Shoulder Innovations Inc.

03/10/2026 | Press release | Distributed by Public on 03/10/2026 14:21

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

Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with other sections of this Annual Report, including "Item 1. Business," "Item 1A. Risk Factors" and our audited consolidated financial statements and related notes included elsewhere in this Annual Report.
Overview
We are a commercial-stage medical technology company exclusively focused on transforming the shoulder surgical care market. We currently offer advanced implant systems for shoulder arthroplasty. These systems are a core element of our ecosystem, which we designed to improve core components of shoulder surgical care - preoperative planning, implant design and procedural efficiency - to benefit each stakeholder in the care chain. Our ecosystem is also comprised of enabling technologies, efficient instrument systems, specialized support and surgeon-to-surgeon collaboration. Together, these elements seek to address the long-standing clinical and operational challenges in the shoulder surgical care market by delivering predictable outcomes, procedural simplicity, and efficiency across all sites of care. We believe our exclusive focus on shoulder surgical care, combined with a highly specialized commercial organization and strong clinical data, positions us well to capture significant share in this large, growing market.
We believe the shoulder surgical care market today presents a significant market opportunity. Our initial focus within this broader market is on shoulder arthroplasty. Shoulder arthroplasty is an established surgical procedure involving the reconstruction of the shoulder joint with prosthetic implants through one of two main approaches: aTSA and rTSA. Both approaches can be performed in inpatient hospital settings and in outpatient settings, including ASCs. A key competitive advantage of ours has been the emergence of ASCs as a cost-efficient site of care with positive outcomes relative to hospital-based care. We expect that future growth in the shoulder surgical care market will be significantly driven by ASCs as hospitals face capacity constraints and are more limited in their ability to meet increasing demand.
We view ourselves as specialists serving specialists, having purposefully built our product ecosystem around the unique needs of shoulder surgeons. Our commercial organization is comprised of three key components: (i) a dedicated commercial leadership team, (ii) a CEME team and (iii) a network of independent distributors. These key components work in tandem to form a flywheel that is designed to build and provide key product support to surgeons and other stakeholders in the shoulder surgical care market, accelerate adoption, and enhance long-term retention. Our commercial organization is strategically focused on surgeons in hospital and ASC settings, with a particular focus on the high-volume surgeons who perform the vast majority of shoulder arthroplasty procedures each year.
We utilize third-party manufacturing and supply providers to manufacture our implants. We believe this outsourcing strategy provides the expertise and capacity required to effectively and efficiently scale production based on demand, and helps to ensure low-cost production and a capital efficient business model.
We have experienced significant growth in recent years, primarily driven by growth in our net revenue from the sale of our advanced implant systems sold.
Key Business Metrics
We regularly review a number of operating and financial metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate our business plan and make strategic decisions. We believe that the number of implant systems sold is a useful indicator of our ability to drive demand for our implant systems, generate net revenue and expand our business. The following table sets forth the number of implant systems sold in each of the three-month periods indicated:
Three Months Ended
Mar. 31,
2024 		June 30, 2024 Sept. 30,
2024 		Dec. 31,
2024 		Mar. 31,
2025 		June 30, 2025
Sept. 30,
2025
Dec. 31,
2025
Implant systems sold 971 1,121 1,037 1,220 1,443 1,503 1,584 1,976
While we believe that the number of implant systems sold is a useful indicator and is helpful in tracking the progress of our current business, we anticipate this metric may be substituted for additional or different metrics as our business continues to grow and scale.
Key Factors Affecting Our Results of Operations
We believe the following important factors have impacted and will continue to impact our results of operations for the foreseeable future. While these factors may present significant opportunities for us, they also pose risks and challenges that we must address, as well as those described in the section titled "Risk Factors."
•Market awareness and adoption.The growth of our business depends on our ability to generate broader awareness of our ecosystem in an effort to drive adoption by new surgeons and to increase utilization by existing surgeons. To drive adoption, our commercial organization is strategically focused on surgeons in hospital and ASC settings, and leverages our internal business intelligence platform to appropriately target surgeons in the shoulder surgical care market. The organization uses key touchpoints, surgeon support and surgeon education initiatives to deliver high quality services and information to surgeons. We are also focused on supporting surgeons that already use our implant systems in order to further increase utilization. We intend to continue scaling our commercial organization to further drive awareness, adoption and demand. Over time, we expect to further expand and utilize our external network of independent distributors. In the future, we may increase our international presence and any such expansion may adversely affect our gross margin and results of operations. Our financial performance will be significantly impacted by the extent to which we can increase awareness of our ecosystem, as well as the timing and rate of adoption of our implant systems by key stakeholders in the shoulder surgical care market.
•Increasing importance of outpatient and ASC settings.While our ecosystem provides advantages across all shoulder surgical care settings, we believe we are particularly well positioned to address the increasing importance of outpatient and ASC settings. The number of procedures performed in outpatient and ASC settings has increased over time due to both the transition of such procedures from the hospital setting, as well as from a general increase in the number of total procedures performed, due in part to the access and availability of these settings. We generally derive a similar amount of net revenue from procedures whether they are performed in a hospital or an ASC. As a result, we believe outpatient and ASC settings represent an important and growing opportunity to drive demand and net revenue.
•Continued investments in product development, innovation and growth.We expect to continue to focus on long-term revenue growth through investments in our ecosystem and expansion of our operations. In research and development, we continually invest in improving our technologies, developing new products and further expanding our cleared indications. For example, we began using ProVoyance in 2021 and have developed a fracture-specific system, a revision solution and implants tailored for patients with metal-hypersensitivity. We also believe our ecosystem can be further expanded to address adjacent markets, such as sports medicine and trauma. We anticipate we will continue to invest significantly in product development, including with respect to our supporting technologies, in order to further bolster our ecosystem. While research and development are time consuming and costly and therefore negatively impact our results of operations in the near term, we believe expanding into new areas, implementing product improvements and continuing to demonstrate the efficacy, safety and cost effectiveness of our products through clinical data and surgeon education are all critical to increasing the adoption of our implant systems and to the success of our business over the long term. As we expand our operations in line with our anticipated growth, we will be required to maintain sufficient levels of inventory and instrumentation to meet our estimated demand, which we expect will increase expenses.
•Reimbursement and coverage.Healthcare providers generally rely on third-party payors, including federal Medicare, state Medicaid and private health insurance plans, to cover and reimburse all or part of the cost of our implant systems. As a result, demand for our implant systems depends in large part on the availability of reimbursement from such payors and the rates that such payors reimburse for procedures using our implant systems, which can vary due to geographic location, nature of facility in which the procedure is performed and other factors. While we benefit from established reimbursement practice and codes applicable to partial and total shoulder arthroplasty, we also work with payors to ensure positive coverage decisions and payment rates in
outpatient settings. Effective as of January 1, 2024, Centers for Medicare and Medicaid Services ("CMS") added total shoulder arthroplasty to the ASC covered procedures list, which allows procedures that use our implant systems to be performed at ASCs and be reimbursed by Medicare. We believe this decision helped to improve demand from ASCs and supported improved payment rates in outpatient settings for the year ended December 31, 2025, which had a positive impact on net revenue during the period. We expect this trend to continue and further support our growth in outpatient settings, such as ASCs.
•Seasonality. We have experienced and expect to continue to experience seasonality in our business. While we have experienced significant growth across quarters, we expect that future demand for our advanced implant systems will typically be lower in the months in and surrounding the third calendar quarter, as is common across our industry, as a result of summer seasonality associated with warmer weather and its corresponding impact on individual lifestyles.
Non-GAAP Financial Measures
In addition to our results and measures of performance determined in accordance with U.S. GAAP, we believe that non-GAAP financial measures can be useful in evaluating and comparing our financial and operational performance over multiple periods, identifying trends affecting our business, formulating business plans and making strategic decisions. We use and present Adjusted EBITDA for these purposes. We define Adjusted EBITDA as net loss before interest expense, net, income tax expense, depreciation and amortization, and stock-based compensation expense.
We believe that Adjusted EBITDA, together with a reconciliation to net loss, provides meaningful supplemental information regarding our performance by excluding certain items that may not be indicative of our business, results of operations, or outlook. However, Adjusted EBITDA has limitations as an analytical tool, and you should not consider this measure in isolation or as a substitute for analysis of our financial results as reported under U.S. GAAP. Some of these potential limitations include:
•other companies, including companies in our industry which have similar business arrangements, may report Adjusted EBITDA, or similarly titled measures but calculate them differently, which reduces their usefulness as comparative measures;
•although depreciation and amortization expenses are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditures for such replacements or for new capital expenditure requirements;
•Adjusted EBITDA also does not reflect changes in, or cash requirements for, our working capital needs or the potentially dilutive impact of stock-based compensation; and
•Adjusted EBITDA does not reflect the interest expense, or the cash requirements necessary to service interest or principal payments, on existing or future debt that we may incur.
Because of these and other limitations, you should consider Adjusted EBITDA only as supplemental to other GAAP-based financial measures.
The following table presents a reconciliation of Adjusted EBITDA to the most comparable GAAP financial measure, net loss, for each of the periods indicated:
Year Ended
December 31,
2025 2024
Net loss $ (40,359) $ (15,619)
Interest expense, net 70 1,316
Income tax expense - -
Depreciation and amortization expense 3,208 2,196
Stock-based compensation expense 996 754
Adjusted EBITDA $ (36,085) $ (11,353)
Components of Our Results of Operations
Net Revenue
We currently derive our net revenue from the sale of our Anatomic Total Shoulder Arthroplasty ("aTSA") and Reverse Total Shoulder Arthroplasty ("rTSA") implant systems, which generally consist of our InSet Glenoid and humeral stem products. We sell our implants to hospitals, outpatient centers and ASCs in the United States through a dedicated commercial leadership team and a network of external independent distributors. Net revenue is recognized when the performance obligation to deliver these implant systems to our customers is satisfied and we transfer control of the implants to our customers, which is generally when we have received a purchase order and appropriate notification that the procedure has been used or implanted. Revenue is recognized in the amount of the consideration received net of any sales taxes that we expect to collect from customers. We also record shipping and handling costs as revenue. Our average sales price for our implant systems was $7,273 and $7,271 for the years ended December 31, 2025 and 2024, respectively. No single customer accounted for more than 10% of our net revenue during the years ended December 31, 2025 and 2024. We expect our net revenue to increase for the foreseeable future as we expand our commercial organization, add new customers, expand our sales territories, introduce new products, as existing customers perform more procedures using our systems and as we generally expand awareness of our systems with new and existing customers. While industry trends have resulted in increased downward pricing pressure on medical services and products, we have not experienced a material impact on our net revenue to date; however, we cannot assure you that our net revenue will not be impacted in the future by these industry trends. Our net revenue may fluctuate from quarter to quarter due to a variety of factors, such as the size and success of our dedicated commercial leadership team, the number of hospitals and physicians who are aware of and use our systems and seasonality.
Cost of Goods Sold, Gross Profit and Gross Margin
Cost of Goods Sold
Cost of goods sold consists primarily of the cost of components, packaging and sterilization, and obsolete inventory adjustments. Our systems are manufactured to our specifications primarily by third-party suppliers in the United States and are generally ordered on a purchase order basis. Cost of goods sold is recognized at the time the related revenue is recognized. Prior to use in surgery, the cost of our products is recorded as inventories, net of obsolescence reserve on our Balance Sheets. Cost of goods sold does not include depreciation expense for instruments, which is included in selling, general and administrative expenses. Depreciation expense for instruments was $2,908 thousand and $1,896 thousand for the years ended December 31, 2025 and 2024, respectively. See Note 4 to our audited financial statements included elsewhere in this Annual Report for additional information. We expect cost of goods sold to increase as our net revenue increases and more of our implant systems are sold.
Gross Profit and Gross Margin
Gross profit is calculated as net revenue less cost of goods sold. We calculate gross margin as gross profit divided by net revenue. Our gross margin has been and will continue to be affected by a variety of factors, including average selling prices, sales mix for our implant systems, costs associated with third-party manufacturing, seasonality of our business and costs of other services. We expect our gross margin to remain consistent for the foreseeable future as our net revenue grows and our related costs of goods sold increases.
Operating Expenses
Our operating expenses consist of (i) selling, general and administrative expenses and (ii) research and development expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of personnel costs, including commissions, salaries, bonuses, benefits and stock-based compensation related to personnel performing selling, marketing and general and administrative functions, including the costs associated with marketing initiatives and medical education programs. All of our stock-based compensation charges are included in selling, general and administrative expenses. In addition, selling, general and administrative expenses include depreciation expense for instruments, royalty payments made to product design surgeons, royalty payments made pursuant to our License Agreement (as defined below), travel expenses, professional services fees (including consulting, legal, finance, audit and tax fees), insurance costs, allocated facility expenses and other general corporate expenses.
We expect our selling, general and administrative expenses to continue to increase for the foreseeable future as we continue to grow our business and increase our utilization of internal and external resources within our commercial organization. As we continue to invest in growth, we will be required to maintain significant levels of instrumentation, which we expect to increase our selling, general and administrative expenses. Furthermore, the royalty payments made pursuant to our License Agreement will increase as our net revenue increases. Additionally, we anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with being a public company, compliance with exchange listing and SEC requirements, director and officer insurance premiums and investor relations costs. We also expect to see an increase in our stock-based compensation expense with the establishment of a new publicly-traded company equity plan and to the extent of grants in the form of restricted stock units or options.
Research and Development Expenses
Research and development expenses consist of costs incurred in performing or for the outsourcing of various research and development activities, including consulting fees and other expenses paid related to such activities, costs associated with our registry, any future clinical trial costs and costs related to prototypes and related supplies related to our research and development efforts. We maintain a procedurally focused approach to product development and have projects underway to add new systems and implants across multiple shoulder indications and to add additional functionality or versatility to our existing systems. We expect our research and development expenses to increase as we pursue development of new products and product enhancements.
Other Expense
Our other expense consists of (i) interest expense, net, (ii) change in fair value of Series E purchase option, (iii) change in fair value of convertible notes, net, and (iv) other expense (income), net.
Interest Expense, Net
Interest expense, net consists of interest expense related to our term loan facility (the "Trinity Loan Agreement") with Trinity Capital Inc. ("Trinity Capital"), interest expense related to our convertible notes, and non-cash interest related to the amortization of debt discount, issuance costs and deferred interest associated with our indebtedness, as well as interest income earned on our cash, cash equivalents and marketable securities.
Other Expense (Income), Net
Other expense (income), net consists primarily of adjustment in the fair market value of marketable securities and change in fair value of warrant liabilities.
Change in Fair Value of Warrant Liabilities
Change in fair value of warrant liabilities consists of gains and losses resulting from the remeasurement of the fair value of our warrant liabilities at each balance sheet date. During the third quarter of 2025 and upon completion of the Company's IPO, a final remeasurement of the fair value of the warrant liability was made and the warrants were reclassified to equity within the additional paid-in capital line item.
Results of Operations
Comparison of Years Ended December 31, 2025 and 2024
The following table sets forth the components of our statements of operations for the periods presented below:
Year Ended
December 31, 		Change
2025 2024 $ %
($ in thousands)
Net revenue $ 47,317 $ 31,623 $ 15,694 49.6 %
Cost of goods sold 11,115 7,282 3,833 52.6 %
Gross profit 36,202 24,341 11,861 48.7 %
Operating expenses:
Selling, general and administrative expenses(1)
54,768 34,505 20,263 58.7 %
Research and development expenses 7,731 4,489 3,242 72.2 %
Total operating expenses 62,499 38,994 23,505 60.3 %
Operating loss (26,297) (14,653) (11,644) 79.5 %
Other expense
Interest expense, net 70 1,316 (1,246) (94.7) %
Change in fair value of convertible notes, net
2,217 - 2,217 *
Change in fair value of Series E purchase option 11,719 - 11,719 *
Other (income) expense, net
56 (350) 406 (116.0) %
Total other expense 14,062 966 13,096 *
Loss before income tax expense (40,359) (15,619) (24,740) 158.4 %
Income tax expense - - - -
Net loss $ (40,359) $ (15,619) $ (24,740) 158.4 %
__________________
(1)Includes stock-based compensation expense of $996 thousand and $754 thousand for the years ended December 31, 2025 and 2024, respectively.
*Not meaningful
Net Revenue.Net revenue increased $15,694 thousand, or 49.6%, to $47,317 thousand for the year ended December 31, 2025, compared to $31,623 thousand for the year ended December 31, 2024. The increase in net revenue was due to an increase in the number of implant systems sold, as well as an increase in the number of customers.
Cost of Goods Sold and Gross Margin.Cost of goods sold increased $3,833 thousand, or 52.6%, to $11,115 thousand for the year ended December 31, 2025, compared to $7,282 thousand for the year ended December 31, 2024. This increase in cost of goods sold was primarily due to the increase in the number of our systems sold. Gross margin for the year ended December 31, 2025 decreased to 76.5%, compared to 77.0% for the year ended December 31, 2024.
Selling, General and Administrative Expenses.Selling, general and administrative expenses increased $20,263 thousand, or 58.7%, to $54,768 thousand for the year ended December 31, 2025, compared to $34,505 thousand for the year ended December 31, 2024. This increase in selling, general and administrative expenses was primarily due to a $7,365 thousand increase in personnel-related expenses as a result of increased headcount of our commercial organization, a $5,074 thousand increase in commissions and sales related costs due to higher sales of our systems, a $2,447 thousand increase in general corporate costs such as information technology, business development and insurance costs, a $4,365 thousand increase in legal, accounting, and professional services fees related and a $1,012 thousand increase in depreciation of surgical instruments.
Research and Development Expenses.Research and development expenses increased $3,242 thousand, or 72.2%, to $7,731 thousand for the year ended December 31, 2025, compared to $4,489 thousand for the year ended December 31, 2024. The increase in research and development expenses was due to our investment in new product development efforts, including an increase in external consulting fees of $1,888 thousand related to such efforts.
Interest Expense, Net.Interest expense, net decreased $1,246 thousand, or 94.7%, to $70 thousand for the year ended December 31, 2025, compared to $1,316 thousand for the year ended December 31, 2024. This decrease in interest expense, net was due to higher interest earned on marketable securities.
Change in fair value of convertible notes. Change in fair value of convertible notes was $2,217 thousand for the year ended December 31, 2025, compared to $0 for the year ended December 31, 2024. The convertible notes were entered into during the third quarter of 2025 and converted into shares of the Company's common stock upon completion of the Company's IPO. The increase resulted from recognition of the fair value change between issuance and the completion of the IPO. There were no convertible notes in 2024.
Change in fair value of Series E purchase option. Change in fair value of Series E purchase option was $11,719 thousand for the year ended December 31, 2025, compared to $0 for the year ended December 31, 2024. The Series E purchase option was issued in connection with the Company's Series E preferred stock financing entered into during the first quarter of 2025. The increase resulted from recognition of the fair value change between issuance and the exercise of the Series E preferred stock purchase option in June 2025. There was no purchase option in 2024.
Other Expense (income), Net.Other expense, net increased by $406 thousand to $56 thousand for the year ended December 31, 2025, compared to other income, net of $350 thousand for the year ended December 31, 2024. This increase in other expense, net was due to a decrease of $269 thousand in gain on investment and an increase of $137 thousand in expense related to changes in the fair value of our preferred stock warrant liability.
Liquidity and Capital Resources
To date, our primary sources of capital have been from net revenue received from the sale of our implant systems, the sale of common stock in our IPO, proceeds from private placements of our convertible preferred stock and debt financing arrangements. On August 1, 2025, we completed our IPO, selling 5,000,000 shares of our common stock at $15.00 per share. Upon completion of our IPO, we received net proceeds of approximately $64,212 thousand, after deducting underwriting discounts and commissions and offering expenses. Since inception, we have raised a total of $114,600 thousand in net proceeds from private placements of our convertible preferred stock. As of December 31, 2025, we had cash, cash equivalents and marketable securities of $124,305 thousand and $15,000 thousand of principal outstanding under our Trinity Loan Agreement.
We have generated losses from our operations since our inception as reflected in our accumulated deficit of $97,400 thousand as of December 31, 2025. Our losses primarily resulted from the costs incurred in the development, sales, and marketing of our systems and providing support for our operations. We expect to continue to incur losses for the foreseeable future and to expend significant amounts of cash for the foreseeable future as we continue to scale our business, increase selling, general and administrative expenses to support the expansion of our commercial organization and efforts, increase general and administrative expenses to support being a publicly-traded company and invest in research and development activities.
Indebtedness
On August 7, 2023, we entered into the Trinity Loan Agreement, as amended on July 21, 2025, with Trinity Capital, as administrative agent and collateral agent (in such capacities, the "Agent") and as a lender, and the other lenders from time to time party thereto, providing for term loans of up to an aggregate principal amount of $45,000 thousand, available in three tranches: (i) a $15,000 thousand tranche that was fully funded on the August 7, 2023, (ii) a $15,000 thousand tranche that expired on December 31, 2025 and (iii) a $15,000 thousand tranche available through December 31, 2026. The availability of the third tranche is subject to, among other things, our achievement of at least $45,000 thousand of annualized tailing six-month revenue by December 31, 2026. In connection with the Trinity Loan Agreement, as amended on July 21, 2025, we issued a warrant to purchase 87,157 shares of our Series D convertible preferred stock to Trinity Capital. Upon completion of the Company's IPO the warrants converted to warrants to purchase shares of the Company's common stock. The warrant has an exercise price of $10.33 per share and expires ten years from the date of its issuance. As of December 31, 2025, the aggregate outstanding principal balance under the Trinity Loan Agreement was $15,000 thousand. Additionally, the second tranche expired on December 31, 2025, prior to Company drawing on the tranche.
The term loans under the Trinity Loan Agreement bear interest at an annual rate equal to the greater of the prime rate plus 3.50% and 11.00%. Under the terms of the Trinity Loan Agreement, the prime rate is equal to the greater of 8.0% per year and the prime rate as reported in The Wall Street Journal. We are required to make monthly payments of interest only through maturity of the term loans on September 1, 2028 ("Maturity Date"). The unpaid balance of principal and accrued interest is due on the Maturity Date. The Trinity Loan Agreement provides that we can at any time prepay the term loans,
in whole or in part, subject to a prepayment premium equal to: (i) 2.50% of the then-outstanding principal amount of the term loans, if such prepayment occurs on or prior to the first anniversary of the Trinity Loan Agreement; (ii) 1.50% of the then-outstanding principal amount of the advance, if such prepayment occurs after the first anniversary of the Trinity Loan Agreement and on or prior to the second anniversary of the Trinity Loan Agreement; and (iii) 1.00% of the then-outstanding principal amount of the advance, if such prepayment occurs after the second anniversary of the Trinity Loan Agreement and prior to the Maturity Date. We are required to make an end of term payment equal to 3.00% of the aggregate principal amount of the term loans funded on the earlier of (i) the Maturity Date, (ii) the date that we prepay all of the outstanding principal in full or (iii) the date of acceleration of the balance of the outstanding term loans by the Agent. The term loans are secured by substantially all our assets, including intellectual property.
The Trinity Loan Agreement also includes customary affirmative and negative covenants and events of default. Upon the occurrence and continuance of an event of default the Agent may demand immediate repayment of all principal and unpaid interest under the Trinity Loan Agreement, and exercise remedies against us and the collateral securing the Trinity Loan Agreement. Events of default under the Trinity Loan Agreement include, among other things: (i) insolvency, bankruptcy or similar proceedings subject to a certain grace period in respect of any involuntary insolvency, bankruptcy or similar proceedings; (ii) failure to pay any debts due under the Trinity Loan Agreement or other loan documents on a timely basis; (iii) failure to observe any covenant or secured obligation under the Trinity Loan Agreement, subject to a certain cure period; (iv) occurrence of a material adverse change; (v) material misrepresentations; (vi) occurrence of any default under any material agreement (or termination thereof) or any other agreement resulting in a right by the applicable third party to accelerate debt in excess of $500 thousand; (vii) entry of certain final, non-appealable judgments against us in excess of $500 thousand not paid or bonded within 10 days of such entry; (viii) a change of control unless as a condition to the closing of such change of control all outstanding term loans will be paid in full; and (ix) certain changes in the composition of board of directors.
As of December 31, 2025, we were in compliance with all covenants contained in the Trinity Loan Agreement.
Future Funding Requirements
Based on our current operating plan, we believe that the expected cash generated from the sale of our systems, our existing cash, cash equivalents and marketable securities and amounts under our Trinity Loan Agreement, will be sufficient to fund our planned operating expenses and capital expenditure requirements for at least 12 months from the date hereof. We have based this estimate on assumptions that may prove to be wrong, and we could deplete our capital resources sooner than we expect. We may experience lower than expected cash generated from operating activities or greater than expected capital expenditures, cost of goods sold, or operating expenses, and may need to raise additional capital to fund operations, increase our commercial organization and efforts, further research and development activities, or acquire, invest in, or in-license other businesses, assets, or technologies.
Our future capital needs will depend upon many factors, including:
•the market awareness and adoption of our systems, including our InSet Glenoid and InSet humeral stem products;
•the scope, timing and costs of supporting the growth and expansion of our commercial organization and efforts;
•the cost and pace of our research and development activities;
•the costs associated with any product recall that may occur;
•the costs associated with the manufacture and supply of our products at increased production levels;
•the costs associated with securing additional suppliers and service providers;
•the scope, rate of progress and costs of our current or future clinical and registries as well as costs associated with complying with regulatory requirements;
•the cost and timing of additional regulatory clearances or approvals;
•the costs of attaining, defending, and enforcing our intellectual property rights;
•whether we acquire third-party products or technologies;
•the terms and timing of any other distribution, collaborative, licensing, and other arrangements that we may establish;
•the emergence of competing technologies or other adverse market developments;
•our ability to raise additional funds to finance our operations;
•debt service requirements;
•the rate at which we expand internationally; and
•the cost associated with being a public company.
We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. If we are unable to satisfy our liquidity requirements, including because of the risks described in this Annual Report, we may seek to raise any necessary additional capital through public or private equity offerings or debt financings, credit or loan facilities or a combination of one or more of these or other funding sources. Additional funds may not be available to us on acceptable terms or at all. If we fail to obtain necessary capital when needed on acceptable terms, or at all, we could be forced to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. If we raise additional funds by issuing equity securities or convertible debt, our stockholders will suffer dilution and the terms of any financing may adversely affect the rights of our stockholders. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. If we raise additional capital through collaborations agreements, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights, future revenue streams, research programs or product or grant licenses that may not be favorable to us. Debt financing, if available, is likely to involve restrictive covenants limiting our flexibility in conducting future business activities, and, in the event of insolvency, debt holders would be repaid before holders of our equity securities received any distribution of our corporate assets.
Cash Flows
The following table shows a summary of our cash flows for each of the periods presented:
Year Ended
December 31, 		Change
2025 2024 $ %
Net cash (used in) provided by:
Operating activities $ (28,612) $ (14,143) $ (14,469) 102.3 %
Investing activities (95,597) 13,964 (109,561) *
Financing activities 144,957 66 144,891 *
Net increase (decrease) in cash and cash equivalents
$ 20,748 $ (113) $ 20,861 *
__________________
*Not meaningful
Operating Activities
For the year ended December 31, 2025, net cash used in operating activities was $28,612 thousand, consisting primarily of a net loss of $40,359 thousand and net cash used by changes in our operating assets and liabilities of $6,751 thousand, partially offset by non-cash charges of $18,498 thousand. The non-cash charges primarily consisted of changes in the fair value of our preferred stock warrant liability and Series E purchase option of $11,975 thousand, depreciation and amortization expense of $3,208 thousand, change in fair value of convertible notes, net of $2,217 thousand, and stock-based compensation expense of $996 thousand. Net cash used by changes in our operating assets and liabilities primarily consisted of an increase of $7,636 thousand to inventory, an increase of $3,299 thousand in trade accounts receivable and an increase of $1,087 thousand in prepaid expenses, partially offset by an increase of $1,902 thousand in other current liabilities and an increase of $3,369 thousand in accounts payable.
For the year ended December 31, 2024, net cash used in operating activities was $14,143 thousand, consisting primarily of a net loss of $15,619 thousand, partially offset by non-cash charges of $2,513 thousand and net cash provided by changes in our operating assets and liabilities of $1,037 thousand. The non-cash charges primarily consisted of depreciation and amortization expense of $2,196 thousand and stock-based compensation expense of $754 thousand, partially offset by realized gain on marketable securities of $482 thousand. Net cash used by changes in operating assets and liabilities primarily consisted of an increase of $4,032 thousand in inventory, partially offset by an increase of $3,124 thousand in accounts payable.
Investing Activities
For the year ended December 31, 2025, net cash used in investing activities was $95,597 thousand, consisting primarily of purchases of $119,491 thousand in marketable securities and $7,408 thousand in fixed assets purchases, partially offset by proceeds of $31,302 thousand from sales of our marketable securities.
For the year ended December 31, 2024, net cash provided by investing activities was $13,964 thousand, consisting primarily of the cash proceeds of $23,260 thousand from sales of our marketable securities, partially offset by purchases of $5,281 thousand in marketable securities and $4,015 thousand in fixed assets purchases.
Financing Activities
For the year ended December 31, 2025, net cash provided by financing activities was $144,957 thousand, consisting of proceeds of $64,212 thousand from the issuance of common stock, net of commissions and issuance costs from the Company's IPO, proceeds of $39,863 thousand from the issuance convertible notes net of issuance costs, proceeds of $39,508 thousand from the issuance and sale of shares of our Series E convertible preferred stock, proceeds of $919 thousand from the exercise of common stock options and $455 thousand proceeds from the exercise of warrants for our Series Seed and Series B preferred stock.
For the year ended December 31, 2024, net cash provided by financings activities was $66 thousand, consisting of $66 thousand from proceeds from the exercise of common stock options.
Contractual Obligations and Commitments
Our contractual commitments will have an impact on our future liquidity. These commitments include future payments on our Trinity Loan Agreement, future payments on facility leases and certain royalty obligations. Where applicable, we calculate our obligation based on termination fees that can be paid to exit the contract.
Debt
The principal outstanding under our Trinity Loan Agreement was $15,000 thousand as of December 31, 2025, however, we are required to make monthly payments of interest only through September 2027. Following the interest-only period, we are required to make payments of interest and principal in monthly installments through maturity of the term loans on September 1, 2028.
Leases
We have entered into an operating lease for office space in Michigan. The lease has a five-year term, which commenced in July 2021 and is renewable for one additional five-year term upon expiration. We have entered into an operating lease for warehouse space in California. The lease has a three-year term, which commenced in March 2025 and is renewable for one additional one-year term upon expiration. As of December 31, 2025, the operating lease obligations under these operating leases were $125 thousand.
Royalties
On October 22, 2020, we entered into a software license agreement with Genesis Software Innovations, LLC ("Genesis Software"), which was amended and restated on June 10, 2025 and subsequently amended and restated on June 10, 2025 (as amended and restated, the "License Agreement"), pursuant to which we are required to pay Genesis Software certain payments, including royalty payments, until such time we have paid Genesis Software an aggregate of $7,000 thousand under the License Agreement. As of December 31, 2025, we have paid an aggregate of $5,687 thousand of the total $7,000 thousand, including royalties of $1,641 thousand and $1,169 thousand in the years ended December 31, 2025 and 2024, respectively.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements or any relationships with unconsolidated entities or financial partnerships, such as structured finance, special purpose entities, or variable interest entities, that were established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenue, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
While our significant accounting policies are more fully described in Note 1 of our financial statements included elsewhere in this Annual Report, we believe the following discussion addresses our most critical accounting policies and estimates, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.
Revenue Recognition
Revenue is recognized as the performance obligations to deliver products are satisfied and are recorded based on the amount of consideration we expect to receive in exchange for satisfying the performance obligations. Our sales are recognized primarily when we transfer control to the customer, which is generally when we have received a purchase order and appropriate notification the product has been used or implanted. Products are primarily transferred to customers at a point in time.
Revenue represents the amount of consideration we expect to receive from customers in exchange for transferring products. Net revenue excludes sales taxes we collect from customers. Other costs to obtain and fulfill contracts are generally expensed as incurred due to the short-term nature of most of our sales. We extend terms of payment to our customers based on commercially reasonable terms for the markets of our customers, while also considering their credit quality. Shipping and handling costs charged to customers are included in net sales.
Our payment terms with customers are customary and vary by customer but typically range from 30 to 60 days. We have evaluated the terms of our arrangements and determined that they do not contain significant financing components.
Inventories
Inventories consist of finished goods purchased from third-party suppliers. Inventories are stated at the lower of average cost or net realizable value. We have applied these inventory cost valuation methods consistently from year to year. Two suppliers provide substantially all of our finished goods.
We record inventory reserves for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated net realizable value based upon the age of specific inventory on hand and assumptions about future demand and market conditions. Our inventory has an initial five year usable life and we maintain the ability to extend the usable life of inventory for an additional five years. As a result, our analysis focuses on to what extent inventory on hand is in excess of market demand, which requires assessment of various factors that require the use of judgment including forecasted sales, continued growth, impact of competitors' products and ensuring we maintain adequate inventory on hand. If actual conditions differ from our assumptions, adjustments to the reserve may be required.
Inventories presented on the balance sheets are net of reserves for estimated obsolescence or unmarketable inventory which were $845 thousand and $287 thousand as of December 31, 2025 and 2024, respectively. Our inventories as of December 31, 2025 included $465 thousand of inventories that, as of December 31, 2025, did not have material sales in the preceding twelve months. These inventories were primarily comprised of implants of less commonly used sizes that are within various implant families made available to surgeons at the time of surgery. These inventories are included in our analysis of our reserve for estimated obsolescence or unmarketable inventory. A portion of these inventories have been reserved for, and the remaining portion of these inventories are expected to be sold through our existing distribution network or in future markets.
Stock-Based Compensation
We measure all stock options based on their fair value on the date of the grant. Those awards typically have a graded vesting schedule and compensation expense for awards with only service conditions are recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective award. We have not issued any stock-based awards with performance-based or market-based vesting conditions.
We use the Black-Scholes option pricing model, which incorporates assumptions and estimates, to measure the fair value of its option awards on the date of grant of each stock option award. We determined the assumptions for the Black-Scholes option pricing model as discussed below. Each of these inputs described below is subjective and generally requires significant judgment to determine. Forfeitures were accounted for as they occurred.
•Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding. As we do not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term, the expected term of stock options granted has been determined using the simplified method, which is the average of the midpoints between the vesting date and the contractual term for all vesting tranches.
•Risk-Free Interest Rate. The risk-free interest rate is based on the rate of the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award.
•Expected Volatility. Because we do not have a trading history of our common stock, the expected volatility was derived from the average historical stock volatilities of several public companies within our industry that we consider to be comparable to our business over a period equivalent to the expected term of the stock-based award.
•Expected Dividend Yield. The expected dividend yield is zero as we have not paid and do not anticipate paying any dividends for the foreseeable future.
If any of the assumptions used in the Black-Scholes option pricing model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously. See Note 10 to our financial statements included elsewhere in this Annual Report for further details.
Determination of Fair Value of Warrant Liabilities
Given the absence of a public trading market to date, the fair value of our common stock has been determined by our board of directors at the time of issuance of warrants, with input from management, considering contemporaneous independent third-party valuations of common and preferred stock, and our board of directors' assessment of additional objective and subjective factors that it believed were appropriate.
Our common stock and preferred stock warrants require liability classification and accounting. The warrants are recorded at fair value upon issuance and are subject to remeasurement to fair value at each balance sheet date, with any changes in fair value recognized in other (income) expense, net. The fair value was estimated using a Black-Scholes option pricing model. The valuation model used incorporates significant assumptions and estimates, which include, but are not limited to, the fair value per share of the underlying shares, the remaining contractual term of the warrants, risk-free interest rate and expected volatility of the price of the underlying shares.
Recently Issued Accounting Pronouncements
See Note 1 to our financial statements included elsewhere in this Annual Report for a description of recent accounting pronouncements applicable to our financial statements.
Emerging Growth Company and Smaller Reporting Company Status
We are an emerging growth company, as defined in the JOBS Act. The JOBS Act permits an "emerging growth company" such as us to take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company; however, we may adopt certain new or revised accounting standards early. As a result, we will not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies and our financial statements may not be comparable to other public companies that comply with new or revised accounting pronouncements as of public company effective dates. The JOBS Act also exempts us from having to provide an attestation and report from our independent registered public accounting firm on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act.
We will remain an emerging growth company until the earliest of: (i) the last day of the fiscal year following the fifth anniversary of the consummation of this offering; (ii) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion; (iii) the last day of the fiscal year in which we are deemed to be a "large accelerated
filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; or (iv) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period.
We are also a "smaller reporting company" as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter. We cannot predict if investors will find our shares of common stock less attractive because we may rely on these exemptions. If some investors find our shares of common stock less attractive as a result, there may be a less active trading market for shares of our common stock and our share price may be more volatile.
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