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, Xtant Medical, Inc. (“Xtant Medical”), a Delaware corporation,
Bacterin International, Inc. (“Bacterin”), a Nevada corporation, and X-spine Systems, Inc. (“X-spine”), an Ohio
corporation (Xtant, Xtant Medical, Bacterin, and X-spine are jointly referred to herein as the “Company” or sometimes “we”,
“our,” or “us”). 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.
Since
March 2020, the COVID-19 pandemic has caused business closures, severe travel restrictions and implementation of social distancing measures.
At the onset of the COVID-19 pandemic, hospitals and other medical facilities cancelled or deferred elective procedures, diverted resources
to patients suffering from infections and limited access for non-patients, including our direct and indirect sales representatives. Because
of the COVID-19 pandemic, surgeons and their patients have been, and may continue to be, required, or are choosing, to defer procedures
in which our products otherwise would be used, and many facilities that specialize in the procedures in which our products otherwise
would be used have experienced temporary closures or reduced operating hours. These circumstances have negatively impacted, and may continue
to negatively impact, the ability of our employees, independent sales representatives and distributors to effectively market and sell
our products, which has had and will likely continue to have a material adverse effect on our revenues.
The
accompanying condensed consolidated balance sheet as of December 31, 2020, 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, 2021.
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, 2020. 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.
Private
Placement
On
February 24, 2021, we issued in a private placement (the “Private Placement”) to a single healthcare-focused institutional
accredited investor (the “Investor”) 8,888,890 shares of our common stock at a purchase price of $2.25 per share, and warrants
to purchase up to 6,666,668 shares of our common stock (the “Investor Warrant”). We received net cash proceeds of approximately
$18.4 million, after deducting fees and other estimated offering expenses, from the Private Placement.
The
Investor Warrant, described in more detail in Note 10, “Warrants”, has an exercise price of $2.25 per share, subject
to customary anti-dilution, but not price protection, adjustments, and will be immediately exercisable and expire on the five-year anniversary
of the date of issuance.
In
connection with the Private Placement, we entered into a placement agent agreement with a placement agent (the “Placement Agent”)
pursuant to which the Placement Agent is serving as our exclusive placement agent in connection with the Private Placement (the “Placement
Agent Agreement”). Pursuant to the Placement Agent Agreement, we agreed to pay the Placement Agent a fee equal to a certain percentage
of the aggregate gross proceeds from the Private Placement. In addition to the cash fee, we agreed to issue to the Placement Agent a
warrant to purchase up to 5.0% of the shares sold to the Investor in the Private Placement, or 444,444 shares of our common stock (the
“Placement Agent Warrant”). The Placement Agent Warrant, described in more detail in Note 10, “Warrants”,
has an exercise price of $2.8125 per share, subject to customary anti-dilution, but not price protection, adjustments and will be
immediately exercisable and expire on the five-year anniversary of the date of issuance.
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, and intangible assets and liabilities; valuation allowances for trade
receivables, inventory and deferred income tax assets and liabilities; current and long-term lease obligations and corresponding right-of-use
asset; and estimates for the fair value of long-term debt, stock option grants and other equity awards upon which the Company determines
stock-based compensation expense. Actual results could differ from those estimates.
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. The Company looks primarily to estimated undiscounted future cash flows in its assessment of whether
or not long-lived assets are recoverable. As a result of the revenue decline related to the COVID-19 pandemic, the Company evaluated
whether the carrying values of the long-lived assets were recoverable. Based on these evaluations, the Company determined that the long-lived
assets were still recoverable. No impairments of long-lived assets were recorded for the three months ended March 31, 2021 and 2020.
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. No impairments of goodwill
were recorded for the three months ended March 31, 2021 and 2020.
Net
Loss Per Share
Basic
net income (loss) per share is computed by dividing net income (loss) 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 income (loss) 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 per share was the same as basic net loss per share for the three months ended March
31, 2021 and 2020, 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. Our diluted earnings per share is the same as basic earnings per share, as the effects of including 11,982,139
and 4,363,089 outstanding stock options, restricted stock units and warrants for the three months ended March 31, 2021 and 2020, respectively,
are anti-dilutive.
Reclassification
Certain
prior year amounts have been reclassified to conform with current year presentation.
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.
In
the United States, we generate most of our revenue from independent commissioned sales agents. We consign our orthobiologics products
to hospitals and consign or loan our spinal implant sets to the 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.
We
ship 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.
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. Upon receipt of the hospital purchase order, the Company invoices the hospital,
and revenue is recognized in the proper period. Additionally, the Company sells product directly to domestic and international stocking
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 control of the promised goods is
transferred to the customer, in an amount that reflects the consideration we expect to collect in exchange for those goods or services.
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.
The
Company operates in one reportable segment with our net revenue derived primarily from the sale of orthobiologics and spinal implant
products across North America, Europe, Asia Pacific, and Latin America. Sales are reported net of returns. The following table presents
revenues from these product lines for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
Three Months
Ended
|
|
|
Percentage of
|
|
|
Three Months
Ended
|
|
|
Percentage of
|
|
|
|
March 31, 2021
|
|
|
Total Revenue
|
|
|
March 31, 2020
|
|
|
Total Revenue
|
|
Orthobiologics
|
|
$
|
9,011
|
|
|
|
72
|
%
|
|
$
|
10,755
|
|
|
|
73
|
%
|
Spinal implant
|
|
|
3,498
|
|
|
|
28
|
%
|
|
|
3,980
|
|
|
|
27
|
%
|
Other revenue
|
|
|
33
|
|
|
|
0
|
%
|
|
|
43
|
|
|
|
0
|
%
|
Total revenue
|
|
$
|
12,542
|
|
|
|
100
|
%
|
|
$
|
14,778
|
|
|
|
100
|
%
|
The
Company’s provision for current expected credit loss (“CECL”) 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. Activity within the allowance for credit losses was as follows for the three
months ended March 31, 2021 and 2020 (in thousands):
|
|
March 31, 2021
|
|
|
March 31, 2020
|
|
Balance at January 1
|
|
$
|
653
|
|
|
$
|
547
|
|
Provision for expected credit losses
|
|
|
(63
|
)
|
|
|
138
|
|
Write-offs charged against allowance
|
|
|
(36
|
)
|
|
|
(17
|
)
|
Balance at March 31
|
|
$
|
554
|
|
|
$
|
668
|
|
Inventories
consist of the following (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Raw materials
|
|
$
|
3,758
|
|
|
$
|
3,757
|
|
Work in process
|
|
|
1,537
|
|
|
|
1,733
|
|
Finished goods
|
|
|
16,346
|
|
|
|
15,918
|
|
|
|
$
|
21,641
|
|
|
$
|
21,408
|
|
(5)
|
Property
and Equipment, Net
|
Property
and equipment, net are as follows (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Equipment
|
|
$
|
5,217
|
|
|
$
|
4,950
|
|
Computer equipment
|
|
|
593
|
|
|
|
649
|
|
Computer software
|
|
|
517
|
|
|
|
570
|
|
Leasehold improvements
|
|
|
3,987
|
|
|
|
3,987
|
|
Surgical instruments
|
|
|
11,621
|
|
|
|
11,291
|
|
Total cost
|
|
|
21,935
|
|
|
|
21,447
|
|
Less: accumulated depreciation
|
|
|
(17,269
|
)
|
|
|
(17,100
|
)
|
Property and equipment, net
|
|
$
|
4,666
|
|
|
$
|
4,347
|
|
Depreciation
expense related to property and equipment, including property under finance leases, for the first three months of 2021 and 2020 was $0.4
million and $0.7 million, respectively.
The
following table sets forth information regarding intangible assets (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Patents
|
|
$
|
847
|
|
|
$
|
847
|
|
Accumulated amortization
|
|
|
(404
|
)
|
|
|
(390
|
)
|
Intangible assets, net
|
|
$
|
443
|
|
|
$
|
457
|
|
The
following is a summary of estimated future amortization expense for intangible assets as of March 31, 2021 (in thousands):
|
Remainder of 2021
|
|
|
$
|
41
|
|
|
2022
|
|
|
|
54
|
|
|
2023
|
|
|
|
53
|
|
|
2024
|
|
|
|
52
|
|
|
2025
|
|
|
|
52
|
|
|
Thereafter
|
|
|
|
191
|
|
|
Total
|
|
|
$
|
443
|
|
Accrued
liabilities consist of the following (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Cash compensation/commissions payable
|
|
$
|
3,183
|
|
|
$
|
4,057
|
|
Other accrued liabilities
|
|
|
1,386
|
|
|
|
1,405
|
|
Accrued liabilities
|
|
$
|
4,569
|
|
|
$
|
5,462
|
|
The
Company has a credit facility with OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”) (the “Second A&R
Credit Agreement”), which matures on December 31, 2021. As of March 31, 2021, the Company may request additional term loans from
the Royalty Opportunities in an aggregate amount up to $5.0 million, subject to Royalty Opportunities’ discretion. As
a result of our most recent amendment to the Second A&R Credit Agreement, the carrying value of loans outstanding under the Second
A&R Credit Agreement is equal to the undiscounted future cash payments associated with the Second Amendment and principal associated
with loans thereunder. Cash interest payments in connection with the Second A&R Credit Agreement will reduce the carrying value of
associated loans; and accordingly, no interest expense related to cash interest payments will be recorded for the duration of the Second
A&R Credit Agreement.
Long-term
debt consists of the following (in thousands):
|
|
March 31, 2021
|
|
|
December 31, 2020
|
|
Amounts due under the Second Amended and Restated Credit Agreement
|
|
$
|
15,556
|
|
|
$
|
15,556
|
|
Premium related to Second Amendment
|
|
|
934
|
|
|
|
1,241
|
|
Less: current maturities
|
|
|
(16,490
|
)
|
|
|
(16,797
|
)
|
Long-term debt
|
|
$
|
—
|
|
|
$
|
—
|
|
(9)
|
Stock-Based
Compensation
|
Stock
option activity, including options granted under the Xtant Medical Holdings, Inc. 2018 Equity Incentive Plan, as amended (the “2018
Plan”), and the Amended and Restated Xtant Medical Equity Incentive Plan and options granted to new hires to purchase shares of
our common stock outside of any stockholder-approved plan, was as follows for the three months ended March 31, 2021 and 2020:
|
|
2021
|
|
|
2020
|
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price Per Share
|
|
|
Weighted
Average Fair
Value at Grant
Date Per
Share
|
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
Per Share
|
|
|
Weighted
Average Fair
Value at Grant
Date Per Share
|
|
Outstanding at January 1
|
|
|
2,190,892
|
|
|
$
|
2.25
|
|
|
$
|
1.65
|
|
|
|
602,966
|
|
|
$
|
6.07
|
|
|
$
|
3.99
|
|
Cancelled or expired
|
|
|
(125
|
)
|
|
$
|
372.00
|
|
|
$
|
184.59
|
|
|
|
(76,299
|
)
|
|
$
|
4.18
|
|
|
$
|
2.96
|
|
Outstanding at March 31
|
|
|
2,190,767
|
|
|
$
|
2.23
|
|
|
$
|
1.64
|
|
|
|
526,667
|
|
|
$
|
6.34
|
|
|
$
|
4.14
|
|
Exercisable at March 31
|
|
|
122,614
|
|
|
$
|
14.38
|
|
|
$
|
8.77
|
|
|
|
48,764
|
|
|
$
|
41.11
|
|
|
$
|
23.34
|
|
Restricted
stock unit activity for awards granted under the 2018 Plan was as follows for the three months ended March 31, 2021 and 2020:
|
|
2021
|
|
|
2020
|
|
|
|
Shares
|
|
|
Weighted
Average Fair Value at Grant Date Per Share
|
|
|
Shares
|
|
|
Weighted
Average Fair Value at Grant Date Per Share
|
|
Outstanding at January 1
|
|
|
2,503,698
|
|
|
$
|
1.54
|
|
|
|
499,914
|
|
|
$
|
2.93
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
|
489,437
|
|
|
$
|
1.45
|
|
Vested
|
|
|
(244,716
|
)
|
|
$
|
1.45
|
|
|
|
(61,803
|
)
|
|
$
|
2.27
|
|
Outstanding at March 31
|
|
|
2,258,982
|
|
|
$
|
1.54
|
|
|
|
927,548
|
|
|
$
|
1.86
|
|
As
noted in Note 1, “Business Description, Basis of Presentation and Summary of Significant Accounting Policies,” on
February 22, 2021, the Company issued the Investor Warrants and Placement Agent Warrants. The Investor and Placement Agent Warrants meet
all the requirements to be classified as equity awards in accordance with Accounting Standards Codification (“ASC”) No. 815-40.
The number of shares of Company common stock issuable upon exercise of the Investor Warrants and Placement Agent Warrants is subject
to standard and customary anti-dilution provisions for stock splits, stock dividends, or similar transactions. In addition, the Investor
Warrants include a buy-out right whereby the holders of such warrants may put the warrants back to the Company or its successor in the
event of a purchase, tender or exchange offer accepted by 50% or more of the Company’s holders of common stock and not approved
by the Company’s board of directors. The buy-out amount is equal to the Black-Scholes value of the warrants on the date the triggering
transaction is consummated based on certain inputs as defined in the Investor Warrant agreement. The consideration to be paid if the
buy-out provision is triggered shall be in the same type or form of consideration that is being
offered and paid to the holders of Company common stock in connection with the triggering transaction.
While
the Investor Warrants are classified as a component of equity, we were required to allocate the proceeds of the Private Placement between
the shares of common stock and Investor Warrants issued based on their relative fair values. We utilized a lattice valuation model to
determine the fair value of the Investor Warrants. The fair value of the Placement Agent Warrants issued in connection with the Private
Placement was determined using a Black Scholes model. Significant assumptions in both models included contractual term (5 years) and
the estimated volatility factor based on a weighted average of comparable published betas of peer companies (61%).
Our
warrant activity during the three months ended March 31, 2021 was as follows:
|
|
|
Common Stock
Warrants
|
|
|
Weighted Average Exercise Price
|
|
|
Outstanding at January 1, 2021
|
|
|
|
421,278
|
|
|
$
|
10.80
|
|
|
Issued
|
|
|
|
7,111,112
|
|
|
|
2.29
|
|
|
Outstanding at March 31, 2021
|
|
|
|
7,532,390
|
|
|
$
|
2.76
|
|
(11)
|
Commitments
and Contingencies
|
Operating
Leases
We
lease three office facilities as of March 31, 2021 in Belgrade, Montana under non-cancelable operating lease agreements with expiration
dates between 2023 and 2025. We have the option to extend certain leases to five or ten-year term(s), and we have the right of first
refusal on any sale.
Present
Value of Long-term Leases
(in thousands):
|
|
March 31, 2021
|
|
Right-of-use assets, net
|
|
$
|
1,585
|
|
|
|
|
|
|
Current portion of lease liability
|
|
|
431
|
|
Lease liability, less current portion
|
|
|
1,192
|
|
Total lease liability
|
|
$
|
1,623
|
|
As
of March 31, 2021, the weighted-average remaining lease term was 3.7 years.
Future
minimum payments for the next five years and thereafter as of March 31, 2021 under these long-term operating leases are as follows (in
thousands):
Remainder of 2021
|
|
$
|
380
|
|
2022
|
|
|
521
|
|
2023
|
|
|
489
|
|
2024
|
|
|
224
|
|
2025
|
|
|
179
|
|
Total future minimum lease payments
|
|
|
1,793
|
|
Less amount representing interest
|
|
|
(170
|
)
|
Present value of obligations under operating leases
|
|
|
1,623
|
|
Less current portion
|
|
|
(431
|
)
|
Long-term operating lease obligations
|
|
$
|
1,192
|
|
Rent
expense was $0.1 million for the three months ended March 31, 2021 and 2020. We have no contingent rent agreements.
Financing
Leases
Future
minimum payments under finance leases are as follows as of March 31, 2021 (in thousands):
Remainder of 2021
|
|
$
|
28
|
|
2022
|
|
|
37
|
|
2023
|
|
|
37
|
|
2024
|
|
|
37
|
|
2025
|
|
|
37
|
|
Thereafter
|
|
|
3
|
|
Total future minimum lease payments
|
|
|
179
|
|
Less amount representing interest
|
|
|
(20
|
)
|
Present value of obligations under finance leases
|
|
|
159
|
|
Less current portion
|
|
|
(30
|
)
|
Long-term operating lease obligations
|
|
$
|
129
|
|
Litigation
In
November 2020, we received a letter from a third party’s legal counsel claiming that some of our products, including the Butrex
Plating System, Spider Plating System, Aranax Plating System and Irix Fusion System, infringe a patent held by the third party and offering
to discuss settlement terms. Because this matter is in early stages and because of the complexity of the claims, we cannot estimate the
possible loss or range of loss, if any, associated with its resolution. However, there can be no assurance that the ultimate resolution
of this matter will not result in a material adverse effect on our business, financial condition or results of operations.
In
addition, 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. The amount
of ultimate loss may exceed the Company’s current accruals, and it is possible that its 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.
Indemnifications
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.
In
evaluating the realizability of the net deferred tax assets, we take into account a number of factors, primarily relating to the ability
to generate taxable income. Where it is determined that it is likely that we will be unable to realize deferred tax assets, a valuation
allowance is established against the portion of the deferred tax asset. Because it cannot be accurately determined when or if we will
become profitable, a valuation allowance was provided against the entire deferred income tax asset balance.
The
Company did not recognize any interest or penalties related to income taxes for the three months ended March 31, 2021 and 2020.
(13)
|
Supplemental
Disclosure of Cash Flow Information
|
Supplemental
cash flow information is as follows (in thousands):
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1
|
|
|
$
|
7
|
|
Non-cash activities:
|
|
|
|
|
|
|
|
|
Fixed assets acquired under finance lease
|
|
$
|
163
|
|
|
$
|
—
|
|
Warrants issued in connection with the Private Placement to placement agents
|
|
$
|
351
|
|
|
$
|
—
|
|
ASU 2016-13 cumulative effect adjustment
|
|
$
|
—
|
|
|
$
|
47
|
|
(14)
|
Related
Party Transactions
|
Royalty
Opportunities, which owns approximately 20% of the Company’s outstanding common stock, was the sole holder of our outstanding long-term
debt and a party to the Second Amended and Restated Credit Agreement, which was terminated in connection with our debt refinancing described
under Note 16. In addition, as described in more detail
under Note 1, “Business Description and Summary of Significant Accounting Policies” in the Company’s Annual
Report on Form 10-K for the year ended December 31, 2020, we are party to an Investor Rights Agreement, Registration Rights Agreements
and certain other agreements with Royalty Opportunities and ROS Acquisition Offshore LP (“ROS”), which are funds affiliated
with OrbiMed Advisors LLC (“OrbiMed”). OrbiMed beneficially owns 84% of the Company’s common stock.
All
related party transactions are reviewed and approved by the Audit Committee or the disinterested members of the full Board.
(15)
|
Segment
and Geographic Information
|
The
Company’s management reviews financial results and manages the business on an aggregate basis. Therefore, financial results are
reported in a single operating segment: the development, manufacture, and marketing of orthopedic medical products and devices.
The
Company attributes revenues to geographic areas based on the location of the customer. Approximately 98% and 96% of sales were in the
United States for the nine months ended March 31, 2021 and 2020, respectively. Total revenue by major geographic area is as follows (in
thousands):
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
|
2020
|
|
United States
|
|
$
|
12,293
|
|
|
$
|
14,251
|
|
Rest of world
|
|
|
249
|
|
|
|
526
|
|
Total revenue
|
|
$
|
12,542
|
|
|
$
|
14,777
|
|
(16)
Subsequent Event
On
May 6, 2021 (the “Closing Date”), the Company, as guarantor, and its subsidiaries, as borrowers (collectively, the “Borrowers”),
entered into a (i) Credit, Security and Guaranty Agreement (Term Loan) (the “Term Credit Agreement”) with MidCap Financial
Trust, in its capacity as agent (the “Agent”), and a lender and the additional lenders from time to time party thereto and
(ii) Credit, Security and Guaranty Agreement (Revolving Loan) (the “Revolving Credit Agreement,”, and, together with the
Term Credit Agreement, the “Credit Agreements”), with the Agent and the lenders from time to time party thereto.
The
Term Credit Agreement provides for a secured term loan facility (the “Term Facility”) in an aggregate principal amount of
$12,000,000 (the “Term Loan Commitment”), which was funded to the Borrowers on the Closing Date, and an additional $5,000,000
tranche available solely at the discretion of the Agent and the lenders, for the purposes agreed to between the Company, the Borrowers
and the lenders in advance of the making of loans under such additional tranche. The Revolving Credit Agreement provides for a secured
revolving credit facility (the “Revolving Facility,”, and, together with the Term Facility, the “Facilities”)
under which the Borrowers may borrow up to $8,000,000 (such amount, the “Revolving Loan Commitment”) 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 May 1, 2026. The loans and other obligations pursuant to the Credit Agreements will bear interest
at a per annum rate equal to the sum of the LIBOR rate, as such term is defined in the Credit Agreements, plus the applicable margin
of 7.00% in the case of the Term Credit Agreement, and 4.50% in the case of the Revolving Credit Agreement, subject in each case to a
LIBOR floor of 1.00%. The proceeds of the Term Facility were used to pay transaction fees in connection with the Facilities and to pay
in full all outstanding indebtedness and accrued interest under the Company’s Second Amended and Restated Credit Agreement. The
proceeds of the Revolving Facility may be used to pay transaction fees in connection with the Facilities, to pay in full all outstanding
indebtedness and accrued interest under the Company’s prior credit facility, and for working capital and general corporate purposes.
The
Credit Agreements replaced the Company’s Second Amended and Restated Credit Agreement and the indebtedness incurred, and all other
obligations of the Company and its subsidiaries owed, under the Second Amended and Restated Credit Agreement were repaid in full and
terminated using proceeds of the loans received under the Credit Agreements.