, the Company is not currently under examination by tax authorities.
Basic net (loss) income per share is computed by dividing net (loss) income by the weighted average number of shares of common stock outstanding. Shares issued during the period and shares reacquired during the period are weighted for the portion of the period that they were outstanding. Diluted net (loss) income per share is computed in a manner consistent with that of basic earnings per share while giving effect to all potentially dilutive shares of common stock outstanding during the period, which include the assumed exercise of stock options and warrants using the treasury stock method. Diluted net (loss) income per share was the same as basic net (loss) income per share for the three and nine months ended September 30, 2024, as shares issuable upon the exercise of stock options and warrants were anti-dilutive as a result of the net losses incurred for those periods.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Denominator: | ||||||||||||||||
| Basic – weighted average shares outstanding | ||||||||||||||||
| Effect of dilutive securities: | ||||||||||||||||
| Employee restricted stock units | ||||||||||||||||
| Warrants | ||||||||||||||||
| Diluted – weighted average shares outstanding | ||||||||||||||||
| Basic (loss) earnings per share | ( | ) | ( | ) | ||||||||||||
| Diluted (loss) earnings per share | ( | ) | ( | ) | ||||||||||||
For the three months ended September 30, 2024 and 2023, and stock options, restricted stock units and warrants were excluded for the diluted (loss) earnings per share calculation as they were anti-dilutive. For the nine months ended September 30, 2024 and 2023, and stock options, restricted stock units and warrants were excluded for the diluted (loss) earnings per share calculation as they were anti-dilutive.
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(17) Supplemental Disclosure of Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2024 | 2023 | |||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
(18) Related Party Transactions
As
described in more detail under Note 1, “Business Description and Summary of Significant Accounting Policies,” and
Note 19, “Related Party Transactions,” in the Company’s Annual Report on Form 10-K for the year ended December
31, 2023, we are party to an Investor Rights Agreement, as amended, Registration Rights Agreements and certain other agreements with
OrbiMed Royalty Opportunities II, LP and ROS Acquisition Offshore LP, which are funds affiliated with OrbiMed Advisors LLC (“OrbiMed”).
OrbiMed beneficially owns
All related party transactions are reviewed and approved by the Audit Committee or the disinterested members of the full Board of Directors.
(19) Segment and Geographic Information
The Company operates in one segment based upon the Company’s organizational structure, the way in which the operations and investments are managed and evaluated by the chief operating decision maker (“CODM”). The Company shares common, centralized support functions which report directly to the CODM and decision-making regarding the Company’s overall operating performance and allocation of Company resources is assessed on a consolidated basis. Net revenue by geographic region are as follows:
Three Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| United States | $ | $ | ||||||
| Rest of world | ||||||||
| Total revenue | $ | $ | ||||||
Nine Months Ended September 30, | ||||||||
| 2024 | 2023 | |||||||
| United States | $ | $ | ||||||
| Rest of world | ||||||||
| Total revenue | $ | $ | ||||||
(20) Subsequent Event
On
October 22, 2024, the Company entered into a licensing agreement with a distributor granting an exclusive, nontransferable, non-sublicensable,
royalty-bearing right and license to manufacture and commercialize in the United States the Company’s SimpliMax™ product
and the trademarks associated therewith during the term of the agreement and subject to certain limitations as set forth therein. Under
the terms of the agreement, the Company received a one-time, up front, non-refundable, non-creditable cash payment of $
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed above in “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere in this Form 10-Q.
Business Overview
We develop, manufacture and market regenerative medicine products and medical devices for domestic and international markets. Our products serve the specialized needs of orthopedic and neurological surgeons, including orthobiologics for the promotion of bone healing, implants and instrumentation for the treatment of spinal disease. We promote our products in the United States through independent distributors and stocking agents, supported by direct employees.
We have an extensive sales channel of independent commissioned agents and stocking distributors in the United States representing some or all of our products. We also maintain a national accounts program to enable our agents to gain access to integrated delivery network hospitals (“IDNs”) and through group purchasing organizations (“GPOs”). We have biologics contracts with major GPOs, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems. While our focus is the United States market, we promote and sell our products internationally through direct sales representatives and stocking distribution partners in Europe, Canada, Mexico, South America, Australia, and certain Pacific region countries.
We have focused and intend to continue to focus primarily on four key growth initiatives: (1) introduce new products, including our Cortera® Posterior Fixation System, viable bone matrix, OsteoVive® Plus, and amniotic membrane allografts, SimpliGraft™ and SimpliMax™; (2) expand our distribution network; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions. In furtherance of our growth initiatives, and as described elsewhere in this report, we made the following three acquisitions last year:
| ● | On February 28, 2023, we acquired all of the issued and outstanding capital stock of Surgalign SPV, Inc. (“Surgalign SPV”), a then indirect wholly owned subsidiary of Surgalign Holdings, Inc. (“Surgalign Holdings”), which held certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of the Coflex and CoFix products in the United States, for a purchase price of $17.0 million in cash. | |
| ● | On August 10, 2023, we acquired out of a bankruptcy proceeding certain additional assets of Surgalign Holdings and its subsidiaries, including specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal property, records, all outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles related to the business of designing, developing and manufacturing hardware medical technology and distributing biologics medical technology, and assume certain related liabilities, for a purchase price of $5 million in cash. | |
| ● | On October 23, 2023, we acquired the nanOss production operations from RTI Surgical, Inc. (“RTI”) including certain equipment and inventory used in RTI’s synthetic bone graft business and assumed from RTI the lease for the nanOss production facility located in Greenville, North Carolina. The purchase price for the assets was $2 million in cash plus a low single digit royalty on sales prior to October 23, 2028 of next generation nanOss products. |
While the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our future revenues.
Since one of our key growth initiatives is to leverage our growth platform with technology and strategic acquisitions and explore other strategic transactions with respect to our products and our company, including licenses, business collaborations and other business combinations or transactions with other companies, we, as a matter of course, often engage in discussions with third parties regarding such matters.
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Results of Operations
Comparison of Three and Nine Months Ended September 30, 2024 and September 30, 2023
Revenue
Total revenue for the three and nine months ended September 30, 2024 was $27.9 million and $85.8 million, respectively, which represents an increase of 12% and 36%, respectively, compared to $25.0 million and $63.2 million for the three and nine months ended September 30, 2023, respectively. These increases are attributed primarily to the contribution of additional sales resulting from the acquisition of the Surgalign Holdings’ hardware and biologics business, partially offset by reduced surgical procedures using our products in the current year periods as compared to the respective prior year periods.
Cost of Sales
Cost of sales consists primarily of manufacturing cost, product purchase costs and depreciation of surgical instruments. Cost of sales also includes reserves for estimated excess inventory, inventory on consignment that may be missing and not returned, and reserves for estimated missing and damaged consigned surgical instruments. Cost of sales increased by 20%, or $1.9 million, to $11.6 million for the three months ended September 30, 2024 from $9.7 million for the three months ended September 30, 2023. Cost of sales increased by 35%, or $8.7 million, to $33.6 million for the nine months ended September 30, 2024 from $24.9 million for the nine months ended September 30, 2023. These increases are primarily due to greater revenue in the 2024 periods compared to the comparable 2023 periods, as mentioned above.
Gross Profit
Gross profit as a percentage of revenue decreased to 58.4% for the three months ended September 30, 2024 compared to 61.3% for the same period in 2023 and increased to 60.9% for the nine months ended September 30, 2024 compared to 60.7% for the same period in 2023. Of the decrease for the three-month comparison, 350 basis points were due to reduced production throughput, partially offset by 100 basis points related to additional scale. Of the increase for the nine-month comparison, 250 basis points were due to greater scale, partially offset by 150 basis points related to reduced production throughput.
General and Administrative
General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related costs, amortization, and corporate expenses for legal, accounting and professional fees, as well as occupancy costs. General and administrative expenses increased 5%, or $0.4 million, to $7.5 million for the three months ended September 30, 2024, compared to $7.1 million for the same period in 2023. General and administrative expenses increased 35%, or $6.0 million, to $23.0 million for the nine months ended September 30, 2024, compared to $17.0 million for the same period in 2023. The increase for the three-month comparison is primarily attributable to $0.5 million of severance expense and $0.4 million of additional stock-based compensation. These increases were partially offset by reduced expense of $0.2 million related to various compensation plans. The increase for the nine-month comparison is primarily attributable to $1.4 million of additional expense related to various compensation plans, $1.5 million of additional stock-based compensation expense, $0.9 million of additional professional service fees, $0.5 million of additional hardware and software expense and $0.5 million of severance expense.
Sales and Marketing
Sales and marketing expenses consist primarily of sales commissions, personnel costs for sales and marketing employees, costs for trade shows, sales conventions and meetings, travel expenses, advertising, and other sales and marketing related costs. Sales and marketing increased 7%, or $0.8 million, to $11.9 million for the three months ended September 30, 2024, compared to $11.1 million for the same period in 2023. Sales and marketing expenses increased 40%, or $10.7 million, to $37.5 million for the nine months ended September 30, 2024, compared to $26.9 million for the same period in 2023. The increase for the three-month comparison is primarily due to additional commission expense of $0.6 million resulting from revenue growth. The increase for the nine-month comparison is primarily due to additional commission expense of $6.3 million resulting from revenue growth and $3.0 million of additional compensation expense related to additional headcount.
Research and Development
Research and development expenses consist primarily of internal costs for the development of new technologies. Research and development expenses were $0.7 million for the three months ended September 30, 2024, compared to $0.5 million for the same period in 2023. Research and development expenses were $1.9 million for the nine months ended September 30, 2024, compared to $0.8 million for the same period in 2023. The increases for the three- and nine-month comparisons are primarily due to $0.1 million and $0.5 million, respectively, of compensation expense related to additional headcount.
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Interest Expense
Interest expense consists of interest incurred from our debt instruments and finance leases. Interest expense was $1.2 million and $3.0 million for the three and nine months ended September 30, 2024, respectively, compared to $0.8 million and $2.1 million for the three and nine months ended September 30, 2023. The increases in interest expense during the three- and nine-month comparisons resulted primarily from additional borrowings on our revolving line of credit and the additional borrowing of $5.0 million under our term credit agreement in May 2024.
Provision for Income Taxes Current and Deferred
Income tax expense for the three months ended September 30, 2024 was $0.1 million compared to income tax benefit of $2.3 million for the same period in 2023. The change resulted primarily from the tax benefit associated with release of valuation allowance resulting from recognition of deferred tax liabilities in purchase accounting during the three months ended September 30, 2023. Income tax expense for the nine months ended September 30, 2024 was $0.2 million compared to income tax benefit of $2.3 million for the same period in 2023. The change resulted primarily from the tax benefit associated with release of valuation allowance resulting from recognition of deferred tax liabilities in purchase accounting during the nine months ended September 30, 2023.
Liquidity and Capital Resources
Working Capital
Since our inception, we have financed our operations through primarily operating cash flows, private placements of equity securities and convertible debt, debt facilities, common stock rights offerings, and other debt transactions. The following table summarizes our working capital as of September 30, 2024 and December 31, 2023 (in thousands):
| September 30, 2024 | December 31, 2023 | |||||||
| Cash and cash equivalents | $ | 7,086 | $ | 5,923 | ||||
| Accounts receivable, net | 20,545 | 20,731 | ||||||
| Inventories | 41,886 | 36,885 | ||||||
| Total current assets | 71,410 | 64,869 | ||||||
| Accounts payable | 8,298 | 7,054 | ||||||
| Accrued liabilities | 8,871 | 10,419 | ||||||
| Line of credit | 12,887 | 4,622 | ||||||
| Total current liabilities | 33,669 | 22,990 | ||||||
| Net working capital | 37,741 | 41,879 | ||||||
Cash Flows
Net cash used in operating activities for the first nine months of 2024 was $12.6 million compared to $8.6 million for the first nine months of 2023. This increase in net cash used in operating activities relates primarily to the combination of the increase in net loss during the first nine months of 2024 compared to the prior year period and the effects of changes in operating assets and liabilities.
Net cash used in investing activities for the first nine months of 2024 was $3.2 million compared to $22.5 million for the first nine months of 2023. This decrease relates primarily to the use of $21.4 million in cash for the acquisitions of Surgalign SPV, Inc. and Surgalign Holdings, Inc.’s hardware and biologics business during the first nine months of 2023.
Net cash provided by financing activities for the first nine months of 2024 was $16.9 million compared to $19.4 million for the first nine months of 2023. This decrease relates primarily to $9.6 million of greater proceeds from private placements during the first nine months of 2023, partially offset by greater borrowings during the first nine months of 2024 under the Revolving Facility, as defined below, net of repayments.
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Current and Prior Credit Facilities
On March 7, 2024, the Company, as guarantor, and certain of our subsidiaries, as borrowers (collectively, the “Borrowers”), entered into an Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) (as amended from time to time, the “Term Credit Agreement”) and an Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) (as amended from time to time, the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust and MidCap Funding IV Trust, each in its respective capacity as agent, and lenders from time to time party thereto. These Credit Agreements amend and restate the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Term Loan), as amended (the “Prior Term Credit Agreement”), and the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Revolving Loan), as amended (the “Prior Revolving Credit Agreement” and, together with the Prior Term Credit Agreement, the “Prior Credit Agreements”), in each case, by and among the Borrowers, the Company and MidCap Financial Trust and MidCap Funding IV Trust, as respective agents, and the lenders from time to time party thereto.
On May 14, 2024, we entered into Amendment No. 1 to Amended and Restated Credit, Security and Guarantee Agreement (Term Loan) (“Term Amendment No. 1”), which amends the Term Credit Agreement, and Amendment No. 1 to Amended and Restated Credit, Security and Guarantee Agreement (Revolving Loan) (“Revolving Amendment No. 1” and, together with Term Amendment No. 1, the “Amendments No. 1”), which amends the Revolving Credit Agreement. The Term Amendment No. 1 increases the amount of term loans that may be borrowed by $5.0 million to a maximum of $22.0 million, which are fully drawn as of September 30, 2024. In addition, the Amendments No. 1 re-set the date certain fees payable in connection with optional prepayments are determined to May 14, 2024 and consequently extend such fees’ original expiration. The exit fees were increased by 2.50% to 6.50% of the principal amount borrowed pursuant to the Term Credit Agreement. The terms of borrowing under the Credit Agreements otherwise remain materially unchanged.
The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving Facility,” and, together with the secured term credit facility under the Term Credit Agreement, the “Facilities”) under which the Borrowers may borrow up to $17.0 million at any one time, the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory of the Borrowers in accordance with a formula set forth in the Revolving Credit Agreement. All borrowings under the Revolving Facility are subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an updated borrowing base certificate.
The Facilities have a maturity date of March 1, 2029. Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and the Company’s obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets of the Company and the Borrowers. As of September 30, 2024, the Company had $12.9 million outstanding and $3.8 million of availability under the Revolving Facility.
The loans and other obligations pursuant to the Credit Agreements will bear interest at a per annum rate equal to the sum of the SOFR Interest Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement, and an applicable margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of December 31, 2023, the effective rate of the Prior Term Credit Agreement, inclusive of authorization of debt issuance costs and accretion of the final payment, was 14.42%, and the effective rate of the Prior Revolving Credit Agreement was 9.94%.
The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Credit Agreements require the Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a certain minimum liquidity level, in each case as specified in the Credit Agreements. As of September 30, 2024, we were in compliance with all covenants under the Credit Agreements.
Cash Requirements
We believe that our $7.1 million of cash and cash equivalents as of September 30, 2024, together with our anticipated operating cash flows, including fees associated with licensing agreements, and amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least November 2025. However, we may require or seek additional capital to fund our future operations and business strategy prior to November 2025. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time.
We may elect to raise additional financing even before we need it if market conditions for raising additional capital are favorable. We may seek to raise additional financing through various sources, such as equity and debt financings, or additional debt restructurings or refinancings. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is particularly true if economic and market conditions deteriorate or our business, financial performance or prospects deteriorate.
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To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or other preferences or rights that would adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices that represent a discount to our trading price and/or we may issue warrants to the purchasers, which could further dilute our current stockholders. If we issue preferred stock, it could adversely affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights or preferences granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Prior to raising additional equity or debt financing, we may be required to obtain the consent of MidCap Financial Trust and MidCap Funding IV Trust under our Credit Agreements and/or ROS and Royalty Opportunities under our Investor Rights Agreement with them, and no assurance can be provided that they would provide such consent, which could limit our ability to raise additional financing and the terms thereof.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material.
There have been no changes in our critical accounting estimates for the three months ended September 30, 2024 as compared to the critical accounting estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this Item.
item 4. controls and procedures
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2024. Based upon that evaluation, and as a result of the material weakness in our internal control over financial reporting discussed below, our principal executive officer and principal financial officer concluded that as of September 30, 2024, our disclosure controls and procedures were not effective.
Previously Reported Material Weakness in Internal Control over Financial Reporting
As previously described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, in connection with the audit of our consolidated financial statements for the fiscal year ended December 31, 2023, we identified certain control deficiencies in the design and implementation of our internal control over financial reporting, which constituted two material weaknesses. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
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More specifically, our controls surrounding the completeness and accuracy of information utilized in determining the open balance sheet fair value of inventory, which includes the establishment of inventory reserves, related to the acquisition of the hardware and biologics business of Surgalign Holdings. were insufficient and did not operate at an appropriate level of precision. Our review of certain data and assumptions utilized in our valuation of opening balance sheet inventory failed to identify inconsistent assumptions related to inventory utilization and inventory costing. This constituted a material weakness. In addition to the foregoing material weakness, due to insufficient time and resources, we did not appropriately design, implement and execute sufficient controls and procedures to verify the existence of inventory on consignment that was acquired in connection with our acquisitions of Surgalign SPV. and the hardware and biologics business of Surgalign Holdings during the year ended December 31, 2023, resulting in a second material weakness.
The material weaknesses described above, if not remediated, could result in a material misstatement of one or more disclosures in our annual or interim consolidated financial statements that would not be prevented or detected in a timely manner.
Our management, under the oversight of the Audit Committee of the Board of Directors, is continuing to implement measures designed to improve our internal control over financial reporting to remediate the identified material weaknesses. The remediation actions we are taking, and expect to take, include the following:
| ● | Precision of Controls Related to Completeness and Accuracy of Information Utilized in Determining the Opening Balance Sheet Fair Value of Inventory. To prevent similar occurrences in the future, we plan to add additional accounting personnel to allow for more robust review of nonrecurring, complex transactions. We expect to have additional headcount in place by end of fiscal 2024. Additionally, if necessary, we may utilize external accounting resources to review future valuations of acquired inventory. | |
| ● | Insufficient Procedures to Confirm the Existence of Acquired Consigned Inventory. Beginning in the first quarter of 2024, we began subjecting our acquired consigned inventory to our ongoing inventory field audits, with the goal of verifying all consigned inventory acquired during the year ended December 31, 2024. We expect this process to be completed by the end of fiscal 2024. |
As management continues to evaluate and work to remediate the material weaknesses, we may determine to take additional measures to address the material weaknesses. However, we cannot provide assurance that the measures we have taken to date, or that we may take in the future, will be sufficient to remediate the material weaknesses or avoid potential future material weaknesses.
Changes in Internal Control over Financial Reporting
Other than the remediation steps described above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
item 1. legal proceedings
Our legal proceedings are discussed in Note 13 – Commitments and Contingencies in the notes to our condensed consolidated financial statements in this Form 10-Q.
item 1a. risk factors
As a smaller reporting company, we are not required to provide the information required by this Item.
item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not sell any unregistered equity securities of our Company during the quarter ended September 30, 2024, other than the issuance of shares of our common stock in connection with our private placement, as reported in a Current Report on Form 8-K as filed with the SEC on August 8, 2024.
item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
item 4. MINE SAFETY DISCLOSURES
Not applicable.
item 5. OTHER INFORMATION
Rule 10b5-1 Plan and Non-Rule 10b5-1 Trading Arrangement Adoptions, Terminations, and Modifications
During
the three months ended September 30, 2024, none of our directors or “officers” (as defined in Rule 16a-1(f) under the Exchange
Act)
item 6. EXHIBITS
The following exhibits are being filed or furnished with this Quarterly Report on Form 10-Q:
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| † | All exhibits and schedules to this exhibit have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Registrant will furnish the omitted exhibits and schedules to the SEC upon request by the SEC. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| XTANT MEDICAL HOLDINGS, INC. | ||
| Date: November 12, 2024 | By: | /s/ Sean E. Browne |
| Name: | Sean E. Browne | |
| Title: | President and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November 12, 2024 | By: | /s/ Scott C. Neils |
| Name: | Scott C. Neils | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
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