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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒ No ☐

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

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

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

As of ~~November 1, 2017,~~July 22, 2019, there were ~~16,724,080~~47,656,697 shares of the registrant’s common stock outstanding.

	September 30, 2017			December 31, 2016			June 30, 2019			December 31, 2018
Assets	(Unaudited)						(Unaudited)
Current assets:
Cash	$	15,437		$	19,593		$	18,570		$	29,054
Accounts receivable, net		13,303			18,512			13,642			15,095
Inventories, net		29,747			30,093			32,605			28,765
Prepaid expenses and other current assets		2,019			4,262			10,904			2,030
Withholding tax receivable from officer								—			350
Current assets of discontinued operations		236			364			225			242
Total current assets		60,742			72,824			75,946			75,536
Property and equipment, net		13,275			15,076			15,090			13,235
Intangible assets, net		5,482			5,711
Operating lease right-of-use asset								2,170			—
Goodwill								13,897			13,897
Intangibles, net								26,054			26,408
Other assets		222			516			222			347
Noncurrent assets of discontinued operations		52			61			53			54
Total assets	$	79,773		$	94,188		$	133,432		$	129,477
Liabilities and Stockholders’ Deficit
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,865		$	8,701		$	8,178		$	4,399
Accrued expenses		22,606			27,589			20,831			22,316
Current portion of long-term debt		3,037			3,113			286			3,276
Current portion of operating lease liability								1,173			—
Current liabilities of discontinued operations		283			732			538			621
Total current liabilities		28,791			40,135			31,006			30,612
Long-term debt, less current portion		37,228			43,092			49,369			42,299
Operating lease liability								1,467			—
Other long-term liabilities		23,666			28,862			13,826			15,389
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at September 30, 2017 and December 31, 2016; 3,319 shares issued and outstanding at both September 30, 2017 and December 31, 2016		23,603			23,603
Redeemable preferred stock, $0.0001 par value; 20,000 shares authorized at June 30, 2019 and December 31, 2018; 3,319 shares issued and outstanding at both June 30, 2019 and December 31, 2018								23,603			23,603
Commitments and contingencies

Series A convertible preferred stock, $0.0001 par value; 15 and 0 shares authorized at September 30, 2017 and December 31, 2016, respectively; 7 shares issued and outstanding at September 30, 2017		—			—
Common stock, $0.0001 par value; 200,000 authorized at September 30, 2017 and December 31, 2016; 15,148 and 9,049 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively		2			1
Treasury stock, at cost, 2 shares, at both September 30, 2017 and December 31, 2016		(97	)		(97	)
Stockholders' equity:
Series A convertible preferred stock, $0.0001 par value; 15 shares authorized at June 30, 2019 and December 31, 2018; 0 and 4 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively								—			—
Series B convertible preferred stock, $0.0001 par value; 45 shares authorized at June 30, 2019 and December 31, 2018; 0 shares issued and outstanding at June 30, 2019 and December 31, 2018								—			—
Common stock, $0.0001 par value; 200,000 shares authorized at June 30, 2019 and December 31, 2018; 47,635 issued and 47,373 outstanding at June 30, 2019 net of 262 unvested shares and 43,368 shares issued and outstanding at December 31, 2018								4			4
Treasury stock, at cost, 2 shares, at both June 30, 2019 and December 31, 2018								(97	)		(97	)
Additional paid-in capital		438,969			419,787			545,423			523,525
Shareholder note receivable		(5,000	)		(5,000	)		(5,000	)		(5,000	)
Accumulated other comprehensive income		1,125			970			1,157			1,064
Accumulated deficit		(468,514	)		(457,165	)		(527,326	)		(501,922	)
Total stockholders’ deficit		(33,515	)		(41,504	)
Total liabilities and stockholders’ deficit	$	79,773		$	94,188
Total stockholders’ equity								14,161			17,574
Total liabilities and stockholders’ equity							$	133,432		$	129,477

See accompanying notes to unaudited condensed consolidated financial statements.

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Revenues	$	23,099		$	26,711		$	75,456		$	93,158
Revenues:
Revenue from U.S. products													$	26,093		$	20,409		$	49,048		$	39,610
Revenue from international supply agreement														1,226			1,633			2,826			3,739
Total revenues														27,319			22,042			51,874			43,349
Cost of revenues		8,587			10,849			28,417			31,651			8,433			6,488			16,420			12,890
Gross profit		14,512			15,862			47,039			61,507			18,886			15,554			35,454			30,459
Operating expenses:
Research and development		1,044			1,087			3,483			6,799			3,360			2,009			6,829			3,795
Sales and marketing		10,015			11,764			31,416			39,498
General and administrative		4,403			4,136			15,977			19,416
Sales, general and administrative														24,568			17,538			45,568			34,795
Litigation-related expenses														1,200			2,234			3,823			2,814
Amortization of intangible assets		172			83			516			593			172			187			354			364
Goodwill and intangible asset impairment		—			1,736			—			1,736
Transaction-related expenses														—			(62	)		—			1,480
Gain on settlement														—			—			—			(6,168	)
Restructuring expenses		139			1,605			1,898			1,778			—			193			60			591
Gain on sale of assets		—			—			(856	)		—
Total operating expenses		15,773			20,411			52,434			69,820			29,300			22,099			56,634			37,671
Operating loss		(1,261	)		(4,549	)		(5,395	)		(8,313	)		(10,414	)		(6,545	)		(21,180	)		(7,212	)
Other income (expense):
Interest expense, net		(1,807	)		(1,123	)		(5,669	)		(3,118	)
Loss on debt extinguishment		—			(9,478	)		—			(9,478	)
Other income (expense), net		(15	)		90			(8	)		(273	)
Total other income (expense)		(1,822	)		(10,511	)		(5,677	)		(12,869	)
Total other expense, net														(1,921	)		(1,784	)		(4,040	)		(3,429	)
Loss from continuing operations before taxes		(3,083	)		(15,060	)		(11,072	)		(21,182	)		(12,335	)		(8,329	)		(25,220	)		(10,641	)
Income tax (benefit) provision		(7	)		(4,997	)		57			(4,962	)
Income tax provision (benefit)														71			(1,265	)		102			(1,723	)
Loss from continuing operations		(3,076	)		(10,063	)		(11,129	)		(16,220	)		(12,406	)		(7,064	)		(25,322	)		(8,918	)
Loss from discontinued operations, net of applicable taxes		(61	)		(3,658	)		(220	)		(9,351	)		(30	)		(12	)		(82	)		(74	)
Net loss	$	(3,137	)	$	(13,721	)	$	(11,349	)	$	(25,571	)	$	(12,436	)	$	(7,076	)	$	(25,404	)	$	(8,992	)
Net loss per share, basic and diluted:
Continuing operations	$	(0.22	)	$	(1.17	)	$	(0.98	)	$	(1.91	)	$	(0.26	)	$	(0.21	)	$	(0.55	)	$	(0.32	)
Discontinued operations	$	(0.01	)	$	(0.43	)	$	(0.02	)	$	(1.10	)	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Net loss per share, basic and diluted	$	(0.23	)	$	(1.60	)	$	(1.00	)	$	(3.01	)	$	(0.27	)	$	(0.21	)	$	(0.55	)	$	(0.32	)
Shares used in calculating basic and diluted net loss per share		13,938			8,560			11,349			8,505			46,880			34,030			45,957			27,656

See accompanying notes to unaudited condensed consolidated financial statements.

	Common stock				Series A Convertible Preferred Stock					Series B Convertible Preferred Stock					Additional paid-in			Shareholder note			Treasury			Accumulated other comprehensive			Accumulated			Total stockholders’
	Shares		Par Value		Shares			Par Value		Shares			Par Value		capital			receivable			stock			income (loss)			deficit			equity
Balance at January 1, 2018		19,857	$	2		5		$	—		—		$	—	$	436,803		$	(5,000	)	$	(97	)	$	1,093		$	(459,459	)	$	(26,658	)
Stock-based compensation		—		—		—			—		—			—		812			—			—			—			—			812
Issuance of Series B preferred stock, net of offering costs of $2.6 million		—		—		—			—		45			—		42,823			—			—			—			—			42,823
Common stock issued for conversion of Series A preferred stock		637		—		(1	)		—		—			—		—			—			—			—			—			—
Common stock issued for vesting of restricted stock awards, net of shares repurchased for tax liability		38		—		—			—		—			—		—			—			—			—			—			—
Common stock issued for warrant exercises		2,061		—		—			—		—					4,128			—			—			—			—			4,128
Issuance of common stock and warrants for the acquisition of SafeOp		2,975		—		—			—		—			—		11,468			—			—			—			—			11,468
Prepaid forward contract for the additional shares to be issued for the acquisition of SafeOp		—		—		—			—		—			—		938			—			—			—			—			938
Foreign currency translation adjustments		—		—		—			—		—			—		—			—			—			(22	)		—			(22	)
Net loss						—					—																	(1,916	)		(1,916	)
Balance at March 31, 2018		25,568		2		4			—		45			—		496,972			(5,000	)		(97	)		1,071			(461,375	)		31,573
Stock-based compensation		—		—		—			—		—			—		1,222			—			—			—			—			1,222
Conversion of Series B preferred stock		—		—		—			—		(45	)		—		(42,823	)		—			—			—			—			(42,823	)
Common stock issued for conversion of Series B preferred stock		14,349		2		—			—		—			—		42,822			—			—			—			—			42,824
Common stock issued for vesting of restricted stock awards, net of shares repurchased for tax liability		28		—		—			—		—			—		—			—			—			—			—			—
Common stock issued for warrant exercises		2,250		—		—			—		—					4,500			—			—			—			—			4,500
Issuance of common stock for the acquisition of SafeOp		116		—		—			—		—			—		364			—			—			—			—			364
Prepaid forward contract for the additional shares to be issued for the acquisition of SafeOp		—		—		—			—		—			—		(460	)		—			—			—			—			(460	)
Common stock issued for employee stock purchase plan and stock option exercises		90		—		—			—		—			—		260			—			—			—			—			260
Series B issuance costs		—		—		—			—		—			—		(174	)		—			—			—			—			(174	)
Foreign currency translation adjustments		—		—		—			—		—			—		—			—			—			10			—			10
Net loss						—					—																	(7,076	)		(7,076	)
Balance at June 30, 2018		42,401	$	4		4		$	—		—		$	—	$	502,683		$	(5,000	)	$	(97	)	$	1,081		$	(468,451	)	$	30,220

Balance at January 1, 2019	43,368	$	4	4		$	—	—	$	—	$	523,525		$	(5,000	)	$	(97	)	$	1,064	$	(501,922	)	$	17,574
Stock-based compensation	—		—	—			—	—		—		1,565			—			—			—		—			1,565
Distributor equity incentives	15		—	—			—	—		—		42			—			—			—		—			42
Common stock issued for conversion of Series A preferred stock	1,858		—	(4	)		—	—		—		—			—			—			—		—			—
Recognition of beneficial conversion feature - SafeOp Convertible Notes												242											—			242
Common stock issued for stock option exercises	8		—	—			—	—		—		14			—			—			—		—			14
Common stock issued for vesting of restricted stock awards, net of shares repurchased for tax liability	442		—	—			—	—		—		(183	)		—			—			—		—			(183	)
Issuance of common stock for acquisition of SafeOp - Milestone 2	887		—	—			—	—		—		2,889			—			—			—		—			2,889
Foreign currency translation adjustments	—		—	—			—	—		—		—			—			—			75		—			75
Net loss				—				—															(12,968	)		(12,968	)
Balance at March 31, 2019	46,578		4	—			—	—		—		528,094			(5,000	)		(97	)		1,139		(514,890	)		9,250
Stock-based compensation	—		—	—			—	—		—		2,140			—			—			—		—			2,140
Distributor equity incentives	45		—	—			—	—		—		138			—			—			—		—			138
Common stock issued for warrant exercises	255		—	—			—	—		—		723			—			—			—		—			723
Common stock issued for employee stock purchase plan and stock option exercises	278		—	—			—	—		—		664			—			—			—		—			664
Common stock issued for vesting of restricted stock awards, net of shares repurchased for tax liability	217		—	—			—	—		—		—			—			—			—		—			—
Issuance of common stock warrants	—		—	—			—	—		—		13,664			—			—			—		—			13,664
Foreign currency translation adjustments	—		—	—			—	—		—		—			—			—			18		—			18
Net loss				—				—															(12,436	)		(12,436	)
Balance at June 30, 2019	47,373	$	4	—		$	—	—	$	—	$	545,423		$	(5,000	)	$	(97	)	$	1,157	$	(527,326	)	$	14,161

	Nine Months Ended September 30,						Six Months Ended June 30,
	2017			2016			2019			2018
Operating activities:
Net loss	$	(11,349	)	$	(25,571	)	$	(25,404	)	$	(8,992	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		5,536			10,403			3,430			3,475
Stock-based compensation		1,669			1,510			3,963			1,767
Amortization of debt discount and debt issuance costs		2,107			3,320			1,033			1,090
Impairment of goodwill and intangible assets		—			1,736
Amortization of right-of-use asset								441			—
Provision for doubtful accounts		(145	)		(53	)		122			110
Provision for excess and obsolete inventory		1,640			4,488			4,123			2,212
Deferred income tax expense		(1	)		—
Gain on sale of assets		(856	)		—
Loss on disposal of instruments		1,043			—
Gain on sale of business		—			(5,361	)
Loss on extinguishment of debt		—			3,863
Other non-cash items		—			280
Deferred income tax benefit								2			(1,238	)
Gain on settlement								—			(6,168	)
Beneficial conversion feature from convertible notes								242			—
Gain (loss) on disposal of instruments								66			(285	)
Accretion to contingent consideration								289			100
Changes in operating assets and liabilities:
Restricted cash		—			2,350
Accounts receivable, net		5,354			10,658			1,330			3,346
Inventories, net		(1,294	)		(4,723	)		(7,963	)		(2,905	)
Prepaid expenses and other current assets		2,745			1,797			285			49
Other assets		297			191			126			(55	)
Other long-term assets								(2,690	)		—
Accounts payable		(3,597	)		(5,247	)		4,322			(620	)
Accrued expenses and other		(11,552	)		233			1,201			1,768
Deferred revenues		289			—
Lease liability								2,639			—
Other long-term liabilities								(2,199	)		(2,365	)
Net cash used in operating activities		(8,114	)		(126	)		(14,642	)		(8,711	)
Investing activities:
Purchases of property and equipment		(7,185	)		(7,291	)		(3,717	)		(2,387	)
Proceeds from sale of business, net		—			69,894
Cash paid for acquisition of SafeOp Surgical, Inc.								—			(14,344	)
Cash received from sale of equipment		869			1,316			—			348
Net cash (used in) provided by investing activities		(6,316	)		63,919
Net cash used in investing activities								(3,717	)		(16,383	)
Financing activities:
Proceeds from sale of common stock, net								1,401			51,538
Borrowings under lines of credit		70,547			94,241			54,220			44,500
Repayments under lines of credit		(74,056	)		(110,840	)		(54,488	)		(46,634	)
Principal payments on capital lease obligations		(353	)		(606	)		(12	)		(60	)
Proceeds from sale of stock, net		17,210			57
Proceeds from/(payments on) notes payable, net		(1,800	)		23,046
Principal payments on notes payable and term loan		(1,528	)		(53,820	)
Net cash provided by (used in) financing activities		10,020			(47,922	)
Proceeds from issuance of term debt, net								9,700			—
Principal payments on term loan								(3,045	)		(1,800	)
Net cash provided by financing activities								7,776			47,544
Effect of exchange rate changes on cash		254			(1,220	)		99			(4	)
Net (decrease) increase in cash		(4,156	)		14,651
Net increase (decrease) in cash								(10,484	)		22,446
Cash at beginning of period, including discontinued operations		19,593			11,229			29,054			22,466
Cash at end of period, including discontinued operations	$	15,437		$	25,880		$	18,570		$	44,912
Supplemental disclosure of cash flow information:
Cash paid for interest	$	3,568		$	6,122		$	2,714		$	2,282
Cash paid for income taxes	$	90		$	920		$	102		$	72
Purchases of property and equipment in accounts payable	$	2,240		$	543		$	2,221		$	531
Common stock issued for acquisition of intangible assets	$	473		$	-
Cashless warrant conversion	$	—		$	1,074
Common stock warrants issued with term loan draw							$	13,664		$	—
Common stock issued for achievement of SafeOp contingent consideration							$	2,889		$	—

See accompanying notes to unaudited condensed consolidated financial statements.

Alphatec Holdings, Inc. (the “Company”), through its wholly owned ~~subsidiary,~~subsidiaries, Alphatec Spine, Inc. ~~and its subsidiaries~~ (“Alphatec Spine”) and SafeOp Surgical, Inc. (“SafeOp”), is a medical technology company ~~focused on the design, development~~that designs, develops, and ~~promotion of~~markets spinal fusion technology products and solutions for the ~~surgical~~ treatment ~~of spine disorders. The Company has a comprehensive product portfolio and pipeline that addresses the cervical, thoracolumbar and intervertebral regions of the spine and covers a variety~~ of spinal disorders associated with disease and ~~surgical procedures.~~degeneration, congenital deformities, and trauma. The ~~Company’s principal product offerings are focused on~~Company markets its products in the U.S. ~~market~~via independent sales agents and a direct sales force.

On March 8, 2018, the Company completed its acquisition of SafeOp, a Delaware corporation, pursuant to a reverse triangular merger of SafeOp into a newly-created wholly-owned subsidiary of the Company, with SafeOp being the surviving corporation and a wholly-owned subsidiary of the Company. See Note 8 for ~~fusion-based spinal disorder solutions.~~further information.

On September 1, 2016, the Company completed the sale of its international distribution operations and agreements (collectively, the “International Business”) to Globus Medical Ireland, Ltd., a subsidiary of Globus Medical, Inc., and its affiliated entities (collectively “Globus”), including the Company’s wholly-owned subsidiaries in Japan, Brazil, Australia and Singapore and substantially all of the assets of the Company’s other sales operations in the United Kingdom and Italy (collectively, the “International Business”), pursuant to a purchase and sale agreement, dated as of July 25, 2016 (as amended, the “Purchase and Sale Agreement”) (the “Globus Transaction”). As a result of this transaction, the ~~Globus Transaction, the Company's~~ International Business has been excluded from continuing operations for all periods presented in this Quarterly Report on Form 10-Q and is reported as discontinued operations. See Note 4 for additional information on the divestiture of the International Business. The Company operates in one reportable business segment. The sale of the international operations represented a strategic shift and has a significant impact on the Company's operations and financial results.

The accompanying condensed consolidated balance sheet as of December 31, ~~2016,~~2018, which has been derived from audited financial statements, and the unaudited interim condensed consolidated financial statements have been prepared by the Company in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”) related to a quarterly report on Form 10-Q. Certain information and note disclosures normally included in annual audited financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made in this Quarterly Report on Form 10-Q are adequate to make the information not misleading. The unaudited interim ~~unaudited~~ condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the financial position and results of operations for the periods presented. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, ~~2016,~~2018, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 that was filed with the SEC on March ~~31, 2017.~~

29, 2019. Operating results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017,~~2019, or any other future periods.

On August 24, 2016, the Company filed a certificate of amendment to its certificate of incorporation with the Secretary of State of the state of Delaware to effectuate a 1-for-12 reverse stock split of the Company’s issued and outstanding common stock. Liquidity

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and ~~notes thereto give retrospective effect to~~do not include any adjustments that might result from the ~~reverse stock split for all periods presented. All issued~~outcome of this uncertainty. A going concern basis of accounting contemplates the recovery of the Company’s assets and ~~outstanding common stock, options exercisable for common stock, warrants exercisable for common stock, restricted stock units, and per share amounts contained~~the satisfaction of its liabilities in the ~~Company’s condensed consolidated financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented.~~

~~As a result~~normal course of the sale of the International Business, the Company has retrospectively revised the condensed consolidated statements of operations for the three and nine months ended September 30, 2016, to reflect the financial results from the International Business, and the related assets and liabilities, as discontinued operations.business.

The Company’s annual operating plan projects that its existing working capital at ~~September~~June 30, ~~2017~~2019 of ~~$32.0~~$44.9 million (including cash of ~~$15.4~~$18.6 million) ~~plus committed financing proceeds and borrowings under~~along with the ~~Company’s existing MidCap revolving credit facility~~use of the Expanded Credit Facility with Squadron Medical Finance Solutions LLC (“Squadron”) of the remaining $20.0 million that closed on March 27, 2019 allows the Company to fund its operations through at least one year subsequent to the date the financial statements are issued.

The Company has incurred significant net losses since inception and has relied on its ability to fund its operations through revenues from the sale of its products, equity financings and debt financings. As the Company has historically incurred losses, successful transition to profitability is dependent upon achieving a level of revenues adequate to support the Company’s cost structure. This may not occur and, unless and until it does, the Company will continue to need to raise additional capital. Operating losses and negative cash flows may continue for at least the next year as the Company continues to incur costs related to the execution of its operating plan and introduction of new products. The Company’s inability to raise additional capital from outside sources will have a material adverse impact on its operations.

As more fully described in Note 5, the ~~Company is a party to~~Company’s debt agreements ~~with MidCap Funding IV, LLC and Globus International (the “Debt Agreements”). The Debt Agreements~~ include traditional lending and reporting covenants, including a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio beginning in April ~~2018.~~2020 and a minimum liquidity covenant of $5.0 million effective through March 2020. Should at any time the Company fail to maintain compliance with ~~this covenant,~~these covenants, the Company will need to seek waivers or amendments to the ~~Debt Agreements.~~debt agreements. If the Company is unable to secure such waivers or amendments, it may be required to classify its obligations under the ~~Debt Agreements~~debt agreements in current liabilities on its consolidated balance sheet. The Company may also be required to repay all or a portion of outstanding indebtedness under the ~~Debt Agreements,~~debt agreements, which would require the Company to obtain further financing. There is no assurance that the Company will be able to obtain further financing, or do so on reasonable terms.

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. A going concern basis of accounting contemplates the recovery of the Company’s assets and the satisfaction of its liabilities in the normal course of business.

Certain amounts in the condensed consolidated ~~financial statements included in our Form 10-Q~~statement of operations for the ~~nine~~three and six months ended ~~September~~June 30, ~~2016~~2018 have been reclassified to conform to the current period's presentation. ~~Reclassifications between~~These reclassifications include the depreciation expense for surgical instruments, which was reclassified, to be consistent with industry practice, out of cost of revenues and into sales, general and administrative expense on the Company’s consolidated statements of operations. This resulted in a reclassification of $1.3 million and ~~amortization~~$2.6 million of ~~intangible assets~~depreciation expense for the three and six months ended June 30, 2018, respectively. In addition, general and administrative expense for 2018 was combined into a single line item with sales and marketing expense for a new expense line titled “Sales, general and administrative expense” and litigation-related expenses primarily pertaining to the ongoing litigation with NuVasive, Inc. were ~~made to improve~~classified out of selling, general and administrative expense on the ~~comparability~~Company’s consolidated statement of operations for the ~~statements.~~three and six months ended June 30, 2018 and onto its own expense line item. None of the adjustments had any effect on the prior period net loss.

The Company’s significant accounting policies are described in Note 2 to its audited consolidated financial statements for the year ended December 31, ~~2016,~~2018, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March ~~31, 2017.~~29, 2019. Except as discussed below, these accounting policies have not ~~significantly~~ changed during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017.~~2019.

Effective January 1, 2019, the Company adopted ASC No. 2016‑02, Leases (Topic 842) (“ASU 2016‑02” or “ASC 842”), which supersedes the current accounting for leases, using the modified retrospective transition method. The Company has elected to apply the practical expedients allowed by the standard for existing leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right-of-use (“ROU”)asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. The Company determines the initial classification and measurement of its ROU asset and lease liabilities at the lease commencement date and thereafter, if modified. The Company recognizes a ROU asset for its operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the incremental borrowing rate for operating leases determined by using the incremental borrowing rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment. The Company applied the new guidance to its existing facility lease at the time of adoption and recognized a ROU asset of $2.4 million and operating lease liability of $2.9 million as of March 31, 2019, the initial period of adoption, and removed the previous deferred rent balance under the previous lease guidance of approximately $0.6 million.

Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in research and development and general and administrative expenses in the statements of operations.

In March 2019, the Company’s Convertible Note outstanding reached maturity and allowed for the noteholders to elect settlement in cash or shares of common stock. As the Convertible Note provided the holders the benefit to convert to shares of common stock, a beneficial conversion feature (“BCF”) with a calculated intrinsic fair value at issuance of $0.2 million existed as of the date the Convertible Note was able to be converted into shares of common stock. Although the holders elected for cash settlement, the BCF was required to be recognized as interest expense on the Company’s consolidated statement of operations and within additional paid-in-capital within the Company’s condensed consolidated statement of stockholders’ equity for the six months ended June 30, 2019.

The carrying amount of financial instruments consisting of cash, restricted cash, trade accounts receivable, prepaid expenses and other current assets, accounts payable, accrued expenses, accrued compensation and current portion of long-term debt included in ~~Note 10,~~the Company’s consolidated financial statements are reasonable estimates of fair value due to their short maturities. Based on the borrowing rates currently available to the Company for loans with similar terms, management believes the fair value of long-term debt approximates its carrying value.

Authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

The Company does not maintain any financial assets that are considered to be Level 1, Level 2 or Level 3 instruments as of June 30, 2019. The fair value of the contingent consideration liability assumed in the SafeOp acquisition was recorded as part of the purchase price consideration of the acquisition. The contingent consideration related to the SafeOp acquisition was classified within Level 3 of the fair value hierarchy as the Company was using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving each of the potential milestones and an estimated discount rate related to the risks of the expected cash flows attributable to the milestones. All the contingent milestones were achieved as of June 30, 2019. During the three months ended June 30, 2019, the Company issued ~~warrants~~a liability classified equity award to ~~purchase~~one of its executive officers. The award will be earned over a 4 year vesting period and upon a specific market condition. As the award will be cash settled, it is classified as a liability within Level 3 of the fair value hierarchy as the Company is using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving the specified market condition.

The following table provides a reconciliation of liabilities measured at fair value using significant unobservable inputs (Level 3) for the six months ended June 30, 2019 (in thousands):

During the six months ended June 30, 2019, the Company achieved the second of the two milestones which was settled through the issuance of 886,843 shares of the Company’s common ~~stock in connection with a private placement transaction that closed on March 29, 2017. These warrants contain a feature that could require the transfer of cash~~ in the event of a Fundamental Transaction, as defined in such warrants (other than a Fundamental Transaction not approved by the Company’s Board of Directors). As of September 30, 2017, the warrant holders did not control the Company’s Board of Directors, and therefore, ~~since potential future cash settlement was deemed to be within~~ ~~the Company’s control, the warrants~~ ~~were classified in stockholder’s equity in accordance with the authoritative accounting guidance.~~stock. See Note 8 for further information.

In ~~May 2014,~~February 2016, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance related to revenue recognition. This new standard replaces all current U.S. GAAP guidance on this topic and eliminates all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance, including all subsequent clarifications, is effective for the Company for annual and interim reporting periods in fiscal years beginning after December 15, 2017 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company performed a preliminary assessment of the impact of the new standard on the consolidated financial statements, and considered all items outlined in the standard. In assessing the impact, the Company has outlined all revenue generating activities, mapped those activities to performance obligations and traced those performance obligations to the standard. The Company is now assessing what impact the change

in standard will have on those performance obligations. The Company will continue to evaluate the future impact and method of adoption of the new standard and related amendments on the consolidated financial statements and related disclosures throughout 2017. The Company will adopt the new standard beginning January 1, 2018.

In July 2015, the FASB issued new accounting guidance, which changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value for entities that do not measure inventory using the last-in, first-out or retail inventory method. The guidance also eliminates the requirement for these entities to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. The guidance was effective for the Company for annual and interim reporting periods in fiscal years beginning after December 15, 2016. The adoption, effective January 1, 2017, did not have a material impact on the Company’s condensed consolidated financial statements.

~~In February 2016, the FASB issued new accounting guidance,~~Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which changes several aspects of the accounting for leases, including the requirement that all leases with durations greater than twelve months be recognized on the balance sheet. The guidance is effective for annual and interim reporting periods in fiscal years beginning after December 15, 2018. The Company ~~is evaluating~~adopted the guidance effective January 1, 2019 and elected the optional transition method to account for the impact of ~~adopting this new accounting standard on its financial statements.~~

~~In March 2016,~~ the ~~FASB issued new accounting guidance, which changes several aspects~~adoption with a cumulative-effect adjustment in the period of ~~the accounting for share-based payment award transactions, including accounting~~adoption and cash flow classification for excess tax benefits and deficiencies, forfeitures, and tax withholding requirements and cash flow classification. The guidance is effective for annual and interim reporting periods in fiscal years beginning after December 15, 2016. The Company adopted the standard for reporting periods beginning January 1, 2017.did not restate prior periods. The Company elected ~~to keep its policy consistent for~~certain practical expedients permitted under the ~~application~~transition guidance. As part of the adoption, the Company recorded a ~~forfeiture rate~~ROU asset and ~~therefore, the~~liability upon adoption of the guidance ~~did not have a material impact on~~pertaining to its ~~unaudited condensed financial statements.~~long-term real estate lease for its corporate facilities. No cumulative-effect adjustment was needed.

In August 2016, the FASB issued new accounting guidance, which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. The guidance is effective for annual and interim reporting periods in fiscal years beginning after December 15, 2017, with early adoption permitted. The amendments in this update should be applied retrospectively to all periods presented, unless deemed impracticable, in which case, prospective application is permitted. The Company is evaluating the new guidance and has not determined the impact this standards update may have on its financial statements.Recently Issued Accounting Pronouncements

In January 2017, the FASB issued ~~new accounting guidance,~~ASU 2017-04, Intangibles – Goodwill and Other, which ~~was created~~eliminates the requirement to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance provides a screen to determine whether an integrated set of assets and activities is a business. The screen requires that when substantially all ofcalculate the implied fair value of ~~the gross assets acquired (or disposed of) is concentrated in~~goodwill to measure a single identifiable asset or a group of similar identifiable assets, the set is not a business. The guidance is effective for annual and interim reporting periods in fiscal years beginning after December 15, 2017. The Company does not anticipate this standard to havegoodwill impairment charge. Instead, entities will record an ~~impact~~impairment charge based on the ~~Company’s consolidated financial statements unless a transaction occurs that would need to be evaluated under this guidance at which time the Company will assess the impact of this standard.~~

~~In May 2017, the FASB recently issued~~ ~~ASU 2017-09,~~ ~~Compensation-Stock Compensation, to provide clarity and reduce both 1) diversity in practice and 2) cost and complexity when applying the guidance in Topic 718 to a change in the terms or conditions~~excess of a ~~share-based payment award. ASU 2017-09 provides guidance about which changes to~~reporting unit’s carrying amount over its fair value. The standard has tiered effective dates, starting in 2020 for calendar-year public business entities that meet the ~~terms or conditions~~definition of ~~a share-based payment award require~~ an ~~entity to apply modification accounting under Topic 718. The amendments in ASU 2017-09 are effective for fiscal and interim reporting periods in fiscal years beginning after December 15, 2017.~~SEC filer. Early adoption is permitted ~~including adoption~~for annual and

interim goodwill impairment testing dates after January 1, 2017. The Company is in ~~any interim period. The amendments in ASU 2017-09 should be applied prospectively to an award modified on or after~~the process of determining the impacts the adoption ~~date.~~ ~~The Company does not anticipate that the adoption of ASU 2017-09~~ will have ~~a material impact~~ on its consolidated financial statements ~~unless a transaction occurs that would need~~as well as whether to ~~be evaluated under this guidance at which time~~early adopt the ~~Company will assess the impact of this standard.~~

~~In July 2017, the FASB issued ASU 2017-11,~~ Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Non-controlling Interests with a Scope Exception. The ASU allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted classified as liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round,

when triggered, as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company does not anticipate that the adoption of ASU 2017-11 will have a material impact on its consolidated financial statements unless a transaction occurs that would need to be evaluated under this guidance at which time the Company will assess the impact of this standard.new guidance.

Property and equipment, net consist of the following (in thousands except as indicated):

Total depreciation expense was ~~$1.6~~$1.5 million ~~and $1.6 million~~ for both the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 and ~~$4.8~~$3.1 million and ~~$5.6~~$3.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016,~~2018, respectively. At ~~September~~both June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, assets recorded under capital leases of ~~$2.1~~$0.1 million were included in the machinery and equipment balance. Amortization of assets under capital leases is included in depreciation expense.

Intangible assets, net consist of the following (in thousands, except ~~for useful lives)~~as indicated):

Total amortization expense was $0.2 million and ~~$0.3~~$0.1 million for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018, respectively and ~~$0.7 million and $0.9~~$0.4 million for both the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016, respectively.~~2018.

Developed technology and in process research and development intangibles are expected to begin amortizing when the relevant products reach full commercial launch. Future amortization expense related to intangible assets as of ~~September~~June 30, ~~2017~~2019 is as follows (in thousands):

As a result of the Globus Transaction, the Company has retrospectively revised the condensed consolidated statements of operations for the three and nine month periods ended September 30, 2016 to reflect the financial results from the International Business as discontinued operations.

At the closing of the Globus Transaction, Globus paid the Company $80 million in cash, subject to a working capital adjustment. On September 1, 2016, the Company used approximately $66 million of the consideration received to (i) repay in full all amounts outstanding and due under the Company’s Facility Agreement between the Company and Deerfield Private Design Fund II, L.P., Deerfield Private Design International II, L.P., Deerfield Special Situations Fund, L.P. and Deerfield Special Situations International Master Fund, L.P., dated as of March 17, 2014, as amended to date (the “Deerfield Facility Agreement”) and (ii) repay certain of its outstanding indebtedness under the Company’s credit facility, as amended to date (the “Amended Credit Facility”) with MidCap Funding IV, LLC (“MidCap”) (described in Note 5), in each case, including debt-related costs. Also on September 1, 2016, the Company entered into a five-year term credit, security and guaranty agreement with Globus (the “Globus Facility Agreement”), as further described in Note 5, pursuant to which Globus agreed to loan the Company up to $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement.

~~The following table summarizes the calculation of the gain on sale (in thousands). The Company recorded an adjustment of $104,000 to the preliminary purchase price accounting during November 2016.~~

The results of operations from discontinued operations presented below include certain allocations that management believes fairly reflect the utilization of services provided to the International Business. The allocations do not include amounts related to general corporate administrative expenses. Therefore, the results of operations from the International Business do not necessarily reflect what the results of operations would have been had the International Business operated as a stand-alone entity.

In connection with the ~~Globus Transaction,~~sale of the International Business, the Company entered into a product manufacture and supply agreement (the “Supply Agreement”) with Globus, pursuant to which the Company ~~agreed to supply~~supplies to Globus certain of its implants and instruments (the “Products”), previously offered for sale by the Company in international markets at agreed-upon prices for a

minimum term of three years, with the option for Globus to extend the term for up to two additional twelve month periods subject to Globus meeting specified purchase requirements. During the first quarter of 2019, Globus notified the Company that it will exercise the option to extend the agreement an additional twelve months through August 2020. In accordance with authoritative guidance, ~~certain intercompany~~ sales ~~transactions have been~~to Globus are reported under continuing operations as the Company ~~will have~~has continuing involvement ~~due to future sales to Globus~~ under the Supply Agreement. ~~In connection with the Globus Transaction, Globus received a credit~~

The Company recorded $1.2 million in revenue and $1.2 million in cost of ~~up to $1.9 million to be applied against Product purchases pursuant to~~revenue from the Supply Agreement ~~during a six-month period commencing one month after the closing of the Globus Transaction, which has been included as a reduction of the consideration received~~in continuing operations for the ~~sale~~three months ended June 30, 2019, and $2.8 million in revenue and $2.6 million in cost of revenue for the ~~International Business and has been recognized as revenue.~~

six months ended June 30, 2019. Included in the results of continuing operations for the three months ended ~~September~~June 30, 2016 are revenues of $1.4 million and cost of revenue of $1.8 million and for the nine months ended September 30, 2016 revenues of $8.9 million and cost of revenue of $8.9 million that represent intercompany transactions that, prior to the Globus Transaction, were eliminated in the Company's condensed consolidated financial statements.

~~During the three months ended September 30, 2017, the Company recorded $2.3~~2018 is $1.6 million in revenue and ~~$2.0~~$1.5 million in cost of revenue from the Supply Agreement ~~in continuing operations. During the nine months ended September 30, 2017, the Company recorded $9.1~~and $3.7 million in revenue and ~~$7.8~~$3.5 million in cost of revenue ~~from the Supply Agreement in continuing operations.~~

~~In connection with the Globus Transaction, the Company included the interest expense of $2.2 million and $7.2 million~~ for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016, respectively, incurred in connection with repayment from the proceeds from the Globus Transaction of all amounts outstanding~~2018. Sales, general and ~~due under the Deerfield Facility Agreement and Amended Credit Facility in the loss from~~administrative expense pertaining to discontinued operations toon the ~~extent these debt facilities were repaid using the proceeds from the Globus Transaction.~~

~~The following table summarizes the results of discontinued operations for the periods presented in the~~Company’s condensed consolidated statements of operations ~~and comprehensive loss~~were immaterial for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 and ~~2016 (in thousands):~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

Discontinued operations

2017

2016

2017

2016

Revenues

$
—

$
18,043

$
—

$
40,146

Cost of revenues

—

11,469

—

19,694

Amortization of acquired intangible assets

—

555

—

1,291

Gross profit

—

6,019

—

19,161

Operating expenses:

Research and development

—

16

—

50

Sales and marketing

—

2,865

—

12,391

General and administrative

16

1,440

157

5,079

Amortization of acquired intangible assets

—

155

—

622

Restructuring expenses

—

4

—

620

Net gain on sale of business

—

(5,361
)

—

(5,361
)
Total operating expenses

16

(881
)

157

13,401

Operating loss

(16
)

6,900

(157
)

5,760

Other income (expense):

Interest expense, net

—

(2,144
)

—

(7,194
)
Other income, net

—

243

—

1,892

Total other income (expense)

—

(1,901
)

—

(5,302
)
Loss from discontinued operations before taxes

(16
)

4,999

(157
)

458

Income tax provision

45

8,657

63

9,809

Loss from discontinued operations, net of applicable taxes

$
(61
)

$
(3,658
)

$
(220
)

$
(9,351
)

~~The following table summarizes the assets and liabilities of discontinued operations as of September 30, 2017 and December 31, 2016 related to the International Business (in thousands):~~

~~Included in the cash flows for the nine months ended September 30, 2017 and 2016 are the following non-cash adjustments related to the discontinued operations (in thousands):~~

The Company’s Amended Credit Facility with MidCap provides for a revolving credit commitment up to $22.5 million and provided for a term loan commitment up to $5 million. As of ~~September~~June 30, ~~2017, $9.2~~2019, $10.7 million was outstanding under the revolving line of ~~credit and $2.9 million was~~credit. The principal balance outstanding under the ~~term loan.~~revolving line of credit is due in December 2022.

~~The term loan~~Amounts outstanding under the revolving line of credit accrue interest ~~rate is priced~~ at the London Interbank Offered Rate ~~("LIBOR"~~ (“LIBOR”) ~~plus 8.0%, subject to a 9.5% floor, and the revolving line of credit interest rate remains priced at LIBOR~~ plus 6.0%, reset monthly. At ~~September~~June 30, ~~2017,~~2019, the revolving line of credit carried an interest rate of ~~7.24% and the term loan carried an~~8.44%, with interest ~~rate of 9.5%.~~payable monthly. The borrowing base is determined ~~from time to time,~~ based on the value of domestic eligible accounts receivable. As collateral for the Amended Credit Facility, ~~the Company granted~~ MidCap has a first lien security interest in accounts receivable and a second lien on substantially all of its assets, including all accounts receivable and all securities evidencing its interests in its subsidiaries. In addition to monthly payments of interest, monthly repayments of $0.2 million in 2017 and $0.3 million in 2018 are due through the maturity date in August 2018, with the remaining principal due on the maturity date. other assets.

At ~~September~~June 30, ~~2017, $1.4~~2019, $1.1 million remains as an unamortized debt discount related to the Amended Credit Facility ~~within~~on the condensed consolidated balance sheet, which will be amortized over the remaining term of the Amended Credit Facility.

On ~~March 30, 2017,~~November 6, 2018, the Company ~~entered~~closed a $35 million Term Loan with Squadron, a provider of debt financing to growing companies in the orthopedic industry. Net proceeds of approximately $34.1 million were used to retire the Company’s existing $29.2 million term debt with Globus, with the remainder of the proceeds used for general corporate purposes.

The debt has a five-year maturity and bears interest at LIBOR plus 8% (10.5% as of June 30, 2019) per annum. The credit agreement specifies a minimum interest rate of 10% and a maximum of 13% per year. Interest-only payments are due monthly through May 2021, followed by $10 million in principal payable in 29 equal monthly installments beginning June 2021 and a lump-sum payment payable at maturity in November 2023. As collateral for the Term Loan, Squadron has a first lien security interest in substantially all assets except for accounts receivable.

In connection with the financing, the Company issued initial warrants to Squadron to purchase 845,000 shares of common stock at an exercise price of $3.15 per share. The warrants have a seven-year term and are immediately exercisable.

In March 2019, the Company closed on an expanded credit facility with Squadron for up to $30 million in additional secured financing. This additional financing has been made available under the Company’s existing credit facility with Squadron. The Company accounted for the amendment as a debt modification with continued amortization of the existing and inclusion of the new debt issuance costs of $0.3 million amortized into interest expense utilizing the effective interest rate method. The Company took a ~~sixth amendment~~draw of $10.0 million of the expanded credit facility in June 2019 to be used for general corporate purposes. The additional borrowings under the credit facility will mature concurrent with the current secured financing from Squadron and bear interest at the same rate and subject to the ~~Amended Credit Facility~~same 10% floor and 13% ceiling. Interest-only payments are due monthly through May 2021, followed by principal payable in 29 equal monthly installments beginning June 2021 and a lump-sum payment payable at maturity in November 2023. In conjunction with ~~MidCap (the “Sixth Amendment”). The Sixth Amendment extends~~ the ~~date that~~first draw under the ~~financial covenants~~expanded credit facility, the Company issued to Squadron warrants to purchase 4,838,710 shares of the ~~Amended Credit Facility~~Company’s common stock at an exercise price of $2.17 per share. The warrants have a seven-year term and are immediately exercisable. The warrants were valued utilizing the Monte-Carlo simulation model as described further in Note 10 and are recorded within equity in accordance with authoritative accounting guidance and with a proportional amount, calculated by taking the draw amount divided by the total expanded credit facility, recorded as a debt discount. The total debt discount will be amortized into interest expense through maturity of the debt utilizing the effective ~~from April 2017~~interest rate method. No additional warrants will be issued upon any future draws. The value of the additional warrants issued that are allocated to ~~April 2018.~~the remaining balance available for draw on the expanded credit facility were recorded as a deferred cost asset within prepaid and other assets on the consolidated balance sheet as of June 30, 2019 and are being amortized into interest expense on a ratable basis over the term of the debt.

As of June 30, 2019, the debt is recorded at its carrying value of $37.9 million, net of issuance costs of $7.1 million, including all amounts paid to third parties to secure the debt and the fair value of the warrants issued. The debt issuance costs are being amortized into interest expense over the five-year term utilizing the effective interest rate method. The total principal outstanding under the Term Loan as of June 30, 2019 is $45.0 million.

The ~~Amended Credit Facility includes traditional lending~~Company has an Inventory Financing Agreement with a key inventory and ~~reporting covenants including~~instrument components supplier whereby the Company may draw up to $3.0 million for the purchase of inventory to accrue interest at a ~~fixed charge coverage ratio~~rate of LIBOR plus 8% subject to the same 10% floor and 13% ceiling. All principal will become due and payable upon maturity on November 6, 2023 and all interest will be ~~maintained by~~paid monthly. The obligation outstanding under the ~~Company.~~ Inventory Financing Agreement as of June 30, 2019 was $1.8 million.

Principal payments remaining on the Company's debt were as follows as of June 30, 2019 (in thousands):

The ~~Amended Credit Facility also includes~~Company’s various credit agreements include several event of default provisions, such as payment default, insolvency conditions and a material adverse effect clause, which could cause interest to be charged at a rate which is up to five percentage points above the rate effective immediately before the event of default or result in ~~MidCap’s~~the lenders’ right to declare all outstanding obligations immediately due and payable. ~~There is no assurance that~~Furthermore, the ~~Company~~credit agreements contain various covenants, including monthly compliance certifications and compliance with government regulations and maintenance of insurance, and prohibitions against certain specified actions, including acquiring any new equipment financings over a specified amount. The credit agreements also contain various negative covenants including a $5 million minimum liquidity requirement through March 31, 2020. The minimum liquidity covenant will be replaced by a fixed charge ratio, pursuant to which operating cash to fixed charges (as defined) must equal at least 1:1 on a

rolling 12-month basis, beginning April 2020. The Company was in compliance with the ~~financial~~ covenants ~~of the Amended Credit Facility in the future.~~

On September 1, 2016, the Company and Globus entered into the Globus Facility Agreement, pursuant to which Globus agreed to loan the Company up to $30 million, subject to the terms and conditions set forth in the Globus Facility Agreement. At the closing of the Globus Transaction, the Company made an initial draw of $25 million under the ~~Globus Facility Agreement with an additional draw of $5 million made in the fourth quarter of 2016. As of September~~credit agreement at June 30, 2017, the outstanding balance under the Globus Facility Agreement was $30.0 million, which becomes due and payable in quarterly payments of $0.8 million starting in September 2018, with a final payment of the remaining amount outstanding due on September 1, 2021. The term loan interest rate is priced at LIBOR plus 8.0% through September 1, 2018, and LIBOR plus 13.0%, thereafter. At September 30, 2017, unamortized debt discount related to the Globus Facility Agreement within the condensed consolidated balance sheet was $0.9 million.

As collateral for the Globus Facility Agreement, the Company granted Globus a first lien security interest in substantially all of its assets, other than accounts receivable and related assets, which secures the Globus Facility Agreement on a second lien basis. The Globus Facility Agreement includes traditional lending and reporting covenants including a fixed charge coverage ratio to be maintained by the Company. The financial covenants of the Globus Facility Agreement are not

effective until April 2018. There is no assurance that the Company will be in compliance with the financial covenants of the Globus Facility Agreement in the future. The Globus Facility Agreement also includes several event of default provisions, such as payment default, insolvency conditions and a material adverse effect clause, which could cause interest to be charged at a rate which is up to five percentage points above the rate effective immediately before the event of default or result in Globus’s right to declare all outstanding obligations immediately due and payable.

~~Principal payments on the Company's debt are as follows as of September 30, 2017 (in thousands):~~

The Company ~~leases certain~~has one outstanding capital lease arrangement for the lease of equipment ~~under capital leases which expire on various dates through 2017.~~as of June 30, 2019 that matures in 2022. The ~~leases bear~~lease bears interest at ~~rates ranging from 7.6% to 9.6%~~a rate of 6.40% per annum, ~~are generally~~is due in monthly principal and interest installments and ~~are~~is collateralized by the related equipment. The total capital lease commitment outstanding as of June 30, 2019 and December 31, 2018 was $0.1 million in both periods.

The Company ~~also~~ leases its buildings and certain equipment ~~and vehicles~~ under operating leases which expire on various dates through 2021. Upon the Company’s adoption of ASC 842 as of January 1, 2019, the Company recognized a ROU asset and lease liability for its building lease, assuming a 10.5% discount rate. Any short-term leases defined as 12 months or less or month-to-month leases were excluded and continue to be expensed each month. Total costs associated with these leases for the three and six months ended June 30, 2019 was immaterial.

The Company determines if an arrangement is a lease at inception. The Company has operating leases for its buildings and certain equipment with lease terms of one year to 5.5 years, some of which include options to extend and/or terminate the lease. The exercise of lease renewal options is at the Company’s sole discretion and were not included in the calculation of the Company’s lease liability as the Company is not able to determine without uncertainty if the renewal option will be exercised. The depreciable life of assets and leasehold improvements are limited to the expected term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do not contain any variable lease payments, residual value guarantees or any restrictive covenants.

The Company’s ROU asset represents the right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease or the ASC 842 adoption date, whichever is later, based on the present value of lease payments over the lease term. When readily determinable, the Company uses the implicit rate in determining the present value of lease payments, or 10.5% as of the adoption date. When leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date or adoption date, including the lease term. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Future minimum annual lease payments under such leases are as follows as of ~~September~~June 30, ~~2017~~2019 (in thousands):

As of June 30, 2019, the Company’s remaining lease term is 2.0 years. Rent expense under operating leases for the three months ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 was $0.4 million for both periods and $0.7 million and $0.6 million for the six months ended June 30, 2019 and 2018, respectively. The Company paid $0.3 million and ~~$1.0~~$0.7 million ~~respectively, and~~ of cash payments related to its operating lease agreement for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 and 2016 was $0.9 million and $2.0 million,~~2019, respectively. In June 2017, we received a cash payment from a landlord for tenant improvements in the amount of $0.5 million, which is amortized through the remainder of the lease term as an offset to rent expenses.

The Company is and may become involved in various legal proceedings arising from its business activities. While ~~the Company has no~~management is not aware of any litigation matter that in and of itself would have a material ~~accruals for pending litigation or claims for which accrual amounts are not disclosed in~~adverse impact on the Company’s consolidated results of operations, cash flows or financial ~~statements,~~position, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect the Company’s future consolidated results of operations, cash flows or

financial position in a particular period. The Company assesses contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in the ~~Company's~~Company’s consolidated financial statements. An estimated loss contingency is accrued in the Company’s consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against the Company may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of the Company’s potential liability.

On February 13, 2018, NuVasive, Inc. filed suit against the Company in the United States District Court for the Southern District of California, alleging that certain of the Company’s products (including components of the Battalion™ Lateral System), infringe, or contribute to the infringement of, U.S. Patent Nos. 7,819,801, 8,355,780, 8,439,832, 8,753,270, 9,833,227 (entitled “Surgical access system and related methods”), U.S. Patent No. 8,361,156 (entitled “Systems and methods for spinal fusion”), and U.S. Design Patent Nos. D652,519 (“Dilator”) and D750,252 (“Intervertebral Implant”). NuVasive is seeking unspecified monetary damages and a court injunction against future infringement by the Company.

On March 8, 2018, the Company moved to dismiss NuVasive’s claims of infringement of its design patents on the grounds that those allegations fail to state a cognizable legal claim. On May 14, 2018, the Court ruled that NuVasive had failed to state a plausible claim for infringement of the asserted design patents and granted the Company’s motion to dismiss those claims with prejudice, as any further amendment would be futile. The Company filed its answer, affirmative defenses and counterclaims to NuVasive’s remaining claims on May 21, 2018.

On March 26, 2018, NuVasive moved for a preliminary injunction, which, on March 27, 2018, the Court denied without prejudice for failure to comply with the Court’s chambers rules. On April 5, 2018, NuVasive again moved for a preliminary injunction. The Court held a hearing on the matter, having been fully briefed, on June 21, 2018. On July 10, 2018, the Court ruled that NuVasive had failed to establish either likelihood of success on the merits of its remaining claims or that it would suffer irreparable harm in the absence of a preliminary injunction. Accordingly, the Court denied NuVasive’s motion for preliminary injunction.

On September 13, 2018, NuVasive filed an Amended Complaint for Patent Infringement, asserting additional infringement claims of U.S. Patent Nos. 9,924,859, 9,974,531 and 8,187,334. The Company filed its answer, affirmative defenses and counterclaims to NuVasive’s claims on October 12, 2018. On October 26, 2018, NuVasive moved to dismiss the Company’s counterclaims that NuVasive intentionally had misled the U.S. Patent and Trademark Office as a means of obtaining certain patents asserted against the Company. On January 30, 2019, the Court denied NuVasive’s motion as to all but one of the Company’s counterclaims. The Court granted NuVasive’s motion with respect to one counterclaim, but granted the Company leave to amend its counterclaim to cure the dismissal. The Company amended that counterclaim on February 14, 2019. On February 28, 2019, NuVasive moved to dismiss the amended counterclaim. On March 29, 2019, the Court denied NuVasive’s motion. NuVasive filed its Answer to the amended counterclaim on April 12, 2019.

On December 13, 2018, the Company filed a petition with the Patent Trial and Appeal Board (“PTAB”) challenging the validity of certain claims of U.S. Patent No. 8,361,156. On December 21, 2018, the Company filed a similar petition with PTAB challenging the validity of certain claims of U.S. Patent No. 8,187,334. On February 6, 2019, upon joint motion of the parties, the Court stayed all proceedings in this matter, except as noted above, pending PTAB’s determination of whether to institute inter partes review of the asserted claims of the two patents at issue and vacated the trial date. On July 9, 2019, PTAB instituted inter partes review of the validity of asserted claims of the two patents at issue. The Company expects PTAB to issue its final decisions regarding the validity of these claims in the second half of 2020. On July 16, 2019, the parties submitted a joint statement to the Court regarding PTAB’s decisions and the parties’ respective recommendations regarding the current stay of proceedings. The Court has not yet ruled on continuation of the stay of proceedings.

The Company believes that the allegations lack merit and intends to vigorously defend all claims asserted. It is impossible at this time to assess whether the outcome of this proceeding will have a material adverse effect on the Company’s consolidated results of operations, cash flows or financial position. Therefore, in accordance with authoritative accounting guidance, the Company has not recorded any accrual for a contingent liability associated with this legal proceeding based on its belief that a liability, while possible, is not probable and any range of potential future charge cannot be reasonably estimated at this time.

In the normal course of business, the Company enters into agreements under which it occasionally indemnifies third-parties for intellectual property infringement claims or claims arising from breaches of representations or warranties. In addition, from time to time, the Company provides indemnity protection to third-parties for claims relating to past performance arising from undisclosed

liabilities, product liabilities, environmental obligations, representations and warranties, and other claims. In these agreements, the scope and amount of remedy, or the period in which claims can be made, may be limited. It is not possible to determine the maximum potential amount of future payments, if any, due under these indemnities due to the conditional nature of the obligations and the unique facts and circumstances involved in each agreement.

In October 2017, NuVasive filed a lawsuit in Delaware Chancery Court against Mr. Miles, the Company’s Chairman and CEO, who was a former officer and board member of NuVasive. The Company itself was not initially a named defendant in this lawsuit; however, on June 28, 2018, NuVasive amended its complaint to add the Company as a defendant. As of June 30, 2019, the Company has not recorded any liability on the consolidated balance sheet related to this matter. On October 12, 2018, the Delaware Court ordered that NuVasive begin advancing a portion of the legal fees for Mr. Miles’ defense in the lawsuit, as well as Mr. Miles’ legal fees incurred in pursuing advancement of his fees, pursuant to an indemnification agreement between NuVasive and Mr. Miles.

The Company has entered into various intellectual property agreements requiring the payment of royalties based on the sale of products that utilize such intellectual property. These royalties primarily relate to products sold by Alphatec Spine and are based on fixed fees or calculated either as a percentage of net sales or ~~in one instance~~ on a per-unit sold basis. Royalties are included on the accompanying ~~condensed~~ consolidated ~~statement~~statements of operations as a component of cost of revenues. As of June 30, 2019, the Company is obligated to pay guaranteed minimum royalty payments under these agreements of approximately $5.7 million through 2023 and beyond.

On September 26, 2014, the Company entered into a Settlement and Release Agreement, dated as of August 13, 2014, by and among the Company and its direct subsidiaries, including Alphatec Spine, Inc., Alphatec Holdings International C.V., Scient'x S.A.S. and Surgiview S.A.S.; HealthpointCapital, LLC, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., John H. Foster and Mortimer Berkowitz III; and Orthotec, LLC and Patrick Bertranou, (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay Orthotec, LLC $49.0 million in cash, including initial cash payments totaling $1.75 million, which the Company previously paid in March 2014, and an additional lump sum payment of $15.75 million, which the Company previously paid in April 2014. The Company agreed to pay the remaining $31.5 million in 28 quarterly installments of $1.1 million and one additional quarterly installment of $0.7 million, commencing October 1, 2014. The payments set forth above are guaranteed by Stipulated Judgments held against the Company, HealthpointCapital Partners, L.P., HealthpointCapital Partners II, L.P., HealthpointCapital, LLC, John H. Foster and Mortimer Berkowitz III and, in the event of a default, will be entered and enforced against these entities and/or individuals in that order. In September 2014, the Company and HealthpointCapital entered into an agreement for joint payment of settlement whereby HealthpointCapital has agreed to contribute $5 million to the $49 million settlement amount. The $5 million is classified within stockholders’ equity on the Company’s condensed consolidated balance sheet due to the related party nature with HealthpointCapital and its affiliates. See Note 12 for further information.

As of ~~September~~June 30, ~~2017,~~2019, the Company has made installment payments in the aggregate of ~~$30.7~~$38.4 million, with a remaining outstanding balance of ~~$27.1~~$19.4 million (including interest). The Company has the right to prepay the amounts due without penalty. In addition, the unpaid balance of the amounts due accrues interest at the rate of 7% per year ~~beginning May 15, 2014~~ until ~~the amounts due are~~ paid in full. The accrued but unpaid interest will be paid in quarterly installments of $1.1 million (or the full amount of the accrued but unpaid interest if less than $1.1 million) following the full payment of the $31.5 million in quarterly installments described above. No interest will accrue on the accrued interest. The Settlement Agreement ~~provided~~provides for mutual releases of all claims in the Orthotec, LLC v. Surgiview, S.A.S, et al. matter in the Superior Court of California, Los Angeles County and all other related litigation matters involving the Company and its directors and affiliates.

On March 9, 2018, the Company acquired SafeOp, a privately-held provider of neuromonitoring technology designed to enable effective intra-operative nerve health assessment. At the time of the acquisition, SafeOp had FDA 510(k) approval for a somatosensory evoked potential (“SSEP”) monitoring technology. The Company has developed a product that will allow for both free run and triggered specific recording of muscle activity, also known as Electromyography (“EMG”). The Company received FDA clearance for SafeOp’s EMG technology in February 2019 to complement the SSEP solution, and anticipates commercialization of the combined technology solution in mid-2019. In addition to expanding the Company’s market presence in lateral spine surgery, the Company believes that the SafeOp solution will allow it to integrate neuromonitoring into its broader product portfolio and accelerate the transition to procedural integration of the entire portfolio.

~~On May 5, 2017,~~Under the term of the definitive merger agreement, the Company ~~entered into an agreement to sell certain inventory and intellectual property to a third party for $1.0~~paid $15.1 million in cash and issued 3,265,132 shares of common stock. The Company paid the full $15.1 million in cash consideration ~~payable via a credit to future minimum royalties owed to~~during the year ended December 31, 2018. On March 8, 2018, the Company issued 2,975,209 shares of common stock valued at $9.8 million, based on the closing share price of $3.30, and issued an additional 115,621 shares of common stock during the second quarter of 2018 and the remaining 174,302 during the third ~~party under an~~quarter of 2018.

~~existing exclusive license agreement between~~In March 2018, the ~~two parties.~~Company also issued $3 million in convertible notes that were convertible into a total of 987,578 shares of common stock, which included total interest incurred, and issued warrants to purchase 2.2 million shares of common stock at an exercise price of $3.50 per share. The convertible notes matured on March 9, 2019 and were settled in cash. Upon maturity, the Company ~~recorded a net gain on sale~~recognized the value associated with the beneficial conversion feature calculated at issuance of ~~assets of $0.9~~$0.2 million ~~which is included under operating expenses~~within interest expense on the Company’s condensed consolidated statement of ~~operations.~~operations for the six months ended June 30, 2019. Shares of common stock were issued upon achievement of post-closing milestones as described further below. The warrants remain outstanding as of June 30, 2019.

The first of the two milestones was achieved during the year ended December 31, 2018 and resulted in the issuance of 443,421 shares of common stock as payment. The second milestone pertaining to regulatory approval was achieved and the Company issued 886,843 shares of common stock as payment during the three months ended March 31, 2019. Prior to achievement, the contingent consideration was recorded as a liability and measured at fair value using a probability-weighted income approach, utilizing significant unobservable inputs including the probability of achieving each of the potential milestones and an estimated discount rate related to the risks of the expected cash flows attributable to the milestones. The fair value of the contingent consideration, and the associated liability relating to the contingent consideration at each reporting date, was re-assessed with the changes in fair value reflected in earnings. For the six months ended June 30, 2019, the fair value for the contingent consideration increased by $0.3 million due to the proximity of the achievement of the milestone. The amount was recorded within research and development expense on the condensed consolidated statement of operations and a corresponding increase in the liability on the Company’s condensed consolidated balance sheet. The full liability was relieved upon achievement of the remaining milestone during the period.

Basic earnings per share (“EPS”) is calculated by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted EPS is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents outstanding for the period determined using the treasury-stock method. For purposes of this calculation, common stock subject to repurchase by the Company, convertible preferred stock, options, ~~performance-based restricted stock units~~convertible notes and warrants are considered to be common stock equivalents and are only included in the calculation of diluted earnings per share when their effect is dilutive.

The following table presents the computation of basic and diluted net loss per share for continuing and discontinued operations (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Numerator:
Loss from continuing operations	$	(3,076	)	$	(10,063	)	$	(11,129	)	$	(16,220	)	$	(12,406	)	$	(7,064	)	$	(25,322	)	$	(8,918	)
Loss from discontinued operations		(61	)		(3,658	)		(220	)		(9,351	)		(30	)		(12	)		(82	)		(74	)
Net loss	$	(3,137	)	$	(13,721	)	$	(11,349	)	$	(25,571	)	$	(12,436	)	$	(7,076	)	$	(25,404	)	$	(8,992	)
Denominator:
Weighted average common shares outstanding		13,954			8,623			11,400			8,554			47,143			34,030			46,233			27,656
Weighted average unvested common shares subject to repurchase		(16	)		(63	)		(51	)		(49	)		(263	)		—			(276	)		-
Weighted average common shares outstanding—basic		13,938			8,560			11,349			8,505
Effect of dilutive securities:
Conversion of preferred stock		—			—			—			—
Options		—			—			—			—
Warrants		—			—			—			—
Weighted average common shares outstanding—diluted		13,938			8,560			11,349			8,505
Weighted average common shares outstanding—basic and diluted														46,880			34,030			45,957			27,656
Net loss per share, basic and diluted:
Continuing operations	$	(0.22	)	$	(1.17	)	$	(0.98	)	$	(1.91	)	$	(0.26	)	$	(0.21	)	$	(0.55	)	$	(0.32	)
Discontinued operations	$	(0.01	)	$	(0.43	)	$	(0.02	)	$	(1.10	)	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Net loss per share, basic and diluted	$	(0.23	)	$	(1.60	)	$	(1.00	)	$	(3.01	)	$	(0.27	)	$	(0.21	)	$	(0.55	)	$	(0.32	)

The anti-dilutive securities not included in diluted net loss per share were as follows ~~calculated on a weighted average basis~~ (in thousands):

On October ~~4, 2016,~~25, 2018, the Company’s Board of Directors adopted ~~the 2016 Employment Inducement Award Plan (the “Inducement Plan”). The Inducement Plan allows for the grant of options, restricted stock, restricted stock unit awards and performance unit awards~~an amendment to new employees of the Company by granting an award to such new employee as an inducement for such new employee to begin employment with the Company. The Inducement Plan currently has 1,550,000 shares of

common stock reserved for issuance, of which, 600,000 shares of common stock were added on March 30, 2017. Equity awards under the Inducement Plan may only be granted to an employee who has not previously been an employee or member of the board of directors of the Company. The terms of the Inducement Plan are substantially similar to the terms of the Company’s 2016 Equity Incentive Award Plan, which increased the maximum aggregate number of shares with ~~two principal exceptions: (i) incentive~~respect to one or more stock ~~options~~rights that may ~~not~~ be granted ~~under~~to any one person during any fiscal year from 500,000 to 1,250,000.

Total stock-based compensation for the ~~Inducement Plan;~~three and ~~(ii) the annual compensation paid by the Company to specified executives will be deductible only to the extent that it does not exceed $1.0 million.~~

~~A summary of the Company’s stock option activity under the Plans~~six months ended June 30, 2019 and ~~related information~~2018 is as follows (in ~~thousands, except as indicated and per share data), as adjusted for the 1-for-12 reverse stock split:~~thousands):

~~The weighted-average grant-date fair value per share of stock options granted during the nine months ended September 30, 2017 was $1.30.~~Shares Reserved for Future Issuance

As of ~~September~~June 30, 2017, there was $3.7 million of unrecognized compensation expense for stock options which is expected to be recognized on a straight-line basis over a weighted average period of approximately 3.5 years.

The following table summarizes information about the restricted stock awards, restricted stock units and performance-based restricted units activity (in thousands, except as indicated and per share data), as adjusted for the 1-for-12 reverse stock split:

As of September 30, 2017, there was $2.6 million of unrecognized compensation expense for restricted stock awards which is expected to be recognized on a straight-line basis over a weighted average period of approximately 2.8 years.

Total share based compensation expense recognized in general and administrative, selling and marketing, research and development expenses and cost of sales were $1.4 million, $0.2 million, $0.1 million and $12,000 for the nine months ended September 30, 2017, and $0.2 million, $31,000, $18,000 and $5,000 for the nine months ended September 30, 2016, respectively.

~~As of September 30, 2017,~~2019, the Company had reserved shares of its common stock for future issuance as ~~follows:~~follows (in thousands):

OnIn March ~~22,~~ 2017, the Company ~~entered into the Securities Purchase Agreement~~completed a private placement (the “2017 Private Placement”) with certain institutional and accredited investors, including certain directors, executive officers and employees of the Company (collectively, the “Purchasers”), providing for the sale by the Company of 1,809,628 shares of the Company’s common stock at a purchase price of $2.00 per share ~~(the “Common Shares”),~~and 15,245 shares of newly designated Series A Convertible Preferred Stock at a purchase price of $1,000 per share (which shares ~~are~~were convertible into approximately 7,622,372 shares of common ~~stock, and were initially subject~~stock). Except as otherwise required by law, the holders of Series A Convertible Preferred Stock have no right to ~~limitations~~vote on ~~conversion prior~~matters submitted to ~~the approval by~~a vote of the Company’s ~~stockholders (“Stockholder Approval”) as required in accordance~~stockholders.

During the six months ended June 30, 2019 and 2018, 3,715 and 1,274 shares of Series A Convertible Preferred Stock were converted into 1,857,586 and 636,997 shares of common stock. As of June 30, 2019, there were 328 shares of Series A Convertible Preferred Stock outstanding, which are convertible into 164,087 shares of common stock.

In connection with the ~~NASDAQ listing rules), and~~2017 Private Placement, the Company issued warrants to purchase up to 9,432,000 shares of the Company’s common stock at an exercise price of $2.00 per share (the ~~“Purchaser~~“2017 Common Stock Warrants”)~~, in a private placement (the “Private Placement”)~~. The Purchaser Warrants became exercisable following Stockholder Approval, are subject to certain ownership limitations, and expire five years after June 15, 2017, the date Stockholder Approval was received. An aggregate of $2.35 million of shares of Series A Convertible Preferred Stock, which shares are convertible into approximately 1,175,000 shares of common stock, and Purchaser Warrants to purchase up to 1,175,000 shares of common stock were purchased by certain directors, executive officers and employees of the Company. On June 15, 2017, shareholder approval was received for the conversion of the Series A Convertible Preferred Stock and 7,797 shares of preferred stock were converted into 3,936,225 shares of common stock as of September 30, 2017.

The Company also ~~entered into an engagement letter (the “Engagement Letter”) on March 1, 2017 with H.C. Wainwright & Co., LLC (“Wainwright”), pursuant~~issued warrants to ~~which Wainwright agreed~~purchase common stock to ~~serve as~~the exclusive placement ~~agent~~agents for the issuance ~~and sale~~(the “2017 Banker Warrants”). The 2017 Banker Warrants were for the purchase of ~~the securities in the Private Placement. Pursuant to the Engagement Letter, the Company issued to Wainwright and its designees warrants to purchase~~ up to an aggregate of 471,600 shares of the Company’s common stock ~~(the “Wainwright Warrants,” and together~~ with ~~the Purchaser Warrants, the “Common Stock Warrants”). The Wainwright Warrants have~~ substantially the same terms as the ~~Purchaser~~2017 Common Stock Warrants, except that ~~the Wainwright Warrants~~they have an exercise price equal $2.50 per share. The ~~Private Placement, including the issuance of the Wainwright Warrants, closed on March 29,~~ 2017 ~~with aggregate gross proceeds to the Company of approximately $18.9 million.~~

On March 29, 2017, in connection with the closing of the Private Placement, the Company filed a Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock with the Secretary of State of the State of Delaware (the “Certificate of Designation”). The shares of Series A Convertible Preferred Stock have a stated value of $1,000 per share and were convertible into approximately 500 shares of common stock upon receipt of Stockholder Approval. Prior to the date that Stockholder Approval was obtained, the Certificate of Designation limited the number of shares of common stock that were issuable upon conversion of the Series A Convertible Preferred Stock such that, when aggregated with the shares of common stock issued in the Private Placement, such issuances did not exceed 19.99% of the Company’s issued and outstanding common stock, as required by NASDAQ listing rules. In addition, the Company’s directors, executive officers and employees who participated in the Private Placement were unable to convert shares of Series A Convertible Preferred Stock until Stockholder Approval was obtained, pursuant to the NASDAQ listing rules. The Series A Convertible Preferred Stock will be entitled to dividends on an as-if-converted basis in the same form as any dividends actually paid on shares of common stock or other securities. Except as otherwise required by law, the holders of Series A Convertible Preferred Stock will have no right to vote on matters submitted to a vote of the Company’s stockholders. Without the prior written consent of 75% of the outstanding shares of Series A Convertible Preferred Stock, the Company may not:

(a) alter or change adversely the powers, preferences or rights given to the Series A Convertible Preferred Stock or alter or amend the Certificate of Designation, (b) amend the Company’s certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series A Convertible Preferred Stock, (c) increase the number of authorized shares of Series A Convertible Preferred Stock, or (d) enter into any agreement with respect to any of the foregoing. In the event of the dissolution and winding up of the Company, the proceeds available for distribution to the Company’s stockholders shall be distributed pari passu among the holders of the shares of common stock and Series A Convertible Preferred Stock, pro rata based upon the number of shares held by each such holder, as if the outstanding shares of Series A Convertible Preferred Stock were convertible, and were converted, into shares of common stock.

~~The~~ Common Stock Warrants ~~are exercisable for cash or, solely, if at any time after~~and the ~~six-month anniversary of~~2017 Banker Warrants (collectively, the closing date of the Private Placement, there is not an effective registration statement or prospectus registering the issuance of shares of the Company’s common stock upon exercise of the Common Stock Warrants, by cashless exercise.“2017 Warrants”) expire on June 15, 2022. The exercise price of the Common Stock Warrants is subject to adjustment in the case of stock dividends or other distributions on shares of common stock or any other equity or equity equivalent securities payable in shares of common stock, stock splits, stock combinations, reclassifications or similar events affecting the Company’s common stock, and also, subject to limitations, upon any distribution of assets, including cash, stock or other property to the Company’s stockholders.

Prior to the exercise, holders of the Common Stock Warrants will not have any of the rights of holders of the common stock purchasable upon exercise, including voting rights; however, the holders of the Common Stock Warrants will have certain rights to participate in distributions or dividends paid on the Company’s common stock to the extent set forth in the Common Stock Warrants.

~~The Common Stock~~2017 Warrants may not be exercised by the holder to the extent that the holder, together with its affiliates, would beneficially own, after such exercise more than 4.99% of the shares of the Company’s common stock then outstanding (subject to the right of the holder to increase or decrease such beneficial ownership limitation upon notice to us, provided that such limitation cannot exceed 9.99%) and provided that any increase in the beneficial ownership limitation shall not be effective until 61 days after such notice is delivered.

IfIn conjunction with the 2018 Private Placement described further below, during the six months ended June 30, 2018, a holder of 2.4 million 2017 Warrants exercised all their 2017 Warrants at the original exercise price of $2.00 per warrant in exchange for the issuance of additional warrants. As a result of the warrant exercise, the Company ~~effects a fundamental transaction, then upon any subsequent~~received gross proceeds of $4.8 million during the six months ended June 30, 2018.

During the six months ended June 30, 2018, excluding the $4.8 million described above, the Company received proceeds of approximately $0.9 million in connection with the exercise of ~~any~~approximately 0.4 million of 2017 Common Stock Warrants. There were 0.1 million 2017 Warrant exercises during the three and six months ended June 30, 2019 for total cash proceeds of $0.2 million. As of June 30, 2019, there were 3,657,000 2017 Common Stock Warrants outstanding.

During the ~~holder thereof shall have~~six months ended June 30, 2018, 304,182 of the ~~right~~2017 Banker Warrants were exercised for total cash proceeds upon exercise of $0.8 million during the period. There were 18,864 2017 Banker Warrant exercises for the six months ended June 30, 2019 for total cash proceeds of less than $0.1 million. A total of 148,554 2017 Banker Warrants remained outstanding as of June 30, 2019.

All the 2017 Warrants were deemed to ~~receive,~~qualify for ~~each~~equity classification under authoritative accounting guidance.

On March 8, 2018, the Company completed the 2018 Private Placement to certain institutional and accredited investors, including certain directors and executive officers of the Company, providing for the sale by the Company at a purchase price of $1,000 per share, 45,200 of ~~common stock that would have been issuable upon such exercise immediately prior to the occurrence of such fundamental transaction, the number of~~newly designated Series B Convertible Preferred Stock, which shares of ~~the successor’s or acquiring corporation’s common~~preferred stock orwere automatically converted into 14,349,236 shares of the Company’s common stock upon approval by the Company’s stockholders at the 2018 annual meeting of stockholders held in May 2018, and warrants to purchase up to 12,196,851 shares of common stock at an exercise price of $3.50 per share (the “2018 Common Stock Warrants”). The 2018 Common Stock Warrants became exercisable following stockholder approval at the 2018 annual meeting of stockholders, are subject to certain ownership limitations in certain cases, and expire five years after the date of such stockholder approval. The gross proceeds from the 2018 Private Placement were approximately $45.2 million.

Pursuant to the terms of the purchase agreement entered into in connection with the 2018 Private Placement, from the date of the stockholder approval of the 2018 Private Placement, or May 17, 2018, through the first anniversary of the effective date of the resale registration statement related to the 2018 Private Placement, or May 11, 2019, if the Company ishad issued any shares of common stock or common stock equivalents, subject to certain permitted exceptions, at a price below the ~~surviving corporation, and any~~conversion price on the date stockholder approval was obtained (a “Dilutive Issuance”), the Company was required to issue an additional ~~consideration receivable as a result~~number of ~~such fundamental transaction by a holder~~shares of common stock to the purchasers in the 2018 Private Placement in amount equal the number of shares of common stock ~~into which~~such purchasers would have received if the Dilutive Issuance occurred prior to the date the Company’s stockholders approved the 2018 Private Placement. No such Dilutive Issuances occurred prior to the expiration.

The 2018 Common Stock Warrants ~~were~~(the “2018 Warrants”) have a five year life and are exercisable ~~immediately prior~~for cash or by cashless exercise. Some of the 2018 Warrants may not be exercised by the holder to the extent that the holder, together with its affiliates, would beneficially own, after such ~~fundamental transaction.~~ exercise more than 4.99% of the shares of the Company’s common stock then outstanding (subject to the right of the holder to increase or decrease such beneficial ownership limitation upon notice to us, provided that such limitation cannot exceed 9.99%) and provided that any increase in the beneficial ownership limitation shall not be effective until 61 days after such notice is delivered.

In addition to the 12,196,851 warrants issued in the 2018 Private Placement, the Company issued 1,800,000 warrants to an existing holder with identical terms to the 2018 Warrants, including the exercise price of $3.50.

During the six months ended June 30, 2019, 0.1 million of the 2018 Warrants were exercised for total proceeds of $0.5 million. No 2018 Warrants were exercised for the six months ended June 30, 2018.

All the 2018 Warrants were deemed to qualify for equity classification under authoritative accounting guidance.

As further described in Note 5, during the year ended December 31, 2018, in connection with the initial debt financing with Squadron, the Company issued warrants to purchase 845,000 shares of common stock at an exercise price of $3.15 per share. An additional 4,838,710 warrants were issued at an exercise price of $2.17 per share during the second quarter of 2019, in conjunction with the Company’s draw on the expanded credit facility. The warrants have a seven-year term and are immediately exercisable. In accordance with authoritative accounting guidance, the warrants classified for equity treatment upon issuance and the portion allocated to the outstanding debt were recorded as a debt discount to the face of the debt liability based on fair value to be amortized into interest expense over the life of the debt agreement. As the warrants provide for partial price protection that allow for a reduction in the price in the event of a ~~fundamental transaction (other than~~lower per share priced issuance, the warrants were valued utilizing a ~~fundamental transaction not~~Monte Carlo simulation that considers the probabilities of future financings. The Monte Carlo model simulates the present value of the potential outcomes of future stock prices of the Company over the seven-year life of the warrants. The projection of stock prices is based on the risk-free rate of return and the volatility of the stock price of the Company and correlates future equity raises based on the probabilities provided.

In December 2017, the Board of Directors approved byand adopted the 2017 Distributor Inducement Plan which authorizes the Company to issue to distributors restricted shares of common stock of the Company and/or warrants to purchase the Company’s ~~Board of Directors), the Company or any successor entity shall, at the holder’s option, purchase the holder’s Common Stock Warrants for~~common stock. The warrants are issuable with an ~~amount of cash~~exercise price equal to the fair market value of the ~~Common Stock Warrants as determined~~common stock on the date of issuance. Each warrant and common stock issuance is subject to a time-based or net sales-based vesting provision. The Board of Directors authorized the grant of up to 1.0 million shares of common stock under the 2017 Distributor Inducement Plan. As of June 30, 2019, 0.3 million warrants and 17,000 shares of common stock were earned under the 2017 Distributor Inducement Plan. Total expense for the plan was $0.1 million for both the three months ended June 30, 2019 and 2018 and $0.2 million and $0.1 million for the six months ended June 30, 2019 and 2018, respectively.

In December 2017, the Board of Directors also authorized the grant of warrants to purchase 50,000 shares of common stock, and 75,000 restricted stock units to a distributor of which 60,000 were earned and issued. These warrants and restricted stock units are subject to time based and net sales based vesting conditions.

In December 2017, the Board approved and adopted the 2017 Development Services Plan which authorizes the Company to enter into Development Services Agreements with third-party individuals or entities whereby, upon the achievement of certain Company financial and commercial revenue milestones, future royalty payments for product and/or intellectual property development work may be paid in ~~accordance with~~either cash or restricted shares of Company common stock at the ~~Black Scholes~~ option ~~pricing model. A fundamental transaction as described in the Common Stock Warrants generally includes any merger with or into another entity, sale of all or substantially all~~ of the ~~Company’s assets, tender offer or exchange offer, reclassification of the Company’s~~developer. Each common stock issuance would be subject to net sales-based vesting provisions and satisfaction of applicable laws and market regulations regarding the issuance of restricted shares to such developers. The Board of Directors authorized the grant of up to 3,000,000 shares of common stock under the Development Services Plan. As of June 30, 2019, 2.3 million shares of common stock have been designated under the 2017 Development Services Plan, but no common stock elections, grants or ~~the consummation~~cash payouts have been made as of ~~a transaction whereby another entity acquires more than 50% of the Company’s outstanding voting stock.~~

~~In accordance with authoritative guidance, the Purchaser Warrants and the Wainwright Warrants are classified within additional paid in capital on the condensed consolidated balance sheet.~~June 30, 2019.

To calculate its interim tax provision, at the end of each interim period the Company estimates the annual effective tax rate and applies that to its ordinary quarterly earnings. In addition, the effect of changes in enacted tax laws or rates or tax status is recognized in the interim period in which the change occurs. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in foreign jurisdictions, permanent and temporary differences between book and tax amounts, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or the tax environment changes.

Intraperiod tax allocation rules require the Company to allocate the provision for income taxes between continuing operations and other categories of earnings, such as discontinued operations. In periods in which the Company has a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as discontinued operations, the Company must allocate the tax provision to the other categories of earnings, and then record a related tax benefit in continuing operations.

The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. The Company’s unrecognized tax benefits increased by less than $0.1 million during the nine months ended September 30, 2017. The increase in unrecognized tax benefits during the nine months ended September 30, 2017 was primarily related to foreign currency fluctuations partially offset by a decrease in reserves for taxes related to imputed interest on trade receivables. The Company recognized a tax benefit of $35 thousand related to decrease in tax reserves related to imputed interest on trade receivables in the condensed consolidated statement of operations for the three and nine months ended September 30, 2017.

The unrecognized tax benefits at ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016~~2018 were ~~$9.4~~$4.4 million ~~and $9.3 million, respectively.~~for both periods, with no changes occurring during the year-to-date period. With the facts and circumstances currently available to the Company, it is reasonably possible that the amount of reserves that could reverse over the next 12 months is approximately ~~$2.8~~$0.1 million. The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision. The Company is not currently under examination by the Internal Revenue Service, foreign, or state or local tax ~~authorities; however, Scient’x’s 2013 and 2014 tax years are currently under audit by the French tax~~ authorities. ~~The Company completed the audit of its 2013 tax year in Texas, which resulted in no additional taxes.~~

The income tax ~~provision~~benefit from continuing operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 consists primarily of ~~state income taxes partially offset by~~ a ~~decrease~~release of the valuation allowance due to an increase in ~~income~~net deferred tax ~~contingency reserves.~~liabilities recorded as a result of the acquisition of SafeOp. The Company’s effective tax rate of ~~0.30% and 0.51%~~(0.23)% for the ~~three and nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2019 differs from the federal statutory rate of ~~35%~~21% primarily due to the Company being in a ~~full valuation allowance and state income taxes partially offset by a decrease in income tax contingency reserves.~~net loss position.

For the nine months ended September 30, 2017 and 2016, respectively, the Company incurred expenses of less than $0.1 million related to HealthpointCapital, LLC. As of September 30, 2017, the Company also had a liability of less than $0.1 million payable to HealthpointCapital, LLC for travel and administrative expenses.

In July 2016, the Company entered into a forbearance agreement with HealthpointCapital, LLC, HealthpointCapital Partners, L.P., and HealthpointCapital Partners II, L.P. (collectively, "HealthpointCapital"), pursuant to which HealthpointCapital, on behalf of the Company, paid $1.0 million of the $1.1 million payment due and payable by the Company to Orthotec on July 1, 2016 and agreed to not exercise its contractual rights to seek an immediate repayment of such amount. Pursuant to this forbearance agreement, the Company repaid this amount in September 2016. The Company and HealthpointCapital also entered into an agreement for joint payment of settlement whereby HealthpointCapital has agreed to contribute $5 million to the $49 million Orthotec settlement amount.

During the second quarter of 2018, HealthpointCapital Partners, L.P., and HealthpointCapital Partners II, L.P. distributed its holdings in the Company’s common stock to its limited partners. As a result, the fund is no longer a shareholder of the Company as of June 30, 2019. The $5 million receivable from HealthpointCapital, LLC continues to be classified within stockholders’ equity on the Company’s condensed consolidated balance sheet due to the related party nature with HealthpointCapital affiliates.

Certain of the Company’s board of directors and senior management participated in the March 2017 and 2018 Private Placements.

In connection with the ~~Globus Transaction~~sale of the International Business (described in Note 4), the Company terminated employment agreements with several executive officers, including the chief executive officer and the chief financial officer, and commenced an employee headcount reduction program. ~~The~~In conjunction with the restructuring program, the Company ~~had additional headcount reductions in February 2017, and~~ recorded restructuring expenses ~~of $0.1 million and $1.9 million for the three and nine months ended September 30, 2017,~~ related to severance ~~liability~~liabilities and post-employment benefits. A rollforward of the accrued restructuring liability is presented below (in thousands):

On July 6, 2015, the Company announced a restructuring of its manufacturing operations in California in an effort to improve its cost structure. The restructuring included a reduction in workforce and closing the California manufacturing facility. The Company incurred expenses of $1.6 million and $1.8 million during the three and nine months ended September 30, 2016, related to these restructuring activities.

On October 2, 2017, the Company entered into Securities Purchase Agreements (collectively, the “Purchase Agreements”) with accredited investors Patrick Miles and Quentin Blackford (collectively, the “Purchasers”), pursuant to which Messrs. Miles and Blackford have agreed, subject to the satisfaction of customary closing conditions under the Purchase Agreements, to purchase from the Company, collectively, no less than 1,549,116 and as many as 1,769,912 shares of its common stock at a purchase price of $2.26 per share. The closing of the share purchases under the Purchase Agreements by Messrs. Miles and Blackford is expected to occur on or before January 1, 2018, subject to the satisfaction of customary closing conditions. The aggregate gross proceeds of the issuance and sale of the shares to Messrs. Miles and Blackford pursuant to the Purchase Agreements will be approximately $3.5 million to $4 million.

As more fully described in Note 10, the Company issued warrants to purchase shares of the Company’s common stock in connection with a private placement transaction that closed on March 29, 2017. During October 2017, we received proceeds of approximately $1.7 million in connection with the exercise of approximately 0.9 million warrants. In addition, these warrants contain a feature that could require the transfer of cash in the event of a Fundamental Transaction, as defined in such warrants (other than a Fundamental Transaction not approved by the Company’s Board of Directors). As of September 30, 2017, the warrant holders did not control the Company’s Board of Directors, and therefore, since potential future cash settlement was deemed to be within the Company’s control, the warrants were classified in stockholder’s equity in accordance with the authoritative accounting guidance. Subsequent to September 30, 2017, concurrent with the appointment of Ward W. Woods to the Company’s board of directors effective October 17, 2017, the holders of the warrants represent a majority of the Board of Directors. As a result of this change, the Company may be required to re-classify the warrants as a liability in accordance with the authoritative accounting guidance. The Company is currently assessing the impact of this change, if any, on its financial statements for the three months and year ended December 31, 2017.

You should read the following management's discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes thereto that appear elsewhere in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and notes thereto and under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ~~or SEC,~~(“SEC”), on March ~~31, 2017.~~29, 2019. In addition to historical information the following management’s discussion and analysis of our financial condition and results of operations includes forward-looking information that involves risks, uncertainties, and assumptions. Our actual results and the timing of events could differ materially from those anticipated by these forward-looking statements as a result of many factors, such as those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. ~~Unless otherwise stated, all shares and price per share numbers set forth in this Form 10-Q for periods prior to August 24, 2016 are presented after giving effect to the reverse stock split.~~

We are a medical technology company focused on the design, development, and ~~promotion~~advancement of ~~products~~technology for ~~the~~better surgical treatment of spinal disorders. We are dedicated to revolutionizing the approach to spine ~~disorders. Our mission is to improve patient lives through our relentless pursuit of superior outcomes.~~surgery. We have a broad product portfolio ~~and pipeline that are~~ designed to address the ~~cervical, thoracolumbar and intervertebral regions~~majority of ~~the spine and cover a variety of spinal disorders and surgical procedures. Our principal product offerings are focused on~~ the U.S. market for fusion-based spinal disorder solutions. We intend to drive growth by exploiting our collective spine experience and investing in the research and development to continually differentiate our solutions and improve spine surgery. We believe our future success will be fueled by introducing market-shifting innovation to the spine market, and we believe that ~~our products and systems~~we are ~~attractive~~well-positioned to ~~surgeons and patients due to innovative features and benefits that are designed to simplify surgical procedures for the surgeon and improve patient outcomes.~~capitalize on current spine market dynamics.

~~Currently, we~~We market and sell our products in the ~~United States~~U.S. through a network of ~~non-exclusive~~ independent distributors and direct sales representatives. ~~We believe there~~An objective of our leadership team is ~~significant opportunity for us~~ to ~~partner~~deliver increasingly consistent, predictable growth. To accomplish this, we have partnered more closely with new and existing distributors to create a more dedicated and loyal sales ~~channel.~~channel for the future. We have added, and intend to ~~move many of our existing distributor relationships to more dedicated and non-competitive partnerships and we intend~~continue to add, new high-quality dedicated distributors to ~~enable~~expand future growth. We believe this will allow us to reach ~~a large~~an untapped market of ~~new~~ surgeons, hospitals, and national accounts across the ~~United States,~~U.S., as well as ~~further~~better penetrate existing accounts and territories.

We ~~also employ a national accounts team that is responsible for securing access at hospitals and group purchasing organizations, or GPOs, across~~have made significant progress in the ~~United States. We have had strong success with securing access to hospitals and GPOs. We believe that this access is a key differentiator for us, and much~~transition of our ~~current business is achieved through these accounts. We~~sales channel since early 2017, driving the percent of sales contributed by our strategic distribution channel from approximately 80% and 76% for the three and six months ended June 30, 2018, respectively, to 88% and 86% for the three and six months ended June 30, 2019, respectively. Going forward, we intend to continue to ~~focus our efforts~~relentlessly drive toward a fully exclusive network of independent and ~~investment on developing and maintaining relationships with key GPOs and hospital networks~~direct sales agents. Recent consolidation in ~~order~~the industry is facilitating the process, as large, seasoned agents are seeking opportunities to ~~maintain and secure favorable contracts and develop strategies to convert or grow business within existing accounts.~~

We are also striving to drive additional revenue by focusing our capital spend on strategic investments in commercializing our new products. We are focusing our development and commercialization efforts on differentiated products that we can market through our sales channel. These innovative products are designed to drive penetration within specific segments withinre-enter the ~~overall~~ spine market including the complex spine, deformity, and lateral markets. We also plan to expand our biologics portfolio through structural allograft, tissue and synthetic bone graft products to support surgeons during the surgical procedureby partnering with ~~the goal~~spine-focused companies that have broad, growing product portfolios.

~~Since~~On September 1, 2016, to date, we have announced several changes to our senior leadership team, including the appointment of Patrick Miles as our Executive Chairman; Terry Rich as our Chief Executive Officer; Craig Hunsaker as our Executive Vice President, People and Culture and General Counsel; Jon Allen as our Executive Vice President, Commercial Operations; Brian Snider as our Executive Vice President, Strategic Marketing and Product Development; and Jeff Black as our Executive Vice President, Chief Financial Officer. In addition to Messrs. Miles and Rich who joined our board in connection with their respective executive appointments, during 2017 we have made several key additions to our board of directors, including Quentin Blackford, David Mowry, Jeff Rydin, and Ward Woods.

On June 15, 2017, we received a letter from the FDA which officially closed out the Warning Letter we received on July 15, 2015 and related investigation of deficiencies in our internal procedures for quality planning, design control, document control.

~~On March 29, 2017,~~ we completed ~~a private placement, or~~ the ~~Private Placement,~~sale of our ~~securities to certain institutional~~international distribution operations and ~~accredited investors,~~agreements, including ~~certain~~our wholly-owned subsidiaries in Japan, Brazil, Australia, China and Singapore and substantially all of the assets of our ~~directors, executive officers~~other sales operations in the United Kingdom and ~~employees. The aggregate gross proceeds~~Italy (“International Business”), to an affiliate of Globus (“Globus Transaction”). Following the closing of the Globus Transaction, we now operate in the U.S. market only and are restricted from marketing and selling our products in foreign markets pursuant to the terms and conditions, and for the ~~Private Placement were approximately $18.9 million. We are using~~time periods, set forth in the ~~net proceeds from~~definitive documents related to the Private Placement for general corporate and working capital purposes. In connection with the Private Placement, we also issued warrants to purchase 9.4 million shares of our common stock at an exercise price of $2.00 per share and warrants to purchase 0.5 million shares of our common stock at an exercise price of $2.50 per share. During October 2017, we received aggregate proceeds of approximately $1.7 million in connection with exercise of approximately 0.9 million warrants.

The following is a description of the primary components of our revenues and expenses. As a result of the sale of our International Business to Globus in September 2016, we have retrospectively revised the consolidated statements of operations for the three and nine months ended September 30, 2016 to reflect the financial results from the International Business as discontinued operations. As a result of the Globus Transaction, as of September 1, 2016, we sell our products in the U.S. market, and outside the U.S. through our supply agreement with Globus. expenses:

Revenues. We derive our revenues primarily from the sale of spinal surgery implants used in the treatment of spine disorders. Spinal implant products include pedicle screws and complementary implants, interbody devices, plates, and tissue-based materials. Our revenues are generated by our direct sales force and independent distributors. Our products are requested directly by surgeons and shipped and billed to hospitals and surgical centers. ~~A majority~~Currently, most of our business is conducted with customers within markets in which we have experience and with payment terms that are customary to our business. We may defer revenues until the time of collection if circumstances related to payment terms, regional market risk or customer history indicate that collectability is not ~~reasonably assured.~~certain.

Cost of revenues. Cost of revenues consists of direct product costs, royalties, milestones ~~depreciation of our surgical instruments,~~ and the amortization of purchased intangibles. Our product costs consist primarily of direct labor, overhead, and raw materials and components. The product costs of certain of our biologics products include the cost of procuring and processing human tissue. We incur royalties related to the technologies that we license from others and the products that are developed in part by surgeons with whom we collaborate in the product development process. Amortization of purchased intangibles consists of amortization of developed product technology.

Research and development ~~expense~~. Research and development expense consists of costs associated with the design, development, testing, and enhancement of our products. Research and development expense also includes salaries and related employee benefits, research-related overhead expenses, fees paid to external service providers in both cash and equity, and costs associated with ~~surgeon consultants.~~our Scientific Advisory Board and Executive Surgeon Panels.

Sales, general and ~~marketing expense~~administrative. Sales, general and ~~marketing~~administrative expense consists primarily of salaries and related employee benefits, sales commissions and support costs, depreciation of our surgical instruments, regulatory affairs, quality assurance costs, professional service fees, travel, medical education, trade show and marketing ~~costs.~~costs, insurance and legal expenses.

~~General~~Litigation-related expenses. Litigation-related expenses are costs incurred for our ongoing litigation, primarily with NuVasive, Inc.

Transaction related expenses. Reflects the recognition of transaction expenses incurred as part of the SafeOp acquisition.

Gain on settlement. Gain on settlement consists of a gain of approximately $6.2 million for the year ended December 31, 2018 as a result of the settlement agreement with Elite Medical Holdings and ~~administrative expense. General~~Pac 3 Surgical, pursuant to which we made a cash payment of $0.4 million as the final and ~~administrative expense consists primarily of salaries~~total compensation under the collaboration and related ~~employee benefits, professional service fees and legal expenses.~~amendment. The gain reflects the reversal of accrued obligations previously recorded under the collaboration.

Restructuring expenses. Restructuring expense consists of severance, social plan benefits and related taxes ~~facility closing costs, manufacturing transfer costs and severance costs incurred following~~in connection with our ongoing cost rationalization efforts, including the ~~sale~~termination of our ~~International Business, the consolidation of our facility and termination of~~ manufacturing operations in California ~~and strategic repositioning of the Company.~~in 2017.

Total other income (expense). Total other income (expense) includes interest income, interest expense, ~~changes in the fair value of the warrant liabilities,~~ gains and losses from foreign currency exchanges and other non-operating gains and losses.

Income tax ~~(benefit) provision~~benefit.. Income tax ~~provision~~benefit from continuing operations primarily consists ~~primarily~~ of income tax provisions related to state income taxes. Authoritative accounting guidance requires total income tax expense or benefit to be allocated among continuing operations, discontinued operations, extraordinary items, other comprehensive income and items charged directly to shareholders’ equity. This allocation is referred to as intra-period tax allocation. The salerelease of the ~~Company's international distribution operations and several foreign subsidiaries is reported under discontinued operations in~~valuation allowance from the ~~condensed consolidated financial statements. Accordingly, we are required to allocate the provision for income taxes between continuing operations and discontinued operations.~~SafeOp acquisition, partially offset by state taxes.

Our discussion and analysis of our financial condition and results of operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. On an on-going basis, we evaluate our estimates and assumptions, including those related to revenue recognition, allowances for accounts receivable, inventories and intangible assets, stock-based compensation and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumption conditions.

Critical accounting policies are those that, in management’s view, are most important in the portrayal of our financial condition and results of operations. ~~Except~~Aside from newly implemented accounting policies related to revenues discussed below and for the changes disclosed in Note 2 to the Notes to Condensed Consolidated Financial Statements included in Item 1, Part I of this Quarterly Report on Form 10-Q, management believes there have been no material changes during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2019 to the critical accounting policies discussed in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 filed with the SEC on March ~~31, 2017.~~29, 2019.

Effective January 1, 2019, we adopted ASC No. 2016‑02, Leases (Topic 842) (“ASU 2016‑02” or “ASC 842”), which supersedes the current accounting for leases, using the modified retrospective transition method. The Company has elected to apply the practical expedients allowed by the standard for existing leases. The new standard, while retaining two distinct types of leases, finance and operating, (i) requires lessees to record a right-of-use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (ii) eliminates current real estate specific lease provisions, (iii) modifies the lease classification criteria and (iv) aligns many of the underlying lessor model principles with those in the new revenue standard. We determined the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date, or the adoption date, if later, and thereafter if modified. We recognized a right-of-use asset for our operating leases with lease terms greater than 12 months. The lease term includes any renewal options and termination options that we are reasonably assured to exercise. The present value of lease payments is determined by using the incremental borrowing rate for operating leases determined by using the incremental borrowing rate of interest that we would pay to borrow on a collateralized basis an amount equal to the lease payments in a similar economic environment. We applied the new guidance to our existing facility lease at the time of adoption and recognized a right-of-use asset of $2.4 million and operating lease liability of $2.9 million, during the first period of adoption, and recorded a reversal of the previous deferred rent balance under the previous lease guidance of approximately $0.6 million.

The tables below set forth certain statements of operations data for the periods indicated (in thousands). Our historical results are not necessarily indicative of the operating results that may be expected in the future.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Revenues

$
23,099

$
26,711

$
75,456

$
93,158

Cost of revenues

8,587

10,849

28,417

31,651

Gross profit

14,512

15,862

47,039

61,507

Operating expenses:

Research and development

1,044

1,087

3,483

6,799

Sales and marketing

10,015

11,764

31,416

39,498

General and administrative

4,403

4,136

15,977

19,416

Amortization of acquired intangible assets

172

83

516

593

Goodwill and intangible impairment

-

1,736

-

1,736

Restructuring expense

139

1,605

1,898

1,778

Gain on sale of assets

-

-

(856
)

-

Total operating expenses

15,773

20,411

52,434

69,820

Operating loss

(1,261
)

(4,549
)

(5,395
)

(8,313
)
Other income (expense):

Interest expense, net

(1,807
)

(1,123
)

(5,669
)

(3,118
)
Loss on debt extinguishment

-

(9,478
)

-

(9,478
)
Other income (expense), net

(15
)

90

(8
)

(273
)
Total other income (expense)

(1,822
)

(10,511
)

(5,677
)

(12,869
)
Loss from continuing operations before taxes

(3,083
)

(15,060
)

(11,072
)

(21,182
)
Income tax provision

(7
)

(4,997
)

57

(4,962
)
Loss from continuing operations

(3,076
)

(10,063
)

(11,129
)

(16,220
)
Loss from discontinued operations

(61
)

(3,658
)

(220
)

(9,351
)
Net loss

$
(3,137
)

$
(13,721
)

$
(11,349
)

$
(25,571
)

	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenues:
Revenue from U.S. products	$	26,093		$	20,409		$	49,048		$	39,610
Revenue from international supply agreement		1,226			1,633			2,826			3,739
Total revenues		27,319			22,042			51,874			43,349
Cost of revenues		8,433			6,488			16,420			12,890
Gross profit		18,886			15,554			35,454			30,459
Operating expenses:
Research and development		3,360			2,009			6,829			3,795
Sales, general and administrative		24,568			17,538			45,568			34,795
Litigation-related expenses		1,200			2,234			3,823			2,814
Amortization of intangible assets		172			187			354			364
Transaction-related expenses		—			(62	)		—			1,480
Gain on settlement		—			-			—			(6,168	)
Restructuring expenses		—			193			60			591
Total operating expenses		29,300			22,099			56,634			37,671
Operating loss		(10,414	)		(6,545	)		(21,180	)		(7,212	)
Total other expense, net		(1,921	)		(1,784	)		(4,040	)		(3,429	)
Loss from continuing operations before taxes		(12,335	)		(8,329	)		(25,220	)		(10,641	)
Income tax (benefit) provision		71			(1,265	)		102			(1,723	)
Loss from continuing operations		(12,406	)		(7,064	)		(25,322	)		(8,918	)
Loss from discontinued operations, net of applicable taxes		(30	)		(12	)		(82	)		(74	)
Net loss	$	(12,436	)	$	(7,076	)	$	(25,404	)	$	(8,992	)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2019			2018			2019			2018
Revenues by source
Revenue from U.S. products	$	26,093		$	20,409		$	49,048		$	39,610
Revenue from international supply agreement		1,226			1,633			2,826			3,739
Total revenues	$	27,319		$	22,042		$	51,874		$	43,349

Gross profit by source
Revenue from U.S. products	$	18,841		$	15,462		$	35,235		$	30,229
Revenue from international supply agreement		45			92			219			230
Total gross profit	$	18,886		$	15,554		$	35,454		$	30,459

Gross profit margin by source
Revenue from U.S. products		72.2	%		75.8	%		71.8	%		76.3	%
Revenue from international supply agreement		3.7	%		5.6	%		7.7	%		6.2	%
Total gross profit margin		69.1	%		70.6	%		68.3	%		70.3	%

Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 Compared to the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2018

~~Revenues~~Total revenues. ~~Revenues~~Total revenues were ~~$23.1~~$27.3 million for the three months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$26.7~~$22.0 million for the three months ended ~~September~~June 30, ~~2016,~~2018, representing ~~a decrease~~an increase of ~~$3.6~~$5.3 million, or ~~13.5%~~24.1%. ~~Revenues~~Total revenues were ~~$75.5~~$51.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$93.2~~$43.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, representing ~~a decrease~~an increase of ~~$17.7~~$8.6 million, or ~~19.0%~~19.9%.

Revenue from U.S. ~~commercial revenues~~products were ~~$20.7~~$26.1 million for the three months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$25.2~~$20.4 million for the three months ended ~~September~~June 30, ~~2016,~~2018, representing ~~a decrease~~an increase of ~~$4.5~~$5.7 million, or ~~17.9%~~27.9% and were ~~$66.0~~$49.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to $82.4~~2019 and $39.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2018, representing ~~a decrease~~an increase of ~~$16.4~~$9.4 million, or ~~19.9%~~23.7%. The ~~decreases~~increases in revenue were attributed to a combination of volume, product mix, and pricing as a result of lost distributors and customers and related overall change in revenue composition associated with the financial and operational challenges the Company faced in 2016, which led to the sale of the Company’s international business in order to sustain operations. Revenue was also impacted by the Company’s decision to exit the stocking distributor model and terminate distributor relationships that are not representative of the Company’s long-term business and rebranding strategy. Revenue from stocking distributors alone represented $1.2 million and $3.8 million of the revenue decline for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively compared~~2019 was attributed to ~~2016.~~the launch of various newly developed products and to our focus on our strategic distribution channel, as detailed below (in thousands):

Revenue from international supply agreement which is attributed to sales to Globus under which we supply to Globus certain of its implants and instruments at agreed-upon prices for a minimum term of three years, was $1.2 million for the three months ended ~~September~~June 30, ~~2017~~2019 compared to $1.6 million for the three months ended June 30, 2018, representing a decrease of $0.4 million and $2.8 million for the six months ended June 30, 2019 compared to $3.7 million for the six months ended June 30, 2018, representing a decrease of $0.9 million. We expect these revenues to continue to decrease over the next several quarters, as Globus continues to register its own products in international markets. Globus has the option to extend the term for up to two additional twelve month periods subject to Globus meeting specified purchase requirements. During the first quarter of 2019, Globus notified us that it will exercise the option to extend the agreement an additional twelve months through August 2020.

Cost of revenues. Cost of revenues was $8.4 million for the three months ended June 30, 2019 compared to $6.5 million for the three months ended June 30, 2018, representing an increase of $1.9 million, or 29.2% and $16.4 million for the six months ended June 30, 2019 compared to $12.9 million for the six months ended June 30, 2018, representing an increase of $3.5 million or 27.1%.

Cost of revenue from U.S. products for the three months ended June 30, 2019 was $7.3 million compared to $4.9 million for the three months ended June 30, 2018, representing an increase of $2.4 million, or 49.0% and $13.8 million for the six months ended June 30, 2019 compared to $9.4 million for the six months ended June 30, 2018, representing an increase of $4.4 million, or 46.8%. The increases are primarily consistent with our revenue growth as well as increases in non-cash excess and obsolescence expense of approximately $4.1 million for the six months ended as June 30, 2019 as we are launching newly developed products and phasing out older, legacy products.

Cost of revenues from international supply agreement were $1.2 million for the three months ended June 30, 2019 compared to $1.5 million for the three months ended ~~September~~June 30, ~~2016, representing an increase of $0.9 million. This increase was~~2018 and $2.6 million for the six months ended June 30, 2019 compared to $3.5 million for the six months ended June 30, 2018. These decreases were attributed ~~primarily~~ to a reduction in ~~international~~ sales volumes in the third quarter of 2016 caused by the transition of our international sales to Globus. Other revenues were $9.5 million for the nine months ended September 30, 2017 compared to $10.7 million for the nine months ended September 30, 2016, representing a decrease of $1.2 million. This decrease was primarilyand related ~~to a decrease in the average selling price to Globus in 2017 compared to sales to international affiliates in 2016.~~

~~Cost of revenues~~. Cost of revenues was $8.6 million for the three months ended September 30, 2017 compared to $10.8 million for the three months ended September 30, 2016, representing a decrease of $2.2 million, or 20.4% and $28.4 million for the nine months ended September 30, 2017 compared to $31.7 million for the nine months ended September 30, 2016, representing a decrease of $3.3 million, or 10.4%.

Cost of U.S. Commercial revenues for the three months ended September 30, 2017 was $6.4 million compared to $10.0 million for the three months ended September 30, 2016, representing a decrease of $3.6 million, or 36.1%. Cost of U.S. commercial revenues for the nine months ended September 30, 2017 was $19.9 million compared to $26.0 million for the nine months ended September 30, 2016, representing a decrease of $6.1 million, or 23.5%. These decreases are attributable to lower sales volumes, as well as a reduction in obsolescence expense due to excess inventory quantities and product life cycle management activities during the comparable periods in 2016.

~~Cost of other revenues, which are primarily attributed to sales to Globus~~costs under the Supply Agreement, were $2.2 million for the three months ended September 30, 2017 compared to $0.9 million for the three months ended September 30, 2016, representing an increase of $1.3 million. This increase was attributed to higher sales volumes in the third quarter of

2017 as compared to the same period in 2016. Cost of other revenues were $8.5 million for the nine months ended September 30, 2017 compared to $5.6 million for the nine months ended September 30, 2016, representing an increase of $2.9 million. Despite a decrease in revenue, cost of other revenues increased due to a decrease in the average selling price to Globus in 2017 compared to sales to international affiliates in 2016.

Gross profit. Gross profit was ~~$14.5~~$18.9 million for the three months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$15.9~~$15.6 million for the three months ended ~~September~~June 30, ~~2016,~~2018, representing an increase of $3.3 million, or 21.2% and $35.5 million for the six months ended June 30, 2019 compared to $30.5 million for the six months ended June 30, 2018, representing a decrease of ~~$1.4~~$5.0 million, or ~~8.8% and $47.0 million for the nine months ended September 30, 2017 compared to $61.5 million for the nine months ended September 30, 2016, representing a decrease of $14.5 million, or 23.5%~~16.4%.

Gross profit margin from U.S. ~~commercial revenues~~product revenue was ~~69.1%~~72.2% for the three months ended ~~September~~June 30, ~~2017~~2019 compared to ~~60.4%~~75.8% for the three months ended ~~September~~June 30, ~~2016,~~2018 and ~~was 69.8%~~71.8% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 compared to ~~68.4%~~76.3% for the ~~nine~~six months ended ~~September~~June 30, ~~2016. These increases are~~2018. The decreases were attributable to ~~a reduction~~increases in excess and obsolescence expense ~~due to excess inventory quantities~~as we are launching newly developed products and product life cycle management activities during the comparable periods in 2016, as well as decreased fixed manufacturing overhead costs due to the consolidation of our facilities and termination of in-house manufacturing activities in early 2017.phasing out older products.

Gross profit margin from ~~other revenues~~international supply agreement was ~~9.5%~~3.7% for the three months ended ~~September~~June 30, ~~2017~~2019 compared to ~~42.9%~~5.6% for the three months ended ~~September~~June 30, ~~2016~~2018 and ~~10.2%~~7.7% for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 compared to ~~47.4%~~6.2% for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2018. The ~~decreases~~changes in gross margin ~~were~~from international supply agreement was primarily related to ~~sale~~the impact of ~~our international business~~fixed minimum royalty costs, product mix, and to ~~Globus,~~a lesser extent, decrease in average selling price for ~~which we supply international products at a reduced margin compared to historical levels.~~certain products.

Research and development expense. Research and development ~~expenses were stable at $1.0~~expense increased $1.4 million, ~~for~~or 70.0% during the three months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$1.1 million for~~ the three months ended ~~September~~June 30, ~~2016,~~2018 and ~~were $6.8~~increased $3.0 million, ~~for~~or 78.9% during the ~~nine~~six months ~~September~~ended June 30, ~~2016~~2019 compared to ~~$3.5 million for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2017, representing a decrease of $3.3 million, or 48.5%. This decrease was~~2018. These increases were primarily related to ~~a reduction in~~the integration of the SafeOp technology into our product portfolio, as evidenced by the achievement of the second SafeOp contingent consideration milestone, an increase of personnel related costs due to headcount reductions ($1.4 million), a decrease in stock compensation expense related to a consulting agreement ($0.6 million), a reduction of facility costs due to the consolidation of our facilities ($0.3 million), as well as ~~an overall reduction in regulatory, clinical~~increased product development costs and ~~other~~related research expenses. We expect research and development ~~costs of approximately $1.0 million as we completed several development projects in 2016. Our research and development may~~expenses to increase in future periods as we hire additional engineering and development talent, and continue to invest in our product pipeline.

Sales, general and ~~marketing~~administrative expense. Sales, general and ~~marketing~~administrative expense ~~was $10.0~~increased $7.1 million, ~~for~~or 40.6% during the three months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$11.8 million for~~ the three months ended ~~September~~June 30, ~~2016, representing a decrease of $1.8~~2018 and increased $10.8 million, or ~~15.3% and were $31.4 million for~~31.0% during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$39.5 million for~~ the ~~nine~~six months ended ~~September~~June 30, ~~2016, representing a decrease of $8.1 million, or 20.5%.~~2018. The ~~decrease for~~increases were primarily related to increased commission and related sales compensation expenses associated with our increase in U.S. revenue and continued investment in building out our strategic distribution channel, as well as increased marketing efforts, including additional headcount. Additionally, our stock-based compensation increased during the three and six months ended September 30, 2017 and 2016 was the result of a reduction in personnel and related expenses due to headcount reductions ($1.0 million), lower commission expense due to lower revenues ($0.6 million) and a reduction in general sales and marketing expenses due to the sale of our international business. The decrease for the nine months ended September 30, 2017 and 2016 was the result of a reduction in personnel and related expenses due to headcount reductions ($3.5 million), lower commission expense due to lower revenues ($3.4 million) and a reduction in general sales and marketing expenses due to the sale of our international business.2019. We expect our sales, general and ~~marketing~~administrative expenses to increase in absolute dollars in line with expected ~~increases~~increase in our ~~revenues.~~U.S. product revenue.

~~General and administrative expense.~~Litigation-related expenses. ~~General and administrative expense was relatively stable at $4.4~~Litigation-related expenses of $1.2 million for the three months ended ~~September~~June 30, ~~2017 compared to $4.1~~2019 and $2.2 million for the three months ended ~~September~~June 30, ~~2016,~~2018 and ~~was $16.0~~$3.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to $19.4~~2019 and $2.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016, representing a decrease of $3.4 million, or 17.5%. The decrease~~2018 are costs incurred for ~~the nine months ended September 30, 2017 and 2016 was~~our ongoing litigation, primarily ~~attributable to a reduction in personnel and related expenses due to headcount reductions ($1.7 million) and a reduction in legal, accounting and professional services ($2.0 million).~~with NuVasive, Inc.

Amortization of acquired intangible assets. Amortization of acquired intangible assets ~~was $0.2 million~~remained consistent for the three and six months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$0.1 million for~~ the three and six months ended ~~September~~June 30, ~~2016 and was $0.5 million for the nine months ended September 30, 2017 compared to $0.6 million for the nine months ended September 30, 2016.~~2018. This expense represents amortization in the period for intangible assets associated with general business assets, intellectual property, licenses and other assets obtained in acquisitions and licensing agreements.

Transaction-related expenses. ~~Goodwill and intangible impairment.~~ ~~Goodwill and intangible assets impairment was $1.7~~Transaction-related expenses of $1.5 million for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016. The 2016 impairment charge relates~~2018 are attributed to ~~intangible assets that~~advisory and legal fees and other transaction costs incurred in connection with the SafeOp acquisition.

Gain on settlement. In February 2018, we ~~determined~~reached a settlement agreement with Elite Medical Holdings and Pac 3 Surgical, pursuant to ~~be impaired~~which we made a cash payment of $0.4 million as the final and total compensation under a ~~result~~collaboration agreement and related amendment between the Company and these third parties. In addition, the parties agreed to release each other and waive any and all rights and claims arising from the collaboration agreement and amendment. We recorded a gain of approximately $6.2 million for the ~~Globus Transaction.~~six months ended June 30, 2018, reflecting the reversal of accrued obligations previously recorded under the collaboration agreement.

Restructuring expense. Restructuring expense was ~~$0.1~~$0.0 million for the three months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$1.6~~$0.2 million for the three months ended ~~September~~June 30, ~~2016~~2018 and ~~$1.9~~$0.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$1.8~~$0.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2018. Beginning in late 2016 with the sale of our international business to Globus and continuing in ~~2017,~~2018, we began a corporate initiative to rationalize our cost structure in line with our reduced operations and implemented a strategic repositioning of the Company, including the changeover of our senior leadership ~~team. As a result of these initiatives, we reduced headcount from 195 employees as of September 30, 2016 to 130 employees at September 30, 2017,~~team, and have incurred related restructuring costs consisting primarily of severance and other personnel charges.

~~Gain on sale of assets.~~ During the nine months ended September 30, 2017, we recorded a net gain of $0.9 million pursuant to a sale of certain inventory and intellectual property to a third party for $1.0 million in consideration, payable via a credit to future minimum royalties owed to the third party under an existing exclusive license agreement.

~~Interest expense,~~Total other income (expense), net. ~~Interest expense,~~Total other income (expense), net, ~~was $1.8~~increased $0.1 million ~~for~~during the three months ended ~~September~~June 30, ~~2017~~2019 compared to ~~$1.1 million for~~ the three months ended ~~September~~June 30, ~~2016 representing an increase of $0.7~~2018 and increased $0.6 million during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 primarily due to interest expense of $0.7 million Globus credit facility loan as part of Globus transaction. Interest expense, net was $5.7 million for the nine months ended September 30, 2017 compared to $3.1 million for the nine months ended September 30, 2016 representing an increase of $2.6 million. The increases for the nine months were primarily due to $2.2 million interest expense associated with Globus credit facility and $0.4 million related to Midcap credit facility. our new debt arrangements.

~~Discontinued operations~~. On September 1, 2016, we completed the sale of our International Business to Globus, whereby we sold our international distribution operations and agreements, including wholly-owned subsidiaries in Japan and Brazil and substantially all of the assets of other sales operations in the United Kingdom and Italy. As a result of the strategic decision to sell the International Business and focus on U.S market, the condensed consolidated statements of operations and the condensed consolidated balance sheets reflect the financial results from the International Business as discontinued operations for all periods presented.

For the three and nine months ended September 30, 2016, activity presented under discontinued operations in the condensed consolidated statements of operations represents commercial operations prior to the sale of the International Business in September 2016. Certain operating expenses were also allocated to the business activities associated with the discontinued operations as well as interest expense related to debt that we repaid using the proceeds from the sale of the International Business.

Income tax provision (benefit). The income tax provision in continuing operations was a benefit of $9.0 thousand and a tax expense of $23.0 thousand was charged to discontinued operations for the three months ended September 30, 2017. The 20172018 income tax benefit from continuing operations primarily consists of ~~decreases in income tax contingency reserves~~the release of the valuation allowance related to the SafeOp acquisition, partially offset by state ~~income taxes, and the~~taxes. ASC 740-20 requires total income tax expense ~~charged~~or benefit to be allocated among continuing operations, discontinued operations, ~~consists of interest expense on uncertain~~extraordinary items, other comprehensive income and

items charged directly to shareholders’ equity. This allocation is referred to as intra-period tax ~~positions in UK and Italy. The Company recorded an~~allocation. Accordingly, we are required to allocate the provision or benefit for income ~~tax benefit of $5.0 million in~~taxes between continuing operations and a tax expense of $8.5 million in discontinued operations for the three months ended September 30, 2016. The 2016 income tax benefit from continuing operations consists of the tax benefit of domestic losses as a result of an intraperiod tax allocation from discontinued operations. ~~The tax charge to discontinued operations primarily consists of US and foreign taxes resulting from the sale of the foreign operations.~~

The income tax provision in continuing operations was an expense of $57.0 thousand and a tax expense of $64 thousand was charged to discontinued operations for the nine months ended September 30, 2017. The 2017 income tax expense from continuing operations consists of state income taxes partially offset by decreases in income tax contingency reserves. The income tax expense charged to discontinued operations consists of interest expense on uncertain tax positions in UK and Italy. The Company recorded an income tax benefit of $5.0 million in continuing operations and a tax charge of $9.7 million to discontinued operations for the nine months ended September 30, 2016. The 2016 income tax benefit from continuing operations consists of the tax benefit of domestic losses as a result of an intraperiod tax allocation from discontinued operations. The tax charge to discontinued operations primarily consists of US and foreign taxes resulting from the sale of the foreign operations.

We utilize certain financial measures that are not calculated based on U.S. generally accepted accounting principles, or GAAP. Certain of these financial measures are considered “non-GAAP” financial measures within the meaning of Item 10 of Regulation S-K promulgated by the SEC. We believe that non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with the GAAP results, provide a more complete understanding of our results of operations and the factors and trends affecting our business. These non-GAAP financial measures are unaudited and are also used by our management to evaluate financial results and to plan and forecast future periods. However, non-GAAP financial measures should be considered as a supplement to, and not as a substitute for, or superior to, the corresponding measures calculated in accordance with GAAP. Non-GAAP financial measures used by us may differ from the non-GAAP measures used by other companies, including our competitors.

Adjusted EBITDA represents income (loss) from continuing operations excluding the effects of interest, taxes, depreciation, amortization, stock-based compensation, other income (expense) and other non-recurring income or expense items, such as asset impairments and restructuring and other expenses. We believe that the most directly comparable GAAP financial measure to adjusted EBITDA is income (loss) from continuing operations. Adjusted EBITDA has limitations. Therefore, adjusted EBITDA should not be considered either in isolation or as a substitute for analysis of our results as reported under GAAP. Furthermore, adjusted EBITDA should not be considered as an alternative to operating income (loss) or income (loss) from continuing operations as a measure of operating performance or to net cash provided by operating, investing or financing activities, or as a measure of our ability to meet our cash needs.

The following is a reconciliation of adjusted EBITDA to the most comparable GAAP measure, loss from continuing operations, for the three and nine months ended September 30, 2017 and 2016 (in thousands):

We have incurred significant net losses since inception and relied on our ability to fund our operations through revenues from the sale of our products, debt financings and equity ~~financings, including the Private Placement in March 2017.~~financings. As we have incurred losses, a successful transition to profitability is dependent upon achieving a level of revenues adequate to support our cost structure. This may not occur and, unless and until it does, we will continue to need to raise additional capital. At ~~September~~June 30, ~~2017,~~2019, our principal sources of liquidity consisted of cash of ~~$15.4~~$18.6 million and accounts receivable ~~net~~(net) of ~~$13.3~~$13.6 million. We believe that our current available cash, combined with ~~committed financing proceeds~~the availability of our expanded credit facility with Squadron Capital (described below) and draws on our revolving credit facility, will be sufficient to fund our planned expenditures and meet our obligations for at least 12 months following our financial statement issuance date.

Historically, our principal sources of cash have included customer payments from the sale of our products, proceeds from the issuance of common and preferred stock and proceeds from the issuance of debt. Our principal uses of cash have included cash used in operations, payments relating to purchases of surgical instruments, repayments of borrowings under the Amended Credit Facility, payments due under the Orthotec settlement agreement and acquisitions of businesses and intellectual property rights. We expect that our principal uses of cash in the future will be ~~these same uses of cash.~~similar. We expect that, as our revenues grow, our sales and marketing, research and development expenses and our capital expenditures will continue to grow and, as a result, we will need to generate significant net revenues to achieve profitability. ~~Operating~~We expect operating losses and negative cash flows ~~may~~to continue for at least the next year as we continue to incur costs related to the execution of our operating plan and introduction of new products.

On ~~October 2, 2017,~~March 27, 2019, we ~~entered into Securities Purchase Agreements (collectively,~~closed on an expanded credit facility with Squadron for up to $30 million in additional secured financing. This additional financing is provided under our existing credit facility with Squadron. In June 2019, we took a draw of $10 million on the ~~“Purchase Agreements”)~~expanded credit facility to be used for general corporate purposes. The additional borrowings under the credit facility will mature concurrent with ~~accredited investors Patrick Miles~~the current secured financing from Squadron and ~~Quentin Blackford (collectively, the “Purchasers”), pursuant to which Messrs. Miles and Blackford have agreed,~~bear interest at LIBOR plus 8% per annum, subject to a 10% floor and a 13% ceiling. Interest-only payments are due monthly through May 2021, followed by principal payable in 29 equal monthly installments beginning June 2021 and a lump-sum payment payable at maturity in November 2023. In conjunction with the ~~satisfaction of customary closing conditions~~first draw under the ~~Purchase Agreements,~~expanded credit facility, we issued to purchase from the Company, collectively, no less than 1,549,116 and as many as 1,769,912 shares of its common stock at a purchase price of $2.26 per share. The closing of the share purchases under the Purchase Agreements by Messrs. Miles and Blackford is expected to occur on or before January 1, 2018, subject to the satisfaction of customary closing conditions. The aggregate gross proceeds of the issuance and sale of the shares to Messrs. Miles and Blackford pursuant to the Purchase Agreements will be approximately $3.5 million to $4 million.

~~In connection with the Private Placement in March 2017, we also issued~~Squadron warrants to purchase ~~9.4 million~~4,838,710 shares of our common stock at an exercise price of ~~$2.00~~$2.17 per ~~share~~share. The warrants have a seven-year term and are immediately exercisable. No additional warrants to purchase 0.5 million shares of our common stock at an exercise price of $2.50 per share, for aggregate proceeds, if exercised, of approximately $20.0 million. During October 2017, we received proceeds of approximately $1.7 million in connection with exercise of approximately 0.9 million warrants.are due upon future draws.

We may seek additional funds from public and private equity or debt financings, borrowings under new or existing debt facilities or other sources to fund our projected operating requirements. However, there is no guarantee that we will be able to obtain further financing, or do so on reasonable terms. If we are unable to raise additional funds on a timely basis, or at all, we would be materially adversely affected.

As more fully described below, our debt agreements include traditional lending and reporting covenants, including a financial covenant that requires us to maintain a minimum fixed charge coverage ratio beginning in April 2020 and a minimum liquidity covenant of $5.0 million effective through March 2020. Should at any time we fail to maintain compliance with these covenants, we will need to seek waivers or amendments to the debt agreements. If we are unable to secure such waivers or amendments, we may be required to classify our obligations under the debt agreements in current liabilities on our consolidated balance sheet. We may also be required to repay all or a portion of outstanding indebtedness under the debt agreements, which would require us to obtain further financing. We were in compliance with the covenants under the credit agreement at June 30, 2019.

A substantial portion of our available cash funds is held in business accounts with reputable financial institutions. At times, however, our deposits may exceed federally insured limits and thus we may face losses in the event of insolvency of any of the financial institutions where our funds are deposited. We did not hold any marketable securities as of ~~September~~June 30, ~~2017.~~

On August 30, 2013, we entered into the Amended Credit Facility, which amended and restated the prior credit facility that we had with MidCap. On September 1, 2016, we entered into a Fifth Amendment to the MidCap Amended Facility Agreement, or the MidCap Fifth Amendment, that: (a) permitted (i) the Globus Transaction, (ii) the release of Alphatec International LLC and Alphatec Pacific, Inc. as credit parties, (iii) the payment in full of all obligations to Deerfield under the Facility Agreement between us and Deerfield, dated as of March 17, 2014, as amended to date, or the Deerfield Facility Agreement, and (iv) the incurrence of debt under the Globus Facility Agreement and the granting of liens in favor of Globus, (b) reduced the revolving credit commitment to $22.5 million and the term loan commitment to $5 million, (c) revised the existing financial covenant package, and (d) extended the commitment expiry date from December 31, 2016 to December 31, 2019. In connection with the prepayment of the term loan under the Amended Credit Facility, we incurred a prepayment fee of $0.6 million payable to MidCap. On March 30, 2017, we entered into a Sixth Amendment to the Amended Credit Facility to extend the date that the financial covenants of the Amended Credit Facility are effective from April 2017 to April 2018.

~~The term loan interest rate is priced at the London Interbank Offered Rate, or LIBOR, plus 8.0%, subject~~Amended Credit Facility, Squadron Credit Agreement and Other Debt

Our Amended Credit Facility with MidCap provides for a revolving credit commitment up to ~~a 9.5% floor, and~~$22.5 million. As of June 30, 2019, $10.7 million was outstanding under the revolving line of credit.

The revolving line of credit accrues interest ~~rate remains priced~~ at LIBOR plus 6.0%, reset monthly. At ~~September~~June 30, ~~2017,~~2019, the revolving line of credit carried an interest rate of ~~7.24% and the term loan carried an interest rate of 9.5%~~8.44%. The borrowing base is determined ~~from time to time,~~ based on the value of domestic eligible accounts receivable. As collateral for the Amended Credit Facility, ~~we granted~~ MidCap has a first lien security interest in ~~all~~ accounts receivable and a second lien on substantially all securities evidencing its interests in our subsidiaries. In addition to monthly payments of interest, monthly repayments of $0.2 million in 2017 and $0.3 million in 2018 through maturity are due, with the remaining principal due upon maturity. As of September 30, 2017, $9.2 million was outstanding under the revolving line of credit and $2.9 million was outstanding under the term loan.

~~The Amended Credit Facility includes traditional lending and reporting covenants including a fixed charge coverage ratio to be maintained by us.~~

other assets. The Amended Credit Facility also includes several event of default provisions, such as payment default, insolvency conditions and a material adverse effect clause, which could cause interest to be charged at a rate which is up to five percentage points above the rate effective immediately before the event of default or result in MidCap’s right to declare all outstanding obligations immediately due and payable.

On September 1, 2016, we entered into the Globus ~~Facility Agreement,~~facility, pursuant to which Globus agreed to loan us up to $30 ~~million, subject to the terms and conditions set forth in the Globus Facility Agreement.~~million. We made an initial draw of $25 million under the Globus ~~Facility Agreement~~facility with an additional draw of $5 million made in the fourth quarter of 2016. AsIn November 2018, the $29.2 million outstanding was paid in full.

On November 6, 2018, we closed the $35 million Term Loan with Squadron for net proceeds of ~~September 30, 2017, the outstanding balance under the Globus Facility Agreement was $30.0~~approximately $34.1 million, which ~~becomes due~~were partially used to retire our existing $29.2 million term debt with Globus noted above. In addition, in June 2019, we took a draw of $10 million from our total available $30 million expanded credit facility with Squadron. The total debt outstanding with Squadron has a five-year maturity and ~~payable in quarterly payments of $0.8 million starting November 2018 and the final payment due on September 30, 2021. The term loan~~bears interest ~~rate is priced~~ at LIBOR plus ~~8.0%~~8% (10.5% as of June 30, 2019) per annum. The credit agreement specifies a minimum interest rate of 10% and a maximum of 13% per year. Interest-only payments are due monthly through ~~September 1, 2018,~~May 2021, followed by $10 million in principal payable in 29 equal monthly installments beginning June 2021 and ~~LIBOR plus 13.0%, thereafter.~~

a $25 million lump-sum payment payable at maturity in November 2023. As collateral for the ~~Globus Facility Agreement, we granted Globus~~Term Loan, Squadron has a first lien security interest in substantially all assets except for accounts receivable.

We entered into an Inventory Financing Agreement whereby we may draw up to $3.0 million for the purchase of inventory to accrue interest at a rate of LIBOR plus 8% and also includes a 10% floor and 13% ceiling. All principal will become due and payable upon maturity on November 6, 2023 and all interest will be paid monthly. Should we elect to prepay the Squadron credit agreement, all amounts due under the Inventory Financing Agreement will become mandatorily due.

Our various debt agreements include several event of default provisions, such as payment default, insolvency conditions and a material adverse effect clause, which could cause interest to be charged at a rate which is up to five percentage points above the rate effective immediately before the event of default or result in our ~~assets, other than accounts receivable~~lenders’ rights to declare all outstanding obligations immediately due and ~~related assets,~~payable. Furthermore, the credit agreements contain various covenants, including various negative covenants including a $5 million minimum liquidity requirement through March 31, 2020. The minimum liquidity covenant will be replaced by a fixed charge ratio, pursuant to which ~~will secure the Globus Facility Agreement~~operating cash to fixed charges (as defined) must equal at least 1:1 on a ~~second lien basis.~~

rolling 12-month basis, beginning April 2020. We ~~have various capital lease arrangements. The leases bear interest~~were in compliance with the covenants under the credit agreements at rates ranging from 6.6% to 9.6%, are generally due in monthly principal and interest installments, are collateralized by the related equipment, and have various maturity dates through September 2018. As of SeptemberJune 30, ~~2017, the balance of these capital leases, net of interest totaled $0.1 million.~~2019.

As of ~~September~~June 30, ~~2017,~~2019, we have made ~~$30.7~~$38.4 million in Orthotec settlement payments and there remains an aggregate ~~$27.1~~$19.4 million of Orthotec settlement payments (including interest) to be paid by us.

We used net cash of ~~$8.1~~$14.6 million from operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019. During this period, net cash used in operating activities consisted of our net loss adjusted for non-cash adjustments including amortization, depreciation, stock-based compensation, provision for doubtful accounts, provision for excess and obsolete inventory, ~~and~~ interest expense related to amortization of debt discount and issuance costs, beneficial conversion feature from our convertible notes which matured during the first quarter 2019, and the contingent consideration fair market value adjustment of ~~$11.0~~$11.7 million and working capital and other assets used cash of ~~$7.8~~$2.9 million.

We used cash of ~~$6.3~~$3.7 million in investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019 primarily for the purchase of surgical instruments to support the commercial launch of ~~$7.2 million, net of $869,000 of cash received from sale of instruments.~~new products.

Financing activities provided ~~net~~ cash of ~~$10.0~~$7.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, primarily ~~attributable~~attributed to the ~~Private Placement, which provided~~$10.0 million draw from our Squadron expanded credit facility, net ~~cash proceeds~~ of ~~$17.2 million. Under the MidCap Amended Credit Facility, we made net payments~~$0.3 million debt discount and $1.4 million from warrant and stock

option exercises and purchase of ~~$3.5 million during the nine months ended September 30, 2017. We also made~~common stock under our employee stock purchase plan. This was offset by principal payments on ~~notes payable~~our term loan totaling $3.0 million and ~~capital leases totaling $3.7 million in~~net payments under the ~~nine months ended September 30, 2017.~~lines of credit of $0.3 million.

Total contractual obligations and commercial commitments as of ~~September~~June 30, ~~2017~~2019 are summarized in the following table (in thousands):

Payment Due by Year

Total

2017
(remainder)

2018

2019

2020

2021

Thereafter

Amended Credit Facility with MidCap

$
12,814

$
600

$
2,379

$
9,835

$
—

$
—

$
—

Facility Agreement with Globus

30,000

—

1,667

3,333

3,333

21,667

—

Interest expense

16,904

1,156

4,874

5,386

3,460

2,028

—

Notes payable for software licenses

221

—

84

90

47

—

—

Capital lease obligations

132

64

68

—

—

—

—

Operating lease obligations

6,205

452

1,656

1,542

1,584

971

—

Litigation settlement obligations

27,133

1,100

4,400

4,400

4,400

4,000

8,833

Guaranteed minimum royalty obligations

6,595

363

1,256

981

943

918

2,134

Stock price guarantee ⁽¹⁾

6,873

2,186

2,343

2,344

—

—

—

New product development milestones ⁽²⁾

400

—

200

—

200

—

—

Total

$
107,277

$
5,921

$
18,927

$
27,911

$
13,967

$
29,584

$
10,967

	Payment Due by Year
	Total		2019 (remainder)		2020		2021		2022		2023		Thereafter
Amended Credit Facility with MidCap	$	11,343	$	—	$	—	$	—	$	11,343	$	—	$	—
Inventory financing		1,825		—		—		—		—		1,825		—
Squadron Term Loan		45,000		—		—		4,483		7,685		32,832		—
Interest expense		24,580		3,261		6,509		6,375		5,646		2,789		—
Note payable for software agreements and insurance premiums		256		209		47		—		—		—		—
Capital lease obligations		129		18		37		37		37		—		—
Facility lease obligation		2,954		689		1,416		849		—		—		—
Other operating lease obligations		641		150		302		189		—		—		—
Litigation settlement obligations, gross⁽²⁾		19,433		2,200		4,400		4,000		4,400		4,400		33
Guaranteed minimum royalty obligations		5,684		781		943		918		918		918		1,206
License agreement milestones⁽¹⁾		2,250		700		650		250		450		—		200
Total	$	114,095	$	8,008	$	14,304	$	17,101	$	30,479	$	42,764	$	1,439

In January 2016, we entered into a lease agreement (the “Building Lease”) for office, engineering, and research and development space in Carlsbad, California with the lease term through July 31, 2021. Under the Building Lease our monthly rent payable is approximately $105,000 during the first year and increases by approximately $3,000 each year thereafter.

~~Except as described~~Aside from newly implemented accounting policies related to revenue recognition discussed above under “Critical Accounting Policies and Estimates” and for the changes disclosed in Note 2 to the Notes to Condensed Consolidated Financial Statements (Unaudited) under the heading “Recent Accounting Pronouncements,” there have been no new accounting pronouncements or changes to accounting pronouncements during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2019, as compared to the recent accounting pronouncements described in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, filed on March ~~31, 2017.~~29, 2019.

This Quarterly Report on Form 10-Q incorporates a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended ~~or the Securities Act,~~(the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, ~~or the Exchange Act,~~as amended (the “Exchange Act”), including statements regarding:

32our ability to meet, and potential liability from not meeting, the payment obligations under the Orthotec settlement agreement;

•

~~our ability to meet, and potential liability from not meeting, the payment obligations under the Orthotec settlement agreement;~~

our ability to regain and maintain compliance with the quality requirements of the FDA;

our ability to market, improve, grow, commercialize and achieve market acceptance of any of our products or any product candidates that we are developing or may develop in the future;

our beliefs about the features, strengths and benefits of our products;

our ability to successfully achieve and maintain regulatory clearance or approval for our products in applicable jurisdictions and in a timely manner;

the effect of any existing or future federal, state or international regulations on our ability to effectively conduct our business;

our estimates of market sizes and anticipated uses of our products;

our business strategy and our underlying assumptions about market data, demographic trends, reimbursement trends and pricing trends;

our ability to achieve profitability, and the potential need to raise additional funding;

our ability to attract and retain a qualified management team, as well as other qualified personnel and advisors;

our ability to protect our intellectual property, and to not infringe upon the intellectual property of third parties;

our ability to meet or exceed the industry standard in clinical and legal compliance and corporate governance programs;

potential liability resulting from litigation;

potential liability resulting from a governmental review of our business practices;

our beliefs about the usefulness of the non-GAAP financial measures included in this Quarterly Report on Form 10-Q;

our beliefs with respect to our critical accounting policies and the reasonableness of our estimates and assumptions; and

other factors discussed elsewhere in this Quarterly Report on Form 10-Q or any document incorporated by reference herein or therein.

Any or all of our forward-looking statements in this Quarterly Report on Form 10-Q may turn out to be wrong. They can be affected by inaccurate assumptions and/or by known or unknown risks and uncertainties. Many factors mentioned in our discussion in this Quarterly Report on Form 10-Q will be important in determining future results. Consequently, no forward-looking statement can be guaranteed. Actual future results may vary materially from expected results.

We also provide a cautionary discussion of risks and uncertainties under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. These are factors that we think could cause our actual results to differ materially from expected results. Other factors besides those listed there could also adversely affect us.

Without limiting the foregoing, the words “believe,” “anticipate,” “plan,” “expect,” “estimate,” “may,” “will,” “should,” “could,” “would,” “seek,” “intend,” “continue,” “project,” and similar expressions are intended to identify forward-looking statements. There are a number of factors and uncertainties that could cause actual events or results to differ materially from those indicated by such forward-looking statements, many of which are beyond our control, including the factors set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 and any updates to those risk factors filed from time to time in our subsequent periodic and current reports filed with the SEC. In addition, the forward-looking statements contained herein represent our estimate only as of the date of this filing and should not be relied upon as representing our estimate as of any subsequent date. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so to reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements.

Item 3.

Quantitative a~~nd Qualitati~~veand Qualitative Disclosures About Market Risk

Interest Rate Risk

Other outstanding debt consists of fixed rate instruments, including debt outstanding under the Amended Credit Facility with MidCap and the Globus Facility Agreement, notes payable and capital leases.

Our borrowings under our credit facilities expose us to market risk related to changes in interest rates. As of ~~September~~June 30, ~~2017,~~2019, our outstanding floating rate indebtedness totaled ~~$42.5~~$57.6 million. The primary base interest rate is the LIBOR rate. Assuming the outstanding balance on our floating rate indebtedness remains constant over a year, a 100 basis point increase in the interest rate would decrease pre-tax income and cash flow by approximately ~~$0.4~~$0.6 million. ~~Other outstanding debt consists of fixed rate instruments, including debt outstanding under the Amended Credit Facility with MidCap and the Globus Facility Agreement, notes payable and capital leases.~~

Commodity Price Risk

We purchase raw materials that are processed from commodities, such as titanium and stainless steel. These purchases expose us to fluctuations in commodity prices. Given the historical volatility of certain commodity prices, this exposure can impact our product costs. However, because our raw material prices comprise a small portion of our cost of revenues, we have not experienced any material impact on our results of operations from changes in commodity prices. A 10% change in commodity prices would not have had a material impact on our results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2019.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit pursuant to the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s, or SEC's, rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this ~~Quarterly Report on Form 10-Q.~~report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, has concluded that our disclosure controls and procedures were not effective at a reasonable assurance level for the interim periods ended and as of June 30, 2018 and September 30, 2018 and as of December 31, 2018. This conclusion was based on the material weakness identified in our internal control over financial reporting related to our lack of sufficient oversight and review to ensure the complete and proper application of U.S. GAAP associated with complex equity transactions. We identified and reported this weakness to the Audit Committee of our Board of Directors. A material weakness existed as of December 31, 2018 that was remediated during the first quarter 2019. All controls were deemed to be functioning effectively as of June 30, 2019.

Remediation of the Material Weakness during the first quarter 2019

This material weakness related to a lack of sufficient oversight and review to ensure the complete and proper application of U.S. GAAP associated with complex equity transactions. To remediate the material weakness described above and to prevent similar deficiencies in the future, we added additional controls and procedures, including:

Hiring of additional personnel, including an accounting manager and staff accountant, that allows for increased oversight of the accounting and finance processes and additional review of complex and non-routine transactions; and

Re-design of internal controls to ensure more timely quarterly reviews of technical accounting positions documented by our staff and our independent external technical accounting consultants

However, the material weakness will not be considered fully remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. Any actions we have taken or ~~persons performing similar functions,~~may take to remediate these deficiencies are subject to continued management review supported by testing, as ~~appropriate~~well as oversight by the Audit Committee of our Board of Directors.

We cannot assure you that material weaknesses or significant deficiencies will not occur in the future and that we will be able to ~~allow~~remediate such weaknesses or deficiencies in a timely ~~decisions regarding required disclosure.~~manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows.

Changes in Internal Control over Financial Reporting

~~There were~~Except as described above, there has been no ~~changes in~~change to our internal control over financial reporting ~~identified in connection with the evaluation of such internal control~~during our most recent fiscal quarter that ~~occurred during the quarter ended September 30, 2017 that have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

Litigation

We are and may become involved in various legal proceedings arising from our business activities. While the Company has no material accruals for pending litigation or claims for which accrual amounts are not disclosed in the Company’s consolidated financial statements, litigation is inherently unpredictable, and depending on the nature and timing of a proceeding, an unfavorable resolution could materially affect our future consolidated results of operations, cash flows or financial position in a particular period. We assess contingencies to determine the degree of probability and range of possible loss for potential accrual or disclosure in our consolidated financial statements. An estimated loss contingency is accrued in our consolidated financial statements if it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. Because litigation is inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about future events. When evaluating contingencies, we may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. In addition, damage amounts claimed in litigation against us may be unsupported, exaggerated or unrelated to reasonably possible outcomes, and as such are not meaningful indicators of our potential liability.

Refer to Note 6 for further information regarding the NuVasive, Inc. litigation.

Item 1A.

Risk Factors

There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2018, filed with the SEC on March ~~31, 2017.~~29, 2019.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

~~Unregistered Sales of Equity Securities~~None.

Item 5.

Other Information

None.

~~None~~

~~Issuer Purchases of Equity Securities~~

Under the terms of our 2016 Equity Incentive Plan and our Amended and Restated 2005 Employee, Director and Consultant Stock Plan, as amended, which we refer to collectively as the Stock Plans, and prior to the expiration of the Stock Plans in May 2026, we are permitted to award shares of restricted stock to our employees, directors and consultants. These shares of restricted stock are subject to a lapsing right of repurchase by us. We may exercise this right of repurchase in the event that a restricted stock recipient’s employment, directorship or consulting relationship with us terminates prior to the end of the vesting period. If we exercise this right, we are required to repay the purchase price paid by or on behalf of the recipient for the repurchased restricted shares. Repurchased shares are returned to the Stock Plan and are available for future awards under the terms of the Stock Plan. There were no shares of common stock repurchased during the quarter ended September 30, 2017.

3536

Item 6.

Exhibits

Exhibit

Number

Exhibit Description


10.1		Form of Warrant(1)

10.2		Registration Rights Agreement between Alphatec Holdings Inc. and Squadron Medical Finance Solutions LLC and Tawani Holdings LLC, dated June 21, 2019(2)

10.3		Third Amendment to the Amended and Restated 2016 Equity Incentive Award Plan(3)

10.4		First Amendment to the Amended and Restated 2007 Employee Stock Purchase Plan(4)

10.5		Fifth Amendment to the 2016 Employee Inducement Awards Plan(5)

31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		The following materials from the Alphatec Holdings, Inc. Quarterly Report on Form 10-Q for the ~~three~~Three and ~~nine~~Six months ended ~~September~~June 30, ~~2017,~~2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of ~~September~~June 30, ~~2017~~2019 and December 31, ~~2016,~~2018, (ii) Condensed Consolidated Statements of Operations (Unaudited) for the ~~three~~Three and ~~nine months ended September~~Six Months Ended June 30, ~~2017~~2019 and ~~2016,~~2018, (iii) Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the ~~three~~Three and ~~nine months ended September~~Six Months Ended June 30, ~~2017~~2019 and ~~2016,~~2018, (iv) Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2019 and 2018 (v) Condensed Consolidated Statements of Cash Flows (Unaudited) for ~~the nine months ended September~~Six Months Ended June 30, ~~2017~~2019 and ~~2016,~~2018, and ~~(v)~~(vi) Notes to Condensed Consolidated Financial Statements (Unaudited).

(1)

Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the SEC on June 27, 2019

(2)

Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed with the SEC on June 27, 2019

(3)

Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed with the SEC on June 13, 2019

(4)

Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed with the SEC on June 13, 2019

(5)

Incorporated by reference to Exhibit 10.11 to the Company's Form S-8 filed with the SEC on July 16, 2019

3637

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.

ALPHATEC HOLDINGS, INC.

By:	/s/ ~~Terry M. Rich~~Patrick S. Miles
	~~Terry M. Rich~~Patrick S. Miles
	~~Director~~Chairman and Chief Executive Officer
	(principal executive officer)

By:	/s/ Jeffrey G. Black
	Jeffrey G. Black
	Executive Vice President and Chief Financial Officer
	(principal financial officer and principal accounting officer)

Date: ~~November 9, 2017~~July 26, 2019

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, par value $.0001 per share	ATEC	The NASDAQ Global Select Market

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐	~~(Do not check if a small reporting company)~~☒		Smaller reporting company	☒
Emerging growth company	☐

	September 30, 2017			December 31, 2016			June 30, 2019			December 31, 2018
Raw materials	$	5,454		$	7,301		$	6,071		$	5,813
Work-in-process		926			823			814			952
Finished goods		38,910			38,469			46,615			39,758
		45,290			46,593			53,500			46,523
Less reserve for excess and obsolete finished goods		(15,543	)		(16,500	)		(20,895	)		(17,758	)
Inventories, net	$	29,747		$	30,093		$	32,605		$	28,765

	Useful lives (in years)		September 30, 2017			December 31, 2016			Useful lives (in years)		June 30, 2019			December 31, 2018
Surgical instruments		4	$	53,116		$	53,095			4	$	54,584		$	54,848
Machinery and equipment		7		5,492			5,435			7		6,003			5,971
Computer equipment		3		3,512			3,511			3		3,391			3,104
Office furniture and equipment		5		2,707			2,695			5		1,244			1,155
Leasehold improvements	various			1,664			3,467		various			1,761			1,765
Construction in progress	n/a			-			445		n/a			145			92
				66,491			68,648					67,128			66,935
Less accumulated depreciation and amortization				(53,216	)		(53,572	)				(52,038	)		(53,700	)
Property and equipment, net			$	13,275		$	15,076				$	15,090		$	13,235

	Remaining Avg. Useful lives (in years)		September 30, 2017			December 31, 2016			Remaining Avg. Useful lives (in years)		June 30, 2019			December 31, 2018
Developed product technology		—	$	13,876		$	13,876
Developed technology										10	$	26,976		$	26,976
Intellectual property		—		1,004			1,004			—		1,004			1,004
License agreements		2		5,738			5,265			1		5,536			5,536
Trademarks and trade names		—		732			732			—		792			792
Customer-related		8		7,458			7,458			4		7,458			7,458
Distribution network		8		4,027			4,027			3		4,027			4,027
In process research and development										19		8,800			8,800
				32,835			32,362					54,593			54,593
Less accumulated amortization				(27,353	)		(26,651	)				(28,539	)		(28,185	)
Intangible assets, net			$	5,482		$	5,711				$	26,054		$	26,408

		Page
	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2019 (unaudited) and December 31, ~~2016~~2018	3

	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (unaudited)	4

	Condensed Consolidated Statements of Comprehensive Loss for the Three and ~~Nine months~~ Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (unaudited)	5

	Condensed Consolidated Statements of ~~Cash Flows~~Stockholders’ Equity for the ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2017~~2019 and ~~2016~~2018 (unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2019 and 2018 (unaudited)	8

	Notes to Condensed Consolidated Financial Statements (unaudited)	79

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2325

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34

Item 4.	Controls and Procedures	34

	PART II – OTHER INFORMATION

Item 1.	Legal Proceedings	3536

Item 1A.	Risk Factors	3536

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3536

Item 5.	Other Information	36

Item 6.	Exhibits	3637

SIGNATURES		3738

	Level 3 Liabilities
Balance at January 1, 2019	$	2,600
Settlement of Milestone #2		(2,889	)
Change in fair value measurement		289
Balance at March 31, 2019		—
Vested portion of liability classified equity award		31
Balance at June 30, 2019	$	31

Year Ending December 31,
Remainder of 2017	$	234
2018		801
2019		757
Remainder of 2019			$	899
2020		756		1,870
2021		756		1,890
2022				1,890
2023				1,890
Thereafter		2,178		17,615
	$	5,482	$	26,054

Consideration received	$	80,000
Cash included in assets sold		(4,250	)
Transaction costs		(5,960	)
Net cash proceeds		69,790
Less:
Product supply obligation		(1,927	)
Working capital adjustment		(2,295	)
Carrying value of business and assets sold		(57,633	)
Net gain on sale of business	$	7,935

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016			2017		2016
Depreciation and amortization	$	—	$	1,024		$	—	$	3,836
Provision for excess and obsolete inventory	$	—	$	15		$	—	$	151
Capital expenditures	$	—	$	211		$	—	$	1,319
Interest expense related to amortization of debt discount and debt issuance costs	$	—	$	—		$	—	$	2,052

Year Ending December 31,	Operating		Capital
Remainder of 2017	$	452	$	64
2018		1,656		68
2019		1,542		—
2020		1,584		—
2021 and thereafter		971		—
	$	6,205		132
Less: amount representing interest				(5	)
Present value of minimum lease payments				127
Current portion of capital leases				(127	)
Capital leases, less current portion			$	-

Undiscounted lease payments:
Year Ending December 31,
Remainder of 2019	$	689
2020		1,416
2021		849
Total undiscounted lease payments		2,954
Less: present value adjustment		(314	)
Operating lease liability		2,640
Less: current portion of operating lease liability		(1,173	)
Operating lease liability, less current portion	$	1,467

	Three Months Ended September 30,				Nine Months Ended September 30,				As of June 30,
	2017		2016		2017		2016		2019		2018
Options to purchase common stock		2,948		594		1,861		611		4,253		3,313
Unvested restricted share awards		16		63		51		49		6,641		2,139
Series A Convertible Preferred Stock		4,848		—		4,135		—		164		2,022
Convertible Notes										—		988
Warrants to purchase common stock		-		8		1,013		8		26,885		20,932
Total		7,812		665		7,060		668		37,943		29,394

	Shares			Weighted average exercise price		Weighted average remaining contractual term (in years)		Aggregate intrinsic value
Outstanding at December 31, 2016		1,155		$	12.17		7.75	$	—
Granted		2,686		$	1.91
Forfeited		(383	)	$	12.18
Outstanding at September 30, 2017		3,458		$	4.20		8.94	$	1,276
Options vested and exercisable at September 30, 2017		421		$	17.91		4.20	$	10
Options vested and expected to vest at September 30, 2017		3,096		$	4.44		8.86	$	1,113

	Shares			Weighted average grant date fair value		Weighted average remaining recognition period (in years)
Unvested at December 31, 2016		1,092		$	7.48		3.02
Awarded		357		$	2.15
Vested		(81	)	$	4.49
Forfeited		(238	)	$	2.30
Unvested at September 30, 2017		1,130		$	4.50		2.78

	June 30, 2019

	~~Shares Reserved~~
Stock options outstanding		~~3,458~~4,253
Unvested restricted stock award		~~1,130~~6,641
Employee stock purchase plan		~~451~~
~~Available for future grants under the Inducement Plan~~132		~~440~~
Series A convertible preferred stock		~~3,686~~164
Warrants ~~to purchase common stock~~outstanding		~~9,904~~26,885
~~Total shares reserved~~Authorized for future grant under the Distributor and Development Services plans		~~19,069~~3,923
Authorized for future grant under the Company equity plans		2,014
Total		44,012

	Number of Warrants		Strike Price
2017 Common Stock Warrants		3,657,000	$	2.00
2017 Banker Warrants		148,554	$	2.50
2018 Common Stock Warrants		13,860,851	$	3.50
Merger Warrants		2,200,000	$	3.50
Executive		1,327,434	$	5.00
Squadron Capital		845,000	$	3.15
Squadron Capital		4,838,710	$	2.17
Other		7,812	$	19.20
Total		26,885,361

Balance as of January 1, 2017	$	1,328
Balance at January 1, 2019				$	710
Accrued restructuring charges		1,231			60
Payments		(940	)		(608	)
Balance as of March 31, 2017		1,619
Balance at March 31, 2019					162
Accrued restructuring charges		528			—
Payments		(1,115	)		(22	)
Balance as of June 30, 2017	$	1,032
Accrued restructuring charges		139
Payments		(701)
Balance as of September 30, 2017	$	470
Balance at June 30, 2019				$	140

	Three Months Ended June 30,								Increase (Decrease)						Six Months Ended June 30,								Increase (Decrease)
	2019				2018				$			%			2019				2018				$			%
U.S. revenues by distributor type:
Strategic distribution	$	22,854	88	%	$	16,248	80	%	$	6,606			41	%	$	42,226	86	%	$	30,121	76	%	$	12,105			40	%
Legacy and terminated distribution		3,239	12	%		4,161	20	%		(922	)		(22)	%		6,822	14	%		9,489	24	%		(2,667	)		(28)	%
Total U.S. revenues	$	26,093	100	%	$	20,409	100	%	$	5,684			28	%	$	49,048	100	%	$	39,610	100	%	$	9,438			24	%

	Payment Due by Year
	Total		2017 (remainder)		2018		2019		2020		2021		Thereafter
Amended Credit Facility with MidCap	$	12,814	$	600	$	2,379	$	9,835	$	—	$	—	$	—
Facility Agreement with Globus		30,000		—		1,667		3,333		3,333		21,667		—
Interest expense		16,904		1,156		4,874		5,386		3,460		2,028		—
Notes payable for software licenses		221		—		84		90		47		—		—
Capital lease obligations		132		64		68		—		—		—		—
Operating lease obligations		6,205		452		1,656		1,542		1,584		971		—
Litigation settlement obligations		27,133		1,100		4,400		4,400		4,400		4,000		8,833
Guaranteed minimum royalty obligations		6,595		363		1,256		981		943		918		2,134
Stock price guarantee ⁽¹⁾		6,873		2,186		2,343		2,344		—		—		—
New product development milestones ⁽²⁾		400		—		200		—		200		—		—
Total	$	107,277	$	5,921	$	18,927	$	27,911	$	13,967	$	29,584	$	10,967