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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)

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

For the quarterly period ended September 30, 2020

OR

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

For the transition period from _______ to _______

Commission file number: 001-38242
OrthoPediatrics Corp.
(Exact name of registrant as specified in its charter)
Delaware
26-1761833
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)

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

Title of Each ClassTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.00025 par value per shareKIDSNasdaq Global Market
________________________________________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No

As of November 4, 2020, the registrant had 19,554,621 outstanding shares of common stock, $0.00025 par value per share.



OrthoPediatrics Corp.
Form 10-Q
For the Quarterly Period Ended September 30, 2020

TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
Item 1
Item 2
Item 3
Item 4
PART II. OTHER INFORMATION
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6








NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

our ability to achieve or sustain profitability in the future;

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

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

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

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

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

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

We cannot assure you that forward-looking statements will prove to be accurate, and you are encouraged not to place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations expressed or implied by the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this quarterly report, in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the "SEC") on March 5, 2020 and in other reports filed with the SEC that discuss the risks and factors that may affect our business. Other than as required by law, we undertake no obligation to update or revise any forward-looking statements to reflect new information, events or circumstances occurring after the date of this quarterly report.
3


PART I. FINANCIAL INFORMATION

ITEM 1.        FINANCIAL STATEMENTS
ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In Thousands, Except Share Data)
September 30, 2020December 31, 2019
ASSETS
Current assets:
Cash$88,372 $70,777 
Restricted Cash1,369 1,250 
Accounts receivable - trade, less allowance for doubtful accounts of $208 and $506, respectively
17,064 16,003 
Inventories, net52,032 38,000 
Notes receivable476 564 
Prepaid expenses and other current assets2,065 1,464 
Total current assets161,378 128,058 
Property and equipment, net24,275 21,349 
Other assets:
Amortizable intangible assets, net48,898 14,484 
Goodwill60,148 13,773 
Other intangible assets13,305 4,490 
Total other assets122,351 32,747 
Total assets$308,004 $182,154 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade$6,904 $6,467 
Accrued compensation and benefits4,772 4,349 
Current portion of long-term debt with affiliate129 124 
Current portion of acquisition installment payable11,920  
Other current liabilities2,022 2,723 
Total current liabilities25,747 13,663 
Long-term liabilities:
Long-term debt with affiliate, net of current portion1,078 26,067 
Acquisition installment payable, net of current portion12,402  
Contingent consideration29,009  
Other long-term liabilities332 63 
Total long-term liabilities42,821 26,130 
Total liabilities68,568 39,793 
Stockholders' equity:
Common stock, $0.00025 par value; 50,000,000 shares authorized; 19,554,621 shares and 16,723,128 shares issued as of September 30, 2020 (unaudited) and December 31, 2019, respectively
5 4 
Additional paid-in capital387,117 271,182 
Accumulated deficit(147,753)(128,822)
Accumulated other comprehensive income (loss)67 (3)
Total stockholders' equity239,436 142,361 
Total liabilities and stockholders' equity$308,004 $182,154 

See notes to condensed consolidated financial statements.
4


ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Share and Per Share Data)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net revenue$22,205 $20,744 $52,154 $53,600 
Cost of revenue4,566 4,849 12,241 13,431 
Gross profit17,639 15,895 39,913 40,169 
Operating expenses:
Sales and marketing9,237 8,771 22,421 22,924 
General and administrative9,823 7,267 28,281 19,448 
Research and development1,077 1,396 3,223 3,843 
Total operating expenses20,137 17,434 53,925 46,215 
Operating loss(2,498)(1,539)(14,012)(6,046)
Other expenses:
Interest expense, net1,010 1,297 2,788 2,232 
Fair value adjustment of contingent consideration909  1,819  
Other expense122 41 312 78 
Total other expenses2,041 1,338 4,919 2,310 
Net loss from continuing operations$(4,539)$(2,877)$(18,931)$(8,356)
Net income from discontinued operations 213  54 
Net loss$(4,539)$(2,664)$(18,931)$(8,302)
Weighted average common stock - basic and diluted19,112,797 14,639,020 17,700,429 14,487,015 
Net loss per share - basic and diluted$(0.24)$(0.18)$(1.07)$(0.57)

See notes to condensed consolidated financial statements.
5


ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Unaudited)
(In Thousands)
Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net loss$(4,539)$(2,664)$(18,931)$(8,302)
Other comprehensive (loss) income:
     Foreign currency translation adjustment(94)(530)70 (362)
Other comprehensive (loss) income(94)(530)70 (362)
Comprehensive loss$(4,633)$(3,194)$(18,861)$(8,664)

See notes to condensed consolidated financial statements.
6


ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In Thousands, Except Share Data)
Three and Nine Months Ended September 30, 2020
Accumulated
AdditionalOtherTotal
Common StockTreasury StockPaid-inAccumulatedComprehensiveStockholders'
SharesValueSharesValueCapitalDeficitIncome (Loss)Equity
Balance at January 1, 202016,723,128 $4  $ $271,182 $(128,822)$(3)$142,361 
Net loss— — — — — (4,945)— (4,945)
Other comprehensive income— — — — — — (1,358)(1,358)
Stock option exercise22,208 — — — 688 — — 688 
Restricted stock105,710 — — — 958 — — 958 
Consideration for Telos Acquisition36,628 — — — 1,750 — — 1,750 
Repurchase of common stock— — (4,014)(187)— — — (187)
Balance at March 31, 202016,887,674 $4 (4,014)$(187)$274,578 $(133,767)$(1,361)$139,267 
Net Loss— — — — — (9,447)— (9,447)
Other comprehensive loss— — — — — — 1,522 1,522 
Stock option exercise19,162 — — — 593 — — 593 
Restricted stock52,032 — — — 2,495 — — 2,495 
Consideration for ApiFix acquisition and Band-Lok intellectual property purchase989,154 — — — 37,638 — — 37,638 
Issuance of common stock, net of issuance cost1,595,986 1 4,014 187 70,206 — — 70,394 
Balance at June 30, 202019,544,008 $5  $ $385,510 $(143,214)$161 $242,462 
Net Loss— — — — — (4,539)— (4,539)
Other comprehensive loss— — — — — — (94)(94)
Stock option exercise11,230 — — — 348 — — 348 
Restricted stock(617)— — — 1,259 — — 1,259 
Balance at September 30, 202019,554,621 $5   $387,117 $(147,753)$67 $239,436 












7


ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In Thousands, Except Share Data)
Three and Nine Months Ended September 30, 2019
Accumulated
AdditionalOtherTotal
Common StockPaid-inAccumulatedComprehensiveStockholders'
SharesValueCapitalDeficitIncome (Loss)Equity
Balance at January 1, 201914,538,202 $4 $197,442 $(115,091)$(623)$81,732 
Net loss— — — (3,020)— (3,020)
Other comprehensive income— — — — 301 301 
Stock option exercise18,427 — 565 — — 565 
Restricted stock125,769 — 471 — — 471 
Balance at March 31, 201914,682,398 $4 $198,478 $(118,111)$(322)$80,049 
Net Loss— — — (2,618)— (2,618)
Other comprehensive loss— — — — (133)(133)
Acquisition consideration245,352 — 10,000 — — 10,000 
Stock option exercise2,983 — 92 — — 92 
Restricted stock8,729 — 692 — — 692 
Balance at June 30, 201914,939,462 $4 $209,262 $(120,729)$(455)$88,082 
Net Loss— — — (2,664)— (2,664)
Other comprehensive loss— — — — (530)(530)
Stock option exercise17,511 — 484 — — 484 
Restricted stock10,155 — 733 — — 733 
Balance at September 30, 201914,967,128 $4 $210,479 $(123,393)$(985)$86,105 

See notes to condensed consolidated financial statements.
8


ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
September 30,
20202019
OPERATING ACTIVITIES
Net loss$(18,931)$(8,302)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization5,696 3,258 
Stock-based compensation4,712 1,896 
Fair value adjustment of contingent consideration1,819  
Acquisition installment payable1,702  
Changes in certain current assets and liabilities:
Accounts receivable - trade(389)(5,126)
Inventories(12,340)(6,491)
Prepaid expenses and other current assets(215)(360)
Accounts payable - trade155 3,680 
Accrued expenses and other liabilities(558)11 
Other(24)1 
Net cash used in operating activities - continuing operations(18,373)(11,433)
Net cash provided by operating activities - discontinued operations 590 
Net cash used in operating activities(18,373)(10,843)
INVESTING ACTIVITIES
Acquisition of Telos, net of cash acquired(1,670) 
Acquisition of ApiFix, net of cash acquired(1,723) 
Acquisition of Band-Lok intangible assets(796) 
Acquisition of Vilex and Orthex, net of cash acquired (49,687)
Purchases of licenses (170)
Purchases of property and equipment(6,448)(10,536)
Net cash used in investing activities(10,637)(60,393)
FINANCING ACTIVITIES
Proceeds from issuance of debt with affiliate 30,000 
Payments on debt with affiliate(25,000) 
Proceeds from issuance of common stock, net of issuance costs70,207  
Proceeds from exercise of stock options1,629 1,141 
Payments on mortgage notes(88)(88)
Net cash provided by financing activities46,748 31,053 
Effect of exchange rate changes on cash(24) 
NET INCREASE (DECREASE) IN CASH17,714 (40,183)
Cash and restricted cash, beginning of year$72,027 $60,691 
Cash and restricted cash, end of period$89,741 $20,508 
Less cash of discontinued operations, end of period$ $839 
Cash of continuing operations, end of period$89,741 $19,669 
9


SUPPLEMENTAL DISCLOSURES
Cash paid for interest$1,218 $2,232 
Transfer of instruments from property and equipment to inventory$645 $593 
Issuance of common shares to acquire Vilex and Orthex$ 10,000 
Issuance of common shares to acquire Telos$1,568 $ 
Issuance of common shares to acquire ApiFix$35,176 $ 
Issuance of common shares to acquire Band-Lok intellectual property $2,644 $ 
See notes to condensed consolidated financial statements.
10


ORTHOPEDIATRICS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Dollars In Thousands, Except Share and Per Share data)

NOTE 1 – BUSINESS

OrthoPediatrics Corp., a Delaware corporation, is a medical device company committed to designing, developing and marketing anatomically appropriate implants and devices for children with orthopedic conditions, giving pediatric orthopedic surgeons and caregivers the ability to treat children with technologies specifically designed to meet their needs. We sell our specialized products, including PediLoc®, PediPlates®, Cannulated Screws, PediFlexTM nail, PediNailTM, PediLoc® Tibia, ACL Reconstruction System, Locking Cannulated Blade, Locking Proximal Femur, Spica Tables, RESPONSE Spine, Bandloc, Pediguard, Pediatric Nailing Platform | Femur, Orthex, QuickPackTM and ApiFix to various hospitals and medical facilities throughout the United States and various international markets. We currently use a contract manufacturing model for the manufacturing of implants and related surgical instrumentation.

In 2017, we expanded operations and established legal entities in the United Kingdom, Australia and New Zealand, permitting us to sell under an agency model direct to local hospitals in these countries. In September 2018, we further expanded operations in Canada selling direct to local hospitals, and in January 2019 we expanded to Belgium and the Netherlands. Additionally, in March 2019 we established a holding company and an operating company in the Netherlands and began selling direct to Italy in March 2020 enhancing our operations in Europe.

On June 4, 2019, we purchased all the issued and outstanding shares of stock of Vilex in Tennessee, Inc. ("Vilex") and all the issued and outstanding units of membership interests in Orthex, LLC ("Orthex") for $60,000 in total consideration. Vilex and Orthex (the "Vilex Companies") are primarily manufacturers of foot and ankle surgical implants, including cannulated screws, fusion devices, surgical staples and bone plates, as well as Orthex Hexapod technology which is used to treat pediatrics congenital deformities and limb length discrepancies.

On December 31, 2019, we divested substantially all of the assets relating to Vilex's adult product offerings to a wholly-owned subsidiary of Squadron Capital LLC ("Squadron") in exchange for a $25,000 reduction in a Term Note owed to Squadron in connection with the initial acquisition. As part of the sale, we also executed an exclusive license arrangement with Squadron providing for perpetual access to certain intellectual property and a mutual distribution agreement.

On March 9, 2020, we purchased all the issued and outstanding membership interest of Telos Partners, LLC ("Telos") for $3,300 in total consideration. Telos is a boutique regulatory consulting firm formed in Colorado.

On April 1, 2020, we purchased all the issued and outstanding membership interest of ApiFix, Ltd. ("ApiFix") for (a) $2,000 in cash, and (b) 934,783 shares of the Company's common stock, $0.00025 par value per share, representing approximately $35,000 (based on a closing share price of $37.63 on April 1, 2020. ApiFix, a corporation organized under the laws of Israel, has developed a minimally invasive deformity correction system for patients with Adolescent Idiopathic Scoliosis ("ApiFix System"). In addition, we have also agreed to pay as part of the purchase price the following anniversary payments, subject to certain limitations and adjustments: (i) approximately $13,000 on the second anniversary of the closing date, provided that such payment will be paid earlier if 150 clinical procedures using the ApiFix System are completed in the United States before such anniversary date, (ii) $8,000 on the third anniversary of the closing date; and (iii) $9,000 on the fourth anniversary of the closing date. In addition, to the extent that the product of our revenues from the ApiFix System for the twelve months ended June
11


30, 2024 multiplied by 2.25 exceeds the anniversary payments actually made for the third and fourth years, we have agreed to pay the selling shareholders a system sales payment in the amount of such excess. The anniversary payments and system sales payment may each be made in cash or cash and common stock.

On June 10, 2020, we purchased certain intellectual property assets from Band-Lok, LLC, a North Carolina limited liability company ("Band-Lok"), related to its Tether Clamp and Implantation System ("Tether Clamp System") for approximately $3,400 in total consideration. We use the Tether Clamp System in connection with our Bandloc 5.5/6.0 System. We were previously the sole licensee of the purchased assets under a license agreement with Band-Lok.

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


NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of OrthoPediatrics Corp. and its wholly-owned subsidiaries, OrthoPediatrics US Distribution Corp., OrthoPediatrics EU Limited, OrthoPediatrics AUS PTY LTD, OrthoPediatrics NZ Limited, OP EU B.V., OP Netherlands B.V., Vilex in Tennessee, Inc., Orthex, LLC, Telos Partners, LLC, ApiFix Ltd. and ApiFix Inc. (collectively, the “Company,” “we,” “our” or “us”). All intercompany balances and transactions have been eliminated.

Unaudited Interim Condensed Consolidated Financial Statements

We have prepared the accompanying condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, the condensed consolidated statements of operations for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2020 and 2019, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2020 and 2019 are unaudited and should be read in conjunction with the annual consolidated financial statements as of and for the year ended December 31, 2019 and related notes thereto contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 5, 2020. The financial data and other financial information disclosed in the notes to the accompanying condensed consolidated financial statements are also unaudited. As such, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to applicable rules and regulations thereunder.

The unaudited condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended December 31, 2019 and, in management’s opinion, include all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the financial statements for the interim periods. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full fiscal year or for any other period.

The accompanying condensed consolidated financial statements have been prepared assuming our Company will continue as a going concern. We have experienced recurring losses from operations since our inception and had an accumulated deficit of $147,753 and $128,822 as of September 30, 2020 and December 31, 2019, respectively. Management continues to monitor cash flows and liquidity on a regular basis. We believe that our cash balance at September 30, 2020 and expected cash flows from operations
12


for the next twelve months subsequent to the issuance of the accompanying condensed consolidated financial statements, are sufficient to enable us to maintain current and essential planned operations for more than the next twelve months.

On June 22, 2020, we completed a follow-on offering of our common stock, in which we issued and sold 1.6 million shares of common stock at a public offering price of $47.00 per share for aggregate gross proceeds of $75,200. We received $70,207 in net proceeds after deducting $4,512 of underwriting discounts and commissions and paying $481 in offering costs.

Use of Estimates

Preparation of the condensed consolidated financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as of the date of the condensed consolidated financial statements. By their nature, these judgments are subject to an inherent degree of uncertainty. The impact of the coronavirus disease ("COVID-19") has significantly increased economic and demand uncertainty. We use historical experience and other assumptions as the basis for our judgments and estimates. Because future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Any changes in these estimates will be reflected in the condensed consolidated financial statements.

Foreign Currency Transactions

We currently bill our international distributors in United States ("U.S.") dollars, resulting in minimal foreign exchange transaction expense.

Beginning in the second quarter of 2017, we began selling direct within the United Kingdom, Ireland, Australia and New Zealand and billing using the local currency for each country. In September 2018, we began selling direct in Canada, in January 2019 in Belgium and the Netherlands, in March 2020 in Italy and in April 2020 in Israel. The financial statements of our foreign subsidiaries are accounted for and have been translated into U.S. dollars using end-of-period exchange rates for assets and liabilities and average exchange rates during each reporting period for results of operations. Foreign currency translation adjustments have been recorded as a separate component of the condensed consolidated statements of comprehensive loss.

Revenue from Contracts with Customers

In accordance with ASC 606, "Revenue From Contracts With Customers (ASC 606)", revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services, and excludes any sales incentives or taxes collected from a customer which are subsequently remitted to government authorities.

Revenue Recognition – United States

Revenue in the United States is generated primarily from the sale of our implants and, to a much lesser extent, from the sale of our instruments. Sales in the United States are primarily to hospital accounts through independent sales agencies. We recognize revenue when our performance obligations under the terms of a contract with our customer are satisfied. This typically occurs when we transfer control of our products to the customers, generally upon implantation or when title passes upon shipment. The products are generally consigned to our independent sales agencies, and revenue is recognized when the products are used by or shipped to the hospital for surgeries on a case by case basis. On rare occasions, hospitals purchase products for their own inventory, and revenue is recognized when the products are shipped and the title and risk of loss passes to the customer. Pricing for each customer is dictated by a unique pricing agreement, which does not generally include rebates or discounts.
13


Revenue Recognition – International

Outside of the United States, we primarily sell our products through independent stocking distributors. Generally, the distributors are allowed to return products, and some are thinly capitalized. Based on our history of collections and returns from international customers, prior to 2019, we concluded that collectability was not reasonably assured at the time of delivery for certain customers who had not evidenced a consistent pattern of timely payment. Accordingly, in the past we did not recognize international revenue and associated cost of revenue at the time title transfers for these customers for whom collectability had not been deemed probable based on the customer’s history and ability to pay, but rather when cash had been received.
Following a review of our collection history, we deemed collectability was probable for all international stocking distributors effective January 1, 2019. Based on a history of reliable collections, we have concluded that a contract exists and revenue should be recognized when our performance obligations under the terms of the contract with our customer are satisfied. This typically occurs when we transfer control of our products to the customer, generally upon implantation or when title passes upon shipment.
In the countries where we sell under an agency model direct to local hospitals, the products are generally consigned to our independent sales agencies, and revenue is recognized when the products are used by or shipped to the hospital for surgeries on a case by case basis. On rare occasions, hospitals purchase products for their own inventory, and revenue is recognized when the products are shipped and the title and risk of loss passes to the customer. Pricing for each customer is dictated by a unique pricing agreement, which does not generally include rebates or discounts.

Cash and Cash Equivalents

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

Accounts Receivable

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

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

Inventories, net

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

We evaluate the carrying value of our inventories in relation to the estimated forecast of product demand, which takes into consideration the life cycle of the product. A significant decrease in demand could result
14


in an increase in the amount of excess inventory on hand, which could lead to additional charges for excess and obsolete inventory.

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

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

Property and Equipment, net

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

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

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

Depreciable lives are generally as follows:
Building and building improvements
25 to 30 years
Furniture and fixtures
5 to 7 years
Computer equipment
3 to 5 years
Business software
3 years
Office and other equipment
5 to 7 years
Instruments
5 years
Sample inventory
2 years

Amortizable Intangible Assets, net

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

Amortizable intangible assets are assessed for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability is
15


measured by a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the associated asset. If such assets are determined to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the assets. No impairment charges were recorded in any of the periods presented.

Goodwill and Other Intangible Assets

Our goodwill represents the excess of the cost over the fair value of net assets acquired. The determination of the value of goodwill and intangible assets arising from acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of net tangible and intangible assets acquired. Goodwill is not amortized and is assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstances warrant such a review. The goodwill is considered to be impaired if we determine that the carrying value of the reporting unit exceeds its respective fair value.

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

Cost of Revenue

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

Sales and Marketing Expenses

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

Advertising Costs

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

Research and Development Costs

Research and development costs are expensed as incurred. Our research and development expenses primarily consist of costs associated with engineering, product development, consulting services, outside prototyping services, outside research activities, materials, development and protection of our intellectual property portfolio, as well as other costs associated with development of our products. Research and development costs also include related personnel and consultants’ compensation expense.
16


Stock-Based Compensation

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

Immediately prior to our IPO, we adopted our 2017 Incentive Award Plan (the "2017 Plan") which replaced the 2007 Plan. The 2017 Plan provides for grants of options and restricted stock to officers, employees, consultants or directors of our Company. The 2017 Plan has authorized 1,789,647 shares for award.

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

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

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

Comprehensive Income (Loss)

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

Income Taxes

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

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

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


17


“Emerging Growth Company” Reporting Requirements

We qualify as an “emerging growth company” as defined in the JOBS Act. For as long as a company is deemed to be an emerging growth company, it may take advantage of specified reduced reporting and other regulatory requirements that are generally unavailable to other public companies. Among other things, we are not required to provide an auditor attestation report on the assessment of the internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002.

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

In April 2017, the SEC adopted new rules that included an inflation-adjusted threshold in the definition of an emerging growth company. Under the new inflation-adjusted threshold, we would cease to be an emerging growth company on the last day of the fiscal year in which our annual gross revenues exceed $1.07 billion. This is an increase of $70 million from the previous $1 billion threshold.

Recent Accounting Pronouncements

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

In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment". This pronouncement eliminates Step 2 from the goodwill impairment test and requires an entity to perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. Under this guidance, an entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. It is effective for reporting periods beginning after December 15, 2020, although earlier adoption is permitted. The Company adopted this standard on January 1, 2020 and it did not have a significant impact on the Company's consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No. 2019-12 "Income Taxes: Simplifying the Accounting for Income Taxes" intended to simplify the accounting for income taxes by eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside cost basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. The standard is effective for annual periods beginning after December 15, 2020 and interim periods within, with early adoption permitted. Adoption of the standard requires certain changes to be made prospectively, with some changes to be made retrospectively. The Company adopted this standard on January 1, 2020 and it did not have a significant impact on the Company's consolidated financial statements and related disclosures.


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NOTE 3 – BUSINESS COMBINATION

ApiFix

On April 1, 2020, the Company purchased all the issued and outstanding membership interest of ApiFix for $2,000 in cash, including $343 of cash acquired, 934,783 shares of the Company's common stock, $0.00025 par value per share, representing approximately $35,176 (based on a closing share price of $37.63 on April 1, 2020), approximately $30,000 in anniversary payments, and approximately $41,741 in a system sales payment. The total consideration transferred of $87,379, as calculated after discounting future payments to present value, is preliminary and subject to certain limitations and adjustments. ApiFix, a corporation organized under the laws of Israel, has developed a minimally invasive deformity correction system for patients with Adolescent Idiopathic Scoliosis ("ApiFix System").

The Company incurred $311 of acquisition-related costs that are included in general and administrative expenses on the consolidated statements of operations. The purchase price allocation set forth herein is preliminary.

The following table summarizes the total consideration paid for ApiFix and allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):
DescriptionAmount
Preliminary fair value of estimated total acquisition consideration$87,379 
Assets
Cash344 
Accounts receivable-trade245 
Inventories685 
Prepaid expenses and other current assets77 
Property and equipment153 
Intangible assets32,150 
Other intangible assets8,640 
Operating lease right-of-use asset104 
Total assets42,398 
Liabilities
Accounts payable and accrued liabilities226 
Operating lease liabilities106 
Other long-term liabilities270 
Total liabilities602 
Less: total net assets41,796 
Goodwill$45,583 







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The fair value of identifiable intangible assets were based on valuations using a combination of the income and cost approach. The estimated fair value and useful life of identifiable intangible assets are as follows:
AmountRemaining Economic Useful Life
Trademarks / Names$8,640 Indefinite
Patents31,720 15 years
Customer Relationships230 10 years
Non-competition Agreements200 4 years
$40,790 

The Company recorded a measurement period adjustment of $7,930 during fiscal 2020 to increase patents and decrease goodwill related to the refinement of inputs of the acquisition valuation.

The Company is obligated to make anniversary payments of: (i) approximately $13,000 on the second anniversary of the closing date, provided that such payment will be paid earlier if 150 clinical procedures using the ApiFix System are completed in the United States before such anniversary date, (ii) $8,000 on the third anniversary of the closing date; and (iii) $9,000 on the fourth anniversary of the closing date, subject to adjustments. The Company anticipates making the second anniversary payment of $13,000 during the first half of 2021. In addition, to the extent that the product of our revenues from the ApiFix System for the twelve months ended June 30, 2024 multiplied by 2.25 exceeds the anniversary payments actually made for the third and fourth years, we have agreed to pay the selling shareholders a system sales payment in the amount of such excess. The anniversary payments and system sales payment may each be made in cash or cash and common stock, subject to certain limitations; provided that the Company makes the determination with respect to anniversary payments and a representative of the former ApiFix shareholders may make the determination with respect to the system sales payment, if any.

The fair value of the contingent consideration payments is considered a Level 3 investment and were determined by an independent valuation specialist at the original issuance date using an option pricing model and a Monte Carlo simulation based on forecast annual revenue, expected volatility and an implied probability of achieving revenue forecasts. The fair value of the payment will continue to be adjusted as additional information becomes available regarding the progress toward achievement of the revenue forecast. The adjustments in the fair value of the contingent consideration payments of $909 and $1,819 were recognized as an expense for the three and nine month periods ended September 30, 2020, respectively, in other expenses on the condensed consolidated statements of operations. An additional $816 and $1,702 were recognized as interest expense for the three and nine month periods ended September 30, 2020, respectively, on the condensed consolidated statements of operations for the adjustment in the fair value of the acquisition installment payable.

Presented below is a summary of the present value of the anniversary payments and system sales payment related to the ApiFix acquisition:
April 1, 2020September 30, 2020
Anniversary Payments:
Second Year Payment$10,980 $11,920 
Third Year Payment5,780 6,150 
Fourth Year Payment5,860 6,252 
Total acquisition installment payable22,620 24,322 
Less: current portion of acquisition installment payable10,980 11,920 
Acquisition installment payable, net of current portion11,640 12,402 
System sales payment27,190 29,009 
ApiFix future consideration, net of current portion$38,830 $41,411 
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Pre-acquisition revenues and earnings for ApiFix were not material to the condensed consolidated operations.

Telos

On March 9, 2020, the Company purchased the issued and outstanding membership interest of Telos for $1,750 in cash, including $81 of cash acquired, and 36,628 shares of common stock, $0.00025 par value per share, of the Company. The shares of common stock were valued at $42.81 per share, the Company's closing share price on March 9, 2020. The Company incurred $25 of acquisition-related costs, that are included in general and administrative expenses on the consolidated statements of operations. The purchase price allocation set forth herein is preliminary.

The following table summarizes the total consideration paid for Telos and allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):
DescriptionAmount
Preliminary fair value of estimated total acquisition consideration$3,318 
Assets
Cash81 
Accounts receivable-trade215 
Prepaid expenses and other current assets38 
Property and equipment10 
Intangible assets950 
Other intangible assets$210 
Total assets1,504 
Liabilities
Accounts payable and accrued liabilities60 
Total liabilities60 
Less: total net assets1,444 
Goodwill$1,874 

The fair value of identifiable intangible assets were based on valuations using a combination of the income and cost approach. The estimated fair value and useful life of identifiable intangible assets are as follows:
AmountRemaining Economic Useful Life
Trademarks / Names$210 Indefinite
Customer Relationships910 10 years
Non-competition Agreements40 5 years
$1,160 

The Company recorded a measurement period adjustment during fiscal 2020 to increase prepaid expenses and decrease goodwill related to contractual terms.

Vilex and Orthex

On June 4, 2019, the Company purchased all the issued and outstanding shares of stock of Vilex and units of membership interests in Orthex for $50,000 in cash, adjusted for working capital, and 245,352 shares of common stock, $0.00025 par value per share, of the Company. The shares of common stock
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were valued at $40.76 per share, the volume weighted average trading price during the thirty day trading period ending on May 30, 2019. In addition, $3,000 was placed in an escrow account for a period of up to twenty months to cover certain indemnification obligations and to secure certain closing adjustments. The Company incurred $737 of acquisition-related costs, that are included in general and administrative expenses on the consolidated statements of operations. The purchase price allocation set forth herein is final as to working capital amounts, intangible values and tax accounting matters.

The following table summarizes the total consideration paid for Vilex and Orthex and allocation of purchase price to the estimated fair value of the assets acquired and liabilities assumed at the acquisition date (in thousands):
DescriptionAmount
Fair value of estimated total acquisition consideration$60,184 
Assets
Cash348 
Accounts receivable-trade2,088 
Inventories3,652 
Prepaid expenses and other current assets12 
Property and equipment7,540 
Intangible assets31,180 
Operating lease right-of-use asset323 
Total assets45,143 
Liabilities
Accounts payable and accrued liabilities563 
Operating lease liabilities323 
 Deferred tax liability1,175 
Other long-term liabilities68 
Total liabilities2,129 
Less: total net assets43,014 
Goodwill$17,170 

The fair value of identifiable intangible assets were based on valuations using a combination of the income and cost approach. The estimated fair value and useful life of identifiable intangible assets are as follows:
AmountRemaining Economic Useful Life
Trademarks / Names$4,610 Indefinite
Patents22,390 15 years
Internally Developed Software1,550 10 years
Customer Relationships2,570 12 years
Non-competition Agreements60 5 years
$31,180 

The Company recorded a measurement period adjustment during fiscal 2020 to increase inventory and decrease goodwill related to working capital adjustments to allocate inventory between Orthex and Vilex.

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Since the Vilex products include adult offerings that are not core to the Company's pediatric business, the Company received Board approval to take the steps necessary to divest the non-core Vilex assets.

On December 31, 2019, the Company divested substantially all of the assets relating to Vilex's adult product offering to a wholly-owned subsidiary of Squadron Capital, LLC in exchange for a $25,000 reduction in a term note owed to Squadron in connection with the initial acquisition along with certain ongoing intellectual property rights. Of the $25,000 purchase price, $12,410 was attributable to the license of the Orthex intellectual property and the remaining $12,590 was applied to the Vilex assets and liabilities divested.

After the issuance of our December 31, 2019 annual consolidated financial statements, and in connection with the preparation of our condensed consolidated financial statements for the three months ended March 31, 2020, we identified and corrected an immaterial error related to the deferred revenue liability recognized from license of Orthex intellectual property as of December 31, 2019. The immaterial correction of the error resulted in a reduction of the deferred revenue liability and goodwill on the consolidated balance sheet as of December 31, 2019 of $12,410, based on the conclusion that the consideration transferred was allocable to a portion of certain Orthex patent assets sold concurrently with the sale of Vilex. We have evaluated the adjustment and, based on an analysis of quantitative and qualitative factors, determined that the related impact was not material to our consolidated financial statements for any prior annual or interim period presented. In order to accurately present the historical period, we have revised our December 31, 2019 balance sheet and related footnotes to reflect the immaterial correction of this error.


NOTE 4 - GOODWILL AND INTANGIBLE ASSETS

Goodwill

Changes in the carrying amount of goodwill for the nine months ended September 30, 2020 were as follows:
Total
Goodwill at January 1, 2019$ 
Vilex Companies acquisition17,170 
Divestiture of Vilex in Tennessee, Inc. (3,397)
Goodwill at January 1, 2020$13,773 
Telos acquisition1,874 
Orthex measurement period adjustment(688)
ApiFix acquisition45,583 
Foreign currency translation impact(394)
Goodwill at September 30, 2020$60,148 

Intangible Assets

As of September 30, 2020, the balances of amortizable intangible assets were as follows:
Weighted-Average Amortization PeriodGross Intangible AssetsAccumulated AmortizationNet Intangible Assets
Patents15.0 years$41,022 $(1,874)$39,148 
Intellectual Property10.5 years8,950 (680)8,270 
License Agreements2.9 years2,765 (1,285)1,480 
Total amortizable assets$52,737 $(3,839)$48,898 
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As of December 31, 2019, the balances of amortizable intangible assets were as follows:

Weighted-Average Amortization PeriodGross Intangible AssetsAccumulated AmortizationNet Intangible Assets
Patents17.4 years$9,287 $(363)$8,924 
Intellectual Property10.7 years4,020 (213)3,807 
License Agreements3.4 years2,765 (1,012)1,753 
Total amortizable assets$16,072 $(1,588)$14,484 

On June 10, 2020, we purchased certain intellectual property assets from Band-Lok, LLC, a North Carolina limited liability company ("Band-Lok"), related to its Tether Clamp and Implantation System ("Tether Clamp System") for $3,394 in total consideration. We use the Tether Clamp System in connection with our Bandloc 5.5/6.0 System. We were previously the sole licensee of the purchased assets under a license agreement with Band-Lok.

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

Trademarks are non-amortizing intangible assets which were $13,305 and $4,490 as of September 30, 2020 and December 31, 2019, respectively. Concurrently with our acquisition of each company, we acquired the trademark of Orthex on June 4, 2019 valued at $4,230, the trademark of Telos on March 9, 2020 valued at $210 and the trademark of ApiFix on April 1, 2020 valued at $8,605. Trademarks are recorded in Other Intangible assets on the Condensed Consolidated Balance Sheets.


NOTE 5 - DISCONTINUED OPERATIONS

On June 4, 2019, the Company acquired Vilex, a manufacturer of foot and ankle surgical implants. Since the Vilex products included adult offerings that were not core to the Company's pediatric business, the Company received Board approval to take the steps necessary to divest the non-core Vilex assets and those Vilex assets were sold on December 31, 2019.

The following summarized financial information has been segregated from continuing operations and reported as discontinued operations for the three and nine months ended September 30, 2019:

Three Months EndedNine Months Ended
September 30, 2019September 30, 2019
Revenue$1,285 $1,699 
Operating expenses707 1,213 
Depreciation and amortization365 432 
Operating income