Full Press Release Details
HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(Unaudited, in thousands, except share data)
| June 30, 2023 | December 31, 2022 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 14,992 | $ | 16,295 | ||||
| Accounts receivable - less allowances of $9,890 at June 30, 2023 and $9,861 at December 31, 2022 | 10,058 | 16,057 | ||||||
| Inventories - current | 9,400 | 17,710 | ||||||
| Prepaid and other current assets | 4,896 | 6,649 | ||||||
| Total current assets | $ | 39,346 | $ | 56,711 | ||||
| Non-current inventories | 6,148 | 5,947 | ||||||
| Property and equipment - net | 1,921 | 2,057 | ||||||
| Other assets - net | 5,713 | 5,527 | ||||||
| Total assets | $ | 53,128 | $ | 70,242 | ||||
| Liabilities, Mezzanine Equity and Stockholders' Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 5,253 | $ | 7,705 | ||||
| Accrued expenses | 12,090 | 13,146 | ||||||
| Accrued income taxes | 402 | 296 | ||||||
| Total current liabilities | $ | 17,745 | $ | 21,147 | ||||
| Acquisition contingencies - Holo | 22,995 | 24,061 | ||||||
| Warrant liability | - | 22,982 | ||||||
| Notes payable - related party | 10,244 | 10,192 | ||||||
| Other long-term liabilities | 7,906 | 7,583 | ||||||
| Total liabilities | $ | 58,890 | $ | 85,965 | ||||
| Commitments and contingencies (Note 17) | ||||||||
| Mezzanine equity | 10,006 | 10,006 | ||||||
| Stockholders' equity: | ||||||||
| Common stock, $.001 par value: 300,000,000 shares authorized; 9,176,688 and 7,860,369 shares issued and outstanding, as of June 30, 2023 and December 31, 2022, respectively | 8 | 7 | ||||||
| Additional paid-in capital | 611,397 | 607,245 | ||||||
| Accumulated other comprehensive loss | (2,838 | ) | (2,840 | ) | ||||
| Accumulated deficit | (618,392 | ) | (624,218 | ) | ||||
| Less treasury stock, 76,769 and 66,641 shares, as of June 30, 2023 and December 31, 2022, respectively, at cost | (5,943 | ) | (5,923 | ) | ||||
| Total stockholders' equity | $ | (15,768 | ) | $ | (25,729 | ) | ||
| Total liabilities, mezzanine equity and stockholders' equity | $ | 53,128 | $ | 70,242 |
notes to unaudited condensed consolidated financial statements.
HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(Unaudited, in thousands, except share and per share data)
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | 30,293 | $ | 41,228 | ||||
| Cost of goods sold | 10,341 | 12,824 | ||||||
| Gross profit | 19,952 | 28,404 | ||||||
| Operating Expenses: | ||||||||
| General and administrative | 40,784 | 49,606 | ||||||
| Severance and restructuring costs | 932 | - | ||||||
| Research and development | 5,810 | 8,530 | ||||||
| Gain on acquisition contingency | (1,066 | ) | (10,493 | ) | ||||
| Asset impairment and abandonments | 637 | 1,935 | ||||||
| Transaction and financing expenses | 463 | 1,138 | ||||||
| Total operating expenses | 47,560 | 50,716 | ||||||
| Gain on sale of Coflex | (12,631 | ) | - | |||||
| Operating loss | (14,977 | ) | (22,312 | ) | ||||
| Other (income) expense - net | ||||||||
| Other (income) expense - net | (295 | ) | 49 | |||||
| Interest expense | 504 | 504 | ||||||
| Foreign exchange (gain) loss | (480 | ) | 1,409 | |||||
| Change in fair value of warrant liability | (20,800 | ) | (18,867 | ) | ||||
| Total other income - net | (21,071 | ) | (16,905 | ) | ||||
| Income before income tax provision | 6,094 | (5,407 | ) | |||||
| Income tax provision | 268 | 254 | ||||||
| Net income (loss) from operations | 5,826 | (5,661 | ) | |||||
| Other comprehensive income (loss) | ||||||||
| Unrealized foreign currency translation gain | (1,020 | ) | (422 | ) | ||||
| Total other comprehensive income (loss) | 6,846 | (5,239 | ) | |||||
| Net income (loss) per common share - basic | 0.72 | (0.92 | ) | |||||
| Net income (loss) per common share - diluted | 0.66 | (0.92 | ) | |||||
| Weighted average shares outstanding - basic | 8,072,339 | 6,174,273 | ||||||
| Weighted average shares outstanding - diluted | 8,766,184 | 6,174,273 |
notes to unaudited condensed consolidated financial statements.
HOLDINGS, INC. AND SUBSIDIARIES
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited, in thousands)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Treasury Stock | Total | Mezzanine Equity | ||||||||||||||||||||||
| Balance, January 1, 2023 | $ | 7 | $ | 607,245 | $ | (2,840 | ) | $ | (624,218 | ) | $ | (5,923 | ) | $ | (25,729 | ) | $ | 10,006 | ||||||||||
| Net income | - | - | - | 4,145 | - | 4,145 | - | |||||||||||||||||||||
| Foreign currency translation adjustment | - | - | (509 | ) | - | - | (509 | ) | - | |||||||||||||||||||
| Share offering | - | - | - | - | - | - | - | |||||||||||||||||||||
| Prefunded warrant execution | 1 | 2,182 | - | - | - | 2,183 | - | |||||||||||||||||||||
| Equity instruments issued in connection with the Holo acquisition | - | - | - | - | - | - | - | |||||||||||||||||||||
| Stock-based compensation | - | 995 | - | - | - | 995 | - | |||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | (20 | ) | (20 | ) | - | |||||||||||||||||||
| Balance, March 31, 2023 | $ | 8 | $ | 610,422 | $ | (3,349 | ) | $ | (620,073 | ) | $ | (5,943 | ) | $ | (18,935 | ) | $ | (10.006 | ) | |||||||||
| Net Income | - | - | - | 1,681 | - | 1,681 | - | |||||||||||||||||||||
| Foreign currency translation adjustment | - | - | 511 | - | - | 511 | - | |||||||||||||||||||||
| Stock-based compensation | - | 975 | - | - | - | 975 | - | |||||||||||||||||||||
| Balance, June 30, 2023 | $ | 8 | $ | 611,397 | $ | (2,838 | ) | $ | (618,392 | ) | $ | (5,943 | ) | $ | (15,768 | ) | $ | 10,006 |
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Treasury Stock | Total | Mezzanine Equity | ||||||||||||||||||||||
| Balance, January 1, 2022 | $ | 75 | $ | 585,517 | $ | (1,820 | ) | $ | (569,613 | ) | $ | (5,852 | ) | $ | 8,237 | $ | 10,006 | |||||||||||
| Net income | - | - | - | 27 | - | 27 | - | |||||||||||||||||||||
| Foreign currency translation adjustment | - | - | (109 | ) | - | - | (109 | ) | - | |||||||||||||||||||
| Share offering | 1 | 8,487 | - | - | - | 8,488 | - | |||||||||||||||||||||
| Prefunded warrant execution | - | 1,749 | - | - | - | 1,749 | - | |||||||||||||||||||||
| Equity instruments issued in connection with the Holo acquisition | - | 5,918 | - | - | - | 5,919 | - | |||||||||||||||||||||
| Stock-based compensation | - | 1,374 | - | - | - | 1,374 | - | |||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | (5 | ) | (5 | ) | - | |||||||||||||||||||
| Balance, March 31, 2022 | $ | 7 | $ | 603,042 | $ | (1,929 | ) | $ | (569,586 | ) | $ | (5,857 | ) | $ | 25,680 | $ | (10.006 | ) | ||||||||||
| Net Income | - | - | - | (5,688 | ) | - | (5,688 | ) | - | |||||||||||||||||||
| Foreign currency translation adjustment | - | - | (313 | ) | - | - | (313 | ) | - | |||||||||||||||||||
| Stock-based compensation | - | 971 | - | - | - | 971 | - | |||||||||||||||||||||
| Purchase of stock in the ESPP Plan | - | 186 | - | - | - | 186 | - | |||||||||||||||||||||
| Purchase of treasury stock | - | - | - | - | (51 | ) | (51 | ) | - | |||||||||||||||||||
| Other | - | 50 | - | - | - | 50 | - | |||||||||||||||||||||
| Balance, June 30, 2022 | $ | 7 | $ | 604,252 | $ | (2,242 | ) | $ | (575,274 | ) | $ | (5,908 | ) | $ | 20,835 | $ | 10,006 |
notes to unaudited condensed consolidated financial statements.
HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
| For the Six Months Ended June 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 5,826 | $ | (5,661 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization expense | 999 | 1,180 | ||||||
| Provision for bad debts and product returns | 58 | 700 | ||||||
| Investor fee | - | 916 | ||||||
| Change in fair value of warrant liability | (20,800 | ) | (18,867 | ) | ||||
| Provision for inventory write-downs | 430 | 3,804 | ||||||
| Deferred income tax provision | (42 | ) | - | |||||
| Stock-based compensation | 1,970 | 2,299 | ||||||
| Asset impairment and abandonments | 553 | 1,935 | ||||||
| Gain on acquisition contingency | (1,066 | ) | (10,493 | ) | ||||
| Gain on sale of Coflex | (12,631 | ) | - | |||||
| Other | (35 | ) | (3 | ) | ||||
| Change in assets and liabilities: | ||||||||
| Accounts receivable | 5,941 | (2,082 | ) | |||||
| Inventories | 5,510 | (4,767 | ) | |||||
| Accounts payable | (2,452 | ) | 446 | |||||
| Accrued expenses | (2,733 | ) | (7,025 | ) | ||||
| Right-of-use asset and lease liability | (360 | ) | 223 | |||||
| Other operating assets and liabilities | 1,879 | 4,986 | ||||||
| Net cash used in operating activities | $ | (16,953 | ) | $ | (32,409 | ) | ||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | (1,297 | ) | (3,034 | ) | ||||
| Disposal of Coflex | 17,000 | - | ||||||
| Patent and acquired intangible asset costs | (35 | ) | (184 | ) | ||||
| Net cash provided by (used in) investing activities | $ | 15,668 | $ | (3,218 | ) | |||
| Cash flows from financing activities: | ||||||||
| Share offering proceeds including prefunded warrant exercised, net | - | 17,729 | ||||||
| Payment of Holo Milestones - contingent consideration | - | (4,081 | ) | |||||
| Proceeds from Employee Stock Purchase Program (ESPP) | - | 186 | ||||||
| Pre-funded warrant execution | 1 | - | ||||||
| Payments for treasury stock | (20 | ) | (56 | ) | ||||
| Net cash (used in) provided by financing activities | $ | (19 | ) | $ | 13,778 | |||
| Effect of exchange rate changes on cash and cash equivalents | 1 | (94 | ) | |||||
| Net decrease in cash and cash equivalents | (1,303 | ) | (21,943 | ) | ||||
| Cash and cash equivalents, beginning of period | 16,295 | 51,287 | ||||||
| Cash and cash equivalents, end of period | $ | 14,992 | $ | 29,344 | ||||
| Supplemental cash flow disclosure: | ||||||||
| Net income tax payments, net of refunds | $ | 476 | $ | 1,548 | ||||
| Non-cash acquisition of property and equipment | 9 | 189 | ||||||
| Non-cash common stock issuance - Holo Milestones contingent considerations | - | 5,919 |
notes to unaudited condensed consolidated financial statements.
HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data or otherwise noted)
Holdings, Inc. (the "Company", "we," "us," or "our") is a global medical technology company.
We market and sell products to hospitals, ambulatory surgery centers, and healthcare providers in the United States and in approximately
40 countries worldwide. We are headquartered in Deerfield, Illinois, with commercial, innovation and design centers in San Diego, California;
Wurmlingen, Germany; and Warsaw, Poland. The Company operates one reportable segment: Spine.
of Coflex and Cofix Product Lines
February 28, 2023, pursuant to an Equity Purchase Agreement (the "Coflex Purchase Agreement") by and among the Company's
indirect subsidiary, Surgalign SPV, Inc., a Delaware corporation ("Surgalign SPV"), Surgalign Spine Technologies, Inc, a
Delaware corporation and sole stockholder of Surgalign SPV (the "Seller"), the Company, and Xtant Medical Holdings, Inc.,
a Delaware corporation ("Xtant"), Xtant acquired 100% of the issued and outstanding equity of Surgalign SPV from the Seller
(the "Coflex Transaction"). The aggregate consideration paid in the Coflex Transaction was $17.0 million in cash which resulted
in net proceeds of $14.8 million to the Company after transaction fees of $2.2 million which were paid to the financial advisors and
lawyers associated with the transaction.
a result of the Coflex Transaction, Xtant acquired the Coflex and Cofix product lines in the United States which had a net book value
of $2.2 million as of the date of the Coflex Transaction. The net book value of the assets was entirely associated with the inventory
of Coflex and Cofix. In addition, Xtant acquired the worldwide intellectual property rights of the Coflex and Cofix product lines, which
had no book value as of the date of the transaction. No other assets or liabilities were transferred to Xtant and as such the Company
recorded a gain of $12.6 million related to the Coflex Transaction. In connection with the Coflex Transaction, the Seller, Surgalign
SPV and Xtant also entered into a Transition Services Agreement, dated as of February 28, 2023 (the "Transition Services Agreement"),
pursuant to which the Seller agreed to provide certain transition services to Xtant immediately after the closing for an agreed upon
May 10, 2022, the stockholders of the Company approved the proposal to authorize the Company's Board of Directors (the "Board")
to amend the Company's Amended and Restated Certificate of Incorporation to effect a reverse stock split of the Company's
common stock (the "Reverse Stock Split"). Following Board approval on May 11, 2022, the Reverse Stock Split became effective
on May 16, 2022 at a 1-for-30 ratio. The Reverse Stock Split did not modify any rights or preferences of the shares of the Company's
common stock. Proportionate adjustments were made to the exercise prices and the number of shares underlying the Company's outstanding
equity awards, as applicable, and warrants, as well as to the number of shares issued and issuable under the Company's equity incentive
plans. The Reverse Stock Split did not affect the number of authorized shares of common stock or the par value of the common stock. Unless
we indicate otherwise, all per share amounts and references to common shares and common share amounts in these financial statements reflect
the Reverse Stock Split, and the accompanying financial statements and notes to the financial statements give effect to the Reverse Stock
Split and have been retroactively applied.
Concern and Liquidation
accompanying condensed consolidated financial statements of the Company have been prepared assuming the Company will continue as a going
concern and in accordance with generally accepted accounting principles in the United States of America. On August 10, 2023, Xtant acquired
substantially all of the assets and certain specified liabilities of the Company, and its subsidiaries pursuant to the Asset Purchase
Agreement, dated June 18, 2023, between the Company and Xtant.
accompanying condensed consolidated financial statements include all adjustments, consisting of normal recurring accruals, which the
Company considers necessary for a fair presentation of the results of operations for the periods shown. The condensed consolidated financial
statements have been prepared in accordance with the instructions to Form 10-Q and Regulation S-X, and therefore, do not include all
information and footnotes necessary for a fair presentation of the condensed consolidated financial position, results of operations,
comprehensive loss and cash flows in conformity with accounting principles generally accepted in the United States of America ("GAAP").
The preparation of our condensed consolidated financial statements in accordance with GAAP often requires us to make estimates and judgments
that affect reported amounts. These estimates and judgments are based on historical experience and assumptions that we believe to be
reasonable under the circumstances. Assumptions and judgments based on historical experience may provide reported results, which differ
from actual results; however, these assumptions and judgments historically have not varied significantly from actual experience, and
we therefore do not expect them to vary significantly in the future. All intercompany balances and transactions have been eliminated
in consolidation. The results of operations for any interim period are not necessarily indicative of the results to be expected for the
full year. The Company includes acquisition, disposal, integration and separation related costs, which are predominantly composed of
legal, consulting, and advisor fee expenses, within the "Transaction and integration expense" line on the condensed consolidated
statements of comprehensive income.
condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Surgalign Spine Technologies,
Inc., Paradigm Spine, LLC ("Paradigm"), Pioneer Surgical Technology, Inc. ("Pioneer Surgical"), Holo Surgical
Inc. ("Holo Surgical"), and Prompt Prototypes, LLC ("Prompt"). The operating results of the disposed OEM Businesses
have been reported as discontinued operations in the condensed consolidated financial statements in the prior comparative periods. The
Company consolidates the accounts of Inteneural Networks Inc. ("INN"), a 42% owned subsidiary, as control was achieved through
means other than voting rights ("variable interest entities" or
"VIE") as the Company is deemed
to be the primary beneficiary of INN.
further information on the Company's significant accounting policies, refer to the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and
Exchange Commission ("SEC") on March 30, 2023.
Standards Issued But Not Yet Adopted
date, there have been no recent accounting pronouncements not yet effective that have a material, or potentially material, impact to
our consolidated financial statements.
New Accounting Policies
are no new accounting policies effective for this reporting period that have a material impact on the financial statements.
Company's leases are classified as operating leases that include office space, automobiles, and copiers. The Company does not have
any finance leases and the Company's operating leases do not have any residual value guarantees, restrictions, or covenants.
Company's leases have remaining lease terms of 1 to 7 years, some of which include options to extend or terminate the leases. The
option to extend is only included in the lease term if the Company is reasonably certain of exercising that option. Operating lease ROU
assets are presented within "Other assets-net" on the condensed consolidated balance sheets. The current portion of operating
lease liabilities are presented within "Accrued expenses," and the non-current portion of operating lease liabilities are
presented within "Other long-term liabilities" on the condensed consolidated balance sheets. The Company's lease agreements
do not provide a readily determinable implicit rate nor is it available to the Company from its lessors. Instead, the Company estimates
its incremental borrowing rate based on information available at lease commencement in order to discount lease payments to present value.
Short-term leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets.
subset of the Company's automobile and copier leases contain variable payments. The variable lease payments for such automobile
leases are based on actual mileage incurred at the standard contractual rate. The variable lease payments for such copier leases are
based on actual copies incurred at the standard contractual rate. The variable lease costs for all leases are immaterial.