What changed in this filing

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Item 1. Financial Statements

2024-05-07 compared with 2023-11-07 · 222 added, 321 removed, 324 unchanged (63% of the section changed)

3 unchanged sentences

(In Thousands, Except Share Data)

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

Current assets:

24 unchanged sentences

Long-term liabilities:

Long-term debt, net of current portion 9,579 9,297

Long-term debt with affiliate, net of current portion 572 611

Acquisition installment payable, net of current portion 3,613 3,551

Contingent consideration — 2,980

Deferred income taxes 5,202 5,483

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50,000,000 shares authorized;

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

23,540,411 shares and 23,378,408 shares issued as of March 31, 2024 and December 31, 2023, respectively

Additional paid-in capital 583,086 580,287

7 unchanged sentences

(In Thousands, Except Share and Per Share Data)

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

2023 2022 2023 2022

Three Months Ended March 31,

Net revenue $ 44,685 $ 31,588

4 unchanged sentences

General and administrative 24,730 17,157

Trademark impairment 985 3,609 985 3,609

Research and development 2,998 2,446

1 unchanged sentence

Operating loss ( 9,723 ) ( 8,591 )

Other (income) expenses:

Interest expense 21 708 105 2,485

Other expense (income):

Interest expense (income), net 637 ( 210 )

Fair value adjustment of contingent consideration — ( 670 )

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

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

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

Other income, net ( 24 ) ( 331 )

Total other expense (income), net 613 ( 1,211 )

Loss before income taxes $ ( 10,336 ) $ ( 7,380 )

Provision for income taxes (benefit) ( 2,531 ) ( 574 )

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

Net loss $ ( 7,805 ) $ ( 6,806 )

Weighted average shares outstanding

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

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

Net (loss) income per share

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

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

Basic and diluted 22,820,779 22,506,024

Net loss per share

Basic and diluted $ ( 0.34 ) $ ( 0.30 )

See notes to condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In Thousands)

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

2023 2022 2023 2022

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

Other comprehensive income (loss):

(Unaudited) (In Thousands)

Three Months Ended March 31,

Net loss $ ( 7,805 ) $ ( 6,806 )

Other comprehensive loss:

Foreign currency translation adjustment ( 1,426 ) ( 962 )

2 unchanged sentences

Other comprehensive loss, net of tax ( 1,435 ) ( 646 )

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

Comprehensive loss $ ( 9,240 ) $ ( 7,452 )

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands, Except Share Data)

Three and Nine Months Ended September 30, 2023

Three Months Ended March 31, 2024

Additional Other Total

6 unchanged sentences

Balance at March 31, 2024 23,540,411 $ 6 $ 583,086 $ ( 205,547 ) $ ( 6,961 ) $ 370,584

Net loss — — — ( 2,886 ) — ( 2,886 )

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

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

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

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

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

Net loss — — — ( 4,591 ) — ( 4,591 )

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

Stock option exercise 670 — 21 — — 21

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

Consideration for Rhino 11,133 — 478 — — 478

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

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands, Except Share Data)

Three and Nine Months Ended September 30, 2022

Three Months Ended March 31, 2023

Additional Other Total

Common Stock Paid-in Accumulated Comprehensive Stockholders'

Shares Value Capital Deficit Income (Loss) Equity

Shares Value Capital Deficit Loss Equity

Balance at January 1, 2023 22,877,962 $ 6 $ 560,810 $ ( 176,768 ) $ ( 5,400 ) $ 378,648

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

Net loss — — — ( 333 ) — ( 333 )

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

Stock option exercise 1,340 — 42 — — 42

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

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

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

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

Net income — — — 18,539 — 18,539

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

Stock option exercise 670 — 21 — — 21

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

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

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

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

See notes to condensed consolidated financial statements.

2 unchanged sentences

(In Thousands)

Nine Months Ended

September 30,

Three Months Ended

OPERATING ACTIVITIES

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

Net loss $ ( 7,805 ) $ ( 6,806 )

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

Trademark impairment 985 3,609

Depreciation and amortization 5,028 3,848

5 unchanged sentences

Accounts receivable - trade 1,155 ( 2,002 )

Inventories ( 22,198 ) ( 14,812 )

Inventories, net ( 6,631 ) ( 5,979 )

Prepaid expenses and other current assets ( 953 ) ( 33 )

4 unchanged sentences

INVESTING ACTIVITIES

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

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

Acquisition of Rhino ( 546 ) —

Acquisition of MedTech ( 3,097 ) —

Acquisition of Boston O&P, net of cash acquired ( 20,693 ) —

Sale of short-term marketable securities 23,474 37,250

Purchase of short-term marketable securities ( 48,600 ) ( 85,029 )

Purchases of property and equipment ( 6,460 ) ( 4,940 )

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

Net cash (used in) provided by investing activities ( 3,679 ) 32,310

FINANCING ACTIVITIES

Proceeds from issuance of debt with affiliate — 31,000

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

Payments on debt with affiliate — ( 31,000 )

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

Proceeds from exercise of stock options 21 63

Payments on acquisition note ( 538 ) —

Payments on mortgage notes ( 35 ) ( 36 )

Net cash (used in) provided by financing activities ( 2,086 ) 136,009

Net cash used in financing activities ( 573 ) ( 36 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,479 ( 138 )

NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 1,770 27,866

NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH ( 9,463 ) 25,675

Cash, cash equivalents and restricted cash, beginning of year $ 33,027 $ 10,462

3 unchanged sentences

Transfer of instruments between property and equipment and inventory $ 117 $ 332

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

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

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

Issuance of common shares to acquire Rhino $ 478 $ —

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

See notes to condensed 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 Duo ® , Pediatric Nailing Platform | Femur, Devise Rail, Orthex ® , The Fassier-Duval Telescopic Intramedullary System ® , ApiFix ® Mid-C System and Mitchell Ponseti ® specialized bracing products to various hospitals and medical facilities throughout the United States and various international markets.

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

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.

We sell our specialized products, including PediLoc ® , PediPlates ® , Cannulated Screws, PediFlex TM nail, PediNail TM , PediLoc ® Tibia, ACL Reconstruction System, Locking Cannulated Blade, Locking Proximal Femur, Spica Tables, RESPONSE TM Spine, BandLoc Duo ® , Pediatric Nailing Platform | Femur, Devise Rail, Orthex ® , The Fassier-Duval Telescopic Intramedullary System ® , SLIM TM Nail, The GAP Nail TM , The Free Gliding SCFE Screw System TM , GIRO ® 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.

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

The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the annual consolidated financial statements as of and for the year ended December 31, 2022 and related notes thereto contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 1, 2023.

The accompanying condensed consolidated financial statements are unaudited and should be read in conjunction with the annual consolidated financial statements as of and for the year ended December 31, 2023 and related notes thereto contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") o n March 8, 2024.

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

1 unchanged sentence

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2023 and, in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the financial statements for the interim periods.

The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the full fiscal year or for any other period.

The results of

operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full fiscal year or for any other period.

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

We have experienced recurring losses from operations since our inception and had an accumulated deficit of $ 191,051 and $ 176,768 as of September 30, 2023 and December 31, 2022, respectively.

We have experienced recurring losses from operations since our inception and had an accumulated deficit of $ 205,547 and $ 197,742 as of March 31, 2024 and December 31, 2023, respectively.

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

We believe that our cash balance, including short-term investments, at September 30, 2023 and expected cash flows from operations for the next twelve months subsequent to the issuance of the accompanying condensed consolidated financial statements, are sufficient to enable us to maintain current and essential planned operations for more than the next twelve months.

We believe that our cash balance, including short-term investments, at March 31, 2024 and expected cash flows from operations for the next twelve months subsequent to the issuance of the accompanying condensed consolidated financial statements, are sufficient to enable us to maintain current and essential planned operations for more than the next twelve months.

Use of Estimates

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Significant Accounting Policies

There have been no changes in the Company's significant accounting polices as disclosed in Note 2 to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K, except as disclosed below.

There have been no changes in the Company's significant accounting polices as disclosed in Note 2 to the audited consolidated financial statements included in the 2023 Annual Report on Form 10-K.

Reclassification

In the condensed consolidated financial statements, the Company has reclassified stock-based compensation to conform to the current period presentation.

All stock-based compensation was previously recorded within general and administrative expenses, and such costs have now been allocated between general and administrative expenses, research and development expenses and sales and marketing expenses.

The current presentation results in stock-based compensation expense being recorded in the same manner in which the award recipient's payroll costs are classified.

This reclassification did not affect previously reported total operating expenses, loss before income taxes, or net loss in the condensed consolidated statements of operations.

The following tables present the impact of the reclassification on our condensed consolidated statements of operations:

Three Months Ended March 31, 2023

Sales and marketing (prior presentation) $ 12,216

Reclassification 333

Sales and marketing (new presentation) $ 12,549

Three Months Ended March 31, 2023

General and administrative (prior presentation) $ 17,666

Reclassification ( 509 )

General and administrative (new presentation) $ 17,157

Three Months Ended March 31, 2023

Research and development (prior presentation) $ 2,270

Reclassification 176

Research and development (new presentation) $ 2,446

Financial Instruments and Concentration of Credit Risk

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Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13 " Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ".

The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.

The ASU requires the measurement of all expected credit losses for financials assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

This applies to the Company when trade receivables are recorded.

At that point in time, they become subject to the new credit loss model and estimates of expected credit losses on trade receivables over their contractual life will be required to be recorded at inception.

Additionally, to the extent that any of the securities investments classified as available-for-sale are in an unrealized loss position, the Company will also be required record an estimate, if any, of those losses driven by credit losses.

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

The adoption is on a prospective basis and did not have a material impact to the result of operations.

In October 2023, the FASB issued ASU No.

2021-08 "Business Combinations (Topic 805)-Accounting for Contract Assets and Contract Liabilities from Contracts with Customers".

The amendments in this ASU address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination.

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

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

For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

The amendments in this ASU should be applied prospectively to business combinations occurring on or after the effective date of the amendments.

Early adoption of the amendments is permitted, including adoption in an interim period.

An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application.

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

In October 2023, the FASB issued ASU No.

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

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The update is specific to disclosures and, therefore, is not expected to have a material impact to the condensed 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 2024 for annual periods and in the first quarter of fiscal 2025 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

Boston Brace International, Inc.

On January 5, 2024, the Company purchased all of the issued and outstanding share capital of Boston Brace International, Inc., a Massachusetts corporation ("Boston O&P").

Boston O&P 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 stock purchase agreement, the Company paid to the shareholders of Boston O&P consideration of $ 22,000 in cash, subject to customary adjustments related to net working capital, transaction expenses, and funded indebtedness.

Additionally, certain employees and executives of Boston O&P also received awards of restricted stock of the Company which will vest in three years subject to continuous service.

The Restricted Stock Award Agreements were to approximately 170 individuals for an aggregate of approximately 83,000 shares representing approximately $ 2,500 (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.

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

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

Fair value of estimated total acquisition consideration $ 22,000

Accounts receivable - trade 2,876

Inventories 1,093

Prepaid expenses and other current assets 378

Property and equipment 4,360

Amortizable intangible assets 3,720

Other intangible assets 3,650

Other non-current assets 2,208

Total assets 19,592

Accounts payable-trade 581

Other current liabilities 2,063

Long-term debt 724

Deferred tax liability 2,268

Other non-current liabilities 1,003

Total liabilities 6,639

total net assets 12,953

Goodwill $ 9,047

The fair value of identifiable intangible assets and certain long-lived 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 $ 3,650 Indefinite

Customer Relationships & Other 3,720 12 years

The following table represents the pro forma net revenue and net loss assuming the acquisition of Boston O&P occurred on January 1, 2023.

Three Months Ended March 31,

Net revenue $ 45,116 $ 38,435

Net loss $ ( 7,786 ) $ ( 6,690 )

Rhino Pediatric Orthopedic Designs, Inc.

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

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

No revenue was recorded from this platform in 2023, and the Company does not anticipate material revenue contributions from the platform in 2024.

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

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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.

The result is $ 4,500 of stock compensation which is being 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.

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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 .

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 is being 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.

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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 $ 32,042 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 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 September 30, 2023, 23,266 of these shares were still subject to the repurchase feature.

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

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

The following table summarizes the total consideration paid for Pega Medical and the 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

Accounts receivable - trade 2,100

Inventories 4,875

Prepaid expenses and other current assets 509

Property and equipment 600

Amortizable intangible assets 12,286

Other intangible assets 3,878

Total assets 24,560

Accounts payable-trade 1,682

Other current liabilities 1,393

Deferred tax liability 4,035

Total liabilities 7,110

total net assets 17,450

Goodwill $ 14,592

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:

Amount Remaining Economic Useful Life

Trademarks / Names $ 3,878 Indefinite

Patents 3,545 10 years

Customer Relationships & Other 8,741 15 years

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

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

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

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

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

Goodwill declined as a net result of these adjustments.

MD Orthopaedics

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

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

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

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

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

Accounts receivable - trade 1,062

Inventories 1,126

Prepaid expenses and other current assets 100

Property and equipment 2,444

Amortizable intangible assets 9,120

Other intangible assets 2,410

Total assets 16,682

Accounts payable and accrued liabilities 45

Other current liabilities 586

Deferred tax liability 3,014

Total liabilities 3,645

total net assets 13,037

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:

Amount Remaining Economic Useful Life

Trademarks / Names $ 2,410 Indefinite

Patents 2,660 10 years

Customer Relationships 6,460 15 years

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

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

2023 2022 2023 2022

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

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

NOTE 4 - GOODWILL AND INTANGIBLE ASSETS

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

Changes in the carrying amount of goodwill for the three months ended March 31, 2024 were as follows:

Goodwill at January 1, 2024 $ 83,699

Pega Medical measurement period adjustment ( 1,936 )

Boston O&P acquisition 9,047

Foreign currency translation impact ( 1,265 )

Goodwill at September 30, 2023

Goodwill at March 31, 2024

Intangible Assets

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

As of March 31, 2024, the balances of amortizable intangible assets were as follows:

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

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

Trademarks are non-amortizing intangible assets which were $ 15,008 and $ 14,921 as of September 30, 2023 and December 31, 2022, respectively.

Trademarks are non-amortizing intangible assets which were $ 18,792 and $ 15,287 as of March 31, 2024 and December 31, 2023, respectively.

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

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

The change in balance during the three months ended March 31, 2024 was driven by foreign currency translation adjustments and the Boston O&P acquisition.

During 2023, 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.

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

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

We recorded a $ 3,609 partial impairment charge during the three and nine months ended September 30, 2022 to reduce the carrying amount of the intangible asset to its estimated fair value.

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

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

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

We recorded an impairment charge of $ 985 for the year ended December 31, 2023 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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Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, and are based on the best information available, including our own data.

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

September 30, 2023

The following tables summarize the assets and liabilities measured at fair value on a recurring basis as of March 31, 2024 and December 31, 2023.

March 31, 2024

Level 1 Level 2 Level 3 Total

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Certificates of Deposit $ — $ 26,141 $ — $ 26,141

Exchange Trade Mutual Funds $ 35,991 $ — $ — $ 35,991

Treasury Bonds $ 10,261 $ — $ — $ 10,261

Other $ 1 $ — $ — $ 1

Financial Liabilities

Contingent Consideration $ — $ — $ 6 $ 6

December 31, 2023

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Other $ 207 $ — $ — $ 207

Financial Liabilities

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

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.

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The significant inputs of such models are not always observable in the market, such as forecasted annual revenues, expected volatility and discount rates.

The adjustments in the fair value of the contingent consideration payments included an income adjustment of $ 0 and $ 23,010 for the three months ended September 30, 2023 and September 30, 2022, respectively, and $ 2,974 and $ 25,450 for the nine months ended September 30, 2023 and September 30, 2022, respectively, which are recorded in other (income) expenses on the condensed consolidated statements of operations.

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

Balance at January 1, 2023

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

Balance at September 30, 2023

The recurring Level 3 fair value measurements of contingent consideration liabilities associated with commercial sales milestones include the following significant unobservable inputs as of September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

Valuation techniques Discounted cash flow, Monte Carlo

Present value discount rate (1)

15.5 % 16.6 %

Volatility factor 38.1 % 48.0 %

Expected years 0.6 years 1.4 years

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

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

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

The contingent consideration was zero as of both March 31, 2024 and December 31, 2023.

NOTE 6 - DEBT AND CREDIT ARRANGEMENTS

Long-term debt consisted of the following:

September 30, 2023 December 31, 2022

Long-term debt consisted of the following as of the dates indicated:

March 31, 2024 December 31, 2023

Term loan and final payment $ 10,300 $ 10,300

Mortgage payable to affiliate 726 763

Acquisition note payable 261 —

Total debt 11,287 11,063

debt discount and issuance costs 982 1,003

current maturities 154 152

Long-term debt with affiliate, net of current maturities $ 650 $ 763

The Company is party to a Fourth Amended and Restated Loan and Security Agreement with Squadron Capital LLC (“Squadron”), as amended from time to time (as amended, the “Loan Agreement”), which provides the Company with a $ 50,000 revolving credit facility.

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

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

Long-term debt, net of current maturities $ 10,151 $ 9,908

On December 29, 2023, the Company entered into an $ 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 the 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 Credit Agreement was amended on May 3, 2024 to clarify the inputs into the financial covenant calculations.

No other changes were made to the Credit Agreement.

The Company was in compliance with all covenants under the Credit Agreement, as amended, as of March 31, 2024 and December 31, 2023.

The debt facilities available under the Credit Agreement replace the Fourth Amended and Restated Loan and Security Agreement with Squadron Capital, LLC ("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, 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.

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.

("Tawani"), an affiliate of Squadron.

Pursuant to the terms of the mortgage note, we pay Tawani monthly principal and interest installments of $ 16 with interest compounded at 5 % until maturity in 2028, at which time a final payment of remaining principal and interest is due.

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

At September 30, 2023, the mortgage balance was $ 800 of which current principal of $ 150 was included in the current portion of long-term debt.

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 in Tennessee, Inc.

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.

Pursuant to the terms of the mortgage note, we pay Tawani Enterprises Inc.

monthly principal and interest installments of $ 16 with interest compounded at 5 % until maturity in 2028, at which time a final payment of remaining principal and interest is due.

At March 31, 2024, the mortgage balance was $ 726 of which current principal of $ 154 was included in the current portion of long-term debt.

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

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

The aggregate interest expense relating to the notes payable to Squadron, the mortgage note payable to Tawani Enterprises Inc.

and the term loan with MidCap was $ 339 and $ 11 for the three months ended March 31, 2024 and 2023, respectively.

NOTE 7 - INCOME TAXES

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

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

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

The deferred tax assets were fully offset by a valuation allowance at September 30, 2023 and December 31, 2022, with the exception of certain deferred tax liabilities recognized in a foreign jurisdiction as a result of fair value adjustments recorded upon the acquisition of ApiFix and Pega Medical.

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

For the three months ended March 31, 2024, the income tax benefit was $ 2,531 compared to $ 574 for the three months ended March 31, 2023.

Our effective income tax rate was ( 24.5 )% and ( 7.8 )% for the three months ended March 31, 2024 and 2023, respectively.

The higher effective rate compared to the prior period is from the remeasurement of the valuation allowance subsequent to recording the deferred tax liability as a result of the purchase accounting from the Boston O&P acquisition.

The deferred tax assets were fully offset by a valuation allowance at March 31, 2024 and December 31, 2023, 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, Ltd.

("ApiFix") and Pega Medical.

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

The Company has recorded a tax benefit during the period ended March 31, 2024 for losses generated in Canada and Israel, respectively.

NOTE 8 - STOCKHOLDERS’ EQUITY

Stock Options

The fair value for options granted at the time of issuance were estimated at the date of grant using a Black-Scholes options pricing model.

Significant assumptions included in the option value model include the fair value of our common stock at the grant date, weighted average volatility, risk-free interest rate, dividend yield and the forfeiture rate.

There were no stock options granted in any of the periods presented.

Our stock option activity and related information are summarized as follows:

Weighted-Average Remaining Contractual Terms

Options Exercise Price (in Years)

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

Exercised ( 670 ) 30.97

Forfeited or expired ( 2,886 ) —

Outstanding at September 30, 2023

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

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

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

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

Restricted Stock

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Vested ( 82,659 ) —

Outstanding at September 30, 2023

Outstanding at March 31, 2024

671,797 1.9 21,651 1.9

At September 30, 2023, there was $ 15,857 of unrecognized compensation expense remaining related to our service-based restricted stock awards and restricted stock units.

At March 31, 2024, there was $ 16,757 of unrecognized compensation expense remaining related to our service-based restricted stock awards and restricted stock units.

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

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

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

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

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

Stock-based compensation expense on restricted stock amounted to $ 2,799 and $ 1,959 for the three months ended March 31, 2024 and 2023, respectively.

NOTE 9 – NET LOSS PER SHARE

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

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 2023 2022

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

Earnings allocated to participating securities — 353 — 174

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

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

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

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

(Loss) earnings per share:

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

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

Three Months Ended

Net loss $ ( 7,805 ) $ ( 6,806 )

Weighted average shares outstanding for basic and diluted 22,820,779 22,506,024

Net loss per share - basic and diluted $ ( 0.34 ) $ ( 0.30 )

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

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

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

For purposes of our equity disclosures and calculation of weighted average shares for basic earnings per share calculations, the two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses.

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

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

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

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

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

See Note 3 for additional information regarding our commitment to issue future equity under the MedTech acquisition.

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

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

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

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

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

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

No individual customer accounted for more than 10% of total product sales for the three months ended March 31, 2024 or 2023.

No individual customer accounted for more than 10% of consolidated accounts receivable as of March 31, 2024 and December 31, 2023.

Product sales by source were as follows:

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

Three Months Ended March 31,

Product sales by geographic location:

$ 34,305 $ 23,800

$ 29,360 $ 26,539 $ 82,748 $ 69,687

International 10,380 7,788

Total $ 44,685 $ 31,588

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

Three Months Ended March 31,

Product sales by category:

2023 2022 2023 2022

Trauma and deformity $ 33,302 $ 23,395

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NOTE 11 - RELATED PARTY TRANSACTIONS

In addition to the debt and credit agreements and mortgage with Squadron and its affiliate (see Note 6), 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 (the Company's largest investor) and its affiliate (see Note 6), 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.

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

We made aggregate payments to Structure Medical for inventory purchases of $ 382 and $ 246 for the three months ended March 31, 2024 and 2023, respectively .

NOTE 12 - EMPLOYEE BENEFIT PLAN

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NOTE 13 – COMMITMENTS AND CONTINGENCIES

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

As of March 31, 2024, the Company has recorded a lease liability of $ 2,235 and corresponding right-of-use asset of $ 2,529 on its condensed consolidated balance sheet .

We assumed $ 1,749 of operating right-of-use assets and $ 1,582 of total lease liabilities in connection with our acquisition of Boston O&P.

Legal Proceedings

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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 ("IMED"), in Broward County, Florida Circuit Court.

In the lawsuit, IMED 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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As part of the sale, the Company also executed an exclusive license arrangement with Squadron providing for perpetual access to certain intellectual property, including the ‘377 Patent.

According to the lawsuit, the other defendants, who are unrelated to the Company, assigned the ‘377 Patent to Orthex in violation of certain agreements with the Plaintiff.

The Plaintiff, among other things, requests that the defendants be ordered to convey and assign to Plaintiff all of their rights, title and interests in and to the ’377 Patent and seeks certain compensatory, consequential and unjust enrichment damages from Orthex and the unrelated defendants.

According to the lawsuit, the other defendants, who are unrelated to the Company, assigned the ‘377 Patent to Orthex in violation of certain agreements with IMED.

IMED, among other things, requests that the defendants be ordered to convey and assign to IMED all of their rights, title and interests in and to the ’377 Patent and seeks certain compensatory, consequential and unjust enrichment damages from Orthex and the unrelated defendants.

On May 13, 2021, the Court ordered the lawsuit stayed pending arbitration.

To the extent the Plaintiff desires to further pursue the matter, it must first do so through a separate arbitration proceeding.

In mid-November 2021, the Plaintiff initiated an arbitration proceeding;

however, the Plaintiff failed to pay the fees it was required to pay for the arbitration to continue, resulting in the arbitration panel terminating the arbitration proceedings in mid-October 2022.

In connection with the stay order, the Court also ordered the Company, Orthex and Squadron to give notice to the Plaintiff before any attempt to dispose, assign, sell or otherwise encumber the ‘377 Patent.

To the extent IMED desires to further pursue the matter, it must first do so through a separate arbitration proceeding.

In mid-November 2021, IMED initiated an arbitration proceeding;

however, IMED failed to pay the fees it was required to pay for the arbitration to continue, resulting in the arbitration panel terminating the arbitration proceedings in mid-October 2022.

In connection with the stay order, the Court also ordered the Company, Orthex and Squadron to give notice to IMED before any attempt to dispose, assign, sell or otherwise encumber the ‘377 Patent.

The Company, Orthex and Squadron filed an appeal of this component of the order, but the appellate court affirmed the lower court’s decision.

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

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 IMED 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.

On March 13, 2024, a hearing took place to discuss the status of IMED’s effort to re-initiate arbitration.

Thereafter, on March 25, 2024, the court ordered, if, by April 27, 2024, IMED has not begun arbitration, resolved this case, or substantiated (in the form of an attorney and client declaration) that it has executed an agreement with a litigation funder to pay for arbitration proceedings, to pay the balance due to the subject arbitration association and to re-instate the arbitration, the Court will dismiss this case without prejudice.

On April 26, 2024, IMED informed the Court it has executed an agreement with a litigation funder to pay for arbitration proceedings, to pay the balance due to the subject arbitration association, and to reinstate the arbitration, and is in the final stages of resolving the balance due to the subject arbitration association.

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.

– Patent Infringement Litigation

On October 30, 2020, OrthoPediatrics, along with its wholly-owned subsidiary, Orthex, LLC, filed a lawsuit in federal district court (N.D.

Indiana, South Bend Division, Case No.

3:20-cv-00929) against Wishbone Medical, Inc.

Deeter (collectively “Wishbone”), claiming infringement of ’377 Patent, unfair competition, false advertising, breach of contract, defamation per se, tortious interference with contractual relationships, and tortious interference with prospective contractual relationships.

In early January 2021, OrthoPediatrics amended its lawsuit by adding a declaratory judgment claim of infringement of the ‘377 Patent against Wishbone.

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

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

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

In late 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.

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

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.

However, OrthoPediatrics’ breach of contract claim against Mr.

Deeter and Mr.

Deeter’s breach of contract counterclaim remain.

Although we believe the Company has strong defenses to Mr.

Deeter’s counterclaims and we intend to vigorously defend the claims asserted against us, litigation can involve complex factual and legal questions, and an adverse resolution of this proceeding could have an adverse effect on our business, operating results and financial condition.

Boston O&P 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 O&P, 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 O&P on January 5, 2024 as described more fully under Note 3 - Business Combinations and Asset Acquisitions.

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 O&P, and loss of consortium against all defendants.

Trial is currently scheduled to begin in December 2025.

Although we believe Boston O&P 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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Additionally, the contract requires future purchase commitments based upon a percentage of historical purchases.

As a result and as of September 30, 2023, the remaining purchase commitment under the agreement was $ 1,345 for the year ended December 31, 2023 and $ 2,340 for the year ended December 31, 2024.

As a result and as of March 31, 2024, the remaining purchase commitment under the agreement was $ 1,820 for the year ended December 31, 2024 and $ 1,456 for the year ended December 31, 2025.

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

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

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

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

As of September 30, 2023, we are contracted to pay royalties to individuals and entities that provide research and development services, which range from 0.5 % to 20 % of sales.

During the three months ended March 31, 2024, the Company recorded an expense of $ 542 based on current estimates.

The Company recorded $ 300 of expense for the three months ended March 31, 2023.

As of March 31, 2024, we are contracted to pay royalties to individuals and entities that provide research and development services, which range from 0.5 % to 20 % of sales.

We have products in development that have royalty commitments.

In any development project, there are significant variables that will affect the amount and timing of these payments and as of September 30, 2023, we have not been able to determine the amount and timing of payments.

In any development project, there are significant variables that will affect the amount and timing of these payments and as of March 31, 2024, we have not been able to determine the amount and timing of payments.

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

NOTE 14 – SUBSEQUENT EVENT

ApiFix Acquisition Installment Payment

On April 1, 2024, the fourth-year anniversary of the acquisition of ApiFix, the Company paid $ 2,250 in cash and issued 245,812 shares of the Company's common stock, representing $ 6,929 of fair value (based on the April 1, 2024 closing share price of $ 28.19 ), to fulfill its installment obligation to ApiFix.

This was the third and final installment payment paid since the acquisition.

MedTech Anniversary Payment

On May 1, 2024, the first-year anniversary of the acquisition of MedTech, the Company paid $ 1,250 in cash and issued 42,882 shares of the Company's common stock, representing $1,331 of fair value (based on the May 1, 2024 closing share price of $ 31.04 ), to fulfill its installment obligation to MedTech.

This was the first installment payment paid since the acquisition.

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

What changed 10-Q

Item 1. Financial Statements