Bioventus Inc.: Form 10-Q for the period ended Apr 2, 2022

The following discussion and analysis of Bioventus Inc.’s (sometimes referred to as “we,” “us,” “our” or “Bioventus”) financial condition and results of operations should be read in conjunction with the “Special Note Regarding Forward-Looking Statements” and our unaudited consolidated condensed financial statements and related notes thereto appearing elsewhere in this Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (SEC) on March 11, 2022 (2021 10-K).

Executive Summary

We are a global medical device company focused on developing and commercializing clinically differentiated, cost efficient and minimally invasive treatments that engage and enhance the body’s natural healing process. We operate our business through two reportable segments, U.S. and International, and our portfolio of products is grouped into three verticals:

• Pain Treatments is comprised of non-surgical joint pain injection therapies as well as peripheral nerve stimulation (PNS) products to help the patient get back to their normal activities.
• Surgical Solutions is comprised of bone graft substitutes (BGS) to fuse and grow bones, improve results following spinal and other orthopedic surgeries as well as minimally invasive ultrasonic medical devices used for precise bone sculpting, removing tumors and tissue debridement, in various surgeries.
• Restorative Therapies is comprised of a bone healing system, skin allografts and products used to support healing of wounds as well as devices designed to help patients regain leg or hand function due to stroke, multiple sclerosis or other central nervous system disorders.

The following table sets forth total net sales, net income and Adjusted EBITDA:

(1) See below under results of operations-Adjusted EBITDA for a reconciliation of net income to Adjusted EBITDA.

Strategic transactions

CartiHeal

On July 15, 2020, we entered into an Option and Equity Purchase Agreement (Option Agreement) with CartiHeal (2009) Ltd. (CartiHeal), a privately-held company headquartered in Israel and the developer of the proprietary Agili-C™ implant for the treatment of joint surface lesions in traumatic and osteoarthritic joint, and its shareholders. The agreement provides us with an exclusive option to acquire 100% of CartiHeal’s shares under certain conditions (Call Option), and provides CartiHeal with a put option that would require us to purchase 100% of CartiHeal’s shares under certain conditions (Put Option).

We exercised the Call Option in April 2022 for the acquisition of all the remaining shares of CartiHeal, excluding shares we already own, for approximately $314.9 million. An additional $135.0 million is payable contingent upon the achievement of $100.0 million in trailing twelve month sales. The Company’s decision to exercise the option follows the U.S. Food and Drug Administration’s March 29, 2022 premarket approval of CartiHeal’s Agili-CTM implant. In August, 2021, CartiHeal provided us with the required evidence of the Agili-CTM device clinical trial’s success demonstrating the superiority of the Agili-C implant over the surgical standard of care, including microfracture and debridement, for the treatment of cartilage or osteochondral defects, in both osteoarthritic knees and knees without degenerative changes. As a result, we had deposited $50.0 million into escrow towards the potential purchase price of CartiHeal.

To fund the acquisition of CartiHeal, on April 26, 2022, we announced, subject to market conditions, an offering of senior notes in aggregate principal amount of $415.0 million due 2027 in a private offering. The net proceeds from the offering would also be used to repay a portion of outstanding borrowings under our amended and restated credit facilities. Concurrently with the bond offering, we intended to enter into an amendment to our credit facilities to, among other things, permit the incurrence of the notes and the consummation of the CartiHeal acquisition, modify the financial covenant, modify the capacity for additional unsecured indebtedness and add additional leverage-based step ups in the interest rate applicable to the loans. On April 26, 2022, we withdrew our bond offering due to unfavorable market conditions. We are exploring alternative financing options for the CartiHeal transaction.

B.O.N.E.S. Trial

We submitted a supplemental PMA to the FDA in December 2020 seeking approval of an expanded indication for EXOGEN, specifically, for the adjunctive treatment of acute and delayed metatarsal fractures to reduce the risk of non-union. This PMA supplement was based on and supported by clinical data in metatarsal fractures from the ongoing B.O.N.E.S. study. In April 2021, we received a letter from the FDA identifying certain deficiencies in the PMA supplement that must be addressed before the FDA can complete its review of the PMA supplement. The deficiencies include concerns about the data and endpoints from the B.O.N.E.S. study, and requests for re-analyses of certain data and provision of other information to support the findings. We are in the process of performing ancillary analysis on the data as requested by the FDA and remain engaged in discussions with the FDA to address the agency’s concerns. In addition, in December 2021, we completed the follow up of all patients in the scaphoid B.O.N.E.S. study. We plan on submitting a PMA supplement for this indication in the fourth quarter of 2022. We can give no assurance that we will be able to resolve the deficiencies identified by the FDA in a timely manner, or at all. Consequently, the FDA’s decision on the PMA supplements may be delayed beyond the time originally anticipated. Moreover, if our responses do not satisfy the FDA’s concerns, the FDA may not approve our PMA supplements seeking to expand the indications for use of EXOGEN in metatarsal and scaphoid fractures as proposed.

COVID-19 pandemic impact

Our business, results of operations and financial condition have been and may continue to be, materially impacted by fluctuations in patient visits and elective procedures and any future temporary cessations of elective procedures as a result of the COVID-19 pandemic and could be further impacted by delays in payments from customers, supply chain interruptions, extended “shelter-in-place” orders or advisories, facility closures or other reasons related to the pandemic. As of the date of this Quarterly Report on Form 10-Q, the extent to which COVID-19 could materially impact our financial conditions, liquidity or results of operations is uncertain.

To the extent COVID-19 disruptions continue to adversely impact our business, results of operations and financial condition, it may also have the effect of heightening risks relating to our ability to successfully commercialize newly developed or acquired products or therapies, consolidation in the healthcare industry, intensified pricing pressure as a result of changes in the purchasing behavior of hospitals and maintenance of our numerous contractual relationships.

Results of Operations

For a description of the components of our results of operations, refer to Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2021 10-K.

The following table sets forth components of our condensed consolidated statements of operations as a percentage of net sales for the periods presented:

22

The following table presents a reconciliation of net (loss) income to Adjusted EBITDA for the periods presented:

(in thousands)

(a) Includes for the three months ended April 2, 2022 and April 3, 2021, respectively, depreciation and amortization of $9,218 and $5,236 in cost of sales and $3,261 and $1,948 in operating expenses presented in the consolidated statements of operations and comprehensive (loss) income.

(b) Includes acquisition and integration costs related to completed acquisitions, amortization of inventory step-up associated with acquired entities, and changes in fair value of contingent consideration.

(c) Costs incurred during 2022 were the result of adopting acquisition related restructuring plans to reduce headcount, reorganize management structure and to consolidate certain facilities. Costs in 2021 primarily related to executive transitions.

(d) The three months ended April 2, 2022 includes compensation expense resulting from awards granted under the Company’s equity based compensation plans. The three months ended April 3, 2021 primarily includes the change in fair value of the liability-classified awards granted under the Management incentive plan (MIP) prior to the IPO, partially offset by compensation expense resulting from awards granted under the Company's equity based compensation plans in effect after its IPO.

(e) Represents CartiHeal equity investment losses.

(f) Includes realized and unrealized gains and losses from fluctuations in foreign currency.

(g) Other items primarily includes charges associated with strategic transactions, such as potential acquisitions, and public company preparation costs, which primarily includes accounting and legal fees.

We present Adjusted EBITDA, a non-GAAP financial measure, because we believe it is a useful indicator that management uses as a measure of operating performance as well as for planning purposes, including the preparation of our annual operating budget and financial projections. We believe that Adjusted EBITDA is useful to our investors because it is frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. We define Adjusted EBITDA as net income before depreciation and amortization, provision of income taxes and interest expense, adjusted for the impact of certain cash, non-cash and other items that we do not consider in our evaluation of ongoing operating performance. These items include acquisition and related costs, restructuring and succession charges, equity compensation, equity loss in unconsolidated investments, foreign currency impact, and other items. Adjusted EBITDA by segment is comprised of net sales and costs directly attributable to a segment, as well as an allocation of corporate overhead costs primarily based on a ratio of net sales by segment to total consolidated net sales.

Net sales

(in thousands, except for percentage)

23

U.S.

Net sales increased $29.5 million, or 39.6%, of which acquisitions contributed $23.1 million. Revenue also increased due to volume growth and total increases by vertical were: i) Pain Treatments—$10.1 million; ii) Restorative Therapies—$10.3 million; and iii) Surgical Solutions—$9.1 million.

International

Net sales increased $6.0 million, or 82.4%, of which acquisitions contributed $5.4 million. Revenue also slightly increased due to sales volume growth as revenue during the first quarter of 2021 was negatively affected by the economic impact of the COVID-19 pandemic.

Gross profit and gross margin

(in thousands, except for percentage)

U.S.

Gross profit increased $13.0 million, or 23.8%, primarily due to the increase in net sales. Gross margin decreased due to product mix including products introduced as a result of acquisitions. Gross margin was also negatively impacted by 4.0% from additional amortization of acquisition related assets in 2022 compared with the prior year.

International

Gross profit increased $3.1 million, or 63.7%, primarily due to the increase in net sales. Gross margin decreased due to product mix including products introduced as a result of acquisitions.

Selling, general and administrative expense

(in thousands, except for percentage)

Selling, general and administrative expenses increased $51.4 million, or 148.3%, primarily due to: i) an increase in equity-based compensation of $25.2 million, which includes a $23.4 million decrease in fair market value during 2021 of accrued equity-based compensation resulting from the difference between the pricing from the pending IPO and the actual offering price; ii) an increase in compensation related expenses of $16.9 million, primarily resulting from acquisitions; iii) an increase in consulting and travel related expenses of $4.1 million and iv) an increase of $1.2 million in corporate and employee health insurance primarily resulting from acquisitions.

Research and development expenses

(in thousands, except for percentage)

(NM = Not meaningful)

Research and development expense increased by $6.0 million primarily due to: i) an increase in equity-based compensation of $2.1 million, which includes a $1.8 million decrease in fair market value during 2021 of accrued equity-based compensation resulting from the difference between the pricing from the pending IPO and the actual offering price; ii) an increase of $1.8 million in consulting costs and iii) an increase of $1.4 million in compensation related expenses.

Restructuring costs

Restructuring costs of $0.6 million for the three months ended April 2, 2022 were incurred as a result of restructuring plans for recently acquired businesses to reduce headcount and to reorganize management structure.

Change in fair value of contingent consideration

The change in fair value of the Bioness contingent consideration of $0.3 million during the three months ended April 2, 2022 resulting from the change in present value of discounted cash flows due to the passage of time.

Depreciation and amortization

(in thousands, except for percentage)

Depreciation and amortization increased during three months ended April 2, 2022 compared with the prior year comparable periods primarily due to the acquisitions.

Other income

(in thousands, except for percentage)

Interest income, net decreased $1.3 million due to: i) the settlement of our equity participation right (EPR) liability in 2021 resulting in interest income of $2.8 million and ii) an increase of $0.8 million in interest expense as a result of our October 2021 debt refinancing. These changes were partially offset with a $2.4 million increase in interest income resulting from the change in the fair value of our interest rate swap.

Other expense decreased $0.4 million primarily due miscellaneous income and the impact of foreign currency.

Income tax expense

(in thousands, except for percentage)

Income tax benefit for the three months ended April 2, 2022 and April 3, 2021 was primarily due to net losses experienced during 2022 and the full quarter impact of the Up C partnership structure resulting from our IPO.

Noncontrolling interest

(in thousands, except for percentage)

Subsequent to the IPO and Transactions, we are the sole managing member of BV LLC in which we own 79.5%. We have a majority economic interest, the sole voting interest in, and control the management of BV LLC. As a result, we consolidate the financial results of BV LLC and report a non-controlling interest representing the 20.5% that is owned by the Continuing LLC Owner.

The decline in other noncontrolling interest resulted from our deconsolidation of Harbor upon the termination of the Collaboration Agreement during the second quarter of 2021. We ceased being the primary beneficiary upon termination as we no longer had the power to direct Harbor’s significant activities. Prior to the deconsolidation, our partial ownership and exclusive Collaboration Agreement with Harbor resulted in loss attributable to noncontrolling interest for the three months ended April 3, 2021 of $0.5 million.

Segment Adjusted EBITDA

Adjusted EBITDA for each of our reportable segments is as follows:

(in thousands, except for percentage)

U.S.

Adjusted EBITDA decreased $5.3 million or 52.7% primarily due to an increase in compensation related charges of $18.3 million previously discussed as well as higher public company costs, which was partially offset by a $13.0 million increase in gross profit.

International

Adjusted EBITDA increased $1.3 million primarily due to a $3.1 million increase in gross profit resulting from the increase in sales. This increase was partially offset by the increase in compensation related charges, consulting and travel related expenses.

Liquidity and Capital Resources

Sources of liquidity

Our principal liquidity needs have historically been for acquisitions, working capital, research and development, clinical trials, and capital expenditures. We expect these needs to continue as we develop and commercialize new products and further our expansion into international markets. We believe that our existing cash and cash equivalents, borrowing capacity under our revolving credit facility and cash flow from operations will be enough to meet our anticipated cash requirements for at least the next twelve months. However, we will require additional capital in order to consummate the CartiHeal acquisition, as discussed further in Part II, Item 1A. Risk Factors for additional information regarding additional capital needs.

We anticipate that to the extent that we require additional liquidity, we will obtain funding through the incurrence of other indebtedness, additional equity financings or a combination of these potential sources of liquidity. In addition, we may raise additional funds to finance future cash needs through receivables or royalty financings or corporate collaboration and licensing arrangements. If we raise additional funds by issuing equity securities or convertible debt, our stockholders will experience dilution. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, or making capital expenditures. If we raise additional funds through collaboration and licensing arrangements with third parties, it may be necessary to relinquish valuable rights to our products, future revenue streams or product candidates, or to grant licenses on terms that may not be favorable to us. The covenants under our credit agreement limit our ability to obtain additional debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Any failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies.

Initial public offering

On February 16, 2021, in connection with our IPO, we issued and sold 9,200,000 shares of our Class A common stock at a price to the public of $13.00 per share, resulting in gross proceeds to us of approximately $119.6 million, before deducting the underwriting discount, commissions and estimated offering expenses payable by us. Bioventus Inc. is a holding company and has no material assets other than the ownership of LLC Interests and has no independent means of generating revenue. Deterioration in the financial condition, earnings, or cash flow of BV LLC and its subsidiaries for any reason could limit or impair their ability to pay such distributions. In addition, the terms of our financing arrangements, including the 2019 Credit Agreement, contain covenants that may restrict BV LLC and its subsidiaries from paying such distributions, subject to certain exceptions. Further, BV LLC is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of BV LLC (with certain exceptions), as applicable, exceed the fair value of its assets. Subsidiaries of BV LLC are generally subject to similar legal limitations on their ability to make distributions to BV LLC. Bioventus Inc., as the managing member, causes BV LLC to make cash distributions to the owners of LLC Interests in an amount sufficient to (i) fund tax obligations in respect of allocations of taxable income from BV LLC and (ii) cover Bioventus Inc. operating expenses, including payments under the Tax Receivable Agreement (TRA).

Cash requirements

Except as provided below, there have been no material changes to our future cash requirements as disclosed in Part II, Item 7 of our 2021 10-K.

We enter into contracts in the normal course of business with various third parties for development, collaboration and other services for operating purposes. These contracts provide for termination upon notice. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service providers, up to the date of cancellation. Certain agreements include contingent events that upon occurrence would require payment. For information regarding Commitments and Contingencies, refer to Note 11. Commitment and contingencies in Part 1, Item 8. Financial Statements and Supplementary Data in this Quarterly Report on Form 10-Q for further information regarding other matters.

Tax Receivable Agreement

The BV LLC Agreement provides for the payment of certain distributions to the Continuing LLC Owner in amounts sufficient to cover the income taxes imposed with respect to the allocation of taxable income from BV LLC as well as obligations under the TRA. Under the TRA, we are required to make cash payments to the Continuing LLC Owner equal to 85% of the tax benefits, if any, that we actually realize (or in certain circumstances are deemed to realize), as a result of (1) increases in the tax basis of assets of BV LLC resulting from (a) any future redemptions or exchanges of LLC Interests, and (b) certain distributions (or deemed distributions) by BV LLC and (2) certain other tax benefits arising from payments under the TRA. We expect the amount of the cash payments required to be made under the TRA will be significant. The actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including the timing of redemptions or exchanges by the Continuing LLC Owner, the amount of gain recognized by the Continuing LLC Owner, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable. Any payments made by us to the Continuing LLC Owner under the TRA will generally reduce the amount of overall cash flow that might have otherwise been available to us. To the extent that we are unable to make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid; provided, however, that nonpayment for a specified period may constitute a material breach of a material obligation under the TRA and therefore accelerate payments due under the TRA.

CartiHeal

As disclosed above, we exercised the Call Option in April 2022 for the acquisition of all the remaining shares of CartiHeal, excluding shares we already own, for approximately $314.9 million. An additional $135.0 million is payable contingent upon the achievement of $100.0 million in trailing twelve month sales. We are currently exploring financing options in order to fund the CartiHeal acquisition. For additional information, see Part II, Item 1A. Risk Factors.

Credit Facilities

There have been no material changes to our outstanding indebtedness or the terms of and available borrowing capacity under our credit facilities as disclosed in our 2021 10-K. We were in compliance with all required financial covenants as of April 2, 2022.

Other

For information regarding Commitments and Contingencies, refer to Note 11. Commitments and contingencies and Note 3. Acquisitions and investments to the Notes to the Unaudited condensed consolidated financial statements of Part 1, Item 1. Financial Statements of this Form 10-Q.

Information regarding cash flows

Cash, cash equivalents and restricted cash as of April 2, 2022 totaled $82.7 million, compared to $99.2 million as of December 31, 2021. The decrease in cash was primarily due to the following:

(in thousands, except for percentage)

NM = Not Meaningful

Operating Activities

Net cash used in operating activities increased $3.0 million, primarily due to completed acquisitions and the resulting integration costs, higher employee compensation and increased operating costs. These outflows were partially offset by increased collections from higher sales.

Investing Activities

Cash flows used in investing activities decreased $42.0 million, primarily due to the $45.8 million acquisition of Bioness in 2021 partially offset with an increase of $1.6 million in capital expenditures.

Financing Activities

Cash flows provided by financing activities decreased $98.3 million, primarily due to the $110.4 million in net proceeds from the issuance of Class A common stock sold during our 2021 IPO. This was partially offset by a $15.0 million draw on our revolving credit facility in 2022.

Off-balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Contractual Obligations

There have been no material changes to our contractual obligations as disclosed in our 2021 10-K.

Critical Accounting Estimates

Our discussion of operating results is based upon the unaudited condensed consolidated financial statements and accompanying notes. The preparation of these statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Our critical accounting estimates are detailed in Item 7 of our 2021 10-K and we have no material changes from such disclosures.

Recently Issued Accounting Pronouncements

Refer to Note 1. Organization, in the Notes to the Unaudited condensed consolidated financial statements of Part 1, Item 1. Financial Statements of this Form 10-Q for detailed information regarding the status of recently issued accounting pronouncements.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of April 2, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, except for:

(1) Redesigning the claims workflow process and implementing claims workflow and patient collections software; and

(2) Finalization of the integration of Bioness, which included transitioning to Bioventus’ ERP system and related controls.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors and other cautionary statements described in Part I, Item 1A., Risk Factors included in our 2021 10-K, which could materially affect our businesses, financial condition, or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results. There have been no material updates to our Risk Factors presented in our 2021 10-K except for the following:

We may be unable to raise the capital necessary to complete the CartiHeal acquisition, and our ability to raise additional funds in the future may be limited.

On April 4, 2022, we exercised our call option to acquire CartiHeal (2009) Ltd., excluding the ownership interest already owned by us, for approximately $314.9 million, with an additional approximately $135.0 million payable contingent upon the achievement of $100.0 million in trailing twelve-month sales. To fund the acquisition of CartiHeal, on April 26, 2022, we announced, subject to market conditions, an offering of senior notes in aggregate principal amount of $415.0 million due 2027 (the Notes) in a private offering. The net proceeds from the offering would also be used to repay a portion of outstanding borrowings under our amended and restated credit facilities. On April 26, 2022, we withdrew our bond offering due to unfavorable market conditions and began to explore alternative financing options to complete the CartiHeal acquisition.

We believe that our current cash and cash equivalents, in combination with the borrowing availability under our credit facility and our expected cash from operations, will be sufficient to meet our projected operating requirements for at least the next twelve months. However, we will require additional capital in order to consummate the CartiHeal acquisition. As we seek additional funds from public and private stock offerings, borrowings under our existing or new credit facilities or other sources in order to fund the CartiHeal acquisition and other future initiatives related to the expansion of our business, such financing may not be available on acceptable or commercially reasonable terms, if at all. Further, such alternative sources of borrowing may be subject to the approval of the requisite lenders under our amended and restated credit facilities, which we may not be able to secure under reasonable terms.

Furthermore, if we issue equity or debt securities to raise additional capital, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, if we raise additional capital through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our products, potential products or proprietary technologies, or grant licenses on terms that are not favorable to us. If we cannot raise capital on acceptable terms, we may not be able to consummate the CartiHeal acquisition, which could hinder our ability to take advantage of this or potentially other future opportunities, or address other future unanticipated capital needs of our business, which could adversely affect our results of operations, financial condition and business.

If we are unable to consummate the CartiHeal transaction, we will incur substantial costs and may be subject to forfeiture of the $50.0 million advance paid into escrow or other legal action by the parties to that transaction.

In August 2021, we elected to make a $50.0 million escrow payment pursuant to our Option and Equity Purchase Agreement with CartiHeal (2009) Ltd. The Company’s decision came following its review of a statistical analysis report of the pivotal clinical trial of the Agili™-C implant, reimbursement coding analysis and significant market diligence including surgeon interviews with respect to Agili-C’s commercialization opportunity and ultimate market potential. Following premarket approval (PMA) by the Food and Drug Administration (FDA) of the Agili-C implant by CartiHeal, which was granted breakthrough device designation by the FDA, on April 4, 2022 we exercised our option to consummate the acquisition of CartiHeal. The closing of the CartiHeal transaction is subject to certain customary conditions.

If we are unable or elect not to consummate the CartiHeal transaction, under certain conditions, we may be forced to forfeit the $50.0 million we paid into escrow as an advance against the purchase price and redeem all of our equity currently held in CartiHeal without the payment of any consideration. We may also be subject to further legal action by CartiHeal and its stockholders. Any of these events would adversely affect our business, results of operations and financial condition.