SeaSpine
Annual Report 2018

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, DC 20549 FORM 10-K (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the fiscal year ended December 31, 2018oroTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to COMMISSION FILE NO. 001-36905 SeaSpine Holdings Corporation(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 47-3251758(STATE OR OTHER JURISDICTION OFINCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYERIDENTIFICATION NO.) 5770 Armada Drive, Carlsbad, California 92008(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (760) 727-8399SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:Title of Each Class Name of Exchange on Which RegisteredCommon Stock, Par Value $.01 Per Share The Nasdaq Stock Market LLCSECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:NONE Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act. Yes o No xIndicate 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 preceding12 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 past90 days. Yes x No oIndicate 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 ofthis chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No oIndicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x 1 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.Large accelerated fileroAccelerated filerx Non-accelerated fileroSmaller reporting companyx Emerging growth companyx 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 financialaccounting standards provided pursuant to Section 13(a) of the Exchange Act. oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x As of June 30, 2018, the aggregate market value of the registrant’s common stock held by non-affiliates was approximately $145,318,669 based upon the closing sales price of theregistrant’s common stock on The Nasdaq Global Select Market on such date. The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as ofFebruary 25, 2019 was 18,880,072.DOCUMENTS INCORPORATED BY REFERENCE:Certain portions of the registrant’s definitive proxy statement relating to its scheduled May 29, 2019 Annual Meeting of Stockholders are incorporated by reference in Part III ofthis report. 2Table of ContentsSEASPINE HOLDINGS CORPORATIONINDEX PageNumberPART I Item 1. Business4Item 1A. Risk Factors15Item 1B. Unresolved Staff Comments41Item 2. Properties42Item 3. Legal Proceedings43Item 4. Mine Safety Disclosures43 PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities43Item 6. Selected Financial Data44Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations44Item 7A. Quantitative and Qualitative Disclosures About Market Risk56Item 8. Financial Statements and Supplementary Data56Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures56Item 9A. Controls and Procedures56Item 9B. Other Information57 PART III Item 10. Directors, Executive Officers and Corporate Governance58Item 11. Executive Compensation58Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters58Item 13. Certain Relationships, Related Transactions, and Director Independence58Item 14. Principal Accountant Fees and Services58 PART IV Item 15. Exhibits and Financial Statements Schedules59Item 16. Form 10-K Summary65SIGNATURES66 3PART IThis Annual Report on Form 10-K (this “Form 10-K” or this “report”) contains forward-looking statements, within the meaning of the Private SecuritiesLitigation Reform Act of 1995, that involve risks and uncertainties. Many of the forward-looking statements are located in Part II, Item 7 of this report underthe heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking statements provide currentexpectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact.Forward-looking statements can also be identified by words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,”“predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms. Forward-looking statements are not guarantees of future performance and ouractual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such differences include, butare not limited to, those discussed in Part I, Item 1A of this report under the heading “Risk Factors,” which are incorporated herein by reference. We assumeno obligation to revise or update any forward-looking statements for any reason, except as required by law.The terms “we,” “us,” “our,” “SeaSpine” or the “Company” refer collectively to SeaSpine Holdings Corporation and its wholly-owned subsidiaries, unlessotherwise stated. All information presented in this report is based on our fiscal year. Unless otherwise stated, references to particular years, quarters,months or periods refer to our fiscal years ending December 31 and the associated quarters, months and periods of those fiscal years.ITEM 1. BUSINESSOverviewSeaSpine is a global medical technology company focused on the design, development and commercialization of surgical solutions for thetreatment of patients suffering from spinal disorders. SeaSpine has a comprehensive portfolio of orthobiologics and spinal implants solutions to meet thevarying combinations of products that neurosurgeons and orthopedic spine surgeons need to perform fusion procedures on the lumbar, thoracic and cervicalspine. SeaSpine’s orthobiologics products consist of a broad range of advanced and traditional bone graft substitutes that are designed to improve bonefusion rates following a wide range of orthopedic surgeries, including spine, hip, and extremities procedures. SeaSpine’s spinal implants portfolio consists ofan extensive line of products to facilitate spinal fusion in degenerative, minimally invasive surgery (MIS), and complex spinal deformity procedures.Expertise in both orthobiologic sciences and spinal implants product development allows SeaSpine to offer its surgeon customers a differentiated portfolioand a complete solution to meet their fusion requirements. SeaSpine currently markets its products in the United States and in approximately 30 countriesworldwide.SeaSpine was incorporated in Delaware on February 12, 2015 in connection with the spin-off of the orthobiologics and spinal implants business ofIntegra LifeSciences Holdings Corporation (Integra), a diversified medical technology company. The spin-off occurred on July 1, 2015. Our corporate officesare at 5770 Armada Drive, Carlsbad, California.Spine AnatomyThe spine is a column of bone and cartilage that consists of 33 interlocking bones, called vertebrae, which stack upon each other at a slight angle toform the spine’s S-shaped curve. Except for the bottom nine vertebrae, the vertebrae are separated by thin regions of cartilage known as intervertebral discs,which act as shock absorbers that facilitate motion and absorb stress during movement. The spine protects the spinal cord and acts as the core of the humanskeleton, extending from the base of the skull to the pelvis. Soft tissues, including ligaments, tendons and muscles, are attached to the vertebrae and providestability to the vertebral segment. The spinal cord carries nerves that exit through openings between the vertebrae and deliver sensation and control to thebody. Below is a diagram of the lateral view of the spine:4 The spine consists of five regions, of which the cervical, thoracic and lumbar are the three primary regions. The cervical region consists of the sevenvertebrae extending from the base of the skull to the shoulders. The thoracic, or central, region consists of the next twelve vertebrae in the middle of the back.Each vertebra in the thoracic region is connected to two ribs that protect the body’s vital organs. Below the thoracic region, the lumbar region consists of fivevertebrae in the lower back and is the primary load-bearing region of the spine. The thoracic and lumbar regions are commonly called thoracolumbar andmany of the products and procedures to treat these regions are similar. The final two regions of the spine, the sacrum and coccyx, consist of nine naturallyfused vertebrae connected to the hip bones to provide support for the spine.In spinal fusion procedures, two or more vertebrae are fused to eliminate instability as a result of deformity, degeneration or trauma affecting thevertebrae and intervertebral discs. During the procedure, spinal implant products are used to decompress, align, and stabilize the spine and the surgeon willoften remove the damaged intervertebral disc and replace it with a bone graft substitute to allow new bone to grow and to fuse the affected vertebrae together.In addition to the bone graft substitute, the surgeon may replace the removed disc with an interbody device. An interbody device may be made out ofmachined bone, titanium, or polyetheretherketone (PEEK), and is designed to maintain spine alignment and appropriate spacing while allowing bone to growbetween the vertebrae to achieve bone fusion. Procedures that include the implantation of interbody devices are often referred to by the surgical approachused to place the interbody device in the disc space. A lateral lumbar interbody fusion uses an approach that accesses the spine from the side of the patient’sbody; a posterior lateral interbody fusion uses a direct posterior approach from the patient’s back; a transforaminal lumbar interbody fusion uses an angledapproach from either the left or right side of the back; and an anterior lumbar interbody fusion uses a direct anterior approach from the patient’s front(stomach) area.Our Competitive StrengthsWe provide a broad portfolio of advanced and traditional orthobiologics and spinal implant solutions to assist our surgeon customers in treating patientssuffering from spinal and other orthopedic disorders. Our executive management team has extensive experience in the spine and medical technologyindustries. We believe that our management team, combined with the following competitive strengths, will enable us to continue to grow our revenue andincrease our presence in the markets we serve.•An extensive and differentiated offering of orthobiologics products. We offer a broad range of differentiated orthobiologics products that betterpositions us to meet the needs of our surgeon customers compared to our competitors who focus primarily on spinal implant products. For example,our proprietary Accell bone matrix technology is designed to provide both immediate and sustained availability of the natural array ofosteoinductive bone proteins and, in addition, provides flexibility in handling as a result of its reverse-phase carrier. We estimate we have a 14%share of the demineralized bone matrices (DBM) market in the United States.•A range of innovative, PEEK interbody devices that incorporate NanoMetalene, a proprietary titanium surface technology. We currently offer awide range of sterile-packaged interbody devices that incorporate our proprietaryNanoMetalene surface technology and we expect to continue to launch additional products incorporating NanoMetalene technology.NanoMetalene describes a sub-micron layer of commercially pure titanium molecularly bonded to a PEEK implant using a high-energy, low-temperature process called atomic fusion deposition. NanoMetalene is designed to provide implants a bone-friendly titanium surface on endplatesand throughout graft apertures, while retaining the benefits associated with traditional PEEK implants, such as biocompatibility, a modulus ofelasticity similar to bone, and excellent radiographic visibility for post-operative imaging. We have exclusive rights to NanoMetalene technologywithin the spine market.5•A synergistic channel strategy for orthobiologics products. Our dual branding strategy that allows us to market our orthobiologics products throughindependent sales agents who carry competitive spinal implant products. For example, we market one of our advanced DBM products as both AccellEvo3 and OsteoSurge300, which allows sales agents who sell spinal implant products competitive with ours to continue to represent ourorthobiologics products. We believe this dual branding strategy allows us to penetrate a greater number of customer accounts than we wouldotherwise serve if we marketed our orthobiologics products under a single brand.•Our own orthobiologics design, development and manufacturing operations. While many of our spinal implant competitors source theirorthobiologics products from tissue banks or original equipment manufacturers to supplement their spinal implant portfolio, we design and developthe vast majority of our orthobiologics products internally and manufacture them at our facility in Irvine, California. By controlling themanufacturing processes, we should be able to better control the cost of our products and provide operational leverage with volume increases.Our StrategyOur goal is to continue to scale our business in order to enhance our market position in orthobiologics and become a leader in the spinal implant market. Toachieve our goal, we are investing in these strategies:•Research and development to bring new products and techniques to market. We have recently increased, and intend to continue to increase, ourannual research and development spending as a percentage of revenue in an effort to drive higher revenue growth through new product sales. Weplan to continue to invest resources and to work with our surgeon customers to understand their needs and develop new and next-generationorthobiologics and spinal implant products designed to improve clinical outcomes. We employ dedicated orthobiologics engineers and scientistswith expertise in material sciences, and biology and hardware engineers with expertise in product design and development.•Commercial infrastructure to further penetrate the U.S. orthobiologics and spinal implant markets and increase our focus in internationalmarkets where we currently have a presence. We have recently increased, and intend to continue to increase, the quality, size, exclusivity andgeographic breadth of our network of independent sales agents in the United States. To support these efforts, we are investing more in, and aredeveloping comprehensive support for, sales agent and surgeon training and education programs. We have a hands-on cadaveric training facility inCarlsbad, California where we provide training for surgeons and sales agents. In addition, we plan to increase our presence within teachinginstitutions that provide spinal surgery fellowship programs to educate new surgeons on the use of our products. We believe these combined effortswill help surgeons become adept with our spinal implant products and techniques, thereby improving outcomes for their patients. Internationally,we intend to continue to focus our sales and marketing efforts on expanding and strengthening our presence in those markets where we currentlyhave relationships with stocking distributors and to selectively expand into new markets.•Clinical affairs programs to generate postmarket data. We plan to invest in additional clinical development programs designed to generate peer-reviewed clinical data that we believe will support the performance of select orthobiologics and spinal implant solutions that may be compared tocompeting technologies. We believe that our NanoMetalene technology may have advantages over many existing implant materials and surfaceoptions, and that our fibers-based OsteoStrand and OsteoStrand Plus tissue products are as efficacious as, and more cost effective than, higher costcellular allografts bone grafts. We have initiated studies to generate data on the surface characteristics of titanium and the mechanical properties andradiolucency of PEEK interbody implants, which NanoMetalene technology combines into a single device, and on the performance of our fibers-based products.•Opportunities to enhance our product offering through strategic alliances and acquisitions. We currently market several products underdistribution agreements and licenses with third-parties. We intend to continue to pursue alliances and acquisition opportunities that we believe willprovide us with technologies to strengthen our market position and grow our business.Our ProductsWe offer a portfolio of orthobiologics and spinal implant products for the treatment of patients suffering from spinal and other orthopedic disorders.Information regarding the amount and percentage of total revenue contributed by our orthobiologics and spinal implant products for each of the last twofiscal years may be found in Part II, Item 7 of this report under the sections entitled “Year Ended December 31, 2018 Compared to Year Ended December 31,2017—Revenue” and in Part II, Item 8 of this report in the Notes to Consolidated Financial Statements in Note 11, “Segment and Geographic Information.”6OrthobiologicsOur orthobiologics products are used in orthopedic and dental procedures and consist of a broad range of traditional and advanced bone graftsubstitutes intended to address the key elements of bone regeneration - osteoinduction, osteoconduction and osteogenesis. Osteoinduction refers to theability of an implant to stimulate bone forming cells based primarily on soluble growth factor signals. Osteoconduction refers to the ability of an implant topromote bone formation based primarily on a physical matrix or scaffold, when placed adjacent to viable bone tissue. Osteogenesis refers to the ability topromote new bone formation based primarily on the cells within the bone graft.Bone graft substitutes composed of natural biologic proteins and synthetic materials are designed to reduce the amount of autologous bone graftsneeded for spinal fusion procedures. Bone graft substitutes, depending on their design, can be used entirely in place of the patient’s own bone tissue, calledan autograft, or by extending the volume of bone graft material from the patient by combining it with the bone graft substitute.Our orthobiologics portfolio includes particulate and fibers-based DBM, collagen ceramic matrices, demineralized cancellous allograft bone andsynthetic bone void fillers. We offer our orthobiologics products in the form of fibers, putties, pastes, strips and DBM in a resorbable mesh for a range ofsurgical applications.Demineralized Bone Matrix and Accell TechnologyDBM formulations are designed to provide proteins and other growth factors at varying stages of the bone healing process. Developed in the early1990s, our first-generation DBM formulations combined particulate-demineralized bone matrix with an inert carrier engineered for easy graft handling andgraft containment. The carrier is a biocompatible synthetic polymer with an advantageous property that allows the product to remain moldable at roomtemperature, but becomes more viscous at body temperature once implanted, which we call reverse-phase. Subsequently, we developed a proprietary processto transform particulate-based DBM into a dispersed form to enhance the performance of the graft material. The result of this process was a DBM product wecall Accell bone matrix. Accell bone matrix is an open structured, dispersed form of DBM, which increases the bioavailability of bone proteins at an earliertime in the healing cascade. Standard particulate DBM is dense and therefore the bone proteins release more slowly and in a sustained manner over time. Theproperties of Accell bone matrix and DBM are both desirable, which is why our advanced DBM products include both components to harness both the earlyand sustained release of bone proteins. Our Accell Evo3 and OsteoSurge 300 DBM products provide an optimized formulation of Accell bone matrix,particulate-based DBM, and our reverse-phase carrier. These products have a handling property for bone grafting procedures and contain three times theamount of the Accell bone matrix compared to earlier products. We believe that providing both the early-stage and late-stage accessibility of osteoinductivebone proteins provided by a composite of Accell bone matrix and the particulate-based demineralized matrix differentiates our product compared tocompetitive DBM products.In 2017, we launched our OsteoStrand™ and Strand™ Demineralized Bone Fibers product lines as well as our OsteoStrand Plus and Strand Plus productlines, which incorporate our proprietary Accell Bone Matrix. These products provide 100% demineralized bone fibers and are designed to facilitate and aidin fusion by maximizing osteoinductive content while providing an improved conductive matrix. The fibers were developed through a process that evaluateda variety of fiber geometries to optimize osteoinductivity and osteoconductivity, intraoperative handling and controlled expansion in order to facilitatesurgical placement, to maintain surgical position and to allow the fibers to better fill the surgical defect with the overriding goal to improve fusion potential.Also in 2017, we launched our OsteoBallast™ and Ballast™ Demineralized Bone Matrix in Resorbable Mesh product lines, which are also designedto facilitate and aid in fusion. These products, which consist of a resorbable mesh containing 100% DBM without a carrier, are designed to simplify graftplacement and help prevent graft migration while maximizing DBM content. OsteoBallast is designed to provide surgeons with a simple means for deliveringbone graft in posterior spine surgery that contours to the local anatomy while maintaining shape and volume under compression. The simplified technique isintended to be particularly valuable in MIS procedures, where placing the graft accurately through tubes and small incisions can be challenging.We believe that our recently launched and existing product offerings deliver clinical value as payors and hospitals seek more cost effective orthobiologicsolutions.7 Collagen Ceramic Matrix TechnologiesOur collagen ceramic matrix technology leverages a history of regenerative technology and collagen engineering. Our leading products in thiscategory are currently marketed as IsoTis Mozaik and OsteoStrux and are engineered to provide a porous scaffold architecture and osteoconductivity. Theseproducts also support osteogenesis, as they are indicated for use with bone marrow aspirate, which contains osteogenic cells. These products are composed ofhighly purified beta-tricalcium phosphate granules, which provide mineral content to foster bone formation during the healing process in a framework oftype-1 collagen that provides a scaffold for bone cell migration. These products are engineered with a resorption profile consistent with the rate of naturalbone formation.Other Bone Graft SubstitutesOur other bone graft substitute products consist of allograft cancellous bone scaffolds and synthetic bone void fillers.Spinal ImplantsOur spinal implant portfolio consists of an extensive line of products for spinal decompression, alignment, and stabilization. Such products aretypically used to facilitate fusion in degenerative, minimally invasive, and complex spinal deformity procedures throughout the lumbar, thoracic andcervical regions of the spine. Our products are increasingly focused on restoring adequate spinal balance and profile in the sagittal (front to back) plane,which we believe is widely recognized as an important factor to improve the quality of life in patients undergoing surgery for spinal degeneration ordeformity.DegenerativeOur degenerative products include systems typically used in open procedures. Open procedures are still the most common surgical approach andinvolve a midline incision followed by retraction of the skin and soft tissues. We offer an extensive portfolio of degenerative products designed for use inboth thoracolumbar and cervical spine cases.Our innovative line of interbody devices with various footprint and lordotic options is designed to maintain spine alignment and appropriate spacing whileallowing bone to grow between the vertebrae to achieve bone fusion. Our Hollywood, Hollywood VI, and Ventura NanoMetalene interbody device fortransforaminal lumbar interbody fusion procedures can be used to fuse the lumbar spine through a posterior approach that starts off to one side of the patient’sback. Our Vu a∙POD™ Prime NanoMetalene® interbody device for anterior lumbar interbody fusion procedures can be used to fuse the spine through ananterior approach. Our Regatta NanoMetalene Lateral System, which we launched in late 2018, is a comprehensive lateral lumbar interbody system that canbe used to fuse the spine through a lateral approach. Our Shoreline® Anterior Cervical Standalone System, featuring the NanoMetalene technology, is amodular plate and interbody device designed to maximize intraoperative flexibility to address a wide range of anatomy, surgical situations or bone inanterior cervical disc fusions. Our Cambria NanoMetalene interbody device can be used to fuse the cervical spine through an anterior approach.We offer a comprehensive portfolio of spinal fixation products for the cervical, thoracic and lumbar regions of the spine, consisting of rods, screws,plates and instrumentation to facilitate spinal decompression and fusion. Our Mariner Posterior Fixation System is a pedicle screw system featuring modularthreaded technology and accompanying instrumentation designed to reduce the number of trays needed for surgery and that provides surgeons with multipleintra-operative options to facilitate posterior lumbar fixation. We also offer a variety of screw and plating systems, such as our Cabo™ ACP Anterior CervicalPlating System, that combine large graft viewing windows and a visual confirmation locking system for cervical fixation.Minimally Invasive SurgeryMIS procedures are less invasive than traditional open surgery procedures, and may result in reduced post-operative pain, faster rates of healing andfewer procedure complications by minimizing incision size and tissue dissection. Our surgeon customers utilize our iPassage™ MIS Retractors andNewPort™ Tube Retractors to perform MIS fusions and decompression procedures, a surgical technique used to alleviate pain caused from compression onthe spinal cord or the nerves that emanate from it. During the procedure, the surgeon makes a small incision and inserts the retractor through the skin and softtissues down to the spinal column, creating a tunnel to the spine. The retractor is kept in place to hold the muscles open throughout the procedure. Throughthis tunnel, the surgeon accesses the spine using small instruments and inserts implants necessary for fusion, such as the screws8and rods of our NewPort and Coral® MIS solutions. Our NewPort MIS product has extended tabs for a small incision profile and offers two rod deliveryoptions for both mini-open and percutaneous approaches. Our Coral MIS product offers a mini-open muscle splitting rod delivery option for surgeons new toMIS procedures. Our MIS portfolio also includes a comprehensive set of decompression instruments, static and expandable interbody devices, and screwsystems designed to facilitate access to the treatment area while minimizing anatomical disruption.Complex Spinal DeformityOur spinal implant products are used in complex spinal deformity procedures involving multiple spine segments, challenging anatomy, tumors,traumatic injury and revision of previous fusion surgeries. We define deformity as any variation in the natural curvature of the spine, the most common ofwhich is scoliosis, an abnormal lateral curvature of the spine. We offer several technologies designed to address the needs of our surgeon customers whoperform complex deformity procedures and the various derotation techniques they use to correct spine curvature. For example, our Daytona® DeformitySystem uses extended tab uniplanar and polyaxial screws with multiple rod options and intuitive instrumentation to create a versatile system adaptable tosurgeon preference. Our Daytona Small Stature System, which has an adolescent idiopathic scoliosis indication, is designed to address standard to complexdeformity cases in smaller-sized patients who need a lower profile construct due to anatomy constraints. We provide our systems in multiple configurationsand materials to address patient requirements, including stainless steel, titanium alloy and cobalt chrome alloy rod options, as well as multiple rod diameters.Offering products with varying rod diameter and materials provides the surgeon different rod stiffness to treat individual patients. We offer both implant- andinstrument-based reduction capabilities with our extended tab and locking cap products, as well as our uniplanar and D-planar screws and rapid sequentialreduction towers. Our complex spinal implant portfolio allows surgeons to combine various product lines and approaches, offering several treatment optionsfor the most difficult cases. Product PipelineWe are committed to supplementing our portfolio of orthobiologics and spinal implant products through continuous innovation and bringing next-generation products to the market. Our development pipeline consists of modular MIS, revision and deformity systems based on our Mariner platformtechnology, an expandable interbody device system, a posterior cervical fixation system, and additional applications for our NanoMetalene technology, aswell as extensions of our orthobiologics product offerings to further differentiate this portfolio from those of our competitors.We plan to continue to build and update our product and technology portfolio and expect to continue to launch a similar number of products andproduct line extensions as we have in recent years. We believe that our future success and ability to continue to drive revenue growth depends on our abilityto sustain this cadence of new and next-generation product launches and innovation.Research and DevelopmentWe have a research and development organization dedicated to advancing our portfolio of orthobiologics and spinal implant products throughproduct development and clinical affairs programs. Our product development efforts employ an integrated team approach that involves collaborationbetween surgeons, our engineers, our machinists, as well as our regulatory personnel.Our spinal implants product development team, in consultation with designing surgeons, formulates a design for the product and then our machinists buildprototypes for testing in our prototyping development and testing operation at our Carlsbad, California facility. We use a broad scope of technologiesdesigned to allow us to meet the complex engineering requirements of customers. As part of the development process, spine surgeons test the implantation ofthe products in our in-house cadaveric laboratory, which helps us design new products intended to meet the needs of both surgeon and patient. Our teamrefines or redesigns the prototype as necessary based on the results of the product testing, allowing us to perform rapid iterations of the design-prototype-testdevelopment cycle. Our clinical and regulatory personnel work in parallel with our product engineering personnel to facilitate regulatory clearances of ourorthobiologics and spinal implant products. We believe that these product development efforts allow us to provide solutions that respond to the needs of oursurgeon customers and their patients.We plan to develop line extensions for our innovative orthobiologics technologies that will continue to reduce the amount of autologous bone graftneeded for spinal fusion procedures. Our orthobiologics research and development team has experience in biomaterial sciences and bringing next generationtechnologies to market.9We are also committed to developing new spinal implant products that leverage the NanoMetalene and expandable interbody platforms technologyand provide next generation solutions for our existing products or extend the range of solutions that we provide. We are also committed to providingproducts, such as hyperlordotic cages and additional expandable technology solutions, to achieve appropriate curvature of the spine and that can improvesagittal balance, correcting the patient’s spinal alignment. We also plan to continue to develop next generation technologies that meet global demand,particularly with respect to cost and delivery methods in a manner which supports a scalable commercial model.Sales and DistributionWe currently market and sell our products in the United States and in approximately 30 countries worldwide. Our United States sales organizationconsists of regional and territory business managers who oversee a broad network of independent orthobiologics and spinal implant sales agents that receivecommissions from us based on sales they generate. Our international sales organization consists of a sales management team that oversees a network ofindependent orthobiologics and spinal implant stocking distributors that purchase our products directly from us and independently sell them. During 2018,our domestic and international revenues accounted for 89% and 11%, respectively, of total revenue. Information regarding financial data by geographicsegment is set forth in Part II, Item 8 of this report in the Notes to Consolidated Financial Statements in Note 11, “Segment and Geographic Information.”In the United States, we typically consign our orthobiologics products and consign or loan our spinal implant sets to hospitals and independentsales agents, who in turn deliver them to the hospital for a single surgical procedure or leave them with hospitals that are high volume users for use inmultiple procedures. Our spinal implant sets typically contain the instruments, including disposables, and spinal implants required to complete a surgery.In international markets, we predominantly sell complete instrument and implant sets to independent stocking distributors, who consign or loanthese sets to surgeons. We maintain sales and marketing personnel in France to manage and support our stocking distributors in Europe and use third-partydistribution facilities in Belgium and the Netherlands to support European distribution efforts.We have recently increased, and intend to continue to increase, the quality, size, exclusivity and geographic breadth of our network of independentsales agents in the United States. During 2017 and 2018, we gained representation in parts of the country where we had no representation or weresignificantly underrepresented. We anticipate adding additional independent sales agents in the United States in 2019. With certain of the new sales agentsthat we bring on board in territories with a high potential for growth, we focus on entering into relationships in which they carry our spinal implantsexclusively, except with respect to clinical markets that our products do not address. We believe these more exclusive relationships will allow us to growfaster and more cost effectively in these territories over the long term. We also plan to continue to invest in additional instrument sets and marketing andeducation efforts to support the expansion of our independent sales agent footprint.To support our expansion efforts in the United States, we have invested more in, and developed comprehensive support for, sales agent and surgeon trainingand education programs. To this end, we have leveraged the capacity of our hands-on cadaveric training laboratory at our Carlsbad, California facility andconstructed a hands-on cadaveric training laboratory in our Wayne, Pennsylvania facility to increase the number of training opportunities for surgeons andsales agents. We believe training and education will help surgeons become adept with our spinal implant products and techniques, thereby improvingoutcomes for their patients.We believe the expansion of our U.S. sales efforts will provide us with the opportunity to sustain revenue growth as we continue to penetrate existing andnew markets.Internationally, we intend to continue to focus our sales and marketing efforts on expanding and strengthening our presence in those markets where wecurrently have relationships with stocking distributors and to selectively expand into new markets.Suppliers and Raw MaterialsIn general, raw materials essential to our businesses are readily available from multiple sources. For reasons of quality assurance, availability or costeffectiveness, certain components and raw materials are available only from one supplier. Our relationships with suppliers that cannot be replaced without amaterial expense or delay are governed by written contracts, which are generally supply agreements. These agreements set forth the process by which weorder components or raw materials, as applicable, from such suppliers (which process is either on a purchase order basis or based on quarterly or annualforecasts and in some cases require us to purchase minimum amounts) and the related fees for purchasing such components or raw materials. These10agreements have terms from one to five years, but in most instances are terminable by us (and in limited instances the other party) for convenience, subject toa specified notice period, and are also terminable upon agreement by the parties, by either party upon material breach by the other and by either party if theother party enters bankruptcy. These agreements also outline the rights of each party with respect to quality assurance, inspection and compliance withapplicable law and contain what we believe to be customary indemnification provisions for commercial agreements. Each of these agreements is entered intoin the ordinary course of our business, and except for our supply agreement with PcoMed, LLC ("PcoMed"), is immaterial in amount and significance and nota contract upon which our business is substantially dependent. In addition, we endeavor to maintain sufficient inventory of components and raw materials sothat our production will not be significantly disrupted even if a particular component or material is not available for a period of time.Most of our biomaterial products contain material derived from human or bovine tissue. We only source our raw materials from tissue banksregistered with the U.S. Food and Drug Administration (FDA) and accredited by the American Association of Tissue Banks (AATB). The donors are screened,tested and processed by the tissue banks in accordance with FDA and AATB requirements. Additionally, each donor must pass FDA-specified bacterial andviral testing before raw material is distributed to us for further processing. We receive with each donor lot a certification of the safety of the raw material fromthe tissue bank’s medical director. As an added safety assurance, each lot of bone is released into the manufacturing process only after our quality assurancemicrobiologists screen the incoming bone and serology test records. During our manufacturing process, the bone particles are subjected to our proprietaryprocess and terminally sterilized. This process is designed to support the safety and effectiveness of our DBM products.The collagen used in our collagen ceramic matrix products is derived only from the deep flexor tendon of cattle less than 24 months old from theUnited States or New Zealand. The World Health Organization classifies different types of cattle tissue for relative risk of bovine spongiform encephalopathy(BSE) transmission. Deep flexor tendon is in the lowest-risk category for BSE transmission (the same category as milk, for example) and is thereforeconsidered to have a negligible risk of containing the agent that causes BSE (an improperly folded protein known as a prion).Intellectual PropertyWe seek patent and trademark protection for our key technology, products and product improvements, both in the United States and in select foreigncountries. When we determine appropriate, we plan to continue to enforce and defend our patent and trademark rights. In general, however, we do not relysolely on our patent and trademark estate to provide us with any significant competitive advantages as it relates to our existing product lines.We also rely upon trade secrets and continuing technological innovations to develop and maintain our competitive position. In an effort to protectour proprietary information, we typically require our employees, consultants and advisors to execute agreements that provide that confidential informationdeveloped or provided to the individual by us or on our behalf during their relationship with us must be kept confidential, except in specified circumstances.IsoTis OrthoBiologics, Inc., one of our subsidiaries, owns a group of patents related to the reverse-phase carrier and Accell process and materials.This patent group protects the Accell family of DBM products. The patents in this group expire over time through 2023.We licensed three U.S. patents related to certain of our pedicle screw systems from Dr. Thomas T. Haider. The license agreement, as amended, expiredwhen the last-to-expire licensed patent expired in December 2016. Sales of the products covered under this license agreement represented approximately 6%of our total revenue in 2018.Our material registered and unregistered trademarks include: Accell®, Evo3®, Accell Evo3®, Accell Evo3®C, DynaGraft® II , IsoTis®, IsoTisOrthoBiologics®, OrthoBlast® II , Atoll™, Capistrano™, Coral®, Daytona®, Hollywood™, Malibu™, NanoMetalene®, NewPort™, Vu aPOD™, VuaPOD™ Prime, OsteoSurge® 100 (or 300), SeaSpine®, Sierra™, Sonoma™, Shoreline®, Mariner®, TruProfile®, Ballast™, OsteoBallast™, Strand®,OsteoStrand®, SkipJack®, SkipJack Expandable Interbody®, and RAPID® and Regatta®.11CompetitionThe global orthobiologics and spine markets are highly competitive. We face significant competition in both markets from the spine divisions oflarge multinational medical device companies, established companies focused solely or primarily on spine, as well as smaller, emerging players focused onproduct innovation. These competitors are focused on bringing new technologies to market and acquiring technologies and technology licenses that directlycompete with our products or have potential product advantages that could render our products obsolete or noncompetitive.Our primary competitors in the combined orthobiologics and spinal implant markets include Medtronic, DePuy Synthes Spine (a Johnson &Johnson company), NuVasive, Stryker, Globus Medical, Zimmer-Biomet, Orthofix, RTI Surgical, Alphatec, XTANT Medical, Baxter, Bioventus, Cerpedicsand several smaller, biologically-focused companies.We anticipate that our currently marketed products and any future marketed products will be subject to intense competition. Many of ourcompetitors have significantly greater financial, manufacturing and marketing resources than we do, which could make scaling our business challenging. Inaddition, these competitors have more tenured relationships with parties in distribution channels and we anticipate they will continue to dedicate significantresources to marketing and distributing their products and to developing and commercializing competing products. Our ability to compete will depend onour ability to launch innovative new products that demonstrate superior clinical outcomes.RegulationWe are a manufacturer and marketer of medical devices and a tissue bank, and therefore are subject to extensive regulation by the FDA, and theCenter for Medicare Services of the U.S. Department of Health and Human Services and other federal governmental agencies and, in some jurisdictions, bystate and foreign governmental agencies. The regulations to which we are subject govern the introduction of new medical devices, the observance of certainstandards with respect to the design, manufacture, testing, labeling, promotion and sales of devices, record maintenance, the ability to track devices, potentialand actual product defect reporting, import and export of devices, and other matters.The regulatory process of obtaining product approvals and clearances can be onerous and costly. The FDA requires, as a condition to marketing amedical device in the United States, and as applicable based on product type and classification,that we secure a Premarket Notification clearance pursuant to Section 510(k) of the United States Federal Food, Drug, andCosmetic Act (FDCA) or an approved premarket approval (PMA) application (or PMA supplement). Obtaining these approvals and clearances can take up toseveral years and may involve preclinical studies and clinical trials. The FDA may also require a post-approval clinical trial as a condition of approval.To perform clinical trials for significant risk devices in the United States on an unapproved product, we are required to obtain an InvestigationalDevice Exemption from the FDA. The FDA may also require a filing for FDA approval prior to marketing products that are modifications of existing productsor new indications for existing products. Moreover, after clearance/approval is given, if the product is shown to be hazardous or defective, the FDA andforeign regulatory agencies have the power to withdraw the clearance or require us to change the device, its manufacturing process or its labeling, to supplyadditional proof of its safety and effectiveness or to recall, repair, replace or refund the cost of the medical device.The FDA Safety and Innovation Act of 2012 (FDASIA), which includes the Medical Device User Fee Amendments of 2012, as well as other medicaldevice provisions, went into effect October 1, 2012. This includes performance goals and user fees paid to the FDA by medical device companies when theyregister and list with the FDA and when they apply to market a device in the United States. The FDASIA also imposes additional requirements regarding FDAEstablishment Registration and Listing of Medical Devices. All U.S. and foreign manufacturers must have an FDA Establishment Registration and completeMedical Device listings for sales in the United States.We manufacture medical devices derived from human tissue (demineralized bone tissue). The FDA has specific regulations governing human cells,tissues, and cellular and tissue-based products (HCT/Ps). An HCT/P is a product containing, or consisting of, human cells or tissue intended fortransplantation into a human patient. Examples include bone, ligament, skin and cornea. Some HCT/Ps fall within the definition of a biological product,medical device or drug regulated under the FDCA. These biologic, device or drug HCT/Ps must comply both with the requirements exclusively applicable toHCT/Ps and, in addition, with requirements applicable to biologics, devices or drugs, including premarket clearance or approval from the FDA.Section 361 of the Public Health Service Act authorizes the FDA to issue regulations to prevent the introduction, transmission or spread ofcommunicable disease. HCT/Ps regulated as 361 HCT/Ps are subject to requirements relating to registering12facilities and listing products with the FDA, screening and testing for tissue donor eligibility, Good Tissue Practice when processing, storing, labeling, anddistributing HCT/Ps, including required labeling information, stringent record keeping, and adverse event reporting.The AATB has issued operating standards for tissue banking. Accreditation is voluntary, but compliance with these standards is a requirement tobecome an AATB-accredited tissue establishment. In addition, some states have their own tissue banking regulations. We are licensed or have permits fortissue banking in California, Florida, New York, Maryland, and other states that require specific licensing or registration.National Organ Transplant Act. Procurement of certain human organs and tissue for transplantation is subject to the restrictions of the NationalOrgan Transplant Act (NOTA), which prohibits the transfer of certain human organs, including skin and related tissue for valuable consideration, but permitsthe reasonable payment associated with the removal, transportation, implantation, processing, preservation, quality control and storage of human tissue andskin. We reimburse tissue banks for their expenses associated with the recovery, storage and transportation of donated human tissue they provide to us forprocessing. We include in our pricing structure amounts paid to tissue banks to reimburse them for their expenses associated with the recovery andtransportation of the tissue, in addition to certain costs associated with processing, preservation, quality control and storage of the tissue, marketing andmedical education expenses, and costs associated with development of tissue processing technologies. NOTA payment allowances may be interpreted tolimit the amount of costs and expenses that we may recover in our pricing for our products, thereby reducing our future revenue and profitability.Postmarket Requirements. After a device is cleared or approved for commercial distribution, numerous regulatory requirements apply. Theseinclude, but are not limited to, the FDA’s Quality System Regulations which cover the procedures and documentation of the design, testing, productionprocesses, controls, quality assurance, labeling, packaging, storage and shipping of medical devices; the FDA’s general prohibition against promotingproducts for off-label uses; the Federal Medical Device Reporting regulation, which requires that manufacturers provide information to the FDA wheneverthere is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injury or that a malfunction occurred whichwould be likely to cause or contribute to a death or serious injury upon recurrence; and the Reports of Corrections and Removals regulation, which requiresmanufacturers to report recalls and field corrective actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of theFDCA.We are also required to register with the FDA as a medical device manufacturer. As such, our manufacturing sites are subject to periodic inspectionby the FDA for compliance with the FDA’s Quality System Regulations. These regulations require that we manufacture our products and maintain ourdocuments in a prescribed manner with respect to design, manufacturing, testing and control activities. Further, we are required to comply with various FDArequirements and other legal requirements for labeling and promotion. If the FDA believes that a company is not in compliance with applicable regulations, itmay issue a warning letter, institute proceedings to detain or seize products, issue a recall order, impose operating restrictions, enjoin future violations andassess civil penalties against that company, its officers or its employees and may recommend criminal prosecution to the U.S. Department of Justice (DOJ).Similar requirements to those outlined above also apply to tissue products.Medical device regulations also are in effect in many of the countries in which we do business outside the United States. These laws range fromcomprehensive medical device approval and quality system requirements for some or all of our medical device products to simpler requests for product dataor certifications. The number and scope of these requirements are increasing. Under the EU Medical Devices Directive, medical devices must meet theMedical Devices Directive requirements and receive CE Mark Certification prior to marketing in the EU. CE Mark Certification requires a comprehensivequality system program, comprehensive technical documentation and data on the product, which are then reviewed by a Notified Body. A Notified Body isan organization designated by the national governments of the EU member states to make independent judgments about whether a product complies with therequirements established by each CE marking directive. The Medical Devices Directive and ISO 13485 are recognized international quality standardsdesigned to ensure that we develop and manufacture quality medical devices. Other countries are also instituting regulations regarding medical devices.Compliance with these regulations requires extensive documentation and clinical reports for all of our products, revisions to labeling, and other requirementssuch as facility inspections to comply with the registration requirements. A recognized Notified Body audits our facilities annually to verify our compliancewith these standards.In the EU, our products that contain human-derived tissue, including demineralized bone material, are not medical devices as defined in the MedicalDevice Regulation (MDR) EU 2017/745 replacing prior directives Medical Devices Directive (93/42/EC) and 2001/83/EC respectively. They are also notmedicinal products as defined in Directive 2001/83/EC. Today, regulations, if applicable, are different from one EU member state to the next. Because of theabsence of a harmonized regulatory framework13and the proposed regulation for advanced therapy medicinal products in the EU, the approval process for human-derived cell or tissue-based medicalproducts may be extensive, lengthy, expensive, and unpredictable.Certain countries, as well as the EU, have issued regulations that govern products that contain materials derived from animal sources. Regulatoryauthorities are particularly concerned with materials infected with the agent that causes BSE. These regulations affect our biomaterial products for the spine,which contain material derived from bovine tissue. Although we take steps designed to provide that our products are safe and free of agents that can causedisease, products that contain materials derived from animals, including our products, may become subject to additional regulation, or even be banned incertain countries, because of concern over the potential for prion transmission. Significant new regulations, a ban of our products, or a movement away frombovine-derived products because of an outbreak of BSE could have a material and adverse effect on our business or our ability to expand our business. See“Risk Factors-Risks Relating to Our Regulatory Environment-Certain of our products contain materials derived from animal sources and may become subjectto additional regulation.”We are subject to laws and regulations pertaining to healthcare fraud and abuse, including anti-kickback laws and physician self-referral laws thatregulate how companies in the health care industry may market their products to hospitals and health care professionals and may compete by discounting theprices of their products. The delivery of our products is subject to regulation regarding reimbursement, and federal healthcare laws apply when a customersubmits a claim for a product that is reimbursed under a federally funded healthcare program. These rules require that we exercise care in structuring our salesand marketing practices and customer discount arrangements. See “Risk Factors-Risks Relating to Our Regulatory Environment-Oversight of the medicaldevice industry might affect the way may sell medical devices and compete in the marketplace.”Our international operations subject us to laws regarding sanctioned countries, entities and persons, customs, import-export, laws regardingtransactions in foreign countries, the FCPA and local anti-bribery and other laws regarding interactions with healthcare professionals. Among other things,these laws restrict, and in some cases prohibit, United States companies from directly or indirectly selling goods, technology or services to people or entitiesin certain countries. In addition, these laws require that we exercise care in structuring our sales and marketing practices in foreign countries.Our research, development and manufacturing processes involve the controlled use of certain hazardous materials. We are subject to country-specific, federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of these materials and certain wasteproducts. We believe that our environmental, health and safety (EHS) procedures for handling and disposing of these materials comply with the standardsprescribed by the controlling laws and regulations. However, risk of accidental releases or injury from these materials is possible. These risks are managed tominimize or eliminate associated business impacts. In the event of this type of accident, we could be held liable for damages that may result, and any liabilitycould exceed our resources. We could be subject to a regulatory shutdown of a facility that could prevent the distribution and sale of products manufacturedthere for a significant period of time and we could suffer a casualty loss that could require a shutdown of the facility in order to repair it, any of which couldhave a material and adverse effect on our business. Although we continuously strive to maintain full compliance with respect to all applicable global EHSlaws and regulations, we could incur substantial costs to fully comply with future laws and regulations, and our operations, business or assets may beimpacted.In addition to the above regulations, we are and may be subject to regulation under country-specific federal and state laws, including, but notlimited to, requirements regarding record keeping, and the maintenance of personal information, including personal health information. We also are subjectto other present, and could be subject to possible future, local, state, federal and foreign regulations.Reimbursement OverviewHealthcare providers that purchase medical devices generally rely on third-party payors, including the Medicare and Medicaid programs, andprivate payors, such as indemnity insurers, employer group health insurance programs and managed care plans, to reimburse all or part of the cost of thedevice. As a result, demand for our products is and will continue to depend in part on the coverage and reimbursement policies of these third-party andprivate payors. The manner in which reimbursement is sought and obtained varies based upon the type of payor involved and the setting in which the deviceis furnished and utilized. Reimbursement from Medicare, Medicaid and other third-party payors may be subject to periodic adjustments as a result oflegislative, regulatory and policy changes and budgetary pressures. Possible reductions in, or eliminations of, coverage or reimbursement by third-party andprivate payors, or denial of, or provision of uneconomical reimbursement for new products, as a result of these changes may affect our customers’ ability topurchase our products. Any changes in the healthcare regulatory, payment or enforcement landscape relative to our customers’ healthcare services maysignificantly affect our operations and revenue.14Facilities We have four facilities: our headquarters in Carlsbad, California, from which our orthobiologics and spinal implant products are designed, developed, andmarketed and from which our more recently launched spinal implant products are inspected, kitted and distributed; a manufacturing and distribution facilityin Irvine, California, from which most of our orthobiologics products are manufactured and all are distributed; office space in Wayne, Pennsylvania, where wedesign spinal implants and which facilitates our interactions with customers on the East Coast; and our European sales and marketing office in Lyon, France.We inspect, kit, and distribute most of our spinal implant products through a third-party logistics provider facility in Olive Branch, Mississippi. Wedistribute our orthobiologics and spinal implant products in certain international markets through third-party logistics provider facilities in Belgium and theNetherlands.Additional information regarding our facilities may be found in Part I, Item 2 of this report.EmployeesAs of February 25, 2019, we had 361 regular employees, 48 of whom were engaged in research and development, 108 in manufacturing, 108 in salesand marketing and 97 in general and administrative activities.Available InformationWe are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, (the Exchange Act). In accordance with theExchange Act, we file or furnish annual, quarterly and current reports, amendments to those reports, proxy statements and other information with the SEC. Wemake these reports and other information available free of charge on our website at www.seaspine.com under the investors page as soon as reasonablypracticable after we electronically file such material with, or furnish it to, the SEC. All such reports were made available in this fashion during 2018.The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that fileelectronically with the SEC at www.sec.gov.ITEM 1A. RISK FACTORSYou should carefully consider the risks described below, together with the other information in this Form 10-K, in evaluating the Company and ourcommon stock. If any of the risks described below actually occurs, our business, financial results, financial condition and stock price could be materiallyand adversely affected.Risks Relating to our BusinessWe expect to incur losses for the foreseeable future and cannot assure you that we will be able to generate sufficient sales to achieve or sustainprofitability.We expect to incur losses for the foreseeable future as we dedicate significant resources to our marketing and product development strategy, includingas we continue to: (i) develop new and next generation products and product line extensions (all of which we call “new products”); (ii) develop new medicaltechniques designed to enhance the utility of our products; (iii) collect clinical data and conduct clinical studies to differentiate our products from those ofour competitors and to demonstrate the value of our products to current and prospective customers and payors; (iv) add independent sales agents andstocking distributors to increase our geographic sales coverage and penetration; (v) increase product inventory to raise the likelihood of success of newproduct launches; and (vi) expand our marketing campaigns and surgeon education and training programs. We cannot assure you that we will ever generatesufficient revenues from our operations to achieve profitability and, even if we achieve profitability, we cannot assure you that we will remain profitable. Ourfailure to achieve or maintain profitability could negatively affect the value of our securities and our ability to attract and retain personnel, raise capital,execute our business strategy or continue operations.We operate in an industry and in market segments that are highly competitive and we may not compete successfullyThere is intense competition among medical device companies that serve the spinal surgery market. We compete with established medical technologycompanies, as well as earlier-stage companies that often have differentiated technology and potentially superior solutions for the challenges facing ourneurosurgeon and orthopedic spine surgeon customers and their patients.15Our primary competitors include Medtronic, DePuy Synthes Spine (a Johnson & Johnson company), NuVasive, Stryker, Globus Medical, Zimmer-Biomet,Orthofix, RTI Surgical, Alphatec, XTANT Medical, Baxter, Bioventus, Cerpedics and several smaller, biologically-focused companies.Many of our competitors may have access to greater financial, technical, research and development, marketing, manufacturing, sales, distribution,administrative, consulting and other resources than we do. Our competitors may be more effective at developing products, at differentiating their productsfrom our and other competitor products and at designing, executing, analyzing the results of and publishing data from clinical studies. Our competitors mayalso have: stronger intellectual property portfolios; broader spine surgery product offerings and products supported by more extensive clinical data; moreestablished distribution networks; entrenched relationships with surgeons; significantly greater name recognition and more recognizable trademarks forproducts similar to the products we sell; more established relationships with healthcare providers and payors; greater experience in obtaining andmaintaining FDA and other regulatory clearances or approvals for products and product enhancement; and greater experience in launching, marketing andselling products than we do. Many of our competitors specialize in a specific product or focus on a particular market segment, making it more difficult for usto increase our overall market position. The frequent introduction by competitors of products that are, or claim to be, superior to our products, or that arealternatives to our existing or planned products may also create market confusion that may make it difficult to differentiate the benefits of our products overcompeting products. In addition, the entry of multiple new products and competitors may lead some of our competitors to employ pricing strategies thatcould adversely affect the pricing of our products and pricing in the spine market generally.Our competitive position depends on our ability to achieve market acceptance for our current and future products. Market acceptance for any of ourproducts requires, among other things, that we timely secure regulatory approval; demonstrate the value of our products, both to our surgeon customers andpayors, which may require that we collect clinical data and/or conduct clinical studies; effectively educate and train our surgeon customers and their staff onthe proper use of our products; obtain and maintain coverage and adequate reimbursement for our products, both within and outside the U.S., including underMedicare and Medicaid and from private payors; attract and retain a network of independent sales agents and stocking distributors focused on neurosurgeonsand orthopedic spine surgeons; develop and execute an effective marketing strategy; protect the proprietary positions of our products, including throughpatent protection; and consistently produce quality products in sufficient quantities to meet demand. Significant risks are associated with each of theseactivities and other activities required to achieve market acceptance of both our current and future products, some of which are more fully describedelsewhere in this “Risk Factors” section.In addition, at any time our competitors or other companies may develop alternative treatments, products or procedures for the treatment of spinedisorders that compete directly or indirectly with our products, including ones that prove to be superior to our products.For these reasons, we may not compete successfully against our existing or potential competitors. Any such failure could lead us to modify our strategy,to lower our prices, or to increase the commissions we pay on sales of our products and could have a significant adverse effect on our business, financialcondition and results of operations. If we cannot compete effectively, our sales and operating results may suffer.To be commercially successful, we must effectively demonstrate to neurosurgeon and orthopedic spine surgeons the merits of our products compared tothose of our competitors.Neurosurgeons and orthopedic spine surgeons play a significant role in determining the course of treatment and, ultimately, the product used to treat apatient. As a result, our success depends, in large part, on demonstrating to these surgeons the value of our products in the treatment of their patients. To do sorequires that we, along with our independent sales agents and stocking distributors, demonstrate the merits of our products and underlying technologycompared to those of our competitors. Surgeons who do not use our products may be hesitant to do so for the following or other reasons:•lack of experience with our products, techniques, or technologies, or with the equipment necessary to use any of the foregoing;•existing relationships with those who sell competitive products;•the time required for surgeon and medical staff education and training on new products, techniques and equipment and technologies;•lack or perceived lack of clinical evidence supporting patient benefit relative to competing products;•our products not being included on hospital formularies, in integrated delivery networks or on group purchasing organization preferredvendor lists;•less attractive coverage and/or reimbursement within healthcare payment systems for our products and procedures compared to otherproducts and procedures;16•other costs associated with introducing new products and the equipment necessary to use new products; and•perceived risk of liability that could be associated with the use of new products, techniques or technologies.In addition, we believe recommendations and support of our products by influential neurosurgeons and orthopedic spine surgeons are essential formarket acceptance and adoption. If we do not receive support from such surgeons or long-term data does not show the benefits of using our products,surgeons may not use our products.If we are not successful in convincing surgeons of the merits of our products, we may not maintain or grow our sales or achieve or sustain profitability.We must successfully educate and train surgeons and their staff on the proper use of our products.Although most neurosurgeons and orthopedic spine surgeons may have adequate knowledge on how to use most of our products based on their clinicaltraining and experience, we believe that the most effective way to introduce and build market demand for our products is by directly training such surgeonsin the use of our products. Convincing surgeons to dedicate the time and energy necessary for adequate training is challenging, and we cannot assure you wewill succeed in these efforts. If surgeons are not properly trained, they may not use our products, and, as a result, we may not maintain or grow our sales orachieve or sustain profitability. If surgeons are not properly trained they may also misuse or ineffectively use our products, which may result in unsatisfactorypatient outcomes, patient injury, negative publicity or lawsuits against us, any of which could have a significant adverse effect on our business, financialcondition and results of operations.Although we believe our training methods for surgeons are conducted in compliance with FDA and other applicable regulations developed bothnationally and in third countries, if the FDA or other regulatory agency determines that our training constitutes promotion of an unapproved use orpromotion of an intended purpose not covered by the CE mark affixed to our products or FDA approved labeling, they could request that we modify ourtraining or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure, civil fine and criminal penalty. Seealso “Oversight of the medical device industry might affect the way we sell medical devices and compete in the marketplace" below.Changes in third-party payment systems and in the healthcare industry may require us to decrease the selling price for our products, may reduce the size ofthe market for our products, or may eliminate a market, any of which could have a material and adverse effect on our financial performance.Our operations may be substantially affected by fundamental changes in the political, economic and regulatory landscape of the healthcare industry.Government and private sector initiatives to limit the growth of healthcare costs are continuing in the U.S., and in many other countries where we dobusiness, causing the marketplace to put increased emphasis on the delivery of more cost-effective treatments. These initiatives include price regulation,competitive pricing, coverage and payment policies, comparative effectiveness of therapies, technology assessments and managed-care arrangements.Maintaining and growing sales of our products depends on the availability of adequate coverage and reimbursement from third-party payors, bothwithin and outside the U.S., including government programs such as Medicare and Medicaid, private insurance plans and managed care organizations.Hospitals and other healthcare providers that purchase our products generally rely on third-party payors to cover all or part of the costs associated with theprocedures performed with our products, including the cost to purchase our product. Both the patients’ and our customers’ access to adequate coverage andreimbursement for the procedures performed with our products by government and private insurance plans is central to the acceptance of our current andfuture products. We may be unable to sell our products on a profitable basis, or at all, if third-party payors deny coverage or reduce their levels of payment. Inaddition, if our cost of production increases at a rate greater than increases in reimbursement levels for our products, our profitability may be adverselyaffected.The healthcare industry, both within and outside the U.S., has experienced a trend toward cost containment as government and private insurers seek tocontrol rising healthcare costs by imposing lower payment and negotiating reduced contract rates with service providers. Third-party payors continuallyreview their coverage and reimbursement policies for procedures involving the use of our products and can, without notice, eliminate or reduce coverage orreimbursement for our products. For example, a major national third-party insurer in the U.S. recently reduced coverage (from all or most cases to limitedindications) for biomechanical devices (e.g., spine cages) used in cervical fusion procedures, stating that the devices had not been shown to be more effectivethan bone graft. In addition, certain insurers have limited coverage for vertebral fusions in the lumbar spine and other insurers may adopt similar coveragedecisions in the future. Patients covered by these insurers may be unwilling or unable to afford lumbar fusion surgeries to treat their conditions, which couldmaterially harm or limit our ability to sell our products designed for such surgeries. Further, third-party payors of hospital services and hospital outpatientservices annually revise their payment17methodologies, which could result in stricter standards for or the elimination or reduction of reimbursement of hospital charges for certain medicalprocedures.Further, in the U.S., several provisions of the U.S. Patient Protection and Affordable Care Act (the AffordableCare Act) and the Health Care and Education Reconciliation Act of 2010 address access to health care products and servicesand establish certain fees for the medical device industry. These provisions may be modified, repealed, or otherwise invalidated,in whole or in part. Future rulemaking could affect rebates, prices or the rate of price increases for health care products andservices, or required reporting and disclosure. We cannot predict the timing or impact of any future rulemaking or changes inthe law.To the extent we sell our products internationally, market acceptance may depend, in part, upon the availability of coverage and reimbursement withinprevailing healthcare payment systems. Reimbursement and healthcare payment systems in international markets vary significantly by country. As in theU.S., our products may not obtain coverage and reimbursement approvals in a timely manner, if at all, in a particular international market. In addition, even ifwe obtain country-specific coverage and reimbursement approvals, we could incur considerable expense to do so. Our failure to obtain such coverage andapprovals would negatively affect market acceptance of our products in the international markets in which such failure occurs and the expenses incurred inconnection with obtaining such coverage and approvals could outweigh the benefits of obtaining them.If the trend by governmental agencies and other third-party payors to reduce coverage of and/or reimbursement for procedures using our productscontinues, our business, results of operations and financial condition could be materially and adversely affected. Further, we cannot be certain that, undercurrent and future payment systems, the cost of our products will be adequately incorporated into the overall cost of the procedure and, accordingly, wecannot be certain that the procedures performed with our products will be reimbursed at a cost-effective level, or at all.Industry trends have resulted in increased downward pricing pressure on medical services and products, which may affect our ability to sell our products atprices necessary to support our current business strategy.The trend toward healthcare cost containment through aggregating purchasing decisions and industry consolidation, along with the growth of managedcare organizations, is placing increased emphasis on the delivery of more cost-effective medical therapies. For example:•There has been consolidation among healthcare facilities and purchasers of medical devices, particularly in the U.S. One of the results ofsuch consolidation is that group purchasing organizations, integrated delivery networks and large single accounts use their market powerto consolidate purchasing decisions, which intensifies competition to provide products and services to healthcare providers and otherindustry participants, resulting in greater pricing pressures and the exclusion of certain suppliers from important market segments. Forexample, some group purchasing organizations negotiate pricing for its member hospitals and require us to discount, or limit our ability toincrease, prices for certain of our products.•Surgeons increasingly have moved from independent, out-patient practice settings toward employment by hospitals and other largerhealthcare organizations, which align surgeons’ product choices with their employers’ price sensitivities and adds to pricing pressures.Hospitals have introduced and may continue to introduce new pricing structures into their contracts to contain healthcare costs, includingfixed price formulas and capitated and construct pricing.•Certain hospitals provide financial incentives to doctors for reducing hospital costs (known as gainsharing), rewarding physicianefficiency (known as physician profiling) and encouraging partnerships with healthcare service and goods providers to reduce prices.•Existing and proposed laws, regulations and industry policies, in both domestic and international markets, regulate or seek to increaseregulation of sales and marketing practices and the pricing and profitability of companies in the healthcare industry.More broadly, other provisions of the Affordable Care Act could meaningfully change the way healthcare is developed and delivered in the U.S., andmay adversely affect our business and results of operations. For example, the Affordable Care Act encourages hospitals and physicians to workcollaboratively through shared savings programs, such as accountable care organizations, as well as other bundled payment initiatives, which may ultimatelyresult in the reduction of medical device purchases and the consolidation of medical device suppliers used by hospitals. It is unclear what the full impact ofthe legislation will be. Some of the provisions of the Affordable Care Act have yet to be fully implemented, and certain provisions have been subject tojudicial and Congressional challenges. In addition, there have been efforts by the Trump administration to repeal or replace certain aspects of the AffordableCare Act and to alter the implementation of the Affordable Care Act and related laws. We cannot predict18accurately what healthcare programs and regulations will ultimately be implemented at the U.S. federal or state level, or the effect of any future legislation orregulation in the U.S. or elsewhere. However, any changes that have the effect of reducing reimbursements for our products or reducing medical procedurevolumes could have a material and adverse effect on our business, financial condition and results of operations.Further, the proliferation of medical device sales agents that are owned, directly or indirectly, by physicians (commonly called physician-owneddistributorships, or PODs) could result in increased pricing pressure on our products or harm our ability to sell our products to physicians who own or areaffiliated with these sales agents. These physicians derive a proportion of their revenue from selling or arranging for the sale of medical devices for use inprocedures they perform on their own patients at hospitals that agree to purchase from or through the POD, or that otherwise furnish ordering physicians withincome based, directly or indirectly, on those orders of medical devices. The number of PODs in the spine industry may continue to grow as economicpressures increase throughout the industry and as hospitals, insurers and physicians search for ways to reduce costs and, in the case of the physicians, searchfor ways to increase their incomes. PODs and the physicians who own, or partially own, them have significant market knowledge and access to the surgeonswho use our products and the hospitals that purchase our products. Growth in the number of PODs may reduce our ability to compete effectively for businessfrom physicians who own, or partially own, them, which could have a material and adverse effect on our business, results of operations and financialcondition.In addition, the largest device companies with multiple product franchises have increased their effort to leverage and contract broadly with customersacross franchises by providing volume discounts and multi-year arrangements that could prevent our access to these customers or make it difficult (orimpossible) to compete on price.We may not develop new products in a timely and consistent manner, and failure to do so may adversely affect the attractiveness of our overall productportfolio to our surgeon customers and negatively impact our sales and market share.To be and remain competitive, we need to introduce new products and enhancements or modifications to our existing products on a regular basis andsuccessfully respond to technological advances. Doing so is technologically challenging and involves significant risks and uncertainty. Despite substantialinvestments of time and resources, our research and development efforts may not result in technically feasible new products. Even if technically feasible, theanticipated time and cost of obtaining regulatory approval and/or commercializing a new product may be too great to justify continued development. Inaddition, competitors could develop products that are more effective, are less expensive to manufacture, are priced more competitively or are ready forcommercial introduction before our products. The introduction of new products by our competitors may lead us to reduce the prices of our products, may leadto reduced margins or loss of market share, and may render our products obsolete or noncompetitive. The success of any of our new product offerings orenhancement or modification to our existing products will depend on several factors, including our ability to:•properly identify and anticipate surgeon and patient needs;•develop new products or enhancements or modifications in a timely manner;•obtain the regulatory approvals for new products or product enhancements or modifications in a timely manner;•provide adequate training to potential users of new products and product enhancements or modifications;•receive adequate reimbursement approval of third-party payors such as Medicaid, Medicare and private insurers; and•develop an effective marketing and distribution network.If we cannot develop technically and commercially viable new products and enhancements or modifications to our existing products on a consistentbasis and before our competitors, our prospects could be materially and adversely affected.It is also important that we carefully manage our introduction of new products and enhancements or modifications to our existing products. If potentialcustomers delay purchases until new or enhanced or modified products are available, it could negatively impact our sales. In addition, to the extent we haveexcess or obsolete inventory as we transition to new or enhanced or modified products, it would result in margin reducing write-offs for obsolete inventory,and our results of operations may suffer.19If we are unable to maintain and expand our network of independent sales agents and stocking distributors, we may not maintain or grow our revenue.Our ability to generate revenue depends on the sales and marketing efforts of independent sales agents and stocking distributors. Some of ourindependent sales agents account for a significant portion of our sales volume. If our independent sales agents and stocking distributors fail to adequatelypromote, market and sell our products, our sales could significantly decrease.Further, we face significant challenges and risks in managing our geographically dispersed distribution network and retaining the independent salesagents and stocking distributors who make up that network, and as we launch new products and increase our marketing efforts with respect to existingproducts, we plan to expand the reach of our marketing and sales efforts and may need to hire new independent sales agents and stocking distributors.Independent sales agents and stocking distributors require significant technical expertise in various areas such as spinal care practices, spine injuries anddisease, and spinal health and they require training and time to achieve full productivity. Because of the intense competition for their services, we may notattract or retain qualified independent sales agents or stocking distributors or enter into agreements with them on favorable or commercially reasonable terms,if at all. Even if we enter into agreements with additional qualified independent sales agents or stocking distributors, it often takes 6 to 12 months for newsales agents or stocking distributors to reach full operational effectiveness and they may not generate revenue as quickly as we expect them to, commit thenecessary resources to effectively market and sell our products, or ultimately succeed in selling our products. Our success will depend largely on our abilityto continue to hire, train, retain and motivate qualified independent sales agents and stocking distributors. If we cannot expand our sales and marketingcapabilities domestically and internationally, if we fail to train new independent sales agents and stocking distributors adequately, or if we experience highturnover in our sales network, we may not commercialize our products adequately, or at all, which would adversely affect our business, results of operationsand financial condition.Moreover, our independent sales agents and stocking distributors are not our employees, we have limited control over their activities and, generally, wedo not enter into exclusive relationships with them. If one or more of them were to be retained by a competitor, whether or an exclusive or non-exclusivebasis, they may divert business from us to our competitor, which could materially and adversely affect our sales.Sales of, or the price at which we sell, our products may be adversely affected unless the safety and efficacy of our products, alone and relative tocompetitive products, is demonstrated in clinical studies.Generally, we have obtained 510(k) clearance to manufacture, market and sell the products we market in the U.S. and the right to affix the CE mark tothe products we market in the European Economic Area, or EEA. To date, we have not been required to generate new clinical data to support our 510(k)clearances, CE marks, or product registrations in other countries and, accordingly, we do not have our own clinical data regarding our marketed products. Asa result, neurosurgeons and orthopedic spine surgeons may be slow to adopt our products and we may be subject to greater regulatory and product liabilityrisks. In addition, certain of our competitors have clinical data supporting the safety and efficacy of their products, which may place our products at acompetitive disadvantage.In part due to the increased emphasis on the delivery of more cost-effective treatments, purchasing decisions of our customers increasingly will be basedon clinical data that demonstrates the value of our products or the effectiveness of our products relative to others. Conducting clinical studies is expensiveand time-consuming and outcomes are uncertain. See “Risks Relating to Our Regulatory Environment-Clinical studies are expensive and subject to extensiveregulation and their results may not support our product candidate claims or may result in the discovery of adverse effects,” below. We may elect not to, ormay be unable to, fund the clinical studies necessary to generate the data required for all of our products to compete effectively, in part due to the breadth ofour product portfolio. Currently, we do not expect to undertake such clinical studies for all of our products and only expect to do so where we anticipate thebenefits will outweigh the costs on a risk-adjusted basis. However, even when we elect and are able to fund such clinical studies on one or more of ourproducts, such studies may not succeed. Data we generate may not be consistent with our existing data and may demonstrate less favorable safety or efficacy,which could reduce demand for our products and negatively impact future sales. Neurosurgeons and orthopedic spine surgeons may be less likely to use ourproducts if more robust, or any, clinical data supporting the safety and efficacy of competing products is available. If we are unable to or unwilling togenerate clinical data supporting the safety and efficacy of our products, our business, results of operations and financial condition could be materially andadversely affected.Further, future patient studies or clinical experience may indicate that treatment with our products does not improve patient outcomes.20With the passage of the American Recovery and Reinvestment Act of 2009, funds have been appropriated for the U.S. Department of Health and HumanServices’ Healthcare Research and Quality to conduct comparative effectiveness research to determine the effectiveness of different drugs, medical devices,and procedures in treating certain conditions and diseases. Some of our products or procedures performed with our products could become the subject of suchresearch. It is unknown what effect, if any, this research may have on our business. Further, future research or experience may indicate that treatment with ourproducts does not improve patient outcomes or improves patient outcomes less than we initially expected. Such results would reduce demand for ourproducts, affect sustainable reimbursement from third-party payers, significantly reduce our ability to achieve expected revenue, and could cause us towithdraw our products from the market and could prevent us from sustaining or increasing profitability. Moreover, if future results and experience indicatethat our products cause unexpected or serious complications or other unforeseen negative effects, we could be subject to significant legal liability, negativepublicity, and damage to our reputation, and we could experience a dramatic reduction in sales of our products, all of which would have a material adverseeffect on our business, financial condition and results of operations. The spine medical device market has been particularly prone to potential productliability claims that are inherent in the testing, manufacture and sale of medical devices and products for spine surgery procedures.If any of our manufacturing, development or research facilities are damaged and/or our manufacturing processes are interrupted, we could experiencesupply disruptions, lost revenues and our business could be seriously harmed.Damage to our manufacturing, development or research facilities or disruption to our business operations for any reason, including due to naturaldisaster (such as earthquake, wildfires and other fires or extreme weather), power loss, communications failure, unauthorized entry or other events, such as aflu or other health epidemic, could cause us to discontinue development and/or manufacturing of some or all of our products for an undetermined period oftime. In addition, our facilities would be difficult to replace and would require substantial lead time to repair or replace. The property damage and businessinterruption insurance coverage on these facilities that we maintain might not cover all losses under such circumstances, and we may not be able to renew orobtain such insurance in the future on acceptable terms with adequate coverage or at reasonable costs. In particular, we manufacture our orthobiologicsproducts in one facility in Irvine, California and any damage to that facility could adversely affect our ability to timely satisfy demand for those products.Any significant disruption to our manufacturing operations and to our ability to meet market demand likely would have an adverse impact on our sales andrevenues as key stakeholders, including our independent sales agents and stocking distributors and surgeon customers, transition to what they perceive asmore reliable sources of products.We rely on an exclusive license and supply agreement with PcoMed, LLC (“PcoMed”) for NanoMetalene surface technology incorporated in certain ofour products. The termination of, or loss of exclusivity under, this license agreement could harm sales of certain of our products.We have an exclusive license and supply agreement with PcoMed allowing the incorporation of their NanoMetalene surface technology into certain ofour products, the net sales of which represent approximately 10% of our revenue for the year ended December 31, 2018. In order to maintain our exclusivelicense rights under the agreement, we must satisfy certain commercialization obligations. If we fail to satisfy these obligations, we lose our exclusive rightsto this technology and PcoMed might license some or all this technology to one or more parties, any of which could be one of our competitors, and ourability to compete may be substantially and adversely diminished. In addition, PcoMed serves as our sole supplier for the licensed technology. If PcoMed isunable to meet our demand for the product or if their supply is otherwise disrupted, it could adversely impact our business. Furthermore, if we fail to complywith material obligations under the agreement or if it were terminated for any reason, we could lose rights to this technology that are important to ourbusiness. The agreement terminates in December 2020; if we need to renew the license, there is no guarantee we will be able to renew it on commerciallyreasonable terms, if at all.In addition to PcoMed, we depend on a limited number of third-party suppliers for components and raw materials and losing any of these suppliers, ortheir inability to provide us with an adequate supply of materials that meet our quality and other requirements, could harm our business.Outside suppliers, some of whom are sole-source suppliers, provide us with products and raw materials and components used in manufacturing ourorthobiologics and spinal implant products. We strive to maintain sufficient inventory of products, raw materials and components so that our production willnot be significantly disrupted if a particular product, raw material or component is not available to us for a period of time, including as a result of a supplier'sloss of its ISO or other certification. Any such disruption in our production could harm our reputation, business, financial condition and results of operations.Although we believe there are alternative supply sources, replacing our suppliers may be impractical or difficult in many instances. For example, wecould have difficulty obtaining similar products from other suppliers that are acceptable to the FDA21or other foreign regulatory authorities. In addition, if we are required to transition to new suppliers for certain components of our products, the use ofcomponents or materials furnished by these alternative suppliers could require us to alter our operations, and if we are required to change the manufacturer ofa critical component of our products, we will have to verify that the new manufacturer maintains facilities, procedures and operations that comply with ourquality and applicable regulatory requirements, which could further impede our ability to manufacture our products in a timely manner. Transitioning to anew supplier could be time-consuming and expensive, may result in interruptions in our operations and product delivery, could affect the performancespecifications of our products or could require that we modify the design of those systems.If we are unable to obtain sufficient quantities of spinal implant products, raw materials or components that meet our quality and other requirements ona timely basis for any reason, we may not produce sufficient quantities of our products to meet market demand until a new or alternative supply source isidentified and qualified and, as a result, we could lose customers, our reputation could be harmed and our business could suffer. In 2013, we experiencedsupply shortages in collagen ceramic matrix bone void fillers, which adversely affected sales of our orthobiologics products, even after the supply shortagewas resolved. Furthermore, an uncorrected defect or supplier’s variation in a component or raw material that is incompatible with our manufacturing,unknown to us, could harm our ability to manufacture products.Further, under the FDA Safety and Innovation Act of 2012, or the FDASIA, which includes the Medical Device User Fee Amendments of 2012, as wellas other medical device provisions, all U.S. and foreign manufacturers must have a FDA Establishment Registration and complete Medical Device listings forsales in the U.S. While we believe that our facilities materially comply with these requirements, we also source products from foreign contract manufacturers.It is possible that some of our foreign contract manufacturers will not comply with applicable requirements and choose not to register with the FDA. In suchan event, we will need to determine if there are alternative foreign contract manufacturers who comply with the applicable requirements. If such a foreigncontract manufacturer is a sole supplier of one of our products, there is a risk that we may not be able to source another supplier.In addition, we rely on a small number of tissue banks accredited by the American Association of Tissue Banks for the supply of human tissue, a crucialcomponent of our orthobiologics products that serve as bone graft substitutes. Any failure to obtain tissue from these sources or to have the tissue processedby these sources for us in a timely manner will interfere with our ability to meet demand for our orthobiologics products effectively. The processing of humantissue into orthobiologics products is labor intensive and maintaining a steady supply stream is challenging. In addition, due to seasonal changes inmortality rates, some scarce tissues used for our orthobiologics products are at times in particularly short supply. We cannot be certain that our supply ofhuman tissue from our suppliers will be available at current levels or will meet our needs or that we will be able to successfully negotiate commerciallyreasonable terms with other accredited tissue banks.We depend on information technology and if our information technology fails to operate adequately or fails to properly maintain the integrity of our data,our business could be materially and adversely affected.We depend significantly on sophisticated information technology, or IT, for our infrastructure and to support business decisions. Our IT needs requirean ongoing commitment of significant resources to maintain, protect and enhance existing systems and to develop new systems to keep pace with newtechnology, evolving regulatory standards, the increasing need to protect patient and customer information and changing customer patterns. We do not havea comprehensive IT disaster recovery plan. Any significant breakdown, intrusion, interruption, corruption or destruction of any component of our IT systemscould have a material and adverse effect on our business, financial condition and results of operations.Security breaches, loss of data and other disruptions could compromise sensitive information related to our business, prevent us from accessing criticalinformation or expose us to liability, which could adversely affect our business and our reputation.In the ordinary course of our business, we collect and store sensitive data, including legally protected patient health information, credit cardinformation, personally identifiable information about our employees, intellectual property, and proprietary business information. We manage and maintainour applications and data utilizing on-site systems. These applications and data encompass a wide variety of business critical information including researchand development information, commercial information and business and financial information.Although our computer and information systems are protected through physical and software safeguards, they are still vulnerable to systemmalfunction, computer viruses, cyber-attacks, breaches or interruptions due to employee error or malfeasance, terrorist attacks, earthquakes (and other naturaldisasters), fire, flood, power loss, computer systems failure, data network failure, Internet failure, or lapses in compliance with privacy and security mandates.If any of our systems were to become subject to any of the foregoing, our networks could be compromised, and the information stored there could be accessedby unauthorized parties,22publicly disclosed, lost or stolen. These events could lead to the unauthorized access and result in the misappropriation or unauthorized disclosure ofconfidential information belonging to us or to our employees, partners, customers or suppliers. We have measures in place designed to detect and respond tosecurity incidents and breaches of privacy and security mandates. The techniques used by criminal elements to attack computer systems are sophisticated,change frequently and may originate from less regulated and remote areas of the world. As a result, we may not be able to address these techniquesproactively or implement adequate preventative measures. If our IT systems are compromised, due to a data breach or otherwise, we could be subject to legalclaims or proceedings, liability under laws that protect the privacy of personal information, such as HIPAA, government enforcement actions and regulatorypenalties, fines, damages, and enforcement actions, and we could lose trade secrets or other confidential information, the occurrence of any of which couldhave a material and adverse effect on our business, financial condition and results of operations. Unauthorized access, loss or dissemination could alsointerrupt our operations, including our ability to bill our customers, provide customer support services, conduct research and development activities, processand prepare company financial information, manage various general and administrative aspects of our business, and could damage our reputation, any ofwhich could adversely affect our business.We expend substantial resources to comply with laws and regulations relating to public companies, and any failure to maintain compliance could subjectus to regulatory scrutiny and cause investors to lose confidence in our company, which could harm our business and have a material adverse effect on ourstock price.Laws and regulations affecting public companies, including provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010and the Sarbanes-Oxley Act of 2002 (SOX), and the related rules and regulations adopted by the U.S. Securities and Exchange Commission (SEC), and by theNasdaq Stock Market increase our accounting, legal and financial compliance costs and make some activities more time-consuming and costly. We cannotpredict or estimate with any reasonable accuracy the total amount or timing of the costs we may incur to comply with these laws and regulations. In addition,we expect that our management and other personnel will need to divert attention from operational and other business matters to devote substantial time tothese matters. For example, compliance with Section 404 of SOX, including performing the system and process documentation and evaluation necessary toissue our annual report on the effectiveness of our internal control over financial reporting and, if applicable, obtain the required attestation report from ourindependent registered public accounting firm, requires us to incur substantial expense and expend significant management time. Further, we (through ourformer parent company) have in the past discovered, and in the future may discover, areas of internal controls that need improvement. If we identifydeficiencies in our internal controls deemed to be material weaknesses, we could become subject to scrutiny by regulatory authorities and we could loseinvestor confidence in the accuracy and completeness of our SEC filings, including the financial statements included therein, which could have a materialadverse effect on our stock price. Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectivesbecause of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even aneffective internal control system may not prevent or detect material misstatements on a timely basis, or at all. Also, previously effective controls may becomeinadequate over time because of changes in our business or operating structure, and we may fail to take measures to evaluate the adequacy of and updatethese controls, as necessary, which could lead to a material misstatement.In addition, new laws and regulations could make it costlier or more difficult for us to obtain certain types of insurance, including director and officerliability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the coverage that is thesame or similar to our current coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve asour executive officers or on our board of directors or on its committees.Our business could suffer if we lose the services of key members of our senior management or fail to hire and retain other personnel on whom our businessrelies.Our ability to execute our business strategy and compete in the highly competitive medical device industry depends, in part, on our ability to attractand retain highly qualified personnel. Companies in the medical device industry in general have experienced a high rate of personnel turnover. Loss of keyemployees, including any of our scientific, technical and managerial personnel, could adversely affect our ability to successfully execute our businessstrategy, which could have a material and adverse effect on our business, results of operations and financial condition. We would be adversely affected if wefail to adequately prepare for future turnover of our senior management team. Moreover, replacing key employees may be a difficult, costly and protractedprocess, and we may not have other personnel with the capacity to assume all of the responsibilities of a departing employee. Competition for qualifiedpersonnel, particularly for key positions, is intense among companies in our industry, particularly in the San Diego, California area, and many of theorganizations against which we compete for qualified personnel have greater financial and other resources and different risk profiles than our company,which may make them more attractive employers. All of our employees, including our management personnel, may terminate their employment with us atany time without notice. If we cannot23attract and retain highly qualified personnel, as needed, we may not achieve our financial and other goals.Moreover, future internal growth could impose significant added responsibilities on our management, and we will need to identify, recruit, maintain,motivate and integrate additional employees to manage growth effectively. If we do not effectively manage such growth, our expenses may increase morethan expected, we may not achieve our goals, and our ability to generate and/or grow revenue could be diminished.We may have significant product liability exposure and our insurance may not cover all potential claims.We are exposed to product liability and other claims. Spine surgery involves significant risk of serious complications, including bleeding, nerve injury,paralysis and even death. In addition, if neurosurgeons and orthopedic spine surgeons are not sufficiently trained in the use of our products, they may misuseor ineffectively use our products, which may result in unsatisfactory patient outcomes or patient injury. We could become the subject of product liabilitylawsuits alleging that component failures, malfunctions, manufacturing flaws, design defects, or inadequate disclosure of product-related risks or product-related information resulted in an unsafe condition or injury to patients. In addition, the development of allograft implants and technologies for human tissuerepair and treatment may entail particular risk of transmitting diseases to human recipients, and any such transmission could result in the assertion of productliability claims against us.Product liability claims are expensive to defend, divert our management’s attention and, if we are not successful in defending the claim, can result insubstantial monetary awards against us or costly settlements. Further, successful product liability claims made against one or more of our competitors couldcause claims to be made against us or expose us to a perception that we are vulnerable to similar claims. Any product liability claim brought against us, withor without merit and regardless of the outcome or whether it is fully pursued, may result in: decreased demand for our products; injury to our reputation;significant litigation costs; product recalls; loss of revenue; the inability to commercialize new products or product candidates; and adverse publicityregarding our products. Any of these may have a material and adverse effect on our reputation with existing and potential customers and on our business,financial condition and results of operations.Our existing product liability insurance coverage may be inadequate to protect us from any liabilities we might incur. If a product liability claim orseries of claims is brought against us for uninsured liabilities or more than our insurance coverage, our business could suffer. In addition, a recall of some ofour products, whether or not the result of a product liability claim, could result in significant costs and loss of customers.Our insurance policies are expensive and protect us only from some risks, which will leave us exposed to significant uninsured liabilities.We do not carry insurance for all categories of risk to which our business is or may be exposed. Some of the policies we maintain include generalliability, foreign liability, employee benefits liability, property, umbrella, employment practices, workers’ compensation, products liability and directors’ andofficers’ insurance. We do not know, however, if we will be able to maintain insurance coverage at a reasonable cost or in sufficient amounts or scope toprotect us against losses. Even if we obtain insurance, a claim could exceed the amount of our insurance coverage or it may be excluded from coverage underthe terms of the policy. Any significant uninsured liability may require us to pay substantial amounts, which would adversely affect our cash position andresults of operations.Our strategy could involve growth through acquisitions, which would require us to incur substantial costs and potential liabilities for which we may neverrealize the anticipated benefits.We may grow our business through acquisitions, a strategy which ultimately could prove unsuccessful. Any new acquisition could result in materialtransaction expenses, increased interest and amortization expense, increased depreciation expense, increased operating expense and possible in-processresearch and development charges for acquisitions that do not meet the definition of a “business,” any of which could have a material and adverse effect onour operating results.In addition, businesses we acquire may not have adequate financial, disclosure, regulatory, quality or other compliance controls in place when weacquire them, which may create uncertainty regarding the actual condition and financial results of the acquired business and our assumptions regardingsynergies and future results. Following any acquisition, we must integrate the new business, which includes incorporating it into our financial, compliance,regulatory and quality systems. Failure to timely and successfully integrate acquired businesses may result in non-compliance with regulatory or otherrequirements and may result in unexpected costs, including as a result of inadequate cost containment and unrealized economies of scale. In addition,acquisitions divert management and other resources, and involve other risks, including, risks associated with entering markets in which our24marketing and sales personnel may have limited experience and with disruption to existing relationships with employees, suppliers, customers and salesagents, both with respect to us and the acquired company. As a result of any of the foregoing, we may not realize the expected benefit from any acquisition. Ifwe cannot integrate acquired businesses, products or technologies, our business, financial conditions and results of operations could be materially andadversely affected.Furthermore, as a result of acquisitions of other healthcare businesses, we may be subject to the risk of unanticipated business uncertainties, regulatoryand other compliance matters or legal liabilities relating to those acquired businesses for which the sellers of the acquired businesses may not indemnify us,for which we may not be able to obtain insurance (or adequate insurance) or for which the indemnification may not be sufficient to cover the ultimateliabilities.We are exposed to a variety of risks relating to our international sales and operations.During the year ended December 31, 2018, approximately 11% of our net revenue was attributable to our international sales and operations. We areseeking to increase our international sales over the foreseeable future. Our international business operations are subject to a variety of risks, including:•difficulties in staffing and managing foreign and geographically dispersed operations;•having to comply with various U.S. and international laws, including the U.S. Foreign Corrupt Practices Act of 1977 and anti-money launderinglaws (see also, “Our international operations subject us to laws regarding sanctioned countries, entities and persons, customs and import-exportpractices, laws regarding transactions in foreign countries, the Foreign Corrupt Practices Act of 1977 and local anti-bribery and other laws regardinginteractions with healthcare professionals, and product registration requirements” below);•having to comply with export control laws, including, but not limited to, the Export Administration Regulations and trade sanctions againstembargoed countries, which are administered by the Office of Foreign Assets Control within the Department of the Treasury, as well as the laws andregulations administered by the Department of Commerce;•differing regulatory requirements for obtaining clearances or approvals to market our products;•changes in, or uncertainties relating to, foreign rules and regulations that may impact our ability to sell our products, perform services or repatriateprofits to the United States;•tariffs, trade barriers and export regulations that adversely impact, and other regulatory and contractual limitations on, our ability to sell ourproducts in certain foreign markets, the scope and consequences of which may increase in light of the Trump Administration’s approach to tradepolicy, including its stated intent to renegotiate, or potentially terminate, certain existing bilateral or multi-lateral trade agreements;•fluctuations in foreign currency exchange rates;•limitations on or increase of withholding and other taxes on remittances and other payments by foreign subsidiaries or joint ventures;•differing multiple payer reimbursement regimes, government payers or patient self-pay systems;•differing labor laws and standards;•economic, political or social instability in foreign countries and regions;•an inability, or reduced ability, to protect our intellectual property, including any effect of compulsory licensing imposed by government action;and•availability of government subsidies or other incentives that benefit competitors in their local markets that are not available to us.Any reduction in international sales, or our failure to further develop our international markets, could have a material adverse effect on our business,results of operations and financial condition.Our results may be impacted by changes in foreign currency exchange rates.As a result of our international sales and operations, we generate revenues in various foreign currencies including euros, British pounds, and Swissfrancs, and in U.S. dollar-denominated transactions conducted with customers who generate revenue in currencies other than the U.S. dollar. We also incuroperating expenses in euros. We cannot predict accurately the consolidated effects of exchange rate fluctuations upon our future operating results because ofthe variability of currency exposure in our revenues and operating expenses and the potential volatility of currency exchange rates. Although we addresscurrency risk management through regular operating and financing activities, those actions may not prove to be fully effective. In addition, for those foreigncustomers who purchase our products in U.S. dollars, currency exchange rate fluctuations between the U.S. dollar and the currencies in which those customersdo business may have a negative effect on the demand for our products in foreign countries where the U.S. dollar has increased in value compared to the localcurrency. Converting our earnings from international operations to U.S. dollars for use in the U.S. can also raise challenges, including problems moving fundsout of the countries in25which the funds were earned and difficulties in collecting accounts receivable in foreign countries where the usual accounts receivable payment cycle islonger. To date, we have not used risk management techniques to hedge the risks associated with foreign currency exchange rate fluctuations. Even if weimplemented hedging strategies, not every exposure can be hedged and, where hedges are put in place based on expected foreign currency exchangeexposure, they are based on forecasts that may vary or that may later prove to have been inaccurate. As a result, fluctuations in foreign currency exchangerates or our failure to successfully hedge against these fluctuations could have a material adverse effect on our operating results and financial condition.We may be subject to damages resulting from claims that we, our employees, or our independent sales agents or stocking distributors have wrongfully usedor disclosed alleged trade secrets of our competitors or are in breach of non-competition or non-solicitation agreements with our competitors.Many of our employees were employed at other medical device companies, including our competitors or potential competitors, in some casesimmediately prior to joining us. In addition, many of our independent sales agents and stocking distributors sell, or in the past have sold, products of ourcompetitors. We may be subject to claims that we, our employees or our independent sales agents or stocking distributors have intentionally, inadvertently orotherwise used or disclosed trade secrets or other proprietary information of former employers or competitors. In addition, we have been and may in the futurebe subject to claims that we caused an employee to breach the terms of his or her non-competition or non-solicitation agreement. Litigation may be necessaryto defend against these claims. Litigation is expensive, time-consuming and could divert management attention and resources away from our business. Evenif we prevail, the cost of litigation could affect our profitability. If we do not prevail, in addition to any damages we might have to pay, we may lose valuableintellectual property rights or employees, independent sales agents or stocking distributors. There can be no assurance that this type of litigation or the threatthereof will not adversely affect our ability to engage and retain key employees, sales agents or stocking distributors. See also “If we are unable to maintainand expand our network of independent sales agents and stocking distributors, we may not be able to maintain or grow our revenue,” and “Our businesscould suffer if we lose the services of key members of our senior management or fail to hire and retain other personnel on whom our business relies,” above.We are subject to continuing contingent liabilities of Integra.Even after our separation from Integra, there are several significant areas where Integra’s liabilities may become our obligations. For example, under theCode and the related rules and regulations, each corporation that was a member of the Integra consolidated U.S. federal income tax reporting group duringany taxable period or portion of any taxable period ending on or before the effective time of the distribution is jointly and severally liable for the U.S. federalincome tax liability of the entire Integra consolidated tax reporting group for that taxable period. In addition, the Tax Matters Agreement allocates theresponsibility for prior period taxes of the Integra consolidated tax reporting group between us and Integra. Under this allocation, we may be responsible fortaxes that we would not have otherwise incurred, or that we would have incurred but in different amounts and/or at different times, on a standalone basisoutside of the Integra consolidated group, and the amount of such taxes could be significant. If Integra is unable to pay any prior period taxes for which it isresponsible, we could have to pay the entire amount of such taxes.We have overlapping board membership with Integra, which may lead to conflicting interests, and one of our directors continues to own a substantialamount of Integra common stock and equity awards covering Integra stock.Two of our board members also serve as board members of Integra. Our directors who are members of Integra’s board of directors have fiduciary duties toIntegra’s stockholders, as well as fiduciary duties to our stockholders. In addition, several of our directors own or have rights to acquire Integra common stock(in at least one case, a substantial amount).As a result of the foregoing, there may be the appearance of a conflict of interest and there is the potential for a conflict of interest with respect to mattersinvolving or affecting both companies, such as when we or Integra consider acquisitions and other corporate opportunities that may be suitable for eachcompany. In addition, potential conflicts of interest could arise in connection with the resolution of any dispute that may arise between Integra and usregarding the terms of the agreements governing our separation from Integra, the Tax Matters Agreement or under other agreements between Integra and us,including with respect to indemnification matters. From time to time, we may enter into transactions with Integra and/or its subsidiaries or other affiliates.There can be no assurance that the terms of any such transactions will be as favorable to us, Integra or any of our or their subsidiaries or affiliates as would bethe case were there no overlapping board membership or ownership interest.26Risks Relating to our Financial Results and need for FinancingOur sales volumes and our operating results may fluctuate.Our sales volumes and our operating results, including components of operating results, such as gross margin and cost of goods sold, have fluctuated inthe past and may fluctuate from time to time in the future, including over the course of a fiscal year, and such fluctuations could affect our stock price. Somefactors that may cause these fluctuations include:•economic conditions worldwide, which could affect the ability of hospitals and other customers to purchase our products and could resultin a reduction in elective and non-reimbursed operative procedures;•increased competition;•market acceptance of our existing products, as well as products in development, and the demand for, and pricing of, our products and theproducts of our competitors;•costs, benefits and timing of new product introductions;•the timing of or failure to obtain regulatory clearances or approvals for new products;•lost sales and other expenses resulting from stoppages in our or third parties’ production, including as a result of product recalls or fieldcorrective actions;•the availability and cost of components and materials, including raw materials such as human tissue;•our ability to purchase or manufacture and ship our products efficiently and in sufficient quantities to meet sales demands;•the timing of our research and development expenditures;•expenditures for major initiatives;•reimbursement, changes in reimbursement or denials in coverage for our products by third-party payors, such as Medicare, Medicaid,private and public health insurers and foreign governmental health systems;•the ability of our independent sales agents and stocking distributors to achieve expected sales targets and for new agents and stockingdistributors to become familiar with our products in a timely manner;•peer-reviewed publications discussing the clinical effectiveness of our products;•inspections of our manufacturing facilities for compliance with the FDA's Quality System Regulations (Good Manufacturing Practices),which could result in Form 483 observations, warning letters, injunctions or other adverse findings from the FDA or equivalent foreignregulatory bodies, and corrective actions, procedural changes and other actions, including product recalls, that we determine are necessaryor appropriate to address the results of those inspections, any of which may affect production and our ability to supply our customers withour products;•the costs to comply with new regulations from the FDA or equivalent foreign regulatory bodies, such as the requirements to establish aunique device identification system to adequately identify medical devices through their distribution and use;•the increased regulatory scrutiny of certain of our products, including products we manufacture for others, which could result in theirbeing removed from the market;•fluctuations in foreign currency exchange rates; and•the impact of acquisitions, including the impact of goodwill and intangible asset impairment charges, if future operating results of theacquired businesses are significantly less than the results anticipated at the time of the acquisitions.In addition, we may experience meaningful variability in our sales and gross profit among quarters, as well as within each quarter, as a result of severalfactors, including but not limited to (and in addition to those listed above):•the number of products sold in the quarter;•the unpredictability of sales of full sets of spinal implants and instruments to our international stocking distributors; and•the number of selling days in the quarter.We must maintain high levels of inventory, which could consume a significant amount of our resources and reduce our cash flows.Because we maintain substantial inventory levels to meet the needs of our customers, we are subject to the risk of inventory excess, obsolescence andshelf-life expiration. Many of our spinal implant products come in sets. Each set includes a significant number of components in various sizes so that thesurgeon may select the appropriate spinal implant based on the patient’s needs. In a typical surgery, not all of the implants in the set are used, and thereforecertain sizes of implants placed in the set or that we27purchase for replenishment inventory may become obsolete before they can be used. In addition, to market our products effectively, we often must providehospitals and independent sales agents with consigned sets that typically consist of spinal implants and instruments, including products to ensureredundancy and products of different sizes. Further, our orthobiologics products have a sterilization expiration date, which ranges from one to five years, andthese products may expire before they can be used. If a substantial portion of our inventory is deemed excess, becomes obsolete or expires, it could have amaterial adverse effect on our earnings and cash flows due to the resulting costs associated with the inventory impairment charges and costs required toreplace such inventory.Our future financial results could be adversely affected by impairments or other charges.We assess periodically impairment of our long-lived assets, including finite-lived intangible assets, whenever events or changes in circumstancesindicate that the carrying value may not be recoverable. As of December 31, 2018, we had $28.7 million of net finite-lived intangible assets, consisting oftechnology and customer relationships. In addition, we continually assess the profitability of our product lines and, after such assessment, may discontinuecertain products or product lines in the future. As a result, we may record impairment charges or accelerate amortization on certain technology-relatedintangible assets in the future. Impairment charges as a result of any of the foregoing could be significant and could have a material and adverse effect on ourreported financial results for the period in which the charge is taken, which could have a material and adverse effect on the market price of our common stock.Continuing economic instability, including challenges faced by European countries, may adversely affect the ability of hospitals and other customers toaccess funds or otherwise have available liquidity, which could reduce orders for our products or impede our ability to obtain new customers, particularlyin European markets.Continuing economic instability, including challenges faced by European countries, may adversely affect the ability of hospitals and other customersto access funds to enable them to fund their operating budgets. As a result, hospitals and other customers may reduce budgets or put all or part of theirbudgets on hold or close their operations, which could have a negative effect on our sales and could impede our ability to obtain new customers, particularlyin European markets. Governmental austerity policies in Europe and other markets have reduced and could continue to reduce the amount of moneyavailable to purchase medical products, including our products. If such conditions persist, they could have a material and adverse effect on our business,financial condition and results of operations.Our future capital needs are uncertain and we may need to raise additional funds in the future, and such funds may not be available on acceptable terms orat all.We believe that our cash, investments and the amount currently available to us under our amended and restated credit agreement with Wells Fargo, N.A.will be sufficient to meet our projected operating requirements over the next 12 months. That said, continued expansion of our business will be expensive,and we likely will seek additional capital. Our capital requirements will depend on many factors, including, but not limited to:•the revenue generated by sales of our products;•the costs associated with expanding our sales and marketing efforts;•the expenses we incur in procuring, manufacturing and selling our products;•the scope, rate of progress and cost of our clinical studies;•the cost of obtaining and maintaining regulatory approval or clearance of our products and products in development;•the costs associated with complying with state, federal and international laws and regulations;•the cost of filing and prosecuting patent applications and defending and enforcing our patent and other intellectual property rights;•the cost of defending, in litigation or otherwise, any claims that we infringe third-party patent or other intellectual property rights;•the cost of enforcing or defending against non-competition claims;•the number and timing of acquisitions and other strategic transactions;•the costs associated with increased capital expenditures, including fixed asset purchases of instrument sets which we consign to hospitalsand independent sales agents to support surgeries; and•anticipated and unanticipated general and administrative expenses, including insurance expenses.28We may seek to raise additional capital to:•maintain, and, where necessary, increase appropriate product inventory and spinal instruments levels;•fund our operations and clinical studies;•continue, and, where appropriate, increase our research and development activities;•file, prosecute and defend our intellectual property rights, and defend, in litigation or otherwise, any claims that we infringe third-partypatents or other intellectual property rights;•address the FDA or other governmental, legal or enforcement actions and remediate underlying problems and address investigations orinquiries into sales and marketing practices from governmental agencies worldwide;•commercialize our new products, if any such products receive regulatory clearance or approval for sale; and•acquire companies' new products, technology or intellectual property.Such capital, which we may seek to raise through public or private equity offerings, issuing debt or existing, expanded or new credit facilities, or othersources, may not be available to us on favorable terms, or at all. For example, LIBOR is one of the reference rates under our credit agreement and is the subjectof recent proposals for reform that could impact the interest rate we pay under the credit agreement. To the extent we have outstanding borrowings under thecredit agreement at the time a LIBOR alternative becomes applicable, our borrowing costs under the credit agreement may increase. In addition, our creditagreement prohibits us from incurring indebtedness without the lender’s consent. If we issue equity securities to raise additional capital, our existingstockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of our existing stockholders.See “Risks Relating to Owning Our Common Stock-Your percentage of ownership in us may be diluted in the future and issuances of substantial amounts ofour common stock, or the perception that such issuances may occur, could cause the market price of our common stock to decline significantly, even if ourbusiness is performing well.,” and “Risks Relating to Owning Our Common Stock-We may issue preferred stock with terms that could dilute the voting poweror reduce the value of our common stock,” below. If we raise additional capital through collaboration, licensing or other similar arrangements, it may benecessary to relinquish valuable rights to our products, potential products or proprietary technologies, or grant licenses on terms that are not favorable to us.If we cannot raise capital on acceptable terms, we may not be able to develop or enhance our products, execute our business plan, take advantage of futureopportunities or respond to competitive pressures, changes in our supplier relationships or unanticipated customer requirements. Any of these events couldadversely affect our ability to achieve our business and financial goals or to achieve or maintain profitability, and could have a material and adverse effect onour business, results of operations and financial condition.Risks Relating to our Regulatory EnvironmentWe are subject to stringent domestic and foreign medical device regulation and any adverse regulatory action may materially and adversely affect ourfinancial condition and business operations.Our products, development activities and manufacturing processes are subject to extensive and rigorous regulation by numerous federal and stategovernment agencies, including the FDA and comparable foreign agencies. To varying degrees, each agency monitors and enforces our compliance with lawsand regulations governing the development, testing, manufacturing, labeling, marketing and distribution of our products. For example, we must comply withthe FDA’s Quality System Regulation, which mandates that manufacturers of medical devices adhere to certain quality assurance standards pertaining to,among other things, validation of manufacturing processes, controls for purchasing product components and documentation practices.In addition, we must engage in extensive recordkeeping and reporting. For example, the Federal Medical Device Reporting regulation requires us toprovide information to the FDA whenever there is evidence that reasonably suggests that a device may have caused or contributed to a death or serious injuryor that a malfunction occurred that would be likely to cause or contribute to a death or serious injury upon recurrence.Compliance with applicable regulatory requirements is subject to continual review and we must make our manufacturing facilities and records availablefor periodic unscheduled inspections by governmental agencies, including the FDA, state authorities and comparable agencies in other countries. If we fail topass an FDA Quality System Regulation inspection or to comply with applicable regulatory requirements, we may receive a notice of a violation in the formof inspectional observations on Form FDA 483, a warning letter, or could otherwise be required to take corrective action and, in severe cases, we could suffera disruption of our operations and manufacturing delays. If we fail to take adequate corrective actions, we could be subject to enforcement actions, includingsignificant fines, suspension of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions.The FDA has been increasing its scrutiny of the medical device industry and the government is expected to continue to scrutinize the industry closely.Moreover, allegations may be made against us or against our suppliers, including donor recovery29groups or tissue banks, claiming that the acquisition or processing of biomaterials products does not comply with applicable FDA regulations or otherrelevant statutes and regulations. Allegations like these could cause regulators or other authorities to investigate or take other action against us or oursuppliers, or could cause negative publicity for us or our industry generally. If the FDA were to investigate us, because of an allegation or otherwise, and ifthe FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose anunreasonable health risk, the FDA could ban such medical devices, detain or seize such medical devices, order a recall, repair, replacement or refund of suchdevices, require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health, restrictmanufacturing and impose other operating restrictions, enjoin and restrain certain violations of applicable law pertaining to medical devices and assess civilor criminal penalties against our officers, employees or us. The FDA may also recommend prosecution to the U.S. Department of Justice. Any notice orcommunication from the FDA regarding a failure to comply with applicable requirements, or negative publicity or product liability claims resulting from anyadverse regulatory action, could materially and adversely affect our product sales and overall business.Further, our suppliers also are subject to a wide array of regulatory and other requirements, including quality control, quality assurance and themaintenance of records and documentation. Our suppliers may be unable to comply with these requirements and with other FDA, state and foreign regulatoryrequirements. We have little control over their ongoing compliance with these regulations. Their failure to comply may expose us to regulatory action andother liability, including fines and civil penalties, suspension of production, suspension or delay in new product approval or clearance, product seizure orrecall, or withdrawal of product approval or clearance.There is no guarantee that the FDA will grant 510(k) clearance or premarket approval, or that equivalent foreign regulatory authorities will grant theforeign equivalent, of our future products, and failure to obtain necessary clearances or approvals for our future products would adversely affect ourability to grow our business.In general, unless an exemption applies, a medical device and modifications to the device or its indications must receive either premarket approval orpremarket clearance from the FDA before it can be marketed in the U.S. While in the past we have received such clearances, we may not succeed in the futurein receiving approvals and clearances in a timely manner, or at all. The process of obtaining approval or clearance from the FDA and comparable foreignregulatory agencies for new products, or for enhancements or modifications to existing products, could:•take significant time;•require the expenditure of substantial resources;•involve rigorous and expensive pre-clinical and clinical testing, as well as post-market surveillance;•involve modifications, repairs or replacements of our products; and•result in limitations on the indicated uses of our products.Some of our new products will require FDA 510(k) clearance or approval of a premarket approval application, or PMA, prior to being marketed. Anymodification to a 510(k)-cleared device that could significantly affect its safety or effectiveness, including significant design and manufacturing changes, orthat would constitute a major change in its intended use, design or manufacture, requires a new 510(k) clearance or, possibly, approval of a PMA. Similarly,modifications to PMA-approved products may require submission and approval of a supplement PMA. The FDA requires every manufacturer to determinewhether a new 510(k) or supplement PMA is needed in the first instance, and the FDA has issued guidance on assessing modifications to 510(k)-cleared andPMA-approved devices to assist manufacturers with making these determinations. However, the FDA may review any such determination and the FDA maynot agree with our determinations regarding whether new clearances or approvals are necessary. We have modified some of our 510(k)-cleared products andhave determined, based on our understanding of FDA guidance, that certain changes did not require new 510(k) clearances. If the FDA disagrees with ourdetermination and requires us to seek new 510(k) clearances, or PMA approval, for modifications to our cleared products, we may have to stop marketing ordistributing our products, we may need to recall the modified product until we obtain clearance or approval, and we may be subject to significant regulatoryfines or penalties. Significant delays in receiving clearance or approval, or failing to receive clearance or approval for our new products would have a materialand adverse effect on our ability to expand our business.Outside the U.S., clearance or approval procedures can vary among countries and can involve additional product testing and validation and additionaladministrative review periods. The time required to obtain clearance or approval in other countries might differ from that required to obtain FDA clearance orapproval. The regulatory process in other countries may include all of the risks to which we are exposed in the U.S., as well as other risks. Favorableregulatory action in one country does not ensure favorable regulatory action in another, but a failure or delay in obtaining regulatory clearance or approval inone country may have a negative effect on the regulatory process in others. Failure to obtain clearance or approval in other countries or any delay or setbackin obtaining such clearance or approval have a material and adverse effect on our business, including that our products30may not be cleared or approved for all indications requested, which could limit the uses of our products and have an adverse effect on product sales.In the EEA, we must inform the Notified Body that carried out the conformity assessment of the medical devices we market or sell in the EEA of anyplanned substantial change to our quality system or any change to our devices that could affect compliance with the Essential Requirements laid down inAnnex I to the Medical Devices Directive or the devices’ intended purpose. The Notified Body will then assess the change and verify whether it affects theproducts’ conformity with the Essential Requirements or the conditions for the use of the device. If the assessment is favorable, the Notified Body will issue anew CE Certificate of Conformity or an addendum to the existing CE Certificate of Conformity attesting compliance with the Essential Requirements. If it isnot, we may not be able to continue to market and sell the applicable product in the EEA, which could have a material and adverse effect on our business,results of operations and financial condition.We cannot be certain that we will receive required approval or clearance from the FDA and foreign regulatory agencies for new products, includingmodifications to existing products, on a timely basis, or at all. Failing to receive approval or clearance for new products on a timely basis would have amaterial and adverse effect on our financial condition and results of operations.Certain of our products are derived from human tissue and are or could be subject to additional regulations and requirements.Some of our orthobiologics products are derived from human bone tissue, and as a result are also subject to FDA and certain state regulations regardinghuman cells, tissues and cellular or tissue-based products, or HCT/Ps. An HCT/P is a product containing or consisting of human cells or tissue intended fortransplantation into a human patient. Examples include bone, ligament, skin and cornea.Some HCT/Ps also meet the definition of a biological product, medical device or drug regulated under the Federal Food, Drug and Cosmetic Act.Section 361 of the Public Health Service Act authorizes the FDA to issue regulations to prevent the introduction, transmission or spread of communicabledisease. HCT/Ps regulated as “361 HCT/Ps” are subject to requirements relating to registering facilities and listing products with the FDA, screening andtesting for tissue donor eligibility, Good Tissue Practice when processing, storing, labeling and distributing HCT/Ps, including required labeling information,stringent record keeping and adverse event reporting. These biologic, device or drug HCT/Ps must comply both with the requirements exclusively applicableto 361 HCT/Ps and, in addition, with requirements applicable to biologics, devices or drugs, including premarket clearance or approval. We have receivedrequired approvals for our products regulated as 361 HCT/Ps. However, there have been occasions in the past, and there could be occasions in the future,when the FDA requires us to obtain a 510(k) clearance for our products regulated as 361 HCT/Ps. The process of obtaining a 510(k) clearance could take timeand consume resources, and failing to receive such a clearance would render us unable to market and sell such products, which could have a material andadverse effect on our business.The American Association of Tissue Banks has issued operating standards for tissue banking. Accreditation is voluntary, but compliance with thesestandards is a requirement to become a licensed tissue bank. In addition, some states have their own tissue banking regulations. In addition, procurement ofcertain human organs and tissue for transplantation is subject to the National Organ Transplant Act, or NOTA, which prohibits the transfer of certain humanorgans, including skin and related tissue, for valuable consideration, but permits the reasonable payment associated with the removal, transportation,implantation, processing, preservation, quality control and storage of human tissue and skin. We reimburse tissue banks for their expenses associated with therecovery, storage and transportation of donated human tissue they provide to us for processing. We include in our pricing structure amounts paid to tissuebanks to reimburse them for their expenses associated with the recovery and transportation of the tissue, in addition to certain costs associated withprocessing, preservation, quality control and storage of the tissue, marketing and medical education expenses and costs associated with development oftissue processing technologies. NOTA payment allowances may be interpreted to limit the amount of costs and expenses we can recover in our pricing for ourproducts, thereby reducing our future revenue and profitability. If we were to be found to have violated NOTA’s prohibition on the sale or transfer of humantissue for valuable consideration, we would potentially be subject to criminal enforcement sanctions, which could materially and adversely affect our resultsof operations.Because of the absence of a harmonized regulatory framework and the proposed regulation for advanced therapy medicinal products in the EuropeanUnion, or EU, as well as for other countries, the approval process in the EU for human-derived cell or tissue-based medical products could be extensive,lengthy, expensive and unpredictable. Among others, some of our orthobiologics products are subject to EU member states’ regulations that govern thedonation, procurement, testing, coding, traceability, processing, preservation, storage and distribution of HCT/Ps. These EU member states’ regulationsinclude requirements for registration, listing, labeling, adverse-event reporting and inspection and enforcement. Some EU member states have their owntissue banking regulations. Non-compliance with various regulations governing our products in any EU member state could result31in the banning of our products in such member state or enforcement actions being brought against us, which could have a material and adverse effect on ourbusiness, results of operations and financial condition.Certain of our products contain materials derived from animal sources and may become subject to additional regulation.Certain of our products contain material derived from bovine tissue. Products that contain materials derived from animal sources, including food,pharmaceuticals and medical devices, are subject to scrutiny in the media and by regulatory authorities. Regulatory authorities are concerned about thepotential for the transmission of disease from animals to humans via those materials. This public scrutiny has been particularly acute in Japan and WesternEurope with respect to products derived from animal sources, largely due to concern that materials infected with the agent that causes bovine spongiformencephalopathy, or BSE, otherwise known as mad cow disease, may, if ingested or implanted, cause a variant of the human Creutzfeldt-Jakob disease, anultimately fatal disease with no known cure. Cases of BSE in cattle discovered in Canada and the U.S. have increased awareness in North America.We take steps designed to minimize the risk that our products contain agents that can cause disease, such as obtaining our collagen from countriesconsidered BSE-free. Nevertheless, products that contain materials derived from animals, including our products, could become subject to additionalregulation, or even be banned in certain countries, because of concern over the potential for the transmission of infectious or other agents. Significant newregulation, or a ban of our products, could have a material and adverse effect on our business or our ability to expand our business.Certain countries, such as Japan, China, Taiwan and Argentina, have issued regulations that require our collagen products be processed from bovinetendon sourced from countries where no cases of BSE have occurred. The collagen raw material we use in our products is sourced from New Zealand. Oursupplier has obtained approval from certain countries, including the U.S., the European Union, Japan, Taiwan, China and Argentina, for the use of suchcollagen raw material in products sold in those countries. If we cannot continue to obtain collagen raw material from a qualified source of tendon from acountry that has never had a case of BSE, we will not be permitted to sell our collagen products in certain countries, which could have a material and adverseeffect on our business, results of operations and financial condition.Clinical studies are expensive and subject to extensive regulation and their results may not support our product candidate claims or may result in thediscovery of adverse effects.In developing new products or new indications for, or modifications to, existing products, we may conduct or sponsor pre-clinical testing, clinicalstudies or other clinical research. We are conducting post-market clinical studies of some of our products to gather information about their performance oroptimal use. The data collected from these clinical studies may ultimately be used to support additional market clearance or approval for these products orfuture products. If any of our new products require premarket clinical studies, these studies are expensive, the outcomes are inherently uncertain and they aresubject to extensive regulation and review by numerous governmental authorities both in the U.S. and abroad, including by the FDA and, if federal funds areinvolved or if an investigator or site has signed a federal assurance, are subject to further regulation by the Office for Human Research Protections and theNational Institutes of Health. For example, clinical studies must be conducted in compliance with FDA regulations, local regulations, and according toprinciples and standards collectively called “Good Clinical Practices.” Failure to comply with applicable regulations could result in regulatory and legalenforcement action, including fines, penalties, suspension of studies, and also could invalidate the data and make it unusable to support an FDA submission.Even if any of our future premarket clinical studies are completed as planned, we cannot be certain that their results will support our product candidatesand/or proposed claims or that the FDA or foreign authorities and Notified Bodies will agree with our interpretation and conclusions regarding the data theygenerate. Success in pre-clinical studies and early clinical studies does not ensure that later clinical studies will succeed, and we cannot be sure that theresults of later studies will replicate those of earlier or prior studies. The clinical study process may fail to demonstrate that our product candidates are safeand effective for the proposed indicated uses, which could cause us to abandon a product candidate and may delay development of others. Any delay ortermination of our clinical studies will delay the filing of our product submissions and, ultimately, our ability to commercialize our product candidates andgenerate revenues. It is also possible that patient subjects enrolled in our clinical studies of our marketed products will experience adverse side effects that arenot currently part of the product candidate’s profile and, if so, these findings may result in lower market acceptance, which could have a material and adverseeffect on our business, results of operations and financial condition.32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 contractually requiredor expected, we may not obtain regulatory clearance, approval or a CE Certificate of Conformity for or commercialize our products.We often must rely on third parties, such as contract research organizations, medical institutions, clinical investigators and contract laboratories, toassist in conducting our clinical studies and other development activities. If these third parties do not successfully carry out their contractual duties, complywith applicable regulatory obligations or meet expected deadlines, or if these third parties need to be replaced, or if the quality or accuracy of the data theyobtain is compromised due to failing to adhere to clinical protocols, to applicable regulatory requirements or otherwise, our pre-clinical developmentactivities and clinical studies may be extended, delayed, suspended or terminated. Under these circumstances, we may not be able to obtain regulatoryclearance/approval or a CE Certificate of Conformity for, or successfully commercialize, our products on a timely basis, if at all, and our business, operatingresults and prospects may be materially and adversely affected.Oversight of the medical device industry might affect the way we sell medical devices and compete in the marketplace.The FDA, the U.S. Office of the Inspector General for the U.S. Department of Health and Human Services, the U.S. Department of Justice and otherregulatory agencies actively enforce regulations prohibiting the promotion of a medical device for a use that has not been cleared or approved by the FDA.Use of a device outside its cleared or approved indications is known as “off-label” use. Physicians may prescribe our products for off-label uses, as the FDAdoes not restrict or regulate a physician’s choice of treatment within the practice of medicine. However, if a regulatory agency determines that ourpromotional materials, training or activities constitute improper promotion of an off-label use, the regulatory agency could request that we modify ourpromotional materials, training or activities, or subject us to regulatory enforcement actions, including the issuance of a warning letter, injunction, seizure,civil fine and/or criminal penalties. Although our policy is to refrain from statements and activities that could be considered off-label promotion of ourproducts, any regulatory agency could disagree and conclude that we have engaged in off-label promotion and, potentially, caused the submission of falseclaims. In addition, the off-label use of our products may increase the risk of injury to patients, and, in turn, the risk of product liability claims. See “RisksRelating to our Business-We may have significant product liability exposure and our insurance may not cover all potential claims,” above.There are also multiple other laws and regulations that govern how companies in the healthcare industry may market their products to healthcareprofessionals and may compete by discounting the prices of their products, including, for example, the federal Anti-Kickback Statute, the federal FalseClaims Act, the federal Health Insurance Portability and Accountability Act of 1996, state law equivalents to these federal laws that are meant to protectagainst fraud and abuse, the Foreign Corrupt Practices Act of 1977 and analogous laws in foreign countries. Violations of these laws are punishable bycriminal and civil sanctions, including, but not limited to, penalties, fines and exclusion from participation in federal and state healthcare programs,including Medicare and Medicaid, and imprisonment. Federal and state government agencies, as well as private whistleblowers, have significantly increasedinvestigations and enforcement activity under these laws. Although we exercise care in structuring our sales and marketing practices, customer discountarrangements and interactions with healthcare professionals to comply with these laws and regulations, we cannot provide assurance that governmentofficials will not assert that our practices are in compliance or that government regulators or courts will interpret those laws or regulations in a mannerconsistent with our interpretation. Even if an investigation is unsuccessful or is not fully pursued, we may spend considerable time and resources defendingourselves and the adverse publicity surrounding any assertion that we may have engaged in violative conduct could have a material and adverse effect on ourreputation with existing and potential customers and on our business, financial condition and results of operations.Federal and state laws are also sometimes open to interpretation, and from time to time we may find ourselves at a competitive disadvantage if ourinterpretation differs from that of our competitors. AdvaMed (U.S.), EucoMed (Europe), MEDEC (Canada) and MTAA (Australia), some of the principal tradeassociations for the medical device industry, have promulgated model codes of ethics that set forth standards by which its members should (and non-membercompanies may) abide in the promotion of their products in various regions. We have implemented policies and procedures for compliance consistent withthose promulgated by these associations, and we train our sales and marketing personnel on our policies regarding sales and marketing practices.Nevertheless, the sales and marketing practices of our industry have been the subject of increased scrutiny from federal and state government agencies, webelieve this trend will continue and that it could affect our ability to retain customers and other relationships important to our business.For example, prosecutorial scrutiny and governmental oversight, at both the state and federal levels, over some major device companies regarding theretention of healthcare professionals have limited how medical device companies may retain healthcare professionals as consultants. Various hospitalorganizations, medical societies and trade associations are establishing their own practices that may require detailed disclosures of relationships betweenhealthcare professionals and medical device companies or ban or restrict certain marketing and sales practices, such as gifts and business meals. In addition,the Affordable Care Act, as33well as certain state laws, require detailed disclosure of certain financial relationships, gifts and other remuneration made to certain healthcare professionalsand teaching hospitals, the publicity surrounding which could have a negative impact on our relationships with our customers and ability to seek input onproduct design or involvement in research. As a result of laws, rules and regulations or our own or third-party policies that prohibit or restrict interactions, orthe growing perception that any interaction between healthcare professionals and industry are tainted, we may be unable to engage with our healthcareprofessional customers in the same manner or to the same degree, or at all, as would otherwise be the case, which may adversely affect our ability tounderstand our customer’s needs and to incorporate into our development programs feedback that addresses these needs. If we are unable to develop andcommercialize new products that address the needs of our surgeon customers and their patients, our products may not be broadly accepted in the marketplace,or at all, which would have a negative effect on our business, results of operations and financial condition.Unfavorable media reports or other negative publicity concerning both alleged improper methods of tissue recovery from donors and disease transmissionfrom donated tissue could limit widespread acceptance of some of our products.Unfavorable reports of improper or illegal tissue recovery practices, both in the U.S. and internationally, as well as incidents of improperly processedtissue leading to the transmission of disease, may affect the rate of future tissue donation and market acceptance of technologies incorporating human tissue.In addition, negative publicity could cause the families of potential donors to become reluctant to donate tissue to for-profit tissue processors. For example,the media has reported examples of alleged illegal harvesting of body parts from cadavers and resulting recalls conducted by certain companies sellinghuman tissue based products affected by the alleged illegal harvesting. These reports and others could have a negative effect on our tissue regenerationbusiness.Our international operations subject us to laws regarding sanctioned countries, entities and persons, customs and import-export practices, laws regardingtransactions in foreign countries, the Foreign Corrupt Practices Act of 1977 and local anti-bribery and other laws regarding interactions with healthcareprofessionals, and product registration requirements.Foreign governmental regulations have become increasingly stringent and more common, and we may become subject to even more rigorous regulation byforeign governmental authorities. Numerous laws restrict, and in some cases prohibit, U.S. companies from directly or indirectly selling goods, technology orservices to people or entities in certain countries. In addition, these laws require that we exercise care in structuring our sales and marketing practices andeffecting product registrations in foreign countries. Compliance with these regulations is costly.The U.S. Foreign Corrupt Practices Act of 1977, or FCPA, and similar anti-bribery laws in non-U.S. jurisdictions generally prohibit companies and theirintermediaries from making improper payments for the purpose of obtaining or retaining business. The FCPA also imposes accounting standards andrequirements on publicly traded U.S. corporations and their foreign affiliates, which are intended to prevent the diversion of corporate funds to the paymentof bribes and other improper payments. Because of the predominance of government-sponsored healthcare systems around the world, many of our customerrelationships outside of the United States are with governmental entities and are therefore subject to such anti-bribery laws. Our internal control policies andprocedures may not always protect us from reckless or criminal acts committed by our employee shareowners, or agents. In recent years, both the UnitedStates and foreign government regulators have increased regulation, enforcement, inspections and governmental investigations of the medical deviceindustry, including increased United States government oversight and enforcement of the FCPA. Despite implementation of a comprehensive globalhealthcare compliance program, we may be subject to more regulation, enforcement, inspections and investigations by governmental authorities in the future.Any failure to comply with applicable foreign legal and regulatory obligations could adversely affect us in a variety of ways, that include, but are not limitedto: the suspension or withdrawal of our CE Certificates of Conformity; the imposition of significant criminal, civil and administrative fines and penalties,including revocation or suspension of a business license and imprisonment of individuals; denial of export privileges; seizure of shipments and restrictionson certain business activities; disgorgement and other remedial measures; disruptions of our operations; and significant management distraction.Regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain morecomplex and may result in damage to our reputation with customers.We are subject to SEC regulations that require us to determine whether our products contain certain specified minerals, referred to under the regulations as“conflict minerals,” and, if so, to perform an extensive inquiry into our supply chain, to determine whether such conflict minerals originate from theDemocratic Republic of Congo or an adjoining country. We have determined that certain of our products contain such specified minerals. We are continuingto conduct inquiries into our supply chain in connection with the preparation of our conflict minerals report for 2018. Compliance with these regulations hasincreased our costs34and has been time-consuming for our management and our supply chain personnel (and time-consuming for our suppliers), and we expect that continuedcompliance will continue to require significant money and time. In addition, to the extent any of our disclosures are perceived by the market to be“negative,” it may cause customers to refuse to purchase our products. Further, if we determine to make any changes to products, processes, or sources ofsupply, it may result in additional costs, which may adversely affect our business, financial condition and results of operations.We are subject to requirements relating to hazardous materials which may impose significant compliance or other costs on us.Our research, development and manufacturing processes involve the controlled use of certain hazardous materials. For example, our allograft bonetissue processing may generate waste materials that in the U.S. are classified as medical waste. In addition, we lease facilities at which hazardous materialscould have been used. Because of the foregoing, we are subject to federal, state, foreign and local laws and regulations governing the use, manufacture,storage, handling, treatment, remediation and disposal of hazardous materials and certain waste products.Although we believe that our procedures for handling and disposing of hazardous materials comply with applicable laws as currently in effect, wecannot eliminate the risk of accidental contamination or injury from these materials. In addition, under some environmental laws and regulations, we couldalso be held responsible for all of the costs relating to any contamination at our past or present facilities and at third-party waste disposal sites, even if suchcontamination was not caused by us. If an accident occurs, state or federal or other applicable authorities may curtail our use of these materials and interruptour business operations. In addition, if an accident or environmental discharge occurs, or if we discover contamination caused by prior operations, includingby prior owners and operators of properties we acquire, we could be liable for cleanup obligations, damages and fines any related liability could exceed ourresources. If such unexpected costs are substantial, this could significantly harm our financial condition and results of operations. We carry no insurancespecifically covering environmental claims relating to the use of hazardous materials.Risks Relating to our Intellectual PropertyOur intellectual property rights may not provide meaningful commercial protection for our products, potentially enabling third parties to use ourtechnology or very similar technology in ways that could reduce our ability to compete in the marketplace.Our success will depend in part on our ability to, both in the U.S. and in foreign countries, obtain and maintain patent and other exclusivity with respectto our products; prevent third parties from infringing upon our proprietary rights; and maintain proprietary know-how and trade secrets. However, these legalmeans afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage.We own or have licensed patents that cover aspects of some of our product lines. Our patents, however, may not provide us with any significantcompetitive advantage. Others may challenge our patents and, as a result, our patents could be narrowed, invalidated or rendered unenforceable. Competitorsmay develop products similar to ours that our patents do not cover. In addition, our current and future patent applications may not result in the issuance ofpatents in the U.S. or foreign countries. Further, there is a substantial backlog of patent applications at the U.S. Patent and Trademark Office, and the approvalor rejection of patent applications may take several years.In an effort to protect our trade secrets and intellectual property rights, we require our employees, consultants and advisors to execute confidentialityand invention assignment agreements upon commencement of employment or consulting relationships with us. These agreements provide that, except inspecified circumstances, all confidential information developed or made known to the individual during their relationship with us must be kept confidential.We cannot assure you, however, that these agreements will meaningfully protect our trade secrets or other proprietary information in the event of theunauthorized use or disclosure of confidential information. In addition, we cannot assure you that others will not independently develop substantiallyequivalent proprietary information and procedures or otherwise gain access to our trade secrets, that our trade secrets will not be disclosed or that we canotherwise protect our rights to unpatented trade secrets.In addition to contractual measures, we try to protect the confidential nature of our proprietary information usingphysical and technological security measures. Such measures may not, for example, in the case of misappropriation of a tradesecret by an employee or third party with authorized access, adequately protect our proprietary information. Oursecurity measures may not prevent an employee or consultant from misappropriating our trade secrets and providing them to acompetitor, 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.35Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time-consuming, and the outcome isunpredictable.In addition, we may face claims by third parties that our agreements with employees, consultants or advisors obligating them to assign intellectualproperty to us are ineffective or in conflict with prior or competing contractual obligations of assignment, which could result in ownership disputes regardingintellectual property we have developed or will develop and interfere with our ability to capture the commercial value of such intellectual property.Litigation may be necessary to resolve an ownership dispute, and if we are unsuccessful, we may be precluded from using certain intellectual property or maylose our exclusive rights in that intellectual property. Either outcome could harm our business and competitive position. See “If we seek to protect or enforceour intellectual property rights through litigation or other proceedings, it could require us to spend significant time and money, the results of which areuncertain,” below.Furthermore, the laws of some foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S., if at all. Sincemost of our issued patents and pending patent applications are for the U.S. only, we lack a corresponding scope of patent protection in other countries. Thus,we may not be able to stop a competitor from marketing products in other countries that are similar to some of our products.If we are unable to obtain, protect and enforce patents on our technology and to protect our trade secrets, such inability could have a material andadverse effect on our business, results of operations and financial condition.Our success will depend partly on our ability to operate without infringing or misappropriating the proprietary rights of others.Our success will depend in part on our ability, both in the U.S. and in foreign countries, to operate without infringing upon the patents and proprietaryrights of others, and to obtain appropriate licenses to patents or proprietary rights held by third parties if infringement would otherwise occur.Significant litigation regarding patent rights occurs in our industry. Our competitors in both the U.S. and abroad, many of which have substantiallygreater resources and have made substantial investments in patent portfolios and competing technologies, may have applied for or obtained or may in thefuture apply for and obtain, patents that will prevent, limit or otherwise interfere with our ability to make, use and sell our products. Generally, we do notconduct independent reviews of patents issued to third parties. In addition, patent applications in the U.S. and elsewhere can be pending for many yearsbefore issuance, so there may be applications of others now pending of which we are unaware that may later result in issued patents that will prevent, limit orotherwise interfere with our ability to make, use or sell our products. The large number of patents, the rapid rate of new patent applications and issuances, thecomplexities of the technology involved, and the uncertainty of litigation increase the risk of assets and resources including management’s attention, beingdiverted to patent litigation. We have received, and expect to receive, communications from various industry participants alleging our infringement of theirpatents, trade secrets or other intellectual property rights and/or offering licenses to such intellectual property. Any lawsuits resulting from such allegationscould subject us to significant liability for damages and invalidate our proprietary rights. Any potential intellectual property litigation also could force us todo one or more of the following:•stop making, selling or using products or technologies that allegedly infringe the asserted intellectual property;•lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertion of ourintellectual property rights against others;•incur significant legal expenses;•pay substantial damages or royalties to the party whose intellectual property rights we may be found to be infringing;•pay the attorney fees and costs of litigation 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 and/or infeasible; 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.See “If we seek to protect or enforce our intellectual property rights through litigation or other proceedings, it could require us to spend significant timeand money, the results of which are uncertain,” below.Further, as the number of participants in the spine industry grows, the possibility of intellectual property infringement claims against us increases. If weare found to infringe the intellectual property rights of third parties, we could have to pay substantial damages (which may be increased up to three times ofawarded damages) and/or substantial royalties and could be prevented from selling our products unless we obtain a license or are able to redesign ourproducts to avoid infringement. Any such license may36not be available on reasonable terms, if at all, and there can be no assurance that we would be able to redesign our products in a way that would not infringethe intellectual property rights of others. If we fail to obtain any required licenses or make any necessary changes to our products or technologies, we mayhave to withdraw existing products from the market or may be unable to commercialize one or more of our products, all of which could have a materialadverse effect on our business, results of operations and financial condition.In addition, we generally indemnify our customers and sales agents with respect to infringement by our products of the proprietary rights of thirdparties. Third parties may assert infringement claims against our customers or sales agents. These claims may require us to initiate or defend protracted andcostly litigation on behalf of our customers or sales agents, regardless of the merits of these claims. If any of these claims succeed, we may be forced toindemnify, or pay damages on behalf of, our customers or sales agents or may have to obtain licenses for the products they use. If we cannot obtain allnecessary licenses on commercially reasonable terms, our customers may be forced to stop using our products.If we seek to protect or enforce our intellectual property rights through litigation or other proceedings, it could require us to spend significant time andmoney, the results of which are uncertain.To protect or enforce our intellectual property rights, we may have to initiate or defend litigation against or by third parties, such as infringement suits,opposition proceedings or seeking a court declaration that we do not infringe the proprietary rights of others or that their rights are invalid or unenforceable.Litigation, including defending against claims without merit is expensive and time-consuming, and could divert management attention and resources awayfrom our business and could harm our reputation. We may not have sufficient resources to enforce our intellectual property rights or to defend our intellectualproperty rights against a challenge. Even if we prevail, the cost of litigation, including the diversion of management and other resources, could affect ourprofitability and could place a significant strain on our financial resources.Our ability to enforce our intellectual property rights depends on our ability to detect infringement. It may be difficult to detect infringers who do notadvertise the components used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potentialcompetitor’s product. The medical device industry is characterized by the existence of a large number of patents and frequent litigation based on allegationsof patent infringement. It is not unusual for parties to exchange letters surrounding allegations of intellectual property infringement and licensingarrangements. In addition, the patent positions of medical device companies, including our patent position, may involve complex legal and factualquestions, and, therefore, the scope, validity and enforceability of any patent claims we have or may obtain cannot be predicted with certainty.Risks Relating to Owning our Common StockThe market price of our common stock has been and likely will continue to be volatile.The market price of our common stock is likely to be volatile and could be subject to wide fluctuations in response to various factors, some of which arebeyond our control. In addition to the factors discussed in this “Risk Factors” section and elsewhere in this Form 10-K, these factors include:•actual or anticipated fluctuations in our quarterly financial condition and operating performance;•introduction of new products by us or our competitors;•announcements by us or our competitors of significant acquisitions or dispositions;•our ability to obtain financing as needed;•a shift in our investor base, including sales of our shares by existing stockholders;•any major change in our board of directors or management;•threatened or actual litigation or governmental investigations;•the number of shares of our common stock publicly owned and available for trading;•the operating and stock price performance of similar companies;•changes in earnings estimates by securities analysts or our ability to meet earnings guidance;•publication of research reports about us or our industry or changes in recommendations or withdrawal of research coverage by securitiesanalysts;•changes in laws or regulations affecting our business, including tax legislation;•the success or failure of our business strategy;•investor perception of us and our industry;•changes in accounting standards, policies, guidance, interpretations or principles;•the overall performance of the equity markets;•general political and economic conditions, and other external factors.37In addition, the stock market in general, and the stocks of medical device companies in particular, have experienced extreme price and volumefluctuations that have often been unrelated or disproportionate to the operating performance of those companies. This could limit or prevent investors fromreadily selling their shares and may otherwise negatively affect the liquidity of our common stock. Securities class action litigation has often been institutedagainst companies following periods of volatility in the overall market and in the market price of a company’s securities. This litigation, if instituted againstus, could result in very substantial costs, divert our management’s attention and resources, and harm our business, financial condition and results ofoperation.Your percentage of ownership in us may be diluted and issuances of substantial amounts of our common stock, or the perception that such issuances mayoccur, could cause the market price of our common stock to decline significantly, even if our business is performing well.As with any public company, your percentage ownership in us may be diluted because of equity issuances for acquisitions and investments, capital-raising transactions or otherwise, including equity awards that we have granted and we expect to grant in the future to our directors, officers and employees.As of December 31, 2018, approximately 1.0 million shares of our common stock were subject to unvested restricted stock units and approximately 1.9million shares of our common stock were subject to exercisable stock options with a weighted average exercise price of $14.76.In August 2016, we entered into an equity distribution agreement with Piper Jaffray & Co. (Piper Jaffray), pursuant to which we could offer and sellshares of our common stock in “at the market” (ATM) offerings (as defined in Rule 415 of the Act) having an aggregate offering price up to $25.0 million ingross proceeds from time to time through Piper Jaffray acting as sales agent. These shares were covered by a registration statement on Form S-3 declaredeffective in August 2016. During the year ended December 31, 2018, we sold 882,332 shares at an average price per share of $10.00 and received netproceeds of approximately $8.5 million, which consumed the remaining capacity under this distribution agreement.In May 2018, we entered into another equity distribution agreement with Piper Jaffray (the May 2018 Distribution Agreement), pursuant to which wemay offer and sell shares of our common stock in ATM offerings having an aggregate offering price up to $50.0 million in gross proceeds from time to timethrough Piper Jaffray acting as sales agent. These shares are covered by a registration statement on Form S-3 declared effective in August 2016. We did notsell any shares under the May 2018 Distribution Agreement during the year ended December 31, 2018.In October 2018, we entered into an Underwriting Agreement with Wells Fargo Securities, LLC, Piper Jaffray & Co. and Cantor Fitzgerald & Co. actingas joint bookrunning managers and as representatives of the underwriters relating to the issuance and sale of 3,250,000 shares of our common stock and anadditional 487,500 shares of common stock subject to an underwriters' option. The price to the public in the offering was $15.50 per share, beforeunderwriting discounts and commissions. The offering closed in October 2018. We sold 3,737,500 shares and raised net proceeds of approximately $54.1million, after deducting underwriting discounts and commissions and estimated offering expenses.Further, the market price of our common stock could decline as a result of the issuance, including sale, of a large number of shares of our common stock,under the May 2018 Distribution Agreement or otherwise, and the perception that these sales could occur may also depress the market price of our commonstock. A decline in the price of our common stock might impede our ability to raise capital through the issuance of additional shares of our common stock orother equity securities.We are an “emerging growth company” and a "smaller reporting company" and we cannot be certain if the reduced disclosure requirements applicable toemerging growth companies and smaller reporting companies will make our common stock less attractive to investors.We are an “emerging growth company,” as defined in the JOBS Act, and we are taking advantage of certain exemptions and relief from variousreporting requirements applicable to public companies that are not emerging growth companies. In particular, while we are an emerging growth company:(i) we will not be required to comply with the auditor attestation requirements of Section 404(b) of SOX; (ii) we will be exempt from any rules that may beadopted by the Public Company Accounting Oversight Board requiring mandatory audit firm rotations or a supplement to the auditor’s report on financialstatements; (iii) we will be subject to reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and(iv) we will not be required to hold nonbinding advisory votes on executive compensation or stockholder approval of any golden parachute payments notpreviously approved.In addition, as an emerging growth company we do not have to comply with any new or revised accounting standard applicable38to public companies until such date that a private company must comply with such standard. We elected not to comply with such new or revised accountingstandards on the relevant dates on which adoption of such standards is required for non-emerging growth companies, therefore our financial statements maynot be comparable to the financial statements of public companies that are not emerging growth companies.We will remain an emerging growth company until the earliest of: (i) December 31, 2020 (the fiscal year-end following the fifth anniversary of thecompletion of the spin-off); (ii) the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeds $700.0 million as ofthe last business day of the second fiscal quarter of that year; (iii) the end of the fiscal year in which our annual revenues exceed $1.0 billion; and (iv) the dateon which we issue more than $1.0 billion in nonconvertible debt in any three-year period.The SEC adopted amendments to the definition of “smaller reporting company” that became effective in September 2018. Under the new definition,generally, a company qualifies as a smaller reporting company if it has a public float of less than $250 million as of the last business day of its second fiscalquarter. If a company qualifies as a smaller reporting company on that date, it may elect to reflect that determination and use the smaller reporting companyscaled disclosure accommodations in its subsequent SEC filings. Our public float as of June 30, 2018, the last business day of our most recent second fiscalquarter, was less than $250 million, and as such, we qualify as a smaller reporting company and are following certain of the scaled disclosureaccommodations, including providing audited financial statements and management discussion and analysis for our two most recent fiscal years, in contrastto other reporting companies, which must provide audited financial statements and management discussion and analysis for their three most recent fiscalyears. We will measure our public float as of June 30th every year and will continue to qualify as a smaller reporting company until our public float is $250million or more as of such date.Investors may find our common stock less attractive because we rely on the exemptions available to, and relief granted to, emerging growth companiesby the JOBS Act and/or because we follow certain of the scaled disclosure accommodations available to smaller reporting companies, either one of whichmay result in a less active trading market for our common stock and our stock price may decline and/or become more volatile.If, once we are no longer an emerging growth company, our independent registered public accounting firm cannot provide an unqualified attestationreport on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock, coulddecline.We may issue preferred stock with terms that could dilute the voting power or reduce the value of our common stock.While we have no specific plan to issue preferred stock, our amended and restated certificate of incorporation authorizes us to issue, withoutstockholder approval, one or more series of preferred stock having such designation, powers, privileges, preferences, including preferences over our commonstock respecting dividends and distributions, terms of redemption and relative participation, optional, or other rights, if any, of the shares of each such seriesof preferred stock and any qualifications, limitations or restrictions thereof, as our board of directors may determine. The terms of one or more series ofpreferred stock could dilute the voting power or reduce the value of our common stock. For example, the repurchase or redemption rights or liquidationpreferences we could assign to holders of preferred stock could affect the residual value of the common stock.If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and tradingvolume could decline.The trading market for our common stock depends in part on the research and reports that securities or industry analysts publish about us or ourbusiness. If current or future analysts who cover us were to downgrade our stock or publish inaccurate or unfavorable research about our business, our stockprice would likely decline. If one or more of these analysts were to stop covering us or were to stop regularly publishing reports on us, demand for our stockcould decrease, which might cause our stock price and trading volume to decline.We do not anticipate paying cash dividends, and accordingly, stockholders must rely on stock appreciation for any return on their investment.We have never declared or paid cash dividends on our common stock, and we do not currently expect to declare or pay any such cash dividends in theforeseeable future. Instead, we intend to retain our future earnings, if any, to fund the development and growth of our business. Payment of cash dividends, ifany, will depend on our financial condition, results of operations, capital requirements and other factors and will be at the discretion of our board of directors.Furthermore, we are subject to various laws and regulations that may restrict our ability to pay dividends and are subject to contractual restrictions on, orprohibitions against,39the payment of dividends. Due to the foregoing, the return on your investment in our common stock will likely depend entirely upon any future appreciationand our common stock may not appreciate. Investors seeking cash dividends should not invest in our common stock.Certain provisions in our charter documents and Delaware law could discourage takeover attempts and lead to management entrenchment and, therefore,may depress the market price of our common stock.Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could have the effect of delaying orpreventing changes in control or changes in our management without the consent of our board of directors, including, among other things:•a classified board of directors with three-year staggered terms, which may delay the ability of stockholders to change the membership of amajority of our board of directors;•no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;•the ability of our board of directors to determine to issue shares of preferred stock and to determine the price and other terms of thoseshares, including preferences and voting rights, without stockholder approval, which could be used to significantly dilute the ownershipof a hostile acquirer;•the exclusive right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or by theresignation, death or removal of a director, which prevents stockholders from filling vacancies on our board of directors;•limitations on the removal of directors;•a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of ourstockholders;•the requirement that a special meeting of stockholders be called only by the chairman of our board of directors, our chief executive officer,our president (in absence of a chief executive officer) or our board of directors, which may delay the ability of our stockholders to forceconsideration of a proposal or to take action, including the removal of directors;•advance notice procedures that stockholders must comply with to nominate candidates to our board of directors or to propose matters to beacted upon at a stockholders’ meeting, which may discourage or deter a potential acquirer from conducting a solicitation of proxies toelect the acquirer’s own slate of directors or otherwise attempting to obtain control of us;•the requirement for the affirmative vote of holders of at least 66 2⁄3% of the voting power of all of the then outstanding shares of ourvoting stock, voting together as a single class, to amend or repeal the provisions of our amended and restated certificate of incorporationand of our amended and restated bylaws that relate to the matters described above, which may inhibit the ability of an acquirer fromamending our amended and restated certificate of incorporation or amended and restated bylaws to facilitate a hostile acquisition; and•the ability of our board of directors, by majority vote, to amend our amended and restated bylaws, which may allow our board of directorsto take additional actions to prevent a hostile acquisition and inhibit the ability of an acquirer from amending our amended and restatedbylaws to facilitate a hostile acquisition.We believe that these provisions protect our stockholders from coercive or harmful takeover tactics by requiring potential acquirers to negotiate withour board of directors and by providing our board of directors with adequate time to assess any acquisition proposal.We are also subject to certain anti-takeover provisions under the DGCL. Under the DGCL, a corporation may not, in general, engage in a businesscombination with any holder of 15% or more of its capital stock unless the holder has held the stock for three years or, among other things, our board ofdirectors has approved the transaction.The provisions in our amended and restated certificate of incorporation and amended and restated bylaws and the anti-takeover provisions under theDGCL, may discourage, delay, prevent or make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiateactions that are opposed by our then-current board of directors, including a merger, tender offer, or proxy contest involving our company. Any delay orprevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline. Even absent atakeover attempt, the existence of these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouragingfuture takeover attempts.40Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum forcertain litigation that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputeswith us.Our amended and restated certificate of incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court ofChancery of the State of Delaware shall be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf; (ii) any actionasserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees or our stockholders; (iii) any action asserting a claimarising pursuant to any provision of the DGCL or our amended and restated certificate of incorporation or amended and restated bylaws; or (iv) any actionasserting a claim governed by the internal affairs doctrine. Our amended and restated certificate of incorporation further provides that any person or entitypurchasing or acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions described above.These provisions may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.ITEM 1B. UNRESOLVED STAFF COMMENTSAs of the filing of this report, we had no unresolved comments from the SEC staff regarding our periodic or current reports under the Exchange Act that werereceived not less than 180 days before the end of our fiscal year to which this report relates.41ITEM 2. PROPERTIESOur principal executive offices are located in Carlsbad, California, from which our orthobiologics and spinal implant products are designed, developed, andmarketed, and from which recently launched spinal implant products are inspected, kitted and distributed. We transferred the inspection, kitting, warehousingand distribution functions for our older, legacy spinal implant products to anoutsourced third party in Olive Branch , Mississippi in the fourth quarter of 2016. Our Carlsbad facility is an 82,000-square foot leased facility, where we alsomaintain our cadaveric training laboratory and our prototyping development and testing operation. The term of this lease expires in 2027. We also lease a70,000-square foot manufacturing and distribution facility located in Irvine, California, from which most of our orthobiologics products are manufacturedand all are distributed. The term of this lease expires in 2023. We also lease a 4,000-square foot office in Wayne, Pennsylvania, where we design spinalimplants and which facilitates our interactions with customers on the East Coast. We also lease a 2,600-square foot office in Lyon, France to facilitate ourinternational sales and marketing. We believe that our facilities are sufficient to meet our current needs and that we will be available to renew these leaseswhen needed on acceptable terms.Our manufacturing facilities are registered with the FDA. Our facilities are subject to FDA inspection to ensure compliance with its Quality SystemRegulations. For further information regarding the status of FDA inspections, see the "Item 1. Business- Regulation," above.42ITEM 3. LEGAL PROCEEDINGSFrom time to time, we are subject to legal proceedings and claims in the ordinary course of business. While management presently believes that the ultimateoutcome of these proceedings, individually and in the aggregate, will not materially harm our financial position, cash flows, or overall trends in results ofoperations, legal proceedings are subject to inherent uncertainties, and unfavorable rulings or outcomes could occur that have individually or in aggregate, amaterial adverse effect on our business, financial condition or operating results. We are not currently subject to any pending material litigation, other thanordinary routine litigation incidental to our business, as described above.ITEM 4. MINE SAFETY DISCLOSURESNot applicable.PART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITYSECURITIESMarket Information and HoldersOur common stock is listed on the Nasdaq Global Select Market under the symbol “SPNE.” As of February 25, 2019, we had 334 stockholders of record.Equity Compensation Plan InformationInformation about our equity compensation plan is incorporated herein by reference to Part III, Item 12 of this report.Recent Sales of Unregistered SecuritiesDuring the fourth quarter of 2018, we did not issue any securities that were not registered under the Securities Act of 1933, as amended (the Securities Act).Purchases of Equity Securities by the IssuerThe table below is a summary of our purchases of our common stock for the months with purchase activities during the quarter ended December 31, 2018.Period Total Number of SharesPurchased (1) Average Price Paid perShare Total Number of SharesPurchased as Part ofPublicly Announced Plans orPrograms Maximum Number of SharesThat May Yet be PurchasedUnder the Plans or Programs October 1 - October 31 1,164 $16.61 — —November 1 - November 30 476 $17.75 — —December 1 - December 31 27 $19.66 — —(1)These shares were surrendered to the Company to satisfy tax withholdings obligations in connection with the vesting ofrestricted stock awards.43ITEM 6.SELECTED FINANCIAL DATAAs a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSThe terms “we,” “us,” “our,” “SeaSpine” or the “Company” refer collectively to SeaSpine Holdings Corporation and its wholly-owned subsidiaries, unlessotherwise stated. All information presented in this report is based on our fiscal year. Unless otherwise stated, references to particular years, quarters,months or periods refer to our fiscal years ending December 31 and the associated quarters, months and periods of those fiscal years.This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements within the meaning ofSection 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. The matters discussed in these forward-looking statements aresubject to risk and uncertainties that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements.Such risks and uncertainties may also give rise to future claims and increase exposure to contingent liabilities. Please see the “Risk Factors” section for adiscussion of the uncertainties, risks and assumptions associated with these statements. We undertake no obligation to publicly update or revise anyforward-looking statements, whether as a result of new information, future events, or otherwise.You can identify these forward-looking statements by forward-looking words such as “believe,” “may,” “could,” “will,” “estimate,” “continue,”“anticipate,” “intend,” “seek,” “plan,” “expect,” “should,” “would” and similar expressions.These risks and uncertainties arise from (among other factors) the following:•our expectations and estimates concerning future financial performance, financing plans and the impact of competition;•our ability to successfully develop new and next-generation products and the costs associated with designing and developing those new and next-generation products;•physicians’ willingness to adopt our recently launched and planned products, customers’ continued willingness to pay for our products and third-party payors’ willingness to provide or continue coverage and appropriate reimbursement for any of our products and our ability to secureregulatory approval for products in development;•our ability to attract and retain new, high-quality independent sales agents, whether as a result of inability to reach agreement on financial orother contractual terms or otherwise, disruption to our existing distribution network as new independent sales agents are added, and the ability ofnew independent sales agents to generate growth or offset disruption to existing independent sales agents;•anticipated demand for our products and our ability to purchase or produce our products in sufficient quantities to meet customer demand;•anticipated trends in our business, including healthcare reform in the United States, increased pricing pressure from our competitors or hospitals,exclusion from major healthcare systems, whether as a result of unwillingness to provide required pricing or otherwise, and changes in third-partypayment systems;•the risk of supply shortages, including our dependence on a limited number of third-party suppliers for components and raw materials;•our ability to manage timelines and costs related to manufacturing our products;•our ability to obtain additional debt and equity financing to fund capital expenditures and working capital requirements and acquisitions;44•our ability to complete acquisitions, integrate operations post-acquisition and maintain relationships with customers of acquired entities; and•our ability to support the safety and efficacy of our products with long-term clinical data;•existing and future regulations affecting our business, both in the United States and internationally, and enforcement of those regulations;•our ability to protect our intellectual property, including unpatented trade secrets, and to operate without infringing or misappropriating theproprietary rights of others; •general economic and business conditions, in both domestic and international markets; •other risk factors described in the section entitled “Risk Factors.”These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report.Spin-off from IntegraSeaSpine was incorporated in Delaware on February 12, 2015 in connection with the spin-off of the orthobiologics andspinal implant business of Integra. The spin-off occurred on July 1, 2015. Subsequent to the spin-off, our financial statements are presented on a consolidatedbasis, as we became a separate publicly-traded company on July 1, 2015.OverviewWe are a global medical technology company focused on the design, development and commercialization of surgical solutions for the treatment of patientssuffering from spinal disorders. We have a comprehensive portfolio of orthobiologics and spinal implant solutions to meet the varying combinations ofproducts that neurosurgeons and orthopedic spine surgeons need to perform fusion procedures in the lumbar, thoracic and cervical spine. We believe thisbroad combined portfolio of orthobiologics and spinal implant products is essential to meet the “complete solution” requirements of such surgeons.We report revenue in two product categories: orthobiologics and spinal implants. Our orthobiologics products consist of a broad range of advanced andtraditional bone graft substitutes designed to improve bone fusion rates following a wide range of orthopedic surgeries, including spine, hip, and extremitiesprocedures. Our spinal implant portfolio consists of an extensive line of products to facilitate spinal fusion in degenerative, MIS, and complex spinaldeformity procedures.Our U.S. sales organization consists of regional and territory managers who oversee a broad network of independent orthobiologics and spinal implant salesagents. We pay these sales agents commissions based on the sales of our products. Our international sales organization consists of a sales management teamthat oversees a network of independent orthobiologics and spinal implant stocking distributors that purchase products directly from us and independentlysell them. For the years ended December 31, 2018 and 2017, international sales accounted for approximately 11% and 10% of our revenue, respectively. Ourpolicy is not to sell our products through or to participate in physician-owned distributorships.For the year ended December 31, 2018, our total revenue, net was $143.4 million and our net loss was $33.5 million. For the same period, revenue from salesof orthobiologics and spinal implants totaled $75.3 million and $68.1 million, respectively. We will continue to invest in the expansion of our business,primarily in sales, marketing and research and development, and we expect to continue to incur losses. As of December 31, 2018, our cash, cash equivalentsand investments totaled $54.0 million.As of February 25, 2019, we had 361 regular employees.Components of Our Results of OperationsRevenue45Our net revenue is derived primarily from the sale of orthobiologics and spinal implant products across North America, Europe, Asia Pacific and LatinAmerica. Sales are reported net of returns, rebates, group purchasing organization fees and other customer allowances.In the United States, we generate most of our revenue by consigning our orthobiologics products and by consigning or loaning our spinal implant sets tohospitals and independent sales agents, who in turn either deliver them to hospitals for a single surgical procedure, after which they are returned to us, orleave them with hospitals that are high volume users for multiple procedures. The spinal implant sets typically contain the instruments, disposables, andspinal implants required to complete a surgery. We ship replacement inventory to independent sales agents to replace the consigned inventory used insurgeries. We maintain and replenish loaned sets at our kitting and distribution centers and return replenished sets to a hospital or independent sales agent forthe next procedure. We recognize revenue on these consigned or loaned products when they have been used or implanted in a surgical procedure.For all other sales transactions, including sales to international stocking distributors and private label partners, we generally recognize revenue when theproducts are shipped to the customer or stocking distributor and the transfer of title and risk of loss occurs. There is generally no customer acceptance or othercondition that prevents us from recognizing revenue in accordance with the delivery terms for these sales transactions.Cost of Goods SoldCost of goods sold primarily consists of the costs of finished goods purchased directly from third parties and raw materials used in the manufacturing of ourproducts, plant and equipment overhead, labor costs and packaging costs. The majority of our orthobiologics products are designed and manufacturedinternally. The cost of human tissue and fixed manufacturing overhead costs are significant drivers of the cost of goods sold and consequently ourorthobiologics products, at current production volumes, generate lower gross margin than our spinal implant products. We rely on third-party suppliers tomanufacture our spinal implant products, and we assemble them into surgical sets at our kitting and distribution centers. The cost to inspect incomingfinished goods is included in the cost of goods sold. Other costs included in cost of goods sold include amortization of product technology intangible assets,royalties, scrap and consignment losses, and charges for expired, excess and obsolete inventory.Selling, General and Administrative ExpenseOur selling, general and administrative (SG&A) expenses consist primarily of sales commissions to independent sales agents, cost of medical education andtraining, payroll and other headcount related expenses, depreciation of instrument sets, instrument replacement expense, stock-based compensation,marketing expenses, supply chain and distribution expenses, including costs to ship our spinal implants to and from hospitals and independent sales agents,expenses for information technology, legal, human resources, insurance, finance, facilities, and management. We also record gains or losses associated withchanges in the fair value of contingent consideration liabilities in SG&A expenses.Research and Development ExpenseOur research and development (R&D) expenses primarily consist of expenses related to the headcount for engineering, product development, clinical affairsand regulatory functions as well as consulting services, third-party prototyping services, outside research and clinical studies activities, and materials,production and other costs associated with development of our products. We expense R&D costs as they are incurred.While our R&D expenses fluctuate from period to period based on the timing of specific initiatives, we expect these costs will increase over time as wecontinue to design and commercialize new products and expand our product portfolio, add related personnel and conduct additional clinical activities.Intangible Amortization46Our intangible amortization, including the amounts reported in cost of goods sold, consists of acquisition-related amortization. We expect total annualamortization expense (including amounts reported in cost of goods sold) to be approximately $5.8 million in 2019, $4.9 million in 2020, $4.9 million in2021, $4.8 million in 2022, and $4.2 million in 2023.RESULTS OF OPERATIONS Year Ended December 31, 2018 vs. 2017 (In thousands, except percentages) 2018 2017 % ChangeTotal revenue, net $143,443 $131,814 9 %Cost of goods sold 55,969 51,826 8 %Gross profit 87,474 79,988 9 %Gross margin 61% 61% — %Operating expenses: Selling, general and administrative 105,387 97,303 8 %Research and development 12,058 12,180 (1)%Intangible amortization 3,168 3,168 — %Total operating expenses 120,613 112,651 7 %Operating loss (33,139) (32,663) 1 %Other expense (income), net 256 (430) (160)%Loss before income taxes (33,395) (32,233) 4 %Provision (benefit) for income taxes 129 (118) (209)%Net loss $(33,524) $(32,115) 4 %Year Ended December 31, 2018 Compared to Year Ended December 31, 2017RevenueTotal revenue, net increased in 2018 by $11.6 million, or 8.8%, to $143.4 million compared to $131.8 million for the prior year. Year Ended December 31, 2018 2017 2018 vs. 2017 (In thousands) % ChangeOrthobiologics $75,339 $69,128 9.0%United States 67,363 62,533 7.7%International 7,976 6,595 20.9% % of total revenue, net 53% 52% Spinal Implants $68,104 $62,686 8.6%United States 60,520 55,872 8.3%International 7,584 6,814 11.3% % of total revenue, net 47% 48% Total revenue, net $143,443 $131,814 8.8% Year Ended December 31, 2018 vs. 2017 2018 2017 % Change (In thousands) United States 127,883 118,405 8.0% % of total revenue, net 89% 90% International 15,560 13,409 16.0% % of total revenue, net 11% 10% 47Total revenue, net $143,443 $131,814 8.8%Revenue from orthobiologics sales in the United States increased $4.8 million in 2018 compared to 2017 and was driven primarily by recently launchedproducts and growth in our legacy DBM product portfolio. This growth was partially offset by continuing sales declines in our collagen ceramic matrixproduct line. Revenue from international sales of our orthobiologics products increased $1.4 million in 2018 compared to 2017, which was primarilyattributable to increased sales in Latin America and Europe.Revenue from spinal implant sales in the United States increased $4.6 million in 2018 compared to 2017, primarily due to the revenue growth contributed byrecently launched products. We continue to experience low to mid-single digit pricing pressure in the U.S. spinal implant market. Revenue from internationalsales of spinal implants increased $0.8 million in 2018 compared to 2017, primarily due to revenue growth from sales to a new distributor in Australia thatwas partially offset by a decline in Europe and Latin America sales.Cost of Goods Sold and Gross MarginCost of goods sold in 2018 increased $4.1 million from 2017 to $56.0 million. Gross margin remained consistent from 2017 at 61% in 2018.Cost of goods sold included $3.3 million and $3.6 million of amortization for technology-based intangible assets for 2018 and 2017, respectively, and $0.8million of depreciation expense for each of 2018 and 2017.Selling, General and AdministrativeSG&A expenses increased $8.1 million to $105.4 million in 2018. The increase was mainly driven by higher sales commission expense, increased headcountand compensation expenses, the majority of which related to the expansion of our medical education and training organization, the hiring of additionalproduct managers to support the successful launch of new products, and higher costs associated with tradeshows and meetings. The increase was partiallyoffset by an increase in non-cash gains from decreases in the fair value of contingent consideration liabilities related to our acquisition in 2016 of certainmedical device assets from N.L.T. Spine Ltd. (NLT), and NLT Spine, Inc., a wholly owned subsidiary of NLT.Research and DevelopmentR&D expenses stayed relatively consistent from 2017 at approximately $12.1 million in 2018, representing 8% of revenue in 2018.Intangible AmortizationIntangible amortization expense, excluding the amounts reported in cost of goods sold for product technology intangible assets, remained consistent at $3.2million in 2018 compared to 2017.Income Taxes Year Ended December 31, 2018 2017 (In thousands)Loss before income taxes$(33,395) $(32,233)Provision (benefit) for income taxes129 (118)Effective tax rate(0.4)% 0.4%The primary driver of the effective tax rate in 2018 was expenses related to current state income taxes, current foreign income taxes and the reduction offoreign deferred tax assets. These expenses were partially offset by a benefit related to the release of uncertain tax positions due to the lapse of the statute oflimitations. In 2017 we reported an income tax benefit based on the release of uncertain tax positions following the lapse of the applicable statute oflimitations.In addition, for any pretax losses incurred subsequent to the spin-off by the consolidated U.S. tax group, we recorded no corresponding tax benefit becausewe have concluded that it is more-likely-than-not that we will be unable to realize the benefit48from any resulting deferred tax assets. We will continue to assess our position in future periods to determine if it is appropriate to reduce a portion of ourvaluation allowance in the future.On December 22, 2017, the Tax Cuts and Jobs Act (2017 Tax Act) was signed into law and has resulted in significant change to the U.S corporate income taxsystem. The 2017 Tax Act includes a federal statutory rate reduction from 35% to 21%. Since our U.S. net deferred tax assets are currently offset by a fullvaluations allowance, the change in tax rate has not impacted our effective tax rate for the period ending December 31, 2018. We are not subject to the newtransition tax on accumulated foreign earnings enacted by the 2017 Tax Act because our foreign operations have been included in our US tax filingspursuant to an election to disregard our foreign subsidiaries for federal income tax purposes.Business Factors Affecting the Results of OperationsSpecial Charges and GainsWe define special charges and gains as expenses and gains for which the amount or timing can vary significantly from period to period, and for which theamounts are non-cash in nature, or the amounts are not expected to recur at the same magnitude.We believe that identification of these special charges and gains provides important supplemental information to investors regarding financial and businesstrends relating to our financial condition and results of operations. Investors may find this information useful in assessing comparability of our operatingperformance from period to period, against the business model objectives that management has established, and against other companies in our industry. Weprovide this information to investors so that they can analyze our operating results in the same way that management does and use this information in theirassessment of our core business and valuation.Loss before income taxes includes the following special gains for the years ended December 31, 2018 and 2017: Year Ended December 31, 2018 2017 (In thousands)Special Gains: Non-cash gain from change in fair value of contingent consideration liabilities $(1,802) $(975)Non-cash gain from release of a foreign non-income tax liability— (1,512)Total Special Gains$(1,802) $(2,487)The items reported above are reflected in the consolidated statements of operations as follows: Year Ended December 31, 2018 2017 (In thousands)Selling, general and administrative$(1,802) $(2,375)Other income— (112)Total Special Gains$(1,802) $(2,487)These special gains consist of the following items:•A gain from change in fair value of contingent consideration that relates to the decrease in the fair value of contingent milestone and royaltypayments associated with the 2016 NLT acquisition.•A gain from the release of a foreign non-income tax liability following the lapse of the applicable statute of limitations.Liquidity and Capital Resources49OverviewAs of December 31, 2018, we had cash, cash equivalents and investments totaling approximately $54.0 million, and $23.4 million of current borrowingcapacity was available under our credit facility. We believe that our cash, cash equivalents and investments on hand and the amount currently available to usunder our credit facility will be sufficient to fund our operations for at least the next twelve months.Credit FacilityWe have a $30.0 million credit facility with Wells Fargo Bank, National Association which matures in July 2021, subject to a one-time, one-year extension atour election. In addition, at any time through July 27, 2020, we may increase the borrowing limit by up to an additional $10.0 million, subject to us havingsufficient amounts of eligible accounts receivable and inventory and to customary conditions precedent, including obtaining the commitment of lenders toprovide such additional amount.At December 31, 2018, we had no outstanding borrowings under the credit facility. The borrowing capacity under the credit facility is determined monthlyand is based on the amount of our eligible accounts receivable and inventory balances and qualified cash (as defined in the credit facility). Depending on theextent to which our eligible accounts receivable and inventory balances increase, our borrowing capacity could increase by as much as an additional $3.1million from the $23.4 million available as of December 31, 2018 before we are required to maintain the minimum fixed charge coverage ratio as discussedbelow. The credit facility contains various customary affirmative and negative covenants, including prohibiting us from incurring indebtedness without thelender’s consent. Under the terms of the credit facility, if our Total Liquidity (as defined in the credit facility) is less than $5.0 million, we are required tomaintain a minimum fixed charge coverage ratio of 1.10 to 1.00 for the applicable measurement period. Our Total Liquidity was $74.9 million atDecember 31, 2018, and therefore that financial covenant was not applicable at that time.Business CombinationsIn August 2016, we entered into an asset purchase agreement with NLT to acquire certain of the assets of NLT’s medical device business related to theexpandable interbody medical devices. We made an up-front cash payment of $1.0 million in connection with the initial closing in September 2016 andissued 350,000 shares of our common stock in January 2017 as contingent closing consideration. At December 31, 2018, we recorded a $1.6 million liabilityrepresenting the estimated fair value of future contingent milestone payments related to the achievement of certain commercial milestones, which weanticipate will become payable at varying times between 2020 and 2025, and a $0.9 million liability representing the estimated fair value of futurecontingent royalty payments based on percentages of our future net sales of certain of the products and technology we acquired, which we anticipate willbecome payable at varying times between 2019 and 2030. The contingent milestone payments, if any, are payable in cash or in shares of our common stock,at our election. The contingent royalty payments are payable in cash.At the Market ProgramIn August 2016, we entered into an equity distribution agreement with Piper Jaffray & Co. (Piper Jaffray), pursuant to which we may offer and sell shares ofour common stock in “at the market” (ATM) offerings (as defined in Rule 415 of the Securities Act) having an aggregate offering price up to $25.0 million ingross proceeds from time to time through Piper Jaffray acting as sales agent. During the year ended December 31, 2017, we received net proceeds ofapproximately $15.6 million, net of $0.6 million of offering costs, from the sale of 1,500,000 shares of our common stock. In February 2018, we received netproceeds of approximately $8.5 million, net of $0.3 million of offering costs, from the sale of 882,332 shares of our common stock and which consumed theremaining capacity under this equity distribution agreement. In May 2018, we entered into another equity distribution agreement with Piper Jaffray, pursuant to which we may offer and sell shares of our common stockin ATM offerings having an aggregate offering price up to $50.0 million in gross proceeds from time to time through Piper Jaffray acting as sales agent. Wedid not sell any shares of common stock under this distribution agreement during the year ended December 31, 2018. Future sales, if any, will depend on avariety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital needs. We intend to use any netproceeds for general corporate purposes, including sales and marketing expenditures aimed at growing our business, research and development expendituresfocused on product development, and investments in inventory and spinal instruments and sets.Underwritten OfferingOn October 11, 2018, we entered into an Underwriting Agreement with Wells Fargo Securities, LLC, Piper Jaffray & Co. and Cantor Fitzgerald & Co. actingas joint bookrunning managers and as representatives of the underwriters relating to the50issuance and sale of 3,250,000 shares of our common stock. The price to the public in the offering was $15.50 per share, before underwriting discounts andcommissions. We granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 487,500 shares of common stock. Theunderwriters exercised this option and the offering closed on October 15, 2018 with the sale of 3,737,500 shares of our common stock. The net proceeds fromthe offering were approximately $54.1 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. Weused a portion of the net proceeds from this offering to repay all of our then-outstanding borrowings under our Wells Fargo credit facility, and we intend touse the remaining proceeds for general corporate purposes, including general and administrative expenses, capital expenditures and general working capitalpurposes.Cash and Cash EquivalentsWe had cash and cash equivalents totaling approximately $24.2 million and $10.8 million at December 31, 2018 and December 31, 2017, respectively.Cash Flows Year Ended December 31, 2018 2017 (In thousands)Net cash used in operating activities$(12,558) $(8,622)Net cash used in investing activities(38,104) (7,646)Net cash provided by financing activities64,197 12,040Effect of exchange rate fluctuations on cash(90) 450Net increase (decrease) in cash and cash equivalents$13,445 $(3,778)Net Cash Flows Used in Operating ActivitiesWe used $12.6 million and $8.6 million in operating activities during 2018 and 2017, respectively.Operating cash outflows during 2018 increased by $3.9 million compared to 2017. The increase was primarily due to 2017 performance incentive bonuses forthe executive management team being paid in cash in 2018, whereas 2016 performance incentive bonuses for the executive management team were paid withequity in lieu of cash in 2017, increased sales commission payments during 2018 compared to 2017 and increased inventory purchases and settlement ofaccrued expenses which increased operating cash outflows compared to 2017. These changes were partially offset by increases in accounts payable whichreduced cash outflows due to timing of payments to suppliers.Net Cash Flows Used in Investing ActivitiesNet cash used in investing activities was $38.1 million in 2018 compared to $7.6 million in 2017. The $30.5 million increase was primarily due to $29.8million of purchases of U.S. Treasury Bills and $0.9 million increase in investments in spinal instruments and sets to support recent spinal implant productlaunches.Net Cash Flows Provided by Financing ActivitiesNet cash provided by financing activities was $64.2 million in 2018 compared to $12.0 million in 2017. Financing cash flows for 2018 were comprisedprimarily of $54.1 million of net proceeds from the sale of shares of our common stock in our underwritten offering and $8.5 million of net proceeds from thesale of shares of our common stock under our ATM equity offering program. We used $7.3 million of cash to repay all of the then-outstanding borrowingsunder our Wells Fargo credit facility. Financing cash flows for 2017 were comprised primarily of $15.6 million of net proceeds from the sale of shares of ourcommon stock under our ATM equity offering program and $1.0 million of proceeds from the sale of shares of our common stock under our 2015 EmployeeStock Purchase Plan. We used $4.0 million of cash to repay all of the then-outstanding borrowings under our Wells Fargo credit facility and $0.4 million ofcash to repay the remaining short-term debt related to our insurance premium finance agreements (see Note 4 "Debt and Interest" to the Notes to ConsolidatedFinancial Statements included in Part I, Item 1 of this report).51Off-Balance Sheet ArrangementsThere were no off-balance sheet arrangements as of December 31, 2018 that have or are reasonably likely to have, a current or future effect on our financialcondition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material toour business.Contractual Obligations and CommitmentsAs of December 31, 2018, we were obligated to pay the following amounts under various agreements: Total Less than 1Year 1-3 Years 4-5 Years More than 5Years (In millions)Employment Agreements$0.7 $0.5 $0.2 $— $—Operating Leases15.0 2.2 4.4 3.8 4.6Purchase Obligations13.8 13.8 — — —Credit Facility— — — — —Other0.9 0.4 0.5 — —Total$30.4 $16.9 $5.1 $3.8 $4.6The "Other" line item includes minimum royalties and milestone payments under certain license agreements. The table above excludes the followingliabilities because we cannot reliably estimate the timing of when they may become payable, if ever:•an estimated $0.3 million liability, including interest and penalties for uncertain tax benefits;•contingent milestone and royalty payments related to the NLT asset acquisition; and•up to $2.4 million in the aggregate of potential royalty and milestone payments under a license agreement that may be payable at various stages ofdeveloping the licensed technology and sales of products using the licensed technology.Critical Accounting Polices and the Use of EstimatesOur discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared inaccordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to makeestimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts ofrevenues and expenses. Significant estimates affecting amounts reported or disclosed in the consolidated financial statements include revenue recognition,allowances for doubtful accounts receivable and sales return and other credits, net realizable value of inventories, amortization periods for acquiredintangible assets, estimates of projected cash flows and discount rates used to value intangible assets and test them for impairment, estimates of projectedcash flows and assumptions related to the timing and probability of the product launch dates, discount rates matched to the timing of payments, andprobability of success rates used to value contingent consideration liabilities from business combinations, estimates of projected cash flows and depreciationand amortization periods for long-lived assets, valuation of stock-based compensation, computation of taxes and valuation allowances recorded againstdeferred tax assets, and loss contingencies. These estimates are based on historical experience and on various other assumptions believed to be reasonableunder the current circumstances. Actual results could differ from these estimates.We believe that the following accounting policies, which form the basis for developing these estimates, are those that are most critical to the presentation ofour consolidated financial statements and require the more difficult subjective and complex judgments:Revenue RecognitionOur net sales are derived primarily from the sale of orthobiologics and spinal implant products globally. Sales are reported net of returns, rebates, grouppurchasing organization fees and other customer allowances.52Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, title and risk of loss have passed to the customer, there is afixed or determinable sales price and collectability of that sales price is reasonably assured.In the United States, we generate most of our revenue by consigning our orthobiologics products and consigning or loaning our spinal implant sets tohospitals and independent sales agents, who in turn deliver them to the hospital for a single surgical procedure or leave them with hospitals that are highvolume users for use in multiple procedures. The spinal implant sets typically contain the instruments, including disposables, and spinal implants required tocomplete a surgery. We ship replacement inventory to independent sales agents to replace the consigned inventory used in surgeries and maintain andreplenish the loaned sets and return them to a hospital or independent sales agent for the next procedure. We recognize revenue on these consigned or loanedproducts when they have been used or implanted in a surgical procedure.For all other transactions, including sales to international stocking distributors, we recognize revenue when the products are shipped to the customer orstocking distributor and the transfer of title and risk of loss occurs. There are generally no customer acceptance or other conditions that prevent us fromrecognizing revenue in accordance with the delivery terms.Product royalties are estimated and recognized in the same period that the royalty-based products are sold by licensees. We estimate and recognize royaltyrevenue based upon communication with licensees, historical information and expected sales trends. Differences between actual revenues and estimatedroyalty revenues are adjusted in the period in which they become known, which is typically the following quarter. Historically, such adjustments have notbeen significant. Allowance for Doubtful Accounts ReceivableWe evaluate the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable to meet itsfinancial obligations to us, we record an allowance to reduce the net recognized receivable to the amount we reasonably expect to collect. For all othercustomers, we record allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and ourhistorical experience. If the financial condition of customers or the length of time that receivables are past due were to change, we may incur bad debtexpense in SG&A.InventoriesInventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, the value determined by the first-in,first-out method, or the market methods. At each balance sheet date, we evaluate ending inventories for excess quantities, obsolescence or shelf-lifeexpiration. Our evaluation includes an analysis of our current and future strategic plans, historical sales levels by product, projections of future demand byproduct, the risk of technological or competitive obsolescence for our products, general market conditions, a review of the shelf-life expiration dates for ourproducts, and the feasibility of reworking or using excess or obsolete products or components in the production or assembly of other products that are notobsolete or for which we do not have excess quantities in inventory. To the extent that we determine there are excess or obsolete quantities or quantities witha shelf life that is too near its expiration for us to reasonably expect that we can sell those products prior to their expiration, we adjust their carrying value toestimated net realizable value. If future demand or market conditions are lower than our projections or if we are unable to rework excess or obsolete quantitiesinto other products, we may record further adjustments to the carrying value of inventory through a charge to cost of goods sold in the period the revision ismade. In addition, we capitalize inventory costs associated with certain products prior to regulatory approval, based on management’s judgment of probableeconomic benefit. We could be required to expense previously capitalized costs related to pre-approval inventory upon a change in such judgment, due to,among other potential factors, a denial or delay of approval by necessary regulatory bodies or a decision by management to discontinue the relateddevelopment program.Property, Plant and EquipmentProperty, plant and equipment is carried at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on an asset’sestimated useful life. Maintenance and repairs on all property and equipment are expensed as incurred. Depreciation of spinal instrument sets and instrumentreplacement expense is recorded in SG&A.53Valuation of Identifiable Intangible AssetsOur intangible assets are comprised primarily of product technology, customer relationships, and trade name and trademarks. We make significant judgmentsin relation to the valuation of intangible assets resulting from business combinations and asset acquisitions. Significant estimates include, but are not limitedto, measurements estimating cash flows and determining the appropriate discount rate.Intangible assets are amortized on a straight-line basis over their estimated useful lives of 1 to 20 years. We base the useful lives and related amortizationexpense on the period of time we estimate the assets will generate revenues or otherwise be used by the Company. We also periodically review the livesassigned to our intangible assets to ensure that our initial estimates do not exceed any revised estimated periods from which we expect to realize cash flowsfrom the technologies. If a change were to occur in any of the above-mentioned factors or estimates, the likelihood of a material change in our reported resultswould increase.We review identifiable intangible assets with definite lives for impairment quarterly or whenever events or changes in circumstances indicate that thecarrying value may not be recoverable. Factors we consider in determining whether a triggering event has occurred include a significant change in thebusiness climate, legal factors, operating performance indicators, competition, sale or disposition of significant assets or products. Application of theseimpairment tests requires significant judgments, including estimation of future cash flows, which depends on internal forecasts, estimation of the long-termrate of growth for our business, the useful life over which cash flows will occur and determination of our weighted-average cost of capital. Should a triggering event be deemed to occur, we are required to estimate the expected net cash flows to be realized over the life of the asset and/or the asset’sfair value. Fair values are determined by a discounted cash flow model. These estimates are also subject to significant management judgment including thedetermination of many factors such as revenue growth rates, cost growth rates, terminal value assumptions and discount rates. Changes in these estimates canhave a significant impact on the determination of cash flows and fair value and could result in future material impairments.Due to market trend factors, new features necessary to be competitive, and changing pricing dynamics, there are shifts in the commercialization strategy ofsome of the acquired product technologies and the estimated net sales associated with the 2016 NLT acquisition. We performed a recoverability test anddetermined that the expected net cash flows to be realized over the life of the related intangible assets exceeds their carrying value as of December 31, 2018.As such, we determined that the related intangible assets are not impaired; however, if estimates of expected cash flows continue to decline, we may recordimpairment charges on the related intangible assets in the future.Valuation of Stock-Based CompensationThe estimated fair value of stock-based awards exchanged for employee and non-employee director services are expensed over the requisite service period.For purposes of calculating stock-based compensation, we estimate the fair value of stock options using a Black-Scholes option-pricing model. Thedetermination of the fair value of stock-based payment awards utilizing the Black-Scholes model is affected by our stock price and several assumptions,including expected volatility, expected term, risk-free interest rate and expected dividends. Due to our limited historical data as a separate public company,the expected volatility is calculated based upon the historical volatility of comparable companies in the medical device industry whose share prices arepublicly available for a sufficient period of time. The expected term of "plain vanilla" options is calculated using the simplified method as prescribed byaccounting guidance for stock-based compensation. A "plain vanilla" option is an option with these characteristics: (1) the option is granted at-the-money;(2) exercisability is conditional only on satisfaction of a service condition through the vesting date; (3) employees who terminate their service prior tovesting forfeit the options; (4) employees who terminate their service after vesting are granted limited time to exercise their stock options; and (5) the optionsare nontransferable and nonhedgeable. The expected term of any other option is based on disclosures from similar companies with similar grants. The risk-free interest rates are derived from the U.S. Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expectedterm of the options. We considered that we have never paid cash dividends and do not currently intend to pay cash dividends. The fair value of restrictedstock awards granted is based on the market price of our common stock on the date of grant. In addition, we apply an expected forfeiture rate when amortizingstock-based compensation expense. The expected forfeiture rate is based on historical experience of pre-vesting forfeitures on awards by each homogenousgroup of shareowners and is estimated to be 13% and 15% annually for all non-executive employees for the years ended December 31, 2018 and 2017,respectively. No forfeiture rate is applied for non-employee directors and54executive employees as their pre-vesting forfeitures are anticipated to be highly unlikely. As individual grant awards become fully vested, stock-basedcompensation expense is adjusted to recognize actual forfeitures.If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. Ifthere is a difference between the assumptions used in determining stock-based compensation expense and the actual factors which become known over time,specifically with respect to anticipated forfeitures, we may change the input factors used in determining stock-based compensation costs for future grants.These changes, if any, may materially impact our results of operations in the period such changes are made.Income TaxesThe income tax provision in the consolidated statements of operations for periods prior to the spin-off was calculated using the separate return method, as ifwe filed a separate tax return and operated as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not reflect ouractual tax balances included in Integra’s historical consolidated income tax return. More specifically, the presentation of substantial net operating losses, andany related valuation allowances, presented herein prior to the spin-off do not represent actual net operating losses incurred by us or that are available forcarryforward to a future tax year.Changes in the tax rates of the various jurisdictions in which we operate affect our profits. In addition, we maintain a reserve for uncertain tax benefits,changes to which could impact our effective tax rate in the period such changes are made. The effective tax rate can also be impacted by changes in valuationallowances of deferred tax assets, and tax law changes.Our provision for income taxes may change period-to-period based on specific events, such as the settlement of income tax audits and changes in tax laws, aswell as general factors, including the geographic mix of income before taxes, state and local taxes.We recognize a tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits ofthe position. The amount of the accrual for which an exposure exists is not material for any period presented.We believe that we have identified all reasonably identifiable exposures and the reserve we have established for identifiable exposures is appropriate underthe circumstances; however, it is possible that additional exposures exist and that exposures will be settled at amounts different than the amounts reserved. Itis also possible that changes in facts and circumstances could cause us to either materially increase or reduce the carrying amount of our tax reserves.Our deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and their basis for income tax purposes, and also the temporary differences created by the tax effects of capital loss, net operating loss and tax creditcarryforwards. We record valuation allowances to reduce deferred tax assets to the amounts that are more likely than not to be realized. We could recognizeno benefit from our deferred tax assets or we could recognize some or all of the future benefit depending on the amount and timing of taxable income wegenerate in the future.The Tax Cuts and Jobs Act enacted on December 22, 2017 reduces the U.S federal corporate tax rate from 35% to 21%. Accordingly, we modified the value ofthe deferred tax assets and liabilities including the net operating loss carryover at December 31, 2017. We are not subject to the new transition tax onaccumulated foreign earnings enacted by the 2017 Tax Act because our foreign operations have been included in our US tax filings pursuant to an election todisregard our foreign subsidiaries for federal income tax purposes.55Loss ContingenciesWe are subject to claims and lawsuits in the ordinary course of our business, with respect to our products, our current or former employees, and involvingcommercial disputes. We accrue for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amountsaccrued are based on the full amount of the estimated loss before considering insurance proceeds, if applicable, and do not include an estimate for legal feesexpected to be incurred in connection with the loss contingency. We accrue legal fees expected to be incurred in connection with loss contingencies as thosefees are incurred by outside counsel as a period cost. Our financial statements do not reflect any material amounts related to possible unfavorable outcomes ofclaims and lawsuits to which we are currently a party because we currently believe that such claims and lawsuits are not expected, individually or in theaggregate, to result in a material and adverse effect on our financial condition.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKAs a "smaller reporting company" as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAFinancial statements and the financial statement schedules specified by this Item, together with the report thereon of RSM US LLP, are presented followingthe signature page to this report.Information on quarterly results of operations is set forth in our financial statements under Note 13, “Selected Quarterly Information — Unaudited,” to ourconsolidated financial statements.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURESNone.ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresBased on an evaluation under the supervision and with the participation of our management, our Chief Executive Officer and Chief Financial Officer haveconcluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of the end of theperiod covered by this report to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded,processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.Management’s Annual Report on Internal Control Over Financial ReportingThe Company's management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f)and 15d-15(f) of the Exchange Act). Internal control over financial reporting is a process designed under the supervision and with the participation of ourmanagement, including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United Statesof America. Management conducted an assessment of the effectiveness of the Company's internal control over financial reporting based on the criteria setforth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013 Framework). Based onthis assessment, our management concluded that, as of December 31, 2018, our internal control over financial reporting was effective based on those criteria.56Attestation Report on Internal Control over Financial ReportingAs an emerging growth company, under Section 103 of the JOBS Act, we are not required to provide, and this report does not include, an attestation report ofour independent registered public accounting firm regarding our internal control over financial reporting.Changes in Internal Control over Financial ReportingThere have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rules 13a-15(d) and15d-15(d) under the Exchange Act that occurred during the quarter ended December 31, 2018 that have materially affected, or are reasonably likely tomaterially affect, our internal control over financial reporting.Inherent Limitations of Internal ControlsOur management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or ourinternal controls over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, canprovide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems,no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Theseinherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error ormistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management overrideof the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate becauseof changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effectivecontrol system, misstatements due to error or fraud may occur and not be detected.ITEM 9B. OTHER INFORMATIONNone.57Part IIIItem 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.Information required by this item will be set forth under the headings “PROPOSAL 1: ELECTION OF DIRECTORS,” “EXECUTIVE COMPENSATION ANDOTHER INFORMATION,” and “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE” in our definitive proxy statement to be filed withthe SEC in connection with our 2019 Annual Meeting of Stockholders, or the Definitive Proxy Statement, which is expected to be filed not later than 120days after the end of our fiscal year ended December 31, 2018, and is incorporated in this report by reference.Item 11. EXECUTIVE COMPENSATION.The information required by this item will be set forth under the heading "EXECUTIVE COMPENSATION AND OTHER INFORMATION" in the DefinitiveProxy Statement and is incorporated in this report by reference.Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.The information required by this item will be set forth under the headings “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT” and “EXECUTIVE COMPENSATION AND OTHER INFORMATION” in the Definitive Proxy Statement and is incorporated in this reportby reference.Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.The information required by this item will be set forth under the headings “CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS” and“PROPOSAL 1: ELECTION OF DIRECTORS” in the Definitive Proxy Statement and is incorporated in this report by reference.Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.The information required by this item will be set forth under the headings “PROPOSAL 2: RATIFICATION OF SELECTION OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM” in the Definitive Proxy Statement and is incorporated in this report by reference.58PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a) Documents filed as a part of this report.1. Financial Statements.The following financial statements and financial statement schedules are filed as a part of this report:Report of Independent Registered Public Accounting FirmF- 1Consolidated Statements of Operations for the years ended December 31, 2018 and 2017F- 3Consolidated Statements of Comprehensive Loss for the years ended December 31, 2018 and 2017F- 4Consolidated Balance Sheets as of December 31, 2018 and 2017F- 5Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017F- 6Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018 and 2017F- 8Notes to Consolidated Financial StatementsF- 9 2. Financial Statement Schedules. Schedule II — Valuation and Qualifying AccountsF- 28All other schedules not listed above have been omitted, because they are not applicable or are not required, or because the required information is included inthe consolidated financial statements or notes thereto.3. Exhibits required to be filed by Item 601 of Regulation S-K.59EXHIBIT INDEX Incorporated by ReferenceExhibit No. Description Filed orFurnishedHerewith Form File/Film No. Date Filed2.1(a)*# Asset Purchase Agreement among SeaSpine HoldingsCorporation, N.L.T Spine Ltd. and NLT Spine, Inc.,dated August 17, 2016 Form 10-Q 001-36905-161987764 11/10/2016 2.1(b) Amendment to the Asset Purchase Agreement amongSeaSpine Holdings Corporation, N.L.T Spine Ltd. andNLT Spine, Inc., dated September 26, 2016 Form 10-Q 001-36905-161987764 11/10/2016 2.1(c) Amendment No. 2 to Asset Purchase Agreement amongSeaSpine Holdings Corporation, N.L.T Spine Ltd. andNLT Spine, Inc., dated January 31, 2017 Form 10-K 001-36905-17665133 3/3/2017 3.1 Amended and Restated Certificate of Incorporation ofSeaSpine Holdings Corporation Form 8-K 001-36905-15966132 7/1/2015 3.2 Amended and Restated Bylaws of SeaSpine HoldingsCorporation X 4.1 Form of Common Stock Certificate of SeaSpineHoldings Corporation Form 10 001-36905-15904590 6/1/2015 4.2 Form of Indenture Form S-3 333-213089-161825462 8/11/2016 10.1 Microfibrillar Collagen Supply Agreement betweenIntegra LifeSciences Holdings Corporation andSeaSpine Holdings Corporation, dated as of July 1,2015 Form 8-K 001-36905-15966132 7/1/2015 10.2 Collagen Ceramic Supply Agreement between IntegraLifeSciences Holdings Corporation and SeaSpineHoldings Corporation, dated as of July 1, 2015 Form 8-K 001-36905-15966132 7/1/2015 10.3 Demineralized Bone Matrix and Collagen CeramicProducts Supply Agreement between IntegraLifeSciences Holdings Corporation and SeaSpineHoldings Corporation, dated as of July 1, 2015 Form 8-K 001-36905-15966132 7/1/2015 10.4** Form of Indemnification Agreement entered intobetween SeaSpine Holdings Corporation and each of itsdirectors and executive officers Form 10 001-36905-15904590 6/1/2015 10.5** SeaSpine Holdings Corporation 2015 Employee StockPurchase Plan Form 10 001-36905-15904590 6/1/2015 6010.6** Employment Agreement, by and between SeaSpineHoldings Corporation, SeaSpine OrthopedicsCorporation and Keith Valentine, dated April 28, 2015 Form 10 001-36905-15904590 6/1/2015 10.7** John Bostjancic Letter Agreement, dated March 30,2015 Form 10 001-36905-15904590 6/1/2015 10.8** John Winge Letter Agreement, dated January 22, 2015 Form 10 001-36905-15904590 6/1/2015 10.9 Amended and Restated Lease between Monarch RRCProperties, LLC (assignee of original landlord, NewGoodyear LTD) and IsoTis Orthobiologics, Inc., datedas of February 23, 2006, for property at 2 Goodyear,Irvine, CA (the “Irvine Industrial Real Estate Lease”) Form 10 001-36905-15904590 6/1/2015 10.10(a) Amendment No. 1 to Irvine Industrial Real Estate Lease,dated as of May 26, 2011 Form 10 001-36905-15904590 6/1/2015 10.10(b) Amendment No. 2 to Irvine Industrial Real Estate Lease,dated as of May 14, 2013 Form 10 001-36905-15904590 6/1/2015 10.11 Sublease Agreement between SeaSpine OrthopedicsCorporation, and SkinMedica, Inc., dated as of July 8,2015 Form 8-K 001-36905-151103433 9/11/2015 10.12** SeaSpine Holdings Corporation Senior LeadershipRetention and Severance Plan, effective January 27,2016 Form 8-K 001-36905-161378936 2/2/2016 10.13(a) Credit Agreement between SeaSpine HoldingsCorporation, SeaSpine Orthopedics Corporation,SeaSpine, Inc., SeaSpine Sales LLC, Theken Spine,LLC, ISOTIS Orthobiologics, Inc. and Wells FargoBank, National Association, as administrative agent foreach member of the lender group and the bank productproviders, entered into as of December 24, 2015 Form 10-K 001-36905-161510399 3/16/2016 10.13(b) First Amendment to Credit Agreement and Waiveramong SeaSpine Holdings Corporation, SeaSpineOrthopedics Corporation, SeaSpine, Inc., SeaSpineSales LLC, Theken Spine, LLC, ISOTIS Orthobiologics,Inc. and Wells Fargo Bank, National Association, asadministrative agent for each member of the lendergroup and the bank product providers, made as ofOctober 14, 2016 Form 10-K 001-36905-17665133 3/3/2017 6110.13(c) Amended and Restated Credit Agreement betweenSeaSpine Holdings Corporation, SeaSpine OrthopedicsCorporation, SeaSpine, Inc., SeaSpine Sales LLC,Theken Spine, LLC, ISOTIS Orthobiologics, Inc. andWells Fargo Bank, National Association, asadministrative agent for each member of the lendergroup and the bank product providers, entered into as ofJuly 27, 2018 Form 10-Q 001-36905-181164006 11/6/2018 10.14(a)** SeaSpine Holdings Corporation Amended and Restated2015 Incentive Award Plan (As Amended and Restatedas of March 30, 2016) Form S-8 333-211887-161700155 6/7/2016 10.14(b)** First Amendment to the SeaSpine Holdings CorporationAmended and Restated 2015 Incentive Award Plan Form 8-K 001-36905-161841057 8/18/2016 10.14(c)** Second Amendment to the SeaSpine HoldingsCorporation Amended and Restated 2015 InventiveAward Plan Form S-8 333-223435-18663875 3/5/2018 10.14(d)** SeaSpine Holdings Corporation Amended and Restated2015 Incentive Award Plan- Form of Stock OptionGrant Notice (including Stock Option Agreement) Form S-8 333-211887-161700155 6/7/2016 10.14(e)** SeaSpine Holdings Corporation Amended and Restated2015 Incentive Award Plan - Form of Stock OptionGrant Notice (including Stock Option Agreement) Form 10 001-36905-15904590 6/1/2015 10.14(f)** SeaSpine Holdings Corporation Amended and Restated2015 Incentive Award Plan- Form of Restricted StockAward Grant Notice and Restricted Stock AwardAgreement Form S-8 333-211887-161700155 6/7/2016 10.14(g)** SeaSpine Holdings Corporation Amended and Restated2015 Incentive Award Plan - Form of Restricted StockUnit Award Grant Notice and Restricted Stock UnitAward Agreement. Form 10-K 001-36905-17665133 3/3/2017 10.14(h)** SeaSpine Holdings Corporation Amended and Restated2015 Incentive Award Plan - Form of Restricted StockUnit Award Grant Notice and Restricted Stock UnitAward Agreement. (used for grants on and afterFebruary 1, 2018) Form 10-K 001-36905-18663242 3/2/2018 6210.14(i)** SeaSpine Holdings Corporation Amended and Restated2015 Incentive Award Plan - Form of Stock OptionGrant Notice and Stock Option Agreement. (used forgrants on and after June 6, 2018 for Senior LeadershipTeam Members) Form 10-Q 001-36905-18979117 7/31/2018 10.14(j)** SeaSpine Holdings Corporation Amended and Restated2015 Incentive Award Plan - Form of Stock OptionGrant Notice and Stock Option Agreement. (used forgrants on and after June 6, 2018 for Non-SeniorLeadership Team Members) Form 10-Q 001-36905-18979117 7/31/2018 10.15(a)** SeaSpine Holdings Corporation 2018 EmploymentInducement Incentive Award Plan Form 10-Q 001-36905-18979117 7/31/2018 10.15(b)** Form of Restricted Stock Unit Award Grant Notice andRestricted Stock Unit Award Agreement under theSeaSpine Holdings Corporation 2018 EmploymentInducement Incentive Award Plan Form 10-Q 001-36905-18979117 7/31/2018 10.15(c)** Form of Stock Option Grant Notice and Stock OptionAgreement under the SeaSpine Holdings Corporation2018 Employment Inducement Incentive Award Plan(for Senior Leadership Team Members) Form 10-Q 001-36905-18979117 7/31/2018 10.16(d)** Form of Stock Option Grant Notice and Stock OptionAgreement under the SeaSpine Holdings Corporation2018 Employment Inducement Incentive Award Plan(for Non-Senior Leadership Team Members) Form 10-Q 001-36905-18979117 7/31/2018 10.17** Amended and Restated Non-Employee DirectorCompensation Program, effective May 30, 2018 Form 10-Q 001-36905-18979117 7/31/2018 10.18** Patrick Keran Letter Agreement, dated October 1, 2015 Form 10-Q 001-36905-17818719 5/5/2017 10.19* Supply Agreement, dated May 15, 2013, by andbetween Integra LifeSciences Corporation and PcoMed,LLC, and subsequent assignment to SeaSpine HoldingsCorporation on May 21, 2015 Form 8-K 001-36905-181116276 10/10/2018 21.1 Subsidiaries of the Registrant Form 10-K 001-36905-161510399 3/16/2016 6323.1 Consent of RSM, Independent Registered PublicAccounting Firm X 24.1 Power of Attorney (included on the signatures page) X 31.1 Certification of Principal Executive Officer Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 X 31.2 Certification of Principal Financial Officer Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002 X 32.1*** Certification of Principal Executive Officer Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 X 32.2*** Certification of Principal Financial Officer Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002 X †101.INS XBRL Instance Document X †101.SCH XBRL Taxonomy Extension Schema Document X †101.CAL XBRL Taxonomy Extension Calculation LinkbaseDocument X †101.DEF XBRL Definition Linkbase Document X †101.LAB XBRL Taxonomy Extension Labels LinkbaseDocument X †101.PRE XBRL Taxonomy Extension Presentation LinkbaseDocument X *Confidential treatment has been requested or granted to certain confidential information contained in this exhibit. Such information was omitted fromthis exhibit by means of redacting a portion of the text and replacing it with an asterisk. We have filed separately with the SEC an unredacted copy ofthe exhibit.#Certain schedules and attachments referenced in this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of anyomitted schedule and attachment will be furnished supplementally to the SEC upon request.**Indicates management contract or compensatory plan or arrangement.***These certifications are being furnished solely to accompany this report pursuant to 18 U.S.C. 1350, and are not being filed for purposes of Section 18of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or after thedate hereof, regardless of any general incorporation by reference language in such filing.64†The financial information of SeaSpine Holdings Corporation Annual Report on Form 10-K for the year ended December 31, 2018 filed on March 1,2019 formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statementsof Comprehensive Loss, (iii) the Consolidated Balance Sheets, (iv) Parenthetical Data to the Consolidated Balance Sheets, (v) the ConsolidatedStatements of Cash Flows, (vi) the Consolidated Statements of Equity, and (vii) Notes to Consolidated Financial Statements, is furnished electronicallyherewith.ITEM 16.FORM 10-K SUMMARY None.65SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned thereunto duly authorized. SEASPINE HOLDINGS CORPORATION Date:March 1, 2019 /s/ Keith C. Valentine Keith C. Valentine President and Chief Executive Officer66Power of AttorneyKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Keith C. Valentine and John J.Bostjancic, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign anyamendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securitiesand Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be doneby virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant inthe capacities and on the dates indicated:Signature Title Date /s/ Keith C. Valentine President, Chief Executive Officer and Director(Principal Executive Officer) March 1, 2019Keith C. Valentine /s/ John J. Bostjancic Chief Financial Officer(Principal Financial and Accounting Officer) March 1, 2019John J. Bostjancic /s/ Kirtley C. Stephenson Chair of the Board March 1, 2019Kirtley C. Stephenson /s/ Stuart M. Essig Lead Independent Director March 1, 2019Stuart M. Essig /s/ Cheryl R. Blanchard Director March 1, 2019Cheryl R. Blanchard /s/ Keith Bradley Director March 1, 2019Keith Bradley /s/ Kimberly Commins-Tzoumakas Director March 1, 2019Kimberly Commins-Tzoumakas /s/ Michael Fekete Director March 1, 2019Michael Fekete /s/ Renee M. Gaeta Director March 1, 2019Renee M. Gaeta /s/ John B. Henneman, III Director March 1, 2019John B. Henneman, III 6768REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Stockholders and the Board of Directors of SeaSpine Holdings Corporation Opinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of SeaSpine Holdings Corporation and its subsidiaries (the Company) as of December 31,2018, and 2017, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for the years then ended, and therelated notes to the consolidated financial statements and schedule (collectively, the financial statements). In our opinion, the financial statements presentfairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows forthe years then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for OpinionThese financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financialstatements 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 U.S. federal securities laws and the applicable rules and regulations of theSecurities 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 to obtain reasonableassurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, norwere 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 ofinternal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control overfinancial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, andperforming procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures inthe financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well asevaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ RSM US LLP We have served as the Company's auditor since 2017.Los Angeles, CaliforniaMarch 1, 2019 F- 1F- 2SEASPINE HOLDINGS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share data) Year Ended December 31, 2018 2017Total revenue, net$143,443 $131,814Cost of goods sold55,969 51,826Gross profit87,474 79,988Operating expenses: Selling, general and administrative105,387 97,303Research and development12,058 12,180Intangible amortization3,168 3,168Total operating expenses120,613 112,651Operating loss(33,139) (32,663)Other expense (income), net256 (430)Loss before income taxes(33,395) (32,233)Provision (benefit) for income taxes129 (118)Net loss$(33,524) $(32,115)Net loss per share, basic and diluted$(2.18) $(2.58)Weighted average shares used to compute basic and diluted net loss per share15,358 12,426The accompanying notes are an integral part of these consolidated financial statements.F- 3SEASPINE HOLDINGS CORPORATIONCONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands) Year Ended December 31, 2018 2017Net loss$(33,524) $(32,115)Other comprehensive (loss) income Change in foreign currency translation adjustments(345) 678Unrealized loss on investments(3) —Comprehensive loss$(33,872) $(31,437)The accompanying notes are an integral part of these consolidated financial statements.F- 4SEASPINE HOLDINGS CORPORATIONCONSOLIDATED BALANCE SHEETS(In thousands, except par value data) December 31, 2018 December 31, 2017 ASSETS Current assets: Cash and cash equivalents$24,233 $10,788Short-term investments29,800 —Trade accounts receivable, net of allowances of $850 and $46620,335 21,872Inventories42,742 41,721Prepaid expenses and other current assets2,948 2,037 Total current assets120,058 76,418Property, plant and equipment, net22,623 22,063Intangible assets, net28,712 35,207Other assets949 786Total assets$172,342 $134,474LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable, trade9,214 7,385Accrued compensation7,900 5,833Accrued commissions5,451 5,793Contingent consideration liabilities129 207Other accrued expenses and current liabilities3,852 3,939 Total current liabilities26,546 23,157Contingent consideration liabilities2,3674,228Other liabilities1,344 1,436Total liabilities30,257 28,821 Commitments and contingencies Stockholders' equity: Preferred stock, $0.01 par value; 15,000 authorized; no shares issued and outstanding at December 31, 2018 andDecember 31, 2017— —Common stock, $0.01 par value; 60,000 authorized; 18,669 and 13,508 shares issued and outstanding at December 31,2018 and 2017, respectively187 135Additional paid-in capital277,096 206,844Accumulated other comprehensive income1,602 1,950Accumulated deficit(136,800) (103,276)Total stockholders' equity142,085 105,653Total liabilities and stockholders' equity$172,342 $134,474The accompanying notes are an integral part of these consolidated financial statements.F- 5SEASPINE HOLDINGS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2018 2017OPERATING ACTIVITIES: Net loss$(33,524) $(32,115)Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization10,695 10,871Instrument replacement expense1,818 1,848Impairment of spinal instruments527 —Provision for excess and obsolete inventories3,430 4,399Amortization of debt issuance costs113 139Deferred income tax benefit126 (78)Stock-based compensation5,800 6,067Gain from change in fair value of contingent consideration liabilities (1,802) (975)Gain from release of a foreign non-income tax liability— (1,512)Changes in assets and liabilities Accounts receivable1,383 (612)Inventories(3,454) 1,206Prepaid expenses and other current assets(963) (211)Other non-current assets(249) 72Accounts payable1,860 (2,080)Income taxes payable16 —Accrued commissions(341) 1,394Other accrued expenses and current liabilities2,297 2,630Other non-current liabilities(290) 335Net cash used in operating activities(12,558) (8,622)INVESTING ACTIVITIES: Purchases of investments(29,756) —Purchases of property and equipment(8,348) (7,446)Additions to technology assets— (200)Net cash used in investing activities(38,104) (7,646)FINANCING ACTIVITIES: Borrowings under credit facility7,000 — Repayments of credit facility(7,000) (4,020) Repayments of short term debt— (445)Proceeds from issuance of common stock- employee stock purchase plan and exercise of stock options2,520 1,021Proceeds from issuance of common stock, net of offering costs62,611 15,557Repurchases of common stock for income tax withheld upon vesting of restricted stock(627) (50)Payment of contingent royalty consideration liabilities in connection with acquisition of business(137) (23) Debt issuance costs(170) —Net cash provided by financing activities64,197 12,040Effect of exchange rate changes on cash and cash equivalents(90) 450Net change in cash and cash equivalents13,445 (3,778)Cash and cash equivalents at beginning of period10,788 14,566Cash and cash equivalents at end of period$24,233 $10,788Non-cash investing activities: Property and equipment in liabilities$973 $925Supplemental cash flow information: Interest paid$441 $373F- 6SEASPINE HOLDINGS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)(In thousands)Income taxes paid$130 $89The accompanying notes are an integral part of these consolidated financial statements.F- 7SEASPINE HOLDINGS CORPORATIONCONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY(In thousands) Common Stock Additional Accumulated Other Total Number of Paid-In Comprehensive Accumulated Stockholders' Shares Amount Capital Income (Loss) Deficit EquityBalance December 31, 201611,258 $113 $180,753 $1,272 $(71,161) $110,977Net loss— — — — (32,115) (32,115)Foreign currency translation adjustment— — — 678 — 678Restricted stock issued253 2 968 — 970Issuance of common stock under employee stock purchaseplan150 2 984 — — 986Issuance of common stock- NLT Spine Ltd contingentclosing consideration350 3 2,545 — — 2,548Issuance of common stock- ATM transactions1,500 15 15,542 — — 15,557Issuance of common stock- exercise of stock options5 — 35 — — 35Restricted stock awards forfeited(1) — — — — —Repurchases of common stock for income tax withheld uponvesting of restricted stock(7) — (50) — — (50)Stock-based compensation— — 6,067 — — 6,067Balance December 31, 201713,508 $135 $206,844 $1,950 $(103,276) $105,653Net loss (33,524) (33,524)Foreign currency translation adjustment— — — (345) — (345)Unrealized loss on short-term investments— — — (3) — (3)Restricted stock issued2593(1) — — 2Issuance of common stock under employee stock purchaseplan16021,107 — — 1,109Issuance of common stock- ATM transactions882 9 8,505 — — 8,514Issuance of common stock- public offering3,738 37 54,060 — — 54,097Issuance of common stock- exercise of stock options124 1 1,410 — — 1,411Repurchases of common stock for income tax withheld uponvesting of restricted stock(2) — (629) — — (629)Stock-based compensation— — 5,800 — — 5,800Balance December 31, 201818,669 187 277,096 1,602 (136,800) 142,085The accompanying notes are an integral part of these consolidated financial statements.F- 8SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS1. BUSINESS AND BASIS OF PRESENTATIONBusinessSeaSpine Holdings Corporation was incorporated in Delaware on February 12, 2015 in connection with the spin-off of the orthobiologics and spinal implantbusiness of Integra LifeSciences Holdings Corporation, a diversified medical technology company. The spin-off occurred on July 1, 2015. Unless the contextindicates otherwise, (i) references to "SeaSpine" or the "Company" refer to SeaSpine Holdings Corporation and its wholly-owned subsidiaries, and (ii)references to "Integra" refer to Integra LifeSciences Holdings Corporation and its subsidiaries other than SeaSpine.Basis of Presentation and Principles of ConsolidationThe Company prepared the consolidated financial statements included in this report in accordance with accounting principles generally accepted in the U.S.(GAAP). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany accounts andtransactions have been eliminated in consolidation.The SEC adopted amendments to the definition of “smaller reporting company” that became effective in September 2018. Under the new definition,generally, a company qualifies as a smaller reporting company if it has a public float of less than $250 million as of the last business day of its second fiscalquarter. If a company qualifies as a smaller reporting company on that date, it may elect to reflect that determination and use the smaller reporting companyscaled disclosure accommodations in its subsequent SEC filings. Our public float as of June 30, 2018, the last business day of our most recent second fiscalquarter, was less than $250 million, and as such, we qualify as a smaller reporting company and are following certain of the scaled disclosureaccommodations, including providing audited financial statements and management discussion and analysis for our two most recent fiscal years, in contrastto other reporting companies, which must provide audited financial statements and management discussion and analysis for their three most recent fiscalyears. We will measure our public float as of June 30th every year and will continue to qualify as a smaller reporting company until our public float is $250million or more as of such date.Concentration of RiskPcoMedIntegra and PcoMed, LLC (PcoMed) entered into a Supply Agreement on May 15, 2013 (Supply Agreement), which was subsequently assigned to theCompany by Integra on May 21, 2015. For the year ending December 31, 2018, the sales of products incorporating the technology licensed and supplied tothe Company pursuant to the Supply Agreement exceeded 10% of the Company's revenue.Pursuant to the Supply Agreement, PcoMed granted the Company a worldwide exclusive license to sell certain of its products treated with certain proprietaryPcoMed technology (Treatment) for use in the spinal interbody and intervertebral market (Treated Products). PcoMed serves as the sole supplier of theTreatment. As consideration for the license and the Treatment, the Company paid to PcoMed initial milestone payments prior to the initial sale and theCompany will pay PcoMed a low single digit royalty on the Company’s net sales of all Treated Products. In the event the Company fails to meet any of itspayment obligations, the license will, at PcoMed’s option and following a cure period, convert to a non-exclusive license. The Supply Agreement containscustomary representations and termination provisions, including for material breach and bankruptcy. Each of the Company and PcoMed retain the rights totheir respective intellectual property.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESF- 9SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Use of EstimatesThe preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect thereported amounts of assets and liabilities, the disclosure of contingent liabilities, and the reported amounts of revenues and expenses. Significant estimatesaffecting amounts reported or disclosed in the consolidated financial statements include allowances for doubtful accounts receivable and sales returns andother credits, net realizable value of inventories, discount rates and estimated projected cash flows used to value and test impairments of identifiableintangible and long-lived assets, depreciation and amortization periods for identifiable intangible and long-lived assets, assumptions related to the timingand probability of product launch dates, discount rates matched to the estimated timing of payments, probability of success rates, and estimated net sales forcontingent considerations in business combinations, computation of taxes, valuation allowances recorded against deferred tax assets, the valuation of stock-based compensation and loss contingencies. These estimates are based on historical experience and on various other assumptions that are believed to bereasonable under the current circumstances. Actual results could differ from these estimates.Cash and Cash EquivalentsThe Company considers all highly liquid investments with a maturity of 90 days or less at the date of purchase to be cash equivalents. Cash and cashequivalents include cash readily available in checking and money market accounts.InvestmentsThe Company has designated its entire portfolio of fixed income securities as available-for-sale. These securities are recorded at fair value based on quotedmarket prices with unrealized gains and losses, net of deferred income taxes, accounted for as a component of accumulated other comprehensive income instockholders’ equity. The Company’s short-term investments have maturities of greater than three and less than 12 months when purchased and are carried atfair value. In accordance with FASB Accounting Standards Codification 320, Investments - Debt and Equity Securities, the Company assesses whether it intends to sellor it is more likely than not that it will be required to sell a debt security before recovery of its amortized cost basis less any current-period credit losses. Fordebt securities that are considered other-than-temporarily impaired and that the Company does not intend to sell and will not be required to sell prior torecovery of its amortized cost basis, the Company separates the amount of the impairment into the amount that is credit-related (referred to as the credit losscomponent) and the amount due to all other factors. The credit loss component is recognized in net income and is the difference between the security’samortized cost basis and the present value of its expected future cash flows. The remaining difference between the security’s fair value and the present valueof future expected cash flows is due to factors that are not credit-related and is recognized in accumulated other comprehensive income (“AOCI”). For debtsecurities that are intended to be sold, or that management believes are more likely than not to be required to be sold prior to recovery, the full impairment isrecognized immediately in earnings. Realized gains and losses on sales of investments are determined on a specific-identification basis. Interest income is recognized on an accrual basis. SeeNote 5. Balance Sheet Details, for further discussion regarding investments.Fair Value of Financial InstrumentsThe carrying amounts of cash, cash equivalents, receivables, accounts payable and accrued expenses at December 31, 2018 and 2017, are considered toapproximate fair value because of the short term nature of those items.The Company measures certain assets and liabilities in accordance with authoritative guidance which requires fair value measurements to be classified anddisclosed in one of the following three categories:Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.Level 3: Unobservable inputs are used when little or no market data is available.The carrying amount of short-term investments at December 31, 2018 are carried at fair value based on quoted market prices in active markets. This fair valuemeasurement is categorized within Level 1 of the fair value hierarchy.F- 10SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)The carrying amounts of contingent consideration liabilities at December 31, 2018 and 2017 pursuant to the business combinations (see Note 6- Fair ValueMeasurements) are measured at fair value on a recurring basis, and are classified within Level 3 of the fair value hierarchy because they use significantunobservable inputs.Trade Accounts Receivable and AllowancesTrade accounts receivable in the accompanying consolidated balance sheets are presented net of allowances for doubtful accounts and sales returns and othercredits. The Company grants credit to customers in the normal course of business, but generally does not require collateral or any other security to support itsreceivables.The Company evaluates the collectability of accounts receivable based on a combination of factors. In circumstances where a specific customer is unable tomeet its financial obligations to the Company, a provision to the allowances for doubtful accounts is recorded to reduce the net recognized receivable to theamount that is reasonably expected to be collected. For all other customers, a provision to the allowances for doubtful accounts is recorded based on factorsincluding the length of time the receivables are past due, the current business environment and the Company’s historical experience. Provisions to theallowances for doubtful accounts are recorded to selling, general and administrative expenses. Account balances are charged off against the allowance whenit is probable that the receivable will not be recovered.InventoriesInventories, consisting of purchased materials, direct labor and manufacturing overhead, are stated at the lower of cost, the value determined by the first-in,first-out method, or market.At each balance sheet date, the Company evaluates inventories for excess quantities, obsolescence or shelf life expiration. This evaluation includes analysisof the Company's current and future strategic plans, historical sales levels by product, projections of future demand, the risk of technological or competitiveobsolescence for products, general market conditions, a review of the shelf life expiration dates for products, as well as the feasibility of reworking or usingexcess or obsolete products or components in the production or assembly of other products that are not obsolete or for which there are not excess quantities ininventory. To the extent that management determines there are excess or obsolete inventory or quantities with a shelf life that is too near its expiration for theCompany to reasonably expect that it can sell those products prior to their expiration, the Company adjusts the carrying value to estimated net realizablevalue.The Company capitalizes inventory costs associated with certain products prior to regulatory approval, based on management’s judgment of probableeconomic benefit. The Company could be required to expense previously capitalized costs related to pre-approval inventory upon a change in suchjudgment, due to, among other potential factors, a denial or delay of approval by necessary regulatory bodies or a decision by management to discontinue therelated development program. No such amounts were capitalized at December 31, 2018 or 2017.Property, Plant, and EquipmentProperty, plant and equipment are stated at historical cost less accumulated depreciation and any impairment charges. TheCompany provides for depreciation using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized overthe lesser of the lease term or the useful life. The cost of major additions and improvements is capitalized, while maintenance and repair costs that do notimprove or extend the lives of the respective assets are charged to operations as incurred. The cost of computer software obtained for internal use is accountedfor in accordance with the Accounting Standards Codification 350-40, Internal-Use Software.The cost of purchased spinal instruments which the Company consigns to hospitals and independent sales agents to support surgeries is initially capitalizedas construction in progress. The amount is then reclassified to spinal instruments and sets and depreciation is initiated when instruments are put together in anewly built set with spinal implants, or directly expensed for the instruments that are used to replace damaged instruments in an existing set. Thedepreciation expense and direct expense for replacement instruments are recorded in selling, general and administrative expense.Business CombinationsThe purchase price of each acquisition is allocated to the net assets acquired based on estimates of their fair values at the date of the acquisition. Anypurchase price in excess of these net assets is recorded as goodwill, and any fair value of these net assets, excluding goodwill, in excess of the purchase priceis recorded as a bargain purchase gain. The allocation of purchase price inF- 11SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from theacquisition date.Contingent consideration liability is recognized at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingentconsideration liability are recognized in the statement of operations. Contingent consideration liability related to acquisitions consist of commercialmilestone payments and contingent royalty payments, and are valued using discounted cash flow techniques. The fair value of commercial milestonepayments and contingent royalty payments reflects management’s expectations of probability and amount of payment, and increases or decreases as theprobability and amount of payment or expectation of timing of payment changes.Identifiable Intangible AssetsIdentifiable intangible assets are initially recorded at fair value at the time of acquisition generally using an income or cost approach. The Companycapitalizes costs incurred to renew or extend the term of recognized intangible assets and amortizes those costs over their expected useful lives.Impairment of Long-Lived AssetsLong-lived assets held and used by the Company, including property, plant and equipment and intangible assets, are reviewed for impairment wheneverevents or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability oflong-lived assets to be held and used, a recoverability test is performed using projected undiscounted net cash flows applicable to the long-lived assets. If animpairment exists, the amount of such impairment is calculated based on the estimated fair value of the asset. Impairments to long-lived assets to be disposedof are recorded based upon the difference between the carrying value and the fair value of the applicable assets. There was no impairment of intangible ortangible long-lived assets in any of the periods presented.Foreign CurrencyThe Company generates revenues outside the United States in multiple foreign currencies including euros, Swiss francs and in U.S. dollar-denominatedtransactions conducted with customers who generate revenue in currencies other than the U.S. dollar. The Company also incurs operating expenses in eurosand Swiss francs. All assets and liabilities of foreign subsidiaries which have a functional currency other than the U.S. dollar are translated at the rate ofexchange at year-end, while elements of the income statement are translated at the average exchange rates in effect during the year. The net effect of thesetranslation adjustments is shown as a component of accumulated other comprehensive income (loss). These currency translation adjustments are not currentlyadjusted for income taxes as they relate to permanent investments in non-U.S. subsidiaries. Foreign currency transaction gains and losses are reported in otherincome (expense), net.Income TaxesThe Company recognizes tax benefits in its financial statements when its uncertain tax positions are more likely than not to be sustained upon audit. Theamount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. TheCompany recognizes deferred tax assets for deductible temporary differences, operating loss carryforwards and tax credit carryforwards. Deferred tax assets arereduced by valuation allowance if it is more likely than not that some portion, or all, of the deferred tax assets will not be realized.Revenue RecognitionNet sales are derived primarily from the sale of orthobiologics and spinal implant products globally. Sales are reported net of returns, rebates, grouppurchasing organization fees and other customer allowances. Allowances and estimates of returns and other credits are recorded in the sales returns reserve.Certain contracts with stocking distributors contain provisions to repurchase inventory upon termination of the contract or discontinuation of a product line.Included in the sales returns reserve is an estimate of repurchases that are likely to be returned under these provisions.Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred title and risk of loss have passed to the customer, there is afixed or determinable sales price and collectability of that sales price is reasonably assured.In the United States, the Company generates most of its revenue by consigning its orthobiologics products and by consigning or loaning its spinal implantsets to hospitals and independent sales agents, who in turn either deliver them to hospitals for a singleF- 12SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)surgical procedure, after which they are returned to the Company, or leave them with hospitals that are high volume users for multiple procedures. The spinalimplant sets typically contain the instruments, disposables, and spinal implants required to complete a surgery. The Company ships replacement inventory toindependent sales agents to replace the consigned inventory used in surgeries. The Company maintains and replenishes loaned sets at its facility and returnsthem to a hospital or independent sales agent for the next procedure. The Company recognizes revenue on these consigned or loaned products when theyhave been used or implanted in a surgical procedure.For all other sales transactions, including sales to stocking distributors and private label partners, the Company recognizes revenue when the products areshipped to the customer or stocking distributors and the transfer of title and risk of loss occurs. There is generally no customer acceptance or other conditionthat prevents the Company from recognizing revenue in accordance with the delivery terms for these sales transactions.Product royalties account for less than 1% of total revenue for any of the periods presented, and are estimated and recognized in the same period that theroyalty-based products are sold by licensees. The Company estimates and recognizes royalty revenue based upon communication with licensees, historicalinformation and expected sales trends. Differences between actual revenues and estimated royalty revenues are adjusted in the period in which they becomeknown, which is typically the following quarter. Historically, such adjustments have not been material. Shipping and Handling Fees and CostsShipping and handling costs of $1.8 million and $1.6 million for product shipments for loaning of spinal implants and instrumentation sets and costsincurred for internal movement of inventory were recorded in selling, general and administrative expense during the years ended December 31, 2018 and2017, respectively.Research and DevelopmentResearch and development costs, including salaries, stock-based compensation, depreciation, consultant and other external fees, and facility costs directlyattributable to research and development activities, are expensed in the period in which they are incurred.Stock-Based CompensationThe Company's stock-based compensation has been recognized through the consolidated statement of operations and the Company's additional paid-incapital account on the consolidated balance sheet.The Company applies the authoritative guidance for stock-based compensation. This guidance requires companies to recognize the expense related to thefair value of their stock-based compensation awards. Stock-based compensation expense for stock option awards was based on the fair value on the grant dateusing the Black-Scholes-Merton option pricing model. The fair value of restricted stock granted prior to the spin-off was based on the Integra’s stock price atthe grant date, and the fair value of restricted stock granted after the spin-off was based on the Company's stock price at the grant date. The long form methodwas used in the determination of the windfall tax benefit in accordance with the guidance.The stock-based compensation is initially measured at the fair value of the awards on the grant date and is then recognized on a ratable basis in the financialstatements over the requisite service period of the award. Stock-based compensation expense was $5.8 million in 2018 and $6.1 million in 2017.Concentration of Credit RiskFinancial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash, which is held at major financialinstitutions, and trade receivables.The Company’s products are sold on an uncollateralized basis and on credit terms based upon a credit risk assessment of each customer. A portion of theCompany’s trade receivables to customers outside the United States includes sales to foreign stocking distributors, who then sell to government owned orsupported healthcare systems. The ongoing economic conditions in certain European countries, especially Greece, Ireland, Italy, Portugal and Spain remainuncertain. Accounts receivable from customers in these countries are not a material amount of the Company’s overall receivables.None of the Company’s customers accounted for 10% or more of the net sales or accounts receivable for any of the periods presented.F- 13SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) Recent Accounting Standards Not Yet AdoptedThe Company qualifies as an “emerging growth company” (EGC) under the Jumpstart Our Business Startups (JOBS) Act and elected to take advantage of theextended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, which permits EGCs to defer compliance with new orrevised accounting standards (the EGC extension) until non-issuers must comply with such standards. Accordingly, so long as the Company continues toqualify as an EGC, the Company will not have to adopt or comply with new or revised accounting standards until non-issuers must adopt or comply withsuch standards.In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU or Update) No. 2014-09, Revenue fromContracts with Customers (Topic 606). The new standard provides a five-step approach to be applied to all contracts with customers. The new standard alsorequires expanded disclosure about revenue recognition. The new standard as amended by ASU 2015-14, ASU 2016-10 and ASU 2016-12, was effective forthe Company beginning on January 1, 2019. The Company performed an assessment of the impact of this new standard on its consolidated financialstatements. In assessing the impact, the Company outlined all revenue streams, and considered the five steps outlined in the standard for product sales, fromwhich substantially all the Company's revenue is generated. The Company analyzed the impact of this new standard on all revenue streams and on allcontracts with customers, including by reviewing contracts and current accounting policies and practices to identify differences that would result fromapplying the requirements under the new standard. The Company adopted the new standard using the modified retrospective method under which thecumulative effect of initially applying the new guidance to open contracts as of December 31, 2018 is recognized as an adjustment to the opening balance ofretained earnings as of January 1, 2019. The Company has completed the assessment of the new standard and is finalizing the new required disclosures. Underthe new standard, the Company has made the accounting policy election to account for shipping and handling activities performed after the control of a goodhas been transferred to the customer as a fulfillment cost. Overall, the timing of revenue recognition under the new standard is not materially different fromthe Company's current revenue recognition policy. Based on the Company’s analysis of open contracts as of December 31, 2018, the cumulative effect ofapplying the new standard is not material.In February 2016, the FASB issued Update No. 2016-02, Leases (Topic 842). The new standard requires lessees to recognize lease liabilities andcorresponding right-of-use assets for all leases with lease terms of greater than twelve months. It also changes the definition of a lease and expands thedisclosure requirements of lease arrangements. The new standard must be adopted using the modified retrospective approach. The standard will be effectivefor the Company beginning on January 1, 2020 with early adoption permitted. The Company does not plan to early adopt and expects to apply the transitionpractical expedients allowed by the standard. In July 2018, the FASB issued Update No. 2018-10, Codification Improvements to Topic 842 (Leases) andUpdate No. 2018-11, Leases (Topic 842):Targeted Improvements. The amendments in ASU 2018-10 and ASU 2018-11 provide additional clarification andimplementation guidance on certain aspects of ASU 2016-02 and have the same effective date and transition requirements as ASU 2016-02. Note 8 to theCondensed Consolidated Financial Statements provides details on the Company’s current lease arrangements. While the Company continues to evaluate theimpact of this new standard on its consolidated financial statements, the Company currently expects the primary impact will be to record right-of-use assetsand lease liabilities for existing operating leases in the consolidated balance sheets. The Company does not currently expect the adoption of this newstandard to have a material impact on its consolidated results of operations or cash flows.In June 2018, the FASB issued Update No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based PaymentAccounting. This Update will require an entity to apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to anoption pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognitionover that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to beused or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as partof a contract accounted for under Topic 606. The new standard will be effective for the Company beginning on January 1, 2020. Early adoption is permittedbut no earlier than an entity's adoption date of Topic 606. The Company is evaluating the impact of this standard on its consolidated financial statements.In July 2018, the FASB issued Update No. 2018-09, Codification Improvements. This Update includes several amendments to the Codification intended toclarify, improve, or correct errors in the Codification. Some amendments do not require transition guidance and are effective upon issuance. The amendmentsrequiring transition guidance will be effective for the Company beginning on January 1, 2020. The Company is evaluating the impact of this standard on itsconsolidated financial statements.F- 14SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)In August 2018, the FASB issued Update No. 2018-13, Fair Value Measurement (Topic 820)-Disclosure Framework-Changes to the Disclosure Requirementsfor Fair Value Measurement. The amendments in this Update modify the disclosure requirements on fair value measurements in Topic 820 based on theconcepts in the Concepts Statement including the consideration of costs and benefits. The new standard will be effective for the Company beginning onJanuary 1, 2020. An entity is permitted to early adopt any removed or modified disclosures upon issuance of this Update and delay adoption of the additionaldisclosures until their effective date. The Company is evaluating the impact of this standard on its consolidated financial statements.In August 2018, the FASB issued Update No. 2018-15, Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40). The amendments in thisUpdate align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements forcapitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use softwarelicense). The new standard will be effective for the Company beginning on January 1, 2021. Early adoption is permitted. The Company is evaluating theimpact of this standard on its consolidated financial statements.Recently Adopted Accounting StandardsIn August 2016, the FASB issued Update No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain CashReceipts and Cash Payments. This new standard addresses eight specific cash flow issues related to cash receipts and cash payments with the objective ofreducing the existing diversity of presentation and classification in the statement of cash flows. The new standard will be effective for the Companybeginning on January 1, 2019. Early adoption is permitted and should be applied using a retrospective transition method to each period presented. Adoptionof this new guidance had no impact on the Company’s cash flows statements.In May 2017, the FASB issued Update No. 2017-09, Compensation- Stock Compensation (Topic 718): Scope of Modification Accounting. The new standardprovides guidance regarding which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting inTopic 718. The new standard was effective for the Company beginning on January 1, 2018. Adoption of this new guidance had no impact on the Company’sconsolidated financial statements.Net Loss Per ShareBasic and diluted net loss per share was calculated using the weighted-average number of shares of common stock outstanding during the period. Theweighted average number of shares used to compute diluted net loss per share excludes any assumed exercise of stock options, any assumed issuance ofcommon stock under restricted stock awards and units, and any assumed issuances under the Company's 2015 Employee Stock Purchase Plan, as the effect, ineach case, would be antidilutive. Common stock equivalents of 3.4 million and 3.3 million shares for the years ended December 31, 2018 and 2017,respectively, were excluded from the calculation because of their antidilutive effect.3. TRANSACTIONS WITH INTEGRARelated-party TransactionsPrior to the spin-off, and pursuant to certain supply agreements subsequent to the spin-off, SeaSpine purchased a portion of raw materials and finished goodsfrom Integra for SeaSpine's Mozaik family of products, and SeaSpine contract manufactured certain finished goods for Integra. The Company's purchases ofraw materials and Mozaik product finished goods from Integra for the year ended December 31, 2017 totaled $0.6 million. The Company's sale of finishedgoods to Integra under its contract manufacturing arrangement for the year ended December 31, 2017 totaled $0.4 million. The Company determined thatIntegra does not meet the definition of a related party requiring disclosure in accordance with Accounting Standards Codification Topic 850, Related PartyDisclosures as of December 31, 2018.F- 15SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)4. DEBT AND INTERESTCredit AgreementIn December 2015, the Company entered into a three-year credit facility with Wells Fargo Bank, National Association, which was amended in October 2016and in July 2018 (as amended, the Credit Facility). The Credit Facility provides an asset-backed revolving line of credit of up to $30.0 million with amaturity date of July 27, 2021, which is subject to a one-time, one-year extension at the Company's election. In addition, under the Credit Facility, at anytime through July 27, 2020, the Company may increase the $30.0 million borrowing limit by up to an additional $10.0 million, subject to the Companyhaving sufficient amounts of eligible accounts receivable and inventory and to customary conditions precedent, including obtaining the commitment oflenders to provide such additional amount. In connection with the Credit Facility, the Company was required to become a guarantor and to provide a securityinterest in substantially all its assets for the benefit of the counterparty.In June 2018 and September 2018, the Company borrowed $4.0 million and $3.0 million under the Credit Facility, respectively. The Company elected tohave the LIBOR rate apply to the amounts borrowed with an interest period of six months commencing on June 28, 2018 and three months commencing onSeptember 25, 2018, respectively. On November 2, 2018, the Company repaid the entire $7.3 million of outstanding borrowings plus accrued interest underthe Credit Facility. There were no amounts outstanding under the Credit Facility at December 31, 2018 or 2017. At December 31, 2018, the Company had$23.4 million of current borrowing capacity thereunder. Debt issuance costs and legal fees related to the Credit Facility totaling $0.6 million were recorded asa deferred asset and are being amortized ratably over the term of the arrangement.Borrowings under the Credit Facility accrue interest at the rate then applicable to base rate loans (as customarily defined), unless and until converted intoLIBOR rate loans (as customarily defined) in accordance with the Credit Facility. Borrowings bear interest at a floating annual rate equal to (a) during anymonth for which the Company's average excess availability (as customarily defined) is greater than $20.0 million, (i) base rate plus 1.25 percentage points forbase rate loans and (ii) LIBOR rate plus 2.25 percentage points for LIBOR rate loans, (b) during any month for which the Company's average excessavailability is greater than $10.0 million but less than or equal to $20.0 million, (i) base rate plus 1.50 percentage points for base rate loans and (ii) LIBORrate plus 2.50 percentage points for LIBOR rate loans and (c) during any month for which the Company's average excess availability is less than or equal to$10.0 million, (i) base rate plus 1.75 percentage points for base rate loans and (ii) LIBOR rate plus 2.75 percentage points for LIBOR rate loans. TheCompany will also pay an unused line fee based on the average amount borrowed under the Credit Facility for the most recently completed month. If suchaverage amount is 25% or greater of the maximum borrowing capacity, the unused fee will be equal to 0.375% per annum of the amount unused under theCredit Facility, and if such average amount is less than 25%, the unused line fee will be equal to 0.50% per annum of the amount unused under the CreditFacility. The unused line fee is due on the first day of each month.The Credit Facility contains various customary affirmative and negative covenants, including prohibiting the Company from incurring indebtedness withoutthe lender’s consent. The Credit Facility also includes a financial covenant, that requires the Company to maintain a minimum fixed charge coverage ratio of1.10 to 1.00 for the applicable measurement period, if the Company's Total Liquidity (as defined in the Credit Facility) is less than $5.0 million. TheCompany was in compliance with all applicable covenants at December 31, 2018.The Credit Facility also includes customary events of default, including events of default relating to non-payment of amounts due under the Credit Facility,material inaccuracy of representations and warranties, violation of covenants, bankruptcy and insolvency, failure to comply with health care laws, violationof certain of the Company’s existing agreements, and the occurrence of a change of control. Under the Credit Facility, if an event of default occurs, the lenderwill have the right to terminate the commitments and accelerate the maturity of any loans outstanding.5. BALANCE SHEET DETAILSShort-term investments.The amortized cost, estimated fair value and gross unrealized gains and losses on investments as of December 31, 2018 are shown in the table below: Amortized Cost Gross Unrealized Fair Value Gains (Losses) As of December 31, 2018(In thousands)U.S. Treasury Bills$29,803 — $(3) $29,800As of December 31, 2018, the Company’s investment portfolio included 9 U.S. Treasury Bills in an unrealized loss position. There were no other-than-temporary impairments on debt securities or realized gains or losses during the year ended December 31, 2018.There were no investments held as of December 31, 2017.Inventories. Inventories consisted of:December 31, 2018 December 31, 2017 (In thousands)Finished goods$27,589 $31,008Work in process10,367 6,909Raw materials4,786 3,804 $42,742 $41,721Property, Plant and Equipment. Property, plant and equipment, net and corresponding useful lives were: December 31, 2018 December 31, 2017 Useful Lives (In thousands) Leasehold improvement$5,724 $5,312 Shorter of leaseterm or useful lifeMachinery and production equipment7,752 7,030 3-10 yearsSpinal instruments and sets23,212 20,340 5 yearsInformation systems and hardware7,290 7,375 3-7 yearsFurniture and fixtures1,222 991 3-5 yearsConstruction in progress7,013 8,136 Total52,213 49,184 Less accumulated depreciation and amortization(29,590) (27,121) Property, plant and equipment, net$22,623 $22,063 The balance of construction in progress as of December 31, 2018 and 2017 consists primarily of spinal instruments not yet placed into service. Depreciation and amortization expenses totaled $4.2 million and $4.1 million for the years ended December 31, 2018 and 2017, respectively, and included$0.8 million expenses that were presented within cost of goods sold for each year ended December 31, 2018 and 2017. The cost of purchased instrumentsused to replace damaged instruments in existing sets and recorded directly to the instrument replacement expense totaled $1.8 million for each year endedDecember 31, 2018 and 2017.For the year ended December 31, 2018, the Company recorded impairment charges totaling $0.5 million against spinal instruments that are no longerexpected to be placed into service. No impairment charges against spinal instruments were recorded for the year ended December 31, 2017.F- 16SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Identifiable Intangible Assets. The components of the Company’s identifiable intangible assets were: December 31, 2018 WeightedAverageLife Cost AccumulatedAmortization Net (In thousands)Product technology12 years $40,769 $(29,153) $11,616Customer relationships12 years 56,830 (39,734) 17,096Trademarks/brand names— 300 (300) — $97,899 $(69,187) $28,712 December 31, 2017 WeightedAverageLife Cost AccumulatedAmortization Net (In thousands)Product technology12 years $40,769 $(25,827) $14,942Customer relationships12 years 56,830 (36,565) 20,265Trademarks/brand names— 300 (300) — $97,899 $(62,692) $35,207Annual amortization expense (including amounts reported in cost of goods sold) is expected to be approximately, $5.8 million in 2019, $4.9 million in 2020,$4.9 million in 2021, $4.8 million in 2022, and $4.2 million in 2023. Amortization expense totaled $6.5 million and $6.8 million for the years endedDecember 31, 2018 and 2017, respectively, and included $3.3 million and $3.6 million, respectively, of amortization of product technology intangible assetsthat was presented within cost of goods sold.F- 17SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)6. FAIR VALUE MEASUREMENTSThe fair values of the Company’s assets and liabilities, including contingent consideration liabilities, are measured at fair value on a recurring basis, and aredetermined under the fair value categories as follows (in thousands): Total Quoted Price inActive Market (Level1) Significant OtherObservable Inputs(Level 2) SignificantUnobservable Inputs(Level 3)December 31, 2018: Short-term investments $29,800 $29,800 $— $—Total Assets Contingent consideration liabilities- current $129 $— $— $129 Contingent consideration liabilities- non-current 2,367 — — 2,367Total contingent consideration $2,496 $— $— $2,496 Total Quoted Price inActive Market (Level1) Significant OtherObservable Inputs(Level 2) SignificantUnobservable Inputs(Level 3)December 31, 2017: Contingent consideration liabilities- current $207 $— $— $207 Contingent consideration liabilities- non-current 4,228 — — 4,228Total contingent consideration $4,435 $— $— $4,435Short-term investments are classified with Level 1 of the fair value hierarchy because they use quoted market prices in active markets for identical assets.In August 2016, the Company entered into an asset purchase agreement with N.L.T Spine Ltd. (NLT), and NLT Spine, Inc., a wholly owned subsidiary ofNLT, pursuant to which the Company agreed to purchase certain of the assets of NLT’s medical device business, including substantially all of NLT’s medicaldevice intellectual property related to the ownership, design, development, manufacture, marketing and commercial exploitation of certain expandableinterbody devices. The acquisition was undertaken to increase the Company's product offering in expandable interbody devices.The purchase price consisted of an initial cash payment to NLT of $1.0 million, which was paid in September 2016 upon the initial closing, and the issuancein January 2017 of 350,000 shares of the Company’s common stock with a total fair value of $2.5 million at issuance as contingent closing considerationupon the satisfaction of certain conditions, including FDA 510(K) clearance of one of the acquired product technologies. In accordance with the terms of theasset purchase agreement, the number of shares issued was determined based on the volume weighted average closing price (VWAP) of the Company'scommon stock during the 20 trading day period ending one trading day prior to the issuance date, subject to a minimum and maximum VWAP of $10.00 and$17.00, respectively. The VWAP over such 20-trading day period was $7.58 and therefore $10.00 was used.The Company is also obligated to pay up to a maximum of $5.0 million in milestone payments, payable at the Company's election in cash or in shares of itscommon stock, which are contingent on the Company's achievement of four independent events related to the commercialization of the acquired producttechnologies. Additionally, the Company must pay royalty payments, in cash, to NLT equal to declining (over time) percentages of the Company’s future netsales of certain of the acquired product technologies not to exceed $43.0 million in the aggregate. The Company has the option to terminate any futureobligation to make royalty payments by making a one-time cash payment to NLT of $18.0 million.Contingent consideration liabilities are classified within Level 3 of the fair value hierarchy because they use significant unobservable inputs. For thoseliabilities, fair value is determined using a probability-weighted discounted cash flow model and significant inputs which are not observable in the market.The significant inputs include assumptions related to the timing and probability of the product launch dates, discount rates matched to the timing ofpayments, and probability of success rates.The following table sets forth the changes in the estimated fair value of the Company’s liabilities measured on a recurring basis using significantunobservable inputs (Level 3) for the years ended December 31, 2018 and 2017. The gain from change in fair value of contingent closing consideration is thedifference between the fair value of shares expected to be issued to NLT based onF- 18SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)assumptions as of December 31, 2016, including the forecasted issuance date and stock price and the fair value of the shares actually issued to NLT onJanuary 31, 2017. The gain from change in fair value of contingent milestone and royalty payments resulted from updated estimated timing of payments,probability of success rates, the passage of time, updated discount rates matched to the estimated timing of payments, actual net sales of certain products forthe year ended December 31, 2018, and lower estimated net sales for future royalty payment periods.A change in estimated timing of payments, probability of success rates, or estimated net sales for future royalty payment periods would be expected to have amaterial impact on the fair value of contingent milestone and royalty payments. Year Ended December 31, 2018 2017 (in thousands)Beginning Balance as of January 1 $4,435 $7,980 Contingent consideration liabilities settled (137) (2,570) Gain from change in fair value of contingent closing consideration recorded in other income — (112) Gain from change in fair value of contingent milestone and royalty payments recorded in selling, general and administrativeexpenses (1,802) (863)Ending Balance as of December 31 $2,496 $4,4357. EQUITY AND STOCK-BASED COMPENSATIONCommon StockOn January 31, 2017, the Company issued 350,000 shares of common stock to NLT as the settlement of contingent closing consideration under the assetpurchase agreement entered into with NLT in August 2016. The total fair value of such shares was $2.5 million at issuance. See Note 6, "Fair ValueMeasurements" above.In August 2016, the Company entered into an equity distribution agreement (Distribution Agreement) with Piper Jaffray & Co. (Piper Jaffray), pursuant towhich the Company may offer and sell shares of its common stock in “at the market” (ATM) offerings (as defined in Rule 415 of the Securities Act of 1933, asamended) having an aggregate offering price up to $25.0 million in gross proceeds from time to time through Piper Jaffray acting as sales agent. The sharesoffered and sold under the Distribution Agreement are covered by a registration statement on Form S-3 declared effective on August 24, 2016. Under theDistribution Agreement, the Company sold 1,500,000 shares of common stock at an average price per share of $10.78 and received net proceeds ofapproximately $15.6 million (net of $0.6 million of offering costs) during the year ended December 31, 2017. Additionally, during the year ended December31, 2018, the Company sold an additional 882,332 shares of common stock at an average price per share of $10.00 and received net proceeds ofapproximately $8.5 million (net of $0.3 million offering costs), which consumed the remaining capacity under the Distribution Agreement. The Companyintends to continue using the net proceeds for general corporate purposes, including sales and marketing expenditures aimed at growing its business, researchand development expenditures focused on product development, and investments in inventory and spinal instruments and sets.In May 2018, the Company entered into another equity distribution agreement with Piper Jaffray (the May 2018 Distribution Agreement), pursuant to whichthe Company may offer and sell shares of its common stock in ATM offerings having an aggregate offering price up to $50.0 million in gross proceeds fromtime to time through Piper Jaffray acting as sales agent. The shares offered and sold under the May 2018 Distribution Agreement are covered by a registrationstatement on Form S-3 declared effective on August 24, 2016. The Company did not sell any shares of common stock under the May 2018 DistributionAgreement during the year ended December 31, 2018. Future sales, if any, will depend on a variety of factors including, but not limited to, market conditions,the trading price of the Company's common stock and the Company's capital needs. The Company intends to use any net proceeds for general corporatepurposes, including sales and marketing expenditures aimed at growing its business, research and development expenditures focused on productdevelopment, and investments in inventory and spinal instruments and sets.On October 11, 2018, the Company entered into an Underwriting Agreement (Underwriting Agreement) with Wells Fargo Securities, LLC, Piper Jaffray & Co.and Cantor Fitzgerald & Co. acting as joint bookrunning managers and as representatives of the underwriters relating to the issuance and sale of 3,250,000shares of the Company’s common stock. The price to the public in the offering was $15.50 per share, before underwriting discounts and commissions. TheCompany granted the underwriters an option, exercisable for 30 days, to purchase up to an additional 487,500 shares of common stock. TheF- 19SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)underwriters exercised this option and the offering closed on October 15, 2018 with the sale of 3,737,500 shares of the Company's common stock. The netproceeds to the Company from the offering were approximately $54.1 million, after deducting underwriting discounts and commissions and estimatedoffering expenses payable by the Company. The Company used a portion of the net proceeds from the offering to repay all of its then-outstanding borrowingsunder the Credit Facility, and intends to use the remaining proceeds for general corporate purposes, including general and administrative expenses, capitalexpenditures and general working capital purposes.Equity Award PlansStock-based compensation expense, all related to employees and non-employee directors, was recognized as follows: December 31 2018 2017 (In Thousands)Selling, general and administrative $5,272 $5,136Research and development 365 790Cost of goods sold 163 141Total stock-based compensation expense 5,800 6,067Total estimated tax benefit related to stock-based compensation expense — —Net effect on net income $5,800 $6,067As of June 30, 2015, Integra had stock options, restricted stock awards, performance stock awards, contract stock awards and restricted stock unitsoutstanding under three plans, the 2000 Equity Incentive Plan, the 2001 Equity Incentive Plan, and the 2003 Equity Incentive Plan. In connection with thespin-off, Integra equity awards granted to individuals who became employees of SeaSpine were converted to equity awards denominated in SeaSpinecommon stock. In general, each post-conversion award is subject to the same terms and conditions as were applicable to the pre-conversion award.In May 2015, the Company adopted the 2015 Incentive Award Plan, which was subsequently amended and restated with approval of the Company'sstockholders. In February and March 2018, the Company's board of directors approved amendments to the plan that increased the share reserve by anaggregate of 2,726,000 shares over the then-existing share reserve thereunder, subject to stockholder approval. The Company's stockholders approved bothamendments on May 30, 2018 (the 2015 Incentive Award Plan, as amended and restated to date, the Restated Plan). Under the Restated Plan, the Companycan grant its employees, non-employee directors and consultants incentive stock options and non-qualified stock options, restricted stock, performancestock, dividend equivalent rights, stock appreciation rights, stock payment awards and other incentive awards. The aggregate number of shares that may beissued or transferred pursuant to awards under the Restated Plan is the sum of (1) the number of shares issuable upon exercise or vesting of the number ofIntegra equity awards converted to the Company's equity awards under the Restated Plan as of the date of the spin-off and (2) 6,235,500 shares of its commonstock in respect of awards granted under the 2015 Plan. As of December 31, 2018, there were 2,636,659 shares available to grant under the 2015 Plan.In 2016, the Company established the 2016 Employment Inducement Incentive Award Plan (the 2016 Plan). The plan is a broad-based incentive plan whichallows for the issuance of stock-based awards, including non-qualified stock options, restricted stock awards, performance awards, restricted stock unit awardsand stock appreciation rights, to any prospective officer or other employee who has not previously been an employee or director of SeaSpine or an affiliate orwho is commencing employment with SeaSpine or an affiliate following a bona-fide period of non-employment by SeaSpine or an affiliate. An aggregate of1,000,000 shares are reserved for issuance under the 2016 Plan. The Company has awarded no shares under the 2016 Plan as of December 31, 2018. As aresult of the stockholders' approval of the Restated Plan, the Company's board of directors will not grant any awards under the 2016 Inducement Plan.In June 2018, the Company established the 2018 Employment Inducement Incentive Award Plan (the 2018 Inducement Plan). The terms of the 2018 Plan aresubstantially similar to the terms of the Restated Plan with three principal exceptions: (1) incentive stock options may not be granted under the 2018Inducement Plan; (2) there are no annual limits on awards that may be issued to an individual under the 2018 Inducement Plan; and (3) awards granted underthe 2018 Inducement Plan are not required to be subject to any minimum vesting period. An aggregate of 2,000,000 shares are reserved under the 2018Inducement Plan. As of December 31, 2018, 1,933,281 shares were available for issuance under the 2018 Inducement Plan.Restricted Stock Awards and Restricted Stock UnitsF- 20SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)Restricted stock awards granted to non-employee directors generally have a requisite service period of one year; restricted stock units granted to employeesgenerally have a requisite service period of three years. Both are subject to graded vesting. The Company expenses the fair value of restricted stock awardsand of restricted stock units on an accelerated basis over the vesting period or requisite service period, whichever is shorter. Stock-based compensationexpense related to restricted stock awards and to restricted stock units includes an estimate for forfeitures. The expected forfeiture rate of all equity-basedcompensation is based on historical experience of pre-vesting forfeitures on awards by each homogenous group of shareowners. For awards granted to non-executive employees, the forfeiture rate is estimated to be 13% and 15% annually for the years ended December 31, 2018 and 2017, respectively. There is noforfeiture rate applied to awards granted to non-employee directors or executive employees because their pre-vesting forfeitures are anticipated to be highlyunlikely. As individual awards become fully vested, stock-based compensation expense is adjusted to recognize actual forfeitures.The following table summarizes restricted stock awards and restricted stock units granted to SeaSpine employees and non-employee directors during the yearended December 31, 2018: Restricted Stock Awards and Units Shares (Inthousands) Weighted AverageGrant Date FairValue Per ShareUnvested, January 1, 2018725 $7.82Granted665 10.72Cancellations(108) 8.46Released/Vested(306) 8.41Unvested, December 31, 2018976 $9.56The weighted average grant date fair value of restricted stock awards and units granted during the years ended December 31, 2018 and 2017 was $10.72 and$7.89, respectively. The total fair value of shares vested in 2018 and 2017 was $2.6 million and $2.2 million, respectively.The Company recognized $4.9 million and $3.8 million in expense related to restricted stock awards and restricted stock units for the years endedDecember 31, 2018 and 2017, respectively. As of December 31, 2018, there was approximately $3.7 million of total unrecognized compensation expenserelated to the unvested portions of these awards. This cost is expected to be recognized over a weighted-average period of approximately 1.2 years.Stock OptionsStock option grants to employees generally have a requisite service period of four years, and stock option grants to non-employee directors generally have arequisite service period of one year. Both are subject to graded vesting. The Company records stock-based compensation expense associated with stockoptions on an accelerated basis over the various vesting periods within each grant and based on their fair value at the date of grant using the Black-Scholes-Merton option pricing model. The following weighted-average assumptions were used in the calculation of fair value for options grants for the years endedDecember 31, 2018 and 2017: December 31 2018 2017Expected dividend yield0% 0%Risk-free interest rate2.8% 2.0%Expected volatility25.6% 35.7%Expected term (in years)4.9 5.1The Company considered that it has never paid, and does not currently intend to pay, cash dividends. The risk-free interest rates are derived from the U.S.Treasury yield curve in effect on the date of grant for instruments with a remaining term similar to the expected term of the options. Due to the Company’slimited historical data, the expected volatility is calculated based upon the historical volatility of comparable companies in the medical device industrywhose share prices are publicly available for a sufficientF- 21SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)period of time. The expected term of "plain vanilla" options is calculated using the simplified method as prescribed by accounting guidance for stock-basedcompensation. A "plain vanilla" option is an option with these characteristics: (1) the option is granted at-the-money; (2) exercisability is conditional onlyon satisfaction of a service condition through the vesting date; (3) employees who terminate their service prior to vesting forfeit the option; (4) employeeswho terminate their service after vesting are granted limited time to exercise their options; and (5) the option is nontransferable and non-hedgeable. Theexpected term of any other option is based on disclosures from similar companies with similar grants. In addition, the Company applies an expected forfeiturerate when amortizing stock-based compensation expense. The expected forfeiture rate of options is based on historical experience of pre-vesting forfeitureson awards by each homogenous group of shareowners. The forfeiture rate of options granted to non-executive employees is estimated to be 13% and 15%annually for the years ended December 31, 2018 and 2017, respectively. There is no forfeiture rate applied for non-employee directors and executiveemployees as their pre-vesting forfeitures are anticipated to be highly unlikely. As individual grant awards become fully vested, stock-based compensationexpense is adjusted to recognize actual forfeitures.A summary of the options granted during the year ended December 31, 2018 and the total number of options outstanding as of that date and changes sinceJanuary 1, 2018 are set forth below: Number of SharesOutstanding (Inthousands) Weighted AverageExercise Price Weighted AverageRemainingContractual Life(In years) Aggregate IntrinsicValue (In thousands)Outstanding, January 1, 20182,560 $14.51 5.96 $238Granted28 $12.47 — —Exercised(124) $11.38 — —Forfeited(143) $14.81 — —Outstanding, December 31, 20182,321 $14.64 5.06 $8,365Vested or expected to vest, December 31, 20182,311 $14.65 5.05 $8,307Exercisable, December 31, 20181,949 $14.76 5.04 $6,777The weighted average grant date fair value of options granted during the years ended December 31, 2018 and 2017 was $3.49 and $2.63, respectively. Thetotal fair value of shares vested in 2018 and 2017 was $1.4 million and $2.2 million, respectively.The Company recognized $0.6 million and $1.7 million in expense related to stock options for the years ended December 31, 2018 and 2017, respectively.As of December 31, 2018, there was approximately $0.2 million of total unrecognized compensation expense related to unvested stock options. This cost isexpected to be recognized over a weighted-average period of approximately 0.6 years.Employee Stock Purchase PlanIn May 2015, the Company adopted the SeaSpine Holdings Corporation 2015 Employee Stock Purchase Plan, which was amended in December 2015 (asamended, the ESPP). Under the ESPP, eligible employees may purchase shares of the Company’s common stock through payroll deductions of up to 15% ofeligible compensation during an offering period. Generally, each offering will be for a period of twenty-four months as determined by the Company's board ofdirectors. There are four six-month purchase periods in each offering period for contributions to be made and to be converted into shares at the end of thepurchase period. In no event may an employee purchase more than 2,500 shares per purchase period based on the closing price on the first trading date of anoffering period or more than $25,000 worth of stock during any calendar year. The purchase price for shares to be purchased under the ESPP is 85% of thelesser of the market price of the Company's common stock on the first trading date of an offering period or on any purchase date during an offering period(June 30 or December 31). The ESPP authorizes the issuance of up to 400,000 shares of common stock pursuant to purchase rights granted to employees. On November 2, 2018, theCompany's board of directors approved the issuance of an additional 400,000 shares of common stock under the ESPP, subject to stockholder approval. TheESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code of 1986, as amended (theIRC). The first offering period under the ESPP commenced on January 1, 2016 and ended on December 31, 2017. However, the ESPP contains a restartfeature, such that if the market price of the stock at the end of any six-month purchase period is lower than the market price at the original grant date of anoffering period, that offering period will terminate after that purchase date, and a new two-year offering period will commence on the January 1 or July 1immediately following the date the original offering period terminated. This restart feature was firstF- 22SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)triggered on the purchase date that occurred on June 30, 2016, such that the offering period that commenced on January 1, 2016 was terminated, and a newtwo-year offering period commenced on July 1, 2016. This restart feature was triggered again on the purchase date that occurred on December 31, 2016, suchthat the offering period that commenced on July 1, 2016 was terminated, and a new two-year offering period commenced on January 1, 2017 and ended onDecember 31, 2018. The Company applied share-based payment modification accounting to the awards that were initially valued at the grant date todetermine the amount of any incremental fair value associated with the modified awards. The impact to stock-based compensation expense for modificationsduring the year ended December 31, 2018, was immaterial.During the years ended December 31, 2018 and 2017, there were 160,059 and 150,020 shares of common stock, respectively, purchased under the ESPP. TheCompany recognized $0.3 million and $0.6 million in expense related to the ESPP for the years ended December 31, 2018 and 2017, respectively.The Company estimates the fair value of shares issued to employees under the ESPP using the Black-Scholes-Merton option-pricing model. The followingweighted average assumptions were used in the calculation of fair value of shares under the ESPP at the grant date for the years ended December 31, 2018 and2017, respectively: December 31 2018 2017Expected dividend yield 0% 0%Risk-free interest rate 2.0% 1.0%Expected volatility 29.4% 28.1%Expected term (in years) 1.3 1.28. LEASESThe Company leases administrative, manufacturing, research, and distribution facilities and various manufacturing, office and transportation equipmentthrough operating lease agreements.Future minimum lease payments under the Company's operating leases at December 31, 2018 are: Payments Due byCalendar Year (In thousands)2019$2,15020202,18120212,21920222,23920231,564Thereafter4,664Total minimum lease payments$15,017 Total lease expense for the years ended December 31, 2018 and 2017 was $2.1 million and $2.2 million,respectively.9. INCOME TAXESThe Company is subject to income taxes in the U.S., Switzerland and France. Income taxes are accounted for under the asset and liability method. Deferredincome tax assets and liabilities are calculated based on the difference between the financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases using the enacted income tax rates expected to be in effect during the years in which the temporary differences are expected toreverse. Valuation allowances are recorded to reduce deferred tax assets when it is more likely than not that a tax benefit will not be realized. Significantjudgment is required in determining whether a valuation allowance should be recorded against deferred tax assets. In assessing the need for a valuationallowance, management considers all available evidence for each jurisdiction including past operating results, estimates of futureF- 23SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)taxable income and the feasibility of ongoing tax planning strategies. In the event that the Company changes its determination as to the amount of deferredtax assets that can be realized, the Company will adjust its valuation allowance with a corresponding impact to income tax expense in the period in whichsuch determination is made.Income Tax Provision (Benefit)Income (loss) before income taxes consisted of: Year Ended December 31, 2018 2017 (In thousands)United States operations$(33,843) $(34,886)Foreign operations448 2,653 $(33,395) $(32,233)A reconciliation of the U.S. federal statutory rate to the Company’s effective tax rate is: Year Ended December 31, 2018 2017Federal statutory rate21.0% 35.0%Increase (decrease) in income taxes resulting from: State income taxes, net of federal tax benefit3.2% 4.1%Foreign operations(0.5)% (0.2)%Changes in valuation allowances(25.5)% 43.2%Uncertain tax positions0.3% 0.3%Research and development credit0.2% 0.2%Other0.9% 0.8%Change in rate resulting from the 2017 Tax Act (83.0)%Effective tax rate(0.4)% 0.4%The provision/(benefit) for income taxes consisted of: Year Ended December 31, 2018 2017 (In thousands)Current: Federal$(93) $(102)State52 20Foreign44 42Total current$3 $(40)Deferred: Federal— —State— —Foreign126 (78)Total deferred$126 $(78)Provision (benefit) for income taxes$129 $(118)The income tax effects of significant temporary differences that give rise to deferred tax assets and liabilities, shown before jurisdictional netting, arepresented below: Year Ended December 31,F- 24SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2018 2017 (In thousands)Deferred tax assets: Doubtful accounts$212 $116Inventory related items9,677 8,976Tax credits229 158Accrued vacation340 348Accrued bonus1,192 815Stock compensation3,790 3,129Net operating loss carryforwards30,210 22,175Intangible and fixed assets10,611 12,054Other942 686Total deferred tax assets57,203 48,457Less valuation allowance(55,954) (47,433)Deferred tax assets after valuation allowance$1,249 $1,024Deferred tax liabilities: Other817 469Total deferred tax liabilities$817 $469Net deferred tax assets$432 $555At December 31, 2018, the Company had net operating loss carryforwards of $122.4 million for federal and state income tax purposes. The Company also hadforeign net operating loss carryforwards of $1.9 million. These tax loss carryforwards begin to expire in 2021 and 2027 for foreign and federal and stateincome tax, respectively, and will expire through 2037. The tax expense recorded for net operating losses, net of valuation allowance, was $0.1 million whichrelates only to foreign net operating losses.At December 31, 2017, the Company had net operating loss carryforwards of $88.3 million for federal and state income tax purposes. The Company also hadforeign net operating loss carryforwards of $2.7 million. These tax loss carryforwards begin to expire in 2018 and 2027 for foreign and federal and stateincome tax, respectively, and will expire through 2037. The tax benefit recorded for net operating losses, net of valuation allowance, was less than $0.1million which relates only to foreign net operating losses.The valuation allowance relates to deferred tax assets for certain items that will be deductible for income tax purposes under very limited circumstances andfor which the Company believes it is not more likely than not that it will realize the associated tax benefit. However, in the event that the Companydetermines that it would be able to realize more or less than the recorded amount of net deferred tax assets, an adjustment to the deferred tax asset valuationallowance would be recorded in the period such a determination is made. In assessing the realizability of deferred tax assets, management considers whether itis more-likely-than-not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent uponthe generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduledreversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax planningstrategies in making this assessment. Based upon the levels of historical taxable income, projections of future taxable income and the reversal of deferred taxliabilities over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not that the Company will realize thebenefits of these deductible differences, net of the existing valuation allowance. The amount of deferred tax asset considered realizable, however, couldchange in the near term if estimates which require significant judgment of future taxable income during the carryforward period are increased or decreased.The Tax Cuts and Jobs Act (the 2017 Tax Act) was enacted on December 22, 2017. The 2017 Tax Act reduces the U.S federal corporate tax rate from 35% to21%. Accordingly, the Company modified the value of the deferred tax assets and liabilities including the net operating loss carryover at December 31, 2017.Prior to enactment of the new tax reform, the Company had total net deferred tax assets of $74.1 million before valuation allowance at December 31, 2017.Taking the new tax reform into consideration, the Company's total net deferred tax assets were $48.0 million before valuation allowance at December 31,2017.F- 25SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)The Company is not subject to the new transition tax on accumulated foreign earnings enacted by the 2017 Tax Act because its foreign operations have beenincluded in its US tax filings pursuant to an election to disregard the Company's foreign subsidiaries for federal income tax purposes. A reconciliation of the Company’s uncertain tax benefits is as follows: Year Ended December 31, 2018 2017 (In thousands)Balance, beginning of year$277 $305Gross increases: Prior years’ tax positions1 5Additions to tax positions in prior years due to spin-off —Current year tax positions71 74Gross decreases: Settlements —Statute of limitations lapses(94) (107)Balance, end of year$255 $277Approximately $0.3 million of the balance at December 31, 2018 relates to uncertain tax positions that, if recognized, would affect the annual effective taxrate. There is $0.1 million related to tax positions for which it is reasonably possible that the total amounts could be reduced during the twelve monthsfollowing December 31, 2018, as a result of expiring statutes of limitations.The Company recognizes interest and penalties relating to uncertain tax positions in income tax expense. The amounts recorded in 2018 and 2017 were notsignificant.The Company files income tax returns as prescribed by tax laws of the jurisdictions in which it operates. In the normal course of business, the Company issubject to examination by federal, state, local and foreign jurisdictions where applicable based on the statute of limitations that apply in each jurisdiction.The Company has no open tax audits with any taxing authority as of December 31, 2018. The Company is still subject to income tax examinations by USfederal and state tax authorities for the years 2015 through 2018. Open years for foreign jurisdictions are from 2014 through 2018. However, to the extentallowed by law, the tax authorities may have the right to examine prior periods where net operating losses were generated and carried forward, and makeadjustments up to the amount of the net operating loss carryforward amount.10. COMMITMENTS AND CONTINGENCIESIn consideration for certain technology, manufacturing, distribution, and selling rights and licenses granted to the Company, the Company has agreed to payroyalties on sales of certain products sold by the Company. The royalty payments that the Company made under these agreements are included in theconsolidated statements of operations as a component of cost of goods sold.The Company is subject to various legal proceedings in the ordinary course of its business with respect to its products, its current or former employees, and itscommercial relationships, some of which have been settled by the Company. In the opinion of management, such proceedings are either adequately coveredby insurance or otherwise indemnified, or are not expected, individually or in the aggregate, to result in a material adverse effect on the Company's financialcondition. However, it is possible that the Company's results of operations, financial position and cash flows in a particular period could be materiallyaffected by these contingencies.The Company accrues for loss contingencies when it is deemed probable that a loss has been incurred and that loss is estimable. The amounts accrued arebased on the full amount of the estimated loss before considering insurance proceeds, and do not include an estimate for legal fees expected to be incurred inconnection with the loss contingency. While uncertainty exists, the Company does not believe there are any pending legal proceedings that would have amaterial impact on the Company’s financial position, cash flows or results of operations.11. SEGMENT AND GEOGRAPHIC INFORMATIONManagement assessed its segment reporting based on how it internally manages and reports the results of its business to its chief operating decision maker.Management reviews financial results, manages the business and allocates resources on an aggregateF- 26SEASPINE HOLDINGS CORPORATIONNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)basis. Therefore, financial results are reported in a single operating segment: the development, manufacture and marketing of orthobiologics and of spinalimplants. The Company reports revenue in two product categories: orthobiologics and spinal implants. Orthobiologics products consist of a broad range ofadvanced and traditional bone graft substitutes that are designed to improve bone fusion rates following surgery. The spinal implants portfolio consists of anextensive line of products for minimally invasive surgery, complex spine, deformity and degenerative procedures.Revenue, net consisted of the following: Year Ended December 31, 2018 2017 (In thousands)Orthobiologics $75,339 $69,128Spinal implants 68,104 62,686Total Revenue, net $143,443 $131,814The Company attributes revenues to geographic areas based on the location of the customer. Total revenue by major geographic area consisted of thefollowing: 2018 2017 United States $127,883 $118,405International 15,560 13,409Total Revenue, net $143,443 $131,81412. EMPLOYEE BENEFIT PLANThe Company has a defined contribution savings plan under section 401(k) of the IRC. The plan covers substantially all employees. The Company matchesemployee contributions made to the plan according to a specified formula. The Company’s matching contributions totaled approximately $0.7 million and$0.6 million for the years ended 2018 and 2017, respectively.13. SELECTED QUARTERLY INFORMATION - UNAUDITED First Quarter Second Quarter Third Quarter Fourth Quarter (In thousands, except per share data)Total revenue, net: 2018$33,175 $36,409 $35,834 $38,025201731,894 34,196 31,742 33,982Gross profit: 2018$20,996 $21,849 $21,587 $23,042201718,722 20,202 19,566 21,498Net loss: 2018$(7,105) $(7,361) $(9,532) $(9,526)2017(9,103) (8,043) (7,462) (7,507)Basic/diluted net loss per common share(1): 2018$(0.50) $(0.50) $(0.65) $(0.53)2017(0.79) (0.68) (0.58) (0.56)(1) Per common share amounts for the quarters and full years have been calculated separately. Accordingly, quarterly amountsdo not necessarily add to the annual amount because of differences in the weighted average common shares outstanding during each period principally dueto the effect of the Company’s issuing or canceled shares of its common stock during the year.F- 27SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS Balance atBeginning of Period Charged to Costsand Expenses Charged to OtherAccounts Additions/Deductions Balance at End ofPeriodDescription (In thousands)Year ended December 31, 2018: Allowance for doubtful accounts and sales returns andother credits466 21 — 363 850Inventory Reserves27,071 4,686 — (2,448) 29,309Deferred tax asset valuation allowance47,433 8,521 — — 55,954Year ended December 31, 2017: Allowance for doubtful accounts and sales returns andother credits$483 $47 $— $(64) $466Inventory Reserves$24,919 $4,597 $— $(2,445) $27,071Deferred tax asset valuation allowance61,118 (13,685) — — 47,433F- 28EXHIBIT 3.2AMENDED AND RESTATED BYLAWSOFSEASPINE HOLDINGS CORPORATION(As amended as of February 28, 2019)ARTICLE IMeetings of StockholdersSection 1.1. Annual Meetings. The annual meeting of the stockholders of SeaSpine Holdings Corporation (the “Corporation”)for the election of directors (each, a “Director”) and for the transaction of such other business as properly may come before suchmeeting shall be held each year either within or without the State of Delaware at such place, if any, and on such date and at such time,as may be fixed from time to time by resolution of the Corporation’s Board of Directors (the “Board”) and set forth in the notice orwaiver of notice of the meeting. The Board may postpone, reschedule or cancel any annual meeting of stockholders previouslyscheduled by the Board.Section 1.2. Special Meetings. A special meeting of the stockholders of the Corporation for any purpose or purposes may becalled at any time only by or at the direction of the Board pursuant to a resolution of the Board adopted by a majority of the totalnumber of Directors then in office. Any special meeting of the stockholders shall be held at such place, if any, within or without theState of Delaware, and on such date and at such time, as shall be specified in such resolution. Business transacted at any specialmeeting of the stockholders shall be limited to the purpose(s) stated in the notice. The Board may postpone, reschedule or cancel anyspecial meeting of the stockholders previously scheduled by the Board.Section 1.3. Participation in Meetings by Remote Communication. The Board, acting in its sole discretion, may establishguidelines and procedures in accordance with applicable provisions of the Delaware General Corporation Law (the “DGCL”) andany other applicable law for the participation by stockholders and proxyholders in a meeting of stockholders by means of remotecommunications, and may determine that any meeting of stockholders will not be held at any place but will be held solely by meansof remote communication. Stockholders and proxyholders complying with such procedures and guidelines and otherwise entitled tovote at a meeting of stockholders shall be deemed present in person and entitled to vote at a meeting of stockholders, whether suchmeeting is to be held at a designated place or solely by means of remote communication.Section 1.4. Notice of Meetings. Whenever stockholders are required or permitted to takeany action at a meeting, a notice of the meeting shall be given that shall state the place, if any, date and hour of the meeting, the meansof remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at suchmeeting, the record date for determining the stockholders entitled to vote at the meeting (if such date is different from the record datefor stockholders entitled to notice of the meeting) and, in the case of a special meeting, the purpose or purposes for which the meetingis called. Unless otherwise provided by law, the certificate of incorporation of the Corporation (the “Certificate ofIncorporation”) or these Bylaws, the notice of any meeting shall be given not less than ten (10) nor more than sixty (60) days beforethe date of the meeting to each stockholder entitled to vote at the meeting as of the record date for determining the stockholdersentitled to notice of the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postageprepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation.Section 1.5. Adjournments. Any meeting of stockholders may be adjourned from time to time, by the chairperson of themeeting or by the vote of a majority of the shares of stock present in person or represented by proxy at the meeting, to reconvene atthe same or some other place, and notice need not be given of any such adjourned meeting if the place, if any, and date and timethereof (and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present inperson and vote at such meeting) are announced at the meeting at which the adjournment is taken unless the adjournment is for morethan thirty (30) days or a new record date is fixed for the adjourned meeting after the adjournment, in which case notice of theadjourned meeting in accordance with Section 1.4 of these Bylaws shall be given to each stockholder of record entitled to vote at themeeting. At the adjourned meeting, the Corporation may transact any business that might have been transacted at the original meeting.If after the adjournment a new record date for determination of stockholders entitled to vote is fixed for the adjourned meeting, theBoard shall fix as the record date for determining stockholders entitled to notice of such adjourned meeting the same or an earlier dateas that fixed for determination of stockholders entitled to vote at the adjourned meeting, and shall give notice of the adjourned meetingto each stockholder of record as of the record date so fixed for notice of such adjourned meeting.Section 1.6. Quorum. Except as otherwise provided in the Certificate of Incorporation or by law, the presence in person or byproxy of the holders of record of a majority in voting power of the shares entitled to vote at a meeting of stockholders shall constitutea quorum for the transaction of business at such meeting, provided, however, that where a separate vote by a class or series isrequired, the holders of a majority in voting power of all issued and outstanding stock of such class or series entitled to vote on suchmatter, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to such matter. In theabsence of a quorum, the stockholders so present may, by a majority in voting power thereof, adjourn the meeting from time to timein the manner provided in Section 1.5 of these Bylaws until a quorum shall attend.Section 1.7. Organization. At every meeting of stockholders the presiding officer shall be the Chairman of the Board, or in theevent of his or her absence or disability, a presiding officer chosen by resolution of the Board. The Secretary, or in the event of his orher absence or disability, the Assistant Secretary, if any, or if there be no Assistant Secretary, in the absence of the Secretary, anappointee of the presiding officer, shall act as secretary of the meeting.Section 1.8. Voting; Proxies. Except as otherwise provided in the Certificate of Incorporation or by law, every holder of record ofshares entitled to vote at a meeting of stockholders is entitled to one vote for each share outstanding in his or her name on the books ofthe Corporation (x) at the close of business on the record date for such meeting or (y) if no record date has been fixed, at the close ofbusiness on the day next preceding the day on which notice of the meeting is given, or if notice is waived, at the close of business onthe day next preceding the day on which the meeting is held. Except as otherwise required by law, the Certificate of Incorporation,these Bylaws, the rules and regulations of any stock exchange applicable to the Corporation or pursuant to any other rule orregulation applicable to the Corporation, its securities or its stockholders, the vote of a majority of the voting power of the sharesentitled to vote at a meeting of stockholders on the subject matter in question represented in person or by proxy at any meeting atwhich a quorum is present shall be sufficient for the transaction of any business at such meeting. The stockholders do not have theright to cumulate their votes for the election of Directors. Each stockholder entitled to vote at a meeting of stockholders or to expressconsent to or dissent from corporate action in writing without a meeting may authorize another person or persons to act for suchstockholder by proxy. A stockholder may authorize a valid proxy by executing a written instrument signed by such stockholder, or bycausing his or her signature to be affixed to such writing by any reasonable means, including but not limited to by facsimile signature,a proxy solicitation firm or a like authorized agent. Proxies by electronic transmission must either set forth, or be submitted with,information from which it can be determined that the electronic transmission was authorized by the stockholder. Any copy, facsimiletelecommunication or other reliable reproduction of a writing or transmission created pursuant to this section may be substituted orused in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could beused if such copy, facsimile telecommunication or other reproduction is a complete reproduction of the entire original writing ortransmission. No proxy may be voted or acted upon after the expiration of three years from the date of such proxy, unless such proxyprovides for a longer period. Every proxy is revocable at the pleasure of the stockholder executing it unless the proxy states that it isirrevocable and applicable law makes it irrevocable. A stockholder may revoke any proxy that is not irrevocable by attending themeeting and voting in person or by filing an instrument in writing revoking the proxy or by filing another duly executed proxybearing a later date with the Secretary.Section 1.9. Fixing Date for Determination of Stockholders of Record.(a) In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournmentthereof, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record dateis adopted by the Board, and which record date shall, unless otherwise required by law, not be more than sixty (60) nor less than ten(10) days before the date of such meeting. If the Board so fixes a date, such date shall also be the record date for determining thestockholders entitled to vote at such meeting unless the Board determines, at the time it fixes such record date, that a later date on orbefore the date of the meeting shall be the date for making such determination. The Secretary or any Assistant Secretary shall causenotice of each meeting of stockholders to be given in writing in a manner permitted by the DGCL not less than ten (10) days normore than sixty (60) days prior to the meeting to each stockholder of recordentitled to vote at such meeting as of the record date for determining the stockholders entitled to notice of the meeting, subject to suchexclusions as are then permitted by the DGCL. The notice shall specify (i) the record date for determining the stockholders entitled tovote at the meeting (if such date is different from the record date for stockholders entitled to notice of the meeting), (ii) the place, ifany, date and time of such meeting, (iii) the means of remote communications, if any, by which stockholders and proxyholders maybe deemed to be present in person and vote at such meeting, (iv) in the case of a special meeting, the purpose or purposes for whichsuch meeting is called and (v) such other information as may be required by law or as may be deemed appropriate by the Board, theChairman of the Board, the President or the Secretary of the Corporation. If the stockholder list referred to in Section 1.10 of theseBylaws is made accessible on an electronic network, the notice of meeting must indicate how the stockholder list can be accessed.(b) In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or otherdistribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock orfor the purpose of any other lawful action, the Board may fix a record date, which shall not be more than sixty (60) days prior to suchother action. If no such record date is fixed, the record date for determining stockholders for any such purpose shall be at the close ofbusiness on the day on which the Board adopts the resolution relating thereto.Section 1.10. List of Stockholders Entitled to Vote. The officer who has charge of the stock ledger shall prepare and make, atleast ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting (provided,however, if the record date for determining the stockholders entitled to vote is less than ten (10) days before the date of the meeting,the list shall reflect the stockholders entitled to vote as of the tenth day before the meeting date), arranged in alphabetical order, andshowing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be opento the examination of any stockholder, for any purpose germane to the meeting at least ten (10) days prior to the meeting (i) on areasonably accessible electronic network, provided that the information required to gain access to such list is provided with the noticeof meeting or (ii) during ordinary business hours at the principal place of business of the Corporation. If the meeting is to be held at aplace, then a list of stockholders entitled to vote at the meeting shall be produced and kept at the time and place of the meeting duringthe whole time thereof and may be examined by any stockholder who is present. If the meeting is to be held solely by means ofremote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting ona reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of themeeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled toexamine the list of stockholders required by this Section 1.10 or to vote in person or by proxy at any meeting of stockholders.Section 1.11. Inspectors of Election. The Corporation may, and shall if required by law, in advance of any meeting ofstockholders, appoint one or more inspectors of election, who may be employees of the Corporation, to act at the meeting or anyadjournment thereof and to make a written report thereof. The Corporation may designate one or more persons as alternate inspectorsto replace any inspector who fails to act. In the event that no inspector so appointed or designated isable to act at a meeting of stockholders, the person presiding at the meeting shallappoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall takeand sign an oath to execute faithfully the duties of inspector with strict impartiality and according to the best of his or her ability. Theinspector or inspectors so appointed or designated shall (i) ascertain the number of shares of capital stock of the Corporationoutstanding and the voting power of each such share, (ii) determine the shares of capital stock of the Corporation represented at themeeting and the validity of proxies and ballots, (iii) count all votes and ballots, (iv) determine and retain for a reasonable period arecord of the disposition of any challenges made to any determination by the inspectors, and (v) certify their determination of thenumber of shares of capital stock of the Corporation represented at the meeting and such inspectors’ count of all votes and ballots.Such certification and report shall specify such other information as may be required by law. In determining the validity and countingof proxies and ballots cast at any meeting of stockholders of the Corporation, the inspectors may consider such information as ispermitted by applicable law. No person who is a candidate for an office at an election may serve as an inspector at such election.Section 1.12. Conduct of Meetings. The Board may make such rules or regulations for the conduct of meetings ofstockholders as it shall deem necessary, appropriate or convenient. Subject to any such rules and regulations, the presiding officer ofany meeting shall have the right and authority to convene and (for any or no reason) to recess and/or adjourn the meeting and toprescribe rules, regulations and procedures for such meeting and to take all such actions as in the judgment of the presiding officer areappropriate for the proper conduct of such meetings. Such rules, regulations or procedures, whether adopted by the Board orprescribed by the presiding officer of the meeting, may include, without limitation, the following: (i) the establishment of an agenda ororder of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii)limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized andconstituted proxies or such other persons as the presiding person of the meeting shall determine; (iv) restrictions on entry to themeeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments byparticipants. The presiding person at any meeting of stockholders, in addition to making any other determinations that may beappropriate to the conduct of the meeting, shall, if the facts warrant, determine and declare to the meeting that a matter or businesswas not properly brought before the meeting and if such presiding person should so determine, such presiding person shall so declareto the meeting and any such matter or business not properly brought before the meeting shall not be transacted or considered. Unlessand to the extent determined by the Board or the person presiding over the meeting, meetings of stockholders shall not be required tobe held in accordance with the rules of parliamentary procedure.Section 1.13. Notice of Stockholder Proposals and Nominations.(a) Annual Meetings(i) Nominations of persons for election to the Board and proposals of business to be considered by the stockholders atan annual meeting of stockholders may be made only (x) as specified in the Corporation’s notice of meeting (or any noticesupplemental thereto), (y) by or atthe direction of the Board, or a committee appointed by the Board for such purpose, or (z) by anystockholder of the Corporation who or which (1) is entitled to vote at the meeting, (2) complies in a timely manner with all noticeprocedures set forth in this Section 1.13, and (3) is a stockholder of record when the required notice is delivered and at the date of themeeting. A stockholder proposal must constitute a proper matter for corporate action under the DGCL.(ii) Notice in writing of a stockholder nomination or stockholder proposal must be delivered to the attention of theSecretary at the principal place of business of the Corporation by the close of business not fewer than ninety (90) days nor more thanone hundred twenty (120) days prior to the first anniversary of the preceding year’s annual meeting (which anniversary date, in thecase of the first annual meeting of stockholders following the date hereof, shall be deemed to be June 7, 2016); provided that if thedate of the annual meeting is advanced by more than thirty (30) days or delayed by more than seventy (70) days from suchanniversary date of the preceding year’s annual meeting, notice by the stockholder to be timely must be so delivered not earlier thanone hundred twenty (120) days prior to such annual meeting and not later than the close of business on the later of the 90th day priorto such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Ifthe number of Directors to be elected to the Board at an annual meeting is increased, and if the Corporation does not make a publicannouncement naming the applicable nominees for Director or specifying the size of the increased Board at least one hundred (100)days prior to the first anniversary of the preceding year’s annual meeting, then any stockholder nomination in respect of the increasednumber of positions shall be considered timely if delivered not later than the close of business on the 10th day following the day onwhich a public announcement naming all nominees or specifying the size of the increased Board is first made by the Corporation.(iii) Notice of a stockholder nomination shall include, as to each person whom the stockholder proposes to nominatefor election or reelection as a Director, all information relating to such person required to be disclosed in solicitations of proxies forelection of Directors or is otherwise required, in each case pursuant to and in accordance with Section 14(a) of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, including suchperson’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected. Notice of astockholder proposal shall include a brief description of the business desired to be brought before the meeting, the text of the proposal(including the text of any resolutions proposed for consideration and if such business includes proposed amendments to the Certificateof Incorporation and/or Bylaws of the Corporation, the text of the proposed amendments), the reasons for conducting such business atthe meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf theproposal is made.(iv) Notice of a stockholder nomination or proposal shall also set forth, as to the stockholder giving the notice and thebeneficial owner, if any, on whose behalf the nomination or proposal is made:(1) the name and address of such stockholder, as they appear on theCorporation’s books and records, and of any such beneficial owner;(2) the class or series and number of shares of capital stock of theCorporation which are owned beneficially and of record by such stockholder and any such beneficial owner;(3) a description of any agreement, arrangement or understanding between or among such stockholder and anysuch beneficial owner, any of their respective affiliates or associates, and any other person or persons (including their names) inconnection with the proposal of such nomination or other business;(4) a description of any agreement, arrangement or understanding (including, regardless of the form of settlement,any derivative, long or short positions, profit interests, forwards, futures, swaps, options, warrants, convertible securities, stockappreciation or similar rights, hedging transactions and borrowed or loaned shares) that has been entered into by or on behalf of, orany other agreement, arrangement or understanding that has been made, the effect or intent of which is to create or mitigate loss to,manage risk or benefit of share price changes for, or increase or decrease the voting power of, such stockholder or any such beneficialowner or any such nominee with respect to the Corporation’s securities (a “Derivative Instrument”);(5) to the extent not disclosed pursuant to clause (4) above, the principal amount of any indebtedness of theCorporation or any of its subsidiaries beneficially owned by such stockholder or by any such beneficial owner, together with the titleof the instrument under which such indebtedness was issued and a description of any Derivative Instrument entered into by or onbehalf of such stockholder or such beneficial owner relating to the value or payment of any indebtedness of the Corporation or anysuch subsidiary;(6) a representation that such stockholder is a holder of record of stock of the Corporation entitled to vote at suchmeeting and intends to appear in person or by proxy at the meeting to propose such business or nomination;(7) any other information relating to such stockholder and any such beneficial owner required to be disclosed in aproxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/orfor the election of directors in an election contest pursuant to and in accordance with Section 14(a) of the Exchange Act and the rulesand regulations promulgated thereunder; and(8) a representation as to whether such stockholder or any such beneficial owner intends or is part of a groupwhich intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation’soutstanding capital stock required to elect the nominee or to approve or adopt the proposal or and/or (y) otherwise to solicit proxiesfrom stockholders in support of such nomination or proposal.If requested by the Corporation, the information required under clauses (iv)(2), (3), (4) and (5) of the preceding sentence of thisSection 1.13(a) shall be supplemented by such stockholder and any such beneficial owner not later than ten (10) days after the recorddate for notice of the meeting to disclose such information as of such record date. The foregoing notice requirementsof this Section 1.13(a) shall be deemed satisfied by a stockholder with respect to business or a nomination if such stockholder hasnotified the Corporation of his or her intention to present a proposalor make a nomination at an annual meeting in compliance with the applicable rules and regulations promulgated under the ExchangeAct and such stockholder’s proposal or nomination has been included in a proxy statement that has been prepared by the Corporationto solicit proxies for such annual meeting.(b) Special Meetings.(i) Only such business shall be conducted at a special meeting of stockholders as shall have been brought before themeeting pursuant to the Corporation’s notice of meeting pursuant to Section 1.4 of these Bylaws. Nominations of persons for electionto the Board at a special meeting of stockholders may be made only (x) by or at the direction of the Board, or a committee appointedby the Board for such purpose, if the Corporation’s notice of meeting indicated that the purposes of meeting included the election ofDirectors and specified the number of Directors to be elected, or (y) provided that the Board has determined that directors shall beelected at such meeting, by any stockholder of the Corporation. A stockholder may nominate persons for election to the Board (a“stockholder nomination”) at a special meeting only if the stockholder (1) is entitled to vote at the meeting, (2) complies in a timelymanner with the notice procedures set forth in paragraph (ii) of this Section 1.13(b), and (3) is a stockholder of record when therequired notice is delivered and at the date of the meeting.(ii) Notice in writing of a stockholder nomination must be delivered to the attention of the Secretary at the principalplace of business of the Corporation not more than 120 days prior to the date of the meeting and not later than the close of business onthe later of the90th day prior to the meeting or the 10th day following the last to occur of the public announcement by the Corporation of the date ofsuch meeting and the public announcement by the Corporation of the nominees proposed by the Board to be elected at such meeting,and must comply with the provisions of Sections 1.12(a)(iii) and (iv) of these Bylaws. The foregoing notice requirements of thisSection 1.13(b) shall be deemed satisfied by a stockholder with respect to a nomination if the stockholder has notified the Corporationof his or her intention to present a nomination at such special meeting in compliance with the applicable rules and regulationspromulgated under the Exchange Act and such stockholder’s nomination has been included in a proxy statement that has beenprepared by the Corporation to solicit proxies for such special meeting.(c) General.(i) Except as otherwise expressly provided in any applicable rule or regulation promulgated under the Exchange Act,only such persons who are nominated in accordance with the procedures set forth in this Section 1.13 shall be eligible to be elected atan annual or special meeting of stockholders of the Corporation to serve as Directors and only such business shall be conducted at ameeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section1.13. Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, the presiding officer of a meeting ofstockholders shall have the power and duty (x) to determine whether a nomination or any business proposed to be brought before themeeting was made in accordance with the procedures set forth in this Section 1.13, and (y) if any proposed nomination or business isnot in compliance with this Section1.13, to declare that such defective nomination shall be disregarded or that such proposed business shall not be transacted.(ii) The Corporation may require any proposed stockholder nominee for Director to furnish such other information as itmay reasonably require to determine the eligibility of such proposed nominee to serve as a Director of the Corporation. Unlessotherwise required by law, if the stockholder (or a qualified representative of the stockholder) making a nomination or proposal underthis Section 1.13 does not appear at a meeting of stockholders to present such nomination or proposal, the nomination shall bedisregarded and/or the proposed business shall not be transacted, as the case may be, notwithstanding that proxies in favor thereofmay have been received by the Corporation. For purposes of this Section 1.13, to be considered a qualified representative of thestockholder, a person must be a duly authorized officer, manager or partner of such stockholder or must be authorized by a writingexecuted by such stockholder or an electronic transmission delivered by such stockholder to act for such stockholder as proxy at themeeting of stockholders and such person must produce such writing or electronic transmission, or a reliable reproduction of thewriting or electronic transmission, at the meeting of stockholders.(iii) For purposes of this Section 1.13, “public announcement” shall mean disclosure in a press release reported by theDow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporationwith the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.(iv) Notwithstanding the foregoing provisions of this Section 1.13, a stockholder shall also comply with all applicablerequirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 1.13;provided, however, that any references in these Bylaws to the Exchange Act or the rules and regulations promulgated thereunder arenot intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be consideredpursuant to this Section 1.13 and compliance with paragraphs (a) and (b) of this Section 1.13 shall be the exclusive means for astockholder to make nominations or submit other business (other than, as provided in the last sentences of paragraphs (a) and (b)hereof, business or nominations brought properly under and in compliance with Rule 14a-8 or Rule 14a-11 of the Exchange Act, assuch Rules may be amended from time to time). Nothing in this Section 1.13 shall be deemed to affect any rights of (x) stockholdersto request inclusion of proposals in the Corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (y) theholders of any series of preferred stock to elect Directors pursuant to any applicable provisions of the Certificate of Incorporation or ofthe relevant preferred stock certificate or designation.(v) The announcement of an adjournment or postponement of an annual or special meeting does not commence a newtime period (and does not extend any time period) for the giving of notice of a stockholder nomination or a stockholder proposal.ARTICLE II Board of DirectorsSection 2.1. General Powers. Except as may otherwise be provided by law or by the Certificateof Incorporation, the affairs and business of the Corporation shall be managed by or under the direction of the Board and the Boardmay exercise all the powers and authority of the Corporation. The Directors shall act only as a Board, and the individual Directorsshall have no power as such.Section 2.2. Number and Term of Office. The number of Directors shall initially be eight (8), classified (including Directors inoffice as of the date hereof) with respect to the time for which they severally hold office into three classes, as nearly equal in numberas possible, designated as Class I, Class II and Class III, which number may be modified (but not reduced to less than three) from timeto time exclusively by resolution of the Board, subject to the rights of the holders of shares of any class or series of preferred stock, ifany. The initial Class I directors shall serve for a term expiring at the first annual meeting of the stockholders following the datehereof, the initial Class II directors shall serve for a term expiring at the second annual meeting of the stockholders following the datehereof and the initial Class III directors shall serve for a term expiring at the third annual meeting of stockholders following the datehereof, with Directors of each class to hold office until their successors are duly elected and qualified, provided that the term of eachDirector shall continue until the election and qualification of a successor and be subject to such Director’s earlier death, resignation orremoval. At each annual meeting of stockholders of the Corporation beginning with the first annual meeting of stockholders followingthe date hereof, subject to any rights of the holders of shares of any class or series of preferred stock, the successors of the class ofDirectors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholdersheld in the third year following the year of their election, provided that the term of each Director shall continue until the election andqualification of a successor and be subject to such Director’s earlier death, resignation or removal. At each meeting of the stockholdersfor the election of Directors, provided a quorum is present, the Directors shall be elected by a plurality of the votes validly cast in suchelection. Any director may resign at any time upon notice to the Corporation. In the case of any increase or decrease, from time totime, in the authorized number of Directors, the number of Directors in each class shall be apportioned as nearly equal as possible. Nodecrease in the number of Directors shall shorten the term of any incumbent Director.Section 2.3. Regular Meetings. Regular meetings of the Board may be held at such places within or without the State ofDelaware and at such times as the Board may from time to time determine.Section 2.4. Special Meetings. Special meetings of the Board shall be held whenever called by the President, by the Chairmanof the Board, or by a majority of the Directors then in office, at such place, date and time as may be specified in the respective noticesor waivers of notice of such meetings. Any business may be conducted at a special meeting. Notice of aspecial meeting of the Board shall be given by the person or persons calling the meeting at least twenty-four hours before the specialmeeting.Section 2.5. Notice of Meetings. Notices of special meetings shall be given to each Director, and notice of each resolution orother action affecting the date, time or place of one or more regular meetings shall be given to each Director not present at the meetingadopting such resolution or other action, subject to Section 2.8 of these Bylaws. Notices shall be given personally, or by telephoneconfirmed by facsimile or email dispatched promptly thereafter, or by facsimile or email confirmed by a writing delivered by arecognized overnight courier service, directed to each Director at theaddress from time to time designated by such Director to the Secretary. Each such notice and confirmation must be given (received inthe case of personal service or delivery of written confirmation) at least 24 hours prior to the time of a meeting.Section 2.6. Telephonic Meetings Permitted. Members of the Board, or any committee designated by the Board, mayparticipate in a meeting thereof by means of conference telephone or other communications equipment by means of which all personsparticipating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence inperson at such meeting.Section 2.7. Quorum; Vote Required for Action. At all meetings of the Board the directors entitled to cast a majority of thevotes of the whole Board shall constitute a quorum for the transaction of business. Except in cases in which the Certificate ofIncorporation, these Bylaws or applicable law otherwise provides, a majority of the votes entitled to be cast by the directors present ata meeting at which a quorum is present shall be the act of the Board.Section 2.8. Adjournment. A majority of the Directors present may adjourn any meeting of the Board to another date, time orplace, whether or not a quorum is present. No notice need be given of any adjourned meeting unless (a) the date, time and place ofthe adjourned meeting are not announced at the time of adjournment, in which case notice conforming to the requirements of Section2.5 of these Bylaws shall be given to each Director, or (b) the meeting is adjourned for more than 24 hours, in which case the noticereferred to in clause (a) shall be given to those Directors not present at the announcement of the date, time and place of the adjournedmeeting.Section 2.9. Action Without a Meeting. Unless otherwise restricted in the Certificate of Incorporation, any action required orpermitted to be taken at any meeting of the Board may be taken without a meeting if all members of the Board consent thereto inwriting or by electronic transmission, and such writing or writings or electronic transmissions are filed with the minutes ofproceedings of the Board. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronicform if the minutes are maintained in electronic form.Section 2.10. Regulations. To the extent consistent with applicable law, the Certificate of Incorporation and these Bylaws, theBoard may adopt such rules and regulations for the conduct of meetings of the Board and for the management of the affairs andbusiness of the Corporation as the Board may deem appropriate. The Board may elect from among its membersa chairperson and one or more vice-chairpersons to preside over meetings and to perform such other duties as may be designated bythe Board.Section 2.11. Resignations of Directors. Any Director may resign at any time by submitting an electronic transmission or bydelivering a written notice of resignation, signed by such Director, to the Chairman of the Board, the President or the Secretary. Suchresignation shall take effect upon delivery unless the resignation specifies a later effective date or an effective date determined uponthe happening of a specified event.Section 2.12. Removal of Directors. Subject to the rights of the holders of shares of any classor series of preferred stock, if any, to elect Directors pursuant to the Certificate of Incorporation (including any certificate ofdesignation thereunder), any Director may be removed only for cause, upon the affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then outstanding shares of voting stock of the Corporation entitled to vote at an election ofdirectors in accordance with the DGCL, the Certificate of Incorporation and these Bylaws.Section 2.13. Vacancies and Newly Created Directorships. Subject to the rights of the holders of shares of any class or seriesof preferred stock, if any, to elect additional Directors pursuant to the Certificate of Incorporation (including any certificate ofdesignation thereunder), any vacancy in the Board that results from the death, disability, resignation, disqualification or removal ofany Director or from any other cause or newly created directorship shall be filled solely by the affirmative vote of a majority of thetotal number of Directors then in office, even if less than a quorum, or by a sole remaining Director. Any Director filling a vacancyshall be of the same class as that of the Director whose death, resignation, disqualification, removal or other event caused the vacancy,and any Director filling a newly created directorship shall be of the class specified by the Board at the time the newly createddirectorship was created. A Director elected to fill a vacancy or newly created Directorship shall hold office until his or her successorhas been elected and qualified or until his or her earlier death, resignation or removal.Section 2.14. Director Fees and Expenses. The amount, if any, which each Director shall be entitled to receive ascompensation for his or her services shall be fixed from time to time by the Board. The Corporation will cause each non-employeeDirector serving on the Board to be reimbursed for all reasonable out-of-pocket costs and expenses incurred by him or her inconnection with such service.Section 2.15. Reliance on Accounts and Reports, etc. A Director, as such or as a member of any committee designated by theBoard, shall in the performance of his or her duties be fully protected in relying in good faith upon the records of the Corporation andupon information, opinions, reports or statements presented to the Corporation by any of the Corporation’s officers or employees, orcommittees designated by the Board, or by any other person as to the matters the member reasonably believes are within such otherperson’s professional or expert competence and who has been selected with reasonable care by or on behalf of the Corporation.ARTICLE III CommitteesSection 3.1. Designation of Committees. The Board shall designate such committees as may be required by applicable laws,regulations or stock exchange rules and may designate such additional committees as it deems necessary or appropriate. Eachcommittee shall consist of such number of Directors, with such qualifications, as may be required by applicable laws, regulations orstock exchange rules or as from time to time may be fixed by the Board and shall have and may exercise all the powers and authorityof the Board in the management of the business and affairs of the Corporation to the extent delegated to such committee by resolutionof the Board, which delegation shall include all such powers and authority as may be required by applicable laws, regulations or stockexchange rules. No committee shall have any power or authority as to (a) approving or adopting, or recommending to thestockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted tostockholders for approval, (b) adopting, amending or repealing any of these Bylaws or (c) as may otherwise be excluded by law or bythe Certificate of Incorporation.Section 3.2. Members and Alternate Members. The members of each committee and any alternate members shall be selectedby the Board. The Board may provide that the members and alternate members serve at the pleasure of the Board. An alternatemember may replace any absent or disqualified member at any meeting of the committee. An alternate member shall be given allnotices of committee meetings, may attend any meeting of the committee, but may count towards a quorum and vote only if a memberfor whom such person is an alternate is absent or disqualified. Each member (and each alternate member) of any committee shall holdoffice only until the time he or she shall cease for any reason to be a Director, or until his or her earlier death, resignation or removal.Section 3.3. Committee Procedures. A quorum for each committee shall be a majority of its members, unless the committeehas only one or two members, in which case a quorum shall be one member, unless a greater quorum is established by the Board. Thevote of a majority of the committee members present at a meeting at which a quorum is present shall be the act of the committee. Eachcommittee shall keep regular minutes of its meetings and report to the Board when required. The Board shall adopt a charter for eachcommittee for which a charter is required by applicable laws, regulations or stock exchange rules, may adopt a charter for any othercommittee, and may adopt other rules and regulations for the government of any committee not inconsistent with the provisions ofthese Bylaws or any such charter, and each committee may adopt its own rules and regulations of government, to the extent notinconsistent with these Bylaws or any charter or other rules and regulations adopted by the Board.Section 3.4. Meetings and Actions of Committees. Except to the extent that the same may be inconsistent with the terms ofany committee charter required by applicable laws, regulations or stock exchange rules, each committee designated by the Board maymake, alter and repeal rules for the conduct of its business. In the absence of such rules each committeeshall conduct its business in the same manner as the Board conducts its business pursuant toArticle II of these Bylaws.Section 3.5. Resignations and Removals. Any member (and any alternate member) of any committee may resign from suchposition at any time by submitting an electronic transmission or by delivering a written notice of resignation, signed by such member,to the Chairman of the Board, the President or the Secretary. Such resignation shall take effect upon delivery unless the resignationspecifies a later effective date or an effective date determined upon the happening of a specified event. Any member (and any alternatemember) of any committee may be removed from such position by the Board at any time, either for or without cause.Section 3.6. Vacancies. If a vacancy occurs in any committee for any reason, the remaining members (and any alternatemembers) may continue to act if a quorum is present. A committee vacancymay be filled only by the Board.ARTICLE IV OfficersSection 4.1. Officers; Election; Qualifications; Term of Office; Resignation; Removal; Vacancies. The Board shall elect aChairman of the Board (who shall be a Director), a President and Secretary, and it may, if it so determines, choose a Vice Chairpersonof the Board from among its members. The Board may also choose one or more Vice Presidents, one or more Assistant Secretaries, aTreasurer and one or more Assistant Treasurers and such other officers as it shall from time to time deem necessary or desirable. Inaddition, the Board from time to time may delegate to any officer the power to appoint subordinate officers or agents and to prescribetheir respective rights, terms of office, authorities and duties. Any action by an appointing officer may be superseded by action by theBoard. Any number of offices may be held by the same person, except that one person may not hold both the office of President andthe office of Secretary. Unless otherwise determined by the Board, the officers of the Corporation need not be elected for a specifiedterm but shall serve at the pleasure of the Board or for such terms as may be agreed in the individual case by each officer and theBoard. Each officer shall hold office until his or her successor has been elected or appointed and qualified, or until his or her earlierdeath, resignation or removal. A failure to elect officers shall not dissolve or otherwise affect the Corporation. Any officer or agentmay resign at any time by delivering notice of resignation, either in writing signed by such officer or by electronic transmission, to theBoard, the Chairman of the Board or the President, without prejudice to the rights, if any, of the Corporation under any contract towhich such officer is a party. Unless otherwise specified therein, such resignation shall take effect upon delivery. The Board mayremove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of suchofficer, if any, with the Corporation. Any vacancy occurring in any office of the Corporation by death, resignation, removal orotherwise, may be filled by the Board or by the officer, if any, who appointed the person formerly holding such office.Section 4.2. Powers and Duties of Officers. An officer of the Corporation shall have such authority and shall exercise suchpowers and perform such duties (a) as may be required by law, (b) to the extent not inconsistent with law, as may be specified byresolution of the Board, (c) to the extent not inconsistent with law or as specified by resolution of the Board, as may be specified bythe appointing officer with respect to a subordinate officer appointed pursuant to delegated authority under Section 4.1, and (d) to theextent not inconsistent with any of the foregoing, as generally pertain to their respective offices. The Board may require any officer,agent or employee to give security for the faithful performance of his or her duties.Section 4.3. Appointing Attorneys and Agents; Voting Securities of Other Entities. Unless otherwise provided by resolutionadopted by the Board, the Chairperson of the Board, the President or any Vice President may from time to time appoint an attorney orattorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast the votes which the Corporationmay be entitled to cast as the holder of stock or other securities in any other corporation or other entity, any of whose stock or othersecurities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation or otherentity, or to consent in writing, in thename of the Corporation as such holder, to any action by such other corporation or other entity, and may instruct the person orpersons so appointed as to the manner of casting such votes or giving such consents, and may execute or cause to be executed in thename and on behalf of the Corporation and under its corporate seal or otherwise, all such written proxies or other instruments as he orshe may deem necessary or proper. Any of the rights set forth in this Section 4.8 which may be delegated to an attorney or agent mayalso be exercised directly by the Chairperson of the Board, the President or the Vice President.ARTICLE V StockSection 5.1. Certificates. The shares of the Corporation shall be represented by certificates or shall be uncertificated.Certificates for the shares of stock, if any, shall be in such form as is consistent with the Certificate of Incorporation and applicablelaw. Every holder of stock represented by a certificate shall be entitled, upon their request, to have a certificate signed by, or in thename of the Corporation by the chairperson or vice-chairperson of the Board, or the president or vice-president, and by the treasureror an assistant treasurer, or the secretary or an assistant secretary of the Corporation representing the number of shares registered incertificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar whohas signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrarbefore such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transferagent or registrar at the date of issue.Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a newcertificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and theCorporation may require theowner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Corporation a bond sufficient toindemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate orthe issuance of such new certificate.Section 5.3. Transfer of Stock. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate forshares, duly endorsed or accompanied by appropriate evidence of succession, assignment or authority to transfer, the Corporationshall issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Within areasonable time after the transfer of uncertificated stock, the Corporation shall send to the registered owner thereof a written noticecontaining the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of theDGCL. Subject to the provisions of the Certificate of Incorporation and these Bylaws, the Board may prescribe such additional rulesand regulations as it may deem appropriate relating to the issue, transfer and registration of shares of the Corporation.Section 5.4. Registered Stockholders. Prior to due surrender of a certificate for registration of transfer, the Corporation maytreat the registered owner as the person exclusively entitled to receive dividends and other distributions, to vote, to receive notice andotherwise to exerciseall the rights and powers of the owner of the shares represented by such certificate, and the Corporation shall not be bound torecognize any equitable or legal claim to or interest in such shares on the part of any other person, whether or not the Corporationshall have notice of such claim or interests. If a transfer of shares is made for collateral security, and not absolutely, this fact shall beso expressed in the entry of the transfer if, when the certificates are presented to the Corporation for transfer or uncertificated sharesare requested to be transferred, both the transferor and transferee request the Corporation to do so.Section 5.5. Transfer Agent and Registrar. The Board may appoint one or more transfer agents and one or more registrars,and may require all certificates representing shares to bear the signature of any such transfer agents or registrars.ARTICLE VIIndemnification and Advancement of ExpensesSection 6.1. Right to Indemnification. The Corporation shall indemnify and hold harmless, to the fullest extent permitted byapplicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or isthreatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative orinvestigative (a “proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is orwas a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of theCorporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise ornonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses(including attorneys’ fees)reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in Section 6.3,the Corporation shall be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced bysuch Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized in thespecific case by the Board of the Corporation.Section 6.2. Advancement of Expenses. The Corporation shall to the fullest extent not prohibited by applicable law pay theexpenses (including attorneys’ fees) incurred by a Covered Person in defending any proceeding in advance of its final disposition,provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceedingshall be made only upon receipt of an undertaking by the Covered Person to repay all amounts advanced if it should be ultimatelydetermined that the Covered Person is not entitled to be indemnified under this Article VI or otherwise.Section 6.3. Claims. If a claim for indemnification under this Article VI (following the final disposition of such proceeding) isnot paid in full within sixty (60) days after the Corporation has received a claim therefor by the Covered Person, or if a claim for anyadvancement of expenses under this Article VI is not paid in full within thirty (30) days after the Corporation has received a statementor statements requesting such amounts to be advanced, the Covered Person shall thereupon(but not before) be entitled to file suit to recover the unpaid amount of such claim. If successful in whole or in part, the CoveredPerson shall be entitled to be paid the expense of prosecuting such claim to the fullest extent permitted by law. In any such action, theCorporation shall have the burden of proving that the Covered Person is not entitled to the requested indemnification or advancementof expenses under applicable law.Section 6.4. Non-exclusivity of Rights. The rights conferred on any Covered Person by this Article VI shall not be exclusiveof any other rights which such Covered Person may have or hereafter acquire under any statute, provision of the Certificate ofIncorporation, these Bylaws, agreement, vote of stockholders or disinterested directors or otherwise.Section 6.5. Amendment or Repeal. Any right to indemnification or to advancement of expenses of any Covered Personarising hereunder shall not be eliminated or impaired by an amendment to or repeal of these Bylaws after the occurrence of the act oromission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification oradvancement of expenses is sought.Section 6.6. Other Indemnification and Advancement of Expenses. This Article VI shall not limit the right of the Corporation,to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Covered Persons whenand as authorized by appropriate corporate action.ARTICLE VII MiscellaneousSection 7.1. Dividends.(a) Subject to any applicable provisions of law and the Certificate of Incorporation, dividends upon the shares of theCorporation may be declared by the Board at any regular or special meeting of the Board, or by written consent in accordance withthe DGCL and these Bylaws, and any such dividend may be paid in cash, property or shares of the Corporation’s stock.(b) A member of the Board, or a member of any committee designated by the Board shall be fully protected in relying in goodfaith upon the records of the Corporation and upon such information, opinions, reports or statements presented to the Corporation byany of its officers or employees, or committees of the Board, or by any other person as to matters the Director reasonably believes arewithin such other person’s professional or expert competence and who has been selected with reasonable care by or on behalf of theCorporation, as to the value and amount of the assets, liabilities and/or net profits of the Corporation, or any other facts pertinent to theexistence and amount of surplus or other funds from which dividends might properly be declared and paid.Section 7.2. Reserves. There may be set apart out of any funds of the Corporation available for dividends such sum or sums asthe Board from time to time may determine proper as a reserve or reserves for meeting contingencies, equalizing dividends, repairingor maintaining any property ofthe Corporation or for such other purpose or purposes as the Board may determine conducive to the interest of the Corporation, andthe Board may similarly modify or abolish any such reserve.Section 7.3. Execution of Instruments. Except as otherwise required by law or the Certificate of Incorporation, the Board orany officer of the Corporation authorized by the Board may authorize any other officer or agent of the Corporation to enter into anycontract or execute and deliver any instrument in the name and on behalf of the Corporation. Any such authorization must be inwriting or by electronic transmission and may be general or limited to specific contracts or instruments.Section 7.4. Fiscal Year. The fiscal year of the Corporation shall be determined by resolution of the Board.Section 7.5. Seal. The corporate seal shall have the name of the Corporation inscribed thereon and shall be in such form asmay be approved from time to time by the Board.Section 7.6. Books and Records. Except to the extent otherwise required by law, the books and records of the Corporationshall be kept at such place or places within or without the State of Delaware as may be determined from time to time by the Board.Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account, andminute books, may be kept on, or by means of, or be in the form of, any information storage device or method, provided that therecords so kept can be converted into clearly legible paper form within a reasonable time.Section 7.7. Manner of Notice. Except as otherwise provided herein or permitted by applicable law, notices to directors andstockholders shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on thebooks of the Corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, andexcept as prohibited by applicable law, any notice to stockholders given by the Corporation under any provision of applicable law, theCertificate of Incorporation, or these Bylaws shall be effective if given by a single written notice to stockholders who share an addressif consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by thestockholder by written notice to the Corporation. Any stockholder who fails to object in writing to the Corporation, within 60 days ofhaving been given written notice by the Corporation of its intention to send the single notice permitted under this Section 8.7, shall bedeemed to have consented to receiving such single written notice. Notice to directors may be given by telecopier, telephone or othermeans of electronic transmission.Section 7.8. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Any waiver of notice, given by theperson entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a personat a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose ofobjecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders, directors, or members ofa committee of directors need be specified in a waiver of notice.Section 7.9. Amendment of Bylaws. Subject to the provisions of the Certificate of Incorporation, these Bylaws may be amended,altered or repealed (a) by resolution adopted by a majority of the Directors present at any special or regular meeting of the Board atwhich a quorum is present if, in the case of such special meeting only, notice of such amendment, alteration or repeal is contained inthe notice or waiver of notice of such meeting, or (b) at any regular or special meeting of the stockholders upon the affirmative vote ofthe holders of a majority of the voting power of all of the then-outstanding shares of the Corporation entitled to vote generally in theelection of Directors, voting together as a single class, provided, however, that Sections 1.8 and 1.13 of Article I, Sections 2.2, 2.12,2.13 and 2.14 of Article II, Article VI and this Section 7.9 of Article VII may not be amended, altered or repealed by the stockholdersof the Corporation without the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting powerof all of the then-outstanding shares of the Corporation entitled to vote generally in the election of Directors, voting together as a singleclass, if notice of such amendment, alteration or repeal is contained in the notice or waiver of notice of such meeting. Exhibit 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the Registration Statement (No. 333-213089, 333-216448, and 333-216450) on Form S-3 and RegistrationStatement (No. 333-205334, 333-211887, 333-216448, 333-223435, 333-225291, 333-226046, and 333-228217) on Form S-8 of SeaSpine HoldingsCorporation of our report dated March 1, 2019, relating to the consolidated financial statements, and the financial statement schedule of SeaSpine HoldingsCorporation, appearing in this Annual Report on Form 10-K of SeaSpine Holdings Corporation for the year ended December 31, 2018./s/ RSM US LLPLos Angeles, CaliforniaMarch 1, 2019Exhibit 31.1Certification of Principal Executive OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, Keith C. Valentine, certify that:1.I have reviewed this annual report on Form 10-K of SeaSpine Holdings Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented inthis report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange ActRules 13a-15(f) and 15d-15(f)) for the registrant and we have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during theregistrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing theequivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financialinformation; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant's internal control over financial reporting. Date:March 1, 2019/s/ Keith C. Valentine Keith C. Valentine Chief Executive OfficerExhibit 31.2Certification of Principal Financial OfficerPursuant to Section 302 of the Sarbanes-Oxley Act of 2002I, John J. Bostjancic, certify that:1.I have reviewed this annual report on Form 10-K of SeaSpine Holdings Corporation;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material factnecessary to make the statements made, in light of the circumstances under which such statements were made, not misleading withrespect to the period covered by this report;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in allmaterial respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented inthis report;4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange ActRules 13a-15(f) and 15d-15(f)) for the registrant and we have:(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this report isbeing prepared;(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles;(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during theregistrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;and5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing theequivalent functions):(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financialinformation; and(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant's internal control over financial reporting.Date:March 1, 2019/s/ John J. Bostjancic John J. Bostjancic Chief Financial OfficerExhibit 32.1Certification of Principal Executive OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002I, Keith C. Valentine, President and Chief Executive Officer of SeaSpine Holdings Corporation (the “Company”), hereby certify that, to my knowledge:1.The Annual Report on Form 10-K of the Company for the year ended December 31, 2018 (the “Report”) fully complies with therequirement of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company. Date:March 1, 2019/s/ Keith C. Valentine Keith C. Valentine Chief Executive OfficerExhibit 32.2Certification of Principal Financial OfficerPursuant to Section 906 of the Sarbanes-Oxley Act of 2002I, John J. Bostjancic, Senior Vice President and Chief Financial Officer of SeaSpine Holdings Corporation (the “Company”), hereby certify that, to myknowledge:1.The Annual Report on Form 10-K of the Company for the year ended December 31, 2018 (the “Report”) fully complies with therequirement of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company. Date:March 1, 2019/s/ John J. Bostjancic John J. Bostjancic Chief Financial Officer

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