What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 115 added, 87 removed, 668 unchanged (23% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Current assets:

32 unchanged sentences

50,000,000 shares authorized;

19,544,008 shares and 16,723,128 shares issued as of June 30, 2020 (unaudited) and December 31, 2019, respectively

19,554,621 shares and 16,723,128 shares issued as of September 30, 2020 (unaudited) and December 31, 2019, respectively

Additional paid-in capital 387,117 271,182

Accumulated deficit ( 147,753 ) ( 128,822 )

Accumulated other comprehensive loss 161 ( 3 )

Accumulated other comprehensive income (loss) 67 ( 3 )

Total stockholders' equity 239,436 142,361

4 unchanged sentences

(In Thousands, Except Share and Per Share Data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

14 unchanged sentences

Net loss from continuing operations $ ( 4,539 ) $ ( 2,877 ) $ ( 18,931 ) $ ( 8,356 )

Net loss from discontinued operations — ( 159 ) — ( 159 )

Net income from discontinued operations — 213 — 54

Net loss $ ( 4,539 ) $ ( 2,664 ) $ ( 18,931 ) $ ( 8,302 )

5 unchanged sentences

(In Thousands)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

8 unchanged sentences

(In Thousands, Except Share Data)

Three and Six Months Ended June 30, 2020

Three and Nine Months Ended September 30, 2020

Additional Other Total

16 unchanged sentences

Balance at June 30, 2020 19,544,008 $ 5 — $ — $ 385,510 $ ( 143,214 ) $ 161 $ 242,462

Three and Six Months Ended June 30, 2019

Net Loss — — — — — ( 4,539 ) — ( 4,539 )

Other comprehensive loss — — — — — — ( 94 ) ( 94 )

Stock option exercise 11,230 — — — 348 — — 348

Restricted stock ( 617 ) — — — 1,259 — — 1,259

Balance at September 30, 2020 19,554,621 $ 5 — — $ 387,117 $ ( 147,753 ) $ 67 $ 239,436

ORTHOPEDIATRICS CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share Data)

Three and Nine Months Ended September 30, 2019

Additional Other Total

13 unchanged sentences

Balance at June 30, 2019 14,939,462 $ 4 $ 209,262 $ ( 120,729 ) $ ( 455 ) $ 88,082

Net Loss — — — ( 2,664 ) — ( 2,664 )

Other comprehensive loss — — — — ( 530 ) ( 530 )

Stock option exercise 17,511 — 484 — — 484

Restricted stock 10,155 — 733 — — 733

Balance at September 30, 2019 14,967,128 $ 4 $ 210,479 $ ( 123,393 ) $ ( 985 ) $ 86,105

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Six Months Ended

Nine Months Ended

September 30,

OPERATING ACTIVITIES

22 unchanged sentences

Purchases of property and equipment ( 6,448 ) ( 10,536 )

Net cash used in investing activities - continuing operations ( 9,349 ) ( 58,610 )

Net cash used in investing activities - discontinued operations — ( 47 )

Net cash used in investing activities ( 10,637 ) ( 60,393 )

1 unchanged sentence

Proceeds from issuance of debt with affiliate — 30,000

Payments on note with affiliate ( 5,000 ) —

Payments on debt with affiliate ( 25,000 ) —

Proceeds from issuance of common stock, net of issuance costs 70,207 —

14 unchanged sentences

Issuance of common shares to acquire ApiFix $ 35,176 $ —

Issuance of common shares to acquire Band-Lok $ 2,644 $ —

Issuance of common shares to acquire Band-Lok intellectual property $ 2,644 $ —

See notes to condensed consolidated financial statements.

19 unchanged sentences

ApiFix, a corporation organized under the laws of Israel, has developed a minimally invasive deformity correction system for patients with Adolescent Idiopathic Scoliosis ("ApiFix System").

In addition, we have also agreed to pay as part of the purchase price the following anniversary payments:

(i) $ 13,000 on the second anniversary of the closing date, provided that such payment will be paid earlier if 150 clinical procedures using the ApiFix System are completed in the United States before such anniversary date, (ii) $ 8,000 on the third anniversary of the closing date;

In addition, we have also agreed to pay as part of the purchase price the following anniversary payments, subject to certain limitations and adjustments:

(i) approximately $ 13,000 on the second anniversary of the closing date, provided that such payment will be paid earlier if 150 clinical procedures using the ApiFix System are completed in the United States before such anniversary date, (ii) $ 8,000 on the third anniversary of the closing date;

and (iii) $ 9,000 on the fourth anniversary of the closing date.

In addition, to the extent that the product of our revenues from the ApiFix System for the twelve months ended June 30, 2024 multiplied by 2.25 exceeds the anniversary payments

actually made for the third and fourth years, we have agreed to pay the selling shareholders a system sales payment in the amount of such excess.

In addition, to the extent that the product of our revenues from the ApiFix System for the twelve months ended June

30, 2024 multiplied by 2.25 exceeds the anniversary payments actually made for the third and fourth years, we have agreed to pay the selling shareholders a system sales payment in the amount of such excess.

The anniversary payments and system sales payment may each be made in cash or cash and common stock.

12 unchanged sentences

We have prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying condensed consolidated balance sheets as of June 30, 2020 and December 31, 2019, the condensed consolidated statements of operations for the three and six months ended June 30, 2020 and 2019, the condensed consolidated statements of comprehensive loss for the three and six months ended June 30, 2020 and 2019, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2020 and 2019 and the condensed consolidated statements of cash flows for the six months ended June 30, 2020 and 2019 are unaudited and should be read in conjunction with the annual consolidated financial statements as of and for the year ended December 31, 2019 and related notes thereto contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 5, 2020.

The accompanying condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, the condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 are unaudited and should be read in conjunction with the annual consolidated financial statements as of and for the year ended December 31, 2019 and related notes thereto contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 5, 2020.

The financial data and other financial information disclosed in the notes to the accompanying condensed consolidated financial statements are also unaudited.

1 unchanged sentence

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2019 and, in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the financial statements for the interim periods.

The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year or for any other period.

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year or for any other period.

The accompanying condensed consolidated financial statements have been prepared assuming our Company will continue as a going concern.

We have experienced recurring losses from operations since our inception and had an accumulated deficit of $ 143,214 and $ 128,822 as of June 30, 2020 and December 31, 2019, respectively.

We have experienced recurring losses from operations since our inception and had an accumulated deficit of $ 147,753 and $ 128,822 as of September 30, 2020 and December 31, 2019, respectively.

Management continues to monitor cash flows and liquidity on a regular basis.

We believe that our cash balance at June 30, 2020 and expected cash flows from operations for the next twelve months subsequent to the issuance of the accompanying condensed consolidated

financial statements, are sufficient to enable us to maintain current and essential planned operations for more than the next twelve months.

We believe that our cash balance at September 30, 2020 and expected cash flows from operations

for the next twelve months subsequent to the issuance of the accompanying condensed consolidated financial statements, are sufficient to enable us to maintain current and essential planned operations for more than the next twelve months.

On June 22, 2020, we completed a follow-on offering of our common stock, in which we issued and sold 1.6 million shares of common stock at a public offering price of $ 47.00 per share for aggregate gross proceeds of $ 75,200 .

170 unchanged sentences

NOTE 3 – BUSINESS COMBINATION

On April 1, 2020, the Company purchased all the issued and outstanding membership interest of ApiFix for $ 2,000 in cash, including $ 343 of cash acquired, 934,783 shares of the Company's common stock, $ 0.00025 par value per share, representing approximately $ 35,176 (based on a closing share price of $ 37.63 on April 1, 2020), $ 30,000 in anniversary payments, and approximately $ 41,741 in a system sales payment.

The total consideration transferred of $ 87,379 is preliminary and subject to certain limitations and adjustments.

On April 1, 2020, the Company purchased all the issued and outstanding membership interest of ApiFix for $ 2,000 in cash, including $ 343 of cash acquired, 934,783 shares of the Company's common stock, $ 0.00025 par value per share, representing approximately $ 35,176 (based on a closing share price of $ 37.63 on April 1, 2020), approximately $ 30,000 in anniversary payments, and approximately $ 41,741 in a system sales payment.

The total consideration transferred of $ 87,379 , as calculated after discounting future payments to present value, is preliminary and subject to certain limitations and adjustments.

ApiFix, a corporation organized under the laws of Israel, has developed a minimally invasive deformity correction system for patients with Adolescent Idiopathic Scoliosis ("ApiFix System").

25 unchanged sentences

Non-competition Agreements 200 4 years

The Company recorded a measurement period adjustment of $ 7,930 during fiscal 2020 to increase patents and decrease goodwill related to the refinement of inputs of the acquisition valuation.

The Company is obligated to make anniversary payments of:

and (iii) $ 9,000 on the fourth anniversary of the closing date, subject to adjustments.

4 unchanged sentences

The fair value of the contingent consideration payments is considered a Level 3 investment and were determined by an independent valuation specialist at the original issuance date using an option pricing model and a Monte Carlo simulation based on forecast annual revenue, expected volatility and an implied probability of achieving revenue forecasts.

The fair value of the payments will continue to be adjusted as additional information becomes available regarding the progress toward achievement of the revenue forecast.

The adjustment in the fair value of the contingent consideration payments of $ 910 was recognized as an expense for the six month period ended June 30, 2020 in other expenses on the condensed consolidated statements of operations.

An additional $ 886 was recognized as interest expense for the six month period ended June 30, 2020 on the condensed consolidated statements of operations for the adjustment in the fair value of the acquisition installment payable.

The fair value of the payment will continue to be adjusted as additional information becomes available regarding the progress toward achievement of the revenue forecast.

The adjustments in the fair value of the contingent consideration payments of $ 909 and $ 1,819 were recognized as an expense for the three and nine month periods ended September 30, 2020, respectively, in other expenses on the condensed consolidated statements of operations.

An additional $ 816 and $ 1,702 were recognized as interest expense for the three and nine month periods ended September 30, 2020, respectively, on the condensed consolidated statements of operations for the adjustment in the fair value of the acquisition installment payable.

Presented below is a summary of the present value of the anniversary payments and system sales payment related to the ApiFix acquisition:

April 1, 2020 June 30, 2020

April 1, 2020 September 30, 2020

Anniversary Payments:

16 unchanged sentences

Accounts receivable-trade 215

Prepaid expenses and other current assets 38

Property and equipment 10

12 unchanged sentences

Non-competition Agreements 40 5 years

The Company recorded a measurement period adjustment during fiscal 2020 to increase prepaid expenses and decrease goodwill related to contractual terms.

Vilex and Orthex

On June 4, 2019, the Company purchased all the issued and outstanding shares of stock of Vilex and units of membership interests in Orthex for $ 50,000 in cash, adjusted for working capital, and 245,352 shares of common stock, $ 0.00025 par value per share, of the Company.

The shares of common stock were valued at $ 40.76 per share, the volume weighted average trading price during the thirty day trading period ending on May 30, 2019.

The shares of common stock

were valued at $ 40.76 per share, the volume weighted average trading price during the thirty day trading period ending on May 30, 2019.

In addition, $ 3,000 was placed in an escrow account for a period of up to twenty months to cover certain indemnification obligations and to secure certain closing adjustments.

34 unchanged sentences

In order to accurately present the historical period, we have revised our December 31, 2019 balance sheet and related footnotes to reflect the immaterial correction of this error.

Pro forma net revenue and net loss from continuing operations for the six months ended June 30, 2019 assuming the Orthex and Vilex acquisition occurred on January 1, 2019 would have been $ 34,792 and ($ 4,948 ), respectively.

NOTE 4 - GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the six months ended June 30, 2020 were as follows:

Changes in the carrying amount of goodwill for the nine months ended September 30, 2020 were as follows:

Goodwill at January 1, 2019 $ —

5 unchanged sentences

ApiFix acquisition 45,583

Goodwill at June 30, 2020 $ 68,420

Foreign currency translation impact ( 394 )

Goodwill at September 30, 2020 $ 60,148

Intangible Assets

As of June 30, 2020, the balances of amortizable intangible assets were as follows:

As of September 30, 2020, the balances of amortizable intangible assets were as follows:

Weighted-Average Amortization Period Gross Intangible Assets Accumulated Amortization Net Intangible Assets

13 unchanged sentences

Licenses are tied to product launches and do not begin amortizing until the product is launched to the market.

Trademarks are non-amortizing intangible assets which were $13,357 and $4,490 as of June 30, 2020 and December 31, 2019, respectively.

Trademarks are non-amortizing intangible assets which were $ 13,305 and $ 4,490 as of September 30, 2020 and December 31, 2019, respectively.

Concurrently with our acquisition of each company, we acquired the trademark of Orthex on June 4, 2019 valued at $ 4,230 , the trademark of Telos on March 9, 2020 valued at $ 210 and the trademark of ApiFix on April 1, 2020 valued at $ 8,605 .

3 unchanged sentences

Since the Vilex products included adult offerings that were not core to the Company's pediatric business, the Company received Board approval to take the steps necessary to divest the non-core Vilex assets and those Vilex assets were sold on December 31, 2019.

The following summarized financial information has been segregated from continuing operations and reported as discontinued operations for the three and six months ended June 30, 2019:

Three and Six Months Ended

June 30, 2019

The following summarized financial information has been segregated from continuing operations and reported as discontinued operations for the three and nine months ended September 30, 2019:

Three Months Ended Nine Months Ended

September 30, 2019 September 30, 2019

Revenue $ 1,285 $ 1,699

1 unchanged sentence

Depreciation and amortization 365 432

Operating loss ( 159 )

Loss from discontinued operations $ ( 159 )

Operating income 213 54

Income from discontinued operations $ 213 $ 54

NOTE 6 - DEBT AND CREDIT ARRANGEMENTS

Long-term debt consisted of the following:

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Note payable to Squadron $ — $ 19,891

16 unchanged sentences

However, there are negative covenants that prohibit us from, among other things, transferring any of our material assets, merging with or acquiring another entity, entering into a transaction that would result in a change of control, incurring additional indebtedness, creating any lien on our property, making investments in third parties and redeeming stock or paying dividends.

The fair value of our notes payable to Squadron were estimated based on prices for the same or similar issues and the current interest rates offered for the debt of the same remaining maturities, which are considered level 2 inputs in accordance with ASC Topic 820, “ Fair Value Measurements and Disclosures .” At June 30, 2020, the fair value approximated the carrying value.

On July 15, 2020, the Company repaid the $ 20,000 principal amount outstanding under the Loan Agreement’s Term Note A, together with all unpaid interest and other related amounts payable.

Following such repayment, there are no outstanding term loan obligations under the Second Amended Loan Agreement.

On August 4, 2020, the Company entered into a Second Amendment (the “Second Amendment”) to its First Amended Loan Agreement with Squadron (as so further amended, the “Second Amended Loan Agreement”).

Pursuant to the Second Amendment, the First Amended Loan Agreement’s revolving credit commitment was increased from the previously established $ 15,000 to $ 25,000 .

The Company has agreed to pay Squadron an unused commitment fee in an amount equal to the per annum rate of 0.50 % (computed on the basis of a year of 360 days and the actual number of days elapsed) times the daily unused portion of the revolving credit commitment.

The unused commitment fee is payable quarterly in arrears.

Borrowings under the revolving credit facility will be made under a First Amended and Restated Revolving Note, dated August 4, 2020 (the “Amended Revolving Note”), payable, jointly and severally, by the Company and each of its subsidiaries party thereto.

The Amended Revolving Note will mature at the earlier of:

(i) the date on which any person or persons acquire (x) capital stock of the Company possessing the voting power to elect a majority of the Company’s Board of Directors (whether by merger, consolidation, reorganization, combination, sale or transfer), or (y) all or substantially all of the Company’s assets, determined on a consolidated basis;

and (ii) January 1, 2024.

Prior to the Second Amendment, the revolving credit facility was to have matured on January 31, 2023.

The Second Amended Loan Agreement continues to provide for interest only payments, which are payable monthly, with interest rates equal to the greater of (a) three month LIBOR plus 8.61 %, and (b) 10.00 %

In connection with the purchase of our office and warehouse space in Warsaw, Indiana in August 2013, we entered into a mortgage note payable to Tawani Enterprises Inc., an affiliate of Squadron.

3 unchanged sentences

At December 31, 2019, the mortgage balance was $ 1,300 of which current principal due of $ 124 was included in current portion of long-term debt.

At June 30, 2020 the mortgage balance was $ 1,238 of which current principal of $ 128 was included in current portion of long-term debt.

Interest expense relating to notes payable to Squadron and Tawani was $ 513 and $ 632 for the three months ended June 30, 2020 and 2019, respectively, and $892 and $935 for the six months ended June 30, 2020 and 2019, respectively.

At September 30, 2020 the mortgage balance was $ 1,207 of which current principal of $ 129 was included in current portion of long-term debt.

Interest expense relating to notes payable to Squadron and Tawani was $ 109 and $ 1,297 for the three months ended September 30, 2020 and 2019, respectively, and $ 1,218 and $ 2,232 for the nine months ended September 30, 2020 and 2019, respectively.

NOTE 7 - STRATEGIC ARRANGEMENTS

7 unchanged sentences

Additionally, CASE receives a royalty of 3 % of net sales on products fully developed and being sold in the marketplace.

The royalty expense recognized related to the CASE agreement is recorded as a component of cost of revenue and was $ 24 and $ 37 for the three months ended June 30, 2020 and 2019, respectively, and $55 and $74 for the six months ended June 30, 2020 and 2019, respectively.

At June 30, 2020 and December 31, 2019, $ 24 and $ 39 , respectively, was due to CASE.

The royalty expense recognized related to the CASE agreement is recorded as a component of cost of revenue and was $ 35 and $ 41 for the three months ended September 30, 2020 and 2019, respectively, and $ 90 and $ 115 for the nine months ended September 30, 2020 and 2019, respectively.

At September 30, 2020 and December 31, 2019, $ 35 and $ 41 , respectively, was due to CASE.

NOTE 8 - INCOME TAXES

1 unchanged sentence

The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 ("2017 Tax Act").

Corporate taxpayers may carryback net operating losses ("NOLs") originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act.

Corporate taxpayers may carryback net

operating losses ("NOLs") originating during 2018 through 2020 for up to five years, which was not previously allowed under the 2017 Tax Act.

The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020.

2 unchanged sentences

In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation.

The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three or six months ended June 30, 2020.

For the three and six months ended June 30, 2020 and 2019, we calculated the provision of income taxes by applying an estimate of the annual effective tax rate for the full fiscal year to the ordinary loss for the reporting period resulting in a zero tax provision consistent with prior periods.

The deferred tax assets were fully offset by a valuation allowance at June 30, 2020 and December 31, 2019, and no income tax benefit has been recognized in our condensed consolidated statements of operations for any of the periods presented.

The enactment of the CARES Act did not result in any material adjustments to our income tax provision for the three or nine months ended September 30, 2020.

For the three and nine months ended September 30, 2020 and 2019, we calculated the provision of income taxes by applying an estimate of the annual effective tax rate for the full fiscal year to the ordinary loss for the reporting period resulting in a zero tax provision consistent with prior periods.

The deferred tax assets were fully offset by a valuation allowance at September 30, 2020 and December 31, 2019, and no income tax benefit has been recognized in our condensed consolidated statements of operations for any of the periods presented.

At December 31, 2019, we had available federal and state tax loss carryforwards of $ 86,807 , state loss carryforwards of $ 64,026 and tax credits for federal and state tax purposes of $ 260 .

7 unchanged sentences

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets.

A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended June 30, 2020.

A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2020.

Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

9 unchanged sentences

Exercised ( 52,600 ) 30.97

Outstanding at June 30, 2020 29,258 $ 30.97 1.2

Forfeited or expired ( 4,556 ) 30.97

Outstanding at September 30, 2020 13,472 $ 30.97 1.8

Options generally include a time-based vesting schedule permitting the options to vest ratably over three years .

At June 30, 2020 and December 31, 2019, all options were fully vested.

There was no stock-based compensation expense on stock options for the three and six months ended June 30, 2020 and 2019, respectively.

At September 30, 2020 and December 31, 2019, all options were fully vested.

There was no stock-based compensation expense on stock options for the three and nine months ended September 30, 2020 and 2019, respectively.

Restricted Stock

7 unchanged sentences

Vested ( 38,397 )

Outstanding at June 30, 2020 437,347 1.6

Restricted stock exercisable at June 30, 2020 —

At June 30, 2020, there was $ 9,865 of unrecognized compensation expense remaining related to our service-based restricted stock awards.

Outstanding at September 30, 2020 436,730 1.4

Restricted stock exercisable at September 30, 2020 —

At September 30, 2020, there was $ 8,636 of unrecognized compensation expense remaining related to our service-based restricted stock awards.

The unrecognized compensation cost was expected to be recognized over a weighted-average period of 1.4 years or earlier upon an elimination of the restriction period as a result of a change in control event.

Stock-based compensation expense on restricted stock amounted to $ 2,495 and $ 692 for the three months ended June 30, 2020 and 2019, respectively, and $ 3,453 and $ 1,163 for the six months ended June 30, 2020 and 2019, respectively.

The increase in the stock compensation expense for the three months ended June 30, 2020 was due to a one-time stock grant to the Company's Chief Executive Officer that vested immediately resulting in an additional $ 1,322 of expense.

Stock-based compensation expense on restricted stock amounted to $ 1,259 and $ 733 for the three months ended September 30, 2020 and 2019, respectively, and $ 4,712 and $ 1,896 for the nine months ended September 30, 2020 and 2019, respectively.

The increase in the stock compensation expense for the nine months ended September 30, 2020 was due to a one-time stock grant to the Company's Chief Executive Officer that vested immediately resulting in an additional $ 1,322 of expense.

Our warrant activity and related information are summarized as follows:

2 unchanged sentences

Outstanding at January 1, 2020 404 $ 30.97

Outstanding at June 30, 2020 404 $ 30.97

Outstanding at September 30, 2020 404 $ 30.97

For all periods presented, the warrants were issued at an exercise prices of $ 30.97 per share.

The warrants have a ten -year term.

At June 30, 2020, no warrants had been exercised.

At September 30, 2020, no warrants had been exercised.

At inception, no fair value was assigned to the warrants.

1 unchanged sentence

The following is a reconciliation of basic and diluted net loss per share:

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

7 unchanged sentences

The following contingently issuable and convertible equity shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for all periods presented:

Six Months Ended June 30,

Nine Months Ended September 30,

Restricted stock 436,730 317,502

10 unchanged sentences

Product sales attributed to a country or region includes product sales to hospitals, physicians and distributors and is based on the final destination where the products are sold.

No customers accounted for more than 10% of total product sales for the three and six months ended June 30, 2020 or 2019.

No customer accounted for more than 10% of consolidated accounts receivable as of June 30, 2020 and December 31, 2019.

No customers accounted for more than 10% of total product sales for the three and nine months ended September 30, 2020 or 2019.

No customer accounted for more than 10% of consolidated accounts receivable as of September 30, 2020 and December 31, 2019.

Product sales by source were as follows:

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Product sales by geographic location:

3 unchanged sentences

Total $ 22,205 $ 20,744 $ 52,154 $ 53,600

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Product sales by category:

4 unchanged sentences

Total $ 22,205 $ 20,744 $ 52,154 $ 53,600

No individual country with sales originating outside of the United States accounted for more than 10% of consolidated revenue for the three and six months ended June 30, 2020 and 2019.

No individual country with sales originating outside of the United States accounted for more than 10% of consolidated revenue for the three and nine months ended September 30, 2020 and 2019.

NOTE 12 - RELATED PARTY TRANSACTIONS

1 unchanged sentence

Structure Medical is affiliated with Squadron and we do not have a long-term contract with them.

We made aggregate payments to Structure Medical of $ 934 and $ 1,729 for the three months ended June 30, 2020 and 2019, respectively, and $2,135 and $2,493 for the six months ended June 30, 2020 and 2019 .

We made aggregate payments to Structure Medical of $ 154 and $ 838 for the three months ended September 30, 2020 and 2019, respectively, and $ 2,290 and $ 3,331 for the nine months ended September 30, 2020 and 2019.

On December 31, 2019, the Company divested Vilex for $ 25,000 to an affiliate of Squadron.

7 unchanged sentences

Discretionary matching contributions are determined annually by management.

Effective January 1, 2020, we have elected to match our employees' 401(k) contributions up to 4 % of employees' salary.

Effective January 1, 2020, we have elected to match our employees' 401(k) contributions

up to 4 % of employees' salary.

Prior to January 1, 2020, we matched our employees' 401(k) contributions up to 3 % of employees' salary.

4 unchanged sentences

The Company records its operating lease right-of-use assets as long-term assets.

As of June 30, 2020, the Company has recorded a lease liability of $ 120 and corresponding right-of-use-asset of $ 123 on its condensed consolidated balance sheet.

As of September 30, 2020, the Company has recorded a lease liability of $ 332 and corresponding right-of-use-asset of $ 335 on its condensed consolidated balance sheet.

Legal Proceedings

From time to time, we are involved in various legal proceedings arising in the ordinary course of our business.

K2M - Alleged Patent Infringement

On January 20, 2017, K2M, Inc.

19 unchanged sentences

Although we believe that the K2M lawsuit is without merit and will vigorously defend the claims asserted against us, intellectual property litigation can involve complex factual and legal questions, and an adverse resolution of this proceeding could have a material adverse effect on our business, operating results and financial condition.

IMED Surgical - Software Ownership Dispute

On October 16, 2020, the Company, Orthex, Squadron, and certain other defendants, were named in a lawsuit filed by IMED Surgical, LLC, a New Jersey company (the “Plaintiff”), in Broward County, Florida Circuit Court.

In the lawsuit, the Plaintiff claims, among other things, that it is the rightful owner of certain patented point-and-click planning software being used by the Company, Orthex and Squadron (the “Point & Click Software”).

In June 2019, the Company purchased all the issued and outstanding units of membership interests in Orthex, and all the issued and outstanding shares of stock of Vilex, for $ 60 million in total consideration.

Vilex and Orthex are primarily manufacturers of foot and ankle surgical implants, including cannulated screws, fusion devices, surgical staples and bone plates, as well as the Orthex Hexapod technology, a system of rings, struts, implants, hardware accessories, and the Point & Click Software used to treat congenital deformities and limb length discrepancies.

On December 31, 2019, the Company divested substantially all of the assets relating to Vilex's adult product offerings to a wholly-owned subsidiary of Squadron, in exchange for a $ 25 million reduction in a term note owed to Squadron in connection with the initial acquisition.

As part of the sale, the Company also executed an exclusive license arrangement with Squadron providing for perpetual access to certain intellectual property, including the Point & Click Software.

According to the lawsuit, the other defendants, who are unrelated to the Company, assigned the Point & Click Software to Orthex in violation of certain agreements with the Plaintiff.

The Plaintiff, among other things, requests that the defendants be ordered to convey and assign to Plaintiff all of their rights, title and interests in and to the Software and seeks certain compensatory, consequential and unjust enrichment damages from Orthex and the unrelated defendants.

The Company is currently considering this matter, but lacks sufficient information to assess the potential outcome at this time.

We are not presently a party to any other legal proceedings the outcome of which, if determined adversely to us, would individually or in the aggregate materially affect our financial position, results of operations or cash flows.

As of June 30, 2020, we are contracted to pay royalties to individuals and entities that provide research and development services, which range from 0.5 % to 20 % of sales.

As of September 30, 2020, we are contracted to pay royalties to individuals and entities that provide research and development services, which range from 0.5 % to 20 % of sales.

Additionally, we had minimum royalty commitments of $ 500 annually through 2026 which ceased upon the purchase of the Band-Lok assets in June 2020.

We have products in development that have milestone payments and royalty commitments.

In any development project, there are significant variables that will affect the amount and timing of these payments and as of June 30, 2020, we have not been able to determine the amount and timing of payments.

In any development project, there are significant variables that will affect the amount and timing of these payments and as of September 30, 2020, we have not been able to determine the amount and timing of payments.

We do not anticipate these future payments will have a material impact on our financial results.

NOTE 15 – SUBSEQUENT EVENTS

Pursuant to the Second Amendment, the First Amended Loan Agreement’s revolving credit commitment was increased from the previously established $ 15,000 to $ 25,000 .

The unused commitment fee is payable quarterly in arrears.

The Amended Revolving Note will mature at the earlier of:

and (ii) January 1, 2024.

Prior to the Second Amendment, the revolving credit facility was to have matured on January 31, 2023.

On July 15, 2020, the Company repaid the $ 20,000 principal amount outstanding under the Loan Agreement’s Term Note A, together with all unpaid interest and other related amounts payable.

Following such repayment, there are no outstanding term loan obligations under the Second Amended Loan Agreement.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements