SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549



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

For the transition period from to

SeaSpine Holdings Corporation


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	SPNE	The Nasdaq Global Select 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 x No o

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company 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		o			Accelerated filer		x

~~Large accelerated filer~~		o	~~Accelerated filer~~	x

Non-accelerated filer	o ~~(Do not check if a smaller reporting company)~~		Smaller reporting company			o

					Emerging growth company		x o

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. o

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

The number of shares of the registrant’s common stock, $0.01 par value, outstanding as of ~~October 30, 2017~~August 1, 2022 was ~~13,429,128.~~

SEASPINE HOLDINGS CORPORATION

INDEX


		Page Number
PART I. FINANCIAL INFORMATION

		~~Page~~ ~~Number~~
~~PART I. FINANCIAL INFORMATION~~

Item 1. Financial Statements	34

Condensed Consolidated Statements of Operations for the three months and ~~nine months~~ si x ended ~~September~~June 30 ~~2017~~, 2022 and ~~2016~~2021 (Unaudited)		34

Condensed Consolidated Statements of Comprehensive Loss for the three and ~~nine~~ six months ended ~~September~~June 30 ~~2017~~, 2022 and ~~2016~~2021 (Unaudited)		45

Condensed Consolidated Balance Sheets as of ~~September~~June 30 ~~2017~~, 2022 and December 31, ~~2016~~2021 (Unaudited)		56

Condensed Consolidated Statements of Cash Flows for the ~~nine~~ six months ended ~~September~~June 30 ~~2017~~, 2022 and ~~2016~~2021 (Unaudited)		67

Condensed Consolidated ~~Statement~~Statements of Equity for the ~~nine~~ three and six months ended ~~September~~June 30 ~~2017~~, 2022 and 2021 (Unaudited)		89

Notes to Unaudited Condensed Consolidated Financial Statements		911

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2224

Item 3. Quantitative and Qualitative Disclosures About Market Risk		3136

Item 4. Controls and Procedures		3137

PART II. OTHER INFORMATION		3239

Item 1. Legal Proceedings		3239

Item 1A. Risk Factors		3239

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3340

Item 3. Defaults Upon Senior Securities		3340

Item 4. Mine Safety Disclosures		3440

Item 5. Other Information		3440

Item 6. Exhibits		3441

SIGNATURES		3542

~~Exhibit 31.1~~
~~Exhibit 31.2~~
~~Exhibit 32.1~~
~~Exhibit 32.2~~
~~EX-101 INSTANCE DOCUMENT~~
~~EX-101 SCHEMA DOCUMENT~~
~~EX-101 CALCULATION LINKBASE DOCUMENT~~
~~EX-101 DEFINITION LINKBASE DOCUMENT~~
~~EX-101 LABELS LINKBASE DOCUMENT~~
~~EX-101 PRESENTATION LINKBASE DOCUMENT~~

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

SEASPINE HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Total revenue, net $ 31,742
$ 31,741
$ 97,832
$ 96,341
Cost of goods sold 12,176
13,881
39,342
42,094
Gross profit 19,566
17,860
58,490
54,247
Operating expenses:
Selling, general and administrative 23,674
23,803
71,893
76,166
Research and development 2,834
2,600
9,228
8,534
Intangible amortization 792
955
2,376
3,517
Total operating expenses 27,300
27,358
83,497
88,217
Operating loss (7,734 ) (9,498 ) (25,007 ) (33,970 )
Other income (expense), net 215
(59 ) 387
(33 )
Loss before income taxes (7,519 ) (9,557 ) (24,620 ) (34,003 )
Benefit for income taxes (57 ) (103 ) (12 ) (559 )
Net loss $ (7,462 ) $ (9,454 ) $ (24,608 ) $ (33,444 )
Net loss per share, basic and diluted $ (0.58 ) $ (0.84 ) $ (2.04 ) $ (2.98 )
Weighted average shares used to compute basic and diluted net loss per share 12,815
11,271
12,079
11,206


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Total revenue, net	$	56,318	$	47,463	$	107,011	$	89,417
Cost of goods sold	19,127		17,482		39,503		32,848
Gross profit	37,191		29,981		67,508		56,569
Operating expenses:
Selling and marketing	33,029		25,436		62,535		48,835
General and administrative	12,192		9,986		23,131		20,413
Research and development	5,649		4,850		11,499		9,356
Intangible amortization	856		843		1,712		1,635

Total operating expenses	51,726		41,115		98,877		80,239
Operating loss	(14,535)		(11,134)		(31,369)		(23,670)


Other (expense) income, net	(559)		6,079		(557)		5,920
Loss before income taxes	(15,094)		(5,055)		(31,926)		(17,750)
(Benefit) provision for income taxes	(1,147)		158		(1,375)		183
Net loss	$	(13,947)	$	(5,213)	$	(30,551)	$	(17,933)
Net loss per share, basic and diluted	$	(0.38)	$	(0.16)	$	(0.83)	$	(0.58)
Weighted average shares used to compute basic and diluted net loss per share	36,767		33,489		36,726		30,716

The accompanying notes are an integral part of these condensed consolidated financial statements.

SEASPINE HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Net loss $ (7,462 ) $ (9,454 ) $ (24,608 ) $ (33,444 )
Other comprehensive income
Foreign currency translation adjustments 166
45
567
131
Comprehensive loss $ (7,296 ) $ (9,409 ) $ (24,041 ) $ (33,313 )


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net loss	$	(13,947)	$	(5,213)	$	(30,551)	$	(17,933)
Other comprehensive income (loss)
Foreign currency translation adjustments	(467)		102		(642)		(255)

Comprehensive loss	$	(14,414)	$	(5,111)	$	(31,193)	(18,188)

The accompanying notes are an integral part of these condensed consolidated financial statements.

SEASPINE HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except par value data)


	September 30, 2017			December 31, 2016				June 30, 2022		December 31, 2021

ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	16,689		$	14,566		Cash and cash equivalents	$	66,078	$	83,106
Trade accounts receivable, net of allowances of $519 and $483	19,822			20,982

Trade accounts receivable, net of allowances of $231 and $74							Trade accounts receivable, net of allowances of $231 and $74	34,441		36,231
Inventories	42,276			45,299			Inventories	85,906		72,299

Prepaid expenses and other current assets	2,477			1,813			Prepaid expenses and other current assets	3,570		4,328
Total current assets	81,264			82,660			Total current assets	189,995		195,964
Property, plant and equipment, net	21,864			21,863			Property, plant and equipment, net	54,592		46,892
Right of use assets							Right of use assets	16,860		6,948
Intangible assets, net	36,859			41,785			Intangible assets, net	38,375		42,056

Goodwill							Goodwill	84,595		84,595
Other assets	718			857			Other assets	1,153		812
Total assets	$	140,705		$	147,165		Total assets	$	385,570	$	377,267
LIABILITIES AND STOCKHOLDERS' EQUITY							LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:							Current liabilities:
Short-term debt	$	—		$	445
Accounts payable, trade	7,930			8,537			Accounts payable, trade	19,221		20,301

Accrued compensation	5,817			4,393			Accrued compensation	8,142		8,769
Accrued commissions	4,564			4,398			Accrued commissions	12,389		9,877
Contingent consideration liabilities	900			2,855

Short-term lease liability							Short-term lease liability	2,377		2,234
Deferred revenue							Deferred revenue	2,260		1,545
Other accrued expenses and current liabilities	3,979			3,790			Other accrued expenses and current liabilities	10,054		10,255

Total current liabilities	23,190			24,418			Total current liabilities	54,443		52,981
Long-term borrowings under credit facility	—			3,835			Long-term borrowings under credit facility	25,000		—
Contingent consideration liabilities	3,632			5,125

Long-term lease liability							Long-term lease liability	15,532		5,866
Deferred tax liability, net							Deferred tax liability, net	2,872		4,308
Other liabilities	2,927			2,810			Other liabilities	896		1,748
Total liabilities	29,749			36,188			Total liabilities	98,743		64,903

Commitments and contingencies							Commitments and contingencies	0		0
Stockholders' equity:							Stockholders' equity:
Preferred stock, $0.01 par value; 15,000 authorized; no shares issued and outstanding at September 30, 2017 and December 31, 2016	—			—
Common stock, $0.01 par value; 60,000 authorized; 13,429 and 11,258 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	134			113
Preferred stock, $0.01 par value; 15,000 authorized; no shares issued and outstanding at June 30, 2022 and December 31, 2021							Preferred stock, $0.01 par value; 15,000 authorized; no shares issued and outstanding at June 30, 2022 and December 31, 2021	—		—
Common stock, $0.01 par value; 120,000 authorized; 37,185 and 36,584 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively							Common stock, $0.01 par value; 120,000 authorized; 37,185 and 36,584 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	372		366
Additional paid-in capital	204,752			180,753			Additional paid-in capital	589,681		584,031

Accumulated other comprehensive income	1,839			1,272			Accumulated other comprehensive income	928		1,570
Accumulated deficit	(95,769		)	(71,161		)	Accumulated deficit	(304,154)		(273,603)
Total stockholders' equity	110,956			110,977			Total stockholders' equity	286,827		312,364
Total liabilities and stockholders' equity	$	140,705		$	147,165		Total liabilities and stockholders' equity	$	385,570	$	377,267

The accompanying notes are an integral part of these condensed consolidated financial statements.

SEASPINE HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

~~(In thousands)~~

Nine Months Ended September 30,
2017 2016
OPERATING ACTIVITIES:
Net loss $ (24,608 ) $ (33,444 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 8,184
8,984
Instrument replacement expense 1,146
950
Impairment of spinal instruments —
919
Provision for excess and obsolete inventories 3,229
4,057
Amortization of debt issuance costs 104
105
Deferred income tax provision (benefit) 103
(80 )
Stock-based compensation 4,505
5,406
Gain from change in fair value of contingent consideration liabilities (897 ) —
Changes in assets and liabilities:
Accounts receivable 1,405
4,182
Inventories 1,814
87
Prepaid expenses and other current assets (653 ) 1,051
Other non-current assets (11 ) 102
Accounts payable (1,160 ) (3,941 )
Accrued commissions 166
(277 )
Other accrued expenses and current liabilities 2,600
1,289
Other non-current liabilities (36 ) 204
Net cash used in operating activities (4,109 ) (10,406 )
INVESTING ACTIVITIES:
Purchases of property and equipment (5,518 ) (5,707 )
Additions to technology assets (200 ) (1,150 )
Net cash used in investing activities (5,718 ) (6,857 )
FINANCING ACTIVITIES:
Borrowings under credit facility —
3,300
Borrowings under short-term debt —
1,202
Repayments of credit facility (4,020 ) —
Repayments of short-term debt (445 ) (378 )
Proceeds from issuance of common stock- employee stock purchase plan and exercise of stock options 488
356
Proceeds from issuance of common stock, net of offering costs- ATM transactions 15,557
—
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards (48 ) (25 )
Net cash provided by financing activities 11,532
4,455
Effect of exchange rate changes on cash and cash equivalents 418
187
Net change in cash and cash equivalents 2,123
(12,621 )
Cash and cash equivalents at beginning of period 14,566
33,429
Cash and cash equivalents at end of period $ 16,689
$ 20,808
Non-cash operating activities:
Settlement of bonus in payment of restricted stock units $ 970
$ —
Non-cash investing activities:
Property and equipment in liabilities $ 972
$ 1,556
Fair value of intangible assets acquired through acquisition of business (see Note 8)
$ —
$ 8,300
Fair value of contingent consideration liabilities in connection with acquisition of business $ —
$ 8,300

Settlement of contingent closing consideration liabilities in connection with acquisition of business (see Note 8)

$ 2,548
$ —

~~The accompanying notes are an integral part of these condensed consolidated financial statements.~~

~~SEASPINE HOLDINGS CORPORATION~~

~~CONDENSED CONSOLIDATED STATEMENT OF EQUITY~~

~~(Unaudited)~~

(In thousands)


	Six Months Ended June 30,
	2022		2021
OPERATING ACTIVITIES:
Net loss	$	(30,551)	$	(17,933)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	8,497		5,880
Instrument replacement expense	2,683		1,645


Provision for excess and obsolete inventories	2,514		2,237

Deferred income tax benefit	(1,399)		(237)
Stock-based compensation	6,520		5,642

Gain on forgiveness of Paycheck Protection Program Loan	—		(6,173)
Other	(91)		(53)
Changes in assets and liabilities, net of the effects from acquisition:
Accounts receivable	1,334		(1,164)
Inventories	(14,739)		(12,098)
Prepaid expenses and other current assets	753		417
Other non-current assets	(410)		247
Accounts payable	1,277		10,234

Accrued commissions	2,511		923
Other accrued expenses and current liabilities	(1,193)		(8)


Other non-current liabilities	(824)		350
Net cash used in operating activities	(23,118)		(10,091)
INVESTING ACTIVITIES:
Purchases of property and equipment	(17,103)		(11,317)
Additions to technology assets	(700)		(800)





Acquisitions	—		(28,331)
Net cash used in investing activities	(17,803)		(40,448)
FINANCING ACTIVITIES:
Borrowings under credit facility	25,000		20,000

Repayments of credit facility	—		(20,000)




Proceeds from issuance of common stock- employee stock purchase plan	964		1,016
Proceeds from exercise of stock options	31		1,603
Proceeds from issuance of common stock, net of offering costs	—		94,531
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units	(1,859)		(2,544)
Payment of contingent royalty consideration liabilities in connection with acquisition of business	(24)		(23)
Net cash provided by financing activities	24,112		94,583
Effect of exchange rate changes on cash and cash equivalents	(219)		(160)
Net change in cash and cash equivalents	(17,028)		43,884
Cash and cash equivalents at beginning of period	83,106		76,813
Cash and cash equivalents at end of period	$	66,078	$	120,697
Supplemental cash flow information:
Interest paid	$	114	$	169
Income taxes paid	$	129	$	136
Non-cash investing activities:
Purchases of property and equipment in liabilities	$	4,680	$	2,250
Intangible assets payments in liabilities	$	—	$	200
Non-cash financing activities:
Issuance of common stock - Acquisition	$	—	$	61,048
Exchangeable shares - Acquisition	$	—	$	26,505

Common Stock Additional Accumulated Other Total
Number of Paid-In Comprehensive Accumulated Stockholders'
Shares Amount Capital Income Deficit Equity
Balance December 31, 2016 11,258
$ 113
$ 180,753
$ 1,272
$ (71,161 ) $ 110,977
Net loss —
—
—
—
(24,608 ) (24,608 )
Foreign currency translation adjustment —
—
—
567
—
567
Restricted stock awards/units issued 252
2
968
—
—
970
Issuance of common stock under employee stock purchase plan 71
1
452
—
—
453
Issuance of common stock- NLT Spine Ltd contingent closing consideration 350
3
2,545
—
—
2,548
Issuance of common stock, net of offering costs- ATM transactions 1,500
15
15,542
—
—
15,557
Issuance of common stock- exercise of stock options 5
—
35
—
—
35
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards (7 ) —
(48 ) —
—
(48 )
Stock-based compensation —
—
4,505
—
—
4,505
Balance September 30, 2017 13,429
$ 134
$ 204,752
$ 1,839
$ (95,769 ) $ 110,956

The accompanying notes are an integral part of these condensed consolidated financial statements.

SEASPINE HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands)


	Common Stock			Additional		Accumulated Other				Total
	Number of			Paid-In		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Capital		Income (Loss)		Deficit		Equity
Balance December 31, 2021	36,584	$	366	$	584,031	$	1,570	$	(273,603)	$	312,364
Net loss	—	—		—		—		(16,604)		(16,604)
Foreign currency translation adjustment	—	—		—		(175)		—		(175)

Issuance of common stock- Exchangeable Shares	50	1		(1)		—		—		—
Restricted stock issued	155	1		—		—		—		1

Issuance of common stock - exercise of stock options	—	—		3		—		—		3
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units	—	—		(1,587)		—		—		(1,587)
Stock-based compensation	—	—		2,819		—		—		2,819
Balance March 31, 2022	36,789	368		585,265		1,395		(290,207)		296,821
Net loss	—	—		—		—		(13,947)		(13,947)
Foreign currency translation adjustment	—	—		—		(467)		—		(467)

Restricted stock issued	192	2		(1)		—		—		1
Issuance of common stock under employee stock purchase plan	201	2		962		—		—		964






Issuance of common stock- exercise of stock options	3	—		28		—		—		28
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units	—	—		(274)		—		—		(274)
Stock-based compensation	—	—		3,701		—		—		3,701
Balance June 30, 2022	37,185	372		589,681		928		(304,154)		286,827


	Common Stock			Additional		Accumulated Other				Total
	Number of			Paid-In		Comprehensive		Accumulated		Stockholders'
	Shares	Amount		Capital		Income		Deficit		Equity
Balance December 31, 2020	27,729	$	277	$	388,574	$	2,124	$	(219,257)	$	171,718
Net loss	—	—		—		—		(12,720)		(12,720)
Foreign currency translation adjustment	—	—		—		(357)		—		(357)

Restricted stock issued	175	2		—		—		—		2

Issuance of common stock - exercise of stock options	44	—		496		—		—		496
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units	—	—		(2,418)		—		—		(2,418)
Stock-based compensation	—	—		2,546		—		—		2,546
Balance March 31, 2021	27,948	279		389,198		1,767		(231,977)		159,267
Net loss	—	—		—		—		(5,213)		(5,213)
Foreign currency translation adjustment	—	—		—		102		—		102

Restricted stock issued	71	1		(1)		—		—		—
Issuance of common stock under employee stock purchase plan	109	1		1,015		—		—		1,016



Issuance of common stock- Public Offering	5,175	52		94,479		—		—		94,531
Issuance of common stock- Acquisition	2,991	30		61,018		—		—		61,048
Issuance of common stock- Exchangeable Shares	—	—		26,505		—		—		26,505
Issuance of common stock- exercise of stock options	81	1		1,106		—		—		1,107
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units	—	—		(126)		—		—		(126)
Stock-based compensation	—	—		3,096		—		—		3,096
Balance June 30, 2021	36,375	364		576,290		1,869		(237,190)		341,333

The accompanying notes are an integral part of these condensed consolidated financial statements.

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND BASIS OF PRESENTATION

Business

SeaSpine Holdings Corporation was incorporated in Delaware on February 12, 2015 in connection with the spin-off of the orthobiologics and spinal implant business of Integra LifeSciences Holdings Corporation, a diversified medical technology company. The spin-off occurred on July 1, 2015. Unless the context indicates otherwise, ~~(i)~~ references to "SeaSpine" or the "Company" refer to SeaSpine Holdings Corporation and its wholly-owned ~~subsidiaries,~~subsidiaries.

SeaSpine is a global medical technology company focused on the design, development, and ~~(ii) references~~commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. SeaSpine’s complete procedural solutions feature its FLASH™ Navigation, a system designed to ~~"Integra" refer~~improve accuracy of screw placement and provide a cost-effective, rapid, radiation-free solution to ~~Integra LifeSciences Holdings Corporation~~surgical navigation, and ~~its subsidiaries other than SeaSpine.~~

a comprehensive portfolio of spinal implants and orthobiologics to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to facilitate spinal fusion in degenerative, minimally invasive surgery (MIS), and complex spinal deformity procedures on the lumbar, thoracic and cervical spine.

Basis of Presentation and Principles of Consolidation

The Company prepared the unaudited interim condensed consolidated financial statements included in this report in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC) related to quarterly reports on Form 10-Q.

The Company’s financial statements are presented on a consolidated basis. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The unaudited interim condensed consolidated financial statements do not include all information and disclosures required by GAAP for annual audited financial statements and should be read ~~in conjunction~~ with the Company’s consolidated financial statements and notes thereto for the year ended December 31, ~~2016~~2021 included in the Company’s Annual Report on Form 10-K filed with the SEC. In the opinion of management, the unaudited interim condensed consolidated financial statements included in this report have been prepared on the same basis as the Company's audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations, cash flows, and statement of equity for periods presented. The results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 are not necessarily indicative of the results expected for the full year. The condensed consolidated balance sheet as of December 31, ~~2016~~2021 was derived from the audited consolidated ~~financial statements~~balance sheet for the year ended December 31, ~~2016.~~2021. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Prior period revisions

During the third quarter of 2021, the Company made a revision related to the functional currency of its recently acquired Canadian company, 7D Surgical Inc., a corporation incorporated under the laws of the Province of Ontario (7D Surgical). Prior to July 1, 2021, the functional currency for 7D Surgical was the Canadian dollar. The Company reassessed the functional currency and determined that the functional currency is the U.S. dollar based on management's analysis of the primary economic environment in which 7D Surgical operates. The Company revised the presentation of the unaudited statements for the prior quarter ending June 30, 2021 to reflect this determination and revised such prior period information presented in this filing.

The Company assessed the materiality of the error, both quantitatively and qualitatively, in accordance with the SEC’s Staff Accounting Bulletin No. 99, and concluded that the error was not material to any of its previously reported unaudited financial statements based upon qualitative aspects of the error. However, in order to correctly present other comprehensive income, previously issued unaudited financial statements have been revised and are presented “As Revised” in the tables below.

The $3.2 million adjustment noted in the tables below reflects the change in foreign currency fluctuations.

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


	Three Months Ended						Six Months Ended
	June 30, 2021						June 30, 2021
	As Reported		Adjustment		As Revised		As Reported		Adjustment		As Revised
	(In thousands)
Condensed Consolidated Statements of Comprehensive Loss:
Foreign currency translation adjustments	$	(3,070)	$	3,172	$	102	$	(3,427)	$	3,172	$	(255)
Comprehensive loss	(8,283)		3,172		(5,111)		(21,360)		3,172		(18,188)

	As of June 30, 2021
	As Reported		Adjustment		As Revised
Condensed Consolidated Statements of Equity:
Accumulated other comprehensive (loss) income	$	(1,303)	$	3,172	$	1,869
Foreign currency translation adjustments	(3,070)		3,172		102
Total stockholders' equity	338,161		3,172		341,333

Condensed Consolidated Balance Sheet:
Intangible assets, net	$	57,015	$	1,203	$	58,218
Goodwill	73,845		1,983		75,828
Other assets	389		(14)		375
Total assets	397,212		3,172		400,384

Accumulated other comprehensive (loss) income	$	(1,303)	$	3,172	$	1,869
Total stockholders' equity	338,161		3,172		341,333

Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, which is held at major financial institutions, and trade receivables.

The Company’s products are sold on an uncollateralized basis and on credit terms based upon a credit risk assessment of each customer. A portion of the Company’s trade receivables to customers outside the United States includes sales to foreign stocking distributors, who then sell to government owned or supported healthcare systems. The ongoing economic conditions in certain European countries, especially Greece, Ireland, Italy, Portugal and Spain remain uncertain. Accounts receivable from customers in these countries are not a material amount of the Company’s overall receivables.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Below is a summary of certain of the Company's significant accounting policies. For a comprehensive description of the Company's accounting policies, refer to the Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates

~~The preparation of~~Preparing consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and other credits, net realizable value of inventories, discount rates and estimated projected cash flows used to value and test impairments of goodwill, identifiable intangible and long-lived assets, fair value estimates related to business combinations, assumptions related to the timing and probability of product launch dates, discount rates matched to the estimated timing of payments, probability of success rates and discount adjustments on the related cash flows for contingent considerations in business combinations, depreciation and amortization periods for identifiable intangible and long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation and loss contingencies. These estimates are based on historical experience and on various other assumptions ~~that are~~ believed to be reasonable under the current circumstances. Actual results could differ from these estimates.

~~Recent Accounting Standards Not Yet Adopted~~

The Company qualifies as an “emerging growth company” (EGC) pursuant to the provisions of the Jumpstart Our Business Startups (JOBS) Act and elected to take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, which permits EGCs to defer compliance with new or revised accounting standards (the EGC extension) until non-issuers are required to comply with such standards. Accordingly, so long as the Company continues to qualify as an EGC, the Company will not have to adopt or comply with new or revised accounting standards until non-issuers are required to adopt or comply with such standards.

~~In May 2014, the Financial Accounting Standards Board (FASB) issued Update No. 2014-09,~~ ~~Revenue from Contracts with~~

912

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Risk and Uncertainties

~~Customers~~The full extent to which the COVID-19 pandemic or the ongoing conflict in Ukraine will directly or indirectly impact the Company's business, results of operations and financial condition, including revenues, expenses, manufacturing, research and development costs and employee-related compensation, will depend on future developments that are highly uncertain, including, with respect to COVID-19, as a result of variants of the virus that causes COVID-19 or other information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, and with respect to the ongoing conflict in Ukraine, the impact thereof on the supply chain for titanium, which is used in certain of our products, as well as the broader macroeconomic impact arising from both COVID-19 and the conflict on local, regional, national and international customers and markets. The Company has made estimates of the impact of the pandemic within its financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.

The Company has not achieved profitable operations, nor is there assurance that profitable operations will ever be achieved, and, if achieved, could be sustained on a continuing basis. The Company is subject to a number of risks similar to other medical device companies, including, but not limited to, risks related to maintaining high levels of inventory, raising additional capital, and the successful discovery, development, and commercialization of products. As a result of these and other factors and the related uncertainties, there can be no assurance of the Company’s future success.

Based on the Company’s updated operating plans, the Company believes that it has sufficient resources to fund operations and meet its contractual obligations through the second quarter of 2023 with its existing cash and equivalents and additional borrowing capacity under its extended and expanded credit facility. However, based on the Company’s recurring losses from operations and the expectation of continued operating losses, the Company will need to raise additional capital to finance its future operations. If the Company is unable to raise such additional capital, it may raise substantial doubt about the Company’s ability to continue as a going concern. Longer term, the Company expects to raise additional capital through the sale of common stock in public offerings and/or private placements, debt financings, or through other capital sources.

Although the Company has been successful in raising capital in the past, there is no assurance that it will be successful in obtaining such additional financing on terms acceptable to the Company, if at all. If the Company is unable to obtain sufficient funding on acceptable terms, it could be forced to delay, reduce or eliminate some or all of its projected inventory and capital expenditures spend, research and development programs or commercialization activities, which could materially adversely affect its business prospects or its ability to continue operations.

Recently Adopted Accounting Standards

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU or Update) No. 2016-13, Financial Instruments - Credit Losses (Topic ~~606)~~.326): Measurement of Credit Losses on Financial Instruments, which requires credit losses on most financial assets measured at amortized cost, including trade receivables, and certain other instruments to be measured using an expected credit loss model, referred to as the current expected credit loss (CECL) model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument. The FASB subsequently issued other related ASUs that amend ASU No. 2016-13 to provide clarification and additional guidance. The new standard provides a five-step approach to be applied to all contracts with customers. The new standard also requires expanded disclosure about revenue recognition. The new standard as amended by ASU 2015-14 will bewas effective for the Company beginning on January 1, ~~2019,~~2022 and ~~for interim periods within annual periods beginning on~~primarily impacted trade accounts receivable. The amendments in this update were adopted using a modified retrospective transition method as of January 1, ~~2020.~~2022, which had no cumulative impact to retained earnings. The Company performed a preliminary assessment of the impact of this new standard on its consolidated financial statements. In assessing the impact, the Company has outlined all revenue streams, and has considered the five steps outlined in the standard for product sales, from which substantially all the Company's revenue is generated. The Company will continue to evaluate the future impact of the new standard throughout 2017.

~~In February 2016, the FASB issued Update No. 2016-02,~~ ~~Leases (Topic 842)~~. The new standard requires lessees to recognize lease liabilities and corresponding right-of-use assets for all leases with lease terms of greater than twelve months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. The new standard must be adopted using the modified retrospective approach. The standard will be effective for the Company beginning on January 1, 2020, and interim periods within annual periods beginning on January 1, 2021, with early adoption permitted. The Company does not plan to early adopt and expects to apply the transition practical expedients allowed by the standard. ~~Note 11~~ to the Condensed Consolidated Financial Statements provides details on the Company’s current lease arrangements. While the Company continues to evaluate the impact of this new standard on its consolidated financial statements, the Company currently expects the primary impact will be to record right-of-use assets and lease liabilities for existing operating leases in the consolidated balance sheets. The Company does not currently expect the adoption of this new standard ~~to have a~~had no material impact on ~~its~~the Company's consolidated ~~results~~financial statements. The Company's concentrations of ~~operations or cash flows.~~

~~In August 2016,~~credit risks are limited due to the ~~FASB issued Update No. 2016-15,~~ ~~Statement~~large number of ~~Cash Flows (Topic 230): Classification~~customers and their dispersion across a number of ~~Certain Cash~~

~~Receipts and Cash Payments.~~ ~~This new standard addresses eight specific cash flow issues related to cash receipts and cash payments with~~geographic areas. Substantially all of the ~~objective of reducing the existing diversity of presentation and classification~~Company's trade receivables are concentrated in the ~~statement~~public and private hospital and healthcare industry in the U.S. and internationally or with distributors who operate in international markets. The Company's historical credit losses have not been significant due to this dispersion and the financial stability of ~~cash flows.~~the Company's customers. The ~~new standard will be effective~~Company considers credit losses immaterial to its business and, therefore, has not provided all the disclosures otherwise required by the standard. The Company updated its accounting policy disclosure for accounts receivable as follows:

Trade accounts receivable in the accompanying consolidated balance sheets are presented net of allowances for doubtful accounts for expected credit losses and sales returns and other credits. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables.

The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations to the Company, ~~beginning~~a provision to the allowances for doubtful accounts for expected credit losses is recorded to reduce the net recognized receivable to the amount that is

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

reasonably expected to be collected. For all other customers, a provision to the allowances for doubtful accounts for expected credit losses is recorded based on ~~January 1, 2019,~~factors including the length of time the receivables are past due, the current business environment, the geographic market and ~~interim periods within annual periods beginning on~~the Company’s historical experience. Provisions to the allowances for doubtful accounts for expected credit losses are recorded to general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. The allowance for doubtful accounts for expected credit losses was $231 thousand and $74 thousand as of June 30, 2022 and December 31, 2021, respectively.

In January 1, 2020. Early adoption is permitted and should be applied using a retrospective transition method to each period presented. The Company is in the process of evaluating the impact of this standard on its consolidated financial statements.

~~In May~~ 2017, the FASB issued Update No. ~~2017-09,~~ ~~Compensation- Stock Compensation (Topic 718): Scope of Modification Accounting.~~ The new standard provides guidance regarding which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The new standard will be effective for the Company beginning on January 1, 2018, and interim periods within annual periods beginning on January 1, 2018. The new standard should be applied prospectively to an award modified on or after the adoption date. The Company is in the process of evaluating the impact of this standard on its consolidated financial statements.

~~Recently Adopted Accounting Standards~~

~~In July 2015, the FASB issued Update No. 2015-11,~~ 2017-04, Simplifying the ~~Measurement of Inventory (Topic 330)~~Test for Goodwill Impairment (ASU 2017-04). ~~The new guidance~~

~~requires an entity to measure inventory within~~ASU 2017-04 simplifies the ~~scope~~accounting for goodwill impairment by removing Step 2 of the ~~amendment at the lower of cost and net realizable value. Net realizable value is the estimated selling~~goodwill impairment test, which requires a hypothetical purchase price ~~in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidance~~allocation. ASU 2017-04 was effective for the Company beginning on January 1, ~~2017,~~2022 and ~~interim periods within annual periods~~was applied on a prospective basis. The adoption of ASU 2017-04 had no material impact on its consolidated financial statements.

In May 2021, the FASB issued Update 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. This Update addresses issuer's accounting for certain modifications or exchanges of freestanding equity-classified written call options. The new standard was effective for the Company beginning on January 1, ~~2018. Adoption~~2022. The adoption of this new ~~guidance has~~standard had no material impact on ~~the Company’s~~its consolidated financial statements.

In July 2021, the FASB issued Update No. 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. Under this standard, lessors will classify leases with variable payments that do not depend on an index or rate as operating leases if a different classification would result in a commencement date selling loss. The new standard was effective for the Company beginning January 1, 2022 and early adoption is permitted. The adoption of this new standard had no material impact on its consolidated financial statements.

Net Loss Per Share

The Company follows the two-class method when computing net loss per share. Because the Company's board of directors has discretion in declaring/issuing dividends on the Company's common stock, these dividend rights meet the definition for participating securities. Basic and diluted net loss per share was calculated using the weighted-average number of shares of common stock outstandingduring the period. The weighted average number of shares used to compute diluted net loss per share excludes any assumed issuance of common stock upon exercise of stock options, any assumed issuance of common stock under restricted stock awards ~~and~~or units, and any assumed issuances under the Company's ~~2015 Employee Stock Purchase Plan, as~~employee stock purchase plan, because the effect, in each case, would be antidilutive. Common stock equivalents, including the Exchangeable Shares (as defined below), of ~~3.4~~7.1 million and 6.5 million shares for each of the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022 and ~~2.9 million shares for each of the three and nine months ended September 30, 2016,~~2021, respectively, were excluded from the calculation because of their antidilutive effect.

~~Out-of-Period Adjustment~~

In the third quarter of 2016, the Company recorded an adjustment to correct an error in the first quarter of 2016 reported amounts. This resulted in an increase to cost of goods sold by $0.6 million for the three months ended September 30, 2016. The error had the effect of overstating the inventory balance and understating the cost of goods sold, in each case, by $0.6 million for the three months ended March 31, 2016. The adjustment recorded in the third quarter of 2016 corrected the balance sheet

~~SEASPINE HOLDINGS CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~and cost of goods sold for the nine months ended September 30, 2016. The impact to the periods presented and to the previously issued related financial statements was not material.~~

3. DEBT AND INTEREST

Credit Agreement

In December 2015, the Company entered into a ~~three-year~~ credit facility with Wells Fargo Bank, ~~National Association, which was subsequently amended in October 2016~~N.A. (as amended, the Credit Facility). The Credit Facility provides an asset-backed revolving line of credit of up to $30.0 ~~million in borrowing capacity with a~~million. On July 15, 2022, the Company entered into an amendment to the Credit Facility which, among other things, extends the maturity date ~~of December 24, 2018, which maturity date is subject~~from July 27, 2022 to July 27, 2025, and changes the monthly interest rate from an interest rate based on LIBOR and a ~~one-time, one-year extension at~~three-level grid based on the ~~Company's election.~~prior month’s excess availability to an interest rate based on Term SOFR plus 2.65% (the transition from LIBOR to Term SOFR was intended to be value neutral). The Company paid to Wells Fargo a $150,000 closing fee in connection with parties entering into the amendment. In connection with entering into the Credit Facility, the Company was required to become a guarantor and to provide a security interest in substantially all its assets for the benefit of the counterparty.

As of June 30, 2022, there was $25.0 million outstanding under the Credit Facility. There were no amounts outstanding at December 31, 2021. As of June 30, 2022, the effective interest rate on the amounts borrowed was 3.67%. At June 30, 2022, the Company had $1.2 million of current borrowing capacity under the Credit Facility before the requirement to maintain the minimum fixed charge coverage ratio as discussed below. Debt issuance costs and legal fees related to the Credit Facility totaling $0.6 million were recorded as a deferred asset and are being amortized ratably over the term of the arrangement.

Borrowings under the amended Credit Facility accrue interest at the rate then applicable to base rate loans (as customarily defined), unless and until converted into ~~LIBOR~~SOFR rate loans (as customarily defined) in accordance with ~~the terms of~~ the Credit Facility. Borrowings bear interest at a floating annual rate equal to (a) during any month for which the Company's average excess availability (as customarily defined) is greater than $20.0 million, (i) base rate plus 1.25 percentage points for base rate loans and (ii) LIBOR rate plus 2.25 percentage points for LIBOR rate loans, (b) during any month for which the Company's average excess availability is greater than $10.0 million but less than or equal to $20.0 million, (i) base rate plus 1.50 percentage points for base rate loans and ~~(ii) LIBOR~~(b)

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

SOFR rate plus ~~2.50~~2.65 percentage points for LIBOR rate loans and (c) during any month for which the Company's average excess availability is less than or equal to $10.0 million, (i) base rate plus 1.75 percentage points for base rate loans and (ii) LIBOR rate plus 2.75 percentage points for LIBORSOFR rate loans. The Company ~~will~~ also ~~pay~~pays an unused line fee ~~in an~~based on the average amount borrowed under the Credit Facility for the most recently completed month equal to ~~0.375%~~0.50% per annum of the amount unused under the Credit ~~Facility amount.~~Facility. The unused line fee is due ~~and payable~~ on the first day of each month.

~~In September 2016, the Company borrowed~~ ~~$3.3 million~~ under the Credit Facility. The Company elected to have the LIBOR rate apply to the amount borrowed with an interest period of six months commencing on September 28, 2016, which was further extended for another interest period of six months commencing on March 28, 2017. During the three months ended September 30, 2017, the Company paid off the entire amount borrowed plus accrued interest, totaling $4.1 million. At September 30, 2017, there were no amounts outstanding under the Credit Facility, and the Company had $18.2 million of current borrowing capacity thereunder. Debt issuance costs and legal fees related to the Credit Facility totaling $0.4 million were recorded as a deferred asset and are being amortized ratably over the term of the arrangement.

The Credit Facility contains various customary affirmative and negative covenants, including prohibiting the Company from incurring indebtedness without the lender’s consent. The Credit Facility also includes a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 for the applicable measurement period, if the Company's Total Liquidity (as defined in the Credit Facility) is less than $5.0 million. The Company was in compliance with all applicable covenants at ~~September~~June 30, ~~2017.~~

2022.

The Credit Facility also includes customary events of default, including events of default relating to non-payment of amounts due under the Credit Facility, material inaccuracy of representations and warranties, violation of covenants, bankruptcy and insolvency, failure to comply with health care laws, violation of certain of the Company’s existing agreements, and the occurrence of a change of control. Under the Credit Facility, if an event of default occurs, the lender will have the right to terminate the commitments and accelerate the maturity of any loans outstanding.

~~Insurance Premium Finance Agreements~~

4. INVENTORIES

In July 2016, the Company entered into two insurance premium finance agreements (the Finance Agreements) with First Insurance Funding Corporation and AFCO Acceptance Corporation (the Lenders), under which the Lenders agreed to pay premiums, taxes and fees to insurance companies on the Company's behalf for various insurance policies. The Company financed an aggregate of $1.2 million under the Finance Agreements with annual interest rates between 2% and 4%. The Company recorded the total amounts due to the Lenders as short-term debt on the balance sheet. At June 30, 2017, the financed amount plus accrued interest was paid off and no amounts were outstanding under the Finance Agreements, and no additional amounts have been financed under the Finance Agreements since then.Inventories consisted of:


	June 30, 2022		December 31, 2021
	(In thousands)
Finished goods	$	59,186	$	49,405
Work in process	19,307		17,644
Raw materials	7,413		5,250
	$	85,906	$	72,299

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~4. TRANSACTIONS WITH INTEGRA~~

Prior to the spin-off, and pursuant to certain supply agreements subsequent to the spin-off, SeaSpine purchased a portion of raw materials and finished goods from Integra for SeaSpine's Mozaik family of products, and SeaSpine contract manufactured certain finished goods for Integra. The Company's purchases of raw materials and Mozaik product finished goods from Integra totaled $0.1 million for each of the three months ended September 30, 2017 and 2016, and $0.4 million and $1.1 million for the nine months ended September 30, 2017 and 2016, respectively. The Company's sale of finished goods sold to Integra under its contract manufacturing arrangement was immaterial for each of the three months ended September 30, 2017 and 2016, and totaled $0.4 million and $0.2 million for the nine months ended September 30, 2017 and 2016, respectively.

Pursuant to a transition services agreement, Integra and SeaSpine provided certain services to one another following the spin-off, and Integra and SeaSpine agreed to indemnify each other against certain liabilities arising from their respective businesses. Under this agreement, Integra provided the Company with certain support functions, including information technology, accounting and other financial functions, regulatory affairs and quality assurance, human resources and other administrative support. The Company incurred no costs under this agreement for either of the three or nine months ended September 30, 2017, an immaterial amount for the three months ended September 30, 2016, and approximately $0.3 million for the nine months ended September 30, 2016.

5. ~~INVENTORIES~~

~~Inventories consisted of the following:~~

September 30, 2017 December 31, 2016
(In thousands)
Finished goods $ 31,182
$ 30,922
Work in process 8,214
10,554
Raw materials 2,880
3,823
$ 42,276
$ 45,299

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at historical cost less accumulated depreciation and amortization and any impairment charges. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term or the useful life. The cost of major additions and improvements is capitalized, while maintenance and repair costs that do not improve or extend the lives of the respective assets are charged to operations as incurred. The cost of computer software obtained for internal use is accounted for in accordance with ~~the~~FASB Accounting Standards Codification, ~~(ASC) 350-40,~~ Internal-Use ~~Software.~~Software (Subtopic 350-40).

The cost of purchased spinal instruments ~~which~~that the Company consigns to hospitals and independent sales agents to support surgeries is initially capitalized as construction in progress. The amount is then either ~~then~~ reclassified to spinal ~~instrument~~instruments and sets, and depreciation is initiated when instruments are put together in a newly built set with spinal implants, or directly expensed for the instruments ~~that are~~ used to replace damaged instruments in an existing set. The depreciation expense and direct expense for replacement instruments are recorded in selling ~~general~~ and ~~administrative~~marketing expense.

~~SEASPINE HOLDINGS CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

Property, plant and equipment balances and corresponding useful lives were as follows:


									June 30, 2022		December 31, 2021		Useful Lives
	September 30, 2017			December 31, 2016			Useful Lives		(In thousands)
	(In thousands)
Leasehold improvement	$	5,320		$	5,003		Lease Term
Leasehold improvements								Leasehold improvements	$	6,549	$	6,501	Shorter of lease term or useful life
Machinery and production equipment	7,014			6,826			3-10 years	Machinery and production equipment	10,769		10,408			3	-	10	years
Spinal instrument sets	23,187			26,618			5 years
Spinal instruments and sets								Spinal instruments and sets	47,389		45,076			4	-	6	years
Information systems and hardware	7,402			6,918			3-7 years	Information systems and hardware	9,519		8,186			3	-	7	years
Furniture and fixtures	1,102			1,058			3-5 years	Furniture and fixtures	2,076		2,097			3	-	5	years
Construction in progress	7,505			7,828				Construction in progress	21,776		17,615
Total	51,530			54,251				Total	98,078		89,883
Less accumulated depreciation and amortization	(29,666		)	(32,388		)		Less accumulated depreciation and amortization	(43,486)		(42,991)
Property, plant and equipment, net	$	21,864		$	21,863			Property, plant and equipment, net	$	54,592	$	46,892

Depreciation and amortization expenses totaled ~~$1.0~~$2.5 million and ~~$1.1~~$1.7 million for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$3.1~~$4.8 million and $3.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively. The cost of purchased instruments used to replace damaged instruments in existing sets and recorded directly to ~~the~~ instrument replacement expense totaled ~~$0.4~~$1.7 million and ~~$0.2~~$0.9 million for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~$1.1~~$2.7 million and ~~$1.0~~$1.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

For the three and nine months ended September 30, 2016, the Company recorded impairment charges totaling $0.2 million and $0.9 million, respectively, against spinal instruments that are no longer expected to be placed into service. No impairment charges against spinal instruments were recorded for the three or nine months ended September 30, 2017.

SEASPINE HOLDINGS CORPORATION

7.NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

6. IDENTIFIABLE INTANGIBLE ASSETS

Identifiable intangible assets are initially recorded at fair value at the time of acquisition, generally using an income or cost approach. The Company capitalizes costs incurred to renew or extend the term of recognized intangible assets and amortizes those costs over their expected useful lives.

The components of the Company’s identifiable intangible assets ~~were as follows:~~

were:


	September 30, 2017									June 30, 2022
	Weighted Average Life	Cost		Accumulated Amortization			Net			Weighted Average Life	Cost		Accumulated Amortization		Net
	(Dollars in thousands)									(Dollars in thousands)
Product technology	12 years	$	40,769	$	(24,967	)	$	15,802	Product technology	12 years	$	65,642	$	(34,456)	$	31,186
Customer relationships	12 years	56,830		(35,773		)	21,057		Customer relationships	12 years	56,830		(50,827)		$	6,003
Trademarks/brand names	—	300		(300		)	—		Trademarks/brand names	6 years	1,600		(556)		$	1,044
Other intangibles									Other intangibles	8 years	$	164	$	(22)	$	142
		$	97,899	$	(61,040	)	$	36,859			$	124,236	$	(85,861)	$	38,375


	December 31, 2016									December 31, 2021
	Weighted Average Life	Cost		Accumulated Amortization			Net			Weighted Average Life	Cost		Accumulated Amortization		Net
	(Dollars in thousands)									(Dollars in thousands)
Product technology	12 years	$	40,569	$	(22,218	)	$	18,351	Product technology	12 years	$	65,642	$	(32,484)	$	33,158
Customer relationships	12 years	56,830		(33,396		)	23,434		Customer relationships	12 years	56,830		(49,241)		7,589
Trademarks/brand names	—	300		(300		)	—		Trademarks/brand names	6 years	1,600		(438)		1,162
Other intangibles									Other intangibles	8 years	159		(12)		147
		$	97,699	$	(55,914	)	$	41,785			$	124,231	$	(82,175)	$	42,056

Annual amortization expense (including amounts reported in cost of goods sold) is expected to be approximately ~~$6.8~~$7.3 million in ~~2017, $6.5~~2022, $6.6 million in ~~2018, $5.8~~2023, $4.6 million in ~~2019, $4.9~~2024, $3.3 million in ~~2020~~2025, and ~~$4.9~~$3.3 million in ~~2021. Amortization expense totaled $1.7 million and $1.6 million for~~2026. For the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, amortization expense totaled $1.8 million and $1.5 million, respectively, and included ~~$0.9~~$1.0 million and ~~$0.7~~$0.6 million, respectively, of amortization of product technology intangible assets that is presented within cost of goods sold. Amortization expense totaled ~~$5.1~~$3.7 million and ~~$5.6~~$2.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and

~~SEASPINE HOLDINGS CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~2016,~~ 2021, respectively, and included ~~$2.7~~$2.0 million and ~~$2.0~~$0.9 million, respectively, of amortization of product technology intangible assets that is presented within cost of goods sold.

~~8. BUSINESS COMBINATIONS~~

In August 2016, the Company entered into an asset purchase agreement with N.L.T Spine Ltd. (NLT), and NLT Spine, Inc., a wholly owned subsidiary of NLT, pursuant to which the Company agreed to purchase certain of the assets of NLT’s medical device business, including substantially all of NLT’s medical device intellectual property related to the ownership, design, development, manufacture, marketing and commercial exploitation of certain expandable interbody devices. The acquisition was undertaken to increase the Company's product offering in expandable interbody devices.

At the initial closing under the asset purchase agreement, the Company entered into (i) an exclusive license agreement with NLT, pursuant to which the Company received an exclusive, worldwide license to make, use, import, offer for sale, sell and otherwise commercially exploit NLT’s expandable interbody device products , (ii) a transition services agreement with NLT, pursuant to which NLT agreed to provide certain services with respect to the continued development of the acquired intellectual property and (iii) a non-competition and non-solicitation agreement with NLT, pursuant to which NLT and its affiliates agreed not to compete with the Company with respect to the acquired intellectual property, subject to certain exceptions.

The purchase price consisted of an initial cash payment to NLT of $1.0 million, which was paid in September 2016 upon the initial closing, and the issuance in January 2017 of 350,000 shares of the Company’s common stock with a total fair value of $2.5 million at issuance as contingent closing consideration upon the satisfaction of certain conditions, including FDA 510(K) clearance of one of the acquired product technologies. In accordance with the terms of the asset purchase agreement, the number of shares issued was determined based on the volume weighted average closing price (VWAP) of the Company's common stock during the 20 trading day period ending one trading day prior to the issuance date, subject to a minimum and maximum VWAP of $10.00 and $17.00, respectively. The VWAP over such 20-trading day period was $7.58 and therefore $10.00 was used.

The Company is also obligated to pay up to a maximum of $5.0 million in milestone payments, payable at the Company's election in cash or in shares of its common stock, which are contingent on the Company's achievement of four independent events related to the commercialization of the acquired product technologies. Additionally, the Company is required to pay royalty payments, in cash, to NLT equal to declining (over time) percentages of the Company’s future net sales of certain of the acquired product technologies not to exceed $43.0 million in the aggregate. The Company has the option to terminate any future obligation to make royalty payments by making a one-time cash payment to NLT of $18.0 million.

~~The Company accounted for this transaction as a business combination in accordance with ASC 805~~ ~~Business Combinations~~, and as such, the assets acquired have been recorded at their respective fair values. There were no liabilities assumed. The determination of fair value for the identifiable intangible assets acquired requires extensive use of estimates and judgments. Significant estimates include estimating cash flows and determining the appropriate discount rate, which are considered significant unobservable inputs (Level 3) under the fair value concepts defined in ASC 820. Intangible assets acquired were valued at $9.3 million as of the initial closing date and recorded as product technology intangible assets, which are being amortized ratably over a useful life of 10 years from the initial closing. Acquisition costs of $0.5 million incurred were recorded as selling, marketing and administrative expenses.

The following table summarizes the estimated fair value of total consideration to be paid to NLT as of September 26, 2016, the date of the initial closing. The Company estimated the fair value of the contingent consideration, including contingent milestone payments and contingent royalty payments, using a probability weighted approach that considers the possible outcomes based on assumptions related to the timing and probability of the product launch dates, discount rates matched to the timing of payments, and probability of success rates and discount adjustments on the related cash flows. Subsequent to the acquisition date, at each reporting period, the contingent consideration liabilities will be remeasured at current fair value with changes to be recorded in the consolidated statements of operations. The total purchase price was allocated entirely to product technology intangible asset.

(In thousands)
Cash paid for purchase $ 1,000
Contingent closing consideration 2,930
Contingent milestone payments 2,310
Contingent royalty payments 3,010
Total purchase price $ 9,250

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The unaudited pro forma financial information set forth below assumes that the NLT purchased assets had been acquired on January 1, 2016. The unaudited pro forma financial information includes the effect of estimated amortization charges for acquired intangible assets of $0.2 million and $0.6 million for the three and nine months ended September 30, 2016, respectively, and the estimated research and development expenses for the purchased assets of $0.3 million and $0.8 million for the three and nine months ended September 30, 2016, respectively, and excludes the non-recurring acquisition costs of $0.5 million for each of the three and nine months ended September 30, 2016. There was no adjustment to the total revenues. The unaudited pro forma information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of the periods presented.

The actual amortization charges for acquired intangible assets and research and development expenses for the purchased assets are included in the consolidated statement of operations for the three and nine months ended September 30, 2017, and therefore no adjustment was made to such statement.

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share data) 2016 2016
Operating loss $ (9,511 ) $ (34,945 )
Net loss (9,467 ) (34,419 )
Net loss per share, basic and diluted $ (0.84 ) $ (3.07 )
Weighted average shares used to compute basic and diluted net loss per share 11,271
11,206

~~9. FAIR VALUE MEASUREMENTS~~

The fair values of the Company’s assets and liabilities, including contingent consideration liabilities, are measured at fair value on a recurring basis, and are determined under the fair value categories as follows (in thousands):

Total Quoted Price in Active Market (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)
September 30, 2017:
Contingent consideration liabilities- current $ 900
$ —
$ —
$ 900
Contingent consideration liabilities- non-current 3,632
—
—
3,632
Total contingent consideration $ 4,532
$ —
$ —
$ 4,532

December 31, 2016:
Contingent consideration liabilities- current $ 2,855
$ —
$ —
$ 2,855
Contingent consideration liabilities- non-current 5,125
—
—
5,125
Total contingent consideration $ 7,980
$ —
$ —
$ 7,980

Contingent consideration liabilities are classified within Level 3 of the fair value hierarchy because they use significant unobservable inputs. For those liabilities, fair value is determined using a probability-weighted discounted cash flow model and significant inputs which are not observable in the market. The significant inputs include assumptions related to the timing and probability of the product launch dates, discount rates matched to the timing of payments, and probability of success rates.

The following table sets forth the changes in the estimated fair value of the Company’s liabilities measured on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017. The gain from change in fair value of contingent closing consideration is the difference between the fair value of shares expected to be issued to NLT based on assumptions as of December 31, 2016, including the forecasted issuance date and stock price, and the fair value of the shares actually issued to NLT on January 31, 2017. The gain from change in fair value of contingent milestone and royalty payments resulted from updated estimated timing of payments, probability of success rates, the passage of time, updated discount rates matched to the estimated timing of payments, actual net sales of certain products for the three and nine months ended September 30, 2017, and lower estimated net sales for the remainder of 2017 and for future royalty payment periods.

~~SEASPINE HOLDINGS CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

Three Months Ended September 30, 2017 (in thousands)
Balance as of June 30, 2017 $ 5,777
Contingent consideration liabilities settled (3 )
Gain from change in fair value of contingent milestone and royalty payments recorded in selling, general and administrative expenses (1,242 )
Fair value at September 30, 2017 $ 4,532

Nine Months Ended September 30, 2017 (in thousands)
Balance as of January 1, 2017 $ 7,980
Contingent consideration liabilities settled (2,551 )
Gain from change in fair value of contingent closing consideration recorded in other income (112 )
Gain from change in fair value of contingent milestone and royalty payments recorded in selling, general and administrative expenses (785 )
Fair value at September 30, 2017 $ 4,532

~~SEASPINE HOLDINGS CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

~~10.~~7. EQUITY AND STOCK-BASED COMPENSATION

Common Stock

On January 31, 2017, the Company issued 350,000 shares of common stock to NLT as the settlement of contingent closing consideration pursuant to the terms of the asset purchase agreement entered into with NLT in August 2016. The total fair value of such shares was $2.5 million at issuance. See ~~Note 8, "Business Combinations"~~ ~~above.~~

In ~~August 2016,~~April 2021, the Company entered into an ~~equity distribution agreement (Distribution Agreement)~~Underwriting Agreement with Piper ~~Jaffray~~Sandler & Co. ~~(Piper Jaffray)~~, ~~pursuant~~Canaccord Genuity LLC, and Stifel, Nicolaus & Company, Incorporated relating to ~~which~~the issuance and sale of 4,500,000 shares of the Company's common stock at a price to the public of $19.50 per share, before underwriting discounts and commissions. Under the terms of that agreement, the Company ~~may offer and sell~~granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 675,000 shares of ~~its~~ common ~~stock in “at~~stock. The underwriters exercised this option and the ~~market” (ATM) offerings (as defined in Rule 415~~offering closed on April 20, 2021 with the sale of the Securities Act of 1933, as amended) having an aggregate offering price up to $25.0 million in gross proceeds from time to time through Piper Jaffray acting as sales agent. The shares offered and sold under the Distribution Agreement are covered by a registration statement on Form S-3 that was declared effective on August 24, 2016. Under the Distribution Agreement, the Company sold 1,500,0005,175,000 shares of common stock, ~~at an average price per share of $10.78 and received~~resulting in net proceeds to the Company of approximately ~~$15.6~~$95 million, ~~(net of $0.6 million of~~after deducting underwriting discounts and commissions and estimated offering ~~costs) during~~expenses payable by the ~~nine months ended September 30, 2017.~~Company. The Company ~~intends to use~~used a portion of the net proceeds ~~for general corporate purposes, including paying down outstanding~~from the offering to repay all of its then-outstanding borrowings under the Credit Facility ~~sales~~ and ~~marketing expenditures aimed at growing its business, and research and development expenditures focused on product development. The~~to finance the cash consideration of $27.5 million for the Company's acquisition of 7D Surgical.

In May 2021, the Company ~~has the capacity to issue additional~~issued 2,991,054 shares of its common stock to generate up to $8.8 million of gross proceeds under the Distribution Agreement as of September 30, 2017. Future sales, if any, will depend on a variety of factors including, but not limited to, market conditions, the trading price of the Company’s common stock and ~~the Company’s capital needs.~~

1,298,648 Exchangeable Shares in connection with Company's acquisition of 7D Surgical.

Equity Award Plans

As of June 30, 2015, Integra had stock options, restricted stock awards, performance stock awards, contract stock awards and restricted stock units outstanding under three plans, the 2000 Equity Incentive Plan, the 2001 Equity Incentive Plan, and the 2003 Equity Incentive Plan. In connection with the spin-off, Integra equity awards granted to individuals who became employees of SeaSpine were converted to equity awards denominated in SeaSpine common stock. In general, each post-conversion award is subject to the same terms and conditions as were applicable to the pre-conversion award.

In May 2015, the Company adopted the 2015 Incentive Award Plan, which was subsequently amended and restated with approval of the Company's stockholders. In February and March 2018, the Company's board of directors approved amendments to the plan that increased the share reserve by an aggregate of 2,726,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's stockholders ~~(as~~approved both amendments in May 2018. In April 2020, the Company's board of directors approved an amendment to the plan that, among other things, increased the share reserve by an aggregate of 3,500,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's stockholders approved the amendment in June 2020 (the 2015 Incentive Award Plan, as amended and restated to date, the ~~2015~~Restated Plan). Under the ~~2015~~Restated Plan, the Company can grant its employees, ~~and~~ non-employee directors and consultants incentive stock options and non-qualified stock options, restricted stock, performance stock, dividend equivalent rights, stock appreciation rights, stock payment awards and other incentive awards. The ~~Company~~aggregate number of shares that may ~~issue up~~be issued or transferred pursuant to ~~3,509,500~~awards under the Restated Plan is the sum of (1) the number of shares issuable upon exercise or vesting of the equity awards issued by the Company's former parent company prior to the spin-off that were converted into the Company's equity awards under the Restated Plan as of the date of the spin-off and (2) 9,735,500 shares of ~~its~~the Company's common stock in respect of awards granted under the ~~2015~~Restated Plan. As of ~~September~~June 30, ~~2017, there~~2022, 1,446,213 shares were ~~290,289 shares~~ available ~~to grant~~for issuance under the ~~2015~~Restated Plan.

In ~~2016,~~August 2020, the Company ~~established~~adopted the ~~2016~~2020 Employment Inducement Incentive Award Plan (the ~~2016~~2020 Inducement Plan). The ~~plan is a broad-based~~terms of the 2020 Inducement Plan are substantially similar to the terms of the Restated Plan with four principal exceptions: (1) incentive ~~plan which allows for the issuance of stock-based awards, including non-qualified~~ stock options ~~restricted stock~~may not be granted under the 2020 Inducement Plan; (2) there are no annual limits on awards ~~performance~~that may be issued to an individual under the 2020 Inducement Plan; (3) awards ~~restricted stock unit awards and stock appreciation rights,~~granted under the 2020 Inducement Plan are not required to be subject to any ~~prospective officer or other~~minimum vesting period; and (4) awards may be granted under the 2020 Inducement Plan only to those individuals and in those circumstances described below. An aggregate of 2,000,000 shares are reserved under the 2020 Inducement Plan. As of June 30, 2022, 1,252,826 shares were available for issuance under the 2020 Inducement Plan.

The 2020 Inducement Plan was adopted by the Company’s board of directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the plan may only be made to an employee who has not previously been an employee or ~~director~~member of ~~SeaSpine~~the Company's board of directors or ~~an affiliate~~of any board of directors of any parent or ~~who is commencing employment with SeaSpine~~subsidiary of the Company, or ~~an affiliate~~ following a ~~bona-fide~~bona fide period of non-employment by ~~SeaSpine~~the Company or a parent or subsidiary, if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an ~~affiliate. An aggregate of 1,000,000 shares are reserved for issuance under~~inducement material to his or her entering into employment with the ~~2016 Plan. The~~ Company ~~has not awarded any shares under the 2016 Plan as of September 30, 2017.~~or such subsidiary.

~~Restricted Stock Awards and Restricted Stock Units~~Forfeiture Rate Assumptions

~~The Company expenses the fair value of restricted stock awards and of restricted stock units on an accelerated basis over the vesting period or requisite service period, whichever is shorter.~~ Stock-based compensation expense related to ~~restricted stock~~all equity awards ~~and to restricted stock units~~ includes an estimate for forfeitures. The expected forfeiture rate of all equity-based compensation is based on historical experience of pre-vesting forfeitures on awards and options by each ~~homogenous~~homogeneous group of shareowners. For awards and options granted to non-executive employees, the forfeiture rate is estimated to be ~~15%~~9% and 13% annually for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~12% annually for the nine months ended September 30, 2016.~~2021, respectively. There is no forfeiture rate applied to awards or options granted to non-employee directors or executive employees because their pre-vesting forfeitures are anticipated to be highly unlikely. As individual awards and options become fully vested, stock-based compensation expense is adjusted to recognize actual forfeitures.

There were no shares of restricted stock awards granted to non-employee directors during either of the three months ended September 30, 2017 or 2016. There were 120,610 and 75,075 shares of restricted stock awards granted to non-employee

1718

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Restricted Stock Awards and Restricted Stock Units

Restricted stock award and restricted stock unit grants to employees generally have a requisite service period of three years, and restricted stock award and restricted stock unit grants to non-employee directors generally have a requisite service period of one year. Both are subject to graded vesting. The Company expenses the fair value of restricted stock awards and restricted stock units on an accelerated basis over the vesting period or requisite service period, whichever is shorter.

No restricted stock units were granted to non-employee directors during any of the ~~nine~~three or six months ended ~~September~~June 30, ~~2017~~2022 or 2021. During each of the three and ~~2016, respectively. There~~six months ended June 30, 2022, there were ~~34,800 and 778,755~~141,575 shares of restricted stock awards granted to non-employee directors. There were 61,519 and 65,540 restricted stock awards granted to non-employee directors during the three and six months ended June 30, 2021, respectively.

During the three and six months ended June 30, 2022, 44,884 and 721,407 restricted stock units were granted to employees, respectively. During the three and six months ended June 30, 2021, 14,200 and 398,785 restricted stock units were granted to employees, respectively. No restricted stock awards were granted to employees during ~~the three and nine months ended September 30, 2017, respectively. Of the total restricted stock units granted to employees, 131,523 shares were issued in lieu~~any of ~~cash bonuses earned under the annual incentive program for corporate and individual performance in 2016. There were no restricted stock units granted during~~ the three or ~~nine~~six months ended ~~September~~June 30, ~~2016.~~ 2022 or 2021.

As of ~~September~~June 30, ~~2017,~~2022, there was approximately ~~$3.2~~$9.9 million of ~~total~~ unrecognized compensation expense related to the unvested portions of restricted stock awards and of restricted stock units. This ~~cost~~expense is expected to be recognized over a weighted-average period of approximately ~~1.2~~1.4 years.

Stock option grants to employees generally have a requisite service period of four to five years, and stock option grants to non-employee directors generally have a requisite service period of one year. Both are subject to graded vesting. The Company records stock-based compensation expense associated with stock options on an accelerated basis over the ~~various~~applicable vesting ~~periods~~period within each grant and based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. There were ~~zero~~11,000 and ~~43,500~~544,150 stock options granted during the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively, and ~~21,500~~535,045 and ~~900,524~~1,078,013 stock options granted during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively. The following weighted-average assumptions were used in the calculation of fair value for options ~~grants for~~granted during the ~~periods~~period indicated.

The Company considered that it has never paid, and does not currently intend to pay, cash dividends. The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected term of the options. ~~Due to the Company’s limited historical data, the~~The expected volatility is calculated based upon the historical volatility of ~~comparable companies in~~ the ~~medical device industry whose~~Company's share ~~prices are publicly available for a sufficient period of time.~~prices. The expected term ~~of "plain vanilla" options~~ is calculated using the simplified method as prescribed by accounting guidance for stock-based compensation. A "plain vanilla" option is an option with the following characteristics: (1) the option is granted at-the-money; (2) exercisability is conditional only on satisfaction of a service condition through the vesting date; (3) employees who terminate their service prior to vesting forfeit the option; (4) employees who terminate their service after vesting are granted limited time to exercise their options; and (5) the option is nontransferable and non-hedgeable. The expectedhistorical weighted average term of ~~any other option is based on disclosures from similar companies with similar grants. In addition,~~ the Company applies an expected forfeiture rate when amortizing stock-based compensation expense. The expected forfeiture rate of options is based on historical experience of pre-vesting forfeitures on awards by each homogenous group of shareowners. The forfeiture rate of options granted to non-executive employees is estimated to be 15% annually for the nine months ended September 30, 2017, and 12% annually for the nine months ended September 30, 2016. There is no forfeiture rate applied to options granted to non-employee directors or executive employees because their pre-vesting forfeitures are anticipated to be highly unlikely. As individual options become fully vested, stock-based compensation expense is adjusted to recognize actual forfeitures.

Company’s options.

As of ~~September~~June 30, ~~2017,~~2022, there was approximately ~~$1.2~~$6.3 million of ~~total~~ unrecognized compensation expense related to unvested stock options. This ~~cost~~expense is expected to be recognized over a weighted-average period of approximately ~~1.1~~1.6 years.

~~SEASPINE HOLDINGS CORPORATION~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)~~

Employee Stock Purchase Plan

In May 2015, the Company adopted the SeaSpine Holdings Corporation 2015 Employee Stock Purchase Plan, which was amended in ~~December 2015~~November 2018, as described below (as amended, the ESPP). Under the ESPP, eligible employees may purchase shares of the Company’s common stock through payroll deductions of up to 15% of eligible compensation during an offering period. Generally, each offering period will be for ~~a period of twenty-four~~24 months as determined by the Company's board of directors. There are four six-month purchase periods in each offering period for contributions to be made and to be converted into shares at the end of the purchase period. In no event may an employee purchase more than 2,500 shares per purchase period based on the closing price on the first trading date of an offering period or more than $25,000 worth of stock during any calendar year. The purchase price for shares to be purchased under the ESPP is 85% of the lesser of the market price of the Company's common stock on the first trading date of an offering period or on any purchase date during an offering period (June 30 or December 31).

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Subject to stockholder approval, on and effective as of November 2, 2018, the Company's board of directors approved an amendment to the ESPP pursuant to which the share reserve under the ESPP would increase from 400,000 shares to 800,000 shares. The ~~ESPP authorizes~~Company's stockholders approved that amendment in May 2019. In December 2020, the Company's board of directors approved the issuance of ~~up to 400,000~~an additional 500,000 shares of common stock ~~pursuant to purchase rights granted to employees.~~under the ESPP. The Company's stockholders approved that amendment in June 2021. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the IRC). The ~~first offering period under the ESPP commenced on January 1, 2016 and will end on December 31, 2017. However, the~~ ESPP contains a restart feature, such that if the market price of the stock at the end of any six-month purchase period is lower than the market price at the original grant date of an offering period, that offering period will terminate after that purchase date, and a new two-year offering period will commence on the January 1 or July 1 immediately following the date the original offering period terminated. This restart feature was ~~first~~ triggered on the purchase date that occurred on ~~June 30, 2016,~~December 31, 2021, such that the offering ~~period~~periods that commenced on January 1, ~~2016 was~~2021 and July 1, 2021 were terminated, and a new two-year offering period commenced on ~~July~~January 1, ~~2016.~~2022 and will end on December 31, 2023. This restart feature was triggered again on the purchase date that occurred on ~~December 31, 2016,~~June 30, 2022, such that the offering period that commenced on ~~July~~January 1, ~~2016~~2022 was terminated, and a new two-year offering period commenced on ~~January~~July 1, ~~2017~~2022 and will end on ~~December 31, 2018.~~June 30, 2024. The Company applied share-based payment modification accounting to the awards that were initially valued at the grant date to determine the amount of any incremental fair value associated with the modified awards. The impact to stock-based compensation expense for modifications during the ~~three and nine~~six months ended ~~September~~June 30, ~~2017~~2022 was immaterial.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, there were ~~70,537~~200,642 and ~~39,955~~109,178 shares of common stock ~~respectively,~~ purchased under the ESPP.

The Company estimates the fair value of shares issued to employees under the ESPP using the Black-Scholes-Merton option-pricing model. The following weighted average assumptions were used in the calculation of fair value of shares under the ESPP at the grant date for the periods indicated:


	Three and Six Months Ended June 30,
	2022		2021
Expected dividend yield	—	%	—	%
Risk-free interest rate	0.5	%	0.1	%
Expected volatility	56.2	%	64.3	%
Expected term (in years)	1.3		1.2

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Expected dividend yield 0 % 0 % 0 % 0 %
Risk-free interest rate 1.3 % 0.5 % 1.0 % 0.6 %
Expected volatility 25.3 % 29.3 % 28.1 % 30.5 %
Expected term (in years) 1.2
1.2
1.2
1.2

The Company determines if an arrangement is a lease at inception. The Company's leases primarily relate to administrative, manufacturing, research, and distribution facilities and various manufacturing, office and transportation ~~equipment through~~equipment. Lease assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company's incremental borrowing rate is used as a discount rate, based on the information available at the commencement date, in determining the present value of lease payments. Lease assets also include the impact of any prepayments made and are reduced by impact of any lease incentives.

The Company made an accounting policy election for short-term leases, such that the Company will not recognize a lease liability or lease asset on its balance sheet for leases with a lease term of twelve months or less as of the commencement date. Rather, any short-term lease payments will be recognized as an expense on a straight-line basis over the lease term. The current period short-term lease expense reasonably reflects the Company's short-term lease commitments.

The Company made a policy election for all classifications of leases to combine lease and non-lease components and to account for them as a single lease component. Variable lease payments are excluded from the lease liability and recognized in the period in which the obligation is incurred. Additionally, lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise the option.

The Company’s lease portfolio only includes operating leases. As of June 30, 2022, the weighted average remaining lease ~~agreements. During~~term of these operating leases was 8.9 years and the ~~nine~~weighted average discount rate was 4.7%. For the three months ended ~~September~~June 30, 2017, the Company entered into two lease agreements: one for an office located in Wayne, Pennsylvania, where the Company designs spinal implants and which facilitates the Company's interactions with customers in the Eastern United States, and another for an office located in Lyon, France, which serves as the Company's international sales and marketing office. The terms of these two lease agreements are through June 2022 and February 2026, respectively, and both have an average annual cost of less than $0.1 million.

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2022 and 2021, lease expense, which represents expense from operating leases, was $0.6 million and $0.5 million, respectively. For the six months ended June 30, 2022 and 2021, lease expense was $1.2 million and $1.1 million, respectively.

~~Future minimum lease payments under~~A summary of the Company's ~~operating leases~~remaining lease liabilities at ~~September~~June 30, ~~2017~~2022 are as follows:


	Operating Leases
	(In thousands)

2022	1,584
2023	2,578
2024	2,726
2025	2,795
2026	2,848
Thereafter	9,700
Total undiscounted value of lease liabilities	$	22,231
Less: present value adjustment	(3,829)
Less: short-term leases not capitalized	(493)
Present value of lease liabilities	17,909
Less: current portion of lease liability	(2,377)
Operating lease liability, less current portion	$	15,532

Payments Due by Calendar Year
(In thousands)
2017 $ 535
2018 2,082
2019 2,130
2020 2,179
2021 2,221
Thereafter 8,474
Total minimum lease payments $ 17,621

~~Total lease expense for the three months ended September 30, 2017 and 2016 was $0.5 million and~~ ~~$0.7 million, respectively, and $1.6 million and $2.3 million for the nine months ended September 30, 2017 and 2016, respectively.~~

~~12.~~9. INCOME TAXES

The following table ~~provides a summary of~~summarizes the Company’s effective tax rate for the periods indicated:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Reported income tax expense rate	7.6	%	(3.1)	%	4.3	%	(1.0)	%

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016

Reported tax rate 0.8 % 1.1 % — % 1.6 %

In addition, for all periods presented, the pretax losses incurred by the consolidated U.S. tax group received no corresponding tax benefit because the Company ~~has~~ concluded that it is ~~more likely than~~ not more-likely-than-not that the ~~Company will be unable to realize the~~full value of any resulting deferred tax ~~assets.~~assets will be realized. The Company will continue to assess its position in future periods to determine if it is appropriate to reduce a portion of its valuation allowance.

The acquisition of 7D Surgical was treated as an asset purchase for U.S. tax purposes and a stock purchase for Canadian tax purposes in 2021. As such, the Company recorded deferred tax assets and liabilities on its Canadian tax attributes. The Company continues to use its deferred tax liabilities as a source of income against a portion of its deferred tax assets. A valuation allowance was recorded for the portion of the deferred tax assets that are not more-likely-than-not to be realized.

As part of the Tax Cuts and Jobs Act of 2017 (TCJA), beginning with the Company's 2022 tax year, the Company is required to capitalize research and development expenses, as defined under Internal Revenue Code section 174. For expenses that are incurred for research and development in the ~~future.~~U.S., the amounts will be amortized over 5 years, and expenses that are incurred for research and experimentation outside the U.S. will be amortized over 15 years. This provision is not expected to have a significant impact to the consolidated financial statements.

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

10. COMMITMENTS AND CONTINGENCIES

In consideration for certain technology, manufacturing, distribution, and selling rights and licenses granted to the Company, the Company ~~has~~ agreed to pay royalties on sales of certain products sold by the Company. ~~The royalty payments that~~Except for the royalties paid to N.L.T. Spine Ltd. (NLT), the royalties the Company ~~made under these agreements~~paid are included ~~in the consolidated statements of operations~~ as a component of cost of goods ~~sold.~~sold in the consolidated statements of operations.

The Company is subject to various legal proceedings in the ordinary course of its business with respect to its products, its current or former employees, and its commercial relationships, some of which have been settled by the Company. In the opinion of management, such proceedings are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on the Company's financial condition. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.

The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. While uncertainty exists, the Company does not believe there are any pending legal proceedings that would have a material impact on the Company’s financial position, cash flows or results of operations.

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

~~14.~~11. SEGMENT AND GEOGRAPHIC INFORMATION

Management assessed its segment reporting based on how it internally manages and reports the results of its business to its chief operating decision maker. Management reviews financial results, manages the business and allocates resources on an aggregate basis. Therefore, financial results are reported in a single operating segment: the development, manufacture and marketing of orthobiologics, spinal implants and ~~of spinal implants.~~enabling technologies. The Company reports revenue in ~~two~~2 product categories: (1) orthobiologics and (2) spinal ~~implants.~~implants and enabling technologies. Orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes ~~that are~~ designed to improve bone fusion rates following ~~surgery.~~a wide range of orthopedic surgeries, including spine, hip, and extremities procedures. The spinal implants and enabling technologies portfolio consists of an extensive line of products ~~for~~and image-guided surgical solutions to facilitate spinal fusion in degenerative, minimally invasive surgery (MIS), and complex ~~spine,~~spinal deformity ~~and degenerative~~ procedures.

~~Revenue, net consisted of the following:~~

The Company attributes revenues to geographic areas based on the location of the customer. ~~Total~~

The following table disaggregates revenue by major ~~geographic area consisted~~sales channel for each of the ~~following:~~periods presented (in thousands):


	Three Months Ended June 30, 2022						Six Months Ended June 30, 2022
	United States		International		Total			United States		International		Total
Orthobiologics	$	24,520	$	2,463	$	26,983		$	45,841	$	4,664	$	50,505
Spinal Implants and Enabling Technologies	24,980		4,355		29,335			49,152		7,354		56,506
Total revenue, net	$	49,500	$	6,818	$	56,318		$	94,993	$	12,018	$	107,011


	Three Months Ended June 30, 2021						Six Months Ended June 30, 2021
	United States		International		Total			United States		International		Total
Orthobiologics	$	21,184	$	2,387	$	23,571		$	40,244	$	4,815	$	45,059
Spinal Implants and Enabling Technologies	21,385		2,507		23,892			39,795		4,563		44,358
Total revenue, net	$	42,569	$	4,894	$	47,463		$	80,039	$	9,378	$	89,417

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
United States $ 28,245
$ 28,485
$ 87,209
$ 87,041
International 3,497
3,256
10,623
9,300
Total revenue, net $ 31,742
$ 31,741
$ 97,832
$ 96,341

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

The terms “we,” “us,” “our,” “SeaSpine” or the “Company” refer collectively to SeaSpine Holdings Corporation and its wholly-owned subsidiaries, unless otherwise stated. All information ~~presented~~ in this report is based on our fiscal year. Unless otherwise stated, references to particular years, quarters, months or periods refer to our fiscal years ending December 31 and the associated quarters, months and periods of those fiscal years.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). The matters discussed in these forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Such risks and uncertainties may also give rise to future claims and increase exposure to contingent liabilities. Please see the “Risk Factors” section ~~included~~ in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2021 (the ~~2016~~2021 10-K) for a discussion of the uncertainties, risks and assumptions associated with these statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

You can identify these forward-looking statements by forward-looking words such as “believe,” “may,” “could,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar expressions.

These risks and uncertainties arise from (among other factors) ~~the following:~~:

•our ability to successfully develop new and next-generation products and the costs associated with designing and developing those new and next-generation products, including risks inherent in collaborations, such as with restor3d, Inc. or use of nascent manufacturing techniques, such as additive processing/3D printing;

anticipated trends in our business, including healthcare reform in the United States, increased pricing pressure from our competitors or hospitals, exclusion from major healthcare systems, whether as a result of unwillingness to provide required pricing or otherwise, and changes in third-party payment systems;

•our ability to attract and retain new, high-quality distributors, whether as a result of perceived deficiencies, or gaps, in our existing product portfolio, inability to reach agreement on financial or other contractual terms or otherwise, as well as disruption associated with restrictive covenants to, which distributors may be subject and potential litigation and expense associate therewith;

•the full extent to which the COVID-19 pandemic will, directly or indirectly, impact our business, results of operations and financial condition, including our sales, expenses, supply chain integrity, manufacturing capability, research and development activities, including arising from or relating to deferrals of procedures using our products, disruptions or restrictions on the ability of many of our employees and of third parties on which we rely to work effectively, and temporary closures of our facilities and of the facilities of our customers and suppliers;

•the full extent to which the ongoing conflict in Ukraine will, directly or indirectly, impact our business, results of operations and financial condition, including our sales, expenses, supply chain integrity, manufacturing capability, and research and development activities;

•our ability to continue to invest in medical education and training, product development, and/or sales and commercial marketing initiatives at levels sufficient to drive future revenue growth;

•anticipated trends in our business, including consolidation among hospital systems, healthcare reform in the United States, increased pricing pressure from our competitors or hospitals, exclusion from major healthcare systems, whether as a result of unwillingness to provide required pricing or otherwise, and changes in third-party payment systems;

•the risk of supply shortages, and the associated potentially long-term disruption to product sales, including as a result of the pandemic, the ongoing conflict in Ukraine and a limited number of third-party suppliers for components, raw materials and certain processing and assembly services;

•unexpected expenses and delay and our ability to manage timelines and costs related to manufacturing our products including as a result of litigation or developing and supporting the full commercial launch of new products or relating to the pandemic;

•our ability to obtain additional debt and equity financing to fund capital expenditures and working capital requirements and acquisitions;

•our ability to complete acquisitions, integrate operations post-acquisition and maintain relationships with customers of acquired entities;

•our ability to support the safety and efficacy of our products with long-term clinical data;

•existing and future regulations affecting our business, both in the United States and internationally, and enforcement of those regulations;

•general economic and business conditions, in both domestic and international markets; and

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements ~~that are~~ included in this report.

We are a global medical technology company focused on the design, development, and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. We ~~have~~offer procedural solutions that feature our FLASH™ Navigation, a system designed to improve accuracy of screw placement and provide a cost-effective, rapid, radiation-free solution to surgical navigation, and a comprehensive portfolio of ~~orthobiologics~~spinal implants and ~~spinal implant solutions~~orthobiologics to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to ~~perform~~facilitate spinal fusion in degenerative, minimally invasive surgery (MIS), and complex spinal deformity procedures inon the lumbar, thoracic and cervical spine. We believe ~~this broad combined portfolio of orthobiologics and spinal implant products is~~our offerings are essential to meet the “complete solution” requirements of ~~neurosurgeons and orthopedic spine~~these surgeons.

We report revenue in two product categories: (i) orthobiologics and (ii) spinal ~~implants.~~implants and enabling technologies. Our orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes ~~that are~~ designed to improve bone fusion rates following a wide range of orthopedic surgeries, including spine, hip, and extremities procedures. Our spinal ~~implant~~implants and enabling technologies portfolio consists of an extensive line of products and image-guided surgical solutions to facilitate spinal fusion in ~~MIS,~~degenerative, minimally invasive surgery (MIS), and complex ~~spine,~~spinal deformity ~~and degenerative~~ procedures.

Our U.S. spinal implants and orthobiologics sales organization consists primarily of regional and territory managers who oversee a broad network of independent ~~orthobiologics and spinal implant~~sales agents. We pay these sales agents ~~to whom we pay~~ commissions based on the sales of our products. Our enabling technologies sales organization consists of a direct sales force that works together with our independent sales agents to generate either a capital sale or to place systems and components in an account in a capital efficient manner in return for a longer-term revenue commitment for our spinal implant systems and/or orthobiologics products. Our international sales organization consists of a sales management team that oversees a network of independent ~~orthobiologics and spinal implant~~ stocking ~~sales agents~~distributors that purchase products directly from us and independently sell them. For the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, international sales accounted for approximately ~~11%~~12% and 10% of our revenue, respectively, and 11% and 10% for the six months ended June 30, 2022 and 2021, respectively. Our policy is not to sell our products through or to participate in physician-owned distributorships.

~~For~~In May 2021, we acquired 7D Surgical, Inc., a pioneer in the ~~nine months ended September 30, 2017,~~image-guided surgery market, that developed and commercialized advanced machine-vision-based registration algorithms to improve surgical workflow and patient care, currently with applications in spine and cranial surgeries. Its flagship system, founded on its machine-vision, image-guided surgery platform, reduces radiation exposure in open spine surgery by eliminating intra-operative CT (computed tomography) and fluoroscopy for purposes of registration, both of which commonly are used for patient registration with traditional navigational systems.

European Spinal Implant Sales and Marketing

During the third quarter of 2021, we ceased in-person sales and marketing operations in France to reduce operating expenses and to centralize the management of our ~~total revenue, net was $97.8 million~~European sales and marketing operations in our ~~net loss was $24.6 million. For~~headquarters located in Carlsbad, California.As a result, we closed our office located in Lyon, France, and eliminated all employment positions at that location.

During the ~~same period, revenue from~~fourth quarter of 2021, we notified our European distributors that we will discontinue all sales ofand marketing activities for our spinal implant portfolio in the European market effective in August 2022 due to the significantly higher upfront and recurring annual costs required to comply with European medical device regulations.We will continue to market and sell our orthobiologics and ~~spinal implants totaled $51.0 million and $46.8 million, respectively. We expect to continue to incur losses as we further invest~~enabling technologies products in the expansion of our business, primarily in sales, marketing and research and development related expenditures, and from the general and administrative expenses we expect to incur. As of September 30, 2017, our cash and cash equivalents totaled $16.7 million.European market.

~~SeaSpine was incorporated in Delaware on February 12, 2015 in connection with the spin-off of the orthobiologics and spinal implant business of Integra. The spin-off occurred on July 1, 2015.~~

Components of Our Results of Operations

Our net revenue is derived primarily from the sale of orthobiologics, spinal implants and ~~spinal implant~~enabling technology products ~~across~~in North America, Europe, Asia Pacific and Latin America. Sales are reported net of returns, rebates, group purchasing organization fees and other customer allowances.

In the United States, we generate most of our revenue by consigning our orthobiologics products and by consigning or loaning our spinal implant sets to hospitals and independent sales agents, who in turn either deliver them to hospitals for a single surgical procedure, after which they are returned to us, or leave them with hospitals that are high volume users for multiple procedures. The spinal implant sets typically contain the instruments, disposables, and spinal implants required to complete a surgery. We ship replacement inventory to independent sales agents to replace the consigned inventory used in surgeries. We maintain and replenish loaned sets at our kitting and distribution centers and return replenished sets to a hospital or independent sales agent for the next procedure. We recognize revenue on these consigned or loaned products when they have been used or implanted in a surgical procedure.

Enabling technologies revenue related to capital equipment, tools and software is typically recognized upon acceptance by the customer. Revenue from training and installation is recognized upon completion of the training and installation process. Revenue from service contracts is recognized over the term of the contract.

Under certain contracts, the transfer of capital equipment occurs over time as the customer's purchase commitments on other spinal implant and orthobiologics products are met. We allocate the transaction price to the multiple performance obligations under these contracts related to the sale of the products (recognized either upon the shipment or delivery of goods), the lease of capital equipment (recognized over the contract period), and the sale of capital equipment (recognized once the purchase commitments are met).

For all other sales transactions, including sales to international stocking ~~sales agents~~distributors and private label partners, we generally recognize revenue when the products are shipped toand the customer or stocking ~~sales agent and~~distributor obtains control of the ~~transfer of title and risk of loss occurs.~~

products. There is generally no customer acceptance or other condition that prevents us from recognizing revenue in accordance with the delivery terms for these sales transactions.

Cost of goods sold primarily consists of the costs of finished goods purchased directly from third parties and raw materials used in the ~~manufacture~~manufacturing of our products, plant and equipment overhead, labor costs and packaging ~~costs, amortization of product technology intangible assets and freight.~~costs. The majority of our orthobiologics products are designed and manufactured internally. The cost of human tissue and fixed manufacturing overhead costs are significant drivers of the ~~costs~~cost of goods sold, and consequently our orthobiologics products, at current production volumes, generate lower gross margin than our spinal implant products. We rely on third-party suppliers to manufacture our spinal ~~implant~~implants and enabling technology products, and we assemble ~~them~~the spinal implants into surgical sets at our kitting and distribution centers. ~~Beginning~~The cost to inspect incoming finished goods is included in the ~~fourth quarter~~cost of ~~2016, we began outsourcing a portion of that assembly function to a third party logistics provider.~~goods sold. Other costs included in cost of goods sold include amortization of product technology intangible assets, royalties, ~~shipping, inspection~~scrap and consignment losses, and charges for expired, excess and obsolete inventory. ~~We expect our cost of goods sold to continue to increase in absolute dollars as our sales volume increases over time.~~

Selling ~~General~~ and ~~Administrative~~Marketing Expense

Our selling ~~general~~ and ~~administrative (SG&A)~~marketing expenses consist primarily of sales commissions, ~~to independent sales agents, cost of medical education and training,~~ payroll and other headcount related expenses, marketing expenses, shipping, third-party logistics expenses, depreciation of instrument sets, instrument replacement expense, ~~stock-based compensation, marketing~~and cost of medical education and training.

General and Administrative Expense

Our general and administrative expenses ~~supply chain~~consist primarily of payroll and ~~distribution~~other headcount related expenses, and expenses for information technology, legal, human resources, insurance, finance, ~~facilities,~~ and ~~management and~~management. We also record gains or losses associated with changes in the fair value of contingent consideration ~~liabilities.~~liabilities in general and administrative expenses.

Research and Development Expense

Our research and development (R&D) expenses primarily consist of expenses related to the headcount for engineering, product development, clinical affairs and regulatory functions, as well as consulting services, third-party prototyping services, outside research and clinical studies activities, and materials, production and other costs associated with development of our products. We expense R&D costs as they are incurred.

While our R&D expenses fluctuate from period to period based on the timing of specific initiatives, we expect ~~that~~ these costs will increase over time as we continue to design and commercialize new products and expand our product portfolio, add related personnel and conduct additional clinical activities.

Intangible Amortization

Our intangible amortization, including the amounts reported in cost of goods sold, consists of acquisition-related ~~amortization and impairments related to product discontinuations.~~amortization. We expect total annual amortization expense (including amounts reported in cost of goods sold) to be approximately ~~$6.8~~$7.3 million in ~~2017, $6.5~~2022, $6.6 million in ~~2018, $5.8~~2023, $4.6 million in ~~2019, $4.9~~2024, $3.3 million in ~~2020~~2025 and ~~$4.9~~$3.3 million in ~~2021.~~

COVID-19 Pandemic - Impact on our Business

The COVID-19 pandemic has presented a substantial public health and economic challenge around the world and has materially and adversely affected our business. From late March 2020 to mid-May 2020, among other impacts on our business related to the pandemic, surgeons and their patients deferred surgical procedures in which our products otherwise could have been used. This decrease in demand for our products temporarily recovered to varying degrees beginning in the latter half of May 2020 as conditions improved in certain geographies, allowing patients to resume receiving their treatments. However, from late November 2020 to mid-February 2021, a significant and sustained increase in COVID-19 cases and hospitalization rates once again caused the deferral of surgical procedures in which our products otherwise could have been used. Additionally, in the third quarter of 2021, hospitalization rates in many geographies increased as a result of the spread of the Delta variant. This, along with hospital support staffing shortages in certain geographies, adversely impacted the number of elective surgical procedures and slowed the partial recovery we had been experiencing. There is a risk that we will see continued volatility in the demand for our products in 2022 and thereafter as geographies respond to local conditions. We will continue to closely monitor developments related to the pandemic and our decisions will continue to be driven by the health and well-being of our employees, our distributor and surgeon customers, and their patients while maintaining operations to support our customers and their patients in the near-term.

At this time, the full extent of the impact of the pandemic on our business, financial condition and results of operations is uncertain and cannot be predicted with reasonable accuracy and will depend on future developments that are also uncertain and cannot be predicted with reasonable accuracy.

The effect of the pandemic will not be fully reflected in our results of operations and overall financial performance until future periods. For additional information on the various risks posed by the pandemic on our business, financial condition and results of operations, please see "Item 1A. Risk Factors" in Part II of this report.

RESULTS OF OPERATIONS


	Three Months Ended June 30,						2022 vs. 2021		Six Months Ended June 30,						2022 vs. 2021
(In thousands, except percentages)	2022			2021			% Change		2022			2021			% Change
Total revenue, net	$	56,318		$	47,463		19	%	$	107,011		$	89,417		20	%
Cost of goods sold	19,127			17,482			9	%	39,503			32,848			20	%
Gross profit	37,191			29,981			24	%	67,508			56,569			19	%
Gross margin	66.0		%	63.2		%			63.1		%	63.3		%
Operating expenses:
Selling and marketing	33,029			25,436			30	%	62,535			48,835			28	%
General and administrative	12,192			9,986			22	%	23,131			20,413			13	%
Research and development	5,649			4,850			16	%	11,499			9,356			23	%
Intangible amortization	856			843			2	%	1,712			1,635			5	%

Total operating expenses	51,726			41,115			26	%	98,877			80,239			23	%
Operating loss	(14,535)			(11,134)			31	%	(31,369)			(23,670)			33	%
Other (expense) income, net	(559)			6,079			(109)	%	(557)			5,920			NM
Loss before income taxes	(15,094)			(5,055)			199	%	(31,926)			(17,750)			80	%
(Benefit) provision for income taxes	(1,147)			158			NM		(1,375)			183			(851)	%
Net loss	$	(13,947)		$	(5,213)		168	%	$	(30,551)		$	(17,933)		70	%

Three Months Ended September 30, 2017 vs. 2016 Nine Months Ended September 30, 2017 vs. 2016
(In thousands, except percentages) 2017 2016 % Change 2017 2016 % Change
Total revenue, net $ 31,742
$ 31,741
— % $ 97,832
$ 96,341
1.5 %
Cost of goods sold 12,176
13,881
(12.3 )% 39,342
42,094
(6.5 )%
Gross profit 19,566
17,860
9.6 % 58,490
54,247
7.8 %
Gross margin 61.6 % 56.3 % 59.8 % 56.3 %

Operating expenses:

Selling, general and administrative 23,674
23,803
(0.5 )% 71,893
76,166
(5.6 )%
Research and development 2,834
2,600
9.0 % 9,228
8,534
8.1 %
Intangible amortization 792
955
(17.1 )% 2,376
3,517
(32.4 )%
Total operating expenses 27,300
27,358
(0.2 )% 83,497
88,217
(5.4 )%
Operating loss (7,734 ) (9,498 ) (18.6 )% (25,007 ) (33,970 ) (26.4 )%
Other income (expense), net 215
(59 ) (464.4 )% 387
(33 ) (1,272.7 )%
Loss before income taxes (7,519 ) (9,557 ) (21.3 )% (24,620 ) (34,003 ) (27.6 )%
Benefit for income taxes (57 ) (103 ) (44.7 )% (12 ) (559 ) (97.9 )%
Net loss $ (7,462 ) $ (9,454 ) (21.1 )% $ (24,608 ) $ (33,444 ) (26.4 )%

Total revenue, net for the three months ended ~~September~~June 30, ~~2017,~~2022, was ~~$31.7~~$56.3 million, ~~relatively unchanged~~an increase of 19% compared to the same period in ~~2016.~~2021.


	Three Months Ended June 30,				2022 vs. 2021
	2022		2021		% Change
	(In thousands)
Orthobiologics	$	26,983	$	23,571	14	%
United States	24,520		21,184		16	%
International	2,463		2,387		3	%


Spinal Implants and Enabling Technologies	$	29,335	$	23,892	23	%
United States	24,980		21,385		17	%
International	4,355		2,507		74	%


Total revenue, net	$	56,318	$	47,463	19	%

Revenue from orthobiologics sales ~~of orthobiologics was $16.3~~totaled $27.0 million for the three months ended ~~September~~June 30, ~~2017,~~2022, an increase of ~~$0.1~~$3.4 million or ~~0.9%~~14%, from the same period in ~~2016.~~2021. Revenue from ~~sales of our~~ orthobiologics ~~products~~sales in the United States increased ~~$0.3~~$3.3 million to ~~$14.9~~$24.5 million for the three months ended ~~September~~June 30, ~~2017~~2022 compared to the same period in ~~2016~~

~~and~~2021. The increase was primarily driven by ~~growth~~higher sales of new and recently launched products. During the three months ended June 30, 2022, sales of products launched within the past five years increased to 43% of U.S. orthobiologics revenue compared to 40% for the same period in ~~sales across multiple product lines generated from recently added independent sales agents.~~2021. Revenue from ~~international~~orthobiologics sales ~~of our orthobiologics products,~~internationally, which can be volatile from quarter to quarter because of irregular ordering patterns from our stocking ~~sales agents, decreased $0.2~~distributors, increased $0.1 million for the three months ended ~~September~~June 30, ~~2017~~2022 compared to the same period in ~~2016, which was primarily attributable to decreased sales in Europe.~~2021.

Revenue from ~~sales of~~ spinal implants and enabling technology sales was ~~$15.4~~$29.3 million for the three months ended ~~September~~June 30, ~~2017, a decrease~~2022, an increase of ~~$0.1~~$5.4 million or ~~0.9%~~23%, from the same period in ~~2016.~~2021. Revenue from ~~sales of our~~ spinal ~~implant products~~implants and enabling technology sales in the United States ~~decreased $0.5~~increased $3.6 million to ~~$13.4~~$25.0 million for the three months ended ~~September~~June 30, ~~2017~~2022 compared to the same period in ~~2016, primarily due to lower prices~~2021 and ~~decreased usage~~included $1.1 million of ~~our legacy systems, which outpaced the~~capital sales from recently acquired 7D Surgical. The remaining revenue growth ~~contributed~~in the current year period was driven by recently launched products, predominantly those products that were alpha or fully launched since 2020, and ~~from~~which have been important catalysts to our ability to take market share in the ~~impact of the hurricanes in Texas and the Southeast.~~U.S. spinal implants market. Revenue from ~~international~~spinal implants and enabling technology sales ~~of our spinal implant products, which can be volatile from quarter to quarter because of irregular ordering patterns from our stocking sales agents,~~internationally increased ~~$0.4~~$1.8 million for the three months ended ~~September~~June 30, ~~2017~~2022 as compared to the same period in ~~2016, which~~2021 and included $1.1 million of capital sales from recently acquired 7D Surgical. The remaining revenue growth for international was primarily ~~attributable~~driven by early shipments of a portion of final stocking orders to ~~increased sales in Europe.~~European distributors.

Cost of Goods Sold and Gross Margin

Cost of goods sold ~~decreased $1.7~~increased $1.6 million, to ~~$12.2~~$19.1 million for the three months ended ~~September~~June 30, ~~2017,~~2022, compared to the same period in ~~2016.~~2021. Gross margin was ~~61.6%~~66.0% for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~56.3%~~63.2% for the same period in ~~2016.~~2021. The increase in gross margin was ~~mainly driven by~~due to lower ~~manufacturing costs for orthobiologics products manufactured~~excess and obsolete inventory charges and production efficiencies gained at our Irvine ~~California~~manufacturing facility. ~~This was partially offset by a $0.2 million increase in non-cash amortization of technology intangible assets acquired in September 2016 from NLT.~~

Cost of goods sold included ~~$0.9~~$1.0 million and ~~$0.7~~$0.6 million of amortization for product technology intangible assets for the three months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

Selling ~~General~~ and ~~Administrative~~Marketing

~~SG&A~~Selling and marketing expenses ~~decreased $0.1~~increased $7.6 million to ~~$23.7~~$33.0 million for the three months ended ~~September~~June 30, ~~2017~~2022 compared to the same period in ~~2016. This decrease~~2021. The increase was ~~mainly~~ driven primarily by ~~a $1.2~~7D Surgical sales and marketing costs, higher distributor commissions, higher tradeshow and travel costs, as well as higher selling, customer service, and supply chain headcount and related expenses.

General and Administrative

General and administrative expenses increased $2.2 million ~~non-cash gain related~~ to ~~a decrease in~~$12.2 million for the ~~fair value of contingent consideration liabilities related to the NLT acquisition (see~~ ~~Note 8, "Business Combinations"~~ ~~to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report) and a $1.0 million decrease in consulting and other expenses~~three months ended June 30, 2022, primarily due to the ~~completion in late 2016~~addition of ~~the outsourcing project~~general and administrative expenses attributable to ~~our third party logistics provider. These decreases~~7D Surgical, higher travel and headcount related expenses, and higher information technology costs, which were partially offset by ~~a $1.0 million increase~~the legal, accounting and other due diligence costs incurred in ~~selling commissions and a $1.0 million increase in accrued incentive-based compensation~~the prior year quarter related to ~~our financial performance. While we expect total SG&A expenses for~~ the full year 2017 to decrease as a percentage of revenue compared to the full year 2016, components within SG&A expenses, specifically selling commissions, are expected to increase relative to 2016, both in absolute terms and as a percentage of revenue.7D Surgical acquisition.

Research and Development

~~R&D~~Research and development expenses increased ~~$0.2~~$0.8 million to ~~$2.8~~$5.6 million, or ~~8.9%~~10% of revenue, for the three months ended ~~September~~June 30, ~~2017~~2022 compared to the same period in ~~2016. The increase was primarily driven by higher fees incurred under the transition services agreement with NLT. For the full year 2017, we expect our investment in R&D~~2021 due to ~~be between 8%~~research and ~~10% of revenue, as we continue~~development headcount and related project expenses attributable to ~~accelerate the design and commercialization of new and next generation products to expand our product portfolio and conduct additional clinical activities.~~7D Surgical operations.

Intangible Amortization

Intangible amortization expense, excluding the amounts reported in cost of goods sold for product technology intangible assets ~~decreased $0.2~~was $0.9 million toand $0.8 million for the three months ended ~~September~~June 30, ~~2017 compared to the same period in 2016. The decrease was primarily due to a customer relationships intangible that was fully amortized by July 2016.~~

2022 and 2021, respectively.

We ~~reported~~recorded an income tax benefit for the three months ended ~~September~~June 30, ~~2017~~2022 primarily related to the ~~release of our ASC 740-10~~change in deferred tax assets and liabilities ~~due to the expiration of the statute of limitations,~~in foreign jurisdictions, offset by ~~income~~current activity in state and foreign operations as well as the change in US indefinite lived deferred tax ~~expenses related to our foreign and state operations.~~

In addition, for ~~all periods presented, the~~any pretax losses incurred by the consolidated U.S. tax group, ~~received~~we recorded no corresponding tax benefit because we have concluded that it is ~~more likely than~~ not more-likely-than-not that ~~we will be unable to realize~~ the full value of any resulting deferred tax ~~assets.~~assets will be realized. We will continue to assess our position in future periods to determine if it is appropriate to reduce a portion of our valuation allowance.

The acquisition of 7D Surgical was a treated as an asset purchase for US tax purposes and a stock purchase for Canadian tax purposes in 2021. As such, the we recorded deferred tax assets and liabilities on its Canadian tax attributes. We continue to use our deferred tax liabilities as a source of income against a portion of our deferred tax assets. A valuation allowance was recorded for the portion of the deferred tax assets that are not more-likely-than-not to be realized. For the three months ended June 30, 2022, a net tax benefit of $1.0 million was recorded as a result of the 7D Surgical current year losses. This was offset by expenses recorded for indefinite lived intangibles, current foreign and state taxes and prior year foreign tax true-ups.

As part of the Tax Cuts and Jobs Act of 2017 (TCJA), beginning with our 2022 tax year, we are required to capitalize research and development expenses, as defined under Internal Revenue Code section 174. For expenses that are incurred for research and development in the U.S., the amounts will be amortized over 5 years, and expenses that are incurred for research and experimentation outside the U.S. will be amortized over 15 years. This provision is not expected to have a significant impact to the consolidated financial statements.

Other income for the three months ended June 30, 2021 primarily consisted of the gain on the forgiveness of debt related to the loan we obtained under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic Security Act.

Six Months Ended ~~September~~June 30, ~~2017~~2022 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2021

Total revenue, net for the ~~nine~~six months ended ~~September~~June 30, ~~2017 increased by $1.5~~2022 was $107.0 million, ~~to $97.8 million compared to $96.3 million for the same period in 2016.~~

~~Revenue from sales of orthobiologics totaled $51.0 million for the nine months ended September 30, 2017,~~ an increase of $1.4 million or 2.9%, from the same period in 2016. Revenue from sales of our orthobiologics products in the United States increased $1.6 million to $46.0 million for the nine months ended September 30, 201720% compared to the same period in ~~2016 and was driven by growth in sales across multiple product lines generated by recently added independent sales agents.~~2021.


	Six Months Ended June 30,				2022 vs. 2021
	2022		2021		% Change
	(In thousands)
Orthobiologics	$	50,505	$	45,059	12	%
United States	45,841		40,244		14	%
International	4,664		4,815		(3)	%


Spinal Implants and Enabling Technologies	$	56,506	$	44,358	27	%
United States	49,152		39,795		24	%
International	7,354		4,563		61	%


Total revenue, net	$	107,011	$	89,417	20	%


	Six Months Ended June 30,				2022 vs. 2021
	2022		2021		% Change
	(In thousands)
United States	$	94,993	$	80,039	19	%
International	12,018		9,378		28	%
Total revenue, net	$	107,011	$	89,417	20	%

Revenue from orthobiologics sales ~~of spinal implants~~ totaled ~~$46.8~~$50.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, an increase of ~~$0.1~~$5.4 million, ~~or 0.1%,~~ from the same period in ~~2016.~~2021. Revenue from orthobiologics sales in the United States ~~decreased $1.4 million to $41.2~~increased $5.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to the same period in ~~2016,~~2021. The increase was primarily ~~due to lower prices~~driven by higher sales of new and ~~decreased usage of our legacy systems, which outpaced the revenue growth contributed by~~ recently launched products. During the six months ended June 30, 2022, sales of products launched within the past five years increased to 42% of U.S. orthobiologics revenue compared to 39% for the same period in 2021. Revenue from ~~international~~orthobiologics sales internationally, which can be volatile from quarter to quarter because of ~~spinal implants increased $1.5~~irregular ordering patterns from our stocking distributors, decreased $0.2 million for the ~~nine~~three months ended ~~September~~June 30, ~~2017~~2022 compared to the same period in ~~2016 primarily due to~~2021.

Revenue from spinal implants and enabling technology sales ~~by a stocking~~totaled $56.5 million for the six months ended June 30, 2022, an increase of $12.1 million, from the same period in 2021. Revenue from spinal implants and enabling technology sales ~~agent we added in Latin America~~ in the ~~third quarter~~United States increased $9.4 million for the six months ended June 30, 2022 compared to the same period in 2021, and included $2.9 million of ~~2016~~capital sales from recently acquired 7D Surgical. The remaining revenue growth in the current year period was driven by recently launched products, predominantly those products that were alpha or fully launched since 2020, and which have been important catalysts to our ability to take market share in the U.S. spinal implants market. Revenue from spinal implants and enabling technology sales internationally increased $2.8 million for the six months ended June 30, 2022 compared to the same period in 2021, and included $1.6 million of capital sales ~~in Europe.~~from recently acquired 7D Surgical. The remaining revenue growth for international was primarily driven by early shipments of a portion of final stocking orders to European distributors.

Cost of Goods Sold and Gross Margin

Cost of goods sold ~~decreased $2.8~~increased $6.7 million to ~~$39.3~~$39.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, compared to the same period in ~~2016.~~2021. Gross margin was ~~59.8%~~63.1% for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, compared to ~~56.3%~~63.3% for the same period in ~~2016.~~2021. The ~~increase~~decrease in gross margin was ~~mainly driven by lower manufacturing costs for orthobiologics products manufactured at our Irvine, California facility,~~due to increased technology-related intangible asset amortization and ~~by a $1.7 million provision for excess orthobiologics raw material~~ inventory ~~recorded in~~purchase accounting fair market value adjustments associated with the first quarter of 2016. This provision related to management's decision to repurpose a portion of our matched-donor bone raw material for other production uses and that rendered a large portion of the remaining and now unmatched-donor bone as excess quantities that were unlikely to be consumed in future production. These improvements were partially offset by a $0.7 million increase in non-cash amortization of technology intangible assets acquired in September 2016 from NLT.7D Surgical acquisition.

Cost of goods sold included ~~$2.7~~$2.0 million and ~~$2.0~~$0.9 million of amortization for product technology intangible assets, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively.

Selling ~~General~~ and ~~Administrative~~Marketing

~~SG&A~~Selling and marketing expenses ~~decreased $4.3~~increased $13.7 million to ~~$71.9~~$62.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to the same period in ~~2016.~~2021. The ~~decrease~~increase was ~~mainly~~ driven by ~~a $3.1 million decrease in consulting and other expenses related~~higher commissions due to the ~~completion in late 2016 of various significant information system~~revenue increase, 7D Surgical sales and marketing costs, higher sales, marketing, customer service and logistics headcount and related projects and of the project to outsource a large portion of our spinal implant kitting and distribution to a third party logistics provider, $1.2 million lower legal fees, the absence of a $0.9 millionexpenses, additional spinal instrument ~~impairment charge recorded in 2016,~~set depreciation and ~~a $0.8 million non-cash gain related~~instrument replacement expense due to ~~a decrease in the fair value of contingent consideration liabilities related to the NLT acquisition. These decreases were partially offset by a $2.0 million increase in selling commissions.~~product launches, and higher freight and third-party logistics expenses.

~~Research~~General and ~~Development~~Administrative

~~R&D~~General and administrative expenses increased ~~$0.7~~$2.7 million to ~~$9.2~~$23.1 million ~~or 9.4% of revenue,~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 compared to the same period in ~~2016.~~2020, mostly due to the addition of general and administrative expenses attributable to 7D Surgical operations, and higher travel and headcount related expenses, which were partially offset by the legal, accounting and other due diligence costs incurred in the prior year quarter related to the 7D Surgical acquisition.

Research and Development

Research and development expenses increased $2.1 million to $11.5 million, or 11% of revenue, for the six months ended June 30, 2022 compared to the same period in 2021. The increase was due primarily ~~driven by higher external costs~~to research and development headcount and related project expenses attributable to ~~product development related to our orthobiologics products, and by fees incurred under the transition services agreement with NLT.~~7D Surgical operations.

Intangible Amortization

Intangible amortization expense, excluding the amounts reported in cost of goods sold for product technology intangible assets, ~~decreased $1.1~~was $1.7 million ~~to $2.4~~and $1.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 compared to the same period in 2016. The decrease was primarily due to a customer relationships intangible that was fully amortized by July 2016.~~2022 and 2021.

We ~~reported~~recorded an income tax benefit for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 primarily related to the ~~release of our ASC 740-10~~change in deferred tax assets and liabilities ~~due to the expiration of the statute of limitations,~~in foreign jurisdictions, offset by current activity in state and foreign operations as well as the change in US indefinite lived deferred tax liabilities. We recorded an income tax ~~expenses~~provision for the six months ended June 30, 2021 primarily related to ~~our~~federal, foreign and state operations.

See “-Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021-Income Taxes,” above, for information related to the acquisition of 7D Surgical and the effect of the TCJA on our taxes.

Other income for the six months ended June 30, 2021 primarily consisted of the gain on the forgiveness of debt related to the loan we obtained under the PPP.

Business Factors Affecting the Results of Operations

Special Charges and Gains

We define special charges and gains as expenses or non-operating gains and losses for which the amount or timing can vary significantly from period to period, and for which the amounts are non-cash in nature, or the amounts are not expected to recur at the same magnitude.

We believe that identification of these special charges and gains provides important supplemental information to investors regarding financial and business trends relating to our financial condition and results of operations. Investors may find this information useful in assessing comparability of our operating performance from period to period, against the business model objectives that management has established, and against other companies in our industry. We provide this information to investors so that they can analyze our operating and financial results in the same way that management does and use this information in their assessment of our core business and valuation.

Loss before income taxes includes the following special charges and gains for the three and six months ended June 30, 2022 and 2021:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Special Charges and (Gains):	(In thousands)
Severance and other costs associated with European sales and marketing reorganization	$	127	$	—	$	406	$	—
Purchase accounting inventory fair market value and adjustments	83		—		208		—


Acquisition and integration-related charges for 7D Surgical	(10)		519		363		1,795
Gain on forgiveness of PPP Loan	—		(6,173)		—		(6,173)
Total Special Charges and (Gains), net	$	200	$	(5,654)	$	977	$	(4,378)

The items reported above are reflected in the consolidated statements of operations as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
	(In thousands)
Cost of goods sold	$	83	$	—	$	208	$	—

General and administrative	117		519		769		1,795
Other expense (income), net	—		(6,173)		—		(6,173)
Total Special Charges and (Gains), net	$	200	$	(5,654)	$	977	$	(4,378)

Critical Accounting Policies and the Use of Estimates

Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparing these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include revenue recognition, allowances for doubtful accounts receivable and sales return and other credits, net realizable value of inventories, amortization periods for acquired intangible assets, estimates of projected cash flows and discount rates used to value intangible assets and test them for impairment, estimates of projected cash flows and assumptions related to the timing and probability of the product launch dates, discount rates matched to the timing of payments, and probability of success rates used to value contingent consideration liabilities from business combinations, estimates of projected cash flows and depreciation and amortization periods for long-lived assets, valuation of stock-based compensation, computation of taxes and valuation allowances recorded against deferred tax assets, and loss contingencies. These estimates are based on historical experience and on various other assumptions believed to be reasonable under the current circumstances. Actual results could differ from these estimates.

The full extent to which the COVID-19 pandemic or the ongoing conflict in Ukraine will directly or indirectly impact our business, results of operations and financial condition, including sales, expenses, manufacturing, research and development costs and employee-related compensation, will depend on future developments that are highly uncertain, with respect to COVID-19, including as a result of genetic variations of, or other information that may emerge concerning, COVID-19 and the actions taken to contain it or treat COVID-19, and with respect to the ongoing conflict in Ukraine, the impact thereof on the supply chain for titanium, which is used in certain of our products, as well as the broader macroeconomic impact arising from both COVID-19 and the conflict on local, regional, national and international customers and markets. We have made estimates of the impact of COVID-19 within our financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.

Note 2, “Summary of Significant Accounting Policies” to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and included in Part II, Item 8 of the 2021 10-K describe the significant accounting policies and estimates used in the preparation of our condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 2, "Summary of Significant Accounting Policies,"to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.

Liquidity and Capital Resources

In addition to cash from operations, our existing credit facility is our primary source of capital. However, we have raised funds

in the capital markets in the past and may continue to do so from time-to-time.

Risks and Uncertainties

We have incurred net losses in each year since inception. Our net losses were $30.6 million and $17.9 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $304.2 million. We anticipate that our expenses will increase as we continue invest in the expansion of our business, primarily in sales, marketing and research and development; invest in inventory, spinal implant set builds and instrument capital expenditures; and continue

to operate as a public company. Based on our updated operating plans, we believe that we have sufficient resources to fund operations and meet our contractual obligations through the second quarter of 2023 with our existing cash and equivalents and borrowing capacity under our extended and expanded credit facility. However, based on our recurring losses from operations and the expectation of continued operating losses, we will need to raise additional capital to finance our future operations. If we are unable to raise such additional capital, it may raise substantial doubt about our ability to continue as a going concern. Longer term, we expect to raise additional capital through the sale of common stock in public offerings and/or private placements, debt financings, or through other capital sources.

Although we have been successful in raising capital in the past, there is no assurance that we will be successful in obtaining such additional financing on terms acceptable to us, if at all. If we are unable to obtain sufficient funding on acceptable terms,we could be forced to delay, reduce or eliminate some or all of our projected inventory and capital expenditures spend, research and development programs or commercialization activities, which could materially adversely affect our business prospects or our ability to continue operations.

We have a $30.0 million credit facility with Wells Fargo Bank, National Association which ~~expires~~matures in ~~December 2018, subject to a one-time, one-year extension at our election.~~July 2027. At ~~September~~June 30, ~~2017,~~2022, we had no$25.0 million of outstanding borrowings under the credit facility. The borrowing capacity under the credit facility is determined monthly and is based on the amount of our eligible accounts receivable and inventory balances and qualified cash (as defined in the credit facility). Depending on the extent to which our eligible accounts receivable and inventory balances increase, our borrowing capacity could increase ~~by as much as an additional $8.3 million from~~or decrease in the ~~$18.2 million available as of September 30, 2017 before we are required to maintain the minimum fixed charge coverage ratio as discussed below.~~future. The credit facility contains various customary affirmative and negative covenants, including prohibiting us from incurring indebtedness without the lender’s consent. Under the terms of the credit facility, if our Total Liquidity (as defined in the credit facility) is less than $5.0 million, we are required to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 for the applicable measurement period. Our Total Liquidity was ~~$34.2~~$62.5 million at ~~September~~June 30, ~~2017,~~2022, and therefore that financial covenant was not applicable at that time.

~~Business Combinations~~

Underwritten Offerings

In ~~August 2016,~~April 2021, we entered into an asset purchase agreement with NLT to acquire certain of the assets of NLT’s medical device business related to the expandable interbody medical devices. We made an up-front cash payment of $1.0 million in connection with the initial closing in September 2016 and issued 350,000sold 5,175,000 shares of ~~our~~ common stock, resulting in January 2017 as contingent closing consideration. At September 30, 2017, we recorded a $2.5 million liability representing the estimated fair value of future contingent milestone payments related to the achievement of certain commercial milestones, which we anticipate will become payable at varying times between 2018 and 2023, and a $2.0 million liability representing the estimated fair value of future contingent royalty payments based on percentages of our future net sales of certain of the products and technology we acquired, which we anticipate will become payable at varying times between 2017 and 2028. The contingent milestone payments, if any, are payable in cash or in shares of our common stock, at our election. The contingent royalty payments, if any, are payable in cash.

~~At The Market Program~~

In August 2016, we entered into an equity distribution agreement with Piper Jaffray & Co. (Piper Jaffray), pursuant to which we may offer and sell shares of our common stock in “at the market” (ATM) offerings (as defined in Rule 415 of the Securities Act of 1933, as amended) having an aggregate offering price up to $25.0 million in gross proceeds from time to time through Piper Jaffray acting as sales agent. During the nine months ended September 30, 2017, we received net proceeds of approximately ~~$15.6~~$94.5 million, ~~net of $0.6 million of~~after deducting underwriting discounts and commissions and estimated offering costs, from the sale of 1,500,000 shares of our common stock. We have the capacity to issue additional shares of our common stock to generate up to $8.8 million of gross proceeds under the equity distribution agreement as of September 30, 2017. Future sales, if any, will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital needs.

~~Cash and Cash Equivalents~~

~~We had cash and cash equivalents totaling approximately $16.7 million and $14.6 million at September 30, 2017 and December 31, 2016, respectively.~~expenses payable by us.

Net Cash Used in Operating Activities

~~Cash~~Net cash used in operating activities for the ~~nine~~six months ended ~~September~~June 30, ~~2017 decreased~~2022 increased by ~~$6.3~~$13.0 million compared to the same period in ~~2016 primarily~~2021 due to ~~lower cash-based operating expenses incurred and lower purchases~~primarily to timing of ~~inventory in the nine months ended September 30, 2017 compared~~payments to ~~the same period in 2016, partially offset by lower cash collections in the nine months ended September 30, 2017 compared to the same period in 2016.~~vendors.

Net Cash Used in Investing ~~Activitie~~sActivities

Net cash used in investing activities ~~was $5.7 million~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 decreased by $22.6 million compared to ~~$6.9 million for~~ the same period in ~~2016.~~2021. The decrease was primarily due to ~~larger investments~~the acquisition of 7D Surgical during the 2021 period, offset by a $5.8 million increase in ~~leasehold improvements in our Carlsbad facility in~~purchases of property and equipment during the ~~first half of 2016 and~~2022 period compared to the ~~$1.0 million cash payment associated with the NLT acquisition during the third quarter of 2016, offset by more instrument purchases in 2017 to support recent spinal implant product launches.~~2021 period.

Net Cash Provided by Financing Activities

Net cash provided by financing activities was ~~$11.5~~$24.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017 and~~2022. It was comprised primarily of ~~$15.6~~$25.0 million of net proceeds from the sale of shares of our common stock under the ATM equity offering program and $0.5 million of proceeds from the sale of shares of our common stock under our 2015 Employee Stock Purchase Plan. We used $4.0 million of cash to repay all of the outstanding borrowings under the credit facility and ~~$0.4~~$1.0 million of proceeds from the issuance of common stock under our ESPP, partially offset by $1.9 million of cash used for tax payments we made on our employees' behalf for shares we withheld from such employees on the vesting of restricted stock awards to ~~repay~~cover statutory tax withholding requirements. Net cash provided by financing activities was $94.6 million for the ~~remaining short-term debt related~~six months ended June 30, 2021. It was comprised primarily of net proceeds of approximately $94.5 million from our April 2021 public offering, $20.0 million of borrowings under the credit facility, $1.6 million of proceeds from the exercise of stock options and $1.0 million proceeds from the issuance of common stock under our ESPP, partially offset by $20.0 million of repayments of borrowings under the credit facility and $2.5 million of cash used for tax payments we made on our employees' behalf for shares we withheld from such employees on the vesting of restricted stock awards to ~~our insurance premium finance agreements (see~~ ~~Note 3, "Debt and Interest"~~ ~~to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report).~~cover statutory tax withholding requirements.

Off-Balance Sheet Arrangements

There were no off-balance sheet arrangements as of ~~September~~June 30, ~~2017~~2022 that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, ~~cash flows,~~ liquidity, capital expenditures or capital resources that is material to our business.

Contractual Obligations and Commitments

There have been no material changes outside the ordinary course of our business to the contractual obligations disclosed in the ~~2016~~2021 10-K.

~~Critical Accounting Policies and the Use of Estimates~~

~~Recently Issued Accounting Pronouncements~~

~~Information regarding new accounting pronouncements is included in~~ ~~Note 2, "Summary of Significant Accounting Policies,"to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report.~~



~~DELAWARE~~Delaware		47-3251758
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)		(I.R.S. EMPLOYER IDENTIFICATION NO.)

~~5770 Armada Drive, Carlsbad, California~~	~~92008~~
~~(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)~~	~~(ZIP CODE)~~



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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Total revenue, net	$	31,742		$	31,741		$	97,832		$	96,341
Cost of goods sold	12,176			13,881			39,342			42,094
Gross profit	19,566			17,860			58,490			54,247
Operating expenses:
Selling, general and administrative	23,674			23,803			71,893			76,166
Research and development	2,834			2,600			9,228			8,534
Intangible amortization	792			955			2,376			3,517
Total operating expenses	27,300			27,358			83,497			88,217
Operating loss	(7,734		)	(9,498		)	(25,007		)	(33,970		)
Other income (expense), net	215			(59		)	387			(33		)
Loss before income taxes	(7,519		)	(9,557		)	(24,620		)	(34,003		)
Benefit for income taxes	(57		)	(103		)	(12		)	(559		)
Net loss	$	(7,462	)	$	(9,454	)	$	(24,608	)	$	(33,444	)
Net loss per share, basic and diluted	$	(0.58	)	$	(0.84	)	$	(2.04	)	$	(2.98	)
Weighted average shares used to compute basic and diluted net loss per share	12,815			11,271			12,079			11,206



Settlement of contingent closing consideration liabilities in connection with acquisition of business (see Note 8)	$	2,548	$	—



(In thousands)
Cash paid for purchase	$	1,000
Contingent closing consideration	2,930
Contingent milestone payments	2,310
Contingent royalty payments	3,010
Total purchase price	$	9,250



	Total		Quoted Price in Active Market (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2017:
Contingent consideration liabilities- current	$	900	$	—	$	—	$	900
Contingent consideration liabilities- non-current	3,632		—		—		3,632
Total contingent consideration	$	4,532	$	—	$	—	$	4,532



December 31, 2016:
Contingent consideration liabilities- current	$	2,855	$	—	$	—	$	2,855
Contingent consideration liabilities- non-current	5,125		—		—		5,125
Total contingent consideration	$	7,980	$	—	$	—	$	7,980



Three Months Ended September 30, 2017	(in thousands)
Balance as of June 30, 2017	$	5,777
Contingent consideration liabilities settled	(3		)
Gain from change in fair value of contingent milestone and royalty payments recorded in selling, general and administrative expenses	(1,242		)
Fair value at September 30, 2017	$	4,532



Nine Months Ended September 30, 2017	(in thousands)
Balance as of January 1, 2017	$	7,980
Contingent consideration liabilities settled	(2,551		)
Gain from change in fair value of contingent closing consideration recorded in other income	(112		)
Gain from change in fair value of contingent milestone and royalty payments recorded in selling, general and administrative expenses	(785		)
Fair value at September 30, 2017	$	4,532



	Payments Due by Calendar Year
	(In thousands)
2017	$	535
2018	2,082
2019	2,130
2020	2,179
2021	2,221
Thereafter	8,474
Total minimum lease payments	$	17,621



	Three Months Ended September 30,						2017 vs. 2016		Nine Months Ended September 30,						2017 vs. 2016
(In thousands, except percentages)	2017			2016			% Change		2017			2016			% Change
Total revenue, net	$	31,742		$	31,741		—	%	$	97,832		$	96,341		1.5	%
Cost of goods sold	12,176			13,881			(12.3	)%	39,342			42,094			(6.5	)%
Gross profit	19,566			17,860			9.6	%	58,490			54,247			7.8	%
Gross margin	61.6		%	56.3		%			59.8		%	56.3		%
Operating expenses:
Selling, general and administrative	23,674			23,803			(0.5	)%	71,893			76,166			(5.6	)%
Research and development	2,834			2,600			9.0	%	9,228			8,534			8.1	%
Intangible amortization	792			955			(17.1	)%	2,376			3,517			(32.4	)%
Total operating expenses	27,300			27,358			(0.2	)%	83,497			88,217			(5.4	)%
Operating loss	(7,734		)	(9,498		)	(18.6	)%	(25,007		)	(33,970		)	(26.4	)%
Other income (expense), net	215			(59		)	(464.4	)%	387			(33		)	(1,272.7	)%
Loss before income taxes	(7,519		)	(9,557		)	(21.3	)%	(24,620		)	(34,003		)	(27.6	)%
Benefit for income taxes	(57		)	(103		)	(44.7	)%	(12		)	(559		)	(97.9	)%
Net loss	$	(7,462	)	$	(9,454	)	(21.1	)%	$	(24,608	)	$	(33,444	)	(26.4	)%


Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs	Period	Total Number of Shares Purchased (1)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs

September 1- September 30	171	$	10.39	—	—
April 1 - April 30						April 1 - April 30	3,688	$	12.19	—	—
May 1 - May 31						May 1 - May 31	1,111	$	9.63	—	—
June 1 - June 30						June 1 - June 30	30,173	$	7.63	—	—



(1)			These shares were surrendered to the Company to satisfy tax withholdings obligations in connection with the vesting of restricted stock awards.


Exhibit No.						Description
3.1*						Amended and Restated Certificate of Incorporation, as amended to date

~~Exhibit No.~~10.1*						~~Description~~ Standard Industrial/Commercial Single-Tenant Lease – Net, dated for reference purposes only June 1, 2022, between Isotis Orthobiologics, Inc. and Monarch RRC Properties, LP
*31.1
31.1*						Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.231.2						Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1***32.1						Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2***32.2						Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS†~~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†~~101.SCH~~						Inline XBRL Taxonomy Extension Schema Document

101.CAL†~~101.CAL~~						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF†~~101.DEF~~						Inline XBRL Definition Linkbase Document

101.LAB†~~101.LAB~~						Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE†~~101.PRE~~						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File (embedded within Exhibit 101.INS Inline XBRL document)



*			Filed herewith
**			These certifications are being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation by reference language in such filing.




	SEASPINE HOLDINGS CORPORATION

Date:	~~November 2, 2017~~August 4, 2022	/s/ Keith C. Valentine
		Keith C. Valentine
		President and Chief Executive Officer
		(Principal Executive Officer)
~~Date:~~	~~November 2, 2017~~
Date:	August 4, 2022	/s/ John J. Bostjancic
		John J. Bostjancic
		Chief Operating and Financial Officer
		(Principal Financial Officer)