What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-11 compared with 2020-03-05 · 398 added, 193 removed, 751 unchanged (44% of the section changed)

4 unchanged sentences

We have audited the accompanying consolidated balance sheets of OrthoPediatrics Corp.

and subsidiaries (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, redeemable convertible preferred stock and stockholders’ equity (deficit), for each of the three years in the period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements").

and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders' equity (deficit) and cash flows, for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

25 unchanged sentences

Current assets:

Cash $ 70,777 $ 60,691

Cash and cash equivalents $ 28,758 $ 70,777

Restricted cash 1,374 1,250

Short term investments 55,141 —

Accounts receivable - trade, less allowance for doubtful accounts of $ 433 and $ 506 , respectively

17,212 16,003

Inventories, net 52,989 38,000

13 unchanged sentences

Accrued compensation and benefits 4,540 4,349

Accrued legal settlements 6,342 —

Current portion of long-term debt with affiliate 131 124

Current portion of acquisition installment payable 12,233 —

Other current liabilities 1,744 2,723

2 unchanged sentences

Long-term debt with affiliate, net of current portion 1,044 26,067

Operating lease liabilities 63 —

Deferred revenue 12,410 —

Acquisition installment payable, net of current portion 12,784 —

Contingent consideration 30,710 —

Deferred income taxes 5,755 —

Other long-term liabilities 323 63

Total long-term liabilities 50,616 26,130

7 unchanged sentences

Accumulated deficit ( 161,766 ) ( 128,822 )

Accumulated other comprehensive loss ( 3 ) ( 623 )

Accumulated other comprehensive income (loss) 7,907 ( 3 )

Total stockholders' equity 234,768 142,361

12 unchanged sentences

General and administrative 38,317 26,664 20,938

Legal settlement expenses 6,342 — —

Research and development 5,273 5,748 4,732

3 unchanged sentences

Interest expense, net 3,412 3,538 2,255

Fair value adjustment of contingent consideration 3,520 — —

Other expense (income) ( 20 ) 70 217

Total other expenses 6,912 3,608 2,472

Loss before income taxes ( 33,667 ) ( 12,685 ) ( 12,025 )

Provision for income taxes (benefit) ( 723 ) — —

Net loss from continuing operations ( 32,944 ) ( 12,685 ) ( 12,025 )

15 unchanged sentences

Foreign currency translation adjustment 7,857 620 ( 758 )

Other comprehensive (loss) income 620 ( 758 ) 135

Unrealized gain (loss) on short-term investments 53 — —

Other comprehensive (loss) income, net of tax 7,910 620 ( 758 )

Comprehensive loss $ ( 25,034 ) $ ( 13,111 ) $ ( 12,783 )

1 unchanged sentence

ORTHOPEDIATRICS CORP.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS' EQUITY (DEFICIT)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

( in thousands, except share information)

Series A Redeemable Convertible Preferred Stock Series B Redeemable Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity (Deficit)

Shares Value Shares Value Shares Value

Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity (Deficit)

Balance at January 1, 2018 12,621,781 $ 2 $ 150,424 $ ( 103,066 ) $ 135 $ 47,495

Net loss — — — ( 12,025 ) — ( 12,025 )

Accretion of redeemable preferred stock to redemption value — 1,500 — 3,063 — — ( 4,563 ) — — ( 4,563 )

Restricted stock 177,208 1 3,185 — — 3,186

Shares surrendered by employees to pay taxes on restricted stock — — — — ( 76,146 ) — ( 990 ) — — ( 990 )

Conversion of redeemable preferred shares to common stock upon IPO ( 1,000,000 ) ( 16,000 ) ( 4,446,978 ) ( 39,000 ) 3,649,475 1 54,996 — — 54,997

Conversion of Series A redeemable preferred stock dividends to common stock upon IPO — ( 8,939 ) — — 687,616 — 8,939 — — 8,939

Payment of Series B redeemable preferred stock dividends and reversal of 50% accrued dividends upon IPO — — — ( 11,927 ) — — 5,965 — — 5,965

Series A redeemable preferred stock liquidation preference payment — — — — 1,230,769 — 16,000 ( 16,000 ) — —

Stock option exercise 14,213 — 410 — — 410

Issuance of common stock, net of issuance cost 1,725,000 1 43,423 — — 43,424

2 unchanged sentences

Net loss — — — ( 13,731 ) — ( 13,731 )

Consideration for Vilex and Orthex Acquisition 245,352 — 10,000 — — 10,000

Restricted stock 145,153 — 2,603 — — 2,603

4 unchanged sentences

Net loss — — — ( 32,944 ) — ( 32,944 )

Consideration for Vilex and Orthex Acquisition — — — — 245,352 — 10,000 — — 10,000

Restricted stock 162,125 — 6,196 — — 6,196

Stock option exercise 53,270 — 1,650 — — 1,650

Consideration for ApiFix and Telos acquisitions and Band-Lok intellectual property purchase 1,025,782 — 39,388 — — 39,388

Issuance of common stock, net of issuance cost 1,595,986 1 70,206 — — 70,207

13 unchanged sentences

Stock-based compensation 6,196 2,603 3,185

Fair value adjustment of contingent consideration 3,520 — —

Acquisition installment payable 2,397 — —

Deferred income taxes ( 723 ) — —

Changes in certain current assets and liabilities:

3 unchanged sentences

Accounts payable - trade 3,071 2,401 ( 1,524 )

Accrued legal settlements 6,342 — —

Accrued expenses and other liabilities ( 1,074 ) 1,946 947

4 unchanged sentences

INVESTING ACTIVITIES

Acquisition of Vilex, net of cash acquired ( 49,836 ) — —

Acquisition of Telos, net of cash acquired ( 1,670 ) — —

Acquisition of ApiFix, net of cash acquired ( 1,723 ) — —

Acquisition of Band-Lok intangible assets ( 796 ) — —

Acquisition of Vilex and Orthex, net of cash acquired — ( 49,836 ) —

Purchase of notes receivable — — ( 502 )

Purchases of licenses — ( 270 ) ( 210 )

Purchase of short term investments ( 55,000 ) — —

Purchases of property and equipment ( 10,504 ) ( 11,816 ) ( 5,253 )

1 unchanged sentence

FINANCING ACTIVITIES

Payments on note with affiliate ( 25,000 ) — —

Proceeds from issuance of debt with affiliate — 30,000 —

1 unchanged sentence

Proceeds from issuance of common stock, net of issuance costs 70,207 59,996 43,425

Payment of preferred stock dividends — — ( 5,965 )

Proceeds from exercise of stock options 1,650 1,141 410

Shares surrendered by employees to pay taxes on restricted shares — — ( 990 )

Payments on mortgage notes ( 125 ) ( 118 ) ( 113 )

1 unchanged sentence

Effect of exchange rate changes on cash ( 404 ) 8 —

NET INCREASE IN CASH 11,336 18,109 40,973

Cash, beginning of year 60,691 42,582 1,609

NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH ( 41,895 ) 11,336 18,109

Cash and restricted cash, beginning of period 72,027 60,691 42,582

Cash and restricted cash, end of period 30,132 72,027 60,691

2020 2019 2018

SUPPLEMENTAL DISCLOSURES

Cash paid for interest $ 1,233 $ 4,229 $ 2,255

Accretion of redeemable convertible preferred stock $ — $ — $ 4,563

Transfer of instruments from property and equipment to inventory $ 415 $ 1,037 $ 362

Acquisition consideration of common shares $ 10,000 $ — $ —

Intellectual property license (See Note 4) $ 12,410 $ — $ —

Issuance of common share sto acquire Vilex and Orthex $ — $ 10,000 $ —

Issuance of common shares to acquire Telos $ 1,568 $ — $ —

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

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

Divestiture consideration allocated to assets held for sale (See Note 4) $ — $ 25,000 $ —

8 unchanged sentences

OrthoPediatrics Corp., a Delaware corporation, is a medical device company committed to designing, developing and marketing anatomically appropriate implants and devices for children with orthopedic conditions, giving pediatric orthopedic surgeons and caregivers the ability to treat children with technologies specifically designed to meet their needs.

We sell our specialized products, including PediLoc ® , PediPlates ® , Cannulated Screws, PediFlex TM nail, PediNail TM , PediLoc ® Tibia, ACL Reconstruction System, Locking Cannulated Blade, Locking Proximal Femur, Spica Tables, RESPONSE Spine, BandLoc, Pediguard, Pediatric Nailing Platform | Femur, Orthex, and QuickPack TM, to various hospitals and medical facilities throughout the United States and various international markets.

We sell our specialized products, including PediLoc ® , PediPlates ® , Cannulated Screws, PediFlex TM nail, PediNail TM , PediLoc ® Tibia, ACL Reconstruction System, Locking Cannulated Blade, Locking Proximal Femur, Spica Tables, RESPONSE TM Spine, BandLoc TM , Pediguard, Pediatric Nailing Platform | Femur, Orthex, QuickPack TM and ApiFix ® Mid-C System, to various hospitals and medical facilities throughout the United States and various international markets.

We currently use a contract manufacturing model for the manufacturing of implants and related surgical instrumentation.

In 2017, we expanded operations and established legal entities in the United Kingdom, Australia and New Zealand, permitting us to sell under an agency model direct to local hospitals in these countries.

In September 2018, we further expanded operations in Canada selling direct to local hospitals, and in January 2019 we expanded to Belgium and the Netherlands.

Additionally, in March 2019 we established a holding company and an operating company in the Netherlands that are expected to enhance our operations in Europe.

We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021.

Additionally, in March 2019, we established an operating company in the Netherlands in order to enhance our operations in Europe.

On June 4, 2019, we purchased all the issued and outstanding shares of stock of Vilex in Tennessee, Inc.

3 unchanged sentences

As part of the sale, we also executed an exclusive license arrangement with Squadron providing for perpetual access to certain intellectual property and a mutual distribution agreement (refer to Note 4).

On March 9, 2020, we purchased all the issued and outstanding membership interest of Telos Partners, LLC ("Telos") for $ 3,300 in total consideration.

Telos is a boutique regulatory consulting firm formed in Colorado (refer to Note 3).

On April 1, 2020, we purchased all the issued and outstanding membership interest of ApiFix, Ltd.

("ApiFix") for (a) $ 2,000 in cash, and (b) 934,783 shares of the Company's common stock, $ 0.00025 par value per share, representing approximately $ 35,000 (based on a closing share price of $ 37.63 on April 1, 2020.

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, 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.

The anniversary payments and system sales payment may each be made in cash or cash and common stock (refer to Note 3).

On June 10, 2020, we purchased certain intellectual property assets from Band-Lok, LLC, a North Carolina limited liability company ("Band-Lok"), related to its Tether Clamp and Implantation System ("Tether Clamp System") for approximately $ 3,400 in total consideration.

We use the Tether Clamp System in connection with our Bandloc

5.5/6.0 System.

We were previously the sole licensee of the purchased assets under a license agreement with Band-Lok (refer to Note 3).

Our largest investor is Squadron, a private investment firm based in Granby, Connecticut.

A novel strain of the coronavirus disease ("COVID-19") was first identified in Wuhan, China in December 2019, and the related outbreak was subsequently declared a pandemic by the World Health Organization and a national emergency by the President of the United States.

As a result of the pandemic, we have experienced significant business disruption.

For example, in preparation for COVID-19-related hospitalizations, various governments, governmental agencies and hospital administrators have instructed hospitals to postpone some elective procedures.

As a majority of our products are utilized in elective surgeries or procedures, the deferrals of such surgeries and procedures have had, and may continue to have, a significant negative impact on our business and results of operations.

Despite the impact COVID-19 has had on our business, we continued to invest in research and development, invest in our people, and take steps to position ourselves for long-term success.

During 2020, we raised additional capital to solidify our financial foundation.

We continued to train and educate our sales team and our surgeons on our products.

During 2020, we continued to focus on developing innovative solutions, acquired multiple enabling technologies and continued to deploy additional consigned instrument and implant sets in furtherance of our strategy.

The extent to which COVID-19 may continue to negatively impact the Company's consolidated financial position, results of operations or cash flows is uncertain and will be closely monitored.

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

1 unchanged sentence

The accompanying consolidated financial statements include the accounts of OrthoPediatrics Corp.

and its wholly-owned subsidiaries, OrthoPediatrics US Distribution Corp., OrthoPediatrics EU Limited, OrthoPediatrics AUS PTY LTD, OrthoPediatrics NZ Limited, OP EU B.V., and OP Netherlands B.V., Vilex in Tennessee, Inc., and Orthex, LLC (collectively, the “Company,” “we,” “our” or “us”).

and its wholly-owned subsidiaries, OrthoPediatrics US Distribution Corp., OrthoPediatrics EU Limited, OrthoPediatrics AUS PTY LTD, OrthoPediatrics NZ Limited, OP EU B.V., OP Netherlands B.V., Orthex, LLC, Telos Partners, LLC and ApiFix, Ltd.

(collectively, the “Company,” “we,” “our” or “us”).

All intercompany balances and transactions have been eliminated.

Following the acquisition of Vilex, we received Board approval to take the steps necessary to divest the non-core Vilex assets and the divestiture was completed on December 31, 2019.

As a result, the results of Vilex have been classified as discontinued operations within the consolidated financial statements.

The results of Vilex have been classified as discontinued operations within the consolidated financial statements for the year ended December 31, 2019.

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

1 unchanged sentence

We have experienced recurring losses from operations since our inception and had an accumulated deficit of $ 161,766 and $ 128,822 as of December 31, 2020 and 2019, respectively.

In conjunction with the acquisition of Vilex and Orthex, the Company entered into a new $ 30,000 short-term loan facility with Squadron in addition to the existing $ 20,000 term loan facility and $ 15,000 revolving credit facility previously established.

On December 31, 2019, the

Company paid the Term Note B in full using $ 25,000 received in exchange for the divestiture of the adult product offerings of Vilex and establishment of the Orthex license agreement and $ 5,000 from the available Squadron revolving loan.

The maturity date for the remaining Squadron debt is 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.

On August 4, 2020, the Company entered into a Second Amendment to its First Amended Loan Agreement with Squadron.

The Loan Agreement’s revolving credit commitment was increased from the previously established $ 15,000 to $ 25,000 .

The Company did no t have an outstanding balance as of December 31, 2020.

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

We believe that our cash balance at December 31, 2020 and expected cash flows from operations for the next twelve months subsequent to the issuance of the consolidated financial statements, are sufficient to enable us to maintain current and essential planned operations for more than the next twelve months.

On October 12, 2017, we completed an initial public offering (“IPO”) of our common stock, in which we issued and sold 4.6 million shares of common stock at a public offering price of $ 13.00 per share for aggregate gross proceeds of $ 59,800 .

We received approximately $ 46,900 in net proceeds after deducting $ 4,200 of underwriting discounts and commissions, paying approximately $ 2,700 of offering costs and paying approximately $ 6,000 of Series B dividends.

Upon the closing of the IPO, all of the outstanding shares of Series A and B redeemable convertible preferred stock and the Series A accrued dividends and the $ 16,000 cash preference payment automatically converted into shares of common stock at a 1 :1 conversion ratio.

On December 11, 2018, we completed a follow-on offering of our common stock, in which we issued and sold 1.725 million shares of common stock at a public offering price of $ 27.00 per share for aggregate gross proceeds of $ 46,575 .

2 unchanged sentences

We received $ 59,996 in net proceeds after deducting $ 3,845 of underwriting discounts and commissions and paying $ 235 in underwriting commissions and offering costs.

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 .

We received $ 70,207 in net proceeds after deducting $ 4,512 of underwriting discounts and commissions and paying $ 481 in offering costs.

Use of Estimates

5 unchanged sentences

Foreign Currency Transactions

We currently bill our international distributors in U.S.

We currently bill our international stocking distributors in U.S.

dollars, resulting in minimal foreign exchange transaction expense.

Beginning in the second quarter of 2017, we began selling direct within the United Kingdom, Ireland, Australia and New Zealand and billing using the local currency for each country.

In September 2018, we began selling direct in Canada and in January 2019 we expanded to Belgium and the Netherlands.

Additionally, in March 2019 we established a holding company and an operating company in the Netherlands that are expected to enhance our operations in Europe.

The financial statements of our foreign subsidiaries are accounted for and have been translated into U.S.

Beginning in the second quarter of 2017, we began selling direct within the United Kingdom, Ireland, Australia and New Zealand and billing using the local currency for each country.We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021.

In the year ended December 31, 2020, the Company recorded a $ 2,730 revenue reduction due to the repurchase of inventory from a stocking distributor in Germany, Austria and Switzerland that we converted to a sales agency.

Additionally, in March 2019, we established an operating company in the Netherlands in order to enhance our operations in Europe.

The financial statements of our foreign subsidiaries are accounted for in local functional currencies and have been translated into U.S.

dollars using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations.

11 unchanged sentences

Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, and are based on the best information available, including our own data.

We do not have any assets or liabilities that are measured on a recurring basis under the presented fair value hierarchy.

The Company's financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, acquisition installment payables, contingent consideration and long-term debt.

The carrying amounts of accounts receivable, accounts payable, acquisition installment payables and long-term debt approximate the fair value due to the short-term nature or market rates of these instruments.

The company bases the fair value of short-term investments on quoted market prices for identical or comparable assets.

Contingent consideration represents the system sales payment the Company is obligated to make.

The fair value of the contingent consideration payment is considered a level 3 fair value measurement and was determined with the assistance of an independent valuation specialist at the original issuance date and as of the balance sheet date.

See Note 6 for further discussion of financial instruments that carried a fair value on a recurring and nonrecurring basis.

Revenue from Contracts with Customers

1 unchanged sentence

The adoption of ASC 606 did not have any impact on the Company's consolidated historical financial statements.

The reported results for 2019 and 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of "ASC 605, Revenue Recognition (ASC 605)." In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services.

results for 2019 and 2018 reflect the application of ASC 606 guidance.

In accordance with ASC 606, revenue is recognized when our performance obligations under the terms of a contract with our customer are satisfied.

This typically occurs when we transfer control of our products to the customers, generally upon implantation or when title passes upon shipment.

The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services, and excludes any sales incentives or taxes collected from a customer which are subsequently remitted to government authorities.

3 unchanged sentences

We recognize revenue when our performance obligations under the terms of a contract with our customer are satisfied.

This typically occurs when we transfer control of our products to the customers, generally upon implantation or when title passes upon shipment.

The products are generally consigned to our independent sales agencies, and revenue is recognized when the products are used by or shipped to the hospital for surgeries on a case by case basis.

On rare occasions, hospitals purchase product for their own inventory, and revenue is recognized when the products are shipped and the title and risk of loss passes to the customer.

Pricing for each customer is dictated by a unique pricing agreement, which does not generally include rebates or discounts.

Sales to two of our independent sales agencies accounted for 12.3 % and 12.2 % of our revenue in 2019.

Sales to two of our independent sales agencies accounted for 12.1 % and 11.2 % of our revenue in 2018, respectively.

Sales to two of our independent sales agencies accounted for 10.1 % and 10.1 % of our revenue in 2017, respectively.

In conjunction with the sale of Vilex, we entered into an exclusive perpetual license agreement to permit the purchasers of Vilex the ability to sell products using the external fixation technology of Orthex, LLC to non-pediatric accounts.

This license agreement was valued at $ 12,410 and recorded as deferred revenue on our December 31, 2019 balance sheet.

This deferred revenue will be recognized on a proportional basis relative to the total expected Orthex sales subject to this license and distribution arrangement.

Pricing for each customer is dictated by a unique pricing agreement.

Sales through two of our independent sales agencies in the United States accounted for 14.2 % and 13.8 % of our global revenue in 2020.

Sales through two of our independent sales agencies in the United States accounted for 12.3 % and 12.2 % of our global revenue in 2019, respectively.

Sales through two of our independent sales agencies in the United States accounted for 12.1 % and 11.2 % of our global revenue in 2018, respectively.

Revenue Recognition – International

Outside of the United States, we primarily sell our products through independent stocking distributors.

Outside of the United States, we sell our products directly to hospitals through independent sales agencies or to independent stocking distributors.

Generally, the distributors are allowed to return products, and some are thinly capitalized.

Based on our history of collections and returns from international customers, prior to 2019, we concluded that collectibility was not reasonably assured at the time of delivery for certain customers who had not evidenced a consistent pattern of timely payment.

Prior to 2019, we concluded that collectibility was not reasonably assured at the time of delivery for certain customers who had not evidenced a consistent pattern of timely payment.

Accordingly, in the past we did not recognize international revenue and associated cost of revenue at the time title transfers for these customers for whom collectibility had not been deemed probable based on the customer’s history and ability to pay, but rather when cash had been received.

Following a review of our collection history, we deemed collectibility was probable for all international stocking distributors effective January 1, 2019.

Based on a history of reliable collections, we have concluded that a contract exists and revenue should be recognized when we transfer control of our products to the customer, generally upon implantation or when title passes upon shipment.

In early 2017, we expanded operations and established legal entities in the United Kingdom, Australia and New Zealand and in Canada in September 2018.

In January 2019 we expanded to Belgium and the Netherlands permitting us to sell under an agency model direct to local hospitals in these countries.

Additionally, in March 2019 we established a holding company and an operating company in the Netherlands that are expected to enhance our operations in Europe .

Additionally, based on our history of immaterial returns from international customers, we have historically estimated no reserve for returns.

In early 2017, we expanded operations and established legal entities in the United Kingdom, Australia and New Zealand, permitting us to sell under an agency model direct to local hospitals in these countries.

We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021.

Additionally, in March 2019, we established an operating company in the Netherlands in order to enhance our operations in Europe.

The products are generally consigned to our independent sales agencies, and revenue is recognized when the products are used by or shipped to the hospital for surgeries on a case by case basis.

On rare occasions, hospitals purchase products for their own inventory, and revenue is recognized when the products are shipped and the title and risk of loss passes to the customer.

Pricing for each customer is dictated by a unique pricing agreement, which does not generally include rebates or discounts.

On rare occasions, hospitals purchase products for their own inventory, and revenue is recognized when title passes upon shipment.

Pricing for each customer is dictated by a unique pricing agreement.

Cash, Cash Equivalents and Short Term Investments

We maintain cash in bank deposit accounts which, at times, may exceed federally insured limits.

2 unchanged sentences

The carrying amounts reported in the balance sheets for cash are valued at cost, which approximates fair value.

The Company invests in available-for-sale short term investments.

The Company has the ability, if necessary, to liquidate without penalty any of its short term investments to meet its liquidity needs in the next twelve months.

As such, those investments with contractual maturities greater than one year from the date of purchase are classified

as short-term on the accompanying Consolidated Balance Sheets.

The company includes unrealized gains or losses in stockholders' equity.

If the adjustment to fair value reflects a decline in the value of the investment, the Company considers available information to determine whether the decline is "other than temporary" and, if so, reflects the change on the Consolidated Statements of Operations.

Restricted Cash

In conjunction with the sale of Vilex, $ 1,250 was placed into a separate escrow account.

This cash is reported as restricted cash on the December 31, 2019 consolidated balance sheet.

This cash is reported as restricted cash on the December 31, 2020 and 2019 consolidated balance sheet.

These funds will remain restricted until August 31, 2021 at which time, they will be released to the Company subject to no claims related to the purchase.

Accounts Receivable

Accounts receivable are uncollateralized customer obligations due under normal trade terms, generally requiring payment within 30 days from the invoice date.

Account balances with invoices over 30 days past due are considered delinquent.

The Company also maintains restricted cash of 100 Euro at its Netherlands entity for potential Italian tenders.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are uncollateralized customer obligations due under normal trade terms, generally requiring payment within 30 days from the invoice date in the United States and within 90 days internationally.

Account balances with invoices over 30 or 90 days past due for domestic and international accounts, respectively, are considered delinquent.

No interest is charged on past due accounts.

2 unchanged sentences

All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts.

The allowance for doubtful accounts was $ 433 and $ 506 as of year ended December 31, 2020 and 2019, respectively.

The following table summarizes activity in the allowance for doubtful accounts:

2020 2019 2018

Balance at beginning of year $ 506 $ 134 $ 143

Additions charged to expense 274 424 3

Write-offs 347 52 12

Balance at end of year $ 433 $ 506 $ 134

Inventories, net

Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in-first-out method.

Inventories, which consist of implants and instruments held in our warehouse or with third-party independent sales agencies or distributors, are considered finished goods and are purchased from third parties.

Inventories, which consist of implants and instruments held in our warehouse, with third-party independent sales agencies or distributors, or consigned directly with hospitals, are considered finished goods and are purchased from third parties.

We evaluate the carrying value of our inventories in relation to the estimated forecast of product demand, which takes into consideration the life cycle of the product.

9 unchanged sentences

At the time of the IPO, $ 1,840 of additional costs, primarily consisting of legal, accounting and other direct fees and costs related to the IPO incurred during 2017 and were initially deferred and capitalized and then reclassified to stockholders’ equity at the conclusion of our IPO on October 12, 2017.

Additionally, $ 1,986 and $ 2,049 of additional non-cash expense related to the accelerated vesting of restricted stock was included in general and administrative expenses in 2018 and 2017, respectively.

Additionally, $ 1,986 of additional non-cash expense related to the accelerated vesting of restricted stock was included in general and administrative expenses in 2018.

Costs Related to the Follow-on Offerings

2 unchanged sentences

On December 13, 2019, we completed another offering of our common stock.

Offering expenses of $ 235 , primarily consisting of legal, accounting and other direct fees and costs related to the offering were recorded in stockholder's equity at the conclusion of our offering.

Offering expenses of $ 235 , primarily consisting of legal, accounting and other direct fees and costs related to the offering were recorded in stockholders' equity at the conclusion of our offering.

On June 22, 2020, we completed another offering of our common stock.

Offering expenses of $ 481 , primarily consisting of legal, accounting and other direct fees and costs related to the offering were recorded in stockholders' equity at the conclusion of our offering.

Property and Equipment, net

4 unchanged sentences

Instruments are hand-held devices, specifically designed for use with our implants and are used by surgeons during surgery.

Instruments deployed within the United States, United Kingdom, Australia, New Zealand, Canada, Belgium and Netherlands are carried at cost less accumulated depreciation and are recorded in property and equipment, net on the consolidated balance sheets.

Instruments deployed in the field are carried at cost less accumulated depreciation and are recorded in property and equipment, net on the consolidated balance sheets.

Sample inventory consists of our implants and instruments, and is maintained to market and promote our products.

9 unchanged sentences

Amortizable Intangible Assets, net

Amortizable intangible assets include fees necessary to secure various patents and licenses, and the value of internally developed software, customer relationships and non-competition agreements related to the acquisition of Orthex.

Amortization is calculated on a straight-line basis over the estimated useful life of the patents and licenses.

Amortizable intangible assets include fees necessary to secure various patents and licenses, including Band-Lok, the value of internally developed software, customer relationships, and non-competition agreements related to the

acquisition of Orthex, and customer relationships and non-competition agreements related to the acquisitions of Telos and ApiFix.

Amortization is calculated on a straight-line basis over the estimated useful life of the asset.

Amortization for patents and licenses commences at the time of patent approval, and for licenses upon market launch, respectively.

Amortization for assets acquired commences upon acquisition.

Intangible assets are amortized over a 3 to 20 year period.

1 unchanged sentence

Recoverability is measured by a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the associated asset.

If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying

amount exceeds the fair market value of the intangible assets.

If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the intangible assets.

No impairment charges were recorded in any of the periods presented.

5 unchanged sentences

No impairment changes were recorded in the current year.

We have indefinite lived tradename assets that are reviewed for impairment by performing a quantitative analysis, which occurs annually in the fourth quarter or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Recoverability is measured by a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the associated asset.

The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test.

The quantitative assessment for goodwill requires us to estimate the fair value of our one reporting unit using either an income or market approach or a combination thereof.

We have indefinite lived tradename assets that are reviewed for impairment by performing a quantitative analysis, which occurs annually in the fourth quarter, utilizing balances as of October 1, or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Recoverability is measured by a comparison of the carrying amount to future net discounted cash flows expected to be generated by the associated asset.

If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets.

No impairment charges were recorded in any of the periods presented.

Acquisition Payable and Contingent Consideration

Upon the completion of an acquisition the Company may record an acquisition installment payable, contingent consideration or both.

Both are recorded at their fair values as determined by management with the assistance of an independent valuation specialist at the original issuance date and are adjusted on a recurring basis.

Accretion of interest expense attributable to the acquisition installment payable are recorded as a component of interest expense, net.

Changes in the fair value of the contingent consideration are included in fair value adjustments of contingent consideration.

The amount of expense recorded in interest expense, net and fair value adjustments of contingent consideration for the year ended December 31, 2020 were $ 2,397 and $ 3,520 , respectively.

Shipping and Handling Costs

4 unchanged sentences

Our implants and instruments are manufactured to our specifications by third-party suppliers who meet our manufacturer qualifications standards.

Our third-party manufacturers are required to meet Food and Drug Administration (the “FDA”), International Organization for Standardization and other country-specific quality standards.

Our third-party manufacturers are required to meet Food and Drug Administration (the “FDA”), International Organization for

Standardization and other country-specific quality standards.

The majority of our implants and instruments are produced in the United States.

18 unchanged sentences

Options holders, upon vesting, may purchase common stock at the exercise price, which is the estimated fair value of our common stock on the date of grant.

Option grants generally vest immediately or over a three years period.

Option grants generally vest immediately or over a three year period.

No stock options were granted in any of the periods presented.

1 unchanged sentence

The restricted stock that has been granted under the 2007 Plan has restriction periods that generally last until the earlier of six years from the date of grant, or an initial public offering or change in control, as defined in the 2007 Plan.

All restricted stock granted prior to May 2014 vested upon our IPO and the remaining grants under the 2007 Plan vested six months after the IPO.

All restricted stock granted prior to May 2014 vested upon our IPO and the remaining grants under the 2007 Plan vested in April 2018.

Generally under the 2017 plan, restricted stock vests over a three year period.

6 unchanged sentences

the preferences and dividends of our redeemable convertible preferred stock relative to those of our common stock;

our operating results and financial conditions, including our level of available capital resources;

our operating results and financial conditions, including our level of available capital

equity market conditions affecting comparable public companies;

2 unchanged sentences

Prior to our IPO, for restricted stock awards we applied a discount for lack of marketability to the fair value of common shares due to estimate the impact of valuing a minority interest in our Company as a closely held, non-public company with no liquid market for its shares.

OrthoPediatrics Foundation for Education and Research

The Company may periodically make contributions to the OrthoPediatrics Foundation for Education and Research (the "Foundation").

Foundation for Advancing Pediatric Orthopedics

The Company may periodically make contributions to the Foundation for Advancing Pediatric Orthopedics (the "Foundation").

The Foundation was incorporated in 2018 exclusively for pediatric orthopedic research and education and qualifies under IRC 501(c)(3) as an exempt private foundation.

2 unchanged sentences

therefore, its results are not included in these consolidated financial statements.

The Company contributed $ 0.5 million and $ 0.2 million to the Foundation during the years ended December 31, 2019 and 2018, respectively.

The Company contributed $ 325 , $ 500 and $ 200 to the Foundation during the years ended December 31, 2020, 2019 and 2018, respectively.

These contributions were recorded in general and administrative expenses.

9 unchanged sentences

We record uncertain tax positions on the bases of a two-step process in which (1) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the positions and (2) for those tax positions that do not meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

Litigation and Contingencies

Accruals for litigation and contingencies are reflected in the consolidated financial statements based on

management’s assessment, including advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings and/or the expected resolution of contingencies.

Liabilities for estimated losses are accrued if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated.

Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount is reasonably estimable.

Accruals are based only on information available at the time of the assessment due to the uncertain nature of such matters.

As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s results of operations in a given period.

The Company recorded an accrual of $ 6,342 for legal settlements for the year ended December 31, 2020.

“Emerging Growth Company” Reporting Requirements

8 unchanged sentences

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02 “ Leases, ” which increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.

The Company adopted the standard on January 1, 2019.

The new standard requires lessees to recognize both the right-of-use assets and lease liabilities in the

balance sheet for most leases, whereas under previous GAAP only finance lease liabilities (previously referred to as capital leases) were recognized in the balance sheet.

In addition, the definition of a lease has been revised which may result in changes to the classification of an arrangement as a lease.

Under the new standard, an arrangement that conveys the right to control the use of an identified asset by obtaining substantially all of its economic benefits and directing how it is used is a lease, whereas the previous definition focuses on the ability to control the use of the asset or to obtain its output.

Quantitative and qualitative disclosures related to the amount, timing and judgments of an entity’s accounting for leases and the related cash flows are expanded.

Disclosure requirements apply to both lessees and lessors, whereas previous disclosures related only to lessees.

The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP.

Lessor accounting is also largely unchanged.

The new standard provides a number of transition practical expedients, which the Company has elected, including:

• a "package of three" expedients that must be taken together and allow entities to (1) not reassess whether existing contracts contain leases, (2) carryforward the existing lease classification, and (3) not reassess initial direct costs associated with existing leases, and

• an implementation expedient which allows the requirements of the standard in the period of adoption with no restatement of prior periods.

The adoption of the new standard on January 1, 2019 did not result in material right of use asset or lease obligation for operating leases recorded in the Company's consolidated balance sheets, primarily due to an insignificant number of lease contracts or other contracts that meet the standard for consideration as a lease under the definitions discussed above.

The Company has limited operating leases for office equipment maintained at its headquarters, but does lease any real estate or office space.

In conjunction with the Company's acquisition of Vilex and Orthex on June 4, 2019, the Company acquired two leased facilities in Tennessee and Florida.

The Company analyzed each lease agreement and recorded a right-of-use asset and liability of $ 77 for Orthex and $ 246 for Vilex, respectively, on its consolidated balance sheet as of the acquisition date.

The Vilex balances were recorded to assets held for sale, and were removed concurrent with the sale of Vilex to Squadron on December 31, 2019.

As of December 31, 2019, the Company's right-of-use asset and liabilities were $ 64 and $ 63 , respectively, associated with Orthex.

In June 2016, the FASB issued ASU No.

11 unchanged sentences

It is effective for reporting periods beginning after December 15, 2020, although earlier adoption is permitted.

The Company is evaluating the effect of this pronouncement on its consolidated financial statements in future periods.

The Company adopted this standard on January 1, 2020 and it did not have a significant impact on the Company's consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No.

4 unchanged sentences

Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively.

The Company is currently assessing the impact of this standard on the consolidated financial position and results of operations.

The Company adopted this standard on January 1, 2020 and it did not have a significant impact on the Company's consolidated financial statements and related disclosures.

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 $ 344 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.

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").

The following table reconciles the total consideration transferred after discounting the future payments, excluding the impact of foreign currency translation:

Consideration Present Value

Cash consideration $ 2,000 $ 2,000

Payment of ApiFix transaction related costs 67 67

Issuance of common stock 35,176 35,176

Anniversary Payments 30,000 22,620

System sales payment 41,741 27,190

Total consideration transferred $ 108,984 $ 87,053

The Company incurred $ 311 of acquisition-related costs that are included in general and administrative expenses on the consolidated statements of operations.

The purchase price allocation set forth herein is preliminary.

The following table summarizes the total consideration paid for ApiFix and allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Description Amount

Preliminary fair value of estimated total acquisition consideration $ 87,379

Accounts receivable-trade 245

Inventories 685

Prepaid expenses and other current assets 77

Property and equipment 153

Amortizable intangible assets 32,150

Other intangible assets 8,640

Operating lease right-of-use asset 104

Total assets 42,398

Accounts payable and accrued liabilities 226

Operating lease liabilities 106

Other current liabilities 270

Deferred income taxes 6,487

Total liabilities 7,089

total net assets 35,309

Goodwill $ 52,070

The fair value of identifiable intangible assets were based on valuations using a combination of the income and cost approach.

The estimated fair value and useful life of identifiable intangible assets are as follows:

Amount Remaining Economic Useful Life

Trademarks / Names $ 8,640 Indefinite

Patents 31,720 15 years

Customer Relationships 230 10 years

Non-competition Agreements 200 4 years

The Company recorded a measurement period adjustment of $ 7,930 during fiscal 2020 to increase patents, increase deferred tax liabilities by $ 6,487 and decrease goodwill by $ 1,443 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.

The Company anticipates making the second anniversary payment of $ 13,000 during the first half of 2021.

The anniversary payments and system sales payment may each be made in cash or cash and common stock, subject to certain limitations;

provided that the Company makes the determination with respect to anniversary payments and a representative of the former ApiFix shareholders may make the determination with respect to the system sales payment, if any.

The fair value of the contingent consideration payment is considered a Level 3 fair value measurement and was determined with the assistance of an independent valuation specialist at the original issuance date using an option pricing model and a Monte Carlo simulation based on forecasted annual revenue, expected volatility and an implied probability of achieving revenue forecasts.

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 adjustment in the fair value of the contingent consideration payment of $ 3,520 was recognized as an expense for the twelve month period ended December 31, 2020, in other expenses on the consolidated statements of operations.

An additional $ 2,397 was recognized as interest expense for the twelve month period ended December 31, 2020, on the consolidated statements of operations for the accretion 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 December 31, 2020

Anniversary Payments:

Second Year Payment $ 10,980 $ 12,233

Third Year Payment 5,780 6,335

Fourth Year Payment 5,860 6,449

Total acquisition installment payable 22,620 25,017

current portion of acquisition installment payable 10,980 12,233

Acquisition installment payable, net of current portion 11,640 12,784

System sales payment 27,190 30,710

ApiFix future consideration, net of current portion $ 38,830 $ 43,494

Pre-acquisition revenues and earnings for ApiFix were not material to the consolidated operations.

On March 9, 2020, the Company purchased the issued and outstanding membership interest of Telos for $ 1,750 in cash, including $ 81 of cash acquired, and 36,628 shares of common stock, $ 0.00025 par value per share, of the Company.

The shares of common stock were valued at $ 42.81 per share, the Company's closing share price on March 9, 2020.

The Company incurred $ 25 of acquisition-related costs, that are included in general and administrative expenses on the consolidated statements of operations.

The purchase price allocation set forth herein is preliminary.

The following table summarizes the total consideration paid for Telos and allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Description Amount

Preliminary fair value of estimated total acquisition consideration $ 3,318

Accounts receivable-trade 215

Prepaid expenses and other current assets 38

Property and equipment 10

Amortizable intangible assets 950

Other intangible assets $ 210

Total assets 1,504

Accounts payable and accrued liabilities 60

Total liabilities 60

total net assets 1,444

Goodwill $ 1,874

The fair value of identifiable intangible assets were based on valuations using a combination of the income and cost approach.

The estimated fair value and useful life of identifiable intangible assets are as follows:

Amount Remaining Economic Useful Life

Trademarks / Names $ 210 Indefinite

Customer Relationships 910 10 years

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, net of working capital adjustments, and 245,352 shares of common stock, $ 0.00025 par value per share, of the Company.

1 unchanged sentence

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.

The Company incurred $ 737 of acquisition-

related costs, that are included in general and administrative expenses on the consolidated statements of operations.

The purchase price allocation set forth herein is preliminary, subject to certain tax matters related to the acquisition.

The Company incurred $ 737 of acquisition-related costs, that are included in general and administrative expenses on the consolidated statements of operations.

The purchase price allocation set forth herein is final.

The following table summarizes the total consideration paid for Vilex and Orthex and allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date:

5 unchanged sentences

Property and equipment 7,540

Intangible assets 18,770

Amortizable intangible assets 31,180

Operating lease right-of-use asset 323

18 unchanged sentences

Pro forma net revenue and net loss from continuing operations for 2019 and 2018 assuming the acquisition occurred on January 1, 2018 would have been $ 74,488 and $ 62,607 and ($ 12,601 ) and ($ 13,439 ), respectively.

The Company recorded a measurement period adjustment during fiscal 2020 to increase inventory and decrease goodwill related to working capital adjustments to allocate inventory between Orthex and Vilex.

Since the Vilex products include adult offerings that are 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.

On December 31, 2019, the Company divested substantially all of the assets relating to Vilex's adult product offering to a wholly-owned subsidiary of Squadron Capital, LLC in exchange for a $ 25,000 reduction in a term note owed to Squadron in connection with the initial acquisition along with certain ongoing intellectual property rights.

Of the $ 25,000 purchase price, $ 12,410 was attributable to the license of the Orthex intellectual property and the remaining $ 12,590 was applied to the Vilex assets and liabilities divested.

After the issuance of our December 31, 2019 annual consolidated financial statements, and in connection with the preparation of our condensed consolidated financial statements for the three months ended March 31, 2020, we identified and corrected an immaterial error related to the deferred revenue liability recognized from license of Orthex intellectual property as of December 31, 2019.

The immaterial correction of the error resulted in a reduction of the deferred revenue liability and goodwill on the consolidated balance sheet as of December 31, 2019 of $ 12,410 , based on the conclusion that the consideration transferred was allocable to a portion of certain Orthex patent assets sold concurrently with the sale of Vilex.

We have evaluated the adjustment and, based on an analysis of quantitative and qualitative factors, determined that the related impact was not material to our consolidated financial statements for any prior annual or interim period presented.

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.

NOTE 4 – DISCONTINUED OPERATIONS

2 unchanged sentences

On December 31, 2019, the Company divested substantially all of the assets relating to Vilex's adult product offering to a wholly-owned subsidiary of Squadron Capital, LLC.

in exchange for a $ 25,000 reduction in a term note owed to Squadron in connection with the initial acquisition along with certain ongoing intellectual property rights.

Of the $ 25,000 purchase price, $ 12,410 was attributable to deferred revenue associated with the license of the Orthex intellectual property and the remaining $ 12,590 was applied to the Vilex assets and liabilities divested.

in exchange for a $ 25,000 reduction in a term note owed to Squadron in connection with the initial acquisition along with the sale of intellectual property rights.

Assets and liabilities divested consisted of the following as of December 31, 2019:

30 unchanged sentences

The Company recognized a total net loss on discontinued operations of $ 1,046 , net of taxes, in its consolidated statement of operations for the year ended December 31, 2019.

The net assets sold as part of the divestiture of Vilex on December 31, 2019 have changed from those previously reported as assets held for sale resulting from a change in asset allocation between Orthex and Vilex to revisions in the purchase price allocation and due to final terms of the sale agreement.

This change did not have a material impact on results of operations from discontinued operations previously reported.

NOTE 5 - GOODWILL AND INTANGIBLE ASSETS

3 unchanged sentences

The assumptions used in evaluating goodwill for impairment are subject to change and are tracked against historical results by management.

The quantitative test estimates the fair value of its one reporting unit using a discounted cash flow model, which incorporates significant estimates and assumptions made by management which, by their nature, are characterized by uncertainty.

Inputs used to fair value the Company's reporting unit are considered inputs of the fair value hierarchy.

For Level 3 measurements, significant increases or decreases in long-term growth rates or discount rates in isolation or in combination could results in a significantly lower or higher fair value assessment.

The key assumptions impacting the valuation included the following:

• The reporting unit's financial projections, which are based on management's assessment of regional and macroeconomic variables, industry trends and market opportunities, and the Company's strategic objectives and future growth plans.

• The projected terminal value for the reporting unit, which represents the present value of projected cash flows beyond the last period in the discounted cash flow analysis.

The terminal value reflects the Company's assumptions related to long-term growth rates and profitability, which are based on several factors, including local and macroeconomic variables, market opportunities and future growth plans.

• The discount rate used to measure the present value of the projected future cash flows is set using a weighted-average cost of capital method that considers market and industry data as well as the Company's specific risk factors that are likely to be considered by a market participant.

The weighted-average cost of capital is the Company's estimate of the overall after-tax rate of return required by the equity holders of the business enterprise.

The Company elected to perform a qualitative analysis for its reporting unit as of December 31, 2019.

The Company elected to perform a qualitative analysis for its reporting unit as of October 1, 2020.

The Company determined, after performing the qualitative analysis that there was no evidence that it is more likely than not that the fair value of its reporting unit was less than the carrying amount, therefore, it was not necessary to perform a quantitative impairment test.

Changes in the carrying amount of goodwill in 2019 were as follows:

Changes in the carrying amount of goodwill in 2019 and 2020 were as follows:

Goodwill at January 1, 2019 $ —

1 unchanged sentence

Divestiture of Vilex in Tennessee, Inc.

Goodwill at January 1, 2020 $ 13,773

Orthex measurement period adjustment ( 688 )

ApiFix acquisition 52,070

Foreign currency translation impact 3,482

Goodwill at December 31, 2020 $ 70,511

10 unchanged sentences

Patents 17.4 years $ 9,287 $ ( 363 ) $ 8,924

Intellectual Property 10.7 years 4,020 ( 213 ) 3,807

License agreements 3.4 years 2,765 ( 1,012 ) 1,753

7 unchanged sentences

Trademarks are non-amortizing intangible assets which were $ 13,961 and $ 4,490 as of December 31, 2020 and 2019, respectively.

On June 4, 2019, we acquired the Orthex trademark concurrently with the acquisition of the Vilex Companies, which was valued at $ 4,230 and recorded in Other Intangible assets, on the Consolidated Balance Sheets.

The Company tests intangible assets with indefinite lives for impairment annually on October 1 st in accordance with relevant authoritative guidance.

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 $ 8,640 .

Trademarks are recorded in Other Intangible assets on the Consolidated Balance Sheets.

We use the Tether Clamp System in connection with our Bandloc 5.5/6.0 System.

We were previously the sole licensee of the purchased assets under a license agreement with Band-Lok.

The Company tests intangible assets with indefinite lives for impairment annually on October 1 st or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.

Recoverability is measured by a comparison of the carrying amount to future net discounted cash flows expected to be generated by the associated asset.

If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the intangible assets.

Based upon the Company's analysis, no impairment chargers were recorded to its intangible assets.

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures certain financial assets and liabilities at fair value.

The accounting standards related to fair value measurements define fair value and provide a consistent framework for measuring fair value under the authoritative literature.

A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels.

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data;

Level 3 – Significant unobservable inputs that are not corroborated by market data.

Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, and are based on the best information available, including our own data.

There were no assets or liabilities measured at fair value on a recurring basis as of the year ended December 31, 2019.

The following table summarize the assets and liabilities measured at fair value on a recurring basis as of December 31, 2020.

12/31/2020 Level 1 Level 2 Level 3

Financial Assets

Cash Equivalents $ 15,002 15,002 — —

Short term investments 55,141 55,141

Financial Liabilities

Contingent Consideration $ 30,710 — — 30,710

The Company's level 1 assets consist of cash equivalents which are generally comprised of short-term, liquid investments with original maturity of three months or less at inception and other short term investments which are comprised of exchange traded mutual funds and marketable securities with a maturity date greater than 3 months.

The following table summarizes the change in fair value of Level 3 instruments in 2020:

Balance at January 1, 2020 $ —

Contingent consideration recorded as a result of the acquisition (Note 3) 27,190

Change in fair value of contingent consideration 3,520

Balance at December 31, 2020 $ 30,710

The Company's Level 3 instruments consist of contingent consideration.

The fair value of contingent consideration liabilities assumed in business combinations is recorded as part of the purchase price consideration of the acquisition and is determined using a discounted cash flow model or probability simulation model.

The significant inputs of such models are not always observable in the market, such as certain financial metric growth rates, volatility rates, projections associated with the applicable milestone, the interest rate, and the related probabilities and payment structure in the contingent consideration arrangement.

Fair value adjustments to contingent consideration liabilities are recorded through operating expenses in the Consolidated Statement of Operations.

Contingent consideration arrangements assumed by an asset purchase will be measured and accrued when such contingency is resolved.

The recurring Level 3 fair value measurements of contingent consideration liabilities associated with commercial sales milestones include the following significant unobservable inputs as of December 31, 2020:

2020 December 31,

Valuation techniques Discounted cash flow, Monte Carlo

Present value discount rate (1)

23.1 % 25.8 %

Volatility factor 43.7 % 51.8 %

Expected Years 4.1 years 3.5 years

(1) The present value discount rate includes estimated risk premium

NOTE 7 - PROPERTY AND EQUIPMENT, NET

28 unchanged sentences

The Loan Agreement also extended the maturity date to January 31, 2023.

In order to finance a portion of the cash consideration for the acquisition of the Vilex Companies, the Company entered into a first Amendment, or the Amendment, to the Loan Agreement (as so amended, the "Amended Loan Agreement"), with Squadron.

The Amended Loan Agreement provided for a new $ 30,000 term loan facility, represented by a Term Note B, in addition to the existing $ 20,000 Term Note A and $ 15,000 revolving credit facility.

Similar to the other facilities under the Amended Loan Agreement, the Term Note B was subject to interest only payments at an interest rate equal to the greater of (a) three month LIBOR plus 8.61 %, and (b) 10.00 %.

The First Amended Loan Agreement provided for a new $ 30,000 term loan facility, represented by a Term Note B, in addition to the existing $ 20,000 Term Note A and $ 15,000 revolving credit facility.

Similar to the other facilities under the First Amended Loan Agreement, the Term Note B was subject to interest only payments at an interest rate equal to the greater of (a) three month LIBOR plus 8.61 %, and (b) 10.00 %.

The Term Note B, which would have matured no later than May 31, 2020, was paid in full on December 31, 2019 using $ 25,000 received in exchange for the divestiture of the adult product offerings of Vilex and the related Orthex license agreement, and $ 5,000 from the available Squadron revolving credit facility.

Borrowings under the Amended Loan Agreement are secured by substantially all of the Company's assets and are unconditionally guaranteed by each of its subsidiaries with the exception of Vilex.

There are no traditional financial covenants associated with the Amended Loan Agreement.

On January 4, 2020, the Company repaid $ 5,000 on the revolving credit facility with Squadron.

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

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 and is recorded in interest, net.

For the year ended December 31, 2020 the unused commitment fee paid to Squadron was $ 52 .

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 %.

There are no outstanding term loan obligations under the Second Amended Loan Agreement.

Borrowings under the Second Amended Loan Agreement are secured by substantially all of the Company's assets and are unconditionally guaranteed by each of its subsidiaries with the exception of Vilex.

There are no traditional financial covenants associated with the Second Amended Loan Agreement.

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 was 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 December 31, 2019 and 2018, the fair value approximated the carrying value.

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.

8 unchanged sentences

Effective December 1, 2007, we entered into a 10 year agreement with Case Western Reserve University (“CASE”) to assist in certain aspects of our research and development.

Effective August 2, 2017, we entered into an Amended and Restated License Agreement to account for additional licensed product extend the agreement for another ten years.

Effective August 2, 2017, we entered into an Amended and Restated License Agreement to account for additional licensed product and extend the agreement for another ten years .

The main focus of this research and development involves leveraging our exclusive rights to the Hamann-Todd Collection of the Cleveland National History Museum, the world's largest pediatric osteological collection, to assist in the design of implants which match pediatric bone curvature and structure.

6 unchanged sentences

As of December 31, 2020 and 2019, $ 35 and $ 39 , respectively, was due to CASE.

In conjunction with the sale of Vilex, the company entered into a cross license agreement with the buyer of Vilex to permit both companies to sell the Vilex and Orthex products, respectively, to certain customers for an indefinite term.

The Orthex license agreement was determined to have a value of $ 12,410 and is recorded as deferred revenue on the Company's December 31, 2019 consolidated balance sheet.

This deferred revenue will be recognized on a proportional basis relative to the total expected Orthex sales subject to this license and distribution arrangement.

NOTE 11 - INCOME TAXES

13 unchanged sentences

and (8) limitations on net operating losses (NOLs) generated after December 31, 2017, to 80 percent of taxable income.

The SEC staff issued SEC Staff Accounting Bulletin No.

118, " Income Tax Accounting Implications of the Tax Cuts and Jobs Act" (SAB 118), which provides guidance on accounting for the tax effects of the Tax Act.

SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, " Income Taxes ." In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete.

To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a estimate in the financial statements.

If a company cannot determine a provisional estimate to be included in the financial statements, it should

continue to apply ASC 740 on the basis of the provisions of the laws that were in effect immediately before the enactment of the Tax Act.

The Tax Act reduced the US federal corporate tax rate from a graduated rate up to 35% to a flat rate of 21%, effective January 1, 2018.

1 unchanged sentence

The effect of this provisional adjustment in the deferred provision for income taxes is a discrete net expense of $ 11,095 , however this is offset with a reduction in the valuation allowance as of December 31, 2018.

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was signed into law on March 27, 2020.

The CARES Act lifts certain deduction limitations originally imposed by the Tax Act.

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

The CARES Act also eliminates the 80% of taxable income limitation allowing corporate entities to fully utilize net operating loss carryforwards to offset

taxable income in 2018, 2019 and 2020.

The enactment of the CARES Act did not result in any material impact to the Company’s income tax provision.

On December 27, 2020 the Consolidated Appropriations Act, 2021 (“CAA”) was signed into law.

The CAA includes the COVID-related Tax Relief Act of 2020 (“COVID TRA”).

The Company is continuing to assess the effect of the CAA and does not believe it will result in a material impact to the Company’s income tax provision.

Total income tax expense (benefit) for the years ended December 31, 2020, 2019 and 2018 was allocated as follows:

2 unchanged sentences

Income from discontinued operations — ( 660 ) —

Total tax expense $ ( 660 ) $ — $ —

For the years ended December 31, 2019, 2018 and 2017 income from continuing operations before taxes of the Company consists of the following:

Total tax expense (benefit) $ ( 723 ) $ ( 660 ) $ —

For the years ended December 31, 2020, 2019 and 2018 loss from continuing operations before taxes of the Company consists of the following:

2020 2019 2018

6 unchanged sentences

State — 37 564

1,070 ( 3,099 ) 8,363

Total 1,070 ( 3,099 ) 8,363

Foreign ( 723 ) — —

(Decrease) Increase in valuation allowance — ( 1,070 ) 3,099

Total tax expense $ — $ — $ —

Total income tax expense (benefit) $ ( 723 ) $ — $ —

The reconciliation between the effective tax rate and the statutory tax rate is as follows:

4 unchanged sentences

Change in state rate ( 2.5 ) % ( 1.3 ) % ( 1.2 ) %

Change in federal rate (34% to 21%) — % — % ( 9.8 ) %

Nondeductible/nontaxable items 0.3 % 4.9 % ( 122.2 ) %

Nondeductible/nontaxable or other items 1.1 % .3 % 4.9 %

Unborn foreign tax deduction 4.0 % — % — %

Change in valuation allowance ( 23.4 ) % ( 19.3 ) % ( 25.8 ) %

Income tax expense — % — % — %

Income tax (expense) benefit 2.1 % — % — %

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

7 unchanged sentences

Interest carryforward 1,851 655

Intangibles — 134

Accrued Settlements 1,467 —

Other 382 417

6 unchanged sentences

Total deferred tax liabilities ( 10,174 ) ( 832 )

Deferred tax assets, net $ — $ —

The deferred tax assets were fully offset by a valuation allowance at December 31, 2019 and 2018, and no income tax benefit has been recognized in continuing operations for each of the three years in the period ended December 31, 2019.

Deferred tax assets (liabilities), net $ ( 5,755 ) $ —

The deferred tax assets were fully offset by a valuation allowance at December 31, 2020 and 2019, with the exception of certain deferred tax liabilities recognized in a foreign jurisdiction as a result of fair value adjustments recorded upon the acquisition of ApiFix.

The Company has recorded a tax benefit during the year ended December 31, 2020, for losses generated in Israel.

During 2019, the Company assumed certain deferred tax liabilities in connection with the acquisition of Vilex, which allowed for a release of $ 1,124 of the valuation allowance.

Such amount was recognized in discontinued operations.

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

As of December 31, 2020, we had available federal, state and foreign tax loss carryforwards of $ 98,918 , $ 68,901 and $ 16,905 , respectively.

We had available federal tax credits of $ 176 .

Net operating losses generated prior to December 31, 2017 will begin to expire in 2028.

9 unchanged sentences

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

As a result, a full valuation continues to be recorded against the Company's net deferred tax assets, with the exception of Israel.

We are subject to taxation in the United States, Indiana and various other state and international jurisdictions.

4 unchanged sentences

At December 31, 2020, our foreign operations held cash totaling $ 5,398 .

Except for the nontaxable repayment of intercompany loans, our intent is to permanently reinvest these funds to our U.S.

Under the worldwide taxation system in effect prior to the enactment of the Tax Act, US corporate income tax applied to all of a company’s income, regardless of whether it was earned in the US or overseas.

However, foreign income earned by a foreign subsidiary of a U.S.

corporation was generally not taxed until the foreign earnings were repatriated to the US.

Enactment of The Tax Act created a territorial tax system under which future dividends of earnings of foreign subsidiaries already subjected to the transition tax under the Act will not be subject to federal income tax, with the exception of foreign exchange rate gains or losses on distributions, capital gains on sale of investment, foreign withholding taxes, and certain state taxes.

Based upon the Company’s facts and circumstances, no previously accumulated untaxed earnings and profits existed in the foreign jurisdictions, and therefore, the

company did not recognize a transition tax liability.

The Tax Act also creates a new requirement that Global Intangible Low Taxed Income (“GILTI”) earned by controlled foreign corporations (“CFCs”) must be included currently in the gross income of the CFCs’ U.S.

GILTI is the excess of the shareholder’s “net CFC tested income” over the net deemed tangible income return, which is currently defined as the excess of 1) 10 percent of the aggregate of the U.S.

shareholder’s pro rata share of the qualified business asset investment of each CFC with respect to which it was a U.S.

shareholder over 2) the amount of certain interest expense taken into account in the determination of net CFC-tested income.

The Company did not have any current foreign earnings and therefore GILTI did not apply for the year ended December 31, 2019 and 2018.

Under US GAAP, we are allowed to make an accounting policy choice of either 1) treating taxes due on future U.S.

inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or 2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”).

We have selected the period cost method.

As a result, we have not provided deferred taxes related to the temporary differences that upon reversal will affect the amount of income subject to GILTI in the period.

We have not provided for foreign withholding tax on the undistributed earnings from our non-U.S.

subsidiaries that are considered to be indefinitely reinvested.

If such earnings were to be distributed, any foreign withholding tax would not be significant.

NOTE 12 - STOCKHOLDERS’ EQUITY

Prior to our IPO, we maintained an Amended and Restated 2007 Equity Incentive Plan (the “2007 Plan”) that provides for grants of options and restricted stock to employees, directors and associated third-party

representatives of our company as determined by the Board of Directors.

The 2007 Plan had authorized 1,585,000 shares for award.

Immediately prior to our IPO, we adopted our 2017 Incentive Award Plan (the “2017 Plan”) which replaced the 2007 Plan.

The 2017 Plan provides for grants of options and restricted stock to officers, employees, consultants or directors of our Company.

The 2017 Plan has authorized 1,789,647 shares for award.

Stock Options

6 unchanged sentences

Forfeited or expired ( 50,652 ) $ 27.61

Exercised ( 14,213 ) $ 29.85

Outstanding at December 31, 2018 112,094 $ 30.32 1.8

26 unchanged sentences

At December 31, 2020, there was $ 7,114 of unrecognized compensation expense remaining related to our service-based restricted stock awards.

The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.7 years.

The unrecognized compensation cost is expected to be recognized over a

weighted average period of 1.1 years.

All restricted stock granted prior to May 2014 vested upon our IPO and the remaining grants under the 2007 Plan vested six months after the IPO.

Stock-based compensation expense on restricted stock amounted to $ 6,196 , $ 2,603 and $ 3,185 for the years ended December 31, 2020, 2019 and 2018, respectively.

Due to our limited operating history and lack of marketability, prior to our IPO, discounts of 15 % were applied when estimating the stock-based compensation for restricted stock awards granted in 2017.

An additional $ 1,986 and $ 2,049 of stock-based compensation expense was incurred in 2018 and 2017, respectively, due to the accelerated vesting of restricted shares related to our IPO.

The increase in the stock compensation expense for the twelve months ended December 31, 2020 was primarily driven by a third year of restricted stock grants in a three year vesting cycle and one-time stock grants related to executive management transitions that vested immediately resulting in an additional $ 1,542 of expense.

Our warrant activity and related information are summarized below:

1 unchanged sentence

Outstanding at January 1, 2018 44,101 $ 27.03

Forfeited or expired ( 37,311 ) $ 26.89

Outstanding at December 31, 2018 6,790 $ 27.81

13 unchanged sentences

Net loss from discontinued operations — ( 1,046 ) —

Net loss ( 13,731 ) ( 12,025 ) ( 8,932 )

Accretion of cumulative dividends of redeemable preferred stock to redemption value — — ( 4,563 )

Forfeiture of 50% of Series B Preferred Stock accumulated dividends — — 5965

Series A Preferred Stock preference payment in common stock — — $ ( 16,000 )

Net loss attributable to common stockholders - basic and diluted $ ( 32,944 ) $ ( 13,731 ) $ ( 12,025 )

7 unchanged sentences

Non-vested restricted stock that includes non-forfeitable rights to dividends are considered participating securities.

Series A and B preferred stock include rights to participate in dividends and distributions to common stockholders on an if-converted basis, and accordingly are also considered participating securities.

During periods of undistributed losses however, no effect is given to our participating securities since they are not contractually obligated to share in the losses.

Because we have incurred a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share.

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 (shares for the redeemable convertible preferred shares were determined based on the applicable conversation ratio of 1 :1):

Year Ended December 31,

6 unchanged sentences

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.

We have one operating and reporting segment, OrthoPediatrics (including Orthex), which designs, develops and markets anatomically appropriate implants and devices for children with orthopedic problems.

We have one operating and reportable segment, OrthoPediatrics, which designs, develops and markets anatomically appropriate implants and devices for children with orthopedic problems.

Our chief operating decision-maker, our Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance, accompanied by disaggregated revenue information by product category.

4 unchanged sentences

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

Product sales by source were as follows:

Disaggregated revenue - product sales by source were as follows:

Year Ended December 31,

14 unchanged sentences

In addition to the debt and credit agreements and mortgage with Squadron and its affiliate (refer to Note 6), we currently use Structure Medical, LLC (“Structure Medical”) as one of our suppliers.

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

Our aggregate payments to Structure Medical were $ 3,933 , $ 4,026 and $ 4,081 for the years ended December 31, 2019, 2018 and 2017, respectively.

Structure Medical is affiliated with Squadron and a supplier with which we maintain certain long-term agreements.

Our aggregate payments to Structure Medical for inventory purchases were $ 2,622 , $ 3,933 and $ 4,026 for the years ended December 31, 2020, 2019 and 2018, respectively.

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

In conjunction with the divestiture, the Company also entered into an exclusive perpetual license agreement to permit the purchasers of Vilex the ability to access intellectual property and sell products using the external fixation technology of Orthex, LLC to non-pediatric accounts.

For the year ended December 31, 2020, sales and payments related to inventory purchases to Squadron's affiliate, now known as Vilex, LLC, were $ 595 and $ 2,900 , respectively.

NOTE 16 - EMPLOYEE BENEFIT PLAN

4 unchanged sentences

Discretionary matching contributions are determined annually by management.

Effective January 1, 2019, we have elected to match our employees' 401(k) contributions up to 3 % of employees' salary.

Effective January 1, 2019, we elected to match our employees' 401(k) contributions up to 3 % of employees' salary.

This was increased to 4 % effective January 1, 2020.

For the years ended December 31, 2020 and 2019, we matched $ 439 and $ 246 , respectively of our employees' 401(k) contributions.

16 unchanged sentences

Thereafter, on November 19, 2019, K2M amended its complaint to add two (2) additional issued patents, to add claims of patent infringement regarding U.S.

10,285,735 and 10,292,736 (both

issued in May 2019).

10,285,735 and 10,292,736 (both issued in May 2019).

Like before, these newly issued patents relate to certain instruments used in our RESPONSE spine systems.

2 unchanged sentences

Subsequently, the parties attended a second court-ordered mediation on February 25, 2020, which did not resolve the dispute, but we continue to welcome constructive discussions on a negotiated settlement.

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.

Subsequent to year end, we entered into settlement negotiations regarding this matter and anticipate that it will be settled in the near term.

However, no assurance can be given that a final settlement will be reached and, were negotiations to cease, we would vigorously defend the claims asserted against us.

As intellectual property litigation can involve complex factual and legal questions, an adverse resolution of this proceeding could have a material adverse effect on our business, operating results and financial condition.

On December 30, 2020, Dr.

Mark Barry filed suit against us in the United States District Court for the District of Delaware (Barry v.

OrthoPediatrics Corp.

et al., Case No.

1:20-cv-01786) seeking unspecified damages for alleged infringement of U.S.

and 9,668,788, which relate to systems and methods concerning derotation of spinal bodies to correct spinal deformities.

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.

The parties reached a verbal settlement in February 2021, but have not finalized the written settlement agreement, and do not expect to do so for several weeks.

As of December 31, 2020, we have accrued $ 6,342 related to the potential outcome of outstanding legal matters.

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 or results of operations or cash flows.

13 unchanged sentences

Operating loss ( 4,497 ) ( 7,017 ) ( 2,498 ) ( 12,743 )

Net loss from continuing operations ( 3,020 ) ( 2,459 ) ( 2,877 ) ( 4,329 )

Gain (Loss) from discontinued operations — 159 ( 213 ) ( 1,100 )

Loss before income tax benefit ( 4,945 ) ( 9,447 ) ( 4,539 ) ( 14,736 )

Provision for income taxes (benefit) — — — ( 723 )

Net loss ( 4,945 ) ( 9,447 ) ( 4,539 ) ( 14,013 )

Net loss attributable to common stockholders ( 4,945 ) ( 9,447 ) ( 4,539 ) ( 14,013 )

Net loss from continuing operations per share attributable to common stockholders - basic and diluted $ ( 0.21 ) $ ( 0.17 ) $ ( 0.19 ) $ ( 0.29 )

Net loss from discontinued operations per share attributable to common stockholders - basic and diluted $ — $ 0.01 $ ( 0.01 ) $ ( 0.07 )

Net loss per share attributable to common stockholders - basic and diluted $ ( 0.30 ) $ ( 0.54 ) $ ( 0.24 ) $ ( 0.73 )

6 unchanged sentences

Operating loss ( 2,717 ) ( 1,790 ) ( 1,539 ) ( 3,031 )

Net loss from continuing operations ( 3,020 ) ( 2,459 ) ( 2,877 ) ( 4,329 )

Gain (Loss) from discontinued operations — 159 ( 213 ) ( 1,100 )

Net loss ( 3,020 ) ( 2,618 ) ( 2,664 ) ( 5,429 )

Net loss attributable to common stockholders ( 3,020 ) ( 2,618 ) ( 2,664 ) ( 5,429 )

Net loss from continuing operations per share attributable to common stockholders - basic and diluted $ ( 0.21 ) $ ( 0.17 ) $ ( 0.19 ) $ ( 0.29 )

Net loss from discontinued operations per share attributable to common stockholders - basic and diluted $ — $ 0.01 $ ( 0.01 ) $ ( 0.07 )

Net loss per share attributable to common stockholders - basic and diluted $ ( 0.21 ) $ ( 0.16 ) $ ( 0.20 ) $ ( 0.36 )

During the fourth quarter ended December 31, 2020, the Company recorded a $ 2,730 revenue reduction due to the repurchase of inventory from a stocking distributor in Germany, Austria and Switzerland that we converted to a sales agency.

The aforementioned $ 2,730 reduction of revenue reduced gross profit in the fourth quarter and total year by $ 1,115 .

SUBSEQUENT EVENTS

On January 4, 2020, the Company paid $ 5,000 on the revolving loan agreement with Squadron.

On March 1, 2020, the Company expanded to eight international agents with the conversion of its Italian distributor to an agent allowing the Company to sell direct to the Italian market.

On January 15, 2021, the Company expanded to 14 international agents, broadening its reach into the largest European market of Germany, Austria and Switzerland by converting long-standing distribution partners.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

In connection with its audits for the two most recent fiscal years ended December 31, 2019, there have been no disagreements with the Company’s independent registered public accounting firm on any matter of accounting principles or practices, financial statement disclosure or audit scope or procedure, nor have there been any changes in accountants.

In connection with its audits for the two most recent fiscal years ended December 31, 2020, there have been no disagreements with the Company’s independent registered public accounting firm on any matter of accounting

principles or practices, financial statement disclosure or audit scope or procedure, nor have there been any changes in accountants.

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-K

Item 8. Financial Statements and Supplementary Data