What changed in this filing

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Item 1. Financial Statements

2022-08-04 compared with 2022-05-05 · 155 added, 91 removed, 581 unchanged (30% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Current assets:

33 unchanged sentences

50,000,000 shares authorized;

19,821,298 shares and 19,677,214 shares issued as of March 31, 2022 (unaudited) and December 31, 2021, respectively

20,238,870 shares and 19,677,214 shares issued as of June 30, 2022 (unaudited) and December 31, 2021, respectively

Additional paid-in capital 418,354 394,899

7 unchanged sentences

(In Thousands, Except Share and Per Share Data)

Three Months Ended March 31,

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

2022 2021 2022 2021

Net revenue $ 32,928 $ 26,695 $ 56,345 $ 48,157

7 unchanged sentences

Operating loss ( 3,743 ) ( 2,846 ) ( 10,129 ) ( 8,819 )

Other expenses:

Other expenses (income):

Interest expense, net 1,212 581 1,777 1,309

Fair value adjustment of contingent consideration ( 5,010 ) 990 ( 2,440 ) 5,140

Other income ( 105 ) ( 160 )

Total other expenses 3,031 4,718

Other expense (income) 827 ( 375 ) 723 ( 535 )

Total other expenses (income) ( 2,971 ) 1,196 60 5,914

Loss before income taxes $ ( 772 ) $ ( 4,042 ) $ ( 10,189 ) $ ( 14,733 )

7 unchanged sentences

(In Thousands)

Three Months Ended March 31,

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

2022 2021 2022 2021

Net loss $ ( 333 ) $ ( 3,756 ) $ ( 9,433 ) $ ( 14,135 )

8 unchanged sentences

(In Thousands, Except Share Data)

Three Months Ended March 31, 2022

Three and Six Months Ended June 30, 2022

Additional Other Total

6 unchanged sentences

Balance at March 31, 2022 19,821,298 $ 5 $ 396,425 $ ( 187,126 ) $ 5,740 $ 215,044

Net loss — — — ( 333 ) — ( 333 )

Other comprehensive loss — — — — ( 9,424 ) ( 9,424 )

Stock option exercise 1,340 — 42 — — 42

Restricted stock 57,180 — 1,770 — — 1,770

Consideration for MD Ortho acquisition 173,241 — 9,707 — — 9,707

Stock portion of ApiFix anniversary installment payment 185,811 — 10,410 — — 10,410

Balance at June 30, 2022 20,238,870 $ 5 $ 418,354 $ ( 187,459 ) $ ( 3,684 ) $ 227,216

ORTHOPEDIATRICS CORP.

1 unchanged sentence

(In Thousands, Except Share Data)

Three Months Ended March 31, 2021

Three and Six Months Ended June 30, 2021

Additional Other Total

7 unchanged sentences

Balance at March 31, 2021 19,659,412 $ 5 $ 390,000 $ ( 172,145 ) $ 4,285 $ 222,145

Net loss — — — ( 3,756 ) — ( 3,756 )

Other comprehensive income — — — — 1,797 1,797

Restricted stock 10,632 — 1,415 — — 1,415

Balance at June 30, 2021 19,670,044 $ 5 $ 391,415 $ ( 175,901 ) $ 6,082 $ 221,601

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Three Months Ended

Six Months Ended

OPERATING ACTIVITIES

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INVESTING ACTIVITIES

Acquisition of MD Ortho, net of cash acquired ( 8,360 ) —

Sale of short-term marketable securities 31,600 —

3 unchanged sentences

FINANCING ACTIVITIES

Proceeds from issuance of debt with affiliate 31,000 —

Installment payment for ApiFix ( 3,234 ) —

Proceeds from exercise of stock options 42 62

8 unchanged sentences

Transfer of instruments from property and equipment to inventory $ ( 130 ) $ 330

Issuance of common shares to acquire MD Ortho $ 9,707 $ —

Issuance of common shares for ApiFix installment $ 10,410 $ —

See notes to condensed consolidated financial statements.

3 unchanged sentences

NOTE 1 – BUSINESS

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.

OrthoPediatrics Corp., a Delaware corporation, is a medical device company committed to designing, developing and marketing anatomically appropriate implants, instruments and braces 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 TM Spine, BandLoc TM , 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.

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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 required certain hospitals to postpone some elective procedures.

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.

In addition, elective procedures are also being delayed in some cases as hospitals continue to struggle with adequate staffing levels.

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.

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The accompanying condensed 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., OP Netherlands B.V.,

Orthex, LLC, Telos Partners, LLC and ApiFix, Ltd.

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, ApiFix, Ltd., OrthoPediatrics Iowa Holdco, Inc., MD Orthopaedics, Inc., and MD International, Inc.

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

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

The accompanying condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, the condensed consolidated statements of operations for the three months ended March 31, 2022 and 2021, the condensed consolidated statements of comprehensive loss for the three months ended March 31, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2022 and 2021 and the condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 are unaudited and should be read in conjunction with the annual consolidated financial statements as of and for the year ended December 31, 2021 and related notes thereto contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 3, 2022.

The accompanying condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021, the condensed consolidated statements of operations for the three and six months ended June 30, 2022 and 2021, the condensed consolidated statements of comprehensive loss for the three and six months ended June 30, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three and six months ended June 30, 2022 and 2021 and the condensed consolidated statements of cash flows for the six months ended June 30, 2022 and 2021 are unaudited and should be read in conjunction with the annual consolidated financial statements as of and for the year ended December 31, 2021 and related notes thereto contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 3, 2022.

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

1 unchanged sentence

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2021 and, in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the financial statements for the interim periods.

The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the full fiscal year or for any other period.

The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full fiscal year or for any other period.

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

We have experienced recurring losses from operations since our inception and had an accumulated deficit of $ 187,126 and $ 178,026 as of March 31, 2022 and December 31, 2021, respectively.

We have experienced recurring losses from operations since our inception and had an accumulated deficit of $ 187,459 and $ 178,026 as of June 30, 2022 and December 31, 2021, respectively.

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

We believe that our cash balance, including short term investments, at March 31, 2022 and expected cash flows from operations for the next twelve months subsequent to the issuance of the accompanying condensed consolidated financial statements, are sufficient to enable us to maintain current and essential planned operations for more than the next twelve months.

We believe that our cash balance, including short term investments, at June 30, 2022 and expected cash flows from operations for the next twelve months subsequent to the issuance of the accompanying condensed consolidated financial statements, are sufficient to enable us to maintain current and essential planned operations for more than the next twelve months.

Use of Estimates

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Beginning in early 2017 and continuing through 2021, we expanded operations and established legal entities outside the United States, permitting us to sell under an agency model direct to local hospitals internationally.

The countries we serve under the agency model include the United Kingdom, Ireland,

Australia, New Zealand, Canada, Belgium, the Netherlands, Poland, Italy, Israel, Germany, Switzerland, and Austria.

The countries we serve under the agency model include the United Kingdom, Ireland, Australia, New Zealand, Canada, Belgium, the Netherlands, Poland, Italy, Israel, Germany, Switzerland, and Austria.

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

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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.

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.

3 unchanged sentences

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 March 31, 2022 and December 31, 2021 condensed consolidated balance sheets.

This cash is reported as restricted cash on the June 30, 2022 and December 31, 2021 condensed consolidated balance sheets.

These funds were to remain restricted until August 31, 2021, at which time, they were to be released to the Company subject to no claims related to the purchase being asserted;

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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 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 except for investments classified as asset backed securities which we identify as Level 2.

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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, the Netherlands, Italy, Germany, Switzerland and Austria are carried at cost less accumulated depreciation and are recorded in property and equipment, net on the condensed consolidated balance sheets.

Instruments deployed within the United States, United Kingdom, Australia, New

Zealand, Canada, Belgium, the Netherlands, Italy, Germany, Switzerland and Austria are carried at cost less accumulated depreciation and are recorded in property and equipment, net on the condensed consolidated balance sheets.

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

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Amortizable Intangible Assets, net

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.

Amortizable intangible assets include fees necessary to secure various patents and licenses (including those acquired in the Band-Lok and MD Ortho transactions), the value of internally developed software (including by Orthex), and the value of acquired customer relationships and non-competition agreements (including in the Orthex, Telos, ApiFix and MD Ortho transactions, as applicable).

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

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Changes in the fair value of the contingent consideration are included in fair value adjustments of contingent consideration on the condensed consolidated statement of operations.

The amount of expense related to acquisition installment payables recorded in interest expense, net for the three months ended March 31, 2022 and March 31, 2021 were $ 453 and $ 644 , respectively.

The fair value adjustments of contingent consideration for the three months ended March 31, 2022 and March 31, 2021 were expense adjustments of $ 2,570 and $ 4,150 , respectively.

The amount of expense related to acquisition installment payables recorded in interest expense, net for the three and six months ended June 30, 2022 were $ 1,092 and $ 1,545 , respectively, and $ 569 and $ 1,212 , respectively, for the same periods last year.

The fair value adjustments of contingent consideration for the three and six months ended June 30, 2022 were income adjustments of $ 5,010 and $ 2,440 , respectively, and expense adjustments of $ 990 and $ 5,140 , respectively, for the same periods last year.

Cost of Revenue

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Stock-Based Compensation

Prior to our Initial Public Offering ("IPO") in October 2017, we maintained an Amended and Restated 2007 Equity Incentive Plan (the “2007 Plan”) that provided for grants of options and restricted stock to employees, directors and associated third-party representatives of the 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.

Immediately prior to our IPO, we adopted our 2017 Incentive Award Plan (the "2017 Plan").

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

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The adoption of this guidance is not expected to have a significant impact on the Company's consolidated financial statements and related disclosures.

NOTE 3 – BUSINESS COMBINATION

MD Orthopaedics

On April 1, 2022, OrthoPediatrics Iowa Holdco, Inc., a newly-formed, wholly-owned subsidiary of the Company, merged with and into MD Orthopaedics, Inc., an Iowa corporation (“MD Ortho”).

MD Ortho has developed and manufactures a portfolio of orthopedic clubfoot products.

The acquisition expands our total addressable market, serving as a specialty bracing platform company within our Trauma and Deformity business.

Under the terms of the related merger agreement, the Company paid to the indirect, sole shareholder of MD Ortho consideration of (a) $ 8,781 in cash, after adjusting for closing net working capital, and (b) 173,241 shares of unregistered common stock, $ 0.00025 par value per share, of the Company, representing approximately $ 9,707 (based on the April 1, 2022 closing share price of $ 56.03 ).

Company incurred approximately $ 381 of acquisition-related costs, that are included in general and administrative expenses on the consolidated statement of operations for the six months ended June 30, 2022.

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

Fair value of estimated total acquisition consideration $ 18,487

Cash and cash equivalents 420

Accounts receivable-trade 1,062

Inventories 1,126

Prepaid expenses and other current assets 100

Property and equipment 2,444

Amortizable Intangible assets 9,120

Other intangible assets 2,410

Total assets 16,682

Accounts payable and accrued liabilities 45

Other current liabilities 586

Deferred Tax Liability 2,721

Total liabilities 3,352

total net assets 13,330

Goodwill $ 5,157

The fair value of identifiable intangible assets were based on preliminary valuations using a combination of the income and cost approach, inputs which would be considered Level 3 under the fair value hierarchy.

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

Amount Remaining Economic Useful Life

Trademarks / Names $ 2,410 Indefinite

Patents 2,660 10 years

Customer Relationships 6,460 15 years

The fair value estimates and purchase price allocation included above are preliminary while the Company finalizes fair value estimates of the acquired intangible assets and related tax considerations.

The following table represents the pro forma net revenue and net loss assuming the acquisition occurred on January 1, 2021.

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

2022 2021 2022 2021

Net revenue $ 32,928 $ 29,471 $ 58,814 $ 53,308

Net loss $ ( 333 ) $ ( 3,336 ) $ ( 9,024 ) $ ( 12,897 )

NOTE 4 - GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the three months ended March 31, 2022 were as follows:

Changes in the carrying amount of goodwill for the six months ended June 30, 2022 were as follows:

Goodwill at January 1, 2022 $ 72,349

MD Ortho Acquisition 5,157

Foreign currency translation impact ( 5,799 )

Goodwill at March 31, 2022

Goodwill at June 30, 2022

Intangible Assets

As of March 31, 2022, the balances of amortizable intangible assets were as follows:

As of June 30, 2022, the balances of amortizable intangible assets were as follows:

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

Patents 13.0 years $ 43,584 $ ( 6,652 ) $ 36,932

Intellectual Property 9.8 years 9,834 ( 1,584 ) 8,250

License Agreements 5.0 years 10,674 ( 3,211 ) 7,463

Customer Relationships & Other 12.9 years $ 10,388 $ ( 1,154 ) $ 9,234

Intellectual Property 10.2 years $ 5,861 $ ( 713 ) $ 5,148

Total amortizable assets $ 70,507 $ ( 11,730 ) $ 58,777

6 unchanged sentences

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

Trademarks are non-amortizing intangible assets which were $ 14,040 and $ 14,268 as of March 31, 2022 and December 31, 2021, respectively.

Trademarks are non-amortizing intangible assets which were $ 15,708 and $ 14,268 as of June 30, 2022 and December 31, 2021, respectively.

Trademarks are recorded in Other Intangible assets on the condensed consolidated balance sheets.

The change in balance during the three months ended March 31, 2022 was the result of foreign currency translation of the ApiFix trademark.

The change in balance during the six months ended June 30, 2022 was the result of foreign currency translation of the ApiFix trademark and the acquisition of Trademarks associated with MD Ortho.

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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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.

The following table summarize the assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021.

March 31, 2022

The following table summarizes the assets and liabilities measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021.

June 30, 2022

Level 1 Level 2 Level 3 Total

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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.

The adjustments in the fair value of the contingent consideration payments included expense adjustment of $ 2,570 and $ 4,150 for the three month periods ended March 31, 2022 and March 31, 2021, respectively, in other expenses on the condensed consolidated statements of operations.

The adjustments in the fair value of the contingent consideration payments included an income adjustment of $ 5,010 and an expense adjustment of $ 990 for the three month periods ended June 30, 2022 and June 30, 2021, respectively, and an income adjustment of $ 2,440 and an expense adjustment of $ 5,140 for the six month periods ended June 30, 2022 and June 30, 2021, respectively, in other expenses on the condensed consolidated statements of operations.

The following table summarizes the change in fair value of Level 3 instruments in 2022:

1 unchanged sentence

Change in fair value of contingent consideration ( 2,440 )

Balance at March 31, 2022

The recurring Level 3 fair value measurements of contingent consideration liabilities associated with commercial sales milestones include the following significant unobservable inputs as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

Balance at June 30, 2022

June 30, 2022 December 31, 2021

Valuation techniques Discounted cash flow, Monte Carlo

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

The estimated fair value reflects assumptions made by management as of March 31, 2022;

The estimated fair value reflects assumptions made by management as of June 30, 2022;

however, the actual amount ultimately paid could be higher or lower than the fair value of the remaining contingent consideration.

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Long-term debt consisted of the following:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Revolving credit facility with Squadron 31,000 —

Mortgage payable to affiliate $ 977 $ 1,044

Total debt 31,977 1,044

current maturities 141 137

Long-term debt with affiliate, net of current maturities $ 31,836 $ 907

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”).

On June 13, 2022, the Company entered into a Fourth Amendment (the “Fourth Amendment”) to its Fourth Amended and Restated Loan and Security Agreement with Squadron Capital LLC, or Squadron (as so amended, the “Loan Agreement”).

The Fourth Amendment increased the amount available under

the revolving credit facility from $ 25,000 to $ 50,000 in anticipation of using the facility to fund the cash portion of the Company’s July 1, 2022 acquisition of Pega Medical Inc.

See Note 14 – Subsequent Events for information relating to the acquisition.

The Loan Agreement provides a $ 25,000 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 %.

Prior to December 31, 2021, the interest rate on the facility had been equal to the greater of (a) three month LIBOR plus 8.61 % 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.

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

At March 31, 2022 the mortgage balance was $ 1,011 of which current principal of $ 139 was included in the current portion of long-term debt.

At June 30, 2022 the mortgage balance was $ 977 of which current principal of $ 141 was included in the current portion of long-term debt.

As of December 31, 2021, the mortgage balance was $ 1,044 of which current principal due of $ 137 was included in the current portion of long-term debt.

The aggregate interest expense relating to the notes payable to Squadron and the mortgage note payable to Tawani was $ 13 and $ 15 for the three months ended March 31, 2022 and 2021, respectively.

The aggregate interest expense relating to the notes payable to Squadron and the mortgage note payable to Tawani was $ 47 and $ 14 for the three months ended June 30, 2022 and 2021, respectively, and $ 60 and $ 29 for the six months ended June 30, 2022 and 2021, respectively.

The unused commitment fee paid to Squadron was $ 36 and $ 32 for the three months ended June 30, 2022 and 2021, respectively, and $ 67 and $ 63 for the six months ended June 30, 2022 and 2021, respectively.

NOTE 7 - INCOME TAXES

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The income tax provision or benefit is computed by multiplying the estimated annual effective tax rate by the year-to-date pre-tax book income (loss).

For the three months ended March 31, 2022, the income tax benefit was $ 317 compared to $ 312 for the three months ended March 31, 2021.

Our effective income tax rate was 3.4 % and 2.9 % for the three months ended March 31, 2022 and 2021, respectively.

The deferred tax assets were fully offset by a valuation allowance at March 31, 2022 and December 31, 2021, 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 period ended March 31, 2022 for losses generated in the foreign jurisdiction.

For the six months ended June 30, 2022, the income tax benefit was $ 756 compared to $ 598 for the six months ended June 30, 2021.

Our effective income tax rate was 7.4 % and 4.0 % for the six months ended June 30, 2022 and 2021, respectively.

The deferred tax assets were fully offset by a valuation allowance at June 30, 2022 and December 31, 2021, 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 period ended June 30, 2022 for losses generated in the foreign jurisdiction.

As of December 31, 2021, we had available federal, state and foreign tax loss carryforwards of $ 114,008 , $ 73,997 and $ 22,671 , respectively.

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

A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended March 31, 2022.

A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended June 30, 2022.

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

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Outstanding at January 1, 2022 6,638 $ 30.97 1.3

Outstanding at March 31, 2022

Exercised ( 1,340 ) 30.97

Outstanding at June 30, 2022

5,298 $ 30.97 0.9

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

At March 31, 2022 and December 31, 2021, all options were fully vested.

There was no stock-based compensation expense on stock options for the three months ended March 31, 2022 and 2021, respectively.

At June 30, 2022 and December 31, 2021, all options were fully vested.

There was no stock-based compensation expense on stock options for the three and six months ended June 30, 2022 and 2021, respectively.

Restricted Stock

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Vested ( 136,617 )

Outstanding at March 31, 2022

Restricted stock exercisable at March 31, 2022

At March 31, 2022, there was $ 12,443 of unrecognized compensation expense remaining related to our service-based restricted stock awards.

Outstanding at June 30, 2022

Restricted stock exercisable at June 30, 2022

At June 30, 2022, there was $ 13,753 of unrecognized compensation expense remaining related to our service-based restricted stock awards.

The unrecognized compensation cost was expected to be recognized over a weighted-average period of 1.9 years or earlier upon an elimination of the restriction period as a result of a change in control event.

Stock-based compensation expense on restricted stock amounted to $ 1,526 and $ 1,440 for the three months ended March 31, 2022 and 2021, respectively.

The increase in the stock compensation for the three months ended March 31, 2022 is primarily due to increase in plan participants as we continue to hire employees to support the continued expansion of our business.

Stock-based compensation expense on restricted stock amounted to $ 1,770 and $ 1,415 for the three months ended June 30, 2022 and 2021, respectively, and $ 3,296 and $ 2,731 for the six months ended June 30, 2022 and 2021, respectively.

The increase in the stock compensation for the three and six months ended June 30, 2022 is primarily due to increase in plan participants from acquired businesses and newly hired employees to support the continued expansion of our business.

NOTE 9 – NET LOSS PER SHARE

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2022 2021 2022 2021

Net loss $ ( 333 ) $ ( 3,756 ) $ ( 9,433 ) $ ( 14,135 )

2 unchanged sentences

Our basic and diluted net loss per share is computed using the two-class method.

The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or

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

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:

Three Months Ended March 31,

The following contingently issuable and convertible equity shares were excluded from the calculation of diluted net loss per share because their effect would have

been anti-dilutive for all periods presented:

Six Months Ended June 30,

Restricted stock 433,093 381,657

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

No customers accounted for more than 10% of total product sales for the three months ended March 31, 2022 or 2021.

No customer accounted for more than 10% of consolidated accounts receivable as of March 31, 2022 and December 31, 2021.

No customers accounted for more than 10% of total product sales for the three and six months ended June 30, 2022 or 2021.

No customer accounted for more than 10% of consolidated accounts receivable as of June 30, 2022 and December 31, 2021.

Product sales by source were as follows:

Three Months Ended March 31,

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

Product sales by geographic location:

2022 2021 2022 2021

$ 24,960 $ 21,737 $ 43,148 $ 38,576

International 7,968 4,958 13,197 9,581

Total $ 32,928 $ 26,695 $ 56,345 $ 48,157

Three Months Ended March 31,

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

Product sales by category:

2022 2021 2022 2021

Trauma and deformity $ 22,568 $ 17,933 $ 39,084 $ 32,485

2 unchanged sentences

Total $ 32,928 $ 26,695 $ 56,345 $ 48,157

No individual country with sales originating outside of the United States accounted for more than 10% of consolidated revenue for the three months ended March 31, 2022 and 2021.

No individual country with sales originating outside of the United States accounted for more than 10% of consolidated revenue for the three and six months ended June 30, 2022 and 2021.

NOTE 11 - RELATED PARTY TRANSACTIONS

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

We made aggregate payments to Structure Medical for inventory purchases of $ 316 and $ 72 for the three months ended March 31, 2022 and 2021, respectively.

We made aggregate payments to Structure Medical for inventory purchases of $ 234 and $ 197 for the three months ended June 30, 2022 and 2021, respectively, and $ 550 and $ 269 for the six months ended June 30, 2022 and 2021, 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.

We had sales and payments related to inventory purchases to Squadron's affiliate, now known as Vilex, LLC, of $ 8 and $ 25 , respectively, for the three months ended March 31, 2022.

We had sales and payments related to inventory purchases to Vilex, LLC of $ 87 and $ 189 , respectively, for the three months ended March 31, 2021 .

We had sales and payments related to inventory purchases to Squadron's affiliate, now known as Vilex, LLC, of $ 52 and $ 6 , respectively, for the three months ended June 30, 2022, and sales and payments of $ 60 and $ 32 , respectively, for the six months ended June 30, 2022.

We had sales and payments related to inventory purchases to Vilex, LLC of $ 68 and $ 336 , respectively, for the three months ended June 30, 2021, and sales and payments of $ 155 and $ 525 , respectively, for the six months ended June 30, 2021.

NOTE 12 - EMPLOYEE BENEFIT PLAN

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NOTE 13 – COMMITMENTS AND CONTINGENCIES

As of March 31, 2022, the Company has recorded a lease liability of $ 241 and corresponding right-of-use-asset of $ 243 on its condensed consolidated balance sheet .

As of June 30, 2022, the Company has recorded a lease liability of $ 300 and corresponding right-of-use-asset of $ 302 on its condensed consolidated balance sheet .

Legal Proceedings

33 unchanged sentences

As a result of entering into a license agreement for the exclusive distribution of the 7D Surgical FLASH TM Navigation platform, the Company has agreed to a minimum purchase commitment for the first twelve months of that agreement.

As of March 31, 2022, the remaining purchase commitment under the agreement was $ 1,900 .

As of June 30, 2022, the remaining purchase commitment under the agreement was $ 1,140 .

On July 20, 2021, we entered into an amended license agreement, resulting in a five-year extension of our exclusive distribution rights of the FIREFLY Technology.

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The Company analyzes its projected achievement of these performance metrics and accrues for any estimated shortfall.

During the three months ended March 31, 2022, the Company recorded an expense of $ 101 based on current estimates.

No expense was recorded for the three months ended March 31, 2021.

As of March 31, 2022, we are contracted to pay royalties to individuals and entities that provide research and development services, which range from 0.5 % to 20 % of sales.

During the three and six months ended June 30, 2022, the Company recorded an expense of $ 240 and $ 341 , respectively.

No expense was recorded for either the three or six months ended June 30, 2021.

As of June 30, 2022, we are contracted to pay royalties to individuals and entities that provide research and development services, which range from 0.5 % to 20 % of sales.

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

In any development project, there are significant variables that will affect the amount and timing of these payments and as of March 31, 2022, we have not been able to determine the amount and timing of payments.

In any development project, there are significant variables that will affect the amount and timing of these payments and as of June 30, 2022, we have not been able to determine the amount and timing of payments.

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

NOTE 14 – SUBSEQUENT EVENTS

MD Orthopaedics Acquisition

On April 1, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with OrthoPediatrics Iowa Holdco, Inc., a Delaware corporation and newly-formed wholly-owned subsidiary of the Company (“Merger Sub”), Mitchell Designs, Inc.

(“Designs”), an Iowa corporation and the sole shareholder of MD Orthopaedics, Inc., also an Iowa corporation (“MD Ortho”) and John Mitchell, the sole shareholder of Designs (“Mitchell”).

MD Ortho has developed and manufactures a portfolio of orthopedic clubfoot products.

Pursuant to the Merger Agreement, Designs merged with and into Merger Sub effective April 1, 2022.

Under the terms of the Merger Agreement, the Company paid to Mitchell consideration of (a) $ 8,200 in cash, and (b) 173,241 shares of unregistered common stock, $ 0.00025 par value per share, of the Company, representing approximately $ 9,707 (based on the April 1, 2022 closing share price of $ 56.03 ).

ApiFix Acquisition Installment Payment

On April 1, 2022, the second-year anniversary of the acquisition of ApiFix, the Company paid $ 3,233 in cash and issued 185,811 shares of the Company's common stock, representing $ 10,411 of fair value (based on the April 1, 2022 closing share price of $ 56.03 ), to fulfill its installment obligation to ApiFix.

This was the first installment payment paid since the acquisition.

Pega Medical Acquisition

On July 1, 2022, the Company, along with its newly-formed, indirect wholly-owned subsidiary OrthoPediatrics Canada ULC, purchased all of the issued and outstanding share capital of Pega Medical Inc., a corporation incorporated under the Canada Business Corporations Act (“Pega Medical”).

Pega Medical has developed and sells a portfolio of trauma and deformity correction devices for children, including the Fassier-Duval Telescopic Intramedullary System, a well-recognized, innovative implant designed to treat bony deformities in children with osteogenesis imperfecta without disrupting their normal growth.

Pega's product portfolio increases our total systems and increases the percentage of total trauma and deformity cases we can treat.

The Company acquired Pega Medical for $ 32,047 in cash.

Approximately $ 1,052 of the cash consideration was deposited into escrow and will be held for a period of up to eighteen ( 18 ) months to cover certain indemnification obligations of the selling shareholders of Pega Medical.

Final purchase consideration is subject to certain working capital adjustments yet to be finalized.

Additionally, 34,899 shares of unregistered common stock, $ 0.00025 par value per share, of the Company, representing approximately $ 1,497 (based on the July 1, 2022 closing share price of $ 42.90 ) were issued to the selling shareholders.

The common stock issued to the selling shareholders is not considered part of the purchase consideration and is subject to a repurchase right by the Company in the event a selling shareholder leaves employment with Pega Medical for certain reasons during the three-year period following the closing.

In the event the repurchase right is triggered, the Company will have the right to repurchase the shares of common stock issued to such selling shareholder at a price of $ 0.10 per share.

Pursuant to the terms of the transaction, the Company also issued $ 499 in restricted stock units to employees of Pega Medical, which are subject to an approximate three-year vesting schedule.

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

What changed 10-Q

Item 1. Financial Statements