See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
See accompanying notes to unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. The Company and Basis of Presentation
The Company
Alphatec Holdings, Inc. (the “Company”), through its wholly owned subsidiaries, Alphatec Spine, Inc. (“Alphatec Spine”) and SafeOp Surgical, Inc. (“SafeOp”), designs, develops, and markets technology for the treatment of spinal disorders. The Company markets its products in the U.S. via independent sales agents and a direct sales force.
On March 8, 2018, the Company completed its acquisition of SafeOp, pursuant to a reverse triangular merger of SafeOp into a newly-created wholly-owned subsidiary of the Company, with SafeOp being the surviving corporation and a wholly-owned subsidiary of the Company.
On September 1, 2016, the Company completed the sale of its international distribution operations and agreements (collectively, the “International Business”) to Globus Medical Ireland, Ltd., a subsidiary of Globus Medical, Inc., and its affiliated entities (collectively “Globus”). As a result of this transaction, the International Business has been excluded from continuing operations for all periods presented in this Quarterly Report on Form 10-Q and is reported as discontinued operations. See Note 4 for additional information on the divestiture of the International Business.
Basis of Presentation
The accompanying condensed consolidated balance sheet as of December 31, 2019, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Certain information and note disclosures normally included in annual audited financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made in this Quarterly Report on Form 10-Q are adequate to make the information not misleading. The unaudited interim condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the financial position and results of operations for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 that was filed with the SEC on March 17, 2020. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020, or any other future periods.
Liquidity
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments related to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within twelve months after the date the consolidated financial statements are issued. The Company’s evaluation entails analyzing prospective operating budgets and forecasts for expectations of the Company’s cash needs and comparing those needs to the current cash and cash equivalent balances, and availability under existing credit facilities. The Company’s working capital at June 30, 2020 was $53.2 million (including cash of $31.2 million), which along with available draws on an additional $25 million under its credit facility with Squadron Medical Finance Solutions LLC (“Squadron”), allows the Company to fund its operations through at least one year subsequent to the date the financial statements are issued.
The Company’s capital requirements over the next twelve months will depend on many factors, including the ability to achieve anticipated revenue, manage operating expense and the timing of required investments in inventory and instrument sets to support its customers. The Company has experienced negative operating cash flows for all historical periods presented and it expects these losses to continue into the foreseeable future, particularly if the COVID-19 pandemic continues to impact operations and surgical volumes. The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration, extent and severity of the pandemic and its impact on the Company's customers, all of which are uncertain and cannot be predicted.
9
The COVID-19 Pandemic
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. In late 2019, a novel strain of Coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, COVID-19 has spread globally to all countries, including to the United States. The global spread of the virus has led to unprecedented restrictions on, and disruptions in business and personal activities, which include preventive and precautionary measures that governments, communities, business partners, and the Company have taken and continue to take to manage the impact and mitigate any further spread of the virus. To date, the Company has taken steps to help keep its workforce healthy and safe and is assessing and updating its plans on an ongoing basis, as new information related to the virus and its impact become available.
The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, supply chain disruptions and uncertain demand, and the impact of any further initiatives or programs that the Company may undertake to address financial and operations challenges faced by its customers. As of the date of issuance of these condensed consolidated financial statements, the extent to which the pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain. The Company intends to continue to actively monitor the pandemic and take the necessary and required steps to identify and mitigate any adverse impacts on, or risks to, the Company’s business operations posed by the spread of COVID-19.
Reclassification
Certain amounts in the consolidated financial statements for the three and six months ended June 30, 2019 have been reclassified to conform to the current period’s presentation.
2. Summary of Significant Accounting Policies
The Company’s significant accounting policies are described in Note 2 to its audited consolidated financial statements for the year ended December 31, 2019, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 17, 2020. Except as discussed below, these accounting policies have not changed during the three and six months ended June 30, 2020.
Transaction-related (Credits)Expenses
The Company expensed certain costs related to the terminated tender offer for the acquisition of EOS Imaging, which primarily include third-party advisory fees, legal fees and commitment fees related to transaction financing arrangements.
Fair Value Measurements
The carrying amount of financial instruments consisting of cash, restricted cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, accrued compensation and current portion of long-term debt included in the Company’s consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value.
Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
|
Level 1:
|
Observable inputs such as quoted prices in active markets;
|
|
Level 2:
|
Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
|
|
Level 3:
|
Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
The Company does not maintain any financial assets that are considered to be Level 1, Level 2 or Level 3 instruments as of June 30, 2020. During the second quarter of 2019, the Company issued a liability classified equity award to one of its executive officers. The award will be earned over a 4 year vesting period and upon a specific market condition. As the award will be cash settled, it is classified as a liability within Level 3 of the fair value hierarchy as the Company is using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving the specified market condition with the valuation updated at each reporting period. The full fair value of the cash settled award was $1.0 million as of June 30, 2020 and is being recognized ratably as the underlying service period is provided.
10
The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the six months ended June 30, 2020 (in thousands):
|
|
Level 3
Liabilities
|
|
Balance at January 1, 2020
|
|
$
|
266
|
|
Vested portion of liability classified equity award
|
|
|
107
|
|
Change in fair value measurement
|
|
|
(238
|
)
|
Balance at March 31, 2020
|
|
$
|
135
|
|
Vested portion of liability classified equity award
|
|
|
39
|
|
Change in fair value measurement
|
|
|
102
|
|
Balance at June 30, 2020
|
|
$
|
276
|
|
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In November 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-08, Compensation—Stock Compensation (Topic 718) and Revenue from Contracts with Customers (Topic 606), which clarifies that an entity must measure and classify share-based payment awards granted to a customer by applying the guidance in Topic 718. Accounting Standard Codification (“ASC”) 2019-08 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. The Company adopted the guidance effective January 1, 2020 and recorded a cumulative adjustment of $0.1 million to accumulated deficit as of January 1, 2020.
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the definition of an SEC filer. Early adoption is permitted for annual and interim goodwill impairment testing dates after January 1, 2017. The Company adopted the guidance effective January 1, 2020 as part of its process to assess impairment of Goodwill.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40), which aligns the accounting for cloud computing implementation costs with that of costs to develop or obtain internal-use software, meaning such costs that are part of the application development stage are capitalized as an asset and amortized over the term of the arrangement, otherwise, such costs are expensed as incurred. It also clarifies the classification of amounts related to capitalized implementation costs in the financial statements. ASC 2018-15 is effective for annual reporting periods beginning after December 15, 2019, including interim reporting periods within those annual reporting periods. Early adoption is permitted. The Company adopted the guidance effective January 1, 2020. It did not have a material impact on the Company’s consolidated financial statements.
Recently Issued Accounting Pronouncements
The Company has evaluated all recent accounting pronouncements issued by the Financial Accounting Standards Board in the form of Accounting Standards Updates through the date these financial statements were available to be issued and found no recent accounting pronouncements issued, but not yet effective that when adopted, would have a material impact on the financial statements of the Company.
3. Select Condensed Consolidated Balance Sheet Details
Accounts Receivable, net
Accounts receivable, net consist of the following (in thousands):
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Accounts receivable
|
|
$
|
20,080
|
|
|
$
|
16,436
|
|
Allowance for doubtful accounts
|
|
|
(295
|
)
|
|
|
(286
|
)
|
Accounts receivable, net
|
|
$
|
19,785
|
|
|
$
|
16,150
|
|
11
Inventories, net
Inventories, net consist of the following (in thousands):
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Raw materials
|
|
$
|
5,424
|
|
|
$
|
5,822
|
|
Work-in-process
|
|
|
1,403
|
|
|
|
1,578
|
|
Finished goods
|
|
|
61,472
|
|
|
|
51,669
|
|
|
|
|
68,299
|
|
|
|
59,069
|
|
Less reserve for excess and obsolete finished goods
|
|
|
(26,833
|
)
|
|
|
(24,215
|
)
|
Inventories, net
|
|
$
|
41,466
|
|
|
$
|
34,854
|
|
Property and Equipment, net
Property and equipment, net consist of the following (in thousands except as indicated):
|
|
Useful lives
(in years)
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Surgical instruments
|
|
|
4
|
|
|
$
|
63,795
|
|
|
$
|
58,502
|
|
Machinery and equipment
|
|
|
7
|
|
|
|
6,505
|
|
|
|
6,038
|
|
Computer equipment
|
|
|
3
|
|
|
|
3,879
|
|
|
|
3,594
|
|
Office furniture and equipment
|
|
|
5
|
|
|
|
1,380
|
|
|
|
1,297
|
|
Leasehold improvements
|
|
various
|
|
|
|
1,761
|
|
|
|
1,761
|
|
Construction in progress
|
|
n/a
|
|
|
|
312
|
|
|
|
496
|
|
|
|
|
|
|
|
|
77,632
|
|
|
|
71,688
|
|
Less accumulated depreciation and amortization
|
|
|
|
|
|
|
(52,961
|
)
|
|
|
(51,966
|
)
|
Property and equipment, net
|
|
|
|
|
|
$
|
24,671
|
|
|
$
|
19,722
|
|
Total depreciation expense was $2.2 million and $4.2 million for the three and six months ended June 30, 2020, respectively, and $1.5 and $3.1 million for the three and six months ended June 30, 2019, respectively. At both June 30, 2020 and December 31, 2019, assets recorded under capital leases of $0.1 million were included in the machinery and equipment balance. Amortization of assets under capital leases is included in depreciation expense.
Intangible Assets, net
Intangible assets, net consist of the following (in thousands, except as indicated):
|
|
Remaining
Avg. Useful
lives (in
years)
|
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Developed technology
|
|
|
10
|
|
|
$
|
26,976
|
|
|
$
|
26,976
|
|
Intellectual property
|
|
|
—
|
|
|
|
1,004
|
|
|
|
1,004
|
|
License agreements
|
|
|
1
|
|
|
|
5,536
|
|
|
|
5,536
|
|
Trademarks and trade names
|
|
|
—
|
|
|
|
792
|
|
|
|
792
|
|
Customer-related
|
|
|
4
|
|
|
|
7,458
|
|
|
|
7,458
|
|
Distribution network
|
|
|
3
|
|
|
|
4,027
|
|
|
|
4,027
|
|
In process research and development
|
|
|
19
|
|
|
|
8,800
|
|
|
|
8,800
|
|
|
|
|
|
|
|
|
54,593
|
|
|
|
54,593
|
|
Less accumulated amortization
|
|
|
|
|
|
|
(29,869
|
)
|
|
|
(28,988
|
)
|
Intangible assets, net
|
|
|
|
|
|
$
|
24,724
|
|
|
$
|
25,605
|
|
Total amortization expense attributed to intangible assets was $0.4 million and $0.9 million for the three and six months ended June 30, 2020, respectively, and $0.2 million and $0.4 million for the three and six months ended June 30, 2019, respectively.
12
Developed technology and in process research and development intangibles are expected to begin amortizing when the relevant products reach full commercial launch. Future amortization expense related to intangible assets as of June 30, 2020 is as follows (in thousands):
Year Ending December 31,
|
|
|
|
|
Remainder of 2020
|
|
|
978
|
|
2021
|
|
|
1,888
|
|
2022
|
|
|
1,888
|
|
2023
|
|
|
1,888
|
|
2024
|
|
|
1,785
|
|
Thereafter
|
|
|
16,297
|
|
|
|
$
|
24,724
|
|
Accrued Expenses
Accrued expenses consist of the following (in thousands):
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Commissions and sales milestones
|
|
$
|
5,383
|
|
|
$
|
5,299
|
|
Payroll and payroll related
|
|
|
5,671
|
|
|
|
7,949
|
|
Litigation settlement obligation - short-term portion
|
|
|
4,400
|
|
|
|
4,400
|
|
Professional fees
|
|
|
1,865
|
|
|
|
3,945
|
|
Royalties
|
|
|
2,408
|
|
|
|
1,981
|
|
Interest
|
|
|
602
|
|
|
|
155
|
|
Other
|
|
|
4,308
|
|
|
|
2,687
|
|
Total accrued expenses
|
|
$
|
24,637
|
|
|
$
|
26,416
|
|
Other Long-Term Liabilities
Other long-term liabilities consist of the following (in thousands):
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Litigation settlement obligation - long-term portion
|
|
$
|
9,002
|
|
|
$
|
10,712
|
|
Line of credit exit fee
|
|
|
—
|
|
|
|
600
|
|
Tax liabilities
|
|
|
373
|
|
|
|
373
|
|
Other
|
|
|
276
|
|
|
|
266
|
|
Other long-term liabilities
|
|
$
|
9,651
|
|
|
$
|
11,951
|
|
4. Discontinued Operations
In connection with the sale of the International Business, the Company entered into a product manufacture and supply agreement (the “Supply Agreement”) with Globus, pursuant to which the Company supplies to Globus certain of its implants and instruments (the “Products”), previously offered for sale by the Company in international markets at agreed-upon prices for a minimum term of three years, with the option for Globus to extend the term for up to two additional twelve month periods subject to Globus meeting specified purchase requirements. During the second quarter of 2020, Globus notified the Company that it will exercise the option to extend the agreement the second additional twelve month period through August 2021. In accordance with authoritative guidance, sales to Globus are reported under continuing operations as the Company has continuing involvement under the Supply Agreement. The Company recorded $0.8 million in both revenue and cost of revenue from the Supply Agreement in continuing operations for the three months ended June 30, 2020, and $1.8 million in both revenue and cost of revenue from the Supply Agreement in continuing operations for the six months ended June 30, 2020. For the three months ended June 30, 2019, the Company recorded $1.2 million in both revenue and cost of revenue, and $2.8 million in revenue and $2.6 million in cost of revenue from the Supply Agreement in continuing operations for the six months ended June 30, 2019.
13
5. Debt
MidCap Facility Agreement
On May 29, 2020, the Company repaid in full all amounts outstanding under the Amended Credit Facility with MidCap Funding IV, LLC (“MidCap”). The Company made a final payment of $9.6 million to MidCap, consisting of outstanding principal and accrued interest. All amounts previously recorded as debt issuance costs were recorded as part of loss on debt extinguishment on the Company’s consolidated statement of operations for the three and six months ended June 30, 2020.
Squadron Credit Agreement
On November 6, 2018, the Company closed a $35 million Term Loan with Squadron, a provider of debt financing to growing companies in the orthopedic industry. The debt bears interest at LIBOR plus 8% (10.0% as of June 30, 2020) per annum. The credit agreement specifies a minimum interest rate of 10% and a maximum of 13% per year. In March 2019, the Company amended the Term Loan to expand the credit facility for up to an additional $30 million in secured financing. The Company took a draw of $10.0 million on the expanded credit facility in June 2019 and, subsequently, took a draw of the remaining $20.0 million in April 2020. On May 29, 2020, the Company amended the Term Loan to expand the credit facility by an additional $35 million and remove all financial covenant requirements. Additional draws under the Term Loan are at the sole discretion of the Company up to an additional $35 million. In June 2020, the Company took a draw of $10.0 million which was used to retire the existing working capital revolver with MidCap described above. All future draws must be made by December 31, 2021. The total principal outstanding under the Term Loan as of June 30, 2020 is $75.0 million, with an additional $25 million in available borrowings. Under the terms of the amended facility, the maturity date on the entire term loan was extended to June 2025 with interest-only payments due monthly through November 2022, followed by monthly principal payments of $1.0 million beginning December 2022 and a lump-sum payment payable at maturity in June 2025. As collateral for the Term Loan, Squadron has a first lien security interest in substantially all assets except for accounts receivable.
In connection with the financing, the Company issued initial warrants to Squadron to purchase 845,000 shares of common stock at an exercise price of $3.15 per share. In conjunction with the first draw under the first amendment of the Term Loan, the Company issued to Squadron warrants to purchase an additional 4,838,710 shares of the Company’s common stock at an exercise price of $2.17 per share. In connection with the second amendment of the Term Loan, the Company issued warrants to purchase an additional 1,075,820 shares of the Company’s common stock at an exercise price of $4.88 per share. All of the warrants are exercisable immediately and were amended to have the same maturity date in May 2027. Total warrants outstanding to Squadron are 6,759,530 as of June 30, 2020. All of the warrants were valued utilizing the Monte-Carlo simulation model as described further in Note 10 and are recorded within equity in accordance with authoritative accounting guidance and recorded as a debt discount.
The Company accounted for the amendments of the Term Loan as debt modifications with continued amortization of the existing and inclusion of the new debt issuance costs amortized into interest expense utilizing the effective interest rate method.
As of June 30, 2020, the debt is recorded at its carrying value of $58.8 million, net of issuance costs of $16.2 million, including all amounts paid to third parties to secure the debt and the fair value of the warrants issued. The total debt discount will be amortized into interest expense through maturity of the debt utilizing the effective interest rate method.
Paycheck Protection Loan
On April 23, 2020, the Company received the proceeds from a loan in the amount of approximately $4.3 million (the “PPP Loan”) from Silicon Valley Bank, as lender, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP Loan matures on April 21, 2022 and bears interest at a rate of 1.0% per annum. Commencing August 21, 2021, the Company is required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 21, 2022 the principal amount outstanding on the PPP Loan as of the date prescribed by guidance issued by U.S. Small Business Administration (“SBA”). The PPP Loan is evidenced by a promissory note dated April 21, 2020 (the “Note”), which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The PPP Loan may be prepaid by the Company at anytime prior to maturity with no prepayment penalties.
All or a portion of the PPP Loan may be forgiven by the SBA upon application. Applications for forgiveness of the PPP Loan are currently being accepted by the SBA and may be submitted for up to 16 months after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during the twenty-four week period, beginning on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100,000 or less annually are reduced by more than 25%. In the event the PPP Loan, or any portion thereof, is forgiven pursuant to the PPP, the amount
14
forgiven is applied to outstanding principal. The Company used all of the proceeds from the PPP Loan to retain employees and maintain payroll. Although it is the intention of the Company, no assurance is provided that the Company will apply for or obtain forgiveness of the PPP Loan in whole or in part. As such, the loan is recorded as long-term debt on the Company’s condensed consolidated balance sheet.
Inventory Financing
The Company has an Inventory Financing Agreement with a key inventory and instrument components supplier whereby the Company may draw up to $3.0 million for the purchase of inventory to accrue interest at a rate of LIBOR plus 8% subject to a 10% floor and 13% ceiling. All principal will become due and payable upon maturity on November 6, 2023 and all interest will be paid monthly. The obligation outstanding under the Inventory Financing Agreement as of June 30, 2020 was $3.0 million.
Principal payments remaining on the Company's debt are as follows as of June 30, 2020 (in thousands):
Year Ending December 31,
|
|
|
|
|
Remainder of 2020
|
|
$
|
370
|
|
2021
|
|
|
2,104
|
|
2022
|
|
|
3,166
|
|
2023
|
|
|
14,976
|
|
2024
|
|
|
12,000
|
|
2025 and thereafter
|
|
|
50,000
|
|
Total
|
|
|
82,616
|
|
Add: capital lease principal payments
|
|
|
84
|
|
Less: unamortized debt discount and debt issuance costs
|
|
|
(16,228
|
)
|
Total
|
|
|
66,472
|
|
Less: current portion of long-term debt
|
|
|
(399
|
)
|
Long-term debt, net of current portion
|
|
$
|
66,073
|
|
Covenants
The Company’s various financing agreements include several event of default provisions, such as payment default, insolvency conditions and a material adverse effect clause, which could cause interest to be charged at a rate which is up to five percentage points above the rate effective immediately before the event of default or result in the lenders’ right to declare all outstanding obligations immediately due and payable. Furthermore, the credit agreements contain various covenants and compliance requirements with governmental regulations and maintenance of insurance, as well as prohibitions against certain specified actions, including acquiring any new equipment financings over a specified amount. The Company was in compliance with the covenants under the financing agreements at June 30, 2020.
6. Commitments and Contingencies
Leases
On December 4, 2019, the Company entered into a lease agreement for a new headquarters location which will consist of 121,541 square feet of office, engineering, and research and development space in Carlsbad, California. The term of the new lease is currently anticipated to commence November 15, 2020 and terminate November 30, 2030. The Company will recognize a right-of-use (“ROU”) asset and liability upon taking control of the premises, currently anticipated to be the lease commencement date.
Operating Lease
The Company leases its buildings and certain equipment under operating leases which expire on various dates through 2021. Upon the Company’s adoption of ASU 2016-02, Leases (Topic 842), as of January 1, 2019 the Company recognized a ROU asset and lease liability for its building lease, assuming a 10.5% discount rate. Any short-term leases defined as 12 months or less or month-to-month leases were excluded and continue to be expensed each month. Total costs associated with these leases for the three and six months ended June 30, 2020 was immaterial.
15
The Company determines if an arrangement is a lease at inception. The Company has operating leases for its buildings and certain equipment with lease terms of one year to 5.5 years, some of which include options to extend and/or terminate the lease. The exercise of lease renewal options is at the Company’s sole discretion and were not included in the calculation of the Company’s lease liability as the Company is not able to determine without uncertainty if the renewal option will be exercised. The depreciable life of assets and leasehold improvements are limited to the expected term unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do not contain any variable lease payments, residual value guarantees or any restrictive covenants.
The Company’s ROU asset represents the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease or the ASC 842 adoption date, whichever is later, based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments, or 10.5% as of the adoption date. When leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date or adoption date, including the lease term. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Future minimum annual lease payments under such leases are as follows as of June 30, 2020 (in thousands):
Undiscounted lease payments:
|
|
|
|
|
Year Ending December 31,
|
|
|
|
|
Remainder of 2020
|
|
$
|
744
|
|
2021
|
|
|
918
|
|
2022
|
|
|
40
|
|
Total undiscounted lease payments
|
|
|
1,702
|
|
Less: present value adjustment
|
|
|
(107
|
)
|
Operating lease liability
|
|
|
1,595
|
|
Less: current portion of operating lease liability
|
|
|
(1,404
|
)
|
Operating lease liability, less current portion
|
|
$
|
191
|
|
As of June 30, 2020, the Company’s remaining lease term is 1.2 years. Rent expense under operating leases was $0.4 million for both the three months ended June 30, 2020 and June 30, 2019, and $0.7 million for both the six months ended June 30, 2020 and June 30, 2019, respectively. The Company paid $0.4 million and $0.7 million on its operating lease agreements for both the three and six months ended June 30, 2020 and 2019, respectively.
Purchase Commitments
The Company entered into a distribution agreement with a third-party provider in January 2020 in which the Company is obligated to certain minimum purchase requirements related to inventory purchases and equipment leases. As of June 30, 2020, the minimum purchase commitment required by the Company under the agreement was $3.3 million to be paid over a three-year period.
Litigation
The Company is and may become involved in various legal proceedings arising from its business activities. While management is not aware of any litigation matter that in and of itself would have a material adverse impact on the Company’s consolidated results of operations, cash flows or financial position, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows or financial position in a particular period. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in the Company’s consolidated financial statements. An estimated loss contingency is accrued in the Company’s consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of the Company’s potential liability.
16
In February 2018, NuVasive, Inc. filed suit against the Company in the United States District Court for the Southern District of California (NuVasive, Inc. v. Alphatec Holdings, Inc. et al., Case No. 3:18-cv-00347-CAB-MDD (S.D. Cal.)), alleging that certain of the Company’s products (including components of its Battalion™ Lateral System), infringe, or contribute to the infringement of, U.S. Patent Nos. 7,819,801, 8,355,780, 8,439,832, 8,753,270, 9,833,227 (entitled “Surgical access system and related methods”), U.S. Patent No. 8,361,156 (entitled “Systems and methods for spinal fusion”), and U.S. Design Patent Nos. D652,519 (“Dilator”) and D750,252 (“Intervertebral Implant”). NuVasive seeks unspecified monetary damages and an injunction against future purported infringement.
In March 2018, the Company moved to dismiss NuVasive’s claims of infringement of its design patents for failure to state a cognizable legal claim. In May 2018, the Court ruled that NuVasive failed to state a plausible claim for infringement of the asserted design patents and dismissed those claims with prejudice. The Company filed its answer, affirmative defenses and counterclaims to NuVasive’s remaining claims in May 2018.
Also in March 2018, NuVasive moved for a preliminary injunction. In March 2018, the Court denied that motion without prejudice for failure to comply with the Court’s chambers rules. In April 2018, NuVasive again moved for a preliminary injunction. In July 2018, the Court denied that motion on the grounds that NuVasive failed to establish either likelihood of success on the merits of its claims or that it would suffer irreparable harm absent the injunction.
In September 2018, NuVasive filed an Amended Complaint, asserting infringement claims of U.S. Patent Nos. 9,924,859, 9,974,531 and 8,187,334. The Company filed its answer, affirmative defenses and counterclaims to these new claims in October 2018. Also in October 2018, NuVasive moved to dismiss the Company’s counterclaims that NuVasive intentionally had misled the U.S. Patent and Trademark Office as a means of obtaining certain patents asserted against the Company. In January 2019, the Court denied NuVasive’s motion as to all but one of the Company’s counterclaims, but granted the Company leave to amend its counterclaim to cure the dismissal. The Company amended that counterclaim in February 2019 and, that same month, NuVasive again moved to dismiss it. In March 2019, the Court denied NuVasive’s motion. NuVasive filed its Answer to the amended counterclaim in April 2019.
In December 2018, the Company filed a petition with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of certain claims of the ’156 and ’334 Patents. In February 2019, upon joint motion of the parties, the Court stayed all proceedings in this matter, except as noted above, pending PTAB’s determination of whether to institute inter partes review (“IPR”) of the asserted claims of the two patents at issue and vacated the trial date. In July 2019, PTAB instituted IPR of the validity of asserted claims of the two patents at issue and held a hearing on the matter in April 2020. In July 2020, the PTAB ruled that all challenged claims of the ‘156 Patent were valid (not unpatentable) and ruled that several challenged claims of the ‘334 Patent were invalid, while finding that other challenged claims of the ‘334 Patent were valid. The PTAB’s written decision on the matter remains subject to potential motions for reconsideration and/or appeal.
In January 2020, NuVasive filed a Motion for Partial Summary Judgment of infringement and validity of the ’832, ’780 and ’270 Patents and the Company filed a Motion for Summary Judgment of non-infringement of all asserted claims and of invalidity of the ’832 Patent and for dismissal of NuVasive’s claim for lost profits and its allegations of assignor estoppel. In April 2020, the Court granted NuVasive’s Motion as to the alleged infringement of the ’832 Patent only and denied NuVasive’s Motion in all other respects. Also in April 2020, the Court granted the Company’s Motion as to dismissal of the allegations of assignor estoppel and denied the Company’s Motion in all other respects. Trial, which was originally set for April 2020, has been taken off calendar due to increasing uncertainties surrounding the current public health crisis. A new trial date has not been set.
The Company believes that the allegations lack merit and intends to vigorously defend all claims asserted. A liability is recorded in the consolidated financial statements if it is believed to be probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is impossible at this time to assess whether the outcome of this proceeding will have a material adverse effect on the Company’s consolidated results of operations, cash flows or financial position. Therefore, in accordance with authoritative accounting guidance, the Company has not recorded any accrual for a contingent liability associated with this legal proceeding based on its belief that a liability, while possible, is not probable and any range of potential future charge cannot be reasonably estimated at this time.
Indemnifications
In the normal course of business, the Company enters into agreements under which it occasionally indemnifies third-parties for intellectual property infringement claims or claims arising from breaches of representations or warranties. In addition, from time to time, the Company provides indemnity protection to third-parties for claims relating to past performance arising from undisclosed liabilities, product liabilities, environmental obligations, representations and warranties, and other claims. In these agreements, the scope and amount of remedy, or the period in which claims can be made, may be limited. It is not possible to determine the maximum potential amount of future payments, if any, due under these indemnities due to the conditional nature of the obligations and the unique facts and circumstances involved in each agreement.
17
In October 2017, NuVasive filed a lawsuit in Delaware Chancery Court against Mr. Miles, the Company’s Chairman and CEO, who was a former officer and board member of NuVasive. The Company itself was not initially a named defendant in this lawsuit; however, in June 2018, NuVasive amended its complaint to add the Company as a defendant. As of June 30, 2020, the Company has not recorded any liability on the condensed consolidated balance sheet related to this matter. In October 2018, the Delaware Court ordered that NuVasive begin advancing a portion of the legal fees for Mr. Miles’ defense in the lawsuit, as well as Mr. Miles’ legal fees incurred in pursuing advancement of his fees, pursuant to an indemnification agreement between NuVasive and Mr. Miles.
Royalties
The Company has entered into various intellectual property agreements requiring the payment of royalties based on the sale of products that utilize such intellectual property. These royalties primarily relate to products sold by Alphatec Spine and are based on fixed fees or calculated either as a percentage of net sales or on a per-unit sold basis. Royalties are included on the accompanying consolidated statements of operations as a component of cost of revenue. As of June 30, 2020, the Company is obligated to pay guaranteed minimum royalty payments under these agreements of approximately $4.8 million through 2024 and beyond.
7. Orthotec Settlement
On September 26, 2014, the Company entered into a Settlement and Release Agreement, dated as of August 13, 2014, by and among the Company and its direct subsidiaries, including Alphatec Spine, Inc., Alphatec Holdings International C.V., Scient'x S.A.S. and Surgiview S.A.S.; HealthpointCapital, LLC, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., John H. Foster and Mortimer Berkowitz III; and Orthotec, LLC and Patrick Bertranou, (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay Orthotec, LLC $49.0 million in cash, including initial cash payments totaling $1.75 million, which the Company previously paid in March 2014, and an additional lump sum payment of $15.75 million, which the Company previously paid in April 2014. The Company agreed to pay the remaining $31.5 million in 28 quarterly installments of $1.1 million and one additional quarterly installment of $0.7 million, commencing October 1, 2014. The payments set forth above are guaranteed by Stipulated Judgments held against the Company, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., HealthpointCapital, LLC, John H. Foster and Mortimer Berkowitz III and, in the event of a default, will be entered and enforced against these entities and/or individuals in that order. In September 2014, the Company and HealthpointCapital entered into an agreement for joint payment of settlement whereby HealthpointCapital has agreed to contribute $5 million to the $49 million settlement amount. The $5 million is classified within stockholders’ equity on the Company’s condensed consolidated balance sheet due to the related party nature with HealthpointCapital and its affiliates. See Note 11 for further information.
As of June 30, 2020, the Company has made installment payments in the aggregate of $42.8 million, with a remaining outstanding balance of $15.0 million (including interest). The Company has the right to prepay the amounts due without penalty. In addition, the unpaid balance of the amounts due accrues interest at the rate of 7% per year until paid in full. The accrued but unpaid interest will be paid in quarterly installments of $1.1 million (or the full amount of the accrued but unpaid interest if less than $1.1 million) following the full payment of the $31.5 million in quarterly installments described above. No interest will accrue on the accrued interest. The Settlement Agreement provides for mutual releases of all claims in the Orthotec, LLC v. Surgiview, S.A.S, et al. matter in the Superior Court of California, Los Angeles County and all other related litigation matters involving the Company and its directors and affiliates.
A reconciliation of the total net settlement obligation is as follows (in thousands):
|
|
June 30,
2020
|
|
|
December 31,
2019
|
|
Litigation settlement obligation - short-term portion
|
|
$
|
4,400
|
|
|
$
|
4,400
|
|
Litigation settlement obligation - long-term portion
|
|
|
9,002
|
|
|
|
10,712
|
|
Total
|
|
|
13,402
|
|
|
|
15,112
|
|
Future Interest
|
|
|
1,631
|
|
|
|
2,121
|
|
Total settlement obligation, gross
|
|
|
15,033
|
|
|
|
17,233
|
|
Related party receivable - included in stockholders' equity
|
|
|
(5,000
|
)
|
|
|
(5,000
|
)
|
Total settlement obligation, net
|
|
$
|
10,033
|
|
|
$
|
12,233
|
|
18
8. Net Loss Per Share
Basic earnings per share (“EPS”) is calculated by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock subject to repurchase by the Company, convertible preferred stock, options, convertible notes and warrants are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.
The following table presents the computation of basic and diluted net loss per share for continuing and discontinued operations (in thousands, except per share amounts):
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss, basic and diluted
|
|
$
|
(15,805
|
)
|
|
$
|
(12,436
|
)
|
|
$
|
(36,527
|
)
|
|
$
|
(25,404
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
63,874
|
|
|
|
47,143
|
|
|
|
63,303
|
|
|
|
46,233
|
|
Weighted average unvested common shares subject
to repurchase
|
|
|
(161
|
)
|
|
|
(263
|
)
|
|
|
(163
|
)
|
|
|
(276
|
)
|
Weighted average common shares outstanding—basic
and diluted
|
|
|
63,713
|
|
|
|
46,880
|
|
|
|
63,140
|
|
|
|
45,957
|
|
Net loss per share, basic and diluted:
|
|
$
|
(0.25
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.58
|
)
|
|
$
|
(0.55
|
)
|
The anti-dilutive securities not included in diluted net loss per share were as follows (in thousands):
|
|
As of
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
Options to purchase common stock
|
|
|
4,167
|
|
|
|
4,670
|
|
Unvested restricted share awards
|
|
|
8,345
|
|
|
|
3,761
|
|
Series A Convertible Preferred Stock
|
|
|
67
|
|
|
|
164
|
|
Warrants to purchase common stock
|
|
|
25,401
|
|
|
|
22,302
|
|
Total
|
|
|
37,980
|
|
|
|
30,897
|
|
9. Stock Benefit Plans and Equity Transactions
Stock Benefit Plans
On June 17, 2020, the Company’s shareholders approved an amendment to the Company’s 2016 Equity Incentive Award Plan, which increased the shares of Common Stock available for issuance under the Equity Plan by 7,000,000 shares. At June 30, 2020, 4,596,708 shares of common stock remained available for issuance under the 2016 Equity Incentive Award Plan.
Salary-to-Equity Conversion Program
Effective April 5, 2020, the Company implemented a voluntary salary-to-equity conversion program for certain employees whose annual payroll costs exceed $100,000, including the Company’s executive officers. The program permits each participant to make a voluntary election to reduce the participant’s compensation rate through July 11, 2020 from 10% to 75%. In exchange for the compensation reduction, each participant will be granted a restricted stock unit equal to the dollar amount of compensation reduction divided by the 30-day volume weighted average price of the Company’s common stock as of close of market on April 3, 2020. The restricted stock units granted under the program will fully vest on July 10, 2020. The restricted stock units will also vest upon a change in control of the Company and will be subject to certain accelerated vesting in the event of the participant’s death or disability. The temporary reduction in compensation to the participants shall not be treated as a reduction in base annual salary rate for purposes of any other benefits plans in which the participants are enrolled or eligible to participate, including in any bonus plans of the Company. As the plan allows for a cash payment of the deferred amount in the event the employee separates from the Company prior to the completion date of the program, the amounts are recorded as a liability instrument through its settlement date with a corresponding fair value update at each reporting period. As of June 30, 2020, a liability of $0.7 million was included in the Company’s condensed consolidated balance sheet for the proportionate amount of equity to be issued. A stock compensation charge was recorded for the same amount.
19
Stock-Based Compensation
Total stock-based compensation for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands):
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cost of revenues
|
|
$
|
128
|
|
|
$
|
28
|
|
|
$
|
235
|
|
|
$
|
56
|
|
Research and development
|
|
|
396
|
|
|
|
174
|
|
|
|
687
|
|
|
|
317
|
|
Sales, general and administrative
|
|
|
4,051
|
|
|
|
2,149
|
|
|
|
7,221
|
|
|
|
3,590
|
|
Total
|
|
$
|
4,575
|
|
|
$
|
2,351
|
|
|
$
|
8,143
|
|
|
$
|
3,963
|
|
Shares Reserved for Future Issuance
As of June 30, 2020, the Company had reserved shares of its common stock for future issuance as follows (in thousands):
Stock options outstanding
|
|
|
4,167
|
|
Unvested restricted stock award
|
|
|
8,345
|
|
Employee stock purchase plan
|
|
|
394
|
|
Series A convertible preferred stock
|
|
|
67
|
|
Warrants outstanding
|
|
|
25,401
|
|
Authorized for future grant under the Distributor and
Development Services plans
|
|
|
6,949
|
|
Authorized for future grant under the Management
Objective Strategic Incentive Plan
|
|
|
370
|
|
Authorized for future grant under the Company equity
plans
|
|
|
5,487
|
|
Total
|
|
|
51,180
|
|
Warrants Outstanding
2017 PIPE Warrants
The 2017 Common Stock Warrants (the “2017 PIPE Warrants”) have a five-year life and are exercisable for cash or by cashless exercise. During the three months ended June 30, 2020, there were no 2017 PIPE Warrant exercises. During the six months ended June 30, 2020 there were 125,000 2017 PIPE Warrant exercises for total cash proceeds of $0.3 million. During both the three and six months ended June 30, 2019, there were 118,864 2017 PIPE Warrant exercises for total cash proceeds of $0.2 million. As of June 30, 2020, there were 3,255,554 2017 PIPE Warrants outstanding.
2018 PIPE Warrants
The 2018 Common Stock Warrants (the “2018 PIPE Warrants”) have a five-year life and are exercisable for cash or by cashless exercise. During the three months ended June 30, 2020, there were no 2018 PIPE Warrant exercises. During the six months ended June 30, 2020, there were 2,059,524 2018 PIPE Warrant exercises for total cash proceeds of $0.9 million. During both the three and six months ended June 30, 2019, there were 136,000 2018 PIPE Warrant exercises for total cash proceeds of $0.5 million. A total of 11,663,147 2018 PIPE Warrants remained outstanding as of June 30, 2020
Squadron Warrants
As further described in Note 5, during the year ended December 31, 2018, in connection with the initial debt financing with Squadron, the Company issued warrants to purchase 845,000 shares of common stock at an exercise price of $3.15 per share. An additional 4,838,710 warrants were issued at an exercise price of $2.17 per share during the second quarter of 2019, in conjunction with the Company’s draw on the expanded credit facility. In May 2020, an additional 1,075,820 warrants were issued at an exercise price of $4.88 per share in conjunction with the Company’s second amendment to the Squadron debt for total warrants outstanding to Squadron of 6,759,530. The warrants have a seven-year term and are immediately exercisable. Further in conjunction with the second amendment, the termination dates for all existing Squadron warrants was extended to May 29, 2027 in order to align all warrant expiration dates. In accordance with authoritative accounting guidance, the warrants qualified for equity treatment upon issuance and were recorded as a debt discount to the face of the debt liability based on fair value to be amortized into interest expense over the life of the debt agreement. The fair value assigned to the warrant amendment was also allocated as a debt issuance cost and amortized into
20
interest expense. As the warrants provide for partial price protection that allow for a reduction in the price in the event of a lower per share priced issuance, the warrants were valued utilizing a Monte Carlo simulation that considers the probabilities of future financings. The Monte Carlo model simulates the present value of the potential outcomes of future stock prices of the Company over the seven-year life of the warrants. The projection of stock prices is based on the risk-free rate of return and the volatility of the stock price of the Company and correlates future equity raises based on the probabilities provided.
A summary of all outstanding warrants for common stock is as follows:
|
|
Number of
Warrants
|
|
|
Strike
Price
|
|
Expiration
|
2017 PIPE Warrants*
|
|
|
3,255,554
|
|
|
$
|
2.02
|
|
June 2022
|
2018 PIPE Warrants
|
|
|
11,663,147
|
|
|
$
|
3.50
|
|
May 2023
|
SafeOp Surgical Merger Warrants
|
|
|
2,199,682
|
|
|
$
|
3.50
|
|
May 2023
|
2018 Squadron Capital Warrants
|
|
|
845,000
|
|
|
$
|
3.15
|
|
May 2027
|
2019 Squadron Capital Warrants
|
|
|
4,838,710
|
|
|
$
|
2.17
|
|
May 2027
|
2020 Squadron Capital Warrants
|
|
|
1,075,820
|
|
|
$
|
4.88
|
|
May 2027
|
Executive Warrants
|
|
|
1,327,434
|
|
|
$
|
5.00
|
|
December 2022
|
Other*
|
|
|
195,312
|
|
|
$
|
3.85
|
|
Various through May 2023
|
Total
|
|
|
25,400,659
|
|
|
|
|
|
|
*
|
Represents weighted average exercise price.
|
All outstanding warrants were deemed to qualify for equity classification under authoritative accounting guidance.
2017 Distributor Inducement Plan and 2017 Development Services Plan
Under the 2017 Distributor Inducement Plan, the Company is authorized to grant up to 1,000,000 shares of common stock to third-party distributors whereby, upon the achievement of certain Company sales and/or distribution milestones the Company may grant to a distributor shares of common stock or warrants to purchase shares of common stock. The warrants and restricted stock units issued under the plan are subject to time based or net sales based vesting conditions. As of June 30, 2020, 220,000 warrants were granted, and 51,500 shares of common stock were earned and issued under the 2017 Distributor Inducement Plan. Warrants granted under the plan as of June 30, 2020 were not yet subject to expiration related to any time or sales based vesting conditions. Negligible expense and $0.1 million of expense have been recorded for the plan for the three months ended June 30, 2020 and June 30, 2019, respectively. Expense recorded for the plan was $0.1 million for both the six months ended June 30, 2020 and June 30, 2019.
Under the 2017 Development Services Plan, the Company is authorized to grant up to 6,000,000 shares of common stock to third-party individuals or entities whereby, upon the achievement of certain Company financial and commercial revenue milestones, future royalty payments for product and/or intellectual property development work may be paid in either cash or restricted shares of Company common stock at the election of the developer. Each common stock issuance is subject to net sales-based and other vesting provisions and satisfaction of applicable laws and market regulations regarding the issuance of restricted shares to such developers. As of June 30, 2020, the Company has entered Development Services Agreements pursuant to which the Company may grant 4,619,000 shares of restricted common stock under the 2017 Development Services Plan, subject to achievement of the performance criteria and vesting conditions as set forth in such Development Services Agreements. None of the grants are deemed probable of equity election as of June 30, 2020. In addition, no common stock elections or cash payouts have been made as of June 30, 2020.