srga-10q_20200930.htm

(Former name, former address and former fiscal year, if changed since last report)

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. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit such files.) Yes ☒ No ☐

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.

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 ☐ No ☒

Shares of common stock, $0.001 par value, outstanding on October 31, 2020: 81,396,449

	September 30,			December 31,
	2020			2019
Assets
Current Assets:
Cash and cash equivalents	$	95,790		$	5,608
Accounts receivable - less allowances of $6,638 at September 30, 2020 and $4,795 at December 31, 2019		24,485			23,216
Inventories - net		28,195			24,574
Prepaid and other current assets		4,278			4,034
Current assets of discontinued operations		-			138,382
Total current assets		152,748			195,814
Non-current inventories - net		4,872			6,637
Property, plant and equipment - net		617			789
Other assets - net		10,107			5,418
Noncurrent assets of discontinued operations		-			135,851
Total assets	$	168,344		$	344,509

Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable	$	10,760		$	11,116
Accrued expenses		13,720			15,099
Accrued income taxes		29,106			424
Current liabilities of discontinued operations		-			213,749
Total current liabilities		53,586			240,388
Deferred tax liability		2,559			-
Other long-term liabilities		1,323			2,862
Noncurrent liabilities of discontinued operations		-			285
Total liabilities		57,468			243,535
Commitments and contingencies (Note 19)
Preferred stock Series A, $.001 par value: 5,000,000 shares authorized; 50,000 shares issued and outstanding		-			66,410
Stockholders' equity:
Common stock, $.001 par value: 150,000,000 shares authorized; 75,146,449 and 75,213,515 shares issued and outstanding, respectively		75			75
Additional paid-in capital		503,901			498,438
Accumulated other comprehensive loss		(2,619	)		(7,629	)
Accumulated deficit		(384,922	)		(451,179	)
Less treasury stock, 1,429,141 and 1,285,224 shares, respectively, at cost		(5,559	)		(5,141	)
Total stockholders' equity		110,876			34,564
Total liabilities and stockholders' equity	$	168,344		$	344,509

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenues	$	27,926		$	28,702		$	75,562		$	85,849
Cost of goods sold		11,892			7,607			30,336			24,711
Gross profit		16,034			21,095			45,226			61,138
Expenses:
Marketing, general and administrative		27,754			34,247			97,095			95,454
Research and development		2,208			4,271			9,764			12,475
Gain on acquisition contingency		-			—			(130	)		(1,590	)
Asset impairment and abandonments		9,356			4			12,117			15
Transaction and integration expenses		3,411			3,089			5,826			13,999
Total operating expenses		42,729			41,611			124,672			120,353
Operating loss		(26,695	)		(20,516	)		(79,446	)		(59,215	)
Other (expense) income:
Interest income		21			4			92			161
Foreign exchange gain (loss)		21			(51	)		(28	)		(88	)
Total other expense - net		42			(47	)		64			73
Loss before income tax benefit		(26,653	)		(20,563	)		(79,382	)		(59,142	)
Income tax benefit		—			3,591			3,492			9,955
Net loss from continuing operations		(26,653	)		(16,972	)		(75,890	)		(49,187	)
Discontinued operations (Note 4)
Income from operations of discontinued operations (including gain on disposition of $210,866 for the three and nine months ended 9/30/2020)		191,871			13,292			181,337			39,987
Income tax provision		(42,534	)		(1,458	)		(39,189	)		(5,101	)
Net income on discontinued operations		149,337			11,834			142,148			34,886
Net income (loss) applicable to common shares		122,684			(5,138	)		66,258			(14,301	)

Other comprehensive gain (loss):
Unrealized foreign currency translation gain (loss)		(108	)		(1,122	)		(180	)		(1,120	)
Comprehensive income (loss)	$	122,576		$	(6,260	)	$	66,078		$	(15,421	)

Net loss from continuing operations per common share - basic	$	(0.36	)	$	(0.23	)	$	(1.04	)	$	(0.71	)
Net loss from continuing operations per common share - diluted	$	(0.36	)	$	(0.23	)	$	(1.04	)	$	(0.71	)
Net income from discontinued operations per common share - basic	$	2.04		$	0.16		$	1.95		$	0.50
Net income from discontinued operations per common share - diluted	$	2.04		$	0.16		$	1.95		$	0.50
Weighted average shares outstanding - basic		73,212,662			72,472,591			72,933,038			69,340,006
Weighted average shares outstanding - diluted		73,212,662			72,472,591			72,933,038			69,340,006

See notes to unaudited condensed consolidated financial statements.

	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Treasury Stock			Total
Balance, January 1, 2020	$	75	$	498,438		$	(7,629	)	$	(451,179	)	$	(5,141	)	$	34,564
Net loss		—		—			—			(17,863	)		—			(17,863	)
Foreign currency translation adjustment		—		—			(370	)		—			—			(370	)
Exercise of common stock options		—		20			—			—			—			20
Stock-based compensation		—		1,310			—			—			—			1,310
Purchase of treasury stock		—		—			—			—			(193	)		(193	)
Amortization of preferred stock series A issuance costs		—		(44	)		—			—			—			(44	)
Balance, March 31, 2020	$	75	$	499,724		$	(7,999	)	$	(469,042	)	$	(5,334	)	$	17,424
Net loss		—		—			—			(38,564	)		—			(38,564	)
Foreign currency translation adjustment		—		—			298			—			—			298
Stock-based compensation		—		1,023			—			—			—			1,023
Purchase of treasury stock		—		—			—			—			(19	)		(19	)
Amortization of preferred stock series A issuance costs		—		(46	)		—			—			—			(46	)
Balance, June 30, 2020	$	75	$	500,701		$	(7,701	)	$	(507,606	)	$	(5,353	)	$	(19,884	)
Net income		—		—			—			122,684			—			122,684
Foreign currency translation adjustment		—		—			(108	)		—			—			(108	)
Foreign currency translation adjustment related to the impact of discontinued operations		—		—			5,190			—			—			5,190
Stock-based compensation		—		3,217			—			—			—			3,217
Purchase of treasury stock		—		—			—			—			(206	)		(206	)
Amortization of preferred stock series A issuance costs		—		(17	)		—			—			—			(17	)
Balance, September 30, 2020	$	75	$	503,901		$	(2,619	)	$	(384,922	)	$	(5,559	)	$	110,876

	Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Treasury Stock			Total
Balance, January 1, 2019	$	64	$	433,143		$	(7,270	)	$	(239,537	)	$	(4,869	)	$	181,531
Net loss		—		—			—			(9,351	)		—			(9,351	)
Foreign currency translation adjustment		—		—			(393	)		—			—			(393	)
Exercise of common stock options		—		284			—			—			—			284
Equity instruments issued in connection with Paradigm Spine acquisition - net of fees		11		60,719			—			—			—			60,730
Stock-based compensation		—		1,163			—			—			—			1,163
Purchase of treasury stock		—		—			—			—			(130	)		(130	)
Amortization of preferred stock series A issuance costs		—		(46	)		—			—			—			(46	)
Balance, March 31, 2019	$	75	$	495,263		$	(7,663	)	$	(248,888	)	$	(4,999	)	$	233,788
Net income		—		—			—			188			—			188
Foreign currency translation adjustment		—		—			395			—			—			395
Exercise of common stock options		—		111			—			—			—			111
Stock-based compensation		—		1,267			—			—			—			1,267
Purchase of treasury stock		—		—			—			—			(42	)		(42	)
Amortization of preferred stock series A issuance costs		—		(45	)		—			—			—			(45	)
Balance, June 30, 2019	$	75	$	496,596		$	(7,268	)	$	(248,700	)	$	(5,041	)	$	235,662
Net loss		—		—			—			(5,138	)		—			(5,138	)
Foreign currency translation adjustment		—		—			(1,122	)		—			—			(1,122	)
Stock-based compensation		—		969			—			—			—			969
Purchase of treasury stock

Delaware		83-2540607
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

520 Lake Cook Road, Suite 315, Deerfield, Illinois		60015
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol		Name of exchange on which registered
common stock, $0.001 par value		SRGA		Nasdaq Global Select Market

		Page #

Part I Financial Information

Item 1	Unaudited Condensed Consolidated Financial Statements	1 - 23

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24 - 31

Item 3	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4	Controls and Procedures	32

Part II Other Information

Item 1	Legal Proceedings	33

Item 1A	Risk Factors	34

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 3	Defaults Upon Senior Securities	36

Item 4	Mine Safety Disclosures	36

Item 5	Other Information	36

Item 6	Exhibits	38

Signatures		39

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐