# EDGAR Filing Document

**Accession Number:** 0000884624
**File Stem:** 0000950170-23-002508
**Filing Date:** 2023-2
**Character Count:** 232958
**Document Hash:** 76aa3ab7eab6c312041c9ed810eab081
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000950170-23-002508.hdr.sgml**: 20230213

**ACCESSION NUMBER**: 0000950170-23-002508

**CONFORMED SUBMISSION TYPE**: 8-K/A

**PUBLIC DOCUMENT COUNT**: 16

**CONFORMED PERIOD OF REPORT**: 20230105

**ITEM INFORMATION**: Financial Statements and Exhibits

**FILED AS OF DATE**: 20230213

**DATE AS OF CHANGE**: 20230210

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Orthofix Medical Inc.
- **CENTRAL INDEX KEY:** 0000884624
- **STANDARD INDUSTRIAL CLASSIFICATION:** SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841]
- **IRS NUMBER:** 000000000
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 8-K/A
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 000-19961
- **FILM NUMBER:** 23614093

**BUSINESS ADDRESS:**
- **STREET 1:** 3451 PLANO PARKWAY
- **CITY:** LEWISVILLE
- **STATE:** TX
- **ZIP:** 75056
- **BUSINESS PHONE:** 214-937-2000

**MAIL ADDRESS:**
- **STREET 1:** 3451 PLANO PARKWAY
- **CITY:** LEWISVILLE
- **STATE:** TX
- **ZIP:** 75056

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** ORTHOFIX INTERNATIONAL N V
- **DATE OF NAME CHANGE:** 19970708

?xml version="1.0" encoding="ASCII"? 8-K/A

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549**

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**FORM** 8-K/A

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**CURRENT REPORT**

**Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934**

**Date of Report (Date of earliest event reported):** January 05, 2023<br>

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ORTHOFIX MEDICAL INC.

**(Exact name of Registrant as Specified in Its Charter)**

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---

| | | |
|:---|:---|:---|
| Delaware | 0-19961 | 98-1340767 |
| **(State or Other Jurisdiction<br>of Incorporation)** | **(Commission File Number)** | **(IRS Employer<br>Identification No.)** |
| 3451 Plano Parkway |  |  |
| Lewisville**,** Texas |  | 75056 |
| **(Address of Principal Executive Offices)** |  | **(Zip Code)** |

---

**Registrant's Telephone Number, Including Area Code:** (214) 937-2000<br>

**(Former Name or Former Address, if Changed Since Last Report)**

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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

**Securities registered pursuant to Section 12(b) of the Act:**

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| | | |
|:---|:---|:---|
| **<br>Title of each class** | **Trading<br>Symbol(s)** | **<br>Name of each exchange on which registered** |
| Common stock, $0.10 par value per share | OFIX | Nasdaq Global Select Market |

---

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

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. ☐

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**Explanatory Note**

On January 5, 2023, Orthofix Medical Inc., a Delaware corporation ("Orthofix"), filed a Current Report on Form 8-K (the "Original Report") to report the completion of its previously announced acquisition of SeaSpine Holdings Corporation, a Delaware corporation ("SeaSpine"), pursuant to the Agreement and Plan of Merger, dated as of October 10, 2022, by and among Orthofix, Orca Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Orthofix ("Merger Sub") and SeaSpine. Pursuant to the Merger Agreement, Orthofix and SeaSpine combined through a merger of SeaSpine with and into Merger Sub, with Merger Sub continuing as the surviving entity and a wholly-owned subsidiary of Orthofix.

This Amendment No. 1 to Current Report on Form 8-K/A amends the Original Report to include the financial statements and the pro forma financial information required under Items 9.01(a) and 9.01(b), which were excluded from the Original Report in reliance on the instructions to such Items.

**Item 9.01. <u>Financial Statements and Exhibits.</u>**

(a) Financial Statements of Business Acquired

The audited consolidated financial statements of SeaSpine as of December 31, 2021 and 2020 and for each of the two years in the period ended December 31, 2021 and the unaudited consolidated financial statements of SeaSpine as of and for the nine months ended September 30, 2022 and September 30, 2021 are filed as Exhibits 99.1 and 99.2, respectively, to this Amendment, and are incorporated herein by reference.

(b) Pro Forma Financial Information

The unaudited pro forma condensed combined financial statements as of and for the year ended December 31, 2021 and as of and for the nine months ended September 30, 2022 giving effect to the acquisition of SeaSpine are filed as Exhibit 99.3 to this Amendment, and are incorporated herein by reference.

(d) Exhibits

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| | |
|:---|:---|
| **<u>Exhibit</u>**<br>**<u>Number</u>** | **<u>Description</u>** |
| 23.1 | [<u>Consent of RSM US LLP, independent registered public accounting firm</u>](ofix-ex23_1.htm) |
| 99.1 | [<u>Audited Consolidated Financial Statements of SeaSpine Holdings Corporation as of and for the year ended December 31, 2021 and December 31, 2020</u>](ofix-ex99_1.htm) |
| 99.2 | [<u>Unaudited Condensed Consolidated Financial Statements of Operations of SeaSpine Holdings Corporation, as of and for nine months ended September 30, 2022 and September 30, 2021</u>](ofix-ex99_2.htm) |
| 99.3 | [<u>Unaudited Pro Forma Condensed Combined Financial Statements of Orthofix Medical Inc. and SeaSpine Holdings Corporation as of and for the nine months ended September 30, 2022</u>](ofix-ex99_3.htm) |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL) |

---

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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

---

| | |
|:---|:---|
| Orthofix Medical Inc. | Orthofix Medical Inc. |
| <br>By:  | <br>/s/ Patrick Keran |
|  | Patrick Keran<br>Chief Legal Officer |

---

Date: February 10, 2023

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## Exhibit 23.1

**Exhibit 23.1**

**Consent of Independent Registered Public Accounting Firm**

We consent to the inclusion by reference in the following Registration Statements (No. 333-153389, 333-226504, 333-172697, 333-226503, 333-195797, 333-206098, 333-224548, 333-233031, 333-239090, 333-248769, 333-258569, 333-258571, 333-268232, 333-269116, 333-269168 and 333-268234) on Forms S-8 of Orthofix Medical Inc., of our report dated March 14, 2022, relating to the consolidated financial statements of SeaSpine Holdings Corporation, appearing in this Current Report on Form 8-K/A.

/s/ RSM US LLP

San Diego, California

February 10, 2023

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## Exhibit 99.1

**Exhibit 99.1**

**Report of Independent Registered Public Accounting Firm**

To the Stockholders and the Board of Directors of SeaSpine Holdings Corporation

**Opinion on the Financial Statements**

We have audited the accompanying consolidated balance sheets of SeaSpine Holdings Corporation and its subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity and cash flows for each of the two years in the period ended December 31, 2021, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 14, 2022 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

**Basis for Opinion**

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

**Critical Audit Matters**

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

**Excess and Obsolete Inventory Reserves** 

As described in Note 2 and Schedule II to the financial statements, the Company's inventory reserves balance was $42.3 million as of December 31, 2021. The Company's inventories are valued at the lower of cost, the value determined by the first-in, first-out method, or net realizable value. The Company reviews the components of its inventories on a periodic basis for excess and obsolescence and adjusts inventories to its net realizable value as necessary. The valuation of inventories requires management to make significant assumptions, including assumptions about product life cycle and projections of future demand as well as specific product considerations such as timing of the introduction and development of new or enhanced products. We identified valuation of excess and obsolete inventory reserves, which is included in the inventory reserves balance, as a critical audit matter because of the significant assumptions and judgements used by management in estimating adequate reserves. Auditing management's assumptions was complex and required a high degree of auditor judgment and subjectivity when performing audit procedures and evaluating the audit evidence obtained. Our audit procedures related to the Company's excess and obsolete inventory reserves included the following, among others:

------

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.We obtained an understanding of the relevant controls over the Company's excess and obsolete inventory reserves, including the completeness and accuracy of data used in the process, and tested such controls for design and operating effectiveness.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.We evaluated the reasonableness of the methodology, assumptions and data used in the Company's estimate by:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;a.Comparing the on-hand inventory quantities to projections of future demand and historical sales and evaluating adjustments to projections of future demand for specific product considerations, such as timing of the introduction and development of new or enhanced product; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;b.Assessing the historical accuracy of management's estimate and performing sensitivity analyses over the significant assumptions to evaluate the impact of changes in the obsolete and excess inventory reserve that would result from changes in the underlying assumptions.

**Valuation of Acquired Intangible Assets**

As described in Note 3 to the consolidated financial statements, the Company completed the acquisition of 7D Surgical, Inc. ("7D Surgical") for $120.6 million on May 20, 2021. The Company accounted for this transaction under the acquisition method of accounting for business combinations. Accordingly, the purchase price was allocated to the assets acquired and liabilities assumed based on their respective fair values, including identified intangible assets of $32.3 million and resulting goodwill of $84.6 million. In order to determine the fair value of the identified intangible assets, which consist of trademarks & tradenames and patents & technology, the Company used an income approach valuation model. The model requires management to make significant assumptions, which include, where applicable, forecast of future cash flows, forecasted revenue growth rates, royalty rates and discount rates.

We identified the valuation of acquired intangible assets as a critical audit matter as there was a high degree of auditor judgment, subjectivity and increased audit effort, including the use of valuation specialists, when performing audit procedures and evaluating audit evidence related to the reasonableness of significant estimates and assumptions utilized in management's calculation of intangible asset valuations.

We obtained an understanding of the relevant controls related to the valuation of the intangible assets acquired and tested such controls for design and operating effectiveness, including management review controls related to the development of the significant assumptions including revenue, gross margins, growth rates, royalty rates and discount rates.

We utilized historical data and compared management's revenue and gross margin forecasts to the most recent actual data available to determine reasonableness of assumptions for revenue, gross margins, and growth rates.

With the assistance of our valuation specialists, we evaluated the reasonableness of the royalty rates and discount rates and, tested the relevance and reliability of source information underlying the determination of the royalty rates, discount rates and testing the mathematical accuracy of the calculation, and developed a range of independent estimates and compared those to the royalty rates and discount rates selected by management.

/s/ RSM US LLP

We have served as the Company's auditor since 2017.

Los Angeles, California

March 14, 2022

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**SEASPINE HOLDINGS CORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(In thousands, except per share data)

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
| Total revenue, net | $191451 | $154345 |
| Cost of goods sold | 76864 | 56841 |
| &nbsp;&nbsp;&nbsp;&nbsp;Gross profit | 114587 | 97504 |
| Operating expenses: |  |  |
| Selling and marketing | 107299 | 84304 |
| General and administrative | 42944 | 35874 |
| Research and development | 22006 | 16258 |
| Intangible amortization | 3316 | 3169 |
| Impairment of intangible assets |  | 1325 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 175565 | 140930 |
| Operating loss | (60978) | (43426) |
| Other income, net | (5532) | (463) |
| Loss before income taxes | (55446) | (42963) |
| (Benefit) provision for income taxes | (1100) | 218 |
| Net loss | $(54346) | $(43181) |
| Net loss per share, basic and diluted | $(1.62) | $(1.59) |
| Weighted average shares used to compute basic and diluted net loss per share | 33604 | 27222 |

---

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

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**SEASPINE HOLDINGS CORPORATION**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS**

(In thousands)

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
| Net loss | $(54346) | $(43181) |
| Other comprehensive (loss) income |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign currency translation adjustments | (554) | 690 |
| Comprehensive loss | $(54900) | $(42491) |

---

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

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**SEASPINE HOLDINGS CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

**(In thousands, except par value data)**

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| | | |
|:---|:---|:---|
|  | &nbsp;&nbsp;**December 31, 2021** | &nbsp;&nbsp;**December 31, 2020** |
| &nbsp;&nbsp;**ASSETS** |  |  |
| &nbsp;&nbsp;Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | &nbsp;&nbsp;$83106 | &nbsp;&nbsp;$76813 |
| &nbsp;&nbsp;&nbsp;&nbsp;Trade accounts receivable, net of allowances of $74 and $192, respectively | &nbsp;&nbsp; 36231 | &nbsp;&nbsp; 26154 |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventories | &nbsp;&nbsp; 72299 | &nbsp;&nbsp; 54041 |
| &nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | &nbsp;&nbsp; 4328 | &nbsp;&nbsp; 3884 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | &nbsp;&nbsp; 195964 | &nbsp;&nbsp; 160892 |
| &nbsp;&nbsp;Property, plant and equipment, net | &nbsp;&nbsp; 46892 | &nbsp;&nbsp; 31422 |
| &nbsp;&nbsp;Right of use assets, net | &nbsp;&nbsp; 6948 | &nbsp;&nbsp; 7658 |
| &nbsp;&nbsp;Intangible assets, net | &nbsp;&nbsp; 42056 | &nbsp;&nbsp; 13883 |
| &nbsp;&nbsp;Goodwill | &nbsp;&nbsp; 84595 | &nbsp;&nbsp; — |
| &nbsp;&nbsp;Other assets | &nbsp;&nbsp; 812 | &nbsp;&nbsp; 546 |
| &nbsp;&nbsp;**Total assets** | &nbsp;&nbsp;$377267 | &nbsp;&nbsp;$214401 |
| &nbsp;&nbsp;**LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| &nbsp;&nbsp;Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accounts payable, trade | &nbsp;&nbsp;$20301 | &nbsp;&nbsp;$5006 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued compensation | &nbsp;&nbsp; 8769 | &nbsp;&nbsp; 8198 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued commissions | &nbsp;&nbsp; 9877 | &nbsp;&nbsp; 8199 |
| &nbsp;&nbsp;&nbsp;&nbsp;Short-term debt | &nbsp;&nbsp; — | &nbsp;&nbsp; 1114 |
| &nbsp;&nbsp;&nbsp;&nbsp;Short-term lease liability | &nbsp;&nbsp; 2234 | &nbsp;&nbsp; 2147 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue | &nbsp;&nbsp; 1545 | &nbsp;&nbsp; 102 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other accrued expenses and current liabilities | &nbsp;&nbsp; 10255 | &nbsp;&nbsp; 5961 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | &nbsp;&nbsp; 52981 | &nbsp;&nbsp; 30727 |
| &nbsp;&nbsp;Long-term debt | &nbsp;&nbsp; — | &nbsp;&nbsp; 5059 |
| &nbsp;&nbsp;Long-term lease liability | &nbsp;&nbsp; 5866 | &nbsp;&nbsp; 6802 |
| &nbsp;&nbsp;Deferred tax liability, net | &nbsp;&nbsp; 4308 | &nbsp;&nbsp; — |
| &nbsp;&nbsp;Other liabilities | &nbsp;&nbsp; 1748 | &nbsp;&nbsp; 95 |
| &nbsp;&nbsp;**Total liabilities** | &nbsp;&nbsp; 64903 | &nbsp;&nbsp; 42683 |
| &nbsp;&nbsp;Commitments and contingencies (Note 9) |  |  |
| &nbsp;&nbsp;Stockholders' equity: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Preferred stock, $0.01 par value; 15,000 authorized; no shares issued and outstanding at December 31, 2021 and December 31, 2020 | &nbsp;&nbsp; — | &nbsp;&nbsp; — |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock, $0.01 par value; 60,000 authorized; 36,584 and 27,729 shares issued and outstanding at December 31, 2021 and 2020, respectively | &nbsp;&nbsp; 366 | &nbsp;&nbsp; 277 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital | &nbsp;&nbsp; 584031 | &nbsp;&nbsp; 388574 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income | &nbsp;&nbsp; 1570 | &nbsp;&nbsp; 2124 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated deficit | &nbsp;&nbsp; (273603) | &nbsp;&nbsp; (219257) |
| &nbsp;&nbsp;**Total stockholders' equity** | &nbsp;&nbsp; 312364 | &nbsp;&nbsp; 171718 |

---

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| | | |
|:---|:---|:---|
| &nbsp;&nbsp;**Total liabilities and stockholders' equity** | &nbsp;&nbsp;$377267 | &nbsp;&nbsp;$214401 |

---

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

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**SEASPINE HOLDINGS CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

(In thousands)

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
| **OPERATING ACTIVITIES:** |  |  |
| Net loss | $(54346) | $(43181) |
| Adjustments to reconcile net loss to net cash used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 13933 | 10725 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Instrument replacement expense  | 3904 | 2799 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of spinal instruments |  | 210 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment of intangible assets |  | 1325 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for excess and obsolete inventories | 5220 | 5515 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation | 11856 | 10357 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on forgiveness of Paycheck Protection Program Loan | (6173) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | (919) | 272 |
| Changes in assets and liabilities, net of the effects from acquisition: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade accounts receivable | (7926) | (1119) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | (18995) | (10480) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | 659 | 40 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets | (175) | (93) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable, trade | 10665 | (2691) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued commissions | 1675 | 342 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other accrued expenses and current liabilities | 5169 | 1396 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other liabilities | 1941 | (16) |
| **Net cash used in operating activities** | (33512) | (24599) |
| **INVESTING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of property and equipment | (26041) | (16085) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additions to technology assets | (1361) | (950) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of short-term investments |  | (25007) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Maturities of short-term investments |  | 25000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisition, net of cash acquired | (27956) |  |
| **Net cash used in investing activities** | (55358) | (17042) |
| **FINANCING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Borrowings under credit facility | 20000 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from Paycheck Protection Program Loan |  | 7173 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayments of credit facility | (20000) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayments of Paycheck Protection Program Loan |  | (1000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debt issuance costs | (45) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock- employee stock purchase plan and exercise of stock options | 3991 | 2632 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock, net of offering costs | 94531 | 91622 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units | (2887) | (2164) |

---

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**SEASPINE HOLDINGS CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)**

(In thousands)

---

| | | |
|:---|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment of contingent royalty consideration liabilities in connection with acquisition of business | (45) | (125) |
| **Net cash provided by financing activities** | 95545 | 98138 |
| Effect of exchange rate changes on cash and cash equivalents | (382) | 117 |
| **Net change in cash and cash equivalents** | 6293 | 56614 |
| **Cash and cash equivalents at beginning of period** | 76813 | 20199 |
| **Cash and cash equivalents at end of period** | $83106 | $76813 |
| **Supplemental cash flow information:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest paid | $415 | $176 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes paid | $174 | $148 |
| **Non-cash investing activities:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property and equipment in liabilities | $4721 | $1209 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets in liabilities | $700 | $150 |
| **Non-cash financing activities:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuance of common stock - Acquisition | $61048 | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exchangeable shares - Acquisition | $26505 | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuance of common stock - Patent Acquisition | $500 | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Settlement of contingent closing consideration liabilities with stock issuance in connection with acquisition of business | $— | $2000 |

---

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

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**SEASPINE HOLDINGS CORPORATION**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY**

(In thousands)

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | **Additional** | **Accumulated Other** |  | **Total** |
|  | **Number of** |  | **Paid-In** | **Comprehensive**  | **Accumulated** | **Stockholders'** |
|  | **Shares** | **Amount** | **Capital** | **Income** | **Deficit** | **Equity** |
| Balance at December 31, 2019 | 19124 | 191 | 284211 | 1434 | (176076) | 109760 |
| Net loss |  |  |  |  | (43181) | (43181) |
| Foreign currency translation adjustment |  |  |  | 690 |  | 690 |
| Restricted stock issued | 340 | 3 | (1) |  |  | 2 |
| Issuance of common stock- public offering | 7820 | 78 | 91544 |  |  | 91622 |
| Issuance of common stock under employee stock purchase plan | 153 | 2 | 1364 |  |  | 1366 |
| Issuance of common stock- NLT Spine Ltd contingent consideration | 176 | 2 | 1998 |  |  | 2000 |
| Issuance of common stock- exercise of stock options | 117 | 1 | 1265 |  |  | 1266 |
| Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units | (1) |  | (2164) |  |  | (2164) |
| Stock-based compensation |  |  | 10357 |  |  | 10357 |
| Balance at December 31, 2020 | 27729 | 277 | 388574 | 2124 | (219257) | 171718 |
| Net loss |  |  |  |  | (54346) | (54346) |
| Foreign currency translation adjustment |  |  |  | (554) |  | (554) |
| Restricted stock issued | 288 | 3 | (1) |  |  | 2 |
| Issuance of common stock under employee stock purchase plan | 200 | 2 | 1862 |  |  | 1864 |
| Issuance of common stock - Public Offering | 5175 | 52 | 94479 |  |  | 94531 |
| Issuance of common stock - Acquisition | 2991 | 30 | 61018 |  |  | 61048 |
| Issuance of common stock - Exchangeable Shares |  |  | 26505 |  |  | 26505 |
| Issuance of common stock- Patent Acquisition | 33 |  | 500 |  |  | 500 |
| Issuance of common stock- exercise of stock options | 168 | 2 | 2125 |  |  | 2127 |
| Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units |  |  | (2887) |  |  | (2887) |
| Stock-based compensation |  |  | 11856 |  |  | 11856 |
| Balance at December 31, 2021 | 36584 | 366 | 584031 | 1570 | (273603) | 312364 |

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

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**SEASPINE HOLDINGS CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**1. BUSINESS AND BASIS OF PRESENTATION**

**Business** 

SeaSpine Holdings Corporation was incorporated in Delaware on February 12, 2015. Unless the context indicates otherwise, references to "SeaSpine" or the "Company" refer to SeaSpine Holdings Corporation and its wholly-owned subsidiaries.

SeaSpine is a global medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patients suffering from spinal disorders. SeaSpine has a comprehensive portfolio of orthobiologics and spinal implant solutions, as well as a surgical navigation system, to meet the varying combinations of products that neurosurgeons and orthopedic spine surgeons need to perform fusion procedures in the lumbar, thoracic and cervical spine. The Company believes this broad combined portfolio of products is essential to meet the "complete solution" requirements of such surgeons.

**Basis of Presentation and Principles of Consolidation**

The Company's financial statements are presented on a consolidated basis. The Company prepared the consolidated financial statements included in this report in accordance with accounting principles generally accepted in the U.S. (GAAP). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Under current SEC rules, generally, a company qualifies as a "smaller reporting company" if it has a public float of less than $250 million as of the last business day of its most recently completed second fiscal quarter. If a company qualifies as a smaller reporting company on that date, it may elect to reflect that determination and use the smaller reporting company scaled disclosure accommodations in its subsequent SEC filings until the beginning of the first quarter of the fiscal year following the date it determines it does not qualify as a smaller reporting company. The Company's public float as of June 30, 2020 was less than $250 million, and as such, the Company qualified as a smaller reporting company, elected to reflect that determination and intends to use certain of the scaled disclosure accommodations in its SEC filings made during and for the year ended December 31, 2021. The Company's public float as of June 30, 2021, the last business day of its most recent second fiscal quarter, was more than $250 million, and as such, the Company will no longer qualify as a smaller reporting company as of January 1, 2022. However, the Company is not required to reflect the change in its smaller reporting company status or comply with the non-scaled disclosure obligations until the Company's first quarterly report on Form 10-Q for the three-month period ended March 31, 2022.

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**2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Use of Estimates**

Preparing consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and other credits, net realizable value of inventories, discount rates and estimated projected cash flows used to value and test impairments of goodwill, identifiable intangible and long-lived assets, fair value estimates related to business combinations, assumptions related to the timing and probability of product launch dates, discount rates matched to the estimated timing of payments, probability of success rates and discount adjustments on the related cash flows for contingent considerations in business combinations, depreciation and amortization periods for identifiable intangible and long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation and loss contingencies. These estimates are based on historical experience and on various other assumptions believed to be reasonable under the current circumstances. Actual results could differ from these estimates.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including revenues, expenses, manufacturing, research and development costs and employee-related compensation, will depend on future developments that are highly uncertain, including as a result of variants of the virus that causes COVID-19 or other information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international customers and markets. The Company has made estimates of the impact of the pandemic within its financial statements and there may be changes to those estimates in future periods. Actual results may differ from these estimates.

**Cash and Cash Equivalents**

The Company considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash readily available in checking and money market accounts. Cash balances are maintained primarily at major financial institutions in the United States and exceed the regulatory limit of $250,000 insured by the Federal Deposit Insurance Corporation (FDIC). The Company has not experienced any credit losses associated with its cash balances.

**Fair Value of Financial Instruments**

The carrying amounts of cash, cash equivalents, receivables, accounts payable and accrued expenses at December 31, 2021 and 2020, are considered to approximate fair value because of the short-term nature of those items.

The Company measures certain assets and liabilities in accordance with authoritative guidance which requires fair value measurements to be classified and disclosed in one of the following three categories:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.

Level 3: Unobservable inputs are used when little or no market data is available.

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The carrying amounts of contingent consideration liabilities at December 31, 2021 and 2020 related to business combinations are measured at fair value on a recurring basis, and are classified within Level 3 of the fair value hierarchy because they use significant unobservable inputs.

**Trade Accounts Receivable and Allowances** 

Trade accounts receivable in the accompanying consolidated balance sheets are presented net of allowances for doubtful accounts and sales returns and other credits. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables.

The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations to the Company, a provision to the allowances for doubtful accounts is recorded to reduce the net recognized receivable to the amount that is reasonably expected to be collected. For all other customers, a provision to the allowances for doubtful accounts is recorded based on factors including the length of time the receivables are past due, the current business environment and the Company's historical experience. Provisions to the allowances for doubtful accounts are recorded to general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.

**Inventories**

Inventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, the value determined by the first-in, first-out method, or net realizable value.

At each balance sheet date, the Company evaluates inventories for excess quantities, obsolescence or shelf life expiration. This evaluation includes analysis of the Company's current and future strategic plans, historical sales levels by product, projections of future demand, the risk of technological or competitive obsolescence for products, general market conditions, a review of the shelf life expiration dates for products, as well as the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are not obsolete or for which there are not excess quantities in inventory. To the extent that management determines there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for the Company to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizable value.

The Company capitalizes inventory costs associated with certain products prior to regulatory approval, based on management's judgment of probable economic benefit. The Company could be required to expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to, among other potential factors, a denial or delay of approval by necessary regulatory bodies or a decision by management to discontinue the related development program. No material amounts were capitalized at December 31, 2021 or 2020.

**Property, Plant, and Equipment**

Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment charges. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term or the useful life. The cost of major additions and improvements is capitalized, while maintenance and repair costs that do not improve or extend the lives of the respective assets are charged to operations as incurred. The cost of computer software obtained for internal use is accounted for in accordance with Accounting Standards Codification 350-40, Internal-Use Software.

The cost of purchased spinal instruments that the Company consigns to hospitals and independent sales agents to support surgeries is initially capitalized as construction in progress. The amount is then either reclassified to spinal instruments and sets and

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depreciation is initiated when instruments are put together in a newly built set with spinal implants, or directly expensed for the instruments used to replace damaged instruments in an existing set. The depreciation expense and direct expense for replacement instruments are recorded in selling and marketing expense.

**Leases** 

The Company determines if an arrangement is a lease at inception. The Company's leases primarily relate to administrative, manufacturing, research, and distribution facilities and various manufacturing, office and transportation equipment. Lease assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company's incremental borrowing rate is used as a discount rate, based on the information available at the commencement date, in determining the present value of lease payments. Lease assets also include the impact of any prepayments made and are reduced by impact of any lease incentives.

The Company made an accounting policy election for short-term leases, such that the Company will not recognize a lease liability or lease asset on its balance sheet for leases with a lease term of twelve months or less as of the commencement date. Rather, any short-term lease payments will be recognized as an expense on a straight-line basis over the lease term. The current period short-term lease expense reasonably reflects the Company's short-term lease commitments.

The Company made a policy election for all classifications of leases to combine lease and non-lease components and to account for them as a single lease component. Variable lease payments are excluded from the lease liability and recognized in the period in which the obligation is incurred. Additionally, lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise the option.

**Business Combinations**

The purchase price of an acquisition is allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The Company records the net assets and results of operations of an acquired entity from the acquisition date impacting asset valuations and liabilities assumed. Acquisition-related costs are recognized separately from the acquisition and are expensed as incurred.

Contingent consideration liability is recognized at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration liability are recognized in the statement of operations. Contingent consideration liability related to acquisitions consist of commercial milestone payments and contingent royalty payments, and are valued using discounted cash flow techniques. The fair value of commercial milestone payments and contingent royalty payments reflects management's expectations of probability and amount of payment, and increases or decreases as the probability and amount of payment or expectation of timing of payment changes.

**Identifiable Intangible Assets**

Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization. Identifiable intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives. The carrying values of intangible assets with finite lives are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable.

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**Goodwill**

Goodwill represents the excess of the purchase prices of an acquired business over the fair value of the underlying net tangible and intangible assets. The Company is required to assess goodwill and other indefinite-lived intangible assets for impairment annually, or more frequently if circumstances indicate impairment may have occurred. The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. If, after completing the qualitative assessment, it is determined it is more likely than not that the estimated fair value is greater than the carrying value, the Company concludes no impairment exists. Alternatively, if the Company determines in the qualitative assessment it is more likely than not that the fair value is less than its carrying value, then the Company performs a quantitative goodwill impairment test to identify both the existence of an impairment and the amount of impairment loss, by comparing the fair value of the reporting unit with its carrying amount, including goodwill. If the estimated fair value of the reporting unit is less than the carrying value, then a goodwill impairment charge will be recognized in the amount by which the carrying amount exceeds the fair value, limited to the total amount of goodwill allocated to that reporting unit. The goodwill annual assessment test is performed On October 1st every year or when an event occurs or circumstances change such that it is reasonably possible that an impairment may exist.

The Company assesses qualitative and quantitative factors to determine whether goodwill is impaired. The analysis includes assessing the impact of changes in certain factors including: (1) changes in forecasted operating results and comparing actual results to projections, (2) changes in the industry or our competitive environment since the acquisition date, (3) changes in the overall economy, our market share and market interest rates since the acquisition date, (4) trends in the stock price and related market capitalization and enterprise values, (5) trends in peer companies' total enterprise value metrics, and (6) additional factors such as management turnover, changes in regulation and changes in litigation matters.

Based on the annual assessment performed during the fourth quarter of 2021, the Company concluded it was more likely than not that the estimated fair value of our reporting units exceeded their carrying value as of December 31, 2021, and therefore, determined it was not necessary to perform a quantitative goodwill impairment test.

**Impairment of Long-Lived Assets**

Long-lived assets held and used by the Company, including property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets to be held and used, a recoverability test is performed using projected undiscounted net cash flows applicable to the long-lived assets. If an impairment exists, the amount of such impairment is calculated based on the estimated fair value of the asset. Impairments to long-lived assets to be disposed of are recorded based upon the difference between the carrying value and the fair value of the applicable assets. The Company determined an impairment existed for certain intangible assets during the year ended December 31, 2020. No impairment existed for intangible assets during the year ended December 31, 2021. Excluding the impairment of spinal instruments, there was no impairment of tangible long-lived assets in any of the periods presented. See [<u>Note 5, "Balance Sheet Details"</u>](#section45), below, for additional information.

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**Foreign Currency**

The Company generates revenues outside the United States in multiple foreign currencies including euros, Swiss francs, Canadian dollar and in U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. The Company also incurs operating expenses in euros, Swiss francs and Canadian dollars. All assets and liabilities of foreign subsidiaries which have a functional currency other than the U.S. dollar are translated at the rate of exchange at year-end, while elements of the income statement are translated at the average exchange rates in effect during the year. The net effect of these translation adjustments is shown as a component of accumulated other comprehensive income. These currency translation adjustments are not currently adjusted for income taxes as they relate to permanent investments in non-U.S. subsidiaries. Foreign currency transaction gains and losses are reported in other income, net.

**Income Taxes**

The Company recognizes tax benefits in its financial statements when its uncertain tax positions are more likely than not to be sustained upon audit. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company recognizes deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets are reduced by valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.

**Revenue Recognition**

Net sales are derived primarily from the sale of orthobiologics and spinal implant and enabling technology products globally. Revenue is recognized when obligations under the terms of a contract with the Company's customer are satisfied which occurs with the transfer of control of the Company's products. This occurs either upon shipment or delivery of goods, depending on whether the contract is Free on Board (FOB) origin or FOB destination, or, in other situations such as consignment arrangements, when the products are used in a surgical procedure (implanted in a patient) and in the case of capital equipment, when the equipment has been accepted by the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products to a customer (transaction price).

To the extent that the transaction price includes variable consideration, such as discounts, list price discounts, rebates, volume discounts and customer payment penalties, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely amount method. Variable consideration is included in the transaction price if, in the Company's judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company's anticipated performance and all information (historical, current and forecasted) that is reasonably available.

The Company reduces revenue by estimates of potential future product returns and other allowances. Provisions for product returns and other allowances are recorded as a reduction to revenue in the period sales are recognized. The Company estimates the amount of sales returns and allowances that will eventually be incurred. Certain contracts with stocking distributors contain provisions requiring the Company to repurchase inventory upon termination of the contract or discontinuation of a product line. Included in the sales returns reserve within other accrued expenses and current liabilities is an estimate of repurchases that are likely to be made under these provisions. Management analyzes sales programs that are in effect, contractual arrangements, market acceptance and historical trends when evaluating the adequacy of sales returns and allowance accounts.

In certain sales arrangements, the Company fulfills its obligations and bills the customer for the products prior to the shipment of goods. The Company allocates the transaction price to the multiple performance obligations under these contracts, including delivery of the products and the third-party logistics (3PL) performance obligations. Revenue related to product sales under these arrangements is not recognized until the Company delivers the products to the customer's dedicated space within the Company's

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facility, at which point the customer obtains control of the products. Revenue from the related 3PL obligations consists of revenue from storage of products which is recognized ratably over the service period, and revenue from shipping services which is recognized upon performance of such obligation.

Additionally, the Company allocates the transaction price to the multiple performance obligations under the contracts related to the sale of capital equipment, including the capital equipment, tools and software, the training and installation and the service. Revenue related to capital equipment, tools and software under these arrangements is recognized upon customer acceptance of the system. Revenue from training and installation is recognized upon completion of the training and installation process. Revenue from service contracts is recognized over the term of the contract.

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

Deferred revenue primarily consists of payments received in advance of revenue recognition from the sales of the Company's capital equipment and related products as described above and is recognized as the revenue recognition criteria are met.

Product royalties account for less than 1% of total revenue for any of the periods presented, and are estimated and recognized in the same period that the royalty-based products are sold by licensees. The Company estimates and recognizes royalty revenue based upon communication with licensees, historical information and expected sales trends. Differences between actual revenues and estimated royalty revenues are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have not been material.

See [<u>Note 10, "Segment and Geographic Information"</u>](#section50), below for a presentation of the Company's disaggregated revenue.

**Shipping and Handling Fees and Costs**

The Company has elected to account for shipping and handling activities as fulfillment activities. As such, the Company does not evaluate shipping and handling as promised services to its customers. Shipping and handling costs of $3.7 million and $2.5 million for shipments of loaned spinal implants and instrumentation sets and costs incurred for internal movement of inventory were recorded in selling and marketing expense during each of the years ended December 31, 2021 and 2020, respectively.

**Research and Development**

Research and development costs, including salaries, stock-based compensation, depreciation, consultant, clinical study, product registration and other external fees, and facility costs directly attributable to research and development activities, are expensed in the period in which they are incurred.

**Stock-Based Compensation**

The Company's stock-based compensation has been recognized through the consolidated statement of operations and the Company's additional paid-in capital account on the consolidated balance sheet.

The Company recognizes the expense related to the fair value of their stock-based compensation awards. Stock-based compensation expense for stock option awards was based on the fair value on the grant date using the Black-Scholes-Merton option pricing model.

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The stock-based compensation is initially measured at the fair value of the awards on the grant date and is then recognized on a ratable basis in the financial statements over the requisite service period of the award. Stock-based compensation expense was $11.9 million in 2021 and $10.4 million in 2020.

**Concentration of Credit Risk**

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, which is held at major financial institutions, and trade receivables.

The Company's products are sold on an uncollateralized basis and on credit terms based upon a credit risk assessment of each customer. A portion of the Company's trade receivables to customers outside the United States includes sales to foreign stocking distributors, who then sell to government owned or supported healthcare systems. The ongoing economic conditions in certain European countries, especially Greece, Ireland, Italy, Portugal and Spain remain uncertain. Accounts receivable from customers in these countries are not a material amount of the Company's overall receivables.

None of the Company's customers accounted for 10% or more of the net sales or accounts receivable for any of the periods presented.

**Recent Accounting Standards Not Yet Adopted**

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU or Update) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires credit losses on most financial assets measured at amortized cost, including trade receivables, and certain other instruments to be measured using an expected credit loss model, referred to as the current expected credit loss (CECL) model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument. The new standard will be effective for the Company beginning January 1, 2022. The FASB subsequently issued other related ASUs that amend ASU No. 2016-13 to provide clarification and additional guidance. The adoption of this new standard is not expected to have a material impact on its consolidated financial statements.

In January 2017, the FASB issued Update No. 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. As a smaller reporting company, as defined by the SEC), ASU 2017-04 is effective for the Company beginning after December 15, 2022 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its financial statements for both annual and interim reporting periods, if applicable.

In April 2019, the FASB issued Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. This Update includes several amendments to the FASB Accounting Standards Codification (Codification) intended to clarify, improve, or correct errors therein. Some amendments do not require transition guidance and are effective upon issuance. The amendments requiring transition guidance have the same effective date as Update No. 2016-13 and will be effective for the Company beginning on January 1, 2022. The adoption of this new standard is not expected to have a material impact on its consolidated financial statements.

In May 2021, the FASB issued Update No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40) Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This Update addresses issuer's accounting for certain modifications or exchanges of freestanding equity-classified written call options. The new standard will be effective for the Company beginning January 1, 2022. The adoption of this new standard is not expected to have a material impact on its consolidated financial statements.

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In July 2021, the FASB issued Update No. 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. Under this standard, lessors will classify leases with variable payments that do not depend on an index or rate as operating leases if a different classification would result in a commencement date selling loss. The new standard will be effective for the Company beginning January 1, 2022. The adoption of this new standard is not expected to have a material impact on its consolidated financial statements.

**Recently Adopted Accounting Standards**

In August 2018, the FASB issued Update No. 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40). The amendments in this Update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The new standard was effective for the Company beginning on January 1, 2021. The adoption of this new standard had no material impact on its consolidated financial statements.

**Net Loss Per Share**

The Company follows the two-class method when computing net loss per share as the Company's board of directors has discretion in declaring/issuing dividends on the Company's common stock, these dividend rights meet the definition for participating securities. Basic and diluted net loss per share was calculated using the weighted-average number of shares of common stock outstanding during the period. The weighted average number of shares used to compute diluted net loss per share excludes any assumed issuance of common stock upon exercise of stock options, any assumed issuance of common stock under restricted stock awards or units, and any assumed issuances under the Company's employee stock purchase plan, because the effect, in each case, would be antidilutive. Common stock equivalents, including the Exchangeable Shares (as defined below), of 6.3 million and 4.2 million shares for the years ended December 31, 2021 and 2020, respectively, were excluded from the calculation because of their antidilutive effect.

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**3. BUSINESS ACQUISITION** 

**7D Surgical Acquisition**

In March 2021, the Company entered into an arrangement agreement (the Arrangement Agreement) with 7D Surgical, Project Maple Leaf Acquisition ULC, an unlimited liability company incorporated under the laws of the Province of British Columbia and wholly owned subsidiary of the Company (Purchaser Sub), and Michael Cadotte and Joel Rose, as the 7D Surgical shareholders' representatives.

On May 20, 2021, the acquisition contemplated by the Arrangement Agreement was consummated by way of a court-approved plan of arrangement under Ontario law (Plan of Arrangement) in which Purchaser Sub acquired all outstanding shares of 7D Surgical, including those 7D Surgical shares issuable upon exercise of outstanding options, and 7D Surgical became a wholly owned subsidiary of the Company (the Acquisition).

Pursuant to the Arrangement Agreement and the Plan of Arrangement, the Company acquired 7D Surgical for a total purchase price consisting of $27.5 million in cash plus an additional $5.6 million for adjustments as provided for in the Arrangement Agreement for 7D Surgical closing cash, working capital and net indebtedness, 2,991,054 shares of the Company's common stock (the Company Shares) and 1,298,648 Exchangeable Shares (as defined below). Pursuant to the Arrangement Agreement, Canadian-resident 7D Surgical shareholders could elect to receive, in lieu of their portion of the Company Shares, an equivalent number of Class B common shares of Purchaser Sub (the Exchangeable Shares), which are exchangeable on a 1:1 basis for shares of the Company's common stock, subject to customary adjustments. The Company may require all outstanding Exchangeable Shares to be exchanged upon the occurrence of certain events and at any time following the fifth anniversary of the closing date of the Acquisition. While outstanding, holders of Exchangeable Shares will be entitled to receive dividends economically equivalent to the dividends declared by the Company with respect to its common stock, but will not be entitled to cast votes on matters for which holders of the Company's common stock are entitled to vote.

The Company Shares and the Exchangeable Shares were issued in connection with the consummation of the Plan of Arrangement pursuant to the exemption from registration under the Securities Act of 1933, as amended (the Securities Act), provided by Section 3(a)(10) of the Securities Act based on the final order of the Ontario Superior Court of Justice issued in May 2021, approving the Plan of Arrangement following a hearing by the court upon the fairness of the terms and conditions on which all persons to whom it is proposed the securities will be issued had the right to appear. The Company agreed to register for resale all shares of Company common stock issuable in exchange for the Exchangeable Shares on a registration statement to be effective within ninety days of the closing date of the Acquisition.

This acquisition was treated as a business combination and the consideration transferred was allocated to the fair value of 7D Surgical's assets acquired and liabilities assumed, including identifiable intangible assets. The acquisition was treated as an asset purchase for US taxation and is treated as a stock purchase for Canadian taxation. The fair value of consideration transferred consisted of the following:

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| | |
|:---|:---|
|  | **Fair Value** |
|  | **(In thousands)** |
| Common stock issued | $61048 |
| Exchangeable shares | 26505 |
| Cash | 33082 |
|  | $120635 |

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The Company incurred $2.3 million of transactions costs directly related to the acquisition that is reflected in general and administrative expenses in the consolidated statements of operations.

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The following table summarizes the final consideration paid and related fair values of the assets acquired and liabilities assumed in the Acquisition:

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| | |
|:---|:---|
|  | **Fair Value** |
|  | **(In thousands)** |
| Cash | $5126 |
| Accounts receivable | 2460 |
| Inventory | 2061 |
| Other current assets | 1171 |
| Property & equipment | 715 |
| Identifiable intangible assets: |  |
| &nbsp;&nbsp;&nbsp;Patents & Technology | 31000 |
| &nbsp;&nbsp;&nbsp;Trademarks & Tradenames | 1300 |
| Goodwill | 84595 |
| Other assets | 161 |
| Deferred tax liability, net | (5598) |
| Liabilities assumed | (2356) |
|  | $120635 |

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Goodwill from the acquisition primarily relates to the future economic benefits arising from the assets acquired and is consistent with the Company's stated intentions and strategy. For US tax purposes, the Goodwill will be deductible under IRC section 197 since the transaction was treated as an asset purchase. For Canadian tax purposes, the Goodwill will not be deductible since the transaction was treated a stock purchase.

The Company's results of operations for the year ended December 31, 2021 included the operating results of 7D Surgical of $6.3 million of revenue and a net loss of $5.3 million in the consolidated statements of operations.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information summarizes the combined results of operations as though the companies were combined as of the beginning of 2020:

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| | | |
|:---|:---|:---|
|  | **December 31,** | **December 31,** |
|  | **2021** | **2020** |
|  | **(In thousands)** | **(In thousands)** |
| Total Revenue, net | $195488 | $162468 |
| Net Loss | $(58624) | $(46100) |

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The unaudited pro forma financial information for all periods presented above has been calculated after adjusting the results to reflect the business combination accounting effects resulting from this acquisition, including the amortization expense from acquired intangible assets as though the acquisition occurred as of the beginning of 2020. The Company's historical consolidated financial statements have been adjusted in the pro forma financial information to give effect to pro forma events that are directly attributable to the business combination and factually supportable. The unaudited pro forma financial information is for

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informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of 2020.

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**4. DEBT AND INTEREST**

**Credit Agreement** 

In December 2015, the Company entered into a three-year credit facility with Wells Fargo Bank, National Association (as amended, the Credit Facility). The Credit Facility provides an asset-backed revolving line of credit of up to $30.0 million with a maturity date of July 27, 2021, which was subject to a one-time, one-year extension at the Company's election. In July 2021, the Company elected to extend the term of the Credit Facility such that the maturity date is now July 27, 2022. In addition, under the Credit Facility, at any time through July 27, 2021, the Company could have increased the $30.0 million borrowing limit by up to an additional $10.0 million, subject to the Company having sufficient amounts of eligible accounts receivable and inventory and to customary conditions precedent, including obtaining the commitment of lenders to provide such additional amount. The Company did not elect to increase the borrowing limit. In connection with entering into the Credit Facility, the Company was required to become a guarantor and to provide a security interest in substantially all its assets for the benefit of the counterparty.

There were no amounts outstanding under the Credit Facility at December 31, 2021 or 2020. In March 2021, the Company borrowed $20.0 million under the Credit Facility. As of March 31, 2021, the effective interest rate on the amounts borrowed was 4.50%. In April 2021, the Company repaid the entire $20.0 million of outstanding borrowings under the Credit Facility. At December 31, 2021, the Company had $26.4 million of current borrowing capacity under the Credit Facility before the requirement to maintain the minimum fixed charge coverage ratio as discussed below. Debt issuance costs and legal fees related to the Credit Facility totaling $0.6 million were recorded as a deferred asset and are being amortized ratably over the term of the arrangement.

Borrowings under the Credit Facility accrue interest at the rate then applicable to base rate loans (as customarily defined), unless and until converted into LIBOR rate loans (as customarily defined) in accordance with the Credit Facility. Borrowings bear interest at a floating annual rate equal to (a) during any month for which the Company's average excess availability (as customarily defined) is greater than $20.0 million, (i) base rate plus 1.25 percentage points for base rate loans and (ii) LIBOR rate plus 2.25 percentage points for LIBOR rate loans, (b) during any month for which the Company's average excess availability is greater than $10.0 million but less than or equal to $20.0 million, (i) base rate plus 1.50 percentage points for base rate loans and (ii) LIBOR rate plus 2.50 percentage points for LIBOR rate loans and (c) during any month for which the Company's average excess availability is less than or equal to $10.0 million, (i) base rate plus 1.75 percentage points for base rate loans and (ii) LIBOR rate plus 2.75 percentage points for LIBOR rate loans. The Company also pays an unused line fee based on the average amount borrowed under the Credit Facility for the most recently completed month. If such average amount is 25% or greater of the maximum borrowing capacity, the unused fee will be equal to 0.375% per annum of the amount unused under the Credit Facility, and if such average amount is less than 25%, the unused line fee will be equal to 0.50% per annum of the amount unused under the Credit Facility. The unused line fee is due on the first day of each month.

The Credit Facility contains various customary affirmative and negative covenants, including prohibiting the Company from incurring indebtedness without the lender's consent. The Credit Facility also includes a financial covenant, that requires the Company to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 for the applicable measurement period, if the Company's Total Liquidity (as defined in the Credit Facility) is less than $5.0 million. The Company was in compliance with all applicable covenants at December 31, 2021.

The Credit Facility also includes customary events of default, including events of default relating to non-payment of amounts due under the Credit Facility, material inaccuracy of representations and warranties, violation of covenants, bankruptcy and insolvency, failure to comply with health care laws, violation of certain of the Company's existing agreements, and the occurrence

------

of a change of control. Under the Credit Facility, if an event of default occurs, the lender will have the right to terminate the commitments and accelerate the maturity of any loans outstanding.

**Paycheck Protection Program**

In April 2020, due to the economic uncertainty resulting from the impact of the COVID-19 pandemic on the Company's operations and to support its ongoing operations and retain all employees, the Company applied for a loan under the Paycheck Protection Program (PPP) of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The Company received a loan in the original principal amount of $7.2 million. The Company subsequently repaid $1.0 million of the loan. Under the terms of the PPP, subject to specified limitations, the loan may be forgiven if the proceeds are used in accordance with the CARES Act. The Company used the loan proceeds for purposes consistent with the terms of the PPP and applied for forgiveness of the entire $6.2 million loan balance, which was granted in June 2021. The $6.2 million gain on the loan forgiveness is included in other income, net, in the consolidated statement of operations. There are no amounts outstanding under the loan at December 31, 2021. The loan is subject to audit by the Small Business Association (SBA) for up to six years after the date of loan forgiveness. Should the SBA determine that the Company did not qualify for all or part of the loan, the Company would need to repay all or a part of the loan.

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**5. BALANCE SHEET DETAILS** 

Inventories.

Inventories consisted of:

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| | | |
|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2020** |
|  | **(In thousands)** | **(In thousands)** |
| Finished goods | $49405 | $37689 |
| Work in process | 17644 | 10087 |
| Raw materials | 5250 | 6265 |
|  | $72299 | $54041 |

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Property, Plant and Equipment.

Property, plant and equipment balances and corresponding useful lives were as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2020** | **Useful Lives** |
|  | **(In thousands)** | **(In thousands)** |  |
| Leasehold improvements | $6501 | $5976 | Shorter of lease term or useful life |
| Machinery and production equipment | 10408 | 9577 | 3-10 years |
| Spinal instruments and sets | 45076 | 30275 | 4-6 years |
| Information systems and hardware | 8186 | 7554 | 3-7 years |
| Furniture and fixtures | 2097 | 1640 | 3-5 years |
| Construction in progress | 17615 | 12645 |  |
| &nbsp;&nbsp;&nbsp;&nbsp; Total | 89883 | 67667 |  |
| Less accumulated depreciation and amortization | (42991) | (36245) |  |
| Property, plant and equipment, net | $46892 | $31422 |  |

---

Depreciation and amortization expenses totaled $7.9 million and $6.5 million for the years ended December 31, 2021 and 2020, respectively, and included $1.0 million of expenses that were presented within cost of goods sold for the years ended December 31, 2021 and 2020, respectively. The cost of purchased instruments used to replace damaged instruments in existing sets and recorded directly to the instrument replacement expense totaled $3.9 million and $2.8 million for the years ended December 31, 2021 and 2020, respectively.

Identifiable Intangible Assets.

Primarily as a result of an expected shift in future product revenue mix more toward a parallel expanding interbody device based on the Company's internally developed technology and, in turn, lower future revenue anticipated for the lordotic expanding implant based on technology the Company acquired from N.L.T. Spine Ltd. (NLT) and NLT Spine, Inc., a wholly owned subsidiary of NLT, the Company's estimated future net sales associated with those NLT product technologies decreased. Accordingly, the Company evaluated the ongoing value of the product technology intangible assets associated with the acquisition of these assets. Based on this evaluation, the Company determined that intangible assets with a carrying amount of $1.6 million were no longer recoverable and were impaired, and the Company wrote those intangible assets down to their estimated fair value of $0.3 million at March 31, 2020. During the year ended December 31, 2021, there were no asset impairments.

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Significant estimates used in determining the estimated fair value include measurements estimating cash flows and determining the appropriate discount rate, which are considered Level 3 inputs under Codification 820.

During the year ended December 31, 2021 and 2020, the Company recognized $1.8 million and $0.3 million, respectively, of product technology intangible assets related to the achievement of certain licensed technology development milestones under a license agreement.

The components of the Company's identifiable intangible assets were:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Weighted**<br>**Average**<br>**Life** | **Cost** | **Accumulated**<br>**Amortization** | **Net** |
|  |  | **(In thousands)** | **(In thousands)** | **(In thousands)** |
| Product technology | 12 years | $65642 | $(32484) | $33158 |
| Customer relationships | 12 years | 56830 | (49241) | 7589 |
| Trademarks/brand names | 6 years | 1600 | (438) | 1162 |
| Other intangibles | 8 years | 159 | (12) | 147 |
|  |  | $124231 | $(82175) | $42056 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** | **December 31, 2020** |
|  | **Weighted**<br>**Average**<br>**Life** | **Cost** | **Accumulated**<br>**Amortization** | **Net** |
|  |  | **(In thousands)** | **(In thousands)** | **(In thousands)** |
| Product technology | 12 years | $32891 | $(29766) | $3125 |
| Customer relationships | 12 years | 56830 | (46072) | 10758 |
| Trademarks/brand names |  | 300 | (300) |  |
| Other intangibles |  | $— | $— | $— |
|  |  | $90021 | $(76138) | $13883 |

---

Annual amortization expense (including amounts reported in cost of goods sold) is expected to be approximately, $7.2 million in 2022, $6.6 million in 2023, $4.6 million in 2024, $3.3 million in 2025, and $3.3 million in 2026. Amortization expense totaled $6.0 million and $4.2 million for the years ended December 31, 2021 and 2020, respectively, and included $2.7 million and $1.0 million, respectively, of amortization of product technology intangible assets that was presented within cost of goods sold.

The Company assesses qualitative and quantitative factors to determine whether goodwill is impaired. The analysis includes assessing the impact of changes in certain factors including: (1) changes in forecasted operating results and comparing actual results to projections, (2) changes in the industry or our competitive environment since the acquisition date, (3) changes in the overall economy, our market share and market interest rates since the acquisition date, (4) trends in the stock price and related market capitalization and enterprise values, (5) trends in peer companies' total enterprise value metrics, and (6) additional factors such as management turnover, changes in regulation and changes in litigation matters.

Based on the annual assessment performed On October 1, 2021, the Company concluded it was more likely than not that the estimated fair value of our reporting units exceeded their carrying value, and therefore, determined it was not necessary to perform a quantitative goodwill impairment test.

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**6. EQUITY AND STOCK-BASED COMPENSATION**

**Common Stock**

In July 2020 and August 2020, the Company issued 100,100 shares and 75,585 shares of its common stock to NLT, respectively, as settlement of contingent milestone payments pursuant to the terms of the asset purchase agreement entered into with NLT in August 2016. See Note 5, "Fair Value Measurements" above.

In January 2020, the Company entered into an Underwriting Agreement with Piper Sandler & Co. and Canaccord Genuity LLC relating to the issuance and sale of 6,800,000 shares of the Company's common stock at a price to the public of $12.50 per share, before underwriting discounts and commissions. Under the terms of that agreement, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 1,020,000 shares of common stock. The underwriters exercised this option and the offering closed on January 10, 2020 with the sale of 7,820,000 shares of common stock, resulting in net proceeds to the Company of approximately $92 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The offering was made pursuant to the Company's shelf registration statement on Form S-3 that was declared effective on May 22, 2019.

In April 2021, the Company entered into an Underwriting Agreement with Piper Sandler & Co., Canaccord Genuity LLC, and Stifel, Nicolaus & Company, Incorporated relating to the issuance and sale of 4,500,000 shares of the Company's common stock at a price to the public of $19.50 per share, before underwriting discounts and commissions. Under the terms of that agreement, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 675,000 shares of common stock. The underwriters exercised this option and the offering closed on April 20, 2021 with the sale of 5,175,000 shares of common stock, resulting in net proceeds to the Company of approximately $95 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company used a portion of the net proceeds from the offering to repay all of its outstanding borrowings under the Credit Facility and to finance the cash consideration of $27.5 million for the Company's acquisition of 7D Surgical.

In May 2021, the Company issued 2,991,054 shares of the Company's common stock and 1,298,648 Exchangeable Shares in connection with Company's acquisition of 7D Surgical.

**Equity Award Plans**

Stock-based compensation expense, all related to employees and non-employee directors, was recognized as follows:

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| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
|  | **(In Thousands)** | **(In Thousands)** |
| Selling and marketing | $2808 | 2530 |
| General and administrative | 6686 | $5607 |
| Research and development | 2041 | 1831 |
| Cost of goods sold | 321 | 389 |
| Total stock-based compensation expense | 11856 | 10357 |

---

No estimated tax benefit related to stock-based compensation expense was recognized for the years ended December 31, 2021 and 2020.

In May 2015, the Company adopted the 2015 Incentive Award Plan, which was subsequently amended and restated with approval of the Company's stockholders. In February and March 2018, the Company's board of directors approved amendments to the plan

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that increased the share reserve by an aggregate of 2,726,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's stockholders approved both amendments in May 2018. In April 2020, the Company's board of directors approved an amendment to the plan that, among other things, increased the share reserve by an aggregate of 3,500,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's stockholders approved the amendment in June 2020 (the 2015 Incentive Award Plan, as amended and restated to date, the Restated Plan). Under the Restated Plan, the Company can grant its employees, non-employee directors and consultants incentive stock options and non-qualified stock options, restricted stock, performance stock, dividend equivalent rights, stock appreciation rights, stock payment awards and other incentive awards. The aggregate number of shares that may be issued or transferred pursuant to awards under the Restated Plan is the sum of (1) the number of shares issuable upon exercise or vesting of the equity awards issued by the Company's former parent company prior to the spin-off that were converted into the Company's equity awards under the Restated Plan as of the date of the spin-off and (2) 9,735,500 shares of the Company common stock in respect of awards granted under the Restated Plan. As of December 31, 2021, 3,005,875 shares were available for issuance under the Restated Plan.

In June 2018, the Company established the 2018 Employment Inducement Incentive Award Plan (the 2018 Inducement Plan). The terms of the 2018 Inducement Plan are substantially similar to the terms of the Restated Plan with these principal exceptions: (1) incentive stock options may not be granted under the 2018 Inducement Plan; (2) there are no annual limits on awards that may be issued to an individual under the 2018 Inducement Plan; (3) awards granted under the 2018 Inducement Plan are not required to be subject to any minimum vesting period; and (4) awards may be granted under the 2018 Inducement Plan only to those individuals and in those circumstances described below. An aggregate of 2,000,000 shares are reserved under the 2018 Inducement Plan. As of December 31, 2021, 1,926,740 shares were available for issuance under the 2018 Inducement Plan. As a result of the approval of the amendment to the Restated Plan by the Company's stockholders in June 2020, no awards will be granted under the 2018 Inducement Plan in the future.

In August 2020, the Company adopted the 2020 Employment Inducement Incentive Award Plan (the 2020 Inducement Plan). The terms of the 2020 Inducement Plan are substantially similar to the terms of the Restated Plan with four principal exceptions: (1) incentive stock options may not be granted under the 2020 Inducement Plan; (2) there are no annual limits on awards that may be issued to an individual under the 2020 Inducement Plan; (3) awards granted under the 2020 Inducement Plan are not required to be subject to any minimum vesting period; and (4) awards may be granted under the 2020 Inducement Plan only to those individuals and in those circumstances described below. An aggregate of 2,000,000 shares are reserved under the 2020 Inducement Plan. As of December 31, 2021, 1,339,294 share were available for issuance under the 2020 Inducement Plan.

Both the 2018 Inducement Plan and the 2020 Inducement Plan were adopted by the Company's board of directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under those plans may only be made to an employee who has not previously been an employee or member of the Company's board of directors or of any board of directors of any parent or subsidiary of the Company, or following a bona fide period of non-employment by the Company or a parent or subsidiary, if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.

**Restricted Stock Awards and Restricted Stock Units**

Restricted stock award and restricted stock unit grants to employees generally have a requisite service period of three years, and restricted stock award and restricted stock unit grants to non-employee directors generally have a requisite service period of one year. Both are subject to graded vesting. The Company expenses the fair value of restricted stock awards and restricted stock units on an accelerated basis over the vesting period or requisite service period, whichever is shorter. Stock-based compensation expense related to all equity awards includes an estimate for forfeitures. The expected forfeiture rate of all equity-based compensation is based on historical experience of pre-vesting forfeitures on awards by each homogeneous group of shareowners. For awards granted to non-executive employees, the forfeiture rate is estimated to be 9% and 13% annually for the years ended December 31, 2021 and 2020, respectively. There is no forfeiture rate applied to awards granted to non-employee directors or

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executive employees because their pre-vesting forfeitures are anticipated to be highly unlikely. As individual awards become fully vested, stock-based compensation expense is adjusted to recognize actual forfeitures.

The following table summarizes restricted stock awards and restricted stock units granted to SeaSpine employees and non-employee directors during 2021:

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| | | |
|:---|:---|:---|
|  | **Restricted Stock Awards and Units** | **Restricted Stock Awards and Units** |
|  | **Shares**<br>**(In thousands)** | **Weighted Average Grant Date Fair Value Per Share** |
| Unvested, January 1, 2021 | 797 | $12.71 |
| Granted | 499 | 17.32 |
| Cancellations | (66) | 14.96 |
| Released/Vested | (455) | 12.51 |
| Unvested, December 31, 2021 | 775 | 15.60 |

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The weighted average grant date fair value of restricted stock awards and restricted stock units granted during 2021 and 2020 was $17.32 and $12.12, respectively. The total fair value of shares subject to restricted stock awards and restricted stock units that vested in 2021 and 2020 was $5.8 million and $6.0 million, respectively.

The Company recognized $6.6 million and $5.7 million in expense related to restricted stock awards and restricted stock units for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was approximately $4.1 million of unrecognized compensation expense related to the unvested portions of restricted stock awards and restricted stock units. This expense is expected to be recognized over a weighted-average period of approximately 1.0 years.

**Stock Options**

Stock option grants to employees generally have a requisite service period of four to five years, and stock option grants to non-employee directors generally have a requisite service period of one year. Both are subject to graded vesting. The Company records stock-based compensation expense associated with stock options on an accelerated basis over the applicable vesting period within each grant and based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. The following weighted-average assumptions were used in the calculation of fair value for options granted during the period indicated.

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| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
| Expected dividend yield | 0% | 0% |
| Risk-free interest rate | 0.6% | 1.3% |
| Expected volatility  | 51.7% | 46.4% |
| Expected term (in years) | 4.9 | 4.9 |

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The Company considered that it has never paid, and does not currently intend to pay, cash dividends. The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected term of the options. The expected volatility is calculated based upon the historical volatility of the Company's share prices. The expected term is calculated using the historical weighted average term of the Company's options. In addition, the Company applies an expected forfeiture rate when amortizing stock-based compensation expense. The expected forfeiture rate of options is based on historical experience of pre-vesting forfeitures on awards by each homogeneous group of shareowners. For options granted to non-executive employees, the forfeiture rate is estimated to be 9% and 13% annually for the years ended

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December 31, 2021 and 2020, respectively. There is no forfeiture rate applied to options granted to non-employee directors and executive employees because their pre-vesting forfeitures are anticipated to be highly unlikely. As individual options become fully vested, stock-based compensation expense is adjusted to recognize actual forfeitures.

A summary of the options granted during 2021 and the total number of options outstanding as of December 31, 2021 and changes since January 1, 2021 are set forth below:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Number of Shares Outstanding (In thousands)** | **Weighted Average Exercise Price** | **Weighted Average Remaining Contractual Life (In years)** | **Aggregate Intrinsic Value (In thousands)** |
| Outstanding, January 1, 2021 | 3318 | $14.33 | 4.67 | $10667 |
| Granted | 1137 | $18.50 |  |  |
| Exercised | (168) | $12.66 |  |  |
| Forfeited | (104) | $14.98 |  |  |
| **Outstanding, December 31, 2021** | 4183 | $15.51 | 4.59 | $2059 |
| **Vested or expected to vest, December 31, 2021** | 4072 | $15.41 | 4.52 | $2049 |
| **Exercisable, December 31, 2021** | 2601 | $14.55 | 3.23 | $1521 |

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The weighted average grant date fair value of options granted during 2021 and 2020 was $8.10 and $4.79, respectively. The total fair value of shares vested was $2.1 million in 2021 and $2.1 million in 2020.

The Company recognized $4.2 million and $3.8 million in expense related to stock options for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, there was approximately $5.7 million of unrecognized compensation expense related to unvested stock options. This expense is expected to be recognized over a weighted-average period of approximately 1.6 years.

**Employee Stock Purchase Plan**

In May 2015, the Company adopted the SeaSpine Holdings Corporation 2015 Employee Stock Purchase Plan, which was amended in November 2018, as described below (as amended, the ESPP). Under the ESPP, eligible employees may purchase shares of the Company's common stock through payroll deductions of up to 15% of eligible compensation during an offering period. Generally, each offering period will be for 24 months as determined by the Company's board of directors. There are four six-month purchase periods in each offering period for contributions to be made and to be converted into shares at the end of the purchase period. In no event may an employee purchase more than 2,500 shares per purchase period based on the closing price on the first trading date of an offering period or more than $25,000 worth of stock during any calendar year. The purchase price for shares to be purchased under the ESPP is 85% of the lesser of the market price of the Company's common stock on the first trading date of an offering period or on any purchase date during an offering period (June 30 or December 31).

Subject to stockholder approval, on and effective as of November 2, 2018, the Company's board of directors approved an amendment to the ESPP pursuant to which the share reserve under the ESPP would increase from 400,000 shares to 800,000 shares. The Company's stockholders approved that amendment in May 2019. In December 2020, the Company's board of directors approved the issuance of an additional 500,000 shares of common stock under the ESPP. The Company's stockholders approved that amendment in June 2021. The ESPP is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the IRC). The ESPP contains a restart feature, such that if the market price of the stock at the end of any six-month purchase period is lower than the market price at the original grant date of an offering period, that offering period will terminate after that purchase date, and a new two-year offering period will commence on the January 1 or July 1 immediately following the date the original offering period terminated. This restart feature was triggered

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on the purchase date that occurred on June 30, 2020, such that the offering period that commenced on January 1, 2020 was terminated, and a new two-year offering period commenced on July 1, 2020 and will end on June 30, 2022. The Company applied share-based payment modification accounting to the awards that were initially valued at the grant date to determine the amount of any incremental fair value associated with the modified awards. The impact to stock-based compensation expense for modifications during the year ended December 31, 2021 was immaterial.

During the years ended December 31, 2021 and 2020, there were 199,843 and 153,302 shares of common stock, respectively, purchased under the ESPP. The Company recognized $1.0 million and $0.9 million in expense related to the ESPP for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021, 427,317 shares were available under the ESPP for future issuance.

The Company estimates the fair value of shares issued to employees under the ESPP using the Black-Scholes-Merton option-pricing model. The following weighted average assumptions were used in the calculation of fair value of shares under the ESPP at the grant date for the periods indicated:

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| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
| Expected dividend yield | 0% | 0% |
| Risk-free interest rate | 0.1% | 0.7% |
| Expected volatility  | 40.7% | 24.6% |
| Expected term (in years) | 0.8 | 0.7 |

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**7. LEASES**

The Company's lease portfolio only includes operating leases. As of December 31, 2021, the weighted average remaining lease term of these operating leases was 5.3 years and the weighted average discount rate was 6.5%. For each of the years ended December 31, 2021 and 2020, lease expense, which represents expense from operating leases, was $2.3 million and $2.1 million.

A summary of the Company's remaining lease liabilities at December 31, 2021 are as follows:

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| | |
|:---|:---|
|  | **Payments Due by Calendar Year** |
|  | **(In thousands)** |
| 2022 | $2830 |
| 2023 | 1684 |
| 2024 | 1468 |
| 2025 | 1497 |
| 2026 | 1543 |
| Thereafter | 1227 |
| Total undiscounted value of lease liabilities | $10249 |
| Less: present value adjustment | (1635) |
| Less: short-term leases not capitalized | (514) |
| Present value of lease liabilities | 8100 |
| Less: current portion of lease liability | (2234) |
| Operating lease liability, less current portion | $5866 |

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**8. INCOME TAXES**

The Company is subject to income taxes in the U.S., Canada, Switzerland and France. Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are calculated based on the difference between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using the enacted income tax rates expected to be in effect during the years in which the temporary differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significant judgment is required in determining whether a valuation allowance should be recorded against deferred tax assets. In assessing the need for a valuation allowance, management considers all available evidence for each jurisdiction including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. In the event that the Company changes its determination as to the amount of deferred tax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to income tax expense in the period in which such determination is made.

**Income Tax Provision**

Loss before income taxes consisted of:

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| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
|  | **(In thousands)** | **(In thousands)** |
| United States operations | $(56362) | $(42251) |
| Foreign operations | 916 | (712) |
|  | $(55446) | $(42963) |

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A reconciliation of the U.S. federal statutory rate to the Company's effective tax rate is:

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| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
| Federal statutory rate | 21.0% | 21.0% |
| **Increase (decrease) in income taxes resulting from:** |  |  |
| State income taxes, net of federal tax benefit | 0.1% | 2.0% |
| Foreign operations | 1.7% | (0.3)% |
| Changes in valuation allowances | (23.5)% | (22.3)% |
| Loan forgiveness | 2.3% | —% |
| Research and development credit | 0.3% | 0.6% |
| Other | 0.1% | (1.5)% |
| **Effective tax rate** | 2.0% | (0.5)% |

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The provision/(benefit) for income taxes consisted of:

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| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
|  | **(In thousands)** | **(In thousands)** |
| **Current:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Federal | $— | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;State | 110 | 87 |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign | 77 | 28 |
| Total current | $187 | $115 |
| **Deferred:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Federal | 123 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;State | 56 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign | (1466) | 103 |
| Total deferred | $(1287) | $103 |
| Provision for income taxes | $(1100) | $218 |

---

------

The income tax effects of significant temporary differences that give rise to deferred tax assets and liabilities, shown before jurisdictional netting, are presented below:

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
|  | **(In thousands)** | **(In thousands)** |
| **Deferred tax assets:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Doubtful accounts | $48 | $47 |
| &nbsp;&nbsp;&nbsp;&nbsp;Inventory related items | 12453 | 12317 |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax credits | 1673 | 563 |
| &nbsp;&nbsp;&nbsp;&nbsp;Compensation accruals | 2000 | 1479 |
| &nbsp;&nbsp;&nbsp;&nbsp;Lease liability | 1618 | 2014 |
| &nbsp;&nbsp;&nbsp;&nbsp;Stock compensation | 5890 | 4947 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net operating loss carryforwards | 59541 | 45744 |
| &nbsp;&nbsp;&nbsp;&nbsp;Intangible and fixed assets | 9035 | 10740 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | 1539 | 444 |
| Total deferred tax assets | 93797 | 78295 |
| Less valuation allowance | (91473) | (75147) |
| Deferred tax assets after valuation allowance | $2324 | $3148 |
| **Deferred tax liabilities:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Intangible assets | 3648 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Right-of-use assets | 1364 | 1721 |
| &nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses | 598 | 432 |
| &nbsp;&nbsp;&nbsp;&nbsp;Unrealized gains and losses | 983 | 954 |
| Total deferred tax liabilities | $6593 | $3107 |
| Net deferred tax (liabilities)/assets | $(4269) | $41 |

---

At December 31, 2021, the Company had net operating loss carryforwards of $237.3 million for federal and $135.0 million for state income tax purposes. The Company also had net operating loss carryforwards of $5.6 million for foreign income tax purposes. These loss carryforwards begin to expire in 2022 for foreign income tax purposes and in 2027 for federal and state income tax purposes, and continue to expire through 2042. The Company's net operating loss carryforwards generated after 2017 for federal income tax purposes do not expire. The tax benefit recorded for net operating losses, net of valuation allowance, was immaterial.

At December 31, 2020, the Company had net operating loss carryforwards of $187.7 million for federal and state income tax purposes. The Company also had net operating loss carryforwards of $0.2 million for foreign income tax purposes. These loss carryforwards begin to expire in 2021 for foreign income tax purposes and in 2027 for federal and state income tax purposes, and continue to expire through 2039. The Company's net operating loss carryforwards generated after 2017 for federal income tax purposes do not expire. The tax expense recorded for net operating losses, net of valuation allowance, was $0.1 million which relates only to foreign net operating losses.

The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances and for which the Company believes it is not more likely than not that it will realize the associated tax benefit. However, in the event that the Company determines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuation allowance would be recorded in the period such a determination is made. In assessing the realizability of deferred tax assets, management considers whether it is

------

more-likely-than-not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planning strategies in making this assessment. Based upon the levels of historical taxable income, projections of future taxable income and the reversal of deferred tax liabilities over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize the benefits of these deductible differences, net of the existing valuation allowance. The amount of deferred tax asset considered realizable, however, could change in the near term if estimates which require significant judgment of future taxable income during the carryforward period are increased or decreased.

A reconciliation of the Company's uncertain tax benefits is as follows:

---

| | | |
|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2021** | **2020** |
|  | **(In thousands)** | **(In thousands)** |
| Balance, beginning of year | $563 | $319 |
| Gross increases: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Prior years' tax positions |  | 74 |
| Current year tax positions | 166 | 170 |
| Gross decreases: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Prior years' tax positions | (14) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Statute of limitations lapses |  |  |
| Balance, end of year | $715 | $563 |

---

The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The amounts recorded in 2021 and 2020 were not significant.

The Company files income tax returns as prescribed by tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal, state, local and foreign jurisdictions where applicable based on the statute of limitations that apply in each jurisdiction. The Company has no open income tax audits with any taxing authority as of December 31, 2021. The Company is still subject to income tax examinations by U.S. federal and state tax authorities for the years 2016 through 2020. Open years for foreign jurisdictions are from 2015 through 2020. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and make adjustments up to the amount of the net operating loss carryforward amount.

On March 27, 2020, Congress enacted the CARES Act to provide certain relief as a result of the COVID-19 pandemic. The CARES Act, among other things, includes provisions relating to net operating loss carryback periods, alternative minimum tax credit refunds, and modification to the net interest deduction limitations. The CARES Act did not have a material impact on the Company's consolidated financial statements for the year ended December 31, 2021 and 2020.

------

**9. COMMITMENTS AND CONTINGENCIES**

In consideration for certain technology, manufacturing, distribution, and selling rights and licenses granted to the Company, the Company agreed to pay royalties on sales of certain products sold by the Company. Except for the royalties paid to NLT, the royalties the Company paid are included as a component of cost of goods sold in the consolidated statements of operations.

The Company is subject to various legal proceedings in the ordinary course of its business with respect to its products, its current or former employees, and its commercial relationships, some of which have been settled by the Company. In the opinion of management, such proceedings are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on the Company's financial condition. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.

The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. While uncertainty exists, the Company does not believe there are any pending legal proceedings that would have a material impact on the Company's financial position, cash flows or results of operations.

------

**10. SEGMENT AND GEOGRAPHIC INFORMATION** 

Management assessed its segment reporting based on how it internally manages and reports the results of its business to its chief operating decision maker. Management reviews financial results, manages the business and allocates resources on an aggregate basis. Therefore, financial results are reported in a single operating segment: the development, manufacture and marketing of orthobiologics, spinal implants, and image guided navigation systems. The Company reports revenue in two product categories: orthobiologics and spinal implants and enabling technologies. Orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes that are designed to improve bone fusion rates following surgery. The spinal implants and enabling technologies portfolio consists of an extensive line of products for minimally invasive surgery, complex spine, deformity and degenerative procedures, as well as a surgical navigation system. The Company attributes revenues to geographic areas based on the location of the customer.

The following table disaggregates revenue by major sales channel for each of the periods presented (in thousands):

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** | **Year Ended December 31, 2021** |
|  | **United States** | **International** | **Total** |
|  | **(In thousands)** | **(In thousands)** | **(In thousands)** |
| Orthobiologics | $83249 | $8573 | $91822 |
| Spinal implants and enabling technologies | $88192 | $11437 | 99629 |
| Total revenue, net | $171441 | $20010 | $191451 |

---

---

| | | | |
|:---|:---|:---|:---|
|  | **Year Ended December 31, 2020** | **Year Ended December 31, 2020** | **Year Ended December 31, 2020** |
|  | **United States** | **International** | **Total** |
|  | **(In thousands)** | **(In thousands)** | **(In thousands)** |
| Orthobiologics | $71346 | $7037 | $78383 |
| Spinal implants and enabling technologies | $67550 | $8412 | $75962 |
| Total revenue, net | $138896 | $15449 | $154345 |

---

------

**11. EMPLOYEE BENEFIT PLAN**

The Company has a defined contribution savings plan under section 401(k) of the IRC. The plan covers substantially all employees. The Company matches employee contributions made to the plan according to a specified formula. The Company's matching contributions totaled approximately $1.1 million for each of the years ended December 31, 2021 and 2020.

------

**SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Balance at Beginning of Period** | **Charged to Costs and Expenses** | **Charged to Other Accounts**  | **Additions/Deductions** | **Balance at End of Period** |
| **<u>Description</u>** | **Balance at Beginning of Period** | **Charged to Costs and Expenses** | **Charged to Other Accounts**  | **Additions/Deductions** | **Balance at End of Period** |
|  | **(In thousands)** | **(In thousands)** | **(In thousands)** | **(In thousands)** | **(In thousands)** |
| Year ended December 31, 2021: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Allowance for doubtful accounts and sales returns and other credits | $192 | $— | $— | $(118) | $74 |
| &nbsp;&nbsp;&nbsp;Inventory Reserves | 38015 | 7031 |  | (2762) | 42284 |
| &nbsp;&nbsp;&nbsp;Deferred tax asset valuation allowance | 75147 | 16326 |  |  | 91473 |
| Year ended December 31, 2020: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Allowance for doubtful accounts and sales returns and other credits | $111 | $— | $— | $81 | $192 |
| &nbsp;&nbsp;&nbsp;Inventory Reserves | 32237 | 6903 |  | (1125) | 38015 |
| &nbsp;&nbsp;&nbsp;Deferred tax asset valuation allowance | 65576 | 9571 |  |  | 75147 |

---

------

## Exhibit 99.2

**Exhibit 99.2**

**PART I. FINANCIAL INFORMATION**

**Item 1. Financial Statements**

**SEASPINE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Unaudited)**

(In thousands, except per share data)

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended September 30,** | **Three Months Ended September 30,** | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Total revenue, net | $67147 | $46445 | $174158 | $135862 |
| Cost of goods sold | 26637 | 18289 | 66140 | 51137 |
| &nbsp;&nbsp;&nbsp;&nbsp;Gross profit | 40510 | 28156 | 108018 | 84725 |
| Operating expenses: |  |  |  |  |
| Selling and marketing | 32983 | 27578 | 95518 | 76413 |
| General and administrative | 14767 | 11642 | 37898 | 32055 |
| Research and development | 6596 | 6262 | 18095 | 15618 |
| Intangible amortization | 856 | 942 | 2568 | 2577 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total operating expenses | 55202 | 46424 | 154079 | 126663 |
| Operating loss | (14692) | (18268) | (46061) | (41938) |
| Other (expense) income, net | (419) | (231) | (976) | 5689 |
| Loss before income taxes | (15111) | (18499) | (47037) | (36249) |
| Provision (benefit) for income taxes | 389 | (872) | (986) | (689) |
| Net loss | $(15500) | $(17627) | $(46051) | $(35560) |
| Net loss per share, basic and diluted | $(0.42) | $(0.48) | $(1.25) | $(1.09) |
| Weighted average shares used to compute basic and diluted net loss per share | 37044 | 36419 | 36833 | 32638 |

---

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

------

**SEASPINE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS**

**(Unaudited)**

(In thousands)

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended September 30,** | **Three Months Ended September 30,** | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Net loss | $(15500) | $(17627) | $(46051) | $(35560) |
| Other comprehensive income (loss) |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Foreign currency translation adjustments | (493) | (170) | (1135) | (425) |
| Comprehensive loss | $(15993) | $(17797) | $(47186) | (35985) |

---

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

------

 **SEASPINE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

**(Unaudited)**

(In thousands, except par value data)

------

---

| | | |
|:---|:---|:---|
|  | **September 30, 2022** | **December 31, 2021** |
| **ASSETS** |  |  |
| Current assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | $46763 | $83106 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade accounts receivable, net of allowances of $166 and $74 | 38969 | 36231 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | 83993 | 72299 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | 5141 | 4328 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 174866 | 195964 |
| Property, plant and equipment, net | 56360 | 46892 |
| Right of use assets | 16347 | 6948 |
| Intangible assets, net | 36532 | 42056 |
| Goodwill | 84595 | 84595 |
| Long-term trade receivable | 4568 |  |
| Other assets | 856 | 812 |
| **Total assets** | $374124 | $377267 |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| Current liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable, trade | 17778 | 20301 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued compensation | 9578 | 8769 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued commissions | 12457 | 9877 |
| &nbsp;&nbsp;&nbsp;&nbsp;Short-term lease liability | 2412 | 2234 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue | 2137 | 1545 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other accrued expenses and current liabilities | 10685 | 10255 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 55047 | 52981 |
| Long-term borrowings under credit facility | 25812 |  |
| Long-term lease liability | 15124 | 5866 |
| Deferred tax liability, net | 3182 | 4308 |
| Other liabilities | 500 | 1748 |
| **Total liabilities** | 99665 | 64903 |
| Commitments and contingencies |  |  |
| Stockholders' equity: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Preferred stock, $0.01 par value; 15,000 authorized; no shares issued and outstanding at September 30, 2022 and December 31, 2021 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Common stock, $0.01 par value; 120,000 authorized; 37,197 and 36,584 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively | 372 | 366 |
| &nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital | 593306 | 584031 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income | 435 | 1570 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accumulated deficit | (319654) | (273603) |
| **Total stockholders' equity** | 274459 | 312364 |
| **Total liabilities and stockholders' equity** | $374124 | $377267 |

---

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

------

**SEASPINE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Unaudited)**

(In thousands)

------

---

| | | |
|:---|:---|:---|
|  | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** |
|  | **2022** | **2021** |
| **OPERATING ACTIVITIES:** |  |  |
| Net loss | $(46051) | $(35560) |
| Adjustments to reconcile net loss to net cash used in operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation and amortization | 12838 | 10280 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Instrument replacement expense  | 4549 | 2665 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for excess and obsolete inventories | 3649 | 3891 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax benefit | (1089) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation | 10172 | 8791 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on forgiveness of Paycheck Protection Program Loan |  | (6173) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 112 | 429 |
| Changes in assets and liabilities, net of the effects from acquisition: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable | (3520) | (753) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | (13647) | (17995) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | (830) | 248 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term trade receivable | (4568) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other non-current assets | (133) | 220 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | 1432 | 9729 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued commissions | 2577 | 1053 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other accrued expenses and current liabilities | 886 | 1405 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other non-current liabilities | (563) | (607) |
| **Net cash used in operating activities** | (34186) | (22377) |
| **INVESTING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of property and equipment | (25043) | (16894) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additions to technology assets | (700) | (1161) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisitions |  | (28331) |
| **Net cash used in investing activities** | (25743) | (46386) |
| **FINANCING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Borrowings under credit facility | 25000 | 20000 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repayments of credit facility |  | (20000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debt issuance costs |  | (45) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock- employee stock purchase plan | 964 | 1016 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from exercise of stock options | 31 | 1996 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from issuance of common stock, net of offering costs |  | 94531 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units | (1888) | (2781) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Payment of contingent royalty consideration liabilities in connection with acquisition of<br>business | (39) | (33) |
| **Net cash provided by financing activities** | 24068 | 94684 |
| Effect of exchange rate changes on cash and cash equivalents | (482) | (301) |
| **Net change in cash and cash equivalents** | (36343) | 25620 |
| **Cash and cash equivalents at beginning of period** | 83106 | 76813 |
| **Cash and cash equivalents at end of period** | $46763 | $102433 |
| **Supplemental cash flow information:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest paid | $114 | $253 |

---

------

---

| | | |
|:---|:---|:---|
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes paid | $130 | $148 |
| **Non-cash investing activities:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of property and equipment in liabilities | $3507 | $4648 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets payments in liabilities | $— | $200 |
| **Non-cash financing activities:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Issuance of common stock - Acquisition | $— | $61048 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exchangeable shares - Acquisition  | $— | $26505 |

---

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

------

**SEASPINE HOLDINGS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF EQUITY**

**(Unaudited)**

(In thousands)

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | **Additional** | **Accumulated Other** |  | **Total** |
|  | **Number of** |  | **Paid-In** | **Comprehensive**  | **Accumulated** | **Stockholders'** |
|  | **Shares** | **Amount** | **Capital** | **Income (Loss)** | **Deficit** | **Equity** |
| Balance December 31, 2021 | 36584 | $366 | $584031 | $1570 | $(273603) | $312364 |
| Net loss |  |  |  |  | (16604) | (16604) |
| Foreign currency translation adjustment |  |  |  | (175) |  | (175) |
| Issuance of common stock- Exchangeable Shares | 50 | 1 | (1) |  |  |  |
| Restricted stock issued | 155 | 1 |  |  |  | 1 |
| Issuance of common stock - exercise of stock options |  |  | 3 |  |  | 3 |
| Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units |  |  | (1587) |  |  | (1587) |
| Stock-based compensation |  |  | 2819 |  |  | 2819 |
| Balance March 31, 2022 | 36789 | 368 | 585265 | 1395 | (290207) | 296821 |
| Net loss |  |  |  |  | (13947) | (13947) |
| Foreign currency translation adjustment |  |  |  | (467) |  | (467) |
| Restricted stock issued | 192 | 2 | (1) |  |  | 1 |
| Issuance of common stock under employee stock purchase plan | 201 | 2 | 962 |  |  | 964 |
| Issuance of common stock- exercise of stock options | 3 |  | 28 |  |  | 28 |
| Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units |  |  | (274) |  |  | (274) |
| Stock-based compensation |  |  | 3701 |  |  | 3701 |
| Balance June 30, 2022 | 37185 | 372 | 589681 | 928 | (304154) | 286827 |
| Net loss |  |  |  |  | (15500) | (15500) |
| Foreign currency translation adjustment |  |  |  | (493) |  | (493) |
| Restricted stock issued | 12 |  |  |  |  |  |
| Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units |  |  | (27) |  |  | (27) |
| Stock-based compensation |  |  | 3652 |  |  | 3652 |
| Balance September 30, 2022 | 37197 | 372 | 593306 | 435 | (319654) | 274459 |

---

------

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Common Stock** | **Common Stock** | **Additional** | **Accumulated Other** |  | **Total** |
|  | **Number of** |  | **Paid-In** | **Comprehensive**  | **Accumulated** | **Stockholders'** |
|  | **Shares** | **Amount** | **Capital** | **Income** | **Deficit** | **Equity** |
| Balance December 31, 2020 | 27729 | $277 | $388574 | $2124 | $(219257) | $171718 |
| Net loss |  |  |  |  | (12720) | (12720) |
| Foreign currency translation adjustment |  |  |  | (357) |  | (357) |
| Restricted stock issued | 175 | 2 |  |  |  | 2 |
| Issuance of common stock - exercise of stock options | 44 |  | 496 |  |  | 496 |
| Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units |  |  | (2418) |  |  | (2418) |
| Stock-based compensation |  |  | 2546 |  |  | 2546 |
| Balance March 31, 2021 | 27948 | 279 | 389198 | 1767 | (231977) | 159267 |
| Net loss |  |  |  |  | (5213) | (5213) |
| Foreign currency translation adjustment  |  |  |  | 102 |  | 102 |
| Restricted stock issued | 71 | 1 | (1) |  |  |  |
| Issuance of common stock under employee stock purchase plan | 109 | 1 | 1015 |  |  | 1016 |
| Issuance of common stock- Public Offering | 5175 | 52 | 94479 |  |  | 94531 |
| Issuance of common stock- Acquisition | 2991 | 30 | 61018 |  |  | 61048 |
| Issuance of common stock- Exchangeable Shares |  |  | 26505 |  |  | 26505 |
| Issuance of common stock- exercise of stock options | 81 | 1 | 1106 |  |  | 1107 |
| Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units |  |  | (126) |  |  | (126) |
| Stock-based compensation |  |  | 3096 |  |  | 3096 |
| Balance June 30, 2021 | 36375 | 364 | 576290 | 1869 | (237190) | 341333 |
| Net loss |  |  |  |  | (17627) | (17627) |
| Foreign currency translation adjustment |  |  |  | (170) |  | (170) |
| Restricted stock issued | 22 |  |  |  |  |  |
| Issuance of common stock- exercise of stock options | 30 |  | 393 |  |  | 393 |
| Repurchases of common stock for income tax withheld upon vesting of restricted stock awards and restricted stock units |  |  | (237) |  |  | (237) |
| Stock-based compensation |  |  | 3149 |  |  | 3149 |
| Balance September 30, 2021 | 36427 | 364 | 579595 | 1699 | (254817) | 326841 |

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

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**SEASPINE HOLDINGS CORPORATION**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**1. BUSINESS AND BASIS OF PRESENTATION**

**Business** 

SeaSpine Holdings Corporation was incorporated in Delaware on February 12, 2015. Unless the context indicates otherwise, references to "SeaSpine" or the "Company" refer to SeaSpine Holdings Corporation and its wholly-owned subsidiaries.

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

**Basis of Presentation and Principles of Consolidation**

The Company prepared the unaudited interim condensed consolidated financial statements included in this report in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial information and the rules and regulations of the Securities and Exchange Commission (SEC) related to quarterly reports on Form 10-Q.

The Company's financial statements are presented on a consolidated basis. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. The unaudited interim condensed consolidated financial statements do not include all information and disclosures required by GAAP for annual audited financial statements and should be read with the Company's consolidated financial statements and notes thereto for the year ended December 31, 2021 included in the Company's Annual Report on Form 10-K filed with the SEC. In the opinion of management, the unaudited interim condensed consolidated financial statements included in this report have been prepared on the same basis as the Company's audited consolidated financial statements and include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations, cash flows, and statement of equity for periods presented. The results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for the full year. The condensed consolidated balance sheet as of December 31, 2021 was derived from the audited consolidated balance sheet for the year ended December 31, 2021. Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

**Prior period revisions**

During the third quarter of 2021, the Company made a revision related to the functional currency of its recently acquired Canadian company, 7D Surgical Inc., a corporation incorporated under the laws of the Province of Ontario (7D Surgical). Prior to July 1, 2021, the functional currency for 7D Surgical was the Canadian dollar. The Company reassessed the functional currency and determined that the functional currency is the U.S. dollar based on management's analysis of the primary economic environment in which 7D Surgical operates. The Company revised the presentation of the unaudited statements for the prior quarter ending June 30, 2021 to reflect this determination and revised such prior period information presented in this filing.

The Company assessed the materiality of the error, both quantitatively and qualitatively, in accordance with the SEC's Staff Accounting Bulletin No. 99, and concluded that the error was not material to any of its previously reported unaudited financial

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statements based upon qualitative aspects of the error. However, in order to correctly present other comprehensive income, previously issued unaudited financial statements have been revised and are presented "As Revised" in the tables below.

The $3.2 million adjustment noted in the tables below reflects the change in foreign currency fluctuations.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Three Months Ended** | **Three Months Ended** | **Three Months Ended** | **Six Months Ended** | **Six Months Ended** | **Six Months Ended** |
|  | **June 30, 2021** | **June 30, 2021** | **June 30, 2021** | **June 30, 2021** | **June 30, 2021** | **June 30, 2021** |
|  | As Reported | Adjustment | As Revised | As Reported | Adjustment | As Revised |
|  | **(In thousands)** | **(In thousands)** | **(In thousands)** | **(In thousands)** | **(In thousands)** | **(In thousands)** |
| **Condensed Consolidated Statements of Comprehensive Loss:** |  |  |  |  |  |  |
| Foreign currency translation adjustments | $(3070) | $3172 | $102 | $(3427) | $3172 | $(255) |
| Comprehensive loss | (8283) | 3172 | (5111) | (21360) | 3172 | (18188) |
|  | **As of June 30, 2021** | **As of June 30, 2021** | **As of June 30, 2021** |  |  |  |
|  | As Reported | Adjustment | As Revised |  |  |  |
| **Condensed Consolidated Statements of Equity:** |  |  |  |  |  |  |
| Accumulated other comprehensive (loss) income | $(1303) | $3172 | $1869 |  |  |  |
| Foreign currency translation adjustments | (3070) | 3172 | 102 |  |  |  |
| Total stockholders' equity | 338161 | 3172 | 341333 |  |  |  |
| **Condensed Consolidated Balance Sheet:** |  |  |  |  |  |  |
| Intangible assets, net | $57015 | $1203 | $58218 |  |  |  |
| Goodwill | 73845 | 1983 | 75828 |  |  |  |
| Other assets | 389 | (14) | 375 |  |  |  |
| Total assets | 397212 | 3172 | 400384 |  |  |  |
| Accumulated other comprehensive (loss) income | $(1303) | $3172 | $1869 |  |  |  |
| Total stockholders' equity | 338161 | 3172 | 341333 |  |  |  |

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**Concentration of Risk**

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, which is held at major financial institutions, and trade receivables.

The Company's products are sold on an uncollateralized basis and on credit terms based upon a credit risk assessment of each customer. A portion of the Company's trade receivables to customers outside the United States includes sales to foreign stocking distributors, who then sell to government owned or supported healthcare systems. The ongoing economic conditions in certain European countries, especially Greece, Ireland, Italy, Portugal and Spain remain uncertain.

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**2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Going Concern**

The Company has not achieved profitable operations, nor is there assurance that profitable operations will ever be achieved, and, if achieved, could be sustained on a continuing basis. As of September 30, 2022, the Company had cash and cash equivalents totaling approximately $46.8 million and $0.6 million of borrowing capacity available under its credit facility. The Company incurred net losses in each year since inception. Its net losses were $46.1 million and $35.6 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, the Company had an accumulated deficit of $319.7 million. The Company anticipates that its expenses will increase as it continues to invest in the expansion of its business, primarily in sales, marketing and research and development, and invests in inventory, spinal implant set builds and instrument capital expenditures. In addition, the Company is subject to a number of risks similar to other medical device companies, including, but not limited to, risks related to maintaining high levels of inventory, raising additional capital, and the successful discovery, development, and commercialization of products. These circumstances raise substantial doubt about the Company's ability to continue as a going concern and, based on its operating plans and current liquidity resources, it does not believe that it has sufficient resources to fund operations and meet its contractual obligations for the 12 months following the issuance date of these consolidated financial statements. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty and assumes that the Company will continue as a going concern through the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.

Subsequent to the quarter end, the Company entered into an agreement and plan of merger with Orthofix Medical Inc., a Delaware corporation ("Orthofix"), which contemplates a merger of equals in an all stock transaction. See Note 12. Subsequent Events for further discussion. There is no assurance that the proposed merger with Orthofix will be consummated. If the merger is not consummated, the Company could be forced to raise funds through an equity or debt offering, delay, reduce or eliminate some or all of its projected inventory and capital expenditures spend, research and development programs or commercialization activities, which could materially adversely affect its business prospects and its ability to continue operations.

**COVID-19; Ukraine Conflict**

The full extent to which the COVID-19 pandemic or the ongoing conflict in Ukraine will directly or indirectly impact the Company's business, results of operations and financial condition, including revenues, expenses, manufacturing, research and development costs and employee-related compensation, will depend on future developments that are highly uncertain, including, with respect to COVID-19, as a result of variants of the virus that causes COVID-19 or other information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, and with respect to the ongoing conflict in Ukraine, the impact thereof on the supply chain for titanium, which is used in certain of our products, as well as the broader macroeconomic impact arising from both COVID-19 and the conflict on local, regional, national and international customers and markets.

Below is a summary of certain of the Company's significant accounting policies. For a comprehensive description of the Company's accounting policies, refer to the Annual Report on Form 10-K for the year ended December 31, 2021.

**Use of Estimates**

Preparing consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns and other credits, net realizable value of inventories, discount rates and estimated projected cash flows used to value and test impairments of goodwill, identifiable intangible and long-lived assets, fair value estimates related to business combinations, assumptions related to the timing and probability of product launch dates, discount rates matched to the estimated timing of payments, probability of success rates and discount adjustments on the related cash flows for contingent considerations in business combinations, depreciation and amortization

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periods for identifiable intangible and long-lived assets, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation and loss contingencies. These estimates are based on historical experience and on various other assumptions believed to be reasonable under the current circumstances. Actual results could differ from these estimates.

**Recently Adopted Accounting Standards**

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU or Update) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires credit losses on most financial assets measured at amortized cost, including trade receivables, and certain other instruments to be measured using an expected credit loss model, referred to as the current expected credit loss (CECL) model. Under this model, entities will estimate credit losses over the entire contractual term of the instrument. The FASB subsequently issued other related ASUs that amend ASU No. 2016-13 to provide clarification and additional guidance. The new standard was effective for the Company beginning January 1, 2022 and primarily impacted trade accounts receivable. The amendments in this update were adopted using a modified retrospective transition method as of January 1, 2022, which had no cumulative impact to retained earnings. The adoption of this new standard had no material impact on the Company's consolidated financial statements. The Company's concentrations of credit risks are limited due to the large number of customers and their dispersion across a number of geographic areas. Substantially all of the Company's trade receivables are concentrated in the public and private hospital and healthcare industry in the U.S. and internationally or with distributors who operate in international markets. The Company's historical credit losses have not been significant due to this dispersion and the financial stability of the Company's customers. The Company considers credit losses immaterial to its business and, therefore, has not provided all the disclosures otherwise required by the standard. The Company updated its accounting policy disclosure for accounts receivable as follows:

Trade accounts receivable in the accompanying consolidated balance sheets are presented net of allowances for doubtful accounts for expected credit losses and sales returns and other credits. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support its receivables.

The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet its financial obligations to the Company, a provision to the allowances for doubtful accounts for expected credit losses is recorded to reduce the net recognized receivable to the amount that is reasonably expected to be collected. For all other customers, a provision to the allowances for doubtful accounts for expected credit losses is recorded based on factors including the length of time the receivables are past due, the current business environment, the geographic market and the Company's historical experience. Provisions to the allowances for doubtful accounts for expected credit losses are recorded to general and administrative expenses. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. The allowance for doubtful accounts for expected credit losses was $166 thousand and $74 thousand as of September 30, 2022 and December 31, 2021, respectively.

In January 2017, the FASB issued Update No. 2017-04, Simplifying the Test for Goodwill Impairment (ASU 2017-04). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. ASU 2017-04 was effective for the Company beginning January 1, 2022 and was applied on a prospective basis. The adoption of ASU 2017-04 had no material impact on its consolidated financial statements.

In May 2021, the FASB issued Update No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40) Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. This Update addresses issuer's accounting for certain modifications or exchanges of freestanding equity-classified written call options. The new standard was effective for the Company beginning January 1, 2022. The adoption of this new standard had no material impact on its consolidated financial statements.

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In July 2021, the FASB issued Update No. 2021-05, Leases (Topic 842): Lessors—Certain Leases with Variable Lease Payments. Under this standard, lessors will classify leases with variable payments that do not depend on an index or rate as operating leases if a different classification would result in a commencement date selling loss. The new standard was effective for the Company beginning January 1, 2022 and early adoption is permitted. The adoption of this new standard had no material impact on its consolidated financial statements.

**Net Loss Per Share**

The Company follows the two-class method when computing net loss per share. Because the Company's board of directors has discretion in declaring/issuing dividends on the Company's common stock, these dividend rights meet the definition for participating securities. Basic and diluted net loss per share was calculated using the weighted-average number of shares of common stock outstanding during the period. The weighted average number of shares used to compute diluted net loss per share excludes any assumed issuance of common stock upon exercise of stock options, any assumed issuance of common stock under restricted stock awards or units, and any assumed issuances under the Company's employee stock purchase plan, because the effect, in each case, would be antidilutive. Common stock equivalents, including the Exchangeable Shares (as defined below), of 7.3 million and 6.5 million shares for each of the three and nine months ended September 30, 2022 and 2021, respectively, were excluded from the calculation because of their antidilutive effect.

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**3. DEBT AND INTEREST**

**Credit Agreement**

In December 2015, the Company entered into a credit facility with Wells Fargo Bank, N.A. (as amended, the Credit Facility). On July 15, 2022, the Company entered into an amendment to the Credit Facility which, among other things, extends the maturity date from July 27, 2022 to July 27, 2025, and changes the monthly interest rate from an interest rate based on LIBOR and a three-level grid based on the prior month's excess availability to an interest rate based on Term SOFR plus 2.65% (the transition from LIBOR to Term SOFR was intended to be value neutral). The Credit Facility provides an asset-backed revolving line of credit of up to $30.0 million. In addition, under the Credit Facility, at any time prior to July 15, 2025, the Company may increase the $30.0 million borrowing limit by up to an additional $10.0 million, subject to the Company having sufficient amounts of eligible accounts receivable and inventory and to customary conditions precedent, including obtaining the commitment of lenders to provide such additional amount. The Company paid to Wells Fargo a $150,000 closing fee in connection with parties entering into the amendment. In connection with entering into the Credit Facility, the Company was required to become a guarantor and to provide a security interest in substantially all its assets for the benefit of the counterparty.

As of September 30, 2022, there was $25.8 million outstanding under the Credit Facility. There were no amounts outstanding at December 31, 2021. As of September 30, 2022, the effective interest rate on the amounts borrowed was 4.78%. At September 30, 2022, the Company had $0.6 million of current borrowing capacity under the Credit Facility before the requirement to maintain the minimum fixed charge coverage ratio as discussed below. Debt issuance costs and legal fees related to the amendment of the Credit Facility totaling $0.3 million were recorded as a deferred asset and are being amortized ratably over the term of the arrangement.

Borrowings under the amended Credit Facility accrue interest at the rate then applicable to base rate loans (as customarily defined), unless and until converted into SOFR rate loans (as customarily defined) in accordance with the Credit Facility. Borrowings bear interest at a floating annual rate equal to (a) base rate plus 1.50 percentage points for base rate loans and (b) SOFR rate plus 2.65 percentage points for SOFR rate loans. The Company also pays an unused line fee based on the average amount borrowed under the Credit Facility for the most recently completed month equal to 0.50% per annum of the amount unused under the Credit Facility. The unused line fee is due on the first day of each month.

The Credit Facility contains various customary affirmative and negative covenants, including prohibiting the Company from incurring indebtedness without the lender's consent. The Credit Facility also includes a financial covenant that requires the Company to maintain a minimum fixed charge coverage ratio of 1.10 to 1.00 for the applicable measurement period, if the Company's Total Liquidity (as defined in the Credit Facility) is less than $5.0 million. The Company was in compliance with all applicable covenants at September 30, 2022.

The Credit Facility also includes customary events of default, including events of default relating to non-payment of amounts due under the Credit Facility, material inaccuracy of representations and warranties, violation of covenants, bankruptcy and insolvency, failure to comply with health care laws, violation of certain of the Company's existing agreements, and the occurrence of a change of control. Under the Credit Facility, if an event of default occurs, the lender will have the right to terminate the commitments and accelerate the maturity of any loans outstanding.

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**4. INVENTORIES**

Inventories consisted of:

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| | | |
|:---|:---|:---|
|  | **September 30, 2022** | **December 31, 2021** |
|  | **(In thousands)** | **(In thousands)** |
| Finished goods | $58015 | $49405 |
| Work in process | 19777 | 17644 |
| Raw materials | 6201 | 5250 |
|  | $83993 | $72299 |

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**5. PROPERTY, PLANT AND EQUIPMENT**

Property, plant and equipment are stated at historical cost less accumulated depreciation and amortization and any impairment charges. The Company provides for depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the lease term or the useful life. The cost of major additions and improvements is capitalized, while maintenance and repair costs that do not improve or extend the lives of the respective assets are charged to operations as incurred. The cost of computer software obtained for internal use is accounted for in accordance with FASB Accounting Standards Codification, Internal-Use Software (Subtopic 350-40).

The cost of purchased spinal instruments that the Company consigns to hospitals and independent sales agents to support surgeries is initially capitalized as construction in progress. The amount is then either reclassified to spinal instruments and sets, and depreciation is initiated when instruments are put together in a newly built set with spinal implants, or directly expensed for the instruments used to replace damaged instruments in an existing set. The depreciation expense and direct expense for replacement instruments are recorded in selling and marketing expense.

Property, plant and equipment balances and corresponding useful lives were as follows:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **September 30, 2022** | **December 31, 2021** | **Useful Lives** | **Useful Lives** |
|  | **(In thousands)** | **(In thousands)** |  |  |
| Leasehold improvements | $6641 | $6501 | Shorter of lease term or useful life | Shorter of lease term or useful life |
| Machinery and production equipment | 11004 | 10408 | 3 | 10<br> years |
| Spinal instruments and sets | 50091 | 45076 | 4 | 6<br> years |
| Information systems and hardware | 9834 | 8186 | 3 | 7<br> years |
| Furniture and fixtures | 2086 | 2097 | 3 | 5<br> years |
| Construction in progress | 22202 | 17615 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp; Total | 101858 | 89883 |  |  |
| Less accumulated depreciation and amortization | (45498) | (42991) |  |  |
| Property, plant and equipment, net | $56360 | $46892 |  |  |

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Depreciation and amortization expenses totaled $2.5 million and $2.2 million for the three months ended September 30, 2022 and 2021, respectively, and $7.3 million and $5.5 million for the nine months ended September 30, 2022 and 2021, respectively. The cost of purchased instruments used to replace damaged instruments in existing sets and recorded directly to instrument replacement expense totaled $1.9 million and $1.0 million for the three months ended September 30, 2022 and 2021, respectively, and $4.5 million and $2.7 million for the nine months ended September 30, 2022 and 2021, respectively.

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**6. IDENTIFIABLE INTANGIBLE ASSETS** 

Identifiable intangible assets are initially recorded at fair value at the time of acquisition, generally using an income or cost approach. The Company capitalizes costs incurred to renew or extend the term of recognized intangible assets and amortizes those costs over their expected useful lives.

The components of the Company's identifiable intangible assets were:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** | **September 30, 2022** |
|  | **Weighted**<br>**Average**<br>**Life** | **Cost** | **Accumulated**<br>**Amortization** | **Net** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |
| Product technology | 12 years | $65642 | $(35442) | $30200 |
| Customer relationships | 12 years | 56830 | (51618) | $5212 |
| Trademarks/brand names | 6 years | 1600 | (615) | $985 |
| Other intangibles | 8 years | $162 | $(27) | $135 |
|  |  | $124234 | $(87702) | $36532 |

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** | **December 31, 2021** |
|  | **Weighted**<br>**Average**<br>**Life** | **Cost** | **Accumulated**<br>**Amortization** | **Net** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |
| Product technology | 12 years | $65642 | $(32484) | $33158 |
| Customer relationships | 12 years | 56830 | (49241) | 7589 |
| Trademarks/brand names | 6 years | 1600 | (438) | 1162 |
| Other intangibles | 8 years | 159 | (12) | 147 |
|  |  | $124231 | $(82175) | $42056 |

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Annual amortization expense (including amounts reported in cost of goods sold) is expected to be approximately $7.3 million in 2022, $6.6 million in 2023, $4.6 million in 2024, $3.3 million in 2025, and $3.3 million in 2026. For the three months ended September 30, 2022 and 2021, amortization expense totaled $1.8 million and $2.2 million, respectively, and included $1.0 million and $1.3 million, respectively, of amortization of product technology intangible assets that is presented within cost of goods sold. Amortization expense totaled $5.5 million and $4.7 million for the nine months ended September 30, 2022 and 2021, respectively, and included $3.0 million and $2.2 million, respectively, of amortization of product technology intangible assets that is presented within cost of goods sold.

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**7. EQUITY AND STOCK-BASED COMPENSATION**

**Common Stock**

In April 2021, the Company entered into an Underwriting Agreement with Piper Sandler & Co., Canaccord Genuity LLC, and Stifel, Nicolaus & Company, Incorporated relating to the issuance and sale of 4,500,000 shares of the Company's common stock at a price to the public of $19.50 per share, before underwriting discounts and commissions. Under the terms of that agreement, the Company granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 675,000 shares of common stock. The underwriters exercised this option and the offering closed on April 20, 2021 with the sale of 5,175,000 shares of common stock, resulting in net proceeds to the Company of approximately $95 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company used a portion of the net proceeds from the offering to repay all of its then-outstanding borrowings under the Credit Facility and to finance the cash consideration of $27.5 million for the Company's acquisition of 7D Surgical.

In May 2021, the Company issued 2,991,054 shares of the Company's common stock and 1,298,648 Exchangeable Shares in connection with Company's acquisition of 7D Surgical.

**Equity Award Plans**

In May 2015, the Company adopted the 2015 Incentive Award Plan, which was subsequently amended and restated with approval of the Company's stockholders. In February and March 2018, the Company's board of directors approved amendments to the plan that increased the share reserve by an aggregate of 2,726,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's stockholders approved both amendments in May 2018. In April 2020, the Company's board of directors approved an amendment to the plan that, among other things, increased the share reserve by an aggregate of 3,500,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's stockholders approved the amendment in June 2020 (the 2015 Incentive Award Plan, as amended and restated to date, the Restated Plan). Under the Restated Plan, the Company can grant its employees, non-employee directors and consultants incentive stock options and non-qualified stock options, restricted stock, performance stock, dividend equivalent rights, stock appreciation rights, stock payment awards and other incentive awards. The aggregate number of shares that may be issued or transferred pursuant to awards under the Restated Plan is the sum of (1) the number of shares issuable upon exercise or vesting of the equity awards issued by the Company's former parent company prior to the spin-off that were converted into the Company's equity awards under the Restated Plan as of the date of the spin-off and (2) 9,735,500 shares of the Company's common stock in respect of awards granted under the Restated Plan. As of September 30, 2022, 1,411,864 shares were available for issuance under the Restated Plan.

In August 2020, the Company adopted the 2020 Employment Inducement Incentive Award Plan (the 2020 Inducement Plan). The terms of the 2020 Inducement Plan are substantially similar to the terms of the Restated Plan with four principal exceptions: (1) incentive stock options may not be granted under the 2020 Inducement Plan; (2) there are no annual limits on awards that may be issued to an individual under the 2020 Inducement Plan; (3) awards granted under the 2020 Inducement Plan are not required to be subject to any minimum vesting period; and (4) awards may be granted under the 2020 Inducement Plan only to those individuals and in those circumstances described below. An aggregate of 2,000,000 shares are reserved under the 2020 Inducement Plan. As of September 30, 2022, 1,171,398 shares were available for issuance under the 2020 Inducement Plan.

The 2020 Inducement Plan was adopted by the Company's board of directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, awards under the plan may only be made to an employee who has not previously been an employee or member of the Company's board of directors or of any board of directors of any parent or subsidiary of the Company, or following a bona fide period of non-employment by the Company or a parent or subsidiary, if he or she is granted such award in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary.

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**Forfeiture Rate Assumptions**

Stock-based compensation expense related to all equity awards includes an estimate for forfeitures. The expected forfeiture rate of all equity-based compensation is based on historical experience of pre-vesting forfeitures on awards and options by each homogeneous group of shareowners. For awards and options granted to non-executive employees, the forfeiture rate is estimated to be 10% and 9% annually for the nine months ended September 30, 2022 and 2021, respectively. There is no forfeiture rate applied to awards or options granted to non-employee directors or executive employees because their pre-vesting forfeitures are anticipated to be highly unlikely. As individual awards and options become fully vested, stock-based compensation expense is adjusted to recognize actual forfeitures.

**Restricted Stock Awards and Restricted Stock Units**

Restricted stock award and restricted stock unit grants to employees generally have a requisite service period of three years, and restricted stock award and restricted stock unit grants to non-employee directors generally have a requisite service period of one year. Both are subject to graded vesting. The Company expenses the fair value of restricted stock awards and restricted stock units on an accelerated basis over the vesting period or requisite service period, whichever is shorter.

No restricted stock units were granted to non-employee directors during any of the three or nine months ended September 30, 2022 or 2021. During each of the nine months ended September 30, 2022 and 2021, there were 141,575 and 65,540 shares of restricted stock awards granted to non-employee directors. There were no restricted stock awards granted to non-employee directors during each of the three months ended September 30, 2022 and 2021, respectively.

During the three and nine months ended September 30, 2022, 82,743 and 804,150 restricted stock units were granted to employees, respectively. During the three and nine months ended September 30, 2021, 10,600 and 409,385 restricted stock units were granted to employees, respectively. No restricted stock awards were granted to employees during any of the three or nine months ended September 30, 2022 or 2021.

As of September 30, 2022, there was approximately $7.9 million of unrecognized compensation expense related to the unvested portions of restricted stock awards and restricted stock units. This expense is expected to be recognized over a weighted-average period of approximately 1.2 years.

**Stock Options**

Stock option grants to employees generally have a requisite service period of four to five years, and stock option grants to non-employee directors generally have a requisite service period of one year. Both are subject to graded vesting. The Company records stock-based compensation expense associated with stock options on an accelerated basis over the applicable vesting period within each grant and based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. There were 143,539 and 53,850 stock options granted during the three months ended September 30, 2022 and 2021, respectively, and 680,084 and 1,131,863 stock options granted during the nine months ended September 30, 2022 and 2021, respectively. The following weighted-average assumptions were used in the calculation of fair value for options granted during the period indicated.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended September 30,** | **Three Months Ended September 30,** | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Expected dividend yield | —% | —% | —% | —% |
| Risk-free interest rate | 3.2% | 0.6% | 2.0% | 0.6% |
| Expected volatility  | 54.7% | 52.3% | 52.7% | 51.7% |
| Expected term (in years) | 4.3 | 4.3 | 5.1 | 4.9 |

---

------

The Company considered that it has never paid, and does not currently intend to pay, cash dividends. The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected term of the options. The expected volatility is calculated based upon the historical volatility of the Company's share prices. The expected term is calculated using the historical weighted average term of the Company's options.

As of September 30, 2022, there was approximately $5.0 million of unrecognized compensation expense related to unvested stock options. This expense is expected to be recognized over a weighted-average period of approximately 1.4 years.

**Employee Stock Purchase Plan**

In May 2015, the Company adopted the SeaSpine Holdings Corporation 2015 Employee Stock Purchase Plan, which was amended in November 2018, as described below (as amended, the ESPP). Under the ESPP, eligible employees may purchase shares of the Company's common stock through payroll deductions of up to 15% of eligible compensation during an offering period. Generally, each offering period will be for 24 months as determined by the Company's board of directors. There are four six-month purchase periods in each offering period for contributions to be made and to be converted into shares at the end of the purchase period. In no event may an employee purchase more than 2,500 shares per purchase period based on the closing price on the first trading date of an offering period or more than $25,000 worth of stock during any calendar year. The purchase price for shares to be purchased under the ESPP is 85% of the lesser of the market price of the Company's common stock on the first trading date of an offering period or on any purchase date during an offering period (June 30 or December 31).

Subject to stockholder approval, on and effective as of November 2, 2018, the Company's board of directors approved an amendment to the ESPP pursuant to which the share reserve under the ESPP would increase from 400,000 shares to 800,000 shares. The Company's stockholders approved that amendment in May 2019. In December 2020, the Company's board of directors approved the issuance of an additional 500,000 shares of common stock under the ESPP. The Company's stockholders approved that amendment in June 2021. The ESPP is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (the IRC). The ESPP contains a restart feature, such that if the market price of the stock at the end of any six-month purchase period is lower than the market price at the original grant date of an offering period, that offering period will terminate after that purchase date, and a new two-year offering period will commence on the January 1 or July 1 immediately following the date the original offering period terminated. This restart feature was triggered on the purchase date that occurred on December 31, 2021, such that the offering periods that commenced on January 1, 2021 and July 1, 2021 were terminated, and a new two-year offering period commenced on January 1, 2022 and will end on December 31, 2023. This restart feature was triggered again on the purchase date that occurred on June 30, 2022, such that the offering period that commenced on January 1, 2022 was terminated, and a new two-year offering period commenced on July 1, 2022 and will end on June 30, 2024. The Company applied share-based payment modification accounting to the awards that were initially valued at the grant date to determine the amount of any incremental fair value associated with the modified awards. The impact to stock-based compensation expense for modifications during the nine months ended September 30, 2022 was immaterial.

During the nine months ended September 30, 2022 and 2021, there were 200,642 and 109,178 shares of common stock purchased under the ESPP. The Company recognized $0.8 million in expense related to the ESPP for each of the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, 226,675 shares were available under the ESPP for future issuance.

------

The Company estimates the fair value of shares issued to employees under the ESPP using the Black-Scholes-Merton option-pricing model. The following weighted average assumptions were used in the calculation of fair value of shares under the ESPP at the grant date for the periods indicated:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended September 30,** | **Three Months Ended September 30,** | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Expected dividend yield | — % | — % | — % | — % |
| Risk-free interest rate | 2.8% | 0.1% | 2.4% | 0.1% |
| Expected volatility  | 51.3% | 58.9% | 52.1% | 40.7% |
| Expected term (in years) | 1.3 | 1.3 | 1.3 | 0.8 |

---

------

**8. LEASES** 

The Company determines if an arrangement is a lease at inception. The Company's leases primarily relate to administrative, manufacturing, research, and distribution facilities and various manufacturing, office and transportation equipment. Lease assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company's incremental borrowing rate is used as a discount rate, based on the information available at the commencement date, in determining the present value of lease payments. Lease assets also include the impact of any prepayments made and are reduced by impact of any lease incentives.

The Company made an accounting policy election for short-term leases, such that the Company will not recognize a lease liability or lease asset on its balance sheet for leases with a lease term of twelve months or less as of the commencement date. Rather, any short-term lease payments will be recognized as an expense on a straight-line basis over the lease term. The current period short-term lease expense reasonably reflects the Company's short-term lease commitments.

The Company made a policy election for all classifications of leases to combine lease and non-lease components and to account for them as a single lease component. Variable lease payments are excluded from the lease liability and recognized in the period in which the obligation is incurred. Additionally, lease terms may include options to extend or terminate the lease when it is reasonably certain the Company will exercise the option.

The Company's lease portfolio only includes operating leases. As of September 30, 2022, the weighted average remaining lease term of these operating leases was 8.5 years and the weighted average discount rate was 4.6%. For the three months ended September 30, 2022 and 2021, lease expense, which represents expense from operating leases, was $0.6 million and $0.7 million, respectively. For each of the nine months ended September 30, 2022 and 2021, lease expense was $1.8 million.

A summary of the Company's remaining lease liabilities at September 30, 2022 are as follows:

---

| | |
|:---|:---|
|  | **Operating Leases** |
|  | **(In thousands)** |
| 2022 | 1062 |
| 2023 | 2570 |
| 2024 | 2718 |
| 2025 | 2787 |
| 2026 | 2839 |
| Thereafter | 9655 |
| Total undiscounted value of lease liabilities | $21631 |
| Less: present value adjustment | (3612) |
| Less: short-term leases not capitalized | (483) |
| Present value of lease liabilities | 17536 |
| Less: current portion of lease liability | (2412) |
| Operating lease liability, less current portion | $15124 |

---

------

**9. INCOME TAXES** 

The following table summarizes the Company's effective tax rate for the periods indicated:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Three Months Ended September 30,** | **Three Months Ended September 30,** | **Nine Months Ended September 30,** | **Nine Months Ended September 30,** |
|  | **2022** | **2021** | **2022** | **2021** |
| Reported income tax expense rate | (2.6) % | 4.7% | 2.1% | 1.9% |

---

The Company recorded an income tax provision for the three months ended September 30, 2022 primarily related to the change in deferred tax assets and liabilities in foreign jurisdictions, the change in US indefinite lived deferred tax liabilities, and current foreign and state income taxes. The Company recorded an income tax benefit for the nine months ended September 30, 2022 and each of the three and nine months ended September 30, 2021 primarily related to the change in deferred tax assets and liabilities in foreign jurisdictions, offset by current activity in state and foreign operations as well as the change in U.S. indefinite lived deferred tax liabilities.

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

The acquisition of 7D Surgical was treated as an asset purchase for U.S. tax purposes and a stock purchase for Canadian tax purposes in 2021. As such, the Company recorded deferred tax assets and liabilities on its Canadian tax attributes. The Company continues to use its deferred tax liabilities as a source of income against a portion of its deferred tax assets. A valuation allowance was recorded for the portion of the deferred tax assets that are not more-likely-than-not to be realized.

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

------

**10. COMMITMENTS AND CONTINGENCIES**

In consideration for certain technology, manufacturing, distribution, and selling rights and licenses granted to the Company, the Company agreed to pay royalties on sales of certain products sold by the Company. Except for the royalties paid to N.L.T. Spine Ltd. (NLT), the royalties the Company paid are included as a component of cost of goods sold in the consolidated statements of operations.

The Company is subject to various legal proceedings in the ordinary course of its business with respect to its products, its current or former employees, and its commercial relationships, some of which have been settled by the Company. In the opinion of management, such proceedings are either adequately covered by insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on the Company's financial condition. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materially affected by these contingencies.

The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued are based on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate for legal fees expected to be incurred in connection with the loss contingency. While uncertainty exists, the Company does not believe there are any pending legal proceedings that would have a material impact on the Company's financial position, cash flows or results of operations.

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

------

**11. SEGMENT AND GEOGRAPHIC INFORMATION**

Segment Reporting

Management assessed its segment reporting based on how it internally manages and reports the results of its business to its chief operating decision maker. Management reviews financial results, manages the business and allocates resources on an aggregate basis. Therefore, financial results are reported in a single operating segment: the development, manufacturing and marketing of orthobiologics, spinal implants and enabling technologies. The Company reports revenue in two product categories: (1) orthobiologics and (2) spinal implants and enabling technologies. Orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes designed to improve bone fusion rates following a wide range of orthopedic surgeries, including spine, hip, and extremities procedures. The spinal implants and enabling technologies portfolio consists of an extensive line of products and image-guided surgical solutions to facilitate spinal fusion in degenerative, minimally invasive surgery (MIS), and complex spinal deformity procedures. The Company attributes revenues to geographic areas based on the location of the customer.

The following table disaggregates revenue by major sales channel for each of the periods presented (in thousands):

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Three Months Ended September 30, 2022** | **Three Months Ended September 30, 2022** | **Three Months Ended September 30, 2022** | **Nine Months Ended September 30, 2022** | **Nine Months Ended September 30, 2022** | **Nine Months Ended September 30, 2022** |
|  | **United States** | **International** | **Total** | **United States** | **International** | **Total** |
| Orthobiologics | $23754 | $1917 | $25671 | $69595 | $6581 | $76176 |
| Spinal Implants and Enabling Technologies | 27381 | 14095 | 41476 | 76533 | 21449 | 97982 |
| Total revenue, net | $51135 | $16012 | $67147 | $146128 | $28030 | $174158 |

---

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Three Months Ended September 30, 2021** | **Three Months Ended September 30, 2021** | **Three Months Ended September 30, 2021** | **Nine Months Ended September 30, 2021** | **Nine Months Ended September 30, 2021** | **Nine Months Ended September 30, 2021** |
|  | **United States** | **International** | **Total** | **United States** | **International** | **Total** |
| Orthobiologics | $20145 | $2083 | $22228 | $60389 | $6898 | $67287 |
| Spinal Implants and Enabling Technologies | 21082 | 3135 | 24217 | 60877 | 7698 | 68575 |
| Total revenue, net | $41227 | $5218 | $46445 | $121266 | $14596 | $135862 |

---

------

**12. SUBSEQUENT EVENTS**

On October 10, 2022, SeaSpine entered into an Agreement and Plan of Merger (the "Merger Agreement") with Orthofix and Orca Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Orthofix ("Merger Sub"). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into SeaSpine (the "Merger"), with SeaSpine continuing as the surviving company and a wholly-owned subsidiary of Orthofix following the transaction.

Subject to the terms and conditions of the Merger Agreement, at the effective time and as a result of the Merger, each share of common stock of SeaSpine issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive 0.4163 shares of common stock of Orthofix. In addition, at the effective time and as a result of the Merger, Orthofix will assume SeaSpine's existing equity incentive plans in connection with the Merger, and outstanding SeaSpine equity awards will be automatically converted into Orthofix equity awards (on the same vesting schedule and other terms and conditions as existed prior to such conversion). The conversion of such equity awards will occur at the same exchange ratio as applies to SeaSpine common stock in the Merger, and the exercise price of converted SeaSpine stock options will also be correspondingly adjusted.

Upon completion of the Merger, Orthofix stockholders will own approximately 56.5% of the combined company on a fully diluted basis and SeaSpine stockholders will own approximately 43.5%.

Pursuant to the terms of the Merger Agreement, as of the effective time of the Merger, the board of directors of the combined company will consist of 9 individuals, including five individuals who are nominees of the board of directors of Orthofix (the "Orthofix Directors") immediately prior to the effective time and four individuals who are nominees of the board of directors of SeaSpine immediately prior to the effective time. The Merger Agreement contemplates that Jon Serbousek will serve as Executive Chairman of the board of directors of the combined company, and Keith Valentine, SeaSpine's current President and Chief Executive Officer and a member of the SeaSpine board of directors, will serve as President and Chief Executive Officer of the combined company and as a member of its board of directors.

Orthofix has agreed to take action necessary to list the Orthofix shares of common stock to be issued in connection with the Merger on the NASDAQ Global Select Market.

Each party's obligation to implement the Merger is subject to certain customary conditions, including (i) the approval by Orthofix stockholders of the issuance of shares of Orthofix common stock in connection with the Merger; (ii) the adoption of the Merger Agreement by SeaSpine stockholders holding a majority of the outstanding shares of SeaSpine's common stock; (iii) all applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 having expired or been terminated and all mandatory waiting periods or required consents under any other applicable antitrust or competition laws having expired or been obtained; (iv) no law having been enacted or order issued that remains in effect and has the effect of enjoining or otherwise prohibiting the consummation of the Merger; (v) the truth and accuracy of the other party's representations and warranties in the Merger Agreement, generally subject to a Material Adverse Effect (as defined in the Merger Agreement) standard; (vi) no Material Adverse Effect of the other party having occurred since the date of the Merger Agreement; and (vii) the performance in all material respects by the other party of all of its covenants and agreements under the Merger Agreement.

Each of Orthofix and SeaSpine have made customary representations, warranties and covenants in the Merger Agreement, including, among others, covenants that (i) each party will conduct its business in all material respects in the ordinary course consistent with past practice during the interim period between the execution of the Merger Agreement and the consummation of the Merger; (ii) each party will not engage in certain kinds of transactions or take certain actions during such period; (iii) each party will convene and hold a meeting of its stockholders for the purpose of considering the adoption of the Merger Agreement, in the case of SeaSpine, and for the purpose of approving the issuance of shares of Orthofix common stock in connection with the Merger, in the case of Orthofix; and (iv) the respective boards of directors will recommend, subject to certain exceptions,

------

that, its stockholders adopt the Merger Agreement, in the case of SeaSpine, and its stockholders approve the issuance of shares of Orthofix common stock in connection with the Merger, in the case of Orthofix.

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

The Merger Agreement may be terminated by mutual written consent of Orthofix and SeaSpine. The Merger Agreement also contains certain termination rights, including, among others, the right of either party to terminate if (i) the Merger shall not have become effective by the date that is five (5) months following the date of the Merger Agreement (the "Termination Date"), subject to certain conditions, provided that the Termination Date may be extended by either party to the date that is eight (8) months following the date of the Merger Agreement if all conditions to consummate the Merger have been satisfied other than the condition requiring antitrust approvals are not received by the initial Termination Date; (ii) the Orthofix and/or SeaSpine stockholder approvals are not obtained; (iii) the other party breaches its representations and covenants and such breach would result in the closing conditions not being satisfied; or (iv) a governmental body shall have issued any final and non-appealable order or any applicable law shall have been enacted that has the effect of enjoining or otherwise prohibiting the Merger.

The Merger Agreement also provides that Orthofix must pay SeaSpine a termination fee of $13,744,149 plus expenses not to exceed $2 million if the Merger Agreement is terminated because (a) the Orthofix board of directors or committee thereof (i) makes an Orthofix Adverse Recommendation Change (as defined in the Merger Agreement), (ii) does not include its recommendation in the Joint Proxy Statement (as defined in the Merger Agreement), or (iii) publicly proposes to take any actions in clauses (i) and (ii); (b) Orthofix materially breaches the non-solicitation provisions of the Merger Agreement; or (c) Orthofix enters into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) prior to obtaining the requisite Orthofix stockholder approval, and while in compliance with the non-solicitation provisions of the Merger Agreement.

The Merger Agreement provides that SeaSpine must pay Orthofix a termination fee of $10,582,995 plus expenses not to exceed $2 million if the Merger Agreement is terminated because (a) the SeaSpine board of directors or committee thereof (i) makes a SeaSpine Adverse Recommendation Change (as defined in the Merger Agreement), (ii) does not include its recommendation in the Joint Proxy Statement (as defined in the Merger Agreement), or (iii) publicly proposes to take any actions in clauses (i) and (ii), (b) SeaSpine materially breaches the non-solicitation provisions of the Merger Agreement, or (c) SeaSpine enters into a definitive agreement with respect to a Superior Proposal (as defined in the Merger Agreement) prior to obtaining the requisite SeaSpine stockholder approval, and while in compliance with the non-solicitation provisions of the Merger Agreement.

This summary of the principal terms of the Merger Agreement are intended to provide information regarding the terms of the Merger Agreement and are not intended to modify or supplement any factual disclosures about Orthofix in its public reports filed with the United States Securities and Exchange Commission ("SEC"). In particular, the Merger Agreement and related summary are not intended to be, and should not be relied upon as, disclosures regarding any facts and circumstances relating to Orthofix.

The Merger Agreement includes customary representations, warranties and covenants of Orthofix, Merger Sub and SeaSpine made solely for the benefit of the parties to the Merger Agreement. The assertions embodied in those representations and warranties were made solely for purposes of the contract among Orthofix, Merger Sub and SeaSpine and may be subject to important qualifications and limitations agreed to by Orthofix, Merger Sub and SeaSpine in connection with the negotiated terms. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard of materiality different from those generally applicable to Orthofix's SEC filings or may have been used for purposes of allocating risk among Orthofix, Merger Sub and SeaSpine rather than establishing matters as facts. Investors are not third-party beneficiaries under the Merger Agreement and should not rely on the representations, warranties and covenants or any description thereof as characterizations of the actual state of facts of Orthofix, Merger Sub and SeaSpine or any of the respective subsidiaries or affiliates.

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The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is filed as Exhibit 2.1 to the registrant's current report on Form 8-K filed on October 11, 2022 and incorporated herein by reference.

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## Exhibit 99.3

**Exhibit 99.3**

**UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION**

On January 5, 2023, Orthofix and SeaSpine completed the transactions contemplated by the definitive Agreement and Plan of Merger, dated as of October 10, 2022 (the "Merger Agreement"), by and among Orthofix, Orca Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Orthofix ("Merger Sub") and SeaSpine Holdings Corporation, a Delaware corporation ("SeaSpine"), pursuant which, Orthofix and SeaSpine combined through a merger of SeaSpine with and into Merger Sub, with Merger Sub continuing as the surviving entity and a wholly owned subsidiary of Orthofix (the "Merger"). Orthofix issued 16,104,854 shares of Orthofix common stock to SeaSpine stockholders in connection with the Merger. Immediately following the Merger, SeaSpine stockholders owned 44% of the common stock of Orthofix and Orthofix stockholders owned 56%. Based on the closing price of Orthofix on January 4, 2023, as reported on the Nasdaq Global Select Market, the aggregate value of the consideration paid or payable to former holders of SeaSpine common stock was approximately $373.8 million.

The unaudited pro forma condensed combined balance sheet as of September 30, 2022, combines the historical consolidated balance sheets of Orthofix and SeaSpine, giving effect to the Merger and related transactions (collectively, the "Transactions"), as if they had occurred on September 30, 2022. The related transactions include the impact of transaction costs and the debt repayment connected with the Merger. The unaudited pro forma condensed combined statements of operations for the fiscal year ended December 31, 2021, and nine months ended September 30, 2022, combine the historical consolidated statements of operations of Orthofix and SeaSpine, giving effect to the Transactions as if they had occurred on January 1, 2021. The unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2021 also includes the historical consolidated statement of operations of 7D Surgical, Inc. ("7D Surgical"), giving effect to the acquisition of 7D Surgical by SeaSpine, which occurred on May 20, 2021, and the associated financing as if they had occurred on January 1, 2021.

The historical consolidated financial statements have been adjusted in the unaudited pro forma condensed combined financial information in accordance with Article 11 of Regulation S-X as amended by the final rule, Release 33-10786 "Amendments to Financial Disclosures about Acquired and Disposed Businesses." The pro forma financial information should be read in conjunction with the accompanying notes to the unaudited pro forma condensed combined financial information. In addition, the unaudited pro forma condensed combined financial information should be read in conjunction with the following:

• Historical consolidated financial statements of Orthofix as of and for the year-ended December 31, 2021, included in Orthofix's Annual Report on [<u>Form 10-K</u>](https://www.sec.gov/Archives/edgar/data/../../../ix?doc=/Archives/edgar/data/0000884624/000156459022006929/ofix-10k_20211231.htm) filed with the SEC on February 25, 2022, and the historical unaudited consolidated financial statements of Orthofix as of and for the fiscal quarter and nine-month period ended September 30, 2022, included in Orthofix's Quarterly Report on [<u>Form 10-Q</u>](https://www.sec.gov/Archives/edgar/data/../../../ix?doc=/Archives/edgar/data/0000884624/000095017022021538/ofix-20220930.htm) filed with the SEC on November 3, 2022.

• Historical consolidated financial statements of SeaSpine as of and for the year-ended December 31, 2021, included in SeaSpine's Annual Report on [<u>Form 10-K</u>](https://www.sec.gov/Archives/edgar/data/../../../ix?doc=/Archives/edgar/data/1637761/000163776122000057/spne-20211231.htm) filed with the SEC on March 15, 2022, and the historical unaudited consolidated financial statements of SeaSpine as of and for the fiscal quarter and nine-month period ended September 30, 2022, included in SeaSpine's Quarterly Report on [<u>Form 10-Q</u>](https://www.sec.gov/Archives/edgar/data/../../../ix?doc=/Archives/edgar/data/1637761/000163776122000126/spne-20220930.htm) filed with the SEC on November 3, 2022.

• Historical financial information of 7D Surgical for the year-ended March 31, 2021, included in SeaSpine's Current Report on [<u>Form 8-K/A</u>](https://www.sec.gov/Archives/edgar/data/../../../ix?doc=/Archives/edgar/data/0001637761/000163776121000161/spne-20210520.htm) filed with the SEC on July 28, 2021.

The unaudited pro forma condensed combined financial information has been prepared by Orthofix using the acquisition method of accounting in accordance with GAAP. The acquisition accounting for the transactions is dependent upon certain valuation and other analyses that have yet to progress to a stage where there is sufficient information for a definitive measurement.

The assets and liabilities of SeaSpine have been measured using various preliminary estimates based on currently available information that Orthofix believes to be reasonable. The actual impact of purchase accounting on the financial position and results of operations may differ from these pro forma amounts as additional information becomes available and as additional analyses are performed. Such differences could have a material impact on the unaudited pro forma condensed combined financial information.

The pro forma information, while helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the effects of expected cost savings or expected increases in costs, opportunities to earn additional revenue or potential loss of certain revenue, or other management adjustments, and, accordingly, does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical benefits of the combined company would have been had the two companies been combined during these periods.

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**UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET**

**AS OF SEPTEMBER 30, 2022**

**(in thousands)**

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Historical<br>Orthofix** | **Pro forma<br>SeaSpine<br>(Note 6)** | **Pro forma<br>Adjustments<br>(Note 4)** | **Note** | **Pro forma<br>Combined** |
| **ASSETS** |  |  |  |  |  |
| Current assets |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | $51660 | $46763 | $(55812) | A | $42611 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts receivable, net of allowances | 75633 | 38969 | —  |  | 114602 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | 100277 | 83993 | 24008 | B(i) | 208278 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | 19325 | 5141 | —  |  | 24466 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 246895 | 174866 | (31804) |  | 389957 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment, net | 57820 | 56360 | —  |  | 114180 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets, net | 47513 | 36532 | 23168 | B(ii) | 107213 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill | 71317 | 84595 | 52124 | B(iii) | 208036 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income taxes | 1544 | —  | —  |  | 1544 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other long-term assets | 24571 | 21771 | (263) | C | 46079 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total assets** | $**449660** | $**374124** | $**43225** |  | $**867009** |
| **LIABILITIES AND EQUITY** |  |  |  |  |  |
| Current liabilities |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable | $28003 | $17778 | $(171) | A | $45610 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Current portion of finance lease liability | 638 | —  | —  |  | 638 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other current liabilities | 49007 | 37269 | (4179) | A | 82097 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 77648 | 55047 | (4350) |  | 128345 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term debt | —  | 25812 | (25812) | C | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term portion of finance lease liability | 19407 | —  | —  |  | 19407 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other long-term liabilities | 19066 | 18806 | —  |  | 37872 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 116121 | 99665 | (30162) |  | 185624 |
| Contingencies |  |  |  |  |  |
| Shareholders' equity |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common shares | 2001 | 372 | 1238 | D | 3611 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital | 328387 | 593306 | (221157) | D | 700536 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Retained earnings (accumulated deficit) | 8313 | (319654) | 293741 | D | (17600) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income (loss) | (5162) | 435 | (435) | D | (5162) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity | 333539 | 274459 | 73387 |  | 681385 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total liabilities and stockholders' equity** | $**449660** | $**374124** | $**43225** |  | $**867009** |

---

------

**UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS**

**FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022**

**(in thousands, except per share data)**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Historical<br>Orthofix** | **Pro forma<br>SeaSpine<br>(Note 6)** | **Pro forma<br>Adjustments<br>(Note 4)** | **Note** | **Pro forma<br>Combined** |
| Net Sales | $338484 | $175978 | $—  |  | $514462 |
| Cost of sales | 90491 | 80443 | —  |  | 170934 |
| **Gross profit** | **247993** | **95535** | **—**  |  | **343528** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales and marketing | 169486 | 80131 | —  |  | 249617 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative | 54496 | 35955 | —  |  | 90451 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development | 35913 | 19985 | —  |  | 55898 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisition-related amortization and remeasurement | (9678) | 5525 | (1747) | B(ii) | (5900) |
| **Operating income (loss)** | **(2224)**  | **(46061)**  | **1747** |  | **(46538)**  |
| Interest expense, net | (1059) | (663) | 663 | C | (1059) |
| Other expense, net | (7436) | (313) | —  |  | (7749) |
| Income (loss) before income taxes | (10719) | (47037) | 2410 |  | (55346) |
| Income tax benefit (expense) | (1968) | 986 | —  | E | (982) |
| **Net income (loss)** | $**(12687)**  | $**(46051)**  | $**2410** |  | $**(56328)**  |
| **Per common share data (Note 5):** |  |  |  |  |  |
| Net loss per share: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted | $(0.63) | $(1.25) |  |  | $(1.56) |
| Weighted-average number of common shares: | Weighted-average number of common shares: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted | 20007 | 36833 |  |  | 36112 |

---

------

**UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS**

**FOR THE YEAR ENDED DECEMBER 31, 2021**

**(in thousands, except per share data)**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Historical<br>Orthofix** | **Pro forma<br>SeaSpine<br>(Note 6)** | **Pro forma<br>Adjustments<br>(Note 4)** | **Note** | **Pro forma<br>Combined** |
| Net Sales | $464479 | $197963 | $—  |  | $662442 |
| Cost of sales | 114914 | 93358 | 24008 | B(i) | 232280 |
| **Gross profit** | **349565** | **104605** | **(24008)**  |  | **430162** |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sales and marketing | 221318 | 93542 | —  |  | 314860 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative | 69353 | 44483 | 25650 | A | 139486 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development | 49621 | 24782 | —  |  | 74403 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisition-related amortization and remeasurement | 17588 | 7255 | (2219) | B(ii) | 22624 |
| **Operating income (loss)** | **(8315)**  | **(65457)**  | **(47439)**  |  | **(121211)**  |
| Interest expense, net | (1837) | (293) | 30 | C | (2100) |
| Other income (expense), net | (3343) | 5487 | —  |  | 2144 |
| Income (loss) before income taxes | (13495) | (60263) | (47409) |  | (121167) |
| Income tax benefit (expense) | (24884) | 1100 | —  | E | (23784) |
| **Net income (loss)** | $**(38379)**  | $**(59163)**  | $**(47409)**  |  | $**(144951)**  |
| **Per common share data (Note 5):** |  |  |  |  |  |
| Net loss per share: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted | $(1.95) | $(1.76) |  |  | $(4.05) |
| Weighted-average number of common shares: | Weighted-average number of common shares: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted | 19691 | 33604 |  |  | 35795 |

---

------

**ORTHOFIX MEDICAL INC.**

**NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION**

**(amounts in thousands except share and per share data)**

&nbsp;&nbsp;&nbsp;&nbsp;**1. Basis of Presentation**

The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of SEC Regulation S-X as amended by the final rule, Release No. 33-10786 "Amendments to Financial Disclosures about Acquired and Disposed Businesses." Release No. 33-10786 replaces the existing pro forma adjustment criteria with simplified requirements to depict the accounting for the transaction and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (referred to as management adjustments). Orthofix has elected not to present management adjustments and will only be presenting transaction accounting adjustments related to the accounting for the Transactions (the "pro forma adjustments") in the unaudited pro forma condensed combined financial information. The adjustments presented in the unaudited pro forma condensed combined financial information have been identified and presented to provide relevant information necessary to assist in understanding the post-combination company upon consummation of the Transactions.

The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2022, have been prepared by combining the Orthofix and SeaSpine statements of operations for the period and applying the related pro forma adjustments. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2021, have been prepared by combining the Orthofix and SeaSpine results for the year ended December 31, 2021, and including the pre-consolidation results of 7D Surgical, which was acquired by SeaSpine on May 20, 2021, for the period from January 1, 2021, to May 19, 2021, and applying the related pro forma adjustments to each period described below.

The pro forma adjustments have been prepared as if the Transactions related to SeaSpine occurred on September 30, 2022, for the unaudited pro forma condensed combined balance sheet and on January 1, 2021, for the unaudited pro forma condensed combined statements of operations. The pro forma adjustments for the year ended December 31, 2021, also reflect the impact of SeaSpine's acquisition of 7D Surgical, as if it occurred on January 1, 2021. The pro forma adjustments are based on currently available information and certain estimates and assumptions, and therefore the actual effects of these transactions will differ from the pro forma adjustments.

Following the Merger, Orthofix controls SeaSpine, and accordingly is the accounting acquirer. The unaudited pro forma condensed combined financial information has been prepared by Orthofix using the acquisition method of accounting in accordance with GAAP. Under this method, the aggregate consideration will be allocated to SeaSpine's assets acquired and liabilities assumed based upon their acquisition date estimated fair values. The excess of purchase price over the fair value of assets acquired and liabilities assumed will be allocated to goodwill. The unaudited pro forma condensed combined financial information is based on preliminary estimates of the fair value of the assets and liabilities to be acquired, which requires significant assumptions. Orthofix management believes that the assumptions used provide a reasonable basis for presenting the significant effects of the transactions and that the pro forma adjustments in the unaudited pro forma condensed combined financial information gives appropriate effect to the assumptions. These assumptions may change upon the finalization of the fair value, which would have a corresponding impact on the pro forma financial information.

The unaudited pro forma condensed combined financial information does not reflect the impact of any potential restructuring or integration activities that have yet to be determined, nor the impact of possible cost or growth synergies expected to be achieved by the combined company, as no assurance can be made that such cost or growth synergies will be achieved.

The accounting policies followed in preparing the unaudited pro forma condensed combined financial information are those used by Orthofix as set forth in the historical financial statements. The unaudited pro forma condensed combined financial information reflects any material adjustments known at this time to conform SeaSpine's historical financial information to Orthofix's significant accounting policies based on Orthofix management's review of SeaSpine's summary of significant accounting policies, as disclosed in the SeaSpine historical financial statements. Upon completion of the acquisition and a more comprehensive comparison and assessment, additional differences may be identified.

------

&nbsp;&nbsp;&nbsp;&nbsp;**2. Preliminary Consideration**

At the effective time of the Merger, each share of common stock of SeaSpine, par value $0.01 per share, issued and outstanding immediately prior to the Effective Time was converted into the right to receive 0.4163 shares of common stock of Orthofix, par value $0.10 per share (the "Exchange Ratio").

The following table represents the preliminary estimate of the purchase consideration paid in the Transactions (in millions, except for exchange ratio and share price):

---

| | |
|:---|:---|
| **Share Consideration:** |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Orthofix common shares issued in exchange for SeaSpine shares (i) | 16104854 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Orthofix closing share price (ii) | $22.76 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Estimated fair value of Orthofix share consideration | 366546 |
| **Estimated fair value of Orthofix equity awards issued in exchange for SeaSpine equity awards (iii)** | 7213 |
| **Total Estimated Purchase Price** | $373759 |

---

(i) The Orthofix common shares issued in exchange for SeaSpine is inclusive of (i) each share of common stock of SeaSpine par value $0.01 per share, issued and outstanding immediately prior to the Effective Time and (ii) unvested restricted stock awards as of the Effective Time, each of which were converted to Orthofix common shares using the Exchange Ratio.

(ii) The share price is based on an assumed transaction date of January 4, 2023.

(iii) The outstanding equity awards of SeaSpine (including stock options and restricted stock units) were exchanged for awards of Orthofix. This represents the estimated fair value of the portion of the SeaSpine awards for which the required service period has been completed at the time of the acquisition. The remaining estimated fair value will be recorded as compensation expense over the remainder of the service period associated with the awards. The fair value of the Orthofix replacement awards will be compared to the fair value of the SeaSpine awards at the acquisition date and any difference will also be recorded as additional compensation expense over the remaining service period. The treatment of the SeaSpine equity awards is further described in section "The Merger Agreement — Treatment of SeaSpine Equity Awards." This estimate was determined prior to the closing of the acquisition and will subsequently be adjusted in future reporting periods.

The estimated value of the consideration does not purport to represent the actual value of the total consideration that will be received by the SeaSpine stockholders when the Merger was completed. The fair value of the equity securities issued as consideration was measured on the closing date of the Merger at the then-current market price per share of Orthofix common stock.

------

&nbsp;&nbsp;&nbsp;&nbsp;**3. Fair Value Estimate of Assets Acquired and Liabilities to be Assumed**

The preliminary purchase price allocation based on management's preliminary estimate of their respective fair values is as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **SeaSpine** | **Fair Value**<br>**<br>Adjustment** | **Fair Value** | **Goodwill**<br>**<br>Calculation** |
| **Total estimated purchase price** |  |  |  | **$373759** |
| Inventories | $83993 | $24008<br> (i) | $108001 |  |
| Intangible assets, net | 36532 | 23168<br> (ii) | 59700 |  |
| All other assets (excluding goodwill) | 169004 | —  | 169004 |  |
| Total assets | $289529 | $47176 | $336705 |  |
| Deferred tax liability, net | $3182 | $— <br> (iii) | $3182 |  |
| All other liabilities | 96483 | —  | 96483 |  |
| Total liabilities | $99665 | $—  | $99665 |  |
| Fair value of net assets (excluding goodwill) |  |  |  | 237040 |
| **Estimated goodwill** |  |  |  | $**136719** |

---

(i) The preliminary fair value of work-in-process and finished goods inventory utilizes a sales comparison approach which estimates the selling price of the inventory in completed condition less costs of disposal and a reasonable profit allowance for the selling effort.

(ii) The preliminary fair value of the identifiable intangible assets is determined using variations of the income approach, namely the multi-period excess earnings and relief from royalty methodologies. The most significant assumptions applied in the development of the intangible asset fair values include: the amount and timing of future cash flows, the selection of discount and royalty rates, and the assessment of the asset's economic life. Final identifiable intangible asset valuation results may differ from the pro forma estimates if the above assumptions and methodologies are modified or if additional intangible assets are identified. The final valuation will be completed within 12 months of the completion of the merger.

(iii) A deferred tax liability associated with the fair value adjustments has not been reflected in the purchase price allocation as any such liability is expected to be offset by an unrecognized deferred tax asset of SeaSpine recorded in the same jurisdiction.

The preliminary estimates are based on the data available to Orthofix and may change upon completion of the final purchase price allocation. Any change in the estimated fair value of the assets and liabilities acquired or the estimated fair value of the consideration will have a corresponding impact on the amount of goodwill recorded. A change in identifiable intangible assets will have a direct impact on the amount of amortization recorded against income in future periods. The impact of any changes in the purchase price allocation could have a material impact on the amounts presented in the unaudited pro forma condensed combined financial information in future periods.

&nbsp;&nbsp;&nbsp;&nbsp;**4. Pro forma Adjustments**

(A) Reflects the impact on cash related to the Transactions including the following:

---

| | |
|:---|:---|
|  | **Amount** |
| Repayment of SeaSpine outstanding borrowings | $25812 |
| Payment of transaction costs (i) | 30000 |
| **Pro forma adjustment** | $**55812** |

---

(i) Represents the total estimated transaction costs including $4,350 incurred and accrued by SeaSpine and Orthofix prior to September 30, 2022.

(B) Represents the impact of the preliminary purchase price allocation as described in Note 3, including:

------

(i) Increase in inventories to preliminary fair value, which considers book value for raw materials and margins and costs to complete for work-in-process and finished goods. The fair value adjustment to inventories is estimated to be expensed over a period of 12 months, which is reflected as a pro forma adjustment in cost of sales. This charge will be included in the combined company's statement of operations subsequent to the merger and is expected to be released over the normal sales cycle, which is estimated to be approximately 12 months.

(ii) Recognition of the intangible assets at the preliminary fair value, offset by the historical intangible assets of SeaSpine and the associated impact on amortization expense. The pro forma adjustment was calculated as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Preliminary<br>Fair**<br>**<br>Value** | **Estimated**<br>**<br>Weighted**<br>**<br>Average**<br>**<br>Useful Life**<br>**<br>(in years)** | **Amortization Expense** | **Amortization Expense** |
|  |  |  | **Year Ended<br>December 31, 2021** | **Nine Months<br>Ended September 30,<br>2022** |
| Developed Technology | $33100 | 10 | $3310 | $2483 |
| Customer relationships | 19000 | 11 | 1727 | 1295 |
| IPR&D (a) | 7600 | indefinite | —  | —  |
|  | $59700 |  |  |  |
| Less: SeaSpine amortization expense (b) |  |  | (7256) | (5525) |
| **Pro forma adjustment** |  |  | $(2219) | $(1747) |

---

(a) IPR&D assets are initially recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. Accordingly, during the research and development period after the closing date of the combination, these assets will not be amortized. Such IPR&D projects will become amortizable when applicable products, which are currently in various stages of development, receive FDA approval, upon which Orthofix will begin to record amortization expense.

(b) SeaSpine amortization expense includes the historical amortization expense of SeaSpine and the pro forma impact of its acquisition of 7D Surgical, the total of which is included in the pro forma SeaSpine results in the condensed combined pro forma statement of operations for the year ended December 31, 2021.

(iii) The pro forma adjustment of $52,124 represents the preliminary estimate of goodwill of $136,719, offset by SeaSpine's historical goodwill of $84,595. The goodwill, which is attributable to long-term advancements in Orthofix's technology, synergies in operations, the assembled workforce, and growth through new channels to be achieved from the combined operations of Orthofix and SeaSpine, represents the excess of total consideration over the preliminary fair value of net assets acquired and liabilities assumed.

The pro forma adjustments resulting from the purchase price allocation are based on preliminary estimates, as described above, and may be revised upon finalization of the fair value estimates. The impact of such adjustments may have a material impact on the pro forma financial information. For example, an increase or decrease of 15% in the fair value of intangible assets on the closing date of the Merger from the fair value of intangible assets assumed in the unaudited pro forma condensed combined financial information would change the value of the intangible assets approximately by $8,955, which would be reflected as a corresponding increase or decrease to straight-line amortization expense of $756 assuming an average useful life of 10 and 11 years for developed technology and customer relationships, respectively.

(C) Represents the impact of the repayment of SeaSpine's historical borrowings with cash on hand at the time of the Merger including the elimination of the related interest expense and the write-off of unamortized debt issuance costs.

(D) Represents the impact of the Transactions, including the following:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Eliminate<br>Historical<br>SeaSpine** | **Share<br>Consideration (i)** | **Other<br>items (ii)** | **Pro forma<br>Adjustment** |
| Common shares | $(372) | $1610 | $—  | $1238 |
| Additional paid-in capital | (593306) | 372149 | —  | (221157) |
| Retained Earnings (accumulated deficit) | 319654 | —  | (25913) | 293741 |
| Accumulated other comprehensive income (loss) | (435) | —  | —  | (435) |
| **Total** | $(274459) | $373759 | $(25913) | $73387 |

---

------

(i) Represents the issuance of Orthofix shares as consideration based on the estimated share price of $22.76, which was the closing share price on January 4, 2023 (See Note 2).

(ii) Represents the impact of the estimated nonrecurring transaction costs of $25,650 and the write-off of unamortized debt issuance costs of $263 related to the repayment of SeaSpine's historical debt.

(E) A tax benefit for the pre-tax pro forma adjustments has not been recorded. Orthofix determined that it is not more likely than not that it would be able to realize the tax benefits from the pro forma costs due to historical losses and the existing valuation allowance.

&nbsp;&nbsp;&nbsp;&nbsp;**5. Earnings Per Share**

The pro forma basic and diluted weighted average shares outstanding have been calculated as if the shares issued in the Merger had been issued and outstanding as of January 1, 2021. There were 4,226,103 and 4,679,460 weighted average outstanding stock options, unvested restricted shares and restricted stock units excluded from the diluted weighted average number of shares outstanding for the year ended December 31, 2021 and nine months ended September 30, 2022, respectively, because inclusion of these awards was anti-dilutive. These amounts include the rollover of SeaSpine's stock options, unvested restricted shares and restricted stock units, subsequent to the Orthofix exchange ratio, in addition to Orthofix's weighted average outstanding stock options and restricted stock units.

---

| | | | |
|:---|:---|:---|:---|
|  | **(Amounts in thousands, except per share data)** | **Year Ended<br>December 31, 2021** | **Nine Months Ended<br>September 30, 2022** |
| Net loss |  | $(144951) | $(56328) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted - weighted average shares outstanding (i) |  | 35795 | 36112 |
| Net loss per share: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic and diluted |  | $(4.05) | $(1.56) |

---

(i) Represents the historical weighted average shares outstanding of Orthofix plus 16,105 shares of Orthofix common stock issued to SeaSpine stockholders in exchange for SeaSpine common shares outstanding and exchangeable shares and after giving effect to the exchange ratio of 0.4163.

&nbsp;&nbsp;&nbsp;&nbsp;**6. Pro Forma SeaSpine**

Represents the historical information of SeaSpine, as adjusted, to reflect the pro forma impact of SeaSpine's acquisition of 7D Surgical and to reflect reclassifications made to align SeaSpine's financial statements to Orthofix's financial reporting presentation.

------

**SeaSpine Unaudited Reclassified Condensed Balance Sheet**

**As of September 30, 2022**

**(in thousands)**

---

| | | | |
|:---|:---|:---|:---|
|  | **Historical<br>SeaSpine** | **Reclassification (i)** | **Pro forma<br>SeaSpine** |
| **ASSETS** |  |  |  |
| Current assets: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | $46763 | $—  | $46763 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Trade accounts receivable, net | 38969 | —  | 38969 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Inventories | 83993 | —  | 83993 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Prepaid expenses and other current assets | 5141 | —  | 5141 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current assets | 174866 | —  | 174866 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Property, plant and equipment, net | 56360 | —  | 56360 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Right of use assets | 16347 | (16347) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible assets, net | 36532 | —  | 36532 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Goodwill | 84595 | —  | 84595 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term trade receivable | 4568 | (4568) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets | 856 | 20915 | 21771 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total assets** | $**374124** | $**—**  | $**374124** |
| **LIABILITIES AND SHAREHOLDERS' DEFICIT** |  |  |  |
| Current liabilities: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accounts payable, trade | $17778 | $—  | $17778 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued compensation | 9578 | (9578) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued commissions | 12457 | (12457) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Short-term lease liability | 2412 | (2412) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred revenue | 2137 | (2137) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other accrued expenses and current liabilities | 10685 | (10685) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other current liabilities | —  | 37269 | 37269 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total current liabilities | 55047 | —  | 55047 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term borrowings under credit facility | 25812 | —  | 25812 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Long-term lease liability | 15124 | (15124) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred tax liability, net | 3182 | (3182) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other liabilities | 500 | 18306 | 18806 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 99665 | —  | 99665 |
| Stockholders' equity |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Common stock | 372 | —  | 372 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Additional paid-in capital | 593306 | —  | 593306 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive income | 435 | —  | 435 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accumulated deficit | (319654) | —  | (319654) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Shareholders' equity | 274459 | —  | 274459 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total liabilities and stockholders' equity** | $**374124** | $**—**  | $**374124** |

---

(i) Reflects reclassification entries necessary to the condensed SeaSpine balance sheet to align with the condensed Orthofix financial statement presentation.

------

**SeaSpine Unaudited Reclassified Condensed Statement of Operations**

**For the nine months ended September 30, 2022**

**(in thousands)**

---

| | | | |
|:---|:---|:---|:---|
|  | **Historical<br>SeaSpine** | **Reclassification (i)** | **Pro forma<br>SeaSpine** |
| Total revenue, net | $174158 | $1820 | $175978 |
| Cost of goods sold | 66140 | 14303 | 80443 |
| **Gross profit** | **108018** | **(12483)**  | **95535** |
| Operating expenses: |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling and marketing | 95518 | (15387) | 80131 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative | 37898 | (1943) | 35955 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development | 18095 | 1890 | 19985 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible amortization | 2568 | (2568) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisition-related amortization and remeasurement | —  | 5525 | 5525 |
| Total operating expenses | 154079 | (12483) | 141596 |
| **Operating loss** | **(46061)**  | —  | **(46061)**  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest expense, net | —  | (663) | (663) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other income (expense), net | (976) | 663 | (313) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss before income taxes | (47037) | —  | (47037) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Benefit (provision) for income taxes | 986 | —  | 986 |
| **Net loss** | $**(46051)**  | $**—**  | $**(46051)**  |

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(i) Reflects reclassification entries necessary to align SeaSpine with the condensed Orthofix financial statement presentation. The most significant adjustment is the reclassifications of instrument depreciation expense, instrument replacement costs and distribution costs from selling and marketing to cost of goods sold.

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**SeaSpine Unaudited Adjusted and Reclassified Condensed Statement of Operations**

**For the year ended December 31, 2021**

**(in thousands)**

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |  | **7D Surgical (i)** | **7D Surgical (i)** |  |  |
|  |  | **Historical** |  |  |  |
|  | **SeaSpine<br>Year Ended<br>December 31,<br>2021** | **January 1,<br>2021 – May 19,<br>2021** | **Transaction<br>Accounting<br>Adjustments<br>(i)** | **Reclassification**<br>**<br>(ii)** | **Pro Forma<br>SeaSpine** |
| Total revenue, net | $191451 | $4037 | $—  | $2475 | $197963 |
| Cost of goods sold | 76864 | 1233 | 1123 | 14138 | 93358 |
| **Gross profit** | **114587** | **2804** | **(1123)**  | **(11663)**  | **104605** |
| **Operating expenses:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Selling and marketing | 107299 | 1783 | —  | (15540) | 93542 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;General and administrative | 42944 | 3890 | —  | (2351) | 44483 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Research and development | 22006 | 389 | —  | 2387 | 24782 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Intangible amortization | 3316 |  | 98 | (3414) | —  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Acquisition-related amortization and impairment | —  | —  | —  | 7255 | 7255 |
| **Total operating expenses** | **175565** | **6062** | **98** | **(11663)**  | **170062** |
| **Operating loss** | **(60978)**  | **(3258)**  | **(1221)**  | **—**  | **(65457)**  |
| Interest (expense), net | —  | —  | —  | (293) | (293) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other income (expense), net | 5532 | (499) | 161 | 293 | 5487 |
| **Loss before income taxes** | **(55446)**  | **(3757)**  | **(1060)**  | **—**  | **(60263)**  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Benefit (provision) for income taxes | 1100 | —  | —  | **—**  | 1100 |
| **Net loss** | $**(54346)**  | $**(3757)**  | $**(1060)**  | $**—**  | $**(59163)**  |

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(i) Represents the results of 7D Surgical for the period prior to the acquisition by SeaSpine. SeaSpine historical results include the impact of 7D Surgical from the date of acquisition through December 31, 2021. The 7D Surgical financial information prior to the acquisition was reported in Canadian Dollar and has been translated from CAD to the United States Dollar at a rate of 1.266 CAD to 1 USD, which represents the period-to-date average rate for the periods presented. The transaction accounting adjustments give effect to SeaSpine's acquisition of 7D Surgical which occurred on May 20, 2021, and the related transactions as if it had occurred on January 1, 2021. The following transaction accounting adjustments have been made to reflect the impact of the acquisition of 7D Surgical and the associated transactions:

• Reflect amortization expense adjustments to cost of goods sold related to acquired developed technology with a fair value of $31,000 and an estimated useful life of 11.5 years and to intangible amortization related to acquired other intangible assets with a fair value of $1,300 and an estimated useful life of 5.5 years.

• Removal of the corresponding interest expense associated with SeaSpine's repayment of all its borrowings under its credit facility with Wells Fargo Bank, National Association.

(ii) Reflects reclassification entries necessary to align SeaSpine with the condensed Orthofix financial statement presentation. The most significant adjustment is the reclassification of instrument depreciation expense, instrument replacement costs and distribution costs from selling and marketing to cost of goods sold.

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