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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, 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: 001-40902

 

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, 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 7, 2022, there were 77,126,895 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.

Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, 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 at all. Forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from those indicated (both favorably and unfavorably). These risks and uncertainties include, but are not limited to, those described in Part I – Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021, as well as our subsequent reports filed with the Securities and Exchange Commission. Caution should be taken not to place undue reliance on any such forward-looking statements. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q by these cautionary statements.

 


 

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 Convertible Preferred Series Equity & 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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

33

 

 

 

PART II.

OTHER INFORMATION

34

 

 

 

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

34

Item 4.

Mine Safety Disclosures

34

Item 5.

Other Information

35

Item 6.

Exhibits

36

 

Signatures

37

 

 

 

 

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, 2022

 

 

December 31, 2021

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$

56,325

 

 

$

109,352

 

Trade receivables

 

 

35,960

 

 

 

25,939

 

Inventories, net

 

 

54,771

 

 

 

40,241

 

Income taxes receivable

 

 

705

 

 

 

920

 

Other current assets

 

 

1,947

 

 

 

3,078

 

Total current assets

 

 

149,708

 

 

 

179,530

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

58,591

 

 

 

32,181

 

 

 

 

 

 

 

 

Intangible assets, net

 

 

20,850

 

 

 

16,505

 

Goodwill

 

 

26,975

 

 

 

6,329

 

 

 

 

 

 

 

 

Deferred income taxes

 

 

841

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

256,965

 

 

$

234,545

 

 

 

 

 

 

 

 

LIABILITIES & STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

13,979

 

 

$

13,028

 

Accrued expenses

 

 

19,507

 

 

 

18,232

 

Other current liabilities

 

 

6,889

 

 

 

1,929

 

Current maturities of long-term debt

 

 

735

 

 

 

153

 

Income taxes payable

 

 

497

 

 

 

615

 

Total current liabilities

 

 

41,607

 

 

 

33,957

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

Long-term debt net, less current maturities

 

 

42,492

 

 

 

7,476

 

Other long-term liabilities

 

 

907

 

 

 

840

 

Deferred income taxes

 

 

59

 

 

 

78

 

Income taxes payable

 

 

527

 

 

 

 

Total liabilities

 

 

85,592

 

 

 

42,351

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $0.01 par value, 300,000,000 shares authorized;
   
77,990,290 and 77,360,806  shares issued, and 77,076,771 and 76,447,287 
   shares outstanding as of September 30, 2022 and December 31, 2021, respectively

 

 

769

 

 

 

763

 

Additional paid in capital

 

 

207,109

 

 

 

197,868

 

Accumulated deficit

 

 

(29,026

)

 

 

(463

)

Accumulated other comprehensive (loss) income

 

 

(1,497

)

 

 

8

 

Treasury stock, at cost; 913,519 shares as of September 30, 2022 and December 31, 2021

 

 

(5,982

)

 

 

(5,982

)

Total stockholders' equity

 

 

171,373

 

 

 

192,194

 

Total liabilities & stockholders' equity

 

$

256,965

 

 

$

234,545

 

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net revenue

 

$

46,006

 

 

$

35,851

 

 

$

129,875

 

 

$

104,689

 

Cost of goods sold

 

 

8,491

 

 

 

7,096

 

 

 

22,920

 

 

 

20,209

 

Gross profit

 

 

37,515

 

 

 

28,755

 

 

 

106,955

 

 

 

84,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development costs

 

 

6,337

 

 

 

4,118

 

 

 

18,100

 

 

 

11,254

 

Selling, general, and administrative

 

 

39,667

 

 

 

28,968

 

 

 

114,857

 

 

 

79,009

 

Total operating expenses

 

 

46,004

 

 

 

33,086

 

 

 

132,957

 

 

 

90,263

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(8,489

)

 

 

(4,331

)

 

 

(26,002

)

 

 

(5,783

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

 

59

 

 

 

(98

)

 

 

610

 

 

 

(124

)

Interest expense, net

 

 

(1,093

)

 

 

(573

)

 

 

(2,865

)

 

 

(1,174

)

Total other expense

 

 

(1,034

)

 

 

(671

)

 

 

(2,255

)

 

 

(1,298

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income taxes

 

 

(9,523

)

 

 

(5,002

)

 

 

(28,257

)

 

 

(7,081

)

Income tax expense

 

 

201

 

 

 

105

 

 

 

306

 

 

 

437

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(9,724

)

 

$

(5,107

)

 

$

(28,563

)

 

$

(7,518

)

Less: cumulative dividends on Series B convertible preferred stock

 

 

 

 

 

(574

)

 

 

 

 

 

(1,516

)

Net loss attributable to common stockholders

 

$

(9,724

)

 

$

(5,681

)

 

$

(28,563

)

 

$

(9,034

)

Foreign currency translation adjustment

 

 

(588

)

 

 

(121

)

 

 

(1,505

)

 

 

(575

)

Comprehensive loss

 

$

(10,312

)

 

$

(5,802

)

 

$

(30,068

)

 

$

(9,609

)

Weighted average number of common stocks outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

76,850,949

 

 

 

47,005,334

 

 

 

76,595,118

 

 

 

46,926,344

 

Diluted

 

 

76,850,949

 

 

 

47,005,334

 

 

 

76,595,118

 

 

 

46,926,344

 

Net loss per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.13

)

 

 

(0.12

)

 

$

(0.37

)

 

$

(0.19

)

Diluted

 

$

(0.13

)

 

 

(0.12

)

 

$

(0.37

)

 

$

(0.19

)

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

 

2


 

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED SERIES EQUITY & STOCKHOLDERS’ EQUITY

(in thousands, except for number of shares)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Series A Convertible

 

 

Series B Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders'

 

For the Three Months Ended September 30, 2022

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

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 January 1, 2022

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

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.

 

3

 


 

 

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED SERIES EQUITY & STOCKHOLDERS’ EQUITY

(in thousands, except for number of shares)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

Series A Convertible

 

 

Series B Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

Total

 

 

 

Preferred Stock

 

 

Preferred Stock

 

 

 

Common Stock

 

 

Additional

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders'

 

For the Three Months Ended September 30, 2021

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Paid-in-Capital

 

 

Earnings

 

 

Income

 

 

Stock

 

 

Equity

 

Balance, June 30, 2021

 

 

13,812,500

 

 

$

4,250

 

 

 

6,608,700

 

 

$

37,784

 

 

 

 

46,969,305

 

 

$

470

 

 

$

25,171

 

 

$

9,065

 

 

$

369

 

 

$

(5,983

)

 

$

29,092

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(5,107

)

 

 

 

 

 

 

 

 

(5,107

)

Series B convertible preferred stock dividend

 

 

 

 

 

 

 

 

 

 

 

574

 

 

 

 

 

 

 

 

 

 

 

 

 

(574

)

 

 

 

 

 

 

 

 

(574

)

Options exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69,907

 

 

 

 

 

 

91

 

 

 

 

 

 

 

 

 

 

 

 

91

 

Foreign currency translation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(121

)

 

 

 

 

 

(121

)

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,032

 

 

 

 

 

 

 

 

 

 

 

 

1,032

 

Balance, September 30, 2021

 

 

13,812,500

 

 

$

4,250

 

 

 

6,608,700

 

 

$

38,358

 

 

 

 

47,039,212

 

 

$

470

 

 

$

26,294

 

 

$

3,384

 

 

$

248

 

 

$

(5,983

)

 

$

24,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance January 1, 2021

 

 

13,812,500

 

 

$

4,250

 

 

 

6,608,700

 

 

$

36,842

 

 

 

 

46,738,540

 

 

$

467

 

 

$

22,107

 

 

$

12,418

 

 

$

823

 

 

$

(5,422

)

 

$

30,393

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,518

)

 

 

 

 

 

 

 

 

(7,518

)

Issuance of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

151,515

 

 

 

1

 

 

 

999