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333 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

Form 10-Q

 

(Mark one)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

 

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: 001-40355

 

Treace Medical Concepts, Inc.

 

(Exact name of registrant as specified in its charter)

 

 

Delaware

47-1052611

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

203 Fort Wade Rd, Suite 150

Ponte Vedra, Florida 32081

(Address of principal executive offices, including zip code)

 

(904) 373-5940

(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

Common stock, $0.001 par value

TMCI

The Nasdaq Global Select Market

 

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 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). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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

Non-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 No

As of August 2, 2021, 52,781,693 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

 

 

 


 

TREACE MEDICAL CONCEPTS, INC.

 

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

 

Table of Contents

 

Item 1.

Unaudited Condensed Financial Statements

3

 

Condensed Balance Sheets

3

 

Condensed Statements of Operations and Comprehensive Loss

4

 

Condensed Statements of Stockholders' Equity (Deficit)

5

 

Condensed Statements of Cash Flows

7

 

Notes to Condensed Financial Statements

8

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

32

Item 4.

Controls and Procedures

32

 

 

Part II: Other Information

 

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 3.

Defaults Upon Senior Securities

35

Item 4.

Mine Safety Disclosures

35

Item 5.

Other Information

35

Item 6.

Exhibits

35

 

Signatures

37

 

 


 

SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS

As used in this Quarterly Report on Form 10-Q (“Quarterly Report”), unless expressly indicated or the context otherwise requires, references to “Treace Medical Concepts,” “we,” “us,” “our,” “the Company,” and similar references refer to Treace Medical Concepts, Inc. This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology.

These forward-looking statements include, but are not limited to, statements about:

 

the expected use of our products by physicians;

 

the expected growth of our business and our organization;

 

our expected uses of the net proceeds from our recent initial public offering (“IPO”) and our existing cash and cash equivalents;

 

our expectations regarding government and third-party payor coverage and reimbursement;

 

our ability to retain and recruit key personnel, including the continued development of a sales and marketing infrastructure;

 

our ability to obtain an adequate supply of materials and components for our products from our third-party suppliers, most of whom are single-source suppliers;

 

our plans and expected timeline related to our products, or developing new products, to address additional indications or otherwise;

 

our ability to obtain, maintain and expand regulatory clearances for our products and any new products we create;

 

our ability to manufacture sufficient quantities of our products with sufficient quality;

 

our ability to obtain and maintain intellectual property protection for our products;

 

our ability to expand our business into new geographic markets;

 

our compliance with extensive Nasdaq requirements and government laws, rules and regulations both in the United States and internationally;

 

our estimates of our expenses, ongoing losses, future revenue, capital requirements and our need for, or ability to obtain, additional financing;

 

our expectations regarding the time during which we will be an emerging growth company under the JOBS Act;

 

our ability to identify and develop new and planned products and/or acquire new products;

 

the effect of the COVID-19 pandemic and its impact on our business;

 

developments and projections relating to our competitors or our industry; and

 

our plans to conduct further clinical trials.

We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management’s beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate. Factors that may cause actual results

1


to differ materially from current expectations include, among other things, those listed under “Risk Factors” and elsewhere in this Quarterly Report. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements.

These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to actual results or to changes in our expectations.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed with the Securities and Exchange Commission (“SEC”) as exhibits to this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

TREACE MEDICAL CONCEPTS, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

June 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

119,621

 

 

$

18,079

 

Accounts receivable, net of allowance for doubtful accounts of $271 and

   $446 as of June 30, 2021 and December 31, 2020, respectively

 

 

10,047

 

 

 

14,486

 

Inventories

 

 

7,643

 

 

 

7,820

 

Prepaid expenses and other current assets

 

 

3,512

 

 

 

593

 

Total current assets

 

 

140,823

 

 

 

40,978

 

Property and equipment, net

 

 

1,475

 

 

 

829

 

Total assets

 

$

142,298

 

 

$

41,807

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,921

 

 

$

2,265

 

Accrued liabilities

 

 

1,957

 

 

 

1,848

 

Accrued commissions

 

 

2,553

 

 

 

3,513

 

Accrued compensation

 

 

2,434

 

 

 

2,183

 

Short-term debt

 

 

-

 

 

 

1,788

 

Total current liabilities

 

 

9,865

 

 

 

11,597

 

Derivative liability on term loan

 

 

245

 

 

 

245

 

Long-term debt, net of discount of $723 and $811 as of June 30, 2021 and

   December 31, 2020, respectively

 

 

29,277

 

 

 

29,189

 

Total liabilities

 

 

39,387

 

 

 

41,031

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Series A convertible preferred stock, $0.001 par value, 0 shares authorized and 0 shares issued and outstanding as of June 30, 2021; 6,687,500 shares authorized and 6,687,475 shares issued and outstanding as of December 31, 2020, respectively; liquidation value of $0 and $8,000 as of June 30, 2021 and December 31, 2020, respectively

 

 

 

 

 

7,935

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2021; 0 shares authorized, issued and outstanding as of    December 31, 2020

 

 

 

 

 

 

Common stock, $0.001 par value, 300,000,000 shares authorized; 52,755,981 issued and outstanding as of June 30, 2021; 66,875,000 shares authorized, 37,366,865 issued and outstanding as of December 31, 2020

 

45

 

 

28

 

Common stock Class B, $0.001 par value, 0 shares authorized, issued and outstanding as of June 30, 2021; 1,000,000 shares authorized and 0 shares issued and outstanding as of December 31, 2020

 

 

 

 

 

 

Additional paid-in capital

 

 

131,734

 

 

 

14,166

 

Accumulated deficit

 

 

(28,868

)

 

 

(21,353

)

Total stockholders’ equity

 

 

102,911

 

 

 

776

 

Total liabilities and stockholders’ equity

 

$

142,298

 

 

$

41,807

 

 

The accompanying notes are an integral part of these financial statements.

3


TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

20,654

 

 

$

7,739

 

 

$

39,361

 

 

$

18,995

 

Cost of goods sold

 

 

3,944

 

 

 

2,085

 

 

 

7,271

 

 

 

4,474

 

Gross profit

 

 

16,710

 

 

 

5,654

 

 

 

32,090

 

 

 

14,521

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

14,010

 

 

 

4,789

 

 

 

26,158

 

 

 

12,127

 

Research and development

 

 

2,422

 

 

 

982

 

 

 

4,290

 

 

 

2,415

 

General and administrative

 

 

4,329

 

 

 

1,401

 

 

 

7,095

 

 

 

2,696

 

Total operating expenses

 

 

20,761

 

 

 

7,172

 

 

 

37,543

 

 

 

17,238

 

Loss from operations

 

 

(4,051

)

 

 

(1,518

)

 

 

(5,453

)

 

 

(2,717

)

Interest and other income, net

 

 

6

 

 

 

3

 

 

 

7

 

 

 

36

 

Interest expense

 

 

(1,038

)

 

 

(458

)

 

 

(2,069

)

 

 

(899

)

Other expense, net

 

 

(1,032

)

 

 

(455

)

 

 

(2,062

)

 

 

(863

)

Net loss and comprehensive loss

 

 

(5,083

)

 

 

(1,973

)

 

 

(7,515

)

 

 

(3,580

)

Convertible preferred stock cumulative and undeclared

   dividends

 

 

(39

)

 

 

(159

)

 

 

(196

)

 

 

(318

)

Net loss attributable to common stockholders

 

$

(5,122

)

 

$

(2,132

)

 

$

(7,711

)

 

$

(3,898

)

Net loss per share attributable to common stockholders,

   basic and diluted

 

$

(0.10

)

 

$

(0.06

)

 

$

(0.18

)

 

$

(0.11

)

Weighted-average shares used in computing net

   loss per share attributable to common stockholders,

   basic and diluted

 

 

49,187,285

 

 

 

37,068,288

 

 

 

43,556,107

 

 

 

37,060,491

 

 

The accompanying notes are an integral part of these financial statements.

 

4


 

TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Stockholders’ Equity (Deficit)

(in thousands, except share amounts)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balances at December 31, 2020

 

 

6,687,475

 

 

$

7,935

 

 

 

37,366,865

 

 

$

28

 

 

$

14,166

 

 

$

(21,353

)

 

$

776

 

Issuance of common stock  upon exercise of stock options

 

 

 

 

 

 

 

 

962,633

 

 

 

2

 

 

 

761

 

 

 

 

 

 

763

 

Vesting of restricted stock awards

 

 

 

 

 

 

 

 

5,866

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,277

 

 

 

 

 

 

1,277

 

Issuance of common stock from initial public offering, net of issuance costs and underwriting discount of $10.6 million

 

 

 

 

 

 

 

 

6,953,125

 

 

 

7

 

 

 

107,603

 

 

 

 

 

 

107,610

 

Issuance of common stock upon net exercise of warrants

 

 

 

 

 

 

 

 

621,570

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Conversion of convertible preferred stock and accrued dividends on convertible preferred stock into common stock

 

 

(6,687,475

)

 

 

(7,935

)

 

 

6,845,922

 

 

 

7

 

 

 

7,928

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,515

)

 

 

(7,515

)

Balances at June 30, 2021

 

 

 

 

$

 

 

 

52,755,981

 

 

$

45

 

 

$

131,734

 

 

$

(28,868

)

 

$

102,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2019

 

 

6,687,475

 

 

$

7,935

 

 

 

37,031,841

 

 

$

28

 

 

$

12,884

 

 

$

(17,686

)

 

$

3,161

 

Issuance of common stock  upon exercise of stock options

 

 

 

 

 

 

 

 

36,447

 

 

 

 

 

 

41

 

 

 

 

 

 

41

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

457

 

 

 

 

 

 

457

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,580

)

 

 

(3,580

)

Balances at June 30, 2020

 

 

6,687,475

 

 

$

7,935

 

 

 

37,068,288

 

 

$

28

 

 

$

13,382

 

 

$

(21,266

)

 

$

79

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


5


 

 

 

Preferred Stock

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

Balances at March 31, 2021

 

 

6,687,475

 

 

$

7,935

 

 

 

38,057,416

 

 

$

30

 

 

$

15,136

 

 

$

(23,785

)

 

$

(684

)

Issuance of common stock  upon exercise of stock options

 

 

 

 

 

 

 

 

272,082

 

 

 

 

 

 

193

 

 

 

 

 

 

193

 

Vesting of restricted stock awards

 

 

 

 

 

 

 

 

5,866

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

875

 

 

 

 

 

 

875

 

Issuance of common stock from initial public offering, net of issuance costs and underwriting discount of $10.6 million

 

 

 

 

 

 

 

 

6,953,125

 

 

 

7

 

 

 

107,603

 

 

 

 

 

 

107,610

 

Issuance of common stock upon net exercise of warrants

 

 

 

 

 

 

 

 

621,570

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

Conversion of convertible preferred stock and accrued dividends on convertible preferred stock into common stock

 

 

(6,687,475

)

 

 

(7,935

)

 

 

6,845,922

 

 

 

7

 

 

 

7,928

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,083

)

 

 

(5,083

)

Balances at June 30, 2021

 

 

 

 

 

 

 

 

52,755,981

 

 

 

45

 

 

 

131,734

 

 

 

(28,868

)

 

 

102,911

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at March 31, 2020

 

 

6,687,475

 

 

$

7,935

 

 

 

37,068,288

 

 

$

28

 

 

$

13,134

 

 

$

(19,293

)

 

$

1,804

 

Share-based compensation    expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

248

 

 

 

 

 

 

248

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,973

)

 

 

(1,973

)

Balances at June 30, 2020

 

 

6,687,475

 

 

$

7,935

 

 

 

37,068,288

 

 

$

28

 

 

$

13,382

 

 

$

(21,266

)

 

$

79

 

 

The accompanying notes are an integral part of these financial statements.

6


TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Six Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(7,515

)

 

$

(3,580

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

220

 

 

 

667

 

(Recovery) Provision for allowance for doubtful accounts

 

 

(72

)

 

 

228

 

Share-based compensation expense

 

 

1,277

 

 

 

457

 

Amortization of debt issuance costs

 

 

88

 

 

 

118

 

Provision for inventory obsolescence

 

 

88

 

 

 

412

 

Net changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts Receivable

 

 

4,511

 

 

 

3,532

 

Inventory

 

 

89

 

 

 

(2,590

)

Prepaid expenses and other assets

 

 

(2,919

)

 

 

178

 

Accounts payable

 

 

656

 

 

 

1,071

 

Accrued liabilities

 

 

(600

)

 

 

(3,233

)

Net cash used in operating activities

 

 

(4,177

)

 

 

(2,740

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(866

)

 

 

(923

)

Net cash used in investing activities

 

 

(866

)

 

 

(923

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from SBA Loan

 

 

 

 

 

1,788

 

Repayments on SBA Loan

 

 

(1,788

)

 

 

 

Proceeds from issuance of common stock upon initial public offering, net of issuance costs and underwriting fees of $10.6 million

 

 

107,610

 

 

 

 

Proceeds from exercise of employee stock options

 

 

763

 

 

 

41

 

Net cash provided by financing activities

 

 

106,585

 

 

 

1,829

 

Net increase (decrease) in cash and cash equivalents

 

 

101,542

 

 

 

(1,834

)

Cash and cash equivalents at beginning of period

 

 

18,079

 

 

 

12,139

 

Cash and cash equivalents at end of period

 

$

119,621

 

 

$

10,305

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

 

2,917

 

 

 

 

NONCASH FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of warrants

 

 

1

 

 

 

 

Conversion of convertible preferred stock and accrued dividends on convertible preferred stock into common stock

 

 

7,935

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

7