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What changed in ORTHOPEDIATRICS CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ORTHOPEDIATRICS CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+390 added−371 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-01)

Top changes in ORTHOPEDIATRICS CORP's 2023 10-K

390 paragraphs added · 371 removed · 317 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

131 edited+16 added−9 removed176 unchanged
Biggest changeResearch and Product Development We seek to leverage our considerable experience in pediatric orthopedics to develop innovative implants and instruments that serve the unmet needs of pediatric orthopedic surgeons and their patients. Some of our product designs leverage our exclusive rights to the Hamann-Todd Collection of the Cleveland Natural History Museum, the world’s largest pediatric osteological collection.
Biggest changeSome of our product designs leverage our exclusive rights to the Hamann-Todd Collection of the Cleveland Natural History Museum, the world’s largest pediatric osteological collection. We have made significant investments in product development personnel and infrastructure, and we believe that ongoing research and development efforts are essential to our success.
The requirements include that personal data may only be collected for specified, explicit and legitimate purposes based on a legal grounds set out in the local laws, and may only be processed in a manner consistent with those purposes.
The requirements include that personal data may only be collected for specified, explicit and legitimate purposes based on legal grounds set out in the local laws, and may only be processed in a manner consistent with those purposes.
The government may assert that claim includes items or services resulting from a violation of the federal Anti-Kickback Statute and constitutes a false or fraudulent claim for purposes of the false claims statute; 23 • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • complying with the new federal law and regulations requiring Unique Device Identifiers (UDI) on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database (GUDID); • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
The government may assert that claim includes items or services resulting from a violation of the federal Anti-Kickback Statute and constitutes a false or fraudulent claim for purposes of the false claims statute; • clearance or approval of product modifications to 510(k)-cleared devices that could significantly affect safety or effectiveness or that would constitute a major change in intended use of one of our cleared devices; • medical device reporting regulations, which require that a manufacturer report to the FDA if a device it markets may have caused or contributed to a death or serious injury, or has malfunctioned and the device or a similar device that it markets would be likely to cause or contribute to a death or serious injury, if the malfunction were to recur; • correction, removal and recall reporting regulations, which require that manufacturers report to the FDA field corrections and product recalls or removals if undertaken to reduce a risk to health posed by the device or to remedy a violation of the FDCA that may present a risk to health; • complying with the new federal law and regulations requiring Unique Device Identifiers (UDI) on devices and also requiring the submission of certain information about each device to the FDA’s Global Unique Device Identification Database (GUDID); • the FDA’s recall authority, whereby the agency can order device manufacturers to recall from the market a product that is in violation of governing laws and regulations; and • post-market surveillance activities and regulations, which apply when deemed by the FDA to be necessary to protect the public health or to provide additional safety and effectiveness data for the device.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; • labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced and provide adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; • the federal Open Payments ("Sunshine") program and various state and foreign laws on reporting remunerative relationships with healthcare providers (HCPs); • the federal Anti-Kickback Statute (and similar state laws) prohibiting, among other things, soliciting, receiving, offering or providing remuneration intended to induce the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as Medicare or Medicaid; • the federal False Claims Act (and similar state laws) prohibiting, among other things, knowingly presenting, or causing to be presented, claims for payment or approval to the federal government that are false or fraudulent, knowingly making a false statement material to an obligation to pay or transmit money or property to the federal government or knowingly concealing, or knowingly and improperly avoiding or decreasing, an obligation to pay or transmit money to the federal government.
These include: • establishment registration and device listing with the FDA; • QSR requirements, which require manufacturers, including third-party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the design and manufacturing process; 22 • labeling and marketing regulations, which require that promotion is truthful, not misleading, fairly balanced and provide adequate directions for use and that all claims are substantiated, and also prohibit the promotion of products for unapproved or “off-label” uses and impose other restrictions on labeling; • the federal Open Payments ("Sunshine") program and various state and foreign laws on reporting remunerative relationships with healthcare providers (HCPs); • the federal Anti-Kickback Statute (and similar state laws) prohibiting, among other things, soliciting, receiving, offering or providing remuneration intended to induce the purchase or recommendation of an item or service reimbursable under a federal healthcare program, such as Medicare or Medicaid; • the federal False Claims Act (and similar state laws) prohibiting, among other things, knowingly presenting, or causing to be presented, claims for payment or approval to the federal government that are false or fraudulent, knowingly making a false statement material to an obligation to pay or transmit money or property to the federal government or knowingly concealing, or knowingly and improperly avoiding or decreasing, an obligation to pay or transmit money to the federal government.
The MDR includes further controls and requirements on the following activities: • high level of request for premarket clinical evidence for high risk devices; • increased scrutiny of technical files for implantable devices; • monitoring of notified bodies, by independent auditors; • increased requirements regarding vigilance and product traceability (specifically related to labeling requirements); 25 • increased regulation for non-traditional roles such as importer and distributor; and • Post-Market Clinical Follow-up that requires significantly greater clinical data specific to our devices, which leads to greater costs for collecting such data than under the MDD.
The MDR includes further controls and requirements on the following activities: • high level of request for premarket clinical evidence for high risk devices; • increased scrutiny of technical files for implantable devices; • monitoring of notified bodies, by independent auditors; • increased requirements regarding vigilance and product traceability (specifically related to labeling requirements); • increased regulation for non-traditional roles such as importer and distributor; and • Post-Market Clinical Follow-up that requires significantly greater clinical data specific to our devices, which leads to greater costs for collecting such data than under the MDD.
The Affordable Care Act imposed, among other things, a new federal excise tax on the sale of certain medical devices (which was permanently repealed December 20, 2019), provided incentives to programs that increase the federal government’s comparative effectiveness research, and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and 29 other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models.
The Affordable Care Act imposed, among other things, a new federal excise tax on the sale of certain medical devices (which was permanently repealed December 20, 2019), provided incentives to programs that increase the federal government’s comparative effectiveness research, and implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain healthcare services through bundled payment models.
Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the Quality System Regulation (QSR), facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials.
Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the Quality System Regulation (QSR), facility registration and product 21 listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials.
Our internal quality management group conducts comprehensive on-site inspection audits of our suppliers to ensure they meet FDA and other country-specific requirements, as necessary. In addition, we and our suppliers are subject to periodic unannounced inspections by U.S. and international regulatory authorities to ensure compliance with quality regulations. We maintain certain long-term contracts with our key suppliers.
Our internal quality management group conducts comprehensive on-site inspection audits of our suppliers to ensure they meet FDA and other country-specific requirements, as necessary. In addition, we and our 19 suppliers are subject to periodic unannounced inspections by U.S. and international regulatory authorities to ensure compliance with quality regulations. We maintain certain long-term contracts with our key suppliers.
Based on our experience to date, third-party payors generally reimburse for the surgical procedures in which our products are used only if the patient meets the established medical necessity criteria for surgery. Some payors 30 are moving toward a managed care system and control their healthcare costs by limiting authorizations for surgical procedures, including elective procedures using our devices.
Based on our experience to date, third-party payors generally reimburse for the surgical procedures in which our products are used only if the patient meets the established medical necessity criteria for surgery. Some payors are moving toward a managed care system and control their healthcare costs by limiting authorizations for surgical procedures, including elective procedures using our devices.
Due to the high concentration of pediatric orthopedic surgeons in comparatively few hospitals, we believe we can accelerate the penetration of our addressable market efficiently while supporting our customers with the only global sales and distribution channel focused exclusively on pediatric orthopedics. 16 • Expand addressable market through aggressive investment in research and development, and select acquisition opportunities.
Due to the high concentration of pediatric orthopedic surgeons in comparatively few hospitals, we believe we can accelerate the penetration of our addressable market efficiently while supporting our customers with the only global sales and distribution channel focused exclusively on pediatric orthopedics. • Expand addressable market through aggressive investment in research and development and select acquisition opportunities.
In addition to our direct product offering, we also invest in complementary enabling technologies that allow us to better serve the children's hospitals in which we sell. Enabling technologies in our scoliosis space include the FIREFLY ® Technology, a 3D printed and patient-specific Pedicle Screw Navigation Guide as well as the 7D FLASH TM Navigation image guidance system.
In addition to our direct product offering, we invest in complementary enabling technologies that allow us to better serve the children's hospitals in which we sell. Enabling technologies in our scoliosis space include the FIREFLY ® Technology, a 3D printed and patient-specific Pedicle Screw Navigation Guide as well as the 7D FLASH TM Navigation image guidance system.
Both regulators and ethics committees also require the submission of serious adverse event reports during a study and may request a copy of the final study report. The Medical Devices Regulation ("MDR") entered into force in May 2017 and, due to the COVID-19 pandemic, was postponed from its original application date of May 2020 to May 2021.
Both regulators and ethics committees also require the submission of serious adverse event reports during a study and may request a copy of the final study report. 24 The Medical Devices Regulation ("MDR") entered into force in May 2017 and, due to the COVID-19 pandemic, was postponed from its original application date of May 2020 to May 2021.
More and more, local, product specific reimbursement law is applied as an overlay to medical device regulation, which has provided an additional layer of clearance requirement. Specifically, Australia now requires clinical 31 data for clearance and reimbursement be in the form of prospective, multi-center studies, a high bar not previously applied.
More and more, local, product specific reimbursement law is applied as an overlay to medical device regulation, which has provided an additional layer of clearance requirement. Specifically, Australia now requires clinical data for clearance and reimbursement be in the form of prospective, multi-center studies, a high bar not previously applied.
In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement levels. Third-party payors regularly update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes routine updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used.
In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement levels. Third-party payors regularly update reimbursement amounts and from time to time revise the methodologies used to determine reimbursement amounts. This includes routine updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used.
Regulation of Medical Devices in Other Foreign Countries We are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of: • design, development, manufacturing and testing; • product standards; • product safety; • product safety reporting; • marketing, sales and distribution; • packaging and storage requirements; • labeling requirements; • content and language of instructions for use; • clinical trials; • record keeping procedures; • advertising and promotion; • recalls and field corrective actions; • post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; • import and export restrictions; • tariff regulations, duties and tax requirements; 26 • registration for reimbursement; and • necessity of testing performed in country by distributors for licensees.
Regulation of Medical Devices in Other Foreign Countries We are subject to regulations and product registration requirements in many foreign countries in which we may sell our products, including in the areas of: • design, development, manufacturing and testing; • product standards; • product safety; • product safety reporting; 25 • marketing, sales and distribution; • packaging and storage requirements; • labeling requirements; • content and language of instructions for use; • clinical trials; • record keeping procedures; • advertising and promotion; • recalls and field corrective actions; • post-market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; • import and export restrictions; • tariff regulations, duties and tax requirements; • registration for reimbursement; and • necessity of testing performed in country by distributors for licensees.
The Regulation implements significant changes to the EU data protection regime. Unlike the E-Privacy and Data Protection Directives, the Regulation has direct effect in each EU Member State, without the need for further enactment. The Regulation strengthened individuals’ rights and imposed stricter requirements on companies processing personal data, and increases financial penalties for non-compliance.
The Regulation implements significant changes to the EU data protection regime. Unlike the E-Privacy and Data Protection Directives, the Regulation has direct effect in each EU Member State, without the 28 need for further enactment. The Regulation strengthened individuals’ rights and imposed stricter requirements on companies processing personal data and increases financial penalties for non-compliance.
Our Strategy Our goal is to continue to enhance our leadership in the pediatric orthopedic surgery market and thereby improve the lives of children with orthopedic conditions. To achieve this goal, we have implemented a strategy that has five pillars: • Continue our laser focus on high-volume children’s hospitals that treat the majority of pediatric patients.
Our Strategy Our goal is to continue to enhance our leadership in the pediatric orthopedic market and thereby improve the lives of children with orthopedic conditions. To achieve this goal, we have implemented a strategy that has five pillars: • Continue our laser focus on high-volume children’s hospitals that treat the majority of pediatric patients.
The FDA may grant an HDE, which is an exemption from the effectiveness requirements of sections 514 and 515 of the FDCA Act, if the FDA determines that the device meets certain criteria. After HDE approval, the medical 22 device may only be used after Institutional Review Board ("IRB") approval has been obtained.
The FDA may grant an HDE, which is an exemption from the effectiveness requirements of sections 514 and 515 of the FDCA Act, if the FDA determines that the device meets certain criteria. After HDE approval, the medical device may only be used after Institutional Review Board ("IRB") approval has been obtained.
We also respond to surgeons’ requests for customized implants and instruments to improve their workflows and enhance their clinical outcomes. 14 • Leading Supporter of Pediatric Orthopedic Surgical Societies and Clinical Education. Cumulatively, we donate more than any of our competitors to the five primary pediatric orthopedic surgical societies that conduct pediatric clinical education and research.
We also respond to surgeons’ requests for customized implants and instruments to improve their workflows and enhance their clinical outcomes. • Leading Supporter of Pediatric Orthopedic Surgical Societies and Clinical Education. Cumulatively, we donate more than any of our competitors to the five primary pediatric orthopedic surgical societies that conduct pediatric clinical education and research.
Foreign Corrupt Practices Act of 1977 or FCPA. We are required to comply with the FCPA, which generally prohibits covered entities and their intermediaries from engaging in bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business or other benefits.
Foreign Corrupt Practices Act of 1977 or FCPA. We are required to comply with the FCPA, which generally prohibits covered entities and their intermediaries from engaging in 29 bribery or making other prohibited payments to foreign officials for the purpose of obtaining or retaining business or other benefits.
Regulation of Medical Devices in the EEA 24 All medical devices placed on the market in the EEA must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices, or the Medical Devices Directive ("MDD"). There is also a directive specifically addressing Active Implantable Medical Devices (Directive 90/385/EEC).
Regulation of Medical Devices in the EEA All medical devices placed on the market in the EEA must meet the relevant essential requirements laid down in Annex I of Directive 93/42/EEC concerning medical devices, or the Medical Devices Directive ("MDD"). There is also a directive specifically addressing Active Implantable Medical Devices (Directive 90/385/EEC).
Intent to deceive is not required to establish liability under the civil federal civil False Claims Act. 27 In addition, private parties may initiate “qui tam” whistleblower lawsuits against any person or entity under the federal civil False Claims Act in the name of the government and share in the proceeds of the lawsuit.
Intent to deceive is not required to establish liability under the civil federal civil False Claims Act. In addition, private parties may initiate “qui tam” whistleblower lawsuits against any person or entity under the federal civil False Claims Act in the name of the government and share in the proceeds of the lawsuit.
We have exclusive distribution rights to both of these complementary technologies, allowing for exclusive distribution in children's hospitals across the United States. Sports Medicine/Other 17 Our sports medicine/other product category primarily includes our ACL, MPFL Reconstruction system and Telos.
We have exclusive distribution rights to both of these complementary technologies, allowing for exclusive distribution in children's hospitals across the United States. Sports Medicine/Other Our sports medicine/other product category primarily includes our ACL, MPFL Reconstruction system and Telos.
Our Competitive Strengths We believe our focus and experience in pediatric orthopedic surgery, combined with the following principal competitive strengths, will allow us to continue to grow our sales and expand our market opportunity. • Exclusive Focus on Pediatric Orthopedics.
Our Competitive Strengths We believe our focus and experience in pediatric orthopedic surgery and bracing, combined with the following principal competitive strengths, will allow us to continue to grow our sales and expand our market opportunity. • Exclusive Focus on Pediatric Orthopedics.
This enables us to engage and collaborate with thought-leading surgeons and academic institutions around the world in order to develop products and technologies specifically designed to meet the needs of pediatric orthopedic surgeons and their patients.
This enables us to engage and collaborate with thought-leading surgeons and academic institutions around the world in order to develop products and technologies specifically 14 designed to meet the needs of pediatric orthopedic surgeons and their patients.
In addition to these organizations, we also support eight pediatric orthopedic fellowships. Our support of these organizations and fellowships demonstrates our commitment to the clinical training and research they sponsor. We believe this support enhances our reputation as the category leader in pediatric orthopedics.
In addition to these organizations, we support eight pediatric orthopedic fellowships. Our support of these organizations and fellowships demonstrates our commitment to the clinical training and research they sponsor. We believe this support enhances our reputation as the category leader in pediatric orthopedics.
To receive payment, healthcare practitioners must submit claims to insurers using these codes for payment for medical services. CPT codes are assigned, maintained and annually updated by the American Medical Association and its CPT Editorial Board.
To receive payment, healthcare practitioners must submit claims to insurers using these codes for payment for medical services. CPT codes are assigned, maintained and annually updated by the American Medical Association and its CPT Editorial 30 Board.
We believe that our exclusive focus on pediatric orthopedic surgery, our comprehensive product portfolio, our collaborations with surgeons, our scalable business model and our engaging culture are all sources of significant competitive advantage.
We believe that our exclusive focus on pediatric orthopedic surgeons, our comprehensive product portfolio, our collaborations with surgeons, our scalable business model and our engaging culture are all sources of significant competitive advantage.
Our Active Growing Implants will utilize a power source of significantly greater strength and control than current magnetic technology and will be adjustable at the time of implantation and non-invasively over the course of treatment to accommodate the changing clinical needs of patients as they heal, grow and age. We made significant development progress on this in 2022.
Our Active Growing Implants will utilize a power source of significantly greater strength and control than current magnetic technology and will be adjustable at the time of implantation and non-invasively over the course of treatment to accommodate the changing clinical needs of patients as they heal, grow and age. We made significant development progress on this in 2023.
In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
In addition, a person or entity does not need to have actual 26 knowledge of the statute or specific intent to violate it in order to have committed a violation.
Environmental, Social and Governance ("ESG") OrthoPediatrics was founded on the cause of impacting the lives of children with orthopedic conditions. Since inception we have impacted the lives of over 630,000 children, when including those served by our acquired companies. We believe we should continue to expand our social efforts while minimizing our impact to the environment and ensuring corporate governance.
Environmental, Social and Governance ("ESG") OrthoPediatrics was founded on the cause of impacting the lives of children with orthopedic conditions. Since inception we have impacted the lives of over 710,000 children, when including those served by our acquired companies. We believe we should continue to expand our social efforts while minimizing our impact to the environment and ensuring corporate governance.
In 2022, we conducted numerous training workshops focused on fellows and surgeons early in their careers. We believe our commitment to clinical education advances pediatric orthopedic surgery and increases our account presence, while promoting familiarity with our products and loyalty among fellows and young surgeons. We aspire to be viewed as the partner of pediatric orthopedic surgeons around the world.
In 2023, we conducted numerous training workshops focused on fellows and surgeons early in their careers. We believe our commitment to clinical education advances pediatric orthopedic surgery and increases our account presence, while promoting familiarity with our products and loyalty among fellows and young surgeons. We aspire to be viewed as the partner of pediatric orthopedic surgeons around the world.
We are committed to advancing pediatric orthopedic care by supporting clinical education. We support local, regional and national educational courses, intensive hands-on training programs and product-based workshops that enable surgeons to practice surgical procedures using our products. In 2022, we conducted numerous training workshops focused on fellows and surgeons early in their careers.
We are committed to advancing pediatric orthopedic care by supporting clinical education. We support local, regional and national educational courses, intensive hands-on training programs and product-based workshops that enable surgeons to practice surgical procedures using our products. In 2023, we conducted numerous training workshops focused on fellows and surgeons early in their careers.
Our dedication to the pediatric orthopedic community is evidenced by our leading support of the five major pediatric orthopedic surgical societies that conduct pediatric clinical education and research. In 2022, we conducted numerous training workshops focused on fellows and surgeons early in their careers. We are a major sponsor of CME courses in pediatric spine and pediatric orthopedics.
Our dedication to the pediatric orthopedic community is evidenced by our leading support of the five major pediatric orthopedic surgical societies that conduct pediatric clinical education and research. In 2023, we conducted numerous training workshops focused on fellows and surgeons early in their careers. We are a major sponsor of CME courses in pediatric spine and pediatric orthopedics.
The table below provides the estimated sizes of the categories of this target market, based on third-party data (including data compiled by IMS Health, Inc. and Life Science Intelligence, Inc. in studies that we commissioned) which was then updated in 2022 with management estimates based on typical industry growth rates.
The table below provides the estimated sizes of the categories of this target market, based on third-party data (including data compiled by IMS Health, Inc. and Life Science Intelligence, Inc. in studies that we commissioned) which was then updated in 2024 with management estimates based on typical industry growth rates.
We address this unmet market need and sell the broadest product offering specifically designed for children with orthopedic conditions. We currently market 46 surgical and bracing systems that serve three of the largest categories within the pediatric orthopedic market: (i) trauma and deformity correction, (ii) scoliosis and (iii) sports medicine procedures.
We address this unmet market need and sell the broadest product offering specifically designed for children with orthopedic conditions. We currently market 53 surgical and bracing systems that serve three of the largest categories within the pediatric orthopedic market: (i) trauma and deformity correction, (ii) scoliosis and (iii) sports medicine procedures.
We believe collaborating with pediatric orthopedic surgeons has helped to promote familiarity with our products and loyalty among fellows and surgeons early in their careers. • Scalable Business Model. Our ability to identify and respond quickly to the needs of pediatric orthopedic surgeons and their patients is central to our culture and critical to our continued success.
We believe collaborating with pediatric orthopedic surgeons has helped to promote familiarity with our products and loyalty among fellows and surgeons early in their careers. • Scalable Business Model. Our ability to identify and respond quickly to the needs of pediatric orthopedic surgeons an d their patients is central to our culture and critical to our continued success.
Regulations in the United Kingdom Effective January 31, 2020, the United Kingdom of Great Britain and Northern Ireland, or the UK, withdrew from the European Union, or EU. New regulations specific to the UK went into effect beginning January 1, 2021 with a transitional period through June 30, 2024.
Regulations in the United Kingdom Effective January 31, 2020, the United Kingdom of Great Britain and Northern Ireland, or the UK, withdrew from the European Union, or EU. New regulations specific to the UK went into effect beginning January 1, 2021 with a transitional period through June 30, 2025.
We are a major sponsor of continuing medical education, or CME, courses in pediatric spine and pediatric orthopedics, which are focused on fellows and young surgeons. In 2022, we conducted numerous training workshops. We believe these workshops help surgeons recognize our commitment to their field.
We are a major sponsor of continuing medical education, or CME, courses in pediatric spine and pediatric orthopedics, which are focused on fellows and young surgeons. In 2023, we conducted numerous training workshops. We believe these workshops help surgeons recognize our commitment to their field.
With the assistance of our Medical Director, a highly respected former pediatric orthopedic surgeon, we engage with pediatric orthopedic surgeons to understand their clinical needs and develop new implants, instruments and surgical techniques that will allow them to better serve their patients.
With the assistance of our Medical Director, a highly respected former pediatric orthopedic surgeon, we engage with pediatric orthopedic surgeons to understand their clinical needs and develop new implants, instruments, surgical techniques and specialized braces that will allow them to better serve their patients.
Additionally, during 2020, 2021 and 2022, we funded The Foundation for Advancing Pediatric Orthopaedics ("Foundation") as a 501(c)3 public charity. The Foundation channels OrthoPediatrics' clinical education funding together with contributions from the general public to support non-commercial education programs and clinical research.
Additionally, during 2021, 2022 and 2023, we funded The Foundation for Advancing Pediatric Orthopaedics ("Foundation") as a 501(c)3 public charity. The Foundation channels OrthoPediatrics' clinical education funding together with contributions from the general public to support non-commercial education programs and clinical research.
Our sales and marketing personnel provide dedicated sales support to pediatric orthopedic surgeons, both in and out of the operating room, to guide them through the optimal selection and use of implants and instruments to achieve desired clinical outcomes. • Participation of Pediatric Orthopedic Surgeons in New Product Development.
Our sales and marketing personnel provide dedicated sales support to pediatric orthopedic surgeons, both in and out of the operating room, to guide them through the optimal selection and use of implants, instruments and specialized bracing to achieve desired clinical outcomes. • Participation of Pediatric Orthopedic Surgeons in New Product Development.
To date, we have not experienced any difficulty obtaining the materials necessary to meet demand for our products, and we believe manufacturing capacity is sufficient to meet global market demand for our products for the foreseeable future. Intellectual Property Our success depends upon our ability to protect our intellectual property.
To date, we have not experienced significant difficulty obtaining the materials necessary to meet demand for our products, and we believe manufacturing capacity is sufficient to meet global market demand for our products for the foreseeable future. Intellectual Property Our success depends upon our ability to protect our intellectual property.
Our organization has a deep understanding of the unique nature of children’s clinical conditions and surgical procedures as well as an appreciation of the tremendous sense of responsibility pediatric orthopedic surgeons feel for the children whom parents have entrusted to their care. We provide these surgeons with dedicated support, both in and out of the operating room.
Our organization has a deep understanding of the unique nature of children’s clinical conditions and surgical procedures as well as an appreciation of the tremen dous sense of responsibility pediatric orthopedic surgeons feel for the children whom parents have entrusted to their care. We provide these surgeons with dedicated support, both in and out of the operating room.
Trauma and Deformity Correction Our trauma and deformity correction product line includes more than 7,900 implants, external fixation, specialized braces and bone graft substitutes for the femur, tibia, upper and lower extremities.
Trauma and Deformity Correction Our trauma and deformity correction product line includes more than 7,000 implants, external fixation, specialized braces and bone graft substitutes for the femur, tibia, upper and lower extremities.
Product Pipeline Generally speaking, we have three product development objectives across the organization: (i) develop innovative new systems that enable surgeons to advance the field of pediatric orthopedics and allow us to focus on categories of the pediatric orthopedic market we are not currently addressing; (ii) build-out our current portfolio of products with line extensions that allow these systems to be used in more types of surgeries; and (iii) make improvements to our current implants and instruments that improve quality and reduce their cost.
Product Pipeline Generally speaking, we have three product development objectives across the organization: (i) develop innovative new systems that enable surgeons to advance the field of pediatric orthopedics and allow us to focus on categories of the pediatric orthopedic market we are not currently addressing; (ii) build-out our current portfolio of products with line extensions that allow these systems to be used in more types of surgeries or non-surgical applications; and (iii) make improvements to our current implants, instruments, and specialty braces that improve quality and reduce their cost.
Our Product Portfolio We have developed a comprehensive portfolio of implants and instruments specifically designed to treat children with orthopedic conditions within the three categories of the pediatric orthopedic market that we currently serve. We currently market 46 surgical and specialized bracing systems that address pediatric trauma and deformity correction, scoliosis and sports medicine/other procedures.
Our Product Portfolio We have developed a comprehensive portfolio of implants, instruments and specialty bracing solutions specifically designed to treat children with orthopedic conditions within the three categories of the pediatric orthopedic market that we currently serve. We currently market 53 surgical and specialized bracing systems that address pediatric trauma and deformity correction, scoliosis and sports medicine/other procedures.
We estimate that over 62% of U.S. pediatric trauma and deformity and scoliosis 15 procedures in 2015 were performed in approximately 300 hospitals. We believe that this high concentration of procedures and our focused sales organization will enable us to address the pediatric orthopedic surgery market in a capital-efficient manner.
We estimate that over 62% of U.S. pediatric trauma and deformity and sco liosis procedures in 2015 were performed in approximately 300 hospitals. We believe that this high concentration of procedures and our focused sales organization will enable us to address the pediatric orthopedic surgery market in a capital-efficient manner.
We believe our innovative products promote improved surgical accuracy, increase consistency of patient outcomes and enhance surgeon confidence in achieving high standards of care.
We believe our innovative products promote improved surgical accuracy or improved bracing solutions, increase consistency of patient outcomes and enhance surgeon confidence in achieving high standards of care.
These teams meet frequently and make decisions regarding new products, inventory builds and promotional activities, thus enhancing our agility and the speed of decision making. We believe this culture allows us to attract and retain talented, high performing professionals. For seven years we have been named one of the Best Companies to work for in Indiana.
These teams meet frequently and make decisions regarding new products, inventory builds and promotional activities, thus enhancing our agility and the speed of decision making. We believe this culture allows us to attract and retain talented, high performing professionals. For seven years we have been recognized by the Indiana Chamber of Commerce - Best Companies to Work in Indiana.
We then updated this data in 2022 based on management estimates and typical industry growth rates.
We then updated this data in 2024 based on management estimates and typical industry growth rates.
This strategy includes increasing investment in consigned implant and instrument sets in the United States and select international markets, expanding our innovative product line by leveraging our efficient product development process, strengthening our global sales and distribution infrastructure, broadening our commitment to clinical education and research, and deepening our culture of continuous improvement.
This strategy includes increasing investment in consigned implant and instrument sets in the United States and select international markets, expanding our innovative product lines of specialized surgical and bracing products by leveraging our efficient product development process, strengthening our global sales and distribution infrastructure, broadening our commitment to clinical education and research, and deepening our culture of continuous improvement.
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 currently serve three of the largest 10 categories in this market.
We design, develop and commercialize innovative orthopedic implants, instruments and specialty braces to meet specific 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.
The discovery of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.
The discovery of previously unknown problems with any of our products, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls. 23 Enforcement Powers The FDA has broad regulatory enforcement powers.
This new technology will be available for early onset scoliosis and potentially limb deformity. RESPONSE TM Rib and Pelvic System Our RESPONSE TM Rib and Pelvic System is designed to aid surgeons in the treatment of early onset scoliosis, a debilitating form of scoliosis that affects very young children. We expect to beta launch the system in 2023.
This new technology will be available for early onset scoliosis and potentially limb deformity. 17 RESPONSE TM Rib and Pelvic System Our RESPONSE TM Rib and Pelvic System is designed to aid surgeons in the treatment of early onset scoliosis, a debilitating form of scoliosis that affects very young children.
This high concentration of procedures and our focused sales organization will enable us to address the pediatric orthopedic surgery market in a capital-efficient manner. • Provide a broad product portfolio uniquely designed to treat children by surrounding pediatric orthopedic surgeons with all the products they need.
This high concentration of procedures and our focused sales organization will enable us to address the pediatric orthopedic surgery market in a capital-efficient manner. 15 • Provide a broad product portfolio of implant systems, specialty braces, and enabling technologies uniquely designed to treat children by surrounding pediatric orthopedic surgeons with all the products they need.
Our products have proprietary features designed to: • protect a child’s growth plates; • fit a wide range of pediatric anatomy; • enable earlier surgical intervention; • enable precise and reproducible surgical techniques; and • ease implant removal.
Our products have proprietary features designed to: • protect a child’s growth plates; • fit a wide range of pediatric anatomy; • enable earlier surgical intervention; • enable precise and reproducible surgical techniques; • ease implant removal; • provide correction with specialized bracing.
We sell our specialized products, including PediLoc ® , PediPlates ® , Cannulated Screws, PediFlex TM nail, PediNail TM , PediLoc ® Tibia, ACL Reconstruction System, Locking Cannulated Blade, Locking Proximal Femur, Spica Tables, RESPONSE TM Spine, BandLoc TM , Pediatric Nailing Platform | Femur, Devise Rail, Orthex ® , The Fassier-Duval Telescopic Intramedullary System ® , ApiFix ® Mid-C System and Mitchell Ponseti ® specialized bracing products to various hospitals and medical facilities throughout the United States and various international markets.
We sell our specialized products, including PediLoc ® , PediPlates ® , Cannulated Screws, PediFlex TM nail, PediNail TM , PediLoc ® Tibia, ACL Reconstruction System, Locking Cannulated Blade, Locking Proximal Femur, Spica Tables, RESPONSE TM Spine, BandLoc 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 ® 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 aspire to launch at least one new surgical system and multiple product line extensions in our trauma and deformity and scoliosis businesses each year for the foreseeable future.
We aspire to launch at least one new surgical system and multiple product line extensions in our trauma and deformity and scoliosis businesses as well as multiple specialty bracing products each year for the foreseeable future.
As of December 31, 2022, we owned 31 U.S. trademark registrations and 7 pending U.S. trademark applications, as well as 77 registrations in other jurisdictions worldwide. 20 We also rely upon trade secrets, know-how and continuing technological innovation, and may in the future rely upon licensing opportunities, to develop and maintain our competitive position.
As of December 31, 2023, we owned 33 U.S. trademark registrations and 10 pending U.S. trademark applications, as well as 81 registrations in other jurisdictions worldwide. We also rely upon trade secrets, know-how and continuing technological innovation, and may in the future rely upon licensing opportunities, to develop and maintain our competitive position.
In the near term, we expect to selectively expand the number of international markets we serve, as well as to deepen our penetration of important existing markets such as Brazil and Germany. We have developed intensive training programs for our global sales organization.
In the near term, we expect to selectively expand the number of international markets we serve, as well as to deepen our penetration of important existing markets such as Brazil and Germany. In 2023, we hired operating and sales representatives in Germany to better serve our customers. 18 We have developed intensive training programs for our global sales organization.
The number of fellowships in pediatric orthopedics continues to grow. As generalists, these surgeons have a deep understanding of the unique nature of children’s clinical conditions and surgical procedures. We believe they feel a tremendous sense of responsibility for the children whom parents have entrusted to their care.
As generalists, these surgeons have a deep understanding of the unique nature of children’s clinical conditions and surgical procedures. We believe they feel a tremendous sense of responsibility for the children whom parents have entrusted to their care.
The vast majority of these procedures were performed in ambulatory surgery centers. 13 Smart Implants We are developing a new generation of adjustable implant systems, which we refer to as our Active Growing Implants, which will utilize a mechanized motor and are adjustable at the time of implantation and non-invasively over the course of treatment to accommodate the clinical needs of patients with early onset scoliosis and limb length discrepancies, or LLDs, as they heal, grow and age.
Smart Implants We are developing a new generation of adjustable implant systems, which we refer to as our Active Growing Implants, which will utilize a mechanized motor and are adjustable at the time of implantation and non-invasively over the course of treatment to accommodate the clinical needs of patients with early onset scoliosis and limb length discrepancies, or LLDs, as they heal, grow and age.
According to Life Science Intelligence, Inc., in a study that we commissioned, approximately 29% of ACL reconstruction procedures completed in the United States in 2015 were in patients under the age of 18.
According to Life Science Intelligence, Inc., in a study that we commissioned, approximately 29% of ACL reconstruction procedures completed in the United States in 2015 were in patients under the age of 18. The vast majority of these procedures were performed in ambulatory surgery centers.
In 2020 we were named as "Corporate Partner of the Year" by the World Pediatric Project - with whom we work to provide access to medical care for children in developing countries. • We are committed to fostering an environment that is respectful, compassionate, and inclusive of everyone in our community. • The Company and its Board of Directors understand the value of diversity.
In 2020, we were named as "Corporate Partner of the Year" by the World Pediatric Project - with whom we continue to work with to provide access to medical care for children in developing countries. • We are committed to fostering an environment that is respectful, compassionate, and inclusive of everyone in our community, which is communicated in our diversity and inclusion policy.
Spastic cerebral palsy can produce skeletal deformities such as curvature of the spine, hip dislocation, gait abnormalities and other conditions involving joints and bones. Children suffering from these disorders often require multiple surgeries into adulthood.
Spastic cerebral palsy is the most common form, making up the majority of all cerebral palsy cases. Spastic cerebral palsy can produce skeletal deformities such as curvature of the spine, hip dislocation, gait abnormalities and other conditions involving joints and bones. Children suffering from these disorders often require multiple surgeries into adulthood.
Our global revenue from this category for the year ended December 31, 2022 was $33.4 million, or 27% of total revenue, which represented an increase of 19% over the prior year. Global revenue from this category for the years ended December 31, 2021 and 2020 was $28.0 million and $20.7 million or 29% and 29% of total revenue, respectively.
Our global revenue from this category for the year ended December 31, 2023 was $37.9 million, or 25% of total revenue, which represented an increase of 13% over the prior year. Global revenue from this category for the years ended December 31, 2022 and 2021 was $33.4 million and $28.0 million or 27% and 29% of total revenue, respectively.
We are also a major sponsor of CME courses in pediatric spine and pediatric orthopedics. Annually, we sponsor the largest industry meetings including 19 the Annual International Children's Spine Symposium, Annual Pediatric Orthopedic Surgical Techniques Course, Akron Pediatric Orthopedic Residents Review Course and the annual PediOrthoWest resident review program.
We are also a major sponsor of CME courses in pediatric spine and pediatric orthopedics. Annually, we sponsor the largest industry meetings including the Annual International Children's Spine Symposium, Annual Pediatric Orthopedic Surgical Techniques Course, Akron Pediatric Orthopedic Residents Review Course and the annual PediOrthoWest resident review program. We have a growing commitment to the clinical research performed by surgeons.
The Company 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.
Those filings are accessible on the SEC’s website at http://www.sec.gov . 9 The Company 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.
Our global revenue from this category for the year ended December 31, 2022 was $3.8 million, or 3% of total revenue, which represented a decline of 9% over the prior year. Global revenue from this category for the years ended December 31, 2021 and 2020 was $4.2 million and $2.7 million or 4% and 4% of total revenue, respectively.
Our global revenue from this category for the year ended December 31, 2023 was $4.0 million, or 3% of total revenue, which represented an increase of 6% over the prior year. Global revenue from this category for the years ended December 31, 2022 and 2021 was $3.8 million and $4.2 million or 3% and 4% of total revenue, respectively.
We have developed a comprehensive portfolio of implants and instruments specifically designed to treat children with orthopedic conditions. In 2022, we estimate that our products were used to help approximately 70,000 children, and over 630,000 since inception, when including those served by our acquired companies.
We have developed a comprehensive portfolio of implants, instruments and specialty braces specifically designed to treat children with orthopedic conditions. In 2023, we estimate that our products were used to help approxima tely 82,000 chil dren, and over 710,000 since inception, when including those served by our acquired companies.
Trauma and deformity procedures also include osteotomies, or surgical cutting of the bone, the use of metal implants to correct angular bone deformities or limb length discrepancies and external fixation. Trauma and deformity also includes specialized bracing products which are non-surgical in nature.
Trauma and deformity procedures also include osteotomies, or surgical cutting of the bone, the use of metal implants or external fixation to correct angular bone deformities or limb length discrepancies.
Data Privacy and Security Laws We may also become subject to various federal, state and foreign laws that protect the confidentiality of certain patient health information, including patient medical records, and restrict the use and disclosure of patient health information by healthcare providers, such as HIPAA, as amended by HITECH, in the United States. 28 Under HIPAA, the DHHS has issued regulations to protect the privacy and security of protected health information used or disclosed by covered entities including certain healthcare providers and their business associates.
Data Privacy and Security Laws We may also become subject to various federal, state and foreign laws that protect the confidentiality of certain patient health information, including patient medical records, and restrict the use and disclosure of patient health information by healthcare providers, such as HIPAA, as amended by HITECH, in the United States.
Our Exclusive Focus on Pediatric Orthopedic Surgery We believe we are the only company that has committed the resources necessary to create a global sales and product development infrastructure focused on the pediatric orthopedic implant market. Our goal is to build an enduring company committed to addressing this market’s unmet needs.
Our Exclusive Focus on Pediatric Orthopedic Surgery and Bracing We believe we are the only company that has committed the resources necessary to create a global sales and product development infrastructure focused on the pediatric orthopedic implant and bracing market.
These reconstruction procedures refer to the replacement of the ACL or MPFL ligaments, as applicable, with a surgical tissue graft to restore function to the knee after injury.
Sports Medicine Sports medicine procedures include reconstruction of the anterior cruciate ligament, or ACL, and medial patellofemoral ligament, or MPFL. These reconstruction procedures refer to the replacement of the ACL or MPFL ligaments, as applicable, with a surgical tissue graft to restore function to the knee after injury.
Our largest investor is Squadron, a private investment firm based in Granby, Connecticut. 9 As of December 31, 2022, the Company had consolidated total assets of $427.7 million, consolidated total liabilities of $49.1 million and stockholders’ equity of $378.6 million. As of December 31, 2022, the Company and its subsidiaries had 203 full-time equivalent employees.
Our largest investor is Squadron, a private investment firm based in Granby, Connecticut. As of December 31, 2023, the Company had consolidated total assets of $438.7 million, consolidated total liabilities of $61.7 million and stockholders’ equity of $377.0 million. As of December 31, 2023, the Company and its subsidiaries had 247 full-time equivalent employees.
Trauma and Deformity Scoliosis Sports Medicine Smart Implants Surgical Implants Specialty Bracing Fusion Non-Fusion $609 Million $303 Million $334 Million $75 Million $249 Million $162 Million We estimate that the United States represented approximately 45% of the total global orthopedic implant market, both adult and pediatric, and that this geographic segmentation similarly applies to the global pediatric orthopedic implant market.
Trauma and Deformity Scoliosis Sports Medicine Smart Implants Surgical Implants Fusion Non-Fusion Specialty Bracing $610 million $340 million $80 million $775 million $250 million $165 million We estimate that the United States represented approximatel y 45% of the total global orthopedic implant market, both adult and pediatric, and that this geographic segmentation similarly applies to the global pediatric orthopedic implant market.
For the years ended December 31, 2022, 2021 and 2020, our revenue was $122.3 million, $98.0 million and $71.1 million, respectively. As of December 31, 2022, our accumulated deficit was $176.8 million.
For the years ended December 31, 2023, 2022 and 2021, our revenue was $148.7 million, $122.3 million and $98.0 million, respectively. As of December 31, 2023, our accumulated deficit was $197.7 million .
We recognize that building connections between our employees, their families, and the communities we serve creates a fulfilling and positive workplace. We also partner with organizations around the world that provide pediatric orthopedic care for the disadvantaged.
This is demonstrated by both the Company's and its associates' regular participation in philanthropic causes. We recognize that building connections between our employees, their families, and the communities we serve creates a fulfilling and positive workplace. We also partner with organizations around the world that provide pediatric orthopedic care for the disadvantaged.
We believe our higher corporate purpose captures the imagination of our employees and makes them committed to doing everything better, faster and at lower cost.
We believe our higher corporate purpose captures the imagination of our employees and makes them committed to doing everything better, faster and at lower cost. This culture allows us to attract and retain talented, high-performing individuals.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese provisions include: • a classified board of directors so that not all directors are elected at one time; • a prohibition on stockholder action through written consent; • no cumulative voting in the election of directors; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director; • a requirement that special meetings of stockholders be called only by the board of directors, the chairman of the board of directors, the chief executive officer or, in the absence of a chief executive officer, the president; • an advance notice requirement for stockholder proposals and nominations; • the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine; and • a requirement of approval of not less than 66 2∕3% of all outstanding shares of our capital stock entitled to vote to amend any bylaws by stockholder action, or to amend specific provisions of our amended and restated certificate of incorporation.
Biggest changeThese provisions include: • a classified board of directors so that not all directors are elected at one time; • a prohibition on stockholder action through written consent; • no cumulative voting in the election of directors; • the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director; • a requirement that special meetings of stockholders be called only by the board of directors, the chairman of the board of directors, the chief executive officer or, in the absence of a chief executive officer, the president; • an advance notice requirement for stockholder proposals and nominations; • the authority of our board of directors to issue preferred stock with such terms as our board of directors may determine; and • a requirement of approval of not less than 66 2∕3% of all outstanding shares of our capital stock entitled to vote to amend any bylaws by stockholder action, or to amend specific provisions of our amended and restated certificate of incorporation. 68 In addition, Delaware law prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder, generally a person who, together with its affiliates, owns, or within the last three years has owned, 15% or more of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.
Foreign Corrupt Practices Act of 1977, or the FCPA, and anti-money laundering laws; • differing regulatory requirements for obtaining clearances or approvals to market our products; • changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell our products, perform services or repatriate profits to the United States; • tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell our products in certain foreign markets; • fluctuations in foreign currency exchange rates; • imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures; • differing multiple payor reimbursement regimes, government payors or patient self-pay systems; • imposition of differing labor laws and standards; • economic, political or social instability in foreign countries and regions; • an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government action; and 46 • availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us.
Foreign Corrupt Practices Act of 1977, or the FCPA, and anti-money laundering laws; • differing regulatory requirements for obtaining clearances or approvals to market our products; • changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell our products, perform services or repatriate profits to the United States; • tariffs and trade barriers, export regulations and other regulatory and contractual limitations on our ability to sell our products in certain foreign markets; • fluctuations in foreign currency exchange rates; • imposition of limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures; • differing multiple payor reimbursement regimes, government payors or patient self-pay systems; • imposition of differing labor laws and standards; • economic, political or social instability in foreign countries and regions; 46 • an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government action; and • availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us.
If we are unable to address these risks and challenges effectively, our international operations may not be successful and our business could be harmed. 47 Climate change and related legislative and regulatory initiatives may materially affect the Company's business and results of operations.
If 47 we are unable to address these risks and challenges effectively, our international operations may not be successful and our business could be harmed. Climate change and related legislative and regulatory initiatives may materially affect the Company's business and results of operations.
Failure to obtain MDR certificate by a certain time could prevent us from placing additional devices on the EU market and/or result in expiration of the existing MDD certificate which could result in our inability to sell any products that are currently on the EU market until the MDR certificate is obtained.
Failure to obtain the MDR certificate by a certain time could prevent us from placing additional devices on the EU market and/or result in expiration of the existing MDD certificate which could result in our inability to sell any products that are currently on the EU market until the MDR certificate is obtained.
It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.
It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government healthcare programs and the curtailment of our operations.
Factors that could cause volatility in the market price of our common stock include, but are not limited to: • actual or anticipated fluctuations in our financial condition and operating results; • actual or anticipated changes in our growth rate relative to our competitors; • commercial success and market acceptance of our products; • success of our competitors in developing or commercializing products; • ability to commercialize or obtain regulatory approvals for our products, or delays in commercializing or obtaining regulatory approvals; • strategic transactions undertaken by us; • additions or departures of key personnel; • product liability claims; • prevailing economic conditions; • disputes concerning our intellectual property or other proprietary rights; • FDA or other U.S. or foreign regulatory actions affecting us or the healthcare industry; • healthcare reform measures in the United States; • sales of our common stock by our officers, directors or significant stockholders; 65 • future sales or issuances of equity or debt securities by us; • business disruptions caused by earthquakes, fires or other natural disasters; • issuance of new or changed securities analysts’ reports or recommendations regarding us; and • short interest reports and or trading.
Factors that could cause volatility in the market price of our common stock include, but are not limited to: • actual or anticipated fluctuations in our financial condition and operating results; • actual or anticipated changes in our growth rate relative to our competitors; • commercial success and market acceptance of our products; 65 • success of our competitors in developing or commercializing products; • ability to commercialize or obtain regulatory approvals for our products, or delays in commercializing or obtaining regulatory approvals; • strategic transactions undertaken by us; • additions or departures of key personnel; • product liability claims; • prevailing economic conditions; • disputes concerning our intellectual property or other proprietary rights; • FDA or other U.S. or foreign regulatory actions affecting us or the healthcare industry; • healthcare reform measures in the United States; • sales of our common stock by our officers, directors or significant stockholders; • future sales or issuances of equity or debt securities by us; • business disruptions caused by earthquakes, fires or other natural disasters; • issuance of new or changed securities analysts’ reports or recommendations regarding us; and • short interest reports and or trading.
State attorneys general can also bring a civil action to enjoin a HIPAA violation or to obtain statutory damages on behalf of residents of his or her state; and • analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers or patients; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; and state laws related to insurance fraud in the case of claims involving private insurers.
State attorneys general can also bring a civil action to enjoin a HIPAA violation or to obtain statutory damages on behalf of residents of his or her state; and • analogous state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third- 57 party payor, including commercial insurers or patients; state laws that require device companies to comply with the industry’s voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts; and state laws related to insurance fraud in the case of claims involving private insurers.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that: • any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our products; • any of our pending patent applications may issue as patents; • we will be able to successfully commercialize our products on a substantial scale, if approved, before our relevant patents we may have expire; • we were the first to make the inventions covered by each of our patents and pending patent applications; • we were the first to file patent applications for these inventions; • others will not develop similar or alternative technologies that do not infringe our patents; • any of our patents will be found to ultimately be valid and enforceable; • any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties; • we will develop additional proprietary technologies or products that are separately patentable; or • our commercial activities or products will not infringe upon the patents of others.
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that: • any of our patents, or any of our pending patent applications, if issued, will include claims having a scope sufficient to protect our products; • any of our pending patent applications may issue as patents; • we will be able to successfully commercialize our products on a substantial scale, if approved, before our relevant patents we may have expire; • we were the first to make the inventions covered by each of our patents and pending patent applications; • we were the first to file patent applications for these inventions; • others will not develop similar or alternative technologies that do not infringe our patents; • any of our patents will be found to ultimately be valid and enforceable; • any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties; 62 • we will develop additional proprietary technologies or products that are separately patentable; or • our commercial activities or products will not infringe upon the patents of others.
Any potential intellectual property litigation also could force us to do one or more of the following: • stop making, selling, importing or using products or technologies that allegedly infringe the asserted intellectual property; • lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others; incur significant legal expenses; • pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing; • pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing; • redesign those products that contain the allegedly infringing intellectual property, which could be costly, disruptive or infeasible; and • attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all, or from third parties who may attempt to license rights that they do not have.
Any potential intellectual property litigation also could force us to do one or more of the following: • stop making, selling, importing or using products or technologies that allegedly infringe the asserted intellectual property; 63 • lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of our intellectual property rights against others; incur significant legal expenses; • pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing; • pay the attorney’s fees and costs of litigation to the party whose intellectual property rights we may be found to be infringing; • redesign those products that contain the allegedly infringing intellectual property, which could be costly, disruptive or infeasible; and • attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or at all, or from third parties who may attempt to license rights that they do not have.
When an entity is determined to have violated the federal civil False Claims Act, the 56 government may impose civil penalties, including treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs; • the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier; • the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters.
When an entity is determined to have violated the federal civil False Claims Act, the government may impose civil penalties, including treble damages, and exclude the entity from participation in Medicare, Medicaid and other federal healthcare programs; • the federal Civil Monetary Penalties Law, which prohibits, among other things, offering or transferring remuneration to a federal healthcare beneficiary that a person knows or should know is likely to influence the beneficiary’s decision to order or receive items or services reimbursable by the government from a particular provider or supplier; • the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created additional federal criminal statutes that prohibit, among other things, executing a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters.
If our available cash balances, borrowing capacity, net proceeds from prior stock offerings and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of lower demand for our products as a result of the risks described in this Annual Report on Form 10-K, we may seek to sell common or preferred equity 33 or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.
If our available cash balances, borrowing capacity, net proceeds from prior stock offerings and anticipated cash flow from operations are insufficient to satisfy our liquidity requirements, including because of lower demand for our products as a result of the risks described in this Annual Report on Form 10-K, we may seek to sell common or preferred equity or convertible debt securities, enter into an additional credit facility or another form of third-party funding or seek other debt financing.
The healthcare laws and regulations that may affect our ability to operate include: • the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as Medicare and Medicaid.
The healthcare laws and regulations that may affect our ability to operate include: • the federal Anti-Kickback Statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or 56 indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service, for which payment may be made, in whole or in part, under federal healthcare programs, such as Medicare and Medicaid.
The success of any new product offering or enhancement to an existing product will depend on numerous factors, including our ability to: • properly identify and anticipate clinician and patient needs; • develop and introduce new products or product enhancements in a timely manner; • adequately protect our intellectual property and avoid infringing upon the intellectual property rights of third parties; • demonstrate the safety and efficacy of new products; and • obtain the necessary regulatory clearances or approvals for new products or product enhancements.
The success of any new product offering or enhancement to an existing product will depend on numerous factors, including our ability to: 36 • properly identify and anticipate clinician and patient needs; • develop and introduce new products or product enhancements in a timely manner; • adequately protect our intellectual property and avoid infringing upon the intellectual property rights of third parties; • demonstrate the safety and efficacy of new products; and • obtain the necessary regulatory clearances or approvals for new products or product enhancements.
In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later down-classified, or a 510(k)-exempt device.
In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a 51 device that was legally marketed prior to May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to an approved PMA and later down-classified, or a 510(k)-exempt device.
In addition, if a dispute arises with a sales 59 agency or distributor or if a sales agency or distributor is terminated by us or goes out of business, it may take time to locate an alternative sales agency or distributor, to seek appropriate regulatory approvals and to train new personnel to market our products, and our ability to sell those systems in the region formerly serviced by such terminated agent or distributor could be harmed.
In addition, if a dispute arises with a sales agency or distributor or if a sales agency or distributor is terminated by us or goes out of business, it may take time to locate an alternative sales agency or distributor, to seek appropriate regulatory approvals and to train new personnel to market our products, and our ability to sell those systems in the region formerly serviced by such terminated agent or distributor could be harmed.
On February 16, 2023, the European Parliament approved, in part, the extension of the 55 application date for Class III and IIb implantable devices to December 31, 2027. The Company can continue marketing existing CE-marked products under the previous regulation until June 2024 so long as a certification extension is granted by its notified body.
On February 16, 2023, the European Parliament approved, in part, the extension of the application date for Class III and IIb implantable devices to December 31, 2027. The Company can continue marketing existing CE-marked products under the previous regulation until June 2024 so long as a certification extension is granted by its notified body.
If we fail to successfully commercialize our products or services, we may never receive a return on the substantial investments in product development, sales and marketing, regulatory compliance, manufacturing and quality assurance we have made, as well as further investments we intend to make, which may cause us to fail to generate revenue and gain economies of scale from such investments.
If we fail to successfully commercialize our products or services, we may never receive a return on the substantial investments in product development, sales and marketing, regulatory 32 compliance, manufacturing and quality assurance we have made, as well as further investments we intend to make, which may cause us to fail to generate revenue and gain economies of scale from such investments.
A major earthquake, fire or other disaster (such as a major flood, tsunami, volcanic eruption or terrorist attack) affecting our facilities, or those of our suppliers, could significantly disrupt our operations, and delay or prevent product shipment or installation during the time required to repair, rebuild or replace our suppliers’ damaged manufacturing facilities; these delays could be lengthy and costly.
A major earthquake, fire or other disaster (such as a major flood, tsunami, volcanic eruption or terrorist attack) affecting our facilities, or those of our suppliers, could significantly disrupt our operations, and delay or prevent 50 product shipment or installation during the time required to repair, rebuild or replace our suppliers’ damaged manufacturing facilities; these delays could be lengthy and costly.
We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.
We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control. If an ownership change 35 occurs and our ability to use our net operating loss carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.
We have in the past conducted several voluntary recalls of devices with lot-specific quality issues. A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, 54 manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations.
We have in the past conducted several voluntary recalls of devices with lot-specific quality issues. A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations.
Many of our current and potential competitors have substantially greater sales and financial resources than we do. In addition, these companies may have more established distribution networks, entrenched relationships with orthopedic surgeons and greater experience in launching, marketing, distributing and selling products. In addition, new market participants continue to enter the orthopedic industry.
Many of our current and potential competitors have substantially greater sales and financial resources than we do. In addition, these companies may have more established distribution networks, entrenched relationships with orthopedic surgeons and greater experience in launching, marketing, distributing and selling products. 37 In addition, new market participants continue to enter the orthopedic industry.
Furthermore, the FDA’s ongoing review of the 510(k) clearance process may make it more difficult for us to make modifications to our previously cleared products, either by imposing more strict requirements on when a new 510(k) notification for a modification to a previously cleared product must be submitted, or applying more onerous review criteria to such submissions.
Furthermore, the FDA’s ongoing review of the 510(k) clearance process may make it more difficult for us to make modifications to our previously cleared products, either by imposing more strict requirements on when a new 510(k) notification for a modification to a previously cleared product must be submitted, or applying more onerous 53 review criteria to such submissions.
Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the device, which may limit the market for the device. 51 In the United States, we have obtained 510(k) premarket clearance from the FDA to market each of our products requiring such clearance.
Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the device, which may limit the market for the device. In the United States, we have obtained 510(k) premarket clearance from the FDA to market each of our products requiring such clearance.
If we are found to infringe the intellectual property rights of third parties, we could be required to pay substantial damages (which may be increased up to three times of awarded damages) and/or substantial royalties and could be prevented from selling our products unless we obtain a license or are able to 63 redesign our products to avoid infringement.
If we are found to infringe the intellectual property rights of third parties, we could be required to pay substantial damages (which may be increased up to three times of awarded damages) and/or substantial royalties and could be prevented from selling our products unless we obtain a license or are able to redesign our products to avoid infringement.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed. In addition to patent protection, we also rely upon copyright and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants and third parties, to protect our confidential and proprietary information.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position could be harmed. In addition to patent protection, we rely upon copyright and trade secret protection, as well as non-disclosure agreements and invention assignment agreements with our employees, consultants and third parties, to protect our confidential and proprietary information.
For example, these stockholders could attempt to delay or prevent a change in control of the company, even if such a change in control would benefit our other stockholders, which could deprive our stockholders of an 67 opportunity to receive a premium for their common stock as part of a sale of the company or our assets and might affect the prevailing price of our common stock.
For example, these stockholders could attempt to delay or prevent a change in control of the company, even if such a change in control would benefit our other stockholders, which could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the company or our assets and might affect the prevailing price of our common stock.
We currently intend to retain all available funds and any future earnings to finance the growth and development of our business. In addition, the Loan Agreement contains, and the terms of any future credit agreements we enter into may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock.
We currently intend to retain all available funds and any future earnings to finance the growth and development of our business. In addition, the Credit Agreement contains, and the terms of any future credit agreements we enter into may contain, terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock.
A conformity assessment procedure requires the intervention of an organization accredited by an Approved Body under UK Medical Device Regulations, or Approved Body. Depending on the relevant conformity assessment procedure, the Approved Body would typically audit and examine the technical file and the quality system for the 52 manufacture, design and final inspection of our devices.
A conformity assessment procedure requires the intervention of an organization accredited by an Approved Body under UK Medical Device Regulations, or Approved Body. Depending on the relevant conformity assessment procedure, the Approved Body would typically audit and examine the technical file and the quality system for the manufacture, design and final inspection of our devices.
Our products are also subject to similar state regulations and various laws and regulations of foreign countries governing manufacturing. 53 Our third-party manufacturers or our own specialty brace manufacturing in Iowa may be found to be non-compliant with applicable regulations, which could cause delays in the delivery of our products.
Our products are also subject to similar state regulations and various laws and regulations of foreign countries governing manufacturing. Our third-party manufacturers or our own specialty brace manufacturing in Iowa may be found to be non-compliant with applicable regulations, which could cause delays in the delivery of our products.
Because of the size of the potential market, we anticipate that companies will dedicate significant resources to developing competing products. 37 We have competitors in each of our three product categories, including the DePuy Synthes Companies (a subsidiary of Johnson and Johnson), Medtronic plc, Smith & Nephew plc and OrthoFix.
Because of the size of the potential market, we anticipate that companies will dedicate significant resources to developing competing products. We have competitors in each of our three product categories, including the DePuy Synthes Companies (a subsidiary of Johnson and Johnson), Medtronic plc, Smith & Nephew plc and OrthoFix.
If we experience significant disruptions in our information technology systems, our business may be adversely affected. 48 We depend on our information technology systems for the efficient functioning of our business, including accounting, data storage, compliance, purchasing and inventory management. We do not have redundant systems at this time.
If we experience significant disruptions in our information technology systems, our business may be adversely affected. We depend on our information technology systems for the efficient functioning of our business, including accounting, data storage, compliance, purchasing and inventory management. We do not have redundant systems at this time.
These broad market and industry fluctuations may negatively impact the price or liquidity of our common stock, regardless of our operating performance. The price of our stock may be vulnerable to manipulation, including through short sales. We believe our common stock has been the subject of recent short selling efforts by certain market participants.
These broad market and industry fluctuations may negatively impact the price or liquidity of our common stock, regardless of our operating performance. The price of our stock may be vulnerable to manipulation, including through short sales. We believe our common stock has been the subject of short selling efforts by certain market participants.
Because the provision of loaned instrument sets may result in a benefit to our customers, the government could view this practice as a prohibited transfer of value 38 intended to induce customers to purchase our products that are used in procedures reimbursed by a federal healthcare program.
Because the provision of loaned instrument sets may result in a benefit to our customers, the government could view this practice as a prohibited transfer of value intended to induce customers to purchase our products that are used in procedures reimbursed by a federal healthcare program.
Due to the breadth of these laws, the 57 narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws.
Due to the breadth of these laws, the narrowness of statutory exceptions and regulatory safe harbors available, and the range of interpretations to which they are subject, it is possible that some of our current or future practices might be challenged under one or more of these laws.
Alternatively, if a court were to find the choice of forum provision contained in our amended and 68 restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions.
If the price of our common stock is low or volatile, we may be unable to consummate any acquisitions, investments or strategic alliances using our stock as consideration. 39 As discussed above, acquisitions of, or investments in, new or complementary businesses, products or technologies are inherently risky.
If the price of our common stock is low or volatile, we may be unable to consummate any acquisitions, investments or strategic alliances using our stock as consideration. As discussed above, acquisitions of, or investments in, new or complementary businesses, products or technologies are inherently risky.
We rely on a limited number of third-party suppliers for the majority of our products and may be unable to find replacements or immediately transition to alternative suppliers. 60 We rely on several suppliers for the majority of our products and we maintain certain long-term contracts with these key suppliers.
We rely on a limited number of third-party suppliers for the majority of our products and may be unable to find replacements or immediately transition to alternative suppliers. We rely on several suppliers for the majority of our products and we maintain certain long-term contracts with these key suppliers.
The laws of some foreign 61 countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. Our ability to enforce our patent rights depends on our ability to detect infringement.
The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. Our ability to enforce our patent rights depends on our ability to detect infringement.
Our present and future funding requirements will depend on many factors, including: • our ability to achieve revenue growth and improve gross margins; • our rate of progress in establishing coverage and reimbursement arrangements with domestic and international commercial third-party payors and government payors; • the cost of expanding our operations and offerings, including our sales and marketing efforts; • our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of our products; • the cost of research and development activities; • the effect of competing technological and market developments; • costs related to international expansion; and • the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products.
Our present and future funding requirements will depend on many factors, including: • our ability to achieve revenue growth and gross margins; • our rate of progress in establishing coverage and reimbursement arrangements with domestic and international commercial third-party payors and government payors; • the cost of expanding our operations and offerings, including our sales and marketing efforts; • our rate of progress in, and cost of the sales and marketing activities associated with, establishing adoption of our products; • the cost of research and development activities; • the effect of competing technological and market developments; 33 • costs related to international expansion; and • the potential cost of and delays in product development as a result of any regulatory oversight applicable to our products.
We could become the subject of product liability lawsuits 49 alleging that component failures, malfunctions, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information resulted in an unsafe condition or injury to patients.
We could become the subject of product liability lawsuits alleging that component failures, malfunctions, manufacturing flaws, design defects or inadequate disclosure of product-related risks or product-related information resulted in an unsafe condition or injury to patients.
Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to manufacture, market or distribute our products.
Any new 55 statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to manufacture, market or distribute our products.
If not waived, future defaults could cause all of the outstanding indebtedness under the Loan Agreement to become immediately due and payable and terminate all commitments to extend further credit.
If not waived, future defaults could cause all of the outstanding indebtedness under the Credit Agreement to become immediately due and payable and terminate all commitments to extend further credit.
These risks include our ability to: • manage rapidly changing and expanding operations; • establish and increase awareness of our brand and strengthen customer loyalty; • increase the number of our independent sales agencies and international distributors to expand sales of our products in the United States and in targeted international markets; • implement and successfully execute our business and marketing strategy; • respond effectively to competitive pressures and developments; • continue to develop and enhance our products and products in development; • obtain regulatory clearance or approval to commercialize new products and enhance our existing products; 41 • expand our presence in existing and commence operations in new international markets; and • attract, retain and motivate qualified personnel.
These risks include our ability to: • manage rapidly changing and expanding operations; • establish and increase awareness of our brand and strengthen customer loyalty; • increase the number of our independent sales agencies and international distributors to expand sales of our products in the United States and in targeted international markets; • implement and successfully execute our business and marketing strategy; • respond effectively to competitive pressures and developments; • continue to develop and enhance our products and products in development; • obtain regulatory clearance or approval to commercialize new products and enhance our existing products; • expand our presence in existing and commence operations in new international markets; and • attract, retain and motivate qualified personnel. 41 Our business is subject to seasonal fluctuations.
Moreover, the continuing effects of COVID-19 and RSV and the potential for other pandemics, epidemics or infectious disease outbreaks, may heighten many of the other risks identified within this Annual Report on From 10-K.
Moreover, the continuing effects of COVID-19 and RSV and the potential for other pandemics, epidemics or infectious disease outbreaks, may heighten many of the other risks identified within this Annual Report on Form 10-K.
The covenants in the Loan Agreement, as well as any future financing agreements into which we may enter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies.
The covenants in the Credit Agreement, as well as any future financing agreements into which we may enter, may restrict our ability to finance our operations and engage in, expand or otherwise pursue our business activities and strategies.
Our ability to comply with these covenants may be affected by events beyond our control, and future breaches of any of these covenants could result in a default under the Loan Agreement.
Our ability to comply with these covenants may be affected by events beyond our control, and future breaches of any of these covenants could result in a default under the Credit Agreement.
While we have no history of warranty claims, have no warranty reserves and had no warranty expense for the years ended December 31, 2022, 2021 or 2020, we bear the risk of warranty claims on the products we supply.
While we have no history of warranty claims, have no warranty reserves and had no warranty expense for the years ended December 31, 2023, 2022 or 2021, we bear the risk of warranty claims on the products we supply.
In order to sell our products in the UK (England, Wales and Scotland) our products must comply with the requirements of the UK Medical Device Regulations when they go into effect in 2024.
In order to sell our products in the UK (England, Wales and Scotland) our products must comply with the requirements of the UK Medical Device Regulations when they go into effect in 2025.
The deferred tax assets, except for those recorded in Israel, were fully offset by a valuation allowance as of December 31, 2022 and 2021, and no income tax benefit has been recognized in continuing operations related to the NOLs which have valuation allowances.
The deferred tax assets, except for those recorded in Canada and Israel, were fully offset by a valuation allowance as of December 31, 2023 and 2022, and no income tax benefit has been recognized in continuing operations related to the NOLs which have valuation allowances.
If we or our distributors do not obtain and maintain international regulatory registrations or approvals for our products, we will be unable to market and sell our products outside of the United States. Sales of our products outside of the United States are subject to foreign regulatory requirements that vary widely from country to country.
If we or our distributors or other third-parties do not obtain and maintain international regulatory registrations or approvals for our products, we will be unable to market and sell our products outside of the United States. Sales of our products outside of the United States are subject to foreign regulatory requirements that vary widely from country to country.
Significant litigation and administrative proceedings regarding patent rights occur in our 62 industry.
Significant litigation and administrative proceedings regarding patent rights occur in our industry.
Based on the beneficial ownership of our common stock as of December 31, 2022, our officers and directors, together with holders of 5% or more of our outstanding common stock and their respective affiliates, beneficially own approximately 32.7% of our outstanding common stock.
Based on the beneficial ownership of our common stock as of December 31, 2023, our officers and directors, together with holders of 5% or more of our outstanding common stock and their respective affiliates, beneficially own approximately 32.5% of our outstanding common stock.
Our sales volumes and our results of operations may fluctuate over the course of the year. 34 We have experienced and continue to experience meaningful variability in our sales and gross profit among quarters, as well as within each quarter, as a result of a number of factors, which may include, among other things: • the number of products sold in the quarter; • the unpredictability of sales of full sets of implants and instruments to our international distributors; • the demand for, and pricing of, our products and the products of our competitors; • the timing of or failure to obtain regulatory clearances or approvals for our products; • the costs, benefits and timing of new product introductions; • increased competition; • the availability and cost of components and materials; • the number of selling days in the quarter; • fluctuation and foreign currency exchange rates; or • impairment and other special charges.
We have experienced and continue to experience meaningful variability in our sales and gross profit among quarters, as well as within each quarter, as a result of a number of factors, which may include, among other things: • the number of products sold in the quarter; • the unpredictability of sales of full sets of implants and instruments to our international distributors; • the demand for, and pricing of, our products and the products of our competitors; • the timing of or failure to obtain regulatory clearances or approvals for our products; • the costs, benefits and timing of new product introductions; • increased competition; • the availability and cost of components and materials; • the number of selling days in the quarter; • fluctuation and foreign currency exchange rates; or • impairment and other special charges.
The Loan Agreement restricts our ability to, among other things: • dispose of or sell our assets; • modify our organizational documents; • merge with or acquire other entities or assets; • incur additional indebtedness; • create liens on our assets; • pay dividends; and • make investments.
The Credit Agreement restricts our ability to, among other things: • dispose of or sell our assets; • modify our organizational documents; 34 • merge with or acquire other entities or assets; • incur additional indebtedness; • create liens on our assets; • pay dividends; and • make certain investments.
If we or our distributors are unable to maintain our authorizations in a particular country, we will no longer be able to sell the applicable product in that country.
If we or our distributors or other third-parties are unable to maintain our authorizations in a particular country, we will no longer be able to sell the applicable product in that country.
In addition, holders of an aggregate of approximately 6,901,322 shares of our common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.
In addition, holders of an aggregate of approximately 7,304,605 shares of our common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or other stockholders.
As of December 31, 2022, we had a total of 22,877,962 outstanding shares of common stock, all of which may be resold in the public market immediately without restriction, other than shares owned by our affiliates, which may be sold pursuant to Rule 144 under the Securities Act, subject to the conditions of Rule 144 including volume limitations.
As of December 31, 2023, we had a total of 23,378,408 outstanding shares of common stock, all of which may be resold in the public market immediately without restriction, other than shares owned by our affiliates, which may be sold pursuant to Rule 144 under the Securities Act, subject to the conditions of Rule 144 including volume limitations.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Indebtedness — Loan Agreement.” If we do not have or are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either upon maturity or in the event of a default, we may be unable to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our ability to operate and continue our business as a going concern. 35 Our effective tax rate may fluctuate, and we may incur obligations in tax jurisdictions in excess of accrued amounts.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Indebtedness — Credit Agreement.” If we do not have or are unable to generate sufficient cash available to repay our debt obligations when they become due and payable, either upon maturity or in the event of a default, we may be unable to obtain additional debt or equity financing on favorable terms, if at all, which may negatively impact our ability to operate and continue our business as a going concern.
For example, our revenue grew from $98.0 million for the year ended December 31, 2021 to $122.3 million for the year ended December 31, 2022. We intend to continue to grow our business operations and may experience periods of rapid growth and expansion.
For example, our revenue grew from $122.3 million for the year ended December 31, 2022 to $148.7 million for the year ended December 31, 2023. We intend to continue to grow our business operations and may experience periods of rapid growth and expansion.
Orthopedic surgeons may be hesitant to change their surgical treatment practices for the following reasons, among others: • lack of experience with our products; • existing relationships with competitors and sales distributors that sell competitive products; • lack or perceived lack of evidence supporting additional patient benefits; • perceived liability risks generally associated with the use of new products and procedures; • less attractive availability of coverage and reimbursement within healthcare payment systems compared to procedures using other products and techniques; • costs associated with the purchase of new products and equipment; and • the time commitment that may be required for training. 40 In addition, we believe recommendations and support of our products by influential orthopedic surgeons are essential for market acceptance and adoption.
Orthopedic surgeons may be hesitant to change their surgical treatment practices for the following reasons, among others: • lack of experience with our products; • existing relationships with competitors and sales distributors that sell competitive products; • lack or perceived lack of evidence supporting additional patient benefits; • perceived liability risks generally associated with the use of new products and procedures; • less attractive availability of coverage and reimbursement within healthcare payment systems compared to procedures using other products and techniques; • costs associated with the purchase of new products and equipment; and • the time commitment that may be required for training.
Risks Related to Regulatory Matters Our products and operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements, including but not limited to the HDE requirements and MDD/MDR regulations, could harm our business. 50 We and our products are subject to extensive regulation in the United States and elsewhere, including by the FDA and its foreign counterparts.
Risks Related to Regulatory Matters Our products and operations are subject to extensive government regulation and oversight both in the United States and abroad, and our failure to comply with applicable requirements, including but not limited to the HDE requirements and MDD/MDR regulations, could harm our business.
We also sell our products in international markets, primarily through a network of 70 independent stocking distributors and 14 independent sales agencies. We sell our products in 70 countries outside of the United States, and we expect a significant amount of our revenue to come from international sales for the foreseeable future.
We also sell our products in international markets, primarily through a network of more than 70 independent stocking distributors, 14 independent sales agencies and multiple direct sales representatives. We sell our products in over 70 countries outside of the United States, and we expect a significant amount of our revenue to come from international sales for th e foreseeable future.
Sales through two of our independent sales agencies in the United States accounted for 11.4% and 10.7%, respectively, of our global revenue in 2022. Sales through two of our independent sales agencies in the United States accounted for 12.9% and 10.9%, respectively, of our global revenue in 2021.
Sales through two of our independent sales agencies in the United States accounted for 10.8% and 10.7%, respectively, of our global revenue in 2023. Sales through two of our independent sales agencies in the United States accounted for 11.4% and 10.7%, respectively, of our global revenue in 2022.
We may be unable to generate sufficient revenue from the commercialization of our products and services to achieve profitability. At present, we rely solely on the commercialization of our products and services to generate revenue, and we expect to generate substantially all of our revenue in the foreseeable future from sales of these products and services.
At present, we rely solely on the commercialization of our products and services to generate revenue, and we expect to generate substantially all of our revenue in the foreseeable future from sales of these products and services.
We rely heavily on providers of transport services for reliable and secure point-to-point transport of our products to our customers and for tracking of these shipments.
Expedited, reliable shipping is essential to our operations. We rely heavily on providers of transport services for reliable and secure point-to-point transport of our products to our customers and for tracking of these shipments.
Third parties may assert ownership or commercial rights to inventions we develop. 64 Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. We have written agreements with collaborators that provide for the ownership of intellectual property arising from our collaborations.
Third parties may in the future make claims challenging the inventorship or ownership of our intellectual property. We have written agreements with collaborators that provide for the ownership of intellectual property arising from our collaborations.
We may be unable to enforce our intellectual property rights throughout the world. The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions.
If orthopedic surgeons fail to safely and appropriately use our products, or if we are unable to train orthopedic surgeons on the safe and appropriate use of our products, we may be unable to achieve our expected growth.
In such circumstances, we may not achieve expected sales, growth or profitability. 40 If orthopedic surgeons fail to safely and appropriately use our products, or if we are unable to train orthopedic surgeons on the safe and appropriate use of our products, we may be unable to achieve our expected growth.
Competition for such independent sales agencies, distributors and marketing employees is intense and we may be unable to attract and retain sufficient personnel to maintain an effective sales and marketing force.
We will also need to attract independent sales personnel and attract and develop marketing personnel with industry expertise. Competition for such independent sales agencies, distributors and marketing employees is intense and we may be unable to attract and retain sufficient personnel to maintain an effective sales and marketing force.
Our operating results will be affected by numerous factors, including: variations in the level of expenses related to our products or future development programs; level of underlying demand for our products; addition or termination of clinical trials; our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements; any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved; and regulatory developments affecting our products or our competitors.
Our operating results will be affected by numerous factors, including: variations in the level of expenses related to our products or future development programs; level of underlying demand for our products; addition or termination of clinical trials; our execution of any collaborative, licensing or similar arrangements, and the timing of payments we may make or receive under these arrangements; any intellectual property infringement lawsuit or opposition, interference or cancellation proceeding in which we may become involved; and regulatory developments affecting our products or our competitors. 67 If our operating results for a particular period fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially.
It is important that we anticipate changes in technology and market demand, as well as physician, hospital and healthcare provider practices to successfully develop, obtain clearance or approval, if required, and successfully introduce new, enhanced and competitive technologies to meet our prospective customers’ needs on a timely and cost-effective basis. 36 We might be unable to successfully commercialize our current products with domestic or international regulatory clearances or approvals or develop or obtain regulatory clearances or approvals to market new products.
It is important that we anticipate changes in technology and market demand, as well as physician, hospital and healthcare provider practices to successfully develop, obtain clearance or approval, if required, and successfully introduce new, enhanced and competitive technologies to meet our prospective customers’ needs on a timely and cost-effective basis.
We market and sell our products in 70 countries outside of the United States. For the years ended December 31, 2022, 2021 and 2020, approximately 24%, 21% and 11% of our revenue was attributable to our international customers, respectively. These customers are generally allowed to return products, and some are thinly capitalized.
We market and sell our products i n over 70 co untries outside of the United States. For the years ended December 31, 2023, 2022 and 2021, approximately 25%, 24% and 21% of our revenue was attributable to our international customers, respectively. These customers are generally allowed to return products, and some are thinly capitalized.
We may seek to grow our business through acquisitions or investments in new or complementary businesses, products or technologies, through the licensing of products or technologies from third parties or other strategic alliances, and the failure to manage acquisitions, investments, licenses or other strategic alliances, or the failure to integrate them with our existing business, could have a material adverse effect on our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.
Additionally, any challenge to or investigation into our practices under these laws could cause adverse publicity and be costly to respond to, and thus could harm our business. 38 We may seek to grow our business through acquisitions or investments in new or complementary businesses, products or technologies, through the licensing of products or technologies from third parties or other strategic alliances, and the failure to manage acquisitions, investments, licenses or other strategic alliances, or the failure to integrate them with our existing business, could have a material adverse effect on our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.
Additionally, all or a portion of the Affordable Care Act and related subsequent legislation may be modified, repealed or otherwise invalidated through judicial challenge, which could result in lower numbers of insured individuals, reduced coverage for insured individuals and adversely affect our business. In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted.
Additionally, all or a portion of the Affordable Care Act and related subsequent legislation may be modified, repealed or otherwise invalidated through judicial challenge, 58 which could result in lower numbers of insured individuals, reduced coverage for insured individuals and adversely affect our business.
We are subject to several adverse event reporting regulations, which require us to report after we receive or become aware of information that reasonably suggests that one or more of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury.
The discovery of serious safety issues with our products, or a recall of our products either voluntarily or at the direction of a regulatory authority, could have a negative impact on us. 54 We are subject to several adverse event reporting regulations, which require us to report after we receive or become aware of information that reasonably suggests that one or more of our products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, was signed into law, which, among other things, includes a program for providers to receive accelerated or advanced Medicare payments.
On March 27, 2020, the CARES Act was signed into law, which, among other things, includes a program for providers to receive accelerated or advanced Medicare payments.
We believe that the publication of this negative information, and other efforts by certain market participants to manipulate the price of our common stock for their personal financial gain, may in the future lead to downward pressure on the price of our stock to the detriment of our stockholders.
We believe that the publication of this negative information, and other efforts by certain market participants to manipulate the price of our common stock for their personal financial gain, may in the future lead to downward pressure on the price of our stock to the detriment of our stockholders. 66 We may be subject to securities litigation, which is expensive and could divert our management’s attention.
Based on our current business plan, we believe our current cash, borrowing capacity under our loan agreements, cash receipts from sales of our products and net proceeds from our August 2022 public offering of securities will be sufficient to meet our anticipated cash requirements for at least the next 12 months.
Based on our current business plan, we believe our current cash, borrowing capacity under our Credit Agreement and cash receipts from sales of our products will be sufficient to meet our anticipated cash requirements for at least the next 12 months.
In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property.
In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property. Third parties may assert ownership or commercial rights to inventions we develop.
The loss of our senior management or our inability to attract and retain highly skilled salespeople and engineers could negatively impact our business. 45 Our success depends on the skills, experience and performance of the members of our executive management team.
These increases in scale or expansion of personnel may not be successfully implemented. 45 The loss of our senior management or our inability to attract and retain highly skilled salespeople and engineers could negatively impact our business. Our success depends on the skills, experience and performance of the members of our executive management team.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn addition, the Company also maintains an office in Israel and several flex office spaces in Europe, which allow us access to office space when needed. W e believe our current facilities are suitable and adequate to meet our current needs.
Biggest changeIn addition, the Company maintains an office in Israel, warehouses in Germany and Australia and several flex office spaces in Europe, which allow us access to office space when needed. We believe our current facilities are suitable and adequate to meet our current needs.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in various legal proceedings arising in the ordinary course of our business. A discussion of certain of those legal proceedings is contained in Note 15 – Commitments and Contingencies (under the heading “Legal Proceedings”) of the notes to the condensed consolidated financial statements included in Item 8.
Biggest changeITEM 3. LEGAL PROCEEDINGS From time to time, we are involved in various legal proceedings arising in the ordinary course of our business. A discussion of certain of those legal proceedings is contained in Note 15 – Commitments and Contingencies (under the heading “Legal Proceedings”) of the notes to the consolidated financial statements included in Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeHOLDERS OF RECORD At the close of business on February 27, 2023, the number of shares outstanding was 22,993,446. There were 211 stockholders of record on that date. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS There were no equity securities purchased by the issuer or any affiliated purchaser for the three months ended December 31, 2022.
Biggest changeHOLDERS OF RECORD At the close of business on March 1, 2024, the number of shares outstanding was 23,549,496. There were 377 stockholders of record on that date. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS There were no equity securities purchased by the issuer or any affiliated purchaser for the three months ended December 31, 2023.
See the “CAPITAL” section of “Management's Discussion & Analysis of Financial Condition and Results of Operations” included as Item 7 of this Annual Report on Form 10-K and Note 12 of the Notes to Consolidated Financial Statements included as Item 8 of this Annual Report on Form 10-K for a discussion regarding dividend restrictions.
See the “CAPITAL” section of “Management's Discussion & Analysis of Financial Condition and Results of Operations” included as Item 7 of this Annual Report on Form 10-K and Note 8 of the Notes to Consolidated Financial Statements included as Item 8 of this Annual Report on Form 10-K for a discussion regarding dividend restrictions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOther Expenses Our other expenses primarily consist of fair value adjustments of contingent consideration, accreted interest expense related to the acquisition installment payables and borrowing costs and expenses related to long-term debt. 75 Results of Operations Comparison of the Years Ended December 31, 2022 and 2021 The following table sets forth our results of operations for the years ended December 31, 2022 and 2021: (in thousands, except percentages) 2022 2021 Increase (Decrease) % Increase (Decrease) Net revenue $ 122,289 $ 98,049 $ 24,240 25 % Cost of revenue 31,629 24,646 6,983 28 % Sales and marketing expenses 45,053 39,673 5,380 14 % General and administrative expenses 59,383 46,061 13,322 29 % Trademark impairment 3,609 — 3,609 100 % Legal settlement expenses — 150 (150) (100) % Research and development expenses 8,014 5,543 2,471 45 % Other expenses (income) (21,710) (636) (21,074) 3314 % Provision for income taxes (benefit) (4,947) (1,128) (3,819) 339 % Net income (loss) $ 1,258 $ (16,260) $ 17,518 (108) % Revenue The following tables set forth our revenue by geography and product category for the years ended December 31, 2022 and 2021: Revenue by Geography Year Ended December 31, (in thousands, except percentages) 2022 % of revenue 2021 % of revenue U.S. $ 92,419 76% $ 77,781 79% International 29,870 24% 20,268 21% Total $ 122,289 100% $ 98,049 100% Revenue by Product Category Year Ended December 31, (in thousands, except percentages) 2022 % of revenue 2021 % of revenue Trauma and deformity $ 85,055 70% $ 65,829 67% Scoliosis 33,428 27% 28,046 29% Sports medicine/other 3,806 3% 4,174 4% Total $ 122,289 100% $ 98,049 100% Net revenue increased $24.2 million, or 25%, from $98.0 million for the year ended December 31, 2021 to $122.3 million for the year ended December 31, 2022.
Biggest changeOther Income (Expense) Our other income (expense) primarily consists of fair value adjustments of contingent consideration, accreted interest expense related to the acquisition installment payables, borrowing costs and expenses related to debt. 75 Results of Operations Comparison of the Years Ended December 31, 2023 and 2022 The following table sets forth our results of operations for the years ended December 31, 2023 and 2022: (in thousands, except percentages) 2023 2022 Increase (Decrease) % Increase (Decrease) Net revenue $ 148,732 $ 122,289 $ 26,443 22 % Cost of revenue 37,479 31,629 5,850 18 % Sales and marketing expenses 51,402 45,053 6,349 14 % General and administrative expenses 75,421 59,383 16,038 27 % Trademark impairment 985 3,609 (2,624) (73) % Research and development expenses 10,196 8,014 2,182 27 % Other income (5,439) (21,710) 16,271 (75) % Provision for income taxes (benefit) (338) (4,947) 4,609 (93) % Net (loss) income $ (20,974) $ 1,258 $ (22,232) (1,767) % Revenue The following tables set forth our revenue by geography and product category for the years ended December 31, 2023 and 2022: Revenue by Geography Year Ended December 31, (in thousands, except percentages) 2023 % of revenue 2022 % of revenue U.S. $ 111,010 75% $ 92,419 76% International 37,722 25% 29,870 24% Total $ 148,732 100% $ 122,289 100% Revenue by Product Category Year Ended December 31, (in thousands, except percentages) 2023 % of revenue 2022 % of revenue Trauma and deformity $ 106,781 72% $ 85,055 70% Scoliosis 37,933 25% 33,428 27% Sports medicine/other 4,018 3% 3,806 3% Total $ 148,732 100% $ 122,289 100% Net revenue increased $26.4 million, or 22%, from $122.3 million for the year ended December 31, 2022 to $148.7 million for the year ended December 31, 2023.
Additionally, based on our history of immaterial returns from international customers, we have historically estimated no reserve for returns. Inventory Valuation Inventory is stated at the lower of cost or net realizable value, with cost determined using the first-in-first-out method.
Additionally, based on our history of immaterial returns from international customers, we have historically estimated no reserve for returns. 80 Inventory Valuation Inventory is stated at the lower of cost or net realizable value, with cost determined using the first-in-first-out method.
Debt and Credit Arrangements in Item 8 for further detail regarding our debt and the timing of expected future principal and interest payments. • Acquisition installment payables, net of current portion and contingent consideration - See Note 3.
Debt and Credit Arrangements in Item 8 for further detail regarding our debt and the timing of expected future principal and interest payments. 79 • Acquisition installment payables, net of current portion and contingent consideration - See Note 3.
It is also possible that we may allocate significant amounts of capital toward products or technologies for which market demand is lower than anticipated and, as a result, abandon such efforts.
It is also possible 77 that we may allocate significant amounts of capital toward products or technologies for which market demand is lower than anticipated and, as a result, abandon such efforts.
In 2017, we began to supplement our international stocking distributors with sales agencies using direct sales programs in the United Kingdom, Ireland, Australia and New Zealand where we sell directly to the hospitals.
In 2017, we 72 began to supplement our international stocking distributors with sales agencies using direct sales programs in the United Kingdom, Ireland, Australia and New Zealand where we sell directly to the hospitals.
The calculation of the fair value 81 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.
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.
In 2022, there was a significant and unprecedented increase in cases of respiratory syncytial virus, or RSV, and other respiratory illnesses. RSV is a common respiratory virus that follows a seasonal pattern.
In 2023 and 2022, there was a significant and unprecedented increase in cases of respiratory syncytial virus, or RSV, and other respiratory illnesses. RSV is a common respiratory virus that follows a seasonal pattern.
Net cash used in investing activities in 2022 was primarily related to the cash portions paid in the acquisitions of MDO and Pega in the aggregate amount of $40.1 million and purchases of short term investments of $110.1 million, both of which were offset by sales of short term securities of $46.9 million.
Net cash used in 2022 was primarily related to the cash portions paid in the acquisitions of MDO and Pega in the aggregate amount of $40.1 million and purchases of short term investments of $110.1 million, both of which were offset by sales of short term securities of $46.9 million.
Business Combinations in Item 8 for further detail regarding our obligations and timing of expected future payments. • Minimum purchase obligations - Purchase obligations include agreements for purchases of product in the normal course of business, including minimum quantities required pursuant to our license agreements. See Note 15.
Business Combinations and Asset Acquisitions in Item 8 for further detail regarding our obligations and timing of expected future payments. • Minimum purchase obligations - Purchase obligations include agreements for purchases of product in the normal course of business, including minimum quantities required pursuant to our license agreements. See Note 15.
As a result of these transactions, we may record certain intangible assets, including goodwill and trademarks, which are subject to annual impairment testing. Fair value is based on our current assessment of the expected future cash flows based on recent results and other specific market factors.
As a result of these transactions, we may record certain intangible assets, including goodwill and trademarks, which are subject to annual impairment testing. Fair value is based on our current assessment of the expected future cash flows based on recent results and other specific market fact ors.
During 2022, 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.
During 2023 and 2022, 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.
The deferred tax assets, except for those recorded in Canada and Israel, were fully offset by a valuation allowance as of December 31, 2022 and 2021 and no income tax benefit has been recognized in continuing operations related to the NOLs which have valuation allowances.
The deferred tax assets, except for those recorded in Canada and Israel, were fully offset by a 81 valuation allowance as of December 31, 2023 and 2022 and no income tax benefit has been recognized in continuing operations related to the NOLs which have valuation allowances.
We believe our existing cash and cash equivalents, amounts available under the Loan Agreement, cash receipts from sales of our products and net proceeds from our August 2022 public securities offering will be sufficient to meet our anticipated cash requirements for at least the next 12 months.
We believe our existing cash and cash equivalents, amounts available under our new Credit Agreement, cash receipts from sales of our products and net proceeds from our August 2022 public securities offering will be sufficient to meet our anticipated cash requirements for at least the next 12 months.
Nonetheless, from time to time, we may seek additional financing sources to meet our working capital requirements, make continued research and development investments and make capital expenditures needed for us to maintain and grow our business. We may not be able to obtain additional financing on terms favorable to us, if at all.
Nonetheless, from time to time, we may seek additional financing sources to me et our working capital requirements, make continued research and development investments and make capital expenditures needed for us to maintain and grow our business. We may not be able to obtain additional financing on terms favorable to us, if at all.
We market and sell our products internationally in over 70 countries through independent stocking distributors and sales agencies. Our independent stocking distributors manage the billing relationship with each hospital in their respective territories and are responsible for servicing the product needs of their surgeon customers.
We market and sell our products internationally in over 70 coun tries through independent stocking distributors and sales agencies. Our independent stocking distributors manage the billing relationship with each hospital in their respective territories and are responsible for servicing the product needs of their surgeon customers.
During 2022, management determined that a triggering event occurred, indicating that it was more likely than not the fair value of the ApiFix trademark asset was less than the carrying value. As such, the company completed a quantitative analysis whereby we determined the fair value of the ApiFix trademark asset associated was below the carrying value.
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 was below the carrying value.
Sales and Marketing Expenses Our sales and marketing expenses primarily consist of commissions to our domestic and international independent sales agencies, as well as compensation, commissions, benefits and other related personnel costs. Commissions and bonuses are generally based on a percentage of sales.
Sales and Marketing Expenses Our sales and marketing expenses primarily consist of commissions to our domestic and international independent sales agencies, as well as compensation, commissions, benefits and other related personnel costs to our global sales management team. Commissions and bonuses are generally based on a percentage of sales.
We include insurance expenses in general and administrative expenses, as well as costs related to the maintenance and protection of our intellectual property portfolio. Our general and administrative expenses also include the depreciation of our capitalized instrument sets, which represented $6.2 million, $5.6 million and $3.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.
We include insurance expenses in general and administrative expenses, as well as costs related to the maintenance and protection of our intellectual property portfolio. Our general and administrative expenses also include the depreciation of our capitalized instrument sets, which represented $7.9 million, $6.2 million and $5.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Since inception we have impacted the lives of over 630,000 children, when including those served by our acquired companies. We believe we should continue to expand our social efforts while minimizing our impact to the environment and ensuring corporate governance.
Since inception we have impacted the lives of ove r 710,000 children, when including those served by our acquired companies. We believe we should continue to expand our social efforts while minimizing our impact to the environment and ensuring corporate governance.
We currently market 46 surgical and specialized bracing systems that serve three of the largest categories within the pediatric orthopedic market: (i) trauma and deformity correction, (ii) scoliosis and (iii) sports medicine. We rely on a broad network of third parties to manufacture the components of our products, which we then inspect and package.
We currently mar ket 53 su rgical and specialized bracing systems that serve three of the largest categories within the pediatric orthopedic market: (i) trauma and deformity correction, (ii) scoliosis and (iii) sports medicine. We rely on a broad network of third parties to manufacture the components of our products, which we then inspect and package.
We estimate that the portion of this market that we currently serve represents a $3.9 billion opportunity globally, including over $1.7 billion in the United States. We sell implants, instruments and specialized braces to our customers for use by pediatric orthopedic surgeons, orthotists or physical therapists to treat orthopedic conditions in children.
We estimate that the portion of this market that we currently serve represents a $3.9 b illion opportunity globally, including ov er $1.7 bi llion in the United States. We sell implants, instruments and specialized braces to our customers for use by pediatric orthopedic surgeons, orthotists or physical therapists to treat orthopedic conditions in children.
Nearly all the change in each category was due to a change in the unit volume sold and not a result of price changes. 76 Cost of Revenue and Gross Margin Cost of revenue was $31.6 million and $24.6 million for the years ended December 31, 2022 and 2021, respectively.
Nearly all the change in each category was due to a change in the unit volume sold and not a result of price changes. Cost of Revenue and Gross Margin Cost of revenue was $37.5 million and $31.6 million for the years ended December 31, 2023 and 2022, respectively.
In 2020 we were named as "Corporate Partner of the Year" by the World Pediatric Project - with whom we work to provide access to medical care for children in developing countries. • We are committed to fostering an environment that is respectful, compassionate, and inclusive of everyone in our community. • The Company and its Board of Directors understand the value of diversity.
In 2020, we were named as "Corporate Partner of the Year" by the World Pediatric Project - with whom we work to provide access to medical care for children in developing countries. • We are committed to fostering an environment that is respectful, compassionate, and inclusive of everyone in our community which is communicated in our diversity and inclusion policy.
During 2022, the primary uses of cash included an increase in inventory of $16.9 million as we deployed additional inventory, and an increase in accounts receivable of $3.9 million. These uses of cash were partially offset by cash inflows from other accrued expenses of $3.3 million, related primarily to accrued compensation.
During 2023, the primary uses of cash included an increase in inventory of $26.3 million as we deployed additional inventory and an increase in accounts receivable of $9.7 million. These uses of cash were partially offset by cash inflows from other accrued expenses of $6.9 million, related primarily to accrued compensation, and an increase in accounts payable of $1.5 million.
The acquisition installment payable is related to the acquisition of ApiFix - See Note 3. Business Combinations in Item 8 for further detail of the acquisition and the acquisition installment payables. Our long-term cash requirements under various contractual obligations and commitments include: • Debt obligations and interest payments - See Note 8.
Business Combinations and Asset Acquisitions in Item 8 for further detail of the acquisition and the acquisition installment payables. Our long-term cash requirements under various contractual obligations and commitments include: • Debt obligations and interest payments - See Note 8.
Actual results may differ materially from these estimates under different assumptions or conditions. 80 While our significant accounting policies are more fully described in the notes to our consolidated financial statements appearing elsewhere in this annual report, we believe the following accounting policies are most critical to understanding and evaluating our reported financial results and require significant or complex judgment and estimates on the part of management.
While our significant accounting policies are more fully described in the notes to our consolidated financial statements appearing elsewhere in this annual report, we believe the following accounting policies are most critical to understanding and evaluating our reported financial results and require significant or complex judgment and estimates on the part of management.
See note 15 - Commitments and Contingencies in Item 8 for additional details of our purchase commitments and performance obligations. Sales and Marketing Expenses Sales and marketing expenses increased $5.4 million, or 13.6%, from $39.7 million for the year ended December 31, 2021 to $45.1 million for the year ended December 31, 2022.
See Note 15 - Commitments and Contingencies in Item 8 for additional details of our purchase commitments and performance obligations. 76 Sales and Marketing Expenses Sales and marketing expenses increased $6.3 million, or 14%, from $45.1 million for the year ended December 31, 2022 to $51.4 million for the year ended December 31, 2023.
We also invested an additional $10.0 million in property, plant and equipment, primarily instrument sets which were consigned in the United States and select international markets.
We also invested $16.9 million in property, plant and equipment, primarily instrument sets which were consigned in the United States and select international markets.
The lower rate was driven by MD Ortho e-Commerce sales, which is sold without sales commissions, and lower commissions on other newly acquired products. General and Administrative Expenses General and administrative expenses increased $13.3 million, or 29%, from $46.1 million for the year ended December 31, 2021 to $59.4 million for the year ended December 31, 2022.
The lower rate was driven by MD Ortho e-Commerce sales, which is sold without sales commissions, and lower commissions on other newly acquired products. General and Administrative Expenses General and administrative expenses increased $16.0 million, or 27%, from $59.4 million for the year ended December 31, 2022 to $75.4 million for the year ended December 31, 2023.
The increase was due primarily to increased sales commission expenses and an overall increase in volume of units sold. Sales and marketing expenses also increased by approximately $1.5 million as a result of the acquisitions. Sales and marketing expenses for the year ended December 31, 2022 were approximately 37% of revenue compared to 40% for 2021.
The increase was due primarily to increased sales commission expenses and an overall increase in volume of u nits sold. Sales and marketing expenses also increased by approximately $0.7 million as a result of the acquisitions. Sales and marketing expenses for the year ended December 31, 2023 were approximately 35% of revenue compared to 37% for 2022 .
Research and Development Expenses Research and development expenses increased $2.5 million, or 45%, from $5.5 million for the year ended December 31, 2021 to $8.0 million for the year ended December 31, 2022.
Research and Development Expenses Research and development expenses increased $2.2 million, or 27%, from $8.0 million for the year ended December 31, 2022 to $10.2 million for the year ended December 31, 2023.
Liquidity and Capital Resources We have incurred operating losses since inception, excluding the fiscal year ended December 31, 2022, and negative cash flows from operating activities of $21.8 million, $13.1 million and $18.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, we had an accumulated deficit of $176.8 million.
Liquidity and Capital Resources We have incurred operating losses since inception and negative cash flows from operating activities of $27.0 million, $21.8 million and $13.1 million for the years ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023, we had an accumulated deficit of $197.7 million.
Cash Used in Investing Activities Net cash used in investing activities was $113.4 million, $7.4 million and $69.7 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Cash Provided by (Used in) Investing Activities Net cash provided by (used in) investing activities was $41.7 million and $(113.4) million for the years ended December 31, 2023 and 2022, respectively.
Since inception, we have funded our operations primarily with proceeds from the sales of our 77 common and preferred stock, convertible securities and debt, as well as through sales of our products. As of December 31, 2022, we had cash, cash equivalents and restricted cash of $10.5 million and short-term investments of $109.3 million.
Since inception, we have funded our operations primarily with proceeds from the sales of our common and preferred stock, convertible securities and debt, as well as through sales of our products. As of December 31, 2023, we had cash, cash equivalents and restricted cash of $33.0 million and short-term investments of $49.3 million for a total of $82.3 million.
Legal Settlement Expenses The Company is involved in various legal proceedings from time-to-time. Liabilities for estimated losses are accrued if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated.
Legal Settlement Expenses The Company is involved in various legal proceedings from time-to-time. Liabilities for estimated losses are accrued if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated. No accrual or adjustments were made during the years ended December 31, 2023 or 2022.
Total Other Income Total other income increased $21.1 million from $0.6 million for the year ended December 31, 2021 to $21.7 million for the year ended December 31, 2022. The change is driven primarily by the decrease in fair value of the contingent consideration related to the ApiFix acquisition.
Total Other Income Total other income decreased $16.3 million from $21.7 million for the year ended December 31, 2022 to $5.4 million for the year ended December 31, 2023. The change is driven primarily by the decrease in fair value of the contingent consideration related to the ApiFix acquisition in 2022.
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.
The primary reason for the impairment is the lower forecasted revenue of our ApiFix product than previously expected. We recorded impairment charges of $1.0 million and $3.6 million for the years ended December 31, 2023 and 2022, respectively, to reduce the carrying amount of the intangible asset to its estimated fair value.
Subsequently, the company completed a quantitative analysis and concluded that the fair value was in fact less than the carrying value and an impairment loss of $3.6 million was recorded in the period.
Subsequently, the company completed a quantitative analysis and concluded that the fair value was in fact less than the carrying value and impairment losses of $1.0 73 million and $3.6 million were recorded in 2023 and 2022, respectively.
Trauma and deformity revenue, which includes the impact from current year acquisitions, increased $19.2 million, or 29%, primarily driven by increased sales in our PNP Femur, Cannulated Screws, Orthex systems and $11.2 million of sales generated from acquired businesses.
Trauma and deformity revenue, which includes the impact from acquired businesses, increased $21.7 million, or 26%, primarily driven by increased sales in our Pega, PNP Femur, Cannulated Screws, Orthex systems and $5.3 million of sales generated from acquired businesses.
This had a negative impact on our sales volume in 2022 and may continue to do so into the future. We are unable to accurately determine exactly how this will impact us in the future, but we will continue to monitor this dynamic as we get closer to the traditional peak of RSV season.
We are unable to accurately determine exactly how this will impact us in the future, but we will continue to monitor this dynamic as we get closer to the traditional peak of RSV season.
Cash Flows The following table sets forth our cash flows from operating, investing and financing activities for the periods indicated: Year Ended December 31, (in thousands) 2022 2021 2020 Net cash used in operating activities $ (21,766) $ (13,063) $ (18,530) Net cash used in investing activities (113,371) (7,411) (69,693) Net cash provided by financing activities 135,974 6 46,732 Effect of exchange rate changes on cash 619 (658) (404) Net increase (decrease) in cash and restricted cash $ 1,456 $ (21,126) $ (41,895) Cash Used in Operating Activities Net cash used in operating activities was $21.8 million, $13.1 million and $18.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Cash Flows The following table sets forth our cash flows from operating, investing and financing activities for the periods indicated: Year Ended December 31, (in thousands) 2023 2022 Net cash used in operating activities $ (27,046) $ (21,766) Net cash provided by (used in) investing activities 41,677 (113,371) Net cash provided by financing activities 7,301 135,974 Effect of exchange rate changes on cash 633 619 Net increase in cash and restricted cash $ 22,565 $ 1,456 Cash Used in Operating Activities Net cash used in operating activities was $27.0 million and $21.8 million for the years ended December 31, 2023 and 2022, respectively.
Scoliosis revenue increased $5.4 million, or 19%, primarily driven by increased sales of our 4.5/5.0 and 5.5/6.0 RESPONSE systems, BandLoc and ApiFix as well as the sale and pull through of 7D. Sports medicine / other decreased $0.4 million, or 9%, due to lower external revenue from Telos.
Sco liosis revenue increased $4.5 million, or 13%, primarily driven by increased sales of our 4.5/5.0 and 5.5/6.0 RESPONSE systems and ApiFix as well as the sale and pull through of 7D. Sports medicine / other increased $0.2 million, or 6%.
We expect to increase our disclosures and communicate our ESG efforts in future SEC filings. Nothing on our website shall be deemed part of or incorporated by reference into this Annual Report on Form 10-K.
We believe effectively managing our priorities, as well as increasing our transparency related to ESG programs, will help create long-term value for our stakeholders. We expect to increase our disclosures and communicate our ESG efforts in future SEC filings. Nothing on our website shall be deemed part of or incorporated by reference into this Annual Report on Form 10-K.
For the year ended December 31, 2022, the change in fair value resulted in income of $25.9 million, compared to income of $1.8 million for the year ended December 31, 2021.
For the year ended December 31, 2023, the change in fair value resulted in income of $3.0 million, compared to income of $25.9 million for the year ended December 31, 2022. Interest expense for the year ended December 31, 2023 was less than $0.1 million compared to $0.7 million for the year ended December 31, 2022.
Gross margin was 74% for the year ended December 31, 2022 and 75% for the year ended December 31, 2021. The increase in cost of revenue was primarily driven by volume of units sold which included approximately $3.5 million from the result of acquisitions.
Gross margin was 75% for the year ended December 31, 2023 and 74% for the year ended December 31, 2022. The increase in cost of revenue was primarily driven by v olume of units sold which included approximately $1.7 million from the result of acquisitions. The gross margin includes a minimum performance obligation fee on the Firefly licensing agreement.
The mortgage balance was $0.9 million and $1.0 million as of December 31, 2022 and 2021, respectively. Contractual Obligations and Commitments The Company's cash requirements within the next twelve months include accounts payable, accrued compensation and benefits, current maturities of long-term debt, current portion of acquisition installment payable and other current liabilities.
Contractual Obligations and Commitments The Company's cash requirements within the next twelve months include accounts payable, accrued compensation and benefits, current maturities of long-term debt, current portion of acquisition installment payable and other current liabilities. The acquisition installment payable is related to the acquisition of ApiFix and MedTech - See Note 3.
This was offset by the cash paid for the first acquisition installment to ApiFix. The Company also utilized $31.0 million of its revolving credit facility with Squadron to fund the Pega acquisition. This was subsequently paid off in 2022. Net cash provided by financing activities in 2021 were immaterial to the results of our operations.
Net cash provided by financing activities for 2022 consisted primarily of the proceeds from the issuance of common stock and pre-funded warrants of $139.3 million, net of issuance costs. This was offset by the cash paid for the acquisition installment to ApiFix. The Company also utilized $31.0 million of its revolving credit facility with Squadron to fund the Pega acquisition.
Changes in estimates are reflected in reported results for the period in which they become known.
Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
Following the impairment, the newly calculated fair value becomes the new accounting basis and carrying value of the trademark. Net Operating Losses As of December 31, 2022, we had federal, state and foreign tax net operating loss carryforwards, or NOLs, of approximately $117.1 million, $74.8 million and $24.4 million, respectively, which begin to expire in 2028 unless utilized.
As of December 31, 2023, the carrying value of these three trademarks was $10.4 million. Net Operating Losses As of December 31, 2023, we had federal, state and foreign tax net operating loss carryforwards, or NOLs, of approximately $118.9 million, $76.9 million and $26.3 million, respectively, which begin to expire in 2028 unless utilized.
Indebtedness Loan Agreement The Company is party to a Fourth Amended and Restated Loan and Security Agreement with Squadron, as amended from time to time (as amended, the “Loan Agreement”), which provides the Company with a $50.0 million revolving credit facility. As of December 31, 2022, there was no outstanding indebtedness under the Loan Agreement.
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. There was no indebtedness outstanding under the Squadron Loan Agreement and it was terminated in connection with the Credit Agreement.
The primary use of this cash was to fund our operations related to the development and commercialization of our products in each of these years. Net cash used for working capital was $17.8 million, $12.6 million and $5.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.
The primary use of this cash was for working capital. Net cash used for working capital was $32.2 million and $17.8 million for the years ended December 31, 2023 and 2022, respectively.
The majority of our revenue from implants, instruments and specialized braces has been generated in the United States. We sell our implants and instruments through a network of 41 independent sales agencies employing 197 sales representatives specifically focused on pediatrics. These independent sales agents are trained by us, distribute our products and are compensated through sales-based commissions and performance bonuses.
We sell our implants and instruments through a networ k of multiple direct sales representatives as well as nearly 40 independent sales agencies employing approximately 200 sales representatives specifically focused on pediatrics. These independent sales agents are trained by us, distribute our products and are compensated through sales-based commissions and performanc e bonuses.
We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021. 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.
We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021. In these markets we work through sales agencies that are paid commissions.
The typical season 73 shows an increase in mid-September, peaks in late December and drops around mid-April; however, in 2022 the United States experienced a significant increase during the summer months. The volume of elective procedures utilizing our products were negatively impacted as a significant percent of hospital capacity was absorbed to cover the increase in RSV-related hospitalizations.
The typical season shows an increase in mid-September, peaks in late December and drops around mid-April; however, in 2022 the United States experienced a significant increase during the summer and fall months and in 2023 the United States experienced a significant increase in January and February as well as October through December months.
The increase was primarily due to the amortization on intangible assets acquired through the MD Ortho and Pega acquisitions and a full year of amortization associated with the purchase of the Band-Lok intellectual property and the purchases of licensing agreements, including the 7D Surgical FLASH TM Navigation platform, FIREFLY, and the 2021 scoliosis derotation license.
The increase was primarily due to a full year of amortization on intangible assets acquired through the MD Ortho and Pega acquisitions as well as the addition of MedTech Concepts and Rhino acquisitions.
Depreciation and amortization expenses increased $2.4 million, or 22%, from $10.7 million for the year ended December 31, 2021 to $13.1 million for the year ended December 31, 2022.
The increase was due primarily to the addition of personnel and resources to support the continued expansion of our business and stock compensation expense of $3.8 million. Depreciation and amortization expenses increased $4.3 million, or 33%, from $13.1 million for the year ended December 31, 2022 to $17.4 million for the year ended December 31, 2023 .
Net cash used in 78 2021 consisted primarily of the purchases of licenses of $7.9 million and the purchases of property plant and equipment, which were primarily instrument sets which were consigned in the United States and select international markets, of $8.1 million.
We also invested $10.0 million in property, plant and equipment, primarily instrument sets which were consigned in the United States and select international markets. Cash Provided By Financing Activities Net cash provided by financing activities was $7.3 million and $136.0 million for the years ended December 31, 2023 and 2022, respectively.
In these markets, we work through sales agencies that are paid a commission, similar to our U.S. sales model. These arrangements have generated an increase in revenue and gross margin. For the years ended 72 December 31, 2022, 2021 and 2020, international sales accounted for approximately 24%, 21% and 11% of our revenue, respectively.
For the years ended December 31, 2023, 2022 and 2021, international sales accounted for approximately 25%, 24% and 21% of our revenue, respectively.
The increase was primarily driven by the COVID-19 recovery in both domestic and global markets as well as $11.2 million of growth as a result of the MDO and Pega acquisitions.
Th e increase was primarily driven by increased market share across our product offerings as well as $5.3 million of growth as a result of the MDO and Pega acquisitions. Revenue from current year acquisitions is included in our trauma and deformity business.
Removed
In 2022, the Company added one additional diverse Director and our Board is targeting the addition of another diverse candidate in 2023. We believe effectively managing our priorities, as well as increasing our transparency related to ESG programs, will help create long-term value for our stakeholders.
Added
This section discusses our results of operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Removed
As a result of the COVID-19 pandemic, we have experienced significant business disruption throughout the last few years. Elective procedures are delayed in some cases as hospitals continue to struggle with adequate staffing levels.
Added
For a discussion and analysis of the year ended December 31, 2022 compared to December 31, 2021, please refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023.
Removed
As a majority of our products are utilized in elective surgeries or procedures, the deferrals of such surgeries and procedures have had, and may continue to have, a significant negative impact on our business and results of operations. Throughout the pandemic, we have taken a variety of steps to address the impact.
Added
The majority of our revenue from implants, instruments and specialized braces has been generated in the United States. Our global sales management organization leads a network of sales agencies, stocking distributors as well as direct sales representatives.
Removed
We continue to monitor the impact of the pandemic on our employees and customers and the markets in which we operate and will take further actions that are considered prudent to address the pandemic. We cannot accurately predict with certainty the full extent to which the pandemic will impact demand for our products in the future.
Added
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 as salaried employees to better serve our customers. These arrangements have generated an increase in revenue and gross margin.
Removed
For the year ended December 31, 2020, the Company accrued $6.3 million as a result of legal settlement negotiations ongoing at that time. During 2021, there were no material adjustments to the accrual and we paid the settlement amounts, resolving the related legal proceedings. No accrual or adjustments were made during the year ended December 31, 2022.
Added
For seven years we have been recognized by the Indiana Chamber of Commerce - Best Companies to Work in Indiana. • Th e Company and its Board of Directors understand the value of diversity. In 2022 and again in 2023, the Company added diverse Directors to our Board and will continue its Board diversity initiative in the future.
Removed
This was offset by a reduction in the number of procedures caused by an unusually high volume of respiratory illnesses in the United States, as well as a negative impact from the foreign currency conversion of our international revenue. Revenue from current year acquisitions is included in our trauma and deformity channel.
Added
The volume of elective procedures utilizing our products were negatively impacted as a significant percent of hospital capacity was absorbed to cover the increase in RSV-related hospitalizations. This had a negative impact on our sales volume in 2023 and 2022 and may continue to do so into the future.
Removed
The slight decrease in gross margin was driven primarily by higher set sales, sold at cost, to our international stocking distributors, as well as by payment of a minimum performance obligation fee on the Firefly licensing agreement, which resulted from the unfavorable impacts of COVID and respiratory illnesses in the first and fourth quarters of 2022, respectively.
Added
Trademark Impairment The Company recorded a partial impairment charge of $1.0 million and $3.6 million associated with the ApiFix trademark during the years ended December 31, 2023 and 2022, respectively. See Note 4 - Goodwill and Intangible Assets for further details.
Removed
The increase was due primarily to the addition of personnel and resources to support the continued expansion of our business and approximately $4.6 million in increased general and administrative expenses as a result of the acquisitions of MD Ortho and Pega.
Added
During 2022, we increased inventory by $16.9 million as we deployed additional inventory and accounts receivable increased by $3.9 million. We had a net loss of $21.0 million for the year ended December 31, 2023, compared to net income of $1.3 million for the year ended December 2022.
Removed
This was offset partially by the realized losses of investments of approximately $1.6 million and increased interest expense while the Company had borrowings under its Loan Agreement for the Pega acquisition. Interest expense for the year ended December 31, 2022 was $0.7 million compared to $0.1 million for the year ended December 31, 2021.
Added
Net cash provided by investing activities in 2023 was primarily related to the sales of short-term marketable securities of $112.9 million which was offset by the purchase of short-term investments of $48.6 million and the cash portion paid in the acquisitions of MedTech of $3.1 million and Rhino of $0.5 million.
Removed
During 2021, we increased inventory by $5.1 million as we deployed additional inventory, including $1.6 million and accounts receivable increased by $0.5 million. These uses of cash for working capital were offset by our legal settlement accrual of $6.3 and $1.1 million of other accrued expenses.
Added
Net cash provided by financing activities in 2023 consisted of the proceeds of $9.4 million, net of issuance costs, from our new loan agreement with MidCap Financial Trust. This was offset by the cash paid for the acquisition installment to ApiFix.
Removed
During 2020, we increased inventory by $12.1 million as we deployed additional inventory, including $1.6 million due to the repurchase of inventory from a stocking distributor in Germany, Austria and Switzerland that we converted to a sales agency, and accounts receivable increased by $0.5 million.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe estimate that an immediate 10% adverse change in foreign exchange rates not currently pegged to the U.S. dollar would have increased our reported net loss by an immaterial amount for the years ended December 31, 2022, 2021 and 2020. 83
Biggest changeWe estimate that an immediate 10% adverse change in foreign exchange rates not currently pegged to the U.S. dollar would have increased our reported net loss by an immaterial amount for the years ended December 31, 2023, 2022 and 2021. 82
We do not currently hedge our exposure to foreign currency exchange rate 82 fluctuations, but we may choose to do so in the future.
We do not currently hedge our exposure to foreign currency exchange rate fluctuations, but we may choose to do so in the future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our cash and short term investment balances as of December 31, 2022 and 2021 are related to our investment portfolio which consists largely of debt instruments of high quality corporate issuers.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk Our cash and short term investment balances as of December 31, 2023 and 2022 are related to our investment portfolio which consists largely of debt instruments of high quality corporate issuers.
Our policy also limits the amount of credit exposure to any one issue, issuer and type of instrument. As of December 31, 2022, we only held investments in securities of a short-term nature classified as cash equivalents or short-term investments.
Our policy also limits the amount of credit exposure to any one issue, issuer and type of instrument. As of December 31, 2023, we only held investments in securities of a short-term nature classified as cash equivalents or short-term investments.
Based upon our overall interest rate exposure as of December 31, 2022, a change of 10% in interest rates, assuming the amount of our investment portfolio and overall economic environment remains constant, would not have a material effect on interest income.
Based upon our overall interest rate exposure as of December 31, 2023, a change of 10% in interest rates, assuming the amount of our investment portfolio and overall economic environment remains constant, would not have a material effect on interest income.

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