UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For
the quarterly period ended |
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from ___________ to ___________ |
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | ||
| Smaller
reporting company | |||
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
Number of shares of common stock, par value $0.000001 per share, of registrant outstanding at May 4, 2023: .
XTANT MEDICAL HOLDINGS, INC.
FORM 10-Q
March 31, 2023
TABLE OF CONTENTS
| Page | |||
| CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS | ii | ||
| PART I. | FINANCIAL INFORMATION | 1 | |
| ITEM 1. | Financial statements | 1 | |
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | |
| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | 20 | |
| ITEM 4. | Controls and Procedures | 20 | |
| PART II. | OTHER INFORMATION | 21 | |
| ITEM 1. | Legal Proceedings | 21 | |
| Item 1A. | Risk Factors | 21 | |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 21 | |
| ITEM 3. | Defaults Upon Senior Securities | 21 | |
| ITEM 4. | Mine Safety Disclosures | 21 | |
| ITEM 5. | Other Information | 22 | |
| ITEM 6. | Exhibits | 22 | |
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. For more information, see “Cautionary Statement Regarding Forward-Looking Statements.”
As used in this report, unless the context indicates another meaning, the terms “we,” “us,” “our,” “Xtant,” “Xtant Medical,” and the “Company” mean Xtant Medical Holdings, Inc. and its wholly owned subsidiaries, Xtant Medical, Inc., Bacterin International, Inc., X-spine Systems, Inc. and Surgalign SPV, Inc., all of which are consolidated on Xtant’s condensed consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation.
We own various unregistered trademarks and service marks, including our corporate logo. Solely for convenience, the trademarks and trade names in this report are referred to without the ® and ™ symbols, but such references should not be construed as any indicator that the owner of such trademarks and trade names will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend the use or display of other companies’ trademarks and trade names to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
We include our website address throughout this report for reference only. The information contained on or connected to our website is not incorporated by reference into this report.
| i |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our forward-looking statements include, but are not limited to, statements regarding our “expectations,” “hopes,” “beliefs,” “intentions,” or “strategies” regarding the future. In addition, any statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” and “would,” as well as similar expressions, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward looking. Forward-looking statements in this Form 10-Q may include, for example, statements about the topics below and are subject to risks and uncertainties including without limitation those described below:
| ● | our ability to integrate the sale of products acquired as part of the acquisition of Surgalign SPV, Inc.; | |
| ● | the effect of inflation and supply chain disruptions, which could result in delayed product launches, lost revenue, higher costs, decreased profit margins, and other adverse effects on our business and operating results; | |
| ● | the effect of a global economic slowdown, rising interest rates and the prospects for recession, as well as recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, which could materially and adversely affect our revenue, liquidity, financial condition and results of operations; | |
| ● | the effect of labor and staffing shortages at hospitals and other medical facilities on the number of elective procedures in which our products are used and as a result our revenues, as well as global and local labor shortages and loss of personnel, which have adversely affected and may continue to adversely our ability to produce product to meet demand; | |
| ● | our ability to service our debt and comply with the covenants in our credit agreements; | |
| ● | our ability to maintain sufficient liquidity to fund our operations and obtain financing on reasonable terms when needed; | |
| ● | the effect of COVID-19 and current and future variants on our business, operating results and financial condition, including our revenues primarily as a result of the reduction in procedures in which our products are used and the disruption to our customers, distributors, independent sales representatives, contract manufacturers and suppliers, as well as the global economy, supply chain and financial and credit markets; | |
| ● | our ability to increase or maintain revenue or return to pre-COVID-19 revenue levels within an acceptable time period or at all and possible future impairment charges to long-lived assets and goodwill and write-downs of excess inventory if unsuccessful; | |
| ● | the ability of our sales personnel, including our independent sales agents and distributors, to achieve expected results; | |
| ● | our ability to innovate, develop, introduce and market new products and technologies; | |
| ● | our ability to remain competitive; | |
| ● | our reliance on third party suppliers and manufacturers; |
| ii |
| ● | our ability to attract, retain and engage qualified technical, sales and processing personnel and members of our management team, especially in light of a tight labor market and increasing cost of living in and around the Belgrade, Montana area; | |
| ● | our dependence on and ability to retain and recruit independent sales agents and distributors and motivate and incentive them to sell our products, including in particular our dependence on key independent agents for a significant portion of our revenue; | |
| ● | our ability to retain and expand our agreements with group purchasing organizations (“GPOs” and independent delivery networks (“IDNs”) and sell products to members of such GPOs and IDNs; | |
| ● | our ability and success in implementing key growth and process improvement initiatives designed to increase our production capacity, revenue and scale and risks associated with such growth and process improvement initiatives; | |
| ● | the effect of our private label and original equipment manufacturer (“OEM”) business on our business and operating results and risks associated therewith, including fluctuations in our operating results and decreased profit margins; | |
| ● | risks associated with and the effect of a shift in procedures using our products from hospitals to ambulatory surgical centers, which would put pressure on the price of our products and margins; | |
| ● | our ability to obtain and maintain government and third-party coverage and reimbursement for our products; | |
| ● | our ability to obtain and maintain regulatory approvals in the United States and abroad and the effect of government regulations and our compliance with government regulations; | |
| ● | our ability to successfully complete and integrate future business combinations or acquisitions; | |
| ● | the effect of product liability claims and other litigation to which we may be subjected and product recalls and defects; | |
| ● | our ability to remain accredited with the American Association of Tissue Banks and continue to obtain a sufficient number of donor cadavers for our products; | |
| ● | our ability to obtain and protect our intellectual property and proprietary rights and operate without infringing the intellectual property rights of others; | |
| ● | our expectations regarding operating trends, future financial performance and expense management and our estimates of our future revenue, expenses, ongoing losses, gross margins, operating leverage, capital requirements and our need for, or ability to obtain, additional financing and the availability of our credit facilities; and | |
| ● | our ability to maintain our stock listing on the NYSE American Exchange. |
The forward-looking statements contained in this Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties, or assumptions, many of which are beyond our control, which may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022 and this Form 10-Q.
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws.
| iii |
PART I. FINANCIAL INFORMATION
ITEM 1. Financial statements
XTANT MEDICAL HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except number of shares and par value)
| As of March 31, 2023 | As of December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Trade accounts receivable, net of allowance for credit losses and doubtful accounts of $ | ||||||||
| Inventories | ||||||||
| Prepaid and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use asset, net | ||||||||
| Other assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES & STOCKHOLDERS’ EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Current portion of lease liability | ||||||||
| Current portion of finance lease obligations | ||||||||
| Line of credit | ||||||||
| Current portion of long-term debt | ||||||||
| Total current liabilities | ||||||||
| Long-term Liabilities: | ||||||||
| Lease liability, less current portion | ||||||||
| Finance lease obligation, less current portion | ||||||||
| Long-term debt, plus premium and less issuance costs | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (note 12) | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, $ par value; shares authorized; shares issued and outstanding | ||||||||
| Common stock, $ par value; shares authorized; shares issued and outstanding as of March 31, 2023 and shares issued and outstanding as of December 31, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities & Stockholders’ Equity | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
| 1 |
XTANT MEDICAL HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except number of shares and per share amounts)
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Orthopedic product sales | $ | $ | ||||||
| Other revenue | ||||||||
| Total Revenue | ||||||||
| Cost of sales | ||||||||
| Gross Profit | ||||||||
| Operating Expenses | ||||||||
| General and administrative | ||||||||
| Sales and marketing | ||||||||
| Research and development | ||||||||
| Total Operating Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other Expense | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Interest income | ||||||||
| Total Other Expense | ( | ) | ( | ) | ||||
| Net Loss from Operations Before Provision for Income Taxes | ( | ) | ( | ) | ||||
| Provision for Income Taxes Current and Deferred | ( | ) | ( | ) | ||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net Loss Per Share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Dilutive | $ | ( | ) | $ | ( | ) | ||
| Shares used in the computation: | ||||||||
| Basic | ||||||||
| Dilutive | ||||||||
See notes to unaudited condensed consolidated financial statements.
| 2 |
XTANT MEDICAL HOLDINGS, INC.
Condensed Consolidated Statements of Equity
(Unaudited, in thousands, except number of shares)
STOCKHOLDERS’ EQUITY – THREE MONTHS ENDED MARCH 31
| Common Stock | Additional Paid-In- | Retained | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common stock issued on vesting of restricted stock units | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Common stock issued on vesting of restricted stock units | ||||||||||||||||||||
| Stock-based compensation | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance at March 31, 2023 | | $ | $ | $ | ( | ) | $ | |||||||||||||
See notes to unaudited condensed consolidated financial statements.
| 3 |
XTANT MEDICAL HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Gain on disposal of fixed assets | ( | ) | ( | ) | ||||
| Non-cash interest | ||||||||
| Non-cash rent | ||||||||
| Stock-based compensation | ||||||||
| Provision for reserve on accounts receivable | ||||||||
| Provision for excess and obsolete inventory | ||||||||
| Changes in operating assets and liabilities, net of the effects of the acquisition: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ||||||
| Prepaid and other assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Investing activities: | ||||||||
| Purchases of property and equipment and intangible assets | ( | ) | ( | ) | ||||
| Proceeds from sale of fixed assets | ||||||||
| Acquisition of Surgalign SPV, Inc. | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Financing activities: | ||||||||
| Payments on financing leases | ( | ) | ( | ) | ||||
| Borrowings on line of credit | ||||||||
| Repayments on line of credit | ( | ) | ( | ) | ||||
| Net proceeds from issuance of long term debt, net of issuance costs | ||||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Net change in cash and cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash and cash equivalents and restricted cash at beginning of period | ||||||||
| Cash and cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Reconciliation of cash and cash equivalents and restricted cash reported in the condensed consolidated balance sheets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash and restricted cash reported in condensed consolidated balance sheets | $ | $ | ||||||
See notes to unaudited condensed consolidated financial statements.
| 4 |
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.
The accompanying condensed consolidated balance sheet as of December 31, 2022, 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, 2023.
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, 2022. 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.
Use of Estimates
The preparation of the condensed consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Significant estimates include the carrying amount of property and equipment; goodwill, intangible assets and liabilities; valuation allowances for trade receivables; inventory; deferred income tax assets and liabilities; current and long-term lease obligations and corresponding right-of-use asset; and estimates for the fair value of assets acquired as part of business combinations, value of long-term debt, stock options and other equity awards upon which the Company determines stock-based compensation expense. Actual results could differ from those estimates.
Restricted Cash
Cash and cash equivalents classified as restricted cash on our condensed consolidated balance sheets are restricted as to withdrawal or use under the terms of certain credit agreements. The March 31, 2023 and December 31, 2022 balance included lockbox deposits that are temporarily restricted due to timing at the period end. The lockbox deposits are applied against our line of credit the next business day.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains its cash balances primarily with two financial institutions. These balances generally exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents.
| 5 |
Long-Lived Assets
The
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recovered.
Goodwill
Goodwill
represents the excess of costs over fair value of assets of businesses acquired. Goodwill and intangible assets acquired in a purchase
business combination and determined to have indefinite useful lives are not amortized. Instead, they are tested for impairment at least
annually, and whenever events or circumstances indicate, the carrying amount of the asset may not be recoverable.
Basic net loss per share is computed by dividing net 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 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. Our diluted earnings per share is the same as basic earnings per share, as the effects of including and outstanding stock options, restricted stock units and warrants for the three months ended March 31, 2023 and 2022, respectively, are anti-dilutive.
Fair Value of Financial Instruments
The carrying values of financial instruments, including trade accounts receivable, accounts payable, accrued liabilities and long-term debt, approximate their fair values based on terms and related interest rates as of March 31, 2023 and December 31, 2022.
(2) Acquisition of Coflex and CoFix Product Lines
On
February 28, 2023, we entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Surgalign SPV, a Delaware
corporation and wholly owned subsidiary of Surgalign Spine Technologies, Inc., a Delaware corporation (“Seller”), Seller
and Surgalign Holdings, Inc., a Delaware corporation, pursuant to which we purchased all of the issued and outstanding shares of common
stock of Surgalign SPV, which shares constituted all of the outstanding equity of Surgalign SPV, for an aggregate purchase price of $
Immediately prior to the Closing, Seller and its affiliates transferred and assigned to Surgalign SPV, a privately held, newly formed entity, certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of its Coflex and CoFix products in the United States (the “Coflex Business”). The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving stabilization.
In conjunction with the Equity Purchase Agreement, on February 28, 2023, we entered into a Transition Services Agreement with Surgalign SVP and Seller, whereby Seller agreed to provide, or cause to be provided, to us on and after the effective date of the Equity Purchase Agreement, after giving effect to the Closing, certain transitional services related to the transition of the Coflex Business.
We
funded the Purchase Price with cash on hand and approximately $
| 6 |
We recorded the purchase of this acquisition using the acquisition method of accounting and, accordingly, recognized the assets acquired at their fair values as of the date of acquisition. The preliminary valuation of the acquired assets is not yet complete, and as such, we have not yet finalized our allocation of the purchase price for the acquisition. The table below represents the preliminary allocation of the total consideration for Surgalign SPV’s assets and liabilities based on management’s preliminary estimate of their respective fair values as of February 28, 2023 (in thousands):
| Inventories | $ | |||
| Equipment | ||||
| Intangible assets | ||||
| Total assets acquired | ||||
| Goodwill | ||||
| Total preliminary purchase consideration |
The acquisition was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. The fair values were based on management’s analysis, including work performed by third-party valuation specialists. Managements estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as we finalize our valuations of assets acquired and liabilities assumed in connection with the acquisition. The primary areas of the purchase price allocation that are not yet finalized relate to identifiable intangible assets and goodwill.
The
acquisition will strengthen the Company’s spine portfolio with the addition of the Coflex
Business. Coflex is a differentiated and minimally invasive motion preserving stabilization implant that is FDA PMA-approved for the
treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression. This potential benefit resulted in the Company
paying a premium for the acquisition resulting in the recognition of $
The following unaudited pro forma combined financial information summarizes the results of operations for the periods indicated as if the acquisition had been completed as of January 1, 2022 (in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Net loss | ( | ) | ( | ) | ||||
Pro forma information reflects adjustments that are expected to have a continuing impact on our results of operations and are directly attributable to the acquisition. The unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up and the incremental intangible asset amortization to be incurred based on the preliminary values of each identifiable intangible asset. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of January 1, 2022 or that may be obtained in the future, and do not reflect future synergies, integration costs, or other such costs or savings.
(3) Revenue
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.
| 7 |
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. Revenue is recognized upon utilization of product. 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 the Company expects 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, 2023 and 2022 (in thousands):
Three Months Ended | Percentage of | Three Months Ended | Percentage of | |||||||||||||
| March 31, 2023 | Total Revenue | March 31, 2022 | Total Revenue | |||||||||||||
| Orthobiologics | $ | % | $ | % | ||||||||||||
| Spinal implant | % | % | ||||||||||||||
| Other revenue | % | % | ||||||||||||||
| Total revenue | $ | % | $ | % | ||||||||||||
(4) Receivables
The Company’s provision for current expected credit loss is determined based on historical collection experience adjusted for current economic conditions affecting collectability. Actual customer collections could differ from estimates. Account balances are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions to the allowance for credit losses are charged to expense. Activity within the allowance for credit losses was as follows for the three months ended March 31, 2023 and 2022 (in thousands):
| March 31, 2023 | March 31, 2022 | |||||||
| Balance at January 1 | $ | $ | ||||||
| Provision for current expected credit losses | ||||||||
| Write-offs charged against allowance | ( | ) | ||||||
| Balance at March 31 | $ | $ | ||||||
(5) Inventories
Inventories consist of the following (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
| 8 |
(6) Property and Equipment, Net
Property and equipment, net are as follows (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| Equipment | $ | $ | ||||||
| Computer equipment | ||||||||
| Computer software | ||||||||
| Leasehold improvements | ||||||||
| Surgical instruments | ||||||||
| Assets not yet in service | ||||||||
| Total cost | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
Depreciation
expense related to property and equipment, including property under finance leases, for the first three months of 2023 and 2022 was $
(7) Intangible Assets
The following table sets forth information regarding intangible assets based on the preliminary purchase accounting discussed in Note 2 – Acquisition of Coflex and CoFix Product Lines (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| Patents | $ | $ | ||||||
| Customer relationships | ||||||||
| Trade names | ||||||||
| Total cost | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
(8) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| Cash compensation/commissions payable | $ | $ | ||||||
| Other accrued liabilities | ||||||||
| Accrued liabilities | $ | $ | ||||||
| 9 |
(9) Debt
Long-term debt consists of the following (in thousands):
March 31, 2023 | December 31, 2022 | |||||||
| Amounts due under term loan | $ | $ | ||||||
| Accrued end-of-term payments | ||||||||
| Less: unamortized debt issuance costs | ( | ) | ( | ) | ||||
| Less: current maturities | ( | ) | ( | ) | ||||
| Long-term debt, less issuance costs | $ | $ | ||||||
On
February 28, 2023, the Company’s term loan agreement was amended to provide an additional $
The
effective rate of the term loan, inclusive of amortization of debt issuance costs and accretion of the final payment, was
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, 2023 and 2022:
| 2023 | 2022 | |||||||||||||||||||||||
| Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (years) | Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term (years) | |||||||||||||||||||
| Outstanding at January 1 | $ | $ | ||||||||||||||||||||||
| Granted | ||||||||||||||||||||||||
| Cancelled or expired | ( | ) | ( | ) | ||||||||||||||||||||
| Outstanding at March 31 | | $ | | $ | ||||||||||||||||||||
| Exercisable at March 31 | $ | $ | ||||||||||||||||||||||
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As of March 31, 2023, there was approximately $ million of total unrecognized compensation expense related to unvested stock options. These costs are expected to be recognized over a weighted-average period of years. The weighted average grant date fair value of options granted during the three months ended March 31, 2023 was $.
2023 | 2022 | |||||||||||||||
| Shares | Weighted Average Fair Value at Grant Date Per Share | Shares | Weighted Average Fair Value at Grant Date Per Share | |||||||||||||
| Outstanding at January 1 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Vested | ( | ) | ( | ) | ||||||||||||
| Cancelled | ( | ) | ( | ) | ||||||||||||
| Outstanding at March 31 | $ | $ | ||||||||||||||
Total compensation expense related to unvested restricted stock units not yet recognized was $ million as of March 31, 2023, which is expected to be allocated to expenses over a weighted-average period of years.
(11) Warrants
As
of March 31, 2023 and December 31, 2022, there were outstanding and exercisable warrants to purchase shares of our common
stock at a weighted average exercise price of $
(12) Commitments and Contingencies
Operating Leases
We
lease three office facilities as of March 31, 2023 in Belgrade, Montana under non-cancelable operating lease agreements with expiration
dates in 2025. We have the option to extend certain leases for additional five or ten-year term(s), and we have the right of first refusal
on any sale. As of March 31, 2023, the weighted-average remaining lease term was
Future minimum payments for the next five years and thereafter as of March 31, 2023 under these long-term operating leases are as follows (in thousands):
| Remainder of 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| Total future minimum lease payments | ||||
| Less amount representing interest | ( | ) | ||
| Present value of obligations under operating leases | ||||
| Less current portion | ( | ) | ||
| Long-term operating lease obligations | $ |
Rent
expense was $
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Litigation
We are subject to potential liabilities under government regulations and various claims and legal actions that are pending or may be asserted from time to time. These matters arise in the ordinary course and conduct of our business and may include, for example, commercial, product liability, intellectual property, and employment matters. We intend to continue to defend the Company vigorously in such matters and, when warranted, take legal action against others. Furthermore, we regularly assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in our financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on our assessment, we have adequately accrued an amount for contingent liabilities currently in existence. We do not accrue amounts for liabilities that we do not believe are probable or that we consider immaterial to our overall financial position. Litigation is inherently unpredictable, and unfavorable resolutions could occur. As a result, assessing contingencies is highly subjective and requires judgment about future events. While we do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations or cash flows, it is possible that the amount of ultimate loss may exceed our current accruals and that our cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.
Indemnification Arrangements
Our indemnification arrangements generally include limited warranties and certain provisions for indemnifying customers against liabilities if our products or services infringe a third-party’s intellectual property rights. To date, we have not incurred any material costs as a result of such warranties or indemnification provisions and have not accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements.
We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by us, arising out of that person’s services as our director or officer or that person’s services provided to any other company or enterprise at our request.
(13) Income Taxes
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, 2023 and 2022.
(14) Supplemental Disclosure of Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
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(15) Related Party Transactions
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, 2022 and Item 5 of Part II of this Quarterly Report on Form 10-Q, we are party to an Investor Rights Agreement,
Registration Rights Agreements and certain other agreements with OrbiMed Royalty Opportunities II, LP (“Royalty
Opportunities”) and ROS Acquisition Offshore LP (“ROS”), which are funds affiliated with OrbiMed Advisors LLC
(“OrbiMed”). OrbiMed beneficially owns
All related party transactions are reviewed and approved by the Audit Committee or the disinterested members of the full Board of Directors.
(16) 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
Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| United States | $ | $ | ||||||
| Rest of world | ||||||||
| Total revenue | $ | $ | ||||||
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| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This Management’s Discussion and Analysis provides material historical and prospective disclosures intended to enable investors and other users to assess our financial condition and results of operations. The following discussion should be read in conjunction with our condensed consolidated financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and accompanying notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties, and assumptions. Some of the numbers included herein have been rounded for the convenience of presentation. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed above in “Cautionary Statement Regarding Forward-Looking Statements” and elsewhere in this Form 10-Q.
Business Overview
We develop, manufacture and market regenerative medicine products and medical devices for domestic and international markets. Our products serve the specialized needs of orthopedic and neurological surgeons, including orthobiologics for the promotion of bone healing, implants and instrumentation for the treatment of spinal disease. We promote our products in the United States through independent distributors and stocking agents, supported by direct employees.
We have an extensive sales channel of independent commissioned agents and stocking distributors in the United States representing some or all of our products. We also maintain a national accounts program to enable our agents to gain access to integrated delivery network hospitals (“IDNs”) and through group purchasing organizations (“GPOs”). We have biologics contracts with major GPOs, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems. While our focus is the United States market, we promote and sell our products internationally through stocking distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries.
We have focused and intend to continue to focus primarily on four key growth initiatives: (1) introduce new products; (2) expand our distribution network; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions. While the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our future revenues.
Recent Acquisition of Coflex and CoFix Product Lines
On February 28, 2023, we entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Surgalign SPV, Inc. (“Surgalign SPV”), a Delaware corporation and wholly owned subsidiary of Surgalign Spine Technologies, Inc., a Delaware corporation (“Seller”), Seller and Surgalign Holdings, Inc., a Delaware corporation, pursuant to which we purchased all of the issued and outstanding shares of common stock of Surgalign SPV, which shares constitute all of the outstanding equity of Surgalign SPV, for an aggregate purchase price of $17.0 million in cash. The closing contemplated by the Equity Purchase Agreement occurred on February 28, 2023 (the “Closing”).
Immediately prior to the Closing, Seller and its affiliates transferred and assigned to Surgalign SPV, a privately held, newly formed entity, certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of its Coflex and CoFix products in the United States (the “Coflex Business”). The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving stabilization.
For additional information regarding the acquisition of Surgalign SPV, refer to Note 2 – Acquisition of Coflex and CoFix Product Lines in the condensed consolidated financial statements in this Form 10-Q.
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Results of Operations
Comparison of Three Months Ended March 31, 2023 and March 31, 2022
Revenue
Total revenue for the three months ended March 31, 2023 was $17.9 million, which represents an increase of 38% compared to $13.0 million in the same quarter of the prior year. The increase in revenue is attributed primarily to greater independent agent sales, opportunistic private label sales and the effect of the contribution of Coflex and CoFix product sales. In addition, total revenue for the three months ended March 31, 2022 was adversely affected by decreased spine and other surgery procedure volumes in many of our key markets, due to cancellations and/or postponements of procedures as a result of hospitalizations of COVID-19 patients, restrictions on elective procedures and staffing shortages, which negatively impacted our revenues last year.
Cost of Sales
Cost of sales consists primarily of manufacturing and product purchase costs as well as depreciation of surgical trays. Cost of sales also includes reserves for estimated excess inventory, inventory on consignment that may be missing and not returned, and reserves for estimated missing and damaged consigned surgical instruments. Cost of sales increased by $2.0 million to $7.4 million for the three months ended March 31, 2023 from $5.4 million for the three months ended March 31, 2022. The increase in cost of sales is primarily due to greater revenue in the first quarter of 2023 compared to the first quarter of 2022, as mentioned above.
Gross profit as a percentage of revenue increased 40 basis points to 58.7% for the three months ended March 31, 2023 compared to 58.3% for the same period in 2022. The increase relates primarily to the contribution of Coflex and CoFix products, partially offset by cost increases in internally manufactured products.
General and Administrative
General and administrative expenses consist principally of personnel costs for corporate employees, cash-based and stock-based compensation related costs, and corporate expenses for legal, accounting and professional fees, and occupancy costs. General and administrative expenses increased 20%, or $0.8 million, to $4.8 million for the three months ended March 31, 2023, compared to $4.0 million for the prior year period. This increase is primarily attributable to additional employee compensation expense of $0.5 million and $0.2 million of expenses related to the acquisition of Surgalign SPV, Inc., partially offset by $0.2 million of costs related to enterprise resource planning system upgrades during first quarter of 2022.
Sales and Marketing
Sales and marketing expenses consist primarily of sales commissions, personnel costs for sales and marketing employees, costs for trade shows, sales conventions and meetings, travel expenses, advertising, and other sales and marketing related costs. Sales and marketing expenses increased 35%, or $1.8 million, to $7.1 million for the three months ended March 31, 2023, compared to $5.2 million for the prior year period. This increase is primarily due to additional sales commissions and GPO fees of $1.3 million due to greater revenues year over year and increased salaries and wages of $0.3 million during the first quarter of 2023 compared to first quarter of 2022. As a percentage of revenue, sales and marketing expenses increased to 39.5% in the three months ended March 31, 2023 from 40.2% in the prior year period due primarily to additional headcount in the current year period.
Research and Development
Research and development expenses consist primarily of internal costs for the development of new technologies and processes. Research and development expenses were $0.2 million for the three months ended March 31, 2023, comparable to the prior year period.
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Interest Expense
Interest expense is related to interest incurred from our debt instruments and finance leases. Interest expense was $0.6 million for the three months ended March 31, 2023, compared to $0.4 million for the three months ended March 31, 2022. The increase in interest expense during the three months ended March 31, 2023 compared to the comparable period in the prior year resulted primarily from increases to the base interest rate applied to our debt instruments. We expect that our annualized interest expense will increase approximately $0.1 million for every 50 basis points of increase to the reference rate associated with our credit agreements.
Liquidity and Capital Resources
Working Capital
Since our inception, we have financed our operations through primarily operating cash flows, private placements of equity securities and convertible debt, debt facilities, common stock rights offerings, and other debt transactions. The following table summarizes our working capital as of March 31, 2023 and December 31, 2022 (in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| Cash and cash equivalents | $ | 5,410 | $ | 20,507 | ||||
| Accounts receivable, net | 11,902 | 10,853 | ||||||
| Inventories | 18,522 | 17,285 | ||||||
| Total current assets | 36,587 | 49,318 | ||||||
| Accounts payable | 3,421 | 3,490 | ||||||
| Accrued liabilities | 5,595 | 5,496 | ||||||
| Line of credit | 3,002 | 3,379 | ||||||
| Current portion of long-term debt | 4,722 | 2,333 | ||||||
| Total current liabilities | 17,276 | 15,218 | ||||||
| Net working capital | 19,311 | 34,100 | ||||||
Our decrease in cash and cash equivalents is due primarily to the use of cash for our acquisition of Surgalign SPV, Inc. and our net loss during the three months ended March 31, 2023.
Cash Flows
Net cash used in operating activities for the first three months of 2023 was $2.2 million compared to $1.0 million for the first three months of 2022. This increase relates primarily to the combination of the effects of changes in operating assets and liabilities, partially offset by the decrease in net loss during the first three months of 2023.
Net cash used in investing activities for the first three months of 2023 was $17.4 million compared to $0.4 million for the first three months of 2022. This increase relates primarily to the use of $17.0 in cash for the acquisition of Surgalign SPV, Inc. during the first three months of 2023.
Net cash provided by financing activities for the first three months of 2023 was $4.6 million, consisting primarily of $5 million of additional borrowings under our term loan, compared to $21 thousand for the first three months of 2022.
Credit Facilities
On May 6, 2021, the Company, as guarantor, and our subsidiaries, as borrowers (collectively, the “Borrowers”), entered into a Credit, Security and Guaranty Agreement (Term Loan) (the “Term Credit Agreement”) and Credit, Security and Guaranty Agreement (Revolving Loan) (the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust, in its capacity as agent (“MidCap”).
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The Term Credit Agreement provides for a secured term loan facility (the “Term Facility”) in an aggregate principal amount of $12.0 million (the “Term Loan Commitment”), which was funded to the Borrowers immediately, and an additional $5.0 million tranche available solely at the discretion of MidCap 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 “Discretionary 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 $8.0 million (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.
On March 7, 2022, the Credit Agreements were amended to, among other things, (i) provide for a waiver of compliance with respect to the Company’s minimum adjusted EBITDA requirement if and so long as the Company’s liquidity (as specifically defined in the Credit Agreements) is in excess of $14 million and there is not otherwise an event of default under the Credit Agreements, commencing with the next delivery of the compliance certificate required under the Credit Agreements, and (ii) re-set the date certain fees payable in connection with optional prepayments are determined to the date the amendment was executed and consequently extend such fees’ original expiration. In addition, the exit fees were increased by 25 basis points.
On February 28, 2023, in connection with the acquisition of Surgalign SPV, the Term Credit Agreement was amended pursuant to an Amendment No. 3 to Credit, Security and Guarantee Agreement (Term Loan) (“Term Amendment No. 3”) to provide approximately $5.0 of funding for such acquisition, which replaced the Discretionary Tranche. In addition to the Term Amendment No. 3., we entered into an Amendment No. 3 to Credit, Security and Guarantee Agreement (Revolving Loan) (together with the Term Amendment No. 3, the “Amendments No. 3”), which amends the Revolving Credit Agreement. Additionally, the Amendments No. 3 (i) re-set the date certain fees payable in connection with optional prepayments under the Term Credit Agreement and the Revolving Credit Agreement are determined to the date the amendments were executed and consequently extended such fees’ original expiration and (ii) increased the minimum amount of interest payable under the Term Credit Agreement and the Revolving Credit Agreement from 1% to 2.5%.
The Facilities have a maturity date of May 1, 2026 (the “Maturity Date”). Beginning in June 2023, the Company is required to make monthly principal payments of approximately $0.5 million on the Term Facility through the Maturity Date. Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and the Company’s obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets of the Company and the Borrowers.
As of March 31, 2023, the Company had $3.0 million outstanding and $5.0 million of availability under the Revolving Facility.
The loans and other obligations pursuant to the Credit Agreements bear interest at a per annum rate equal to the sum of the SOFR rate, as such term is defined in the Credit Agreements, plus 0.11%, 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 floor of 2.50%. As of March 31, 2023, the effective rate of the Term Facility, inclusive of amortization of debt issuance costs and accretion of the final payment, was 13.30%, and the effective rate of the Revolving Facility was 9.28%.
The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their businesses. In addition, the Credit Agreements require the Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a minimum adjusted EBITDA and a minimum liquidity, in each case at levels specified in the Credit Agreements. As of March 31, 2023, we were in compliance with all covenants under the Credit Agreements.
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Cash Requirements
We believe that our $5.2 million of cash and cash equivalents as of March 31, 2023, together with operating cash flows and amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least May 2024. However, we may require or seek additional capital to fund our future operations and business strategy prior to May 2024. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time.
We may elect to raise additional financing even before we need it if market conditions for raising additional capital are favorable. We may seek to raise additional financing through various sources, such as equity and debt financings, additional debt restructurings or refinancings, or through strategic collaborations and license agreements. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is particularly true if economic and market conditions deteriorate.
To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or other preferences or rights that would adversely affect the rights of our current stockholders. If we issue common stock, we may do so at purchase prices that represent a discount to our trading price and/or we may issue warrants to the purchasers, which could dilute our current stockholders. If we issue preferred stock, it could adversely affect the rights of our stockholders or reduce the value of our common stock. In particular, specific rights or preferences granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Prior to raising additional equity or debt financing, we may be required to obtain the consent of the Agent under our Credit Agreements and/or OrbiMed Royalty Opportunities II, LP and ROS Acquisition Offshore LP under our Investor Rights Agreement with them, and no assurance can be provided that they would provide such consent, which could limit our ability to raise additional financing and the terms thereof. In addition, the investors in our 2022 private placement have certain participation rights with respect to certain future equity offerings for capital raising purposes.
Critical Accounting Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material.
There have been no changes in our critical accounting estimates for the three months ended March 31, 2023 as compared to the critical accounting estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, other than with respect to the fair value of assets acquired as part of the Coflex and CoFix product lines and the new critical accounting policy and estimates below in light of such acquisition.
Business Combinations
When applicable, we account for the acquisition of a business in accordance with the accounting standards codification guidance for business combinations, whereby the total consideration transferred is allocated to the assets acquired and liabilities assumed, including amounts attributable to non-controlling interests, when applicable, based on their respective estimated fair values as of the date of acquisition. Goodwill represents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination.
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Assigning estimated fair values to the net assets acquired requires the use of significant estimates, judgments, inputs, and assumptions regarding the fair value of intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment. While the ultimate responsibility for determining estimated fair values of the acquired net assets resides with management, for material acquisitions, we may retain the services of certified valuation specialists to assist with assigning estimated fair values to certain acquired assets and assumed liabilities, including intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment. Estimated fair values of acquired intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment are generally based on available historical information, future expectations, available market data, and assumptions determined to be reasonable but are inherently uncertain with respect to future events, including economic conditions, competition, technological obsolescence, the useful life of the acquired assets, and other factors. These significant estimates, judgments, inputs, and assumptions include, when applicable, the selection of an appropriate valuation method depending on the nature of the respective asset, such as the income approach, the market or sales comparison approach, or the cost approach; estimating future cash flows based on projected revenues and/or margins that we expect to generate subsequent to the acquisition; applying an appropriate discount rate to estimate the present value of those projected cash flows we expect to generate; selecting an appropriate terminal growth rate and/or royalty rate or estimating a customer attrition or technological obsolescence factor where necessary and appropriate given the nature of the respective asset; assigning an appropriate contributory asset charge where needed; determining an appropriate useful life and the related depreciation or amortization method for the respective asset; and assessing the accuracy and completeness of other historical financial metrics of the acquiree used as standalone inputs or as the basis for determining estimated projected inputs such as margins, customer attrition, and costs to hold and sell product.
In determining the estimated fair value of intangible assets that are separately identifiable from goodwill, we typically utilize the income approach, which discounts the projected future cash flows using a discount rate that appropriately reflects the risks associated with the projected cash flows. Generally, we estimate the fair value of acquired customer relationships using the relief from royalty method under the income approach, which is based on the hypothetical royalty stream that would be received if we were to license the acquired trade name. For most other acquired intangible assets, we estimate fair value using the excess earnings method under the income approach, which is typically applied when cash flows are not directly generated by the asset, but rather, by an operating group that includes the particular asset. In certain instances, particularly in relation to developed technology or patents, we may utilize the cost approach depending on the nature of the respective intangible asset and the recency of the development or procurement of such technology. The useful lives and amortization methods for the acquired intangible assets that are separately identifiable from goodwill are generally determined based on the period of expected cash flows used to measure the fair value of the acquired intangible assets and the nature of the use of the respective acquired intangible asset, adjusted as appropriate for entity-specific factors including legal, regulatory, contractual, competitive, economic, and/or other factors such as customer attrition rates and product or order lifecycles that may limit the useful life of the respective acquired intangible asset. In determining the estimated fair value of acquired inventory, we typically utilize the cost approach for raw materials and the sales comparison approach for work in process, finished goods, and service parts. In determining the estimated fair value of acquired property, plant, and equipment, we typically utilize the sales comparison approach or the cost approach depending on the nature of the respective asset and the recency of the construction or procurement of such asset.
We may refine the estimated fair values of assets acquired and liabilities assumed, if necessary, over a period not to exceed one year from the date of acquisition by taking into consideration new information that, if known as of the date of acquisition, would have affected the estimated fair values ascribed to the assets acquired and liabilities assumed. The judgments made in determining the estimated fair value assigned to assets acquired and liabilities assumed, as well as the estimated useful life and depreciation or amortization method of each asset, can materially impact the net earnings of the periods subsequent to an acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. During the measurement period, any purchase price allocation changes that impact the carrying value of goodwill will affect any measurement of goodwill impairment taken during the measurement period, if applicable. If necessary, purchase price allocation revisions that occur outside of the measurement period are recorded within cost of sales, selling expenses or general and administrative expenses within our consolidated condensed statements of operations depending on the nature of the adjustment.
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| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
As a smaller reporting company, we are not required to provide the information required by this Item.
| ITEM 4. | Controls and Procedures |
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2023. Based upon that evaluation, our principal executive officer and principal financial officer concluded that as of March 31, 2023, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the three months ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than changes implemented to integrate the internal controls of Surgalign SPV Inc. with our internal controls.
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| PART II. | OTHER INFORMATION |
| ITEM 1. | LEGAL PROCEEDINGS |
Our legal proceedings are discussed in Note 12 – Commitments and Contingencies in the notes to our condensed consolidated financial statements in this Form 10-Q.
| ITEM 1A. | RISK FACTORS |
Although this Item is inapplicable to us as a smaller reporting company, we hereby disclose the following revised risk factor described in our annual report on Form 10-K for the fiscal year ended December 31, 2022 and new risk factor:
Worldwide economic and market conditions, including with respect to financial institutions, and social instability could adversely affect our revenue, liquidity, financial condition, or results of operations.
The health of the global economy, and the credit markets and the financial services industry in particular, as well as the stability of the social fabric of our society, affects our business and operating results. The global economic slowdown, inflation, rising interest rates and the prospects for recession, as well as recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures, could materially and adversely affect our revenue, liquidity, financial condition and results of operations. For example, the recent closures of Silicon Valley Bank, Signature Bank and First Republic Bank and their placement into receivership with the Federal Deposit Insurance Corporation (“FDIC”) created bank-specific and broader financial institution liquidity risk and concerns. Although depositors at these institutions will continue to have access to their funds, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages. The failure of any bank with which we deposit our funds or otherwise do business could reduce the amount of cash we have available for our operations or delay our ability to access such funds. Any such failure may increase the possibility of a sustained deterioration of financial market liquidity, or illiquidity at clearing, cash management and/or custodial financial institutions. In the event we have a commercial relationship with a bank that fails or is otherwise distressed, we may experience delays or other issues in meeting our financial obligations. If other banks and financial institutions enter receivership or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our cash and cash equivalents and investments may be threatened and could have a material adverse effect on our business and financial condition. Additionally, the credit and financial markets may be adversely affected by the current conflict between Russia and Ukraine and measures taken in response thereto. If the credit markets are not favorable, we may be unable to raise additional financing when needed or on favorable terms. Our customers may experience financial difficulties or be unable to borrow money to fund their operations, which may adversely impact their ability to purchase our products or to pay for our products on a timely basis, if at all. In addition, adverse economic conditions, such as the lingering economic impacts of COVID-19, continuing supply chain disruptions, labor shortages and persistent inflation, and measures taken in response thereto, including recent interest rate increases, could also adversely impact our suppliers’ ability to provide us with materials and components, which may negatively impact our business. As with our customers and vendors, these economic conditions make it more difficult for us to accurately forecast and plan our future business activities.
Our actual operating results may differ significantly from our guidance, which could cause the market price of our common stock to decline.
We recently initiated the issuance of guidance regarding our future performance, such as our anticipated annual revenue, that represents our management’s estimates as of the date of release. This guidance, which consists of forward-looking statements, is prepared by our management and is qualified by, and subject to, the assumptions and the other information contained or referred to in the release. Our guidance is not prepared with a view toward compliance with published guidelines of the American Institute of Certified Public Accountants, and neither any independent registered public accounting firm nor any other independent expert or outside party compiles, examines or reviews the guidance and, accordingly, no such person expresses any opinion or any other form of assurance with respect thereto.
Guidance is based upon a number of assumptions and estimates that, while presented with numerical specificity, is inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and are based upon specific assumptions with respect to future business decisions, some of which will change. We generally state possible outcomes as high and low ranges which are intended to provide a sensitivity analysis as variables are changed but are not intended to represent that actual results could not fall outside of these ranges. The principal reason that we release this data is to provide a basis for our management to discuss our business outlook with analysts and investors. We do not accept any responsibility for any projections or reports published by any such persons.
Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will not materialize or will vary significantly from actual results. Accordingly, our guidance is only an estimate of what management believes is realizable as of the date of release. Actual results will vary from the guidance and the variations may be material. Investors should also recognize that the reliability of any forecasted financial data will diminish the farther in the future that the data are forecast. In light of the foregoing, investors are urged to put the guidance in context and not to place undue reliance on it.
Any failure to successfully implement our operating strategy or the occurrence of any of the events or circumstances set forth in this Quarterly Report on Form 10-Q could result in the actual operating results being different than our guidance, and such differences may be adverse and material. The failure to achieve such guidance could disappoint investors and analysts and cause the market price of our common stock to decline.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Not applicable.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
| 21 |
| ITEM 5. | OTHER INFORMATION |
On May 2, 2023, Xtant Medical Holdings, Inc. entered into an Amendment No. 1 to Investor Rights Agreement (“Investor Rights Agreement Amendment”) with OrbiMed Royalty Opportunities II, LP (“OrbiMed”) and ROS Acquisition Offshore LP (“ROS” and, together with OrbiMed, the “Investors”) pursuant to which that certain Investor Rights Agreement dated as of February 14, 2018 among the parties thereto (the “Investor Rights Agreement”) was amended to delete Section 2.4(a)(vii) therein, effective immediately, and to delete Section 2.4(b) therein, effective upon the stockholders of the Company approving an amendment to the Company’s Amended and Restated Certificate of Incorporation to require the approval of at least 75% of the directors of the Company then holding office to fix the number of directors of the Company at more than seven directors. Section 2.4(a)(vii) of the Investor Rights Agreement required the approval of the Investors to hire or terminate the Company’s chief executive officer so long as the Ownership Threshold (as defined in the Investor Rights Agreement) is met and Section 2.4(b) of the Investor Rights Agreement requires the approval of a majority of the Investor Designees (as defined in the Investor Rights Agreement) to increase the size of the Company’s Board of Directors beyond seven directors. The Investors collectively beneficially own approximately 67% of the Company’s common stock. In addition to the Investor Rights Agreement, the Company is a party to certain registration rights agreements with the Investors.
The foregoing description of the Investor Rights Agreement Amendment is a summary of the material terms thereof, does not purport to be complete and is qualified in its entirety by reference to the complete text of the Investor Rights Agreement Amendment, which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
| ITEM 6. | EXHIBITS |
The following exhibits are being filed or furnished with this Quarterly Report on Form 10-Q:
| 22 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| XTANT MEDICAL HOLDINGS, INC. | ||
| Date: May 4, 2023 | By: | /s/ Sean E. Browne |
| Name: | Sean E. Browne | |
| Title: | President and Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: May 4, 2023 | By: | /s/ Scott Neils |
| Name: | Scott Neils | |
| Title: | Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting Officer) |
| 23 |
Exhibit 10.4
aMENDMENT NO. 1 TO INVESTOR rIGHTS AGREEMENT
This Amendment NO. 1 TO INVESTOR rIGHTS AGREEMENT, dated as of May 2, 2023 (this “Amendment”), is made by and among Xtant Medical Holdings, Inc. (the “Company”), OrbiMed Royalty Opportunities II, LP (“OrbiMed”), ROS Acquisition Offshore LP (“ROS” and, together with OrbiMed, the “Investors”).
WHEREAS, the parties hereto are parties to that certain Investor Rights Agreement dated as of February 14, 2018 (the “Investor Rights Agreement”).
WHEREAS, Section 6.8 of the Investor Rights Agreement permits the parties to amend any term of such agreement by a writing signed by the Company and the Investors (the “Required Signatories”).
WHEREAS, the undersigned parties constitute the Required Signatories.
WHEREAS, the parties desire to amend the Investor Rights Agreement, as set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Definitions. All capitalized terms used herein without definition shall have the meanings ascribed to them in the Investor Rights Agreement.
2. Amendments to the Investor Rights Agreement. The Investor Rights Agreement is hereby amended as follows:
A. Section 2.4(a)(vii) is hereby deleted, and paragraphs (viii) and (ix) are renumbered as paragraphs (vii) and (viii), respectively.
B. Section 2.4(b) is hereby deleted, effective upon the stockholders of the Company approving an amendment to the Company’s Amended and Restated Certificate of Incorporation to require the approval of at least 75% of the directors of the Company then holding office to fix the number of directors of the Corporation at more than seven (7) directors.
3. No Other Amendments. Except as specifically amended by this Amendment, all other provisions of the Investor Rights Agreement shall remain in full force and effect. This Amendment shall not constitute or operate as a waiver of, or estoppel with respect to, any provisions of the Investor Rights Agreement by any party hereto.
4. Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.
5. Governing Law. This Amendment shall be governed by, construed and enforced in accordance with, and the rights of the parties hereto shall be governed by, the laws of the State of New York, excluding choice-of-law principles of the law of such State that would require application of the laws of a jurisdiction other than such State.
[signature pages follow]
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.
COMPANY: | ||
| XTANT MEDICAL HOLDINGS, INC. | ||
| By: | /s/ Sean E. Browne | |
| Name: | Sean E. Browne | |
| Its: | President and Chief Executive Officer | |
[Signature Page to Amendment No. 1 to Investor Rights Agreement]
INVESTORS: | ||
| ORBIMED ROYALTY OPPORTUNITIES II, LP | ||
| By: | OrbiMed ROF II LLC | |
| Its: | General Partner | |
| By: | OrbiMed Advisors LLC | |
| Its: | Managing Member | |
| By: | /s/ Matthew Rizzo | |
| Name: | Matthew Rizzo | |
| Title: | Member | |
|
ROS ACQUISITION OFFSHORE LP | ||
| By: | OrbiMed Advisors LLC | |
| Its: | Investment Manager | |
| By: | /s/ Matthew Rizzo | |
| Name: | Matthew Rizzo | |
| Title: | Member | |
[Signature Page to Amendment No. 1 to Investor Rights Agreement]
Exhibit 31.1
Certification of Chief Executive Officer
pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Sean E. Browne, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Xtant Medical Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 4, 2023 | By: | /s/ Sean E. Browne |
| Sean E. Browne | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
Certification of Chief FINANCIAL Officer
pursuant to Exchange Act Rules 13a-14(a)/15d-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Scott Neils, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Xtant Medical Holdings, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: May 4, 2023 | By: | /s/ Scott Neils |
| Scott Neils | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION of Chief Executive Officer PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 of Xtant Medical Holdings, Inc. (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sean E. Browne, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| May 4, 2023 | /s/ Sean E. Browne |
| Sean E. Browne | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION of Chief FINANCIAL Officer PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 of Xtant Medical Holdings, Inc. (the “Company”), as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott Neils, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| May 4, 2023 | /s/ Scott Neils |
| Scott Neils | |
| Chief Financial Officer | |
| (Principal Financial Officer) |
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Statement of Financial Position [Abstract] | ||
| Allowance of accounts receivable, net | $ 621 | $ 515 |
| Preferred stock, par value | $ 0.000001 | $ 0.000001 |
| Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
| Preferred stock, shares issued | 0 | 0 |
| Preferred stock, shares outstanding | 0 | 0 |
| Common stock, par value | $ 0.000001 | $ 0.000001 |
| Common stock, shares authorized | 300,000,000 | 300,000,000 |
| Common stock, shares issued | 108,897,048 | 108,874,803 |
| Common stock, shares outstanding | 108,897,048 | 108,874,803 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Revenue | ||
| Orthopedic product sales | $ 17,942 | $ 12,950 |
| Other revenue | 1 | 9 |
| Total Revenue | 17,943 | 12,959 |
| Cost of sales | 7,407 | 5,399 |
| Gross Profit | 10,536 | 7,560 |
| Operating Expenses | ||
| General and administrative | 4,884 | 3,969 |
| Sales and marketing | 7,054 | 5,209 |
| Research and development | 174 | 213 |
| Total Operating Expenses | 12,112 | 9,391 |
| Loss from Operations | (1,576) | (1,831) |
| Other Expense | ||
| Interest expense | (575) | (359) |
| Interest income | 86 | |
| Total Other Expense | (489) | (359) |
| Net Loss from Operations Before Provision for Income Taxes | (2,065) | (2,190) |
| Provision for Income Taxes Current and Deferred | (13) | (23) |
| Net Loss | $ (2,078) | $ (2,213) |
| Net Loss Per Share: | ||
| Basic | $ (0.02) | $ (0.03) |
| Dilutive | $ (0.02) | $ (0.03) |
| Shares used in the computation: | ||
| Basic | 108,893,588 | 87,191,341 |
| Dilutive | 108,893,588 | 87,191,341 |
Condensed Consolidated Statements of Equity (Unaudited) - USD ($) $ in Thousands |
Total |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
|---|---|---|---|---|
| Balance at Dec. 31, 2021 | $ 30,883 | $ 266,068 | $ (235,185) | |
| Balance, shares at Dec. 31, 2021 | 87,068,980 | |||
| Common stock issued on vesting of restricted stock units | ||||
| Common stock issued on vesting of restricted stock units, shares | 244,721 | |||
| Stock-based compensation | 613 | 613 | ||
| Net loss | (2,213) | (2,213) | ||
| Balance at Mar. 31, 2022 | 29,283 | 266,681 | (237,398) | |
| Balance, shares at Mar. 31, 2022 | 87,313,701 | |||
| Balance at Dec. 31, 2022 | 34,171 | 277,841 | (243,670) | |
| Balance, shares at Dec. 31, 2022 | 108,874,803 | |||
| Common stock issued on vesting of restricted stock units | ||||
| Common stock issued on vesting of restricted stock units, shares | 22,245 | |||
| Stock-based compensation | 617 | 617 | ||
| Net loss | (2,078) | (2,078) | ||
| Balance at Mar. 31, 2023 | $ 32,710 | $ 278,458 | $ (245,748) | |
| Balance, shares at Mar. 31, 2023 | 108,897,048 |
Business Description, Basis of Presentation and Summary of Significant Accounting Policies |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Business Description, Basis of Presentation and Summary of Significant Accounting Policies | (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.
The accompanying condensed consolidated balance sheet as of December 31, 2022, 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, 2023.
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, 2022. 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.
Use of Estimates
The preparation of the condensed consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Significant estimates include the carrying amount of property and equipment; goodwill, intangible assets and liabilities; valuation allowances for trade receivables; inventory; deferred income tax assets and liabilities; current and long-term lease obligations and corresponding right-of-use asset; and estimates for the fair value of assets acquired as part of business combinations, value of long-term debt, stock options and other equity awards upon which the Company determines stock-based compensation expense. Actual results could differ from those estimates.
Restricted Cash
Cash and cash equivalents classified as restricted cash on our condensed consolidated balance sheets are restricted as to withdrawal or use under the terms of certain credit agreements. The March 31, 2023 and December 31, 2022 balance included lockbox deposits that are temporarily restricted due to timing at the period end. The lockbox deposits are applied against our line of credit the next business day.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains its cash balances primarily with two financial institutions. These balances generally exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recovered. No impairments of long-lived assets were recorded for the three months ended March 31, 2023 and 2022.
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, 2023 and 2022.
Basic net loss per share is computed by dividing net 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 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. Our diluted earnings per share is the same as basic earnings per share, as the effects of including and outstanding stock options, restricted stock units and warrants for the three months ended March 31, 2023 and 2022, respectively, are anti-dilutive.
Fair Value of Financial Instruments
The carrying values of financial instruments, including trade accounts receivable, accounts payable, accrued liabilities and long-term debt, approximate their fair values based on terms and related interest rates as of March 31, 2023 and December 31, 2022.
|
Acquisition of Coflex and CoFix Product Lines |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Coflex and CoFix Product Lines | (2) Acquisition of Coflex and CoFix Product Lines
On February 28, 2023, we entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Surgalign SPV, a Delaware corporation and wholly owned subsidiary of Surgalign Spine Technologies, Inc., a Delaware corporation (“Seller”), Seller and Surgalign Holdings, Inc., a Delaware corporation, pursuant to which we purchased all of the issued and outstanding shares of common stock of Surgalign SPV, which shares constituted all of the outstanding equity of Surgalign SPV, for an aggregate purchase price of $17.0 million in cash (the “Purchase Price”). The closing contemplated by the Equity Purchase Agreement occurred on February 28, 2023 (the “Closing”).
Immediately prior to the Closing, Seller and its affiliates transferred and assigned to Surgalign SPV, a privately held, newly formed entity, certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of its Coflex and CoFix products in the United States (the “Coflex Business”). The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving stabilization.
In conjunction with the Equity Purchase Agreement, on February 28, 2023, we entered into a Transition Services Agreement with Surgalign SVP and Seller, whereby Seller agreed to provide, or cause to be provided, to us on and after the effective date of the Equity Purchase Agreement, after giving effect to the Closing, certain transitional services related to the transition of the Coflex Business.
We funded the Purchase Price with cash on hand and approximately $5.0 million of indebtedness incurred under our term loan, refer to Note 9 – Debt for additional information.
We recorded the purchase of this acquisition using the acquisition method of accounting and, accordingly, recognized the assets acquired at their fair values as of the date of acquisition. The preliminary valuation of the acquired assets is not yet complete, and as such, we have not yet finalized our allocation of the purchase price for the acquisition. The table below represents the preliminary allocation of the total consideration for Surgalign SPV’s assets and liabilities based on management’s preliminary estimate of their respective fair values as of February 28, 2023 (in thousands):
The acquisition was recorded by allocating the costs of the net assets acquired based on their estimated fair values at the acquisition date. The fair values were based on management’s analysis, including work performed by third-party valuation specialists. Managements estimates and assumptions are subject to change during the measurement period (up to one year from the acquisition date) as we finalize our valuations of assets acquired and liabilities assumed in connection with the acquisition. The primary areas of the purchase price allocation that are not yet finalized relate to identifiable intangible assets and goodwill.
The acquisition will strengthen the Company’s spine portfolio with the addition of the Coflex Business. Coflex is a differentiated and minimally invasive motion preserving stabilization implant that is FDA PMA-approved for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression. This potential benefit resulted in the Company paying a premium for the acquisition resulting in the recognition of $4.4 million of goodwill. For tax purposes, none of the goodwill is deductible.
The following unaudited pro forma combined financial information summarizes the results of operations for the periods indicated as if the acquisition had been completed as of January 1, 2022 (in thousands):
Pro forma information reflects adjustments that are expected to have a continuing impact on our results of operations and are directly attributable to the acquisition. The unaudited pro forma results include adjustments to reflect the amortization of the inventory step-up and the incremental intangible asset amortization to be incurred based on the preliminary values of each identifiable intangible asset. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of January 1, 2022 or that may be obtained in the future, and do not reflect future synergies, integration costs, or other such costs or savings.
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Revenue |
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| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | (3) Revenue
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. Revenue is recognized upon utilization of product. 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 the Company expects 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, 2023 and 2022 (in thousands):
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Receivables |
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| Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Receivables | (4) Receivables
The Company’s provision for current expected credit loss is determined based on historical collection experience adjusted for current economic conditions affecting collectability. Actual customer collections could differ from estimates. Account balances are charged to the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. Provisions to the allowance for credit losses are charged to expense. Activity within the allowance for credit losses was as follows for the three months ended March 31, 2023 and 2022 (in thousands):
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Inventories |
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| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventories | (5) Inventories
Inventories consist of the following (in thousands):
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Property and Equipment, Net |
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property and Equipment, Net | (6) Property and Equipment, Net
Property and equipment, net are as follows (in thousands):
Depreciation expense related to property and equipment, including property under finance leases, for the first three months of 2023 and 2022 was $0.3 million and $0.3 million, respectively.
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Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Intangible Assets | (7) Intangible Assets
The following table sets forth information regarding intangible assets based on the preliminary purchase accounting discussed in Note 2 – Acquisition of Coflex and CoFix Product Lines (in thousands):
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Accrued Liabilities |
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| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||
| Accrued Liabilities | (8) Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
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Debt |
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| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt | (9) Debt
Long-term debt consists of the following (in thousands):
On February 28, 2023, the Company’s term loan agreement was amended to provide an additional $5.0 million of funding. Additionally, the Company’s term loan agreement and revolving credit facility were amended on February 28, 2023 to (i) re-set the date certain fees payable in connection with optional prepayments are determined to the date the amendment was executed and consequently extend such fees’ original expiration and (ii) increase the minimum amount of interest payable under the term loan and the revolving credit facility from 1% to 2.5%.
The effective rate of the term loan, inclusive of amortization of debt issuance costs and accretion of the final payment, was 13.3% as of March 31, 2023. The effective rate of the revolving credit agreement was 9.28% as of March 31, 2023. As of March 31, 2023, the Company had $5.0 million available under the revolving credit agreement.
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Stock-Based Compensation |
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| Share-Based Payment Arrangement [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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, 2023 and 2022:
As of March 31, 2023, there was approximately $ million of total unrecognized compensation expense related to unvested stock options. These costs are expected to be recognized over a weighted-average period of years. The weighted average grant date fair value of options granted during the three months ended March 31, 2023 was $.
Total compensation expense related to unvested restricted stock units not yet recognized was $ million as of March 31, 2023, which is expected to be allocated to expenses over a weighted-average period of years.
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Warrants |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Warrants | |
| Warrants | (11) Warrants
As of March 31, 2023 and December 31, 2022, there were outstanding and exercisable warrants to purchase shares of our common stock at a weighted average exercise price of $1.53 per share with a weighted average remaining contractual term of 3.6 years.
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Commitments and Contingencies |
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Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies | (12) Commitments and Contingencies
Operating Leases
We lease three office facilities as of March 31, 2023 in Belgrade, Montana under non-cancelable operating lease agreements with expiration dates in 2025. We have the option to extend certain leases for additional five or ten-year term(s), and we have the right of first refusal on any sale. As of March 31, 2023, the weighted-average remaining lease term was 2.6 years.
Future minimum payments for the next five years and thereafter as of March 31, 2023 under these long-term operating leases are as follows (in thousands):
Rent expense was $0.1 million for the three months ended March 31, 2023 and 2022. We have no contingent rent agreements.
Litigation
We are subject to potential liabilities under government regulations and various claims and legal actions that are pending or may be asserted from time to time. These matters arise in the ordinary course and conduct of our business and may include, for example, commercial, product liability, intellectual property, and employment matters. We intend to continue to defend the Company vigorously in such matters and, when warranted, take legal action against others. Furthermore, we regularly assess contingencies to determine the degree of probability and range of possible loss for potential accrual in our financial statements. An estimated loss contingency is accrued in our financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Based on our assessment, we have adequately accrued an amount for contingent liabilities currently in existence. We do not accrue amounts for liabilities that we do not believe are probable or that we consider immaterial to our overall financial position. Litigation is inherently unpredictable, and unfavorable resolutions could occur. As a result, assessing contingencies is highly subjective and requires judgment about future events. While we do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations or cash flows, it is possible that the amount of ultimate loss may exceed our current accruals and that our cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.
Indemnification Arrangements
Our indemnification arrangements generally include limited warranties and certain provisions for indemnifying customers against liabilities if our products or services infringe a third-party’s intellectual property rights. To date, we have not incurred any material costs as a result of such warranties or indemnification provisions and have not accrued any liabilities related to such obligations in the accompanying condensed consolidated financial statements.
We have also agreed to indemnify our directors and executive officers for costs associated with any fees, expenses, judgments, fines, and settlement amounts incurred by any of these persons in any action or proceeding to which any of those persons is, or is threatened to be, made a party by reason of the person’s service as a director or officer, including any action by us, arising out of that person’s services as our director or officer or that person’s services provided to any other company or enterprise at our request.
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Income Taxes |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Income Tax Disclosure [Abstract] | |
| Income Taxes | (13) Income Taxes
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, 2023 and 2022.
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Supplemental Disclosure of Cash Flow Information |
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Disclosure of Cash Flow Information | (14) Supplemental Disclosure of Cash Flow Information
Supplemental cash flow information is as follows (in thousands):
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Related Party Transactions |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Related Party Transactions [Abstract] | |
| Related Party Transactions | (15) Related Party Transactions
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, 2022 and Item 5 of Part II of this Quarterly Report on Form 10-Q, we are party to an Investor Rights Agreement, Registration Rights Agreements and certain other agreements with OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”) and ROS Acquisition Offshore LP (“ROS”), which are funds affiliated with OrbiMed Advisors LLC (“OrbiMed”). OrbiMed beneficially owns 67% 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 of Directors.
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Segment and Geographic Information |
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Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Segment and Geographic Information | (16) 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% of sales were in the United States for the three months ended March 31, 2023 and 2022. Total revenue by major geographic area is as follows (in thousands):
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Business Description, Basis of Presentation and Summary of Significant Accounting Policies (Policies) |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Business Description and Basis of Presentation | 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.
The accompanying condensed consolidated balance sheet as of December 31, 2022, 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, 2023.
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, 2022. 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.
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| Use of Estimates | Use of Estimates
The preparation of the condensed consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expenses during the period. Significant estimates include the carrying amount of property and equipment; goodwill, intangible assets and liabilities; valuation allowances for trade receivables; inventory; deferred income tax assets and liabilities; current and long-term lease obligations and corresponding right-of-use asset; and estimates for the fair value of assets acquired as part of business combinations, value of long-term debt, stock options and other equity awards upon which the Company determines stock-based compensation expense. Actual results could differ from those estimates.
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| Restricted Cash | Restricted Cash
Cash and cash equivalents classified as restricted cash on our condensed consolidated balance sheets are restricted as to withdrawal or use under the terms of certain credit agreements. The March 31, 2023 and December 31, 2022 balance included lockbox deposits that are temporarily restricted due to timing at the period end. The lockbox deposits are applied against our line of credit the next business day.
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| Concentration of Credit Risk | Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentration of credit risk consist primarily of cash, cash equivalents and restricted cash. The Company maintains its cash balances primarily with two financial institutions. These balances generally exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents.
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| Long-Lived Assets | 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. No impairments of long-lived assets were recorded for the three months ended March 31, 2023 and 2022.
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| Goodwill | 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, 2023 and 2022.
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| Net Loss Per Share |
Basic net loss per share is computed by dividing net 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 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. Our diluted earnings per share is the same as basic earnings per share, as the effects of including and outstanding stock options, restricted stock units and warrants for the three months ended March 31, 2023 and 2022, respectively, are anti-dilutive.
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| Fair Value of Financial Instruments | Fair Value of Financial Instruments
The carrying values of financial instruments, including trade accounts receivable, accounts payable, accrued liabilities and long-term debt, approximate their fair values based on terms and related interest rates as of March 31, 2023 and December 31, 2022. |
Acquisition of Coflex and CoFix Product Lines (Tables) |
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| Business Combination and Asset Acquisition [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Schedule of Recognized Identified Assets Acquired and Liabilities Assumed |
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| Schedule of Pro forma Financial Information of Operations | The following unaudited pro forma combined financial information summarizes the results of operations for the periods indicated as if the acquisition had been completed as of January 1, 2022 (in thousands):
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Revenue (Tables) |
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| Revenue from Contract with Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Revenues from Product Lines |
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Receivables (Tables) |
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| Credit Loss [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Allowance for Credit Losses |
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Inventories (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Inventories | Inventories consist of the following (in thousands):
|
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Property and Equipment, Net (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Property and Equipment, Net | Property and equipment, net are as follows (in thousands):
|
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Intangible Assets (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible of Assets | The following table sets forth information regarding intangible assets based on the preliminary purchase accounting discussed in Note 2 – Acquisition of Coflex and CoFix Product Lines (in thousands):
|
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Accrued Liabilities (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||
| Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||
| Schedule of Accrued Liabilities | Accrued liabilities consist of the following (in thousands):
|
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Debt (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Long-term Debt | Long-term debt consists of the following (in thousands):
|
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Stock-Based Compensation (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Share-Based Payment Arrangement [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Share-based Compensation, Stock Options Activity |
|
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| Schedule of Restricted Stock Activity |
|
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Commitments and Contingencies (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
| Schedule of Future Minimum Rental Payments for Operating Leases | Future minimum payments for the next five years and thereafter as of March 31, 2023 under these long-term operating leases are as follows (in thousands):
|
Supplemental Disclosure of Cash Flow Information (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Supplemental Cash Flow Elements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Supplemental Cash Flow Information | Supplemental cash flow information is as follows (in thousands):
|
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Segment and Geographic Information (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2023 | ||||||||||||||||||||||||||||||||||||||||||||||
| Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Revenues by Geographic Region |
|
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Business Description, Basis of Presentation and Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||
| Impairments of long-lived assets | $ 0 | $ 0 |
| Impairments of goodwill | $ 0 | $ 0 |
| Antidilutive securities excluded from computation of earnings per share, amount | 19,194,404 | 12,689,739 |
Schedule of Recognized Identified Assets Acquired and Liabilities Assumed (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Business Acquisition [Line Items] | ||
| Goodwill | $ 7,639 | $ 3,205 |
| Surgalign SPV Inc [Member] | ||
| Business Acquisition [Line Items] | ||
| Inventories | 1,018 | |
| Equipment | 947 | |
| Intangible assets | 10,600 | |
| Total assets acquired | 12,565 | |
| Goodwill | 4,435 | |
| Total preliminary purchase consideration | $ 17,000 |
Schedule of Pro forma Financial Information of Operations (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Business Combination and Asset Acquisition [Abstract] | ||
| Revenues | $ 19,768 | $ 16,551 |
| Net loss | $ (1,595) | $ (833) |
Acquisition of Coflex and CoFix Product Lines (Details Narrative) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Feb. 28, 2023 |
Mar. 31, 2023 |
|
| Business Acquisition [Line Items] | ||
| Acquisition intangible assets | $ 4.4 | |
| Equity Purchase Agreement [Member] | Surgalign SPV Inc [Member] | ||
| Business Acquisition [Line Items] | ||
| Aggregate purchase price in cash | $ 17.0 | |
| Purchase price in hand | $ 5.0 |
Summary of Revenues from Product Lines (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Disaggregation of Revenue [Line Items] | ||
| Total revenue | $ 17,943 | $ 12,959 |
| Percentage of Total Revenue | 100.00% | 100.00% |
| Orthobiologics [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total revenue | $ 13,551 | $ 10,166 |
| Percentage of Total Revenue | 76.00% | 78.00% |
| Spinal Implant [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total revenue | $ 4,391 | $ 2,784 |
| Percentage of Total Revenue | 24.00% | 22.00% |
| Other Revenue [Member] | ||
| Disaggregation of Revenue [Line Items] | ||
| Total revenue | $ 1 | $ 9 |
| Percentage of Total Revenue | 0.00% | 0.00% |
Schedule of Allowance for Credit Losses (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Credit Loss [Abstract] | ||
| Beginning balance | $ 515 | $ 552 |
| Provision for current expected credit losses | 106 | 191 |
| Write-offs charged against allowance | (173) | |
| Ending balance | $ 621 | $ 570 |
Schedule of Inventories (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Inventory Disclosure [Abstract] | ||
| Raw materials | $ 5,955 | $ 5,628 |
| Work in process | 1,135 | 798 |
| Finished goods | 11,432 | 10,859 |
| Total | $ 18,522 | $ 17,285 |
Schedule of Property and Equipment, Net (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | $ 25,024 | $ 23,749 |
| Less: accumulated depreciation | (18,198) | (17,964) |
| Property and equipment, net | 6,826 | 5,785 |
| Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | 5,605 | 5,598 |
| Computer Equipment [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | 1,073 | 1,043 |
| Computer Software [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | 230 | 230 |
| Leasehold Improvements [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | 4,105 | 4,105 |
| Surgical Instruments [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | 12,161 | 11,266 |
| Assets Not Yet in Service [Member] | ||
| Property, Plant and Equipment [Line Items] | ||
| Property and equipment gross | $ 1,850 | $ 1,507 |
Property and Equipment, Net (Details Narrative) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Property, Plant and Equipment [Abstract] | ||
| Depreciation expenses | $ 0.3 | $ 0.3 |
Schedule of Intangible of Assets (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | ||
| Intangible assets, gross | $ 11,256 | $ 807 |
| Less: accumulated amortization | (596) | (463) |
| Intangible assets, net | 10,810 | 344 |
| Patents [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Intangible assets, gross | 3,516 | 807 |
| Customer Relationships [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Intangible assets, gross | 6,700 | |
| Trade Names [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Intangible assets, gross | $ 1,190 |
Schedule of Accrued Liabilities (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Payables and Accruals [Abstract] | ||
| Cash compensation/commissions payable | $ 4,653 | $ 4,464 |
| Other accrued liabilities | 942 | 1,032 |
| Accrued liabilities | $ 5,595 | $ 5,496 |
Schedule of Long-term Debt (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Debt Disclosure [Abstract] | ||
| Amounts due under term loan | $ 17,000 | $ 12,000 |
| Accrued end-of-term payments | 249 | 216 |
| Less: unamortized debt issuance costs | (209) | (196) |
| Less: current maturities | (4,722) | (2,333) |
| Long-term debt, less issuance costs | $ 12,318 | $ 9,687 |
Schedule of Restricted Stock Activity (Details) - Restricted Stock Units (RSUs) [Member] - 2018 Equity Incentive Plan [Member] - $ / shares |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | ||
| Shares Outstanding, Balance | 3,612,433 | 2,970,104 |
| Weighted Average Fair Value at Grant Date Per Share, Outstanding Balance | $ 0.87 | $ 1.39 |
| Shares Granted | 89,000 | 88,983 |
| Weighted Average Fair Value at Grant Date Per Share, Granted | $ 0.77 | $ 0.65 |
| Shares Vested | (22,245) | (244,721) |
| Weighted Average Fair Value at Grant Date Per Share, Vested | $ 0.65 | $ 1.45 |
| Shares Cancelled | (63,291) | (244,586) |
| Weighted Average Fair Value at Grant Date Per Share, Cancelled | $ 0.64 | $ 1.33 |
| Shares Outstanding, Balance | 3,615,897 | 2,569,780 |
| Weighted Average Fair Value at Grant Date Per Share, Outstanding Balance | $ 0.88 | $ 1.36 |
Stock-Based Compensation (Details Narrative) $ / shares in Units, $ in Millions |
3 Months Ended |
|---|---|
|
Mar. 31, 2023
USD ($)
$ / shares
| |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Unvested employee stock options not yet recognized | $ 2.4 |
| Stock option vested weighted average period | 2 years 1 month 6 days |
| Weighted average granted date fair value | $ / shares | $ 0.65 |
| Share-Based Payment Arrangement, Option [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Stock option vested weighted average period | 2 years 2 months 12 days |
| Equity Option [Member] | |
| Share-Based Compensation Arrangement by Share-Based Payment Award [Line Items] | |
| Unvested employee stock options not yet recognized | $ 1.7 |
Warrants (Details Narrative) - $ / shares |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
| Outstanding and exercisable warrants to purchase | 12,187,470 | 12,187,470 |
| Class of warrant or right, exercise price of warrants or rights | $ 1.53 | |
| Measurement Input, Expected Term [Member] | ||
| Fair Value Measurement Inputs and Valuation Techniques [Line Items] | ||
| Warrants contractual term | 3 years 7 months 6 days |
Schedule of Future Minimum Rental Payments for Operating Leases (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Commitments and Contingencies Disclosure [Abstract] | ||
| Remainder of 2023 | $ 403 | |
| 2024 | 559 | |
| 2025 | 470 | |
| Total future minimum lease payments | 1,432 | |
| Less amount representing interest | (112) | |
| Present value of obligations under operating leases | 1,320 | |
| Less current portion | (473) | $ (458) |
| Long-term operating lease obligations | $ 847 | $ 972 |
Commitments and Contingencies (Details Narrative) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Commitments and Contingencies Disclosure [Abstract] | ||
| Operating lease weighted-average remaining lease term | 2 years 7 months 6 days | |
| Rent expense | $ 0.1 | $ 0.1 |
Schedule of Supplemental Cash Flow Information (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Supplemental Cash Flow Elements [Abstract] | ||
| Interest | $ 509 | $ 301 |
Related Party Transactions (Details Narrative) |
Mar. 31, 2023 |
|---|---|
| OrbiMed Advisors LLC [Member] | |
| Equity method investment, ownership percentage | 67.00% |
Schedule of Revenues by Geographic Region (Details) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total revenue | $ 17,943 | $ 12,959 |
| UNITED STATES | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total revenue | 17,513 | 12,694 |
| Rest of World [Member] | ||
| Revenues from External Customers and Long-Lived Assets [Line Items] | ||
| Total revenue | $ 430 | $ 265 |
Segment and Geographic Information (Details Narrative) |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Concentration Credit Risk [Member] | Revenue Benchmark [Member] | Customer [Member] | ||
| Revenue, Major Customer [Line Items] | ||
| Concentration risk, percentage | 98.00% | 98.00% |