Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐☒

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on the New York Stock Exchange on June 30, ~~2022,~~2023, was $~~520.9~~830.7 million.

The number of shares of Registrant’s common stock outstanding as of February ~~27, 2023~~23, 2024 was ~~88,218,207~~82,837,092.

This Annual Report on Form 10-K contains forward-looking statements about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Annual Report on Form 10-K, including statements regarding our strategy, future financial condition, future operations, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “seek,” “should,” “target,” “will,” “would” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

We have based these forward-looking statements largely on our current expectations, estimates, forecasts and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. In light of the significant uncertainties in these forward-looking statements, you should not rely upon forward-looking statements as predictions of future events. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Annual Report on Form 10-K, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur at all. You should refer to the sections titled “Risk Factor Summary” and “Risk Factors” for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. Except as required by law, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.

You should read this Annual Report on Form 10-K and the documents that we reference in this Annual Report on Form 10-K and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of the forward-looking statements in this Annual Report on Form 10-K by these cautionary statements.

The following summarizes the most material risks that make an investment in our securities risky or speculative. If any of the following risks occur or persist, our business, financial condition and results of operations could be materially and adversely affected and the price of our common stock could significantly decline. This summary should be read in conjunction with the section titled “Risk Factors” and should not be relied upon as an exhaustive summary of the material risks we face.

~~We are~~Paragon 28, Inc. (collectively with its subsidiaries, "we," "us," "our," "P28" or the (Company") is a leading medical device company exclusively focused on the foot and ankle orthopedic market and we are dedicated to improving patient lives. Our innovative orthopedic solutions, procedural approaches and instrumentation cover a wide range of foot and ankle ailments including fracture fixation, forefoot, ~~or hallux valgus - which includes bunion and hammertoe,~~ ankle, ~~flatfoot or~~ progressive collapsing foot deformity (PCFD), or flatfoot, charcot foot and orthobiologics. To treat these painful, debilitating or even life-threatening conditions, we provide a comprehensive portfolio of solutions that includes surgical implants and disposables, as well as surgical instrumentation. As of December 31, ~~2022~~2023, our broad suite of surgical solutions comprises 75nearly 80 product systems ~~including approximately 9,200 SKUs~~ to help fit the specific needs of each patient and procedure. We design each of our products with both the patient and surgeon in mind, with the goal of improving outcomes, reducing ailment recurrence and complication rates, and making the procedures simpler, consistent and reproducible. We believe our passion, expertise, and exclusive focus in the foot and ankle market has allowed us to better understand the needs of our patients and physicians, which has enabled us to create innovations and enhanced solutions that disrupt and transform the foot and ankle market. As a result, we have experienced significant growth and momentum in our business.

The global market for surgical implants and devices used in foot and ankle procedures was approximately $4.6 billion in 2022 and is projected to grow at approximately 7% annually to reach approximately $6.0 billion by 2026, representing the fastest growing market within orthopedics. The United States remains the largest market for foot and ankle procedures, representing approximately 55% of the global market in 2022, and is our largest market for product sales. Our estimates of the global foot and ankle market are based on internal and third-party data. We expect the foot and ankle market to benefit from general trends including an aging population, increased incidence of obesity and diabetes, as well as the broader patient populations’ desire to pursue a more active lifestyle. We also believe that growth in the foot and ankle market could accelerate with an increased focus on specialization and with advancements in technology that improve patient outcomes.

The foot and ankle market is a young and relatively new surgical specialty that is dominated by a handful of incumbents that operate across the broader medical device and orthopedic markets. The combination of a broad focus on orthopedics within a limited number of market participants has resulted in slow technological and procedural advancement that we believe is resulting from:

We strive to disrupt and transform the market by focusing exclusively on the foot and ankle ~~in order~~ to develop and commercialize differentiated, high quality orthopedic solutions, advanced procedural approaches and instrumentation that are collectively designed to enable surgeons to provide consistent, reproducible and effective outcomes. Our development strategy integrates all aspects of the procedure and we seek to enhance support systems beyond implants. We develop procedure specific solutions featuring meaningfully improved and purpose-built designs for ~~both~~ implants and instrumentation, ~~and~~ enhanced surgical techniques and clinical support. We rely on an unbiased, clinical, research-first approach to developing new products, which allows us to ~~develop~~create disruptive technologies. Each of our systems is designed to deliver the surgeon an enhanced user-experience throughout the procedure, while improving patient outcomes and increasing the reproducibility of results. We couple this innovation and advancement with a dedication to medical education to support surgeons, patients and stakeholders within our organization, while also delivering our products through a clinically focused sales force.

We have developed a comprehensive portfolio of foot and ankle surgical systems and procedural techniques designed to address many of the conditions requiring surgery in the foot and ankle, including fracture fixation; ~~forefoot or hallux valgus - which includes bunion and hammertoe;~~forefoot; ankle; PCFD or flatfoot; charcot foot; and orthobiologics. Each system typically includes numerous plates, screws, staples, nails, advanced joint and bone replacements, orthobiologics, and other implantation instruments and disposables. Except for our total talus spacer, which is authorized for marketing under a Humanitarian Device Exemption (HDE), our marketed products are either Class II medical devices cleared by the U.S. Food and Drug Administration (FDA) for specific indications or they are Class I exempt for general orthopaedic use. We have no products that are Class III medical devices. Since inception, we have designed and currently market 75 product systems with approximately 9,200 SKUs, which comprises of approximately 6,800 implants, 1,400 instruments and 1,000 disposable and other SKUs. Our products are available in a variety of sizes and configurations to best suit the individual patient’s anatomical and surgical requirements.

Since inception, we have introduced numerous key technological innovations and novel products that have advanced and challenged the status quo in our industry. As a result, many of our solutions have been first to market. We are committed to continuously expanding and advancing our portfolio of foot and ankle surgical solutions and to bringing next-generation products to market.

In addition to our portfolio of products, we use Smart 28 to modernize and improve all aspects of foot and ankle treatments by utilizing advanced technologies such as AI, data analytics, patient specific algorithms, 3-D modeling and other enabling technologies. With Smart 28, we aim to further improve patient outcomes and procedure reproducibility, as well as increased patient access to therapies. We envision our Smart 28 technologies will span across our portfolio of solutions by providing pre-operative planning, intra-operative support and post-operative evaluation.

Our development pipeline is driven by our passion and commitment to designing products aimed ~~to improve~~at improving patient outcomes and ~~create~~creating surgical efficiencies. We have a dedicated team of design and development engineers that have embodied our research philosophy to drive continual innovation and a system of collaboration that allows us to harness and rapidly respond to customer feedback to drive development of new concepts and product iterations. The foregoing has helped us to expand our portfolio quickly and consistently, having launched nearly 7580 product lines since 2011 including 10four product lines launched in ~~2022.~~2023. We currently have more than 2530 product and system offerings in our development pipeline and expect the majority to launch commercially in the next 24 months. We have also enhanced our offerings through licensing agreements and tuck-in acquisitions, such as our recent acquisitions of Additive Orthopaedics and Disior Oy.

We have dedicated substantial resources to building a leading commercial organization that consists of sales, marketing and medical education. We believe our entrepreneurial and clinically-oriented culture has allowed us to build a leading sales force which includes an estimated ~~234~~266 producing U.S. sales representatives as of December 31, ~~2022.~~2023. We define producing sales representatives as those sales ~~representatives~~representatives' logging revenue, for at least one case, in all three months of each quarter. Our U.S. sales force consists primarily of independent sales representatives, the majority of whom are exclusive. During ~~2022,~~2023, substantially all of our U.S. revenue was produced by our producing sales representatives. We began selling outside the United States in late 2016. As of December 31, ~~2022,~~2023, we sell our products in 22 countries, and in ~~2022,~~2023, our international business contributed approximately ~~13%~~15% of our revenue. We believe that we have a significant opportunity to continue to capture market share in existing and new territories both in the United States and internationally.

We believe the following success factors are essential to our mission of improving patient experiences and outcomes and will be significant factors in our continued success and growth:

Large, Growing, and Underdeveloped Foot and Ankle Market with Significant Unmet Clinical Needs.

The global market for implants and devices used in foot and ankle procedures ~~was approximately $4.6 billion in 2022, and~~ is projected to grow at approximately 7% annually to reach ~~$6.0~~$6.9 billion by ~~2026,~~2028, representing the fastest growing market within orthopedics. The United States remains the largest market for foot and ankle procedures ~~representing approximately 55% of the global market in 2022,~~ and is our largest market for product sales. Our estimates of the global foot and ankle market are based on internal and third-party data. We believe that growth in the foot and ankle market could accelerate with advancements in technology and an increased focus on and specialization in foot and ankle ailments. We also expect the foot and ankle market to benefit from general trends including an aging population, increased incidence of obesity and diabetes, as well as the broader patient populations’ desire to pursue a more active lifestyle.

Our market consists of medical devices and implants used across approximately six core sub-categories and conditions including fracture fixation, forefoot, ~~or hallux valgus - which includes bunion and hammertoe,~~ ankle, PCFD or flatfoot, charcot foot and orthobiologics with varying levels of penetration across multiple providers. Additionally, the market is comprised of soft tissue, sports medicine, orthobiologics and analytical solutions across each of these sub-categories. We believe there is significant opportunity for further expansion and penetration across a broad subset of indications within foot and ankle due to current products delivering suboptimal patient outcomes, which is in part driven by a lack of anatomically specific technology and defined techniques. We also believe there has been a lack of innovation required to drive better clinical outcomes and surgeon experiences. We expect that new technologies driven by meaningful research, data analytics and AI will result in higher procedural success rates, which may prompt increased procedure volume.

We established Paragon 28 in 2010 as a company exclusively dedicated to the foot and ankle market, unlike many of our competitors who spread their resources and focus across multiple orthopedic indications. The name of our company embodies this focus: “Paragon” being a model of excellence or perfection; “28” being the number of bones in the human foot. Our goal is to improve patient outcomes by introducing innovative technologies and procedures which re-invent the specialty. We believe our passion, expertise, and exclusive focus in foot and ankle has allowed us to profoundly understand the needs of our patients and physicians which has driven broad innovation and enhanced solutions. This dedication to foot and ankle has been instrumental in our success.

We have a broad and comprehensive portfolio of surgical solutions for the foot and ankle market. Each of our offerings are designed with both the patient and physician in mind to deliver an enhanced user-experience throughout the procedure, while improving patient outcomes and increasing the reproducibility of results. Our current portfolio consists of 75nearly 80 product systems, offering significant depth in every indication. As of December 31, ~~2022~~2023 we had ~~401~~569 issued or pending patents covering our portfolio. Our current suite of implants includes plates, plating systems, screws, staples, nails, and orthobiologics. Among other advanced technology solutions, we empower our physicians with a spectrum of pre-operative planning and intra-operative support systems including laser alignment tools, patient specific instrumentation, and other advanced technology solutions designed to enhance physician experiences and create procedural efficiencies. We have expanded our portfolio quickly and consistently having launched nearly 80 product lines since 2011 including 9four product lines launched in 2022. We have also enhanced our offerings through licensing agreements and tuck-in acquisitions, including the acquisition of the assets of Additive Orthopaedics in June of 2021 and the acquisition of Disior Oy in the first quarter of 2022.2023.

Our clinical expertise has been fundamental to our success in advancing the standard of care in foot and ankle surgery. We invest significant time and resources to understand the specific needs of our patients and physicians to help cultivate novel solutions. We take an unbiased, clinical, research-first approach to developing new products in our portfolio which allows us to develop disruptive technologies. To support our mission, we have built a team that has diverse experiences and educational backgrounds, and have developed collaborative relationships with what we believe are the most forward-thinking foot and ankle specialists across a variety of indications. We believe collaboration with all stakeholders within the foot and ankle community is vital to product advancement and has been a driving force behind our success as a disruptor in the space.

We are dedicated to supporting our patients and surgeons with a comprehensive educational experience. To support our stakeholders, we have built a 250-person auditorium and a 40-station cadaveric operating lab that are used for on-site education and

training sessions. In addition to education and training opportunities offered at our headquarters, we have developed and offer a broad range of regional programs and virtual seminars. The breadth of our educational and training programs allows us to cater to larger sized groups of surgeons and ~~sales people~~salespeople with significant flexibility around time and location in the United States and internationally. Since our inception, thousands of surgeons and stakeholders have participated in our education and training curriculums both on-site and through our other offerings.

We have a large and growing, dedicated team of 55 development engineers that work hand-in-hand with thought-leading foot and ankle specialists and third-party development specialists to advance our mission. Our strong research & development team seeks to break barriers in foot and ankle as we rethink existing procedures and products. We have developed a culture and system of collaboration which allows us to harness and rapidly respond to customer feedback to drive development of new concepts and product iterations.

We have driven a 37% revenue CAGR from 2015 through 2022. In 2022, we demonstrated continued revenue growth of 23% to $181.4 million. Our goal is to continue to drive revenue growth through new product introductions accompanied by leading medical education programs, expansion of our distribution channels, marketing programs, and targeted business development activities. We intend to maintain a fiscally responsible culture in which we are selective in how and where we deploy resources to drive these growth initiatives.

Continue to Invest in Research and Development to Further Improve Outcomes and Expand Our Addressable Market.

We have a strong history of developing and commercializing new products. We intend to maintain a procedurally focused approach to product development and have over 2530 projects underway as of December 31, ~~2022,~~2023, the majority of which we anticipate launching in the next 24 months. Our capabilities allow us to develop products that span a spectrum of regulatory pathways including 510(k) clearance and HDE. We also expanded our product portfolio and Smart 28 offerings, an ecosystem of enabling technologies for pre-operative planning, intra-operative support, and post-operative evaluation, with the acquisition of Additive Orthopaedics' assets and the acquisition of Disior in the first quarter of 2022. With Additive, we acquired the only 3-D printed, patient specific total talus spacer authorized for marketing pursuant to an approved HDE application, plus a proprietary pre-operative surgical planning platform. With Disior, we acquired a leading three-dimensional analytics pre-operative planning software company based in Helsinki, Finland. These transactions broadened our capabilities within the pre-operative and intra-operative stages of the foot and ankle continuum of care, potentially broadening our total addressable patient population. We expect to continue to invest in Smart 28.

Transform the Foot and Ankle Market by Leveraging Our Smart 28 Initiatives to Advance the Foot and Ankle Surgical Experience and Clinical Outcomes.

Smart 28 is our initiative to improve all aspects of foot and ankle treatments utilizing advanced technologies such as AI, data analytics, patient specific algorithms, 3-D modeling and other enabling technologies. We have assembled and will continue to build a team of industry experts to detail the needs and direction of this initiative. As part of our Smart 28 initiative, we currently offer several innovative technologies including proprietary solutions and platforms for 3-D printing technology, 3-D modeling software, patient specific guides and implants and laser alignment tools, as well as our end-to-end, fully enabled cloud-based infrastructure and AI-platform. We believe these analytical tools will continuously improve as data points from each procedure using this platform is collected, such as the information regarding the impact of corrections on the musculoskeletal system and surrounding soft tissue. We believe such iterative, data-driven improvements will result in improved surgical outcomes.

Continue to Invest in Our Commercial Infrastructure Globally to Capture Market Share.

Our broad U.S. commercial footprint spans across all 50 states. Our products are also commercially available in 22 countries where we expect additional growth opportunities. In the United States, we believe there are approximately 2,400 orthopedic surgeons

who specialize in foot and ankle, approximately 2,300 pediatric and trauma surgeons that treat foot and ankle and approximately 9,000 surgical podiatrists, approximately half of which are performing foot and ankle surgery. We continue to commit significant resources to clinical and procedural training and development of our commercial organization to provide high quality case support for our surgeon customers. We believe there is significant opportunity to increase sales in our current territories in the United States and internationally by selling to new physicians and increasing physician utilization of our existing and new solutions. Additionally, we plan to continue growing our sales organization and network in the United States. We are also highly focused on expanding our global network by expanding our sales footprint in existing and select new international markets based on our assessment of size and opportunity, among other factors.

We have developed state-of-the art programs and facilities to further benefit the community and empower surgeons with the tools and knowledge to drive improved clinical outcomes. We plan to utilize these programs and facilities to effectively spread awareness of our solutions. We offer focused medical education courses for our customers, and we have created a curriculum of in-person and virtual courses, seminars and databases with the goal of providing continued education to our customers on our products, as well as teaching new surgical approaches. Our approach to clinical education is results-oriented and supported by robust data, which we believe allows us to drive trust among the broader community with more accurate and quantifiable information and feedback. We believe our focus on the advancement of education will contribute to the overall growth of the foot and ankle market and our business. We are also committed to patient education for foot and ankle therapies and invest resources in direct-to-patient marketing. Beyond our programs and facilities,

we have a broad range of tools we use to drive patient awareness including social media campaigns and conference exhibits. We believe that our focus on clinical education through our expansive curriculum and training opportunities and directed outreach to educate patients will drive ongoing adoption of our solutions and products.

We have successfully executed strategic partnerships and acquisitions of new solutions and platforms that are highly complementary to our core business. Most recently we successfully acquired and integrated the assets of Additive Orthopaedics including the only total Talus spacer authorized for marketing pursuant to an approved HDE application, as well as several advanced technologies to benefit our Smart 28 ecosystem. In addition, in the first quarter of 2022 with the acquisition of Disior, we acquired a leading three-dimensional analytics pre-operative planning software company based in Helsinki, Finland. These transactions broadened our capabilities within the pre-operative and intra-operative stages of the foot and ankle continuum of care, potentially broadening our total addressable patient population. We intend to continue to seek targeted external opportunities to enhance our solutions portfolio and distribution channels. Our approach to business development is highly disciplined and focused on bringing novel approaches and advanced technologies to our customers that can result in improved experiences for physicians and better results for our patients. We believe we are well positioned as a partner or acquirer of a business or team aligned with our mission of improving clinical outcomes in the foot and ankle market.

The foot and ankle are complex structures that combined contain 30 bones, with 28 in the foot alone, 34 joints and a network of more than 100 tendons, muscles and ligaments. While many foot and ankle problems can be successfully solved without surgery, many also require surgical intervention to resolve longstanding pain, deformities or correction of diseased tissue. ~~In the United States, procedures to address conditions of the foot and ankle are typically performed by the following:~~

The products used in foot and ankle procedures generally include screws, wires and pins, plates, nails, fixators, staples, joint implants, soft tissue implants, and orthobiologics. In addition to the diversity of tools, there are also multiple approaches to treating foot and ankle conditions. We believe the diversity of tools and treatment methodologies adds to the complexity of foot and ankle procedures and the varying degrees of patient outcomes.

Our definition of the foot and ankle market includes the treatment of (1) fracture fixation; (2) hallux valgus or bunions; (3) hammertoe; (4) ankle arthritis; (5) avascular necrosis of the ~~following conditions:~~ankle; (6) progressive collapsing foot deformity (PCFD) or flatfoot; (7) charcot foot; and (8) orthobiologics.

We define our market as the market for surgical implants and devices used in foot and ankle procedures across all major indications, which include fracture fixation, forefoot, ~~or hallux valgus - which includes bunion and hammertoe,~~ ankle, PCFD or flatfoot, charcot foot and orthobiologics. We believe each of these subsegments and orthobiologics represents its own market opportunity with varying growth rates. ~~The~~We estimate the global market for surgical implants and devices used in foot and ankle procedures was approximately ~~$4.6~~$4.9 billion in ~~2022,~~2023 and is ~~projected~~expected to grow at approximately 7% annually, ~~to reach $6.0 billion by 2026,~~ representing ~~potentially~~one of the fastest growing ~~market~~markets within orthopedics. The United States remains the largest market for foot and ankle procedures, representing approximately 55% of the global market in ~~2022,~~2023, and is our largest market for product sales. Our estimates of the global foot and ankle market are based on internal and third-party data.

The broader global foot and ankle market opportunity across each major indication and orthobiologics is shown in the table below.

We believe the foot and ankle market remains underpenetrated today due to high failure and recurrence rates experienced by patients. For example, revision rates for total ankle arthroplasty are 21.8% after 5 years and 43.5% after 10 years irrespective of the implant compared to approximately 0.9% and 1.4% after three years for hip and knee procedures, respectively. Revision rates across other foot and ankle procedures vary, but also are generally higher than other orthopedic markets. We estimate that revision rates for certain foot and ankle procedures can be as high as approximately 20% to 70%.

Despite these high failure rates, we believe that the foot and ankle market growth will accelerate due to advancements in technology and an increased focus and specialization in foot and ankle ailments, improving patient outcomes and patient awareness of available treatments. We also expect the market to benefit from general trends including an aging population, increased incidence of obesity and diabetes, as well as the broader patient populations’ desire to pursue a more active lifestyle.

The foot and ankle surgical implant and device market is a relatively new segment of the orthopedic market and is dominated by a handful of incumbents who also operate across the broader medical technology and orthopedic markets. We believe technological advancement and growth in this market has been limited by certain trends in the industry, including:

Many of the current incumbent providers operate across multiple sectors both within orthopedics, as well as other medical technology segments and they have not traditionally created technologies designed exclusively for the foot and ankle surgeon. Typically, these incumbents include their foot and ankle products within broader orthopedic divisions where sales and development teams are allocating time and resources to a broad array of solutions across multiple anatomies beyond the foot and ankle.

~~Foot~~The foot and ankle market is an emerging segment of orthopedics and its patients within this segment experience high recurrence and failure rates that can be associated with a multitude of complications. We believe there has been a lack of focus on developing robust medical and clinical education platforms and curriculums aimed to benefit key stakeholders in foot and ankle.

Given the broad focus of other industry participants, foot and ankle surgeons are often dealing directly with full line orthopedic sales representatives rather than a dedicated foot and ankle sales specialist. While in more rural markets, a non-specialized sales force is common, in more concentrated markets we believe this dynamic may lead to suboptimal customer service and attentiveness.

Physicians treating patients with complex foot and ankle conditions are often required to re-purpose another solution for each patient, which may result in inconsistent patient outcomes. In addition, there is a general lack of supporting tools and instruments customized and specific to each patient and procedure. Surgeons have limited optionality for treating patients, which is problematic as there is a wide range of conditions with varying degrees of severity and patient-specific complicating factors such as age, weight and activity level. This lack of options can lead to both high and low severity patients receiving similar, often suboptimal treatment and patients receiving solutions that are not addressing patient-specific factors.

We believe that several options used in treating foot and ankle today are derived from and resemble implants and instruments used in other anatomies such as hip, knee or from general trauma. While these technologies are often highly regarded in their primary anatomies, they were not designed with the specific and complex anatomy of the foot and ankle in mind. There are larger force requirements and usually minimal soft tissue envelopes which can add to the complexity of treating the foot and ankle. We believe this lack of anatomically specific designs and implants has contributed to the high revision and failure rates experienced in our market.

We believe that the foot and ankle market has seen limited investment in advanced technologies such as 3-D instrument and implant printing, data analytics, artificial intelligence and robotics. We believe there is a significant need for providers to gain access to such technologies to help make procedures more efficient and to provide patients with more reproducible and improved outcomes. Further, we believe many foot and ankle surgeons are increasingly demanding advanced data analytic solutions to complement surgical support across the full procedural continuum from pre-operative planning, to intra-operative solutions, and ultimately post-operative feedback.

A majority of implants utilized in foot and ankle today were developed without a specific, research-based need in mind. We believe many research projects conducted in foot and ankle were conducted to bolster marketing or were conducted to support adoption of existing products and procedural techniques, and as a result, such research could be biased. Due to this potential bias, we believe there is a need to reorient key stakeholders to design products and procedures based on meaningful, unbiased clinical research.

We believe the combination of these limitations has led to a lack of product innovation and patient specific solutions, resulting in significant unmet need.

At Paragon 28, we aim to disrupt and improve the overall foot and ankle market across all functions of our organization. We are exclusively focused on foot and ankle, with our product development philosophy centered on improving the limitations of existing foot and ankle products and procedures to advance the standard of care.

We believe our differentiating characteristics that allow us to address current market limitations and improve patient outcomes include:

We have built a comprehensive, full-line foot and ankle orthopedic device company. We let the needs and limitations of the procedure dictate the systems and technologies that we develop in order to identify the best solution to overcome and improve the entire surgical and patient experience. We approach each type of procedure from both the patient’s and the surgeon’s perspectives. The goal of each new solution is to improve patient outcomes, reduce ailment recurrence and complication rates, and to provide optionality to fit the specific needs of each patient. We respect that no two patients are the same, and with that in mind we develop our solutions with a range of optionality. The goal of each new solution for surgeons is to make the procedure simpler, more consistent, and more reproducible, and to identify new approaches to deformity correction that may address certain limitations.

We believe our commitment to this approach has allowed us to establish a brand and reputation of being innovators in the foot and ankle industry. Since inception, we have introduced numerous key technological advancements and innovative products that have advanced and challenged the status quo in our industry.

We believe the differentiation of our purpose-built solutions and the clinical value that we provide to our surgeon customers is demonstrated by our commercial success and growth. Since our first internally developed product, the Preserve bone wedges, launched in 2011, we have commercialized 75nearly 80 product systems. Additionally, we currently have more than 2530 product and system offerings in our development pipeline the majority of which we expect to launch commercially in the next 24 months which represents our continued dedication to enhancing our product portfolio with novel and disruptive solutions. We have also rapidly expanded our global intellectual property portfolio and will continue to focus on only patenting what we view as truly unique.

To bolster our internal Smart 28 ecosystem, we acquired the assets of Additive Orthopaedics in 2021, which provides our customers with exclusive access to the only 3-D printed, patient specific total talus spacer authorized for marketing pursuant to an approved HDE application. We also acquired a proprietary, pre-operative surgical planning platform, which we believe may significantly accelerate our ability to leverage AI to improve clinical outcomes. In addition, with the Disior acquisition in the first quarter of 2022, we acquired a leading three-dimensional analytics pre-operative planning software company based in Helsinki, Finland. With the addition of both Additive Orthopaedics and Disior, we now have capabilities within the pre-operative and intra-operative stages of the continuum of care.

We expect to continue to invest in Smart 28 with the intent of developing post-operative solutions, while further bolstering our capabilities and offerings within the preoperative and intraoperative stages.

We have developed a comprehensive portfolio of foot and ankle surgical systems. Each system typically includes one or more of the following: plates, screws, staples, nails, advanced joint and bone replacements, orthobiologics, and other implantation instruments and disposables specifically designed for the particular surgical system. We focus our engineering efforts equally on each component of our surgical systems, from the implants to the procedural approach and instruments. Since inception, we have designed and currently market 75nearly 80 product ~~systems and approximately 9,200 SKUs. We have developed approximately 6,800 implant, 1,400 instrument, and 1,000 disposable and other SKU’s.~~systems. Our products are available in a variety of sizes and configurations to best suit the individual patient’s anatomical and surgical requirements.

We currently offer three plating systems: Gorilla Plating System, Baby Gorilla Plating System and Silverback Ankle Fusion Plating System. These plating systems are used in all major procedural segments within the foot and ankle industry. Our plates were created with the patient and surgeon in mind and designed to eliminate hardware irritation and the need for plate manipulation to help enhance surgical outcomes. Our plates are generally optimized to be procedure-specific with varying degrees of thickness to best suit the anatomical requirements of each patient and surgery. Our anatomically contoured plates are machine contoured, which we believe results in stronger, more balanced constructs with a better fit when compared to plates that are stamped, rolled, or bent. ~~In order to~~To complement our plates, drive clinical value, and enhance reproducibility, we offer complete all-in-one caddies containing the implants and procedure-specific instruments that surgeons will likely utilize in the procedure. ~~A number~~Several of our plating systems include many patented features.

Our leading plating system is the Gorilla Plating System (Gorilla). Gorilla is one of the most comprehensive foot and ankle plating systems with over 290 plating options and a wide variety of plate-specific screws.

The Baby Gorilla Plating System is a comprehensive foot and ankle specific plating system that includes 26 distinct plating styles and 92 distinct plating options with unique, customizable instrumentation. Similar to Gorilla, the Baby Gorilla system incorporates modularity, optionality and specificity with plates designed for procedures that require narrower plates and smaller screws to match the anatomy and size of the smaller bones within the foot. Additionally, while the Baby Gorilla system was created to primarily address a full range of trauma fixation procedures, it also includes a variety of compression plates for reconstructive procedures in the foot and ankle.

In a retrospective study that we funded but for which we did not participate in the data collection or the ultimate publication in Foot & Ankle International in 2019, our Gorilla Plating System demonstrated strong clinical value and surgical efficiency resulting in fewer hardware removals, higher rates of bone union, and a biomechanically stable fixation; of the 81 patients who received a Gorilla Calcaneal Slide Plate, a 100% union rate was noted, with only one plate removed due to a superficial wound infection (1.2%), and no plates were removed due to hardware failures. This retrospective study was not powered for statistical significance. One case of hardware removal was reported due to wound breakdown and the plate being exposed. All osteotomies healed without displacement or hardware failure.

The Gorilla Plating System and Baby Gorilla Plating System are cleared for use in stabilization and fixation of fractures or osteotomies; intra and extra articular fractures, joint depression, and multi-fragmentary fractures; revision procedures, joint fusion and reconstruction of small bones of the toes, feet and ankles including the distal tibia, talus, and calcaneus, as well as the fingers, hands, and wrists. The systems can be used in both adult and pediatric patients. ~~We began developing the~~The Gorilla Plating System and the Baby Gorilla Plating System ~~in the fourth quarter of 2012 and~~ received ~~our initial~~ 510(k) clearance in April 2014. The Gorilla Plating System and the Baby Gorilla Plating System are cleared as Class II medical devices for the above indications and the associated instrumentation are cleared as Class I medical devices.

Our Silverback Ankle Fusion Plating System (Silverback) offers 62 unique, low profile, anterior, lateral, and posterior plate designs, five screw diameters, and a robust offering of joint preparation instrumentation to address tibiotalar (TT), tibiotalocalcaneal (TTC), or tibiocalcaneal (TC) arthrodesis. The plating system is engineered from Type II Anodized Titanium Alloy for improved fatigue performance and allows for multiple points of fixation with contoured and flat options.

The Silverback Gorilla Plating System are cleared for use in stabilization and fixation of fractures or osteotomies; intra and extra articular fractures, joint depression, and multi-fragmentary fractures; revision procedures, joint fusion and reconstruction of small bones of the toes, feet and ankles including the distal tibia, talus, and calcaneus, as well as the fingers, hands, and wrists. The system can be used in both adult and pediatric patients. ~~We began developing the~~The Silverback Gorilla Plating System ~~in the third quarter of 2017 and~~ received ~~our initial~~ 510(k) clearance in September 2018. The Silverback Gorilla Plating System is cleared as a Class II medical device for the above indications and the associated instrumentation are cleared as Class I medical devices.

Precision Guide is our patented instrument technology that we created with the goal ~~to improve~~of improving surgical outcomes and ~~allow~~allowing surgeons of all skill levels and experience to perform consistent and reproducible procedures utilizing our implants. This technology also saves time in the operating room and reduces the amount of fluoroscopy, a type of medical imaging, used.

Many foot and ankle procedures require cross-screws in addition to plates. For certain procedures, when a surgeon implants a cross-screw they can either insert the screw freehand or use our Precision Guide. Freehand screw placement may result in intra-operative hardware collision or multiple attempts to redirect the screws to avoid collision, which may result in unwanted revisions, longer surgical times, and slower patient recovery.

Each Precision Guide variation is uniquely attuned to work in tandem with its corresponding procedurally focused plate or implant. Once plate screws are inserted, the surgeon attaches the Precision Guide to the plate with a simple hand screw. The Precision Guide arm provides the surgeon with a drill guide that is positioned at a pre-calculated, three-dimensional angle designed to avoid collision with the existing plate and plate screws and optimize orientation for ideal construct strength.

We have six variations of Precision Guide that are tailored to specific procedures where one or more cross-screws or implants are required. Our Precision Guide technology is available for the following procedures: MTP fusion (a procedure to address bunion deformities that fuses two bones on the big toe), first tarsometatarsal arthrodesis (Lapidus plate) and metatarsal osteotomy for bunion correction, medial column beaming for charcot foot reconstruction, ankle fusion plating, and naviculocuneiform (NC) joint arthrodesis.

To complement our plating systems and provide surgeons with the full suite of products, we created a variety of innovative standalone screw systems. Our screw systems are utilized in all major procedural segments within the foot and ankle industry. Every detail was scrutinized in the design of our screws, from thread distance and pitch to neck tapering angle (precompression taper), with the goal of providing differentiated screws that address the needs of patients and surgeons. To support our 510(k) submission, we conducted engineering analyses in which our screws were uniquely attuned and well-balanced for optimal strength and insertion sharpness, all while maintaining superior implantation represented by greater predicted pull-out strength compared with predicate devices.

Our Monster and Mini Monster Screw Systems are cannulated and solid screw systems with a wide variety of size and feature options. We offer a variety of length increments and multiple thread length options that allow versatility for the fixation of osteotomies, fractures, and joint arthrodesis. Our screw offerings are supported by a robust portfolio of tools and instruments designed to help improve consistency and accuracy of surgical outcomes.

Our Joust Beaming Screw System is comprised of cannulated and solid beams with a variety of sizes and features optimized to accommodate varying patient anatomy and allow surgeons greater flexibility in final placement. Compared to our Monster screw systems, Joust screws are longer in length and are primarily utilized in procedures that require stabilization that extends beyond one joint, such as charcot foot. Additionally, our Joust screws are constructed from Type II Anodized Titanium that have been proven in third-party clinical studies to provide improved fatigue strength, which may result in better patient outcomes.

Our screws can be used as a standalone implant, with other screws, or in tandem with a plating system, depending on the procedural demands and surgeon preference. We designed our screws with the mindset of being inclusive and cognizant of individual surgeon preferences, knowing that there is more than one way to a successful outcome. We believe that we offer surgeons one of the broadest ~~array~~arrays of screw options, including headed and headless screws, fully and partially threaded, all at various sizes. Other key features of our screws include reverse cutting flute threading, which are self-tapping reverse threads that help facilitate screw removal, and forward cutting flutes, which creates thread pattern during screw insertion and allow the screw to be self-tapping.

The Monster Screw System is cleared for use in bone reconstruction, osteotomy, arthrodesis, joint fusion, ligament fixation, fracture repair and fracture fixation, appropriate for the size of the device. The Monster Screw System, including the Joust Beaming Screw System, can be used in both adult and pediatric patients. ~~We began developing the~~The Monster Screw System ~~in the third quarter of 2011 and~~ received ~~our initial~~ 510(k) clearance in April 2013. The Monster Screw System is cleared as Class II medical devices for the above indications and the associated instrumentation are cleared as Class I medical devices.

The Joust Beaming Screw System is indicated for use in bone reconstruction, osteotomy, arthrodesis, joint fusion, ligament fixation, fracture repair and fracture fixation, appropriate for the size of the device. ~~We began developing~~The Joust Beaming Screw System ~~in the fourth quarter of 2017 and~~ received ~~initial~~ 510(k) clearance in April 2019. The Joust Beaming Screw System can be used in adult patients. The Joust Beaming Screw System is cleared as Class II medical device for the above indications and the associated instrumentation are cleared as Class I medical devices.

The APEX 3D is our total ankle replacement system that was initially cleared by the FDA in July 2020. We believe the APEX 3D System marks the next generation in total ankle arthroplasty, or replacement, with advanced technologies such as porous 3-D printed implants and Vitamin E infused highly cross-linked polyethylene. The APEX 3D implant is available in varying sizes and design configurations, including a universal polyethylene locking mechanism that provides surgeons versatility in implant sizing to best fit the needs of the patient. The APEX 3D System is based on over a century of combined clinical experience, cutting-edge biomechanical research, and is designed to address the inherent challenges associated with total ankle joint replacement clinical outcomes including tibial component loosening at a rate of between 12% and 38%, pathological wear, overly constrained articulation components in the presence of imperfect alignment, limited research to indicate the sensitivity of alignment, significant patient variation in gait, instability, and persistent pain. In addition, the APEX 3D System was designed to address the factors we believe contribute to loosening and stress of components. We believe it is the first true anatomic dual cone design, based on CT research around both diseased and healthy anatomy.

The APEX 3D total ankle replacement system is cleared for use as a total ankle replacement in primary surgery for patients with ankle joints damaged by severe rheumatoid, post-traumatic or degenerative arthritis. Revision surgery for these patients is also indicated for patients with sufficient bone stock present. The APEX 3D total ankle replacement system can be used in both adult and pediatric patients. ~~We began developing the~~The APEX 3D total ankle replacement system ~~in the fourth quarter of 2016 and~~ received ~~our initial~~ 510(k) clearance in July 2020. The APEX 3D total ankle replacement system is cleared as Class II medical device for the above indications and the associated instrumentation are cleared as Class I medical devices.

To complement our APEX 3D total ankle replacement implant and further distinguish our total ankle replacement procedure, we developed two advanced technologies, FasTrac and MAVEN, to utilize intra-operatively. Depending on physician preference and surgical needs, FasTrac or MAVEN is designed to ensure optimized implant positioning to enhance post-procedural surgical outcomes. FasTrac and MAVEN represent our first TAR-specific Smart 28 tools. We intend to further develop tools and capabilities across the entire continuum of TAR care to further enhance clinical outcomes for our APEX 3D patients.

FasTrac is our proprietary distal tibia alignment system that features laser technology developed to provide a precise visual reference point during component alignment, a critical step in establishing optimal implant placement during TAR. In addition to expediting and visually enhancing alignment, the system streamlines the surgical technique by eliminating the need to insert an additional pin into the tibia or conduct CT scans. The FasTrac system is designed to be used to verify varus/valgus alignment as well as internal external alignment. FasTrac is cleared for use for the same use as our APEX 3D total ankle replacement system and can be used in adult patient populations. ~~We began developing~~The FasTrac ~~in the second quarter of 2018 and~~ received ~~initial~~ 510(k) clearance in November 2020. FasTrac is cleared as Class II medical device for the above indications and the associated instrumentation are cleared as Class I medical devices.

MAVEN is our proprietary patient-specific instrumentation offering that provides an accurate and simple-to-use surgical planning technology to surgeons. It utilizes an advanced CT-based coordinate system designed for reproducible alignment and accurate implant placement critical for long-term survivorship of the implant. MAVEN advances patient-specific technologies with its anatomical design features, which promote alignment accuracy, stability, and ideal implant placement. MAVEN is compatible with both weight-bearing CT and traditional CT scanning technologies and features one continuous scan from the knee through the base of the foot to capture biomechanically accurate data. The combination of patient-specific CT information, contoured guides, and APEX 3D implant designs provide the surgeon with exceptional technology engineered to optimize patient outcomes. Our MAVEN patient-specific instrumentation is intended to be used as patient specific surgical instrumentation to ~~assist in the positioning of~~help position total ankle replacement components intraoperatively and ~~in guiding the~~guide bone marking ~~of bone~~ before cutting. MAVEN can be used in ~~both~~ adult and pediatric patients. ~~We began developing the~~ MAVEN ~~in the fourth quarter of 2018 and~~ received ~~initial~~ 510(k) clearance in January 2021. MAVEN is cleared as Class II medical device for the above indication and the associated instrumentation ~~are~~is cleared as Class I medical devices.

We have the first and only patient-specific total talus spacer authorized for marketing pursuant to an approved HDE application. The implant is designed to replace the talus, the bone in the ankle that connects the leg and foot. This distinct product offering allows patients to maintain a more active lifestyle and provides our surgeons access to a novel alternative to amputation or traditional ankle fusion therapies. We utilize our advanced technologies to create the patient-specific implant shape based on CT scan imaging data, bolstered with AI. The imaging data is then processed in our proprietary software applications to automatically create a design to match the patient’s specific anatomy. The design is then additively manufactured with laser sintering technology, a technique to harden the material, utilizing a cobalt chromium metal alloy.

Patients who received the Patient Specific Talus Spacer in an independent clinical study showed a reduction in pain compared to baseline visual analogue scale pain scores, a standard unidimensional measure of pain, improvement in range of motion, and improvement of functional outcomes based on all Foot and Ankle Outcome Score (FAOS) subscales, including pain, other symptoms, function in daily living, function in sports and recreational activities, and foot and ankle-related quality of life. This study evaluated 32 cases in 31 patients. The primary safety endpoint was the proportion of patients who underwent a secondary subsequent surgical intervention (SSSI). Other safety endpoints assessed included adverse events, device or procedure related adverse events, adverse events by severity, and serious adverse events. The probable benefit endpoint, which is an endpoint used in HDE applications to demonstrate the probable benefit of health from use of the device outweighs the risk of illness or injury from its use, was the reduction in baseline level pain following surgery using the Visual Analog Scale (VAS) for pain. The secondary probable benefit endpoints assessed included ankle range of motion (ROM) and FAOS. FAOS subscales, pain, ~~symptom~~symptoms (stiffness, swelling), activities of daily living (ADL), ability to perform sports and recreational activities (Sport/Rec); and foot/ankle-related quality of life (QoL) were also assessed. The patients who were implanted with the patient specific talus spacer in the above study received a clinically meaningful probable benefit from the device. The study demonstrated that baseline VAS pain score ~~were~~was reduced by -2.8 cm postoperatively, from 6.9 cm (moderate to severe pain) to 4.1 cm (mild pain). ROM also improved on average, especially when limiting the analysis to those patients who had at least a year of follow-up and thus had adequate time to rehabilitate. Functional outcomes based on FAOS subscales also improved, with average improvement on all subscales exceeding the associated MIC threshold except Sport/Rec. Moreover, the rate of reoperation was low, with 9.4% of cases resulting in reoperation. Improvement in pain and function measures, accompanied by a low rate of reoperation, is particularly meaningful to AVN talus patients who have limited options and high risk of needing to undergo fusion or amputation. No serious adverse events were reported and there were only three adverse events reported, one for scarring and two for pain related to the implant. The study was not powered for significance.

The total talus spacer is marketed pursuant to an approved HDE application to treat avascular necrosis of the ankle joint. The anatomical landmarks necessary for the design and creation of the patient specific talus spacer must be present and identifiable on a CT scan. The total talus spacer system can only be used in adult patients. Additive ~~Orthopeadics~~Orthopaedics began development on the total talus spacer in the first quarter of 2016 and the original HDE application was approved in February 2021.

We have developed a variety of products and systems to treat bunions. There is no one size fits all approach to such a complex confluence of soft tissue and bone deformities, and we developed a portfolio of surgical options to treat bunions of varying degrees of severity and other patient-specific considerations such as weight, age and level of desired activity. When choosing a bunion procedure, it is important to match the procedure to the severity and type of deformity, while considering factors such as medical co-morbidities, soft tissue, age, and activity level. Improper choice of procedure could lead to under correction, recurrence, complications or altered biomechanics of the foot. We believe that the goal of any bunion procedure should be to maximize deformity correction, while minimizing disruption of healthy tissue and bone. Our broad portfolio allows the surgeon to provide patients with a solution to address the appropriate level of intervention for their individual deformity, from mild and moderate to severe and end stage.

The below section highlights two of our various bunion correction systems, the PROMO Triplanar Hallux Valgus Correction System and the Phantom Intramedullary Nail System

More than 100 surgical techniques exist for the treatment of bunions. Bunion post-operative recurrence rates vary between different publications from 3% to 70%, representing significant variability and procedural limitations amongst conventional treatments. We designed our proximal rotational metatarsal osteotomy or PROMO Triplanar Hallux Valgus Correction System (PROMO) to consistently and effectively treat all three planar dimensions contributing to bunion deformity without requiring a fusion of the joint. We also developed our PROMO system to provide surgeons the flexibility to tailor the procedure to match the specific deformity and allow the opportunity to correct a wide range of bunion deformities. In addition, we have developed tools and instruments specific to the PROMO procedure, providing the surgeon with procedural reproducibility and accuracy. Additionally, in cases with healthy joints or with patients that are not hypermobile, our PROMO procedure does not require fusion of the TMT joint, or the tarsometatarsal joints in the foot, while still addressing all planes of deformity.

In a study published in Foot and Ankle Clinics in 2019, the authors report on their experience using the PROMO procedure on 60 patients with one year of follow-up and 25 patients with two years of follow-up. The authors noted that there was a 3% deformity recurrence rate observed, with 100% union rate achieved. In an earlier prospective study published in Foot & Ankle Orthopaedics in 2018, results demonstrated that the PROMO technique reliably corrects pronation and varus through a stable osteotomy, avoiding fusing of any healthy joints. After one year, all 25 patients were satisfied with the surgery, and no recurrence or complications were found. The authors also reported significant improvement in radiographic measurements, including the lack of metatarsal shortening, which can occur with the Lapidus bunionectomy procedure. We did not fund this study and were not involved in the data collection or the publication. The study was not powered for significance and ~~the~~ no adverse events were reported.

The PROMO system is indicated for use for stabilization and fixation of fractures or osteotomies; intra and extra articular fractures, joint depression, and multi-fragmentary fractures; revision procedures, joint fusion and reconstruction of small bones of the toes, feet and ankles including the distal tibia, talus, and calcaneus, as well as the fingers, hands, and wrists. The PROMO system can be used in both adult and pediatric patients. We began developing the PROMO system in the second quarter of 2017 and received initial 510(k) clearance in December 2017. The PROMO system is cleared as Class II medical device for the above indications and the associated instrumentation are cleared as Class I medical devices.

Our Hallux Valgus (bunions) portfolio also features our Phantom Intramedullary Nail system which is a novel dedicated intramedullary device designed specifically for correcting hallux valgus deformity by fusing the first TMT joint. Offered in a variety of lengths to accommodate variations in patient anatomy, the nail and threaded peg construct is positioned below the bone with zero profile to minimize soft tissue disruption during a Lapidus procedure. This design is intended to lessen pain associated with hardware prominence of traditional plating systems while minimizing disruption to the periosteum (blood supply). The system exerts a proportionate amount of force in all anatomic planes to resist recurrent hallux valgus and plantar gapping. The nail and threaded peg construct offer crossed screw fixation proximally and distally, providing for stability across the fusion site and allowing early weight bearing. Instrumentation provided in the system also allows the surgeon to dial in the appropriate amount of compression specific to each patient, with this compression being applied directly through the center of the anatomy, which is the ideal location.

Additionally, as part of this system, we offer unique instrumentation that provides targeting guides for precise placement and positioning of the nail and pegs.

In a clinical study designed to analyze the efficacy of different fixation devices in relation to such devices ability to prevent plantar gapping, our Phantom Intramedullary Nail demonstrated improved performance as compared to a medial wall plate construct and crossing screw constructs while avoiding soft tissue irritation. A study published in Foot & Ankle Orthopaedics in 2019 compared our 4-Hole Phantom Intramedullary Nail, 3-Hole Phantom Intramedullary Nail, Gorilla Lapidus Plate, and a ~~two crossing~~two-crossing screw construct in cadaveric tissue in cyclic loading, simulating repeated loading of the foot that would occur with walking. The study found that the 3-Hole and 4-Hole Phantom Intramedullary Nails, as well as the Gorilla Lapidus Plate all had statistically significant less plantar gap widening than crossing screws and may provide a better environment for bone healing than screw fixation.

The Phantom Intramedullary Nail System is indicated for use in stabilization and fixation of the small bones of the feet and ankle for the treatment of fractures, osteotomies, nonunions, pseudoarthroses and malunions by revision, joint fusion or reconstruction procedures. Phantom Intramedullary Nail System can be used in both adult and pediatric patients. ~~We began developing the~~The Phantom Intramedullary Nail System ~~in the fourth quarter of 2013 and~~ received ~~initial~~ 510(k) clearance in June 2017. The Phantom Intramedullary Nail System is cleared as Class II medical device for the above indications and the associated instrumentation are cleared as Class I medical devices.

We offer a variety of different orthobiologics, including bone wedges, grafts, demineralized bone matrices, bone void fillers, synthetic materials, amniotic products, and a biocompatible collagen matrix. Our flagship orthobiologic product is our patented PRESERVE Bone Graft System, which features eight procedure-specific shapes with more than 40 size variations, significantly reducing the need for potential graft shaping. PRESERVE is complemented with a variety of sizer instruments that allow surgeons the ability to determine ideal graft size and position to achieve the desired correction.

Our PRESERVE allografts are made of dense cancellous bone, which is the spongy portion typically found at the end of the bone. Studies have shown that cancellous bone is eight times more metabolically active than cortical bone, which is the dense outer surface of the bone, and has a higher union rate. Additionally, to enhance the quality and performance of our grafts we apply an aseptic processing technique that helps preserve the biomechanical properties of the bone and this narrows the donor pool to only the highest quality bone. Our process does not utilize traditional terminal sterilization techniques such as gamma irradiation or hydrogen peroxide. Studies have shown that terminal sterilization techniques may make bones more brittle, negatively impact osteoinductivity of bone, and delay graft incorporation or even contribute to graft non-union. Because our process allows us to maintain mechanical integrity of the graft, we don’t have to utilize a cortical rim which in turn gives us greater visibility of graft incorporation post-implantation and increases incorporation speed. We believe that our unique and patented shapes and processing techniques allow PRESERVE to be a superior product and improve clinical outcomes for our patients.

In a study published in Foot & Ankle Orthopaedics in 2016, the authors determine if using gamma irradiation during processing will significantly decrease the modulus (elasticity), maximum compression strain and stress and energy during static testing of dense cancellous bone. The purpose was to also determine if using gamma irradiation during processing would significantly decrease the strain energy of the allograft during dynamic testing in dense cancellous bone. Static testing results demonstrated a 27% reduction in modulus, a 26% reduction in maximum stress, a 15% reduction in strain at maximum stress and a 37% reduction in energy in the gamma irradiated specimens versus aseptically processed specimens.

The PRESERVE Bone Graft System is regulated as a Human Cell and Tissue Product (HCT/P) under Section 361 of the Public Health and Services Act (PHSA). The PRESERVE Bone Graft System is intended for homologous use only, which means repair, reconstruction, replacement, or supplementation of a recipient’s cells or tissues with tissue-based product that performs the same basic function or functions in the recipient as in the donor. We began developing the PRESERVE Bone Graft System in the first quarter of 2013.

In addition to the products highlighted above, we have a wide variety of other procedurally focused and differentiated systems.

We are committed to continuously expanding our portfolio of foot and ankle solutions and to bring next-generation products to market. Our development pipeline is driven by our passion and commitment to designing products aimed ~~to improve~~at improving patient outcomes and ~~create~~creating surgical efficiencies. We have a dedicated team of design and development engineers that have embodied our research philosophy to drive continual innovation. Our internal engineering team is comprised of 55 highly qualified individuals, and when needed we utilize third-party resources to augment and support our team with subject matter expertise. We believe our research philosophy provides us with a competitive edge in the marketplace, and includes the following principles:

We aim to further inform our product development and benefit the broader foot and ankle community by collaborating with university partners to perform meaningful, unbiased research. This research has resulted in publications that are unrelated to our existing products and can be used as tools to analyze existing technology, as well as drive creativity and learning opportunities for our engineers and foot and ankle surgeons.

We have established a cadence of bringing new products to market. Since our first commercial launch in 2011, we have brought to market 75 product systems consisting of approximately 9,200 SKUs. We expect to continue this steady rhythm of new product development and launches. We currently have more than 25 product and system offerings in our development pipeline and expect the majority to launch commercially in the next 24 months.

We are committed to continued investment in clinical evidence and involving physicians who are recognized as thought leaders in foot and ankle. We believe these efforts will continue to generate a large compendium of publications to ultimately drive adoption of our products and increase awareness of foot and ankle procedures with the goal of establishing our products as the standard of care. Since inception, we have developed a broad set of published studies that we believe strengthens our position as a thought leader in our industry. The safety and clinical performance of our products are supported by ~~more than 52 published~~nearly 100 publications, over half of which were sponsored by Paragon 28. This includes nearly 80 journal publications and scientific meetings, 20 of which were algorithm-oriented, and over 20 clinical whitepapers ~~or studies, of which approximately half were funded by Paragon~~ and ~~were conducted by our employees.~~case studies.

We plan to continue investing in pre-clinical and post-clearance or post-certification studies to drive utilization of our products. As part of our clinical strategy, we emphasize and internally conduct performance testing of our products including mechanical implant testing in an effort to substantiate the claims we make and support marketing of our clinically meaningful systems.

To support our commercial expansion and awareness of the clinical benefits of our solutions, we have made significant investments in our education and training programs. To date, we have trained thousands of surgeons and other professionals. In addition, in 2019 we opened a new corporate, research and development, and clinical headquarters, which includes a 250-person auditorium and a 40-station cadaveric lab that have the capacity to train up to 5,000 people per year. In the United States, we believe there are approximately 2,400 orthopedic surgeons who specialize in foot and ankle, approximately 2,300 pediatric and trauma surgeons that treat foot and ankle and approximately 9,000 surgical podiatrists, approximately half of which are performing foot and ankle surgery. In addition to education and training opportunities offered at our headquarters, we employ a broad range of additional options including regional programs and virtual seminars. The breadth of our educational and training programs allows us to cater to a broad range of surgeons and ~~sales people~~salespeople with significant flexibility around time and location.

Education for our commercial organization is extensive and on-going. We believe our extensive training programs have contributed to the clinical expertise of our sales representatives, enabling them to become trusted partners of foot and ankle surgeons.

Our U.S. sales forces consists primarily of independent sales representatives, the majority of whom are exclusive. For the year ended December 31, ~~2022,~~2023, substantially all of our U.S. revenue was produced by ~~234~~266 producing sales representatives. We define producing sales representatives as those sales ~~representatives~~representatives' logging revenue, for at least one case, in all three months of each quarter. As of December 31, ~~2022,~~2023, our international sales force consists of 13several independent sales agents and direct sales representatives, 9 non-stocking distributors, 8 stocking distributors, and 15 direct sales market. We began selling outside the U.S. in 2016. We believe that we have a significant opportunity to continue to capture market share in existing and new territories both in the United States and internationally. We expect to continue to dedicate meaningful resources to expand and strengthen our global sales force.

The foot and ankle market is a young and relatively new surgical specialty that is dominated by a handful of incumbents that operate across the broader medical device and orthopedic markets. Our currently marketed products are, and any future products we commercialize will be, subject to competition. We believe that the principal competitive factors in our markets include:

Within the lower extremities market, our primary competitors include multinational companies such as Stryker Corporation (Stryker), Arthrex, Inc. (Arthrex), Smith & Nephew plc (Smith and Nephew), Johnson ~~and~~& Johnson (J&J) and Zimmer Biomet Holdings, Inc. (Zimmer Biomet) as well as with companies with one or a limited number of foot and ankle products such as Enovis Medical (Enovis), CrossRoads Extremity Systems, LLC (Crossroads), Medline Industries, Inc. (Medline), Conmed Corporation (Conmed), ~~Novastep Inc. (Novastep)~~ and Treace Medical Concepts, Inc. (Treace).

Many of our multinational competitors have significant financial resources and in addition to competing for foot and ankle market share, they also compete with us in recruiting and retaining qualified sales and marketing professionals, qualified research & development expertise, speed and cadence of product launches and acquiring novel technologies that augment their existing portfolios.

Due to our growing international presence, we also compete with medical device manufacturers outside of the United States. These competitors may develop effective or less expensive products and obtain regulatory clearance or certification before us.

We actively seek to protect the technology, inventions and improvements that we consider important to our business using patents, trade secrets, trademarks and copyrights in the United States and foreign markets.

As of December 31, ~~2022,~~2023, our patent portfolio included ~~262~~304 owned and issued patents. Of our patents:

In addition to our owned patents, we have nine registered patents that are in-licensed pursuant to our agreement with Biedermann Technologies GmbH & Co. KG ("Biedermann") and two registered patents that are in-licensed pursuant to our agreement with Extremity Medical, LLC (“Extremity”)~~.Of~~. Of the nine patents licensed from Biedermann, six are utility patents and three are design patents. All of the Biedermann patents relate to technologies used in our JAWs staple system. Of the patents licensed from Biedermann, six are U.S. patents, one is aan EU patent, one is a Chinese patent and one is a Japanese patent. The patents licensed from Biedermann begin to expire in 2033. The two patents licensed from Extremity are utility patents and relate to technology used in our Phantom Lapidus Intramedullary Nail System. The patents licensed from Extremity begin to expire in 2030.

We entered into the license agreement with Biedermann in July 2017 ("Biedermann License Agreement"). Pursuant to the Biedermann License Agreement, we are required to pay a royalty of four percent (4%) of net revenue related to the licensed intellectual property for ~~the~~ 15 years following the date of first sale, including a minimum annual payment of $250,000. The term of the agreement is 20 years, and automatically renews for five-year periods thereafter. Payments to Biedermann under this license agreement totaled $269,000, $249,000 ~~$87,000~~ and ~~$111,000~~$87,000 for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, respectively. Amounts payable to Biedermann as of December 31, ~~2022~~2023 and December 31, ~~2021~~2022 were ~~$164,000~~$155,000 and ~~$163,000,~~$164,000, respectively. We entered into the Extremity License Agreement in November of 2021 (“Extremity ~~license~~License Agreement”). Pursuant to the Extremity License ~~Agreement.~~Agreement, we are required to pay a royalty of four percent (4%) of net sales related to the licensed intellectual property until the expiration of the last expired patent. Payments to Extremity under this license agreement totaled $0, $64,000 and $0 for the years ended December 31, 2023, 2022 and 2021, respectively. We believe the Biedermann License ~~Agreements~~Agreement and the Extremity License Agreement are both immaterial to our business.

As of December 31, ~~2022~~2023, we had ~~231~~265 pending patent applications globally, including 7487 in the United States. In addition to these patent applications, we ~~had four~~have one pending patent ~~applications~~application that ~~are~~is pursuant to our license agreement with Biedermann. ~~All of the~~The patent ~~applications~~ pursuant to our license agreement with Biedermann ~~are~~includes seven utility patents and ~~they~~three design patents that cover technology related to our JAWS staple system. Of these patent applications, ~~two~~eight are U.S. patents and two are EU patents. These patent applications will expire 20 years from their earliest filing date when issued. As a result, the earliest these patents could expire, if issued, would be 2035. The pending patent ~~applications are~~application is intended to exclude competitors from practicing the innovations of our currently marketed product offering, ~~and~~ to protect potential future commercialization opportunities, and to strategically block potential workarounds by competitors.

We have U.S. trademark registrations for several of our most material marks, including “PARAGON 28,” “MONSTER,” “GORILLA” and “PHANTOM.” We also have pending U.S. trademark registrations on other material marks, including “APEX 3D,” “MAVEN,” “SILVERBACK,” and “R3ACT.”

The term of individual patents depends on the legal term for patents in the countries in which they are granted. In many countries, including the United States, the patent term for a utility patent is generally 20 years from the earliest claimed filing date of a non-provisional patent application in the applicable country. We cannot assure that patents will be issued from any of our pending applications or that, if patents are issued, they will be of sufficient scope or strength to provide meaningful protection for our technology. Notwithstanding the scope of the patent protection available to us, a competitor could develop competitive treatment methods or devices that are not covered by our patents, and we may be unable to stop such competitor from commercializing such treatment methods or devices. Furthermore, numerous U.S. and foreign-issued patents and patent applications owned by third parties exist in the fields in which we are developing products. Because patent applications can take many years to issue, there may be applications unknown to us, which applications may later result in issued patents that our existing or future products or technologies may be alleged to infringe.

There has been substantial litigation regarding patent and other intellectual property rights in the medical device industry. In the future, we may need to engage in litigation to enforce patents issued or licensed to us, to protect our trade secrets or know-how, to defend against claims of infringement or misappropriation of the alleged rights of others or to determine the scope and validity of the alleged proprietary rights of others. Any such litigation could result in significant expense and could divert our attention and resources from other functions and responsibilities. Furthermore, even if our patents are found to be valid and infringed, a court may refuse to grant injunctive relief against the infringer and instead grant us monetary damages and/or ongoing royalties. Such monetary compensation may be insufficient to adequately offset the damage to our business caused by the infringer’s competition in the market.

Adverse determinations in litigation could subject us to significant liabilities to third parties, could require us to seek licenses from third parties and pay significant royalties to such third parties and could prevent us from manufacturing, selling or using our product or techniques, any of which could severely harm our business.

Our knowledge and experience, creative product development, marketing staff and trade secret information, with respect to manufacturing processes, materials and product design, are as important as our patents in maintaining our proprietary product lines. As a condition of employment, we require all employees and key contractors to execute an agreement obligating them to maintain the confidentiality of our proprietary information and assign to us inventions and other intellectual property created during their employment. For more information, please see “Risk Factors—Risks Related to Our Intellectual Property.”

We currently leverage multiple third-party manufacturing relationships to ensure ~~high quality, low cost~~high-quality, low-cost production while maintaining a capital efficient business model. We have multiple sources of supply for many of our surgical solutions’ critical components. Nearly all of our supply agreements do not have minimum manufacturing or purchase obligations. As such, we generally do not have any obligation to buy any given quantity of products, and our suppliers generally have no obligation to sell to us or to manufacture for us any given quantity of our products or components for our products. In most cases, we have redundant manufacturing capabilities for each of our products although we are starting to experience some inflationary pressure and extended lead times, primarily limited to raw materials and labor. Except during the height of the COVID-19 pandemic, we have not experienced any significant difficulty obtaining our products or components for our products necessary to meet demand, and we have only experienced limited instances where our suppliers had difficulty supplying products by the requested delivery date. We believe our manufacturing capacity is sufficient to meet market demand for our products for the foreseeable future.

Order quantities and lead times for components purchased from suppliers are based on our forecasts derived from both historical demand and anticipated future demand. Lead times for components may vary depending on the size of the order, time required to fabricate, specific supplier requirements and current market demand for the components, sub-assemblies and materials. For a discussion of risks related to third-party contract manufacturers and suppliers, some of which are single source, see "Risk Factors—Risks Related to Administrative, Organizational and Commercial Operations and ~~Growth—~~Growth." We depend on third-party contract manufacturers and suppliers, some of which are single source, to produce and package all elements comprising our foot and ankle products, and if these suppliers and manufacturers fail to supply us, our products or their components or subcomponents in sufficient quantities or at all, it will have a material adverse effect on our business, financial condition, and results of operations."

Our products, product candidates and operations are subject to extensive regulation by the FDA and other federal and state authorities in the United States, as well as comparable authorities in foreign jurisdictions. Our products are subject to regulation as medical devices in the United States under the Federal Food, Drug, and Cosmetic Act (FDCA) as implemented and enforced by the FDA, and to similar regulations as implemented and enforced by applicable regulatory authorities in foreign jurisdictions.

The FDA regulates the development, design, non-clinical and clinical research, manufacturing, safety, efficacy, labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising, promotion, marketing and distribution, and import and export of medical devices to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements of the FDCA.

Unless an exemption applies, each medical device commercially distributed in the United States requires either FDA clearance of a 510(k) premarket notification, de novo classification, or a premarket approval ~~of a PMA.~~(PMA). Under the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness. Class I includes devices with the lowest risk to the patient and are those for which safety and effectiveness can be assured by adherence to the FDA’s General Controls for medical devices, which include compliance with the applicable portions of the Quality System Regulation (QSR), facility registration and product listing, reporting of adverse medical events, and truthful and non-misleading labeling, advertising, and promotional materials. Class II devices are subject to the FDA’s General Controls, and special controls as deemed necessary by the FDA to ensure the safety and effectiveness of the device. These special controls can include performance standards, post-market surveillance, patient registries and FDA guidance documents.

While most Class I devices are exempt from the 510(k) premarket notification requirement, manufacturers of most Class II devices are required to submit to the FDA a premarket notification under Section 510(k) of the FDCA requesting permission to commercially distribute the device. The FDA’s permission to commercially distribute a device subject to a 510(k) premarket notification is generally known as 510(k) clearance. Devices deemed by the FDA to pose the greatest risks, such as life sustaining, life supporting or some implantable devices, or devices that have a new intended use, or use advanced technology that is not substantially equivalent to that of a legally marketed device, are placed in Class III, requiring ~~approval of~~ a PMA. Some pre-amendment devices are unclassified, but are subject to FDA’s premarket notification and clearance process in order to be commercially distributed. The majority of our currently marketed products are Class II devices subject to 510(k) clearance, though we also market certain Class I exempt devices that do not require 510(k) clearance and one Class III product that is marketed pursuant to an approved HDE

developing one of our pipeline products that we believe will be subject to the requirement for approval under a PMA before it can be marketed.

To obtain 510(k) clearance, we must submit to the FDA a premarket notification submission demonstrating that the proposed device is “substantially equivalent” to a legally marketed predicate device. A predicate device is a legally marketed device that is not subject to premarket approval, i.e., a device that was legally marketed before May 28, 1976 (pre-amendments device) and for which a PMA is not required, a device that has been reclassified from Class III to Class II or I, or a device that was found substantially equivalent through the 510(k) process. The FDA’s 510(k) clearance process usually takes from three to ~~twelve~~nine months, but may take longer. The FDA may require additional information, including clinical data, to make a determination regarding substantial equivalence. In addition, FDA collects user fees for certain medical device submissions and annual fees for medical device establishments. For fiscal year ~~2023,~~2024, the standard user fee for a 510(k) premarket notification application is ~~$19,870.~~$21,760.

If the FDA agrees that the device is substantially equivalent to a predicate device currently on the market, it will grant 510(k) clearance to commercially market the device. If the FDA determines that the device is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III device. The device sponsor must then fulfill more rigorous PMA requirements or can request a risk-based classification determination for the device in accordance with the de novo classification process, which is a route to market for novel medical devices that are low to moderate risk and are not substantially equivalent to a predicate device.

After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change or modification in its intended use, will require a new 510(k) clearance or, depending on the modification, a PMA ~~approval~~ or de novo classification. The FDA requires each manufacturer to determine whether the proposed change requires submission of a 510(k) premarket notification, request for de novo classification or a PMA in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or request the recall of the modified device until 510(k) marketing clearance, ~~approval of~~ a PMA, or issuance of a de novo classification. Also, in these circumstances, the manufacturer may be subject to significant regulatory fines or penalties.

Over the last several years, the FDA has reformed its 510(k) clearance process. For example, in September 2019, the FDA issued revised final guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. The FDA has developed and maintains a list of device types appropriate for the “safety and performance based” pathway and continues to develop product-specific guidance documents that identify the performance criteria for each such device type, as well as recommended testing methods where feasible.

Class III devices require PMA approval before they can be marketed, although some pre-amendment Class III devices for which the FDA has not yet required a PMA are cleared through the 510(k) process. The PMA process is more demanding than the 510(k) premarket notification process. In a PMA, the manufacturer must demonstrate that the device is safe and effective, and the PMA must be supported by extensive data, including data from preclinical studies and human clinical trials. The PMA must also contain a full description of the device and its components, a full description of the methods, facilities, and controls used for manufacturing, and proposed labeling. Following receipt of a PMA, the FDA determines whether the application is sufficiently complete to permit a substantive review. If the FDA accepts the application for review, it has 180 days under the FDCA to complete its review of a PMA, although in practice, the FDA’s review often takes significantly longer, and can take up to several years. An advisory panel of experts from outside the FDA may be convened to review and evaluate the application and provide recommendations to the FDA as to the approvability of the device. The FDA may or may not accept the panel’s recommendation. In addition, the FDA will generally conduct a pre-approval inspection of the applicant or its third-party manufacturers’ or suppliers’ manufacturing facility or facilities to ensure compliance with the QSR. PMA applications are also subject to the payment of user fees, which for fiscal year ~~2023~~2024 includes a standard application fee of ~~$441,547.~~$483,560.

The FDA will approve the new device for commercial distribution if it determines that the data and information in the PMA constitutes valid scientific evidence and that there is reasonable assurance that the device is safe and effective for its intended use(s). The FDA may approve a PMA with post-approval conditions intended to ensure the safety and effectiveness of the device, including, among other things, restrictions on labeling, promotion, sale and distribution, and collection of long-term follow-up data from patients

in the clinical study that supported PMA approval or requirements to conduct additional clinical studies post-approval. The FDA may condition PMA approval on some form of post-market surveillance when deemed necessary to protect the public health or to provide additional safety and efficacy data for the device in a larger population or for a longer period of use. In such cases, the manufacturer might be required to follow certain patient groups for a number of years and to make periodic reports to the FDA on the clinical status of those patients. Failure to comply with the conditions of approval can result in material adverse enforcement action, including withdrawal of the approval.

Certain changes to an approved device, such as changes in manufacturing facilities, methods, or quality control procedures, or changes in the design performance specifications, which affect the safety or effectiveness of the device, require submission of a PMA supplement. PMA supplements often require submission of the same type of information as a PMA, except that the supplement is limited to information needed to support any changes from the device covered by the original PMA and may not require as extensive clinical data or the convening of an advisory panel. Certain other changes to an approved device require the submission of a new PMA, such as when the design change causes a different intended use, mode of operation, and technical basis of operation, or when the design change is so significant that a new generation of the device will be developed, and the data that were submitted with the original PMA are not applicable for the change in demonstrating a reasonable assurance of safety and effectiveness. None of our products are currently marketed pursuant to a PMA.

Medical device types that the FDA has not previously classified as Class I, II, or III are automatically classified into Class III regardless of the level of risk they pose. The Food and Drug Administration Modernization Act of 1997 established a route to market for low to moderate risk medical devices that are automatically placed into Class III due to the absence of a predicate device, called the “Request for Evaluation of Automatic Class III Designation,” or the de novo classification procedure. This procedure allows a manufacturer whose novel device is automatically classified into Class III to request down-classification of its medical device into Class I or Class II on the basis that the device presents low or moderate risk, rather than requiring the submission and approval of a PMA. Prior to the enactment of the Food and Drug Administration Safety and Innovation Act (FDASIA), in July 2012, a medical device could only be eligible for de novo classification if the manufacturer first submitted a 510(k) premarket notification and received a determination from the FDA that the device was not substantially equivalent. FDASIA streamlined the de novo classification pathway by permitting manufacturers to request de novo classification directly without first submitting a 510(k) premarket notification to the FDA and receiving a not substantially equivalent determination.

A HDE is a marketing pathway available to devices designated as humanitarian use devices, or HUDs. HUDs are devices receiving a designation from the FDA that the device is designed to treat or diagnose a disease or condition that occurs in fewer than 8,000 people in the U.S. per year. To market a HUD, the device must have received a HUD designation by the FDA and be approved by the FDA pursuant to an HDE application. An HDE approval is based on the applicant’s demonstration that there is no comparable device available and that the probable benefit to health from the proposed HUD outweighs the risk of injury or illness from its use, taking into account alternative treatments that are available for the condition or disease. However, a medical device approved pursuant to an HDE is exempt from the effectiveness requirements that would otherwise apply and to which the device would be subject if approved pursuant to a PMA, and clinical studies demonstrating effectiveness are not required to support approval. An approved HDE must be labeled with a disclaimer stating that the effectiveness of the device has not been established.

In addition, HUDs that receive HDE approval may not be sold for profit except in limited circumstances, such as where the disease or condition the HUD is intended to treat occurs in pediatric patients or subpopulations and the device is labeled for this use. Where the disease or condition occurs in adults and does not occur in the pediatric population (or occurs in the pediatric population in such numbers that development of the device for such population is impossible, highly impracticable, or unsafe), the device may also be sold for profit. However, in either case, to sell the device for profit, HDE holders must notify the FDA of the intent to sell for profit and are limited in the number of devices that may be sold for profit on an annual basis.

Prior to HUD use following HDE approval, the HDE holder is required to ensure that use of the use of the HUD has been approved by the facility’s IRB. Post-approval clinical studies may also be required. Our total talus spacer was authorized for marketing pursuant to an approved HDE with the requirement for a post-approval study.

Clinical trials are almost always required to support a PMA, HDE application, or de novo classification request and are sometimes required to support a 510(k) submission. All clinical investigations of devices to determine safety and effectiveness must

be conducted in accordance with the FDA’s investigational device exemption (IDE) regulations which govern investigational device labeling, prohibit

promotion of the investigational device, and specify an array of recordkeeping, reporting and monitoring responsibilities of study sponsors and study investigators. If the device presents a “significant risk,” to human health, as defined by the FDA, the FDA requires the device sponsor to submit an IDE application to the FDA, which must become effective before commencing human clinical trials. If the device under evaluation does not present a significant risk to human health, then the device sponsor is not required to submit an IDE application to the FDA before initiating human clinical trials, but must still comply with abbreviated IDE requirements when conducting such trials. A significant risk device is one that presents a potential for serious risk to the health, safety or welfare of a patient and either is implanted, used in supporting or sustaining human life, substantially important in diagnosing, curing, mitigating or treating disease or otherwise preventing impairment of human health, or otherwise presents a potential for serious risk to a subject. An IDE application must be supported by appropriate data, such as animal and laboratory test results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE will automatically become effective 30 days after receipt by the FDA unless the FDA notifies the company that the investigation may not begin. If the FDA determines that there are deficiencies or other concerns with an IDE for which it requires modification, the FDA may permit a clinical trial to proceed under a conditional approval.

Regardless of the degree of risk presented by the medical device, clinical studies must be approved by, and conducted under the oversight of, an Institutional Review Board (IRB) for each clinical site. The IRB is responsible for the initial and continuing review of the IDE, and may pose additional requirements for the conduct of the study. If an IDE application is approved by the FDA and one or more IRBs, human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a non-significant risk to the patient, a sponsor may begin the clinical trial after obtaining approval for the trial by one or more IRBs without separate approval from the FDA, but must still follow abbreviated IDE requirements, such as monitoring the investigation, ensuring that the investigators obtain informed consent, and labeling and record-keeping requirements. Acceptance of an IDE application for review does not guarantee that the FDA will allow the IDE to become effective and, if it does become effective, the FDA may or may not determine that the data derived from the trials support the safety and effectiveness of the device or warrant the continuation of clinical trials. An IDE supplement must be submitted to, and approved by, the FDA before a sponsor or investigator may make a change to the investigational plan that may affect its scientific soundness, study plan or the rights, safety or welfare of human subjects.

During a study, the sponsor is required to comply with the applicable FDA requirements, including, for example, trial monitoring, selecting clinical investigators and providing them with the investigational plan, ensuring IRB review, adverse event reporting, record keeping and prohibitions on the promotion of investigational devices or on making safety or effectiveness claims for them. The clinical investigators in the clinical study are also subject to FDA’s regulations and must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of the investigational device, and comply with all reporting and recordkeeping requirements. Additionally, after a trial begins, we, the FDA or the IRB could suspend or terminate a clinical trial at any time for various reasons, including a belief that the risks to study subjects outweigh the anticipated benefits.

Certain of our products are regulated as HCT/Ps. Section 361 of the PHSA authorizes the FDA to issue regulations to prevent the introduction, transmission or spread of communicable disease. HCT/Ps regulated as “Section 361” HCT/Ps are subject to requirements relating to registering facilities and listing products with the FDA, screening and testing for tissue donor eligibility, and Good Tissue Practices (cGTPs) when processing, storing, labeling, and distributing HCT/Ps, including required labeling information, stringent record keeping, and adverse event reporting. Specifically, cGTPs are requirements that govern the methods used in, and the facilities and controls used for, the manufacture of HCT/Ps in a way that prevents the introduction, transmission, or spread of communicable diseases. Section 361 HCT/Ps do not require approval of a marketing application from the FDA before marketing. However, to be regulated as a Section 361 HCT/P, the product must, among other things, be “minimally manipulated,” which for structural tissue products means that the manufacturing processes do not alter the original relevant characteristics of the tissue relating to the tissue’s utility for reconstruction, repair, or replacement and for cells or nonstructural tissue products, means that the manufacturing processes do not alter the relevant biological characteristics of cells or tissues. A Section 361 HCT/P must also be intended for “homologous use,” which refers to use in the repair, reconstruction, replacement, or supplementation of a recipient’s cells or tissues with an HCT/P that performs the same basic function or functions in the recipient as in the donor. HCT/Ps that do not meet the criteria of Section 361 are regulated under Section 351 of the PHSA. Unlike Section 361 HCT/Ps, HCT/Ps regulated as “Section 351” HCT/Ps are subject to the requirement for premarket review and marketing authorization by the FDA.

In November 2017, the FDA released a guidance document entitled “Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue—Based Products: Minimal Manipulation and Homologous Use—Guidance for Industry and Food and Drug Administration Staff.” The guidance outlined the FDA’s position that all products being purportedly marketed as Section 361 HCT/Ps are more than minimally manipulated and would therefore require a marketing approval to be lawfully marketed in the United States. The guidance also indicated that the FDA would exercise enforcement discretion, using a risk-based approach, with respect to the IND

application and pre-market approval requirements for certain HCT/Ps for a period of 36 months from the issuance date of the guidance to allow manufacturers to pursue INDs and/or seek marketing authorizations. Under this approach, the FDA indicated that high-risk

products and uses could be subject to immediate enforcement action. In July 2020, the FDA extended its period of enforcement discretion to May 31, 2021. As of June 1, 2021, the FDA resumed enforcement of IND and premarket approval requirements with respect to these products.

After a product is cleared or approved for marketing (or where the product does not require affirmative marketing authorization, is marketed), numerous and pervasive regulatory requirements continue to apply. These include:

Manufacturing processes for medical devices are required to comply with the applicable portions of the QSR, which cover the methods and the facilities and controls for the design, manufacture, testing, production, processes, controls, quality assurance, labeling, packaging, distribution, installation and servicing of finished devices intended for human use. The QSR also requires, among other things, maintenance of a device master record, device history file, ~~device~~design history file and complaint files. As a manufacturer, we are subject to periodic scheduled or unscheduled inspections by the FDA. Failure to maintain compliance with the QSR requirements could result in the shut-down of, or restrictions on, manufacturing operations and the recall or seizure of marketed products. The discovery of previously unknown problems with any marketed products, including unanticipated adverse events or adverse events of increasing severity or frequency, whether resulting from the use of the device within the scope of its clearance or off-label by a physician in the practice of medicine, could result in restrictions on the device, including the removal of the product from the market or voluntary or mandatory device recalls.

The FDA has broad regulatory compliance and enforcement powers. If the FDA determines that a manufacturer has failed to comply with applicable regulatory requirements, it can take a variety of compliance or enforcement actions, which may result in any of the following sanctions:

The European Union (EU) has adopted specific directives and regulations regulating the design, manufacture, clinical investigation, conformity assessment, labeling and adverse event reporting for medical devices.

Until May 25, 2021, medical devices were regulated by the Council Directive 93/42/EEC (EU Medical Devices Directive) which has been repealed and replaced by Regulation (EU) No 2017/745 (EU Medical Devices Regulation). Our current certificates have been granted and renewed under the EU Medical Devices Directive whose regime is described below. However, as of May 26, 2021, some of the EU Medical Devices Regulation requirements apply in place of the corresponding requirements of the EU Medical Devices Directive with regard to registration of economic operators and of devices, post-market surveillance, market surveillance and vigilance requirements. Pursuing marketing of medical devices in the EU will notably require that our devices be certified under the new regime set forth in the EU Medical Devices ~~Regulation when our current certificates expire.~~Regulation.

Under the EU Medical Devices Directive, all medical devices placed on the market in the EU must meet the relevant essential requirements laid down in Annex I to the EU Medical Devices Directive, including the requirement that a medical device must be designed and manufactured in such a way that it will not compromise the clinical condition or safety of patients, or the safety and health of users and others. In addition, the device must achieve the performance intended by the manufacturer and be designed, manufactured, and packaged in a suitable manner. The European Commission has adopted various standards applicable to medical devices. These include standards governing common requirements, such as sterilization and safety of medical electrical equipment and product standards for certain types of medical devices. There are also harmonized standards relating to design and manufacture. While not mandatory, compliance with these standards is viewed as the easiest way to satisfy the essential requirements as a practical matter as it creates a rebuttable presumption that the device satisfies that essential requirement.

To demonstrate compliance with the essential requirements laid down in Annex I to the EU Medical Devices Directive, medical device manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical device and its risk classification. As a general rule, demonstration of conformity of medical devices and their manufacturers with the essential requirements must be based, among other things, on the evaluation of clinical data supporting the safety and performance of the products during normal conditions of use. Specifically, a manufacturer must demonstrate that the device achieves its intended performance during normal conditions of use, that the known and foreseeable risks, and any adverse events, are minimized and acceptable when weighed against the benefits of its intended performance, and that any claims made about the performance and safety of the device are supported by suitable evidence. Except for low-risk medical devices (Class I non-sterile, non-measuring devices), where the manufacturer can self-assess the conformity of its products with the essential requirements (except for any parts which relate to sterility or metrology), a conformity assessment procedure requires the intervention of a notified body. Notified bodies are independent organizations designated by EU member states to assess the conformity of devices before being placed on the market. A notified body would typically audit and examine a product’s technical dossiers and the manufacturer's quality system (notified body must presume that quality systems which implement the relevant harmonized standards – which is ISO 13485:2016 for Medical Devices Quality Management Systems – conform to these requirements). If satisfied that the relevant product conforms to the relevant essential requirements, the notified body issues a certificate of conformity, which the manufacturer uses as a basis for its own declaration of conformity. The manufacturer may then apply the CE Mark to the device, which allows the device to be placed on the market throughout the EU.

Throughout the term of the certificate of conformity, the manufacturer will be subject to periodic surveillance audits to verify continued compliance with the applicable requirements. In particular, there will be a new audit by the notified body before it will renew the relevant certificate(s).

The regulatory landscape concerning medical devices in the EU recently evolved. On April 5, 2017, the EU Medical Devices Regulation was adopted to establish a modernized and more robust EU legislative framework, with the aim of ensuring better protection of public health and patient safety. The EU Medical Devices Regulation, among other things, is intended to establish a

uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation. Unlike the EU Medical Devices Directive, the EU Medical Devices Regulation is directly applicable

in EU member states without the need for member states to implement into national law. This aims at increasing harmonization across the EU.

~~Devices~~ In accordance with its recently extended transitional provisions, both (i) devices lawfully placed on the market pursuant to the EU Medical Devices Directive prior to May 26, 2021, and (ii) legacy devices lawfully placed on the EU market after May 26, 2021, in accordance with the EU Medical Devices Regulation transitional provisions may generally continue to be made available on the market or put into service, ~~until May 26, 2025,~~ provided that the requirements of the transitional provisions are fulfilled. In particular, ~~the certificate in question must still be valid and~~ no substantial change must be made to the device in question. However, even in this case, manufacturers must comply with a number of new or reinforced requirements set forth in the EU Medical Devices Regulation, in particular the obligations described below.

The EU Medical Devices Regulation requires that before placing a device, other than a custom-made device, on the market, manufacturers (as well as other economic operators such as authorized representatives and importers) must register by submitting identification information to Eudamed, unless they have already registered. The information to be submitted by manufacturers (and authorized representatives) also includes the name, address and contact details of the person or persons responsible for regulatory compliance. The new regulation also requires that before placing a device, other than a custom-made device, on the market, manufacturers must assign a unique identifier to the device and provide it along with other core data to the unique device identifier (UDI), database. These new requirements aim at ensuring better identification and traceability of the devices. Each device – and as applicable, each package – will have a UDI composed of two parts: a device identifier (UDI-DI) specific to a device, and a production identifier (UDI-PI) to identify the unit producing the device. Manufacturers are also notably responsible for entering the necessary data on Eudamed, which includes the UDI database, and for keeping it up to date. The obligations for registration in Eudamed will become applicable at a later date (as Eudamed is not yet fully functional). Until Eudamed is fully functional, the corresponding provisions of the EU Medical Devices Directive continue to apply for the purpose of meeting the obligations laid down in the provisions regarding exchange of information, including, and in particular, information regarding registration of devices and economic operators.

All manufacturers placing medical devices into the market in the EU must comply with the EU medical device vigilance system which has been reinforced by the EU Medical Devices Regulation. Under this system, serious incidents and Field Safety Corrective Actions (FSCAs) must be reported to the relevant authorities of the EU member states. These reports will have to be submitted through Eudamed – once functional – and aim to ensure that, in addition to reporting to the relevant authorities of the EU member states, other actors such as the economic operators in the supply chain will also be informed. Until Eudamed is fully functional, the corresponding provisions of the EU Medical Devices Directive continue to apply. Manufacturers are required to take FSCAs, which are defined as any corrective action for technical or medical reasons to prevent or reduce a risk of a serious incident associated with the use of a medical device that is made available on the market. A serious incident is any malfunction or deterioration in the characteristics or performance of a device on the market (e.g. inadequacy in the information supplied by the manufacturer, undesirable side-effect), which, directly or indirectly, might lead to either the death or serious deterioration of the ~~healthof~~health of a patient, user, or other persons or to a serious public health threat. An FSCA may include the recall, modification, exchange, destruction or retrofitting of the device. FSCAs must be communicated by the manufacturer or its legal representative to its customers and/or to the end users of the device through Field Safety Notices. For similar serious incidents that occur with the same device or device type and for which the root cause has been identified or a FSCA implemented or where the incidents are common and well documented, manufacturers may provide periodic summary reports instead of individual serious incident reports.

The advertising and promotion of medical devices is subject to some general principles set forth in EU legislation. According to the EU Medical Devices Regulation, only devices that are CE marked may be marketed and advertised in the EU in accordance with their intended purpose. Directive 2006/114/EC concerning misleading and comparative advertising and Directive 2005/29/EC on unfair commercial practices, while not specific to the advertising of medical devices, also apply to the advertising thereof and contain general rules, for example, requiring that advertisements are evidenced, balanced and not misleading. Specific requirements are defined at a national level. EU member states’ laws related to the advertising and promotion of medical devices, which vary between jurisdictions, may limit or restrict the advertising and promotion of products to the general public and may impose limitations on promotional activities with healthcare professionals.

Additional requirements applicable to products containing human cells and tissues

The EU does not have an overarching law or regulation that governs the legal framework surrounding products containing human tissues or cells in a way that would be analogous to HCT/Ps in the U.S. However, specific requirements apply with respect to human cells and tissues, in particular, when used in a product such as a medical device. Under EU law, the donation, procurement, testing, processing, preservation, storage and distribution of human tissues and cells intended for human application, and of

manufactured products which are derived from such cells and tissues, are currently governed by Directive 2004/23/EC (the EU Tissues and Cells Directive).

To the extent the manufactured product is covered by another EU regulation or directive, only the requirements relating to donation, procurement and testing under the EU Tissues and Cells Directive apply in addition to the requirements set out under the relevant EU regulation or directive applicable to the product in question.

With respect to medical devices, as a general principle, the EU Medical Devices Regulation does not apply to tissues or cells, or their derivatives (i.e., non-cellular substances extracted from such tissue or cells through a manufacturing process, which do not contain any cells or tissue at the final substance stage), or products containing or consisting of such human materials.

However, the EU Medical Devices Regulation does apply to devices that are manufactured using derivatives of human tissues or cells, to the extent such human materials are non-viable or rendered so. In such a case, applicable requirements depend on the action of the device part and that of the human materials it contains. If the device incorporates, as an integral part, non-viable human cells and tissues or their derivatives and their action is ancillary to that of the device, (i) relevant provisions of the EU Tissues and Cells Directive on donation, procurement and testing apply with respect to the human tissues and cells incorporated in the device, and (ii) applicable requirements of the EU Medical Devices Regulation apply with respect to the assessment and certification of the device. If, however, the action of the human tissues or cells (or derivatives thereof) is not ancillary to that of the device, the device is governed by the EU Tissues and Cells Directive only, and the general safety and performance requirements set out under the EU Medical Devices Regulation only apply to the extent the safety and performance of the device part of the product are concerned.

The EU Tissues and Cells Directive provides for general quality and safety requirements with respect to activities performed in relation to human cells and tissues. Since, for such activities, EU directives are not being of direct application, these requirements are implemented under national law, in each EU member state, and as such applicable requirements may vary from one EU member state to another, as each is free to implement measures which are more stringent than those set out under the EU Tissues and Cells Directive. Among other things, the EU Tissues and Cells Directive requires the following:

On July 14, 2022, the European Commission issued a proposal for a regulation on substances of human origin (SoHO) (the SoHO Proposal). Unlike directives, in all EU member states, regulations are directly applicable without the need for adoption of EU member state laws implementing them, in all EU member states. The SoHO Proposal aims to repeal, replace, and aggregate the existing regulatory framework applicable to human blood, tissue and cells, consisting of Directive 2002/98/EC on blood and blood components and the EU Tissue and Cells Directive. ~~It will come into force onceOnce~~Once a final text is adopted, the SoHO Proposal will come into force, although there will be a 2-year transition period before most provisions apply and a 3-year period before certain provisions apply. The extent to which the requirements of the SoHO Proposal will apply to medical devices vary. Where SoHO are used to manufacture medical devices, the provisions applicable to the activities of SoHO donor recruitment, donor history review and eligibility assessment, testing of donors for eligibility or matching purposes, and collection of SoHO from donors or patients will generally apply. However, where non-viable SoHO or their derivatives incorporate, as an integral part, a medical device, and where the action of the non-viable SoHO or their derivatives is principal and not ancillary to that of the device, the non-viable SoHO or their derivatives will be governed by the SoHO Proposal (in line with applicable provisions of the EU Medical Devices Regulation). The SoHO Proposal also seeks to improve consultation and cooperation between competent authorities regulating the different frameworks to ensure coherent oversight.

In the EU, regulatory authorities have the power to carry out announced and, if necessary, unannounced inspections of companies, as well as suppliers and/or sub-contractors and, where necessary, the facilities of professional users. Failure to comply with regulatory requirements (as applicable) could require time and resources to respond to the regulatory authorities’ observations

and to implement corrective and preventive actions, as appropriate. Regulatory authorities have broad compliance and enforcement powers and if such issues cannot be resolved to their satisfaction can take a variety of actions, including untitled or warning letters, fines, consent decrees, injunctions, or civil or criminal penalties.

The aforementioned EU rules are generally applicable in the European Economic Area (EEA) which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland.

Since the end of the Brexit transition period on January 1, 2021, Great Britain (England, Scotland and Wales) has not been directly subject to EU laws, however under the terms of the Ireland/Northern Ireland Protocol, EU laws generally apply to Northern Ireland. The EU laws that have been transposed into United Kingdom (UK) law through secondary legislation remain applicable in Great Britain. However, under the Retained EU Law (Revocation and Reform) Bill 2022, which is currently before the UK parliament, any retained EU law not expressly preserved and “assimilated” into domestic law or extended by ministerial regulations (to no later than June 23, 2026) will automatically expire and be revoked by December 31, 2023. In addition,Britain; however, new legislation such as the EU Medical Devices Regulation is not applicable in Great Britain.

The UK government has passed a new Medicines and Medical Devices Act 2021, which introduces delegated powers in favor of the Secretary of State or an ‘appropriate authority’ to amend or supplement existing regulations in the area of medicinal products and medical devices. This allows new rules to be introduced in the future by way of secondary legislation, which aims to allow flexibility in addressing regulatory gaps and future changes in the fields of human medicines, clinical trials and medical devices.

The EU-UK Trade and Cooperation Agreement (TCA), came into effect on January 1, 2021. The TCA does not specifically refer to medical devices but does provide for cooperation and exchange of information in the area of product safety and compliance, including market surveillance, enforcement activities and measures, standardization related activities, exchanges of officials, and coordinated product recalls (or other similar actions). For medical devices that are locally manufactured but use components from other countries, the “rules of origin” criteria will need to be reviewed. The rules for placing medical devices on the Northern Ireland market will differ from those in Great Britain.

Since January 1, 2021, the Medicines and Healthcare Products Regulatory Agency (MHRA) has become the sovereign regulatory authority responsible for Great Britain. New regulations require all medical devices to be registered with the MHRA, and since January 1, 2022, manufacturers based outside the UK have been required to appoint a UK responsible person that has a registered place of business in the UK to register devices with the MHRA.

On June 26, 2022, the MHRA published its response to a 10-week consultation on the post-Brexit regulatory framework for medical devices and diagnostics. The MHRA seeks to amend the UK Medical Devices Regulations 2002 (the UK MDR) (which continues to be based on the EU legislation which preceded the EU Medical Devices Regulation, primarily the EU Medical Devices Directive and the EU In Vitro Diagnostic Medical Devices Directive, i.e., Directive 98/79/EC), in particular to create a new access pathway to support innovation, create an innovative framework for regulating software and artificial intelligence as medical devices, reform in vitro diagnostic medical device regulation and foster sustainability through the reuse and remanufacture of medical devices. Regulations implementing the new regime were originally scheduled to come into force in July 2023, but the Government has recently confirmed that this date has been postponed until July 2024. Devices which have valid certification issued by EU notified bodies under the EU Medical Devices Regulation or Medical Devices Directive are subject to transitional arrangements. ~~In its consultation response,~~The Government has introduced legislation which provides that CE marked medical devices may be placed on the ~~MHRA indicated that~~Great Britain market to the ~~future UK regulations will allow~~following timelines:

Following these transitional periods, it is expected that all medical devices will require a UK Conformity Assessment (UKCA) mark. Manufacturers may choose to use the UKCA mark on a voluntary basis prior to the regulations coming into force. However, from July ~~2024,~~2025, products which do not have existing and valid CE certification under the EU Medical Devices Directive or EU Medical Devices Regulation and are therefore not subject to the transitional arrangements will be required to carry the UKCA mark if they are to be sold into the market in Great Britain. UKCA marking will not be recognized in the EU. ~~The rules for placing medical devices on the market in Northern Ireland, which is part of the UK, differ from those in Great Britain (England, Scotland and Wales) and continues to be based on EU law.~~

Under the terms of the Northern Ireland Protocol, Northern Ireland follows EU rules on medical devices and devices marketed in Northern Ireland require assessment according to the EU regulatory regime. Such assessment may be conducted by an EU notified body, in which case a CE mark is required before placing the device on the market in the EU or Northern Ireland. Alternatively, if a

UK notified body conducts such assessment, a ‘UKNI’ mark applied, and the device may only be placed on the market in Northern Ireland and not the EU.

The UK MDR does not generally apply to tissues or cells of human origin or products incorporating or derived from tissues or cells of human origin. Products will be required to comply with the UK MDR if they are manufactured utilizing animal tissue which is rendered non-viable or non-viable products derived from animal tissue. The UK MDR states that with respect to devices manufactured utilizing tissues of animal origin, the relevant approved body must follow the procedures referred to in Commission Regulation 722/2012, which forms part of EU retained law. In particular, the manufacturer of the medical device must be able to verify that the device’s benefits outweigh the risks, taking into account:

The Human Tissue Act 2004 regulates the removal, storage and use of human tissue in England, Wales and Northern Ireland, and is based on the principle that consent is required for a set of “scheduled ~~purposes”,~~purposes,” which include transplantation, anatomical examination and research in connection with disorders or functioning of the human body. “Human tissue” is defined as material that has come from a human body and consists of, or includes, human cells. Separate legislation, the Human Tissue (Scotland) Act 2006, applies in Scotland.

The Human Tissue (Quality and Safety for Human Application) Regulations 2007 (as amended) implements the requirements of the EU Tissues and Cells Directive and sets out the activities of storing and importing human tissues and cells for human application can only be carried out by an establishment holding an appropriate license, issued from the Human Tissue Authority (the HTA). The following activities may be carried out either under an appropriate HTA license: procurement, testing, processing, export, and distribution. Alternatively, the listed activities can be carried out under the authority of a ~~third party~~third-party agreement in the following circumstances:

The Human Tissue (Quality and Safety for Human Application) Regulations 2007 (as amended) sets out further conditions on licensed establishments, such as requirements to have a “designated individual” who plays an important role in ensuring compliance and a requirement to report serious adverse events (SAEs) or serious adverse reactions (SARs) to the HTA within 24 hours of discovery.

Establishments which export tissues and cells must demonstrate that exported tissue or cells meet the quality and safety standards as set out in the Human Tissue (Quality and Safety for Human Application) Regulations, 2007 (as amended). Further, establishments which import tissues and cells must demonstrate that imported tissue or cells meet “equivalent” quality and safety standards to those set out in the Human Tissue (Quality and Safety for Human Application) Regulations, 2007 (as amended).

Since July 1, 2021, establishments based in Great Britain which either import or export human tissues or cells for human application between Great Britain and a country in the EEA, have been required to obtain a license from the HTA. Licensing requirements to send tissues and cells from Great Britain to recipients in Northern Ireland have not changed post-Brexit.

Numerous state, federal and foreign laws govern the collection, dissemination, use, access to, confidentiality and security of personal information, including health-related information. In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, and consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners. In addition, foreign laws govern the privacy and security of personal information, including health-related information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy and security laws, regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.

In the United States, our currently approved products are commonly treated as general supplies utilized in orthopedic surgery and if covered by third-party payors, are paid for as part of the surgical procedure. Outside of the United States, there are many reimbursement programs through private payors as well as government programs. In some countries, government reimbursement is the predominant program available to patients and hospitals. Our commercial success depends in part on the extent to which governmental authorities, private health insurers and other third-party payors provide coverage for and establish adequate reimbursement levels for the procedures during which our products are used. Failure by physicians, hospitals, ambulatory surgery centers and other users of our products to obtain sufficient coverage and reimbursement from third-party payors for procedures in which our products are used, or adverse changes in government and private third-party payors’ coverage and reimbursement policies could materially adversely affect our business, financial condition, results of operations and prospects.

Based on our experience to date, third-party payors generally reimburse for the surgical procedures in which our products are used only if the patient meets the established medical necessity criteria for surgery. Some payors are moving toward a managed care system and control their health care costs by limiting authorizations for surgical procedures, including elective procedures using our devices. Although no uniform policy of coverage and reimbursement among payors in the United States exists and coverage and reimbursement for procedures can differ significantly from payor to payor, reimbursement decisions by particular third-party payors may depend upon a number of factors, including the payor’s determination that use of a product is:

Third-party payors are increasingly auditing and challenging the prices charged for medical products and services with concern for upcoding, miscoding, using inappropriate modifiers, or billing for inappropriate care settings. Some third-party payors must approve coverage for new or innovative devices or procedures before they will reimburse health care providers who use the products or therapies. Even though a new product may have been cleared for commercial distribution by the FDA or certified in foreign jurisdictions, we may find limited demand for the product unless and until reimbursement approval has been obtained from governmental and private third-party payors.

A key component in ensuring whether the appropriate payment amount is received for physician and other services, including those procedures using our products, is the existence of a Current Procedural Terminology (CPT) code to describe the procedure in which the product is used. To receive payment, health care practitioners must submit claims to insurers using these codes for payment for medical services. CPT codes are assigned, maintained and annually updated by the American Medical Association and its CPT Editorial Board. If the CPT codes that apply to the procedures performed using our products are changed or deleted, reimbursement for performances of these procedures may be adversely affected.

In the United States, some insured individuals enroll in managed care programs, which monitor and often require pre-approval of the services that a member will receive. Some managed care programs pay their providers on a per capita (patient) basis, which puts the providers at financial risk for the services provided to their patients by paying these providers a predetermined payment per member per month and, consequently, may limit the willingness of these providers to use our products.

We believe the overall escalating cost of medical products and services being paid for by the government and private health insurance has led to, and will continue to lead to, increased pressures on the health care and medical device industry to reduce the costs of products and services. All third-party reimbursement programs are developing increasingly sophisticated methods of controlling health care costs through prospective reimbursement and capitation programs, group purchasing, redesign of benefits, requiring second opinions before major surgery, careful review of bills, encouragement of healthier lifestyles and other preventative services and exploration of more cost-effective methods of delivering health care.

In addition to uncertainties surrounding coverage policies, there are periodic changes to reimbursement levels. Third-party payors regularly update reimbursement amounts and also from time to time revise the methodologies used to determine reimbursement amounts. This includes routine updates to payments to physicians, hospitals and ambulatory surgery centers for procedures during which our products are used. These updates could directly impact the demand for our products.

Changes in healthcare policy could increase our costs, decrease our revenue and impact sales of and reimbursement for our current and future products. The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting changes in health care systems with the stated goals of containing health care costs, improving quality or expanding access. Current and future legislative proposals to further reform health care or reduce health care costs may limit coverage of or lower reimbursement for the procedures associated with the use of our products. The cost containment measures that payors and providers are instituting and the effect of any health care reform initiative implemented in the future could impact our revenue from the sale of our products.

In the United States, the implementation of the ~~ACA~~Affordable Care Act (ACA) for example, has changed health care financing and delivery by both governmental and private insurers substantially, and affected medical device manufacturers significantly. The ACA, among other things, provided incentives to programs that increase the federal government’s comparative effectiveness research, and

implemented payment system reforms including a national pilot program on payment bundling to encourage hospitals, physicians and other providers to improve the coordination, quality and efficiency of certain health care services through bundled payment models. Additionally, the ACA expanded eligibility criteria for Medicaid programs and created a new Patient-Centered Outcomes Research Institute to oversee, identify priorities, ~~in,~~ and conduct comparative clinical effectiveness research, along with funding for such research.

Since its enactment, there have been judicial and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021, through August 15, 2021, for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to health care, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA.

In addition, other legislative changes have been proposed and adopted since the ACA was enacted. For example, the Budget Control Act of 2011, among other things, reduced Medicare payments to providers, effective on April 1, 2013, and, due to subsequent legislative amendments to the statute, will remain in effect through 2032, with the exception of a temporary suspension from May 1, 2020, through March 31, 2022, unless additional Congressional action is taken. Additionally, the American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. The Medicare Access and CHIP Reauthorization Act of 2015 repealed the formula by which Medicare made annual payment adjustments to physicians and replaced the former formula with fixed annual updates and a new system of incentive payments that are based on various performance measures and physicians’ participation in alternative payment models, such as accountable care organizations.

We expect additional state and federal health care reform measures to be adopted in the future, ~~particularly in light of the new presidential administration,~~ some of which could limit the amounts that federal and state governments will pay for health care products and services, which could result in reduced demand for our products or additional pricing pressure. Similar reform measures may be adopted in foreign jurisdictions. For instance, in December 2021, Regulation No 2021/2282 on Health Technology Assessment (HTA) amending Directive 2011/24/EU, was adopted in the EU. While the Regulation entered into force in January 2022, it will only begin to apply from January 2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once ~~the Regulation becomes~~ applicable, it will have a phased implementation depending on the concerned products. ~~This regulation~~The Regulation intends to boost cooperation among EU member states in assessing health technologies, including certain high-risk medical devices, and ~~providing~~provide the

basis for cooperation at the EU level for joint clinical assessments in these areas. ~~The regulation~~It will permit EU member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the ~~most~~highest potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU member states will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement.

Federal, State and Foreign Fraud and Abuse and Physician Payment Transparency Laws

In addition to FDA and foreign restrictions on marketing and promotion of drugs and devices, other federal, state, and foreign laws restrict our business practices. These laws include, without limitation, foreign, federal, and state anti-kickback and false claims laws, as well as transparency laws regarding payments or other items of value provided to health care providers.

The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind to induce or in return for purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any good, facility, item or service reimbursable, in whole or in part, under Medicare, Medicaid or other federal health care programs. Although there are a number of statutory exceptions and regulatory safe harbors protecting some common activities from prosecution, the exceptions and safe harbors are drawn narrowly. Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per se illegal under the federal Anti-Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all its facts and circumstances. Several courts have interpreted the statute’s intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal health care covered business, the federal Anti-Kickback Statute has been violated. In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. The majority of states also have anti-kickback laws which establish similar prohibitions, and in some cases, may apply more broadly to items or services covered by any third-party payor, including commercial insurers and self-pay patients.

The federal civil False Claims Act prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval to the federal government or knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim to the federal government. As a result of a modification made by the Fraud Enforcement and Recovery Act of 2009, a claim includes “any request or demand” for money or property presented to the U.S. government. In addition, a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the federal civil False Claims Act. Private parties may initiate “qui tam” whistleblower lawsuits against any person or entity under the federal civil False Claims Act in the name of the government and share in the proceeds of the lawsuit.

In addition, the civil monetary penalties statute, subject to certain exceptions, prohibits, among other things, the offer or transfer of remuneration, including waivers of copayments and deductible amounts (or any part thereof), to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the beneficiary’s selection of a particular provider, practitioner or supplier of services reimbursable by Medicare or a state healthcare program.

HIPAA also created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any health care benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a health care offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for health care benefits, items or services. Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Also, many states have similar fraud and abuse statutes or regulations that apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor.

Additionally, there has been a recent trend of increased foreign, federal, and state regulation of payments and transfers of value provided to health care professionals or entities. The federal Physician Payments Sunshine Act imposes annual reporting requirements on certain drug, biologics, medical supplies and device manufacturers for which payment is available under Medicare, Medicaid or CHIP for payments and other transfers of value provided by them, directly or indirectly, to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, anesthesiologist assistants and certified nurse midwives) and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. In the EU, many EU member states have adopted specific anti-gift statutes that further limit commercial practices for medical devices, in particular vis-à-vis healthcare professionals and organizations. Additionally, there has been a recent trend of increased regulation of payments and

transfers of value provided to healthcare professionals or entities and many EU member states have adopted national “Sunshine Acts” which impose reporting and transparency requirements (often on an annual basis), similar to the requirements in the United States, on medical device manufacturers. Certain foreign countries and U.S. states also mandate implementation of commercial compliance programs, impose restrictions on device manufacturer marketing practices and require tracking and reporting of gifts, compensation and other remuneration to health care professionals and entities.

Penalties for violation of any of the health care laws described above or any other governmental regulations that apply to us include, without limitation, civil, criminal and/or administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, refusal to allow us to enter into government contracts, contractual damages, reputational harm, administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of an entity’s operations.

We take pride in our employees and the products we provide to support our mission. As of December 31, ~~2022,~~2023, we had ~~463 full-time employees. We believe that~~574 employees worldwide. Approximately 430 employees were located in the ~~success~~U.S., and 144 employees were located outside of the U.S. A significant number of our ~~business will depend, in part, on our ability~~management and professional employees have had prior experience with orthopedics or other medical product companies. We currently have no employees working under collective bargaining agreements.

We offer competitive, performance-based compensation and benefits, discounted equity ownership, employee recognition programs, and career development opportunities to attract and retain ~~qualified personnel. None~~employees. We use a combination of fixed and variable compensation, including base salary, cash-based performance bonuses, and stock-based compensation awards.

We periodically survey our employees' satisfaction levels to further expand employee engagement. We use these survey results to determine how we can continue to create work environments that energize our employees ~~are represented by~~and enable them to develop and maintain a ~~labor union or are a party to a collective bargaining agreement and we believe that our employee relations are good.~~

Our human capital objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and additional employees. The principal purposes of our equity incentive plans are to attract, retain and motivate selected employees, consultants and directors through the granting of stock-based compensation awards and cash-based performance bonus awards.positive working culture.

In January 2022, we purchased our ~~Headquarters~~headquarters facility located at 14445 Grasslands Drive, Englewood, CO. Prior to the closing related to the purchase, we ~~had~~ leased the building from AMBAR Grasslands LLC. We believe that this facility is sufficient to meet our current and anticipated needs in the near term and that additional space can be obtained on commercially reasonable terms as needed.

We were formed in Colorado as a limited liability company in August 2010, converted to a Colorado corporation in March 2011 and reincorporated as a Delaware corporation in October 2021. Our principal executive office is located at 14445 Grasslands Drive, Englewood, CO 80112 and our telephone number is (720) ~~912-1332.~~399-3400. Our website address is www.paragon28.com. We make available on or through our website certain reports and amendments to those reports that we file with or furnish to the United States Securities and Exchange Commission, or the SEC, in accordance with the Securities Exchange Act of 1934, as amended, or the Exchange Act. These include our annual reports on Form 10-K, our quarterly reports on Form 10-Q, and our current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. We make this information available on or through our website free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC. References to our website address do not constitute incorporation by reference of the information contained on the website, and the information contained on the website is not part of this document or any other document that we file with or furnish to the SEC. The SEC maintains a site on the worldwide web that contains reports, proxy and information statements and other information regarding our filings at www.sec.gov.

Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, including the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K, before deciding whether to invest in shares of our common stock. The risks described below are not the only ones we face. The occurrence of any of the following risks or additional risks and uncertainties not presently known to us or that we currently believe to be immaterial could materially and adversely affect our business, financial condition, results of operations and future prospects. In that event, the market price of our common stock could decline, and you could lose all or part of your investment. Please also see the section titled “Special Note Regarding Forward-Looking Statements."

Risks Related to Our ~~Financial Condition~~Business and ~~Capital Requirements~~Industry

Our business is dependent upon the broad adoption of our products by hospitals, physicians and patients.

Our future growth and profitability depend on our ability to increase physician and patient awareness of our products and on the willingness of physicians and hospitals to adopt our products. Physicians may not adopt our products unless they are able to determine, based on experience, clinical data, medical society recommendations and other analyses, that our products provide a safe and effective treatment for foot and ankle conditions. Even if we are able to raise awareness among physicians, they may be slow in changing their medical treatment practices and may be hesitant to select our products for a variety of reasons, including:

To effectively market and sell our products, we will need to continue to educate the medical community about the safety, efficacy, necessity and efficiency of our products and about the patient population that would potentially benefit from using our products. We cannot assure you that we will achieve broad education or market acceptance among physicians. In addition, some physicians may choose to utilize our products on only a subset of their total patient population or may not adopt our products at all. If we are not able to effectively demonstrate that our products are beneficial for a broad range of patients, adoption of our products will be limited and may not occur as rapidly as we anticipate or at all, which would have a material adverse effect on our business, financial condition and results of operations. We cannot assure you that our products will achieve broad market acceptance among hospitals, physicians and patients. Any failure of our products to satisfy demand or to achieve meaningful market acceptance and penetration will harm our future prospects and have a material adverse effect on our business, financial condition and results of operations.

Our long-term growth depends on our ability to enhance our products, expand our indications and develop and commercialize additional products in a timely manner. If we cannot innovate, we may not be able to develop or exploit new products in time to remain competitive.

successfully, our products could become obsolete and our revenue would decline as our customers purchase our competitors’ products. Developing products is expensive and time-consuming and could divert management’s attention away from our core business. The success of any new product offering or product enhancements to our solution will depend on several factors, including our ability to:

If we are unable to develop or improve products, applications or features due to constraints, such as insufficient cash resources, high employee turnover, inability to hire personnel with sufficient technical skills or a lack of other research and development resources, we may not be able to maintain our competitive position compared to other companies. Furthermore, many of our competitors have the capability to devote a considerably greater amount of funds to their research and development programs than we do, and those that do not may be acquired by larger companies that could allocate greater resources to research and development programs. Our failure or inability to devote adequate research and development resources or compete effectively with the research and development programs of our competitors could harm our business.

In addition, we may choose to focus our efforts and resources on potential products or indications that ultimately prove to be unsuccessful, or to license or purchase a marketed product that does not meet our financial expectations. As a result, we may fail to capitalize on viable commercial products or profitable market opportunities, be required to forego or delay pursuit of opportunities with other potential products or other diseases that may later prove to have greater commercial potential, or relinquish valuable rights to such potential products through collaboration, licensing or other royalty arrangements in cases in which it would have been advantageous for us to retain sole development and commercialization rights, which could adversely impact our business, financial condition and results of operations.

If we fail to manage our growth effectively, our business could be materially and adversely affected.

We have experienced recent rapid growth and anticipate further growth. This growth has placed significant demands on our management, financial, operational, technological and other resources, and we expect that our growth will continue to place significant demands on our management and other resources and will require us to continue developing and improving our operational, financial and other internal controls. In particular, continued growth increases the challenges involved in a number of areas, including recruiting and retaining sufficient skilled personnel for our direct sales force, providing adequate training and supervision to maintain our high-quality standards and preserving our culture and values. We may not be able to address these challenges in a cost-effective manner, or at all. To achieve our revenue goals, we must also successfully increase our supply of products from third party manufacturers to meet expected customer demand. In the future, we may experience difficulties with quality control, component supply and shortages of qualified personnel, among other problems. These problems could result in delays in product availability and increases in expenses. Any such delay or increased expense could adversely affect our ability to generate revenue. In addition, rapid and significant growth will place a strain on our administrative and operational infrastructure. In order to manage our operations and growth, we will need to continue to improve our operational and management controls, hiring process, reporting and information technology systems and

financial internal control procedures. If we do not effectively manage our growth, we may not be able to execute on our business plan, respond to competitive pressures, take advantage of market opportunities, satisfy customer requirements or maintain high-quality product offerings, which could have a material adverse effect on our business, financial condition and results of operations.

The terms of our loan agreements require us to meet certain operating and financial covenants and place restrictions on our operating and financial flexibility. If we raise additional capital through debt financing, the terms of any new debt could further restrict our ability to operate our business.

Under the terms of our loan agreements with Midcap Financial Trust and Zions Bancorporation discussed in more detail under section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Long-Term Obligations,” in Part II of this Annual Report on Form 10-K we are subject to certain affirmative and negative covenants limiting our ability to incur certain additional indebtedness, create certain liens, enter into a change of control transaction and make certain distributions and investments without our lenders’ consent. Our lenders may also declare us in default for certain types of events such as non-payment of debts, inaccurate representations and warranties, failure to comply with terms of material indebtedness and material agreements, bankruptcy and insolvency, a change of control and/or a material adverse change. Upon such events, our lenders could declare an event of default, which would give them the right to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, our lenders would have the right to proceed against the assets we provided as collateral under the loan agreements. For example, under our loan agreements, the lenders would have the right to enforce liens and security interests over substantially all of our assets (excluding intellectual property) in the event of certain specified defaults. If the debt under any of our loan agreements is accelerated, we may not have sufficient cash or be able to sell sufficient assets to repay our debts or may have to curtail our growth plans, which would harm our business and financial condition.

~~Additional capital, if needed, may not be available on acceptable terms, if at all.~~

the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to those of our common stock, and our existing stockholders may experience dilution. Any debt financing secured by us in the future could require that a substantial portion of our operating cash flow be devoted to the payment of interest and principal on such indebtedness, which may decrease available funds for other business activities, and could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. Additionally, any future collaborations we enter into with third parties may provide capital in the near term but limit our potential cash flow and revenue in the future. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us. We cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to grow our business or respond to competitive pressures or unanticipated requirements, which could seriously harm our business.

Our business plan relies on certain assumptions about the market for our products; however, the size and expected growth of our addressable market has not been established with precision and may be smaller than we estimate, and even if the addressable market is as large as we have estimated, we may not be able to capture additional market share.

Our estimates of the addressable market for our current products and future products are based on a number of internal and third-party estimates and assumptions, including the prevalence of foot and ankle disorders and the difficulty of persuading those suffering from foot and ankle disorders to undergo treatment, including surgery. While we believe our assumptions and the data underlying our estimates are reasonable, these assumptions and our estimates may not be correct. For example, we believe that the aging of the general population, increasing incidence of obesity and diabetes and increasingly active lifestyles will continue and that these trends will increase the need for our products and procedures. However, the projected demand for our products could materially differ from actual demand if our assumptions regarding these trends and acceptance of our products by the medical community prove to be incorrect or do not materialize, or if non-surgical treatments or other surgical techniques gain more widespread acceptance as a viable alternative to our foot and ankle solutions and procedures. In addition, even if the number of patients suffering from foot and ankle disorders who elect to undergo surgery increases as we expect, technological or medical advances could provide alternatives to address foot and ankle disorders and reduce demand for foot and ankle surgery. As a result, our estimates of the addressable market for our current or future products and procedures may prove to be incorrect. Even if the total addressable market for our current and future products and procedures is as large as we have estimated, we may not be able to penetrate the existing market to capture additional market share for the reasons discussed in this “Risk Factors” section. If the actual number of patients suffering from foot and ankle disorders who would benefit from our products, the price at which we can sell future products or the addressable market for our products is smaller than we estimate, or if the total addressable market is as large as we have estimated but we are unable to capture additional market share, it could have a material adverse effect on our business, financial condition and results of operations.

~~Our business is dependent upon the broad adoption of our products by hospitals, physicians and patients.~~

We operate in a very competitive business environment, and if we are unable to compete successfully against our existing or potential competitors, our business, financial condition and results of operations may be adversely affected.

Our existing foot and ankle products and procedures are, and any new foot and ankle products or procedures we develop and commercialize will be, subject to intense competition. The industry in which we operate is competitive, subject to change and sensitive to the introduction of new products, procedures or other market activities of industry participants. Our ability to compete successfully will depend on our ability to continue to promote awareness, educate and train foot and ankle specialists with our foot and ankle products and procedures and gain their acceptance; develop additional products and procedures to improve our foot and ankle offerings and expand our product offerings in a timely manner; receive adequate coverage and reimbursement from third-party payors; and provide products that are easier to use, safer, less invasive and more effective than the products and procedures of our competitors. In addition, our ability to increase our customer base and achieve broader market acceptance of our products will depend to a significant extent on our ability to expand our marketing efforts. We plan to dedicate significant resources to our marketing programs. It will negatively affect our business, financial condition and results of operations if our marketing efforts and expenditures do not generate a corresponding increase in revenue. In addition, we believe that developing and maintaining broad awareness of our products in a cost-effective manner is critical to achieving broad acceptance of our products and expanding domestically and internationally. Promotion activities may not generate patient or physician awareness or increase revenue, and even if they do, any increase in revenue may not offset the costs and expenses we incur in building our brand. If we fail to successfully promote, maintain and protect our brand, we may fail to attract or retain the physician acceptance necessary to realize a sufficient return on our brand building efforts, or to achieve the level of brand awareness that is critical for broad adoption of our products.

In the foot and ankle market, we compete with large multinational companies such as Stryker, Arthrex, Smith & Nephew, J&J and Zimmer Biomet as well as with companies with one or a limited number of foot and ankle products such as Enovis, CrossRoads, Medline, Conmed, ~~Novastep~~ and Treace. We also face potential competition from many different sources, including academic institutions, governmental agencies and public and private research institutions.

At any time, these competitors and other potential market entrants may develop new products, procedures or treatment alternatives that could render our products obsolete or uncompetitive. In addition, one or more of such competitors may gain a market advantage by developing and patenting competitive products, procedures or treatment alternatives earlier than we can, obtaining regulatory clearances, approvals or certifications more rapidly than we can or selling competitive products at prices lower than ours. If medical research were to lead to the discovery of alternative therapies or technologies that improve or cure certain foot and ankle maladies as an alternative to surgery, such as by natural correction of the unstable joint in the middle of the foot, the use of pharmaceuticals or breakthrough bio-technological innovations or therapies, our profitability could suffer through a reduction in sales or a loss in market share to a competitor. The discovery of methods of prevention or the development of other alternatives to address certain foot and ankle maladies that we treat could result in decreased demand for our products and, accordingly, could have a material adverse effect on our business, financial condition and results of operations. Many of our current and potential competitors have substantially greater sales and financial resources than we do, more established distribution networks, a broader offering of products, entrenched relationships with surgeons and distributors and greater experience in launching, marketing, distributing and selling products or treatment alternatives.

We also compete with our competitors to engage the services of independent sales representatives, both those presently working with us and those with whom we hope to work with as we expand. In addition, we compete with our competitors in acquiring

technologies and technology licenses complementary to our products or procedures or advantageous to our business. If we are unable to compete successfully against our existing or potential competitors, our business, financial condition and results of operations may be adversely affected, and we may not be able to grow at our expected rate, if at all.

~~The seasonality of our business creates variance in our quarterly revenue, which makes it difficult to compare or forecast our financial results.~~

Our revenue fluctuates on a seasonal basis, which affects the comparability of our results between periods. In particular, we have experienced and expect to continue to experience seasonality in our business, with higher U.S. sales volumes in the fourth calendar quarter. Our U.S. sales volumes in the fourth calendar quarter tend to be higher as many patients elect to have surgery after meeting their annual deductible and having time to recover over the winter holidays.

The market for our products is highly competitive, dynamic, and marked by rapid and substantial technological development and product innovation. New entrants or existing competitors could attempt to develop products that compete directly with ours. For us to remain competitive, it is essential to develop and bring to market new products. Demand for our products and future related products could be diminished by equivalent or superior products and technologies offered by competitors. If we are unable to innovate successfully, our products could become obsolete and our revenue would decline as our customers purchase our competitors’ products. Developing products is expensive and time-consuming and could divert management’s attention away from our core business. The success of any new product offering or product enhancements to our solution will depend on several factors, including our ability to:

We may expend our limited resources to pursue a particular product or indication and fail to capitalize on product or indications that may be more profitable or for which there is a greater likelihood of success.

Because we have limited financial and managerial resources, we focus on research programs and products that we identify for specific indications. As a result, we may forego or delay pursuit of opportunities with other products or for other indications that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to timely capitalize on viable commercial products or profitable market opportunities. Our spending on current and future research and development programs and products for specific indications may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular product, we may relinquish valuable rights to that product through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product.

We face the risk of product liability claims that could be expensive, divert management’s attention and harm our reputation and business. We may not be able to maintain adequate product liability insurance.

Our business exposes us to the risk of product liability claims that are inherent in the testing, manufacturing and marketing of medical devices. This risk exists even if a device is cleared or approved for commercial sale by the FDA or approved or certified in foreign jurisdictions and manufactured in facilities licensed and regulated by the FDA or an applicable foreign regulatory authority. Our products are designed to affect, and any future enhancements to our products will be designed to affect, important bodily functions and processes. Any side effects, manufacturing defects, misuse or abuse associated with our products could result in patient injury or death. The medical device industry has historically been subject to extensive litigation over product liability claims, and we may face product liability suits. We may be subject to product liability claims if our products cause, or merely appear to have caused, patient injury or death. In addition, an injury that is caused by the activities of our suppliers, such as those who provide us with components and raw materials, may be the basis for a claim against us. Product liability claims may be brought against us by patients, healthcare providers or others selling or otherwise coming into contact with our products, among others. If we cannot successfully defend ourselves against product liability claims, we will incur substantial liabilities and reputational harm. In addition, regardless of merit or eventual outcome, product liability claims may result in:

Additionally, we could experience a material design or manufacturing failure in our products, a quality system failure, other safety issues or heightened regulatory scrutiny that would warrant a recall of some of our products. While we may attempt to manage our product liability exposure by proactively recalling or withdrawing from the market any defective products, any recall or market withdrawal of our products may delay the supply of those products to our customers and may impact our reputation. We may not be successful in initiating appropriate market recall or market withdrawal efforts that may be required in the future and these efforts may not have the intended effect of preventing product malfunctions and the accompanying product liability that may result. Such recalls and withdrawals may also be used by our competitors to harm our reputation for safety or be perceived by patients as a safety risk when considering the use of our products, either of which could have a material adverse effect on our business, financial condition and results of operations.

Although we have product liability and clinical study liability insurance that we believe is appropriate, this insurance is subject to deductibles and coverage limitations. Our current product liability insurance may not continue to be available to us on acceptable terms, if at all, and, if available, coverage may not be adequate to protect us against any future product liability claims. If we are unable to obtain insurance at an acceptable cost or on acceptable terms or otherwise protect against potential product liability claims, we could be exposed to significant liabilities. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could have a material adverse effect on our business, financial condition and results of operations. Further, such product liability matters may negatively impact our ability to obtain insurance coverage or cost-effective insurance coverage in future periods.

Industry trends have resulted in increased downward pricing pressure on medical services and products, which may affect our ability to sell our products at prices necessary to support our current business strategy.

The trend toward health care cost containment through aggregating purchasing decisions and industry consolidation, along with the growth of managed care organizations, is placing increased emphasis on the delivery of more cost-effective medical therapies. For example:

More broadly, provisions of the Affordable Care Act (ACA) have significantly impacted the way health care is developed and delivered in the United States and may adversely affect our business and results of operations. We cannot predict accurately what health care programs and regulations will ultimately be implemented at the federal or state level, or the effect of any future legislation or regulation in the United States or elsewhere. However, any changes that have the effect of reducing reimbursement by government health care programs and other third-party payors for procedures using our products or reducing medical procedure volumes could have a material and adverse effect on our business, financial condition and results of operations. Any decline in the amount that payors reimburse our customers for our products could make it difficult for customers to continue using, or to adopt, our products and could create additional pricing pressure for us. If we are forced to lower the price we charge for our products, or if we add more components to our systems, our gross margins will decrease, which will adversely affect our ability to invest in and grow our business. If we are unable to maintain our prices, or if our costs increase and we are unable to offset such ~~increase~~increases with an increase in our prices, our margins could erode.

In addition, the largest medical device companies with multiple product franchises have increased their effort to leverage and contract broadly with customers across franchises by providing volume discounts and multi-year arrangements that could prevent our access to these customers or make it difficult, or impossible, to compete on price.

Our employees and independent contractors, including independent sales representatives and any other consultants, any future service providers and other vendors, may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on our results of operations.

We are exposed to the risk that our employees and independent contractors, including independent sales representatives and any other consultants, any future commercial collaborators, and other vendors may engage in misconduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate: federal, state, local, or foreign laws and regulations, as well as the laws, regulations and rules of regulatory bodies such as the FDA; manufacturing standards; U.S. federal and state health care fraud and abuse, data privacy laws and other similar non-U.S. laws; or laws that require the true, complete and accurate reporting of financial information or data. It is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. In addition, we are subject to the risk that a person or government could allege such fraud or other misconduct, even if none occurred. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including, without limitation, the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, disgorgements, possible exclusion from participation in Medicare, Medicaid and other U.S. or non U.S. health care programs, other sanctions, imprisonment, contractual damages, reputational harm, diminished profits and future earnings and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Additional capital, if needed, may not be available on acceptable terms, if at all.

We may require additional capital to maintain and expand our operations. Our operations are capital-intensive and are expected to increase as we expand our sales force, research and development efforts and product offerings. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to those of our common stock, and our existing stockholders may experience dilution. Any debt financing secured by us in the future could require that a substantial portion of our operating cash flow be devoted to the payment of interest and principal on such indebtedness, which may decrease available funds for other business activities, and could involve restrictive covenants relating to our capital-raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. Additionally, any future collaborations we enter into with third parties may provide capital in the near term but limit our potential cash flow and revenue in the future. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms unfavorable to us. We cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. If we cannot raise funds on acceptable terms, if and when needed, we may not be able to grow our business or respond to competitive pressures or unanticipated requirements, which could seriously harm our business.

Under the terms of our credit agreements with Ares Capital and Zions Bancorporation discussed in more detail under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Long-Term Obligations,” in Part II of this Annual Report on Form 10-K, we are subject to certain affirmative and negative covenants limiting our and our subsidiaries’ ability to incur certain additional indebtedness, create certain liens, liquidate or dissolve, amend organizational documents or certain other material contracts, enter into a change of control transaction and make certain distributions and investments without our lenders’ consent. Additionally, the Ares Credit Agreement requires that we maintain certain minimum revenue levels tested on a quarterly basis, for the proceeding twelve-month period, commencing with the fiscal quarter ending December 31, 2023. Our lenders may also declare us in default for certain types of events such as non-payment of debts when due, inaccurate representations and warranties, failure to comply with covenants and obligations, or with terms certain other of material indebtedness, certain material judgments, bankruptcy and insolvency, impairment of liens, a change of control and/or a material adverse effect. Upon such events, our lenders could declare an event of default, which would give them the right to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. In addition, our lenders would have the right to proceed against the assets we provided as collateral under the loan agreements. For example, under our loan agreements, the lenders would have the right to enforce liens and security interests over substantially all of our assets (excluding intellectual property) in the event of certain specified defaults. If the debt under any of our loan agreements is accelerated, we may not have sufficient cash or be able to sell sufficient assets to repay our debts or may have to curtail our growth plans, which would harm our business and financial condition.

Risks Related to Administrative, Organizational and Commercial Operations and Growth

If hospitals, ambulatory surgery centers and other health care facilities do not approve the use of our products, our sales may not increase.

In order for foot and ankle specialists to use our products at hospitals, ambulatory surgery centers and other health care facilities, we are often required to obtain approval from those hospitals, ambulatory surgery centers and health care facilities. Typically, hospitals, ambulatory surgery centers and health care facilities review the comparative effectiveness and cost of products used in the facility. The makeup and evaluation processes for health care facilities vary considerably, and it can be a lengthy, costly and time-consuming effort to obtain approval by the relevant health care facilities. Additionally, hospitals, ambulatory surgery centers, other health care facilities and GPOs, which manage purchasing for multiple facilities, may also require us to enter into a purchase agreement and satisfy numerous elements of their administrative procurement process, which can also be a lengthy, costly and time-consuming effort. If we do not obtain access to hospitals, ambulatory surgery centers and other health care facilities in a timely manner, or at all, via their approvals or purchase contract processes, or otherwise, or if we are unable to obtain approvals or secure contracts in a timely manner, or at all, our operating costs will increase, our sales may decrease and our operating results may be adversely affected. Furthermore, we may expend significant efforts on these costly and time-consuming processes but may not be able to obtain necessary approvals or secure a purchase contract from such hospitals, ambulatory surgery centers, health care facilities or GPOs.

In the United States, in order for physicians to use our products, we expect that the hospital facilities where these physicians treat patients will typically require us to enter into purchasing contracts. This process can be lengthy and time-consuming and require extensive negotiations and management time. In the European Union (EU) certain institutions may require us to engage in a contract bidding process in the event that such institutions are considering making purchase commitments that exceed specified cost thresholds, which vary by jurisdiction. These processes are only open at certain periods of time, and we may not be successful in the bidding process. If we do not receive access to hospital facilities via these contracting processes or otherwise, or if we are unable to secure contracts or tender successful bids, our sales may decrease, and our operating results may be harmed. Furthermore, we may expend significant effort in these time-consuming processes and still may not obtain a purchase contract from such hospitals.

Performance issues, service interruptions or price increases by shipping carriers could adversely affect our business and harm our reputation and ability to provide our products on a timely basis.

Expedited, reliable shipping will be essential to our operations. We intend to rely heavily on providers of transport services for reliable and secure point-to-point transport of our products to our customers and for tracking of these shipments. Should a carrier encounter delivery performance issues such as loss, damage or destruction of our products, it would be costly to replace our products in a timely manner, could cause surgeries using our products to be delayed or canceled and such occurrences may damage our reputation and lead

to decreased demand for our products and increased cost and expense to our business. In addition, any significant increase in shipping rates could adversely affect our operating margins and results of operations. Similarly, strikes, severe weather, natural disasters or other service interruptions affecting delivery services we use would adversely affect our ability to process orders for our products on a timely basis.

If coverage or adequate levels of reimbursement from third-party payors for procedures using our products, or any future products we may seek to commercialize, are not obtained or maintained, foot and ankle specialists and patients may be reluctant to use our products and our business will suffer.

In the United States, health care providers who purchase our products generally rely on third-party payors, principally federally-funded Medicare, state-funded Medicaid and private health insurance plans, to pay for all or a portion of the cost of foot and ankle procedures and products utilized in those procedures. We may be unable to sell our products, or any future products we may seek to commercialize, on a profitable basis if third-party payors deny coverage or reduce their current levels of reimbursement for procedures using our products. Payors continue to review their coverage policies for existing and new therapies and may deny coverage for treatments that include the use of our products or any future products we may seek to commercialize. Third-party payors, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcare costs. In addition, no uniform policy of coverage and reimbursement for procedures using our solution exists among third-party payors. Therefore, coverage and reimbursement for procedures using our products can differ significantly from payor to payor.

In addition, some health care providers in the United States have adopted or are considering bundled payment methodologies and/or managed care systems in which providers contract to provide comprehensive health care for a fixed cost per person. Health care providers may attempt to control costs by authorizing fewer elective surgical procedures, including foot and ankle surgeries, or by requiring the use of the least expensive procedure available. In addition, third-party payors increasingly are requiring evidence that medical devices are cost-effective, and if we are unable to meet this requirement, the third-party payor may not cover procedures using our products, which could reduce sales of our products to health care providers who depend upon third-party payor reimbursement for payment. Changes in coverage policies or health care cost containment initiatives that limit or restrict reimbursement for procedures using our products may have an adverse effect on our business.

Outside of the United States, reimbursement levels vary significantly by country and by patient. Reimbursement is obtained from a variety of sources, including government sponsors, hospital budgets, public tenders/bids, or private health insurance plans, or combinations thereof. We participate in and have established appropriate market access in countries where required and applicable. Uncertainties regarding future healthcare policy, legislation and regulation, as well as private market practices and foreign regulations that might prohibit the use of certain of our products, could affect our ability to sell our products in commercially acceptable quantities at acceptable prices.

The majority of our sales force consists of independent sales representatives, and if we are unable to maintain and expand our network of independent sales representatives, we may be unable to generate anticipated sales.

Our revenue and profitability isare directly dependent upon the sales and marketing efforts of our sales force. We utilize a sales force comprised primarily of independent sales representatives to sell our products to surgeons, hospitals, clinics, foot and ankle specialists and other end users and to assist us in promoting market acceptance of, and creating demand for, our products and procedures. As we increase our marketing efforts, we will need to retain, develop and grow the number of sales representatives that we employ. We intend to make a significant investment in recruiting and training sales representatives and clinical representatives as we expand our business. There is significant competition for sales personnel experienced in relevant medical device sales. If we are unable to come to commercially reasonable terms with a sales representative or representatives, we may not generate the expected level of sales and may need to spend more of our capital resources to hire sales personnel as employees. Once hired, the training process can be lengthy because it requires significant education for new sales representatives and to achieve the level of clinical competency with our products expected by foot and ankle specialists. Upon completion of the training, our sales representatives typically require lead time in the field to grow their network of accounts and achieve the productivity levels we expect them to reach in any individual territory. Furthermore, the use of our products often requires or benefits from direct support from us, including through our sales representatives that provide assistance in the operating room.

It will negatively affect our business, financial condition and results of operations if our efforts to expand and train our sales force do not generate a corresponding increase in revenue, and our higher fixed costs may slow our ability to reduce costs in the face of a sudden decline in demand for our products. Any failure to hire, develop and retain talented sales personnel, to achieve desired productivity levels in a reasonable period of time or timely reduce fixed costs, could negatively affect our business, financial condition and results of operations.

Even if we are able to attract and retain additional sales representatives, in situations where our sales representatives are not exclusive to us, there is a risk that a sales ~~representatives~~representative that we contract with will give higher priority to the products of other medical device companies, including products directly competitive with our products or may be required by larger medical devices companies to stop offering our products. Though we have established initiatives to further focus our independent sales channel on our products, these initiatives may not translate to the increase in sales or penetration which we expect. There can be no assurance that a sales ~~representatives~~representative will devote the resources necessary to provide effective sales and promotional support to our products. Also, to the extent we engage sales representatives from our competitors, we may have to wait until applicable non-competition provisions or obligations have expired. Notwithstanding the foregoing, we may still be subject to future allegations that these new hires have been improperly solicited, and that they have divulged to us proprietary or other confidential information of their former employers. Additionally, because the market for experienced sales personnel is competitive, our competitors may try to hire our sales representatives away from us. If successful, we would be required to dedicate resources to recruiting, filling and training those vacant positions. The loss of these personnel to competitors, or otherwise, will negatively affect our business, financial condition and results of operations. If we are unable to retain our direct sales force personnel or replace them with individuals of equivalent technical expertise and qualifications, or if we are unable to successfully instill such technical expertise in replacement personnel, it may negatively affect our business, financial condition and results of operations.

We depend on third-party contract manufacturers and suppliers, some of which are single source, to produce and package all elements comprising our foot and ankle products, and if these suppliers and manufacturers fail to supply us, our products or their components or subcomponents in sufficient quantities or at all, it will have a material adverse effect on our business, financial condition, and results of operations.

We utilize qualified medical device contract manufacturers and suppliers, some of which are single sources, to produce and package all elements comprising our foot and ankle products. Our significant single source suppliers include Tech Metals, which supplies parts used in our Gorilla plating system, QTS, which provides cleaning, packaging and sterilization services for multiple of our products, 3D Systems, which supplies parts used in our APEX 3D Total Ankle Replacement system, Seaway, which supplies parts for our drill guides and Orchid, which supplies parts used in our Apex Talus Implants. While we estimate replacing these single source suppliers could take up to approximately six months, in some of these examples alternative second source suppliers may not be readily available. We seek to strategically maintain sufficient levels of inventory to help mitigate supply disruption, usually holding sufficient inventory to allow for manufacturing from 90 to 180 days following the loss of a supplier, to accommodate varying demand mix and to achieve more efficient volume-based pricing on our components; however, we may not be accurate in our estimates which could result in insufficient inventory to meet demand or excess inventory and the risk of inventory obsolescence and expiration. Further, while we have entered into several supply agreements in an effort to reinforce our supply chain, there is no guarantee the counter-party suppliers will adhere to the terms of these agreements.

Our suppliers may encounter problems during manufacturing for a variety of reasons, including, for example, failure to follow specific protocols and procedures, failure to comply with applicable legal and regulatory requirements, equipment malfunction and environmental factors, failure to properly conduct their own business affairs, and infringement of third-party intellectual property rights, any of which could delay or impede their ability to meet our requirements. Our reliance on a third-party manufacturer and third-party suppliers also subjects us to other risks that could harm our business that we would not be subject to if we manufactured products ourselves, including, among others:

Any of these factors could cause delay or suspension of commercialization and marketing, regulatory submissions or required approvals, clearances or certifications, or cause us to incur higher costs. Furthermore, if our contract manufacturers fail to deliver the required commercial quantities of finished products on a timely basis and at commercially reasonable prices and we are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality, and on a timely basis, we would likely be unable to meet demand for our products and we would lose potential revenue. Any difficulties in locating and hiring third-party manufacturers, or in the ability of third-party manufacturers to supply quantities of our products at the times and in the quantities we need, could have a material adverse effect on our business. It may take a significant amount of time and resources (including costs) to establish an alternative source of supply for our products and to have any such new source authorized by the FDA or foreign regulatory authorities or notified bodies. Given our reliance on certain single-source suppliers, we are especially susceptible to supply shortages because we do not have alternate suppliers currently available.

Moreover, some third parties are located in markets subject to political and social risk, corruption, infrastructure problems and natural disasters, in addition to country-specific privacy and data security risk given current legal and regulatory environments. Failure of third parties to meet their contractual, regulatory, and other obligations may have a material adverse effect on our business, financial condition, and results of operations. Any of these matters could materially and adversely affect our business, financial condition, and results of operations.

Our results of operations will be materially harmed if we are unable to accurately forecast customer demand for our products and manage our inventory.

Given the large variety and number of products we sell, in order to market and sell them effectively, we must maintain significant levels of inventory and surgical instrumentation. As a result, a significant amount of our cash used in operations has been associated with maintaining these levels of inventory. To ensure adequate inventory supply, we must forecast inventory needs and manufacture our products based on our estimates of future demand. Our ability to accurately forecast demand for our products could be negatively affected by many factors, including our failure to accurately manage our expansion strategy, product introductions by competitors, an increase or decrease in customer demand for our products or for products of our competitors, our failure to accurately forecast customer acceptance of new products, unanticipated changes in general market conditions or regulatory matters and weakening of economic conditions or consumer confidence in future economic conditions. Inventory levels in excess of customer demand may result in inventory write-downs or write-offs, which would cause our gross margin to be adversely affected and could impair the strength of our brand. Conversely, if we underestimate customer demand for our ~~product,~~products, our internal manufacturing team may not be able to deliver products to meet our requirements, and this could result in damage to our reputation and customer relationships. In addition, if we experience a significant increase in demand, additional supplies of raw materials or additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, or suppliers or may not be able to allocate sufficient capacity in order to meet our increased requirements, which will negatively affect our business, financial condition and results of operations.

We seek to maintain sufficient levels of inventory in order to protect ourselves from supply interruptions. As a result, we are subject to the risk that a portion of our inventory will become obsolete or expire, which could have a material adverse effect on our earnings and cash flows due to the resulting costs associated with the inventory obsolescence charges and costs required to replace such inventory.

We may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships with third parties that may not result in the development of commercially viable products, product improvements or the generation of significant future revenues.

In the ordinary course of our business, we may enter into collaborations, in-licensing arrangements, joint ventures, strategic alliances, partnerships or other arrangements to develop new products or product improvements and to pursue new markets. Proposing, negotiating and implementing collaborations, in-licensing arrangements, joint ventures, strategic alliances or partnerships may be a lengthy and complex process. Other companies, including those with substantially greater financial, marketing, sales, technology or other business resources, may compete with us for these opportunities or arrangements. We may not identify, secure, or complete any such transactions or arrangements in a timely manner, on a cost-effective basis, on acceptable terms or at all. We have limited institutional knowledge and experience with respect to these business development activities, and we may also not realize the anticipated benefits of any such transaction or arrangement. In particular, these collaborations may not result in the development of products that achieve commercial success or viable product improvements or result in significant revenues and could be terminated prior to developing any products.

Additionally, we may not be in a position to exercise sole decision making authority regarding the transaction or arrangement, which could create the potential risk of creating impasses on decisions, and our future collaborators may have economic or business interests or goals that are, or that may become, inconsistent with our business interests or goals. It is possible that conflicts may arise with our collaborators, such as conflicts concerning the achievement of performance milestones, or the interpretation of significant terms under any agreement, such as those related to financial obligations, or the ownership or control of intellectual property developed during the collaboration. If any conflicts arise with any future collaborators, they may act in their self-interest, which may be adverse to our best interest, and they may breach their obligations to us. In addition, we may have limited control over the amount and timing of resources that any future collaborators devote to our or their future products.

Disputes between us and our collaborators may result in litigation or arbitration which would increase our expenses and divert the attention of our management. Further, these transactions and arrangements will be contractual in nature and will generally be terminable under the terms of the applicable agreements and, in such event, we may not continue to have rights to the products relating to such transaction or arrangement or may need to purchase such rights at a premium. If we enter into in-bound intellectual property license agreements, we may not be able to fully protect the licensed intellectual property rights or maintain those licenses. Future licensors could retain the right to prosecute and defend the intellectual property rights licensed to us, in which case we would depend on the ability of our licensors to obtain, maintain and enforce intellectual property protection for the licensed intellectual property. These licensors may determine not to pursue litigation against other companies or may pursue such litigation less aggressively than we would. Further, entering into such license agreements could impose various diligence, commercialization, royalty or other obligations on us. Future licensors may allege that we have breached our license agreement with them, and accordingly seek to terminate our license, which could adversely affect our competitive business position and harm our business prospects.

We may seek to grow our business through acquisitions or investments in new or complementary businesses, products or technologies, through the licensing of products or technologies from third parties or other strategic alliances, and the failure to manage acquisitions, investments, licenses or other strategic alliances, or the failure to integrate them with our existing business, could have a material adverse effect on our operating results, dilute our stockholders’ ownership, increase our debt or cause us to incur significant expense.

Our success depends on our ability to continually enhance and broaden our product offerings in response to changing clinician and patients’ needs, competitive technologies and market pressures. Accordingly, from time to time we may consider opportunities to acquire, make investments in or license other technologies, products and businesses that may enhance our capabilities, complement our existing products and technologies or expand the breadth of our markets or customer base. For example, in early 2022 we acquired Disior Oy. Our ability to realize the potential benefits of this acquisition and to integrate the acquired assets may not be successful or may not occur within our anticipated timeline. Potential and completed acquisitions, strategic investments, licenses and other alliances involve numerous risks, including:

We do not know if we will be able to identify acquisitions or strategic relationships we deem suitable, whether we will be able to successfully complete any such transactions on favorable terms, if at all, or whether we will be able to successfully integrate any acquired business, product or technology into our business or retain any key personnel, suppliers, sales representative, health care facilities, surgeons or other health care providers. Our ability to successfully grow through strategic transactions depends upon our ability to identify, negotiate, complete and integrate suitable target businesses, technologies or products and to obtain any necessary financing. These efforts could be expensive and time-consuming and may disrupt our ongoing business and prevent management from focusing on our operations.

If we pursue any foreign acquisitions, they typically involve unique risks in addition to those mentioned above, including those related to integration of operations across different cultures, languages and legal and regulatory environments, currency risks and the particular economic, political and regulatory risks associated with specific countries.

To finance any acquisitions, investments or strategic alliances, we may choose to issue shares of our common stock as consideration, which could dilute the ownership of our stockholders. If the price of our common stock is low or volatile, we may be unable to consummate any acquisitions, investments or strategic alliances using our common stock as consideration. Additional funds may not be available on terms that are favorable to us, or at all.

We believe that establishing and strengthening Paragon 28 and our various foot and ankle procedure brands, including Smart 28, is important to achieving widespread acceptance of our foot and ankle products and procedures, particularly because of the highly competitive nature of the market for similar products. We believe the quality and reliability of our products is critical to building physician support for our foot and ankle products and solutions in the United States and abroad, and any negative publicity regarding the quality or reliability of our products and procedures could significantly damage our reputation in the market. In the course of conducting our business, we must adequately address quality issues that may arise with our products, including defects in third-party components included in our products. Although we have established internal procedures designed to minimize risks that may arise from quality issues, we may not be able to eliminate or mitigate occurrences of these issues and associated liabilities. In addition, even in the absence of quality issues, we may be subject to claims and liability if the performance of our products dodoes not meet the expectations of physicians or patients.

In addition, promoting and positioning our brand will depend largely on the success of our medical education efforts and our ability to educate foot and ankle specialists and patients. These brand promotion activities may not yield increased sales and, even if they do, any sales increases may not offset the expenses we incur to promote our brand. If we fail to successfully promote and maintain our brand, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, our foot and ankle solutions may not be accepted by physicians or patients, which would adversely affect our business, results of operations and financial condition.

Our inability to maintain contractual relationships with health care professionals could have a negative impact on our research and development and medical education programs.

We maintain contractual relationships with respected physicians and medical personnel in hospitals, private practice and universities who assist in clinical studies, product research and development and in the training of foot and ankle specialists on the safe and effective use of our products. We continue to place emphasis on the validation of the benefits of our foot and ankle products and procedures through clinical studies, the development of proprietary products and product improvements to develop our product lines as well as providing high quality training on those products. If we are unable to maintain these relationships, our ability to develop and market new and improved products and train on the use of those products could decrease, and future operating results could be

unfavorably affected. At the same time, the medical device industry’s relationship with physicians is under increasing scrutiny by the U.S. Department of Health and Human Services Office of Inspector General (OIG), the U.S. Department of Justice (DOJ), the state attorneys general and other foreign and domestic government agencies. Our failure to comply with requirements governing the industry’s relationships with physicians or an investigation into our compliance by the OIG, the DOJ, state attorneys general and other government agencies, could negatively affect our business, financial condition and results of operations. See “Risk Factors—Risks Related to Regulatory Matters— Our relationships with customers, foot and ankle specialists and third-party payors are subject to federal and state health care fraud and abuse laws, false claims laws, physician payment transparency laws and other health care laws and regulations. If we or our employees, independent contractors, consultants, commercial partners, or vendors violate these laws we could face substantial penalties.”

We may be unable to continue to successfully demonstrate to foot and ankle specialists or key opinion leaders the merits of our products and technologies compared to those of our competitors, which may make it difficult to establish our products and technologies as a standard of care and achieve market acceptance.

Foot and ankle specialists play the primary role in determining the course of treatment and, ultimately, the type of products that will be used to treat a patient. As a result, our success depends, in large part, on our ability to effectively market and demonstrate to foot and ankle specialists the merits of our products and methodologies compared to those of our competitors. Acceptance of our products and methodologies depends on educating foot and ankle specialists as to the distinctive characteristics, clinical benefits, safety and cost-effectiveness of our products, procedures and technologies as compared to those of our competitors, and on training foot and ankle specialists in the proper use of our products. If we are not successful in convincing foot and ankle specialists of the merits of our products and methodologies or educating them on the use of our products, they may not use our products or may not use them effectively and we may be unable to increase our sales, sustain our growth or achieve and sustain profitability.

Also, since a number of our foot and ankle procedures and products are new, some foot and ankle specialists may be reluctant to change their surgical treatment practices for the following reasons, among others:

These reasons may affect the pace of adoption of our foot and ankle products and procedures and future products and techniques that we may offer.

In addition, we believe recommendations and support of our products and technologies by surgeons, foot and ankle specialists and other key opinion leaders in our industry are essential for market acceptance and establishment of our products and procedures as a standard of care. If we do not receive support from such surgeons, foot and ankle specialists and other key opinion leaders, if long-term data does not show the benefits of using our products and procedures or if the benefits offered by our products and procedures are not sufficient to justify their cost, foot and ankle specialists, hospitals and other health care facilities may not use our products and we might be unable to establish our products and procedures as a standard of care and continue to achieve market acceptance.

If foot and ankle specialists fail to safely and appropriately use our products, or if we are unable to train podiatrists and orthopedic surgeons on the safe and appropriate use of our products, we may be unable to achieve our expected sales, growth or profitability.

An important part of our sales process includes our ability to screen for and identify podiatrists and orthopedic surgeons who have the requisite training and experience to safely and appropriately use our products and to train a sufficient number of these foot and ankle specialists and to provide them with adequate instruction in use of our products. There is a training process involved for foot and ankle specialists to become proficient in the safe and appropriate use of our products. This training process may take longer or be more expensive than expected. Convincing foot and ankle specialists to dedicate the time and energy necessary for adequate training is

challenging, and we may not be successful in these efforts. Recent changes to federal guidance regarding medical education programs under the federal Anti-Kickback Statute also could limit our ability to train podiatrists and orthopedic surgeons, and such programs could be subject to challenge under the federal Anti-Kickback Statute. See “Risk Factors—Risks Related to Regulatory Matters—Our relationships with customers, foot and ankle specialists and third-party payors are subject to federal and state health care fraud and abuse laws, false claims laws, physician payment transparency laws and other health care laws and regulations. If we or our employees, independent contractors, consultants, commercial partners, or vendors violate these laws we could face substantial penalties.”

Furthermore, if clinicians are not properly trained, they may misuse or ineffectively use our products. Any improper use of our products may result in unsatisfactory outcomes, patient injury, negative publicity or lawsuits against us, any of which could harm our reputation and affect future product sales. Accordingly, if foot and ankle specialists fail to safely and appropriately use our products or if we are unable to train foot and ankle specialists on the safe and appropriate use of our products, we may be unable to achieve our expected sales, growth or profitability.

The loss of any member on our executive management team or our inability to attract and retain highly skilled members of our sales management and marketing teams and engineers could have a material adverse effect on our business, financial condition and results of operations.

Our success depends on the skills, experience and performance of the members of our executive management team including Albert DaCosta, our ~~co-founder, chairman, president~~Co-Founder, Chairman, President and ~~chief executive officer,~~Chief Executive Officer, in particular. The individual and collective efforts of these executives will be important as we continue to commercialize our existing products, develop new products and technologies and expand our commercial activities. The loss or incapacity of existing members of our executive management team could have a material adverse effect on our business, financial condition and results of operations if we experience difficulties in hiring qualified successors. We do not maintain “key person” insurance for any of our executives or key employees.

Our commercial, quality and research and development programs and operations depend on our ability to attract and retain highly skilled team members. We may be unable to attract or retain qualified team members. All of our U.S. employees are at-will, which means that either we or the employee may terminate his or her employment at any time. The loss of key employees, failure of any key employee to perform, our inability to attract and retain skilled employees, as needed, or our inability to effectively plan for and implement a succession plan for key employees could have a material adverse effect on our business, financial condition and results of operations.

If we or our licensors are unable to obtain and maintain significant patent or other intellectual property protection for our products, or if the scope of our patents and other intellectual property rights is not sufficiently broad and does not adequately protect our products, our competitors could develop and commercialize products similar or identical to ours and we may be unable to gain significant market share and be unable to operate our business profitably.

Our success depends in large part on our and our licensors’ ability to obtain, maintain and solidify a proprietary position for our products, which will depend on our and our licensors’ success in obtaining effective intellectual property protection, including through patents, trade secrets, copyrights, know-how, trademarks, license agreements and contractual provisions to establish our intellectual property rights and protect our products. These legal means, however, afford only limited protection and may not completely protect our rights. Any failure to obtain or maintain patent and other intellectual property protection with respect to our products could harm our business, financial condition and results of operations.

As of December 31, ~~2022,~~2023, our patent portfolio included ~~262~~304 owned and registered patents and 1126 in-licensed patents. ~~Fifty-six~~Seventy of these patents are U.S. utility patents. As of December 31, ~~2022,~~2023, we had ~~231~~265 pending patent applications globally, including 7487 in the United States. Outside of the United States we have patent applications pending in Europe, Australia, Canada, South Africa, Brazil, and Japan as well as through our PCT applications (which have been counted as pending U.S. patent applications). We cannot assure that our intellectual property position will not be challenged or that all patents for which we have applied will be granted. The validity and breadth of claims in patents involve complex legal and factual questions and, therefore, may be highly uncertain. Uncertainties and risks that we face include the following:

The patent prosecution process is expensive and time-consuming, and we and our licensors may not be able to file, prosecute, maintain, enforce or license all necessary or desirable patents or patent applications at a reasonable cost or in a timely manner, or in all jurisdictions. Although we enter into non-disclosure and confidentiality agreements with parties who have access to confidential or patentable aspects of our research and development output, any of these parties may inadvertently or intentionally breach such agreements and disclose such output before a patent application is filed, thereby jeopardizing our ability to seek and obtain patent protection. We may choose not to seek patent protection for certain innovations and may choose not to pursue patent protection in certain jurisdictions, and under the laws of certain jurisdictions, patents or other intellectual property rights may be unavailable or limited in scope. It is also possible that we will fail to identify patentable aspects of our developments before it is too late to obtain patent protection. In addition, our ability to obtain and maintain valid and enforceable patents depends in part on whether the differences between our inventions and the prior art allow our inventions to be patented over the prior art. Furthermore, the publication of discoveries in scientific literature often lags behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until eighteen (18) months after filing, or in some cases not at all. Therefore, we cannot be certain that we were the first to file for patent protection of such inventions. In addition, the laws of foreign jurisdictions may not protect our rights to the same extent as the laws of the United States. For example, certain countries outside of the United States do not allow patents for methods of treating the human body. This may preclude us from obtaining method patents outside of the United States having similar scope to those we have obtained or may obtain in the future in the United States. This includes certain key method patents covering our procedures and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish our ability to protect our inventions, obtain, maintain and enforce our patent rights and, more generally, could affect the value of our patents. Additionally, we cannot predict whether the patent applications we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any issued patents will provide sufficient protection from competitors or third parties.

The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may be challenged in the courts or patent offices in the United States and abroad, and as a result, may not provide us with adequate proprietary protection or competitive advantage against competitors with similar products. Moreover, we may be subject to a third-party pre-issuance submission of prior art to the U.S. Patent and Trademark Office (USPTO) or patent offices in foreign jurisdictions, or become involved in opposition, derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical products and techniques without payment to us, or limit the duration of the patent protection of our technology.

We cannot ensure that we do not infringe any patents or other proprietary rights held by third parties. If our products were found to infringe any proprietary right of another party, we could be required to pay significant damages or license fees to such party and/or cease production, marketing and distribution of those products. Litigation may also be necessary to defend infringement claims of third parties or to enforce patent rights we hold or to protect trade secrets or techniques we own. In addition, because patent applications can take many years to issue, and because publication schedules for pending applications vary by jurisdiction, there may be applications now pending of which we are unaware and which may result in issued patents which our current or future products infringe. Also,

because the claims of published patent applications can change between publication and patent grant, there may be published patent applications that may ultimately issue with claims that we infringe.

We also rely on trade secrets and other unpatented proprietary technology. There can be no assurances that we can meaningfully protect our rights in our trade secrets and other unpatented proprietary technology or that others will not independently develop substantially equivalent proprietary products or processes or otherwise gain access to our proprietary technology. We seek to protect our trade secrets and proprietary know-how and technology, in part, with confidentiality and invention assignment agreements with employees and consultants that include confidentiality obligations and valid, present-tense intellectual property assignment obligations. There can be no assurances, however, that the agreements will not be breached, adequate remedies for any breach would be available or competitors will not discover our trade secrets or independently develop comparable intellectual property. Further, litigation may be necessary to obtain ownership or to defend against claims challenging ownership. Even if we or our licensors are successful in defending against such claims, litigation could result in substantial costs and be a distraction to our management and other employees, and such claims could harm our business, financial condition and results of operations.

Moreover, in some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from third parties, and are therefore reliant on our licensors and may be reliant on future licensors or licensees, to protect certain intellectual property used in our business. If our licensors or future licensors or licensees fail to adequately protect this intellectual property, our ability to commercialize products could suffer. For example, we rely on a current licensor to maintain the patents and otherwise protect the intellectual property we license pursuant to a license agreement with such third party. Such licensor may not successfully prosecute, maintain and protect such patents and intellectual property or may determine not to pursue litigation against third-parties that are infringing these rights, or may pursue litigation less aggressively than we would.

Some of our patents and patent applications may in the future be jointly owned with third parties. If we are unable to obtain an exclusive license to any such third party joint owners’ interest in such patents or patent applications, such co-owners may be able to license their rights to other third parties, including our competitors, and our competitors could market competing products and technology. In addition, we may need the cooperation of any such joint owners of our patents in order to enforce such patents against third parties, and such cooperation may not be provided to us. Any of the foregoing could harm our business, financial condition and results of operations.

Obtaining and maintaining intellectual property protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental agencies, and our intellectual property protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees, renewal fees, annuities fees and various other governmental fees on patents and/or patent applications are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent and/or patent application. The USPTO, the United States Copyright Office (USCO) and various foreign governmental agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the intellectual property application process. In addition, periodic maintenance fees, renewal fees, annuity fees and various other government fees on intellectual property registrations often must be paid to the USPTO, USCO and foreign agencies over the lifetime of the intellectual property registration and/or application and any intellectual property rights we may obtain in the future. While an unintentional lapse of an intellectual property registration or application ~~including due to the effect of the COVID-19 pandemic~~ on us or our patent maintenance vendors, can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the registration or application, resulting in partial or complete loss of intellectual property rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a registration or application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we fail to maintain the intellectual property registrations and applications covering our products, we may not be able to stop a competitor from developing and marketing products that are the same as or similar to our products, which would have a material adverse effect on our business.

We may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or expiration of a third-party patent, which might adversely affect our ability to develop and market our products.

We have not performed comprehensive searches or analyses of third-party patents that may be relevant to our technology and products. We may not be able to conduct complete and thorough searches, we may not be able to identify all relevant third-party patents, and we may not be able to fully predict the scope of the patent claims or the expiration of relevant third-party patent applications that may issue as patents. We cannot be certain that we are aware of all third-party patents and pending applications in the United States and abroad that are relevant to or necessary for the commercialization of our products in any jurisdiction.

The scope of a patent claim is determined by an interpretation of the law, the written disclosure in a patent and the patent’s prosecution history. Our interpretation of the relevance or the scope of a patent or a pending application may be incorrect, which may negatively impact our ability to market our product candidates. We may incorrectly determine that our products are not covered by a third-party patent or may incorrectly predict whether a third-party’s pending application will issue with claims of relevant scope. Our determination of the expiration date of any patent in the United States or abroad that we consider relevant may be incorrect, which may negatively impact our ability to develop and market our product candidates. Our failure to identify and correctly interpret relevant patents may negatively impact our ability to develop and market our products.

In addition, the agreements under which we license intellectual property or technology to or from third parties are complex, and certain provisions in such agreements may be susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights to the relevant intellectual property or technology or increase what we believe to be our financial or other obligations under the relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations and prospects. Moreover, if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on commercially acceptable terms, we may be unable to successfully develop and commercialize the affected products.

Our business also would suffer if any future licensors fail to abide by the terms of the license, if the licensors fail to enforce licensed patents against infringing third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms. Moreover, our licensors may own or control intellectual property that has not been licensed to us, and, as a result, we may be subject to claims, regardless of their merit, that we are infringing or otherwise violating the licensor’s rights.

We are dependent on patents and other intellectual property licensed from others and may become dependent on other patents or other intellectual property licensed from others in the future. If we lose our licenses for intellectual property that is important to our business, we may not be able to continue developing or selling our products.

We have obtained licenses that give us rights to third party intellectual property, including patents and know-how, that is necessary or useful to our business. The license agreements covering our products impose various obligations on us, including the obligation to pay certain royalties on sales of certain of our products. One or more of our licensors may allege that we have breached our license agreement with them, and accordingly seek to terminate our license. As a result, we may not be able to market products that were covered by the license, which would result in the loss of significant rights, restrict our ability to commercialize certain of our products and could adversely affect our competitive business position and harm our business prospects. In addition, any claims brought against us by our licensors could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations.

Licensing of intellectual property involves complex legal, business and scientific issues and is complicated by the rapid pace of scientific discovery in our industry. Disputes may arise regarding intellectual property subject to a licensing agreement, including:

If disputes over intellectual property that we have or may in the future license prevent or impair our ability to maintain our current or future licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. We are generally also subject to all of the same risks with respect to protection of intellectual property that we may license as we are for intellectual property that we own. If we or any of our current or future licensors fail to adequately protect this intellectual property, our ability to commercialize our products could suffer.

We have previously been party to lawsuits involving patents and other intellectual property and the possibility exists that we may in the future be party to other lawsuits or administrative proceedings involving patents or other intellectual property. If we were to lose any intellectual property lawsuits, a court could require us to pay significant damages and/or prevent us from selling our products.

The medical device industry is highly competitive and litigious with respect to patents, trademarks, trade secrets, and other intellectual property rights. Companies in the medical device industry have used intellectual property litigation to gain a competitive advantage. Our commercial success depends in part upon our ability and that of our contract manufacturers and suppliers to manufacture, market, and sell our products, and to use our proprietary technologies without infringing, misappropriating or otherwise violating the proprietary rights or intellectual property of third parties. We may in the future become party to, or be threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to our products and any future products and technology, whether or not we are actually infringing, misappropriating or otherwise violating the rights of third parties.

We may in the future be party to other lawsuits or other administrative proceedings involving our patents or other intellectual property, regardless of merit. A legal proceeding, regardless of the outcome, is unpredictable and generally expensive and time consuming and, even if resolved in our favor, could drain significant financial resources and divert the time and effort of our management. Protracted litigation to defend or prosecute our intellectual property rights could result in our customers or potential customers deferring or limiting their purchase or use of the affected products until resolution of the litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments and if securities analysts or investors perceive these results to be negative, it could have a substantial adverse effect on the market price of our common stock. Such litigation or proceedings could substantially increase our operating losses and reduce the resources available for development activities or any future sales, marketing or distribution activities. We may not have sufficient financial or other resources to adequately conduct such litigation or proceedings. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources and more mature and developed intellectual property portfolios. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.

If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue selling, developing and marketing our products and techniques. However, we may not be able to obtain any required license on commercially reasonable terms or at all. The acquisition or licensing of third-party intellectual property rights is a competitive area, and our competitors may pursue strategies to acquire or license third party intellectual property rights that we may consider attractive or necessary. If we are unable to successfully obtain rights to required third party intellectual property rights or maintain the existing intellectual property rights we have, we may have to abandon development of the relevant products or redesign those products that contain the allegedly infringing intellectual property, which could harm our business, financial condition and results of operations. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. A finding of infringement could force us to cease some of our business operations, which could materially harm our business. Claims that we have misappropriated the confidential information or trade secrets of third parties could have a similar negative impact on our business. Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the market price of our common shares to decline.

Because competition in our industry is intense, competitors may infringe or otherwise violate our issued patents, patents of our licensors or other intellectual property. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming, and could distract our technical and management personnel from their normal responsibilities. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims that our patents are invalid or unenforceable or file administrative actions against us alleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding or administrative action could put one or more of our patents at risk of being invalidated or interpreted narrowly. Our competitors may assert invalidity on various grounds, including lack of novelty, obviousness, non-enablement, lack of written description or that we were not the first applicant to file a patent application related to our product. We may elect to enter into license agreements in order to settle patent infringement claims or to resolve disputes before litigation, and any such license agreements may require us to pay royalties and other fees that could be significant. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure.

Our competitors, many of which have made substantial investments in patent portfolios, trade secrets, trademarks and competing technologies, may have applied for or obtained, or may in the future apply for or obtain, patents or trademarks that may prevent, limit

or otherwise interfere with our ability to make, use, sell and/or export our products or to use our technologies or product names. Moreover, individuals and groups that are non-practicing entities, commonly referred to as “patent trolls,” purchase patents and other intellectual property assets for the purpose of making claims of infringement in order to extract settlements. From time to time, we may receive threatening letters, notices or “invitations to license,” or may be the subject of claims that our products and business operations infringe or violate the intellectual property rights of others. The defense of these matters can be time consuming, costly to defend in litigation, divert management’s attention and resources, damage our reputation and brand and cause us to incur significant expenses or make substantial payments. Further, the outcome of litigation is uncertain and such litigation could result in us being forced to stop making, selling or using products or technologies that allegedly infringe the asserted intellectual property; pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing; redesign those products that contain the allegedly infringing intellectual property, which could be costly, disruptive, or infeasible; ~~and~~ and/or attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms, or at all, or, from third parties. In addition, third parties may assert infringement claims against our customers. These claims may require us to initiate or defend protracted and costly litigation on behalf of our customers or indemnify our customers for any costs associated with their own initiation or defense of infringement claims, regardless of the merits of these claims. If any of these claims succeed or settle, we may be forced to pay damages or settlement payments on behalf of our customers or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, our customers may be forced to stop using our products.

If we fail to execute invention assignment agreements with our employees and contractors involved in the development of intellectual property or are unable to protect the confidentiality of our trade secrets, the value of our products and our business and competitive position could be harmed.

In addition to patent protection, we also rely on the protection of trademarks, copyrights, trade secrets, unpatented know-how, technology and other confidential and proprietary information to maintain our competitive position. We generally enter into confidentiality and invention assignment agreements with our employees, consultants and third parties upon their commencement of a relationship with us. However, we may not enter into such agreements with all employees, consultants and third parties who have been involved in the development of our intellectual property. In addition, these agreements may not provide meaningful protection against the unauthorized use or disclosure of our trade secrets or other confidential information, and adequate remedies may not exist if unauthorized use or disclosure were to occur. Any disclosure, either intentional or unintentional, by our employees, the employees of third parties with whom we share our facilities or third-party consultants and vendors that we engage, or misappropriation by third parties (such as through a cybersecurity breach) of our trade secrets and other proprietary information would impair our competitive advantages and could have a material adverse effect on our business, financial condition and results of operations. In particular, a failure to protect our proprietary rights may allow competitors to copy our products and procedures, which could adversely affect our pricing and market share. Further, other parties may independently develop substantially equivalent know-how and technology.

In addition to contractual measures, we try to protect the confidential nature of our proprietary information using commonly accepted physical and technological security measures. Such measures may not, for example, in the case of misappropriation of a trade secret by an employee or third party with authorized access, provide adequate protection for our proprietary information. Our security measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to a competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products that we consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome is unpredictable. Even though we use commonly accepted security measures, trade secret violations are often a matter of state law, and the criteria for protection of trade secrets can vary among different jurisdictions. In addition, trade secrets may be independently developed by others in a manner that could prevent legal recourse by us. While we have agreements with our employees, consultants and third parties that obligate them to assign their inventions to us, these agreements may not be self-executing, not all employees or consultants may enter into such agreements, or employees or consultants may breach or violate the terms of these agreements, and we may not have adequate remedies for any such breach or violation. If any of our intellectual property or confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if any such information was independently developed by a competitor, it could have a material adverse effect on our competitive position, business, financial condition, results of operations and prospects.

If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our markets of interest and our competitive position may be harmed.

We rely on our trademarks, trade names and brand names to distinguish our products from the products of our competitors and have registered or applied to register many of these trademarks. We cannot guarantee that our trademark applications will be approved. During trademark registration proceedings, we may receive rejections of our applications by the USPTO or in other foreign jurisdictions. Although we would be given an opportunity to respond to those rejections, we may be unable to overcome such rejections. In addition, third parties may also oppose our trademark applications or otherwise challenge our use of the trademarks. Our registered and unregistered trademarks, trade names, and brand names may be challenged, infringed, circumvented, declared generic or determined to be violating or infringing on other marks. We may not be able to protect our rights to these trademarks, trade names, and brand names which we rely upon to build name recognition among potential partners and customers in our markets of interest. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition, and could require us to devote resources to advertising and marketing new brands. Further, there can be no assurance that competitors will not infringe our trademarks or that we will have adequate resources to enforce our trademarks. We may also license our trademarks and trade names to third parties, such as distributors. Though these license agreements may provide guidelines for how our trademarks and trade names may be used, a breach of these agreements or misuse of our trademarks and tradenames by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and trade names.

Patent terms may not be sufficient to effectively protect our products and business for an adequate period of time.

Patents have a limited lifespan. In the United States, if all maintenance fees are paid timely, the natural expiration of a utility patent is generally 20 years after its first effective non-provisional filing date and the natural expiration of a design patent is generally 14 years after its issue date, unless the filing date occurred on or after May 13, 2015, in which case the natural expiration of a design patent is generally 15 years after its issue date. However, the actual protection afforded by a patent varies from country to country, and depends on many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent. Although various extensions may be available, the term of a patent, and the protection it affords, is limited. Even if patents covering our proprietary technologies and their uses are obtained, once the patent has expired, we may be open to competition, which may harm our business prospects. In addition, although upon issuance in the United States a patent’s term can be extended based on certain delays caused by the USPTO, this extension can be reduced or eliminated based on certain delays caused by the patent applicant during patent prosecution. A patent term extension based on regulatory delay may be available in the United States. However, only a single patent can be extended for each marketing approval, and any patent can be extended only once, for a single product. Moreover, the scope of protection during the period of the patent term extension does not extend to the full scope of the claim, but instead only to the scope of the product as approved. Laws governing analogous patent term extensions in foreign jurisdictions vary widely, as do laws governing the ability to obtain multiple patents from a single patent family. Additionally, we may not receive an extension if we fail to exercise due diligence during the testing phase or regulatory review process, apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Given the amount of time required for the development, testing and regulatory review of new products, patents protecting such products might expire before or shortly after such products are commercialized. If we do not have sufficient patent terms to protect our products, proprietary technologies and their uses, our business would be seriously harmed. As our patents expire, the scope of our patent protection will be reduced, which may reduce or eliminate any competitive advantage afforded by our patent portfolio. As a result, our reduced patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

Changes in U.S. or foreign patent laws or their interpretation may limit our ability to obtain, maintain, defend and/or enforce our patents.

Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. The Leahy-Smith America Invents Act (Leahy-Smith Act) includes a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and also affect patent litigation. The USPTO has developed regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first-to-file provisions, which became effective on March 16, 2013. The first to file provisions limit the rights of an inventor to patent an invention if not the first to file an application for patenting that invention, even if such invention was the first invention. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business.

However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the enforcement and defense of our issued patents. For example, the Leahy-Smith Act provides that an administrative tribunal known as the Patent Trial and Appeals Board (PTAB), provides a venue for challenging the validity of patents at a cost that is much lower than district court litigation and on timelines that are much faster. Although it is not clear what, if any, long-term impact the PTAB proceedings will have on the operation of our business, the initial results of patent challenge proceedings before the PTAB since its inception in 2013 have resulted in the invalidation of many U.S. patent claims. The availability of the PTAB as a lower-cost, faster and potentially more potent tribunal for challenging patents could increase the likelihood that our own patents will be challenged, thereby increasing the uncertainties and costs of maintaining and enforcing them.

The America Invents Act also includes a number of significant changes that affect the way U.S. patent applications will be prosecuted and also may affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and additional procedures to attack the validity of a patent by the USPTO administered post-grant proceedings, including post-grant review, inter partes review and derivation proceedings.

Because of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in U.S. federal courts necessary to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district court action. Therefore, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents. In addition, future actions by the U.S. Congress, the federal courts and the USPTO could cause the laws and regulations governing patents to change in unpredictable ways. Any of the foregoing could harm our business, financial condition and results of operations.

We have limited foreign intellectual property rights and may be unable to enforce our intellectual property rights throughout the world.

We have limited intellectual property rights outside the United States. Filing, prosecuting and defending patents or trademarks on our products and any future products in all countries throughout the world would be prohibitively expensive, and the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. Consequently, we may not be able to prevent third parties from practicing our inventions or utilizing our trademarks in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and any future products, and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing in these jurisdictions.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. This could make it difficult for us to stop infringement of our foreign patents, if obtained, or the misappropriation of our other intellectual property rights. For example, some foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, some countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of our intellectual property.

We are and in the future may be subject to claims that we or our employees have misappropriated the intellectual property of a third party, including trade secrets or know-how, or are in breach of non-competition or non-solicitation agreements with our competitors and third parties may claim an ownership interest in intellectual property that we regard as our own.

We could in the future be subject to claims that we or our employees have inadvertently or otherwise used or disclosed alleged trade secrets or other confidential information of former employers or competitors. Many of our employees and consultants were previously employed at or engaged by other medical device companies, including our competitors or potential competitors. Some of these employees, consultants and contractors may have executed proprietary rights, non-disclosure and non-competition agreements in connection with such previous employment. Although we try to ensure that our employees and consultants do not use the intellectual property, proprietary information, know-how or trade secrets of others in their work for us, we may be subject to claims that we or these individuals have, inadvertently or otherwise, misappropriated the intellectual property or disclosed the alleged trade secrets or other proprietary information, of these former employers, competitors or other third parties. Additionally, we may be subject to claims that former employees, collaborators or other third parties have an ownership interest in or inventorship of intellectual property we regard as our own, for example, based on claims that our agreements with employees or consultants obligating them to assign intellectual property to us are ineffective or in conflict with prior or competing contractual obligations to assign inventions to another employer, to a former employer, or to another person or entity. The failure to name the proper inventors on a patent application can result in the patents issuing thereon being unenforceable. Inventorship disputes may arise from conflicting views regarding the contributions of different individuals named as inventors, the effects of foreign laws where foreign nationals are involved in the development of the subject matter of the patent, conflicting obligations of third parties involved in developing our product candidates or as a result of questions regarding co-ownership of potential joint inventions. Litigation may be necessary to defend against and resolve claims, and it may be necessary or we may desire to enter into a license to settle any such claim; however, there can be no assurance that we would be able to obtain a license on commercially reasonable terms, if at all. If our defense to those claims fails, in addition to paying monetary damages or a settlement payment, a court could prohibit us from using technologies, features or other intellectual property that are essential to our products, if such technologies or features are found to incorporate or be derived from the trade secrets or other proprietary information of the former employers. An inability to incorporate technologies, features or other intellectual property that are important or essential to our products could have a material adverse effect on our business and competitive position and may prevent us from selling our products. In addition, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against these claims, litigation could result in substantial costs and could be a distraction to management. Any litigation or the threat thereof may adversely affect our ability to hire employees or contract with independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our products, which could materially and adversely affect our business, financial condition, operating results, cash flows and prospects.

In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing, or the assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to determine the ownership of what we regard as our intellectual property. Such claims could have a material adverse effect on our business, financial condition, results of operations, and prospects.

If our third-party manufacturing partners do not respect our intellectual property and trade secrets and produce competitive products using our designs or intellectual property, our business, financial condition and results of operations would be harmed.

Although our agreements with third-party manufacturing partners generally seek to prevent them from misusing our intellectual property and trade secrets, or using our designs to manufacture products for our competitors, we may be unsuccessful in monitoring and enforcing our intellectual property rights against these manufacturing partners and may find counterfeit goods in the market being sold as our products or future products similar to ours produced for our competitors using our intellectual property. Although we take steps to stop counterfeits, we may not be successful and network operators who purchase these counterfeit goods may experience product defects or failures, harming our reputation and brand and causing us to lose future sales. Any of the foregoing could harm our business, financial condition and results of operations.

We are subject to substantial government regulation that could have a material adverse effect on our business.

Our products and our business are subject to extensive regulation and review by numerous governmental authorities both in the United States and abroad. U.S. and foreign regulations govern the design, development, testing, clinical studies, premarket clearance, approval, certifications, safety, registration, manufacturing, packaging, storage, reporting, sales, distribution, marketing, labeling, promotion, relationships with health care professionals, recordkeeping procedures, post-marketing surveillance, post-market studies, and product import and export of our products. The regulatory process requires significant time, effort and expenditures to bring our products to market, and we cannot be assured that any of our products will be authorized for marketing. The regulations to which we are subject are complex and have tended to become more stringent over time. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs or lower than anticipated sales. The FDA and other regulatory authorities enforce these regulatory requirements through, among other means, periodic unannounced inspections. We do not know whether we will be found compliant in connection with any future regulatory inspections. Moreover, the FDA and other authorities have broad enforcement powers.

Any of these events could result in a higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, financial condition and results of operations.

Our relationships with customers, physicians and third-party payors are subject to federal, state, and foreign health care fraud and abuse laws, false claims laws, physician payment transparency laws and other health care laws and regulations. If we or our employees, independent contractors, consultants, commercial partners, or vendors violate these laws, we could face substantial penalties.

Our relationships with customers, physicians and third-party payors are subject to federal, state, and foreign health care fraud and abuse laws, false claims laws, transparency laws with respect to payments and other transfers of value made to physicians and other licensed health care professionals, and other health care laws and regulations. In particular, the promotion, sales and marketing of health care items and services is subject to extensive laws and regulations designed to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive and other business arrangements. The U.S. health care laws and regulations that may affect our ability to operate include, but are not limited to:

Because of the breadth of these laws and the narrowness of the statutory exceptions and regulatory safe harbors available, it is possible that some of our business activities, patient outreach programs or our arrangements with independent sales representatives and customers could be subject to challenge under one or more of such laws. We have also entered into consulting and royalty agreements with physicians, including some who have ownership interests in us and/or influence the ordering of or use our products in procedures they perform. Compensation under some of these arrangements includes the provision of stock or stock options. We could be adversely affected if regulatory agencies determine our financial relationships with such physicians to be in violation of applicable laws. Greater scrutiny of marketing practices in the medical device industry has resulted in numerous government investigations by various government authorities, and this industry-wide enforcement activity is expected to continue. The shifting regulatory environment, along with the requirement to comply with multiple jurisdictions with different and difficult compliance and reporting requirements, increases the possibility that we may run afoul of one or more laws. The costs to comply with these regulatory requirements are becoming more expensive and will also impact our profitability. It is not always possible to identify and deter employee misconduct or business noncompliance, and the precautions we take to detect and prevent inappropriate conduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If we or our employees, agents, independent contractors, consultants, commercial partners and vendors violate these laws, we may be subject to investigations, enforcement actions and/or significant penalties, including the imposition of significant civil, criminal and administrative penalties, damages, disgorgement, monetary fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal health care programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and/or oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, and/or curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

We may not receive, or may be delayed in receiving, the necessary clearances, approvals or certifications for our future products or modifications to our current products, and failure to timely obtain necessary clearances, approvals or certifications for our future products or modifications to our current products would adversely affect our ability to grow our business.

In the United States, before we can market a new medical device, or a new use of, or new claim for or significant modification to an existing medical device product, we must first receive either clearance under Section 510(k) of the Federal Food, Drug, and Cosmetic Act (FDCA) or ~~approval of~~ a ~~premarket approval (PMA),~~PMA from the FDA, unless an exemption applies, or we qualify for de novo classification. In the 510(k) clearance process, before a device may be marketed, the FDA must determine that a proposed device is “substantially equivalent” to a legally-marketed “predicate” device, which includes a device that has been previously cleared through the 510(k) process, a device that was legally marketed before May 28, 1976 (pre-amendments device), a device that was originally on the U.S. market pursuant to ~~an approved~~a PMA and later down-classified, or a 510(k)-exempt device. To be “substantially equivalent,” the proposed device must have the same intended use as the predicate device, and either have the same technological characteristics as the predicate device or have different technological characteristics and not raise different questions of safety or effectiveness than the predicate device. Clinical data are sometimes required to support substantial equivalence. In the process of obtaining a PMA, ~~approval,~~ the FDA must determine that a proposed device is safe and effective for its intended use based, in part, on extensive data, including, but not limited to, technical, pre-clinical, clinical trial, manufacturing and labeling data. The PMA process is typically required for devices that are deemed to pose the greatest risk, such as life-sustaining, life-supporting or implantable devices.

In the de novo classification process, a manufacturer whose novel device under the FDCA would otherwise be automatically classified as Class III and require the submission and approval of a PMA prior to marketing is able to request down-classification of the device to Class I or Class II on the basis that the device presents a low or moderate risk. If the FDA grants the de novo classification request, the applicant will receive authorization to market the device. This device type may be used subsequently as a predicate device for future 510(k) submissions.

We also acquired the total talus spacer, which has been authorized for marketing pursuant to an approved Humanitarian Device Exemption (HDE). An HDE allows for marketing of a Humanitarian Use Device, or HUD, which is a medical device designated by the FDA as intended to benefit patients in the treatment or diagnosis of a disease or condition that affects not more than 8,000 individuals in the United States per year. To market a HUD, the device must have received a HUD designation by the FDA and be approved by the FDA pursuant to an HDE application. An HDE approval is based on the applicant’s demonstration that there is no comparable device available and that the probable benefit to health from the proposed HUD outweighs the risk of injury or illness from its use, taking into account alternative treatments that are available for the condition or disease. However, a medical device approved pursuant to an HDE is exempt from the effectiveness requirements that would otherwise apply and to which the device would be subject if approved pursuant to a PMA, and clinical studies demonstrating effectiveness are not required to support approval. An approved HDE must be labeled with a disclaimer stating that the effectiveness of the device has not been established. In addition, HUDs that receive HDE approval may not be sold for profit except in limited circumstances. In any case, to sell the device for profit, HDE holders must notify the FDA of the intent to sell for profit and are limited in the number of devices that may be sold for profit on an annual basis. Prior to HUD use following HDE approval, the HDE holder is required to ensure that use of the use of the HUD has been approved by the facility’s IRB. Post-approval clinical studies may also be required. Our total talus spacer is subject to the requirement for a post-approval study as a condition of approval of the HDE.

Modifications to products that are approved through a PMA application generally require FDA approval. Similarly, certain modifications made to products cleared through an HDE require FDA approval, and products cleared through a 510(k) or authorized for marketing pursuant to a de novo classification may require a new 510(k) clearance. The marketing authorization process can be expensive, lengthy and uncertain. The FDA’s 510(k) clearance process usually takes from three to 12nine months, but can last longer. The process of obtaining a PMA is much more costly and uncertain than the 510(k) clearance process and generally takes from one to three years, or even longer, from the time the application is submitted to the FDA. In addition, a PMA generally requires the performance of one or more clinical trials. Despite the time, effort and cost, a device may not be approved or cleared by the FDA. Any delay or failure to obtain necessary regulatory clearances or approvals could harm our business. Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the device, which may limit the market for the device.

In the United States, except for the total talus spacer, we have obtained clearance of all of our non-exempt products through the 510(k) clearance process. Any modification to these products that has not been previously cleared may require us to submit a new 510(k) premarket notification and obtain clearance, or submit afor PMA and obtain FDA approval, before implementing the change. Specifically, any modification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, ~~approval of~~ a PMA. The FDA requires every manufacturer to make this determination in the first instance, but the FDA may review any manufacturer’s decision. The FDA may not agree with our decisions regarding whether new clearances or approvals are necessary. We have made modifications to 510(k)-cleared products in the past and have determined based on our review of the applicable FDA regulations and guidance that in certain instances new 510(k) clearances or a PMA ~~approvals~~ were not required. We may make modifications or add additional features in the future that we believe do not require a new 510(k) clearance or ~~approval of~~ a PMA. If the FDA disagrees with our determination and requires us to submit new 510(k) premarket notifications or PMA applications for modifications to our previously cleared products for which we have concluded that new clearances or approvals are unnecessary, we may be required to cease marketing or to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatory fines or penalties. If the FDA requires us to go through a lengthier, more rigorous examination for future products or modifications to existing products than we had expected, product introductions or modifications could be delayed or canceled, which could adversely affect our ability to grow our business. The FDA, applicable foreign regulatory authorities and Notified Body can delay, limit or deny clearance, approval or certification of a device for many reasons, including:

Until May 25, 2021, medical devices were regulated by the Council Directive 93/42/EEC (EU Medical Devices Directive) which has been repealed and replaced by Regulation (EU) No 2017/745 (EU Medical Devices Regulation) which became effective on May 26, 2021. Our current certificates have been granted and renewed under the EU Medical Devices Directive. Devices lawfully placed on the market pursuant to the EU Medical Devices Directive prior to May 26, 2021, may generally continue to be made available on the market or put into service until May 26, 2025, provided that the requirements of the transitional provisions are fulfilled. In particular, the certificate in question must still be valid and no significant change must be made to the device in question. However, as of May 26, 2021, we must comply with the EU Medical Devices Regulation requirements applying in place of the corresponding requirements of the EU Medical Devices Directive with regard to registration of economic operators and of devices, post-market surveillance, market surveillance and vigilance requirements.

Pursuing marketing of medical devices in the EU will notably require that our devices be certified under the new regime set forth in the EU Medical Devices Regulation when our current certificates expire.

If we fail to comply with applicable EU legislation, we would be unable to continue to affix the CE mark to our products, which would prevent us from selling them within the EU and the European Economic Area (EEA)~~(which~~ (which consists of the 27 EU member states plus Norway, Liechtenstein and Iceland). Non-compliance with the above regulations would also prevent us from selling our products in these three countries.

Following Brexit, EU laws no longer apply directly in Great Britain. The regulations on medical devices in Great Britain continue to be based largely on the three EU Directives which preceded the EU Medical Devices Regulation, as implemented into national law. However, under the terms of the Protocol on Ireland/Northern Ireland, the EU Medical Devices Regulation does apply to Northern Ireland. Consequently, there are currently different regulations in place in Great Britain as compared to both Northern Ireland and the EU, respectively. Ongoing compliance with both sets of regulatory requirements may result in increased costs for our business.

Furthermore, the United Kingdom (UK) Government is currently drafting amendments to the existing legislation which is likely to result in further changes to the Great Britain regulations in the near future. For example, subject to transitional periods for validly-certified devices, the new Great Britain regulations are likely to require medical devices and IVDs placed on the Great Britain market to be “UKCA” certified by a UK Approved Body in order to be lawfully placed on the market. The UK Government has stated that the amended regulations are likely to apply from July 2024; understanding and ensuring compliance with any new such requirements is likely to lead to further complexity and increased costs to our business. If there is insufficient UK Approved Body capacity, there is a risk that our product certification could be delayed which might impact our ability to market products in Great Britain after the respective transition periods.

We also market certain products that are comprised of human cells, tissues and cellular or tissue-based products (HCT/P). In the U.S., we are marketing our HCT/Ps pursuant to Section 361 of the PHSA and 21 CFR Part 1271 of FDA’s regulations. We do not manufacture these HCT/P products, but serve as a distributor for them. So-called Section 361 HCT/Ps are not currently subject to the FDA requirements to obtain marketing authorizations as long as they meet certain criteria provided in FDA’s regulations. HCT/Ps regulated as “361 HCT/Ps” are currently subject to requirements relating to registering facilities and listing products with the FDA, screening and testing for tissue donor eligibility, current good tissue practice requirements, or cGTPs, when processing, storing, labeling and distributing HCT/Ps, including required labeling information, stringent record keeping and adverse event reporting. If we or our suppliers fail to comply with these requirements, we could be subject to FDA enforcement action, including, for example, warning letters, fines, injunctions, product recalls or seizures, and, in the most serious cases, criminal penalties. To be regulated as Section 361 HCT/Ps, these products must meet FDA’s criteria to be considered “minimally manipulated” and intended for “homologous use,” among other requirements. HCT/Ps that do not meet the criteria to be considered Section 361 HCT/Ps are subject to the FDA’s regulatory requirements applicable to medical devices, orthobiologics or drugs. Device, orthobiologic or drug HCT/Ps must comply both with the requirements exclusively applicable to Section 361 HCT/Ps and, in addition, with other requirements, including requirements for marketing authorization. For example, Section 361 HCT/Ps do not require 510(k) clearance, PMA, approval ~~approval~~ of a Biologics License Application, or BLA, or other premarket authorization from FDA before marketing. We believe our HCT/Ps are regulated solely under Section 361 of the PHSA, and therefore, we have not sought or obtained 510(k) clearance, PMA, ~~approval,~~ or licensure through a BLA for such HCT/Ps.

The FDA could disagree with our determination that these human tissue products are Section 361 HCT/Ps and could determine that these products are orthobiologics requiring a BLA or medical devices requiring 510(k) clearance or PMA, ~~approval,~~ and could require that we cease marketing such products and/or recall them pending appropriate clearance, ~~approval~~ or licensure from the FDA. If we have to cease marketing and/or have to recall any of our Section 361 HCT/P products, our net sales would decrease, which would adversely affect our business, results of operations and financial condition. HCT/Ps that do not meet the criteria of Section 361 are regulated under Section 351 of the PHSA. Unlike Section 361 HCT/Ps, HCT/Ps regulated as “351” HCT/Ps are subject to premarket review and approval by the FDA. In November 2017, the FDA released a guidance document entitled “Regulatory Considerations for Human Cells, Tissues, and Cellular and Tissue—Based Products: Minimal Manipulation and Homologous Use—Guidance for Industry and Food and Drug Administration Staff.” The guidance indicated that the FDA would exercise enforcement discretion, using a risk-based approach, with respect to the IND application and pre-market approval requirements for certain HCT/Ps that it considered to be marketed unlawfully as Section 361 HCT/Ps for a period of 36 months from the issuance date of the guidance to allow manufacturers to pursue submission of an IND application. Under this approach, FDA indicated that high-risk products and uses could be subject to immediate enforcement action. The FDA resumed enforcement of Investigational New Drug Application and premarket approval requirements with respect to these products as of June 1, 2021.

In addition, the FDA may in the future modify the scope of its enforcement discretion with respect to Section 361 HCT/Ps or change its position on which current or future products qualify as Section 361 HCT/Ps, or determine that some or all of our HCT/P products may not be lawfully marketed under the FDA’s policy of enforcement discretion. Any regulatory changes could have adverse consequences for us and make it more difficult or expensive for us to conduct our business by requiring pre-market clearance or approval and compliance with additional post-market regulatory requirements with respect to those products.

In the EU, ~~while~~ there is no standalone regulatory framework which applies to products containing human tissues or cells. However,, specific requirements are applicable to the donation, procurement, testing, processing, preservation, storage and distribution of such human materials under Directive 2004/23/EC (the EU Tissues and Cells Directive), as implemented in the EU member states, which ~~providesproviding~~provides for general quality and safety requirements applicable to some or all of the abovementioned activities performed in relation to human cells and tissues. Additional requirements set out under other EU regulations and directives, – such as the EU Medical Devices Regulation,~~n –~~ may also apply to our human tissues or cells containing products, depending on their characteristics.

EU member states national competent authorities may disagree with our determination of which requirements are applicable to our products and may determine that additional requirements are applicable to our products which contain human cells and tissues. Failure to comply with these requirements could jeopardize our ability to sell our products and result in enforcement actions, which could harm our reputation, business, financial condition, results of operations and prospects.

In addition, regulatory authorities’ policies with respect to human tissues or cells may change and additional government regulations may be enacted. For instance, the regulatory landscape related to human tissues and cells in the EU is evolving. In July 2022, a proposal for a regulation governing substances of human origin was adopted by the European ~~Commission .~~Commission. Such regulatory changes may have adverse consequences for us and make it more difficult or expensive for us to conduct our business in the EEA.

Our importer of tissues and cells is based in the UK and is therefore subject to the licensing regime of the UK Human Tissue Authority. Any non-compliance by our importer may have an impact on its licensing status and could have consequential effects on our ability to import and distribute the tissues and cells necessary for certain of our products.

Modifications to our marketed medical device products may require new 510(k) clearances, ~~PMA approvals,~~PMAs, or certifications or may require us to cease marketing or recall the modified products until clearances, approvals or certifications are obtained.

Modifications to any of our current 510(k)-cleared products may require new regulatory approvals or clearances, including 510(k) clearances or PMAs, or require us to recall or cease marketing the modified systems until these clearances or approvals are obtained. The FDA requires device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance. A manufacturer may determine that a modification could not significantly affect safety or efficacy and does not represent a major change in its intended use, so that no new 510(k) clearance is necessary. However, the FDA can review a manufacturer’s decision and may disagree. The FDA may also on its own initiative determine that a new clearance or approval is required. We have made modifications to our products in the past and may make additional modifications in the future that we believe do not or will not require additional clearances or approvals. If the FDA disagrees and requires new clearances or approvals for the modifications, we may be required to recall and to stop marketing our products as modified, which could require us to redesign our products and/or seek new marketing authorizations and harm our operating results. In these circumstances, we may be subject to significant enforcement actions. If the FDA requires us to go through a lengthier, more rigorous

examination for future products or modifications to existing products than we had expected, product introductions or modifications could be delayed or canceled, which could adversely affect our ability to grow our business.

If a manufacturer determines that a modification to an FDA-cleared device could significantly affect its safety or effectiveness or would constitute a major change in its intended use, then the manufacturer must file for a new 510(k) clearance or possibly a PMA application. Where we determine that modifications to our products requires a new 510(k) clearance or PMA application, we may not be able to obtain those additional clearances or approvals for the modifications or additional indications in a timely manner, or at all. Obtaining clearances and approvals can be a time-consuming process, and delays in obtaining required future clearances or approvals would adversely affect our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth.

In the EU, devices lawfully placed on the market pursuant to the EU Medical Devices Directive prior to May 26, 2021, may generally continue to be made available on the market or put into service until May 26, 2025, provided that the requirements of the transitional provisions are fulfilled. In particular, the certificate in question must still be valid and no substantial change must be made to the device as such a modification would trigger the obligation to obtain a new certification under the EU Medical Devices Regulation and therefore to have a notified body conducting a new conformity assessment of the devices. Once our devices will be certified under the EU Medical Devices Regulation, we must inform the notified body that carried out the conformity assessment of the medical devices that we market or sell in the EU and EEA of any planned substantial changes to our quality system or substantial changes to our medical devices that could affect compliance with the General safety and performance requirements laid down in Annex I to the EU Medical Devices Regulation or cause a substantial change to the intended use for which the device has been CE marked. The notified body will then assess the planned changes and verify whether they affect the products’ ongoing conformity with the EU Medical Devices Regulation. If the assessment is favorable, the notified body will issue a new CE certificate of conformity or an addendum to the existing certificate attesting compliance with the general safety and performance requirements and quality system requirements laid down in the Annexes to the EU Medical Devices Regulation. The notified body may disagree with our proposed changes and product introductions or modifications could be delayed or canceled, which could adversely affect our ability to grow our business.

Failure to comply with post-marketing regulatory requirements could subject us to enforcement actions, including substantial penalties, and might require us to recall or withdraw a product from the market.

We are subject to ongoing and pervasive regulatory requirements governing, among other things, the manufacture, marketing, advertising, medical device reporting, sale, promotion, import, export, registration and listing of devices. For example, medical device manufacturers must submit periodic reports to the FDA as a condition of obtaining marketing authorization. These reports include information about failures and certain adverse events associated with the device after its clearance. Failure to submit such reports, or failure to submit the reports in a timely manner, could result in enforcement action by the FDA. Following its review of the periodic reports, the FDA might ask for additional information or initiate further investigation. In addition, any marketing authorizations we are granted are limited to the authorized indications for use. Further, the manufacturing facilities for a product are subject to periodic review and inspection. Subsequent discovery of problems with a product, manufacturer, or manufacturing facility may result in restrictions on the product, manufacturer or manufacturing facility, withdrawal of the product from the market or other enforcement actions.

The regulations to which we are subject are complex and have become more stringent over time. Regulatory changes could result in restrictions on our ability to continue or expand our operations, higher than anticipated costs, or lower than anticipated sales. Plus, regulations, such as the FDA and other state and foreign regulatory authorities, have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by the FDA, state or foreign regulatory authorities, which may include any of the following sanctions:

Any of these sanctions could result in higher than anticipated costs or lower than anticipated sales and have a material adverse effect on our reputation, business, financial condition and results of operations. In addition, the FDA may change its clearance policies, adopt additional regulations or revise existing regulations or take other actions, which may prevent or delay clearance or approval of our future products under development or impact our ability to modify our currently cleared products on a timely basis. Such changes may also occur in foreign jurisdictions where we market our products. Such policy or regulatory changes could impose additional requirements upon us that could delay our ability to obtain new clearances, approvals or certifications, increase the costs of compliance or restrict our ability to maintain our clearances or certifications of our current products.

In addition, we are required to conduct post-market testing and surveillance to monitor the safety or effectiveness of some of our products. Later discovery of previously unknown problems with our products, including unanticipated adverse events or adverse events of unanticipated severity or frequency, manufacturing problems, or failure to comply with regulatory requirements such as the FDA's Quality System Regulation (QSR), may result in changes to labeling, restrictions on such products or manufacturing processes, withdrawal of the products from the market, voluntary or mandatory recalls, a requirement to repair, replace or refund the cost of any medical device we manufacture or distribute, fines, suspension of regulatory approvals or certifications, product seizures, injunctions or the imposition of civil or criminal penalties which would adversely affect our business, operating results and prospects.

From time to time, legislation is drafted and introduced in Congress that could significantly change the statutory provisions governing the regulation of medical devices. In addition, the FDA may change its clearance and approval policies, adopt additional regulations or revise existing regulations or take other actions, which may prevent or delay approval or clearance of our future products under development or impact our ability to modify our currently cleared products on a timely basis. For example, on February 23, 2022, the FDA issued a proposed rule to amend the QSR, which establishes current good manufacturing practice requirements for medical device manufacturers, to align more closely with the International Organization for Standardization, or ISO, standards. This proposal has not yet been finalized or adopted. Accordingly, it is unclear the extent to which this or any other proposals, if adopted, could impose additional or different regulatory requirements on us that could increase the costs of compliance or otherwise create competition that may negatively affect our business.

Additionally, in September 2019, the FDA issued revised guidance describing an optional “safety and performance based” premarket review pathway for manufacturers of “certain, well-understood device types” to demonstrate substantial equivalence under the 510(k) clearance pathway by showing that such device meets objective safety and performance criteria established by the FDA, thereby obviating the need for manufacturers to compare the safety and performance of their medical devices to specific predicate devices in the clearance process. The FDA maintains a list of device types appropriate for the “safety and performance based” pathway and continues to develop product-specific guidance documents that identify the performance criteria for each such device type, as well as the recommended testing methods, where feasible. The FDA may establish performance criteria for classes of devices for which we or our competitors seek or currently have received clearance, and it is unclear the extent to which such performance standards, if established, could impact our ability to obtain new 510(k) clearances or otherwise create competition that may negatively affect our business.

In addition, FDA and foreign regulations and guidance are often revised or reinterpreted by the FDA and other foreign ~~authorities’~~authorities in ways that may significantly affect our business and our products. Any new statutes, regulations or revisions or reinterpretations of existing regulations may impose additional costs or lengthen review times of any future products or make it more difficult to obtain clearance, approval or certification for, manufacture, market or distribute our products. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require additional testing before obtaining clearance, approval or certification; changes to manufacturing methods; recall, replacement or discontinuance of our products; or additional record keeping.

If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may be subject to enforcement action, and we may not achieve or sustain profitability.

The EU landscape concerning medical devices in the EU recently evolved. On April 5, 2017, the EU Medical Devices Regulation was adopted, which repeals and replaces the EU Medical Devices Directive and the Council Directive 90/385/EEC (the EU Active Implantable Medical Devices Directive). Unlike directives, which must be implemented into the national laws of the EU member states, the regulations isare directly applicable, i.e., without the need for EU member states to implement into national laws, in all EU member states and are intended to eliminate current differences in the regulation of medical devices among EU member States. The EU Medical Devices Regulation is also applicable in the EEA. The EU Medical Devices Regulation, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EU for medical devices and ensure a high level of safety and health while supporting innovation.

The modifications brought by this new Regulation may have an effect on the way we conduct our business in the EU and the EEA. For example, as a result of the transition towards the new regime, notified body review times have lengthened, and product introductions could be delayed, which could adversely affect our ability to grow our business in a timely manner.

In addition, in response to perceived increases in health care costs in recent years there have been and continue to be proposals by the federal government, state governments, regulators and third-party payors to control these costs and, more generally, to reform the U.S. health care system. Certain of these proposals could limit the prices we will be able to charge for our products or the amount of reimbursement available for our products and could limit the acceptance and availability of our products.

In March 2010, the federal government enacted the ACA. Among other provisions, the ACA established new value-based payment programs, increased funding of comparative effectiveness research, reduced hospital payments for avoidable readmissions and hospital acquired conditions, and pilot programs to evaluate alternative payment methodologies that promote care coordination (such as bundled physician and hospital payments). Also, Medicare payments to providers were reduced, effective on April 1, 2013, and will remain in effect through 2032, with the exception of a temporary suspension from May 1, 2020 through March 31, 2022, unless additional Congressional action is taken.

Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several states without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021, through August 15, 2021, for purposes of obtaining health insurance coverage through the ACA marketplace. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to health care, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. There are additional state and federal health care reform measures under consideration that may be adopted in the future which could have a material adverse effect on our industry generally and on our customers. We cannot predict what health care programs and regulations will be ultimately implemented at the federal or state level, or the effect of any future legislation or regulation. However, any regulatory and legal changes that lower reimbursement for our products, increase taxes on our medical devices, increase cost containment pressures on us or others in the health care sector or reduce medical procedure volumes could adversely affect our business, financial condition, results of operations or cash flows.

In the EU, similar developments may affect our ability to profitably commercialize our products, if certified. In December 2021, Regulation No 2021/2282 on Health Technology Assessment (HTA) amending Directive 2011/24/EU, was adopted. While the Regulation entered into force in January 2022, it will only begin to apply from January 2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once the Regulation becomes applicable, it will have a phased implementation depending on the concerned products. This regulation intends to boost cooperation among EU member states in assessing health technologies, including certain high-risk medical devices, and providing the basis for cooperation at the EU level for joint clinical assessments in these areas. The regulation will permit EU member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main areas, including joint clinical assessment of the innovative health technologies with the most potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU member states will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement.

Our products must be manufactured in accordance with federal and state quality regulations and are subject to FDA and foreign inspection, and our failure to comply with these regulations could result in fines, product recalls, product liability claims, limits on future product clearances, reputational damage and other adverse impacts.

The methods used in, and the facilities used for, the manufacture of our products must comply with the FDA’s QSR and foreign requirements which are complex regulatory schemes that cover the procedures and documentation of the design, testing, production, process controls, quality assurance, labeling, packaging, handling, storage, distribution, installation, servicing and shipping of medical devices. Furthermore, we are required to verify that our suppliers maintain facilities, procedures and operations that comply with our quality standards and applicable regulatory requirements. The FDA, foreign regulatory authorities and notified bodies enforce the QSR through periodic announced or unannounced inspections or audits of medical device manufacturing facilities, which may include the facilities of subcontractors.

We or our third-party manufacturers may not take the necessary steps to comply with applicable regulations, which could cause delays in the delivery of our products. In addition, failure to comply with applicable FDA or foreign regulatory requirements or later discovery of previously unknown problems with our products or manufacturing processes could result in, among other things: (i) warning letters or untitled letters; (ii) fines, injunctions or civil penalties; (iii) suspension or withdrawal of approvals, clearances or certifications; (iv) customer notifications or repair, replacement, refunds, detention, seizures or recalls of our products; (v) total or partial suspension of production or distribution; (vi) administrative or judicially imposed sanctions; (vii) the FDA’s or foreign authorities or notified body’s refusal to grant pending or future clearances, approvals or certifications for our products; (viii) clinical holds; (ix) refusal to permit the import or export of our products; and (x) criminal prosecution of us or our employees. Any of these actions could significantly and negatively impact supply of our products. If any of these events occurs, our reputation could be harmed, we could be exposed to product liability claims and we could lose customers and suffer reduced revenue and increased costs.

The misuse or off-label use of our products may harm our reputation in the marketplace, result in injuries that lead to product liability suits or result in costly investigations, fines or sanctions by regulatory bodies if we are deemed to have engaged in the promotion of these uses, any of which could be costly to our business.

Except for our total talus spacer, which is authorized for marketing under a HDE, and our orthobiologics such as our PRESERVE Bone Graft System, which are regulated as HCT/Ps, our marketed products are either Class II medical devices cleared by the FDA for specific indications or they are Class I exempt for general orthopaedic use. We have no products that are Class III medical devices. We train our marketing personnel and direct sales force to not promote our devices for uses outside of the FDA or foreign-authorized indications for use, known as “off-label uses.” We cannot, however, prevent a physician from using our devices off-label, when in the physician’s independent professional medical judgment he or she deems it appropriate. There may be increased risk of injury to patients if physicians attempt to use our devices off-label. Furthermore, the use of our devices for indications other than those cleared, approved or certified by the FDA or notified body may not effectively treat such conditions, which could harm our reputation in the marketplace among physicians and patients.

If the FDA or foreign regulatory authorities determines that our promotional materials or training constitute promotion of an off-label use, it could request that we modify our training or promotional materials or subject us to regulatory or enforcement actions, including the issuance or imposition of an untitled letter, which is used for violators that do not necessitate a warning letter, injunction, seizure, civil fine or criminal penalties. We could face similar consequences from action by foreign regulatory bodies. It is also possible that other federal, state or foreign enforcement authorities might take action under other regulatory authority, such as false claims laws, if they consider our business activities to constitute promotion of an off-label use, which could result in significant penalties, including, but not limited to, criminal, civil and administrative penalties, damages, fines, disgorgement, exclusion from participation in government health care programs and the curtailment of our operations.

In addition, physicians may misuse our products or use improper techniques if they are not adequately trained, potentially leading to injury and an increased risk of product liability. If our devices are misused or used with improper technique, we may become subject to costly litigation by our customers or their patients. As described above, product liability claims could divert management’s attention from our core business, be expensive to defend and result in sizeable damage awards against us that may not be covered by insurance.

Our medical device products may cause or contribute to adverse medical events or be subject to failures or malfunctions that we are required to report to the FDA or foreign regulatory authorities, and if we fail to do so, we would be subject to sanctions that could harm our reputation, business, financial condition and results of operations. The discovery of serious safety issues with our products, or a recall of our products either voluntarily or at the direction of the FDA or another governmental authority, could have a negative impact on us.

We are subject to the FDA’s medical device reporting regulations and similar foreign regulations, which require us to report to the FDA and similar foreign regulations when we receive or become aware of information that reasonably suggests that one or more of our medical device products may have caused or contributed to a death or serious injury or malfunctioned in a way that, if the malfunction were to recur, it could cause or contribute to a death or serious injury. The timing of our obligation to report is triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events of which we become aware

within the prescribed timeframe. We may also fail to recognize that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of the product. If we fail to comply with our reporting obligations, the FDA or foreign regulatory authorities could take action, including warning letters, untitled letters, administrative actions, criminal prosecution, imposition of civil monetary penalties, revocation of our device clearance, approval or certification, seizure of our products or delay in clearance, approval or certification of future products.

The FDA and foreign regulatory bodies have the authority to require the recall of commercialized products in the event of material deficiencies or defects in design or manufacture of a product or in the event that a product poses an unacceptable risk to health. The FDA’s authority to require a recall must be based on a finding that there is reasonable probability that the device could cause serious injury or death. We may also choose to voluntarily recall a product if any material deficiency is found. A government-mandated or voluntary recall by us could occur as a result of an unacceptable risk to health, component failures, malfunctions, manufacturing defects, labeling or design deficiencies, packaging defects or other deficiencies or failures to comply with applicable regulations. Product defects or other errors may occur in the future. Depending on the corrective action we take to redress a product’s deficiencies or defects, the FDA or foreign regulatory authorities may require, or we may decide, that we will need to obtain new clearances, approvals, or certifications for the device before we may market or distribute the corrected device. Seeking such clearances, approvals, or certifications may delay our ability to replace the recalled devices in a timely manner. Moreover, if we do not adequately address problems associated with our devices, we may face additional regulatory enforcement action, including FDA or foreign regulatory authorities warning letters, product seizure, injunctions, administrative penalties or civil or criminal fines.

Companies are required to maintain certain records of recalls and corrections, even if they are not reportable to the FDA or foreign authorities. We may initiate voluntary withdrawals or corrections for our products in the future that we determine do not require notification of the FDA or foreign authorities. If the FDA or foreign authorities disagree with our determinations, it could require us to report those actions as recalls and we may be subject to enforcement action. A future recall announcement could harm our reputation with customers, potentially lead to product liability claims against us and negatively affect our sales. In addition, we have had in the past, and may in the future, reports of adverse events associated with our products and procedures. While inherent in the medical device and surgical industry, frequent adverse events can lead to reputational harm and negatively affect our sales. Any corrective action, whether voluntary or involuntary, as well as defending ourselves in a lawsuit, will require the dedication of our time and capital, distract management from operating our business and may harm our reputation and financial results.

Disruptions at the FDA, other government agencies and notified bodies caused by funding shortages or global health concerns could hinder their ability to hire, retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being developed, cleared, approved or commercialized in a timely manner or at all, which could negatively impact our business.

The ability of the FDA, foreign regulatory authorities and notified bodies to review and clear, approve, or certify new products can be affected by a variety of factors, including government budget and funding levels, statutory, regulatory and policy changes, the FDA’s or other bodies' ability to hire and retain key personnel and accept the payment of user fees and other events that may otherwise affect the FDA’s or other bodies' ability to perform routine functions. Average review times at the FDA or other bodies' have fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA, other agencies and notified bodies may also slow the time necessary for medical devices or modifications to cleared or authorized medical devices to be reviewed by necessary government agencies or certified by notified bodies, which would adversely affect our business. For example, over the last several years, the U.S. government has shut down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical activities.

Separately, in response to the COVID-19 pandemic, the FDA postponed most inspections of domestic and foreign manufacturing facilities at various points. Even though the FDA has since resumed standard inspection operations of domestic facilities where feasible, the FDA has continued to monitor and implement changes to its inspectional activities to ensure the safety of its employees and those of the firms it regulates as it adapts to the evolving COVID-19 pandemic, and ~~any resurgence~~variants and resurgences of the virus ~~or emergence of new variants~~ may lead to further inspectional delays. Regulatory authorities outside the United States have adopted or may adopt similar restrictions or other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to prevent the FDA, other regulatory authorities or notified bodies from conducting their regular inspections, audits, reviews, or other regulatory activities, it could significantly impact the ability of the FDA, other regulatory authorities and notified bodies to timely review and process our regulatory submissions, which could have a material adverse effect on business.

In the EU, notified bodies must be officially designated to certify products and services in accordance with the EU Medical Devices Regulation. While several notified bodies have been designated, the COVID-19 pandemic has significantly slowed down their designation process and the current designated notified bodies are facing a large amount of requests for (re)certification under the new

Regulation as a consequence of which review times have lengthened. This situation could impact our ability to grow our business in the EU and EEA.

The clinical study process is lengthy and expensive with uncertain outcomes, and the results of earlier studies may not be predictive of future clinical trial or clinical study results or provide favorable safety or efficacy data for our products.

We cannot guarantee our on-going post-market clinical studies, or any other clinical study we may conduct or sponsor in the future, will be successful, and such clinical studies could be lengthy and expensive to conduct. Clinical testing is difficult to design and implement, can take many years, can be expensive and carries uncertain outcomes. Clinical studies must be conducted in accordance with the laws and regulations of the FDA, other applicable regulatory authorities’ and foreign authorities’ legal requirements, regulations or guidelines, and are subject to oversight by these governmental agencies and institutional review board or other reviewing bodies at the medical institutions where the clinical studies are conducted. Furthermore, we rely, and in the future may continue to rely upon, on contract research organizations (CROs), and clinical study sites to ensure the proper and timely conduct of our clinical studies and while we have agreements governing their committed activities, we have limited influence over their actual performance. To the extent our collaborators or the CROs fail to enroll participants for our clinical studies, fail to conduct the study to required good clinical practice standards or are delayed for a significant time in the execution of studies, including achieving full enrollment, we may be affected by increased costs, program delays or both.

The initiation and completion of any of clinical studies may be prevented, delayed or halted for numerous reasons, which could adversely affect the costs, timing or successful completion of our clinical studies. In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing clinical studies. Any of these occurrences may significantly harm our business, financial condition and prospects.

Furthermore, patient enrollment in clinical studies and completion of patient follow-up depend on many factors, including the size of the patient population, the nature of the study protocol, the proximity of patients to clinical sites, the eligibility criteria for the clinical study, patient compliance, competing clinical studies and clinicians’ and patients’ perceptions as to the potential advantages of the product being studied in relation to other available therapies, including any new treatments that may be approved for the indications we are investigating.

If the third parties on which we rely to conduct our clinical studies and to assist us with pre-clinical development do not perform as required or expected, we may not be able to obtain regulatory clearance, approval or certification for or commercialize our products.

We may not have the ability to independently conduct our pre-clinical and clinical studies for our future products and we may need to rely on third parties, such as CROs, medical institutions, collaborators, clinical investigators and contract laboratories to conduct such trials. Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with applicable protocol, legal and regulatory requirements and scientific standards, and our reliance on third parties does not relieve us of our regulatory responsibilities. We and these third parties are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign regulatory authorities for products in clinical development. Regulatory authorities enforce these GCP requirements through periodic inspections of study sponsors, principal investigators and study sites.

If we or any of these third parties fail to comply with applicable GCP regulations, the clinical data generated in our clinical studies may be deemed unreliable and the FDA or comparable foreign regulatory authorities or other bodies may require us to perform

additional clinical studies before clearing or approving our marketing applications or certifying our products. We cannot assure you that, upon inspection, such regulatory authorities will determine that any of our future clinical studies or clinical trials comply with the GCP regulations. To the extent our collaborators or the CROs fail to enroll participants for our clinical studies, fail to conduct the study to GCP standards or are delayed for a significant time in the execution of trials, including achieving full enrollment, including on account of the outbreak of infectious disease, such as the COVID-19 pandemic, or otherwise, we may be affected by increased costs, program delays or both, any resulting data may be unreliable or unusable for regulatory purposes, and we may be subject to enforcement action.

If these third parties do not successfully carry out their contractual duties or regulatory obligations or meet expected deadlines, if these third parties need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for other reasons, our pre-clinical development activities or clinical studies may be extended, delayed, suspended or terminated, and we may not be able to obtain regulatory approval or certification for, or successfully commercialize, our products on a timely basis, if at all, and our business, operating results and prospects may be adversely affected.

Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other requirements could adversely affect our business, results of operations and financial condition.

In the course of our operations, we may collect, use, store, disclose, transfer and otherwise process an increasing volume of personal information, including from our employees and third parties with whom we conduct business. We and our partners may be subject to federal, state and foreign data protection laws and regulations (i.e., laws and regulations that address data privacy and security). In the United States, numerous federal and state laws and regulations, including data breach notification laws, health information privacy laws and consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our operations or the operations of our partners. We may also be subject to U.S. federal rules, regulations and guidance concerning data security for medical devices, including guidance from the FDA. In addition, we may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA, as amended. Depending on the facts and circumstances, we could be subject to significant penalties if we obtain, use or disclose individually identifiable health information maintained by a HIPAA-covered entity or business associate in a manner that is not authorized or permitted by HIPAA. The regulatory framework for data privacy and security worldwide is continuously evolving and developing and, as a result, interpretation and implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future.

Certain states have also adopted comparable privacy and security laws and regulations that govern the privacy, processing and protection of health-related and other personal information. Such laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. For example, California enacted the California Consumer Privacy Act (CCPA) on June 28, 2018, which went into effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that has increased the likelihood of, and risks associated with data breach litigation. Further, the California Privacy Rights Act (CPRA), generally went into effect on January 1, 2023, and significantly amends the CCPA and imposes additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data. It has also created a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. Additional compliance investment and potential business process changes may be required. Similar laws have passed in Virginia, Colorado, Connecticut and Utah, and have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. The enactment of such laws could have potentially conflicting requirements that would make compliance challenging. In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection laws, any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.

In the EU, the European Union General Data Protection Regulation (GDPR) went into effect in May 2018 and imposes strict requirements for processing the personal data of individuals within the EEA. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater.

Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been found to provide adequate protection to such personal data, including the United States; in July 2020, the Court of Justice of the European Union (CJEU) limited how organizations could lawfully transfer personal data from the EEA to the United States by

invalidating the EU-US Privacy Shield Framework for purposes of international transfers and imposing further restrictions on use of the standard contractual clauses (SCCs). In March 2022, the US and EU announced a new regulatory regime intended to replace the invalidated regulations; however, this new EU-US Data Privacy Framework has not been implemented beyond an executive order signed by President Biden on October 7, 2022, on Enhancing Safeguards for United States Signals Intelligence Activities. European court and regulatory decisions subsequent to the CJEU decision of July 16, 2020, have taken a restrictive approach to international data transfers. As supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the SCCs cannot be used, and/or start taking enforcement action, we could suffer additional costs, complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between and among countries and regions in which we operate, it could affect the manner in which we provide our services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results.

Relatedly, following the UK's withdrawal from the EEA and the EU, and the expiry of the transition period, from January 1, 2021, companies have had to comply with both the GDPR and the GDPR as incorporated into UK national law, the latter regime having the ability to separately fine up to the greater of £17.5 million or 4% of global turnover. If we do not comply with our obligations under the GDPR and the UK data protection laws, we could be exposed to the fines discussed above. In addition, we may be the subject of litigation and/or adverse publicity, which could adversely affect our business, results of operations and financial condition.

In addition to government regulation, privacy advocates and industry groups have and may in the future propose self-regulatory standards from time to time. These and other industry standards may legally or contractually apply to us, or we may elect to comply with such standards. We expect that there will continue to be new proposed laws and regulations concerning data privacy and security, and we cannot yet determine the impact such future laws, regulations and standards may have on our business.

We make public statements about our use and disclosure of personal information through our privacy policies, information provided on our website and press statements. Although we endeavor to comply with our public statements and documentation, we may at times fail to do so or be alleged to have failed to do so. The publication of our privacy policies and other statements that provide promises and assurances about data privacy and security can subject us to potential government or legal action if they are found to be deceptive, unfair or misrepresentative of our actual practices. Any concerns about our data privacy and security practices, even if unfounded, could damage the reputation of our business and harm our business, financial condition and results of operations.

Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations, these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our employees, representatives, contractors, consultants, collaborators or other third parties to comply with such requirements or adequately address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation and adversely affect our business and results of operations. In addition, if our practices are not consistent, or viewed as not consistent, with legal and regulatory requirements, including changes in laws, regulations and standards or new interpretations or applications of existing laws, regulations and standards, we may also become subject to audits, inquiries, whistleblower complaints, adverse media coverage, investigations, criminal or civil sanctions, all of which may harm our business, financial condition and results of operations.

The market price of our common stock may fluctuate substantially or may decline regardless of our operating performance, which could result in the loss of part or all of your investment.

The market price of our common stock may be highly volatile and may fluctuate or decline substantially as a result of a variety of factors, some of which are beyond our control or are related in complex ways, including:

In recent years, the stock market in general, and the market for medical device companies in particular, has experienced significant price and volume fluctuations that have often been unrelated or disproportionate to changes in the operating performance of the companies whose stock is experiencing those price and volume fluctuations. Further, the stock market in general has been highly volatile due to various macroeconomic events. Broad market and industry factors may seriously affect the market price of our common stock, regardless of our actual operating performance. Following periods of such volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Because of the potential volatility of our stock price, we may become the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from our business.

If our operating and financial performance in any given period does not meet any guidance that we provide to the public, the market price of our common stock may decline.

We have provided public guidance on our expected operating and financial results for future periods. Such guidance will be comprised of forward-looking statements subject to the risks and uncertainties described in this Annual Report on Form 10-K and in our other public filings and public statements. Our actual results may not always be in line with or exceed any guidance we have provided, especially in times of economic uncertainty. If, in the future, our operating or financial results for a particular period do not meet any guidance we provide or the expectations of investment analysts, or if we reduce our guidance for future periods, the market

price of our common stock may decline. Even if we do issue public guidance, there can be no assurance that we will continue to do so in the future.

If we fail to maintain proper and effective internal control over financial reporting, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, investors' views of us and, as a result, the value of our common stock.

Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, our management is required to report upon the effectiveness of our internal control over financial reporting. ~~Once~~Now that we are no longer an emerging growth company, our independent registered public accounting firm ~~will be~~is required to attest to the effectiveness of our internal control over financial ~~reporting as well.~~reporting. The rules governing the standards that must be met in assessing our internal control over financial reporting are complex and require significant documentation, testing and possible remediation. In connection with our evaluation of our internal control over financial reporting, we may need to upgrade

our systems, including information technology; implement additional financial and management controls, reporting systems and procedures; and hire additional accounting and finance staff.

Any failure to implement required new or improved controls, or difficulties encountered in their implementation, could cause us to fail to meet our reporting obligations. In addition, any testing by us or our independent registered public accounting firm conducted in connection with Section 404 of the Sarbanes-Oxley Act of 2002 may reveal deficiencies in our internal control over financial reporting that are deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. Internal control deficiencies could also result in a restatement of our financial results in the future. We could become subject to stockholder or other third-party litigation, as well as investigations by the SEC, the stock exchange on which our securities are listed, or other regulatory authorities, which could require additional financial and management resources and could result in fines, trading suspensions, payment of damages or other remedies.

As discussed in Part II, Item 9A of this Annual Report on Form 10-K, we previously identified disclosed an immaterial error associated with our Zions Facility related to the recognition and disclosure of an interest rate swap agreement in prior reporting periods, which was an indication that a material ~~weaknesses in~~weakness existed within our internal control over financial reporting related to to the fact that we did not design or maintain an effective control environment, with the primary contributing factor being lack of adequate controls related to manual journal entries and lack of formal accounting policies, processes and controls to analyze, account for and disclose complex transactions.controls. During the ~~year~~quarter ended December 31, ~~2022,~~2023, our management identified and implemented changes to our internal control over financial reporting to remediate the deficiencies that led to the indication of material weakness, and, as a result of such changes, our management concluded that the indication of material weaknesses had been remediated and that our internal control over financial reporting was effective as of December 31, ~~2022.~~2023. We cannot assure you that the measures we have taken to date, and actions we may take in the future, will prevent or avoid any potential future material ~~weaknesses.~~weakness.

In addition, as a public company we are required to file accurate and timely quarterly and annual reports with the SEC under the Exchange Act. Any failure to report our financial results on an accurate and timely basis could result in sanctions, lawsuits, delisting of our shares from the NYSE or other adverse consequences that would materially harm to our business.

If securities analysts do not publish research or reports about our business or if they publish negative or inaccurate research about our business, our common stock price and trading volume could decline.

Our stock price and trading volume will be influenced by the way analysts and investors interpret our financial information and other disclosures. The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If the number of analysts that cover us declines, demand for our common stock could decrease and our common stock price and trading volume may decline.

Regardless of accuracy, unfavorable interpretations of our financial information and other public disclosures could have a negative impact on our stock price. If our financial performance fails to meet analyst estimates, for any of the reasons discussed above or otherwise, or one or more of the analysts who cover us downgrade our common stock or change their opinion of our common stock, our stock price would likely decline. If one or more of these analysts cease to cover our stock, we could lose visibility in the market for our stock, which in turn could cause our stock price to decline.

We have not paid dividends in the past and do not expect to pay dividends in the future, and, as a result, any return on investment may be limited to the appreciation in the price of our stock.

We have never paid cash dividends and do not anticipate paying cash dividends on our common stock in the foreseeable future. The payment of dividends will depend on our earnings, capital requirements, financial condition, prospects for future earnings and other factors our board of directors may deem relevant. In addition, our loan agreements ~~limits~~limit our ability to, among other things, pay dividends or make other distributions or payments on account of our common stock, in each case subject to certain exceptions. If we do not pay dividends, our stock may be less valuable because a return on your investment will only occur if our stock price appreciates and you then sell our common stock. There is no guarantee that our common stock will appreciate or even maintain the price at which our holders have purchased it. In addition, our loan agreements limit our ability to pay dividends or make other distributions or payments on account of our common stock, in each case subject to certain exceptions.

Future sales and issuances of our capital stock or rights to purchase capital stock could result in additional dilution of the percentage ownership of our stockholders and could cause the price of our common stock to decline.

We may issue additional securities. Future sales and issuances of our capital stock or rights to purchase our capital stock could result in dilution to our existing stockholders. We may sell common stock, convertible securities, and other equity securities in one or

more transactions at prices and in a manner as we may determine from time to time to fund operations, develop new products, accelerate other strategies, make acquisitions or support other activities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of any future offerings. If we sell any such securities in subsequent transactions, investors may be materially diluted. New investors to such subsequent transactions could gain rights, preferences, and privileges senior to those of holders of our common stock.

Insiders have substantial influence over us, which could limit your ability to affect the outcome of key transactions, including a change of control.

As of December 31, ~~2022,~~2023, our directors, officers, and certain ~~stockholders and~~of their respective affiliates owned a ~~majority~~substantial portion of our outstanding common stock. As a result, these stockholders, if they act together, will be able to influence our management and affairs and all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control of our company and might affect the market price of our common stock.

Anti-takeover provisions in our ~~third~~ amended and restated certificate of incorporation, as amended and second amended and restated bylaws, and Delaware law, could discourage a change in control of our company or a change in our management.

Our ~~third~~ amended and restated certificate of incorporation, as amended (the "Certificate of Incorporation") and second amended and restated bylaws contain provisions that might enable our management to resist a takeover. These provisions include:

These provisions might discourage, delay or prevent a change in control of our company or a change in our management. The existence of these provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law (the DGCL), which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.

Our ~~third amended~~Certificate of Incorporation and ~~restated certificate of incorporation and~~second amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.

In addition, as permitted by Section 145 of the DGCL, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:

Our ~~third amended~~Certificate of Incorporation and ~~restated certificate of incorporation and~~second amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ abilities to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

Our ~~third amended~~Certificate of Incorporation and ~~restated certificate of incorporation and~~second amended and restated bylaws provide that the Court of Chancery of the State of Delaware (or, in the event that the Court of Chancery does not have jurisdiction, the federal district court for the District of Delaware or other state courts of the State of Delaware) is the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, any action asserting a claim against us arising pursuant to the DGCL, our ~~third amended and restated certificate~~Certificate of ~~incorporation~~Incorporation or our second amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine; provided that, if and only if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, such action may be brought in another state or federal court sitting in the State of Delaware. Our ~~third amended~~Certificate of Incorporation and ~~restated certificate of incorporation and~~second amended and restated bylaws also provide that the federal district courts of the United States of America are the exclusive forum for the resolution of any complaint asserting a cause of action against any defendant arising under the Securities Act. Such provisions are intended to benefit and may be enforced by us, our officers and directors, employees and agents, including the underwriters and any other professional or entity who has prepared or certified any of this Annual Report on Form 10-K. The choice of forum provisions do not apply to suits brought to enforce any liability or duty created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction.

We believe these provisions may benefit us by providing increased consistency in the application of Delaware law and federal securities laws by chancellors and judges, as applicable, particularly experienced in resolving corporate disputes, efficient administration of cases on a more expedited schedule relative to other forums and protection against the burdens of multi-forum litigation. These choice of forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims or make such lawsuits more costly for stockholders, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. Furthermore, the enforceability of similar choice of forum provisions in other companies’ certificates of incorporation has been challenged in legal proceedings, and it is possible that a court could find these types

of provisions to be inapplicable or unenforceable. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions, and there can be no assurance that such provisions will be enforced by a court in those other jurisdictions. If a court were to find one or more of the choice of forum provisions that are contained in our amended and restated certificate of incorporation and amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could seriously harm our business.

Unfavorable global and regional economic, political and health conditions could adversely affect our business, financial condition or results of operations.

Our results of operations could be adversely affected by global or regional economic, political and health conditions. A global financial crisis or global or regional political and economic instability (including changes in inflation, interest rates and overall economic conditions and uncertainties), wars, terrorism, civil unrest, outbreaks of disease (for example, COVID-19), and other unexpected events, such as supply chain constraints or disruptions, could cause extreme volatility, increase our costs and disrupt our business. Business disruptions could include, among others, disruptions to our commercial activities, including due to supply chain or distribution constraints or challenges, clinical enrollment, clinical site availability, patient accessibility and conduct of our clinical trials, as well as temporary closures of our facilities and the facilities of suppliers or contract manufacturers in our supply chain. For example, these macroeconomic factors could affect the ability of our current or potential future manufacturers, sole source or single source suppliers, licensors or licensees to remain in business, or otherwise manufacture or supply components, materials or services relevant to our products. Any failure by any of them to remain in business could affect our ability to manufacture products or meet demand for our products. In addition, if inflation or other factors were to significantly increase our business costs, we may be unable to pass through price increases to our customers. Interest rates and the ability to access credit markets could also adversely affect the ability of our customers to purchase our products.

In addition, during certain crises and events, patients may prioritize other items over certain or all of their treatments and/or medications, which could have a negative impact on our commercial sales. The COVID-19 outbreak, including developments involving subsequent COVID-19 variants, significantly affected the financial markets of many countries and resulted in and may in the future result in a variety of federal, state and local orders, guidance and restrictions. We cannot, at this time, predict the specific extent, duration, or full impact that the COVID-19 outbreak will have on our ongoing and planned clinical trials and other business

operations, including our commercialization activities. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this "Risk Factors" section.

Also, as a result of the current geopolitical tensions and conflict between Russia and Ukraine, and the recent invasion by Russia of Ukraine, the governments of the United States, EU, Japan and other jurisdictions have recently announced the imposition of sanctions on certain industry sectors and parties in Russia and certain impacted regions, as well as enhanced export controls on certain products and industries. These and any additional sanctions and export controls, as well as any counter responses by the governments of Russia or other jurisdictions, could adversely affect, directly or indirectly, the global supply chain, with negative implications on the availability and prices of raw materials and components, as well as the on global financial markets and financial services industry.

A severe or prolonged economic downturn, political disruption or adverse health conditions could result in a variety of risks to our business, including our ability to raise capital when needed on acceptable terms, if at all. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the political or economic climate and financial market conditions could adversely impact our business.

Our operations are vulnerable to interruption or loss due to natural or other disasters, power loss, strikes and other events beyond our control.

A major hurricane, fire or other disaster (such as a major flood, earthquake or terrorist attack) affecting our headquarters or our other facilities, or facilities of our suppliers and manufacturers, could significantly disrupt our operations, and delay or prevent product shipment or installation during the time required to repair, rebuild or replace our suppliers’ and manufacturers’ damaged facilities, which delays could be lengthy and costly. ~~We opened a new~~Our headquarters facility in Englewood, Colorado, ~~to support~~supports our commercial expansion, education and training programs. Our facilities, equipment and inventory would be costly to replace and could require substantial lead time to repair or replace. If any of our customers’ facilities are negatively impacted by a disaster, shipments of our products could be delayed. Additionally, customers may delay purchases of our products until operations return to normal. Even if we are able to quickly respond to a disaster, effects of the disaster could create some uncertainty in the operations of our business. Concerns about terrorism, the effects of a terrorist attack or political turmoil could have a negative effect on our operations, those of our suppliers and manufacturers and our customers.

Litigation against us could be costly and time-consuming to defend and could result in additional liabilities.

We may from time to time be subject to legal proceedings and claims that arise in the ordinary course of business or otherwise, such as claims brought by our customers in connection with commercial disputes and employment claims made by our current or former employees. Claims may also be asserted by or on behalf of a variety of other parties, including government agencies, patients or vendors of our customers, or stockholders. Further, in the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities, and this risk is especially relevant to industries that experience significant stock price volatility. Any litigation involving us may result in substantial costs, operationally restrict our business, and may divert management’s attention and resources, which may negatively affect our business, financial condition and results of operations.

~~The requirements of being a public company may divert our management’s attention from our growth strategies and other business concerns.~~

As a public company, we are subject to the reporting requirements of the Exchange Act and are required to comply with the applicable requirements of the Sarbanes-Oxley Act and the Dodd- Frank Wall Street Reform and Consumer Protection Act of 2010, the listing requirements of the NYSE and other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time consuming or costly and increase demand on our systems and resources. Among other things, the Exchange Act requires that we file annual, quarterly and current reports with respect to our business and results of operations and maintain effective disclosure controls and procedures and internal controls over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal controls over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from executing our growth strategies and managing other business concerns and, which could have a material adverse effect on our business, financial condition and results of operations. Although we have hired additional employees to comply with these requirements, we may need to hire even more employees in the future, which will increase our costs and expenses. Additionally, as a public company, it is more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and qualified executive officers.

~~We incur significant costs as a result of operating as a public company and our executive management team devotes substantial time to public company compliance programs.~~

As a public company, we incur significant legal, accounting and other expenses due to our compliance with regulations and disclosure obligations applicable to us, including compliance with the Sarbanes-Oxley Act, as well as rules implemented by the SEC and the NYSE. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact, in ways we cannot currently anticipate, the manner in which we operate our business. Our executive management team and other personnel devote a substantial amount of time to these compliance programs and monitoring of public company reporting obligations and as a result of the new corporate governance and executive compensation related rules, regulations and guidelines prompted by the Dodd-Frank Wall Street Reform and Consumer Protection Act, and further regulations and disclosure obligations expected in the future, we will likely need to devote additional time and costs to comply with such compliance programs and rules. These rules and regulations may cause us to incur significant legal and financial compliance costs and may make some activities more time-consuming and costly.

We are subject to U.S. anti-bribery, anti-corruption, and anti-money laundering laws, including the U.S. Foreign Corrupt Practices Act, as well as export control, customs laws sanctions and other trade laws and regulations (collectively, the Trade Laws). We can face serious consequences for violations.

As we grow our international presence and global operations, we will be increasingly exposed to trade and economic sanctions and other restrictions imposed by the United States, the European Union and other governments and organizations. The U.S. Departments of Justice, Commerce, State and Treasury and other federal agencies and authorities have a broad range of civil and criminal penalties they may seek to impose against corporations and individuals for violations of economic sanctions laws, export control laws, the U.S. Foreign Corrupt Practices Act (FCPA), and other federal statutes and regulations, including those established by the Office of Foreign Assets Control (OFAC). In addition, the UK Bribery Act of 2010 (Bribery Act) prohibits both domestic and international bribery, as well as bribery across both private and public sectors. An organization that fails to prevent bribery by anyone associated with the organization can be charged under the Bribery Act unless the organization can establish the defense of having implemented adequate procedures to prevent bribery. These anti-corruption laws generally prohibit companies and their employees, agents and intermediaries from authorizing, promising, offering or providing, directly or indirectly, corrupt or improper payments or anything else of value to recipients in the public or private sector. We can be held liable for the corrupt or illegal activities of our agents and intermediaries, even if we do not explicitly authorize or have actual knowledge of such activities. We are also subject to other U.S. laws and regulations governing export controls, as well as economic sanctions and embargoes on certain countries and persons.

Violations of Trade Laws can result in substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud litigation, reputational harm and other consequences. Likewise, any investigation of potential violations of Trade Laws could also have an adverse impact on our reputation, our business, results of operations and financial condition.

We cannot assure you that our policies and procedures are or will be sufficient or that directors, officers, employees, representatives, consultants and agents have not engaged and will not engage in conduct for which we may be held responsible, nor can we assure you that our business partners have not engaged and will not engage in conduct that could materially affect their ability to perform their contractual obligations to us or even result in our being held liable for such conduct. Violations of the FCPA, OFAC restrictions, the Bribery Act or other export control, anti-corruption, anti-money laundering and anti-terrorism laws or regulations may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, financial condition and results of operations.

We, along with our suppliers, are dependent on various information technology systems, and failures of, interruptions to, or unauthorized tampering of those systems could have a material adverse effect on our business.

We and our suppliers rely extensively on information technology systems, networks and services, including internet sites, data hosting and processing facilities and tools, physical security system and other hardware, software and technical applications and platforms, some of which are managed, hosted, provided or used by third-parties or their vendors, to conduct business. These systems include, but are not limited to, ordering and managing materials from suppliers, converting materials to finished products (suppliers), shipping products to customers, processing transactions, summarizing and reporting results of operations, complying with regulatory, legal or tax requirements, providing data security and other processes necessary to manage our business.

A significant breakdown, invasion, corruption, destruction or interruption of critical information technology systems or infrastructure, by our workforce, others with authorized access to our systems or unauthorized persons could negatively impact operations. The use of cloud-based computing creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our or our third-party providers’ systems, portable media or storage devices. Despite the implementation of security measures, our information technology systems and those of our contractors, consultants and collaborators have been and are vulnerable to damage from cyberattacks, “phishing” attacks, intentional or accidental actions or omissions to act that cause vulnerabilities, computer viruses and malware, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. Attacks upon information technology systems are increasing in their frequency, levels of persistence, sophistication and intensity, and are being conducted by sophisticated and organized groups and individuals with a wide range of motives and expertise. As a result of the COVID-19 pandemic, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Furthermore, because the techniques used to obtain unauthorized access to, or to sabotage, systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.

We and certain of our service providers are from time to time subject to cyberattacks and security incidents. While we do not believe that we have experienced any significant system failure, accident or security breach to date, if our systems are damaged or cease to function properly due to any number of causes, ranging from catastrophic events to power outages to security breaches, and our business continuity plans do not effectively compensate timely, we may suffer interruptions in our ability to manage operations, and would also be exposed to a risk of loss, including financial assets or litigation and potential liability, which could materially adversely affect our business, financial condition, results of operations and prospects.

We cannot assure you that any limitations of liability provisions in our contracts would be enforceable or adequate or would otherwise protect us from any liabilities or damages with respect to any particular claim relating to a security lapse or breach. While we maintain certain insurance coverage, including cyber insurance, our insurance may be insufficient or may not cover all liabilities incurred by such attacks. We also cannot be certain that our insurance coverage will be adequate for data handling or data security liabilities actually incurred, that insurance will continue to be available to us on economically reasonable terms, or at all, or that any insurer will not deny coverage as to any future claim. The successful assertion of one or more large claims against us that exceeds available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could have a material adverse effect on our business, including our financial condition, operating results and reputation.

Our insurance policies are expensive and protect us only from some business risks, which leaves us exposed to significant uninsured liabilities.

We do not carry insurance for all categories of risk that our business may encounter. We presently have general liability, workers’ compensation, directors’ and officers’ and product liability insurance coverage, which is subject to deductibles and coverage limitations. If we are unable to obtain insurance at an acceptable cost or on acceptable terms or otherwise protect against potential product liability claims, we could be exposed to significant liabilities. A product liability claim, recall or other claim with respect to uninsured liabilities or for amounts in excess of insured liabilities could negatively affect our business, financial condition and results of operations. We do not carry specific hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from hazardous waste exposure or contamination. Accordingly, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical studies, clinical trials or regulatory approvals could be suspended. ~~Additionally, we do not carry cyber insurance, which may expose us to certain potential losses for damages or result in penalization with fines in an amount exceeding our resources.~~

Operating as a public company ~~will make~~makes it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the ~~same or similar~~desired coverage. As a result, it may be more difficult for us to attract and retain qualified people to serve on our board of directors, on our board committees or as executive officers. We do not know, however, if we will be able to maintain existing insurance with adequate levels of coverage. Any significant uninsured liability may require us to pay substantial amounts, which would negatively affect our business, financial condition and results of operations.

A significant proportion of our sales are outside of the United States, and a majority of those are denominated in foreign currencies, which exposes us to foreign currency risks, including changes in currency exchange rates. We do not currently engage in any hedging transactions. If we are unable to address these risks and challenges effectively, our international operations may not be successful, and our business could be harmed.

Governmental export or import controls could limit our ability to compete in foreign markets and subject us to liability if we violate them.

Our products may be subject to U.S. export controls. Governmental regulation of the import or export of our products, or our failure to obtain any required import or export authorization for our products, when applicable, will harm our international sales and adversely affect our revenue. Compliance with applicable regulatory requirements regarding the export of our products may create delays in the introduction of our products in international markets or, in some cases, prevent the export of our products to some countries altogether. Furthermore, U.S. export control laws and economic sanctions prohibit the shipment of certain products and services to countries, governments and persons targeted by U.S. sanctions. If we fail to comply with export and import regulations and such economic sanctions, we may be fined or other penalties could be imposed, including a denial of certain export privileges. Moreover, any new export or import restrictions, new legislation or shifting approaches in the enforcement or scope of existing regulations, or in the countries, persons or technologies targeted by such regulations, could result in decreased use of our products by, or in our decreased ability to export our products to existing or potential customers with international operations. Any decreased use of our products or limitation on our ability to export or sell access to our products would likely negatively affect our business, financial condition and results of operations.

Changes in tax laws or regulations that are applied adversely to us or our customers may seriously harm our business.

New income, sales, use or other tax laws, statutes, rules, regulations or ordinances could be enacted at any time, which could affect the tax treatment of any of our future domestic and foreign earnings. Any new taxes could adversely affect our domestic and international business operations, and our business and financial performance. Further, existing tax laws, statutes, rules, regulations or ordinances could be interpreted, changed, modified or applied adversely to us, possibly on a retroactive basis.

Our ability to use net operating losses to offset future taxable income may be subject to certain limitations.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” generally defined as a cumulative change of more than 50 percent (by value) in its equity ownership by certain stockholders over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards (the NOLs) and other pre-change tax attributes (such as research tax credits) to offset its post-change income or taxes may be limited. We may have experienced ownership changes in the past, and we may experience ownership changes as a result of future shifts in our equity ownership, some of which may be outside our control. As a result, our ability to use our pre-change federal NOLs and other tax attributes to offset future taxable income and taxes could be subject to limitations. For these reasons, we may not be able to utilize a material portion of the NOLs, even if we achieve profitability, which could adversely affect our business, financial condition and cash flows.

As international expansion of our business occurs, it will expose us to market, regulatory, political, operational, financial and economic risks associated with doing business outside of the United States.

Our long-term strategy is to increase our international presence. This strategy may include establishing and maintaining physician outreach and education capabilities outside of the United States and expanding our relationships with international payers. Doing business internationally involves a number of risks, including:

Any of these factors could significantly harm our future international expansion and operations and, consequently, have a material adverse effect on our business, financial condition and results of operations.

Our business could be negatively impacted by corporate citizenship and ESG matters and/or our reporting of such matters.

Institutional, individual, and other investors, proxy advisory services, regulatory authorities, consumers and other stakeholders are increasingly focused on environmental, social and governance, or ESG, practices of companies. As we look to respond to evolving standards for identifying, measuring, and reporting ESG metrics, our efforts may result in a significant increase in costs and may nevertheless not meet investor or other stakeholder expectations and evolving standards or regulatory requirements, which may negatively impact our financial results, our reputation, our ability to attract or retain employees, our attractiveness as a service provider, investment, or business partner, or expose us to government enforcement actions, private litigation, and actions by stockholders or stakeholders.

We recognize the critical importance of safeguarding our information systems and data against evolving cybersecurity threats. Our program is based on the National Institute of Standards and Technology Cybersecurity Framework (NIST CSF). This does not imply that we meet any particular technical standards, specifications, or requirements, only that we use the NIST CSF as a guide to help us identify, assess, and manage cybersecurity risks relevant to our business.

To protect our information systems from cybersecurity threats, we use various security tools that help prevent, identify, escalate, investigate, resolve, and recover from identified vulnerabilities and security incidents in a timely manner. These include, but are not limited to, preventative tools and technologies, monitoring and detection tools, and regular backup protocols. Additionally, we regularly engage external auditors and consultants to assess our internal cybersecurity programs and compliance with applicable practices and standards. The results of these assessments are reported to the Audit Committee.

We assess risks from cybersecurity and technology threats and monitor our information systems for potential vulnerabilities. We use a widely adopted risk quantification model to identify, measure and prioritize cybersecurity and technology risks and develop remediation or mitigation controls and safeguards. We conduct regular reviews and tests of our information security program including penetration and vulnerability testing to evaluate the effectiveness of our information security program and improve our security measures and planning.

There can be no assurance that our cybersecurity risk management program and processes, including our policies, controls, or procedures, will be fully implemented, complied with or effective in protecting our systems and information.

We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity incidents, that have materially affected or are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.

Cybersecurity is an important part of our risk management processes and an area of focus for our Board and management. Our Audit Committee is responsible for the oversight of risks from cybersecurity threats. Members of the Audit Committee receive updates on a quarterly basis from senior management, including leaders from our Information Security and Legal teams regarding matters of cybersecurity. This includes existing and new cybersecurity risks, status on how management is addressing and/or mitigating those risks, cybersecurity, and data privacy incidents (if any) and status on key information security initiatives.

Our management team, including the Director of IT Security, is responsible for assessing and managing our material risks from cybersecurity threats. The team has primary responsibility for our overall cybersecurity risk management program and supervises both

our internal cybersecurity personnel and our retained external cybersecurity consultants. Our management team’s experience includes over 20 years of Information Security experience, including serving in similar roles leading and overseeing cybersecurity programs at other public companies.

Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents through various means, which may include briefings from internal security personnel; threat intelligence and other information obtained from governmental, public, or private sources, including external consultants engaged by us; and alerts and reports produced by security tools deployed in the IT environment.

Our corporate headquarters are located in Englewood, Colorado, where we own and occupy approximately 105,000 square feet of office space. ~~We are currently in the process of expanding a portion of this facility not currently in use.~~ We also maintain offices domestically in Michigan and New Jersey and internationally in Ireland, South Africa, Australia, Finland, Germany, Italy and the U.K. We believe that our existing facilities are sufficient for our near-term needs.

As previously reported, on or about March 23, 2018, Wright Medical Technology, Inc., which was subsequently acquired by Stryker Corp., (collectively referred to as “Wright Medical”) filed a complaint against the Company in the United States District Court for the District of Colorado, Case No. 18-cv-00691-STV (the “Colorado Complaint”). The Colorado Complaint, as amended, asserts that the Company (i) has infringed and continues to infringe nine Wright Medical patents, (ii) has misappropriated and continues to misappropriate Wright Medical trade secrets and confidential material, (iii) has and is unfairly competing with Wright Medical, and (iv) has intentionally interfered with Wright Medical contracts. The Colorado Complaint, as amended, requests customary remedies for the claims raised, including (a) a judgment that the Company has infringed the Wright Medical patents and misappropriated, used and disclosed Wright Medical’s trade secrets, (b) a permanent injunction preventing the Company from further engaging in the alleged misconduct, including infringing the Wright Medical patents, from manufacturing, selling or distributing products that allegedly infringe such Wright Medical patents and from misappropriating Wright Medical’s trade secrets and confidential information, (c) damages, including punitive and statutory enhanced damages, (d) attorneys’ fees, (e) interest on any foregoing sums, and (f) any relief as the court deems just and equitable, which could include future royalty payments. In addition, on or about December 23, 2021, Wright Medical filed an additional complaint against the Company in the United States District Court for the District of Delaware, Case No. 1:21-cv-01809-MN, which alleges infringement of certain other patents (the "Delaware Complaint").

On November 28, 2022, the Company entered into a settlement agreement with Stryker Corp. to settle the Colorado Complaint, the Delaware Complaint and any Company counter claims for a total amount of $26.0 million paid by the Company to Stryker Corp. (the “Settlement Amount”). The Settlement Amount is scheduled to be paid by the Company in three separate installments consisting of: (i) $5.0 million on or by December 16, 2022, (ii) $8.0 million at any time between January 1, 2023 and January 16, 2023, and (iii) $13.0 million at any time between April 1, 2023 and April 17, 2023, of which $13.0 million have already been paid.

The settlement agreement does not impact the Company’s ability to continue operating its business and does not require any changes to the Company’s existing product lines. The Settlement Amount is the only consideration being paid, and the Company is not required to make any future payments to Stryker Corp.

The Company entered into the settlement agreement solely to eliminate the burden, expense, distraction, and uncertainties of litigation. The settlement agreement is not, and shall not be construed as, an admission of liability or that the Company engaged in any wrongful, tortious, or unlawful activity.

~~In addition to the above, the~~ Company may in the ordinary course of business face various claims brought by third parties and the Company may, from time to time, make claims or take legal actions to assert its rights, including intellectual property rights as well as claims relating to employment matters and the safety or efficacy of its products. Any of these claims could cause the Company to incur substantial costs and, while the Company generally believes that it has adequate insurance to cover many different types of liabilities, its insurance carriers may deny coverage, may be inadequately capitalized to pay on valid claims, or the Company's policy limits may be inadequate to fully satisfy any associated costs, damage awards or settlements. If this were to happen, the payment of any such awards could have a material adverse effect on the Company's operations, cash flows and financial position. Additionally, any such claims, whether or not successful, could damage the Company's reputation and business

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock has traded on The New York Stock Exchange under the symbol “FNA” since October 15, 2021. Prior to that, there was no public market for our common stock.

The following graph compares the cumulative total stockholder return of an investment in (1) our common stock, (2) the cumulative total returns to the Russell 2000 index and (3) the cumulative total returns to the S&P 500 Health Care Index, for the period from October 15, 2021 (the date our common stock began trading) through December 31, ~~2022.~~2023. The graph assumes an initial investment of $100 and that all dividends were reinvested. Such returns are based on historical results and are not indicative of future financial performance.

As of February ~~27, 2023,~~23, 2024, there were ~~107~~86 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.

We have never declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our capital stock. Any future determination as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors, subject to applicable laws and will depend on then existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, business prospects, and other factors our board of directors may deem relevant.

See the section titled “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in Part III of this Annual Report on Form 10-K for information regarding securities authorized for issuance.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes thereto included elsewhere in this Annual Report on ~~form~~Form 10-K. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions that are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors" within this Annual Report on Form 10-K.

We are a leading medical device company exclusively focused on the foot and ankle orthopedic market and we are dedicated to improving patient lives. Our innovative orthopedic solutions, procedural approaches and instrumentation cover a wide range of foot and ankle ailments including fracture fixation, forefoot, ~~or hallux valgus - which includes bunion and hammertoe,~~ ankle, flatfoot or progressive collapsing foot deformity (PCFD), charcot foot and orthobiologics. To treat these painful, debilitating or even life-threatening conditions, we provide a comprehensive portfolio of solutions that includes surgical implants and disposables, as well as surgical instrumentation. Our broad suite of surgical solutions comprises 75nearly 80 product systems ~~including approximately 9,200 SKUs~~ to help fit the specific needs of each patient and procedure. We design each of our products with both the patient and surgeon in mind, with the goal of improving outcomes, reducing ailment recurrence and complication rates, and making the procedures simpler, consistent and reproducible. We believe our passion, expertise, and exclusive focus in the foot and ankle market has allowed us to better understand the needs of our patients and physicians, which has enabled us to create innovations and enhanced solutions that disrupt and transform the foot and ankle market. As a result, we have experienced significant growth and momentum in our business.

Smart 28, the Company’s ecosystem of enabling technologies for pre-operative planning, intra-operative support, and post-operative evaluation, was augmented by the Additive Orthopaedics acquisition in 2021 and the Disior acquisition in the first quarter of 2022. With the Additive acquisition, we acquired the only 3-D printed, patient specific total talus spacer authorized for marketing pursuant to an approved HDE application, plus a proprietary, pre-operative surgical planning platform. With Disior, we acquired a leading three-dimensional analytics pre-operative planning software company based in Helsinki, Finland. These transactions broadened our capabilities within the pre-operative and intra-operative stages of the foot and ankle continuum of care. We expect to continue to invest in Smart 28 to improve foot and ankle patient outcomes.

Our broad commercial footprint spans across all 50 United States and 22 other countries. In the United States we primarily sell to hospitals and ambulatory surgery centers through a network of primarily independent sales representatives, the majority of whom are exclusive. Outside the United States we primarily sell to hospitals and ambulatory surgery centers through a network of sales representatives and stocking distributors. We plan to efficiently grow our sales organization and network to expand into new territories in the United States. We are also highly focused on expanding our global network by expanding our sales footprint in existing and select new international markets based on our assessment of size and opportunity.

We currently leverage multiple third-party manufacturing relationships to ensure low cost production while maintaining a capital efficient business model. We have multiple sources of supply for many of our surgical solutions’ critical components. Nearly all of our supply agreements do not have minimum manufacturing or purchase obligations. As such, we generally do not have any obligation to buy any given quantity of products, and our suppliers generally have no obligation to sell to us or to manufacture for us any given quantity of our products or components for our products. In most cases, we have redundant manufacturing capabilities for each of our products. ~~Except during the height of the COVID-19 pandemic, we~~We have not experienced any significant difficulty obtaining our products or components for our products necessary to meet demand, and we have only experienced limited instances where our suppliers had difficulty supplying products by the requested delivery date. We believe manufacturing capacity is sufficient to meet market demand for our products for the foreseeable future.

Net revenue ~~was~~increased $35.0 million, or 19%, from $181.4 million for the year ended December 31, 2022, ~~compared~~ to ~~$147.5~~$216.4 million for the year ended December 31, ~~2021.~~2023.

Net loss ~~was~~decreased $19.5 million, or 29%, from $67.3 million for the year ended December 31, 2022, ~~compared~~ to ~~net loss of $13.7~~$47.8 million for the year ended December 31, ~~2021.~~

Adjusted EBITDA ~~was~~improved from negative $10.7 million for the year ended December 31, 2022, ~~compared~~ to ~~$3.1~~negative $9.7 million for the year ended December 31, ~~2021.~~2023. Adjusted EBITDA is not a financial measure under U.S. generally accepted accounting principles ~~(GAAP)~~("GAAP"). See ~~“—Non-GAAP~~“Non-GAAP Financial Measures” for an explanation of how we compute this non-GAAP financial measure and for the reconciliation to the most directly comparable GAAP financial measure.

As of December 31, ~~2022 and 2021,~~2023, we had cash of ~~$38.5~~$75.6 million and ~~$109.4 million, respectively, and retained earnings (deficit)~~an accumulated deficit of $(67.8) million and $(0.5) million, respectively. Our primary sources of capital from inception through December 31, 2022 have been from cash flows from operations, private placements of securities, proceeds from our public offering and the incurrence of indebtedness.$115.6 million.

On January 30, 2023, we completed a public offering of 6,500,000 shares of our common stock at an offering price of $17.00 per share (the "Offering"). The Offering consisted of 3,750,000 shares of common stock issued and sold by us (the “Primary Shares”) and 2,750,000 shares of common stock sold by the selling securityholders (the “Secondary Shares”). Under the terms of the underwriting agreement entered into with the underwriters, we and the selling securityholders granted the underwriters an option exercisable for 30 days to purchase up to an additional 562,500 shares and 412,500 shares of common stock, respectively (the “Option Shares”), at the public offering price, less underwriting discounts and commissions which was exercised on February 17, 2023. We received net proceeds from the Offering of approximately $68.3 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We did not receive any of the proceeds from the sale of shares of common stock by the selling securityholders.

We believe our performance and continued success depend on several factors that present significant opportunities. These factors include:

We expect to continue to focus on long-term revenue growth through investments in our business. In research and development, our team is continually working on new products and iterations of our existing products. Further, we anticipate we will continue to invest ~~significantly~~ in Smart 28 in order to improve patient outcomes by augmenting existing products and creating new products and related services that employ advanced technologies. We are committed to continuously expanding our portfolio of foot and ankle solutions and to bring next-generation products to market. While research and development and clinical testing are time consuming and costly, we believe expanding into new indications, implementing product improvements and continuing to demonstrate the efficacy, safety and cost effectiveness of our products through clinical data are all critical to increasing the adoption of our solutions. We continue to invest in programs to educate physicians who treat foot and ankle about the advantage of products. Accordingly, in the near term, we expect these activities to increase our operating expenses, but in the longer term we anticipate they will positively impact our business and results of operations.

In sales and marketing, we are also dedicating meaningful resources to expand our commercial team in the United States and in international markets. Our top commercial priorities in the United States include sales force expansion, expansion of our surgeon customer base, sales force channel productivity and increasing surgeon utilization. Our top commercial priorities in the international markets include expanding our market share in existing countries and targeting new countries where we can maximize strong average selling price (ASP) and margins. Our current expansion targets include Brazil, Colombia, Germany, Italy and Japan. This process requires significant education and training for our commercial team to achieve the level of technical competency with our products that is expected by physicians and to gain experience building demand for our products. Upon completion of the training, our commercial team typically requires time in the field to grow their network of accounts and increase their productivity to the levels we expect. Successfully recruiting, training and retaining additional sales representatives will be required to achieve growth, which will require significant investments by us.

In the United States, in order for physicians to use our products, the hospital facilities where these physicians treat patients often require us to enter into purchasing contracts directly with the hospital facilities or with the GPOs of which the hospital facilities are members. This process can be lengthy and time-consuming and requires extensive negotiations and management time. In markets outside the United States, we may be required to engage in a contract bidding process in order to sell our products, where the bidding processes are only open at certain periods of time, and we may not be successful in the bidding process.

Given the large variety and number of products we sell, ~~in order~~ to market and sell them effectively, we must maintain significant levels of inventory and surgical instrumentation. As a result, a significant amount of cash is expended for inventory and surgical instrumentation. There may also be times in which we determine that our inventory does not meet our product requirements. We may also over- or underestimate the quantities of required components, in which case we may expend extra resources or be constrained in the amount of ~~end~~ product that we can procure. These factors subject us to the risk of obsolescence and expiration, which may lead to impairment charges. Additionally, as we release later generations of products that contain advancements or additional features, the earlier generations may become obsolete.

We have experienced and expect to continue to experience seasonality in our business, with our highest sales volumes in the U.S. occurring in the fourth calendar quarter. Our U.S. sales volumes in the fourth calendar quarter tend to be higher as many patients elect to have surgery after meeting their annual deductible and having time to recover over the winter holidays.

In March 2020, the World Health Organization declared the outbreak of COVID-19 as a pandemic, and in response, certain states within the United States implemented shelter-in-place rules requiring elective surgical procedures to be delayed. As a result, our revenue growth was adversely impacted particularlyTransition from March 2020 through May 2020 until such shelter-in-place restrictions were eased. Early in the first quarter of 2022, the Omicron variant of COVID-19 led to a deferral of surgeries with those headwinds beginning to decrease in mid-February. Since then we have seen the elective procedure environment continue to improve; however, the pandemic has led to severe disruptions in the market, supply chain and the global and United States economies that may continue. We cannot reasonably estimate the length or severity of these impacts on our business.

As an emerging growth company under the JOBS Act we ~~are~~were eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We ~~have~~ elected to avail ourselves of this exemption and, therefore, while we ~~are~~were an emerging growth company, we ~~will~~were not be subject to new or revised accounting standards at the same time that they become applicable to other public ~~companies that are not emerging growth~~ companies. As a result, our prior year financial statements and interim financial statements may not be comparable to companies that comply with new or revised accounting ~~pronouncements.~~

~~We will remain~~pronouncements. As of December 31, 2023, we no longer qualify as an emerging growth company ~~until~~and are no longer entitled to the ~~earliest of (i)~~reporting and other advantages offered under that status. In addition, we are required to engage an independent registered public accounting audit firm to report on the ~~last day~~effectiveness of our ~~first fiscal year in which we have total annual gross revenues of $1.235 billion or more, (ii) the last day~~internal control over financial reporting under section 404(b) of the ~~first fiscal year in which we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange~~Sarbanes Oxley Act ~~of 1934, as amended, with at least $700.0 million of equity securities held by non-affiliates~~ as of the end of the last business day of the second quarter of that fiscal year, (iii) the date on which we have issued, in any three-year period, more than $1.0 billion in non-convertible debt securities, or (iv) the last day of our fiscal year after the fifth anniversary of the date of the completion of our initial offering.December 31, 2023.

In addition to our results and measures of performance determined in accordance with U.S. GAAP, we believe that certain non-GAAP financial measures are useful in evaluating and comparing our financial and operational performance over multiple periods, identifying trends affecting our business, formulating business plans and making strategic decisions.

Adjusted EBITDA is a key performance measure that our management uses to assess our financial performance and is also used for internal planning and forecasting purposes.

We believe that Adjusted EBITDA, together with a reconciliation to net ~~income (loss),~~loss, helps identify underlying trends in our business and helps investors make comparisons between our company and other companies that may have different capital structures, tax rates, or different forms of employee compensation. Accordingly, we believe that Adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to a key financial metric used by our management in its financial and operational decision-making. Our use of Adjusted EBITDA has limitations as an analytical tool, and you should not consider these measures in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these potential limitations include:

Because of these and other limitations, you should consider our non-GAAP measures only as supplemental to other GAAP-based financial measures. For a full reconciliation of Adjusted EBITDA to the most comparable GAAP financial measure, ~~please~~ see ~~“—Reconciliation~~“Reconciliation Between GAAP and Non-GAAP Measure."

We define Adjusted EBITDA as earnings (loss) before interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation expense, employee stock purchase plan expense, non-recurring expenses and certain other non-cash expenses. For a full reconciliation of Adjusted EBITDA for the years ended December 31, ~~2022~~2023 and ~~2021~~2022 to the most comparable GAAP financial measure, ~~please see~~refer to the ~~following table.~~presentation below.

We derive our revenue from the sale of our foot and ankle orthopedic solutions, primarily implants. We also record as revenue any amounts billed to customers for shipping costs and record as cost of goods sold the actual shipping costs. We have elected to exclude from the measurement of the transaction price all taxes, such as sales, use, value-added, assessed by government authorities and collected from a customer. Therefore, revenue is recognized net of such taxes. In addition, we record revenue net of estimated ~~losses for bad debt.~~discounts and other price concessions. No single customer accounted for 10% or more of our net revenue in the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020.~~2021. We expect our net revenue to increase in the foreseeable future as we expand our sales territories, add new customers and increase the utilization of our products by our existing customers, though net revenue may fluctuate from quarter to quarter due to a variety of factors, including availability of reimbursement, the size and success of our sales force, the number of hospitals and physicians who are aware of and use our products and seasonality.

Cost of goods sold consists primarily of finished products purchased from third-party suppliers, shipping costs, excess and obsolete inventory adjustments and royalties. Implants are manufactured to our specifications primarily by third-party suppliers in the United States. Cost of goods sold is recognized at the time the implant is used in surgery and the related revenue is recognized. Prior to use in surgery, the cost of our implants is recorded as inventories, net in our consolidated balance sheets. Cost of goods sold is expected to increase due primarily to increased sales volume.

We calculate gross profit as net revenue less cost of goods sold, and gross margin as gross profit divided by net revenue. We expect our gross profit to increase in the foreseeable future as our net revenue grows, though our gross profit and gross margin have been and will continue to be affected by a variety of factors, primarily average selling prices, third-party manufacturing costs, change in mix of customers, excess and obsolete inventory adjustments, royalties and seasonality of our business. Our gross margin is higher for products we sell in the United States versus internationally due to higher average selling prices. We expect our gross margin to fluctuate from period to period, however, based upon the factors described above and seasonality.

Research and development expense is comprised of engineering costs and research programs related to new product and sustaining product development activities, clinical studies and trials expenses, quality and regulatory expenses, and salaries, bonuses and benefits related to research and development functions. We maintain a procedurally focused approach to product development and have projects underway to add new systems across multiple foot and ankle indications and to add additional functionality to our existing systems. We expect our research and development expenses to increase as we hire additional personnel to develop new product offerings and product ~~enhancements, including Smart 28.~~

Selling, general, and administrative expenses consist primarily of commissions paid to U.S. sales representatives, salaries, bonuses, and benefits related to selling, marketing, and general and administrative functions, and stock-based compensation. In addition, selling, general, and administrative expenses consist of the costs associated with marketing initiatives, physician and sales force medical education programs, surgical instrument depreciation, travel expenses, professional services fees (including legal, finance, audit and tax fees), insurance costs, facility expenses and other general corporate expenses.

We expect selling, general, and administrative expenses to continue to increase in the foreseeable future as we continue to grow our business, though it may fluctuate from quarter to quarter. We also expect our administrative expenses, including stock-based compensation expense, to increase as we increase our headcount and expand our facilities and business processes to support our operations as a public company. Our selling, general and administrative expenses may fluctuate from period to period due to the seasonality of our business and as we continue to add direct sales territory managers in new territories.

Legal settlement expense consists of our settlement with Wright Medical and associated legal fees.

Other income (expense) consists primarily of changes in fair value related to earn-out liabilities and our interest rate swap contract.

Loss on early extinguishment of debt consists of the write-off of unamortized debt issuance costs and fees incurred to exit the MidCap Credit Agreements early.

Interest expense consists of interest incurred, ~~and~~ amortization of financing costs and interest income earned during the reported periods.

The following table summarizes our results of operations for the period presented below. Discussion and analysis of our financial condition and results of operations for the years ended December 31, 2021 and 2020 can be found in Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 8, 2022.

The following table represents total net revenue by geographic area, based on the location of the customer for the years ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Net Revenue. Net revenue increased ~~$33.9~~$35.0 million, or ~~23%~~19%, from ~~$147.5~~$181.4 million induring the year ended December 31, ~~2021~~2022, to ~~$181.4~~$216.4 million induring the same period in ~~2022.~~2023. Strengthening of the U.S. dollar reduced net revenue growth for the year ended December 31, ~~2022~~2023, by ~~1.5 percent~~0.4% as compared to the prior year. U.S net revenue was ~~$158.1~~$183.5 million for the year ended December 31, ~~2022,~~2023, representing growth of ~~22%~~16% compared to the prior year. U.S. net revenue growth was primarily the result of sales force ~~productivity gains driven largely by~~expansion and new product ~~launches and the benefits from medical education and training and sales force expansion.~~launches. International revenue was ~~$23.3~~$32.9 million, representing growth of ~~34%~~41% compared to the prior year. Strengthening of the U.S. dollar reduced international net revenue growth for the year ended December 31, ~~2022~~2023, by approximately ~~12.3 percent~~2.8% as compared to the prior year. International revenue growth was driven primarily by our ~~three largest international markets of Australia, South Africa and~~operations in the United ~~Kingdom.~~Kingdom, Australia and Spain.

Cost of Goods Sold and Gross Profit Margin. Cost of goods sold increased ~~$4.4~~$11.1 million, or ~~16%~~34%, from ~~$28.0~~$32.5 million induring the year ended December 31, ~~2021~~2022, to ~~$32.5~~$43.6 million in the same period in ~~2022. The increase in cost of goods sold was~~2023, primarily due to increased variable costs ~~of goods sold resulting~~ from higher ~~sales volume.~~net revenue. Gross profit margin for the year ended December 31, ~~2022 increased~~2023, decreased to ~~82.1%~~79.9%, compared to ~~81.0%~~82.1% in the same period of ~~2021,~~2022 primarily due to higher costs of procured product, increased revenue contribution from our international business with lower gross profit margins and inventory ~~excess and obsolescence expense.~~write-downs totaling $4.0 million during the fourth quarter of 2023 related to the recent inventory stockpiling, partially offset by lower freight as a percentage of revenue.

Research and Development Expenses. Research and development expenses increased ~~$8.5~~$5.4 million, or ~~53%~~22%, from ~~$16.1~~$24.7 million in the year ended December 31, ~~2021~~2022, to ~~$24.7~~$30.1 million in the same period in ~~2022.~~2023. The increase in research and development expenses was primarily due to additional investments in new product development, ~~efforts~~international regulatory affairs, clinical studies and our quality management ~~system, including increased personnel expenses due to increased headcount and the acquisition of Disior in the first quarter of 2022.~~system.

Selling, General, and Administrative Expenses. Selling, general and administrative expenses increased ~~$45.2~~$20.7 million, or ~~40%~~13%, from ~~$114.1~~$159.3 million for the year ended December 31, ~~2021~~2022, to ~~$159.3~~$180.0 million in the same period in ~~2022.~~2023. The increase in selling, general, and administrative expenses ~~as compared to the prior year~~ was primarily driven ~~primarily~~ by investments in sales, ~~and marketing, including in-person U.S.~~ marketing and ~~medical education events,~~operations, including commercial team expansion both in the U.S. and in our international markets, increased variable sales representative commission expense related to U.S. net revenue growth and increased ~~general~~U.S. marketing and ~~administrative expenses due to costs of becoming a publicly traded company in the fourth quarter of 2021.~~medical education programs.

Legal Settlement Expense. Legal settlement expense was ~~$27~~$27.0 million for the year ended December 31, 2022, as we entered into a settlement agreement with Wright Medical on November 28, 2022.

Other Income, net. Other income increased $1.4 million, from an expense of $1.2 million during the year ended December 31, 2022, to income of $0.2 million during the year ended December 31, 2023. The increase in other income is primarily related to the change in fair value of interest rate swap.

Loss on Early Extinguishment of Debt. Loss on early extinguishment of debt was $5.3 million for the year ended December 31, 2023, as we wrote off the unamortized debt issuance costs and incurred fees to exit the MidCap Credit Agreements early.

Interest Expense. Interest expense increased to$1.0 million, or 25%, from $4.1 million for the year ended December 31, 2022, ~~from $1.7~~to $5.2 million for the year ended December 31, ~~2021~~2023, primarily due to higher levels of outstanding ~~debt.~~debt and higher interest rates on our outstanding debt, offset partially by higher interest income.

For a comparison of our results of operations and cash flows for the years ended December 31, 2022 and 2021, see Part II, Item 7 of the Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 2, 2023, which comparative information is incorporated by reference in this Annual Report on Form 10-K.

~~As of December 31, 2022 and 2021, we had cash of $38.5 million and $109.4 million, respectively, and retained earnings (deficit) of $(67.8) million and $(0.5) million, respectively.~~

Our primary sources of capital from inception through December 31, ~~2022~~2023, have been from cash flows from operations, private placements of securities, proceeds from our public ~~offering~~offerings and the incurrence of indebtedness. As of December 31, 2023, we had cash of $75.6 million and an accumulated deficit of $115.6 million.

On October 19, 2021, we completed our initial public offering of 8,984,375 shares of our common stock, at a price to the public of $16.00 per share. The gross proceeds from the initial public offering were approximately $143.8 million, before deducting underwriting discounts and commissions and estimated offering expenses payable by us. The net proceeds after deducting all expenses were $129.1 million.

On January 30, 2023, we completed the Offering of 6,500,000 shares of our common stock at an offering price of $17.00 per share, which consisted of 3,750,000 Primary Shares and 2,750,000 Secondary Shares. Under the terms of the underwriting agreement entered into with the underwriters, we and the selling securityholders granted the underwriters an option exercisable for 30 days to purchase up to an additional 562,500 shares and 412,500 shares of common stock, respectively (the “Option Shares”), at the public offering price, less underwriting discounts and commissions which was exercised on February 17, 2023. We received net proceeds from the Offering of approximately ~~$68.3~~$68.5 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. We ~~will~~did not receive any of the proceeds from the sale of shares of common stock by the selling securityholders.

We intend to use the net proceeds from the Offering for working capital, capital expenditures and other general corporate purposes. We may also use a portion of such net proceeds from the Offering to acquire or invest in products, technologies or businesses that are complementary to our business and advance our strategic goals. However, we currently have no agreements or commitments to complete any such transaction.

At December 31, ~~2022,~~2023, we had ~~$30.0~~$75.0 million principal ~~amount~~ outstanding ~~and $10 million borrowing capacity~~ under ~~the Midcap~~our Ares Term Loan (as defined below) and $25.0 million available borrowing capacity as well as $0$25.0 million outstanding ~~and $50 million borrowing capacity~~ under ~~the Midcap~~our Ares Revolving Loan (as defined below)~~. At~~ and $25.0 million available borrowing capacity. As of December 31, ~~2022,~~2023, we also had ~~approximately $16~~$14.9 million outstanding under ~~the~~our secured term loan facility with Zions ~~Facility (as defined below)~~Bancorporation, N.A., dba Vectra Bank Colorado (the “Zion Facility”).

We believe that our existing cash, additional available ~~borrowings under our amended Midcap Credit Agreements (as defined below)~~borrowing capacity and expected revenues will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months. ~~However, we may decide to raise additional financing to support further growth of our operations such as the Offering discussed above.~~

On November 2, 2023, the Company entered into a new credit agreement with Ares Capital Corporation to provide a total of $150.0 million, inclusive of a revolving credit facility of up to $50.0 million (the “Ares Revolving Loan”) and a term loan facility of up to $100.0 million (the “Ares Term Loan”). The obligations under the Ares Credit Agreement are guaranteed by each of the Borrowers’ current and future domestic subsidiaries and secured by liens on substantially all of the Borrowers’ and guarantors’ present and after-acquired assets, in each case, subject to certain customary exceptions. In connection with the closing of the Ares Credit Agreement, the Company drew down $25.0 million and $75.0 million on the Ares Revolving Loan and Ares Term Loan, respectively. The Ares Revolving Loan and Ares Term Loan bear interest at variable rates of Term SOFR plus 4% and Term SOFR plus 6.75%, respectively, subject in the case of the Ares Term Loan to certain step-downs and adjustments as set forth in the Ares Credit Agreement, and mature

on the earlier of (i) November 2, 2028, and (ii) with respect to the Ares Revolving Loan, 6 months prior to the maturity date of any other indebtedness in a principal or stated amount in excess of $12.5 million. The Ares Credit Agreement contains a financial covenant requiring us to maintain certain minimum revenue levels. As of December 31, 2023, the Company was in compliance with all financial covenants under the Ares Credit Agreement.

On May 6, 2021, wethe Company entered into a new credit agreement with MidCap Financial Trust to provide a total of ~~$70~~$70.0 million ~~in total borrowing~~ including up to a ~~$30~~$30.0 million revolving loan (“MidCap Revolving Loan”) and up to a ~~$40~~$40.0 million term loan (“MidCap Term Loan”), secured by substantially all ~~of our~~the Company’s assets (“MidCap Credit Agreements”). The MidCap Term Loan was comprised of two tranches, the first of which provided a commitment amount of ~~$10~~$10.0 million, and the second a commitment of ~~$30~~$30.0 million. The MidCap Term Loan and Midcap Revolving Loan bore a variable interest rate of LIBOR plus 6% and LIBOR plus 3%, respectively, and ~~mature~~matured on the earlier of May 1, 2026, or a change in control event (the "Termination Date"). The entire principal balances of the MidCap Revolving Loan and MidCap Term Loan ~~are~~were due on the Termination Date. Interest payments ~~are~~were payable monthly, with optional principal prepayments allowed under the MidCap Credit Agreements. The Midcap Credit Agreements required us to maintain minimum net product sales and minimum consolidated EBITDA, (each term as defined in the Midcap Credit Agreements), for the preceding ~~twelve month~~twelve-month period.

On November 9, 2022, wethe Company entered into an amendment to the MidCap Credit Agreements. The amendment to the Midcap Revolving Loan ~~provides~~provided up to ~~$50~~$50.0 million in total borrowing capacity. The MidCap amendments modified the MidCap Credit Agreements to include provisions related to the transition from the LIBOR Interest Rate plus Applicable Margin to the SOFR Interest Rate plus Applicable Margin, maintaining the Applicable Margin of 6% under the MidCap Term Loan and increasing the Applicable Margin from 3% to 3.75% under the Midcap Revolving Loan. In addition, the MidCap amendments amended certain covenants, terms and provisions in the Midcap Credit Agreements to, among other things, modify the covenant levels for the Minimum Net Product Sales financial covenant and to remove the Minimum Consolidated EBITDA financial covenant. ~~As of~~

On November 2, 2023, in connection with the entry into the Ares Credit Agreement, the Company terminated the commitments and satisfied all outstanding obligations under the MidCap Credit Agreements. During the year ended December 31, ~~2022, we were in compliance with all financial covenants under~~2023, the ~~amended Midcap~~Company recorded a loss on early extinguishment of debt of $5.3 million related to the write-off of the remaining unamortized debt issuance costs and fees incurred to exit the MidCap Credit ~~Agreements.~~Agreements early.

On March 27, 2020, we entered into an Amended and Restated Loan Agreement (the “Vectra Loan Agreement”) with Vectra Bank Colorado. The Vectra Loan Agreement refinanced our existing Term Loan and existing Buyout Loan into a single term loan in the aggregate principal amount of $6,802 (the “2020 Term Loan”) and increased the maximum principal amount of the existing Revolving Loan to $15 million (the “2020 Revolving Loan” and together with the 2020 Term Loan "2020 Loans"). The maturity date for both loans was September 30, 2020 and was subsequently extended to October 5, 2023. The Vectra Loan Agreement was secured by substantially all of our assets. The Vectra Loan Agreement contained financial and other customary covenants and bore an interest rate of 3%. We repaid the 2020 Loans in 2021 in connection with entering into the Midcap Credit Agreements.

~~On March~~ 24, 2022, wethe Company entered into a secured term loan facility (the “Zions Facility”) with Zions Bancorporation, N.A. dba Vectra Bank Colorado in the principal amount of ~~$16~~$16.0 million. The loans under the Zions Facility (i) bear interest at a variable rate per annum equal to the sum of (a) a one-month Term SOFR based rate, plus (b) 1.75%, adjusted on a monthly basis and (ii) mature on March 24, 2037. Principal and interest payments are payable monthly, with optional prepayments allowed without premium or penalty. ~~We used the Zions Facility to finance the purchase of our Denver, Colorado headquarters.~~

Effective as of November 10, 2022, wethe Company entered into the First Amendment to the Zions Facility. The amendment to the Zions Facility amends the financial covenants to require usthe Company to maintain (i) the Liquidity Ratio, if the Cash Flow as of the last day of any quarter measured on a trailing three month basis is less than or equal to $0, and (ii) the Fixed Charge Coverage Ratio which will be calculated as of the last day of each quarter on a trailing four quarter basis, as well as a certain level of Liquidity, if the Cash Flow is greater than $0. In addition, a Net Revenue Growth covenant was added which will be calculated as of the last day of each quarter on a year-over-year basis.

Effective as of November 2, 2023, the Company entered into the Second Amendment to the Zions Facility (the "Second Amendment). The Second Amendment replaces references to MidCap Financial Trust and MidCap Credit Agreements with references to Ares and the Ares Credit Agreement. As of December 31, ~~2022,~~2023, we were in compliance with all financial covenants under the ~~amended Zions Facility.~~Second Amendment.

Our primary short-term needs for capital are for our ~~cash to fund our~~planned operations, which primarily include the costs of purchasing our foot and ankle orthopedic implants and disposables and associated instrumentation, as well as our operating expenses, including research and development and selling, general and administrative. We expect our operating expensesare subject to ~~increase for the foreseeable future as we continue to invest in~~ change, include:

•

continued commercialization efforts and expansion of our sales and marketing infrastructure and programs to ~~both~~ drive ~~and support~~ anticipated sales ~~growth. The timing and amount of our operating expenditures will depend on many factors, including:~~

•

~~the research and development activities we intend to undertake in order to improve our existing products and development new products and solutions;~~

•

~~the costs of our ongoing commercialization activities~~growth in the United States and elsewhere ~~including expanding territories, increasing sales and marketing personnel, actual and anticipated product sales, marketing, manufacturing and distribution;~~

•

~~whether or not we pursue acquisitions or investments in businesses, products or technologies that are complementary to our current business;~~

•

~~the degree and rate of market acceptance of our products;~~

•

~~the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;~~

•

~~our need to implement additional infrastructure and internal systems;~~

•

~~the emergence of competing technologies or other adverse market developments;~~

•

~~any product liability or other lawsuits;~~

•

~~the expenses needed to attract and retain skilled personnel;~~

•

~~changes or fluctuations in our inventory and surgical instrumentation;~~

•

~~our implementation of various computerized information systems;~~

•

~~the costs associated with being a public company; and~~

•

~~the impact of the COVID-19 pandemic on our operations and business.~~

We have based ~~this estimate~~our short-term capital needs and planned operating requirements on assumptions that may prove to be ~~wrong,~~incorrect and we ~~could utilize~~may use all our available capital resources sooner than we expect. Although not anticipated at this time, we may require additional financing to fund our operations and planned growth. We may also seek additional financing opportunistically. We may seek to raise any ~~necessary~~ additional capital by entering into partnerships or through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these ~~or other~~ funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. If we raise additional funds by issuing equity securities, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. If we raise additional capital through collaborations agreements, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product or grant licenses that may not be favorable to us. Debt financing, if available, ~~is likely to~~may involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets. In addition, market conditions impacting financial institutions could impact our ability to access some or all of our cash, cash equivalents and marketable securities, and we may be unable to obtain alternative funding when and as needed on acceptable terms, if at all.

Cash Flows

The following table sets forth the primary sources and uses of cash for the periods presented below:


	Years Ended December 31,						Change						Year Ended December 31,						Change
	2022			2021			Amount			%			2023			2022			Amount			%
	(in thousands)												(in thousands)
Net cash (used in) provided by:
Operating activities	$	(49,181	)	$	(3,317	)	$	(45,864	)		(1,383	)%	$	(63,890	)	$	(49,181	)	$	(14,709	)		(30	)%
Investing activities		(60,693	)		(35,490	)		(25,203	)		(71	)%		(26,987	)		(60,693	)		33,706			56	%
Financing activities		39,487			131,096		$	(91,609	)		(70	)%		128,653			39,487			89,166			(226	)%
Effect of exchange rate changes of cash		(497	)		(438	)		(59	)		(13	)%
Net (decrease) increase in cash	$	(70,884	)	$	91,851		$	(162,735	)		(177	)%
Effect of exchange rate changes on cash														(605	)		(497	)		(108	)		(22	)%
Net increase (decrease) in cash													$	37,171		$	(70,884	)	$	108,055		*

------------------------------------------

* Not Meaningful

Net Cash Used in Operating Activities

Net cash used in operating activities for the year ended December 31, 2023, was $63.9 million, consisting of a $47.8 million net loss, inclusive of $3.4 million of early exit fees associated with our Midcap debt, inventory increases of $36.6 million and final legal settlement payments of $22.0 million, offset partially by non-cash expenses of $30.2 million, including $15.5 million of depreciation and amortization and $12.4 million of stock-based compensation expense, and other working capital improvements of $12.3 million comprised primarily of a $6.7 million increase in accounts payable and a $6.4 million increase in accrued expenses.

Net cash used in operating activities for the year ended December 31, 2022, was $49.2 million, consisting primarily of net loss of $67.3 million plus non-cash expenses of $26.7 million, which primarily consisted of $13.7 million of depreciation and amortization, $10.4 million of stock-based compensation expense and a $1.3 million change in the fair value of earnout liabilities and negative changes in working capital of $8.6 million, including $21.5 million of inventory purchases and a $12.0 million increase in accounts receivable offset partially by accrued legal settlement of $22.0 million and other working capital decreases of $3.0 million.

Net Cash Used in Investing Activities

Net cash used in ~~operating~~investing activities for ~~2021~~the year ended December 31, 2023, was ~~$3.3~~$27.0 million, consisting primarily of ~~net loss of $13.7 million~~surgical instrumentation purchases plus non-cash expenses of $19.2 million, which primarily consisted of $9.0 million of depreciation and amortization, $2.8 million provision for excess and obsolete inventory, and $4.9 million of stock-based compensation expense, and negative changes in working capital of $8.8 million, including a $11.1 million increase in inventory primarily due toother purchases of ~~inventory~~property, plant and ~~a $6.5 million increase in accounts receivable offset partially by an increase in accounts payable of $3.4 million and an increase in accrued expenses and other current liabilities of $7.1 million.~~equipment.

~~Net Cash Used in Investing Activities~~

Net cash used in investing activities for the year ended December 31, 2022, was $60.7 million, consisting primarily of our purchase of Disior for $18.5 million (financed by a $20.0 million draw on the Company's term loan), the purchase of our Denver headquarters building for $18.3 million (financed in part by a $16.0 million mortgage loan), surgical instrumentation purchases for $12.7 million, capital spend associated with the launch of SAP of $4.3 million and capitalization of certain patent costs.

Net cash used in investing activities for 2021 was $35.5 million, consisting primarily of our purchase of the assets of Additive Orthopedics for $15.0 million and purchases of property and equipment of $18.3 million, primarily consisting of purchases of surgical instrumentation.93

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2023, was $128.7 million, consisting of net proceeds from long-term debt of $64.9 million and $68.5 million of proceeds from the issuance of common stock, net of issuance costs related to the Offering on January 30, 2023, partially offset by payments of $8.0 million related to the completion of certain milestones associated with the Disior and Additive Orthopaedics acquisitions.

Net cash provided by financing activities for the year ended December 31, 2022, was $39.5 million, consisting of $36.0 million proceeds from long-term debt, including a $20.0 million draw on the Company's Midcap Term Loan to finance the Disior acquisition and a $16.0 million loan to finance the purchase of the Company's Denver headquarters and $5.3 million in proceeds from the exercise of stock options partially offset by a $1.0 million payout on earnout liabilities.

Net cash provided by financing activities in 2021 was $131.1 million, consisting primarily of $129.4 million of net proceeds from our IPO and $10.0 million of proceeds from the Midcap Term Loan, which was partially offset by other long-term debt repayments of $6.0 million and the payment of $3.1 million in debt issuance costs.

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

The following discussion addresses our most critical accounting estimates, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Revenue Recognition

We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Revenue is generated primarily from the sale of our implants and disposables and, to a much lesser extent, from the sale of our surgical instrumentation. We sell our products through employee sales personnel and independent sales representatives in the U.S. Outside the U.S., sales are through independent sales representatives and to stocking distributors. We have consignment agreements with certain distributors and hospitals. Our customers are primarily hospitals and surgery centers.

Revenue is recorded, net of estimated ~~losses for bad debts,~~discounts and other price concessions, when our performance obligation is satisfied which is when our customers take title of the product, and typically when the product is used in surgery. We generally have written contracts with our customers which incorporate pricing and our standard terms and conditions. Any discounts we offer are outlined in our customer agreements. As the discounts are known at the time of purchase, no estimates are required at the time of revenue recognition. Shipping and handling costs are recorded as cost of goods sold and amounts billed to customers for shipping and handling costs are recorded in revenue. We record as revenue any amounts billed to customers for shipping and handling costs and record as cost of goods sold the actual shipping costs incurred. We have elected to exclude from the measurement of the transaction price all taxes (e.g., sales, use, value-added) assessed by government authorities and collected from a customer. Therefore, revenue is recognized net of such taxes. We have elected to use the practical expedient allowed under ASC 606 to account for shipping and handling activities that occur after the customer has obtained control of a promised good as fulfillment costs rather than as an additional promised service and, therefore, we do not allocate a portion of the transaction price to a shipping service obligation. Commissions to sales agents for the sales exceeding their quotas are classified as incremental costs of obtaining a contract as such costs would not have been incurred if the contract was not signed. We have elected to use the practical expedient to expense such costs that should be capitalized as the amortization period of the costs would be less than one year.

Due to the nature of our products, returns are minimal and an estimate for returns is not material. The timing of revenue recognition may differ from the timing of invoicing to our customers. We have recorded unbilled accounts receivable involving management judgement related to this timing difference of ~~$4.5~~$5.6 million and ~~$3.6~~$4.5 million as of December 31, ~~2022~~2023, and December 31, ~~2021,~~2022, respectively.

Inventories, Net

Inventories are considered finished goods and are purchased from third party contract manufacturers. These inventories consist of implants, hardware, and consumables and are held in our warehouse, with third-party independent sales representatives or distributors, or consigned directly with hospitals.

~~100~~94

Inventories are stated at the lower of cost (weighted average cost basis) or net realizable value. When sold, inventory is relieved at weighted average cost. We evaluate the carrying value of our inventories in relation to ~~the estimated forecast~~historical sales, current inventory levels, and consideration of ~~product demand, which takes into consideration~~ the life cycle of the product. A significant decrease in demand or development of products could result in an increase in the amount of excess inventory on hand, which could lead to additional charges for excess and obsolete inventory. The Company estimates a reserve for obsolete and slow-moving inventory based on current inventory levels and historical ~~sales and future projected demand. Charges~~sales. Income (expenses) for excess and obsolete inventory are included in Cost of goods ~~sold and were $0.5 million, $2.9 million and $7.5 million for the years ended December 31, 2022, 2021 and 2020, respectively.~~sold. The inventory reserve was ~~$16.8~~$16.5 million and ~~$19.4~~$16.8 million as of December 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

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

Stock-Based Compensation

All stock-based awards to employees and nonemployee contractors, including any grants of stock, stock options, restricted stock units (“RSU”), performance stock units ("PSU") and the option to purchase common stock under the Employee Stock Purchase Plan (“ESPP”), are measured at fair value at the grant date and recognized over the relevant vesting period in accordance with ~~the~~ ASC Topic 718 (“ASC 718”). Stock-based awards to nonemployees are recognized as a selling, general and administrative expense over the period of performance. Such awards are measured at fair value at the date of grant. In addition, for awards that vest immediately, the awards are measured at fair value and recognized in full at the grant date.

The Company estimates the fair value of each ~~stock-based~~stock-option award containing service and/or performance conditions on the grant date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield. The Company relies on its historical volatility as an input to the option pricing model as management believes that this rate will be representative of future volatility over the expected term of the options. The expected term until exercise represents the weighted-average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has not paid any dividends since its inception and does not anticipate paying any dividends for the foreseeable future, so the dividend yield is assumed to be zero. ~~Forfeitures are recorded as they occur,~~The Company estimates forfeitures of share-based awards at the time of grant and ~~when they occur compensation expense previously recognized is reversed~~revises such estimates in subsequent periods if actual forfeitures differ from the ~~period of the forfeiture.~~original estimate. Option awards are generally granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant.

Subsequent to the IPO, the fair value of the Company’s common stock underlying its equity awards is based on the quoted market price of the Company’s common stock on the grant date. Prior to the IPO, because there was no public market for the Company’s common stock, the fair value of the common stock underlying the stock awards has historically been determined at the time of grant of the stock option by considering a number of objective and subjective factors, including sales of shares of common stock, third-party valuations performed, important developments in the Company’s operations, actual operating results and financial performance, the conditions in the medical device industry and the economy in general, and the stock price performance, volatility of comparable public companies, and an assumption for a discount for lack of marketability, among other factors.

~~101~~

~~Contingent Earn-out Consideration~~

Business combinations may include contingent earn-out consideration as part of the purchase price under which the Company will make future payments to the seller upon the achievement of certain milestones. The fair value of the contingent earn-out consideration is estimated as of the acquisition date at the present value of the expected contingent payments. Two methodologies may be considered in the valuation: the scenario-based model (“SBM”) and Monte Carlo simulation. The SBM relies on multiple outcomes to estimate the likelihood of future payoff of the contingent consideration. The resulting earnout payoff is then probability-weighted and discounted at an appropriate risk adjusted rate in order to arrive at the present value of the expected earnout payment. The Monte Carlo simulation is used to value the non-linear contingent considerations based on projected financial metrics. Each trial of the Monte Carlo simulation draws a value from the assumed distribution for the underlying metric. The earnout payoff for each simulation trial is calculated based on that particular simulated path for the underlying metrics and then discounted to present value using the risk-free rate, adjusted for counterparty credit risk. The value of the earnout is estimated as the average value from all simulation trials. The fair value estimates use unobservable inputs that reflect our own assumptions as to the ability of the acquired business to meet the targeted benchmarks and discount rates used in the calculations. The unobservable inputs are defined in ASC Topic 820, “Fair Value Measurements and Disclosures,” as Level 3 inputs.

We review the probabilities of achievement of the earnout milestones to determine impact on the fair value of the earnout consideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out consideration liability will increase or decrease, up to the contractual limit, as applicable. Changes in the estimated fair value of the contingent earn-out consideration are recorded in other (expense) income in the Consolidated Statements of Operations and Comprehensive (Loss) Income and are reflected in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact or cause volatility in our operating results.

Recently Issued Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K for new accounting pronouncements not yet adopted as of the date of this report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Risk

The primary objectives of our investment activities are to preserve principal and provide liquidity. ~~Since our results~~In the normal course of ~~operations~~business, we are ~~not dependent on investments, the~~exposed to market risk ~~associated with~~related to fluctuating interest ~~rates~~rates. The Company has both fixed and variable rate debt to manage the impact of these fluctuations. The Company is ~~limited~~the fixed rate payor on an interest rate swap contract to ~~our investment portfolio, and we believe that a hypothetical 10% change in interest rates would not have a significant impact~~help manage some of this risk. Based on our financial statements included elsewhere in this annual report. We do not currently use or plan to use financial derivatives in our investment portfolio. We do not currently engage in hedging transactions to manage our exposure tooverall interest rate ~~risk, but~~exposure as of December 31, 2023, we do not believe ~~the changing~~a hypothetical 10 percent change in interest rates on our variable ~~interest~~ rate ~~facilities~~indebtedness would have a ~~significant impact~~material effect on our results of operations.

Foreign Currency Risk

Our business is primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows. As we expand internationally our results of operations and cash flows may become increasingly subject to fluctuations due to changes in foreign currency exchange rates.

~~102~~96

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)	~~104~~98

Consolidated Balance Sheets as of December 31, ~~2022~~2023 and ~~2021~~2022	~~105~~100

Consolidated Statements of Operations and Comprehensive ~~(Loss) Income~~Loss for the Years ended December 31, 2023, 2022 ~~2021~~ and ~~2020~~2021	~~106~~101

Consolidated Statements of Convertible Preferred Series Equity and Stockholders’ Equity for the Years ended December 31, 2023, 2022 ~~2021~~ and ~~2020~~2021	~~107~~102

Consolidated Statements of Cash Flows for the Years ended December 31, 2023, 2022 ~~2021~~ and ~~2020~~2021	~~108~~103

Notes to Consolidated Financial Statements	~~109~~104

~~103~~97

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Paragon 28, Inc.

~~Opinion~~Opinions on the Financial Statements and Internal Controls over Financial Reporting

We have audited the accompanying consolidated balance sheets of Paragon 28, Inc. and subsidiaries (the "Company") as of December 31, ~~2022~~2023 and ~~2021,~~2022, the related consolidated statements of operations and comprehensive (loss) income, convertible preferred series equity and stockholders' equity and cash flows for each of the three years in the period ended December 31, ~~2022,~~2023, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, ~~2022~~2023 and ~~2021,~~2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, ~~2022,~~2023, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

Basis for ~~Opinion~~Opinions

~~These~~The Company’s management is responsible for these financial statements, ~~are the responsibility~~for maintaining effective internal control over financial reporting, and for its assessment of the ~~Company's management.~~effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Control Over Financial Reporting” within Item 9a. Our responsibility is to express an opinion on ~~the Company's~~these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the 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 ~~audit~~audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding offraud, and whether effective internal control over financial reporting ~~but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.~~was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures ~~that~~to 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. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our ~~opinion.~~opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventories – Excess and Obsolete Inventories – Refer to Note 2 to the financial statements

Critical Audit Matter Description

Inventories are stated at the lower of cost (weighted average cost basis) or net realizable value. At December 31, 2023, the Company’s inventory balance is $98 million, which is net of management’s estimate of inventory excess and obsolescence reserves of $16.5 million. Management evaluates the carrying value of its inventories in relation to inventory quantities on hand, historical sales, and consideration of product life cycles. A significant decrease in product demand or the development of new products could result in an increase in the amount of excess inventory on hand, which could lead to additional charges for excess and obsolete inventory.

We identified management’s estimate of excess and obsolete inventories as a critical audit matter because of the high degree of subjectivity involved in developing the estimates and sensitivity related to changes in key assumptions including length of product life cycles. The subjectivity and sensitivity in these key assumptions required a high degree of auditor judgment when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to excess and obsolete inventories.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to excess and obsolete inventories included the following, among others:

•

We tested the effectiveness of internal controls over certain of management’s inputs, estimates and assumptions used to evaluate excess and obsolete inventories.

•

We performed analytical procedures to evaluate the reasonableness of changes in inventory balances and related excess, slow moving and obsolete reserves by comparing the current year and prior year balances.

•

We inquired of management, including personnel with operational roles, regarding certain estimates and assumptions specific to selected inventory items. These estimates and assumptions include product life cycles and usage patterns.

•

We tested certain underlying data used and considered by management in making their estimates and assumptions related to excess and obsolete inventories, including quantities of inventory on hand, historical sales by product and considerations of product life cycles.

•

We tested the mathematical accuracy of management's calculations on a sample basis.

/s/ Deloitte & Touche LLP

Denver, Colorado

~~March 2, 2023~~February 29, 2024

We have served as the Company's auditor since 2020.

~~104~~99

PARAGON 28, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	As of December 31,
	2022			2021			December 31, 2023			December 31, 2022
ASSETS
Current assets:
Cash	$	38,468		$	109,352		$	75,639		$	38,468
Trade receivables		37,687			25,939			37,323			37,687
Inventories, net		60,948			40,241			98,062			60,948
Income taxes receivable		615			920			794			615
Other current assets		4,658			3,078			3,997			4,658
Total current assets		142,376			179,530			215,815			142,376

Property and equipment, net		61,938			32,181			74,122			61,938

Intangible assets, net		22,387			16,505			21,674			22,387
Goodwill		25,465			6,329			25,465			25,465

Deferred income taxes		148			—			705			148

Other assets		1,795			—			2,918			1,795

Total assets	$	254,109		$	234,545		$	340,699		$	254,109

LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	14,939		$	13,028		$	21,696		$	14,939
Accrued expenses		26,807			18,232			27,781			26,807
Accrued legal settlement		22,000			—			—			22,000
Other current liabilities		3,844			1,929			883			3,844
Current maturities of long-term debt		728			153			640			728
Income taxes payable		184			615			243			184
Total current liabilities		68,502			33,957			51,243			68,502

Long-term liabilities:
Long-term debt net, less current maturities		42,182			7,476			109,799			42,182
Other long-term liabilities		1,628			840			1,048			1,628
Deferred income taxes		342			78			233			342
Income taxes payable		527			—			635			527
Total liabilities		113,181			42,351			162,958			113,181

Commitments and contingencies (Note 14)

Stockholders' equity:
Common stock, $0.01 par value, 300,000,000 shares authorized; 78,684,107 and 77,360,806 shares issued, and 77,770,588 and 76,447,287 shares outstanding as of December 31, 2022 and December 31, 2021, respectively		776			763
Common stock, $0.01 par value, 300,000,000 shares authorized; 83,738,974 and 78,684,107 shares issued, and 82,825,455 and 77,770,588 shares outstanding as of December 31, 2023 and December 31, 2022, respectively								827			776
Additional paid in capital		213,956			197,868			298,394			213,956
Accumulated deficit		(67,789	)		(463	)		(115,630	)		(67,789	)
Accumulated other comprehensive (loss) income		(33	)		8
Treasury stock, at cost; 913,519 shares as of December 31, 2022 and December 31, 2021		(5,982	)		(5,982	)
Accumulated other comprehensive income (loss)								132			(33	)
Treasury stock, at cost; 913,519 shares as of December 31, 2023 and December 31, 2022								(5,982	)		(5,982	)
Total stockholders' equity		140,928			192,194			177,741			140,928
Total liabilities & stockholders' equity	$	254,109		$	234,545		$	340,699		$	254,109

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

~~105~~100

PARAGON 28, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE ~~(LOSS) INCOME~~LOSS

(in thousands, except share and per share data)


	Year Ended December 31,									Year Ended December 31,
	2022			2021			2020			2023			2022			2021
Net revenue	$	181,383		$	147,464		$	110,981		$	216,389		$	181,383		$	147,464
Cost of goods sold		32,457			28,024			25,099			43,598			32,457			28,024
Gross profit		148,926			119,440			85,882			172,791			148,926			119,440

Operating expenses
Operating expenses:
Research and development costs		24,650			16,128			11,171			30,078			24,650			16,128
Selling, general, and administrative		159,323			114,087			72,641			180,022			159,323			114,087
Legal settlement		27,000			—			—			—			27,000			—
Total operating expenses		210,973			130,215			83,812			210,100			210,973			130,215
Operating loss											(37,309	)		(62,047	)		(10,775	)

Operating (loss) income		(62,047	)		(10,775	)		2,070

Other (expense) income
Other (expense) income		(1,214	)		(486	)		3,557
Other income (expense):
Other income (expense)											154			(1,214	)		(486	)
Loss on early extinguishment of debt											(5,308	)		—			—
Interest expense, net		(4,129	)		(1,719	)		(602	)		(5,165	)		(4,129	)		(1,719	)
Total other (expense) income		(5,343	)		(2,205	)		2,955

(Loss) income before income taxes		(67,390	)		(12,980	)		5,025
Income tax (benefit) expense		(64	)		713			1,527

Net (loss) income	$	(67,326	)	$	(13,693	)	$	3,498
Less: cumulative dividends on Series B convertible preferred stock		—			—			(812	)
Net (loss) income attributable to common stockholders	$	(67,326	)	$	(13,693	)	$	2,686
Total other expense											(10,319	)		(5,343	)		(2,205	)
Loss before income taxes											(47,628	)		(67,390	)		(12,980	)
Income tax expense (benefit)											213			(64	)		713
Net loss										$	(47,841	)	$	(67,326	)	$	(13,693	)
Foreign currency translation adjustment		(41	)		(815	)		817			165			(41	)		(815	)
Comprehensive (loss) income	$	(67,367	)	$	(14,508	)	$	3,503
Comprehensive loss										$	(47,676	)	$	(67,367	)	$	(14,508	)
Weighted average number of shares of common stock outstanding:
Basic		76,766,100			52,916,711			43,510,185			82,087,329			76,766,100			52,916,711
Diluted		76,766,100			52,916,711			60,406,180			82,087,329			76,766,100			52,916,711
Net (loss) income per share attributable to common stockholders:
Net loss per share attributable to common stockholders:
Basic	$	(0.88	)	$	(0.26	)	$	0.06		$	(0.58	)	$	(0.88	)	$	(0.26	)
Diluted	$	(0.88	)	$	(0.26	)	$	0.04		$	(0.58	)	$	(0.88	)	$	(0.26	)

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

~~106~~101

PARAGON 28, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED SERIES EQUITY & STOCKHOLDERS’ EQUITY

(in thousands, except for number of shares)


																						Retained			Accumulated									Series A						Series B
	Series A Convertible						Series B Convertible												Additional			Earnings			Other						Total			Convertible						Convertible																		Accumulated
	Preferred Stock						Preferred Stock						Common Stock						Paid-in-			(Accumulated			Comprehensive			Treasury			Stockholders'			Preferred						Preferred						Common						Additional						Other						Total
	Shares			Amount			Shares			Amount			Shares			Amount			Capital			Deficit)			Loss			Stock			Equity			Stock						Stock						Stock						Paid-in-			Accumulated			Comprehensive			Treasury			Stockholders'
Balance, January 1, 2020		13,812,500		$	4,250			—		$	—			42,066,700		$	421		$	16,723		$	9,732		$	6		$	(3,884	)	$	22,998
Net income		—			—			—			—			—			—			—			3,498			—			—			3,498
Issuance of common stock		—			—			—			—			319,015			3			1,839			—			—			—			1,842
Common stock repurchase		—			—			—			—			(239,760	)		(2	)		2			—			—			(1,538	)		(1,538	)
Issuance of Series B convertible preferred stock, net of issuance costs of $1,970								6,608,700			36,030						—			—			—			—			—			—
Series B Convertible preferred stock dividend											812			—			—			—			(812	)		—			—			(812	)
Options exercised		—			—			—			—			4,592,585			45			1,735			—			—			—			1,780
Foreign currency translation		—			—			—			—			—			—			—			—			817			—			817
Stock-based compensation		—			—			—			—			—			—			1,808			—			—			—			1,808
																																		Shares			Amount			Shares			Amount			Shares			Amount			Capital			Deficit			Income (Loss)			Stock			Equity
Balance, December 31, 2020		13,812,500		$	4,250			6,608,700		$	36,842			46,738,540		$	467		$	22,107		$	12,418		$	823		$	(5,422	)	$	30,393			13,812,500		$	4,250			6,608,700		$	36,842			46,738,540		$	467		$	22,107		$	12,418		$	823		$	(5,422	)	$	30,393
Net loss		—			—			—			—			—			—			—			(13,693	)		—			—			(13,693	)		—			—			—			—			—			—			—			(13,693	)		—			—			(13,693	)
Issuance of common stock		—			—			—			—			151,515			1			1,000			—			—			—			1,001			—			—			—			—			151,515			1			1,000			—			—			—			1,001
Issuance of common stock related to IPO, net of issuance costs of $4,304														8,984,375			90			129,294			—			—			—			129,384			—			—			—			—			8,984,375			90			129,294			—			—			—			129,384
Common stock repurchase		—			—			—			—			(85,049	)		(1	)		—			—			—			(560	)		(561	)		—			—			—			—			(85,049	)		(1	)		—			—			—			(560	)		(561	)
Conversion of Series A and Series B preferred stock to common stock		(13,812,500	)		(4,250	)		(6,608,700	)		(36,842	)		20,421,200			204			40,076			812			—			—			41,092			(13,812,500	)		(4,250	)		(6,608,700	)		(36,842	)		20,421,200			204			40,076			812			—			—			41,092
Options exercised		—			—			—			—			236,706			2			443			—			—			—			445			—			—			—			—			236,706			2			443			—			—			—			445
Foreign currency translation		—			—			—			—			—			—			—			—			(815	)		—			(815	)		—			—			—			—			—			—			—			—			(815	)		—			(815	)
Stock-based compensation		—			—			—			—			—			—			4,948			—			—			—			4,948			—			—			—			—			—			—			4,948			—			—			—			4,948
Balance December 31, 2021		—		$	—			—		$	—			76,447,287		$	763		$	197,868		$	(463	)	$	8		$	(5,982	)	$	192,194
Balance, December 31, 2021																																			—			—			—			—			76,447,287			763			197,868			(463	)		8			(5,982	)		192,194
Net loss		—			—			—			—			—			—			—			(67,326	)		—			—			(67,326	)		—			—			—			—			—			—			—			(67,326	)		—			—			(67,326	)
Offering costs associated with initial public offering		—			—			—			—									(266	)											(266	)		—			—			—			—			—			—			(266	)		—			—			—			(266	)
Options exercised		—			—			—			—			1,284,333			13			5,258			—			—			—			5,271			—			—			—			—			1,284,333			13			5,258			—			—			—			5,271
Foreign currency translation		—			—			—			—			—			—			—			—			(41	)		—			(41	)		—			—			—			—			—			—			—			—			(41	)		—			(41	)
Employee stock purchase plan		—			—			—						38,968			—			731			—			—			—			731			—			—			—			—			38,968			—			731			—			—			—			731
Stock-based compensation		—			—			—			—			—			—			10,365			—			—			—			10,365			—			—			—			—			—			—			10,365			—			—			—			10,365
Balance, December 31, 2022		—		$	—			—		$	—			77,770,588		$	776		$	213,956		$	(67,789	)	$	(33	)	$	(5,982	)	$	140,928			—			—			—			—			77,770,588			776			213,956			(67,789	)		(33	)		(5,982	)		140,928
Net loss																																			—			—			—			—			—			—			—			(47,841	)		—			—			(47,841	)
Issuance of common stock net of issuance costs of $827																																			—			—			—			—			4,312,500			43			68,410			—			—			—			68,453
Options exercised																																			—			—			—			—			668,925			7			2,399			—			—			—			2,406
Foreign currency translation																																			—			—			—			—			—			—			—			—			165			—			165
Employee stock purchase plan																																			—			—			—						73,442			1			1,265			—			—			—			1,266
Stock-based compensation																																			—			—			—			—			—			—			12,364			—			—			—			12,364
Balance, December 31, 2023																																			—			—			—			—			82,825,455		$	827		$	298,394		$	(115,630	)	$	132		$	(5,982	)	$	177,741

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

~~107~~102

PARAGON 28, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Year Ended December 31,									Year Ended December 31,
	2022			2021			2020			2023			2022			2021
Cash flows from operating activities
Net (loss) income	$	(67,326	)	$	(13,693	)	$	3,498
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net loss										$	(47,841	)	$	(67,326	)	$	(13,693	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		13,728			8,961			6,384			15,542			13,728			8,961
Allowance for doubtful accounts		155			1,022			636			614			155			1,022
Provision for excess and obsolete inventories		485			2,821			7,467
Excess and obsolete inventories											(352	)		485			2,821
Loss on early extinguishment of debt											1,881			—			—
Stock-based compensation		10,365			4,948			1,808			12,364			10,365			4,948
Employee stock purchase program		213			—			—
Amortization of debt issuance costs		599			576			134
Change in fair value of earnout liabilities		1,280			440			—
Deferred income taxes		(514	)		170			1,307
(Gain) loss on disposal of property and equipment		(71	)		237			554
Change in fair value											(791	)		1,280			440
Other		477			31			113			984			704			1,014
Changes in other assets and liabilities, net of acquisitions:
Accounts receivable		(12,013	)		(6,461	)		386			(161	)		(12,013	)		(6,461	)
Inventories		(21,512	)		(11,098	)		(14,831	)		(36,595	)		(21,512	)		(11,098	)
Other assets		(3,012	)		(2,468	)		944
Accounts payable		1,895			3,431			(6,238	)		6,742			1,895			3,431
Accrued expenses		2,317			7,095			(815	)		6,428			2,317			7,095
Accrued legal settlement		22,000			—			—			(22,000	)		22,000			—
Income tax receivable/payable		391			671			(236	)		(50	)		391			671
Other liabilities		1,362			—			—
Net cash (used in) provided by operating activities		(49,181	)		(3,317	)		1,111
Other assets and liabilities											(655	)		(1,650	)		(2,468	)
Net cash used in operating activities											(63,890	)		(49,181	)		(3,317	)

Cash flows from investing activities
Purchase of office building		(18,300	)		—			—			—			(18,300	)		—
Purchases of property and equipment		(22,813	)		(18,296	)		(9,653	)		(26,716	)		(22,813	)		(18,296	)
Proceeds from sale of property and equipment		897			799			522			1,043			897			799
Purchases of intangible assets		(1,973	)		(2,993	)		(1,187	)		(1,314	)		(1,973	)		(2,993	)
Acquisition, net of cash received		(18,504	)		(15,000	)		—
Acquisitions, net of cash received											—			(18,504	)		(15,000	)
Net cash used in investing activities		(60,693	)		(35,490	)		(10,318	)		(26,987	)		(60,693	)		(35,490	)

Cash flows from financing activities
Payments on note payable - related party		—			—			(3,000	)
Payments on revolving credit facility		—			—			(9,821	)
Proceeds from draw on term loan		20,000			—			—			—			20,000			—
Proceeds from issuance of long-term debt		16,000			10,000			458			100,000			16,000			10,000
Payments on long-term debt		(570	)		(6,034	)		(1,686	)		(30,727	)		(570	)		(6,034	)
Payments of debt issuance costs		(732	)		(3,139	)		(53	)		(4,423	)		(732	)		(3,139	)
Proceeds from issuance of common stock		—			1,001			1,842
Proceeds from issuance of common stock, net of issuance costs											68,453			—			1,001
Proceeds from IPO, net of issuance costs		—			129,384			—			—			—			129,384
Proceeds from issuance of Series B capital stock, net of issuance costs		—			—			36,030
Payments on treasury stock repurchased		—			(561	)		(1,538	)		—			—			(561	)
Proceeds from exercise of stock options		5,271			445			1,780			2,406			5,271			445
Proceeds from employee stock purchase plan		518			—			—			944			518			—
Payments on earnout liability		(1,000	)		—			—			(8,000	)		(1,000	)		—
Net cash provided by financing activities		39,487			131,096			24,012			128,653			39,487			131,096

Effect of exchange rate changes on cash		(497	)		(438	)		86			(605	)		(497	)		(438	)
Net (decrease) increase in cash		(70,884	)		91,851			14,891
Net increase (decrease) in cash											37,171			(70,884	)		91,851
Cash at beginning of period		109,352			17,501			2,610			38,468			109,352			17,501
Cash at end of period	$	38,468		$	109,352		$	17,501		$	75,639		$	38,468		$	109,352

Supplemental disclosures of cash flow information:
Cash paid for taxes	$	1,103		$	678		$	453
Restricted cash (Note 7)											1,000			—			—
Cash paid for income taxes											908			1,103			678
Cash paid for interest		3,073			1,086		$	395			4,271			3,073			1,086
Purchase of property and equipment included in accounts payable		3,402			881		$	120			3,402			3,402			881
Series B convertible preferred stock dividend		—			—		$	812

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

~~108~~103

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 1. BUSINESS AND BASIS OF PRESENTATION

Business

Paragon 28, Inc. (collectively with its subsidiaries, ~~“we”, “us”, “our”,~~“we,” “us,” “our,” “P28” or the “Company”) develops, distributes, and sells medical devices in the foot and ankle segment of the orthopedic implant marketplace. Our approach to product development is procedurally focused, resulting in a full range of procedure-specific foot and ankle products designed specifically for foot and ankle anatomy. Our products and product families include plates and plating systems, screws, staples, and nails aimed to address all major foot and ankle procedures including fracture fixation, forefoot, ~~or hallux valgus - which includes bunion and hammertoe,~~ ankle, flatfoot or progressive collapsing foot deformity ~~(PCDF)~~("PCDF"), charcot foot and orthobiologics. P28 is a United States (“U.S.”) based company incorporated in the State of ~~Colorado,~~Delaware, with headquarters in Englewood, Colorado. Our sales representatives and distributors are located globally with the majority concentrated in the U.S., Australia, South Africa, and the United Kingdom.

Initial Public Offering

In October 2021, the Company completed its initial public offering (“IPO”), in which it issued and sold 8,984,375 shares of its common stock at the public offering price of $16.00 per share, including 1,171,875 shares of its common stock upon the exercise of the underwriters’ option to purchase additional shares. The Company received net proceeds after deducting underwriting discounts and commissions of $133,688. The Company incurred $4,304 of offering expenses that were offset against proceeds for the year ended December 31, 2021. In connection with the IPO, all of the shares of the Company’s outstanding convertible preferred stock automatically converted into an aggregate of 20,421,200 shares of the common stock.

Secondary Public Offering

On January 30, 2023, the Company completed an underwritten public offering (“the Offering”) of 6,500,000 shares of its common stock at an offering price of $17.00 per share, which consisted of 3,750,000 shares of common stock issued and sold by the Company and 2,750,000 shares of common stock sold by certain selling securityholders. On February 17, 2023, the underwriters exercised in full their option to purchase an additional 562,500 shares and 412,500 shares of common stock from the Company and the selling securityholders, respectively.‌

The Company received aggregate net proceeds from the Offering of approximately $68,453 after deducting underwriting discounts and commissions and offering expenses payable by the Company. The selling securityholders received aggregate net proceeds from the Offering of approximately $50,700 after deducting underwriting discounts and commissions. The Company did not receive any of the proceeds from the sale of shares of Common Stock by the selling securityholders.

Basis of Presentation and Consolidation

The accompanying Consolidated Financial Statements include the accounts of Paragon 28, Inc. and its subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation. The accompanying Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”).

~~COVID-19 Pandemic~~

During the first quarter ended March 31, 2020, concerns related to the spread of coronavirus (“COVID-19”) began to create global business disruptions as well as disruptions in our operations. COVID-19 was declared a global pandemic by the World Health Organization on March 11, 2020. Governments at the national, state and local level in the U.S., and globally, implemented aggressive actions to reduce the spread of the virus, with such actions including lockdown and shelter in place orders, limitations on non-essential gatherings of people, suspension of all non-essential travel, and ordering certain businesses and governmental agencies to cease non-essential operations at physical locations. The spread of COVID-19 caused significant volatility in the U.S. and international markets in 2020 and 2021.

In response to the COVID-19 pandemic, the Paycheck Protection Program (“PPP”) was established by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and administered by the U.S. Small Business Administration (“SBA”). Companies who met the eligibility requirements set forth by the PPP could qualify to receive PPP funds, and the amount received would be forgiven by the SBA if the funds were fully utilized to pay qualifying payroll, rent, and utility expenses in accordance with the terms of the CARES Act. The Company received PPP funding of $~~3,747~~ on April 7, 2020. In June 2021, the SBA forgave the full amount. The Company recognized the funds received as Other income in the Company’s Consolidated Statements of Operations and Comprehensive (Loss) Income for the year ended December 31, 2020.104

~~109~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Because future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Any changes in these estimates will be reflected in the Company’s Consolidated Financial Statements. Significant items subject to such estimates and assumptions include the determination of the collectability of trade receivables, inventory obsolescence, impairment of long-lived assets, recoverability of goodwill and intangible assets, contingent earn-out liability, income taxes and stock-based compensation.

Foreign Currency Translation

The Consolidated Financial Statements are presented in U.S. dollars. The Company’s non-U.S. subsidiaries have a functional currency (i.e., the currency in which operational activities are primarily conducted) that is other than the U.S. dollar, generally the currency of the country in which such subsidiaries are domiciled. Such subsidiaries’ assets and liabilities are translated into U.S. dollars at year-end exchange rates, while revenue and expenses are translated at average exchange rates during the year based on the daily closing exchange rates. Adjustments that result from translating amounts from a subsidiary’s functional currency to U.S. dollars are reported in Accumulated Other Comprehensive ~~(Loss) Income,~~Loss, net of tax.

Business Combinations

We allocate the purchase consideration to the identifiable net assets acquired, including intangible assets and liabilities assumed, based on estimated fair values at the date of the acquisition. The excess of the fair value of the purchase consideration over the fair value of the identifiable assets and liabilities, if any, is recorded as goodwill. During the measurement period, which is up to one year from the acquisition date, we may adjust provisional amounts that were recognized at the acquisition date to reflect new information obtained about facts and circumstances that existed as of the acquisition date.

Determining the fair value of assets acquired and liabilities assumed requires significant judgment, including the selection of valuation methodologies including the income approach, the cost approach, and the market approach. Significant assumptions used in those methodologies include, but are not limited to, the expected values of the underlying metric, the systematic risk embedded in the underlying metric, the volatility of the underlying metric, the risk-free rate, and the counterparty risk. The use of different valuation methodologies and assumptions is highly subjective and inherently uncertain and, as a result, actual results may differ materially from estimates.

Cash

Cash consists of highly liquid investments with an original maturity of three months or less. As of December 31, 2023, $1,000 related to the achievement of an Additive Orthopaedics acquisition milestone was included as restricted cash within the Consolidated Balance Sheets and Consolidated Statement of Cash Flows. For additional information regarding the Additive Orthopaedics acquisition refer to Note 3 to our Consolidated Financial Statements. There ~~are~~were no contractual or other restrictions as to the use of ~~cash.~~cash for the years ended December 31, 2022 or 2021.

Trade Receivables, Less Allowance for Doubtful Accounts

Trade receivables due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date and are stated at the amount billed to the customer.

Trade receivables also include unbilled receivables due from customers that represent completed surgical cases that are pending customer-issued purchase orders. These unbilled receivables are covered by agreements with customers, the products have typically been used in a surgery, and collection is determined to be probable.

The Company estimates an allowance for doubtful accounts based upon an evaluation of the current status of receivables, historical experience, and other factors as necessary. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts will change.

~~110~~105

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

~~Activity~~The following table presents the activity in the allowance for doubtful accounts ~~consisted of~~for the ~~following:~~years ended December 31, 2023 and 2022.


	December 31,						December 31,
	2022			2021			2023			2022
Allowance for doubtful accounts, beginning of year	$	1,032		$	1,296		$	1,688		$	1,032
Additions charged against revenue or to expense		1,853			1,027			223			1,853
Deductions		(1,197	)		(1,291	)
Write-offs								(572	)		(1,197	)
Allowance for doubtful accounts, end of year	$	1,688		$	1,032		$	1,339		$	1,688

Inventories, Net

Inventories are stated at the lower of cost (weighted average cost basis) or net realizable value. When sold, inventory is relieved at weighted average cost. We evaluate the carrying value of our inventories in relation to ~~the estimated forecast~~historical sales, current inventory levels, and consideration of ~~product demand, which takes into consideration~~ the life cycle of the product. A significant decrease in demand or development of products could result in an increase in the amount of excess inventory on hand, which could lead to additional charges for excess and obsolete inventory. The Company estimates a reserve for obsolete and slow-moving inventory based on current inventory levels and historical ~~sales and future projected demand. Charges~~sales. (Income) expenses for excess and obsolete inventory are included in Cost of goods ~~sold and were $485, $2,850~~ ~~and $7,467~~ ~~for the years ended December 31, 2022, 2021 and 2020, respectively.~~sold. The inventory reserve was $~~16,804~~16,532 and $~~19,374~~16,804 as of December 31, ~~2022~~2023 and ~~2021,~~2022, respectively.

Property and Equipment, Net

Property and equipment isare recorded at cost less accumulated depreciation. Expenditures for renewals and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized and included in Property and equipment, net in the Consolidated Balance Sheets. Expenditures for maintenance and repairs are charged to expense as incurred and are included in Selling, general, and administrative expense in the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income.~~Loss. When equipment is retired or sold, the cost and related accumulated depreciation are eliminated from the accounts and the resulting gain or loss is included in included in Selling, general and administrative in the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income.~~Loss.

Depreciation is provided using the straight-line method based on useful lives of the assets which range from three to twenty-five years, which best reflects the pattern of use. The Company depreciates surgical instrumentation, once available for use, over a five-year period and cases, once available for use, over a three-year period. Depreciation for surgical instrumentation used in surgery is included in Selling, general, and administrative expense in the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income.~~Loss. Leasehold improvements are amortized using the straight-line method over the shorter of the asset’s useful life or the lease term.

Property and equipment are assessed for impairment upon triggering events that indicate that the carrying value of an asset group may not be recoverable. Recoverability is measured by a comparison of the carrying amount to future net undiscounted cash flows of the asset group expected to be generated from its use and eventual disposition. If the asset group’s carrying value is determined to not be recoverable, the impairment to be recognized is measured by which the carrying amount exceeds the fair value of the asset group. No impairment charges related to property and equipment were recorded in any of the periods presented.

~~111~~106

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Intangibles

The costs associated with applying for patents and trademarks are capitalized. Patents are amortized on a straight-line basis over the lesser of the patent’s economic or legal life, which is seventeen years. Costs associated with capitalized patents include third-party attorney fees and other third-party fees as well as costs related to the following: the preparation of patent applications, government filings and registration fees, drawings, computer searches, and translations related to specific patents. Trademarks that are anticipated to be renewed every ten years have an indefinite life and are not amortized but tested for impairment annually. Once it is determined a trademark will no longer be renewed, the trademark is amortized over the remainder of the trademark’s registration period. Customer relationships are amortized over an estimated useful life of three to seven years on a straight-line basis. Other intangibles, which mainly consist of noncompete arrangements, are amortized over an estimated useful life of three years on a straight-line basis. Developed technology is amortized over an estimated useful life of twelve years on a straight-line basis.

Amortizable intangible assets are assessed for impairment upon triggering events that indicate that the carrying value of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount to future net undiscounted cash flows expected to be generated by the associated asset. If the asset’s carrying value is determined to not be recoverable, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair market value of the intangible assets. No impairment charges related to amortizable assets were recorded for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020.~~2021.

Indefinite-lived trademark assets are reviewed for impairment annually or whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The Company can elect to first apply the optional qualitative impairment assessment to determine whether the indefinite-lived intangible asset is more-likely-than-not impaired. If, on the basis of the qualitative impairment assessment, an entity asserts that it is more likely than not that the indefinite-lived intangible asset is impaired, the Company would be required to calculate the fair value of the asset for an impairment test. Impairment loss is recognized if the carrying amount of the asset exceeds its fair value.

A qualitative assessment considers macroeconomic and other industry-specific factors, such as trends in short-term and long-term interest rates and the ability to access capital, and company specific factors such as trends in revenue generating activities, and merger or acquisition activity. If the Company elects to bypass qualitatively assessing its indefinite-lived intangible assets, or it is not more likely than not that the fair value of the intangible asset exceeds its carrying value, management estimates the fair value of the intangible asset and compares it to the carrying value. The estimated fair value of the intangible asset is established using an income approach based on a discounted cash flow model that includes significant assumptions about the future operating results and cash flows of the intangible asset or assets.

The Company elected to perform a qualitative analysis for its indefinite-lived intangible assets as of October 1, ~~2022,~~2023, the annual test date. The Company determined, after performing the qualitative analysis that there was no evidence that it is more likely than not that the fair value of its intangible assets was less than the carrying amount. Therefore, it was not necessary to perform a quantitative impairment test.

Goodwill

Goodwill represents the excess of the purchase price as compared to the fair value of net assets acquired and liabilities assumed. Goodwill is not amortized, but is tested for impairment annually or when indications of impairment exist. Goodwill is tested at the reporting unit level as defined in ASC 350. Per this definition, a reporting unit is an operating segment or one level below an operating segment. The Company has determined one reporting unit for the purpose of goodwill impairment. We can elect to qualitatively assess goodwill for impairment if it is more likely than not that the fair value of a reporting unit exceeds its carrying value.

Impairment exists when the carrying amount, including goodwill, of the reporting unit exceeds its fair value, resulting in an impairment charge for this excess (not to exceed the carrying amount of the goodwill). The impairment, if determined, is recorded within Operating expenses in the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income~~Loss in the period the determination is made.

~~112~~

107

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Fair Value of Financial Instruments

Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. There is a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2- Includes other inputs that are directly or indirectly observable in the marketplace, such as quoted market prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 - Unobservable inputs which are supported by little or no market activity.

Financial instruments (principally cash, trade receivables, accounts payable and accrued expenses) are carried at cost, which approximates fair value due to the short-term maturity of these instruments. The majority of our debt is carried at cost, which approximates fair value due to the variable interest rate associated with our debt. However, we are the fixed rate payor on an interest rate swap contract associated with the Company's Zions Facility, which is classified as Level 2. We reassess the fair value of our interest rate swap on a quarterly basis. The change in fair value is recorded in other (expense) income in the Consolidated Statements of Operations and Comprehensive Loss. The Company does not have any assets or liabilities presented in the Level 1 category as of December 31, 2023, and 2022, and there were no changes in level hierarchies during the years ended December 31, 2023, 2022 and 2021. See "Contingent Earn-out Consideration" below for a discussion on our Level 3 inputs.

Contingent Earn-out Consideration

Business combinations may include contingent earn-out consideration as part of the purchase price under which the Company will make future payments to the seller upon the achievement of certain milestones. The fair value of the contingent earn-out consideration is estimated as of the acquisition date at the present value of the expected contingent payments and is subsequently remeasured at each balance sheet date. Two methodologies may be considered in the valuation: the scenario-based model (“SBM”) and Monte Carlo simulation. The SBM relies on multiple outcomes to estimate the likelihood of future payoff of the contingent consideration. The resulting earnout payoff is then probability-weighted and discounted at an appropriate risk adjusted rate in order to arrive at the present value of the expected earnout payment. The Monte Carlo simulation is used to value the non-linear contingent considerations based on projected financial metrics. Each trial of the Monte Carlo simulation draws a value from the assumed distribution for the underlying metric. The earnout payoff for each simulation trial is calculated based on that particular simulated path for the underlying metrics and then discounted to present value using the risk-free rate, adjusted for counterparty credit risk. The value of the earnout is estimated as the average value from all simulation trials. The fair value estimates use unobservable inputs that reflect our own assumptions as to the ability of the acquired business to meet the targeted benchmarks and discount rates used in the calculations. The unobservable inputs are defined in ASC Topic 820, “Fair Value Measurements and Disclosures,” as Level 3 inputs.

We review the probabilities of achievement of the earnout milestones to determine impact on the fair value of the earnout consideration on a quarterly basis over the earn-out period. Actual results are compared to the estimates and probabilities of achievement used in our forecasts. Should actual results of the acquired business increase or decrease as compared to our estimates and assumptions, the estimated fair value of the contingent earn-out consideration liability will increase or decrease, up to the contractual limit, as applicable. Changes in the estimated fair value of the contingent earn-out consideration are recorded in other income (expense) ~~income~~ in the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income~~Loss and are reflected in the period in which they are identified. Changes in the estimated fair value of the contingent earn-out consideration may materially impact or cause volatility in our operating results.

108

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Income Taxes

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

The Company regularly reviews its deferred tax assets for recoverability and establishes a valuation allowance if it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is made on a jurisdictional basis and is based on both positive and negative evidence. This evidence includes historic taxable income, projected future taxable income, the expected timing of the reversal of existing temporary differences and the implementation of tax planning strategies.

The calculation of tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions. Accounting Standards Codification (ASC) No. 740 states that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained upon examination, including resolution of any related appeals or litigation processes, on the basis of its technical merits. The Company records unrecognized tax benefits as liabilities in accordance with ASC 740 and adjusts these liabilities when management’s judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from the current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

~~The~~ Company records uncertain tax positions in accordance with Accounting Standards Codification (“ASC”) Topic 740 on the basis of a two-step process in which (1) the Company determines whether it is more-likely-than-not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

~~113~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share and per share data)~~

The Company evaluates its tax positions that have been taken or are expected to be taken on income tax returns to determine if an accrual is necessary for uncertain tax positions. The Company will recognize interest and penalties as a component of income tax expense if incurred.

Revenue Recognition

We account for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). Revenue is generated primarily from the sale of our implants and disposables and, to a much lesser extent, from the sale of our surgical instrumentation. We sell our products through employee sales personnel, and independent sales representatives in the U.S. Outside the U.S. sales are through independent sales representatives and to stocking distributors. We have consignment agreements with certain distributors and hospitals. Our customers are primarily hospitals and surgery centers.

Due to the nature of our products, returns are minimal and an estimate for returns is not material. The timing of revenue recognition may differ from the timing of invoicing to our customers. We ~~have~~ recorded unbilled ~~accounts receivable involving management judgement related to this timing difference~~revenue of $~~4,511~~5,598 and $~~3,637~~4,511 as of December 31, ~~2022~~2023, and December 31, ~~2021,~~2022, respectively. Determining unbilled revenue involves management judgement.

109

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Cost of Goods Sold

Cost of goods sold consists primarily of products purchased from third-party suppliers, freight, shipping, excess and obsolete inventory charges and royalties. Implants are manufactured to our specifications by third-party suppliers. Most implants are produced in the U.S. Cost of goods sold is recognized for consigned implants at the time the implant is used in surgery and the related revenue is recognized. Prior to their use in surgery, the cost of consigned implants is recorded as Inventories, net in our Consolidated Balance Sheets.

Stock-Based Compensation

All stock-based awards to employees and nonemployee contractors, including any grants of stock, stock options, restricted stock units (“RSU”), performance stock units ("PSU") and the option to purchase common stock under the Employee Stock Purchase Plan (“ESPP”), are measured at fair value at the grant date and recognized over the relevant vesting period in accordance with the ASC Topic 718 (“ASC 718”). Stock-based awards to nonemployees are recognized as a selling, general and administrative expense over the period of performance. Such awards are measured at fair value at the date of grant. In addition, for awards that vest immediately, the awards are measured at fair value and recognized in full at the grant date.

~~114~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share and per share data)~~

The Company estimates the fair value of each ~~stock-based~~stock-option award containing service and/or performance conditions on the grant date using the Black-Scholes option valuation model which incorporates assumptions as to stock price volatility, the expected life of the options, risk-free interest rate and dividend yield. The Company relies on its historical volatility as an input to the option pricing model as management believes that this rate will be representative of future volatility over the expected term of the options. The expected term until exercise represents the weighted-average period of time that options granted are expected to be outstanding giving consideration to vesting schedules and the Company’s historical exercise patterns. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant. The Company has not paid any dividends since its inception and does not anticipate paying any dividends for the foreseeable future, so the dividend yield is assumed to be zero. ~~Forfeitures are recorded as they occur,~~The Company estimates forfeitures of share-based awards at the time of grant and ~~when they occur compensation expense previously recognized is reversed~~revises such estimates in ~~the period of the forfeiture.~~subsequent periods if actual forfeitures differ from original estimates. Option awards are generally granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant.

Research and Development

Research and development expense is comprised of in-house research and development of new products and technologies, clinical studies and trials, regulatory expenses, and employee related compensation and expenses. We maintain a procedurally focused approach to product development and have projects underway to add new products to our existing systems and to add new systems across multiple foot and ankle indications.

Leases

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company calculates the associated lease liability and corresponding right-of-use asset upon lease commencement using a discount rate based on a borrowing rate commensurate with the term of the lease. The Company records lease liabilities within current liabilities or long-term liabilities based upon the length of time associated with the lease payments. The Company records its operating lease right-of-use assets within other assets.

110

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Contingencies

A liability is contingent if the amount is not presently known but may become known in the future as a result of the occurrence of some uncertain future event. We accrue a liability for an estimated loss if we determine that the potential loss is probable of occurring and the amount can be reasonably estimated. Significant judgment is required in both the determination of probability and the determination as to whether the amount of an exposure is reasonably estimable, and accruals are based only on the information available to our management at the time the judgment is made. We expense legal costs, including those legal costs incurred in connection with a loss contingency, as incurred.

~~Fair Value of Financial Instruments~~Recently Adopted Accounting Pronouncements

~~Fair value is an exit price, representing~~In December 2019, the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. There is a three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

~~Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.~~

~~Level 3 - Unobservable inputs which are supported by little or no market activity.~~

~~115~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share and per share data)~~

Accounting ~~Pronouncements Issued~~

~~In February 2016, the FASB~~Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income Taxes (Topic 740) (“ASU ~~2016-02, Leases (Topic 842) (“ASC 842”~~2019-12”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is ~~effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term~~part of the ~~lease, respectively. A lessee is also required~~FASB’s overall simplification initiative to ~~record a right-of-use asset~~reduce the costs and ~~a lease liability for all leases with a term~~complexity of ~~greater than 12 months regardless~~applying accounting standards while maintaining or improving the usefulness of ~~their classification. Leases with a term~~the information provided to users of ~~12 months or less will be accounted for similar to existing~~financial statements. ASU 2019-12 simplifies accounting guidance for operating leases today. ASU 2016-02 supersedes the previous leases standard, ASC 840, Leases. ASU 2016-02, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption datesintra-period allocations, deferred tax liabilities, year-to-date losses in ~~fiscal years beginning after December 15, 2021,~~interim periods, franchise taxes, step-up in tax basis of goodwill, separate entity financial statements, and interim periods with fiscal years beginning after December 15, 2022 and allows entities to elect an optional transition method where entities may continue to apply the existing lease guidance during the comparative periods and apply the new lease requirements through a cumulative effect adjustment in the periodrecognition of ~~adoption rather than in the earliest period presented.~~tax laws or rate changes. The Company adopted ~~the standard on~~ASU 2019-12 effective January 1, ~~2022~~2023. A~~s part of the adoption:~~

•

We adopted the option to apply the transition requirements in ASC 842 at the effective date of January 1, 2022 with the effects of initially applying ASC 842 recognized as a cumulative-effect adjustment to retained earnings in the period of adoption.

•

We elected the package of practical expedients permitted under the transition guidance within the new standard, which allowed the Company to carry forward its ASC 840 assessment around definition of a lease, lease classification, and initial direct costs.

•

~~We have not elected the hindsight practical expedient to determine the lease term and right-of-use asset impairment.~~

•

We elected the short-term lease exception which allows us to account for leases with a term of 12 months or less to be accounted for similar to existing operating leases. The cost of these leases are not recognized in the right-of-use asset and lease liability balances. Consistent with ASC 842 requirements, leases that are 12 month or less are not included in the disclosures.

•

We elected to not separate non-lease components. This expedient allows us to not separate lease and non-lease components and to account for both components as a single lease component, recognized on the balance sheet. This resulted in increases of lease liabilities and leased assets. This election has been applied to all classes of underlying assets.

The adoption of this ~~standard~~guidance did not have a ~~material~~significant impact on ~~our financial position~~the Company's Consolidated Financial Statements and ~~results of operations. See Note 14 - Commitments and Contingencies for more detail regarding our~~related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to estimate all expected credit losses for certain types of financial instruments, including trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The updated guidance also expands the disclosure requirements to enable users of financial statements to understand the entity’s assumptions, models and methods for estimating expected credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. ASU 2016-13, as subsequently amended for various technical issues, is effective for emerging growth companies following private company adoption dates for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2022, with early adoption permitted. The Company ~~will~~ ~~adopt~~adopted ASU 2016-13 effective January 1, 2023. The adoption of this guidance ~~will~~did nothave a significant impact on the Company's Consolidated Financial Statements and related disclosures.

Recently Issued Accounting Pronouncements

~~116~~In October 2023, the FASB issued Accounting Standards Update ASU 2023-06, Disclosure Improvements: Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative. The amendments in ASU 2023-06 modify the disclosure or presentation requirements of a variety of Topics in the Codification. Certain of the amendments represent clarifications to or technical corrections of the current requirements. ASU 2023-06 is applicable to all entities subject to the SEC's existing disclosure requirements. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. The Company is currently evaluating the amendments in ASU 2023-06 and does not expect the adoption to have a significant impact on the Company's related disclosures.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which provides amendments to improve reportable segment disclosures requirements. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently evaluating the amendments in ASU 2023-07 and does not expect the adoption to have a significant impact on the Company's related disclosures.

111

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

In December ~~2019,~~2023, the FASB issued ASU ~~2019-12,~~2023-09, Income Taxes (Topic 740) (“: Improvements to Income Tax Disclosures ("ASU ~~2019-12”~~2023-09"), ~~which is part of~~to enhance the ~~FASB’s overall simplification initiative to reduce the costs~~transparency and ~~complexity of applying accounting standards while maintaining or improving the~~decision usefulness of income tax disclosures. The main provisions in ASU 2023-09 enhance the ~~information provided to users~~disclosure requirements of ~~financial statements.~~rate reconciliations and income taxes paid. For public business entities, the amendments in ASU 2019-12 simplifies accounting guidance for intra-period allocations, deferred tax liabilities, year-to-date losses in interim periods, franchise taxes, step-up in tax basis of goodwill, separate entity financial statements, and interim recognition of tax laws or rate changes. ASU 2019-12 is2023-09 are effective for ~~emerging growth companies following private company adoption dates in fiscal years~~annual periods beginning after December 15, ~~2021, and interim periods within fiscal years beginning after December 15, 2022, with early~~2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The amendments in this update should be applied on a prospective basis, retrospective application is permitted. The Company ~~will~~ ~~adopt~~ ~~ASU 2019-12 effective~~ ~~January 1, 2023. The adoption of~~is currently evaluating the amendments in this guidance to determine the impact it will ~~not~~have ~~a significant impact~~ on the Company's Consolidated Financial Statements and related disclosures.

NOTE 3. BUSINESS COMBINATIONS

Disior

On January 10, 2022 ("Disior Acquisition Date"), the Company entered into a Securities Purchase Agreement (“SPA”) with Disior LTD. (“Disior”) and acquired 100% of the outstanding equity of Disior (the "Disior Acquisition"). Disior is a leading three-dimensional analytics pre-operative planning software company based in Helsinki, Finland, focused on the complex foot and ankle anatomy. The Disior Acquisition allowed the Company to broaden its capabilities within the pre-operative and intra-operative stages of the foot and ankle care and expand the Company's Smart 28 ecosystem.

The aggregate purchase price of the Disior Acquisition was approximately $26,246 inclusive of an earn-out provision with a fair value of $6,550 and certain net working capital adjustments and deferred payments totaling a net payable of $222. The SPA provided for potential earn-out consideration to the seller in connection with the achievement of certain milestones with various expiration dates through the second anniversary of the Disior Acquisition Date. The earn-out has a maximum payment not to exceed $8,000 in the aggregate. If an individual milestone is not met by the specified milestone expiration date, the earn-out related to that specific milestone will not be paid. The acquisition was primarily funded by a $20,000 draw on the Company's term ~~loan.~~loan from Midcap. Acquisition related costs were $761 during the year ended December 31, 2022, and are included in Selling, general, and administrative expenses in the Consolidated Statements of Operations and Comprehensive Loss. No acquisition related costs were incurred during the year ended December 31, 2023.

The Company has accounted for the acquisition of Disior under ASC Topic 805, Business Combinations (“ASC 805”). Disior’s results of operations are included in the Consolidated Financial Statements beginning after January 10, 2022, the Disior Acquisition Date.

The following table summarizes the purchase price:


Consideration Paid
Consideration paid
Cash consideration	$	19,696	$	19,696
Contingent consideration		6,550		6,550
Total consideration	$	26,246	$	26,246

~~Acquisition-related costs, which consisted of fees incurred for advisory, legal, and accounting services, were $761~~ ~~during the year ended December 31, 2022, and were included in Selling, general and administrative expenses in the Company’s Consolidated Statements of Comprehensive Loss.~~ No ~~acquisition related costs were incurred in the years ended December 31, 2021 and 2020.~~

~~117~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share and per share data)~~

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the Disior Acquisition Date:

Measurement

Preliminary allocation

period adjustments

Adjusted allocation

Assets acquired:

Cash and cash equivalents
$
1,192

$
—

$
1,192

Other current assets

410

—

410

Intangible assets

4,900

1,900

6,800

Goodwill

20,343

(1,207
)

19,136

Total assets acquired
$
26,845

$
693

$
27,538

Liabilities assumed:

Accruals and other current liabilities
$
615

$
—

$
615

Deferred tax liabilities, net

287

390

677

Total liabilities assumed
$
902

390

$
1,292

Net assets acquired
$
25,943

$
303

$
26,246


Assets acquired:
Cash and cash equivalents	$	1,192
Other current assets		410
Intangible assets		6,800
Goodwill		19,136
Total assets acquired		27,538

Liabilities assumed:
Accruals and other current liabilities		615
Deferred tax liabilities, net		677
Total liabilities assumed		1,292
Net assets acquired	$	26,246

112

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~As of December 31, 2022 we made two measurement period adjustments. The first was an adjustment of $~~(in thousands, except share and per share data)~~303~~

based on an adjustment to working capital as defined by the purchase agreement and included as part of the purchase price in the final settlement statement. The second was based on the Company's review of the final fair value report in which the valuation associated with intangible assets was increased $~~1,900~~

~~and as a result the deferred tax liability was increased $390~~.

Identified intangible assets consist of tradenames and developed technology. The fair value of each were determined with the assistance of an external valuation specialist using a combination of the income, market, cost approach, and relief from royalty rate method, in accordance with ASC 805. The purchase consideration was allocated to the identifiable net assets acquired based on estimated fair values at the date of the acquisition. ~~As of December 31, 2022, the purchase consideration and its allocation are final.~~ The excess of the fair value of the purchase consideration over the fair value of the identifiable assets and liabilities, if any, was recorded as goodwill. The goodwill is attributable to the expected synergies with the Company’s existing operations. The useful life on intangible assets was determined by management to be in line with the Company’s policy on intangible assets. Both determinations are outlined in the table below:


	Fair Value		Estimated Useful Life (in years)	Fair Value		Estimated Useful Life (in years)
Developed Technology	$	6,400	12
Developed technology				$	6,400	12
Tradenames		400	Indefinite		400	Indefinite
	$	6,800
Total intangible assets				$	6,800

The entire amount of the purchase price allocated to goodwill will not be deductible for income tax purposes under the Finnish Income Tax Act.

There is no supplemental proforma presentation of operating results of the acquisition of Disior due to the immaterial impact on the Company’s Consolidated operations for the years ended December 31, 2022 and 2021.

On May 28, 2021 (“Closing Date”), the Company entered into an Asset Purchase Agreement (“APA”) with Additive Orthopaedics, LLC (“Additive” ~~or “Seller”~~) and completed an acquisition of substantially all of the operating and intangible assets of Additive, for total cash consideration of $15,000 at closing. The APA also provided for potential earn-out consideration to ~~the Seller~~Additive in connection with the achievement of certain milestones, including both project-based and revenue-based milestones, with various expiration dates through the fourth anniversary of the Closing Date. The earn-out has a maximum payment not to exceed $9,500, in the aggregate. If an individual milestone is not met by the specified milestone expiration date, no earn-out related to that specific milestone is due. The contingent earn-out consideration had an estimated fair value of $2,870 as of the Closing Date. Acquisition related costs were approximately $822 during the year ended December 31, 2021, and are included in Selling, general, and administrative expenses in the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income.~~Loss. No acquisition related costs were incurred induring the ~~year~~years ended December 31, ~~2022.~~

~~Additive’s 3D-printed Patient Specific Talus Spacer is the only U.S. Food~~2023 and Drug Administration-approved patient-specific total talus replacement implant authorized in the U.S. for the treatment of avascular necrosis. The acquisition of Additive allowed the Company to further expand into the patient specific implant market.2022.

The Company has accounted for the acquisition of Additive under ASC Topic 805, Business Combinations (“ASC 805”). Additive’s results of operations are included in the Consolidated Financial Statements beginning after May 28, 2021, the acquisition date.

~~The following table summarizes the purchase consideration transferred in connection with the acquisition of Additive and consists of the following:~~

~~The following table summarizes the fair values of the assets acquired and liabilities assumed as of the Closing Date:~~113

The following table summarizes the purchase consideration transferred in connection with the acquisition of Additive and consists of the following:

Identified intangible assets consist of noncompete arrangements, customer relationships, and developed technology. The fair value of each were determined with the assistance of an external valuation specialist using a combination of the income, market, and asset approach valuation methodologies, in accordance with ASC 805. The purchase consideration was allocated to the identifiable net assets acquired based on estimated fair values at the date of the acquisition. The excess of the fair value of the purchase consideration over the fair value of the identifiable assets and liabilities, if any, was recorded as goodwill. The goodwill is attributable to the expected synergies with the Company’s existing operations. The entire amount of the purchase price allocated to goodwill will be deductible for income tax purposes pursuant to Internal Revenue Code Section 197 over a 15-year period. The useful life determination was made by management in line with the Company’s policy on assets. Both determinations are outlined in the table below:

There is no supplemental proforma presentation of operating results of the acquisition of Additive due to the immaterial impact on the Company’s Consolidated operations for the years ended December 31, 2022 and 2021.

NOTE 8. DEBT

Long-term debt as of December 31, 2023, and December 31, 2022, consists of the following:


		December 31, 2023				December 31, 2022
Ares Revolving Loan	$		25,000		$		—
Ares Term Loan			75,000				—
MidCap Term Loan			—				30,000
Zions Term Loan			14,933				15,573
Bank of Ireland Note Payable			—				86
			114,933				45,659
Less: deferred issuance costs			(4,494	)			(2,749	)
Total debt, net of issuance costs			110,439				42,910
Less: current portion			(640	)			(728	)
Long-term debt, net, less current maturities	$		109,799		$		42,182

117

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

~~NOTE 7. CONTINGENT EARN-OUT CONSIDERATION~~

~~The following table provides a reconciliation of our Level 3 earn-out liabilities for the year ended December 31, 2022:~~Ares Credit Agreement

On November 2, 2023, the Company entered into a new credit agreement with Ares Capital Corporation to provide a total of $

Balance, December 31, 2021
$
2,310

Acquisition date fair value of earn-out liabilities

6,550

Achieved milestones paid

(1,000
)
Achieved milestones reclassified to accrued expenses

(5,500
)
Change in fair value of earn-out liabilities

1,280

Balance, December 31, 2022
$
3,640

150,000, inclusive of a revolving credit facility of up to $50,000 (the “Ares Revolving Loan”) and a term loan facility of up to $

100,000 (the “Ares Term Loan”). The obligations under the Ares Credit Agreement are guaranteed by each of the Borrowers’ current ~~portion~~and future domestic subsidiaries and secured by liens on substantially all of ~~contingent earn-out liability is included~~the Borrowers’ and guarantors’ present and after-acquired assets, in ~~Other-current liabilities~~each case, subject to certain customary exceptions. In connection with the closing of the Ares Credit Agreement, the Company drew down $25,000 and ~~the non-current portion is included in Other long-term liabilities~~$75,000 on the ~~Consolidated Balance Sheet.~~Ares Revolving Loan and Ares Term Loan, respectively. The Ares Revolving Loan and Ares Term Loan bear interest at variable rates of Term SOFR plus 4% and Term SOFR plus 6.75%, respectively, subject in the case of the Ares Term Loan to certain step-downs and adjustments as set forth in the Ares Credit Agreement, and mature on the earlier of (i) November 2, 2028, and (ii) with respect to the Ares Revolving Loan, 6 months prior to the maturity date of any other indebtedness in a principal or stated amount in excess of $12,500. The Ares Credit Agreement contains a financial covenant requiring the Company to maintain certain minimum revenue levels. As of December 31, ~~2022,~~2023, the ~~current portion~~Company was in compliance with all financial covenants under the Ares Credit Agreement. Total debt issuance costs associated with the Ares Credit Agreement were $~~3,386~~4,275. Amortization expense associated with such debt issuance costs totaled $147, $0 and ~~the non-current portion was~~ $~~254~~0~~. During~~ for the ~~year~~years ended December 31, 2023, 2022 ~~we reassessed the estimate of the earn-out liabilities which resulted~~and 2021, respectively and is included in ~~a net decrease of $1,280~~ ~~recorded in Other (expense) income within~~Interest expense on the Consolidated ~~Statement~~Statements of Operations and Comprehensive (Loss) Income for the year ended December 31, 2022. In addition we completed three project milestones associated with the Disior acquisition and three project milestones associated with the Additive acquisition as of December 31, 2022. Two of the Additive milestones were paid in cash during the year ended December 31, 2022 and the remaining four totaling $~~5,500~~ ~~are included in Accrued expenses on the Consolidated Balance Sheet as of December 31, 2022.~~Loss.

~~NOTE 8. DEBT~~

~~Long-term debt as of December 31, 2022 and December 31, 2021 consists of the following:~~

2022

2021

MidCap Term Loan

$
30,000

$
10,000

Bank of Ireland Note Payable

86

245

Vectra Term Loan Facility

15,573

—

$
45,659

$
10,245

Less: deferred issuance costs

(2,749
)

(2,616
)
Total debt, net of issuance costs

42,910

7,629

Less: current portion

(728
)

(153
)
Long-term debt, net, less current maturities

$
42,182

$
7,476

MidCap Credit Agreements

On May 6, 2021, the Company entered into a new credit agreement with MidCap Financial Trust to provide a total of $70,000 including up to a $30,000 revolving loan (“MidCap Revolving Loan”) and up to a $40,000 term loan (“MidCap Term Loan”), secured by substantially all the Company’s assets (“MidCap Credit Agreements”). The MidCap Term Loan was comprised of two tranches, the first of which provided a commitment amount of $10,000, and the second a commitment of $30,000. The MidCap Term Loan and Midcap Revolving Loan bore a variable interest rate of LIBOR plus 6% and LIBOR plus 3%, respectively, and ~~mature~~matured on the earlier of May 1, 2026, or a change in control event (the "Termination Date"). The entire principal balances of the MidCap Revolving Loan and MidCap Term Loan ~~are~~were due on the Termination Date. Interest payments ~~are~~were payable monthly, with optional principal prepayments allowed under the MidCap Credit Agreements. The Midcap Credit Agreements required us to maintain minimum net product sales and minimum consolidated EBITDA, (each term as defined in the Midcap Credit Agreements), for the preceding ~~twelve month~~twelve-month period.

On November 9, 2022, the Company entered into an amendment to the ~~“MidCap~~MidCap Credit ~~Agreements”.~~Agreements. The amendment to the Midcap Revolving Loan ~~provides~~provided up to $50,000 in total borrowing capacity. The MidCap amendments modified the MidCap Credit Agreements to include provisions related to the transition from the LIBOR Interest Rate plus Applicable Margin to the SOFR Interest Rate plus Applicable Margin, maintaining the Applicable Margin of 6% under the MidCap Term Loan and increasing the Applicable Margin from 3% to 3.75% under the Midcap Revolving Loan. In addition, the MidCap amendments amended certain covenants, terms and provisions in the Midcap Credit Agreements to, among other things, modify the covenant levels for the Minimum Net Product Sales financial covenant and to remove the Minimum Consolidated EBITDA financial covenant. ~~As of~~

On November 2, 2023, in connection with the entry into the Ares Credit Agreement, the Company terminated the commitments and satisfied all outstanding obligations under the MidCap Credit Agreements. During the year ended December 31, ~~2022, we were in compliance with all financial covenants under~~2023, the ~~amended Midcap Credit Agreements. Total~~Company recorded a loss on early extinguishment of debt of $5,308, inclusive of the write-off of remaining unamortized debt issuance costs ~~associated with~~of $1,881 and fees incurred to exit the MidCap Credit Agreements ~~was~~early of $~~2,558~~3,427. Amortization expense associated with ~~such~~ debt issuance costs prior to write-off totaled $~~586~~613, $~~576~~586 and $0576

~~122~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share and per share data)~~

for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, respectively, and is included in Interest expense on the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income.~~Loss.

Vectra Bank Colorado Loan Agreements

On March 27, 2020, the Company entered into an Amended and Restated Loan Agreement (the “Vectra Loan Agreement”) with Vectra Bank Colorado. The Vectra Loan Agreement refinanced the Company's existing Term Loan and existing Buyout Loan into a single term loan in the aggregate principal amount of $~~6,802~~ ~~(the “2020 Term Loan”) and increased the maximum principal amount of the existing Revolving Loan to $15,000~~ ~~(the “2020 Revolving Loan” and together with the 2020 Term Loan, "2020 Loans). The maturity date for both loans was~~ ~~September 30, 2020~~ ~~and was subsequently extended to~~ ~~October 5, 2023. The Vectra Loan Agreement was secured by substantially all the Company’s assets. The Vectra Loan Agreement contained financial and other customary covenants and bore an interest rate of~~ 3~~%. The Company repaid the 2020 Loans in 2021 in connection with entering into the Midcap Credit Agreements.~~

On March 24, 2022, the Company entered into a secured term loan facility (the “Zions Facility”) with Zions Bancorporation, N.A. dba Vectra Bank Colorado in the principal amount of $16,000. The loans under the Zions Facility (i) bear interest at a variable rate per annum equal to the sum of (a) a one-month Term SOFR based rate, plus (b) 1.75%, adjusted on a monthly basis and (ii) mature on March 24, 2037. Principal and interest payments are payable monthly, with optional prepayments allowed without premium or penalty.

Effective as of November 10, 2022, the Company entered into the First Amendment to the Zions Facility. The amendment to the Zions Facility amends the financial covenants to require the Company to maintain (i) the Liquidity Ratio, if the Cash Flow as of the last day of any quarter measured on a trailing three month basis is less than or equal to $0, and (ii) the Fixed Charge Coverage Ratio which will be calculated as of the last day of each quarter on a trailing four quarter basis, as well as a certain level of Liquidity, if the Cash Flow is greater than $0. In addition, a Net Revenue Growth covenant was added which will be calculated as of the last day of each quarter on a year-over-year basis.

118

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Effective as of November 2, 2023, the Company entered into the Second Amendment to the Zions Facility (the "Second Amendment"). The Second Amendment replaces references to MidCap Financial Trust and MidCap Credit Agreements with references to Ares and the Ares Credit Agreement. As of December 31, ~~2022, we were~~2023, the Company was in compliance with all financial covenants under the ~~amended Zions Facility.~~Second Amendment. Total debt issuance costs associated with the Zions Facility ~~was~~were $~~236~~219. Amortization expense associated with such debt issuance costs totaled $1316, $013 and $0 for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, respectively, and is included in Interest expense on the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income.~~Loss.

Bank of Ireland Note Payable

On June 12, 2020, the Company entered a term loan with Bank of Ireland in a principal amount of $474 (the “Bank of Ireland Note Payable”). The Bank of Ireland Note Payable ~~bears~~bore an annual interest rate of 4% and iswas due in equal monthly installments over a 36-month period, including interest. The Company repaid the Bank of Ireland Note Payable ~~contains financial and other customary covenants.~~in 2023.

Debt Maturities Schedule

The required principal payments for the ~~Bank of Ireland Note Payable, the Midcap~~Ares Revolving Loan, Ares Term Loan and the Zions Facility following the Consolidated Balance Sheet dates are as follows:


2023	$	728
2024		640	$	640
2025		640		640
2026		30,640		640
2027		640		640
2028				100,640
Thereafter		12,371		11,733
Total	$	45,659	$	114,933

NOTE 9. CONVERTIBLE PREFERRED SERIES EQUITY AND STOCKHOLDERS’ EQUITY

~~On October 8, 2021, the Company filed a certificate of amendment with the Secretary of State of the State of Delaware, pursuant to which, the Company effected a~~ 5-for-1 forward stock split of the Company’s authorized, issued and outstanding common stock, the Company’s authorized, issued and outstanding Series A convertible preferred stock, and the Company’s authorized, issued and outstanding Series B convertible preferred stock (the “Stock Split”). All share amounts and per share data presented in the accompanying Consolidated Financial Statements have been retrospectively adjusted to reflect the forward stock split for all periods

~~123~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share and per share data)~~

~~presented.~~ Under its Amended and Restated Certificate of Incorporation, the Company has a total of 310,000,000 shares of capital stock authorized for issuance, consisting of 300,000,000 shares of common stock, par value of $0.01 per share, and 10,000,000 ~~new~~ shares of convertible preferred stock, par value of $0.01 per share.

Common Stock

The Company did not issue any common stock during the year ended December 31, 2022.

Each holder of common stock is entitled to one vote for each share owned on all matters voted upon by the stockholders, and a majority vote is required for all actions taken by stockholders. Common stock has no preemptive rights, no cumulative voting rights and no redemption or conversion provisions. Holders of common stock are entitled to receive dividends when and if, declared by the Board of Directors.

Series A Convertible Preferred Stock

In December 2011, the Company issued an aggregate of 3,250,005 shares of its Series A convertible preferred stock at a price of $0.30769 per share, resulting in total proceeds of approximately $1,000.

119

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

In February and November 2012, the Company issued an aggregate of 10,562,495 shares of its Series A convertible preferred stock at a price of $0.30769 per share, resulting in total proceeds of approximately $3,250.

In October 2021, in connection with the IPO, all of the shares of the Company’s outstanding Series A convertible preferred stock automatically converted into an aggregate of 13,812,500 shares of ~~the~~ common stock. As of December 31, 2020, the Company’s Series A convertible preferred stock were classified as temporary equity in the accompanying Consolidated Balance Sheets given that a majority of the Company’s board of directors seats were held by convertible preferred stockholders and they could cause certain events to occur that are outside of the Company’s control whereby the Company could be obligated to redeem the convertible preferred stock.

Series B Convertible Preferred Stock

In July 2020, the Company issued an aggregate of 6,608,700 shares of its Series B convertible preferred stock at a price of $5.75 per share, resulting in total net proceeds of approximately $36,030, net of issuance costs of $1,970.

In connection with the IPO, all of the shares of the Company’s outstanding Series B convertible preferred stock automatically converted into an aggregate of 6,608,700 shares of the common stock. Pursuant to the terms of the Series B convertible preferred stock offering, the $2,328 of cash dividends accrued as of October 19, 2021, were cancelled upon conversion of the Series B preferred stock into common stock. As of December 31, 2020, the Company’s Series B convertible preferred stock were classified as temporary equity in the accompanying balance sheets given that a majority of the Company’s Board of Directors seats are held by convertible preferred stockholders and they could cause certain events to occur that are outside of the Company’s control whereby the Company could be obligated to redeem the convertible preferred stock.

~~124~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share and per share data)~~

Treasury Stock

The Company did not purchase any shares of its common stock during the ~~year~~years ended December 31, 2023 and 2022. The Company purchased a total of 85,049 ~~and~~ ~~239,760~~shares of its common stock during the ~~years~~year ended December 31, 2021 ~~and 2020~~ for $561 ~~and $1,538, respectively. Share~~. Shares purchased during the ~~years~~year ended December 31, 2021, ~~and 2020~~ were ~~made~~ at an average of $6.60 ~~and $6.54~~per ~~share, respectively.~~share. All repurchased shares were recorded in Treasury stock at cost.

NOTE 10. ~~(LOSS) EARNINGS~~LOSS PER SHARE

Basic net ~~(loss) income~~loss per share is computed by dividing net ~~(loss) income~~loss attributable to common stockholders (the numerator) by the weighted average number of common stock outstanding for the period (the denominator). Diluted net ~~(loss) income~~loss per common stock attributable to common stockholders is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period adjusted for the dilutive effects of common stock equivalents using the treasury stock method or the if-converted method based on the nature of such securities. In periods when losses from continuing operations are reported, the weighted-average number of common stock outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. The computation of net ~~(loss) income~~loss per share for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, respectively was as follows:

December 31,

2022

2021

2020

Net (loss) income attributable to common stockholders

Net (loss) income attributable to Paragon 28, Inc.

$
(67,326
)

$
(13,693
)

$
3,498

Less: Dividends on Series B convertible preferred stock

—

—

(812
)
Net (loss) income attributable to common stockholders

$
(67,326
)

$
(13,693
)

$
2,686

Weighted-average common stock outstanding:

Basic

76,766,100

52,916,711

43,510,185

Dilutive impact of Series A convertible preferred stock

—

—

13,812,500

Dilutive impact of stock awards outstanding

—

—

3,083,495

Diluted

76,766,100

52,916,711

60,406,180

(Loss) income per share:

Basic

$
(0.88
)

$
(0.26
)

$
0.06

Diluted

$
(0.88
)

$
(0.26
)

$
0.04


	Year Ended December 31,
	2023			2022			2021
Net loss	$	(47,841	)	$	(67,326	)	$	(13,693	)

Weighted-average common stock outstanding:
Basic		82,087,329			76,766,100			52,916,711
Diluted		82,087,329			76,766,100			52,916,711

Loss per share:
Basic	$	(0.58	)	$	(0.88	)	$	(0.26	)
Diluted	$	(0.58	)	$	(0.88	)	$	(0.26	)

The following outstanding potentially dilutive securities were excluded from the calculation of diluted net ~~(loss) earnings~~loss per share attributable to common stockholders because their impact would have been antidilutive for the period presented:


	December 31,						December 31,
	2022		2021		2020		2023		2022		2021
Stock options		6,538,536		7,953,018		—		5,943,898		6,538,536		7,953,018
Restricted stock units		964,054		79,886		—		1,317,402		964,054		79,886
Series A convertible preferred stock		—		—		—
Series B convertible preferred stock		—		—		6,608,700

~~125~~120

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

NOTE 11. STOCK-BASED COMPENSATION

~~Employee Stock Purchase Plan~~

The Company's Employee Stock Purchase Plan ~~(“ESPP”~~("ESPP") ~~was~~and 2021 Incentive Award Plan (“2021 Plan”) were adopted by the Company’s Board of Directors on October 8, 2021. The ESPP and 2021 Plan ~~was~~were both adopted by the Company’s stockholders on October 19, 2021, and became effective on the date prior to the first date of the effectiveness of the registration statement on Form S-1 filed by the Company.

Employee Stock Purchase Plan

The ESPP initially ~~provides~~provided participating employees with the opportunity to purchase up to an aggregate of 1,329,040 shares of the ~~Company’s~~Company's common stock at 85% of the market price at the lesser of the date the purchase right is granted or exercisable. The Company currently holds offerings consisting of six month periods commencing on January 1 and July 1 of each calendar year, with a single purchase date at the end of the purchase period on June 30 and December 31 of each calendar year. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022, and ending on January 1, 2031, by the lesser of 1% of all classes of the ~~Company’s~~Company's common stock outstanding on the immediately preceding December 31, or such smaller number of shares as determined by the ~~Company’s~~Company's Board or the committee. As of December 31, ~~2022,~~2023, ~~38,968~~ ~~shares have been issued under the ESPP and as such,~~ ~~2,054,545~~2,758,808 shares remained available for issuance.

Eligible employees can contribute up to 15% of their gross base earnings for purchases under the ESPP through regular payroll ~~deductions. Purchase of shares under the ESPP is~~deductions, limited ~~for each employee at~~to $25,000 worth of the Company’s shares of common stock (determined using the lesser of (i) the market price of a share of common stock on the first day of an applicable purchase period and (ii) the market price of a share of common stock on the purchase date) for each calendar year in which athe purchase right is outstanding. The Company currently holds offerings consisting of six-month periods commencing on January 1st and July 1st of each calendar year, with a single purchase date at the end of the purchase period on June 30th and December 31st of each calendar year.

During the ~~year~~years ended December 31, 2023 and 2022, the Company issued 73,442 and 38,968 shares, respectively, upon exercise of purchase rights. The Company recognizes compensation expense on a straight-line basis over the service period. During the ~~year~~years ended December 31, 2023 and 2022, the Company recognized $322 and $213 of compensation expense, respectively, related to the ESPP. There were no shares issued and no compensation expense was recognized related to the ESPP during ~~2021 and 2020.~~2021.

Below are the assumptions used for the ~~year~~years ended December 31, 2023 and 2022 in determining the fair value of shares under the ESPP.No ~~shares were issued during the years ended December 31, 2021 and 2020.~~


	~~Year Ended December 31,~~
	~~2022~~
~~Expected volatility~~		~~70.27~~	%
~~Expected dividends~~		—
~~Expected term (in years)~~		~~0.50~~
~~Discount rate~~		~~15.0~~	%
~~Risk-free rate~~		~~2.79~~	%


	Year Ended December 31,
	2023			2022
Expected volatility		54.64	%		70.27	%
Expected dividends		—			—
Expected term (in years)		0.50			0.50
Discount rate		15.00	%		15.00	%
Risk-free rate		5.26	%		2.79	%

2021 Incentive Award Plan

The 2021 ~~Incentive Award~~ Plan (“2021 Plan”) was adopted by the Company’s Board of Directors on October 8, 2021. The 2021 Plan was adopted by the Company’s stockholders on October 19, 2021 and became effective on the date prior to the first date of the effectiveness of the registration statement on Form S-1 filed by the Company. The 2021 Plan authorizesauthorized the Company to issue an initial aggregate maximum number of shares of common stock equal to (i) 7,641,979 shares plus (ii) a number of shares that are available for issuance under the 2011 Plan plus (iii) any shares that are subject to 2011 Plan that become available for issuance (via expiration, forfeitures, etc.) plus (iv) an increase commencing on January 1, 2022, and continuing annually on the anniversary thereof through January 1, 2031, equal to the lesser of (a) 5% of the shares of all classes of the Company’s common stock outstanding on the last day of the immediately preceding calendar year or (b) such smaller number of shares as determined by the Company’s Board or the committee. As of December 31, ~~2022,~~2023, the Company had reserved ~~10,049,847~~13,510,971 shares of common stock for future grant.

~~Stock Options~~121

~~There were~~ ~~359,054~~, ~~3,467,069~~ ~~and~~ ~~1,723,750~~ ~~options granted during the years ended December 31, 2022, 2021 and 2020.~~

~~The Company received cash in the amount of $5,271, $445~~ ~~and $1,780~~ ~~from the exercise of stock options for the years ended December 31, 2022, 2021 and 2020, respectively. The tax benefit from equity options exercised were $1,223, $~~93 ~~and $409~~ ~~for the years ended December 31, 2022, 2021 and 2020, respectively.~~

~~126~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

~~During 2020,~~Stock Options

The following table summarizes the ~~Company granted certain employees~~Company’s stock option plan and ~~contractors of~~ the ~~Company an aggregate of~~activity for the year ended December 31, 2023.


	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (Years)
Outstanding, December 31, 2022		6,538,536		$	10.02		7.36
Granted		225,000			18.33
Exercised or released		(458,005	)		6.56
Forfeited or expired		(361,633	)		15.29
Outstanding, December 31, 2023		5,943,898		$	10.28		6.53
Exercisable, December 31, 2023		4,292,558		$	8.51		6.02
Vested and expected to vest at December 31, 2023		5,938,438		$	10.27		6.53

There were ~~1,723,750~~225,000, 359,054 and 3,467,069 options granted during the years ended December 31, 2023, 2022 and 2021, at a weighted average strike price of $~~6.38~~18.33. , $16.08~~Of the options granted, there were time-based options~~ and ~~performance-based options, which vest upon achievement of the sales performance milestone.~~$14.63, respectively.

~~During 2021,~~The Company received cash in the ~~Company granted certain employees, directors and contractors of the Company an aggregate of~~ ~~3,467,069~~ ~~options at a weighted average strike price~~amount of $~~14.63~~2,406. , $~~All options granted in 2021 were time-based options.~~

~~During 2022, the Company granted certain employees, officers and contractors of the Company an aggregate of~~ ~~359,054~~5,271 ~~options at a weighted average strike price~~and $445 from the exercise of $~~16.08~~. ~~All~~stock options ~~granted in 2022 were time-based options.~~

~~The following summarizes the Company’s stock option plan and the activity under the 2011 and 2021 Plans~~ for the ~~year~~years ended December 31, ~~2022:~~2023, 2022 and 2021, respectively. The tax benefit from equity options exercised were

$560, $1,223 and $93 for the years ended December 31, 2023, 2022 and 2021, respectively.

Shares

Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Term (Years)

Outstanding, December 31, 2021

7,953,018

$
9.02

8.16

Granted

359,054

16.08

Exercised or released

(1,250,476
)

4.25

Forfeited or expired

(523,060
)

12.89

Outstanding, December 31, 2022

6,538,536

$
10.02

7.36

Exercisable, December 31, 2022

3,870,811

$
7.18

6.46

Vested and expected to vest at December 31, 2022

6,538,536

$
10.02

7.36

The aggregate intrinsic value of options outstanding at December 31, ~~2022~~2023, is $~~59,450~~22,900. The aggregate intrinsic value of vested and exercisable options at December 31, ~~2022~~2023 is $~~46,196~~21,530. The aggregate intrinsic value of options exercised during the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020~~2021 is $~~18,764~~4,742, $~~3,743~~18,764 and $~~1,816~~3,743, respectively. ~~The weighted average fair value of options granted in 2022, 2021 and 2020 was $9.26, $7.57~~ ~~and $3.24, respectively, on the dates of grant.~~

As of December 31, ~~2022,~~2023, there was approximately $~~18,413~~5,634 total unrecognized compensation cost related to non-vested stock option compensation arrangements, which is expected to be recognized over a weighted average period of ~~2.83~~1.78 years.

Below are the assumptions used for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020~~2021 in determining the fair value of each option award:

Year Ended December 31,

2022

2021

2020

Expected volatility
55% - 70%

52% - 55%

51% - 56%

Expected dividends

—

—

—

Expected term (in years)

6.00

5.75 - 6.25

5.75 - 6.0

Risk-free rate
1.69% - 2.79%

0.47% - 1.20%

0.35% - 1.66%


	Year Ended December 31,
	2023			2022		2021
Expected volatility		66.20	%	55% - 70%		52% - 55%
Expected dividends		—			—		—
Expected term (in years)		6.25			6.00	5.75 - 6.25
Risk-free rate		4.11	%	1.69 - 2.79%		0.47% - 1.20%

Restricted Stock Units

RSUs granted under the 2021 Plan have a ten-year contractual term and typically vest over a three or four-year period, contingent upon continued service with the Company. ~~During~~The following table summarizes the Company's restricted stock units' activity for the years ended December 31, 2023.


	Year Ended December 31,
	2023
	Restricted Stock Units			Weighted-Average Fair Value
Outstanding, beginning of period		964,054		$	17.74
Granted		776,359			16.56
Vested		(273,618	)		17.65
Forfeited or expired		(149,393	)		17.81
Outstanding, end of period		1,317,402		$	17.06
Vested and expected to vest at end of period		1,305,827		$	17.05

During the years ended December 31, 2023, 2022 and 2021, the Company granted ~~certain directors, officers and employees of the Company an aggregate of~~776,359, 929,090 and 79,886 RSU's, respectively. The grant date fair value for RSUs ~~respectively.~~is the Nothirty-day ~~RSUs were granted in 2020. All RSUs granted in 2022 and 2021 were time-based awards.~~ trailing average market price of the common stock on the date of grant.~~RSU activity under the 2021 Plan is as follows for the year ended December 31, 2022:~~

Restricted Stock Units

Weighted-Average Fair Value

Outstanding, December 31, 2021

79,886

$
17.84

Granted

929,090

17.71

Vested

(36,004
)

17.36

Forfeited or expired

(8,918
)

16.82

Outstanding, December 31, 2022

964,054

$
17.74

Vested and expected to vest at December 31, 2022

964,054

$
17.74

~~There were~~ no ~~RSUs vested or forfeited during the years ended December 31, 2021 and 2020.~~122

~~127~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

~~The grant date fair value for RSU is the market price of the common stock on the date of grant. The grant date total fair value of RSUs vested during 2022 was $17.36. The fair value of RSUs vested during 2021 and 2020 was $~~0.

As of December 31, ~~2022,~~2023, there was approximately $~~15,723~~18,689 total unrecognized compensation cost related to non-vested RSUs, which is expected to be recognized over a weighted average period of ~~3.64~~2.88 years.

Stock-Based Compensation Expense

Stock-based compensation expenses are recorded in Selling, general and administrative expenses in the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income.~~Loss. During the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, the Company recognized $~~8,500~~5,542, $$8~~4,863~~,500, and $~~1,808~~4,863 respectively, of compensation expense related to stock options. During the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, the Company recognized $~~1,865~~6,822, $851,865 and $085, respectively, of compensation expense related to RSUs.

NOTE 12. EMPLOYEE BENEFIT PLAN

The Company sponsors a defined contribution plan for eligible employees who are 21 years of age with three months of service can voluntarily contribute up to 100% of their eligible compensation. The Company has elected a Safe Harbor plan in which the Company must contribute 3% of eligible compensation. In addition, the Company may make discretionary contributions which are determined and authorized by the Board of Directors each plan year. The Company made ~~matching~~ contributions to its employee benefit plan of $~~992~~1,190, $~~633~~992 and $~~500~~633 for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, respectively.

NOTE 13. INCOME TAXES

Total provision (benefit) ~~expense~~ for income taxes for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020:~~2021:

December 31,

2022

2021

2020

(Loss) income before taxes

Domestic
$
(65,749
)

$
(17,030
)

$
5,320

Foreign

(1,641
)

4,050

(295
)
Total (loss) income before taxes

(67,390
)

(12,980
)

5,025

Current tax expense (benefit):

Federal

—

(165
)

(94
)
State

96

(36
)

205

Foreign

315

744

109

Total current tax expense (benefit)

411

543

220

Deferred tax expense (benefit):

Federal

(16,253
)

(3,506
)

(4,559
)
State

(1,977
)

(464
)

(343
)
Foreign

(909
)

170

(91
)
Change in valuation allowance

18,664

3,970

6,300

Total deferred tax (benefit) expense

(475
)

170

1,307

Total tax expense (benefit):

Federal

(16,253
)

(3,671
)

(4,653
)
State

(1,881
)

(500
)

(138
)
Foreign

(594
)

914

18

Change in valuation allowance

18,664

3,970

6,300

Total income tax (benefit) expense
$
(64
)

$
713

$
1,527


	December 31,
	2023			2022			2021
(Loss) income before taxes
Domestic	$	(46,650	)	$	(65,749	)	$	(17,030	)
Foreign		(978	)		(1,641	)		4,050
Total loss before taxes		(47,628	)		(67,390	)		(12,980	)
Current tax expense (benefit):
Federal		104			—			(165	)
State		58			96			(36	)
Foreign		731			315			744
Total current tax expense		893			411			543
Deferred tax expense (benefit):
Federal		(9,273	)		(16,253	)		(3,506	)
State		(1,177	)		(1,977	)		(464	)
Foreign		(1,099	)		(909	)		170
Change in valuation allowance		10,869			18,664			3,970
Total deferred tax (benefit) expense		(680	)		(475	)		170
Total tax (benefit) expense:
Federal		(9,169	)		(16,253	)		(3,671	)
State		(1,119	)		(1,881	)		(500	)
Foreign		(368	)		(594	)		914
Change in valuation allowance		10,869			18,664			3,970
Total income tax expense (benefit)	$	213		$	(64	)	$	713

The Company ~~accounts~~had an effective tax rate of (0.45)% and 0.09% for ~~income taxes under~~ the ~~asset~~years ended December 31, 2023 and ~~liability method, which required~~2022, respectively. Significant items that are impacting the ~~recognition of~~rate include valuation allowance applied against domestic and certain foreign deferred tax assets (“DTA”), state taxes, permanent book tax difference for foreign sourced income and ~~liabilities for the expected future consequences of events that have been included in the financial statements. Under this method, deferred tax assets~~stock compensation, R&D Credit and liabilities are determined on the basis of differences between the financial statement and tax bases of the assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse.FIN 48.

~~128~~123

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and applicable foreign jurisdictions and is no longer subject to U.S. federal or state tax examinations for the years prior to 2018. The 2018 year is open in a limited scope as a result of the 2019 NOL carryback.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of our deferred taxes as of December 31, 2022 and 2021 were:

December 31,

2022

2021

Deferred tax assets:

Receivable allowances
$
356

$
213

Accrued expenses

5,351

339

S263A capitalizable costs

461

218

Inventory reserves

3,436

3,957

Research and development credits

3,615

3,249

Net operating losses

13,584

5,740

Transaction costs

—

—

Interest expense

1,218

387

Stock-based Compensation

3,324

2,208

Lease liability

384

—

R&D IRC 174(b) Capitalized Costs

3,433

—

Other

650

530

Total deferred tax assets

35,812

16,841

Valuation allowance

(28,933
)

(10,270
)
Net deferred tax assets

6,879

6,571

Deferred tax liabilities:

Property and Equipment

(5,391
)

(5,975
)
Section 481 adjustment

—

(178
)
Patents and trademarks

(1,304
)

(496
)
Right of Use Asset

(378
)

—

Total deferred tax liabilities

(7,073
)

(6,649
)
Total net deferred tax asset (liability)
$
(194
)

$
(78
)

A valuation allowance is established when it is “more likely than not” that all, or a portion, of net deferred tax assets will not be realized. As a result, the Company has concluded based on all available evidence and determined that valuation allowances of $~~28,933~~ ~~and $10,270~~ ~~should be provided for certain deferred tax assets at December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021 the Company had federal net operating loss carryforwards of $52,349~~ ~~and $25,119~~ ~~respectively which have an~~ ~~indefinite~~ ~~carryforward period and $52,552~~ ~~of combined state net operating loss carryforwards in various states that will begin to expire in~~ ~~2034. Additionally, the company has foreign net operating loss carryforwards of $6,788~~ ~~that will begin to expire in~~ ~~2033~~.

~~A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:~~

2022

2021

Gross unrecognized tax benefits - beginning of period
$
1,337

$
627

Increases related to current year tax positions

92

102

Increases related to prior year tax positions

2

712

Decreases related to prior year tax positions

—

(104
)
Decreases related to settlements of prior year tax positions

—

—

Gross unrecognized tax benefits - end of period
$
1,431

$
1,337

~~The unrecognized tax benefits of $1,431~~, if recognized, will impact the Company’s effective tax rate. In accordance with the Company's accounting policy, accrued interest and penalties are recognized related to unrecognized tax benefits as a component of tax expense. As of December 31, 2022, no interest or penalties associated with unrecognized tax benefits have been recorded. The Company expects the total amount of tax contingencies will not decrease in 2023 based on statute of limitation expiration.

~~129~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share and per share data)~~

A reconciliation of the provision for income taxes at the federal statutory rate compared to the effective tax rate for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020~~2021 is:


	2022			2021			2020			2023			2022			2021
Statutory U.S. federal tax rate	$	(14,152	)	$	(2,726	)	$	1,055		$	(10,002	)	$	(14,152	)	$	(2,726	)
State taxes net of federal benefit		(1,901	)		(492	)		99			(1,132	)		(1,901	)		(492	)
Non-U.S. earnings taxed at rates different than the U.S. statutory rate		(80	)		(150	)		80			5			(80	)		(150	)
Foreign source earnings, net of associated foreign tax credits		486			601			306			628			486			601
Benefit of tax credits		(458	)		(1,569	)		(670	)		(501	)		(458	)		(1,569	)
Stock based compensation		(2,852	)		(212	)		(4,913	)		27			(2,852	)		(212	)
PPP loan forgiveness		—			—			(861	)
Change in valuation allowance		18,664			3,970			6,300			10,869			18,664			3,970
Change in unrecognized tax benefits		92			710			10			175			92			710
Other		137			581			121			144			137			581
Total provision (benefit) for income taxes	$	(64	)	$	713		$	1,527		$	213		$	(64	)	$	713

As of December 31, ~~2022,~~2023, our foreign operations held cash totaling $~~3,679~~10,293. We have not provided for a U.S. deferred tax liability or foreign withholding tax on the undistributed earnings from our non-U.S. subsidiaries that are considered to be indefinitely reinvested. If such earnings were to be distributed, any U.S. deferred tax liability or foreign withholding tax would not be significant.

The Company files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and applicable foreign jurisdictions and is no longer subject to U.S. federal or state tax examinations for the years prior to 2020. The 2018 year is open in a limited scope as a result of the 2020 NOL carryback. The open years subject to examinations in the foreign jurisdictions are 2018 through 2023.


	December 31,
	2023			2022
Deferred tax assets:
Receivable allowances	$	253		$	356
Accrued expenses		1,262			5,351
S263A capitalizable costs		3,045			461
Inventory reserves		3,611			3,436
Research and development credits		3,974			3,615
Net operating losses		24,208			13,584
Interest expense		2,407			1,218
Stock-based compensation		4,496			3,324
Lease liability		356			384
R&D IRC 174(b) capitalized costs		5,161			3,433
Other		764			650
Total deferred tax assets		49,537			35,812
Valuation allowance		(39,802	)		(28,933	)
Net deferred tax assets		9,735			6,879
Deferred tax liabilities:
Property and equipment		(6,807	)		(5,391	)
Section 481 adjustment		(821	)		—
Patents and trademarks		(1,343	)		(1,304	)
Right of use asset		(292	)		(378	)
Total deferred tax liabilities		(9,263	)		(7,073	)
Total net deferred tax asset (liability)	$	472		$	(194	)

A valuation allowance is established when it is “more likely than not” that all, or a portion, of net deferred tax assets will not be realized. As a result, the Company has concluded based on all available evidence and determined that valuation allowances of $39,802 in the U.S, Germany, Finland and Italy entities and $28,933 in the U.S, Germany and Italy should be provided for certain deferred tax

124

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

assets at December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022 the Company had U.S federal net operating loss carryforwards of $93,341 and $52,349 respectively which have an indefinite carryforward period and $52,362 of combined U.S state net operating loss carryforwards in various states that will begin to expire in 2033. Additionally, the Company has foreign net operating loss carryforwards of $10,368 that will begin to expire in 2034.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	2023		2022
Gross unrecognized tax benefits - beginning of period	$	1,431	$	1,337
Increases related to current year tax positions		92		92
Increases related to prior year tax positions		—		2
Gross unrecognized tax benefits - end of period	$	1,523	$	1,431

The unrecognized tax benefits of $1,523, if recognized, will impact the Company’s effective tax rate. In accordance with the Company's accounting policy, accrued interest and penalties are recognized related to unrecognized tax benefits as a component of tax expense. As of December 31, 2023, the Company recorded $106 of interest or penalties associated with unrecognized tax benefits. The Company expects the total amount of tax contingencies will not decrease in 2024 based on statute of limitation expiration.

NOTE 14. COMMITMENTS AND CONTIGENCIES

Leases

The Company determines if an arrangement is a lease at inception by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company determines the initial classification and measurement of its right-of-use (“ROU”) asset and lease liabilities at the lease commencement date and thereafter, if modified. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

The Company leases certain office space and equipment under operating leases. The Company classifies right-of-use assets as Other assets, short-term lease liabilities as Other current liabilities, and long-term lease liabilities as Other long-term liabilities on the Consolidated Balance Sheets. Lease expense is recognized as a component of Operating (expense) income in the Consolidated Statements of Operations and Comprehensive (Loss) Income. The Company adopted ASC 842 as of January 1, 2022, and as of December 31, 2022, ~~the Company~~ recorded a a lease liability of $1,821 and corresponding right-of-use asset of $1,795 on its Consolidated Balance Sheet. The lease liability of $1,821 ~~consists~~consisted of $447 of short-term lease liabilities and $1,374 oflong-term lease liabilities, included in Other current liabilities and Other long-term liabilities, respectively.

As of December 31, 2023, right-of-use assets of $1,533 are included in Other assets and operating lease liabilities are included within the current and long-term portions of other liabilities of $543 and $1,048, respectively on the Consolidated Balance Sheet. During the ~~year~~years ended December 31, 2023 and 2022, the Company recorded lease expense of $574 and $408, respectively, as a component of Operating income (expense) in the Consolidated Statement of Operations and Comprehensive ~~(Loss)~~Loss Income.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. In order to apply the incremental borrowing rate, a portfolio approach with a collateralized rate was utilized wherein assets were grouped based on similar terms and economic environments in a manner whereby the Company reasonably expects that the application does not differ materially from a lease-by-lease approach.

Disclosures Related to Periods Prior to Adoption of ASC 842

Rent expense under operating leases totaled $1,369 ~~and $1,316~~for the ~~years~~year ended December 31, 2021, ~~and 2020, respectively,~~ and is included in Selling, general, and administrative expense in the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income.~~Loss. In January 2022, the Company purchased its corporate headquarters which was previously leased through 2029. Lease expense infor the ~~year~~years ended December 31, 2023 and 2022 ~~does~~do not include expense associated with this lease while rent expense infor the ~~years~~year ended December 31, 2021, ~~and 2020 do.~~does.

Legal Proceedings

~~We are~~The Company is involved in various lawsuits, claims, inquiries, and other regulatory and compliance matters, most of which are routine to the nature of our business. When it is probable that a loss will be incurred and where a range of the loss can be reasonably

~~130~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share and per share data)~~

estimated, the best estimate within the range is accrued. When the best estimate within the range cannot be determined, the low end of the range is accrued. The ultimate resolution of these claims could affect future results of operations should ~~our~~the exposure be materially

125

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

different from ~~our~~the estimates or should liabilities be incurred that were not previously accrued. Potential insurance reimbursements are not offset against potential liabilities.

On November 28, 2022, the Company entered into a settlement agreement with Stryker Corp. to settle two complaints filed against the ~~Colorado Complaint, the Delaware Complaint~~Company and any Company counter claims for a total amount of $26,000 paid by the Company to Stryker Corp (the “Settlement Amount”). In addition, the Company incurred $1,000 in legal fees associated with the settlement. The Settlement Amount iswas scheduled to be paid by the Company in three separate installments consisting of: (i) $5,000 on or by December 16, 2022, (ii) $8,000 at any time between January 1, 2023, and January 16, 2023, and (iii) $13,000 at any time between April 1, 2023, and April 17, 2023. ~~As of December 31, 2022, the~~The Company remitted ~~payment on~~all three payments in accordance with the ~~first~~ installment ~~of $5,000, and subsequent to year end, the Company remitted the second installment payment of $8,000~~ ~~on January 13, 2023.~~schedule.

The settlement agreement ~~does~~did not impact the Company’s ability to continue operating its business and ~~does~~did not require any changes to the Company’s existing product lines. The Settlement Amount iswas the only consideration ~~being~~ paid, and the Company is not required to make any future payments to Stryker Corp.

As of December 31 2023, the Company is not involved in any legal proceedings that could have a material adverse effect on its consolidated financial position.

NOTE 15. RELATED PARTY TRANSACTIONS

The Company has a license agreement dated July 1, 2017, for certain intellectual property with an entity that is affiliated with one of the directors of the Company, under which the Company pays a royalty of four percent (4%) of net revenue related to the licensed intellectual property for the 15 years following the date of first sale, including a minimum annual payment of $250. The term of the agreement is 20 years, and automatically renews for five-year periods thereafter. Payments to the entity under this license agreement totaled $~~249~~269, $87249 and $~~111~~87 for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, respectively. Amounts payable to this entity as of December 31, ~~2022~~2023 and ~~2021~~2022 were $~~164~~155 and $~~163~~164, respectively.

The Company paid professional services fees to a related party totaling $~~405~~327, $~~542~~405 and $~~520~~542 for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, respectively, and are included in Selling, general, and administrative expense in the Consolidated Statements of Operations and Comprehensive ~~(Loss) Income.~~Loss. Amounts payable as of December 31, ~~2022~~2023 and ~~2021~~2022 to this related party were $016 and $660, respectively.

NOTE 16. SEGMENT AND GEOGRAPHIC INFORMATION

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, which is our Chief Executive Officer, in deciding how to allocate resources and in assessing performance. We manage our business globally within one operating segment in accordance with ASC Topic 280, Segment Reporting (“ASC 280”). Segment information is consistent with how management reviews the business, makes investing and resource allocation decisions and assesses operating performance.

~~131~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(in thousands, except share and per share data)~~

Product sales attributed to a country or region includes product sales to hospitals, physicians and distributors. No individual customer accounted for more than 10% of total product sales for any of the periods presented. No customer accounted for more than 10% of consolidated accounts receivable as of December 31, ~~2022~~2023 and ~~2021.~~2022.

The following table represents total net revenue by geographic area, based on the location of the customer for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020,~~2021, respectively.


	Year Ended December 31,						Year Ended December 31,
	2022		2021		2020		2023		2022		2021
United States	$	158,105	$	130,112	$	100,547	$	183,505	$	158,105	$	130,112
International		23,278		17,352		10,434		32,884		23,278		17,352
Total net revenue	$	181,383	$	147,464	$	110,981	$	216,389	$	181,383	$	147,464

No individual country with net revenue originating outside of the United States accounted for more than 10% of consolidated net revenue for the years ended December 31, 2023, 2022 ~~2021~~ and ~~2020.~~2021.

126

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The following table represents total non-current assets, excluding deferred taxes, by geographic area for the years ended December 31, ~~2022~~2023 and ~~2021,~~2022, respectively.


	December 31, 2022		December 31, 2021		December 31, 2023		December 31, 2022
United States	$	79,458	$	51,809	$	89,531	$	79,458
International		32,127		3,206
Finland						25,032		25,581
Other International						9,617		6,546
Total assets	$	111,585	$	55,015	$	124,179	$	111,585

~~With the acquisition of Disior, total non-current assets within both the United States and Finland exceed 10% of consolidated total assets as of December 31, 2022.~~

No ~~individual country with total non-current assets outside of the United States accounted for more than 10% of consolidated total assets as of December 31, 2021.~~127

~~NOTE 17. SUBSEQUENT EVENTS~~

~~On January 30, 2023, the Company completed a public Offering of~~ ~~6,500,000~~ ~~shares of its common stock at an offering price of $17.00~~ ~~per share, which consisted of~~ ~~3,750,000~~ ~~shares of common stock issued and sold by the Company (the "Primary Shares") and~~ ~~2,750,000~~ shares of common stock sold by the selling securityholders (the "Secondary Shares"). Under the terms of the Underwriting Agreement, the Company and the selling securityholders granted the Underwriters an option exercisable for 30 days to purchase up to an additional ~~562,500~~ ~~shares and~~ ~~412,500~~ ~~shares of Common Stock, respectively (the “Option Shares”), at the public offering price, less underwriting discounts and commissions which was exercised in full on February 17, 2023.~~

~~The Company received net proceeds from the Offering of approximately $68,300, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The selling securityholders received net proceeds from the Offering of approximately $50,700, after deducting underwriting discounts and commissions. The Company did not receive any of the proceeds from the sale of shares of Common Stock by the selling securityholders.~~

~~132~~

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were effective at the reasonable assurance level.

Management’s Annual Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting has inherent limitations. Because of such limitations, there is a risk that material misstatements will not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design safeguards into the process to reduce, though not eliminate, this risk.

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, ~~2022~~2023, based on the framework in “Internal Control - Integrated Framework” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, ~~2022.~~2023.

Remediation of Prior Indication of Material Weaknesses in Internal Control over Financial Reporting

In connection with the preparation of our financial statements for the ~~years~~quarter ended ~~December 31, 2021 and 2020,~~September 30, 2023, management ~~had~~ identified ~~certain~~an indication of a material ~~weaknesses~~weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The indication of material ~~weaknesses~~weakness identified ~~during the audit process~~ related to the ~~fact~~identification of an interest rate swap agreement associated with our Zions Facility, entered into during the quarter ended March 31, 2022, that wehad not been appropriately evaluated for accounting and disclosure considerations. This indication of material weakness did not ~~design~~result in a material misstatement of our prior period consolidated annual or ~~maintain an effective control environment,~~interim financial statements. We determined that amending previously filed reports to correct the immaterial error was not required. However, the indication of material weakness could have resulted in material misstatements that may not have been prevented or detected. During the quarter ended December 31, 2023, management took steps to remediate the indication of material weakness by:

•

hiring additional legal personnel with ~~the primary contributing factor being lack of adequate controls related to manual journal entries~~significant knowledge and ~~lack of~~experience with contracts;

•

enhancing existing controls; and

•

designing and maintaining formal ~~accounting policies,~~ processes and controls to analyze, account for and disclose ~~complex transactions.~~

~~During the year ended December 31, 2022, management took steps to remediate the material weaknesses by:~~

•

~~hiring additional and qualified technical accounting and reporting personnel with significant knowledge and experience with U.S. GAAP and SEC financial reporting requirements;~~

•

~~establishing and designing internal financial reporting processes;~~

•

~~designing a control framework to ensure effective segregation of duties;~~

•

~~designing and maintaining formal accounting policies, processes and controls to analyze, account for and disclose complex transactions; and~~

•

designing and implementing controls over the enterprise resource planning system we implemented earlier in 2022 to, among other things, automate certain controls, enforce segregation of duties and facilitate the review of journal entries.contracts.

Management has determined that the Company's controls were designed and have operated effectively for a sufficient period of time and concluded that the indication of material ~~weaknesses have~~weakness has been remediated as of December 31, ~~2022.~~2023.

Changes in Internal Control Over Financial Reporting

~~133~~

Except as set forth above, there were no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended December 31, ~~2022~~2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting~~reporting.

128

Limitations on Effectiveness of Disclosure Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Item 9B. Other Information.

~~None.~~During the three months ended December 31, 2023, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

~~134~~129

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

We have adopted a code of ethics for directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees, known as the Code of Business Conduct. This code is publicly available on our website at ir.paragon28.com under the Governance section. If we make any amendments to this code other than technical, administrative or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of this code we will disclose the nature of the amendment or waiver, its effective date and to whom it applies on our website at paragon28.com or in a Current Report on Form 8-K filed with the SEC.

We will provide the remaining information that is responsive to this Item 10 regarding our directors, executive officers and corporate governance in our definitive proxy statement not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K under the caption “Information About Directors,” “Section 16 (a) Beneficial Ownership Reporting Compliance” and possibly elsewhere therein. That information is incorporated in this Item 10 by reference.

Item 11. Executive Compensation.

We will provide information that is responsive to this Item 11 regarding executive compensation in our definitive proxy statement not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K under the caption “Executive Compensation,” and possibly elsewhere therein. That information is incorporated in this Item 11 by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

We will provide information that is responsive to this Item 12 regarding ownership of securities by certain beneficial owners in our definitive proxy statement not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholders,” and possibly elsewhere therein. That information is incorporated in this Item 12 by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

We will provide information that is responsive to this Item 13 regarding transactions with related parties and director independence in our definitive proxy statement not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K under the caption “Certain Relationships and Related Transactions,” and possibly elsewhere therein. That information is incorporated in this Item 13 by reference.

Item 14. Principal Accountant Fees and Services.

We will provide information that is responsive to this Item 14 regarding principal accounting fees and services in our definitive proxy statement not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K under the caption “Principal Accountant Fees and Services,” and possibly elsewhere therein. That information is incorporated in this Item 14 by reference.

~~135~~130

PART IV

Item 15. Exhibits and Financial Statement Schedules.

(a)

Documents filed as part of this report:

(1)

Financial Statements:

See Item 8 - Financial Statements and Supplementary Data of Part II of this Report.

(2)

Financial Statement Schedules

All schedules are omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or related notes.

(3)

Exhibits required by Item 601 of Regulation S-K

The following exhibits are included within or incorporated herein by reference:

Yes

Exhibit
Number

Description
Incorporated by Reference

Form
Exhibit
Date Filed
File Number
Filed Herewith
3.1

Amended and Restated Certificate of Incorporation of Paragon 28, Inc.
8-K
3.1
10/19/2021
001-40902

3.2

Amended and Restated Bylaws
8-K
3.2
10/19/2021
001-40902

4.1

Form of Common Stock Certificate
S-1/A
4.2
10/8/2021
333-259789

4.2

Amended and Restated Investors’ Rights Agreement, dated as of July 28, 2020, by and between Paragon 28, Inc. and the investors party thereto
S-1
4.3
9/24/2021
333-259789

4.3

Description of Paragon 28, Inc.’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.

X
10.1+

2021 Incentive Plan of Paragon 28, Inc.
S-8
99.2(a)
10/20/2021
333-260367

10.4+

Omnibus Stock Option and Award Plan
S-1
10.4
9/24/2021
333-259789

10.4(a)+

Form of Award Agreement pursuant to Omnibus Stock Option and Award Plan
S-1
10.4(a)
9/24/2021
333-259789

10.5

Form of Indemnification Agreement
S-1/A
10.5
10/12/2021
333-259789

10.6

Industrial Lease Agreement, dated as of May 21, 2018, by and between Admar Grasslands, LLC and Paragon 28, Inc.
S-1
10.6
9/24/2021
333-259789

10.7

Credit and Security Agreement (Term Loan), dated of May 6, 2021, by and between Midcap Financial Trust and Paragon 28, Inc.
S-1
10.7
9/24/2021
333-259789

10.8

Credit and Security Agreement (Revolving Loan), dated as of May 6, 2021, by and between Midcap Financial Trust and Paragon 28, Inc.
S-1
10.8
9/24/2021
333-259789

10.9+

Form of Non-Employee Director Compensation Policy
S-1/A
10.9
10/8/2021
333-259789

10.11(a)+

Form of Stock Option Grant Notice and Stock Option Agreement under the 2021 Incentive Award Plan
S-1/A
10.10(a)
10/8/2021
333-259789

10.11(b)+

Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the 2021 Incentive Award Plan
S-1/A
10.10(b)
10/8/2021
333-259789

10.12+

Employment Agreement, effective as of October 8, 2021, by and between Paragon 28, Inc. and Albert DaCosta
S-1
10.12
10/8/2021
333-259789

10.13+

Employment Agreement, effective as of October 8, 2021, by and between Paragon 28, Inc. and Stephen M. Deitsch
S-1
10.13
10/8/2021
333-259789

10.14+

Employment Agreement, effective as of October 8, 2021, by and between Paragon 28, Inc. and Matthew Jarboe
S-1
10.14
10/8/2021
333-259789

10.15+

2021 Employee Stock Purchase Plan
S-8
99.3
10/20/2021
333-260367

10.16

Contract to Buy and Sell Real Estate
10-K
10.16
3/8/2022
001-40902

10.17

Business Loan Agreement, effective as of March 24, 2022, by and between Zions Bancorporation, N.A., d/b/a Vectra Bank Colorado, and Paragon 28, Inc.
10-Q
10.1
5/9/2022
001-40902


Exhibit Number	Description	Incorporated by Reference
Exhibit Number	Description	Form	Exhibit	Date Filed	File Number	Filed Herewith
3.1	Amended and Restated Certificate of Incorporation of Paragon 28, Inc.	8-K	3.1	10/19/2021	001-40902
3.1.1	Certificate of Amendment to Amended and Restated Certificate of Incorporation of Paragon 28, Inc.	8-K	3.1.1	5/19/2023	001-40902
3.2	Second Amended and Restated Bylaws	8-K	3.2	5/19/2023	001-40902
4.1	Form of Common Stock Certificate	S-1/A	4.2	10/8/2021	333-259789
4.2	Amended and Restated Investors’ Rights Agreement, dated as of July 28, 2020, by and between Paragon 28, Inc. and the investors party thereto	S-1	4.3	9/24/2021	333-259789
4.3	Description of Paragon 28, Inc.’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934.					X
10.1+	2021 Incentive Plan of Paragon 28, Inc.	S-8	99.2(a)	10/20/2021	333-260367
10.2+	Omnibus Stock Option and Award Plan	S-1	10.4	9/24/2021	333-259789
10.2(a)+	Form of Award Agreement pursuant to Omnibus Stock Option and Award Plan	S-1	10.4(a)	9/24/2021	333-259789
10.3	Form of Indemnification Agreement	S-1/A	10.5	10/12/2021	333-259789
10.4+	Form of Non-Employee Director Compensation Policy	S-1/A	10.9	10/8/2021	333-259789
10.5(a)+	Form of Stock Option Grant Notice and Stock Option Agreement under the 2021 Incentive Award Plan	S-1/A	10.10(a)	10/8/2021	333-259789
10.5(b)+	Form of Restricted Stock Unit Award Grant Notice and Restricted Stock Unit Award Agreement under the 2021 Incentive Award Plan	S-1/A	10.10(b)	10/8/2021	333-259789
10.6+	Employment Agreement, effective as of October 8, 2021, by and between Paragon 28, Inc. and Albert DaCosta	S-1	10.12	10/8/2021	333-259789
10.7+	Employment Agreement, effective as of October 8, 2021, by and between Paragon 28, Inc. and Stephen M. Deitsch	S-1	10.13	10/8/2021	333-259789
10.8+	Employment Agreement, effective as of October 8, 2021, by and between Paragon 28, Inc. and Matthew Jarboe	S-1	10.14	10/8/2021	333-259789
10.9+	2021 Employee Stock Purchase Plan	S-8	99.3	10/20/2021	333-260367
10.10	Contract to Buy and Sell Real Estate	10-K	10.16	3/8/2022	001-40902
10.11	Business Loan Agreement, effective as of March 24, 2022, by and between Zions Bancorporation, N.A., d/b/a Vectra Bank Colorado, and Paragon 28, Inc.	10-Q	10.1	5/9/2022	001-40902
10.12	First Amendment to Business Loan Agreement, effective as of November 10, 2022, by and between Zions Bancorporation, N.A. dba Vectra Bank Colorado and Paragon 28, Inc.	10-Q	10.3	11/10/2022	001-40902

~~136~~131

10.18

Amendment No. 3 to Credit and Security Agreement (Revolving Loan), effective as of March 24, 2022, by and between Midcap Funding IV Trust and Paragon 28, Inc.
10-Q
10.2
5/9/2022
001-40902

10.19

Amendment No. 2 to Credit and Security Agreement (Term Loan), effective as of March 24, 2022, by and between Midcap Financial Trust, and Paragon 28 Inc.
10-Q
10.3
5/9/2022
001-40902

10.20

Third Amendment to Credit and Security Agreement (Term Loan), dated as of November 9, 2022, by and among Midcap Financial Trust, the lenders party thereto, Paragon 28, Inc and Paragon Advanced Technologies Inc.
10-Q
10.1
11/10/2022
001-40902

10.21

Fourth Amendment to Credit and Security Agreement (Revolving Loan), dated as of November 9, 2022, by and among Midcap Funding IV Trust, the lenders party thereto, Paragon 28, Inc. and Paragon Advanced Technologies Inc.
10-Q
10.2
11/10/2022
001-40902

10.22

First Amendment to Business Loan Agreement, effective as of November 10, 2022, by and between Zions Bancorporation, N.A. dba Vectra Bank Colorado and Paragon 28, Inc.
10-Q
10.3
11/10/2022
001-40902

10.23^

Settlement Agreement, effective as of November 28, 2022, between Wright Medical Technology, Inc. and Paragon 28, Inc.

X
21.1

List of Subsidiaries.

X
23.1

Consent of Independent Registered Public Accounting Firm

X
24.1

Power of Attorney (included in the signature page to this Form 10-K)

X
31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

X
32.1†

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X
32.2†

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

X
101.INS

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Data File (embedded within the Inline XBRL document)


10.13	Second Amendment to Business Loan Agreement, effective as of November 2, 2023, by and between Paragon 28, Inc. and Zions Bancorporation, N.A. DBA Vectra Bank Colorado.	8-K	10.2	11/07/2023	001-40902
10.14^	Credit Agreement, dated as of November 2, 2023, among the Company, as a borrower, Paragon Advanced Technologies, Inc., as a borrower, the lenders party thereto, Ares Capital Corporation, as administrative agent and as collateral agent, and ACF FINCO I LP, as revolving agent.	8-K	10.1	11/07/2023	001-40902
10.15+	Employment Agreement, effective as of July 27, 2023, by and between Paragon 28, Inc. and Robert McCormack	10-Q	10.1	11/8/2023	001-40902
21.1	List of Subsidiaries.					X
23.1	Consent of Independent Registered Public Accounting Firm					X
24.1	Power of Attorney (included in the signature page to this Form 10-K)					X
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1†	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2†	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
97.1	Paragon 28, Inc. Policy for Recovery of Erroneously Awarded Compensation					X
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

+ Indicates management contract or compensatory plan.

^ Registrant has (i) redacted portions of the exhibit as permitted under Item 601(b)(10) of Regulation S-K, (ii) omitted schedules and exhibits pursuant to Item 601(a)(5) of Regulation S-K and (iii) redacted certain other information as permitted under Item 601(a)(6) of Regulation S-K. The Registrant agrees to furnish supplementally a copy of the unredacted and complete copy of the exhibit to the SEC upon request.

† The certifications attached as Exhibit 32.1 and 32.2 that accompany this Annual Report on Form 10-K are deemed furnished and not filed with the U.S. Securities and Exchange Commission and are not to be incorporated by reference into any filing of Paragon 28, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

~~137~~

Item 16. Form 10-K Summary

None.

~~138~~132

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	PARAGON 28, INC.

Date: ~~March 2, 2023~~February 29, 2024	By:	/s/ Albert DaCosta
	Name:	Albert DaCosta
	Title:	Chief Executive Officer


	PARAGON 28, INC.

Date: ~~March 2, 2023~~February 29, 2024	By:	/s/ Stephen M. Deitsch
	Name:	Stephen M. Deitsch
	Title:	Chief Financial Officer

~~139~~133

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Albert DaCosta, ~~and~~ Stephen M. Deitsch, and Robert McCormack attorneys-in-fact, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10 K, and to file the same, with exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute, may do or cause to be done by virtue thereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.


Name	Title	Date

/s/ Albert DaCosta	Chairman and Chief Executive Officer	~~March 2, 2023~~February 29, 2024
~~Name~~Albert DaCosta	(Principal Executive Officer)

/s/ Stephen M. Deitsch	Chief Financial Officer	~~March 2, 2023~~February 29, 2024
~~Name~~Stephen M. Deitsch	(Principal Financial Officer)

/s/ Erik Mickelson	Chief Accounting Officer and Controller	~~March 2, 2023~~February 29, 2024
~~Name~~Erik Mickelson	(Principal Accounting Officer)

/s/ Thomas Schnettler	Director	~~March 2, 2023~~February 29, 2024
~~Name~~Thomas Schnettler

/s/ Quentin Blackford	Director	~~March 2, 2023~~February 29, 2024
~~Name~~Quentin Blackford

/s/ Alfred Grunwald	Director	~~March 2, 2023~~February 29, 2024
~~Name~~Alfred Grunwald

/s/ ~~Kris~~B. Kristine Johnson	Director	~~March 2, 2023~~February 29, 2024
~~Name~~B. Kristine Johnson

/s/ Stephen Oesterle	Director	~~March 2, 2023~~February 29, 2024
~~Name~~Stephen Oesterle

/s/ Meghan Scanlon	Director	~~March 2, 2023~~February 29, 2024
~~Name~~Meghan Scanlon

/s/ Kristina Wright	Director	~~March 2, 2023~~February 29, 2024
~~Name~~Kristina Wright

~~140~~134


Delaware	27-3170186
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
14445 Grasslands Drive Englewood, CO	80112
(Address of principal executive offices)	(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	FNA	The New York Stock Exchange


Large accelerated ~~filer~~	☐	~~Accelerated~~ filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☒☐




~~Fracture Fixation~~

(Ankle fracture represented in image above)	• ~~Condition:~~ ~~A fracture, or broken bone, can be a result of an injury or may occur with overuse (stress fracture) in any bone in the foot and ankle.~~ • ~~Treatment(s):~~ ~~Surgical treatment of fractures includes reduction, or putting the bones back together, and securing the fracture with implants such as plates and screws.~~
~~Hallux Valgus, or Bunions~~

	• ~~Condition:~~ ~~A common foot deformity where a bump develops on the inside of the foot at the big toe joint. The condition can progress to cause significant loss of function, pain and reduced quality of life.~~ • ~~Treatment(s):~~ ~~Bunion surgery can vary based on severity of the deformity, patient factors and surgeon preference, but is primarily addressed through bone cuts, bone fusion and/or soft tissue correction.~~

~~Hammertoe~~

	• ~~Condition:~~ ~~Hammertoes can affect all toes, but typically affects the 2~~nd~~, 3~~rd~~, and 4~~th ~~toe, when a tendon imbalance causes the toe(s) to bend and contract. Often associated with bunions.~~ • ~~Treatment(s):~~ ~~Surgical treatment of hammertoes can be achieved by fusing the bones in a straight position with pins, screws or other implants, or by addressing the tendon/soft tissue imbalance directly.~~

~~Ankle~~	~~Ankle includes all non-fracture ankle conditions surrounding the ankle including surrounding soft tissue. Some conditions of the ankle are highlighted below~~

~~Ankle — Ankle Arthritis~~

	• ~~Condition:~~ ~~Ankle arthritis is most commonly a result of trauma to the ankle, such as repeated ankle sprains or a previous ankle fracture.~~ • ~~Treatment(s):~~ Ankle arthritis is typically treated with either ankle arthrodesis, which is the fusion of the ankle joint using screws, plates, and/or intramedullary nailing, which is nail within the bone without any protrusion, or total ankle arthroplasty, which is the replacement of the ankle joint. Both total ankle replacement and ankle arthrodesis are intended to decrease pain in the ankle, but ankle joint replacement allows for the patient to continue moving their ankle.

~~Ankle — Avascular Necrosis of the Ankle~~

	• ~~Condition:~~ The talus bone sits beneath the tibia, forming the bottom of the ankle joint. The blood supply to the talus can be disrupted if the talus is fractured or if certain medications disrupt the flow of blood to this bone, which is termed avascular necrosis. Without blood to this bone, the bone dies and eventually collapses. The necrosed portion of this bone causes pain and must often be removed. • ~~Treatment(s):~~ ~~At worst, treatment may include amputation, but other options exist, such as a complicated fusion or alternative spacers in place of the talus.~~




~~Progressive Collapsing Foot Deformity (PCFD), or Flatfoot~~

	• ~~Condition:~~ ~~A 3-dimensional foot deformity that is progressive in nature, affecting different parts of the foot to create a “fallen arch” appearance.~~ • ~~Treatment(s):~~ ~~Correction of flatfoot may involve cutting and re-positioning bones, fusing bones together and/or repairing damaged soft tissues.~~

~~Charcot Foot~~

	• ~~Condition:~~ A rare condition that can develop in diabetic patients or others with longstanding peripheral neuropathy, which is a loss of sensation in the hands and feet. In people with charcot foot, the bones become weak, fracture, and/or dislocate without the patient feeling their foot. • ~~Treatment(s):~~ Surgical treatment may be complex, including bone cuts to help the foot become realigned and reduce pressure points for ulcer prevention/treatment. The bones may be fixed with internal fixation, such as plates, nails, beams, and screws, external fixation, or a combination of both.

~~Orthobiologics~~

	• Orthobiologics are biological substances used to help injuries and conditions heal more quickly across all major procedural segments within foot and ankle. Orthobiologics come in many forms including bone wedges, grafts, demineralized bone matrices, bone void fillers, synthetic materials, amniotic products, and a biocompatible collagen matrix.


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


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


		Page
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	3936
Item 1B.	Unresolved Staff Comments	8680
Item 1C.	Cybersecurity	81
Item 2.	Properties	8682
Item 3.	Legal Proceedings	8682
Item 4.	Mine Safety Disclosures	8782

PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8883
Item 6.	[Reserved]	8984
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9085
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	~~102~~95
Item 8.	Financial Statements and Supplementary Data	~~103~~97
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	~~133~~128
Item 9A.	Controls and Procedures	~~133~~128
Item 9B.	Other Information	~~134~~129
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	~~134~~129

PART III
Item 10.	Directors, Executive Officers and Corporate Governance	~~135~~130
Item 11.	Executive Compensation	~~135~~130
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	~~135~~130
Item 13.	Certain Relationships and Related Transactions, and Director Independence	~~135~~130
Item 14.	Principal Accountant Fees and Services	~~135~~130

PART IV
Item 15.	Exhibits and Financial Statement Schedules	~~136~~131
Item 16.	Form 10-K Summary	~~138~~132


	Estimated		Estimated		Projected
	2022 Market size		2026 Market size		2022-2026
Foot and Ankle Market Segment	(in millions)				CAGR
Fracture Fixation	$	1,400	$	1,700		5	%
Forefoot or hallux valgas (1)	$	1,500	$	2,200		9	%
Ankle (2)	$	500	$	700		9	%
Flatfoot or PCFD	$	400	$	400		3	%
Charcot Foot	$	200	$	200		4	%
Orthobiologics (3)	$	600	$	800		6	%
Total Global Market	$	4,600	$	6,000		7	%


	Estimated		Estimated
	2023 Market Size		Annual
Foot and Ankle Market Segment	(in millions)		Growth
Forefoot(1)	$	1,700		10	%
Fracture Fixation		1,500		5	%
Ankle(2)		500		9	%
Flatfoot or PCFD		400		3	%
Charcot Foot		200		4	%
Orthobiologics(3)		600		6	%
Total Global Market	$	4,900		7	%



	Lisfranc (midfoot) Plating System • 5 anatomically contoured designs • 28 total offerings • Designed to minimize soft tissue irritation


	Lapidus Plating System • Anatomically contoured • Guide allows for placement of cross-screw while maintaining on-axis placement of plate screws

	Lateral Column Plating System • Anatomically contoured • Plate and screw construct designed to maintain anatomic alignment of the lateral column

	Calcaneus (heel bone) Slide Plating System • Angled screw accommodates a locking screw for added dimension of stability • May result in less hardware removal cases • Designed to not violate growth plate of the calcaneus in pediatric patients

	NC Fusion Plating System (fusion of two bones on the inside middle of the foot) • Anatomically contoured • Designed to achieve compression across multiple joints • Built-in alignment templating


	10/15/21		10/21		11/21		12/21		1/22		2/22		3/22		4/22		5/22		6/22		7/22		8/22		9/22		10/22		11/22		12/22
																																	10/15/21		12/21		3/22		6/22		9/22		12/22		3/23		6/23		9/23		12/23
Paragon 28, Inc.		100.00		112.45		100.27		94.55		80.44		87.12		89.47		96.04		95.78		84.82		101.55		93.80		95.24		106.73		109.57		102.14		100.00		94.55		89.47		84.82		95.24		102.14		91.23		94.82		67.08		66.44
Russell 2000		100.00		104.25		99.91		102.14		92.31		93.29		94.45		85.09		85.22		78.21		86.38		84.61		76.50		84.92		86.91		81.27		100.00		102.14		94.45		78.21		76.50		81.27		83.49		87.84		83.33		95.03
S&P Health Care		100.00		105.16		102.01		111.17		103.66		102.60		108.31		103.21		104.70		101.91		105.29		99.21		96.63		106.02		111.12		109.00
S&P 500 Health Care																																		100.00		111.17		108.31		101.91		96.63		109.00		104.31		107.39		104.54		111.24


			Measurement
	Preliminary allocation		period adjustments			Adjusted allocation
Assets acquired:
Cash and cash equivalents	$	1,192	$	—		$	1,192
Other current assets		410		—			410
Intangible assets		4,900		1,900			6,800
Goodwill		20,343		(1,207	)		19,136
Total assets acquired	$	26,845	$	693		$	27,538

Liabilities assumed:
Accruals and other current liabilities	$	615	$	—		$	615
Deferred tax liabilities, net		287		390			677
Total liabilities assumed	$	902		390		$	1,292
Net assets acquired	$	25,943	$	303		$	26,246


Consideration Paid
Cash consideration	$	15,000
Contingent consideration		2,870
Total consideration	$	17,870


~~Assets acquired:~~
~~Accounts receivable~~	$	~~761~~
~~Inventory~~		~~113~~
~~Intangible assets~~		~~11,560~~
~~Goodwill~~		~~6,329~~
~~Total Assets Acquired~~		~~18,763~~

~~Liabilities assumed:~~
~~Accounts payable~~		~~796~~
~~Accrued expenses~~	$	97
~~Total Liabilities Assumed~~		~~893~~
~~Net assets acquired~~	$	~~17,870~~


Assets acquired:
Accounts receivable	$	761
Inventory		113
Intangible assets		11,560
Goodwill		6,329
Total assets acquired		18,763

Liabilities assumed:
Accounts payable		796
Accrued expenses		97
Total liabilities assumed		893
Net assets acquired	$	17,870


	Fair Value		Estimated Useful Life (in years)
Noncompete arrangements	$	30	3
Customer relationships		240	3
Developed technology		11,290	12
	$	11,560


		December 31,						Estimated Life	December 31,
	Estimated Life (in years)	2022			2021			(in years)	2023			2022
Surgical instrumentation	3 - 5	$	44,625		$	38,820		3 - 5	$	60,100		$	44,625
Land	Indefinite		3,625			—				3,625			3,625
Buildings	25		14,178			—		25		20,190			14,178
Leasehold improvements	Various		7,961			7,850		Various		8,307			7,961
Computer and software	5		11,562			4,791		3 - 5		16,546			11,562
Machinery and equipment	5		2,815			2,396		5		3,843			2,815
Office equipment and furniture	5 - 7		2,049			2,040		5 - 7		2,267			2,049
Construction in progress	Various		5,817			3,551		Various		288			5,817
Other	Various		1,046			—		5 - 15		2,785			1,046
			93,678			59,448				117,951			93,678
Less: accumulated depreciation			(31,740	)		(27,267	)			(43,829	)		(31,740	)
Property and equipment, net		$	61,938		$	32,181			$	74,122		$	61,938


	Estimated Useful Life (in years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trademarks and tradenames, indefinite-lived	Indefinite	$	987	$	—	$	987
Patents, definite-lived	17.6		7,900		2,649		5,251
Customer relationships	3-7		1,733		567		1,165
Developed technology	12		17,690		3,424		14,267
Other intangibles	3		30		26		4
Total intangible assets, net		$	28,340	$	6,666	$	21,674


2023	$	2,045
2024		1,993	$	1,981
2025		1,954		1,940
2026		1,954		1,940
2027		1,953		1,940
2028				1,929


	Level 1		Level 2		Level 3		Total
Financial Assets:
Interest rate swap	$	—		991		—	$	991
Financial Liabilities:
Contingent consideration	$	—		—		340	$	340


Balance, December 31, 2022	$	3,640
Achieved milestones paid		(2,500	)
Achieved milestones reclassified to accrued expenses		(1,000	)
Change in fair value of earn-out liabilities		200
Balance, December 31, 2023	340


Balance, December 31, 2021	$	2,310
Acquisition date fair value of earn-out liabilities		6,550
Achieved milestones paid		(1,000	)
Achieved milestones reclassified to accrued expenses		(5,500	)
Change in fair value of earn-out liabilities		1,280
Balance, December 31, 2022	$	3,640


	Restricted Stock Units			Weighted-Average Fair Value
Outstanding, December 31, 2021		79,886		$	17.84
Granted		929,090			17.71
Vested		(36,004	)		17.36
Forfeited or expired		(8,918	)		16.82
Outstanding, December 31, 2022		964,054		$	17.74
Vested and expected to vest at December 31, 2022		964,054		$	17.74


10.18	Amendment No. 3 to Credit and Security Agreement (Revolving Loan), effective as of March 24, 2022, by and between Midcap Funding IV Trust and Paragon 28, Inc.	10-Q	10.2	5/9/2022	001-40902
10.19	Amendment No. 2 to Credit and Security Agreement (Term Loan), effective as of March 24, 2022, by and between Midcap Financial Trust, and Paragon 28 Inc.	10-Q	10.3	5/9/2022	001-40902
10.20	Third Amendment to Credit and Security Agreement (Term Loan), dated as of November 9, 2022, by and among Midcap Financial Trust, the lenders party thereto, Paragon 28, Inc and Paragon Advanced Technologies Inc.	10-Q	10.1	11/10/2022	001-40902
10.21	Fourth Amendment to Credit and Security Agreement (Revolving Loan), dated as of November 9, 2022, by and among Midcap Funding IV Trust, the lenders party thereto, Paragon 28, Inc. and Paragon Advanced Technologies Inc.	10-Q	10.2	11/10/2022	001-40902
10.22	First Amendment to Business Loan Agreement, effective as of November 10, 2022, by and between Zions Bancorporation, N.A. dba Vectra Bank Colorado and Paragon 28, Inc.	10-Q	10.3	11/10/2022	001-40902
10.23^	Settlement Agreement, effective as of November 28, 2022, between Wright Medical Technology, Inc. and Paragon 28, Inc.					X
21.1	List of Subsidiaries.					X
23.1	Consent of Independent Registered Public Accounting Firm					X
24.1	Power of Attorney (included in the signature page to this Form 10-K)					X
31.1	Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
31.2	Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.					X
32.1†	Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
32.2†	Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.					X
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

Balance, December 31, 2021

Acquisitions

Balance, December 31, 2022