UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q

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

For the quarterly period ended September 30, 20172022
or
o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to  
COMMISSION FILE NO. 001-36905
SeaSpine Holdings Corporation
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWAREDelaware47-3251758
(STATE OR OTHER JURISDICTION OF

INCORPORATION OR ORGANIZATION)
(I.R.S. EMPLOYER

IDENTIFICATION NO.)
5770 Armada Drive, Carlsbad, California92008
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)(ZIP CODE)
5770 Armada Drive, Carlsbad, CA 92008
(Address of principal executive offices) (zip code)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (760) 727-8399
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockSPNEThe 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 fileroAccelerated filer
x
Large accelerated fileroAccelerated filer
x
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting companyo
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, 201731, 2022 was 13,429,128.

37,202,800.







SEASPINE HOLDINGS CORPORATION
INDEX

Page
Number
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
34
34
45
56
67
89
911
2226
3139
3140
3241
3241
3241
3345
3345
3445
3445
3446
3547
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
 $96,341
Cost of goods sold12,176
 13,881
 39,342
 42,094
Gross profit19,566
 17,860
 58,490
 54,247
Operating expenses:       
Selling, general and administrative23,674
 23,803
 71,893
 76,166
Research and development2,834
 2,600
 9,228
 8,534
Intangible amortization792
 955
 2,376
 3,517
Total operating expenses27,300
 27,358
 83,497
 88,217
Operating loss(7,734) (9,498) (25,007) (33,970)
Other income (expense), net215
 (59) 387
 (33)
Loss before income taxes(7,519) (9,557) (24,620) (34,003)
Benefit for income taxes(57) (103) (12) (559)
Net loss$(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 share12,815
 11,271
 12,079
 11,206



 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Total revenue, net$67,147 $46,445 $174,158 $135,862 
Cost of goods sold26,637 18,289 66,140 51,137 
Gross profit40,510 28,156 108,018 84,725 
Operating expenses:
Selling and marketing32,983 27,578 95,518 76,413 
General and administrative14,767 11,642 37,898 32,055 
Research and development6,596 6,262 18,095 15,618 
Intangible amortization856 942 2,568 2,577 
Total operating expenses55,202 46,424 154,079 126,663 
Operating loss(14,692)(18,268)(46,061)(41,938)
Other (expense) income, net(419)(231)(976)5,689 
Loss before income taxes(15,111)(18,499)(47,037)(36,249)
Provision (benefit) for income taxes389 (872)(986)(689)
Net loss$(15,500)$(17,627)$(46,051)$(35,560)
Net loss per share, basic and diluted$(0.42)$(0.48)$(1.25)$(1.09)
Weighted average shares used to compute basic and diluted net loss per share37,044 36,419 36,833 32,638 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4




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) $(33,444)
Other comprehensive income       
Foreign currency translation adjustments166
 45
 567
 131
Comprehensive loss$(7,296) $(9,409) $(24,041) $(33,313)




 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net loss$(15,500)$(17,627)$(46,051)$(35,560)
Other comprehensive income (loss)
Foreign currency translation adjustments(493)(170)(1,135)(425)
Comprehensive loss$(15,993)$(17,797)$(47,186)(35,985)
The accompanying notes are an integral part of these condensed consolidated financial statements.






5




SEASPINE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except par value data)
September 30, 2017 December 31, 2016September 30, 2022December 31, 2021
   
ASSETS   ASSETS
Current assets:   Current assets:
Cash and cash equivalents$16,689
 $14,566
Cash and cash equivalents$46,763 $83,106 
Trade accounts receivable, net of allowances of $519 and $48319,822
 20,982
Trade accounts receivable, net of allowances of $166 and $74Trade accounts receivable, net of allowances of $166 and $7438,969 36,231 
Inventories42,276
 45,299
Inventories83,993 72,299 
Prepaid expenses and other current assets2,477
 1,813
Prepaid expenses and other current assets5,141 4,328 
Total current assets81,264
 82,660
 Total current assets174,866 195,964 
Property, plant and equipment, net21,864
 21,863
Property, plant and equipment, net56,360 46,892 
Right of use assetsRight of use assets16,347 6,948 
Intangible assets, net36,859
 41,785
Intangible assets, net36,532 42,056 
GoodwillGoodwill84,595 84,595 
Long-term trade receivableLong-term trade receivable4,568 — 
Other assets718
 857
Other assets856 812 
Total assets$140,705
 $147,165
Total assets$374,124 $377,267 
LIABILITIES AND STOCKHOLDERS' EQUITY   LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:   Current liabilities:
Short-term debt$—
 $445
Accounts payable, trade7,930
 8,537
Accounts payable, trade17,778 20,301 
Accrued compensation5,817
 4,393
Accrued compensation9,578 8,769 
Accrued commissions4,564
 4,398
Accrued commissions12,457 9,877 
Contingent consideration liabilities900
 2,855
Short-term lease liabilityShort-term lease liability2,412 2,234 
Deferred revenueDeferred revenue2,137 1,545 
Other accrued expenses and current liabilities3,979
 3,790
Other accrued expenses and current liabilities10,685 10,255 
Total current liabilities23,190
 24,418
 Total current liabilities55,047 52,981 
Long-term borrowings under credit facility—
 3,835
Long-term borrowings under credit facility25,812 — 
Contingent consideration liabilities3,632
 5,125
Long-term lease liabilityLong-term lease liability15,124 5,866 
Deferred tax liability, netDeferred tax liability, net3,182 4,308 
Other liabilities2,927
 2,810
Other liabilities500 1,748 
Total liabilities29,749
 36,188
Total liabilities99,665 64,903 
   
Commitments and contingencies
 
Commitments and contingencies
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, respectively134
 113
Preferred stock, $0.01 par value; 15,000 authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021Preferred stock, $0.01 par value; 15,000 authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021— — 
Common stock, $0.01 par value; 120,000 authorized; 37,197 and 36,584 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectivelyCommon stock, $0.01 par value; 120,000 authorized; 37,197 and 36,584 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively372 366 
Additional paid-in capital204,752
 180,753
Additional paid-in capital593,306 584,031 
Accumulated other comprehensive income1,839
 1,272
Accumulated other comprehensive income435 1,570 
Accumulated deficit(95,769) (71,161)Accumulated deficit(319,654)(273,603)
Total stockholders' equity110,956
 110,977
Total stockholders' equity274,459 312,364 
Total liabilities and stockholders' equity$140,705
 $147,165
Total liabilities and stockholders' equity$374,124 $377,267 
The accompanying notes are an integral part of these condensed consolidated financial statements.




6


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 amortization8,184
 8,984
Instrument replacement expense1,146
 950
Impairment of spinal instruments—
 919
Provision for excess and obsolete inventories3,229
 4,057
Amortization of debt issuance costs104
 105
Deferred income tax provision (benefit)103
 (80)
Stock-based compensation4,505
 5,406
Gain from change in fair value of contingent consideration liabilities(897) —
Changes in assets and liabilities:   
Accounts receivable1,405
 4,182
Inventories1,814
 87
Prepaid expenses and other current assets(653) 1,051
Other non-current assets(11) 102
Accounts payable(1,160) (3,941)
Accrued commissions166
 (277)
Other accrued expenses and current liabilities2,600
 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 options488
 356
Proceeds from issuance of common stock, net of offering costs- ATM transactions15,557
 —
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards(48) (25)
Net cash provided by financing activities11,532
 4,455
Effect of exchange rate changes on cash and cash equivalents418
 187
Net change in cash and cash equivalents2,123
 (12,621)
Cash and cash equivalents at beginning of period14,566
 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)

7



  Common Stock  Additional  Accumulated Other   Total
 Number of    Paid-In Comprehensive Accumulated Stockholders'
 Shares  Amount  Capital Income Deficit  Equity
Balance December 31, 201611,258
 $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 issued252
 2
 968
 —
 —
 970
Issuance of common stock under employee stock purchase plan71
 1
 452
 —
 —
 453
Issuance of common stock- NLT Spine Ltd contingent closing consideration350
 3
 2,545
 —
 —
 2,548
Issuance of common stock, net of offering costs- ATM transactions1,500
 15
 15,542
 —
 —
 15,557
Issuance of common stock- exercise of stock options5
 —
 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, 201713,429
 $134
 $204,752
 $1,839
 $(95,769) $110,956


 Nine Months Ended September 30,
 20222021
OPERATING ACTIVITIES:
Net loss$(46,051)$(35,560)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization12,838 10,280 
Instrument replacement expense4,549 2,665 
Provision for excess and obsolete inventories3,649 3,891 
Deferred income tax benefit(1,089)— 
Stock-based compensation10,172 8,791 
Gain on forgiveness of Paycheck Protection Program Loan— (6,173)
Other112 429 
Changes in assets and liabilities, net of the effects from acquisition:
Accounts receivable(3,520)(753)
Inventories(13,647)(17,995)
Prepaid expenses and other current assets(830)248 
Long-term trade receivable(4,568)— 
Other non-current assets(133)220 
Accounts payable1,432 9,729 
Accrued commissions2,577 1,053 
Other accrued expenses and current liabilities886 1,405 
Other non-current liabilities(563)(607)
Net cash used in operating activities(34,186)(22,377)
INVESTING ACTIVITIES:
Purchases of property and equipment(25,043)(16,894)
Additions to technology assets(700)(1,161)
Acquisitions— (28,331)
Net cash used in investing activities(25,743)(46,386)
FINANCING ACTIVITIES:
Borrowings under credit facility25,000 20,000 
Repayments of credit facility— (20,000)
Debt issuance costs— (45)
Proceeds from issuance of common stock- employee stock purchase plan964 1,016 
Proceeds from exercise of stock options31 1,996 
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(1,888)(2,781)
Payment of contingent royalty consideration liabilities in connection with acquisition of
business		(39)(33)
Net cash provided by financing activities24,068 94,684 
Effect of exchange rate changes on cash and cash equivalents(482)(301)
Net change in cash and cash equivalents(36,343)25,620 
Cash and cash equivalents at beginning of period83,106 76,813 
Cash and cash equivalents at end of period$46,763 $102,433 
Supplemental cash flow information:
Interest paid$114 $253 
Income taxes paid$130 $148 
Non-cash investing activities:
Purchases of property and equipment in liabilities$3,507 $4,648 
Intangible assets payments in liabilities$— $200 
Non-cash financing activities:
Issuance of common stock - Acquisition$— $61,048 
Exchangeable shares - Acquisition$— $26,505 
The accompanying notes are an integral part of these condensed consolidated financial statements.

8




SEASPINE HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
(In thousands)
 Common Stock Additional Accumulated OtherTotal
Number of Paid-InComprehensiveAccumulatedStockholders'
Shares Amount CapitalIncome (Loss)Deficit Equity
Balance December 31, 202136,584 $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 Shares50 1 (1)— — — 
Restricted stock issued155 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, 202236,789 368 585,265 1,395 (290,207)296,821 
Net loss— — — — (13,947)(13,947)
Foreign currency translation adjustment— — — (467)— (467)
Restricted stock issued192 2 (1)— — 1 
Issuance of common stock under employee stock purchase plan201 2 962 — — 964 
Issuance of common stock- exercise of stock options3 — 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, 202237,185 372 589,681 928 (304,154)286,827 
Net loss— — — — (15,500)(15,500)
Foreign currency translation adjustment— — — (493)— (493)
Restricted stock issued12 — — — — — 
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units— — (27)— — (27)
Stock-based compensation— — 3,652 — — 3,652 
Balance September 30, 202237,197 372 593,306 435 (319,654)274,459 
9


 Common Stock Additional Accumulated OtherTotal
Number of Paid-InComprehensiveAccumulatedStockholders'
Shares Amount CapitalIncomeDeficit Equity
Balance December 31, 202027,729 $277 $388,574 $2,124 $(219,257)$171,718 
Net loss— — — — (12,720)(12,720)
Foreign currency translation adjustment— — — (357)— (357)
Restricted stock issued175 2 — — — 2 
Issuance of common stock - exercise of stock options44 — 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, 202127,948 279 389,198 1,767 (231,977)159,267 
Net loss— — — — (5,213)(5,213)
Foreign currency translation adjustment— — — 102 — 102 
Restricted stock issued71 1 (1)— — — 
Issuance of common stock under employee stock purchase plan109 1 1,015 — — 1,016 
Issuance of common stock- Public Offering5,175 52 94,479 — — 94,531 
Issuance of common stock- Acquisition2,991 30 61,018 — — 61,048 
Issuance of common stock- Exchangeable Shares— — 26,505 — — 26,505 
Issuance of common stock- exercise of stock options81 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, 202136,375 364 576,290 1,869 (237,190)341,333 
Net loss— — — — (17,627)(17,627)
Foreign currency translation adjustment— — — (170)— (170)
Restricted stock issued22 — — — — — 
Issuance of common stock- exercise of stock options30 — 393 — — 393 
Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units— — (237)— — (237)
Stock-based compensation— — 3,149 — — 3,149 
Balance September 30, 202136,427 364 579,595 1,699 (254,817)326,841 

The accompanying notes are an integral part of these condensed consolidated financial statements.
10


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) referencescommercialization 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" referimprove accuracy of screw placement and provide a cost-effective, rapid, radiation-free solution to Integra LifeSciences Holdings Corporationsurgical 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, 20162021 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 months ended September 30, 20172022 are not necessarily indicative of the results expected for the full year. The condensed consolidated balance sheet as of December 31, 20162021 was derived from the audited consolidated financial statementsbalance 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 $3.2 million adjustment noted in the tables below reflects the change in foreign currency fluctuations.
11
SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Three Months EndedSix Months Ended
June 30, 2021June 30, 2021
As ReportedAdjustmentAs RevisedAs ReportedAdjustmentAs Revised
 (In thousands)
Condensed Consolidated Statements of Comprehensive Loss:
Foreign currency translation adjustments$(3,070)$3,172 $102 $(3,427)$3,172 $(255)
Comprehensive loss(8,283)3,172 (5,111)(21,360)3,172 (18,188)
As of June 30, 2021
As ReportedAdjustmentAs Revised
Condensed Consolidated Statements of Equity:
Accumulated other comprehensive (loss) income$(1,303)$3,172 $1,869 
Foreign currency translation adjustments(3,070)3,172 102 
Total stockholders' equity338,161 3,172 341,333 
Condensed Consolidated Balance Sheet:
Intangible assets, net$57,015 $1,203 $58,218 
Goodwill73,845 1,983 75,828 
Other assets389 (14)375 
Total assets397,212 3,172 400,384 
Accumulated other comprehensive (loss) income$(1,303)$3,172 $1,869 
Total stockholders' equity338,161 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.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Going Concern
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. As of September 30, 2022, the Company had cash and cash equivalents totaling approximately $46.8 million and $0.6 million of borrowing capacity available under its credit facility. The Company incurred net losses in each year since inception. Its net losses were $46.1 million and $35.6 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the Company had an accumulated deficit of $319.7 million. The Company anticipates that its expenses will increase as it continues to invest in the expansion of its business, primarily in sales, marketing and research and development, and invests in inventory, spinal implant set builds and instrument capital expenditures. In addition, 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. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern and, based on its operating plans and current liquidity resources, it does not believe that it has sufficient resources to fund operations and meet its contractual obligations for the 12 months following the issuance date of these consolidated financial statements. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty and assumes that the Company will continue as a going concern through the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
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SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Subsequent to the quarter end, the Company entered into an agreement and plan of merger with Orthofix Medical Inc., a Delaware corporation (“Orthofix”), which contemplates a merger of equals in an all stock transaction. See Note 12. Subsequent Events for further discussion. There is no assurance that the proposed merger with Orthofix will be consummated. If the merger is not consummated, the Company could be forced to raise funds through an equity or debt offering, 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 and its ability to continue operations.

COVID-19; Ukraine Conflict

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.
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 ofPreparing 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.

RecentRecently Adopted 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,June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU or Update) No. 2014-09, Revenue from Contracts2016-13, Financial Instruments - Credit Losses (Topic 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 was effective for the Company beginning January 1, 2022 and primarily impacted trade accounts receivable. The amendments in this update were adopted using a modified retrospective transition method as of January 1, 2022, which had no cumulative impact to retained earnings. The adoption of this new standard had no material impact on the Company's consolidated financial statements. The Company's concentrations of credit risks are limited due to the large number of customers and their dispersion across a number of geographic areas. Substantially all of the Company's trade receivables are concentrated in the 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 the Company's customers. The 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.
9
13
SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Customers (Topic 606). The new standard providesCompany evaluates the collectability of accounts receivable based on a five-step approachcombination of factors. In circumstances where a specific customer is unable to meet its financial obligations to the Company, 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 reasonably expected to be applied tocollected. For all contracts with customers. The new standard also requires expanded disclosure about revenue recognition. The new standard as amended by ASU 2015-14 will be effective for the Company beginning on January 1, 2019, and for interim periods within annual periods beginning on January 1, 2020. The Company performedother customers, 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 11provision to the Condensed Consolidated Financial Statements provides detailsallowances for doubtful accounts for expected credit losses is recorded based on factors including the length of time the receivables are past due, the current business environment, the geographic market and the Company’s current lease arrangements. Whilehistorical experience. Provisions to the Company continuesallowances for doubtful accounts for expected credit losses are recorded to evaluategeneral and administrative expenses. Account balances are charged off against the impactallowance when it is probable that the receivable will not be recovered. The allowance for doubtful accounts for expected credit losses was $166 thousand and $74 thousand as of this new standard on its consolidated financial statements, the Company currently expects the primary impact will be to record right-of-use assetsSeptember 30, 2022 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 material impact on its consolidated results of operations or cash flows.December 31, 2021, respectively.

In August 2016, the FASB issued Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash
Receipts and Cash Payments. This new standard addresses eight specific cash flow issues related to cash receipts and cash payments with the objective of reducing the existing diversity of presentation and classification in the statement of cash flows. The new standard will be effective for the Company beginning on January 1, 2019, and interim periods within annual periods beginning on 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 withinASU 2017-04 simplifies the scopeaccounting 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 sellinggoodwill impairment test, which requires a hypothetical purchase price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The guidanceallocation. ASU 2017-04 was effective for the Company beginning on January 1, 2017,2022 and interim periods within annual periodswas 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. Adoption2022. The adoption of this new guidance hasstandard had no material impact on the Company’sits 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 andor units, and any assumed issuances under the Company's 2015 Employee Stock Purchase Plan, asemployee stock purchase plan, because the effect, in each case, would be antidilutive. Common stock equivalents, including the Exchangeable Shares (as defined below), of 3.47.3 million and 6.5 million shares for each of the three and nine months ended September 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

10
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 2016N.A. (as amended, the Credit Facility). On July 15, 2022, the Company entered into an amendment to the Credit Facility which, among other things, extends the maturity date from July 27, 2022 to July 27, 2025, and changes the monthly interest rate from an interest rate based on LIBOR and a three-level grid based on the 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 Credit Facility provides an asset-backed revolving line of credit of up to $30.0 million. In addition, under the Credit Facility, at any time prior to July 15, 2025, the Company may increase the $30.0 million in borrowing capacity with a maturity date of December 24, 2018, which maturity date islimit by up to an additional $10.0 million, subject to the Company having sufficient amounts of eligible accounts receivable and inventory and to customary conditions precedent, including obtaining the commitment of lenders to provide such additional amount. The Company paid to Wells Fargo a one-time, one-year extension at$150,000 closing fee in connection with parties entering into the Company's election.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 September 30, 2022, there was $25.8 million outstanding under the Credit Facility. There were no amounts outstanding at December 31, 2021. As of September 30, 2022, the effective interest rate on the amounts borrowed was 4.78%. At September 30, 2022, the Company had $0.6 million of current borrowing capacity under the Credit Facility before the
14
SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
requirement to maintain the minimum fixed charge coverage ratio as discussed below. Debt issuance costs and legal fees related to the amendment of the Credit Facility totaling $0.3 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 LIBORSOFR 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) SOFR rate plus 2.502.65 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 paypays an unused line fee in anbased 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 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:

September 30, 2022December 31, 2021
 (In thousands)
Finished goods$58,015 $49,405 
Work in process19,777 17,644 
Raw materials6,201 5,250 
$83,993 $72,299 

11
15
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 process8,214
 10,554
Raw materials2,880
 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 theFASB Accounting Standards Codification, (ASC) 350-40, Internal-Use Software.Software (Subtopic 350-40).
The cost of purchased spinal instruments whichthat 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 instrumentinstruments 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 administrativemarketing expense.

12
SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Property, plant and equipment balances and corresponding useful lives were as follows:
September 30, 2022December 31, 2021Useful Lives
September 30, 2017 December 31, 2016 Useful Lives (In thousands)
(In thousands) 
Leasehold improvement$5,320
 $5,003
 Lease Term
Leasehold improvementsLeasehold improvements$6,641 $6,501 Shorter of lease term or useful life
Machinery and production equipment7,014
 6,826
 3-10 yearsMachinery and production equipment11,004 10,408 3-10years
Spinal instrument sets23,187
 26,618
 5 years
Spinal instruments and setsSpinal instruments and sets50,091 45,076 4-6years
Information systems and hardware7,402
 6,918
 3-7 yearsInformation systems and hardware9,834 8,186 3-7years
Furniture and fixtures1,102
 1,058
 3-5 yearsFurniture and fixtures2,086 2,097 3-5years
Construction in progress7,505
 7,828
 Construction in progress22,202 17,615 
Total51,530
 54,251
  Total101,858 89,883 
Less accumulated depreciation and amortization(29,666) (32,388) Less accumulated depreciation and amortization(45,498)(42,991)
Property, plant and equipment, net$21,864
 $21,863
 Property, plant and equipment, net$56,360 $46,892 
Depreciation and amortization expenses totaled $1.0$2.5 million and $1.1$2.2 million for the three months ended September 30, 20172022 and 2016,2021, respectively, and $3.1$7.3 million and $3.4$5.5 million for the nine months ended September 30, 20172022 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$1.9 million and $0.2$1.0 million for the three months ended September 30, 20172022 and 2016,2021, respectively, and $1.1$4.5 million and $1.0$2.7 million for the nine months ended September 30, 20172022 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.


16
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 September 30, 2022
Weighted
Average
Life
 Cost 
Accumulated
Amortization
 Net Weighted
Average
Life		CostAccumulated
Amortization		Net
(Dollars in thousands) (Dollars in thousands)
Product technology12 years $40,769
 $(24,967) $15,802
Product technology12 years$65,642 $(35,442)$30,200 
Customer relationships12 years 56,830
 (35,773) 21,057
Customer relationships12 years56,830 (51,618)$5,212 
Trademarks/brand names— 300
 (300) —
Trademarks/brand names6 years1,600 (615)$985 
Other intangiblesOther intangibles8 years$162 $(27)$135 
 $97,899
 $(61,040) $36,859
$124,234 $(87,702)$36,532 

December 31, 2016 December 31, 2021
Weighted
Average
Life
 Cost 
Accumulated
Amortization
 Net Weighted
Average
Life		CostAccumulated
Amortization		Net
(Dollars in thousands) (Dollars in thousands)
Product technology12 years $40,569
 $(22,218) $18,351
Product technology12 years$65,642 $(32,484)$33,158 
Customer relationships12 years 56,830
 (33,396) 23,434
Customer relationships12 years56,830 (49,241)7,589 
Trademarks/brand names— 300
 (300) —
Trademarks/brand names6 years1,600 (438)1,162 
Other intangiblesOther intangibles8 years159 (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, $6.52022, $6.6 million in 2018, $5.82023, $4.6 million in 2019, $4.92024, $3.3 million in 20202025, and $4.9$3.3 million in 2021. Amortization expense totaled $1.7 million and $1.6 million for2026. For the three months ended September 30, 20172022 and 2016,2021, amortization expense totaled $1.8 million and $2.2 million, respectively, and included $0.9$1.0 million and $0.7$1.3 million, respectively, of amortization of product technology intangible assets that is presented within cost of goods sold. Amortization expense totaled $5.1$5.5 million and $5.6$4.7 million for the nine months ended September 30, 20172022 and

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SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

2016, 2021, respectively, and included $2.7$3.0 million and $2.0$2.2 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.
17
 (In thousands) 
Cash paid for purchase$1,000
Contingent closing consideration2,930
Contingent milestone payments2,310
Contingent royalty payments3,010
Total purchase price$9,250

14
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 share11,271
 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.


15
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


16
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 JaffraySandler & Co. (Piper Jaffray), pursuantCanaccord Genuity LLC, and Stifel, Nicolaus & Company, Incorporated relating to whichthe 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 sellgranted the underwriters an option, exercisable for 30 days, to purchase up to an additional 675,000 shares of its common stock in “atstock. The underwriters exercised this option and the market” (ATM) offerings (as defined in Rule 415offering 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 receivedresulting in net proceeds to the Company of approximately $15.6$95 million, (net of $0.6 million ofafter deducting underwriting discounts and commissions and estimated offering costs) duringexpenses payable by the nine months ended September 30, 2017.Company. The Company intends to useused a portion of the net proceeds for general corporate purposes, including paying down outstandingfrom 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. Theto 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 additionalissued 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 (asapproved 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 2015Restated Plan). Under the 2015Restated 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 Companyaggregate number of shares that may issue upbe issued or transferred pursuant to 3,509,500awards 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 itsthe Company's common stock in respect of awards granted under the 2015Restated Plan. As of September 30, 2017, there2022, 1,411,864 shares were 290,289 shares available to grantfor issuance under the 2015Restated Plan.

In 2016,August 2020, the Company establishedadopted the 20162020 Employment Inducement Incentive Award Plan (the 20162020 Inducement Plan). The plan is a broad-basedterms 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 stockmay not be granted under the 2020 Inducement Plan; (2) there are no annual limits on awards performancethat 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 otherminimum 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 September 30, 2022, 1,171,398 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 directormember of SeaSpinethe Company's board of directors or an affiliateof any board of directors of any parent or who is commencing employment with SeaSpinesubsidiary of the Company, or an affiliate following a bona-fidebona fide period of non-employment by SeaSpinethe 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 underinducement 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 UnitsForfeiture 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 stockall 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 homogenoushomogeneous group of shareowners. For awards and options granted to non-executive employees, the forfeiture rate is estimated to be 15%10% and 9% annually for the nine months ended September 30, 20172022 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 three or nine months ended September 30, 2022 or 2021. During each of the nine months ended September 30, 20172022 and 2016, respectively. There2021, there were 34,800141,575 and 778,75565,540 shares of restricted stock unitsawards granted to employeesnon-employee directors. There were no restricted stock awards granted to non-employee directors during each of the three months ended September 30, 2022 and 2021, respectively.
During the three and nine months ended September 30, 2017, respectively. Of the total2022, 82,743 and 804,150 restricted stock units were granted to employees, 131,523 shares were issued in lieu of cash bonuses earned underrespectively. During the annual incentive program for corporatethree and individual performance in 2016. There were nonine months ended September 30, 2021, 10,600 and 409,385 restricted stock units were granted to employees, respectively. No restricted stock awards were granted to employees during any of the three or nine months ended September 30, 2016. 2022 or 2021.
As of September 30, 2017,2022, there was approximately $3.2$7.9 million of total unrecognized compensation expense related to the unvested portions of restricted stock awards and of restricted stock units. This costexpense is expected to be recognized over a weighted-average period of approximately 1.2 years.

Stock Options

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 variousapplicable vesting periodsperiod within each grant and based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. There were zero143,539 and 43,50053,850 stock options granted during the three months ended September 30, 20172022 and 2016,2021, respectively, and 21,500680,084 and 900,5241,131,863 stock options granted during the nine months ended September 30, 20172022 and 2016,2021, respectively. The following weighted-average assumptions were used in the calculation of fair value for options grants forgranted during the periodsperiod indicated.
 Three Months Ended September 30, Nine Months Ended September 30,Three Months Ended September 30,Nine Months Ended September 30,
 2016 2017 20162022202120222021
Expected dividend yield 0% 0% 0%Expected dividend yield—%—%—%—%
Risk-free interest rate 1.1% 2.0% 1.3%Risk-free interest rate3.2%0.6%2.0%0.6%
Expected volatility 38.1% 35.7% 38.3%Expected volatility54.7%52.3%52.7%51.7%
Expected term (in years) 5.1
 5.1
 4.9
Expected term (in years)4.34.35.14.9
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, theThe expected volatility is calculated based upon the historical volatility of comparable companies in the medical device industry whoseCompany'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 30, 2017,2022, there was approximately $1.2$5.0 million of total unrecognized compensation expense related to unvested stock options. This costexpense is expected to be recognized over a weighted-average period of approximately 1.11.4 years.

18
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 2015November 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-four24 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).
19
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 authorizesCompany's stockholders approved that amendment in May 2019. In December 2020, the Company's board of directors approved the issuance of up to 400,000an 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 periodperiods that commenced on January 1, 2016 was2021 and July 1, 2021 were terminated, and a new two-year offering period commenced on JulyJanuary 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 JulyJanuary 1, 20162022 was terminated, and a new two-year offering period commenced on JanuaryJuly 1, 20172022 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 months ended September 30, 20172022 was immaterial.
During the nine months ended September 30, 20172022 and 2016,2021, there were 70,537200,642 and 39,955109,178 shares of common stock respectively, purchased under the ESPP.

The Company recognized $0.8 million in expense related to the ESPP for each of the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, 226,675 shares were available under the ESPP for future issuance.
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 Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Expected dividend yield— %— %— %— %
Risk-free interest rate2.8 %0.1 %2.4 %0.1 %
Expected volatility51.3 %58.9 %52.1 %40.7 %
Expected term (in years)1.31.31.30.8
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Expected dividend yield0% 0% 0% 0%
Risk-free interest rate1.3% 0.5% 1.0% 0.6%
Expected volatility25.3% 29.3% 28.1% 30.5%
Expected term (in years)1.2
 1.2
 1.2
 1.2

11.8. LEASES

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 throughequipment. 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 lease agreements. During the nine months endedleases. As of September 30, 2017,2022, the Company entered into twoweighted average remaining 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 termsterm of these two lease agreements are through June 2022operating leases was 8.5 years and February 2026, respectively, and both have anthe weighted average annual cost of less than $0.1 million.


discount rate was 4.6%. For the three months ended
19
20
SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Future minimumSeptember 30, 2022 and 2021, lease payments under the Company'sexpense, which represents expense from operating leases, at September 30, 2017 are as follows:
 Payments Due by Calendar Year
 (In thousands)
2017$535
20182,082
20192,130
20202,179
20212,221
Thereafter8,474
Total minimum lease payments$17,621

Total lease expense for the three months ended September 30, 2017 and 2016 was $0.5$0.6 million and $0.7$0.7 million, respectively, and $1.6 million and $2.3 million forrespectively. For each of the nine months ended September 30, 20172022 and 2016, respectively.2021, lease expense was $1.8 million.
A summary of the Company's remaining lease liabilities at September 30, 2022 are as follows:

Operating Leases
(In thousands)
20221,062 
20232,570 
20242,718 
20252,787 
20262,839 
Thereafter9,655 
Total undiscounted value of lease liabilities$21,631 
Less: present value adjustment(3,612)
Less: short-term leases not capitalized(483)
Present value of lease liabilities17,536 
Less: current portion of lease liability(2,412)
Operating lease liability, less current portion$15,124 
12.

9. INCOME TAXES
The following table provides a summary ofsummarizes the Company’s effective tax rate for the periods indicated:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Reported income tax expense rate(2.6)%4.7 %2.1 %1.9 %
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
        
Reported tax rate0.8% 1.1% —% 1.6%

The Company reportedrecorded an income tax provision for the three months ended September 30, 2022 primarily related to the change in deferred tax assets and liabilities in foreign jurisdictions, the change in US indefinite lived deferred tax liabilities, and current foreign and state income taxes. The Company recorded an income tax benefit for the nine months ended September 30, 2022 and each of the three and nine months ended September 30, 20172021 primarily related to the release of its ASC 740-10 (Accounting for Uncertaintychange in Income Taxes)deferred tax assets and liabilities due to the expiration of the statute of limitations,in foreign jurisdictions, offset by income tax expenses related tocurrent activity in state and foreign and state operations.

The Company reported an income tax benefit for the three and nine months ended September 30, 2016 which was primarily the result of a refund of tax initially paid toward the income tax return for its U.S. subsidiary which was not part of the U.S consolidated tax group for the tax period January 1, 2015 through August 31, 2015operations as well as the release of its ASC 740-10 liabilities due to the expiration of the statute of limitations.

change in U.S. indefinite lived deferred tax liabilities.
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 thefull 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.




13.
21
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 thatExcept for the royalties paid to N.L.T. Spine Ltd. (NLT), the royalties the Company made under these agreementspaid 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.

See Note 12. Subsequent Events for further discussion of commitments related to the proposed merger with Orthofix.


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22
SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)


14.11. SEGMENT AND GEOGRAPHIC INFORMATION

Segment Reporting
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, manufacturemanufacturing and marketing of orthobiologics, spinal implants and of spinal implants.enabling technologies. The Company reports revenue in two 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 forand 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:
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Orthobiologics$16,333
 $16,186
 $51,073
 $49,649
Spinal implants15,409
 15,555
 46,759
 46,692
Total revenue, net$31,742
 $31,741
 $97,832
 $96,341

The Company attributes revenues to geographic areas based on the location of the customer. Total
The following table disaggregates revenue by major geographic area consistedsales channel for each of the following:periods presented (in thousands):
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
United StatesInternationalTotalUnited StatesInternationalTotal
Orthobiologics$23,754 $1,917 $25,671 $69,595 $6,581 $76,176 
Spinal Implants and Enabling Technologies27,381 14,095 41,476 76,533 21,449 97,982 
Total revenue, net$51,135 $16,012 $67,147 $146,128 $28,030 $174,158 
Three Months Ended September 30, 2021Nine Months Ended September 30, 2021
United StatesInternationalTotalUnited StatesInternationalTotal
Orthobiologics$20,145 $2,083 $22,228 $60,389 $6,898 $67,287 
Spinal Implants and Enabling Technologies21,082 3,135 24,217 60,877 7,698 68,575 
Total revenue, net$41,227 $5,218 $46,445 $121,266 $14,596 $135,862 
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 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
United States$28,245
 $28,485
 $87,209
 $87,041
International3,497
 3,256
 10,623
 9,300
Total revenue, net$31,742
 $31,741
 $97,832
 $96,341

SEASPINE HOLDINGS CORPORATION

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. SUBSEQUENT EVENTS
On October 10, 2022, SeaSpine entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Orthofix and Orca Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Orthofix (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into SeaSpine (the “Merger”), with SeaSpine continuing as the surviving company and a wholly-owned subsidiary of Orthofix following the transaction.
Subject to the terms and conditions of the Merger Agreement, at the effective time and as a result of the Merger, each share of common stock of SeaSpine issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive 0.4163 shares of common stock of Orthofix. In addition, at the effective time and as a result of the Merger, Orthofix will assume SeaSpine’s existing equity incentive plans in connection with the Merger, and outstanding SeaSpine equity awards will be automatically converted into Orthofix equity awards (on the same vesting schedule and other terms and conditions as existed prior to such conversion). The conversion of such equity awards will occur at the same exchange ratio as applies to SeaSpine common stock in the Merger, and the exercise price of converted SeaSpine stock options will also be correspondingly adjusted.
Upon completion of the Merger, Orthofix stockholders will own approximately 56.5% of the combined company on a fully diluted basis and SeaSpine stockholders will own approximately 43.5%.

Pursuant to the terms of the Merger Agreement, as of the effective time of the Merger, the board of directors of the combined company will consist of 9 individuals, including five individuals who are nominees of the board of directors of Orthofix (the “Orthofix Directors”) immediately prior to the effective time and four individuals who are nominees of the board of directors of SeaSpine immediately prior to the effective time. The Merger Agreement contemplates that Jon Serbousek will serve as Executive Chairman of the board of directors of the combined company, and Keith Valentine, SeaSpine’s current President and Chief Executive Officer and a member of the SeaSpine board of directors, will serve as President and Chief Executive Officer of the combined company and as a member of its board of directors.
Orthofix has agreed to take action necessary to list the Orthofix shares of common stock to be issued in connection with the Merger on the NASDAQ Global Select Market.
Each party’s obligation to implement the Merger is subject to certain customary conditions, including (i) the approval by Orthofix stockholders of the issuance of shares of Orthofix common stock in connection with the Merger; (ii) the adoption of the Merger Agreement by SeaSpine stockholders holding a majority of the outstanding shares of SeaSpine’s common stock; (iii) all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 having expired or been terminated and all mandatory waiting periods or required consents under any other applicable antitrust or competition laws having expired or been obtained; (iv) no law having been enacted or order issued that remains in effect and has the effect of enjoining or otherwise prohibiting the consummation of the Merger; (v) the truth and accuracy of the other party’s representations and warranties in the Merger Agreement, generally subject to a Material Adverse Effect (as defined in the Merger Agreement) standard; (vi) no Material Adverse Effect of the other party having occurred since the date of the Merger Agreement; and (vii) the performance in all material respects by the other party of all of its covenants and agreements under the Merger Agreement.
Each of Orthofix and SeaSpine have made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants that (i) each party will conduct its business in all material respects in the ordinary course consistent with past practice during the interim period between the execution of the Merger Agreement and the consummation of the Merger; (ii) each party will not engage in certain kinds of transactions or take certain actions during such period; (iii) each party will convene and hold a meeting of its stockholders for the purpose of considering the adoption of the Merger Agreement, in the case of SeaSpine, and for the purpose of approving the issuance of shares of Orthofix common stock in connection with the Merger, in the case of Orthofix; and (iv) the respective boards of directors will recommend, subject to certain exceptions, that, its stockholders adopt the Merger Agreement, in the case of SeaSpine, and its stockholders approve the issuance of shares of Orthofix common stock in connection with the Merger, in the case of Orthofix.
Each party also has agreed not to (i) take certain actions to solicit proposals relating to alternative business combination transactions or (ii) subject to certain exceptions, including the receipt of a Superior Proposal (as such term is defined in the Merger Agreement), enter into discussions or an agreement concerning or provide confidential information in connection with any proposals for alternative business combination transactions.
The Merger Agreement may be terminated by mutual written consent of Orthofix and SeaSpine. The Merger Agreement also contains certain termination rights, including, among others, the right of either party to terminate if (i) the Merger shall not have
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SEASPINE HOLDINGS CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
become effective by the date that is five (5) months following the date of the Merger Agreement (the “Termination Date”), subject to certain conditions, provided that the Termination Date may be extended by either party to the date that is eight (8) months following the date of the Merger Agreement if all conditions to consummate the Merger have been satisfied other than the condition requiring antitrust approvals are not received by the initial Termination Date; (ii) the Orthofix and/or SeaSpine stockholder approvals are not obtained; (iii) the other party breaches its representations and covenants and such breach would result in the closing conditions not being satisfied; or (iv) a governmental body shall have issued any final and non-appealable order or any applicable law shall have been enacted that has the effect of enjoining or otherwise prohibiting the Merger.
The Merger Agreement also provides that Orthofix must pay SeaSpine a termination fee of $13,744,149 plus expenses not to exceed $2 million if the Merger Agreement is terminated because (a) the Orthofix board of directors or committee thereof (i) makes an Orthofix Adverse Recommendation Change (as defined in the Merger Agreement), (ii) does not include its recommendation in the Joint Proxy Statement (as defined in the Merger Agreement), or (iii) publicly proposes to take any actions in clauses (i) and (ii); (b) Orthofix materially breaches the non-solicitation provisions of the Merger Agreement; or (c) Orthofix enters into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) prior to obtaining the requisite Orthofix stockholder approval, and while in compliance with the non-solicitation provisions of the Merger Agreement.
The Merger Agreement provides that SeaSpine must pay Orthofix a termination fee of $10,582,995 plus expenses not to exceed $2 million if the Merger Agreement is terminated because (a) the SeaSpine board of directors or committee thereof (i) makes a SeaSpine Adverse Recommendation Change (as defined in the Merger Agreement), (ii) does not include its recommendation in the Joint Proxy Statement (as defined in the Merger Agreement), or (iii) publicly proposes to take any actions in clauses (i) and (ii), (b) SeaSpine materially breaches the non-solicitation provisions of the Merger Agreement, or (c) SeaSpine enters into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) prior to obtaining the requisite SeaSpine stockholder approval, and while in compliance with the non-solicitation provisions of the Merger Agreement.
This summary of the principal terms of the Merger Agreement are intended to provide information regarding the terms of the Merger Agreement and are not intended to modify or supplement any factual disclosures about Orthofix in its public reports filed with the United States Securities and Exchange Commission (“SEC”). In particular, the Merger Agreement and related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to Orthofix.
The Merger Agreement includes customary representations, warranties and covenants of Orthofix, Merger Sub and SeaSpine made solely for the benefit of the parties to the Merger Agreement. The assertions embodied in those representations and warranties were made solely for purposes of the contract among Orthofix, Merger Sub and SeaSpine and may be subject to important qualifications and limitations agreed to by Orthofix, Merger Sub and SeaSpine in connection with the negotiated terms. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to Orthofix’s SEC filings or may have been used for purposes of allocating risk among Orthofix, Merger Sub and SeaSpine rather than establishing matters as facts. Investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts of Orthofix, Merger Sub and SeaSpine or any of the respective subsidiaries or affiliates.
The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is filed as Exhibit 2.1 to the registrant's current report on Form 8-K filed on October 11, 2022 and incorporated herein by reference.
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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, 20162021 (the 20162021 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:proposed merger with Orthofix, including whether the required regulatory and stockholder approvals will be obtained and the other conditions to closing will be satisfied, potential challenges to the proposed merger, the contractual restrictions on the operation of our business during the pendency of the merger, business operational uncertainties and potential loss of key employees;

•if the proposed merger with Orthofix is not consummated, we may need to raise additional capital to continue our operations, execute our business strategy and remain a going concern;
general economic and business conditions, in both domestic and international markets;
•our expectations and estimates concerning future financial performance, financing plans and the impact of competition;
•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;
•physicians’ willingness to adopt our recently launched and planned products, customers’ continued willingness to pay for our products and third-party payors’ willingness to provide or continue coverage and appropriate reimbursement for any of our products and our ability to secure regulatory clearance and/or approval for products in development;
•our ability to attract and retain new, high-quality distributors and direct sales representatives, 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 or direct sales representatives 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;
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•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;
anticipated demand for our products and our ability to purchase or produce our products in sufficient quantities to meet customer demand;

our ability to manage timelines and costs related to manufacturing our products;
our ability to attract and retain new, high-quality independent sales agents, whether as a result of inability to reach agreement on financial or other contractual terms or otherwise, disruption to our existing distribution network as new independent sales agents are added, and the ability of new independent sales agents to generate growth or offset disruption to existing independent sales agents;

our ability to successfully develop new and next-generation products and the costs associated with designing and developing those new and next-generation products;
our ability to support the safety and efficacy of our products with long-term clinical data;
our ability to obtain additional debt and equity financing to fund capital expenditures and working capital requirements and acquisitions;
the risk of supply shortages, including our dependence on a limited number of third-party suppliers for components and raw materials;
•our ability to protect our intellectual property, including unpatented trade secrets, and to operate without infringing or misappropriating the proprietary rights of others;

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

our ability to complete acquisitions, integrate operations post-acquisition and maintain relationships with customers of acquired entities; and
•other risk factors described in the section entitled “Risk Factors” of the 20162021 10-K.

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.
Overview
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 haveoffer 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 orthobiologicsspinal implants and spinal implant solutionsorthobiologics to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to performfacilitate 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 isour offerings are essential to meet the “complete solution” requirements of neurosurgeons and orthopedic spinethese 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 implantimplants 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 implantsales 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 agentsdistributors that purchase products directly from us and independently sell them. For the three months ended September 30, 2022 and 2021, international sales accounted for approximately 24% and 11% of our revenue, respectively, and 16% and 11% for the nine months ended September 30, 20172022 and 2016, international sales accounted for approximately 11% and 10% of our revenue,2021, respectively. Our policy is not to sell our products through or to participate in physician-owned distributorships.


ForProposed Business Combination

On October 10, 2022, SeaSpine entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Orthofix Medical Inc., a Delaware corporation (“OrthoFix”), and Orca Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Orthofix (“Merger Sub”), pursuant to which, upon the nine months ended September 30, 2017, our total revenue, net was $97.8 millionterms and our net loss was $24.6 million. Forsubject to the same period, revenue from sales of orthobiologics and spinal implants totaled $51.0 million and $46.8 million, respectively. We expect to continue to incur losses as we further investconditions set forth in the expansionMerger Agreement, Merger Sub will merge with and into SeaSpine (the “Merger”), with SeaSpine continuing as the surviving company and a wholly-owned subsidiary of our business, primarily in sales, marketingOrthofix.
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Under the terms of the Merger Agreement, SeaSpine stockholders will receive 0.4163 shares of Orthofix common stock for each share of SeaSpine common stock owned immediately prior to the effective time of the Merger. Immediately following the closing of the Merger, Orthofix stockholders will own approximately 56.5 percent of the combined company, and research and development related expenditures, and fromSeaSpine stockholders will own approximately 43.5 percent of the general and administrative expenses we expectcombined company, on a fully diluted basis.

The consummation of the Merger is subject to incur. Ascustomary conditions, including the approval by Orthofix stockholders of September 30, 2017, our cash and cash equivalents totaled $16.7 million.

SeaSpine was incorporated in Delaware on February 12, 2015the issuance of shares of Orthofix common stock in connection with the spin-offMerger; (ii) the adoption of the Merger Agreement by SeaSpine stockholders holding a majority of the outstanding shares of SeaSpine’s common stock, and all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 having expired or been terminated and all mandatory waiting periods or required consents under any other applicable antitrust or competition laws having expired or been obtained.

Each party also agreed not to (i) take certain actions to solicit proposals relating to alternative business combination transactions or (ii) subject to certain exceptions, including the receipt of a Superior Proposal (as such term is defined in the Merger Agreement), enter into discussions or an agreement concerning or provide confidential information in connection with any proposals for alternative business combination transactions.

The Merger Agreement also contains certain termination rights, including, among others, the right of either party to terminate if the Merger shall not have become effective by the date that is five months following the date of the Merger Agreement, which date may be extended by either party to the date that is eight months following the date of the Merger Agreement if all conditions to consummate the Merger have been satisfied other than the condition requiring antitrust approvals.

The Merger Agreement also provides for the payment of termination fees by both parties under specified circumstances. The amount payable by Orthofix to SeaSpine is $13.7 million plus expenses not to exceed $2 million, and the amount payable by SeaSpine to Orthofix is $10.6 million plus expenses not to exceed $2 million.

The Merger is expected to close in the first quarter of 2023, subject to the satisfaction of applicable conditions.

The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is filed as Exhibit 2.1 to the registrant's current report on Form 8-K filed on October 11, 2022 and incorporated herein by reference.
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 European sales and marketing operations in our 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 fourth quarter of 2021, we notified our European distributors that we will discontinue all sales and marketing activities for our spinal implant portfolio in the European market effective in September 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 implant businessenabling technologies products in the European market.

Acquisition

In May 2021, we acquired 7D Surgical, Inc., a pioneer in the 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 Integra. The spin-off occurred on July 1, 2015.registration, both of which commonly are used for patient registration with traditional navigational systems.


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Components of Our Results of Operations
Revenue
Our net revenue is derived primarily from the sale of orthobiologics, spinal implants and spinal implantenabling technology products acrossin 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 the sale of 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 agentsdistributors and private label partners, we generally recognize revenue when the products are shipped toand the customer or stocking sales agent anddistributor 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
Cost of goods sold primarily consists of the costs of finished goods purchased directly from third parties and raw materials used in the manufacturemanufacturing 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 costscost 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 implantimplants and enabling technology products, and we assemble themthe spinal implants into surgical sets at our kitting and distribution centers. BeginningThe cost to inspect incoming finished goods is included in the fourth quartercost 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, inspectionscrap 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 AdministrativeMarketing 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 spinal implant instrument sets, instrument replacement expense, stock-based compensation, marketingand cost of tradeshows and events and medical education and training.
General and Administrative Expense
Our general and administrative expenses supply chainconsist primarily of payroll and distributionother headcount related expenses, and expenses for information technology, legal, human resources, insurance, finance, facilities, and management andmanagement. We also record gains or losses associated with changes in the fair value of contingent consideration liabilities.liabilities in general and administrative expenses.
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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, $6.52022, $6.6 million in 2018, $5.82023, $4.6 million in 2019, $4.92024, $3.3 million in 20202025 and $4.9$3.3 million in 2021.

2026.

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.
30



RESULTS OF OPERATIONS
 Three Months Ended September 30,2022 vs. 2021Nine Months Ended September 30,2022 vs. 2021
 (In thousands, except percentages)20222021% Change20222021% Change
Total revenue, net$67,147 $46,445 45 %$174,158 $135,862 28 %
Cost of goods sold26,637 18,289 46 %66,140 51,137 29 %
Gross profit40,510 28,156 44 %108,018 84,725 27 %
Gross margin60.3 %60.6 %62.0 %62.4 %
Operating expenses:
Selling and marketing32,983 27,578 20 %95,518 76,413 25 %
General and administrative14,767 11,642 27 %37,898 32,055 18 %
Research and development6,596 6,262 5 %18,095 15,618 16 %
Intangible amortization856 942 (9)%2,568 2,577 — %
Total operating expenses55,202 46,424 19 %154,079 126,663 22 %
Operating loss(14,692)(18,268)(20)%(46,061)(41,938)10 %
Other (expense) income, net(419)(231)81 %(976)5,689 (117)%
Loss before income taxes(15,111)(18,499)(18)%(47,037)(36,249)30 %
Provision (benefit) for income taxes389 (872)(145)%(986)(689)43 %
Net loss$(15,500)$(17,627)(12)%$(46,051)$(35,560)30 %

31
 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 sold12,176
 13,881
 (12.3)% 39,342
 42,094
 (6.5)%
Gross profit19,566
 17,860
 9.6 % 58,490
 54,247
 7.8 %
Gross margin61.6% 56.3%   59.8% 56.3% 

Operating expenses:          

Selling, general and administrative23,674
 23,803
 (0.5)% 71,893
 76,166
 (5.6)%
Research and development2,834
 2,600
 9.0 % 9,228
 8,534
 8.1 %
Intangible amortization792
 955
 (17.1)% 2,376
 3,517
 (32.4)%
Total operating expenses27,300
 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), net215
 (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)%



Three Months Ended September 30, 20172022 Compared to Three Months Ended September 30, 20162021
Revenue
Total revenue, net for the three months ended September 30, 2017,2022, was $31.7$67.1 million, relatively unchangedan increase of 45% compared to the same period in 2016.2021.
Three Months Ended September 30,2022 vs. 2021
20222021% Change
 (In thousands)
Orthobiologics$25,671 $22,228 15 %
United States23,754 20,145 18 %
International1,917 2,083 (8)%
Spinal Implants and Enabling Technologies$41,476 $24,217 71 %
United States27,381 21,082 30 %
International14,095 3,135 350 %
Total revenue, net$67,147 $46,445 45 %
Three Months Ended September 30,2022 vs. 2021
 Three Months Ended September 30, 2017 vs. 2016 20222021% Change
 2017 2016 % Change (In thousands)
 (In thousands)  
Orthobiologics $16,333
 $16,186
 0.9 %
United States 14,890
 14,593
 2.0 %United States$51,135 $41,227 24 %
International 1,443
 1,593
 (9.4)%International16,012 5,218 207 %
% of total revenue, net 51% 51%  
      
Spinal Implants $15,409
 $15,555
 (0.9)%
United States 13,355
 13,892
 (3.9)%
International 2,054
 1,663
 23.5 %
% of total revenue, net 49% 49%  
      
Total revenue, net $31,742
 $31,741
 — %Total revenue, net$67,147 $46,445 45 %
  Three Months Ended September 30, 2017 vs. 2016
  2017 2016 % Change
  (In thousands)  
United States $28,245
 $28,485
 (0.8)%
International 3,497
 3,256
 7.4 %
Total revenue, net $31,742
 $31,741
 — %
Revenue from orthobiologics sales of orthobiologics was $16.3totaled $25.7 million for the three months ended September 30, 2017,2022, an increase of $0.1$3.4 million or 0.9%15%, from the same period in 2016.2021. Revenue from sales of our orthobiologics productssales in the United States increased $0.3$3.6 million to $14.9$23.8 million for the three months ended September 30, 20172022 compared to the same period in 2016


and2021. The increase was primarily driven by growthhigher sales of recently launched products. During the three months ended September 30, 2022, sales of products launched within the past five years increased to 48% of U.S. orthobiologics revenue compared to 43% for the same period in sales across multiple product lines generated from recently added independent sales agents.2021. Revenue from internationalorthobiologics sales of our orthobiologics products,internationally, which can be volatile from quarter to quarter because of irregular ordering patterns from our stocking sales agents,distributors, decreased $0.2 million for the three months ended September 30, 20172022 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$41.5 million for the three months ended September 30, 2017, a decrease2022, an increase of $0.1$17.3 million or 0.9%71%, from the same period in 2016.2021. Revenue from sales of our spinal implant productsimplants and enabling technology sales in the United States decreased $0.5increased $6.3 million to $13.4$27.4 million for the three months ended September 30, 20172022 compared to the same period in 2016, primarily due to lower prices and decreased usage of our legacy systems, which outpaced the2021. The revenue growth contributedin the current year period was driven by recently launched products, predominantly those products that were alpha or fully launched since 2020, and fromwhich 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 internationalspinal 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$11.0 million for the three months ended September 30, 20172022 as compared to the same period in 2016, which2021. The spinal implants and enabling technology revenue growth for international was primarily attributabledriven by final spinal implant stocking orders to increased salesEuropean distributors prior to the Company’s exit from that market in Europe.September 2022.
Cost of Goods Sold and Gross Margin
Cost of goods sold decreased $1.7increased $8.3 million, to $12.2$26.6 million for the three months ended September 30, 2017,2022, compared to the same period in 2016.2021. Gross margin was 61.6%remained relatively consistent at 60.3% for the three months ended September 30, 20172022 and 56.3%60.6% for the same period in 2016. The increase in gross margin was mainly driven by lower manufacturing costs for orthobiologics products manufactured at our Irvine, California 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.2021.
Cost of goods sold included $0.9$1.0 million and $0.7$1.3 million of amortization for product technology intangible assets for the three months ended September 30, 20172022 and 2016,2021, respectively.
32


Selling General and AdministrativeMarketing
SG&ASelling and marketing expenses decreased $0.1increased $5.4 million to $23.7$33.0 million for the three months ended September 30, 20172022 compared to the same period in 2016. This decrease2021. The increase was mainly driven primarily by a $1.2higher 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 $3.1 million non-cash gain related to a decrease in$14.8 million for the fair value of contingent consideration liabilitiesthree months ended September 30, 2022, primarily due to transaction costs 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)proposed merger with Orthofix, higher travel and a $1.0 million decrease in consulting and other expenses due to the completion in late 2016 of the outsourcing project to our third party logistics provider. These decreases were partially offset by a $1.0 million increase in selling commissions and a $1.0 million increase in accrued incentive-based compensationheadcount 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.expenses.
Research and Development
R&DResearch and development expenses increased $0.2$0.3 million to $2.8$6.6 million, or 8.9%10% of revenue, for the three months ended September 30, 20172022 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&D2021 due to be between 8%research and 10% of revenue, as we continue to accelerate the designdevelopment headcount and commercialization of new and next generation products to expand our product portfolio and conduct additional clinical activities.related project expenses.
Intangible Amortization
Intangible amortization expense, excluding the amounts reported in cost of goods sold for product technology intangible assets decreased $0.2was $0.9 million to $0.8 millionfor each of the three months ended September 30, 2022 and 2021, respectively.
Income Taxes
 Three Months Ended September 30,
 20222021
 (In thousands)
Loss before income taxes$(15,111)$(18,499)
Provision (benefit) for income taxes389 (872)
Effective tax rate(2.6)%4.7 %
We recorded an income tax provision for the three months ended September 30, 2017 compared2022 primarily related to the same periodchange in 2016. The decrease was primarily due to a customer relationships intangible that was fully amortized by July 2016.


Income Taxes
 Three Months Ended September 30,
 2017 2016
 (In thousands)
Loss before income taxes$(7,519) $(9,557)
Benefit for income taxes(57) (103)
Effective tax rate0.8% 1.1%

deferred tax assets and liabilities in foreign jurisdictions, the change in US indefinite lived deferred tax liabilities, and current foreign and state income taxes. We reportedrecorded an income tax benefit for the three months ended September 30, 20172021 primarily related to the release of our ASC 740-10change in deferred tax assets and liabilities due to the expiration of the statute of limitations,in foreign jurisdictions, offset by income tax expenses related to ourcurrent activity in state and foreign and state operations.

We reported an income tax benefit for the three months ended September 30, 2016 which was primarily the result of a refund of tax initially paid toward the income tax return for our U.S. subsidiary which was not part of the U.S consolidated tax group for the tax period January 1, 2015 through August 31, 2015operations as well as the release of our ASC 740-10 liabilities due to the expiration of the statute of limitations.

change in US indefinite lived deferred tax liabilities.
In addition, for all periods presented, theany pretax losses incurred by the consolidated U.S. tax group, receivedwe 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 treated as an asset purchase for US tax purposes and a stock purchase for Canadian tax purposes in 2021. As such, 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 September 30, 2022, a net tax expense of $0.3 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.


33




Nine Months Ended September 30, 20172022 Compared to Nine Months Ended September 30, 20162021
Revenue
Total revenue, net for the nine months ended September 30, 2017 increased by $1.52022 was $174.2 million, to $97.8 millionan increase of 28% compared to $96.3 million for the same period in 2016.2021.
Nine Months Ended September 30,2022 vs. 2021
20222021% Change
 (In thousands)
Orthobiologics$76,176 $67,287 13 %
United States69,595 60,389 15 %
International6,581 6,898 (5)%
Spinal Implants and Enabling Technologies$97,982 $68,575 43 %
United States76,533 60,877 26 %
International21,449 7,698 179 %
Total revenue, net$174,158 $135,862 28 %
Nine Months Ended September 30,2022 vs. 2021
 Nine Months Ended September 30, 2017 vs. 2016 20222021% Change
 2017 2016 % Change (In thousands)
 (In thousands)  
Orthobiologics $51,073
 $49,649
 2.9 %
United States 45,967
 44,411
 3.5 %United States$146,128 $121,266 21 %
International 5,106
 5,238
 (2.5)%International28,030 14,596 92 %
% of total revenue, net 52% 52%  
      
Spinal Implants $46,759
 $46,692
 0.1 %
United States 41,242
 42,631
 (3.3)%
International 5,517
 4,061
 35.9 %
% of total revenue, net 48% 48%  
      
Total revenue, net $97,832
 $96,341
 1.5 %Total revenue, net$174,158 $135,862 28 %
  Nine Months Ended September 30, 2017 vs. 2016
  2017 2016 % Change
  (In thousands)  
United States $87,209
 $87,041
 0.2%
International 10,623
 9,300
 14.2%
Total revenue, net $97,832
 $96,341
 1.5%

Revenue from orthobiologics sales of orthobiologics totaled $51.0$76.2 million for the nine months ended September 30, 2017,2022, an increase of $1.4$8.9 million, or 2.9%, from the same period in 2016.2021. Revenue from sales of our orthobiologics productssales in the United States increased $1.6 million to $46.0$9.2 million for the nine months ended September 30, 20172022 compared to the same period in 2016 and2021. The increase was primarily driven by growthhigher sales of recently launched products. During the nine months ended September 30, 2022, sales of products launched within the past five years increased to 44% of U.S. orthobiologics revenue compared to 41% for the same period in 2021. Revenue from orthobiologics sales across multiple product lines generated by recently added independent sales agents.


internationally, which can be volatile from quarter to quarter because of irregular ordering patterns from our stocking distributors, decreased $0.3 million for the three months ended September 30, 2022 compared to the same period in 2021.
Revenue from sales of spinal implants and enabling technology sales totaled $46.8$98.0 million for the nine months ended September 30, 2017,2022, an increase of $0.1$29.4 million, or 0.1%, from the same period in 2016.2021. Revenue from spinal implants and enabling technology sales in the United States decreased $1.4 million to $41.2increased $15.7 million for the nine months ended September 30, 20172022 compared to the same period in 2016, primarily due to lower prices and decreased usage of our legacy systems, which outpaced the2021. The revenue growth contributedin the current year period was driven by recently launched products.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, and from higher capital sales of enabling technology products from 7D Surgical, which we acquired in May 2021. Revenue from international sales of spinal implants and enabling technology sales internationally increased $1.5$13.8 million for the nine months ended September 30, 20172022 compared to the same period in 20162021. The spinal implants and enabling technology revenue growth for international was primarily duedriven by final spinal implant stocking orders to European distributors and from higher capital sales by a stocking sales agent we added in Latin America in the third quarter of 2016 and to increased sales in Europe.enabling technology products.
Cost of Goods Sold and Gross Margin
Cost of goods sold decreased $2.8increased $15.0 million to $39.3$66.1 million for the nine months ended September 30, 2017,2022, compared to the same period in 2016.2021. Gross margin was 59.8%62.0% for the nine months ended September 30, 2017,2022, compared to 56.3%62.4% for the same period in 2016.2021. The increasedecrease 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 inpurchase 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$3.0 million and $2.0$2.2 million of amortization for product technology intangible assets, for the nine months ended September 30, 20172022 and 2016,2021, respectively.
34


Selling General and AdministrativeMarketing
SG&ASelling and marketing expenses decreased $4.3increased $19.1 million to $71.9$95.5 million for the nine months ended September 30, 20172022 compared to the same period in 2016.2021. The decreaseincrease was mainly driven by a $3.1higher commissions due to the revenue increase, 7D Surgical sales and marketing costs, higher sales, marketing, customer service and logistics headcount and related expenses, additional spinal instrument set depreciation and instrument replacement expense due to product launches, and higher freight and third-party logistics expenses.
General and Administrative
General and administrative expenses increased $5.8 million decreaseto $37.9 million for the nine months ended September 30, 2022 compared to the same period in consulting and other expenses2021, mostly due to transaction costs related to the completion in late 2016proposed merger with Orthofix, the addition of various significant information systemgeneral and administrative expenses attributable to 7D Surgical operations, and higher travel and headcount 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 million spinal instrument impairment charge recorded in 2016, and a $0.8 million non-cash gain related to a decrease in the fair value of contingent consideration liabilities related to the NLT acquisition. These decreasesexpenses, which were partially offset by a $2.0 million increasethe legal, accounting and other due diligence costs incurred in selling commissions.the prior year quarter related to the 7D Surgical acquisition.
Research and Development
R&DResearch and development expenses increased $0.7$2.5 million to $9.2$18.1 million, or 9.4%10% of revenue, for the nine months ended September 30, 20172022 compared to the same period in 2016.2021. The increase was due primarily driven by higher external coststo 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 $1.1was $2.6 million to $2.4 million for each of the nine months ended September 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.

Income Taxes
 Nine Months Ended September 30,
 2017 2016
 (In thousands)
Loss before income taxes$(24,620) $(34,003)
Benefit for income taxes(12) (559)
Effective tax rate—% 1.6%

 Nine Months Ended September 30,
 20222021
 (In thousands)
Loss before income taxes$(47,037)$(36,249)
Benefit for income taxes(986)(689)
Effective tax rate2.1 %1.9 %
We reportedrecorded an income tax benefit for the nine months ended September 30, 20172022 primarily related to the release of our ASC 740-10change in deferred tax assets and liabilities due to the expiration of the statute of limitations,in foreign jurisdictions, offset by incomecurrent 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.



liabilities. We reportedrecorded an income tax benefitprovision for the nine months ended September 30, 2016 which was2021 primarily the result of a refund of tax initially paid toward the income tax return for our U.S. subsidiary which was not part of the U.S consolidated tax group for the tax period January 1, 2015 through August 31, 2015 as well as the release of our ASC 740-10 liabilities duerelated to the expiration of the statute of limitations.

federal, foreign and state operations.
In addition, for all periods presented, theany pretax losses incurred by the consolidated U.S. tax group, receivedwe 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.

See “-Three Months Ended September 30, 2022 Compared to Three Months Ended September 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

Other income for the nine months ended September 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 (CARES Act).



35


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 a similar frequency and magnitude in the future.
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 nine months ended September 30, 2022 and 2021:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Special Charges and (Gains):(In thousands)
Severance and other costs associated with European sales and marketing reorganization$152 $1,665 $558 $1,665 
Purchase accounting inventory fair market value and adjustments— 417 208 417 
Acquisition and integration-related charges for 7D Surgical16 200 378 1,995 
Business combination charges related to Orthofix1,412 — 1,412 — 
Litigation special charges544 — 544 — 
Gain on forgiveness of PPP Loan— — — (6,173)
Total Special Charges and (Gains), net$2,124 $2,282 $3,100 $(2,096)
The items reported above are reflected in the consolidated statements of operations as follows:
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
 (In thousands)
Cost of goods sold$— $417 $208 $417 
General and administrative2,124 1,865 2,892 3,660 
Other expense (income), net— — — (6,173)
Total Special Charges and (Gains), net$2,124 $2,282 $3,100 $(2,096)
36



Other Matters
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
Overview

As of September 30, 2017,2022, we had cash and cash equivalents totaling approximately $16.7$46.8 million and $18.2$0.6 million of current borrowing capacity was available under our credit facility. We incurred net losses in each year since inception. Our net losses were $46.1 million and $35.6 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $319.7 million. We anticipate that our expenses will increase as we continue to invest in the expansion of our business, primarily in sales, marketing and research and development, and invest in inventory, spinal implant set builds and instrument capital expenditures. In addition, we are 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. These circumstances raise substantial doubt about our ability to continue as a going concern and, based on our operating plans and current liquidity resources, we do not believe that we have sufficient resources to fund operations and meet our contractual obligations for the 12 months following the issuance date of the accompanying consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty and assumes that we will continue as a going concern through the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
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Subsequent to the quarter end, we entered into the Merger Agreement with Orthofix, which contemplates a merger of equals in an all stock transaction. See “—Proposed Business Combination,” above. There is no assurance that the proposed Merger will be consummated. If the Merger is not consummated, we could be forced to raise funds through an equity or debt offering, 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 and our ability to continue operations. See “Part II. Other Information—Item 1A. Risk Factors,” below.
Capital Resources
In addition to cash and cash equivalents on hand and the amount currently available to us underfrom operations, our existing credit facility will be sufficientis our primary source of capital. However, we have raised funds in the capital markets in the past and may continue to fund our operations for at least the next twelve months.do so from time-to-time.


Credit Facility

We have a $30.0 million credit facility with Wells Fargo Bank, National Association which expiresmatures in December 2018, subjectJuly 2025 and which, under certain circumstances, could be increased by $10.0 million to a one-time, one-year extension at our election.$40.0 million. At September 30, 2017,2022, we had no$25.8 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 fromor 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$41.9 million at September 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 ofafter 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 $14.6 million at September 30, 2017 and December 31, 2016, respectively.expenses payable by us.
Cash Flows
Nine Months Ended September 30, 2017 vs. 2016 Nine Months Ended September 30,2022 vs. 2021
2017 2016 % Change 20222021% Change
(In thousands)   (In thousands)
Net cash used in operating activities$(4,109) $(10,406) (60.5)%Net cash used in operating activities$(34,186)$(22,377)53 %
Net cash used in investing activities(5,718) (6,857) (16.6)%Net cash used in investing activities(25,743)(46,386)(45)%
Net cash provided by financing activities11,532
 4,455
 158.9 %Net cash provided by financing activities24,068 94,684 (75)%
Effect of exchange rate changes on cash and cash equivalents418
 187
 123.5 %Effect of exchange rate changes on cash and cash equivalents(482)(301)60 %
Net decrease in cash and cash equivalents$2,123
 $(12,621) (116.8)%
Net change in cash and cash equivalentsNet change in cash and cash equivalents$(36,343)$25,620 (242)%
Net Cash Used in Operating Activities
CashNet cash used in operating activities for the nine months ended September 30, 2017 decreased2022 increased by $6.3$11.8 million compared to the same period in 2016 primarily2021 due to lower cash-based operating expenses incurredprimarily to timing of payments to vendors and lower purchases of inventory in the nine months ended September 30, 2017 compared 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.long term receivables generated from our European stocking order sales.
Net Cash Used in Investing ActivitiesActivities
Net cash used in investing activities for the nine months ended September 30, 2022 decreased by $20.6 million compared to the same period in 2021. The decrease was $5.7primarily due to the acquisition of 7D Surgical during the 2021 period, offset by an $8.1 million increase in purchases of property and equipment during the 2022 period compared to the 2021 period.
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Net Cash Provided by Financing Activities
Net cash provided by financing activities was $24.1 million for the nine months ended September 30, 2017 compared to $6.92022. It was comprised primarily of $25.0 million forof borrowings under the same period in 2016. The decrease was primarily due to larger investments in leasehold improvements in our Carlsbadcredit facility in the first half of 2016 and to the $1.0 million cash payment associated withof proceeds from the NLT acquisition during the third quarterissuance of 2016,common stock under our ESPP, partially offset by more instrument purchases in 2017$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 support recent spinal implant product launches.
Net Cash Provided by Financing Activities
cover statutory tax withholding requirements. Net cash provided by financing activities was $11.5$94.7 million for the nine months ended September 30, 2017 and2021. It was comprised primarily of $15.6net proceeds of approximately $94.5 million from our April 2021 public offering, $20.0 million of net proceedsborrowings from the sale of shares of our common stock under the ATM equity offering program and $0.5credit facility, $2.0 million of proceeds from the saleexercise of sharesstock options and $1.0 million proceeds from the issuance of our common stock under our 2015 Employee Stock Purchase Plan. We used $4.0ESPP, partially offset by $20.0 million in repayments of cash to repay all of the outstanding borrowings underfrom the credit facility and $0.4$2.8 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 the remaining short-term debt related 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 30, 20172022 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

ThereWith the exception of our obligations under the merger agreement with Orthofix, there have been no material changes outside the ordinary course of our business to the contractual obligations disclosed in the 20162021 10-K.

Other Matters
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 GAAP. The preparation of 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 estimated 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 that are believed to be reasonable under the current circumstances. Actual results could differ from these estimates.

Note 2, “Summary of Significant Accounting Policies” to the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1 of this report and included in Part II, Item 8 of the 2016 10-K describe the significant accounting policies and estimates used in the preparation of our condensed consolidated financial statements. Those policies and estimates disclosed in the 2016 10-K have not materially changed.
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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The market risk exposures describedForeign Currency Risk
Our wholly owned foreign subsidiaries are consolidated into our financial results and are subject to risks typical of an international business including, but not limited to, differing economic conditions, changes in Part II, Item 7A of the 2016 10-Kpolitical climate, differing tax structures, other regulations and restrictions and foreign exchange volatility. To date, we have not used international currency derivatives to hedge against our investment in our subsidiaries or their operating results, which are converted into U.S. dollars at period-end and average foreign exchange rates, respectively. However, as we continue to expand our business through acquisitions and organic growth, the sales of our products that are denominated in foreign currencies has increased, as well as the costs associated with our foreign subsidiaries which operate in currencies other than the U.S. dollar. Accordingly, our future results could be materially changed duringimpacted by changes in these or other factors.

We are exposed to risk from changes in foreign currency exchange rates, particularly with respect to the Euro and the Canadian dollar. For the nine months ended September 30, 2017.2022 and 2021, sales transacted in foreign currencies accounted for approximately 11% and 5%, respectively of our consolidated net sales. In addition, our exposure to fluctuations in foreign currencies arises because certain of our subsidiaries enter into purchase or sale transactions using a currency other than the subsidiaries’ functional currencies. Accordingly, our future results could be materially impacted by changes in foreign exchange rates or other factors. Currently, we do not use financial instruments to manage the impact of currency fluctuations on our business through hedging transactions.
Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, are primarily cash and cash equivalents, and accounts receivable.


We place our cash and cash equivalents with highly-rated financial institutions and limit the amount of credit exposure to any one entity. We believe we do not have any significant credit risk on our cash and cash equivalents.

Our concentrations of credit risks with respect to trade accounts receivable is limited due to the large number of customers and their dispersion across a number of geographic areas and due to frequent monitoring of the creditworthiness of the customers to whom credit is granted in the normal course of business. Our products are sold on an uncollateralized basis and on credit terms based upon a credit risk assessment of each customer. A portion of our trade receivables to customers outside the United States includes sales to foreign stocking distributors, who then sell to government owned or supported healthcare systems.
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None of our customers accounted for 10% or more of the net sales or accounts receivable for any of the periods presented, with the exception of one European stocking distributor, during the three months ended September 30, 2022.
Interest Rate Risk

In the normal course of business, we are exposed to market risk from changes in interest rates that could affect our results of operations and financial condition. We manage our exposure to interest rate risks through our regular operations and financing activities.

We invest our cash and cash equivalents primarily in highly-rated corporate commercial paper and bank deposits. Currently, we do not use derivative financial instruments in our investment portfolio.
Note 3, “Debt and Interest” to the Notes to Unaudited Condensed Consolidated Financial Statements included in Part I, Item 1 of this report details our interest rates under our credit facility. As of September 30, 2022, we had $25.8 million outstanding under our credit facility. Based upon our overall interest rate exposure as of September 30, 2021, a change of 10 percent in interest rates, assuming the principal amount outstanding remains constant, would have impacted our earnings and cash flow for the nine months ended September 30, 2022 by $1.4 million. This analysis does not consider the effect of the change in the level of overall economic activity that could exist in such an environment.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of our management, our Chief Executive Officer and Chief Operating and Financial Officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of the end of the period covered by this report to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Operating and Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations of Internal Controls

Our management, including our Chief Executive Officer and Chief Operating and Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we are subject to legal proceedings and claims in the ordinary course of business. While management presently believes that the ultimate outcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results of operations, in part because of the insurance policies we maintain that cover certain of these claims, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or outcomes could occur that have individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. We are not currently subject to any pending material legal proceedings,litigation, other than ordinary routine proceedingslitigation incidental to our business, as described above.

ITEM 1A. RISK FACTORS
See "Item 1A. Risk Factors" in Part I of the 2021 10-K for a detailed discussion of the risks we face. The risk factors described in the 20162021 10-K have not materially changed.

changed except for the addition of the following risk factors.

The completion of the Merger is subject to certain closing conditions, including regulatory and stockholder approvals as well as other uncertainties, and there can be no assurances as to whether and when they may be completed.


The respective obligations of the parties to consummate the Merger are subject to the satisfaction or waiver of a number of customary conditions, including:(i) the approval by Orthofix stockholders of the issuance of shares of Orthofix common stock in connection with the Merger and such shares shall have been approved and authorized for listing on NASDAQ; (ii) the adoption of the Merger Agreement by our stockholders holding a majority of the outstanding shares of our common stock; (iii) all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) having expired or been terminated and all mandatory waiting periods or required consents under any other applicable antitrust or competition laws having expired or been obtained; (iv) no law having been enacted or order issued that remains in effect and has the effect of enjoining or otherwise prohibiting the consummation of the Merger; (v) the truth and accuracy of the other party’s representations and warranties in the Merger Agreement, generally subject to a Material Adverse Effect (as defined in the Merger Agreement) standard; (vi) no Material Adverse Effect of the other party having occurred since the date of the Merger Agreement; and (vii) the performance in all material respects by the other party of all of its covenants and agreements under the Merger Agreement. If these conditions are not satisfied (or waived, if applicable) by certain dates specified in the Merger Agreement, either company will have a right to terminate the Merger Agreement in certain circumstances.

The governmental authorities from which authorizations under antitrust laws, including the HSR Act are required have broad discretion in administering the governing laws and regulations, and may take into account various facts and circumstances in their consideration of the Merger, including other potential transactions in our industry or other industries. These governmental authorities may initiate proceedings seeking to prevent, or otherwise seek to prevent, the Merger. As a condition to authorization of the Merger or related transactions, these governmental authorities also may seek to impose requirements, limitations or costs, require divestitures or place restrictions on the conduct of the combined company’s business after completion of the Merger.

We can provide no assurance that all required consents and approvals will be obtained or that all closing conditions will otherwise be satisfied (or waived, if applicable) in a timely manner or at all, and, if all required consents and approvals are obtained and all closing conditions are timely satisfied (or waived, if applicable), we can provide no assurance as to the terms, conditions and timing of such consents and approvals or the timing of the completion of the Merger. Many of the conditions to completion of the Merger are not within either our or Orthofix’s control, and neither company can predict when or if these conditions will be satisfied (or waived, if applicable). Any delay in completing the Merger could cause us not to realize some or all of the benefits that we expect to achieve if the Merger is successfully completed within its expected timeframe.

Failure to complete the Merger could negatively impact our stock price and future business and financial results.

If the Merger is not completed for any reason, including as a result of our stockholders failing to adopt the Merger Agreement or Orthofix shareholders failing to approve the issuance of its shares contemplated by the Merger Agreement, we will remain an independent public company. Our ongoing business may be materially and adversely affected and we would be subject to a number of risks, including the following:
•we may experience negative reactions from the financial markets, including negative impacts on trading prices of our common stock, and from our customers, suppliers, regulators and employees;
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•we may be required to pay Orthofix a termination fee of $10.6 million plus expenses not to exceed $2.0 million if the Merger Agreement is terminated under specified circumstances, including because (1) Orthofix terminated the Merger Agreement because our board of directors changed its recommendation to our stockholders in favor of the Merger, or (2) we have terminated the Merger Agreement to enter into an agreement with respect to a Superior Proposal (as defined in the Merger Agreement);
•the Merger Agreement places certain restrictions on the conduct of our business prior to completion of the Merger, and such restrictions, the waiver of which is subject to the consent of Orthofix, may prevent us from making certain capital expenditures and acquisitions, entering into or amending certain contracts, taking certain other specified actions or otherwise pursuing business opportunities during the pendency of the Merger that we would have made, taken or pursued if these restrictions were not in place; and
•matters relating to the Merger (including integration planning) will require substantial commitments of time and resources by our management and the expenditure of significant funds, which would otherwise have been devoted to day-to-day operations and other opportunities that may have been beneficial to us as an independent company.

If any of these risks materialize, they may materially and adversely affect our business, financial condition, financial results and stock prices.

Combining Orthofix and SeaSpine may be more difficult, costly or time consuming than expected and we may fail to realize the anticipated benefits of the Merger.

The success of the Merger will depend, in part, on the ability to realize the anticipated synergies, operating efficiencies, and cost savings from combining the businesses of Orthofix and SeaSpine. To realize the anticipated benefits and cost savings from the Merger, Orthofix and SeaSpine must integrate and combine their businesses in a manner that permits those cost savings to be realized, without adversely affecting current revenues and future growth. If Orthofix and SeaSpine are not able to successfully achieve these objectives, the anticipated benefits of the Merger may not be realized fully or at all or may take longer to realize than expected. In addition, the actual cost savings of the Merger could be less than anticipated, the costs associated with effecting the Merger may be more than anticipated, and integration may result in additional and unforeseen expenses.

An inability to realize the full extent of the anticipated benefits of the Merger and the other transactions contemplated by the Merger Agreement, as well as any delays encountered in the integration process, could have an adverse effect upon the revenues, levels of expenses and operating results and financial condition of the combined company, which may adversely affect the value of the common stock of the combined company after the completion of the Merger.

Orthofix and SeaSpine have operated and, until the completion of the Merger, must continue to operate, independently. It is possible that the integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect each company’s ability to maintain relationships with suppliers, customers and other third parties with whom a company does business or to achieve the anticipated benefits and cost savings of the Merger. Integration efforts between the two companies may also divert management attention and resources. These integration matters could have an adverse effect on the businesses of Orthofix and/or SeaSpine during this transition period and for an undetermined period after completion of the Merger on the combined company.

Because the consideration to be received by our stockholders in connection with the Merger will include a fixed number of shares of common stock of Orthofix, and the market price of such shares has fluctuated and will continue to fluctuate, our stockholders cannot be sure of the value of the consideration they will receive in the Merger.

The market value of the consideration our stockholders will receive in the Merger will fluctuate with the market price of Orthofix’s common stock. The implied value of the merger consideration to our stockholders has fluctuated since the date of the announcement of the Merger and will continue to fluctuate until the date the Merger is completed, which could occur a considerable amount of time after the date hereof. Orthofix’s share price changes may result from a variety of factors, including, among others, general market and economic conditions, changes in Orthofix’s and our respective businesses, operations and prospects, risks inherent in the respective businesses, changes in market assessments of the likelihood that the Merger will be completed and/or the value that may be generated by the Merger, and changes with respect to expectations regarding the timing of the Merger and regulatory considerations. Many of these factors are beyond both our and Orthofix’s control.

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In addition, upon completion of the Merger, our stockholders will become stockholders of the combined company. The businesses of Orthofix differ from those of SeaSpine in important respects, and, accordingly, the results of operations of the combined company after the Merger, as well as the market price of the Orthofix shares, may be affected by factors different from those currently affecting the results of operations of SeaSpine.

While the Merger is pending, we are subject to business uncertainties and contractual restrictions that could materially adversely affect our operating results, financial position and/or cash flows or result in a loss of employees, customers, or suppliers.

The Merger Agreement includes restrictions on the conduct of our business until the earlier of the completion of the Merger or termination of the Merger Agreement. For example, unless we obtain Orthofix’s prior written consent (which consent may not be unreasonably withheld, conditioned or delayed), we may not, subject to certain exceptions and aggregate limitations, incur additional indebtedness, issue additional shares of our common stock, repurchase our common stock, pay dividends, acquire assets, securities or property, dispose of businesses or assets, enter into material contracts or make certain additional capital expenditures. We may find that these and other contractual restrictions in the Merger Agreement delay or prevent us from responding, or limit our ability to respond, effectively to competitive pressures, industry developments and future business opportunities that may arise during such period, even if our management believes they may be advisable. The pendency of the Merger may also divert management’s attention and our resources from ongoing business and operations.

Our employees, customers, and suppliers may experience uncertainties about the effects of the Merger. It is possible that some customers, suppliers and other parties with whom we have a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationship with us as a result of the pending Merger. Similarly, current and prospective employees may experience uncertainty about their future roles with us following completion of the Merger, which may materially adversely affect our ability to attract and retain key employees. If any of these effects were to occur, it could materially and adversely impact our operating results, financial position and/or cash flows and/or our stock price.

Lawsuits may be filed against us and/or Orthofix challenging the transactions contemplated by the Merger Agreement. An adverse ruling in any such lawsuit may delay or prevent the proposed Merger from being completed.

Lawsuits arising out of or relating to the Merger Agreement, Orthofix’s registration statement on Form S-4 (which will include a document that serves as a prospectus of Orthofix and a joint proxy statement of Orthofix and SeaSpine) and/or the proposed Merger may be filed in the future. One of the conditions to completion of the Merger is the absence of any injunction or other order being in effect that prohibits completion of the Merger. Accordingly, if a plaintiff is successful in obtaining an injunction, then such order may prevent the proposed Merger from being completed, or from being completed within the expected timeframe. In addition, if the Merger is not consummated for any reason, litigation could be filed related to the failure to consummate the Merger.

Regardless of the outcome of any litigation related to the Merger (or the failure of its consummation), such litigation may be time-consuming and expensive, may distract our management from running the day-to-day operations of our business, and may result in negative publicity or an unfavorable impression of us, any of which could adversely affect the price of our common stock, impair our ability to recruit or retain employees, damage our relationships with our customers, suppliers, and other business partners, or otherwise materially harm our operations and financial performance.

We may have difficulty attracting, motivating and retaining executives and other key employees in light of the potential Merger.
Uncertainty about the effect of the Merger on our employees may have an adverse effect on our business. This uncertainty may impair our ability to attract, retain and motivate key employees. Employee retention may be particularly challenging during the pendency of the Merger, as our employees may experience uncertainty about their future roles in the combined business. No assurance can be given that we will be able to attract or retain key employees to the same extent that we have been able to attract or retain teammates in the past.

If the Merger is not consummated, we may need to raise additional capital to continue our operations and execute our operating plans.
As of September 30, 2022, we had cash and cash equivalents totaling approximately $46.8 million and $0.6 million of borrowing capacity available under our credit facility. As of September 30, 2022, we had an accumulated deficit of $319.7 million. Based on our operating plans and current liquidity resources, we do not believe that we have sufficient resources to
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fund operations and meet our contractual obligations for the 12 months following the issuance date of the accompanying consolidated financial statements. The accompanying consolidated financial statements were prepared under the assumption that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty. If the Merger is not consummated, we may need to raise additional capital or we may need to delay, scale back or eliminate some planned operations or reduce expenses to remain a going concern, any of which would have a significant negative impact on our prospects and financial condition, as well as the trading price of our common stock. There can be no assurance that we can raise capital when needed or on terms favorable to us and our stockholders. The COVID-19 pandemic, macroeconomic conditions, and heightened global uncertainties may adversely affect general commercial activity and the U.S. and global economies and financial markets, which increases uncertainty around our ability to access the capital markets when needed and on acceptable terms. Moreover, if we are unable to obtain additional funds on a timely basis, there will be an increased risk of insolvency and up to a total loss of investment by our stockholders.

The ongoing conflict between Russia and Ukraine, and the global response to it, may adversely affect our business and results of operations.
The ongoing conflict between Russia and Ukraine has resulted in the implementation of sanctions by the United States and other governments against Russia and has caused significant volatility and disruptions to the global markets. It is not possible to predict the short- or long-term implications of this conflict, which could include but are not limited to further sanctions, uncertainty about economic and political stability, increases in inflation rate and energy prices, supply chain challenges and adverse effects on currency exchange rates and financial markets. In addition, the United States government reported that United States sanctions against Russia in response to the conflict could lead to an increased threat of cyberattacks against United States companies. These increased threats could pose risks to the security of our information technology systems and networks, as well as the confidentiality, availability and integrity of our data. A significant escalation or further expansion of the conflict's current scope or related disruptions to the global markets could have a material adverse effect on our results of operations.

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

Recent Sales of Unregistered Securities
None.During the third quarter of 2022, we did not issue any securities that were not registered under the Securities Act of 1933, as amended (the Securities Act).
Purchases of Equity Securities by the Issuer
The table below is a summary of purchases of our common stock we made during the quarter covered by this report. Other than as indicated in the table below, no such purchases were made in any other month during the quarter. We do not have any publicly announced repurchase 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
PeriodTotal Number of Shares Purchased (1)Average Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares That May Yet be Purchased Under the Plans or Programs
        
September 1- September 30 171
 $10.39
 —
 —
July 1 - July 31July 1 - July 311,572 $5.79 — — 
August 1 - August 31August 1 - August 311,713 $6.23 — — 
September 1 - September 30September 1 - September 301,060 $6.48 — — 
(1)These shares were surrendered to the Company to satisfy tax withholdings obligations in connection with the vesting of restricted stock awards.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.



ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.
None
45



ITEM 6. EXHIBITS

Exhibit No.Description
2.1(1)
Exhibit No.10.1*Description
*31.1
31.1*
*31.231.2*
32.1***32.1
32.2***32.2
*101.INS*†101.INSInline 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.SCHInline XBRL Taxonomy Extension Schema Document
*101.CAL*†101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
*101.DEF*†101.DEFInline XBRL Definition Linkbase Document
*101.LAB*†101.LABInline XBRL Taxonomy Extension Labels Linkbase Document
*101.PRE*†101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (embedded within Exhibit 101.INS Inline XBRL document)

*Filed herewith
*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.
(1)Incorporated by reference from the registrant's current report on Form 8-K filed on October 11, 2022. The schedules to the Agreement and Plan of Merger have been omitted from this filing pursuant to Item 601(b)(2) of Regulation S-K. Orthofix will furnish copies of any such schedules to the SEC upon request.


† The financial information of SeaSpine Holdings Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 20172022 filed on November 2, 20173, 2022 formatted in XBRL (ExtensibleiXBRL (Inline Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations, (ii) Condensed Consolidated Statements of Comprehensive Loss, (iii) the Condensed Consolidated Balance Sheets, (iv) Parenthetical Data to the Condensed Consolidated Balance Sheets, (v) the Condensed Consolidated Statements of Cash Flows, (vi) the Condensed Consolidated StatementStatements of Equity, and (vii) Notes to Unaudited Condensed Consolidated Financial Statements, is furnished electronically herewith.

46







SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SEASPINE HOLDINGS CORPORATION
Date:November 2, 20173, 2022/s/ Keith C. Valentine
Keith C. Valentine
President and Chief Executive Officer
(Principal Executive Officer)
Date:
Date:November 2, 20173, 2022/s/ John J. Bostjancic
John J. Bostjancic
Chief Operating and Financial Officer
(Principal Financial Officer)

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