SEASPINE HOLDINGS CORPORATION

(SPNE)
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SEASPINE HOLDINGS CORP MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/09/2022 | 05:30pm EDT
The terms "we," "us," "our," "SeaSpine" or the "Company" refer collectively to
SeaSpine Holdings Corporation and its wholly-owned subsidiaries, unless
otherwise stated. All information in this report is based on our fiscal year.
Unless otherwise stated, references to particular years, quarters, months or
periods refer to our fiscal years ending December 31 and the associated
quarters, months and periods of those fiscal years.

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

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

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

•our expectations and estimates concerning future financial performance, financing plans and the impact of competition;


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

•physicians' willingness to adopt our recently launched and planned products,
customers' continued willingness to pay for our products and third-party payors'
willingness to provide or continue coverage and appropriate reimbursement for
any of our products and our ability to secure regulatory clearance and/or
approval for products in development;

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

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

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

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


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

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


•unexpected expenses and delay and our ability to manage timelines and costs
related to manufacturing our products including as a result of litigation or
developing and supporting the full commercial launch of new products or relating
to the pandemic;
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•our ability to obtain additional debt and equity financing to fund capital expenditures and working capital requirements and acquisitions;

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

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

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


•our ability to protect our intellectual property, including unpatented trade
secrets, and to operate without infringing or misappropriating the proprietary
rights of others;

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

•other risk factors described in the section entitled "Risk Factors" of the 2021 10-K.

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

Overview


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

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

Our U.S. spinal implants and orthobiologics sales organization consists
primarily of regional and territory managers who oversee a broad network of
independent sales agents. We pay these sales agents commissions based on the
sales of our products. Our enabling technologies sales organization consists of
a direct sales force that works together with our independent sales agents to
generate either a capital sale or to place systems and components in an account
in a capital efficient manner in return for a longer-term revenue commitment for
our spinal implant systems and/or orthobiologics products. Our international
sales organization consists of a sales management team that oversees a network
of independent stocking distributors that purchase products directly from us and
independently sell them. For the three months ended March 31, 2022 and 2021,
international sales accounted for approximately 10% and 11% of our revenue,
respectively. Our policy is not to sell our products through or to participate
in physician-owned distributorships.

Acquisition


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

European Spinal Implant Sales and Marketing


During the third quarter of 2021, we ceased in-person sales and marketing
operations in France to reduce operating expenses and to centralize the
management of our European sales and marketing operations in our headquarters
located in Carlsbad, California. As a result, we closed our office located in
Lyon, France, and eliminated all employment positions at that location.

During the fourth quarter of 2021, we notified our European distributors that we will discontinue all sales and marketing activities for our spinal implant portfolio in the European market effective in August 2022 due to the significantly higher

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upfront and recurring annual costs required to comply with European medical device regulations. We will continue to market and sell our orthobiologics and enabling technologies products in the European market.

Components of Our Results of Operations

Revenue


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

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

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

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

For all other sales transactions, including sales to international stocking
distributors and private label partners, we generally recognize revenue when the
products are shipped and the customer or stocking distributor obtains control of
the products. There is generally no customer acceptance or other condition that
prevents us from recognizing revenue in accordance with the delivery terms for
these sales transactions.

Cost of Goods Sold

Cost of goods sold primarily consists of the costs of finished goods purchased
directly from third parties and raw materials used in the manufacturing of our
products, plant and equipment overhead, labor costs and packaging costs. The
majority of our orthobiologics products are designed and manufactured
internally. The cost of human tissue and fixed manufacturing overhead costs are
significant drivers of the cost of goods sold, and consequently our
orthobiologics products, at current production volumes, generate lower gross
margin than our spinal implant products. We rely on third-party suppliers to
manufacture our spinal implants and enabling technology products, and we
assemble the spinal implants into surgical sets at our kitting and distribution
centers. The cost to inspect incoming finished goods is included in the cost of
goods sold. Other costs included in cost of goods sold include amortization of
product technology intangible assets, royalties, scrap and consignment losses,
and charges for expired, excess and obsolete inventory.

Selling and Marketing Expense

Our selling and marketing expenses consist primarily of sales commissions, payroll and other headcount related expenses, marketing expenses, shipping, third-party logistics expenses, depreciation of instrument sets, instrument replacement expense, and cost of medical education and training.

General and Administrative Expense


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

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

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

Intangible Amortization


Our intangible amortization, including the amounts reported in cost of goods
sold, consists of acquisition-related amortization. We expect total annual
amortization expense (including amounts reported in cost of goods sold) to be
approximately $7.2 million in 2022, $6.6 million in 2023, $4.6 million in 2024,
$3.3 million in 2025 and $3.3 million in 2026. See "RESULTS OF OPERATIONS-Three
Months Ended March 31, 2022 Compared to Three Months Ended March 31,
2021-Impairment of Intangible Assets," below.

COVID-19 Pandemic - Impact on our Business


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

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

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

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RESULTS OF OPERATIONS

                                                       Three Months Ended March 31,                  2022 vs. 2021
 (In thousands, except percentages)                    2022                     2021                   % Change
Total revenue, net                              $        50,693           $       41,954                        21  %
Cost of goods sold                                       20,376                   15,366                        33  %
Gross profit                                             30,317                   26,588                        14  %
Gross margin                                               59.8   %                 63.4  %
Operating expenses:
Selling and marketing                                    29,506                   23,399                        26  %
General and administrative                               10,939                   10,427                         5  %
Research and development                                  5,850                    4,506                        30  %
Intangible amortization                                     856                      792                         8  %

Total operating expenses                                 47,151                   39,124                        21  %
Operating loss                                          (16,834)                 (12,536)                       34  %
Other income (expense), net                                   2                     (159)                     (101) %
Loss before income taxes                                (16,832)                 (12,695)                       33  %
(Benefit) provision for income taxes                       (228)                      25                           NM
Net loss                                        $       (16,604)          $      (12,720)                       31  %


__________

NM: not meaningful

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Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Revenue

Total revenue, net for the three months ended March 31, 2022, was $50.7 million, an increase of 21% compared to the same period in 2021.


                                                                      Three Months Ended March 31,             2022 vs. 2021
                                                                         2022                  2021              % Change
                                                                             (In thousands)
Orthobiologics                                                    $        23,522          $  21,488                     9  %
United States                                                              21,321             19,060                    12  %
International                                                               2,201              2,428                    (9) %

Spinal Implants and Enabling Technologies                         $        27,171          $  20,466                    33  %
United States                                                              24,172             18,410                    31  %
International                                                               2,999              2,056                    46  %

Total revenue, net                                                $        50,693          $  41,954                    21  %


                               Three Months Ended March 31,             2022 vs. 2021
                                    2022                    2021          % Change
                                      (In thousands)
United States           $        45,494                  $ 37,470                21  %
International                     5,199                     4,484                16  %
Total revenue, net      $        50,693                  $ 41,954                21  %


Revenue from orthobiologics sales totaled $23.5 million for the three months
ended March 31, 2022, an increase of $2.0 million or 9%, from the same period in
2021. Revenue from orthobiologics sales in the United States increased $2.3
million to $21.3 million for the three months ended March 31, 2022 compared to
the same period in 2021. During the three months ended March 31, 2022, sales of
products launched within the past five years increased to 43% of U.S.
orthobiologics revenue. Revenue from orthobiologics sales internationally, which
can be volatile from quarter to quarter because of irregular ordering patterns
from our stocking distributors, decreased $0.2 million for the three months
ended March 31, 2022 compared to the same period in 2021.

Revenue from spinal implants and enabling technology sales was $27.2 million for
the three months ended March 31, 2022, an increase of $6.7 million or 33%, from
the same period in 2021. Revenue from spinal implants and enabling technology
sales in the United States increased $5.8 million to $24.2 million for the three
months ended March 31, 2022 compared to the same period in 2021 and included
$1.8 million of capital sales from recently acquired 7D Surgical. Revenue from
spinal implants and enabling technology sales internationally increased $0.9
million for the three months ended March 31, 2022 as compared to the same period
in 2021 and included $0.6 million of capital sales from recently acquired 7D
Surgical. The remaining revenue growth in the current year period was driven by
recently launched products, predominantly those products that were alpha or
fully launched in 2020 and 2021, and which have been important catalysts to our
ability to take market share in the spinal implants market.

Cost of Goods Sold and Gross Margin


Cost of goods sold increased $5.0 million, to $20.4 million for the three months
ended March 31, 2022, compared to the same period in 2021. Gross margin was
59.8% for the three months ended March 31, 2022 and 63.4% for the same period in
2021. The decrease in gross margin was due to increased technology-related
intangible asset amortization, inventory purchase accounting fair market value
adjustments associated with the 7D Surgical acquisition and higher excess and
obsolete inventory charges primarily driven by recent commercial launches.

Cost of goods sold included $1.0 million and $0.3 million of amortization for
product technology intangible assets for the three months ended March 31, 2022
and 2021, respectively.

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Selling and Marketing


Selling and marketing expenses increased $6.1 million to $29.5 million for the
three months ended March 31, 2022 compared to the same period in 2021. The
increase was driven primarily by our 7D Surgical sales and marketing costs,
higher distributor commissions, higher tradeshow and travel costs, as well as
higher selling, customer service, and supply chain headcount and related
expenses.

General and Administrative


General and administrative expenses increased $0.5 million to $10.9 million for
the three months ended March 31, 2022, primarily due to the addition of 7D
Surgical expenses, and higher travel and headcount related expenses, which were
partially offset by the legal, accounting and other due diligence costs incurred
in the prior year quarter related to the 7D Surgical acquisition.

Research and Development

Research and development expenses increased $1.3 million to $5.9 million, or 12% of revenue, for the three months ended March 31, 2022 compared to the same period in 2021 due to 7D Surgical research and development costs and higher headcount and related expenses.

Intangible Amortization


Intangible amortization expense, excluding the amounts reported in cost of goods
sold for product technology intangible assets was $0.9 million and $0.8 million
for the three months ended March 31, 2022 and 2021, respectively.

Income Taxes

                                              Three Months Ended March 31,
                                              2022                       2021
                                                     (In thousands)
Loss before income taxes               $      (16,832)               $ (12,695)
(Benefit) provision for income taxes             (228)                      25
Effective tax rate                                1.4   %                 (0.2) %

We recorded an income tax benefit for the three months ended March 31, 2022 primarily related to the change in deferred tax assets and liabilities in foreign jurisdictions, offset by current activity in state and foreign operations as well as the change in US indefinite lived deferred tax liabilities. We recorded an income tax provision for the three months ended 2021 primarily related to federal, foreign and state operations.


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

The acquisition of 7D Surgical was a treated as an asset purchase for US tax
purposes and a stock purchase for Canadian tax purposes in 2021. As such, the we
recorded deferred tax assets and liabilities on its Canadian tax attributes. We
continue to use our deferred tax liabilities as a source of income against a
portion of our deferred tax assets. A valuation allowance was recorded for the
portion of the deferred tax assets that are not more-likely-than-not to be
realized. For the three months ended March 31, 2022, a net tax benefit of $0.5
million was recorded as a result of the 7D Surgical current year losses. This
was offset by expenses recorded for indefinite lived intangibles, current
foreign and state taxes and prior year foreign tax true-ups.

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

Special Charges


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

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

Loss before income taxes includes the following special charges for the three and three months ended March 31, 2022 and 2021:

                                                                     Three Months Ended March 31,
                                                                      2022                   2021
Special Charges:                                                            (In thousands)
Severance and other costs associated with European sales and    $          279          $          -
marketing reorganization
Purchase accounting inventory fair market value and adjustments            125                     -

Acquisition and integration-related charges for 7D Surgical                372                 1,276

Total Special Charges                                           $          776          $      1,276


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

                                              Three Months Ended March 31,
                                                   2022                    2021
                                                     (In thousands)
         Cost of goods sold           $         125                      $     -

         General and administrative             651                        1,276

         Total Special Charges        $         776                      $ 1,276


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Other Matters

Critical Accounting Policies and the Use of Estimates


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

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

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

Recently Issued Accounting Pronouncements


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


Liquidity and Capital Resources

Overview


As of March 31, 2022, we had cash and cash equivalents and investments totaling
approximately $81.4 million, $25 million of outstanding borrowings under our
credit facility, and $1.4 million of current borrowing capacity available under
our credit facility. We believe that our cash and cash equivalents, and the
amount currently available to us under our credit facility, will be sufficient
to fund our operations and meet our contractual obligations for at least the
next twelve months.

Capital Resources

In addition to cash from operations, our existing credit facility is our primary
source of capital, however, we have raised funds
in the capital markets in the past and may continue to do so from time-to-time.

Risks and Uncertainties


We have incurred net losses in each year since inception. Our net losses were
$16.6 million and $12.7 million for the three months ended March 31, 2022 and
2021, respectively. As of March 31, 2022, we had an accumulated deficit of
$290.2 million. We anticipate that our expenses will increase as we continue
invest in the expansion of our business, primarily in sales, marketing and
research and development; invest in inventory, spinal implant set builds and
instrument capital expenditures; and
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continue to operate as a public company. Based on our updated operating plans,
we believe that we have sufficient resources to fund operations through the
first quarter of 2023 with our existing cash and equivalents. However, based on
our recurring losses from operations and the expectation of continued operating
losses, we will need to raise additional capital to finance our future
operations. If we are unable to raise such additional capital, we may raise
substantial doubt about our ability to continue as a going concern. In the near
term, we plan to alleviate this risk through a three year extension and
expansion of our $30 million credit facility, which is expected to close during
the second quarter of 2022. Longer term, we expect to raise additional capital
through the sale of common stock in public offerings and/or private placements,
debt financings, or through other capital sources.

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

Credit Facility


We have a $30.0 million credit facility with Wells Fargo Bank, National
Association which matures in July 2022. At March 31, 2022, we had $25.0 million
outstanding borrowings under the credit facility and up to an additional $1.4
million of current borrowing capacity. The borrowing capacity under the credit
facility is determined monthly and is based on the amount of our eligible
accounts receivable and inventory balances and qualified cash (as defined in the
credit facility). Depending on the extent to which our eligible accounts
receivable and inventory balances increase, our borrowing capacity could
decrease from the $1.4 million available as of March 31, 2022. The credit
facility contains various customary affirmative and negative covenants,
including prohibiting us from incurring indebtedness without the lender's
consent. Under the terms of the credit facility, if our Total Liquidity (as
defined in the credit facility) is less than $5.0 million, we are required to
maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 for the
applicable measurement period. Our Total Liquidity was $79.9 million at
March 31, 2022, and therefore that financial covenant was not applicable at that
time.

© Edgar Online, source Glimpses

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