Alphatec (ATEC) - 2023 Q1 - Quarterly Report

PART I PART I – FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations Item 1. Financial Statements This section presents Alphatec Holdings, Inc.'s unaudited condensed consolidated financial statements and related notes for the period Condensed Consolidated Balance Sheets The balance sheets show an increase in total assets from $520,968 thousand at December 31, 2022, to $569,693 thousand at March 31, 2023, primarily driven by increases in cash and cash equivalents, accounts receivable, and inventories. Total liabilities also increased, mainly due to long-term debt, while stockholders' deficit widened | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------- | :---------------------------- | :------------------------------- | | Cash and cash equivalents | $116,698 | $84,696 | | Total current assets | $299,153 | $255,634 | | Total assets | $569,693 | $520,968 | | Total current liabilities | $142,904 | $138,870 | | Long-term debt | $419,455 | $349,511 | | Total stockholders' deficit | $(58,362) | $(34,667) | Condensed Consolidated Statements of Operations For the three months ended March 31, 2023, total revenue increased significantly to $109,110 thousand from $70,933 thousand in the prior year. Despite this, the company reported a net loss of $(43,529) thousand, slightly higher than the $(42,616) thousand net loss in the same period of 2022, primarily due to increased cost of sales and operating expenses | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Total revenue | $109,110 | $70,933 | | Cost of sales | $38,685 | $21,717 | | Gross profit | $70,425 | $49,216 | | Total operating expenses | $110,772 | $90,445 | | Operating loss | $(40,347) | $(41,229) | | Net loss | $(43,529) | $(42,616) | | Net loss per share, basic and diluted | $(0.40) | $(0.43) | Condensed Consolidated Statements of Comprehensive Loss The company reported a comprehensive loss of $(42,424) thousand for the three months ended March 31, 2023, an improvement from $(43,820) thousand in the prior year, mainly influenced by foreign currency translation adjustments | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Net loss | $(43,529) | $(42,616) | | Foreign currency translation adjustments | $1,105 | $(1,204) | | Comprehensive loss | $(42,424) | $(43,820) | Condensed Consolidated Statements of Stockholders' Deficit The total stockholders' deficit increased from $(34,667) thousand at December 31, 2022, to $(58,362) thousand at March 31, 2023, primarily due to the net loss incurred during the period, partially offset by stock-based compensation and reclassification of equity-based liability | Metric | December 31, 2022 (in thousands) | March 31, 2023 (in thousands) | | :------------------------------------ | :------------------------------- | :---------------------------- | | Total stockholders' deficit (beginning) | $(34,667) | $(34,667) | | Stock-based compensation | N/A | $16,462 | | Net loss | N/A | $(43,529) | | Total stockholders' deficit (ending) | N/A | $(58,362) | Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2023, the company experienced a net increase in cash and cash equivalents of $32,002 thousand, a significant improvement from a net decrease of $(35,436) thousand in the prior year. This was driven by substantial cash provided by financing activities, primarily from the Braidwell Term Loan, offsetting cash used in operating and investing activities | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Operating activities | $(18,324) | $(24,705) | | Investing activities | $(16,816) | $(13,407) | | Financing activities | $67,110 | $2,697 | | Net increase (decrease) in cash | $32,002 | $(35,436) | | Cash and cash equivalents (end) | $116,698 | $151,812 | Notes to Condensed Consolidated Financial Statements These notes detail the company's organization, accounting policies, financial components, debt, and equity transactions 1. Organization and Significant Accounting Policies Alphatec Holdings, Inc. is a medical technology company focused on spinal disorder treatment, operating through subsidiaries Alphatec Spine, SafeOp Surgical, and EOS imaging. The financial statements are prepared in accordance with U.S. GAAP, with certain information condensed or omitted per SEC rules for interim reports. A prior-period adjustment was made for a deferred tax liability and goodwill related to the EOS acquisition, deemed immaterial. The company adopted ASU No. 2021-08 on January 1, 2023, with no material impact - The Company designs, develops, and markets technology for spinal disorders through its wholly owned subsidiaries: Alphatec Spine, SafeOp Surgical, and EOS imaging S.A[27] - A prior-period adjustment was made to correct errors related to a deferred tax liability and goodwill from the EOS acquisition, which was concluded to be immaterial to previously issued financial statements[33] - The Company adopted ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, as of January 1, 2023, with no material impact on its financial statements[47] 2. Fair Value Measurements The company's cash equivalents, primarily money market funds, are measured at fair value using Level 1 inputs. The fair value of outstanding Senior Convertible Notes due 2026 and EOS convertible bonds (OCEANEs) also increased from December 31, 2022, to March 31, 2023 | Asset/Liability | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------------------- | :---------------------------- | :------------------------------- | | Money market funds (Cash equivalents) | $99,685 | $62,956 | | Senior Convertible Notes due 2026 (Fair Value) | $337,800 | $288,800 | | EOS Convertible Bonds (OCEANEs) (Fair Value) | $13,600 | $13,300 | 3. Inventories Inventories, reported at the lower of cost or net realizable value, increased from $101,521 thousand at December 31, 2022, to $108,242 thousand at March 31, 2023, with finished goods being the largest component | Inventory Component | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------ | :---------------------------- | :------------------------------- | | Raw materials | $16,401 | $13,928 | | Work-in-process | $3,616 | $3,032 | | Finished goods | $88,225 | $84,561 | | Total Inventories | $108,242 | $101,521 | 4. Property and Equipment, net Net property and equipment increased to $109,750 thousand at March 31, 2023, from $101,952 thousand at December 31, 2022, primarily due to an increase in surgical instruments and construction in progress. Total depreciation expense for the three months ended March 31, 2023, was $8.6 million, up from $7.1 million in the prior year | Asset Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------- | :---------------------------- | :------------------------------- | | Surgical instruments | $170,108 | $158,906 | | Construction in progress | $18,048 | $15,360 | | Property and equipment, net | $109,750 | $101,952 | - Total depreciation expense was $8.6 million for the three months ended March 31, 2023, compared to $7.1 million for the same period in 2022[56] 5. Goodwill and Intangible Assets Goodwill increased slightly to $47,924 thousand at March 31, 2023, due to foreign currency fluctuations. Net intangible assets decreased to $81,079 thousand from $82,781 thousand, with developed product technology being the largest component. Amortization expense for intangible assets increased to $3.1 million for the three months ended March 31, 2023, from $2.2 million in the prior year | Asset Category | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------- | :---------------------------- | :------------------------------- | | Goodwill | $47,924 | $47,367 | | Developed product technology | $60,647 | $62,476 | | Total intangible assets, net | $81,079 | $82,781 | - Total amortization expense attributed to intangible assets was $3.1 million for the three months ended March 31, 2023, compared to $2.2 million for the same period in 2022[61] 6. Contract Liabilities Contract liabilities increased to $17,058 thousand at March 31, 2023, from $15,003 thousand at December 31, 2022. The company recognized $4.9 million in revenue from contract liabilities during Q1 2023, with $4.2 million from the opening balance | Contract Liabilities (in thousands) | March 31, 2023 | December 31, 2022 | | :---------------------------------- | :------------- | :---------------- | | Current contract liabilities | $13,938 | $11,956 | | Non-current contract liabilities | $3,120 | $3,047 | | Total contract liabilities (ending) | $17,058 | $15,003 | - The Company recognized $4.9 million of revenue from its contract liabilities during the three months ended March 31, 2023, of which $4.2 million was recognized from the opening contract liabilities balance[65] 7. Debt The company secured a new $150.0 million Braidwell Term Loan and managed various other debt instruments and facilities - On January 6, 2023, the Company entered into a $150.0 million Braidwell Term Loan credit facility, with an initial $100.0 million funded. The applicable interest rate as of March 31, 2023, was 10.5%[67][69] - As of March 31, 2023, the outstanding balance under the Revolving Credit Facility was $8.1 million, with an interest rate of 8.4%[71][73] | Debt Type | Outstanding Balance (March 31, 2023, in thousands) | Interest Rate (as of March 31, 2023) | Maturity Date | | :-------------------------------------- | :------------------------------------------------- | :----------------------------------- | :------------ | | Braidwell Term Loan | $100,000 | 10.5% | Jan 6, 2028 | | Revolving Credit Facility | $8,100 | 8.4% | Sep 29, 2027 | | 0.75% Convertible Senior Notes due 2026 | $316,250 (Principal) | 0.75% | Aug 1, 2026 | | OCEANE Convertible Bonds | $13,600 | 6% | May 31, 2023 | | Other Debt Agreements | $5,200 | 0.98% - 1.25% | 2027 | | Principal Payments Remaining (in thousands) | Amount | | :---------------------------------------- | :----- | | Remainder of 2023 | $15,694 | | 2024 | $1,752 | | 2025 | $1,714 | | 2026 | $317,534 | | 2027 | $8,762 | | Thereafter | $103,250 | | Total | $448,706 | | Less: unamortized debt discount and debt issuance costs | $(13,183) | | Total (net) | $435,523 | 8. Commitments and Contingencies The company leases office and storage facilities under operating leases, with future minimum annual lease payments totaling $37,094 thousand undiscounted. It also has a minimum purchase commitment of $26.4 million with a third-party supplier through December 2026. The company is involved in various legal proceedings, including a lawsuit filed by NuVasive against its CEO, but has not recorded any related liability as of March 31, 2023 | Operating Lease Payments (in thousands) | Amount | | :------------------------------------ | :----- | | Remainder of 2023 | $3,739 | | 2024 | $5,039 | | 2025 | $5,024 | | 2026 | $5,085 | | 2027 | $5,127 | | Thereafter | $13,080 | | Total undiscounted lease payments | $37,094 | - The Company has a remaining minimum purchase commitment of $26.4 million with a third-party supplier through December 2026[101] - The Company is involved in various legal proceedings, including a lawsuit filed by NuVasive against its Chairman and CEO, Mr. Miles, but has not recorded any liability related to this matter as of March 31, 2023[102][104] 9. Stock-Benefit Plans and Equity Transactions Total stock-based compensation increased to $16,462 thousand for the three months ended March 31, 2023, from $10,184 thousand in the prior year. The company issued approximately 1,967,000 shares upon vesting of RSUs and PRSUs in Q1 2023. As of March 31, 2023, there were 9,654 thousand warrants outstanding with various strike prices and expiration dates | Stock-Based Compensation (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Cost of sales | $6,006 | $256 | | Research and development | $1,317 | $972 | | Sales, general and administrative | $9,139 | $8,956 | | Total | $16,462 | $10,184 | - Approximately 1,967,000 shares of common stock were issued upon vesting of RSUs and PRSUs during the three months ended March 31, 2023[109] | Warrant Type | Number of Warrants (in thousands) | Strike Price | Expiration | | :-------------------------------- | :-------------------------------- | :----------- | :---------------------- | | 2018 PIPE Warrants | 630 | $3.50 | May 2023 | | SafeOp Surgical Merger Warrants | 778 | $3.50 | May 2023 | | 2018 Squadron Medical Warrants | 845 | $3.15 | May 2027 | | 2019 Squadron Medical Warrants | 4,839 | $2.17 | May 2027 | | 2020 Squadron Medical Warrants | 1,076 | $4.88 | May 2027 | | Executive Warrants | 1,327 | $5.00 | December 2024 | | Other | 159 | $7.20 | Various through Feb 2026 | | Total | 9,654 | | | 10. Business Segment and Geographic Information The company operates in one business segment. Total revenue increased to $109,110 thousand for Q1 2023, with the United States contributing $99,969 thousand (91.6%) and international markets contributing $9,141 thousand (8.4%) - The Company operates in one segment, with overall operating performance and resource allocation assessed on a consolidated basis[117] | Geographic Region | Revenue (Q1 2023, in thousands) | Revenue (Q1 2022, in thousands) | Property and Equipment, net (March 31, 2023, in thousands) | Property and Equipment, net (December 31, 2022, in thousands) | | :---------------- | :------------------------------ | :------------------------------ | :--------------------------------------------------------- | :------------------------------------------------------------ | | United States | $99,969 | $67,034 | $106,861 | $99,050 | | International | $9,141 | $3,899 | $2,889 | $2,902 | | Total | $109,110 | $70,933 | $109,750 | $101,952 | 11. Net Loss Per Share Basic and diluted net loss per share was $(0.40) for the three months ended March 31, 2023, an improvement from $(0.43) in the prior year. Potentially dilutive shares, including options, RSUs, warrants, and convertible notes, were excluded from the diluted EPS calculation as their effect was anti-dilutive due to the net loss position | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(43,529) | $(42,616) | | Weighted average common shares outstanding | 109,751 | 99,978 | | Net loss per share, basic and diluted | $(0.40) | $(0.43) | - 36,643 thousand potentially dilutive shares were excluded from the calculation of diluted net loss per share for the three months ended March 31, 2023, because their effect would have been anti-dilutive[123] 12. Income Taxes The company's effective tax rate from continuing operations was (0.03%) for the three months ended March 31, 2023, compared to 0.23% in the prior year. This rate differs from the federal statutory rate of 21% primarily due to the net loss position and valuation allowance | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Effective tax rate | (0.03)% | 0.23% | | Income tax provision (benefit) | $14 | $(99) | 13. Related Party Transactions The company purchased $3.6 million in inventory from a Squadron Supplier Affiliate during the three months ended March 31, 2023, an increase from $2.4 million in the prior year - The Company purchased $3.6 million in inventory from a Squadron Supplier Affiliate for the three months ended March 31, 2023, compared to $2.4 million for the same period in 2022[125] 14. Subsequent Events On April 19, 2023, the company acquired a navigation-enabled robotics platform for $55.0 million cash and completed a registered securities offering of 4,285,715 common shares at $14.00 per share, generating approximately $60.0 million in gross proceeds - On April 19, 2023, the Company acquired a navigation-enabled robotics platform for cash consideration of $55.0 million[127] - On April 19, 2023, the Company completed a registered securities offering of 4,285,715 shares of common stock at $14.00 per share, generating approximately $60.0 million in gross proceeds[128] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition, operational results, liquidity, and capital resources for the period Overview Alphatec Holdings, Inc. is a medical technology company focused on advancing spinal disorder treatment through its Alpha InformatiX™ product platform. The company aims for market-leading growth by investing in distinct procedures and technologies and expanding its sales network - The Company is a medical technology company focused on the design, development, and advancement of technology for better surgical treatment of spinal disorders, aiming to revolutionize spine surgery through clinical distinction[130] - Future success is expected to be propelled by the introduction and traction of distinct procedures and technologies, supported by the expansion of a clinically astute and exclusive sales team[131] Recent Developments Recent developments include the acquisition of a navigation-enabled robotics platform for $55.0 million, a $60.0 million underwritten public offering of common stock, and a new $150.0 million Braidwell Term Loan facility, with $100.0 million initially funded - On April 19, 2023, the Company acquired a navigation-enabled robotics platform for cash consideration of $55.0 million[132] - On April 19, 2023, the Company completed a registered securities offering of 4,285,715 shares of common stock, generating approximately $60.0 million in gross proceeds[133] - On January 6, 2023, the Company entered into a $150.0 million Braidwell Term Loan credit facility, with an initial term loan of $100.0 million funded on the closing date[134] Revenue and Expense Components This section details the company's revenue recognition, cost of sales, operating expenses, and other non-operating items - Revenue is primarily derived from the sale of spinal surgery implants and medical imaging equipment, recognized when control of products or services is transferred to customers[139] - Cost of sales consists primarily of direct product costs, royalties, service labor hours, and parts, including raw materials, component parts, direct labor, and overhead[140] - Operating expenses include Research and development, Sales, general and administrative, Litigation-related expenses, Amortization of acquired intangible assets, Transaction-related expenses, and Restructuring expenses[140][141] Critical Accounting Policies and Estimates The company's financial statements rely on estimates and assumptions for revenue recognition, accounts receivable allowances, inventories, intangible assets, stock-based compensation, and income taxes. Management believes there have been no material changes to these critical accounting policies since December 31, 2022 - Significant estimates and assumptions are made for revenue recognition, allowances for accounts receivable, inventories, intangible assets, stock-based compensation, and income taxes[144] - Management believes there have been no material changes to the critical accounting policies discussed in the Annual Report on Form 10-K for the year ended December 31, 2022[145] Results of Operations The company experienced significant revenue growth in Q1 2023, with total revenue increasing by 54%. However, cost of sales and operating expenses also rose, leading to a slight increase in net loss. Interest expense increased substantially due to higher interest rates on debt facilities Total revenue Total revenue increased by $38.2 million, or 54%, to $109.1 million for the three months ended March 31, 2023, compared to the same period in 2022, driven by increased product volume, surgeon user base expansion, and new product adoption | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change ($) | Change (%) | | :----------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | Revenue from products and services | $109,110 | $70,918 | $38,192 | 54% | | Revenue from international supply agreement | — | $15 | $(15) | (100)% | | Total revenue | $109,110 | $70,933 | $38,177 | 54% | Cost of sales Cost of sales increased by $17.0 million, or 78%, to $38.7 million for the three months ended March 31, 2023, compared to the prior year, primarily due to higher product volume and an increase in stock-based compensation related to Development Service Agreements | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change ($) | Change (%) | | :------------ | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | Cost of sales | $38,685 | $21,717 | $16,968 | 78% | - The increase in cost of sales was primarily due to an increase in product volume and an increase in stock-based compensation related to Development Service Agreements[147] Operating expenses Total operating expenses increased by $20.3 million, or 22%, to $110.8 million for the three months ended March 31, 2023. This was mainly driven by increases in sales, general and administrative expenses (31%) due to compensation and distribution channel investment, and research and development expenses (36%) for new product portfolio expansion. Litigation-related expenses decreased by 58% | Operating Expense Category | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change ($) | Change (%) | | :--------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | Research and development | $13,260 | $9,722 | $3,538 | 36% | | Sales, general and administrative | $91,262 | $69,471 | $21,791 | 31% | | Litigation-related expenses | $3,192 | $7,532 | $(4,340) | (58)% | | Amortization of acquired intangible assets | $2,883 | $2,230 | $653 | 29% | | Transaction-related expenses | — | $120 | $(120) | (100)% | | Restructuring expenses | $175 | $1,370 | $(1,195) | (87)% | | Total operating expenses | $110,772 | $90,445 | $20,327 | 22% | Total interest and other expense, net Total interest and other expense, net, increased by $1.7 million, or 113%, to $(3,168) thousand for the three months ended March 31, 2023, compared to the prior year. This was primarily due to a 166% increase in net interest expense, driven by higher interest rates on the Revolving Credit Facility and Braidwell Term Loan | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | Interest expense, net | $(3,874) | $(1,456) | $(2,418) | 166% | | Other income (expense), net | $706 | $(30) | $736 | (2,453)% | | Total interest and other expense, net | $(3,168) | $(1,486) | $(1,682) | 113% | Income tax provision The income tax provision increased by $113 thousand for the three months ended March 31, 2023, compared to the prior year, primarily due to the recognition of income taxes in several jurisdictions | Metric | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------- | :--------- | | Income tax provision (benefit) | $14 | $(99) | $113 | (114)% | Liquidity and Capital Resources The company's primary liquidity sources are cash, the Revolving Credit Facility, the Braidwell Term Loan, and cash from operations. Cash and cash equivalents increased to $116.7 million at March 31, 2023, from $84.7 million at December 31, 2022. Management believes existing funds and financing are adequate for working capital, capital expenditures, debt service, and strategic initiatives - Principal sources of liquidity include existing cash and cash equivalents, the Revolving Credit Facility, the Braidwell Term Loan, and cash from operations[155] - Cash and cash equivalents were $116.7 million at March 31, 2023, an increase from $84.7 million at December 31, 2022[158] - Management believes existing funds, cash generated from operations, and existing financing are adequate to satisfy needs for working capital, capital expenditure, debt service, and other business initiatives[158] Summary of Cash Flows For the three months ended March 31, 2023, cash provided by financing activities ($67.1 million) significantly offset cash used in operating ($18.3 million) and investing ($16.8 million) activities, resulting in a net increase in cash and cash equivalents of $32.0 million | Cash Flow Activity | Three Months Ended March 31, 2023 (in thousands) | Three Months Ended March 31, 2022 (in thousands) | | :----------------------------- | :----------------------------------------------- | :----------------------------------------------- | | Operating activities | $(18,324) | $(24,705) | | Investing activities | $(16,816) | $(13,407) | | Financing activities | $67,110 | $2,697 | | Net increase (decrease) in cash | $32,002 | $(35,436) | - Cash used in operating activities was $18.3 million, primarily related to inventory purchases[160] - Cash provided by financing activities was $67.1 million, primarily from proceeds from the Braidwell Term Loan, offset by payments against the Revolving Credit Facility[162] Debt and Commitments The company's debt includes the Braidwell Term Loan, Revolving Credit Facility, convertible notes, and other debt, alongside various commitments - As of March 31, 2023, the Company had $100.0 million outstanding under the Braidwell Term Loan and $8.1 million outstanding under the Revolving Credit Facility[163] - The Company had $316.3 million outstanding under the 2026 Notes and $13.6 million (€12.5 million) outstanding OCEANEs, which mature on May 31, 2023[164] - Remaining commitments include $1.9 million in Orthotec settlement payments and a $26.4 million inventory purchase commitment through December 2026[165] Contractual obligations and commercial commitments No material changes to outstanding contractual obligations were reported as of March 31, 2023, beyond the Braidwell Term Loan details - There have been no material changes to outstanding contractual obligations, outside the normal course of business, from those disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, except for the Braidwell Term Loan[166] Off-Balance Sheet Arrangements The company does not have any off-balance sheet arrangements - The Company does not have any off-balance sheet arrangements[166] Recent Accounting Pronouncements No new accounting pronouncements or changes were reported during the three months ended March 31, 2023, other than those disclosed in Note 1 - No new accounting pronouncements or changes to accounting pronouncements were reported during the three months ended March 31, 2023, other than those disclosed in Note 1[167] Forward Looking Statements The report contains forward-looking statements regarding anticipated operating losses, future revenue, capital requirements, profitability, regulatory compliance, product commercialization, sales network expansion, management retention, acquisitions, and global economic impacts. These statements are subject to risks and uncertainties, and actual results may differ materially from expectations - Forward-looking statements include estimates regarding anticipated operating losses, future revenue, expenses, capital requirements, uses and sources of cash and liquidity, and the ability to achieve profitability[168] - Other forward-looking statements cover regulatory compliance, product commercialization, sales network, management retention, acquisitions, and the impact of global economic and political conditions[168] - Forward-looking statements are subject to inaccurate assumptions, known or unknown risks, and uncertainties, and actual future results may vary materially from expected results[169] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no significant changes to the market risk disclosures previously reported in the Annual Report on Form 10-K for the year ended December 31, 2022 - There have been no significant changes to the quantitative and qualitative disclosures about market risk as compared to the Annual Report on Form 10-K for the year ended December 31, 2022[172] Item 4. Controls and Procedures This section addresses the company's disclosure controls and procedures and changes in internal control over financial reporting. Management concluded that disclosure controls were effective as of March 31, 2023, and no material changes to internal control over financial reporting occurred during the quarter, despite the ongoing implementation of a new ERP system Disclosure Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2023, and concluded they are effective in ensuring timely and accurate reporting - Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023[173] Changes in Internal Control over Financial Reporting The company is implementing a new ERP system, but there have been no material changes to internal control over financial reporting during the three months ended March 31, 2023 - The Company is in the process of implementing a new enterprise resource planning (ERP) system[174] - There have been no changes to the Company's internal control over financial reporting during the three months ended March 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[174] PART II PART II – OTHER INFORMATION This section provides information on legal proceedings, risk factors, unregistered sales of equity securities, and a list of exhibits Item 1. Legal Proceedings For a description of material legal proceedings, refer to Note 8 of the Notes to Condensed Consolidated Financial Statements - For a description of material legal proceedings, refer to Note 8 of the Notes to Condensed Consolidated Financial Statements[176] Item 1A. Risk Factors No material changes to risk factors were reported, except for new risks related to the acquisition of the navigation-enabled robotics platform. These include potential failure to realize anticipated benefits, significant transaction costs, termination or alteration of third-party contracts, and difficulties in attracting and retaining key personnel. Litigation also poses a risk to integration efforts - No material changes to risk factors were reported, except for those related to the acquisition of the Navigation-enabled Robotics Platform[177] - New risks include potential failure to realize anticipated benefits from the Navigation-enabled Robotics Transaction, significant transaction costs, and the possibility of third parties terminating or altering existing contracts or relationships[178][179][181] - Difficulties in attracting, motivating, and retaining key personnel, as well as ongoing litigation, could adversely impact the integration and success of the Navigation-enabled Robotics Platform[183][184] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2023, the company issued 6,250 restricted shares on January 12, 2023, and 1,606 restricted shares on February 1, 2023, to an independent sales agent for services rendered. These issuances were made under Section 4(a)(2) of the Securities Act of 1933 - On January 12, 2023, the Company issued 6,250 restricted shares of common stock (grant date fair value $12.69) to an independent sales agent[185] - On February 1, 2023, the Company issued 1,606 restricted shares of common stock (grant date fair value $13.25) to an independent sales agent[185] - These issuances were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933[185] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Asset Purchase Agreement, Credit, Security and Guaranty Agreement, certifications (302 and 906), and XBRL financial data - Exhibits include the Asset Purchase Agreement (dated April 19, 2023) and the Credit, Security and Guaranty Agreement (dated January 6, 2023)[188] - Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are included[188] - The Condensed Consolidated Financial Statements are provided in iXBRL (Inline eXtensible Business Reporting Language) format as Exhibit 101[189] SIGNATURES SIGNATURES This section contains the official signatures of the company's executive officers, certifying the accuracy of the report Signatures The report is signed by Patrick S. Miles, Chairman and Chief Executive Officer, and J. Todd Koning, Executive Vice President and Chief Financial Officer, on May 4, 2023 - The report was signed by Patrick S. Miles, Chairman and Chief Executive Officer, and J. Todd Koning, Executive Vice President and Chief Financial Officer, on May 4, 2023[192]