kids-20210930
2021Q3FALSE0001425450--12-3100014254502021-01-012021-09-30xbrli:shares00014254502021-11-02iso4217:USD00014254502021-09-3000014254502020-12-31iso4217:USDxbrli:shares00014254502021-07-012021-09-3000014254502020-07-012020-09-3000014254502020-01-012020-09-300001425450us-gaap:CommonStockMember2020-12-310001425450us-gaap:AdditionalPaidInCapitalMember2020-12-310001425450us-gaap:RetainedEarningsMember2020-12-310001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-12-310001425450us-gaap:RetainedEarningsMember2021-01-012021-03-3100014254502021-01-012021-03-310001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-01-012021-03-310001425450us-gaap:CommonStockMember2021-01-012021-03-310001425450us-gaap:AdditionalPaidInCapitalMember2021-01-012021-03-310001425450us-gaap:CommonStockMember2021-03-310001425450us-gaap:AdditionalPaidInCapitalMember2021-03-310001425450us-gaap:RetainedEarningsMember2021-03-310001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-03-3100014254502021-03-310001425450us-gaap:RetainedEarningsMember2021-04-012021-06-3000014254502021-04-012021-06-300001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-04-012021-06-300001425450us-gaap:CommonStockMember2021-04-012021-06-300001425450us-gaap:AdditionalPaidInCapitalMember2021-04-012021-06-300001425450us-gaap:CommonStockMember2021-06-300001425450us-gaap:AdditionalPaidInCapitalMember2021-06-300001425450us-gaap:RetainedEarningsMember2021-06-300001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-06-3000014254502021-06-300001425450us-gaap:RetainedEarningsMember2021-07-012021-09-300001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-07-012021-09-300001425450us-gaap:CommonStockMember2021-07-012021-09-300001425450us-gaap:AdditionalPaidInCapitalMember2021-07-012021-09-300001425450us-gaap:CommonStockMember2021-09-300001425450us-gaap:AdditionalPaidInCapitalMember2021-09-300001425450us-gaap:RetainedEarningsMember2021-09-300001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-09-300001425450us-gaap:CommonStockMember2019-12-310001425450us-gaap:TreasuryStockMember2019-12-310001425450us-gaap:AdditionalPaidInCapitalMember2019-12-310001425450us-gaap:RetainedEarningsMember2019-12-310001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-3100014254502019-12-310001425450us-gaap:RetainedEarningsMember2020-01-012020-03-3100014254502020-01-012020-03-310001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-03-310001425450us-gaap:CommonStockMember2020-01-012020-03-310001425450us-gaap:AdditionalPaidInCapitalMember2020-01-012020-03-310001425450us-gaap:TreasuryStockMember2020-01-012020-03-310001425450us-gaap:CommonStockMember2020-03-310001425450us-gaap:TreasuryStockMember2020-03-310001425450us-gaap:AdditionalPaidInCapitalMember2020-03-310001425450us-gaap:RetainedEarningsMember2020-03-310001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-03-3100014254502020-03-310001425450us-gaap:RetainedEarningsMember2020-04-012020-06-3000014254502020-04-012020-06-300001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-04-012020-06-300001425450us-gaap:CommonStockMember2020-04-012020-06-300001425450us-gaap:AdditionalPaidInCapitalMember2020-04-012020-06-300001425450us-gaap:TreasuryStockMember2020-04-012020-06-300001425450us-gaap:CommonStockMember2020-06-300001425450us-gaap:TreasuryStockMember2020-06-300001425450us-gaap:AdditionalPaidInCapitalMember2020-06-300001425450us-gaap:RetainedEarningsMember2020-06-300001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-3000014254502020-06-300001425450us-gaap:RetainedEarningsMember2020-07-012020-09-300001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001425450us-gaap:CommonStockMember2020-07-012020-09-300001425450us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001425450us-gaap:CommonStockMember2020-09-300001425450us-gaap:TreasuryStockMember2020-09-300001425450us-gaap:AdditionalPaidInCapitalMember2020-09-300001425450us-gaap:RetainedEarningsMember2020-09-300001425450us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-3000014254502020-09-300001425450kids:TelosPartnersLLCMember2021-01-012021-09-300001425450kids:TelosPartnersLLCMember2020-01-012020-09-300001425450kids:ApiFixLtdMember2021-01-012021-09-300001425450kids:ApiFixLtdMember2020-01-012020-09-300001425450kids:BandLokMember2021-01-012021-09-300001425450kids:BandLokMember2020-01-012020-09-300001425450kids:VilexAndOrthexMember2019-06-042019-06-040001425450us-gaap:DiscontinuedOperationsDisposedOfBySaleMember2019-12-310001425450kids:TelosPartnersLLCMember2020-03-092020-03-090001425450kids:ApiFixLtdMember2020-04-012020-04-010001425450kids:ApiFixLtdMember2020-04-010001425450kids:SecondAnniversaryMemberkids:ApiFixLtdMember2020-04-012020-04-01kids:facility0001425450kids:ApiFixLtdMemberkids:ThirdAnniversaryMember2020-04-012020-04-010001425450kids:ApiFixLtdMemberkids:FourthAnniversaryMember2020-04-012020-04-01xbrli:pure0001425450kids:BandLokMember2020-06-102020-06-10iso4217:EUR0001425450srt:MinimumMemberus-gaap:BuildingAndBuildingImprovementsMember2021-01-012021-09-300001425450srt:MaximumMemberus-gaap:BuildingAndBuildingImprovementsMember2021-01-012021-09-300001425450srt:MinimumMemberus-gaap:FurnitureAndFixturesMember2021-01-012021-09-300001425450srt:MaximumMemberus-gaap:FurnitureAndFixturesMember2021-01-012021-09-300001425450srt:MinimumMemberus-gaap:ComputerEquipmentMember2021-01-012021-09-300001425450srt:MaximumMemberus-gaap:ComputerEquipmentMember2021-01-012021-09-300001425450us-gaap:SoftwareAndSoftwareDevelopmentCostsMember2021-01-012021-09-300001425450us-gaap:OfficeEquipmentMembersrt:MinimumMember2021-01-012021-09-300001425450us-gaap:OfficeEquipmentMembersrt:MaximumMember2021-01-012021-09-300001425450us-gaap:TechnologyEquipmentMember2021-01-012021-09-300001425450kids:SampleInventoryMember2021-01-012021-09-300001425450srt:MinimumMember2021-01-012021-09-300001425450srt:MaximumMember2021-01-012021-09-300001425450kids:A2007EquityIncentivePlanMember2017-09-300001425450kids:New2017EquityIncentivePlanMember2021-09-300001425450us-gaap:EmployeeStockOptionMembersrt:MaximumMember2021-01-012021-09-300001425450us-gaap:RestrictedStockMember2021-01-012021-09-300001425450us-gaap:ShareBasedCompensationAwardTrancheOneMemberus-gaap:RestrictedStockMember2021-01-012021-09-300001425450us-gaap:RestrictedStockMemberus-gaap:ShareBasedCompensationAwardTrancheTwoMember2021-01-012021-09-300001425450us-gaap:TrademarksAndTradeNamesMemberkids:ApiFixLtdMember2020-04-012020-04-010001425450kids:ApiFixLtdMemberus-gaap:PatentsMember2020-04-012020-04-010001425450us-gaap:CustomerRelationshipsMemberkids:ApiFixLtdMember2020-04-012020-04-010001425450kids:ApiFixLtdMemberus-gaap:NoncompeteAgreementsMember2020-04-012020-04-010001425450kids:SecondAnniversaryMemberkids:ApiFixLtdMember2020-04-010001425450kids:SecondAnniversaryMemberkids:ApiFixLtdMember2020-12-310001425450kids:SecondAnniversaryMemberkids:ApiFixLtdMember2021-09-300001425450kids:ApiFixLtdMemberkids:ThirdAnniversaryMember2020-04-010001425450kids:ApiFixLtdMemberkids:ThirdAnniversaryMember2020-12-310001425450kids:ApiFixLtdMemberkids:ThirdAnniversaryMember2021-09-300001425450kids:ApiFixLtdMemberkids:FourthAnniversaryMember2020-04-010001425450kids:ApiFixLtdMemberkids:FourthAnniversaryMember2020-12-310001425450kids:ApiFixLtdMemberkids:FourthAnniversaryMember2021-09-300001425450kids:ApiFixLtdMember2020-12-310001425450kids:ApiFixLtdMember2021-09-300001425450us-gaap:PatentsMember2021-01-012021-09-300001425450us-gaap:PatentsMember2021-09-300001425450us-gaap:IntellectualPropertyMember2021-01-012021-09-300001425450us-gaap:IntellectualPropertyMember2021-09-300001425450us-gaap:LicensingAgreementsMember2021-01-012021-09-300001425450us-gaap:LicensingAgreementsMember2021-09-300001425450us-gaap:PatentsMember2020-01-012020-12-310001425450us-gaap:PatentsMember2020-12-310001425450us-gaap:IntellectualPropertyMember2020-01-012020-12-310001425450us-gaap:IntellectualPropertyMember2020-12-310001425450us-gaap:LicensingAgreementsMember2020-01-012020-12-310001425450us-gaap:LicensingAgreementsMember2020-12-310001425450us-gaap:LicensingAgreementsMember2021-09-032021-09-030001425450us-gaap:LicensingAgreementsMember2021-07-202021-07-200001425450us-gaap:LicensingAgreementsMember2021-03-192021-03-190001425450us-gaap:IntellectualPropertyMember2020-06-102020-06-100001425450us-gaap:TrademarksMemberkids:TelosPartnersLLCMember2020-03-092020-03-090001425450us-gaap:TrademarksMemberkids:ApiFixLtdMember2020-04-012020-04-010001425450kids:ExchangeTradeMutualFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001425450kids:ExchangeTradeMutualFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-09-300001425450kids:ExchangeTradeMutualFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-09-300001425450kids:ExchangeTradeMutualFundsMemberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001425450us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-09-300001425450us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2021-09-300001425450us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2021-09-300001425450us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2021-09-300001425450us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001425450us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-09-300001425450us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-09-300001425450us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001425450us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001425450us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-09-300001425450us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-09-300001425450us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001425450us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2021-09-300001425450us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2021-09-300001425450us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-09-300001425450us-gaap:FairValueMeasurementsRecurringMember2021-09-300001425450us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001425450us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001425450us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001425450us-gaap:FairValueMeasurementsRecurringMember2020-12-310001425450kids:ExchangeTradeMutualFundsMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001425450kids:ExchangeTradeMutualFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001425450kids:ExchangeTradeMutualFundsMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001425450kids:ExchangeTradeMutualFundsMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001425450us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-12-310001425450us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel2Member2020-12-310001425450us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueInputsLevel3Member2020-12-310001425450us-gaap:FairValueMeasurementsRecurringMemberus-gaap:CorporateDebtSecuritiesMember2020-12-310001425450us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001425450us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001425450us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001425450us-gaap:USTreasurySecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001425450us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001425450us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-12-310001425450us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001425450us-gaap:OtherDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-12-310001425450kids:ContingentConsiderationLiabilityMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-12-310001425450kids:ContingentConsiderationLiabilityMemberus-gaap:FairValueInputsLevel3Member2021-01-012021-09-300001425450kids:ContingentConsiderationLiabilityMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-09-300001425450us-gaap:ValuationTechniqueDiscountedCashFlowMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputDiscountRateMember2021-09-300001425450us-gaap:ValuationTechniqueDiscountedCashFlowMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputDiscountRateMember2020-12-310001425450us-gaap:ValuationTechniqueDiscountedCashFlowMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputPriceVolatilityMember2021-09-300001425450us-gaap:ValuationTechniqueDiscountedCashFlowMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Memberus-gaap:MeasurementInputPriceVolatilityMember2020-12-310001425450us-gaap:ValuationTechniqueDiscountedCashFlowMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2021-01-012021-09-300001425450us-gaap:ValuationTechniqueDiscountedCashFlowMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-01-012020-12-310001425450us-gaap:MortgagesMember2021-09-300001425450us-gaap:MortgagesMember2020-12-310001425450kids:SecondAmendedLoanAgreementMemberkids:SquadronMember2020-08-040001425450us-gaap:LondonInterbankOfferedRateLIBORMemberkids:SecondAmendedLoanAgreementMemberkids:SquadronMember2020-08-042020-08-040001425450srt:AffiliatedEntityMemberkids:RevolvingLoanMemberkids:SquadronMember2020-01-042020-01-040001425450us-gaap:NotesPayableOtherPayablesMemberkids:TermNoteAMember2020-07-152020-07-150001425450kids:SquadronMember2020-08-042020-08-040001425450kids:SquadronMember2021-07-012021-09-300001425450kids:SquadronMember2021-01-012021-09-300001425450us-gaap:MortgagesMember2021-01-012021-09-300001425450us-gaap:NotesPayableOtherPayablesMember2021-07-012021-09-300001425450us-gaap:NotesPayableOtherPayablesMember2020-07-012020-09-300001425450us-gaap:NotesPayableOtherPayablesMember2021-01-012021-09-300001425450us-gaap:NotesPayableOtherPayablesMember2020-01-012020-09-300001425450us-gaap:DomesticCountryMember2020-12-310001425450us-gaap:StateAndLocalJurisdictionMember2020-12-3100014254502014-05-3000014254502018-12-110001425450us-gaap:EmployeeStockOptionMember2020-07-012020-09-300001425450us-gaap:EmployeeStockOptionMember2021-07-012021-09-300001425450us-gaap:EmployeeStockOptionMember2020-12-310001425450us-gaap:EmployeeStockOptionMember2020-01-012020-12-310001425450us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001425450us-gaap:EmployeeStockOptionMember2021-09-300001425450us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001425450us-gaap:RestrictedStockMember2020-12-310001425450us-gaap:RestrictedStockMember2020-01-012020-12-310001425450us-gaap:RestrictedStockMember2021-09-300001425450us-gaap:RestrictedStockMember2021-07-012021-09-300001425450us-gaap:RestrictedStockMember2020-07-012020-09-300001425450us-gaap:RestrictedStockMember2020-01-012020-09-300001425450us-gaap:RestrictedStockMember2021-01-012021-09-300001425450us-gaap:RestrictedStockMember2020-01-012020-09-300001425450us-gaap:EmployeeStockOptionMember2021-01-012021-09-300001425450us-gaap:EmployeeStockOptionMember2020-01-012020-09-300001425450us-gaap:WarrantMember2021-01-012021-09-300001425450us-gaap:WarrantMember2020-01-012020-09-30kids:segment0001425450country:US2021-07-012021-09-300001425450country:US2020-07-012020-09-300001425450country:US2021-01-012021-09-300001425450country:US2020-01-012020-09-300001425450us-gaap:NonUsMember2021-07-012021-09-300001425450us-gaap:NonUsMember2020-07-012020-09-300001425450us-gaap:NonUsMember2021-01-012021-09-300001425450us-gaap:NonUsMember2020-01-012020-09-300001425450kids:TraumaAndDeformityMember2021-07-012021-09-300001425450kids:TraumaAndDeformityMember2020-07-012020-09-300001425450kids:TraumaAndDeformityMember2021-01-012021-09-300001425450kids:TraumaAndDeformityMember2020-01-012020-09-300001425450kids:SpineMember2021-07-012021-09-300001425450kids:SpineMember2020-07-012020-09-300001425450kids:SpineMember2021-01-012021-09-300001425450kids:SpineMember2020-01-012020-09-300001425450kids:SportsMedicineAndOtherMember2021-07-012021-09-300001425450kids:SportsMedicineAndOtherMember2020-07-012020-09-300001425450kids:SportsMedicineAndOtherMember2021-01-012021-09-300001425450kids:SportsMedicineAndOtherMember2020-01-012020-09-30kids:supplier0001425450srt:AffiliatedEntityMember2021-01-012021-09-300001425450srt:AffiliatedEntityMemberkids:StructureMedicalLLCMember2021-07-012021-09-300001425450srt:AffiliatedEntityMemberkids:StructureMedicalLLCMember2020-07-012020-09-300001425450srt:AffiliatedEntityMemberkids:StructureMedicalLLCMember2021-01-012021-09-300001425450srt:AffiliatedEntityMemberkids:StructureMedicalLLCMember2020-01-012020-09-300001425450srt:AffiliatedEntityMemberus-gaap:DiscontinuedOperationsDisposedOfBySaleMember2019-12-310001425450srt:AffiliatedEntityMemberkids:VilexMember2021-07-012021-09-300001425450srt:AffiliatedEntityMemberkids:VilexMember2021-01-012021-09-300001425450srt:AffiliatedEntityMemberkids:VilexMember2020-07-012020-09-300001425450srt:AffiliatedEntityMemberkids:VilexMember2020-01-012020-09-300001425450kids:VilexAndOrthexMember2019-06-012019-06-300001425450srt:AffiliatedEntityMemberkids:TeamNoteBMemberkids:SquadronMember2019-12-312019-12-31

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, 2021

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 2, 2021, the registrant had 19,678,380 outstanding shares of common stock, $0.00025 par value per share.





OrthoPediatrics Corp.
Form 10-Q
For the Quarterly Period Ended September 30, 2021

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 11, 2021 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, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$6,334 $28,758 
Restricted cash1,368 1,374 
Short term investments51,349 55,141 
Accounts receivable - trade, less allowance for doubtful accounts of $373 and $433, respectively
18,146 17,212 
Inventories, net55,458 52,989 
Notes receivable59 337 
Prepaid expenses and other current assets2,745 2,618 
Total current assets135,459 158,429 
Property and equipment, net28,783 27,227 
Other assets:
Amortizable intangible assets, net54,904 50,284 
Goodwill70,490 70,511 
Other intangible assets13,957 13,961 
Total other assets139,351 134,756 
Total assets$303,593 $320,412 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade$8,972 $10,038 
Accrued compensation and benefits4,655 4,540 
Accrued legal settlements 6,342 
Current portion of long-term debt with affiliate136 131 
Current portion of acquisition installment payable12,791 12,233 
Other current liabilities1,464 1,744 
Total current liabilities28,018 35,028 
Long-term liabilities:
Long-term debt with affiliate, net of current portion942 1,044 
Acquisition installment payable, net of current portion13,927 12,784 
Contingent consideration34,420 30,710 
Deferred income taxes4,848 5,755 
Other long-term liabilities320 323 
Total long-term liabilities54,457 50,616 
Total liabilities82,475 85,644 
Stockholders' equity:
Common stock, $0.00025 par value; 50,000,000 shares authorized; 19,672,162 shares and 19,560,291 shares issued as of September 30, 2021 (unaudited) and December 31, 2020, respectively
5 5 
Additional paid-in capital392,929 388,622 
Accumulated deficit(178,098)(161,766)
Accumulated other comprehensive income6,282 7,907 
Total stockholders' equity221,118 234,768 
Total liabilities and stockholders' equity$303,593 $320,412 

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,
2021202020212020
Net revenue$25,079 $22,205 $73,236 $52,154 
Cost of revenue6,525 4,566 17,914 12,241 
Gross profit18,554 17,639 55,322 39,913 
Operating expenses:
Sales and marketing9,862 9,237 29,687 22,421 
General and administrative11,034 9,823 34,163 28,281 
Research and development1,302 1,077 3,935 3,223 
Total operating expenses22,198 20,137 67,785 53,925 
Operating loss(3,644)(2,498)(12,463)(14,012)
Other expenses:
Interest expense, net542 1,010 1,851 2,788 
Fair value adjustment of contingent consideration(1,430)909 3,710 1,819 
Other (income) expense(267)122 (802)312 
Total other expenses(1,155)2,041 4,759 4,919 
Loss before income taxes$(2,489)$(4,539)$(17,222)$(18,931)
Provision for income taxes (benefit)(292) (890) 
Net loss$(2,197)$(4,539)$(16,332)$(18,931)
Weighted average common stock - basic and diluted19,291,374 19,112,797 19,256,128 17,700,429 
Net loss per share - basic and diluted$(0.11)$(0.24)$(0.85)$(1.07)

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,
2021202020212020
Net loss$(2,197)$(4,539)$(16,332)$(18,931)
Other comprehensive loss:
Foreign currency translation adjustment288 (94)(1,343)70 
Unrealized loss on short-term investments(88) (282) 
Other comprehensive loss200 (94)(1,625)70 
Comprehensive loss$(1,997)$(4,633)$(17,957)$(18,861)

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, 2021
Accumulated
AdditionalOtherTotal
Common StockPaid-inAccumulatedComprehensiveStockholders'
SharesValueCapitalDeficitIncome (Loss)Equity
Balance at January 1, 202119,560,291 $5 $388,622 $(161,766)$7,907 $234,768 
Net loss— — — (10,379)— (10,379)
Other comprehensive income— — — — (3,622)(3,622)
Stock option exercise2,010 — 62 — — 62 
Restricted stock97,111 — 1,316 — — 1,316 
Balance at March 31, 202119,659,412 $5 $390,000 $(172,145)$4,285 $222,145 
Net loss— — — (3,756)— (3,756)
Other comprehensive loss— — — — 1,797 1,797 
Restricted stock10,632 — 1,415 — — 1,415 
Balance at June 30, 202119,670,044 $5 $391,415 $(175,901)$6,082 $221,601 
Net Loss— — — (2,197)— (2,197)
Other comprehensive loss— — — — 200 200 
Stock option exercise2,412 — 75 — — 75 
Restricted stock(294)— 1,439 — — 1,439 
Balance at September 30, 202119,672,162 $5 $392,929 $(178,098)$6,282 $221,118 












7


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 

See notes to condensed consolidated financial statements.
8


ORTHOPEDIATRICS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Nine Months Ended
September 30,
20212020
OPERATING ACTIVITIES
Net loss$(16,332)$(18,931)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization7,870 5,696 
Stock-based compensation4,170 4,712 
Fair value adjustment of contingent consideration3,710 1,819 
Acquisition installment payable1,701 1,702 
Deferred income taxes(890) 
Changes in certain current assets and liabilities:
Accounts receivable - trade(716)(389)
Inventories(3,244)(12,340)
Prepaid expenses and other current assets(138)(215)
Accounts payable - trade(956)155 
Accrued legal settlements(6,342) 
Accrued expenses and other liabilities(168)(558)
Other(493)(24)
Net cash used in operating activities(11,828)(18,373)
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)
Sale of short-term marketable securities4,000  
Purchases of licenses(7,908) 
Purchases of property and equipment(6,468)(6,448)
Net cash used in investing activities(10,376)(10,637)
FINANCING ACTIVITIES
Payments on debt with affiliate (25,000)
Proceeds from issuance of common stock, net of issuance costs 70,207 
Proceeds from exercise of stock options137 1,629 
Payments on mortgage notes(97)(88)
Net cash (used in) provided by financing activities40 46,748 
Effect of exchange rate changes on cash(266)(24)
NET (DECREASE) INCREASE IN CASH(22,430)17,714 
Cash and restricted cash, beginning of year$30,132 $72,027 
Cash and restricted cash, end of period$7,702 $89,741 
9


SUPPLEMENTAL DISCLOSURES
Cash paid for interest$43 $1,218 
Transfer of instruments from property and equipment to inventory$80 $645 
Issuance of common shares to acquire Telos$ $1,568 
Issuance of common shares to acquire ApiFix$ $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, RESPONSETM Spine, BandLocTM, Pediguard, Pediatric Nailing Platform | Femur, Orthex®, QuickPack® and ApiFix® Mid-C System, 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.

The Company began selling its products in the United States in 2008 and internationally in 2011. 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. We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021. Additionally, in March 2019, we established an operating company in the Netherlands in order to enhance 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 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 pediatric 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 30, 2024 multiplied by 2.25 exceeds the anniversary payments actually made for the third and fourth
11


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 (refer to Note 3).

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.

The global COVID-19 pandemic (“COVID-19” or the “pandemic”), together with the preventative and precautionary measures taken by governments, governmental agencies, communities, businesses and hospital administrators, has impacted, and may continue to impact significant aspects of our business, including demand for our products, supply chain and distribution systems, our operations generally, and the timing for bringing new products to market. We also expect medical procedure rates to continue to vary by type and country, and could be impacted by regional COVID-19 case volumes, hospital and clinical occupancy and staffing levels, the willingness of patients to schedule elective procedures, travel and quarantine restrictions, vaccine immunization rates, and new COVID-19 variants. While we have seen the positive impact that higher vaccination rates have had on curbing the spread of the virus in the U.S. and certain other countries, the global COVID-19 outlook remains uncertain as vaccination rates have slowed and the spread of new variants has accelerated. While the impact of COVID-19 has had, and may continue to have, an adverse effect on our business, results of operations, financial condition and cash flows, the nature and extent of such impact is unknown, as we cannot predict with confidence the ultimate duration or further severity of the pandemic.


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., Orthex, LLC, Telos Partners, LLC and ApiFix, Ltd. (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, 2021 and December 31, 2020, the condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statements of comprehensive loss for the three and nine months ended September 30, 2021 and 2020, the condensed consolidated statements of stockholders’ equity for the three and nine months ended September 30, 2021 and 2020 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 are unaudited and should be read in conjunction with the annual consolidated financial statements as of and for the year ended December 31, 2020 and related notes thereto contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 11, 2021. 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.
12



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, 2020 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, 2021 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 $178,098 and $161,766 as of September 30, 2021 and December 31, 2020, respectively. Management continues to monitor cash flows and liquidity on a regular basis. We believe that our cash balance, including short term investments, at September 30, 2021 and expected cash flows from operations 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.

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 stocking distributors in 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. We began selling direct to Canada in September 2018, Belgium and the Netherlands in January 2019, Italy in March 2020 and Germany, Switzerland and Austria in January 2021. Additionally, in March 2019, we established an operating company in the Netherlands in order to enhance our operations in Europe. The financial statements of our foreign subsidiaries are accounted for in local functional currencies including 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. Local functional currencies include primarily the Pound Sterling, the Euro, Australian Dollar, Canadian Dollar and Israeli Shekel. 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
13



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.
Revenue Recognition – International

Outside of the United States, we sell our products directly to hospitals through independent sales agencies or to independent stocking distributors. Generally, the distributors are allowed to return products, and some are thinly capitalized; however, based on a history of reliable collections, we have concluded that a contract exists and revenue should be recognized when we transfer control of our products to the customer, generally when title passes upon shipment. Additionally, based on our history of immaterial returns from international customers, we have historically estimated no reserve for returns.
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 title passes upon shipment. Pricing for each customer is dictated by a unique pricing agreement.

Cash, Cash Equivalents and Short Term Investments

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 sheets for cash are valued at cost, which approximates fair value.

The Company invests in available-for-sale short term investments. The Company has the ability, if necessary, to liquidate without penalty any of its short term investments to meet its liquidity needs in the next twelve months. As such, those investments with contractual maturities greater than one year from the date of purchase are classified as short-term on the accompanying Consolidated Balance Sheets. The company includes unrealized gains or losses in stockholders' equity. If the adjustment to fair value reflects a decline in the value of the investment, the Company considers available information to determine whether the decline is "other than temporary" and, if so, reflects the change on the Consolidated Statements of Operations.

Restricted Cash

In conjunction with the sale of the assets relating to Vilex's adult product offering to a wholly-owned subsidiary of Squadron in 2019, $1,250 was placed into a separate escrow account to cover certain indemnification obligations. This cash is reported as restricted cash on the September 30, 2021 and December 31, 2020 condensed consolidated balance sheets. These funds will remain restricted until such time as the software ownership dispute involving IMED Surgical, LLC is resolved (see “Legal Proceedings” under Note 13 – Commitments and Contingencies for additional information). The Company also maintains restricted cash of 100 Euro at its Netherlands entity for potential Italian tenders.

Accounts Receivable and Allowance for Doubtful Accounts

14


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.

Fair Value of Financial Instruments

The accounting standards related to fair value measurements define fair value and provide a consistent framework for measuring fair value under the authoritative literature.  Valuation techniques are based on observable and unobservable inputs.  Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect market assumptions.  This guidance only applies when other standards require or permit the fair value measurement of assets and liabilities.  The guidance does not expand the use of fair value measurements.  A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels.

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data; and

Level 3 – Significant unobservable inputs that are not corroborated by market data.  Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, and are based on the best information available, including our own data.   

The Company's financial instruments include cash and cash equivalents, short-term investments, accounts receivable, accounts payable, acquisition installment payables, contingent consideration and long-term debt. The carrying amounts of accounts receivable, accounts payable, acquisition installment payables and long-term debt approximate the fair value due to the short-term nature or market rates of these instruments. The company bases the fair value of short-term investments on quoted market prices for identical or comparable assets. Contingent consideration represents the system sales payment the Company is obligated to make. The fair value of the contingent consideration payment is considered a level 3 fair value measurement and was determined with the assistance of an independent valuation specialist at the original issuance date and as of the balance sheet date. See Note 5 for further discussion of financial instruments that carried a fair value on a recurring and nonrecurring basis.

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 purchased from third parties, which consist of implants and instruments held in our warehouse or with third-party independent sales agencies or distributors, are considered finished goods.

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

15


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, Italy, Germany, Switzerland and Austria 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 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
16


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 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.

Acquisition Payable and Contingent Consideration

Upon the completion of an acquisition, the Company may record an acquisition installment payable, contingent consideration or both. Acquisition installment payables, which are fixed future payments, are recorded at their net present value, and contingent consideration is recorded at fair value as determined by management with the assistance of an independent valuation specialist at the original issuance date and is marked to fair value on a recurring basis. Accretion of interest expense attributable to the acquisition installment payable is recorded as a component of interest expense, net. Changes in the fair value of the contingent consideration are included in fair value adjustments of contingent consideration on the condensed consolidated statement of operations. The amount of expense related to acquisition installment payables recorded in interest expense, net for the three and nine months ended September 30, 2021 were $489 and $1,701, respectively, and $816 and $1,702 for the three and nine months ended September 30, 2020, respectively. The fair value adjustments of contingent consideration for the three and nine months ended September 30, 2021 were income of $1,430 and expense of $3,710, respectively, and expense of $909 and $1,819 for the three and nine months ended September 30, 2020, respectively.

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
17


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.

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.

Litigation and Contingencies

Accruals for litigation and contingencies are reflected in the condensed consolidated financial statements based on management’s assessment, including advice of legal counsel, of the expected outcome of litigation or other dispute resolution proceedings and/or the expected resolution of contingencies. Liabilities for estimated losses are accrued if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability of loss and the determination as to whether the amount is reasonably estimable. Accruals are based only on information available at the time of the assessment due to the uncertain nature of such matters. As additional information becomes available, management reassesses
18


potential liabilities related to pending claims and litigation and may revise its previous estimates, which could materially affect the Company’s results of operations in a given period.

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 and unrealized gain (loss) on our short term investments.

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.

“Emerging Growth Company” and "Smaller Reporting 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. We will be able to take advantage of these reduced requirements until December 31, 2022, the date on which we will no longer qualify as an emerging growth company.

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 are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

We also qualify as a "smaller reporting company," as such term is defined in Rule 12b-2 under the Exchange Act. To the extent that we continue to qualify as a smaller reporting company, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company.




19


Recent Accounting Pronouncements

In October 2021, the FASB issued ASU No. 2021-08 "Business Combinations (Topic 805)-Accounting for Contract Assets and Contract Liabilities from Contracts with Customers". The amendments in this Update address diversity and inconsistency related to the recognition and measurement of contract assets and contract liabilities acquired in a business combination. The amendments in this Update require that an acquirer recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606, Revenue from Contracts with Customers. The amendments in this Update require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The amendments in this Update should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. The Company is currently evaluating the impact of adopting ASU 2021-08 on its consolidated financial statements.

In May 2021, the FASB issued ASU No. 2021-04 "Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)". This ASU is intended to clarify and reduce diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The guidance clarifies whether an issuer should account for a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as (1) an adjustment to equity and, if so, the related earnings per share effects, if any, or (2) an expense and, if so, the manner and pattern of recognition. The amendments in this ASU affect all entities that issue freestanding written call options that are classified in equity. The amendments do not apply to modifications or exchanges of financial instruments that are within the scope of another Topic and do not affect a holder’s accounting for freestanding call options. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. The Company is currently evaluating the impact of adopting ASU 2021-04 on its consolidated financial statements.

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.

NOTE 3 – BUSINESS COMBINATION
20



ApiFix

On April 1, 2020, the Company purchased all the issued and outstanding membership interest of ApiFix for $2,000 in cash, including $344 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 final. 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 following table reconciles the total consideration transferred after discounting the future payments:
ConsiderationPresent Value
Cash consideration$2,000 $2,000 
Payment of ApiFix transaction related costs67 67 
Issuance of common stock35,176 35,176 
Anniversary Payments30,000 22,620 
System sales payment41,741 27,190 
Total consideration transferred$108,984 $87,053 

The purchase price allocation set forth herein is final.

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
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 current liabilities270 
Deferred income taxes6,487 
Total liabilities7,089 
Less: total net assets35,309 
Goodwill$52,070 
21












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 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 between January 1 and April 1, 2022. 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.

22


Presented below is a summary of the present value of the anniversary payments and system sales payment related to the ApiFix acquisition:
April 1, 2020December 31, 2020September 30, 2021
Anniversary Payments:
Second Year Payment$10,980 $12,233 $12,791 
Third Year Payment5,780 6,335 6,890 
Fourth Year Payment5,860 6,449 7,037 
Total acquisition installment payable22,620 25,017 26,718 
Less: current portion of acquisition installment payable10,980 12,233 12,791 
Acquisition installment payable, net of current portion11,640 12,784 13,927 
System sales payment27,190 30,710 34,420 
ApiFix future consideration, net of current portion$38,830 $43,494 $48,347 

Pre-acquisition revenues and earnings for ApiFix were not material to the condensed consolidated operations.






NOTE 4 - GOODWILL AND INTANGIBLE ASSETS

Goodwill

Changes in the carrying amount of goodwill for the nine months ended September 30, 2021 were as follows:
Total
Goodwill at January 1, 2021$70,511 
Foreign currency translation impact(21)
Goodwill at September 30, 2021
$70,490 

Intangible Assets

As of September 30, 2021, the balances of amortizable intangible assets were as follows:
Weighted-Average Amortization PeriodGross Intangible AssetsAccumulated AmortizationNet Intangible Assets
Patents14.0 years$43,349 $(4,807)$38,542 
Intellectual Property9.6 years8,990 (1,232)7,758 
License Agreements5.9 years10,674 (2,070)8,604 
Total amortizable assets$63,013 $(8,109)$54,904 

As of December 31, 2020, the balances of amortizable intangible assets were as follows:
23


Weighted-Average Amortization PeriodGross Intangible AssetsAccumulated AmortizationNet Intangible Assets
Patents14.7 years$43,363 $(2,650)$40,713 
Intellectual Property10.3 years8,990 (744)8,246 
License Agreements2.7 years2,765 (1,440)1,325 
Total amortizable assets$55,118 $(4,834)$50,284 

On September 3, 2021, we entered into a five-year license agreement, resulting in exclusive distribution rights of the 7D Surgical FLASHTM Navigation platform for pediatric applications. We paid $750 which will be amortized over the initial three years of the agreement.

On July 20, 2021, we entered into an amended license agreement, resulting in a five-year extension of our exclusive distribution rights of the FIREFLY Technology in children's hospitals across the United States. We paid $4,300 for the amended agreement and the amount will be amortized over the life of the agreement.

On March 19, 2021, we recorded a license agreement in the amount of $2,858 in settlement of the Barry legal matter. Amortization is recorded based on the cases completed in the given period.

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 $13,957 and $13,961 as of September 30, 2021 and December 31, 2020, respectively. Concurrently with our acquisition of each company, we acquired the trademark of Telos on March 9, 2020 valued at $210 and the trademark of ApiFix on April 1, 2020 valued at $8,640. Trademarks are recorded in Other Intangible assets on the condensed consolidated balance sheets.


NOTE 5 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company measures certain financial assets and liabilities at fair value. The accounting standards related to fair value measurements define fair value and provide a consistent framework for measuring fair value under the authoritative literature. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels.

Level 1 – Quoted prices in active markets for identical assets or liabilities;

Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data; and

Level 3 – Significant unobservable inputs that are not corroborated by market data.  Generally, these fair value measures are model-based valuation techniques such as discounted cash flows, and are based on the best information available, including our own data.

24


The following table summarize the assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.
September 30, 2021
Level 1Level 2Level 3Total
Financial Assets
Short term investments
Exchange Trade Mutual Funds$35,358 $ $ $35,358 
Corporate Bonds$8,209 $ $ $8,209 
Treasury Bonds$4,206 $ $ $4,206 
Other$3,575 $ $ $3,575