10-Q 1 fna-20230930.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2023

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: 001-40902

 

Paragon 28, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

27-3170186

(State or other jurisdiction of

incorporation or organization)

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

14445 Grasslands Drive

Englewood, CO

80112

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (720) 912-1332

 

Not Applicable

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

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, $0.01 par value per share

 

FNA

 

The New York Stock Exchange

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, 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

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 1, 2023, there were 82,701,207 shares of the registrant's common stock, $0.01 par value per share, outstanding.

 

 

 


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “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. All statements other than statements of historical fact contained in this Quarterly Report, including without limitation statements regarding our business model and strategic plans for our products, technologies and business, including our implementation thereof, the impact on our business, financial condition and results of operations from macroeconomic conditions, the timing of and our ability to obtain and maintain regulatory approvals, our commercialization efforts, our acquisitions, including resulting synergies and future milestone payouts, marketing and manufacturing capabilities and strategy, our expectations about the commercial success and market acceptance of our products, the sufficiency of our cash, cash equivalents and marketable securities, and the plans and objectives of management for future operations and capital expenditures are forward-looking statements.

The forward-looking statements in this Quarterly Report are only predictions and are based largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of known and unknown risks, uncertainties, and assumptions, including those described under the sections in this Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties, and assumptions, the future events and trends discussed in this Quarterly Report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely upon these forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, performance, or achievements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. We intend the forward-looking statements contained in this Quarterly Report to be covered by the safe harbor provisions for forward-looking statements contained 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”).

 

 


 

Table of Contents

 

 

 

Page

 

 

 

PART I.

FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements (Unaudited)

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

Item 4.

Controls and Procedures

25

 

 

 

PART II.

OTHER INFORMATION

26

 

 

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

27

 

Signatures

29

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

(unaudited)

 

 

 

September 30, 2023

 

 

December 31, 2022

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

34,949

 

 

$

38,468

 

Trade receivables

 

 

33,615

 

 

 

37,687

 

Inventories, net

 

 

94,380

 

 

 

60,948

 

Income taxes receivable

 

 

1,022

 

 

 

615

 

Other current assets

 

 

4,826

 

 

 

4,658

 

Total current assets

 

 

168,792

 

 

 

142,376

 

 

 

 

 

 

 

Property and equipment, net

 

 

73,530

 

 

 

61,938

 

Intangible assets, net

 

 

21,802

 

 

 

22,387

 

Goodwill

 

 

25,465

 

 

 

25,465

 

Deferred income taxes

 

 

132

 

 

 

148

 

Other assets

 

 

3,634

 

 

 

1,795

 

Total assets

 

$

293,355

 

 

$

254,109

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

27,395

 

 

$

14,939

 

Accrued expenses

 

 

24,966

 

 

 

26,807

 

Accrued legal settlement

 

 

 

 

 

22,000

 

Other current liabilities

 

 

1,893

 

 

 

3,844

 

Current maturities of long-term debt

 

 

640

 

 

 

728

 

Income taxes payable

 

 

 

 

 

184

 

Total current liabilities

 

 

54,894

 

 

 

68,502

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt net, less current maturities

 

 

42,288

 

 

 

42,182

 

Other long-term liabilities

 

 

1,467

 

 

 

1,628

 

Deferred income taxes

 

 

327

 

 

 

342

 

Income taxes payable

 

 

635

 

 

 

527

 

Total liabilities

 

 

99,611

 

 

 

113,181

 

 

 

 

 

 

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

   Common stock, $0.01 par value, 300,000,000 shares authorized;
   
83,469,426 and 78,684,107 shares issued, and 82,555,907 and 77,770,588
   shares outstanding as of September 30, 2023 and December 31, 2022, respectively

 

 

824

 

 

 

776

 

Additional paid in capital

 

 

296,018

 

 

 

213,956

 

Accumulated deficit

 

 

(96,071

)

 

 

(67,789

)

Accumulated other comprehensive loss

 

 

(1,045

)

 

 

(33

)

Treasury stock, at cost; 913,519 shares as of September 30, 2023 and December 31, 2022

 

 

(5,982

)

 

 

(5,982

)

Total stockholders' equity

 

 

193,744

 

 

 

140,928

 

Total liabilities & stockholders' equity

 

$

293,355

 

 

$

254,109

 

 

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

1


 

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share data)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net revenue

 

$

52,783

 

 

$

46,006

 

 

$

155,828

 

 

$

129,875

 

Cost of goods sold

 

 

10,394

 

 

 

8,491

 

 

 

28,158

 

 

 

22,920

 

Gross profit

 

 

42,389

 

 

 

37,515

 

 

 

127,670

 

 

 

106,955

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development costs

 

 

7,244

 

 

 

6,337

 

 

 

21,976

 

 

 

18,100

 

Selling, general, and administrative

 

 

44,126

 

 

 

39,667

 

 

 

131,773

 

 

 

114,857

 

Total operating expenses

 

 

51,370

 

 

 

46,004

 

 

 

153,749

 

 

 

132,957

 

Operating loss

 

 

(8,981

)

 

 

(8,489

)

 

 

(26,079

)

 

 

(26,002

)

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

 

1,660

 

 

 

59

 

 

 

1,014

 

 

 

610

 

Interest expense, net

 

 

(1,119

)

 

 

(1,093

)

 

 

(3,127

)

 

 

(2,865

)

Total other income (expense)

 

 

541

 

 

 

(1,034

)

 

 

(2,113

)

 

 

(2,255

)

Loss before income taxes

 

 

(8,440

)

 

 

(9,523

)

 

 

(28,192

)

 

 

(28,257

)

Income tax (benefit) expense

 

 

(108

)

 

 

201

 

 

 

90

 

 

 

306

 

Net loss

 

$

(8,332

)

 

$

(9,724

)

 

$

(28,282

)

 

$

(28,563

)

Foreign currency translation adjustment

 

 

(630

)

 

 

(588

)

 

 

(1,012

)

 

 

(1,505

)

Comprehensive loss

 

$

(8,962

)

 

$

(10,312

)

 

$

(29,294

)

 

$

(30,068

)

Weighted average number of shares of common stock outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

82,548,892

 

 

 

76,850,949

 

 

 

81,878,814

 

 

 

76,595,118

 

Diluted

 

 

82,548,892

 

 

 

76,850,949

 

 

 

81,878,814

 

 

 

76,595,118

 

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.10

)

 

 

(0.13

)

 

$

(0.35

)

 

$

(0.37

)

Diluted

 

$

(0.10

)

 

 

(0.13

)

 

$

(0.35

)

 

$

(0.37

)

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

2


 

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except for number of shares)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-in-

 

 

Accumulated

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders'

 

For the Three Months Ended September 30, 2023

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Loss

 

 

Stock

 

 

Equity

 

Balance, June 30, 2023

 

 

82,536,046

 

 

$

824

 

 

$

292,350

 

 

$

(87,739

)

 

$

(415

)

 

$

(5,982

)

 

$

199,038

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(8,332

)

 

 

 

 

 

 

 

 

(8,332

)

Options exercised

 

 

19,861

 

 

 

 

 

 

70

 

 

 

 

 

 

 

 

 

 

 

 

70

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(630

)

 

 

 

 

 

(630

)

Employee stock purchase plan

 

 

 

 

 

 

 

 

86

 

 

 

 

 

 

 

 

 

 

 

 

86

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,512

 

 

 

 

 

 

 

 

 

 

 

 

3,512

 

Balance, September 30, 2023

 

 

82,555,907

 

 

$

824

 

 

$

296,018

 

 

$

(96,071

)

 

$

(1,045

)

 

$

(5,982

)

 

$

193,744

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2022

 

 

77,770,588

 

 

$

776

 

 

$

213,956

 

 

$

(67,789

)

 

$

(33

)

 

$

(5,982

)

 

$

140,928

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(28,282

)

 

 

 

 

 

 

 

 

(28,282

)

Issuance of common stock,
  net of issuance costs of $
827

 

 

4,312,500

 

 

 

43

 

 

 

68,410

 

 

 

 

 

 

 

 

 

 

 

 

68,453

 

Options exercised

 

 

435,673

 

 

 

5

 

 

 

2,530

 

 

 

 

 

 

 

 

 

 

 

 

2,535

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,012

)

 

 

 

 

 

(1,012

)

Employee stock purchase plan

 

 

37,146

 

 

 

 

 

 

828

 

 

 

 

 

 

 

 

 

 

 

 

828

 

Stock-based compensation

 

 

 

 

 

 

 

 

10,294

 

 

 

 

 

 

 

 

 

 

 

 

10,294

 

Balance, September 30, 2023

 

 

82,555,907

 

 

$

824

 

 

$

296,018

 

 

$

(96,071

)

 

$

(1,045

)

 

$

(5,982

)

 

$

193,744

 

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

3


 

 

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except for number of shares)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders'

 

For the Three Months Ended September 30, 2022

 

Shares

 

 

Amount

 

 

Paid-in-Capital

 

 

Deficit

 

 

Loss

 

 

Stock

 

 

Equity

 

Balance, June 30, 2022

 

 

76,537,568

 

 

$

764

 

 

$

202,367

 

 

$

(19,302

)

 

$

(909

)

 

$

(5,982

)

 

$

176,938

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(9,724

)

 

 

 

 

 

 

 

 

(9,724

)

Options exercised

 

 

539,203

 

 

 

5

 

 

 

2,055

 

 

 

 

 

 

 

 

 

 

 

 

2,060

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(588

)

 

 

 

 

 

(588

)

Employee stock purchase plan

 

 

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

 

 

 

100

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,587

 

 

 

 

 

 

 

 

 

 

 

 

2,587

 

Balance, September 30, 2022

 

 

77,076,771

 

 

$

769

 

 

$

207,109

 

 

$

(29,026

)

 

$

(1,497

)

 

$

(5,982

)

 

$

171,373

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2021

 

 

76,447,287

 

 

$

763

 

 

$

197,868

 

 

$

(463

)

 

$

8

 

 

$

(5,982

)

 

$

192,194

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(28,563

)

 

 

 

 

 

 

 

 

(28,563

)

Common stock repurchase

 

 

 

 

 

 

 

 

(266

)

 

 

 

 

 

 

 

 

 

 

 

(266

)

Options exercised

 

 

629,484

 

 

 

6

 

 

 

2,355

 

 

 

 

 

 

 

 

 

 

 

 

2,361

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,505

)

 

 

 

 

 

(1,505

)

Employee stock purchase plan

 

 

 

 

 

 

 

 

100

 

 

 

 

 

 

 

 

 

 

 

 

100

 

Stock-based compensation

 

 

 

 

 

 

 

 

7,052

 

 

 

 

 

 

 

 

 

 

 

 

7,052

 

Balance, September 30, 2022

 

 

77,076,771

 

 

$

769

 

 

$

207,109

 

 

$

(29,026

)

 

$

(1,497

)

 

$

(5,982

)

 

$

171,373

 

 

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

4


 

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(28,282

)

 

$

(28,563

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

10,602

 

 

 

9,624

 

Allowance for doubtful accounts

 

 

147

 

 

 

 

Provision for excess and obsolete inventories

 

 

2,053

 

 

 

(91

)

Stock-based compensation

 

 

10,294

 

 

 

7,052

 

Other

 

 

(1,428

)

 

 

(1,295

)

Changes in other assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts receivable

 

 

3,706

 

 

 

(10,227

)

Inventories

 

 

(35,558

)

 

 

(15,316

)

Accounts payable

 

 

12,468

 

 

 

951

 

Accrued expenses

 

 

3,718

 

 

 

176

 

Accrued legal settlement

 

 

(22,000

)

 

 

 

Income tax receivable/payable