What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-05-05 compared with 2021-11-04 · 86 added, 91 removed, 113 unchanged (61% of the section changed)

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We provide our implants in sets that consist of a range of implant sizes and include the instruments necessary to perform the surgical procedure.

In the United States and multiple international markets, our customers typically expect us to have full sets of implants and instruments on site at each hospital but do not purchase the implants until they are used in surgery.

In the United States and a few selected international markets, our customers typically expect us to have full sets of implants and instruments on site at each hospital but do not purchase the implants until they are used in surgery.

Accordingly, we must make an up-front investment in inventory of consigned implants and instruments before we can generate revenue from a particular hospital and we maintain substantial levels of inventory at any given time.

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The majority of our revenue has been generated in the United States, where we sell our products through a network of 40 independent sales agencies employing more than 188 sales representatives specifically focused on pediatrics.

These independent sales agents are trained by us, distribute our products and are

compensated through sales-based commissions and performance bonuses.

These independent sales agents are trained by us, distribute our products and are compensated through sales-based commissions and performance bonuses.

We do not sell our products through or participate in physician-owned distributorships, or PODs.

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Our independent distributors manage the billing relationship with each hospital in their respective territories and are responsible for servicing the product needs of their surgeon customers.

In 2017, we began to supplement our international stocking distributors with sales agencies using direct sales programs in the United Kingdom, Ireland, Australia and New Zealand where we sell directly to the hospitals.

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.

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and international markets by increasing investments in consigned implant and instrument sets, strengthening our global sales and distribution infrastructure and expanding our product offering.

For example, on April 1, 2022, the Company acquired MD Orthopaedics, Inc., a developer and manufacturer of a portfolio of orthopedic clubfoot products.

The consideration paid by the Company included (a) $8.2 million in cash, and (b) 173,241 shares of its common stock, $0.00025 par value per share, representing approximately $9.7 million (based on the April 1, 2022 closing share price of $56.03).

Environmental, Social and Governance ("ESG") Activities

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In 2021, we created an internal ESG team, which reports directly to our Board’s Governance and Nominating Committee, to identify ESG topics for disclosure by assessing both the impact on our business and the importance to our stakeholders.

We encourage you to review our ESG page under the "About" section of our corporate website for more detailed information regarding our ESG efforts and current initiatives.

On our website, among other information, are the following highlights:

• OrthoPediatrics cares about our environmental impact while working in a highly regulated industry and we are certified according to ISO 13485.

• The Company and its associates regularly participate in philanthropic causes important to our local communities.

We also partner with charitable organizations that provide pediatric orthopedic care around the world.

In 2020 we were named as "Corporate Partner of the Year" by the World Pediatric Project - with whom we work to provide access to medical care for children in developing countries.

• We are committed to fostering an environment that is respectful, compassionate, and inclusive of everyone in our community.

• The Board of Directors understands the value of diversity and will increase the diversity of the Board over the next 18 months.

The Governance and Nominating Committee engaged a global recruiting firm to assist in adding two diverse Board candidates.

We believe effectively managing our priorities, as well as increasing our transparency related to ESG programs, will help create long-term value for our stakeholders.

We expect to increase our disclosures and communicate our ESG efforts in future SEC filings.

Nothing on our website shall be deemed part of or incorporated by reference into this Quarterly Report on Form 10-Q.

Impact of COVID-19 on our Business

The global COVID-19 pandemic (“COVID-19” or the “pandemic”), together with the preventative and precautionary measures taken by governments, governmental agencies, communities, businesses and hospital administrators, has impacted, and may continue to impact significant aspects of our business, including demand for our products, supply chain and distribution systems, our operations generally, and the timing for bringing new products to market.

We also expect medical procedure rates to continue to vary by type and country, and could be impacted by regional COVID-19 case volumes, hospital and clinical occupancy and staffing levels, the willingness of patients to schedule elective procedures, travel and quarantine restrictions, vaccine immunization rates, and new COVID-19 variants.

While we have seen the positive impact that higher vaccination rates have had on curbing the spread of the virus in the U.S.

and certain other countries, the global COVID-19 outlook remains uncertain as vaccination rates have slowed and the spread of new variants has accelerated.

While the impact of COVID-19 has had, and may continue to have, an adverse effect on our business, results of operations, financial condition and cash flows, the nature and extent of such impact is unknown, as we cannot predict with confidence the ultimate duration or further severity of the pandemic.

As a result of the COVID-19 pandemic (“COVID-19” or the “pandemic”), we have experienced significant business disruption.

For example, in order to meet the demand for COVID-19-related hospitalizations, various governments, governmental agencies and hospital administrators required certain 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.

We encourage the readers of this document to read our risk factors in their entirety contained in Item 1A “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 3, 2022 and in other reports filed with the SEC that discuss the risks and factors that may affect our business.

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As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

Other Trends and Uncertainties

From time to time we acquire, make investments in or license other technologies, products and business that may enhance our capabilities, complement our current products or expand the breadth of our markets or customer base.

As a result of these transactions, we may record certain intangible assets, including goodwill and trademarks, which are subject to annual impairment testing.

Impairment is based on our current assessment of the expected future cash flows based on recent results and other specific market factors.

Although we have not recorded any impairment charges to date, the most recently prepared assessment indicates our passing rate has narrowed for certain intangible assets.

We believe that the expected future cash flows represent management’s best estimate;

however, if actual results differ materially from these estimates, we could record an impairment charge which could be material to our consolidated financial statements and have an adverse impact on our results of operations.

Emerging Growth Company and Smaller Reporting Company Status

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We also qualify as a "smaller reporting company," as such term is defined in Rule 12b-2 under the Exchange Act.

To the extent that we continue

to qualify as a smaller reporting company, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company.

To the extent that we continue to qualify as a smaller reporting company, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company.

The JOBS Act also provides that an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Summary of Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020

The following table sets forth our results of operations for the three and nine months ended September 30, 2021 and 2020:

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

Summary of Statements of Operations for the Three Months Ended March 31, 2022 and 2021

The following table sets forth our results of operations for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

2022 2021 Increase

(Decrease) % 2021 2020 Increase (Decrease) %

Net revenue $ 23,417 $ 21,462 $ 1,955 9 %

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Net loss $ (9,100) $ (10,379) $ (1,279) (12) %

The following tables set forth our net revenue by geography and product category for the three and nine months ended September 30, 2021 and 2020:

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

The following tables set forth our net revenue by geography and product category for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Product sales by geographic location:

$ 18,188 $ 16,839

$ 19,354 $ 19,583 $ 57,930 $ 45,113

International 5,229 4,623

Total $ 23,417 $ 21,462

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

Three Months Ended March 31,

Product sales by category:

2021 2020 2021 2020

Trauma and deformity $ 16,516 $ 14,552

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Total $ 23,417 $ 21,462

Net revenue increased $2.9 million, or 13%, from $22.2 million for the three months ended September 30, 2020 to $25.1 million for the three months ended September 30, 2021 and increased $21.1 million, or 40%, from $52.2 million for the nine months ended September 30, 2020 to $73.2 million for the nine months ended September 30, 2021.

The increase during the three months ended September 30, 2021 was primarily driven by the recovery in our international markets as the COVID pandemic, including the Delta variant, continues to reach the world at varying times and to varying degrees.

The increase during

the nine months ended September 30, 2021 reflects the continued return to normalization in both the U.S.

and international markets.

Net revenue increased $2.0 million, or 9%, from $21.5 million for the three months ended March 31, 2021 to $23.4 million for the three months ended March 31, 2022.

The increase during the three months ended March 31, 2022 was driven primarily by non-elective trauma sales.

Additionally, we continue to see the benefit of converting Germany, Austria, and Switzerland to a direct agency sales model.

Trauma and deformity sales increased $1.8 million, or 12%, during the three months ended September 30, 2021, and increased $12.9 million, or 35%, during the nine months ended September 30, 2021, in each case, primarily driven by strong trauma and deformity growth across numerous product lines, specifically our PNP Femur, Cannulated Screws and Orthex systems.

Scoliosis sales increased $0.7 million, or 11%, during the three months ended September 30, 2021, and increased $6.8 million, or 48%, during the nine months ended September 30, 2021, in each case , primarily driven by increased sales of our RESPONSE 4.5/5.0 and 5.5/6.0 systems and additional sales contributed from the ApiFix acquisition.

Sports medicine / other increased $0.3 million, or 46%, during the three months ended September 30, 2021, and increased $1.4 million, or 85%, during the nine months ended September 30, 2021, in each case, primarily driven by the additional sales contributed from Telos.

Nearly all the change in each category was due to an increase in the unit volume sold and not a result of price changes.

Trauma and deformity sales increased $2.0 million, or 13%, during the three months ended March 31, 2022, primarily driven by strong trauma and deformity growth across numerous product lines, specifically our PNP Femur, Cannulated Screws and Orthex systems.

Scoliosis sales increased $32 thousand, or 1%, during the three months ended March 31, 2022, primarily driven by increased sales of our RESPONSE 4.5/5.0 and sales of the FireFly surgical guides.

Sports medicine / other decreased $41 thousand, or 4%, during the three months ended March 31, 2022, primarily driven by a decline in sales from our Telos operations.

Nearly all the change in each category was due to an increase or decrease in the unit volume sold and not a result of price changes.

Cost of Revenue and Gross Margin

Cost of revenue increased $2.0 million, or 43%, from $4.6 million for the three months ended September 30, 2020 to $6.5 million for the three months ended September 30, 2021.

Cost of revenue increased $5.7 million, or 46%, from $12.2 million for the nine months ended September 30, 2020 to $17.9 million for the nine months ended September 30, 2021.

The increases were due primarily to increased sales volume in both the U.S.

and international markets.

Gross margin was 79% for the three months ended September 30, 2020 and 74% for the three months ended September 30, 2021.

Gross margin was 77% for the nine months ended September 30, 2020 and 76% for the nine months ended September 30, 2021.

The change in gross margin is primarily driven by the sales mix as a we saw an increase in the international market as a percentage of total revenue.

Cost of revenue decreased $0.3 million, or 6%, from $5.1 million for the three months ended March 31, 2021 to $4.9 million for the three months ended March 31, 2022.

The decrease is due primarily to an increased gross margin rate, offset by an increase in volumes sold.

Gross margin was 76% for the three months ended March 31, 2021 and 79% for the three months ended March 31, 2022.

The change in gross margin is primarily driven by sales through the converted international agencies, favorable purchase price variances, and fewer scoliosis set sales to our international stocking distributors.

Sales and Marketing Expenses

Sales and marketing expenses increased $0.6 million, or 7%, to $9.9 million for the three months ended September 30, 2021 from $9.2 million for the three months ended September 30, 2020.

Sales and marketing expenses increased $7.3 million, or 32%, to $29.7 million for the nine months ended September 30, 2021 from $22.4 million for the nine months ended September 30, 2020.

The changes in the three and nine month periods ended September 30, 2021 were due primarily to increased sales commission expenses, driven by increased unit volumes sold.

Sales and marketing expenses increased $0.8 million, or 9%, to $9.8 million for the three months ended March 31, 2022 from $8.9 million for the three months ended March 31, 2021.

The change in the three month period ended March 31, 2022 was due primarily to increased sales commission expenses, driven by increased unit volumes sold.

General and Administrative Expenses

General and administrative expenses increased $1.2 million, or 12%, from $9.8 million for the three months ended September 30, 2020 to $11.0 million for the three months ended September 30, 2021.

General and administrative expenses increased $5.9 million, or 21%, from $28.3 million for the nine months ended September 30, 2020 to $34.2 million for the nine months ended September 30, 2021.

The increases for the three and nine month periods ended September 30, 2021 were due primarily to the additional expenses associated with the ApiFix and Telos acquisitions, the addition of personnel and resources to support the continued expansion of our business and an increase in legal and other professional service expense associated with litigation.

Depreciation and amortization expenses increased $0.3 million, or 13%, from $2.4 million for the three months ended September 30, 2020 to $2.7 million for the three months ended September 30, 2021.

Depreciation and amortization expenses increased $2.2 million, or 38%, from $5.7 million for the nine months ended September 30, 2020 to $7.9 million for the nine months ended September 30, 2021.

The increases for the three and nine month periods ended September 30, 2021 were primarily due to the amortization of intangible assets acquired through the Vilex, Telos and ApiFix acquisitions, the purchase

of the Band-Lok intellectual property and the purchases of licensing agreements, including the 7D Surgical FLASH TM Navigation platform, FIREFLY, and the license from Dr.

See Note 4 – Goodwill and Intangible Assets of the notes to the condensed consolidated financial statements included in Item 1.

Financial Statements of this Part I for additional information.

General and administrative expenses increased $1.1 million, or 9%, from $12.0 million for the three months ended March 31, 2021 to $13.2 million for the three months ended March 31, 2022.

The increase for the three month period ended March 31, 2022 was due primarily to the addition of personnel and resources to support the continued expansion of our business and an increase in legal and other professional service expense.

Depreciation and amortization expenses increased $0.4 million, or 17%, from $2.5 million for the three months ended March 31, 2021 to $3.0 million for the three months ended March 31, 2022.

The increase for the three month period ended March 31, 2022 was primarily due to an increase in depreciation from higher set deployments and the amortization of intangible assets, including licenses which had not yet been put into the market in the first quarter 2021.

Research and Development Expenses

Research and development expenses increased $0.2 million, or 21%, from $1.1 million for the three months ended September 30, 2020 to $1.3 million for the three months ended September 30, 2021.

Research and development expenses increased $0.7 million, or 22%, from $3.2 million for the nine months ended September 30, 2020 to $3.9 million for the nine months ended September 30, 2021.

The increases for the three and nine month periods ended September 30, 2021 were primarily due to incremental product development including the addition of personnel and the growth of our business.

Total Other (Income) Expenses

Other (income) expenses were income of $1.2 million and expense of $2.0 million for the three months ended September 30, 2021 and 2020, respectively, and expense of $4.8 million and $4.9 million for the nine months ended September 30, 2021 and 2020, respectively.

The increase in other income for the three months ended September 30, 2021 was primarily due to the recording of income as a result of the fair value adjustment of contingent consideration.The decrease in other expense for the nine months ended September 30, 2021 is primarily due to the to the recording of income as a result of the fair value adjustment in the third quarter offset by the additional accretion of interest expense attributable to the acquisition installment payable.

The aggregate of accreted interest expense and fair value adjustments for the three and nine months ended September 30, 2021 were income of $0.9 million and expense of $5.4 million, respectively, and for the three and nine months ended September 30, 2020 were expense of $1.7 million and $3.5, respectively.

Research and development expenses increased $0.7 million, or 55%, from $1.3 million for the three months ended March 31, 2021 to $2.0 million for the three months ended March 31, 2022.

The increase for the three month period ended March 31, 2022 was primarily due to incremental product development and the addition of personnel to support the future growth of the business.

Total Other Expenses

Other expenses were $3.0 million and $4.7 million for the three months ended March 31, 2022 and 2021, respectively, a decrease of $1.7 million or 36%.

The decrease in other expense for the three months ended March 31, 2022 was primarily due to the fair value adjustment of contingent consideration, which was driven by the valuation inputs that were lower in comparison to the same period last year.

The aggregate of accreted interest expense and fair value adjustments for the three months ended March 31, 2022 and 2021 were $3.0 million and $4.8 million, respectively.

Liquidity and Capital Resources

We have incurred operating losses since inception which resulted in negative cash flows for continuing operations from operating activities of $11.8 million and $18.4 million for the nine months ended September 30, 2021 and 2020, respectively.

As of September 30, 2021, we had an accumulated deficit of $178.1 million.

We have incurred operating losses since inception which resulted in negative cash flows for continuing operations from operating activities of $4.2 million and $1.9 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, we had an accumulated deficit of $187.1 million.

We anticipate that our losses will continue in the near term as we continue to expand our product portfolio and invest in additional consigned implant and instrument sets to support our expansion into existing and new markets.

Since inception, we have funded our operations primarily with proceeds from the sales of our common and preferred stock, convertible securities and debt, as well as through sales of our products.

At September 30, 2021, we had cash and cash equivalents, restricted cash and short term investments of $59.1 million.

At March 31, 2022, we had cash and cash equivalents, restricted cash and short term investments of $46.4 million.

The following table sets forth our cash flows from operating, investing and financing activities for the periods indicated:

Nine Months Ended September 30,

Three Months Ended March 31,

Net cash used in operating activities $ (4,197) $ (1,915)

Net cash used in investing activities (10,376) (10,637)

Net cash provided by financing activities 40 46,748

Net cash provided by (used in) investing activities 14,303 (5,607)

Net cash provided by (used in) financing activities (33) 30

Effect of exchange rate changes on cash 241 155

Net (decrease) increase in cash $ (22,430) $ 17,714

Net increase (decrease) in cash $ 10,314 $ (7,337)

Cash Used in Operating Activities

Net cash used in operating activities from continuing operations was $11.8 million and $18.4 million for the nine months ended September 30, 2021 and 2020, respectively.

The primary use of this cash was to fund our operations related to the development and commercialization of our products in each of these years.

Net cash used for working capital was $12.1 million and $13.4 million for the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, the primary driver of working capital cash usage was the increase in accounts receivable of $0.7 million due to increased sales during the period, the increase in inventory of $3.2 million and the related trade payables of $1.0 million to support future sales growth, and legal settlements of $6.3 million.

Cash Used in Investing Activities

Net cash used in investing activities was $10.4 million and $10.6 million for the nine months ended September 30, 2021 and 2020, respectively.

Net cash used in investing activities for the nine months ended September 30, 2021 consisted of the purchase of multiple license agreements including the license which came from the Dr.

Barry legal matter, extension of the FIREFLY agreement and a new agreement for the 7D Surgical FLASH TM Navigation platform and purchases of instrument sets of $6.5 million.

These uses of cash were offset by the conversion of short-term investments to cash.

Net cash used in investing activities for the nine months ended September 30, 2020 consisted of $1.7 million for the acquisition of Telos, net of cash received, the acquisition of ApiFix for $1.7 million, net of cash received, the acquisition of the Band-Lok intellectual property of $0.8 million and $6.4 million for purchases of instrument sets.

Cash Provided By Financing Activities

Net cash used in financing activities for the nine months ended September 30, 2021 was immaterial to the results of our operations.

Net cash provided by financing activities for the nine months ended September 30, 2020 was $46.7 million, consisting primarily of the proceeds from the issuance of common stock of $70.2 million and $1.6 million from the exercise of stock options and offset by the payment of $25.0 million of the revolving credit facility with Squadron.

Net cash used in operating activities from continuing operations was $4.2 million and $1.9 million for the three months ended March 31, 2022 and 2021, respectively.

The primary use of this cash was to fund our operations related to the development and commercialization of our products in each of these periods.

Net cash used for working capital was $2.3 million for the three months ended March 31, 2022 compared to a source of $0.1 million for the three months ended March 31, 2021.

During the three months ended March 31, 2022, the primary driver of working capital cash usage was the increase in inventory of $6.8 million and the offset related to trade payables of $5.3 million to support future sales growth.

We also saw an increase in the use of cash from the accrued expenses of $0.7 million which was offset by a decrease in prepaid expenses.

Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities for the three months ended March 31, 2022 was $14.3 million compared to a use of cash of $5.6 million for the three months ended March 31, 2021.

Net cash provided by investing activities for the three months ended March 31, 2022 consisted primarily of the sale of short-term marketable securities offset by purchases of instrument sets of $4.2 million.

Cash Provided By (Used in) Financing Activities

Net cash used in and provided by financing activities for the three months ended March 31, 2022 and 2021, respectively, was not material to the results of our operations.

Loan Agreement

On December 31, 2017, we entered into a Fourth Amended and Restated Loan and Security Agreement, or the Loan Agreement, with Squadron Capital LLC, or Squadron, the Company's largest investor.

Under the terms of the Loan Agreement, which has been amended by a First Amendment dated as of June 4, 2019 and a Second Amendment dated as of August 4, 2020 (as so amended, the “Second Amended Loan Agreement”), Squadron is providing the Company a revolving credit facility in the amount of $25.0 million.

Borrowings under the revolving credit facility are to 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.

Effective December 31, 2021, the Company entered into a Third Amendment (the "Third Amendment") to its Fourth Amended and Restated Loan and Security Agreement with Squadron Capital LLC, or Squadron (as so amended, the “Loan Agreement”).

The Loan Agreement provides a $25.0 million revolving credit facility, with interest only payments, at an annual interest rate equal to the greater of (a) six month SOFR plus 8.69% and (b) 10.0%.

The Company pays 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.

Prior to the Third Amendment, the interest rate on the facility had been equal to the greater of (a) three month LIBOR plus 8.61%, and (b) 10.0%.

While the Loan Agreement previously provided for certain term loans, there are no longer any outstanding term loan obligations.

Borrowings under the revolving credit facility are 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:

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and (ii) January 1, 2024.

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

On January 4, 2020, the Company repaid Squadron $5.0 million outstanding under the revolving credit facility in effect at that time and, on July 15, 2020, the Company repaid the $20.0 million Term Note A outstanding under the Loan Agreement, together with all unpaid interest and other related amounts

The Company does not currently have any borrowings outstanding under the Second Amended Loan Agreement.

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

The unused commitment fee is payable quarterly in arrears.

Borrowings under the 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, in each case subject to certain exceptions as further detailed in the Second Amended Loan Agreement.

The Second Amended Loan Agreement includes events of default, the occurrence and continuation of any of which provides Squadron with the right to exercise remedies against us and the collateral securing the loans, including cash.

Borrowings under the 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 Loan Agreement.

The Loan Agreement includes events of default, the occurrence and continuation of any of which provides Squadron with the right to exercise remedies against us and the collateral securing the loans, including cash.

These events of default include, among other things, the failure to pay amounts due under the credit facilities, insolvency, the occurrence of a material adverse event, which includes a material adverse change in our business, operations or properties (financial or otherwise) or a material impairment of the prospect of repayment of any portion of the obligations, the occurrence of any default under certain other indebtedness and a final judgment against us in an amount greater than $250 thousand.

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The mortgage is secured by the related real estate and building.

The mortgage balance was $1.1 million and $1.2 million at September 30, 2021 and December 31, 2020, respectively.

The mortgage balance was $1.0 million and $1.0 million at March 31, 2022 and December 31, 2021, respectively.

Pediatric Orthopedic Business Seasonality

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The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses during the reporting periods.

We monitor and analyze these items for changes in facts and circumstances, and material changes in these estimates could occur in the future.

We base our estimates on historical experience and on various

other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

We monitor and analyze these items for changes in facts and circumstances, and material changes in

these estimates could occur in the future.

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Changes in estimates are reflected in reported results for the period in which they become known.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis