Quarterly Report for Quarter Ending June 30, 2022 (Form 10-Q)

10-Q

"333

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2022

or

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

For the transition period from___ to___

Commission file number: 001-40355

Treace Medical Concepts, Inc.

(Exact name of registrant as specified in its charter)

Delaware	47-1052611
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

203 Fort Wade Rd, Suite 150

Ponte Vedra, Florida 32081

(Address of principal executive offices, including zip code)

(904) 373-5940

(Registrant's telephone number, including area code)

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, $0.001 par value	TMCI	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐	Non-accelerated filer	☒
Smaller reporting company	☒	Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

As of August 5, 2022, 55,403,265shares of the registrant's common stock, $0.001 par value per share, were outstanding.

TREACE MEDICAL CONCEPTS, INC.

FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

Table of Contents

Item 1.	Unaudited Condensed Financial Statements	3
	Condensed Balance Sheets	3
	Condensed Statements of Operations and Comprehensive Loss	4
	Condensed Statements of Stockholders' Equity (Deficit)	5
	Condensed Statements of Cash Flows	6
	Notes to Condensed Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	25
Item 4.	Controls and Procedures	25

	Part II: Other Information
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Mine Safety Disclosures	28
Item 5.	Other Information	28
Item 6.	Exhibits	28
	Signatures	29

SPECIAL NOTES REGARDING FORWARD-LOOKING STATEMENTS

As used in this Quarterly Report on Form 10-Q ("Quarterly Report"), unless expressly indicated or the context otherwise requires, references to "Treace Medical Concepts," "we," "us," "our," "the Company," and similar references refer to Treace Medical Concepts, Inc. This Quarterly Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as codified 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") concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "assume," "believe," "contemplate," "continue," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "potential," "positioned," "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.

These forward-looking statements include, but are not limited to, statements about:

We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management's current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management's beliefs and assumptions and are not guarantees of future performance or development and involve

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known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Quarterly Report may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in our Annual Report on Form 10-K under "Part I, Item 1A-Risk Factors" and listed under "Risk Factors" and elsewhere in this Quarterly Report. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements.

These forward-looking statements speak only as of the date of this Quarterly Report. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this Quarterly Report to conform these statements to actual results or to changes in our expectations.

You should read this Quarterly Report and the documents that we reference in this Quarterly Report and have filed with the Securities and Exchange Commission ("SEC") as exhibits to this Quarterly Report with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

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PART I-FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited).

TREACE MEDICAL CONCEPTS, INC.

Condensed Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

		June 30,			December 31,
		2022			2021
Assets
Current assets
Cash and cash equivalents		$	101,533			$	105,833
Accounts receivable, net of allowance for doubtful accounts of $430and $414as of June 30, 2022 and December 31, 2021, respectively			16,501				18,568
Inventories			13,168				10,561
Prepaid expenses and other current assets			3,995				3,010
Total current assets			135,197				137,972
Property and equipment, net			8,741				2,849
Operating lease right-of-use assets			14,650				-
Other non-current assets			134				-
Total assets		$	158,722			$	140,821
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable		$	3,099			$	4,056
Accrued liabilities			4,809				4,518
Accrued commissions			4,308				5,181
Accrued compensation			4,038				4,455
Operating lease liabilities			383				-
Total current liabilities			16,637				18,210
Derivative liability on term loan			-				173
Long-term debt, net of discount of $1,438and $635as of June 30, 2022 and December 31, 2021, respectively			52,562				29,365
Operating lease liabilities, net of current portion			17,811				-
Total liabilities			87,010				47,748
Commitments and contingencies (Note 7)
Stockholders' equity
Preferred stock, $0.001par value, 5,000,000shares authorized as of June 30, 2022 and December 31, 2021; 0shares issued and outstanding as of June 30, 2022 and December 31, 2021			-				-
Common stock, $0.001par value, 300,000,000shares authorized; 55,391,309issued and outstanding as of June 30, 2022; 300,000,000shares authorized; 54,181,082issued and outstanding as of December 31, 2021			46				45
Additional paid-in capital			139,841				134,933
Accumulated deficit			(68,175	)			(41,905	)
Total stockholders' equity			71,712				93,073
Total liabilities and stockholders' equity		$	158,722			$	140,821

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

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TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

		Three Months Ended June 30,			Six Months Ended June 30,
		2022			2021			2022			2021
Revenue		$	29,967			$	20,654			$	59,014			$	39,361
Cost of goods sold			5,651				3,944				11,157				7,271
Gross profit			24,316				16,710				47,857				32,090
Operating expenses
Sales and marketing			26,250				14,010				48,173				26,158
Research and development			2,984				2,422				6,036				4,290
General and administrative			7,015				4,329				13,677				7,095
Total operating expenses			36,249				20,761				67,886				37,543
Loss from operations			(11,933	)			(4,051	)			(20,029	)			(5,453	)
Interest and other income, net			128				6				139				7
Interest expense			(946	)			(1,038	)			(1,897	)			(2,069	)
Debt extinguishment loss			(4,483	)			-				(4,483	)			-
Other expense, net			(5,301	)			(1,032	)			(6,241	)			(2,062	)
Net loss and comprehensive loss			(17,234	)			(5,083	)			(26,270	)			(7,515	)
Convertible preferred stock cumulative and undeclared dividends			-				(39	)			-				(196	)
Net loss attributable to common stockholders		$	(17,234	)		$	(5,122	)		$	(26,270	)		$	(7,711	)
Net loss per share attributable to common stockholders, basic and diluted		$	(0.31	)		$	(0.10	)		$	(0.48	)		$	(0.18	)
Weighted-average shares used in computing net loss per share attributable to common stockholders, basic and diluted			55,308,273				49,187,285				55,071,368				43,556,107

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

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TREACE MEDICAL CONCEPTS, INC.

Condensed Statement of Stockholders' Equity (Deficit)

(in thousands, except share amounts)

(unaudited)

		Convertible									Additional						Total
		Preferred Stock			Common Stock			Paid-In			Accumulated			Stockholders'
		Shares			Amount			Shares			Amount			Capital			Deficit			Equity (Deficit)
Balances at December 31, 2021			-			$	-				54,181,082			$	45			$	134,933			$	(41,905	)		$	93,073
Issuance of common stock upon exercise of stock options			-				-				1,097,860				1				1,371				-				1,372
Share-based compensation expense			-				-				-				-				1,409				-				1,409
Net loss			-				-				-				-				-				(9,036	)			(9,036	)
Balances at March 31, 2022			-				-				55,278,942				46				137,713				(50,941	)			86,818
Issuance of common stock upon exercise of stock options			-				-				112,367				-				165				-				165
Share-based compensation expense			-				-				-				-				1,963				-				1,963
Net loss			-				-				-				-				-				(17,234	)			(17,234	)
Balances at June 30, 2022			-				-				55,391,309			$	46			$	139,841			$	(68,175	)		$	71,712
.
Balances at December 31, 2020			6,687,475			$	7,935				37,366,865			$	28			$	14,166			$	(21,353	)		$	776
Issuance of common stock upon exercise of stock options			-				-				690,551				2				568				-				570
Share-based compensation expense			-				-				-				-				402				-				402
Net loss			-				-				-				-				-				(2,432	)			(2,432	)
Balances at March 31, 2021			6,687,475				7,935				38,057,416				30				15,136				(23,785	)			(684	)
Issuance of common stock upon exercise of stock options			-				-				272,082				-				193				-				193
Vesting of restricted stock awards			-				-				5,866				-				-				-				-
Share-based compensation expense			-				-				-				-				875				-				875
Issuance of common stock from initial public offering, net of issuance costs and underwriting discount of $10.6million			-				-				6,953,125				7				107,603				-				107,610
Issuance of common stock upon net exercise of warrants			-				-				621,570				1				(1	)			-				-
Conversion of convertible preferred stock and accrued dividends on convertible preferred stock into common stock			(6,687,475	)			(7,935	)			6,845,922				7				7,928				-				-
Net loss			-				-				-				-				-				(5,083	)			(5,083	)
Balances at June 30, 2021			-			$	-				52,755,981			$	45			$	131,734			$	(28,868	)		$	102,911

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

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TREACE MEDICAL CONCEPTS, INC.

Condensed Statements of Cash Flows

(in thousands)

(unaudited)

		Six Months Ended June 30,
		2022			2021
Cash flows from operating activities
Net loss		$	(26,270	)		$	(7,515	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization expense			757				220
(Recovery) for allowance for doubtful accounts			(45	)			(72	)
Share-based compensation expense			3,372				1,277
Non-cash lease expense			1,165				-
Amortization of debt issuance costs			95				88
(Recovery) Provision of inventory obsolescence			(197	)			88
Gain on fair value adjustment to derivative liability			(173	)			-
Debt extinguishment loss			4,483				-
Net changes in operating assets and liabilities:
Accounts Receivable			2,112				4,511
Inventory			(2,410	)			89
Prepaid expenses and other assets			(1,039	)			(2,919	)
Other non-current assets			(134	)			-
Operating lease liabilities			2,392				-
Accounts payable			(957	)			656
Accrued liabilities			(958	)			(600	)
Net cash used in operating activities			(17,807	)			(4,177	)
Cash flows from investing activities
Purchases of property and equipment			(6,649	)			(866	)
Net cash used in investing activities			(6,649	)			(866	)
Cash flows from financing activities
Repayment of PPP loan			-				(1,788	)
Proceeds from interest bearing term debt			49,651				-
Proceeds from interest bearing revolving debt			3,850				-
Debt issuance costs paid to third parties			(989	)			-
Repayment of term loan			(33,893	)			-
Proceeds from issuance of common stock upon initial public offering, net of issuance costs and underwriting fees of $10.6million			-				107,610
Proceeds from exercise of employee stock options			1,537				763
Net cash provided by financing activities			20,156				106,585
Net (decrease) increase in cash and cash equivalents			(4,300	)			101,542
Cash and cash equivalents at beginning of period			105,833				18,079
Cash and cash equivalents at end of period		$	101,533			$	119,621
Supplemental disclosure of cash flow information:
Cash paid for interest		$	1,897			$	2,917
Operating lease right-of-use assets obtained in exchange for new lease liabilities		$	15,300			$	-
Supplemental disclosure of noncash investing activities:
Property and equipment received in exchange for lease liability		$	4,115			$	-
Supplemental disclosure of noncash financing activities:
Issuance of common stock upon exercise of warrants		$	-			$	1
Conversion of convertible preferred stock and accrued dividends on convertible preferred stock into common stock		$	-			$	7,935

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

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TREACE MEDICAL CONCEPTS, INC.

Notes to Condensed Financial Statements

(unaudited)

8

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

You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes thereto included in this Quarterly Report on Form 10-Q and our audited financial statements and related notes thereto for the year ended December 31, 2021, included in our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission on March 4, 2022 (our "Annual Report"). This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in our Annual Report under "Part I, Item 1A-Risk Factors". Please also see the section titled "Special Note Regarding Forward-Looking Statements."

Overview

We are a medical technology company driving a fundamental shift in the surgical treatment of Hallux Valgus (commonly known as bunions). We have pioneered our proprietary Lapiplasty® 3D Bunion Correction™ System-a combination of innovative instruments, implants and surgical methods designed to improve the inconsistent clinical outcomes of traditional approaches to bunion surgery. Although bunions are deformities typically caused by an unstable joint in the middle of the foot that leads to a three-dimensional ("3D") misalignment in the foot's anatomical structure, the majority of traditional surgical approaches focus on correcting the deformity from a two-dimensional ("2D") perspective and therefore fail to address the root cause of the disorder. To effectively restore the normal anatomy of bunion patients and improve clinical outcomes, we believe addressing the root cause of the bunion is critical and have developed the Lapiplasty System to correct the deformity across all three anatomic dimensions. Our mission is to be the leader in the surgical treatment of bunions by establishing the Lapiplasty System as the standard of care. We recently expanded our offerings with the Adductoplasty™ Midfoot Correction System, designed for reproducible correction of the midfoot to provide further support to hallux valgus patients.

We were formed in 2013 and since receiving 510(k) clearance for the Lapiplasty System in March 2015, we have sold more than 52,000 Lapiplasty Procedure Kits in the United States. We market and sell our Lapiplasty Systems to physicians, surgeons, ambulatory surgery centers and hospitals. The Lapiplasty Procedure can be performed in either hospital outpatient or ambulatory surgery centers settings, and utilizes existing, well-established reimbursement codes. We currently market and sell the Lapiplasty System through a combination of a direct employee sales force and independent sales agencies across 152 territories in the United States. As of June 30, 2022, we had 123 direct sales representatives and 29 independent sales agencies. In the three months ended June 30, 2022, employee sales representatives generated approximately 68% of revenues while approximately 32% of revenues came through independent sales agencies. In the six months ended June 30, 2022, employee sales representatives generated approximately 66% of revenues while approximately 34% of revenues came through independent sales agencies.

On April 27, 2021, we completed our initial public offering ("IPO") of 12,937,500 shares of common stock, which included the exercise in full of the underwriters' option to purchase additional shares. Before our IPO, our primary sources of capital had been private placements of common stock and convertible preferred stock, debt financing agreements and revenue from the sale of our products. As part of the IPO, we received net proceeds of approximately $107.6 million. Upon the completion of the IPO, all 6,687,475 shares of our Series A convertible preferred stock then outstanding were converted into shares of common stock on a one-to-one basis plus 158,447 shares of common stock were issued to pay accrued dividends on Series A convertible preferred stock of $2.5 million. As of June 30, 2022, we had cash and cash equivalents of $101.5 million, an accumulated deficit of $68.2 million and $54.0 million of principal outstanding under our term loan agreement.

In April 2022, we entered a new five-year $150.0 million loan arrangement, comprising up to $120.0 million in term loans and $30.0 million in a revolving credit facility with entities affiliated with MidCap Financial Trust ("MidCap"). On the closing date for these loan agreements, we borrowed $50.0 million under the term loan and $4.0 million under the revolving credit facility. The term loan proceeds were partially used to repay our entire obligation under our term loan facility with CRG Group LP ("CRG") amounting to $34.1 million, including principal of $30.0 million, accrued but unpaid interest of $0.4 million and fees of $3.7 million. In April 2022, we also terminated our revolving credit facility with Silicon Valley Bank ("SVB"), which had no outstanding balance when terminated. We recognized a loss from the extinguishment of the CRG term loan facility and the SVB revolving credit facility of $4.5 million (including fees paid of $3.7 million).

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COVID-19 Impact and Economic Environment

Our business has been and may continue to be impacted by the COVID-19 pandemic. We are aware that the actual and perceived impact of COVID-19 has been changing and cannot be predicted. Since the pandemic began, we have experienced elective surgery delays and cancellations and hospital staffing and capacity constraints, primarily related to surges of infections and hospitalizations as variants of COVID-19 have emerged. We believe we will continue to experience market variability as a result of the pandemic that could influence sales, suppliers, patients, and customers. There is still uncertainty around the duration and severity of business disruptions related to COVID-19 and how it will impact our operations which could be significant.

There is also uncertainty in the macro-economic environment. Inflationary pressures and ongoing supply chain challenges may result in higher costs and longer lead times from suppliers. General economic conditions may also affect demand for elective surgeries. While we continuously work with suppliers to mitigate higher costs and longer lead times and continue to invest in our direct sales channels, patient education initiatives, clinical evidence and product innovations to build demand for our products, we expect these macro-economic challenges to continue throughout 2022, which may impact our results of operations.

Key Business Metrics

We regularly review a number of operating and financial metrics, including the number of Lapiplasty Procedure Kits sold, the number of active surgeons using the Lapiplasty System and utilization rate, to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plans and make strategic decisions. The number of Lapiplasty Procedure Kits sold during the three months ended June 30, 2022 increased by 1,458 or 39% over the same period of 2021, and the number of active surgeons as of June 30, 2022 was 2,047 an increase of 37% from the prior year. We define the number of active surgeons as the number of surgeons that performed at least one procedure using the Lapiplasty System in the trailing twelve-month period. The surgeon utilization rate for the six months ended June 30, 2022 increased by 2.8% over the same period of 2021, to an average of 10.1 Lapiplasty Procedure Kits per active surgeon.

We believe that the number of Lapiplasty Procedure Kits sold, number of active surgeons using the Lapiplasty System and utilization rate are useful indicators of our ability to drive adoption of the Lapiplasty System and generate revenue and are helpful in tracking the progress of our business. While we believe these metrics are representative of our current business, we anticipate these metrics may be substituted for additional or different metrics as our business grows.

Factors Affecting Our Business

We believe that our financial performance has been and in the foreseeable future, will continue to depend on many factors, including COVID-19 impacts as described above, those described below, those referenced in the section titled "Special Note Regarding Forward-Looking Statements" and those set forth in our Annual Report in the section titled "Part I, Item 1A-Risk Factors" and in the section titled "Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q.

Adoption of the Lapiplasty System

The growth of our business depends on our ability to gain broader acceptance of the Lapiplasty System by successfully marketing and distributing the Lapiplasty System and ancillary products. We currently have approval at over 1,750 facilities across the United States and plan to continue to increase access by convincing even more surgeons and facility administrators that our products are alternatives to traditional products used in bunion surgical procedures. While surgeon adoption of the Lapiplasty Procedure remains critical to driving procedure growth, hospital and ambulatory surgery center facility approvals are necessary for both existing and future surgeon customers to access our products. To facilitate greater access to our products and drive future sales growth, we intend to continue educating hospitals and facility administrators on the differentiated benefits associated with the Lapiplasty System, supported by our robust portfolio of clinical data. If we are unable to successfully continue to commercialize our Lapiplasty System, we may not be able to generate sufficient revenue to achieve or sustain profitability. In the near term, we expect we will continue to operate at a loss, and we anticipate we will finance our operations principally through offerings of our capital stock and by incurring debt.

Investments in Innovation and Growth

We expect to continue to focus on long-term revenue growth through investments in our business. In sales and marketing, we are dedicating meaningful resources to expand our sales force and management team in the United States, as

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well as our patient focused outreach and education campaigns. We are hiring additional direct sales representatives and employee field sales management to strategically access more regions with high densities of prospective patients and by focusing the efforts of our independent sales channel on our products. In research and development, our team and our surgeon advisory board are continually working on next-generation innovations of the Lapiplasty System and related products. In addition to expanding our Lapiplasty offerings with products like the Lapiplasty Mini-Incision System, we are continually exploring opportunities to advance our core Lapiplasty System instrumentation and implants to further improve surgical efficiency, enhance reproducibility of outcomes and speed surgical recovery for patients.

We are also pursuing the development and potential commercialization, if cleared, of new products to address ancillary surgical procedures performed routinely in connection with the Lapiplasty Procedure. For example, to help address midfoot deformities that can occur in up to 30% of bunion patients, we developed and, in September 2021, announced the commercial launch of the Adductoplasty™ System. The Adductoplasty™ System brings together our implants and instrumentation to provide a comprehensive system designed for reproducible realignment, stabilization, and fusion of the midfoot and thus, provides surgeons with a precision, instrumented approach to treat both the bunion and coexisting midfoot deformities.

Moreover, in our general and administrative functions, we expect to continue to hire personnel and expand our infrastructure to both drive and support our anticipated growth and operations as a public company. Accordingly, in the near term, we expect these activities to increase our net losses, but in the longer term we anticipate they will positively impact our business and results of operations.

Seasonality

We have experienced and expect to continue to experience seasonality in our business, with higher sales volumes in the fourth calendar quarter, historically accounting for approximately 40% of full year revenues, and lower sales volumes in the first calendar quarter. Our sales volumes in the fourth calendar quarter tend to be higher as many patients elect to have surgery after meeting their annual deductible and having time to recover over the winter holidays. Our sales volumes in the first calendar quarter also tend to be lower as a result of adverse weather and by resetting annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures. The orthopaedic industry traditionally experiences lower sales volumes in the third quarter than throughout the rest of the year as elective procedures generally decline during the summer months. Although we follow orthopaedic industry trends generally, to date our third quarter sales volumes have not been lower than other quarters, but we may experience relatively lower sales volumes during third quarters in the future.

Coverage and Reimbursement

Hospitals, ambulatory surgery centers and surgeons that purchase or use our products generally rely on third-party payors to reimburse for all or part of the costs and fees associated with procedures using our products. As a result, sales of our products depend, in part, on the extent to which the procedures using our products are covered by third-party payors, including government programs such as Medicare and Medicaid, private insurance plans and managed care programs. Based on historical claims data from 2017, approximately 63% of Lapidus cases and 60% of all bunion surgical cases were paid by private payors.

Medicare payment rates to hospital outpatient departments are set under the Medicare hospital outpatient prospective payment system, which groups clinically similar hospital outpatient procedures and services with similar costs to ambulatory payment classifications ("APCs"). Each APC is assigned a single lump sum payment rate, which includes payment for the primary procedure as well as any integral, ancillary, and adjunctive services. The primary CPT codes for the Lapiplasty Procedure, CPT 28297 and CPT 28740, are grouped together under APC 5114. For Lapiplasty Procedures in which fusion is performed on multiple tarsometatarsal joints, CPT 28730 applies and is classified under APC 5115.

Components of Our Results of Operations

Revenue

We currently derive nearly all of our revenue from the sale of our proprietary Lapiplasty System, and to a lesser extent from the Adductoplasty System, which we introduced in the third quarter of 2021, and ancillary products. The Lapiplasty and Adductoplasty Systems are comprised of single-use implant kits and reusable instrument trays. We sell the Lapiplasty and Adductoplasty Systems to physicians, surgeons, hospitals and ambulatory surgery centers in the United States through a network of employee sales representatives and independent agencies. Our primary product is the Lapiplasty System, which is an instrumented, reproducible approach to 3D bunion correction that helps patients rapidly return to weight-bearing in a

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post-operative boot. We also offer other advanced instrumentation and implants for use in the Lapiplasty and Adductoplasty Procedures or other ancillary procedures performed in high frequency with bunion surgery.

No single customer accounted for 10% or more of our revenue during the three and six months ended June 30, 2022. We expect our revenue to increase in absolute dollars in the foreseeable future as we expand our sales territories, new accounts and trained surgeon base and as existing surgeon customers perform more Lapiplasty Procedures, though it may fluctuate from quarter to quarter due to a variety of factors, including seasonality and COVID-19 pandemic events.

Cost of Goods Sold

Cost of goods sold consists primarily of manufacturing costs for the purchase of our Lapiplasty and Adductoplasty Systems and other products from third-party manufacturers. Direct costs from our third-party manufacturers includes costs for raw materials plus the markup for the assembly of the components. Cost of goods sold also includes royalties, allocated overhead for indirect labor, depreciation, certain direct costs such as those incurred for shipping our products and personnel costs. We expense all provisions for excess and obsolete inventories as cost of goods sold. We record adjustments to our inventory valuation for estimated excess, obsolete and non-sellable inventories based on assumptions about future demand, past usage, changes to manufacturing processes and overall market conditions. We expect our cost of goods sold to increase in absolute dollars in the foreseeable future to the extent more of our products are sold, though it may fluctuate from quarter to quarter.

Gross Profit and Gross Margin

We calculate gross profit as revenue less cost of goods sold, and gross margin as gross profit divided by revenue. Our gross margin has been and will continue to be affected by a variety of factors, primarily average selling prices, production and ordering volumes, change in mix of customers, third-party manufacturing costs and cost-reduction strategies. We expect our gross profit to increase in the foreseeable future as our revenue grows, though our gross margin may fluctuate from quarter to quarter due to changes in average selling prices as we introduce new products, and as we adopt new manufacturing processes and technologies.

Operating Expenses

Sales and Marketing

Sales and marketing expenses consist primarily of compensation for personnel, including salaries, bonuses, benefits, sales commissions and share-based compensation, related to selling and marketing functions, physician education programs, training, travel expenses, marketing initiatives including our direct-to-patient outreach program and advertising, market research and analysis and conferences and trade shows. We expect sales and marketing expenses to continue to increase in absolute dollars in the foreseeable future as we continue to invest in our direct sales force and expand our marketing efforts, and as we continue to expand our sales and marketing infrastructure to both drive and support anticipated sales growth, though these expenses may fluctuate from quarter to quarter.

Research and Development

Research and development ("R&D") expenses consist primarily of engineering, product development, clinical studies to develop and support our products, regulatory expenses, and other costs associated with products and technologies that are in development. These expenses include compensation for personnel, including salaries, bonuses, benefits and share-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses, depreciation and an allocation of facility overhead expenses. We expect R&D expenses to continue to increase in absolute dollars in the foreseeable future as we continue to hire personnel and invest in next-generation innovations of the Lapiplasty System and related products, though these expenses may fluctuate from quarter to quarter due to a variety of factors, including the level and timing of our new product development efforts, as well as our clinical development, clinical trial and other related activities.

General and Administrative

General and administrative expenses consist primarily of compensation for personnel, including salaries, bonuses, benefits and share-based compensation, related to finance, information technology, legal and human resource functions, as well as professional services fees (including legal, audit and tax fees), insurance costs, general corporate expenses, rent expenses and allocated facilities-related expenses. We expect general and administrative expenses to continue to increase in absolute dollars in the foreseeable future as we hire personnel and expand our infrastructure to drive and support the

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anticipated growth in our organization. Moreover, we have incurred, and expect to continue to incur, additional general and administrative expenses associated with operating as a public company, including legal, accounting, insurance, compliance with the rules and regulations of the SEC and those of any stock exchange on which our securities are traded, investor relations, and other administrative and professional services expenses, though these expenses may fluctuate from quarter to quarter.

Interest and other income, net

Interest income and other income, net consists of interest received on our money market funds.

Interest Expense

Interest expense consists of interest incurred and amortization of debt discount and issuance costs related to outstanding borrowings during the reported periods.

Results of Operations

Comparison of the three and six months ended June 30, 2022 and 2021

The following table summarizes our results of operations for the periods presented below ($ in thousands):

		Three Months Ended June 30,			Change			Six Months Ended June 30,			Change
		2022			2021			Amount			%			2022			2021			Amount			%
Revenue		$	29,967			$	20,654			$	9,313				45.1	%		$	59,014			$	39,361			$	19,653				49.9	%
Cost of goods sold			5,651				3,944				1,707				43.3	%			11,157				7,271				3,886				53.4	%
Gross profit			24,316				16,710				7,606				45.5	%			47,857				32,090				15,767				49.1	%
Operating expenses
Sales and marketing			26,250				14,010				12,240				87.4	%			48,173				26,158				22,015				84.2	%
Research and development			2,984				2,422				562				23.2	%			6,036				4,290				1,746				40.7	%
General and administrative			7,015				4,329				2,686				62.0	%			13,677				7,095				6,582				92.8	%
Total operating expenses			36,249				20,761				15,488				74.6	%			67,886				37,543				30,343				80.8	%
Loss from operations			(11,933	)			(4,051	)			(7,882	)			194.6	%			(20,029	)			(5,453	)			(14,576	)			267.3	%
Interest and other income, net			128				6				122			*				139				7				132			*
Interest expense			(946	)			(1,038	)			92				(8.9	)%			(1,897	)			(2,069	)			172				(8.3	)%
Debt extinguishment loss			(4,483	)			-				(4,483	)		*				(4,483	)			-				(4,483	)		*
Other expense, net			(5,301	)			(1,032	)			(4,269	)			413.7	%			(6,241	)			(2,062	)			(4,179	)			202.7	%
Net loss and comprehensive loss		$	(17,234	)		$	(5,083	)		$	(12,151	)			239.1	%		$	(26,270	)		$	(7,515	)		$	(18,755	)			249.6	%
* Not meaningful

Comparison of the three months ended June 30, 2022 and 2021

Revenue.Revenue increased by $9.3 million, or 45.1%, for the three months ended June 30, 2022 as compared to the same period in 2021. The increase in revenue was primarily due to an increased number of Lapiplasty Procedure Kits sold as the result of an expanded surgeon customer base, increased surgeon utilization and an increase in average sales prices from increased adoption of our ancillary products.

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $1.7 million, or 43.3%, for the three months ended June 30, 2022 as compared to the same period in 2021. The increase in cost of goods sold was primarily due to $1.0 million increase in direct costs of goods sold and $0.5 million increase in royalty expense resulting from our increased sales, $0.3 million in overhead expenses resulting from increased headcount, and $0.3 million increase in

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depreciation expense from our surgical instruments, which were offset by a $0.4 million decrease in the provision for inventory and instrument obsolescence. During the three months ended June 30, 2022, gross profit increased by $7.6 million, or 45.5%, as compared to the same period in 2021 due to increased sales. Gross profit margin for the three months ended June 30, 2022 increased from 80.9% to 81.1%, as compared to the same period of 2021, primarily due to an increase in revenue from our increased sales and volume efficiencies.

Sales and Marketing Expenses. Sales and marketing expenses increased by $12.2 million, or 87.4%, for the three months ended June 30, 2022 as compared to the same period in 2021. The increase in sales and marketing expenses was due to investment in our direct sales force and our patient focused outreach and education campaigns. Sales and marketing expenses increased as a result of an increase of $4.9 million in payroll and related expenses resulting from increased headcount of sales personnel, an increase of $4.0 million in advertising and marketing-related expenses primarily due to higher advertising fees and a new television commercial campaign, an increase of $2.7 million in professional services primarily for higher commissions from increased sales by our direct sales representatives and independent sales agencies, and $0.6 million in other marketing-related expenses resulting from increased sales efforts.

Research and Development Expenses. R&D expenses increased by $0.6 million, or 23.2%, for the three months ended June 30, 2022 as compared to the same period in 2021. The increase in R&D expenses was due to increases of $0.6 million in payroll and related costs resulting from increased headcount of research and development personnel, and an increase of $0.3 million in clinical expenses resulting from increased purchases of materials used in our prototypes, which were offset by $0.3 million decrease in third party consulting fees.

General and Administrative Expenses. General and administrative expenses increased by $2.7 million, or 62.0%, for the three months ended June 30, 2022 as compared to the same period in 2021. The increase in general and administrative expenses was primarily due to an increase of $1.3 million in payroll and related costs as we increased headcount to support our growing business, an increase of $0.6 million in rent expense resulting from the new corporate headquarters lease that commenced for accounting purposes in the first quarter of 2022, an increase of $0.4 million in business-related expenses primarily resulting from increased insurance costs and fees, and an increase of $0.4 million in professional services primarily related to legal and audit expenses.

Interest and other income, net. Interest and other income, net increased $0.1 million. The increase is due to a slight increase in money market fund interest rates during the current period.

Interest Expense. Interest expense decreased by $0.1 million, or 8.9%, for the three months ended June 30, 2022 as compared to the same period of 2021. The decrease in interest expense was due to significantly lower interest rates on higher debt balances in the three months ended June 30, 2022, as compared to the same period of 2021, as a result of the debt refinancing in late April of the current period.

Debt Extinguishment Loss. Debt extinguishment loss increased by $4.5 million, for the three months ended June 30, 2022 as compared to the same period of 2021, due to our debt refinancing in the current period.

Comparison of the six months ended June 30, 2022 and 2021

Revenue.Revenue increased by $19.7 million, or 49.9%, for the six months ended June 30, 2022 as compared to the same period of 2021. The increase in revenue was primarily due to an increased number of Lapiplasty Procedure Kits sold as the result of an expanded customer base and an increase in average sales prices.

Cost of Goods Sold, Gross Profit and Gross Margin. Cost of goods sold increased by $3.9 million, or 53.4%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in cost of goods sold was primarily due to $2.3 million increase in direct costs of goods sold resulting from increased sales, $1.1 million increase in royalty expense resulting from our increased sales, $0.4 million increase in depreciation expense from our surgical instruments, and $0.4 million increase in overhead expenses resulting from increase in our headcount offset by $0.3 million decrease in provision for inventory and instrument obsolescence. During the six months ended June 30, 2022, the gross profit increased by $15.8 million, or 49.1%, as compared to the same period of 2021 due to increased sales. Gross profit margin for the six months ended June 30, 2022 decreased from 81.5% to 81.1%, as compared to the same period of 2021, primarily due to an increase in royalty expense resulting from our increased sales and an increase in depreciation expense from surgical instruments.

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Sales and Marketing Expenses. Sales and marketing expenses increased by $22.0 million, or 84.2%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in sales and marketing expenses was due to investment in our direct sales force and our patient focused outreach and education campaigns. Sales and marketing expenses increased by $9.4 million in payroll and related expenses from increased headcount of sales personnel, $7.1 million in advertising and marketing-related expenses primarily due to higher advertising fees and a new television commercial campaign, $4.4 million in professional services primarily for higher commissions from increased sales by our direct sales representatives and independent sales agencies, and $1.1 million in other marketing-related expenses resulting from increased sales efforts.

Research and Development Expenses. R&D expenses increased by $1.7 million, or 40.7%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in R&D expenses was due to $1.3 million in payroll and related costs resulting from increased headcount of research and development personnel, $0.5 million in clinical expenses resulting from increased purchases of materials used in our prototypes, which were offset by a $0.1 million decrease in third party consulting fees.

General and Administrative Expenses. General and administrative expenses increased by $6.6 million, or 92.8%, for the six months ended June 30, 2022 as compared to the same period in 2021. The increase in general and administrative expenses was primarily due to increases of $2.7 million in payroll and related costs as we increased headcount to support the growing business, 1.7 million in business-related expenses primarily resulting from increased insurance costs and fees, $1.3 million in professional services primarily related to legal and audit fees, and $0.9 million in rent expense resulting from the new corporate headquarters lease that commenced for accounting purposes in the first quarter of 2022.

Interest Income and other, net.Interest and other income, net increased $0.1 million. The increase is due to a slight increase in money market fund interest rates during the current period.

Interest Expense. Interest expense decreased by $0.2 million, or 8.3%, for the six months ended June 30, 2022 as compared to the same period of 2021. The decrease in interest expense was due to significantly lower interest rates on higher debt balances during the six months ended June 30, 2022 as compared to the same period of 2021 as a result of the debt refinancing in late April of 2022.

Debt Extinguishment Loss. Debt extinguishment loss increased by $4.5 million, for the six months ended June 30, 2022 as compared to the same period of 2021 due to our debt refinancing during the current period.

Liquidity and Capital Resources

Overview

Before our IPO, our primary sources of capital were private placements of common stock and convertible preferred stock, debt financing agreements and revenue from the sale of our products. In April 2021, we received net proceeds of $107.6 million from our IPO. In April 2022, we entered a new five-year $150.0 million loan arrangement, comprising up to $120.0 million in term loans and $30.0 million in a revolving credit facility with entities affiliated with MidCap. On the closing date in April 2022, we borrowed $50.0 million under the term loan and $4.0 million under the revolving credit facility. The term loan proceeds were partly used to repay our entire obligation under our term loan facility with CRG amounting to $34.1 million, including principal of $30.0 million, interest of $0.4 million and fees of $3.7 million. In April 2022, we also terminated our credit facility with SVB which had no outstanding balance when terminated.

As of June 30, 2022, we had cash and cash equivalents of $101.5 million, an accumulated deficit of $68.2 million, and the $54 million indebtedness outstanding under the term and revolving loans with MidCap. We believe that our existing cash and cash equivalents, available debt borrowings and expected revenues will be sufficient to meet our capital requirements and fund our operations for at least twelve months from the issuance of our condensed financial statements. We may be required or decide to raise additional financing to support further growth of our operations.

Funding Requirements

We use our cash to fund our operations, which primarily include the costs of manufacturing our Lapiplasty and Adductoplasty Systems and ancillary products, as well as our sales and marketing and R&D expenses and related personnel costs. We expect sales and marketing expenses to increase for the foreseeable future as we continue to invest in our direct sales force and expand our marketing efforts, and as we continue to expand our sales and marketing infrastructure to both drive and support anticipated sales growth. We also expect R&D expenses to increase for the foreseeable future as we

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continue to hire personnel and invest in next-generation innovations of the Lapiplasty System and related products. In addition, we expect our general and administrative expenses to increase for the foreseeable future as we hire personnel and expand our infrastructure to both drive and support the anticipated growth in our organization. We will also incur additional expenses as a result of operating as a public company. From time to time, we may also consider additional investments in technologies, assets and businesses to expand or enhance our product offerings. The timing and amount of our operating expenditures will depend on many factors, including:

Based upon our current operating plan, we believe that our existing cash and cash equivalents, will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong or that may change in the future, and we could utilize our available capital resources sooner than we expect. We may seek to raise any necessary additional capital through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these or other 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, sales and marketing initiatives, 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. Debt financing, if available, is likely to 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.

Cash Flows

The following table sets forth the primary sources and uses of cash and cash equivalents for the period presented below:

		Six Months Ended June 30,
		2022			2021
Net cash (used in) provided by:
Operating activities		$	(17,807	)		$	(4,177	)
Investing activities			(6,649	)			(866	)
Financing activities			20,156				106,585
Net (decrease) increase in cash and cash equivalents		$	(4,300	)		$	101,542

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Net Cash Used in Operating Activities

Net cash used in operating activities for the six months ended June 30, 2022, was $17.8 million, consisting primarily of a net loss of $26.3 million, adjusted for non-cash charges of $9.5 million and a decrease of $1.0 million in net operating assets. The non-cash charges primarily consisted of a $4.5 million loss on extinguishment of the CRG term loan, share-based compensation expense of $3.4 million, non-cash lease expense of $1.2 million and depreciation and amortization expense of $0.8 million. The decrease in net operating assets was primarily due to a decrease in accounts receivable resulting from higher sales in fourth quarter 2021, an increase in operating lease liabilities, which were more than offset by increases in inventories, prepaid expenses and other assets, and decreases in accounts payable and accrued liabilities due to timing of payments and growth of our operations.

Net cash used in operating activities for the six months ended June 30, 2021 was $4.2 million, consisting primarily of a net loss of $7.5 million, adjusted for non-cash charges of $1.6 million and an increase of $1.7 million in net operating assets. The non-cash charges primarily consisted of share-based compensation expense of $1.3 million and depreciation and amortization expense of $0.2 million. The increase in net operating assets was primarily due to a decrease of $4.5 million in accounts receivable resulting from higher sales in fourth quarter 2020, which was partially offset by a $2.9 million decrease in prepaid expenses due to timing of payments.

Net Cash Used in Investing Activities

Net cash used in investing activities was $6.6 million and $0.9 million for the six months ended June 30, 2022 and 2021, respectively, consisting primarily of purchases of capitalized surgical instruments for our reusable instrument trays during both periods.

Net Cash Provided by Financing Activities

Net cash provided in financing activities was $20.2 million for the six months ended June 30, 2022, consisting of $53.5 million of net cash proceeds from the new term loan agreement and revolving credit facility with MidCap and $1.5 million from exercise of stock options offset by the $33.9 million repayment of the CRG term loan.

Net cash provided in financing activities was $106.6 million for the six months ended June 30, 2021, consisting primarily of net cash proceeds of $107.6 million from the issuance of shares of common stock, net of $10.6 million in issuance costs, upon completion of our IPO on April 27, 2021, offset by the repayment of our PPP loan from the SBA of $1.8 million in March 2021 and proceeds from exercise of stock options of $0.7 million.

Surgeon Advisory Board Royalty Agreements

We recognized royalty expense of $1.3 million and $0.8 million for the three months ended June 30, 2022 and 2021, respectively, and $2.7 million and $1.6 million for the six months ended June 30,2022 and 2021, respectively. For the three months ended June 30, 2022 and 2021, the aggregate royalty rate was 4.4% and 4.0%, respectively. For the six months ended June 30, 2022 and 2021, the aggregate royalty rate was 4.6% and 4.1%, respectively. Each of the royalty agreements with our surgeon advisory board members prohibits the payment of royalties on products sold to entities and/or individuals with whom any of the surgeon advisors is affiliated.

Operating Lease

We have commitments for future payments related to our real estate leases located in Ponte Vedra, Florida. We entered into a 10-year lease in February 2022 for our new corporate headquarters location. Lease payments comprise the base rent stated in the lease plus operating costs which include taxes, insurance and common area maintenance. The remaining lease obligation was $29.4 million under these leases as of June 30, 2022.

Critical Accounting Policies and Estimates

Management's discussion and analysis of our financial condition and results of operations is based on our condensed financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these condensed 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

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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.

Our critical accounting policies and estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in our Annual Report. There had been no material changes to these accounting policies during the six months ended June 30, 2022.

Recently Issued Accounting Pronouncements

Refer to Note 3, "Recent Accounting Pronouncements", to our condensed financial statements included elsewhere in this Quarterly Report for new accounting pronouncements not yet adopted as of the date of this Quarterly Report.

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. The risk associated with fluctuating interest rates is primarily limited to our cash equivalents, which are carried at quoted market prices. Since our results of operations are not dependent on investments, the risk associated with fluctuating interest rates is limited to our investment portfolio, and we believe that a hypothetical 10% change in interest rates would not have a significant impact on our condensed financial statements included elsewhere in this Quarterly Report. As of June 30, 2022, our investments consisted only of low-yield overnight sweep investments. We do not currently use or plan to use financial derivatives in our investment portfolio.

Foreign Currency Risk

Our business is conducted in U.S. dollars. We do not currently maintain a program to hedge exposures to non-U.S. dollar currencies. 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.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures

Our management, with the participation and supervision of our Chief Executive Officer and our Chief Financial Officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report, our disclosure controls and procedures are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC 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.

Changes in internal control over financial reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can

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occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II-OTHERINFORMATION

Item 1. Legal Proceedings.

We are not a party to any legal proceedings, the result of which would have a material effect on our business or results from operations. From time to time, we may become involved in various legal proceedings that arise in the ordinary course of our business.

Item 1A. Risk Factors.

As of the date of this Quarterly Report, there have been no material changes from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 4, 2022. Any of these factors could result in a significant or material adverse effect on our result of operations or financial conditions. 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.

The registration statement on Form S-1 (File Nos. 333-254863) and the registration statement on Form S-1 (File No. 333-255451) filed pursuant to Rule 462(b) relating thereto, each relating to the IPO of shares of our common stock, became effective on April 22, 2021. On April 27, 2021, we completed our IPO of 12,937,500 shares of common stock, which included the exercise in full of the underwriters' option to purchase additional shares. As part of the IPO, 6,953,125 shares of common stock issued and sold by us (inclusive of 703,125 shares pursuant to the exercise of the underwriters' option) and 5,984,375 shares of common stock sold by the selling stockholders named in the Prospectus (inclusive of 984,375 shares pursuant to the exercise of the underwriters' option), at a price to the public of $17.00 per share. We received net proceeds of approximately $107.6 million, after deducting underwriting discounts of $8.3 million and commissions and offering expenses payable by us of $2.3 million.

No payments for such expenses were made directly or indirectly to (i) any of our officers or directors or their associates, (ii) any persons owning 10% or more of any class of our equity securities or (iii) any of our affiliates.

We maintain the funds received from our IPO in a savings account, pending their use. There has been no material change in the planned use of proceeds from our IPO from that described in the Prospectus dated April 22, 2021 filed with the SEC pursuant to Rule 424(b)(4).

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Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit Number		Description
10.1*		Credit and Security Agreement (Revolving Loan) dated as of April 29, 2022,by and among Treace Medical Concepts, Inc. and Midcap Funding IV Trust.
10.2*		Credit and Security Agreement (Term Loan) dated as of April 29, 2022 by and among Treace Medical Concepts, Inc. and Midcap Financial Trust.
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.
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 2002.
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.
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.
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
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	Portions of this exhibit have been omitted in accordance with Item 601(b)(10) of Regulation S-K because it (i) is not material and (ii) would be competitively harmful if publicly disclosed.
†	The certifications attached as Exhibit 32.1 and 32.2 that accompany this 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 Treace Medical Concepts, 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 Quarterly Report, irrespective of any general incorporation language contained in such filing.

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SIGNATURES

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, thereunto duly authorized.

		Treace Medical Concepts, Inc.
Date: August 10, 2022		By:		/s/ John T. Treace
				Name:	John T. Treace
				Title:	Chief Executive Officer and Director (Principal Executive Officer)
Date: August 10, 2022		By:		/s/ Mark L. Hair
				Name:	Mark L. Hair
				Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

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