10-Q
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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 September 30, 2022

 

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.)

 

100 Palmetto Park Place

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 November 3, 2022, 55,501,742 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 SEPTEMBER 30, 2022

 

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

6

 

Notes to Condensed Financial Statements

7

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

25

Item 4.

Controls and Procedures

26

 

 

Part II: Other Information

 

Item 1.

Legal Proceedings

27

Item 1A.

Risk Factors

27

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

Item 3.

Defaults Upon Senior Securities

28

Item 4.

Mine Safety Disclosures

28

Item 5.

Other Information

28

Item 6.

Exhibits

28

 

Signatures

29

 

 


 

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 our existing cash and cash equivalents and the sufficiency of such resources to fund our planned operations;
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, some of which 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 manufacture sufficient quantities of our products with sufficient quality;
our ability to obtain and maintain intellectual property protection for our products;
our ability to identify and develop new and planned products and/or acquire new products;
our ability to obtain, maintain and expand regulatory clearances for our products and any new products we create;
our ability to expand our business into new geographic markets;
our compliance with 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;
the effect of the COVID-19 pandemic and its impact on our business;
the impact of inflationary pressures, higher interest rates and general economic conditions on our business;
developments and projections relating to our competitors or our industry;
our plans to conduct further clinical trials; and
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act.

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

1


 

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 to differ materially from current expectations include, among other things, those set forth in our Annual Report on Form 10-K under “Part I, Item 1A-Risk Factors” and 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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

88,546

 

 

$

105,833

 

Accounts receivable, net of allowance for doubtful accounts of $423 and $414 as of September 30, 2022 and December 31, 2021, respectively

 

 

18,548

 

 

 

18,568

 

Inventories

 

 

16,794

 

 

 

10,561

 

Prepaid expenses and other current assets

 

 

4,014

 

 

 

3,010

 

Total current assets

 

 

127,902

 

 

 

137,972

 

Property and equipment, net

 

 

14,148

 

 

 

2,849

 

Operating lease right-of-use assets

 

 

14,247

 

 

 

 

Other non-current assets

 

 

146

 

 

 

 

Total assets

 

$

156,443

 

 

$

140,821

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

7,881

 

 

$

4,056

 

Accrued liabilities

 

 

5,189

 

 

 

4,518

 

Accrued commissions

 

 

4,131

 

 

 

5,181

 

Accrued compensation

 

 

5,049

 

 

 

4,455

 

Operating lease liabilities

 

 

330

 

 

 

 

Total current liabilities

 

 

22,580

 

 

 

18,210

 

Derivative liability on term loan

 

 

 

 

 

173

 

Long-term debt, net of discount of $1,364 and $635 as of September 30, 2022 and December 31, 2021, respectively

 

 

52,636

 

 

 

29,365

 

Operating lease liabilities, net of current portion

 

 

19,026

 

 

 

 

Total liabilities

 

 

94,242

 

 

 

47,748

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.001 par value, 5,000,000 shares authorized as of September 30, 2022 and December 31, 2021; 0 shares issued and outstanding as of September 30, 2022 and December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value, 300,000,000 shares authorized; 55,499,242 issued and outstanding as of September 30, 2022; 300,000,000 shares authorized; 54,181,082 issued and outstanding as of December 31, 2021

 

 

46

 

 

 

45

 

Additional paid-in capital

 

 

142,463

 

 

 

134,933

 

Accumulated deficit

 

 

(80,308

)

 

 

(41,905

)

Total stockholders’ equity

 

 

62,201

 

 

 

93,073

 

Total liabilities and stockholders’ equity

 

$

156,443

 

 

$

140,821

 

 

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 September 30,

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenue

 

$

33,055

 

 

$

21,619

 

 

$

92,069

 

 

$

60,980

 

Cost of goods sold

 

 

6,624

 

 

 

4,248

 

 

 

17,781

 

 

 

11,519

 

Gross profit

 

 

26,431

 

 

 

17,371

 

 

 

74,288

 

 

 

49,461

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

25,034

 

 

 

15,984

 

 

 

73,207

 

 

 

42,142

 

Research and development

 

 

3,799

 

 

 

2,537

 

 

 

9,835

 

 

 

6,827

 

General and administrative

 

 

8,916

 

 

 

4,310

 

 

 

22,593

 

 

 

11,405

 

Total operating expenses

 

 

37,749

 

 

 

22,831

 

 

 

105,635

 

 

 

60,374

 

Loss from operations

 

 

(11,318

)

 

 

(5,460

)

 

 

(31,347

)

 

 

(10,913

)

Interest and other income, net

 

 

375

 

 

 

5

 

 

 

514

 

 

 

12

 

Interest expense

 

 

(1,190

)

 

 

(963

)

 

 

(3,087

)

 

 

(3,032

)

Debt extinguishment loss

 

 

 

 

 

 

 

 

(4,483

)

 

 

 

Other expense, net

 

 

(815

)

 

 

(958

)

 

 

(7,056

)

 

 

(3,020

)

Net loss and comprehensive loss

 

 

(12,133

)

 

 

(6,418

)

 

 

(38,403

)

 

 

(13,933

)

Convertible preferred stock cumulative and undeclared dividends

 

 

 

 

 

 

 

 

 

 

 

(196

)

Net loss attributable to common stockholders

 

$

(12,133

)

 

$

(6,418

)

 

$

(38,403

)

 

$

(14,129

)

Net loss per share attributable to common stockholders, basic and diluted

 

$

(0.22

)

 

$

(0.12

)

 

$

(0.70

)

 

$

(0.30

)

Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted

 

 

55,429,211

 

 

 

52,766,150

 

 

 

55,190,587

 

 

 

46,603,487

 

 

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

 

 

Equity (Deficit)

 

Balances at December 31, 2021

 

 

 

 

$

 

 

 

54,181,082

 

 

$

45

 

 

$

134,933

 

 

$

(41,905

)

 

$

93,073

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

1,097,860

 

 

 

1

 

 

 

1,371

 

 

 

 

 

 

1,372

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,409

 

 

 

 

 

 

1,409

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,036

)

 

 

(9,036

)

Balances at March 31, 2022

 

 

 

 

 

 

 

 

55,278,942

 

 

 

46

 

 

 

137,713

 

 

 

(50,941

)

 

 

86,818

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

112,367

 

 

 

 

 

 

165

 

 

 

 

 

 

165

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,963

 

 

 

 

 

 

1,963

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,234

)

 

 

(17,234

)

Balances at June 30, 2022

 

 

 

 

 

 

 

 

55,391,309

 

 

 

46

 

 

 

139,841

 

 

 

(68,175

)

 

 

71,712

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

107,933

 

 

 

 

 

 

353

 

 

 

 

 

 

353

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,269

 

 

 

 

 

 

2,269

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,133

)

 

 

(12,133

)

Balances at September 30, 2022

 

 

 

 

$

 

 

 

55,499,242

 

 

$

46

 

 

$

142,463

 

 

$

(80,308

)

 

$

62,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

690,551

 

 

 

2

 

 

 

568

 

 

 

 

 

 

570

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

402

 

 

 

 

 

 

402

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,432

)

 

 

(2,432

)

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

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41

 

 

 

 

 

 

41

 

Share-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

839

 

 

 

 

 

 

839

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,418

)

 

 

(6,418

)

Balances at September 30, 2021

 

 

 

 

$

 

 

 

52,755,981

 

 

$

45

 

 

$

132,614

 

 

$

(35,286

)

 

$

97,373

 

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

5


 

TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

 

 

Nine Months Ended September 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(38,403

)

 

$

(13,933

)

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

 

 

 

 

 

 

Depreciation and amortization expense

 

 

1,216

 

 

 

409

 

Recovery for allowance for doubtful accounts

 

 

(38

)

 

 

(56

)

Share-based compensation expense

 

 

5,641

 

 

 

2,116

 

Non-cash lease expense

 

 

2,010

 

 

 

 

Amortization of debt issuance costs

 

 

169

 

 

 

133

 

(Recovery of) provision for inventory obsolescence

 

 

(206

)

 

 

179

 

Gain on fair value adjustment to derivative liability

 

 

(