What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-07 compared with 2023-08-01 · 148 added, 97 removed, 497 unchanged (33% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Current assets:

34 unchanged sentences

50,000,000 shares authorized;

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

23,350,976 shares and 22,877,962 shares issued as of September 30, 2023 and December 31, 2022, respectively

Additional paid-in capital 577,540 560,810

7 unchanged sentences

(In Thousands, Except Share and Per Share Data)

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

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

2023 2022 2023 2022

5 unchanged sentences

General and administrative 18,507 15,116 55,827 42,829

Trademark impairment 985 3,609 985 3,609

Research and development 2,387 2,206 7,449 5,980

5 unchanged sentences

Other (income) loss ( 787 ) 945 ( 1,407 ) 1,668

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

Loss before income taxes $ ( 3,287 ) $ ( 772 ) $ ( 10,667 ) $ ( 10,189 )

Total other income ( 766 ) ( 21,357 ) ( 4,276 ) ( 21,297 )

(Loss) income before income taxes $ ( 3,742 ) $ 14,396 $ ( 14,409 ) $ 4,207

Provision for income taxes (benefit) 849 ( 4,143 ) ( 126 ) ( 4,899 )

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

Weighted average common stock - basic and diluted 22,704,723 19,792,286 22,587,022 19,693,216

Net loss per share - basic and diluted $ ( 0.13 ) $ ( 0.02 ) $ ( 0.43 ) $ ( 0.48 )

Net (loss) income $ ( 4,591 ) $ 18,539 $ ( 14,283 ) $ 9,106

Weighted average shares outstanding

Basic 22,762,823 21,150,219 22,646,087 20,703,883

Diluted 22,762,823 21,295,323 22,646,087 20,958,503

Net (loss) income per share

Basic $ ( 0.20 ) $ 0.88 $ ( 0.63 ) $ 0.44

Diluted $ ( 0.20 ) $ 0.87 $ ( 0.63 ) $ 0.43

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

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

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

2023 2022 2023 2022

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

Net (loss) income $ ( 4,591 ) $ 18,539 $ ( 14,283 ) $ 9,106

Other comprehensive income (loss):

3 unchanged sentences

Other comprehensive loss, net of tax ( 4,255 ) ( 3,411 ) ( 6,766 ) ( 15,586 )

Comprehensive loss $ ( 4,751 ) $ ( 9,757 ) $ ( 12,203 ) $ ( 21,608 )

Comprehensive (loss) income $ ( 8,846 ) $ 15,128 $ ( 21,049 ) $ ( 6,480 )

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands, Except Share Data)

Three and Six Months Ended June 30, 2023

Three and Nine Months Ended September 30, 2023

Additional Other Total

12 unchanged sentences

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

Net loss — — — ( 4,591 ) — ( 4,591 )

Other comprehensive loss — — — — ( 4,255 ) ( 4,255 )

Stock option exercise 670 — 21 — — 21

Restricted stock ( 1,290 ) — 2,364 — — 2,364

Consideration for Rhino 11,133 — 478 — — 478

Balance at September 30, 2023 23,350,976 $ 6 $ 577,540 $ ( 191,051 ) $ ( 12,166 ) $ 374,329

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands, Except Share Data)

Three and Six Months Ended June 30, 2022

Three and Nine Months Ended September 30, 2022

Additional Other Total

13 unchanged sentences

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

Net income — — — 18,539 — 18,539

Other comprehensive loss — — — — ( 3,411 ) ( 3,411 )

Stock option exercise 670 — 21 — — 21

Restricted stock 5,342 — 1,682 — — 1,682

Issuance of common stock, net of issuance cost 2,616,250 1 139,282 — — 139,283

Issuance of unregistered shares 34,899 — — — — —

Balance at September 30, 2022 22,896,031 $ 6 $ 559,339 $ ( 168,920 ) $ ( 7,095 ) $ 383,330

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Six Months Ended

Nine Months Ended

September 30,

OPERATING ACTIVITIES

Net loss $ ( 9,692 ) $ ( 9,433 )

Net (loss) income $ ( 14,283 ) $ 9,106

Adjustments to reconcile net loss to net cash used in operating activities:

Trademark impairment 985 3,609

Depreciation and amortization 12,198 9,579

13 unchanged sentences

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

Acquisition of Pega Medical, net of cash acquired — ( 31,730 )

Acquisition of Rhino ( 546 ) —

Acquisition of MedTech ( 3,097 ) —

2 unchanged sentences

Purchases of property and equipment ( 13,042 ) ( 10,554 )

Net cash provided by investing activities 14,087 13,775

Net cash provided by (used in) investing activities 23,755 ( 90,144 )

FINANCING ACTIVITIES

1 unchanged sentence

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

Payments on debt with affiliate — ( 31,000 )

Proceeds from issuance of common stock, net of issuance costs — 139,282

Proceeds from exercise of stock options 21 63

11 unchanged sentences

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

Issuance of common shares to acquire Rhino $ 478 $ —

Right-of-use assets obtained in exchange for lease liabilities $ 367 $ 116

8 unchanged sentences

We are the only global medical device company focused exclusively on providing a comprehensive trauma and deformity correction, scoliosis and sports medicine product offering to the pediatric orthopedic market in order to improve the lives of children with orthopedic conditions.

We design, develop and commercialize innovative orthopedic implants and instruments to meet the specialized needs of pediatric surgeons and their patients, who we believe have been largely neglected by the orthopedic industry.

We design, develop and commercialize innovative orthopedic implants, instruments and specialized braces to meet the needs of pediatric surgeons or orthotists and their patients, who we believe have been largely neglected by the orthopedic industry.

We currently serve three of the largest categories in this market.

10 unchanged sentences

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 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 results of operations for the three and nine months ended September 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 $ 186,460 and $ 176,768 as of June 30, 2023 and December 31, 2022, respectively.

We have experienced recurring losses from operations since our inception and had an accumulated deficit of $ 191,051 and $ 176,768 as of September 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 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.

We believe that our cash balance, including short-term investments, at September 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

8 unchanged sentences

Financial instruments that could subject the Company to credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable.

We consider all highly liquid investments with original maturity of three months or less at inception to be cash equivalents.The Company performs ongoing credit evaluations of customers and and maintains a reserve for expected credit losses.

The Company believes the risk of credit losses associated with accounts receivable is low given the history of collections and customer base.

16 unchanged sentences

The amendments in this ASU require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers.

The amendments in this ASU require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606.

For public business entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

4 unchanged sentences

The Company adopted ASU 2021-08 effective January 1, 2023 prospectively, resulting in no material impacts to the condensed consolidated financial statements.

In October 2023, the FASB issued ASU No.

2023-06 " Disclosure Improvements - Codification Amendments in Response to SEC's Disclosure Update and Simplification Initiative".

This amendment modifies the disclosure or presentation requirements of a variety of Topics in the Codification.

Certain of the amendments represent clarifications to or technical corrections of the current requirements.

For entities subject to the SEC's existing disclosure requirements and entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

For all other entities, the amendments will be effective two years later.

Amendments in this Update should be applied prospectively.

The Company continues to analyze this ASU.

The update is specific to disclosures and, therefore, is not expected to have a material impact to the condensed consolidated financial statements.

NOTE 3 - BUSINESS COMBINATIONS AND ASSET ACQUISITIONS

Rhino Pediatric Orthopedic Designs, Inc.

On July 1, 2023, the Company completed an acquisition of assets, including inventory and certain intangible assets, of Rhino Pediatric Orthopedic Designs, Inc.

Rhino's product portfolio included several pediatric orthopedic products in the bracing and soft goods space, including the Cruiser TM , Kicker TM , and Rhino Stomper TM .

The Company paid $ 1,024 in total consideration for the assets which was comprised of $ 546 of cash, including $ 46 of transactions costs, and 11,133 shares of the Company’s common stock, par value $ 0.00025 per share, representing approximately $ 478 (based on closing price of $ 42.91 on July 1, 2023).

Medtech Concepts LLC

15 unchanged sentences

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.

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.

14 unchanged sentences

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

The Company acquired Pega Medical for approximately $ 32,045 , comprised of $ 32,042 in cash and $ 3 in stock, representing the repurchase right price to be paid by the Company in the event a selling shareholder leaves employment with Pega Medical for certain reasons during the three-year period following the closing.

The Company acquired Pega Medical for approximately $ 32,042 in cash.

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

1 unchanged sentence

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

The common stock issued to the selling shareholders, excluding the value attributable to the repurchase right, is not considered part of the purchase consideration and is subject to a repurchase right previously mentioned.

The common stock issued to the selling shareholders is not considered part of the purchase consideration and is subject to a repurchase right.

The Company will recognize expense over the three-year service period at which point the right to repurchase will expire.

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.

As of September 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.

The restricted stock units are not considered part of the purchase consideration.

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

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

Fair value of estimated total acquisition consideration $ 32,042

18 unchanged sentences

Customer Relationships & Other 8,741 15 years

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 fair value estimates and purchase price allocation included above are considered final.

For the three and nine month periods ended September 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 six months ended June 30, 2023.

Additionally, the increase in the value of intangible assets resulted in additional amortization expense of approximately $ 133 for the nine months ended September 30, 2023.

Goodwill declined as a net result of these adjustments.

25 unchanged sentences

Customer Relationships 6,460 15 years

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,

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

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

2023 2022 2023 2022

Net revenue $ 39,972 $ 34,950 $ 111,119 $ 98,779

Net loss $ ( 2,886 ) $ ( 112 ) $ ( 9,692 ) $ ( 9,099 )

Net (loss) income $ ( 4,591 ) $ 18,539 $ ( 14,283 ) $ 10,013

NOTE 4 - GOODWILL AND INTANGIBLE ASSETS

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

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

Goodwill at January 1, 2023 $ 86,821

1 unchanged sentence

Foreign currency translation impact ( 3,991 )

Goodwill at June 30, 2023

Goodwill at September 30, 2023

Intangible Assets

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

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

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

12 unchanged sentences

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

Trademarks are non-amortizing intangible assets which were $ 16,087 and $ 14,921 as of June 30, 2023 and December 31, 2022, respectively.

Trademarks are non-amortizing intangible assets which were $ 15,008 and $ 14,921 as of September 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 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.

The change in balance during the nine months ended September 30, 2023 was the result of the measurement period adjustments associated with Pega Medical, the trademarks recorded as a result of the MedTech and Rhino acquisitions, foreign currency translation adjustments and the impairment of the ApiFix trademark.

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 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.

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 during the three and nine months ended September 30, 2022 to reduce the carrying amount of the intangible asset to its estimated fair value.

During the three and nine months ended September 30, 2023, we determined that a triggering event had occurred, indicating it was more likely than not the fair value of the ApiFix trademark was less than the associated carrying value.

Subsequently, the Company completed a quantitative analysis and concluded that the fair value was in fact less than the carrying value and a partial impairment loss of $ 985 was recorded in the period ended September 30, 2023.

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

6 unchanged sentences

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

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

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

September 30, 2023

Level 1 Level 2 Level 3 Total

23 unchanged sentences

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 $ 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 adjustments in the fair value of the contingent consideration payments included an income adjustment of $ 0 and $ 23,010 for the three months ended September 30, 2023 and September 30, 2022, respectively, and $ 2,974 and $ 25,450 for the nine months ended September 30, 2023 and September 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:

1 unchanged sentence

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

Balance at June 30, 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 June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

Balance at September 30, 2023

September 30, 2023 December 31, 2022

Valuation techniques Discounted cash flow, Monte Carlo

4 unchanged sentences

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

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

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

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

1 unchanged sentence

Long-term debt consisted of the following:

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

Mortgage payable to affiliate $ 800 $ 907

1 unchanged sentence

Long-term debt with affiliate, net of current maturities $ 650 $ 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 June 30, 2023 and December 31, 2022, there was no outstanding indebtedness under the Loan Agreement.

As of September 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.

13 unchanged sentences

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

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.

At September 30, 2023, the mortgage balance was $ 800 of which current principal of $ 150 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 $ 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.

The aggregate interest expense relating to the notes payable to Squadron and the mortgage note payable to Tawani was $ 10 and $ 12 for the three months ended September 30, 2023 and 2022, respectively, and $ 32 and $ 512 for the nine months ended September 30, 2023 and 2022, respectively.

NOTE 7 - INCOME TAXES

1 unchanged sentence

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 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.

For the nine months ended September 30, 2023, the income tax benefit was $ 126 compared to $ 4,899 for the nine months ended September 30, 2022.

Our effective income tax rate was 0.9 % and ( 116.4 )% for the nine months ended September 30, 2023 and 2022, respectively.

The deferred tax assets were fully offset by a valuation allowance at September 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 expense and tax benefit during the period ended September 30, 2023 for losses generated in Canada and Israel, respectively.

NOTE 8 - STOCKHOLDERS’ EQUITY

7 unchanged sentences

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

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 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.

Exercised ( 670 ) 30.97

Forfeited or expired ( 2,886 ) —

Outstanding at September 30, 2023

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

At December 31, 2022, all options were fully vested.

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

As of September 30, 2023 all options were either exercised or cancelled.

Restricted Stock

8 unchanged sentences

Vested ( 115,760 ) —

Outstanding at June 30, 2023

Outstanding at September 30, 2023

565,021 1.8 13,851 1.9

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.

At September 30, 2023, there was $ 15,857 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 1.8 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 $ 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.

Stock-based compensation expense on restricted stock amounted to $ 2,368 and $ 1,682 for the three months ended September 30, 2023 and 2022, respectively, and $ 7,779 and $ 4,978 for the nine months ended September 30, 2023 and 2022, respectively.

The increase in the stock compensation for the three and nine months ended September 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.

2 unchanged sentences

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

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

Weighted average number of shares - basic and diluted 22,704,723 19,792,286 22,587,022 19,693,216

Net loss per share - basic and diluted $ ( 0.13 ) $ ( 0.02 ) $ ( 0.43 ) $ ( 0.48 )

Net (loss) income $ ( 4,591 ) $ 18,539 $ ( 14,283 ) $ 9,106

Earnings allocated to participating securities — 353 — 174

Net income available to common shareholders $ ( 4,591 ) $ 18,186 $ ( 14,283 ) $ 8,932

Denominator for basic and diluted net (loss) income per share:

Weighted average shares outstanding for basic 22,762,823 21,150,219 22,646,087 20,703,883

Weighted average shares outstanding for diluted 22,762,823 21,295,323 22,646,087 20,958,503

(Loss) earnings per share:

Basic $ ( 0.20 ) $ 0.88 $ ( 0.63 ) $ 0.44

Diluted $ ( 0.20 ) $ 0.87 $ ( 0.63 ) $ 0.43

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

For purposes of our equity disclosures and calculation of weighted average shares for basic earnings per share calculations,

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

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

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

The following contingently issuable equity shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for all periods presented:

Six Months Ended June 30,

Restricted stock 580,162 433,093

Stock options 3,556 5,298

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.

For the periods presented with a net loss the weighted average shares outstanding remains consistent between basic and diluted as the effect would have been anti-dilutive.

The Company had 578,872 and zero contingently issuable and convertible equity shares excluded from the calculation of diluted net (loss) earnings per share as of September 30, 2023 and 2022, respectively, because their effect would have been anti-dilutive.

The contingently issuable shares in the paragraph above do not include shares of our common stock associated with our obligation to issue a variable number of our common shares as a result of our recent acquisitions of Pega Medical, ApiFix or MedTech.

See Note 3 for additional information regarding our commitment to issue future equity under each of the Pega Medical and MedTech acquisitions.

Additionally, as a component of the acquisition of ApiFix, the Company is obligated to make anniversary installment payments on the second, third and fourth anniversary of the acquisition date.

Also on the fourth anniversary, the Company is potentially subject to a system sales payment.

These payments included a minimum cash component with the remaining settled in common stock.

See Note 3 under Item 8 in the Company's Annual Report on Form 10-K for additional information regarding this business combination.

NOTE 10 – BUSINESS SEGMENT

6 unchanged sentences

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 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.

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

No customer accounted for more than 10% of consolidated accounts receivable as of September 30, 2023 and December 31, 2022.

Product sales by source were as follows:

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

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

Product sales by geographic location:

3 unchanged sentences

Total $ 39,972 $ 34,950 $ 111,119 $ 91,295

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

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

Product sales by category:

7 unchanged sentences

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 $ 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.

We made aggregate payments to Structure Medical for inventory purchases of $ 234 and $ 218 for the three months ended September 30, 2023 and 2022, respectively, and $ 628 and $ 768 for the nine months ended September 30, 2023 and 2022, respectively.

NOTE 12 - EMPLOYEE BENEFIT PLAN

7 unchanged sentences

NOTE 13 – COMMITMENTS AND CONTINGENCIES

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 .

As of September 30, 2023, the Company has recorded a lease liability of $ 434 and corresponding right-of-use-asset of $ 497 on its condensed consolidated balance sheet .

Legal Proceedings

18 unchanged sentences

The Company, Orthex and Squadron have not sought to further pursue an appeal of the subject order.

Although we believe the IMED lawsuit is without merit and will vigorously defend the claims asserted against us, arbitration and litigation can involve complex factual and legal questions, and an adverse resolution of such proceedings could have a material adverse effect on our business, operating results and financial condition.

Although we believe the Company has strong defenses to the IMED lawsuit and we intend to vigorously defend the claims asserted against us, arbitration and litigation can involve complex factual and legal questions, and an adverse resolution of such proceedings could have a material adverse effect on our business, operating results and financial condition.

Wishbone Medical, Inc.

6 unchanged sentences

Thereafter, in January 2021, Wishbone filed a motion to dismiss all OrthoPediatrics’ causes of action.

In late August 2021, the Court denied Wishbone's motion to dismiss with respect to OrthoPediatrics’ infringement and breach of contract claims and dismissed OrthoPediatrics' remaining causes of action.

In late August 2021, the Court denied Wishbone's motion to dismiss with respect to OrthoPediatrics’

infringement and breach of contract claims and dismissed OrthoPediatrics' remaining causes of action.

In late September 2021, Wishbone filed its answer and counterclaims, in part, seeking declaratory judgment of non-infringement and invalidity of the ‘377 Patent, and alleging OrthoPediatrics patent infringement claim(s) against Wishbone was made in bad faith.

5 unchanged sentences

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.

In September 2023, the Company and Wishbone Medical, Inc.

reached a settlement of all claims against one another, resulting in a payment to the Company that was not material.

However, OrthoPediatrics’ breach of contract claim against Mr.

Deeter and Mr.

Deeter’s breach of contract counterclaim remain.

Although we believe the Company has strong defenses to Mr.

Deeter’s counterclaims and we intend to 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.

We are not presently a party to any other legal proceedings the outcome of which, if determined adversely to us, would individually or in the aggregate materially affect our financial position or results of operations or cash flows.

2 unchanged sentences

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.

As a result and as of September 30, 2023, the remaining purchase commitment under the agreement was $ 1,345 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 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.

During the nine months ended September 30, 2023, the Company recorded an expense of $ 1,053 based on current estimates.

The Company recorded $ 442 of expense for the nine months ended September 30, 2022.

As of September 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.

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

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