XTNT 10-K & 10-Q changes, risk factors and insider trading
Xtant Medical Holdings, Inc. · NYSE · Surgical & Medical Instruments & Apparatus · CIK 1453593 · All filings on SEC.gov
At a glance
What changed in the latest 10-K
Risk Factors
New heading “Some of our biologics products, including our OsteoVive Plus, involve a heightened inherent risk of transmission of disease, which if materialized, could adversely affect our business, operating results, financial condition, reputation and stock price.”
New heading “We identified a material weakness in our internal control over financial reporting as of December 31, 2025, and cannot provide assurances that this weakness will be effectively remediated or that additional material weaknesses will not occur in the future.”
Removed heading “Risks Related to Our Continuing Losses, Outstanding Indebtedness, Need for Additional Financing and Financial Condition”
Removed heading “Risks Related to Our Controlled Company Status”
Removed heading “Risks Related to Our Continuing Losses, Outstanding Indebtedness, Need for Additional Financing and Financial Condition”
Removed heading “We have incurred significant losses, expect to continue to incur losses, and despite our focused goal to obtain profitability, we may never achieve or sustain profitability.”
Removed heading “We may need additional financing to satisfy our anticipated future liquidity requirements, which financing may not be available on favorable terms, or at all, at the time it is needed and which could reduce our operational and strategic flexibility.”
Removed heading “We have significant indebtedness under our Credit Agreements, which contain certain affirmative and restrictive covenants, with which we have had difficulty complying during the past few years. If we are unable to comply with such covenants or generate enough cash flow from our operations to service our indebtedness, our business, financial condition, and operating results would be materially and negatively impacted.”
Removed heading “Our Credit Agreements involve additional risks that may adversely affect our liquidity, results of operations, and financial condition.”
Removed heading “Our growth initiatives designed to increase our revenue and scale may not be successful and involve risks.”
Removed heading “Our dependence on key suppliers of raw materials puts us at risk of interruptions in the availability of our products, which could reduce our sales and adversely affect our operating results and harm our reputation.”
Removed heading “Many competitive products exist, and we expect more will be developed. Our operating results have suffered during the past few years due to intense competition and we may not be able to compete successfully because we are smaller and have fewer financial resources and less ability to invest in the development of new products.”
Removed heading “Our recently entered into license agreements to manufacture and commercially sell in the United States certain of our products and using the trademarks associated therewith and any similar agreements we may enter into may not result in significant revenue.”
Removed heading “We operate in certain markets outside the United States that are subject to political, economic, and social instability and require management attention and financial resources and expose us to additional risks.”
Removed heading “Our efforts to integrate acquired products with our existing product line may not be favorably received, which could negatively impact our results of operations and financial condition. In addition, we may decide to sell one or more of these products that we acquired, which disposition transaction also would involve risks.”
Removed heading “We may be required to incur impairment and other charges resulting from the impairment of goodwill or other intangible assets recorded in connection with acquisitions.”
Removed heading “Fluctuations in foreign currency exchange rates could result in declines in our earnings and changes in our foreign currency translation adjustments.”
Removed heading “Our ability to deduct interest is limited.”
Removed heading “A shift in performing more procedures in ambulatory surgical centers from hospitals would likely reduce the prices of our products and margins.”
Removed heading “Our business, operating results and financial condition may be materially adversely affected by the spread of infectious diseases.”
Removed heading “Our business is subject to extensive regulation, including requirements for regulatory clearances or approvals prior to commercial distribution of our products. If we fail to maintain regulatory clearances and approvals, or are unable to obtain, or experience significant delays in obtaining, FDA clearances or approvals for our future products or product enhancements, our ability to commercially distribute and market these products could suffer.”
Removed heading “Our clinical trials involve risk and expense and may fail to demonstrate competent and reliable evidence of the safety and effectiveness of our products, which in the case of product in development would prevent or delay their commercialization.”
Removed heading “Outside of the United States, our medical devices must comply with the laws and regulations of the foreign countries in which they are marketed, and compliance may be costly and time-consuming. Failure to obtain and maintain regulatory approvals in jurisdictions outside the United States will prevent us from marketing our products in such jurisdictions.”
Removed heading “If our products cause or contribute to a death or serious injury, or malfunction in certain ways, we will be subject to medical device reporting regulations, which can result in voluntary corrective actions or agency or other governmental enforcement actions.”
Removed heading “If we or our suppliers fail to comply with regulations pertaining to human cells, tissues, and cellular and tissue-based products or are deemed to be biological products requiring approval of a BLA prior to being marketed, these products could be subject to withdrawal from the market or other enforcement action.”
Removed heading “Our business is subject to complex and evolving U.S. and international laws and regulation regarding privacy and data protection. Many of these laws and regulations are subject to change and uncertain interpretation and could result in claims, changes to our business practices, penalties, increased cost of operations, or otherwise harm our business.”
Removed heading “Risks Related to Information Technology, Cybersecurity and Data Protection”
Removed heading “Risks Related to Our Controlled Company Status”
Removed heading “Funds affiliated with OrbiMed own a significant percentage of our common stock, have the right to designate a majority of our Board of Directors, and are able to exert significant control over matters subject to stockholder approval, preventing other stockholders and new investors from influencing significant corporate decisions.”
Removed heading “Funds affiliated with OrbiMed have owned a significant percentage of our common stock since 2018 and at some point may distribute some or all of their shares to their limited partners if they cannot otherwise obtain liquidity for all or part of their ownership interests, which distribution likely would have a material adverse impact on our stock price.”
Removed heading “We are a “controlled company” within the meaning of the NYSE American rules and rely on exemptions from various corporate governance requirements that provide protection to stockholders of other companies.”
Removed heading “Our inability to comply with the continued listing requirements of the NYSE American could result in our common stock being delisted, which could affect its market price and liquidity and reduce our ability to raise capital.”
Removed heading “Our Board of Directors is authorized to issue and designate shares of our preferred stock without stockholder approval.”
Removed heading “Our Charter designates the Court of Chancery of the State of Delaware as the exclusive forum for certain litigation that may be initiated by our stockholders, which could limit the ability of our stockholders to obtain a favorable judicial forum for disputes with us.”
Removed heading “Climate change, or legal, regulatory or market measures to address climate change, may materially adversely affect our financial condition and business operations.”
Removed heading “Changes in accounting standards, policies, or assumptions utilized in determining accounting estimates could adversely affect our financial statements, including our operating results and financial condition.”
Removed heading “The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act and the NYSE American, may strain our resources and divert management’s attention, and we may be unable to comply with these requirements in a timely or cost-effective manner.”
Removed heading “Scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.”
Largest changes
“The health of the global economy, and the credit markets and the financial services industry in particular, as well as the stability of the social fabric of our society, affects our business and operating results. Economic slowdowns, periods of high inflation, periods of rising interest rates and recessions, as well as disruptions in access to bank deposits or lending commitments due to bank failures, could materially and adversely affect our revenue, liquidity, financial condition and results of operations. …”see in full comparison
“Although it is difficult for us to predict our future liquidity requirements, we believe that our cash and cash equivalents and restricted cash balance of approximately $17.3 million as of December 31, 2025, together with the $10.7 million in cash we received on February 27, 2026 from Companion Spine in connection with the Divestitures, our anticipated operating cash flows, and amounts available under our Revolving Credit Agreement with MidCap, will be sufficient to meet our anticipated cash requirements through at least the end of March 2027. …”see in full comparison
“These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors or its committees or as our executive officers. …”see in full comparison
“Under the FDA’s reporting regulations applicable to HCT/Ps, we are required to report all adverse reactions involving a communicable disease if it is fatal, life threatening, results in permanent impairment of a body function or permanent damage to body structure, or necessitates medical or surgical intervention, including hospitalization. …”see in full comparison
“Under the FDA medical device reporting regulations and similar foreign governmental regulations, medical device manufacturers are required to report to the FDA or other governmental agencies information that a device has or may have caused or contributed to a death or serious injury or has malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction of the device or one of our similar devices were to recur. …”see in full comparison
“The health of the global economy, and the credit markets and the financial services industry in particular, as well as global wars and conflicts and the stability of the social fabric of our society, affects our business and operating results. Economic slowdowns, periods of high inflation, periods of rising interest rates and recessions, as well as disruptions in access to bank deposits or lending commitments due to bank failures, among other factors, could materially and adversely affect our revenue, operating results, liquidity, and/or financial condition. …”see in full comparison
Full comparison: every changed paragraph (194)
Our
business and an investment in our common stock are subject to a variety of risks. The following risk factors describe some of the material
factors that could have a material adverse effect upon our business, operating results, financial condition, results of operations, prospectus, and/or the market
market price forof our common stock. These disclosures reflect the our beliefs and opinions as to factors that could materially and adversely affect our
Company and our common stock in the future. References to past events are provided by way of example only and are not intended to be a
complete listing or a representation as to whether or not such factors have occurred in the past or their likelihood of occurring in the
future. Many of these eventsrisks are outside of our control. If any of these risks actually occur, our business, operating
results, and financial condition or results of operations may be materially adversely affected. In such case, the market price of our common stock
could decline
and investors in our common stock could lose all or part of their investment. In addition, risks and uncertainties not
currently known
to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition,
operating results, prospectsfinancial condition, prospectus,
and/or stock price.
Risks
Related to Our Continuing Losses, Outstanding Indebtedness, Need for Additional Financing and Financial Condition
Risks Related to Our Outstanding Indebtedness and Financial Condition
Risks
Related to Our Controlled Company Status
Risks
Related to Our Continuing Losses, Outstanding Indebtedness, Need for Additional Financing and Financial Condition
We
have incurred significant losses, expect to continue to incur losses, and despite our focused goal to obtain profitability, we may never
achieve or sustain profitability.
We
have a history of incurring net losses, and as a result, at December 31, 2024, we had an accumulated deficit of $259.5 million. During
the year ended December 31, 2024, we incurred a net loss of $16.4 million. While we remain focused on our goal to obtain profitability,
we may never achieve or sustain profitability. Our ability to achieve profitability will be influenced by many factors, including, among
others, the level and timing of future revenues and expenditures; development, commercialization, market acceptance and availability
and supply of our products; the impact of competing technologies and market developments; our ability to develop and introduce new products;
the impact of regulatory requirements and delays; the strength of our relationships with and the success of our independent sales agents
and distributors; our ability to increase our OEM sales; and our ability to attract and retain key personnel. As a result, despite our
focus on obtaining profitability, we may be unsuccessful and continue to incur operating losses for the foreseeable future. These losses
would continue to have an adverse impact on our stockholders’ equity and likely continue to adversely affect our stock price.
We
may need additional financing to satisfy our anticipated future liquidity requirements, which financing may not be available on favorable
terms, or at all, at the time it is needed and which could reduce our operational and strategic flexibility.
Although
it is difficult for us to predict our future liquidity requirements, we believe that our cash and cash equivalents and restricted cash
balance of approximately $6.2 million as of December 31, 2024, together with existing credit availability under our Amended and Restated
Credit, Security and Guarantee Agreement (Term Loan), (as amended, the “Term Credit Agreement”), and Amended and Restated
Credit, Security and Guaranty Agreement (Revolving Loan), (as amended, the “Revolving Credit Agreement” and, together with
the Term Credit Agreement, the “Credit Agreements”), with MidCap Financial Trust and MidCap Funding IV Trust (together, “MidCap”),
each in its respective capacity as agent, will be sufficient to meet our anticipated cash requirements through at least the end of March
2026. Although we have availability under our Revolving Credit Agreement, the availability of such funds is determined based on a borrowing
base equal to percentages of certain accounts receivable and inventory. These credit facilities have a maturity date of March 1, 2029,
and all of our indebtedness thereunder matures on such date. We may require or we may seek additional funds to fund our future operations
and business strategy prior to March 2026. Accordingly, there is no assurance that we will not need or seek additional funding at any
time. We may elect to raise additional funds even before we need them if market conditions for raising additional capital are favorable.
We may seek to raise additional funds through various sources, such as equity and debt financings or additional debt restructurings or
refinancings. We can give no assurances that we will be able to secure additional sources of funds to support our operations, or if such
funds are available to us, that such additional financing will be sufficient to meet our needs or on terms acceptable to us. This is
particularly true if economic and market conditions deteriorate. Any failure by us to raise additional funds on terms favorable to us,
or at all, could result in our inability to pay our expenses as they come due, limit our ability to expand our business operations, and
harm our overall business prospects. If adequate funds are not otherwise available, we could be required to curtail operations significantly,
including reducing our sales and marketing expenses, which could negatively impact product sales, delaying new product initiatives, and
we could even be required to cease operations, liquidate our assets and possibly seek bankruptcy protection.
To
the extent we raise additional financing through the sale of equity or convertible debt securities or the restructuring or refinancing
of our outstanding debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase
prices, warrant coverage, or liquidation or other preferences that adversely affect the rights of our current stockholders. If we issue
common stock, we may do so at purchase prices that represent a discount to our trading price and/or we may issue warrants to purchasers,
which could dilute our current stockholders. If we issue preferred stock, it could affect the rights of our stockholders or reduce the
value of our common stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences
as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge
with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that include covenants limiting
or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.
Prior to raising additional equity or debt financing, we must obtain the consent of MidCap and ROS and Royalty Opportunities, and no
assurance can be provided that MidCap, ROS or Royalty Opportunities would provide such consent, which could limit our ability to raise
additional financing.
We
have significant indebtedness under our Credit Agreements, which contain certain affirmative and restrictive covenants, with which we
have had difficulty complying during the past few years. If we are unable to comply with such covenants or generate enough cash flow
from our operations to service our indebtedness, our business, financial condition, and operating results would be materially and negatively
impacted.
As
of December 31, 2024, we had $34.2 million of principal outstanding under our Credit Agreements. These Credit Agreements contain certain
affirmative and restrictive covenants, including in particular a $5.0 million minimum liquidity covenant, with which we have had difficulty
complying during the past few years. A failure to comply with the minimum liquidity covenant or other covenants and provisions of our
Credit Agreements may cause suspension or termination of the Credit Agreements and/or require the immediate repayment of our outstanding
indebtedness. If we at any time are unable to meet these covenants or generate sufficient cash flows from operations to service our indebtedness
when payment is due, we may be required to attempt to obtain a waiver of or renegotiate the terms of the Credit Agreements, seek to refinance
all or a portion of the indebtedness, or obtain additional financing. There can be no assurance that we will be able to successfully
obtain a waiver or renegotiate such terms, that any such refinancing would be possible, or that any additional financing could be obtained
on terms that are favorable or acceptable to us; and as a result thereof, our creditors may accelerate our debt and seek to enforce remedies
under the Credit Agreements.
We
may be unable to comply with these covenants, which could result in a default under the Credit Agreements if we are unable to obtain
a waiver at such time. In addition, these provisions may limit our ability to conduct and invest in our business, take advantage of business
opportunities, and respond to changing business, market, and economic conditions. In addition, they may place us at a competitive disadvantage
relative to other companies that may be subject to fewer, if any, restrictions or may otherwise adversely affect our business. Transactions
that we may view as important opportunities, such as significant acquisitions or business combinations, may be subject to the consent
of the lenders, which consent may be withheld or granted subject to conditions specified at the time that may affect the attractiveness
or viability of the transaction. In addition, our Investor Rights Agreement with ROS and Royalty Opportunities (as amended, the “Investor
Rights Agreement”) further substantially limits the operation of our business and the ability of our management to conduct and
invest in our business.
Our
Credit Agreements involve additional risks that may adversely affect our liquidity, results of operations, and financial condition.
Availability
of funds under the Revolving Credit Agreement is determined based on a borrowing base equal to percentages of certain accounts receivable
and inventory of the borrowers in advance with a formula set forth in the Revolving Credit Agreement. As a result, our access to credit
under the Revolving Credit Agreement is subject to fluctuations to our accounts receivable and inventory. Our inability to borrow additional
amounts under the Credit Agreements if and when we need them may adversely affect our liquidity, results of operations, and financial
condition.
Our
outstanding indebtedness under the Credit Agreements bears interest at variable rates, which subjects us to interest rate risk and could
increase the cost of servicing our indebtedness. The impact of increases in interest rates, such as those that may result from the Federal
Reserve’s increases to the target range for the federal funds rate, could be more significant for us than it would be for some
other companies because of the amount of our outstanding indebtedness, thereby affecting our operating results and financial condition.
Further, our variable rates include certain benchmarks, such as Term SOFR with respect to our Credit Agreements, that may be subject
to change, discontinuation, manipulation, or other modifications that is outside of our control and may cause these benchmarks to no
longer be reported or replaced with other benchmarks that may be higher or lower than the previous benchmark.
Upon
the occurrence and during the continuance of an event of default under the Credit Agreements, MidCap may terminate its commitments to
lend additional money thereunder and declare all amounts outstanding thereunder to be immediately due and payable. Subject to certain
exceptions, amounts outstanding under the Credit Agreements are secured by a senior first priority security interest in substantially
all existing and after-acquired assets of our Company and each borrower. Accordingly, under certain circumstances, MidCap could seek
to enforce security interests in our assets securing our indebtedness under the Credit Agreements, including restricting our access to
collections on our accounts receivable. Any acceleration of amounts due under our Credit Agreements or the exercise by MidCap of its
rights under the security documents, would have a material adverse effect on us.
Although we generated net income for the year ended December 31, 2025, we historically have incurred significant losses, expect to continue to incur losses, and despite our focused goal to maintain profitability, we may never achieve sustained profitability.
Although we generated net income for the year ended December 31, 2025, we have a history of incurring net losses and expect to continue to incur net losses. Our ability to maintain and achieve sustained profitability will be influenced by many factors, including, among others, the level and timing of future revenues and expenditures; development, commercialization, market acceptance and availability and supply of our products; the impact of competing technologies and market developments; our ability to develop and introduce new products; the impact of regulatory requirements and delays; the strength of our relationships with and the success of our independent sales agents and distributors; our ability to increase our OEM sales; and our ability to attract and retain key personnel. As a result, despite our focus on profitability, we may be unsuccessful and incur operating losses. These losses would likely have an adverse impact on our operating results and financial condition and likely adversely affect our stock price.
We recognized a significant amount of license revenue in 2025 that likely will not repeat in 2026 and thus the loss of such revenue will have an adverse impact on our 2026 revenues and other operating results, including gross margins.
During 2025, we recognized $18.7 million in license revenue that likely will not repeat in 2026 due primarily to changes in the reimbursement environment for our SimpliMax™ product effective January 1, 2026, which changes also will adversely affect a portion of our product revenue. The loss of this license and product revenue will have an adverse impact on our 2026 revenues and other operating results, including in particular our gross margins.
Because we recently sold certain assets relating to our Coflex and CoFix products and our international hardware business to Companion Spine, our revenue will be adversely affected in 2026.
On December 1, 2025, we sold to Companion Spine certain assets relating to our Coflex and CoFix products for a total purchase price of $17.5 million, and sold Paradigm Spine GmbH, a former wholly owned subsidiary of ours that was engaged in the operation of our hardware business outside of the United States for a total purchase price of $3.9 million, inclusive of certain cash, indebtedness and net working capital adjustments. In 2025, we recognized $20.3 million in revenue from sales of our Coflex and CoFix products and international hardware products which we sold to Companion Spine. The loss of this revenue will adversely affect our 2026 revenue.
Our
growth initiatives designed to increase our revenue and scale may not be successful and involve risks.
In
recent years, we have focused primarily on four key growth initiatives: (1) introduce new products; (2) expand our distribution network
and IDN agreements; (3) penetrate adjacent markets; and (4) leverage our growth platform with technology and strategic acquisitions.
We have worked towards these growth initiatives primarily through our launch of new product offerings, including amniotic membrane allografts
SimpliGraft® and SimpliMaxTM, OsteoVive® Plus viable bone matrix and Cortera®
Spinal Fixation System, and our strategic acquisitions of Surgalign SPV, Surgalign Holdings’ hardware and biologics business,
and RTI’s nanOss production operations, which allowed us to add to our existing product line and expand our distribution network.
We intend to continue to pursue these key growth initiatives in 2025. While the intent of these four key growth initiatives is to increase
our future revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our
future revenues. Also, our key growth initiatives involve risks, including effects on our product sales mix, which may adversely affect
our gross margins and operating results. For example, a decrease in sales of our hardware products typically reduces our gross margins.
A
substantial portion of our hardware product family revenue is conducted through independent sales agents and distributors who we do not
control control.and our revenue from this channel has declined in recent periods compared to prior periods.
A
substantial portion of our revenue is conducted through independent sales agents and distributors. Because the independent sales agent
or distributor often controls the customer relationships within its territory (and, in certain countries outside the United States, the
regulatory relationship), there is a risk that if our relationship with the independent sales agent or distributor ends, our relationship
with the customer will be lost (and, in certain countries outside the United States, that we could experience delays in amending or transferring
our product registrations). Also, because we do not control the independent sales agent or field sales agents of a distributor, there
is a risk we will be unable to ensure that our sales processes, compliance, and other priorities will be consistently communicated and
executed by the sales agent or distributor. If we fail to maintain relationships with our key independent sales agents and distributors
or fail to ensure that our independent sales agent and distributors adhere to our sales processes, compliance, and other priorities,
this could have an adverse effect on our operations. Changes to or turnover within our independent sales agent or distributor organization
or transitions to direct selling models also could adversely affect our business if these transitions are not managed effectively. Further,
independent sales agents and distributors of companies we have acquired may decide not to renew or may decide to seek to terminate, change
and/or renegotiate their relationships with us. A loss of a significant number of our sales agent or distributors could have a material
adverse effect on our business and results of operations.
InA
addition,substantial portion of our hardware product family revenue is conducted through independent sales agents and distributors. Sales from
certain independent sales agents and distributors have decreased over the past quarters compared to prior quarters and no assurance can
be provided that we will not be able to reverse this trend and increase future sales from this channel. Our success is partially dependent
upon our ability to retain and motivate our independent sales agents and distributors, and
their representativesrepresentatives, to sell our products
in certain territories. They may not be successful in implementing our marketing plans. Some
of our independent sales agents and distributors
do not sell our products exclusively and may offer similar products from other companies.
Our independent sales agents and distributors
may terminate their contracts with us, may devote insufficient sales efforts to our products,
or may focus their sales efforts on other
products that produce greater commissions or revenues for them, which could have an adverse
effect on our operations and operating results.
In addition, because the independent sales agent or distributor often controls the customer relationships (and, in certain countries outside the United States, the regulatory relationship), there is a risk that if our relationship with the independent sales agent or distributor ends, our relationship with the customer will be lost (and, in certain countries outside the United States, that we could experience delays in amending or transferring our product registrations). Also, because we do not control the independent sales agent or field sales agents of a distributor, there is a risk we will be unable to ensure that our sales processes, compliance, and other priorities will be consistently communicated and executed by the sales agent or distributor. If we fail to maintain relationships with our key independent sales agents and distributors or fail to ensure that our independent sales agent and distributors adhere to our sales processes, compliance, and other priorities, this could have an adverse effect on our operations. Changes to or turnover within our independent sales agent or distributor organization or transitions to direct selling models also could adversely affect our business if these transitions are not managed effectively. Further, independent sales agents and distributors of companies we have acquired may decide not to renew or may decide to seek to terminate, change and/or renegotiate their relationships with us. The loss of a significant number of our sales agent or distributors could have a material adverse effect on our business and results of operations.
Sales
from certain independent sales agents and distributors have decreased over the past quarters compared to prior quarters and no assurance
can be provided that we will not be able to reverse this trend and increase future sales from this channel.
We
may be unable to compete effectively with our competitors unless we can keep up with existing or new products and technologies in the
markets in which we compete. If we do not continue to innovate, develop, introduce, market, sell and license new products and technologies,
or if those products and technologies are not accepted, we may not be successful. Due to limited funding, our research and development
efforts and ability to develop new products have been constrained for several years, although we have increased our development of new
products over the last year,couple of years, including in particular our amnio and other new biologics products. Research and development
efforts require
a substantial investment of time and resources before we are adequately able to determine the commercial viability of a new product,
technology, material, or innovation and our current and recent annual operating plans have not provided for any significant investment
in new products.innovation. We also may experience delays in the research and development process. For example, in 2024, the launch of our OsteoVive®
Plus viable bone matrix was delayed due to validation delays, the launch of our Cortera® Spinal Fixation System
was delayed due to supplier issuesprocess and the launchmarketing and sale
of certain new amnio products also was delayed due to validation delays.products. Demand for
our products also could change in ways we may not anticipate due to, among other factors, evolving customer
needs, changes in customer
health insurance coverage and reimbursement policies, changing demographics, slow industry growth rates, declines
in our markets, the
introduction of new competing products and technologies, evolving surgical philosophies, and evolving industry standards.
Additionally, our competitors’
new products and technologies may beat our products to market, may be more effective or less expensive
than our products, or may render
our products obsolete. It is also important that we carefully manage our introduction of new and enhanced
products and technologies.
If potential customers delay purchases until new or enhanced products are available, it could negatively impact
our revenue. Our new
products and technologies also could reduce demand for or render our existing products obsolete and thus adversely
affect sales of our
existing products and lead to increased expense for excess and obsolete inventory.
Our
dependence on key suppliers of raw materials puts us at risk of interruptions in the availability of our products, which could reduce
our sales and adversely affect our operating results and harm our reputation.
We
rely on key suppliers for certain raw materials used in our products. Our dependence on third-party suppliers involves several risks,
including limited control over availability and pricing. Suppliers of such raw materials may decide, or be required, for reasons beyond
our control, to cease supplying such raw materials and components to us or to raise their prices. Shortages of raw materials, quality
control problems, production capacity constraints, or delays by suppliers have in the past negatively affected and in the future could
negatively affect our ability to meet our production goals. For example, in 2023, stem cells used to produce our OsteoVive viable cell
allograft became unavailable. In July 2023, Elutia Inc. (formerly Aziyo Biologics, Inc.), one of our key suppliers of stem cells at that
time, voluntarily recalled its viable bone matrix products and suspended shipments of all viable bone matrix products from all donor
lots. This recall led to the American Association of Tissue Banks imposing additional regulations and constrained the overall supply
of stem cells, with other stem cell suppliers favoring larger customers during this shortage. As a smaller customer, we encountered difficulties
in receiving any supply of stem cells. Our stem cell inventory remained low until second quarter of 2024 and subsequently benefitted
from our progress toward our current initiative of vertically integrating our supply chain. Our revenues during the first half of fiscal
2024 were adversely affected as a result of the stem cell shortage prior to our development of internal production of stem cells. Our
sales of other products also could be adversely affected by other similar shortages in the future. Such shortages and constraints adversely
affect our revenues and other operating results, as well as our financial condition, and may also adversely affect our reputation.
Biologics
products are inherently difficult and time-consuming to manufacture. WeIn the past, we have experienced and in the future could continueexperience
manufacturing to experience manufacturing
issues, which could negatively impact our business and resultsoperating of operations.results.
Biologics
products are inherently difficult and time-consuming to manufacture. Our products are manufactured using technically complex processes
requiring specialized equipment and facilities and highly specific raw materials. Other production constraints, including the number
of processors we are able to hire, the number of clean rooms available in our facilities, and our ability to automate certain processes
by implementing labor saving technology also affect the speed and extent of our production. The complexity of these processes, as well
as strict company and government standards for the manufacture and storage of our products, subjectssubject us to production risks. A shortage
of the number of processors or clean rooms or inadequate levels of automation may cause us to be unable to operate at full production,
which has in the past has and could continuein tothe future negatively impact our business and resultsoperating of operations. For example, due to occasional
labor shortages in 2023, we were unable to operate at full capacity from time to time, which caused us to pass on certain revenue opportunities
we otherwise may have been able to pursue. To mitigate this issue in the future, we have made certain operational changes and continue
to implement processes that are intended to improve yields and make our production more self-sustaining. These changes helped mitigate
these operational challenges in 2024; however, no assurance can be provided that these measures will continue to be successful or that
we will not face additional similar or other manufacturing and operational challenges in the future.results.
Our biologics business is highly dependent on the availability of human donors and placentas. Any disruptions in the availability of donors and placentas due to regulatory changes or otherwise could cause our customers to seek alternative providers or technologies and harm our business and operating results.
Our
mission is “to honor the gift of donation, by allowing our patients to live as full, and complete a life as possible.”
Accordingly, Accordingly,
our biologics business is highly dependent on our ability to obtain donordeceased cadavershuman donors and placentas as the raw
material for many of our
biologics products. The availability of acceptable donors and placentas is relatively limited, and we
compete with many other companies
for this limited availability. The availability of donors and placentas is also impacted by regulatory
changes, AATBAssociation for Advancing Tissue Biologics (formerly, American Association of Tissue Banks) requirements, general public
public opinion of the donor processprocess, and our reputation for our handling of the donor process. In addition,2025, duethe FDA published draft
guidance documents with recommendations to seasonalreduce changes in
the mortalityrisk rates,of sometransmission scarceof tissuesdisease areagents atassociated timeswith insepsis shortby supply.human cells,
tissues, and tissue-based products and recommendations to reduce the risk of transmission of Mycobacterium tuberculosis by
HCT/Ps. These new guidelines, if approved, may further reduce the number of acceptable donors and increase competition for
acceptable donors. A disruption in the supply of theseavailable crucialdonors rawand materialsplacentas could
have significant consequences on our ability
to meet anticipated demand for our revenue,biologics operatingproducts, resultswhich would adversely affect our revenue and continuedother operations.operating
results.
Some of our biologics products, including our OsteoVive Plus, involve a heightened inherent risk of transmission of disease, which if materialized, could adversely affect our business, operating results, financial condition, reputation and stock price.
Our OsteoVive Plus product is a viable bone allograft produced using a proprietary method designed to preserve native bone components, including growth factors and viable cells. Similar to other viable or cellular bone matrix products, our OsteoVive Plus product contains viable cells. Although we and our third-party contractors perform rigorous donor screening and laboratory testing, viable human tissue products carry an inherent residual risk of transmitting communicable diseases, including but not limited to Human Immunodeficiency Virus (HIV), Hepatitis B and C viruses (HBV, HCV), Human T-lymphotropic virus (HTLV), treponema pallidum (syphilis), and mycobacterium tuberculosis (Mtb). Although we process and test our OsteoVive Plus product in accordance with current regulatory standards, there is no current standardized industrial screening test for tissues to detect Mtb and testing Mtb via culture or other methods does not definitively exclude the presence of tuberculosis due to the limitations of diagnostic sensitivity, specimen viability, and potential latent infection. While our OsteoVive Plus product is intended for use by qualified medical professionals who understand the risks associated with transplantation of human tissues and are responsible for recipient counseling and clinical decision-making, if Mtb were to be transmitted as a result of the use of one of our products, including our OsteoVive Plus product, this could adversely affect our relationships and reputation throughout the industry and have a material adverse effect on our business, operating results, financial condition, reputation and stock price.
AOur
majority of our products are manufactured and sold within the United States, which increases our exposure to domestic inflation and fuel
price increases.
Inflationary pressures and supply chain disruptions resulted in increased fuel, raw material and other costs in recent
years. Although these conditions eased in 2024, similar issues in the future may adversely affect our results of operations. The future
implementation of inflationary policies, such as the tariffs implemented and proposed by the Trump administrationtariffs, may similarly contribute
to increased fuel, raw material and other costs and
also may contribute to higher overall inflation. Additionally, from time to time we have experienced
shortages in certain raw materials,
suppliers have been unable to meet delivery schedules due to excess demand and labor shortages, and
lead times have lengthened throughout
our supply chain. For example, as described elsewhere in these risk factors, until April 2024,
stem cells used to produce our OsteoVive viable cell allograft became unavailable or were in short supply. Our efforts to mitigate supply
chain weaknesses through our own vertical integration of manufacturing activities and
other means may not be successful or may have unfavorable
effects. For example, efforts to purchase raw materials in advance for product
manufacturing may result in increased storage costs or
excess supply and inventory. If our costs rise due to continuing supply chain
disruptions or due to the impact of tariffs, we may not
be able to fully offset such higher costs through price increases. In addition,
delays in obtaining materials from our suppliers could
delay product launches or result in lost opportunities to sell our products due
to their unavailability. For example, in 2024, the launch
of our Cortera® Spinal Fixation System was delayed due to supplier issues. Increased costs and decreased product availability
due to supply chain issues could adversely impact our revenue
and/or gross margin, and could thereby harm our business, operating results, and financial condition,
and results of operations.condition.
We face intense competition.
Many
competitive products exist, and we expect more will be developed. Our operating results have suffered during the past few years due to
intense competition and we may not be able to compete successfully because we are smaller and have fewer financial resources and less
ability to invest in the development of new products.
The
markets for our products are highly competitive and subject to rapid and profound technological change. Our success depends, in part,
on our ability to maintain a competitive position in the development of technologies and products for use by our customers. Many of the
companies developing or marketing competitive products enjoy several competitive advantages over us, including greater financial and
human resources for product development and sales and marketing; greater name recognition; established relationships with surgeons, hospitals
and third-party payors; broader product lines and the ability to offer rebates or bundle products to offer greater discounts or incentives
to gain a competitive advantage; and established sales and marketing and distribution networks. Our competitors may develop and patent
processes or products earlier than us,we do, obtain regulatory clearances or approvals for competing products more rapidly than we do, develop
more effective or less expensive products or technologies that render our technology or products obsolete or non-competitivenon-competitive, or acquire
technologies and technology licenses complementary to our products or advantageous to our business, which could adversely affect our
business and operating results. Not all of our sales and other personnel have non-compete agreements. We also compete with other organizations
in recruiting and retaining qualified sales and management personnel, which may exacerbate the effects of labor shortages we have experienced
in the past, as described elsewhere in these risk factors. If our competitors are more successful than we are in these matters, we may
be unable to compete successfully against our existing or future competitors. Our industry has been subject to increasing consolidation.
Consolidation in our industry not involving our Company could result in existing competitors increasing their market share through business
combinations and result in stronger competitors, which could have a material adverse effect on our business, operating results and financial
condition. We may be unable to compete successfully in an increasingly consolidated industry and cannot predict with certainty how industry
consolidation will affect our competitors or us.
Our
private label and OEM business,revenue which we expect to account for an increasing percentage of our revenue,channel involves risks and may be subject
to significant fluctuation on a product to product basis from
period to period since we typically do not have long-term purchase agreements
covering these sales and our customers could decide to
use other OEMs.
We
expect an increasing portionamount of our future revenues to be derived from our private label and original equipment manufacturer, or OEM,
business.revenue channel. This expectation is based on our planability to focusinternally produce all products within our orthobiologics product family
allowing us to make such products available on expandinga thisprivate businesslabel and selling our new amnio and viable bone matrix
products on an OEM basis.basis where compelling opportunities exist. We may not be successful,
however, in retaining or expanding our private label and OEM business.channel. Our private
label and OEM business,channel, although not subject to commissions,
generally involves lower gross margins relative to comparable products sold through
our independent agent channel which, if this business
increases as a percentage of our revenue, will reduce our future gross margins.
In addition, our private label and OEM businesschannel involves
other additional risks. For example, we generally do not have long-term supply
agreements covering thisour businessprivate label and OEM customers,
so our customersthey could periodically decide to use other OEMs based on cost, quality, delivery time,
production capacities, competitive and regulatory considerations
considerations, or other factors. Thus, revenues from our private label and OEM customers
and the products we provide them are subject
to significant fluctuation on a product to product basis from period to period. The success
of our private label and OEM businesschannel is dependent
upon the success of our private label and OEM customers in creating demand for and
selling the products that we manufacture for them.
If our private label and OEM businesschannel significantly increases, we may experience difficulties
in staffing our manufacturing facility and
meeting demand. Our OEM channel sales also are dependent upon adequate reimbursement and changes in such reimbursement could adversely
affect future sales. For example, a portion of our 2025 OEM channel sales likely will not repeat in 2026 or future years given a change
in the reimbursement environment affecting the product involved, which could adversely affect our 2026 and future revenues.
Our
recently entered into license agreements to manufacture and commercially sell in the United States certain of our products and using
the trademarks associated therewith and any similar agreements we may enter into may not result in significant revenue.
During
the fourth quarter of 2024, we entered into a license agreement with a distributor granting an exclusive, nontransferable, non-sublicensable,
royalty-bearing right and license to manufacture and commercialize in the United States our SimpliMax™ product and the trademarks
associated therewith during the term of the agreement and subject to certain limitations as set forth therein. Under the terms of the
agreement, we received a one-time, up front, non-refundable, non-creditable cash payment of $1.5 million. Beginning in 2025, we are entitled
to quarterly royalty payments based on the volume of product sold by the distributor. These royalty payments include guaranteed minimums,
which aggregate to $3.75 million during 2025. The agreement has an initial term of one year and is automatically renewable in one-year
terms unless either party thereto provides written notice of non-renewal six months prior to the then-current term or earlier termination
as provided under the agreement.
During
the first quarter of 2025, we entered into a manufacture and license agreement with a distributor pursuant to which we agreed to manufacture
and supply to the distributor our SimpliGraft® product under the distributor’s name and brand. We appointed the
distributor as the exclusive seller of our SimpliGraft® product to end-users located in the United States during the term
of the agreement and in accordance with the terms and conditions thereof and granted the distributor the right to use our related trademark
in connection therewith. Under the terms of the agreement, we received a one-time, up-front, non-refundable, non-creditable cash payment
of $1.5 million. Additionally, the distributor agreed to purchase our SimpliGraft® product in accordance with certain
specified minimum purchase obligations. The minimum purchase obligations aggregate to $3.9 million during 2025. The agreement has an
initial term of two years and is automatically renewable for six additional one-year terms unless the distributor provides written notice
of non-renewal 90 days prior to the then-current term or earlier termination as provided under the agreement.
The
first license agreement may terminate, and the second license agreement may generate significantly less revenue than anticipated following
a CMS Policy Change, as defined in the agreements. The Centers for Medicare and Medicaid Services recently issued a Local Coverage Determination
implementing significant changes to reimbursement for cellular and tissue-based products, which would impact our SimpliMax™ and
SimpliGraft® products and constitute a CMS Policy Change under our license agreements. These changes were initially intended
to become effective in February 2025 but have been delayed to April 2025. If these changes are not further delayed or reversed, we may
receive less revenue under the license agreements than anticipated.
Our
prior acquisitions and dispositions and any future acquisitionsacquisitions, dispositions or business combinations we complete involve a number of
risks, the occurrence of which
could adversely affect our business, reputation, operating results and financial condition.
In
2023, we acquired Surgalign SPV, certain assets and liabilities of Surgalign
Holdings, and certain assets of RTI. OneIn ofDecember our2025, keywe growth
initiativessold iscertain toassets add depthrelating to our productCoflex offeringsand throughCoFix targetedproducts strategicand acquisitionsour ininternational
hardware thebusiness future.to Companion Spine. Our ability to complete acquisitions
future acquisitions, dispositions and business combinations will depend,
in part, on the availability of suitable acquisition candidates or buyers at acceptable prices, terms, and conditions;
our ability to
compete effectively for acquisition candidates or buyers; and the availability of capital and personnel to complete such acquisitions
and run the acquired business effectively. Any acquisitionacquisition, disposition or business combination could impair our business, reputation, operating results
and financial condition. The benefits of an acquisitionacquisition, disposition or business combination may take more time than expected to develop
or, orin the case of an acquisition, integrate
into our operations, and we cannot guarantee that prior or future acquisitionsacquisitions, dispositions
or business combinations will, in fact, produce any benefits.
Acquisitions Acquisitions, dispositions and business combinations may involve a number
of risks, the occurrence of which could adversely affect our business, reputation,
operating results and financial condition, including:
In
addition, effective internal controls are necessary for us to provide reliable and accurate financial reports and to effectively prevent
fraud. The integration of acquired businesses may result in our systems and controls becoming increasingly complex and more difficult
to manage. We devote significant resources and time to comply with the internal control over financial reporting requirements of the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). However, we cannot be certain that these measures will ensure that
we design, implement, and maintain adequate control over our financial processes and reporting in the future, especially in the context
of acquisitions of other businesses, regardless of whether such acquired business was previously privately or publicly held. For example,
in connection with the audit of our consolidated financial statements for the fiscal year ended December 31, 2023, we identified certain
control deficiencies in the design and implementation of our internal control over financial reporting that related to our then recent
acquisitions, which constituted two material weaknesses at that time, which have since been remediated. Any such difficulties in the
assimilation of acquired businesses into our control system could harm our operating results or cause us to fail to meet our financial
reporting obligations.
Also,
some acquisitionstransactions may require the consent of the lenders under our
credit Credit Agreements with MidCap and/or the consent of Royalty Opportunities
and ROS under the Investor Rights Agreement,agreements, and we cannot predict whether such approvalsconsent would be forthcoming or the terms on which
the lenders or these investors would approve future acquisitions.
transactions.
We
operate in certain markets outside the United States that are subject to political, economic, and social instability and require management
attention and financial resources and expose us to additional risks.
As
a result of our 2023 acquisition of Surgalign Holdings’ hardware and biologics business, we sell certain products in 33 countries
through international subsidiaries located in Europe and Asia. Revenue from outside the United States comprised 10% of our total revenue
for the year ended December 31, 2024. This international expansion and the management of business in international markets requires significant
management attention, personnel, and financial resources. Additionally, the sale and shipping of products across international borders
subjects us to extensive and complicated trade regulations. Compliance with such regulations is costly and exposes us to penalties for
non-compliance. Any failure to comply with applicable legal and regulatory obligations could impact us in a variety of ways that include,
but are not limited to, significant criminal, civil and administrative penalties. Additionally, the failure to comply with applicable
legal and regulatory obligations could result in the disruption of our sales activities and adversely impact our revenue.
Our
international sales operations and international subsidiaries expose us and our representatives, agents, and distributors to the following
risks inherent in operating in foreign jurisdictions:
Our
efforts to integrate acquired products with our existing product line may not be favorably received, which could negatively impact our
results of operations and financial condition. In addition, we may decide to sell one or more of these products that we acquired, which
disposition transaction also would involve risks.
Following
our 2023 acquisitions, we have worked to integrate the products we acquired with our existing product lines, as applicable. However,
there can be no assurance that these or future integration initiatives will be successful, and such changes may not be favorably received
by our customers, which could negatively impact our results of operations and financial condition. In addition, we may decide to sell
one or more of these products that we acquired, which disposition transaction also would involve risks, including without limitation:
Media
reports or other negative publicity concerning both alleged improper methods of tissue recovery from donors and disease transmission
from donated tissue could limit widespread acceptance of some of our biologics products and reduce demand for our biologics products. Unfavorable reports of improper or illegal
tissue tissue
recovery practices, both in the United States and internationally, as well as incidents of improperly processed tissue
leading to the
transmission of disease, may broadly affect the rate of future tissue donation and market acceptance of technologies
incorporating human
tissue. In addition, such negative publicity could cause the families of potential donors to become reluctant to
agree to donate tissue
to for-profit tissue processors.
Outside
suppliers, some of whom are sole-source suppliers, provide us with products and raw materials and components used in manufacturing
our our
orthobiologics and spinal implant products. We strive to maintain sufficient inventory of products, raw materials and components
so that
our production will not be significantly disrupted if a particular product, raw material or component is not available to us
for a period
of time, including as a result of a supplier’s loss of its ISO or other certification, long required lead times,
or other reasons.
Despite our efforts, we sometimes experience an insufficient inventory of products, raw materials and/or
components. If we fail to plan
our procurement accordingly or are unable to obtain sufficient quantities of raw materials and
components used in manufacturing our orthobiologics
and spinal implant products that meet our quality and other requirements on a
timely basis for any reason, we may not produce sufficient
quantities of our products to meet market demand until a new or
alternative supply source is identified and qualified and, as a result,
we could lose sales and customers, our reputation could be
harmed, and our business could suffer. Furthermore, an uncorrected defect or supplier’s
variation in a component or raw
material that is incompatible with our manufacturing, unknown to us, could harm our ability to manufacture
products.
Management's Discussion & Analysis (MD&A)
Removed heading “Coflex and CoFix Product Lines”
Removed heading “Surgalign Holdings’ Hardware and Biologics Business”
Removed heading “RTI Surgical, Inc.’s nanOss Production Operations”
Removed heading “Recent Developments”
Removed heading “Comparison of Years Ended December 31, 2024 and December 31, 2023”
Removed heading “(Provision) Benefit for Income Taxes Current and Deferred”
Largest changes
“On August 10, 2023, we completed the acquisition of certain additional assets of Surgalign Holdings and its subsidiaries on an as-is, where-is basis, including specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal property, records, all outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles related to the business of designing, developing and manufacturing hardware medical technology and distributing biologics medical technology, as conducted by Surgalign Holdings and its subsidiaries, and …”see in full comparison
“We recognized a net loss of $16.4 million during the year ended December 31, 2024 as compared to net income of $660 thousand during the year ended December 31, 2023 primarily due to the $11.7 million gain on bargain purchase recognized in 2023 as a result of our acquisition of Surgalign Holdings’ hardware and biologics business in connection with a bankruptcy proceeding.”see in full comparison
“Comparison of Years Ended December 31, 2024 and December 31, 2023”see in full comparison
Full comparison: every changed paragraph (57)
We
develop, manufacture and market regenerative medicine products and medical devices for domestic and international markets. Our
products products
serve the specialized needs of orthopedic and neurological surgeons, as well as trauma, foot and ankle, sports medicine,
wound care surgeons including orthobiologics for the promotion of bone healing, amniotic tissue and collagen for both surgical
repair and chronic wound care, implants
and instrumentation for the treatment of spinal disease. We promote our products primarily
in the United States through independent distributors
and stocking agents, supported by direct employees.
We
have an extensive sales channel of independent commissioned agents and
stocking distributors in the United States representing some or
all of our products. We also maintain a national accounts program to enable
our agents to gain access to integrated delivery network
hospitals (“IDNs”) and through group purchasing organizations (“GPOs”).organizations. We have biologics contracts
with major
GPOs, as well as extensive access to IDNs across the United States for both biologics and spine hardware systems. While our
focus primary focus
is the United States market, we promote and sell our products internationally through direct sales representatives and stocking distribution
partners in Europe,
Canada, Mexico, South America, Australia, and certain Pacific region countries. We have recently made and intend to continue to make measured investments
in the expansion of our commercial team to support our new products and maximize the reach of our broad portfolio of orthobiologics solutions.
We
have focused and intend to continue to focus primarily on four key growth initiatives: (1) introduce new products, including our recently
launched nanOss Strata™, an advanced synthetic bone graft designed to closely resemble natural bone; CollagenX™, a
bovine collagen particulate product for surgical wound closure; OsteoFactor ProTM, an allogenic growth factor solution;
and Trivium™, a next-generation demineralized bone matrix, in addition to our introductions in 2024: Cortera®
SpinalPosterior Fixation System, a viable bone matrix,matrix; OsteoVive® Plus,Plus and amniotic membrane allografts, SimpliGraft®™
and SimpliMaxTM;SimpliMaxTM, (2) leverageexpand our distribution network; (3) penetrate adjacent markets; and (4) leverage our growth
platform with technology and strategic acquisitions. While the intent of these four key growth initiatives is to increase our future
revenues, no assurance can be provided that we will be successful in implementing these growth initiatives or increasing our future
revenues. revenues.Since one of our key growth initiatives is to leverage our growth platform with technology and strategic
acquisitions and explore other strategic transactions with respect to our products and our company, including licenses, business
collaborations and other business combinations or transactions with other companies, we, as a matter of course, often engage in
discussions with third parties regarding such matters.
During the first quarter of 2025, we entered into a manufacture and license agreement with a distributor pursuant to which we agreed to manufacture and supply to the distributor our SimpliGraft® product under the distributor’s name in exchange for a one-time $1.5 million cash payment and minimum SimpliGraft® product purchase obligations of the distributor. During the fourth quarter of 2024, we entered into a license agreement with a distributor granting an exclusive right and license to manufacture and commercialize in the United States our SimpliMax™ product in exchange for a one-time $1.5 million cash payment and minimum quarterly royalty payments based on the volume of product sold by the distributor. Effective January 1, 2026, the Centers for Medicare & Medicaid Services implemented a Local Coverage Determination with significant changes to reimbursement for cellular and tissue-based products, which impacted our SimpliMax™ and SimpliGraft® products. In addition, on July 14 and 15, 2025, CMS released the CY 2026 Physician Fee Schedule proposal and the CY 2026 Hospital Outpatient Prospective Payment System proposal. Under these rules, which were implemented on January 1, 2026, CMS instituted a consistent payment approach for skin substitutes across the private office and hospital outpatient departments settings with a fixed price of $127.14 per square centimeter. Together with the Local Coverage Determination and a recently announced Wasteful and Inappropriate Service Reduction model, there are several significant potential changes to reimbursement of skin substitutes that have impacted and will likely continue to impact the industry and the sale of our SimpliMax™ and SimpliGraft® products. Because of these regulatory changes, the SimpliGraft® manufacture and license agreement was terminated effective December 31, 2025 and it is possible that the SimpliMax™ license agreement may be terminated, adversely affecting our 2026 and future license revenue. During 2025, we recognized $18.7 million in license revenue and certain product revenue that likely will not repeat in 2026 due primarily to these reimbursement changes. The loss of this license and product revenue will have an adverse impact on our 2026 revenues and other operating results, including in particular, our gross margins.
Sale of Coflex/CoFix Assets and International Hardware Business On December 1, 2025, we completed the sale of certain assets relating to our Coflex and CoFix products to Companion Spine pursuant to an Asset Purchase Agreement dated July 7, 2025. The total purchase price of the Coflex/CoFix Divestiture was $17.5 million (subject to a closing inventory valuation adjustment set forth in the Coflex/CoFix Agreement). Of the total purchase price, an aggregate of $7.5 million was previously paid to us in cash as non-refundable deposits, $1.8 million was paid to us in cash at the closing, and $8.2 million was paid to us as an unsecured promissory note issued by Companion Spine to us the closing (the “Companion Spine Note”). The outstanding principal balance of the Companion Spine Note, together with the related accrued interest, totaling $8.5 million was paid to us on February 27, 2026.
Also, on December 1, 2025, we completed the sale of all of our shares of equity securities of Paradigm. The total purchase price of the Paradigm Divestiture was $3.9 million, $1.7 million of which was paid to us in cash at the closing and $2.2 million paid on February 27, 2026 in settlement of a net working capital and other purchase price adjustments.
The aggregate purchase price associated with the two Divestitures was $21.4 million. Of the $10.0 million in cash that we received as a result of the Divestitures prior to the end of 2025, $8.0 million was used to repay a portion of our term debt, resulting in $14.0 million in principal outstanding under our term debt as of December 31, 2025. On February 27, 2026, we subsequently received $10.7 million, $2.8 million of which was used to repay a portion of our term debt, resulting in $11.2 million outstanding as of the date of the filing of this report.
In 2025, we recognized $20.3 million in revenue from sales of our Coflex and CoFix products and international hardware products which we sold to Companion Spine. The loss of this revenue will adversely affect our 2026 revenue.
Acquisitions
Coflex
and CoFix Product Lines
On
February 28, 2023, we acquired all of the issued and outstanding capital stock of Surgalign SPV, Inc. (“Surgalign SPV”),
a then indirect wholly owned subsidiary of Surgalign Holdings, Inc. (“Surgalign Holdings”), which held certain intellectual
property, contractual rights and other assets related to the design, manufacture, sale and distribution of the Coflex and CoFix products
in the United States, for an aggregate purchase price of $17.0 million in cash. The Coflex and CoFix products have been approved by the
U.S. Food and Drug Administration (the “FDA”) for the treatment of moderate to severe lumbar spinal stenosis in conjunction
with decompression and provide minimally invasive, motion preserving stabilization.
Surgalign
Holdings’ Hardware and Biologics Business
On
August 10, 2023, we completed the acquisition of certain additional assets of Surgalign Holdings and its subsidiaries on an as-is, where-is
basis, including specified inventory, intellectual property and intellectual property rights, contracts, equipment and other personal
property, records, all outstanding equity securities of Surgalign Holdings’ international subsidiaries, and intangibles related
to the business of designing, developing and manufacturing hardware medical technology and distributing biologics medical technology,
as conducted by Surgalign Holdings and its subsidiaries, and certain specified liabilities of Surgalign Holdings and its subsidiaries
pursuant to an Asset Purchase Agreement, dated June 18, 2023, between Surgalign Holdings and us (as amended, the “Surgalign Asset
Purchase Agreement”). Pursuant to the Surgalign Asset Purchase Agreement, we were able to acquire Surgalign Holdings’ broad
portfolio of spinal hardware implants, including solutions for fusion procedures in the lumbar, thoracic, and cervical spine, motion
preservation solutions for the lumbar spine, and a minimally invasive surgical implant system for fusion of the sacroiliac joint. Additionally,
we were able to acquire Surgalign Holdings’ biomaterials portfolio of advanced and traditional orthobiologics. These offerings
complement our portfolio of orthobiologics and spinal implant fixation systems. This transaction was conducted through a process supervised
by the United States Bankruptcy Court in connection with Surgalign Holdings’ bankruptcy proceedings. We funded the purchase price
of $5 million with cash on hand. This transaction resulted in a gain on bargain purchase due to the estimated fair value of the identifiable
net assets acquired exceeding the purchase consideration transferred by $11.7 million and is shown as a gain on bargain purchase on our
consolidated statement of operations for the year ended December 31, 2024. The bargain purchase was primarily attributable to the transaction
occurring as part of bankruptcy proceedings.
RTI
Surgical, Inc.’s nanOss Production Operations
On
October 23, 2023, we acquired the nanOss production operations from RTI Surgical, Inc. (“RTI”) pursuant to an Asset Purchase
Agreement dated October 23, 2023 between us and RTI (the “RTI Asset Purchase Agreement”). Under the terms of the RTI Asset
Purchase Agreement, we acquired certain assets, including equipment and inventory, used in RTI’s synthetic bone graft business
and assumed from RTI the lease for the nanOss production facility located in Greenville, North Carolina. The purchase price for the assets
was $2 million in cash plus a low single digit royalty on sales prior to October 23, 2028 of next generation nanOss products. We previously
acquired the nanOss distribution rights and nanOss intellectual property with the acquisition of assets related to the biologics and
spinal fixation business of Surgalign Holdings, as described above.
Recent
Developments
During
the fourth quarter of 2024, we entered into a license agreement with a distributor granting an exclusive, nontransferable, non-sublicensable,
royalty-bearing right and license to manufacture and commercialize in the United States our SimpliMax™ product and the trademarks
associated therewith during the term of the agreement and subject to certain limitations as set forth therein. Under the terms of the
agreement, we received a one-time, up front, non-refundable, non-creditable cash payment of $1.5 million. Beginning in 2025, we are entitled
to quarterly royalty payments based on the volume of product sold by the distributor. These royalty payments include guaranteed minimums,
which aggregate to $3.75 million during 2025. The agreement has an initial term of one year and is automatically renewable in one-year
terms unless either party thereto provides written notice of non-renewal six months prior to the then-current term or earlier termination
as provided under the agreement.
During
the first quarter of 2025, we entered into a manufacture and license agreement with a distributor pursuant to which we agreed to manufacture
and supply to the distributor our SimpliGraft® product under the distributor’s name and brand. We appointed the
distributor as the exclusive seller of our SimpliGraft® product to end-users located in the United States during the term
of the agreement and in accordance with the terms and conditions thereof and granted the distributor the right to use our related trademark
in connection therewith. Under the terms of the agreement, we received a one-time, up-front, non-refundable, non-creditable cash payment
of $1.5 million. Additionally, the distributor agreed to purchase our SimpliGraft® product in accordance with certain
specified minimum purchase obligations. The minimum purchase obligations aggregate to $3.9 million during 2025. The agreement has an
initial term of two years and is automatically renewable for six additional one-year terms unless the distributor provides written notice
of non-renewal 90 days prior to the then-current term or earlier termination as provided under the agreement.
The
first license agreement may terminate, and the second license agreement may generate significantly less revenue than anticipated following
a CMS Policy Change, as defined in the agreements. The Centers for Medicare and Medicaid Services recently issued a Local Coverage Determination
implementing significant changes to reimbursement for cellular and tissue-based products, which would impact our SimpliMax™ and
SimpliGraft® products and constitute a CMS Policy Change under our license agreements. These changes were initially intended
to become effective in February 2025 but have been delayed to April 2025. If these changes are not further delayed or reversed, we may
receive less revenue under the license agreements than anticipated.
Comparison
of Years Ended December 31, 2024 and December 31, 2023
Comparison
of Years Ended December 31, 2025 and December 31, 2024 The
following table sets forth our results of operations for 20242025 and 20232024 (dollars in thousands):
Total revenue for the year ended December 31, 2025 increased 14% to $133.9 million compared to $117.3 million for the prior year. This increase is attributed primarily to $18.7 million of license revenue recognized for the year ended December 31, 2025 compared to $1.5 million for the year ended December 31, 2024, and an increase in volume of orthobiologics sales. These increases were partially offset by decreased hardware revenue in 2025.
Total
revenue for the year ended December 31, 2024 increased 28% to $117.3 million compared to $91.3 million for the prior year. This increase
is attributed primarily to the contribution of additional sales resulting from the acquisition of the Surgalign Holdings’ hardware
and biologics business, higher independent agent sales, and $1.5 million in upfront licensing revenue generated from a licensing agreement
pursuant to which we granted a distributor an exclusive, nontransferable, non-sublicensable, royalty-bearing right and license to manufacture
and commercialize in the United States our SimpliMaxTM product and the trademarks associated therewith.
Cost
of sales consists primarily of manufacturing cost, product purchase
costs, and depreciation of surgical instruments. Cost of sales also
includes reserves for estimated excess inventory,inventory and inventory on
consignment that may be missing and not returned, and reserves for estimated
missing and damaged consigned surgical instruments.returned. Cost of sales increased by 37%,1%, or $13.2$0.6 million, to $49.1$49.7 million for the year ended
December 31, 20242025 from $35.8$49.1 million for the year ended December 31, 2023.2024. ThisThe increase iswas due primarily due to greaterincreased revenue,charges asfor describedexcess
above and theobsolete write-offinventory, ofpartially approximatelyoffset $1.5by millionreduced ofproduct inventorycosts acquired from Surgalign Holdings’ hardware and biologics business
resulting from performance of verification procedures performed during the coursetransition ofto internal production in 2025 compared
to 2024.
Gross Profit
Gross profit as a percentage of revenue increased to 62.9% for the year ended December 31, 2025 compared to 58.2% for the year ended December 31, 2024. Of this increase, 530 basis points were due to sales mix and greater scale, partially offset by a decrease of 260 basis points due to increased charges for excess and obsolete inventory.
Gross
profit as a percentage of revenue decreased to 58.2% for the year ended December 31, 2024 compared to 60.8% for the year ended December
31, 2023. Of this decrease, 220 basis points were due to product mix, 200 basis points were due to reduced production throughput and
130 basis points were due to charges for the write-off of inventory associated with our acquisition of Surgalign Holdings’ hardware
and biologics business. This decrease was partially offset by increased leverage on higher revenue.
General
and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related
costs, amortization, and corporate expenses for legal, accounting and other professional fees, as well as occupancy costs. General and
administrative expenses increased 11%,2%, or $2.8$0.7 million, to $28.7$29.4 million for the year ended December 31, 20242025 compared to $25.9$28.7 million
for the year ended December 31, 2023.2024. This increase is primarily attributable to $1.4$2.2 million of additional stock-basedexpense compensation,related to various
$0.5compensation plans, $0.7 million of additional severancebad debt expense, $0.6$0.7 million of additional hardwarelegal andfees softwareassociated expense,primarily andwith $0.3the
divestiture milliontransactions ofwith additional
amortizationCompanion expense, in each case in 2024 as compared to 2023. These increases wereSpine, partially offset by reduced$1.2 expensemillion of $0.4reduced million
related to variousstock-based compensation plans.expense.
Sales
and marketing expenses consist primarily of sales commissions; personnel costs for sales and marketing employees; costs for trade shows,
sales conventions and meetings; travel expenses; advertising; and other sales and marketing related costs. Sales and marketing expenses
increaseddecreased 28%,8%, or $10.8$3.7 million, to $45.5 million for the year ended December 31, 2025 compared to $49.2 million for the year ended December
31, 20242024. comparedThis decrease is primarily due to $38.4reduced million for the year ended December
31, 2023. This increase was due primarily to additional independent agent commissionscommission expense of $7.0$3.9 million resulting from higherrevenue independentmix and $2.1 million of
agentreduced sales,compensation $2.4expense related to headcount, partially offset by $2.9 million of additional expense associated with various compensation plans and $0.9 million of additional professional
serviceconsulting fees.
Research
and development expenses consist primarily of internal costs for the development of new product technologies. Research and development
expenses increaseddecreased 79%,12%, or $1.0$0.3 million, to $2.4$2.1 million for year ended December 31, 20242025 compared to $1.3$2.4 million for the year endended
December December
31, 2023. This increase resulted primarily from increased headcount due to additional personnel hired in connection with our acquisitions
and increased expenses associated with new product development.2024.
Interest
expense for the year ended December 31, 20242025 increaseddecreased $1.2$0.5 million to $4.2$3.7 million as compared to $2.9$4.2 million for the year ended December
31, 2023.2024. This increasedecrease resulted primarily from additionalreduced borrowings on our revolving line of creditcredit,
as andwell theas additionalprepayments borrowingtotaling of
$5.0$8.0 million underon our term creditloan, agreementduring in2025 Mayas compared to 2024.
(Provision)
Benefit for Income Taxes Current and Deferred
Income
tax provision for the year ended December 31, 2024 was $0.2 million compared to income tax benefit of $1.7 million for the year ended
December 31, 2023. This change resulted primarily from the non-recurring tax benefit in 2023 associated with the release of the valuation
allowance resulting from recognition of deferred tax liabilities in purchase accounting.
NetInterest
(Loss) Income
We recognized $0.1 million of interest income during the year ended December 31, 2025 related to the Companion Spine Note receivable from the sale of assets related to our Coflex and CoFix products to Companion Spine.
Gain on Divestiture
We recognized a gain on divestiture of $3.3 million for the year ended December 31, 2025 as a result of the sale of assets related to our Coflex and CoFix products and international hardware business to Companion Spine during 2025. No similar gain was recognized during 2024.
Provision for Income Taxes Current and Deferred
Income tax provision for the year ended December 31, 2025 was $2.0 million compared to $0.2 million for the year ended December 31, 2024. This change resulted primarily due to our net income position and an increase in cash federal and state taxes in 2025.
We
recognized a net loss of $16.4 million during the year ended December 31, 2024 as compared to net income of $660 thousand during the
year ended December 31, 2023 primarily due to the $11.7 million gain on bargain purchase recognized in 2023 as a result of our acquisition
of Surgalign Holdings’ hardware and biologics business in connection with a bankruptcy proceeding.
Since
our inception, we have financed our operations primarily through operating cash flows, private placements of equity securities and convertible
debt, debt facilities, common stock rights offerings, and other debt transactions. The following table summarizes our working capital
as of December 31, 20242025 and December 31, 20232024 (in thousands):
Net
cash used in operating activities for the year ended December 31, 2024 was $11.9 million compared to $9.5 million for the year ended
December 31, 2023. This increase in net cash used in operating activities relates primarily to the increase in inventory balance.
Net
cash used in investing activities for the years ended December 31, 2024 was $3.7 million compared to $24.8 million for the year ended
December 31, 2023. This decrease relates primarily to the use of $23.5 million of cash for the acquisitions of Surgalign SPV, Inc., Surgalign
Holdings’ hardware and biologics business and nanOss production operations from RTI Surgical, Inc. during the year ended December
31, 2023.
Net
cash provided by financingoperating activities for the year ended December 31, 20242025 was $16.1$12.5 million compared to $19.7net cash used in operating activities
of $11.9 million for the year ended
December 31, 2023.2024. This decreasechange relates primarily to $9.6net millionincome of greater proceeds from private placements duringfor the year ended
December 31, 2023, partially offset by greater borrowings during year ended December 31, 20242025
compared underto our revolving line of credit,a net
of repayments.loss for the year ended December 31, 2024.
Net cash provided by investing activities for the year ended December 31, 2025 was $7.9 million compared to net cash used in investing activities of $3.7 million for the year ended December 31, 2024. This change relates primarily to the proceeds from the Divestitures to Companion Spine.
Net cash used in financing activities for the year ended December 31, 2025 was $9.6 million compared to net cash provided by financing activities of $16.1 million for the year ended December 31, 2024. This change relates primarily to $8.7 million of reduced revolver borrowings, net of repayments, during 2025 compared to 2024; an $8.0 million payment on long- term debt using a portion of the proceeds from the Divestitures in 2025; $5.0 million additional borrowings during 2024; and $4.5 million in proceeds from a private placement during 2024.
CurrentCredit
and Prior Credit Facilities
On
March 7, 2024, the Company, as guarantor, and certain of our subsidiaries, as borrowers (collectively, the “Borrowers”),
entered into an Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) (as amended from time to time, the
“Term
Credit Agreement”) and an Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) (as
amended from time to
time, the “Revolving Credit Agreement” and, together with the Term Credit Agreement, the
“Credit Agreements”)
with MidCap Financial Trust and MidCap Funding IV Trust,Trust (collectively, “MidCap”), each in its respective capacity as agent,
and lenders from time to time party
thereto. These Credit Agreements amend and restate the Credit, Security and Guaranty Agreement, dated as of May 6, 2021 (Term Loan),
as amended (the “Prior Term Credit Agreement”), and the Credit, Security and Guaranty Agreement, dated as of May 6, 2021
(Revolving Loan), as amended (the “Prior Revolving Credit Agreement” and, together with the Prior Term Credit Agreement,
the “Prior Credit Agreements”), in each case, by and among the Borrowers, the Company and MidCap Financial Trust and MidCap
Funding IV Trust, as respective agents, and the lenders from time to time party thereto.
On
May 14, 2024, we entered into Amendment No. 1 to Amended and Restated Credit, Security and Guarantee Agreement (Term Loan) (“Term
Amendment No. 1”), which amendsamended the Term Credit Agreement, and Amendment No. 1 to Amended and Restated Credit, Security and Guarantee
Agreement (Revolving Loan) (“Revolving Amendment No. 1” and, together with Term Amendment No. 1, the “Amendments No.
1”), which amendsamended the Revolving Credit Agreement. The Term Amendment No. 1 increasesincreased the amount of term loans that may be borrowed
by $5.0 million to a maximum of $22.0 million, which arewas fully drawn as of December 31, 2024.2025. In addition, the Amendments No. 1 re-set
the date certain fees payable in connection with optional prepayments are determined to May 14, 2024 and consequently extendextended such fees’
original expiration. The exit fees were increased by 2.50% to 6.50% of the principal amount borrowed pursuant to the Term Credit Agreement.
The terms of borrowing under the Credit Agreements otherwise remainremained materially unchanged.unchanged after the Amendments No. 1.
On July 7, 2025, we entered into a Limited Consent and Amendment No. 3 to Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) (the “Term Loan Limited Consent”) with MidCap Financial Trust and a Limited Consent and Amendment No. 3 to Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) (the “Revolving Loan Limited Consent” and together with the Term Loan Limited Consent, the “Limited Consent Agreements”) with MidCap Funding IV Trust. Under the Limited Consent Agreements, MidCap agreed, subject to the terms and conditions set forth in the Limited Consent Agreements, to, among other things, consent to us entering into the Coflex/CoFix Agreement and Paradigm Agreement and the consummation of the Divestitures in accordance with the terms and subject to the conditions set forth therein, including our prepayment in accordance with the Term Loan Credit Agreement of $9.6 million to MidCap from the proceeds of the Divestitures.
On March 26, 2026, we entered into Amendment No. 4 to Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) with MidCap Financial Trust and Amendment No. 4 to Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) with MidCap Funding IV Trust (collectively, the “Amendment No. 4s”) pursuant to which we eliminated the requirement to comply with the minimum net revenue covenant for fourth quarter of 2025, adjusted the amortization of the term loan to have amortization calculated off the amount of principal outstanding when amortization payments start instead of the original principal amount of the term loan, and revised the minimum net revenue covenant to align solely with revenue generated from the orthobiologics products and correspondingly adjusted the minimum net revenue amounts.
The
Revolving Credit AgreementAgreement, as amended, provides for a secured revolving credit facility (the “Revolving Facility,” and,
together with
the secured term credit facility under the Term Credit Agreement, the “Facilities”) under which the Borrowers
may borrow
up to $17.0 million at any one time, the availability of which is determined based on a borrowing base equal to percentages
of certain
accounts receivable and inventory of the Borrowers in accordance with a formula set forth in the Revolving Credit Agreement.
All borrowings
under the Revolving Facility are subject to the satisfaction of customary conditions, including the absence of default,
the accuracy
of representations and warranties in all material respects and the delivery of an updated borrowing base certificate.
The
Facilities have a maturity date of March 1, 2029. Each of the Borrowers, and the Company, as guarantor, are jointly and severally liable
for all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and
the Company’s obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all
of their assets, including, without limitation, all inventory, equipment, accounts, intellectual property and other assets of the Company
and the Borrowers. As of December 31, 2024,2025, we had $12.1$10.9 million outstanding and $4.2$3.8 million of availability under the Revolving Credit
Facility. As mentioned above, on February 27, 2026, we received $10.7 million upon repayment of the Companion Spine Note and
settlement of the net working capital and other purchase price adjustments, $2.8 million of which was used to repay a portion of our term
debt, resulting in $11.2 million outstanding as of the date of the filing of this report.
The
loans and other obligations pursuant to the Credit Agreements will bear interest at a per annum rate equal to the sum of the SOFR Interest
Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement,
and an applicable margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of December
31, 2024,2025, the effective rate of the Term Credit Agreement, inclusive of authorization of debt issuance costs and accretion of the final
payment, was 15.23%,14.08%, and the effective rate of the Revolving Credit Agreement was 9.96%.8.49%.
The
Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenants
that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness
and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions,
voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, and change the nature of their
businesses. In addition, the Credit Agreements require the Borrowers and the Company to maintain net product revenue at or above minimum
levels and to maintain a certain minimum liquidity level, in each case as specified in the Credit Agreements. As of December 31, 2024,2025,
we were in compliance with all applicable covenants under the Credit Agreements. As of December 31, 2025, our Credit Agreements included a minimum net revenue covenant, however, pursuant to the Amendment No. 4s executed
in March 2026, we were not required to comply with the minimum net revenue covenant for the quarter ended December 31, 2025. Under the
covenant terms in effect prior to the Amendment No. 4s, we would not have been in compliance with the minimum net revenue requirement
for that quarter.
We
believe that our $6.2$17.3 million of cash and cash equivalents as of December 31, 2024,2025, together with the $10.7 million in cash we
received on February 27, 2026 from Companion Spine in connection with the Divestitures, our anticipated operating cash flows
and amounts available under the
Facilities, will be sufficient to meet our anticipated cash requirements through at least March 2026.
2027. However, we may require or
seek additional capital to fund our future operations and business strategy prior to March 2026.2027. Accordingly,
there is no assurance
that we will not need or seek additional financing prior to such time.
To
the extent that we raise additional capital through the sale of equity or convertible debt securities or the restructuring or refinancing
of our debt, the interests of our current stockholders may be diluted, and the terms may include discounted equity purchase prices, warrant
coverage, liquidation or other preferences or rights that would adversely affect the rights of our current stockholders. If we issue
common stock, we may do so at purchase prices that represent a discount to our trading price and/or we may issue warrants to the purchasers,
which could further dilute our current stockholders. If we issue preferred stock, it could adversely affect the rights of our stockholders
or reduce the value of our common stock. In particular, specific rights or preferences granted to future holders of preferred stock may
include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions
on our ability to merge with or sell our assets to a third party. Additional debt financing, if available, may involve agreements that
include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures
or declaring dividends. Prior to raising additional equity or debt financing, we may be required to obtain the consent of MidCap Financial
Trust and MidCap Funding IV Trust under our Credit Agreements and/or ROS and Royalty Opportunities under our Investor Rights Agreement
with them,Agreements, and no assurance can be provided that they would provide such consent,
which could limit our ability to raise additional financing
and the terms thereof.
What changed in the latest 10-Q
Risk Factors
Largest changes
Under thesee in full comparisontermsDistributionof the agreement,Agreement, Dilon will continue to manufacture the HEMOBLAST® Bellows productfromat itscurrentfacilitymanufacturing locationin France andwillsupplyand sellit to us at a specified transferprice as provided in the agreement,price, which price is subject tochangeadjustment in certain circumstances.We, therefore,We rely onDilon,Dilon as the solemanufacturer,manufacturer to produce the productfor us andin sufficient quantities and at an appropriate transferprice.price; there are no alternative suppliers. This arrangement involves risksincebecause we do not control the manufacturing process and Dilonwill remainis responsible for all manufacturingdecisions, as well as compliance with all applicable rulesdecisions andregulationsrelated regulatory compliance. We believe we will have sufficient supply of the HEMOBLAST® Bellows product to support our anticipated sales through the end of third quarter 2026, we are uncertain that supply will be available thereafter. If Dilon is unable to manufacture and supply the product inconnectionsufficienttherewith.quantities or at all, we will be unable to sell it or recognize related revenue. In addition,sincebecause the product is manufactured in France, we arealsosubject to risks associated with internationaloperations.operations, including supply chain disruptions, foreign currency exchange fluctuations, and additional regulatory requirements.
see in full comparisonWeInrecentlyApril 2026, we entered into adistributionDistributionagreementAgreement with Dilon Technologies, Inc. and hiredapproximately 20sales personnel in connection therewith,therewith,which will result in increased sales and marketing costs and involves other risks, which could adversely affect our business, operatingoperatingresults, and financial condition.
We paid Dilon a $5.0 million exclusivity fee upon execution of thesee in full comparisonagreement,DistributionwhichAgreement. This fee is subject to repayment by Dilon under certain circumstances, including uponatermination of theagreement.DistributionSinceAgreementtheforagreementanycanreason.be terminated byBecause either party may terminate the Distribution Agreement upon certain specified events,no assurancewecancannotbe providedassure that the agreement willnotremainbeinterminated,effect,whichand any such termination would result inourthe loss ofthe U.S.our distribution rights forthe product and possibly not being repaidthe$5.0product. In addition, given the refundable nature of the$5.0 million exclusivityfeepayment, wepaidinitiallyDilon. In addition, ifrecognized theagreementpayment as a deposit asset on our consolidated balance sheet. However, based on an assessment of facts and circumstances, including the uncertainty surrounding recovery of the payment and management’s expectation that repayment was not probable despite contractual repayment provisions, we recognized a $5.0 million charge to operating expenses during the second quarter of 2026, which adversely affected our operating results for that period. Although Dilon currently has the right to terminate the Distribution Agreement upon 30 days’ notice, it has not done so through the date of this report. If the Distribution Agreement terminates, we would need to reassign or terminate theadditionalsales personnelthatwe hired to sell the HEMOBLAST® Bellows product.
see in full comparisonOnIn April13,2026,we announced thatwe entered into adistributionDistributionagreementAgreement with Dilon Technologies, Inc. pursuant to which we obtained the exclusive rights to import, market, distribute and sell the HEMOBLAST® Bellows product in the UnitedStatesStates, and Dilon agreed tototransition its existing U.S. customer base for the product to us. In connection with the agreement, we hired approximately 20 Dilon sales personnel to assist inthe sale ofselling the HEMOBLAST® Bellows product in the United States. While the agreement expands our portfoliowith a uniqueandversatile hemostatic solution while also bolsteringbolsters ourowncommercial capabilitieswiththrough the integration of Dilon’sapproximately20-personformer U.S. salesteamteam,intoweourcannotorganization, no assurance can be providedassure that we willbesuccessfullysuccessful in sellingsell the HEMOBLAST® Bellows product orsuccessfully integratingintegrate it with our portfolio. In addition, while we believe wewill be able tocan leverage new cross-selling opportunities between the HEMOBLAST® Bellows product and our existing products,noweassurance can be providedcannot assure that we will be effective in doing so or otherwise realize the anticipated benefitsthat we anticipate receiving as a resultof thisnewdistributionarrangement and the addition of these new sales personnel.arrangement. We expect our sales and marketing expenses to increase substantially compared to prior periodsbeginninginasourasecond quarterresult of2026.the additional sales personnel. While we anticipate thattheadditional revenue fromthe sale of theHEMOBLAST® Bellows sales, cross-selling opportunities, and utilizingproductDilon’s former U.S. sales team to sell our other products will eventually offset these additional expenses,noweassurancecannotcan be providedassure thatitthey will or that the transition to us of Dilon’s existing U.S. customer basefor the productwill be successful.
Full comparison: every changed paragraph (4)
WeIn
recentlyApril 2026, we entered into a distributionDistribution agreementAgreement with Dilon Technologies, Inc. and hired approximately 20 sales personnel in connection therewith,
therewith, which will result in increased sales and marketing costs and involves other risks, which could adversely affect our business, operating
operating results, and financial condition.
OnIn
April 13, 2026, we announced that we entered into a distributionDistribution agreementAgreement with Dilon Technologies, Inc. pursuant to which we obtained
the exclusive
rights to import, market, distribute and sell the HEMOBLAST® Bellows product in the United StatesStates, and Dilon agreed to
to transition its existing U.S. customer base for the product to us. In connection with the agreement, we hired approximately 20 Dilon
sales personnel to assist in the sale ofselling the HEMOBLAST® Bellows product in the United States. While the agreement expands our
portfolio
with a unique and versatile hemostatic solution while also bolsteringbolsters our own commercial capabilities withthrough the integration of Dilon’s
approximately 20-personformer U.S. sales teamteam, intowe ourcannot organization, no assurance can be provided assure
that we will besuccessfully successful in sellingsell the
HEMOBLAST® Bellows product or successfully integratingintegrate it with our portfolio. In addition, while we believe
we will be able tocan leverage
new cross-selling opportunities between the HEMOBLAST® Bellows product and our existing products, nowe assurance can be providedcannot
assure that
we will be effective in doing so or otherwise realize the anticipated benefits that we anticipate receiving as a result of this newdistribution arrangement and
the addition of these new sales personnel.arrangement. We
expect our sales and marketing expenses to increase substantially compared to prior periods
beginning inas oura second quarterresult of 2026.the additional sales
personnel. While we anticipate that the additional revenue from the sale of the HEMOBLAST® Bellows sales, cross-selling opportunities, and utilizing
productDilon’s former U.S. sales team to sell our other products will eventually offset these additional expenses, nowe assurancecannot can be providedassure that itthey will or that the transition to us of Dilon’s
existing U.S. customer base for the product will be
successful.
Under
the termsDistribution of the agreement,Agreement, Dilon will continue to manufacture the HEMOBLAST® Bellows product fromat its currentfacility manufacturing location
in France and will
supply and sell it to us at a specified transfer price as provided in the agreement,price, which price is subject to change
adjustment in certain circumstances. We, therefore,We rely on Dilon,Dilon as
the sole manufacturer,manufacturer to produce the product for us and in sufficient quantities
and at an appropriate transfer price.price; there are no alternative
suppliers. This arrangement involves risk sincebecause we do not control the manufacturing process and Dilon will
remainis responsible for all
manufacturing decisions, as well as compliance with all applicable rulesdecisions and regulationsrelated regulatory compliance. We believe we will have sufficient supply of the HEMOBLAST® Bellows
product to support our anticipated sales through the end of third quarter 2026, we are uncertain that supply will be available thereafter. If Dilon is unable to manufacture and supply the product in connectionsufficient therewith.quantities or at
all, we will be unable to sell it or recognize related revenue. In addition, sincebecause the product is
manufactured in France, we are also subject to risks associated with international operations.operations, including supply chain disruptions,
foreign currency exchange fluctuations, and additional regulatory requirements.
We
paid Dilon a $5.0 million exclusivity fee upon execution of the agreement,Distribution whichAgreement. This fee is subject to repayment by Dilon
under certain circumstances,
including upon a termination of the agreement.Distribution SinceAgreement thefor agreementany canreason. be terminated byBecause either party may
terminate the Distribution Agreement upon certain specified events, no
assurancewe cancannot be providedassure that the agreement will notremain bein terminated,effect, whichand
any such termination would result in ourthe loss of the U.S.our distribution rights for
the product and possibly not being repaid the $5.0product. In addition, given the refundable nature
of the$5.0 million exclusivity feepayment, we paidinitially Dilon. In addition, ifrecognized the agreementpayment as a deposit asset on our consolidated balance sheet.
However, based on an assessment of facts and circumstances, including the uncertainty surrounding recovery of the payment and
management’s expectation that repayment was not probable despite contractual repayment provisions, we recognized a $5.0
million charge to operating expenses during the second quarter of 2026, which adversely affected our operating results for that
period. Although Dilon currently has the right to terminate the Distribution Agreement upon 30 days’ notice, it has
not done so through the date of this report. If the Distribution Agreement terminates, we
would need to reassign or terminate the additional sales personnel that we hired to sell the HEMOBLAST® Bellows product.
Management's Discussion & Analysis (MD&A)
New heading “Write-off of Distribution Agreement Deposit”
New heading “Provision for Income Taxes – Current and Deferred”
Largest changes
“On August 10, 2026, we entered into Amendment No. 5 to Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) with MidCap Financial Trust and Amendment No. …”see in full comparison
The Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including covenantssee in full comparisoncovenantsthat, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur additional indebtedness and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends or make other distributions, voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make investments, undergo a change in control and change the nature of their businesses. In addition, the Credit Agreements require us to maintain net product revenue at or above certain minimum levels and to maintain a certain minimum liquidity level, in each case as specified in the Credit Agreements.On March 26, 2026, we entered into Amendment No. 4 to Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) with MidCap Financial Trust and Amendment No. 4 to Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) with MidCap Funding IV Trust pursuant to which we eliminated the requirement to comply with the minimum net revenue covenant for fourth quarter of 2025, adjusted the amortization of the term loan to have amortization calculated off the amount of principal outstanding when amortization payments start instead of the original principal amount of the term loan, and revised the minimum net revenue covenant to align solely with revenue generated from our orthobiologics products and correspondingly adjusted the minimum net revenue amounts. As of March 31, 2026, we were in compliance with all covenants under the Credit Agreements.
On April 13, 2026, we announced that we entered into a Distribution Agreement (the “Distribution Agreement”) with Dilon Technologies,see in full comparisonTechnologies,Inc. pursuant to which we obtained the exclusive rights to import, market, distribute and sell the HEMOBLAST® Bellows product in the United States. The HEMOBLAST® Bellows product is an FDA-approved powder-based, topical, surgical hemostatic agent used to control bleeding during surgical procedures. In connection withtherewith,the agreement, we hired approximately 20 Dilon sales personnel to assist inthe sale of the HEMOBLAST® Bellowsselling product in the United States. Under theterms of theDistribution Agreement, Dilon will continue to manufacture the HEMOBLAST® Bellows productfromat itscurrent manufacturing locationfacility in France andwillsupplyand sellit to us at a specified transferprice as provided in the Distribution Agreement,price, which price is subject to adjustmentchange underinthecertainterms of the Distribution Agreement.circumstances. The Distribution Agreement does not contain any minimum purchase requirements.UnderWe rely on Dilon, as the sole manufacturer, to produce the product for us and in sufficient quantities and at antermsappropriate transfer price. There are no other suppliers of theDistributionHEMOBLAST®Agreement,Bellows product. Accordingly, this arrangement involves risk since wepaiddo not control the manufacturing process and Dilona $5.0 million exclusivity fee, which feeissubjectresponsibletoforrepaymentallbymanufacturingDilondecisions,underascertainwell as compliancecircumstances,withincludingalluponapplicable rules and regulations in connection therewith. We believe we will have aterminationsufficient supply of theDistributionHEMOBLAST®Agreement,Bellowswhichproductagreementtocansupport our anticipated sales through the end of third quarter 2026. We are uncertain that supply will beterminatedavailablebytoeitheruspartythereafter.uponIfcertainDilon is unable to manufacture and supply us thespecifiedHEMOBLAST®events.Bellows product in sufficient quantities or at all, then we will be unable to sell the product and recognize revenue in connection therewith, as discussed later in this report under the heading “Part II. Other Information – Item 1A. Risk Factors.”
Sales and marketing expenses consist primarily of sales commissions; personnel costs for sales and marketing employees; costs for trade shows, sales conventions and meetings; travel expenses; advertising; and other sales and marketing related costs. Sales and marketing expenses decreasedsee in full comparison27%,11%, or$3.0$1.2 million, to$8.2$10.4 million for the three months endedMarchJune31,30, 2026, compared to$11.2$11.6 million for thepriorsameyearperiodperiod.in 2025. Sales and marketing expenses decreased 19%, or $4.2 million, to $18.6 million for the six months ended June 30, 2026, compared to $22.8 million for the same period in 2025. Ofthisthesedecrease,decreases,$2.5$2.4 millionisand $4.9 million for the three-month and six-month periods are due to thesale of certain assets relating to ourCoflex/CoFix andCoFixParadigmproducts and international hardware business to Companion Spine.Divestitures. The remainingdecreaseincrease for the three-month comparison is primarily due toaincreased compensation$0.4expenses of $1.2 milliondecreaserelated to increased headcount; an increase in independent agentcommissionscommission expense of $0.3 million resulting fromtherevenuedecline in revenuemix; and a$0.6$0.3 milliondecreaseincrease inprofessionaltravel-relatedfees during the current year period. The decrease wasexpenses, partially offset by a$0.2$0.9 million reduction in consulting fees. The remaining increase for the six-month comparison is primarily due to increased compensation expenses of $1.4 million related to increased sales personnel headcount and $0.4 million increase incompensationtravel-relatedexpenseexpenses,relatedpartiallytooffsetincreasedbyheadcount.aWe$1.5expectmillionour sales and marketingreductionexpenses to increaseinfutureconsultingperiods due to our exclusive distribution agreement with Dilon and our recent hiring of approximately 20 sales personnel in connection therewith to assist in the sale of the HEMOBLAST® Bellows product in the United States.fees.
Full comparison: every changed paragraph (38)
We
develop, manufacture and market regenerative medicine products and medical devices for domestic and international markets. Our
products products
serve the specialized needs of orthopedic and neurological surgeons, as well as trauma, foot and ankle, sports medicine,
and wound care surgeons
including orthobiologics for the promotion of bone healing, amniotic tissue and collagen for both surgical
repair and chronic wound care,
and implants and instrumentation for the treatment of spinal disease. We promote our products
primarily in the United States through a direct
sales force, independent distributors and stocking agents.
We
have an extensive sales channel of direct and independent commissioned agents and stocking distributors in the United States representing
some or all of our products. We also maintain a national accounts program to enable our agents to gain access to integrated delivery
network hospitals and through group purchasing organizations. We have biologics contracts with major GPOs, as well as extensive access
to IDNs across the United States for both biologics and spine hardware systems. While our focus is the United States market, we promote
and sell our products internationally through stocking distribution partners in Europe, Canada, Mexico, South America, and certain Pacific
region countries. We have recently made and intend to continue to make measured investments in the expansion of our commercial team to
support our new products and maximize the reach of our broad portfolio of orthobiologics solutions. WeIn alsoApril recently2026, we hired approximately
20 sales personnel in connection with our exclusive distribution arrangement with Dilon Technologies, Inc. (“Dilon”).
As
previously disclosed, on December 1, 2025, we completed the sale of certain non-core assets relating to our Coflex and CoFix
products products
and our international hardware business to Companion Spine, LLC (“Companion Spine”) for an aggregate purchase
price of $21.4
million. million (the “Coflex/CoFix and Paradigm Divestitures”). Of the $10.7 million purchaseof priceproceeds received
(including $0.3 million of interest accrued on the note receivable balance) during the first quarter of 2026, $2.8 million was used
to repay a portion of our
term debt. To assist in the transition of this business to Companion Spine, we agreed to provide certain
transition services to Companion Spine
for a limited period of time. In 2025, we recognized $20.3 million in revenue from sales of
our Coflex and CoFix products and international
hardware products which we soldprior to Companionthe Spine.Coflex/CoFix Theand Paradigm Divestitures. As anticipated, the loss of this
revenue has adversely affected and will continue to adversely affect our 2026 revenue.
In
addition, as previously disclosed, we recognized $18.7 million in license revenue in 2025 that we indicated likely will not repeat
in in
2026 due primarily to changes in the reimbursement environment for our SimpliMax™ product effective January 1, 20262026. As
previously disclosed, this loss in license revenue has also adversely affected and will continue to adversely
affect a portion
of our product revenue in 2026. DuringSpecifically, firstwe quarterexperienced of$5.0 2026,million asand anticipated,$8.6 ourmillion revenue was adversely affected by
such changes, including a decreasedecreases in license revenue ofduring $3.6the
three and six months ended June 30, 2026, respectively, and $2.9 million and a$4.9 decreasemillion decreases in product revenue, primarilyrevenue related
primarily to skin substitute products during the three and six months ended June 30, 2026, respectively, in each case as compared to
products,the ofrespective $2.0prior million.year period. The loss of this license and product revenue will continue to have an adverseadversely impact on our
revenues and other
operating results, including in particular, our gross margins, during the remainder of 2026 as compared to 2025.
Recent
DevelopmentDevelopments
On
April 13, 2026, we announced that we entered into a Distribution Agreement (the “Distribution Agreement”) with Dilon
Technologies, Technologies,
Inc. pursuant to which we obtained the exclusive rights to import, market, distribute and sell the
HEMOBLAST® Bellows
product in the United States. The HEMOBLAST® Bellows product is an
FDA-approved powder-based, topical, surgical hemostatic
agent used to control bleeding during surgical procedures. In connection
with therewith,the agreement, we hired approximately 20 Dilon sales personnel to
assist in the sale of the HEMOBLAST® Bellowsselling product in the United States. Under the terms of the
Distribution Agreement,
Dilon will continue to manufacture the HEMOBLAST® Bellows product fromat its current manufacturing locationfacility in France and
will supply and sell it to us at a specified transfer price as provided in the Distribution Agreement,price, which price is subject to
adjustment change
underin thecertain terms of the Distribution Agreement.circumstances. The Distribution Agreement does not contain any minimum purchase requirements. UnderWe rely on Dilon, as the sole manufacturer, to produce the product for us and in sufficient quantities and at an
termsappropriate transfer price. There are no other suppliers of the DistributionHEMOBLAST® Agreement,Bellows product. Accordingly, this arrangement involves
risk since we paiddo not control the manufacturing process and Dilon a $5.0 million exclusivity fee, which fee is subjectresponsible tofor repaymentall bymanufacturing Dilondecisions, underas certainwell as compliance
circumstances,with includingall uponapplicable rules and regulations in connection therewith. We believe we will
have a terminationsufficient supply of the DistributionHEMOBLAST® Agreement,Bellows whichproduct agreementto cansupport our anticipated sales through the end of third quarter
2026. We are uncertain that supply will be terminatedavailable byto eitherus partythereafter. uponIf certainDilon is unable to manufacture and supply us the
specifiedHEMOBLAST® events.Bellows product in sufficient quantities or at all, then we will be unable to sell the product and recognize revenue
in connection therewith, as discussed later in this report under the heading “Part II. Other Information – Item 1A. Risk Factors.”
Under the Distribution Agreement, we paid Dilon a $5.0 million exclusivity fee upon execution of the agreement. The fee is fully refundable to us in certain circumstances. Given the refundable nature of the payment, we initially recognized the $5.0 million as a deposit asset on our consolidated balance sheet. However, based on an assessment of facts and circumstances, including the uncertainty surrounding recovery of the payment and management’s expectation that repayment was not probable despite contractual repayment provisions, we recognized a $5.0 million charge to operating expenses during the second quarter of 2026, which adversely affected our operating results for the second quarter of 2026.
Comparison
of Three and Six Months Ended MarchJune 31,30, 2026 and March 31, 2025
Total revenue for the three and six months ended June 30, 2026 was $23.0 million and $43.9 million, respectively, which represent decreases of 35% and 36%, respectively, compared to $35.4 million and $68.3 million for the three and six months ended June 30, 2025, respectively. These decreases are attributed primarily to: (i) $5.6 million and $11.0 million of revenues associated with the Coflex/CoFix and Paradigm Divestitures recognized during the three and six months ended June 30, 2025, respectively; (ii) $5.0 million and $8.6 million of licensing revenue recognized during the three and six months ended June 30, 2025, respectively; and (iii) decreases in orthobiologics sales during the current year periods compared to the prior year periods.
Total
revenue for the three months ended March 31, 2026 decreased 37% to $20.9 million compared to $32.9 million in the same period in 2025.
The decrease is attributed primarily to the divestiture of Coflex/CoFix assets and the international hardware business of $5.4 million
and the reduction of license revenue of $3.6 million. The remaining decrease related primarily to a decrease in revenue received from
the sale of skin substitute products adversely affected by changes in the reimbursement environment effective January 1, 2026.
Cost
of sales consists primarily of manufacturing cost, product purchase costs, and depreciation of surgical instruments. Cost of sales also
includes reserves for estimated excess inventory and inventory on consignment that may be missing and not returned. Cost of sales decreased
by 30%,$1.4 or $3.8 million,million to $8.9$9.7 million for the three months ended MarchJune 31,30, 2026 from $12.7$11.1 million for the three months ended June 30, 2025.
Cost of sales decreased by $5.2 million to $18.6 million for the six months ended June 30, 2026 from $23.8 million for the six months
ended June 30, 2025. The decrease associated with the three-month comparison was due primarily to the non-recurrence of costs of sales
in the current year period associated with the Coflex/CoFix and Paradigm Divestitures in the prior year period. The
decrease inassociated
with costthe six-month comparison was due primarily to the non-recurrence of costs of sales is primarily due to lower revenue in the current year period comparedassociated towith the
Coflex/CoFix and Paradigm Divestitures and decreases in orthobiologics sales during the priorcurrent year period, as described
above.period.
Gross profit as a percentage of revenue, decreased to 57.9% for the three months ended June 30, 2026 compared to 68.6% for the same period in 2025 and decreased to 57.6% for the six months ended June 30, 2026 compared to 65.2% for the same period in 2025. Of the decrease for the three-month comparison, 450 basis points related to the reduction in license revenue and 390 basis points resulted from reduced production efficiencies and increased charges for excess and obsolete inventory. Of the decrease for the six-month comparison, 450 basis points related to the reduction in license revenue and 230 basis points resulted from reduced production efficiencies.
Gross
profit as a percentage of revenue decreased to 57.3% for the three months ended March 31, 2026 compared to 61.5% for the same period
in 2025. Of this decrease, 490 basis points were due to reduction in scale and change in sales mix with 470 basis points related to the
reduction in license revenue.
General
and administrative expenses consist primarily of personnel costs for corporate employees, cash-based and stock-based compensation related
costs, amortization, and corporate expenses for legal, accounting and other professional fees, as well as occupancy costs. General and
administrative expenses decreased 17%,14%, or $1.3$1.0 million, to $6.3$6.4 million for the three months ended MarchJune 31,30, 2026, compared to $7.5 million
for the priorsame yearperiod period.in 2025. General and administrative expenses decreased 15%, or $2.3 million, to $12.7 million for the six months
ended June 30, 2026, compared to $15.0 million for the same period in 2025. Of thisthese decrease,decreases, $1.6$1.4 million isand $3.0 million for the
three-month and six-month periods are due to the sale of certain assets relating to our Coflex/CoFix and CoFixParadigm productsDivestitures. The decrease for the three-month comparison
andwas internationalpartially hardwareoffset businessby to$0.1 Companionmillion Spine,in additional stock-based compensation expense incurred in the current year period. The decrease
for the six-month comparison was partially offset by $0.2 million of additional computer and software costs and $0.2 million in additional
accounting and consulting fees
incurred duringin the current year period.
Sales
and marketing expenses consist primarily of sales commissions; personnel costs for sales and marketing employees; costs for trade shows,
sales conventions and meetings; travel expenses; advertising; and other sales and marketing related costs. Sales and marketing expenses
decreased 27%,11%, or $3.0$1.2 million, to $8.2$10.4 million for the three months ended MarchJune 31,30, 2026, compared to $11.2$11.6 million for the priorsame yearperiod
period.in 2025. Sales and marketing expenses decreased 19%, or $4.2 million, to $18.6 million for the six months ended June 30, 2026, compared
to $22.8 million for the same period in 2025. Of thisthese decrease,decreases, $2.5$2.4 million isand $4.9 million for the three-month and six-month periods
are due to the sale of certain assets relating to our Coflex/CoFix and CoFixParadigm products and international
hardware business to Companion Spine.Divestitures. The remaining decreaseincrease for the three-month comparison is primarily due to aincreased
compensation $0.4expenses of $1.2 million decreaserelated to increased headcount; an increase in independent agent commissions
commission expense of $0.3 million
resulting from therevenue decline in revenuemix; and a $0.6$0.3 million decreaseincrease in professionaltravel-related fees during the current year period. The decrease
wasexpenses, partially offset by a $0.2$0.9 million reduction in consulting
fees. The remaining increase for the six-month comparison is primarily due to increased compensation expenses of $1.4 million related
to increased sales personnel headcount and $0.4 million increase in compensationtravel-related expenseexpenses, relatedpartially tooffset increasedby headcount.a We$1.5 expectmillion our sales and marketingreduction
expenses to increase in futureconsulting periods due to our exclusive distribution agreement with Dilon and our recent hiring of approximately
20 sales personnel in connection therewith to assist in the sale of the HEMOBLAST® Bellows product in the United States.fees.
Research
and development expenses consist primarily of internal costs for the development of new technologies. Research and development expenses
wereincreased $0.423%, or $0.1 million, to $0.7 million for each of the three months ended MarchJune 31,30, 20262026, compared to $0.6 million for the same period
in 2025. Research and development expenses increased 12%, or $0.1 million, to $1.1 million for the six months ended June 30, 2026, compared
to $1.0 million for the same period in 2025.
Write-off of Distribution Agreement Deposit
The three and six months ended June 30, 2026 include expense of $5.0 million for the exclusivity fee we paid Dilon upon execution of the Distribution Agreement, which although refundable in certain circumstances, we do not expect to collect.
Interest
expense decreased $0.446%, millionor $0.5 million, to $0.6$0.5 million for the three months ended MarchJune 31,30, 2026, compared to $1.0 million for the same
period period
in 2025. ThisInterest decreaseexpense decreased 44%, or $0.9 million, to $1.1 million for the six months ended June 30, 2026, compared to
$2.0 million for the same period in 2025. These decreases resulted primarily from reduced borrowings under our revolving line of credit,credit
and as well as prepaymentsrepayments totaling
$10.8 $0.9 million and $3.8 million on our term loan.loan Based on our current outstanding borrowings, we expect that our annualized interest expense will increase
approximately $0.1 million for every 25 basis points of increase toduring the referencethree rateand associatedsix withmonths ourended creditJune agreements.30, 2026, respectively.
Interest
Income
We
recognized $0.2 million of interest income for the three months ended March 31, 2026 related to the promissory note that we received
from Companion Spine in connection with the sale of assets related to our Coflex and CoFix products to Companion Spine. While we do not
expect to receive any additional interest income from this promissory note since it was repaid by Companion Spine in February 2026, we
do expect to receive nominal interest income from our invested cash and cash equivalents.
Other
Income/ (Expense)
We
recognized $0.2$0.3 million and $0.6 million, respectively, of other income for the three and six months ended MarchJune 31,30, 2026 primarily related
to certain transition services provided
to Companion Spine. We expect such other income to continue for approximately threeone months month
through the remaining term of the transition
services agreement with Companion Spine.
Provision for Income Taxes – Current and Deferred
The decrease in income tax expense for the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025 was primarily due to a decrease in cash state taxes attributable to tax year 2026 as compared to 2025.
The
following table summarizes our working capital as of MarchJune 31,30, 2026 and December 31, 2025 (in thousands):
While
our working capital decreased by $4.9$13.9 million as of MarchJune 31,30, 2026 as compared to December 31, 2025, we used cash received from the Coflex/CoFix
and Paradigm Divestitures and the repayment by Companion
Spine transactionof the note receivable that existed as of December 31, 2025 in connection
therewith to repay some of our long-term debt, resulting in our long-term debt, less the current portion and plus premium and
less issuance
costs, being $8.1$7.3 million as of MarchJune 31,30, 2026, compared to $11.0 million as of December 31, 2025.
SubsequentDuring
to the end of firstsecond quarter of 2026, we used $5.0 million of our cash and cash equivalents to pay the $5.0 million exclusivity fee to
Dilon under the terms of the Distribution Agreement,Agreement. whichWhile
this fee is subject to repayment by Dilon under certain circumstances, including
upon a termination of the Distribution Agreement.Agreement for
any reason, we recorded a $5.0 million charge to operating expenses during the second quarter of 2026. This charge is based on an
assessment of facts and circumstances, including the uncertainty surrounding recovery of the payment and management’s
expectation that repayment was not probable despite the contractual repayment provisions.
Net
cash used in operating activities for the first threesix months of 2026 was $2.1$9.4 million compared to net cash provided by operating activities
of $1.3$2.6 million for the first threesix months of 2025. This change relates primarily to the net loss in the first threesix months of 2026 compared
to net income in the comparable prior year period.period, exclusive of the $5.0 million Dilon distribution expense associated with the Distribution
Agreement.
Net
cash provided by investing activities for the first threesix months of 2026 was $10.2$5.0 million compared to net cash used in investing activities
of $1.1$1.5 million for the first threesix months of 2025. This
change relates primarily to the$10.4 proceedsmillion of cash received from Companion Spine in connection with the saleCoflex/Cofix ofand certainParadigm assetsDivestitures
relatingin the current year period, partially offset by $5.0 million paid to ourDilon Coflexin andconnection CoFixwith productsthe andDistribution internationalAgreement hardwarein businessthe tocurrent
year Companion Spine.period.
Net
cash used in financing activities for the first threesix months of 2026 was $13.3$2.7 million compared to net cash used in financing activities
of $0.9$0.3 million for the first threesix months
of 2025. This changeincrease relates primarily to $9.6$3.8 million of reducedincreased borrowings,repayments neton ofthe repayments,
underterm our revolving line of creditloan during the current year period compared
to the prior year periodperiod, andpartially aoffset $2.8by $1.2 million paymentof onreduced long-term
debtborrowings fromunder theour proceedsrevolving fromcredit thefacility, salenet of certain assets relating to our Coflex and CoFix products and international hardware business
to Companion Spine in 2025.repayments.
Xtant,
as guarantor, and certain of our subsidiaries, as borrowers (collectively, the “Borrowers”), are parties to a term loan credit
agreement (the “Term Credit Agreement”) and revolving loan credit agreement (the “Revolving Credit Agreement”
and together with the Term Loan Credit Agreement, the “Loan Agreements”) with MidCap Financial Trust and MidCap Funding IV
Trust, respectively and each in its respective capacity as agent, and lenders from time to time party thereto. As of MarchJune 31,30, 2026, $10.2
$11.2 million was outstanding under the term loan facility under the Term Credit Agreement (the “Term Facility”), reduced from
from $17.0$14.0 million as of December 31, 2025. This reduction was due to the final purchase price payment of $2.8 million by Companion Spine
to us during the current year period in connection with the sale of certain assets relating to our Coflex and CoFix products and international
hardware business to Companion Spine.Spine and $0.9 million of principal repayments under the Term Loan Credit Agreement.
The
Facilities have a maturity date of March 1, 2029. Each of the Borrowers, and Xtant, as guarantor, are jointly and severally liable for
all of the obligations under the Facilities on the terms set forth in the Credit Agreements. The Borrowers’ obligations, and Xtant’s
obligations as a guarantor, under the Credit Agreements are secured by first-priority liens on substantially all of their assets, including,
without limitation, all inventory, equipment, accounts, intellectual property and other assets of Xtant and the Borrowers. As of MarchJune
31,30, 2026, we had $0.4$12.0 million outstanding and $11.8$0.7 million of availability under the Revolving Credit Facility.
The
loans and other obligations pursuant to the Credit Agreements bear interest at a per annum rate equal to the sum of the SOFR Interest
Rate, as such term is defined in the Credit Agreements, plus the applicable margin of 6.50% in the case of the Term Credit Agreement,
and an applicable margin of 4.50% in the case of the Revolving Credit Agreement, subject in each case to a floor of 2.50%. As of MarchJune
31,30, 2026, the effective rate of the Term Credit Agreement, inclusive of authorizationamortization of debt issuance costs and accretion of the final
payment, was 14.80%,14.74%, and the effective rate of the Revolving Credit Agreement was 8.49%.8.23%.
The
Credit Agreements contain affirmative and negative covenants customarily applicable to senior secured credit facilities, including
covenants covenants
that, among other things, limit or restrict the ability of the Borrowers, subject to negotiated exceptions, to incur
additional indebtedness
and additional liens on their assets, engage in mergers or acquisitions or dispose of assets, pay dividends
or make other distributions,
voluntarily prepay other indebtedness, enter into transactions with affiliated persons, make
investments, undergo a change in control
and change the nature of their businesses. In addition, the Credit Agreements require us to
maintain net product revenue at or above
certain minimum levels and to maintain a certain minimum liquidity level, in each case as
specified in the Credit Agreements. On March
26, 2026, we entered into Amendment No. 4 to Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) with MidCap Financial
Trust and Amendment No. 4 to Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) with MidCap Funding IV Trust
pursuant to which we eliminated the requirement to comply with the minimum net revenue covenant for fourth quarter of 2025, adjusted
the amortization of the term loan to have amortization calculated off the amount of principal outstanding when amortization payments
start instead of the original principal amount of the term loan, and revised the minimum net revenue covenant to align solely with revenue
generated from our orthobiologics products and correspondingly adjusted the minimum net revenue amounts. As of March 31, 2026, we were
in compliance with all covenants under the Credit Agreements.
On August 10, 2026, we entered into Amendment No. 5 to Amended and Restated Credit, Security and Guaranty Agreement (Term Loan) with MidCap Financial Trust and Amendment No. 5 to Amended and Restated Credit, Security and Guaranty Agreement (Revolving Loan) with MidCap Funding IV Trust pursuant to which we eliminated the requirement to comply with the minimum net revenue covenant for second quarter of 2026, adjusted the amortization of the term loan to increase quarterly principal payments by $0.15 million in the fourth quarter of 2026 and increase quarterly principal payments by $0.3 million thereafter until the outstanding principal balance of the term loan has been paid in full, and revised the minimum net revenue covenant to minimum net revenue amounts. As of June 30, 2026, our credit agreements included a minimum net revenue covenant, however, pursuant to the Amendment No. 5s executed in August 2026, we were not required to comply with the minimum net revenue covenant for the quarter ended June 30, 2026. Under the covenant terms in effect prior to the Amendment No. 5s, we would not have been in compliance with the minimum net revenue requirement for that quarter.
We
believe that our $12.2$10.2 million of cash and cash equivalents as of MarchJune 31,30, 2026, together with our anticipated operating cash flows and
and amounts available under the Facilities, will be sufficient to meet our anticipated cash requirements through at least MayAugust 2027. However,
we may require or seek additional capital to fund our future operations and business strategy prior to MayAugust 2027. Accordingly, there
is is
no assurance that we will not need or seek additional financing prior to such time.
Management’s
discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared
in accordance with U.S. GAAP. There have been no changes in our critical accounting estimates for the threesix months ended MarchJune 31,30, 2026
as compared to the critical accounting estimates described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
XTNT insider buying and selling (Form 4)
Since 2026-04-11, insiders reported open-market purchases in 0 Form 4 filings and open-market sales in 0 filings. Totals add up every open-market (code P and S) line in those filings, using the prices reported in the filings. Awards, option exercises, tax withholding and gifts are listed below but not counted.
| Trade date | Insider | Transaction | Shares | Price | Value |
|---|---|---|---|---|---|
| 2026-08-15 | Lipschultz Tyler |
Grant/award | 215,517 | — | — |
| 2026-08-15 | Bakewell John K |
Grant/award | 215,517 | — | — |
| 2026-08-15 | Beeson Jonn R. |
Grant/award | 215,517 | — | — |
| 2026-08-15 | Jain Abhinav |
Grant/award | 215,517 | — | — |
| 2026-08-15 | Vizirgianakis Stavros G. |
Grant/award | 323,275 | — | — |
| 2026-08-15 | Schallenberger Mark A. |
Grant/award | 450,000 | — | — |
| 2026-08-15 | Schallenberger Mark A. |
Shares withheld for tax | 7,070 | $0.31 | $2.2K |
| 2026-08-15 | Neils Scott C |
Shares withheld for tax | 28,155 | $0.31 | $8.7K |
| 2026-08-15 | Neils Scott C |
Grant/award | 400,000 | — | — |
| 2026-08-15 | Browne Sean E |
Grant/award | 550,000 | — | — |
| 2026-08-15 | Browne Sean E |
Shares withheld for tax | 10,605 | $0.31 | $3.3K |
Well-known investors holding XTNT (13F)
| Investor | Quarter | Shares | Reported value | % of their 13F | Change vs prior quarter |
|---|---|---|---|---|---|
| Renaissance Technologies | 2026-06-30 | 935,119 | $393.7K | 0.0% | Reduced 5% |
| Citadel Advisors (Ken Griffin) | 2026-06-30 | 191,369 | $80.6K | 0.0% | Added 19% |
| Millennium Management (Israel Englander) | 2026-06-30 | 84,490 | $35.6K | 0.0% | Reduced 36% |