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Item 1A. Risk Factors

2023-03-01 compared with 2022-03-03 · 111 added, 125 removed, 942 unchanged (20% of the section changed)

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Risks Related to Our Financial Condition and Capital Requirements

The ongoing COVID-19 pandemic and measures intended to prevent its spread have adversely impacted our business and financial results, including carrying extra inventory to reduce the risk, and the continued impact will depend on future developments, which are highly uncertain and cannot be predicted, including the severity and duration of the pandemic and further actions taken by governmental authorities and other third parties to contain and treat the virus.

The outbreak of COVID-19 was first identified in Wuhan, China in December 2019, and subsequently declared a pandemic by the World Health Organization.

On March 12, 2020, the President of the United States declared the COVID-19 outbreak in the United States a national emergency.

The pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility in the financial markets.

As a result of the pandemic, we have experienced significant business disruption, particularly in fiscal year 2020, and this adverse impact may continue.

In order to meet the demand for COVID-19-related hospitalizations, various governments, governmental agencies and hospital administrators required certain hospitals to postpone certain elective procedures.

Additionally, as COVID-19 continues to disrupt the global economy, staffing shortages in hospitals has become prevalent.

These staffing shortages may also require certain hospitals to postpone some elective procedures.

We are unable to predict the extent to which widespread health emergencies, such as COVID-19 and respiratory syncytial virus, or RSV, or other pandemics, epidemics and infectious disease outbreaks, may adversely impact our business and financial results.

At the onset of, and at various times during, the COVID-19 pandemic, hospitals postponed certain elective procedures, diverted resources to patients suffering from COVID-19, and limited access for non-patients, including our sales professionals and distributors.

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.

In 2021, a vaccine was available to the general public.

Although vaccines have proven to be effective in mitigating the risks of COVID-19, there is no guarantee that the vaccines will continue to be effective against all variants.

Additionally, vaccination shots are not approved for younger children at this time.

This could increase the impact that COVID-19 has on children's hospitals.

The COVID-19 outbreak has also resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders, social distancing requirements and business limitations and shutdowns.

While these measures have negatively impacted the ability of our sales professionals to reach physicians, such measures have not yet had any significant impacts on our product supply chain.

However, any negative impacts on the production and delivery of our products in the future may result in a decline in sales, an increase in accounts receivable reserves, lower gross margins, and greater challenges in forecasting business results and making business decisions.

Future actions taken by governmental authorities, including vaccination mandates if enacted, could cause disruption to our employees, our selling organization, and may further delay non-elective surgeries in an already understaffed children's hospital.

The COVID-19 pandemic has adversely impacted, and may continue to adversely impact, the economies and financial markets of many countries, which may result in a period of regional, national or global economic slowdown or regional, national or global recessions.

The extent to which the pandemic continues to impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and are difficult to predict, including, but not limited to, the duration and continued spread of the outbreak, including the resurgence of the virus or emergence of new variants, its severity, actions taken by governmental authorities and other third parties to contain and treat the virus, and how quickly and to what extent normal economic and operating conditions can resume.

Moreover, the effects of the COVID-19 pandemic may heighten many of the other risks identified within this Annual Report for year ended December 31, 2021.

Depending on the continued severity and ultimate duration of COVID-19, the negative effects on our business, results of operations and financial condition could be material.

In addition, these circumstances have negatively impacted, and may continue to negatively impact, the ability of our sales professionals and distributors to effectively market and sell our products, which has had and may continue to have a material adverse effect on our revenues.

In 2022, the United States also experienced a significant and unprecedented increase in cases of respiratory syncytial virus, or RSV.

The volume of elective procedures utilizing our products were negatively impacted as a significant percent of hospital capacity was absorbed to cover the increase in RSV-related hospitalizations.

This had a negative impact on our sales volume in 2022 and may continue to do so into the future.

Widespread health emergencies, such as COVID-19 and RSV, or other pandemics, epidemics or infectious disease outbreaks, may adversely impact the global macroeconomic environment, resulting in periods of regional, national or global economic slowdown or regional, national or global recessions.

The extent to which COVID-19, RSV, or other pandemics, epidemics and infectious disease outbreaks impact our business, results of operations and financial condition is highly uncertain and difficult to predict.

Moreover, the continuing effects of COVID-19 and RSV and the potential for other pandemics, epidemics or infectious disease outbreaks, may heighten many of the other risks identified within this Annual Report on From 10-K.

Depending on the continued severity and ultimate duration of any widespread health emergency, the negative effects on our business, results of operations and financial condition could be material.

Unfavorable economic conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by general conditions in the U.S.

and global economies, the U.S.

and global financial markets and adverse macroeconomic developments.

and global market and economic conditions have been, and continue to be, disrupted and volatile due to many factors, including the COVID-19 pandemic, material shortages and related supply chain challenges, geopolitical developments such as the conflict between Ukraine and Russia, and increasing inflation rates and the responses by central banking authorities to control such inflation, among others.

Furthermore, a severe or prolonged global economic downturn or recession could result in a variety of risks to our business.

For example, inflation rates, particularly in the United States, recently increased to levels not seen in years, and increased inflation over a prolonged period may result in increases in our operating costs (including our labor costs), reduced liquidity and limits on our ability to access credit or otherwise raise capital on acceptable terms, if at all.

In addition, the U.S.

Federal Reserve has raised, and may again raise, interest rates in response to concerns about inflation, which coupled with reduced government spending and volatility in financial markets may have the effect of further increasing economic uncertainty and heightening these risks.

Risks of a prolonged economic downturn are particularly true in Europe, which is undergoing a continued severe economic crisis.

A weak or declining economy could also strain our suppliers and manufacturers, possibly resulting in supply disruption.

Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.

We have incurred losses in the past and may be unable to achieve or sustain profitability in the future.

We incurred net losses in all fiscal years since inception.

We incurred net losses of $16.3 million, $32.9 million and $13.7 million for the years ended December 31, 2021, 2020 and 2019, respectively.

We incurred net losses in all fiscal years since inception with the exception of the the fiscal year ended December 31, 2022.

We had net income of $1.3 million and incurred net losses of $16.3 million and $32.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

As a result of ongoing losses, as of December 31, 2022, we had an accumulated deficit of $176.8 million.

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In addition, demand for our products or services may not increase as quickly as we predict, and we may be unable to increase our revenue levels as we expect.

Even if we succeed in increasing adoption of these systems

by physicians, hospitals and other healthcare providers, maintaining and creating relationships with our existing and new customers and developing and commercializing new features or indications for these systems, we may be unable to generate sufficient revenue to achieve profitability.

Even if we succeed in increasing adoption of these systems by physicians, hospitals and other healthcare providers, maintaining and creating relationships with our existing and new customers and developing and commercializing new features or indications for these systems, we may be unable to generate sufficient revenue to achieve profitability.

We may need to raise additional capital to fund our existing commercial operations, develop and commercialize new products and expand our operations.

Based on our current business plan, we believe our current cash, borrowing capacity under our loan agreements, cash receipts from sales of our products and net proceeds from our June 2020, December 2019 and December 2018 follow-on offerings of common stock will be sufficient to meet our anticipated cash requirements for at least the next 12 months.

If our available cash balances, borrowing capacity, net proceeds from prior stock offerings and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of lower demand for our products as a result of the risks described in this Annual Report on Form 10-K, we may seek to sell common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.

Based on our current business plan, we believe our current cash, borrowing capacity under our loan agreements, cash receipts from sales of our products and net proceeds from our August 2022 public offering of securities will be sufficient to meet our anticipated cash requirements for at least the next 12 months.

or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.

We may consider raising additional capital in the future to expand our business, to pursue strategic investments, to take advantage of financing opportunities or for other reasons, including to:

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Any additional equity or convertible debt financing into which we enter could be dilutive to our existing stockholders.

Any future debt financing into which we enter may impose covenants upon us that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our stock, make certain investments and engage in certain merger, consolidation or

asset sale transactions.

Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

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Our loan and security agreement with Squadron Capital LLC contains covenants that may restrict our business and financing activities.

On December 31, 2017, we entered into a Fourth Amended and Restated Loan and Security agreement with Squadron Capital LLC ("Squadron"), which was further amended in May 2019 and August 2020, and again effective as of December 31, 2021 (as amended, the "Third Amended Loan Agreement").

The Third Amended Loan Agreement currently provides for a $25.0 million revolving credit facility.

As of December 31, 2021, we have no outstanding indebtedness under the Third Amended Loan Agreement.

The Third Amended Loan Agreement restricts our ability to, among other things:

We are party to a Fourth Amended and Restated Loan and Security Agreement with Squadron Capital LLC ("Squadron"), as amended from time to time (as amended, the "Loan Agreement"), which provides for a $50.0 million revolving credit facility.

As of December 31, 2022, we have no outstanding indebtedness under the Loan Agreement.

The Loan Agreement restricts our ability to, among other things:

• dispose of or sell our assets;

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• make investments.

The covenants in the Third Amended Loan Agreement, as well as any future financing agreements into which we may enter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies.

Our ability to comply with these covenants may be affected by events beyond our control, and future breaches of any of these covenants could result in a default under the Third Amended Loan Agreement.

If not waived, future defaults could cause all of the outstanding indebtedness under the Second Amended Loan Agreement to become immediately due and payable and terminate all commitments to extend further credit.

The covenants in the Loan Agreement, as well as any future financing agreements into which we may enter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies.

Our ability to comply with these covenants may be affected by events beyond our control, and future breaches of any of these covenants could result in a default under the Loan Agreement.

If not waived, future defaults could cause all of the outstanding indebtedness under the Loan Agreement to become immediately due and payable and terminate all commitments to extend further credit.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Indebtedness — Loan Agreement.”

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The federal, state and foreign net operating loss carryforwards will begin to expire, if not utilized, beginning in 2028.

The deferred tax assets, except for those recorded in Israel, were fully offset by a valuation allowance as of December 31, 2021 and 2020, and no income tax benefit has been recognized in continuing operations.

The deferred tax assets, except for those recorded in Israel, were fully offset by a valuation allowance as of December 31, 2022 and 2021, and no income tax benefit has been recognized in continuing operations related to the NOLs which have valuation allowances.

Under federal income tax law, federal net operating losses incurred in years beginning after December 31, 2017 may be carried forward indefinitely;

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Because of the size of the potential market, we anticipate that companies will dedicate significant resources to developing competing products.

We have competitors in each of our three product categories, including the DePuy Synthes Companies (a subsidiary of Johnson and Johnson), Medtronic plc and Smith & Nephew plc.

We have competitors in each of our three product categories, including the DePuy Synthes Companies (a subsidiary of Johnson and Johnson), Medtronic plc, Smith & Nephew plc and OrthoFix.

At any time, these and other potential market entrants may develop new devices or treatment alternatives that may render our products obsolete or uncompetitive.

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In addition, because fewer than all of the components of each set are used in a typical surgery, certain portions of the set may become obsolete before they can be used.

In the event that a substantial portion of our inventory becomes obsolete, the resulting costs

associated with the inventory impairment charges and costs required to replace such inventory could have a material adverse effect on our earnings and cash flows.

In the event that a substantial portion of our inventory becomes obsolete, the resulting costs associated with the inventory impairment charges and costs required to replace such inventory could have a material adverse effect on our earnings and cash flows.

In addition, as we introduce new products, new implant and instrument sets may be required, with a significant initial investment required to accommodate the launch of the product.

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The provision of these instruments at no charge to our customers may implicate certain federal and state fraud and abuse laws.

Because the provision of loaned instrument sets may result in a benefit to our customers, the government could view this practice as a prohibited transfer of value intended to induce customers to purchase our products that are used in procedures reimbursed by a federal healthcare program.

Because the provision of loaned instrument sets may result in a benefit to our customers, the government could view this practice as a prohibited transfer of value

intended to induce customers to purchase our products that are used in procedures reimbursed by a federal healthcare program.

For further discussion of these laws, see “Risks Related to Regulatory Matters."

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We do not know if we will be able to identify acquisitions or strategic relationships we deem suitable, whether we will be able to successfully complete any such transactions on favorable terms or at all or whether we will be able to successfully integrate any acquired business, product or technology into our business or retain any key personnel, suppliers or distributors.

Our ability to successfully grow through strategic transactions depends

upon our ability to identify, negotiate, complete and integrate suitable target businesses, technologies or products and to obtain any necessary financing.

Our ability to successfully grow through strategic transactions depends upon our ability to identify, negotiate, complete and integrate suitable target businesses, technologies or products and to obtain any necessary financing.

These efforts could be expensive and time-consuming and may disrupt our ongoing business and prevent management from focusing on our operations.

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We rely on these professionals to assist us in the development and improvement of our proprietary products.

As a result of the COVID-19 pandemic, our access to these professionals has been limited as hospitals have restricted access for non-patients, including our research and development specialists and other employees, and governmental authorities have imposed travel restrictions, shutdowns or similar measures, which has adversely affected our ability to develop, market and sell products.

As a result of the COVID-19 pandemic and RSV, our access to these professionals has been limited at times as hospitals have restricted access for non-patients, including our research and development specialists and other employees, and we have experienced certain pandemic-related travel limitations, which has adversely affected our ability to develop, market and sell products.

If we are unable to maintain these relationships, our ability to develop, market and sell new and improved products could be further adversely affected.

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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 to further enhance our operations in Europe.

In order to further enhance our operations in Europe, we established operating companies in the Netherlands and Germany in March 2019 and April 2022, respectively.

In these markets, we work through sales agencies that are paid a commission.

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Competition for such independent sales agencies, distributors and marketing employees is intense and we may be unable to attract and retain sufficient personnel to maintain an effective sales and marketing force.

If we are unable to adequately address our customers’ needs, it could negatively impact sales and market acceptance of our products, and we may not generate sufficient revenue to sustain profitability.

we are unable to adequately address our customers’ needs, it could negatively impact sales and market acceptance of our products, and we may not generate sufficient revenue to sustain profitability.

As we launch new products and increase our marketing efforts with respect to existing products, we will need to expand the reach of our marketing and sales networks.

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Because there is often no separate reimbursement for products used in surgical procedures, the additional cost associated with the use of our products can impact the profit margin of the hospital or surgery center where the surgery is performed.

Some of our target customers may

be unwilling to adopt our products in light of the additional associated cost.

Some of our target customers may be unwilling to adopt our products in light of the additional associated cost.

Further, any decline in the amount payors are willing to reimburse our customers for the procedures using our products may make it difficult for existing customers to continue using, or to adopt, our products and could create additional pricing pressure for us.

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regulators, including those laws requiring the reporting of true, complete and accurate information to such regulators, manufacturing standards, healthcare fraud and abuse laws and regulations in the United States and abroad or laws that require the true, complete and accurate reporting of financial information or data.

In particular, sales, marketing and business arrangements in the healthcare industry, including the sale of medical devices, are subject to extensive laws and regulations intended

to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices.

In particular, sales, marketing and business arrangements in the healthcare industry, including the sale of medical devices, are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive practices.

These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements.

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Some of the policies we currently maintain include general liability, foreign liability, employee benefits liability, property, umbrella, workers’ compensation, products liability and directors’ and officers’ insurance.

We do not know, however, if these policies will provide us with adequate levels of coverage.

We do not know, however, if these policies

will provide us with adequate levels of coverage.

Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position and results of operations.

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We have been growing rapidly and have a relatively short history of operating as a commercial company.

For example, our revenue grew from $71.1 million for the year ended December 31, 2020 to $98.0 million for the year

ended December 31, 2021.

For example, our revenue grew from $98.0 million for the year ended December 31, 2021 to $122.3 million for the year ended December 31, 2022.

We intend to continue to grow our business operations and may experience periods of rapid growth and expansion.

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We recognize that these initiatives may require additional costs in order to comply with new regulatory requirements, either directly imposed on us, our selling organizations, or our suppliers.

We incur significant costs as a result of operating as a public company and our management expects to devote substantial time to public company compliance programs.

We incur significant costs as a result of operating as a public company and our management is required to devote substantial time to public company compliance programs.

As a public company, we incur significant legal, accounting and other expenses due to our compliance with regulations and disclosure obligations applicable to us, including compliance with the Sarbanes-Oxley Act, as well as rules implemented by the Securities and Exchange Commission, or the SEC, and The Nasdaq Global Market, or Nasdaq.

Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact, in ways we cannot currently anticipate, the manner in which we operate our business.

Our management and other personnel will devote a substantial amount of time to these compliance programs and monitoring of public company reporting obligations and as a result of the new corporate governance and executive compensation related rules, regulations and guidelines prompted by the Dodd-Frank Wall Street Reform and Consumer Protection Act, and further regulations and disclosure obligations expected in the future, we will likely need to devote additional time and costs to comply with such compliance programs and rules.

These rules and regulations will cause us to incur significant legal and financial compliance costs and will make some activities more time-consuming and costly.

Our management and other personnel devote a substantial amount of time to these compliance programs and monitoring of public company reporting obligations.

With further regulations and disclosure obligations expected in the future, we will likely need to devote additional time and costs to comply with such compliance programs and rules.

These rules and regulations may cause us to incur significant legal and financial compliance costs and may make some activities more time-consuming and costly.

As a public company, we are obligated to maintain proper and effective internal controls over financial reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.

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In addition, if we are unable to continue to meet these requirements, we may be unable to remain listed on Nasdaq.

Our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until the first annual report required to be filed with the SEC following the date we are no longer an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (the "JOBS Act").

The annual report for the fiscal year ended December 31, 2022 will be the first report requiring a formal attestation.

As a non-accelerated filer and “smaller reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, we are exempt from Section 404(b) of the Sarbanes-Oxley Act and our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting until such time as we cease being a smaller reporting company.

If we experience significant disruptions in our information technology systems, our business may be adversely affected.

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Increased cyber-security threats also pose a potential risk to the security of the Company’s information technology systems, as well as the confidentiality, integrity and availability of data stored on these systems.

In addition, a greater number of our employees working remotely during the COVID-19 pandemic has exposed us, and may continue to expose us, to greater risks related to cyber-security.

In addition, as a number of our employees began working remotely during the COVID-19 pandemic, and some continue to work that way, we have been and may continue to be exposed to greater risks related to cyber-security.

Any breach of our systems could result in disclosure or misuse of confidential or proprietary information, including sensitive customer, vendor, employee or financial information.

Such events could cause damage to the Company’s reputation and result in significant recovery or remediation costs, which may adversely impact results of operations.

In 2022, we began the process to upgrade our information technology and productivity capabilities, including replacing our enterprise resource planning system to enhance operating efficiencies and provide more effective management of our business operations.

The upgrade is expected to be completed in the second quarter of 2023.

The upgrade poses several challenges, including training of personnel, migration of data, maintaining effective internal controls and potential instability of the new system.

If we do not allocate and effectively manage the resources necessary to build and sustain the upgraded technology infrastructure, or if we fail to achieve the expected benefits from this enhancement or it does not operate as designed, our business could be adversely affected.

We may be subject to various litigation claims and legal proceedings.

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Furthermore, if orthopedic surgeons are not sufficiently trained in the use of our products, they may misuse or ineffectively use our products, which may result in unsatisfactory patient outcomes or patient injury.

We could become the subject of product liability lawsuits alleging that component failures, malfunctions, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information resulted in an unsafe condition or injury to patients.

We could become the subject of product liability lawsuits

alleging that component failures, malfunctions, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information resulted in an unsafe condition or injury to patients.

We have had, and continue to have, a small number of product liability claims relating to our products, and in the future, we may be subject to additional product liability claims.

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Our operations are vulnerable to interruption or loss due to natural or other disasters, power loss, strikes and other events beyond our control.

product shipment or installation during the time required to repair, rebuild or replace our suppliers’ damaged manufacturing facilities;

A major earthquake, fire or other disaster (such as a major flood, tsunami, volcanic eruption or terrorist attack) affecting our facilities, or those of our suppliers, could significantly disrupt our operations, and delay or prevent product shipment or installation during the time required to repair, rebuild or replace our suppliers’ damaged manufacturing facilities;

these delays could be lengthy and costly.

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In the United States, before we can market a new medical device, or a new use of, new claim for or significant modification to an existing product, we must first receive either clearance under Section 510(k) of the FDCA or approval of a premarket approval application, or PMA, from the FDA, unless an exemption applies.

device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S.

In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S.

market pursuant to an approved PMA and later down-classified, or a 510(k)-exempt device.

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The MDR imposes significant additional reporting requirements on manufacturers of all medical devices.

It imposes an obligation

manufacturers to appoint a "qualified person" responsible for regulatory compliance, and provides for more strict clinical evidence requirements.

It imposes an obligation manufacturers to appoint a "qualified person" responsible for regulatory compliance, and provides for more strict clinical evidence requirements.

In addition to increased financial burden of complying with the MDR, we do not yet have an MDR certificate that is required to place additional devices on the market in the EU.

Failure to obtain MDR certificate by a certain time could prevent us from placing additional devices on the EU market and/or result in expiration of the existing MDD certificate which could result in our inability to sell any products that are currently on the EU market until the MDR certificate is obtained.

In order to sell our products in the UK (England, Wales and Scotland) our products must comply with the requirements of the UK Medical Device Regulations.

In order to sell our products in the UK (England, Wales and Scotland) our products must comply with the requirements of the UK Medical Device Regulations when they go into effect in 2024.

Compliance with these requirements is a prerequisite to be able to affix the UKCA Mark to our products, without which they cannot be sold or marketed in the UK.

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A conformity assessment procedure requires the intervention of an organization accredited by an Approved Body under UK Medical Device Regulations, or Approved Body.

Depending on the relevant conformity assessment procedure, the Approved Body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices.

Depending on the relevant conformity assessment procedure, the Approved Body would typically audit and examine the technical file and the quality system for the

manufacture, design and final inspection of our devices.

The Approved Body issues a certificate of conformity following successful completion of a conformity assessment procedure conducted in relation to the medical device and its manufacturer and their conformity with the essential requirements.

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Furthermore, the FDA’s ongoing review of the 510(k) clearance process may make it more difficult for us to make modifications to our previously cleared products, either by imposing more strict requirements on when a new 510(k) notification for a modification to a previously cleared product must be submitted, or applying more onerous review criteria to such submissions.

The FDA continues to review its 510(k) clearance process, which could result

in additional changes to regulatory requirements or guidance documents, which could increase the costs of compliance or restrict our ability to maintain current clearances.

The FDA continues to review its 510(k) clearance process, which could result in additional changes to regulatory requirements or guidance documents, which could increase the costs of compliance or restrict our ability to maintain current clearances.

Our products must be manufactured in accordance with federal and state regulations, and we could be forced to recall our installed systems or terminate production if we fail to comply with these regulations.

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Our products are also subject to similar state regulations and various laws and regulations of foreign countries governing manufacturing.

Our third-party manufacturers may not take the necessary steps to comply with applicable regulations, which could cause delays in the delivery of our products.

Our third-party manufacturers or our own specialty brace manufacturing in Iowa may be found to be non-compliant with applicable regulations, which could cause delays in the delivery of our products.

In addition, failure to comply with applicable QSR requirements or later discovery of previously unknown problems with our products or manufacturing processes could result in, among other things:

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The discovery of serious safety issues with our products, or a recall of our products either voluntarily or at the direction of a regulatory authority, could have a negative impact on us.

contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury.

We are subject to several adverse event reporting regulations, which require us to report after we receive or become aware of information that reasonably suggests that one or more of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury.

The timing of our obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event.

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We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of the product.

If we fail to comply with our reporting obligations, the a regulatory authority could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearance, seizure of our products or delay in clearance of future products.

If we fail to comply with our reporting obligations, the regulatory authority could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearance, seizure of our products or delay in clearance of future products.

Regulatory authorities may require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health.

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We have in the past conducted several voluntary recalls of devices with lot-specific quality issues.

A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations.

A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions,

manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations.

Product defects or other errors may occur in the future.

Depending on the corrective action we take to redress a product’s deficiencies or defects, the a regulatory authority may require, or we may decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device.

Depending on the corrective action we take to redress a product’s deficiencies or defects, the regulatory authority may require, or we may decide, that we will need to obtain new approvals or clearances for the device before we may market or distribute the corrected device.

Seeking such approvals or clearances may delay our ability to replace the recalled devices in a timely manner.

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Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to manufacture, market or distribute our products.

We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when

and if promulgated, enacted or adopted may have on our business in the future.

We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future.

Such changes could, among other things, require:

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The Medical Devices Regulation, or MDR, entered into force in May 2017 and, due to the COVID-19 pandemic, was postponed from its original application date of May 2020 to May 2021.

The Company can continue marketing existing CE-marked products under the previous regulation until March 2023 so long as a certification extension is granted by its notified body.

The application date refers to the time by which the MDR goes into effect.

On January 6, 2023, the European Commission sent a proposal to the European Parliament for extending the application date to December 31, 2027 for the Class III and IIb implantable devices.

The proposal also seeks to extend the application date to December 31, 2028 for select Class IIb, Class IIa and Class I devices.

On February 16, 2023, the European Parliament approved, in part, the extension of the

application date for Class III and IIb implantable devices to December 31, 2027.

The Company can continue marketing existing CE-marked products under the previous regulation until June 2024 so long as a certification extension is granted by its notified body.

Any products not yet CE-marked or products with significant changes that require additional notified review are subject to the MDR as of May 2021, including the requirement of obtaining QSR certification under the MDR.

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Moreover, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act.

Violations of the federal Anti-Kickback Statute may result in substantial civil or criminal penalties, civil penalties under the Civil Monetary Penalties Law, civil

penalties under the federal False Claims Act and exclusion from participation in government healthcare programs, including Medicare and Medicaid;

Violations of the federal Anti-Kickback Statute may result in substantial civil or criminal penalties, civil penalties under the Civil Monetary Penalties Law, civil penalties under the federal False Claims Act and exclusion from participation in government healthcare programs, including Medicare and Medicaid;

• the federal civil and criminal false claims laws and civil monetary penalties laws, including the federal civil False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other federal healthcare programs that are false or fraudulent.

Private individuals can bring False Claims Act “qui tam” actions, on behalf of the government and such individuals, commonly known as “whistleblowers,” may share in amounts paid by the entity to the government in fines or settlement.

When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil penalties, including treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs;

When an entity is determined to have violated the federal civil False Claims Act, the

government may impose civil penalties, including treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs;

• the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier;

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state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures;

state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in

significant ways and may not have the same effect, thus complicating compliance efforts;

state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts;

and state laws related to insurance fraud in the case of claims involving private insurers.

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We could be adversely affected if regulatory agencies determine our financial relationships with such physicians to be in violation of applicable laws.

Due to the breadth of these laws, the narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws.

Due to the breadth of these laws, the

narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws.

To enforce compliance with the healthcare regulatory laws, certain enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry.

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In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.

On August 2, 2011, the Budget Control Act of 2011 was signed into law, which, among other things, reduced Medicare payments to providers by 2% per fiscal year, effective on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional

Congressional action is taken.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years.

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Our business involves the use of hazardous materials and we and our third-party manufacturers must comply with environmental laws and regulations, which may be expensive and restrict how we do business.

Our third-party manufacturers’ activities may involve the controlled storage, use and disposal of hazardous materials.

The activities of our third-party manufacturers and our specialty brace manufacturing in Iowa may involve the controlled storage, use and disposal of hazardous materials.

Our manufacturers are subject to federal, state, local and foreign laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these hazardous materials.

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Our sales agencies and stocking distributors may be unable to successfully market and sell our products and may not devote sufficient time and resources to support the marketing and selling efforts that enable the products to develop, achieve or sustain market acceptance in their respective jurisdictions.

Additionally, in some international jurisdictions, we rely on our distributors to manage the regulatory process, while complying with all applicable rules and regulations, and we

are dependent on their ability to do so effectively.

Additionally, in some international jurisdictions, we rely on our distributors to manage the regulatory process, while complying with all applicable rules and regulations, and we are dependent on their ability to do so effectively.

If we are unable to attract additional international distributors, our international revenue may not grow.

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If any such agency or distributor were to cease to sell and market our products, our sales could be adversely affected.

In addition, if a dispute arises with a sales agency or distributor or if a sales agency or distributor is terminated by us or goes out of business, it may take time to locate an alternative sales agency or distributor, to seek appropriate regulatory approvals and to train new personnel to market our products, and our ability to sell those systems in the region formerly serviced by such terminated agent or distributor could be harmed.

In addition, if a dispute arises with a sales

agency or distributor or if a sales agency or distributor is terminated by us or goes out of business, it may take time to locate an alternative sales agency or distributor, to seek appropriate regulatory approvals and to train new personnel to market our products, and our ability to sell those systems in the region formerly serviced by such terminated agent or distributor could be harmed.

Any of our sales agencies or distributors could become insolvent or otherwise become unable to pay amounts owed to us when due.

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In addition, we currently use Structure Medical, LLC and Vilex, LLC, Squadron-affiliated entities, as suppliers for some of our components of our products.

While the COVID-19 pandemic has resulted in governmental authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place or total lock-down orders, social distancing requirements, and business limitations and shutdowns, those measures have not yet had any significant impacts on our product supply chain.

However, any negative impacts on the assembly and production of our products in the future may result in a decline in sales.

Performance issues, service interruptions or price increases by our shipping carriers could adversely affect our business and harm our reputation and ability to provide our services on a timely basis.

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We rely on several suppliers for the majority of our products and we maintain certain long-term contracts with these key suppliers.

These suppliers may be unwilling or unable to supply these products to us reliably and at the prices and levels we anticipate or are required by the market, including the need to carry extra inventory to reduce the risks related to COVID-19.

For us to be successful, our suppliers must be able to provide us with products in substantial quantities, in compliance with regulatory requirements, in accordance with agreed upon specifications, at acceptable costs and on a timely basis.

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The occurrence of any of these events could harm our ability to meet the demand for our products in a timely or cost-effective manner.

As discussed above under the third-party manufacturer risk factor, the impact of the COVID-19 pandemic has not yet had any significant impacts on our product supply chain.

However, any negative impacts on the production and supply of our products in the future may result in a decline in sales.

Risks Related to Intellectual Property

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patents owned by us will expire between 2024 and 2039.

We cannot provide any assurances that any of our patents have, or that any of our pending patent applications that mature into issued patents will include, claims with a scope sufficient to protect our products, any additional

features we develop for our products or any new products.

Other parties may have developed technologies that may be related or competitive to our platform, may have filed or may file patent applications and may have received or may receive patents that overlap or conflict with our patent applications, either by claiming the same methods or devices or by claiming subject matter that could dominate our patent position.

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We may be unable to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, suppliers, vendors, former employees and current employees.

The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries.

The laws of some foreign

countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries.

Our ability to enforce our patent rights depends on our ability to detect infringement.

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Our commercial success will depend in part on not infringing the patents or violating the other proprietary rights of others.

Significant litigation and administrative proceedings regarding patent rights occur in our industry.

Significant litigation and administrative proceedings regarding patent rights occur in our

Our competitors in both the United States and abroad, many of which have substantially greater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in the future apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products.

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Any litigation or claim against us, even those without merit, may cause us to incur substantial costs, and could place a significant strain on our financial resources, divert the attention of management from our core business and harm our reputation.

If we are found to infringe the intellectual property rights of third parties, we could be required to pay substantial damages (which may be increased up to three times of awarded damages) and/or substantial royalties and could be prevented from selling our products unless we obtain a license or are able to redesign our products to avoid infringement.

redesign our products to avoid infringement.

Any such license may not be available on reasonable terms, if at all, and there can be no assurance that we would be able to redesign our products in a way that would not infringe the intellectual property rights of others.

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Securities litigation against us could result in substantial costs and divert our management’s attention from other business concerns.

We are an “emerging growth company” and a "smaller reporting company" and the reduced disclosure requirements applicable to us could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the JOBS Act.

We will remain an emerging growth company until December 31, 2022.

“Emerging growth companies” may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.

Investors could find our common stock less attractive because we may rely on these exemptions.

As previously stated, our status as an emerging growth company will remain until December 31, 2022.

As such, our external auditors for the fiscal year ending December 31, 2022 will be required to provide an attestation on the status of our internal controls under Section 404(b) of the Sarbanes-Oxley Act.

If the details of this attestation indicate any weaknesses in our internal control environment, investors could find our common stock less attractive.

In addition, Section 102 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards.

An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

However, we have chosen to “opt out” of such extended transition period, and as a result, we comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

We are also a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.

As a result, many of the same exemptions from reporting requirements available to us as an emerging growth company are also available to us as a smaller reporting company, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation.

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

Some investors may find our common stock less attractive because we rely on these exemptions.

If investors find our common stock less attractive as a result of any of the factors discussed above, there may be a less active trading market for our common stock and our stock price may be more volatile.

We are a "smaller reporting company" and the reduced disclosure requirements applicable to us could make our common stock less attractive to investors.

We are a "smaller reporting company" as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.

Smaller reporting companies may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements.

Investors could find our common stock less attractive because we may rely on these exemptions and, if that is the case, there may be a less active trading market for our common stock and our stock price may be more volatile.

Increased interest from investors and others regarding environmental, social, and governance (“ESG”) responsibilities could result in additional costs and risks, and adversely impact our reputation, employee retention, and willingness of customers and suppliers to do business with us.

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Select stakeholders have placed increased importance on the implications of the social cost of their investments.

While we are increasing our ESG efforts and related disclosures, if our ESG efforts do not meet stakeholder expectations and standards, which continue to evolve, our reputation and employee retention may be negatively impacted based on an assessment of our ESG practices.

While we are increasing our ESG efforts and related disclosures, if our ESG efforts do not meet stakeholder expectations and standards, which

continue to evolve, our reputation and employee retention may be negatively impacted based on an assessment of our ESG practices.

Our future disclosures may include our efforts on a variety of social and ethical matters, including corporate governance, environmental compliance, employee health and safety practices, supply chain, human capital management, and workforce inclusion and diversity.

It is possible that stakeholders may not be satisfied with our ESG efforts or the speed of adoption.

We could also incur additional costs and require

additional resources to monitor, report, and comply with various ESG practices.

We could also incur additional costs and require additional resources to monitor, report, and comply with various ESG practices.

Also, our failure, or perceived failure, to meet the standards included in any ESG disclosure could negatively impact our reputation, employee retention, and the willingness of our customers and suppliers to do business with us.

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The interests of these stockholders may not be the same as or may even conflict with your interests.

For example, these stockholders could attempt to delay or prevent a change in control of the company, even if such a change in control would benefit our other stockholders, which could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the company or our assets and might affect the prevailing price of our common stock.

opportunity to receive a premium for their common stock as part of a sale of the company or our assets and might affect the prevailing price of our common stock.

The significant concentration of stock ownership may negatively impact the price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

In addition, pursuant to an agreement with the Company, Squadron has the right to designate up to four nominees

for election to the Company’s board of directors, depending on the percentage of capital stock beneficially owned by Squadron.

In addition, pursuant to an agreement with the Company, Squadron has the right to designate up to four nominees for election to the Company’s board of directors, depending on the percentage of capital stock beneficially owned by Squadron.

Currently, three members of our board are Squadron designees.

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This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees.

Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

Alternatively, if a court were to find the choice of forum provision contained in our amended and

restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future;

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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-K

Item 1A. Risk Factors