UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, ~~2022~~2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number: 001-38242

OrthoPediatrics Corp.

(Exact name of registrant as specified in its charter)


Delaware			26-1761833
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification Number)


2850 Frontier Drive Warsaw, IN 46582			(574) 268-6379
(Address of principal executive offices, including zip code)			(Registrant’s telephone number, including area code)

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00025 par value per share

KIDS

Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May ~~3, 2022,~~1, 2023, the registrant had ~~20,229,901~~23,327,203 outstanding shares of common stock, $0.00025 par value per share.

OrthoPediatrics Corp.

Form 10-Q

For the Quarterly Period Ended March 31, ~~2022~~2023

TABLE OF CONTENTS


		Page No.
Note Regarding Forward-Looking Statements		3

PART I. FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	4
	Condensed Consolidated Balance Sheets - March 31, ~~2022~~2023 and December 31, ~~2021~~2022	4
	Condensed Consolidated Statements of Operations - Three Months Ended March 31,~~, 202~~2 2023 and ~~202~~12022	5
	Condensed Consolidated Statements of Comprehensive Loss - Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	6
	Condensed Consolidated Statements of Stockholders' Equity - Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	7
	Condensed Consolidated Statements of Cash Flows - Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2925
Item 3	Quantitative and Qualitative Disclosures About Market Risk	3731
Item 4	Controls and Procedures	3731

PART II. OTHER INFORMATION
Item 1	Legal Proceedings	3833
Item 1A	Risk Factors	3833
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	3833
Item 3	Defaults Upon Senior Securities	3833
Item 4	Mine Safety Disclosures	3833
Item 5	Other Information	3833
Item 6	Exhibits	3934
Exhibit Index		4035
Signatures		4237

NOTE REGARDING FORWARD-LOOKING STATEMENTS

All statements, other than statements of historical facts, contained in this quarterly report, including statements regarding our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition, are forward-looking statements. You can often identify forward-looking statements by words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "might," "target," "ongoing," "plan," "potential," "predict," "project," "should," "will" or "would," or the negative of these terms or other terms. Forward-looking statements involve known and unknown risks, uncertainties and other factors, such as the impact of ~~the~~widespread health emergencies, such as COVID-19 ~~pandemic,~~and respiratory syncytial virus, that may cause our results, activity levels, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements. Forward-looking statements may include, among other things, statements relating to:

•our ability to achieve or sustain profitability in the future;

•our ability to raise additional capital to fund our existing commercial operations, develop and commercialize new products and expand our operations;

•our ability to commercialize our products in development and to develop and commercialize additional products through our research and development efforts, and if we fail to do so we may be unable to compete effectively;

•our ability to generate sufficient revenue from the commercialization of our products to achieve and sustain profitability;

•our ability to comply with extensive government regulation and oversight both in the United States and abroad;

•our ability to maintain and expand our network of third-party independent sales agencies and distributors to market and distribute our products; and

•our ability to protect our intellectual property rights or if we are accused of infringing on the intellectual property rights of others;

We cannot assure you that forward-looking statements will prove to be accurate, and you are encouraged not to place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations expressed or implied by the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this quarterly report, in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March ~~3, 2022~~1, 2023 and in other reports filed with the SEC that discuss the risks and factors that may affect our business. Other than as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information, events or circumstances occurring after the date of this quarterly report.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ORTHOPEDIATRICS CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In Thousands, Except Share Data)


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	17,957	$	7,641	Cash and cash equivalents	$	34,656	$	8,991
Restricted cash	Restricted cash	1,363		1,365		Restricted cash	1,481		1,471
Short term investments		27,068		45,902
Accounts receivable - trade, less allowance for doubtful accounts of $357 and $347, respectively		17,911		17,942
Short-term investments						Short-term investments	73,074		109,299
Accounts receivable - trade, net of allowances of $942 and $1,056, respectively						Accounts receivable - trade, net of allowances of $942 and $1,056, respectively	26,838		24,800
Inventories, net	Inventories, net	64,077		57,569		Inventories, net	84,922		78,192

Prepaid expenses and other current assets	Prepaid expenses and other current assets	3,048		3,229		Prepaid expenses and other current assets	4,005		3,966

Total current assets	Total current assets	131,424		133,648		Total current assets	224,976		226,719
Property and equipment, net	Property and equipment, net	31,068		28,515		Property and equipment, net	36,916		34,286
Other assets:	Other assets:					Other assets:
Amortizable intangible assets, net	Amortizable intangible assets, net	53,476		55,494		Amortizable intangible assets, net	64,642		64,980
Goodwill	Goodwill	70,987		72,349		Goodwill	84,127		86,821

Other intangible assets	Other intangible assets	14,040		14,268		Other intangible assets	15,629		14,921
Total other assets	Total other assets	138,503		142,111		Total other assets	164,398		166,722

Total assets	Total assets	$	300,995	$	304,274	Total assets	$	426,290	$	427,727

LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable - trade	Accounts payable - trade	$	14,578	$	9,325	Accounts payable - trade	$	16,692	$	11,150
Accrued compensation and benefits	Accrued compensation and benefits	4,433		5,351		Accrued compensation and benefits	6,242		6,744

Current portion of long-term debt with affiliate	Current portion of long-term debt with affiliate	139		137		Current portion of long-term debt with affiliate	146		144
Current portion of acquisition installment payable	Current portion of acquisition installment payable	12,934		12,862		Current portion of acquisition installment payable	8,000		7,815

Other current liabilities	Other current liabilities	2,249		2,040		Other current liabilities	4,138		5,018
Total current liabilities	Total current liabilities	34,333		29,715		Total current liabilities	35,218		30,871
Long-term liabilities:	Long-term liabilities:					Long-term liabilities:
Long-term debt with affiliate, net of current portion	Long-term debt with affiliate, net of current portion	872		907		Long-term debt with affiliate, net of current portion	725		763
Acquisition installment payable, net of current portion	Acquisition installment payable, net of current portion	14,690		14,309		Acquisition installment payable, net of current portion	8,215		8,019
Contingent consideration	Contingent consideration	31,480		28,910		Contingent consideration	2,310		2,980
Deferred income taxes	Deferred income taxes	4,335		4,771		Deferred income taxes	6,022		5,954
Other long-term liabilities	Other long-term liabilities	241		293		Other long-term liabilities	645		492
Total long-term liabilities	Total long-term liabilities	51,618		49,190		Total long-term liabilities	17,917		18,208

Total liabilities	Total liabilities	85,951		78,905		Total liabilities	53,135		49,079

Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Common stock, $0.00025 par value; 50,000,000 shares authorized; 19,821,298 shares and 19,677,214 shares issued as of March 31, 2022 (unaudited) and December 31, 2021, respectively		5		5
Common stock, $0.00025 par value; 50,000,000 shares authorized; 23,142,118 shares and 22,877,962 shares issued as of March 31, 2023 and December 31, 2022, respectively						Common stock, $0.00025 par value; 50,000,000 shares authorized; 23,142,118 shares and 22,877,962 shares issued as of March 31, 2023 and December 31, 2022, respectively	6		6
Additional paid-in capital	Additional paid-in capital	396,425		394,899		Additional paid-in capital	562,769		560,810

Accumulated deficit	Accumulated deficit	(187,126)		(178,026)		Accumulated deficit	(183,574)		(176,768)
Accumulated other comprehensive income		5,740		8,491
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(6,046)		(5,400)
Total stockholders' equity	Total stockholders' equity	215,044		225,369		Total stockholders' equity	373,155		378,648
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	300,995	$	304,274	Total liabilities and stockholders' equity	$	426,290	$	427,727

See notes to condensed consolidated financial statements.

ORTHOPEDIATRICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In Thousands, Except Share and Per Share Data)


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Net revenue	Net revenue	$	23,417	$	21,462		Net revenue	$	31,588	$	23,417
Cost of revenue	Cost of revenue	4,851		5,137			Cost of revenue	8,027		4,851
Gross profit	Gross profit	18,566		16,325			Gross profit	23,561		18,566
Operating expenses:	Operating expenses:						Operating expenses:
Sales and marketing	Sales and marketing	9,758		8,949			Sales and marketing	12,216		9,758
General and administrative	General and administrative	13,167		12,041			General and administrative	17,666		13,167

Research and development	Research and development	2,027		1,308			Research and development	2,270		2,027
Total operating expenses	Total operating expenses	24,952		22,298			Total operating expenses	32,152		24,952
Operating loss	Operating loss	(6,386)		(5,973)			Operating loss	(8,591)		(6,386)
Other expenses:
Interest expense, net		566		728
Other (income) expenses:							Other (income) expenses:
Interest (income) expense, net							Interest (income) expense, net	(210)		566
Fair value adjustment of contingent consideration	Fair value adjustment of contingent consideration	2,570		4,150			Fair value adjustment of contingent consideration	(670)		2,570
Other income	Other income	(105)		(160)			Other income	(331)		(105)
Total other expenses		3,031		4,718
Total other (income) expenses							Total other (income) expenses	(1,211)		3,031
Loss before income taxes	Loss before income taxes	$	(9,417)	$	(10,691)		Loss before income taxes	$	(7,380)	$	(9,417)
Provision for income taxes (benefit)	Provision for income taxes (benefit)	(317)		(312)			Provision for income taxes (benefit)	(574)		(317)

Net loss	Net loss	$	(9,100)	$	(10,379)		Net loss	$	(6,806)	$	(9,100)

Weighted average common stock - basic and diluted	Weighted average common stock - basic and diluted	19,366,911		19,200,231			Weighted average common stock - basic and diluted	22,506,024		19,366,911
Net loss per share - basic and diluted	Net loss per share - basic and diluted	$	(0.47)	$	(0.54)		Net loss per share - basic and diluted	$	(0.30)	$	(0.47)

See notes to condensed consolidated financial statements.

ORTHOPEDIATRICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In Thousands)


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Net loss	Net loss	$	(9,100)	$	(10,379)		Net loss	$	(6,806)	$	(9,100)
Other comprehensive loss:
Other comprehensive income (loss):							Other comprehensive income (loss):
Foreign currency translation adjustment	Foreign currency translation adjustment	(2,198)		(3,499)			Foreign currency translation adjustment	(962)		(2,198)
Unrealized loss on short-term investments		(553)		(123)
Unrealized gain (loss) on short-term investments							Unrealized gain (loss) on short-term investments	617		(553)
Adjustment for realized (gain) loss on securities							Adjustment for realized (gain) loss on securities	(301)		—
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	(2,751)		(3,622)			Other comprehensive loss, net of tax	(646)		(2,751)
Comprehensive loss	Comprehensive loss	$	(11,851)	$	(14,001)		Comprehensive loss	$	(7,452)	$	(11,851)

See notes to condensed consolidated financial statements.

ORTHOPEDIATRICS CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In Thousands, Except Share Data)


			Three Months Ended March 31, 2022																Three Months Ended March 31, 2023
								Accumulated																		Accumulated
						Additional		Other		Total														Additional		Other			Total
		Common Stock		Paid-in		Accumulated	Comprehensive	Stockholders'									Common Stock		Paid-in		Accumulated			Comprehensive	Stockholders'
			Shares	Value				Capital		Deficit			Income (Loss)		Equity									Shares	Value							Capital			Deficit			Loss	Equity
Balance at January 1, 2022			19,677,214	$	5			$	394,899	$	(178,026)		$	8,491	$	225,369
Balance at January 1, 2023												Balance at January 1, 2023								22,877,962		$	6				$	560,810		$	(176,768)		$	(5,400)		$	378,648
Net loss	Net loss		—	—				—		(9,100)			—		(9,100)			Net loss						—	—							—			(6,806)			—	(6,806)
Other comprehensive loss	Other comprehensive loss		—	—				—		—			(2,751)		(2,751)			Other comprehensive loss						—	—							—			—			(646)	(646)

Restricted stock	Restricted stock		144,084	—				1,526		—			—		1,526			Restricted stock						264,156	—							1,959			—			—	1,959

Balance at March 31, 2022			19,821,298	$	5			$	396,425	$	(187,126)		$	5,740	$	215,044
Balance at March 31, 2023												Balance at March 31, 2023								23,142,118		$	6				$	562,769		$	(183,574)		$	(6,046)		$	373,155

ORTHOPEDIATRICS CORP.

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In Thousands, Except Share Data)


		Three Months Ended March 31, 2021													Three Months Ended March 31, 2022
										Accumulated																Accumulated
						Additional				Other		Total										Additional				Other		Total
		Common Stock			Paid-in	Accumulated		Comprehensive		Stockholders'						Common Stock				Paid-in	Accumulated	Comprehensive		Stockholders'
		Shares	Value			Capital		Deficit		Income (Loss)		Equity					Shares	Value				Capital		Deficit		Income		Equity
Balance at January 1, 2021		19,560,291	$	5		$	388,622	$	(161,766)	$	7,907	$	234,768
Balance at January 1, 2022														Balance at January 1, 2022			19,677,214	$	5			$	394,899	$	(178,026)	$	8,491	$	225,369
Net loss	Net loss	—	—			—		(10,379)		—		(10,379)		Net loss			—	—				—		(9,100)		—		(9,100)
Other comprehensive loss	Other comprehensive loss	—	—			—		—		(3,622)		(3,622)		Other comprehensive loss			—	—				—		—		(2,751)		(2,751)
Stock option exercise		2,010	—			62		—		—		62

Restricted stock	Restricted stock	97,111	—			1,316		—		—		1,316		Restricted stock			144,084	—				1,526		—		—		1,526

Balance at March 31, 2021		19,659,412	$	5		$	390,000	$	(172,145)	$	4,285	$	222,145
Balance at March 31, 2022														Balance at March 31, 2022			19,821,298	$	5			$	396,425	$	(187,126)	$	5,740	$	215,044

See notes to condensed consolidated financial statements.

ORTHOPEDIATRICS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In Thousands)


		Three Months Ended March 31,					Three Months Ended March 31,
		2022		2021			2023		2022
OPERATING ACTIVITIES	OPERATING ACTIVITIES					OPERATING ACTIVITIES
Net loss	Net loss	$	(9,100)	$	(10,379)	Net loss	$	(6,806)	$	(9,100)
Adjustments to reconcile net loss to net cash used in operating activities:	Adjustments to reconcile net loss to net cash used in operating activities:					Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation and amortization	Depreciation and amortization	2,961		2,539		Depreciation and amortization	3,848		2,961
Stock-based compensation	Stock-based compensation	1,526		1,316		Stock-based compensation	2,113		1,526
Fair value adjustment of contingent consideration	Fair value adjustment of contingent consideration	2,570		4,150		Fair value adjustment of contingent consideration	(670)		2,570
Acquisition installment payable		453		644
Accretion of acquisition installment payable						Accretion of acquisition installment payable	381		453
Deferred income taxes	Deferred income taxes	(317)		(312)		Deferred income taxes	(574)		(317)

Changes in certain current assets and liabilities:	Changes in certain current assets and liabilities:					Changes in certain current assets and liabilities:
Accounts receivable - trade	Accounts receivable - trade	2		653		Accounts receivable - trade	(2,002)		2
Inventories	Inventories	(6,750)		(2,508)		Inventories	(5,979)		(6,750)

Prepaid expenses and other current assets	Prepaid expenses and other current assets	112		708		Prepaid expenses and other current assets	(33)		112
Accounts payable - trade	Accounts payable - trade	5,258		2,058		Accounts payable - trade	5,541		5,258
Accrued legal settlements		—		(1,092)

Accrued expenses and other liabilities	Accrued expenses and other liabilities	(690)		446		Accrued expenses and other liabilities	(1,571)		(690)
Other	Other	(222)		(138)		Other	(709)		(222)

Net cash used in operating activities	Net cash used in operating activities	(4,197)		(1,915)		Net cash used in operating activities	(6,461)		(4,197)

INVESTING ACTIVITIES	INVESTING ACTIVITIES					INVESTING ACTIVITIES

Sale of short-term marketable securities	Sale of short-term marketable securities	18,500		—		Sale of short-term marketable securities	37,250		18,500
Purchases of licenses		—		(2,858)

Purchases of property and equipment	Purchases of property and equipment	(4,197)		(2,749)		Purchases of property and equipment	(4,940)		(4,197)

Net cash provided by (used in) investing activities		14,303		(5,607)
Net cash provided by investing activities						Net cash provided by investing activities	32,310		14,303

FINANCING ACTIVITIES	FINANCING ACTIVITIES					FINANCING ACTIVITIES

Proceeds from exercise of stock options		—		62

Payments on mortgage notes	Payments on mortgage notes	(33)		(32)		Payments on mortgage notes	(36)		(33)
Net cash (used in) provided by financing activities		(33)		30
Net cash used in financing activities						Net cash used in financing activities	(36)		(33)

Effect of exchange rate changes on cash		241		155
Effect of exchange rate changes on cash, cash equivalents and restricted cash						Effect of exchange rate changes on cash, cash equivalents and restricted cash	(138)		241

NET (DECREASE) INCREASE IN CASH		10,314		(7,337)
NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH						NET INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH	25,675		10,314

Cash and restricted cash, beginning of year		$	9,006	$	30,132
Cash and restricted cash, end of period		$	19,320	$	22,795
Cash, cash equivalents and restricted cash, beginning of year						Cash, cash equivalents and restricted cash, beginning of year	$	10,462	$	9,006
Cash, cash equivalents and restricted cash, end of period						Cash, cash equivalents and restricted cash, end of period	$	36,137	$	19,320

SUPPLEMENTAL DISCLOSURES	SUPPLEMENTAL DISCLOSURES					SUPPLEMENTAL DISCLOSURES
Cash paid for interest	Cash paid for interest	$	13	$	15	Cash paid for interest	$	11	$	13

Transfer of instruments from property and equipment to inventory	Transfer of instruments from property and equipment to inventory	$	(54)	$	57	Transfer of instruments from property and equipment to inventory	$	332	$	(54)

See notes to condensed consolidated financial statements.

ORTHOPEDIATRICS CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(Dollars In Thousands, Except Share and Per Share data)

NOTE 1 – BUSINESS

OrthoPediatrics Corp., a Delaware corporation, is a medical device company committed to designing, developing and marketing anatomically appropriate implants and devices for children with orthopedic conditions, giving pediatric orthopedic surgeons and caregivers the ability to treat children with technologies specifically designed to meet their needs. We sell our specialized products, including PediLoc®, PediPlates®, Cannulated Screws, PediFlexTM nail, PediNailTM, PediLoc® Tibia, ACL Reconstruction System, Locking Cannulated Blade, Locking Proximal Femur, Spica Tables, RESPONSETM Spine, BandLocTM, Pediatric Nailing Platform | Femur, Devise Rail, Orthex ~~QuickPack~~TM ®~~and~~, The Fassier-Duval Telescopic Intramedullary System®, ApiFix® Mid-C System and Mitchell Ponseti® specialized bracing products to various hospitals and medical facilities throughout the United States and various international markets. We currently use a contract manufacturing model for the manufacturing of implants and related surgical instrumentation.

We are the only global medical device company focused exclusively on providing a comprehensive trauma and deformity correction, scoliosis and sports medicine product offering to the pediatric orthopedic market in order to improve the lives of children with orthopedic conditions. ~~Since inception we have impacted the lives of over 243,000 children.~~ We design, develop and commercialize innovative orthopedic implants and instruments to meet the specialized needs of pediatric surgeons and their patients, who we believe have been largely neglected by the orthopedic industry. We currently serve three of the largest categories in this market. ~~We estimate that the portion of this market that we currently serve represents a $3,300 opportunity globally, including over $1,500 in the United States.~~

~~Our largest investor is Squadron, a private investment firm based in Granby, Connecticut.~~

A novel strain of the coronavirus disease was first identified in Wuhan, China in December 2019, and the related outbreak was subsequently declared a pandemic by the World Health Organization and a national emergency by the President of the United States. As a result of the pandemic, we have experienced significant business disruption. For example, in preparation for COVID-19-related hospitalizations, various governments, governmental agencies and hospital administrators required certain hospitals to postpone some elective procedures. As a majority of our products are utilized in elective surgeries or procedures, the deferrals of such surgeries and procedures have had, and may continue to have, a significant negative impact on our business and results of operations. Despite the impact COVID-19 has had on our business, we continued to invest in research and development, invest in our people, and take steps to position ourselves for long-term success. We continue to train and educate our sales team and our surgeons on our products. We have continued to focus on developing innovative solutions, acquired multiple enabling technologies, invested in both new and existing partnerships and continued to deploy additional consigned instrument and implant sets in furtherance of our strategy. The extent to which COVID-19 may continue to negatively impact the Company's consolidated financial position, results of operations or cash flows is uncertain and will be closely monitored.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of OrthoPediatrics Corp. and its wholly-owned subsidiaries ~~OrthoPediatrics US Distribution Corp., OrthoPediatrics EU Limited, OrthoPediatrics AUS PTY LTD, OrthoPediatrics NZ Limited, OP EU B.V., OP Netherlands B.V.,~~

~~Orthex, LLC, Telos Partners, LLC and ApiFix, Ltd.~~ (collectively, the “Company,” “we,” “our” or “us”). All intercompany balances and transactions have been eliminated.

Unaudited Interim Condensed Consolidated Financial Statements

We have prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated ~~balance sheets as of March 31, 2022 and December 31, 2021, the condensed consolidated~~financial statements of operations for the three months ended March 31, 2022 and 2021, the condensed consolidated statements of comprehensive loss for the three months ended March 31, 2022 and 2021, the condensed consolidated statements of stockholders’ equity for the three months ended March 31, 2022 and 2021 and the condensed consolidated statements of cash flows for the three months ended March 31, 2022 and 2021 are unaudited and should be read in conjunction with the annual consolidated financial statements as of and for the year ended December 31, ~~2021~~2022 and related notes thereto contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March ~~3, 2022.~~1, 2023. The financial data and other financial information disclosed in the notes to the accompanying condensed consolidated financial statements are also unaudited. As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations thereunder.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, ~~2021~~2022 and, in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the financial statements for the interim periods. The results of operations for the three months ended March 31, ~~2022~~2023 are not necessarily indicative of the results to be expected for the full fiscal year or for any other period.

The accompanying condensed consolidated financial statements have been prepared assuming our Company will continue as a going concern. We have experienced recurring losses from operations since our inception and had an accumulated deficit of ~~$187,126~~$183,574 and ~~$178,026~~$176,768 as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Management continues to monitor cash flows and liquidity on a regular basis. We believe that our cash balance, including ~~short term~~short-term investments, at March 31, ~~2022~~2023 and expected cash flows from operations for the next twelve months subsequent to the issuance of the accompanying condensed consolidated financial statements, are sufficient to enable us to maintain current and essential planned operations for more than the next twelve months.

Use of Estimates

Preparation of our condensed consolidated financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as of the date of the condensed consolidated financial statements. By their nature, these judgments are subject to an inherent degree of uncertainty. We use historical experience and other assumptions as the basis for our judgments and estimates. Because future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Any changes in these estimates will be reflected in our consolidated financial statements.

~~Foreign Currency Transactions~~Significant Accounting Policies

~~We currently bill our international stocking distributors~~There have been no changes in ~~U.S. dollars, resulting~~the Company's significant accounting polices as disclosed in ~~minimal foreign exchange transaction expense.~~Note 2 to the audited consolidated financial statements included in the 2022 Annual Report on Form 10-K, except as disclosed below.

~~Beginning in early 2017~~Financial Instruments and continuing through 2021, we expanded operations and established legal entities outside the United States, permitting us to sell under an agency model direct to local hospitals internationally. The countries we serve under the agency model include the United Kingdom, Ireland,

Australia, New Zealand, Canada, Belgium, the Netherlands, Poland, Italy, Israel, Germany, Switzerland, and Austria. Additionally, in March 2019, we established an operating company in the Netherlands in order to enhance our operations in Europe. The financial statementsConcentration of our foreign subsidiaries are accounted for in local functional currencies and have been translated into U.S. dollars using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations. Foreign currency translation adjustments have been recorded as a separate component of the consolidated statements of comprehensive loss.Credit Risk

~~Revenue from Contracts with Customers~~

~~In accordance with ASC 606, "Revenue from Contracts with Customers~~," revenue is recognized when our performance obligations under the terms of a contract with our customer are satisfied. This typically occurs when we transfer control of our products to the customers, generally upon implantation or when title passes upon shipment. The amount of revenue recognized reflects the consideration to whichFinancial instruments that could subject the Company ~~expects~~ to ~~be entitled to receive in exchange for these goods or services,~~credit risk consist primarily of cash, cash equivalents, short-term investments and ~~excludes any sales incentives or taxes collected from a customer which are subsequently remitted to government authorities.~~

~~Revenue Recognition – United States~~

~~Revenue in the United States is generated primarily from the sale of our implants and, to a much lesser extent, from the sale of our instruments. Sales in the United States are primarily to hospital~~ accounts through independent sales agencies. We recognize revenue when our performance obligations under the terms of a contract with our customer are satisfied. The products are generally consigned to our independent sales agencies, and revenue is recognized when the products are used by or shipped to the hospital for surgeries on a case by case basis. On rare occasions, hospitals purchase product for their own inventory, and revenue is recognized when the products are shipped and the title and risk of loss passes to the customer. Pricing for each customer is dictated by a unique pricing agreement.

~~Revenue Recognition – International~~

Outside of the United States, we sell our products directly to hospitals through independent sales agencies or to independent stocking distributors. Generally, the distributors are allowed to return products, and some are thinly capitalized. Based on a history of reliable collections, we have concluded that a contract exists and revenue should be recognized when we transfer control of our products to the customer, generally when title passes upon shipment. Additionally, based on our history of immaterial returns from international customers, we have historically estimated no reserve for returns.

Beginning in early 2017 and continuing through 2021, we expanded operations and established legal entities outside the United States, permitting us to sell under an agency model direct to local hospitals internationally. The products are generally consigned to our independent sales agencies, and revenue is recognized when the products are used by or shipped to the hospital for surgeries on a case by case basis. On rare occasions, hospitals purchase products for their own inventory, and revenue is recognized when title passes upon shipment. Pricing for each customer is dictated by a unique pricing agreement.

~~Cash, Cash Equivalents and Short Term Investments~~

~~We maintain cash in bank deposit accounts which, at times, may exceed federally insured limits. To date, we have not experienced any loss in such accounts.~~receivable. We consider all highly liquid investments with original maturity of three months or less at inception to be cash ~~equivalents. The carrying amounts reported in the balance sheets~~equivalents.The Company performs ongoing credit evaluations of customers and and maintains a reserve for ~~cash are valued at cost, which approximates fair value.~~

expected credit losses. The Company ~~invests in available-for-sale short term investments. The Company has~~believes the ~~ability, if necessary, to liquidate without penalty any~~risk of ~~its short term investments to meet its liquidity needs in~~credit losses associated with accounts receivable is low given the

~~next twelve months. As such, those investments with contractual maturities greater than one year from the date~~ history of purchase are classified as short-term on the accompanying Consolidated Balance Sheets. The company includes unrealized gains or losses in stockholders' equity. If the adjustment to fair value reflects a decline in the value of the investment,collections and customer base. Additionally, the Company considers ~~available information to determine whether~~ the ~~decline is "other than temporary" and, if so, reflects the change on the Consolidated Statements of Operations.~~

~~Restricted Cash~~

~~In conjunction~~risk for credit losses associated with the sale of Vilex, $1,250 was placed into a separate escrow account. This cash is reported as restricted cash on the March 31, 2022 and December 31, 2021 condensed consolidated balance sheets. These funds were to remain restricted until August 31, 2021, at which time, they wereshort-term investments to be ~~released to~~low given the ~~Company subject to no claims related to the purchase being asserted; however, due to the pending IMED Surgical litigation, the cash remains reported as restricted until the conclusion~~types of ~~the legal matter (see “Legal Proceedings” under Note 12 – Commitments~~investments which primarily include Certificates of Deposits and ~~Contingencies for additional information). The Company also maintains restricted cash of 100 Euro at its Netherlands entity for potential Italian tenders.~~

~~Accounts Receivable and Allowance for Doubtful Accounts~~

Accounts receivable are uncollateralized customer obligations due under normal trade terms, generally requiring payment within 30 days from the invoice date. Account balances with invoices over 30 days past due are considered delinquent. No interest is charged on past due accounts. Payments of accounts receivable are applied to the specific invoices identified on the customer's remittance advice or, if unspecified, to the customer's account as an unapplied credit.

The carrying amount of accounts receivable is reduced by an allowance that reflects management's best estimate of the amounts that will not be collected, determined principally on the basis of historical experience, management's assessment of the collectability of specific customer accounts and the aging of the accounts receivable. All accounts or portions thereof deemed to be uncollectible or to require an excessive collection cost are written off to the allowance for doubtful accounts.

~~Fair Value of Financial Instruments~~

The accounting standards related to fair value measurements define fair value and provide a consistent framework for measuring fair value under the authoritative literature. Valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions. This guidance only applies when other standards require or permit the fair value measurement of assets and liabilities. The guidance does not expand the use of fair value measurements. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels.

~~Level 1 – Quoted prices in active markets for identical assets or liabilities;~~

~~Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data; and~~

Level 3 – Significant unobservable inputs that are not corroborated by market data. Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, and are based on the best information available, including our own data.

The Company's financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, acquisition installment payables, contingent consideration and long-term debt. The carrying amounts of accounts receivable, accounts payable, acquisition installment

payables and long-term debt approximate the fair value due to the short-term nature or market rates of these instruments. The company bases the fair value of short-term investments on quoted market prices for identical or comparable assets except for investments classified as asset backed securities which we identify as Level 2. These securities are predominately priced by third parties, either a pricing vendor or dealer. When a quoted price in an active market for an identical security is not available these third parties will utilize an alternative market approach, such as a recent trade or matrix pricing, or an income approach, such as a discounted cash flow pricing model that calculates values from observable inputs such as quoted interest rates, yield curves and other observable market information. Contingent consideration represents the system sales payment the Company is obligated to make. The fair value of the contingent consideration payment is considered a level 3 fair value measurement and was determined with the assistance of an independent valuation specialist at the original issuance date and as of the balance sheet date. See Note 4 for further discussion of financial instruments that carried a fair value on a recurring and nonrecurring basis.

~~Inventories, net~~

Inventories are stated at the lower of cost or net realizable value, with cost determined using the first-in-first-out method. Inventories purchased from third parties, which consist of implants and instruments held in our warehouse or with third-party independent sales agencies or distributors, are considered finished goods.

We evaluate the carrying value of our inventories in relation to the estimated forecast of product demand, which takes into consideration the life cycle of the product. A significant decrease in demand could result in an increase in the amount of excess inventory on hand, which could lead to additional charges for excess and obsolete inventory.

The need to maintain substantial levels of inventory impacts our estimates for excess and obsolete inventory. Each of our implant systems are designed to include implantable products that come in different sizes and shapes to accommodate the surgeon’s needs. Typically, a small number of the set components are used in each surgical procedure. Certain components within each set may become obsolete before other components based on the usage patterns. We adjust inventory values, as needed, to reflect these usage patterns and life cycle.

~~In addition, we continue to introduce new products, which may require us to take additional charges for excess and obsolete inventory in the future.~~

~~Property and Equipment, net~~

Property and equipment are carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful life of the assets. When assets are retired or otherwise disposed of, costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in operations for the period. Maintenance and repairs that prolong or extend the useful life are capitalized, whereas standard maintenance, replacements, and repair costs are expensed as incurred.

Instruments are hand-held devices, specifically designed for use with our implants and are used by surgeons during surgery. Instruments deployed within the United States, United Kingdom, Australia, New Zealand, Canada, Belgium, the Netherlands, Italy, Germany, Switzerland and Austria are carried at cost less accumulated depreciation and are recorded in property and equipment, net on the condensed consolidated balance sheets.

~~Sample inventory consists of our implants and instruments, and is maintained to market and promote our products. Sample inventory is carried at cost less accumulated depreciation.~~

~~Depreciable lives are generally as follows:~~


~~Building and building improvements~~			~~25 to 30 years~~
~~Furniture and fixtures~~			~~5 to 7 years~~
~~Computer equipment~~			~~3 to 5 years~~
~~Business software~~			~~3 years~~
~~Office and other equipment~~			~~5 to 7 years~~
~~Instruments~~			~~5 years~~
~~Sample inventory~~			~~2 years~~

~~Amortizable Intangible Assets, net~~

~~Amortizable intangible assets~~include fees necessary to secure various patents and licenses, including Band-Lok, the value of internally developed software, customer relationships, and non-competition agreements related to the acquisition of Orthex, and customer relationships and non-competition agreements related to the acquisitions of Telos and ApiFix. Amortization is calculated on a straight-line basis over the estimated useful life of the asset. Amortization for patents and licenses commences at the time of patent approval, and for licenses upon market launch, respectively. Amortization for assets acquired commences upon acquisition. Intangible assets are amortized over a 3 to 20 year period.

Amortizable intangible assets are assessed for impairment upon triggering events that indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the associated asset. If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the intangible assets. No impairment charges were recorded in any of the periods presented.

~~Goodwill and Other Intangible Assets~~

Our goodwill represents the excess of the cost over the fair value of net assets acquired. The determination of the value of goodwill and intangible assets arising from acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of net tangible and intangible assets acquired. Goodwill is not amortized and is assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstances warrant such a review. The goodwill is considered to be impaired if we determine that the carrying value of our one reporting unit exceeds its respective fair value. No impairment charges were recorded in any of the periods presented.

The Company tests goodwill for impairment by either performing a qualitative evaluation or a quantitative test. The quantitative assessment for goodwill requires us to estimate the fair value of our 1 reporting unit using either an income or market approach or a combination thereof.

We have indefinite lived trademark assets that are reviewed for impairment by performing a quantitative analysis, which occurs annually in the fourth quarter, utilizing balances as of October 1, or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to future net discounted cash flows expected to be generated by the associated asset. If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets. No impairment charges were recorded in any of the periods presented.

~~Acquisition Payable and Contingent Consideration~~

Upon the completion of an acquisition, the Company may record an acquisition installment payable, contingent consideration or both. Acquisition installment payables, which are fixed future payments, are recorded at their net present value, and contingent consideration is recorded at fair value as determined by management with the assistance of an independent valuation specialist at the original issuance date and is marked to fair value on a recurring basis. Accretion of interest expense attributable to the acquisition installment payable is recorded as a component of interest expense, net. Changes in the fair value of the contingent consideration are included in fair value adjustments of contingent consideration on the condensed consolidated statement of operations. The amount of expense related to acquisition installment payables recorded in interest expense, net for the three months ended March 31, 2022 and March 31, 2021 were $453 and $644, respectively. The fair value adjustments of contingent consideration for the three months ended March 31, 2022 and March 31, 2021 were expense adjustments of $2,570 and $4,150, respectively.

~~Cost of Revenue~~

Cost of revenue consists primarily of products purchased from third-party suppliers, excess and obsolete inventory adjustments, inbound freight, and royalties. Our implants and instruments are manufactured to our specifications by third-party suppliers who meet our manufacturer qualifications standards. Our third-party manufacturers are required to meet the standards of the Food and Drug Administration (the “FDA”), and the International Organization for Standardization, as well as other country-specific quality standards. The majority of our implants and instruments are produced in the United States.

~~Sales and Marketing Expenses~~

Sales and marketing expenses primarily consist of commissions to our domestic and select international independent sales agencies and consignment distributors, as well as compensation, commissions, benefits and other related costs for personnel we employ. Commissions and bonuses are generally based on a percentage of sales. Our international independent stocking distributors purchase instrument sets and replenishment stock for resale, and we do not pay commissions or any other sales related costs for international sales to distributors.

~~Advertising Costs~~

Advertising costs consist primarily of print advertising, trade shows, and other related expenses. Advertising costs are expensed as incurred and are recorded as a component of sales and marketing expense.

~~Research and Development Costs~~

Research and development costs are expensed as incurred. Our research and development expenses primarily consist of costs associated with engineering, product development, consulting services, outside prototyping services, outside research activities, materials, development and protection of our intellectual property portfolio, as well as other costs associated with development of our products. Research and development costs also include related personnel and consultants’ compensation expense.

~~Stock-Based Compensation~~

Prior to our Initial Public Offering ("IPO") in October 2017, we maintained an Amended and Restated 2007 Equity Incentive Plan (the “2007 Plan”) that provided for grants of options and restricted stock to employees, directors and associated third-party representatives of the Company as determined by the Board of Directors. The 2007 Plan had authorized 1,585,000 shares for award.

Immediately prior to our IPO, we adopted our 2017 Incentive Award Plan (the "2017 Plan") which replaced the 2007 Plan. The 2017 Plan provides for grants of options and restricted stock to officers, employees, consultants or directors of our Company. The 2017 Plan has authorized 1,832,460 shares for award.

Options holders, upon vesting, may purchase common stock at the exercise price, which is the estimated fair value of our common stock on the date of grant. Option grants generally vest immediately or over three years. No stock options were granted in any of the periods presented.

Restricted stock may not be transferred prior to the expiration of the restricted period, which is typically three years. The restricted stock that had been granted under the 2007 Plan had restriction periods that generally lasted until the earlier of six years from the date of grant, or an IPO or change in control, as defined in the 2007 Plan. All restricted stock granted prior to May 2014 vested upon our IPO and the remaining grants under the 2007 Plan vested six months after the IPO. We recognize the reversal of stock compensation expense when a restricted stock forfeiture occurs as opposed to estimating future forfeitures.

We record the fair value of restricted stock at the grant date. Stock-based compensation is recognized ratably over the requisite service period, which is generally the restriction period for restricted stock.

~~Litigation and Contingencies~~

Accruals for litigation and contingencies are reflected in the condensed consolidated financial statements based on management’s assessment, including advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings and/or the expected resolution of contingencies. Liabilities for estimated losses are accrued if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount is reasonably estimable. Accruals are based only on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available, management reassesses potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s results of operations in a given period.

~~Comprehensive Income (Loss)~~

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Comprehensive income (loss) includes foreign currency translation adjustments and unrealized gain (loss) on our short term investments.

~~Income Taxes~~

We account for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements. Under this method, we determine deferred tax assets and liabilities on the basis of the differences between the financial statement and tax bases of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.

We recognize deferred tax assets to the extent that we believe that these assets are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence. If we determine that we would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the valuation allowance.

We record uncertain tax positions on the bases of a two-step process in which (i) we determine whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the positions and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, we recognize the largest amount of tax benefit that is more than 50% likely to be realized upon ultimate settlement with the related tax authority.

~~Leases~~

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company calculates the associated lease liability and corresponding right-of-use asset upon lease commencement using a discount rate based on a borrowing rate commensurate with the term of the lease.

The Company records lease liabilities within current liabilities or long-term liabilities based upon the length of time associated with the lease payments. The Company records its operating lease right-of-use assets as long-term assets.

~~“Emerging Growth Company” and "Smaller Reporting Company" Reporting Requirements~~

We qualify as an “emerging growth company” as defined in the JOBS Act. "Emerging growth companies" may take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies. Among other things, we are not required to provide an auditor attestation report on the assessment of the internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002. Our status as an emerging growth company will remain until December 31, 2022. As such, our external auditors for the fiscal year ending December 31, 2022 will be required to provide an attestation over the operating effectiveness of our internal controls under Section 404(b) of the Sarbanes-Oxley Act.

Section 107 of the JOBS Act also provides that an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we have been and will continue to be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We also qualify as a "smaller reporting company," as such term is defined in Rule 12b-2 under the Exchange Act. To the extent that we continue to qualify as a smaller reporting company, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company.Treasury Bonds.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments". The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financials assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. This applies to the Company when trade receivables are recorded. At that point in time, they become subject to the new credit loss model and estimates of expected credit losses on trade receivables over their contractual life will be required to be recorded at inception. Additionally, to the extent that any of the securities investments classified as available-for-sale are in an unrealized loss position, the Company will also be required record an estimate, if any, of those losses driven by credit losses. The Company adopted ASU 2016-16 effective January 1, 2023. The adoption is on a prospective basis and did not have a material impact to the result of operations.

In October 2021, the FASB issued ASU No. 2021-08 "Business Combinations (Topic 805)-Accounting for Contract Assets and Contract Liabilities from Contracts with Customers". The amendments in this ~~Update~~ASU address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination. The amendments in this ~~Update~~ASU require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The amendments in this ~~Update~~ASU require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. For public business entities, the amendments in this ~~Update~~ASU are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal

years. The amendments in this ~~Update~~ASU should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company ~~is currently evaluating the impact of adopting~~adopted ASU 2021-08 ~~on its consolidated financial statements.~~

~~In May 2021, the FASB issued ASU No. 2021-04 "~~Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)". This ASU is intended to clarify and reduce diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The guidance clarifies whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The amendments in this ASU affect all entities that issue freestanding written call options that are classified in equity. The amendments do not apply to modifications or exchanges of financial instruments that are within the scope of another Topic and do not affect a holder’s accounting for freestanding call options. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. The Company adopted this guidance effective January 1, ~~2022. The adoption of this guidance did not have a significant impact on~~2023 prospectively, resulting in no material impacts to the ~~Company's~~condensed consolidated financial ~~statements and related disclosures.~~

~~In June 2016, the FASB issued ASU No. 2016-13 "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments"~~. The ASU is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financials assets including trade receivables held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Based on ASU 2019-10 and our status as a smaller reporting company, the Company will adopt ASU 2016-13 effective January 1, 2023. The adoption of this guidance is not expected to have a significant impact on the Company's consolidated financial statements and related disclosures.statements.

NOTE 3 - BUSINESS COMBINATIONS

Pega Medical

On July 1, 2022, the Company purchased all of the issued and outstanding share capital of Pega Medical Inc., a corporation incorporated under the Canada Business Corporations Act (“Pega Medical”). Pega Medical has developed and sells a portfolio of trauma and deformity correction devices for children, including the Fassier-Duval Telescopic Intramedullary System, a well-recognized, innovative implant designed to treat bone deformities in children with osteogenesis imperfecta without disrupting their normal growth. Pega's product portfolio increases our total systems and increases the percentage of total trauma and deformity cases we can treat.

The Company acquired Pega Medical for approximately $32,045, comprised of $32,042 in cash and $3 in stock, representing the repurchase right price to be paid by the Company in the event a selling shareholder leaves employment with Pega Medical for certain reasons during the three-year period following the closing. Approximately $1,052 of the cash consideration was deposited into escrow and will be held for a period of up to eighteen (18) months to cover certain indemnification obligations of the selling shareholders of Pega Medical. Final purchase consideration is subject to certain working capital adjustments yet to be finalized. Additionally, 34,899 shares of unregistered common stock, $0.00025 par value per share, of the Company, representing approximately $1,497 (based on the July 1, 2022 closing share price of $42.90) were issued to the selling shareholders. The common stock issued to the selling shareholders, excluding the value attributable to the repurchase right, is not considered part of the purchase consideration and is subject to a repurchase right previously mentioned. The Company will recognize expense over the three-year service period at which point the right to repurchase will expire. In the event the repurchase right is triggered, the Company will have the right to repurchase the shares of common stock issued to such selling shareholder at a price of $0.10 per share. Pursuant to the terms of the transaction, the Company also issued $499 in restricted stock units to employees of Pega Medical, which are subject to an approximate three-year vesting schedule. The restricted stock units are not considered part of the purchase consideration.

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


Fair value of estimated total acquisition consideration	$	32,045
Assets
Cash	312
Accounts receivable-trade	2,100
Inventories	4,875
Prepaid expenses and other current assets	366
Property and equipment	582
Amortizable intangible assets	12,286
Other intangible assets	3,878
Total assets	24,399
Liabilities
Accounts payable-trade	1,682
Other current liabilities	1,325
Deferred tax liability	4,035
Total liabilities	7,042
Less: total net assets	17,357
Goodwill	$	14,688

The fair value of identifiable intangible assets was based on preliminary valuations using a combination of the income and cost approach, inputs which would be considered Level 3 under the fair value hierarchy. The estimated fair value and useful life of identifiable intangible assets are as follows:


	Amount		Remaining Economic Useful Life
Trademarks / Names	$	3,878	Indefinite
Patents	3,545		10 years

Customer Relationships & Other	8,741		15 years
	$	16,164

The fair value estimates and purchase price allocation included above are preliminary while the Company finalizes fair value estimates of the acquired intangible assets and related tax considerations. During the three months ended March 31, 2023, the Company recorded a measurement period adjustment. The adjustment was the result of updated valuation of the intangible assets and an updated estimate of certain liabilities. The adjustment to the intangible assets also resulted in an adjustment to the deferred tax liability. Additionally, the increase in the value of intangible assets resulted in additional amortization expense of approximately $101 for the three months ended March 31, 2023. Goodwill declined as a net result of these adjustments.

MD Orthopaedics

On April 1, 2022, OrthoPediatrics Iowa Holdco, Inc., a newly-formed, wholly-owned subsidiary of the Company, merged with and into MD Orthopaedics, Inc., an Iowa corporation (“MD Ortho”). MD Ortho has developed and manufactures a portfolio of orthopedic clubfoot products. The acquisition expands our total

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

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

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


Fair value of estimated total acquisition consideration	$	18,487
Assets
Cash	420
Accounts receivable-trade	1,062
Inventories	1,126
Prepaid expenses and other current assets	100
Property and equipment	2,444
Amortizable intangible assets	9,120
Other intangible assets	2,410
Total assets	16,682
Liabilities
Accounts payable and accrued liabilities	45
Other current liabilities	586
Deferred tax liability	3,014
Total liabilities	3,645
Less: total net assets	13,037
Goodwill	$	5,450

The fair value of identifiable intangible assets was based on final valuations using a combination of the income and cost approach, inputs which would be considered Level 3 under the fair value hierarchy. The estimated fair value and useful life of identifiable intangible assets are as follows:


	Amount		Remaining Economic Useful Life
Trademarks / Names	$	2,410	Indefinite
Patents	2,660		10 years
Customer Relationships	6,460		15 years
	$	11,530

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


	March 31,
	2023		2022
Net revenue	$	31,588	$	27,862
Net loss	$	(6,806)	$	(8,987)

NOTE 34 - GOODWILL AND INTANGIBLE ASSETS

Goodwill

Changes in the carrying amount of goodwill for the three months ended March 31, ~~2022~~2023 were as follows:


		Total



Goodwill at January 1, ~~2022~~2023		$	~~72,349~~86,821
Pega measurement period adjustment

	(1,839)
Foreign currency translation impact		~~(1,362)~~(855)
Goodwill at March 31, ~~2022~~2023		$	~~70,987~~84,127

Intangible Assets

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


	Weighted-Average Amortization Period	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
Patents	12.0 years	$	45,817	$	(8,656)	$	37,161
Intellectual Property	9.5 years	5,859		(1,507)		4,352
Customer Relationships & Other	13.0 years	18,696		(2,200)		16,496
License Agreements	4.3 years	10,697		(4,064)		6,633
Total amortizable assets		$	81,069	$	(16,427)	$	64,642

As of December 31, 2022, the balances of amortizable intangible assets were as follows:
Weighted-Average Amortization Period Gross Intangible Assets Accumulated Amortization Net Intangible Assets
Patents 13.5 years $ 43,656 $ (6,287) $ 37,369
Intellectual Property 9.8 years 9,834 (1,584) 8,250
License Agreements 5.2 years 10,674 (2,817) 7,857
Total amortizable assets $ 64,164 $ (10,688) $ 53,476

~~As of December 31, 2021, the balances of amortizable intangible assets were as follows:~~


		Weighted-Average Amortization Period	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets			Weighted-Average Amortization Period	Gross Intangible Assets		Accumulated Amortization		Net Intangible Assets
Patents	Patents	13.7 years	$	44,493	$	(5,664)	$	38,829	Patents	12.2 years	$	46,005	$	(7,953)	$	38,052
Intellectual Property	Intellectual Property	10.1 years	9,847		(1408)		8,439		Intellectual Property	9.8 years	5,859		(1382)		4,477
Customer Relationships & Other									Customer Relationships & Other	13.4 years	17,262		(1,805)		15,457
License Agreements	License Agreements	5.5 years	10,674		(2,448)		8,226		License Agreements	4.5 years	10,697		(3,703)		6,994
Total amortizable assets	Total amortizable assets		$	65,014	$	(9,520)	$	55,494	Total amortizable assets		$	79,823	$	(14,843)	$	64,980

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

Trademarks are non-amortizing intangible assets which were ~~$14,040~~$15,629 and ~~$14,268~~$14,921 as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. Trademarks are recorded in Other Intangible assets on the condensed consolidated balance sheets. The change in balance during the three months ended

March 31, ~~2022~~2023 was the result of the measurement period adjustments associated with Pega Medical as well as foreign currency translation adjustments.

During 2022, management determined that a triggering event occurred, indicating that it was more likely than not the fair value of the ApiFix ~~trademark.~~

trademark asset was less than the carrying value. As such, the Company completed a quantitative analysis whereby we determined the fair value of the ApiFix trademark asset associated was below the carrying value. The primary reason for the impairment is the lower forecasted revenue of our ApiFix product than previously expected. We recorded a $3,609 impairment charge for the year ended December 31, 2022 to reduce the carrying amount of the intangible asset to its estimated fair value. No impairment charges were recorded in any of the other periods presented or for any other indefinite lived trademark assets.

NOTE 45 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures certain financial assets and liabilities at fair value. The accounting standards related to fair value measurements define fair value and provide a consistent framework for measuring fair value under the authoritative literature. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels.

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data; and

The following table summarize the assets and liabilities measured at fair value on a recurring basis as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

2016


		March 31, 2022									March 31, 2023
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Financial Assets	Financial Assets									Financial Assets

Short term investments
Short-term investments										Short-term investments
Certificates of Deposit										Certificates of Deposit	$	—	$	25,419	$	—	$	25,419
Exchange Trade Mutual Funds										Exchange Trade Mutual Funds	$	1,406	$	—	$	—	$	1,406
Treasury Bonds										Treasury Bonds	$	46,197	$	—	$	—	$	46,197

Corporate Bonds		$	13,776	$	—	$	—	$	13,776
Treasury Bonds		$	7,445	$	—	$	—	$	7,445
Asset Backed Securities		$	—	$	5,261	$	—	$	5,261
Other	Other	$	586	$	—	$	—	$	586	Other	$	52	$	—	$	—	$	52
Financial Liabilities	Financial Liabilities									Financial Liabilities
Contingent Consideration	Contingent Consideration	$	—	$	—	$	31,480	$	31,480	Contingent Consideration	$	—	$	—	$	2,310	$	2,310

		December 31, 2021									December 31, 2022
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Financial Assets	Financial Assets									Financial Assets

Short term investments
Short-term investments										Short-term investments
Certificates of Deposit										Certificates of Deposit	$	—	$	25,148	$	—	$	25,148
Exchange Trade Mutual Funds										Exchange Trade Mutual Funds	$	18,939	$	—	$	—	$	18,939
Treasury Bonds										Treasury Bonds	$	65,040	$	—	$	—	$	65,040

Corporate Bonds		$	22,476	$	—	$	—	$	22,476
Treasury Bonds		$	14,317	$	—	$	—	$	14,317
Asset Backed Securities		$	—	$	8,272	$	—	$	8,272
Other	Other	$	837	$	—	$	—	$	837	Other	$	172	$	—	$	—	$	172
Financial Liabilities	Financial Liabilities									Financial Liabilities
Contingent Consideration	Contingent Consideration	$	—	$	—	$	28,910	$	28,910	Contingent Consideration	$	—	$	—	$	2,980	$	2,980

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

The Company's Level 2 assets pertain to certain asset-backed securities, collateralized by non-mortgage-related consumer debt, or certificates of deposit. These securities are predominately priced by third parties, either by a pricing vendor or dealer with significant inputs observable in active markets.

The Company's Level 3 instruments consist of contingent consideration. The fair value of the contingent consideration payment is considered a Level 3 fair value measurement and was determined with the assistance of an independent valuation specialist at the original issuance date using an option pricing model and a Monte Carlo simulation based on forecasted annual revenue, expected volatility and discount rates. The fair value of contingent consideration liabilitiesliability assumed in business combinations is recorded as part of the purchase price consideration of the acquisition and is determined using a discounted cash flow model or probability simulation model. The significant inputs of such models are not always observable in the market, such as ~~certain financial metric growth rates,~~forecasted annual revenues, expected volatility ~~rates, projections associated with the applicable milestone, the interest rate,~~ and ~~the related probabilities and payment structure in the contingent consideration arrangement.~~discount rates. The adjustments in the fair value of the contingent consideration payments included an income adjustment of $670 and an expense adjustment of $2,570 ~~and $4,150~~ for the three month periods ended March 31, ~~2022~~2023 and March 31, ~~2021,~~2022, respectively, which are recorded in other (income) expenses on the condensed consolidated statements of operations.

The following table summarizes the change in fair value of Level 3 instruments in ~~2022:~~2023:


	Total
Balance at January 1, ~~2022~~2023	$	~~28,910~~2,980

Change in fair value of contingent consideration	~~2,570~~ (670)
Balance at March 31, ~~2022~~2023	$	~~31,480~~2,310

2117

The recurring Level 3 fair value measurements of contingent consideration liabilities associated with commercial sales milestones include the following significant unobservable inputs as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Valuation techniques	Valuation techniques	Discounted cash flow, Monte Carlo				Valuation techniques	Discounted cash flow, Monte Carlo
Present value discount rate(1)	Present value discount rate(1)	19.3	%	18.4	%	Present value discount rate(1)	16.9	%	16.6	%
Volatility factor	Volatility factor	46.5	%	50.3	%	Volatility factor	44.2	%	48.0	%
Expected years	Expected years	2.1 years		2.4 years		Expected years	1.1 years		1.4 years

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

The estimated fair value reflects assumptions made by management as of March 31, ~~2022;~~2023; however, the actual amount ultimately paid could be higher or lower than the fair value of the remaining contingent consideration.

NOTE 56 - DEBT AND CREDIT ARRANGEMENTS

Long-term debt consisted of the following:


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022

Mortgage payable to affiliate	Mortgage payable to affiliate	$	1,011	$	1,044	Mortgage payable to affiliate	$	871	$	907

Less: current maturities	Less: current maturities	139		137		Less: current maturities	146		144
Long-term debt with affiliate, net of current maturities	Long-term debt with affiliate, net of current maturities	$	872	$	907	Long-term debt with affiliate, net of current maturities	$	725	$	763

~~Effective December 31, 2021, the~~The Company ~~entered into~~is party to a ~~Third Amendment (the "Third Amendment") to its~~ Fourth Amended and Restated Loan and Security Agreement with Squadron Capital LLC ~~or Squadron~~(“Squadron”), as amended from time to time (as so amended, the “Loan Agreement”)~~. The Loan Agreement~~, which provides the Company with a ~~$25,000~~$50,000 revolving credit facility. As of March 31, 2023 and December 31, 2022, there was no outstanding indebtedness under the Loan Agreement.

Borrowings under the credit facility ~~with~~accrue interest ~~only payments,~~ at an annual ~~interest~~ rate equal to the greater of (a) six month SOFR plus 8.69% and (b) 10.0%, and the Company is permitted to make interest only payments on amounts outstanding. Prior to December 31, 2021, the interest rate on the facility had been equal to the greater of (a) three month LIBOR plus 8.61% and (b) 10.0%. The Company pays Squadron an unused commitment fee in an amount equal to the per annum rate of 0.50% (computed on the basis of a year of 360 days and the actual number of days elapsed) times the daily unused portion of the revolving credit commitment. The unused commitment fee is payable quarterly in arrears. Prior to the Third Amendment, the interest rate on the facility had been equal to the greater of (a) three month LIBOR plus 8.61% and (b) 10.0%. While the Loan Agreement previously provided for certain term loans, there are no longer any outstanding term loan obligations.

Borrowings under the revolving credit facility are made under a ~~First~~Second Amended and Restated Revolving Note, dated ~~August 4, 2020~~June 13, 2022 (the “Amended Revolving Note”), payable, jointly and severally, by the Company and each of its subsidiaries party thereto. The Amended Revolving Note ~~will mature~~matures at the earlier of: (i) the date on which any person or persons acquire (x) capital stock of the Company possessing the voting power to elect a majority of the Company’s Board of Directors (whether by merger, consolidation, reorganization, combination, sale or transfer), or (y) all or substantially all of the Company’s assets, determined on a consolidated basis; and (ii) January 1, 2024.

Borrowings under the Loan Agreement are secured by substantially all of the Company's assets and are unconditionally guaranteed by each of its subsidiaries with the exception of Vilex. There are no traditional financial covenants associated with the Loan Agreement. However, there are negative covenants that prohibit us from, among other things, transferring any of our material assets, merging with or acquiring another entity, entering into a transaction that would result in a change of control, incurring additional indebtedness, creating any lien on our property, making investments in third parties and redeeming stock or paying dividends, in each case subject to certain exceptions.

2218

In connection with the purchase of our office and warehouse space in Warsaw, Indiana in August 2013, we entered into a mortgage note payable to Tawani Enterprises Inc. ("Tawani"), an affiliate of Squadron. Pursuant to the terms of the mortgage note, we pay Tawani ~~Enterprises Inc.~~ monthly principal and interest installments of $16 with interest compounded at 5% until maturity in 2028, at which time a final payment of remaining principal and interest is due. The mortgage is secured by the related real estate and building. At March 31, ~~2022~~2023 the mortgage balance was ~~$1,011~~$871 of which current principal of ~~$139~~$146 was included in the current portion of long-term debt. As of December 31, ~~2021,~~2022, the mortgage balance was ~~$1,044~~$907 of which current principal due of ~~$137~~$144 was included in the current portion of long-term debt.

The aggregate interest expense relating to the notes payable to Squadron and the mortgage note payable to Tawani was ~~$13~~$11 and ~~$15~~$13 for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

NOTE 67 - INCOME TAXES

The Company utilizes an estimated annual effective tax rate to determine its provision or benefit for income taxes for interim periods. The income tax provision or benefit is computed by multiplying the estimated annual effective tax rate by the year-to-date pre-tax book income (loss).

For the three months ended March 31, ~~2022,~~2023, the income tax benefit was ~~$317~~$574 compared to ~~$312~~$317 for the three months ended March 31, ~~2021.~~2022. Our effective income tax rate was ~~3.4%~~7.8% and ~~2.9%~~3.4% for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

The deferred tax assets were fully offset by a valuation allowance at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, with the exception of certain deferred tax liabilities recognized in a foreign jurisdiction as a result of fair value adjustments recorded upon the acquisition of ~~ApiFix.~~ApiFix and Pega Medical. The ~~company~~Company has recorded a tax benefit during the period ended March 31, ~~2022~~2023 for losses generated in ~~the foreign jurisdiction. As of December 31, 2021, we had available federal, state~~Canada and foreign tax loss carryforwards of $114,008, $73,997 and $22,671, respectively. We had available federal tax credits of $176. Net operating losses generated prior to December 31, 2017 will begin to expire in 2028. Federal net operating losses generated after January 1, 2018 will have an indefinite carryforward period. An ownership change under Section 382 of the Internal Revenue Code was deemed to occur on May 30, 2014. Given the limitation calculation, we anticipate approximately $23,920 in losses generated prior to the ownership change date will be subject to potential limitation. The estimated annual limitation is $1,062. A second ownership change under Section 382 was deemed to occur on December 11, 2018. The estimated annual limitation is $9,736, which is increased by $22,430 annually over the first five years as a result of an unrealized built in gain. NOLs sustained prior to May 30, 2014 will still be constrained by the lower limitation.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended March 31, 2022. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.Israel.

NOTE 78 - STOCKHOLDERS’ EQUITY

Stock Options

The fair value for options granted at the time of issuance were estimated at the date of grant using a Black-Scholes options pricing model. Significant assumptions included in the option value model include the fair value of our common stock at the grant date, weighted average volatility, risk-free interest rate, dividend yield and the forfeiture rate. There were no stock options granted in any of the periods presented.

Our stock option activity and related information are summarized as follows:
Weighted-Average Contractual Terms
Options Exercise Price (in Years)
Outstanding at January 1, 2022 6,638 $ 30.97 1.3
Outstanding at March 31, 2022 6,638 $ 30.97 1.1


		Weighted-Average		Remaining Contractual Terms
	Options	Exercise Price		(in Years)
Outstanding at January 1, 2023	3,556	$	30.97	0.7


Outstanding at March 31, 2023	3,556	$	30.97	0.4

Options generally include a time-based vesting schedule permitting the options to vest ratably over three years. At March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, all options were fully vested.

There was no stock-based compensation expense on stock options for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Restricted Stock

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

Weighted-Average

Remaining

Restricted

Remaining

Restricted

Remaining

Restricted

Contractual Terms

Stock

Contractual Terms

Stock

Contractual Terms

Stock

(in Years)

Awards

(in Years)

Units

(in Years)

Outstanding at January 1, 2022

368,446

1.1

Outstanding at January 1, 2023

403,324

1.4

10,080

2.5

Granted

146,425

Granted

264,779

3,805

Forfeited

(2,341)

Forfeited

(623)

—

Vested

(120,656)

Vested

(95,281)

—

Outstanding at March 31, 2022

391,874

1.9

Restricted stock exercisable at March 31, 2022

—

Outstanding at March 31, 2023

572,199

2.2

13,885

2.4

At March 31, ~~2022,~~2023, there was ~~$12,443~~$19,804 of unrecognized compensation expense remaining related to our service-based restricted stock ~~awards.~~awards and restricted stock units. The unrecognized compensation cost ~~was~~is expected to be recognized over a weighted-average period of ~~1.9~~2.2 years or earlier upon an elimination of the restriction period as a result of a change in control event.

Stock-based compensation expense on restricted stock amounted to ~~$1,526~~$1,959 and ~~$1,440~~$1,526 for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The increase in the stock compensation for the three months ended March 31, ~~2022~~2023 is primarily due to increase in plan participants as we continue to hire employees to support the continued expansion of our business.

The Company also maintains 34,899 shares of unregistered common stock, $0.00025 par value per share, which is subject to a repurchase right in the event a selling shareholder leaves employment with Pega Medical for certain reasons during the three-year period following the closing of the acquisition. See Note 3 - Business Combinations for additional detail regarding the business combination transaction. These shares are, due to the repurchase right, temporarily classified as a liability until the lapse of the three-year period, at which time, the Company will reclassify the liability into equity. The amount of expense recognized for the three months ended March 31, 2023 was $154 and is excluded from the stock-based compensation amount previously mentioned. No expense for these shares was recognized in the three months ended March 31, 2022.

NOTE 89 – NET LOSS PER SHARE

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


		Three Months Ended				Three Months Ended
		March 31,				March 31,
		2022		2021				2023		2022

Net loss	Net loss	$	(9,100)	$	(10,379)		Net loss	$	(6,806)	$	(9,100)

Weighted average number of shares - basic and diluted	Weighted average number of shares - basic and diluted	19,366,911		19,200,231			Weighted average number of shares - basic and diluted	22,506,024		19,366,911
Net loss per share - basic and diluted	Net loss per share - basic and diluted	$	(0.47)	$	(0.54)		Net loss per share - basic and diluted	$	(0.30)	$	(0.47)

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

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

Because we have incurred a net loss for all periods presented, diluted net loss per common share is the same as basic net loss per common share. The following contingently issuable ~~and convertible~~ equity shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive for all periods presented:


		Three Months Ended March 31,			Three Months Ended March 31,
		2022	2021		2023	2022

Restricted stock	Restricted stock	391,874	389,098	Restricted stock	586,084	391,874
Stock options	Stock options	6,638	10,792	Stock options	3,556	6,638

Total shares	Total shares	398,512	399,890	Total shares	589,640	398,512

NOTE 910 – BUSINESS SEGMENT

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. We have 1one operating and ~~reporting~~reportable segment, ~~OrthoPediatrics Corp.,~~ which designs, develops and markets anatomically appropriate implants and devices for children with orthopedic problems. Our chief operating decision-maker, our Chief Executive Officer, reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance, accompanied by disaggregated revenue information by product category. We determined that disaggregating revenue into these categories achieves the disclosure objective of illustrating the differences in the nature, timing and uncertainty of our revenue streams. We do not assess the performance of our individual product categories on measures of profit or loss, or other asset-based metrics. Therefore, the information below is presented only for revenue by category and geography.

Product sales attributed to a country or region includes product sales to hospitals, physicians and distributors and is based on the final destination where the products are sold. No customers accounted for more than 10% of total product sales for the three months ended March 31, ~~2022~~2023 or ~~2021.~~2022. No customer accounted for more than 10% of consolidated accounts receivable as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

Product sales by source were as follows:


		Three Months Ended March 31,				Three Months Ended March 31,
Product sales by geographic location:	Product sales by geographic location:	2022		2021			Product sales by geographic location:	2023		2022
U.S.	U.S.	$	18,188	$	16,839		U.S.	$	23,800	$	18,188
International	International	5,229		4,623			International	7,788		5,229
Total	Total	$	23,417	$	21,462		Total	$	31,588	$	23,417

Three Months Ended March 31,
Product sales by category: 2022 2021
Trauma and deformity $ 16,516 $ 14,552
Scoliosis 5,983 5,951
Sports medicine/other 918 959
Total $ 23,417 $ 21,462

~~No individual country with sales originating outside of the United States accounted for more than 10% of consolidated revenue for the three months ended March 31, 2022 and 2021.~~


	Three Months Ended March 31,
Product sales by category:	2023		2022
Trauma and deformity	$	23,395	$	16,516
Scoliosis	7,072		5,983
Sports medicine/other	1,121		918
Total	$	31,588	$	23,417

NOTE 1011 - RELATED PARTY TRANSACTIONS

In addition to the debt and credit agreements and mortgage with Squadron and its affiliate (see Note 6), we currently use Structure Medical, LLC (“Structure Medical”) as 1one of our suppliers. Structure Medical is affiliated with Squadron and a supplier with which we maintain certain long-term agreements. We made aggregate payments to Structure Medical for inventory purchases of ~~$316~~$246 and ~~$72~~$316 for the three months ended March 31, 2023 and 2022, ~~and 2021,~~ respectively.

On December 31, 2019, the Company divested Vilex for $25,000 to an affiliate of Squadron. In conjunction with the divestiture, the Company also entered into an exclusive perpetual license agreement to permit the purchasers of Vilex the ability to access intellectual property and sell products using the external fixation technology of Orthex, LLC to non-pediatric accounts. We had sales and payments related to inventory purchases to Squadron's affiliate, now known as Vilex, LLC, of $8 and $25, respectively, for the three months ended March 31, 2022. We had sales and payments related to inventory purchases to Vilex, LLC of $87 and $189, respectively, for the three months ended March 31, 2021.

NOTE 1112 - EMPLOYEE BENEFIT PLAN

We have a defined-contribution plan, OrthoPediatrics 401(k) Retirement Plan (the “401(k) Plan”), which includes a cash or deferral (Section 401(k)) arrangement. The 401(k) Plan covers those employees who meet certain eligibility requirements and elect to participate. Employee contributions are limited to the annual amounts permitted under the Internal Revenue Code. The 401(k) Plan allows us to make a discretionary matching contribution. Discretionary matching contributions are determined annually by management. We have elected to match our employees' 401(k) contributions up to 4% of employees' salary. Additionally, employees of MD Ortho receive contribution matches up to 3% of their salary.

NOTE 1213 – COMMITMENTS AND CONTINGENCIES

Leases

As of March 31, ~~2022,~~2023, the Company has recorded a lease liability of ~~$241~~$257 and corresponding right-of-use-asset of ~~$243~~$272 on its condensed consolidated balance sheet.

Legal Proceedings

From time to time, we are involved in various legal proceedings arising in the ordinary course of our business.

IMED Surgical - Software Ownership Dispute

On October 16, 2020, the Company, its wholly-owned subsidiary, Orthex, LLC (“Orthex”), the Company’s largest investor, Squadron Capital, LLC (“Squadron”), and certain other defendants, were named in a lawsuit filed by IMED Surgical, LLC, a New Jersey company (the “Plaintiff”), in Broward County, Florida Circuit Court. In the lawsuit, the Plaintiff claims, among other things, that it is the rightful owner of certain patented point-and-click planning software being used by the Company, Orthex and Squadron (specifically, U.S. Patent No. 10,258,377 (titled “Point and click alignment method for orthopedic surgeons, and surgical and clinical accessories and devices,” issued on April 16, 2019) (hereinafter, the “’377 Patent”).

In June 2019, the Company purchased all the issued and outstanding units of membership interests in Orthex, and all the issued and outstanding shares of stock of Vilex in Tennessee, Inc. for $60,000 in total consideration. Vilex and Orthex are primarily manufacturers of foot and ankle surgical implants, including cannulated screws, fusion devices, surgical staples and bone plates, as well as the Orthex Hexapod technology, a system of rings, struts, implants, hardware accessories, and the Point & Click Software used to treat congenital deformities and limb length discrepancies. On December 31, 2019, the Company divested substantially all of the assets relating to Vilex's adult product offerings to a wholly-owned subsidiary of Squadron, in exchange for a $25,000 reduction in a term note owed to Squadron in connection with the initial acquisition. As part of the sale, the Company also executed an exclusive license arrangement with Squadron providing for perpetual access to certain intellectual property, including the ‘377 Patent. According to the lawsuit, the other defendants, who are unrelated to the Company, assigned the ‘377 Patent to Orthex in violation of certain agreements with the Plaintiff.

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

On May 13, 2021, the Court ordered the lawsuit stayed pending arbitration. To the extent the Plaintiff desires to further pursue the matter, it must first do so through a separate arbitration proceeding. In mid-November 2021, the Plaintiff initiated an arbitration ~~proceeding.~~proceeding; however, the Plaintiff failed to pay the fees it was required to pay for the arbitration to continue, resulting in the arbitration panel terminating the arbitration proceedings in mid-October 2022. In connection with the stay order, the Court also ordered the Company, Orthex and Squadron to give notice to the Plaintiff before any attempt to dispose, assign, sell or otherwise encumber the ‘377 Patent. The Company, Orthex and Squadron filed an appeal of this component of the order, but the appellate court affirmed the lower court’s decision. The Company, Orthex and Squadron have not sought to further pursue an appeal of the subject order.

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

Wishbone Medical, Inc. – Patent Infringement Litigation

On October 30, 2020, OrthoPediatrics, along with its wholly-owned subsidiary, Orthex, LLC, filed a lawsuit in federal district court (N.D. Indiana, South Bend Division, Case No. 3:20-cv-00929) against Wishbone Medical, Inc. and Nick A. Deeter (collectively “Wishbone”), claiming infringement of ’377 Patent, unfair competition, false advertising, breach of contract, defamation per se, tortious interference with contractual relationships, and tortious interference with prospective contractual relationships. In early January 2021, OrthoPediatrics amended its lawsuit by adding a declaratory judgment claim of infringement of the ‘377 Patent against Wishbone.

Thereafter, in January 2021, Wishbone filed a motion to dismiss all OrthoPediatrics’ causes of action. In late August 2021, the Court denied Wishbone's motion to dismiss with respect to OrthoPediatrics’ infringement and breach of contract claims and dismissed OrthoPediatrics' remaining causes of action. In late September 2021, Wishbone filed its answer and counterclaims, in part, seeking declaratory judgment of non-infringement and invalidity of the ‘377 Patent, and alleging OrthoPediatrics patent infringement claim(s) against Wishbone was made in bad faith. In mid-October 2021, OrthoPediatrics filed its answer to Wishbone’s counterclaims, denying all of them. In late January 2023, Wishbone amended its counterclaims to add a breach of contract claim against OrthoPediatrics. In early February 2023, OrthoPediatrics filed its answer to Wishbone's amended counterclaims, denying all of them. Additionally, in late March 2023, Wishbone filed a motion for judgment on the pleadings regarding the patent eligibility of the '377 patent. In mid-April 2023, OrthoPediatrics filed its response to Wishbone's late March 2023 motion. Although we believe Wishbone’s counterclaims are without merit and will vigorously defend the claims asserted against us, litigation can involve complex factual and legal questions, and an adverse resolution of this proceeding could have an adverse effect on our business, operating results and financial condition.

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

Purchase Obligations and Performance Requirements

As a result of entering into a license agreement for the exclusive distribution of the 7D Surgical FLASHTM Navigation platform during 2021, the Company ~~has~~ agreed to a minimum purchase commitment for the first twelve months of that agreement. Additionally, the contract requires future purchase commitments based

upon a percentage of historical purchases. As a result and as of March 31, ~~2022,~~2023, the remaining purchase commitment under the agreement was ~~$1,900.~~$2,771 for the year ended December 31, 2023 and $2,340 for the year ended December 31, 2024.

On July 20, 2021, we entered into an amended license agreement, resulting in a five-year extension of our exclusive distribution rights of the FIREFLY Technology. As a component of the agreement the Company is required to meet minimum performance metrics, measured by the number of spine procedures in the fiscal year which used the FIREFLY products against the annual requirement in the agreement. This includes any scheduled surgeries whereby the Company has committed to payment of the product. The number of required surgeries varies each year of the agreement. The Company analyzes its projected achievement of these performance metrics and accrues for any estimated shortfall. During the three months ended March 31, ~~2022,~~2023, the Company recorded an expense of ~~$101~~$300 based on current estimates. NoThe Company recorded $101 of expense ~~was recorded~~ for the three months ended March 31, ~~2021.~~2022.

Royalties

As of March 31, ~~2022,~~2023, we are contracted to pay royalties to individuals and entities that provide research and development services, which range from 0.5% to 20% of sales.

We have products in development that have milestone payments and royalty commitments. In any development project, there are significant variables that will affect the amount and timing of these payments and as of March 31, ~~2022,~~2023, we have not been able to determine the amount and timing of payments. We do not anticipate these future payments will have a material impact on our financial results.

NOTE 1314 – SUBSEQUENT EVENTS

~~MD Orthopaedics Acquisition~~

On April 1, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with OrthoPediatrics Iowa Holdco, Inc., a Delaware corporation and newly-formed wholly-owned subsidiary of the Company (“Merger Sub”), Mitchell Designs, Inc. (“Designs”), an Iowa corporation and the sole shareholder of MD Orthopaedics, Inc., also an Iowa corporation (“MD Ortho”) and John Mitchell, the sole shareholder of Designs (“Mitchell”). MD Ortho has developed and manufactures a portfolio of orthopedic clubfoot products.

Pursuant to the Merger Agreement, Designs merged with and into Merger Sub effective April 1, 2022. Under the terms of the Merger Agreement, the Company paid to Mitchell consideration of (a) $8,200 in cash, and (b) 173,241 shares of unregistered common stock, $0.00025 par value per share, of the Company, representing approximately $9,707 (based on the April 1, 2022 closing share price of $56.03).

ApiFix Acquisition Installment Payment

On April ~~1, 2022,~~3, 2023, the ~~second-year~~business day immediately following the third-year anniversary of the acquisition of ApiFix, the Company paid ~~$3,233~~$2,000 in cash and issued ~~185,811~~140,003 shares of the Company's common stock, representing ~~$10,411~~$6,178 of fair value (based on the April ~~1, 2022~~3, 2023 closing share price of ~~$56.03)~~$44.13), to fulfill its installment obligation to ApiFix. This was the ~~first~~second installment payment paid since the acquisition.

Medtech Concepts LLC

On May 1, 2023, the Company purchased all of the issued and outstanding membership interest of Medtech Concepts LLC, a Delaware limited liability company (“Medtech”). Medtech has developed an early-stage, pre-commercial enabling technology platform designed to increase efficiency in the perioperative environment. The solution combines hardware, software, and data analytics to help streamline operative care and support better decision making in the operating room. In the future, the Company believes this enabling technology platform will provide valuable intraoperative resources for surgeons that will improve decision making, drive operating room efficiency, and ultimately improve healthcare for children. The Company also expects that the acquisition will further support future market share gains for its implant systems, similar to what the Company has experienced with the FIREFLY® Technology and the 7D Surgical FLASHTM Navigation platform. The Company does not anticipate material revenue contributions from the platform in 2023.

The sellers of Medtech are being paid a purchase price of approximately $15,274 in the following manner: (i) cash in the aggregate amount of $3,000 was paid on May 1, 2023, the transaction closing date (the “Closing Date”); (ii) 43,751 unregistered shares of the Company’s common stock, par value $0.00025 per share, representing approximately $2,274 (based on a closing share price of $51.98 on May 1, 2023), were issued on the Closing Date; and (iii) an aggregate of $2,500 payable 50% in cash and 50% in shares of unregistered common stock, will be paid on each of the first four anniversaries of the Closing

Date, all subject to the conditions set forth in the Membership Interest Purchase Agreement (the "Purchase Agreement") relating to the transaction.

Kevin Unger, a member of the Company’s Board of Directors (the “Board”) through April 28, 2023, was one of the sellers in the transaction. As a result, the Board formed a special committee comprised of independent and disinterested directors (the “Special Committee”) with the exclusive authority to review, evaluate, and negotiate, or reject, the potential Medtech acquisition. The Purchase Agreement and the transactions contemplated thereby were approved by both the Special Committee and the full Board (with Mr. Unger abstaining).

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial statements and related notes thereto contained elsewhere in this quarterly report, as well as the information under "Note Regarding Forward-Looking Statements."

The description of our business included in this quarterly report is summary in nature and only includes material developments that have occurred since the latest full description. The full description of the history and general development of our business is included in "Item 1. Description of Business" section of the Company's Annual Report on Form 10-K filed with the SEC on March ~~3, 2022,~~1, 2023, which section is incorporated herein by reference.

Overview

We are the only global medical device company focused exclusively on providing a comprehensive trauma and deformity correction, scoliosis and sports medicine product offering to the pediatric orthopedic market in order to improve the lives of children with orthopedic conditions. We design, develop and commercialize innovative orthopedic implants, instruments and ~~instruments~~specialized braces to meet the ~~specialized~~ needs of pediatric surgeons or orthotists and their patients, who we believe have been largely neglected by the orthopedic industry. We currently serve three of the largest categories in this market. We estimate that the portion of this market that we currently serve represents a ~~$3.3~~$3.9 billion opportunity globally, including over ~~$1.5~~$1.7 billion in the United States.

We sell implants, instruments and ~~instruments~~specialized braces to our customers for use by pediatric orthopedic surgeons, orthotists or physical therapists to treat orthopedic conditions in children. We provide our implants in sets that consist of a range of implant sizes and include the instruments necessary to perform the surgical procedure. In the United States and a few selected international markets, our customers typically expect us to have full sets of implants and instruments on site at each hospital but do not purchase the implants until they are used in surgery. Accordingly, we must make an up-front investment in inventory of consigned implants and instruments before we can generate revenue from a particular hospital and we maintain substantial levels of inventory at any given time. In the international markets where we sell to stocking distributors or in the case of our braces, we transfer control of our products to the distributor or customer when title passes upon shipment.

We currently market 3748 surgical systems that serve three of the largest categories within the pediatric orthopedic market: (i) trauma and deformity, (ii) scoliosis and (iii) sports medicine/other. We rely on a broad network of third parties to manufacture the components of our products, which we then inspect and package. We believe our innovative products promote improved surgical accuracy, increase consistency of outcomes and enhance surgeon confidence in achieving high standards of care. In the future, we expect to expand our product offering within these categories, as well as to address additional categories of the pediatric orthopedic market.

The majority of our revenue has been generated in the United States, where we sell our products through a network of 4041 independent sales agencies employing more than ~~188~~185 sales representatives specifically focused on pediatrics. These independent sales agents are trained by us, distribute our products and are compensated through sales-based commissions and performance bonuses. We do not sell our products through or participate in physician-owned distributorships, or PODs.

We market and sell our products internationally in 45over 70 countries, through independent stocking distributors and sales agencies. Our independent distributors manage the billing relationship with each hospital in their respective territories and are responsible for servicing the product needs of their surgeon customers. In 2017, we began to supplement our international stocking distributors with sales agencies using direct sales programs in the United Kingdom, Ireland, Australia and New Zealand where we sell directly to the

hospitals. We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021. ~~Additionally, in March 2019, we established an operating company in the Netherlands in~~In order to further enhance our operations in ~~Europe.~~Europe, we established operating companies in the Netherlands and Germany in March 2019 and April 2022, respectively. In these markets, we work through sales agencies that are paid a commission, similar to our U.S. sales model. ~~We expect these~~These arrangements ~~to generate~~have generated an increase in revenue and gross margin.

We believe there are significant opportunities for us to strengthen our position in U.S. and international markets by increasing investments in consigned implant and instrument sets, strengthening our global sales and distribution infrastructure and expanding our product offering. For example, on April 1, 2022, the Company acquired MD Orthopaedics, Inc., a developer and manufacturer of a portfolio of orthopedic clubfoot products. The consideration paid by the Company included (a) $8.2 million in cash, and (b) 173,241 shares of its common stock, $0.00025 par value per share, representing approximately $9.7 million (based on the April 1, 2022 closing share price of $56.03).

Environmental, Social and Governance ("ESG") Activities

OrthoPediatrics was founded on the cause of impacting the lives of children with orthopedic conditions. Since inception we have impacted the lives of over ~~243,000 children.~~649,000 children, when including those served by our acquired companies. We believe we should continue to expand our social efforts while minimizing our impact to the environment and ensuring corporate governance. In 2021, we created an internal ESG team, which reports directly to our Board’s Governance ~~and Nominating~~ Committee, to identify ESG topics for disclosure by assessing both the impact on our business and the importance to our stakeholders.

We encourage you to review our ESG page and summary report which can be found under the "About" section of our corporate website for more detailed information regarding our ESG efforts and current initiatives. On our website, among other information, are the following highlights:

•OrthoPediatrics cares about our environmental impact while working in a highly regulated industry and we are certified according to ISO 13485.

•The Company and its associates regularly participate in philanthropic causes important to our local communities. We also partner with charitable organizations that provide pediatric orthopedic care around the world. In 2020 we were named as "Corporate Partner of the Year" by the World Pediatric Project - with whom we work to provide access to medical care for children in developing countries.

•We are committed to fostering an environment that is respectful, compassionate, and inclusive of everyone in our community.

•The Company and its Board of Directors ~~understands~~understand the value of ~~diversity and will increase~~diversity. Since the ~~diversity~~conclusion of our 2022 annual meeting of stockholders, the ~~Board over the next 18 months. The Governance and Nominating Committee engaged a global recruiting firm to assist in adding~~Company has added two diverse ~~Board candidates.~~Directors to our Board.

We believe effectively managing our priorities, as well as increasing our transparency related to ESG programs, will help create long-term value for our stakeholders. We expect to increase our disclosures and communicate our ESG efforts in future SEC filings.

Nothing on our website shall be deemed part of or incorporated by reference into this Quarterly Report on Form 10-Q.

~~Impact of COVID-19 on our Business~~

As a result of the COVID-19 pandemic (“COVID-19” or the “pandemic”), we have experienced significant business disruption. For example, in order to meet the demand for COVID-19-related hospitalizations, various governments, governmental agencies and hospital administrators required certain hospitals to postpone some elective procedures. As a majority of our products are utilized in elective surgeries or procedures, the deferrals of such surgeries and procedures have had, and may continue to have, a significant negative impact on our business and results of operations. We encourage the readers of this document to read our risk factors in their entirety contained in Item 1A “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 3, 2022 and in other reports filed with the SEC that discuss the risks and factors that may affect our business.

~~Despite the impact COVID-19 has had on our business, we continue to invest in research and development, invest in our people, and take steps to position ourselves for long-term success.~~

~~Health and Safety~~

From the earliest signs of the outbreak, we have taken proactive, aggressive action to protect the health and safety of our employees, customers, partners and suppliers. We enacted rigorous safety measures in all applicable locations, including implementing social distancing protocols, requiring working from home for those employees that do not need to be physically present on the warehouse floor, suspending travel, extensively and frequently disinfecting our workspaces and providing masks to those employees who must be physically present. We will continue to utilize some or all of these measures until we determine that the COVID-19 pandemic is adequately contained for purposes of our business. We may also take further actions as government authorities require or recommend or as we determine to be in the best interests of our employees, customers, partners and suppliers.

~~Supply~~

We have not yet experienced any significant impacts or interruptions to our supply chain as a result of the COVID-19 pandemic. To mitigate the risk of any potential supply interruptions from the COVID-19 pandemic, we chose to increase certain inventory levels during the quarter. We may decide to take similar actions going forward. Additionally, restrictions or disruptions of transportation, such as reduced availability of air transport, port closures and increased border controls or closures, may result in higher costs and delays.

~~Demand~~

The outbreak has significantly increased economic and demand uncertainty. We anticipate that the current outbreak or continued spread of COVID-19, and the actions taken by governmental authorities and other third parties to contain the virus, may cause a global economic slowdown, and it is possible that it could cause a global recession. In the event of a recession, demand for our products would decline and our business would be adversely effected. We have experienced a reduction in revenue as a result of global delays in elective surgeries.

~~Liquidity~~

Although there is uncertainty related to the anticipated impact of the recent COVID-19 outbreak on our future results, we believe our business model, our current cash reserves and the recent steps we have taken to strengthen our balance sheet, including our June 2020 and December 2019 equity offerings, leave us well-positioned to manage our business through this crisis as it continues to unfold. We believe our existing balances of cash, including our short-term investments, and our currently anticipated operating cash flows will be sufficient to meet our cash needs arising in the ordinary course of business for the next twelve months.

We continue to monitor the rapidly evolving situation and guidance from international and domestic authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our operating plan. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future.

~~Other~~ Trends and Uncertainties

From time to time we acquire, make investments in or license other technologies, products and business that may enhance our capabilities, complement our current products or expand the breadth of our markets or customer base. As a result of these transactions, we may record certain intangible assets, including goodwill and trademarks, which are subject to annual impairment testing. ~~Impairment~~Fair value is based on our current assessment of the expected future cash flows based on recent results and other specific market factors. ~~Although~~During 2022, we ~~have~~determined that a triggering event had occurred indicating it was more likely than not the fair value of the ApiFix trademark was less than the associated carrying value. Subsequently, the Company completed a quantitative analysis and concluded that the fair value was in fact less than the carrying value and an impairment loss of $3.6 million was recorded ~~any impairment charges to date,~~in the ~~most recently prepared assessment indicates our passing rate has narrowed for certain intangible assets.~~period. We believe that the expected future cash flows in the most recent calculations represent management’s best estimate; however, if actual results differ materially from these estimates, we could record an additional impairment charge which could be material to our consolidated financial statements and have an adverse impact on our results of operations.

In 2022, there was a significant and unprecedented increase in cases of respiratory syncytial virus, or RSV, and other respiratory illnesses. RSV is a common respiratory virus that follows a seasonal pattern. The typical season shows an increase in mid-September, peaks in late December and drops around mid-April. In 2022 the United States experienced a significant increase in RSV activity outside of the typical peak season as well as a heightened impact during the winter months. The volume of elective procedures utilizing our products were negatively impacted as a significant percent of hospital capacity was absorbed to cover the increase in RSV-related hospitalizations. This had a negative impact on our sales volume in 2022 and may continue to do so into the future. We are unable to accurately determine exactly how this will impact us in the future.

~~Emerging Growth Company~~

As a result of the COVID-19 pandemic, we have experienced significant business disruption throughout the last several years. Elective procedures are delayed in some cases as hospitals continue to struggle with adequate staffing levels. As a majority of our products are utilized in elective surgeries or procedures, the deferrals of such surgeries and procedures have had, and may continue to have, a significant negative impact on our business and results of operations. Throughout the pandemic, we have taken a variety of steps to address the impact. We continue to monitor the impact of the pandemic on our employees and customers and the markets in which we operate and will take further actions that are considered prudent to address the pandemic. We cannot accurately predict with certainty the full extent to which the pandemic will impact demand for our products in the future.

We encourage the readers of this document to read our risk factors in their entirety contained in Item 1A “Risk Factors” in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 1, 2023 and in other reports filed with the SEC that discuss the risks and factors that may affect our business.

Smaller Reporting Company Status

We will qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”) until December 31, 2022. For as long as a company is deemed to be an emerging growth company, it may take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies. We also qualify as a "smaller reporting company," as such term is defined in Rule 12b-2 under the Exchange Act. To the extent that we continue to qualify as a smaller reporting company, ~~after we cease to qualify as an emerging growth company,~~ certain ~~of the~~ exemptions ~~available to us as an emerging growth company~~ may ~~continue to~~ be available to us as a smaller reporting company. The JOBS Act also provides that an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.us.

Summary of Statements of Operations for the Three Months Ended March 31, ~~2022~~2023 and ~~2021~~2022

The following table sets forth our results of operations for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:
Three Months Ended March 31,
2022 2021 Increase
(Decrease) %
Net revenue $ 23,417 $ 21,462 $ 1,955 9 %
Cost of revenue 4,851 5,137 (286) (6) %
Sales and marketing expenses 9,758 8,949 809 9 %
General and administrative expenses 13,167 12,041 1,126 9 %
Research and development expenses 2,027 1,308 719 55 %
Other (income) expenses 3,031 4,718 (1,687) (36) %
Provision for income taxes (benefit) (317) (312) (5) (2) %
Net loss $ (9,100) $ (10,379) $ (1,279) (12) %


	Three Months Ended March 31,
	2023		2022		Increase (Decrease)		%
Net revenue	$	31,588	$	23,417	$	8,171	35	%
Cost of revenue	8,027		4,851		3,176		65	%
Sales and marketing expenses	12,216		9,758		2,458		25	%
General and administrative expenses	17,666		13,167		4,499		34	%

Research and development expenses	2,270		2,027		243		12	%
Other (income) expenses	(1,211)		3,031		(4,242)		(140)	%
Provision for income taxes (benefit)	(574)		(317)		(257)		(81)	%


Net loss	$	(6,806)	$	(9,100)	$	(2,294)	(25)	%

Net Revenue

The following tables set forth our net revenue by geography and product category for the three months ended March 31, ~~2022~~2023 and ~~2021:~~2022:


		Three Months Ended March 31,				Three Months Ended March 31,
Product sales by geographic location:	Product sales by geographic location:	2022		2021			Product sales by geographic location:	2023		2022
U.S.	U.S.	$	18,188	$	16,839		U.S.	$	23,800	$	18,188
International	International	5,229		4,623			International	7,788		5,229
Total	Total	$	23,417	$	21,462		Total	$	31,588	$	23,417

		Three Months Ended March 31,				Three Months Ended March 31,
Product sales by category:	Product sales by category:	2022		2021			Product sales by category:	2023		2022
Trauma and deformity	Trauma and deformity	$	16,516	$	14,552		Trauma and deformity	$	23,395	$	16,516
Scoliosis	Scoliosis	5,983		5,951			Scoliosis	7,072		5,983
Sports medicine/other	Sports medicine/other	918		959			Sports medicine/other	1,121		918
Total	Total	$	23,417	$	21,462		Total	$	31,588	$	23,417

Net revenue increased ~~$2.0~~$8.2 million, or 9%35%, from ~~$21.5 million for the three months ended March 31, 2021 to~~ $23.4 million for the three months ended March 31, ~~2022.~~2022 to $31.6 million for the three months ended March 31, 2023. The increase during the three months ended March 31, ~~2022~~2023 was primarily driven ~~primarily~~ by ~~non-elective~~the COVID-19 recovery in both domestic and global markets as well as $4.8 million of growth as a result of the MDO and Pega acquisitions. This was slightly offset by a negative impact from the foreign currency conversion of our international revenue. Revenue from acquisitions is included in our trauma ~~sales. Additionally, we continue to see the benefit of converting Germany, Austria,~~ and ~~Switzerland to a direct agency sales model.~~deformity channel.

Trauma and deformity sales increased ~~$2.0~~$6.9 million, or ~~13%~~42%, during the three months ended March 31, ~~2022,~~2023, primarily driven by strong trauma and deformity growth across numerous product lines, specifically our Cannulated Screws, PNP Femur ~~Cannulated Screws~~ and ~~Orthex~~PediPlate systems. Also, as previously mentioned, revenue from the prior year acquisitions is included in trauma and deformity. Scoliosis sales increased ~~$32 thousand,~~$1.1 million, or 1%18%, during the three months ended March 31, ~~2022,~~2023, primarily driven by increased sales of our

RESPONSE 4.5/5.0 and 5.5/6.0 systems and sales of the FireFly surgical guides. Sports medicine / other ~~decreased $41 thousand,~~increased $0.2 million, or 4%22%, during the three months ended March 31, ~~2022,~~2023, primarily driven by ~~a decline~~an increase in sales from our Telos operations. Nearly all the change in each category was due to an increase or decrease in the unit volume sold and not a result of price changes.

Cost of Revenue and Gross Margin

Cost of revenue ~~decreased $0.3~~increased $3.2 million, or 6%65%, from ~~$5.1 million for the three months ended March 31, 2021 to~~ $4.9 million for the three months ended March 31, ~~2022. The decrease is due primarily~~2022 to ~~an increased gross margin rate, offset by an increase in volumes sold. Gross margin was 76%~~$8.0 million for the three months ended March 31, ~~2021 and~~2023. The increase is due primarily to sales volume, including the added cost of revenue associated with the revenue generated by acquisitions. Gross margin was 79% for the three months ended March 31, ~~2022.~~2022 and 75% for the three months ended March 31, 2023. The change in gross margin is primarily driven by ~~sales through the converted international agencies,~~ favorable purchase price variances ~~and fewer scoliosis set sales to our international stocking distributors.~~in the three months ended March 31, 2022 which did not repeat in the three months ended March 31, 2023.

Sales and Marketing Expenses

Sales and marketing expenses increased ~~$0.8~~$2.5 million, or 9%25%, to $12.2 million for the three months ended March 31, 2023 from $9.8 million for the three months ended March 31, ~~2022 from $8.9 million for the three months ended March 31, 2021.~~2022. The change in the three month period ended March 31, ~~2022~~2023 was due primarily to increased sales commission expenses, driven by increased unit volumes ~~sold.~~sold as well as $0.6 million of additional expense from acquisitions.

General and Administrative Expenses

General and administrative expenses increased ~~$1.1~~$4.5 million, or 9%34%, from ~~$12.0 million for the three months ended March 31, 2021 to~~ $13.2 million for the three months ended March 31, ~~2022.~~2022 to $17.7 million for the three months ended March 31, 2023. The increase for the three month period ended March 31, ~~2022~~2023 was due primarily to the addition of personnel and resources to support the continued expansion of our business, including $2.3 million from acquisitions and an increase in legal expenses and ~~other professional service expense.~~travel expenses.

Depreciation and amortization expenses increased ~~$0.4~~$0.9 million, or ~~17%~~30%, from ~~$2.5 million for the three months ended March 31, 2021 to~~ $3.0 million for the three months ended March 31, ~~2022.~~2022 to $3.8 million for the three months ended March 31, 2023. The increase for the three month period ended March 31, ~~2022~~2023 was primarily due to an increase in depreciation from higher set deployments and $0.6 million of depreciation and amortization expenses related to the ~~amortization of intangible~~ assets ~~including licenses which had not yet been put into the market in the first quarter 2021.~~acquired from acquisitions.

Research and Development Expenses

Research and development expenses increased ~~$0.7~~$0.2 million, or ~~55%~~12%, from ~~$1.3 million for the three months ended March 31, 2021 to~~ $2.0 million for the three months ended March 31, ~~2022.~~2022 to $2.3 million for the three months ended March 31, 2023. The increase for the three month period ended March 31, ~~2022~~2023 was primarily due to incremental product development and the addition of personnel to support the future growth of the business.

Total Other (Income) Expenses

Other ~~expenses were~~income was $1.2 million and $3.0 million ~~and $4.7 million~~of other expense for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively, a ~~decrease~~change of ~~$1.7~~$4.2 million or ~~36%~~140%. The ~~decrease~~change in other expense for the three months ended March 31, ~~2022~~2023 was primarily due to the fair value adjustment of contingent consideration, which was driven by the valuation inputs that were lower in comparison to the same period last ~~year.~~year, resulting in income rather than expense. We recognized net interest income during the three months ended March 31, 2023 compared to net interest expense for the three months ended March 31, 2022. The aggregate of accreted interest expense and fair value adjustments for the three months ended March 31, 2023 and 2022 ~~and 2021~~ were ~~$3.0~~income of $0.3 million and ~~$4.8~~expense of $3.0 million, respectively.

Liquidity and Capital Resources

We have incurred operating losses since inception which resulted in negative cash flows ~~for continuing operations from~~used in operating activities of ~~$4.2~~$6.5 million and ~~$1.9~~$4.2 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. As of March 31, ~~2022,~~2023, we had an accumulated deficit of ~~$187.1~~$183.6 million. We anticipate that our losses will continue in the near term as we continue to expand our product portfolio and invest in additional consigned implant and instrument sets to support our expansion into existing and new markets. Since inception, we have funded our operations primarily with proceeds from the sales of our common and preferred stock, convertible securities and debt, as well as through sales of our products. At March 31, ~~2022,~~2023, we had cash and cash equivalents, restricted cash and ~~short term~~short-term investments of ~~$46.4~~$109.2 million.

Cash Flows

The following table sets forth our cash flows from operating, investing and financing activities for the periods indicated:
Three Months Ended March 31,
2022 2021
Net cash used in operating activities $ (4,197) $ (1,915)
Net cash provided by (used in) investing activities 14,303 (5,607)
Net cash provided by (used in) financing activities (33) 30
Effect of exchange rate changes on cash 241 155
Net increase (decrease) in cash $ 10,314 $ (7,337)


	Three Months Ended March 31,
	2023		2022
Net cash used in operating activities	$	(6,461)	$	(4,197)

Net cash provided by investing activities	32,310		14,303

Net cash used in financing activities	(36)		(33)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(138)		241
Net increase in cash, cash equivalents and restricted cash	$	25,675	$	10,314

Cash Used in Operating Activities

Net cash used in operating activities from continuing operations was ~~$4.2~~$6.5 million and ~~$1.9~~$4.2 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. The primary use of this cash was to fund our operations related to the development and commercialization of our products in each of these periods. Net cash used for working capital was $4.8 million for the three months ended March 31, 2023 compared to a use of $2.3 million for the three months ended March 31, ~~2022 compared to a source of $0.1 million for the three months ended March 31, 2021.~~2022. During the three months ended March 31, ~~2022,~~2023, the primary driver of working capital cash usage was the increase in inventory of ~~$6.8 million and the offset related to trade payables of $5.3~~$6.0 million to support future sales ~~growth.~~growth which is offset by trade payables of $5.5 million. We also saw an increase in the use of cash from ~~the~~ accrued expenses related to compensation paid in the first quarter as well as the settlement of ~~$0.7 million which was offset by~~ a ~~decrease~~minimum purchase commitment required for the year ended December 31, 2022 in ~~prepaid expenses.~~connection with the Company's exclusive distribution rights of the FIREFLY® Technology.

Cash Provided by ~~(Used in)~~ Investing Activities

Net cash provided by investing activities for the three months ended March 31, ~~2022~~2023 was ~~$14.3~~$32.3 million compared to ~~a use of cash of $5.6~~$14.3 million for the three months ended March 31, ~~2021.~~2022. Net cash provided by investing activities for the three months ended March 31, ~~2022~~2023 consisted primarily of the sale of short-term marketable securities offset by purchases of instrument sets of ~~$4.2~~$4.9 million.

Cash ~~Provided By (Used in)~~Used in Financing Activities

Net cash used in ~~and provided by~~ financing activities for the three months ended March 31, 2023 and 2022, ~~and 2021,~~ respectively, ~~was~~were not material to the results of our operations.

Indebtedness

~~Loan Agreement~~

~~Effective December 31, 2021, the~~The Company ~~entered into~~is party to a ~~Third Amendment (the "Third Amendment") to its~~ Fourth Amended and Restated Loan and Security Agreement with Squadron, ~~Capital LLC, or Squadron (as so amended,~~which provides the ~~“Loan Agreement”). The Loan Agreement provides~~Company with a ~~$25.0~~$50.0 million revolving credit ~~facility, with interest only payments, at an annual interest rate equal to the greater~~facility. As of (a) six month SOFR plus 8.69% and (b) 10.0%. The Company pays Squadron an unused commitment fee in an amount equal to the per annum rate of 0.50% (computed on the basis of a year of 360 days and the actual number of days elapsed) times the daily unused portion of the revolving credit commitment. The unused commitment fee is payable quarterly in arrears. Prior to the Third Amendment, the interest rate on the facility had been equal to the greater of (a) three month LIBOR plus 8.61%, and (b) 10.0%. While the Loan Agreement previously provided for certain term loans,March 31, 2023, there ~~are~~was no ~~longer any~~ outstanding ~~term loan obligations.~~

Borrowings under the revolving credit facility are made under a First Amended and Restated Revolving Note, dated August 4, 2020 (the “Amended Revolving Note”), payable, jointly and severally, by the Company and each of its subsidiaries party thereto. The Amended Revolving Note will mature at the earlier of: (i) the date on which any person or persons acquire (x) capital stock of the Company possessing the voting power to elect a majority of the Company’s Board of Directors (whether by merger, consolidation, reorganization, combination, sale or transfer), or (y) all or substantially all of the Company’s assets, determined on a consolidated basis; and (ii) January 1, 2024.

~~Borrowings~~indebtedness under the Loan Agreement are secured by substantially all of the Company's assets and are unconditionally guaranteed by each of its subsidiaries with the exception of Vilex. There are no traditional financial covenants associated with the Loan Agreement. However, there are negative covenants that prohibit us from, among other things, transferring any of our material assets, merging with or acquiring another entity, entering into a transaction that would result in a change of control, incurring additional indebtedness, creating any lien on our property, making investments in third parties and redeeming stock or paying dividends, in each case subject to certain exceptions as further detailed in the Loan Agreement.

The Loan Agreement includes events of default, the occurrence and continuation of any of which provides Squadron with the right to exercise remedies against us and the collateral securing the loans, including cash. These events of default include, among other things, the failure to pay amounts due under the credit facilities, insolvency, the occurrence of a material adverse event, which includes a material adverse change in our business, operations or properties (financial or otherwise) or a material impairment of the prospect of repayment of any portion of the obligations, the occurrence of any default under certain other indebtedness and a final judgment against us in an amount greater than $250 thousand. The occurrence of a material adverse change could result in the acceleration of payment of the debt.

~~Mortgage Note~~

In August 2013, pursuant to the purchase of our office and warehouse space, we entered into a mortgage note payable to Tawani Enterprises Inc., the owner of which is a member of Squadron’s management committee. Pursuant to the terms of the mortgage note, we pay Tawani Enterprises Inc. monthly principal and interest installments of $15,543, with interest compounded at 5% until maturity in August 2028, at which time a final payment of remaining principal and interest will become due. ~~The mortgage is secured by the related real estate~~

See Note 6 - Debt and ~~building. The mortgage balance was $1.0 million and $1.0 million at March 31, 2022 and December 31, 2021, respectively.~~Credit Arrangements in Item 1 for further detail regarding our debt.

Pediatric Orthopedic Business Seasonality

Our revenue is typically higher in the summer months and holiday periods, driven by higher sales of our trauma and deformity and scoliosis products, which is influenced by the higher incidence of pediatric surgeries during these periods due to recovery time provided by breaks in the school year. Additionally, our scoliosis patients tend to have additional health challenges that make scheduling their procedures variable in nature.

Critical Accounting Policies and Significant Judgments and Estimates

~~This management’s discussion and analysis of financial condition and results of operations is based on~~There were no material changes to our critical accounting policies that are disclosed in our audited consolidated financial statements ~~which have been prepared in accordance~~for the year ended December 31, 2022 filed with ~~GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect~~ the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses during the reporting periods. We monitor and analyze these items for changes in facts and circumstances, and material changes inSEC on March 1, 2023.

Recent Accounting Pronouncements

~~these estimates could occur~~

See Note 2 - Significant Accounting Policies in ~~the future. We base~~Item 1 Financial Statements of Part 1 of this Quarterly report on Form 10-Q for a description of recent accounting pronouncements applicable to our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.condensed consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a "smaller reporting company," we are not required to provide the information required by this item.

ITEM 4. CONTROLS AND PROCEDURES

a.Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) at the end of the period covered by this quarterly report.

Based on this evaluation, we concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We recognize that any controls system, no matter how well designed and operated, can provide only reasonable assurance of achieving its objectives, and our management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

b. Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the period covered by this quarterly report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are involved in various legal proceedings arising in the ordinary course of our business.

A discussion of certain of those legal proceedings is contained in Note 1213 – Commitments and Contingencies (under the heading “Legal Proceedings”) of the notes to the condensed consolidated financial statements included in Item 1. Financial Statements of Part I of this quarterly report on Form 10-Q, which discussion is incorporated herein by reference.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed in “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on March ~~3, 2022.~~1, 2023. There have been no material changes to these Risk Factors since the filing of our Annual Report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

a. Sale of Unregistered Securities.

~~None.~~None, except as otherwise described in a Current Report on Form 8-K filed with respect to the period covered by this Quarterly Report on Form 10-Q.

b. Use of Proceeds.

None.

c. Issuer Purchases of Equity Securities.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

a. Failure to file under Form 8-K.

None.

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b. Modifications to nomination process.

None.

ITEM 6. EXHIBITS

The following exhibits are included within this Report or incorporated herein by reference.

3934

Exhibit

Number

Description

2.1w

Share Purchase Agreement, dated April 1, 2020, by and among OrthoPediatrics Corp., ApiFix Ltd. (“ApiFix”), certain controlling shareholders of ApiFix, and the sellers’ representative named therein (Incorporated by reference to Exhibit 2.1 of registrant's Form 8-K filed on April 1, 2020) (SEC File No. 001-38242)

2.2w

Agreement and Plan of Merger, dated April 1, 2022, by and among OrthoPediatrics Corp., OrthoPediatrics Iowa Holdco, Inc., Mitchell Designs, Inc. (“Designs”), and John Mitchell, the sole shareholder of Designs (Incorporated by reference to Exhibit 10.1 of registrant's Form 8-K filed on April 4, 2022) (SEC File No. 001-38242)

2.3w

Membership Interest Purchase Agreement, dated May 1, 2023, by and among OrthoPediatrics Corp., Kevin Unger, DINZE LLC, and the sole member of DINZE LLC (Incorporated by reference to Exhibit 2.1 of registrant's form 8-K filed on May 1, 2023) (SEC File No. 001-38242)

3.1

Amended and Restated Certificate of Incorporation of OrthoPediatrics Corp. (Incorporated by reference to Exhibit 3.1 of registrant's Form 8-K filed on October 16, 2017) (SEC File No. 001-38242)

3.2

Amended and Restated Bylaws of OrthoPediatrics Corp. (Incorporated by reference to Exhibit 3.2 of registrant's Form 8-K filed on October 16, 2017) (SEC File No. 001-38242)

4.1

Specimen stock certificate evidencing the shares of common stock (Incorporated by reference to Exhibit 4.1 of registrant's Amendment No. 3 to Form S-1 filed on October 2, 2017) (SEC File No. 333-212076)

4.2

Registration Rights Agreement, by and between the registrant and Squadron, dated as of May 30, 2014 (Incorporated by reference to Exhibit 4.2 of registrant's Form S-1 filed on June 16, 2016) (SEC File No. 333-212076)

4.3

First Amendment to Registration Rights Agreement, by and between the registrant and Squadron, dated October 16, 2017 (Incorporated by reference to Exhibit 10.2 of registrant's Form 8-K filed on October 16, 2017) (SEC File No. 001-38242)

4.4

Stockholders Agreement, by and between the registrant and Squadron, dated October 16, 2017 (Incorporated by reference to Exhibit 10.1 of registrant's Form 8-K filed on October 16, 2017) (SEC File No. 001-38242)

10.1

Fourth Amended and Restated Loan Agreement, by and among the registrant, its subsidiaries and Squadron, dated as of December 31, 2017 (Incorporated by reference to Exhibit 10.1 of registrant's Form 8-K filed on January 8, 2018) (SEC File No. 001-38242)

10.2

First Amendment to the Fourth Amended and Restated Loan Agreement, dated as of June 4, 2019, by and among OrthoPediatrics Corp., its subsidiaries named therein and Squadron Capital LLC (Incorporated by reference to Exhibit 10.2 of registrant's Form 8-K filed on June 5, 2019) (SEC File No. 001-38242)

10.3

Second Amendment to the Fourth Amended and Restated Loan Agreement, dated as of August 4, 2020, by and among OrthoPediatrics Corp., its subsidiaries named therein and Squadron Capital LLC (Incorporated by reference to Exhibit 10.3 to registrant's Form 10-Q filed on August 6, 2020) (SEC File No. 001-38242)

10.4

~~First~~Third Amendment to the Fourth Amended and Restated Loan Agreement, date as of December 31, 2021, by and among OrthoPediatrics Corp., its subsidiaries named therein and Squadron Capital LLC (Incorporated by reference to Exhibit 10.1 of registrant’s Form 8-K filed on January 6, 2022) (SEC File No. 001-38242)

10.5

Fourth Amendment to the Fourth Amended and Restated Loan Agreement, dated as of June 13, 2022, by and among OrthoPediatrics Corp., its subsidiaries named therein and Squadron Capital LLC (Incorporated by reference to Exhibit 10.1 of registrant’s Form 8-K filed on June 15, 2022) (SEC File No. 001-38242)

10.6

Fifth Amendment to the Fourth Amended and Restated Loan Agreement, dated as of November 15, 2022, by and among OrthoPediatrics Corp., its subsidiaries named therein and Squadron Capital LLC (Incorporated by reference to Exhibit 10.16 of registrant’s Form 10-K filed on March 1, 2023) (SEC File No. 001-38242)

10.7

Second Amended and Restated Revolving Note, dated ~~August 4, 2020,~~June 13, 2022, made payable, jointly and severally, by OrthoPediatrics Corp. and each of its subsidiaries party thereto (Incorporated by reference to Exhibit ~~10.4 to registrant's~~10.2 of registrant’s Form ~~10-Q~~8-K filed on ~~August 6, 2020)~~June 15, 2022) (SEC File No. 001-38242)

10.5*10.8

~~Employment Agreement, by and between the registrant and Joseph W. Hauser, dated as of March~~ 1 ~~, 2022~~

~~10.6~~w

~~Agreement and Plan of Merger, dated April 1, 2022, by and among~~ OrthoPediatrics Corp.~~, OrthoPediatrics Iowa Holdco, Inc., Mitchell Designs, Inc. (“Designs”), and John Mitchell, the sole shareholder of Designs~~ Non-Employee Director Compensation Policy, effective January 1, 2023 (Incorporated by reference to Exhibit 10.1 of ~~registrant's~~registrant’s Form 8-K filed on ~~April 4, 2022)~~May 1, 2023) (SEC File No. 001-38242)

31.1

Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document (The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.)

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (formatted as Inline XBRL and included in Exhibit 101)

w The exhibits and schedules to the applicable agreement have been omitted pursuant to Item ~~601(b)(2)~~601(a)(5) of Regulation S-K. The Company agrees to furnish a copy of any schedule omitted from such agreement to the SEC upon request.

* Exhibits that describe or evidence management contracts or compensatory plans or arrangements required to be filed as Exhibits to this Report.

+ Filed herewith.

++ Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



May ~~5, 2022~~2, 2023	By:	/s/ David R. Bailey
		David R. Bailey President and Chief Executive Officer
		(Principal Executive Officer)



May ~~5, 2022~~2, 2023	By:	/s/ Fred L. Hite
		Fred L. Hite Chief Financial Officer and Chief Operating Officer
		(Principal Financial and Accounting Officer)

4237