Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following section contains statements that are not statements of historical fact and are forward-looking statements within the meaning of the federal securities laws. These statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievement to differ materially from anticipated results, performance, or achievement, expressed or implied in such forward-looking statements. These statements reflect our current views with respect to future events, are based on assumptions, and are subject to risks and uncertainties. We discuss many of these risks and uncertainties at the beginning of this Annual Report on Form 10-K and under the sections captioned "Business" and "Risk Factors." The following discussion should also be read in conjunction with the consolidated financial statements and the Notes thereto appearing elsewhere in this Annual Report on Form 10-K.

Management Overview

We are a global joint preservation company that creates and delivers meaningful advancements in early intervention orthopedic care. Based on our collaborations with clinicians to understand what they need most to treat their patients, we develop minimally invasive products that restore active living for people around the world. We are committed to leading in high opportunity spaces within orthopedics, including osteoarthritis ("OA") Pain Management and Regenerative Solutions.

We have thirty years of global expertise developing, manufacturing and commercializing products based on our hyaluronic ("HA") technology platform. HA is a naturally occurring polymer found throughout the body that is vital for proper joint health and tissue function. Our proprietary technologies for modifying the HA molecule allow product properties to be tailored specifically to multiple uses, including enabling longer residence time to support OA Pain Management and creating a solid form of HA called Hyaff, which is a platform utilized in our regenerative solutions portfolio.

In early 2020, we expanded our product portfolio and commercial capabilities through the acquisitions of Parcus Medical, LLC and Arthrosurface Incorporated, adding sports medicine, joint preservation, and instrumentation offerings to our business. In 2024, we refined our strategic focus to prioritize OA Pain Management and regenerative solutions and, consistent with this focus, divested Arthrosurface Incorporated in October 2024 and Parcus Medical, LLC in March 2025.

As we look forward to the future, our business is positioned to capture value within our target market of OA Pain Management and Regenerative Solutions product portfolios. We believe our success will be driven by our:

●

Over 30 years of experience in HA and HA-based regenerative solutions and early intervention orthopedics combined with seasoned leadership with a strong financial foundation for future investment in meaningful solutions for our customers and their patients;

●

Utilizing proprietary HA-based technology and manufacturing expertise to provide new and differentiated solutions in next generation OA Pain Management (eg. Cingal) and regenerative (eg. Integrity Implant System and Hyalofast) markets;

●

Growth of the Integrity Implant System, our HA-based scaffold for rotator cuff and other tendon repairs;

●

Targeting to introduce key HA-based products into the US market upon FDA approval/clearance, such as Cingal and Hyalofast, and developing additional products that leverage our proprietary Hyaff regenerative platform;

●

Robust network of stakeholders in our target markets to identify evolving unmet patient treatment needs;

●

Global commercial expertise which we will leverage to drive growth across our product portfolio, including continued international expansion;

●

Opportunity to pursue strategic inorganic growth opportunities, including potential partnerships and smaller acquisitions, technology licensing, and leveraging our strong financial foundation and operational capabilities; and

●

Energized and experienced team focused on strong values, talent, and culture.

For additional information regarding our business, please refer to "Item 1. Business" of this Annual Report on Form 10-K.

Products

OA Pain Management

Our OA Pain Management product family consists of Monovisc and Orthovisc, our injectable, HA-based OA Pain Management offerings that are indicated to provide pain relief from osteoarthritis conditions; and Cingal, our novel, next-generation, single-injection OA Pain Management product consisting of our proprietary cross-linked HA material combined with a fast-acting steroid. Cingal is our next generation fast-acting, long-lasting, non-opioid, clinically proven osteoarthritis pain product which is designed to provide both short- and long-term pain relief, through at least six months. It is currently sold outside the United States in 53 countries. In 2022, we completed a third Phase III clinical trial for Cingal, which achieved its primary endpoint. Cingal is currently not approved for commercial use in the United States. We have been actively engaging with the U.S. Food and Drug Administration ("FDA") on next steps for U.S. regulatory approval.

Regenerative Solutions

Our Regenerative Solutions product family consists of: (a) our portfolio of orthopedic regenerative solutions products utilizing HA, including Integrity, our new arthroscopic patch system for rotator cuff repair and other tendon procedures, Tactoset to facilitate bone regeneration, and Hyalofast, sold outside of the United States in over 30 countries, for cartilage repair.

For additional information with respect to our products, including information related to how they are sold and new product development initiatives, please see the sections captioned "Products," "Sales Channels," and "Research and Development" contained within "Part I. Item I. Business" of this Annual Report on Form 10-K.

Results of Operations

Year ended December 31, 2025 compared to year ended December 31, 2024

Statement of Operations Detail

		Year Ended December 31,
		2025				2024				$ Change				% Change
		(in thousands, except percentages)
Revenue		$	112,819			$	119,907			$	(7,088	)			(6	%)
Cost of revenue			49,012				43,909				5,103				12	%
Gross profit			63,807				75,998				(12,191	)			(16	%)
Gross margin			57	%			63	%
Operating expenses:
Research & development			25,770				25,544				226				1	%
Selling, general & administrative			49,088				55,555				(6,467	)			(12	%)
Total operating expenses			74,858				81,099				(6,241	)			(8	%)
Loss from operations			(11,051	)			(5,101	)			(5,950	)			117	%
Interest and other income, net			1,744				2,337				(593	)			(25	%)
Loss before income taxes			(9,307	)			(2,764	)			(6,543	)			237	%
Provision for income taxes			672				6,064				(5,392	)			(89	%)
Loss from continuing operations			(9,979	)			(8,828	)			(1,151	)			13	%
Loss from discontinued operations, net of tax			(901	)			(47,557	)			46,656				(98	%)
Net loss		$	(10,880	)		$	(56,385	)		$	45,505				(81	%)

Revenue

We classify our revenue between the Original Equipment Manufacturer ("OEM") Channel and the Commercial Channel. In the OEM Channel, we are responsible for development and manufacturing of products sold to our OEM partners governed by long-term agreements, but we do not control sales, marketing, or pricing with end users. In the Commercial Channel, we have full responsibility for sales, marketing, and pricing of products through our commercial leaders, direct sales representatives, and independent distributors. Revenue from our Regenerative Solutions and international OA Pain Management businesses is included in the Commercial Channel.

The following table presents revenue by product family for fiscal years 2025 and 2024 (dollars in thousands):

		Years Ended December 31,
		2025				2024				$ Change				% Change
OEM Channel		$	64,406			$	77,770			$	(13,364	)			(17	%)
Commercial Channel			48,413				42,137				6,276				15	%
		$	112,819			$	119,907			$	(7,088	)			(6	%)

Revenue for the year ended December 31, 2025 was $112.8 million, a decrease of $7.1 million, or 6%, compared to the prior year. The decrease in revenue was driven by lower pricing with our OEM channel partners, primarily J&J MedTech.

Revenue from our OEM Channel product family decreased 17% for the year ended December 31, 2025, as compared to prior year, due to a $12.6 million decrease in J&J MedTech revenue, primarily due to lower pricing contributing $10.0 million of the decrease and lower volumes contributing to $2.6 million of the decrease. There was a $0.8 million decrease in the Non-Orthopedic category revenue with prior year due to lower veterinary sales offset by higher ophthalmic and surgery product sales.

Revenue from our Commercial Channel product family increased 15% for the year ended December 31, 2025, as compared to prior year, due to international sales growth on Cingal and Orthovisc, offset by lower Monovisc shipments due to manufacturing delays. This sales growth in international OA Pain Management products was primarily related to increased product demand of $3.6 million and minimal change on pricing with international customers. We also continued our full market release of Integrity in the U.S. in 2025 which contributed to a $3.4 million increase during the year ended December 31, 2025 and we had a $0.8 million increase in Hyalofast which is sold only outside of the United States. These increases in international OA Pain Management, Hyalofast and Integrity revenues were offset by a $1.5 million decrease in Tactoset sales during 2025.

Gross Profit and Margin

Gross profit for the year ended December 31, 2025 was $63.8 million, or gross margin of 57%, as compared with $76.0 million, or gross margin of 63%, for the year ended December 31, 2024. The decrease in gross profit for the year ended December 31, 2025, primarily resulted from lower revenue, primarily related to OA Pain Management products in the U.S., product channel mix with a higher percentage of international sales which have a lower selling price, increased manufacturing costs and higher inventory reserves.

Research and Development

Research and development costs for the years ended December 31, 2025 and 2024 were as follows:

		Years Ended December 31,
		2025				2024				$ Change				% Change
		(in thousands, except percentages)
External costs by program
Hyalofast clinical study		$	2,193			$	1,789			$	404				23	%
Integrity development costs			1,370				943				427				45	%
Cingal clinical study			2,998				363				2,635				726	%
Regulatory external costs			906				2,728				(1,822	)			(67	%)
Other early programs and unallocated expenses			3,631				3,884				(253	)			(7	%)
Total external costs			11,098				9,707				1,391				14	%
Internal costs:
Employee compensation and benefits			12,692				13,779				(1,087	)			(8	%)
Facility and other			1,980				2,058				(78	)			(4	%)
Total internal costs			14,672				15,837				(1,165	)			(7	%)
Total research and development expense		$	25,770			$	25,544			$	226				1	%

Research and development external costs for the years ended December 31, 2025 and 2024 were $11.1 million and $9.7 million, respectively. The increase in research and development external costs was primarily due to increased spending on Cingal regulatory submission activities offset by lower regulatory costs related to EU MDR requirements.

Research and development internal costs for the years ended December 31, 2025 and 2024 were $14.7 million and $15.8 million, respectively. The decrease in internal research and development costs was primarily due to a reduction in headcount and a $0.1 million gain on the sale of an intangible asset during the year ended December 31, 2025.

For additional information on our research and development activities, please see the section captioned "Part I. Item 1. Business-Research and Development" in this Annual Report on Form 10-K.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses for the year ended December 31, 2025 were $49.1 million, a decrease of $6.5 million, or 12%, as compared to the prior year. The decrease in SG&A expenses for the year ended December 31, 2025 was due primarily to lower general and administrative expenses such as $2.2 million in shareholder activism costs that occurred in prior year, $1.5 decrease in stock-based compensation and the remainder attributable to lower headcount and professional fees. We have been investing and expect to continue to invest in selling and marketing expenses primarily related to our Commercial Channel.

Loss from Continuing Operations

For the year ended December 31, 2025, the loss from continuing operations was $10.0 million, compared to a loss from continuing operations of $8.8 million for the prior year. The $1.2 million decrease in the loss from continuing operations was due to lower revenues, primarily from J&J MedTech offset somewhat by lower operating expenses, primarily related to lower SG&A expenses.

Income Taxes

The provision for income taxes was $0.7 million for the year ended December 31, 2025, resulting in an effective tax rate of (7.1%). The provision from income taxes was $6.1 million for the year ended December 31, 2024, resulting in an effective tax rate of (219.4%). The decrease in our effective rate for the year ended December 31, 2025 as compared to the year ended December 31, 2024 is primarily due to the fact that we did not incur current income taxes in the United States during the year ended December 31, 2025.

Non-GAAP Financial Measures

We present certain information with respect to adjusted Earnings Before Interest, Tax, Depreciation and Amortization ("EBITDA"), adjusted net income, adjusted diluted earnings per share or adjusted Earnings Per Share ("EPS"), which are financial measures not based on any standardized methodology prescribed by accounting principles generally accepted in the United States ("GAAP"), and is not necessarily comparable to similarly titled measures presented by other companies.

We have presented adjusted EBITDA, adjusted net income, adjusted EPS, because they are key measures used by our management and board of directors to understand and evaluate our operating performance and to develop operational goals for managing our business. We believe these financial measures help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. We believe that the exclusion of these items in calculating these measures can provide a useful tool for period-to-period comparisons of our core operating performance. Accordingly, we believe that these measures provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects and allowing for greater transparency with respect to key financial metrics used by our management in their financial and operational decision-making.

Adjusted EBITDA

We present information below with respect to adjusted EBITDA, which we define as our net loss excluding interest and other income, net, income tax benefit, depreciation and amortization, stock-based compensation, product rationalization charges, and other non-recurring expenses.

Adjusted EBITDA is not prepared in accordance with U.S. GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with U.S. GAAP. There are a number of limitations related to the use of adjusted EBITDA rather than net income (loss), which is the nearest U.S. GAAP equivalent. Some of these limitations are:

•

adjusted EBITDA excludes depreciation and amortization, and, although these are non-cash expenses, the assets being depreciated or amortized may have to be replaced in the future, the cash requirements for which are not reflected in adjusted EBITDA;

•

we exclude stock-based compensation expense from adjusted EBITDA although (a) it has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our employee compensation strategy and (b) if we did not pay out a portion of our compensation in the form of stock-based compensation, the cash salary and bonus expense included in operating expenses likely would be higher, which would affect our cash position;

•

we exclude acquisition related expenses, including transaction costs and other related expenses, amortization and depreciation of acquired assets in recent acquisitions ;

	•	we exclude certain impairment charges, including impairment related to intangible assets, certain product rationalization charges;
	•	we exclude goodwill impairment charges and changes in the fair value of contingent consideration;

	•	we exclude certain other non-recurring costs, such as costs associated with shareholder activism;
	•	the expenses and other items that we exclude in our calculation of adjusted EBITDA may differ from the expenses and other items, if any, that other companies may exclude from adjusted EBITDA when they report their operating results;

	•	adjusted EBITDA does not reflect changes in, or cash requirements for, working capital needs;
	•	adjusted EBITDA does not reflect provision for (benefit from) income taxes or the cash requirements to pay taxes; and
	•	adjusted EBITDA does not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments.

The following is a reconciliation of adjusted EBITDA to net loss from operations for the years ended December 31, 2025 and 2024 respectively:

		Years Ended December 31,
		2025				2024
Net loss from continuing operations		$	(9,979	)		$	(8,828	)
Interest and other income, net			(1,744	)			(2,337	)
Provision for income taxes			672				6,064
Depreciation and amortization			5,580				5,688
Stock-based compensation			10,216				12,158
Product rationalization charges			-				606
Non-recurring professional fees			596				-
Costs of shareholder activism			-				2,185
Adjusted EBITDA		$	5,341			$	15,536

Adjusted EBITDA for year ended December 31, 2025 was $5.3 million, a decrease of $10.2 million as compared to 2024. The decrease in adjusted EBITDA was primarily due to lower revenues, primarily related to J&J MedTech and lower gross profit due to higher inventory reserves and manufacturing costs.

Adjusted Net Loss and Adjusted EPS from Continuing Operations

We present information below with respect to adjusted net loss and adjusted EPS from continuing operations. We define adjusted net loss from continuing operations as our net loss from continuing operations excluding amortization and depreciation of acquired assets, changes in the fair value of contingent consideration, as well as certain impairment charges, including impairment related to IPR&D assets and non-cash product rationalization charges, each on a tax effected basis. Acquisition-related expenses are those that we would not have incurred except as a direct result of acquisition transactions. The amortized assets contribute to revenue generation and the amortization of such assets will recur in future periods until such assets are fully amortized. These assets include the estimated fair value of certain identified assets acquired in acquisitions, including in-process research and development ("IPR&D"), developed technology, customer relationships and acquired trade names. We define adjusted EPS from continuing operations as U.S. GAAP diluted earnings per share from continuing operations excluding the above adjustments to net loss from continuing operations used in calculating adjusted net loss from continuing operations, each on a per share and tax effected basis.

The following is a reconciliation of adjusted net income from continuing operations to net loss from continuing operations for the years ended December 31, 2025 and 2024, respectively:

		Years Ended December 31,
		2025				2024
Net loss from continuing operations		$	(9,979	)		$	(8,828	)
Product rationalization charges, tax effected			-				457
Share-based compensation, tax effected			10,954				9,167
Non-recurring professional fees, tax effected			639				-
Costs of shareholder activism, tax effected			-				1,647
Adjusted net income from continuing operations		$	1,614			$	2,443

The following is a reconciliation of adjusted diluted income from continuing operations per share to diluted loss from continuing operations per share for the years ended December 31, 2025 and 2024, respectively (in thousands, expect per share data):

		Years Ended December 31,
		2025				2024
Diluted loss from continuing operations per share		$	(0.70	)		$	(0.60	)
Product rationalization charges, tax effected			-				0.03
Share-based compensation, tax effected			0.77				0.62
Non-recurring professional fees			0.04				-
Costs of shareholder activism, tax effected			-				0.11
Adjusted diluted income from continuing operations per share		$	0.11			$	0.16

Adjusted net income from continuing operations in 2025 was $1.6 million, a decrease of $0.8 million as compared to 2024. The decrease in adjusted net income from continuing operations and adjusted diluted income from continuing operations per share for the period was primarily due to lower revenues and higher manufacturing expenses during the year.

Results of Operations

Year ended December 31, 2024 compared to year ended December 31, 2023

Statement of Operations Detail

		Year Ended December 31,
		2024				2023				$ Change				% Change
		(in thousands, except percentages)
Revenue		$	119,907			$	120,792			$	(885	)			(1	%)
Cost of revenue			43,909				38,260				5,649				15	%
Gross profit			75,998				82,532				(6,534	)			(8	%)
Gross margin			63	%			68	%
Operating expenses:
Research & development			25,544				21,763				3,781				17	%
Selling, general & administrative			55,555				59,925				(4,370	)			(7	%)
Total operating expenses			81,099				81,688				(589	)			(1	%)
(Loss) income from operations			(5,101	)			844				(5,945	)			(704	%)
Interest and other expense, net			2,337				2,312				25				1	%
(Loss) income before income taxes			(2,764	)			3,156				(5,920	)			(188	%)
Provision for (benefit from) income taxes			6,064				6,595				(531	)			(8	%)
Loss from continuing operations			(8,828	)			(3,439	)			(5,389	)			157	%
Loss from discontinued operations, net of tax			(47,557	)			(79,228	)			31,671				(40	%)
Net loss		$	(56,385	)		$	(82,667	)		$	26,282				(32	%)

Revenue

The following table presents revenue by product family for fiscal years 2024 and 2023 (dollars in thousands):

		Years Ended December 31,
		2024				2023				$ Change				% Change
OEM Channel		$	77,770			$	84,645			$	(6,875	)			(8	%)
Commercial Channel			42,137				36,147				5,990				17	%
		$	119,907			$	120,792			$	(885	)			(1	%)

Revenue for the year ended December 31, 2024 was $119.9 million, a decrease of $0.9 million, or 1%, compared to the prior year. The decrease in revenue was driven by lower sales activity with our OEM channel partners, primarily J&J MedTech and the discontinuation of certain non-orthopedic products.

Revenue from our OEM Channel product family decreased 8% for the year ended December 31, 2024, as compared to prior year, due to lower J&J MedTech revenue, primarily due to lower volumes resulting in a decrease of $4.3 million and lower pricing contributing to a $1.6 million decrease and the discontinuation of certain non-orthopedic products resulting in a decrease of $1.1 million.

Revenue from our Commercial Channel product family increased 17% for the year ended December 31, 2024, as compared to prior year, due to an international sales growth on all our main OA Pain Management products (Monovisc, Cingal and Orthovisc). This sales growth for international OA Pain Management products was primarily related to increased product demand of $4.3 million and minimal change on pricing with international customers. We also launched a full market release of Integrity in the U.S. in 2024 which contributed to a $1.7 million increase in regenerative product sales during the year ended December 31, 2024.

Gross Profit and Margin

Gross profit for the year ended December 31, 2024 was $76.0 million, or gross margin of 63%, as compared with $82.5 million, or gross margin of 68%, for the year ended December 31, 2023. The decrease in gross profit for the year ended December 31, 2024, primarily resulted from lower revenue, primarily related to OA Pain Management products in the U.S., product channel mix and higher inventory product rationalization charges.

Research and Development

Research and development costs for the years ended December 31, 2024 and 2023 were as follows:

		Years Ended December 31,
		2024				2023				$ Change				% Change
		(in thousands, except percentages)
External costs by program
Hyalofast clinical study		$	1,789			$	1,712			$	77				4	%
Integrity development costs			943				2,290				(1,347	)			(59	%)
Cingal clinical study			363				-				363				-	%
Regulatory external costs			2,728				2,612				116				4	%
Other early programs and unallocated expenses			3,884				2,131				1,754				82	%
Total external costs			9,707				8,745				962				11	%
Internal costs:
Employee compensation and benefits			13,779				11,259				2,520				22	%
Facility and other			2,057				1,759				298				17	%
Total internal costs			15,836				13,018				2,818				22	%
Total research and development expense		$	25,544			$	21,763			$	3,781				17	%

Research and development expenses for the year ended December 31, 2024 were $25.5 million, an increase of $3.7 million, or 17%, as compared to the prior year, primarily due to increased costs to ensure compliance with growing regulatory requirements globally, such as EU MDR, as well as regulatory, clinical and product development costs associated with our research and development pipeline, led by Hyalofast, in which we submitted the first part of our modular PMA application with the FDA in October 2024.

For additional information on our research and development activities, please see the section captioned "Part I. Item 1. Business-Research and Development" in this Annual Report on Form 10-K.

Selling, General and Administrative

Selling, general and administrative ("SG&A") expenses for the year ended December 31, 2024 were $55.6 million, a decrease of $4.4 million, or 7%, as compared to the prior year. The decrease in SG&A expenses from the prior year was primarily due to reduced shareholder activism costs of $0.8 million, lower stock-based compensation of $0.8 million, and $1.2 million in other non-recurring costs incurred in 2023 with the remainder attributed to lower headcount.

Income (Loss) from Continuing Operations

For the year ended December 31, 2024, the loss from operations was $5.1 million, compared to income from operations of $0.8 million for the prior year. The $5.9 million decrease in income from operations was due to lower gross profit and higher research and development costs.

Income Taxes

The provision for income taxes was $6.1 million for the year ended December 31, 2024, resulting in an effective tax rate of (219.4%). The provision from income taxes was $6.6 million for the year ended December 31, 2023, resulting in an effective tax rate of 209.0%. The decrease in our effective rate for the year ended December 31, 2024 as compared to the year ended December 31, 2023 is primarily due to a lower valuation allowance being recorded on U.S. deferred tax assets in 2024.

Concentration of Risk

We have historically derived most of our revenue from a small number of customers, most of whom resell our products to end-users and are significantly larger companies than us. For the year ended December 31, 2025, J&J MedTech accounted for 50% of revenue, as compared to 57% in prior year. While we believe that our expanded commercial infrastructure has been and will continue to diversify our revenue base, we expect to continue to be dependent on a small number of large customers, especially J&J MedTech, for a sizeable portion of our revenues in the near-term future. The failure of these customers to purchase our products in the amounts they historically have or in amounts that we expect could materially impact our business. We also have Notes Receivable that we have recorded as consideration related to the divestiture of the Arthrosurface asset group in which repayment will be dependent upon the cash receipts that we receive from Arthrosurface.

In addition, if present and future customers terminate their purchasing arrangements with us, significantly reduce or delay their orders, or seek to renegotiate their agreements on terms less favorable to us, our business, financial condition, and results of operations will be adversely affected. If we accept terms less favorable than the terms of the current agreements, such renegotiations may have a material adverse effect on our business, financial condition, and/or results of operations. Furthermore, in any future negotiations we may be subject to the perceived or actual leverage that these customers may have given their relative size and importance to us. Any termination, change, reduction, or delay in orders could seriously harm our business, financial condition, and results of operations. Accordingly, unless and until we diversify and expand our customer base, our future success will significantly depend upon the timing and size of future purchases by our largest customers and the financial and operational success of these customers. The loss of any one of our major customers or the delay of significant orders from such customers, even if only temporary, could reduce or delay our recognition of revenues, harm our reputation in the industry, and reduce our ability to accurately predict cash flow, and, consequently, it could seriously harm our business, financial condition, and results of operations.

See Note 12, Revenue and Geographic Information; Geographic Information, to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information regarding significant customers.

Liquidity and Capital Resources

We require cash to fund our operating activities and to make capital expenditures and other investments in the business. We expect that our requirements for cash to fund these uses will increase as our operations, particularly for our expansion of manufacturing capacity. We believe that our operating cash flows, cash currently on our balance sheet and availability under our credit facility will be sufficient to allow us to continue to invest in our existing business, to manage our capital structure on a short and long-term basis, and to meet our anticipated operating cash needs. Cash and cash equivalents aggregated $57.5 million and $55.6 million, and working capital totaled $80.2 million and $90.3 million, at December 31, 2025 and 2024, respectively.

We entered into a Third Amendment to Credit Agreement, on November 12, 2021, with Bank of America N.A. as administrative agent, which amended our existing revolving line of credit agreement dated October 24, 2017, and provides up to $75.0 million in the form of a senior revolving line of credit. Subject to certain conditions, we may request up to an additional $75.0 million for a maximum aggregate commitment of $150.0 million. As of December 31, 2025, and 2024, there were no outstanding borrowings, and we are in compliance with the terms of the credit facility.

Summary of Cash Flows (in thousands):

		Years Ended December 31,
		2025				2024				2023
Cash provided by (used in)
Operating activities		$	11,188			$	5,403			$	(1,788	)
Investing activities			(401	)			(8,334	)			(5,427	)
Financing activities			(10,551	)			(12,729	)			(6,324	)
Effect of exchange rate changes on cash			86				(48	)			79
Net increase (decrease) in cash and cash equivalents		$	322			$	(15,708	)		$	(13,460	)

The following changes contributed to the net change in cash and cash equivalents from 2024 to 2025.

Operating Activities

Cash provided by (used in) operating activities was $11.2 million, $5.4 million and $(1.8) million for 2025, 2024 and 2023, respectively. The increase in cash provided by operating activities was primarily due to a lower net loss in 2025 as we incurred a $47.6 million loss from discontinued operations, offset somewhat by $44.1 million in non-cash impairment charges with the divestitures of Arthrosurface and Parcus Medical during the year ended December 31, 2024.

For the foreseeable future, we expect to continue to invest in research and development for new products and clinical trials related to our HA-based technology to support our growth strategy, particularly on Cingal and Integrity. These costs will be funded with a combination of cash on hand and cash expected to be generated from future operations.

Investing Activities

Cash used in investing activities was $0.4 million, $8.3 million and $5.4 million for 2025, 2024 and 2023, respectively. The decrease in cash used in investing activities was primarily related to proceeds received from the sales of Arthrosurface and Parcus Medical offset by an increase in capital expenditures in 2025 to support the expansion of manufacturing capacity at our Bedford facility.

Financing Activities

Cash used in financing activities was $10.6 million, $12.7 million and $6.3 million for 2025, 2024 and 2023, respectively. The decrease in cash used in financing activities was primarily due a reduction in stock repurchases as we incurred $9.5 million in 2025 versus $10.9 million on the stock repurchase program we started in May 2024. We also had lower payments in cash withheld for taxes related the vesting of restricted stock awards.

For a discussion of our liquidity and capital resources as of December 31, 2024, and our cash flow activities for the fiscal year ended December 31, 2024, see "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our annual report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on March 17, 2025, which is incorporated by reference in this Report.

Contractual Obligations and Other Commercial Commitments

The table below summarizes our non-cancelable operating leases, purchase commitments, and contractual obligations related to future periods which are not reflected in our consolidated balance sheet at December 31, 2025. Purchase commitments relate primarily to non-cancellable inventory commitments and capital expenditures entered in the normal course of business:

		Payments due by period (in thousands)
						Less than												More than
		Total				1 year				1 - 3 years				3 - 5 years				5 years
Operating Leases		$	32,733			$	2,848			$	5,544			$	5,544			$	18,797
Year Ended December 31, 2025		$	32,733			$	2,848			$	5,544			$	5,544			$	18,797

We also have purchase orders and commitments for materials and other day-to-day business requirements in which there are no material commitments greater than one year.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, which consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities. We monitor our estimates on an ongoing basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

We have identified the policies below as critical to our business operations and the understanding of our results of operations. The impact and any associated risks related to these policies on our business operations are discussed throughout this section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations" where such policies affect our reported and expected financial results. For a detailed discussion on the application of these and other accounting policies, see Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K.

Revenue Recognition - General

Pursuant to Accounting Standards Codification ("ASC") 606, we recognize revenue when a customer obtains control of promised goods or services. The amount of revenue that is recorded reflects the consideration that we expect to receive in exchange for those goods or services. We apply the following five-step model in order to determine this amount: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are capable of being distinct or distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation.

We generate sales principally through three types of customers: (i) commercial partnerships (ii) hospitals and ambulatory service centers, and (iii) distributors, referred to as distribution model.

For commercial partnership sales, we sell our products directly to these partners, who perform most of the downstream sales and marketing activities to customers and end users. These arrangements may include the grant of certain licenses, performance of development services, and the supply of products. We recognize revenue from product sales when the customer obtains control of our product, which typically occurs upon shipment to the customer. Commercial partnership agreements may also include sales-based royalties and milestones. Sales-based royalties and milestones are only recognized when the latter of the underlying sale occurs or the performance obligation to which some or all of the sales-based royalties have been satisfied (or partially satisfied). This is generally in the same period that our commercial partners complete their product sales in their territory, for which we are contractually entitled to a percentage-based royalty. We record royalty revenues based on estimated net sales of licensed products as reported to us by our commercial partners. The differences between actual and estimated royalty revenues have not been material and are typically adjusted in the following quarter when the actual amounts are known. Revenue from sales-based royalties is included in revenues in our consolidated statement of operations.

Our largest customer, J&J MedTech, represented 50% of total revenues for the year ended December 31, 2025. Our collaboration agreement with J&J MedTech includes contracts with Orthovisc and Monovisc products, which were entered into in 2003 and 2011, respectively. Pursuant to the J&J MedTech contracts, we are the exclusive supplier responsible for the manufacture and sale to J&J MedTech of the Orthovisc and Monovisc products pursuant to J&J MedTech's purchase orders, while J&J MedTech is responsible for the marketing, sales and distribution to end-customers. In general, our long-term contractual arrangements do not allow for any other product source suppliers for the OEM Channel partners. Furthermore, given the proprietary nature of the products, manufacturing would not be easily replicated by the OEM Channel partners, including J&J MedTech nor would an alternative source of supply be available, such that the product supply and license are not distinct. For these reasons, we believe that revenue earned from the combined fixed and variable consideration paid for the sales of the product meets the objective of ASC 606-10-50-5 in depicting how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

For sales to hospitals and ambulatory service centers, which generally pair in-house sales representatives with local or regional distributors, the inventory is generally consigned so that products are available when needed for surgical procedures. No revenue is recognized upon the placement of inventory into consignment, as we retain the ability to control the inventory. Revenue is recognized typically as of the date of surgical implantation of the product.

For distributor sales, we sell our products to our distributors, generally outside the United States, who subsequently resell the products to sub-distributors and health care providers, among others. We recognize revenue from product sales when the distributor obtains control of our product, which typically occurs upon shipment to the distributor, in return for agreed-upon, fixed-price consideration. Performance obligations are generally settled quickly after purchase order acceptance. We have no performance obligations greater than one year; therefore, the value of unsatisfied performance obligations at the end of any reporting period is generally insignificant. We sell to a diversified base of distributors and, therefore, we believe there is no material concentration of credit risk.

Certain of our supply agreements contain terms that represent a promise to deliver product at the customer's discretion that are considered distributor options. We assess if these options provide a material right to the licensee, and if so, they are accounted for as separate performance obligations. Our supply agreements do not provide options that are considered material rights.

Our payment terms are consistent with prevailing practice in the respective markets in which we do business. Most of our customers make payments based on contract terms, which are not affected by contingent events that could impact the transaction price. Payment terms fall within the one-year guidance for the practical expedient, which allows us to forgo adjustment of the contractual payment amount of consideration for the effects of a significant financing component.

Some of our distributor agreements have volume-based discounts with tiered pricing which are generally prospective in nature. These prospective discounts together with any free-of-charge sample units offered are evaluated as potential material rights. If the prospective discounts or free-of-charge sample units are considered material rights, these would be separate performance obligations, and a portion of the sales transaction price is allocated to the material right. Revenue allocated to the material rights are recognized when the additional goods are transferred to the customer or when the option expires. During 2025, the consideration allocated to material rights was not significant.

We receive payments from our customers based on billing schedules established in each contract. Up-front payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until we perform our obligations under these arrangements. Amounts are recorded as accounts receivable when our right to consideration is unconditional. There was no deferred revenue as of December 31, 2025 and 2024, respectively.

Generally, customer contracts contain Free on Board ("FOB") or Ex-Works shipping point terms where the customer pays the shipping company directly for all shipping and handling costs. In those contracts in which we pay for shipping and handling, the associated costs are generally recorded along with the product sale at the time of shipment in cost of revenue when control over the products has been transferred to the customer. Value-added and other taxes we collected concurrently with revenue-producing activities are excluded from revenue. Our general product warranty does not extend beyond an assurance that the product or services delivered will be consistent with stated contractual specifications, which does not create a separate performance obligation. We recognize the incremental costs of obtaining contracts as an expense when incurred as the amortization period of the assets that we otherwise would have recognized is one year or less in accordance with the practical expedient in paragraph Code 340-40-25-4. These costs are included in selling, general and administrative expenses.

Inventories

Inventories are primarily stated at the lower of standard cost and net realizable value, with approximate cost determined using the first-in, first-out method. Work-in-process and finished goods inventories include materials, labor, and manufacturing overhead. Manufacturing variances attributable to abnormally low production are expensed in the period incurred. Inventory costs associated with product candidates that have not yet received regulatory approval are capitalized if we believe there is probable future commercial use and future economic benefit.

Our policy is to write down inventory when conditions exist that suggest inventory may be in excess of anticipated demand or is obsolete based upon assumptions about future demand for our products and market conditions. We regularly evaluate the ability to realize the value of inventory based on a combination of factors including, but not limited to, historical usage rates, forecasted sales or usage, product end of life dates, and estimated current or future market values. Inventory needs and alternative usage avenues are explored within these processes to mitigate inventory exposure.

When recorded, inventory write-downs are intended to reduce the carrying value of inventory to its net realizable value. If actual demand for our products deteriorates, or if market conditions are less favorable than those projected, additional inventory write-downs may be required. Other long-term assets include inventory expected to remain on hand beyond one year.