What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-08 compared with 2023-03-01 · 328 added, 268 removed, 799 unchanged (43% of the section changed)

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of OrthoPediatrics Corp.

Opinion on the Financial Statements

To the shareholders and the Board of Directors of OrthoPediatrics Corp.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of OrthoPediatrics Corp.

and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows, for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures to respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are

being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Emphasis of Matter

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The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Intangible Assets – ApiFix Trademark Impairment – Refer to Notes 2 and 4 to the financial statements

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Other Intangible Assets – Trademarks – Refer to Notes 2 and 4 to the financial statements

Critical Audit Matter Description

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

As such, the Company completed a quantitative analysis whereby the Company determined the fair value of the trademark

asset associated with the ApiFix acquisition was below the carrying value.

The Company recorded a $3.6 million impairment charge during the year ended December 31, 2022.

We identified the impairment of the ApiFix trademark asset as a critical audit matter because the estimate of the fair value of the trademark and associated impairment is based on a discounted cash flow model.

This involves significant estimates and assumptions including preparation of forecasted revenue, selection of a royalty rate and discount rate and estimate of the terminal year revenue growth rate.

The determination and extent of audit procedures related to these assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s assessment of the fair value of the asset.

As described in Notes 2 and 4 of the consolidated financial statements, the Company records trademarks within their consolidated balance of Other Intangible Assets.

We identified the specific trademarks related to Pega Medical, MD Ortho, Orthex and ApiFix, which are components of the Other Intangible Assets consolidated balance, as our critical audit matter.

Impairment testing of the trademarks is performed on an annual basis, and more frequently if events and circumstances indicated that the asset might be impaired.

The fair values of the trademarks are based on a relief from royalty method, and an impairment of $985,000 was recorded related to the ApiFix trademark during 2023.

This approach requires significant estimates and assumptions including preparation of forecasted revenue, selection of a royalty rate and discount rate and estimate of the terminal year revenue growth rate.

The principal considerations for our determination that performing procedures related to the annual trademark impairment assessments of Pega Medical, MD Ortho, Orthex and ApiFix is a critical audit matter are (i) the significant judgments required to be exercised by management when developing the fair value estimates of its trademarks;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, discount rates, and royalty rates for the trademarks;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the estimate of the fair values of the asset impaired included the following, among others:

• We evaluated the reasonableness of management’s forecast of future revenue by comparing the forecast to:

Our audit procedures related to the estimate of the fair value of the Pega Medical, MD Ortho, Orthex and ApiFix trademarks included the following, among others:

• We tested the effectiveness of controls over management’s evaluation of the fair value of its trademarks, including those over the selection of the discount rates, royalty rates and management’s development of future revenues.

• We evaluated the reasonableness of management’s forecast of future revenue by comparing the forecast for each trademark to:

◦ Historical revenues.

– Scheduled and anticipated surgeries

◦ Projected revenues.

◦ Publicly available industry information.

◦ Evidence obtained in other areas of the audit.

• With the assistance of fair value specialists, we evaluated the reasonableness of the Company’s estimate of fair value for the intangible asset by:

• With the assistance of fair value specialists, we evaluated the reasonableness of the Company’s estimate of fair value for each trademark by:

◦ Assessing the appropriateness of the Company’s valuation methodology.

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◦ Comparing the Company’s selected discount rate to an independently estimated range of discount rates using a process consistent with generally accepted valuation practices.

– Evaluating the reasonableness of the terminal growth rate through comparison to industry reports and peer companies.

– Assessing the reasonableness of the royalty rate used in the fair value analysis by comparing to recent acquisitions for the Company, as well as publicly available industry information.

◦ Evaluating the reasonableness of the terminal growth rate through comparison to industry reports.

◦ Assessing the reasonableness of the selected royalty rate used in the fair value analysis by comparing against an independently-sourced set of comparable licensing agreements.

/s/ Deloitte & Touche LLP

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Current assets:

Cash $ 8,991 $ 7,641

Cash and cash equivalents $ 31,055 $ 8,991

Restricted cash 1,972 1,471

Short term investments 49,251 109,299

Accounts receivable - trade, less allowance for doubtful accounts of $ 1,056 and $ 347 , respectively

Accounts receivable - trade, net of allowances of $ 1,373 and $ 1,056 , respectively

34,617 24,800

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Other intangible assets 15,287 14,921

Other non-current assets 2,940 —

Total other assets 171,201 166,722

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Long-term liabilities:

Long-term debt, net of current portion 9,297 —

Long-term debt with affiliate, net of current portion 611 763

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Accumulated deficit ( 197,742 ) ( 176,768 )

Accumulated other comprehensive income (loss) ( 5,400 ) 8,491

Accumulated other comprehensive loss ( 5,526 ) ( 5,400 )

Total stockholders' equity 377,025 378,648

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Operating loss ( 26,751 ) ( 25,399 ) ( 18,024 )

Other expenses:

Interest expense, net 2,424 2,247 3,412

Other (income) expenses:

Interest (income) expense, net ( 198 ) 2,424 2,247

Fair value adjustment of contingent consideration ( 2,980 ) ( 25,930 ) ( 1,800 )

Other expense (income) 1,796 ( 1,083 ) ( 20 )

Total other (income) expenses ( 21,710 ) ( 636 ) 6,912

Other (income) expense, net ( 2,261 ) 1,796 ( 1,083 )

Total other income ( 5,439 ) ( 21,710 ) ( 636 )

Loss before income taxes ( 21,312 ) ( 3,689 ) ( 17,388 )

Provision for income taxes (benefit) ( 338 ) ( 4,947 ) ( 1,128 )

Net income (loss) $ 1,258 $ ( 16,260 ) $ ( 32,944 )

Net (loss) income $ ( 20,974 ) $ 1,258 $ ( 16,260 )

Weighted average shares outstanding

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Diluted 22,675,477 20,947,727 19,268,255

Net income (loss) per share

Net (loss) income per share

Basic $ ( 0.92 ) $ 0.06 $ ( 0.84 )

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2023 2022 2021

Net income (loss) $ 1,258 $ ( 16,260 ) $ ( 32,944 )

Net (loss) income $ ( 20,974 ) $ 1,258 $ ( 16,260 )

Other comprehensive (loss) income:

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Unrealized gain (loss) on short-term investments 68 ( 871 ) ( 573 )

Adjustment for realized loss on securities 1,550 — —

Other comprehensive income (loss), net of tax ( 13,891 ) 584 7,910

Adjustment for realized gain on securities 1,437 1,550 —

Other comprehensive (loss) income, net of tax ( 126 ) ( 13,891 ) 584

Comprehensive loss $ ( 21,100 ) $ ( 12,633 ) $ ( 15,676 )

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Net loss — — — ( 16,260 ) — ( 16,260 )

Consideration for ApiFix and Telos acquisitions and Band-Lok intellectual property purchase 1,025,782 — 39,388 — — 39,388

Restricted stock 107,902 — 5,842 — — 5,842

Stock option exercise 4,422 — 137 — — 137

Issuance of common stock, net of issuance cost 1,595,986 1 70,206 — — 70,207

Other comprehensive income — — — — 7,910 7,910

Balance at December 31, 2020 19,560,291 $ 5 $ 388,622 $ ( 161,766 ) $ 7,907 $ 234,768

Net loss — — — ( 16,260 ) — ( 16,260 )

Restricted stock 107,902 — 5,842 — — 5,842

Stock option exercise 4,422 — 137 — — 137

Consideration for Devise Ortho acquired assets 4,599 — 298 — — 298

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Balance at December 31, 2022 22,877,962 $ 6 $ 560,810 $ ( 176,768 ) $ ( 5,400 ) $ 378,648

Net loss — — — ( 20,974 ) — ( 20,974 )

Restricted stock 304,889 — 10,526 — — 10,526

Stock option exercise 670 — 21 — — 21

Consideration for MedTech and Rhino acquisitions 54,884 — 2,752 — — 2,752

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

Other comprehensive loss — — — — ( 126 ) ( 126 )

Balance at December 31, 2023 23,378,408 $ 6 $ 580,287 $ ( 197,742 ) $ ( 5,526 ) $ 377,025

See notes to consolidated financial statements.

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OPERATING ACTIVITIES

Net income (loss) $ 1,258 $ ( 16,260 ) $ ( 32,944 )

Net (loss) income $ ( 20,974 ) $ 1,258 $ ( 16,260 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

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Fair value adjustment of contingent consideration ( 2,980 ) ( 25,930 ) ( 1,800 )

Acquisition installment payable 2,307 2,154 2,397

Accretion of acquisition installment payable 1,372 2,307 2,154

Deferred income taxes ( 1,163 ) ( 5,032 ) ( 1,128 )

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INVESTING ACTIVITIES

Acquisition of MedTech, net of cash acquired ( 3,097 ) — —

Acquisition of Rhino assets ( 546 ) — —

Acquisition of MDO, net of cash acquired — ( 8,360 ) —

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Acquisition of Devise Ortho assets — — ( 650 )

Acquisition of Telos, net of cash acquired — — ( 1,670 )

Acquisition of ApiFix, net of cash acquired — — ( 1,723 )

Acquisition of Band-Lok intangible assets — — ( 796 )

Purchases of licenses ( 2,106 ) — ( 7,908 )

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Purchases of property and equipment ( 16,878 ) ( 10,031 ) ( 8,103 )

Net cash used in investing activities ( 113,371 ) ( 7,411 ) ( 69,693 )

Net cash provided by (used in) investing activities 41,677 ( 113,371 ) ( 7,411 )

FINANCING ACTIVITIES

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Proceeds from issuance of debt with affiliate — 31,000 —

Proceeds from issuance of debt 9,424 — —

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

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Cash paid for interest $ 42 $ 700 $ 56

Transfer of instruments from property and equipment to inventory $ ( 234 ) $ 453 $ 415

Issuance of common shares to acquire MDO $ 9,707 $ — $ —

Transfer of instruments between property and equipment and inventory $ 57 $ ( 234 ) $ 453

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

Issuance of common shares to acquire Telos $ — $ — $ 1,568

Issuance of common shares to acquire ApiFix $ — $ — $ 35,176

Issuance of common shares to purchase Band-Lok intellectual property $ — $ — $ 2,644

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

Issuance of common shares to acquire Rhino assets $ 478 $ — $ —

Issuance of common shares to acquire MDO $ — $ 9,707 $ —

Issuance of common shares to purchase Devise Ortho assets $ — $ — $ 298

Right-of-use assets obtained in exchange for lease liabilities $ 706 $ 213 $ —

Debt issuance costs not yet paid $ 127 $ — $ —

See notes to consolidated financial statements.

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NOTE 1 – BUSINESS

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

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

OrthoPediatrics Corp., a Delaware corporation, is a medical device company committed to designing, developing and marketing anatomically appropriate implants, instruments and specialized braces for children with orthopedic conditions, giving pediatric orthopedic surgeons and caregivers the ability to treat children with technologies specifically designed to meet their needs, 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 ® , SLIM TM Nail, The GAP Nail TM , The Free Gliding SCFE Screw System TM , GIRO TM Growth Modulation System, PNP Tibia 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 while our clubfoot orthopedic products are manufactured in-house.

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 braces to meet the specialized needs of pediatric surgeons 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.

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The accompanying consolidated financial statements include the accounts of OrthoPediatrics Corp.

and its wholly-owned subsidiaries, OrthoPediatrics US Distribution Corp., OrthoPediatrics EU Limited, OrthoPediatrics AUS PTY LTD, OrthoPediatrics NZ LTD, OP EU B.V., OP Netherlands B.V., Orthex, LLC, Telos Partners, LLC, ApiFix, Ltd., OrthoPediatrics Iowa Holdco, Inc., MD Orthopaedics, Inc., MD International Inc., OrthoPediatrics GmbH, OrthoPediatrics GP LLC, OrthoPediatrics US L.P.

and OrthoPediatrics Canada ULC doing business as Pega Medical (collectively, the “Company,” “we,” “our” or “us”).

and its wholly-owned subsidiaries (collectively, the “Company,” “we,” “our” or “us”).

All intercompany balances and transactions have been eliminated.

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

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 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 2023, we hired operating and sales representatives in Germany to better serve our customers.

The financial statements of our foreign subsidiaries are accounted for in local functional currencies and have been translated into U.S.

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Revenue Recognition – United States

Revenue in the United States is generated primarily from the sale of our specialized braces, implants and, to a much lesser extent, from the sale of our instruments.

Revenue in the United States is generated primarily from the sale of our implants, specialized braces and, to a much lesser extent, from the sale of our instruments.

Sales of our implants and instruments in the United States are primarily to hospital accounts through independent sales agencies.

Sales of our braces are primarily direct to

hospital, orthotist or end customers.

Sales of our braces are primarily direct to hospital, orthotist or end customers.

We recognize revenue when our performance obligations under the terms of a contract with our customer are satisfied.

The implants and instruments are generally consigned to our independent sales agencies, and revenue is recognized when the products are used by or shipped to the hospital for surgeries on a case by case basis.

The implants and instruments are generally consigned to our independent sales agencies, and revenue is recognized when the products are used by or shipped to the hospital

for surgeries on a case by case basis.

On rare occasions, hospitals purchase product for their own inventory, and revenue is recognized when the products are shipped and the title and risk of loss passes to the customer.

Generally, we consider our performance obligation of our braces to be settled upon shipment, and revenue is therefore recognized at that time.

Generally, we consider our performance obligation related to the sale of our braces to be settled upon shipment, and revenue is therefore recognized at that time.

Revenue Recognition – International

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Beginning in early 2017 and continuing through 2023, we expanded operations and established legal entities outside the United States, permitting us to sell under an agency model direct to local hospitals internationally.

In the year ended December 31, 2020, the Company recorded a $ 2,730 revenue reduction due to the repurchase of inventory from a stocking distributor in Germany, Austria and Switzerland that we converted to a sales agency.

The products are generally consigned to our independent sales agencies, and revenue is recognized when the products are used by or shipped to the hospital for surgeries on a case by case basis.

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The Company includes unrealized gains or losses, as a component of other comprehensive income in stockholders' equity.

If the adjustment to fair value reflects a decline in the value of the investment, the Company considers available information to determine whether the decline is "other than temporary" and, if so, reflects the change on the Consolidated Statements of Operations.

If the adjustment to fair value reflects a decline in the value of the investment, the Company evaluates whether any impairment is a result of a credit loss or other factors.

This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, significance of a security's loss position, adverse conditions specifically related to the security, and the payment structure of the security.

There were no such losses recognized in the accompanying Consolidated Statements of Operations.

Additionally, the Company recognizes any previously unrealized gain or loss at the time the Company liquidates any of its investments based on the value at the time of liquidation.

In 2022, the Company recognized a loss of $ 1,550 that were previously unrealized.

No such gains or losses were recognized for the years ended December 31, 2021 or 2020.

In 2023 and 2022, the Company recognized gains of $ 1,437 and $ 1,550 , respectively, that were previously unrealized.

No such gains or losses were recognized for the year ended December 31, 2021.

Restricted Cash

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The Company also maintains restricted cash of 650 Euro at its Netherlands entity for potential Italian tenders.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts Receivable

Accounts receivable are uncollateralized customer obligations due under normal trade terms, generally requiring payment within 30 days from the invoice date in the United States and within 90 days internationally.

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No interest is charged on past due accounts.

Payments of accounts receivable are applied

to the specific invoices identified on the customer's remittance advice or, if unspecified, to the customer's account as an unapplied credit.

Payments of accounts receivable are applied to the specific invoices identified on the customer's remittance advice or, if unspecified, to the customer's account as an unapplied credit.

The carrying amount of accounts receivable is reduced by an allowance that reflects management's best estimate of the amounts that will not be collected, determined principally on the basis of historical experience, management's assessment of the collectability of specific customer accounts and the aging of the accounts receivable.

All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts.

The allowance for doubtful accounts was $ 1,056 and $ 347 as of year ended December 31, 2022 and 2021, respectively.

The following table summarizes activity in the allowance for doubtful accounts:

All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off against the established reserve.

The following table summarizes activity in our reserves recorded against accounts receivable:

2023 2022 2021

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Costs Related to Common Stock Offerings

On June 22, 2020, we completed a public offering of our common stock.

Offering expenses of $ 481 , primarily consisting of legal, accounting and other direct fees and costs related to the offering were recorded in stockholders' equity at the conclusion of our offering.

On August 15, 2022, we completed a public offering of our common stock and pre-funded warrants exercisable for an aggregate of up to 1,525,000 shares of common stock to Squadron Capital LLC (“Squadron”), our largest investor.

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Amortizable Intangible Assets, net

Amortizable intangible assets include fees necessary to secure various patents and licenses, including Band-Lok, the value of internally developed software, customer relationships, and non-competition agreements related to the acquisition of Orthex, and customer relationships and non-competition agreements related to the acquisitions of Telos and ApiFix.

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

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The Company has determined the reporting units to be our legacy surgical implants unit and the bracing reporting unit established with the acquisition of MD Ortho.

The goodwill is considered to be impaired if we determine that the carrying value of either of our a reporting units exceeds its respective fair value.

No impairment charges were recorded in the current year.

The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test.

The goodwill is considered to be impaired if we determine that the carrying value of either of our reporting units exceeds its respective fair value.

No impairment charges were recorded in any of the years presented.

The Company tests goodwill for impairment annually in the fourth quarter by either performing a qualitative evaluation or a quantitative test.

The quantitative assessment for goodwill requires us to estimate the fair value of our two reporting units using either an income or market approach or a combination thereof.

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The calculation of the fair value of the trademark assets involves Level 3 fair value measurements.

To estimate the fair value of the trademark asset and associated impairment, we utilized an income approach, or discounted cash flow model.

This approach requires us to make significant estimates and assumptions including preparation of forecasted revenue, selection of a royalty rate and discount rate and estimate of the terminal year revenue growth rate.

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.

To estimate the fair value of the trademark asset and associated impairment, we utilized the relief-from-royalty method, which is a form of the income approach.

This approach requires us to make significant estimates and assumptions including preparation

of forecasted revenue, selection of a royalty rate and discount rate and estimate of the terminal year revenue growth rate.

During 2023 and 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.

We recorded a $ 985 and $ 3,609 impairment charge for the years ended December 31, 2023 and 2022, respectively, 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.

Investments in Privately Held Companies

The Company determines whether its investments in privately held companies are debt or equity based on their characteristics.

The Company also evaluates the investee to determine if the entity is a variable interest entity (“VIE”) and, if so, whether the Company is the primary beneficiary of the VIE, in order to determine whether consolidation of the VIE is required.

If consolidation is not required and the Company does not have voting control of the entity, the investment is evaluated to determine if the equity method of accounting should be applied.

The equity method applies to investments in common stock or in substance common stock where the Company exercises significant influence over the investee.

Investments in privately held companies determined to be equity securities are accounted for as non-marketable securities.

The Company adjusts the carrying value of its non-marketable equity securities for changes from observable transactions for identical or similar investments of the same issuer, less impairment.

All gains and losses on non-marketable equity securities, realized and unrealized, are recognized as a component of other (income) expenses in the consolidated statements of operations.

Investments in privately held companies determined to be debt securities are accounted for as available-for-sale or held-to-maturity securities unless the fair value option is elected.

The Company has investments of $ 1,855 as of December 31, 2023 which are recorded within other non-current assets on its consolidated balance sheet.

Acquisition Payable and Contingent Consideration

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Both are recorded at their fair values as determined by management with the assistance of an independent valuation specialist at the original issuance date and are adjusted on a recurring basis.

Accretion of interest expense attributable to the acquisition installment payable are recorded as a component of interest expense, net.

Accretion of interest expense attributable to the acquisition installment payable are recorded as a component of interest (income) expense, net.

Changes in the fair value of the contingent consideration are included in fair value adjustments of contingent consideration.

Both are included as a component of other expenses on the consolidated statement of operations.

The amount of expense recorded in interest expense, net was $ 2,307 and $ 2,155 for the twelve month period ended December 31, 2022 and 2021, respectively.

Adjustments in the fair value of the contingent consideration payment were recognized as income of $ 25,930 and $ 1,800 for the twelve month period ended December 31, 2022 and 2021, respectively.

Both are included as a component of other (income) expenses on the consolidated statement of operations.

The amount of expense recorded was $ 1,372 , $ 2,307 and $ 2,155 for the years ended December 31, 2023, 2022 and 2021, respectively.

Adjustments in the fair value of the contingent consideration payment were recognized as income of $ 2,980 , $ 25,930 and $ 1,800 for the years ended December 31, 2023, 2022 and 2021, respectively.

Shipping and Handling Costs

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Our implants and instruments are manufactured to our specifications by third-party suppliers who meet our manufacturer qualifications standards.

Our third-party manufacturers are required to meet Food and Drug Administration (the “FDA”), International Organization for Standardization and other country-specific quality standards.

Our third-party manufacturers are required to meet Food and Drug Administration (the “FDA”), International Organization for

Standardization and other country-specific quality standards.

The majority of our implants and instruments are produced in the United States.

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All restricted stock granted prior to May 2014 vested upon our IPO and the remaining grants under the 2007 Plan vested in April 2018.

Generally under the 2017 plan, restricted stock vests over a three year period.

Generally under the 2017 plan, restricted stock vests at the end of a three-year period.

We have elected to recognize the reversal of stock compensation expense when a restricted stock forfeiture occurs as opposed to estimating future forfeitures.

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The Foundation is a separate legal entity and is not a subsidiary of the Company;

therefore, its results are not included in these consolidated financial statements.

therefore, its results are not included in these

consolidated financial statements.

The Company contributed $ 286 , $ 524 and $ 88 to the Foundation during the years ended December 31, 2023, 2022 and 2021, respectively.

These contributions were recorded in general and administrative expenses.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources.

Comprehensive income (loss) includes foreign currency translation adjustments and unrealized gains (losses) on marketable securities.

Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources.

Comprehensive loss includes foreign currency translation adjustments and unrealized gains (losses) on marketable securities.

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements.

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As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s results of operations in a given period.

No accrued legal fees outside the course of ordinary business were recorded for the years ended December 31, 2022 or 2021.

The Company recorded an accrual of $ 6,342 for legal settlements for the year ended December 31, 2020.

During 2021, there were no material adjustments to the accrued legal settlements recorded in 2020 and the settlement amounts were paid, resolving the related legal proceedings.

Debt Issuance Costs

Debt issuance costs are deferred and presented as a reduction to long-term debt.

Debt issuance costs are amortized using the effective interest rate method over the term of the loan.

Amortization of deferred debt issuance costs are included within interest (income) expense, net in the consolidated statements of operations.

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time.

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The Company records lease liabilities within current liabilities or long-term liabilities based upon the length of time associated with the lease payments.

The Company records its operating lease right-of-use assets as long-term assets.

The Company records its operating lease right-of-use assets within other non-current assets.

Recent Accounting Pronouncements

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The Company adopted ASU 2016-16 effective January 1, 2023.

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

The adoption is on a prospective basis and did not have a significant impact on the Company's consolidated financial statements and related disclosures.

In October 2021, the FASB issued ASU No.

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The amendments in this Update 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 Update 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 Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

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The Company adopted ASU 2021-08 effective January 1, 2023.

The adoption will be applied prospectively to business combinations that occur after January 1, 2023 and is not expected to have a significant impact on the Company's consolidated financial statements and related disclosures.

NOTE 3 – BUSINESS COMBINATIONS

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

The adoption will be applied prospectively to business combinations that occur after January 1, 2023, resulting in no material impacts to the 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 consolidated financial statements.

In November 2023, the FASB issued ASU No.

2023-07, " Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures ." The standard requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items to reconcile to segment profit or loss, and the title and position of the entity's CODM.

The amendments in this update also expand the interim segment disclosure requirements.

This authoritative guidance will be effective for us in fiscal 2025 for annual periods and in the first quarter of fiscal 2026 for interim periods, with early adoption permitted.

We are currently evaluating the effect of this new guidance on our consolidated financial statements and disclosures.

In December 2023, the FASB issued ASU No.

2023-09, " Income Taxes (Topic 740):

Improvements to Income Tax Disclosures " (ASU 2023-09), which enhances the transparency and decision usefulness of income tax disclosures.

The ASU is effective for public companies for fiscal years beginning on or after December 15, 2024, with early adoption permitted.

The amendments in ASU 2023-09 should be applied on a prospective basis.

Retrospective application is permitted.

We are currently evaluating the effect of this new guidance on our consolidated financial statements and disclosures.

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

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.

No revenue was recorded from this 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 (as amended, the "Purchase Agreement") 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”).

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

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

The Company acquired Pega Medical for 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.

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

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

The common stock issued to the selling shareholders, 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 December 31, 20 23, 13,851 o f 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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The Company incurred approximately $ 382 of acquisition-related costs that are included in general and administrative expenses on the consolidated statement of operations for the year ended December 31, 2022.

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

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Goodwill $ 14,592

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.

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

For the year ended December 31, 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 $ 133 for the year ended December 31, 2023.

Goodwill declined as a net result of these adjustments.

MD Orthopaedics

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The Company incurred approximately $ 381 of acquisition-related costs, that are included in general and administrative expenses on the consolidated statement of operations for the year ended December 31, 2022.

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

The following table summarizes the total consideration paid for MD Ortho 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 $ 18,487

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Goodwill $ 5,450

The fair value of identifiable intangible assets was based on final 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 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, 2021.

The following table represents the pro forma net revenue and net income (loss) assuming the acquisitions of MD Ortho and Pega Medical occurred on January 1, 2021.

Net revenue $ 128,648 $ 113,899

Net income (loss) $ 2,110 $ ( 12,810 )

On April 1, 2020, the Company purchased all the issued and outstanding membership interest of ApiFix for $ 2,000 in cash, including $ 344 of cash acquired, 934,783 shares of the Company's common stock, $ 0.00025 par value per share, representing approximately $ 35,176 (based on a closing share price of $ 37.63 on April 1, 2020), approximately $ 30,000 in anniversary payments, and approximately $ 41,741 in a system sales payment.

The total consideration transferred of $ 87,379 , as calculated after discounting future payments to present value, is final.

On October 20, 2021, we purchased certain intellectual property assets from Devise Ortho, Inc.

related to its Drive Rail external fixation system.

We recorded $ 840 which will be amortized over the life of the patents, or approximately 16 years.

In addition to the intellectual property, the Company purchased $ 108 of inventory from Devise Ortho, Inc.

The total consideration of $ 948 was paid using $ 650 in cash and 4,599 shares of the Company's common stock, representing approximately $ 298 (based on the closing share price of $ 64.83 on October 20, 2021).

ApiFix, a corporation organized under the laws of Israel, has developed a minimally invasive deformity correction system for patients with Adolescent Idiopathic Scoliosis ("ApiFix System").

The following table reconciles the total consideration transferred after discounting the future payments:

Consideration Present Value

Cash consideration $ 2,000 $ 2,000

Payment of ApiFix transaction related costs 67 67

Issuance of common stock 35,176 35,176

Anniversary payments 30,000 22,620

System sales payment 41,741 27,190

Total consideration transferred $ 108,984 $ 87,053

The Company incurred $ 311 of acquisition-related costs that are included in general and administrative expenses on the consolidated statements of operations.

The purchase price allocation set forth herein is final.

The following table summarizes the total consideration paid for ApiFix and allocation of purchase price to the final fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Description Amount

Fair value of total acquisition consideration $ 87,379

Accounts receivable-trade 245

Inventories 685

Prepaid expenses and other current assets 77

Property and equipment 153

Amortizable intangible assets 32,150

Other intangible assets 8,640

Operating lease right-of-use asset 104

Total assets 42,398

Accounts payable and accrued liabilities 226

Operating lease liabilities 106

Other current liabilities 270

Deferred income taxes 6,487

Total liabilities 7,089

total net assets 35,309

Goodwill $ 52,070

The fair value of identifiable intangible assets were 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:

Amount Remaining Economic Useful Life

Trademarks / Names $ 8,640 Indefinite

Patents 31,720 15 years

Customer Relationships 230 10 years

Non-competition Agreements 200 4 years

The Company is obligated to make anniversary payments of:

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and (iii) $ 9,000 on the fourth anniversary of the closing date, subject to adjustments.

The Company anticipates making the third anniversary payment of $ 8,000 on the anniversary date.

In addition, to the extent that the product of our revenues from the ApiFix System for the twelve months ended June 30, 2024 multiplied by 2.25 exceeds the anniversary payments actually made for the third and fourth years, we have agreed to pay the selling shareholders a system sales payment in the amount of such excess.

The Company anticipates making the fourth anniversary payment of $ 9,000 on the anniversary date.

In addition, to the extent that the product of our revenues from the ApiFix System for the twelve months ended March 31, 2024 multiplied by 2.25 exceeds the anniversary payments actually made for the third and fourth years, we have agreed to pay the selling shareholders a system sales payment in the amount of such excess.

The anniversary payments and system sales payment may each be made in cash or cash and common stock, subject to certain limitations;

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The fair value of the payment will continue to be adjusted as additional information becomes available regarding the progress toward achievement of the revenue forecast.

The adjustments in the fair value of the contingent consideration payment were recognized as income of $ 25,930 , income of $ 1,800 and expense of $ 3,520 for the twelve month period ended December 31, 2022, 2021 and 2020, respectively, in other expenses on the consolidated statements of operations.

An additional $ 2,307 , $ 2,155 and $ 2,397 was recognized as interest expense for the twelve month period ended December 31, 2022, 2021 and 2020, respectively, on the consolidated statements of operations for the accretion of the acquisition installment payable.

The adjustments in the fair value of the contingent consideration payment were recognized as income of $ 2,980 , $ 25,930 and $ 1,800 for the years ended December 31, 2023, 2022 and 2021, respectively, within other (income) expenses on the consolidated statements of operations.

An additional $ 970 , $ 2,307 and $ 2,155 was recognized as interest expense for the

years ended December 31, 2023, 2022 and 2021, respectively, on the consolidated statements of operations for the accretion of the acquisition installment payable.

Presented below is a summary of the present value of the anniversary payments and fair value of the system sales payment related to the ApiFix acquisition:

December 31, 2022 December 31, 2021 December 31, 2020

December 31, 2023 December 31, 2022

Anniversary Payments:

Second Year Payment $ — $ 12,862 $ 12,233

Third Year Payment $ — $ 7,815

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Pre-acquisition revenues and earnings for ApiFix were not material to the consolidated operations.

On March 9, 2020, the Company purchased the issued and outstanding membership interest of Telos for $ 1,750 in cash, including $ 81 of cash acquired, and 36,628 shares of common stock, $ 0.00025 par value per share, of

The shares of common stock were valued at $ 42.81 per share, the Company's closing share price on March 9, 2020.

The Company incurred $ 25 of acquisition-related costs, that are included in general and administrative expenses on the consolidated statements of operations.

The following table summarizes the total consideration paid for Telos and allocation of purchase price to the final fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):

Description Amount

Fair value of total acquisition consideration $ 3,318

Accounts receivable-trade 215

Prepaid expenses and other current assets 38

Property and equipment 10

Amortizable intangible assets 950

Other intangible assets $ 210

Total assets 1,504

Accounts payable and accrued liabilities 60

Total liabilities 60

total net assets 1,444

Goodwill $ 1,874

The fair value of identifiable intangible assets were 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:

Amount Remaining Economic Useful Life

Trademarks / Names $ 210 Indefinite

Customer Relationships 910 10 years

Non-competition Agreements 40 5 years

NOTE 4 - GOODWILL AND INTANGIBLE ASSETS

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Goodwill at January 1, 2022

Foreign currency translation impact 1,838

Goodwill at January 1, 2022

MD Ortho acquisition 5,450

Pega Medical measurement period adjustment 5,450

Pega acquisition 16,528

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Goodwill at December 31, 2022 $ 86,821

Pega Medical measurement period adjustment ( 1,936 )

Foreign currency translation impact ( 1,186 )

Goodwill at December 31, 2023

Intangible Assets

As of December 31, 2022, the balances of total intangible assets were as follows:

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

Weighted-Average Amortization Period

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Patents 11.2 years $ 45,646 $ ( 11,008 ) $ — $ 34,638

Intellectual Property 9.8 years 5,859 ( 1,382 ) — 4,477

Intellectual Property and Capitalized Software 9.1 years 16,026 ( 2,524 ) — 13,502

Customer Relationships & Other 12.4 years 18,862 ( 3,270 ) — 15,592

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Total amortizable assets $ 91,267 $ ( 21,992 ) $ — $ 69,275

Other intangible assets

Trademark assets Indefinite $ 18,530 $ — $ 3,609 $ 14,921

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

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

Weighted-Average Amortization Period

Gross Intangible Assets Accumulated Amortization Impairment Net Intangible Assets

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

Intellectual Property 9.8 years 5,859 ( 1,382 ) — 4,477

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

License agreements 4.5 years 10,697 ( 3,703 ) — 6,994

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Anticipated market launch is in 2024 through 2026 for products for which we previously obtained licensing.

On October 20, 2021, we purchased certain intellectual property assets from Devise Ortho, Inc.

related to its Drive Rail external fixation system.

We recorded $ 840 which will be amortized over the life of the patents, or approximately 16 years.

In addition to the intellectual property, the Company purchased $ 108 of inventory from Devise Ortho, Inc.

The total consideration of $ 948 was paid using $ 650 in cash and 4,599 shares of the

Company's common stock, representing approximately $ 298 (based on the closing share price of $ 64.83 on October 20, 2021).

On September 3, 2021, we entered into a five-year license agreement, resulting in exclusive distribution rights of the 7D Surgical FLASH TM Navigation platform for pediatric applications.

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Amortization is recorded based on the cases completed in the given period.

On June 10, 2020, we purchased certain intellectual property assets from Band-Lok, LLC, a North Carolina limited liability company ("Band-Lok"), related to its Tether Clamp and Implantation System ("Tether Clamp System") for $ 3,394 in total consideration.

We use the Tether Clamp System in connection with our Bandloc 5.5/6.0 System.

We were previously the sole licensee of the purchased assets under a license agreement with Band-Lok.

Trademarks are recorded as indefinite-lived intangible assets in the amounts of $ 15,287 and $ 14,921 as of December 31, 2023 and 2022, respectively.

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In 2022 we acquired trademarks associated with MD Ortho and Pega Medical for approximately $ 2,410 and $ 3,878 , respectively.

In 2023 we acquired trademarks associated with MedTech and Rhino for approximately $ 520 and $ 140 , respectively.

Trademarks are recorded in Other Intangible assets on the Consolidated Balance Sheets.

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

During 2023 and 2022, management determined that a triggering event occurred for our ApiFix trademark, indicating that it was more likely than not the fair value of the trademark assets is less than the carrying value.

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

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.

We recorded impairment charges of $ 985 and $ 3,609 for the years ended December 31, 2023 and 2022, respectively, to reduce the carrying amount of the intangible asset to its estimated fair value.

NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

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The accounting standards related to fair value measurements define fair value and provide a consistent framework for measuring fair value under the authoritative literature.

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

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

December 31, 2023

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Treasury Bonds $ 18,235 $ — $ — $ 18,235

Asset Backed Securities $ — $ — $ — $ —

Other $ 207 $ — $ — $ 207

Financial Liabilities

Contingent Consideration $ — $ — $ 2,980 $ 2,980

December 31, 2022

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Short term investments

Certificates of Deposit $ — $ 25,148 $ — $ 25,148

Corporate Bonds $ 18,939 $ — $ — $ 18,939

Treasury Bonds $ 65,040 $ — $ — $ 65,040

Asset Backed Securities $ — $ 8,272 $ — $ 8,272

Other $ 172 $ — $ — $ 172

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The Company's level 1 assets consist of short-term, liquid investments with original maturity of three months or less at inception and other short term investments which are comprised of exchange traded mutual funds and marketable securities with a maturity date greater than 3 months.

The Company's level 2 assets pertain to certain asset-backed securities, collateralized by non-mortgage-related consumer debt, or certificates of deposit.

The Company's level 2 assets pertain to certificates of deposit.

These securities are predominately priced by third parties, either by a pricing vendor or dealer with significant inputs observable in active markets.

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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 resulted in income of $ 25,930 and income of $ 1,800 for the year ended December 31, 2022 and 2021, respectively.

$ 3,520 of expense was recorded in 2020.

The adjustments in the fair value of the contingent consideration payments resulted in income of $ 2,980 , $ 25,930 and $ 1,800 for the years ended December 31, 2023, 2022 and 2021, respectively.

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

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Long-term debt consisted of the following:

Term loan and Final Payment $ 10,300 $ —

Mortgage payable to affiliate 763 907

Total debt 11,063 907

debt discount and issuance costs 1,003 —

current maturities 152 144

Long-term debt, net of current maturities $ 9,908 $ 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 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.

On December 29, 2023, the Company entered into a $ 80 million Credit, Security and Guaranty Agreement (the “Credit Agreement”) by and among (i) the Company and other borrowers party to the Credit Agreement (collectively, the “Borrowers”), (ii) MidCap Funding IV Trust, as Agent (“Agent”), (iii) MidCap Financial Trust, as Term Loan Servicer (“Servicer”), and (iv) the financial institutions or other entities from time to time party thereto as Lenders (collectively, “Lenders”).

Under the terms of the Credit Agreement, the Lenders have provided to Borrowers a term loan in an aggregate principal amount that will not exceed $ 30 million available in three tranches of $ 10 million each subject to certain draw conditions (the “Term Loan”) and a revolving loan in an aggregate principal amount that will not exceed $ 50 million (the “Revolving Loan”).

Borrowings are available subject to certain levels of working capital for the Revolving Loan.

The second tranche of the Term Loan is eligible to be drawn between July 1, 2024 through June 30, 2025.

The third tranche of the Term Loan is eligible to be drawn between January 1, 2025 through June 30, 2025.

The Company must meet certain cash usage requirements at the time of each draw to be eligible to access these term loans.

Interest on the Term Loan will accrue at the greater of (a) One Month Term SOFR plus 6.50 % or (b) 9.0 % and interest on the Revolving Loan will accrue at the greater of (a) One Month Term SOFR plus 4.0 % or (b) 6.50 % (the “Applicable Rate”) and will be payable monthly by the Borrowers.

The Term Loans may be prepaid in full through December 29, 2024 with payment of a 3.00 % prepayment premium, after which they may be prepaid in full through December 29, 2025 with payment of a 2.00 % prepayment premium, after which they may be prepaid in full through December 29, 2026 with payment of a 1.00 % prepayment premium, after which they may be prepaid in full with no prepayment premium.

An additional final payment of 3.00 % ("Final Payment") of the amount of the Terms Loans advanced by the Lenders will be due upon prepayment or repayment of the Terms Loans in full, and is accounted for as debt discount.

The first tranche of $ 10 million was issued under the Term Loan upon execution.

Payments of principal and all accrued but unpaid interest will be due and payable upon the earlier of:

(i) December 1, 2028;

(ii) the occurrence of any transaction or series of transactions pursuant to which any person or entity in the aggregate acquire(s) 35 % or more of the voting capital stock of the Company;

(iii) a change in the majority of the Company’s Board of Directors over a 12-month period;

(iv) the Company ceases to own directly or indirectly, 100% of the capital stock of any of its subsidiaries (with the exception of any subsidiaries permitted to be dissolved, merged or otherwise disposed of by the Credit Agreement), or (v) the occurrence of a change in control, fundamental change, deemed liquidation event or terms of similar import under any document or instrument governing or relating to debt of or equity interests of Company.

The loans under the Credit Agreement are secured by a security interest in the Company’s and other Borrowers' assets.

The Credit Agreement provides for customary events of default.

If an event of default is not cured within the time periods specified (if any), the Lenders and Agent have the right to accelerate the Company’s payment of principal and interest in addition to other rights and remedies.

The Credit Agreement includes certain customary non-financial covenants, and also include certain financial covenants related to the Company achieving minimum revenue targets over a trailing twelve month period.

The Company was in compliance with all covenants under the Credit Agreement as of December 31, 2023.

The debt facilities available under the Credit Agreement replace the Fourth Amended and Restated Loan and Security Agreement with Squadron (as amended, the “Squadron Loan Agreement”), which provided the Company with a $ 50 million revolving credit facility.

During the year ended December 31, 2023 and as of December 31, 2022, there was no indebtedness outstanding under the Squadron Loan Agreement and it was terminated in connection with the Credit Agreement.

Borrowings under the Squadron Loan Agreement accrued interest at an annual rate equal to the greater of (a) six month SOFR plus 8.69 % and (b) 10.0 %, and the Company was permitted to make interest only payments on

amounts outstanding.

Prior to December 31, 2021, the interest rate on the facility had been equal to the greater of (a) three month LIBOR plus 8.61 % and (b) 10.0 %.

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

The unused commitment fee is payable quarterly in arrears.

Borrowings under the revolving credit facility are made under a Second Amended and Restated Revolving Note, dated June 13, 2022 (the “Amended Revolving Note”), payable, jointly and severally, by the Company and each of its subsidiaries party thereto.

The Amended Revolving Note matures at the earlier of:

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

The unused commitment fee was payable quarterly in arrears.

Borrowings under the Squadron Loan Agreement were made under a Second Amended and Restated Revolving Note, dated June 13, 2022 (the “Amended Revolving Note”), payable, jointly and severally, by the Company and each of its subsidiaries party thereto.

The Amended Revolving Note matured at the earlier of:

(i) the date on which any person or persons acquire (x) capital stock of the Company possessing the voting power to elect a majority of the Company’s Board of Directors (whether by merger, consolidation, reorganization, combination, sale or transfer), or (y) all or substantially all of the Company’s assets, determined on a consolidated basis;

and (ii) January 1, 2024.

Borrowings under the Loan Agreement are secured by substantially all of the Company's assets and are unconditionally guaranteed by each of its subsidiaries with the exception of Vilex.

There are no traditional financial covenants associated with the Loan Agreement.

However, there are negative covenants that prohibit us from, among other things, transferring any of our material assets, merging with or acquiring another entity, entering into a transaction that would result in a change of control, incurring additional indebtedness, creating any lien on our property, making investments in third parties and redeeming stock or paying dividends, in each case subject to certain exceptions.

Borrowings under the Squadron Loan Agreement were secured by substantially all of the Company's assets and were unconditionally guaranteed by each of its subsidiaries with the exception of Vilex.

There were no traditional financial covenants associated with the Squadron Loan Agreement.

However, there were negative covenants that prohibited us from, among other things, transferring any of our material assets, merging with or acquiring another entity, entering into a transaction that would result in a change of control, incurring additional indebtedness, creating any lien on our property, making investments in third parties and redeeming stock or paying dividends, in each case subject to certain exceptions.

In connection with the purchase of our office and warehouse space in Warsaw, Indiana in August 2013, we entered into a mortgage note payable to Tawani Enterprises Inc., an affiliate of Squadron.

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As of December 31, 2023 and 2022, the mortgage balance was $ 763 and $ 907 , respectively, of which current principal due of $ 152 and $ 144 , respectively, was included in current portion of long-term debt.

At December 31, 2022, the aggregate future principal payments on our debt arrangements are as follows:

Thereafter 107

Interest expense relating to notes payable to Squadron and mortgage note payable with Tawani was $ 525 , $ 56 and $ 1,233 for the years ended December 31, 2022, 2021 and 2020, respectively.

At December 31, 2023, the aggregate future principal payments on our debt arrangements, including the Final Payment, are as follows:

Interest expense relating to notes payable to Squadron and mortgage note payable with Tawani wa s $ 42 , $ 525 and $ 56 for the years ended December 31, 2023, 2022 and 2021, respectively.

NOTE 9 - INCOME TAXES

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Federal $ — $ — $ —

State 85 68 —

Foreign 740 17 —

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Foreign currency translation impact — —

Deferred tax assets (liabilities), net $ ( 5,954 ) $ ( 4,771 )

The deferred tax assets were fully offset by a valuation allowance at December 31, 2022 and 2021, with the exception of certain deferred tax liabilities recognized in a foreign jurisdiction as a result of fair value adjustments recorded upon the acquisition of ApiFix.

The Company has recorded a tax benefit during the year ended December 31, 2022 for losses generated in Canada and Israel and 2021, for losses generated in Israel.

A portion of the valuation allowance was reversed during the year ended December 31, 2022 as a result of the MD Ortho and corresponding deferred tax liabilities acquired reducing the deferred tax assets of the Company.

Deferred tax liabilities, net $ ( 5,483 ) $ ( 5,954 )

The deferred tax assets were fully offset by a valuation allowance at December 31, 2023 and 2022, with the exception of certain deferred tax liabilities in Canada and Israel.

The Company has recorded a tax benefit during the years ended December 31, 2023 and 2022, for losses generated in certain foreign jurisdictions.

As of December 31, 2023, we had available federal, state and foreign tax loss carryforwards of $ 118,930 , $ 76,944 and $ 26,260 , respectively.

We had available federal tax credits of $ 176 .

Net operating losses generated prior to December 31, 2017 will begin to expire in 2028.

Net operating losses ("NOLs") generated prior to December 31, 2017 will begin to expire in 2028.

Federal net operating losses generated after January 1, 2018 will have an indefinite carryforward period.

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Therefore, no reserve for uncertain income tax positions has been recorded.

Interest and penalties, if any, associated with income tax examinations will be to record such items as a component of income taxes.

Interest and penalties, if any, associated with income tax examinations will be recorded as a component of income taxes.

At December 31, 2023, our foreign operations held cash totaling $ 3,230 .

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NOTE 10 - STOCKHOLDERS’ EQUITY

Prior to our IPO, we maintained an Amended and Restated 2007 Equity Incentive Plan (the “2007 Plan”) that provides for grants of options and restricted stock to employees, directors and associated third-party representatives of our company as determined by the Board of Directors.

Prior to our IPO, we maintained the 2007 Plan that provides for grants of options and restricted stock to employees, directors and associated third-party representatives of our company as determined by the Board of Directors.

The 2007 Plan had authorized 1,585,000 shares for award.

Immediately prior to our IPO, we adopted our 2017 Incentive Award Plan (the “2017 Plan”) which replaced the 2007 Plan.

Immediately prior to our IPO, we adopted the 2017 Plan which replaced the 2007 Plan.

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

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Outstanding at December 31, 2023 592,453 1.6 13,851 1.7

Restricted stock exercisable at December 31, 2022

At December 31, 2023, there was $ 14,150 of unrecognized compensation expense remaining related to our service-based restricted stock awards.

The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.6 years.

Stock-based compensation expense on restricted stock amounted to $ 6,679 , $ 5,842 and $ 6,196 for the years ended December 31, 2022, 2021 and 2020, respectively.

Our warrant activity and related information are summarized below:

Warrants Weighted-Average Exercise Price

Outstanding at January 1, 2020 404 $ 30.97

Forfeited or expired ( 404 ) $ 30.97

Outstanding at December 31, 2020 — $ —

Forfeited or expired — $ —

Outstanding at December 31, 2021 — $ —

Issued 1,525,000 $ 0.00025

Exercised ( 1,525,000 ) $ 0.00025

Outstanding at December 31, 2022 — $ —

No warrants were exercised during the years 2020 and 2021.

Stock-based compensation expense on restricted stock amounted to $ 10,526 , $ 6,679 and $ 5,842 for the years ended December 31, 2023, 2022 and 2021, respectively, all of which is recorded within general and administrative expenses in the consolidated statements of operations.

On August 15, 2022, the Company completed a public offering of securities that included the issuance and sale to Squadron of pre-funded warrants to purchase up to 1,525,000 shares of the Company’s common stock.

The price per warrant was equal to the price per share at which common shares were concurrently sold to the public, minus $ 0.00025 , which nominal amount was the exercise price of each warrant.

The warrants issued to Squadron were exercised on September 20, 2022, following the expiration of all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”), that were applicable to Squadron as a result of it beneficially owning shares of the Company’s common stock with a value in excess of the HSR Act notification threshold.

As of December 31, 2022, 2021 and 2020, no fair value was assigned to the warrants.

NOTE 11 – NET EARNINGS (LOSS) PER SHARE

The following is a reconciliation of basic and diluted net loss per share attributable to common stockholders:

it beneficially owning shares of the Company’s common stock with a value in excess of the HSR Act notification threshold.

NOTE 11 – NET (LOSS) EARNINGS PER SHARE

The following is a reconciliation of basic and diluted net (loss) earnings per share attributable to common stockholders:

Year Ended December 31,

2023 2022 2021

Net income (loss) $ 1,258 $ ( 16,260 ) $ ( 32,944 )

Net (loss) income $ ( 20,974 ) $ 1,258 $ ( 16,260 )

Earnings allocated to participating securities — 23 —

Net income (loss) available to common shareholders $ 1,235 $ ( 16,260 ) $ ( 32,944 )

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

Net (loss) income available to common shareholders $ ( 20,974 ) $ 1,235 $ ( 16,260 )

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

Weighted average shares outstanding for basic 22,675,477 20,704,556 19,268,255

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22,675,477 20,947,727 19,268,255

Earnings (loss) per share:

(Loss) earnings per share:

Basic $ ( 0.92 ) $ 0.06 $ ( 0.84 )

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606,304 416,960 375,084

The contingently issuable shares in the table 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 these acquisitions.

NOTE 12 – 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 individual customer accounted for more than 10% of total product sales for any of the periods presented.

No individual customer accounted for more than

10% of total product sales for any of the periods presented.

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

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No individual country with sales originating outside of the United States accounted for more than 10% of consolidated revenue for the years ended December 31, 2023, 2022 and 2021.

As of December 31, 2022, our ApiFix, Ltd.

held greater than 10% of our net assets.

Excluding the goodwill and other intangible assets acquired, no individual subsidiary holds greater than 10% of net assets.

No individual country held long-lived assets in excess of 10% of consolidated long-lived assets as of December 31, 2023 or 2022.

NOTE 13 - RELATED PARTY TRANSACTIONS

In addition to the debt and credit agreements and mortgage with Squadron and its affiliate (refer to Note 8), we currently use Structure Medical, LLC (“Structure Medical”) as one of our suppliers.

In addition to the expired debt and credit agreements and mortgage with Squadron and its affiliate (refer to Note 8), we currently use Structure Medical, LLC (“Structure Medical”) as one of our suppliers.

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

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Discretionary matching contributions are determined annually by management.

We match our employees' 401(k) contributions up to 4 %.

Additionally, employees of MD Ortho receive contribution matches up to 3 % of their salary.

OrthoPediatrics Corp.

matches our employees' 401(k) contributions up to 4 %.

Employees of MD Ortho receive contribution matches up to 3 % of their salary.

For the years ended December 31, 2023, 2022 and 2021, the total 401(k) match resulted in expense of $ 900 , $ 718 and $ 510 , respectively.

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IMED Surgical - Software Ownership Dispute

On October 16, 2020, the Company, its wholly-owned subsidiary, Orthex, LLC (“Orthex”), the Company’s largest investor, Squadron Capital, LLC (“Squadron”), and certain other defendants, were named in a lawsuit filed by IMED Surgical, LLC, a New Jersey company (the “Plaintiff”), in Broward County, Florida Circuit Court.

In the lawsuit, the Plaintiff claims, among other things, that it is the rightful owner of certain patented point-and-click planning software being used by the Company, Orthex and Squadron (specifically, U.S.

On October 16, 2020, the Company, its wholly-owned subsidiary, Orthex, LLC (“Orthex”), the Company’s largest investor, Squadron, and certain other defendants, were named in a lawsuit filed by IMED Surgical, LLC, a New Jersey company (the “Plaintiff”), in Broward County, Florida Circuit Court.

In the lawsuit, the Plaintiff claims, among other things, that it is the rightful owner of certain patented point-and-click planning software being used

by the Company, Orthex and Squadron (specifically, U.S.

10,258,377 (titled “Point and click alignment method for orthopedic surgeons, and surgical and clinical accessories and devices,” issued on April 16, 2019) (hereinafter, the “‘377 Patent ”).

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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.

On February 3, 2023, the Court partially lifted the stay in this case for the sole purpose of, as clarified by the Court's order on March 7, 2023, "permitting any party to argue any motion challenging the events that occurred which led to the arbitration panel's termination order." No filing was made in response to that order.

No further filings were made in this case until October 30, 2023, when defendants filed a motion to dismiss.

On December 12, 2023, the Court ordered the Plaintiff has until March 13, 2024, to appear before the Court and show cause why this case should not be dismissed for failure to pursue arbitration consistent with the Court’s orders.

If Plaintiff has not resumed arbitration by the March 13 hearing, the parties should brief the issue of whether, if the case is dismissed, it should be dismissed with or without prejudice and set the matter for a hearing.

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.

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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.

made in bad faith.

In mid-October 2021, OrthoPediatrics filed its answer to Wishbone’s counterclaims, denying all of them.

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 late January 2023, Wishbone amended its counterclaims to add a breach of contract claim against OrthoPediatrics.

In early February 2023, OrthoPediatrics filed its answer to Wishbone's amended counterclaims, denying all of them.

Additionally, in late March 2023, Wishbone filed a motion for judgment on the pleadings regarding the patent eligibility of the '377 patent.

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.

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.

In December 2023, the Company and Mr.

Deeter reached a settlement of all remaining claims against one another.

Subsequently, the Court dismissed the lawsuit with prejudice concerning all parties.

Boston Brace Litigation

This lawsuit arises from the alleged wrongful death of a patient following his January 2016, tracheal and laryngeal resection procedure at Boston Children’s Hospital, which was performed by two physicians named as defendants in the suit.

The Plaintiffs allege that as a result of the patient’s post-operative care, which included placing his neck in a position of flexion in a modified brace provided by Boston Brace International, Inc.

(“Boston Brace”), the patient was paralyzed, and years later, he died due to complications caused by his paralysis.

The Company acquired all of the outstanding shares of Boston Brace on January 5, 2024 as described more fully under Note 16 – Subsequent Events.

The lawsuit commenced in December 2018, in Suffolk Superior Court in Boston, Massachusetts.

The Plaintiffs assert counts of negligence against each individual defendant, lack of informed consent against the physician defendants, failure to warn, breach of warranty and alleged improper use against Boston Brace, and loss of consortium against all defendants.

Trial is currently scheduled to begin in December 2025.

Although we believe Boston Brace has strong defenses to this lawsuit and we intend to vigorously defend the claims asserted against us, 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.

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.

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As of December 31, 2021 the remaining balance of the commitment was $ 1,900 .

During the year ended December 31, 2022, the Company met the minimum purchase commitment as required for the first twelve months of the agreement.

During the year ended December 31, 2022 and 2023, the Company met the minimum purchase commitment as required for the first twelve months of the agreement.

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

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As such, the Company recorded $ 2,000 , $ 1,104 and $ 512 as a component of cost of revenue for the shortfall which occurred during 2023, 2022 and 2021, respectively.

No expense was recorded for the years ended December 31, 2020.

As of December 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.

Additionally, we have minimum royalty commitments of $ 10 annually through 2026.

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

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 December 31, 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 16 – SUBSEQUENT EVENTS

On January 5, 2024, the Company entered into a stock purchase agreement with Boston Brace International, Inc., a Massachusetts corporation, the shareholders of Boston Brace (collectively, the “Sellers”), and the Sellers’ representative named therein, pursuant to which the Company acquired all of the issued and outstanding shares of capital stock of Boston Brace from the Sellers.

Boston Brace has developed and manufactures pediatric orthotic and prosthetic devices, including non-surgical scoliosis treatment options, and provides related clinical services.

Under the terms of the Purchase Agreement, the Company paid to the Sellers consideration of $ 22 million in cash, subject to customary adjustments related to net working capital, transaction expenses, and funded indebtedness.

Certain employees and executives of Boston Brace also received awards of restricted stock of the Company which will vest in three years .

The Restricted Stock Award Agreements were to approximately 170 individuals for an aggregate of approximately 83,000 shares representing approximately $ 2.5 million (based on a share price of $ 30.12 , which was the average closing price during the four-month period ending on January 4, 2024) and were granted pursuant to the Company’s 2017 Plan.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

In connection with its audits for the two most recent fiscal years ended December 31, 2022, there have been no disagreements with the Company’s independent registered public accounting firm on any matter of accounting principles or practices, financial statement disclosure or audit scope or procedure, nor have there been any changes in accountants.

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 8. Financial Statements and Supplementary Data