10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q/A

(Amendment No. 1)

(Mark One)


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

For the quarterly period ended March 31, 2024


☐	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 May 3, 2024, there were 82,951,360 shares of the registrant's common stock, $0.01 par value per share, outstanding.

EXPLANATORY NOTE

General

As previously announced in our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on July 30, 2024, on July 30, 2024, the Audit Committee (the “Audit Committee”) of the Board of Directors and in consultation with management, concluded that its audited consolidated financial statements for the fiscal year ended December 31, 2023 and its unaudited condensed consolidated financial statements for the periods ended March 31, 2023, June 30, 2023, September 30, 2023, and March 31, 2024 could no longer be relied upon as a result of material accounting errors identified by management. Accordingly, the unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2024 included in this Quarterly Report on Form 10-Q/A have been restated to reflect the correction of identified errors in the calculation of excess and obsolete inventory, as well as its accounting for inventory variances, which impacted the valuation of inventory resulting in an overstatement of Inventories, net as of March 31, 2024 and a net understatement in Cost of goods sold for the three months ended March 31, 2024 (the “Restatement”).

Restatement

Paragon 28, Inc. (collectively with its subsidiaries, "we," "us," "our," "P28" or the "Company") is filing this Amendment No. 1 to our Quarterly Report on Form 10-Q/A to amend our Quarterly Report on Form 10-Q for the three months ended March 31, 2024 (the “Amended 2024 Quarterly Report”), which was originally filed with the SEC on May 8, 2024 (the “Original 2024 Quarterly Report”). This Amended 2024 Quarterly Report speaks as of the date of the Original 2024 Quarterly Report and has not been updated to reflect events occurring subsequent to the filing of the Original 2024 Quarterly Report other than those associated with the Restatement of our unaudited interim condensed consolidated financial statements.

For the convenience of the reader, this Amended 2024 Quarterly Report amends and restates the Original 2024 Quarterly Report in its entirety. As a result, it includes both items that have been changed as a result of the Restatement and items that are unchanged from the Original 2024 Quarterly Report.

Restatement Background

Subsequent to the issuance of both the Company’s consolidated financial statements as of and for the year ended December 31, 2023 and the Company's unaudited interim condensed consolidated financial statements as of and for the fiscal quarter ended March 31, 2024, the Company identified errors in the calculation of its excess and obsolete inventory, as well as its accounting for inventory variances, which resulted in a net overstatement of Inventories, net as of March 31, 2023, June 30, 2023, September 30, 2023, December 31, 2023, and March 31, 2024 and a net understatement in Cost of goods sold for the respective interim periods ended on such dates and for the fiscal year ended December 31, 2023.

In filing this Amended 2024 Quarterly Report, the Company is restating its previously issued unaudited interim condensed consolidated financial statements and related notes as of and for the three months ended March 31, 2024 to correct the errors in the calculation of its excess and obsolete inventory, as well as its accounting for inventory variances (the "Misstatements"), along with other immaterial accounting and disclosure errors that, when aggregated with the Misstatements, are material in respect to the Original 2024 Quarterly Report (refer to Note 3. Restatement of Previously Issued Condensed Consolidated Financial Statements to our financial statements included in Part I, Item 1 of this Amended Quarterly Report for additional information). In addition, the Company has corrected its disclosure regarding the adoption of Accounting Standard Update ("ASU") 2023-07: Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07") to reflect that the Company will adopt the standard in its Form 10-K filing for the year ended December 31, 2024 (refer to Note 2. Summary of Significant Accounting Policies). All material Restatement information that relates to the Misstatements for this period are included in the Amended 2024 Quarterly Report. As a result, such prior report should no longer be relied upon.

Items Amended in this Filing

This Amended 2024 Quarterly Report sets forth our Original 2024 Quarterly Report, as amended, in its entirety. Except as required to reflect the restated amounts, related disclosures, and updates to our assessment of disclosure controls and procedures, there were no changes to any other parts of the Original 2024 Quarterly Report, and this Amended 2024 Quarterly Report does not reflect events occurring after the date of the Original 2024 Quarterly Report.

The following sections have been amended in this Amended 2024 Quarterly Report:

•

Special Note Regarding Forward-Looking Statements

•

Part I, Item 1, Financial Statements (Unaudited)

•

Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations

•

Part I, Item 4, Controls and Procedures

•

Part II, Item 6, Exhibits

The exhibit list included in Item 6, “Exhibits” herein has been amended to contain currently dated certifications from the Company’s Chief Executive Officer (as Principal Executive Officer) and Chief Financial Officer (as Principal Financial Officer), as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 and filed as Exhibits 31.1/31.2 and 32.1/32.2, respectively.

In accordance with applicable SEC rules, this Form 10-Q/A also includes an updated signature page.

Except as relating to the identified errors and the Restatement described above, discussions within Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other forward-looking statements made in our Original 2024 Quarterly Report have not been revised in this Amended 2024 Quarterly Report to reflect events that occurred at a later date or facts that subsequently became known to the Company and should be read in their historical context.

Refer to Note 3. Restatement of Previously Issued Condensed Consolidated Financial Statements in the Notes to Condensed Consolidated Financial Statements on this Form 10-Q/A for additional information.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Amended 2024 Quarterly Report 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 Amended 2024 Quarterly Report, 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 Amended 2024 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, the plans and objectives of management for future operations and capital expenditures, the risks related to the Restatement of our unaudited interim condensed consolidated financial statements included in this Amended 2024 Quarterly Report and for other periods impacted by the Restatement as identified in our Current Report on Form 8-K filed with the SEC on July 30, 2024, and any potential litigation or investigation related to such Restatement, and our ability to maintain effective disclosure controls and procedures, including to reestablish effective disclosure controls and procedures at a reasonable assurance level are forward-looking statements.

The forward-looking statements in this Amended 2024 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 Amended 2024 Quarterly Report and are subject to a number of known and unknown risks, uncertainties, and assumptions, including those described under the sections in this Amended 2024 Quarterly Report entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Amended 2024 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 Amended 2024 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 Amended 2024 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 (As Restated)	1
	Condensed Consolidated Statements of Operations and Comprehensive Loss (As Restated)	2
	Condensed Consolidated Statements of Stockholders’ Equity (As Restated)	3
	Condensed Consolidated Statements of Cash Flows (As Restated)	4
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

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	28

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)


	March 31, 2024			December 31, 2023
	(As Restated)			(As Restated)
ASSETS
Current assets:
Cash and cash equivalents	$	58,222		$	75,639
Trade receivables, net of allowance for doubtful accounts of $2,268 and $1,339, respectively		39,695			37,323
Inventories, net		94,626			90,046
Income taxes receivable		597			794
Other current assets		4,013			3,997
Total current assets		197,153			207,799

Property and equipment, net		75,701			74,122
Intangible assets, net		21,458			21,674
Goodwill		25,465			25,465
Deferred income taxes		690			705
Other assets		3,900			2,918
Total assets	$	324,367		$	332,683

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	29,224		$	21,696
Accrued expenses		26,823			27,781
Other current liabilities		909			883
Current maturities of long-term debt		640			640
Income taxes payable		404			243
Total current liabilities		58,000			51,243

Long-term liabilities:
Long-term debt net, less current maturities		109,847			109,799
Other long-term liabilities		1,356			1,048
Deferred income taxes		231			233
Income taxes payable		638			635
Total liabilities		170,072			162,958

Commitments and contingencies (Note 11)

Stockholders' equity:
Common stock, $0.01 par value, 300,000,000 shares authorized; 83,858,930 and 83,738,974 shares issued, and 82,945,411 and 82,825,455 shares outstanding as of March 31, 2024 and December 31, 2023, respectively		828			827
Additional paid in capital		301,459			298,394
Accumulated deficit		(141,045	)		(123,646	)
Accumulated other comprehensive loss		(965	)		132
Treasury stock, at cost; 913,519 shares as of March 31, 2024 and December 31, 2023		(5,982	)		(5,982	)
Total stockholders' equity		154,295			169,725
Total liabilities & stockholders' equity	$	324,367		$	332,683

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

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 March 31,
	2024			2023
	(As Restated)			(As Restated)
Net revenue	$	61,082		$	52,036
Cost of goods sold		13,842			10,229
Gross profit		47,240			41,807

Operating expenses:
Research and development costs		7,584			7,049
Selling, general, and administrative		54,782			43,820
Total operating expenses		62,366			50,869
Operating loss		(15,126	)		(9,062	)

Other income (expense):
Other income (expense), net		515			(616	)
Interest expense, net		(2,622	)		(1,205	)
Total other expense, net		(2,107	)		(1,821	)
Loss before income taxes		(17,233	)		(10,883	)
Income tax expense (benefit)		166			(71	)
Net loss	$	(17,399	)	$	(10,812	)
Foreign currency translation adjustment		(1,097	)		(99	)
Comprehensive loss	$	(18,496	)	$	(10,911	)
Weighted average number of shares of common stock outstanding:
Basic		82,854,334			80,681,715
Diluted		82,854,334			80,681,715
Net loss per share attributable to common stockholders:
Basic	$	(0.21	)	$	(0.13	)
Diluted	$	(0.21	)	$	(0.13	)

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

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 March 31, 2024	Shares		Amount		Capital			Deficit			Loss			Stock			Equity
Balance, December 31, 2023 (As Restated)		82,825,455	$	827	$	298,394		$	(123,646	)	$	132		$	(5,982	)	$	169,725
Net Loss (As Restated)		—		—		—			(17,399	)		—			—			(17,399	)
Options exercised		48,750		—		298			—			—			—			298
Restricted stock vested		71,206		1		(401	)		—			—			—			(400	)
Foreign currency translation		—		—		—			—			(1,097	)		—			(1,097	)
Employee stock purchase plan		—		—		80			—			—			—			80
Stock-based compensation		—		—		3,088			—			—			—			3,088
Balance March 31, 2024 (As Restated)		82,945,411	$	828	$	301,459		$	(141,045	)	$	(965	)	$	(5,982	)	$	154,295


										Accumulated
										Other						Total
	Common Stock				Additional		Accumulated			Comprehensive			Treasury			Stockholders'
For the Three Months Ended March 31, 2023	Shares		Amount		Paid-in-Capital		Deficit			Loss			Stock			Equity
Balance December 31, 2022 (As Restated)		77,770,588	$	776	$	213,956	$	(66,112	)	$	(33	)	$	(5,982	)	$	142,605
Net loss (As Restated)		—		—		—		(10,812	)		—			—			(10,812	)
Issuance of common stock, net of issuance costs of $831		4,312,500		43		68,406		—			—			—			68,449
Options exercised		223,785		2		1,620		—			—			—			1,622
Foreign currency translation		—		—		—		—			(99	)		—			(99	)
Employee stock purchase plan		—		—		122		—			—			—			122
Stock-based compensation		—		—		3,182		—			—			—			3,182
Balance, March 31, 2023 (As Restated)		82,306,873	$	821	$	287,286	$	(76,924	)	$	(132	)	$	(5,982	)	$	205,069

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

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Three Months Ended March 31,
	2024			2023
	(As Restated)			(As Restated)
Cash flows from operating activities
Net loss	$	(17,399	)	$	(10,812	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,258			3,117
Allowance for doubtful accounts		567			—
Provision for excess and obsolete inventories		2,882			293
Stock-based compensation		3,088			3,182
Change in fair value of financial instruments		(519	)		517
Other		(785	)		100
Changes in other assets and liabilities, net of acquisitions:
Accounts receivable		(3,099	)		441
Inventories		(7,799	)		(7,112	)
Accounts payable		7,441			5,592
Accrued expenses		194			(877	)
Accrued legal settlement		—			(9,000	)
Income tax payable		340			132
Other assets and liabilities		(162	)		367
Net cash used in operating activities		(10,993	)		(14,060	)

Cash flows from investing activities
Purchases of property and equipment		(5,817	)		(7,521	)
Proceeds from sale of property and equipment		292			223
Purchases of intangible assets		(253	)		(254	)
Net cash used in investing activities		(5,778	)		(7,552	)

Cash flows from financing activities
Payments on long-term debt		(160	)		(197	)
Payments of debt issuance costs		—			(7	)
Proceeds from issuance of common stock, net of issuance costs		—			68,449
Proceeds from exercise of stock options		298			1,622
RSU vesting, taxes paid		(400	)		—
Payments on earnout liability		(1,000	)		(500	)
Net cash (used in) provided by financing activities		(1,262	)		69,367

Effect of exchange rate changes on cash and cash equivalents		616			(340	)
Net (decrease) increase in cash and cash equivalents		(17,417	)		47,415
Cash and cash equivalents at beginning of period		75,639			38,468
Cash and cash equivalents at end of period	$	58,222		$	85,883

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$ ―			$ ―
Cash paid for interest		2,264			601
Purchase of property and equipment included in accounts payable		4,952			4,026

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

(unaudited)

NOTE 1. BUSINESS AND BASIS OF PRESENTATION

Business

Paragon 28, Inc. (collectively with its subsidiaries, “we,” “us,” “our,” “P28” or the “Company”) develops, distributes, and sells medical devices in the foot and ankle segment of the orthopedic implant marketplace. Our approach to product development is procedurally focused, resulting in a full range of procedure-specific foot and ankle products designed specifically for foot and ankle anatomy. Our products and product families include plates and plating systems, screws, staples, and nails aimed to address all major foot and ankle procedures including fracture fixation, forefoot or hallux valgus - which includes bunion and hammertoe, ankle, flatfoot or progressive collapsing foot deformity ("PCDF"), charcot foot and orthobiologics. P28 is a United States (“U.S.”) based company incorporated in the State of Delaware, with headquarters in Englewood, Colorado. Our sales representatives and distributors are located globally with the majority concentrated in the U.S., Australia, South Africa, and the United Kingdom.

Basis of Presentation and Consolidation

The accompanying interim Condensed Consolidated Financial Statements include the accounts of Paragon 28, Inc. and its subsidiaries, all of which are wholly-owned. The accompanying Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information required by U.S. GAAP for complete financial statements. The interim Condensed Consolidated Financial Statements reflect all adjustments that are of a normal recurring nature and that are considered necessary for a fair representation of the results for the periods presented and should be read in conjunction with the audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2023, which include a complete set of footnote disclosures, including our significant accounting policies. The audited Consolidated Financial Statements and notes thereto for the year ended December 31, 2023, are included in the Company’s amended Annual Report on Form 10-K/A filed with the SEC on August 8, 2024. The results for interim periods are not necessarily indicative of the results that may be expected for a full fiscal year or for any other future period. All intercompany balances and transactions have been eliminated in consolidation.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Any changes in these estimates will be reflected in the Company’s interim Condensed Consolidated Financial Statements. Significant items subject to such estimates and assumptions include the determination of the credit loss reserves for trade receivables, inventory obsolescence, impairment of long-lived assets, recoverability of goodwill and intangible assets, contingent earn-out liabilities, interest rate swap valuation, income taxes and stock-based compensation. During the three months ended March 31, 2024, the Company revised the inputs used in estimating the reserve on obsolete and slow-moving inventory to include forecasted sales, in addition to current inventory levels and historical sales. The effect of this change in estimate was a decrease of $324 to the Company's reserve for obsolete and slow-moving inventory.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

Foreign Currency Translation

The interim Condensed Consolidated Financial Statements are presented in U.S. dollars. The Company’s non-U.S. subsidiaries have a functional currency (i.e., the currency in which operational activities are primarily conducted) that is other than the U.S. dollar, generally the currency of the country in which such subsidiaries are domiciled. Such subsidiaries’ assets and liabilities are translated into U.S. dollars at quarter-end exchange rates, while revenue and expenses are translated at average exchange rates during the quarter based on the daily closing exchange rates. Adjustments that result from translating amounts from a subsidiary’s functional currency to U.S. dollars are reported in Accumulated other comprehensive loss, net of tax, a separate component of stockholders' equity.

Transactions made in a currency other than the functional currency are remeasured to the functional currency at the exchange rates on the dates of the transactions. Foreign exchange gains and losses are recorded within Other income (expense), net on the consolidated statements of operations and comprehensive loss.

Significant Accounting Policies

There have been no changes in the Company's significant accounting policies as disclosed in Note 2 to our audited Consolidated Financial Statements included in our 2023 amended Annual Report on Form 10-K/A.

Recently Issued Accounting Pronouncements

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. The amendments in ASU 2023-06 modify the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. ASU 2023-06 is applicable to all entities subject to the SEC's existing disclosure requirements. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company is currently evaluating the amendments in ASU 2023-06 and does not expect the adoption to have a significant impact on the Company's Consolidated Financial Statements and related disclosures.

In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which provides amendments to improve reportable segment disclosures requirements. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the amendments in this guidance to determine the impact it will have on the Company's Consolidated Financial Statements and related notes for the year ended December 31, 2024, upon adoption.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), to enhance the transparency and decision usefulness of income tax disclosures. The main provisions in ASU 2023-09 enhance the disclosure requirements of rate reconciliations and income taxes paid. For public business entities, the amendments in ASU 2023-09 are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this update should be applied on a prospective basis, retrospective application is permitted. The Company is currently evaluating the amendments in this guidance to determine the impact it will have on the Company's Consolidated Financial Statements and related disclosures.

NOTE 3. RESTATEMENT OF PREVIOUSLY ISSUED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Subsequent to the issuance of the Company’s unaudited interim condensed consolidated financial statements as of and for the three months ended March 31, 2024, the Company identified errors in the calculation of its excess and obsolete inventory reserves, as well as its accounting for inventory variances, which resulted in an overstatement of Inventories, net as of March 31, 2023, June 30, 2023, September 30, 2023, December 31, 2023, and March 31, 2024 and a net understatement in Cost of goods sold for the interim periods ended on such dates and for the fiscal year ended December 31, 2023. The interim condensed consolidated financial statements (as restated) reflect the correction of these errors and include adjustments to correct certain other previously identified Misstatements relating to prior periods that the Company had determined to be immaterial both individually and in aggregate.

Below, we have presented a reconciliation from the as previously reported to the restated values for our interim condensed financial statements for the quarterly period ended March 31, 2024. The values as previously reported were derived from our Original 2024 Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, filed with the SEC on May 8, 2024. For a reconciliation of the previously reported amounts to the restated values for our quarterly period ended March 31, 2023, see the Consolidated Financial Statements and notes thereto for the year ended December 31, 2023, which are included in the Company’s amended annual filing on Form 10-K/A filed with the SEC on August 8, 2024.

A description of the errors and their impacts on the previously issued financial statements are included below.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

Description of Misstatement Adjustments

(a) Inventory Treatment

The Company recorded adjustments to correct the calculation of its excess and obsolete inventory reserve and valuation of purchase price variances. The corrections resulted in a decrease in Inventories, net of $9,672, in the Cost of goods sold increasing by $1,656, and an increase in the beginning balance of Accumulated deficit of $8,016, respectively, as of and for the quarter ended March 31, 2024.

(b) Trade Receivable Reserve

The Company recorded an adjustment to correct a misstatement related to the collectability of identified receivables, resulting in a decrease in Trade receivables, less allowance for doubtful accounts.

The Company recorded adjustments to recognize the net impact on current and deferred income taxes associated with all the Misstatements described herein. The adjustments to income taxes were recorded the period corresponding with the respective Misstatements.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS


	March 31, 2024
	As Previously Reported			Adjustments			Ref	As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	58,222		$	—			$	58,222
Trade receivables, net of allowance for doubtful accounts of $2,268		40,262			(567	)	(b)		39,695
Inventories, net		104,298			(9,672	)	(a)		94,626
Income taxes receivable		597			—				597
Other current assets		4,013			—				4,013
Total current assets		207,392			(10,239	)			197,153

Property and equipment, net		75,701			—				75,701
Intangible assets, net		21,458			—				21,458
Goodwill		25,465			—				25,465
Deferred income taxes		678			12				690
Other assets		3,900			—				3,900
Total assets	$	334,594		$	(10,227	)		$	324,367

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	29,224		$	—			$	29,224
Accrued expenses		26,823			—				26,823
Other current liabilities		909			—				909
Current maturities of long-term debt		640			—				640
Income taxes payable		450			(46	)	(c)		404
Total current liabilities		58,046			(46	)			58,000

Long-term liabilities:
Long-term debt net, less current maturities		109,847			—				109,847
Other long-term liabilities		1,356			—				1,356
Deferred income taxes		231			—				231
Income taxes payable		638			—				638
Total liabilities		170,118			(46	)			170,072

Commitments and contingencies (Note 11)

Stockholders' equity:
Common stock, $0.01 par value, 300,000,000 shares authorized; 83,858,930 shares issued, and 82,945,411 shares outstanding as of March 31, 2024		828			—				828
Additional paid in capital		301,459			—				301,459
Accumulated deficit		(130,864	)		(10,181	)	(a)(b)(c)		(141,045	)
Accumulated other comprehensive loss		(965	)		—				(965	)
Treasury stock, at cost; 913,519 shares as of March 31, 2024 and December 31, 2023		(5,982	)		—				(5,982	)
Total stockholders' equity		164,476			(10,181	)			154,295
Total liabilities & stockholders' equity	$	334,594		$	(10,227	)		$	324,367

The description of each error is in the Description of Misstatement Adjustments provided herein this Note 3 Restatement of Previously Issued Condensed Consolidated Financial Statements. The impact of each error for the corresponding period in the above table is described below:

(a) Inventory Treatment - The correction of the misstatement resulted in a decrease to Inventories, net and an increase to Accumulated deficit of $9,672, including an increase to the beginning balance of Accumulated deficit of $8,016 for the three-months ended March 31, 2024.

(b) Trade Receivable Reserve - The correction of the misstatement resulted in a decrease to Trade receivables, net of allowance for doubtful accounts and an increase to Accumulated deficit of $567 as of March 31, 2024

(c) Income Tax Adjustment - The correction of the misstatement resulted in an increase to Deferred income taxes of $12, a decrease to Income taxes payable of $46, and a decrease to Accumulated deficit of $58 as of March 31, 2024.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS


	Three Months Ended March 31, 2024
	As Previously Reported			Adjustments			Ref	As Restated
Net revenue	$	61,082		$	—			$	61,082
Cost of goods sold		12,186			1,656		(a)		13,842
Gross profit		48,896			(1,656	)			47,240

Operating expenses:
Research and development costs		7,584			—				7,584
Selling, general, and administrative		54,215			567		(b)		54,782
Total operating expenses		61,799			567				62,366
Operating loss		(12,903	)		(2,223	)			(15,126	)

Other income (expense):
Other income (expense), net		515			—				515
Interest expense, net		(2,622	)		—				(2,622	)
Total other expense, net		(2,107	)		—				(2,107	)
Loss before income taxes		(15,010	)		(2,223	)			(17,233	)
Income tax expense (benefit)		224			(58	)	(c)		166
Net loss	$	(15,234	)	$	(2,165	)		$	(17,399	)
Foreign currency translation adjustment		(1,097	)		—				(1,097	)
Comprehensive loss	$	(16,331	)	$	(2,165	)		$	(18,496	)
Weighted average number of shares of common stock outstanding:
Basic		82,854,334			—				82,854,334
Diluted		82,854,334			—				82,854,334
Net loss per share attributable to common stockholders:
Basic	$	(0.18	)	$	(0.03	)		$	(0.21	)
Diluted	$	(0.18	)	$	(0.03	)		$	(0.21	)

(a) Inventory Treatment - The correction of the misstatement resulted in an increase to Cost of goods sold of $1,656 for the three-months ended March 31, 2024.

(b) Trade Receivable Reserve - The correction of the misstatement resulted in an increase to Selling, general and administrative of $567 for the three-months ended March 31, 2024.

(c) Income Tax Adjustment - The correction of the misstatement resulted in a decrease to Income tax expense (benefit) of $58 for the three-months ended March 31, 2024.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


						Additional						Other						Total
		Common Stock				Paid-in-			Accumulated			Comprehensive			Treasury			Stockholders'
As Previously Reported	Ref	Shares		Amount		Capital			Deficit			Loss			Stock			Equity
Balance, December 31, 2023			82,825,455	$	827	$	298,394		$	(115,630	)	$	132		$	(5,982	)	$	177,741
Net Loss			—		—		—			(15,234	)		—			—			(15,234	)
Options exercised			48,750		—		298			—			—			—			298
Restricted stock vested			71,206		1		(401	)		—			—			—			(400	)
Foreign currency translation			—		—		—			—			(1,097	)		—			(1,097	)
Employee stock purchase plan			—		—		80			—			—			—			80
Stock-based compensation			—		—		3,088			—			—			—			3,088
Balance March 31, 2024			82,945,411	$	828	$	301,459		$	(130,864	)	$	(965	)	$	(5,982	)	$	164,476
Adjustments
Balance, December 31, 2023	(a)		—	$	—	$	—		$	(8,016	)	$	—		$	—		$	(8,016	)
Net Loss	(a)(b)(c)		—		—		—			(2,165	)		—			—			(2,165	)
Options exercised			—		—		—			—			—			—			—
Restricted stock vested			—		—		—			—			—			—			—
Foreign currency translation			—		—		—			—			—			—			—
Employee stock purchase plan			—		—		—			—			—			—			—
Stock-based compensation			—		—		—			—			—			—			—
Balance March 31, 2024			—	$	—	$	—		$	(10,181	)	$	—		$	—		$	(10,181	)
As Restated
Balance, December 31, 2023			82,825,455	$	827	$	298,394		$	(123,646	)	$	132		$	(5,982	)	$	169,725
Net Loss			—		—		—			(17,399	)		—			—			(17,399	)
Options exercised			48,750		—		298			—			—			—			298
Restricted stock vested			71,206		1		(401	)		—			—			—			(400	)
Foreign currency translation			—		—		—			—			(1,097	)		—			(1,097	)
Employee stock purchase plan			—		—		80			—			—			—			80
Stock-based compensation			—		—		3,088			—			—			—			3,088
Balance March 31, 2024			82,945,411	$	828	$	301,459		$	(141,045	)	$	(965	)	$	(5,982	)	$	154,295

See descriptions of the Balance, December 31, 2023 impacts in the Condensed Consolidated Balance Sheets.

See descriptions of the Net loss impacts in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

PARAGON 28, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31, 2024
	As Previously Reported			Adjustments			Ref	As Restated
Cash flows from operating activities
Net loss	$	(15,234	)	$	(2,165	)	(a)(b)(c)	$	(17,399	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,258			—				4,258
Allowance for doubtful accounts		—			567		(b)		567
Provision for excess and obsolete inventories		471			2,411		(a)		2,882
Stock-based compensation		3,088			—				3,088
Change in fair value of financial instruments		(519	)		—				(519	)
Other		(785	)		—				(785	)
Changes in other assets and liabilities, net of acquisitions:
Accounts receivable		(3,099	)		—				(3,099	)
Inventories		(7,044	)		(755	)	(a)		(7,799	)
Accounts payable		7,441			—				7,441
Accrued expenses		194			—				194
Income tax payable		398			(58	)	(c)		340
Other assets and liabilities		(162	)		—				(162	)
Net cash used in operating activities		(10,993	)		—				(10,993	)

Cash flows from investing activities
Purchases of property and equipment		(5,817	)		—				(5,817	)
Proceeds from sale of property and equipment		292			—				292
Purchases of intangible assets		(253	)		—				(253	)
Net cash used in investing activities		(5,778	)		—				(5,778	)

Cash flows from financing activities
Payments on long-term debt		(160	)		—				(160	)
Proceeds from exercise of stock options		298			—				298
RSU vesting, taxes paid		(400	)		—				(400	)
Payments on earnout liability		(1,000	)		—				(1,000	)
Net cash used in financing activities		(1,262	)		—				(1,262	)

Effect of exchange rate changes on cash and cash equivalents		616			—				616
Net (decrease) increase in cash and cash equivalents		(17,417	)		—				(17,417	)
Cash and cash equivalents at beginning of period		75,639			—				75,639
Cash and cash equivalents at end of period	$	58,222		$	—			$	58,222

Supplemental disclosures of cash flow information:
Cash paid for income taxes	$ ―			$ ―				$ ―
Cash paid for interest		2,264			—				2,264
Purchase of property and equipment included in accounts payable		4,952			—				4,952

See descriptions of the Net loss impacts in the Condensed Consolidated Statement of Operations and Comprehensive Loss.

NOTE 4. INTANGIBLE ASSETS

Intangibles

Intangible assets as of March 31, 2024 were as follows:


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trademarks and tradenames, indefinite-lived	$	987	$	—	$	987
Patents, definite-lived		8,153		2,720		5,433
Customer relationships		1,733		639		1,094
Developed technology		17,690		3,748		13,942
Other intangibles		30		28		2
Total intangible assets, net	$	28,593	$	7,135	$	21,458

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

Intangible assets as of December 31, 2023, were as follows:


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trademarks and tradenames, indefinite-lived	$	987	$	—	$	987
Patents, definite-lived		7,900		2,649		5,251
Customer relationships		1,733		567		1,166
Developed technology		17,690		3,424		14,266
Other intangibles		30		26		4
Total intangible assets, net	$	28,340	$	6,666	$	21,674

Amortization expense is included in Selling, general, and administrative expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss, and was $470 and $503 for the three months ended March 31, 2024 and 2023, respectively.

Expected future amortization expense is as follows:


2024 (Remaining)	$	1,475
2025		1,943
2026		1,943
2027		1,942
2028		1,943
Thereafter		12,212
Total future amortization expense	$	21,458

No impairment charges related to intangibles were recorded for the three months ended March 31, 2024 and 2023.

NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures certain financial assets and liabilities at fair value. There is a fair value hierarchy which prioritizes inputs used in measuring fair value into three broad levels:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2- Includes other inputs that are directly or indirectly observable in the marketplace, such as quoted market prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Unobservable inputs which are supported by little or no market activity.

The level in the fair value hierarchy within which a fair value measurement in its entirety is based on the lowest-level input that is significant to the fair value measurement in its entirety.

The Company's significant financial assets and liabilities measured at fair value as of March 31, 2024, were as follows:


	Level 1		Level 2		Level 3		Total
Financial Assets:
Interest rate swap	$	—		1,509		—	$	1,509
Financial Liabilities:
Contingent consideration	$	—		—		340	$	340

The Company's significant financial assets and liabilities measured at fair value as of December 31, 2023, were as follows:


	Level 1		Level 2		Level 3		Total
Financial Assets:
Interest rate swap	$	—		991		—	$	991
Financial Liabilities:
Contingent consideration	$	—		—		340	$	340

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

The Company’s Level 2 asset pertains to an interest rate swap associated with the Company's Zions Facility, used to manage interest rate risk related to variable rate borrowings and manage exposure to the variability of cash flows. The interest rate swap is not designated for hedge accounting and is measured utilizing inputs observable in active markets. For the three months ended March 31, 2024, we reassessed the fair value of our swap which resulted in an increase of $518. The swap asset is recorded in Other assets on the Condensed Consolidated Balance Sheet and the change in fair value is recorded in Other income (expense) within the Condensed Consolidated Statement of Operations and Comprehensive Loss.

As of March 31, 2024, the Company's Level 3 contingent earn-out liability of $340 is included in Other current liabilities on the Condensed Consolidated Balance Sheet. The Company's Level 3 liability is related to the remaining two milestones associated with the Additive Orthopaedics acquisition.

As of December 31, 2023, one project milestone associated with the Disior acquisition and one project milestone associated with the Additive Orthopaedics acquisition was included in Accrued expenses on the Consolidated Balance Sheet totaling $2,000. During the three months ended March 31, 2024, $1,000 was paid in cash related to the Additive Orthopaedics milestone. As of March 31, 2024, the remaining $1,000 related to the Disior acquisition was included in Accrued expenses on the Condensed Consolidated Balance Sheet. For additional information on the Disior and Additive Orthopaedics acquisitions refer to Note 4 to our Consolidated Financial Statements included in the Company's amended Annual Report on Form 10-K/A for the year ended December 31, 2023.

NOTE 6. DEBT

Long-term debt as of March 31, 2024 and December 31, 2023 consists of the following:


	March 31, 2024			December 31, 2023
Ares Revolving Loan	$	25,000		$	25,000
Ares Term Loan		75,000			75,000
Zions Term Loan		14,773			14,933
		114,773			114,933
Less: deferred issuance costs		(4,286	)		(4,494	)
Total debt, net of issuance costs		110,487			110,439
Less: current portion		(640	)		(640	)
Long-term debt, net, less current maturities	$	109,847		$	109,799

Ares Credit Agreement

On November 2, 2023, the Company entered into a new credit agreement with Ares Capital Corporation to provide a total of $150,000, inclusive of a revolving credit facility of up to $50,000 (the “Ares Revolving Loan”) and a term loan facility of up to $100,000 (the “Ares Term Loan”). The obligations under the Ares Credit Agreement are guaranteed by each of the Borrowers’ current and future domestic subsidiaries and secured by liens on substantially all of the Borrowers’ and guarantors’ present and after-acquired assets, in each case, subject to certain customary exceptions. In connection with the closing of the Ares Credit Agreement, the Company drew down $25,000 and $75,000 on the Ares Revolving Loan and Ares Term Loan, respectively. The Ares Revolving Loan and Ares Term Loan bear interest at variable rates of Term SOFR plus 4% and Term SOFR plus 6.75%, respectively, subject in the case of the Ares Term Loan to certain step-downs and adjustments as set forth in the Ares Credit Agreement, and mature on the earlier of (i) November 2, 2028, and (ii) with respect to the Ares Revolving Loan, 6 months prior to the maturity date of any other indebtedness in a principal or stated amount in excess of $12,500. The Ares Credit Agreement contains a financial covenant requiring the Company to maintain certain minimum revenue levels. As of March 31, 2024, the Company was in compliance with all financial covenants under the Ares Credit Agreement. Total debt issuance costs associated with the Ares Credit Agreement were $4,071 as of March 31, 2024. Amortization expense associated with such debt issuance costs totaled $204 and $0 for the three months ended March 31, 2024 and 2023, respectively and is included in Interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Vectra Bank Colorado Loan Agreements

On March 24, 2022, the Company entered into a secured term loan facility (the “Zions Facility”) with Zions Bancorporation, N.A. dba Vectra Bank Colorado in the principal amount of $16,000. The loans under the Zions Facility (i) bear interest at a variable rate per annum equal to the sum of (a) a one-month Term SOFR based rate, plus (b) 1.75%, adjusted on a monthly basis and (ii) mature on March 24, 2037. Principal and interest payments are payable monthly, with optional prepayments allowed without premium or penalty.

Effective as of November 10, 2022, the Company entered into the First Amendment to the Zions Facility. The amendment to the Zions Facility amends the financial covenants to require the Company to maintain (i) the Liquidity Ratio, if the Cash Flow as of the last day of any quarter measured on a trailing three month basis is less than or equal to $0, and (ii) the Fixed Charge Coverage Ratio which will be calculated as of the last day of each quarter on a trailing four quarter basis, as well as a certain level of Liquidity, if the Cash

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

Flow is greater than $0. In addition, a Net Revenue Growth covenant was added which will be calculated as of the last day of each quarter on a year-over-year basis.

Effective as of November 2, 2023, the Company entered into the Second Amendment to the Zions Facility (the "Second Amendment"). The Second Amendment replaces references to MidCap Financial Trust and MidCap Credit Agreements with references to Ares and the Ares Credit Agreement. As of March 31, 2024, the Company was in compliance with all financial covenants under the Second Amendment. Total debt issuance costs associated with the Zions Facility were $215 as of March 31, 2024. Amortization expense associated with such debt issuance costs was $4 during each of the three months ended March 31, 2024 and 2023, and is included in Interest expense, net on the Condensed Consolidated Statements of Operations and Comprehensive Loss.

NOTE 7. STOCKHOLDERS’ EQUITY

Under its Amended and Restated Certificate of Incorporation, the Company has a total of 310,000,000 shares of capital stock authorized for issuance, consisting of 300,000,000 shares of common stock, par value of $0.01 per share, and 10,000,000 shares of convertible preferred stock, par value of $0.01 per share.

Common Stock

On January 30, 2023, the Company completed an underwritten public offering ("the Offering") of 6,500,000 shares of its common stock at an offering price of $17.00 per share, which consisted of 3,750,000 shares of common stock issued and sold by the Company and 2,750,000 shares of common stock sold by certain selling securityholders. On February 17, 2023, the underwriters exercised in full their option to purchase an additional 562,500 shares and 412,500 shares of common stock from the Company and the selling securityholders, respectively.‌

The Company received aggregate net proceeds from the Offering of approximately $68,453 after deducting underwriting discounts and commissions and offering expenses payable by the Company. The selling securityholders received aggregate net proceeds from the Offering of approximately $50,700 after deducting underwriting discounts and commissions. The Company did not receive any of the proceeds from the sale of shares of Common Stock by the selling securityholders.

Treasury Stock

The Company did not purchase any of its common stock during the three months ended March 31, 2024 and 2023. All previously repurchased shares were recorded in Treasury stock at cost.

NOTE 8. LOSS PER SHARE

Basic net loss per share is computed by dividing net loss attributable to common stockholders (the numerator) by the weighted average number of common stock outstanding for the period (the denominator). Diluted net income per share of common stock attributable to common stockholders is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period adjusted for the dilutive effects of common stock equivalents using the treasury stock method or the method based on the nature of such securities. In periods when losses from operations are reported, the weighted-average number of shares of common stock outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. The computation of net loss per share for the three months ended March 31, 2024 and 2023, respectively was as follows:


	Three Months Ended March 31,
	2024			2023
	(As Restated)			(As Restated)
Net loss	$	(17,399	)	$	(10,812	)

Weighted-average common stock outstanding:
Basic		82,854,334			80,681,715
Diluted		82,854,334			80,681,715

Loss per share:
Basic	$	(0.21	)	$	(0.13	)
Diluted	$	(0.21	)	$	(0.13	)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

The following outstanding potentially dilutive securities were excluded from the calculation of diluted net loss per share attributable to common stockholders because their impact would have been antidilutive for the period presented:


	As of March 31,
	2024		2023
Stock options		5,794,718		6,523,783
Restricted stock units		2,758,656		1,420,135

NOTE 9. STOCK-BASED COMPENSATION

Employee Stock Purchase Plan

The Company’s Employee Stock Purchase Plan (“ESPP”) provides participating employees with the opportunity to purchase the Company’s common stock at 85% of the market price at the lesser of the date the purchase right is granted or exercisable. Eligible employees can contribute up to 15% of their gross base earnings for purchases under the ESPP through regular payroll deductions, limited to $25 thousand worth of the Company’s shares of common stock for each calendar year in which the purchase right is outstanding. The Company currently holds offerings consisting of six-month periods commencing on January 1st and July 1st of each calendar year, with a single purchase date at the end of the purchase period on June 30th and December 31st of each calendar year.

The Company did not issue any shares upon exercise of purchase rights during the three months ended March 31, 2024 and 2023. The Company recognizes compensation expense on a straight-line basis over the service period. During the three months ended March 31, 2024 and 2023, the Company recognized $80 and $122, respectively, of compensation expense related to the ESPP. Stock-based compensation expenses are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Stock Options

The following summarizes the Company’s stock option plan and the activity for the three months ended March 31, 2024.


	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)
Outstanding, December 31, 2023		5,943,898		$	10.28		6.53
Granted		—			—
Exercised or released		(48,750	)		6.11
Forfeited or expired		(100,430	)		13.79
Outstanding, March 31, 2024		5,794,718		$	10.25		6.34
Exercisable, March 31, 2024		4,461,561		$	8.79		5.96
Vested and expected to vest at March 31, 2024		5,790,110		$	10.25		6.34

During the three months ended March 31, 2024 and 2023, the Company recognized $935 and $1,756, respectively, of compensation expense related to stock options. Stock-based compensation expenses are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

Restricted Stock Units

The following table summarizes the Company's restricted stock units activity for the three months ended March 31, 2024:


	Restricted Stock Units			Weighted-Average Fair Value
Outstanding, December 31, 2023		1,317,402		$	17.06
Granted		1,315,860			12.94
Vested		(106,564	)		17.87
Forfeited or expired		(9,923	)		16.08
Outstanding, March 31, 2024		2,516,775		$	14.87
Vested and expected to vest at March 31, 2024		2,414,023		$	14.94

During the three months ended March 31, 2024 and 2023, the Company recognized $2,153 and $1,426, respectively, of compensation expense related to RSUs. Stock-based compensation expenses are recorded in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Loss.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

Performance Share Units

On March 8, 2024, the Company granted 241,881 performance shares to certain executives which will vest based on the Company's achievement level relative to Adjusted Free Cash Flow for the trailing twelve months ending December 31, 2026. Adjusted Free Cash Flow is defined as Total Operating Cash Flow plus Investing Cash Flow adjusted for certain nonrecurring items. Upon achievement of the minimum threshold performance metric, the grantee may earn a pro rata portion of their respective target shares and up to 200% of their target shares upon maximum achievement.

The performance shares based on Adjusted Free Cash Flow for the trailing twelve months ending December 31, 2026, have a performance condition. The probability of achieving the performance condition is assessed at each reporting period. If it is deemed probable that the performance condition will be met, compensation cost will be recognized based on the closing price per share of the Company's common stock on the date of the grant multiplied by the number of awards expected to be earned. If it is deemed that it is not probable that the performance condition will be met, the Company will discontinue the recognition of compensation cost and any compensation cost previously recorded will be reversed. At March 31, 2024, achievement of the performance condition for the performance shares was deemed probable, and the expense recorded in the current period was immaterial.

NOTE 10. INCOME TAXES

The effective tax rates for the three months ended March 31, 2024 and 2023 are as follows:


	Three Months Ended March 31,
	2024			2023
	(As Restated)			(As Restated)
Effective tax rate		(0.963	%)		0.655	%

For the three months ended March 31, 2024 and 2023, the Company recorded income tax expense of $166 and income tax benefit of $71, respectively.

The Company’s 2024 and 2023 income tax expense and rates differed from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of the U.S., Finland, Germany and Italy jurisdictions that have a full valuation allowance recorded on deferred tax assets. In addition, the tax rate is lower than the U.S. statutory federal tax rate as a result of foreign earnings that are taxed at lower tax rates.

The Company continues to monitor the realization of its deferred tax assets and assesses the need for a valuation allowance. The Company analyzes available positive and negative evidence to determine if a valuation allowance is needed based on the weight of the evidence. This objectively verifiable evidence includes the current & prior two years' profit and loss positions after considering pre-tax book income plus or minus permanent adjustments as well as other positive & negative evidence available. This process requires management to make estimates, assumptions, and judgments that are uncertain in nature. The Company has established a valuation allowance with respect to deferred tax assets in the U.S., Finland, Germany and Italy and continues to monitor and assess potential valuation allowances in all its jurisdictions.

NOTE 11. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company is involved in various lawsuits, claims, inquiries, and other regulatory and compliance matters, most of which are routine to the nature of our business. When it is probable that a loss will be incurred and where a range of the loss can be reasonably‌ estimated, the best estimate within the range is accrued. When the best estimate within the range cannot be determined, the low end of the range is accrued. The ultimate resolution of these claims could affect future results of operations should the exposure be materially different from the estimates or should liabilities be incurred that were not previously accrued. Potential insurance reimbursements are not offset against potential liabilities.

As of March 31 2024, the Company is not involved in any legal proceedings that could have a material adverse effect on its condensed consolidated financial position.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(in thousands, except share and per share data)

(unaudited)

NOTE 12. RELATED PARTY TRANSACTIONS

The Company has a license agreement dated July 1, 2017 for certain intellectual property with an entity that is affiliated with one of the directors of the Company, under which the Company pays a royalty of four percent (4%) of net revenue related to the licensed intellectual property for the 15 years following the date of first sale, including a minimum annual payment of $250. The term of the agreement is 20 years and it automatically renews for five-year periods thereafter. Payments to the entity under this license agreement totaled $146 and $45 for the three months ended March 31, 2024 and 2023, respectively. Amounts payable to this entity as of March 31, 2024 and December 31, 2023 were $63 and $155, respectively.

NOTE 13. SEGMENT AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, which is our Chief Executive Officer, in deciding how to allocate resources and in assessing performance. We manage our business globally within one operating segment in accordance with ASC Topic 280, Segment Reporting (“ASC 280”). Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.

The following table represents total net revenue by geographic area, based on the location of the customer for the three months ended March 31, 2024 and 2023, respectively.


	Three Months Ended March 31,
	2024		2023
United States	$	51,051	$	44,981
International		10,031		7,055
Total net revenue	$	61,082	$	52,036

No individual country with net revenue originating outside of the United States accounted for more than 10% of consolidated net revenue for three months ended March 31, 2024 and 2023.

The following table represents total non-current assets, excluding deferred taxes, by geographic area as of March 31, 2024 and December 31, 2023, respectively.


	March 31, 2024		December 31, 2023
United States	$	92,221	$	89,531
Finland		24,937		25,032
Other International		9,366		9,616
Total assets	$	126,524	$	124,179

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Interim Condensed Consolidated Financial Statements and related notes included in Item 1 of this Amendment. As discussed in the "Explanatory Note", amounts throughout this discussion and analysis for our unaudited interim consolidated statements for the three months ended March 31, 2024 have been restated to reflect the impact of the Restatement. See Note 3, Restatement of Previously Issued Condensed Consolidated Financial Statements in Item 1, Financial Statements and Supplementary Data, of this Amendment for additional information. In addition to historical information, the following discussion contains forward-looking statements, including, but not limited to, statements regarding the Company's expectation for future performance, liquidity and capital resources, that involve risks, uncertainties and assumptions that could cause actual results to differ materially from the Company's expectations. The Company's actual results may differ materially from those contained in or implied by any forward-looking statements. Factors that could cause such differences include those identified below and those described in "Special Note Regarding Forward Looking Statements". The Company assumes no obligation to update any of these forward-looking statements.

Restatement of Previously Issued Consolidated Financial Statements

As previously discussed in the "Explanatory Note", the Company is restating our previously issued unaudited interim condensed consolidated financial statements and related notes for the three months ended March 31, 2024 contained in the Original 2024 Quarterly Report on Form 10-Q. Refer to the "Explanatory Note" for background on the Restatement, the periods impacted, and other information. In addition, we have restated certain previously reported financial information as of March 31, 2024 and for the three months ended March 31, 2024 in this Item 2, Management's Discussion and Analysis of Financial Condition, including but not limited to information within the Results of Operations and Liquidity and Capital Resources sections. See Note 3, Restatement of Previously Issued Condensed Consolidated Financial Statements in Item 1, Financial Statements and Supplementary Data, for additional information related to the Restatement, including descriptions of the Misstatements and the impacts to our unaudited interim condensed consolidated financial statements. The following sections within this Management's Discussion and Analysis of Financial Condition and Results of Operations have been updated to reflect the Restatement: Overview, Non-GAAP Financial Measures, Results of Operations, and Cash Flows. The Restatement did not impact our Components of Our Results of Operations, Liquidity and Capital Resources, or Critical Accounting Policies. Therefore, these sections are not updated herein.

For a reconciliation of the previously reported amounts to the restated values for our quarterly period ended March 31, 2023, see the Consolidated Financial Statements and notes thereto for the year ended December 31, 2023, which are included in the Company’s amended Annual Report on Form 10-K/A filed with the SEC on August 8, 2024. For a description of the control deficiencies identified by management as a result of the Company's internal reviews and management's plan to remediate those deficiencies, see Part II, Item 9A - Controls and Procedures in the Company's amended Annual Report on Form 10-K/A for the year ended December 31, 2023.

Overview

We are a leading medical device company exclusively focused on the foot and ankle orthopedic market and are dedicated to improving patient lives. Our innovative orthopedic solutions, procedural approaches and instrumentation cover a wide range of foot and ankle ailments including fracture fixation, forefoot, ankle, flatfoot or progressive collapsing foot deformity (“PCFD”), charcot foot and orthobiologics. To treat these painful, debilitating or even life-threatening conditions, we provide a comprehensive portfolio of solutions that includes surgical implants and disposables, as well as surgical instrumentation. We design each of our products with both the patient and surgeon in mind, with the goal of improving outcomes, reducing ailment recurrence and complication rates, and making the procedures simpler, consistent and reproducible. We believe our passion, expertise, and exclusive focus in the foot and ankle market has allowed us to better understand the needs of our patients and physicians, which has enabled us to create innovations and enhanced solutions that disrupt and transform the foot and ankle market. As a result, we have experienced significant growth and momentum in our business.

During the first quarter of 2024, our sales increased as a result of new product launches in our charcot and flatfoot segments, higher surgical volume and sales force expansion. As a result, we achieved net revenue growth of 17% during the three months ended March 31, 2024, as compared to the corresponding prior year period.

Our gross profit margin was 77%, a decrease from the prior year period driven primarily by increased supplier costs, higher non-cash charges for excess and obsolete inventory, changes in product mix in the United States and increased revenue from International which has lower average selling prices.

Adjusted EBITDA was negative $7.7 million for the three months ended March 31, 2024, compared to negative $2.7 million for the three months ended March 31, 2023. The decrease in Adjusted EBITDA is primarily attributable to an increase in operating expenses offset by an increase in gross profit.

Non-GAAP Financial Measures

Use of Non-GAAP Financial Measures and Their Limitations

In addition to our results and measures of performance determined in accordance with U.S. GAAP, we believe that certain non-GAAP financial measures are useful in evaluating and comparing our financial and operational performance over multiple periods, identifying trends affecting our business, formulating business plans and making strategic decisions.

Adjusted EBITDA is a key performance measure that our management uses to assess our financial performance and is also used for internal planning and forecasting purposes.

We believe that Adjusted EBITDA, together with a reconciliation to net loss, helps identify underlying trends in our business and helps investors make comparisons between our company and other companies that may have different capital structures, tax rates, or different forms of employee compensation. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to a key financial metric used by our management in its financial and operational decision-making. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider these measures in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these potential limitations include:

•

other companies, including companies in our industry which have similar business arrangements, may report Adjusted EBITDA, or similarly titled measures but calculate them differently, which reduces their usefulness as comparative measures;

•

although depreciation and amortization expenses are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditures for such replacements or for new capital expenditure requirements;

•

Adjusted EBITDA also does not reflect changes in, or cash requirements for, our working capital needs or the potentially dilutive impact of stock-based compensation; and

•

Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on our debt that we may incur.

Because of these and other limitations, you should consider our non-GAAP measures only as supplemental to other GAAP-based financial measures. For a full reconciliation of Adjusted EBITDA to the most comparable GAAP financial measure, see “Reconciliation Between GAAP and Non-GAAP Measure".

Reconciliation Between GAAP and Non-GAAP Measure

We define Adjusted EBITDA as earnings (loss) before interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation expense, employee stock purchase plan expense, non-recurring expenses and certain other non-cash expenses. For a full reconciliation of Adjusted EBITDA for the three months ended March 31, 2024 and 2023 to the most comparable GAAP financial measure, refer to the presentation below.


	Three Months Ended March 31,
	2024			2023
	As Restated			As Restated
	(in thousands)
Net loss	$	(17,399	)	$	(10,812	)
Interest expense, net		2,622			1,205
Income tax expense (benefit)		166			(71	)
Depreciation and amortization expense		4,258			3,117
Stock based compensation expense		3,088			3,182
Employee stock purchase plan expense		80			122
Change in fair value of financial instruments (1)		(519	)		517
Adjusted EBITDA	$	(7,704	)	$	(2,740	)

(1) Represents non-cash changes in the fair value of our interest rate swap contract for the three months ended March 31, 2024 and interest rate swap contract and earnout liability for the three months ended March 31, 2023.

Components of Our Results of Operations

Net Revenue

We derive our revenue from the sale of our foot and ankle orthopedic solutions, primarily implants. We also record as revenue any amounts billed to customers for shipping costs and record as cost of goods sold the actual shipping costs. We have elected to exclude from the measurement of the transaction price all taxes, such as sales, use, value-added, assessed by government authorities and collected from a customer. Therefore, revenue is recognized net of such taxes. In addition, we record revenue net of estimated discounts and other price concessions. No single customer accounted for 10% or more of our net revenue in the three months ended March 31, 2024 and 2023. We expect our net revenue to increase in the foreseeable future as we expand our sales territories, add new customers and increase the utilization of our products by our existing customers, though net revenue may fluctuate from quarter to quarter due to a variety of factors, including availability of reimbursement, the size and success of our sales force, the number of hospitals and physicians who are aware of and use our products and seasonality.

Cost of Goods Sold, Gross Profit and Gross Margin

Cost of goods sold consists primarily of finished products purchased from third-party suppliers, shipping costs, excess and obsolete inventory adjustments and royalties. Implants are manufactured to our specifications primarily by third-party suppliers in the United States. Cost of goods sold is recognized at the time the implant is used in surgery and the related revenue is recognized. Prior to use in surgery, the cost of our implants is recorded as inventories, net in our condensed consolidated balance sheets. Cost of goods sold is expected to increase due primarily to increased sales volume.

We calculate gross profit as net revenue less cost of goods sold, and gross margin as gross profit divided by net revenue. We expect our gross profit to increase in the foreseeable future as our net revenue grows, though our gross profit and gross margin have been and will continue to be affected by a variety of factors, primarily average selling prices, third-party manufacturing costs, change in mix of customers, excess and obsolete inventory adjustments, royalties and seasonality of our business. Our gross margin is higher for products we sell in the United States versus internationally due to higher average selling prices. We expect our gross margin to fluctuate from period to period, however, based upon the factors described above and seasonality.

Operating Expenses

Research and Development

Research and development expense is comprised of engineering costs and research programs related to new product and sustaining product development activities, clinical studies and trials expenses, quality and regulatory expenses, and salaries and benefits related to research and development functions. We maintain a procedurally focused approach to product development and have projects underway to add new systems across multiple foot and ankle indications and to add additional functionality to our existing systems. We expect our research and development expenses to increase as we hire additional personnel to develop new product offerings and product enhancements.

Selling, General, and Administrative

Selling, general, and administrative expenses consist primarily of commissions paid to U.S. sales representatives, salaries, bonuses, and benefits related to selling, marketing, and general and administrative functions, and stock-based compensation. In addition, selling, general, and administrative expenses consist of the costs associated with marketing initiatives, physician and sales force medical education programs, surgical instrument depreciation, travel expenses, professional services fees (including legal, finance, audit and tax fees), insurance costs, facility expenses and other general corporate expenses.

We expect selling, general, and administrative expenses to continue to increase in the foreseeable future as we continue to grow our business. We also expect our administrative expenses, including stock-based compensation expense, to increase as we increase our headcount and expand our facilities and business processes to support our operations as a public company. Our selling, general and administrative expenses may fluctuate from period to period due to the seasonality of our business and as we continue to add direct sales territory managers in new territories.

Other Income (Expense)

Other Income (Expense), net

Other income (expense) consists primarily of changes in fair value related to earn-out liabilities and our interest rate swap contract.

Interest Expense, net

Interest expense consists of interest incurred, amortization of financing costs and interest income earned during the reported periods.

Results of Operations

For the Three Months Ended March 31, 2024 and 2023

The following table summarizes our results of operations for the periods presented:


	Three Months Ended March 31,						Change
	2024			2023			Amount			%
	As Restated			As Restated
	(in thousands)
Net revenue	$	61,082		$	52,036		$	9,046			17	%
Cost of goods sold		13,842			10,229			3,613			35	%
Gross profit		47,240			41,807			5,433			13	%

Operating expenses:
Research and development costs		7,584			7,049			535			8	%
Selling, general, administrative		54,782			43,820			10,962			25	%
Total operating expenses		62,366			50,869			11,497			23	%
Operating loss		(15,126	)		(9,062	)		(6,064	)		67	%

Other income (expense):
Other income (expense), net		515			(616	)		1,131		*
Interest expense, net		(2,622	)		(1,205	)		(1,417	)	*
Total other expense		(2,107	)		(1,821	)		(286	)		(16	)%
Income tax expense (benefit)		166			(71	)		237		*
Net loss	$	(17,399	)	$	(10,812	)	$	(6,587	)		(61	)%

* Not Meaningful

The following table represents total net revenue by geographic area, based on the location of the customer for the three months ended March 31, 2024 and 2023, respectively.


	Three Months Ended March 31,
	2024		2023
	(in thousands)
United States	$	51,051	$	44,981
International		10,031		7,055
Total net revenue	$	61,082	$	52,036

Net Revenue. Net revenue increased $9.0 million, or 17%, from $52.0 million during the three months ended March 31, 2023 to $61.1 million during the corresponding period in 2024. Strengthening of the U.S. dollar reduced net revenue growth for the three months ended March 31, 2024, by less than 1% as compared to the prior year. U.S. net revenue was $51.1 million for the three months ended March 31, 2024, representing growth of 14% compared to the prior year. U.S. net revenue growth was primarily the result of new product launches in our charcot and flatfoot segments, increased surgical volume and sales force expansion. International revenue for the three months ended March 31, 2024, was $10.0 million, representing growth of 42% compared to the prior year. International revenue growth was driven primarily by the United Kingdom and Australia as we continue to focus on growing our international footprint.

Cost of Goods Sold and Gross Profit Margin. Cost of goods sold increased $3.6 million, or 35%, from $10.2 million during the three months ended March 31, 2023, to $13.8 million during the corresponding period in 2024, primarily due to an increase in non-cash charges for excess and obsolete inventory, non-cash changes in inventory variances, and higher variable costs. Gross profit margin for the three months ended March 31, 2024 decreased to 77.3%, compared to 80.3% in the same period of 2023. The decrease in gross profit margin is primarily the result of an increase in non-cash charges for excess and obsolete inventory, non-cash changes in inventory variances, higher prices from suppliers and increased revenue from International which has lower average selling prices, partially offset by lower freight expense as a percentage of revenue.

Research and Development Expenses. Research and development expenses increased $0.5 million, or 8%, from $7.1 million during the three months ended March 31, 2023, to $7.6 million as compared to the corresponding period in 2024. We continue to invest in new product development to improve patient lives through our product pipeline.

Selling, General, and Administrative Expenses. Selling, general and administrative expenses increased $11.0 million, or 25%, from $43.8 million in the three months ended March 31, 2023, to $54.8 million during the corresponding period in 2024. The increase in selling, general, and administrative expenses was primarily driven by increased headcount, annual merit increases, investments in the commercial team, increased variable sales representative commission expense related to net revenue growth, an increase in professional service fees and an increase in depreciation expense.

Other Income (Expense), net. Other income increased $1.1 million, from an expense of $0.6 million for the three months ended March 31, 2023, to income of $0.5 million for the three months ended March 31, 2024. The increase in other income is primarily related to the change in fair value of the interest rate swap.

Interest Expense, net. Interest expense increased $1.4 million, from $1.2 million for the three months ended March 31, 2023, to $2.6 million for the three months ended March 31, 2024, primarily due to higher levels of outstanding debt and higher interest rates on our outstanding debt.

Liquidity and Capital Resources

Our primary sources of capital from inception through March 31, 2024, have been from ongoing operations, private placements of securities, proceeds from our public offerings and the incurrence of indebtedness. As of March 31, 2024, we had cash of $58.2 million and the principal amount of our outstanding consolidated debt aggregated to $114.8 million, of which $0.6 million is classified as current in our Condensed Consolidated Balance Sheet. As of March 31, 2024, we had available borrowing capacity of $50.0 million, comprised of $25.0 million on our Ares Term Loan and $25.0 million on our Ares Revolving Loan.

We believe that our existing cash, additional available borrowing capacity and expected revenues will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months. Our primary short-term needs for capital for our planned operations, which are subject to change, include:

•

expanding our research and development initiatives to improve our existing products and develop new products and solutions; and

•

continued commercialization efforts and expansion of our sales and marketing infrastructure and programs to drive anticipated sales growth in the United States and elsewhere;

We have based our short-term capital needs and planned operating requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Although not anticipated at this time, we may require additional financing to fund our operations and planned growth. We may also seek additional financing opportunistically. We may seek to raise any additional capital through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. If we raise additional capital through collaborations agreements, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product or grant licenses that may not be favorable to us. Debt financing, if available, may involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets. In addition, market conditions impacting financial institutions could impact our ability to access some or all of our cash, cash equivalents and marketable securities, and we may be unable to obtain alternative funding when and as needed on acceptable terms, if at all.

Cash Flows

The following table sets forth the primary sources and uses of cash for the periods presented:


	Three Months Ended March 31,						Change
	2024			2023			Amount			%
	(in thousands)
	As Restated			As Restated
Net cash (used in) provided by:
Operating activities	$	(10,993	)	$	(14,060	)	$	3,067			22	%
Investing activities		(5,778	)		(7,552	)		1,774			23	%
Financing activities		(1,262	)		69,367			(70,629	)	*
Effect of exchange rate changes on cash and cash equivalents		616			(340	)		956		*
Net increase (decrease) in cash and cash equivalents	$	(17,417	)	$	47,415		$	(64,832	)	*

* Not Meaningful

Net Cash Used in Operating Activities

Net cash used in operating activities for the three months ended March 31, 2024 was $11.0 million, consisting of net loss of $17.4 million, partially offset by non-cash expenses of $9.5 million, which primarily consisted of $4.3 million of depreciation and amortization, $3.1 million of stock-based compensation expense, $2.9 million of expense for excess and obsolete inventory, and negative changes in working capital of $3.1 million. The changes in working capital are comprised of a net inventory increase of $7.8 million and an increase in accounts receivable of $3.1 million, partially offset by an increase in accounts payable of $7.4 million.

Net cash used in operating activities for the three months ended March 31, 2023 was $14.1 million, consisting of net loss of $10.8 million offset by non-cash expenses of $7.2 million, which primarily consisted of $3.2 million of stock-based compensation expense, $0.3 million of expense for excess and obsolete inventory, and $3.1 million of depreciation and amortization, and negative changes in working capital of $10.5 million. The changes in working capital included a $9.0 million legal settlement payment and a net inventory increase of $7.1 million, partially offset by an increase in accounts payable of $5.6 million and a reduction in accounts receivable of $0.4 million.

Net Cash Used in Investing Activities

Net cash used in investing activities for the three months ended March 31, 2024 was $5.8 million, consisting primarily of surgical instrumentation purchases.

Net cash used in investing activities for the three months ended March 31, 2023 was $7.6 million, consisting primarily of surgical instrumentation purchases plus other purchases of property, plant and equipment.

Net Cash Provided by Financing Activities

Net cash used in financing activities for the three months ended March 31, 2024 was $1.3 million, consisting primarily of a $1.0 million payment related to the completion of a milestone associated with the Additive Orthopaedics acquisition.

Net cash provided by financing activities for the three months ended March 31, 2023 was $69.4 million, consisting primarily of $68.5 million of proceeds from the issuance of common stock, net of issuance costs related to the Offering on January 30, 2023 and $1.6 million of proceeds from the exercise of stock options.

Critical Accounting Estimates

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material. During the three months ended March 31, 2024, the Company revised the inputs used in estimating the reserve on obsolete and slow-moving inventory to include forecasted sales, in addition to current inventory levels and historical sales.

During the three months ended March 31, 2024, there were no material changes to our critical accounting policies or in the methodology used for estimates from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2023, other than the item described above.

Recently Issued Accounting Pronouncements

See Note 2 to our condensed consolidated financial statements included in this Amended 2024 Quarterly Report for recently issued accounting pronouncements not yet adopted and their potential impact to our financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

The primary objectives of our investment activities are to preserve principal and provide liquidity. In the normal course of business, we are exposed to market risk related to fluctuating interest rates. The Company has both fixed and variable rate debt to manage the impact of these fluctuations. The Company is the fixed rate payor on an interest rate swap contract to help manage some of this risk. Based on our overall interest rate exposure as of March 31, 2024, we do not believe a hypothetical 10 percent change in interest rates on our variable rate indebtedness would have a material effect on our results of operations.

Foreign Currency Risk

Our business is primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows. As we expand internationally our results of operations and cash flows may become increasingly subject to fluctuations due to changes in foreign currency exchange rates.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2024 with the participation, and under the supervision, of our Chief Executive Officer and Chief Financial Officer. At the time we filed our Original 2024 Quarterly Report for the three months ended March 31, 2024, our Chief Executive Officer and Chief Financial Officer, concluded that as of March 31, 2024, our disclosure controls and procedures were effective at a reasonable assurance level. Subsequent to that evaluation, our management concluded that our disclosure controls and procedures were not effective as of March 31, 2024, as a result of the material weaknesses in our internal control over financial reporting described below.

Plan for Remediation of the Material Weaknesses

Management, with oversight by the Audit Committee of the Board, is devoting significant time, attention, and resources to remediate the material weaknesses and to strengthen its monitoring, control environment, and internal control over financial reporting. We have developed a remediation plan that includes:

•

Evaluating and updating (as appropriate) the organizational design and reporting structure of the controllership function, including evaluating the sufficiency, experience, and training of personnel within our accounting function.

•

Hiring, developing, and retaining accounting resources with appropriate accounting and internal controls expertise related to accounting for inventory in accordance with GAAP.

•

Engaging third-party resources with the appropriate technical knowledge and experience to assist with the accounting for inventory and designing and implementing related control activities.

•

Designing and implementing additional and/or enhancing controls relating to the valuation of inventory, including the calculation of the excess and obsolescence reserve and capitalization of purchase price variances.

•

Designing and implementing effective monitoring activities over the execution of business performance reviews and account analysis and enhance communication of internal control deficiencies to those parties responsible for taking corrective action in a timely manner.

We plan to continue to devote significant time and attention to remediate these material weaknesses as soon as reasonably practicable. Management believes that the measures described above and others that may be implemented will remediate the identified material weaknesses and strengthen the Company’s internal control over financial reporting. Management has begun to take these actions to remediate the material weaknesses and may take additional measures to address control deficiencies or determine to modify, or in the appropriate circumstances not to complete, certain of the remediation measures identified. The material weaknesses will not be considered remediated until the remediation plan has been implemented and there has been appropriate time to conclude through testing that the controls are operating effectively.

Changes in Internal Control Over Financial Reporting

Other than as described above in connection with our material weaknesses, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the fiscal quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Disclosure Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We may in the ordinary course of business face various claims brought by third parties and we may, from time to time, make claims or take legal actions to assert our rights, including intellectual property rights as well as claims relating to employment matters and the safety or efficacy of our products. Any of these claims could cause us to incur substantial costs and, while we generally believe that we have adequate insurance to cover many different types of liabilities, our insurance carriers may deny coverage, may be inadequately capitalized to pay on valid claims, or our policy limits may be inadequate to fully satisfy any associated costs, damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on our operations, cash flows and financial position. Additionally, any such claims, whether or not successful, could damage our reputation and business. We were not involved in any legal proceedings as of March 31, 2024, that could have a material adverse effect on our business, financial condition, or operating results.

Item 1A. Risk Factors.

As of the date of this Amended 2024 Quarterly Report, there have been no material changes to the risk factors disclosed in our Amended Annual Report on Form 10-K/A for the year ended December 31, 2023. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3. Defaults Upon Senior Securities.

None

Item 4. Mine Safety Disclosures.

Not applicable

Item 5. Other Information.

During the quarter ended March 31, 2024, the following executive officers or directors adopted or terminated a "Rule 10b5-1(c) trading arrangement" or a “non-Rule 10b5-1 trading arrangement” (as each term is defined in Item 408 of Regulation S-K).

•

On March 8, 2024, Kristina Wright, a director and our Interim Chief Financial Officer, adopted a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). Ms. Wright’s plan covers the sale of up to 3,651 shares of our common stock between June 7, 2024, and March 7, 2025. Transactions under the plan are based upon pre-established dates and stock price thresholds.

•

On March 12, 2024, Matthew Jarboe, our Chief Commercial Officer, adopted a trading plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). Mr. Jarboe’s plan covers the sale of up to 437,500 shares of our common stock between July 1, 2024, and June 30, 2025 (the “2024-2025 Trading Plan”). Transactions under the plan are based upon pre-established dates and stock price thresholds. The 2024-2025 Trading Plan goes into effect following the expiration of Mr. Jarboe’s current trading plan entered into on March 8, 2023, and covers the sale of up to 500,000 shares of our common stock between June 6, 2023, and June 30, 2024 (the “2023-2024 Trading Plan”) based upon pre-established dates and stock price thresholds. The 2024-2025 Trading Plan does not modify or terminate the 2023-2024 Trading Plan in any way and the timing of the two plans does not overlap.

Item 6. Exhibits.

The following exhibits are included within or incorporated herein by reference.


Exhibit Number	Description	Incorporated by Reference
Exhibit Number	Description			Form	Exhibit	Date Filed	File Number	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of Paragon 28, Inc.	8-K	3.1	10/19/2021	001-40902
3.1.1	Certificate of Amendment to amended and Restated Certificate of Incorporation of Paragon 28, Inc.	8-K	3.1	05/19/2023	001-40902
3.2	Second Amended and Restated Bylaws	8-K	3.2	05/19/2023	001-40902
4.1	Form of Common Stock Certificate	S-1/A	4.2	10/08/2021	333-259789
4.2	Amended and Restated Investors’ Rights Agreement, dated as of July 28, 2020, by and between Paragon 28, Inc. and the investors party thereto.	S-1	4.3	09/24/2021	333-259789
10.1	Agreement dated April 3, 2024, by and between Kristina Wright and the Company.	8-K	10.1	04/04/2024	001-40902
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 200 2.					X
32.1*	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2*	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

* The certifications attached as Exhibit 32.1 and 32.2 that accompany this Amended 2024 Quarterly Report are deemed furnished and not filed with the U.S. Securities and Exchange Commission and are not to be incorporated by reference into any filing of Paragon 28, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Amended 2024 Quarterly Report, irrespective of any general incorporation language contained in such filing.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	PARAGON 28, INC.

Date: August 8, 2024	By:	/s/ Albert DaCosta
	Name:	Albert DaCosta
	Title:	Chief Executive Officer (Principal Executive Officer)



Date: August 8, 2024	By:	/s/ Chadi Chahine
	Name:	Chadi Chahine
	Title:	Chief Financial Officer (Principal Financial Officer)