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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 8-K

 

CURRENT REPORT PURSUANT

TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of report (Date of earliest event reported): August 14, 2015

 

Xtant Medical Holdings, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

(State or Other Jurisdiction of Incorporation)

 

001-34951 20-5313323
(Commission File Number)

(IRS Employer Identification No.) 

 

664 Cruiser Lane

Belgrade, Montana

 59714
(Address of Principal Executive Offices)

(Zip Code) 

 

(406) 388-0480

(Registrant’s Telephone Number, Including Area Code)

 

 

(Former Name or Former Address, if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 

ITEM 8.01 Other Events

 

On July 31, 2015, Xtant Medical Holdings, Inc. (“Xtant”), formerly known as Bacterin International Holdings, Inc., acquired all of the capital stock of X-spine Systems, Inc. (“X-spine”). Unaudited interim condensed consolidated financial statements of X-spine as of June 30, 2015 and for the six months ended June 30, 2015 and 2014 are attached as Exhibit 99.1 to this Report. Unaudited interim pro forma consolidated financial information of Xtant as of and for the six months ended June 30, 2015 are attached as Exhibit 99.2 to this Report.

 

Unaudited pro forma financial information contained in this Report is included for informational purposes only and does not purport to reflect the results of operations or financial position that would have occurred had Xtant and X-spine operated on a combined basis during the periods presented. The unaudited pro forma financial information should not be relied upon as being indicative of our financial condition or results of operations had the X-spine transaction occurred on the date assumed nor as a projection of our results of operations or financial position for any future period or date. The unaudited pro forma financial information should be read in conjunction with the historical financial statements and related notes of Xtant and X-spine.

 

ITEM 9.01 Financial Statements and Exhibits

 

(d) Exhibits.

 

99.1   Unaudited interim condensed consolidated financial statements of X-spine as of June 30, 2015 and for the six months ended June 30, 2015 and 2014.
     
99.2   Unaudited interim pro forma combined financial information of the Company.

 

 

SIGNATURE

 

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

 

Dated:  August 14, 2015 XTANT MEDICAL HOLDINGS, INC.
   
   
   
  By:  /s/ John Gandolfo
  Name:  John Gandolfo
  Title:  Chief Financial Officer

  

 

 

Exhibit 99.1

 

X-spine Systems, Inc.

 

Consolidated Financial Report

(Reviewed)

June 30, 2015

 

 

 

 

Contents

 

Financial Statements  
   
Consolidated Balance Sheets (Unaudited) 2-3
   
Consolidated Statements of Income (Unaudited) 4
   
Consolidated Statements of Retained Earnings (Unaudited) 5
   
Consolidated Statements of Cash Flows (Unaudited) 6
   
Notes to Consolidated Financial Statements (Unaudited) 7-11

 

 

 

 

X-spine Systems, Inc.

 

Consolidated Balance Sheets (Unaudited)

June 30, 2015 and 2014

 

Assets  2015   2014 
Current Assets          
Cash  $3,000   $50,753 
Accounts receivable, net of allowance for doubtful accounts of $390,466 and $45,998   6,972,764    7,786,730 
Inventories   12,861,549    10,580,309 
Prepaid expense   204,167    93,520 
Total current assets   20,041,480    18,511,312 
           
Property and Equipment          
Surgical instruments   13,397,083    9,858,901 
Machinery and equipment   1,081,250    1,047,048 
Furniture and fixtures   834,398    656,209 
Total at cost   15,312,731    11,562,158 
Accumulated depreciation   (7,779,624)   (5,280,504)
Depreciated cost   7,533,107    6,281,654 
           
Patents and trademarks, net of accumulated amortization of $1,685,774 and $1,412,607   648,882    712,604 
           
Total assets  $28,223,469   $25,505,570 

 

See Notes to Consolidated Financial Statements.

 

2
 

 

Liabilities and Shareholders’ Equity  2015   2014 
Current Liabilities          
Outstanding checks  $148,992   $- 
Accounts payable, trade   3,554,107    5,874,504 
Accrued liabilities   2,164,180    2,368,753 
Notes payable - shareholders   -    10,000,000 
Total current liabilities   5,867,279    18,243,257 
           
Long-Term Liabilities          
Revolving line of credit   12,867,606    - 
           
Shareholders’ Equity          
Class A voting common stock, $500 stated value, 1,000 shares authorized, 200 shares issued and outstanding   100,000    100,000 
Class B non-voting common stock, $20,000 stated value, 500 shares authorized, 50 shares issued and outstanding   1,000,000    1,000,000 
Additional paid in capital   350,000    350,000 
Retained earnings   8,038,584    5,812,313 
Total shareholders’ equity   9,488,584    7,262,313 
           
Total liabilities and shareholders’ equity  $28,223,469   $25,505,570 

 

3
 

 

X-spine Systems, Inc.

 

Consolidated Statements of Income (Unaudited)

 

   Three Months Ended June 30,   Six Months Ended June 30, 
   2015   2014   2015   2014 
Revenue  $11,729,509   $12,793,067   $23,954,756   $20,706,023 
                     
Cost of revenue   4,234,718    4,624,509    8,525,262    7,299,455 
                     
Gross margin   7,494,791    8,168,558    15,429,494    13,406,568 
                     
General and administrative expense   6,370,295    5,758,017    13,461,869    10,469,185 
                     
Income from operations   1,124,496    2,410,541    1,967,625    2,937,383 
                     
Other Expense                    
Interest expense   86,785    150,000    166,459    300,000 
                     
Income before city income tax (benefit) expense   1,037,711    2,260,541    1,801,166    2,637,383 
                     
City income tax (benefit) expense   (13,789)   45,210    11,143    77,470 
                     
Net income  $1,051,500   $2,215,331   $1,790,023   $2,559,913 

 

See Notes to Consolidated Financial Statements.

 

4
 

 

X-spine Systems, Inc.

 

Consolidated Statements of Retained Earnings (Unaudited)

Six Months Ended June 30, 2015 and 2014

 

   2015   2014 
         
Balance, January 1,  $7,233,561   $3,589,900 
Net income   1,790,023    2,559,913 
Shareholders’ distributions   (985,000)   (337,500)
Balance, June 30,  $8,038,584   $5,812,313 

 

See Notes to Consolidated Financial Statements.

 

5
 

 

X-spine Systems, Inc.

 

Consolidated Statements of Cash Flows (Unaudited)

Six Months Ended June 30, 2015 and 2014

 

   2015   2014 
Cash Flows From Operating Activities          
Net income  $1,790,023   $2,559,913 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation   1,330,185    873,000 
Amortization   126,000    138,000 
Provisions for bad debts   377,674    (91,150)
Provisions for inventory reserves   180,000    150,000 
Gain on disposal of assets   (6,829)   - 
Increase (decrease) in cash arising from changes in assets and liabilities:          
Accounts receivable   (513,003)   (1,881,990)
Inventories   (565,804)   (2,547,432)
Prepaid expense   (34,582)   32,947 
Accounts payable   (701,538)   3,066,666 
Accrued liabilities   (246,321)   326,269 
Net cash provided by operating activities   1,735,805    2,626,223 
           
Cash Flows From Investing Activities          
Proceeds from the sale of assets   7,985    - 
Patent and trademark purchases   (81,716)   (104,189)
Purchase property and equipment   (1,191,712)   (2,233,598)
Net cash used in investing activities   (1,265,443)   (2,337,787)
           
Cash Flows From Financing Activities          
Net activity from outstanding checks   (869,604)   - 
Net activity on revolving line of credit   1,384,242    - 
Dividends paid   (985,000)   (337,500)
Net cash used in financing activities   (470,362)   (337,500)
           
Net change in cash   -    (49,064)
           
Cash          
Beginning   3,000    99,817 
           
Ending  $3,000   $50,753 
           
Supplemental Disclosure of Cash Flow Information:          
Cash paid during the year for:          
Interest  $152,743   $300,000 
Income taxes  $65,579   $52,324 

 

See Notes to Consolidated Financial Statements.

 

6
 

 

X-spine Systems, Inc.
 
Notes To Consolidated Financial Statements (Unaudited)

 

Note 1.Summary of Significant Accounting Policies

 

Organizational structure: The consolidated financial statements include the accounts of X-spine Sales Corporation (an interest charge domestic international sales corporation), which is a wholly owned subsidiary of X-spine Systems, Inc. (the Company). Significant intercompany balances and transactions have been eliminated in consolidation.

 

Nature of operations: The Company is engaged in the development, manufacturing and sale of medical devices for use in orthopedic spinal surgeries.

 

Basis of presentation: The accompanying consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information. Accordingly, they may not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for a complete financial statement presentation. The interim financial statements contained in this report should be read in conjunction with the Company’s audited consolidated financial statements and footnote disclosures for the year ended December 31, 2014.

 

Use of estimates: The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

 

Revenue recognition: The Company derives its revenues primarily from the sale of spinal surgery implants used in the treatment of spine disorders. The Company sells its products primarily through its direct sales force and independent distributors. Revenue is recognized when goods are shipped, title and risk of loss has transferred to the buyer, the price is fixed or determinable and recoverability is reasonably assured.

 

Accounts receivable: Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment according to agreed-upon terms, in most cases within 30 days from the invoice date. Accounts receivable are stated at the amount billed to the customer.

 

The carrying amount of accounts receivable is reduced by a valuation allowance. The Company makes judgments as to its ability to collect outstanding receivables and provides allowance for a portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all outstanding invoices, the overall quality and age of those invoices and management assessment of customer credit worthiness.

 

Inventories: Inventories are stated at the lower of cost or market, with cost determined under the first-in, first-out method. The Company reviews the components of inventory on a periodic basis for excess, obsolete and impaired inventory, and records a reserve for the identified items.

 

7
 

 

X-spine Systems, Inc.
 
Notes To Consolidated Financial Statements (Unaudited)

 

Note 1.Summary of Significant Accounting Policies (Continued)

 

Inventory components at June 30, 2015 and 2014 were as follows:

 

   2015   2014 
Raw materials  $232,990   $94,113 
Work in process   89,245    139,993 
Finished goods   13,198,680    10,772,637 
Inventory reserve   (659,366)   (426,434)
Total  $12,861,549   $10,580,309 

 

Property and equipment: Property and equipment are carried at cost. Expenditures for maintenance and repairs are charged to operations as incurred. Expenditures which significantly extend the lives of assets and major improvements are capitalized. Impairment of asset value is recognized whenever events or changes in circumstances indicate that carrying amounts are not recoverable. Gain or loss on the disposition of property and equipment is reflected in current operations.

 

Depreciation is computed by the straight-line method for financial reporting purposes over the estimated useful lives of the respective assets. Depreciation expense totaled approximately $1,330,200 and $873,000 for the six months ended June 30, 2015 and 2014, respectively. Depreciation expense totaled approximately $679,600 and $389,600 for the three months ended June 30, 2015 and 2014, respectively. Estimated useful lives are as follows:

 

Surgical instruments 5 years
Machinery and equipment 3 to 7 years
Furniture and fixtures 3 to 7 years

 

Patents and trademarks: The cost of patents and trademarks are being amortized on the straight-line method over their useful lives of seven years and tested for impairment whenever events or changes in circumstances indicate that carrying amounts are not recoverable. Amortization expense charged to operations was approximately $126,000 and $138,000 for the six months ended June 30, 2015 and 2014, respectively. Amortization expense charged to operations was approximately $63,000 and $69,000 for the three months ended June 30, 2015 and 2014, respectively.

 

Shipping and handling costs: Shipping and handling costs for the sale of products are either expensed as incurred and are included in operating expenses or charged to the distributor and reimbursed to the Company. Shipping and handling costs for the six months ended June 30, 2015 and 2014 totaled approximately $452,500 and $349,600, respectively. Shipping and handling costs for the three months ended June 30, 2015 and 2014 totaled approximately $233,900 and $205,400, respectively.

 

Cost of sales: Cost of sales includes amounts relating to the medical device excise tax effective January 1, 2013. Total expense for the six months ended June 30, 2015 and 2014 totaled approximately $389,800 and $342,200, respectively. Total expense for the three months ended June 30, 2015 and 2014 totaled approximately $197,100 and $222,000, respectively.

 

8
 

 

X-spine Systems, Inc.
 
Notes To Consolidated Financial Statements (Unaudited)

 

Note 1.Summary of Significant Accounting Policies (Continued)

 

Research and development: Research and development expenses include salaries and associated costs, contractor and consultant fees, and supplies and materials. These costs include the Company’s product development, regulatory and clinical functions and the costs for clinical studies and product development projects. The costs incurred with respect to internally developed technology and engineering services are included in research and development expense and are expensed as incurred. Research and development expenses were approximately $932,700 and $1,044,900 for the six months ended June 30, 2015 and 2014, respectively. Research and development expenses were approximately $398,100 and $531,100 for the three months ended June 30, 2015 and 2014, respectively.

 

Advertising costs: Advertising costs are expensed when incurred and totaled approximately $523,600 and $414,600 for the six months ended June 30, 2015 and 2014, respectively. Advertising costs are expensed when incurred and totaled approximately $201,700 and $194,700 for the three months ended June 30, 2015 and 2014, respectively.

 

Income taxes: The Company elected to be taxed under the provisions of Subchapter S of the Internal Revenue Code and, accordingly, is not liable for federal or state corporate income taxes. Instead, the shareholders include their respective portion of the Company’s taxable income in their individual income tax returns. The Company makes periodic distributions to its shareholders. The Company is liable for city income taxes. No provisions were deemed necessary for uncertain tax positions. With few exceptions, the Company is no longer subject to income tax examinations by federal, state, local or foreign tax authorities for years before 2012.

 

Note 2.Concentrations

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash that exceed federally insured limits and trade accounts receivable. The credit risk with regard to trade accounts receivable is minimized through the ongoing credit evaluations of its customers and the use of allowance for doubtful accounts to recognize potential credit losses when necessary. For the six months ended June 30, 2015, net sales to one customer exceeded 10 percent of the Company’s net sales. Net sales and trade receivables for the one customer at June 30, 2015 totaled approximately $3,967,500 and $139,300, respectively. Net sales and trade receivables for the one customer at June 30, 2014 totaled approximately $2,239,900 and $847,700, respectively. Net sales for the one customer for the three months ended June 30, 2015 totaled approximately $1,673,500. Net sales for the one customer for the three months ended June 30, 2014 totaled approximately $1,905,800.

 

For the six months ended June 30, 2015, products purchased from the Company’s largest supplier accounted for approximately 20% of product purchases. For the six months ended June 30, 2014, products purchased from the Company’s largest supplier accounted for approximately 21% of product purchases. For the three months ended June 30, 2015, products purchased from the Company’s largest supplier accounted for approximately 20% of product purchases. For the three months ended June 30, 2014, products purchased from the Company’s largest supplier accounted for approximately 52% of product purchases.

 

9
 

 

X-spine Systems, Inc.
 
Notes To Consolidated Financial Statements (Unaudited)

 

Note 3.Related-Party Transactions

 

The supplier referred to in Note 2 is a related entity. Purchases from this entity totaled approximately $1,130,200 and $1,532,700 for the six months ended June 30, 2015 and 2014, respectively. Purchases from this entity totaled approximately $809,200 and $738,800 for the three months ended June 30, 2015 and 2014, respectively. At June 30, 2015 and 2014, trade payables owed to this related party totaled approximately $659,800 and $1,335,900, respectively.

 

The Company provides various support services to another related party based on a shared services agreement. The amounts of reimbursed costs related to these transactions were approximately $14,600 and $16,700 for the six months ended June 30, 2015 and 2014, respectively. The amounts of reimbursed costs related to these transactions were approximately $2,600 and $1,900 for the three months ended June 30, 2015 and 2014, respectively.

 

Note 4.Leases

 

The Company leases office space and equipment under operating leases. Total rent expense for the six months ended June 30, 2015 and 2014 was approximately $146,500 and $127,000, respectively. Total rent expense for the three months ended June 30, 2015 and 2014 was approximately $70,500 and $64,000, respectively.

 

Note 5.Notes Payable

 

At June 30, 2014, the Company had notes payable with two shareholders for a combined amount of $10,000,000.  The terms of these notes, which bore interest at 6%, required monthly interest payments with the principle balance due at the maturity of each note.  These notes were settled in December 2014 through the Company obtaining the line of credit, as described in Note 6.  Interest on these notes was $300,000 for the six months ended June 30, 2014.  Interest on these notes was $150,000 for the three months ended June 30, 2014.

 

Note 6.Line of Credit

 

The Company has a line of credit for $15,000,000 that bears interest at LIBOR plus 2.5% (2.69% at June 30, 2015), is collateralized by all assets of the Company, and matures in December 2017.  Borrowings against the line of credit were approximately $12,868,000 at June 30, 2015.  The line of credit contains, among other things, covenants which require maintenance of certain financial ratios regarding cash flow leverage and fixed charge coverage, as defined in the agreements.  Interest on the line of credit was approximately $166,400 for the six months ended June 30, 2015. Interest on the line of credit was approximately $86,800 for the three months ended June 30, 2015. In connection with the Company being acquired as described in Note 9, the line of credit was retired.

 

Note 7.401(k) Plan

 

The Company has a 401(k) defined contribution plan covering substantially all employees. Employer contributions to this plan consist of a 3% safe harbor contribution. The Company contributed a safe harbor contribution of approximately $112,400 and $92,400 during the six months ended June 30, 2015 and 2014, respectively. The Company contributed a safe harbor contribution of approximately $52,400 and $49,400 during the three months ended June 30, 2015 and 2014, respectively.

 

10
 

 

X-spine Systems, Inc.
 
Notes To Consolidated Financial Statements (Unaudited)

 

Note 8.Commitments and Contingencies

 

The Company is involved in certain legal matters which have arisen through the normal course of business. These cases are, in the opinion of management, ordinary matters incidental to the normal business conducted by the Company. Management does not believe that the ultimate resolution of these matters will have a material effect on the Company’s consolidated financial position, results of operations or cash flows.

 

Note 9.Subsequent Events

 

On July 31, 2015 the Company’s outstanding stock was acquired by Bacterin International Holdings, Inc., now known as Xtant Medical Holdings, Inc. In connection with the sale, proceeds were used to retire the Company’s line of credit described in Note 6 and the Company’s shareholders received cash and stock in Xtant Medical Holdings, Inc.

 

The Company has evaluated subsequent events for potential recognition and/or disclosure through August 12, 2015, the date the consolidated financial statements were available to be issued.

 

11

 

Exhibit 99.2

 

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

 

The following unaudited pro forma financial statements have been prepared in accordance with guidelines specified by Article 11 of Regulation S-X. Specifically, the Unaudited Combined Statements of Operations for the twelve months ended December 31, 2014 and the six months ended June 30, 2015, have been prepared as if the offering of our 6.00% Convertible Senior Notes due 2021, the use of the net proceeds therefrom, the entry by Xtant Medical Holdings, Inc., formerly known as Bacterin International Holdings, Inc. (“Xtant”), into an amended and restated credit agreement, which replaced its existing credit agreement, the extinguishment of X-spine Systems, Inc.’s (“X-spine”) revolving line of credit and the combination of Xtant and X-spine occurred on January 1, 2014, and include all adjustments that (i) are deemed to be directly attributable to the transactions and (ii) are factually supportable. The Unaudited Combined Balance Sheet as of June 30, 2015 has been prepared as if these transactions occurred as of June 30, 2015 and include all adjustments that (a) are deemed to be directly attributable to the transactions, (b) have a continuing impact on our financial statements, and (c) are factually supportable.

 

The transactions are more fully described in Note 1 hereto. The pro forma adjustments are based upon various estimates and assumptions that our management believes are reasonable and appropriate given the currently available information. Use of different estimates and judgments could yield different results.

 

The unaudited pro forma financial statements do not reflect any future operating efficiencies, associated cost savings or possible integration costs that may occur related to the combination of Xtant and X-spine.

 

The unaudited pro forma financial statements do not purport to reflect our results of operations or financial position that would have occurred had we operated as a public company or as a group of companies during the periods presented. The unaudited pro forma financial statements should not be relied upon as being indicative of our financial condition or results of operations had the transactions occurred on the date assumed nor as a projection of our results of operations or financial position for any future period or date.

 

The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and related notes of Xtant, appearing in Xtant’s public filings available on www.sec.gov, and X-spine, appearing elsewhere in this Current Report on Form 8-K and in our Current Report on Form 8-K filed July 28, 2015.

 

 

 

 

XTANT MEDICAL HOLDINGS, INC.
Unaudited Pro Forma Combined Statements of Operations
                 
   For the Twelve Months Ended December 31, 2014 
   Bacterin   X-Spine Systems Inc.   Pro Forma Adj's   Pro Forma 
Revenue                
Tissue and Medical Device Sales  $34,569,160   $42,144,675   $   $76,713,835 
Royalties and other   762,652    68,343         830,995 
Total Revenue   35,331,812    42,213,018    0    77,544,830 
                     
Cost of sales   13,034,314    14,488,855         27,523,169 
                     
Gross Profit   22,297,498    27,724,163    0    50,021,661 
                     
Operating Expenses                    
General and administrative   8,886,972    4,731,252         13,222,774 
              (395,450)(a)     
Sales and marketing   16,912,865    15,865,370         32,778,235 
Research and development   1,443,018    2,140,450         3,583,468 
Depreciation and amortization   271,748         395,450(a)   4,630,917 
              3,963,719(b)     
Impairment of Assets   912,549              912,549 
                     
Non-cash consulting expense   135,075         -    135,075 
Total Operating Expenses   28,562,227    22,737,072    3,963,719    55,263,018 
                     
Income (Loss) from Operations   (6,264,729)   4,987,091    (3,963,719)   (5,241,357)
                     
Other Income (Expense)                    
Interest expense   (5,660,357)   (593,593)   (10,920,554)(c)   (10,920,554)
              6,253,950(d)     
Change in warrant derivative liability   1,736,053         -    1,736,053 
                     
Other income (expense)   (318,836)             (318,836)
                     
Total Other Income (Expense)   (4,243,140)   (593,593)   (4,666,604)   (9,503,337)
                     
Net Gain (Loss) from Operations Before (Provision) Benefit for Income Taxes  $(10,507,869)  $4,393,498   $(8,630,323)  $(14,744,694)
Current        (112,337)        (112,337)
Deferred                    
                     
Net Income (Loss)  $(10,507,869)  $4,281,161   $(8,630,323)  $(14,857,031)
                     
Net loss per share:                    
Basic  $(1.76)            $(1.46)
Dilutive  $(1.76)            $(1.46)
                     
Shares used in the computation:                    
Basic   5,954,195         4,242,655(e)   10,196,850 
Dilutive   5,954,195         4,242,655(e)   10,196,850 

 

 

 

 

 

 

XTANT MEDICAL HOLDINGS, INC.
Unaudited Pro Forma Combined Statements of Operations
                 
   For the Six Months Ended June 30, 2015 
   Bacterin   X-Spine Systems Inc.   Pro Forma Adj's   Pro Forma 
Revenue                    
Tissue and Medical Device Sales  $19,009,956   $23,875,991   $   $42,885,947 
Royalties and other   385,773    78,765         464,538 
Total Revenue   19,395,729    23,954,756         43,350,485 
                     
Cost of sales   6,847,766    8,503,778         15,351,544 
                     
Gross Profit   12,547,963    15,450,978         27,998,941 
                     
Operating Expenses                    
General and administrative   4,824,300    3,236,646         7,878,508 
              (182,438)(a)     
Sales and marketing   9,749,249    9,145,080         18,894,329 
Research and development   724,732    1,101,627         1,826,359 
Depreciation and amortization   224,774    -    182,438(a)   2,638,838 
              2,231,626(b)     
Non-cash consulting expense   140,869    -    -    140,869 
Total Operating Expenses   15,663,924    13,483,353    2,231,626    31,378,903 
                     
Gain (Loss) from Operations   (3,115,961)   1,967,625    (2,231,626)   (3,379,962)
                     
Other Income (Expense)                    
Interest expense   (2,819,220)   (166,459)   (5,992,052)(c)   (5,992,052)
              2,985,679(d)     
Change in warrant derivative liability   (476,289)   -    -    (476,289)
Non-cash consideration associated stock agreement   (558,185)   -    -    (558,185)
Other income (expense)   (103,126)             (103,126)
Total Other Income (Expense)   (3,956,820)   (166,459)   (3,006,373)   (7,129,652)
                     
Net Gain (Loss) from Operations Before (Provision) Benefit for Income Taxes  $(7,072,781)  $1,801,166   $(5,237,999)  $(10,509,614)
                     
Benefit (Provision) for Income Taxes                    
Current        (11,143)   -    (11,143)
Deferred             -    - 
                     
Net Income (Loss)  $(7,072,781)  $1,790,023   $(5,237,999)  $(10,520,757)
Net loss per share:                    
                     
Basic  $(1.02)            $(0.94)
Dilutive  $(1.02)            $(0.94)
                     
Shares used in the computation:                    
Basic   6,914,698         4,242,655(e)   11,157,353 
Dilutive   6,914,698         4,242,655(e)   11,157,353 

  

 

 

 

  

XTANT MEDICAL HOLDINGS, INC.
Unaudited Pro Forma Combined Balance Sheet
                     
                     
   As of June 30, 2015 
   Bacterin   X-Spine Systems Inc.   Combined before Adj's   Pro Forma Adj's   Pro Forma 
Current Assets:                         
Cash and cash equivalents   2,026,108    3,000    2,029,108         7,680,874 
                   5,651,766(a)     
Trade accounts receivable   5,574,285    6,972,764    12,547,049         12,547,049 
Inventories, net   9,392,150    12,861,550    22,253,700         22,253,700 
Prepaid and other current assets   1,033,605    204,167    1,237,772    (223,410)(b)   1,464,688 
                   120,663(c)     
                   329,663(d)     
Total Current Assets   18,026,148    20,041,481    38,067,629    5,878,681    43,946,310 
                          
Non-current inventories   1,839,971    0    1,839,971         1,839,971 
Property and equipment, net   4,430,038    7,533,106    11,963,144         11,963,144 
Intangible assets, net   609,348    648,882    1,258,230    (648,882)(e)   43,802,848 
                   43,193,500(f)     
                          
Goodwill   0    0    0    22,816,088(f)   22,816,088 
Other Assets   1,446,515    0    1,446,515    (744,698)(b)   2,203,118 
                   (300,000)(n)     
                   482,651(c)     
                   1,318,651(d)     
Total Assets  $26,352,020   $28,223,469   $54,575,489    71,995,990   $126,571,479 
                          
Liabilities + Equity                         
Accounts payable   4,577,488    3,435,848    8,013,336         8,013,336 
Accounts payable - related party   293,565    267,249    560,814         560,814 
Accrued liabilities   2,399,599    2,164,179    4,563,778         4,563,778 
Warrant derivative liability   1,796,660    0    1,796,660         1,796,660 
Current portion of capital lease obligations   42,761    0    42,761         42,761 
Current portion of royalty liability   1,169,500    0    1,169,500    (1,169,500)(b)   0 
Current portion of long-term debt   52,374    0    52,374         52,374 
Current Liabilities   10,331,947    5,867,276    16,199,223    (1,169,500)   15,029,723 
                          
Capital lease obligation, less current portion   37,496    0    37,496         37,496 
Long term royalty liability, less current portion   6,139,374    0    6,139,374    (6,139,374)(b)   0 
Long-term debt, less current portion   21,691,674    0    21,691,674    42,000,000(h)   43,247,713 
                   (24,000,000)(h)     
                   (700,000)(b)     
                   4,256,039(b)     
Revolving Line of Credit   0    12,867,606    12,867,606    (12,867,606)(g)   0 
Convertible Long Term Debt   0    0    0    65,000,000(i)   65,000,000 
                          
Long Term Liabilities   27,868,544    12,867,606    40,736,150    67,549,060    108,285,210 
                          
Total Liabilities  $38,200,491   $18,734,882   $56,935,373    66,379,560   $123,314,933 
                          
Preferred stock, par value   -         0    0(j)   0 
Common stock, par value   7    1,100,000    1,100,007    4(k)   11 
                   (1,100,000)(j)     
Additional paid-in capital   66,091,741    350,000    66,441,741    14,849,289(k)   80,941,030 
                          
                   (350,000)(j)     
                          
Accumulated deficit   (77,940,219)   8,038,587    (69,901,632)   (8,038,587)(j)   (77,684,494)
                   2,784,726(l)     
                   (2,529,001)(m)     
Total Stockholders' Equity   (11,848,471)   9,488,587    (2,359,884)   5,616,430    3,256,546 
                          
Total Liabilities and Equity  $26,352,020   $28,223,469   $54,575,489    71,995,990   $126,571,479 

  

 

 

 

 

Note 1 – Basis of Pro Forma Presentation

 

For purposes of pro forma presentation, the acquisition date of X-spine Systems, Inc. is assumed to be the following for each of the respective financial statements.

 

·Unaudited Combined Statement of Operations for the twelve months ended December 31, 2014 and the six months ended June 30, 2015 – Acquisition Date January 1, 2014
·Unaudited Combined Balance sheet as of June 30, 2015 – Acquisition Date June 30, 2015

 

In conjunction with the acquisition of X-spine, the following equity and debt instruments were issued.

 

·4,242,655 common shares of Bacterin International Holdings, Inc.
·$42,000,000 in long term debt; maturity July 2020, interest rate of 14% plus LIBOR (minimum 1%)
·$65,000,000 in convertible debt; maturity July 2021, interest rate of 6%

 

Note: The issuance of the $42,000,000 in long term debt replaces the Company’s existing long term debt of $24,000,000 for an incremental increase of $18,000,000.

 

For purposes of these unaudited pro forma condensed combined financial statements, it has been assumed that the proceeds associated with Long Term Debt and Convertible Long Term Debt instruments have been received as of the Acquisition Date(s).

 

The unaudited pro forma condensed combined financial statements have been prepared assuming that the acquisition is accounted for using the acquisition method of accounting. Accordingly, the assets acquired and liabilities of the Seller have been adjusted to their fair values as of June 30, 2015.

 

Fair Values as of June 30,2015        
         
X-spine Tangible Assets       $27,574,587 
X-spine Tangible Liabilities        (5,867,276)
Net Tangible Assets        21,707,311 
           
Goodwill        22,816,088 
Identifiable intangible assets          
Tradename   4,543,300      
Technology   28,698,700      
Non-Compete   40,500      
Customer Relationship   9,911,000    43,193,500 
           
Cash   72,867,606      
Stock   14,849,293      
Consideration - Stock and Cash       $87,716,899 

 

 

 

 

 

A fair market value of $21.7 million has been assigned to net tangible assets acquired. The difference between the fair market value of the net tangible assets and the consideration given have been allocated between Identifiable intangible assets (technology, trademarks, customer relationships and non-compete agreements) which will be amortized over three (3) to fourteen (14) years and Goodwill which in accordance with the ASC No. 805 Business Combinations will not be amortized but instead will be tested for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment.

 

Acquisition-related costs are estimated to be $2.5 million for the period ended June 30, 2015.

 

Note 2 – Pro Forma Presentation Adjustments and Assumptions

 

The adjustments included in the column under the heading “Pro Forma Adjustments” in the unaudited pro forma condensed combined financial statements are as follows:

 

Pro Forma Adjustments to the Combined Balance Sheet

 

a)To record cash and cash equivalents which is the excess of consideration given less net term debt, convertible debt and equity instruments issued.
b)To eliminate the Long term debt discount, royalty liability and debt penalty fee associated with the extinguishment of the prior long term debt instrument.
c)To record that portion of the third party fees incurred in conjunction with the acquisition of X-spine associated with the issuance with the modification and amendment of the existing long term debt instrument.
d)To record that portion of the third party fees incurred in conjunction with the acquisition of X-spine associated with the convertible debt instrument classified as part of long term debt.
e)To eliminate the historical intangible assets of the Seller.
f)To record the Identifiable intangible assets and Goodwill associated with the acquisition of X-spine.
g)To record the extinguishment of the Revolving Line of Credit which will be paid off with the issuance of new debt associated with the acquisition of X-spine.
h)To record the issuance of the extinguishment and issuance of the modification and amendment of the existing long term debt instrument associated with the acquisition of X-spine.
i)To record the issuance of the convertible long term debt instrument classified as part of long term debt.
j)To eliminate the Seller’s portion of Stockholders’ equity.
k)To record the values associated with common stock and additional paid in capital associated with the 4,242,655 shares of common stock issued to the Seller as part of the consideration for X-spine.

 

 

 

 

 

l)To record the gain associated with the extinguishment of the long term debt instrument associated with the modification and amendment of the existing long term debt instrument
m)To record that portion of the third party fees incurred in conjunction with the acquisition of X-spine a portion of which had been recorded as part of prepaid expenses.
n)To eliminate those prepaid expenses related to the third party fees incurred in conjunction with the acquisition of X-spine.

 

Pro Forma Adjustments to the Combined Statements of Operations

 

a)To reclassify amortization and depreciation from General and administrative expense to Depreciation and amortization expense which is the financial reporting presentation used by Bacterin for the six months ending June 30, 2015 and for the twelve months ending December 31, 2014.
b)To record the amortization of Identifiable intangible assets expense for the six months ending June 30, 2015 and for the twelve months ending December 31, 2014.
c)To record the interest expense associated with the issuance of modified and amended existing debt and of the convertible debt instruments associated with the acquisition of X-spine for the six months ending June 30, 2015 and for the twelve months ending December 31, 2014.
d)To reverse out the interest expense associated with the prior term debt instrument and revolving line of credit which has been extinguished with the issuance of the modified and amended existing long term debt and of the new convertible debt instruments associated with the acquisition of X-spine for the six months ending June 30, 2015 and for the twelve months ending December 31, 2014.
e)To reflect the common stock shares issued as consideration for the acquisition.