What changed in this filing

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Item 1. Financial Statements

2023-08-01 compared with 2023-05-02 · 148 added, 103 removed, 446 unchanged (36% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

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Other intangible assets 16,087 14,921

Other non-current assets 614 —

Total other assets 171,544 166,722

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50,000,000 shares authorized;

23,142,118 shares and 22,877,962 shares issued as of March 31, 2023 and December 31, 2022, respectively

23,340,463 shares and 22,877,962 shares issued as of June 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 574,677 560,810

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(In Thousands, Except Share and Per Share Data)

Three Months Ended March 31,

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

2023 2022 2023 2022

Net revenue $ 39,559 $ 32,928 $ 71,147 $ 56,345

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Other (income) expenses:

Interest (income) expense, net ( 210 ) 566

Interest expense 294 1,212 84 1,777

Fair value adjustment of contingent consideration ( 2,304 ) ( 5,010 ) ( 2,974 ) ( 2,440 )

Other income ( 331 ) ( 105 )

Other (income) loss ( 289 ) 827 ( 620 ) 723

Total other (income) expenses ( 2,299 ) ( 2,971 ) ( 3,510 ) 60

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(In Thousands)

Three Months Ended March 31,

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

2023 2022 2023 2022

Net loss $ ( 2,886 ) $ ( 333 ) $ ( 9,692 ) $ ( 9,433 )

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ORTHOPEDIATRICS CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share Data)

Three Months Ended March 31, 2023

Three and Six Months Ended June 30, 2023

Additional Other Total

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Balance at March 31, 2023 23,142,118 $ 6 $ 562,769 $ ( 183,574 ) $ ( 6,046 ) $ 373,155

Net loss — — — ( 2,886 ) — ( 2,886 )

Other comprehensive loss — — — — ( 1,865 ) ( 1,865 )

Consideration for MedTech acquisition 43,751 — 2,274 — — 2,274

Stock portion of ApiFix anniversary installment 140,003 — 6,178 — — 6,178

Restricted stock 14,591 — 3,456 — — 3,456

Balance at June 30, 2023 23,340,463 $ 6 $ 574,677 $ ( 186,460 ) $ ( 7,911 ) $ 380,312

See notes to condensed consolidated financial statements.

ORTHOPEDIATRICS CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share Data)

Three Months Ended March 31, 2022

Three and Six Months Ended June 30, 2022

Additional Other Total

Common Stock Paid-in Accumulated Comprehensive Stockholders'

Shares Value Capital Deficit Income Equity

Shares Value Capital Deficit Income (Loss) Equity

Balance at January 1, 2022 19,677,214 $ 5 $ 394,899 $ ( 178,026 ) $ 8,491 $ 225,369

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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 185,811 — 10,410 — — 10,410

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

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Three Months Ended

Six Months Ended

OPERATING ACTIVITIES

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Deferred income taxes ( 975 ) ( 756 )

Changes in certain current assets and liabilities:

Changes in certain operating assets and liabilities:

Accounts receivable - trade ( 8,964 ) ( 6,614 )

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INVESTING ACTIVITIES

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

Acquisition of MedTech ( 3,097 ) —

Sale of short-term marketable securities 72,347 31,600

Purchase of short-term marketable securities ( 44,600 ) —

Purchases of property and equipment ( 10,563 ) ( 9,465 )

1 unchanged sentence

FINANCING ACTIVITIES

Proceeds from issuance of debt with affiliate — 31,000

Installment payment for ApiFix ( 2,000 ) ( 3,234 )

Proceeds from exercise of stock options — 42

Payments on mortgage notes ( 71 ) ( 67 )

Net cash used in financing activities ( 36 ) ( 33 )

Net cash (used in) provided by financing activities ( 2,071 ) 27,741

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 335 ) 400

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Cash paid for interest $ 11 $ 60

Transfer of instruments from property and equipment to inventory $ 332 $ ( 54 )

Transfer of instruments between property and equipment and inventory $ 367 $ ( 130 )

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

Issuance of common shares for ApiFix installment $ 6,178 $ 10,410

Issuance of common shares to acquire MedTech $ 2,274 $ —

Right-of-use assets obtained in exchange for lease liabilities $ 293 $ 116

See notes to condensed consolidated financial statements.

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

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

We sell our specialized products, including PediLoc ® , PediPlates ® , Cannulated Screws, PediFlex TM nail, PediNail TM , PediLoc ® Tibia, ACL Reconstruction System, Locking Cannulated Blade, Locking Proximal Femur, Spica Tables, RESPONSE TM Spine, BandLoc Duo ® , Pediatric Nailing Platform | Femur, Devise Rail, Orthex ® , The Fassier-Duval Telescopic Intramedullary System ® , ApiFix ® Mid-C System and Mitchell Ponseti ® specialized bracing products to various hospitals and medical facilities throughout the United States and various international markets.

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

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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, 2022 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, 2023 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, 2023 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 $ 183,574 and $ 176,768 as of March 31, 2023 and December 31, 2022, respectively.

We have experienced recurring losses from operations since our inception and had an accumulated deficit of $ 186,460 and $ 176,768 as of June 30, 2023 and December 31, 2022, 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, 2023 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, 2023 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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The Company adopted ASU 2021-08 effective January 1, 2023 prospectively, resulting in no material impacts to the condensed consolidated financial statements.

NOTE 3 - BUSINESS COMBINATIONS

NOTE 3 - BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

Medtech Concepts LLC

On May 1, 2023, the Company purchased all of the issued and outstanding membership interest of Medtech Concepts LLC, a Delaware limited liability company (“MedTech”).

MedTech has developed an early-stage, pre-commercial enabling technology platform designed to increase efficiency in the perioperative environment.

The solution combines hardware, software, and data analytics to help streamline operative care and support better decision making in the operating room.

In the future, the Company believes this enabling technology platform will provide valuable intraoperative resources for surgeons that will improve decision making, drive operating room efficiency, and ultimately improve healthcare for children.

The Company also expects that the acquisition will further support future market share gains for its implant systems, similar to what the Company has experienced with the FIREFLY ® Technology and the 7D Surgical FLASH TM Navigation platform.

The Company does not anticipate material revenue contributions from the platform in 2023.

The sellers of MedTech are being paid a purchase price of approximately $ 15,274 in the following manner:

(i) cash in the aggregate amount of $ 3,000 was paid on May 1, 2023, the transaction closing date (the “Closing Date”);

(ii) 43,751 unregistered shares of the Company’s common stock, par value $ 0.00025 per share, representing approximately $ 2,274 (based on a closing share price of $ 51.98 on May 1, 2023), were issued on the Closing Date;

and (iii) an aggregate of $ 2,500 payable 50 % in cash and 50 % in shares of unregistered common stock, will be paid on each of the first four anniversaries of the Closing Date, all subject to the conditions set forth in the Membership Interest Purchase Agreement (the "Purchase Agreement"), as amended, relating to the transaction.

The Company concluded that the business acquired did not comprise an integrated set of activities that meet the definition of a business and therefore did not result in the acquisition of a business.

Instead, the Company accounted for the transaction as an asset acquisition for accounting purposes.

Under the Purchase Agreement, a number of future payments in the form of common stock are contingent on continued service through each applicable payment anniversary date.

As such, these amounts have been excluded from measuring the cost of the acquisition.

The result is $ 4,500 of stock compensation which will be recognized on a straight-line basis over the four year service period.

Future cash payments and stock issuances that are not contingent on continuous service are included in the calculation of consideration.

The total consideration is $ 10,043 after discounting the future guaranteed fixed payments

to their present value.

Additionally, since this was treated as an asset acquisition, the Company included $ 97 of transaction costs in the total consideration.

The table below reconciles the payments and issuances to total consideration transferred after discounting the future payments to present value.

Consideration Present Value

Cash consideration $ 3,000 $ 3,000

Issuance of common stock 2,274 2,274

Anniversary payments 5,500 4,672

Transaction costs 97 97

Total consideration transferred $ 10,871 $ 10,043

As result of this asset acquisition, the Company recorded a trademark asset in the amount of $ 520 with an indefinite useful life and an intellectual property asset relating to software acquired of $ 9,523 which will be amortized over a useful life of ten years .

Kevin Unger, a member of the Company’s Board of Directors (the “Board”) through April 28, 2023, was one of the sellers in the transaction.

As a result, the Board formed a special committee comprised of independent and disinterested directors (the “Special Committee”) with the exclusive authority to review, evaluate, and negotiate, or reject, the potential MedTech acquisition.

The Purchase Agreement and the transactions contemplated thereby were approved by both the Special Committee and the full Board (with Mr.

Unger abstaining).

On July 1, 2022, the Company purchased all of the issued and outstanding share capital of Pega Medical Inc., a corporation incorporated under the Canada Business Corporations Act (“Pega Medical”).

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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.

As of June 30, 2023, 23,266 of these shares were still subject to the repurchase feature.

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.

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Goodwill $ 14,700

The fair value of identifiable intangible assets was 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 fair value of identifiable intangible assets was based on 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:

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Customer Relationships & Other 8,741 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.

During the three months ended March 31, 2023, the Company recorded a measurement period adjustment.

The adjustment was the result of updated valuation of the intangible assets and an updated estimate of certain liabilities.

The fair value estimates and purchase price allocation included above are preliminary while the Company finalizes certain working capital components.

For the three and six month periods ended June 30, 2023, the Company recorded measurement period adjustments.

The adjustments were primarily the result of updated valuations of the intangible assets and updated estimates of certain liabilities and assets.

The adjustment to the intangible assets also resulted in an adjustment to the deferred tax liability.

Additionally, the increase in the value of intangible assets resulted in additional amortization expense of approximately $ 101 for the three months ended March 31, 2023.

Additionally, the increase in the value of intangible assets resulted in additional amortization expense of approximately $ 101 for the six months ended June 30, 2023.

Goodwill declined as a net result of these adjustments.

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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.

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 ).

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The following table represents the pro forma net revenue and net loss assuming the acquisitions of MD Ortho and Pega Medical occurred on January 1, 2022.

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

2023 2022 2023 2022

Net revenue $ 39,559 $ 35,091 $ 71,147 $ 62,954

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NOTE 4 - GOODWILL AND INTANGIBLE ASSETS

Changes in the carrying amount of goodwill for the three months ended March 31, 2023 were as follows:

Changes in the carrying amount of goodwill for the six months ended June 30, 2023 were as follows:

Goodwill at January 1, 2023 $ 86,821

Pega measurement period adjustment ( 1,839 )

Pega Medical measurement period adjustment ( 1,828 )

Foreign currency translation impact ( 2,082 )

Goodwill at March 31, 2023

Goodwill at June 30, 2023

Intangible Assets

As of March 31, 2023, the balances of amortizable intangible assets were as follows:

As of June 30, 2023, the balances of amortizable intangible assets were as follows:

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

Patents 11.7 years $ 45,005 $ ( 9,259 ) $ 35,746

Intellectual Property 9.5 years 5,859 ( 1,507 ) 4,352

Intellectual Property & Capitalized Software 9.7 years 15,383 ( 1,773 ) 13,610

Customer Relationships & Other 12.8 years 18,857 ( 2,557 ) 16,300

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Patents 12.2 years $ 46,005 $ ( 7,953 ) $ 38,052

Intellectual Property 9.8 years 5,859 ( 1382 ) 4,477

Intellectual Property & Capitalized Software 9.8 years 5,859 ( 1,382 ) 4,477

Customer Relationships & Other 13.4 years 17,262 ( 1,805 ) 15,457

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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 $ 15,629 and $ 14,921 as of March 31, 2023 and December 31, 2022, respectively.

Trademarks are non-amortizing intangible assets which were $ 16,087 and $ 14,921 as of June 30, 2023 and December 31, 2022, 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, 2023 was the result of the measurement period adjustments associated with Pega Medical as well as foreign currency translation adjustments.

The change in balance during the six months ended June 30, 2023 was the result of the measurement period adjustments associated with Pega Medical, the trademark recorded as a result of the MedTech acquisition, and foreign currency translation adjustments.

During 2022, management determined that a triggering event occurred, indicating that it was more likely than not the fair value of the ApiFix trademark asset was less than the carrying value.

As such, the Company completed a quantitative analysis whereby we determined the fair value of the ApiFix trademark asset associated was below the carrying value.

The primary reason for the impairment is the lower forecasted revenue of our ApiFix product than previously expected.

We recorded a $ 3,609 impairment charge for the year ended December 31, 2022 to reduce the carrying amount of the intangible asset to its estimated fair value.

As such, the Company completed a quantitative analysis whereby we determined the fair value of the ApiFix trademark asset was below the carrying value.

The primary reason for the impairment is the lower forecasted

revenue of our ApiFix product than previously expected.

We recorded a $ 3,609 partial impairment charge for the year ended December 31, 2022 to reduce the carrying amount of the intangible asset to its estimated fair value.

No impairment charges were recorded in any of the other periods presented or for any other indefinite lived trademark assets.

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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, 2023 and December 31, 2022.

March 31, 2023

The following table summarize the assets and liabilities measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022.

June 30, 2023

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 forecasted annual revenues, expected volatility and discount rates.

The adjustments in the fair value of the contingent consideration payments included an income adjustment of $ 670 and an expense adjustment of $ 2,570 for the three month periods ended March 31, 2023 and March 31, 2022, respectively, which are recorded in other (income) expenses on the condensed consolidated statements of operations.

The adjustments in the fair value of the contingent consideration payments included an income adjustment of $ 2,304 and $ 5,010 for the three months ended June 30, 2023 and June 30, 2022, respectively, and $ 2,974 and $ 2,440 for the six months ended June 30, 2023 and June 30, 2022, respectively, which are recorded in other (income) expenses on the condensed consolidated statements of operations.

The following table summarizes the change in fair value of Level 3 instruments in 2023:

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Change in fair value of contingent consideration ( 2,974 )

Balance at March 31, 2023

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, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

Balance at June 30, 2023

June 30, 2023 December 31, 2022

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, 2023;

The estimated fair value reflects assumptions made by management as of June 30, 2023;

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, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Mortgage payable to affiliate $ 836 $ 907

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Long-term debt with affiliate, net of current maturities $ 688 $ 763

The Company is 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 the Company with a $ 50,000 revolving credit facility.

As of March 31, 2023 and December 31, 2022, there was no outstanding indebtedness under the Loan Agreement.

provides the Company with a $ 50,000 revolving credit facility.

As of June 30, 2023 and December 31, 2022, there was no outstanding indebtedness under the Loan Agreement.

Borrowings under the credit facility accrue interest at an annual rate equal to the greater of (a) six month SOFR plus 8.69 % and (b) 10.0 %, and the Company is permitted to make interest only payments on amounts outstanding.

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

At March 31, 2023 the mortgage balance was $ 871 of which current principal of $ 146 was included in the current portion of long-term debt.

At June 30, 2023 the mortgage balance was $ 836 of which current principal of $ 148 was included in the current portion of long-term debt.

As of December 31, 2022, the mortgage balance was $ 907 of which current principal due of $ 144 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 $ 11 and $ 13 for the three months ended March 31, 2023 and 2022, respectively.

The aggregate interest expense relating to the notes payable to Squadron and the mortgage note payable to Tawani was $ 11 and $ 12 for the three months ended June 30, 2023 and 2022, respectively, and $ 22 and $ 25 for the six months ended June 30, 2023 and 2022, 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, 2023, the income tax benefit was $ 574 compared to $ 317 for the three months ended March 31, 2022.

Our effective income tax rate was 7.8 % and 3.4 % for the three months ended March 31, 2023 and 2022, respectively.

The deferred tax assets were fully offset by a valuation allowance at March 31, 2023 and December 31, 2022, 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 and Pega Medical.

The Company has recorded a tax benefit during the period ended March 31, 2023 for losses generated in Canada and Israel.

For the six months ended June 30, 2023, the income tax benefit was $ 975 compared to $ 756 for the six months ended June 30, 2022.

Our effective income tax rate was 9.1 % and 7.4 % for the six months ended June 30, 2023 and 2022, respectively.

The deferred tax assets were fully offset by a valuation allowance at June 30, 2023 and December 31, 2022, 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 and Pega Medical.

The Company has recorded a tax benefit during the period ended June 30, 2023 for losses generated in Canada and Israel.

NOTE 8 - STOCKHOLDERS’ EQUITY

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Outstanding at January 1, 2023 3,556 $ 30.97 0.7

Outstanding at March 31, 2023

Outstanding at June 30, 2023

3,556 $ 30.97 0.2

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

At March 31, 2023 and December 31, 2022, all options were fully vested.

There was no stock-based compensation expense on stock options for the three months ended March 31, 2023 and 2022, respectively.

At June 30, 2023 and December 31, 2022, all options were fully vested.

There was no stock-based compensation expense on stock options for the three and six months ended June 30, 2023 and 2022, respectively.

Restricted Stock

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Vested ( 115,760 ) —

Outstanding at March 31, 2023

Outstanding at June 30, 2023

566,311 2.0 13,851 2.2

At March 31, 2023, there was $ 19,804 of unrecognized compensation expense remaining related to our service-based restricted stock awards and restricted stock units.

At June 30, 2023, there was $ 18,215 of unrecognized compensation expense remaining related to our service-based restricted stock awards and restricted stock units.

The unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.0 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 $ 1,959 and $ 1,526 for the three months ended March 31, 2023 and 2022, respectively.

The increase in the stock compensation for the three months ended March 31, 2023 is primarily due to increase in plan participants as we continue to hire employees to support the continued expansion of our business.

The Company also maintains 34,899 shares of unregistered common stock, $ 0.00025 par value per share, which is subject to a repurchase right in the event a selling shareholder leaves employment with Pega Medical for certain reasons during the three-year period following the closing of the acquisition.

See Note 3 - Business Combinations for additional detail regarding the business combination transaction.

These shares are, due to the repurchase right, temporarily classified as a liability until the lapse of the three-year period, at which time, the Company will reclassify the liability into equity.

The amount of expense recognized for the three months ended March 31, 2023 was $ 154 and is excluded from the stock-based compensation amount previously mentioned.

No expense for these shares was recognized in the three months ended March 31, 2022.

Stock-based compensation expense on restricted stock amounted to $ 3,456 and $ 1,770 for the three months ended June 30, 2023 and 2022, respectively, and $ 5,415 and $ 3,296 for the six months ended June 30, 2023 and 2022, respectively.

The increase in the stock compensation for the three and six months ended June 30, 2023 is primarily due to increase in plan participants as we continue to hire employees to support the continued expansion of our business.

Additionally, stock was issued as a component of both the Pega Medical and MedTech acquisitions.

A portion of these shares have a service-based restriction, resulting in an increase in stock compensation over the life of the required years of service.

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,

2023 2022 2023 2022

Net loss $ ( 2,886 ) $ ( 333 ) $ ( 9,692 ) $ ( 9,433 )

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The following contingently issuable 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,

Six Months Ended June 30,

Restricted stock 580,162 433,093

1 unchanged sentence

Total shares 583,718 438,391

The contingently issuable shares in the table above do not include shares of our common stock associated with our recent acquisitions of Pega Medical, ApiFix or MedTech.

See Note 3 for additional information regarding future equity issuances under each of these acquisitions.

NOTE 10 – BUSINESS SEGMENT

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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, 2023 or 2022.

No customer accounted for more than 10% of consolidated accounts receivable as of March 31, 2023 and December 31, 2022.

No customers accounted for more than 10% of total product sales for the three and six months ended June 30, 2023 or 2022.

customer accounted for more than 10% of consolidated accounts receivable as of June 30, 2023 and December 31, 2022.

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:

2023 2022 2023 2022

$ 29,587 $ 24,960 $ 53,388 $ 43,148

International 9,972 7,968 17,759 13,197

Total $ 39,559 $ 32,928 $ 71,147 $ 56,345

Three Months Ended March 31,

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

Product sales by category:

2023 2022 2023 2022

Trauma and deformity $ 27,514 $ 22,568 $ 50,909 $ 39,084

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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 $ 246 and $ 316 for the three months ended March 31, 2023 and 2022, respectively.

We made aggregate payments to Structure Medical for inventory purchases of $ 149 and $ 234 for the three months ended June 30, 2023 and 2022, respectively, and $ 395 and $ 550 for the six months ended June 30, 2023 and 2022, respectively.

NOTE 12 - EMPLOYEE BENEFIT PLAN

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NOTE 13 – COMMITMENTS AND CONTINGENCIES

As of March 31, 2023, the Company has recorded a lease liability of $ 257 and corresponding right-of-use-asset of $ 272 on its condensed consolidated balance sheet .

As of June 30, 2023, the Company has recorded a lease liability of $ 427 and corresponding right-of-use-asset of $ 462 on its condensed consolidated balance sheet .

Legal Proceedings

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In mid-April 2023, OrthoPediatrics filed its response to Wishbone's late March 2023 motion.

In mid-June 2023, the Court denied Wishbone's motion for judgment on the pleadings.

Although we believe Wishbone’s counterclaims are without merit and will vigorously defend the claims asserted against us, litigation can involve complex factual and legal questions, and an adverse resolution of this proceeding could have an adverse effect on our business, operating results and financial condition.

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As a result of entering into a license agreement for the exclusive distribution of the 7D Surgical FLASH TM Navigation platform during 2021, the Company agreed to a minimum purchase commitment for the first twelve months of that agreement.

Additionally, the contract requires future purchase commitments based

upon a percentage of historical purchases.

As a result and as of March 31, 2023, the remaining purchase commitment under the agreement was $ 2,771 for the year ended December 31, 2023 and $ 2,340 for the year ended December 31, 2024.

Additionally, the contract requires future purchase commitments based upon a percentage of historical purchases.

As a result and as of June 30, 2023, the remaining purchase commitment under the agreement was $ 1,593 for the year ended December 31, 2023 and $ 2,340 for the year ended December 31, 2024.

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.

3 unchanged sentences

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

During the three months ended March 31, 2023, the Company recorded an expense of $ 300 based on current estimates.

The Company recorded $ 101 of expense for the three months ended March 31, 2022.

As of March 31, 2023, 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, 2023, we have not been able to determine the amount and timing of payments.

During the six months ended June 30, 2023, the Company recorded an expense of $ 576 based on current estimates.

The Company recorded $ 341 of expense for the six months ended June 30, 2022.

As of June 30, 2023, 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 royalty commitments.

In any development project, there are significant variables that will affect the amount and timing of these payments and as of June 30, 2023, 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

ApiFix Acquisition Installment Payment

On April 3, 2023, the business day immediately following the third-year anniversary of the acquisition of ApiFix, the Company paid $ 2,000 in cash and issued 140,003 shares of the Company's common stock, representing $ 6,178 of fair value (based on the April 3, 2023 closing share price of $ 44.13 ), to fulfill its installment obligation to ApiFix.

This was the second installment payment paid since the acquisition.

Medtech Concepts LLC

On May 1, 2023, the Company purchased all of the issued and outstanding membership interest of Medtech Concepts LLC, a Delaware limited liability company (“Medtech”).

Medtech has developed an early-stage, pre-commercial enabling technology platform designed to increase efficiency in the perioperative environment.

The solution combines hardware, software, and data analytics to help streamline operative care and support better decision making in the operating room.

The Company does not anticipate material revenue contributions from the platform in 2023.

The sellers of Medtech are being paid a purchase price of approximately $ 15,274 in the following manner:

(i) cash in the aggregate amount of $ 3,000 was paid on May 1, 2023, the transaction closing date (the “Closing Date”);

and (iii) an aggregate of $ 2,500 payable 50 % in cash and 50 % in shares of unregistered common stock, will be paid on each of the first four anniversaries of the Closing

Date, all subject to the conditions set forth in the Membership Interest Purchase Agreement (the "Purchase Agreement") relating to the transaction.

Kevin Unger, a member of the Company’s Board of Directors (the “Board”) through April 28, 2023, was one of the sellers in the transaction.

The Purchase Agreement and the transactions contemplated thereby were approved by both the Special Committee and the full Board (with Mr.

Unger abstaining).

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