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What changed in Xtant Medical Holdings, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Xtant Medical Holdings, Inc.'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.

+434 added−339 removedSource: 10-K (2024-04-01) vs 10-K (2023-03-07)

Top changes in Xtant Medical Holdings, Inc.'s 2023 10-K

434 paragraphs added · 339 removed · 245 edited across 5 sections

Item 1. Business

Business — how the company describes what it does

52 edited+34 added−8 removed105 unchanged
Biggest changeEmployee Engagement We provide all employees with the opportunity to anonymously share their opinions and feedback directly with senior management and human resources. Submissions are analyzed to enhance the employee experience, promote retention, drive change, and leverage the overall success of our organization.
Biggest changeOur employees are eligible for paid holidays effective immediately upon hire. Paid time off is available to all corporate employees and accrue based on length of service, and sick time is available for all commercial-sales employees. 15 Employee Engagement We provide all employees with the opportunity to anonymously share their opinions and feedback directly with senior management and human resources.
Unlike the various growth factor-based products on the market today, OsteoFactor is not limited to a single growth factor but contains a wide array of naturally occurring proteins and peptides that support bone formation and remodeling. ● OsteoVive Plus is a growth factor enriched cellular bone matrix created through a proprietary processing method.
Unlike many of the various growth factor-based products on the market today, OsteoFactor is not limited to a single growth factor but contains a wide array of naturally occurring proteins and peptides that support bone formation and remodeling. ● OsteoVive Plus is a growth factor enriched cellular bone matrix created through a proprietary processing method.
We also compete with tissue banks that do not offer spinal fixation products, such as AlloSource International, Inc., LifeNet Health, and MTF Biologics. 4 Intellectual Property We rely upon patents, trademarks, trade secrets and other proprietary rights to maintain and improve our competitive position.
We also compete with tissue banks that do not offer spinal fixation products, such as AlloSource International, Inc., LifeNet Health, and MTF Biologics. Intellectual Property We rely upon patents, trademarks, trade secrets and other proprietary rights to maintain and improve our competitive position.
We review third-party proprietary rights, including patents and patent applications, as available, to develop an effective intellectual property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities and monitor the intellectual property owned by others. We protect our proprietary rights through a variety of methods.
We review third-party proprietary rights, including patents and patent applications, as available, to develop an effective intellectual property strategy, avoid infringement of third-party proprietary rights, identify licensing opportunities and monitor the intellectual property owned by others. 6 We protect our proprietary rights through a variety of methods.
Reports filed with the SEC also may be viewed at www.sec.gov . We include our website throughout this report for reference only. The information contained on or connected to our website is not incorporated by reference into this report. 14
Reports filed with the SEC also may be viewed at www.sec.gov . We include our website throughout this report for reference only. The information contained on or connected to our website is not incorporated by reference into this report.
New establishments are required to register and list their HCT/Ps within 5 days after beginning operations. 6 ● Donor Eligibility: HCT/P establishments must screen donors for risk factors for, and clinical evidence of, relevant communicable disease agents and diseases and communicable disease risks associated with xenotransplantation, as well as test donors for relevant communicable disease agents. ● Good Tissue Practices: HCT/P establishments must comport with the regulatory requirements for preventing the introduction, transmission, or spread of communicable disease.
New establishments are required to register and list their HCT/Ps within 5 days after beginning operations. ● Donor Eligibility: HCT/P establishments must screen donors for risk factors for, and clinical evidence of, relevant communicable disease agents and diseases and communicable disease risks associated with xenotransplantation, as well as test donors for relevant communicable disease agents. 8 ● Good Tissue Practices: HCT/P establishments must comport with the regulatory requirements for preventing the introduction, transmission, or spread of communicable disease.
As such, we are exempt from certain NYSE American rules requiring our Board of Directors to have a majority of independent members, a compensation committee composed entirely of independent directors and a nominating committee composed entirely of independent directors.
As such, we are exempt from certain NYSE American rules requiring our Board of Directors to have a majority of independent directors, a compensation committee composed entirely of independent directors and a nominating committee composed entirely of independent directors.
The manufacturer must be truthful and not misleading in the reimbursement advice it gives to customers. 10 Actions under the Federal False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government.
The manufacturer must be truthful and not misleading in the reimbursement advice it gives to customers. 12 Actions under the Federal False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government.
OsteoSponge’s unique mechanical and osteoconductive properties in tandem with its osteoconductive potential make OsteoSponge an ideal bone graft for use in various orthopedic practices including spine, neurology, cranial/maxillofacial, trauma, plastic/reconstruction and general procedures where new bone growth is needed. 2 ● OsteoSelect DBM Putty is designed to be easily molded into any shape and compressed into bony voids.
OsteoSponge’s mechanical and osteoconductive properties in tandem with its osteoconductive potential are designed to make OsteoSponge an ideal bone graft for use in various orthopedic practices including spine, neurology, cranial/maxillofacial, trauma, plastic/reconstruction and general procedures where new bone growth is needed. ● OsteoSelect DBM Putty is designed to be easily molded into any shape and compressed into bony voids.
Derived from trabecular (cancellous) bone, OsteoSponge is designed to provide a natural scaffold for cellular in-growth and expose bone-forming proteins to the healing environment. The malleable properties of OsteoSponge enable it to conform to, and fill, most defects.
Derived from trabecular (cancellous) bone, OsteoSponge is designed to provide a natural scaffold for cellular in-growth and expose bone-forming proteins to the healing environment. The malleable properties of OsteoSponge are intended to enable it to conform to, and fill, most defects.
On October 15, 2015, our common stock began trading on the NYSE MKT, now known as the NYSE American, under the ticker symbol “XTNT.” Controlled Company Status As a result of debt restructuring transactions completed in 2018 and 2020, OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”) and ROS Acquisition Offshore LP (“ROS”), which are funds affiliated with OrbiMed Advisors LLC (“OrbiMed”), collectively own approximately 67.2% of our outstanding common stock as of December 31, 2022.
On October 15, 2015, our common stock began trading on the NYSE MKT, now known as the NYSE American, under the ticker symbol “XTNT.” Controlled Company Status As a result of debt restructuring transactions completed in 2018 and 2020, OrbiMed Royalty Opportunities II, LP (“Royalty Opportunities”) and ROS Acquisition Offshore LP (“ROS”), which are funds affiliated with OrbiMed Advisors LLC (“OrbiMed”), collectively own approximately 56.2% of our outstanding common stock as of December 31, 2023.
Our 3Demin products are easily hydrated with any biocompatible liquid, making them an ideal option for various bone grafting applications. They are most commonly used in spinal fusion procedures. ● OsteoFactor is a uniquely processed allograft that contains retained growth factors found within the endosteum layer of allograft bone.
Our 3Demin products are easily hydrated with any biocompatible liquid, making them an option for various bone grafting applications. They are most commonly used in spinal fusion procedures. 3 ● OsteoFactor is a processed allograft that contains retained growth factors found within the endosteum layer of allograft bone.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include sanctions such as: warning letters, fines, injunctions, consent decrees and civil penalties; unanticipated expenditures, repair, replacement, refunds, recall or seizure of our devices; operating restrictions, partial suspension or total shutdown of manufacturing; the FDA’s refusal of our requests for 510(k) clearances, de novo classification, or premarket approvals of new devices, new intended uses or modifications to existing devices; the FDA’s refusal to issue certificates to foreign governments needed to export devices for sale in other countries; and withdrawing 510(k) clearances, de novo marketing authorization, or premarket approvals that have already been granted; and criminal prosecution. 9 International Regulation Many foreign countries have regulatory bodies and restrictions similar to the FDA.
Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include sanctions such as: warning letters, fines, injunctions, consent decrees and civil penalties; unanticipated expenditures, repair, replacement, refunds, recall or seizure of our devices; operating restrictions, partial suspension or total shutdown of manufacturing; the FDA’s refusal of our requests for 510(k) clearances, de novo classification, or premarket approvals of new devices, new intended uses or modifications to existing devices; the FDA’s refusal to issue certificates to foreign governments needed to export devices for sale in other countries; and withdrawing 510(k) clearances, de novo marketing authorization, or premarket approvals that have already been granted; and criminal prosecution.
We have biologics contracts with major GPOs, as well as extensive access to integrated delivery networks (“IDNs”) across the United States for both our biologics and spine hardware products. We promote and sell our products internationally through distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries.
We have biologics contracts with major GPOs, as well as extensive access to integrated delivery networks (“IDNs”) across the United States for both our biologics and spine hardware products. We promote and sell our products internationally through direct sales representatives and distribution partners in Canada, Mexico, Europe, South America, Australia, and certain Pacific region countries.
Our primary competitors include Medtronic plc, Johnson and Johnson, Zimmer Biomet Holdings, Inc., Stryker Corporation, Nuvasive, Inc., Bioventus Inc., Globus Medical, Inc., Surgalign Holdings, Inc., SeaSpine Holdings Corporation, OrthoFix Medical Inc., Alphatec Holdings, Inc., as well as dozens of privately-owned companies.
Our primary competitors include Medtronic plc, Johnson and Johnson, Zimmer Biomet Holdings, Inc., Stryker Corporation, Nuvasive, Inc., Bioventus Inc., Globus Medical, Inc., SeaSpine Holdings Corporation, OrthoFix Medical Inc., Alphatec Holdings, Inc., ZimVie Inc., SI-Bone Inc., as well as dozens of privately-owned companies.
Failure to comply with applicable requirements may subject a device and/or its manufacturer to a variety of administrative sanctions, such as FDA refusal to approve pending pre-market approval applications (“PMAs”), issuance of warning letters, mandatory product recalls, import detentions, civil monetary penalties, and/or judicial sanctions, such as product seizures, injunctions, and criminal prosecution.
Failure to comply with applicable requirements may subject a device and/or its manufacturer to a variety of administrative sanctions, such as FDA refusal to approve pending PMAs, issuance of warning letters, mandatory product recalls, import detentions, civil monetary penalties, and/or judicial sanctions, such as product seizures, injunctions, and criminal prosecution.
Available Information We make available, free of charge and through our Internet website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).
We currently maintain a Board of Directors with a majority of independent directors and a compensation committee and nominating and corporate governance committee composed entirely of independent directors. 16 Available Information We make available, free of charge and through our Internet website, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to any such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (“SEC”).
The PMA approval pathway requires proof of the safety and effectiveness of the device to the FDA’s satisfaction. The 510(k) clearance pathway is much less burdensome and time-consuming than the PMA approval pathway. The de novo pathway has an enhanced burden compared to the 510(k) clearance pathway, but is much less burdensome than a PMA approval process.
The 510(k) clearance pathway is much less burdensome and time-consuming than the PMA approval pathway. The de novo pathway has an enhanced burden compared to the 510(k) clearance pathway, but is much less burdensome than a PMA approval process.
We have validated a low-dose, low-temperature gamma sterilization process designed to provide maximum osteoinductive potential while still affording device level sterility. ● OsteoSelect PLUS DBM Putty combines the exceptional cohesive characteristics of OsteoSelect DBM Putty with demineralized cortical chunks. OsteoSelect PLUS is designed to deliver differentiated handling properties and ensure patient safety through validated, terminal sterilization.
We have validated a low-dose, low-temperature gamma sterilization process designed to provide maximum osteoinductive potential while still affording device level sterility. ● OsteoSelect PLUS DBM Putty combines the cohesive characteristics of OsteoSelect DBM Putty with demineralized cortical chunks.
International sales are subject to foreign government regulation, the requirements of which vary substantially from country to country. The time required to obtain approval in a foreign country or to obtain a CE Certificate of Conformity may be longer or shorter than that required for FDA approval and the related requirements may differ.
The time required to obtain approval in a foreign country or to obtain a CE Certificate of Conformity may be longer or shorter than that required for FDA approval and the related requirements may differ.
It is intended to promote fusion of the subaxial cervical spine and cervico-thoracic junction (C3 − T3 inclusive). ● The Spider Cervical Plating System consists of simple, single step locking with 3 forms of locking feedback providing confidence in Spider System construct and performance.
It is intended to promote fusion of the subaxial cervical spine and cervico-thoracic junction (C3 − T3 inclusive). ● The Spider Cervical Plating System consists of simple, single step locking with 3 forms of locking feedback providing confidence in Spider System construct and performance. ● The Streamline OCT System allows a rigid construct to be created in the occipito-cervico-thoracic spine by offering a broad range of implants.
A novel device is placed in Class III by default, but it may be eligible to be placed in Class I or Class II via “de novo” classification if it can be shown to pose only low to moderate risk with appropriate regulatory controls.
A novel device is placed in Class III by default, but it may be eligible to be placed in Class I or Class II via “de novo” classification if it can be shown to pose only low to moderate risk with appropriate regulatory controls. 9 The PMA approval pathway requires proof of the safety and effectiveness of the device to the FDA’s satisfaction.
In addition to salaries, our compensation and benefits, typically include annual bonuses; commission programs; a 401(k) plan with employer matching opportunities; tuition assistance; and company-sponsored short-term and long-term disability, life and accidental death and dismemberment insurance, among others.
In addition to salaries, our compensation and benefits, typically include annual bonuses; commission programs; a 401(k) plan with employer matching opportunities; tuition assistance; and company-sponsored short-term and long-term disability, life and accidental death and dismemberment insurance, among others. Our benefit plans are available to full-time employees who work 30 or more hours per week.
Class III devices must typically be approved by the FDA before they are marketed. 7 Most Class I devices and a minority of Class II devices are completely exempt from premarket review by the FDA. Most Class II devices and a minority of Class I devices require 510(k) clearance.
Most Class I devices and a minority of Class II devices are completely exempt from premarket review by the FDA. Most Class II devices and a minority of Class I devices require 510(k) clearance.
Although we believe our proprietary technology has value, because of rapid technological changes in the medical industry, we also believe that proprietary protection is of less significance than factors such as the intrinsic knowledge and experience of our management, advisory board, consultants and personnel and their ability to identify unmet market needs and to create, invent, develop and market innovative and differentiated products. 5 Government Regulation We are registered with the U.S.
Although we believe our proprietary technology has value, because of rapid technological changes in the medical industry, we also believe that proprietary protection is of less significance than factors such as the intrinsic knowledge and experience of our management, advisory board, consultants and personnel and their ability to identify unmet market needs and to create, invent, develop and market innovative and differentiated products. 7 Government Regulation We are registered with the FDA as a manufacturer of human cellular and tissue products (“HCT/Ps”) as well as medical devices, and we are an accredited member in good standing of the American Association of Tissue Banks (“AATB”).
These materials are implanted or applied in or near the indicated bone to aid in healing, encourage bone tissue augmentation, compensate in areas where bone tissue is depleted, and restore structure to allow for repair.
Industry and Market Overview The orthopedic biomaterials market consists of materials that are organic, inorganic or synthetic in nature. These materials are implanted or applied in or near the indicated bone to aid in healing, encourage bone tissue augmentation, compensate in areas where bone tissue is depleted, and restore structure to allow for repair.
Some managed care programs pay their providers on a per capita basis, which puts the providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member per month and, consequently, may limit the willingness of these providers to use Xtant products. 11 The overall escalating cost of medical products and services has led to, and will likely continue to lead to, increased pressures on the healthcare industry to reduce the costs of products and services.
Some managed care programs pay their providers on a per capita basis, which puts the providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member per month and, consequently, may limit the willingness of these providers to use Xtant products.
Class III devices are generally the highest risk devices and are subject to the highest level of regulatory control to provide reasonable assurance of safety and effectiveness.
Class III devices are generally the highest risk devices and are subject to the highest level of regulatory control to provide reasonable assurance of safety and effectiveness. Class III devices must typically be approved by the FDA before they are marketed.
In addition, we have a professional development policy intended to promote professional development opportunities and provide support to employees who want to increase the effectiveness of their performance in their current position.
We have a robust learning management system platform that includes several modules for employee development and training. In addition, we have a professional development policy intended to promote professional development opportunities and provide support to employees who want to increase the effectiveness of their performance in their current position.
As a company, we work closely with the Donate Life Community to support our industry and promote the gift of donation. We have been an active sponsor for the Donate Life Rose Parade event since 2012 and sponsor a donor family and select employees to attend that event each year.
We have been an active sponsor for the Donate Life Rose Parade event since 2012 and sponsor a donor family and select employees to attend that event each year.
Human Capital Mission, Quality Policy and Core Values Our Mission is to “honor the gift of donation, by allowing our patients to live as full, and complete a life as possible.” Through an effective quality system, we prioritize our commitment to our patients and donor families. ● We aim to improve the quality of life for our patients by designing, manufacturing and distributing medical devices and human tissues for transplant that are safe, effective and meet the needs of our customers. ● We honor the gift of donation by enhancing our core competencies and maximizing utilization of the gift.
Human Capital Mission, Quality Policy and Core Values Our Mission is to “honor the gift of donation, by allowing our patients to live as full, and complete a life as possible.” Through an effective quality system, we prioritize our commitment to our patients and donor families.
We define diversity as the range of human differences, including but not limited to race, ethnicity, gender, gender identity, sexual orientation, age, social class, physical ability or attributes, religious or ethical values system, national origin, and political beliefs. 13 Community Engagement Throughout the year, we encourage our employees to engage in community outreach programs and we sponsor various community organizations in the Belgrade, Montana area.
We define diversity as the range of human differences, including but not limited to race, ethnicity, gender, gender identity, sexual orientation, age, physical ability or attributes, religious or ethical values system, national origin, and political beliefs.
In addition, it is possible that future legislation, regulation or coverage and reimbursement policies of third-party payors will adversely affect the demand for Xtant products or the ability to sell them on a profitable basis.
In addition, it is possible that future legislation, regulation or coverage and reimbursement policies of third-party payors will adversely affect the demand for Xtant products or the ability to sell them on a profitable basis. 13 Internationally, reimbursement and healthcare payment systems vary substantially from country to country and include single-payor, government-managed systems as well as systems in which private payors and government managed systems exist side-by-side.
Employees As of December 31, 2022, Xtant had 135 employees, 134 of whom were full time employees, and of whom 63 were in operations, 21 were in sales and marketing, 3 in research and development and engineering, 16 in regulatory and quality affairs, and 23 were in administrative functions.
Headcount and Employee Demographics As of December 31, 2023, Xtant had 215 employees, 207 of whom were full time employees, and of whom 70 were in operations, 50 were in sales and marketing, 13 in research and development and engineering, 26 in regulatory and quality affairs, and 23 were in administrative functions.
The FDA is increasingly moving devices with slightly different proposed indication statements or different technological features off the 510(k) path and onto the de novo path, resulting in more time and expense for the company. 8 A device not eligible for 510(k) clearance or de novo classification must follow the PMA approval pathway, which requires proof of the safety and effectiveness of the device to the FDA’s satisfaction.
The FDA is increasingly moving devices with slightly different proposed indication statements or different technological features off the 510(k) path and onto the de novo path, resulting in more time and expense for the company.
It provides minimally invasive, motion preserving stabilization. ● The CoFix implant allows minimally invasive, segmental stabilization after microsurgical decompression and serves to support posterior fusion as an alternative to fixation with pedicle screws.
The Coflex device has demonstrated long-term clinical outcomes for durable pain relief and stability. ● The CoFix implant allows minimally invasive, segmental stabilization after microsurgical decompression and serves to support posterior fusion as an alternative to fixation with pedicle screws.
Each lot of OsteoSelect PLUS DBM is tested for osteoinductivity in vivo prior to being released. ● 3Demin is a family of allografts that maximizes osteoconductivity and the osteoinductive potential of human bone. They consist of 100% demineralized cortical bone with excellent, malleable handling characteristics, and are distributed as a sterile allograft.
OsteoSelect PLUS is designed to deliver differentiated handling properties and ensure patient safety through validated, terminal sterilization. ● 3Demin is a family of allografts that maximizes osteoconductivity and the osteoinductive potential of human bone. They consist of 100% demineralized cortical bone with malleable handling characteristics, and are distributed as a sterile allograft.
None of our employees are covered by a collective bargaining agreement and management considers its relations with employees and service partners to be good. 12 Code of Conduct Each employee agrees to follow our Code of Conduct, which is on our corporate website, and covers a wide range of business practices and procedures.
Employee Unions, Collective Bargaining Agreements and Work Councils There are no unions representing our employees, and we believe that our relations with our employees are good. Code of Conduct Each employee agrees to follow our Code of Conduct, which is on our corporate website, and covers a wide range of business practices and procedures.
The system is indicated for attachment to the pedicles of the thoracic, lumbar, and sacral spine. 3 Interbody Products ● Calix is a family of PEEK interbody spacers and precision instruments for both cervical and thoracolumbar applications.
Interbody Products ● Calix is a family of polyetheretherketone, or PEEK, interbody spacers and precision instruments for both cervical and thoracolumbar applications.
It is intended for spinal fusion procedures at one or two contiguous levels of the lumbosacral spine (L2 − S1 inclusive) in skeletally mature patients for the treatment of degenerative disc disease. Interlaminar Stabilization Products ● The Coflex device is a single-piece, U-shaped, titanium implant intended for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression.
It is intended for spinal fusion procedures at one or two contiguous levels of the lumbosacral spine (L2 − S1 inclusive) in skeletally mature patients for the treatment of degenerative disc disease. ● Fortilink is a family of implants used in a variety of fixation procedures.
Trademarks We have registered, and continue to seek registration, of trademarks and continuously monitor and aggressively pursue users of names and marks that potentially infringe upon our registered trademarks. We currently own the following registered trademarks: OsteoSponge®, OsteoVive®, OsteoWrap®, OsteoLock®, BacFast®, OsteoSelect®, Elutia®, OsteoSTX®, hMatrix®, 3Demin®, BACTERINSE®, Circle of Life®, Coflex® and CoFix TM .
Trademarks We have registered, and continue to seek registration, of trademarks and continuously monitor and aggressively pursue users of names and marks that potentially infringe upon our registered trademarks.
Sacroiliac dysfunction is increasingly recognized as a frequent contributor to chronic low back pain. ● The Xpress Minimally Invasive Pedicle Screw System combines minimally invasive functionality to the most common lumbar fixation procedures — pedicle screw fixation. ● The Fortex Pedicle Screw System consists of titanium alloy bone screws, rods, cross-connectors and associated instruments.
Thoracolumbar Products ● The Axle Interspinous Fusion System is a fully modular interspinous device matched to the patient’s individual anatomy and available in multiple implantable configurations. ● The Xpress Minimally Invasive Pedicle Screw System combines minimally invasive functionality to the most common lumbar fixation procedures — pedicle screw fixation. ● The Fortex Pedicle Screw System consists of titanium alloy bone screws, rods, cross-connectors and associated instruments.
The combination of viable cells, growth factors and DBM fibers results in an allograft containing higher concentrations of growth factors than other cellular allografts.
The combination of viable cells, growth factors and DBM fibers results in an allograft containing higher concentrations of growth factors than other cellular allografts. ● The nanOss family of products provides osteoconductive nano-structured hydroxyapatite and an engineered extracellular matrix bioscaffold collagen carrier to provide a natural bone growth solution.
Satisfaction of FDA PMA requirements typically takes years, and the actual time required may vary substantially based upon the type, complexity, and novelty of the device or disease. In the future, Xtant may decide to strategically commercialize products in the United States that would require a PMA, but there are no plans to do so at the present time.
Satisfaction of FDA PMA requirements typically takes years, and the actual time required may vary substantially based upon the type, complexity, and novelty of the device or disease.
With respect to health and wellness, we provide our employees a variety of flexible and convenient health and wellness programs designed to support their physical and mental health. These include, among others, medical, dental and vision coverage, health savings and flexible spending accounts, flexible work schedules, family leave and care resources, and an employee assistance program.
These include, among others, medical, dental and vision coverage, health savings and flexible spending accounts, flexible work schedules, family leave and care resources, and an employee assistance program. Compensation and Benefits We provide competitive compensation and benefits to attract and retain superior talent and to give our employees the tools to succeed both on and off the job.
Employee Development and Training We recognize that successful execution of our strategy is dependent on attracting, developing and retaining top talent in all areas of the business. We have a robust learning management system platform that includes several modules for employee development and training.
Submissions are analyzed to enhance the employee experience, promote retention, drive change, and leverage the overall success of our organization. Employee Development and Training We recognize that successful execution of our strategy is dependent on attracting, developing and retaining top talent in all areas of the business.
While the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our future revenues. Industry and Market Overview The orthopedic biomaterials market consists of materials that are organic, inorganic or synthetic in nature.
While the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our future revenues. Recent Acquisitions Coflex and CoFix Product Lines On February 28, 2023, we acquired all of the issued and outstanding capital stock of Surgalign SPV, Inc.
Calix PC is a frictional titanium plasma-coated PEEK implant that provides additional biomechanical performance and end-plate visualization. ● The Axle-X Interspinous Fusion System is an internal fixation device for spinal surgery in the non-cervical spine (T1 − S1 inclusive).
Calix PC is a frictional titanium plasma-coated PEEK implant that provides additional biomechanical performance and end-plate visualization. ● The Irix-C Cervical Integrated Fusion System consists of an integrated titanium ring, surrounded by an outer PEEK ring and two screws.
We have biologics contracts with major GPOs, including Vizient, Premier, and HealthTrust Purchasing Group, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems. Our international footprint includes distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries. We do not have any operations in or sales to Europe.
We also maintain a national accounts program to enable our agents to gain access to IDN hospitals and through GPOs. We have biologics contracts with major GPOs, including Vizient, Premier, and HealthTrust Purchasing Group, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems.
The Axle-X Interspinous Fusion System is designed to provide spinal stability for lumbar fusion procedures, including the treatment of degenerative disc disease, spinal tumors and trauma. ● The Irix-C Cervical Integrated Fusion System consists of an integrated titanium ring, surrounded by an outer PEEK ring and two screws.
The Axle-X Interspinous Fusion System is designed to provide spinal stability for lumbar fusion procedures, including the treatment of degenerative disc disease, spinal tumors and trauma. ● The Streamline MIS Spinal Fixation System allows a rigid construct to be created in the thoracolumbar spine via a percutaneous or mini-open approach using cannulated pedicle screws, set screws and rods.
It is intended for use on all levels of the lumbar spine for back pain and intervertebral disc-related pain due to degenerative processes of the lumbar spine with the occurrence of instability. Sales and Marketing We distribute our products in the United States through an extensive distribution network of commissioned independent sales agents and stocking agents.
It is intended for use on all levels of the lumbar spine for back pain and intervertebral disc-related pain due to degenerative processes of the lumbar spine with the occurrence of instability. 5 Future Products In the near term, we plan to introduce a synthetic putty for bone graft applications; the BMAC System, a cell concentration system; and Cortera, a rod pedical screw system that has both open and minimally invasive modules.
As of December 31, 2022, our biologics patent portfolio includes 13 issued patents in the US and 6 pending US patent applications, and our fixation portfolio includes 51 issued patents in the US and one pending US patent application.
As of December 31, 2023, our biologics patent portfolio included 50 issued patents, 26 of which are issued U.S. patents, and 3 pending U.S. patent applications. Our fixation portfolio is patent protected globally and includes 260 issued patents, 180 of which are issued U.S. patents, and 16 pending patent applications, 7 of which are U.S. patent applications.
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Thoracolumbar Products ● The Axle Interspinous Fusion System is a fully modular interspinous device matched to the patient’s individual anatomy and available in multiple implantable configurations. ● The Silex Sacroiliac Joint Fusion System is a sacroiliac fixation system which actively compresses across the SI joint.
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(“Surgalign SPV”), a then indirect wholly owned subsidiary of Surgalign Holdings, Inc. (“Surgalign Holdings”), which held certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of the Coflex and CoFix products in the United States, for an aggregate purchase price of $17.0 million in cash.
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As of December 31, 2022, we had over 300 independent sales agents and stocking agents. We also maintain a national accounts program to enable our agents to gain access to IDN hospitals and through GPOs.
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The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration (the “FDA”) for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving stabilization.
Removed
Food and Drug Administration (“FDA”) as a manufacturer of human cellular and tissue products (“HCT/Ps”) as well as medical devices, and we are an accredited member in good standing of the American Association of Tissue Banks (“AATB”).
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Surgalign Holdings’ Hardware and Biologics Business On August 10, 2023, we completed the acquisition of certain assets of Surgalign Holdings and its subsidiaries on an as-is, where-is basis, including specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal property, records, all outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles related to the business of designing, developing and manufacturing hardware medical technology and distributing biologics medical technology, as conducted by Surgalign Holdings and its subsidiaries, and certain specified liabilities of Surgalign Holdings and its subsidiaries pursuant to an Asset Purchase Agreement, dated June 18, 2023, between Surgalign Holdings and us (as amended, the “Surgalign Asset Purchase Agreement”).
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After a medical device enters commercial distribution, numerous regulatory requirements continue to apply.
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Pursuant to the Surgalign Asset Purchase Agreement, we were able to acquire Surgalign Holdings’ broad portfolio of spinal hardware implants, including solutions for fusion procedures in the lumbar, thoracic, and cervical spine, and motion preservation solutions for the lumbar spine. Additionally, we were able to acquire Surgalign Holdings’ biomaterials portfolio of advanced and traditional orthobiologics.
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Internationally, reimbursement and healthcare payment systems vary substantially from country to country and include single-payor, government-managed systems as well as systems in which private payors and government managed systems exist side-by-side.
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These offerings complement our portfolio of orthobiologics and spinal implant fixation systems. This transaction was conducted through a process supervised by the United States Bankruptcy Court in connection with Surgalign Holdings’ bankruptcy proceedings.
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In addition, we utilize various outsourced services to manage normal business cycles.
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We funded the purchase price of $5 million with cash on hand. 2 RTI Surgical, Inc.’s nanOss Production Operations On October 23, 2023, we acquired the nanOss production operations owned by RTI Surgical, Inc. (“RTI”) pursuant to an Asset Purchase Agreement dated October 23, 2023 between us and RTI (the “RTI Asset Purchase Agreement”).
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Throughout the COVID-19 pandemic, our employees have been our first and foremost focus as we implemented a number of measures to provide a safe work environment, including social distancing and remote work schedules.
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Under the terms of the RTI Asset Purchase Agreement, we acquired certain assets, including equipment and inventory, used in RTI’s synthetic bone graft business and assumed from RTI the lease for the nanOss production facility located in Greenville, North Carolina.
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With respect to COVID-19, we have encouraged our employees to get a COVID-19 vaccine by sharing information on the vaccines and where to obtain one. Compensation and Benefits We provide competitive compensation and benefits to attract and retain superior talent and to give our employees the tools to succeed both on and off the job.
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The purchase price for the assets was $2 million in cash plus a low single digit royalty on sales prior to October 23, 2028 of next generation nanOss products. We previously acquired the nanOss distribution rights and nanOss intellectual property with the acquisition of assets related to the biologics and spinal fixation business of Surgalign Holdings, as described above.
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Conversely, motion preservation devices are designed predominantly to stabilize the spine and allow for motion of the segments. Spine implants can be surgically applied via traditional open surgery or via minimally invasive surgery. We provide devices in both the fixation and motion preservation categories of the spine implant market and via both surgical methodologies.
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These implants provide the ability to tailor treatment to a specific patient. ● The CervAlign System is a comprehensive anterior cervical plate system designed to meet the varying clinical needs of surgeons performing anterior cervical discectomy and fusion procedures. The system is able to accommodate semi-constrained, constrained and hybrid constructs.
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The system is indicated for attachment to the pedicles of the thoracic, lumbar, and sacral spine. 4 ● The Axle-X Interspinous Fusion System is an internal fixation device for spinal surgery in the non-cervical spine (T1 − S1 inclusive).
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The system offers a broad range of implants and instruments, providing the ability to tailor treatment to a specific patient. ● The Streamline TL Spinal Fixation System allows a rigid construct to be created in the thoracolumbar spine using pedicle screws, set screws, rods and Streamline TL Crosslinks.
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The system offers a broad range of implants and instruments, providing the ability to tailor treatment to a specific patient. Sacroiliac Joint Products ● The Silex Sacroiliac Joint Fusion System is a sacroiliac fixation system which actively compresses across the SI joint. Sacroiliac dysfunction is increasingly recognized as a frequent contributor to chronic low back pain.
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Fortilink implants with TiPlus Technology are manufactured with selective laser melting and are built from implant grade titanium alloy. Open mesh structure and graft windows are designed to allow bone ingrowth and facilitate fusion. ● Fortilink implants with TETRAfuse 3D Technology maintain bone-like mechanical properties.
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The unique features of the 3D printed nano-rough surface have been shown to allow bone cells to attach to the implant, increasing the potential for fusion. Interlaminar Stabilization Products ● The Coflex device is a single-piece, U-shaped, titanium implant intended for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression.
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It provides minimally invasive, motion preserving stabilization. We believe that Coflex device is the only FDA premarket approval application (“PMA”) approved implant for the treatment of moderate to severe lumbar spinal stenosis in conjunction with direct decompression.
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The Coflex device is the first and only posterior lumbar motion preservation solution with Level I evidence, the highest possible level of clinical data, from two prospective, randomized studies against two treatment options—decompression alone and decompression with fusion—across two countries, the United States and Germany.
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We are also in the process of developing other new products, including OsteoSelect Fiber Putty, a fiber-based putty; the OsteoSelect MIS gun, a bone graft delivery system; 3Demin Fiber Plus, an enhanced loose fiber formulation; and various growth factor strips and shapes.
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Sales and Marketing We distribute our products in the United States through an extensive distribution network of commissioned independent sales agents and stocking agents. As a result of our recent acquisitions, we have expanded our network in 2023. As of December 31, 2023, we had over 650 independent sales agents and stocking agents.
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Our international footprint includes direct sales representatives and distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries. Additionally, as a result of our recent acquisitions, we gained distribution partners in the European Union in 2023. Our European Union business is based in Wurmlingen, Germany.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAlthough our revenue from outside the United States comprised only 1% of our total revenue for the year ended December 31, 2022, our international sales operations nevertheless expose us and our representatives, agents, and distributors to the following risks inherent in operating in foreign jurisdictions: ● the imposition of additional U.S. and foreign governmental controls or regulations on orthopedic implants and biologic products; ● withdrawal from or revision to international trade policies or agreements and the imposition or increases in import and export licensing and other compliance requirements, customs duties and tariffs, import and export quotas and other trade restrictions, license obligations, and other non-tariff barriers to trade; ● economic instability, including economic instability caused by COVID-19 and currency risk between the U.S. dollar and foreign currencies, in our markets; ● political instability, including instability related to the current conflict between Russia and Ukraine; ● a shortage of high-quality international salespeople and distributors; ● loss of any key personnel who possess proprietary knowledge or are otherwise important to our success in international markets; 23 ● changes in third-party reimbursement policy that may require some of the patients who receive our products to directly absorb medical costs or that may necessitate our reducing selling prices for our products; ● transportation delays and interruptions, including due to recent supply chain and shipping disruptions; and ● exposure to different legal and political standards.
Biggest changeOur international sales operations and newly acquired international subsidiaries expose us and our representatives, agents, and distributors to the following risks inherent in operating in foreign jurisdictions: ● the imposition of additional U.S. and foreign governmental controls or regulations on orthopedic implants and biologic products; 21 ● withdrawal from or revision to international trade policies or agreements and the imposition or increases in import and export licensing and other compliance requirements, customs duties and tariffs, import and export quotas and other trade restrictions, license obligations, and other non-tariff barriers to trade; ● economic instability and currency risk between the U.S. dollar and foreign currencies in our markets; ● political instability, including instability related to the war between Russia and Ukraine and the war between Israel and Hamas; ● the imposition of U.S. or international sanctions against a country, company, person, or entity with whom we do business that would restrict or prohibit continued business with that country, company, person, or entity; ● the imposition of restrictions on the activities of foreign agents, representatives and distributors; ● scrutiny of foreign tax authorities, which could result in significant fines, penalties and additional taxes being imposed upon us; ● difficulties in managing and staffing international operations and increases in infrastructure costs including legal, tax, accounting and information technology; ● risks related to complying with accounting rules and regulations in foreign jurisdictions and consolidating the financial statements of our international subsidiaries in our financial statements; ● a shortage of high-quality international salespeople and distributors; ● loss of any key personnel who possess proprietary knowledge or are otherwise important to our success in international markets; ● changes in third-party reimbursement policy that may require some of the patients who receive our products to directly absorb medical costs or that may necessitate our reducing selling prices for our products; ● unexpected changes in foreign regulatory requirements; ● differing local product preferences and product requirements; ● changes in tariffs and other trade restrictions, particularly related to the exportation of our biologic products; ● difficulties in protecting, enforcing and defending intellectual property rights; ● foreign currency exchange controls that might prevent us from repatriating cash; ● longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain foreign legal systems; ● transportation delays and interruptions, including due to recent supply chain and shipping disruptions; ● national and international conflicts, including foreign policy changes, acts of war or terrorist acts; ● complex data privacy requirements and labor relations laws; and ● exposure to different legal and political standards. 22 Operations conducted through our international subsidiaries require management attention and financial resources and exposes us to difficulties and risks presented by international economic, political, legal, accounting and business factors.
Risks Related to Our Information Technology, Cybersecurity and Data Protection ● We are dependent on various information technology systems, and failures of, interruptions to, or unauthorized tampering with those systems could have a material adverse effect on our business.
Risks Related to Information Technology, Cybersecurity and Data Protection ● We are dependent on various information technology systems, and failures of, interruptions to, or unauthorized tampering with those systems could have a material adverse effect on our business.
Federal regulatory reforms may adversely affect our ability to sell our products and our business. From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof.
Federal regulatory reforms may adversely affect our business and our ability to sell our products. From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulatory approval, manufacture and marketing of regulated products or the reimbursement thereof.
We are also required to collect information on payments or transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives for reporting to CMS; 26 ● analogous state and foreign law equivalents of each of the above federal laws, such as state anti-kickback prohibitions and false claims prohibitions which may apply to items or services reimbursed by any third-party payor, including commercial insurers; 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; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other and federal law in significant ways and may not have the same effect, thus complicating compliance efforts; and ● the Federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and its implementing regulations, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain regulatory and contractual requirements regarding the privacy, security and transmission of individually identifiable health information.
We are also required to collect information on payments or transfers of value to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse-midwives for reporting to CMS; ● analogous state and foreign law equivalents of each of the above federal laws, such as state anti-kickback prohibitions and false claims prohibitions which may apply to items or services reimbursed by any third-party payor, including commercial insurers; 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; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other and federal law in significant ways and may not have the same effect, thus complicating compliance efforts; and 34 ● the Federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), and its implementing regulations, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters and which also imposes certain regulatory and contractual requirements regarding the privacy, security and transmission of individually identifiable health information.
For example, certain financial payments that might otherwise implicate the Federal Anti-Kickback Statute will be permitted under the state if they are structured to comply with one of various statutory exceptions or regulatory safe harbors established by the Office of Inspector General (“OIG”) of the U.S. Department of Health and Human Services.
For example, certain financial payments that might otherwise implicate the Federal Anti-Kickback Statute will be permitted under the state if they are structured to comply with one of various statutory exceptions or regulatory safe harbors established by the Office of Inspector General of the U.S. Department of Health and Human Services.
If a governmental authority were to determine that we do not comply with these laws and regulations, the Company and our directors, officers and employees could be subject to criminal and civil penalties, including exclusion from participation in U.S. federal healthcare reimbursement programs. Many of these healthcare laws inevitably influence company standards of conduct.
If a governmental authority were to determine that we do not comply with these laws and regulations, the Company and our directors, officers and employees could be subject to criminal and civil penalties, including exclusion from participation in U.S. federal healthcare reimbursement programs. 33 Many of these healthcare laws inevitably influence company standards of conduct.
If any of these events were to occur, it could materially adversely affect us. In addition, the FDA could disagree with our conclusion that one or more of our HCT/Ps meet the criteria for marketing solely under Section 361 of the PHSA, and therefore that one or more of the HCT/Ps require licensure, approval or clearance of a marketing application.
If any of these events were to occur, it could materially adversely affect us. 41 In addition, the FDA could disagree with our conclusion that one or more of our HCT/Ps meet the criteria for marketing solely under Section 361 of the PHSA, and therefore that one or more of the HCT/Ps require licensure, approval or clearance of a marketing application.
We are party to an Investor Rights Agreement with ROS and Royalty Opportunities under which they are permitted to nominate a majority of the directors and designate the chairperson of our Board of Directors at subsequent annual meetings, as long as they maintain an ownership threshold in our Company of at least 40% of our then outstanding common stock.
We are party to the Investor Rights Agreement, under which ROS and Royalty Opportunities are permitted to nominate a majority of the directors and designate the chairperson of our Board of Directors at subsequent annual meetings, as long as they maintain an ownership threshold in our Company of at least 40% of our then outstanding common stock.
Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. U.S. governmental regulation could restrict the use of our tissue products or our procurement of tissue.
Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention from the operation of our business. 35 U.S. governmental regulation could restrict the use of our tissue products or our procurement of tissue.
If these or any future warrants, options or restricted stock units are exercised or otherwise converted into shares of our common stock, our stockholders will experience additional dilution. The sale or availability for sale of substantial amounts of our common stock or other equity securities could adversely affect the market price of our common stock.
If these or any future warrants, options or restricted stock units are exercised or otherwise converted into shares of our common stock, our stockholders will experience additional dilution. 53 The sale or availability for sale of substantial amounts of our common stock or other equity securities could adversely affect the market price of our common stock.
Product liability lawsuits and claims, safety alerts and product recalls, regardless of their ultimate outcome, could result in decreased demand for our products, injury to our reputation, significant litigation and other costs, substantial monetary awards to or costly settlements with patients, product recalls, loss of revenue, increased regulatory scrutiny, and the inability to commercialize new products or product candidates, and otherwise have a material adverse effect on our business and reputation and on our ability to attract and retain customers. 20 Our quarterly operating results are subject to substantial fluctuations, and you should not rely on them as an indication of our annual or future results.
Product liability lawsuits and claims, safety alerts and product recalls, regardless of their ultimate outcome, could result in decreased demand for our products, injury to our reputation, significant litigation and other costs, substantial monetary awards to or costly settlements with patients, product recalls, loss of revenue, increased regulatory scrutiny, and the inability to commercialize new products or product candidates, and otherwise have a material adverse effect on our business and reputation and on our ability to attract and retain customers. 28 Our quarterly operating results are subject to substantial fluctuations, and you should not rely on them as an indication of our annual or future results.
As with our customers and vendors, these economic conditions make it more difficult for us to accurately forecast and plan our future business activities. Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and business operations.
As with our customers and vendors, these economic conditions make it more difficult for us to accurately forecast and plan our future business activities. 56 Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and business operations.
If adequate funds are not otherwise available, we could be required to curtail operations significantly, including reducing our sales and marketing expenses, which could negatively impact product sales, delaying new product initiatives, and we could even be required to cease operations, liquidate our assets and possibly seek bankruptcy protection. 36 To the extent we raise additional financing through the sale of equity or convertible debt securities or the restructuring or refinancing of our outstanding debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, or liquidation or other preferences that adversely affect the rights of our current stockholders.
If adequate funds are not otherwise available, we could be required to curtail operations significantly, including reducing our sales and marketing expenses, which could negatively impact product sales, delaying new product initiatives, and we could even be required to cease operations, liquidate our assets and possibly seek bankruptcy protection. 44 To the extent we raise additional financing through the sale of equity or convertible debt securities or the restructuring or refinancing of our outstanding debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, or liquidation or other preferences that adversely affect the rights of our current stockholders.
Our independent sales agents and distributors may terminate their contracts with us, may devote insufficient sales efforts to our products, or may focus their sales efforts on other products that produce greater commissions or revenues for them, which could have an adverse effect on our operations and operating results. 34 We depend on a limited number of third-party suppliers for products, components and raw materials and losing any of these suppliers, or their inability to provide us with an adequate supply of materials that meet our quality and other requirements or our failure to order a sufficient supply of products, components and raw materials, could harm our business and operating results.
Our independent sales agents and distributors may terminate their contracts with us, may devote insufficient sales efforts to our products, or may focus their sales efforts on other products that produce greater commissions or revenues for them, which could have an adverse effect on our operations and operating results. 27 We depend on a limited number of third-party suppliers for products, components and raw materials and losing any of these suppliers, or their inability to provide us with an adequate supply of materials that meet our quality and other requirements or our failure to order a sufficient supply of products, components and raw materials, could harm our business and operating results.
Such changes may be difficult to predict and implement and could materially, or otherwise, impact how we prepare and report our consolidated financial statements, results of operations, and financial condition. 48 The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the NYSE American, may strain our resources and divert management’s attention, and we may be unable to comply with these requirements in a timely or cost-effective manner.
Such changes may be difficult to predict and implement and could materially, or otherwise, impact how we prepare and report our consolidated financial statements, results of operations, and financial condition. 57 The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the NYSE American, may strain our resources and divert management’s attention, and we may be unable to comply with these requirements in a timely or cost-effective manner.
Any difficulties in the assimilation of acquired businesses into our control system could harm our operating results or cause us to fail to meet our financial reporting obligations.
Any such difficulties in the assimilation of acquired businesses into our control system could harm our operating results or cause us to fail to meet our financial reporting obligations.
In addition, adverse economic conditions, such as the lingering economic impacts of COVID-19, continuing supply chain disruptions, labor shortages and persistent inflation, and measures taken in response thereto, including recent interest rate increases, could also adversely impact our suppliers’ ability to provide us with materials and components, which may negatively impact our business.
In addition, adverse economic conditions, such as the lingering economic impacts of COVID-19, supply chain disruptions, labor shortages and persistent inflation, and measures taken in response thereto, including interest rate increases, could also adversely impact our suppliers’ ability to provide us with materials and components, which may negatively impact our business.
We may require or we may seek additional funds to fund our future operations and business strategy prior to March 2024. Accordingly, there is no assurance that we will not need or seek additional funding at any time. We may elect to raise additional funds even before we need them if market conditions for raising additional capital are favorable.
We may require or we may seek additional funds to fund our future operations and business strategy prior to March 2025. Accordingly, there is no assurance that we will not need or seek additional funding at any time. We may elect to raise additional funds even before we need them if market conditions for raising additional capital are favorable.
Our growth initiatives designed to increase our revenue and scale may not be successful and involve risks. During 2021 and 2022, we focused primarily on four key growth initiatives: (1) introduce new products; (2) expand our distribution network; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions.
Our growth initiatives designed to increase our revenue and scale may not be successful and involve risks. During 2022 and 2023, we focused primarily on four key growth initiatives: (1) introduce new products; (2) expand our distribution network; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions.
In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products.
FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products.
It is impossible to predict whether legislative changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be. 33 Our revenues depend upon prompt and adequate coverage and reimbursement from public and private insurers and national health systems.
It is impossible to predict whether legislative or other changes will be enacted or FDA regulations, guidance or interpretations changed, and what the impact of such changes, if any, may be. Our revenues depend upon prompt and adequate coverage and reimbursement from public and private insurers and national health systems.
If we cannot attract and retain qualified personnel or if we must increase substantially our labor costs to attract and retain qualified personnel, the growth and success of our business, as well as our operating results and financial condition, will be adversely affected. 35 We have limited staffing and are dependent upon key employees.
If we cannot attract and retain qualified personnel or if we must increase substantially our labor costs to attract and retain qualified personnel, the growth and success of our business, as well as our operating results and financial condition, will be adversely affected. 43 We have limited staffing and are dependent upon key employees.
These factors include, among others: ● demand for our products; ● the effect of labor and staffing shortages at hospitals and other medical facilities on the number of elective procedures in which our products are used as well as global and local labor shortages and loss of personnel; ● the effect of inflation, increased interest rates and other recessionary indicators and supply chain disruptions; ● the impact of COVID-19 on the number of elective procedures and our business and operating results; ● the level of competition; ● the number, timing, and significance of new products and product introductions and enhancements by us and our competitors; ● our ability to develop, introduce, and market new and enhanced versions of our products on a timely basis; ● the timing of or failure to obtain regulatory clearances or approvals for our products; ● changes in pricing policies by us and our competitors; ● changes in the treatment practices of our customers; ● changes in independent sales representative or distributor relationships and sales force size and composition; ● the timing of material expense- or income-generating events and the related recognition of their associated financial impact; ● the number and mix of products sold in the quarter and the geographies in which they are sold; ● the number of selling days; ● the availability and cost of components and materials; ● the timing of orders and shipments; ● ability to obtain reimbursement for our products and the timing of patients’ use of their calendar year medical insurance deductibles; ● work stoppages or strikes in our industry; ● changes in FDA and foreign governmental regulatory policies, requirements, and enforcement practices; ● changes in accounting standards, policies, estimates, and treatments; ● restructuring, impairment, and other special charges; ● costs associated with pending and any future litigation; 21 ● variations in cost of sales due to the amount and timing of excess and obsolete inventory charges and manufacturing variances; ● income tax fluctuations and changes in tax rules; ● general economic, social and other external factors; and ● increases of interest rates, which can increase the cost of borrowings under our credit agreements and generally affect the level of economic activity.
These factors include, among others: ● demand for our products; ● the effect of labor and staffing shortages at hospitals and other medical facilities on the number of elective procedures in which our products are used as well as global and local labor shortages and loss of personnel; ● the effect of inflation, increased interest rates and other recessionary indicators and supply chain disruptions; ● the impact of infectious diseases, such as COVID-19, RSV or the flu, and hospital capacity on the number of elective procedures and our business and operating results; ● the level of competition; ● the number, timing, and significance of new products and product introductions and enhancements by us and our competitors; ● our ability to develop, introduce, and market new and enhanced versions of our products on a timely basis; ● the timing of or failure to obtain regulatory clearances or approvals for our products; ● changes in pricing policies by us and our competitors; ● changes in the treatment practices of our customers; ● changes in independent sales representative or distributor relationships and sales force size and composition; ● the timing of material expense- or income-generating events and the related recognition of their associated financial impact; ● the number and mix of products sold in the quarter and the geographies in which they are sold; ● the number of selling days; ● the availability and cost of components and materials; ● the timing of orders and shipments; 29 ● ability to obtain reimbursement for our products and the timing of patients’ use of their calendar year medical insurance deductibles; ● work stoppages or strikes in our industry; ● changes in FDA and foreign governmental regulatory policies, requirements, and enforcement practices; ● changes in accounting standards, policies, estimates, and treatments; ● restructuring, impairment, and other special charges; ● costs associated with pending and any future litigation; ● variations in cost of sales due to the amount and timing of excess and obsolete inventory charges and manufacturing variances; ● income tax fluctuations and changes in tax rules; ● general economic, social and other external factors; and ● increases of interest rates, which can increase the cost of borrowings under our credit agreements and generally affect the level of economic activity.
For taxable years beginning after 2021, our adjusted taxable income for purposes of computing the 30% limitation will be reduced by depreciation, amortization and depletion deductions thereby causing a more restrictive limitation than that which existing for taxable years beginning prior to 2022.
For taxable years beginning after 2021, our adjusted taxable income for purposes of computing the 30% limitation will be reduced by depreciation, amortization and depletion deductions thereby causing a more restrictive limitation than that which existed for taxable years beginning prior to 2022.
We currently market, and intend to continue to market, our products outside the United States, with the exception of the EU. To market and sell our product in countries outside the United States, we must seek and obtain regulatory approvals, certifications or registrations and comply with the laws and regulations of those countries.
We currently market, and intend to continue to market, our products outside the United States. To market and sell our product in countries outside the United States, we must seek and obtain regulatory approvals, certifications or registrations and comply with the laws and regulations of those countries.
If our products cause or contribute to a death or serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency enforcement actions.
If our products cause or contribute to a death or serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency or other governmental enforcement actions.
In addition, under the Investor Rights Agreement, for so long as the ownership threshold is met, we must obtain the approval of a majority of our common stock held by ROS and Royalty Opportunities to proceed with the following actions: (i) issue new securities; (ii) incur over $250,000 of debt in a fiscal year; (iii) sell or transfer over $250,000 of our assets or businesses or our subsidiaries in a fiscal year; (iv) acquire over $250,000 of assets or properties in a fiscal year; (v) make capital expenditures over $125,000 individually, or $1,500,000 in the aggregate during a fiscal year; (vi) approve our annual budget; (vii) hire or terminate our chief executive officer; (viii) appoint or remove the chairperson of our Board of Directors; and (ix) make loans to, investments in, or purchase, or permit any subsidiary to purchase, any stock or other securities in another entity in excess of $250,000 in a fiscal year.
In addition, under the Investor Rights Agreement, for so long as the ownership threshold is met, we must obtain the approval of a majority of our common stock held by ROS and Royalty Opportunities to proceed with the following actions: (i) issue new securities; (ii) incur over $250,000 of debt in a fiscal year; (iii) sell or transfer over $250,000 of our assets or businesses or our subsidiaries in a fiscal year; (iv) acquire over $250,000 of assets or properties in a fiscal year; (v) make capital expenditures over $125,000 individually, or $1,500,000 in the aggregate during a fiscal year; (vi) approve our annual budget; (vii) appoint or remove the chairperson of our Board of Directors; and (viii) make loans to, investments in, or purchase, or permit any subsidiary to purchase, any stock or other securities in another entity in excess of $250,000 in a fiscal year.
If our systems are damaged or cease to function properly due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity plans do not effectively compensate for this on a timely basis, we may suffer interruptions in our ability to manage operations.
However, if our systems are damaged or cease to function properly due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity plans do not effectively compensate for these events on a timely basis, we may suffer interruptions in our ability to manage operations.
Obtaining and maintaining foreign regulatory approvals, certifications or registrations are expensive, and we cannot be certain that we will receive or maintain regulatory approvals, certifications or registrations in any foreign country in which we currently or plan to market our products.
Obtaining and maintaining foreign regulatory approvals, certifications or registrations are expensive, and we cannot be certain that we will receive regulatory approvals, certifications or registrations in any foreign country in which we plan to market our products.
These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
“Controls and Procedures.” These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
For example, efforts to purchase raw materials in advance for product manufacturing may result in increased storage costs or excess supply. If our costs rise due to continuing significant inflationary pressures or supply chain disruptions, we may not be able to fully offset such higher costs through price increases.
For example, efforts to purchase raw materials in advance for product manufacturing may result in increased storage costs or excess supply. If our costs rise due to continuing supply chain disruptions, we may not be able to fully offset such higher costs through price increases.
Vizirgianakis to us. 46 These anti-takeover provisions could substantially impede the ability of our stockholders to benefit from a change in control and, as a result, could materially adversely affect the market price of our common stock and the ability of our stockholders to realize any potential change-in-control premium.
These anti-takeover provisions could substantially impede the ability of our stockholders to benefit from a change in control and, as a result, could materially adversely affect the market price of our common stock and the ability of our stockholders to realize any potential change-in-control premium.
Prior to raising additional equity or debt financing, we must obtain the consent of MidCap and ROS and Royalty Opportunities, and no assurance can be provided that MidCap, ROS or Royalty Opportunities would provide such consent, which could limit our ability to raise additional financing. We have indebtedness which matures on May 1, 2026.
Prior to raising additional equity or debt financing, we must obtain the consent of MidCap and ROS and Royalty Opportunities, and no assurance can be provided that MidCap, ROS or Royalty Opportunities would provide such consent, which could limit our ability to raise additional financing. We have indebtedness which matures on March 1, 2029.
Additionally, although we have availability under our Revolving Credit Agreement, the availability of such funds is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory. These credit facilities have a maturity date of May 1, 2026, and all of our indebtedness thereunder matures on such date.
Additionally, although we have availability under our Revolving Credit Agreement, the availability of such funds is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory. These credit facilities have a maturity date of March 1, 2029, and all of our indebtedness thereunder matures on such date.
We cannot be certain that we will be able to maintain an adequate qualified labor force necessary to operate efficiently and to support our growth strategy and operations. During 2022, these labor shortages contributed to production shortages and, from time to time, an inability for us to operate at full capacity.
We cannot be certain that we will be able to maintain an adequate qualified labor force necessary to operate efficiently and to support our growth strategy and operations. During 2022 and to a lesser degree during 2023, these labor shortages contributed to production shortages and, from time to time, an inability for us to operate at full capacity.
In addition, our Investor Rights Agreement with ROS and Royalty Opportunities further substantially limits the operation of our business and the ability of our management to conduct and invest in our business. Our Credit Agreements involve additional risks that may adversely affect our liquidity, results of operations, and financial condition.
In addition, our Investor Rights Agreement with ROS and Royalty Opportunities (as amended, the “Investor Rights Agreement”) further substantially limits the operation of our business and the ability of our management to conduct and invest in our business. Our Credit Agreements involve additional risks that may adversely affect our liquidity, results of operations, and financial condition.
For example, as a result of the labor shortage we experienced in 2022, we were unable to operate at full capacity from time to time, which caused us to pass on certain revenue opportunities we otherwise may have been able to pursue.
For example, as a result of the labor shortage we experienced in 2022 and, to a lesser extent, in 2023, we were unable to operate at full capacity from time to time, which caused us to pass on certain revenue opportunities we otherwise may have been able to pursue.
Because ambulatory surgery center facility fee reimbursement is typically less than facility fee reimbursement for hospitals and due to surgeons’ potential ownership interests in ambulatory surgery centers, we typically experience more pressure on the pricing of our products by ambulatory surgery centers than by hospitals, and the average price for which we sell our products to ambulatory surgery centers is less than the average prices we charge to hospitals.
Because ambulatory surgery center facility fee reimbursement is typically less than facility fee reimbursement for hospitals and due to surgeons’ potential ownership interests in ambulatory surgery centers, we typically experience reduced pricing of our products by ambulatory surgery centers than by hospitals, and the average price for which we sell our products to ambulatory surgery centers is less than the average prices we charge to hospitals.
For example, the Credit Agreements require us to maintain net product revenue at or above minimum levels and to maintain a minimum liquidity threshold or a minimum adjusted EBITDA level, in each case at levels specified in the Credit Agreements.
For example, the Credit Agreements require us to maintain net product revenue at or above minimum levels and to maintain a minimum liquidity threshold, in each case at levels specified in the Credit Agreements.
Risks Related to Governmental Regulation ● Our business is subject to extensive governmental regulation, including product approvals and clearances and healthcare fraud and abuse laws, false claims laws, and physician payment transparency laws. ● Governmental regulation could restrict the use of our tissue products or our procurement of tissue. ● Outside of the United States, our medical devices must comply with the laws and regulations of the foreign countries in which they are marketed, and compliance may be costly and time-consuming. ● Modifications to our products may require new regulatory clearances or approvals or may require us to recall or cease marketing our products until clearances or approvals are obtained. ● Our manufacturing operations are required to comply with the FDA’s and other governmental authorities’ laws and regulations regarding the manufacture and production of medical devices. ● Even if our products are cleared or approved by regulatory authorities, they could be subject to restrictions or withdrawal from the market. ● The use, misuse or off-label use of our products may harm our image in the marketplace or result in injuries that lead to product liability suits. ● If our products cause or contribute to a death or serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations and likely litigation. ● Any future product recall or voluntary market withdrawal of a product due to defects, enhancements and modifications or other reasons could adversely affect our business and operating results. 15 ● If we or our suppliers fail to comply with regulations pertaining to human cells, tissues, and cellular and tissue-based products or are deemed to be biological products requiring approval of a BLA prior to being marketed, these products could be subject to withdrawal from the market or other enforcement action. ● Loss of AATB accreditation would have a material adverse effect on us. ● Federal regulatory reforms may adversely affect our ability to sell our products and our business. ● Product pricing is subject to regulatory control, which could impact our revenue and other operating results. ● Our revenues depend upon prompt and adequate coverage and reimbursement from public and private insurers and national health systems.
Risks Related to Governmental Regulation ● Our business is subject to extensive governmental regulation, including product approvals and clearances and healthcare fraud and abuse laws, false claims laws, and physician payment transparency laws. ● Our clinical trials involve risk and expense. ● Governmental regulation could restrict the use of our tissue products or our procurement of tissue. ● Outside of the United States, our medical devices must comply with the laws and regulations of the foreign countries in which they are marketed, and compliance may be costly and time-consuming. ● Modifications to our products may require new regulatory clearances or approvals or may require us to recall or cease marketing our products until clearances or approvals are obtained. ● Our manufacturing operations are required to comply with the FDA’s and other governmental authorities’ laws and regulations regarding the manufacture and production of medical devices. ● Even if our products are cleared or approved by regulatory authorities, they could be subject to restrictions or withdrawal from the market. ● The use, misuse or off-label use of our products may harm our image in the marketplace or result in injuries that lead to product liability suits. ● If our products cause or contribute to a death or serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations and likely litigation. ● Any future product recall or voluntary market withdrawal of a product due to defects, enhancements and modifications or other reasons would significantly increase our costs. ● If we or our suppliers fail to comply with regulations pertaining to human cells, tissues, and cellular and tissue-based products or are deemed to be biological products requiring approval of a BLA prior to being marketed, these products could be subject to withdrawal from the market or other enforcement action. ● Loss of AATB accreditation would have a material adverse effect on us. ● Federal regulatory reforms may adversely affect our business and our ability to sell our products. ● Our revenues depend upon prompt and adequate coverage and reimbursement from public and private insurers and national health systems. ● Our business is subject to complex and evolving laws and regulation regarding privacy and data protection.
Under the FDA medical device reporting regulations, medical device manufacturers are required to report to the FDA information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or one of our similar devices were to recur.
Under the FDA medical device reporting regulations and similar foreign governmental regulations, medical device manufacturers are required to report to the FDA or other governmental agencies information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or one of our similar devices were to recur.
Our private label and OEM business, although not subject to commissions, involves lower gross margins which, if this business increases as a percentage of our revenue, will put pressure on our future gross margins. In addition, our private label and OEM business involves other additional risks.
Our private label and OEM business, although not subject to commissions, involves lower gross margins which, if this business increases as a percentage of our revenue, will reduce our future gross margins. In addition, our private label and OEM business involves other additional risks.
Disallowed interest deductions may be carried forward indefinitely and treated as business interest paid or accrued in the succeeding taxable year. A shift in performing more procedures in ambulatory surgical centers from hospitals would likely put pressure on the prices of our products and margins.
Disallowed interest deductions may be carried forward indefinitely and treated as business interest paid or accrued in the succeeding taxable year. 30 A shift in performing more procedures in ambulatory surgical centers from hospitals would likely reduce the prices of our products and margins.
Factors that may have a significant impact on the market price and marketability of our common stock include, among others: ● the terms of any potential future transaction(s) related to debt financing, debt restructuring or capital raising; ● our ability to make interest payments under our Credit Agreements; ● our observance of covenants under our Credit Agreements; ● announcements of technological innovations or new commercial products by us or our present or potential competitors; ● developments or disputes concerning patent or other proprietary rights; ● developments in our relationships with employees, suppliers, distributors, sales representatives and customers; ● acquisitions or divestitures; ● litigation and government proceedings; ● adverse legislation, including changes in governmental regulation; ● third-party reimbursement policies; ● additions or departures of key personnel; ● sales of our equity securities by our significant stockholders or management or sales of additional equity securities by our Company; ● changes in securities analysts’ recommendations; 44 ● short selling; ● changes in health care policies and practices; ● the delisting of our common stock or halting or suspension of trading in our common stock by the NYSE American; ● economic, social and other external factors, such as COVID-19, supply chain disruptions, labor shortages and persistent inflation; and ● general market conditions.
Factors that may have a significant impact on the market price and marketability of our common stock include, among others: ● the terms of any potential future transaction(s) related to debt financing, debt restructuring or capital raising; ● our ability to make interest payments under our Credit Agreements; ● our observance of covenants under our Credit Agreements; ● announcements of technological innovations or new commercial products by us or our present or potential competitors; ● developments or disputes concerning patent or other proprietary rights; ● developments in our relationships with employees, suppliers, distributors, sales representatives and customers; ● acquisitions or divestitures; ● litigation and government proceedings; ● adverse legislation, including changes in governmental regulation; ● third-party reimbursement policies; ● additions or departures of key personnel; ● sales of our equity securities by our significant stockholders or management or sales of additional equity securities by our Company; ● changes in securities analysts’ recommendations; ● short selling; ● changes in health care policies and practices; ● the delisting of our common stock or halting or suspension of trading in our common stock by the NYSE American; ● economic, social and other external factors, such as epidemics or pandemics, supply chain disruptions, labor shortages and persistent inflation; and ● general market conditions. 52 In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted.
The Credit Agreements also contain provisions that restrict our ability, subject to specified exceptions, to, among other things: ● create, incur, assume, guarantee or otherwise become or remain directly or indirectly liable with respect to any debt, except for permitted debt; ● create, assume, incur or suffer to exist any contingent obligations, except for permitted contingent obligations; ● purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any debt prior to its scheduled maturity; ● create, assume or suffer to exist any lien on our assets; ● declare, order, pay, make or set apart any sum for any distribution, except for permitted distributions; ● enter into or assume any agreement prohibiting the creation or assumption of any lien upon our properties or assets or create or otherwise cause or suffer to exist or become effective certain consensual encumbrances or restrictions of any kind; ● declare, pay, make or set aside any amount for payment in respect of subordinated debt; ● engage in mergers or consolidations; ● acquire, make, own, hold or otherwise consummate any investment, other than permitted investments; ● enter into certain transactions with affiliates; ● amend or otherwise modify any organizational documents; and ● make certain amendments or modifications to certain material contracts. 38 We may be unable to comply with these covenants, which could result in a default under the Credit Agreements.
The Credit Agreements also contain provisions that restrict our ability, subject to specified exceptions, to, among other things: ● create, incur, assume, guarantee or otherwise become or remain directly or indirectly liable with respect to any debt, except for permitted debt; ● create, assume, incur or suffer to exist any contingent obligations, except for permitted contingent obligations; ● purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any debt prior to its scheduled maturity; ● create, assume or suffer to exist any lien on our assets; ● declare, order, pay, make or set apart any sum for any distribution, except for permitted distributions; ● enter into or assume any agreement prohibiting the creation or assumption of any lien upon our properties or assets or create or otherwise cause or suffer to exist or become effective certain consensual encumbrances or restrictions of any kind; ● declare, pay, make or set aside any amount for payment in respect of subordinated debt; ● engage in mergers or consolidations; ● acquire, make, own, hold or otherwise consummate any investment, other than permitted investments; 46 ● enter into certain transactions with affiliates; ● amend or otherwise modify any organizational documents; and ● make certain amendments or modifications to certain material contracts.
The failure by us or one of our third-party manufacturers or suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions: ● untitled letters, warning letters, fines, injunctions, consent decrees, disgorgement of profits, criminal and civil penalties; 29 ● customer notifications or repair, replacement, refunds, recall, detention or seizure of our products; ● operating restrictions or partial suspension or total shutdown of production; ● refusing or delaying our requests for 510(k) clearance, de novo classification, or PMA approval of new products or modified products; ● withdrawing 510(k) clearances, de novo classifications, or PMAs that have already been granted; ● refusal to grant export certificates for our products; or ● criminal prosecution.
The failure by us or one of our third-party manufacturers or suppliers to comply with applicable statutes and regulations administered by the FDA and other regulatory bodies, or the failure to timely and adequately respond to any adverse inspectional observations or product safety issues, could result in, among other things, any of the following enforcement actions: ● untitled letters, warning letters, fines, injunctions, consent decrees, disgorgement of profits, criminal and civil penalties; ● customer notifications or repair, replacement, refunds, recall, detention or seizure of our products; ● operating restrictions or partial suspension or total shutdown of production; ● refusing or delaying our requests for 510(k) clearance, de novo classification, or PMA approval of new products or modified products; ● withdrawing 510(k) clearances, de novo classifications, or PMAs that have already been granted; ● refusal to grant export certificates for our products; or ● criminal prosecution. 38 Any of these actions could impair our ability to produce our products in a cost-effective and timely manner in order to meet our customers’ demands.
Further, Medicare, Medicaid and private healthcare insurer cutbacks could create downward price pressure on our products. Healthcare reform legislation at the federal and state levels could result in changes in coverage of and reimbursement for our products. Finally, our revenues also depend upon timely reimbursement data input from our independent agents. All of these factors could adversely affect our business.
Further, Medicare, Medicaid and private healthcare insurer cutbacks could create downward price pressure on our products. Healthcare reform legislation at the federal and state levels could result in changes in coverage of and reimbursement for our products. Finally, our revenues also depend upon timely reimbursement data input from our independent agents.
We cannot ensure that: ● we were the first to make the inventions covered by each of our patent applications; ● we were the first to file patent applications for these inventions; ● others will not independently develop similar or alternative technologies or duplicate any of our technologies; ● any of our pending patent applications will result in issued patents; ● any of our issued patents or those of our licensors will be valid and enforceable; ● any patents issued to us or our collaborators will provide a basis for commercially viable products or will provide us with any competitive advantages or will not be challenged by third parties; ● any of our patent or other intellectual property rights in the U.S. and the technologies embodied therein will provide or be subject to similar or any protection in foreign markets; ● we will develop additional proprietary technologies that are patentable; ● the patents of others will not have a material adverse effect on our business rights; or ● the measures we rely on to protect the intellectual property underlying our products will be adequate to prevent third parties from using our technology, all of which could harm our ability to compete in the market. 41 Risks Related to Information Technology, Cybersecurity and Data Protection We are dependent on various information technology (“IT”) systems, and failures of, interruptions to, or unauthorized tampering with those systems could have a material adverse effect on our business.
We cannot ensure that: ● we were the first to make the inventions covered by each of our patent applications; ● we were the first to file patent applications for these inventions; ● others will not independently develop similar or alternative technologies or duplicate any of our technologies; ● any of our pending patent applications will result in issued patents; ● any of our issued patents or those of our licensors will be valid and enforceable; ● any patents issued to us or our collaborators will provide a basis for commercially viable products or will provide us with any competitive advantages or will not be challenged by third parties; ● any of our patent or other intellectual property rights in the U.S. and the technologies embodied therein will provide or be subject to similar or any protection in foreign markets; ● we will develop additional proprietary technologies that are patentable; ● the patents of others will not have a material adverse effect on our business rights; or ● the measures we rely on to protect the intellectual property underlying our products will be adequate to prevent third parties from using our technology, all of which could harm our ability to compete in the market.
Clearance or approval by the FDA does not ensure approval or certification by regulatory authorities in other countries, and approval or certification by one foreign regulatory authority does not ensure approval by regulatory authorities in other countries or by the FDA.
Clearance or approval by the FDA does not ensure approval or certification by regulatory authorities or Notified Bodies in other countries, and approval or certification by one foreign regulatory authority or Notified Body does not ensure approval by regulatory authorities in other countries or by the FDA.
The existence of unissued and unreserved common stock and preferred stock may enable the Board of Directors to issue shares to persons friendly to current management or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of our management. ● Shares of our common stock do not have cumulative voting rights in the election of directors, so our stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors. ● Special meetings of the stockholders may be called only by the Board of Directors, the chair of the Board of Directors or the chief executive officer. ● The Board of Directors may adopt, alter, amend or repeal our Bylaws without stockholder approval. ● Unless otherwise provided by law, any newly created directorship or any vacancy occurring on the Board of Directors for any cause may be filled by the affirmative vote of a majority of the remaining members of the Board of Directors even if such majority is less than a quorum, and any director so elected shall hold office until the expiration of the term of office of the director whom he or she has replaced or until his or her successor is elected and qualified. ● The affirmative vote of the holders of at least two-thirds of the voting power of the then outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class, is required to amend or repeal the provisions of our Charter related to the amendment of our Bylaws, the Board of Directors and our stockholders as well as the general provisions of our Charter. ● Stockholders must follow advance notice procedures to submit nominations of candidates for election to the Board of Directors at an annual or special meeting of our stockholders, including director election contests subject to the SEC’s universal proxy rules, and must follow advance notice procedures to submit other proposals for business to be brought before an annual meeting of our stockholders. ● Unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware, subject to certain limitations, will be the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising under any provision of the General Corporation Law of the State of Delaware (“DGCL”), our Charter or our Bylaws, or (iv) any action asserting a claim governed by the internal-affairs doctrine. ● The Investor Rights Agreement includes director nomination rights, which provide that so long as the Ownership Threshold (as defined in the Investor Rights Agreement) is met, Royalty Opportunities and ROS are entitled to nominate such individuals to the Board of Directors constituting a majority of the directors.
The existence of unissued and unreserved common stock and preferred stock may enable the Board of Directors to issue shares to persons friendly to current management or to issue preferred stock with terms that could render more difficult or discourage a third-party attempt to obtain control of us by means of a merger, tender offer, proxy contest or otherwise, thereby protecting the continuity of our management. ● Shares of our common stock do not have cumulative voting rights in the election of directors, so our stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors. ● Special meetings of the stockholders may be called only by the Board of Directors, the chair of the Board of Directors or the chief executive officer. ● The Board of Directors may adopt, alter, amend or repeal our Bylaws without stockholder approval. ● Unless otherwise provided by law, any newly created directorship or any vacancy occurring on the Board of Directors for any cause may be filled by the affirmative vote of a majority of the remaining members of the Board of Directors even if such majority is less than a quorum, and any director so elected shall hold office until the expiration of the term of office of the director whom he or she has replaced or until his or her successor is elected and qualified. 54 ● Prior to July 26, 2030, fixing the number of directors at more than seven directors requires the approval of at least 75% of our directors then holding office. ● The affirmative vote of the holders of at least two-thirds of the voting power of the then outstanding shares of our capital stock entitled to vote generally in the election of directors, voting together as a single class, is required to amend or repeal the provisions of our Charter related to the amendment of our Bylaws, the Board of Directors and our stockholders as well as the general provisions of our Charter. ● Stockholders must follow advance notice procedures to submit nominations of candidates for election to the Board of Directors at an annual or special meeting of our stockholders, including director election contests subject to the SEC’s universal proxy rules, and must follow advance notice procedures to submit other proposals for business to be brought before an annual meeting of our stockholders. ● Unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware, (or, if the Court of Chancery of the State of Delaware does not have subject matter jurisdiction, a state court located within the State of Delaware or, if no state court located within the State of Delaware has subject matter jurisdiction, the federal district court for the District of Delaware), will be the exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising under any provision of the General Corporation Law of the State of Delaware (“DGCL”), our Charter or our Bylaws, or (iv) any action asserting a claim governed by the internal-affairs doctrine; provided, however, that unless we consent in writing to an alternative forum, the federal district courts of the United States of America shall be, to the fullest extent permitted by applicable law, the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act of 1933, as amended. ● The Investor Rights Agreement includes director nomination rights, which provide that so long as the Ownership Threshold (as defined in the Investor Rights Agreement) is met, Royalty Opportunities and ROS are entitled to nominate such individuals to the Board of Directors constituting a majority of the directors.
Although it is difficult for us to predict our future liquidity requirements, we believe that our cash and cash equivalents and restricted cash balance of approximately $20.5 million as of December 31, 2022, together with existing credit availability under our Credit, Security and Guarantee Agreement (Term Loan), as amended (the “Term Credit Agreement”), and Credit, Security and Guaranty Agreement (Revolving Loan), as amended (the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”), with MidCap Financial Trust (“MidCap”), in its capacity as agent, will be sufficient to meet our anticipated cash requirements through at least the end of March 2024.
Although it is difficult for us to predict our future liquidity requirements, we believe that our cash and cash equivalents and restricted cash balance of approximately $5.6 million as of December 31, 2023, together with existing credit availability under our Amended and Restated Credit, Security and Guarantee Agreement (Term Loan), (the “Term Credit Agreement”), and Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan), (the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”), with MidCap Financial Trust and MidCap Funding IV Trust (together, “MidCap”), each in its respective capacity as agent, will be sufficient to meet our anticipated cash requirements through at least the end of March 2025.
For example, it could: ● make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation; ● limit our flexibility in planning for, or reacting to, changes in our business and our industry; ● restrict our ability to make strategic acquisitions, business combinations or dispositions or to exploit business opportunities; ● place us at a competitive disadvantage compared to our competitors who have less debt; and ● limit our ability to borrow additional amounts or raise financing for working capital, capital expenditures, contractual obligations, research and development efforts, acquisitions or business combinations, debt service requirements, execution of our business strategy, or other purposes. 37 Any of these factors could materially and adversely affect our business, financial condition, and operating results.
For example, it could: ● make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation; 45 ● limit our flexibility in planning for, or reacting to, changes in our business and our industry; ● restrict our ability to make strategic acquisitions, business combinations or dispositions or to exploit business opportunities; ● place us at a competitive disadvantage compared to our competitors who have less debt; and ● limit our ability to borrow additional amounts or raise financing for working capital, capital expenditures, contractual obligations, research and development efforts, acquisitions or business combinations, debt service requirements, execution of our business strategy, or other purposes.
During 2022, we issued in a private placement approximately 20.3 million shares of common stock at a purchase price of $0.48 per share and warrants to purchase approximately 5.1 million shares of common stock. Future dilution may occur due to additional future equity issuances and/or equity financing events by us, including any potential future restructuring of our outstanding indebtedness.
During 2023, we issued in a private placement approximately 20.0 million shares of common stock at a purchase price of $0.75 per share. Future dilution may occur due to additional future equity issuances and/or equity financing events by us, including any potential future restructuring of our outstanding indebtedness.
The market price of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value of the investment of our stockholders to sudden decreases.
Delisting would also impair our ability to raise capital. 51 The market price of our common stock is extremely volatile, which may affect our ability to raise capital in the future and may subject the value of the investment of our stockholders to sudden decreases.
We strive to maintain sufficient inventory of products, raw materials and components so that our production will not be significantly disrupted if a particular product, raw material or component is not available to us for a period of time, including as a result of a supplier’s loss of its ISO or other certification, long required lead times, or other reasons, such as the supply chain and shipping disruptions experienced throughout 2021 and 2022.
We strive to maintain sufficient inventory of products, raw materials and components so that our production will not be significantly disrupted if a particular product, raw material or component is not available to us for a period of time, including as a result of a supplier’s loss of its ISO or other certification, long required lead times, or other reasons.
Also, some acquisitions, such as our recent acquisition of Surgalign SPV, may require the consent of the lenders under our credit agreements with MidCap and /or the consent of Royalty Opportunities and ROS under the Investor Rights Agreement.
Also, some acquisitions, such as our acquisition of Surgalign SPV, our acquisition of certain assets and liabilities of Surgalign Holdings, and our acquisition of certain assets of RTI, may require the consent of the lenders under our credit agreements with MidCap and/or the consent of Royalty Opportunities and ROS under the Investor Rights Agreement.
These circumstances have negatively impacted, and may continue to negatively impact, the number of elective procedures being conducted and the ability of our employees, independent sales representatives and distributors to effectively market and sell our products, which has had and will likely continue to have a material adverse effect on our revenues.
These circumstances negatively impacted the number of elective procedures being conducted and the ability of our employees, independent sales representatives and distributors to effectively market and sell our products, which had a material adverse effect on our revenues.
The interests of OrbiMed may not necessarily in all cases be aligned with management’s views on the operation of our business or the interests of our other stockholders.
The interests of OrbiMed may not be aligned with management’s views on the operation of our business or the interests of our other stockholders.
We and certain of our third-party manufacturers and suppliers are required to comply with the FDA’s current Good Manufacturing Practices (“cGMP”) requirements and Quality System Regulations (“QSR”), which cover, among other things, the methods of documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products.
We and certain of our third-party manufacturers and suppliers are required to comply with the FDA’s current Good Manufacturing Practices (“cGMP”) requirements and Quality System Regulations (“QSR”), set to be replaced by the Quality Management System Regulation (“QMSR”) in February 2026, which cover, among other things, the methods of documentation of the design, testing, production, control, quality assurance, labeling, packaging, sterilization, storage and shipping of our products.
Any natural or man-made event that impacts our ability to utilize these facilities could have a significant impact on our operating results, reputation and ability to continue operations.
We are highly reliant on our Belgrade, Montana facilities. Any natural or man-made event that impacts our ability to utilize these facilities could have a significant impact on our operating results, reputation and ability to continue operations.
In addition, these regulations can increase the cost of tissue recovery activities. The FDA periodically inspects tissue processors to determine compliance with these requirements. Allegations of violations of applicable regulations noted by the FDA during facility inspections could adversely affect the continued marketing of our products.
The FDA periodically inspects tissue processors to determine compliance with these requirements. Allegations of violations of applicable regulations noted by the FDA during facility inspections could adversely affect the continued marketing of our products.
Such suits that we may need to defend extend beyond suits by our competitors and may include patent assertion entities, which acquire and assert patents as a means to generate income, due to the expensive nature of patent litigation. In the ordinary course of litigation, attorney fees are not recoverable.
Such suits that we may need to defend extend beyond suits by our competitors and may include patent assertion entities, which acquire and assert patents as a means to generate income, due to the expensive nature of patent litigation.
If our common stock were delisted, it could be more difficult to buy or sell our common stock and to obtain accurate quotations, and the price of our stock could suffer a material decline. Delisting would also impair our ability to raise capital.
If our common stock were delisted, it could be more difficult to buy or sell our common stock and to obtain accurate quotations, and the price of our stock could suffer a material decline.
Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR, may result in, among other things, changes to labeling, restrictions on such products or manufacturing processes, product corrections, removal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, withdrawal of regulatory clearance or approvals, delays in or refusals of new 510(k)s, de novo requests or PMA applications, untitled letters, warning letters, refusal to grant export certificates for our products, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and prospects. 30 The use, misuse or off-label use of our products may harm our image in the marketplace or result in injuries that lead to product liability suits, which could be costly to our business or result in FDA sanctions if we are deemed to have engaged in improper promotion of our products.
Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as QSR or QMSR, may result in, among other things, changes to labeling, restrictions on such products or manufacturing processes, product corrections, removal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, withdrawal of regulatory clearance or approvals, delays in or refusals of new 510(k)s, de novo requests or PMA applications, untitled letters, warning letters, refusal to grant export certificates for our products, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and prospects.
The trading volume and prices of our common stock have been and may continue to be volatile and could fluctuate widely due to factors both within and beyond our control. During 2022, the sale price of our common stock ranged from $0.46 to $0.88 per share, and our daily trading volume ranged from 2 thousand to 328 thousand shares.
The trading volume and prices of our common stock have been and may continue to be volatile and could fluctuate widely due to factors both within and beyond our control. During 2023, the sale price of our common stock ranged from $0.58 to $1.39 per share, and our daily trading volume ranged from 1 thousand to 790 thousand shares.
In addition to the risks involved with patent protection, we also face the risk that our competitors will infringe on our trademarks. Any infringement could lead to a likelihood of confusion and could result in lost sales.
In the ordinary course of litigation, attorney fees are not recoverable. 48 In addition to the risks involved with patent protection, we also face the risk that our competitors will infringe on our trademarks. Any infringement could lead to a likelihood of confusion and could result in lost sales.
We have been further impacted by the recent labor shortage. Additionally, persistent inflation, which was especially high in Belgrade, Montana and surrounding areas during 2021 and 2022, has caused some members of the labor force to leave these areas in search of more affordable living arrangements, which has worsened our local labor shortage.
We have been further impacted by the recent labor shortage. Additionally, the rising cost of living in Belgrade, Montana and surrounding areas has caused some members of the labor force to leave these areas in search of more affordable living arrangements, which has worsened our local labor shortage.
The Investor Rights Agreement also grants ROS and Royalty Opportunities the right to purchase from us a pro rata amount of any new securities that we may propose to issue and sell. 42 Because of their significant share ownership and control, OrbiMed has the ability to exert substantial influence or actual control over our management and affairs and over substantially all matters requiring action by our stockholders and Board of Directors, including amendments to our Charter, Third Amended and Restated Bylaws (“Bylaws”), election and removal of directors, the appointment of management, future issuances of our common stock or other securities, payment of dividends, if any, on our common stock, the incurrence or modification of indebtedness by us, any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions, as well as certain day-to-day decisions involved in operating our business, such as annual operating plans, capital expenditures and other investments in our business.
Because of their significant share ownership and control, OrbiMed has the ability to exert substantial influence or actual control over our management and affairs and over substantially all matters requiring action by our stockholders and Board of Directors, including amendments to our Charter, Third Amended and Restated Bylaws (“Bylaws”), election and removal of directors, future issuances of our common stock or other securities, payment of dividends, if any, on our common stock, the incurrence or modification of indebtedness by us, any proposed merger, consolidation or sale of all or substantially all of our assets and other corporate transactions, as well as certain day-to-day decisions involved in operating our business, such as annual operating plans, capital expenditures and other investments in our business.
In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted. 31 If we or our suppliers fail to comply with regulations pertaining to human cells, tissues, and cellular and tissue-based products, these products could be subject to withdrawal from the market or other enforcement action.
In addition, the FDA could take enforcement action for failing to report the recalls when they were conducted. 40 If we or our suppliers fail to comply with regulations pertaining to human cells, tissues, and cellular and tissue-based products or are deemed to be biological products requiring approval of a BLA prior to being marketed, these products could be subject to withdrawal from the market or other enforcement action.
ROS and Royalty Opportunities collectively owned approximately 67% of our outstanding common stock as of December 31, 2022.
ROS and Royalty Opportunities collectively owned approximately 56.2% of our outstanding common stock as of December 31, 2023.
If we are unable to comply with HIPAA or experience a data breach involving PHI, we could be subject to criminal and civil sanctions and incur substantial investigation, defense and remediation costs. 27 If our operations are found to violate any of the laws described above or any other laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to market our products and materially adversely affect our business, results of operations and financial condition.
If our operations are found to violate any of the laws described above or any other laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs and imprisonment, any of which could adversely affect our ability to market our products and materially adversely affect our business, results of operations and financial condition.
Government regulation of medical devices is meant to assure their safety and effectiveness, and includes regulation of, among other things: ● design, development and manufacturing; ● testing, labeling, packaging, content and language of instructions for use, and storage; ● clinical trials; ● product safety; ● premarket clearance and approval; ● marketing, sales and distribution (including making product claims); 24 ● advertising and promotion; ● product modifications; ● recordkeeping procedures; ● reports of corrections, removals, enhancements, 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; ● complying with the federal law and regulations requiring Unique Device Identifiers (“UDI”) on devices and their labeling and also requiring the submission of certain information about each device to FDA’s Global Unique Device Identification Database (“GUDID”); and ● product import and export.
Government regulation of medical devices is meant to assure their safety and effectiveness, and includes regulation of, among other things: ● design, development and manufacturing; ● testing, labeling, packaging, content and language of instructions for use, and storage; ● clinical trials; ● product safety; ● premarket clearance and approval; ● marketing, sales and distribution (including making product claims); ● advertising and promotion; ● product modifications; ● recordkeeping procedures; ● reports of corrections, removals, enhancements, 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; ● complying with the federal law and regulations requiring Unique Device Identifiers (“UDI”) on devices and their labeling and also requiring the submission of certain information about each device to FDA’s Global Unique Device Identification Database (“GUDID”); and ● product import and export. 31 Before a new medical device, or a new use of, or claim for, an existing product can be marketed in the United States, it must first receive either premarket clearance under Section 510(k) of the FDCA, a de novo classification or a PMA, from the FDA, unless an exemption applies.
Failure to comply with these laws may subject us to substantial penalties. We are subject to federal and state healthcare laws and regulations pertaining to fraud and abuse, and physician payment transparency, including false claims laws, anti-kickback laws and physician self-referral laws.
We are subject to federal and state healthcare laws and regulations pertaining to fraud and abuse, and physician payment transparency, including false claims laws, anti-kickback laws and physician self-referral laws.
Additionally, we have experienced shortages in certain raw materials, suppliers have been unable to meet delivery schedules due to excess demand and labor shortages, and lead times have lengthened throughout our supply chain. Our efforts to mitigate supply chain weaknesses may not be successful or may have unfavorable effects.
Additionally, we have experienced shortages in certain raw materials, suppliers have been unable to meet delivery schedules due to excess demand and labor shortages, and lead times have lengthened throughout our supply chain.
Although our international business is not substantial, we do operate in some markets outside the United States that are subject to political, economic, and social instability and expose us to additional risks.
We operate in some markets outside the United States that are subject to political, economic, and social instability and expose us to additional risks.
Acquisitions and business combinations may involve a number of risks, the occurrence of which could adversely affect our business, reputation, operating results and financial condition, including: ● diversion of management’s attention; ● disruption to our existing operations and plans; ● inability to effectively manage our expanded operations; ● difficulties or delays in integrating and assimilating information and financial systems, operations, manufacturing processes and products of an acquired business or other business venture or in realizing projected efficiencies, growth prospects, cost savings, and synergies; ● inability to successfully integrate or develop a distribution channel for acquired product lines; ● potential loss of key employees, customers, distributors, or sales representatives of the acquired businesses or adverse effects on existing business relationships with suppliers, customers, distributors, and sales representatives; ● adverse impact on overall profitability if our expanded operations do not achieve the financial results projected in our valuation models; ● reallocation of amounts of capital from other operating initiatives and/or an increase in our leverage and debt service requirements to pay acquisition purchase prices or other business venture investment costs, which could in turn restrict our ability to access additional capital when needed or pursue other important elements of our business strategy; ● infringement by acquired businesses or other business ventures of intellectual property rights of others; 22 ● violation of confidentiality, intellectual property and non-compete obligations or agreements by employees of an acquired business or lack of or inadequate formal intellectual property protection mechanisms in place at an acquired business; ● inaccurate assessment of additional post-acquisition investments, undisclosed, contingent or other liabilities or problems, unanticipated costs associated with an acquisition, and an inability to recover or manage such liabilities and costs; ● incorrect estimates made in the accounting for acquisitions and incurrence of non-recurring charges; and ● write-off of significant amounts of goodwill or other assets as a result of deterioration in the performance of an acquired business or product line, adverse market conditions, changes in the competitive landscape, changes in laws or regulations that restrict activities of an acquired business or product line, or as a result of a variety of other circumstances.
Acquisitions and business combinations may involve a number of risks, the occurrence of which could adversely affect our business, reputation, operating results and financial condition, including: ● diversion of management’s attention; ● disruption to our existing operations and plans or the inability to effectively manage our expanded operations; ● failure, difficulties or delays in securing, integrating, developing and assimilating information, financial systems, internal controls, operations, manufacturing processes and products or the distribution channels for acquired product lines; ● potential loss of key employees, customers, distributors, or sales representatives of the acquired businesses or adverse effects on existing business relationships with suppliers, customers, distributors, and sales representatives; ● adverse impact on overall profitability if our expanded operations do not achieve the efficiencies, growth projections, net sales, earnings, cost or revenue synergies, or other financial results projected in our valuation models, delays in the realization thereof or costs or charges incurred to achieve any revenue or cost synergies; ● reallocation of amounts of capital from other operating initiatives and/or an increase in our leverage and debt service requirements to pay acquisition purchase prices or other business venture investment costs, which could in turn restrict our ability to access additional capital when needed or pursue other important elements of our business strategy; ● infringement by acquired businesses or other business ventures of intellectual property rights of others; ● violation of confidentiality, intellectual property and non-compete obligations or agreements by employees of an acquired business or lack of or inadequate formal intellectual property protection mechanisms in place at an acquired business; ● inaccurate assessment of additional post-acquisition investments, undisclosed, contingent, tax or other liabilities or problems, unanticipated costs associated with an acquisition, and an inability to recover or manage such liabilities and costs; ● incorrect estimates made in the accounting for acquisitions, including those related to the material weaknesses discussed elsewhere in this Annual Report on Form 10-K, and incurrence of non-recurring charges, including restructuring charges in connection with any future effort to reduce costs and streamline operations; and ● impacts as a result of accounting adjustments, incorrect estimates made in the accounting for the acquisitions, including those related to the material weaknesses discussed elsewhere in this Annual Report on Form 10-K, or the potential write-off of significant amounts of goodwill or other assets as a result of deterioration in the performance of an acquired business or product line, adverse market conditions, changes in the competitive landscape, changes in laws or regulations that restrict activities of an acquired business or product line, or as a result of a variety of other circumstances, or other potential financial accounting or reporting impacts, including those resulting from the international subsidiaries we acquired from Surgalign Holdings. 20 In addition, effective internal controls are necessary for us to provide reliable and accurate financial reports and to effectively prevent fraud.
Second Amended and Restated 2018 Equity Incentive Plan, options to purchase 12,845 shares of our common stock under our prior equity compensation plan, and 7,443,895 shares available for issuance under the Xtant Medical Holdings, Inc. Second Amended and Restated 2018 Equity Incentive Plan.
Second Amended and Restated 2018 Equity Incentive Plan, options to purchase 623 shares of our common stock under our prior equity compensation plan, and 9,968,106 shares available for issuance under the Xtant Medical Holdings, Inc. 2023 Equity Incentive Plan.
General Risk Factors ● We are subject to several other general risk factors, including risk regarding worldwide economic instability and social unrest; climate change; changes in accounting standards; public company requirements; securities litigation and environmental, social and governance practices scrutiny. 16 Risks Related to Our Business Biologics products are inherently difficult and time-consuming to manufacture.
General Risk Factors ● We are subject to several other general risk factors, including risk regarding worldwide economic instability and social unrest; climate change; changes in accounting standards; public company requirements; securities litigation and environmental, social and governance practices scrutiny.
At the onset of, and at various times during, the COVID-19 pandemic, hospitals and other medical facilities have cancelled or deferred elective procedures, diverted resources to patients suffering from infections and limited access for non-patients, including our direct and indirect sales representatives.
Our business, operating results and financial condition may be materially adversely affected by COVID-19 and other infectious diseases. At the onset of, and at various times during, the COVID-19 pandemic, hospitals and other medical facilities cancelled or deferred elective procedures, diverted resources to patients suffering from infections and limited access for non-patients, including our direct and indirect sales representatives.
We cannot be assured, however, that the agreements will not be breached, adequate remedies for any breach would be available, or our trade secrets, know-how, and other unpatented proprietary technology will not otherwise become known to or independently developed by our competitors. 40 We may not be able to obtain or protect our proprietary rights relating to our products without resorting to costly and time-consuming litigation.
We cannot be assured, however, that the agreements will not be breached, adequate remedies for any breach would be available, or our trade secrets, know-how, and other unpatented proprietary technology will not otherwise become known to or independently developed by our competitors.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe lease an approximately 14,000 square foot facility at 664 Cruiser Lane, Belgrade, Montana, which runs through October 2025. This building is an FDA registered facility with a Class 10,000 (ISO 7) environmentally controlled area.
Biggest changeAll our properties are leased. 60 We lease an approximately 14,000 square foot facility at 664 Cruiser Lane, Belgrade, Montana, which expires in October 2025. This building is an FDA registered facility with a Class 10,000 (ISO 7) environmentally controlled area.
We also lease approximately 17,700 square feet in a building located at 600 Cruiser Lane, Belgrade, Montana. This space includes six Class 100 (ISO 5) clean rooms, a fully equipped diagnostics laboratory, microbiology laboratory and testing laboratory. We lease the building under a ten-year operating lease which runs through October 2025 and has a ten-year renewal option.
We also lease approximately 17,700 square feet in a building located at 600 Cruiser Lane, Belgrade, Montana. This space includes six Class 100 (ISO 5) clean rooms, a fully equipped diagnostics laboratory, microbiology laboratory and testing laboratory. We lease the building under a ten-year operating lease which expires in October 2025 and has a ten-year renewal option.
Item 2. Properties Our headquarters and manufacturing facility are located at 664 Cruiser Lane, Belgrade, Montana 59714. We also have two other facilities on the Montana campus, located at 600 Cruiser Lane, Belgrade, Montana 59714, and at 732 Cruiser Lane, Belgrade, Montana 59714. All our properties are leased.
Item 2. Properties Our headquarters and manufacturing facility are located at 664 Cruiser Lane, Belgrade, Montana 59714. We also have two other facilities on the Montana campus, located at 600 Cruiser Lane, Belgrade, Montana 59714, and at 732 Cruiser Lane, Belgrade, Montana 59714.
We also lease approximately 21,000 square feet in a building located at 732 Cruiser Lane, Belgrade, Montana, where one Class 1,000 (ISO 6) clean room is located, which runs through October 2025.
We also lease approximately 21,000 square feet in a building located at 732 Cruiser Lane, Belgrade, Montana, where one Class 1,000 (ISO 6) clean room is located, which expires in October 2025.
Added
We also lease an approximately 2,000 square foot facility in San Diego, California, which houses certain innovation and design functions and other corporate functions, which expires in December 2026.
Added
In connection with our acquisition of certain assets of Surgalign Holdings and its subsidiaries, we acquired a lease for a 13,000 square foot facility in Wurmlingen, Germany, which is used for marketing, distribution, product development and general administrative functions of the international subsidiaries we acquired from Surgalign Holdings. The lease for our Wurmlingen, Germany, facility expires in February 2025.
Added
In connection with our acquisition of the nanOss production operations from RTI, we acquired the lease for the approximately 15,000 square foot nanOss production facility located in Greenville, North Carolina. The lease expires in June 2024.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers We did not purchase any shares of our common stock or other equity securities of our Company during the quarter ended December 31, 2022.
Biggest changeRecent Sales of Unregistered Securities We did not sell any unregistered equity securities of our Company during the quarter ended December 31, 2023. Purchases of Equity Securities by the Issuer and Affiliated Purchasers We did not purchase any shares of our common stock or other equity securities of our Company during the quarter ended December 31, 2023.
Dividends We have not paid any cash dividends and do not expect to do so in the foreseeable future. In addition, our credit agreements with MidCap preclude us from paying dividends.
Holders of Record As of March 25, 2024, we had 166 holders of record. Dividends We have not paid any cash dividends and do not expect to do so in the foreseeable future. In addition, our credit agreements with MidCap preclude us from paying dividends.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the NYSE American under the ticker symbol “XTNT.” Holders of Record As of March 3, 2023, we had 170 holders of record.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock is listed on the NYSE American under the ticker symbol “XTNT.” The closing sale price to our common stock on March 25, 2024 was $1.04 per share.
Removed
Recent Sales of Unregistered Securities We did not sell any unregistered equity securities of our Company during the quarter ended December 31, 2022, other than the issuance of shares of our common stock and warrants in connection with our private placement, as reported in a Current Report on Form 8-K as filed with the SEC on October 11, 2022.

Item 7. Management's Discussion & Analysis

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

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Biggest changeResults of Operations Comparison of Years Ended December 31, 2022 and December 31, 2021 The following table sets forth our results of operations for 2022 and 2021 (dollars in thousands): Year Ended December 31, 2022 2021 % of % of Amount Revenue Amount Revenue Revenue Orthopedic product sales $ 57,958 100.0 % $ 55,146 99.8 % Other revenue 11 0.0 % 117 0.2 % Total Revenue 57,969 100.0 % 55,263 100.0 % Cost of Sales 25,832 44.6 % 22,773 41.2 % Gross Profit 32,137 55.4 % 32,490 58.8 % Operating Expenses General and administrative 15,462 26.7 % 14,449 26.1 % Sales and marketing 22,515 38.8 % 21,025 38.0 % Research and development 915 1.6 % 870 1.6 % Total Operating Expenses 38,892 67.1 % 36,344 65.7 % Loss from Operations (6,755 ) (11.7 )% (3,854 ) (7.0 )% Other Expense Interest expense (1,692 ) (2.9 )% (995 ) (1.8 )% Interest income 31 0.1 % — 0.0 % Total Other Expense (1,661 ) (2.9 )% (995 ) (1.8 )% Net Loss from Operations Before Provision for Income Taxes (8,416 ) (14.5 )% (4,849 ) (8.8 )% Provision for Income Taxes Current and Deferred (69 ) (0.1 )% — (0.0 )% Net Loss $ (8,485 ) (14.6 )% $ (4,849 ) (8.8 )% 53 Revenue Total revenue for the year ended December 31, 2022 increased 5% to $58.0 million compared to $55.3 million for the prior year.
Biggest changeResults of Operations Comparison of Years Ended December 31, 2023 and December 31, 2022 The following table sets forth our results of operations for 2023 and 2022 (dollars in thousands): Year Ended December 31, 2023 2022 % of % of Amount Revenue Amount Revenue Total Revenue 91,303 100.0 % 57,969 100.0 % Cost of Sales 35,836 39.2 % 25,832 44.6 % Gross Profit 55,467 60.8 % 32,137 55.4 % Operating Expenses General and administrative 25,850 28.3 % 15,462 26.7 % Sales and marketing 38,439 42.1 % 22,515 38.8 % Research and development 1,336 1.5 % 915 1.6 % Total Operating Expenses 65,625 71.9 % 38,892 67.1 % Loss from Operations (10,158 ) (11.1 )% (6,755 ) (11.7 )% Other Income (Expense) Interest expense (2,938 ) (3.2 )% (1,692 ) (2.9 )% Interest income 149 0.2 % 31 0.1 % Unrealized foreign currency translation gain 265 0.3 % — 0.0 % Bargain purchase gain 11,694 12.8 % — 0.0 % Other expense (49 ) (0.1 )% — 0.0 % Total Other Income (Expense) 9,121 10.0 % (1,661 ) (2.9 )% Net Loss from Operations Before Provision for Income Taxes (1,037 ) (1.1 )% (8,416 ) (14.5 )% Benefit (Provision) for Income Taxes Current and Deferred 1,697 1.9 % (69 ) (0.1 )% Net Income (Loss) $ 660 0.7 % $ (8,485 ) (14.6 )% 64 Revenue Total revenue for the year ended December 31, 2023 increased 58% to $91.3 million compared to $58.0 million for the prior year.
Liquidity and Capital Resources Working Capital Since our inception, we have financed our operations through primarily operating cash flows, private placements of equity securities and convertible debt, debt facilities, common stock rights offerings, and other debt transactions.
Liquidity and Capital Resources Working Capital Since our inception, we have financed our operations primarily through operating cash flows, private placements of equity securities and convertible debt, debt facilities, common stock rights offerings, and other debt transactions.
The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving stabilization.
The Coflex and CoFix products have been approved by the U.S. Food and Drug Administration (the “FDA”) for the treatment of moderate to severe lumbar spinal stenosis in conjunction with decompression and provide minimally invasive, motion preserving stabilization.
The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving Facility,” and, together with the Term Facility, the “Facilities”) under which the Borrowers may borrow up to $8.0 million (such amount, the “Revolving Loan Commitment”) at any one time, the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory of the Borrowers in accordance with a formula set forth in the Revolving Credit Agreement.
The Revolving Credit Agreement provides for a secured revolving credit facility (the “Revolving Facility,” and, together with the Term Facility, the “Facilities”) under which the Borrowers may borrow up to $17.0 million (such amount, the “Revolving Loan Commitment”) at any one time, the availability of which is determined based on a borrowing base equal to percentages of certain accounts receivable and inventory of the Borrowers in accordance with a formula set forth in the Revolving Credit Agreement.
General and Administrative General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related costs and corporate expenses for legal, accounting and other professional fees, as well as occupancy costs.
General and Administrative General and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related costs, amortization, and corporate expenses for legal, accounting and other professional fees, as well as occupancy costs.
Prior to raising additional equity or debt financing, we may be required to obtain the consent of the Agent under our Credit Agreements and/or ROS and Royalty Opportunities under our Investor Rights Agreement with them, and no assurance can be provided that they would provide such consent, which could limit our ability to raise additional financing and the terms thereof.
Prior to raising additional equity or debt financing, we may be required to obtain the consent of MidCap under our Credit Agreements and/or ROS and Royalty Opportunities under our Investor Rights Agreement with them, and no assurance can be provided that they would provide such consent, which could limit our ability to raise additional financing and the terms thereof.
However, we may require or seek additional capital to fund our future operations and business strategy prior to March 2024. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time. We may elect to raise additional financing even before we need it if market conditions for raising additional capital are favorable.
However, we may require or seek additional capital to fund our future operations and business strategy prior to March 2025. Accordingly, there is no assurance that we will not need or seek additional financing prior to such time. We may elect to raise additional financing even before we need it if market conditions for raising additional capital are favorable.
Our estimates of anticipated future product demand may prove to be inaccurate in which case we may be required to incur charges for excess and obsolete inventory. Increases in our inventory reserves result in a corresponding expense, which is recorded to cost of sales. We believe the total reserve at December 31, 2022 is adequate .
Our estimates of anticipated future product demand may prove to be inaccurate in which case we may be required to incur charges for excess and obsolete inventory. Increases in our inventory reserves result in a corresponding expense, which is recorded to cost of sales. We believe the total reserve at December 31, 2023 is adequate.
We have biologics contracts with major GPOs, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems. While our focus is the United States market, we promote and sell our products internationally through stocking distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries.
We have biologics contracts with major GPOs, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems. While our focus is the United States market, we promote and sell our products internationally through direct sales representatives and stocking distribution partners in Canada, Mexico, South America, Australia, and certain Pacific region countries.
All borrowings under the Revolving Facility are subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an updated borrowing base certificate. The Facilities have a maturity date of May 1, 2026 (the “Maturity Date).
All borrowings under the Revolving Facility are subject to the satisfaction of customary conditions, including the absence of default, the accuracy of representations and warranties in all material respects and the delivery of an updated borrowing base certificate. The Facilities have a maturity date of March 1, 2029 (the “Maturity Date”).
The Term Credit Agreement provides for a secured term loan facility (the “Term Facility”) in an aggregate principal amount of $12.0 million (the “Term Loan Commitment”), which was funded to the Borrowers immediately, and an additional $5.0 million tranche available solely at the discretion of MidCap and the lenders, for the purposes agreed to between the Company, the Borrowers and the lenders in advance of the making of loans under such additional tranche.
The Term Credit Agreement provides for a secured term loan facility (the “Term Facility”) in an aggregate principal amount of $17.0 million (the “Term Loan Commitment”), which was previously funded under the Prior Term Credit Agreement, and an additional $10.0 million tranche available solely at the discretion of MidCap Financial Trust and the lenders, for the purposes agreed to between the Company, the Borrowers and the lenders in advance of the making of loans under such additional tranche.
In addition, the Credit Agreements require the Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a minimum adjusted EBITDA and a minimum liquidity, in each case at levels specified in the Credit Agreements.
In addition, the Credit Agreements require the Borrowers and the Company to maintain net product revenue at or above minimum levels and to maintain a certain minimum liquidity level, in each case as specified in the Credit Agreements.
We expect that our annualized interest expense will increase approximately $0.1 million for every 75 basis points of increase to the reference rate associated with our credit agreements before adjusting for principal payments.
We expect that our annualized interest expense will increase approximately $0.1 million for every 50 basis points of increase to the reference rate associated with our credit agreements.
This is particularly true if economic and market conditions deteriorate. 57 To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or other preferences or rights that would adversely affect the rights of our current stockholders.
To the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing of our debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant coverage, liquidation or other preferences or rights that would adversely affect the rights of our current stockholders.
Financial Statements and Supplementary Data .” Critical Accounting Estimates All of our significant accounting policies and estimates are described in Note 1 to our consolidated financial statements in “ Item 8.
Recent Accounting Pronouncements Information regarding recent accounting pronouncements is included in Note 1 to our consolidated financial statements in “ Item 8. Financial Statements and Supplementary Data .” Critical Accounting Estimates All of our significant accounting policies and estimates are described in Note 1 to our consolidated financial statements in “ Item 8.
We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us.
We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is particularly true if economic and market conditions deteriorate.
General and administrative expenses increased 8%, or $1.1 million, to $15.5 million for the year ended December 31, 2022 compared to $14.4 million for the year ended December 31, 2021.
General and administrative expenses increased 67%, or $10.4 million, to $25.9 million for the year ended December 31, 2023 compared to $15.5 million for the year ended December 31, 2022.
Sales and marketing expenses increased 7%, or $1.5 million, to $22.5 million for the year ended December 31, 2022 compared to $21.0 million for the year ended December 31, 2021.
Sales and marketing expenses increased 71%, or $15.9 million, to $38.4 million for the year ended December 31, 2023 compared to $22.5 million for the year ended December 31, 2022.
Current and Prior Credit Facilities On May 6, 2021, the Company, as guarantor, and our subsidiaries, as borrowers (collectively, the “Borrowers”), entered into a Credit, Security and Guaranty Agreement (Term Loan) (the “Term Credit Agreement”) and Credit, Security and Guaranty Agreement (Revolving Loan) (the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust, in its capacity as agent (“MidCap”).
Current and Prior Credit Facilities On March 7, 2024, the Company, as guarantor, and certain of our subsidiaries, as borrowers (collectively, the “Borrowers”), entered into an Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) (the “Term Credit Agreement”) and an Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) (the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the “Credit Agreements”) with MidCap Financial Trust and MidCap Funding IV Trust, each in its respective capacity as agent, and lenders from time to time party thereto.
The term SOFR reference rate was applied to amounts outstanding and draws that took place on or after the November 1, 2022. 56 The loans and other obligations pursuant to the Credit Agreements bear interest at a per annum rate equal to the sum of the SOFR rate, as such term is defined in the Credit Agreements, plus 0.11%, plus the applicable margin of 7.00% in the case of the Term Credit Agreement, and 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 1.00%.
The loans and other obligations pursuant to the Credit Agreements will bear interest at a per annum rate equal to the sum of the SOFR Interest Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement, and an applicable margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%.
Management believes that our $20.5 million of cash and cash equivalents as of December 31, 2022, together with amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least March 2024.
As of December 31, 2023, we were in compliance with all covenants under the Prior Credit Agreements. 67 Cash Requirements We believe that our $5.9 million of cash and cash equivalents as of December 31, 2023, together with amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least March 2025.
While the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our future revenues.
While the intent of these four key growth initiatives is to increase our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our future revenues. Recent Acquisitions Coflex and CoFix Product Lines On February 28, 2023, we acquired all of the issued and outstanding capital stock of Surgalign SPV, Inc.
The year-over-year increase included additional independent agent commissions expense of $1.1 million resulting from higher sales and a greater mix of independent agent sales and additional expense of $0.2 million associated with tradeshows and related travel. 54 Research and Development Research and development expenses consist primarily of internal costs for the development of new product technologies.
This increase was due primarily to additional independent agent commissions expense of $9.8 million resulting from higher sales, $5.1 million of additional expense associated with various compensation plans and additional expense of $0.9 million associated with trade shows and travel. Research and Development Research and development expenses consist primarily of internal costs for the development of new product technologies.
Beginning in June 2023, the Company is required to make monthly principal payments of approximately $0.3 million on the Term Facility through the Maturity Date. Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements.
Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable for all of the obligations under the Facilities on the terms set forth in the Credit Agreements.
Research and development expenses were $0.9 million for each of the years ended December 31, 2022 and 2021. Interest Expense Interest expense for the year ended December 31, 2022 increased $0.7 million to $1.7 million as compared to $1.0 million for the year ended December 31, 2021.
Research and development expenses increased 46%, or $0.4 million, to $1.3 million for year ended December 31, 2023 compared to $0.9 million for the year end December 31, 2022.
This increase in net cash used in operating activities relates primarily to the increase in net loss, partially offset by the effects of changes in operating assets and liabilities. Net cash used in investing activities for the years ended December 31, 2022 and 2021 was $1.6 million and $1.9 million, respectively, primarily representing purchases of property and equipment.
This increase in net cash used in operating activities relates primarily to the increase in accounts receivable balance. Net cash used in investing activities for the years ended December 31, 2023 and 2022 was $24.8 million and $1.6 million, respectively.
The following table summarizes our working capital as of December 31, 2022 and December 31, 2021 (in thousands): December 31, 2022 2021 Cash and cash equivalents $ 20,507 $ 18,387 Accounts receivable, net 10,853 7,154 Inventories 17,285 17,945 Total current assets 49,318 44,330 Accounts payable 3,490 2,615 Accrued liabilities 5,496 4,349 Line of credit 3,379 3,620 Current portion of long-term debt 2,333 — Total current liabilities 15,218 11,077 Net working capital 34,100 33,253 Our increase in cash and cash equivalents was due primarily to net proceeds from our 2022 private placement of common stock and warrants, partially offset by net cash used in operations.
The following table summarizes our working capital as of December 31, 2023 and December 31, 2022 (in thousands): December 31, 2023 2022 Cash and cash equivalents $ 5,923 $ 20,507 Accounts receivable, net 20,731 10,853 Inventories 36,885 17,285 Total current assets 64,899 49,318 Accounts payable 7,054 3,490 Accrued liabilities 10,419 5,496 Line of credit 4,622 3,379 Current portion of long-term debt — 2,333 Total current liabilities 22,990 15,218 Net working capital 41,879 34,100 Cash Flows Net cash used in operating activities for the year ended December 31, 2023 was $9.5 million compared to $5.3 million provided by operating activities for the year ended December 31, 2022.
As of December 31, 2022, the effective rate of the Term Facility, inclusive of amortization of debt issuance costs and accretion of the final payment, was 13.20%, and the effective rate of the Revolving Facility was 8.74%.
As of December 31, 2023, the effective rate of the Prior Term Credit Agreement, inclusive of authorization of debt issuance costs and accretion of the final payment, was 14.42%, and the effective rate of the Prior Revolving Credit Agreement was 9.94%.
We did not have a triggering event in 2022 or 2021. 58 Inventory Valuation Inventories are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method and includes materials, labor and overhead.
The resulting material weaknesses are described in greater detail under the heading Part II. Item 9A. “Controls and Procedures.” Inventory Valuation Inventories are stated at the lower of cost or net realizable value. Cost is determined using the specific identification method and includes materials, labor and overhead.
Cost of sales also includes reserves for estimated excess inventory, inventory on consignment that may be missing and not returned, and reserves for estimated missing and damaged consigned surgical instruments. Cost of sales increased by 13%, or $3.0 million, to $25.8 million for the year ended December 31, 2022 from $22.8 million for the year ended December 31, 2021.
Cost of Sales Cost of sales consists primarily of manufacturing cost, product purchase costs and depreciation of surgical instruments. Cost of sales also includes reserves for estimated excess inventory, inventory on consignment that may be missing and not returned, and reserves for estimated missing and damaged consigned surgical instruments.
Net cash provided by financing activities was $17.5 million for the year ended December 31, 2021, which was primarily attributable to $18.4 million of proceeds the private placement of common stock and common stock warrants, net of issuance costs.
This increase relates primarily to the use of $17.0 million of cash for the acquisition of Surgalign SPV, $5.6 million of cash for the acquisition of Surgalign Holdings’s hardware and biologics business and $2.0 million of cash for the acquisition of nanOss production operations from RTI Surgical, Inc. 66 Net cash provided by financing activities was $19.7 million for the year ended December 31, 2023, which was primarily attributable to $14.0 million of net proceeds resulting from our July 2023 private placement of common stock and $4.7 million of net proceeds from the issuance of long term debt, net of issuance costs.
Gross profit as a percentage of sales decreased to 55.4% for the year ended December 31, 2022 compared to 58.8% for the year ended December 31, 2021. Of this decrease, 280 basis points were due to higher production costs and 180 basis points resulted from increased charges for excess and obsolete inventory.
Gross profit as a percentage of revenue increased to 60.8% for the year ended December 31, 2023 compared to 55.4% for the year ended December 31, 2022.
Immediately prior to the Closing, Seller and its affiliates transferred and assigned to Surgalign SPV, a privately held, newly formed entity, certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of its Coflex and CoFix products in the United States (the “Coflex Business”).
(“Surgalign SPV”), a then indirect wholly owned subsidiary of Surgalign Holdings, Inc. (“Surgalign Holdings”), which held certain intellectual property, contractual rights and other assets related to the design, manufacture, sale and distribution of the Coflex and CoFix products in the United States, for an aggregate purchase price of $17.0 million in cash.
As of December 31, 2022, the Company had $3.4 million outstanding and $4.6 million of availability under the Revolving Facility. On October 27, 2022, the Credit Agreements were amended to transition the reference rate from LIBOR to term SOFR.
As of December 31, 2023, we had $4.0 million outstanding and $3.3 million of availability under the Prior Revolving Credit Agreement.
Those financial estimates include: Goodwill and Intangible Assets Goodwill represents the excess of costs over fair value of assets of businesses acquired.
Goodwill represents the excess of consideration transferred over the estimated fair value of the net assets acquired in a business combination.
This increase is primarily attributable to additional expense of $0.6 million related to various compensation plans, additional expense of $0.4 million related to product registrations and costs related to ERP system upgrades of $0.4 million, partially offset by legal settlement expenses of $0.6 million during the prior year.
This increase is primarily attributable to additional expense of $4.3 million related to various compensation plans, $2.0 million of additional legal and other professional fees resulting primarily from acquisition related activities, $1.4 million of additional amortization of intangible assets associated with the Coflex and CoFix product lines and $1.1 million of consulting fees resulting primarily from acquisition related activities.
Removed
Acquisition of Coflex and CoFix Product Lines On February 28, 2023, we entered into an Equity Purchase Agreement (the “Equity Purchase Agreement”) with Surgalign SPV, Inc.
Added
Surgalign Holdings’ Hardware and Biologics Business On August 10, 2023, we completed the acquisition of certain additional assets of Surgalign Holdings and its subsidiaries on an as-is, where-is basis, including specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal property, records, all outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles related to the business of designing, developing and manufacturing hardware medical technology and distributing biologics medical technology, as conducted by Surgalign Holdings and its subsidiaries, and certain specified liabilities of Surgalign Holdings and its subsidiaries pursuant to an Asset Purchase Agreement, dated June 18, 2023, between Surgalign Holdings and us (as amended, the “Surgalign Asset Purchase Agreement”).
Removed
(“Surgalign SPV”), a Delaware corporation and wholly owned subsidiary of Surgalign Spine Technologies, Inc., a Delaware corporation (“Seller”), Seller and Surgalign Holdings, Inc., a Delaware corporation, pursuant to which we purchased all of the issued and outstanding shares of common stock of Surgalign SPV, which shares constitute all of the outstanding equity of Surgalign SPV, for an aggregate purchase price of $17.0 million in cash.
Added
Pursuant to the Surgalign Asset Purchase Agreement, we were able to acquire Surgalign Holdings’ broad portfolio of spinal hardware implants, including solutions for fusion procedures in the lumbar, thoracic, and cervical spine, motion preservation solutions for the lumbar spine, and a minimally invasive surgical implant system for fusion of the sacroiliac joint.
Removed
The closing contemplated by the Equity Purchase Agreement occurred on February 28, 2023 (the “Closing”).
Added
Additionally, we were able to acquire Surgalign Holdings’ biomaterials portfolio of advanced and traditional orthobiologics. These offerings complement our portfolio of orthobiologics and spinal implant fixation systems. This transaction was conducted through a process supervised by the United States Bankruptcy Court in connection with Surgalign Holdings’ bankruptcy proceedings. We funded the purchase price of $5 million with cash on hand.
Removed
For additional information regarding the acquisition of Surgalign SPV, refer to Note 17 – Subsequent Events in the consolidated financial statements in this Form 10-K. 52 Impact of COVID-19 At the onset of, and at various times during, the COVID-19 pandemic, hospitals and other medical facilities have cancelled or deferred elective procedures, diverted resources to patients suffering from infections, and limited access for non-patients, including our direct and indirect sales representatives.
Added
This transaction resulted in a gain on bargain purchase due to the estimated fair value of the identifiable net assets acquired exceeding the purchase consideration transferred by $11.7 million and is shown as a gain on bargain purchase on our consolidated statement of operations for the year ended December 31, 2023.
Removed
Because of these circumstances, surgeons and their patients have deferred, and may continue to defer, procedures in which our products otherwise would be used. In addition, many facilities that specialize in procedures in which our products are used have experienced, and may continue to experience, staffing shortages, temporary closures, and/or reduced operating hours.
Added
The bargain purchase was primarily attributable to the transaction occurring as part of bankruptcy proceedings. 63 RTI Surgical, Inc.’s nanOss Production Operations On October 23, 2023, we acquired the nanOss production operations from RTI Surgical, Inc. (“RTI”) pursuant to an Asset Purchase Agreement dated October 23, 2023 between us and RTI (the “RTI Asset Purchase Agreement”).
Removed
These circumstances have negatively impacted, and may continue to negatively impact, the number of elective procedures being conducted and the ability of our employees, independent sales representatives and distributors to effectively market and sell our products, which has had and may continue to have a material adverse effect on our revenues.
Added
Under the terms of the RTI Asset Purchase Agreement, we acquired certain assets, including equipment and inventory, used in RTI’s synthetic bone graft business and assumed from RTI the lease for the nanOss production facility located in Greenville, North Carolina.
Removed
During the first quarter of 2022, spine and other surgery procedure volumes were negatively impacted in many of our key markets, due to cancellations and/or postponements of procedures as a result of hospitalizations of COVID-19 patients, restrictions on elective procedures and staffing shortages in our key markets, which negatively impacted our first quarter 2022 revenues.
Added
The purchase price for the assets was $2 million in cash plus a low single digit royalty on sales prior to October 23, 2028 of next generation nanOss products. We previously acquired the nanOss distribution rights and nanOss intellectual property with the acquisition of assets related to the biologics and spinal fixation business of Surgalign Holdings, as described above.
Removed
This reduction in elective procedures and staffing shortages subsided beginning in the second quarter and during the remainder of 2022, but could reoccur if there is another wave or sustained resurgence of COVID-19 cases and hospitalizations.
Added
This increase is attributed primarily to the contribution of additional sales resulting from the acquisition of the Surgalign Holdings’ hardware and biologics business, greater independent agent sales, the additional Coflex and CoFix product sales and opportunistic private label sales, in each case during the year ended December 31, 2023.
Removed
COVID-19 also has caused and may continue to cause adverse effects on general commercial activity and the global economy and supply chain, disrupting our ability to obtain raw materials, components and products.
Added
Cost of sales increased by 39%, or $10.0 million, to $35.8 million for the year ended December 31, 2023 from $25.8 million for the year ended December 31, 2022. This increase is primarily due to higher sales levels.
Removed
COVID-19 has also adversely affected, and may continue to adversely affect, our distributors, independent sales representatives, customers, contract manufacturers and suppliers and their respective businesses, which in turn, have adversely affected, and may continue to adversely affect, our business and operations.
Added
Of this increase, 620 basis points were due to greater scale and improved production efficiency, 290 basis points were due to sales mix, partially offset by 340 basis points due to higher production costs.
Removed
Although we continue to monitor the impact of COVID-19 on our business, operations and financial results, the full extent to which COVID-19 will continue to impact our business during 2023 will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 variants, actions taken to contain or treat the impact of COVID-19, the availability, acceptance and effectiveness of vaccines, future resurgences of the virus and its variants, the level of any government restrictions, patient capacity at hospitals and healthcare systems, and the willingness and ability of patients to seek care and treatment due to safety concerns or financial hardship.
Added
This increase resulted primarily from increased headcount due to additional personnel hired in connection with our acquisitions. 65 Interest Expense Interest expense for the year ended December 31, 2023 increased $1.2 million to $2.9 million as compared to $1.7 million for the year ended December 31, 2022.
Removed
If our revenues do not recover to pre-COVID-19 pandemic levels, we may be required to incur impairment charges to our long-lived assets and goodwill and write-off excess inventory, which would likely adversely affect our future operating results.
Added
This increase resulted primarily from increases to the base interest rate applied to our debt instruments and the additional borrowing of $5.0 million under our term loan agreement in February 2023 in connection with our acquisition of Surgalign SPV and the Coflex and CoFix product lines.
Removed
This is attributed primarily to revenue from new products introduced during 2021, specifically OsteoVive® Plus and OsteoFactor™ . Cost of Sales Cost of sales consists primarily of manufacturing cost, product purchase costs and depreciation of surgical instruments.
Added
Benefit (Provision) for Income Taxes Current and Deferred Income tax benefit for the year ended December 31, 2023 was $1.7 million compared to income tax expense of $0.1 million for the year ended December 31, 2022.
Removed
This is primarily due to additional expense of $1.0 million related to increased reserve expense for excess and obsolete inventory and additional salaries and wages expense of $0.9 million, with the remaining increase relating primarily to higher sales levels.
Added
This change resulted primarily from the tax benefit associated with the release of the valuation allowance resulting from recognition of deferred tax liabilities in purchase accounting.
Removed
This increase resulted from our debt refinancing in May 2021, prior to which no interest expense related to our debt instruments was incurred during 2021. We expect interest expense to increase in future periods compared to the comparable prior year periods in light of current rising interest rates.
Added
Net Income (Loss) We recognized net income of $660 thousand during the year ended December 31, 2023 as compared to a net loss of $8.5 million during the year ended December 31, 2022 primarily due to the $11.7 million gain on bargain purchase recognized as a result of our acquisition of Surgalign Holdings’ hardware and biologics business in connection with bankruptcy proceedings.
Removed
On August 25, 2022, we issued in the first tranche of a private placement with several accredited investors approximately 14.1 million shares of our common stock at a purchase price of $0.48 per share and warrants to purchase approximately 3.5 million shares of our common stock.
Added
These Credit Agreements amend and restate the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Term Loan), as amended (the “Prior Term Credit Agreement”), and the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Revolving Loan), as amended (the “Prior Revolving Credit Agreement” and, together with the Prior Term Credit Agreement, the “Prior Credit Agreements”), in each case, by and among the Borrowers, the Company and MidCap Financial Trust and MidCap Funding IV Trust, as respective agents, and the lenders from time to time party thereto.
Removed
The warrants have an exercise price of $0.48 per share, subject to customary anti-dilution, but not price protection, adjustments, are immediately exercisable and expire on the five-year anniversary of the date of issuance. We received net cash proceeds of approximately $6.3 million, after deducting fees and other estimated offering expenses, from the first tranche of this private placement.
Added
Those financial estimates include: 68 Business Combinations When applicable, we account for the acquisition of a business in accordance with the accounting standards codification guidance for business combinations, whereby the total consideration transferred is allocated to the assets acquired and liabilities assumed, including amounts attributable to non-controlling interests, when applicable, based on their respective estimated fair values as of the date of acquisition.
Removed
The closing of the second tranche of the private placement occurred on October 7, 2022, at which we sold an additional approximately 6.2 million shares of our common stock and warrants to purchase approximately 1.6 million shares of common stock for an aggregate purchase price of $3.0.
Added
Assigning estimated fair values to the net assets acquired requires the use of significant estimates, judgments, inputs, and assumptions regarding the fair value of domestic and international assets and liabilities, including intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment.
Removed
The warrants issued at the second closing are identical to the warrants issued at the first closing and also expire on the five-year anniversary of the first closing.
Added
While the ultimate responsibility for determining estimated fair values of the acquired net assets resides with management, for material acquisitions, we may retain the services of certified valuation specialists to assist with assigning estimated fair values to certain acquired assets and assumed liabilities, including intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment.
Removed
We expect to use the net proceeds from this private placement for working capital and other general corporate purposes. 55 Cash Flows Net cash used in operating activities for the year ended December 31, 2022 was $5.3 million compared to $0.4 million provided by operating activities for the year ended December 31, 2021.
Added
Estimated fair values of acquired intangible assets that are separately identifiable from goodwill, inventory, and property, plant, and equipment are generally based on available historical information, future expectations, available market data, and assumptions determined to be reasonable but are inherently uncertain with respect to future events, including economic conditions, competition, technological obsolescence, the useful life of the acquired assets, and other factors.
Removed
The proceeds of the Term Facility and Revolving Facility were used to pay transaction fees in connection with the Facilities and to pay in full all outstanding indebtedness and accrued interest under the Company’s prior credit facility, which is described below.
Added
These significant estimates, judgments, inputs, and assumptions include, when applicable, the selection of an appropriate valuation method depending on the nature of the respective asset, such as the income approach, the market or sales comparison approach, or the cost approach; estimating future cash flows based on projected revenues and/or margins that we expect to generate subsequent to the acquisition; applying an appropriate discount rate to estimate the present value of those projected cash flows we expect to generate; selecting an appropriate terminal growth rate and/or royalty rate or estimating a customer attrition or technological obsolescence factor where necessary and appropriate given the nature of the respective asset; assigning an appropriate contributory asset charge where needed; determining an appropriate useful life and the related depreciation or amortization method for the respective asset; and assessing the accuracy and completeness of other historical financial metrics of the acquiree used as standalone inputs or as the basis for determining estimated projected inputs such as margins, customer attrition, and costs to hold and sell product.
Removed
On March 7, 2022, the Credit Agreements were amended to, among other things, (i) provide for a waiver of compliance with respect to the Company’s minimum adjusted EBITDA requirement if and so long as the Company’s liquidity (as specifically defined in the Credit Agreements) is in excess of $14 million and there is not otherwise an event of default under the Credit Agreements, commencing with the next delivery of the compliance certificate required under the Credit Agreements, and (ii) re-set the date certain fees payable in connection with optional prepayments are determined to the date the amendment was executed and consequently extend such fees’ original expiration.
Added
In determining the estimated fair value of intangible assets that are separately identifiable from goodwill, we typically utilize the income approach, which discounts the projected future cash flows using a discount rate that appropriately reflects the risks associated with the projected cash flows.

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